NAVIGATING THE MAZE: A COMPREHENSIVE GUIDE TO THE ARBITRATION PROCEDURE IN INDIA

1. INTRODUCTION

The need for effective dispute-resolution procedures has never been greater than in the era of multinational commerce and intricate business partnerships. Particularly in the Indian setting, where arbitration has become a favored option over traditional litigation due to its promises of flexibility, confidentiality, and expertise; businesses, legal professionals, and policymakers must all grasp the nuances of India’s arbitration environment as the country establishes itself as a major player in the world economy.

Arbitration is a mutually acceptable and effective technique of resolving commercial disputes. It enables disputing parties to resolve their differences outside of the national judicial system by heading to a private adjudication system. An Arbitrator is a third person who hears the issues stated by both parties, the remedies requested by them, and reaches an agreeable settlement to their disagreement. The arbitrator’s award is binding on the contesting parties.

2. The Evolution of Arbitration in India: A Historical Perspective

2.1. Pre-Independence Era

The roots of arbitration in pre-independence India can be traced back to ancient times, where village panchayats and tribal councils often served as informal arbitration forums. These traditional dispute resolution mechanisms, deeply embedded in the social fabric, relied on community elders to mediate conflicts and render decisions based on local customs and practices. This system, while not formalized, laid the groundwork for the concept of alternative dispute resolution in the Indian subcontinent.

The formal legal framework for arbitration in India began to take shape during the British colonial period. The Bengal Regulations of 1772 and 1780 contained provisions for referring disputes to arbitration, marking an early attempt to codify arbitration practices. However, the first comprehensive legislation on arbitration came with the Indian Arbitration Act of 1899. This Act, applicable only to the Presidency towns of Calcutta, Bombay, and Madras, was largely based on the English Arbitration Act of 1889 and introduced a more structured approach to arbitration proceedings.

The limitations of the 1899 Act, particularly its restricted geographical application, led to the enactment of the Arbitration Act of 1940. This Act extended arbitration laws to the entire British India and consolidated the law relating to arbitration agreements, appointment of arbitrators, and enforcement of awards. Despite its comprehensive nature, the 1940 Act was criticized for allowing excessive judicial intervention in the arbitral process, often leading to delays and inefficiencies. This Act remained in force even after India’s independence in 1947 and continued to govern arbitration in the country until the more modern Arbitration and Conciliation Act of 1996 was enacted.

2.2. Post-Independence Era: The Arbitration and Conciliation Act, 1996

In the immediate post-independence period, arbitration in India was governed by the Arbitration Act of 1940[1]. This Act, while an improvement over its predecessors, was criticized for excessive judicial intervention and the complexity of its procedures. The 1980s and early 1990s saw increasing pressure for reform, driven by economic liberalization and the need to attract foreign investment[2]. This culminated in the passage of the Arbitration and Conciliation Act, 1996, which was based on the UNCITRAL Model Law on International Commercial Arbitration. The Act aimed to minimize judicial intervention and provide a more efficient arbitration process[3].

The 1996 Act marked a significant shift in India’s arbitration landscape. In Konkan Railway Corporation Ltd. v. Mehul Construction Co., the Supreme Court emphasized the Act’s objective of minimizing judicial intervention, stating that “the whole purpose of the new Act is to secure the expeditious conclusion of arbitration proceedings[4].”

The 2015 amendment to the Arbitration and Conciliation Act sought to address these concerns by introducing time limits for arbitral proceedings and restricting the grounds for challenging award. Recent years have seen further refinements to India’s arbitration framework. The 2019 amendment introduced institutional arbitration and established the Arbitration Council of India, while the 2021 amendment dealt with issues of fraud in arbitration and arbitrator qualifications. In Hindustan Construction Company Limited v. Union of India[5], the Supreme Court upheld the constitutional validity of the 2019 amendment, reinforcing India’s commitment to creating a robust arbitration ecosystem.

3. The Arbitration Process in India: A Step-by-Step Guide

Step 1: The Arbitration Agreement

The foundation of any arbitration is the arbitration agreement. Section 7 of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) defines an arbitration agreement as an agreement by parties to submit to arbitration all or certain disputes which have arisen or which may arise between them[6].

