Summary: Conduct of Arbitral Proceeding under Arbitration and Conciliation Act, 1996 | Law Optional Notes for UPSC PDF Download

Arbitration

• Arbitration serves as a method to resolve disputes between involved parties.
• The Arbitration and Conciliation Act of 1996 governs the conduct of arbitral proceedings.

Prerequisites for Arbitration

• An arbitration agreement, as outlined in section 7 of the Act, is a key requirement.
• The agreement must be written and signed by both parties, although arbitration without a prior agreement is possible.

Importance of Arbitration Agreement

• The case of PAG Raju V PVG Raju highlighted that an arbitration agreement is not always necessary.
• Oral agreement or mutual consent at the time of claimant's arbitration application suffices.

Essential Elements of an Arbitration Agreement

• Emphasized in the Bihar State Mineral Dev Corpn. V Encon Builders (I) Pvt. Ltd case.
• Elements include intent to resolve disputes, timely resolution, binding written agreement, and mutual consensus.

Procedures in Arbitration

• Notice must be given as per section 21 of the Act.
• Arbitrators are appointed in accordance with section 10, with consensual appointment under section 11.
• High court determines arbitrator fees and establishes rules under schedule 4 of the Act.

Important Legal Precedents

Tulsi Narayan Garg Vs. The M.P. Road Development Authority, Bhopal and Ors 

• In this case, it was established that a person involved in an agreement cannot act as an arbitrator to ensure impartiality. This aligns with the principle of treating both parties equally as stated in section 18. 
• Arbitration requires adherence to specific rules, with section 21 outlining the necessary procedures. Parties have the freedom to determine when arbitration commences, emphasizing the importance of documented agreements resembling contracts.

Alupro Building System Pvt Ltd V Ozone Overseas Pvt. Ltd

• An instance arose concerning arbitration notice. The claimant issued a notice indicating arbitration by an arbitrator of their choosing, which the respondent did not consent to mutually. 
• Furthermore, the notice failed to specify the issues or claims against the respondent. The Delhi High Court ruled the notice as improper due to these deficiencies, highlighting the importance of adherence to legal requirements. 
• Arbitration is bound by limitations, with the Limitation Act 1963 governing proceedings. Section 43 of the Arbitration and Conciliation Act specifies that any arbitration beyond the limitation period is invalid and time-barred.

Arbitration Principles

Arbitration is guided by two fundamental principles outlined in Section 18 of the Act.

• Parties involved must be treated equally, with both given the opportunity to present their cases.
• The arbitral tribunal must maintain impartiality and should not show favoritism towards any party.

Case Study: Vinod Bhaiyalal Jain Vs. Wadhwani Parmeshwari Cold Storage Pvt. Ltd

• In this Supreme Court case, the issue of bias in arbitration was addressed.
• The court emphasized the importance of avoiding bias in arbitration proceedings.
• An arbitrator's impartiality is crucial, as demonstrated by the consequences in this case where bias led to the arbitration award being set aside.

Arbitration vs. Mediation

• Arbitration differs from mediation as it follows all procedural rules.
• Section 19 of the Act grants arbitrators the freedom to not adhere to the Code of Civil Procedure 1908 or the Indian Evidence Act 1872.
• Arbitrators have the authority to determine the admissibility, materiality, and weight of evidence using any suitable method.
• The primary objective of arbitration is to ensure a swift trial without the formalities of a court.

Legal Procedures in Arbitration

• If parties opt to follow procedural laws, the essence of the alternate dispute resolution system may be undermined.
• Parties have the liberty to choose between traditional legal procedures and arbitration, as illustrated in the case of Dr. Bina Modi v. Lalit Modi & Ors.
• Section 19 allows parties to exercise discretion in selecting the procedural law to govern their arbitration.

