Essay: Arbitration

ABSTRACT

Arbitration is a form of alternative dispute resolution method which is a technique used legally for the resolution of disputes between parties outside the courts in private. Arbitration has emerged as an effective form of dispute resolution. The medium of arbitration has proved to be a quick and practical settlement for cross-border disputes, especially in cases wherein the parties are from different socio-cultural and political backgrounds. This is mainly because of the presence of a neutral third party in the dispute resolution process and other considerations such as the requirement of expertise over the relevant subject matter etc. The foremost pillar of any arbitration process is the disputing party submitting themselves to the process and relying upon the fair judgement of the appointed arbitrating agency or individual. This article describes the history and features of arbitration in India. Arbitration in modern times is an efficacious alternative dispute resolution technique in business community vis-à-vis conventional mechanism of court litigation. Knowledge and exposure to effective arbitral practices could be a very effective tool in redressal of disputes that generally arise between different stakeholders in business firms.

The Act explains about the conciliation proceedings shall be terminated when, a settlement agreement is signed by the parties, It explains that a written declaration is made by the conciliators after consultation with the parties, that further efforts at conciliation are no longer justified. A written declaration is made by the conciliator, after the deposits required in relation to costs of the proceedings are not received from the parties, that the proceedings are terminated. A written declaration is made by the parties to the conciliator, that the conciliation proceedings are terminated. A written declaration is sent by a party to the other party and the conciliator, that the conciliation proceedings are terminated.

A commercial dispute covered by an arbitration agreement to which either of the Convention apply, arises before a judicial authority in India, it shall at the request of the party be referred to arbitration. The party applying for the enforcement of a foreign award shall produce the original award or a duly authenticated copy thereof, the original arbitration agreement or a certified copy thereof, and evidence to prove that the award is a foreign award and If the court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of the court. An appeal shall lie against the order of the court refusing to refer the parties to arbitration or refusing to enforce a foreign award.

The arbitration act is about counselling the disputed parties and to reach a conclusion where all settlements can be made. The Act is a good for parties who wish to avoid delayed and intense court work and want dispute to be settled in a quickly and in a proper manner.

3. INTRODUCTION

The Arbitration and Conciliation Act, 1996 (“the Act”) is based on the UNCITRAL Model Law on international commercial arbitration and conciliation. While the Act was not intended to displace the judicial system, the new law ushered in an era of private arbitration and conciliation. It was also the first time that a comprehensive legislation was made on the subject of conciliation in India.

In this day and age while one wonders at the enormity of business transactions and globalization taking place simultaneously around the world one really wonders how this is taking place at such a fast pace and what could be the problems corporations and countries face to ensure the smooth functioning of their policies and economies. The solution to the problems faced by economies today may be various forums for settlement, however one of the relatively new and a modern technique used by them is Arbitration.

Arbitration is a form of alternative dispute resolution method which is a technique used legally for the resolution of disputes between parties outside the courts in private, wherein the parties to a dispute refer it to one or more than person as they prefer called ‘Arbitrators’ to give the disputes an suitable ending through a decision they agree themselves to be bound known as an award. International Commercial Arbitration has established itself as the best method of determining complex commercial disputes all over the world due to which states have modernized their laws of arbitration to facilitate this new need. There have been new arbitral centres established and there has been a rise in the study of the law and practice of international commercial arbitration as an important subject among students at universities and law colleges.

The Arbitration and Conciliation Act, 1996 was passed on the basis of the UNCITRAL Model Law on International Commercial Arbitration, 1985 and UNCITRAL Conciliation Rules, 1980. It’s had been recommended by General Assembly of the United Nations that all countries should give due consideration to the said Model Law in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of the international commercial arbitration practices. It has also recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek on amicable settlement of that dispute by recourse to conciliation. These rules are believed to make a significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations. These objectives have been laid down in the Preamble to the Arbitration and Conciliation Act, 1996.

