TOPIC : ARBITRATION

Contents
1. Introduction
2. What is Arbitration ?
3. Advantages of Arbitration
4. The Arbitration and Conciliation Act, 1966 and Object
5. Extent and Operation
6. Important Definitions
7. Waiver of right to object
8. Arbitration Agreement
9. Power of court to refer parties to Arbitration
10. Number of Arbitrators
11. Appointment of Arbitrators
12. Grounds for challenge to Arbitrator
13. Jurisdiction of Tribunal and Principle of Kompetenz Kompetenz
14. Conduct of Arbitral Proceedings
Introduction

• The UNCITRAL (United nation commission on international trade law) prepared the
model law on international commercial arbitration and adopted it on 21/06/1985.
• The model law was later amended in 2006 and now contains more detailed provisions
pertaining to the interim measures.

Why was it adopted ?

• The domestic law was considered to be inappropriate for international cases and
considerable disparity existed between the two.

Object
• In order to harmonise and bring uniformity of law of arbitral procedure.
What is ARBITRATION ?

‘ The Process of solving an argument

between people by helping them to agree
to an acceptable solution’

• The settling of disputes  between two parties by an
impartial third party, whose decision the contending
parties agree to accept.

• Arbitration is often used to resolve conflict
diplomatically  to prevent  more serious confrontation.
What is ARBITRATION ?
• Form of alternative Dispute Resolution.

• Alternate to court room litigation.

• Neutral 3rd party.

• Binding Dispute resolution, equivalent to litigation in the courts.

ADVANTAGE OF ARBITRATION

• Safety valve- to avoid contract failure.

• Quick settlement of disputes- Faster than litigation in court.

• Procedure is simpler than process of litigation.

• Less expensive - No court fee

• Choice of the Arbitrators - Disputing parties can select a person
with the technical knowledge related to the work.
• Confidential- Arbitral proceedings and an arbitral award are
generally non-public.
• Preservation of Business relationship.
The Arbitration and Conciliation Act, 1996
In Bharat Seva Sansthan v. U.P. Electronics Corporation Ltd. AIR 2007
SC 2961, the SC laid down the objects of the Act.

I. To make provisions for arbitral procedure.

II. To reduce the supervisory role of the court.
III. To permit and arbitral tribunal to conduct proceedings.
Extent and operation of the Act

• The act extends to the whole of India.

• Provided that Part I, III and IV extend to the state of Jammu and
Kashmir only in so far as they relate to the International commercial
arbitration or conciliation as the case may be.
Important Definitions
S.2(e) Court means
I. In case of domestic arbitration – Principle civil court of original jurisdiction in a district
II. In case of international arbitration – the HC exercising original civil jurisdiction.

S.2(f) 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) 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;
 Section-4
Waiver of right to object

If a party who knows that-

(a) any provision of this part from which parties
may derogate ,or
(b) any requirement under Arbitration
Agreement,
has not been complied with and yet proceeds
with arbitration without stating his objection to
such non-compliance without undue delay, shall
be deemed to have waived of his right to so
object.
 Arbitration Agreement
• Section-7 of the Act
(1)"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.

(2) An arbitration agreement may be in the form of an

arbitration clause in a contract or in the form of a
separate agreement.
Arbitration Agreement

• Section-7 of the Act

(3) Arbitration Agreement to be in ‘writing’

(5) Reference in a contract to a document

containing arbitration clause constitutes an
Arbitration Agreement
Power of court to refer parties to Arbitration
Pre-requisite- there should be an arbitration agreement between the parties.
• According to S.8 of the act,
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement
shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than
the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment,
decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists.]
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof:
[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party
applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by
the other party to that agreement, then, the party so applying shall file such application along with a copy of the
arbitration agreement and a petition praying the Court to call upon the other party to produce the original
arbitration agreement or its duly certified copy before that Court.]
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before
the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
10. Number of arbitrators.—

(1) The parties are free to determine the number of arbitrators,

provided that such number shall not be an even number.

(2) Failing the determination referred to in sub-section (1), the arbitral

tribunal shall consist of a sole arbitrator
Qualification of arbitrators:
• The agreement executed by the parties has to be given great importance. An agreed procedure for
appointing the arbitrators has to be given preference to any other mode for securing appointment
of an arbitrator. If the procedure for appointment as agreed between the parties fails and an
application is filed in court for appointment, the court cannot ignore provisions contained in
Clause (a) of Sub-section (8) of section 11 of the Act wherein it is specifically provided that the
Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have
due regard to any qualifications required of the arbitrator by the agreement of the parties.
• A clause in the agreement providing for settling the dispute by arbitration through arbitrators
having certain qualifications or in certain agreed manner is normally adhered to by the courts and
not departed with unless there are strong grounds for doing so. The appointment of an arbitrator
can be challenged by a party on the ground that he does not possess the qualification agreed to
by the parties. Such challenge has to be brought within 15 days after becoming aware of the
constitution of the arbitral tribunal or after becoming aware of the circumstance that he does not
possess the necessary qualification.
 Grounds for challenge to
Arbitrator
Section 12

12(1)&(2) Arbitrator shall declare in writing prior to his

accepting appointment and further during proceedings
without delay, any circumstances likely to give rise to
justifiable doubts as to his independence or impartiality.

Note: for guidance refer Fifth schedule of A&C Act

 Grounds for challenge to
Arbitrator

Section 12

12(3). Arbitrator may be challenged only if

(a) circumstances exist that give rise to justifiable

doubt as to his independence or impartiality.

(b) He does not possess the agreed qualifications.

 Grounds for challenge to
Arbitrator
Section 12
12(5). Any person whose relationship, with the parties or counsel or
the subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be
appointed as an arbitrator.

‘Seventh Sch: Arbitrator’s Relationship with Parties.’

Provided that parties may, subsequent to disputes having arisen

between them, waive the applicability of this sub-section by an
express agreement in writing
Jurisdiction of Tribunal and Principle of Kompetenz
Kompetenz
• 16. Competence of arbitral tribunal to rule on its jurisdiction.—
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for that purpose,—
(a) an arbitration clause which forms part of a contract shall 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 shall not entail ipso jure the invalidity of
the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall 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 that 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 shall 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 in sub-section (2) or sub-section (3), admit a later plea
if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral
tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in
accordance with section 34.
Principle of Kompetenz Kompetenz
The issue of whether the courts are empowered to review the existence and validity of the
arbitration agreement prior to reference is more controversial. A majority of the countries
admit to the positive effect of kompetenz kompetenz principle, which requires that the
arbitral tribunal must exercise jurisdiction over the dispute under the arbitration
agreement. Thus, challenge to the existence or validity of the arbitration agreement will
not prevent the arbitral tribunal from proceeding with hearing and ruling upon its
jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute
would be permissible without waiting for the outcome of any court action aimed at
deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz
principle is that arbitrators are entitled to be the first to determine their jurisdiction which
is later reviewable by the court, when there is action to enforce or set aside the arbitral
award. Where the dispute is not before an arbitral tribunal, the Court must also decline
jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of
being performed.
Conduct of Arbitral Proceedings
S.18 – Equal treatment of parties
S.19 – Determination of rules of procedure
S.20 – Place of Arbitration
S.21 – Commencement of arbitral procedure
S.22 – Language
S.23 – Statement of claim and defence
S.24 – Hearing and written proceedings
S.25 – Default of party
S.26 – Expert appointment by arbitral tribunal
S.27 – Court assistance in taking evidence