Arbitration
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This article has been written by Uzair Ahmad Khan, Asst. Blog Manager, iPleaders.

Introduction

Arbitration is an effective alternative dispute resolution. It is the forum in which parties by an agreement between them choose a forum other than the court of law to resolve their disputes. The reason behind the evolution of arbitration is to minimize the burden from the shoulders of the court of law and provide speedy remedy to the parties. Nani Palkhivala observed that there are enormous advantages to arbitral proceedings.

In the words of Nani Palkhiwala, he said “If the law is not to be a system of tyrannical rigidity, but instead to be the efficient and useful servant of a changing society, it must from time be adapted and parts of it replaced. A court of law is like an ancient castle, constantly under repair. There comes a time when it no longer pays to patch it up and it is better to resort to a new, compact house built on modern lines”.

Why arbitration is preferred over the judiciary

Arbitration is an effective forum which provides speedy remedy than the judiciary. Matters in arbitration are disposed within 1 year whereas in courts the parties to the dispute have to wait for several years depending upon the complexities of their case.

Arbitration is also preferred by the parties because of the autonomy granted by it and exercised by the parties in determining the course that the proceedings may take.

Types of Alternative Dispute Resolution Methods

Arbitration

Arbitration is a dispute resolution process which is governed by the Arbitration & Conciliation Act, 1996. Parties to the arbitration agreement and the court have the power to appoint the arbitral tribunal which will resolve the disputes between the parties. The provisions of Part 1 and Part II of the Arbitration & Conciliation Act, 1996 are applicable to the arbitration proceedings. The arbitral tribunal will pass the arbitral award which will be binding on both parties and will be enforceable before the court similar to a court decree.

Conciliation

Conciliation is the process by which parties refer their disputes to a conciliator. The conciliator is appointed either by the parties or by the court on behalf of the parties. Part III of the Arbitration & Conciliation Act, 1996 regulates the conciliation proceedings. The conciliator is not bound by the Code of Civil Procedure, 1908 or the Evidence Act, 1872 during conciliation proceedings. Conciliator helps the parties to reach the final settlement by formulating the terms of the settlement which they choose to adopt.

Mediation

Mediation is a process in which the mediator is required to identify the issues that have arisen between the parties and clarify any misunderstandings that may have occurred and help the parties to reach settlement. The mediator is merely under a duty to guide the settlement proceedings in order to allow the parties to reach their own settlement instead of imposing his opinions upon them. Mediation is regulated under the Mediation Rules, 2009. The mediator is appointed either by the parties or by the court on their behalf. The role of a mediator is more passive in the settlement of a dispute placed before him as compared to a conciliator or an arbitrator.

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Lok Adalat

Lok Adalat is a state authority which is regulated by the Legal Services Authority Act, 1987. It is also known as people’s court. The object of a Lok Adalat is to reach a settlement between the parties based on a compromise. The parties do not have to pay any court fees in the Lok Adalat and there are no strict procedural requirements that have to be followed. The proceedings in Lok Adalat are usually presided over by retired judges or lawyers who will give their decision in the matter. The parties cannot appeal against the settlement of the Lok Adalat.

History of Arbitration in India

Third-party settlement of disputes is a part of ancient Indian ethos and culture. However, the settlement of disputes through the institution of the judiciary is a little over a century old and is a result of British rule in India. Despite the long history of the settlement of disputes by alternative means in our country, the first statutory recognition given to domestic arbitration was given by way of the Indian Arbitration Act, 1940.

Retired law professor of Osmania University, Dr. V. Nageswara Rao presented an overview of conciliation proceedings under the Arbitration and Conciliation Act,1996 before the Law Commission of India. He stated that the settlement of disputes through reference to a third party has been part of the “volksgeist” or body of customs of India for time immemorial.

There are basically two types of arbitration proceedings which are conducted. Domestic arbitration proceedings which are conducted between two Indians. International commercial arbitration proceedings which are conducted between the parties, where at least one of the parties is an individual who is a national of, or habitually resident in, any country other than India or a company, or an association, or a body of individuals whose central management and control is exercised in any country other than India or the government of a foreign country.

Overview of Arbitration 1940 Act

The Indian Arbitration Act, 1940 dealt solely with the previously uncodified body of law concerning domestic arbitration proceedings. The objective of the 1940 act was to consolidate and amend the law relating to arbitration.

Key Highlights of the Arbitration 1940 Act

  • It gave wide discretionary and supervisory powers to the courts allowing them to regularly intervene in arbitration proceedings.
  • It also severely limited the freedom of the parties to choose their preferred means settlement by imposing a number of regulations.
  • Section 3 of the 1940 Act, imposes certain implied terms and conditions that were required to be present in any arbitration agreement unless those terms were specifically contracted away.
  • The 1940 Act, also grants wide power to the court in matters of appointment or removal of arbitrators and allow the court to modify or remit the award and also pass interim orders.

From the above highlights, it is clear that the arbitral tribunal constituted under the 1940 Act had no real powers but rather acts as a proxy for the court.

Overview of the Arbitration 1961 Act

The statutes dealing with international commercial arbitration were the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Convention) Act, 1961. Before the passing of the 1996 Act, the enforcement of foreign awards either awards passed as a result of international commercial arbitration proceedings was governed by the two above mentioned statues.

