Arbitration Law in India : Critical analyses

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The Arbitration and Conciliation Act of 1996 is the law that governs arbitration. It went into effect on January 25th. It extends to the entire country of India. Domestic arbitration, commercial arbitration, and the execution of international arbitral awards are all governed by this legislation. It has a new conciliatory feature. It is based on the UN Model Law in order to align our legislation with that of the United Nations Commission on International Trade Law (UNCITRAL). The Act is made up of several different pieces of legislation. Domestic arbitration, international commercial arbitration, foreign award enforcement, and conciliation are all covered.

Introduction

The Arbitration and Conciliation Act, 1996[1] is the law that governs arbitration. It went into effect on January 25th. It extends to the entire country of India. Domestic arbitration, commercial arbitration, and the execution of international arbitral awards are all governed by this legislation. It has a new conciliatory feature. It is based on the UN Model Law in order to align our legislation with that of the United Nations Commission on International Trade Law (UNCITRAL)[2]. The Act is made up of several different pieces of legislation. Domestic arbitration, international commercial arbitration, foreign award enforcement, and conciliation are all covered in the act. (the other being connected the UNCITRAL Conciliation Rules of 1980)[3]

Definition

Arbitration is the process of appointing an arbitrator to provide a binding solution to a dispute between two consenting parties. It is a method of resolving conflicts outside of the courts, saving both time and money.

Arbitration is a legal procedure that fosters the reasonable settlement of disputes between two or more parties by appointing a third party whose decision is binding on the parties involved.

Arbitration, according to the dictionary, is the process of resolving a disagreement between people by assisting them in reaching an established legal resolution.

Arbitration is a type of Alternative Dispute Resolution (ADR) that benefits parties who want to escape the lengthy process of resolving disputes through the court system.

It is a legal strategy for resolving disputes outside of the courts in which the parties to a disagreement submit it to one or more arbitrator(s) whose decision (the “award”) they agree to be bound by.

Advancement, liberalisation, and globalisation of international business relations precipitated the creation of a flexible, reasonable, favourable, and time-saving method of resolving disputes that did not require the parties to go through the traditional justice delivery system’s rigorous, time-consuming, and resource-draining procedure. As a result, in these modern times, when time is of the essence, arbitration is an efficient manner of resolving conflicts.

Arbitration

Parties are encouraged to settle their issues privately as much as possible, either through mutual concessions or through third-party mediation. Litigation is a necessary evil, and it is also exceedingly costly, therefore the law prefers that the lesser the court battles, the financially healthier with less time required it would be for both the parties in dispute to come to a mutual settlement. An arbitration is when the parties agree to have their problems resolved through the mediation of a third party, but with all the formalities of a judicial judgement.

Arbitration Agreement Defined

An arbitration agreement must be in writing, but it can also be in the form of a series of letters or any other form of telecommunication that serves as a record of the agreement. The agreement does not have to be signed, and an unsigned agreement that is confirmed by the parties’ actions is valid as an arbitration agreement. An arbitration agreement is also regarded to be in writing if the existence of the agreement is stated by one party and not rejected by the because of statement of claim and defence.

International Commercial Arbitration

International Commercial Arbitration is explained in Section 2(f)[4] of the Act. The Act governs not International Arbitration and the Domestic Arbitration but in these two situations it differs from each other under Part I of the Act and which is as follows:

  1.  appointment of an arbitrator;
  2.  determining the governing law.

It tends to be characterized as an assertion where no less than one of the gatherings which can be an individual, an organization or relationship of people who are from outside of India and constantly live out of the jurisdiction of India in whatever other country whose Central administration is controlled in some other nation and not by the Indian government.

International Commercial Arbitration in India

It is true that both the courts and the administration in India have recently embraced a pro-arbitration approach. “The Government of India is actively supporting International Arbitration as a fair and lawful mechanism of settling International Business Disputes,” according to the agreement.

