Arbitration: Introduction and Key Components

This article titled ‘Arbitration: Introduction and Key Components’ discusses the concept of arbitration and its key components.

I. Introduction

Arbitration is taken into account as another dispute resolution procedure below that mediation and conciliation also are enclosed. It is considered an International commercial arbitration wherever two parties approach a global intermediator either by their mutual consent or through associate arbitration establishment and dissolve their dispute consequently.

The choice of dispute resolution procedure has gained importance within the previous few years because of the rise in business market disputes and conjointly it’s a speedy, cost-efficient and economical method of settlement. The United Nations has given due recognition to the Model Law of International Commercial Arbitration and Conciliation rules given by the organization of the United Nations Commission on Trade and Law ( UNCITRAL).

Based on UNCITRAL model law India enacted the Arbitration and Conciliation Act, 1996 more amended in 2015 that deals with domestic and international industrial arbitration in India. The amended Act particularly emphasizes minimizing the role of the judiciary court in arbitration proceedings and more to contemplating each arbitration order or award as a decree because it has been thought of in the civil procedure code.

The Act is categorized into two halves, one deals with important provisions that subsume domestic and International industrial arbitration procedures to be conducted in India no matter what the nationality is and the other half talks concerning social control of foreign arbitration awards.

II. Key Components of Arbitration Agreement are as follows

1. Consent– arbitration cannot happen when the consent of the parties is not present. The consent is contained in the arbitration agreement. This agreement clearly specifies the need of the parties and their dispute. In alternative words, they clearly note what is the event of a dispute between them for which they might not attend the court, instead, they’ll proceed for arbitration. This agreement takes the shape of a binding contract. As per section 7 of the Act, “arbitration agreement” means an agreement by the parties to undergo arbitration all or bound disputes that have arisen or which can arise between them in respect of an outlined legal relationship, whether or not written agreement or not.
2. Presiding Authority- The authority that looks after the dispute and solves it is the Arbitral Tribunal. It is similar to court and gives decisions and the arbitrator gives decisions as a judge. The arbitrator has to perform many duties and make decisions in a neutral and impartial manner. In arbitration, the parties can choose their presiding authority. The act also has provisions to remove an arbitrator if he is not impartial or neutral.
3. The seat of arbitration– It determines the court which would exercise jurisdiction over the arbitration proceedings.
4. Finality of outcome- No appeal lies against an arbitral award both parties must abide by, it can only be set aside when the award suffers from an invalid agreement, the Parties incapacity to enter into an agreement, independence or unfair award,

III. Importance of Arbitration

There are many advantages of Arbitration in resolving a case they are :

1. In a dispute parties usually choose arbitration to resolve the dispute and both parties choose their arbitrator in whom they have confidence that their decision will be unfair and impartial.
2. In arbitration, the dispute is resolved much sooner than in court.
3. Arbitration is not as expensive as court trials. (Most of the time the parties to arbitration split the arbitrator’s fee equally)
4. Arbitration dispute is resolved in private and it remains confidential between the parties.
5. If arbitration is binding, there are very limited opportunities for either side to appeal, so the arbitration will be the end of the dispute. That gives finality to the arbitration award that is not often present in a trial decision.

IV. Types of Arbitration

Mainly three types of Arbitration are recognised in India on the basis of their rule and procedures.

1. Institutional Arbitration
2. Ad hoc Arbitration
3. Fast track Arbitration

1. Institutional Arbitration

India is slowly growing and in future, it will achieve a Modern Economy. As per the OECD 2017 economic survey, India’s growth was marked at 7.5% which made India the fastest-growing G20 economy. The GDP of India is also increasing. For two decades India has been trying to provide better investment opportunities and a hassle-free trade mechanism.

At the same time, Indian lawmakers are focusing on providing better provisions for enforcing contracts and quick and easy means for the resolution of disputes for which Arbitration is been expanded in India. As it is a very flexible and unique process.

India now is aiming to encourage arbitration and starting to make efforts to become a hub for international arbitration. Further to reach the desired goal of the 1996 Act which led to various practical problems, some important changes were brought by Arbitration and Conciliation (Amendment) Act, 2015. With this new addition and amendment, India started a new commercial resolution ecosystem.

