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Conduct of Arbitral Proceeding under Arbitration and Conciliation Act | Civil Law for Judiciary Exams PDF Download

Introduction

  • The legal system in the present day often fails to provide timely and cost-effective relief to parties involved in disputes. With around 2 crore cases pending in the Indian legal system and a limited number of Judicial Officers, the backlog of cases is substantial. The litigation process is not only expensive but also time-consuming, at times surpassing the value of the claim itself.
  • The delays in the legal system are particularly detrimental, with civil cases often taking 15-20 years to reach a conclusion. This prolonged duration leads to physical, mental, and financial distress for the parties involved.
  • Advancements in technology have ushered in a variety of cases that may lack the specialized knowledge of a judge, further complicating the resolution process.

Justice Delayed and Justice Denied

  • One of the prevailing challenges in the legal system is the significant delay in resolving cases, leading to a denial of justice for many. The adage "Justice Delayed is Justice Denied" underscores the importance of timely adjudication in ensuring fair outcomes.
  • The delays not only impact the litigants but also pose broader societal implications, affecting the overall efficiency and trust in the legal system.
  • Moreover, the prolonged litigation process can result in substantial costs that may outweigh the actual value of the dispute, further exacerbating the burden on the parties involved.

The Challenge of Delay in Litigation

  • The most significant drawback in legal proceedings is the extensive delays involved. Typically, it is assumed that a civil case can take anywhere between 15 to 20 years to reach a resolution.
  • These delays lead to various forms of hardship including physical, mental, and financial stress for the parties involved.
  • The rapid evolution of technology has introduced new types of cases to the courts regularly, sometimes surpassing the expertise of the presiding judge.

Consequences of Delay

  • Prolonged delays often result in incorrect judgments, leading to subsequent appeals in higher courts.

The Emergence of Arbitration

  • Arbitration has emerged as a preferred alternative for resolving disputes swiftly and efficiently, especially in cases where litigation delays pose significant challenges.

Arbitration

  • Arbitration serves as an alternative method for resolving disputes outside of the court system, aiming to promote quick and amicable resolutions without the need for lengthy litigation processes.
  • It involves the selection of a neutral third party, known as an arbitrator, who possesses expertise in the specific subject matter related to the dispute at hand.
  • The arbitrator plays a crucial role in facilitating communication, evaluating evidence, and making a binding decision based on the facts presented by each party.
  • Parties involved in arbitration are obligated to adhere to the rules and time constraints established by the arbitrator, ensuring that the dispute is resolved within a specified timeframe.
  • Unlike court proceedings, arbitration provides a more flexible and informal setting for resolving conflicts, allowing the involved parties to maintain a certain level of control over the process.

Need to Commence Arbitration in India

  • In today's competitive world, delays in dispute resolution can lead to significant losses for corporations.
  • Parties involved in disputes prefer swift and amicable resolutions.
  • Arbitration offers the advantages of privacy and confidentiality during proceedings.
  • Parties often opt for arbitration to prevent their disputes from becoming public and tarnishing their company's reputation.
  • Arbitration is known for its flexibility in terms of time and procedures, respecting parties' autonomy.

Types of Arbitration

There are two main types of arbitration proceedings:

  • Binding Arbitration: In this type, the decision made by the arbitrator is final and legally binding on the parties involved. For example, in a commercial contract, the parties may agree to binding arbitration to resolve any disputes that arise.
  • Non-binding Arbitration: In this form, the arbitrator's decision is advisory and not legally binding. The parties are free to pursue further action if they are not satisfied with the outcome. For instance, non-binding arbitration is often used in labor disputes.

Institutional Arbitration

Institutional Arbitration involves a specialized organization with a permanent setup that assists and manages the arbitral process according to the institution's regulations. These institutions offer administrative assistance to the involved parties. When opting for arbitration, parties specify in their contract whether they prefer institutional arbitration or ad hoc arbitration.

