Navigating Arbitration: Procedure

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Published On: 3rd September, 2024

Authored By: Shifa Shaikh
Bharti Vidyapeeth New Law College

Abstract

According to the Arbitration and Conciliation Act 1996, Section 2 defines the ‘Arbitration’ as a medium to settle the conflict between parties that are mostly commercial.

This article defines the Arbitration, its significance and advantages. Also outlining each step of the arbitration procedure, preliminary process, procedural rules, structure, hearing, submission, award, enforcement, explaining with the suitable Sections from the Arbitration and Conciliation Act,1996.  While also examining the Historical Evolution of the said Act. And there is analysis of two relevant case laws.

This article aims to illuminate the Arbitration procedure, its practice and offers significant observations.

Introduction

In the era of globalization and an interconnected world, there emerges a multitude of disputes and disagreements among businesses and companies, subsequently, Arbitration acts as a medium to resolve these disputes, for working the businesses effectively and efficiently.

Arbitration is a neutral, fair-minded, and unbiased third party that focuses on resolving disputes or issues arising among the parties that are doing business or have contractual obligations over each other.

According to Justice Stephen Breyer, “Arbitration is a process where both the parties agree to submit their dispute to a neutral third party, known as Arbitrator who make a binding decision on resolving the issue”.

The origin of word Arbitration comes from the Latin term “Arbitrari” which means to ‘Judge’.

In ancient Indian time, when there was no accurate law, the ‘panchayats’ that is the community of the elder men of the society, existed and the ‘sarpanch’ the senior most member of the community, used to act as a dispute resolver.

In India the first arbitration law was established in 1772, by the Bengal Regulation of 1772. After that, there were many amendments made in the law, until the Legislative Counsil enacted the Indian Arbitration Act 1899, which was based on the law of English Law,1899. During 1940’s the Arbitration Act 1940 was passed in India that would be applicable to whole country of India, but due to inadequacy and non-finality of the awards and the procedure, it was replaced after the independence, by the Arbitration and Conciliation Act 1996.

Arbitration has ancient origins, being inferred from Greece and Rome, in India Arbitration gained its significance in year 1996, as the Arbitration and Conciliation Act of 1996.     

While addressing a dispute, the arbitrators investigate the evidence, and facts, and apply logical reasoning to rectify the disagreement, further proving a binding decision also known as an ‘Award’.

Significance and Advantages:

In the increasing complexity of legal disputes, arbitration is crucial mechanism that contributes in resolving the debate. It centers on developing a framework and is relatively more rapid than litigation. According to the Section 5 of Arbitration and Conciliation Act 1996, reinforces that the courts with minimally interfere in the arbitration matter as they validate the arbitration and it’s process as an independent method or medium for the resolution of disagreements between the parties.

Along with that, it also maintains confidentiality, to keep the business’s internal information private and reserved. Arbitration provides flexibility according to the clients as well and it is more economical compared to litigation.

In arbitration the arbitrators have the expertise and specialized knowledge and skills about the subject matter. The arbitrators are often experienced so that the issue are handled precisely and with accuracy.

The awards passed by the arbitrators are easy to enforce, domestically as well as internationally, due to conventions like the New York Convention.

The arbitration awards that are delivered usually provide finality and are binding on both the parties.

Arbitration is also notably ‘Rights-Based’ as it focuses on legal rights and their obligations to each other as they have agreed upon contractual agreement. Therefore, rather than focusing on interests, arbitration’s main aim is to interpret law, focus on legal rights, and that the contractual liabilities are fulfilled without further dispute.

Preliminary Arbitration Process :

a. Arbitration Clause

The arbitration clause in a contract defines that the parties (claimant and respondent) shall resolve the dispute by the arbitration process instead of court litigation. The Section 8 of the Arbitration and Conciliation Act 1996, defines that if there is an arbitration clause in the agreement then the parties are referred to arbitration, when the dispute arises.

In essence, there are mandatory arbitration and voluntary arbitration, that states if the contract has an arbitration clause then the parties are supposed to mandatorily follow the arbitration process and if there is no such clause then the parties give their mutual consent and make a voluntary arbitration agreement, to solve the dispute.

b. Arbitrator Appointment

The parties have the advantage of choosing the arbitrator which is crucial as it is essential to select the right arbitrator to settle the dispute impartially. For the appointment of arbitrator Section 11 of Arbitration and Conciliation 1996, states that the appointment of arbitrator is a crucial part of the arbitration, and if the parties fail to do so (appoint arbitrator) then the court may interfere for the appointment of arbitrator.

For the appointment of the arbitrator, ICC (International Chamber of Commerce) and AAA (American Arbitration Association) play a key role as they provide the parties with a list of compatible and experienced arbitrators, while also offering administrative support.

The parties can also choose to conduct ad hoc by appointing the arbitration themselves.

c. Initial Arrangements

The initial process of arbitration requires filing the Notice of Arbitration, which means that the process has been legally started, this notice is usually sent either to the arbitration institution or the respondents to notify them about the proceedings. The criteria of the details to be included in the notice differ according to the institution.

