What is the scope and validity of Alternative Dispute Resolution (ADR) in India?
The new Act, for the first
time in the country, provides a detailed statutory framework for the conduct
of independent conciliation proceedings outside the court. It is based on the
conciliation rules adopted by the United Nations Commission on International
Trade Law (UNCITRAL) in 1980, which were conceived primarily in the context
of dispute resolution in international commercial relations.
A settlement agreement reached
by the parties and signed by them with the help of the conciliator shall be
final and binding on them and the persons claiming under them. The parties may
terminate a conciliation proceeding by giving a written notice addressed to
the conciliator to the effect that the proceedings are terminated from the date
of notice.
The conciliation proceedings
are entirely dependent on the continued goodwill of the parties and could be
terminated by the parties at any time before the signing of the settlement agreement.
The new law provides that notwithstanding
anything contained in any other law, the principle of confidentiality shall
be maintained by the parties as well as the conciliator except where its disclosure
is necessary for the implementation and enforcement of the settlement agreement.
What are the main features of Arbitration and Conciliation Act, 1996 ?
The dominant features of the
new law are that it recognizes the autonomy of the parties in the conduct of
arbitral proceedings. The law promotes transparency in the matter of decision-making
by the arbitral tribunal by providing that the arbitral tribunal shall give
reasons for its arbitral award.
The supervisory role of courts
has been minimised as it is practically nil till the award is made. The old
system of making the arbitral award a rule of court before it is enforced has
been dispensed with. The arbitral award itself, once it becomes final, will
be enforced as if it was a decree of the court, without going through the erstwhile
process of its becoming a rule of the court.
The new law allows parties
to resort to arbitration for resolution of their disputes in any matter, which
is arbitrable. However, where, by virtue of any other law (i.e. a special statute
providing for a different remedy), a certain dispute or certain kinds of disputes
cannot be submitted to arbitration, they cannot be referred to arbitration.
The parties are given maximum
freedom in the appointment of arbitrators. The new Act also provides the basis
for institutional arbitration in as much as the parties may agree to abide by
the rules of procedure of an arbitral institution for the purpose of arbitration.
A significant feature of the
new law is the provision relating to the appointment of arbitrators by the Chief
Justice of India (i.e. the Chief Justice of the Supreme Court of India) or the
Chief Justice of a High Court or their nominees when the parties are not in
a position to agree on a procedure for appointment of arbitrators. Arbitrators
should be independent.
In case of International disputes,
the Chairman arbitrator should be from a neutral country, i.e. from a different
country The arbitral tribunal has the competence to decide its own jurisdiction
and to consider objections with respect to the existence or validity of the
arbitration agreement.
The new law clearly provides
that an arbitral tribunal will not be bound by the Code of Civil Procedure,
1908 or the Indian Evidence Act, 1872. However, parties are at liberty to agree
on a procedure to be followed by the arbitral tribunal in conducting the proceedings.
Under the new law, the arbitral
award must contain reasons unless the parties have agreed that no reasons are
to be given. This is a significant departure from the provisions of the Arbitration
Act, 1940, which contained no mandatory provision requiring the arbitrator to
record reasons for his award and the court could not interfere with the findings
of the arbitrator on the ground of non-provision of reasons.
However, the new law also restricts
the scope of judicial scrutiny of the award. It clearly defines the grounds
on which an application for setting aside an award can be entertained by a court.
These grounds are confined to lack of capacity of a party, invalidity of the
arbitration agreement under the law, violation of principles of natural justice
and the arbitrator exceeding the terms of reference.
The scope for judicial review,
therefore, even when the award is a speaking one, is limited. The only residuary
ground which empowers the courts to go into the merits of the award is that
the award is in conflict with the public policy of India (the concept of public
policy has been dealt with in Section 34 (ii) of the new Act).
What are the duties and Responsibilities of an Arbitrator?
a. An arbitrator should be
fair and absolutely impartial. He should have no bias and should decide the
dispute referred to him in a judicious manner and not capriciously or whimsically.
