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Kinds of Arbitration

Arbitration, a form of alternative dispute resolution (ADR), is a way to resolve disputes outside the courts. The dispute will be decided by one or more persons (the arbitrators , arbiters or arbitral tribunal), which renders the arbitration award. An arbitration award is legally binding on both sides and enforceable in the courts.

Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. In certain countries such as the United States, arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts and may include a waiver of the right to bring a class action claim. Mandatory consumer and employment arbitration should be distinguished from consensual arbitration, particularly commercial arbitration.

Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that one party imposes on the other, in which the parties agree to hold all existing or future disputes to arbitration, without necessarily knowing, specifically, what disputes will ever occur) and can be either binding or non-binding. Non-binding arbitration is similar to mediation in that a decision cannot be imposed on the parties.

However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbiter remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable. By one definition arbitration is binding and non-binding arbitration is therefore technically not arbitration.

Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of review and appeal of arbitration awards.

Historical Background of Arbitration

  1. Once human beings started to live and trade together as a community, various forms of adjudications begin to emerge.
  2. Why the concept of Arbitration emerged as an alternative dispute resolution?
  3. For answering this question one has to look back at the history of arbitration.

In India

The earliest evolution of arbitration in India can be traced back to Brihadaranyaka Upanishad under the Hindu Law. It provided for various types of arbitral bodies which consisted of three primary bodies namely:

  1. The local courts
  2. The people engaged in the same business or profession
  3. Panchayats.
  • The members of the Panchayats known as panchas, were that times arbitrators, which used to deal with the disputes under a system.
  • However thereafter the first legislative council for British India was formed and India got its first enactment on Arbitration known as the €˜Indian Arbitration Act, 1899€™ but the Act was applicable to only presidency towns i.e., Calcutta, Bombay, and Madras. This Act was fundamentally based on the British Arbitration Act, 1889.
  • Thereafter came the Arbitration Act, 1940 which applied to the whole of India including Pakistan and Baluchistan. However, post independence the same was modified via ordinance.
  • Due to various shortcomings in the 1940 Act like lack of provisions prohibiting an arbitrator from resigning any time during an arbitration proceeding, the rules providing for filing awards differed from one High Court to another, the act was replaced by the Arbitration and Conciliation Act, 1996 that ratified the problems in 1940 Act.

What is Arbitration?

Arbitration is a form of Alternative DisputeResolution (ADR)

  • The concept of arbitration means resolution of disputes between the parties at the earliest point of time without getting into the procedural technicalities associated with the functioning of a civil court.
  • The dictionary meaning of Arbitration is hearing and determining a dispute between the parties by a person or persons chosen by the parties.
  • In an English judgement named Collins v. Collins, 1858 28 LJ Ch 184: 53 ER 916 the court gave a wide definition to the concept of Arbitration which reads as follows:
    An arbitration is a reference to the decisions of one or more persons either with or without an umpire, a particular matter in difference between the parties€. It was further observed by the court that proceedings are structured for dispute resolution wherein executives of the parties to the dispute meets in presence of a neutral advisor and on hearing both the sides and considering the facts and merits of the dispute, an attempt is made for voluntary settlement.

Kinds of Arbitration

In arbitration a dispute is submitted to the arbitral tribunal and not to a regular civil court or otherwise. The arbitral tribunal must give a decision on the dispute and this decision is thus binding on the parties in the dispute since they have no grounds to appeal.

When contrasted with the traditional approach of a judicial proceeding which ordinarily happens in a Court; and has to go through a lengthy process, and which usually leaves one party or both parties exhausted financially. An arbitration proceeding is not formal and does not involve judicial proceeding which can save a lot of time for the parties.

A few types of Arbitrations in India on the basis of Jurisdiction

Domestic Arbitration

Domestic arbitration is that type of arbitration, which happens in India, wherein both parties must be Indians and the conflict has to be decided in accordance with the substantive law ofIndia. The term €˜domestic arbitration€™ has not been defined in the Arbitrationand Conciliation Act of 1996. However when reading Section 2 (2) (7) of theAct 1996 together, it is implied that €˜domestic arbitration€™ means an arbitration in which thearbitral proceedings must necessarily be held in India, and according to Indian substantive andprocedural law, and the cause of action for the dispute has completely arisen in India, orin the event that the parties are subject to Indian jurisdiction.

International Arbitration

When arbitration happens within India or outside India containing elements which are foreign in origin in relation to the parties or the subject of the dispute, it is called as International Arbitration. The law applicable can be Indian or foreign depending upon the facts and circumstances of the case and the contract in this regard between the respective parties. To fulfill the definition of International Arbitration it is sufficient if any one of the parties to the dispute is domiciled outside India or if the subject matter of dispute is abroad.