Commercial Arbitration is a private method of dispute resolution, which is chosen by the parties themselves as an effective way of putting an end to disputes between them, without recourse to the courts of law. It is conducted in different countries and against different legal and cultural backgrounds, with a striking lack of formality in which there are no national flags or other symbols of state authority. Arbitration has various benefits over other traditional methods such as litigation and one has to appraise the benefits of it to verify the truth in the above statements. The very basic and primary use of arbitration is the fact that it provides neutrality to parties in cases where two parties may belong to different culture, countries and may have been used to their own jurisdictional courts as such arbitration provides a neutral ground where parties may decide and choose their own venue, seat of arbitration, arbitrators, rules to be followed allowing them to accept a neutral forum on negotiable terms as basic fairness and risk of bias in a foreign court system is of great importance and concern to parties.

There are however more than one reasons for the success of arbitration in the modern world which is full of commercial and complex transactions taking place among entities in the field of technology, research, commodities, finance among various others which need fact finding and expertise of someone who has the required capabilities of make a well-reasoned decision.

Arbitration allows the parties to choose an arbitrator with the requisite technical knowledge and experience enhancing the quality of decision-making in many cases. The availability of a confidential forum unlike traditional courts where hearings are open and awards and decisions are published there is a degree of comfort for parties in matters where any sensitive information is involved. Arbitration also allows parties with greater control to customize and control the proceedings unlike traditional court proceedings.

Each party in arbitration is free to choose procedural matters to be employed and also the rules pertaining to taking testimony, language, interim measures, substantive law, evidentiary matters, presiding arbitrators and the degree of procedural formality. Arbitration in the modern world has become a very popular way of resolving disputes.

The UNCITRAL Rules on Conciliation, 1980 recognized “the value of conciliation as a method of amicably settling disputes arising in the context of international commercial relations” and that adoption of uniform conciliation rules by “countries with different legal, social and economic systems would significantly contribute to the development of harmonious international economic relations.” Accordingly, these rules were closely followed by the Indian legislators to formulate conciliation rules under Part III of the Act.

Rapid globalization of the economy and the resulting increase in competition has led to an increase in commercial disputes. At the same time, however, the rate of industrial growth, modernization, and improvement of socio-economic circumstances has, in many instances, outpaced the rate of growth of dispute resolution mechanisms. In many parts of India, rapid development has meant increased caseloads for already overburdened courts, further leading to notoriously slow adjudication of commercial disputes.

As a result, alternative dispute resolution mechanisms, including arbitration, have become more crucial for businesses operating in India as well as those doing businesses with Indian firms. This project is an attempt to critically evaluate arbitration in India as a legal institution. The present arbitration system in India is still plagued with many loopholes and shortcomings, and the quality of arbitration has not adequately developed as a quick and cost effective mechanism for resolution of commercial disputes.

4. ADVANTAGES OF ARBITRATION OVER LITIGATION

Arbitration promises by PRIVACY. In a civil court, the proceedings are held in public which embarrasses the parties sometimes.

Arbitration provides liberty to choose an arbitrator, who can be a specialist in the subject matter of the dispute. The arbitrators may be experts and can resolve the dispute fairly and expeditiously as they are well versed with the usages and practices prevailing in the trade or industry.

The venue of arbitration can be a place convenient to both the parties. It need not be a formal platform. A simple office cabin is enough. Likewise, the parties can choose a language of their choice.

Even the rules governing arbitration proceedings can be defined mutually by both the parties. For example, the parties may decide that there should not be any oral hearing.

A court case is a costly affair. The claimant has to pay for the advocates, court fees, process fees and other incidental expenses. In arbitration, the expenses are lesser and many times the parties themselves argue their cases. The arbitration involves few procedural steps and no court fees.

Arbitration is faster and can be expedited. The court has to follow its own system and takes abnormally longer time to dispense off the cases. It is a known fact that millions of unresolved cases are pending before the courts.

