This article is written by Kunal Nema, pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho. The article has been edited by Prashant Baviskar (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).
Table of Contents
Arbitration is becoming increasingly important in resolving conflicts between parties. When compared to the Indian court system, it has proven to be a viable option. Arbitration in India is controlled by Indian Arbitration Act and the arbitration agreement must be signed by all the parties before it can take effect. The parties are required to follow specific stages in the Arbitration process. While each case is unique, variations in facts and circumstances may cause the standard method to be altered. Commercial arbitration is currently the primary means of dispute settlement for complex commercial issues. The judicial system is and has been for some time, clogged and burdened with a massive backlog of cases. It is not unusual for matters to be stuck in the judicial system for more than a decade pending resolution, particularly if the matters are of high value or are complicated in nature. As a result, including arbitration clauses in all large transactions and agreements is becoming the standard practice. In case a dispute has arisen and the party has opted to follow the procedure of arbitration, then the party against whom the default has been committed will send a notice for invoking the steps of the arbitration process between the parties.
How is the arbitration process commenced?
If a dispute arises and a party chooses to resolve it through arbitration, the party who has been defaulted against will send a notice of arbitration, which will initiate the arbitration process between the parties.
The existence of a disagreement and the aggrieved party’s invocation of the arbitration agreement must be highlighted in a notice to the other side to initiate an arbitration. Typically, such notice will be accompanied by another notice emphasizing the nomination of an arbitrator and requesting the other party to nominate an arbitrator for constituting a tribunal.
Following that, the other party will appoint an arbitrator. If the other party chooses to go to court instead of arbitration, the party who requested arbitration can submit an application under Section 8 of the Arbitration and Conciliation Act, 1996. A Section 8 application must be submitted to the High Court in the relevant jurisdiction, which has been given the exclusive power to hear any disputes arising under the arbitration agreement or arbitration clause in the agreement.
According to Section 8 of the Arbitration and Conciliation Act of 1996 (the Act), if a dispute has already been subjected to arbitration and is still being brought before a judicial authority, the judicial authority can refer the matter to arbitration upon the other party’s request. Before filing the first statement on the merits of the case, this application must be filed. It is quintessential that this application is submitted before the first statement on the merits of the case is filed.
How to appoint arbitrators?
The parties mutually agree on the arbitrator’s appointment and appoint him or her. In the arbitration agreement or clause, the parties agree on who will resolve the issue and name the arbitrator who will do so. If the parties are unable to agree on or nominate an arbitrator, Section 11 of the Arbitration and Conciliation Act, 1996 states that the parties must file an application for an appointment of an arbitrator.
When the procedure outlined in subsection 11(2), (3), (4), or (5) has not been followed, a section 11 application is to be filed with the Supreme Court or the High Court concerned for the appointment of the tribunal.
Modes for appointment of arbitrators
There are three modes for the appointment of an arbitrator in India:
- Ad-hoc appointment,
The ad hoc appointment approach, as defined by Section 11(2) of the Act, is prevalent. It becomes the most preferred technique because most parties have the freedom to pick an arbitrator as they see fit. When a party fails to meet the responsibilities for the constitution of the arbitral tribunal as agreed upon under the arbitration agreement, the court appoints the tribunal. When an arbitral institution is named in the arbitration agreement to handle the issue, the tribunal will be appointed in accordance with the institution’s norms.
In Indian Drugs & Pharmaceuticals Ltd. Vs. Indo Swiss S. Gem Mfg. Co. Ltd., it has been held that no retired High Court Judge can be appointed as an arbitrator by the court when the arbitration clause states categorically that the difference/dispute shall be referred to an arbitrator by the Chairman and Managing Director of IPDL who was the appellant in this case.
In National Aluminium Co.Ltd v. Metalimpex Ltd., a Bangladeshi company failed to nominate its arbitrator in terms of the arbitration agreement on an application under S.11 of the Arbitration and Conciliation Act, 1996, the Chief Justice of India nominated an arbitrator to act on behalf of the Bangladeshi company.