The terms of reference under the arbitration agreement should be strictly followed.
b. He should not disregard
the principles of natural justice. He must have scrupulous regard to the ends
of justice. He should have no interest, direct or remote, in the subject matter
of the dispute or in any of the parties and should not act as an advocate of
the party appointing him.
c. He should not misconduct
himself or the proceedings. Failure to perform essential duties of an arbitrator
is deemed to be a misconduct.
d. He should not accept any
illegal gratification or receive any pecuniary inducement which may affect the
fair determination of the matters submitted for arbitration.
e. An arbitrator should not
engage in private discussion or conference with one of the parties on any matter
connected with the case, in the absence of the opposite party.
When there are two or more
arbitrators, every stage of the proceedings must be conducted in the presence
of all the arbitrators. Every judicial act must be performed after due notice
to the parties. However, arbitrators may delegate some ministerial matters and
functions to one of them or to a third person.
f. An arbitrator must give
the parties notice of hearing and sufficient opportunity to present their case.
Both the parties must be given equal opportunity to produce evidence and to
put forward their case.
g. The arbitrator is entitled to proceed ex parte if it is clear that the party
to whom reasonable notice has been given does not appear or if there is clear
indication that he has no intention of appearing.
What is the effect
of awards which are made in countries which are not parties to either the Geneva
Convention or the New York Convention?
Any controversy
or claim arising out of or relating to this contract shall be determined by
arbitration in accordance with the International Arbitration Rules of the American
Arbitration Association.
The place of arbitration shall be Waqlat.com center for International
Arbitration and alternate dispute resolution New Delhi India.
The American Arbitration Association
also recommends that among other things parties agree in advance whether to
use one or three arbitrators and that they specify the language of the arbitration.
What are the procedures for enforcement of foreign award under conventions?
The procedure
for enforcement of foreign award under convention are:-
a. The
procedure for enforcement of foreign awards under the Geneva Convention of 1937
and the New York Convention of 1958 are much the same. Any person interested
in enforcing a foreign award may apply in writing to any court having jurisdiction
over the subject matter of the award. In addition to filing of the award and
the agreement on which it is based as required by the Convention, the Act requires
that evidence as to the award being a foreign award has to be filed. b. The
competent court in which the award is to be filed is the court which will have
jurisdiction over the subject matter of the award. The application will be numbered
and registered in the court as a suit between the applicant as plaintiff and
the other parties as defendants. The court will direct notice to be given to
the parties requiring them to show cause why the award should not be filed.
The court on being satisfied that the foreign award is enforceable under the
Act will pronounce judgment according to the award. Upon the judgment so pronounced,
a decree will follow as in the case of domestic awards. No appeal will lie from
such a decree except in so far as the decree is in excess of or not in accordance
with the award.
Whether there is any provision for interim award under Domestic Arbitration?
The new law deals with a variety of provisions as to relief under Sections 9 and 17. Section 9 empowers parties to apply to court for interim measures of protection before or during arbitral proceedings. Section 17 empowers the arbitral tribunal to order a party to take interim measures of protection on a request being made to it.
How can award be set aside under Domestic Arbitration?
Under
Section 34 an aggrieved party may apply to the court within three months of
receipt of the award, for setting aside the award. The grounds are set out in
Section 34(2)(a) and Section 34(2)(b), at great length. They may be stated in
very brief form as follows :-
i. Incapacity
of a party,
ii. invalidity of the agreement,
iii. want of proper notice,
iv. award deals with dispute not referred to arbitration,
v. arbitral tribunal was defective in composition,
vi. subject matter of the dispute not being capable of settlement by arbitration
under the law for the time being in force,
vii. arbitral award being in conflict with public policy.
Is a foreign award enforceable in India?
