Arbitration - A Critical Analysis

Udit Atul Kaul

21020423

IBM 2021, Sec A

 TABLE OF CONTENTS

S.NO. CONTENTS PAGE NUMBER

1. Introduction 3

2. Arbitration In India, History and 3

Analysis

3. Arbitration, Salient Features 7

4. Need of arbitration 10

5. My Views 11

6 conclusion 11

7. References 12
 “Arbitration” A Critical Analysis

Introduction

Arbitration in the general sense is when disputes are settled by two consenting and agreeing

parties to call in an arbitrator to provide a solution that is binding in nature. It is a part of the

ADR or Alternative Dispute Resolution which is used by parties to avoid the time consuming

and disbursing process of going through a whole court process which may cause more damage to

the party in the long run through litigation and arbitration has proven to be one of the most

efficient ways to solve disputes when there is scarcity of time.

Arbitration in India, History and Analysis

It is said that one of the earliest forms of justice was done through arbitration even before the

recognition of laws and courts and in India arbitration was born through the system of

panchayats which was quite sophisticated at the local level during the end of the nineteenth

century. The first formal Arbitration Act was introduced in 1899 but was only applicable to three

states Madras (Modern Day Tamil Nadu), Calcutta (Modern Day Kolkata) and Bombay (Modern

Day Mumbai). Later on it was systemized into Schedule II , Sec 89 of the Code of Civil

Procedure, 1908 which allowed expansion in the use of arbitration in British India.

Over time the arbitration law adapted to new changes and progressed into the Arbitration Act of

1940 the main feature of which was that domestic arbitrations was all it could handle and could

not handle foreign awards and was very technical and complex. To accommodate Foreign

Awards, the Foreign Awards (recognition and enforcement) Act, 1961 was created. This also had
its criticisms caused due to judicial intervention and was considered for amendment. Rather than

reworking the entire act India created the Arbitration and Conciliation Act of 1996 which was

based on the UNCITRAL or United Nations International Commission on International Trade

Law and Model Law of 1985. This helped in dealing with both Domestic and Foreign affairs

while reducing the delay of time which helped make India looking better as a foreign investment

as it was going through a new era of economic progress. However, there were still many issues

pertaining to the operations of this act most notably the cost induced at times were more than

what the costs would be through litigation and due to there being no limit on the time, arbitration

proceedings would last for years all of which was against the spirit of the act.

To target the issues of the Act of 1996 a group of well experienced experts came in to amend the

act to pass the Arbitration and Conciliation (Amendment) Act of 2015, this not only targeted the

previous act’s issues but also updated itself to the new foreign arbitration rules around the world

to try to achieve a goal of making India an arbitration hub.

Some key features of this amendment were that it gave a specific time range (12 months), it

added more clauses and details for ease of use and reduced intervention of the court by making

sure an arbitration passes a certain set of conditions before getting the court's approval.

Even with many issues being addressed in the amendment act of 2015 certain issues still

prevailed such as the lack of institutionalization of arbitration in India and since most of the

arbitrations were ad hoc. In 2019 the Arbitration and conciliation (Amendment) Act, 2019 was

initiated. The main features of this act were that the Arbitration Council of India was created to

institutionalize arbitration and introduced more forms of dispute resolution such as conciliation

and mediation, Arbitration institutions were also to be graded by the council, 30 days were

provided to both parties to appoint an arbitrator from the day the arbitration case got accepted,
Section 29 A was adapted to allow a quicker passing of arbitration and importantly under the 8th

schedule which stated that the minimum qualifications required to become an arbitrator was that

he/she had to have 10 years of experience being a practice advocate under the Advocates

Act ,1961. As of today, the Arbitration and Conciliation (Amendment) Act of 2021 is the latest

amendment to the arbitration act after the re-pealment and replacement of the Arbitration and

Conciliation (Amendment) Ordinance of 2020. The two main changes were the amendments of

Section 36 (3) and [Section 34 (2) (b) (ii) explanation (I) (i)] which allowed unconditional stay

for awards under certain conditions and solving doubts that arise when an arbitration is linked

with fraud or corruption respectively. Given below is a case to better explain the impact of the

above mentioned amendment.

Case Example 1 Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius)

Limited and Ors.

