Arbitration

Arbitration

The Arbitration and Conciliation Act, 1996 came into force with effect from 22.8.1996. It consolidates and amends the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards.

It applies to the whole of India. It applies to the State of Jammu and Kashmir to the extent of the provisions relating to enforcement of foreign awards, which apply in full, other provisions apply insofar as they relate to international commercial arbitration or conciliation.

The Act is based on the conciliation rules adopted by the United Nations Commission on International Trade (UNCITRAL)

What is arbitration?

Arbitration is a process of dispute resolution in which a neutral third party (called the arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. It is the means by which parties to a dispute get the same settled through the intervention of a third person, but without having recourse to court of law.

What is an arbitration agreement?

1. Arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not.

2. The parties make an agreement that instead of going to the court, they shall refer the dispute to arbitration.

3. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Where an arbitration clause is included in a contract and the contract is avoided due to misrepresentation or fraud, the arbitration clause may still continue to be binding.

4. Where, however, there was no contract at all between the parties or contract was void ab initio, the arbitration clause cannot be enforced.

5. An arbitration agreement/clause must be in writing. Although no formal document is prescribed, however, it must be clear from the document that the parties had agreed to the settlement of dispute through arbitration.

6. Where the arbitration agreement or clause is contained in a document, the parties must sign the document. Besides, the arbitration agreement may be established by-

1. an exchange of letters, telex, telegram or other means of telecommunication; or

2. an exchange of statement.

Appointment of an Arbitrator

Who May be Appointed

A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. In case of an international commercial arbitration, where the parties belong to different nationalities, the Chief Justice of India may appoint an arbitrator of a nationality other than that of the parties.

Number of Arbitrators

The reference may be made either to a single arbitrator or a panel of odd number (i.e. 3, 5,7, etc.) of arbitrators. The parties are free to fix the number of arbitrators by agreement. If there is no agreement, the reference shall be made to a sole arbitrator.

Grounds for Challenging Appointment

The appointment of an arbitrator may be challenged if

1. circumstances exist that give rise to justifiable doubts as to his independence or impartiality or
2. he does not posses the qualifications agreed to by the parties.

Place of Arbitration

The parties are free to agree on the place of arbitration and failing an agreement to do so the place shall be determined by the arbitral tribunal having regard to the circumstances of the case and convenience of the parties.

Who May Refer to Arbitration?

An arbitration agreement is a contract and thus, any party to such an agreement must have the capacity to contract.

What Disputes May be Referred?

The parties to an arbitration agreement may refer to arbitration, a dispute which has arisen or which may arise between them, in respect of a defined legal relationship, whether contracted or not.

Thus, all matters of civil nature whether they relate to present or future disputes may form the subject matter of reference. The dispute, however, must be the consequence of legal relationship arising out of an obligation, the performance of which is a duty under the law and for its breach a remedy is provided.

Bar to Suit

When the parties have entered into an arbitration agreement, they cannot file a suit in a court of law in respect of any matter covered by the agreement; otherwise the very purpose of arbitration will be frustrated. The court will normally not intervene except where so provided by the Act.

What Disputes Cannot be Referred For Arbitration

The following disputes cannot be referred to arbitration:

1. Insolvency proceedings.
2. Lunacy proceedings.
3. Proceedings for appointment of a guardian to a minor.
4. Question of genuineness or otherwise of a will or matter relating to issue of a probate.
5. Matters of criminal nature.
6. Matters concerning Public Charitable Trusts.
7. Disputes arising from and founded on an illegal contract

Interim Orders by Court
A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before its enforcement, apply to the court for any of the following matters-

1. appointment of guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings;
2. preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;
3. securing the amount in dispute in the arbitration;
4. detention, preservation or inspection of any property or thing which is the subject matter of the dispute, or to authorize for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for obtaining full information or evidence;
5. interim injunction or the appointment of a receiver; or
6. such other interim measure of protection as may appear to the court to be just and convenient.

A court has jurisdiction to pass interim orders even before arbitral proceedings commence and before an arbitrator is appointed.

Setting aside an Award

An application for setting aside an arbitral award may be made before the court, by a party within three months of receipt of the award by him. The court may set aside an award on the following grounds:

1. a party was under some incapacity;
2. the arbitration agreement is not valid under the law;
3. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
4. the award deals with a dispute not contemplated by or beyond the scope of the submission to arbitration;
5. the composition of the arbitral tribunal or the arbitral proceedings was not in accordance with the agreement or with the law;
6. the subject-matter of the dispute is not capable of settlement by arbitration under the law; or
7. the arbitral award is in conflict with the public policy of India.

Appeal

An appeal shall lie before the court, against the following orders-

1. granting or refusing to grant any interim measure
2. setting aside or refusing to set aside an arbitral award and
3. granting or refusing to grant an interim measure of protection.

No second appeal shall lie against the appellate order of the court, except, however, that an appeal may be made to the Supreme Court.