A foreign
award can be enforced in India under the following conditions:
a. A
foreign award can be enforced in India under the multilateral international
conventions to which India is a party, namely, the Geneva Convention of 1927
and the New York Convention of 1958, if the said Convention apply to the arbitrations.
The foreign award must have been made in a country which has ratified the Geneva
Convention of 927 or the New York Convention of 1958. India has enacted legislation
to implement the two Conventions.
The Arbitration
(Protocol and Convention ) Act, 1937 which came into force on 4th March, 1937
provided for the enforcement of foreign arbitral awards to which the Geneva
Convention of 1927 applied.
Similarly,
the Foreign Awards (Recognition and Enforcement) Act, 1961 which came into force
on 30th November, 1961 had been enacted pursuant to the New York Convention
of 1958 and it prescribed the law and procedure for the enforcement of foreign
awards in India to which the said Convention applied. The Geneva Convention
ceased to apply to those awards to which the New York Convention applied.
b. India
had made two reservations while ratifying the Convention namely, (i) that it
would apply the Conventions to the recognition and enforcement of an award only
if it was made in the territory of another contracting State. In pursuance of
the said reservation, the two implementing Acts of 1937 and 1961 provide that
the Government of India will notify the names of countries to which the Convention
would apply and which countries had made reciprocal provisions for the enforcement
of Indian awards in those countries.
The second
reservation was that India would apply the Convention only to differences arising
out of legal relationship, which are considered 'commercial' under Indian Law.
Courts have interpreted the term 'commercial dispute' under the two Acts, in
certain decisions where the question was at issue. c. It has been held that
the provisions of the Conventions and the 1937 and 1961 Acts are designed to
subserve the cause of facilitating international trade or the promotion there-of.
An expression
occurring in such statutes must receive, liberal interpretation consistent with
its literal and grammatical sense. The concept of commercial relationship in
Section 2 of 1961 Act therefore takes within its ambit all relationship, which
arise out of or are ancillary and incidental to the business dealings between
citizens of two States. The concept takes within its fold all legal relationships
pertaining to international trade in all its forms between the citizens of different
states.
The law,
as settled by the Courts in the following cases under the repealed Act, continues
to be valid under the new enactment:
§ Consultancy
services for the promotion of the sales of the aircraft manufactured by a foreign
company are "commercial services" - RM Investment and Trading Co. Pvt. Ltd.
V Boeing Co. (1974) Suppl. CLA 75/AIR 1994 SC 1136.
§ A party
from a country which has not ratified the New York Convention of 1958 cannot
maintain its application seeking any benefit from the court under any enactment
made on the basis of the Convention-Ramji Dayawala & Sons (P) Ltd. Vs Invest
Import AIR 1981 SC 2085
§ While
questions of the existence, validity or effect of an agreement may be considered
by the arbitral tribunal, the last word on all matters involving the jurisdiction
of the tribunal will rest with the courts Renusurgar Power Co. Ltd. Vs. General
Electric Co. Ltd (AIR 1985 SC 1156); Tarapore & Co Vs. Cochin Shipyard
Ltd. (AIR 1984 SC 1022); Khardah Co. Ltd. V Rayman & Co (India) Ltd.
(AIR 1962 SC 1810).
§ An award
will not be tenable if it is opposed to the public policy of the country in
which it is to be enforced. Mere contravention of a public policy may not attract
the bar. It must be repugnant to the fundamental policy of Indian Law or to
justice or morality. Renusager Power Co. Ltd Vs General Electric Company
(1994) Suppl CLAI/AIR 1994 SC 86; National Thermal Power Corfin.V Singer
Co. (1992) 8 CIA 116 (c)
§ Where
an agreement has the closest connection with India and the Indian Laws and no
connection with any foreign law, it will be governed by the laws in force in
India. An agreement governed by the law of India will not be a foreign award.
Gas Authority of India Ltd. V SPIE CAPAGSA (1994) Suppl. CLA 81 (Delhi)
Whether under the new law Arbitral Tribunal can modify an award?
