Arbitration is a form of Alternate Dispute Resolution which helps two people in a dispute to solve it with the help of an arbitrator by coming to an appropriate solution. This method is popularly recognized in India and across other countries as it is characterized as a simple, convenient and cost-effective method. The Arbitration and Conciliation Act of 1996 deals with the arbitration and the provisions regarding it. This article mainly deals with the significance of an arbitration, international arbitration, elements of arbitration, procedures, arbitral award as well as the relevant case laws.
Introduction
In the present-day business contracts, arbitration is a fuzz word with lot of bustle. The law grants a choice upon the parties to enter into commercial transactions such that in case of a dispute, they will refer it to this arbitration method. This method is considered as often a simple, quick, convenient and cost-effective process which saves them from tiresome and complicated procedures of a court. The Arbitration Act covers both the Domestic and International Arbitration. This article deals mainly with the Arbitration in India and the international perspective.
Arbitration basically is a form of an Alternative Dispute Resolution. The Alternative Dispute Resolution methods are followed by prominent advantages such as the lower costs, greater flexibility of process, choice of the forum, choice of the solution, etc. One of the most popularly recognized and practiced forms of ADR is the Arbitration method.
Arbitration in India
The law regarding Arbitration in India has always been trending since its foundation in the year, 1940. The current arbitration law is a creation of the several promulgations and ordinances which is passed by the government of India from time to time so as to meet the economic reforms taking place in the country. The Act of 1996 deals with the Arbitration Law in India. This Act was passed to merge or bring together the laws relating to domestic, international arbitration and its implementation. Some of the major amendments were introduced in India made in the years 2015 and 2019 so as to make India a hub of all the international commercial arbitration as well as to make arbitration as a preferred mode for the settlement of commercial disputes. Many amendments are being made each year the most recent one was made last year. [1] (Domke, 2019)
The Indian arbitration regime has undergone a huge transformation in the past couple of years. Before the decision of the Supreme Court in the case of BALCO v. Kaiser Aluminum [Civ. App. No. 7019 of 2005] in the year 2012, the Indian judiciary was considered highly interventionist in its approach to arbitration. The main reason behind this is the series of decisions made initially from the case of Bhatia International v. Bulk Trading [(2002) 4 SCC 105] and concluding with the decision of the Supreme Court in the case of Venture Global v. Satyam Computers [(2008) 4 SCC 190].
The Supreme court in the case of Bhatia International v. Bulk Trading held that the Indian courts would have jurisdiction over the foreign international commercial arbitrations unless it is specifically excluded expressly or impliedly by the Indian law. Though in the case of Bhatia, the interim measures under Section 9 of the Indian Arbitration and Conciliation Act, 1996 were dealt with, the decisions which succeeded used its reasoning to widen the scope of the jurisdiction of Indian courts with respect to that of the foreign seated arbitrations. The approach adopted by the Supreme court in the case of Bhatia was taken to its conclusion in the case of Venture Global v. Satyam Computers, in which a foreign seated arbitration on the basis of Indian law was set aside. [2] (Sewlikar, 2014)
The Supreme Court in the year 2012 overruled the decision of BALCO v. Kaiser Aluminum and held that the Indian law would not apply to foreign arbitrations unless it is choosing by the parties as the applicable law. This was one of the first highly progressive decisions made by the Supreme court. In the case of Shri Lal Mahal v. Progetto Grano SpA in 2013, the Supreme Court held that the public policy applicable in case of international commercial arbitration, would be greatly different from that which is applicable to the domestic arbitrations. Later on, it was also held that the courts do not act in the appeal over international arbitrations and therefore the imposition of an award could only be denied on limited grounds. The court held that the foreign arbitration could be denied imposition only if it is contradictory to the fundamental policy of India, the interests of India or to the justice or morality. Thus, the Supreme Court stated its respect for arbitration and the change in its opinion or point of view after the decision of the case of BALCO v. Kaiser Aluminum.
