Published On: 27th October, 2024
Authored By: Arko Saha
ADAMAS UNIVERSITY
ABSTRACT:
In addition to discussing the arbitral proceedings and various provisions pertaining to the arbitral process in the Arbitration and Conciliation Act, this article gives readers an overview of the legal rules and regulations as well as the systems that are necessary for conducting business in India.
INTRODUCTION:
Arbitration is proposed as the most suitable option for resolving disputes, given the inefficiencies of the current legal system in India. With over 5 crore pending cases and an estimated seven years to clear the backlog, civil lawsuits typically take 15 to 20 years to conclude, causing extensive hardship to the parties involved. The rapid influx of diverse cases beyond judges’ expertise leads to ambiguous and irrelevant rulings, prompting higher forum appeals. This situation necessitates a shift to more efficient dispute resolution mechanisms.
Arbitration is a contract-based method of binding dispute resolution that aims to avoid judicial litigation and facilitate quick, efficient, and amicable resolutions. Parties bring their disagreement to a neutral tribunal, where an arbitrator, a neutral third party, makes the final decision within specified time limits and restrictions. Unlike mediation or conciliation, arbitration panels have the authority to make decisions that bind the parties. The Act, based on the UNCITRAL model, aims to consolidate and reform rules governing domestic arbitration, international commercial arbitration, and foreign arbitral awards.
STAGES OF ARBITRATION:
- ARBITRATION CLAUSE OR ARBITRATION AGREEMENT
An arbitration clause, also known as an arbitration agreement, is a written provision that expressly specifies that arbitration will be used to settle any disputes that may arise between the parties. The parties must have a legally binding arbitration agreement in place before a dispute occurs. The agreement could be contained in a contract, be its own agreement, or be a clause in another agreement. The parties may then draft an arbitration agreement to settle disagreements resulting from the prior contract, but if there isn’t an arbitration clause in the contract, it must be agreed to by both parties.
The Honourable Supreme Court ruled that arbitration is to be interpreted as the process by which the dispute is resolved by such an arbitrator which is chosen and acceptable to both sides under the arbitration agreement[1].
Sec 7 of the Arbitration and Conciliation Act describes an arbitration agreement[2]:
(1).In this section, “arbitration agreement” refers to the parties’ agreement to submit all or some disputes pertaining to a specific legal relationship—whether or not they are contractual—to arbitration.
(2). An arbitration agreement may be included in a contract as an arbitration clause or exist as a stand-alone document.
(3). An arbitration agreement shall be in writing.
(4). An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telegrams, telex, or other correspondence that serves as a record of the agreement; or
(c) A statement of claim and defence is exchanged wherein one party alleges the existence of the agreement and the other does not refute it
(5) If a contract is in writing and the reference is made in a way that makes the arbitration clause in that document part of the contract, then the contract’s reference to a document containing an arbitration clause constitutes an arbitration agreement.
The foundation of an arbitration procedure is an arbitration agreement. Only through an arbitration agreement may parties submit their issues for arbitration, with the arbitral tribunal making the final decision. An arbitral tribunal is established and shaped by an arbitration agreement. Therefore, it is essential to comprehend the legal status of the arbitration agreement under the Act.
The Supreme Court had held that as per the arbitration agreement the dispute will refer to arbitration and the decision of the arbitrator would be final and binding[3].
In its commentary on the unique features of arbitration agreements, the Supreme Court has further noted that an arbitration agreement represents a contract between the parties that, in the event of a disagreement, the matter will be resolved by an arbitrator appointed by the Court or by an umpire of their own constitution. The Supreme Court has also noted that it is up for debate whether the case’s facts and circumstances make it obvious if an agreement to submit the dispute to arbitration exists. According to the pertinent documents and the surrounding circumstances, this in turn depends on the parties’ intentions[4].
