Arbitration, stemming from the Latin word ‘arbitrari’ meaning “to judge,” refers to a process where a specific dispute is presented to one or more arbitrators, usually an odd number, by mutual agreement of the parties involved. These arbitrators then render a binding decision on the matter. As per Section 2(1)(a) of the Arbitration and Conciliation Act of 1996, "arbitration" encompasses any arbitration, regardless of whether it's overseen by a permanent arbitral institution. It serves as an alternative method for resolving disputes outside the traditional court system, and parties can resort to arbitration only if there's a prior agreement to do so.

Arbitration is predominantly employed to settle commercial disputes. It's favored for its typically swifter resolution compared to court litigation, particularly in high-stakes commercial matters, prompting their referral to arbitration.

Types of Arbitration:

  • Voluntary and mandatory arbitration

Arbitration can be initiated through a mandatory arbitration clause inserted into an agreement. This clause stipulates that any disputes arising between the parties must be resolved through arbitration rather than litigation. If one party hesitates to arbitrate, the other party can seek court intervention to enforce arbitration. By agreeing to such a clause, parties waive certain rights.

Voluntary arbitration occurs when parties independently opt to resolve their disputes through arbitration, sparing court time and reducing costs and delays. Parties may establish a pre-dispute arbitration agreement or decide to arbitrate after a dispute arises.

  • Binding and non-binding arbitration:

In a binding arbitration agreement, parties relinquish their ability to initiate lawsuits or appeal the arbitral award, unlike in a non-binding agreement. Binding arbitration is generally more advantageous for both parties as it conserves time for all involved, including the courts, and reduces legal expenses. Conversely, in a non-binding arbitration agreement, parties retain the option to pursue legal action if they disagree with the arbitral award.

  • Institutional arbitration:

Institutional arbitration operates within the framework of specialized arbitration institutions. These institutions play a crucial role in overseeing the arbitration process. They establish rules governing the procedures and timelines for dispute resolution. Parties involved in institutional arbitrations agree to submit their disputes to these institutions, which administer the proceedings. The institution appoints arbitrators from its pool and offers various services, including case management, secretarial support, supervision of proceedings, venue selection, and conducting arbitration hearings.

  •  Ad-hoc arbitration:

Ad-hoc arbitration refers to arbitration that operates independently of an arbitration institution's management. It is generally less costly than institutional arbitration. In ad-hoc arbitration, parties take on greater responsibility for various aspects of the proceedings, including selecting arbitrators, determining applicable laws, and ensuring the proceedings run smoothly.

  • Domestic and international arbitration:

Domestic arbitration is a form of alternative dispute resolution occurring within a single jurisdiction, involving parties from that same jurisdiction. It operates under the arbitration laws of the country where the proceedings take place. Simply put, when all elements of arbitration occur within one jurisdiction, it's classified as domestic arbitration.Conversely, if any aspect of arbitration involves a foreign territory, the proceedings are deemed international arbitration.

 

Advantages of Arbitration:

Arbitration offers several advantages:

1. Cost-effectiveness: Typically, arbitration costs are shared between parties, reducing the financial burden compared to litigation.

2. Expedited process: Arbitration often resolves disputes quicker than litigation, freeing up time for parties to focus on other activities.

3. Control over proceedings: Unlike litigation, arbitration grants parties more control over the process, minimizing external influence.

4. Binding decisions: Arbitral awards are enforceable, providing parties with a conclusive resolution to their disputes.

5. Mutual consent: Arbitration requires an agreement between parties, fostering a higher likelihood of resolution.

6. Choice of arbitrator and procedure: Parties have the freedom to select arbitrators, reducing the risk of bias.

7. Simplified procedures: Arbitration is generally less formal and complex than litigation, streamlining the dispute resolution process.

8. Confidentiality: Unlike litigation, arbitration proceedings are private, preserving the confidentiality of the matter.

9. Time limits: The Arbitration and Conciliation Act of 1996 imposes a twelve-month time frame for arbitral awards, extendable by six months with party consent.

 

Disadvantages:

  • Lack of appeal: Arbitral awards cannot be appealed, restricting dissatisfied parties' options for challenging decisions.
  • Simplified proceedings and rules of evidence: The informal nature of arbitration proceedings, with relaxed rules of evidence and absence of sworn witness examinations, may lead to inaccuracies in awards.
    • Generally few disadvantages: Despite these drawbacks, arbitration is typically advantageous as parties willingly consent to amicably resolving disputes.

