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Arbitration Law & Process in India

The dispute resolution process could broadly be categorized into Litigation, Arbitration, Mediation, Conciliation etc.

Arbitration is an alternative dispute resolution method based on the consent of the parties, which is often preferred over domestic judicial systems for the settlement of disputes arising from international and domestic commercial relationships.

A dispute may be brought to arbitration where the parties have voluntarily entered into an arbitration agreement.

An arbitration agreement may be concluded as a separate agreement, or as a clause within a contract between two parties. Arbitration agreements concluded within a contract are defined as "arbitration clauses".

Although the arbitration clause is a part of the underlying contract, they are essentially independent of each other. This is referred to as the "separability", "severability" or "autonomy" of the arbitration clause.

The arbitration agreement is accepted as a distinct agreement, separate from the underlying agreement - a concept defined as the separability principle. This principle prevents the validity of one agreement from being affected by the other one; it effectively establishes the full autonomy of an arbitration agreement and the integrity of the arbitral process. Nonetheless, the two may be assessed together. However, it is important to consider, because of the separability of the arbitration agreement, whether the choice of law stipulated by the parties in the main contract applies to the arbitration agreement. Thus, dispute resolution and choice of law clauses should be drafted with the utmost caution and care.

The Arbitration could broadly be classified into two categories: -

  1. Domestic Arbitration
  2. International Arbitration.

International Arbitration is arbitration, where the matter involved, is a cross-border dispute.

Why Arbitration is Preferred  Over Litigation?

Arbitration is usually faster, simpler, more efficient, and more flexible for scheduling than litigation. It requires less documentation to file and obtaining a decision is quicker than in the context of the judicial process. Also, if the subject of the dispute is technical (for example - about a patent) the parties can select an arbitrator who has technical knowledge in that field rather than a judge who may not be familiar with the issues. In commercial matters, the arbitrator has knowledge in the field of business and commercial laws. After the recent amendments, in the Arbitration and Conciliation Act, the time has been framed for the conclusion of the Arbitration proceedings.

Arbitration can be either “institutional” or “ad hoc.” The terms of the contract will dictate the type of Arbitration.  If the parties have agreed to have an arbitral institution administer the dispute, it is an institutional arbitration.  If the parties have set up their own arbitration rules, it is an ad hoc arbitration. Adhoc arbitrations are conducted independently by the parties, who are responsible for deciding on the forum, the number of arbitrators, the procedure that will be followed, and all other aspects of administering the arbitration.

Salient Features:

  1. Appointment of Arbitrators (Section 11): - The Act allows full freedom to the parties in the matter of appointment of arbitrators, including by agreement, selecting from a list of arbitrators, or via a process of elimination. However, if there is a failure of the parties’ agreed mechanism for an appointment, the Chief Justice of a High Court (in the case of a domestic arbitration) or the Chief Justice of the Supreme Court of India (in the case of international commercial arbitration) may be approached for this purpose. This is the first instance in which the Act envisages recourse to a court concerning an arbitration proceeding.
  2. Interim Relief (Section 9) & (Section 17): - A party that seeks interim measures has essentially two avenues open to it. It can approach the court, or it can approach the arbitral tribunal. Section9 enables a party to approach a competent court before or during the arbitral proceedings or even after the award is pronounced, but before it is enforced. Section 17 enables the arbitral tribunal to take interim measures in the subject matter of the dispute at the request of the parties.
  3. Finality of an arbitral award (Section 34): - An arbitral award is regarded as final and binding on both the parties and could be enforced like a court decree. The recourse available against an arbitral award is by moving an application for setting aside an arbitral under Section 34 on the grounds as mentioned in the provisions, which include but not limited to when an Arbitrator is biased, or the award rendered is against the public policy or the Arbitrator has exceeded its jurisdiction.
  4. Appeals (Section 37): - An appeal shall lie against the decision of the Court passed in Section 8, Section 9 and section 34 petitions.

Arbitration clauses are increasingly finding their way into commercial contracts and easy and viable modes of settling disputes to arbitration. However, the parties to the Contract have to be conscious at the time of drafting the arbitration clause, since it governs the future proceedings in case of disputes. The governing law regarding arbitration proceedings, substantive rights of the parties to arbitration, the seat and venue of arbitration, etc. has to be clearly defined to avoid unnecessary dispute later on.

As per Indian law, the seat of arbitration decides the law and jurisdiction of the court. The venue of the arbitration proceedings does not matter much.

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