Arbitration is a form of alternative dispute resolution mechanism, wherein the parties mutually decide to come together and submit their disputes before a neutral party called an Arbitrator, for the resolution of the disputes via the enforcement of a legally binding arbitral award made at the end of the arbitration proceedings. The Central Government enacted the Arbitration and Conciliation Act, 1996, amended in the years 2015 and 2021, which deals with the entire process and legal implications of Arbitration.

About Arbitrator

An Arbitrator is a neutral party that sits through the Arbitration proceedings, and accordingly adjudicates upon the dispute in the form of an Arbitral award which is legally binding and enforceable upon both the parties. An Arbitrator can be of any nationality, and the parties to a dispute are free to mutually decide upon their arbitrator and can appoint anyone they deem fit. Arbitration also allows the parties to amicably agree upon a procedure for arbitration, subject to the terms of the arbitration agreement, after the appointment of the Arbitrator. To initiate the appointment of an arbitrator, either of the parties may send a request to the other party. However, if the parties do not come to common grounds for the appointment of the arbitrator within 30 days from the receipt of request, then either of the parties may approach the High Court of appropriate jurisdiction, and the appointment shall be made by the Chief Justice of the High Court, as per Section 11 of the Arbitration and Conciliation Act. Multiple arbitrators can also be appointed to the arbitration of a dispute, however, the number of appointed arbitrators should always remain odd.

Advantages of Arbitration

The rampant piling up of non-penal matters has overburdened the Courts of Law, and consequently slowed down the procedure of adjudication of justice. Comparatively, Arbitration is a much faster and efficient process because there exists a time period of 12 months within which an Arbitral Tribunal is bound to complete the arbitration since its engagement. Arbitration offers confidentiality to the parties by providing an opportunity to resolve their disputes amicably in a private place. The parties to Arbitration can choose the governing law, seat, and the procedure for Arbitration making it a more flexible option than litigation. The Arbitral Tribunal normally consists of industry experts as Arbitrators, and therefore, leading to a more informed and accurate resolution of the dispute. Moreover, the Arbitral Awards are enforceable and legally binding, which ensures the finality of the resolution.

Kinds of Arbitration

There are three types of Arbitration:

1. Institutional Arbitration
2. Ad Hoc Arbitration
3. Fast Track Arbitration

An Arbitration Organization is an institute which oversees and administers arbitration under its own rules and regulations. Institutional Arbitration is wherein the parties refer the dispute to such an organization, and the arbitration procedure is then carried out according to the rules of that institution. Delhi International Arbitration Centre (DIAC), Singapore International Arbitration Centre (SIAC), and London Court of International Arbitration (LCIA) are some examples of arbitration institutions.

Ad hoc arbitration occurs wherein institutional arbitration is not engaged, thus, the parties decide upon the procedure, the rules and regulations for the arbitration proceedings.

Fast Track Arbitration is intended to be completed at an even faster rate than traditional arbitration. Usually deployed for frivolous disputes or disputes with low valuation, the time period for the same is 6 months, which can be extended subject to the needs and consent of the parties.

Arbitration Agreement

An arbitration agreement is a contract wherein the parties to a dispute agree to alternative dispute resolution via arbitration. As a general practice, an arbitration clause in an agreement is regarded as the arbitration agreement. An agreement to arbitrate is valid only if the current dispute is explicitly covered under the clauses of that agreement. An arbitration agreement should always be in the written form and the parties should be a signatory to the same i.e. “Consensus Ad Idem” is crucial and significant.

The Arbitration Agreement can cover a plethora of issues for the ease of appointment of the arbitrator, and the arbitration proceedings. The procedure of the appointment of the arbitrator, as well as the language of the proceedings can be decided by the parties.

Lack of Arbitration Agreement

In the absence of an arbitration clause in the agreement between the parties, or the lack of an arbitration agreement, the parties may agree to sign a fresh arbitration agreement for the resolution of the current disputes. If the parties do not come to an agreement for arbitration, then either of the parties may file a civil suit under the Court of appropriate jurisdiction, and if the case is pending, then move an application under Section 89 of the Code of Civil Procedure, 1908 for settlement of disputes outside the court. If the court deems fit, then the dispute of the parties may be referred for arbitration. In cases wherein the arbitration agreement exists, but the party does not initiate the arbitration despite the receipt of the notice by the other party, then under Section 11 of the Arbitration and Conciliation Act, 1996 the appropriate High Court or the Supreme Court can appoint an arbitrator after an application is made by any of the parties.

Breach of Arbitration Agreement

If one party breaches the arbitration agreement or refuses to comply with its terms, the aggrieved party can take legal action to seek enforcement of the agreement. In domestic matters, the aggrieved party can make an application under Section 8 of the Arbitration and Conciliation Act. This section mandates that if a party presents a case before a judicial authority and there is a valid arbitration agreement, the judicial authority must not entertain any further judicial proceedings and must refer the parties to arbitration. For cases involving international subject matter, an application can be made under Section 45 of the Arbitration and Conciliation Act. This section provides for the enforcement of foreign arbitral awards in India. If there is a valid arbitration agreement and the dispute falls within the scope of that agreement, the court will refer the parties to arbitration. These statutory provisions play a crucial role in enforcing arbitration agreements and ensuring that parties abide by their contractual obligations to resolve disputes through arbitration rather than litigation.

