Introduction
Institutional arbitration has been gaining momentum in India in recent years, with the government taking significant steps to promote arbitration as an effective alternative to litigation. The India International Arbitration Centre (IIAC), established by an Act of Parliament and recognized as an institution of national importance, has been at the forefront of creating an autonomous regime for institutional arbitration in India.
On June 7, 2024, the IIAC introduced the India International Arbitration Centre (Conduct of Micro and Small Enterprises Arbitration) Regulations 2024 (“Regulations 2024”), for promoting expeditious and effective dispute resolution mechanisms for micro and small enterprises.
Background
The concept of micro and small enterprises was first envisioned by the government in 2006 when it passed the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. This act was brought in as a comprehensive legislation to regulate and support such enterprises. At the present, all business enterprises, including manufacturing and services, fall under this act if they meet the following criteria:
- For micro enterprises - an investment in plant, machinery or equipment of less than INR 1 crore and a turnover of less than INR 5 crores
- Small enterprises - an investment in plant, machinery or equipment of less than INR 10 crores and a turnover of less than INR 50 crores.
The Ministry of Micro, Small and Medium Enterprises (“Ministry of MSME”) establishes policies, promotes and facilitates programmes as well as initiatives and schemes for more than 6 crore MSMEs currently operating in India.
IIAC Regulations 2024
The IIAC, with an aim to incorporate the growing economic and technological developments, and to facilitate the conduct of arbitration upon receipt of a reference from the Micro and Small Enterprises Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), has introduced the Regulations 2024. These Regulations are poised to revolutionise the way disputes are resolved within the MSE sector. Certain highlights of these regulations are discussed below:
- Integration of technology and use of Artificial Intelligence
IIAC has partnered with the Ministry of Electronics and Information Technology's (MeitY) Digital India Corporation to incorporate a cutting-edge artificial intelligence software ‘BHASHINI’, into the arbitration process. This technology aims to bridge linguistic and regional barriers by providing real-time translation of voice and documents into English and Hindi from any of the languages specified in the Eighth Schedule of the Indian Constitution. This innovative approach marks a significant milestone in the use of AI for dispute resolution in India.
- Statutory provision for Legal Aid
Section 25 of the regulations introduces a legal aid provision for MSEs that are a party to the arbitration and are experiencing continuous financial difficulties in the years preceding the commencement of arbitration. If the disputed sum is less than Rs 20 lakh, an MSE facing ongoing financial challenges in the year prior to the initiation of arbitration may request legal aid. For disputes exceeding Rs 20 lakh, the MSE can seek assistance for the three years preceding the start of arbitration. Such an MSE will have to file an application which the Registrar will evaluate. If approved, they may waive up to 50% of the administration fee and provide free counsel, subject to certain limitations.
- Fast Track Procedures
Unlike the Arbitration & Conciliation Act, 1996 (“1996 Act”), all arbitrations conducted under the IIAC Rules shall be conducted in a fast track manner. However a party may file an application with the constituted arbitral tribunal, to not conduct the proceedings in a fast track manner. In the fast track procedure, oral hearings will only be held if requested by all parties or deemed necessary by the arbitral tribunal to clarify specific issues. The tribunal has to render the award within six months of the Registrar informing the parties about its constitution.
- Appointment of Arbitrators
Upon receipt of a reference by the Facilitation Council, the Centre shall conduct and administer the arbitration in accordance with the IIAC Regulations 2024 and the 1996 Act. The IIAC Chairperson, in consultation with the Advisory Panel, will appoint a Sole Arbitrator. This selection process ensures that the arbitrator is independent, impartial, and capable of conducting the arbitration efficiently and expeditiously.
- Affordable Fee Structure
The IIAC regulations have introduced a fee structure that is favourable for MSEs. There is no filing charge for a Claim or Counter Claim, a small arbitrator fee (less than the amount established in the Fourth Schedule of the Arbitration and Conciliation Act of 1996), and a minor administration fee payable by the parties
Conclusion
The Regulations mark a significant milestone in the evolution of dispute resolution mechanisms for the MSE sector in India. As the IIAC continues to pave the way in institutional arbitration, these ground-breaking regulations set a new standard and a milestone in the evolution of dispute resolution.
By - Sayjal Deshpande
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