ARBITRATION: BRIEF ANALYSIS

BY: Mansi Kotriwar and Puneet Soi, B.B.A.LL.B (Hons)

Abstract:

The significant increase within the economic development of countries over the previous couple of decades has been amid a substantial increase within the number of economic disputes also. As a result, alternative dispute resolution mechanisms including arbitration have become more crucial for businesses operating in India as well as those during businesses with Indian firms. Keeping in mind the broader exploration between the standard of legal performance and economic process, this paper is an effort to critically evaluate arbitration in India as a legal institution. In this paper, the prime position in dispute resolution is discussed. This paper examines and evaluates the International Arbitration Regime in India under 1940 and 1996 Acts, and also discusses the main concepts like arbitrator, arbitration agreement, arbitral awards, foreign awards, public policy etc. Arbitration is a form of Alternative Dispute Resolution. ADR methods enjoy significant advantages like lower costs, greater flexibility of process, higher confidentiality, greater likelihood of settlement, choice of forum, choice of solutions etc. Arbitration Law in India has always been trending since its inception, in 1940. The present date arbitration law may be a formation of several promulgations and ordinances gone by the government of India to satisfy the economic reforms happening within the country from time to time. Arbitration Law in India, is primary contained within the Act of 1996. An act that was passed to consolidate the laws concerning domestic, international arbitration and its enforcement. In an effort to form arbitration a preferred mode of settlement of economic disputes and making India a hub of international commercial arbitration some major amendments were introduced in the year to 2015 and 2019. The current law is a composition of several such amendments with the latest amendments being introduced in 2019. This paper also deals with recognition and enforcement of the award and identifies the Indian regime governing the domestic, and International Commercial Arbitration. In International commercial arbitration contracts are frequently applied ADR techniques, especially arbitration is seen as how out arbitration as a personal, independent, and neutral system, time and price benefits that are felt to be the hallmarks of the arbitration.
Arbitration is increasingly becoming popular within the parties to settle their international as well as domestic commercial disputes.

Introduction:

Arbitration is a form of final and binding dispute resolution presided over by an appointed arbitral tribunal (one or three arbitrators, typically) acting in a quasi-judicial manner. Arbitration is, generally speaking, founded on party agreement (the arbitration agreement), and controlled and enforced by national law and national courts. In choosing arbitration, parties choose a personal dispute resolution procedure rather than litigating in court. The results of an arbitration is, usually, an arbitral award, which may be a final, binding and enforceable (as against the losing party or parties) decision on the dispute submitted for determination (and akin to a court judgment). Arbitral awards are subject to limited rights of challenge or appeal on either stand-alone basis or as defences to recognition and enforcement.

International commercial arbitration is taken into account by the international businessmen to be a real , and sometimes preferable, alternative to resolving commercial disputes by getting to court, particularly as arbitral awards are highly enforceable globally thanks to the success of the Convention on the popularity and Enforcement of Foreign Arbitral Awards. Many people consider arbitration to be cheaper than visiting court because generally there are fewer costs. Another benefit of Arbitration is that the parties can choose someone who has the knowledge about the topic matter of the dispute. Mainly there are two styles of Arbitration mentioned as an adhoc arbitration and an arbitration organized in permanent institutions. AdHoc arbitration is administered independently i.e., in line with the chosen rules by the parties.
During this process, the arbitrators are appointed by the parties. In line with the arbitration organized in permanent institutions follows the rules and service of the said institutions and appoints the arbitrators for the resolve the dispute. The International Chamber of Commerce (ICC) is one among the examples for this kind of institution. The word arbitration in its clear sense is nothing but a settlement. Adjudication, adjustment, compromise are the synonyms of the word “arbitration”.
India adopted significant reforms to the laws governing arbitration in the 1990s. The principal reason was that previous legislation regarding arbitration was felt highly problematic and thus resulted in delay and needless expense. “International Commercial Arbitration has become the traditional means of resolving disputes in international commercial transactions. International disputes with reference to India are steadily increasing because of the influx of foreign investments, overseas commercial transactions, and open-ended economic policies. This has drawn an incredible focus from the international community on India‟s International arbitration regime. There’s no mandatory legal regime governing International commercial Arbitration, it has a permissive regime of conventions which a nation follows if it’s a signatory of the identical. the two most significant conventions during this regard are, The Geneva Convention, The New York Convention 1958 and the UNCITRAL MODEL Law 1885. India may be a signatory for the identical. In fact, with the ten original Asian nations India was to possess signed the Convention of 1927.

