This article is written by Pratikesh Shankar, from National University of Study and Research in Law, Ranchi. The author through this article, brings out how the arbitral proceedings are conducted.
In recent times, the arbitration process has become a powerful tool to bring business disputes to an end. The Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) was enacted to consolidate, codify and amend the laws pertaining to domestic as well as international commercial arbitration and enforcement of foreign awards. The Act also codified laws related to conciliation and connected matters. The Act ensures party autonomy and confidentiality in the matters of arbitration.
The requirements of an arbitration agreement are provided under Section 7 of the Act. The arbitration agreement must be in writing and duly signed by the parties. The arbitration agreement can be in the form of an arbitration clause in a contract or in the form of a separate agreement.
In P.A.G Raju v. P.V.G. Raju (AIR 2000 SC 1886), the Hon’ble Supreme Court held that Arbitration agreement is not a prerequisite for arbitration. If one party applies to the court to get a matter referred to arbitration and if the other party does not object then there is no bar on the court in referring the parties to the arbitration. Parties are allowed to go for arbitration. The important requirement is the consensus of parties.
In the case of Bihar State Mineral Dev. Corpn. v Encon Builders (I) Pvt. Ltd. (AIR 2003 SC 3688), the court laid down the essential elements of an arbitration agreement which are as follows:
- Existence of present or possibility of future differences.
- Intention to resolve differences through arbitration.
- Written agreement to be bound by the decision of arbitration.
- Consensus ad idem.
- Concluded consent to refer the dispute to arbitration.
Notice required prior to referral of disputes
Notice by one party to another party under Section 21 of the Act is mandatory before referring the disputes to arbitration.
In 2017, the Delhi High Court in the case of Alupro Building Systems Pvt Ltd v. Ozone Overseas Pvt. Ltd. considered the question whether notice under Section 21 is mandatory where the petitioner received a notice from a sole arbitrator. The respondent appointed the sole arbitrator and issued notice to the petitioner through the sole arbitrator that the dispute between them will be arbitrated over by him. The unilateral appointment of a sole arbitrator by one party was the grievance of the petitioner. The court after hearing observed that the bare reading of Section 21 provides the date of commencement of arbitration proceedings based on the receipt of notice by the other party. The court further ascertained the object behind this provision is that the other party to the arbitration agreement against whom a claim through notice is made should know what the claims are. The notice under this provision serves an important purpose of reaching a consensus between parties on the appointment of an arbitrator. And lastly, the court explained the relation between Section 11(6) and Section 21 of the Act where one party fails to adhere to the procedure of the appointment of an arbitrator. Therefore, Section 21 is mandatory as the arbitration proceedings commenced without prior notice are unsustainable and bad in law.
Appointment of arbitrators
One of the advantages of arbitration is that it allows parties to an arbitration agreement to submit a dispute to judges of their own choice. Under Section 10 of the Act, the parties are free to determine any odd number of arbitrators. In cases where the parties fail to determine the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.
Under Section 11 of the Act, the parties are free to agree on a procedure for the appointment of arbitrator or arbitrators. But if the appointment of the arbitrator is not consensual, the arbitrator has no power to make a binding order or award and if he makes any award it will be a nullity.
The appointment of an arbitrator by a party is complete only on its communication to the other party.
Members involved in the proceeding
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to an arbitrator or to a tribunal of several arbitrators who give a decision on the dispute that is binding on the parties.
Section 7 of the Act defines an arbitration agreement. It is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship.
The parties to the arbitration agreement under Section 10 of the Act are free to determine the number of arbitrators but such number shall not be an even number.
The Arbitration and Conciliation Act does not give arbitrator or tribunal any power to enjoin a third party to pending arbitration proceedings or consult third parties without disclosing it to the parties. In the Husein Ebrahim v. Keshardeo Kanaria & Co. (AIR 1954 Cal 111), the arbitrators approached a third person, who was not the party to the arbitration agreement, by writing a letter to him. They asked him for certain information which was related to arbitration proceedings. The arbitrators also did not discuss or disclose this information to the parties. The court held that the arbitrators were guilty of misconduct.
So, the members involved in any arbitration proceedings are the parties to the arbitration agreement and a sole arbitrator, or a tribunal of several arbitrators.
Section 21 of the Act provides the rules which govern the commencement of arbitral proceedings. It gives freedom to the parties to agree and determine when the arbitration proceeding can officially commence. But in the absence of such an agreement or where the parties fail to arrive at an agreement, the arbitral proceedings can commence when one party issues a notice to the other party, in writing, showing its intention to refer the dispute to arbitration.
So in respect of a particular dispute, the arbitral proceeding commences on the date on which a request for that dispute to be referred to arbitration is received by the other party. In order to determine the date of receipt, the provisions of Section 3 of the Act must be looked into.
