History behind Arbitration

In ancient India, Hindus recognized decisions of the Panchayats and entrusted them with power of management of their religion and social functions. However, when power came to be vested in the East India Company, regulations touching arbitration were framed by the Company. The object behind replacing the Arbitration Act, 1940 with the Arbitration and Conciliation Act, 1996 was to consolidate and amend India’s laws relating to domestic and international commercial arbitration.

Arbitration – Its meaning

• It is a reference to the decision of one or more persons in respect of a particular matter.

• It is a substitution by consent of the parties of another tribunal other than the ones provided under the ordinary process of law.

• International Commercial Arbitration – in an arbitration of this nature one of the parties should be a foreigner.

Example: ABC Company Private Limited rendered consultancy services to Hi-fliers International, a foreign company for sale of aircrafts in India. Certain disputes arose between the parties which were submitted to International Commercial Arbitration.

Arbitration Agreement

1. "Arbitration agreement" means an agreement by the parties (to an Agreement) to submit to an arbitrator certain disputes which have arisen (in present) or which may arise (in future) between the parties to agreement.

2. An arbitration agreement may be in the form of an

a) arbitration clause in a contract or

b) by way of a separate agreement.

3. An arbitration agreement must be in writing.

• An arbitration agreement is void if a party to the agreement is a minor or a person of unsound mind or one who is incapable of contracting.
  
  Example: An agreement involving dealing with a national enemy is illegal. Hence, the arbitration agreement which forms a part of this agreement is void and unenforceable.

• Expert/Engineers: A contract between the parties for resolution of disputes by an ‘expert’ does not amount to an arbitration clause even though it is termed as such.

• Winding-up Court: An arbitration clause does not take away the jurisdiction of the company court.

Termination of Contract and its effect on Arbitration Clause

An arbitration clause is a collateral term of a contract as distinguished from a substantive one. Nevertheless, it forms an integral part of the contract. It perishes with the contract. If the contract is null and void, it will not lead to the invalidity of the arbitration clause or agreement therein contained in the contract.

Arbitral Tribunal

It may sometimes include a single arbitrator or a panel of arbitrators. The parties to Arbitration are free to determine the number of Arbitrators except that this shall not be an even number. However, if the parties fail to determine the number of arbitrators, then the arbitral tribunal shall consist of a sole arbitrator.

Appointment of Arbitrators

• A person of any nationality may become an arbitrator.

• In case of three arbitrators, each party must appoint one arbitrator and the two appointed arbitrators should appoint the third arbitrator who will act as the "Presiding arbitrator". On failure of a party to appoint an arbitrator within 30 days of the other party requesting for such an appointment, the power vests with the Chief Justice of the High Court or his designate to make such appointment.

• When appointing an arbitrator in an International Commercial Arbitration, the Chief Justice may appoint an arbitrator of a different nationality.

        The parties are free to agree on a procedure for appointing arbitrator or arbitrators.

Grounds to challenge the authority of the arbitrator

An Arbitrator may be challenged only,

• If certain circumstances give rise to doubts as to his independence or impartiality.

• If he does not possess the necessary qualifications as agreed by the parties.

A party to the arbitration can challenge his own appointee but only on the ground which he became aware after the appointment. It can be challenged within 15 days of becoming aware of the constitution of the arbitral tribunal or after becoming aware of the circumstances of doubt. Further, an interested person is disqualified from acting as an arbitrator. The parties are free to agree on a procedure for challenging an arbitrator.

Example: A and B had agreed to submit disputes between them to a common arbitrator C. A subsequently found out that C and B were related to each other and hence he was justified in challenging the authority of C to act as arbitrator between himself and B.

Extent of Judicial Intervention

The Courts are restrained from interfering in disputes when there is an arbitration agreement between the parties. However, the Court has:

• The power to pass interim orders as measures of protection.

• The power to set aside an award passed by Arbitrator.

Instances of Matters which cannot be referred to Arbitration

• A criminal complaint cannot be referred to arbitration. The arbitrators cannot arrogate to themselves the powers of a Magistrate and pass an award purporting to decide whether an offence has been committed or not.

• Matrimonial matters cannot be referred to arbitration. However, civil disputes between a man and wife or between family members are referable.

Power of a Judicial Authority

• Power of a Judicial Authority to refer to arbitration when there is an arbitration agreement – A judicial authority shall refer the parties to arbitration provided there is an application in writing made to such effect. Further, the Authority has to ensure that there is an arbitration agreement; there is a dispute falling within the scope of the arbitration agreement.

