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This article is written by Bhumi Agarwal who is pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

Arbitration

Arbitration is a form of out-of-court settlement of disputes between the parties to a contract. This form of dispute resolution system is a quick and easy way to solve disputes and reduce the burden on the court and the litigators. The following article deals with the two kinds of arbitrations i.e. the domestic arbitration and international arbitration and their features, disadvantages, and the cases related to the following.

Domestic Arbitration

Although, the term domestic arbitration is nowhere defined in the Arbitration and Conciliation Act, 1996 but Part 1 of the following Act contains several provisions, which clears its meaning. Like as per Section 2(2) of the following Act, the reference to the place of arbitration shall be India is given and as per Section 2(7) a provision containing the mention of the term ‘ domestic award’ is given.

Reading together both the sections provides us a view to the matters which may or may not be contractual but are related to the Indian Disputes and are governed as per the Indian Laws are referred to as Domestic Arbitration and the award given after resolving the case by the Arbitration system of India is regarded as Domestic Award. The domestic arbitration provides domestic award; which is an award resulting out of Arbitration held in India in accordance with the Part -1 of the Arbitration and Conciliation Act, 1996.

Features of Domestic Arbitration

There are basically two main features of domestic arbitration and these are as follows:

  • The parties disputed should have agreed to solve if any dispute arising as per the arbitration concept.

Example- Suppose A and B enters into a commercial sales agreement. So, the parties at the time of execution of this Sales Agreement should have an Arbitration clause in the Agreement itself  so as to avoid any further ambiguity in relation to the type of Arbitration to be adopted by the disputed Parties.

  • The parties disputed should claim for the commencement of proceeding in India and as per the laws of the government of India.

Also, the domestic arbitration can be either in the form of Ad-hoc arbitration where the parties have a choice to appoint the arbitrators and the settlement procedures, or Institutional Arbitration where the parties to the dispute have to follow the instructions of the pre-specified instructions as per the agreement between the disputed parties.

Advantages of Domestic Arbitration

There are various advantages of domestic arbitration and these are as follows:

  • Quick process- The disputed parties can get a solution in lesser time as domestic arbitration provides quick decisions, unlike lengthy court proceedings. Due to the large no. of pending cases in a court, it becomes difficult to get a date of the trial earlier, which is possible in the domestic arbitration system.
  • Less expensive- The fees paid to the arbitrator is less than the one required to preparing of court trials and also the evidences and witnesses required to prove a fact in court also require several expenses of expertise whereas all this is much smoothly conducted in domestic arbitration and if there is absence of some witness then, instead of bringing the person itself any record of him would also be acceptable which would reduce the transportation cost.
  • Privacy-As the domestic arbitration is within a country and does not include any form of outside hindrance of people, media, government, etc. So, the procedure is private and is kept confidential too if the parties demand for the same. This procedure does not cause any chaos to the reputation of the disputed parties and the matter is resolved in private.
  • Decision-making – In domestic arbitration the decision-making is by the arbitrator, which is an expert in the concerned matter and as the arbitrators, are appointed as per the choice of both the parties mutually so the chance of any form of biased decision is reduced and the decision is fair and impartial.

Disadvantages of Domestic Arbitration

As everything, which has an advantage has some disadvantages too as nothing can be perfect. So, domestic arbitration also have some disadvantages, which are as follows:

  • No Appeals- The biggest drawback in arbitration procedure is that there is very less chance of appeal and the decision made by the arbitrator is held to be binding on the parties. If in case one party feels the decision to be unfair or biased then it cannot go for an appeal in any other courts. So, the parties may not be satisfied with the awards but still cannot do anything.
  • Lack of Evidence- In domestic arbitration as we have discussed earlier also that instead of witnesses, records and documents are preferred and so there are chances that the decision-making might be wrong due to lack of evidence.
  • Lack of consistency- the following disadvantages says that domestic arbitration may be biased as the arbitrators involved in such arbitrations are experts in a particular field and are also chosen by the parties themselves. No particular standards are fixed. In cases of contractual arbitration the chances of the Arbitrator being biased increases, which may affect the evidence.
  • Rules of Evidence- In domestic arbitration there are huge chances that an arbitrator might not be a law expert and so the evidence taken by him is not as per the laws and so the decision making might alter which would be not fair and may result in wrong judgment.
  • Not Public- As domestic arbitration is not public so there is no transparency and so it cannot be questioned by others if one finds it to be wrong or biased which is a drawback in few cases along with being an advantage.