The award
can be modified in the following cases:
a. On
application made to the arbitrator within 30 days of making of the award, the
arbitrator can
i. correct
clerical errors etc. in the award; or
ii. interpret
the award.
b. Court
has no power, as such, under the new law to "modify" an award, but it can set
it aside on specified grounds, under the relevant provisions.
Whether there is any provision for interim award under Domestic Arbitration?
The new law deals with a variety of provisions as to relief under Sections 9 and 17. Section 9 empowers parties to apply to court for interim measures of protection before or during arbitral proceedings. Section 17 empowers the arbitral tribunal to order a party to take interim measures of protection on a request being made to it.
What is the effect of Award under Arbitration Act of 1996?
Sections
34, 35 and 36 deal with these matters.
Section
34 deal with the applications for setting aside the arbitral award. It provides
that an application for setting aside the award may not be made after three
months have lapsed from the date on which the party making that application
has received an award on ground specified in the clause.
Section
35 provides that an arbitral award shall be final and binding on the parties
and persons claiming under them.
Section
36 provides that where the time for making the application to set aside an arbitral
award has expired, or where such application has been refused by the court,
the award shall be enforced as if it were the decree of the court.
Under the
new Act, it will not be necessary to make the award a rule of the court and
to pass a decree in terms of the award, as is mandatory under the repealed law.
Whether there is any time limit for completing Arbitration Proceedings?
The new
Act does not lay down any time limit as such for completing the arbitration.
However, under Section 14 an arbitrator's mandate can be terminated if he fails
to act without undue delay "which means in effect if he is guilty of undue delay".
How can one challenge
appointment of an Arbitrator under Domestic Arbitration?
The provisions
for challenge to the appointment of arbitrator are new. Section 12 provides
that the arbitrator before accepting his appointment shall disclose in writing
to the parties such matters as are likely to give rise to justifiable doubts
about his independence or impartiality.
The appointment of an arbitrator
may be challenged only if :
a. circumstances exist that
give rise to justifiable doubts about his independence or impartiality, or
b. he does not possess the
qualifications agreed to by the parties. A party may challenge the appointment
of an arbitrator only for reasons of which he becomes aware after the appointment
has been made. Provisions for the termination of the mandate of an arbitrator
have been made in the new Act.
The mandate of an arbitrator
shall terminate if
(a) he becomes de jure or
de facto unable to perform his functions or for other reasons fails to act without
undue delay; and
(b) he withdraws from his
office or the parties agree to the termination of his mandate. If the controversy
remains on the question whether an arbitrator has become unable to perform his
functions or has failed to act without undue delay, the party may apply to the
court to decide on the termination of the mandate.
By virtue of section 14,
if an arbitrator withdraws from his office or a party agrees to the termination
of a mandate of an arbitrator, that shall not imply acceptance of the validity
of any ground of objection.
Section 15 states the circumstances
in which the mandate of an arbitrator shall terminate. These are :-
a. where he withdraws from
office for any reason; or
b. or pursuant to agreement
of the parties.
To a certain extent Sections
14 and 15 overlap. Where the mandate of an arbitrator terminates, a substitute
arbitrator shall be appointed according to the rules that were applicable to
the appointment of the arbitrator being replaced. Where an arbitrator has been
replaced, he may hold hearings afresh or may start from the point left by the
previous arbitrator. Merely because there has been a change in the composition
of the arbitral tribunal, the order or ruling of the previous arbitral tribunal
shall not be invalid.
Section 13 deals with the
procedure for challenging the appointment of an arbitrator. The party who intends
to challenge the appointment may, within 15 days after becoming aware of the
constitution of the arbitral tribunal or after becoming aware of any circumstances
giving rise to justifiable doubts as to his independence or impartiality, send
a written statement of the reasons for the challenge to the arbitral tribunal.
