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Important principles of arbitration law – iPleaders


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This Article is written by Riya Ranjan, from Lloyd Law College. This article deals with the principles and applications of the Arbitration Law in India. 

Arbitration dispute is described as an Alternative Disputes Resolution that is often used for the resolution of commercial disputes. Arbitration is different from mediation and conciliation, a mediator or conciliator only suggests the outcome and it’s upon the discretion of the parties whether to accept those or not. Whereas arbitration tribunal decisions are binding on the parties.

Arbitration is different from litigation, Mediation, Negotiation, and Conciliation. It is observed that arbitration is a bit faster and less expensive than other court proceedings. It is also a confidential and time-efficient process of solving disputes. The matter discussed during the arbitration process isn’t revealed outside the chamber. 

The law of arbitration is primarily based on the law of Torts and the law of Contract. The law of arbitration in India is governed by the Arbitration and Conciliation Act, 1996 which is read with the Indian Contract Act, 1872. The 1996 Act is based on the UNCITRAL Model Law of 1986, which is further amended and called the Arbitration and Conciliation (Amendment) Act, 2015.

Arbitration dispute is described as an Alternative Disputes Resolution that is often used for the resolution of commercial disputes. Arbitration is different from mediation and conciliation, a mediator or conciliator only suggests the outcome and it’s upon the discretion of the parties whether to accept those or not. Whereas arbitration tribunal decisions are binding on the parties. 

Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision is final and binding on both parties. It is a way to resolve a dispute outside the court. An arbitration dispute is decided by one or more persons which render the ‘arbitration award’ and is legally binding on both sides and enforceable in the courts. 

Arbitration can be either voluntary or mandatory. Arbitration which can only come from a statute or a contract that one party imposes on the other, in which the parties agree to hold all existing or future disputes to arbitration, without necessarily knowing, specifically, what disputes will ever occur are said to be Mandatory Arbitration. The arbitration may also be binding or non-binding. Technically non-binding arbitration is not arbitration but is similar to mediation in that a decision cannot be imposed on the parties. 

Arbitration was first used in the Jay treaty of 1795, which was negotiated by John Jay. The United States and Great Britain had started the use of arbitration to resolve their issues. At the First International Conference of American States in 1890, this plan was introduced to start a systematic arbitration, further, this plan failed. After that, many countries signed treaties, and many conventions were made regarding arbitration. Some were rejected and some were not accepted by the tenants. 

Nowadays, many countries use arbitration to solve their disputes. The most important international instrument on arbitration law is The Newyork Convention, 1958, which entered into force on 7 June 1959. According to research, there are over 150 countries ratified under this convention. 

Following are the general principles of the arbitration:

  • Arbitration is Consensual: Arbitration is a mutual process that requires the consent of both parties. Arbitration can only be initiated, if parties have agreed to initiate it. Parties can insert any arbitration clause if it is relevant utilizing a submission agreement between parties. The parties are also not allowed to unilaterally withdraw from the arbitration. 
  • Arbitration is Neutral: Arbitration is a neutral process hence it provides equal opportunity to the parties such as; Arbitrator, Arbitration Panel, applicable law, language, and venue of the arbitration. This also ensures that no parties should enjoy the home-court advantage. 
  • Arbitration is a confidential procedure: The arbitration rule specifically protects the confidentiality of the matter. The arbitration process provides privacy and restricts unnecessary controversies regarding the case and parties. Any disclosure made during the procedure may result in decisions and awards. In some circumstances, the parties are allowed to restrict the access of trade secrets and other confidential information submitted to the arbitration tribunal.  
  • The parties choose the arbitrator: Each party has the right to choose their arbitrator to whom they think will fit to handle their case. If the parties have chosen a three-member arbitration tribunal, then each party appoints one of the arbitrators. Then the two selected arbitration shall agree on the presiding arbitrator. The center can also suggest the potential arbitrator with relevant expertise or may directly appoint members of the arbitration tribunal.
  • The decision of the arbitral tribunal is final and easy to enforce: The decision of the arbitral tribunal is final and known as Award. The decision of the arbitration tribunal must be final and binding on both parties. Arbitration awards can be easily enforced in other nations than court proceedings.

arbitration

 

The two Acts together provide the legal framework governing arbitration in India. Stated as the Arbitration and Conciliation Act, 1996 read with the Indian Contract Act, 1872. Recently, Arbitration and Conciliation Act, 1996 has been amended vide the Arbitration and Conciliation (Amendment) Act, 2015.

Since the arbitrators have limited powers, they cannot act ultra – vires of their powers under the code. The act has established a higher authority to keep checks and balances on the practices of the arbitration. The arbitration clauses leading to the original type of jurisdiction are classified under two categories: Domestic Arbitration and International Commercial Arbitration. 

The jurisdiction of International Commercial Arbitration was granted to the Supreme court. The code entails the Supreme Court to be designated the authority for appointing an arbitrator in cases of International Commercial Arbitration. Meanwhile, the jurisdiction of Domestic Arbitration was given in the hands of high courts. The code entails the High Court to be designated the authority for appointing an arbitrator in cases of  Domestic Arbitration.