Key aspects:

1. a) The agreement must be in writing[7].
2. b) It can be a clause within a contract or a separate agreement[8].
3. c) It should clearly indicate the intention to arbitrate[9].

In Jagdish Chander v. Ramesh Chande, the Supreme Court emphasized that the arbitration agreement must be certain and definite as to its subject matter[10]. So, it can be said that it is essential to ensure that the arbitration clause is clear, unambiguous, and covers all potential disputes that may arise from the contract.

Step 2: Notice of Arbitration

When a dispute arises, the party initiating arbitration (the claimant) must send a notice of arbitration to the other party (the respondent). While the Act doesn’t prescribe a specific format, the notice typically includes:

1. a) Reference to the arbitration agreement
2. b) Description of the dispute
3. c) Proposed relief or remedy sought
4. d) Nomination of an arbitrator (if applicable)

In Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd.[11], the Supreme Court clarified that the notice need not be in any specific form, as long as it communicates the intention to refer the dispute to arbitration. It is essential that the notice be sent to the other party. The only aim of the notice is to intimate the other party about the reference of the dispute to arbitration.

Step 3: Response to the Notice

The respondent usually has a specified time to respond to the notice. The response may include:

1. a) Any jurisdictional objections
2. b) A brief answer to the claims
3. c) Counterclaims, if any
4. d) Comments on the proposed arbitrator or nomination of their own arbitrator

Step 4: Constitution of the Arbitral Tribunal

The next crucial step is the formation of the arbitral tribunal. Section 10 of the Act allows parties to determine the number of arbitrators, provided it’s not an even number[12].

5.1 Appointment Methods:

The arbitrator will be appointed as per the parties’ agreement in the arbitration clause. In such cases where no agreement exists, each party appoints one arbitrator and both the appointees select the third for three-member tribunals. The parties must jointly agree on a sole arbitrator.

5.2 Court Intervention:

If parties fail to agree, or if the agreed procedure fails, Section 11 of the Act allows for court intervention in the appointment process[13]. Supreme Court appoints arbitrator in the case of international commercial arbitrations and for domestic arbitrations, the arbitrator will be appointed by the High Courts.

In the case of TRF Limited v. Energo Engineering Projects Limited[14], the Supreme Court held that a person who is ineligible to be an arbitrator cannot nominate another arbitrator.

Step 5: Challenge to Arbitrator Appointments

Parties can challenge the appointment of an arbitrator based on justifiable doubts as to their independence or impartiality, or if they do not possess the qualifications agreed to by the parties[15].

The procedure for challenge prescribed as such that within 15 days of becoming aware of the grounds for challenge, the party must send a written statement of reasons for the challenge to the tribunal[16]. Also, unless the challenged arbitrator withdraws or the other party agrees to the challenge, the tribunal decides on the challenge[17].

If the challenge is unsuccessful, the tribunal continues the proceedings and makes an award[18].

The challenging party may then apply to the court to set aside the award under Section 34 of the Act[19].

In Voestalpine Schienen v. Delhi Metro Rail Corporation Ltd.[20], the Supreme Court emphasized the importance of impartiality and independence in arbitrator appointments. This is very much essential as if the arbitrator is biased, it will cause serious harm to the other party and there will be miscarriage of justice.

Step 6: Preliminary Meeting and Procedural Order

Once the tribunal is constituted, a preliminary meeting is typically held so as to establish procedural rules for the arbitration. This rules will include information relating to the timelines for submissions and hearings of arbitration and the manner in which the evidence will be submitted and any other procedural matters. The tribunal usually issues a procedural order reflecting these decisions.

Step 7: Written Submissions

Generally, the parties submit Statement of Claim which includes a detailed statement of their case, including facts, legal arguments, and relief sought[21]. The respondents reply to this statement of claim is referred to as Statement of Defence. This include counterclaims[22]. Reply to Defense and Defense to Counterclaim  refers to the response of the claimant to the defense and any counterclaims[23] and if permitted, the respondent may file a rejoinder to the reply[24].

Step 8: Document Production and Evidence

Unlike court litigation, document discovery in arbitration is usually more limited:

1. a) Parties typically exchange documents they rely on[25].
2. b) The tribunal may order specific document production[26].

The IBA Rules on the Taking of Evidence in International Arbitration often serve as a guide[27].

