EXPLAINED: ARBITRATION

This Article is written by Ashima Gupta student of VIPS, Delhi.

INTRODUCTION

Arbitration is the process through which an arbitrator is appointed to provide a binding solution to a dispute between two consenting parties. It is a way of resolving conflicts and disputes outside of the court which saves both time and money.

In India the Arbitration and Conciliation Act, 1996 deals with domestic and international commercial arbitration matters. The Act was Amended in 2015 and then again in 2019.

The Act, 1996 is categorized into two parts. Part I deals with important provisions that deal with domestic arbitration and International commercial arbitration procedure that is to be conducted in India irrespective of nationality and the Part II talks about enforcement of foreign arbitration award.

AGREEMENT

An arbitration agreement is a written statement or any statement that is made through the means of telecommunication.

The agreement or arbitration clause has to be in a written form and is between two or more parties. The arbitration agreement between parties indicates the:

  1. The place and seat of arbitration,
  2. The Procedure for the appointment of the arbitrator,
  3. The number and the qualification of arbitrator,
  4. Language governing arbitration,
  5. The type of arbitration
  6. Name and address of Arbitration institution
  7. The arbitration proceedings procedure

JURISDICTION

Section 16 of the talks about the competence of arbitral tribunal to rule on its jurisdiction:

As per Section 16, the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement and for this purpose,

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract when its validity is challenged before the tribunal.

(b) a decision by the arbitral tribunal that the contract is null and void shall not mean that the arbitration clause invalid.

A plea that the arbitral tribunal does not have jurisdiction cannot be raised after the statement of defence has been submitted. An arbitrator can also raise such a plea. However, if there is a delay and if such a delay is justified then in such a case the arbitral tribunal may admit a later plea as per sub section 4 of section 16 of the Act.

Section 20 of the aforementioned Act gives the parties the power to choose a seat of arbitration. Section 20 subsection(1) of the Arbitration Act gives freedom to the parties to decide the place of arbitration. However, if the parties are not able to agree on the place of arbitration, the arbitral tribunal is empowered to determine the place of arbitration under subsection 2 of section 20 after taking into consideration the circumstances of the case and the convenience of the parties.

NON-INTERFERENCE OF COURT

The court cannot interfere in an arbitration proceeding except wherein provided by the act as per Section 5 of the Arbitration and Conciliation Act, 1996. The following are the situations in which the court may interfere in the arbitration proceedings:

  1. In cases, the parties cannot appoint a mutually independent arbitrator and an arbitrator needs to be appointed
  2. In cases of taking the shreds of evidence.
  3. In cases, whereas the arbitrator is terminated due to incapacity or other sufficient reasons mentioned under the Act and the court has to rule

PROCEDURE

  1. The arbitrators are in charge of their own conduct. They may conduct the procedures in the manner they think to be suitable with the consent of the parties involved. When a dispute arises there is an agreement between the parties then the party against whom a wrong has been committed should send an arbitration notice to the other party so that the process can begin.
  2. After the notice has been received both the parties have to appoint an arbitrator/s as per the specifications that are mentioned in the arbitration clause or agreement.
  3. As per sub section (1) of section 10 the parties to a dispute have the freedom to choose the number of arbitrators but it should not be an even number. In case a number has not been specified in the arbitration clause or an arbitration agreement then only one arbitrator will be appointed. In case the parties choose to appoint three arbitrators but the procedure for their appointment is not specified then in such a case each party will choose one arbitrator and the chosen arbitrators will choose the third arbitrator who will be on the panel.
  4. If within the stipulated period one of the parties fails to appoint an arbitrator then the other party can approach the designated Arbitral Institutions, as per the 2019 Amendment, seeking the appointment of an arbitrator.
  5. After the arbitrators have the party who was wronged has to file a statement of claim which mentions the details regarding the dispute like the events leading up to the dispute, the reasons for the dispute, and relief or compensation claimed. The other party also has the option to file a counterclaim as a reply to the statement of claim.
  6. After the filing of statement of claim and counter claim the tribunal will hear the parties and assess the evidence that is put forth to them.
  7. After the evidence has been examined and both parties have been heard the arbitrators will pass a decision and this decision is known as an arbitral award.
  8. As per section 34 An arbitral award is final and is also enforceable in a court of law.
  9. To get the award executed party in whose favour the award has been passed must file for the enforcement of the award.

 AWARD

At the conclusion of the dispute, an arbitration panel or they will issue an arbitration award.An arbitration award is similar to a verdict of a court. It is final and can be enforced in the court of law.The recourse that is available against an Arbitral award is that an application for setting aside an arbitral award can be moved under Section 34 on the grounds as mentioned in the provisions, which include but are not limited to:

  1. Cases where an Arbitrator is biased or
  2. the award rendered is against the public policy or
  3. the Arbitrator has exceeded its jurisdiction.

CASE LAWS

In the case of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, (2017) 7 SCC 678 the fact that the seat of the arbitration shall be at Mumbai was provided in the agreement. It was contended that a part of the cause of action arose at Delhi and so the clause that provided for seat of arbitration at Mumbai was not valid.

The Supreme Court in this case held that under Section 20 of the Arbitration and Conciliation Act 1996, the autonomy of the parties to choose a neutral seat of arbitration is recognised. The neutral sear of arbitration can be at a place where no part of the cause of action arose. The Supreme Court also stated that once the seat decided the Court of that place would have the exclusive jurisdiction to regulate the arbitration proceedings arising out of the agreement between the parties.

The Supreme Court further stated that the neutral seat that is chosen by the parties may not have jurisdiction under any of the provisions from Section 16 to 21 of Code of Civil Procedure but still that particular court will have the jurisdiction by the virtue of seat of Arbitration that has chosen by the parties.

In the case of BGS SGS Soma JV v. NHPC Ltd the Supreme Court stated that the court before which an application has been filed will have jurisdiction to entertain the matter.  Thus, where the seat of arbitration is decided between the parties, the courts of the seat will have an exclusive jurisdiction over the proceedings.

In the case of Union of India vs. M/s. East Coast Boat Builders & Engineers LTD, it was held that, it is apparent from the scheme of the act that the legislature did not provide for appeal against the order under section 16(5) where an arbitral tribunal takes a decision and rejects the plea that the arbitral tribunal has no jurisdiction. The intention of the legislature here appears to be that in such cases the arbitral tribunal should continue with the arbitral proceedings and make an award without delay and the arbitral process should not be interfered with at that stage by any court in their supervisory role.

REFERENCES

  1. Arbitration and Conciliation Act, 1996
  2. BGS SGS Soma JV v. NHPC Ltd2019 SCC Online SC 1585
  3. Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited (2017) 7 SCC 678
  4. Union of India vs. M/s. East Coast Boat Builders & Engineers Ltd76 (1998) DLT 958, 1998 (47) DRJ 333, ILR 1998 Delhi 797