Selection of Arbitration Venue

• Section 20 grants parties the right to select the place of arbitration.
• The choice of venue should be mutually agreed upon by the parties.
• In cases of disagreement over the arbitration venue, the arbitrator can make the final decision.
• Arbitrators may opt for a location suitable for consulting members, hearing witnesses, and inspecting documents with parties' consent.

Dr. Bina Modi v. Lalit Modi & Ors

• In the legal case involving Dr. Bina Modi and Lalit Modi, there was a dispute regarding the arbitration's location.
• The parties had initially agreed to conduct the arbitration in Hong Kong.
• However, a question arose concerning the validity of arbitration under the Arbitration and Conciliation Act 1996 if it took place in Hong Kong.
• Given that the Memorandum of Understanding (MoU) between the parties was based on Indian laws, the jurisdiction falls under a Delhi court.
• It was determined that arbitration in Hong Kong could proceed by following the regulations outlined in the Arbitration and Conciliation Act 1996, conducted in the English language.

Mankastu Impex Private Limited V Airvisual Limited

• Parties engaged in arbitration have the freedom to choose the language for the proceedings.
• If no language is chosen, the arbitrator has the authority to select the language as per Section 22 of the Act.
• The chosen language applies to all written statements, hearings, arbitral awards, and decisions.
• Any documentary evidence must be translated into the agreed language for ease of understanding during arbitration.
• Section 23 of the Act addresses the pleading process for the parties before the arbitrator.
• Within six months of the arbitrator's appointment, both parties must complete their statements of claim and defense.
• Parties can submit relevant supporting documents for their claims, and the respondent can counterclaim or plead for a case dismissal.
• Section 24 discusses the arbitrator's authority over arbitral proceedings and hearings based on written agreements.
• In the absence of a written agreement, the arbitrator can conduct proceedings orally or through documents and other materials.
• Prior notice must be given to both parties before hearings for property or document inspections.
• All documents and evidence provided by a party must be shared with the other party, including any expert reports.
• Oral hearings can be conducted, and hearings can be suspended if both parties agree.

Default in Communication in Arbitration Proceedings

Significance of Default in Communication

• Failure to communicate among the parties is a critical issue in arbitration, as perceived by arbitrators.

Instances of Default and Consequences

• Absence of Claimant: When the claimant is absent without a valid reason, proceedings are terminated as per Section 23(1) of the Act.
• Respondent's Failure to Communicate: If the respondent neglects communication without justification, the arbitral tribunal proceeds ex parte, leading to a decision without a defense statement as per Section 23(1) of the Act.
• Recalling Termination with Sufficient Cause: If there is a valid reason for the parties' absence, the termination is revoked, and arbitration proceedings resume. An expert may be summoned to offer an opinion akin to evidence under the Indian Evidence Act Section 26. The expert's opinion holds weight and aids in dispute resolution, but does not supplant the arbitrator's role.
• Use of Experts and Disclosure: In Husein Ebraham V Keshardeo Kanaria & Co, an arbitrator engaged a third party not party to the agreement for information relevant to arbitration, concealing this from the involved parties. The arbitration was halted, and the arbitrators were reprimanded for misconduct. Utilizing an expert without informing the arbitration parties is unacceptable.

Arbitration Process

• Section 27 of the Act discusses court assistance in arbitration. This occurs when parties fail to cooperate with the arbitrator or provide necessary evidence. The tribunal can seek court assistance to compel compliance.
• Termination of proceedings by the arbitrator is the final step in arbitration. It can happen when the arbitrator issues the final award or terminates the arbitral proceedings based on specific conditions.
• Three situations where termination can occur:
  • When the claimant withdraws the claim.
  • When the respondent does not object to the claimant's claim.
  • When both parties agree to terminate the arbitral proceedings or when the arbitrator deems the arbitration futile due to the circumstances.
• Proper notification and order by the arbitrator are necessary in any termination scenario to inform both parties. Parties can agree to substitute the arbitrator, repeat any hearings, or continue with previous proceedings.