Is the Indian Arbitration Regime Suited for the IBA Rules On Evidence? – Part I

[Muskan Arora is a III year B.A. LL.B (Hons.) student at the West Bengal National University of Juridical Sciences, Kolkata]

The 2010 iteration of the International Bar Association Rules on the Taking of Evidence (‘IBA Rules’) institutes a commendable effort at harmonizing standards on the procedure for taking of evidence in the international arbitration regime. After the first set of rules in 1983 and a subsequent revision in 1999, the current version of the rules is largely accepted as an embryonic point of departure. Though the rules find theoretical support and functional application in various jurisdictions, especially common law jurisdictions, it is important to determine whether the same in its current form is suited for the Indian arbitration regime. This is particularly relevant given that the Indian arbitration framework is still in its developing stage, and the adoption of a set of procedural rules could hamper its underpinning for future arbitration.

The Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) governs arbitration in India. It is a settled law that arbitrators are not bound by the technical rules of evidence, as observed by the courts. In fact, section 19 of the Arbitration Act distinctly posits that the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872, shall not bind the arbitral tribunal. Indeed, thus, the Indian arbitration regime too lacks a concrete procedural law guiding the taking of evidence.

A survey concluded in 2016 shows that the IBA Rules are referred to in 33 percent of arbitrations known to the respondents of the survey. Further, it is indicated that India is one of the two countries to have raised concerns with respect to the binding nature of the IBA Rules, as opposed to them being mere instruments of soft law.

The scope of this this post is to assess if the IBA Rules are suited for the Indian arbitration framework. The post is divided into two parts. In the first part, I shall be analyzing the scope of an undefined good faith standard in the IBA Rules, and if the parties fail to conduct themselves as per the same standard, the tribunal has the authority to impose sanctions. I shall be considering the ramifications if Indian tribunals were to embark upon such a standard. In the second part of my post, I shall be assessing the rules on witness testimony, document production and expert evidence and its suitability in the Indian arbitration framework.

Imposing sanctions based on an undefined standard  

The IBA Rules herald the novel institution of the notion of good faith to the taking of evidence in international arbitration. The good faith standard is referenced twice in the IBA Rules, once in the Preamble, and then again in the concluding paragraph.

Article 9(7) of the IBA Rules bestow upon the arbitral tribunal the authority to inflict punitive sanctions in the form of “costs of the arbitration” and “costs arising out of or in connection with the taking of evidence,” on a revelation that a party has failed “to conduct itself in good faith in the taking of evidence.” Such a provision engrafts upon the tribunal a sanctioning discretion, which is particularly problematic as there is no mention of what is clearly meant by “good faith” or what comprises “taking of evidence” under this article. Even though good faith as a legal principle is elusive and contextually mercurial, one would still expect a certain definition to it to determine its scope, application and actual meaning, especially when it becomes the basis on which the tribunal is empowered to impose sanctions to the prejudice of one of the parties.

On comparing the same with the Indian framework, one finds a departure from the IBA Rules. In the Indian context, the good faith standard is mentioned once in the Arbitration Act in the background of the relationship between the parties and the conciliator. Though the good faith standard is not defined in the Arbitration Act either, the same is inconsequential, as the standard is not used to bestow any additional powers upon the arbitral tribunal beyond what was agreed or known to the parties.

Arbitration in India is relatively nascent and is still gaining acceptance. Over the years, litigation as a form of dispute resolution is systematically indoctrinated in the Indian justice system. In fact, even till today, a majority of the arbitral tribunals in India are presided over by retired or sitting judges. These judges are used to the process of litigation wherein, unlike arbitration, the parties are not hypothetically placed at the same footing as the ones deciding the case. In this backdrop, if such unbridled authority as under the IBA Rules is bestowed upon the arbitral tribunal in India, it is likely that the principles of party-autonomy, uniformity, predictability, and transparency of standards, which underlie and define arbitration, would be undermined while engrafting upon the realm of IBA Rules and the “good faith” standards that permeate it.

Arbitral awards in India rarely go unchallenged. Even if one were to assume that the arbitral tribunal would use this standard with caution, while abiding by the tenets of arbitration, it is unclear what the judiciary will make of this undefined standard if the same is challenged. Good faith, as is understood in the context of litigation, is very different from its usage in arbitration cases. For a start, litigation standards are often defined keeping in mind the supremacy of the parties. Juxtaposed to this, in arbitration, the standard of flexibility afforded is higher as the parties are more or less the masters of their own procedure. In this backdrop, once the matter is before the judiciary, it is bound to interpret it according to its whims and fancies. In the recent past too, there have been instances where the Indian judiciary, behind the cloak of uncertain or undefined powers, has interfered with the established principles of arbitration, thus further undermining its prevalence. Whether by happenstance or deliberate, it is not uncommon for the judiciary to act in a way that promotes litigation at the expense of arbitration. Not just that, considering it is an undefined standard, parties will be more tempted to challenge the award, even if on frivolous grounds, thus increasing the already high burden of the Indian judiciary resulting in more backlog of cases and slower resolution of disputes.

Another critical question is whether the scope of good faith standard in imposing sanctions can be extended to a point wherein it overrides the provisions of another statute. The failure of the IBA Rules in conceptually binding the good faith standard to a formula that would ensure it a uniform meaning in conferring the arbitral tribunal with enhanced authority and discretion and, consequently, inversely diminishing the supremacy of the notion of party autonomy in arbitration, will cost the Indian arbitration regime a lot more than other jurisdictions.

Although it is a trite proposition that the arbitral tribunals in India also have the power of imposing sanctions, it is worth emphasizing that the same is limited. The arbitral tribunal, pursuant to section 27 of the Arbitration Act, may impose sanctions on account of specific failures. These include, but are not limited to, making procedural default, failing to appear, or refusal in giving evidence or acting in contempt to the arbitral tribunal. The nature of these sanctions is also defined to be the same as they would incur for the like offences in suits tried before the Court.

It is debatable whether the nature of these sanctions is in consonance with the almost critical and sacrosanct principles to which arbitration belongs or whether the same is a deliberate attempt of merging the process of litigation with arbitration. However, given the developing trend of arbitration in India and its deeply rooted association with litigation, the same is reasonable especially when compared to an undefined standard of good faith as backing for imposing sanctions.

Further, it is essential to note that in India it is often that the arbitral tribunal or the court orders compensation in favor of the prevailing party. However, this is not the same as the sanctions imposed under the IBA Rules, and the distinction is paramount to an inquiry. The latter witnesses a punitive allocation of an obligation to pay such costs as a consequence of bad faith during the contentious proceedings. The former, on the other hand, is imposed after the decree is rendered and is not imposed upon any party behind the veil of an undefined standard but the party against whom the award was rendered. Therefore, the method of imposition of sanction and costs of the process upon the other party is in stark contrast to as it exists under the Indian framework, and adoption of the same might affect the sanctity of arbitration in India.

[Continued here]

Muskan Arora 

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