The arbitral tribunal is
given the power to decide on the challenge unless the arbitrator himself withdraws
from his office or the other party agrees to the challenge. If the challenge
is not successful, the arbitral tribunal shall continue the proceedings and
make the award. After the award has been made the party challenging the appointment
of the arbitrator can make an application for setting aside the award under
Section 34. If the court sets aside the award, it will also decide as to whether
the arbitrator who was challenged, is entitled to any fees or not.
Whether law of
Evidence or Code of Civil Procedure is applicable in the arbitral proceedings
under the Domestic Arbitration?
Section 20(1) gives freedom to the parties to agree on the place of arbitration. Failing any such agreement, the place of arbitration will be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. See Section 20(2).
The Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or parties or for inspection of documents, goods or other property [under Section 20(3)].
The place where the arbitration is conducted within India does not have any impact on the applicable law because that issue will be determined in accordance with section 28 of the new law.
What is the law pertaining to powers and Jurisdiction of Arbitral Tribunal?
Section 16 of the new law empowers the arbitral tribunal to rule on its jurisdiction:
1. Under the new law, the arbitration tribunal can rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for this purpose:
a. an arbitration clause which forms part of a contract will be treated as an agreement independent of the other terms of the contract; and
b. a decision by the arbitral tribunal that the contract is null and void will not entail, ipso jure, the invalidity of the arbitration clause.
2. A plea that the arbitral tribunal does not have jurisdiction will, however, have to be raised not later than the submission of the statement of defence. However, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of an arbitrator.
3. A plea that the arbitral tribunal is exceeding the scope of its authority has to be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
4. The arbitral tribunal may, in either of the cases referred to above, admit later a plea if it considers the delay justified.
5. The arbitral tribunal has to decide on a plea about lack of jurisdiction or about the tribunal exceeding the scope of its authority and where the arbitral tribunal takes a decision rejecting the plea, it shall continue with the arbitral proceedings and make the arbitral award.
6. A party aggrieved by such an arbitral award is free to make an application for setting aside the award under section 34 of the new Act. Section 34(2)(a) inter alia permits a challenge to an award on the above grounds.
What happens if other party fails to act for appointment of Arbitrator despite receipt of Notice?
Under Section 11(2) of the Arbitration and Conciliation Act 1996 of India, the procedure for appointment of arbitrators can be set out by the parties in their agreement. Failing agreement, under Section 11(4) in the case of sole arbitrator if a party does not appoint him after notice, the appointment should be made upon request by a party, by the Chief Justice of the High Court or by any person or institution designated by him or by the Institution designated by him
What are the basic requirement of Arbitration Agreement?
Section 7(3) of the new Act requires that the arbitration agreement must be in writing. Section 7(2) provides that it may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement. Under Section 7(4), an arbitration agreement is in writing, if it is contained in: (a) a document signed by the parties, (b) an exchange of letters, telex, telegrams or other means of telecommunication, providing a record of agreement, (c) or an exchange of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other. In section 7(5), it is provided that a document containing an arbitration clause may be adopted by "reference", by a contract in writing.
Where should be
the place of Arbitration in Domestic Arbitration?
"International
Commercial Arbitration" means an arbitration relating to disputes arising
out of legal relationships, whether contractual or not, considered as commercial
under the law in force in India and where at least one of the parties is-
(i) an individual who
is a national of, or habitually resident in, any country other than India; or
(ii) a body corporate which
is incorporated in any country other than India; or
(iii) a company or an association
or a body of individuals whose central management and control is exercised in
any country other than India; or
(iv) the Government of a
foreign country;
The expression " International
Commercial Arbitration" has been defined to mean in short an arbitration
relating to a commercial dispute which has at least one of the parties belonging
to a foreign country. Such party may be an individual, firm or a company. It
has been noticed that Public Sector Undertakings (PSUs) i.e. state-owned corporations
in India and other business entities normally do not object to the arbitration
in an international contract to take place outside India. It has also been noticed
that the Oil & Natural Gas Commission (ONGC), the National Hydro Power Corporation
(NHPC), Steel Authority of India Ltd. (SAIL), Food Corporation of India (FCI)
in their international contracts agreed to arbitration being held outside India.
