This article is written by Shikha Pokhriyal, from the School of Law, Delhi Metropolitan Education, GGSIPU. This article talks about arbitration, a kind of alternative dispute resolution, and how it helps in conducting international trade and business smoothly.
Table of Contents
Introduction
Alternative Dispute Resolution is a process that helps people to solve civil disputes without actually going to court. There are three known methods of alternative dispute resolution, i.e, arbitration, conciliation, and mediation. Arbitration is the method of alternative dispute resolution that helps the parties to resolve the disputes amicably with the help of the arbitrator. Courts are overburdened with the massive number of cases because of which decisions and judgments get delayed. People file petitions in the courts in the hope to get justice, spends a lot of money and time in the legal procedure, but because of overburdened the courts are not able to render the decisions on time and when the judgment finally comes it not worth the cost of what was already spent that is a lot of time and money.
The legal system helps render the aggrieved and is used to maintain peace and stability. Every person whose rights have been violated has the right to knock on the doors of the courts. But due to long trials, people hesitate. Therefore problems like these give rise to the method of alternative dispute resolution.
Alternative Dispute Resolution
Alternative dispute resolution (ADR) is a process of solving differences and conflicts among the parties by working together. It is a substitute for the traditional litigation system. The process of alternative dispute resolution tries to solve the disputes without the intervention of the courts. In this process, there is always a third party appointed who is neutral and fair to hear both sides and help them to come to the decision amicably. In India, there are four types of alternative dispute resolution. Arbitration, Negotiation, Conciliation, and the Lok Adalat. Alternative dispute resolutions are recognized in legal provisions like the Arbitration and Conciliation Act 1996, the Legal Services Authority Act, 1987, and Section 89 of the Civil Procedure Code.
The methods of alternative dispute resolutions are less time-consuming and are very cost-effective. By using these methods people resolve their disputes informally without going through formal court trials. This helps them to maintain their relationship. Alternative dispute resolution provides effective methods of resolving a dispute thereby helping the Indian Judiciary by reducing the burdens of the courts.
Arbitration system – meaning and requirements
Ancient India has been using techniques of arbitrations and conciliations to resolve disputes. The industrial revolution has led to a rapid increase in global trade and commerce. To stay with the economic growth and avoid long court trials, the parties often resort to arbitration as the preferred mechanism to solve the disputes among them. In the era of monarchy, arbitration was the form preferred by the rulers for resolving territorial and commercial disputes.
In the rural areas, Panchayats are held to solve the disputes among the people living in that particular village. Here the Panchas play a very important role as an arbitrator. Cross-border transactions and bilateral trade relations have fostered affiliations thereby accelerating the demand for legal provisions. The system of alternative dispute resolution emerged to help the domestic as well international trade and businesses by offering modern solutions for resolving disputes. The use of alternative dispute resolution allows the parties of the dispute to decide the issue and solve it with the help of a third party.
In India, Arbitration and Conciliation Act was introduced in the year 1996 which came into force on 22nd August 1996. The main objective to introduce the Arbitration and Conciliation Act was to maintain hostile relationships while conducting international and domestic business. It was also enacted to minimize the role of the courts and help the courts to reduce their burden. Arbitration is the process of resolving the disputes among the parties by bringing that dispute in front of the third party, who is neutral. This third party is known as the arbitrator. To reduce the burden of litigation, the method of arbitration is used in the hope of settling a dispute without spending the cost and time to approach the court. At the end of the arbitration proceedings, the decision rendered by the arbitrator is binding on both parties.
In the process of arbitration, there is a hearing conducted to determine the cause of conflict between the parties by the person who is appointed as an arbitrator by the parties or by the statutory body. The main purpose of arbitration is adjudication and there is no place to compromise. After determining the cause of conflict and hearing both sides of the parties, the arbitrator enforces their point of view that is neutral and fair.
The process of arbitration cannot exist without the arbitration agreement. An arbitration agreement is a document where two parties enter willingly, which states that if any dispute arises between them out of that certain contract that will have to be solved without going to the courts and would be resolved by appointing a neutral person as a third party. The definition of the arbitration agreement is given in Section 2(1)(b) and Section 7 of the Arbitration and Conciliation Act. The Arbitration and the Conciliation Act was recently amended in the year 2020, by introducing the Arbitration and Conciliation (Amendment) Ordinance, 2020. This ordinance focussed upon the unconditional stay of enforcement of arbitral awards if the court finds fraud or corruption and accreditation of arbitrators.
International Commercial Arbitration system
International commercial arbitration helps to resolve disputes among the international parties arising out of the internal commercial agreements. Section 2(1)(f) of the Arbitration and Conciliation Act defines international commercial arbitration as disputes arising out of the legal relationship where one of the parties is a citizen, resident, or habitually residing out of India. International commercial arbitration is used by the traders of different countries as a way of settling their business conflicts.
The procedure to apply for international commercial arbitration is the same as domestic arbitration. The scope of Section 2(1)(f) of the Arbitration and Conciliation Act was determined by the Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd. In this case it was held that if the company has dual nationality, that means it is registered in foreign and in India then that company for this Act would be regarded as Indian corporation and not the foreign corporation. International arbitration just like domestic arbitration takes place involving a third party known as an arbitrator. International commercial arbitration allows the parties to resolve their disputes amicably by maintaining their relationship and with less money by respecting each other’s cultural and linguistic background. International arbitration is also known as a ‘hybrid form of international dispute resolution’ because international arbitration allows mixing two legal provisions the Code Civil Law Procedure, 1908, and the Common Law Procedure. Parties coming together to work often in their legal contract mentions the clause of the arbitration agreement to resolve the disputes without going to court.
