Setting disputes by the disputant by referring them to persons in whom disputants have confidence is known arbitration. In an organised society, people cannot take law into their own hands particularly as a judicial machinery is provided by the state for getting matters settled by competent courts, where judges are appointed by the state and the litigants are meant to bring disputes before them. Arbitration is an extra-judicial forum and an alternative method of settlement of such disputes. It is a process in which parties agree in writing to abide by the judgement of particular persons in specific matters instead of going to the courts of justice.
Arbitration has many advantages: it is inexpensive, cases can be speedily disposed of and there are no procedural technicalities. The word arbiter was originally used as a non-technical designation of a person to whom controversy was referred to for decisions irrespective of any law. It signified the referral of a dispute outside of or above the ordinary law. But in due course, the word came to mean a person selected for settlement of disputes. Though it is not judicial in the strictest sense, yet arbitration is regulated by law by implication and the arbitrators cannot act arbitrarily, capriciously or misconduct themselves.
In ancient Indian there were several grades of arbitration, for example the Puga or a board of persons who belonged to different sects and tribes but lived in the same locality; the Sreni or assemblies of tradesmen and artisans belonging to different tribes but connected in some way with each other, the Kula or groups of persons bound by family ties. From early times, the decisions of panchayats were accepted as binding. According to Colebrooke (an English Scholar and commentator on ancient Hindu law), Panchayats were different systems of arbitration subordinate to the regular courts of law. The decision of a Kula or kin group was subject to revision by the Sreni which, in turn, could be revised by the Puga. From the decision of the Puga, appeal was maintainable to Pradvivaca and finally to the sovereign and the prince.
The objects of arbitration are speed, economy, convenience, simplicity of procedure, secrecy and the encouragement of healthy and friendly relations between the disputants. Arbitration is increasingly being used in national and commercial transactions, and arbitrators are like private judges between the concerned parties.
For centuries, people engaged in commerce have preferred to use arbitration rather than the courts to resolve their business disputes. In a large number of cases the arbitrators are laymen without any legal training, but are known to be impartial and are usually knowledgeable about the intricacies and practices of the business in question.
Arbitration is often described as 'approximate justice with finality' as against justice administered in the courts which has many rounds of appeal. It is advantageous in cases involving disputed questions of facts, for example whether goods are up to the original samples or in the assessment of damages or whether compensation is reasonable. But in complicated matters where intricate question of law are likely to arise, legal proceedings are the better course. Arbitration, like courts, can also work both ways. For example, sometimes it can turn out to be more expensive than litigation. This is not because there are any inherent defects in the machinery, but because the machinery is operated by human agency and no force can be used. At other times honest people fear arbitration more than they do law suits.
In India the process of appointment and proceedings of arbitration were governed by the Arbitration Act, 1940. The said Act was repealed by the Arbitration and Conciliation Act, 1996. The need to repeal the said Act and, to enact 1996 Act was felt because Law Commission of India, several representative bodies of trade and industry and, experts in the field of arbitration proposed amendments to the said Act to make the same more responsive to contemporary requirements. It was felt that economic reforms of the country may not become fully effective if the law dealing with the settlement of both domestic and international commercial disputes remains out of tune with such reforms. Consequently, the Arbitration and Conciliation Act, 1996 was enacted 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 therewith or incidental thereto. The scheme of the Act is to provide a domestic forum for speedy and substantial justice-unhampered by legal technicalities.
Almost all matters in dispute that are not of a criminal nature can be referred to arbitration. All matters of a civil nature, therefore, with a few exceptions, whether they relate to present or future disputes, may form the subject of reference, but not a dispute that has arisen from and is founded on an illegal transaction. However, where the law has given jurisdiction to determine a matter to specified tribunals only and determination of that matter by other tribunals is excluded, they cannot be referred to arbitration. Proceeding in insolvency including the question whether or not a certain person should be declared insolvent, or matters regarding tenancy, the Rent Act, etc. cannot be referred to arbitration.
The law provides that the agreement to refer to arbitration should be in writing. There cannot be an oral agreement or reference to arbitration. The parties can go in for sole arbitration or each party appointing an arbitrator.
