The origin of arbitration is duly lost in obscurity as it can be traced back to an era of late 12th and early 13th century as the prima-facie method of dispute resolution used by the gilds and merchants post-dispatch of their goods and service affairs. The modern arbitration can be traced back to The Jay Treaty (1794) between Great Britain and the United States, that established three(3) arbitral commissions to settle claims arising out of the American Revolution. In the 19th century, many arbitral agreements were concluded as a result, ad hoc arbitration tribunals[1] were established to deal with specific cases or to handle a great number of claims suo-motu. Most significant was the Alabama claims arbitration under the Treaty of Washington (1871), by which the United States and Great Britain agreed to settle claims arising from the failure of Great Britain to act suo-motu during the American Civil War.
Commercial arbitration in today’s era is a boon for the parties who are seeking for out of court settlement for their dispute resolution to resolve their disputes through alternative dispute resolution mechanism. Section 2(a) of Arbitration and Conciliation act defines Arbitration as any arbitration whether or not administered by permanent arbitral institution;[2] however, this definition is not broadly and particularly defining the essence of arbitration, arbitration is a medium that provides speedy and effective resolution as compared to that of the court proceedings which in turn consumes years for a particular dispute resolution. The award granted by the Arbitration tribunal has similar applicability as of civil court Judgement therefore, it is final and binding to both parties to arbitration proceedings. The Arbitration and Conciliation Act 1996 has bifurcated itself into two parts the primary part is dealing with Arbitration in India and the other half is dealing with the enforcement of foreign awards.
BASICS OF ARBITRATION LAW
It is to be noted that through a detail arbitration in agreement, parties may submit all or certain disputes, which either have arisen or for any dispute which may arise between the parties in respect of a legal relationship. For instance, if a company entered into franchise agreement with an individual and later on both the parties agreed to refer their dispute to arbitrator with respect to revenue sharing through arbitration agreement. It is not necessary that parties can submit their dispute to arbitrator merely through a specific arbitration agreement Section 7 specifically states that an arbitration agreement can be in the form of arbitration clause. For example: A and B specifically stated in their principal franchise agreement that any dispute between the party shall be resolved through arbitration tribunal formulated under Arbitration and Conciliation Act. Further, discussing about the Arbitration, Section 7[3] of the Act permit classification of disputes but does not permit classification of claims. Now the arbitration clause can be waived by a party under dual circumstances- one by filing a statement of defence or submitting to jurisdiction and secondly, by unduly delaying the filing of the application under Section 8 by not filing the same till the date by which the statement of defence could have been filed. An arbitrator can be a person of any nationality and parties are free to agree on procedure for appointment of arbitrator however, the number of arbitrators in an Arbitration Tribunal cannot be an even number nevertheless, if parties fails to agree upon the number then in such instance the tribunal shall consist of a sole arbitrator, arbitration can be initiated by any party through a written request to the other party, if there is any disagreement on appointment of arbitrator or say, parties fails to appoint arbitrator within 30 days of the request of one party then in such instance other party can approach to the hon’ble court for the appointment of arbitrator in accordance of Section 11 of Arbitration and Conciliation Act.
Section 9 is a provision which specifically contributes in strengthening the principle of natural justice, wherein, any party can approach to court even before arbitration or during arbitration but before award for example A and B have dispute over an asset, that is disposable and transferable, whereby A is the owner of the asset and B is in possession of the asset, thereby to secure his asset A can file for temporary injunction. it is also to be noted that the arbitration act empowers the arbitrator to provide any interim measure at the request of other party during the arbitration proceeding. Arbitration is a tool that is promoted on account of the reason that CPC or Evidence act has no applicability with regard to arbitration proceedings, nevertheless, parties through an agreement can define the procedure that is to be followed by the arbitration tribunal while following the proceedings.
Since arbitration is not governed by the civil procedure code therefore parties are free to agree upon the place of arbitration, it is on account of this reason that in present scenario majority of the commercial transaction has preference for arbitration and dispute resolution mechanism but not for litigation. Nevertheless, parties are free to agree upon the language of arbitration; under arbitration law nomenclature of plaint is known as Statement of Claims while written statement is known as Statement of Defence.
This article will be briefing about the Commercial Arbitration in specific; so, let’s move on to get a glance at what is commercial arbitration. Arbitration and Conciliation act 1996 defines International commercial arbitration as “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is—
(i) an individual who is a national of, or habitually resident in, any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
(iv) the Government of a foreign country;”[4] but there is more to it, i.e. arbitration is the only expandable resource available to the traditional court system. It can and does have a constructive and tacit effect on the flow of litigation generally. in last decade, the Indian judiciary has made a considerably required act i.e. establishing India as an (international) arbitration-friendly judicial apparatus.
