Hello dear readers, we hope you are doing well. Welcome back! In our last two posts on Medium, we talked a little bit about our organization — ADReS Now, and about Online Dispute Resolution (ODR) in India. Today, we are going to give you a primer on the crux of what we do — arbitration.
What is arbitration?
Arbitration is an Alternative Dispute Resolution (ADR) mechanism, that aims to resolve a dispute outside of the court. In simple words, arbitration is the act of resolving a dispute through an arbitral tribunal. An arbitral tribunal can be either a sole arbitrator or a panel of arbitrators. An arbitral tribunal is a person/people who are not involved in the dispute. Either the arbitral tribunal can be mutually chosen by both parties to conduct the dispute resolution process, or their process of selection can be mutually agreed upon. In the alternative, disputing parties may delegate the task of appointing an arbitrator/arbitral tribunal to an arbitration centre such as ADReS Now.
What kind of disputes are arbitrable?
As a general rule of thumb, all commercial disputes which can be decided by a civil court, involving private rights, can be referred to arbitration. However, as per precedent laid down by the Supreme Court as well as generally accepted practices, some disputes are not referred to arbitration. The subject matter of disputes that are generally not arbitrated include but are not limited to:
· matrimonial matters
· matters relating to guardianship
· testamentary matters
· insolvency matters
· criminal proceedings
· dissolution or winding up of a company
· matters that fall under the jurisdiction of the Recovery of Debts and Bankruptcy Act (RDB Act), 1993
In the case of Vidya Drolia v. Durga Trading Corporation[1] (Vidya Drolia), the Supreme Court examined the meaning of non-arbitrability of disputes. In this landmark case the Supreme Court formulated a 4-pronged test to determine when a dispute is non-arbitrable:
· Those disputes wherein the cause of action and subject matter of the dispute are related to a right in rem, such as copyright.
· Those disputes wherein the cause of action and subject matter of the dispute affect third party rights or where they operate against the world at large and require centralized adjudication, and mutual adjudication would not be satisfactory, such as matters relating to probate.
· Those disputes where the subject matter and the cause of action related to the inalienable sovereign and public interest functions of the State, such as monopoly rights granted by the state.
· Those disputes in which the subject matter of the dispute is expressly non-arbitrable as per mandatory statutes. For example, disputes that fall under the Industrial Disputes Act, 1947 (ID Act) are required to be exclusively adjudicated by authorities constituted under the ID Act.
Broadly speaking, matters involving personal law, morality, and public policy cannot be referred to arbitration.
Why should we choose arbitration?
· Arbitration brings down the costs of dispute resolution.
· It fixes timelines for expeditious disposal.
· Arbitration proceedings are confidential.
· Arbitration awards are binding and may be challenged only on very narrow grounds, such as the invalidity of the arbitration agreement, public policy concerns, and lack of observance of due process.
· Having a robust arbitration system in place improves the ease of doing business.
· Arbitration reduces the burden on the court system.
Governing Law
Arbitration in India is regulated by the Arbitration and Conciliation Act, 1996 (Arbitration Act). The Arbitration Act is based on the UNCITRAL (The United Nations Commission on International Trade Law) Model Law and Rules. Over the years extensive amendments were brought about in the Arbitration Act, with the major amendments being enacted in 2015, 2019, and 2021 respectively.
The key changes that the 2019 Amendment Act brought about to the Arbitration Act were as follows:
· The Arbitration Council of India (ACI) was established and incorporated as an independent body to promote ADR mechanisms and to frame policy and guidelines for the establishment, operation, and maintenance of professional standards for all matters relating to arbitration.
· The qualifications, experience, and norms for arbitrators were laid out in the newly added Eight Schedule. These were subsequently removed by the 2021 Amendment.
· The amendment empowers the Supreme Court (in the case of international commercial arbitration) and the High Court (in cases other than international commercial arbitration) to designate arbitral institutions for the appointment of arbitrators.
· Key timelines for the completion of pleadings and the passing of arbitral awards have been laid out.
· The amendment added a section on maintaining the confidentiality of proceedings. It states that confidentiality of all arbitral proceedings except the award, where its disclosure is necessary for implementation and enforcement, must be maintained by the arbitrators and parties.
The key changes that the 2021 Amendment Act brought about to the Arbitration Act are as follows:
· The amendment specifies that a stay on an arbitral award can be provided, even during the pendency of the setting aside of the application, if the court is satisfied that the arbitration agreement, contract, or the making of the award, was affected by fraud or corruption. This change is retrospective (applicable from October 23, 2015).
· The existing Arbitration Act specified qualifications for arbitrators under the erstwhile Eighth Schedule. The amendment removes the Schedule and states that the qualifications, experience, and norms for accreditation of arbitrations will be specified under the regulations. The regulations have not yet been framed.
What are the essentials of a valid arbitration?
The Arbitration Act specifies elements essential to a valid arbitration. These are:
· Existence of a binding arbitration agreement — An agreement must exist between parties to submit all or specific disputes to arbitration. This agreement must be in writing and can be an arbitration clause or a stand-alone agreement.
· Consent of disputing parties — The arbitration agreement must be signed by both parties, and both parties must mutually consent to the arbitration.
· Adoption of procedural rules — The Arbitration Act recognises the right of the parties to agree on the procedural rules applicable to the arbitral proceedings. Parties can adopt procedural rules or agree to the rules of the institution conducting the arbitration. If the parties fail to decide on a procedure, the arbitral tribunal can conduct the proceedings in the manner it considers appropriate.
· Compliance with key elements of due process — The fundamental tenet for the conduct of arbitration proceedings is that the parties must be treated equally and must be given a full opportunity to present their case.
· Delivery of an enforceable arbitral award — The arbitral award must be in writing and signed by the arbitral tribunal. The award should state the reasons on which it is based and contain the date and place of arbitration. The award must be delivered within 12 months of the commencement of the arbitration.
Types of Arbitration
Arbitration can be of two kinds:
· Ad hoc — a tribunal will conduct arbitration between the parties, following the rules which have been agreed to by the parties beforehand or by following the rules which have been laid down by the tribunal, in case the parties do not have any agreement between them.
· Institutional — a specialised institution is appointed and takes on the role of administering the arbitration process/case management per its rules of procedure. Each institution has its own set of rules.
The ADReS Now platform supports both forms of arbitration.
We hope that we have been able to shed some light on the basics of arbitration. In our next post, we will explain processes on the ADReS Now platform, so you can see for yourself how easy and efficient they are. Thanks for reading along.
[1] Civil Appeal №2402 of 2019