Case law

In the case of Dominant offset Pvt. Ltd. Vs Adamouske Strojerny AS, the parties entered into two agreements. The Agreements contained an Arbitration clause stating that the place of Arbitration shall be London. The parties on having dispute referred to this Arbitration clause and the petitioners sought for the enforcement of the arbitral awards in the Delhi High Court. The Court properly studied the provisions of Part I, to see whether this matter falls under Part I or not.

It was held by the Court that the statement in section 2(2) which states that the “Part I shall apply where the place of arbitration is in India” is an inclusive statement and it does not exclude the applicability of Part I to those matters where the Arbitration is not held in India. So, the following matter was held to be within the limits of the Court. But the Court said that there is a requirement to be cautious in grant of reliefs where both the parties are foreigners and the place of Arbitration is outside India.

International Arbitration

International Arbitration is somewhat similar to domestic court procedures but it does not take place in courtrooms instead it is held before private adjudicators known as the Arbitrators. This form of Arbitration is neutral, consensual, binding, private, and enforceable means of international dispute resolution which is quicker and easier than the court proceedings.

This form of international arbitration provides a way of dispute resolution for the parties of different culture, languages, legal rules under one common procedure which is a binding on the disputed parties. Here no legal formalities such as courtrooms are conducted so, the people are getting easy access to justice without any form of lengthy procedures.

International Arbitration involves a unique blend of Civil Procedures and Common Procedural laws to resolve the disputes arising between the parties to the contract and provide them with fair decisions in the form of Arbitral Awards.

Features of International Arbitration

There are various features of international arbitration which are as follows:

  • Consensual- International Arbitration procedures are consensual i.e. it lies totally on the consent of both the parties to take a dispute to the arbitral tribunals for resolving it. Unlike the court proceedings, no third party is allowed to enter into dispute resolution procedure.
  • Neutral- The international arbitration tribunals include or consist of arbitrators from a different nationality, which helps to provide a neutral decision for any dispute. It is completely left on the arbitrators to decide the procedure to be followed and the merits of the disputes. It can offer dispute resolution in a neutral forum.
  • Choice- The parties to an arbitration have considerable choice in determining how, where, by whom, and in what language their dispute is resolved. Of particular importance to the parties is the choice of the decision-maker. Unlike commercial litigation where disputes are resolved by state-appointed judges, parties to arbitration may select their arbitrator. This is especially advantageous in the context of a technical matter that requires particular expertise, or where parties are from different jurisdictions and each wants to appoint an arbitrator from their own jurisdiction. 
  • Privacy and Confidentiality- In such arbitration the privacy of the dispute is maintained as the proceedings take place in private. The arvitrator on the decision of both the parties also keeps the evidences and records confidential. While this kind of privacy is unable to be maintained in court proceedings and are mostly public very often.
  • Finality- Most arbitral laws do not allow for the award to be challenged except in very limited circumstances. In addition, choice of certain institutional rules can further limit the parties’ scope to challenge the award. This means that parties avoid the cost of protracted appeal processes.
  • Enforceability- The ease of enforcement of arbitral awards is viewed as a key advantage of arbitration. Enforcement is facilitated by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958 (the New York Convention). A contracting state is obliged to recognize arbitration awards as binding and to enforce them in accordance with its procedural rules.

