This article has been written by Ria Verma, a student at Symbiosis Law School, NOIDA. This article aims to illustrate the concept of arbitration and focus on the different types of arbitration and their significance in the present era.
We often hear a plethora of complaints by the petitioners or the plaintiff of a particular case. The legal fees charged were exorbitantly high, the dispute was resolved after a number of hearings, or that the verdict did not provide them with the appropriate remedy. But with the advent of alternative dispute resolution, we can observe a significant decrease in such complaints. Arbitration can especially be seen as a recent trend in commercial contracts and disputes.
An increase in foreign trade has resulted in a subsequent increase in cross-border disputes giving rise to a need for an effective form of dispute resolution. Arbitration has emerged as a way to preserve the relationships between two companies and resolve a dispute amicably. A recent judgment given by the Supreme Court in the case of Amazon v Future Retail Limited, 2021 garnered attention to the parties opting for arbitration to resolve the dispute. But what is arbitration? Is it more time-efficient and cost-saving as compared to the traditional courts? What are the different types of arbitration prevalent and what is their significance? The questions will be answered in the course of the article.
Historical background of arbitration
A number of authors have argued that the first arbitrator, King Solomon, had used a procedure similar to the modern-day procedure while resolving a dispute that emerged when two women protested that they were the mother of a baby boy.
Another influential figure, Philip the Second, had used arbitration to amicably resolve a territorial dispute that took place way back in 337 BC. In Roman law, ‘compromissum’ was used to indicate a process of dispute resolution which would draw out a compromise between the parties. Therefore, we can see that there have been a number of examples of arbitration that actually took place in the ancient era and can be seen as a trailblazer for the laws we have today.
In India, arbitration came to be known and given recognition when the Arbitration Act 1899 was enacted but its applicability only extended to Bombay, Madras and Calcutta. The provisions were given an extension to the remaining areas in Section 89 as well as Schedule II of the Code of Civil Procedure, 1908. However, it was observed that arbitration did not reap the expected benefits to the public at large and to meet the economic reforms in the country, the Arbitration Act was enacted in 1940. The previous Act along with the provisions in the Code of Civil Procedure were repealed.
The Act can be seen as a consolidation of the existing laws; however, there was no stipulated procedure pertaining to the enforcement of foreign awards. It was confined to the domestic territory and therefore, it did not achieve the purpose behind its enactment. In the case of Guru Nanak Foundation v Rattan Singh, 1981, Justice D.A Desai criticized the ineffectiveness and poor implementation of the Act. He explained how the complex, expensive and time-consuming court procedure involved to resolve disputes compelled jurists to switch to a more effective forum; however, the way the forum operates has invited harsh criticism from the courts.
The Arbitration and Conciliation Act, 1996 was then introduced with the objective of providing speedy dispute resolution. The Act covered international arbitration as well and was based on the UNCITRAL Model Law on International Commercial Arbitration. The Act, however, was met with criticism due to exorbitant costs, absence of a stipulated time period for making an arbitral award, interference by the court beyond a reasonable limit which went against the essence of the Act.
Subsequently, the Arbitration and Conciliation (Amendment) Act, 2015 was passed with a number of amendments. After taking into account the recommendations made by a committee headed by Justice B.N. Srikrishna, the Arbitration and Conciliation (Amendment) Act, 2019 was enacted. The Arbitration Council of India was instituted with the goal to promote ADR in India, boost the established arbitration in the country, and evaluate the functioning of the arbitral institutions and the arbitrators.
On November 4, 2020, the Arbitration and Conciliation (Amendment) Ordinance, 2020 was implemented with two major amendments. First, the enforcement of an arbitration award could be stayed unconditionally if the court can infer that the contract/agreement or the award was given fraudulently or under undue influence. Second, after much scrutiny and discourse, the qualifications and experience required for approving an arbitrator were deleted from the Eighth Schedule of the said Act.
What is arbitration
Alternative Dispute Resolution which is also referred to as appropriate or amicable dispute resolution is another way of resolving disputes between parties without taking them to the courts. While courts decide the outcome in a case, ADR resolves the dispute effectively, efficiently, and amicably. Arbitration is one of the prominent forms of ADR.
It is commonly used in disputes that are commercial in nature. Parties who have inserted an arbitration clause in the contract can refer the dispute to arbitration. A significant difference of arbitration as compared to mediation is that one of the parties cannot withdraw from arbitration one-sidedly. The parties can select the venue, the language in which the proceedings take place as well as the applicable law so as to make certain that no party gets an undue advantage.
Kinds of arbitration
Unlike civil or criminal cases, a dispute is sent to the arbitration tribunal. The tribunal resolves the dispute and the final decision cannot be appealed, making it binding on both parties. No judicial proceedings are involved to ensure the swift resolution of the disputes. The following are the different types of arbitration as per the jurisdiction of the case:
In domestic arbitration, both the parties must be Indians and the proceedings take place in India itself. In the Arbitration and Conciliation Act, 1996 there is no specific definition given to domestic arbitration. A mere reading of Section 2(2) can lead us to infer that domestic arbitration is when the parties had agreed to resolve any disputes that arise in India. The proceedings must be held in the domestic territory and must be in lieu of the procedural and substantive law in India.
As the name suggests, international arbitration occurs outside the domestic territory because of either a clause inserted in the agreement between the parties or the cause of action that arises from a foreign element relating to the dispute or to the parties. According to the circumstances that led to a case being filed foreign or Indian law would be applicable.
