This article has been written by Prabhanshu Sharma, pursuing a Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting and edited by Shashwat Kaushik.
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The word arbitration is of Latin origin. In a literal sense, the English word arbitration originates from the Latin word ‘arbitrari’, meaning “to judge.” Generally, arbitration is defined as a procedure in which a dispute of a specific nature is submitted, by agreement of the parties, to one or more arbitrators (certainly in odd numbers), who then adjudicate over that dispute that is binding on the parties.
According to Section 2(1)(a) of the Arbitration and Conciliation Act of 1996, “arbitration” means any arbitration, whether or not administered by a permanent arbitral institution. Arbitration is a method to resolve disputes outside of courts and the judicial system. Parties may refer the dispute(s) for arbitration only when an arbitration agreement exists between the relevant parties to the agreement.
Arbitration is mostly commonly used in disputes that are of a commercial nature. Arbitration is usually a quicker process than court litigation, which is why high-stakes matters of commercial nature are referred for arbitration.
Types of arbitration
The following are the types of arbitration:
Voluntary and mandatory arbitration
Sometimes arbitration may be invoked by including mandatory arbitration clause in an agreement. When the parties have agreed in a contract that they will resolve dispute(s) through arbitration only and they will not prefer litigation as a dispute resolution mechanism, and in case a dispute arises between said parties, if one party is reluctant to arbitrate the matter, then in such circumstances, the other party, with the intervention of the court, can compel the other party to resolve such dispute(s) through arbitration. While agreeing to the mandatory arbitration clause, the relevant parties have to waive off certain rights.
In voluntary arbitration, parties, on their own initiative, move to submit their dispute(s) to be resolved through arbitration to an impartial third party. In this type of arbitration, parties do not waste the time of the courts and also save their costs and time. In voluntary arbitration, parties may have a pre-dispute arbitration agreement or enter into an arbitration agreement to submit their dispute to arbitration after that dispute arises.
Binding and non-binding arbitration
In a binding arbitration agreement, parties give up their right to sue or appeal against the arbitral award, while such is not the case in a Non-Binding agreement. Comparatively, binding arbitration is more favourable to both parties as it saves valuable time for parties and, at the same time, courts, and it also saves the cost of legal professionals for both parties. In a non-binding arbitration agreement, parties are free to go to court if they have any contention with the arbitral award.
Institutional arbitration is done under the umbrella of a specialised arbitration institution. The arbitration institution that is approached in this type of arbitration plays a vital role in the proceedings of arbitration. These arbitration institutions have set rules for the proceedings to be conducted for the resolution of disputes. These rules provide a basic framework for the process of arbitration, including timelines and procedures to be followed. Disputed parties in institutional arbitrations submit their dispute by agreement to an arbitration institution, which then administers the proceedings of arbitration. It appoints arbitrator(s) from its panel and then provides case management services, secretarial services, supervision of proceedings, deciding the venue, and holding the arbitration hearings.
Ad-hoc arbitration simply means a type of arbitration that an arbitration institution does not manage. Comparatively, ad-hoc arbitration is less expensive than institutional arbitration. In ad-hoc arbitration, parties are more or less responsible for all aspects of the proceedings, like deciding the arbitrators, applicable law, and the smooth conduct of the proceedings.
Domestic and international arbitration
Domestic arbitration is a type of alternative dispute resolution mechanism that takes place within a single jurisdiction, having parties on both sides from a single jurisdiction. In this type of arbitration, the arbitration laws of the particular country in which the proceedings are being conducted apply. To cut a long story short, if all aspects of an arbitration proceeding are concerned with a specific single jurisdiction, then such proceedings are to be identified as domestic arbitration proceedings.
On the other hand, if any aspect of an arbitration proceeding is connected with a foreign territory, then such arbitration proceedings are considered international arbitration proceedings.
Advantages of arbitration
The advantages of arbitration are:
- Cost-effective proceedings: In most cases, the cost of arbitration proceedings gets split between the parties to the arbitration. It also saves on the heavy costs involved in litigation. As you save a lot of time, you can make more money while focusing on business activities rather than wasting time in court and litigation.
- Arbitration is a fast process: If you go for arbitration instead of litigation, your disputes will get resolved faster in comparison to litigation. It saves a lot of time for the parties involved, and they can invest this time in more productive tasks.
- Control of the proceedings: Control of the proceedings in the case of arbitration stays more in the hands of the parties, which is not possible in the case of litigation. In litigation, the courts and procedural legislation of the land have more control over the proceedings to resolve disputes.
- Binding decision over the dispute: The decision over a dispute that is given by an arbitral tribunal is called an award. And such an award, if had been agreed upon before by the parties, is a binding decision and enforceable.
- Mutual consent of parties involved: Arbitration proceedings can not be initiated until and unless an arbitration agreement exists between the parties relevant to the agreement. Due to such consent, the probability of disputes getting resolved increases.
- Free to choose arbitrator and conduct of procedure: Parties in an arbitration proceeding are free to choose the arbitrator, which would minimise the chances of partiality with the parties involved.
