Table of Contents
Arbitration is a process or mechanism by which the parties to a dispute get the matter settled through the intervention of an agreed third party called an arbitrator.
It is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute at hand. In other words, it is an alternative to litigation as a method of dispute resolution.
In the case of Amarchand Lalitkumar V. Shree Ambica Jute Mills Ltd (AIR 1966, SC 1036), the SC has interpreted arbitration as “judging of a dispute between parties or groups of people by someone not involved in the dispute and whose decision both parties agreed to accept.”
The essence of arbitration, therefore, is that the dispute is referred by the parties for settlement to an arbitrator or arbitrators of their choice instead of going to the court.
The origin of arbitration in India may be traced back to the age-old system of village Panchayats, which was honored with great respect because of the popular belief that they were the embodiment(अवतार) of the voice of God and therefore had to be accepted and obeyed unquestionably. In course of time this mode of providing justice underwent some serious changes with the changing pattern of society and growth of human knowledge and civilization.
The modern law relating to arbitration in India is based on the English law. The first statutory enactment on arbitration in India was the Indian Arbitration Act, 1899 which was based on the English Arbitration Act, 1899. However, prior to this enactment, the Bengal Regulations of 1772, 1781, 1782 and 1787 contained various provisions to encourage a tendency to enlarge the scope of Arbitration. The operational part of the arbitration law was made more effective by the Bengal Regulation of 1793, which also laid down the procedures to be followed in conducting arbitration proceedings. But it was in 1940 that the Indian Law on arbitration was consolidated and redrafted in the form of the Arbitration Act, 1940 on the pattern of the English Arbitration Act, 1934.
The Arbitration Act, 1940 was widely felt to have become outdated, the Law Commission of India, several representative bodies of trade and industries and experts in the field of arbitration had proposed amendments to this Act to make it more responsive to contemporary requirements. It was also felt that the economic reforms taking place in India may not become fully effective if the laws dealing with settlement of both Domestic and International Commercial Disputes remain out of tune with such disputes and remain out of tune with such reforms.
The United Nations Commission of International Trade Law (UNCITRAL) adopted the Model Law on International Commercial Arbitration. It also adopted the set of conciliation rules; the General Assembly of the UN had recommended that all countries give due consideration to the said Model Law and use the Conciliation Rules in cases where the disputes arise in the context of International Commercial relations.
Therefore in order to consolidate and amend the law relating to domestic arbitration, International Commercial Arbitration, Enforcement of foreign arbitral awards and define the law relating to conciliation, taking into account the model law and the conciliation rules adopted by the UNCITRAL, the Arbitration and Conciliation Bill, 1996 was introduced in the Parliament which was passed by both the houses of parliament and received the accent of the President and came into force on 22nd August, 1996.
With the enactment of this act, the Arbitration (Protocol and Convention) Act, 1937; the Foreign Awards (recognition and enforcement) Act 1961; and the Arbitration Act, 1940; was repealed, the justification of adopting the model law on International Commercial Arbitration lies in the fact that with the liberalization and globalization of Indian economy in recent past more and more Non-Residential Indian (NRI’s) and foreign investment institutions are entering the Indian market which made necessary for redrafting of the Arbitration Act, 1940 to be made responsive to the changes in Indian economy.
Kinds Of Arbitration
- Ad-hoc Arbitration: arbitration which is not conducted under the auspices/umbrella of any arbitral institution is termed as Ad-hoc Arbitration. If the parties agree among themselves and arrange for arbitration, it is called Ad hoc Arbitration without having an institutional proceeding. It can either be domestic, international or foreign arbitration. the arbitration should not be conducted according to the rules of an arbitral institution.
Since, parties do not have an obligation to submit their arbitration to the rules of an arbitral institution; they are free to state their own rules of procedure. The geographical jurisdiction of Ad hoc Arbitration is important because most of the issues concerning arbitration will be resolved in accordance with the national law of the seat of arbitration.
- Intuitional Arbitration: when the parties agreed in advance that the events of future disputes or differences are arising between them in the course of their business or commercial transaction they will refer the matter to be settled by arbitration by the named institution of which one or more of them are members. Such institutions have their own published rules and they appoint arbitrators for the parties from amongst the panel of experts of the concerned profession with the consent of the parties, this is called Institutional Arbitration.
