2) Arbitration and Conciliation Act, 1996

Even though the Arbitration Act, 1940 attracted severe criticism from the bar ad the bench, no
amendments were brought in to improve the working of the 1940 Act. In 1991, after the major
economic reform, steps were taken to attract foreign investment which required a comfortable
business environment and ease of doing business. It is for this reason, Arbitration and Conciliation
Act, 1996 was brought into force and it repealed the Act of 1940. Interestingly, the Act of 1996 was
based on UNCITRAL Model Law on International Commercial Arbitration, 1985, and covered both
domestic and international arbitration. The main reason for introducing the Act of 1996 was to curb
delays in arbitration and strengthen the confidence of the foreign investors in ease of doing
business.

Conversely, there was a conflict in the working of the Arbitration and Conciliation Act, 1996. The
controversy arose because the Hon'ble Supreme Court of India in Bhatia International v. Bulk
Trading S.A. and Another held that Part I of the 1996 Act will apply even to arbitrations seated
outside India unless it was expressly or impliedly excluded. Yet, on a similar question of law, the
Hon'ble Supreme Court of India in:

i. Venture Global Engineering v Satyam Computer Services Ltd.,

ii. Indtel Technical Service v. W.S. Atkins,
iii. Citation Infowares Ltd. v. Equinox Corporation,
iv. Dozco India v. Doosan Infrastructure, and
v. Videocon Industries v. Union of India,

had held that part I of the 1996 Act would apply to the foreign arbitrations seated outside.

The above decisions of the Hon'ble Supreme Court of India were widely criticized for adopting a
regressive approach as it increased judicial intervention even in the foreign seated arbitration.
However, after a decade the Hon'ble Supreme Court settled this issue in Bharat Aluminium and
Co. v. Kaiser Aluminium and Co., (herein referred to as BALCO) wherein it held that that Part I of
the Act does not apply to Part II of the Act as Part I and Part II were mutually exclusive of each
other. The effect of BALCO judgment was that the Courts in India could not entertain interim
applications under Section 9 of the Act in foreign seated arbitrations that were governed by Part II of
the Act.

However, the Arbitration and Conciliation Act, 1996 suffered from various problems including high
costs and too much intervention of Courts. Under the 1996 Act, if an application u/s 34 of the Act
was made to set aside an award, it would make an award inexecutable. Because the moment a
section 34 application was filed, an automatic stay would be granted on the execution of the award.

Further, there was no time limit within which the arbitrator had to make an arbitral award, due to
which, arbitral proceedings continued for years. Another issue with the 1996 Act was that the cost
involved in Arbitration was sometimes even more than the cost of litigation or the relief sought and
thus was against the ethos of the Act of 1996.
3) What is arbritration and its advantages and disadvantages of
arbritration?
Arbitration is a form of dispute resolution and an alternative to conventional litigation.
The primary difference between litigation and arbitration is that, in the case of arbitration,
the parties do not approach a court of law.

An arbitration is a private method of dispute resolution where the parties have agreed that their
dispute will be heard and decided upon by an arbitrator and not a judge in a court of law.
Arbitration is often referred to as “alternative dispute resolution” i.e. an alternative to
approaching a court. In many respects arbitration and litigation are similar but there are key
differences which we will highlight in the course of this article.

Why would a party choose arbitration over

litigation?
The legal system of England and Wales and in particular its commercial law has an international
reputation for fairness to all parties. It is often the case that parties to agreements, who may not
be resident within England and Wales, agree that in the event of disputes English law will apply.
The difficulty is when a dispute arises but the cause of action or parties are located outside the
territorial jurisdiction of England and Wales. Notwithstanding that English law will apply to the
dispute, the parties would not be permitted to approach the English courts.

Arbitration fills this gap by providing a dispute resolution mechanism that is similar in procedure
and requirements of fairness to a trial but allows anyone to utilise it.

Arbitration clauses are common in international agreements where the parties are from multiple
jurisdictions.

Legal framework for arbitration

The Arbitration Act 1996 is the act of parliament that governs the conduct of arbitrations within
England, Wales and Northern Ireland. Scotland has its own rules for regulating arbitrations
which are contained in schedule 7 of the Law Reform (Miscellaneous Provisions) (Scotland) Act
1990.

