“All all events, arbitration is more rational, just, and humane than the resort to the sword”
Arbitration is a process in which impartial outsider is engaged by the parties to make decision and such disposal of the dispute is usually binding on the both parties. As a measure to provide a substitute to litigation, Alternative Dispute Resolution methods are used to resolve legal disputes. Alternative Dispute Resolution methods is a process to resolve a legal dispute between two sides without involving the court and taking the dispute to a neutral third party who uses different modes of communication to reach an outcome. One such method of peaceful resolution is Arbitration. Arbitration and Conciliation Act, 1996 enshrined provisions regarding arbitration process in India.
Meaning of Arbitration:
Arbitration is one of the Alternative Dispute Resolution mechanisms whereby parties mutually agree to involve a third party to resolve any legal dispute. The third party known as an Arbitrator who hears the issued raised by both the sides, the remedy sought by them and comes to an amicable resolution of their dispute. The award of the Arbitrator is binding upon the disputing parties.
Advantages of Arbitration:
Arbitration proceedings are less formal than court. The many benefits of Arbitration include the following:
- Flexible Process: The process followed in Arbitration is far more flexible than court proceedings as the parties can mutually decide a date on which they wish to conduct arbitration proceedings and also choose the Arbitrator who will preside over the process.
- Private process: It’s a private process where only designated parties become present and proceedings are kept confidential. This feature is an aid in certain cases the revelation of the subject matter of the dispute might affect the reputation of the company.
- Expeditious: The Arbitration process takes lesser time as compared to legal proceedings in court as there are no multiple hearing and court dates.
- Cost effective: Arbitration process consumes less time to settle dispute for that reason it is considered to be cheaper than litigation. With the aspect of limited evidence and discovery, this also leads considerable reduction in costs.
Types of Arbitration:
There are various kind of arbitration depends upon its subject matter of the dispute, terms and the law governing to the arbitration agreement. Some types of the arbitration are including the following:
- Ad-hoc Arbitration: When a dispute or difference arises between the parties in course of commercial transactions. This kind of arbitration is agreed to get justice by balancing the un-settled part of the dispute only.
- Institutional Arbitration: There is a prior agreement between the parties to settle future dispute or differences that may arise during their commercial transactions. Such disputes or differences are settled by arbitration according to the clause provided in that agreement.
- Statutory Arbitration: This kind of arbitration is mandatory in nature, usually imposed on the parties by operation of law. Statutory arbitration is conducted in accordance with different laws that lay down arbitration as the method to resolve the dispute like the Cantonments Act, 1924, the Indian Electricity Act, 1910, the Land Acquisition Act, 1894.
- Domestic or international Arbitration: Arbitration that took place in India and has all the parties belong to India is termed as domestic arbitration. An arbitration in which any party to the dispute belongs to other than India and the dispute is to be settled in India is termed as international arbitration.
- Foreign Arbitration: When arbitration proceedings are conducted outside India and outcome of such proceedings i.e. arbitral award is required to be enforced in India, it is termed as Foreign Arbitration.
The Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 lays down the procedure to be followed in the arbitration and conciliation proceedings and applicability of arbitral awards. The UNCITRAL model law on International Commercial Arbitration, 1985 is the base of the Act. The Act ensures that the supervisory role of a court in arbitration procedure is limited and the court can only come into the picture in case an appeal needs to be filed against the arbitral award. Under the Act, two parties can enter into a contract to conduct arbitration proceedings or include an arbitration clause in their agreement.
The affected party has three years to initiate the arbitral proceedings from the date of cause of action arise. The affected party needs to send a notice to the other party regarding the issue, the remedy and the intention to initiate arbitration proceeding to settle the dispute. The arbitrator hears both the sides, records the claim of the parties and pronounces an arbitral award. The enforcement of an arbitral award must be according to the provisions of the Civil Procedure Code.
The Arbitration and Conciliation (Amendment) Act, 2019
The President of India gave his assent to the amendments to the Arbitration and Conciliation Act, 1996. The Amendment introduces the concept of Arbitral Institution under Section 11(3A) of the Act, where power is vested with the Supreme Court of India and High Courts to designate the Arbitral Institutions, where parties can approach for the appointment of arbitrators.
Part 1 A has been incorporated in the Act which introduce the concept of an Arbitration Council of India. The council will be established by Central Government through notification having its headquarters at Delhi. The composition of ACI includes (i) Chairperson who is either a Judge of the Supreme Court/a Judge of a High Court/Chief Justice of a High Court or an eminent person with expert knowledge in conduct of arbitration (ii) Other members will include an eminent arbitration practitioner and an eminent academician.
Under the previous Act, Arbitral Tribunals are required to make their award within a period of 12 months for all arbitration proceedings. The Amendment seeks to remove this time restriction for International Commercial Arbitration. The 2019 Amendment provides that the written claim and the defense to the claim in arbitration proceedings should be completed within six months for the appointment of the arbitrators, earlier there was no time limit for the same. The new Amendment also provides confidentiality of the arbitration proceedings except the award where its disclosure is necessary for the purpose of implementation and enforcement of award.
SC on Arbitration Process
In Cheran Properties Ltd. V. Kasturi and Sons Ltd. & Ors. (Civil Appeal 10025/2017), the court while observing the principle enunciated in Chloro Controls that a non-signatory may also be bound by an arbitration agreement in certain cases held that the group of companies doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories.
In Purushottam S/o Tulsiram Badwaik V. Anil & Ors. (Civil Appeal No. 4664 of 2018), the Supreme Court observed in this case that even if an arbitration agreement entered into after the 1996 Act had come to force were to make a reference to the applicable provisions of those under Indian Arbitration Act or 1940 Act, such stipulation would be of no consequence and the matter must be governed under the provisions of 1996 Act. Further, the court held that an incorrect reference or recital regarding the applicability of the 1940 Act would not render the entire arbitration agreement invalid.
In M/S Emaar MGF Land Limited & Anr. V. Aftab Singh, (2018 SCC Online SC 2771), SC upheld the decision of NCDRC whereby it ruled that an Arbitration Clause in a Buyer’s Agreement cannot circumscribe the jurisdiction of a Consumer Fora, notwithstanding the amendments made to Section 8 of the Arbitration Act.
In Garware Mall Ropes Ltd. V. Coastal Marine Constructions & Engineering Ltd. (Civil Appeal No. 3631/2019), Court held that the High Court must impound the instrument which has not borne stamp duty and hand it over to the authority who will then decide issues qua payment of stamp duty and penalty (if any) as expeditiously as possible, and preferably within a period of 45 days from the date on which the authority receives the instrument. As soon as the stamp duty is paid on the instrument, any of the parties can bring the instrument to the notice of the high court which will then proceed to expeditiously hear and dispose of the Section 11 application.
Arbitration proceedings are pretty simple and easy in nature. It is not in complex in nature unlike in regular courts. Arbitration and other alternative dispute resolution processes not only save resources and time of the parties dealing with a dispute but also helps the courts which are already overburdened with lacs of pending cases. For disputes relating to employment or business, arbitration is the most preferred method of dispute resolution.
Associate at Aggarwals & Associates S.A.S Nagar, Mohali