What is an arbitral tribunal?

An arbitral or arbitration tribunal comprises arbitrators who adjudicate and resolve disputes between contracting parties in accordance with arbitration laws. The tribunal may consist of a sole arbitrator or multiple arbitrators, with the number typically determined by the parties, ensuring it's not an even number. In cases where the parties fail to specify the number of arbitrators, a sole arbitrator is appointed.

Arbitrators of any nationality can serve on the tribunal, subject to the parties' agreement. Parties have the liberty to establish the procedure for appointing the tribunal. If an agreed procedure is absent, each party selects one arbitrator in a three-arbitrator tribunal, with these arbitrators then choosing a third arbitrator to preside over the tribunal.

 

Jurisdiction of arbitral tribunal:

The arbitral tribunal possesses the authority to adjudicate within its jurisdiction and establish rules regarding the validity or existence of the arbitration agreement. It can address any claims of exceeding its authority. Parties have the option to seek interim relief during ongoing arbitral proceedings. If dissatisfied with the arbitral tribunal's decision, a party can apply to set aside the award under Section 34 of the Arbitration and Conciliation Act of 1996.

Procedures in Arbitration:

  • Arbitration proceedings are not bound by the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872. The law of limitation applies to arbitration in the same manner as it applies to court proceedings.
  • There is ample freedom to agree on the procedure to be followed by the arbitral tribunal. Parties to the arbitration are free to choose the place of arbitration. The parties have also been given freedom regarding agreeing on the language of the arbitration proceedings.
  • If parties do not agree on a procedure, then the tribunal may conduct the proceedings in the manner it thinks proper in the concerned case.
  • If the parties fail to choose the place to conduct arbitration proceedings, then the arbitral tribunal shall select an appropriate place to conduct the proceedings in consonance with the parties.
  • If the parties do not have any agreement on the language of the proceedings, then the arbitral tribunal shall determine the language(s) of the proceedings.
  • The arbitral tribunal can determine the admissibility, relevance, materiality, and weight of any evidence.
  • The arbitral tribunal has the discretion to order that any documentary evidence shall be accompanied by a translation into the language(s) that have been agreed upon by the parties or have been determined by the arbitral tribunal.
  • Subject to the agreement of the parties, arbitral proceedings in relevance to a particular dispute shall start on the date on which a request for a concerning dispute to be referred to an arbitral tribunal is received by the respondent.
  • Within a stipulated time, agreed upon by the parties to the arbitration or determined by the tribunal, the claimant shall present the facts in writing supporting his claim, including the points at issue (something similar to what the plaintiff presented in court as per CPC, 1908) and relief or remedy sought. The respondent shall present a document containing the facts in his defense in respect of the claims (something similar to the written statement presented in court as per CPC, 1908).
  • The parties may submit all documents or evidence they consider relevant to support their claim or defense.
  • During the course of arbitral proceedings, the respondent may also submit a counterclaim in support of his case or he may plead set-off. Parties may amend or supplement pleadings, subject to certain conditions. The statement of claim or defense shall be submitted to the arbitral tribunal within six months from the date of appointment of the arbitral tribunal.
  • The arbitral tribunal shall decide whether to hold an oral hearing for the submission of evidence, for oral argument, or whether the proceeding shall be based on the documents.
  • The arbitral tribunal shall not grant any adjournment without sufficient cause and, at discretion, may impose costs on parties seeking adjournment without showing sufficient reason.
  • The parties shall be given advance notice of hearing being conducted or meeting of the arbitral tribunal for the inspection of documentary evidence, goods, or any other assets. Every material, document, evidence, information supplied, or application presented before the tribunal shall be communicated to another party.
  • Everything on which the arbitral tribunal relies to make the decision shall be communicated to all parties.
  • If the claimant fails to present his statement as per the provision laid down in Section 23(1), then the arbitral tribunal shall terminate the proceedings, but if the respondent fails to present his side of defense as per the above stated provision in paragraph, then the tribunal shall continue the proceedings, considering such failure as admission of allegations in the statement of claim.
  • The arbitral tribunal may appoint one or more subject-matter experts to report to it on specific issues to be determined by the tribunal.
  • It may direct any party to provide any material about the matter in issue.
  • It may also direct the expert witness to be present at oral hearings so that relevant questions may be put to them to conclude.
  • The arbitral tribunal or any party with the approval of the arbitral tribunal may apply to the court to seek assistance in taking evidence.
  • The court may make orders to issue the same processes as it generally issues in a trial of suits before it.

