Process of Arbitration in India: A beginner’s guide

Author’s Info

Name- Mr Hrishikesh Jaiswal

Designation- Student (II Year)

Course- B.A.L.L.B. (hons)

Contact info- Call on 91+7038698133

Email- [email protected]

Institution- National Law Institute University Bhopal

 Process of Arbitration in India: A beginner’s guide

-Hrishikesh Jaiswal

Key words- Arbitration, Alternate Dispute Resolution, Statement of

claims, Arbitral awards, Statement of defences.

Abstract

The Indian judiciary is plagued with a plethora of cases on a day-to-day

basis, and this institution is forced to deal with these avalanches of lawsuits.
The judicial wing is oftentimes said to be inefficient and slow in its
approach. Since the inception of trade practices, it could be observed that
when two people decided to trade or enter into a transaction with each other,
there would always be a possibility that some form of misunderstanding
would creep in. With evolved times and with an evolved legal system, the
legal mechanisms were viewed as a medium through which conflicts could
be resolved. However, litigation was seen as one of the only means of
settling out disputes, arising out of complex backgrounds. Nonetheless,
other resolution mechanisms have been arising to effectively resolve
disputes. Arbitration is even viewed as the most common forms of
alternatives to litigation. It has time and again been hailed as more effective
and less time consuming than the formal litigation. Arbitration has seemed
to have opened the doors for other forms of justice systems. Arbitration is
also less rigid as opposed to the traditional litigation system. The aim of this
paper, hence, would be to analyse the procedures involved during the
process of arbitration.
Introduction

A layman may be tormented and ambushed at the thought of

experiencing the convoluted and cumbersome rules and procedures of the
customary and old fashioned mechanism of litigation. The judiciary in India
since time immemorial is been accused of excessive red-tapism. India since
Independence has witnessed various reforms in the judicial sector but it is
still plagued with several problems. Owing to these endless grievances, new
and better forms of dispute resolution are coming to the rescue. All the civil
disputes can be settled at any of the following two forums i.e. Courts and
Tribunals, or Alternate Dispute Resolution (ADR), it is inclusive of all the
mechanisms which assist outside court settlement these include includes
Mediation, Conciliation, and Arbitration. Looking at the condition of the
formal mode of settlement, it will be alluring to choose ADR for its various
benefits such as Cost effectiveness, No appeals and Timely results. The
concept of Alternative Dispute Resolution (ADR) emerged in the Indian
context in the late 1990s to deal with the avalanche and the barrage of cases
that were cropping up. India now has a dedicated law on ADR for Example
the Arbitration and Conciliation Act, 1996 which is on similar lines with the
model law on International Commercial Arbitration in 1985 by the United
Nations Commission on International Trade Law 1(UNCITRAL). These
model rules are committed to effective and productive resolution of
International disputes. The Indian law on Arbitration i.e. The Arbitration
and Conciliation Act 1996 is focussed on mediation, creation of grants,
creation of courts, technique for intervention , response against arbitral
awards, conclusion of arbitral honours and their implementation,
requirement of outside honours and so forth. The aim of this paper, hence,
would be to analyse the procedures involved during the process of
arbitration.

1
Available at: http://www.uncitral.org/ (last viewed on Dec. 15, 2019).
 Arbitration in India is opted when conflict arises between two parties,
who are bound by a legally valid contract. The precondition of Arbitration is
that the parties have an Arbitration Agreement, which highlights and
signifies the assent of the parties to undergo arbitration proceedings to
resolve any conflict that might arise. The mechanism of arbitration, in India,
is governed by the Arbitration and Conciliation Act of 19962.The
aforementioned Act is said to have found its base predominantly on the
UNCITRAL Model Law. The Arbitration process starts with the drafting of
the arbitration agreement specifying that if a dispute arises the parties would
opt for arbitration for dispute resolution. Alternatively, a special contract
can signed between the parties. That is, this declaration could be made even
in the form of a clause, instead of drafting a new contract altogether. When
a dispute arises, the Non -defaulting party can send a notice to the defaulter
and this marks the beginning of the arbitration proceedings. Once the
invocation of the arbitration has been completed, the two parties to the
arbitration proceedings would undertake in the activity of appointing
arbitrators according to the procedure established by the arbitration
agreement. It means that the parties to the dispute have a free will to decide
on the number of arbitrators they would want. But the number should not be
an odd one. In case they fail to appoint arbitrators, only a single arbitrator
would be appointed to conclude the proceedings. The section 11 of the
Arbitration and Conciliation Act of 19963 empowers the parties to appoint
arbitrators with court’s assistance. The court’s assistance is provided so as
to expedite the whole process of appointing arbitrators and to avoid any
inadvertent delays that are commonplace in the conventional forms of
litigation. After the invocation of the arbitration is complete, the party who