After the submission of notice, the Preliminary meeting or the First Procedural meetings are held for the discussion of the fundamental matters, notably the timetable for the submission of written statement, location or seat for the hearings, time limitations, language of arbitration, exchange or submission of exhibits, all these aspects are either discussed in person or by video-conference.

Arbitration Procedure:

a. Procedural Rules and Structure

The arbitration is regulated by a set of structured rules and guidelines that are to be followed to resolve the issues. The arbitration institutions or ad hoc arbitration conduct the procedure according to the rules provided by the UNCITRAL, ICC, and AAA to ensure that the process is fair and streamlined.

  • The UNCITRAL (United Nations Commission on International Trade Law) rules suggest the protocol for the operation of arbitration, for instance, the rules address the way of notice of arbitration, appointment of arbitrators, number of arbitrators, place of arbitration, language of arbitration, provisions, timing of hearings, schedule, written statements, evidence, period of time for making the award, the fees of arbitration and also the provisions for expedited arbitration.
  • The ICC (International Chamber of Commerce) rules suggest the protocol for the operation of arbitration which is a bit different from UNCITRAL, the notice or the request for arbitration must be submitted to the secretariat, arbitrators prepare Terms of Reference which involves the schedule, language, written statement of both the parties, evidences, insurance of arbitral award, and fees.
  • The AAA (American Arbitration Association) ) rules suggest the protocol for the operation of arbitration, as in filing the demand for arbitration, selection of arbitrators, preliminary hearings, venue of the seat, language, timetable, the parties exchange documents, key exhibits, submission of evidence, list of witnesses, final award and fees of arbitration.
  • Also Section 19 of Arbitration and Conciliation Act 1996, illustrates that the tribunal have the power to determine the rules of the procedure by the consent of both the parties.
  • According to the Section 20 of Arbitration and Conciliation Act 1996, the parties and the tribunal are free to agree on the place of arbitration with each-others consent.
  • The language of the arbitration shall be according to the agreement or the arbitration clause, or the parties and the tribunal are free to choose the language for arbitration according to their convenience, as per stated by the Section 22 of the Arbitration and Conciliation Act 1996.

b. Submission of Pleadings

In the arbitration procedure, the submission of pleadings incorporates the exchange of key documents presenting each party’s argument. The claimant submits the written statement of claim detailing the facts, and issues of the case, as well as the respondents submit the written statement of defense and counterclaims from their point of view. According to the Section 23 of the Arbitration and Conciliation Act 1996, the statement of claim and the statement of defense must be submitted on the agreed date by the tribunal or the parties in the preliminary procedure.

c. Disclosure and Evidence Gathering

In arbitration, the disclosure of information and collection of evidence is executed to assure equality and transparency. The allocation of relevant documents and information may support each party’s case.

The process of gathering testimonies, conducting interrogations, and accumulating evidence helps the parties to build strong and influential arguments to present at the time of the hearing.

According to the Section 27 of Arbitration and Conciliation act of 1996, suggests that the arbitral tribunal can seek help or permission or for the verification, from the court for the collection of necessary evidence, to make sure that the decision is made fairly.

Legal Hearings and Formal Submissions:

The essential element of hearings and submissions is the decision of the procedure of hearing is usually conducted by arbitrator(s), according to Section 24 of the Arbitration and Conciliation Act 1996, the arbitral tribunal have the authority to decide the form of hearing, whether the hearing would be oral or can only be conducted on the basis of document. Also while the outline, place, and language are already discussed by the parties and the arbitral tribunal in the preliminary procedure. The parties are suggested to attend the hearings with their legal representatives. The hearings are exclusive to preserve confidentiality.

In this process of hearing both the parties present their oral arguments, and submit the evidence to the arbitration. Parties also introduce their witness, as the witness’s testimony plays a vital role. Parties can also present expert witnesses to give their expert analysis and opinion about the issue supporting the party. In case of a complex dispute, the experts submit a detailed case analysis report so that their specialized knowledge and expertise can help in further arbitration procedures.

The written and oral submission of arguments, examination, and investigation of evidence and essential documents, the testimony of witnesses, and expert opinion and reports again play a significant role in shaping the arbitration process and ensuring that the arbitrator(s) have a broad overview of the case before releasing the final award.

Final Award of Arbitration :

·Decision Making Framework

In arbitration the decision-making process is quiet essential as it is the final and binding resolution that the parties have to follow to settle the dispute. Arbitrators consider the evidences, facts, hearings, arguments presented, opinions, witness testimonies, documents and mutually form an order that is well-examined and well-considered that justifiably addresses the issues.

