Process of Arbitration in India: A Brief Overview

By Mallika Joshi (Jr. Associate, Lex Services)

INTRODUCTION:

Where there arises a dispute, there arise multiple methods to settle them. The most frequent method is that of a court settlement. While court settlement has its benefits, it is an extremely time-consuming ordeal. The litigants have to invest a lot of time and money to receive results. For this reason along with other reasons, alternative dispute resolution (“ADR”) mechanism as become the new trend to resolve disputes. Almost all kinds of disputes can be resolved by ADR. One of the most popular methods of ADR is Arbitration. In recent years to unburden the overly stressed judicial system, this method has been promoted as way to resolve disputes efficiently. However, some of the promoters of this method point to a number of benefits like minimum court intervention, cost effective, expeditious disposal, private process, enforcement of awards, etc.

The process of Arbitration in India is covered under the provisions of the Arbitration and Conciliation Act, 1996 (as amended in 2015 and 2019).

WHAT IS ARBITRATION?

Meaning and Definition

Arbitration is a mechanism in which a dispute is submitted, by agreement of the disputing parties, to one or more arbitrators who make a binding decision on the dispute.

In simple words, Arbitration is an alternative dispute settlement mechanism, aiming at settlement outside of the court.

Key characteristics

  1. Consensual method of dispute resolution.
  2. Minimizes court intervention.
  3. Cost effective and speedy disposal of dispute.
  4. Private Process hence proceedings are confidential.
  5. Arbitrator is a neutral and independentparty.
  6. Arbitrator is selected by consent of all the parties
  7. The final award is binding on all parties.

    8. Certain matters fall outside the purview of Arbitration, namely disputes pertaining to leave and license matters like failure of non-payment of license fees or recovery of possession of the licensed premises; matrimonial matters like divorce or restitution of conjugal rights; matters relating to guardianship of a minor or other person under disability; insolvency matters, criminal proceedings; fraud or anti-trust matters, etc.

PROCESS OF ARBITRATION IN INDIA

  1. Arbitration Agreement:

    1. Arbitration agreement must be written, this includes e-mail, fax, letters, documents, etc.
    2. It must be communicated by both parties, consensually and of free will.
    3. It may be in the form of an arbitration clause in the main contract or a separate agreement.
    4. The Agreement should be signed.
    5. If in case the dispute is taken to the Court, despite having a prior arbitration agreement, the Court has the power to refer the disputing parties to arbitration.

  2. Arbitration Notice:

    1. An arbitration Notice must be issued from the party making claims (Claimant) to the other party (Opposite Party).
    2. This Notice contains all the claims made by the Claimant. It also contains the clause to invoke arbitration between the parties.
    3. Arbitration Proceedings are said to commence once the arbitration notice is received by the Opposite Party.

  3. Appointment of Arbitrator:

    1. Shall be an independent third party who has been appointed by the mutual consent of the disputing parties.
    2. The Arbitrator/s can be of any nationality.
    3. The number of arbitrators has to be an odd number (1,3,5 etc.)
    4. The Arbitrator/s compose the Arbitral Tribunal.
    5. If the disputing parties are unable to appoint an arbitrator, he appointment shall be made, upon request of a party, by the Supreme Court or any person or institution designated by such Court, in the case of an International Commercial arbitration or by High Court or any person or institution designated by such Court, in case of a domestic arbitration.
    6. Once an arbitrator is chosen to arbitrate, he must give the following necessary disclosures in writing:
      1. Existence of any direct or indirect, past or present relation or interest of the arbitrator with any of the disputing parties or in the subject matter of the dispute, whether financial, business or any kind, which might give rise to reasonable doubt regarding his independence and impartiality; and
      2. Any other thing which might affect his ability to devote sufficient time to the arbitration.
    7. An arbitrator may be removed from his post as arbitrator only by the following means:
      1. If the disputing parties decide to terminate the arbitration by way of an agreement;
      2. If the arbitrator is rendered incapable of performing his duties;
      3. If the arbitrator becomes de jure or de factor unable to act as arbitrator;
      4. If certain doubts still remain regarding his impartiality;
      5. If the arbitrator withdraws from his office, giving his withdrawal in writing;
      6. Or for any other reason, fails to act with undue delay

