ArbitrationAdvocate Tanwar

Definition of Arbitration

  • Arbitration is an exclusive mechanism for dispute resolution in which parties consent to refer disputes to one or several arbitrators whose award is binding. In contrast to litigation, arbitration takes place outside the judiciary and is normally quicker, less formal, and more adaptable.
  • Definition: As per Black’s Law Dictionary, arbitration refers to a method of resolving disputes between two parties and a third party who is impartial and whose choice is binding.
  • Section 2(1)(a) of the Arbitration and Conciliation Act, 1996, says that arbitration means any arbitration, whether or not under the auspices of a permanent arbitral institution.
  • Section 8 of the Act talks about the powers of any judicial authority to refer a case to arbitration. It must be followed by an arbitration agreement.

The Hon’ble Supreme Court in the case of P. Anand Gajapati Raju v. P.V.G. Raju (2000) gave certain requirements necessary for referring parties to arbitration:

  • An arbitration agreement must be there.
  • A party must bring an action in court against others.
  • The subject matter must be the same as in arbitration.
  • One party demands arbitration in court.  

 Amar chand v. Ambika jute mills, AIR 1996 SC

The Supreme Court of India has interpreted arbitration as judging a dispute between parties or groups of people by someone not involved in the dispute whose decision both parties agree to accept.

General Principles of Arbitration

  1. Consensual Process: Arbitration involves mutual consent. Parties may opt for arbitration through a contract clause or a submission agreement and are not free to withdraw unilaterally.
  2. Neutrality: It provides a balanced process with impartial arbitrators, applicable law, language, and venue choice to avoid home-court advantage.
  3. Confidentiality: The proceedings of arbitration are confidential, safeguarding sensitive information and trade secrets.
  4. Party Autonomy in Appointment of Arbitrators: Parties have freedom to appoint arbitrators. Two parties, forming a three-member panel, each appoint one, and the two sitting arbitrators decide on the third, the presiding arbitrator.
  5. Final & Enforceable Awards: The decision by the arbitral tribunal (Award) is final and more easy to enforce worldwide compared to judicial judgments.

Types of Arbitration

  1. Domestic Arbitration: Parties are both Indian, and hearings take place in India according to Indian laws. A mere reading of Section 2(2) can lead us to infer that domestic arbitration is when the parties have agreed to resolve any disputes that arise in India.
  2. International Arbitration: There is a foreign element, either in party nationality or case jurisdiction.
  3. International Commercial Arbitration: According to Section 2(1)(f), international commercial arbitration can be understood as arbitration that takes place because of a dispute arising from a commercial contract where either one of the parties resides in a foreign country or is a foreign national; or the core management committee of an association, company, or body of individuals is controlled by foreign individuals.
  4. Ad hoc Arbitration: Arbitration is done without institutional supervision, and parties determine procedures and arbitrator appointment.
  5. Contractual Arbitration: Companies insert arbitration clauses in contracts to settle disputes outside courts.
  6. Institutional Arbitration: Arbitration is done by an arbitration institution according to pre-agreed rules.
  7. Statutory Arbitration: Compulsory arbitration by statute, with no option for the parties.
  8. Foreign Arbitration: Held outside India, and the award is a foreign award to be enforced.

Arbitration Agreement

Arbitration Agreement (Section 7, Arbitration & Conciliation Act, 1996)

  • Section 7(1): An arbitration agreement is an agreement to submit present or future disputes to arbitration, arising from a defined legal relationship, contractual or not.
  • Section 7(2): It can be an arbitration clause in a contract or a separate agreement.
  • Section 7(3): It must be in writing and is valid if contained in:
  • A document signed by both parties.
  • An exchange of letters, telex, telegrams, or other telecommunication records.
  • An exchange of claim and defense statements where its existence is alleged and not denied.
  • Section 7(5): A reference to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference makes the clause a part of the contract.

