March 4, 2019

ARBITRATION ACT OVERVIEW

Roel Mathew Wills
https://www.lawordo.com/

Authored by: Roel Mathew Wills

AMITY LAW SCHOOL, NOIDA

ARBITRATION ACT OVERVIEW

Nowadays many corporates and firms have an inclination towards avoidance of courtroom battles and why should they not. When an alternative dispute handling and resolution process is in existence then why to squander around courtrooms. These alternative dispute resolution mechanisms not only save money but also save time and to put a cherry on the cake each one of them disposes the matter in win-win spirit. The ever-changing characteristics and nature of the business community and infrastructure implies that commerce often crosses the periphery of one’s own country. Cross-border business deals can often lead to disputes arising between parties of different nationalities so rather than contesting matters in courts of either party, they prefer a transparent and neutral dispute resolution forum is preferred. Therefore, the best and the most favored solution to resolve such cross-border disputes to go for “Arbitration”.

Arbitration is one of those dispute resolution mechanisms which can provide the parties with outcomes which are final and binding upon parties that too in much less time as compared to courts. This can be done in a very simple & easy way i.e., by mentioning, that parties will go in for arbitration if any dispute arises, in the agreement or the contract signed by the parties.

Why really go for arbitration?

Lawyers always recommend their clients to choose a dispute resolution method which keeps them in a dominant position if ever a dispute arises. Litigation & Arbitration both have its ups and downs which are clearly based upon the position the party is in and in what context the dispute arose. One of the plus points of arbitration is that enforcement is very easy and the whole process is confidential. Another reason to go for arbitration or use it as a method of dispute resolution is that it is very transparent and a non-biased forum. Other than that, the parties get to choose the arbitrator, number of arbitrators, place where the proceedings will happen and the parties can also decide the rules and laws that will govern the whole proceeding.

History:

There have been traces of Arbitration in ancient times also. When there was any dispute which needed immediate resolution, people would generally to go to a class of learned men, called the panchayats, for the resolution of their dispute. The Panchayat system still exists in our country, which has become more systemized and organized and is still considered to be the best alternative dispute resolution mechanism in the village and small district areas. The first actual law of arbitration was constituted, in the British Era, by the Bengal Regulations in 1772. The Bengal Regulations acknowledged the need of Arbitration and even promoted the process of arbitration by including the provisions which bestowed the power to a court to reference, with their consent, the parties to go in for Arbitration.

The very first act which dealt with arbitration, by limiting the intervention of the court, came in 1899. The act 1899 only had jurisdiction upon those matters which already had an arbitration go to agreement and even the territorial jurisdiction was limited to Presidency Towns only. Although it limited the intervention of the court, this particular act did not cover the matters originating from suits. Before the enactment of the 1996 Arbitration Act, the 1940 act was the prevailing law which regulated the provisions of arbitration. The only backdrop of this act was that it did not contain the provisions relating to enforcement of foreign awards. A separate act all together was enacted in 1961 which contained the provisions which would provide the enforcement of foreign awards under the rules of Geneva Convention & New York Convention.

Law Commission of India then, giving its wise recommendation, amended certain provisions of the 1940 act and consequently, The Arbitration and Conciliation Act, 1996, based on the UNICTRAL model rules, was enacted. Nevertheless, even the 1996 act faced many problems which eventually led to many challenges in the interpretation of the act, for instance, whether or not Part I of the Arbitration and Conciliation Act, 1996 would apply to foreign arbitrations. This led to the formation of many committee reports such as the 176^th report of the Law Commission (2001), the B.P. Saraf Committee in 2004, the 246^th report of the Law Commission (2014), etc., which submitted their learned recommendations to overcome the shortcomings of the 1996 act. After carefully analyzing the shortcomings of the 1996 act the amendment act of 2015 i.e., the Arbitration and Conciliation (Amendment) Act, 2015 came in force which brought many pivotal changes in the previous act of 1996 to overcome the shortcomings of the said act.

Scheme of the Act:

The arbitration act is a very well synthesized legislation. Part I & II enunciates the notable provisions of the said act. Provisions relating to Domestic & International Arbitration are embedded in Part I of the act. Therefore, all arbitration conducted in India would be governed by the provisions of Part I, irrespective of the nationalities of the parties and the enforcement of foreign awards are provided in Part II of the Arbitration Act.

Part I is more exhaustive in nature and many substantial laws and rules, which can be said that it is based upon the model law, are illustrated in Part I. Part I provides the provisions relating to the arbitrability of disputes; non-intervention by courts; arbitral tribunal composition; conduct of the proceeding; enforcement and recourse against awards.