If there are even number of arbitrators, the appointed arbitrators have to appoint third arbitrator/umpire who would sit in the proceedings as presiding arbitrator. If the arbitrators fail to appoint Umpire within 30 days of the date of their appointment, the appointment is made upon the request of a party by the Chief Justice of the state or any person or institution designated by him. In case of international commercial arbitration, Chief Justice of India or person or institution designated by him, upon the request of a party is empowered to appoint a sole arbitrator or third arbitrator as the case may be. In appointing an arbitrator or an umpire the chief Justice or the person or institution designated by him gives due regard to qualifications required of the arbitrators by the agreement between the parties.
The arbitrators must give reasonable opportunity to the parties to be heard either in person or, if the parties desire, through their advocates. The principles of natural justice including Audi Alteram Partem and Nemo Judice in re Suo Moto must be observed. The parties can lead evidence and file documents.
The parties may provide that the arbitrators can dispense with the elaborate procedural law and can adopt a summary procedure in order to avoid delay and elaborate documentation, and to save expenses.
The judgement, which is known as an award, is given in writing by the arbitrators. The said award is binding on the parties and the person claiming under them. The award can be challenged under section 34 of the Act on very limited grounds within a period of 3 months from the date of the award by moving an application to the court having jurisdiction to decide questions forming the subject matter of the arbitration. The award can be challenged only on the limited grounds viz:
(a) the party making the application furnishes proof that-
i. a party was under some incapacity; or
ii. the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the law for the time being in force; or
iii. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
iv. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
Provided that, if the decisions on matters submits to arbitration can be separated from those not so submitted only that part of the arbitral award which contains decision on matter not submitted to arbitration may be set aside ; or
v. the compensation of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the partied, unless such agreement was in conflict with this provision of this part from which the party cannot derogate, or failing such agreement, was not in accordance with this part; or
(b) the court finds that-
i. the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
ii. the arbitral award in conflict with the public policy of India.
An award can be enforced as decree of civil court after the time for making an application to set aside the award under Section 34 expires or an application having been made is refused.
The party aggrieved by an order of the court of setting aside or refusing to set aside an arbitral award can file an appeal against the said order to the court to which appeal lies from original decrees of the court passing the order under Section 34 of the Act. There is no second appeal provided under the Act. However, jurisdiction to move Supreme Court under Article 136 of the Constitution of India remains unaffected, and, an aggrieved party from the decision of the appellate court may move Supreme Court under Article 136 of the Constitution of India.
The arbitrators' fees and other expenses are paid by the parties. However, in the award the arbitrators can also give directions about payment of costs by a party or parties.
Arbitration has many advantages: it is inexpensive, cases can be speedily disposed of and there are no procedural technicalities. The word arbiter was originally used as a non-technical designation of a person to whom controversy was referred to for decisions irrespective of any law. It signified the referral of a dispute outside of or above the ordinary law. But in due course, the word came to mean a person selected for settlement of disputes. Though it is not judicial in the strictest sense, yet arbitration is regulated by law by implication and the arbitrators cannot act arbitrarily, capriciously or misconduct themselves.
In ancient Indian there were several grades of arbitration, for example the Puga or a board of persons who belonged to different sects and tribes but lived in the same locality; the Sreni or assemblies of tradesmen and artisans belonging to different tribes but connected in some way with each other, the Kula or groups of persons bound by family ties. From early times, the decisions of panchayats were accepted as binding. According to Colebrooke (an English Scholar and commentator on ancient Hindu law), Panchayats were different systems of arbitration subordinate to the regular courts of law. The decision of a Kula or kin group was subject to revision by the Sreni which, in turn, could be revised by the Puga. From the decision of the Puga, appeal was maintainable to Pradvivaca and finally to the sovereign and the prince.
The objects of arbitration are speed, economy, convenience, simplicity of procedure, secrecy and the encouragement of healthy and friendly relations between the disputants. Arbitration is increasingly being used in national and commercial transactions, and arbitrators are like private judges between the concerned parties.
For centuries, people engaged in commerce have preferred to use arbitration rather than the courts to resolve their business disputes. In a large number of cases the arbitrators are laymen without any legal training, but are known to be impartial and are usually knowledgeable about the intricacies and practices of the business in question.
Arbitration is often described as 'approximate justice with finality' as against justice administered in the courts which has many rounds of appeal. It is advantageous in cases involving disputed questions of facts, for example whether goods are up to the original samples or in the assessment of damages or whether compensation is reasonable. But in complicated matters where intricate question of law are likely to arise, legal proceedings are the better course. Arbitration, like courts, can also work both ways. For example, sometimes it can turn out to be more expensive than litigation. This is not because there are any inherent defects in the machinery, but because the machinery is operated by human agency and no force can be used. At other times honest people fear arbitration more than they do law suits.
