This Article discusses what is arbitration and its features. It also gives an overview of the entire arbitration proceeding. It will give an idea to the readers on whether arbitration is a suitable mode of resolution for their particular dispute.

What is arbitration?

Arbitration is an alternative dispute resolution mechanism. Parties to an agreement decide beforehand that in case of any dispute arising out of the agreement that they are entering into, they will refer it to arbitration. In such a method both parties will have a say in selecting the arbitrator who will make a binding decision on the dispute. It is an alternative to approaching courts for dispute resolution which is a time and money-consuming process.

As per Halsbury’s Law of England, 4^th Edn., Vol.2, (para 501), arbitration means resolving the dispute or difference between two or more parties after hearing both sides in a judicial manner by a person or persons other than a Court of competent jurisdiction. Section 2(a) of the UNCITRAL Model Law defines ‘arbitration’ means any arbitration whether or not administered by a permanent arbitral institution.

What are the features of arbitration?

1. It is consensual.
2. Parties choose the arbitrator(s).
3. Arbitration is neutral.
4. Arbitration is confidential.
5. The decision of the arbitral tribunal is final and binding on the parties.

What are the legal provisions governing arbitration in India?

1. Arbitration proceedings in India are governed by The Arbitration and Conciliation Act, 1996 (hereinafter, the Act).
2. The Act is based on the 1985 UNCITRAL (The United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules, 1976. The Act consolidates and amends the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards.
3. The Act extends to the whole of India.
4. Section 2(a) of the Act defines arbitration as any arbitration whether or not administered by a permanent arbitral institution.
5. The first part of the Act applies to arbitration where the place of arbitration is in India and Part II talks about the enforcement of foreign arbitration awards.
6. The Act was amended in 2015 pursuant to which the provisions also apply to international commercial arbitrations even if the place of arbitration is outside India.
7. The Courts are obligated to refer the parties to arbitration unless it thinks that a valid arbitration agreement doesn’t exist.

What amounts to an arbitration agreement?

1. An arbitration Agreement is defined in Section 2(b) read with Section 7 of the Act as an agreement by parties to submit to arbitration all or certain disputes which have already arisen or may arise in the future between the parties.
2. Such an agreement can be in the form of an arbitration clause or as a separate agreement.
3. It shall be in writing.
4. Such an agreement postulates present or future disputes to be referred to arbitration and there is consensus ad idem between the parties.[1]
5. It is not necessary that the term ‘agreement’ should be used there.
6. The reciprocal promise of the parties to abide by the award is sufficient consideration for the agreement yet the award can be declared void if the parties to the agreement have doubts about their rights or legal position.

Essential of an Arbitration Agreement?

1. Presence of a present or future difference in connection with some contemplated affair.
2. There must be the intention of the parties to settle the dispute by a private tribunal.
3. The parties must agree in writing to be bound by the tribunal’s decision.
4. The parties must be ad idem.

Can all disputes be resolved through Arbitration?

1. There are certain types of disputes which cannot be taken to arbitration such as criminal offenses, matrimonial disputes, guardianship matters, insolvency petitions, testamentary suits, trust disputes, labor and industrial disputes, tenancy, and eviction matters governed by rent control statutes.
2. Disputes which are in rem (against the world, in public) regarding a thing or property cannot be resolved through arbitration.
3. Also, arbitration is restricted in disputes where a specialist forum exists for the resolution of disputes such as consumer disputes.

Can the arbitration clause be oral?

Before the enactment of the Arbitration Act, of 1940, an oral submission and award consequential to it was legal and could form the basis of a suit. However, the Arbitration Act which consolidated and amended the law of arbitration lays down in Section 2(9) that the arbitration agreement must be in writing. In Arbitration Act, of 1996, Section 7(3) provides that the arbitration agreement shall be in writing.

Can an arbitration agreement be done during Legal Proceedings?

Parties can arrive at an arbitration agreement at any stage including during the pendency of any legal proceedings.  

Step by Step guide to Arbitration Procedure:

