top of page

RISE OF ONLINE ARBITRATION IN INDIA: CHALLENGES, OPPORTUNITIES AND CALL FOR A CODE

Siddh Sanghavi[1]


Introduction


The concept of Arbitration is broadly based on two important principles flexibility and party autonomy. Allowing for an online dispute resolution (ODR) mechanism with the consent of both parties will only help in achieving these principles and provide a speedy mechanism for dispute resolution.


As the name suggests online arbitration means using electronic communications to conduct arbitration proceedings. The proceedings here also include the process of initiating the arbitration by giving notice, and the process of discovery, wherein all documentary evidence will be uploaded online. Here the benefits are visible as having an online arbitration will significantly reduce costs and time, and provide greater flexibility while providing a more sustainable and environmentally friendly dispute resolution mechanism. 


The idea of Online Arbitration also seems more and more practical since the need for face-to-face interaction has decreased, especially in construction, oil and gas and infrastructure disputes wherein reliance is usually on documentary evidence rather than witness testimonies.


Further, the concept of ODR is gaining traction day by day. The government and its think tanks are pushing for ODR mechanisms. The NITI Aayog also released its report in October 2021, Designing the Future of Dispute Resolution: The ODR Policy Plan for India which made recommendations to the government to incorporate ODR-friendly policies. These ODR-friendly policies will also increase the ease of doing business and thereby increase investment in the country.


The same has also been recognised by the government. In an unstarred question posed by a Member of Parliament to the Ministry of Law and Justice concerning the development of the ODR mechanism, the Ministry that while the concept of ODR was still at a nascent stage, the government had planned to adopt the NITI Aayog report mentioned above in a phased manner. Therefore it is evident that ODR holds a lot of potential in India.


Legal Backing for online arbitration


While online mediation has already been given statutory backing in the Mediation Act 2023, a similar provision is lacking for online Arbitration.


Currently, there are a number of legislations that deal with ODR and Online Arbitration. While the Arbitration and Conciliation Act 1996 {hereinafter referred to as the A&C Act} governs the procedure of Arbitration, the Information and Technology Act 2000 deals to the technical aspect. Particularly section 4 and 5 of the act which gives validity to electronic records and signatures. Therefore even an arbitration agreement signed online would be lawful and enforceable. The same has been validated by the Supreme Court in Shakti Bhog Foods Ltd V. Kola Shipping Ltd, wherein the court recognised the validity of an arbitration agreement entered into by exchange of emails.


Legal backing to arbitration proceedings conducted online has also been given by the Supreme Court. The Supreme Court in a number of cases has now enabled a contact-free dispute resolution. From the service of notice to invoking arbitration to recording statements and witness testimony can now be done online. 


The Supreme Court in Kross Television India Pvt Ltd & Anr V. Vikhyat Chitra Production & Ors held that the purpose of service is to put the other party to notice and where an alternative mode, (which can include Emails and even WhatsApp) is used and the service is shown to be effected of the notice and is acknowledged, it cannot be suggested that there was no notice. Further, in State of Maharashtra V. Praful Desai, the Supreme Court affirmed video conferencing as an acceptable means of recording witness testimony and evidence. Therefore examination and cross-examination of witnesses can now be done through video conferencing eliminating the need for the physical presence of witnesses.


Challenges Associated with Online Arbitration


One of the biggest issues in Online Arbitration is determining the seat of the arbitration in case there is absence of a mutual agreement between the parties.  While the venue of the Arbitration is online, the issue arises concerning the seat of the arbitration. The seat of the arbitration becomes important as it would then decide the courts that would have the jurisdiction to enforce the awards and hear challenges against the award. 


Section 20 of the A&C Act states that the parties are free to decide the seat of the arbitration, and in the absence of such mutual agreement the seat shall be decided by the Arbitral Tribunal taking into account the convenience of both parties. Since there does not exist any separate framework for ODR, the seat of an online arbitration will be decided based on Section 20 itself.


For online arbitration the issue arises in case of an absence of any mutual agreement. As there is no geographical location in cyberspace and internet activity does not fall within any specific jurisdiction, determining seat based on convenience becomes difficult. Further, the issue becomes more complex in ODR since there are many places and legal jurisdictions involved. While in a physical form of arbitration, a physical space or a jurisdiction can help in determining the seat, the virtual nature of the online arbitration makes it difficult to decide based on a specific geographical location. Therefore determining seat based on the convenience of parties as specified under Section 20 becomes complicated. 