But when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. If the instrument is not properly stamped, it should be impounded and the Court cannot act upon such a document or the arbitration clause therein.[5]
Once the arbitrator is appointed, he/she cannot be changed unless he fails or becomes de jure or de facto unable to perform his functions; he withdraws from his office or the parties agree to terminate his mandate by applying to court or either he can be substituted by another arbitrator. Significance of seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award.[6]
In commercial arbitration the parties are free to choose the language that they both agree upon to be used failing forth to this, the tribunal shall with respect to Section 22 of the act shall determine the apt language for the proceedings and the draft award. If there is any documentary or electronic evidence imparting a barrier as to that of a language shall be followed up by a translation either written or oral in the preceding tribunal. The process is governed by the rules agreed upon in the arbitration agreement; otherwise, the procedure is thereby notified by the appointed arbitrators. If a party fails to appear or exempts at a hearing without causa-Proxima, the arbitrator can proceed and render an award after clarifying the matter in dispute. Under the law and arbitration in many countries, an award is deemed to be valid and binding upon the parties, when rendered by a majority of the arbitrators, unless the parties request to make a unanimous decision of the arbitrators. The statutory laws in various nations and the rules administering commercial arbitration contains provisions on the award, on which the arbitrator has to comply.
The award must be based upon the law as determined by the parties in their agreement, otherwise, failing this, the arbitrator must apply the law he considers proper in accordance with the principles of the conflict of laws. In both cases, the arbitrator must take into consideration the terms of the contract and the usage of the specific trade. If a compromise is reached by the parties during any arbitration proceeding, that compromise may be recorded as an award by the arbitrator. Appeals to the courts from the award cannot be excluded by agreement of the parties, since the fairness of the arbitration process as a quasi-judicial procedure has to be maintained. However, any court control is confined to specific matters, usually enumerated in the arbitration statutes, such as misconduct of the arbitrator in denying a party the full presentation of its claim or refusing a postponement of the hearing for good cause. A review of the award by a court generally does not address the arbitrator’s decisions as to facts or his application of the law. The competence of the courts usually is restricted so as not to make the arbitration process the beginning of litigation instead of its end. Recognition of an award and its enforcement will be denied when it appears to be contrary to public policy. An arbitration award has the authority of a court decision and may be enforced by summary court action according to the procedural law of the country in which execution is being sought.[7] If a foreign award fails to determine a material issue which goes to the root of the matter, the award may shock the conscience of the Court and may be set aside. Further, it was held that a foreign award must be read as a whole, fairly and without nit-picking. If read as a whole, the Award addresses the basic issues raised by the parties and decides the claims and counter-claims then enforcement must follow.[8] Thus there is no need to be concerned about if, the material facts or the skeletal problem is not being settled via means of arbitration, certain orders are appealable in the court under section 37[9] of The Arbitration and Conciliation Act 1996.
There are certain protocols that are of importance to be kept in mind:
- Validity of an agreement
- Arbitral procedure and the constitution of the tribunal
- Each state shall recognise arbitration as a means to dispute resolution.
- Convention on the recognition and enforcement of foreign arbitral awards and Convention of the execution of foreign arbitral awards are to be followed and signed by the States from which the parties are in dispute.
Adding an Arbitration clause for dispute resolution via institutional or ad-hoc arbitration can get the max outcome effectively and efficiently, subject to the fact that parties have agreed upon the detail arbitration procedure and aspects related there to, such as, dispute mechanism to be followed, number of arbitrators, place of arbitration and language of arbitration.
[1] Place where the proceedings related to arbitration takes place.
[2] Section 2(a) of The Arbitration and Conciliation Act 1996
[3] (1) In this Part, “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) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
[4] Section 2(1)(f) of Arbitration and Conciliation Act 1996.
[5] M/s Dharmaratnakara Rai Bahadur v. M/s Bhaskar Raju & Brothers [February 14, 2020 in Civil Appeal No. 1599/2020]
[6] Mankastu Impex Private Limited v. Airvisual Limited March, 5, 2020
[7] https://www.britannica.com/topic/arbitration#ref27071
[8] Vijay Karia v. Prysmian Cavi E Sistemi SRL & Ors. [February 13, 2020 in Civil Appeal No. 1544 of 2020]
[9] (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely: —
(a) granting or refusing to grant any measure under section 9;
(b) setting aside or refusing to set aside an arbitral award under section 34.
(2) An appeal shall also lie to a Court from an order granting of the arbitral tribunal. —
(a) accepting the plea referred in sub-section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim measure under section 17.
(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.
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