Advantages of International Arbitration

  • Award Enforcement- One of the key advantages of international arbitration is that the award is readily enforceable in many countries of the world. An award is a judgment passed by an arbitrator or arbitrators. For example, over 140 countries of the world are members of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and an award made in any of these countries is recognized and can be easily enforced in multiple countries.
  • Flexibility- Judges are bound to follow the procedures set by national courts. International arbitration, on the other hand, provides parties with a lot of flexibility. One example is that parties involved in a dispute can decide where the dispute will be heard, i.e. where the seat of the arbitration is. In deciding where the hearing will take place, parties involved can chose any place in the world they are comfortable with.
  • Complete Autonomy and Freedom- The disputed parties have complete freedom and autonomy to choose the arbitrator, process, time, forum and the procedure of the arbitration process. They also have freedom to decide the cost and time the arbitration will take to resolve a dispute between them.
  • Expert Advice- in International Arbitration the disputed parties have the freedom to choose the arbitrators. As different disputes require different expertise so, the international arbitration provides the experts as arbitrations as per the subject matter of the disputes so that the judgement can be made with much more accuracy.
  • Neutrality- There is a fear that national courts can be partial when it comes to cross-border trade disputes. On the other hand, international arbitration provides assurances against the fear of any bias. Parties can choose arbitrators from different countries and even set up the seat of arbitration in a country with which the parties involved have no connection

Disadvantages of International Arbitration

  • Time- In international arbitration it takes much more time than usual as the cases due to busy arbitrators, counsel and clients from different counties, it may be difficult to schedule hearing dates and the need to agree on most procedural steps makes the pace of this procedure slower.
  • Cost- The process of International Arbitration can sometime prove to be costlier as the parties pay the fees and expenses of the arbitrators. Additionally, it may be necessary to pay the administrative fees and expenses of an arbitral institution.  These costs will be subject to an increase if there is more than one member of the tribunal or if an arbitral institution is involved. In addition to arbitration fees, there may be the expenses of hiring rooms for meetings and hearings instead of using the public facilities of the courts of law.
  • No Appeal- In international Arbitration also like the domestic arbitration procedure the award given by the arbitrator as the settlement of dispute is final and the parties cannot appeal for it in any court even if they are not satisfied with the award as finds it to be unfair or biased i.e. the decision of arbitrator is a binding on the disputed parties.
  • Biased decision making- It is seen in several cases that the private arbitrators favor the party of their interest and a more weightage is given to their evidences so, such type of practice can result into biased decision making which is a great drawback.
  • No fixed procedure- it is seen that in international arbitration the arbitrators are from different fields of interest and so no fixed method or procedure is adopted by them to solve the disputes which can lead to chaos among the disputed parties regarding the arbitral award provided or the procedure adopted.

Case Law

Bhatia International v/s. Bulk Trading in which it was held that Indian courts have the right to use their jurisdiction to test the significance of an arbitral award made in India, even if the actual law of the contract is foreign. The court recognized that Part 1 of the Arbitration and Conciliation Act, 1996 gives effect to UNCITRAL Model Law allowing courts to grant interim relief even when the seat of international commercial arbitration is outside India.

Conclusion

International commercial arbitration is chosen by most businesses in virtually all industries for resolution of cross-border disputes. A neutral forum and flexible process leading to an award enforceable essentially everywhere are advantages that litigation does not offer. However, international arbitration – like international business itself –presents unique challenges, for the parties may speak different languages, come from different business and legal cultures, and even have different ethics.

Those challenges are being met by arbitration agreements, arbitral institutions and institutional rules, “soft law,” skilled counsel, and experienced arbitrators. To put it simply, in international commercial arbitration (where one of the parties is foreign but the arbitration is held in India) and a foreign-seated arbitration: (where the arbitration is outside India), the intervention of Indian courts is more limited than domestic arbitrations (where parties are Indian and the arbitration is held in India). The court has a wider amplitude of interference in case of the latter.

References


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