The International Chamber of Commerce (ICC) model arbitration clause, for instance, merely reads: “All disputes arising out of or in connection with the present contract shall be finally settled under the rules of arbitration of the International Chamber of Commerce by one or more arbitrators appointed by the said rules.”
Steps involved in International Commercial Arbitration
There are various steps involved while conducting the proceedings of the international commercial arbitration. The steps are explained below.
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Notice of arbitration
To commence the proceedings of arbitration one party has to provide the notice of arbitration to the other party requesting to refer the dispute to arbitration. When the respondent receives the notice of arbitration, the proceedings of arbitrations begin. In this notice, there are two essentials: one is the communication of an intention to refer the dispute to arbitration and the other is that the other party to whom the notice has been served should take a step towards it.
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Referral to arbitration
The judicial authority can refer the subject matters of the case to the arbitration if that agreement contains the clause of arbitration to settle the disputes among the party if there are any. According to Section 8 of the Arbitration and Conciliation Act, the judicial authority can refer the parties to arbitration if there is an arbitration agreement.
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Appointment of arbitrators
The parties are at their discretion to appoint the arbitrator to decide their case. If the parties are not able to appoint the arbitrators mutually due to some issues then the court allows the parties to appoint each arbitrator and then these two arbitrators will appoint the third party who will be neutral. If the parties fail to appoint the arbitrators within thirty days or the two arbitrators fail to appoint the third arbitrator then the parties can request the Supreme Court and High Court to appoint the arbitrators. The High Court or the Supreme Court can appoint any person or institution to appoint arbitrators. In the cases of International Commercial Arbitration, the Supreme Court can appoint the arbitrators for the parties and in the cases of domestic arbitrations, the High Court appoints the arbitrators.
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The challenge to the appointment of arbitrators
The appointment of arbitrators can be challenged only on these two criteria:
- When there are circumstances that raise reasonable suspicions about his or her independence or impartiality; or
- The arbitrator does not possess the qualities the parties required.
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Interim relief
The Arbitration and Conciliation Act, in Section 9 provides for interim measures of protection not just before the commencement of arbitral proceedings and during the arbitral proceedings but also after the arbitral award has been delivered. Section 17 provides for interim measures ordered by the arbitral tribunal if it is found at the time of proceedings that the disputed matter is dangerous then it can ask the party to provide security.
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The mandate of the arbitrator
If arbitrators do not deliver the arbitral award on time then the mandate of the arbitrators expires this was held in the case of NBCC Ltd. v. J.G. Engineering Pvt. Ltd by the Supreme Court. The mandate of the arbitrators expires according to the period agreed by the parties.
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Challenge to jurisdiction
The Supreme Court in the case of S.B.P. and Co. v. Patel Engineering Ltd. and Anr held that if without judicial intervention the arbitral tribunal was constituted by the parties the arbitral tribunal can determine all jurisdictional issues by exercising its powers of competence under Section 16 of the Act. According to this Section, an arbitral tribunal has the authority to rule on its jurisdiction if there exists a valid arbitration agreement. If any party has an objection regarding the invention of the tribunal then that party can file a plea before the submission of defence.
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Settlement during arbitration
The parties are allowed to settle the dispute mutually even if the arbitration proceedings are going on. If the parties arrive at the settlement amicably, the arbitration proceeding will be terminated. Also if both the parties give their consent to record the settlement then this would be known as a consent award that would work as an arbitral award.
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Arbitral awards
The decision rendered by the arbitrators in an arbitration proceeding is known as an arbitral award. The decisions are taken by taking the view of both the parties and by the majority. An arbitral award should be in a written form signed by all the members of tribunals. In the arbitral award, the date and place where it is made should be mentioned. Each party is entitled to acquire a copy of the arbitral award.
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The challenge to an arbitral award
Section 34 of the Arbitration and Conciliation Act provides an application for setting aside an arbitral award. The party can challenge the arbitral award within three months from the date of receipt of an arbitral award and additional 30 days can be given if any good reason is given. A party can challenge the arbitral award on the following grounds by furnishing the proof:
- A party was under some incapacity.
- Under the law, the arbitration agreement is not valid.
- The party was not provided sufficient time to appoint arbitrators and was not given proper notice and was unable to present the case properly.
- The arbitral award does not contain the solution of the dispute but it deals with matters beyond the dispute.
- The composition of arbitral trials and the arbitral proceedings were not according to the agreement of the parties.
- If the court finds out that the arbitral award conflicts with public policy or the subject matter of the disputes are not capable enough to settle by arbitration.
Foreign Arbitral award
In the Arbitration and Conciliation Act, foreign awards are covered under part of the Act that contains New York Convention Awards and Geneva Convention Awards. The New York Convention defines foreign arbitral awards as differences between the parties arising out of the legal relationships. The definition of the foreign award is given in Section 44 of the Arbitration and Conciliation Act. The Geneva Convention defines the foreign awards in Section 53 as differences between the parties arising out of commercial matters.
Conclusion
To attract foreign investment, a fast-growing economy requires a trustworthy, stable dispute resolution procedure. Due to the massive backlog of cases pending in Indian courts, commercial players both in India and abroad have established a strong preference for resolving conflicts through arbitration.
Despite being one of the original members of the New York Convention, Indian arbitration has not always followed international best practices. However, in the last five years, there has been a substantial shift in attitude. Indian arbitration legislation has been brought in line with international best practices by courts and legislators. With the courts’ pro-arbitration approach and the 2015, 2019, and 2021 Amendment Acts in place, there is reason to believe that these International best practices will soon be incorporated into Indian arbitration law.
References
- https://lawtimesjournal.in/what-are-foreign-arbitral-awards-are-they-enforceable-in-india/#:~:text=The%20award%20(specifically%20a%20foreign,by%20arbitration%20under%20Indian%20law
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