Last Updated on June 15, 2024 by Satish Mishra
The origin of arbitration may be traced back to the system of village panchayats in the Ancient India. The ‘Panchas’ sitting collectively as ‘panchayat’ and delivering decisions on various matters of the village, commanded great respect and their decisions were accepted and obeyed unquestionably.
During the 20th century, the arbitration in India was governed by the Indian Arbitration Act, 1859 and the second schedule to the Civil Procedure Code (CPC). However, later it was replaced by the Arbitration Act, 1940. Further, the Arbitration Act, 1940 was replaced by the Arbitration and Conciliation Act, 1996 which, by the virtue of its S. 85, repealed the earlier Act of 1940. The objective of 1996 Act was to provide an effective redressal mechanism for speedy settlement of domestic as well as international commercial disputes. This has been possible by means like arbitration, mediation, negotiation and conciliation which are perceived to be relatively cheaper and speedy mechanisms as compared to court proceedings which are expensive and involves complex procedures. The Act of 1996 was further amended in the year 2015. Since then, the arbitration proceedings in India are conducted under the Arbitration and Conciliation (Amendment) Act, 2015 which is based on UNICITRAL model law, ensuring a certain level of uniformity in the law.
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Arbitration is the process of resolving disputes between or among the parties through the use of one or more arbitrators rather than courts. It is an alternative to litigation as a method of dispute resolution. An arbitrator, according to RamanathaAiyer’s Law Dictionary, is a person or two or more persons chosen by the parties to decide the dispute between them. They are unbiased independent third party who resolves the dispute between the parties in an impartial manner.
The arbitration proceedings can be broadly classified in to following categories-
- Statutory Arbitration
- Contractual Arbitration
- Ad hoc Arbitration
- Institutional Arbitration
- Domestic Arbitration
- International Arbitration
- Foreign Arbitration
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Statutory Arbitration is where ‘arbitration’ as the dispute resolving mechanism is statutorily provided. For example- Section 49(c) of the Indian Trust Act, 1882 provided for arbitration as the medium to settle the disputes related to transactions concerning Trusts. In this type of arbitration, the parties concerned have no other alternative but to resort to arbitration for resolving their disputes.
Contractual Arbitration, also known as Consensual Arbitration, is based on the mutual consent of the parties for the settlement of their dispute. This mutual consent is depicted through an arbitration clause in the main contract itself.
Ad hoc Arbitration is an arbitration agreed to and arranged by parties themselves without seeking help of any arbitral institution.
Institutional Arbitration is the one where it is stipulated in the arbitration agreement that in case of any dispute arising between the parties, the matter will be referred to a particular institution like Indian Council of Arbitration (ICA) or International Chamber of Commerce (ICC). In such a situation, the rules of arbitration that are laid down by that institution are applicable.
Domestic Arbitration takes place when the cause of action for the dispute arises wholly in India and the parties are subject to Indian jurisdiction.
International Arbitration can take place either in India or outside India in case the ingredients of foreign origin are present.
A Foreign Arbitration is conducted in a place outside India, and the resulting award is to be enforced as a foreign award.
Apart from these, there is an another type of arbitration that has recently developed called Fast Track Arbitration. It aims at achieving faster results at lower cost by eliminating the difficulties associated with traditional arbitration.
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In an arbitration process, there are different stages involved.
Stage 1: Arbitration agreement/clause
According to the arbitration law of India, in order to adopt arbitration as a dispute resolution mechanism, an agreement to the effect should be signed between the disputing parties. Such an agreement is called an arbitration agreement. The parties, instead of opting for an arbitration agreement, can also include an arbitration clause in the main contract itself which should clearly state that any dispute that may arise in future shall be resolved through arbitration only. The arbitration clause/ agreement should mention the number of arbitrators to be appointed and the manner of their appointment. In India, arbitrators are appointed in odd numbers only.
Stage 2: Arbitration Notice
In case, any dispute has arisen and the party has opted to follow the process of arbitration, then the party against whom the default has been committed sends an arbitration notice to the other party invoking the arbitration procedure between the concerned parties.
Stage3: Appointment of Arbitrator
After receiving the arbitration notice, both the disputing parties appoint the arbitrators in a manner as mentioned in the arbitration clause or agreement.
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Stage 4: Statement of Claim
The next step is to draft the statement of claim which includes all the details about the dispute between the parties, events which led to the dispute and the compensation claimed from the defaulting party. The other party can file a statement of counter claim as a reply to the statement of claim.
Stage 5: Hearing the parties
The Arbitral Tribunal listens to both the parties and considers the evidences provided by them.
Stage 6: Arbitration Award
After hearing the parties, the tribunal gives its judgement. The decision of the Arbitral Tribunal is called ‘award’ and is binding on both the parties. However, the aggrieved party can appeal against the arbitral award in the High Court.
Stage 7: Execution of the award
The judgement passed by the Arbitral Tribunal has to be executed. The party in whose favour the decision is delivered has to file for the enforcement of the award.
Arbitration as an alternate dispute resolving mechanism has witnessed virtuous response. Its lower cost, lesser formalities and fast procedures make it preferable. It is an expeditious and flexible means of dispute resolution. The Indian courts are increasingly adopting a pro-arbitration approach. The Arbitration and Conciliation Act recognises the principle of non-intervention by courts in the arbitration process. However, the Indian courts are authorised to refuse to enforce an arbitration agreement in case where either no valid agreement exists or the dispute is not arbitrable.
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This post is written by Bhumika Khandelwal of ILS College, Pune.
For any subject specific advice from Arbitration Lawyers in Chandigarh, Panchkula Mohali Zirakpur, please dial 99888-17966 or you may also write to us at [email protected]t