Origin of the 1937 and 1961 Act

After the destruction of the first world war, the international community began to recognise the importance of international trade as a means of building a closer relationship between countries. In order to facilitate international trade, it became imperative to develop a means to resolve commercial disputes relating to international trade in a quick and efficient manner.

What was the first attempt of the international community towards international commercial arbitration?

The first attempt towards international commercial arbitration was made by the League of Nations, under whose authority the Protocol on Arbitration Clauses, 1923 was concluded. However 1923, Protocol had a number of shortcomings such as it only allowed domestic awards to be enforced before the national courts of member countries.

What actions were taken in order to overcome the shortcomings found in 1923 Protocol?

In order to overcome the shortcomings of the 1923 protocol, the International Convention on the Execution of Foreign Arbitral Awards, 1927, more commonly known as the Geneva Convention was passed.

Due to the Geneva convention the Arbitration (Protocol and Convention) Act, 1937 was enacted. However, the objectives of the Geneva Convention were laudable but resulting 1937 Act was unable to meet the expectations of speedy dispute resolution and enforcement of foreign arbitral awards. Therefore, it was unable to meet the requirements for encouraging international trade.

How Arbitration Act, 1961 enacted?

The International Chamber of Commerce issued a Draft Convention on International Arbitral Award in 1953 in order to correct the deficiencies under the earlier conventions.

The draft was presented to the United Nations Economic and Social Council which prepared another draft in 1953. The Council forwarded its draft to the member states of the United Nations for their comments upon receipt of which a conference was held in New York.

As a result of all these efforts, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as New York Convention) was adopted on 10 June 1958. The New York Convention gave rise to the Foreign Awards (Recognition and Enforcement) Act, 1961 in India.

Is Arbitration Act, 1937 and Arbitration Act, 1961 is in existence?

No, because of the deficiencies in both the acts, they have been repealed. However, awards made pursuant to agreements concluded pursuant to either the Geneva Convention and New York Convention have been recognized under Part II of the 1996 Act.

Objective of UNCITRAL Model Law

UNCITRAL stands for United Nations Commission on International Trade Law. It adopted the UNCITRAL Model Law on International Commercial Arbitration on 21 June 1985. The objective of the Model Law to provide a set of rules which would facilitate the settlement of international commercial disputes by bringing about uniformity in the laws of member countries in reforming and modernising their national laws on arbitration.

Key Highlights of the Model Law

It covers every stage in the arbitration process as-

  • beginning from the recognition of the need to curtail judicial intervention to the formation of the arbitration agreement.
  • appointment of the arbitral tribunal
  • any challenges to such appointment
  • basic rules of conduct of arbitration proceedings
  • termination of proceedings by the making of the award
  • finality of awards and grounds on which the arbitral award challenged before the national courts.

The Model Law also forms the basis for the Arbitration & Conciliation Act 1996 in keeping with India’s International obligations.

Arbitration & Conciliation Act 1996

The Arbitration & Conciliation Act, 1996 repeals the Arbitration Act, 1940; the Arbitration (Protocol and Convention) Act, 1937; and the Foreign Awards (Recognition and Enforcement) Act, 1961 and reformulates the law in one consolidated statue. It also seek to amend and consolidate the law relating to domestic arbitration, international arbitration and the enforcement of foreign arbitral awards.

The Arbitration & Conciliation Act, 1996 is divided into three parts as-

  • Part I of the act is a reproduction of the Model Law which deals with rules regarding practice and procedure before the arbitral tribunal.
  • Part II deals with the recognition and enforcement of foreign awards. Part II is divided into two chapters.
    • Chapter I concerns award made pursuant to agreements under the New York Convention.
    • Chapter II deals with the enforcement of foreign awards under the Geneva Convention.
  • Part III deals with conciliation proceedings.

Difference between the 1940 Act and the 1996 Act

 

The Arbitration & Conciliation Act, 1940

The Arbitration & Conciliation Act, 1996

It conferred wide discretion on the courts and very little on the arbitral tribunal itself.

It limits the judicial intervention and broadens the scope of the powers vested with the arbitral tribunal 

It places heavy reliance on the courts to ensure that arbitration proceedings are conducted in a particular manner

It places heavy reliance on the arbitral tribunal to ensure proceedings may continue without placing unnecessary reliance on the overburdened judiciary

It only concerns with domestic arbitration proceedings

It concerns with domestic arbitration, international arbitration and enforcement of foreign tribunal award 

It does not give freedom to the parties and impose a number of regulations over them

It gives freedom to the parties and do not impose any regulations over them

It had no real powers but rather acts as a proxy for the court

The principle of competence-competence plays a pivotal role in the scheme of the new act

The arbitral tribunal does not have the power to pass interim order against the party

The arbitral tribunal has the power to pass the interim order against the party

It was based upon the English Arbitration Act, 1934 which prevailed in the British

It is based upon the UNCITRAL.

Conclusion

As Nani Palkhiwala said a court of law is like an ancient castle, constantly under repair. There comes a time when it no longer pays to patch it up and it is better to resort to a new, compact house built on modern lines”. The law of arbitration is continuously evolving and improving day by day in order to provide people with an effective body to resolve their dispute effectively and efficiently and by reducing the burden from the shoulders of the judiciary by introducing latest amendments to the act accordingly as per the need of the society.


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