A judicial settlement is a complicated procedure. A court has to follow the procedure laid down in the Code of Civil Procedure, 1908 and the Rules of the Indian Evidence Act. In arbitration, the procedure is simple and informal. An arbitrator has to follow the principles of natural justice.

The award of the arbitrators is final and generally no appeal lies from the award. In a large number of cases, ‘Arbitration’ facilitates the maintenance of continued relationship between the parties even after the settlement.

In arbitration, the dispute can be resolved without inflicting stress and emotional burdens on the parties which is a common feature in court proceedings.

5. A BRIEF HISTORY OF ARBITRATION LAW IN INDIA

In ancient times, people often voluntarily submitted their disputes to a group of wise men of a community called the panchayats a binding resolution. Until 1996 the law governing India consisted mainly of three statuses:

The 1937 Arbitration (Protocol and Convention) Act

The 1940 Indian Arbitration Act

The 1961 Foreign Awards (Recognition and Enforcement) Act

The 1940 act governed the arbitration in India along the lines of the English arbitration act of 1934. And the other two acts of 1937 and 1961 were designed only to enforce foreign arbitral awards. Later on the government enacted the arbitration and conciliation act 1996 in an effort to modernize and improve the scope of the act of 1940.The 1996 act is a comprehensive piece based on the UNCITRAL (United Nations Commission on International Trade Law) model law. The primary purpose of this act is to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes. This act covers both domestic arbitration and international commercial arbitration.

UNCITRAL Model

The United Nations Commission on International Trade Law (UNCITRAL) is a subsidiary body of the General Assembly. It plays an important role in improving the legal framework for international trade by preparing international legislative texts for use by States in modernizing the law of international trade and non-legislative texts for use by commercial parties in negotiating transactions. UNCITRAL legislative texts address international sale of goods; international commercial dispute resolution, including both arbitration and conciliation; electronic commerce; insolvency, including cross-border insolvency; international transport of goods; international payments; procurement and infrastructure development; and security interests. Non-legislative texts include rules for conduct of arbitration and conciliation proceedings; notes on organizing and conducting arbitral proceedings; and legal guides on industrial construction contracts and countertrade.

Arbitration act 1940

The act of 1940 only dealt with domestic arbitration. The intervention of the court was necessary in all the three stages of arbitration that is as follows:

Prior to the reference of the dispute to the arbitral tribunal

Duration of proceedings before the arbitral tribunal after the award is passed by the arbitral tribunal before the arbitral tribunal took cognizance of the dispute the court had to intervene to set the process of arbitration in motion. The existence of an agreement and of a dispute should be proved.

Arbitration and conciliation act 1996

The 1996 act replaced the 1940 act and has provided an effective and expeditious dispute resolution framework, which would inspire confidence in the Indian dispute resolution system, attract foreign investments and reassure international investors in the reliability of the Indian legal system to provide an expeditious dispute resolution mechanism.

The act has two significant parts:

•Part-I provides for any arbitration conducted in India and enforcement of awards there under.

•Part-II: provides for enforcement of foreign awards.

The 1996 act contains two unusual features that differed from the UNCITRAL Model law. The UNCITRAL model law was only applied for the international commercial arbitrations. While the 1996 act applied for both the domestic as well as the international arbitrations. It also minimizes the judicial intervention. The government of India enacted the 1996 act by an ordinance and then extended its life by another ordinance.

6. A CRITICAL ANALYSIS OF THE SUCCESS OF THE ARBITRATION ACT 1996

The 1996 Act was brought on the statute book as the earlier law, the 1940 Act, did not live up to the aspirations of the people of India in general, and the business community in particular.30 Even though the 1996 Act was enacted to plug the loopholes of 1940 Act, the arbitral system that evolved under it led to its failure. The main purpose of the Act was to provide a speedy dispute resolution mechanism to the existing judicial system. But an analysis of the arbitration system, as practiced under the 1996 Act, reveals that it failed to achieve its desired objectives.