However, arbitration procedures can be varied to suit the needs of the parties. There are more specific types of Arbitration:

  • Commercial Arbitration is the most common in solving a dispute between two commercial enterprises.
  • Judicial Arbitration is not at all arbitration, but merely a court process that refers to itself as arbitration, which is usually the arbitration of a small claim.
  • Consumer Arbitration deals with disputes between a consumer and a supplier of goods or services.
  • Labor Arbitration involves the settlement of employment-related disputes and is divided into two main categories: Rights Arbitration and Interest Arbitration.

Flexibility

It is a very flexible process and the fastest way of solving disputes. Businessmen always prefer choosing arbitration for solving their disputes rather than other forms of dispute solution. It is more a commercial type of process and is less formal than the court process.

Privacy 

All the proceedings of Arbitration are decided according to the choice of both parties. The proceedings are generally held according to the privacy of both parties and parties can agree to keep the final solution confidential. It doesn’t create any controversy and limits the contents of the case up to the parties. The awards are also confidential in this process. 

Control

Parties have better control over the dispute resolution process through arbitration. The arbitrators are selected by the choice of parties and also the parties can select and specify the legal and procedural rules that will govern the process.

Party autonomy 

Arbitration allows the parties to choose their arbitrator, language, tribunal, and even the applicability of the law. It gives equal opportunity to both parties to choose their arbitral panel. 

Time

Arbitration consumes less time and is a shorter process than other court proceedings. It saves the time of the panel as well as the parties. The time limit can be placed on the length of the process.

Arbitral award 

The arbitration awards can be easily enforced in other nations than court verdicts or proceedings and are a confidential process. Arbitral awards are generally easier to enforce in other nations than court judgments, which limits the duration of the dispute and any associated liability.

In arbitration, if the party has wanted to resolve their dispute by the arbitration process then the party has to send a notice to the defaulting party to initiate the process of arbitration, known as arbitration notice. Then each party has to appoint an arbitrator of their choice. Then there are mainly six stages in the arbitration process: 

Initial pleading

It is the initial process where the attorneys first meet with their respective clients and discuss the facts of their cases. The attorneys identify and track down all of the relevant documents, information, and witnesses they will need to present their claims and defenses at the final hearing. After that, they prepare their respective Statements of Claim and Answers with their clients accordingly and will send a copy of it to other parties. 

Panel Selection

After the Statement of Claim and Answers have been filed in the arbitration tribunal. A list of panels is provided to each arbitrator to decide who will judge their dispute. In panel selection, each party can strike up to four proposed arbitrators, and then each arbitrator to sit on the panel and then appoint the highest-ranked arbitrators to the arbitration panel who fit to resolve the dispute.

Scheduling

It is an initial pre-hearing conference. The arbitrators and the parties’ attorneys have to attend this initial pre-hearing usually by telephone and agree on a date for the final hearing and any necessary preliminary deadlines.

Discovery

Discovery is the pre-trial phase. This phase was initiated just before the final hearing during which the parties attempt to identify and track down all of the relevant documents they will need to present their claims and prepare their defenses. 

Final hearing

At first, the Panel Chairperson will explain the procedures, and any preliminary issues will be resolved. After that, the hearing will begin and the parties will make their opening statements, and then be permitted to present their case by calling witnesses and submitting evidence. After the parties will make their closing arguments, and then the Panel will deliberate their decision. 

Arbitral Award

The decisions given by the arbitration tribunal are known as the ‘Arbitration Award’. The arbitration award is binding on both parties and has to be executed by both parties. 

Ravindra Kumar Gupta & Co. v. Union of India

In the above-mentioned case, it is reiterated that reappraisal of evidence by the Court is not permissible. In the case where the reasons have been given by the arbitrator during making the award, the court cannot examine the reasonableness of the reasons given. If the parties have selected their forum, then the deciding forum must be conceded the power of appraisement of evidence. It will not rely on the court to take upon itself the task of being a Judge on the evidence before the arbitrator and the arbitrator is solely responsible for the quality and the quantity of evidence.

                    

P.R.Shah, Shares, and Stock Broker Ltd. v. B.H.H. Securities Ltd. and Ors.

In this case, the court should not substitute its view for the view taken by the arbitrator while dealing with the proceeding for setting aside an award. The court said the arbitrator acts within the jurisdiction, “the reasonableness of the reasons” given by the arbitrator is not open to scrutiny by the court.

The Uniform Arbitration Act has been adopted by many countries so far, although some states have specific and individual rules for arbitration. This is the best process to resolve a dispute over commercial or corporate matters. 

This is flexible and useful especially when the subject matter of the dispute is highly technical: arbitrators with an appropriate degree of expertise can be chosen. This is the most confidential process which acts if both the parties have given their consent to it. This process will save a lot of time which is consumed in other courts’ procedures and are easy to enforce. 


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