Professional Documents
Culture Documents
Arbitration has a long history in India. In ancient times, people often voluntarily submitted their
disputes to a group of wise men of a communitycalled the panchayatfor a binding
resolution.
Modern arbitration law in India was created by the Bengal Regulations in 1772, during the
British rule. The Bengal Regulations provided for reference by a court to arbitration, with the
consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract,
amongst others.
Until 1996, the law governing arbitration in India consisted mainly of three statutes: (i) the 1937
Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the
1961 Foreign Awards (Recognition and Enforcement) Act. The 1940 Act was the general law
governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the
1937 and the 1961 Acts were designed to enforce foreign arbitral awards (the 1961 Act
implemented the New York Convention of 1958).
The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to
modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modeled
on the lines of the UNCITRAL Model Law. This Act repealed all the three previous statutes (the
1937 Act, the 1961 Act and the 1940 Act). Its primary purpose was to encourage arbitration as a
cost-effective and quick mechanism for the settlement of commercial disputes. The 1996 Act
covers both domestic arbitration and international commercial arbitration.
In institutional arbitration, the arbitrators are governed by the rules of the institution, and
they may be removed from the panel for not conducting the arbitration properly. In ad hoc
arbitration, the arbitrators are not subject to such institutional removal sanctions.
In institutional arbitration, as the secretarial and administrative staffs are subject to the
discipline of the institution, it is easy to maintain confidentiality of the proceedings. In ad hoc
arbitration, it is difficult to expect professionalism from the secretarial staff.
Inspite of the numerous advantages of institutional arbitration over ad hoc arbitration, there is
currently an overwhelming tendency in India to resort to ad hoc arbitration mechanisms. This
tendency is counter productive, since there is considerable scope for parties to be aggrieved by
the functioning of ad hoc tribunals. An empirical survey will reveal that a considerable extent of
litigation in the lower courts deals with challenges to awards given by ad hoc arbitration
tribunals.
Some of the arbitral institutions in India are the Chambers of Commerce (organized by either
region or trade), the Indian Council of Arbitration (ICA), the Federation of Indian Chamber of
Commerce and Industry (FICCI), and the International Centre for Alternate Dispute Resolution
(ICADR).
1.
Construction/infrastructure is one of the fastest growing sectors of the Indian economy, and
millions of dollars are spent in construction related disputes. According to a survey conducted in
2001 by the Construction Industry Development Council, the amount of capital blocked in
construction sector disputes was over INR 540,000 million.18 Ad hoc arbitration is still very
popular in the construction industry.
Arbitration in the construction industry has a unique feature, which is quite distinct from the
general arbitration practice seen in other industries.
1.1
1.2
There has been a series of judicial decisions, which have held that if a particular matter
has been excluded from the purview of arbitration incorporating excepted matter
clause/exclusion clause, the same shall not be re-agitated in arbitration. In Food
Corporation of India vs. Sreekanth1 Transport, the Supreme Court held that excepted
matters do not require any further adjudication, since the agreement itself provides a
named adjudicator, and concurrence by the parties to the decision of the named
adjudicator is obviously presumed by reason of unequivocal acceptance of the terms of
the contract of the parties.
Exception can also operate differently. There may be certain clauses in the contract
which empower either the engineer-in-charge or the consultant to take an on-the-spot
decision regarding points of difference between the builder and the employer. Such
clauses also provide a right of appeal to a superior officer within a particular time, and
impose a liability on the officer to give a decision within a stipulated time. The clause
further provides reference of the matter to arbitration, in case one of the parties is not
satisfied with such decision, or if the officer does not render a decision. However, the
provision expressly provides that if none of the parties opt for the choice to refer the
matter to arbitration within the time limit thus prescribed, the decision last rendered shall
be treated as final and binding upon both the parties.
1.3
1.4
2.
IT disputes differ from disputes in other industries mostly in their substance. IT projects tend to
be complex and characterized by a network of responsibilities shared between parties that are
dedicated to carry through a technology-related, long term relationship. Thus, IT disputes
typically center on contractual or intellectual property (IP) law issues.