When there is an arbitration agreement, the judicial authorities have the authority to refer parties to arbitration under Section 8 of the Arbitration and Conciliation Act. It mandates that parties arbitrate in accordance with their arbitration agreement and restricts the court’s involvement in the arbitration process. It includes commercial conciliation in addition to domestic and international arbitration. It specifies that the arbitration party need only notify the court of the arbitration clause prior to submitting the initial statement. The parties must then be forced to submit to arbitration by the court authorities. A deadline for utilising the arbitration clause is set forth in Section 8, and within that time frame, the parties are required to notify the relevant judicial authority of the arbitration clause; this deadline is defined as “not later than the date of submitting his first statement on the substance of the dispute” in the provision. “.
The Supreme Court of India had held that the term “written statement” should not be used interchangeably with the phrase “first statement” in relation to section 8. The court further states that by filing the first statement, the judicial authority has the obligation to determine whether the party has forfeited its right to seek arbitration[5].
Essential ingredients of section 8
The following are the essential ingredients of it-
- The parties ought to have a binding arbitration agreement..
- The subject matter of the arbitration should be the action that is brought before the judicial authority
- Prior to submitting their initial submission regarding the dispute’s content to the court, either party involved in the matter, or anyone else connected to it, should invoke the arbitration clause or agreement
- A properly certified copy of the arbitration agreement or the original should be submitted with the party’s application to send the matter to arbitration..
Grounds for Rejection of Application under Section 8 of the Act
The judicial authority can reject the application on the following grounds:
- when it seems that the party has given up the right to use the arbitration clause prior to the first statement on the dispute’s merits being submitted
- when the judicial authority believes that the party would not be able to obtain appropriate relief.
- when the court or other judicial authority is convinced that the parties have not reached a contract
- when there is fraud present in the contract itself. When the primary contract is illegal, nonexistent, or void ab initio.
- Where the suit or claim is based on Negotiable Instruments.
NOTICE OF ARBITRATION:
Sec. 21 of the Arbitration and Conciliation Act deals with the commencement of arbitral proceedings. It provides that, unless the parties agree otherwise, the procedures will begin on the day the respondent receives a request to refer the issue to arbitration. This means that the respondent must be informed through a legal notice that at the very least references the agreement’s arbitration clause. The clause is mandatory and does not exempt a party from following the procedure, even if the agreement allows for the arbitrator to be appointed unilaterally.
Sec. 21 – “Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”
APPOINTMENT OF ARBITRATORS:
The arbitrators are selected by the parties engaged in the dispute in accordance with the arbitration agreement.In some situations the agreement may indicate a particular arbitration institution or organisation that will appoint the arbitrator(s)[6].
Section 10(1) of the Arbitration and Conciliation Act provides that the parties may agree on any number of arbitrators, however, the number of arbitrators must not be an even number.
Section 10(2) states that if the parties fail to choose arbitrators in accordance with Section 10(1), the arbitral tribunal will consist of a single arbitrator.
The Hon’ble Supreme Court of India held that the freedom of the parties to decide on the number of arbitrators is a fundamental tenet of the Arbitration and Conciliation Act[7]. Although it must be an odd number and if any such situation arises where the parties are unable to agree on the procedure prescribed or are not able to form the arbitration tribunal on mutual satisfaction.Then either of the parties might adopt the remedy provided under section 11.
Section 11 of the Act addresses the appointment of arbitrators in an arbitration case. It outlines possible steps that disputing parties might take to nominate arbitrators. Section 11 enables parties to select arbitrators themselves by agreeing on an appointment method. If the parties are unable to agree on the appointment of arbitrators, Section 11 enables them to seek such appointments from the Hon’ble Supreme Court or the Hon’ble High Court under sub-sections (4), (5), and (6).
The clause has been amended numerous times over the years, including by the Arbitration & Conciliation (Amendment) Act, 2015 (“2015 Amendment ”) and the Arbitration & Conciliation (Amendment) Act, 2019 (“2019 Amendment”). The 2015 Amendment amended subsection 6A to Section 11, limiting the court’s assessment at this stage to the ‘presence’ of an arbitration agreement exclusively. Furthermore, the 2019 Amendment transferred the power of appointing arbitrators from courts to arbitral institutions authorised by the Supreme Court or the High Court. However, this modification has not yet gone into effect.