Choosing institutional arbitration for dispute resolution raises several considerations for the parties:

  • Administrative Support: Institutions provide crucial administrative support throughout the arbitration process, ensuring its smooth functioning.
  • Procedural Guidance: Parties benefit from clear procedural guidelines set by the institution, aiding in the resolution of disputes efficiently.
  • Neutrality and Impartiality: Institutions uphold principles of fairness, neutrality, and impartiality, fostering trust in the arbitration proceedings.
  • Cost Efficiency: While institutional arbitration may incur additional costs, the streamlined process and expert support can lead to overall cost efficiency.
  • Nature and Significance of Disputes: Understanding the types and importance of disputes in the context of arbitration is crucial.
  • Institutional Regulations: Rules established by arbitration institutions that govern the arbitration process.
  • Historical Performance: Evaluating the track record and historical outcomes of arbitration institutions.
  • Reputation of the Institution: Assessing the prestige and standing of the arbitration institution in the industry.
  • Fee Structure: Exploring the fee schedules and charges associated with arbitration services.

Some well-known arbitration institutions include:

  • Indian Council of Arbitration (ICA): A prominent institution facilitating arbitration in India.
  • International Chamber of Commerce (ICC): A globally recognized organization for international arbitration.
  • Federation of Indian Chamber of Commerce & Industry (FICCI): Playing a key role in arbitration within the Indian business community.
  • World Intellectual Property Organization (WIPO): Specializing in intellectual property dispute resolution at an international level.

Ad hoc Arbitration

  • An ad hoc arbitration refers to a type of arbitration that is not overseen by an external institution.
  • The parties involved are responsible for determining various aspects of the arbitration process, including:
    • The number of arbitrators to be involved
    • The method of their selection
    • The procedures for appointment
    • The conduct of the arbitration proceedings
  • Unlike institutional arbitration, ad hoc arbitration is not managed by a third-party institution.
  • Parties must independently arrange for:
    • The selection of an arbitrator
    • The establishment of rules
    • The application of relevant laws
    • The procedural aspects and administrative support
  • Ad hoc arbitration proceedings are characterized by:
    • Cost-effectiveness
    • Flexibility
    • Efficiency in terms of speed
    • Lower overall fees compared to institutional arbitration

Domestic and International Arbitration

  • Domestic Arbitration in India: Domestic arbitration in India occurs when the arbitration is based on a contract and the disputes' merits are governed by Indian law. The cause of action fully arises within India, and both parties involved are from the domestic country. All arbitration proceedings take place within their own country or habitual residence.
  • Example: For instance, if two Indian companies have a dispute regarding a contract clause, and they decide to resolve it through arbitration within India, this would constitute domestic arbitration.
  • International Commercial Arbitration: International commercial arbitration involves arbitral proceedings that occur either in India or outside the country. It applies when the parties or the subject matter of the arbitration belong to a foreign entity. Rules specific to international commercial arbitration govern these proceedings.
  • Example: Consider a scenario where a Japanese company and a Brazilian company have a dispute over an international contract. They opt for arbitration in Singapore to resolve their issues. This scenario falls under international commercial arbitration.
  • Legal Systems and Rules: Various legal systems have distinct rules for both domestic and international arbitration. These rules outline the procedures and guidelines that arbitrators and parties must adhere to during the arbitration process.

Question for Conduct of Arbitral Proceeding under Arbitration and Conciliation Act
Try yourself:
What is one of the challenges in the legal system mentioned in the passage?
View Solution

Stages of the Arbitral Process

Arbitration Clause or Arbitration Agreement

  • Parties should include an arbitration clause in contracts related to construction, insurance, partnership, or civil matters.
  • The clause allows parties to resolve disputes through arbitration in the future.
  • When drafting the arbitration clause, it should be detailed and cover all possible disputes that may arise from or relate to the contract.
  • If no arbitration clause is present, parties can create an arbitration agreement with mutual consent to address disputes from the previous contract.
  • Elements required to make arbitration agreement or arbitration clause effective:
    • Number of Arbitrators
    • Section 10 of the Arbitration and Conciliation Act, 1996 specifies the requirements regarding the number of arbitrators.

Section 10 of the Arbitration and Conciliation Act, 1996 explains the rules regarding the appointment of arbitrators:

  • Parties have the freedom to select any number of arbitrators, but the total number must not be an even figure.
  • If the parties fail to agree on the number of arbitrators within 30 days of the initial request, they can refer the matter to an arbitration tribunal, which will then appoint a single arbitrator.

