INTRODUCTION TO ARBITRATION
- adrcellail
- Sep 27, 2024
- 6 min read
Introduction
Ever wondered how big companies solve their disputes? Corporations like Tata, Reliance, and others dealing in millions (and sometimes billions) of dollars can’t afford to wait years for a court verdict to settle their disputes. To keep things moving swiftly, nearly every contract they sign includes a tailored dispute resolution clause, offering a streamlined process that’s designed for speed and efficiency. This often involves multiple layers of dispute resolution methods, such as negotiation, mediation, or arbitration, long before the parties ever consider heading to court. It’s only when these options fail that the courtroom becomes the last resort.
Alternative Dispute Resolution (“ADR”) refers to the use of any method, other than litigation, to resolve a dispute between parties. The ADR mechanism is capable of providing a substitute to the conventional methods of resolving disputes. ADR is an umbrella term which includes under its ambit Arbitration, Mediation, Negotiation and Conciliation. In India, u/s 89 of the Civil Procedure Code, 1908, if it appears to the court that there exist elements of settlement outside the court in any case, then the court may refer the same for Arbitration, Conciliation, Mediation or Lok Adalat. Alternative Dispute Resolution (ADR) has rapidly become the go-to method for resolving conflicts in both business and legal circles. In many cases, it’s no longer just an option but a requirement, some courts now mandate that parties attempt ADR before a case can even make it to trial. This shift highlights the growing preference for quicker, more efficient ways to settle disputes without the lengthy wait and high costs of traditional litigation.
Benefits of ADR:
Flexibility in scheduling, and suitability for disputes with multiple parties.
Reduces the load on an overburdened court system.
Less complex and less formal.
Parties’ ability to choose a neutral third party with expertise in the area of the dispute to mediate the dispute.
Ability to obtain a practical solution tailored to the needs of all parties.
Likelihood of a speedy settlement.
Confidentiality ensures the preservation of the parties’ reputations and relationships.
Less expensive solution for all parties.
Arbitration
Arbitration refers to an ADR method where the parties in dispute agree to have their case heard by a qualified arbitrator, out of court. Arbitration is the most traditional form of private dispute resolution. It is often administered by a private organization (such as the Permanent Court of Arbitration at The Hague, or the Singapore International Arbitration Centre) that maintains a lists of available arbitrators and provides rules under which the arbitration will be conducted. Most arbitration is driven by a pre-dispute contract entered into by the parties, in which they agree that if a dispute should arise, they will follow the course of arbitration rather than going to the court. Although sometimes described as a form of ADR, arbitration is not the same as mediation or conciliation. A mediator or conciliator can only recommend outcomes and the parties can choose whether or not to accept those recommendations. By contrast, an arbitration tribunal has the power to make decisions that bind the parties.
1) Procedure
This process is very similar to litigation and the court setup. There’s a judge (referred to as the ‘arbitrator’), there are hearings and evidence, etc. However, here, the parties decide the rules of the process and appoint their own judge. The decision of the Arbitral Tribunal is referred to as an “Award” and has the same effect as that of an order of the court. Arbitrators are legal professionals, usually attorneys or retired judges, qualified to make a decision based on the facts presented. In some jurisdictions, arbitrators are assigned to a case, in others the parties have at least some say in the choosing of the arbitrator. An arbitration will usually include the following steps:
Arbitration Agreement
Invitation to Arbitrator
Appointment of Arbitrator
Initial Hearing and Discovery
Arbitration Hearing
Award
Appeal
2) Arbitration Agreement
In India, an arbitration agreement is defined u/s 7 of the Arbitration and Conciliation Act, 1996. It is an agreement by the parties to submit to arbitration all or certain disputes arising from a defined legal relationship, whether contractual or not. The agreement must be in writing and signed by the parties. The arbitration agreement will determine key elements of the arbitration process. For example:
Will the tribunal comprise of one person or three?
How will the arbitrators be selected?
Where will the legal ‘seat’ or place of the arbitration be?
The essentials of an arbitration agreement are:
It must be arisen out of a mutual consent.