The perspective of Supreme court underwent a change which was visible in the decision of Enercon (India) Ltd. v. Enercon Gmbh and Anr. In this case, the SC had the possibility of examining an arbitration clause with certain defects.Despite the involvement of London as the place of jurisdiction in the arbitration clause, the court determined its jurisdiction to be in India in this case. This decision was influenced by the fact that all the other applicable laws were chosen to be Indian by the parties to the arbitration agreement. The Supreme Court in this case held that certain flaws in the arbitration clause would not hinder the parties from arbitrating unless the clause was not capable of being carried out. By this decision the Supreme Court also made sure that the Indian courts would not unreasonably interfere in the international commercial arbitrations. The court in the case of World Sport Group Ltd v. MSM Satellite (Singapore) Pte Ltd strengthened its pro-arbitration approach in the international commercial arbitration disputes. The issue laid down before the court in this case was whether the arbitration could proceed in spite of the of fraud claims raised by the parties.
The issue was highly controversial as in the case of N. Radhakrishnan v. Maestro Engineers, the Supreme court had held that the questions of fraud would not be arbitrable in India. Whereas the Supreme Court in the case of World Sport Group v. MSM Satellite held that in case of foreign seated arbitrations (according to the provisions of section 45 of the Act), arbitration could be stayed only if the arbitration agreement was void or incapable of being performed. The Supreme Court held that the bare claims of fraud could not prevent the international commercial arbitrations from taking action. Therefore, the Courts could not interfere in foreign seated arbitrations where the claims regarding fraud has been raised. The court also held that its prior decision in the case of N. Radhakrishnan v. Maestro Engineers was limited to domestic arbitrations and thus the court’s referred to arbitration given that the conditions in Section 45 of the Act were fulfilled.
All these decisions taken by the Indian judiciary assure that it is taking a pro-arbitration approach. Meanwhile all these latest developments have led the way demanding for the transforming laws to allow or let the foreign lawyers to participate in arbitration in India. There have not been any recent changes made regarding this matter. However, if the foreign lawyers are permitted to participate in India then it will be highly preferable and will also lead to a rise in competition in this field. [3] (Sewlikar, 2014)
Thus, it becomes clear that the international commercial arbitration in India has undergone a major transformation in the previous years which will continue to do so. This productive trend has to be pursued to make sure that India becomes a global hub for arbitration.
Key Elements of an Arbitration Agreement:
The key elements of an Arbitration Agreement are as follow:
a. Consent: – Consent of the parties is necessary for an arbitration to take place. This consent is included within an arbitration agreement. It clearly specifies the desire or the want of the parties to arbitrate their dispute. This agreement is in the form of a binding contract. Arbitration agreement is dealt under section 7 of the Act. The section states that the arbitration agreement is an agreement by the parties to submit all the disputes which has arose out of the contractual or legal relationship between the parties.
b. Presiding Authority – The dispute is adjudicated by the authority known as the arbitral tribunal. It is equivalent or corresponding to a judge that manages over a court of law. The arbitrator is the presiding authority who is responsible for deciding the disputes between the parties. An arbitrator has several responsibilities set out in the code similar to that of a judge. The arbitrator is under an oath to perform its duties who is bound to take decisions and conduct proceedings in an unbiased manner. The important features of an Arbitration Agreement are that the parties are free to choose their presiding authority. The Act also has laid down the provisions for the removal of arbitrators in case they are found guilty of being biased.
c. Judicial Seat of arbitration – The judicial seat of arbitration decides the courts which would exercise jurisdiction over the arbitration proceeding. In the absence of such an agreement, the 1996 Act merely operates within the territory of India.
d. Party autonomy and procedure – Arbitration gives the parties the choice to select applicable laws, especially in case the arbitration is an international commercial arbitration. In there is a wide flexibility to make the choice of the appliable procedure. The Rules of the arbitration can be self – governed such that the said rules have to be in the spirit of Public Interest of India.
e. Finality of outcome – There stands no appeal against an arbitral award. In case if the award suffers from an invalid arbitration agreement, party’s incapacity to enter into an agreement, independence and impartiality of an arbitrator, unfair procedure, etc.; then in such a case it can be set aside. [4] (Gupta, 2020)
In one of the landmark cases of Mother Boon Foods Pvt Ltd v. Mindscape One Marketing Pvt Ltd O.M.P, the Court held that an arbitration agreement according to the 1996 Act, has to be in writing. Since the arbitration clause which is a part of the contract is in writing it need not be replaced by an oral demand or agreement.
