Indian legal system is known for its delays and
disparities. It is a known fact that our courts are over-burdened with the
pending cases and it is almost impossible to provide quick and efficient
relief to the aggrieved parties. Therefore, to meet the situation, nowadays,
the Alternative Dispute Resolution (ADR) mechanism is used all over the world
which is more effective, faster and less expensive.
Under ADR mechanism, there are basically four
While the first two methods are not recognised by
law, the methods of conciliation and arbitration are quasi-judicial methods to
resolve a dispute with minimum court intervention. The same is now recognised
by the Arbitration and Conciliation Act, 1996 (Act 26 of 1996). The courts
have always assisted in proper conduct of the arbitration proceedings and
enforcement of arbitration awards.
Section 2 (1)(a) of the Act defines
"Arbitration means any arbitration whether or not administered by permanent
ARBITRATION can be defined as a method by
which parties to a dispute get the dispute settled through the intervention of
a third independent person. Parties can also settle their disputes through a
permanent arbitral Institutions like, Indian Council of Arbitration, Chamber
of Commerce, etc. Halsbury has defined Arbitration as follows:
"Arbitration is the reference of dispute between
not less than two parties, for determination, after hearing both sides in a
judicial manner, by a person or persons other than a court of competent
Types of Arbitration
1. Domestic Arbitration
2. International Arbitration.
3. Ad hoc Arbitration.
4. Institutional Arbitration.
5. Statutory Arbitration.
Section 7(1) of the Act mentions that 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.
An arbitration agreement should be in writing and
signed by both the parties. It need not be in a particular form. However, the
intention to refer to arbitration must be established. Arbitration can be
agreed by way of exchange of letter, telex, telegram fax, etc.
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.
An Arbitration Agreement is a contract and it
must satisfy all the essential elements of a contract. As per the Contract
Act, 1872, an agreement between two parties which is enforceable by law is a
There is no provision in this Act for referring a
matter to an arbitrator by intervention of the court.
DISPUTES EXCLUDED FROM ARBITRATION
Generally speaking all disputes of a civil nature
can be referred to Arbitration e.g. breach of a contract, question of
assignment or right to hold premises etc. However, certain disputes where the
law has given jurisdiction to determine certain matters to specified tribunal
only cannot be referred to arbitration.
An illustrative list of such matters is given
Testamentary matters involving questions
about validity of a will.
Disputes relating to appointment of a
Disputes pertaining to criminal proceedings
Disputes relating to Charitable Trusts
Winding up of a company
Matters of divorce or restitution of conjugal
Disputes arising from an illegal contract
Insolvency matters, such as adjudication of a
person as an insolvent
Matters falling within the preview of the
WHAT DISPUTES CAN BE REFERRED TO ARBITRATION
Generally speaking, all disputes of a civil
nature or quasi-civil nature which can be decided by a civil court can be
referred to arbitration. Thus disputes relating to property, right to hold an
office, compensation for non-fulfillment of a clause in a contract, disputes
in a partnership etc. can be referred to arbitration. Even the disputes
between an insolvent and his creditors can be referred to arbitration by the
official receiver or the official assignee with the leave of the court. Thus
disputes arising in respect of defined legal relationship, whether contractual
or not, can be referred to Arbitration.
It is necessary that there is a defined legal
relationship between persons, companies, association of persons, body of
individuals etc. created or permitted by law, before a reference can be made
However, the relationship may not be a
contractual one. A dispute may arise out of quasi contracts e.g. the division
of family property. The same may be validly referred to Arbitration.
APPOINTMENT OF ARBITRATORS
Though any person can be appointed as an
arbitrator, generally impartial and independent persons in whom parties repose
confidence are to be selected and appointed as arbitrators. Generally,
Chartered Accountants, engineers, retired judges, advocates and other
professionals are preferred. Parties are free to determine the number of
arbitrators, provided that such number shall not be an even number. If the
Arbitration Agreement is silent in this respect, the arbitral Tribunal shall
consist of a sole arbitrator. In cases, where three arbitrators are to be
appointed, each party will appoint one arbitrator and the two appointed
arbitrators will jointly appoint a third arbitrator, who will be the presiding
arbitrator. In certain cases of failure to appoint the arbitrators, the Chief
Justice of the High Court or his designate has been given power to appoint the
arbitrator u/s. 11(6) of the Arbitration and Conciliation Act, 1996.
DISCLOSURE BY ARBITRATOR
Section 12 provides that the arbitrator before
accepting his appointment shall disclose in writing to the parties such
matters as are likely to give rise to justifiable doubts about his
independence or impartiality. The same holds good throughout the arbitral
proceedings and any time after his appointment such situations arise, he must
disclose the same in writing to the parties.
JURISDICTION OF ARBITRATORS
The Act of 1996 empowers vide its section 16 the
arbitrators to rule on their own jurisdiction including ruling on any
objections with respect to the existence or validity of the arbitration
agreement and for that purpose:
(a) An arbitration clause which forms part of a
contract will be treated as an agreement independent of the other terms of
the contract, and
(b) A decision by the arbitral tribunal that
the contract is null and void will not entail ipso jure the
invalidity of the arbitration clause.
CHALLENGING THE APPOINTMENT OF AN ARBITRATOR
The appointment of an arbitrator may be
challenged under section 13 of this act only if
(a) circumstances exist that give rise to
justifiable doubts as to his independence or impartiality or
(b) he does not possess the qualification
agreed to by the parties.
An arbitrator has to disclose his interest in
writing as discussed above.
The Act provides that a party may challenge an
arbitrator appointed by him also. But this can be done only for those reasons
of which he becomes aware after the appointment has been made.