Laws/rules applicable to proceedings

For arbitrations taking Seat in India, excluding international commercial arbitration, proceedings are governed by prevailing Indian laws. In international commercial arbitration, the tribunal resolves disputes based on laws explicitly agreed upon by the contracting parties.

The Seat of Arbitration decides the Law governing the Arbitration. If the seat of Arbitration is of any other country in the agreement of the parties then the Law of that country governing the Arbitration.

There is a major difference between the venue and seat of Arbitration. The venue decides the place where the arbitration takes place, will it be domestic or international? But the seat decides the law governing it.

For example, in a contract if the venue of arbitration is Dubai and seat of arbitration is in India. Then the arbitration takes place in Dubai but the law governing it and the jurisdiction will be of India.

 

Forms and contents of arbitral award:

According to Section 31 of the Arbitration and Conciliation Act of 1996, any arbitral award must be in written form and signed by all tribunal members. If a panelist's signature is omitted, the reason must be documented. The award must include the reasoning behind it and specify the place of issuance. Once finalized, each party receives a signed copy of the award. If the award entails monetary payment, it must detail the amount, interest rates, and payment duration.

The arbitral tribunal determines the arbitration costs as per Section 31A of the Arbitration and Conciliation Act, 1996.

 

Remedy against faulty arbitral award:

Under Section 34 of the Arbitration and Conciliation Act, 1996, a party may seek to set aside an arbitral award if they believe it to be defective. Section 34 provides several grounds for setting aside an award:

  • The applicant must demonstrate, based on the tribunal's record, that the opposing party was incapacitated in some manner;
  • The arbitration agreement was invalid under the relevant law;
  • The tribunal was not appointed according to the applicable laws, or proper notice of appointment was not provided to the applicant;
  • The award addresses a matter beyond the scope of the arbitration agreement;
  • The subject matter of the arbitration cannot be adjudicated through arbitration under current law;
  • The award violates India's public policy.

 

Enforceability and finality of award:

Subject to the regulations outlined in Part 1 of the Arbitration and Conciliation Act, 1996, an arbitral award is conclusive and obligatory for the arbitration parties.

If the period for seeking to annul an arbitral award under Section 34 of the Arbitration Act has elapsed, the award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, akin to a court decree. Filing such an application to annul the award does not render it unenforceable unless the court issues an order to suspend its execution, which requires a separate application.

Upon submitting the stay application, the court may, at its discretion, decide to suspend the operation of the relevant arbitral award.

Appeals:

According to Section 37 of the Arbitration and Conciliation Act, 1996, an appeal may be made to the court authorized to hear appeals from the court that issued the order or decree in cases where the lower court:

  • Refuses to refer parties to arbitration under Section 8 of the Act;
  • Grants or denies interim relief to parties under Sections 9 and 17;
  • Sets aside or declines to set aside an arbitral award under Section 34;
  • Addresses jurisdictional matters.

There is no provision for a second appeal from orders made in appeals under Section 37 of the Arbitration and Conciliation Act, 1996, but appeals to the Supreme Court of India are not prohibited.

Foreign awards:

Part II of the Arbitration and Conciliation Act, 1996, addresses foreign awards, defining them as awards stemming from disputes between individuals arising from legal relationships, whether contractual or not, and deemed commercial under Indian law.

Foreign awards are enforceable in India under Indian laws and are binding on all relevant parties throughout the country. To enforce a foreign award, the party must submit, along with the application, either the original award or a certified copy of it in accordance with the laws of the country where it was issued, the original arbitration agreement, or a certified copy thereof, and any other evidence necessary to substantiate the arbitration agreement and award.

Arbitration presents numerous advantages, including time and cost efficiency, making it an appealing dispute resolution method for many entities. Its increasing popularity globally is attributed to its less technical nature compared to litigation. Arbitration offers a swift process from initiation to conclusion, allowing parties to swiftly return their focus to business activities without prolonged dispute engagement.

Confidentiality is a key feature of arbitration, maintained unless challenged by an appeal against an arbitral order. Unlike court proceedings, arbitration affords parties greater control over the process. Given its time-bound nature, arbitration is often preferred over litigation.

As a career choice, arbitration is burgeoning, with expectations of continued growth in the future. More individuals are likely to opt for careers in arbitration law, drawn by its expanding opportunities and potential.