This article is written by Mohd Sarim Khan from Lloyd Law College. This article will discuss the process of the arbitral proceedings and various provisions related to the arbitral process in the Arbitration and Conciliation Act 1996.
“Justice Delayed is Justice Denied”
“Justice Hurried is Justice Buried”
The present legal system fails to give speedy and inexpensive relief to a party. There are approximately 2 crore cases pending in the Indian legal system for which we have only 22,000 Judicial Officers. If we stop filing fresh cases today, it will take seven years to clear the backlog of cases. The present legal system of litigation is too expensive and time-consuming. Sometimes the cost exceeds the value of the claim.
The delay is the most disadvantageous part of the litigation. It is a general presumption that it takes 15-20 years to decide a civil case. The delay results in physical, mental, and financial harassment. With the dynamic change of technology, different cases appear in the Court every day which lacks the expertise of a judge.
It has resulted in wrong decisions and consequential appeal to the higher forum. Arbitration emerges as the most suitable option for the parties and such disputes.
What is Arbitration?
It is a method of alternative dispute resolution that emerged to prevent Court litigation and resolve the disputes quickly and amicably. An amicable settlement doesn’t mean compromising at any cost. The arbitration provides an alternative mode of dispute resolution through an arbitrator. It includes a selection of the neutral third person who is an expert in the area of the arbitral issue. All the parties are bound by the rule and the time limits fixed by the arbitrator within which the dispute is to be settled.
Need to commence Arbitration in India
In this competitive world, the delay in resolving the disputes cost a huge loss to the corporation. Parties want to solve their disputes speedily and amicably. The major significance of arbitration is the privacy and confidentiality of the proceeding.
Generally, parties don’t want their disputes to become public and diminish the image of the company. Arbitration is very flexible in time and procedure and arbitration plays after parties’ autonomy.
Types of Arbitration
There are two types of arbitration proceedings:
Institutional Arbitration is a specialized body with a permanent centre participating and performing the function of aiding and administering in the arbitral process as provided by the rules of the institution. These institutes provide administrative support to the parties. Institutional arbitration just provides the platform for the process. Parties mention in their arbitration clause of the contract whether they want to choose institutional arbitration or ad hoc arbitration.
The issue arises for the parties if they choose institutional arbitration for the disputes. Various factors have to be considered in such a case:
- Nature & commercial value of the disputes
- Institution Rules
- Past record
- The reputation of the institution
- Fees charged
Some reputed institutions for arbitration:
- Indian Council of Arbitration
- International Chamber of Commerce
- Federation of Indian Chamber of Commerce & Industry
- World Intellectual Property Organization
Ad hoc Arbitration
An ad hoc arbitration is one that is not administered by an institution. The parties are required to determine all the aspects of the arbitration such as the number of arbitrators, manner of their appointment, the procedure for appointment, procedure for conducting the arbitration. Ad hoc arbitration is not administered by others. The parties themselves have to make their own arrangement for selection of an arbitrator, designation of rules, the applicability of law, procedure and administrative support. These proceedings are cheaper, flexible and faster than the Institutional arbitration and cost fewer fees.
Domestic and International Arbitration
Domestic arbitration takes place in India. The arbitration is a subject matter of the contract and merits of the disputes are all governed by Indian law and the cause of action arises wholly in India. Both parties are from the domestic country and all the proceeding of the arbitration are performed in their own country or habitually resident, or home country.
International commercial arbitration refers to the arbitral proceeding which takes place either in India or outside the country or when the parties or subject matter of the arbitration belong to a foreign party. The international commercial arbitration has its set of rules on the application of the matter. Various legal systems have their own specific rules for domestic and international arbitration.
Stages of the Arbitral Process
Arbitration Clause or Arbitration Agreement
During the drafting of a contract of construction, insurance, partnership or any civil matter, Parties shall add a clause of arbitration in the contract. In the future, if any disputes arise between the parties they can resolve it through arbitration. But while drafting an arbitration clause in the contract, the lawyer should be very careful to make the clause detailed and ensure that it should contain all the possible disputes which can be raised out of contract or in relation to the contract. If the parties had no arbitration clause in the contract, the parties can make an arbitration agreement with their mutual consent to solve the disputes arising out of the previous contract.
