Module 2 - ADR

What is arbitration ?
 When parties to a legal dispute mutually consent to hand over their matter to a
third person called arbitrator for resolution, it is called arbitration. It is another
form of alternative dispute resolution governed by the
Arbitration and Conciliation Act, 1996.
 The scope of arbitration makes it clear that arbitration is not the opposite but
synonymous to litigation. It is just a process with more convenience while
deciding legal disputes. Since arbitrators follow the applicable rules while
deciding a matter through arbitration, the decision, i.e. the arbitration award, is
usually final (Section 35 ) .
 The courts can only set aside the arbitration award with substantial irregularities
such as fraud, bias and misconduct by the arbitrator. (Sec 34)
 Where two or more persons agree that a dispute or potential dispute between
them shall be decided in a legally binding way by one or more impartial persons
in a judicial manner, that is upon evidence put before him or them, the agreement
is called an Arbitration Agreement or a submission to Arbitration. (Section 7 of
the Act)
General Principles of Arbitration
 Arbitration is consensual
 Mutual process, requires consent of both parties
 Without consent, arbitration cannot proceed.
 Arbitration is neutral
 Neutral process hence it provides equal opportunity to the parties such as
arbitrator, arbitrator panel, applicable law, language and venue of the arbitration.
 Confidential procedure
 It protects the confidentiality of the matter.
 Ensures that sensitive information is protected from public disclosure.
 Parties choose the arbitrator
 Each party has the right to choose their arbitrator to whom they think will fit to
handle their case.
 Independence and Impartiality
 Arbitrators must remain independent and impartial throughout the proceedings,
avoiding bias toward any party.
 Equality of Treatment
 Both parties must be given equal opportunity to present their case and respond to
the other party’s arguments. This ensures procedural fairness.
 Decision is final and easy to enforce:
 Decision- final and known as award
 Binding on the parties
Types of arbitration
 Domestic Arbitration
 When there is a dispute among two parties sharing a legal relationship whereby
both of them are residing or located in India, such a resolution of dispute through
arbitration is termed as domestic arbitration.
 In such cases, there is least confusion regarding applicable laws for deciding the
matters.
 International Arbitration
 When one of the parties belongs to countries other than India and the dispute is
being resolved through arbitration as per Indian laws, it is called international
arbitration.
 Presence of an international element is obvious in such cases.
 International Commercial Arbitration
 Where there is an international element in a commercial dispute whereby one of the
parties (individual or body corporate) is Indian, resolution of disputes arising is
done through laws as agreed upon in the contract.
 Where there is a lack of specific terms regarding dispute resolution or an agreement
to follow Indian laws, the arbitration rules applicable in India are followed thereby.
 Institutional Arbitration
 Types of arbitration include when there is a particular institution selected by the
parties to contract in the arbitration clause, such an institution is responsible for
dispute resolution through arbitration.
 In such cases, parties may not be required to go through the hassle of selecting the
arbitrator while the institution takes charge for such tasks.
 Institutional arbitration helps efficient dispute resolution.
 Streamlined procedures, reduced delays, and expert administrative support
Popular institutions in India:
 Indian Council of Arbitration (ICA).
 Mumbai Centre for International Arbitration (MCIA).
 Delhi International Arbitration Centre (DIAC).
 Ad-Hoc Arbitration
 When there is no contractual compulsion and parties agree for deciding matters
via arbitration through mutual consent, it is termed as ad-hoc arbitration.
 It is one of the most common types of arbitration in India.
 In such cases, parties to dispute may mutually decide the process to be followed
during arbitration.
 Fast Track Arbitration
 Section 29B of Arbitration and Conciliation Act, 1996 provides for fast track
procedure of arbitration.
 Among the other kinds of arbitration, this is the most efficient way of dispute
resolution through arbitration.
 Things are usually summed up in documents to speed up things. Since fast-track
arbitration is time-bound, it is most advantageous in business combinations where
time is always a vital factor.
 Statutory Arbitration
 There are some laws or statutes which specify dispute resolution through arbitration
only.
 While dealing with legal relationships under such laws, arbitration is the way out
for settling the disputes.
 Some examples of statutory arbitration are the Electricity Act, 2003 or Railway
Act where arbitration is the only method of resolving the dispute.
 Foreign Arbitration
 When one of the parties is Indian and they have mutually agreed to follow rules
of a foreign land through arbitration while dealing with legal disputes, it is called
foreign arbitration.
 In such cases, regardless of whether the arbitration takes place in India or the
other country, foreign arbitration laws are followed.
 This type of arbitration is often used when entering into international business
and dealing with cross border contracts.
 This is done either with applying certain rules of foreign arbitration bodies or
with referring to the laws of the foreign state.
Qualities and qualifications of an arbitrator
 Section 11 of The Arbitration and Conciliation Act, 1996 provides that a Person
of any Nationality can become an Arbitrator, unless agreed otherwise by the
Parties.
 The Act 1996 did not provide for any qualification for becoming an Arbitrator.
Some of the general qualities and qualifications are
 Experience in Arbitration
 An arbitrator's experience in handling arbitration cases is paramount.

