Arbitration in India is a very recent part of the judicial process; it was introduced in 1996 and, as such, has been around for less than two decades. When the Arbitration and Conciliation Act of 1996 was introduced, the legislative intent behind the provisions was twofold. Firstly, there was the intent to enable the parties to opt for an all-new method of dispute resolution beyond traditional judicial processes in order to reach a resolution quicker; the second intent was to cut down on the costs of litigation for all parties involved.

In the last fifteen years, it’s clear that courts have been decongested due to the speedier resolution process, making it a time-saving procedure for all parties. This is also because many institutions now add an arbitration clause in their agreements, making parties naturally opt for an arbitral tribunal. However, is it possible that litigation costs have also lessened, as was the goal?

This article seeks to discuss the point of arbitration costs and what can be done to cut down on them even further.

Elements Of Costs of Litigation and Arbitration

When a disputing party resorts to litigation, a series of expenses follow. The primary expense is the engagement of a lawyer’s services at a certain professional fee, which is dependent upon a number of factors such as their skills, reputation, the matter and the method of resolution. This is followed by the court fees, which is also subject to varied statutory jurisdictional aspects. These factors combined are the approximate (and roughly cumulative) expenditure that litigation has caused the party.

In comparison, the cost of arbitration includes the fee of the arbitrator appointed, the administrative and secretarial expenses, any travel expenses, translation and interpretational charges, stenographic charges, charges on the stamp duty of the award passed by the arbitrator, the cost of legal and technical advice and other myriad incidental expenses arising out of or in connection with arbitration proceedings.

It would seem resorting to arbitration is almost as cost-incurring as traditional procedures of litigation. In fact, it was reported by a counsel appointed for the party in the arbitral matter between Supreme Cylinder and Bharat Petroleum that their case of arbitration has been pending since 2017 (nearly four years as of 2021); and a majority of the cost incurred has been the fee paid to the appointed arbitrator i.e. a sum of fifteen lakhs, which is to be borne by both parties on a 50:50 basis

In another case, lawyers representing parties in an arbitral case made the following statements to Justice D Y Chandrachud and M R Shah:

“With folded hands, we plead with the Supreme Court to stop this practice of certain retired judges dragging out arbitration proceedings and fleecing parties with unreasonable fees and charging lakhs of rupees for each sitting.”

Clearly, the arbitral process remains a costly process, despite the original intent of the 1996 act to make it a cost-saving method of resolution. To resolve this, a committee under the chairmanship of Justice (Retd.) B N Sri Krishna was set up by the Ministry of Law and Justice via an official order dated January 13th, 2017, to review the institutionalization of arbitration mechanisms in India and to submit a report on suggested reforms.

In this report, ten key recommendations were provided; one, in particular, was the recommendation for the creation of a specialist arbitration bar as per which measures may be taken to facilitate the creation of an arbitration bar by providing admission of advocates on the rolls as arbitration lawyers, thus encouraging an increase of Young, specialized arbitration practitioners. It was opined that Young Arbitrators with mass availability, academic excellence, outstanding qualifications and requisite experience in respective fields should be added to the panel of arbitrators of the institutions.

The Predicament

Inexperience is usually associated to youth, the only remedy for which is the passage of time. One of the major problems faced by young arbitrators face is the intense competition in the arbitration job market, making it difficult for these practitioners to acquire that much-needed experience. In such positions, retired judicial officers are preferred the most as they have the wealth of experience to deal with arbitral matters for which they charge astronomical costs, driving up the expenses of a process of resolution that should, by all rights, be less dear than traditional litigation proceedings.

A solution proposed by arbitrator Milena Djordjevic to deal with the bridge of age and experience was to place young arbitrators with more experienced ones – this would likely speed up the process of conflict analysis and resolution and aid the less experienced individuals in gaining practical, first-hand involvement with such cases.

Further, changes can be introduced for appointing young arbitrators till a specific limit/level of claim (for small claims basically). In several discissions and debates, it has been emphasized that some essential qualities requisite for a young arbitrator are being multilingual in national as well as international languages, possessing dual qualifications and multinational experience.

Conclusion

Although the Arbitration and Conciliation Act has certainly reduced the burden of courts, it has also proven to be an expensive way towards a dispute resolution as no upper cap has ever been defined towards the fees which can be charged during the proceedings, leaving a party to the suit vulnerable to monetary loss.

Therefore, in the light of above short comings and loopholes, there is a need to introduce new legislative reforms to the Arbitration and Conciliation Act which addresses this budgetary shortcoming, which hopefully should come about in the future.