It has been found that the Government of India and/or state-owned corporations
are amenable to subscribing to an arbitration clause making abitration subject
to the rules of an internationally recognised arbitral organisation.
Who can enter into Arbitration Agreement?
Following persons can enter an Arbitration agreement:-
a. Every person (including a foreigner) who is competent to contract can enter into an arbitration agreement. He must have attained the age of majority according to the law to which he is subject and must be of sound mind and must not be disqualified from contracting by the law by which he is governed.
b. In the case of a partnership, a partner may enter into an arbitration agreement on behalf of the partnership, only if he is so authorised in writing by the other partners or in the partnership agreement itself.
c. The Directors or other officers of a company can enter into an arbitration agreement on behalf of the company, subject to the restrictions, if any, contained in the Memorandum of Association or Articles of Association of the Company.
d. Central and State Governments can enter into such agreement, subject to fulfillment of Constitutional requirements.
e. Public undertakings can enter into an arbitration agreement like any private party. Such agreement can be with private parties within the country or with foreign parties or foreign States and State agencies.
How can an award be enforceable?
Subject to the provisions for setting aside the award (Section 34) the award is enforceable in the same manner as if it were a decree of the Court (Section 36).
What is the present law governing Domestic Arbitration and International Arbitration in India?
> In the past, statutory provisions on arbitration were contained in three different enactments, namely, The Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration Act laid down the framework within which domestic arbitration was conducted in India, while the other two Acts dealt with foreign awards. The Arbitration and Conciliation Act, 1996 has repealed the Arbitration Act, 1940 and also the Acts of 1937 and 1961, consolidated and amended the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also defines the law relating to conciliation, providing for matters connected therewith and incidental thereto on the basis of the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985
What are the suggestive actions to parties entering International Agreements?
The Abid Hussain Committee on Trade Policies appointed by the Government of India has recommended in Its Report (December 1984) for compulsory inclusion of an arbitration clause in all export contracts.
As explained above, it is highly desirable and necessary for profitable and smooth conduct of business transactions that precise and comprehensive contract conditions including an arbitration clause are incorporated in commercial contracts. Indian traders are advised in their own interest to persuade their Indian and foreign counter-parts to agree for arbitration as far as possible, under the auspices of the Waqalat.com center for Arbitration and alternate dispute resolution being a specialised arbitration body in India, amongst other Institutional Arbitration.
What are advantages of Institutional Arbitration?
Arbitration may be arranged by the parties
themselves on ad-hoc basis or it may be conducted according to the rules of an
arbitral institution. Arbitration under the Rules of procedure of an arbitral
Institution provides several advantages and helps in quicker disposal of cases.
The professional experience and expertise available with an arbitral institution
facilitates economic and expeditious conduct of arbitrations and adds to the
certainly and finality of the proceedings. Waqalat.com center for Arbitration
and alternate dispute resolution being a specialized arbitration Institution
provides arbitration facilities for all types of domestic and International
commercial disputes. The parties are, therefore, advised to use the
Institutional arbitration facilities under the auspices of Waqalat Arbitration
Center or some other organisation, chamber of commerce. Export Promotion
Council, trade association, etc. providing arbitration facilities in the sphere
of their commercial activity.