International Commercial Arbitration

International Commercial Arbitration is defined as the substitution of many burning questions for a smouldering one. NaniPalkhiwala has stated that International Commercial Arbitration is a 1987 Honda car, which will take you to the same destination with far greater speed, higher efficiency and dramatically less fuel consumption[ii] International Arbitration is considered to becommercial if it related to disputes arising out of a legal relationships irrespective of their contractual nature and are considered as commercial under the law in force in India and where at least one of the parties is-

  1. A national of, or habitual resident in, any country other than India or
  2. A body corporate which has to be incorporated in any foreign country, or
  3. An association or a body of individuals whose core management and control in a country which is not India or
  4. the government of a country other an India. In International Commercial Arbitration the arbitral tribunal is bound to decide the conflict according to the rules of law chosen by the parties as applicable to the substance of the dispute; any designation by the parties of the law or legal system of a given country can be interpreted, unless it has been expressed otherwise, one which directly refers to the substantive law of that country and does not refer to its conflict of laws rules.

Types of arbitrations that are primarily recognized in India on the basis of procedure and rules:

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

Institutional arbitration

When an arbitral Institution conducts arbitration, it is called Institutional Arbitration. The parties have the choice of specifying, in the arbitration agreement, to refer the differences to be determined in accordance with the rules of as elected arbitral Institution. One or more arbitrators can be appointed from a pre-selected panel by the governing body of the institution or the disputants themselves can select their panel but it has to be restricted to the limited panel. Arbitration and Conciliation Act 1996 provides that where in Part I except section 28, the parties are free to determine a certain issue, that liberty encompasses the right the parties have to authorize any person including an institution, to determine that issue. The Act also explicitly provides that where Part I €˜refers to the fact that the parties have agreed or that they may agree, or in any other way refers to an agreement of the parties, that agreement shall include any arbitration rules referred to in that agreement.

Ad-hoc arbitration

If the parties agree among themselves and arrange for arbitration, it is called Ad hoc Arbitration without having an institutional proceeding. It can either be domestic, international or foreign arbitration. Russell on Arbitration says that, The expression Ad Hoc, as in Ad Hoc Arbitrationor Ad Hoc Submission is used in two quite different senses:
An agreement to refer an existing dispute, and/or an agreement to refer either future or existing disputes to arbitration without an arbitration institution being specified to supervise the proceedings, or at least to supply the procedural rules for the arbitration. This second sense is more common in international arbitration.

Ad Hoc Arbitration means that the arbitration should not be conducted according to the rules of an arbitral institution. Since, parties do not have an obligation to submit their arbitration to the rules of an arbitral institution; they are free to state their own rules of procedure. The geographical juridiction of Ad hoc Arbitration is of essence, since most of the issues concerning arbitration will be resolved in accordance with the national law of the seat of arbitration.

Fast track arbitration

Even the other processes of arbitration can be lengthy and tedious and thus this process of arbitration works like a remedy to the issue of time. Fast track arbitration is a method, which is time dependent in the provision of the arbitration and conciliation act. Its procedure is established in a way that it has abandoned all the methods, which consume time, and uphold the simplicity which is the originally the prime purpose of such arbitration.

Principle Characteristics of Arbitration

  • Arbitration is consensual:

    An arbitral proceeding can only take place if both the parties to the disputes have agreed to it. Generally, parties insert an arbitration clause in the contract for future disputes arising from non- performance of contractual obligations. An already existing dispute can also be referred to arbitration if both the parties to the dispute agree to it (submission agreement).
  • Parties choose the Arbitrators:

    Under the Indian Arbitration Act parties are allowed to select their arbitrator and they can also select a sole arbitrator together who will act as an umpire. However, the parties should always choose an arbitrator in an odd number.
  • Arbitration is neutral:

    Apart from selecting neutral persons as arbitrators, the parties can choose other important elements of proceeding such as the law applicable, language in which the proceedings should be conducted, the venue for arbitration proceedings. All these things ensure that no party enjoys a home court advantage.
  • Decision of the Arbitral Tribunal is final and easy to enforce.

Advantages of Arbitration in India

  1. Expertise in Technical matters: An arbitrator can easily deal with technical matters which is scientific in nature because generally arbitrators are appointed based on their expertise and skill in a particular field. Thus the disputes are resolved more effectively and efficiently.
  2. The arbitral process is cost effective and less time consuming than the traditional way of dispute resolution in the court of law.
  3. There is the convenience of the parties as they are able to decide on the language, venue and time of the proceedings.
  4. Privacy and confidentiality of the parties are maintained as there is no unnecessary publicity of the dispute.
  5. Arbitral proceeding is more flexible than the court proceeding as under the arbitral proceeding one does not have to follow the strict and rigid rules and regulation as that of the court. This is due to the reason that parties set the rules and regulations of the proceedings.

Written By - Anita Kush

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