The Chartered Accountant Journal • Arbitration • February 2021

Efficient Arbitration for Dispute Resolution

Navjot Singh Khurana* • Dr. Inderpreet Kaur**
*Senior Manager, GAIL (India) Ltd., New Delhi • **Assistant Professor, K.R. Mangalam University
Email: nskhurana@gail.co.in • eboard@icai.in
Citation: (2021) 69 CAJ 995–1001
Pages 95–101 • Journal Page Nos. 995–1001

Executive Perspective

Alternative Dispute Resolution (ADR) Mechanisms were introduced to rescue the condition of litigants from the overburdened courts. Arbitration, being alike to court litigation, gained tremendous popularity and academically acclaimed to be most cost-effective, speedy and flexible method. However, in reality, despite having lot of potential, arbitration is mostly denounced due to high cost, delays and also due to the fact that it has also becoming home to exaggerated claims. Since, arbitration is party-centric, this article has, while analysing the present situation, made an attempt to suggest certain valuable initiatives that are required to be adopted at the organizational level so as to build a robust pro arbitration environment to reap the inherent benefits of this mechanism. Read on…

1. Introduction & The ADR Paradox

‘Arbitration’ has been the preferred choice for dispute resolution among the contracting parties for many reasons such as:

  • Prescribed timelines to conclude the matter
  • Limited grounds to challenge the arbitration award
  • Deposit of awarded amount in courts while challenging the award and praying for stay
  • Court Fee is not involved
  • Award of arbitral cost upon winning the matter
  • Flexibility of procedure
  • Fixed fee of arbitrators
  • Less frightening for companies’ officials as compared to the court rooms
  • Interim stay with time-bound obligation to initiate arbitration, etc.

The International Arbitration Survey conducted in 2018 by White & Case LLP along with Queen Mary University of London also revealed that 99.08% of the respondents (in the study) are likely to select or endorse international arbitration for resolving cross-border disputes in future1.

Still, different courts, including the Apex court in India, have on number of occasions expressed its resentment towards the plight of arbitration and the disputing parties:

  • The Hon’ble Supreme Court had once stated that arbitration has become a ‘time consuming’ and ‘expensive’ mean of dispute resolution (Dolphin Drilling Ltd. v. ONGC2).
  • Even it has been commented by the Apex court that sometime the cost of arbitration exceeds the actual stake involved in the dispute (Union of India v. Singh Builders Syndicate3).
  • In the recent past, the Gujarat High Court showed its displeasure by stating: “the affairs of the arbitration have touched the state of nadir at the hands of those who care scant for ethics in litigating, where fairness to legal forums and faith in them are sine qua non” (Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah4).

Another major issue, which troubles the disputing parties under arbitration, is the value of claims and counter claims filed by each other. It has become a common tendency of the disputing parties in arbitration to park their inflated claims against each other irrespective of their genuineness.

Thus, such factors are definitely challenging the reputation of arbitration. So, is there any solution to bring things into a right track? Though, Legislature has been trying hard to sort out shortcoming in the arbitration law by introducing required amendments, however, unless some serious measures are suo motu adopted by the disputing parties (since it is a party-centric mechanism), the situation is not expected to improve. Accordingly, the present article has analysed how grave the above-mentioned issues have developed in the real life and what could be the possible solutions/initiatives which can be adopted by the parties.

2. High Cost and Delays in Arbitration

2.1 Problem Analysis

The Law Commission in the 246th Report noted that the major complaint regarding arbitration in our country (especially in the ad-hoc arbitration) is the fact that high fee is involved in the process wherein arbitrators are fixing “arbitrary, unilateral and disproportionate fee”5.

Ironically, Arbitration mechanism (as a mode of ADR) was introduced as alternate to court litigation, since the latter was labelled as uneconomical and cost-intensive and it was believed that Arbitration can bring down the cost and time involved in the settlement of disputes and thereby provide an effective way to decongest the courts. It is also observed that the expenses incurred in the courts are far too economical as compared to the expenses incurred in arbitration considering the number of cases for which such expenses are incurred.

Primary Drivers of High Cost and Delays in Arbitration:

  1. Venue Costs: Venue is required to be arranged by the disputing parties (in Ad-hoc arbitration mainly), which enhances the overall cost.
  2. High Arbitral Fees: High Fee being charged by arbitral tribunal, since many arbitrators are still not inclined to follow the model fee structure prescribed under the Arbitration and Conciliation Act, 1996 (the “Act”).
  3. Legal Representation Charges: Advocates, Law Firms and Senior Advocates’ fee (most Advocates, Law Firms and Senior Advocates charge relatively high fee for handling arbitration matter).
  4. Dual Session Billings: Arbitrators and Senior Advocates normally charge as per two hearings in case hearing continues for longer duration.
  5. Institutional Overhead: Administrative expenses of arbitral institutions (in Institutional arbitration).
  6. Miscellaneous Costs: Miscellaneous expenses (including expenses related to arrangement of stenographers, secretarial support, refreshments, etc.).

