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ARBITRATION AS A FORM OF ALTERNATE DISPUTE RESOLUTION IN INDIA



Introduction

The process of arbitration essentially refers to an apparently basic mechanism of dispute settlement whereby concerns are presented before individuals, appointed by the parties to the matter themselves. It was envisioned as an instrument of peace with an obligation to harmonize communities rather than to adhere to a strict rule of law. Stemming from the recognition that more often than not rules and procedure provided by the law is rather rigid, the law itself acknowledges arbitration agreements as an effective mechanism for expedient dispute resolution. Drawing from the 1985 Model Law on International Commercial Arbitration and the 1976 Arbitration rules released by UNCITRAL, the Arbitration and Conciliation Act was passed by the Parliament in 1996 stressing on the importance of the nation’s dispute resolution provisions’ compliance with the stipulated international standards in order to further the effectiveness of the existing economic norms and subsequent reforms.


It was envisioned as an instrument of peace with an obligation to harmonize communities rather than to adhere to a strict rule of law.



History and Evolution

Arbitration as a form of dispute resolution evolved through international legal instruments beginning from the Geneva Protocol[1] followed by the 1927 Geneva Convention[2] and the New York Convention in 1958[3]. Furthermore, the London Court of Arbitration was also set up in 1892 with a view “to include virtues which the law lacks; to be expeditious where the law is slow; cheap where the law is expensive and simple where it is technical, and as a peace-maker as opposed to a stirrer of strife.[4]

In India, modern arbitration law was ushered in through the 1772 Bengal Resolutions by the East India Company. The Resolutions included a provision for the courts to resort to arbitration in case of lawsuits pertaining to accounts, partnership deeds and breach of contracts primarily subject to the consent of both parties.[5] Prior to the Arbitration and Conciliation Act, 1996 the law pertaining to arbitration was spread across three statutes namely (i) the 1937 Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the 1961 Foreign Awards (Recognition and Enforcement) Act.[6] While the 1940 Act was the actual law of arbitration pertaining to domestic matters, tailored in lieu with the English Arbitration Act of 1934, the statutes of 1937 and 1961 were enacted to implement foreign awards. The 1940 Act however required intervention by the court in all stages of the proceeding i.e. prior to referring the dispute to arbitration, during the proceedings for extension of time for example and for the enforcement of the award.

Advantages of Arbitration


Despite evolving into a rather complex, legalistic mechanism and a more institutionalized one it may be observed that the inherent features of arbitration remain as envisioned by the merchants of medieval Europe. The survival of these features pertaining to the choice of arbitrators and the agreement to arbitrate has resulted in the following advantages accruing in the present day application of arbitration as an alternate form of dispute resolution. They are:

  • Significant reduction in lawyers’ fees and other procedural expenses

  • Removal of procedural delaying tactics

  • Reduction in the excessive court-lists

  • Privacy to parties to a dispute and procedural flexibility

  • Prevention of undue and excessive damages awarded as compensation against major corporations.


Institutional Arbitration and Ad-Hoc Arbitration


A majority of the arbitration procedures that take place in India are ad-hoc arbitrations as opposed to institutionalized arbitration. In ad-hoc arbitration the parties are at liberty to determine their own rules and procedure for the purpose of arbitration specifically in relation to the choice of arbitrators and the seat of arbitration by means of an agreement between the two. Institutionalized arbitration on the other hand pertains to an external authoritative agency intervening and administering the whole process on the basis of an existent framework.

Though institutionalized arbitration is only in the process of evolution in India, the benefits of the same are evident and self-explanatory.

The existence of a framework saves time spent in deliberation over rules and procedure in ad-hoc arbitration while at the same time reducing costs spent on infrastructure such as the expensive establishments, technical staff and libraries for reference. Additionally, there is an accountability and reliability in institutionalized arbitration that is not present in ad-hoc arbitration stemming from the fact that most arbitral institutions such as The International Chamber for Commerce (ICC) have an experienced panel scrutinizing the awards and as arbitrators under an institution are governed by the rules of the institution. Despite, these advantages there is an inclination towards ad-hoc arbitration in India which may be understood to be a counter-productive practice considering the fact that ad-hoc arbitration leaves room aplenty for parties to be aggrieved by the functioning of the same. The prominent arbitration institutions in India are:-

  • Chambers of Commerce (organized by either region or trade)

  • Indian Council of Arbitration (ICA)

  • Federation of Indian Chamber of Commerce and Industry (FICCI)

  • International Centre for Alternate Dispute Resolution (ICADR)