The Arbitration Act imposes upon an arbitration tribunal a duty to act fairly and impartially as
between the parties, giving each party a reasonable opportunity of putting their case and
answering that of their opponent. The arbitration tribunal is permitted to adopt procedures
suitable to the circumstances of the particular case, avoiding unnecessary delay or expense and to
provide a fair means for the resolution of the dispute.
Aside from these overriding duties an arbitration tribunal has a broad discretion to regulate the
conduct of the proceedings before it. This is in contrast to the strict and detailed provisions of the
Civil Procedure Rules which apply to litigation.

Who will be the arbitrator?

The arbitrator is usually a very senior lawyer (often a retired judge) who will be appointed by
agreement between the parties to hear the case. A unique feature of the arbitration process is that
the arbitrator can be assisted by expert assessors to assist in the assessment of complex technical
evidence. In ordinary litigation, a judge would not have the advantage of this type of assistance
and would have to rely on the evidence of the parties’ own expert witnesses.

Where does the arbitration take place?

Arbitrations can take place anywhere. There are a number of professional organisations which
facilitate the hearing of arbitrations. These organisations often have venues that are designed
very much like courtrooms for the hearing of an arbitration. Arbitrations can take place in board
rooms or spaces rented specifically for the hearing. They could also take place outside of
England and Wales.

Who appears at an arbitration?

Some arbitrations are decided entirely on “the papers” and sometimes appearance before the
arbitrator is not necessary. In other cases the arbitration will be conducted in a similar manner to
an ordinary trial save for the fact that it is not necessary for counsel or solicitor advocates to wear
gowns and that the formalities of court are not required to be observed.

What are the advantages of arbitration?

The primary advantage is that the parties to arbitration have an almost free reign to determine the
structure and procedure applicable to the proceedings:

 Full control of the process – the parties can, by agreement, determine the conduct of the
proceedings. This can lead to a streamlining of the procedure to suit the specific
requirements of the case at hand;
 Finality – the grounds for challenging an arbitrator’s decision are severely limited by the
Arbitration Act. The decision of the arbitrator is agreed to be final which can bring
proceedings which could have continued for years through the court system to a swift
conclusion;
 Privacy – arbitrations are closed whereas court proceedings are open to the public. If the
subject matter is sensitive such as proprietary technology or trade secrets it would benefit
 the parties to limit the number of persons who would have access to the evidence before
the arbitration tribunal;
 Convenience – in litigation the dates for trials are determined by the Court with little
regard for the convenience of the parties. There can often be a long wait for trial dates
particularly where a matter requires a number of court days. In the arbitration process
dates can be agreed between the parties to those most suitable to them and their
witnesses.

What are the disadvantages of arbitration?

In the global economy arbitration, conducted in England, has emerged as the dispute resolution
method of choice for a wide range of parties. Despite its popularity there are a number of
disadvantages to the process which parties should bear in mind if they are contemplating
inserting arbitration clauses into their contracts or becoming involved in arbitration proceedings.

 It requires good faith and agreement between the parties. A court has wide powers under
the Civil Procedure rules to punish litigants who are obstructive or dilatory in their
conduct of the proceedings. An arbitrator’s powers are not as strong as to find someone in
contempt of court;
 The pre-arbitration procedures are often not as clear and direct as those under the Civil
Procedure Rules which can lead to delays and unduly long hearings;
 There is limited scope to challenge the decision of an arbitrator. An aggrieved party
would have to show that:
o The tribunal lacked substantive jurisdiction;
o there was a serious irregularity in the proceedings which would justify the setting
aside of the award;
o The arbitrator erred on a specific point of law.

Costs
While there is more flexibility for parties in arbitration proceedings there is a slight difference
between the costs of it versus those of litigation. The parties would have to incur the cost of the
arbitrator and the venue in which the arbitration is to take place. They would still require legal
representation. As with ordinary litigation it is vital that you discuss the estimated costs with
your solicitor to ensure that costs of litigation do not outweigh the benefits should you be
successful.