How many arbitrators can be appointed?
Section 10 of the Arbitration and Conciliation Act, 1996 states that:
- Parties are entitled to nominate as many arbitrators as they wish, but the number of arbitrators appointed must not be equal.
- If the parties cannot agree on the number of arbitrators within 30 days of making the request, they may appeal to the arbitration tribunal, which will appoint a sole arbitrator.
Only when there is a conflict of opinion amongst an even number of arbitrators does the topic of appointing a Presiding Officer arise. The third arbitrator can be appointed in one of two ways:
- by the parties themselves at the time of submission, or
- by the arbitrators themselves.
The arbitrators are presumed to have entered into the reference as soon as they accept their appointments and communicate with one another about it. There is a disagreement when one of the arbitrators refuses to act or agree on the nomination of a third arbitrator, and in such an event, the Chief Justice of the High Court is competent to designate the presiding arbitrator.
Eligibility criteria for arbitrators
The criteria for ineligibility for appointment as an arbitrator are set forth under Section 12 of the Act. The appointment of an arbitrator may be contested if there are circumstances that raise reasonable doubts or if the arbitrator does not meet the parties’ agreed-upon qualifications. The Act’s seventh schedule specifies the circumstances in which the appointment of an arbitrator is ineligible. These include current or previous professional affiliations with any of the parties as an employee, consultant, representative, lawyer, director, or manager/advisor. Personal relationships are also taken into account, such as the arbitrator being a close family member or having a personal link with any of the parties, or someone managing or controlling any of the parties. It also includes situations in which the arbitrator has a financial investment or interest in one or more of the parties.
How to draft a notice of commencement of arbitration?
The initiation of the arbitration is stated in Section 21 of the Arbitration and Conciliation Act of 1996. The conflict commences on the date the responder receives a request for the matter to be submitted to arbitration. Parties are required to respond to the legal notice from the time they receive it until the expiration of the time limit specified in the notice.
Things to remember while drafting a notice of commencement of arbitration
- It is imperative to demand that the dispute be referred to arbitration.
- The parties.
- Names, registered address(es), place of incorporation (if a company) or residence, telephone number(s), facsimile number(s) and electronic mail address(es), if known, of each of the parties to the arbitration and their representatives, if any.
- For State-Respondents, identify (if any) the relevant department / governmental body.
- The Arbitration Agreement/clause
- Make sure to incorporate a reference to the arbitration clause or the arbitration agreement that is being invoked(and annex a copy of it).
- If needed, show how the aggrieved party can avail itself of the arbitration clause/agreement.
- Show how the pre-conditions to the arbitration have been duly met.
- The Contract/Agreement
- If possible, attach a copy of the contract (or other instruments [e.g., investment treaty]) out of or in connection to which the dispute arises.
- The Dispute between the parties
- Include a brief statement describing the nature and circumstances of the dispute.
- Rule of law applicable to those disputes.
- Indicate the specific breaches/violations committed by the respondent.
- State the Procedure/conduct of Arbitration
- State choice of rules, unless earlier agreed. Propose, if none.
- State any procedures to which the parties have previously agreed.
- State any procedures which the Claimant wishes to propose.
- Consider suggesting e.g. language of arbitration and location of hearings.
- Appointment of Arbitrators
- Unless the parties have agreed otherwise, state the nomination of arbitrator(s).
- They should be odd in number ignorer to avoid an equal ratio.
- Not complete description of facts and issue
- May wish to state that the Request / Notice is not the Claimant’s full Statement of Claim or Case.
- That it is not a waiver of rights, remedies, or claims-legal or equitable.
The author concludes that the notice of commencement under Section 21 of the Act, Notice of Commencement of Arbitration is the first and foremost step to Arbitration and acts as a fulcrum of the Arbitration proceedings and without such notice, the arbitration proceedings would be unsustainable in law. It is quintessential that the notice is impeccably drafted as it is the driving force that catapults the process of Arbitration and paves the way for the party towards just and equitable relief in the form of an Arbitral Award.
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