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1. INTRODUCTION
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. Its principal characteristics are: Arbitration is consensual Arbitration can only take place if both parties have agreed to it. In the case of future disputes arising under a contract, the parties insert an arbitration clause in the relevant contract. An existing dispute can be referred to arbitration by means of a submission agreement between the parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration. The parties choose the arbitrator(s) The parties can select a sole arbitrator together. If they choose to have a three- member arbitral tribunal, each party appoints one of the arbitrators; those two persons then agree on the presiding arbitrator. Alternatively, the Court can suggest potential arbitrators with relevant expertise or directly appoint members of the arbitral tribunal. The Court maintains an extensive roster of arbitrators ranging from seasoned dispute-resolution generalists to highly specialized practitioners and experts covering the entire legal and technical spectrum of intellectual property.
Arbitration is neutral In addition to their selection of neutrals of appropriate nationality, parties are able to choose such important elements as the applicable law, language and venue of the arbitration. This allows them to ensure that no party enjoys a home court advantage. Arbitration is a confidential procedure The decision of the arbitral tribunal is final and easy to enforce
2. BACKGROUND TO ARBITRATION LEGISLATION: The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996 (Act).1 The Act is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules
- The Statement of Objects and Reasons of the Act recognises that India’s economic reforms will become effective only if the nation’s dispute resolution provisions are in tune with international regime. The Statement of Objects and Reasons set forth the main objectives of the Act as follows: “i) to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation; ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration; iii) to provide that the arbitral tribunal gives reasons for its arbitral award;
The more significant provisions of the Act are to be found in Part I and Part II thereof. Part I contains the provisions for domestic and international commercial arbitration in India. All arbitration conducted in India would be governed by Part I, irrespective of the nationalities of the parties. Part II provides for enforcement of foreign awards. Part I is more comprehensive and contains extensive provisions based on the Model Law. It provides inter alia for arbitrability of disputes; non-intervention by courts; composition of the arbitral tribunal; jurisdiction of arbitral tribunal; conduct of the arbitration proceedings; recourse against arbitral awards and enforcement. Part II on the other hand, is largely restricted to enforcement of foreign awards governed by the New York Convention or the Geneva Convention. Part II is thus, (by its very nature) not a complete code. Hence by judicial innovation, the Supreme Court extended applicability of the general provisions of Part I to off-shore arbitrations as well. It may be stated that this was premised on the assumption that the Indian Court would otherwise have jurisdiction in relation to the matter (in the international sense). Here the Court’s assistance was sought for appointing an arbitrator in an offshore arbitration. The power of appointment by court exists under Section 11 of Part I of the Act. The Court declined to exercise jurisdiction. It found that the arbitration was to be conducted in New York and that the law governing the arbitration proceedings would be the law of seat of the arbitration. Hence, the
extension of Part I provisions to foreign arbitrations sanctified by Bhatia could not be resorted to in every case. The Indian Courts would have to first determine if it has jurisdiction, in the international sense.
4. ARBITRATION AGREEMENT 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). Generally, matters covered by statutory reliefs through statutory tribunals would be non-arbitrable. 5. FINALITY & ENFORCEMENT OF ARBITRAL One of the fundamental features of the Act is that the role of the court has been minimised. Accordingly, it is provided that any matter before a judicial authority containing an arbitration agreement shall be referred to arbitration (Section 8 provided the non - applicant objects no later than submitting its statement of defense on merits). Further, no judicial authority shall interfere, except as provided for under the Act (Section 5).
party at the first instance, i.e., either prior to or along with the filing of the statement of defence. If the plea of jurisdiction is rejected, the arbitrators can proceed with the arbitration and make the arbitral award. Any party aggrieved by such an award may apply for having it set aside under Section 34 of the Act. Hence, the scheme is that, in the first instance, the objections are to be taken up by the arbitral tribunal and in the event of an adverse order, it is open to the aggrieved party to challenge the award. In SBP & Co. v. Patel Engg Ltd.8 the Supreme Court of India (in a decision rendered by a Bench of Seven Judges) held that the nature of power conferred on the Court under Section 11 of the Act is judicial (and not administrative) in nature. Accordingly, if parties approach the Court for appointment of arbitral tribunal (under Section 11) and the Chief Justice pronounces that he has jurisdiction to appoint an arbitrator or that there is an arbitration agreement between the parties or that there is a live and subsisting dispute to be referred to arbitration and the Court constitutes the Tribunal as envisaged, this would be binding and cannot be re-agitated by the parties before the arbitral tribunal. In S.B.P & Co. case the Supreme Court has defined what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. The Chief Justice has the power to decide his own jurisdiction in the sense whether the party making the motion has approached the right court. He has to decide whether there is an arbitration agreement, as defined in the Act
and whether the person who has made the request before him, is a party to such an agreement. He can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. The Court in SBP & Co case, inter alia, concluded as follows: (i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power. (ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court. (iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute. (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the judgment. These will be, his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief
furnishing grounds for challenge. Further, subject to the parties agreement, it is the arbitral tribunal (and not the court - unlike under the old Act of 1940) which shall decide on the challenge. If the challenge is not successful the tribunal shall continue with the arbitral proceedings and render the award, which can be challenged by an aggrieved party at that stage. This is another significant departure from the Model Law, which envisages recourse to a court of law in the event the arbitral tribunal rejects the challenge. The Indian courts have held that “the apprehension of bias must be judged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person.Vague suspicions of whimsical, capricious and unreasonable people are not our standard to regulate our vision.”