 Seasoned arbitrators have honed their skills in managing the arbitration process,
from preliminary hearings to the final award.

 Their experience enables them to navigate complex procedural issues, manage the
parties effectively, and ensure that the arbitration proceeds smoothly.
 Impartiality and Independence
 Impartiality is a cornerstone of the arbitration process.

 An arbitrator must be neutral and free from any bias or conflict of interest.

 This ensures that all parties receive a fair hearing and that the final decision is based
solely on the merits of the case. It's essential to assess an arbitrator's reputation for
impartiality and their ability to maintain neutrality throughout the arbitration process.

 Independence: In addition to impartiality, an arbitrator must be independent.

 This means they should have no financial or personal interests that could influence
their final decision.

 Independence guarantees that the arbitrator's judgment is not swayed by external

factors, ensuring a fair and unbiased resolution of the dispute.
 Analytical and Decision-Making Skills
Analytical Abilities:

 The ability to analyze complex legal and factual issues is a critical

qualification for an arbitrator.

 They must be able to review evidence, evaluate arguments, and identify key
issues that need resolution.

 Strong analytical skills ensure that the arbitrator can make well-informed
decisions based on a thorough understanding of the case.

Decisiveness: An effective arbitrator must be decisive. They need to make clear and
reasoned decisions promptly, avoiding unnecessary delays. Decisiveness is particularly
important in arbitration, where parties seek a timely resolution to their disputes. An
arbitrator who can provide clear and well-reasoned awards enhances the credibility and
finality of the arbitration process.
 Interpersonal and Communication Skills
 Interpersonal Skills: An arbitrator must possess strong interpersonal skills to
manage the parties effectively. This includes the ability to mediate conflicts,
facilitate negotiations, and maintain a respectful and professional demeanor. Good
interpersonal skills help in building trust and cooperation among the parties,
promoting a more constructive arbitration process.

