ARBITRATION PROCEDURES – A Step-by-Step Guide to Arbitration

ABSTRACT

We are aware that court already has a bundle of cases piled up with them, if we file a case today it may take 7-10 years to get the outcome or judgement. Current Judicial system is not able to furnish the timely and cost-effective relief to the parties. It is expensive as well as time consuming process.

Arbitration is a process where the dispute or grievance between the parties are resolved outside the court system by an impartial third party or panel. The decision may or may not be binding. This is a private dispute resolution procedure. In this process parties do not sue each other they try to come to the mutual agreement to solve the problem, it allows the parties to put forward their own remedies. This process is fast more flexible and provide resolution of dispute in lesser time.

STAGES OF THE ARBITRAL PROCEDURE

Arbitration agreement is an agreement which includes all the terms and condition to be followed by the parties when it comes to the dispute resolution. Depending on how big the firm is and how much money is involved some companies have complete autonomous agreement related to the matters or may only insert a clause in the general agreement. Arbitration clause is a clause in the contract which mentions the rights of the parties and their options to opt when any dispute arises between the parties. The clause generally says that the parties will not sue each other in the case of dispute they will resolve the dispute outside the court involving third party called arbitrator, avoiding litigation. Arbitration agreement shall be in writing and should be signed by both the parties. Exchange through Letters, Telegrams and other electronic means that is recorded shall also be considered as arbitration agreement. The exchange of the statements of claim and defense in the agreement shall be accepted by the parties. Mere intention of the parties to refer the dispute to the arbitration is considered as the arbitration agreement despite of being the particular form is missing.   

The purpose of the Notice of Arbitration is to bring the parties having dispute in front of the arbitrator. It includes the complete details of both the parties, their concerns. It also mentions the basis, why the arbitration is chosen for the dispute resolution. The notice is given to the other party to inform him about the claim regarding the reference of the dispute for the agreement between both the parties. This is similar to the summon as the defendant has to give the written statement in answer to the summon, notice of arbitration provides the opportunity to respondent provide his side of the story. Notice under section 21 of the Act make possible the process of the arbitration.  

The Appointment of arbitrator comprises the process of finalization of the arbitrator for the adjudication over a legal dispute. As mentioned in Section 11 of Arbitration and Conciliation Act 1996, a person can be of any nationality unless there is any contradiction between the parties. There should be three arbitrators appointed one being the presiding arbitrator. If parties fail to appoint three arbitrators, one arbitrator should be appointed by the parties and the remaining two can be appointed by the one appointed arbitrator. If parties fail to appoint the arbitrators within 30 days of time period from the request received by any of the two parties than the appointment shall be made by Chief Justice of the High Court or any other person or institution designated by him on the request of any of the party. In the appointment by Chief Justice of Arbitrator there are two considerations that are to be taken care of –

1. Required Qualification of the arbitrator should be as per mentioned in the agreement.
2. Arbitrator should be impartial and independent.

The decision of Chief Justice of the High Court or the person or the institution appointed shall be considered as final.

Case Laws

In Indian Drugs & Pharmaceuticals Ltd. Vs. Indo Swiss S. Gem Mfg. Co. Ltd. Court held that no retired High Court Judge can act as an arbitrator.

In ICICI Ltd. Vs. East Coast Builders & Engineers Ltd. two arbitrators were appointed by the parties but they were not able to appoint third arbitrator so the parties requested the appointment of the third arbitrator which was accepted by the court and the arbitrator was appointed.

In Kanagarani Durairaj Vs. Dwaragan it was held that in absence of delegation of power by Chief Justice of High Court, civil city court has no jurisdiction to appoint an arbitrator.

In Probodh Vs. Union of India, it was held that if there is a disagreement between the arbitrators in any judgement than the presiding arbitrator adjudication can adjudicate the whole case. 

Statement of Claim is a document that is composed for the relief request. It includes Name of Claimant, Name of Respondent, Details of the dispute, Relevant dates and type of relief requested that is not only limited to the monetary damages, interest and specific performance. It is also important to provide all the documents that are mentioned in the Claim. Statement of the claim should be submitted within the specified time period. The person who files the claim is called Claimant.

Statement of Defence is a primary document of the arbitration proceeding. The person against whom the claim is filed is called respondent. Statement of Defence includes the detailed reply to the claim made by the claimant, the respondent can also raise the objection regarding the jurisdiction of the arbitral tribunal. There is no particular method or format to give the statement of defence. The statement of defence shall contain all the facts keeping in mind the chain of events. The Statement of Defence once submitted cannot be changed.

