CHAPTER 10

ARBITRATION AND CONCILIATION ACT, 1996ALTERNATE DISPUTES RESOLUTION (ADR) MECHANISM

paradigm shift from traditional litigation As globalisation of economy is taking place at a rapid pace and the business is increasing, the disputes

related to businesses are also increasing. Businessmen cannot afford to lose time in avoidable litigation. Hence, commercial establishments are increasingly moving towards Alternate Disputes Resolution. Among all the ADR, the method of arbitration is the most popular. Arbitration has four factors to command it – speed, finality, cheapness and justice.

Redressal of disputes requires collaboration, co-operation and mutual trust, which is available in mediation, conciliation, arbitration and settlement efforts.

This alternate redressal forum may not be replacement of Courts but definitely they will aid to achieving goal of speedy justice. Success of such redressal system depends on honest independent an unbiased Arbitral Tribunal or arbitrator.

What is `Arbitration` Arbitration is a method whereby parties can resolve their disputes privately. It is known as an alternative

dispute resolution mechanism. Instead of filing a case in a court, parties can refer their case to an arbitral tribunal, which is the forum where arbitration proceedings are conducted. The arbitral tribunal will consider the questions over which the parties are in conflict and will arrive at a decision. This decision is known as an 'award'. The Indian synonym for ‘arbitration’ is ‘panchayat’.

The Arbitrator is private in so far as (1) he is chosen and paid by the disputants (2) he does not sit in public (3) he acts in accordance with privately chosen procedure so far as that is not repugnant to public policy (4) so far as the law allows he is set up to the exclusion of the State Courts (5) his authority and powers are only whatsoever he is given by the disputants agreement (6) the effectiveness of his powers derives wholly from the private law of contract or the public policy of

England bearing in mind that the paramount public policy is that freedom of contract is not lightly to be inferred with.”

ADVANTAGES OF ARBITRATIONAdvantages(i) Avoidance of publicity, for the proceedings are held in private(ii) Cost Effective reduction of expenses in majority of the cases(iii) Saving of Time since the proceedings are quicker than a Court trial.(iv) Simple Procedures proceedings are held informally(v) Social efficacy, the award of the arbitrator being the decision by the consent of the parties.(vi) Candour in presenting facts and figures knowing that trade competitors are not present to gain knowledge to

the detriment of the person giving the evidence.Disadvantages

Competency of the arbitrator - the award of any arbitration is dependent upon the competency of the arbitrator. In case the arbitrator in not competent, the award may be faulty.

Injustice may result due to incompetence of the arbitrator. SOURCE OF THE PRESENT ACT

The United Nations Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985.

The General Assembly of the United Nations recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedure in the context of international commercial relations and the parties should endeavour to seek an amicable settlement of a dispute by recourse to conciliation. India being constituent member of United Nations enacted Arbitration and Conciliation Act 1996 on the lines of model law and rules i.e. UNICTRAL.

TYPES OF ARBITRATION(i) Domestic arbitration Domestic arbitration means an arbitration, which takes place in India, wherein parties are Indians and the

dispute is decided in accordance with substantive law in India. (ii) International arbitration International arbitration means an arbitration which may take place either within India or outside India, where

there are ingredients of foreign origin in relation to the parties or the subject matter of the dispute and the

IIPM 59 CH. – 11 ARBITRATION & CONCL. ACT

dispute is decided in accordance with substantive law in India or any other country, depending on the contract in this regard and the rules of conflict of laws.

(iii) Institutional arbitration Institutional arbitration means an arbitration conducted by an arbitral institution in accordance with prescribed

rules of the institution. Many a times, business contracts contain a similar provision that should any dispute arise the same will be referred to arbitration and decided in accordance with rules of arbitration of particular arbitral institution. Such arbitration is called ‘institutional arbitration.’

MATTERS THAT CAN BE REFERRED TO ARBITRATION Sec 9 of CPC, 1908, inter alia, provides that all matters in dispute between parties relating to private rights

or obligations, which civil courts may take, cognizance of may be referred to arbitration.Exception – Any matter, which is forbidden by any law or is against public policy, shall not be referred to arbitration.

MATTER THAT CANNOT BE REFERRED TO ARBITRATION1. Matrimonial matters e.g. divorce or restitution of conjugal rights2. Testamentary matters like the validity of a will3. Insolvency matters4. The guardianship of a minor 5. Public charities and charitable trusts6. Lunacy proceedings 7. Matters of criminal nature8. Execution proceedings.

ARBITRATION MECHANISM Appointment of Arbitrators (Arbitral Tribunal)

Arbitration agreement is a contract. It is a document in writing, signed by both the parties. This will make them bound by the arbitration agreement. An arbitration clause, which forms part of a contract, shall be treated as an agreement independent of the other terms of the contract. The person of any nationality may be appointed as arbitrator. The parties are free to determine the number of arbitrators (Arbitral Tribunal). The number of arbitrators cannot be in even number. Party cannot approach the Court for removal of arbitrator or stay of proceeding except on specified grounds.

