This article is written by Veena Pranathi who is pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
In earlier days, even before the establishment of courts, people used to resolve their issues with the help of a third party when a dispute arises between them. Later, courts were established and a proper procedure was followed for resolving the disputes. Eventually, population was increased and a lot of cases were pending before the court and also the cases were piled up and the justice was served after so many days of filing a case. This resulted in the delay of justice to the people.
Due to raise in the population, industries also developed significantly and as a result of it, commercial disputes also increased. To balance this, different techniques were developed to solve the disputes outside the courts. This method of resolving the disputes outside the court or without the court’s involvement is called as Alternate Dispute Resolution (ADR). There are various techniques in Alternate Dispute Resolution. They are:
- Mini trial
- Mediation-arbitration etc.
Due to the delay in justice by the court, some of these techniques developed significantly. One of the techniques that developed rapidly is Arbitration. The main purpose of arbitration is to provide a speedy justice to the parties.
Arbitration and Conciliation Act, 1996 and its preamble
The Arbitration and Conciliation Act, 1996 contains the law relating to arbitration. This Act came into force on January 25th 1996. This act gives the provisions for International Commercial arbitration, domestic arbitration and also enforcement of foreign Arbitral awards. It is based on the UN model law so as to equate with the law adopted by the United Nations Commission on International Trade Law (UNCITRAL).
The preamble of the Act is interpreted as follows:
It is an act to integrate and amend the law relating to:
- Domestic arbitration.
- International commercial arbitration.
- Enforcement of foreign arbitral award.
Law relating to conciliation and related to the matters connected therewith.
Evolution of arbitration in India
In India, arbitration was known even before the British rule but in the form of ‘Panch’ and ‘Panchayat’ which are now known as ‘Arbitration’ and ‘Arbitrators’ respectively. Panchayat means a proceeding before a person who was considered to be the head of the village and he used to adjudicate the dispute between the parties amicably and his decision was considered to final and binding upon both the parties.
Later, the 1787 regulation provided the rules for referring a suit to arbitration if both the parties agreed to it. But those rules were vague and did not provide a clear structure to the parties on how to regulate the proceedings of arbitration. Then, a regulation was enforced in order to promote only a certain nature of dispute to arbitration and also encouraged the people to act as arbitrators under regulation XVI of 1793. Subsequently, several regulations were made in order to promote arbitration. Finally the 1996 Act was enacted and it was repealed three times to achieve its objects. The object of the 1996 act is to amend and to unite the domestic arbitration, international commercial arbitration and also to enforce the foreign arbitral awards. There were also amendments to this act in the years 2015 and 2019 in order to reduce the court’s involvement in the arbitration proceedings.
Section 89 of the code of civil procedure also gives importance to arbitration. It states that the parties can opt for the arbitration proceedings to settle a dispute, provided that both the parties must agree to it. The award given by the arbitrator must be considered as a decree given by the court and the parties must abide by the award given by the arbitrator.
Disputes that are not arbitrable in India
Usually all the disputes in which the civil rights of a citizen are infringed and the disputes falling within the jurisdiction of civil court can be referred to arbitration. But, the disputes which are related to morality, public policy, status and religious rights are not arbitrable in India. The agreements which call for the adjudication of the following matters cannot be executed validly:
- Matters connected with conjugal rights and matrimonial matters.
- Disputes related to industries.
- Revenue matters.
- The proceedings which are of criminal in nature.
- Matters relating to the determination of guardianship or wards.
- Matters related to the testament or will under the Succession Act.
- The matters related to Indian Trust Act, trusteeship of charitable institutions, public charity.
- Matters within the purview of Restrictive Trade Practices Act and Monopolies.
- Issues related to Companies Act like Insolvency, dissolution and winding up proceedings.
Types of arbitration proceedings
- Domestic arbitration:
The domestic arbitration is a type of arbitration where the subject matter of an agreement or a contract is governed wholly by the Indian Law or when the cause of action of a dispute wholly arises in India or when the parties opt for an Indian jurisdiction.
In a domestic arbitration the whole procedure is governed by the Indian law.
In domestic arbitration:
- The parties should not be from any nationality or a resident in any country other than India;
- A body corporate should not be incorporated in any country other than India;
- The Government should not be of a foreign country;
In International arbitration:
The international arbitration may result in the application of different set of rules. In this type of arbitration, the law governed for the resolution of disputes can either be Indian law or a foreign law. The arbitration proceedings can take place in India or outside India.
