Understanding Arbitration in India: Insights into the Arbitration and Conciliation Act, 1996

Introduction to Arbitration as a Preferred Dispute Resolution Mechanism in India

Among the various recognized forms of Alternate Dispute resolution (ADR) prevailing universally, arbitration of proceedings enjoys unparalleled popularity. In India, a legal framework for regulation has been provided under the Arbitration and Conciliation Act, 1996 ("the Act"). The nature of this agreement under the category of private arbitration closely resembles that of a regular litigation in court. The resolution arrived at, and its enforcement are very much the same as the decree issued by a Civil Court. Arbitration in India could either be between the Parties 'ad hoc' or maybe of the form 'institutional', such as Indian Council of Arbitration or International Chamber of Commerce, etc. This blog encapsulates the legal regime of arbitration in India to get a hang of for practitioners and businesses.

Historical Context and Evolution of the Arbitration and Conciliation Act, 1996

Post the economic liberalization of 1991, India felt the necessity of a legal reform to allow international investment to flow into the country. The Arbitration Act of 1940 was outdated and insufficient for modern-day requirements. The Indian Parliament, therefore passed the Arbitration and Conciliation Act, 1996, which came into force on 22nd August 1996. This was based on the UNCITRAL Model Law on International Commercial Arbitration, 1985, to bring about uniformity in Indian arbitration laws with global practices.

What is an Arbitration Agreement?

 An arbitration agreement is the document that is necessary to initiate arbitration. It can be incorporated as an entire clause in a contract or a separate agreement agreeing to submit any disputes to arbitration. The agreement to submit could be on any subject matter, either contractual (i.e. sales, services, employment) or non-contractual (i.e. torts). The place of arbitration is very important because it brings in the seat of arbitration for the application of law and the language of the arbitration. In India, this choice decides whether the arbitration is part I or part II, which is domestic arbitrations and offshore arbitrations, respectively, under the Act.

Arbitral Proceedings: From Initiation to Award in India

An individual initiates arbitration by the means of informing the other party that they would like the dispute to be arbitrated. The Limitation Act, 1963, is applied under the Act and also does not allow processes that are initiated after the expiry date, which is after three years from the date that the cause of action took place. commencement of the proceedings, it is considered from the date on which the notice is served on the respondent. An arbitration can be conducted without being necessarily bound to the Code of Civil Procedure, 1908, and the Bharatiya Sakshya Adhiniyam, 2023 (erstwhile Indian Evidence Act, 1872). Section 19 of the Act gives the arbitral tribunal the necessary authority to conduct the proceedings as it thinks fit. It should be ensured that while treating the parties fairly and giving them an equal opportunity to present their cases.

Securing Interests Pre-Award: Interim Measures Under Indian Arbitration Law

Under Section 17 of the Act, Indian arbitral tribunals are empowered to grant interim or provisional relief. Earlier, these were not enforceable on the arbitral tribunal's file and had to be enforced through court proceedings. However, by an amendment in 2015, applications filed for interim orders are to be taken up as court orders and the nullification or non-issuance of enforcement shall be subject to contempt of court proceedings. Equally, Section 9 of the Act also provides that the parties to an arbitration can approach the courts for interim measures of protection prior to or during or after the arbitral proceedings but before enforcement of the award. However, the jurisdiction of the court ceases after the constitution of the arbitral tribunal except in cases where the relief of the tribunal is not efficient or is not practically implemented.

Arbitration Procedure Rules

Arbitral proceedings under the Act are removed from the Code of Civil Procedure, 1908, and the Bharatiya Sakshya Adhiniyam, 2023 (erstwhile Indian Evidence Act, 1872). Section 19 of the Act vests arbitral tribunals with the power to determine the relevance, admissibility, necessity, and weight of any evidence. Equal treatment of the parties is a basic phrase, followed by opportunity given fairly and adequately for each of the parties to present cases and notice of hearing. Oral hearings may be conducted subject to the agreement of the parties and unless the parties have agreed otherwise. The tribunal may proceed ex-prate. If any party will not submit a defense or go to the hearings for unreasonable motives. However, non-appearance shall not be deemed an admission of the allegations as requested.

Requisites of Valid and Enforceable Arbitral Awards

·         The award must be documented in writing.

·         It should be signed by all members of the arbitral tribunal, indicating their unanimous consent or majority decision.

·         The award must include a statement of the reasoning or rationale upon which it is founded.

·         The award should clearly specify the date and place where the arbitration took place.

These requirements ensure transparency and clarity in the arbitration process, enhancing the credibility and enforceability of the award.

Challenging Arbitral Awards: Legal Grounds and Procedures in India

To challenge an arbitral award, an application must be filed in court within three months of receiving the award, with a possible 30-day extension for sufficient cause. Grounds for setting aside an award under Section 34 of the Act include:

·         Invalid Arbitration Agreement: If the agreement between parties to arbitrate is found to be invalid under law.

·         Lack of Proper Notice: If a party was not given proper notice of the appointment of the arbitrator or the arbitral proceedings or was otherwise unable to present its case.

·         Excess of Jurisdiction: If the arbitral tribunal exceeds its jurisdiction, such as deciding on matters not submitted to arbitration, or if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.

·         Award in Conflict with Public Policy: If the arbitral award is contrary to the public policy of India, which includes issues such as fraud, corruption, or fundamental principles of justice and morality

If the challenge is rejected, the award is enforceable as a court decree. One appeal is allowed against the court's decision on setting aside or refusing to set aside the award, and parties cannot waive their right to challenge the award.

The Future of Dispute Resolution: The Role of Arbitration in India's Legal Landscape

Arbitration under the Arbitration and Conciliation Act, 1996, provides a flexible and efficient alternative to traditional litigation in India. Governed by a robust legal framework aligned with international standards, arbitration allows parties to resolve disputes privately with enforceable outcomes similar to court decisions. Key aspects include the requirement for a valid arbitration agreement, the conduct of proceedings under the tribunal's discretion, and the availability of preliminary relief and interim measures. The enforceability and challenge mechanisms ensure procedural fairness, making arbitration a preferred method for domestic and international dispute resolution in India.

How Water & Shark Legal Can Help

At Water and Shark Legal, we provide expert guidance through every stage of the arbitration process. Our team assists in drafting robust arbitration agreements, representing clients in arbitral proceedings, and ensuring enforceable and fair outcomes. With our extensive experience in ADR, we help clients navigate the complexities of arbitration, safeguarding their interests and facilitating efficient dispute resolution. Contact us at legal@waterandshark.com to learn how we can assist with your arbitration needs and provide tailored legal solutions.