Arbitration
The Arbitration and Conciliation Act, 1996 came into force with
effect from 22.8.1996. It consolidates and amends the law relating to domestic
arbitration, international commercial arbitration and enforcement of foreign
arbitral awards.
It applies to the whole of India. It applies to the State
of Jammu and Kashmir to the extent of the provisions relating to
enforcement of foreign awards, which apply in full, other provisions apply
insofar as they relate to international commercial arbitration or conciliation.
The Act is based on the conciliation rules adopted by the United
Nations Commission on International Trade (UNCITRAL)
What is arbitration?
Arbitration is a process of dispute resolution in which a neutral
third party (called the arbitrator) renders a decision after a hearing at which
both parties have an opportunity to be heard. It is the means by which parties
to a dispute get the same settled through the intervention of a third person,
but without having recourse to court of law.
What is an arbitration agreement?
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.
1. The parties make an agreement that instead of going to the court,
they shall refer the dispute to arbitration.
1. The arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement. Where an
arbitration clause is included in a contract and the contract is avoided due to
misrepresentation or fraud, the arbitration clause may still continue to be
binding.
1. Where, however, there was no contract at all between the parties
or contract was void ab initio, the arbitration clause cannot be enforced.
1. An arbitration agreement/clause must be in writing. Although no
formal document is prescribed, however, it must be clear from the document that
the parties had agreed to the settlement of dispute through arbitration.
1. Where the arbitration agreement or clause is contained in a
document, the parties must sign the document. Besides, the arbitration
agreement may be established by-
1. an exchange of letters, telex, telegram or other means of
telecommunication; or
1. an exchange of statement.
Appointment of an Arbitrator
Who May be Appointed
A person of any nationality may be an arbitrator, unless otherwise
agreed by the parties. In case of an international commercial arbitration,
where the parties belong to different nationalities, the Chief Justice
may appoint an arbitrator of a nationality other than that of the parties.
Number of Arbitrators
The reference may be made either to a single arbitrator or a panel
of odd number (i.e. 3, 5,7, etc.) of arbitrators. The parties are free to fix
the number of arbitrators by agreement. If there is no agreement, the reference
shall be made to a sole arbitrator.
Grounds for Challenging Appointment
The appointment of an arbitrator may be challenged if
1. circumstances exist that give rise to justifiable doubts as to his
independence or impartiality or
2. he does not posses the qualifications agreed to by the
parties.
Place of Arbitration
The parties are free to agree on the place of arbitration and
failing an agreement to do so the place shall be determined by the arbitral
tribunal having regard to the circumstances of the case and convenience of the
parties.
Who May Refer to Arbitration?
An arbitration agreement is a contract and thus, any party to such
an agreement must have the capacity to contract.
What Disputes May be Referred?
The parties to an arbitration agreement may refer to arbitration,
a dispute which has arisen or which may arise between them, in respect of a
defined legal relationship, whether contracted or not.
Thus, all matters of civil nature whether they relate to present
or future disputes may form the subject matter of reference. The dispute,
however, must be the consequence of legal relationship arising out of an
obligation, the performance of which is a duty under the law and for its breach
a remedy is provided.
Bar to Suit
When the parties have entered into an arbitration agreement, they
cannot file a suit in a court of law in respect of any matter covered by the
agreement; otherwise the very purpose of arbitration will be frustrated. The
court will normally not intervene except where so provided by the Act.
What Disputes Cannot be Referred For Arbitration
The following disputes cannot be referred to arbitration:
1. Insolvency proceedings.
2. Lunacy proceedings.
3. Proceedings for appointment of a guardian to a minor.
4. Question of genuineness or otherwise of a will or matter relating
to issue of probate.
5. Matters of criminal nature.
6. Matters concerning Public Charitable Trusts.
7. Disputes arising from and founded on an illegal contract
Interim Orders by Court
A party may, before or during arbitral proceedings or at any time
after the making of the arbitral award but before its enforcement, apply to the
court for any of the following matters-
1. appointment of guardian for a minor or a person of unsound mind
for the purposes of arbitral proceedings;
2. preservation, interim custody or sale of any goods which are the
subject matter of the arbitration agreement;
3. securing the amount in dispute in the arbitration;
4. detention, preservation or inspection of any property or thing
which is the subject matter of the dispute, or to authorize for any
of the aforesaid purposes any person to enter upon any land or building in the
possession of any party, or authorizing any samples to be taken or
any observation to be made, or experiment to be tried, which may be necessary
or expedient for obtaining full information or evidence;
5. interim injunction or the appointment of a receiver; or
6. such other interim measure of protection as may appear to the
court to be just and convenient.
A court has jurisdiction to pass interim orders even before
arbitral proceedings commence and before an arbitrator is appointed.
Setting aside an Award
An application for setting aside an arbitral award may be
made before the court, by a party within three months of receipt of the award
by him. The court may set aside an award on the following grounds:
1. a party was under some incapacity;
2. the arbitration agreement is not valid under the law;
3. the party making the application was not given proper notice of
the appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case;
4. the award deals with a dispute not contemplated by or beyond the
scope of the submission to arbitration;
5. the composition of the arbitral tribunal or the arbitral
proceedings was not in accordance with the agreement or with the law;
6. the subject-matter of the dispute is not capable of settlement by
arbitration under the law; or
7. the arbitral award is in conflict with the public policy of
India.
Appeal
An appeal shall lie before the court, against the following
orders-
1. granting or refusing to grant any interim measure
2. setting aside or refusing to set aside an arbitral award and
3. granting or refusing to grant an interim measure of
protection.
No second appeal shall lie against the appellate order of the court,
except, however, that an appeal may be made to the Supreme Court.
Enforcement of Foreign Awards
Foreign award - has been defined to mean an award on differences
between persons arising out of legal relationships, whether contractual or not
and considered as commercial under the law in force in India, and made in
pursuance of an agreement in writing for arbitration to be governed either by
the New York Convention or by the Geneva Convention, in the territory of a
notified foreign state.
- Where a commercial dispute covered by an arbitration
agreement to which either of the conventions applies, arises before a
judicial authority in India, it shall at the request of a party be
referred to arbitration.
- Any foreign award, which is enforceable under this part,
shall be binding and may be relied upon by the parties by way
of defence, set off or otherwise in any legal proceedings
in India.
- The party applying for the enforcement of a foreign award
shall, produce the original award or a duly authenticated copy thereof,
the original arbitration agreement or a certified copy thereof, and
evidence to prove that the award is a foreign award.
- An appeal shall lie against the order of court refusing to
refer the parties to arbitration or refusing to enforce a foreign award.
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