The slow speed of trial and huge pendency of cases led the people to an altogether new era of Alternative Dispute Resolution. Under this, the disputes are settled outside the boundaries of the court with the mutual consent of the parties. The most renowned and widely used alternative dispute mechanism is the technique of “Arbitration”.
In this article, we will explore the meaning of arbitration and the entire procedure governing it.
Meaning of Arbitration
It refers to that procedure in which the dispute between the parties is resolved by an independent person known as an Arbitrator. The decision or award by the arbitrator is legally binding and can be enforced in the courts.
Procedure of Arbitration
In India, Arbitration and Conciliation Act, 1996 governs the entire arbitration procedure in India which involve the following steps –
The arbitration clause in the agreement
It is a common practice in the growing commercial sector that the parties generally put an arbitration clause in the agreement for amicable settlement of disputes. However, in the absence of an arbitration clause, the parties can make a written arbitration agreement later on. while drafting the clause or the entire arbitration agreement, it is very essential that the parties forecast all the disputes that may arise in the near future. The agreement shall not be vague and all the necessary terms and conditions shall be included in it.
In an arbitration agreement, some ingredients hold special importance which are –
The term “seat” refers to that place where the final arbitration award will be issued. This clause is very important as the rules of arbitration tend to differ from jurisdiction to jurisdiction. Thus, the seat determines the law which will be applicable to the agreement.
The term revenue refers to that place wherein the parties of arbitration meet with each other. This term holds special importance when the arbitration is conducted under an institutional arbitration.
It is a matter of practice that the cost of arbitration is borne by both parties. However, the court may order that arbitration expenses shall be reimbursed to the bona fide party while giving the arbitral award.
- Notice of Arbitration
As per Section 21 of the Arbitration and Conciliation Act, 1996, it is essential that the aggrieved party sent an arbitration notice to the defendant party before the commencement of the arbitration proceedings. The main objective of sending the notice is that the defendant must know the grounds or reasons for the claims. After receiving the notice, the defendant filed a reply wherein it may suitably oppose or partially accept the claim raised by the other party. Recently, the Delhi H.C in the matter of Alupro Buildings Systems Pvt Ltd Vs. Ozone Overseas Pvt Ltd held that the notice of arbitration under section 21 of the Act is mandatory before starting the process.
- Appointment of Arbitrator
The appointment of Arbitrator is governed by section 10 of the Arbitration and Conciliation Act, 1996. As per the section, the parties in the agreement can appoint the arbitrator with mutual consent. It is important to note that the number of arbitrators can be more than one but the bench strength shall not be in even number. However, if the parties are unable to appoint with mutual consent, then they can approach the arbitration tribunal in the next 30 days which can appoint a sole arbitrator for the process.
- The Claim and Defense Statement
After appointing the arbitrator, both the parties are required to submit their statement of claim within the next 6 months. This statement is required as per Section 23 of the Arbitration and Conciliation Act, 1996. In the statement, both the parties should state all the facts, the issue at hand, and lastly the remedy sought by them. It is also important to note that the parties are required to submit all the necessary documents supporting their case along with the statement.
- Hearing Stage
These are the following steps involved in the process of hearing –
- Preliminary or pre-hearing Stage -The preliminary hearing stage starts when the arbitrator was called upon by the parties to fix a schedule. After that, a preliminary meeting takes place wherein the issues are discussed and the parties exchange their information. During this meeting, the date of the next hearing is also fixed.
- Hearing stage – During this process, an actual hearing takes place wherein the parties present their case before the arbitrator. The hearing can take place physically or by any other electronic medium. During the process, the arbitrator is also empowered to issue interim orders.
- Issuance of Award – When the hearing gets completed after the submission of both the parties, the arbitrator fixes a date to issue the arbitral award. The award can be either monetary or nonmonetary in nature. The nonmonetary award can be in the form of employment incentives or restraining the company from doing a particular task. This written award is sent to all the concerned parties.
Type of Arbitration award
The arbitration award are of mainly two types namely –
1- Interim Award – As the name suggests, this is a temporary award that is given by the arbitrator during the procedure itself. This award can only be given by that tribunal that possesses the authority to issue the final award. This award is generally given for the repayment of money or making a payment for bearing the cost of the proceedings.
2- Final award – This is the award or the order which is given by the arbitrator after the completion of the proceedings. While issuing the award, the arbitrator states the reason or the legal points involved in the decision-making process. The final award is signed by the arbitrator and both parties.
3- Challenging the Arbitral Award- After the issuance of the final award, the other party has the right to challenge it within the next 90 days. In the meantime, the party in whose favor the decision is taken also needs to wait as it can’t enjoy the award.
Section 34 of the Arbitration and Conciliation Act, 1996 states certain grounds on which the award can be set aside. These grounds are as follows
1). The parties were incompetent to enter into a contract.
2). The contract of arbitration doesn’t have validity in the eyes of the law on account of unlawful objectives or lack of consideration.
3) when the arbitrator is not independent.
4). When the point at which the arbitral award is given, falls outside the purview of the Arbitration and Conciliation Act, 1996.
The limitation period in Arbitration Proceedings
The Limitation Act, 1963 is applicable to the Arbitration and Conciliation Act, 1996. It states that the proceedings must be commenced within 3 years from the cause of action. If the party failed to initiate proceedings within the 3 years, then the proceedings will be time-barred and they will not be maintainable.
Enforcement of Foreign Arbitral Award
The enforcement of foreign awards is mainly based on the New York Convention and the Geneva Convention. These conventions are based on the principle that there shall be an efficient dispute resolution mechanism at both the domestic and international levels. In India, Section 44 to 52 of Arbitration Amendment Act, 2015 deals with the foreign award mentioned in the Newyork convention. The Geneva Convention is dealt with in Section 53 to 60 of the same act. Further, Indian Arbitration law is based on the UNCITRAL model of law which further promotes arbitration on the international level.
Arbitration is the most commonly resorted dispute resolution mechanism which starts with the drafting of a suitable arbitration clause. The principle of party autonomy is evident throughout the process. The process involves sending the notice, submission of claims, stage of the hearing, and lastly the arbitral award issued by the arbitrator. In India, Arbitration laws are suitably amended in the last couple of years to ensure the foreign arbitration is promoted and investors feel our country secured in the manner of investment.