Hearing of parties is a process where both the parties present their cases in front of the arbitrator. That can be in person, in writing form or over the telephone. Hearing of parties includes the following steps-

1. Preliminary hearing and exchange of information stage where the parties call their arbitrator to fix the schedule. The issue of the dispute is addressed by both the parties one by one; the exchange of information takes place and the date for hearing is fixed. On the scheduled date, the written document called scheduling order will be issued by the arbitrator which contains the important dates and the specifics that were discussed on call.
2. Hearing Stage is when parties bring their case in front of the arbitrator. This process can take place in person, the submitting the matter in writing or over the telephone. Parties may also write arguments on the basis of the direction of the arbitrator after the hearing.
3. Award Stage is when the hearing is completed and there is no more evidence to be presented during the hearing from any of the parties the arbitrator furnishes the award in writing mentioning the outcome of the hearing and sent it to the parties.

Arbitral award – An arbitral award is the decision made by the arbitrator in the proceeding. It can be monetary, non-monetary, declaration upon any matter, injunctive relief, specific performance for rectification, cancellation of deed or other document etc.

            Essentials of arbitral award – The arbitral award is only valid when-

• Shall be in writing.
• Shall be signed by all the members of arbitral tribunal.
• Date and Place shall be mentioned
• Shall state the reason of the award
• Shall be complete and not leave any aspect.
• Shall be consistent and not contradictory.
• Shall be certain.
• Shall not be impossible to perform.
• Shall not be against public policy.

Type of Award – There are following types of arbitral award

Interim Award is a temporary award until the final decision is given by the arbitral tribunal on a preliminary legal issue. An order can be considered as an interim award if it completely decides an issue.

Domestic Award is an award made by the arbitral tribunal within the state territory. It is treated as a Decree by the court under section 36 of Arbitration and Conciliation Act 1996.

Foreign Award is an award made by the arbitral tribunal where the dispute is between the Indian origin party and the foreign party. An arbitration is conducted outside India and the resulting award is enforced as a foreign award.

Settlement Award is an award when both the parties settle their dispute in between the proceeding. Here the arbitral tribunal will stop the proceeding and if parties request the tribunal can record the settlement as the arbitral award.

Additional Award is when the final award is displayed but later on it was found that there has been some dispute that has left unresolved or unadjudicated than the parties can request to make the additional award for the same. The parties should request for the additional award within 30 days of time period when the final award was rendered.

Challenging Arbitration Award in Court – Under section 34 of the arbitration and conciliation act 1996 arbitrational award can be challenged in the court. The grounds on which the award can be set aside or overturn are as follows –

• The party was under some incapacity.
• The arbitration agreement is not valid in accordance to the law chosen, absence of any choice or law enforced is not at the relevant time.
• Proper notice to the applicant was not given to the applicant as a result he was not able to present his case in proper manner during the proceeding.
• Arbitral award fails to resolve the main dispute under Indian Law.
• The composition of the arbitral tribunal is not in accordance with the parties or absent in the agreement.

An arbitral award may be set aside by the court if –

• The arbitration is not capable of resolving the subject matter of that dispute under the law for time being in force.
• The matter on which the dispute is registered is awarded such that it is in conflict with the Public Policy.
• The award is in contravention with the fundamental policy of Indian law.
• It is in conflict with the most basic notions of morality or justice.
• The making of award was induced by fraud or corruption or in violation of Section 75 or Section 81.

CONCLUSION

The arbitration is the process to where the dispute among the parties is resolved outside the court avoiding long process of litigation. The main purpose of the arbitration is to resolve the dispute quickly and in effective manner. The first and foremost stage of the arbitration process is to frame the arbitrational clause. During the framing of the clause parties have to decide the arbitrators and the rules to be applicable for the arbitration. The panel called arbitral tribunal is constituted and the dispute is presented in front of them for the resolution. The panel comprises of three arbitrators one among the three is called presiding arbitrator. The arbitrators are appointed mutually by the parties in dispute itself. The parties present their side of the case to the arbitrator and hearing take place on the date and place decided by the parties. After the hearing is completed, the arbitrators present the award to the parties in the written form. The award should be signed by the arbitrator and place and date of the arbitration should be mentioned on the award to be valid.

Sooner the time will be there when the alternative dispute method will be preferred for the legal dispute resolutions. At the end, the objective of every dispute resolving mechanism is to provide an effective solution to both the parties in dispute in short time through the various processes like litigation, arbitration, mediation and negotiation.

References

1. Hon’ble Mr. justice S.U. Khan, Handbook on Arbitration (1^st ed, Judicial Training and Research Institute 2022)
2. (CA) Rajkumar S. Adukia, Practical Guide on The Concept and Practice of Arbitration (1^st ed, Rishabh Academy Pvt. Ltd. 2016)
3. Indian Drugs & Pharmaceuticals Ltd. Vs. Indo Swiss S. Gem Mfg. Co. Ltd. (1995)
4. ICICI Ltd. Vs. East Coast Builders & Engineers Ltd. (1997)
5. Kanagarani Durairaj Vs. Dwaragan (1998)
6. Probodh Vs. Union of India (1951)