An important concern for the parties using this online mechanism will also be data security and privacy. One of the main reasons why parties sometimes adopt arbitration is that the proceedings are kept confidential. However, if documents are given for discovery online and even witness testimonies are taken online it is natural for parties to be worried about confidentiality and data security. Here we see the need for having certain basic standards and requirements that can be set by arbitral institutions.


Confidentiality is also enumerated as a principle under Section 42- A of the A&C act which mandates that both the arbitrators as well as the parties are to keep the proceedings confidential and private.


This breach of confidentiality and privacy of the parties has already happened before in International commercial arbitrations as seen in the case of a cyber-breach of the Permanent Court of Arbitration in 2015, which resulted in data theft in the China- Philippines border dispute.  In this case, the malware was implanted on PCA’s website which exposed the parties to data theft. 


Currently, the confidentiality of the party under Indian law is protected only under section 72 of the Information Technology Act 2000, which criminalises the disclosure of personal information by a party having access to such information in breach of a lawful contract. This is also only a punitive measure providing punishment and not a preventive measure ensuring the security of data.


If online arbitrations are conducted in unsecured online communications then confidentiality and privacy of the parties will always be at risk. Therefore there exists a dire need for data protection guidelines and regulations in the field of arbitration. Although the parliament recently passed the Digital Personal Data Protection Act 2023, its applicability to online arbitration proceedings is still in question, and regardless of the same, there has to be a separate governance framework regulating data protection in online Arbitration Proceedings.


Key Aspects to be clarified in a Code for Online Arbitration


The government and even arbitral institutions can come up with a code for ODR that the parties can voluntarily adopt. Currently, the International Council for Online Dispute Resolution has come up with a set of open standards that can be adopted by the parties.


The ICCA-NYC Bar – CPR Protocol on cyber security was adopted in 2019. This protocol offers a comprehensive framework on how parties can agree to reasonable cyber security measures during arbitration proceedings. The framework involves control of access to important documents, encryption and management of cyber security.


Another privacy concern is related to the recording of the online proceedings. Under the Seoul Protocol on Video Conference in International Arbitration discretion to record the proceedings is given to the Arbitral tribunal. Whereas in HKIAC recording of proceedings requires consent of both the parties as well as the arbitral tribunal. A similar code regulating these aspects is currently lacking in the arbitral institutions in India.


Further, the issue of bias and partiality of arbitrators in the context of online arbitration can also be combatted through a dedicated code. These voluntary codes can specifically set out guidelines for ensuring the independence of arbitrators in the virtual space.


For instance, the UNCITRAL Technical Notes on Online Dispute Resolution have specific provisions and suggestions to ensure arbitrators are impartial. These UNCITRAL guidelines provide that every ODR mechanism have a method to object to the appointment of the arbitrator. And whenever there is an objection to the appointment of the neutral, the ODR administrator must decide as to whether the arbitrator should be replaced. The UNCITRAL guidelines also specifically provide that the arbitrator declare his impartiality whenever there is any circumstance that raises doubts as to his impartiality.


For India to establish its position as an international arbitration hub, establishing a dedicated code for online arbitration will be crucial. Clear guidelines are necessary regarding recording online proceedings, requiring informed consent from all parties. Additionally, establishing a secure and transparent process for handling sensitive data and documentary evidence is paramount. The code should specify protocols for data storage, access, and security measures. Further, the code should emphasize the independence of arbitrators, adhering to protocols like the UNCITRAL Technical Notes for ODR. This will help promote transparency and mitigate concerns about bias.

 

Conclusion


By clarifying the critical aspects which have been mentioned above, a code can foster trust in ODR, attracting domestic and international participants. This, in turn, can translate into greater efficiency and cost-effectiveness for dispute resolution compared to traditional methods.


A note of caution would be that we should focus on coming up with a voluntary code and not impose mandatory government regulations that could hinder the processes’ growth and adaptability. Rigid requirements might introduce unnecessary constraints, stifling innovation and flexibility within the ODR ecosystem.


Indian arbitral institutions can design a comprehensive set of guidelines for online arbitration taking inspiration from successful models of foreign arbitral institutions. These guidelines can be in the form of a voluntary code that can be adopted by parties if they choose to solve their disputes through Online Arbitration.

 

[1] Siddh Sanghavi, a 2nd year student of National Law University Odisha (NLUO).

Comentarios


bottom of page