Key Elements of an Arbitration Procedure
As the already mentioned key elements of the agreement states that the parties have the right to make a choice on the procedure and the persons as to who would act as arbitrators in their dispute. But this right of choice is not absolute and is subject to certain limitations. There are two aspects to appointment, namely number of arbitrators, and the actual procedure of appointment. Many aspects have to be kept in mind while appointing the arbitrators such as the fees of the arbitrators, time required for meetings, complexity of the matter, duration of sessions when oral arguments would be made, etc. An arbitration of more than two arbitrators results in greater discussions which can improve the quality of awards as well as greater expertise. The India arbitration is governed by the Arbitration and Conciliation Act, 1996 read along with the Indian Contract Act, 1872. These Acts together provide the legal framework governing and regulating arbitration in India.
Since the arbitrators cannot act beyond their powers (ultra – vires) under the code, the act has set up a higher authority to keep checks and balances on the practices of the Alternate Dispute Resolution. The Courts have been defined in the act as they are required to performs several important functions for setting up this institution. The Court performs the Supervisory function of arbitration which includes granting of interim measures, challenge to an arbitral tribunal, review of an award, and enforcement of awards, etc. In several occasions if one party nominates the name of an Arbitrator, the opposite party fails to comply in appointing one at its end. This is when the Supreme Court and High courts are endowed with the task of appointing an arbitrator who is best suited for the dispute in hand. The code necessitates that the Supreme Court has the authority for appointment of an arbitrator in cases of international commercial arbitration, whereas the authority for the appointment of an arbitrator in cases of domestic arbitrator is vested with the High Court. The Act authorizes any person or institution so appointed by the Supreme and High Court to appoint the arbitrators. [5] (Domke, 2019)
Key elements of an Award
An arbitral award is equivalent to that of a judgment given by a court of law. An arbitral award is given by the arbitral tribunal as a decision on the various issues placed before the tribunal by the parties. There are several types of awards namely the final award, interim award and the settlement award. A settlement award is a non-appealable award as it is reached by the agreement amongst the parties. There are certain requirements prescribed by the Arbitration and Conciliation Act, 1996 for an arbitral award which are as follows:
a. The decision must be made by the majority.
b. The award must be made in writing, signed and dated.
c. The award must be reasoned.
d. The award must be capable of being performed.
In the case of Ravindra Kumar Gupta & Co. v. Union of India, it is restated that the review of the evidence by the Court is prohibited. When the reasons have been given by the arbitrator in making the award, the court cannot examine the suitability of the reasons. If the parties have selected their own forum, the deciding forum must be given or granted the power of evaluation of the evidence. The arbitrator is the sole judge who decides the quality as well as the quantity of evidence and the authority doesn’t fall on the court. [6] (Sewlikar,2014)
Key elements of an Appeal
The Act has provisions for setting aside of an arbitral award by the court. An award can be set aside by the court when the party is under an incapacity; when the arbitration agreement is invalid; due to the lack of notice of appointment of arbitrator; the composition of the arbitral tribunal is not in accordance with the agreement; when the subject matter is beyond the scope of submission of arbitration or if the award is in conflict with public policy. The improbable challenges to be considered by the courts are that the arbitral tribunal is either favoring or is biased in favor of one of the parties. Such a challenge should be first at the first instance of its knowledge coming to the parties. An appeal can be made to the court by the parties involved in a dispute for establishing the vested interest of the arbitrator.
