Law of Arbitration in India – Introduction and Key Components

All You Need To Know About Alternate Dispute Resolution (ADR) and Its Components

Introduction

With the massive increase in transnational & Domestic transactions, trade & Commerce there has been an inevitable increase in disputes, realizing the nature of these disputes which are majorly commercial/Civil in nature, and realizing that in Commercial disputes the parties want to reach an amicable solution as soon as possible as time is of the essence, this leads the parties to take help of Law of Arbitration to form and insert an Arbitration Clause in their Contract/Agreement because of it being Time & Cost Efficient, Flexibility, Privacy, Impartiality & Finality. Alternate Dispute Resolution includes Mediation, Negotiations, Conciliations, Lok Adalat & Arbitration. Arbitration which has Gained much preference & traction over the years and for all the rights reasons has been a Popular Choice to resolve disputes but still struggling to attain full autonomy from Judicial Interference. Now for this article, let’s understand what is Arbitration. & what are the key components of Arbitration?

Arbitration is a non-judicial & private way of settling disputes between parties, who by the consent of both parties appoint a neutral third party, the Neutral third party will then after hearing both sides give an award and this award will be the final & Binding on both the parties which can only be challenged on certain grounds Given under Section 12. The Arbitration & Conciliation Act 1996 (hereinafter referred to as “The Act”) has been legislated according to the UNCITRAL Model Law which not only includes Domestic laws Explaining the arbitration procedure in Part I of the act but also includes the Procedural aspect of International Arbitration in Part II. An Appointed Arbitrator can be a Sole Arbitrator or a board of Arbitrators of odd numbers Under Section 10 of the Arbitration and Conciliation Act 1996. Unless there is a Clause for Arbitration or Agreement-specific requirement for settling the dispute through Arbitration, the matter has to be settled by the Court of law of the respective jurisdiction. What is also so unique to Arbitration is the fact that even after the contract between the disputed parties has been declared null & avoided it doesn’t affect the Arbitration clause because it is to be treated as an Independent Clause from other terms of the contract which is mentioned under Section 16 of Arbitration and Conciliation Act 1996.  

Greater Autonomy with the Parties 

Unlike in Litigation, only after the consent of both parties the matter can go to Arbitration and not only this both parties have the autonomy to decide who will the Arbitrator, the venue of the arbitration, the seat of the Arbitration, the time, the language in which the whole process will be conducted in. This greater autonomy however doesn’t ensure the finality of the award as one side of the party can still challenge the award but only on certain grounds given under Section 34 of the said Act however, parties can feel that every decision which they possibly can has been made by them and the only thing left to do is present their matter. This also gives flexibility to them in that they choose the time and place according to their schedule so that the hearing doesn’t get delayed due to any unavailability of any of the parties. 

Types of Arbitration

There exist three types of Arbitration majorly which are as follows: 

1. International Commercial Arbitration 
2. Institutional Arbitration
3. Ad-hoc Arbitration 
4. Emergency Arbitration

International Commercial Arbitration

International Commercial Arbitration is a kind of Arbitration which are invoked when a dispute between two parties arises, out of a Contract of a commercial nature and one of the parties of the dispute resides in a foreign land or is incorporated/ managed or controlled by foreign laws when we read the Section 2(1)(f) of the Act we get a clear understanding of what is International commercial arbitration, but what is also noteworthy is that if the arbitration due to a dispute between two parties such as mentioned previously occurs in India it would be governed under the laws mentioned in the Part I of the act but if the arbitration takes places outside of India it would be not be governed by any law mentioned in the said act.

Institutional Arbitration 

Institutional Arbitration is where the whole arbitration process is undertaken by a certain institution of your choice what this does is, if the parties to a dispute are unable to arrive at a consensus on appointing an arbitrator the institution would do that for you, and also the case may be that the whole arbitration process is undertaken according to the particular rules farmed by the institution of your choice. Some of the most renowned and prominent institutions around the world are:

1. International Chamber of Commerce (ICC)
2. Stockholm Chamber of Commerce Arbitration Institute (SCC)
3. Swiss Chambers’ Arbitration Institution (SCAI)
4. The International Centre for Dispute Resolution (ICDR), in the international branch of the American Arbitration Association (AAA)

Ad hoc Arbitration 

Ad hoc arbitration is a bit less expensive than institutional arbitration, as you don’t have to pay institutional fees, and is also more flexible which is to say that you can agree to conduct the arbitration according to the existing ad hoc UNCITRAL mode law on arbitration rules. However, there also exists the risk of parties not cooperating by way of delaying the hearing by not appearing or refusing to appoint their own choice of arbitrator which can in a worse situation also derail the whole process of arbitration. Whereas, in institutional arbitration, this sort of excuse to derail the process cannot be there. 