The Indian Council of Arbitration (ICA), which is now considered to be an apex arbitral
institution in the country, has started the process of identifying and training specialized
arbitrators for disputes connected with the IT industry. In relation to this aspect, the ICA
conducted an in-depth seminar on Alternate Dispute Redressal methods for the IT sector in
Indias major cyber cities like Bangalore and Hyderabad for the purpose of creating an expert
pool of arbitrators specialized in cyber laws.
3.
There is no marked difference in the arbitration practice based upon the size of the industry.
There is a growing recognition that arbitration is becoming a costly affair, which is a departure
from the intent of the 1996 Act. This is particularly true in ad hoc arbitration, where the fees of
the arbitrators are not regulated, but decided by the arbitral tribunal with the consent of the
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parties. Some of the arbitral tribunals, consisting of high profile arbitrators such as retired
Supreme Court and High Court judges, charge high arbitration fees. Further, it is an emerging
trend amongst large corporations involved in high-stake commercial disputesincluding
government undertakingsto hold ad hoc arbitrations in five-star hotels and other costly venues.
Although this cannot be a conclusion that applies to all large corporations, it can reasonably be
argued that only such corporations can afford costly arbitration. Thus, in some cases at least, the
larger the parties, the costlier will be the arbitration. The reason could be that in ad hoc
arbitration, the venues and court fees are decided by arbitrators with the consent of the parties. A
large company is assumed to have better funds for incurring these expenses.
4.
Establishment of fast track arbitrations is a recent trend aimed at achieving timely results,
thereby lowering the costs and difficulties associated with traditional arbitration. Fast track
arbitration is a time-bound arbitration, with stricter rules of procedure, which do not allow any
laxity or scope for extensions of time and the resultant delays, and the reduced span of time
makes it more cost-effective.
Fast track arbitration is required in a number of disputes such as infringement of
patents/trademarks, destruction of evidence, marketing of products in violation of
patent/trademark laws, construction disputes in time-bound projects, licensing contracts, and
franchises where urgent decisions are required.
The 1996 Act has built-in provisions for fast track arbitration. Section 11(2) of the 1996 Act
provides that the parties are free to agree on a procedure for appointing an arbitrator.
Theoretically, under Section 11(6) of the 1996 Act, a party does not have to approach a court for
appointment of an arbitrator, if the agreement provides for a mechanism to deal with the failure
of the other party to appoint the arbitrator. Thus, the parties are given complete autonomy in
choosing the fastest possible method of appointing an arbitrator, and constituting a valid arbitral
tribunal. Section 13(1) confers the freedom on parties to choose the fastest way to challenge an
arbitral award. Section 13(4) expedites arbitral proceedings by providing that if a challenge to an
arbitral proceeding is not successful, the arbitral tribunal shall continue proceedings and pass an
award. Section 23(3) of the 1996 Act enables parties to fix time limits for filing of claims, replies
and counter claims. Section 24(1) also permits the parties to do away with the requirement of an
oral hearing, if they so desire. More importantly,
As a premier Indian organization for institutionalized arbitration, the Indian Council of
Arbitration (ICA) has pioneered the concept of fast track arbitration in India. Under the rules of
the ICA, before commencement of the arbitration proceedings, parties may request the arbitral
tribunal to settle disputes within a fixed timeframe of three to six months or any other time
agreed upon by the parties. The Arbitration and Conciliation (Amendment) Act, 2003, proposes
to introduce a single-member fast track arbitral tribunal, wherein filing of pleadings and evidence
will be on fast track basis, so as to pronounce an award within six months, and will also specify
the procedures to be followed by such fast track arbitral tribunals.
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Speedy Justice
Arbitration in India is rampant with delays that hamper the efficient dispensation of dispute
resolution. Though the 1996 Act confers greater autonomy on arbitrators and insulates them from
judicial interference, it does not fix any time period for completion of proceedings. This is a
departure from the 1940 Act, which fixed the time period for completion of arbitration
proceedings. The time frame for completion of the arbitration proceedings was done away with,
on the presumption that the root cause of delays in arbitration is judicial interference, and that
granting greater autonomy to the arbitrators would solve the problem. However, the reality is
quite different. Arbitrators, who are mostly retired judges, usually treat the arbitration
proceedings in the same manner as traditional litigations, and are willing to give long and
frequent adjournments, as and when sought by the parties.