Arbitration Notice

Section 21 of the Arbitration and Conciliation Act, 1996 outlines the commencement of arbitration proceedings:

  • The arbitration process officially begins on the date the respondent receives a request to refer the dispute to arbitration. Once the respondent receives the legal notice, they are required to respond within the specified period mentioned in the notice.

Arbitration and Conciliation Act, 1996

  • Section 21: Dispute commencement in arbitration begins upon receiving a request for arbitration by the respondent. Parties are required to respond within the fixed period stated in the notice.
  • Appointment of Arbitrators:
    • Arbitrator selection is a mutual decision by parties based on the arbitration agreement. They must specify the arbitrator's name for dispute resolution.
    • If parties fail to agree on an arbitrator, Section 11 of the Act mandates approaching the Court for arbitrator appointment.

Statement of Claim

  • Section 23 of the Arbitration and Conciliation Act, 1996 requires the claimant to present supporting facts, issues, and relief within the specified time.
  • The parties must submit their statement of claim with all relevant documents. Amendments can be made by mutual agreement during the arbitration process or if deemed necessary by the arbitral tribunal.

Hearing of Parties

  • Key steps in the hearing process:
  • Preliminary hearing and exchange of information stage.

Arbitration Process

  • Preliminary Hearing:
    • Occurs post arbitrator appointment.
    • Parties meet to discuss issues and exchange information.
    • Arbitrator schedules the next hearing via a 'scheduling order'.
  • Hearing Stage:
    • Parties present their case to the arbitrator.
    • Can be in person, over the phone, or through written submissions.
    • Submission of written arguments post-hearing, as directed by the arbitrator.
  • Award Stage:
    • Final stage where the arbitrator issues a decision.
    • Decision based on arguments and evidence presented during the hearing.

Arbitration Award

  • Upon the conclusion of the hearing, the arbitrator decides to close the hearing and sets a date for issuing the award.
  • The arbitrator issues a written award detailing the case's outcome, which is then sent to the involved parties.
  • An arbitration award signifies the final decision made by the arbitrator, which can include monetary compensations or non-financial remedies like altering business practices or introducing employment benefits.

Types of Arbitration Awards

  • Interim Award: An interim award is a temporary decision issued by the tribunal mid-proceedings. It can involve directing payments between parties or managing property arrangements. Such orders are typically to cover arbitration costs.

  • Interim Award: This award is a temporary decision made by the tribunal during ongoing proceedings. It can only be granted by the tribunal authorized to issue a final award. Interim orders commonly involve money payments or property arrangements between involved parties. Interim payments may be made to cover arbitration costs.
  • Final Award: Final awards are judgments or orders issued by arbitrators at the conclusion of arbitration proceedings. The arbitrator must provide reasons for the decisions within the award. Following the announcement of the final award, it must be signed by all arbitrators and parties involved. For a period of 90 days after issuance, other parties have the right to contest the award in court until the winning party can enforce it.
  • Challenge in Court: When an award is in favor of a party, that party must wait for 90 days before being able to enforce the award. During this time, other parties have the opportunity to challenge the award through legal means.

Arbitration and Conciliation Act, 1996

  • The party awaiting an award must wait for 90 days. During this time, other parties can challenge the award.

Grounds for Setting Aside an Arbitral Award

The award can be set aside if:

  • The party was incapacitated.
  • The arbitration contract is invalid under the law to which parties are subject.
  • The party applying for arbitration did not properly request the appointment of an arbitrator from the other party.
  • The award deals with disputes beyond the scope of arbitration.

Other Essential Elements of Arbitral Process

These elements are crucial for the arbitration process to function effectively.

Understanding Seat and Venue in Arbitration

  • Seat in Arbitration: The seat in arbitration refers to the legal jurisdiction where the final arbitral award is rendered. It significantly influences the legal framework of the arbitration process. The choice of seat determines the applicable rules governing the arbitration proceedings and the rights associated with enforcing arbitration awards. 
  • Importance of Seat Selection: Parties must carefully consider and decide on the seat of arbitration as different jurisdictions have their own distinct sets of rules governing arbitration. This decision not only impacts the laws governing the proceedings but also affects the enforcement of arbitration awards. 