Facts- The main facts in this case are that the Avitel Post Studioz Limited and Ors. (appellant)

had given an investment of 60 Million USD to HSBC PI Holdings Mauritius (respondent) but

later on a criminal complaint and an arbitration was filed as the respondent discovered that the

appellant had fraudulent papers on their representation with a British firm and the same was tried

on them in order to force them to sell their shares and through emergency arbitrators the

appellants accounts were frozen and under Section 9 of the Arbitration and Conciliation Act

they were allowed a deposit of 60 Million USD as security amount.

The Bench held that -

 1. Under Section 17 and 18 of the Indian Contract Act fraudulent allegations were

committed yet are civil in nature hence arbitrable.

2. The appellant’s Account was to maintain 30 million USD as the security deposit

which was the difference in the shares when they were being bought and what they

were to be sold at.

Issues-

The main issue arose was that if Section 9 could be used to seek a deposit of 60 million USD

against the allegations which was raised by a party who was in the arbitration agreement

Decisions-

The court felt that the allegations of fraud can only be determined if either one of the conditions

of arbitration for fraud was satisfied.

1) If the contract was voidable due to the plea permeating the arbitration agreement and the

main contract.

2) If the fraudulent allegations impact the public domain due to the internal affairs they had

among themselves.

Verdict-

As the issue was arbitrable, the court held that the fraudulent allegations did not violate the

arbitration agreement and the actions were connected to the internal affair with no effect on the
public domain. As for damages its was measured finally by putting the respondent in the scenario

as if the contract was never created which allowed for the whole 60 million USD as the security

deposit.

Arbitration, Salient Features

After understanding the history and development of arbitration throughout the years, let us dive

into the salient features of this act. These apply to all kinds of arbitrations whether it is Ad-hoc

or institutionalized or whether it is non-statutory or statutory. In this analysis i will be

mentioning what I believe are the 10 most prominent features of arbitration in India.

1) Definition of Arbitration Agreement - The agreement must be in some physical form

which can be recorded whether it's through writing or any other means. The agreement

may be signed or unsigned and an unsigned agreement is still valid. Also, it would be

written in writing if there is a Statement of claim or statement of defense where the

existence of the agreement can be alleged by one party and denied by the other

2) Arbitrability of disputes - It is stated that the relationship between both parties may not be

contractual in nature and for this a dispute in tort can also be referred to, such as in the

case of RenuSagar Power Co v. General Electric Co14.

3) Expert Determination- When the dispute between two parties reaches a state in which

both parties mutually consent for one or more experts to judge the case presented to them.

The expert's decision is binding in nature. To apply this there should be an existence of a

dispute against further disputes as to not waste time.

4) International Commercial Arbitration - It is defined when at least one of the parties is a

resident or national of any country besides India or the firm is based and operating

outside India. Adhering to the above-mentioned rules allows for international commercial

arbitration to take place and appointment of arbitrator differs from regular arbitrations.

5) Non- Intervention of the Court - One of the most significant features of this act is the

noninterference of court during the arbitral process. This reduces burden on courts and at

the same time allows the parties themselves to handle their cases. Only in three situations

is the court allowed to intervene which are: -

a) If there is failure in appointing an arbitrator from the party’s side. (Section 11)

b) If the selected Arbitrator is not able to perform their duties due to a particular

reason (Section 14,(2))

c) Assist with collecting evidence (Section 27)

Along with these Section 5 and Section 8 also have the intent to push away courts

from arbitrable proceedings by containing non-obtaining clauses.

6) Interim measures of protection- If a party seeks interim measures, it can either get it

validated through court or through an arbitration tribunal, but the power of an arbitrator is

limited and that such a measure can only be issued if it relates to the case and can be

addressed only to a party of arbitration.

7) Arbitrators-

a) Appointment of arbitrator- Full freedom is given when it comes to appointment of

arbitrators. Only in certain situations is the Chief justice or an arbitral tribunal to

be appointed to resolve special cases.

 b) Challenging the arbitrator- Can only be challenged in two situations either if a

situation exists in which the behavior of the arbitrator is not up to standard and a

sense of bias can be seen one if the arbitrator is not qualified enough to be an

arbitrator.

c) Termination of mandate of arbitrator - The mandate of the arbitrator shall be

terminated if she/he is not able to perform their functions or if he fails to react in a

timely manner and delays the arbitration process.