Rules and legislation
Section 43 of the Act provides that the Limitation Act, 1963 shall apply to arbitrations as it applies to civil suit proceedings in the courts, except to the extent expressly excluded by the Arbitration and Conciliation Act. Thus, the date of commencement of arbitral proceedings assumes relevance for calculating the time-limit for arbitral proceedings under the Limitation Act, 1963. Any arbitration proceedings commenced after the limitation period, i.e., three years from the date on which the cause of action arose, will be time-barred.
Equal Treatment of Parties
Section 18 of the Act has two fundamental principles. Firstly, it provides that the parties to an arbitration proceeding shall be treated with equality and secondly, that each party shall be given a full opportunity to present their case. This section is a mandatory provision and the arbitral tribunal has to comply with it. The tribunal has to act in an impartial manner to the parties and no party has to be given an advantage over the other.
Procedure of Arbitral Proceedings
Section 19 of the Act recognises the right of the parties to agree on the procedural rules which are applicable in conducting the arbitral proceedings. This provision establishes the procedural autonomy of the parties.
When the parties fail to agree on a procedure or frame the procedure, it grants the arbitral tribunal a wide range of discretionary powers to frame the arbitral proceedings. The Act does not prescribe any default rules regulating the arbitral proceedings.
Place of Arbitration
Section 20 of the Act provides that the parties are free to agree on the place of arbitration and if they fail to agree then the arbitral tribunal has to determine the place of arbitration in a judicial manner, considering the circumstances of the case and convenience of the parties.
Also, the place of arbitration is of paramount importance because the laws of the place of arbitration play a fundamental role in the arbitral proceeding. It determines the substantive laws for the time being in force in India.
Language to be used in Arbitral Proceedings
Section 22 of the Act deals with the language which has to be used in arbitral proceedings. The parties to the arbitration agreement are free to choose the language or languages which have to be used in the arbitral proceedings. In cases where the parties fail to arrive at such an agreement then it is the role of the arbitral tribunal to determine the language or languages to be used in the arbitral proceedings. The language shall also apply to any written statement by a party, any hearing and any arbitral award, decision or other communication by the arbitral tribunal.
When the arbitral tribunal agrees on the language to be used in arbitral proceedings, it may order that any documentary evidence shall be accompanied by a translation into the language agreed. The arbitral tribunal must ensure that all the parties are able to follow and understand the proceedings.
Statement of Claim and Defence
Section 23 of the Act provides for pleadings of the parties before the arbitral tribunal. After the arbitral tribunal has been established, the usual practice is to exchange and file their pleadings before the tribunal.
The claimant states the facts and other relevant matters, while the respondent opposes the facts and the averments made in the claim statement and contests the relief claimed by the claimant. The contents of pleading may vary from case to case depending upon the facts and circumstances of each case.
Within six months of the appointment of the arbitral tribunal, the statement of claim and defence has to be completed under this section.
Hearing and written proceedings
Section 24 of the Act discusses the manner in which arbitral proceedings are to be conducted. In the absence of any prior agreement between the parties relating to this matter, the arbitral tribunal has the power to decide whether the proceedings shall be held orally or on the basis of documents and other materials.
Default of Party
Section 25 of the Act deals with three situations where the parties are at default.
Firstly, the arbitral tribunal terminates the proceedings when the claimant without showing sufficient cause, fails to communicate his statement of claim in accordance with Section 23(1). Secondly, the arbitral tribunal continues the proceeding when the respondent fails to communicate his statement of defence in accordance with Section 23(1).
Thirdly, if there is sufficient cause then the termination is recalled and proceeding gets restored.
Appointment of Experts
Section 26 of the Act gives the arbitral tribunal power to appoint one or more experts based on the requirement or request of the parties. It requires the parties to provide relevant information to the experts.
Also, the arbitral tribunal cannot appoint experts and delegate the duty of determination of the dispute.
Section 27 of the Act provides the arbitral tribunal with the power to apply for the court assistance in taking evidence. Persons can also be held guilty and tried before the court, if they refuse to give evidence or do not cooperate.
The arbitral proceedings are terminated either by the final arbitral award or by an order of the arbitral tribunal terminating the arbitral proceedings.
The arbitral tribunal terminates the arbitral proceedings in any of these cases where:
- the claimant withdraws the claim and respondent does not object to it,
- both parties are in consensus and agree to terminate the arbitral proceedings, or
- the continuation of the arbitral proceedings has become impossible or irrelevant considering the present facts of the case.
Also, the termination of the arbitral proceedings terminates the mandate of the arbitral tribunal and the arbitral tribunal becomes functus officio. The term “functus officio” means no longer holding office or having official authority once a decision is rendered.
The arbitral proceeding is based completely on the concept of party autonomy, where both the parties decide the procedure as well as the circumstances under which arbitration is sought. The “rules of the game”, such as applicable law, the seat of arbitration, the language of the proceedings, etc. are in the hands of the parties and the arbitral proceedings are mostly conducted based on those rules. So, there are no particular set of rules and applicable laws which govern the arbitral proceedings. However, Arbitration and Conciliation Act, 1996 limits judicial intervention and reinforces the importance to party autonomy, confidentiality and expeditious completion of arbitral proceedings.
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