In Institutional Arbitration, arbitration is conducted by an established arbitral institution or organization. The Agreement itself provides for the appointment of arbitral institutes.

The main features of institutional arbitration are:

1. The arbitration procedure is pre-defined in these institutions; it becomes helpful for the parties and their lawyer in determining the procedures, the institution does it for them and it also includes the clauses of arbitration in the agreement.
2. The institutions are updated with the new laws and rules and develop the arbitration practices and ensure that there is no ambiguity.
3. In institutional arbitration, parties have a choice to choose from a panel of professional arbitrators on the basis of their disputes. The panel have experienced arbitrators specialized in different fields and areas like maritime, commodities, trade, construction, contract & etc.
4. These institutional arbitration institutes have a well-built infrastructure with large conference halls and all the latest facilities. They provide great work ethics and make dispute resolution speedy, risk-free and efficient.

The best institutional arbitration centre in India is the Delhi International Arbitration Center (DIAC)

2. Ad hoc Arbitration

This Arbitration process is not administered by an institution but the parties are flexible within themselves to determine the aspect of arbitration like the number of arbitrators to be appointed, the place of arbitration and also the applicable rules and procedures for conducting the arbitration.

This process of arbitration provides a fair and impartial resolution of the dispute and it’s very time-efficient, the cost is also much lower than institutional arbitration.

The arbitration agreement submitted before or after the dispute arises doesn’t matter it is counted that the ” disputes between the parties will be arbitrated ”

V. Arbitrator

An arbitrator is an independent third person, his work is to settle the dispute between two opposite sides. The arbitrator is selected mutually by both parties.

This process of resolving the dispute is known as arbitration. The decision that the arbitrator will take shall be legally binding to both the parties and the decision taken by the arbitrator must be fair and impartial.

VI. Factors that the parties must keep in mind while selecting arbitrators are

1. Availability

The availability of the arbitrator is essential for the efficient and speedy resolution of the dispute. The arbitrator must devote the time that is required to resolve the dispute, many have seen that the unavailability of the arbitrator can make arbitration inefficient.

2. Knowledge and Experience in the matter involved in the arbitration.

The parties must understand the nature of the disputes and according to that, they must choose their arbitrator. The Arbitrator must have enough knowledge and experience in the matter that is involved in the dispute. The parties must investigate the different sources of the arbitrators, and CVs and also should conduct online research and also consult with colleagues.

3. Nationality of the arbitrator

The nationality of the arbitrator plays an important role in arbitration for the parties. If the parties choose an arbitrator of the same nationality then it becomes easy for them to understand the culture, business and ethics of that country. Institutional arbitration doesn’t allow tools to arbitrate the same nationality for fair and impartial decisions. in Ad Hoc arbitration parties can choose at least one arbitrator of the same nationality.

4. Management skills of an Arbitrator

The arbitrator that the parties will choose shall be persuasive and efficient and can both manage the people and resolve the dispute properly in less time. He must have a good attitude and intention while giving the award and must be fair and impartial.

VII. Arbitral award

An arbitral award is the decision of the case that is given by an arbitrator as a resolution of a dispute in an arbitration process. This award can be money one party has to pay to the other party, it can also be a non-financial award. In non-financial awards, can be an order to stop certain business practices or add an employment incentive.

VIII. Grounds on which Arbitral Award can be set aside or challenged

Under section 34 of the Arbitration Act, an arbitral award can be challenged by giving an application to the court for setting aside the award on the following grounds.

1. Incapacity of a party,
2. The arbitration agreement being invalid under the law;
3. Improper notice of the appointment of an arbitrator or of the arbitral proceedings to the applicant, or when the applicant is unable to present his or her case;
4. This has been suspended by a component authority of the country in which it was made.

Originally Published on: Dec 8, 2021

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References

1. Wikipedia, Arbitration, Available Here.

2. Anita, Kinds of Arbitration, Available Here.

3. Wikipedia, Arbitration Award, Available Here.

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