2
The Arbitration and Conciliation Act, 1996.

3
The Arbitration and Conciliation Act, 1996, s.11.
is resorting to the said proceedings is mandated to file a statement of claims,
which contains a statement of facts, which briefly explain the contention at
hand. Moreover, the statement of claims also contains the relief that the
party would like to receive due to the breach or the non-performance of the
contractual obligations of the defaulter. It is interesting to note that the
statement of claims could be amended at any time during the proceedings,
unless agreed otherwise by the parties of the arbitration. The statement of
claims, so filed, must be sent to the defaulter. In response to the statement of
claims, the defaulter files a statement of defence, wherein, he/she refutes the
claims made by the applicant or the invoker of the arbitral proceedings. This
is done with sufficient evidence to prove the refutations. The arbitral
tribunal then hears out each party and scrutinises evidence provided in their
favour closely. After sufficient deliberation, the arbitral tribunal passes an
Award, which is essentially the decision arrived at by the tribunal. This
‘Award’ is often seen as analogous to a judgement passed by the courts of
law. Once the Award has been passed, the party, in whose favour the award
has been passed, has to ensure that he/she files an enforcement order so as to
make certain that the Award pronounced is being implemented sufficiently.
This is done with the help of a good arbitration lawyer.

The Section 34 of the Arbitration and Conciliation Act of 19964 lays

out various grounds on which an Award that was pronounced could be set
aside. The sub section 3 of the section 34 of the Arbitration and Conciliation
Act of 19965 lays down these grounds. For instance, an Award could be set
aside in case the party that is making an application for invalidating an
Award if the said party could prove that either party, who was subjected to
the arbitral proceedings was incapable of being a party to the said

4
The Arbitration and Conciliation Act, 1996, s.34
5
Supra note 1 at 4.
proceedings. That is the person who was subjected to the proceedings was
mentally incapable of being a party to such arbitral proceedings. Another
ground for the invalidation of an arbitral Award could be on the ground that
the arbitration agreement, in itself is invalid. That is, the delegitimization of
the arbitration agreement, in itself, renders the Award pronounced to be
void. Furthermore, another ground for the setting aside of an arbitral Award,
could be on the ground that the party making the said application for the
rejection of Award, was not given a proper notice about the commencement
of arbitral proceedings. Additionally, the party making such application
could also prove that he/she had not received a proper intimation about the
appointment of an arbitrator. Furthermore, the party making the said
application could also prove that he/she was not able to make his/her case,
owing to the miscommunication, thereby, going against the principles of
natural justice. Moreover, an Award, so pronounced, could be set aside if it
could be proved that the dispute that was resolved, through the means of
arbitration was beyond the scope of the arbitration agreement. That is, the
dispute does not fall within the terms laid out in the terms of the arbitration
agreement. In case there is a part of the decision that does not fall within the
ambit of the arbitration agreement, only that part of the decision would be
struck down; the remaining decision would be implemented with full effect.
Another major factor that could invalidate an Award pronounced could be
that the composition of the arbitral tribunal was not according to the one
stipulated by the arbitral contract. Additionally, the arbitral proceedings not
being in accordance with the procedure established in the arbitration
agreement. In such instances, the Award, so pronounced would be set aside.
On top of that, the arbitral Award pronounced could also be struck down by
the Courts on various grounds. For instance, an arbitral Award could be
abrogated in case the subject matter of the contention of the arbitral
proceedings at that point of time was incapable of being settled by the law.
Moreover, the courts of law could declare an Award, so pronounced as null
and void if the decision is in the contravention of public policy of India. To
elaborate, the decision or the Award pronounced was in contravention with
the principle of equity. That is, the decision was brought forth on the
grounds of corruption or any other means of misfeasance. The courts may
also adjourn proceedings in case the party challenges the arbitral
proceedings. The term ‘public policy’ had been interpreted along similar
lines in the case of Renusagar Power Co. Ltd v. General Electric Co6 , it was
held that public policy in cases of Arbitration was anything that was not
against the fundamental policy of India, and something that is not against
the principles of morality. It is interesting to note that the constitutional
validity of the Section 34 was challenged in the case of TPI vs Union of
India wherein, the petitioner of the case had asserted and maintained that an
arbitral award, must be subjected to challenge and if this provision for
challenging were not provided, the Section 34 would be constitutionally
invalid.However, the Court held that the subject matter was not within their
scope for judicial review.

