This article has been written by Dheeraj Joshi, pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Table of Contents
In today’s world where time is precious for a common man it is also very precious for the companies however big or small they are. The problem with regular courts is that they are overburdened with a truckload of cases so it is practically not feasible to resort to courts for cases where time is a crucial factor. In order to remedy this situation, the Alternative Dispute Resolution (ADR) method is adopted internationally as well as domestically. Arbitration is a type of ADR method where the parties to a private dispute choose a neutral person as an arbitrator who decides the dispute by passing an arbitral award which is binding on the parties. Parties can specifically mention in their agreement a dispute resolution clause which is a boilerplate clause in the agreement or they can separately sign an arbitration agreement under Section 7 of Arbitration and Conciliation Act,1996. Arbitral Tribunals are quite effective compared to the regular courts as they can effectively decide the dispute between the parties within a very less time and are very cost effective.
What is the need for arbitration
The question which normally arises in our mind is why we choose arbitration when we already have a well organised system of courts which are entrusted with a task of delivering justice to everybody. The answer to this question is that the procedure followed by Indian courts is highly technical and formal thereby making room for a speedy and less formal mechanism to resolve the private disputes between the parties. Some of the main characteristics of the arbitration are–
Arbitration is the mutual agreement between the parties
When the parties make an agreement then they mention that in case of any future dispute they will resort to the arbitration. Arbitration happens only when both the parties to the agreement agree to it. No one party cannot withdraw unilaterally from the arbitration agreement.
The parties can choose their arbitrators
Both the parties can choose either a sole arbitrator or they can choose their own arbitrator, these arbitrators then choose a third arbitrator who will act as a presiding arbitrator. The number of arbitrators cannot be even. These arbitrators are highly specialised practitioners in the legal field.
The arbitrators are neutral
The parties can choose arbitrators of any nationality. This is to ensure the impartiality of the arbitration proceedings. In addition to this, parties can also choose the place of conduction of arbitral proceedings, the language to be followed in the proceedings and the law which will be applicable to the parties.
Arbitration proceedings are confidential
Unlike courts where the case proceedings happen in the open court, arbitration proceedings happen in secrecy. The disclosure of trade secrets between the parties, the venue of arbitration as well as the arbitral award all factors are kept secret.
Arbitral awards are final
Since the parties themselves consented to move to the arbitral tribunals, the award passed by it is final and binding on the parties. According to the New York Convention,1958 the award passed by the International arbitral award is enforced by the domestic courts with certain exceptions.
UNCITRAL model of arbitration
UNCITRAL Model law on International Commercial Arbitration (1985) is formed to assist states to reform and modernise their arbitration laws to take into account the need of international arbitration laws. Model law consists of thirty six (36) articles covered in eight (8) chapters covering the entire range of arbitration agreement, composition and jurisdiction of the arbitral tribunal, duties and obligations of the arbitrators to the court’s intervention on recognition and enforcement of arbitral awards. This model law signifies the willingness between the majority of the nations to follow the international arbitration procedure to amicably settle their disputes.
Before explaining the powers and functions of Arbitral Tribunal let us first explain in which sections of Arbitration and Conciliation Act,1996. The Arbitral agreement between the parties is defined under Section 7 of the Act of 1996. Parties according to the Section 7 of the Act can either make a mention of the arbitration agreement in the contract as a separate agreement or a clause in the agreement in case of any future dispute. This agreement shall be in writing if it is contained in documents signed by the parties or any other mode of communication between the parties.
If parties approach before any judicial authority regarding their disputes a judicial authority under Section 8 of the Act can refer the parties to an arbitral tribunal if parties have specifically mentioned in their agreement about arbitration. Party before, at the time or after passing of arbitral award but before its enforcement can approach the court under Section 9 of the Act for interim measures regarding custody of minor or persons of unsound mind by a guardian, the detention, preservation and inspection of the any property or things which are the subject matter of the arbitration agreement, receiving the amount in dispute in arbitration, interim injunction, appointment of receiver or any other matter as the court thinks proper.
Composition of Arbitral Tribunal
What is an Arbitral Tribunal
Arbitral Tribunal is a panel of judges called arbitrators which are responsible for adjudicating disputes between the parties in contract. Chapter 03 of the Act deals with the composition of the arbitral tribunal.
Appointment, Number and Termination of the Arbitrator
Section 10 of the Act says that parties are free to determine the number of arbitrators provided that number shall not be even failing which arbitral tribunal consists of sole arbitrator. Section 11 of the Act says that a person of any nationality can be an arbitrator, unless otherwise agreed by the parties. The parties are free to agree on a procedure of appointing arbitrator or arbitrators failing which in an arbitration consisting three arbitrators each party shall appoint one arbitrator and these appointed arbitrators shall appoint the third arbitrator who shall be the presiding arbitrator. The appointment of an arbitrator can be challenged if there are justifiable doubts about his independence or impartiality or he does not possess the qualifications agreed to by the parties. Section 15 of the Act says that arbitrator can be terminated if–
(a) He withdraws from office for any reason
(b) By or pursuant to agreement of the parties and
(c) Where his mandate terminates and a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
Powers and Functions of Arbitral Tribunal
Power to rule on its own jurisdiction
The authority of an arbitral tribunal to adjudicate on any challenge to the existence and legality of the arbitration agreement is addressed in Section 16 of the Act. The arbitration clause, which is to be regarded as a separate agreement from the other conditions of the contract, is unaffected by the arbitral tribunal’s ruling that the contract is void and unenforceable.