• Speedy justice:

Arbitration in India is rampant with delays that hamper the efficient dispensation of dispute resolution. Though the 1996 act does not involve judicial intervention, it does not even fix a period of time for completion of the proceedings. In the 1940 act the time of the proceedings was done away with though there was judicial intervention. The act was replaced with a notion that the judicial intervention could delay the proceedings and not provide the public with speedy justice. But the arbitrators at present are mostly retired judges and they treat the arbitration proceedings in the same manner as the traditional litigations and give long and frequent adjournments as and when the parties sought for it.

Although the scope of judicial intervention under the 1996 Act has been curtailed to a great extent, courts through judicial interpretation have widened the scope of judicial review, resulting in the admission of large number of cases that ought to be dismissed at the first instance. Moreover, the parties usually approach arbitration with a similar mind-set as for litigation, with the result that awards invariably end up in courts, increasing the timeframe for resolution of the disputes. Parties also abuse the existing provision that allows ‘automatic stay’ of the execution of the awards on mere filing of an application for challenge of the awards. So, the objective of arbitration as a mechanism for speedy resolution of disputes gets obstructed due to obtrusive delays.

•Cost-effectiveness:

Arbitration is generally considered cheaper over traditional litigation, and is one of the reasons for parties to resort to it.

•Extent of judicial intervention under the 1996 act:

One of the main objectives of the 1996 act was to give more powers to the arbitrators and reduce the supervisory role of the court in the process of arbitration. Judicial effect is common under the 1996 act. Such intervention of the judicial takes place in determining the challenge of awards.

7. TYPES OF ARBITRATION PRACTICE

INSTITUTIONAL ARBITRATION:

As the Indian economy was on the verge of massive expansion, and foreign investment into India was beginning to swell, a demand for institutional arbitration suddenly arose. Yet despite the surge in foreign investment, the growth of institutional arbitration in India was relatively slow off the block.

Of late, however, a large number of well-known and internationally recognized institutional arbitration centres – such as the International Chamber of Commerce, the London Court of International Arbitration and the Permanent Court of Arbitration – have opened centres in India.

In an institutional arbitration, the arbitration agreement designates an arbitral institution to administer the arbitration. The parties then submit their disputes to the institution that intervenes and administers the arbitral process as provided by the rules of that institution. The institution does not arbitrate the dispute. It is the arbitral panel which arbitrates the dispute.

All arbitral institutions do not provide the same services. Some institutions of high reputation simply offer a set of rules and guidelines, and no other arbitral services. One such illustration is the London Maritime Arbitrators Association (LMAA), etc. There are other institutions, which provide rules and a roster of qualified arbitrators but are not involved in the appointment of arbitrators; an example is the Society of Maritime Arbitrators in New York.

Certain groups of institutions supervise the whole arbitration process from the notification to the defending party of the claimant’s request for arbitration to, and including, the notification of the arbitral award to the parties. For instance the International Court of Arbitration of The International Chamber of Commerce

AD HOC ARBITRATION

Ad-hoc arbitration refers to ‘arbitration where the parties and the arbitral tribunal will conduct the arbitration according to procedures which will either be agreed by the parties or, in default of agreement, laid down by the arbitral tribunal at the preliminary meeting once the arbitration has begun. However, there are different sets of rules available to parties who contemplate arbitration, including the rules of their own trade associations.’

A peculiarity that came about was that in an arbitration consisting of three arbitrators, each party would appoint one arbitrator and the two arbitrators would jointly appoint the presiding arbitrator. By custom, the two arbitrators would only appoint a presiding arbitrator who was senior to both and prefer to appoint retired Chief Justices of India. Parties mostly prefer to appoint retired judges of the High Court or the Supreme Court, depending on, amongst other things, the quantum of the claim. Nowadays, given the huge demand for such limited senior judges, parties are often faced with a scenario where the dates between hearings could even be as long as one year, thus negating the entire concept of arbitration as a quick and efficient mechanism for dispute resolution.