History of Arbitration

Arbitration is an ancient concept and its origin can be traced all the way back to Greek and Roman City States. As early as sixth century B.C., Greek city states were resolving disputes like ownership of properties, assessment of damages etc. through arbitration. Even the works of eminent historians like Herodotus and Thucydides ask arbitration. Under the Roman law , the term “compropmissum‟ or compromise was a well known and oft chosen mode of dispute resolution and is taken into account to be a precursor of arbitration. India also features a long tradition of arbitration and therefore the concept of non-judicial dispute resolution was prevalent within the Indian society, before any codified law. The works of Yajnavalka refers to certain special arbitration courts in ancient India. Even the panchayat system in India is taken into account together of the earliest sorts of arbitration. While describing the concept of arbitration, judge A. Marten observed as “It is indeed a striking feature of ordinary Indian life. And I would go further and say that it prevails altogether ranks of life to a way greater extent than is that the case in England. To refer matters to a panch is one among the natural ways of deciding many an dispute in India. It may be that in some cases the panch more resembles a judicial Court because the panch may intervene on the complaint of one party and not necessarily on the agreement of both, e.g., during a caste matter. But there are many cases where the choice is given by agreement between the parties”

The development of arbitration regime in India are often broadly classified under 3 distinct phases:-
(i) The Pre-1940 phase; (ii) The 1940-1996 Phase; and (iii) The Post 1996 phase

Arbitrator

A private extraordinary judge chosen by the parties who have a matter at issue, invested power to make a decision an equivalent. Arbitrators are so called because they need generally an arbitrary power, there being in common no appeal from their sentences, which are called awards.
Arbitrators are to be appointed by the parties to the disputes and as long as the parties fail to undertake and do so, then upon the application by one of the parties within the case of domestic arbitrations the appointments are made by the High Court Chief Justice and in international arbitrations by the Supreme Court Chief Justice. Arbitrators are ready to grant interim relief in India depending on the type of relief sought for and how far the arbitration has proceeded. The arbitrator‟s award must be in writing and is enforceable like a decree of a civil court, where the grounds of challenge are limited. The court has the ability to line aside a present if dispute isn’t settled, or in conflict or contrary to public policy of India.

Arbitral Award

An arbitral award or arbitration award refers to a choice made by an arbitration tribunal in an arbitration proceeding. An arbitral award is analogous to a judgment during a court of law. An arbitral award is often of a non-monetary nature where the whole claimant’s claims fail and no money must be paid by either party.
The following that creates the substance of a gift according to Section 31 of the Act:-
1. The award should be in writing; oral awards are not recognized in law.
2. The award can be signed by the members of the arbitral tribunal.
3. If an arbitral tribunal consists of more than one member, majority members are to sign the award.
4. The arbitral tribunal shall mention date and place of the award where it is made; and
5. After the award is formed, a signed copy shall be delivered to each party.
An arbitral award may either be a “final award‟ or an “interim award‟. It may also be a “domestic award” or a “foreign award”. As a protective measure, an arbitral tribunal may make an interim order at the request of the party regarding dispute. Such orders are effective only during the arbitral proceedings and a celebration may restrain from during something which may be determined to the interest of the other party. This may be in the form of an interim injunction. But unlike an interim measure (order) an interim award shall be part of the final award and it is binding on the parties and such an interim award can only be passed after a proper hearing. In the form of an interim award the interim measures are accepted.

Foreign Award

Foreign award is an arbitral award which relates to differences concerning the matters considered as commercial under the law effective in India and it‟s a result of foreign arbitration. The supreme court of Calcutta in – Serajuddin vs. Michael Golodetz states the essential elements of foreign arbitration results to a foreign arbitral award are:
1. Arbitration must be conduct in foreign lands
2. By the foreign arbiters
3. By applying foreign laws
4. The party must be of a foreign nationality.
The Supreme Court while examining the language of Section 2 of the Foreign Awards (Recognition and Enforcement) Act, 1961 in National Thermal Power Corporation v. The Singer Co. case clarified that:-
“An award is “foreign” not merely because it is made within the territory of a foreign state, but because it’s made in such a territory on an arbitration agreement not governed by India. An award an arbitration agreement administered by the law of a India, though rendered outside India, affected the saving clause in Section 9(b) of the Act of 1961 and is, therefore, not a “foreign award”.

Arbitration Agreement

The formation of an arbitration agreement takes place when two parties, enter into a contract and during which , the contract states that any dispute arising between the parties need to be solved without getting to the courts with the help of an individual , who would be a neutral person, a third party, appointed by both of the parties, known as the Arbitrator, who would act as a judge. The arbitrator who is appointed should are previously mentioned within the contract that they made. They should also state who should select the arbitrator, regarding the type of dispute the arbitrator should give decisions on, the place where the arbitration would happen. Furthermore, they ought to also state the opposite sorts of procedures mentioned or that has got to be required during an arbitration agreement. The arbitration agreement must necessarily to in writing which can be within the kind of a signed document, letters exchange, telegrams or any other means of communications or claim exchange and defence statements which is provided to record of the agreement. Any contract references to a document containing an arbitration clause also form an arbitration agreement.
In the landmark case of K.K. Modi v. K.N. Modi and Ors. (1998) 3 SCC 57322, it had been held by the Hon’ble Supreme Court that the subsequent attributes must be present in an arbitration agreement:

  • The agreement must state that the choice of the tribunal are going to be binding upon by both the parties.
  • That the jurisdiction of the tribunal on the rights of the parties should be decided by both the parties
    consensually or from an order obtained by the Court which states that the proceeding shall be made through arbitration.
  • The tribunal has the right to determine the rights of the parties by being fair and just.
  • The agreement that the parties will ask the tribunal must be enforceable by law.
  • The agreement must state that any decision made by the tribunal on the dispute must be formulated before the time when the reference is formed.
  • However, it’s necessary to use the arbitration that there should be a compulsory requirement of the settlement of disputes by means of arbitration because the aim of the arbitration is to settle the disputes between the parties and to avoid further litigation. The parties intention must be per the conveying meaning.