Clause (f) of sub-section (1) of section 2 of the Arbitration and Conciliation Act, 1996 defines the International Commercial Arbitration. According to that section, the arbitration is considered to be an international commercial arbitration where:
- At least one of the parties is an individual who is a resident from another country other than India.
- A corporate body which is not incorporated in India.
- The government should be of a foreign country.
Thus arbitration becomes international where at least one of the parties is a resident of another country other than India and the subject matter of the dispute is abroad. Depending on the terms of contract, the law applicable for resolving the dispute may be Indian Law or Foreign law.
- Ad hoc arbitration:
Unlike in institutional arbitration, ad hoc arbitration is not administered by any institute. In this type of arbitration, the parties are at liberty to decide the procedure that has to be followed during the resolution of a dispute. The parties are free to decide an arbitrator and other procedures like timetable for filling the documents, applicable rules etc. If the parties are not able to decide, then the arbitral tribunal will decide the procedure and other rules in a way it thinks fit.
However, the parties are free to adopt certain rules of an institution without completely following the institutional arbitration. Sometimes, an ad hoc arbitration can be turned into an institutional arbitration at some point if the parties feel necessary and they may by agreement make such an appointment.
- Institutional arbitration
In institutional arbitration, parties take the help of an institute for deciding the procedures of arbitration. Such institution takes care of all the procedures like appointing an arbitrator, timetable for filing the documents etc. institutional arbitration lessens the burden of the parties by giving administrative assistance. This timely assistance helps move the arbitration process smoothly. The institutions will charge the parties a certain amount of money as fee for assisting them through the arbitration process.
Some of the prominent institutions in India are:
- Indian Institute of Arbitration and Mediation, Delhi
- Indian institute of Technical arbitrators, Chennai
- Mumbai Center for International Arbitration
- Bangalore International Mediation, Arbitration and Conciliation Centre etc.
Process of arbitration in india
The arbitration arises due to a dispute between the two parties. So, to start an arbitration procedure, the contract or the agreement that is executed between the parties must have an arbitration clause. The arbitration procedure will be carried on in the following manner:
- Arbitration clause:
A contract or agreement that was entered by the parties must contain an arbitration clause in order to resolve the disputes through arbitration. An arbitration clause can be a separate agreement or an agreement in an agreement. That means the arbitration clause may be in the form of a separate agreement or in a contract. An arbitration clause says that when a dispute arises between the parties, it must be resolved through the process of arbitration. The parties shall also mention the seat and venue of the proceedings in the arbitration clause itself.
- Notice for commencement of arbitration:
The provision for notice for commencement of arbitration was given in section 21 of the 1996 Act. When the dispute arises and the party has opted for arbitration, the aggrieved party will send a notice to the other party for invoking the arbitration proceedings. It contains the names of the parties and their representatives, a brief description of the dispute, a statement of relief sought etc.
- Appointment of arbitrator:
After the respondent receives the notice from the applicant about commencement of arbitration, both the parties will appoint an arbitrator in a manner that is described in the arbitration clause. This provision is given under section 11 of the 1996 Act.
- Statement of claim and defence:
This provision is given under section 23 of the arbitration and conciliation Act, 1996. After the commencement of arbitration and appointment of arbitrator by the parties, the claimant drafts a statement of claims which contains all the documents which they think are relevant to the case and also all the evidences proving their statements.
The respondent may also submit a counter claim or a statement of defense in support of his case which shall be examined before the arbitral tribunal.
- Hearings and written proceedings:
The arbitral tribunal will hear both the parties and examine the evidences. The Tribunal will decide whether the documents or the evidences produced are valid or not and proceed the case further. This provision is given under section 24 of the 1996 Act.
- Arbitral award:
After hearing the parties and examining all the issues a final award will be given by the arbitrator. This award shall be made in writing and shall be signed by all the members of the Tribunal. This award shall be final and binding on both the parties. However, an appeal cannot be filed before the Arbitral tribunal but the parties can appeal against the arbitral award before the court. Form and contents of the arbitral award are described under section 31 of the Act.
- Enforcement of arbitral award:
Arbitration has developed significantly in India and also the justice is served to the people without any delay. Nowadays most of the people are including the arbitration clause in their contracts or agreements to resolve their disputes through arbitration without court’s involvement. However, there are some decisions and provisions which are not clearly interpreted. Hopefully, these would be identified and addressed by the Supreme Court and a clear interpretation and decisions are given in the near future.
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