From the Past to the Present: The Story of ArbitrationSince the dawn of time, humans have engaged in some form of arbitration for resolving disputes. Thus, the private adjudicatory process of arbitration can be said to have a prehistoric origin. However, even after courts were established by the state and rules of procedure and evidence were designed and courts became the accepted method...
From the Past to the Present: The Story of Arbitration
Since the dawn of time, humans have engaged in some form of arbitration for resolving disputes. Thus, the private adjudicatory process of arbitration can be said to have a prehistoric origin. However, even after courts were established by the state and rules of procedure and evidence were designed and courts became the accepted method of resolving disputes, the practice of arbitration continued because parties to a dispute wanted to settle them with less formality and expense than a court proceeding.
The basic foundation of arbitration is that it is a private dispute resolution process in which two disputing parties accept a neutral third party to make a decision about their dispute and accept that decision as final and binding. The basic tenets of arbitration include an independent and impartial arbitral tribunal, equal treatment of the parties and adherence to the principle of due process.
However, arbitration gradually began to deviate from its neutral path of equality in procedure, becoming one-sided in some respects due to the imbalance of power between the contracting parties. The more powerful parties included conditions in the arbitration agreement that reserved their right to decide if a dispute existed, if a dispute should be referred to arbitration, and the right to appoint an arbitrator to resolve the dispute. Since the arbitration agreements are governed by contractual principles, these contractual conditions were also deemed legal.
The principles of procedural and substantive unconscionability were gradually incorporated into such contracts and it was argued that these contracts are immoral and that the rule, “if you enter into a contract with open eyes, you must abide by it” should not be enforced because it violates the basic norms of natural justice. Two fundamental principles of natural justice are that an adjudicator must be disinterested and unbiased, as expressed in the maxim “nemo judex in causa sua” and that the parties must be given an opportunity to be heard, as expressed in the maxim “audi alteram partem”. Therefore, it was recognised that once a dispute is submitted to arbitration, equality between the parties is primarily ensured by equal powers in selecting the arbitrator, equal rights to be heard and balanced evidentiary procedures. Even in court judgments, we need to understand that the decision of a trial judge is subject to appeal, where the appellate court scrutinizes the findings and reassesses the evidence. However, arbitral awards, which are given by private adjudicating authorities, are accepted as final and binding without any scope for appeal. Therefore, maintaining integrity in the process is all the more important.
To address this issue, the International Bar Association published the first “IBA Guidelines on Conflicts of Interest in International Arbitration” in 2004. The guidelines immediately gained wide acceptance within the international arbitration community and have been recognised as a solid soft law instrument that reflects the expected standards of impartiality and independence of arbitrators. The innovative traffic-light system of red, orange and green lists has become the worldwide norm with regard to the neutrality and independence of arbitrators.
In India, the 2015 amendment to the Arbitration and Conciliation Act, 1996 (A&C Act) introduced concrete standards for the impartiality and independence of arbitrators based on the IBA Guidelines, by incorporating the Fifth and Seventh Schedules. Section 12 of the A&C Act requires a person approached for appointment as an arbitrator to disclose in writing, any circumstances, whether direct or indirect, that could raise questions about impartiality or independence, such as: (i) any direct or indirect past or present relationship with any of the parties; (ii) any interest in any of the parties; or (iii) any interest relating to the subject-matter in dispute, whether financial, business, professional, or otherwise. This disclosure requirement helps prevent the appointment of an unacceptable person as an arbitrator.
However, despite introducing this amendment, many companies, banks and financial institutions continued to unilaterally appoint one-sided arbitrators as per the arbitration clauses agreed upon by the parties in their contracts. Since the affected party had the onerous duty of having the award passed by such arbitrators challenged under Section 34 of the A&C Act within three months, many parties were unable to do so due to ignorance, financial constraints or other reasons, and the awards became final and were enforced as court-decrees under Section 36 of the A&C Act. This resulted in grave injustice for parties who were subjected to awards made by admittedly biased arbitrators.
In 2023, the Supreme Court of India in the case “Glock Asia-Pacific Ltd. Vs. Union of India” opined that the arbitral process should meet certain minimum levels of independence and impartiality, regardless of the parties' apparent agreement. The court explained that sensible law cannot permit the appointment of an arbitrator who is a party to the dispute or employed by or dependent on one of the parties, even if the parties agree to it.
Ultimately, in 2024, a Constitutional Bench of the Supreme Court of India put an end to the controversy, in the case of “Central Organisation for Railway Electrification Vs. ECI SPIC SMO MCML” (commonly known as CORE judgment) and ruled that an arbitration clause authorizing one party to unilaterally appoint an arbitrator is unconscionable and violates Article 14 of the Constitution of India. The court held that a unilateral appointment clause is inherently exclusionary and violates the principles of equal treatment and procedural equality of the parties. Since the clause itself is unconstitutional, the resulting arbitral award is de-jure void and it does not need to be challenged. Thus thousands of arbitral awards made by unilaterally appointed arbitrators were invalidated.
