[This guest post is authored by Angelina Joy and Mahathi Utham Kumar, both studying in their third year at The National University of Advanced Legal Studies (NUALS), Kochi]
Documents-only Arbitration in India: Time for a Paradigm Shift?
Conventional arbitrations have drawn flak for their protracted hearings. So, among parties, tribunals and academics, there is consensus on the necessity to time-bar and tailor existing procedural formalities to enable efficient arbitration. This context calls for a reconsideration of mandating documents-only arbitration, a revolutionary approach, not foreign to the Indian regime. In this post, we argue that documents-only arbitration must be made the rule and oral hearings the exception. This would usher an upside-down effect in India’s arbitration regime.
To this end, we identify legislative gaps in Section 29B of the Arbitration and Conciliation Act 1996 (A&C Act), which deals with the rules of procedure for documents-only arbitration. We conclude with our recommendations for the Indian regime.
In cases where the arbitration agreement prescribes that the dispute be resolved through an exchange of pleadings and other documents, it is referred to as a documents-only arbitration clause.
Parties rarely agree to documents-only arbitration in their contractual arrangements. This is perhaps considering that it is not feasible to determine the nature of a dispute that may arise between the parties. For the most part, because arbitration law allows for procedural flexibility, parties agree on this method after the dispute arises. But litigants tend to feel cheated when rules applicable to matters of document production are adopted after a particular dispute has been set into motion.
Although not entirely different, international systems have given due recognition to this format where predominantly, rules pertaining to this method apply before the dispute occurs. These rules have been pre-defined by international arbitral institutions and provide for both domestic and international disputes.
Illustratively, implied in the American Arbitration Association’s rules is the principle that expedited proceedings are, in essence, intentional trade-offs of shorter time periods, in return for a speedier outcome. With this as the objective, the Rules of Procedure for obligating the Documents-only format in claims not exceeding a fixed limit, have been clearly laid down.
Parties in Southeast Asia have also begun to find ways to streamline arbitration procedures through the expedited process, especially under SIAC Rules 5.1 and 5.2. In SIAC cases the threshold for fast track is higher – US$4 million. Admittedly, this has “proven successful in providing parties with … immediate relief.”
Similarly, German Arbitration Institute’s Rules provide for Expedited Proceedings in Annex 4, which is an integral part of Article 1.3. This approach falls midway between the opt-out or opt-in alternatives for the expedited proceedings. We find that the Indian approach is similar to those followed by many Western and Eastern international centres, absent those structured rules. The subsequent sections will specifically address these gaps and how they can be filled by adopting best practices from such institutional rules.
The Indian Approach
Section 29B of the A&C Act deals with fast-tracked arbitration. In order to expedite the process of arbitration, the Indian regime through the 2015 Amendment incorporated the fast-track arbitration. Under fast-track arbitration, the arbitral proceedings should end within a period of six months. Further, written pleadings are submitted without any oral hearings unless one party requests. Thus, unlike the approach followed in a number of foreign regimes with respect to document- only approach, fast-track arbitration in the Indian regime constricts the time limit to six months disregarding the volume of documents submitted by parties leaving no scope for extension of the arbitrator’s mandate without mutual consensus of the parties involved.
Under Section 19 of A&C Act an arbitrator is empowered to determine the rules of the procedure. The Section further vests the arbitrator with discretionary power on non agreement of arbitral proceedings between the parties to “conduct the proceedings in the manner it considers appropriate”.
But the legislation in utter disregard of Section 19 provides for an ‘opt-in approach’ wherein the parties are given an alternative to choose fast-track arbitration at any stage before or at the time of appointment of the arbitral tribunal. Hence, the tribunal is neither empowered to impose the process of fast-track arbitration upon the parties, nor to extend the time period for declaration of arbitral award without mutual consensus of the parties. In this context, though 29B is a laudable insertion to the archaic Arbitration Act, it came with its own set of problems.
We are of the opinion that Section 29B contributes little for the enhancement of procedural fairness. In another piece, we bring out particular issues in such cases where the oral hearing right is effectively waived. Subsequently and as an exception to the mandated procedure, when concerns of due process violations arise, an opt-out regime could be considered. The particulars of this regime will be mentioned in the suggestions. Another procedural hurdle that the current framework poses is the consent requirement.
The Consent Fatigue
Hamara Pump Mithoura HPCL Petrol Pump v. Chairman-Cum-Managing Director Hindustan Petroleum and Ors, points to the need for consent in such a proceeding. Here, when the dispute was referred to arbitration, an application was made for the adoption of Documents-only arbitration by the appointed arbitrator. The Allahabad High Court, while disposing of the prayer for a fast-track arbitration, concluded that the said prayer was premature on account of the absence of mutual agreement between the parties.
Mutual consent also plays an important role in the extension of time for the declaration of arbitral awards. Circumstances may arise where an arbitrator requires an extension of time. The SIAC Rules, AAA Rules, SCC Rules and other such institutional rules recognise the need to vest some discretion with the arbitrators for this purpose.
A lack of discretion becomes problematic when issues like the following arise. In Crayons Advertising Private Limited v. Bharat Sanchar Nigam Limited, the parties had appointed an arbitrator for dispute resolution through fast-track arbitration. On failure of the arbitrator to pronounce the award within the set period of six months the petitioner did not consent to the extension of the time for the declaration of the arbitral award resulting in the termination of the mandate of the arbitrator appointed under fast-track arbitration.
We find that this persistent need for ‘mutual consent of the parties for the extension of time for declaration of the arbitral award’ and ‘consensus between the parties for the initiation of Documents-only arbitration’ are troublesome in the Indian context.
