AD HOC VS INSTITUTIONAL ARBITRATION- WHICH IS THE METHOD FOR YOU?
Updated: Mar 7, 2022
- Vatsala Toprani
Arbitration, as defined by Section 2 (i) of the Arbitration and Conciliation Act, 1996, means any arbitration whether or not administered – by the permanent arbitral institution, which is a rather circular explanation. Arbitration is one of the most popular forms of dispute resolution methods which takes the help of a third party to resolve the issue outside the traditional court system.
The purpose of arbitration is to ensure just and impartial dispute resolution, which provides the parties full freedom and control on the matter. It also delivers a speedy decision which saves time as well as proves less expensive as compared to the tedious judicial process in a traditional courtroom system. It takes away the excess burden and backlog from the judiciary.
The judgement delivered by the Hon’ble Supreme Court in the case of BGS SGS Soma JV v. NHPC Ltd. goes into the criterion that must exist to enforce the arbitration agreement. It is essentially a clause in the contract between the parties that states, “disputes or disagreements between the parties will be decided by way of arbitration.” This clause also entails the seat of arbitration to go to which can further help the parties decide on the remaining details.
Ad hoc Arbitration
Ad hoc arbitration is the procedure where the disputing parties agree upon the form of arbitration as provided for in their contract or by referring the case to an arbitral tribunal. The parties may choose to adopt the rules of a particular arbitration institution without actually taking the case to them. If the disputing parties are unable to mutually nominate an arbitrator, the appointment of the arbitrator will be done by the High Court, in domestic disputes, and by the Supreme Court in international affairs.
Ad hoc arbitration helps serve the purpose of arbitration more as compared to institutional arbitration, vis-à-vis the flexibility that comes with dispute resolution methods. However, along with flexibility there is also increased cooperation, trust and commitment that is vital to follow through with this arbitration method.
In ad-hoc arbitration, the parties only pay fees of the arbitrators, lawyers, and the costs incurred during the process. In ad-hoc arbitration, parties tend to negotiate and settle fees with the arbitrators directly, which allows them the window to negotiate and reduce the fees. It proves to be economical. However, if the disputing parties are unable to mutually consent to the nomination of an arbitrator, the procedure can be time-consuming which cancels out the benefits of opting for arbitration.
Institutional arbitration is a process wherein a specialised institution with established rules and regulations intervenes and oversees the entire arbitration procedure. In institutional arbitration, the arbitration agreement designates an arbitral institution to administer the arbitration. The parties then submit their disputes to that institution which intervenes and administers the arbitral process as provided by the rules of the institution. However, the institution itself does not arbitrate the dispute; it is the arbitral panel which resolves the dispute.
There are approximately 1200 institutions worldwide which offer arbitration services dealing with a particular industry; some commonly known institutions are as follows- London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Dubai International Finance Centre (DIFC) and the Dubai International Arbitration Centre (DIAC), the Court of Arbitration for Sport (CAS), etc.
The Indian Arbitration and Conciliation Act of 1996 is the statutory adoption of the UNCITRAL Model Law for international commercial arbitration and the UNCITRAL rules of arbitration, with certain modifications and specifications to fit into India’s institutional framework. India is also a signatory of the New York Convention that emphasises on the enforcement of arbitration awards.
Institutional arbitration is advantageous as the arbitrator is bound by rules and regulations which he as well as the parties are supposed to adhere to which formalises and regulates the entire procedure. There is increased enforceability in the decisions taken by the arbitral tribunal. There is a default procedure carried out which increases uniformity and stability in the arbitration process making it more reliable and free of bias. The disputing parties need not worry on the details and technicalities as the administration is overseen by the institution which lets the parties provide the undivided attention towards resolving the dispute.
It is said that parties are the masters of the arbitration process. However, this cannot be held true in institutional arbitration as by way of the process, the power and freedom of the parties gets taken away. When the procedure becomes formal, it also becomes rigid which takes away the essence of the flexible nature of dispute resolution methods. Further, due to the formalisation and regulation, the procedure can be tedious and take long hours for the parties to resolve their dispute.
In conclusion, while there are pros and cons to both institutional and ad hoc arbitration, the latter seems to be the more preferred form of arbitration in India. Section 89 of the Civil Procedure Code of 1908 supports the Alternative Dispute Resolution system and urges parties to settle disputes outside the traditional courtroom setting which proves to be a step towards development.
Vatsala Toprani is a second year student at Pravin Gandhi College of Law, Mumbai.
 BGS SGS SOMA JV v. NHPC Ltd., MANU/SC/1715/2019.  Institutional Vis-a-vis Ad-hoc Arbitrations In India - Litigation, Mediation & Arbitration – India, Mondaq.com., von https://www.mondaq.com/india/arbitration-dispute-resolution/957706/institutional-vis-a-vis-ad-hoc-arbitrations-in-india.  LLP, Navigating The Pitfalls Of Arbitration With Chinese Parties, CCBJ. https://ccbjournal.com/articles/navigating-pitfalls-arbitration-chinese-parties.  Latestlaws.com, Arbitration, https://www.latestlaws.com/wp-content/uploads/2018/09/Ad-Hoc-and-Institutional-Arbitration-By-Jyotsana-Uplavdiya.pdf.  Institutional Vis-a-vis Ad-hoc Arbitrations In India - Litigation, Mediation & Arbitration – India, Supra, note 2.  Pinsentmasons.com., https://www.pinsentmasons.com/out-law/guides/institutional-vs-ad-hoc-arbitration.  Parul Yadav, Institutional Arbitration – The Dawn of Expeditious Justice System, lawoctopus.com. https://www.lawctopus.com/academike/institutional-arbitration-expeditious-justice-system.