- Simple procedure involved: Arbitration does not involve so many difficult procedures in comparison to litigation. Compared to litigation, arbitration proceedings are more informal and simple.
- Confidentiality is intact: Arbitration proceedings are not reported and published as in litigation. Confidentiality of matter is kept intact in arbitration proceedings.
- Fix the time limit for the arbitral award: According to the provisions laid down in Section 29A of the Arbitration and Conciliation Act of 1996, the time limit for making an award by the arbitral tribunal is twelve months from the date of completion of pleadings. And such a time limit can be extended only for six months, subject to the consent of the parties.
Disadvantages of arbitration
The disadvantages of arbitration are:
- No appeal lies: No appeal lies against an award given by an arbitral tribunal. After getting an award, if a party to the dispute is discontent with the award or thinks that decision is not accurate and judicious, then it can’t do anything about it.
- Too easy proceeding and rules of evidence: It could also be said to be an advantage that proceedings and rules of evidence in arbitration proceedings are too easy, informal, and simple, and cross-examination and examination of witnesses are not done on oath, as according to the Indian Evidence Act of 1872, this sometimes leads to inaccuracy in the arbitral awards.
There are not many disadvantages to arbitration, as parties agree and give their consent to resolve disputes amicably.
What is an arbitral tribunal
An arbitral or arbitration tribunal is a panel of arbitrators or sole arbitrators that adjudicate upon dispute(s) and resolve the dispute(s) between the contracting parties according to arbitration laws. An arbitral tribunal may include a sole arbitrator, or it may include a larger number of arbitrators depending on the choice of parties, provided that such a number shall not be an even number. If parties fail to determine the number of arbitrators, then the arbitral tribunal shall consist of a sole arbitrator.
A person of any nationality may become the arbitrator, subject to the agreement of the parties. Parties are free to decide the procedure to appoint the arbitral tribunal. If parties do not agree on a procedure to select an arbitral tribunal, then in a tribunal with three arbitrators, each party shall select one arbitrator, and those selected arbitrators shall select the third arbitrator, who will then act as the presiding officer of the tribunal.
Jurisdiction of arbitral tribunal
The arbitral tribunal may adjudicate under its own jurisdiction, and it may make rules over the validity or existence of the arbitration agreement. The arbitral tribunal may decide if a plea is made to it for exceeding its authority. A party may apply for interim relief while continuing the arbitral proceedings. A party aggrieved by the decision of an arbitral tribunal may make an application for setting aside such a defective arbitral award as per the provisions laid down in Section 34 of the Arbitration and Conciliation Act of 1996.
Procedures in arbitration
- Arbitration proceedings are not bound by the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872. The law of limitation applies to arbitration in the same manner as it applies to court proceedings.
- There is ample freedom to agree on the procedure to be followed by the arbitral tribunal. Parties to the arbitration are free to choose the place of arbitration. The parties have also been given freedom regarding agreeing on the language of the arbitration proceedings.
- If parties do not agree on a procedure, then the tribunal may conduct the proceedings in the manner it thinks proper in the concerned case.
- If the parties fail to choose the place to conduct arbitration proceedings, then the arbitral tribunal shall select an appropriate place to conduct the proceedings in consonance with the parties.
- If the parties do not have any agreement on the language of the proceedings, then the arbitral tribunal shall determine the language(s) of the proceedings.
- The arbitral tribunal can determine the admissibility, relevance, materiality, and weight of any evidence.
- The arbitral tribunal has the discretion to order that any documentary evidence shall be accompanied by a translation into the language(s) that have been agreed upon by the parties or have been determined by the arbitral tribunal.
- Subject to the agreement of the parties, arbitral proceedings in relevance to a particular dispute shall start on the date on which a request for a concerning dispute to be referred to an arbitral tribunal is received by the respondent.
- Within a stipulated time, agreed upon by the parties to the arbitration or determined by the tribunal, the claimant shall present the facts in writing supporting his claim, including the points at issue (something similar to what the plaintiff presented in court as per CPC, 1908) and relief or remedy sought. The respondent shall present a document containing the facts in his defence in respect of the claims (something similar to the written statement presented in court as per CPC, 1908).
- The parties may submit all documents or evidence they consider relevant to support their claim or defence.
- During the course of arbitral proceedings, the respondent may also submit a counterclaim in support of his case or he may plead set-off. Parties may amend or supplement pleadings, subject to certain conditions. The statement of claim or defence shall be submitted to the arbitral tribunal within six months from the date of appointment of the arbitral tribunal.
- The arbitral tribunal shall decide whether to hold an oral hearing for the submission of evidence, for oral argument, or whether the proceeding shall be based on the documents.
- The arbitral tribunal shall not grant any adjournment without sufficient cause and, at discretion, may impose costs on parties seeking adjournment without showing sufficient reason.
- The parties shall be given advance notice of hearing being conducted or meeting of the arbitral tribunal for the inspection of documentary evidence, goods, or any other assets. Every material, document, evidence, information supplied, or application presented before the tribunal shall be communicated to another party.