2.2 Required Initiatives to Tackle High Cost and Delays in Arbitration

There are some practical ways to make Arbitration cost effective and expeditious. By adopting following practices, parties to the dispute not only can reduce the expenses incurred during the Arbitration but can also actually expedite the dispute settlement process:

i) Proper Selection and Fee Fixation of Advocate and Senior Advocate:

There is a dearth of focused arbitration lawyers in India. Justice B. N. Srikrishna Report has even suggested for developing an arbitration bar comprised of well-trained advocates6. It is important to engage an advocate who can devote sufficient time and attention in the arbitration matter and has manageable caseload. Further, it is important that the fees of the advocate should be decided and negotiated at the beginning of the matter. Capping of the fee or the manhours till the conclusion of the arbitration matter is essential.

Further, considering the criticality of the matter, where complex legal issues, facts and high stakes are involved, the engagement of senior advocates becomes inevitable. The fees being charged by senior advocates are much higher than dealing advocates, which normally ranges between ₹ 1 Lakh to ₹ 25 Lakhs per appearance7. Therefore fee structure of the senior advocate needs to be discussed and negotiated at the time of their engagement itself.

ii) Careful Drafting of Arbitration Clause:

Mostly, commercial departments are more concerned in the development of relation between the parties and negotiating commercial terms by compromising on other provisions not relevant for them. Accordingly, arbitration clause is just randomly copy-pasted or loosely drafted to hurriedly close the deal and obtain signatures. Later, upon initiation of dispute, such recklessly and loosely drafted language of the arbitration clause may create high complications, requiring parties to spend considerable time and cost litigating before courts to interpret the clause.

Recommended Safeguards:

  • Institutional Arbitration: Renowned arbitral institutions provide model arbitration clauses (ICC, LCIA, SIAC)8. It is always prudent to incorporate standard model clauses to eliminate ambiguity.
  • Ad-hoc Arbitration: The dispute resolution clause should be drafted or thoroughly vetted by experienced legal experts.
iii) In-house Dispute Settlement Mechanism:

Unlike where parties are habitual litigants, the expenses, fatigue and stress involved in the adversarial mechanism may force parties to sit across the table and settle differences. It is advisable to keep an open mind and be prepared to set aside emotions. Companies may decide to set up an internal mechanism of conciliation as per Part III of the Act to take up and settle disputes. This brings finality while preserving commercial relationships.

iv) Strict Monitoring of Cases:

Devise a mechanism to review arbitration matters on a regular basis by senior management. Review brings forward progress details, fees paid to counsel and arbitrators, and aids future strategy. Since arbitration is not strictly bound by the Indian Evidence Act and the Code of Civil Procedure, decisions can simplify procedure (e.g. relying upon documents on record rather than unnecessarily leading oral evidence for quick disposal). Periodic reviews should be conducted by a committee of senior officers and functional directors.

v) Corporate Litigation Policy:

A well-structured litigation policy clearly defines roles and responsibilities of different departments in handling dispute resolution. Around 61% of companies in India have established a formal Dispute Resolution Policy (PwC Survey9):

PwC Survey: Indian Companies with Dispute Resolution Policy:
• Yes: 61% • No: 36% • Not Sure: 3%
vi) Selection of Right Arbitrator:

Wrong selection of an arbitrator leads to deep trouble – proceedings may be delayed, mishandled, or biased. Companies should conduct thorough research on expertise, temperament, and professionalism, taking unbiased suggestions from panel lawyers devoid of personal or commercial interests.

vii) Thorough Study of the Arbitral Award:

A study indicates that resolving post-award challenges under Section 34 consumes approximately 24 months in lower courts, 12 months in High Courts, and 48 months in Supreme Court – averaging a staggering 2,508 days to finally settle disputes post-award10. Blindly challenging awards is self-defeating. While courts now cautiously admit Section 34 petitions (e.g. SEAMEC Ltd. v. Oil India Ltd.11), management must pragmatically evaluate chances of success and comply with awards where merits are weak.

3. Frivolous and Exaggerated Claims Involved in Arbitration

3.1 Gravity of the Problem

It was reported in the recent past that National Hydro Power Corporation (NHPC), a major CPSE in India, faced disputed claims of around ₹ 10,000 crores, which was double its annual revenue12. Such astronomical claims dangling above corporations act like a Sword of Damocles.