The parties must have the legal capacity to enter into an arbitration agreement.
The agreement must be made in writing.
It must be arisen out of the well-defined legal relationship.
The subject matter must be arbitrable.
3) Award
After the hearing, the tribunal will produce its award. This will set out the decisions it has reached on the issues between the parties. Unless the award is challenged, it determines the rights and obligations of the parties. The grounds on which an award can be challenged or appealed vary depending on factors such as the terms of the arbitration agreement, the arbitral ‘seat’ and the institutional rules. A tribunal’s findings of fact can rarely be challenged. However, if the tribunal has not conducted itself properly, has answered questions it should not have answered or, in some cases, made an error of law, a party can challenge the award u/s 34 of the Arbitration and Conciliation Act, 1996.
4) Seat and Venue
The Arbitration and Conciliation Act does not define the term “seat” or “venue”. Section 20 of the Act merely defines the “place of arbitration” which is being used interchangeably with the terms “seat” and “venue”. Although the distinction between the “venue” and “seat” of arbitration is well recognized in international commercial arbitration, imprecise drafting of arbitration agreements may obscure this difference. The basic things which various courts have held in relation to issues of seat/venue/place of an arbitration are as follows:
The seat of an arbitration will decide the law applicable to the proceedings and the courts having supervisory jurisdiction over the award delivered. Expressly defining the seat of an arbitration proceedings will also automatically mean that choice of ‘seat’ amounts to choice of the exclusive jurisdiction of the courts at which the ‘seat’ is located.
The venue/place is only the geographical location where the arbitration proceedings will be physically conducted whereas the seat will be the decisive factor of curial law applicable to the proceedings.
In absence of specific mention/agreement with regards to the seat of the arbitration, the venue/place shall be considered as the seat of arbitration subject to a combined reading of the entire agreement/clause and absence of any other significant contrary indicia.
5) Nature of Disputes in Arbitration
Every civil and commercial dispute is capable of being adjudicated by arbitration which is right in personam and is arbitrable whereas, non-arbitrable disputes are right in rem and fall under the jurisdiction of the courts. The following are examples of matters that can be referred for arbitration:
Commercial disputes involving business disputes, consumer transactions, boundary disputes and tortious claims.
U/s 8 of the Arbitration and Conciliation Act, 1996, the judicial courts have the authority to command the parties to refer back to arbitration if their contract has an arbitration clause and prove the contents of the agreement.
Disputes regarding IPR matters, with respect to copyright and trademark infringement which involves passing off claims.
Matrimonial disputes such as divorce, judicial separation, restitution of conjugal rights and child custody.
Matters of testamentary like grant of probate, letters of administration and succession of certificates.
Disputes regarding trust deeds involving trust, trustees and beneficiaries.
6) India International Arbitration Centre
Arbitration in India is governed by the Arbitration and Conciliation Act, 1996. The India International Arbitration Centre Act, 2019 provides for establishment of an institution of national importance, namely the India International Arbitration Centre, for creating an independent and autonomous regime for institutional arbitration. The Centre shall, inter alia, provide facilities and administrative assistance for conciliation, mediation and arbitral proceedings, maintain panels of accredited arbitrators, conciliators and mediators, both at National and International level or specialists such as surveyors and investigators; promote research and study, providing teaching and training, and organizing conferences and seminars in ADR matters.
Conclusion
Currently the world’s fifth largest economy, India is set to become the third largest by 2030. Financial sponsors, technology leaders, energy majors, and automobile companies alike have bet heavily on India. India-related international disputes will increase in line with this economic activity. Arbitrations involving Indian parties are increasing in number, value and profile, such as Amazon’s challenge of the sale of an Indian retail business to Reliance.
India has topped SIAC’s list of foreign users for four years in a row and the past two years saw nearly 300 Indian parties at SIAC. Indian parties also appear among the top ten users of ICC arbitration. Singapore remains the preferred seat for India-related arbitrations, while London and Dubai are also popular choices. The increased use of and focus on arbitration means India is becoming more friendly to, and stable for, arbitration.
SOURCES -
Author:
Anjali Verma, Third Year
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