Enforcement of an award

The enforcement of the award is an important and the last step that follows the arbitration proceedings. The award is enforced as a decree of the court. Under the Arbitration and Conciliation Act, 1996 for enforcement of arbitral award, requires the court to recognize and enforce awards rendered in accordance with national and international law i.e. domestic and foreign award. However, there are certain circumstances where even if the agreement is one that’s valid as per Indian law and meets the wants , it shall not be enforced on the following grounds if the Court is satisfied that:-

  •  Parties to the agreement either are incapable of being parties to the agreement for reasons such as the law applicable for the award vis-a-vis the Indian law.
  •  Party wasn’t given adequate notice to present his case as regards the arbitration proceedings or the appointment of the arbiter.
  • Award deals with matters beyond the scope of the arbitration agreement.
  • Composition of the Arbitral Authority or Procedure wasn’t in conformity with the agreement of the parties or the law of the land where the arbitration happened .
  • Award isn’t binding on the parties or has been put aside by a competent authority where the award was made.

An award is often challenged and put aside only by way of an application under Section 36 of the Act and only the idea of the circumstances listed there under. An application for setting aside an award must be made within three months of receipt of the award by the applicant subject to a further extension of 30 days on sufficient cause being shown. An application beyond this era is time-barred and further delay can’t be condoned. The party, after the expiry of the time for setting aside the arbitral award, as mentioned above, can file an application for execution before the court of the competent jurisdiction for the enforcement of the arbitral award.

Role of Public Policy in arbitration

Section 34(2)(b)(ii) states that an arbitral award could also be put aside by the Court if the arbitral award is in conflict with the general public policy of India. it’s difficult to interpret the meaning of “public policy” because it has not been defined within the Act. However, within the broader view, the doctrine of “Public Policy” is like the “Policy of Law,” whatever results in obstruction of justice or violation of a statute or is against the great morals when made the thing of contract would be against ‘Public Policy of India” and being void, wouldn’t be vulnerable to enforcement.
In Renusagar Power electric company v. General Electric Company, a pre-1996 Act case involving enforcement of an ICC Award, the Hon’ble Supreme Court explained the expression Public Policy in section 7 (1) (b) (ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961. The Court stated that the term public policy has been utilized in narrow sense and in order to attract the bar of public policy, the enforcement of the award must involve something more than the violation of the Indian Law. The UNCITRAL Model Law Commission mentioned in its report that the “public policy” comprises “fundamental principles of justice”.

A perspective was also taken within the judgement of Sutlej Construction v. The Union Territory of Chandigarh, The judgement discuss the recent trend of interpretation of “public policy” has been one where the courts have refused to inspect the arbitral awards of the courts within the “arbitral process” as reflected by the changes brought by the Arbitration and Conciliation (Amendment) Act, 2015.

Conclusion

Arbitration is a form of alternative dispute resolution method which is a technique used legally for the resolution of disputes between parties outside the courts in private. Arbitration has emerged as an efficient type of dispute resolution. The medium of arbitration has proved to be a fast and practical settlement for cross-border disputes, especially in cases wherein the parties are from different socio-cultural and political backgrounds. This is mainly due to the presence of a neutral third party within the dispute resolution process and other considerations like the requirement of expertise over the relevant subject matter etc. The foremost pillar of any arbitration process is that the disputing party submitting themselves to the method and relying upon the fair judgement of the appointed arbitrating agency or individual. This article describes the history and features of arbitration in India.
The study established that the existing Act i.e. The Arbitration and Conciliation Act 1996 applies to arbitration and conciliation in India. The provisions in this Act were supported by the United Nation Commission on International Trade Law and are broadly compatible with “Rule of Arbitration of the International Chamber of commerce (ICC)”. It is a half-hearted attempt to copy the model of the UNCITRAL. This Act fails to the touch the truth of grounds incorporated in this Act. The most purpose of this Act is to supply quick redressal of disputes but it has not adequately developed as a quick and cost-effective mechanism for settlement of commercial disputes.

References-

  • https://indiankanoon.org/
  • https://en.wikipedia.org/wiki/Wikipedia
  • https://www.livemint.com
  • www.researchgate.com
  • www.worldwidejournals.com
  • http://www.legalservicesindia.com/article/1224/Public-Policy-under-Arbitration-Law.html
  • https://www.lawteacher.net/free-law-essays/commercial-law/enforcement-of-foreign-arbitral-awards-lawessays.php

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