The Hon’ble Supreme Court of India had held that the period of limitation for filing an application under Section 11 of the Act would be governed by Article 137 of the First schedule of the Limitation Act, 1963[8].
STATEMENT OF CLAIM AND DEFENCE :
A Statement of Claim describes the disagreement between the parties or the circumstances that led to the conflict, and the compensation sought from the defaulting party. The opposing party may file a statement of counterclaim along with a response to the statement of claim[9].
The arbitral tribunal may, in consultation with the parties, decide whether to hold oral hearings, or whether a document only arbitration should be conducted. The Act envisages a fast track procedure, which: (i) is before a sole arbitrator; (ii) is to be conducted on the basis of written pleadings, documents and submissions without an oral hearing (although an oral hearing may be held if the parties so request, or the arbitral tribunal deems it necessary), and (iii) requires the award to be passed within a period of six months of the arbitral tribunal entering upon the reference[10].
Section 23 of the Act stipulates that within the time frame set by the parties, the claimant shall present supporting facts concerning his claim, the point of issue and relief.
HEARING:
Conduct of arbitration proceedings:
The arbitrators are experts in their own process, and they are free to run the proceedings “any way they deem appropriate,” provided that both parties consent. “The power to determine the admissibility, relevance, materiality, and weight of any evidence” is one of the powers included in this. Their only limitations are to treat all parties equally and to provide them with a full opportunity to present their case, along with enough notice before any hearings or meetings. Arbitrations are not subject to the Indian Evidence Act or the Code of Civil Procedure. Unless the parties agree otherwise, the tribunal will determine whether or not to conduct the proceedings solely on the basis of documents or other material, or whether to hold oral hearings for the purpose of presenting evidence and arguments. Nonetheless, if a party requests it, the arbitral tribunal will conduct oral hearings (unless the parties have agreed that no oral hearing shall be held).When a respondent fails to submit his statement of defence, show up for an oral hearing, or provide evidence, arbitrators have the authority to proceed ex parte. In this case, though, the tribunal will not consider the respondent’s claims to be accepted and will instead base its decision on any available evidence. Should the claimant neglect to transmit his statement of claim, the arbitral tribunal will have the authority to end the proceedings.
Taking of evidence in arbitral proceedings:
The Indian Oath’s Act of 1969 applies to individuals permitted to receive evidence by parties’ consent, including arbitral proceedings. Section 8 of the Act mandates truthful testimony before an authorised official. Witnesses before an arbitral tribunal can be sworn in and are legally obligated to testify truthfully. Coercion of witnesses is prohibited, and assistance may be sought from the court for evidence gathering. Notably, the Act imposes penalties equivalent to court-tried lawsuits for non-compliance or contempt of the arbitral tribunal and grants the court authority to appoint a commissioner for testimony collection or direct evidence submission to the tribunal.
The Supreme Court ruled that Indian-incorporated corporations are not permitted to select a foreign law as the arbitration’s controlling law, regardless of where the company’s “central management and control is exercised.”Given that Indian corporations are Indian, the legislature intends to prevent Indian nationals from deviating from Indian law since doing so would be against public policy[11].
ARBITRAL AWARD:
A final ruling rendered by the arbitrator is referred to as an arbitral award. The award may come from one or more parties in the form of monetary compensation. Non-monetary awards, like introducing employment incentives or discontinuing business practices, are also possible.
Unless the parties agree that no reasons should be disclosed or if the award results from terms of settlement that have been agreed upon, the arbitrators must explain the reasons behind their decision.The tribunal may make an interim award on matters on which it can also make a final award under sec 17 of The Arbitration and Conciliation Act.This is a provisional award made by the tribunal while the case is still pending. Such a tribunal may make an interim award in addition to having the power to make a final award. Generally, interim orders are issued for the payment of money or the division of property between the parties; in most cases, the purpose of an interim payment order is to cover the arbitration’s expenses. A fairly healthy 18% interest rate on amounts owed under an award is provided by Indian law. As a result, the award will accrue interest at the rate of 18 percent annually from the date of the award until the date of payment, unless the arbitral tribunal specifies otherwise. The cost of any institution overseeing the arbitration or any other expense expended in conjunction with the arbitration procedures may be awarded by the tribunal.