In the case of Hemadari Cements Pvt. Ltd. v. Walchandnagar Industries Ltd, the petitioners filed for an arbitration to set aside an award under Section 34 of the Act stating that it is an unreasoned award and is liable to be set aside according to the provision of section 31(1) of the Act. The court held that an award is liable to be set aside even if it is valid. [7](Gupta, 2020)
International Arbitration
Contentions between sovereign states which are not resolved by the diplomatic negotiation or conciliation are often regarded by the agreement of both parties to the decision of a third unbiased party, who arbitrates the dispute with binding force upon the debating parties. Such kind of arbitration between states has a long history. It was used between the city-states in ancient Greece & in the Middle Ages, where the pope often acted as the sole arbitrator. [8] (Domke, 2019)
Arbitration provisions of international treaties
The Geneva General Act for the Settlement of Disputes of 1928 which was adopted by the League of Nations and reactivated by the UN General Assembly in 1949 is one of the multilateral treaties that has provision for the settlement of international disputes by arbitration. This act provides for the settlement of various disputes, after several unsuccessful efforts at conciliation, by an arbitral tribunal of five members. Some of the other treaties are the General Treaty of Inter-American Arbitration which was signed in Washington, D.C., in 1929, and the American Treaty on Pacific Settlement of Disputes which was signed in Bogotá, Colom., in 1948. The European Convention for the Peaceful Settlement of Disputes (1957) was adopted by the Council of Europe. The Covenant of the League of Nations mentioned that Arbitration is a proper method of to settle disputes between the countries in the Charter of the United Nations.
The UN’s International Law Commission submitted to the General Assembly in 1955 a Convention on Arbitral Procedure. Its model rules would not become binding on any UN member-state unless they were accepted by a state in an arbitration treaty or in a special arbitral agreement. However, the model rules were not adopted in any arbitration arrangement between disputant governments, though in 1958 the General Assembly recommended the model rules for use by member-states when appropriate. It seems clear that states prefer flexibility in the resolution of their disputes by arranging the rules and proceedings of an arbitration according to circumstances. [9] (Sewlikar, 2014)
There are great impediments to the acceptance of international arbitration, especially in cases in which disputes between governments and foreign private parties are involved. In such cases the state will often insist that its own local remedies—administrative and court proceedings—have been exhausted. Generally, the government of the national who advances a claim against a foreign government will require evidence that the injured party has pursued all remedies in the foreign country before it presses a claim for international negotiation and adjudication. Contracting parties may agree in their contract that they need not exhaust local remedies before resorting to arbitration. The Convention on the Settlement of Investment Disputes (1965) states:
Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.
The arbitration agreement in a general multilateral treaty, a bilateral convention, or a specific contractual arrangement between two states often does not deal with particulars, such as the selection and appointment of the arbitrators, the procedure to be followed in the arbitration, the subject matter of the dispute, the specific issues to be submitted, the presentation of evidence, the place of the hearings, the law to be applied by the arbitrators, and the time when the award has to be rendered. These questions usually are dealt with in a compromise, a submission agreement between the parties to the dispute. If the compromise fails in some particular (e.g., to define the applicable law), the arbitrator generally applies the relevant principles of international law.
An award rendered by an arbitral tribunal is customarily complied with by states. In fact, unless a state is prepared to comply with an adverse decision, it generally will not submit the dispute to arbitration. The difficulties in the use of international arbitration thus consist less in the enforcement of arbitral awards than in persuading states involved in disputes to submit them to arbitration. [10] (Domke, 2019)
International commercial arbitration
International commercial arbitration between the traders of different countries has long been acknowledged by the business community and the legal profession as an appropriate means of settling the trade disputes out of the court. The procedures in both the international commercial arbitration and the domestic arbitration is basically the same. During the1960s, for the purpose of establishing more uniformity in procedure and to make arbitration facilities more easily accessible, the United Nations economic commissions published new rules applying to the international arbitration for Europe and Asia.
The development of the international commercial arbitration was facilitated by the uniform arbitration legislation prepared by the UN Conference on International Commercial Arbitration in the year 1958 and by the Inter-American Juridical Committee of the Organization of American States & the Council of Europe. One of the major difficulties of the international commercial arbitration is the implementation of awards in a country apart from the one in which they were provide. Statutory municipal laws usually do not contain provisions for the implementation of foreign awards and the parties face uncertainty about the law and practice of enforcement system in a country apart from their own.