A fair process is essential to the legitimacy of arbitration, especially since the parties are generally not accorded the right to appeal a tribunal's decision. Indeed, the most important guarantee provided to the parties is that their dispute will be determined through a fair, impartial and equal process.
Because arbitration emphasises finality, particular attention must be paid to the integrity of the decision making process. The right to due process and the assurance of a fair hearing are the key guarantees that should be provided to parties in arbitration.
Arbitrator: The Key Player in the Process
One of the facets of impartiality in arbitration is procedural impartiality. Procedural impartiality implies that the rules under which the decision-making process is undertaken must not favour either party to the dispute or favour or inhibit both parties equally.
Even after the 2015 amendment to the A&C Act incorporated the Fifth and Seventh Schedules and established the mandatory requirement to provide a disclosure statement under Section 12, how did these unilaterally appointed arbitrators conduct arbitration? So, it is not only the undue power imbalance between the parties when drafting such one-sided arbitration clauses that caused the mischief, but also the fact that many arbitrators did not care about equality or fairness. Worryingly, these arbitrators included retired judges and lawyers as well! They were only concerned about the fees that they would earn from each arbitration. Even after thousands and lakhs of arbitral awards were declared null and void, what did they suffer? Nothing! The parties suffered.
The right to an independent and impartial arbitral tribunal is ensured by, amongst other things, the conflict of interest rules which reduce the advantages that repeat users or their counsel might amass.
The Fifth Schedule, clearly stipulates under item No. 22 that, if the arbitrator has within the past three years been appointed as an arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties, or as under item No. 24, if the arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties or as under item No. 29, if the arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm, these situations would give rise to justifiable doubts as to the arbitrators' independence or impartiality. But how many arbitrators have disclosed these situations? If they had, would they be arbitrating these large numbers of unilaterally appointed arbitrations of banks and financial companies? Thus, the unethical and unprofessional behaviour of arbitrators, alongside the arbitrary and high-handed nature of powerful parties, has given arbitration a bad reputation in the domestic dispute resolution arena.
That is why in the CORE judgment, the Supreme Court mentioned that unilateral appointment clauses fail to provide an effective substitute for judicial proceedings in India. The Court also held that the resolution of private disputes must follow the minimum statutory standards of equality and fairness. This is not only in the interest of justice, but also to uphold the integrity of arbitration in India.
Tomorrow's Arbitration: Faster, Fairer, Smarter
The purpose of arbitration extends far beyond mere conflict resolution. It is a multifaceted approach that fosters efficiency, fairness and impartiality in resolving disputes outside the traditional court system.
Disputes arising from private contractual relationships are subject to certain inherent principles to which a quasi-judicial body, such as an arbitral tribunal must adhere. The process mandates equal treatment of the parties and fair arbitral proceedings. These principles govern the conduct of arbitration. When parties opt to arbitrate their dispute, they should be confident that arbitration will be the first and only step in the dispute resolution process.
Given the large volume of arbitrable disputes in India, we need thousands of skilled professionals to serve as arbitrators. The principle of proportionality requires that we ensure that the cost of handling cases is reasonable in relation to the nature and value of each dispute. Similarly, low-value cases or those of modest social significance should be resolved promptly. Relatively straightforward issues should be governed by appropriately straightforward processes.
Embracing technological innovation should be a priority. Thanks to the integration of technology, arbitration has undergone a revolution, improving efficiency with tools like virtual hearings, case management software, and electronic filing systems. These changes have shifted the focus towards the transformative potential of technology in the arbitration process, offering ease, cost-effectiveness, and time efficiency.
The convergence of technology and dispute resolution has paved the way for an arbitration revolution, changing how disputes are resolved and setting the stage for a new era of innovation and progress.
We need, a fact-based understanding of our craft, state-of-the-art technology and strategy.
The emergence of online dispute resolution (ODR) and the rapid advancement of innovation-driven technologies have had a profound impact on dispute resolution, particularly arbitration. These technologies offer many advantages, such as cost-effectiveness, time efficiency, and the ability to facilitate online processes like electronic filing, evidence collection, and remote hearings.
Tech Meets Justice: How DigiResolve is Changing Arbitration
In an effort to cultivate efficient and tech-savvy arbitrators, the Indian Institute of Arbitration & Mediation (IIAM) launched the “Gateway to Justice” (G2J) project, to establish “Justice Delivery Centres” (JDCs) in law schools and colleges across India. The project was officially launched on December 01, 2024 in New Delhi, India by Mr. Justice Surya Kant, Judge of the Supreme Court of India. Various dignitaries were present, including Mr. Rajeev Mani, Secretary of the Ministry of Law and Justice and Mr. Chetan Sharma, Additional Solicitor General of India.