The subsection 3 of the section 34 of the Arbitration and Conciliation

Act of 19967 lays down a limitation period, beyond with a party cannot
challenge the arbitral Award, laid down, according to the Section 31 of the
Arbitration and Conciliation Act of 19968. That is, the application for the
setting aside of the arbitral Award cannot be made after three months of the
actual pronouncement of the award. However, if the court is convinced that
the party could not have made the application for challenging the award
within the three months limitation period due to legitimate reasons, it may
take into consideration an application of challenge even after the lapse of the
3-month limitation period. That is the court could extend the limitation

6
Renusagar Power Co. Ltd v. General Electric Co, 1994 SCC Supl. (1) 644.

7
The Arbitration and Conciliation Act, 1996, ss. 3, 34
8
The Arbitration and Conciliation Act, 1996, s. 31
period by 30 days if it is convinced that the party had a valid, legitimate
reason for not being able to make an application within the 3-month
limitation period. Moreover, in case the limitation period, under the Section
34(3)9 has expired, the party could enforce the same through the Code of
Civil Procedure of 190810. Moreover, the Section 43 of the Arbitration and
Conciliation Act of 199611 mentions that the Limitations Act of 196312
would be applicable for the instances of arbitration also, in the same way as
it would be applicable for ordinary cases in a court of law. A superficial
reading of the Arbitration and Conciliation Act of 199613 would enable us to
reach a conclusion that the limitation period would commence on the mere
delivery of the Award, which would be called a receipt, upon the said
delivery. However, the Supreme Court held that the delivery has to be
effective in order for it to be known as a receipt. As mentioned in the Act,
the limitation period starts upon the receiving of the receipt. It has been
made exceedingly clear that the civil proceedings that would arise out of the
Limitations Act of 196314, would also commence in the presence of an
arbitrator. It has been repeatedly iterated by many that the limitations, as
available for the ordinary courts of law, must also be applicable for arbitral
proceedings, for the sake of the principles of equity and for the furtherance
of the principles of justice and fairness.15 Moreover, it has been iterated that
since the Limitation Act of 1963 has laid out the limitation period for
claiming actions under disputes that arise out of contract to be three years,
anything in the arbitration agreement that is in contravention must be
implied to be void to that extent. However, since the Arbitration and

9
Ibid.
10
The Code of Civil Procedure, 1908.
11
The Arbitration and Conciliation Act, 1996, s.43.
12
The Limitation Act, 1963 (36 of 1963).
13
Supra Note 1 at 4.
14
Ibid at 8.
15
Dr. Anupam Kurlwal, Applicability of limitation act to arbitration proceedings: A critical
study, 4 IJL 185 (2018).
Conciliation Act of 199616, is a special Act, certain limitation clauses within
the Act could have the overriding effect on the original limitation periods, as
stipulated by the Limitation Act of 196317.

