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Domestic Arbitration in India

Proceedings relating to Arbitration in India are governed by the Arbitration and Conciliation Act, 1996. The Indian Arbitration Act is based on the UNCITRAL Model Law on International Commercial Arbitration 1985 and the UNCITRAL Arbitration Rules 1976 which was adopted in the year 1985 with the objective to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration.

In the year 2006, the UNCITRAL Model Law was amended with the object to modernise the form requirement of an arbitration agreement to conform with international contract practices and establish a more comprehensive legal regime dealing with interim measures in support of arbitration. Accordingly, the General Assembly of the United Nations recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international Commercial arbitration practice. In view of the recommendation, the Indian Legislature enacted the Arbitration and Conciliation Act in 1996 with the object to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards so as to define the law relating to conciliation and for matters connected therewith or incidental thereto.

Amendments to the Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996 underwent through major changes vide the Amendment Act of 2015 and the recently introduced Amendment Act of 2019.

The Arbitration and Conciliation Act, 2015- Some of the breakthrough changes brought about in Arbitration Law by this amendment were as under:

  • If an interim order has been passed by the Court arbitration proceedings shall be commenced within 90 days from the date when interim order was passed
  • The Amendment also provides that the arbitral tribunal shall pass an arbitral award within 12 months, which may be extended by a 6-month period.
  • The amendment also provides for a fast track procedure for arbitration

Arbitration and Conciliation Act, 2019- Some of the key features of the Amendment Act of 2019 are as under:

  • Establishment of Arbitration Council of India – In order to promote institutional arbitration, the bill seeks to sanction the establishment of an independent statutory authority for the promotion of arbitration, mediation and conciliation and other forms of Alternate Dispute Resolution mechanisms.
  • Arbitral Institutions for Appointment of Arbitrators – The bill has brought a subsequent amendment to Section 11 and envisages that the parties would have to approach arbitral institutions as designated by the Courts for the purposes of appointment of arbitrator.
  • Confidentiality of Proceedings– the parties in an arbitration are obligated to maintain confidentiality of proceedings as per the newly inserted Section 42 A

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DOMESTIC ARBITRATION FAQs

Arbitrator – Meaning

Arbitrators are independent third-party individuals who hear the evidence, apply the law, and decide the outcomes of arbitration disputes.

Jurisdiction of Arbitrator in India

The Arbitration and Conciliation Act 1996 provides that the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

Appointment of Arbitrators in India

The parties are free to determine the number of arbitrators, provided that such numbers shall not be an even number. Section 11 of the Arbitration and Conciliation (Amendment) Act, 2015 talks about ‘appointment of arbitrator’. It states that:

Appointment of arbitrators. —

  • A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
  • Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
  • Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
  • If the appointment procedure in sub-section (3) applies and—
    • a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
    • the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.
  • Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.
  • Where, under an appointment procedure agreed upon by the parties,—
    • a party fails to act as required under that procedure; or
    • the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
    • a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

(6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.”

  • A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision.
  • The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—

 (a) any qualifications required for the arbitrator by the agreement of the parties;

(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.”;.

  • In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
  • The Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.
  • Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to “different High Courts or their designates, the High Court or its designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.
  • (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in an international commercial arbitration, the reference to the “Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “Supreme Court”; and

(b) where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in any other arbitration, the reference to “the Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “High Court” within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court.

(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavor shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.

Explanation.—For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.’’

Power of Arbitrator in India

The arbitrators are masters of their own procedure and subject to parties agreement, may conduct the proceedings “in the manner they consider appropriate.” This power includes- “the power to determine the admissibility, relevance, materiality and weight of any evidence”[1]. The only restrain on them is that they shall treat the parties with equality and each party shall be given a full opportunity to present his case,[2] which includes sufficient advance notice of any hearing or meeting.[3]  Neither the Code of Civil Procedure nor the Indian Evidence Act applies to arbitrations.[4] Unless the parties agree otherwise, the tribunal shall decide whether to hold oral hearings for the presentation of evidence or for arguments or whether the proceedings shall be conducted on the basis of documents or other material alone. However the arbitral tribunal shall hold oral hearings if a party so requests (unless the parties have agreed that no oral hearing shall be held).