In Balco Employees Union v. Union of India[28], the Supreme Court held that arbitrators have the power to order discovery and production of documents.

Parties often submit written witness statements detailing factual evidence[29] and expert reports on technical or specialized matters[30] as evidence. The tribunal may also appoint its own expert if necessary[31].

Step 9: Hearings

Arbitration hearings are generally less formal than court proceedings. They involve:

1. a) Opening statements
2. b) Examination of witnesses and experts
3. c) Cross-examination by opposing counsel
4. d) Tribunal questions
5. e) Closing arguments (often in written form post-hearing)

Section 24 of the Act provides that unless parties agree otherwise, the tribunal shall decide whether to hold oral hearings or conduct the proceedings on the basis of documents and other materials[32].

Step 10: Fast-Track Procedure

For simpler disputes or where parties agree, Section 29B of the Act provides for a fast-track procedure where the dispute is resolved within six months and the decision will be based on written pleadings, documents, and submissions. Oral hearing are conducted only if requested by parties or deemed necessary by tribunal[33].

Step 11: Interim Measures

During the arbitration process, parties may seek interim measures. It can be of two types

11.1 Tribunal-Ordered Interim Measures:

Section 17 of the Act empowers the arbitral tribunal to order interim measures[34]. In Alka Chandewar v. Shamshul Ishrar Khan[35], the Supreme Court held that such orders are enforceable as court orders.

11.2 Court-Ordered Interim Measures:

Section 9 of the Act allows parties to approach the court for interim measures before or during arbitral proceedings[36]. In Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors.[37], the Supreme Court demonstrated the courts’ willingness to grant interim measures in support of foreign-seated arbitrations.

Step 12: The Arbitral Award

The culmination of the arbitration process is the arbitral award. Different types of Awards will be awarded based on the conclusion reached in the proceeding. They can

1. a) Final Award: Resolves all issues in dispute
2. b) Partial Award: Decides some but not all issues
3. c) Consent Award: Based on a settlement between parties[38]

As per Section 31 of the Act which stipulates that an arbitral award must:

1. a) Be in writing and signed by the arbitrators
2. b) State the reasons upon which it is based (unless parties agree otherwise)
3. c) Include the date and place of arbitration[39]

The 2019 amendment to the Act stipulates a 12-month timeline for the completion of arbitral proceedings, extendable by a maximum of 6 months with parties’ consent[40].

Step 13: Challenge to the Arbitral Award

After the award is rendered, parties have the option to challenge it under the following grounds as mentioned in Section 34 of the Act. These grounds limited for challenging a domestic award, including:

1. a) Incapacity of a party
2. b) Invalid arbitration agreement
3. c) Lack of proper notice
4. d) Award dealing with disputes not contemplated by the arbitration agreement
5. e) Improper composition of the arbitral tribunal
6. f) Subject matter not capable of settlement by arbitration
7. g) Award contrary to public policy of India[41]

In Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India[42], the Supreme Court clarified the scope of “public policy” as a ground for setting aside awards.

An application for setting aside an award must be made within three months from the date of receipt of the award[43]. This period can be extended by a maximum of 30 days if the court is satisfied that the applicant was prevented by sufficient cause[44].

Step 14: Enforcement of the Award

A domestic award is enforceable as a decree of the court once the time for challenging the award has expired or if the challenge has been refused[45].

India is a signatory to the New York Convention and the Geneva Convention. Foreign awards from signatory countries can be enforced in India under Part II of the Act, subject to certain conditions[46].

In Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors.[47], the Supreme Court emphasized the pro-enforcement bias in dealing with foreign awards.

4. Conclusion

The arbitration process in India, as outlined above, provides a structured yet flexible approach to dispute resolution. From the initial agreement to the final enforcement of the award, each step is governed by specific provisions of the Arbitration and Conciliation Act, 1996, and shaped by judicial interpretations.

Recent amendments to the Act and pro-arbitration judicial pronouncements have significantly improved India’s arbitration landscape. However, challenges such as delays and costs persist. As India continues to position itself as an arbitration-friendly jurisdiction, understanding this step-by-step process becomes crucial for businesses and legal practitioners alike.

In this journey towards arbitration excellence, every stakeholder has a role to play. As we look to the future, the key will be to balance efficiency with fairness, speed with thoroughness, and global best practices with local realities. The path ahead may be complex, but with continued effort and innovation, the Indian arbitration landscape is poised for even greater success in the years to come.