Leading practitioners recommend that parties
choose institutional, rather than ad hoc arbitration, unless there is a
particular reason for deciding otherwise. Among the various advantages, an
arbitral institution performs the following functions:
(i) Determines whether there is a prima facie agreement to
arbitrate
(ii) Decides on the number of arbitrators
(iii) Appoints arbitrators
(iv) Resolves challenges against arbitrators
(v) Ensures that arbitrators are conducting the arbitration in
accordance with the Rules and guidelines of the
institution
(vi) Determines the place of arbitration
(vii) Fixes and extends time-limits for
arbitration
(viii) Determines the fees and expenses of the
arbitrators
(ix) Scrutinizes the arbitral awards
(x) Acts as an appointing authority in case one party fails to
cooperate in designating an arbitrator to the arbitral
tribunal
(xi) Maintains a roster of qualified arbitrators
(xii) Resolves challenges to the arbitrator's jurisdiction
(xiii) Provides rules and procedures to govern the main phases of the
arbitral proceeding
(xiv) Provides logistical,administrative, and secretarial
support
(xv) Provides a panel of commercial arbitrators and mediators who range
from judges to senior lawyers, accountants, appraisers, architects and
engineers
Additionally, most institutions provide both rules for the general
guidance of the proceedings and model clauses for inclusion in arbitration
agreements to ensure the reliable designation of the institutional rules from
the outset.
All of the above factors can aid and assist in the preservation of a
healthy and continuing commercial relationship between the parties. The
proceedings are normally not as adversarial as those found in court and, if
counsel approaches the proceedings with the arbitral spirit as well as the
parties themselves, a continuing relationship is the likely
outcome.
What is the difference between Ad-hoc and Institutional Arbitration?
Any party using an arbitration clause in their
agreements/contract have a choice between going for "ad hoc" arbitration or
designating an "institution" to conduct the arbitration proceedings. In "ad hoc"
arbitration, the parties select one or more arbitrators to resolve their dispute
and issue an award, without the administration or oversight of an arbitration
institution. In all such cases, where the arbitration proceedings are held
outside the institutional framework, i.e. in all ad hoc cases, the arbitrators
themselves will administer the arbitration. In case there arises a problem in
starting and conducting the arbitral proceedings or incase of a dispute is the
appointment of the Arbitral Tribunal, the parties may have to require the
assistance of a state court, or that of an independent Institutional Arbitral
Body.
In the absence of an administering institution the arbitrators have to perform administrative functions such as maintaining files, records, and correspondence. This can distract arbitrators, create additional delay, and increase costs. The parties have to negotiate directly with the arbitrators concerning fees. This can potentially lead to higher costs, because parties are often unwilling to bargain hard with arbitrators who will later resolve their dispute. And in case the parties do not agree on the appointment of arbitrators, there may be no alternative but to take the dispute to court in order to resolve the deadlock.
In Institutional Arbitration, the parties to the dispute agree to abide by the rules and procedures of an arbitral institution and select the panelist from the list of neutrals or arbitrators maintained by the institute. Normally, an arbitral institute has strict procedures for selecting and screening an arbitrator and the parties to the dispute have an advantage of selecting the experts as arbitrators. It is true that the parties have to pay a required sum of registration fee and administrative charges to the Arbitral Institutions, however the functions performed by such institutions can be crucial in providing a smooth and efficient arbitration proceedings with minimum disruption and without the need for recourse to the local courts.
What are advantages of
Arbitration?
Court proceedings at times do not offer a
satisfactory method for settlement of commercial disputes as it involves
inevitable delays, costs and technicalities. On the other hand arbitration
provides an economic, expeditious and informal remedy for settlement of
commercial disputes. Proceedings in Courts also Involve notoriety and expose the
internal and private affairs of the parties to public. Arbitration proceedings
are conducted in privacy and the awards are kept confidential. The arbitrator is
usually an expert in the subject matters of the dispute. The dates for
arbitration meetings are fixed with the convenience of all concerned. Therefore,
arbitration is the most suitable way for settlement of commercial disputes and
it must invariably be used by businessmen in their commercial dealings.
1. An arbitration clause may be inserted in
the contract itself, clearly providing for settlement of any disputes arising
under the contract in future, by arbitration, or
2. If no arbitration clause could be incorporated
in the contract for any reason, an arbitration agreement may be entered into
later at any stage before or after a dispute has arisen under the contract.