Emergency Arbitration 

Sometimes what can happen in complex commercial cases is that arbitration can take a lot of time and for commercial matters time is money. So urgent interim relief becomes the last straw of hope for the aggrieved parties in a dispute. Law Commission in its 246th report recommended amendments to section 2(1)(d) which is “arbitral tribunal” to also include Emergency arbitrator could not be followed and passed in parliament. The Supreme Court held that reliance could not be placed on such aspects and the development of law by courts could not be thwarted merely because Parliament did not incorporate a certain recommendation of the Law Commission.  In Raffles Design International India vs Educomp Professional Education, the Delhi High Court had to consider directions passed by an emergency arbitrator in a Singapore-seated arbitration. The directions were sought to be enforced through an application filed under section 9 of the A&C Act. The Court did not, at any stage, question the legal status of the emergency arbitrator. However, the Court was conscious of the legal position that, under Part II of the A&C Act, interim orders could not be enforced. Importantly, the Court stated that parties had to take recourse to section 9 of the A&C Act as the order passed by the emergency arbitrator could not be enforced under section 17 of the A&C Act, as section 17 was not available in a foreign-seated arbitration. This was on account of the scheme of the A&C Act that creates different regimes for India-seated and foreign-seated arbitrations – and not because the order was an order of an emergency arbitrator. Thus, by implication, the Court equated the order of a foreign-seated emergency arbitrator with interim measures of a foreign-seated arbitral tribunal. 

Arbitrable & non-arbitrable matters

Section 2(3) of the said act has some ambiguity in explaining what matters are Arbitration as there is nowhere in the act mentioned what nature of cases can’t go for arbitration. Therefore, this is upon the judiciary to interpret which cases are arbitrable. One of the first landmark cases in determining which cases are arbitrable is Booz-Allen & Hamilton Inc vs Sbi Home Finance Ltd. & Ors which laid down a test to determine the nature of the dispute to decide if the case is arbitrable or not, which can be gauged from the nature of the rights which have been violated in the dispute lets suppose one of the disputes one of the parties is alleging violation of ‘right in rem’ i.e., a person’s right against the world then it these kinds of cases cannot go for arbitration but if the case is of ‘right in personam i.e., rights against specific individual then the case can go for arbitration. The supreme court then also went one step further and gave six categories of matters which are not arbitrable in nature which are as follow: 1) Insolvency Matters. 2) Criminal matters. 3) Matrimonial Matters. 4) Guardianship matters. 5) Eviction matters. 6) testamentary matters. 

But this Booz-Allen case was before the landmark judgment of Vidya Drolia vs Durga Trading Corporation in this present case the supreme court was reviewing an order given by the Calcutta high court of appointing an arbitrator in a tenancy matter under section 11 of the said act, though the question in this particular case was only restricted to whether the tenancy matters are arbitrable or not but the supreme court considering the still much confusion on the matter of arbitrability decided to give clarify the much confusion on the matter. Supreme court then gave four-fold test on deciding when the subject matter is not arbitrable. These are as follows: 

1. When the cause of action of the dispute related to ‘right in rem’ 
2. In any way whatsoever affects the rights of the third party and also has an effect of “erga omnes” i.e., meaning ‘towards all’ when there is a duty towards all per se that is also when the matter can go for arbitration.
3. When the dispute involves inalienable sovereign and public interest functions of the state
4. Or when any statute or law expressly prohibits or bars arbitration for the process of resolving the matter. 

Any disputes which related to any or all of the above characteristic it would render the dispute as non-arbitrable in nature.

 Conclusion 

Arbitration has emerged and will continue to do so as a dispute resolution forum by disputed parties for all the right reasons, it not only lowers the burden of the court but also provides relief to the aggrieved party in a swift manner and also in most cases doesn’t leave out room for questioning the authority for biasness as the parties choose the arbitrator itself. It becomes pertinent for us to look forward to this method of resolving disputes and ensure the many changes in the society is taken into account by the amendments in the Arbitration & conciliation act 1996.