ALTERNATIVE DISPUTE RESOLUTION

Unit- III

Topic: Arbitration Act

Sreedurga T.N
Assistant Professor
DME Law School
Suggested Readings:

1. The Legal Services Authorities Act, 1987

2. S. Muralidhar, ‘Law, Poverty And Legal Aid: Access To Criminal
Justice’, (Lexis Nexis 2004.)
3. Dr. N.V. Paranjape, ‘Public Interest Litigation, Legal Aid & Services
Lok Adalats’, (Central Law Agency 2004).
4. Lok Adalat, available at https://nalsa.gov.in/lok-adalat (last accessed
on 5 June 2020).
 • The Arbitration Act, 1877
• Indian Arbitration Act, 1899, which was based
on the English Arbitration Act, 1899
• Arbitration (Protocol and Convention) Act,
1937: This act was implemented with the object
Arbitration Laws to give effect to the Geneva Protocol on
Arbitration Clauses, 1923, and Geneva
in India Convention on the Exchange of Foreign Arbitral
Award, 1927.
• Arbitration Act, 1940: The act dealt with only
domestic arbitration. As per the provisions of the
act, the intervention of the court was required
throughout the proceeding of arbitration
 • After the coming up of the UNCITRAL model, the
Government of India created a new Arbitration and
Arbitration Laws Conciliation Act, 1996 which involved provisions
in India for the international commercial arbitration.
• Arbitration is the private determination of a dispute by an independent
third party. An arbitration hearing may involve the use of an individual
arbitrator or a tribunal.
• Arbitration is a form of alternative dispute resolution (ADR), which is
a legal technique settling the disputes outside courts, wherein the
parties to a dispute refer it to one or more persons, by whose decision
they agree to be bound
 Arbitration
• In arbitration, a neutral third party called the Arbitrator serves as a
judge who is responsible for resolving the dispute. The arbitrator listens
as each side argues its case and presents relevant evidence, then renders
a binding decision.
• Arbitrators hand down decisions that are usually confidential, that is
binding, and that cannot be appealed. Arbitration tends to be expensive
but less expensive than litigation.
• In India, arbitration is governed by The Arbitration and Conciliation
Act, 1996.
• The persons to whom the dispute is referred to are called the arbitrator
or arbitral tribunal.
• The basic concept of arbitration is that the parties must repose trust
and faith in a person or a committee for deciding and must agree to
accept such decision
• a) Arbitration is consensual
• b) The parties choose the arbitrator(s)
• c) Arbitration is neutral
• d) Arbitration is a confidential procedure
• e) The decision of the arbitral tribunal is final and easy to enforce
Arbitration and Conciliation Act, 1996

• An Act to consolidate and amend the law relating to domestic

arbitration,
• International commercial arbitration and enforcement of foreign
arbitral awards
• as also to define the law relating to conciliation and for matters
connected therewith or incidental thereto.
Disputes that are not arbitrable in India

• Matters connected with conjugal rights and matrimonial matters.

• Disputes related to industries.
• Revenue matters.
• The proceedings which are of criminal in nature.
• Matters relating to the determination of guardianship or wards.
• Matters related to the testament or will under the Succession Act.
• The matters related to Indian Trust Act, trusteeship of charitable institutions, public
charity.
• Matters within the purview of Restrictive Trade Practices Act and Monopolies.
• Issues related to Companies Act like Insolvency, dissolution and winding up
proceedings.
Domestic arbitration

• The parties should not be from any nationality or a resident in any

country other than India;
• A body corporate should not be incorporated in any country other than
India;
• The Government should not be of a foreign country;
International arbitration

• The international arbitration may result in the application of different

set of rules. In this type of arbitration, the law governed for the
resolution of disputes can either be Indian law or a foreign law. The
arbitration proceedings can take place in India or outside India.
International arbitration

• At least one of the parties is an individual who is a resident from

another country other than India.
• A corporate body which is not incorporated in India.
• The government should be of a foreign country.
Ad hoc arbitration:

• ad hoc arbitration is not administered by any institute.

