Arbitration is a dispute resolution procedure, in which the parties choose one or more arbitrators, to settle a dispute between the parties. The provision of arbitration is stipulated in the contract itself and the parties opt for a private dispute settlement procedure, instead of approaching to the court.

Characteristics of Arbitration

The principle characteristics of arbitration are as follows:

Arbitration is Consensual

The arbitration in only possible when both the parties are willing to solve the matter through arbitration. The arbitration clause is inserted in every contract and the arbitration proceedings are held as per the procedure stipulated under arbitration clause. If there is no clause in the contract for arbitration, then an existing dispute can be referred to arbitration through submission agreement between the parties. The parties cannot unilaterally withdraw from the arbitration.

The Parties Choose the Arbitrators

There is a provision in contracts which gives right to the parties to choose the arbitrator. In small contracts, there is one arbitration which is appointed after the consensus of both the parties. If the parties do not agree on an arbitrator within as stipulated time, then the arbitrator is appointed by the authority as given in the contract.

In large contracts, generally there is a provision to appoint three arbitrators. Each party appoints its own arbitration and then both the arbitrators appointed by each party then choose a third arbitrator.

If the parties fail to choose an arbitrator, then the arbitrator is appointed by the authority as given in the contract. For e.g., in Indian contracts, generally Indian Road Congress or the Institution of Engineers, India are the organizations, who are authorized to choose a neutral arbitrator, if the parties cannot decide on an arbitrator. These organizations maintain an extensive roster of arbitrators which consists of highly specialized practitioners and experts.

Arbitration is Neutral

The parties are able to select language, venue & applicable law of the arbitration. This characteristic allows the parties to ensure that no party enjoys the unfair advantage. This makes the arbitration neutral in nature.

The Decision of Arbitrator is Binding on the Parties

The decision of arbitration is called award and it is legally binding on both the parties, until any party challenge it in the court within the stipulated time mentioned in the contract.

International Commercial Arbitration

In this type of arbitration, two parties from different countries approach an international arbitrator either through mutual consent or through an arbitration institution and try to solve their disputes. The United Nations have given due recognition to Model Law of International Commercial Arbitration and Conciliation rules given by the United Nations Commission on trade and law ( UNCITRAL).

Arbitration in India

In India, the arbitration is governed by the Arbitration and Conciliation Act, 1996 further amended in 2015. This act deals with the domestic and international commercial arbitration in India. This act is based on UNCITRAL model law. This act is divided into two parts:

Part 1: Deals with domestic and International commercial arbitration procedure to be conducted in India irrespective of nationality.

Part 2: About enforcement of foreign arbitration award

Let us know about the provisions given under different sections of this act.

Arbitration Agreement

This is defined under section 2(b) read with section 7

As per this section, the arbitration agreement is a written statement or exchange of communication between the parties or any statement made through means of telecommunication. It is not compulsory for the parties to sign or unsign it. Even if an arbitration clause is present in the agreement it would be considered as an arbitration agreement.

In other words, an arbitration agreement would be a statement made by one party regarding the claim in dispute and not denied by the other party.

Non Intervention of Court in the Arbitration process

Section 5 of the Arbitration and Conciliation Act, 1996

”5. Extent of judicial intervention. —Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

This section stipulates that no court can interfere in the arbitration proceedings except the following situations:

(a) When the parties are not able to appoint an arbitrator and the court has to appoint the arbitrator.

(b) In cases of taking the shreds of evidence.

(c) When the arbitrator is terminated due to incapacity or any other reason and the court is ruling the case.

 Section 8 is a companion section which stipulates “where a party has approached the judicial court to dissolve a dispute and it is exclusively to be trialled by the arbitrator, then the court must direct the person to start the arbitration proceeding first without any delay and may come later to the court when arbitration award has been made.”

Interim Measures

A party can seek interim measures as per the following:

(a) Approach the court under section 9.

(b) Approach the arbitral tribunal under section 17 of the act.

Section 9 of the Act gives right to a person to approach the competent court before or after or during the arbitral proceedings are made but before the enforcement of the arbitration award.

