In this article, Rohit Gehlot pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, does a comparison of Indian Domestic Arbitration with the laws governing Arbitration in EU.

Dictionary meaning of “Arbitration” is the use of an arbitrator (an independent person or body officially appointed to settle a dispute) to settle a dispute.

The Indian Constitution, under Article 51 clauses (c) and (d) provides that the state shall endeavour to (c) foster respect for international law and treaty obligations in the dealings of organised peoples with one country and (d) encourage settlement of international disputes by arbitration. In this constitutional sense, the President of India promulgated the Indian Arbitration and Conciliation Act, 1996. This act covers domestic arbitration as well as international commercial arbitration.

Arbitration, in a legal sense, is a method of adjudication of disputes between the parties by non-judicial process wherein the arbitrator is appointed by the parties themselves under a contract. That means the 1996 act in itself does not give any right to any party unless parties have entered into an arbitration agreement for adjudication of disputes by way of arbitration.

Indian Domestic Arbitration

Domestic arbitration takes place when the arbitration proceedings, the subject matter of the contract and the merits of the dispute all are governed by the Indian Law, or where the parties to the contracts are subject to Indian jurisdiction or when the cause of action for the dispute arises wholly in India.

Essentials of Indian Domestic Arbitration

• Arbitration to take place in India;
• The subject matter of contract in India;
• The merits of the dispute are governed by the Indian law;
• The procedure of arbitration is also to be governed by the Indian Law

Section 2(1)(a) of the act says that arbitration means any arbitration whether or not administered by permanent arbitral institution. Thus, the act recognizes every type of arbitration whether institutional (arbitration conducted by the institution) or non–institutional (where arbitration process conducted by an arbitral tribunal other than the institute).

Section 2(1)(h) party means a party to an arbitration agreement. The party here means a person competent to enter into a contract as per Indian Contract Act.

Section 2(1)(e) of the act defines arbitral tribunal. It says “Arbitral Tribunal means a sole arbitrator or a panel of arbitrators.” The parties are free to determine the number of arbitrators in the arbitral tribunal provided that such number shall not be an even number.

To be an arbitrator no formal qualification has been prescibed in the act. Even nationality is no bar. Parties have been given full authority to determine the qualification of the arbitrator. Priority has also been given to the parties to appoint the arbitrator(s) under section 11(2) of the act.

After the appointment of arbitrator, he should inform the parties to the arbitration about his appointment. The procedure for written communication is given in Section 3.

Arbitration and Conciliation act also imposes certain responsibilities upon arbitral tribunal so that the independence and impartiality of the tribunal can be maintained. The party to the arbitration can also challenge the appointment of arbitrator if party becomes aware about the circumstances that give rise to justifiable doubts regarding the independence or impartiality of the arbitrator. The party has only recourse to it is, to challenge the appointment of arbitrator(s) before the arbitrator itself. According to Section 13(1) the parties are free to agree on a procedure for challenging an arbitrator.

The 1996 act also imposes some mandatory obligations on arbitral tribunal to follow and give due respect to the contents of the arbitration agreement for e.g. documents to be used as evidence, place of arbitration, language to be used in arbitration proceedings, mode of communications to be used, arbitral tribunal is bound to follow all such  contents of the agreement. The main reason of enacting the act is to remove technical difficulties faced by the parties in the court proceedings and that’s why Section 19(1) says that arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872.

Section 16

Arbitral Tribunal is also given the full competency to rule its own jurisdiction under Section 16 of the act subjected to the courts supervision.

Section 17

Interim measures ordered by the arbitral tribunal.

(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute.

(2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1).

Arbitration in EU

A common distinction in arbitration law is the one between domestic and international arbitration. Whenever an international legal relationship is involved, parties often choose to resort to arbitration, as the involvement of national State courts could be undesirable for several reasons, such as local protectionism. Arbitration in EU.

In Europe, different States take different approaches as to the distinction between domestic and international arbitration. The majority of States does not distinguish between the two types of proceedings: Austria, Belgium, Czech Republic, Denmark, England and Wales, Estonia, Finland, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, the Netherlands, Poland, Portugal, Scotland, Slovakia, Slovenia, Spain and Sweden follow this approach.

On the contrary, Bulgaria, Cyprus, France, Greece, Malta, Romania and Switzerland draw a distinction between international and domestic arbitration.

Scope of Application Commercial vs. Other

Not every dispute falling within the general limits of arbitrability shares the same nature; on the contrary, some cases are commercial in nature, whilst others cannot be qualified as commercial, although they involve economic interests. Although the specific definition of ‘commercial’ can change depending on the applicable substantive law, in general it is accepted that a relationship is commercial when it is based on a contract concluded between parties professionally operating on the market as merchants. On the other hand, a private law relationship does not usually qualify as commercial when is non-contractual in nature (for example, disputes on trusts) or when it is based on a contract concluded episodically by subjects not usually operating in that specific market.