Whereas, Part II is concerned it contains the provisions which deals with the application of foreign awards. Thus, Part II by its very nature not a complete code. This very reason led to judicial innovation by the apex court of India in the case of Bhatia International v. Bulk Trading. Innovatively or creatively interpreting the Act, the apex court held that the “general provisions” of Part I will have its jurisdiction over International Arbitration and the exclusion of application of Part I will only happen when both parties, mutually, either in writing or by implying, restricts the applicability of the same. Hence, the apex court, innovatively, broadens the jurisdictional limit of Part I to International Arbitration also.

This thing became very clear in another judgement by the Supreme Court in Shreejee Traco (I) Pvt. Ltd. v. Paperline International Inc. In this case, court’s assistance in matters to appoint an arbitrator in international arbitration was sought. The appointment powers of the court are found under section 11 of Part I of the Arbitration Act. However, the court declined to exercise any kind jurisdiction of whatsoever. The court found that the proceeding of the arbitration was to be conducted in New York and that the provisions and laws governing the proceedings of the arbitration would the law of the seat. Therefore, in this very case, the extension of provisions of Part I of the Arbitration act to off-shore arbitrations sanctified by Bhatia could not be resorted to.

Role of the court:

One of the most indispensable and imperative features of this arbitration act is that the title role of the courts has been lessened for instance the court has the power to refer matters to arbitration if the parties have already signed an Arbitration agreement. Further, section 5 of the Arbitration and Conciliation Act, 1996 provides and states that the court shall have minimal interference in matters of arbitration except where it is provided by the act.

In disputes pertaining to arbitration proceedings, the respective parties can go to the courts for only for two intentions or purposes i.e. (a) for any kind of interim measure of protection or for any kind appointment of receiver etc.; or (b) in case when both the parties fail to appoint an arbitrator or if the two particular arbitrators fail to agree upon and appoint the third arbitrator, then the parties can approach the court for its assistance in appointment. The High Court appoints an arbitrator in case of domestic commercial arbitration and in cases of off-shore arbitration the Chief Justice of Supreme Court of India appoints an arbitrator.

Conclusion:

The Parliament of India brought in the Arbitration Act with the intention to provide expeditious remedy and to for the purpose of attaining this object, the provisions section 5 of the Arbitration Act put an extensive restrain (bar) on any kind of interference of the courts in the disputes where there is a clause of arbitration but however the law of these alternative dispute resolution mechanisms in India are at its crossroads. Arbitration has shown to be a great agent of change in ways in which resolution of matters are done or conducted. However, there is, a very important pressing concern which is needed to be recognized that there is so much to be done in improving the functionality and technicalities of conduct of the arbitral proceedings. As India is moving towards growing the essence of litigiousness, alternative dispute resolution techniques may just provide a breakthrough in proving a solution to the problems of overloaded matters and cases which leads to delay in justice. For many years the problem that was hindering the effective enforcement of ADR techniques is the perception that ADR techniques are inferior/subordinate to processes of the courts and this perception is mutually shared by lawyers and people alike. It is very much important that this wrongly conceived impression about ADR is altered, this can only change if the stakeholders are educated about the benefits of ADR. There are many matters which doesn’t come in the purview of ADR but there also many matters that are perfectly designed to come under the purview of ADR. It should be necessary for even the courts to mandatorily recourse some disputes to ADR mechanisms i.e. disputes such as international commercial disputes, matrimonial matters, employment disputes, etc. Now the time has come for our alternative dispute resolution system to categorically become our backbone and therefore help the Indian courts in lessening the burden of pending cases. India is not country which as a jurisdiction carries anti-arbitration prejudice. The instantaneous scheme and need of the act were to extensively cover international commercial arbitration and domestic too, even should cover conciliation too. Other fundamental purpose was to limit the intervention of the courts in the process of arbitration and also provide that the awards passed under this act should be enforced with the same effect and manner as it was a decree of a court. In the end we can say that ADR would definitely see ray of hope and the day light of true success will shine when the people of this country would start accepting and opting ADR methods.

¹ Research Paper on Arbitration of NITI Aayog Titled: “Strengthening Arbitration and its Enforcement in India – Resolve in India”

² ^{(2002) 4 SCC 105 (‘Bhatia’)}

³ (2003) 9 SCC 79

⁴ Supra.

⁵ Section 5 of Arbitration and Conciliation Act, 1996

⁶ If it is clear that the applicant has any kind of intention to take that particular disputes arbitration then this procedure can also happen even before the advent of the proceedings of arbitration.