As per the Section 17 of the act, the parties can approach the arbitral tribunal for interim relief and the arbitral tribunal has power to grant interim measures related to the matters in dispute. Such matters for which the interim relief may be provided are urgent measures required by the party to preserve and protect his property, measure related to payment of claim etc.

Arbitrators

Section 11 of the Arbitration and Conciliation Act, 1996

The provision for appointment of arbitrators is mentioned in section 11 of the act. This act provides the right to the parties to appoint an arbitrator of their choice provided both the parties are agreed to it. In case the parties fail to appoint the arbitrator within the stipulated time as per the contract, they may approach the court to do so. In case of domestic arbitrations, the Chief Justice of High Court has the authority to appoint the arbitrator and in case of international commercial arbitration, the Chief Justice of India has the authority to appoint the arbitrator.

Challenging an Arbitrator

Section 12 of the Arbitration and Conciliation Act, 1996

The arbitrator may be challenged as per the section 12 of the act in the following circumstances:

(a) Grounds related to his independence or impartiality.

(b) If he does not possess sufficient qualifications to be agreed by the parties.

The challenge procedure is given in section 13(2) which stipulates that within 15 days after becoming aware of the constitution of the Arbitral Tribunal and any other circumstance, the party can make a written statement specifying the reasons to the Arbitral Tribunal and it is the Arbitral Tribunal and not the court who will decide on the matter of challenge.

Termination of an Arbitrator

Section 14 of the Arbitration and Conciliation Act, 1996

As per section 14 of the act, the arbitrator can be terminated under the following circumstances:

If he fails to act without undue delay.

(a) If he is unable to perform his function due to De jure or De facto.

(b) If there is any controversy regarding the above, the parties may refer the matter to the court.

Types of Arbitration Proceedings

In India, there are two types of arbitration proceedings:

Ad hoc Arbitration

Under this type of arbitration, the parties themselves commence the arbitration proceedings and determine the conduct of arbitration proceedings. In ad hoc arbitration if the parties are not able to appoint a mutual arbitrator then either of the parties can invoke Section 11 of the Act. The parties and the arbitrator, both have to agree on the fee of the arbitrator, which is usually expansive.

Institutional Arbitration

Under this type of arbitration, the parties can approach any arbitration institution and they themselves appoint an arbitrator and the proceedings can be commenced. The Indian Institution includes the Indian Council of Arbitration and International Centre for Alternative Dispute Resolution. The International institution includes the International Court of Arbitration, American Arbitration Association. All these institutions have expressly formed rules to deal with all the possible disputes with arbitration proceedings.

Challenge of Arbitral Award

The arbitral award given by the arbitrator can be challenged under section 34 of the act, on the following grounds:

(a) The party was under some incapability to make an application;

(b) The arbitration agreement agreed by the parties was not valid as per the law;

(c) The party making the application was not given proper notice for appointment of the arbitrator or arbitral proceedings;

(d) The award made is out of the Scope of arbitration and does not deal with the dispute;

(e) The award made is contrary to public policy;

(f) The subject matter dealt is not capable of settlement by Arbitration.

The time limit for challenge of the arbitral award is 3 months, within which either of the party may submit the application to set aside the arbitral award. This time period is further extendable up to 30 days, subjected to proper reasons for delay.

International Commercial Arbitration

Section 2(f) of the Arbitration and Conciliation Act, 1996

The international commercial arbitration is defined as an arbitration where at least one of the parties is from outside of India and habitually resides out of the jurisdiction of India. This type of arbitration is different from the domestic arbitration in the following situations:

(i) Appointment of arbitrator.

(ii) Governing law.

Conclusion

The law related to arbitration has played a significant role to settle the disputes between the parties under the contract. In large contracts, the disputes sometimes become unavoidable and the situation becomes complicated, when the disputes are not settled properly. The arbitration law provides a forum for the parties, to settle their disputes out of the court of law, without going through the complicated legal procedure.

Read more: Introduction to FIDIC Standard Forms of Contract & Documents