• A Court may refuse to stay the suit/action in certain instances including those:

• Where the Court finds that the arbitration is beset with difficulties and arbitration may never be possible.

• Where Court Orders have been flouted by the Applicant.

• Serious allegations are made against the arbitrator.

• Parties to an arbitration may approach the Court for Interim measures for reliefs such as:

• The appointment of a guardian for a minor or a person of unsound mind;

• For an interim measure of protection in respect of goods and /or security.

• Securing the amount in dispute in the arbitration.

• Interim injunction or the appointment of a receiver;

Place of Arbitration

If the parties do not agree on a place, the place of arbitration must be determined by the Arbitral tribunal with regard to circumstances of the case and convenience of the parties.

Commencement of Arbitration

It is said to commence on the date on which a request is received by the respondent from the claimant to refer the dispute to arbitration.

Language

The parties are free to agree upon the language to be used in the arbitral proceedings. On failure to agree upon the language, Arbitral tribunal will determine the same.

Procedure of Arbitration

• The claimant has to file his statement of claim and the respondent, his written statement.

• The arbitrator may terminate the proceedings where the claimant fails to file his statement of claim in time without ‘sufficient cause’.

• The arbitrator may proceed with the arbitration proceedings without the respondent, if the respondent does not file his written statement of defence in reply to the claimant’s statement in time.

• The tribunal has the power of judicial review and can recall its order of termination of proceedings provided sufficient cause was shown. There is no right in the arbitrator to restore proceedings without sufficient cause. He becomes ‘functus officio’.

• It is the duty of the arbitrator to treat each of the parties to the arbitration with equality. The arbitrator is bound to observe the principles of natural justice in conducting the proceedings.

• The arbitral tribunal may appoint an Expert for help in the proceedings.

Example: In case of a family dispute relating to immovable properties the arbitrator can take the assistance of a valuer for valuing the properties.

Settlement of a dispute

The arbitral tribunal can encourage the settlement of a dispute with the agreement of parties and may use procedures such as mediation, conciliation or other procedures to encourage settlement. The arbitration proceedings shall be terminated on a settlement.

Award

An award is a final determination of a claim or a part of a claim by the Arbitral Tribunal. Under the Arbitration Act, 1940 an award was required to be filed in Court. However, this requirement has been done away with under the present Act. An award becomes binding on the expiry of 3 months from date of receipt of award by the parties.

Successive Awards: There may be as many awards as there are disputes out of the contract.

Contents of Arbitral Award

• An Arbitral award must be in writing and signed by the members of the arbitral tribunal.

• The award must state the reasons on which it is given except when the parties have agreed that no reason be given or when the award is on the agreed terms.

• Date and place of the Arbitration must be mentioned in the award.

Correction and interpretation of Award, Additional Award

Within 30 days from the receipt of an award by a party, the party may request the tribunal to correct any errors in the award or for the interpretation of the award. If a party is desirous for an additional award to be passed in the same proceeding, then it may request the tribunal within 60 days from the receipt of the award to pass an additional award.

Setting aside Arbitral Award by the Court

An award may be set aside by the Court in the following circumstances:

The party making the application furnishes proof that:

• a party was under some incapacity or

• the agreement of arbitration is not valid or

• improper notice as regards the appointment of arbitrator or

• the award deals with a dispute not contemplated under the reference.

• composition of arbitral tribunal or arbitral proceedings was not in accordance with the agreement

Application for setting aside the award is to be made within 3 months of the award.

Appealable Orders

An appeal lies to the Court authorized by law from an:

a) order granting or refusing interim measures under section 9 or

b) award by arbitral tribunal.

• No Second Appeal shall lie from an order passed in appeal.

• An appeal to the Supreme Court is allowed.

Enforcement of Award

An award can be enforced under Code of Civil Procedure as if it were a decree of the court.

Registration and Stamping of Award

When an award relates to creation of any right in immovable property of ₹ 100 or upwards it requires registration. An award is chargeable to stamp duty.

Lien as to Arbitral Award and deposits as to cost

The Arbitral Tribunal has a lien on the arbitral award for any unpaid costs of the arbitration proceedings. The Court may, on an application in this behalf, order the Tribunal to deliver the award to the applicant on payment of the costs (demanded by the Tribunal) in the Court by the applicant.