Elements which are required to make the arbitration agreement or arbitration clause effective
Number of Arbitrators
Section 10 of Arbitration and Conciliation Act, 1996 states that:
- Parties are free to appoint as many arbitrators as they can but the number of arbitrators shall not be in even number.
- If the parties did not decide the number of the arbitrator within 30 days of sending the request, in such a case, they can reach the arbitration tribunal which will appoint a sole arbitrator.
Section 21 of the Arbitration and Conciliation Act, 1996 states the commencement of the arbitration. The dispute begins from the date on which a request for the dispute as referred to arbitration is received by the respondent. From the date of receiving the legal notice to the respondent till the completion of the fixed period given in the notice, parties have to give the reply of the notice.
Appointment of Arbitrators
Appointment of the arbitrator is mutually decided and appointed by the parties. The parties in the arbitration agreement or clause mutually decide and mention the name of the concerned arbitrator who will resolve the dispute. If the parties fail to mutually decide or appoint the arbitrator then in such case, Section 11 of the Arbitration and Conciliation Act, 1996 states that the parties shall move to the Court and request to appoint an arbitrator.
Statement of Claim
Section 23 of the Arbitration and Conciliation Act, 1996 states that with the period of time fixed by the parties, the claimant shall state the facts for supporting his claim, point of issue and relief.
The parties are required to submit their statement of claim by providing all documents supporting the relevant facts of the issues of the arbitration. The claim can be amended if it is agreed by the parties than they can amend the claim during the course of the arbitral proceeding. Or unless the arbitral tribunal considers the claim inappropriate.
Hearing of Parties
Steps involved in the process of hearing of the parties:
Preliminary hearing and information exchange stage
After the appointment and confirmation of the arbitrator, the preliminary hearing of the arbitration begins when the parties call their arbitrator to fix the schedule. In the preliminary meeting, issues are addressed, the exchange of information is done between the parties and the next hearing date is scheduled. On the next date, the arbitrator will issue a written document called a ‘scheduling order.’
During the stages, the parties present their case to the arbitrator. This process can take place in person, over the telephone, or by submitting written documents or arbitration agreements and applicable rules that govern the case. Parties are required to submit written arguments after hearing, at the direction of the arbitrator.
After the completion of the hearing, the arbitrator determines no more evidence will be presented. The hearing is closed and a date is fixed for the issuance of the award.
The arbitrator renders a written award and outcome of the case and it is sent to the parties.
An arbitration award is a final order given by the arbitrator. This award can be in terms of monetary relief to one party by other parties. It can also be a non-financial award such as adding employment incentives or stopping such business practices.
There are two types of the arbitration award:
This is a temporary award given by the tribunal during the course of the proceedings. An Interim award can only be made by the tribunal which has the power to grant a final award. Interim orders are often given for the payment of money or the disposition of property between the parties and an order to make an interim payment is on account of the costs of the arbitration.
The final award is the order or judgement given by the arbitrator after the due process of arbitration. An arbitrator shall state the reason upon the decisions made in the award. After the pronouncing of the final award. it shall be signed by all the arbitrators and the parties. Till the completion of 90 days, other parties have the right to challenge the award in the Court till the party in whose favour the award is given can not enforce the award.
Challenge in Court
The party in whose favour award is given by the arbitrator an award holder will need to wait for a period of 90 days and during this intervening period, other parties have the right to challenge awards.
In accordance with Section 34 of the Arbitration and Conciliation Act, 1996 that states that the Court can set aside the arbitral award if:
- The party was under some type of incapacity.
- The arbitration contract is not valid under the law to which parties have been subjected to.
- The party making the application for invoking the arbitration has not given proper request to the other party for the appointment of the arbitrator.
- The award deals with the disputes not falling or comes under the submission of the arbitration or contains matter beyond the scope of arbitration.
Other Essential Elements of Arbitral Process
Seat and Venue
In arbitration, the seat is the legal construct and it is the jurisdiction where the final arbitral award will be made. The seat has a great impact on the legal framework of the arbitration. Each jurisdiction applies their own set of rules for the arbitration that is why parties have to decide the seat of the arbitration diligently. Selection of the seat of arbitration not only determines the law governing the arbitration proceedings but also the rights relating to the enforcement of the arbitration awards.
