ARBITRATION

Arbitration, is a form of alternative dispute resolution (ADR), it is a way to resolve disputes outside the courts. The dispute will be decided by one or more persons (the “Arbitrators”, “Arbiters” or “Arbitral tribunal” [“arbitral tribunal” means a sole arbitrator or a panel of arbitrators]), which will render/deliver the “Arbitration award”, It can be in a form of Interim or Final award. An arbitration award is legally binding on both sides and enforceable in the courts.

Arbitration Agreement refers to an agreement which been drafted between the both parties having dispute to bind themselves for the Award/order given by the Arbitrator.

Essential of Arbitration agreement:-

  • The Agreement should be in writing.
  • Writing agreement Includes :
  • The interchanges of Telex, Letter, Telegrams or other means of telecommunication the basic feature is that is should provide a record of the agreement or
  • An interchange of communication of claims and defence in which the existence of the agreement is claimed by one party and not been explained by other.
  • The agreement shall follow the decision/order of the tribunal and it will bind to both the parties to the agreement.
  • Signature of the parties is a most vital part for constituting the arbitral agreement. It can be in a form of signed document by both the parties and contains all the terms or it also be a signed document by one party, which contains the terms and an acceptance signed by the other party. It will be sufficient I one party puts its signature in the written submission and the other party accepts that.
  • Intention of parties is of very extreme significance and forms the crux of the agreement. There is no prescribed manner of drafting an arbitration agreement and it has been stated nowhere that term like arbitrator are essential prerequisites in an arbitration agreement.

Power to refer parties to arbitration where there is an arbitration agreement

A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie (on the face) no valid arbitration agreement exists.

Interim measures, etc., by Arbitral Tribunal/ Court

  1. A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36 (all section are refer to the Arbitration and conciliation act 1996 & 2015), apply to a court— 
  2. For the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
  3. For an interim measure of protection in respect of any of the following matters, namely:—
    1. The preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
    1. Securing the amount in dispute in the arbitration;
    1. The detention, preservation or inspection of any property or thing which is the           subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
    1. Interim injunction or the appointment of a receiver;
    1. Such other interim measure of protection as may appear to the Court to be just and convenient,  and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
  • Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.
  • Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious

Section 17:-

Interim measures ordered by arbitral tribunal.—

  1. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute.
  2. The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1)

Number of arbitrators

  1. The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
  2. Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.

Appointment of arbitrators

  1. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
  2. Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
  3. Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
  4. If the appointment procedure in sub-section (3) applies and—
    1. a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
    1. the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court];
  5. Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].
  6. Where, under an appointment procedure agreed upon by the parties,—
    1. a party fails to act as required under that procedure; or
    1. the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
    1. a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request 1[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.

  • A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to [the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision]
  • The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of  sub-section (1) of section 12, and have due regard to—
  • Any qualifications required for the arbitrator by the agreement of the parties; and
  • The contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
  •  In the case of appointment of sole or third arbitrator in an international commercial arbitration, [the Supreme Court or the person or institution designated by that Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
  • The Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.
  • Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, [different High Courts or their designates, the High Court or its designate to whom the request has been first made] under the relevant sub-section shall alone be competent to decide on the request.
  • (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in an international commercial arbitration, the reference to the “Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “Supreme Court”; and

(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in any other arbitration, the reference to “the Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “High Court” within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court.

  1. An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.
  2. For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.

Explanation.—For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution

An arbitrator may be challenged only on these circumstances:-

  • Circumstances exist that give rise to justifiable doubts as to his independence or impartiality,
  • He/ She does not possess the qualifications agreed to by the parties.

Challenge procedure:-

  1. Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
  2. Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
  3. If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
  4. Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.
  5. Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

Failure or impossibility to act

  1. The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if:-
    1. He becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
    1. He withdraws from his office or the parties agree to the termination of his mandate.
  • If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
  • If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12

Termination of mandate and substitution of arbitrator

  • In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate—
    • Where he withdraws from office for any reason; or
    • By or pursuant to agreement of the parties.
    • Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
    • Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
    • Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.

Place of arbitration

  1. The parties are free to agree on the place of arbitration.
  2. Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
  3. Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

Commencement of arbitral proceedings

Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

Default of a party

Unless otherwise agreed by the parties, where, without showing sufficient cause:—

  1. The claimant fails to communicate his statement of claim in accordance with sub-section (1) of section 23, the arbitral tribunal shall terminate the proceedings;
    1. The respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant [and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited].
    1. A party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.

Expert appointed by arbitral tribunal

  1. Unless otherwise agreed by the parties, the arbitral tribunal may—
    1. Appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal, and
    1. Require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection.
  2. Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of his written or oral report, participate in an oral hearing where the parties have the opportunity to put questions to him and to present expert witnesses in order to testify on the points at issue.
  3. Unless otherwise agreed by the parties, the expert shall, on the request of a party, make available to that party for examination all documents, goods or other property in the possession of the expert with which he was provided in order to prepare his report.

  Time limit for arbitral award

  1. The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.

Explanation.—For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.

  • If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.
  • The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.
  • If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period: Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay.
  • The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.
  • While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
  • In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
  • It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.
  1. An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

Fast track procedure

  1. The parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure.
  2. The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties.
  3. The arbitral tribunal shall follow the following procedure while conducting arbitration proceedings under sub-section (1):—
    1. The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing;
    1. The arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them;
    1. An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;
    1. The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.
  • The award under this section shall be made within a period of six months from the date the arbitral tribunal enters upon the reference.
  • If the award is not made within the period specified in sub-section (4), the provisions of sub-sections (3) to (9) of section 29A shall apply to the proceedings.
  • The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.

Settlement

  1. It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
  2. If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
  3. An arbitral award on agreed terms shall be made in accordance with section 31 and shall state that it is an arbitral award.
  4. An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.

Form and contents of arbitral award

  • An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
    • For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.
    • The arbitral award shall state the reasons upon which it is based, unless—
    • The parties have agreed that no reasons are to be given, or
    • The award is an arbitral award on agreed terms under section 30.
      • The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.
      • After the arbitral award is made, a signed copy shall be delivered to each party.
      • The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.
      • (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. Higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

Termination of proceedings

  1. The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).
  2. The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where—
    1. The claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,
    1. The parties agree on the termination of the proceedings, or
    1. The arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.

Application for setting aside arbitral award

  1. Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
  2. An arbitral award may be set aside by the Court only if—
  3. The party making the application furnishes proof that—
    1. A party was under some incapacity, or
    1. The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
    1. The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
    1. The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
    1. The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
  4. The Court finds that—
  5. The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
  6. The arbitral award is in conflict with the public policy of India

Explanation 1.— For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

  • the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or it is in contravention with the fundamental policy of Indian law; or it is in conflict with the most basic notions of morality or justice.

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