A review of recent Supreme Court of India cases reveals that courts now rarely intervene in the arbitration process, allowing tribunals to deal with the problems raised in the case.

The court said that “basic principle which must guide judicial decision making is that Arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal” and “the duty of the court is to impart to that commercial understanding a sense of business efficacy.”

Upholding the minimum interference of the courts in arbitral proceedings, the Hon’ble Supreme Court also stated that, “the courts need to remind themselves that the trend is to minimize interference with arbitration process as that is the forum of choice. That is also the policy discernable from the 1996 Act. Courts must be extremely circumspect and indeed reluctant to thwart the arbitration proceedings. Thus, while courts in India may have the power to injunct arbitration proceedings, they must exercise that power rarely and only on the principles analogous to those found in sections 8 and 45 as the case may be of the 1996 Act.”

The Hon’ble Supreme Court of India’s arbitration approach was then expressed in a recent ruling, which determined that the conclusion drawn when dealing with an application under Section 11(6) of the Act, ‘’the Court should not decide on merits of whether it is a dispute relating to excepted matters under the agreement in question or not.”

Preserving the autonomy pf arbitration, the Hon’ble Supreme Court in Indus Mobile Distribution Private Ltd vs Datawind Innovations Private Limited and Ors[5] stated that “the moment the seat is designated, it is akin to an exclusive jurisdiction clause.”

International Commercial Arbitration is divided into two major categories in India:

  • International Commercial Arbitration with seat in India (Part 1 of the Act)
  • International Commercial Arbitration with seat outside India (Part 2 of the Act)

In a series of judgements, the Hon’ble Supreme Court of India established and simplified the law of arbitration, holding that India courts have no involvement at all in matters of foreign seated arbitrations (Ex: Supreme Court allowed Reliance Industries Limited’s plea of arbitration in London)[6]

  1.  In the case of Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Ltd, (2012)[7], the Supreme Court of India transformed the complexion of International Commercial Arbitration. Known as the BALCO lawsuit, it established the following guidelines:
  2. In the case of International Commercial Arbitration with a seat outside of India, no appeal for interim relief can be made in Indian courts, and they lack the executive power to do so.
  3. International Commercial Arbitration awards will be subject to Indian jurisdiction only if they are to be enshrined in law in India.
  4. The Hon’ble Supreme Court of India’s decision in BALCO, which overruled the earlier Bhatia International versus Bulk Trading judgement, has thereby moved Indian arbitration law in the righteous path.
  5. In clarifying the meaning of Section 34 of the Act, the Hon’ble Supreme Court of India held that the section’s scope is restricted to the stipulation provided in Section 34(2) of the Act of 1996. The words “An arbitral award may be set aside by the court only if” in Section 34(2) are mandatory and remove the court’s ability to set aside an arbitral award on any of the grounds listed in the section. It was established that the court will not sit in appeal over the arbitral tribunal’s decisions or re-evaluate evidence as an appellate court.
  6. The Hon’ble apex court in the Union of India vs Ambika Construction[8], In ruling on the rate of interest to be granted in arbitration awards, the court concluded that the rate of interest should be granted and assessed from the date the arbitration was invoked until the sum is eventually decided
  7. In a recent case, the Hon’ble High Court concluded that an agreement prohibiting interest award merely restricts the demand for interest, not the arbitrator’s jurisdiction to award interest.
  8. In the case of Oil and Natural Gas Corporation Vs Saw Pipes Ltd[9], the Hon’ble Supreme Court of India defined the court’s jurisdiction under Section 34 of the Act, holding that the courts must engage and intervene if there is illegal practise arising from statutory or contract provisions, or if the award disrupts the court’s sense of right and wrong.

The Principle of Non-intervention by the Courts[10]

 The concept that courts should not intervene in arbitral procedures is the main focus of the Act. In fact, the Act only specifies three circumstances in which judicial power may interfere in arbitral proceedings.