In India the process of appointment and proceedings of arbitration were governed by the Arbitration Act, 1940. The said Act was repealed by the Arbitration and Conciliation Act, 1996. The need to repeal the said Act and, to enact 1996 Act was felt because Law Commission of India, several representative bodies of trade and industry and, experts in the field of arbitration proposed amendments to the said Act to make the same more responsive to contemporary requirements. It was felt that economic reforms of the country may not become fully effective if the law dealing with the settlement of both domestic and international commercial disputes remains out of tune with such reforms. Consequently, the Arbitration and Conciliation Act, 1996 was enacted 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 therewith or incidental thereto. The scheme of the Act is to provide a domestic forum for speedy and substantial justice-unhampered by legal technicalities.
Almost all matters in dispute that are not of a criminal nature can be referred to arbitration. All matters of a civil nature, therefore, with a few exceptions, whether they relate to present or future disputes, may form the subject of reference, but not a dispute that has arisen from and is founded on an illegal transaction. However, where the law has given jurisdiction to determine a matter to specified tribunals only and determination of that matter by other tribunals is excluded, they cannot be referred to arbitration. Proceeding in insolvency including the question whether or not a certain person should be declared insolvent, or matters regarding tenancy, the Rent Act, etc. cannot be referred to arbitration.
The law provides that the agreement to refer to arbitration should be in writing. There cannot be an oral agreement or reference to arbitration. The parties can go in for sole arbitration or each party appointing an arbitrator.
If there are even number of arbitrators, the appointed arbitrators have to appoint third arbitrator/umpire who would sit in the proceedings as presiding arbitrator. If the arbitrators fail to appoint Umpire within 30 days of the date of their appointment, the appointment is made upon the request of a party by the Chief Justice of the state or any person or institution designated by him. In case of international commercial arbitration, Chief Justice of India or person or institution designated by him, upon the request of a party is empowered to appoint a sole arbitrator or third arbitrator as the case may be. In appointing an arbitrator or an umpire the chief Justice or the person or institution designated by him gives due regard to qualifications required of the arbitrators by the agreement between the parties.
The arbitrators must give reasonable opportunity to the parties to be heard either in person or, if the parties desire, through their advocates. The principles of natural justice including Audi Alteram Partem and Nemo Judice in re Suo Moto must be observed. The parties can lead evidence and file documents.
The parties may provide that the arbitrators can dispense with the elaborate procedural law and can adopt a summary procedure in order to avoid delay and elaborate documentation, and to save expenses.
The judgement, which is known as an award, is given in writing by the arbitrators. The said award is binding on the parties and the person claiming under them. The award can be challenged under section 34 of the Act on very limited grounds within a period of 3 months from the date of the award by moving an application to the court having jurisdiction to decide questions forming the subject matter of the arbitration. The award can be challenged only on the limited grounds viz:
(a) the party making the application furnishes proof that-
i. a party was under some incapacity; or
ii. the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the law for the time being in force; or
iii. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
iv. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
Provided that, if the decisions on matters submits to arbitration can be separated from those not so submitted only that part of the arbitral award which contains decision on matter not submitted to arbitration may be set aside ; or
v. the compensation of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the partied, unless such agreement was in conflict with this provision of this part from which the party cannot derogate, or failing such agreement, was not in accordance with this part; or
(b) the court finds that-
i. the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
ii. the arbitral award in conflict with the public policy of India.
An award can be enforced as decree of civil court after the time for making an application to set aside the award under Section 34 expires or an application having been made is refused.
The party aggrieved by an order of the court of setting aside or refusing to set aside an arbitral award can file an appeal against the said order to the court to which appeal lies from original decrees of the court passing the order under Section 34 of the Act. There is no second appeal provided under the Act. However, jurisdiction to move Supreme Court under Article 136 of the Constitution of India remains unaffected, and, an aggrieved party from the decision of the appellate court may move Supreme Court under Article 136 of the Constitution of India.
The arbitrators' fees and other expenses are paid by the parties. However, in the award the arbitrators can also give directions about payment of costs by a party or parties.
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