The lack of partiality and any forms of predispositions among the

arbitrators is very essential to the process of arbitration to be carried. In fact,
this standard against bias is essential in all judicial and quasi-judicial
proceedings. However, this is most pertinent in arbitral proceedings because
the arbitrators are appointed according to the contract written by the parties
to the proceedings. That is, the arbitrators are appointed as per the discretion
of the parties to the arbitration themselves. This could point to the fact that
some form of predilections could inadvertently creep in. Hence, it must be
ensured that the arbitrators, so appointed do not look into the individual
interests of the parties and instead take into consideration the case at hand
with no external influences whatsoever. That is, the arbitrators are to raise
above the pre-existing relations that they might have with the parties
involved. However, it should be pointed out that the Arbitration and
Conciliation Act of 1966, does not lay down any said guidelines to ensure
that there are no such biases. To tackle these issues, there was an
amendment to the aforementioned act in the year 2015, which attempted to
introduce a few guidelines to ensure that the arbitration proceedings were
not commenced on the basis of malfeasance. This amendment further
attempted to facilitate the principles of natural justice and upholding the
fairness in the arbitral proceedings. For instance, the amendment to the Act
had now added a provision to the Section 12(1) of the Arbitration and
Conciliation Act18 of 1996, which mandates the arbitrator, so appointed to
disclose the relationship that he shares with the party of the arbitral
proceedings. The past relationship held, will then be subject to a lot of

16
Supra note 1 at 4.
17
Id. At 8.
18
The Arbitration and Conciliation Act, 2015, ss.1, 12.
scrutiny, to ensure that the relationship, so held shared by the arbitrator and
the party would not influence and deviate the due course of the arbitral
proceedings. The new amendment to the said Act also saw the inception of a
new provision. This new provision was inserted within a new section, the
Section 12(5) of the Amendment Act19. This section goes into depths and
specifies the various grounds and conditions, which would render an
arbitrator to be ineligible and incompetent to be an arbitrator of the arbitral
proceedings. Additionally, it is pressing to note that the Section 15 of the
Amended Act20empowers the parties of the arbitration to appoint a new
arbitrator, in case the previous arbitrator was disqualified on the grounds of
unfairness. The Arbitration and Conciliation Act, 2015, s. 15.

To conclude, arbitration, a mechanism under the umbrella of

Alternative Dispute Resolution (ADR) has proved to be very effective in its
approach. It has time and again proved to be a very effective means to the
resolution of any conflicts or disputes that arise among two or more parties.
Arbitration has also proved to be very flexible and fluid in nature. This is
owing to the nature of the procedures. That is, the procedures involved are
very simplified and easy to understand even by a layperson. Arbitration is
also said to be a very convenient means of resolving conflicts because the
proceedings arranged are done so according to the comfort of the parties.
Even though Arbitration has proved to be very efficient and cost-effective in
resolving conflicts, there are certain demerits and challenges that one might
face when he/she might choose arbitration as a means to conflict resolution.
For instance, arbitration does not follow fixed standards during the arbitral
proceedings. These inconsistencies could arrive when the arbitrator, so
appointed is biased. Another major drawback of this mechanism is that the
process involves only an exchange of documents. That is, the mechanism
has no room for witnesses. This in turn gives rise to a lack of scope for
19
The Arbitration and Conciliation Act, 2015, ss.5, 12.
20
The Arbitration and Conciliation Act, 2015, s. 15.
cross-examination, which might prove to be fruitful in settling these
proceedings in a more efficient manner. Yet another considerable concern
with regard to the arbitral proceedings is that there is a strict clause in the
Arbitration and Conciliation Act of 199621, which seeks to maintain a sense
of confidentiality of the proceedings that take place. This lack of
transparency and closeness, might prove to be disadvantageous to a party of
the proceedings henceforth, it could be contended that the system of
Arbitration has a long way to go.

21
Supra note 1 at 4.