In Wellington Associates Ltd. vs Mr. Kirit Mehta (2000), the Supreme Court ruled that Section 33 of the Arbitration Act, 1996 makes it clear that any dispute regarding the “existence” of the arbitration agreement may only be resolved by application to the Court and not by the arbitrator. Section 16 of the Arbitration and Conciliation Act of 1996 has since eliminated the arbitrator’s incapacity. A decision about the “existence” of an arbitration clause in a contract can now be therefore made by the arbitral tribunal under Section 16.
Power to make interim measures
Section 17 states the power of the arbitral tribunal to order interim measures if–
(a) a party during the arbitral proceedings apply to the arbitral tribunal for the appointment of guardian for minor and person of unsound mind for arbitration proceedings; or
(b) interim measures for preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement; or
(c) securing the amount in dispute or appointment of receiver and interim injunction.
Power to hold oral hearing
According to Section 24 of the Act, the arbitral tribunal may determine whether to conduct the proceedings solely on the basis of papers and other material or whether to have oral hearings for the presenting of evidence or for oral argument. The parties must be informed in advance of the hearing, and any comments or materials submitted to the arbitral tribunal by one side must be shared with the other party.
Power to proceed ex-parte
Where without stating sufficient cause, under Section 25 of the Act, the claimant or respondent fails to communicate his statement of claim or defence under sub-section (1) of Section 23 of the Act the arbitral tribunal shall proceed ex-parte.
Power to appoint an expert
Section 26 of the Act says that the arbitral tribunal may appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal. The expert shall, after submitting his oral or written report, participate in an oral hearing where parties will put questions to him. The expert also on the request of a party presents all documents, goods or other property, which are in his possession, placed before that party for examination.
Power to make Arbitral Award
Sections 28 to 33 in Chapter 06 of the Arbitration and Conciliation Act, 1996 deals specifically about the arbitral awards. Which regulations apply in the event of a dispute between the parties is a crucial point to make here. The answer to this question is that if the arbitration takes place in India, the arbitral tribunal will decide the dispute in accordance with Indian substantive law in all other arbitrations other than international commercial arbitrations, but it will decide the dispute in accordance with the rules established by the parties in international commercial arbitrations.
The majority of the arbitrator’s members must agree on the decision in an arbitral process. In cases other than those involving international commercial arbitration, the arbitral tribunal must issue the award within a year of the filing date of the initial complaint. If parties reach a settlement during the arbitration process, the arbitral tribunal must end the proceedings and record the agreement in the form of an arbitration award.
The arbitral tribunal’s members must all sign an arbitral award before it may be considered final. The basis for the arbitral award must be stated in the award itself. A signed copy of the arbitral award must be given to each party after it is made.
In relation to the arbitration proceeding the arbitral tribunal shall have a discretion to determine whether the costs are payable by one party to another, the amount of such costs and when such costs are to be paid. The arbitral proceedings shall be terminated by the pronouncement of final arbitral award or by the order of the arbitral tribunal when the claimant withdraws his claim, parties agree on the termination of the proceedings or tribunal finds that continuation of the proceedings become unnecessary or impossible.
Duties of Arbitral Tribunal
Apart from powers given to the arbitral tribunals under Arbitration and Conciliation Act, 1996 these tribunals also have certain obligations to perform towards the parties. These duties are enumerated below:
Duty to be impartial
Section 18 of the arbitration and conciliation act says that it is the duty of an arbitral tribunal to be impartial, that means the arbitral tribunal shall treat each party equally and each party shall be given full opportunity to present his case.
Duty to choose time, place and language of arbitration
Section 20 of the Act says that parties are free to choose the place of arbitration according to their convenience but if they fail to do so then it is the duty of the arbitral tribunal to determine such place regarding circumstances of the case. In Sanshin Chemicals Industry vs Orientals Carbons And Chemicals ( 2001), the Supreme Court ruled that a joint reading of Section 2(6) and Section 20 leads to the conclusion that, even though the parties were free to choose the location of the arbitration, they had the right to authorise anyone, including an institution, to make that decision. In the case at hand, the Joint Committee is such an institution, and its decision will not be subject to appeal. According to Section 22, the arbitral tribunal will choose the language or languages to be utilised in the arbitration if the parties are unable to agree on one or more of them.
Duty to disclose relevant facts required to be known by the parties
When an arbitrator is appointed in such a manner then it is his duty that he shall disclose, under Section 12 of the Act, in writing all past and present connections whether direct or indirect with the parties or the subject matter in dispute which shall affect his ability to devote sufficient time to the arbitration proceedings.
In Steel Authority Of India Ltd vs British Marine Plc (2016), the Delhi High Court evaluated whether the AT members’ argument that they were not obligated to make a disclosure other than the one they had already made was valid or not. In other words, the Court decided whether the arbitrators were required to follow the Fifth Schedule’s criteria, namely Item 24 of that Schedule or not. The Court had taken into account Explanation 2 to Section 12 (1), which allows for potential exceptions in situations where parties typically choose the same arbitrators for various instances.
Duty to correct the award
Section 33 says that if the a party within thirty (30) days from the receipt of the arbitral award, with a notice to other party, request the arbitral tribunal to correct any computational, clerical or typographical error in the award or request the arbitral tribunal to give an interpretation of a specific point of the award then it is the duty of the arbitral tribunal to make the correction or give the interpretation which shall form the part of the arbitral award.
Duty to avoid misconduct
It is the duty of the arbitral tribunal to avoid passing any award which is opposed to public policy. It must not engage in bribery and corruption also it must not break the rule of natural justice.
In the modern times where disputes between the parties are complex the arbitral tribunals are helping regular courts in its task of dispensation of justice. Arbitral tribunals are vested with powers in order to achieve the desired outcome of the parties besides these tribunals have duties also that have to be complied with. Various international laws and conventions made between various countries make this area evolving from the past to the present and it will keep on evolving.
- UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006
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