Venue in Arbitration

  • Definition of Venue: The venue in arbitration refers to the physical location where arbitration proceedings take place. In institutional arbitration, the venue is typically where the institution is situated. In ad hoc arbitration, parties can decide on the venue as per their convenience. 
  • Distinguishing Seat and Venue: It's crucial to differentiate between the seat and venue in arbitration. While the seat determines the legal jurisdiction, the venue is simply the geographical location chosen for the convenience of the parties involved. 
  • Importance of Venue in Absence of Agreement: When the arbitration agreement is silent on the seat and venue, the venue becomes a critical factor in determining the appropriate court for resolving disputes. 

Arbitration

  • Venue: The venue is where arbitration meetings occur. In institutional arbitration, it's typically at the institution's location. Ad hoc arbitration allows parties to decide the venue.
  • Seat vs. Venue: The venue is a chosen location for convenience, distinct from the seat of arbitration. When agreements are silent on the seat and venue, venue choice influences the appropriate court.

Cost of Arbitration

  • The cost is shared by both parties. It's illegal for only one party to bear all expenses. Fees are split or agreed upon mutually between the plaintiff and respondent.

Limitation to Commencement of Arbitration

  • As per Section 43(2) of the Arbitration and Conciliation Act, 1996, the limitation period starts from the date the cause of arbitration arises. Reminders do not delay this period, even if not mentioned in the arbitration clause.

Explanation of Section 43(2) of Arbitration and Conciliation Act, 1996

  • According to Section 43(2) of the Arbitration and Conciliation Act, 1996, the clock starts ticking on the limitation period for the claimant to invoke the arbitration clause from the date the cause of arbitration occurred. It's important to note that unnecessary communication or reminders do not delay the start of this limitation period. Even if the arbitration clause does not mention a limitation period, the period still begins as per this section.

Duration of Arbitral Proceedings

  • Arbitral proceedings must adhere to the Limitation Act, 1963 unless explicitly excluded by the Arbitration and Conciliation Act, 1996. Any arbitration proceedings initiated more than three years after the cause of action arose are considered time-barred.
  • Parties involved in arbitration have the autonomy to establish their own procedural rules. In the absence of agreed-upon procedures, the tribunal possesses the authority to conduct proceedings as it deems suitable. Notably, the tribunal is not bound by the provisions of the Civil Procedure Code, 1908, and the Evidence Act, 1872.
  • In cases where arbitration is to be administered by an arbitration institution, the rules of that institution automatically become part of the arbitration clause. Conversely, in ad hoc arbitrations, the involved parties must establish their procedural rules.

Question for Conduct of Arbitral Proceeding under Arbitration and Conciliation Act
Try yourself:
What is the purpose of including an arbitration clause in a contract?
View Solution

Arbitration Procedures and Rules

Parties' Autonomy in Arbitration

  • The parties involved in arbitration have the liberty to establish their own procedural rules for the arbitration process. In cases where no specific procedure is agreed upon, the tribunal is granted the authority to conduct the proceedings in a manner it deems suitable.
  • In instances where the arbitration is not governed by any specific rules, the parties are required to develop their own set of procedural guidelines.
  • If the arbitration is administered by an arbitration institution, the rules of that institution automatically become part of the arbitration clause.

Amendments to the Arbitration and Conciliation Act

  • Recent changes in the Arbitration and Conciliation Act mandate that oral hearings of evidence or arguments must be held on a daily basis, with adjournments only granted upon valid reasons. 
  • The tribunal is empowered to impose punitive costs on parties requesting unjustified adjournments.

Arbitrators' Opinions and Awards

  • The Arbitration and Conciliation Act allows for diverse opinions among arbitrators. In cases where arbitrators hold differing views, they may present a separate opinion in addition to the majority award. 
  • However, these dissenting opinions are not binding and do not form part of the final decision.