International agreements support the enforcement of foreign awards to the extent that no further action is necessary in the country in which the award was given or provided. The opposing debtor must establish that the award has been set aside or that its effects have been suspended by a competent authority, which thereby shifts the burden of proof of the invalid nature of the award to the losing party. The UN Commission on International Trade Law has encouraged the additional development of international commercial arbitration which aims at encouraging the harmonization and consolidation of laws in the field of international commercial arbitration. [11] (Domke, 2019)
Conclusion
In the recent times, there has been an enormous increase in the international dealing and contracts as a result of which there is an increase in the disputes concerning to the international arbitration. Thus, Arbitration is a process which helps to settle the disputes between two parties by appointing an arbitrator to get a conclusive solution. This arbitration method is one of the most convenient, easy and less costly ADR methods. This article deals with all the major aspects of arbitration from its essential elements, procedures, arbitral award as well as the appeal which can be made. Thus, to conclude, this is a reforming method and subsequent amendments are made to this arbitration method each year.
References
Domke, M. (2019, December). Arbitration – International arbitration. Encyclopedia Britannica. https://www.britannica.com/topic/arbitration/International-arbitration
Gupta, V. (2020, April 24). Arbitration: A Perspective – Litigation, Mediation & Arbitration – India. www.Mondaq.Com; Khurana and Khurana. https://www.mondaq.com/india/arbitration-dispute-resolution/935374/arbitration-a-perspective
Sewlikar, A. (2014, May 30). The Changing Contours of Indian Arbitration Law – A Sign of Times to Come? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2014/05/30/the-changing-contours-of-indian-arbitration-law-a-sign-of-times-to-come/
Frequently Asked Questions (FAQ’s)
- What is Arbitration?
- How has India taken the pro-arbitration approach?
- What is an International Arbitration?
- What are the Arbitration provisions of International treaties?
- What is the Relevance of International Commercial Arbitration?
[1] Domke, M. (2019, December). Arbitration – International arbitration. Encyclopedia Britannica. https://www.britannica.com/topic/arbitration/International-arbitration
[2] Sewlikar, A. (2014, May 30). The Changing Contours of Indian Arbitration Law – A Sign of Times to Come? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2014/05/30/the-changing-contours-of-indian-arbitration-law-a-sign-of-times-to-come/
[3] Sewlikar, A. (2014, May 30). The Changing Contours of Indian Arbitration Law – A Sign of Times to Come? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2014/05/30/the-changing-contours-of-indian-arbitration-law-a-sign-of-times-to-come/
[4] Gupta, V. (2020, April 24). Arbitration: A Perspective – Litigation, Mediation & Arbitration – India. www.Mondaq.Com; Khurana and Khurana. https://www.mondaq.com/india/arbitration-dispute-resolution/935374/arbitration-a-perspective
[5] Domke, M. (2019, December). Arbitration – International arbitration. Encyclopedia Britannica. https://www.britannica.com/topic/arbitration/International-arbitration
[6] Sewlikar, A. (2014, May 30). The Changing Contours of Indian Arbitration Law – A Sign of Times to Come? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2014/05/30/the-changing-contours-of-indian-arbitration-law-a-sign-of-times-to-come/
[7] Gupta, V. (2020, April 24). Arbitration: A Perspective – Litigation, Mediation & Arbitration – India. www.Mondaq.Com; Khurana and Khurana. https://www.mondaq.com/india/arbitration-dispute-resolution/935374/arbitration-a-perspective
[8] Domke, M. (2019, December). Arbitration – International arbitration. Encyclopedia Britannica. https://www.britannica.com/topic/arbitration/International-arbitration
[9] Sewlikar, A. (2014, May 30). The Changing Contours of Indian Arbitration Law – A Sign of Times to Come? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2014/05/30/the-changing-contours-of-indian-arbitration-law-a-sign-of-times-to-come/
[10] Domke, M. (2019, December). Arbitration – International arbitration. Encyclopedia Britannica. https://www.britannica.com/topic/arbitration/International-arbitration
