On 28 February 2025, Young ITA India hosted a panel discussion on Unlocking the Future of Cost-Effective Arbitration in India at Jindal Global Law School in Sonipat, India.  The panel featured leading arbitration professionals as speakers:  Mrinal Jain (Managing Director, Secretariat), Varuna Bhanrale (Partner, Trilegal), Jeevan Panda (Partner, Khaitan & Co.), and Anjali Chawla (Associate Professor and Associate Dean, Jindal Global Law School).  Young ITA India Co-Chair, Aayushi Singh moderated the panel.

Singh kickstarted the discussion by addressing how arbitration, once considered a cost-effective and time-saving alternative to litigation, has become an expensive dispute resolution mechanism that few can afford.  Managing costs in arbitration is crucial and complex.  Singh highlighted that third-party funding has emerged as a solution to make arbitration more accessible.  However, this approach poses its own set of cost-related challenges, which will be considered in further detail below.

Bhanrale outlined several key factors contributing to rising arbitration costs in India.  These include exorbitant counsel and expert fees, tribunal and institution fees, and ancillary arbitrations costs, such as those related to interim relief and award enforcement.

In practice, arbitration in India is often burdened by procedural inefficiencies, particularly due to extensive reliance on section 9 of the Arbitration and Conciliation Act, 1996 (“Act”)1Arbitration and Conciliation Act, 1996 § 9 (India).X1 for seeking interim relief from the courts.  This reliance leads to multiple filings and delays in the arbitration process.  It is worth noting that a party to an arbitration agreement can invoke section 9 of the Act for interim relief at any time before or during the arbitral proceedings, or at any time after an award is rendered but before it is statutorily enforced under the Act.  Invoking section 9 inevitably delays the arbitration proceeding and increases the associated costs.

Panda concurred with Bhanrale and emphasized that parties should strategically consider and decide about legal representation and arbitrator nominations.  He observed that while hiring senior counsel to argue the case or nominating retired High Court or Supreme Court judges as arbitrators is a common practice in India, engaging skilled younger lawyers with expertise in the field can offer a more cost-effective and time-saving alternative without compromising quality.

Chawla steered the discussion to the issue of cost predictability and the importance of institutional cost caps.  She pointed out that, although the 4th Schedule to the Act provides a model fee structure for arbitrators based on the value of the dispute, it is often disregarded in practice, with arbitrators charging exorbitant fees to preside over the dispute.  To overcome this issue, Chawla suggested introducing graded fee structures, similar to those used by arbitration institutions such as ICDR and AAA.  This would ensure a structured and transparent approach to capping arbitration costs.

The panelists shifted the focus of the discussion to the much-debated issue of third-party funding in arbitration.  Panda provided an overview of the legality of third-party funding in India.  While Indian courts have accepted third-party funding in certain circumstances,1See, e.g., Bar Council of India v. A.K. Balaji, AIR 2018 SC 1382 (India) (recognizing that while lawyers cannot fund litigation on behalf of their clients, third-party funding by non-lawyers or third-party financiers is not restricted); Tomorrow Sales Agency Private Ltd. v. SBS Holdings, Inc., FAO(OS)(Comm) 59/ 2023 and CM Nos. 4793/2023 & 14794/ 2024 (Delhi High Court) (recognizing the validity of third-party funding in arbitrations and called for the government to formulate rules governing transparency and disclosure of third-party funding).X1 the absence of legislative guidance on the contours of third-party funding has created hesitance among practitioners regarding its use.  He emphasized the need for a clear regulatory framework to facilitate third-party funding while ensuring fairness and transparency in arbitration proceedings.  The panelists' views resonated with the Delhi High Court’s decision in Tomorrow Sales Agency Private Ltd. v. SBS Holdings, Inc.,2Tomorrow Sales Agency Private Ltd. v. SBS Holdings, Inc., FAO(OS)(Comm) 59/ 2023 and CM Nos. 4793/2023 & 14794/ 2024 (Delhi High Court).X2 which emphasized the need for regulating third-party funding to ensure transparency of funding arrangements.

Panda then addressed the risks associated with third-party funding, including concerns about funders potentially exerting undue influence over proceedings and potential conflicts of interest.  The speaker highlighted that ethical guidelines and disclosure requirements are essential to maintain the credibility of arbitration in a funding-driven environment and minimize conflicts.

Jain provided insights into how funders assess arbitration claims.  Based on his professional experience, Jain explained that funders generally apply a 1:10 ratio while relying on independent damages and valuation experts to validate claims.  This means that funders would typically fund $1 million for a claim worth $10 million.  He cautioned that exaggerated claim valuations could undermine a claimant’s credibility and deter funders from investing in a case.