STATEMENT OF CLAIMS AND DEFENCES
Within the agreed period or the period determined
by the Tribunal, the claimant shall state the facts supporting his claim, the
points at issue and the relief or remedy sought and the respondent shall state
his defence in respect of those particulars. The parties should submit the
documents they rely in support of their claim or defence.
CONDUCT OF ARBITRAL PROCEEDINGS
The arbitral Tribunal has to decide whether to
hold oral hearings for the presentation of evidence or whether the proceedings
shall be conducted on the basis of the documents and other materials. At the
request of a party, the Tribunal shall hold oral hearings. The parties shall
be given advance notice of any hearing and any meeting of Tribunal for
inspection of documents, goods and other property. The Civil Procedure Code
and the Indian Evidence Act are not in terms applicable to the arbitration
proceedings. Therefore, the arbitrators are free to reach to the conclusions
in their own way based on the material before them. The only restriction on
them is that they should not violate the rules of natural justice.
The Arbitrators may consult or appoint experts
(unless otherwise agreed by the parties) to submit their report on the subject
matter of the dispute.
PLACE / COMMENCEMENT OF ARBITRATION PROCEEDINGS
Arbitration proceeding can be held at any place
agreed to between the parties or if there is no agreement between the parties
the place of arbitration may be decided by the arbitral Tribunal. The
commencement of arbitration is the date on which a request to refer the
dispute to arbitration is received by the respondent.
The award shall be in writing and the reasons on
the basis of which award was passed, shall be recorded unless the parties
agree otherwise. The award shall be drawn on a Rs. 100/- stamp paper. It shall
be dated and signed by the arbitrators. The sum awarded may include the
interest which the claimant is entitled. It shall also provide for the costs
and it shall mention the party liable to pay the costs. A signed copy of the
award shall be delivered to each party.
The Act also empowers the arbitrator to make an
interim arbitral award on any matter with respect to which he may make a final
The new Act does not provide any time limit for
making the award by arbitrators. However, under section 14, an arbitrators
mandate can be terminated if he fails to act without undue delay.
The parties are free to settle the matter any
time during the arbitration proceedings. The arbitrator, if satisfied about
the impartiality of the settlement, has to make the award in term of the
settlement arrived at by the parties.
APPLICATION FOR SETTING ASIDE AN AWARD
The party dissatisfied with the award may within
three months of receiving a copy of the award, apply to the competent Court
for setting aside the order on the grounds mentioned in Section 34 of the Act.
The Court may grant 30 extra days in special circumstances but not beyond
that. The Court cannot sit in appeal against the award and cannot interfere
with the award on merits by re-appreciating the evidence. Appeal lies against
the order passed by the court under Section 34 of the Act. The grounds for
setting aside the awards can be summed up as follows :
(a) When the party was under some incapacity.
(b) When the arbitration agreement is not
(c) When the party was unable to present the
case and was not given proper notice.
(d) When the award is beyond the terms of
(e) When the award is in conflict with the
(f) When the order is beyond the subject matter
of the dispute.
(g) When composition of arbitral Tribunal was
not constituted properly as per arbitration agreement.
ENFORCEMENT OF AWARD
The arbitral award unless it is set aside by the
Court is final and binding on the parties and it can be enforced under the
Civil Procedure Code in the same manner, as if it is decree of the Court. It
is not necessary to file the award in the Court and obtain a decree as was
necessary under the old Act; i.e., Arbitration Act, 1940.
There are statutory provisions as well as
non-statutory provisions that encourage the mechanism of Arbitration,
Mediation and Conciliation for resolving disputes of every nature commercial
The statutory provision includes the Indian
Contract Act, 1872, Arbitration and Conciliation Act, 1996, Legal Services
Authorities Act 1987, and also new Sec. 89 of the Code of Civil Procedure,
1908 empowers the Court, seized of a dispute to refer it, where the elements
of settlement exist which may be acceptable to the parties to
(iii) Lok Adalat
This provision is a very welcome step. It gives
effect to the modern concept of harmonious working partnership between the
Court and Arbitration. It has far reaching effect on reducing court litigation
and giving more importance to Arbitration and Conciliation by adding speed and
economy to settlement of disputes .
Mediation, which is completely free will of the
party, is the most effective mechanism to resolve disputes voluntarily. In
many countries of the world especially in UK and USA, mediation is working as
a very effective tool to settle any types of disputes. In California 94% of
the disputes are resolved with the mechanism of Mediation. In India, various
High courts and City Civil Courts have started implementing this mechanism of
mediation as an effective tool to minimize pending cases. The Courts in India
have started referring the matters to the trained mediators and appointed
special judge to refer the matters for mediation. Case to case study in a
phased manner has been made to refer the matter to the trained mediators.
Various universities including Mumbai University have started post graduation
courses in the field of ADR (Alternative Dispute Resolution). Some members of
our Institute and the members of Bar Council have already completed the
certificate course and they have been taken in the panel of City Civil Court
and High Court. There are various institutions established to give training on
the subject of Mediation. The experts from other countries like USA and
Australia have been invited to train the mediators. ICAI has also taken
initiative to conduct certificate course on arbitration. The institute also
maintains a panel of arbitrators.
Keen interest taken by the Judges including Chief
Justice of Mumbai H.C. has made the movement of ADR faster day by day and the
day will come when at least 50% of the disputes will be resolved through the
mechanism of ADR in India and we all members of our Institute should make
ample effort to understand this subject and ultimately practice in the field
of Arbitration and Mediation to share the economic and legal responsibilities
of the nation.