Root Causes of Inflated Claims in Arbitration:

  • Absence of Upfront Ad-Valorem Court Fees: In civil suits, plaintiffs must pay substantial ad-valorem court fees (e.g., filing a recovery suit of ₹ 40 crores requires approximately ₹ 40 Lakhs in court fees under High Court schedules13). In arbitration, there is no requirement of upfront court fees, encouraging unrestrained claims.
  • Coercive Tactical Strategy: Inflated claims are strategically filed to factor in delayed decisions and ancillary costs14, scare the counterparty, and coerce them into settlement15.
  • Counsel Fee Incentives: Some legal counsels remain inclined to inflate claim amounts to justify higher fee structures and prolong proceedings for sustained revenue.

3.2 Required Initiatives to Tackle Frivolous and Exaggerated Claims

i) Imposition of Exemplary Costs & Deterrence Mechanisms:

Tribunals must levy exemplary costs upon dismissal or substantial reduction of inflated claims. Similar deterrence is embedded in ICC Rules of Arbitration under Expedited Procedure Provisions16. Furthermore, Section 31A(3)(c) of the Arbitration and Conciliation Act, 1996 specifically empowers arbitral tribunals to impose costs on parties filing frivolous claims to delay proceedings17. Litigants must actively pray for and press for exemplary costs.

ii) Rigorous Selection of Professional Legal Counsel:

A professional advocate will never advise clients to artificially inflate claims. Once a tribunal perceives that claims are bloated, the litigant loses credibility as an honest party, risking even genuine and legitimate claims.

iii) Contractual Threshold Carve-Outs (Non-Arbitrable Limits):

Parties can draft arbitration clauses such that claims exceeding a specified threshold are excluded from arbitration and subject only to the jurisdiction of competent civil courts. An internal due diligence should be conducted to determine appropriate monetary thresholds and identify contracts vulnerable to frivolous filings.

4. Conclusion & Future Outlook

Indian companies prefer Arbitration due to its speed, flexibility, privacy, and cost effectiveness18. Globally, institutional arbitration caseloads are rising by 9.9% annually19. However, over time, the real-world advantages of arbitration have eroded. Unless companies take ownership, arbitration risks losing its prime status as an efficient dispute resolution forum.

To preserve credibility, Indian arbitration law was amended in 2015, 2019, and 2020 to incorporate stringent statutory timelines, fee caps, restricted grounds for challenge, and promotion of institutional arbitration. However, statutory amendments alone cannot deliver efficiency unless litigants assume institutional responsibility at the organizational level.

“There is no hesitation to admit that arbitration mechanism has the potential to improve the condition of dispute settlement. Thus, the need of the hour is that the litigants should revisit and identify the shortcomings in their policies and practices and endeavour to build a robust pro arbitration environment by adopting effective measures.”

References & Judicial Authorities

  1. White & Case. 2018 International Arbitration Survey: The Evolution of International Arbitration. (2018). Retrieved from http://www.arbitration.qmul.ac.uk
  2. Dolphin Drilling Ltd. v. Oil and Natural Gas Corporation Ltd. (17.02.2010 - SC) : MANU/SC/0120/2010
  3. Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523
  4. Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah, judgement dated 21.06.2019, Misc Civil Application No. 90 of 2019 Gujarat High Court
  5. Law Commission of India, 246th Report on Amendments to the Arbitration and Conciliation Act 1996
  6. Justice Srikrishna B. N. (2017, July 30). Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India
  7. Shrivastava, P. (2015, September 8). How much do Delhi’s top advocates charge? Livemint
  8. Model Clauses of International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), and Singapore International Arbitration Centre (SIAC)
  9. PricewaterhouseCoopers (PwC). (2013, May). Corporate Attitudes & Practices towards Arbitration in India (p. 8)
  10. Debroy, B., & Jain, S. Strengthening Arbitration and its Enforcement in India – Resolve in India, NITI Aayog
  11. South East Asia Marine Engineering and Constructions Ltd. (SEAMEC) v. Oil India Limited (11.05.2020 - SC) MANU/SC/0441/2020
  12. Prasad, R. (2013, June 20). NHPC faces ₹ 10,000 crore disputed claims from contractors. Economic Times
  13. Punjab & Haryana High Court – Court Fee Schedule Table
  14. Chandran, R. (2009, October 15). NHAI proposes panel to settle arbitration claims – Livemint
  15. Draetta, U. (2014). Counsel as Client’s First Enemy in Arbitration? (p. 109). Juris Publishing
  16. Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under The ICC Rules of Arbitration, Para VII(B)(70)
  17. Arbitration and Conciliation Act, 1996 – Section 31A(3)(c)
  18. PricewaterhouseCoopers (PwC). Supra note 9 (p. 10)
  19. Dr. Altenkirch, M. (2018, April 10). Global Arbitration Cases Still Rise – Arbitral Institutions’ Caseload Statistics, Global Arbitration News