Concerning the requirement of consent for extension for passing an award, the authors argue that extension of time period on lapse of the statutory period shouldn’t be left to mutual consent, because the party which anticipates a loss, can simply withhold its consent for the extension of time. This precondition only undermines the inherent powers of the Tribunal and the entire objective of opting for arbitration – to avoid Court procedure. Moreover, when an arbitration agreement permits the application of certain rules, consent to all clauses of those rules is presumed. These additional requirements of consent are then rendered dispensable and must be omitted. Consequently, obligating documents-only arbitration for small claims would reduce the consent fatigue which the Indian regime often witnesses with respect to fast-track arbitrations.
Section 29B falls short in providing greater specificity with respect to a maximum cap on claims settlement through Document-only arbitration. Drawing inspiration from the afore-mentioned AAA and SIAC rules, the Indian framework must allow for this provision’s default application if the value of the dispute does not exceed a certain threshold. The American regime’s inclination towards documents-only arbitration is apparent from the increase in monetary threshold of $25000 to $75000. The monetary consideration herein may be exclusive of attorneys’ fees, interest, and other arbitration costs.
However, caution must be exercised while determining the small claim threshold. A threshold set at 1 crore may be too high for small companies and for parties whose business is based in comparatively less developed areas. When efficiency is clearly the aim, an attempt to remedy the aforesaid problems is necessary.
After a careful consideration of the issues in the Indian regime, we suggest two methods to remedy the status quo. Common to both are the structured rules which qualify a dispute for documents-only arbitration. These rules ought to be incorporated both in Section 29B and in the rules of individual centres.
From a doctrinal standpoint, two tests should be applied to substantive and procedural questions in the documents-only format. First, the ‘test of relevance’, in respect of document discovery and production. Here, documents are considered to be relevant when they are closely connected to the subject-matter of the case. The arbitral tribunal must decide if the requested documents hold any relevance for the allegations of the requesting party, and thereby if they are appropriate to the dispute at hand are allowed for production. Linked to the ‘test of relevance’ is the second requirement that the requested document ought to be material to the result of the case.
Thus, this categorization of documents prevents the admissibility of ‘fishing expeditions’ i.e. persistent attempts by the adversary to bring out voluminous documents without any specific objective in hopes of retrieving any detrimental information against the other party.
For the legislative changes, we first suggest the complete inversion, where the import of the A&C Act may be reversed by amendments to Section 29B. This provision must be amended to include (A.) a clause preventing ‘fishing expeditions’. These are notoriously used by lawyers as a stratagem either to exhaust or burden the opposite party. We believe that such an approach runs antithesis to the search for procedural truth. An extensive run on document production has the tendency to delay proceedings for months at stretch thus increasing costs of arbitration.
The International Bar Association’s (hereinafter, IBA) Rules, for instance, address this problem stipulating the production of “narrow and specific” documents and providing suitable safeguards from a complete American or English style of discovery. The IBA Rules are very specific on the requirement for presentation of only those documents which are “relevant to the case and material to its outcome”. The Indian regime must emulate this practice.
(B.) A clause that prescribes a monetary threshold for the default application of the documents-only method, unless circumstances deem necessary otherwise, ought to be inserted. In general, major claims, as opposed to small claims, involve difficult questions of law and fact. Therefore, where the dispute is valued at more than the prescribed amount, it might be necessary to hold proceedings and consider oral evidence which is material to the outcome of the dispute. Determination of the need of oral evidence on such circumstances should be made through an application by the party. If the other party contests the application of oral hearing then on application of mind if the arbitrator deems fit should grant permission for oral evidence.
This way, the lack of consensus no longer remains a hurdle for the very initiation of dispute resolution.
In this scenario, the parties also stand a risk of not having their case heard in such an extensive manner as they might have required, had the dispute been decided under a different set of rules.
The parties who voluntarily assented to documents-only arbitration might then apprehend right-violations owing to these statutory lacunae necessitating tremendous judicial interference in the arbitral process. Accordingly, the authors suggest (C.) an amendment to Section 34 of the A&C Act to restrict the scope of judicial review with respect to ruling out an arbitrator’s jurisdiction in such proceedings.
Additionally, (D.) an opt-in clause may be included for higher value disputes, where, apart from the mutual consent of the parties concerned, the arbitrator is given certain discretionary powers to decide whether one or more material issues may be arbitrated merely through written submissions despite the high stakes.
The provision for (E.) party-consented extension of the time for granting an award must be removed, and replaced with a reduction of the accepted period from 6 months to 3 months, and a discretionary clause for restricted extension by the tribunal. The (F.) consent requirements must be omitted, except in cases where the parties wish to opt-out of the documents-only arbitration alleging fraud and other ambiguities in the agreement for which witness testimonies might be required.
The clause allowing for (H.) sole arbitrators may be retained.
Secondly, and as a more feasible alternative, we suggest that the rules of individual institutions be amended with respect to both domestic and international disputes in the country, in the same manner as suggested above. Although, for instance, the MCIA Rules do away with temporal consent requirements and contain a monetary threshold, the framework is on principle, inconsistent with the suggestions provided above. In this model, the parties would merely have to agree on an individual centre, which would give effect to the parties’ intent to be bound by all rules of the centre including a default documents-only process.
Robust protocols, similar to those followed by international institutions, will guarantee a fair and efficient process. With this principle as the creative bar, we attempted a two-pronged analysis on Indian Law. We identified conceptual deformities, as well as legislative gaps, and provided a solution through context-specific and structured rules. A well-known statement in the arbitration circuit which aptly summarizes our case, goes like this. The only thing wrong with documents-only arbitrations is that there are not enough of them.
 Section 29A (5), A&C Act, 2016.
 Section 16, A&C Act, 2016.