·Award Form and Essential Elements

According to the Section 31 of the Arbitration and Conciliation Act 1996, the section states that the arbitral award is valid when the certain formalities are met such as,

  • The award must be in written form.
  • Final and binding decision
  • Reasonable and justifiable
  • Signed by the tribunal (arbitrators)
  • A signed copy of the award must be delivered to each party
  • The arbitral award should define the date and place of arbitration
  • Certain and clear
  • Communicated to the parties
  • Must have res judicata effect (means when the matter has already been judged)
  • Ensuring justice

·Confidentiality of Award

Confidentiality of award refers to the private proceedings of the award, to reserve the sensitive information and business secrets. The secluded nature of arbitration helps to avoid the public pressure, and also encourages honesty, and preserves business relations.

The award can also be made public with the consent of both the parties, for public awareness and transparency. It also provides legal guidelines for future cases.  

·Settlement by Mutual Agreement

According to the Arbitration and Conciliation Act 1996, Section 30 states that arbitration tribunal can also suggest the parties to settle the issue instead of going through the process of arbitration. If the parties agree to settle the dispute without further argument then the arbitration tribunal might act or use methods of mediation, conciliation or negotiation among the parties to settle the dispute and it the parties agreed and resolve the dispute by mutual understanding then the tribunal may terminate the arbitral proceedings. And if the parties request and the tribunal do not object then the settle and be recorded in the form of arbitral award on agreed terms.

· Enforcement of Award

The Section 36 of Arbitration and Conciliation Act 1996, defines that after the parties receive the award they must wait for three months for the enforcement of the award. After the three months period is over the Court declares the award enforceable, and it must be treated as a court decree, and shall be implemented as per the provisions of Code of Civil Procedure, 1908.

Case Laws in relation with Arbitration Procedure :

       i. Gold Reserve Inc. v. The Bolivarian Republic of Venezuela

In this case, Gold Reserve Inc. Canada based gold mining company entered into an agreement with Venezuela for the development of the gold mine including profit-sharing. The dispute arose by Gold Reserve’s rights being revoked by Venezuela, and then they justified it was crucial for national interests. The issues such as unfair treatment, expropriation, and compensation were arose. This case was handled by International Centre for Settlement of Investment Disputes (ICSID). While passing the Award the tribunal explained that there was the practise of expropriation as Venezuela’s nationalization of gold mine was an unlawful act defined as expropriation, which was unfair for the Gold Reserve Inc. Thus, the Gold Reserve Inc. was compensated the value of expropriated investments, adding interests and legal cost.

     ii. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.

In this landmark case, the issue was the applicability of Indian arbitration law in international commercial arbitration. This case was handled by the Supreme Court of India (SC) in the year 2012. This case was indeed crucial to understand the aspects and scope of Arbitration and Conciliation Act, 1996. The Supreme Court clarified that the part I of Arbitration and Conciliation Act,1996 provides that the domestic laws are not applicable internationally, their applicability can only be limited to the boundaries of India and cannot be conducted outside of it.

Conclusion

Arbitration is a significant and beneficial method for resolving the dispute. Arbitration is generally fast-paced, and cost-effective than the litigation. The process of arbitration is uncomplicated and less formal and manageably convenient. The Arbitration and Conciliation Act 1996, clarifies the rules and structure for handling the disputes efficiently.

To summarize, the process starts with the arbitration clause or agreement signed by the parties, whether institutional or by ad hoc method, followed by appointing the arbitrators, and arrangements. The main procedure starts with the notice of arbitration and understanding and discussing the rules and structure of the procedure, and submission of pleadings, evidences, testimonies, and hearings, which is accompanied by the final award, that is enforceable in the courts.

The arbitration also promotes the conciliation method to resolve the dispute without further argument. Methods like mediation and negotiation are also suggested by the arbitral tribunal to the parties. Overall the arbitration process keeps adapting for the public welfare.

References :

  • LCIA (London Court of International Arbitration) Rules (last visited 24th July, 2024) < https://www.lcia.org/>
  • The New York Convention : United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) (last visited 24th July, 2024) < https://www.newyorkconvention.org/english>
  • Section 2 : Definitions, from the Arbitration and Conciliation Act,1996
  • Section 5 : Extent of judicial intervention, from the Arbitration and Conciliation Act,1996
  • Section 8 : Power to refer parties to arbitration where there is an arbitration agreement, from the Arbitration and Conciliation Act,1996
  • Section 11 : Appointment of arbitrators, from the Arbitration and Conciliation Act,1996
  • Section 19 : Determination of rules of procedure, from the Arbitration and Conciliation Act,1996
  • Section 20 : Place of arbitration, from the Arbitration and Conciliation Act,1996
  • Section 22 : Language, from the Arbitration and Conciliation Act,1996
  • Section 23 : Statements of claim and defence, from the Arbitration and Conciliation Act,1996
  • Section 24 : Hearings and written proceedings, from the Arbitration and Conciliation Act,1996
  • Section 27 : Court assistance in taking evidence, from the Arbitration and Conciliation Act,1996
  • Section 30 : Settlement, from the Arbitration and Conciliation Act,1996
  • Section 31 : Form and contents of the arbitral award, from the Arbitration and Conciliation Act, 1996
  • Section 36 : Enforcement, from the Arbitration and Conciliation Act,1996

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