The future of arbitration in India looks promising, with increased emphasis on institutional arbitration, integration of technology, and ongoing efforts to align with international best practices. By following this step-by-step guide and staying abreast of legal developments, parties can effectively navigate the arbitration process in India, ensuring a more efficient and cost-effective resolution of their disputes.

References

[1] The Arbitration Act, 1940, No. 10, Acts of Parliament, 1940 (India).

[2] Fali S. Nariman, India and International Arbitration, 41 Geo. Wash. Int’l L. Rev. 367, 370 (2009).

[3] Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479 (India).

[4] Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479 (India).

[5]Hindustan Construction Company Limited v. Union of India, (2020) 17 SCC 324 (India).

[6] Arbitration and Conciliation Act, 1996, p 7, No. 26, Acts of Parliament, 1996 (India).

[7] ibid

[8] Supra note 1

[9] Supra note 2

[10] Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719 (India)

[11] Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd., (2020) 18 SCC 732 (India).

[12] Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India).

[13] ibid

[14] TRF Limited v. Energo Engineering Projects Limited, (2017) 8 SCC 377 (India).

[15] Arbitration and Conciliation Act, 1996, s 12 No. 26, Acts of Parliament, 1996 (India).

[16] Arbitration and Conciliation Act, 1996, s 13(2) No. 26, Acts of Parliament, 1996 (India).

[17] Arbitration and Conciliation Act, 1996, s 13(3) No. 26, Acts of Parliament, 1996 (India).

[18] Arbitration and Conciliation Act, 1996, s 13(4) No. 26, Acts of Parliament, 1996 (India).

[19] Arbitration and Conciliation Act, 1996, s 13(5) No. 26, Acts of Parliament, 1996 (India).

[20] Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 (India).

[21] Arbitration and Conciliation Act, 1996, s 23(1) No. 26, Acts of Parliament, 1996 (India).

[22] Ibid

[23] Supra note 1

[24] Supra note 2

[25]Arbitration and Conciliation Act, 1996, s 19(2), No. 26, Acts of Parliament, 1996 (India).

[26] Arbitration and Conciliation Act, 1996, s 27, No. 26, Acts of Parliament, 1996 (India).

[27]Int’l Bar Ass’n, IBA Rules on the Taking of Evidence in International Arbitration (2020).

[28] Balco Employees Union v. Union of India, (2002) 2 SCC 333 (India).

[29] Arbitration and Conciliation Act, 1996, s 19(3), No. 26, Acts of Parliament, 1996 (India).

[30] Arbitration and Conciliation Act, 1996, s 26, No. 26, Acts of Parliament, 1996 (India).

[31] ibid

[32] Arbitration and Conciliation Act, 1996, s 24, No. 26, Acts of Parliament, 1996 (India).

[33] Arbitration and Conciliation Act, 1996, s 29B, No. 26, Acts of Parliament, 1996 (India).

[34] Arbitration and Conciliation Act, 1996, s 17, No. 26, Acts of Parliament, 1996 (India).

[35] Alka Chandewar v. Shamshul Ishrar Khan, (2017) 16 SCC 119 (India)

[36] Arbitration and Conciliation Act, 1996, s 9, No. 26, Acts of Parliament, 1996 (India).

[37] Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors., 2021 SCC OnLine SC 557 (India).

[38] Arbitration and Conciliation Act, 1996, s 30, No. 26, Acts of Parliament, 1996 (India).

[39] Arbitration and Conciliation Act, 1996, s 31, No. 26, Acts of Parliament, 1996 (India).

[40] Arbitration and Conciliation (Amendment)Act, 2019, s 29A, No. 26, Acts of Parliament, 1996 (India).

[41] Arbitration and Conciliation Act, 1996, s 34, No. 26, Acts of Parliament, 1996 (India).

[42] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131 (India).

[43] Arbitration and Conciliation Act, 1996, s 34, No. 26, Acts of Parliament, 1996 (India).

[44] Ibid.

[45] Arbitration and Conciliation Act, 1996, s 36, No. 26, Acts of Parliament, 1996 (India).

[46] ibid

[47] Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors., (2020) 11 SCC 1 (India).