Arbitral Award

Once the arbitration award is issued by the arbitrator(s), it is considered final and binding upon the parties involved, similar to a decree or court order. The award sets out the decision of the arbitrator(s) on the matters in dispute and can include both monetary and non-monetary resolutions.

After the award is passed, there are a few steps that typically follow:

1. Notification: The arbitrator(s) sends a copy of the award to each party involved in the arbitration process. This serves as a formal notification of the decision.
2. Award Examination: Upon receiving the award, each party has the opportunity to review and examine it. They may seek legal advice from arbitration lawyers to understand its implications and determine the next course of action.
3. Challenge Period: In some jurisdictions, there is a specific time period within which a party can challenge the arbitration award. This typically involves filing an application to set aside or annul the award in court. The grounds for challenging an award are usually limited and may include issues such as procedural irregularities or lack of jurisdiction.
4. Award Enforcement: If the award is not challenged within the specified timeframe or if a challenge is unsuccessful, the award becomes final and enforceable. The winning party can then take steps to enforce the award and seek its implementation. The process of enforcing the award may involve applying to a court for its recognition and enforcement.
5. Execution: Once the award is recognized and enforced by a court, it can be executed in accordance with the rules and procedures applicable to the enforcement of court judgments. This may involve seizing assets, garnishing bank accounts, or taking other measures to satisfy the awarded amount or comply with the terms of the award.

Challenging an Arbitral Award

The arbitration award holds legal force and can only be contested in specific situations as outlined in Section 34 of the Arbitration and Conciliation Act. Circumstances for challenging the award include instances where the terms of the arbitration agreement were not followed, the agreement itself is void, proper notice was not provided to the applicant, the subject matter of the dispute is beyond the scope of arbitration, the award contravenes public policy, or the proceedings involved corruption or fraud. The challenge to an arbitration award must be initiated within three months from the date of the award.

Additionally, apart from the final awards, there are also interim orders issued by the arbitral tribunal or the court in specific circumstances. These interim orders serve to address particular issues or provide temporary relief during the arbitration proceedings. They may include injunctions, orders to preserve assets, or other necessary measures to safeguard the rights and interests of the parties.

Interim Orders

An interim order refers to a temporary measure granted by both the arbitral tribunal and the court under Section 9 and Section 17 of the Arbitration and Conciliation Act of 1996. It serves to provide relief to the applicant and safeguard the interests of the parties in a specific aspect of the dispute. The application for an interim remedy can be made prior to the commencement of arbitration proceedings, during the proceedings, or even before the enforcement of an arbitral award.

There are specific circumstances in which these measures can be granted. They include situations such as appointing a guardian for a minor or a person of unsound mind, securing the amount of the claim, obtaining a temporary injunction, inspecting a property or object, or any other order that the court or tribunal deems necessary or appropriate. The purpose of these interim orders is to maintain stability and protect the rights of the parties involved until a final resolution is reached through the arbitration process.

Challenging an Interim Order

An order granted under Section 9 or Section 17 can be challenged through an appeal to the court. Section 37 of the Arbitration and Conciliation Act, 1996 empowers the court to hear appeals against orders issued during the interlocutory stage of the proceedings.

The arbitration process consists of various forms, including international and domestic arbitration. In domestic arbitration, the arbitration takes place within India, with both parties being Indian nationals, and the dispute being resolved in accordance with Indian substantive law. On the other hand, international arbitration involves either the subject matter or the parties to the dispute being from outside of India.

Mediation, conciliation, and arbitration are all forms of Alternative Dispute Resolution (ADR) processes. Although they share similarities, it's important to understand their differences. Let's clarify the distinctions between mediation and arbitration, as well as between conciliation and arbitration.

Mediation vs Arbitration

Mediation and arbitration both aim to resolve disputes, but there are distinct differences between the two. Firstly, arbitration in India is governed and regulated by The Arbitration and Conciliation Act, 1996, while mediation does not have specific statutory regulations. The roles of a mediator and an arbitrator also differ significantly. In mediation, the parties actively participate in finding a mutually agreeable solution, facilitated by the mediator. On the other hand, an arbitrator listens to the facts and evidence presented by the parties and issues a binding award at the conclusion of the proceedings. Mediation takes place during the litigation.

Mediation is a process driven by the parties themselves, where they negotiate and determine the terms of their agreement. In arbitration, the arbitrator plays an equally important role to that of the parties as they are responsible for rendering an award that is legally binding on the parties.

Conciliation vs Arbitration

Conciliation is a method of resolving disputes by appointing a conciliator who assists the parties in finding a mutually acceptable resolution. The conciliator engages in discussions, facilitation, and intervention to help resolve the conflict. They may also provide advice during the process. On the other hand, arbitration is a quasi-judicial proceeding where the parties involved in the dispute agree to appoint an arbitrator or a panel of arbitrators to make a binding decision on the matter. Conciliation takes place before the litigation.

The decision made by the arbitrators, referred to as an award, is legally binding on the parties. In contrast, the decision of a conciliator is non-binding and cannot be enforced.

Arbitration is a real asset for any judicial system. It can help in reducing the burden on courts as it is a quicker and more efficient process for anyone who is seeking quick remedy in civil matters. Arbitration ought to be promoted as one of the modes of civil dispute resolution.