International commercial arbitration
According to Section 2(1)(f), international commercial arbitration can be understood as arbitration that takes place because of a dispute arising from a commercial contract where either one of the parties resides in a foreign country or is a foreign national; or the core management committee of an association, company or a body of individuals is controlled by foreign individuals.
Under Indian law, the involvement of a foreign party would attract Part I of the Act, that is, it would come under the purview of international commercial arbitration. But it would be inapplicable in case the international commercial arbitration takes place outside the territory of India. By virtue of the 2015 Amendment Act, ‘company’ has been removed from the ambit of ICA. The Supreme Court scrutinized the scope of Section 2 (1) (f) (iii) in TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd., (“TDM Infrastructure”) wherein, even if a company is in foreign hands, it would be considered as an Indian company as it was incorporated in India. Therefore, companies that have Indian nationality and have been registered in India would be excluded from the ambit of foreign body corporate, regardless of the fact that the company is in foreign hands.
On the basis of the established procedure and rules, there are further three types of arbitration that have been recognized in India:
Ad-hoc arbitration refers to when parties with mutual consent opt for arbitration to resolve the dispute. It is the most common form of arbitration used in India owing to reasonable costs and adequate infrastructure. Arbitration is conducted without having any institutional proceedings, that is, it does not comply with the rules of an arbitral institution. The parties have the option to choose the rules and the procedure to be followed. This form of arbitration can be used for international commercial transactions and domestic disputes. The jurisdiction is of utmost importance since a majority of the issues are resolved in conformity with the applicable law in respect to the seat of arbitration. An example of the same would be if the parties have agreed to keep the seat in India, the dispute would be resolved in lieu of the provisions of the Arbitration and Conciliation Act. The Act also provides that the arbitral tribunal or the parties can determine whether to receive assistance from an appropriate institution or individuals. In case the parties are unable to reach a consensus on the number of arbitrators, one arbitrator would be part of the tribunal after being appointed by the Chief Justice of a Supreme Court or the Chief Justice of a High Court.
Fast track Arbitration
Fast track arbitration can be seen as an effective solution to solving the problems faced because of delays and time-consuming proceedings in other forms of arbitration. It does not involve any procedure that takes time and upholds the main objective or arbitration, that is, to resolve a dispute in a short period of time. In the provision of the Act, fast-track arbitration is given a stipulated time period of six months. The arbitrator only makes use of the written submission and unlike other forms of arbitration, one sole arbitrator is sufficient to resolve the dispute.
In Institutional Arbitration, the parties are free to choose a particular arbitral institution in the arbitration agreement itself. The institution’s governing body or the parties can appoint one or more arbitrators from a panel of arbitrators that had been previously agreed upon. Part I of the Act gives parties the freedom to appoint an arbitrator to deal with a specific issue.
The institution selects one or more arbitrators who possess the skills and experience stipulated applicable in a given case when the parties do not appoint an arbitrator themselves. On the other hand, if the parties choose to appoint one themselves they can choose from the list provided by the institution.
It is mainly used by business organizations worldwide owing to a specific procedure being deployed as well as an efficient dispute resolution procedure provided by the institutions. A few prominent arbitration centres are the Chartered Institute of Arbitrators UK, the London Court of International Arbitration, the National Arbitration Forum USA, Singapore International Arbitration Centre, and the International Court of Paris.
In M/S Nandan Biomatrix Limited vs D 1 Oils Limited, 2009, the parties had agreed to resolve any dispute arising from the agreement via institutional arbitration. The Supreme Court assessed the validity of the agreement and whether the absence of a specific institution would make the agreement invalid. It was held that the parties had expressly desired to settle the disputes through institutional arbitration, making the agreement between them valid.
Advantages of arbitration in India
- Mutual consent of both parties – Arbitration can only take place when both the parties have given their consent and the contract includes an arbitration clause.
- Unbiased procedure – No party enjoys an undue advantage because of the fact that the parties are free to decide the relevant venue, language, and the applicable law.
- Confidential procedure – Any disclosure made by the parties in the proceedings and when the arbitration award is given is to be kept confidential.
- Cost-effective procedure – No exorbitant cost is charged from the parties making it common for parties to prefer arbitration over the traditional form of litigation.
- Simple and informal procedure – The parties do not have to separately hire an attorney to represent them and the outcome of the case can be adapted in compliance with the needs of both parties. The environment is comfortable and no formal mannerisms are used, making it easier for the parties to reach a suitable outcome.
- Freedom to choose arbitrator – The parties can select an arbitrator or agree to get an arbitrator with relevant exercise in the particular domain by the institution.
- Stipulated time period for giving an award – The tribunal will give the award within a short tenure of twelve months from the last day of the pleadings in case of domestic arbitration. On the other hand, in internal commercial disputes, the time period is rather relaxed and no stipulated time period is allotted. Hence, there are no unnecessary delays in giving the award.
- Binding decision – The arbitration awards given are enforceable making the decision binding on the parties.
- Position of control – The parties have a position to control the outcome as they can directly participate in the decision-making procedure. In this way, the dispute is amicably resolved.
Arbitration has emerged as an appropriate forum for effectively resolving misunderstandings between the parties and amicably giving an outcome in a way that benefits both parties. The Act has been subject to a number of reforms and amendments. It has developed multifold and is still continuing to adapt to the changing needs of the public at large.
There is a serious need for citizens to be aware of alternate ways of resolving disputes and their benefits. Many people are financially exploited and do not receive adequate relief via litigation. It can be seen as a respite from the pendency of cases and is free from any sort of bias or advantage given to one party.
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