8) Jurisdictions of Arbitrational Tribunal- Under Section 16, It is stated that the arbitration

tribunal may operate in its own jurisdiction in reference to the arbitration agreement. This is yet

another step taken by the legislature to keep the court out of the arbitration process.

9) Arbitral proceedings-

a) Conduct of Arbitral Proceedings- The arbitrators are the key to the whole process which

is why their words are considered absolute. From admission issues to seeking relevance

and weighing evidence they have the ultimate power but at the same time they have to

respect both parties equally and give them both an opportunity to present their case in

order for a just proceeding to take place.

b) Evidence in arbitration proceedings- After the Indian Oaths Act of 1969 shows who can

present evidence the parties are subject to rules they have to follow. Any kind of

tempering or forging of evidence will cause immediate penalization of the party under 55.

of the Indian Penal Code. In Terms of witnesses those who are unwilling to come are

aided by the court under Section 27 of the Arbitration Act and any wrongdoing will cause
 penalization here as well. Section 26 allows the use of a commissioner or experts

provided by the court to help collect or judge the evidence provided.

10) Governing law- Although the aim is the same, different rules apply for both India

international arbitration and the arbitration that occurs in India domestically. Usually, the

arbitration tribunal must comply with the rules and accordingly make a decision although this

may vary from situation to situation. Certain situations especially those regarding money proves

to be a tedious task as within there are several elements such as diff rate, different kinds of

security etc. and here are when the arbitration tribunal’s role shines by helping with such cases

and still not requiring the court's interference.

Need for Arbitration in India

India provides us a unique stage where its economy has gone through many eras and has evolved

to what it has become today and as its commercial industry grew so did the disputes within it.

With the evolving economy, the legislature understood the importance for a medium through

which the disputes could be channeled in the most efficient way and at the same time adding the

lightest strain on the already choked time of courts and this was solved with arbitration. Its

ability to save time, be cost efficient and even allow the affected parties to choose their

arbitrator. This kind of autonomy is a step forward and is extremely beneficial from a business

point of view as litigation and regular court cases might take years to finish and cause further

damage to already to be affected parties. This in turn also allows India to be favorably looked on

from a foreign point of view and could bring it more investment to the country.

My views
Arbitration is a vast topic but what I can say is it introduces a new regime to the country which

protects business owners whether large or small. It is a constantly evolving structure that adapts

to any given scenario it is given, more recently by introducing virtual hearings and emergency

arbitrators it has further reduced the workload needed for the arbitration process. I believe that as

time goes on an act becomes more mature and will make India an unforeseeable force that will

be able to handle various disputes of varying degrees better than any other country has ever seen.

Conclusion

Taking large influence from the UNCITRAL Act and correcting and updating itself constantly,

the legislation has removed a large workload from its back and does not even have to intervene

in the cases. Arbitration has really helped India when it comes to Alternative dispute resolution.

As it progresses, what it needs now is the inculcation of the idea of arbitration at all levels of the

country. India is by far one of the most progressive countries when it comes to this act and will

also be the foreign hub for commercial arbitration and investment.

Citations

1) ARBITRATION IN INDIA: AN OVERVIEW, Sumeet Kachwaha and Dharmendra

Rautray, Kachwaha & Partners, 2020 -

 doi-https://www.studocu.com/in/document/panjab-university/llb/arbitration-in-india/

9504616

2) Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors.,

2016, doi- https://indiankanoon.org/doc/92854857/

3) EC Arbitration 2021 : amendment of Arbitration Act, Sneha Mahawar, March 2022 doi-

https://blog.ipleaders.in/ec-arbitration-2021-amendment-of-arbitration-act/#Conclusion

4) THE ARBITRATION LAW OF INDIA: A CRITICAL ANALYSIS by Sumeet Kachwaha

[This article was first published in Asia International Arbitrational Journal, Volume 1,
Number 2, Pages
105-126]
Doi- https://kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf

5) RenuSagar Power Co v. General Electric, 1984

Doi-https://indiankanoon.org/doc/1924738/