Essential Elements

 (As per Bihar State Mineral Development Corp. v. Encon Builder Pvt. Ltd., 2003)

  1. A present or future dispute.
  2. Intention to settle through a private tribunal.
  3. Agreement in writing to be bound by the tribunal’s decision.
  4. Consensus (ad idem) between the parties.

Key Case Laws on Arbitration Agreement

  1. K.K. Modi v. K.N. Modi (1998) – Arbitration should be binding and judicial in nature.
  2. Garware Wall Ropes Ltd. v. Coastal Marine Constructions (2019) An arbitration agreement should be properly stamped.
  3. Prime Market Reach Pvt. Ltd. v. Supreme Advertising Ltd. (2019) An invalid agreement cannot be enforced.

Time-Bar Clause

A clause in an arbitration agreement that bars claims unless arbitration is initiated within a specified time. It is also known as the Atlantic Shipping Clause (Atlantic Shipping & Trading Co. v. Louis Dreyfus & Co., 1922).  In terms of its legality, upheld as lawful, it does not violate Section 28 of the Contract Act, as it extinguishes the right itself rather than shortening the limitation period.

  • Strict Interpretation: Construed against the party relying on it.
  • Court Discretion: Courts may extend time if undue hardship is caused.

Key Principles of Arbitration

  1. The tribunal must act impartially and judicially.
  2. Equal obligation of fairness towards both parties.
  3. The arbitration agreement must be legally enforceable.
  4. The tribunal must decide on an already formulated dispute.

Who is the arbitrator?

According to Cambridge Dictionary, an arbitrator is someone who has been officially chosen to make a decision that ends a legal disagreement without it having to be solved in court.

The term arbitration has not been defined in the Arbitration and Conciliation Act, 1996, nor was it defined in the old Act of 1940 or the English Arbitration Act.

An arbitrator may be defined as a person to whom the matters in dispute are submitted by the parties, and those functions are more or less judicial, i.e., to decide the law and facts involved in the matter referred to him and settle the dispute or difference, thus dispensing equal justice to all parties.

Satyendar Kumar v. Hind Construction Ltd., 1952

It was held that where the parties to a dispute refer the matter to a person and such person holds a judicial decision, such person is called an arbitrator.

Qualification to be an Arbitrator

Qualifications of an arbitrator before the 2021 amendment under the 8th schedule are given below:

  • An advocate with 10 years of experience.
  • A chartered accountant with 10 years of experience.
  • A cost accountant with 10 years of experience.
  • A company secretary with 10 years’ experience.
  • An officer of the Indian Legal Service.
  • An officer with a law degree having ten years of experience in legal matters in the government, autonomous bodies, PSUs, or a senior-level managerial position in the private sector.
  • An officer with an engineering degree having ten years of experience as an engineer in the government, autonomous bodies, PSUs, or at a senior-level managerial position in the private sector or self-employed.
  • An officer having senior-level experience of administration in the central government or state government or having experience of senior-level management of a PSU or a government company or a private company of repute.
  • A person having an educational qualification at degree level with ten years of experience in scientific or technical stream

The disqualifications of an arbitrator are the opposite of the qualifications of an arbitrator mentioned above.

Appointment of Arbitrators (Section 11)

  • Number of Arbitrators (Section 10)- May be any number but an even number (default is one).
  • Appointment Process—
  • One arbitrator is appointed by each party.
  • These two appoint a third person who is chairperson of the tribunal.
  • In the event of failure, courts or arbitral institutions replace them.

 Case Laws

  • Deepak Galvanizing & Engg Industries v. Govt. of India (1997)—Loss of the right on account of failure to appoint arbitrators.
  • Continental Constructions Ltd. v. NHPC Ltd. (1998)—The Chief Justice may appoint arbitrators if parties do not do so.

Conclusion

Arbitration is a universally recognized alternative dispute resolution mechanism that provides flexibility, neutrality, and enforceability. Its applicability covers domestic as well as international disputes, with strong legal support under the Arbitration and Conciliation Act, 1996. Properly designed arbitration agreements and compliance with procedural requirements facilitate efficient resolution of disputes without extended litigation.

Contributed By: Hetu (Intern)