Calling for institutional reforms to strengthen arbitration framework in India, President Pranab Mukherjee said courts need to devise a mechanism to handle such matters separately and avoid delays arising from judicial intervention.
“Judges have the delicate task of maintaining the balance between interference and over-interference. Indian Courts need to devise an administrative mechanism to ensure that arbitration matters are handled separately and efficiently so as to avoid any delay arising out of the judicial intervention,” he said.
Addressing conference on ‘Strengthening Arbitration and Enforcement in India’, he said State intervention in a market economy should be limited to a situation of market failure and private commercial disputes do not fall under that category.
The government must create an enabling framework for institutional arbitrations in India, Mukherjee said.
Stating that India has the basic physical infrastructure to support international arbitration, he said, India needs “basic institutional reform to strengthen arbitration framework.”
“Goods laws themselves cannot substitute the need for good institutions,” he said, adding arbitral institutions, judiciary and the government are critical for strengthening arbitration structure in India.
While arbitration is an alternative to the judiciary, it cannot function without support from judiciary either, Mukherjee said
Mukherjee said arbitral institutions help to facilitate the core advantage of arbitration but unlike advanced economies, institutional arbitration is still not widespread in India.
“Adhoc arbitration is the norm,” he said. “Although, arbitral institutions have come up, there is huge untapped potential for growth of institutional arbitration in India for which both domestic and international arbitral institutions have to play a proactive role in getting this market.”
Emphasising that state intervention in a market economy should be limited to a situation of market failure, he defined such a scenario as where the market left to itself cannot work out a solution.
“Private commercial disputes are not market failures by themselves. They can be resolved by the private parties on their own and business will continue
Mukherjee said: “If the cost of private dispute resolution is absorbed through private innovation, such innovation should always be encouraged instead of exhausting the judiciary’s resources. Therefore, the Government needs to create an enabling framework for institutional arbitrations in India”.
In absence of centralised state based dispute resolution institutions, private market based solutions step in, he said.
Parties can resolve disputes by privately constituted arbitral tribunal, he said, adding lack of a centralised state based institutions like the judiciary gives flexibility to arbitration.
“But it also increases cost if for each and every dispute the parties have to separately draft rules, appoint arbitrators, procure administrative services — the cost of dispute resolution would naturally be much higher. Arbitral institutions help in mitigate these costs,” he said.
Mukherjee said arbitral institutions assist the parties with the appointment of the tribunal, take deposits for arbitration costs and arbitrators fees, remind parties and tribunals of deadlines and make arrangement for hearing.
“But unlike Courts, they comply in the private competitive market. Thus institutional arbitration takes advantage of economies of scale to facilitate arbitration without imposing the rigidity of the traditional judicial institutions,” he said.
President said for arbitral institutions to expand their footprint, they need to partner with the Indian legal profession.
“A vibrant arbitration ecosystem would need a vibrant arbitration bar as well as respected pool of seasoned arbitrators.
“Arbitral institutions need to proactively nurture and respond to the pool of arbitrators to include subject matters, expertise in sectors like infrastructure, energy, finance. This will in long-term help build confidence in the arbitration ecosystem in India,” he added.