In the next segment of the discussion, Singh shifted the dialogue from the economic aspects of funding to the role of technology in effectively managing and even reducing arbitration costs.  She noted that artificial intelligence (“AI”) can streamline administrative tasks, such as document management and case filings, thereby reducing the time and costs associated with procedural work.  However, she highlighted that there are growing concerns associated with the widespread adoption of AI in arbitral proceedings, including concerns over data security and maintaining confidentiality.

Chawla also discussed the role of technology in reducing arbitration costs, offering a unique perspective on the potential use of blockchain, particularly for evidence management.  She explained that blockchain ensures the integrity of records by making any tampering detectable.  However, she recognized that implementing such technology may be costly, making it less useful for all types of disputes, particularly those involving low-value claims.

Panda shared anecdotes from his experience with AI-powered tools, such as the virtual assistant, Ask.KAI, which assists with legal research and document drafting.  While acknowledging AI's value in improving efficiency, he emphasized that it cannot replace human judgment when it comes to legal strategy.  While concurring with this, I note that the inherent issues associated with AI such as AI bias, hallucinations, lack of transparency, opacity, and explainability make it critical for lawyers to supervise AI generated work.1I seek to highlight the case of Steven Schwartz and Peter LoDuca, two US-based lawyers who faced a fine of $5000 for submitting a computer generated brief replete with fictitious facts and case laws.  The Southern District of New York noted that six of the submitted cases appear to be bogus judicial decisions with bogus quotes and bogus internal citation.  This was because the lawyers used ChatGPT to build the case and even worse, they also used Chat GPT to confirm if some of the quoted cases were real cases.  ChatGPT Lawyers Are Ordered to Consider Seeking Forgiveness, New York Times (June 22, 2013), https://www.nytimes.com/2023/06/22/nyregion/lawyers-chatgpt-schwartz-loduca.html.  This is the classic example of hallucination in AI and why lawyers should exercise exemplary caution while using AI in legal work.X1

Jain shed light on the international best practices in arbitration.  He highlighted the importance of drafting well-structured and succinct claims, and the need for clear assumptions in expert reports. Using simple and precise language in claims, witness reports, affidavits, and even submissions is the key to avoiding ambiguity in arbitral proceedings.

Chawla and Bhanrale then examined how cultural factors influence arbitration costs in India.  They noted that the Indian litigation culture often favors extensive oral arguments and overreliance on procedural formalities, which ultimately drive-up costs.  The speakers advocated for a shift in mindset towards incorporating concise pleadings and submissions that would ultimately result in more effective, time-bound hearings.

The next issue considered by the panel was frivolous claims and suits.  At times, parties file a suit in national courts despite the existence of an arbitration agreement.  This delays the commencement of arbitration proceedings until the suit is resolved or the matter is referred to arbitration.  Panda noted that the absence of penalties for such frivolous suits prolongs disputes unnecessarily.  He recommended that the legislature introduce a cost sanctions regime to deter baseless claims and promote responsible litigation practices.

The panelists discussed several critical factors that can contribute to making arbitrations in India cost-effective.  In addition to the factors highlighted by the panelists, time sensitivity is another key underlying theme that can keep costs under check.  To this end, it is important for parties, right from the time of executing an arbitration agreement, to adopt a solution-oriented approach.  If a dispute arises, the parties should consciously make efforts to give effect to the arbitration clause in the best possible manner by avoiding dilatory practices.  Once the arbitration proceeding commences, both counsel and arbitrators should chart out a procedural schedule and strictly adhere to it until the tribunal renders its award.  Lastly, when the award is challenged or enforced, or an appeal is filed under the Act, parties should consciously work towards resolution without delaying hearings and proceedings.  Strict adherence to timelines can save costs, ultimately making arbitration more result-oriented and effective.

The panel discussion provided valuable insights into the evolving landscape of arbitration finance, complexities of third-party funding, and potential use of technology in legal practice.  The panelists reached a broad consensus on the need for structured fee mechanisms, regulatory clarity on third-party funding, and greater use of technology to control arbitration costs.  The discussion reinforced the idea that while arbitration was designed as an efficient and cost-effective alternative to litigation, rising costs, procedural inefficiencies, and delays have made parties weary of arbitration.  To make India a successful arbitration hub, it is imperative to strike a balance and ensure that arbitration remains an attractive dispute resolution mechanism while keeping costs under control.