Arbitrator's Opinions

  • Different opinions from arbitrators are allowed as per the Arbitration and Conciliation Act. The arbitrators can either provide a separate opinion in a distinct document or include it in the same document as the majority award. 
  • However, these dissenting opinions do not form part of the majority decision and are not legally binding.

Role of Local Courts

  • Local Courts have the authority to intervene in domestic arbitration proceedings. 
  • This includes the power to issue interim orders, direct the presentation of evidence to the tribunal, and appoint arbitrators.

Enforcement of Arbitral Awards

Following the issuance of the final arbitration award, parties involved have the option to challenge the award in Court by filing an application to set it aside.
The Court holds the ability to set aside the arbitral award under certain circumstances:

  • The arbitral award was procured by fraud
  • There was a breach of natural justice during the arbitration process
  • The subject matter of the dispute is not capable of settlement by arbitration under the law
  • The arbitral award is in conflict with the public policy of the country

Reasons for Invalidation of Arbitration Agreement

  • A party might be incapable of participating effectively in arbitration proceedings.
  • The arbitration agreement may be deemed invalid if it contradicts the laws governing the contract agreed upon by the parties.
  • Failure to provide adequate notice to the opposing party regarding the appointment of an arbitrator can lead to the agreement being deemed invalid.
  • If the arbitral award extends beyond the agreed scope of arbitration, including decisions on matters not submitted for arbitration, it can invalidate the agreement.

Enforcing Domestic Arbitral Awards

When seeking enforcement of an arbitral award in a domestic setting, the award holder must observe a 90-day waiting period. During this period, the party retains the right to contest the award in court. Any challenge to the award must adhere to the guidelines outlined in Section 34, which detail the process for applying to set aside an arbitral award.

Understanding Foreign Award Enforcement

  • Foreign award enforcement is a crucial process governed by the New York Convention, established during the United Nations Diplomatic Conference on 10 June 1958. It aims to resolve disputes arising from legal relationships.
  • The Geneva Convention and the New York Convention specify that a foreign arbitral agreement must be in written form, without any prescribed format. Additionally, for a foreign award to be enforceable, it must be valid and stem from a legally binding Arbitration Contract.
  • For an arbitration award to be effective, it must possess characteristics such as clarity, impartiality, and the ability to resolve the underlying dispute.

Key Considerations in Arbitral Processes

  • An essential aspect of arbitration is the meticulous drafting of the arbitration clause or agreement. This foundational step significantly impacts the entire arbitration process.
  • Arbitration fundamentally upholds the autonomy of involved parties. During the formulation of arbitration clauses, parties need to make decisions regarding arbitrator selection, the number of arbitrators, and the applicable arbitration rules.
  • Upon the issuance of the final arbitration award, its enforcement is carried out in accordance with the applicable laws of the arbitration jurisdiction.
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FAQs on Conduct of Arbitral Proceeding under Arbitration and Conciliation Act - Civil Law for Judiciary Exams

1. What is the difference between institutional arbitration and ad hoc arbitration?
Ans. Institutional arbitration involves arbitration administered by a specialized institution, such as the International Chamber of Commerce (ICC), while ad hoc arbitration is conducted without the assistance of an institution.
2. What are the stages of the arbitral process according to the Arbitration and Conciliation Act, 1996?
Ans. The stages of the arbitral process under the Arbitration and Conciliation Act, 1996 include the appointment of arbitrators, submission of statements of claim and defense, holding of hearings, and issuance of the arbitral award.
3. How does the Arbitration and Conciliation Act, 1996 regulate arbitration in India?
Ans. The Arbitration and Conciliation Act, 1996 governs the conduct of arbitration proceedings, enforcement of arbitration agreements, and recognition and enforcement of arbitral awards in India.
4. What is the significance of a well-drafted arbitration award in the arbitration process?
Ans. A well-drafted arbitration award is crucial as it serves as the final decision of the arbitral tribunal, outlining the reasoning behind the decision and providing clarity on the resolution of the dispute.
5. Can parties choose the language of arbitration proceedings in domestic and international arbitration?
Ans. Yes, parties can choose the language of arbitration proceedings in both domestic and international arbitration, ensuring that all parties involved can effectively participate and understand the proceedings.
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