• In this type of arbitration, the parties are at liberty to decide the
procedure that has to be followed during the resolution of a dispute.
• The parties are free to decide an arbitrator and other procedures like
timetable for filling the documents, applicable rules etc.
• If the parties are not able to decide, then the arbitral tribunal will
decide the procedure and other rules in a way it thinks fit.
institutional arbitration

• parties take the help of an institute for deciding the procedures of

arbitration.
• Such institution takes care of all the procedures like appointing an
arbitrator, timetable for filing the documents etc. institutional
arbitration lessens the burden of the parties by giving administrative
assistance.
• This timely assistance helps move the arbitration process smoothly.
The institutions will charge the parties a certain amount of money as
fee for assisting them through the arbitration process.
institutional arbitration

• Indian Institute of Arbitration and Mediation, Delhi

• Indian institute of Technical arbitrators, Chennai
• Mumbai Center for International Arbitration
• Bangalore International Mediation, Arbitration and Conciliation
Centre etc.
• 2. Definitions.—(1) In this Part, unless the context otherwise requires,
—
• (a) “arbitration” means any arbitration whether or not administered by
permanent arbitral institution;
Section 7

• “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.
Written Agreement

• An arbitration agreement must be in writing.

• As per Section 7 (4) of the Act, arbitration agreement is considered to
be in writing, if it is contained in:

• A document signed by the parties;

• An exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
• An exchange of statements of claim and defence in which the existence
of the agreement is alleged by one party and not denied by another.
Intention

• Intention of the parties is of prime importance.

• No form has been prescribed for an arbitration agreement
• Nowhere has it been mentioned that terms like arbitration, arbitrator
are essential prerequisites in an arbitration agreement.
• Intention of the parties to refer their dispute to arbitration should be
clearly discernible from the arbitration agreement.
Signature

• An arbitration agreement needs to be signed by the parties.

• The agreement may be in the form of a signed document by both the
parties containing all the terms or it may also be a signed document by
one party which contains the terms and an acceptance signed by the
other party.
• It will suffice if one party puts his signature in the written submission
and the other party accepts it.
What is arbitration agreement?

• The arbitration agreement must contemplate that the decision of the

tribunal will be binding on the parties to the agreement.
• That the jurisdiction of the tribunal to decide the rights of the parties
must derive from their consent, or from an order of the Court or from a
statute, the terms of which make it clear that the process is to be
arbitration.
• The agreement must contemplate that substantive rights of the parties
will be determined by the arbitration tribunal.
• That the tribunal will determine the rights of the parties in an impartial
and judicial manner with the tribunal being fair and equal to both
sides.
• The agreement of the parties to refer their disputes to the decision of
the tribunal must be intended to be enforceable in law.
• The agreement must contemplate that the tribunal will make a decision
upon a dispute which is already formulated at the time when a
reference is made to the tribunal.
• An arbitration agreement like all other contracts must satisfy all the
essential requirements of section 10 of the Indian Contract Act, 1872
i.e., the parties to the arbitration agreement must be competent to enter
into a contract and the agreement should be made by the free consent
of the parties.
FEATURES OF ARBITRATION AGREEMENT

