What is Arbitration?
Table of Contents
Disputes or disagreements are quite common between parties in the world of business and today's fast-paced commercial world. For an investor, the market is mostly fast-paced, and they require the means of quick decision-making. This decision-making is strategic, and it also marks their future decisions. Often, an investor can face a dire situation of a dispute with their competitors or partners. Time is as valuable as money. Therefore, both parties must come to a settlement as quickly as possible because if the dispute becomes nothing but a lengthy and complex court battle, both parties will suffer its consequences. To avoid the long and tiring court hearings, we have the Alternative Dispute Resolution (ADR) mechanisms which have made the process of resolution between the parties easier and simpler. As the term suggests, ADR is an alternative or a second option for solving disagreements between the parties. One of the major ADR methods is Arbitration.
Arbitration is an alternative method to resolve a dispute or a disagreement in civil matters. It may sound like a new complex judicial system in bigger firms and offices, but it is a very common and grass-root process in India. For example, in villages, when there is a dispute between two individuals, they choose to hold a panchayat meeting over it and come to a resolution. In such meetings, civil matters are decided by the chosen, experienced and respected elders. Their decision is made after verification of all the pleas and witnesses. Such a system is helpful for the villagers who cannot afford travel expenses to the cities, where they can take action through the traditional court system. Similarly,
Arbitration is a modern way to settle disputes by private individuals appointed by the government tribunal especially made for arbitration proceedings. These private individuals are known as arbitrators, and they are quasi-judicial officers. By quasi-judicial officers, we mean agencies with powers similar to the court of law judges. These individuals are registered by the law to decide matters related to disputes. For example, the human rights or consumer protection commission. However, not all matters can be decided through Arbitration. For example, trusts, matrimony, insolvency and winding up, tenancy, guardianship testamentary affairs, crime, etc., are among the matters where Arbitration is not permitted.
Whenever there is a disagreement between two parties and they decide to resolve it through Arbitration, they set up an arbitral tribunal. A single arbitrator is referred to as an "arbitral tribunal." This panel consisted of (always) odd (1,3,5…) numbers of arbitrators. Their task follows three major steps: to make a formal, impartial judgment, resolve the dispute to the satisfaction of both parties and provide an arbitral award. The arbitral award is the compensation or resolution the tribunal provides to the affected party.
The Council was formed to address the duties and functions prescribed under the Arbitration and Conciliation Act. The CouncilCouncil consists of a Chairperson who is either:
• A judge of the Supreme Court
• A judge of a High Court
• Chief Justice of a High Court
• An eminent person with great experience and expert knowledge in the conduct of Arbitration for many years.
Other members will include a respected arbitration practitioner with experience in arbitration proceedings, an academician with experience in Arbitration, and government appointees.
The function of the Arbitration Council of India is to look after the performances of arbitral institutions by framing policies and rating these institutions accordingly. Therefore, qualified members and experts are appointed as members of the arbitration council, which supports the fact that the arbitral institutions are reliable and systematic.
Selection of arbitrators
Unless a particular nationality is specified in the agreement, anyone of any nationality may serve as an arbitrator in a case. In case the concerned parties or arbitrators cannot appoint a suitable arbitrator. It is the responsibility of the Supreme Court and High Courts to designate arbitral institutions as per their requirements. The parties must appear before the court to designate arbitrators to resolve the current issue or disagreement. In International commercial sector disputes, the Supreme Court appoints the arbitration institution.
In contrast, appointments are made in the context of domestic Arbitration by the organization that the relevant High Court has designated. The Chief Justice of that High Court must work with a committee of arbitrators to carry out the arbitral institutions' duties if no arbitral institutions are available. A decision on an application for the appointment of an arbitrator must be made within 30 days, and the arbitrator must be chosen.
Removal of arbitrators
Sometimes it happens so that an arbitrator may have a personal benefit in the dispute as he/she may be related to the parties. In that case, the decision-making in the proceedings might be impartial or biased, so the arbitrator can be requested to be removed. Also, if an arbitrator cannot act according to the given reason, a new arbitrator is appointed. Finally, arbitrators can also be removed for their misconduct in the proceedings.
Role of arbitrators in Arbitration
Now, what is the role of an arbitrator in an arbitration? Is it just to hold a meeting or provide a quick resolution?
Arbitration may be an alternative, quicker method of dispute settlement. But it still requires detailed instructions and procedures where the arbitrators act similarly to a judge in a judicial proceeding. An arbitrator acts as a private judge who looks after both parties' witnesses and pleas impartially. The arbitral institutions appoint them, and they have many major roles, which include the following:
1. They have a major set of rules and laws which they apply and interpret in their arbitration proceedings.
2. They analyze the investigation thoroughly to extensively check the evidence and witnesses related to the dispute.
3. Conducting the arbitration hearing in which both the testimonials of the parties are submitted.
4. Analysing and judging the evidence and testimonials thoroughly.
5. Deciding to resolve the dispute or the disagreement.
6. Declaring or making the means to provide the arbitral award or resolution.
While the arbitrator performs all the above functions in his/her capacity, he/she must be impartial and disclose all the facts required to be known by the parties before the proceedings start.