Arbitrators have power to proceed ex-parte where the respondent, without sufficient cause, fails to communicate his statement of defence or appear for an oral hearing or produce evidence. However, in such situation the tribunal shall not treat the failure as an admission of the allegations by the respondent and shall decide the matter on the evidence, if any, before it. If the claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to terminate the proceedings[5].

Challenging Appointment of Arbitrator

Parties can challenge the appointment of an arbitrator under sections 12 and 13 of the Arbitration Act. It states that:

Section 12 – Grounds for challenge.—

  • When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,—
    • such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
    • which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.

Explanation 1.—The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

Explanation 2.—The disclosure shall be made by such person in the form specified in the Sixth Schedule.”;

  • An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
  • An arbitrator may be challenged only if—
    • circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
    • he does not possess the qualifications agreed to by the parties.
  • A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
  • Notwithstanding any prior agreement to the contrary, 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:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing

Section 13 – Challenge procedure.—

(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

Removal of Arbitrator in India

Section 14 & 15 of the Arbitration and Conciliation (Amendment) Act, 2015 talks about ‘termination/substitution of arbitrator’. It states that:

Section 14 – Failure or impossibility to act.—

  • The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if
    • he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
    • he withdraws from his office or the parties agree to the termination of his mandate.
  • If a controversy remains concerning any of the grounds referred to inclause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
  • If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.

Section 15 – Termination of mandate and substitution of arbitrator.—

  • In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate—
    • where he withdraws from office for any reason; or
    • by or pursuant to agreement of the parties.
  • Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
  • Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
  • Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.

[1] Section 19 (3) and (4), The arbitration Act, 1996

[2] Section 18, The Arbitration Act, 1996

[3] Section 24(2) , The Arbitration Act, 1996

[4] Section 19, The Arbitration Act, 1996; & Section, The Indian Evidence Act

[5] Section 25, The Arbitration Act, 1996

To know more about Arbitration in India, click here

The parties are can agree to any place of Arbitration of their choice. If parties do not come to a conclusion regarding this, the place of Arbitration is then determined by the Arbitral Tribunal having regard to the circumstances of the case, taking into consideration, the convenience of the parties.

Unless otherwise agreed by the parties, the Arbitration proceedings commence on the date on which a request for the dispute to be referred to Arbitration is received by the respondent.

The arbitrators are required to set out the reasons on which their award is based, unless the parties agree that no reasons are to be given or if it arises out of agreed terms of settlement. The tribunal may make an interim award on matters on which it can also make a final award.

The Arbitration and Conciliation Act 1996 provides that the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

An Arbitration agreement may be in the form of Arbitration clause in a contract or in the form of a separate agreement. An Arbitration agreement must be in writing.

An arbitral tribunal (or arbitration tribunal) is a panel of one or more adjudicators which is convened and sits to resolve a dispute by way of arbitration.

The parties are free to determine the number of arbitrators, provided that such numbers shall not be an even number.

Arbitrators are independent third-party individuals who hear the evidence, apply the law, and decide the outcomes of arbitration disputes.

For domestic arbitration in India, the arbitral tribunal is required to decide the dispute in accordance with the substantive laws of India.

Any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration. Other than this matrimonial matters, criminal proceedings, insolvency matters anti-competition matters or commercial court matters to be referred to arbitration.

Any of the disputed parties who want a faster legal remedy for remedy for resolving dispute could apply for arbitration. Arbitration is a quasi-judicial process of settlement of dispute.

Arbitration in India is regulated by the Arbitration and Conciliation Act 1996. 

Arbitration is a quasi-judicial process of settlement of disputes between parties.

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