The approach generally adopted by the European States is that all disputes falling within the national boundaries of arbitrability can be resolved through arbitration, irrespective of their commercial or non-commercial nature. There are, nonetheless, some exceptions to this trend.

In Bulgaria, the arbitration law applies to international arbitration of commercial disputes and to domestic arbitration of commercial or non-commercial disputes.

In Cyprus, the Arbitration Law applies only to international commercial arbitration, whilst for domestic cases, a separate regime is set forth.

In France, the international arbitration regime only applies to commercial cases.

In Hungary, arbitration is only possible where at least one of the parties is a person dealing professionally with an economic activity and the legal dispute is in connection with this activity.

Ad hoc vs Institutional Arbitration

Arbitration is a system of dispute resolution where adjudicative functions are performed by private subjects: arbitrators are not tenured, nor they are part of a public office. As a result, unlike civil litigation, arbitration can exist without any permanent institutional framework.

This basic form of arbitration, in which two parties agree on arbitral tribunal to decide their dispute, without the involvement of any arbitral institution, is commonly referred to as ad hoc arbitration.

When parties include the appointment of an arbitral institution in their arbitration agreement, they do not only submit to arbitration, but they also provide for the application of the rules of the selected institution. Therefore, in this context the supporting services will generally not be performed by a State court but by the institution itself.

Arbitrability

Arbitration is a system of private adjudication substituting court litigation: although it is structurally similar to court proceedings, arbitrators are not State judges and they do not exert sovereign powers. Therefore, it is evident that arbitration cannot substitute any type of court proceedings.

The New York Convention deals with the problem of arbitrability in Article V(2)(a), according to which recognition and enforcement of an arbitral award can be refused if the subject matter of the dispute is not capable of settlement by arbitration. Therefore, the contents of national law relating to arbitrability are of extreme importance, not only because they determine what kind of disputes can be resolved through arbitration in a particular jurisdiction, but also because they can limit the international circulation of arbitral awards.

Form of the Agreement

Since arbitrators are private adjudicators, their jurisdiction generally derives from a free choice of the disputing parties. When parties conclude an arbitration agreement, they waive their right to resort to a State judge, in favour of a private adjudicator.

A tacit acceptance of arbitration can take place if, in the absence of a valid arbitration agreement in writing, one of the parties initiates arbitration proceedings and the other one participates in the arbitration without objecting to the arbitral tribunal’s jurisdiction.

Arbitrator’s Qualifications

Since arbitrators are private adjudicators, they are not tenured members of a judicial body, nor do they exert public authoritative powers. Parties entering an arbitration clause are largely left free to select the arbitrator(s) they deem most suitable for their dispute, and to reach an agreement on the particular characteristics and qualifications that their adjudicator(s) must have.

Independence and Impartiality

Since arbitrators perform adjudicatory functions, it is fundamental that they are independent and impartial: these duties are generally enshrined in all national arbitration laws.

“Independence” refers to the objective relationship between the arbitrator and the parties. “Impartiality”, on the other hand, focuses on the subjective mindset of the arbitrator with respect to the case pending before him. An arbitrator should always decide a case on its merits, without being influenced by the identities of the parties and without deciding any issues before the parties have been afforded an equal right to present their arguments.

The first approach is followed by the UNCITRAL Model Law and can therefore be found in countries adopting this instrument, such as Spain, Ireland, Belgium, Germany, Austria, Croatia, Hungary, Bulgaria, Poland and Lithuania. A similar solution is implemented in France.

On the contrary, in Romania, Italy and Sweden the grounds for challenge are specifically enumerated.

Competency

Arbitral tribunals derive their jurisdiction from the consent of the parties: through an arbitration agreement the litigants accept to refer their dispute to the decision of private adjudicators, instead of a State court.

There is no doubt that where a valid arbitration clause exists, the arbitral tribunal has jurisdiction to decide disputes arising out of the main contract and covered by that clause. However, it is possible that the respondent in the arbitration proceedings will raise objections relating not only to the main contract, but also to validity or scope of the arbitration agreement.

The competence-competence doctrine always produces a positive effect: it enables the arbitral tribunal to take decisions as to the validity of the arbitration agreement. In this regard, European jurisdictions adopt a fairly uniform approach.

Setting aside of awards

Finality is one of the primary benefits arbitral awards; the decision of the arbitrator(s) is binding on the parties and should not, in principle, be revisited. This is a major difference between arbitration and court litigation: unlike first instance court decisions, arbitral awards cannot generally be appealed even if they are demonstrably mistaken.

Conclusion

In many ways, Domestic Indian Arbitration Law is similar to the Arbitration Law in the European Union. But at the same time there are differences also. At the same time, there are also differences in the arbitration laws among various European Nations too.