8. FAST TRACK ARBITRATIONS

Fast track arbitration is not a distinct system of arbitration but rather a general characterization for an accelerated arbitral procedure. Arbitral proceedings with very stringent deadlines are generally referred to as fast track arbitrations.

They may appear in ad hoc and institutional arbitration. The increase in number of arbitral institutions creating such special rules for expedited proceedings demonstrates the “need for speed” in arbitral proceedings. However fast track arbitration may also take place under the rules of institutions which lack specific regulations for expedited procedures.

Fast track arbitration is not a distinct kind of arbitration .instead it incorporates various forms of expedited procedures and is not comprised of a fixed set of elements. However there is a set of procedural possibilities which-in different combinations-form recognized elements of fast track arbitrations.

The key element in fast track arbitration is strict time limits. Such time limits apply to parties as well as to the arbitrators. The parties are regularly constrained by relatively short time limits for the nomination of their respective arbitrator as well as for their submissions and preparations for the oral hearing.

Another important element in the fast track arbitration is the limitation of procedural steps. For this reason most specific regulation on expedited proceedings contain restrictions on the number of written submissions as well as limitations regarded the hearing.

Furthermore the fast track arbitration is not possible without the modern means of communication. Communication in the form of email, fax, telephone and video conference and any other appropriate means of avoiding unnecessary formality is a key factor in the considerably shortened duration of the fast track arbitration proceedings.

Clearly fast track procedures must be welcomed by both the parties as well as the arbitral tribunal and must be duly supported by the institution which provides the framework for the proceedings or else they will not be a success. However, if managed in a professional manner by all the participants involved there is no reason why fast track arbitrations should not be regarded as an efficient and far dispute settlement procedure and the traditional objections to such accelerated conduct of arbitration proceedings-from the procedural limitations introduced in the interest of speed.

9. SIMILARITY IN THE TREND OF ARBITRATION PRACTICE UNDER THE 1996 ACT WITH THAT OF THE 1940 ACT

The tendency for parties to ask for—and for arbitral tribunals to grant—frequent adjournments, although technically constrained by the 1996 Act, continues unabated. While elaborating on this problem, one cannot help but notice the manner in which appeals and revisions are filed at interlocutory stages against every decision or order taken or made by the arbitral tribunal, which is not even contemplated under the Act. Moreover, the intervention of the courts, though statutorily restricted, has not subsided, and the courts have been very liberal in entertaining petitions, revisions, and appeals at an interlocutory stage, because of which the fruits of an existing Alternate Dispute Resolution (ADR) mechanism is neither timely nor effective. Section 34 of the 1996 Act makes a mere challenge to an award operate as an automatic stay even without an order of the court, thereby encouraging many parties to file petitions under that provision to delay the execution proceedings. However, under the 1940 Act, there was no such automatic stay. There is an amendment proposed by the Law Ministry in the Arbitration and Conciliation (Amendment) Bill, 2003, which has not been taken up for consideration by the Parliament. The 1996 Act narrows down the scope of grounds available for challenging awards as compared to the earlier 1940 Act.

10. DISSIMILARITY IN THE TREND OF ARBITRATION PRACTICE UNDER THE 1996 ACT WITH THAT OF THE 1940 ACT

Both the acts differ in the way of the arbitration system they establish and the processes that they require. The role of the judges is more specified and limited in the 1996 act. In the 1940 act the courts play a substantial role in the arbitration process.

The 1940 act required that an arbitral award be filed in the court before it could become binding upon the parties. The grounds for challenging an award before the courts were broad and quite liberal. In the 1996 act, there is a limited scope for interference by courts. The award is no longer required to be filed before the court to make it a rule of law. And the grounds of an award can be challenged are very limited. The 1940 act did not express authority to the arbitral tribunal. Under the 1996 act the arbitral tribunal has the power to decide its own jurisdiction. The arbitral tribunal does not have any power to grant any interim relief in arbitration proceedings under the 1940 Act and such power is given under the 1996 act to give interim relief.

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