These are: i. appointment of arbitrators, where the parties’ envisaged method for the same fails (s 11);

ii. ruling on whether the mandate of the arbitrator stands terminated due to inability to perform his functions or failure to proceed without undue delay; and

 iii. provide assistance in taking evidence.

 iv. As would be noticed, Indian law is far more restrictive in allowing court intervention (compared to the Model Law).

 v. Section 5 of the Act provides, through a non-obstante clause, that those governed by Part I, no judicial authority shall interfere except where so provided for.

A corresponding section is Section 8. It provides that if a judicial authority receives an action in a case that is the subject of an arbitration agreement, the parties will be referred to arbitration. The sole stipulation is that the party that wishes to object to the court proceedings must do so before making his first declaration on the merits of the case. Meanwhile, arbitration processes may be started and prolonged, and an award may be issued.

Arbitral proceedings[11]

Conduct of Arbitral Proceedings:  The arbitrators are in charge of their own conduct and, with the consent of the parties, may conduct the procedures “in the manner they think suitable.” This authority includes deciding on the legality, significance, importance, and value of any evidence. They are simply bound by the requirement that they treat all parties equally and that each party be given a full opportunity to submit his case, including adequate notice of any hearing or meeting. Arbitrations are not covered under the Code of Civil Procedure (1908) or the Indian Evidence Act (1872). Unless the parties agree differently, the tribunal will determine whether oral hearings for the presenting of evidence or arguments will be held, or whether the procedures will be conducted only on the basis of documents or other evidence. If a party wants it, the arbitral panel will undertake oral hearings.  The arbitrators have the authority to continue ex parte if the respondent fails to convey his statement of defence, present for an oral hearing, or produce evidence without good reason. However, in such a case, the tribunal will not see the failure as an acknowledgment of the respondent’s charges and will resolve the case based on the evidence presented to it, if any. The arbitral tribunal has the authority to end the proceedings if the petitioner fails to communicate his legal complaint.

TYPES OF ARBITRATION PROCEEDINGS

In India, arbitral proceedings are divided into two categories: ad hoc arbitration and institutional arbitration. The Law Commission’s 222nd Report[12] on the Need for Alternative Dispute Resolution (ADR) in the Administration of Justice focused on the concept of ad hoc and institutional arbitration.

According to the Commission, in Ad-hoc arbitration, the parties determine the conduct of the arbitration procedures, i.e., arbitration proceedings are decided upon and conducted by the parties without resorting to an arbitral institution. If the parties cannot agree on who will become the arbitrator or maybe one of the parties is unwilling to cooperate in the appointment of the arbitrator in ad hoc arbitration, the other party must invoke Section 11 of the Act, which allows the Chief Justice of a High Court or the Supreme Court, or their designate, to appoint the arbitrator. In the instance of domestic arbitration, the Chief Justice of a High Court or his designee will be the arbitrator. The arbitrator’s remuneration must be agreed upon by the parties and the arbitrator in ad hoc arbitration. The Report also indicates that in ad hoc arbitration, the arbitrator’s fee is rather exorbitant under the current circumstances.

Under Institutional arbitration, arbitration is administered by an arbitral institution. The parties may agree in the arbitration agreement to have an arbitral dispute between them sent to a specific institution for determination. The Indian Council of Arbitration and the International Centre for Alternative Dispute Resolution are two Indian institutes. The International Court of Arbitration, the London Court of International Arbitration, and the American Arbitration Association are all international institutions. All of these institutions have written guidelines for conducting arbitration. These guidelines are based on experience, and as a result, they cover all possible scenarios that may emerge throughout the course of arbitration.

Arbitral Award

Arbitration award:  The arbitrator or arbitration panel will issue an arbitration award at the conclusion of the dispute. An arbitration award, which is similar to a court verdict in some aspects, determines how the issue will be addressed. It does, however, differ from a legal judgement in a few ways. An arbitration award may or may not be enforceable. The majority of arbitration awards are unappealable or unchallengeable. Judgments and arbitration rulings may have separate enforcement mechanisms. Still, the end outcome of an arbitration is an arbitration award, and knowing what an arbitration award is and how it works will give parties confidence in their decision to engage in arbitration[13].

