FAQs ON ARBITRATION

BASICS OF ARBITRATION

People have various conceptions about Arbitration. The very old concept about Arbitration was Panchaiti. It was a sort of undefined conception of people to settle their disputes, by referring to a person of their choice who would contact the parties and try to settle their disputes. This was an attempt to settle civil disputes by and through a private party or parties of their choice.

The modern concept about Arbitration has greatly changed. On the one hand the parties are given the liberty to enter into an Arbitration agreement of their choice, they also have the liberty to agree to an arbitrator or arbitrators of their choice mutually acceptable to them and also have the liberty to agree to the procedure as to how the arbitrator or arbitrator are to be selected or appointed in case of any existing or any future disputes, but once they agree to go to an Arbitration, the said agreement becomes binding on both the parties and the arbitrators get the Jurisdiction to decide finally all the disputes which the parties have agreed to refer to them for settlement. Thus where as ordinarily the disputes between the parties are decided by a court of law, whose Jurisdiction and power to decide is governed by the law of the land and not by the volition of the parties, the parties by the law of Arbitration have been given the choice to get their disputes and or particular disputes, the nature whereof is defined within the mutual agreement, to be decided by the person or persons or a body of their own choice.

The whole intent behind accepting Arbitration as a mode of settlement of disputes is to make it easy, convenient and expeditious remedy to be available to the parties instead of going to a court of law and the long drawn procedures and formalities applicable in case of settlement of disputes which apply to the courts.

In India we had our own Arbitration Act 1940, which was mostly following the British Law on the subject. Similarly most of the countries had their own laws of Arbitration, which varied largely and created lots of problems with the increase of international trade and commerce and the agreements relating there to usually provided for Arbitration to solve the Disputes.    

The United Nations commission on International Trade Law (UNCITRAL) had adopted the UNCITRAL model law on International commercial Arbitration in 1985. The general assembly of United Nation also recommended that all countries should give due consideration to the said model Law in view of the desirability of uniformity of the law of Arbitral procedures and the specific needs of the international commercial Arbitration practice. India was a signatory party to the said UNCITRAL. Furthermore we in India did not have any legislation with regard to conciliation proceedings and there was a recommendation by the general assembly of the United Nations for use of the rules as recommended by them in context of international commercial disputes and where the parties sought amicable settlement of the disputes by recourse to conciliation proceedings.    

In the context aforesaid a bill was introduced in the parliament to consolidate and amend the law relating to domestic Arbitration, International commercial Arbitration and enforcement of foreign arbitral award; as also to define the law relating to conciliation and for matters connected there with or incidental there to.    

At first an ordinance was issued, since the parliament was not in session and thereafter the act was passed.

An Arbitration agreement may be in the form of Arbitration clause in a contract or in the form of a separate agreement.    

The requirement as to Arbitration agreement being in writing is fulfilled ;-

The reference in a contract to a document containing an Arbitration clause constitutes an Arbitration agreement if the contract is in writing and the reference is such as to make that Arbitration clause part of the contract. The example of such an Arbitration agreement may be given when the parties simply agree “Arbitration; Bengal Chamber of Commerce and Industry”. Similarly “Arbitration; London Chamber of Commerce and Industries”. This agreement will import the entire rules of the concerned chambers which are in writing in the contract itself and the requirement of Law that the Arbitration agreement has to be in writing will be fulfilled by incorporation of the concerned rules of the concerned chambers. Of course an Arbitration agreement should specify the nature of disputes which are intended to be referred to Arbitration. It should be noted that an oral Arbitration agreement is not permissible in Law.

Under the 1940 Act an interim relief could be sought for after commencement of the Arbitration reference. This situation has been basically altered and now as provided in section 9 of The Arbitration and Conciliation Act, 1996. Interim relief may be sought by a party before or during arbitral proceeding or anytime after the making of the award.  

For the appointment of a guardian for a minor or a person of unsound mind for the purposes of Arbitral proceedings; or  

The detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may  arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;  

This interim relief has to be asked from the court, which has the same power for making interim orders as it has for the purpose of and in relation to any proceedings before it. The “court” means the principal civil court of original Jurisdiction in a district and includes the High Court in exercise of its ordinary original civil Jurisdiction, having Jurisdiction to decide the questions forming the subject matter of the Arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal civil court of or any court of small causes.  

Under section 17 of the present Act the arbitral tribunal may also at the request of the party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute. The Arbitral tribunal may also require a party to provide appropriate security in connection with a measure ordered under sub-section 1 of Section 17 of the present Act. This is a change in Law as under the old Act “ that is the 1940 Act “ the arbitrator could make an interim award but there was no provision equivalent to Section 17 of the present Act.

What can a party to an Arbitration agreement do if the other party to the Arbitration agreement institutes a suit in a Court of Law praying for decision on matters, which are covered by the Arbitration agreement ?

This situation very often used to arise and the other party had no option but to make an application for the stay of the suit under Section 34 of the old Act. If a party commenced a suit and gave notice there of to the other side all further proceedings in Arbitration would become void and ineffective and the award made after such notice would have been void.  

The 1996 Act has ameliorated the situation to a great extent. It has been provided under Section 8(3) that not with his tending the issue is pending before the Judicial Authority, an Arbitration may be commenced or continue an Arbitral award made.  

The further step that is required is to make an application before the Judicial Authority before which an action is brought in a matter which is the subject of an Arbitration agreement and the court shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the party to a Arbitration. This application as aforesaid shall not be entertained unless it is accompanied by the original Arbitration agreement or a duly certified copy thereof. Notwithstanding that an application has been made under sub-section 8(1) before the Judicial Authority and that the issue is pending before the Judicial Authority, an arbitration may be commenced or continue and an arbitral award made.

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