The venue is the place where parties meet if the arbitration is under the rule of institutional arbitration, it is generally conducted at the place where the institution is located. If it is ad hoc arbitration, the place is gradually changed as decided by the parties. The venue is not the same as the seat of arbitration, it is merely a geographical location of the arbitration proceedings chosen on the basis of convenience. When the agreement is completely silent on the seat and venue, in such situations, it’s a venue which emerges as a crucial factor in deciding the appropriate Court
The cost of the arbitration proceeding is borne by both the parties. It is well settled that it is against the law that only one party bears the cost solely, thus, plaintiff or respondent have to pay the entire fees, or as decided by both parties mutually.
Limitation to Commencement of Arbitration
Section 43(2) of Arbitration and Conciliation Act, 1996 states that the date on which the cause of arbitration occurred, the period of limitation begins to run for the claimant to invoke the arbitration clause. The needless communication or reminders cannot postpone this accrual of the cause of action nor stop the limitation period to begin, not even if there is no mention of the limitation period in the arbitration clause.
How long do Arbitral Proceedings last?
The Limitation Act, 1963 applies to the Arbitration and Conciliation Act, 1996 unless expressly excluded by the Arbitration and Conciliation Act. Any arbitration proceedings commenced after the period of three years from the date on which the cause of action arose will be time-barred.
The parties have the right to fix their own set of rules for the proceeding of the arbitration. If no such procedure is agreed by the parties, the tribunal is authorized to conduct the proceedings in such manner as it considers appropriate. The tribunal will not apply any provisions of the Civil Procedure Code, 1908 and the Evidence Act, 1872. In the arbitration contract, the arbitration is to be administered by an arbitration institution and setting rules of that institution become a part of the arbitration clause by implication. If the proceeding is in an ad hoc arbitration, such parties have to make their own set of rules for the procedure.
Amendments into the Arbitration and Conciliation Act require to hold oral hearings of the evidence or oral argument on a day-to-day basis and grant no adjournments unless sufficient cause is provided. The tribunal may impose exemplary costs on the party seeking frivolous adjournments or dates.
Diverse opinions of the arbitrator are permitted under the Arbitration and Conciliation Act. The opinion of the arbitrators shall prepare a separate sheet of award or to give their opinion in the same document which contains the award of the majority members of the tribunal. But, this variance opinion or award does not form part of the majority decision and is not enforceable.
Local Courts can intervene in domestic arbitration proceedings which includes the power to issue interim orders, order to present evidence directly to the tribunal and appoint arbitrators.
Enforcement of Arbitral award
After giving the final award of the arbitration, other parties have the right to challenge the award in Court by an application for setting aside such an arbitral award.
The Court can set aside the arbitral award if:
- A party may be under some incapability.
- The arbitration agreement is not valid under the law to which parties have made the contract.
- The party making the application was not given proper notice to the other party on the appointment of the arbitrator.
- The arbitral award deals with the terms of submission to arbitration or its decision on the matters beyond the scope of the submission to arbitration.
Domestic award enforcement
On the enforcement and execution of the award given by the tribunal, an award holder shall have to wait for a period of 90 days and during this intervening period, the party has the right to challenge the award in the Court. The challenge of the award shall be in accordance with Section 34 which provides for the procedure for application for setting aside an arbitral award.
Foreign award enforcement
The Foreign arbitration award enforcement must be given in a New York Convention adopted by the United Nations Diplomatic Conference on 10 June 1958 to resolve disputes arising out of a legal relationship. The Geneva Convention and the New York Convention provide that a foreign arbitral agreement must be made in writing and there is no need for it to be in a particular format. The foreign award must be valid and should arise from an enforceable Arbitration Contract. To give effect to an award, an arbitration award must be clear, unbiased and capable of resolving the dispute.
This article concluded that the first and foremost important step in the arbitral process is the arbitration clause which shall be very diligently framed while making the arbitration clause or arbitration agreement. Arbitration supports the party’s autonomy. During the framing of the arbitration clauses, parties have to decide the appointment of the arbitrator, number of arbitrators, rules applicable in the arbitration. After the final arbitration award, it is enforced by the law applicable in such jurisdiction of the arbitration.
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