Practice of Arbitration


As stated in the introduction, arbitration as an alternate form of dispute resolution is evinced in the Arbitration and Conciliation Act, 1996[hereinafter the Act]. The Act stipulates for provisions in relation to domestic arbitration, international commercial arbitration, enforcement of foreign awards and conciliation. The Act is separated into two parts with Part I relating to the provisions for domestic as well as international commercial arbitration and governs all arbitration within the territory of India while Part II pertains to the enforcement of foreign awards governed by the New York Convention and the Geneva Convention. However subsequent case-law has extended the application of provisions within Part I to foreign arbitration as well[7] subject to the existence of the Court’s jurisdiction.[8]


Under the Act, arbitration may be resorted to in any commercial matter arising out of contract (tortious as well) but matters relating to public policy such as matrimonial matters, criminal proceedings, insolvency matters and concerns pertaining to anti-competitive practices. Furthermore, matters in relation to statutory relief through statutory tribunals may not be explored by an arbitration tribunal. Additionally, S.5 of the Act, prohibits any judicial authority from interfering in arbitration except as provided for by the Act under S. 11 and S. 36 of the Act. In the event that the claimant party fails to put forth his statement of claim the proceedings stand terminated[9] while at the same time if it is the respondent who fails to make his/her statement of claims, the tribunal ought to adjudicate on the matter on the basis of material evidence on record and the absence of the respondent would not favor the applicant’s claim.


In ad-hoc arbitration, as mentioned earlier the arbitrators have absolute power to determine the procedure related to arbitration and they may conduct proceedings at their liberty subject to the existing agreement between the parties. The limit of this power extends to the determination of admissibility and weight of the evidence even[10] and it is to be noted that neither the Code of Civil Procedure nor the Indian Evidence Act finds application within arbitration proceedings[11] and the only limitation however lies in the equal treatment and opportunity to present the case to be made available to either party[12]. Unless agreed otherwise, the tribunal has absolute authority to determine whether the proceedings ought to be heard orally or whether the matter may be decided upon the basis of available documents and similar material alone. Furthermore, unless the arbitration agreement explicitly states that no oral hearing shall take place, either party may request the tribunal to hold oral proceedings.[13]


Law Commission Reports and Proposed Amendments


The 176th Law Commission[14] report proposed changes to the Act and proposed the Arbitration and Conciliation (Amendment) Bill, 2003[15] with comprehensive measures relating to the inclusion of the concept of an emergency arbitrator, the formation of arbitration centers as well as the fixation of a limit on the fees an arbitrator may request for. However, pursuant to the Report by the Saraf Committee, the proposed bill was withdrawn from the parliament. Subsequently, the 20th Law Commission of India chaired by A.P. Shah, J came out with the 246th Law Commission Report proposing an amended Arbitration and Conciliation Bill, 2015[hereinafter the Amendment] and the subsequent report on Developments post the 246th Report highlighting major changes brought about by subsequent decisions by the judiciary.

One of the most important changes brought out by the Amendment is with respect to S.12 of the Act which stipulates for a mandatory requirement for arbitrators to disclose any relationship with the client or interest in the subject-matter.

Furthermore, the Amendment also deems persons with certain specified relationships ineligible to arbitrate under S.12. Second, in furtherance of the objective of expediting the process altogether, recommendations are made by the Law Commission in relation to the time taken by the arbitration tribunal in arriving at a conclusion[16], the appointment of arbitrators by the Court and with respect to approaching the Court in the event of any grievance by either party. Furthermore, S 31A in the proposed amendment stipulates for a cost regime within arbitration and S. 17 extends the power to give interim orders to the Tribunal as well.

[1] Geneva Protocol of 1923.


[2] Geneva Convention of 1927.


[3] “The Convention on the Recognition and Enforcement of Foreign Arbitral Awards” done at New York on June 10, 1958, United Nations Treaty Series (1954) Vol.330, No.4739, p.38.


[4] Manson (1893) IX L.Q.R. 86 cited by Veeder and Dye, “Lord Bramwell's Arbitration Code” (1992) 8 Arbitration International 330.


[5] K Ravi Kumar, ‘Alternative Dispute Resolution in Construction Industry’, International Council of Consultants (ICC) papers, www.iccindia.org. at p 2.


[6]Ibid.


[7] Bhatia International v. Bulk Trading, (2002) 4 SCC 105.


[8]ShreejeeTraco (I) Pvt. Ltd. v. Paperline International Inc, (2003) 9 SCC 79.


[9]Arbitration and Conciliation Act, 1996; Section 25.


[10]Ibid at Section 19(3) and (4).


[11]Ibid and The Indian Evidence Act, 1872; Section 1.


[12]Ibid at Section 18.


[13]Ibid at Section 24.


[14] The full report of the 176th Report of the Law Commission of India can be downloaded from www.lawcommissionofindia.nic.in.


[15] The Arbitration and Conciliation (Amendment) Bill, 2003 is available on the website www.lawmin.nic.in .


[16] The Arbitration and Conciliation Bill, 2015;S.48(4).


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