- Everything on which the arbitral tribunal relies to make the decision shall be communicated to all parties.
- If the claimant fails to present his statement as per the provision laid down in Section 23(1), then the arbitral tribunal shall terminate the proceedings, but if the respondent fails to present his side of defence as per the above stated provision in paragraph, then the tribunal shall continue the proceedings, considering such failure as admission of allegations in the statement of claim.
- The arbitral tribunal may appoint one or more subject-matter experts to report to it on specific issues to be determined by the tribunal.
- It may direct any party to provide any material about the matter in issue.
- It may also direct the expert witness to be present at oral hearings so that relevant questions may be put to them to conclude.
- The arbitral tribunal or any party with the approval of the arbitral tribunal may apply to the court to seek assistance in taking evidence. The court may make orders to issue the same processes as it generally issues in a trial of suits before it.
Laws/rules applicable to proceedings
If the place of arbitration is situated in India, then, other than international commercial arbitration, all other proceedings are governed by laws in force in India for the time being. In international commercial arbitration, the tribunal shall decide the dispute in accordance with the laws that have been explicitly agreed upon by the parties to the contract.
Forms and contents of arbitral award
As per provisions laid down in Section 31 of the Arbitration and Conciliation Act of 1996, any arbitral award shall necessarily be in writing and shall be signed by all the panellists of the tribunal. If the signature of any arbitral panellist is omitted for any reason, then such reason shall be recorded in writing. The arbitral award shall state the reasoning on which it is based. The arbitral award shall also contain the place in which it is made. After the arbitral award is concluded, a signed copy of it shall be handed over to each party. If the arbitral award is for the payment of money, then it shall contain the amount, along with interest and rates, and the period for which it is to be paid and during which it has to be paid.
The cost of arbitration shall be fixed by the arbitral tribunal according to the provisions laid down in Section 31A of the Arbitration and Conciliation Act, 1996.
Remedy against faulty arbitral award
A remedy against an arbitral award that a party feels is faulty may be sought by applying for setting aside the award in Section 34 of the Arbitration and Conciliation Act, 1996. There are some grounds given in Section 34 to set aside the award:
- A party making the application shall establish, based on the record of the arbitral tribunal, that the other party was under some kind of incapacity;
- The arbitration agreement was not valid under the law applicable to the proceedings;
- The arbitration tribunal was not appointed by the laws applicable, or the party making the application was not given proper notice of such appointment;
- The arbitral award contains judgement on a matter outside the scope of the Submission to arbitration;
- The matter under arbitration is not capable of getting adjudicated by arbitration under the law for the time being in force; and
- The arbitral award is in contravention of the public policy of India.
Enforceability and finality of award
Subject to the provisions laid down in Part 1 of the Arbitration and Conciliation Act, 1996, an arbitral award shall be final and binding on the parties to the arbitration.
If the time for applying to set aside an arbitral award under Section 34 of the Arbitration Act has lapsed, then such an award shall be enforced as per the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. Even if such an application to set aside the award has been filed, such an application does not make the award ineligible to be enforced without the court granting an order to stay the execution of the arbitral award as per the provisions of a separate application made for that purpose.
Upon filing the stay application, the court may, at its discretion, grant stay on the operation of the concerned arbitral award.
According to Section 37 of the Arbitration and Conciliation Act, 1996, an appeal shall lie to the court authorised to entertain appeals from the court passing the said order or decree in cases where the subordinate court refuses to refer the parties to arbitration under Section 8 of the act, grants or refuses to grant any interim relief to parties under Sections 9 and 17, sets aside or refuses to set aside the arbitral award as per Section 34, in jurisdiction related issues.
No second appeal is allowed from orders passed in appeals under Section 37 of the Arbitration and Conciliation Act, 1996 but there is no bar on appeal to the Supreme Court of India.
Part II of the Arbitration and Conciliation Act, 1996, talks about foreign awards. Foreign awards in this part are defined as awards on disputes between individuals arising out of legal relationships, whether contractual or not and considered commercial under the law in force in India.
Any foreign award would be enforceable as per Indian laws and compulsorily be treated as binding in the whole territory of India on all the relevant parties to the arbitration. To enforce a foreign award, the party shall produce, along with the application, the original award or a copy of the original award certified as per the laws of the country in which it was passed, the original arbitration agreement or a certified copy of the same and other evidence as may be necessary to prove the arbitration agreement and award.
Arbitration has lots of scope as it is time saving, cost-saving and convenient for the entity that prefers it as a dispute resolution mechanism. More and more arbitration is happening around the globe and parties prefer arbitration as it is less technical in comparison to litigation. From start to finish, it’s a quick process so parties, without being engaged in a dispute for a long time, can focus on business activities.
Arbitration is a confidential process that remains intact unless an appeal is made against an arbitral order. Unlike court proceedings, in arbitration, parties have more control over the proceedings. Arbitration, as it is a time-bound process, is preferred over litigation.
As a career, arbitration has just started to grow as a choice and in the future, more and more people will choose arbitration law as a career field.
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