- Commercial/ Contractual Arbitration: In order to seek early settlement of disputes without approaching the court, the usually chose to insert an arbitration clause as an integral part of the contract to refer their existing or future disputes to a named arbitrator or arbitrators to be appointed by a designated authorities this is called contractual in-build arbitration.
- Statutory arbitration: when the arbitration is statutorily imposed on the parties by the law of the land and the parties have no other option, it is called Statutory Arbitration. Thus, in Statutory Arbitration there is no question of consent of the parties and such arbitration is obligatory and binding to the parties as the law of the land.
- Domestic Arbitration: In domestic arbitration, both the parties must be Indians and the proceedings also take place in India. when the parties had agreed to resolve any disputes that arose in India. The proceedings must be held in the domestic territory and must be in accordance with law in India.
- International Arbitration: International arbitration can take place either in India or outside India in cases where there are ingredients of foreign origin relating to the parties or subject matter of the disputes. However, the law applicable to such arbitration proceedings may be Indian law or foreign law depending on the terms of the contract between the parties in this regard.
- Foreign Arbitration: when the arbitration proceedings are conducted outside India, it is called foreign arbitration. In such arbitration a foreign Award is sought to be enforced.
- Labour Arbitration: when disputes or differences between the management and the labour organization are referred to be settled by an arbitrator or arbitrators, such arbitration is called Labour Arbitration or Interest Arbitration.
- Judicial Arbitration: Judicial arbitration is court referred arbitration, such arbitration is considered final until a party objects to it. A party who is dissatisfied with the arbitral award has the right to demand a trial of the case over again (de-novo).
- Fast-track arbitration: It is a form of arbitration in which the arbitration procedure is carried out particularly in a short time and at a reduced cost. In the provision of the Act, fast-track arbitration is given a stipulated time period of six months.
- International Commercial Arbitration defined: The Act of 1996 specifically defines the term “International Commercial Arbitration” under Section 2(1)(f), it means an arbitration relating to disputes arising out of legal relationship whether contractual or not will be considered as commercial under the law in force in India and where at least one of the parties whether an individual, body corporate or a company is having business or residing abroad and in case of government, the government is of a foreign country.
Note: the other party to the dispute mentioned above should be a foreigner, foreign company, or foreign government.
Advantages of Arbitration over court cases/litigations
The advantages of arbitration are as follows –
- Arbitration provides privacy. In a civil court the proceedings are held in public which sometimes discourages the parties.
- Arbitration provides liberty to choose an arbitrator, who can be a specialist in the subject matter of the dispute. The arbitrators may be experts and can resolve the dispute fairly and expeditiously as they are well versed with usages and practices prevailing in the trade or industry.
- The venue, i.e. the place of proceedings of arbitration, can be convenient to both parties. It need not be a formal platform, a simple office cabin is enough. The parties can also choose a language of their choice.
- Even the rules governing arbitration proceedings can be defined mutually by both the parties. Such as the parties may decide whether there should be any oral hearing or not.
- A court case is a costly affair, the claimant has to pay for the advocate’s fees, court fees, process fees and other incidental expenses. In arbitration expenses are lesser and at many times the parties themselves argue their cases. Arbitration involves few procedural steps and no court fees.
- Arbitration is a faster process. The court has to follow its own system and takes abnormally longer time to dispose of the cases.
- A judicial settlement is a complicated procedure. The court has to follow the procedure laid down in the Code of Civil Procedure, 1908 and the rules of the Indian evidence act. In arbitration the process is simple and formal but the arbitrator has to follow the principles of Natural Justice.
- The arbitration and conciliation act has provided very limited grounds upon which a court may set aside an award. The act has also given the status of a decree for the award by the arbitrators and the award is final and binding on the parties.
- In arbitration the dispute can be resolved without inflicting stress and emotional burdens on the parties which is a common feature in court proceedings.
- In most cases it is seen that in arbitration the relationship between the parties is maintained even after the settlement, which is not generally seen in judicial settlement.