Decrypting Arbitration

The Litigant Friendly Approach

By Devika Mathur

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INTRODUCTION:

Thanks to the gross delay in the Indian judicial system, there has been a significant growth in the alternative dispute resolution mechanisms. Arbitration is one such mechanism to which people are switching now days. In Layman’s term, Arbitration is a process where the disputes between the parties are resolved without the interference of the court with the help of a professional person known as arbitrator(s). However, to make it more elaborative the term arbitration means a procedure in which a dispute submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute because of the agreement the parties come at a conclusion in a speedy and efficient way. However, some business entities lack basic knowledge about this mechanism and still choose to opt for the traditional courts because they feel it will yield a better outcome. Well to begin with, the nature of the Arbitration is quasi-judicial, meaning thereby the parties have the right to appoint the arbitral tribunal, in which they have to choose the arbitrator(s) unlike the normal court system. THE PRINCIPAL OF PARTY-AUTONOMY gives right to the parties to settle their disputes on their own, which gives them a right to be in the cockpit and be in the forefront to resolves the disputes.

The subject matters of arbitration shall include any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration. However, public policy would not permit matrimonial matters, criminal proceedings, insolvency matters anti-competition matters or commercial court matters to be referred to arbitration. Employment contracts also cannot be referred to arbitration but director - company disputes are arbitrable (as there is no master servant relationship here[1]. Generally, matters covered by statutory reliefs through statutory tribunals would be non-arbitrable.

ARBITRATION AGREEMENT

Usually, the agreement signed at the beginning of a business connection – long before a conflict exists. It is a specie of a contingent contract, which means an agreement enforceable only in the event of arising of a dispute between the parties. The Indian Contract Act and the Arbitration and Conciliation Act, 1996 go hand in hand, as the most essential requirement of the Arbitration is an Agreement, without it, the arbitration cannot take place. The Arbitration has to be in form of an agreement or a clause in a contract.

The arbitration agreement shall be deemed independent of the contract containing the arbitration clause, and invalidity of the contract shall not render the arbitration agreement void.

The arbitration agreement will determine key elements of the process. For example:

1) The no. of person in the tribunal, one or three

2) The process of selection of the Arbitrator

3) The place of the arbitration, the legal ‘seat’ or place of the arbitration

4) The arbitration to be conducted in accordance with the rules of a particular arbitration institution or ‘ad hoc’

In exceptional circumstances, a non-signatory third party with no assent may also be subject to arbitration with the parties if the court finds it essential to resolve the dispute. The following conditions were laid by the Hon’ble Delhi High Court in the case of R.V. Solutions Pvt. Ltd. v. Ajay Kumar Dixit & Ors[2]that, a direct relationship to the signatory party of the Arbitration Agreement, or commonality of the subject matter, or composite transactions in the agreement between the parties.

ARBITRAL TRIBUNAL 

The word Juris signifies ‘the power to decide’, and no arbitration proceeding could commence without having a jurisdiction. The arbitral tribunal may rule on its own jurisdiction like a court. It can also decide any objection with regard to the existence or validity of the arbitration agreement. It is based on the principle of de la competence, which means the power of the tribunal to decide its own jurisdiction like ‘court’. The Arbitrators have the absolute powers and these powers are “the power to determine the admissibility, relevance, materiality, and weight of any evidence”. [3] They have the responsibility of treating and giving the parties equal and full opportunity[4]

Section 16 of the act, provides Competence of arbitral tribunal to rule on its jurisdiction thus it incorporates the principle of competence-competence. This concept has two factors;

1) the tribunal may decide on its jurisdiction without support from the courts

2) the courts are prevented from determining this issue before the tribunal has made a determination on this issue[5]

An arbitral tribunal does not have a statutory jurisdiction. The tribunal makes and decides its own jurisdiction to fit the requirements of the parties. Thus, the arbitral agreement plays a crucial role in deciding the scope and extent of jurisdiction of the Arbitral Tribunal, so it is extremely important to consider a well-drafted agreement because it ensures giving full power to the tribunal to decide matters regarding the jurisdiction.

ARBITRATOR:

Under the Arbitration & Conciliation Act, the Number of the arbitrators appointed and its procedure for appointment under section 10 and 11. The principle of Unequal Arbitrators is being practiced it means that the arbitrators must be in odd number such as, one or three. Section 12 of the act, right conferrers to challenge the appointment of the arbitrator if:

a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

b) He does not possess the qualifications agreed to by the parties.

Unilateral Appointment: No party can appoint a single arbitrator on its own. In the case of Perkins Eastman Architects DPC & Anr V. HSCC Ltd, the Hon'ble Supreme Court held that, the unilateral sole arbitrator appointments invalid by virtue of the 2015 amendments to the Indian Arbitration and Conciliation Act (“Act”).

ARBITRAL AWARD:

Where there is a legal relationship between the parties, whether contractual or not, there is corner for dispute that may arise and for the protection of interest as well as for a speedy solution, the Arbitration Agreement comes into play and the result is an arbitral award. Making of arbitral award is the last stage in the arbitral proceedings. The decision taken by the majority of the members of the tribunal expressed in the form of the award[6]. The tribunal can render the interim award[7] provided, if the tribunal deems it necessary, otherwise, the tribunal may render directly the final award[8]. The act permits the arbitral tribunal to encourage the parties to arrive at a settlement and if the parties have agreed for a settlement then, the same can be incorporated in the award by the arbitral tribunal[9].

