Q1. What is arbitration? How is it different from court proceedings? Why should I opt for arbitration? Is it less time taking then the normal court process?
Arbitration is a method of dispute resolution outside the regular courts. In arbitration, parties get themselves to appointed neutral arbitrators (who are equivalent to judges), they also get to specify the arbitration procedures and place where arbitration will be conducted. The outcome of the hearing before arbitrator is called an award. The award is final and binding. On the contrast, while in Judiciary, the Judges are appointed by the government and the procedures followed are as per the laws of the country. In the court, the dates are not totally controlled by parties but is subject to court’s diary. There can be transfer of judges during the proceedings. Arbitration is informal, quick, efficient, and least costly compared to Courts. It is controlled by the parties. Legally, it is equally biding on the parties. The law for Arbitration is Arbitration and Conciliation Act 1996 (the Act) as amended up to date. The definition given in the Act is: “arbitration” means any arbitration whether or not administered by permanent arbitral institution;”. This means, the arbitration can be adhoc or institutional. There is requirement of existence of pre-existing arbitration agreement. It is less time taking and if the disputes are arbitrable as discussed below, arbitration is an option that can be opted by the parties for referring their future disputes for resolution. Parties can agree to refer some or all of their disputes for arbitration.
Q2. What is an arbitration agreement?
Arbitration agreement is the most basic document which allows parties to submit to arbitration all or some of their disputes arising out of a legal relationship. It may be part of the clause or may be a separate contract. It must be in writing, signed by both the parties. Reference to the arbitration clause in the arbitration agreement also constitutes the arbitration agreement.
Q3. Whether one must go to court to invoke arbitration?
The parties in dispute regarding the valid arbitration agreement can approach the court or for resolving the dispute related to the appointment of the arbitrator. In case, the main agreement between parties has arbitration clause or they have a separate arbitration agreement, they can directly proceed for arbitration by appointing arbitrators without reference to the Court as per the Act. Otherwise Courts can be approached under Section 8 of the Act, the Courts can refer them to arbitration. The Courts can also on its own direct the parties to arbitration under Section 89 of Code for Civil Procedures 1908, when approached for dispute resolution. When there is no express arbitration agreement between the parties as regards to reference of disputes for arbitration, the court have the power to refer the parties to arbitration with a written consent is provided by the parties by way of joint application or a joint memo or a joint affidavit.
Q 4. How is an arbitrator different from a mediator?
Decision by an arbitrator is binding and final. While a mediator only facilitates both the parties to come together to a mediated settlement agreement. Mediator helps to identify and issues and facilitate the possible solution and interest of the parties. He cannot decide. An Arbitrators has much more powers (that of a Civil Court) to call for witnesses, documents etc. Mediator position is informal.
Q 5. Who appoints the arbitrators?
The appointment of arbitrators can be done by the parties themselves according to the arbitration agreement signed between the parties (Section 11 of the Act). If there is no stipulation with respect to the same, the parties can go to court to apply for the appointment of arbitrators by the High Courts / Supreme Court as per section 11 of the Arbitration & Conciliation Act, 1996. For domestic arbitration High Courts appoint the Arbitrations, while for international arbitrations ( i.e. involving at least one foreign party ) in India , the Supreme Court is empowered by the Act to appoint the arbitrators .
Q 6. What factors affect the appointment of the arbitrator?
The arbitrators must be neutral and qualified as specified by the parties. Since the arbitrators are to judge the matter, they should be impartial, neutral and not associated with the subject or the any of the parties. Only then they can deliver their decision, which will be free from any bias, thus acceptable to all. Sometimes, the role requires specific skills and knowledge to be had by the arbitrators, then mostly parties specify such qualifications as required for the job. The Act specified Schedules detailing dos and do nots of the Arbitrators, which parties / arbitrators’ institutions / courts may use to select arbitrators. Persons of any nationality may be appointed arbitrators.
Q7. How many arbitrators are to be appointed?
Section 10 of the Act says that “(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator”. It is advisable to always appoint arbitrators in odd numbers to enable clear decision making. It can be one, three or so. Though arbitrators in even numbers may also be appointed. Even number of arbitrators can be a subject matter of dispute. The practice is limiting the number to three. In case of three arbitrators each party appoints one arbitrator and both together appoint a third arbitrator. In case the two fails to agree on this arbitrator, one can approach the court. In case of failure to appoint an sole arbitrator after notice, the parties are free to approach the court. Appointment of arbitrator is open to challenge on justifiable grounds of neutrality and independence.
The legislative intent is that the parties should abide by the terms of the arbitration agreement. If the arbitration agreement provides for arbitration by a named Arbitrator, the courts should normally give effect to the provisions of the arbitration agreement. But as clarified by Northern Railway Administration, where there is material to create a reasonable apprehension that the person mentioned in the arbitration agreement as the Arbitrator is not likely to act independently or impartially, or if the named person is not available, then the Chief Justice or his designate may, after recording reasons for not following the agreed procedure of referring the dispute to the named arbitrator, appoint an independent Arbitrator in accordance with section 11(8) of the Act. In other words, referring the disputes to the named arbitrator shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named Arbitrator/Arbitral Tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons.
Q8. Who can be appointed as an arbitrator?
The Arbitration law in India does not provide any qualifications for a person to be appointed as an arbitrator. However, the parties may specify the qualifications. If parties fail to appoint the arbitrators, the Courts nominate from available panel of qualified, experienced and neutral arbitrators in their panel or through Arbitration Council paneled Arbitration Institution. Section 11 of the Act specifies that when three arbitrators are to be appointed, the parties can. If they appoint only one and one, then the third umpire arbitrator can be appointed by the two party appointed arbitrators.
Q9. What are the different stages of arbitration?
The different stages of arbitration much like Courts are as follows:
Step 1: Signing of arbitration agreement / inclusion of arbitration clause: This is the first and necessary/ mandatory step. An arbitration agreement / clause is a prerequisite for enabling to go for arbitration. Though, can be afterwards also, must an arbitration agreement / clause be must for arbitration.
Step 2: Commencement of Arbitration – Notice of Arbitration and Preliminary checks: The process of arbitration starts with one party issuing notice to the other of its intent to go for arbitration with it. It for the other party to accept the notice or not.
Step 3: Appointment of arbitrator: The next requirement is appointment of arbitrators. The Parties either can do it themselves or get help of the Courts. Arbitrators must be neutral. Their skills, qualifications, experiences, terms and conditions, remunerations etc are to be specified.
Step 4: Submission of Claim and Written Statement: The next step is documentation. Both the parties one by one in each other’s knowledge will submit their claims, counter claims and written submissions including facts of the case to the arbitrators for their study. The Arbitrators may call for additional information, if they should require / desire.
Step 5: Interim Award, if sought by parties: Some times, the circumstances may require interim decisions called interim awards to preserve the situation, materials, money etc. Caretakers/ Interim Property managers may be required to be appointed. The parties will make their requests and the Arbitrators shall decide and award such decisions.
Step 6: Framing of Issues: This is the most important and critical stage, when the arbitrators based on material before them, will decide the precise issues in dispute requiring award / decision.
Step 7: Final Award: Both the parties, experts and witnesses are heard, documents perused and analyzed by the arbitrators for a final award. The award is signed by the arbitrators and the parties. The awards have to be reasoned, in writing, cogent and coherent.
Q10. How can an arbitrator be removed?
An arbitrator is removed in the following circumstances as per the Section 12 of the Act:
(i) Appointment of the arbitrator is challenged on grounds of being not qualified / skilled / experienced as specified and required or not being neutral,
(ii) Arbitrator’s failure or impossibility to act as arbitrator,
(iii) Arbitrator resigns from his office, or
(iv) Agreement of the parties for the removal of the arbitrator on any ground.
As per the Section 13 of the Act, the procedure of removal is to be agreed in the arbitration agreement. Arbitrators panel can remove an arbitrator, if not found fit/ eligible. The Court may also remove an under-performing arbitrator and appoint alternate arbitrators. Section 15 of the Act [1]provides for termination of mandate and substitution of arbitrator by the Courts.
Q11. What is the nature of matter which is non-arbitrable?
Criminal (non-compoundable) and other matters as specified in various other acts are not arbitrable. Mostly commercial matters are arbitrable.
The Court also cited examples of various matters which it considered non-arbitrable, namely:
- disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
- matrimonial disputes relating to divorce,
- judicial separation, restitution of conjugal rights, child custody;
- guardianship matters;
- insolvency and winding up matters;
- testamentary matters (grant of probate, letters of administration and succession certificate); and
- eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction.
- On the specific issue before the Court concerning mortgage actions, the Court held that such proceedings are not arbitrable as they involve the enforcement of a right in rem.
- The Court also analyzed the provisions of the Transfer of Property Act 1882 (TP Act) and the Civil Procedure Code 1908 (CPC) to conclude that these statutes make it clear that mortgage enforcement actions are required to be decided by public fora (courts) as opposed to private fora (arbitrators).
Q12. How much time is taken for arbitration?
Section 5 of the 2019 Amendment Act inserted sub-section (4) in Section 23 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’). By virtue of this insertion, the statement of claim and defence is now required to be completed within a period of six months from the date when the arbitrator or all the arbitrators, as the case may be, received notice, inwriting, of their appointment.
Section6(a) of the 2019 Amendment Act substituted Section 29A(1) of the Arbitration Act, which, inter alia, now mandates that the award in matters other than international commercial arbitration shall be made by the Arbitral Tribunal within a period of twelve months from the date of completion of pleadings under the newly inserted sub-section (4) of Section 23of the Arbitration Act. The erstwhile section 29A(1) mandated that an arbitral award shall be made within 12 months from the date of entering into reference of the Arbitral Tribunal.
Q13. How much costs are involved?
Arbitration costs less in time and money, as only arbitration process costs and arbitrators’ fees are involved, the later are specified.
Q14. Is there any arbitration institute available in Government or private sectors?
Every country has a number of private initiatives in terms of arbitration institutes. India also have number of them. Some of them are:
- The New Delhi International Arbitration Centre,
- Indian Council of Arbitration, International Chamber of Commerce (ICC),
- Federation of Indian Chamber of Commerce & Industry (FICCI),
- World Intellectual Property Organisation (WIPO),
- The International Centre for Alternative Dispute Resolution (ICADR),
- London Court of International Arbitration(LCIA) etc.
A partial list is also available at United Nations Commission on International Trade (UNICITRAL) at
https://uncitral.un.org/en/texts/arbitration/contractualtexts/arbitration/centres
Q15. Is arbitration available for international matters?
In India, as per the Act, the international commercial arbitrations can be conducted in the same manner.
Q16. Can foreign arbitration decisions be enforced in India?
Yes, there are legal provisions in the Act that under New York and Geneva Conventions decision can be enforced in India. It requires contracting states to recognize and enforce foreign arbitration awards in the same way they do domestic awards, by essentially converting the foreign arbitration award into a judgment enforceable by a national court. The Convention was established as a result of dissatisfaction with the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. Other foreign decisions can be enforced as provided in Section 13 of Civil Procedure Code, 1908.
Q17. When should I go for arbitration?
When both the parties are willing to have dialogue to settle their disputes, it is best to go for arbitration, if arbitrable.
About the author
Editor - Adv. JYOTI SRIVASTAVA