This project enables young lawyers' upto 35 years old and fourth- and final-year law students to become arbitrators for expedited arbitration, under the scrutiny of expert professional arbitrators, widening the availability professional arbitrators throughout India.
Expedited arbitration is a streamlined and simplified procedure with a shortened time frame that enables parties to reach a final resolution of disputes in a cost- and time-effective manner. Recognising the value of this procedure for settling disputes arising in international commercial relations within a shortened time frame, as well as its increased use in international and domestic commercial practice, the United Nations Commission on International Trade Law (UNCITRAL) adopted the Expedited Arbitration Rules in December 2021.
The IIAM Expedited Arbitration Rules allow the disputing parties to choose proceedings that balance the efficiency of the arbitral proceedings with their rights to due process, fair treatment and a final resolution of their dispute in a cost- and time-effective manner. Under this system, the arbitration process is conducted online by default through the dedicated ODR platform, “DigiResolve” powered by “Peacegate”. Under expedited arbitration, the parties do not need to physically gather in one place at a designated time. Pleadings, evidence and arguments can be submitted electronically, providing an asynchronous form of interaction and absolute convenience for the parties. This shift from a synchronous to an asynchronous proceedings is more than just an exercise in process improvement. It involves and requires radical change. This change is much greater than the shift from physical to virtual hearings. It brings the arbitration process into the next generation of justice delivery mechanisms.
Arbitrators are provided with support from the ODR platform, “DigiResolve”, which was developed by Peacegate International. It is a first of its kind attempt to automate dispute resolution process using artificial intelligence (AI), and make it available to people on their smartphones, tablets or laptops. This makes access to justice easier and more affordable, while envisioning a new justice system that works at the speed of technology. This system enables fast and fair resolutions anywhere with an internet connection by integrating automation and AI, to minimize errors and maximise efficiency. The app is available on the Play Store for Android devices and the App Store for Apple devices. The web version is available at www.peacegate.in.
AI presents many opportunities to improve the efficiency, effectiveness, and accessibility of arbitration. Integrating AI into arbitration is inevitable, and when done correctly, it is desirable. However, AI should not overpower the arbitrator's cognitive-thinking process, as this would undermine their professional effectiveness over time. DigiResolve is AI-powered and automated. It would administer arbitration guiding the arbitrator and the parties involved to navigate the process without any hindrance while complying with all legal requirements. This would make the arbitration and its outcome immune from challenge. The goal is thoughtful integration, using AI tools to elevate procedural efficiency and professional effectiveness.
DigiResolve will oversee the entire arbitration process, from filing the request for arbitration, to issuing communications to the parties, securing the appointment of a neutral arbitrator, providing all procedural orders, scheduling sittings, maintaining the registry, processing the arbitral award and issuing it to the parties, while maintaining all records of all proceedings. DigiResolve also allows orders and awards to be signed online, using “emSigner”, eMudhra's leading e-signature platform, which offers complete support for Aadhaar eSign and ensures end-to-end encryption to protect documents and e-signatures from unauthorized access. According to the Information Technology Act 2000, this method is legally valid in India.
Furthermore, a Scrutiny Board, comprised of more experienced arbitrators, is introduced as an additional supervisory layer. This ensures that the arbitral award aligns with all mandatory legal requirements, thereby eliminating any potential grounds for challenge.
DigiResolve emphases the integrity of the decision-making process. It ensures that the parties in arbitration have the right to due process and a fair hearing. Arbitrators cannot deviate from due process or deny parties their procedural rights.
To create a new generation of professional arbitrators and to provide young arbitrators with knowledge and expertise in online and expedited arbitration, the IIAM Academy offers online training through the Peacegate App. The “Expedited Digital Arbitrator Certification” (EDAC) is an interactive online course that participants can complete at their own convenience, with complete freedom regarding time and confidentiality. Upon successful completion, participants are accredited as IIAM Panel Arbitrators and are eligible to be empanelled for expedited online arbitration.
The establishment of Justice Delivery Centers (JDCs) in collaboration with IIAM will have a considerable impact on access to justice and the administration of justice. The project will transform legal education institutions into centres for the dispensation of justice. The theoretical learning that takes place in a classroom will be replaced by practical learning through actual involvement in the dispute-resolution process. The project will enable India to handle the substantial volume of domestic commercial arbitration with highly qualified arbitrators. We invite law schools and colleges to participate in the “Gateway to Justice” (G2J) project.
If you are interested in partnering with IIAM to establish JDCs in law schools and colleges, please contact: arbitrationindia@gmail.com. To become expedited online arbitrators through EDAC program, please follow this link: https://peacegate.in/peegee-courses.
The author is a senior advocate and internationally accredited arbitrator. He is the President of Indian Institute of Arbitration & Mediation and the Chairman of the Asia Pacific Centre for Arbitration & Mediation.
Views Are Personal.