There are two types of awards;

o Domestic: it is an award, passed where the parties, have a nexus or birth to Indian Origin. Basically it is a result of domestic arbitration but an award even if given by a foreign state for a dispute where both the parties are of an Indian origin and the nationality is also governed by the Indian laws shall also come within the purview of domestic arbitration

o Foreign: The Hon’ble Court Calcutta High Court in the case of Serajuddin v. Michael Golodetz has laid down the basic essential elements of a foreign arbitration which defines what is a “foreign Award”:

a) Arbitration should have been held in a foreign country

b) It was held by an foreign arbitrator

c) Foreign Laws were applied

d) One of the parties was a foreign nationalist

The normal courts while practicing the civil nature cases, are bound to adjudicate the cases by a statutory laws which are civil procedure code and evidence act, but the arbitral tribunal is not bound by the these two major statutory laws[10], however they may apply to court for tasking assistance in taking the evidence during the proceeding.[11]

ENFORCEMENT OF ARBITRAL AWARD:

The enforcement of the domestic awards is the same as an Indian court decree. Once the award has passed, an arbitrator's job is over. Following this section 34 of the Arbitration and Conciliation Act comes into play, which gives the Indian courts the power to decide whether the arbitral award passed is enforceable. After the award passed by the arbitral tribunal, the statue provides a period of 90 days, between this intervening period the award maybe challenged by the opposite party in accordance with section 34 which provides for the procedure for application for setting aside an arbitral award. This section provides power to the Indian courts for either setting aside the arbitration award or enforcement of it. Once, the court has decreed the same, the opposite party has only one remedy that is appeal under section 37 of the Arbitration & Conciliation Act. As per sub clause (3) of the act, there shall be no second appeal meaning there by, there shall lie one appeal that is before the Hon’ble High court, but in exceptional cases where there is a question of law involved nothing in this section shall take away the right to approach the Hon’ble Supreme Court of India.

The enforcement of Foreign Awards, two requirements are utmost important. Firstly, First it must deal with differences arising out of a legal relationship (whether contractual or not) considered as commercial under the laws in force in India. Secondly, that is that the country where the award has been issued must be a country noticed by the Indian government to be a country to which the New York Convention applies or Geneva Convention. In case award not made in a convention country it will not be considered as foreign award and, as such, a separate action will have to be filed based on the award, this was held in the case of Bhatia International vs Bulk Trading[12] by the Hon’ble Supreme Court of India.

CAN YOU APPROACH THE COURT DURING THE ARBITRATION PROCESS:

The main feature of this act, is that there is less interference of the court, any matter before a judicial authority containing an arbitration Agreement shall be referred to arbitration.

In relation to arbitration proceedings, parties can approach the Court only for two purposes:

(a) for any interim measure of protection or injunction or for any appointment of receiver etc; or

(b) For, the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two appointed arbitrators fail to agree upon the third arbitrator. In such an event, in the case of domestic arbitration, the Chief Justice of a High Court may appoint an arbitrator, and in the case of international commercial arbitration, the Chief Justice of the Supreme Court of India may carry out an appointment. A court of law can also be approached if there is any controversy as to whether an arbitrator has been unable to perform his functions or has failed to act without undue delay or there is a dispute on the same. In such an event, the court may decide to terminate the mandate of the arbitrator and appoint a substitute arbitrator

CONCLUSION- AMENDMENT, 2019 A GAME CHANGER

The new changes to the act in 2019, has certainly brought new hopes, but some challenges followed but ultimately it looks better than ever before. The changes introduced by the amendment are to make the process of arbitration process robust and party friendly, cost effective, ensures swift disposal and neutrality of arbitrators, before the amendments there were some practical difficulties in the applicability of the Arbitration & Conciliation, which, by the present amendment, took over the problems prevailed before. By introducing the Two institutions, the future of the arbitration looks bright.

“NDIAC”: the New Delhi International Arbitration Centre

“ACI”: Arbitration Council of India

By amending a time limit of Six Months for filing the statement of claim and defence from the date of appointment of the arbitrator(s) and the award in the matter of international commercial arbitration made as expeditiously as possible with an endeavour to deliver it within 12 months from the date of completion of pleadings, has ensured the speedy procedure. By the present amendment, it has not only provided institutionalisation of the arbitration, speedier process it has given confidentiality to the arbitration agreement and the procedure in it except the award where its disclosure is necessary for implementation and enforcement of award.

While India is still making progress with developments in the law of arbitration, the present sign of changes in the field makes us optimistic. Finally, in the words of Mr Warren Burger, Chief Justice of Supreme Court of US in 1984, while addressing the American Bar Association:

"The entire legal profession has become so mesmerized with the stimulation of the courtroom that we tend to forget that we ought to be healers of conflicts. For many claims, trials by adversarial contests must in time, go the way of the ancient trial by battle and blood. Our system is too costly, too painful. As healers of human conflicts, the obligation of the legal profession is to provide mechanisms that can produce an acceptable result in the shortest possible time, with the shortest possible expense and the minimum of stress on the participants. That is what justice is all about."

The author is a lawyer practising in Delhi High Court and views of the author are personal and only for educational purpose only.

Disclaimer: Image used for educational purpose only and are subjected to the respective owner and blog holds no right for the same.

[1] Comed Chemicals Ltd. v. C.N. Ramchand 2008 (13) SCALE 17. [2] 2019 SCC Online Del 6531 CS Comm 745/2017 [3] 1 Section 19 (3) and (4) [4] Section 18 [5] Waverly Jute Mills Co. Ltd. vs. Raymon and Co. (India) Ltd. AIR 1962 SC 1810 [6] Refer S. 29 of Arbitration and Conciliation Act 1996 [7] S 31 (6) Ibid [8] SS 35, 30 and 32 Ibid [9] S 30 Ibid [10] Section 19 of Act and Section 1 of the Evidence Act [11] https://indiankanoon.org/doc/1403427/ [12] AIR 2002 SC 1432