When Arbitrator may be appointed by Chief Justice(i) the parties disagree on the arbitration procedure(ii) the two appointed arbitrators disagree as to the procedure(iii) any person including the institution fails to perform any function entrusted to him .

[NOTE: Chief Justice means the Chief Justice of the concerned High Court where the jurisdiction of the civil court lies.]Procedure to be followed by the Arbitral Tribunal The parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its

proceedings. The Arbitral Tribunal shall not be bound by the Code of Civil Procedure or the Indian Evidence Act. The parties are free to agree on the place of arbitration. An arbitrator may be challenged only if

(i) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality or(ii) He does not possess the qualifications agreed to by the parties

The arbitral tribunal may require a party to provide appropriate security.Features of an Arbitral Award (a) The award should be in writing, dated, and signed by majority of the arbitrators. (Arbitral Tribunal). The reasons

for omission of the signature of other members should be specified.(b) The awards need to quantify the award. It should be made on a stamp paper of appropriate value which value

is dependent of the quantum and the State where the award has been made.(c) The award should contain reason, justification, evidence or the set of documents, which have been relied upon

while formulating the award and the conclusions for arriving at the pronounced award. (d) The place of the arbitration is very crucial. It is required to be mentioned for it determines the jurisdiction of the

High Court for appeal, if opted by either party.(e) Cost of arbitration may also be provided in the award(f) After the award is made, a copy of the said award is required to be each party in dispute for implementation

accordingly.

LECTURES BY PROF. S N GHOSH

IIPM 60 CH. – 11 ARBITRATION & CONCL. ACT

Enforceability of the Award An arbitral award shall be final and binding on the parties and persons claiming under them respectively.

Recourse to a Court against an arbitral award may be made only by an application for setting aside such award.

Appellate provisions The aggrieved party may prefer an appeal to the concerned High Court.

CONCILIATION Conciliation is a process of persuading parties to reach agreement, and is plainly not arbitration nor is the

chairman of conciliation board an arbitrator. The party initiating conciliation shall send to the other party a written invitation to conciliate, briefly

identifying the subject of the dispute. If the other party rejects the invitation, there will be no conciliation proceedings. During the conciliation proceedings, the parties shall not initiate any arbitral or judicial proceedings in respect of subject matter of the conciliation proceedings.

The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute. The conciliator shall be guided by principles of objectivity, fairness and justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties.

In order to facilitate the conduct of the conciliation proceedings, the parties, or the conciliator with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

Advantages 1. It offers a more flexible alternative. It is committed to maintenance of confidentiality.2. It obviates recourse to the court system.3. It reserves the freedom of the parties to withdraw from conciliation. The parties are however, at liberty to refer

the matter legal proceedings at any stage of the proceedings.4. It is cost effective and produces quicker resolution of dispute. It facilitates the maintenance of continued cordial

relationship between the parties even after the settlement;ROLE OF ARBITRAL INSTITUTIONS

It is for the first time under the new Act, the concept of arbitral institutions have been given recognition. When the parties are not in a position to agree on a procedure for the appointment of arbitrators, the Chief Justice may ask any institution to arbitrate the matter.

For the purpose of facilitating its constituent members, every arbitration institution has model agreement containing the arbitration clause, constitution and manner of appointment of arbitration tribunal and other related issues. If the arbitration clause of an institution is incorporated in a contract, it will automatically provide for comprehensive set of procedures for dispute resolution, fees of the arbitrators, place, assistance etc. that may be provided by that institution. Thereby obviating much avoidable delay, expense and uncertainty. The institution also assist the parties to complete the pleadings, documentations etc even before the arbitrator is appointed so that the arbitrator is able to proceed with the matter expeditiously on receiving the well organized case material

Arbitral Institutions in India These institutions provide In-house facilities to arbitrate and/or arrange for arbitration through its constituent

members for resolving business and trade disputes of internal as well as international character, involving Indian or foreign parties including Governments and Public Sector undertakings and to maintain panels of person to act as arbitrators. Some of the prominent institutions are: - Indian Council of Arbitration International Center for Alternative Dispute Resolution Indian Society of Arbitrators

INTERNATIONAL COMMERCIAL ARBITRATION International commercial arbitration makes a significant contribution for the establishment of a unified legal

framework for the fair and efficient settlement of disputes arising in international commerce relations, where parties seek an amicable settlement of the disputes. Based on the Model Law on International Commercial Arbitration adopted at the United Nations

Commission on International Trade Law (UNCITRAL), the Arbitration and Conciliation Act, 1996, inter alia provides for enforcement of foreign arbitral. India being signatory to the UNCTRAL, the international commercial arbitration may be held in the country, which is a signatory to either the New York Convention or the Geneva Convention.

LECTURES BY PROF. S N GHOSH