8. CONDUCT OF ARBITRATION PROCEEDINGS The arbitrators are masters of their own procedure and subject to parties agreement, may conduct the proceedings “in the manner they consider appropriate.” This power includes- “the power to determine the admissibility, relevance, materiality and weight of any evidence”. The only restrain on them is that they shall treat the parties with equality and each party shall be given a full opportunity to present his case, which includes sufficient advance notice of any hearing or meeting. Neither the Code of Civil Procedure nor the Indian Evidence Act applies to arbitrations. Unless the parties agree otherwise, the tribunal shall decide whether to hold oral hearings for the presentation of
evidence or for arguments or whether the proceedings shall be conducted on the basis of documents or other material alone. However, the arbitral tribunal shall hold oral hearings if a party so requests (unless the parties have agreed that no oral hearing shall be held). Arbitrators have power to proceed exparte where the respondent, without sufficient cause, fails to communicate his statement of defence or appear for an oral hearing or produce evidence. However, in such situation the tribunal shall not treat the failure as an admission of the allegations by the respondent and shall decide the matter on the evidence, if any, before it. If the claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to terminate the proceedings.
9. TAKING OF EVIDENCE IN ARBITRAL PROCEEDINGS The Indian Oath’s Act 1969 extends to persons who may be authorized by consent of parties to receive evidence. This Act thus, encompasses arbitral proceedings as well. Section 8 of the said Act states that every person giving evidence before any person authorized to administer oath “shall be bound to state the truth on such subject.” Thus, witnesses appearing before an arbitral tribunal can be duly sworn by the tribunal and be required to state the truth on oath and upon failure to do so, commit offences punishable under the Indian Penal Code. However, the arbitrators cannot force unwilling witnesses to appear before them and for this court’s assistance is provided for vide Section 27 of the Act. Under this provision the arbitral tribunal or a party with the approval of the
however, (i.e., between Indian parties), the tribunal is required to decide the dispute in accordance with the substantive laws of India. The Supreme Court in TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd. held that irrespective of where the ‘central management and control is exercised’ by a company, companies incorporated in India, cannot choose foreign law as the governing law of their arbitration. The nationality of companies incorporated in India being Indian, the intention of the legislature is that Indian nationals should not be permitted to derogate from Indian law as it would be against public policy. The Court was of the view that "international commercial arbitration" meant an arbitration between parties where at least one of it is a body corporate incorporated in a country other than India. Where both companies are incorporated in India (and thereby had Indian nationalities), then the arbitration between them cannot be said to be an international commercial arbitration (even though the central management and control of the company may be exercised from a country other than India). 11.FORM AND CONTENT OF AWARD The arbitrators are required to set out the reasons on which their award is based, unless the parties agree that no reasons are to be given or if it arises out of agreed terms of settlement. The tribunal may make an interim award on matters on which it can also make a final award. Indian law provides for a very healthy 18% interest rate on sums due under an award. Thus, unless the arbitral tribunal
directs otherwise, the award will carry interest at 18% per annum from the date of the award till the date of payment. The tribunal is free to award costs, including the cost of any institution supervising the arbitration or any other expense incurred in connection with the arbitration proceedings. 12.SETTING ASIDE OF AWARDS The grounds for setting aside an award rendered in India (in a domestic or international arbitration) are provided for under Section 34 of the Act. These are materially the same as in Article 34 of the Model Law for challenging an enforcement application. An award can be set aside if: a) a party was under some incapacity; or b) the arbitration agreement was not valid under the governing law; or c) a party was not given proper notice of the appointment of the arbitrator or on the arbitral proceedings; or d) the award deals with a dispute not contemplated by or not falling within the terms of submissions to arbitration or it contains decisions beyond the scope of the submissions; or e) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or f) the subject matter of the dispute is not capable of settlement by arbitration; or g) the arbitral award is in conflict with the public policy of India. A challenge to an award is to be made within three months from the date of receipt of the same. The courts may,
enforced but it cannot be set aside. This fundamental distinction between a foreign and a domestic award has been altered by the Supreme Court in the recent case of Venture Global Engineering v. Satyam Computer Services Ltd. (Venture Global). The Venture Global case is far reaching for it creates a new procedure and a new ground for challenge to a foreign award (not envisaged under the Act). The new procedure is that a person seeking to enforce a foreign award has not only to file an application for enforcement under Section 48 of the Act, it has to meet an application under Section 34 of the Act seeking to set aside the award. The new ground is that not only must the award pass the New York Convention grounds incorporated in Section 48, it must pass the expanded “public policy” ground created under Section 34 of the Act. In practice, the statutorily enacted procedure for enforcement of a foreign award would be rendered superfluous till the application for setting aside the same (under Section 34) is decided. The statutorily envisaged grounds for challenge to the award would also be rendered superfluous as notwithstanding the success of the applicant on the New York Convention grounds, the award would still have to meet the expanded “public policy” ground (and virtually have to meet a challenge to the award on merits). 13.CONCLUSION India has in place a modern, an efficient Arbitration Act. There have been some decisions which are not in tune with the letter or spirit of the Act. Hopefully,
these would be addressed by the judiciary in the near future and continuing popularity of arbitrations would be served by a truly efficient ADR mechanism.