• Invocation of Arbitration
• Party aggrieved from another must raise a dispute arising out of the agreement to the other party and wait for them to resolve the issue.
• If the other party ignored or delays the resolution of the dispute raised, then the aggrieved party can send a legal notice pointing out that due to the failure of the party to resolve the issues amicably the aggrieved party is invoking the arbitration clause as already laid out in the agreement between the parties.
• Following will be the contents of the legal notice:
  • Brief facts of the legal relationship arising out of the agreement between the parties.
  • Brief facts about the dispute that has arisen between the parties.
  • Mention the efforts initiated by the aggrieved party to resolve the issue.
  • Mention the loss suffered by the aggrieved party due to the non-cooperation of the other party.
  • Mention the arbitration clause as it is from the agreement between the parties.
  • If the parties have decided on a sole arbitrator from a common consensus then the party may propose a name with all details of the person and seek approval of the other party.
  • If the parties have decided on a three-panel arbitral tribunal then the aggrieved party may send in a name of their choice and ask the other party to determine a name of their choice.
  • Such a legal notice shall mention a time frame of 1 month within which the other party must communicate their stance on arbitration and choice of arbitrator.
  • In case of failure on part of the other party to comply with the arbitration clause then the aggrieved party can approach the Supreme Court or the High Court or any person or institution as designated by such Court under Section 11(6) of the Act.
• Reply by the Opposite Party
  • The other party will reply to the notice of invocation by way of acceptance of resorting to arbitration or by denying the need to do arbitration (the procedure in such a case will be discussed separately).
  • In case the arbitration clause mentions appointing a sole arbitrator then the other party may suggest names and details of the proposed arbitrators out of which the invoking party may select a name to consensually decide upon a sole arbitrator.
  • both parties agree that the decision of the arbitration shall be accepted in totality and not partially.
• Preliminary hearing
  • Section 18 of the Act mentions equal treatment of parties- the parties shall be treated with equality and each party shall be given a full opportunity to present his case.
  • After a section of an arbitrator, he/she conducts an initial discussion with both parties involved in the matter.
  • Minimum requirements of a proper hearing:
    • Each party must get a notice that the hearing is to take place- date, time, and place.
    • Each party must have a reasonable opportunity to be present at the hearing along with his witnesses and legal advisers.
    • Each party must have a reasonable opportunity to be present throughout the hearing.
    • Each party must have a reasonable opportunity to present statements, documents, evidence, and agreements in support of his own case.
    • Each party must have a reasonable opportunity to cross-examine and reply to the arguments advanced in support of his opponent’s case.
  • Section 19 of the Act provides that the Arbitral Tribunal is not bound by the Code of Civil Procedure, 1908 and the parties are free to determine the procedure to be followed by the arbitral tribunal in conducting its proceedings, and in case they have not then the arbitral tribunal can determine the procedure.
  • Section 20 of the Act provides that the parties are free to agree on the place of arbitration and if the parties have failed to determine a place then the arbitral tribunal can decide.  
  • Section 22 of the Act provides that the parties are free to agree upon the language(s) to be used in the arbitral proceedings and if the parties have failed to determine a language then the arbitral tribunal can decide.
  • The timeline for filing the statement of claim, reply statement and other statements along with the final award are pre-determined.
  • The scope of the arbitration procedure is determined along with the fee of the arbitrator.
• Filing the initial statement of claim
  • Section 23 of the Act mentions that the statement of claim has to be filed within the period of time agreed upon by the parties or determined by the arbitral tribunal.
  • The claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought.
  • A claimant may submit with his statement all documents he considers to be relevant or may add a reference to the documents or other evidence he will submit.
  • The claim statement is the written narrative that sets forth the details of the dispute including all relevant dates and names in a clear, concise, and chronological format and should conclude by stating what relief is being sought.
  • If the claim statement refers to documents, and copies of the documents then it should be attached as exhibits. These exhibits should be clearly identified and a complete set should be attached to each copy of the statement of Claim.
  • Each page of the claim statement should be numbered like (Page 1 of 4).
  • The contents of the statement of claim should contain an explanation of how and why each of the respondents is liable.
• In case of failure to file a Claim Statement
  • In case the claimant fails to communicate his statement of claim as per Section 23 then the arbitral tribunal shall terminate the proceedings.
• Filing of statement of defense
  • Section 23 of the Act mentions that the statement of defense has to be filed within the period of time agreed upon by the parties or determined by the arbitral tribunal.
  • Respondent shall state his defense in respect of these particulars.
  • The respondent may submit with his statement all documents he considers to be relevant or may add a reference to the documents or other evidence he will submit.
  • The respondent may also submit a counterclaim or plead a set-off, which shall be adjudicated upon by the arbitral tribunal if such counterclaim or set-off falls within the scope of the arbitration agreement.
  • The statement of defense shall be served to all the Claimants and the respondent should establish proof of service.
  • The respondent can seek an extension of time with the Claimant’s consent to file the statement of defense.
• In case of failure to file a statement of defence
  • The arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claims.
  • The arbitral tribunal shall have the discretion to treat the right of the respondent to file a such statement of defense as having been forfeited.
• Oral hearing
  • Section 24 of the Act provides that the Arbitral tribunal will decide whether to hold oral hearings for the presentation of evidence or for oral arguments or whether the proceedings shall be conducted on the basis of documents and other materials.
• Appointment of an expert by the arbitral tribunal
  • The arbitral tribunal may appoint an expert(s) to report to it on specific issues to be determined by the arbitral tribunal.
  • The expert(s) may be required to participate in an oral hearings where parties have opportunities to put questions to him and present expert witnesses In order to testify on the points at issue.

Note:

1. Parties are free to amend or supplement their claim or defense during the course of the arbitral proceedings unless the tribunal thinks that it is inappropriate to allow the amendment or supplement having regard to the delay in making it.
2. The statement of claim or defense under this section shall be completed within a period of six months from the date the arbitrator(s) received notice in writing of their appointment.

[1] Bihar State Mineral Development Corpn. v. Encon Building, (2003) 7 SCC 418.