    4. Commencement of the Proceedings:

    1. Pleadings:
      1. Statement of Claims: The claimant shall submit a statement of claims stating the facts supporting his claims, his points of issue and the reliefs sought by him.
      2. Statement of Defense: The respondent shall submit their statement of defense stating their denial of the claims with respect to their case. The respondent, in support of his case, may also submit counter-claim or plead a set-off, only if such counter claim or set off falls within the scope of arbitration agreement.
      3. The time frame to submit the Statement of claim and defense shall be agreed upon by the parties or determined by the Arbitral Tribunal. The Parties may also submit with their statement such other relevant documents/evidence. Either party may supplement or amend their statements during the course of tribunal unless the Arbitral Tribunal considers it inappropriate to allow such amendment.
      4. The pleadings must be completed within 6 months from the date of appointment of the arbitrator.
    2. Language:
      1. The Arbitration proceedings can be conducted in any language decided by the disputing parties.
      2. If the disputing parties are unable to decide on the language, the arbitral tribunal can decide.
      3. The language applies to the conduct of the proceedings and the documentary evidence submitted by the parties. The Tribunal can ask for translation of any document into the some other chosen language.
    3. Hearing of the Dispute:
      1. The Arbitral Tribunal shall decide whether to hold hearings by way of written submissions or by way of oral presentations unless otherwise agreed between the parties.
      2. All statements, documents or other information supplied to the Arbitral tribunal by one side must be provided to the other side.
      3. Sufficient hearing notice must be provided to all parties involved.
    4. Default of the Parties:
      1. If the claimant fails to communicate statement of claim within the time frame, the proceedings shall be terminated;
      2. If the respondent fails to communicate statement of defense within the time frame, the proceeding shall continue as if the respondent has admitted to the allegations and shall also have the discretion to treat the right of the respondent to file such statement forfeited;
      3. Any party failing to appear at an oral hearing or producing any evidence, the proceedings shall continue and the award shall be passed on the evidence before it.
      4. Likewise, the Tribunal may also grant an extension of time to the defaulting party in case the delay is justified.

    5. Arbitral Award:

    1. The Arbitral award in matters other than international commercial arbitration must be passed within a period of 12 months from the date of completion of pleadings.
    2. The arbitral award must be made in writing and must be signed by all the arbitrators.
    3. It must also mention the date and place of the arbitration.
    4. The arbitral award must consist of the reasons, in writing, upon which it is based.
    5. A signed copy of the award must be delivered to each party.
    6. Within 30 days of the receipt of the award, either party can make an application to make any changes in the award. These changes only include any typographical or clerical errors in the award.

    6. Enforceability of the Award:

    1. The arbitral award is final and binding on all parties.
    2. The arbitral award shall become enforceable in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court as soon as the limitation period of 3 months for application of setting aside the award expires.
    3. The timeline given in the award has to be followed by all the parties.
    4. Even if an application for setting aside of an order is made, the enforcement of the award will not be unenforceable unless the Court specifically passes an interim award for the same.

    7. Setting Aside the Award:

    There is no provision to Appeal against the arbitral award since it is final and binding on parties. However, an aggrieved party may take a recourse to setting aside of the award on certain grounds specified in Section 34 of the Act. An application can be made to the competent Court (within 3 months of receiving a copy of the award) for setting aside the award if:

    1. the party making the application is able to establish on basis of record that:
      1. either party was incapacitated or
      2. the arbitration agreement is not in consonance with any of the laws existing in India;
      3. Either party was not given sufficient notice regarding the proceedings;
      4. The award deals with subject matter outside the scope of arbitration;
      5. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.
    2. Additional two more grounds which are left with the Court itself to decide whether to set aside the award:
      1. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
      2. The arbitral award is in conflict with the public policy of India.

    CONCLUSION

    Justice delayed is justice denied, the legal system should be efficient, speedy and cost effective to obtain justice. An arbitration is useful in achieving justice effectively which is the foundation of any legal system. The provisions pertaining to – time frame for dispute resolution, setting aside the arbitral award and the limited judicial interference are some key features which fortress the independence of the arbitration procedure. Arbitration is a substantial step if taken with proper management. Any man can enjoy its numerous advantages from speedy disposal, cost effective to private process and final and binding award.

    REFERENCES

    – Arbitration and Conciliation Act, 1996 and its amendment from time to time (i.e. 2015 & 2019)

    DISCLAIMER

    This article is the personal view and opinion of the author. This article is for information purpose only. This newsletter is not a substitute for professional advice. Lex Services disclaim all responsibility and accept no liability for consequences of any person acting or refraining from acting on the basis of any information contained herein.

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