Setting aside of awards:
Section 34 of the Arbitration and Conciliation Act specifies the grounds for overturning an award made in India (in a domestic or international arbitration). These are substantially the same as those found in Model Law Article 34 concerning contesting an enforcement application. A reward may be withheld if:
a) a party was under some incapacity; or
b) the arbitration agreement was not valid under the governing law; or
c) a party was not given proper notice of the appointment of the arbitrator or on the arbitral proceedings; or
d) the award deals with a dispute not contemplated by or not falling within the terms of submissions to arbitration or it contains decisions beyond the scope of the submissions; or
e) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or
f) the subject matter of the dispute is not capable of settlement by arbitration; or
g) the arbitral award is in conflict with the public policy of India
An award may be contested within three months of the date the award was received. In the event that there is sufficient cause, the courts may, nevertheless, excuse a delay of up to 30 days. An award is final, binding on the parties, and enforceable as a court decree, barring any challenges to it.
CONCLUSION:
Unlike traditional dispute resolution methods like litigation, alternative dispute resolution such as arbitration is paving the way for the dispute to be resolved in a way that would be beneficial to both parties in the shortest amount of time. All types of alternative dispute resolution, taking into account the load on the judiciary, are essential in ensuring that the parties receive justice in a way that minimises the load on the judiciary. As long as all methods of conflict resolution function effectively, the day will come when the disputing parties will choose to settle their differences quickly and amicably rather than going to court. In the end, the purpose of any dispute resolution process is to give the disputing parties a solution; this can be done through negotiation, mediation, arbitration, litigation, or any other alternative procedure
Reference(s):
[1] South Delhi Municipal Corporation Vs.SMS AAMW Tollways Private Limited, (2019) 11 SCC 776 .
[2] Dalmia VP, “Law of Arbitration in India & Alternative Dispute Resolution” (Lexology, October 10, 2023) <https://www.lexology.com/library/detail.aspx?g=c74be5b9-f8c1-4d5a-ae87-936d0ca6de8b>accessed 19 July 2024
[3] Rukmanibai Gupta v. Collector, Jabalpur (1980) 4 SCC 556(AIR 1981 SC 479) (MANU / SC / 0002 / 1980)
[4] M. Dayanand Reddy v. A.P. Industrial Infrastructure Corpn. Ltd. (1993) 3 SCC 137(AIR 1993 SC 2268) (MANU / SC / 0337 / 1993) ([ 1993 ] 2 SCR 62)
[5] RashtriyaIspat Nigam Ltd vs. Verma Transport Company [MANU/SC/3491/2006](AIR 2006 SC 2800) (( 2006 ) 7 SCC 275) ([ 2006 ]Supp( 4 )SCR 332)
[6] “Procedure Of Arbitration” <https://www.legalserviceindia.com/legal/article-12796-procedure-of-arbitration.html#:~:text=The%20 arbitration%20header%20is%20the,seek%20 clarification%20during%20the%20 hearing.>.accessed 18 July 2024.
[7] IBI Consultancy India Pvt. Ltd. vs. DSC Limited [ARBITRATION CASE (C) NO. 53 OF 2016]
[8] Bharat Sanchar Nigam Ltd. & Anr. v. M/s Nortel Networks Pvt. Ltd. AIR 2021 SUPREME COURT 2849, AIRONLINE 2021 SC 279
[9] Myadvo Techserve Private Limited, “{Twitter.Title}” (MyAdvo.in) <https://www.myadvo.in/blog/steps-of-arbitration-in-india/>.accessed 18 July 2024
[10] Cyril Amarchand Mangaldas, “Guide to Arbitration in India” (2023) <https://www.cyrilshroff.com/wp-content/uploads/2020/09/Guide-to-Arbitration-in-India.pdf>.acessed 20 July 2024
[11] TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd AIR 2008 SC (SUPP) 1143