Many steps are followed to complete a successful arbitration process. First, it consists of the steps of the initial agreement to appeal and enforcement of the arbitral award.
The arbitration agreement takes place before the actual arbitration proceedings. It determines the key elements of the arbitration process, which are pre-decided in the Arbitration. For example:
• How many members will the arbitration committee or tribunal comprise?
• What will be the process or criteria for selecting the arbitrators, and what nationality do they prefer?
• Where will the arbitration proceedings take place, and Where will the Arbitration's legal "seat" or location be?
• Will the Arbitration follow the rules of a certain arbitration organization, or will it be done "ad hock" (meaning rules tailored to the parties' demands)?
All of these variables may significantly impact the duration and expense of the Arbitration. It may also look after serving the results efficiently. So, if a person is considering entering an arbitration agreement, they should take expert legal advice first, saving them time and money.
There might be conditions that must be satisfied before Arbitration can start because it is a contract-based dispute resolution procedure. These could involve mediation or gatherings of senior representatives from the two organizations to try and resolve the conflict.
Arbitration starts when the petitioner sends a document called a "notice to arbitrate" or a "request for arbitration" to its opponent.
If the parties request any particular institution of justice's rules to be followed in the proceedings, then that institution's rules prescribe what the 'notice to arbitrate' should contain. Mostly, the notice includes at least a brief description of the issue in dispute. Also, if this arbitration agreement states that one of the parties should nominate their arbitrator, this notice will include the identity of the individual they wish to select.
Then the other party (or parties) will get the chance to respond to their request within a certain period and place and select an arbitrator.
The Arbitration will then proceed according to the procedure they have chosen according to their choice of institution.
The arbitrators will require each party to produce written statements or submissions of other necessary documents that act as a plea. These will include written witness statements and other reports of their technical experts.
The parties frequently exchange documents with one another and the tribunal. These will consist of papers.
Upon which they rely. They also produce the documents which the other parties have requested them. This often becomes a reason for disputes between the parties who keep their documents confidential. Therefore, it is important to be assisted by legal advice before Arbitration to ensure how much information you are obligated to provide and comply with them and manage the arbitration process as efficiently as possible.
Arbitrations often feature one or more sessions before the tribunal, during which the attorneys representing the parties present their arguments and cross-examine the witnesses and experts for the opposing party.
Hearings can be as short as 12 hours or longer, like many weeks or, in some cases, even months, depending on the number of issues discussed in Arbitration.
The tribunal will present its decision or award following the hearing. This will end the decisions made regarding the disagreements between the parties. Unless the award is not accepted, it sees to it that all the needs and necessities of the parties are met.
Often, a party or parties will challenge its appeals for an award or resolution. The reasons can be different depending on many factors. These can be based on the arbitration agreement, the arbitral 'panel,' or the chosen institutional rules. Similarly to a judge, a tribunal's decision-making of matters is rarely challenged. However, if the tribunal has failed to conduct itself properly, has discussed questions that should not have been discussed, or, in some cases, made an error of law. The award can then be challenged in court or sent back to the tribunal for another attempt to interpret it properly.
Resolving a dispute through Arbitration is proving to be very convenient in the domestic and international arenas. This is because the third-party justice delivery system is proven to be much more convenient and useful. The delay brought on by the traditional court procedure for the relief delivery system is a major concern. Most of the matters of civil nature are now being dealt with through Arbitration with the consent and the will of the parties, which is helping to resolve the matters in a much more feasible manner.
The present provisions regarding alternative ways of dispute resolution are evolving with time, especially in India. The growth of arbitration proceedings in India will help solve the unwanted condition of court burden in the upcoming years, as new institutions are providing their services to India. The arbitration may become the first step to judicial order and resolution.
Frequently Asked Questions
Arbitration is an alternative process to solve a dispute outside the judiciary courts. The dispute is discussed by one or more persons known as arbitrators, who help in solving the disagreement by providing an arbitration award'.
It is the solution or compensation which the committee provides to the affecting party in a dispute. It can be challenged if any of the parties are dissatisfied.
Is Arbitration more expensive than court litigation?
No, Arbitration is less expensive than litigation. It is also much quicker than a court hearing.
As far as the process of arbitration in India is concerned, there are mainly two types- institutional and ad-hoc. Some of the institutes conducting institutional arbitration are as follows:
- Indian Council of Arbitration
- Delhi International Arbitration Centre
- Mumbai Centre for International Arbitration
- London Court of International Arbitration
- Singapore International Court of Arbitration
There are other forms of dispute resolution methods which are prevalent in India similar to Arbitration which are LokAdalat and Mediation.
- LokAdalat is an informal court convened to dispose of the matters through amicable settlement.
- Mediation/Conciliation. In mediation, either of the parties can mutually appoint a mediator or the court can refer the parties to mediation. One such centre conducting mediation proceedings is run by Delhi High Court by the name of "Samadhan".