File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Analysis Of The Process Of Arbitration As A Means Of Settlement Of Dispute

As the famous dialogue by Bollywood Actor Sunny Deol in Bollywood film Damini1, it goes, "Tareek pe Tareek, Tareek pe Tareek mil gayi, lekin insaaf nahi mila"

This very well represents the current scenario of our Justice system in India.

The current data of pending cases as of Date (December 5, 2021), of the Supreme Court, is as given below2

The cases in Supreme Court are comparatively much less as compared to the pending cases in State High Courts, District Courts, Sessions Court, etc.

As per the news article by MoneyControl.com3 There are about 73,000 cases pending before the Supreme Court and about 44 million in all the courts of India. Cases that have been in the courts for more than 30 years, as of January 2021 are 1,05,560.

These figures are really intimidating and make one lose faith, belief and patience in the Judiciary System of India.

But wait, All is not lost, there is still hope.

The concerns about court congestion and delays, rising litigation costs, and the negative psychological and emotional impact of litigation have increased the use of alternative dispute resolution (ADR) techniques. Arbitration is one of the more frequently used ADR processes.

What is Arbitration?
Arbitration or alternate dispute resolution is the need of the hour and plays a very important role in reducing the burden of the judiciary system.

Definition of Arbitration
As per Section 7 (1) of Arbitration and Conciliation Act 19964, an Arbitration Agreement means an agreement by the parties to submit to arbitration all, or certain, disputes which have arisen, or which may arise, between them in respect of a defined legal, relationship, whether contractual or otherwise.

Objectives of Arbitration Act:
  1. To provide fair, efficient and capable procedure for settlement of commercial disputes
  2. To deal with international and domestic commercial arbitrations and conciliation and mediations
  3. To explicitly provide the roles and responsibilities of the arbitrator
  4. To provide freedom to the parties to define the procedures for arbitral proceedings
  5. To minimize the supervisory role of the courts
  6. To encourage settlement of commercial disputes at any stage of arbitration proceedings and any time thereafter
  7. To provide execution of the award in the same manner as a decree of the court is executed
  8. To provide mechanisms for enforceability of foreign awards in India

Essential Elements Of Arbitration Agreement:

  1. The arbitration agreement must be in writing
  2. The arbitration agreement may take in the form of an arbitration clause in a contract or may also be in the form of a separate agreement
  3. Reference in a written contract of a document containing an arbitration clause shall constitute an arbitration agreement.
  4. There is no specific form of an arbitration agreement, the words used therein should express an intention of the parties to refer the disputes to an arbitral tribunal for adjudication and a willingness to be bound by the decision of that arbitral tribunal.
  5. The arbitration agreement has an element of separability i.e. the arbitration clause is separable from other clauses of an agreement and constitutes an agreement by itself.
  6. An arbitration clause will survive even after the agreement in which it is referred has come to an end
  7. Any decision of arbitral tribunal holding that the agreement is null and void will not result in the invalidity of the arbitration clause contained in the agreement provided referred clause constitutes a valid arbitration agreement.
  8. An arbitration agreement shall be deemed to be in writing, if it is provided in:
    • A document signed by the parties
    • An exchange of letters, telex, telegrams or other means of telecommunication including electronic means providing a record of an agreement or
    • An exchange of submissions showing existence of agreement and alleged by one party and not denied by the other party.

Clear Advantages Of Arbitration:

  • Choice of decision-maker with expertise
  • Speed
  • Lower cost
  • Flexible
  • Confidentiality
  • Less formal than court
  • Preservation of business relationships

India Entering The Global Market

India Entering Wto5 From GATT (General Agreement on Tariffs and Trade)6 And The Role Of UNICTRAL (United Nations Commission on International Trade Law)7

Why did India enter the International Arbitration platform?
In India, the rapid globalization of the economy and increase in competition has led to an increase in commercial disputes.

Already overburdened courts and further slow adjudication of commercial disputes has worsened the economic environment and therefore, alternative dispute resolution mechanisms, including arbitration, have become more crucial for businesses operation in India.

The arbitration and Conciliation Act was enacted in 1996 with the aim and objective to give effect to the UNICTRAL Model Law (The United Nations Commission On International Trade Law) as adopted by the United Nations Commission on International Trade Law.