 Communication Skills: Clear and effective communication is vital for an

arbitrator. They must be able to articulate their decisions and reasoning clearly to
the parties involved. This includes writing well-reasoned awards and providing
clear instructions during hearings. Effective communication ensures that the
parties understand the arbitrator's decisions and the rationale behind them.
Appointment of arbitrator (Section 11)
1. Anyone can be chosen as an arbitrator, no matter where they're from, unless the
people involved in the dispute have agreed on specific requirements.
2. The parties can decide how they want to pick an arbitrator or arbitrators, as long
as they haven't chosen a different method already.
3. If there's no prior agreement on how to pick arbitrators and there need to be
three arbitrators, each side picks one. Then, those two arbitrators choose a third
one to be the head arbitrator.
4. If one side doesn't pick an arbitrator within 30 days, or if the first two arbitrators
can't agree on a third within 30 days, the Supreme Court, High Court, or a
designated person or institution will make the appointment at the request of a
party.
 Principal steps in arbitration
1. The arbitration agreement
Arbitration agreement - “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 not.
The arbitration agreement will determine key elements of the arbitration process.
 Arbitration notice -
In case a dispute has arisen and the party has opted to follow the procedure of
arbitration then the party against whom the default has been committed will send an
arbitration notice for invoking arbitration process steps between the parties.
 Appointment of Arbitrator
After receiving the notice by other parties both the parties will appoint the arbitrators in
the manner as specified in the arbitration agreement or arbitration clause
 Statement of Claim- Next step in an arbitration proceeding in India is to draft a
statement of claim.
 Statement of claim contains the dispute between the parties, events which lead to
the dispute and the compensation claimed from the defaulting party.
 The other party can file a statement of counterclaim along with reply to the
statement of claim.
 Hearing of Parties - Arbitral tribunal will hear both the parties and their evidence.
 Award - After hearing the parties, the arbitral tribunal will pass the decision. The
decision of the tribunal is known as ‘Award’ and is binding on the parties.
However, an appeal against the arbitral award can be filed before the High Court.
Section 35 - Finality of arbitral awards - An arbitral award shall be final and binding
on the parties and persons claiming under them respectively.
 Execution of Award - Once the award has been passed by the tribunal it has to be
executed. The party in whose favour the award has been passed has to file for
execution or enforcement of award with the help of a good arbitration lawyer.
Grounds for Setting Aside an Arbitral Award
An arbitral award can be set aside by the court only if the party making the
application proves one or more of the following grounds:
 Grounds Related to Party Actions (Section 34(2)(a)):
1. Incapacity of a Party
A party was under some legal incapacity (e.g., minor, mentally incapacitated).
2. Invalid Arbitration Agreement:
The arbitration agreement is not valid under the law applicable to it.
3. Improper Notice or Inability to Present Case:
The party was not given proper notice of the appointment of an arbitrator or the
arbitral proceedings, or was otherwise unable to present its case.
4. Award Beyond the Scope of Arbitration:
 The award deals with matters beyond the scope of the arbitration agreement.
 However, if separable parts of the award are within the scope, only the offending
parts may be set aside.
5. Improper Composition of Arbitral Tribunal or Procedure:
The composition of the tribunal or the arbitral procedure was not in accordance with the
agreement of the parties or the applicable law.
 Grounds Related to Public Policy (Section 34(2)(b)):
1. Award Contrary to Public Policy:
 The award is in conflict with the public policy of India.
 The Supreme Court has clarified that public policy includes:
1. Fraud or corruption in the arbitral process.
2. Violation of fundamental legal principles or natural justice.
3. Award contrary to the fundamental policy of Indian law.
2. Patent Illegality (introduced by 2015 Amendment):
The award contains an error apparent on the face of the record (applies only to
domestic arbitrations, not international commercial arbitrations).
Arbitration agreement and its drafting
 An arbitration agreement is a contract in which parties agree to resolve
disputes through arbitration instead of litigation
 Section 7 of the Act - 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 not.
 Drafting of Arbitration Agreement
 Write the Title
 Details of the parties
 Recital clause - Brief up the agreement
For eg:
Recital No 1 – relation between the parties, if employee and employer
Recital No. 2 - There couldd be a dispute during the course of employment
Recital No.3 – parties agree to resolve through arbitration.
 Substantial part of the agreement
 Claims – what kind of dispute will be arbitrable
 Internal grievance procedure
 Arbitration – if internal procedure fails, then this dispute must be resolve through
arbitration
 Arbitation procedure –
 Parties set the rule – how to initiate the arbitration
 Notice has to be served
 Should respond within 30 days
 How to choose the arbitrator
 Arbitration cost – party has to bear the cost and has to pay the fine whatever
imposed by the arbitrator.
 Final substantial clause
 Governing law,
 Boilerplate clauses – common to all the contract
 Severability clause
 Waiver clause
 No aggregate claims.