• i) Arbitration Agreement Should Be In Writing

• S 7 clearly specifies that the Arbitration Agreement should be in writing.
• This we see in S7 (3), it says that an Arbitration Agreement shall be in
writing
• An oral agreement to submit a dispute to Arbitration is not binding .
• If the Agreement is in writing it will bind, even if some of its details are
filed in by oral understanding .
• The court ruled thus in the case of Banarasi Das v Cane Commr
(U74899DL1983PTC055183)
• Telex and Fax An agreement by telex has been held to be an agreement
in writing. A tacit acceptance of a written quotation which contained
an arbitration clause is sufficient to comply with the requirements of
an agreement in writing.
• Exchange of Letters In the case of Ganga pollution control unit, U.P.
Jal Nigam v Civil Judge , a letter was sent by one party to the other
suggesting settlement of disputes, if an through arbitration. The other
party accepted the same. This exchange of letters was held to have
constituted an Arbitration agreement.
• Seat of Arbitration –
• This clause specifies the seat or place of arbitration. The seat of
arbitration determines the procedural laws that govern the arbitration
procedure. It need not be the same as the place of hearings.
• Seat of arbitration is considered to be a place where arbitrations are
held even if the place of hearings differ.
• Place of hearings don’t by any means affect the chosen seat of
arbitration.
• Procedure for Appointing Arbitrators – Section 11 of the Arbitration and Conciliation
Act talks about the appointment of arbitrators.
• It provides that a person of any nationality may be appointed as an arbitrator, unless
otherwise agreed by the parties.
• The parties are free to agree on a procedure for appointing the arbitrator(s). If the
parties fail to reach an agreement, in an arbitration with 3 arbitrators, each party shall
appoint one arbitrator, and the two arbitrators shall thereafter appoint a third
arbitrator, who shall be the presiding arbitrator. The appointment of parties may be by
the parties themselves, or by the designated authority or by the arbitral institutions.
• In places where the dispute involves international commercial transaction, then the
arbitrator to be appointed shall not be of the same nationality as the parties to the
dispute
• Language of Arbitration – It is important to mention the language of
arbitration in the agreement itself. Especially, in a country like ours,
where Hindi and English aren’t the only two languages spoken, it
would get very difficult to decide and settle the disputes. Choosing the
language of arbitration is also very cost effective, because it would
save you from paying exorbitant fees to the translators.
• Number and Qualifications of Arbitrators – According to Section 10 of
the Arbitration and Conciliation Act of 1996, parties can determine the
number of arbitrators, provided that the number is an odd number.
Failing to determine the no. of arbitrators, the arbitral tribunal shall
consist of a sole arbitrator.
• Type of Arbitration – Parties can choose between Institutional or Ad
hoc arbitrations. If the parties choose the former, then they have to be
bound by the rules of the arbitration institutions. All these institutions
have their own set of rules for arbitration and these rules would be
applicable to arbitral proceedings conducted by them. Whereas, in
case of Ad-hoc arbitrations, arbitrations are both agreed to and
arranged by the parties themselves. No help is sought from the arbitral
institutions in Ad-hoc arbitrations.
• Governing Law – This is the law that governs the main point of
contention between the parties to a dispute. It is even known as the
substantive law. The parties should mention the law they want to be
governed by, failing which may give way to disputes in the future.
• Name and Address of the Arbitration Institution – If the parties to the
dispute are referring their disputes to an arbitration centre, then it is
pertinent that they mention the name and address of the arbitration
facility in clear and unambiguous words. Such inadvertent mistakes
can lead to the nullification of the arbitration clause.
DOCTRINE OF SEVERABILITY

• Prima paint Corp v. Flood & Conklin Co.

• arbitration clauses can be ‘separable’ from the contracts in which they
are included.
• the invalidation of the underlying agreement will not affect the
arbitration clause and similarly, the invalidity of the arbitration clause
will not render the underlying agreement invalid
• The ‘principle of severability’ came into existence after the 1996 Act
under Section 16 after which issues relating to this principle were
determined by the courts.
• Section 16(1) of the Arbitration and Conciliation Act,1996 talks about
the concept of ‘severability’ and states, an arbitration clause which
forms part of the larger contract shall be treated as an agreement
independent of the other terms of the contract; and a decision by the
arbitral tribunal that the contract is null and void shall not by operation
of law entail the arbitration clause invalid.
• an arbitration clause is a collateral clause in the contract, which relates
to resolving disputes, and not with the specific performance of the
contract. Even if the performance of the contract comes to an end on
account of termination, frustration or breach of contract or by any
other means, the arbitration agreement would survive the termination
for the purpose of resolution of disputes arising under or in connection
with the mother contract.”
• “National Agricultural Coop. Mktg. Federation India Ltd.
Vs. Gains Trading Ltd”