Arbitration is the process of problem-solving between people by reaching an acceptable outcome. The World Intellectual Property Organisation (WIPO) defines Arbitration as “a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute.”
In other words, It refers to the Alternate Dispute Resolution (ADR), a method to resolve disputes outside the public courts. In the event of a disagreement, the parties agree to refer it to a third party (the arbitrator), who will make an “arbitral award.”
Arbitration In India
Cases pending in the courts and delayed decisions are very common in India. To resolve disputes speedily and amicably, Arbitration is the best legal mechanism. Its significance is the privacy and confidentiality of the proceedings. It is also flexible in terms of time and procedure.
In India, Arbitration disputes are governed under Arbitration and Conciliation Act, 1996 further amended in 2021. The act defines ‘Arbitration’ under Section 2(a) of the act as ‘any arbitration whether or not administered by a permanent arbitral institution.’
Types of Arbitration
Arbitration is of two types:
- Institutional Arbitration– In this type of arbitration, a specialized institution conducts the proceedings, which has its own set of rules and provides a framework for resolving disputes between the parties. There are more than 35 Arbitral Institutions in India, including the Indian Council of Arbitration(ICA)- New Delhi, LCIA India- New Delhi, ICC Council of Arbitration- Kolkata, etc.
- Ad-Hoc Arbitration– In this, the parties mutually determine and arrange all the aspects of the arbitration such as the number of arbitrators, procedure of arbitration, set of rules, applicability of law, etc. This type is flexible, cheaper, and faster than Institutional arbitration.
Important Elements of Arbitration Process
- Arbitration Agreement: Section 7 of the act defines “Arbitration Agreements”. They are agreements that deal with current or future contract disputes that will be resolved through arbitration. It can be in the form of an arbitration clause in a contract or the form of a separate agreement.
- Requisite to make the arbitration agreement effective :
- Clause of Arbitrator: Black Law Dictionary defines an Arbitrator as “A person chosen to decide a controversy”. The arbitrator is a neutral and independent expert who hears the case and renders a legally binding decision for both parties. The number and appointment of arbitrators are dealt with in Sections 10 and 11 of the Arbitration and Conciliation Act, 1996.
- Seat and Venue: Seat of Arbitration is the jurisdiction where the final arbitral award is made. The arbitration rules are different in each jurisdiction. It establishes the law that governs arbitral proceedings as well as the rights associated with the enforcement of arbitral awards. Whereas the venue is the geographical location of the arbitration chosen for its convenience. When the agreement is silent on both, the venue plays an important role in deciding the appropriate jurisdiction.
- Language: Section 22 of the act says that the parties are free to decide the language used in arbitral proceedings. If failed, the arbitral tribunal will decide upon it.
- Statement of Claim clause: As per Section 23 of the Act, Parties to arbitration are required to submit their statement of claims, point of issues, and relief in a fixed period by providing all supporting documents.
- Cost of Arbitration: The cost of arbitration is borne by both parties.
3.Hearing of Parties: The arbitral tribunal determines whether to hold oral proceedings or rely on documents and other materials [Section 24 (1)]. Oral proceedings can be held on the request of parties unless agreed that no oral hearing shall be held.
4. Arbitral Award: Following the conclusion of the hearing, the arbitrator issues the final order. It can be monetary or non-monetary. It can be of two types-
Interim Award: Section 31(6) of the Act states the arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter for which it may make a final arbitral award.
Final Award: Arbitrator gives the final award after the completion of the process. Section 34 of the Act says that the award given by the arbitrator is final and binding upon the parties of the contract.
5. Challenging the Award: Section 34 of the act states that the court can set aside the arbitral award on various grounds mentioned in section 32(2) of the act. The party needs to wait for 90 days in whose favor the award is given, during this period the other party can challenge the award.