Form and contents of arbitral award[14].—

(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

 (2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

(3) The arbitral award shall state the reasons upon which it is based, unless—

  1. the parties have agreed that no reasons are to be given, or
  2. the award is an arbitral award on agreed terms under section 30.

(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.

(5) After the arbitral award is made, a signed copy shall be delivered to each party.

(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

Recourse against arbitral award[15]

34. Application for setting aside arbitral award.—(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

 (2) An arbitral award may be set aside by the Court only if—

(a) the party making the application 1 [establishes on the basis of the record of the arbitral tribunal that]—

  1. a party was under some incapacity, or
  2. the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
  3. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
  4. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
  5. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

 (b) the Court finds that—

  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.

The Saw Pipes Judgement

ONGC v. Saw Pipes Ltd., AIR 2003 SC 262 was a landmark case in the history of arbitration. Although the courts do not have the authority to deal with arbitration procedures, they were sorely tested. The court was worried about the arbitration award to deny liquidated damages. It is covered by Section 74 of the Indian Contract Act, 1872, in Indian law. In the proceedings, it was decided that if an award is given that violates any Act or provision of law, the award will be set aside. Moreover, the decision broadened the definition of public policy, ruling that if the award is against public policy, it is definitely unconstitutional.

This judgment, however, is limited to domestic arbitration awards.

CONCLUSION

In recent years, there has been an unprecedented increase in foreign dealings and contracts, resulting in a surge in international arbitration disputes. India is not a socialist economic nation. It is adapting to the changing times, and judgments like BALCO are demonstrating to the rest of the world that parties can enter into arbitration without fear of being subjected to inconvenient traditional procedures. Arbitration has now time by time proved its brilliant efficacy to settle cases and disputes and India has enacted legislation that is effective. It is now necessary to instil a culture of arbitration among the bar, the judiciary, and the arbitral community. The weight of the past must be eliminated so that India may offer an appealing arbitration procedure which would be fruitful and beneficial as well as less time consuming to all those desperately in faster need of justice. It has been long due for India to reduce its necessary burden on courts and apply more Alternative Dispute Resolutions tactics like Arbitration, which has been eager to demonstrate its abundant usefulness on the land of Indian Law, and with its wealth, it will be around to dwell and flourish.


[1] Act 26 of 1996 [Assented to on 16-3-1996]

[2] https://uncitral.un.org/

[3] https://www.jus.uio.no/lm/un.conciliation.rules.1980/doc.html

[4] https://legislative.gov.in/sites/default/files/A1996-26.pdf

[5] (2017) 7 SCC 678)

[6] https://www.livemint.com/Companies/hTuqvShoPRWDU5vxyeiYKM/Supreme-Court-allows-RILs-plea-of-arbitration-in-London.html

[7] (2012) 9 SCC 552

[8] 2016 6 SCC 36

[9] (2003) 5 SCC 705

[10] https://kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf

[11] https://www.icaindia.co.in/icanet/rules/commercialarbitration/arbitration&conciliation/clause.htm

[12] https://lawcommissionofindia.nic.in/reports/report222.pdf

[13] Avtar Singh, Law of Arbitration & Conciliation and Alternative Dispute Resolution Systems 285 (Eastern Book Company, Lalbagh, Lucknow, 11th edition, 2018).

[14] Section 31, The Arbitration and Conciliation Act, 1996

[15]  Section 34, The Arbitration and Conciliation Act, 1996

Author: Ishaan Bhatia, Vivekananda Institute Of Professional Studies (Affiliated to GGSIPU)

Editor: Kanishka VaishSenior Editor, LexLife India.Advertisements

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