India has been a WTO member since 1 January 1995 and a member of GATT since 8 July 1948. The WTO entered into force in 1995 with a binding dispute settlement mechanism and with agreements going well beyond goods, to include services and intellectual property rights (IPRs).

The Indian law with respect to the arbitration is largely based on the English Common Law. The Indian arbitration is governed and regulated by the Arbitration and Conciliation Act 1996, which derives its basis from the 1985 UNCITRAL Model on International Commercial Arbitration and the UNCITRAL Arbitration Rules of 1976.

Section 2 (1) (f) of the Arbitration and Conciliation Act 19968 defines International Commercial Arbitration as:
"An arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial law in force in India and where at least one party is:
  1. an individual who is a national of, or habitually resident in, any country other than India
  2. a body corporate which is incorporated in any country other than India
  3. a company or an association or a body of individuals whose central management and control is exercised in any country other than India
  4. the government of a foreign country

India's Participation In New York Geneva Convention

India is a signatory to the New York Convention 1958 and Geneva Convention 1927, which makes it possible to enforce foreign awards in India as well as enforceability of Indian awards in foreign countries.

The Arbitration Act covers both the domestic and international arbitrations (i.e. where at least one party is an Indian), as well as mediation and conciliation.

Support Of Arbitration In Existing Indian Laws:

  • Under The Constitution of India, Article 51 (the State shall endeavor to promote International peace and security) where, India is obliged to endeavor to foster respect for International Law and treaty obligations in the dealings of organized peoples with one country. Encourage settlement of International disputes by arbitration.
  • Section 89 of Code of Civil Procedure which states settlement of disputes outside court through arbitration and conciliation, does not create an obligation for the court to necessarily conduct arbitration, but merely permits the Court to refer the dispute to arbitration or conciliation, etc. where it is satisfied with respect to a reference to the dispute in a pending suit that there is a possibility of settlement of the same by way of arbitration or conciliation.
  • Under the Industrial Disputes Act 1947, a dispute may be referred to arbitration, According to Section 18 of the Industrial Disputes Act, 1947, the arbitration award becomes binding once it is enforceable on those parties who refer the disputes to the Arbitrator. An arbitration award whose notification has been issued under Section 10-A shall be binding on the parties to the dispute.

Subject Matters Of Arbitration:

  1. Any commercial matter arising out or relates to a contract can be referred to arbitration.
  2. Arbitration act does not specifically exclude any category of disputes, however, if the court finds that the subject matter of the dispute is not capable of settlement by arbitration, the court shall set aside the award. Further, no arbitration proceeding could be initiated if the subject matter is contrary to Indian public policy.
  3. As per the public policy, the following matters are non-arbitrable subject matters:
    • Matrimonial matters
    • Criminal proceedings
    • Insolvency and winding-up matters
    • Anti-competition matters
    • Guardianship matters
    • Testamentary matters
    • Eviction or tenancy matters

Key Merits And Demerits Of Arbitration:

Merits Of Arbitration:

  1. Both the parties to the dispute can select the venue and procedure, thus eliminating procedural and various other delays, even the judge is known as arbitrator in an arbitration proceeding is chosen by the parties, thus removing any bias or prejudice
  2. Arbitration proceedings give a greater possibility of settlement and an award is passed
  3. Arbitration proceedings are not appealable thus they order the finality of a civil court decree
  4. Swift settlement of dispute without the interference of judicial courts
  5. Enable parties to decide the rules and procedures of arbitral proceedings
  6. Empowers the parties to appoint an arbitrator or arbitrators of their choice
  7. Provide liberty to the parties to decide the language and seat of arbitration
  8. Cost-effective settlement of commercial disputes
  9. Effective enforcement of arbitral award as if a decree of the court
  10. Informal proceedings provide better comfort to the parties
  11. Privacy, unlike a suit or trial, arbitration leads to a private resolution, so the information brought up in the dispute and resolution can be kept confidential

Demerits Of Arbitration:

  1. There are lot of instances where due to sec 8 of Arbitration and Conciliation Act 1996 any mention of arbitration in any firm pushes the party to the arbitration proceedings even though there is no explicit consent of one of the parties, e.g. if arbitration is printed on an invoice or bill between a mnc and a small vendor for any dispute the vendor is perforce to opt for arbitration only even though he did not give any explicit consent, thus there is a clear power differential between the parties and in a way it contracts out the jurisdiction of the civil court.
  2. Even though the arbitration award has the finality of the civil court decree but under section 9 of Arbitration and Conciliation Act 1996 (interim measure by courts) and section 34 it is open to challenge and a backdoor entry for an appeal is there which again make the process more cumbersome and lot of hassles.
  3. Limited recourse
  4. Uneven playing field
  5. Lack of transparency
  6. Cost - parties pay for arbitrator and agency
  7. Limited rights of appeal, fewer means to challenge the award
  8. Lack of formal discovery
  9. Subjective Arbitrator
  10. The process of choosing an arbitrator is not always an objective one. There are cases when the arbitrator could be biased because it has a business relationship with one party or is selected by an agency from a pool list. In those situations, impartiality is lost.
  11. Unpredictability: Unconventional outcomes
    As stated earlier, arbitration does not necessarily follow the formal rules of procedure and evidence that are involved in a courtroom trial. Rules of evidence may prevent some evidence from being considered by a judge or a jury, but this limitation does not apply to arbitrators. Thus, an arbitrator's decision may be based on evidence that a judge or jury would not consider at trial, which could be damaging to your case. On the other hand, if certain information from a witness is presented by documents, then there is no opportunity to cross-examine the testimony of that witness.

Examples Of Arbitral Disputes

  • Property Insurance
  • Contract (including Employment contracts)
  • Business partnership disputes
  • Family Disputes (except divorce matters)
  • Construction
  • Commercial recoveries

Arbitration In India

  1. India has set up an Arbitration Council in 1965 for the settlement of disputes through arbitration.
  2. Measures are been taken to abide by the Arbitration and Conciliation Act 1996.
  3. There is a comprehensive legal framework set up for the implementation and enforcement of arbitration awards and orders.
  4. 95 percent of arbitration is ad hoc so benefitted to both parties.
  5. India is now number 2 in arbitration cases reaching Singapore Centre.
  6. Mumbai is to have India's first International Arbitration Centre soon.

The arbitration framework in Indian is still in its infancy, but the current Government is trying to make it more robust and make it a global alternate dispute resolution like Singapore or London

It is evident that arbitration has evolved over the years as the ideal tool for resolution of disputes that saves the court's time and largely instrumental in assisting the parties to resort to quick remedial measures. Every arbitration is based on insightful application of law and its evolution is proof of its significance in the actual proceedings. Thus, arbitration has emerged as the most preferred platform for quick resolution of disputes especially in the industrial and the corporate realm.

The goal of the 1996 Act was to establish speedy and cost-effective conflict resolution. In India, arbitration is a popular method of resolving business disputes. An examination of arbitration in India finds that the institution is still developing and has not yet reached the stage where it can effectively meet the needs exacerbated by commercial growth. In the aggregate, India does not appear to be a jurisdiction with an anti-arbitration tendency.

Indian courts, despite their interventionist impulses and extended judicial review, refrain from interfering with arbitral rulings. In order to attract foreign investment, a fast-growing economy requires a trustworthy, stable conflict resolution mechanism. Due to the massive backlog of cases pending in Indian courts, commercial players both in India and overseas have established a strong preference for resolving conflicts through arbitration.

In a practical scenario, a foreign investor will have the ability to approach a court for protective relief with respect to Indian shares and Indian assets and for other support, such as the recording of evidence in India.

On the other hand, the ability to apply to an Indian court for annulment of an award may not be beneficial in all cases. Indian courts in exercise of jurisdiction under Section 34 of the Arbitration Act have previously taken an expansive interpretation of the grounds for challenge of an award.

While the Arbitration Amendment Act has attempted to narrow the scope of interpretation around the term public policy, this remains untested in Indian courts. Therefore, it is possible that an Indian arbitral award may be re-litigated in an Indian court.

The Supreme Court in a recent decision held that the Court does not sit as an appellate court over the decision of an arbitrator and cannot substitute its views for that of the arbitrator as long as the arbitrator has taken a possible view of a matter.

Another reasonable interpretation or possible view is insufficient to allow for the interference of the Court. The courts have consistently held that mere erroneous application of law or appreciation of evidence does not call for the interference with an arbitration award.

Confidentiality, a cornerstone of arbitration proceedings, has been formally recognised by the 2019 Amendment by which the arbitrator, the arbitral institution and the parties to the arbitration agreement must maintain confidentiality of all arbitral proceedings except the award where its disclosure is necessary for the purpose of implementation and enforcement of award.


Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly