arbitration definition

In this article Hardeep Singh of Campus Law Centre, University of Delhi has defined what is Arbitration.

Historical Background of Arbitration

Once human beings started to live and trade together as a community, various forms of adjudications begin to emerge. Why the concept of Arbitration emerged as an alternative dispute resolution? For answering this question one has to look back at the history of arbitration.

In India

  • The earliest evolution of arbitration in India can be traced back to “Brihadaranyaka Upanishad” under the Hindu Law. It provided for various types of arbitral bodies which consisted of three primary bodies namely:
  1. The local courts
  2. The people engaged in the same business or profession
  3. Panchayats.
  • The members of the Panchayats known as panchas, were that times arbitrators, which used to deal with the disputes under a system.
  • However thereafter the first legislative council for British India was formed and India got its first enactment on Arbitration known as the ‘Indian Arbitration Act, 1899’ but the Act was applicable to only presidency towns i.e., Calcutta, Bombay, and Madras. This Act was fundamentally based on the British Arbitration Act, 1889.  
  • Thereafter came the Arbitration Act, 1940 which applied to the whole of India including Pakistan and Baluchistan. However, post independence the same was modified via ordinance.
  • Due to various shortcomings in the 1940 Act like lack of provisions prohibiting an arbitrator from resigning any time during an arbitration proceeding, the rules providing for filing awards differed from one High Court to another, the act was replaced by the Arbitration and Conciliation Act, 1996 that ratified the problems in 1940 Act.

What is Arbitration

“Arbitration is a form of Alternative Dispute Resolution (ADR)”.

  • The concept of arbitration means resolution of disputes between the parties at the earliest point of time without getting into the procedural technicalities associated with the functioning of a civil court.
  • The dictionary meaning of Arbitration is “hearing and determining a dispute between the parties by a person or persons chosen by the parties”.
  • In an English judgement named Collins v. Collins, 1858 28 LJ Ch 184: 53 ER 916 the court gave a wide definition to the concept of Arbitration which reads as follows:”An arbitration is a reference to the decisions of one or more persons either with or without an umpire, a particular matter in difference between the parties”. It was further observed by the court that proceedings are structured for dispute resolution wherein executives of the parties to the dispute meets in presence of a neutral advisor and on hearing both the sides and considering the facts and merits of the dispute, an attempt is made for voluntary settlement.
  • Arbitration can be a voluntary one i.e., agreed between the parties or it can be ordered by the court.
  • Unlike litigation, arbitration proceeding takes place out of the court and the arbitrator’s decision is final and the courts rarely reexamine it.
  • There are several modes of dispute resolution outside the Judicial process. These modes are as follows:
    1. Negotiation
    2. Mediation
    3. Conciliation
    4. Arbitration
    5. Mini Trial   
  • But Arbitration is considered as an important Alternative Dispute Resolution mechanism and is been encouraged in India due to the high pendency of cases in the courts.

Some Important Terms in Arbitration

Arbitration Clause

  • An Arbitration clause is a section of the contract that defines the rights of the parties in the case any dispute arises over the contractual obligation or any other matter related to such contract.
  • Generally, an arbitration clause contains that the parties will not sue each other in the court of law, if any dispute arises, instead they will resolve the dispute through arbitration.

Arbitration Tribunal

  • According to Section 2(1)(d) of the Arbitration and Conciliation Act, an Arbitration Tribunal means a sole arbitrator or a panel of arbitrators.
  • Thus from the interpretation of this definition, the parties are free to determine the number of arbitrators.
  • However, if the parties fails to determine the number of arbitrators, then in that case, the arbitration tribunal shall consist of a sole arbitrator.

Arbitration Award

An arbitration award is an award granted by the arbitrator in the proceeding before it. This award can be a money award and it can also be a non-financial award.

Principle Characteristics of Arbitration

  • Arbitration is consensual: An arbitral proceeding can only take place if both the parties to the disputes have agreed to it. Generally, parties insert an arbitration clause in the contract for future disputes arising from non- performance of contractual obligations. An already existing dispute can also be referred to arbitration if both the parties to the dispute agree to it (submission agreement).  
  • Parties choose the Arbitrators: Under the Indian Arbitration Act parties are allowed to select their arbitrator and they can also select a sole arbitrator together who will act as an umpire. However, the parties should always choose an arbitrator in an odd number.
  • Arbitration is neutral: Apart from selecting neutral persons as arbitrators, the parties can choose other important elements of proceeding such as the law applicable, language in which the proceedings should be conducted, the venue for arbitration proceedings. All these things ensure that no party enjoys a home court advantage.
  • Decision of the Arbitral Tribunal is final and easy to enforce: The decision or award given by the arbitral tribunal is final and binding on the parties and persons only after the expiry of the time limit prescribed under Section 33 and 34 of the Act.

When the award becomes final it shall be enforced under the Code of Civil Procedure, 1908, in the same manner, one enforces a decree passed by the court.

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Advantages of Arbitration in India

  • Expertise in Technical matters: An arbitrator can easily deal with technical matters which is scientific in nature because generally arbitrators are appointed based on their expertise and skill in a particular field. Thus the disputes are resolved more effectively and efficiently.
  1. The arbitral process is cost effective and less time consuming than the traditional way of dispute resolution in the court of law.
  2. There is the convenience of the parties as they are able to decide on the language, venue and time of the proceedings.
  3. Privacy and confidentiality of the parties are maintained as there is no unnecessary publicity of the dispute.
  4. Arbitral proceeding is more flexible than the court proceeding as under the arbitral proceeding one does not have to follow the strict and rigid rules and regulation as that of the court. This is due to the reason that parties set the rules and regulations of the proceedings.

Conclusion

The growth of arbitration is taken as a healthy sign by many legal commentators as it eases the load on the constantly overloaded judicial system.

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