The core problem of the litigation and growing backlog adding to the already overloaded courts, called for a far stronger and innovative approach for tackling the issues involved from a totally different viewpoint and to be outside the system. In the last few decades, the commercial activity of the people got extended outside India which was earlier restricted within the country.
Along with this the need for setting up a system which would be sensitive to the quick resolution of any disputes that might arise in the course of commercial transactions between different nationalities became necessary. On account of the growth in the international trade and commerce and also on account of long delays occurring in the disposal of suits and appeals in courts, there has been a tremendous movement towards the resolution of disputes through the alternative forum of Commercial Arbitration.
What is Arbitration?
Arbitration is a legal process, which takes place outside the courts, but still results in a final and legally binding decision similar to a court judgment. Arbitration is particularly a means of alternative dispute resolution (ADR) in the commercial field. Arbitration is a flexible method of dispute resolution, which can give a quick, inexpensive, confidential, fair and final solution to a dispute.
It involves the determination of the dispute by one or more independent third parties rather than by a court. The third parties, called arbitrators, are appointed by or on behalf of the parties in dispute. Arbitration is a semi-judicial and more formal method of dispute resolution. The neutral third party hears the parties and makes the decision which is binding and is known as ‘Award’.
What is Commercial Arbitration?
Commercial arbitration is the process of resolving business disputes between two multinational parties through the use of one or more arbitrators rather than approaching the courts. The mentioned parties can either opt for a separate arbitration agreement to be signed between them or may include an arbitration clause in the main contract itself. Arbitration agreement or the arbitration clause must clearly state that the dispute will be resolved through arbitration only.
Further, it should specify the number of arbitrators to be appointed and manner of their appointment. Arbitrators in India are to be appointed in odd numbers only.
The Indian Arbitration Act
Arbitration in India is regulated by the Arbitration and Conciliation Act, 1996. The Act is based on the UNCITRAL (The United Nations Commission on International Trade Law) Model Law, 1985 on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976. This ensures that there is a certain level of uniformity in the law. In 2015, Arbitration and Conciliation (Amendment) Act was enacted which tried to ensure quick enforcement of contracts, easy recovery of monetary claims, reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration.
Types Of Arbitration In India
Arbitration can be broadly divided in two categories on the basis of appointment of the arbitral tribunal and on the basis of parties’ agreement to arbitration:
- Ad-Hoc Arbitration: It can be defined as a type of arbitration in which a tribunal will conduct arbitration between the parties, abiding the rules which have been agreed by the parties beforehand or by abiding by the rules which have been laid down by the tribunal, in case the parties do not have any agreement between them.
- Institutional Arbitration: In the case of Institutional Arbitration, the disputing parties must advance their problem to an institution that has been designated to administer the arbitrational process. This institution then arbitrates the dispute according to the rules laid by them in front of the parties. This institute selects a panel which administers the whole process.
Procedure of Commercial Arbitration in India
The process of Arbitration in India is as follows:
- Arbitration Clause – An agreement or the clause clearly stating that if any dispute arises between the parties they will settle it through the process of arbitration only.
- Arbitration notice – In case, a dispute arose and the party has opted to follow the option of arbitration then the party against whom the default has been committed will send an arbitration notice for invoking arbitration process steps between the parties.
- Appointment of Arbitrator – After receiving the notice by other parties both the parties will appoint the arbitrators in the manner as specified in the arbitration agreement or arbitration clause.
- Statement of Claim – Statement of claim consist of the main info regarding dispute cause between the parties, events which lead to the dispute and the compensation claimed from the defaulter party. The other party can file a statement of a counterclaim along with reply to the statement of claim.
- Hearing of Parties – Arbitral tribunal will then listen to both the parties and their evidence.
- Award – After hearing the parties, the arbitral tribunal will pass the judgment. The judgment of the tribunal is known as ‘Award’ and is binding on both the parties. However, an appeal against the arbitral award can be filed before the High Court.
- Execution of Award – Once the award has been passed by the tribunal it must be executed. The party in whose favour the award has been passed has to file for execution or enforcement of award with the help of an arbitration lawyer.
Enforcement of the Arbitral Awards
Arbitration under the 1996 Act is a speedy and effective remedy to resolve disputes between the parties by experts in technical, commercial or like fields, selected by parties’ own choice as far as possible, or otherwise, with the intervention of the court.
- Domestic Award: An arbitral award is enforceable after the time for making an application to set aside such an award has expired i.e. 90 days. However, the court may provide a stay order on the validity of the arbitral award on a different application made for that purpose.
- Foreign Award: A foreign arbitration award is enforceable in India under Part II of the Arbitration Act, if it is passed in a jurisdiction or country governed by either the New York Convention or the Geneva Convention. The process for enforcement of a foreign award is similar to that of a domestic award.
The Government is committed to bringing about an arbitration friendly culture as it considers it necessary to facilitate economic reforms. Arbitration is used frequently as a method of choice for business dispute resolution. All over the world, commercial arbitration has been approved as the most proficient form of dispute settlement available to participants in international trade. The arbitration clause is now getting much greater consideration in the contracts than it did in the past. It is true about businesses in India as well. The popularity of arbitration as a mode of settling disputes is due to the fact that the arbitration is considered as speedier, more informal and cheaper than conventional judicial procedure and provides a forum more convenient to the parties who can choose the time and place for conducting the arbitration.
Adding to this is the 2015 Amendment whose object was to reduce the time consumed in an arbitral proceeding, by specifying an upper limit of 1 year from the date of constitution of the arbitral tribunal, for completion of proceedings and making of an award. Both parties may agree to extend this period by a further of 6 months only, after which an application is required to be made to the Court.
Need legal help? Consult LetsComply’s corporate law experts, they can help you with any type of arbitration process which can be used as a method to resolve disputes with clients, vendors, and employees. To know more, call us at +91-9717070500 or send us an email at email@example.com.