Introduction
The recent introduction of the India International Arbitration Centre (Conduct of Micro and Small Enterprises Arbitration) Regulations, 2024 (“Regulation”) marks a commendable stride by the India International Arbitration Centre (“IIAC”) towards fostering a business-friendly environment. Designed specifically for Micro and Small Enterprises (“MSEs”), this Regulation serves to promote arbitration among MSE’s by making them affordable, accessible, and addressing the hurdles faced by MSE’s under the regular arbitration under the Arbitration and Conciliation Act, 1996 (“Act”). The scope and features of the Regulation are discussed in detail below.
Context and Purpose
The Regulation seamlessly serves in continuation of the existing dispute resolution mechanism provided under the Micro, Small, and Medium Enterprises Development Act, 2006 (“MSME Act”). Under the MSME Act, if the parties (i.e. buyers and suppliers) referred to a conciliation mechanism by the Micro and Small Facilitation Enterprises Facilitation Council (“Council”) fail to reach a settlement agreement, the Council shall then refer the dispute to the IIAC whose registrar shall thereby initiate the arbitration process under the present Regulation. Importantly, parties qualify under this Regulation only if they had initially sought resolution through the Council. Alternate recourse through the Act is always available to the parties. This procedural alignment underscores the government’s commitment to streamlining specialized arbitration mechanism for commercial disputes highlighting its commitment to promoting ease of doing business by steering away from protracted litigation. The Regulation also reflects the government’s vision of Digital India where the focus is on efficient governance through technology-driven solutions.
Key Features:
Some of the key features of the Regulation are:
1. Reduced Costs & Legal Aid: At the outset, unlike the Act, the Regulation limits the tribunal bench to a single arbitrator which automatically reduces the arbitrator cost to be borne by the parties. Not only this, the Regulation, in comparison to the Act, provides for significantly reduced arbitrator fees and administrative costs. Effectively, this shall ease the financial burden on MSE’s and encourage them to approach arbitration as a possible dispute redressal mechanism.
Furthermore, the IIAC acknowledges the fact that the MSE’s may face financial constraints. To remedy this, the Regulation makes way for a party facing financial constraint to make an application to the IIAC with the prescribed documents, which, upon its satisfaction may wave the administrative costs by 50 percent and provide free legal counsel to the claimant.
2. Flexibility: While the Regulation provides for a fast-track procedure to be completed within six months, the provision also makes way for the parties to opt out of the fast-track procedure and alternatively proceed under the Arbitration Act with the same tribunal. This gives autonomy to the participants involved in the arbitration proceedings to decide the pace of their grievance resolution.
3. Mode: The Regulation envisages that arbitration is to be conducted by way of written and documentary submissions by the parties. The only exception to this rule is that oral hearing may be allowed only - (i) upon request being made by both the parties; or (ii) when the tribunal considers it necessary for the clarification of certain, at which stage it may do away with the technical formalities and adopt the best suited procedure. This ensures the tribunal can easily and speedily resolve disputes without being subjected to unnecessary adjournments and procedural delays.
4. Tech-driven: The Regulation provides that now the parties can file their statement of claim, statement of counter-claim and statement of defense virtually on the IIAC’s portal or by e-mail along with the option of physical filing. Similarly, all arbitration costs are to be paid only in electronic mode doing away with any cash payments. This serves to significantly increase the accessibility of arbitration to MSE’s situated even in the Tier-II, Tier-III cities and redress the logistical and cost concerns associated with physical arbitration.
5. Procedure: While the Act allows the parties to mutually agree upon the procedure by mentioning it in the arbitration agreement, this Regulation provides a pre-defined procedure as well as arbitrator fees, arbitration seat, administrative costs etc. Hence, this Regulation ensures that MSE’s do not spend time and effort on figuring out the procedure, costs etc., involved in an arbitration proceeding. Furthermore, this pre-defined procedure serves to the advantage of those MSE’s who are not equipped with the same level of legal counsel and bargaining power at the time of entering business arrangement as of their counterpart.
6. Time bound award: The Regulation prescribes for a fast-track procedure where the arbitration award is to be granted within six months from the parties being intimated of constitution of the tribunal. However, this time window can be extended by the IIAC per its own discretion. Though at the outset beneficial, the fact that the Regulation does not stipulate grounds / reasons for which the stipulated period may be extended leaves room for ambiguity and unnecessary delays which in effect defeats the purpose of a fast-track mechanism envisaged by the Regulation.
7. Absence of interim recourse to courts: One of the most important provisions under the Act is Section 9 which provides for interim measures/ relief from the court before/after the commencement of arbitral proceeding. This is aimed at taking temporary measures designed to prevent irreparable harm to either party involved in the dispute (say disposal of disputed amount by the respondent). However, the Regulation fails to provide any such measure. Therefore, evidently the parties can only seek interim relief from the tribunal post its constitution. The time gap between the failed conciliation process and constitution of tribunal by the IIAC, leaves parties vulnerable to face severe disadvantage with no recourse available during this period to secure any interim court relief.
8. Seat dilemma: One of the most important factors of arbitration in general is the pre-decided seat (chosen legal jurisdiction of the parties for conducting the arbitration) which is captured by the parties in their arbitration agreement/ arbitration clause. This Regulation vide its clause 17 (1) stipulates that, the location of the Council which refers the dispute to the IIAC automatically becomes the seat of arbitration, with only exception being that the arbitral tribunal determining any other seat with the consent of the parties. While this flexibility may prima facie appear to be advantageous such is not the case. Firstly, the usage of the word “shall” in clause 17(1) of the Regulation implies that regardless of the pre-decided seat (mentioned in the arbitration agreement/ arbitration clause), the location of the Council automatically becomes the seat of arbitration. This effectively takes away a party’s right to conduct arbitration in their preferred “seat”. Furthermore, the fact that the clause does not stipulate the stage at which the “consent of the parties” is to be taken with regards to seat change, may lead to situations wherein parties may on an ex post facto basis choose to change the seat merely as a delay tactic.
Our take:
The IIAC Regulations represent a significant step in the right direction, marking a paradigm shift in the resolution of commercial disputes for Micro and Small Enterprises (MSEs). While arbitration has always been a favorable recourse for businesses, the main concern for MSE’s was being cash-strapped and ill-equipped with resources enjoyed by big businesses, they often hesitated to opt for arbitration. The Regulation should however address some of the issues raised above as by taking away the interim recourse to court, the parties are put at severe disadvantage that, in some circumstances, defeats the purpose of arbitration and additionally give preference to the jurisdictional seat mentioned in the arbitration agreement over the Council’s location. Overall, by making provisions for reduced costs, flexible mechanisms, increased accessibility, this Regulation boosts the confidence of the MSE community and encourages them to recognize the advantages of arbitration.
References:
1. Arbitration and Conciliation Act, 1996 (https://www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf#search=Micro%20Micro,%20Small%20and%20Medium%20Enterprises ).
2. India International Arbitration Centre (Conduct of Arbitration) Regulations, 2023 (https://indiaiac.org/arbitrator_docs/acts/16960015101694065337India_International_Arbitration_Centre_(Conduct_of_Arbitration)_Regulation,_2023_(English_Version).pdf ).
3. Micro Medium Enterprises Development Act, 2006 (https://www.indiacode.nic.in/bitstream/123456789/2013/3/A2006-27.pdf#search=micro )
Author: Ms. Namrata Dubey, Senior Associate. With assistance from Mr. Pradeep Prashanth Reddy, Intern, Symbiosis, Pune.