Although the scope of judicial intervention under the 1996 Act has been curtailed to a great
extent, courts through judicial interpretation, have widened the scope of judicial review, resulting
in the admission of large number of cases that ought to be dismissed at the first instance.
Moreover, the parties usually approach arbitration with a similar mindset as for litigation, with
the result that awards invariably end up in courts, increasing the timeframe for resolution of the
disputes. Parties also abuse the existing provision that allows automatic stay of the execution of
the awards on mere filing of an application for challenge of the awards. So, the objective of
arbitration as a mechanism for speedy resolution of disputes gets obstructed due to obtrusive
delays.
B.
Cost-Effectiveness
Arbitration is generally considered cheaper over traditional litigation, and is one of the reasons
for parties to resort to it. However, the ground realities show that arbitration in India, particularly
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ad hoc arbitration, is becoming quite expensive vis--vis traditional litigation. A cost analysis on
arbitration vis--vis litigation will throw light on the higher cost of arbitration over litigation.
This is a crucial factor which weighs against developing a cost-effective quality arbitration
practice in India. The following paragraphs analyze the cost of arbitration and litigation.
1.
Arbitration costs incurred by the parties may include the arbitrators fees, rent for arbitration
venues, administrative/clerical expenses, and professional fees for the representatives of the
parties (which may include lawyers and expert witnesses). The sum of these fees may differ
significantly between ad hoc and institutional arbitrations. There is no regulated fee structure for
arbitrators in an ad hoc arbitration. The arbitrators fees are decided by the arbitrator with the
consent of the parties. The fee varies approximately from INR 1000.00 to INR 50,000.00 per
hearing for an arbitrator, depending upon the professional standing of the arbitrator and the size
of the claim. The number of hearings required and the cost of the arbitral venue vary widely.
In contrast, most institutional arbitration bodies in India, such as the Indian Council of
Arbitration (ICA) or the Construction Industry Arbitration Council (CIAC), have their own
schedules for arbitrators fees and administrative fees, based on claim amounts. They also charge
a nominal non-refundable registration fee on the basis of the claim amount. For example, the
ICAs arbitrators fees vary from INR 30,000.00 to INR 315,000.00 for claim amounts upto INR
10,000,000.00, while administrative fees vary from INR 15,000.00 to INR 160,000.00 for claim
amounts upto INR 10,000,000.00. For the CIAC, the arbitrators fees varies from INR 5,000.00
to INR 260,000.00 per arbitrator for claim amounts upto INR 100,000,000.00, and administrative
fees varies from INR 2,750.00 to INR 62,000.00 for claim amounts upto INR 100,000,000.00.
2.
The cost involved in court proceedings is limited to lawyers fees and court fees, which are
calculated ad valorem on the claim amount or the value of the suit. In case of writ petitions or
first appeals, court fees are fixed and are very nominal. High Courts across India have their own
schedule, which fixes the rates for court fees. In case of suits, court fees do not generally exceed
ten per cent of the claim amount of the suit. The only recurring expenditure involved is the
professional fees paid to the lawyers. Lawyers are generally paid on a per appearance basis. In
addition, separate fees may be charged for drafting of the suits, plaints/petitions, counter
affidavits/written statements and interim applications. There is a great variation in the
professional fees of the lawyers depending upon the seniority and reputation of the lawyer, the
stakes involved, the hierarchy of the competent court deciding the case and the location of the
concerned court. It may vary from a meager INR 500.00 per appearance before a district court in
a small town to INR 200000.00 per appearance by senior advocates in the Supreme Court of
India.
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3.
D. Enforcement of Awards
One of the factors for determining arbitration as an effective legal institution is the efficiency and
efficacy of its award enforcement regime. Under Section 36 of the 1996 Act, an arbitral award is
enforceable as a decree of the court, and could be executed like a decree in a suit under the
provisions of the Civil Procedure Code, 1908.
An award resulting from an international commercial arbitration is enforced according to the
international treaties and conventions, which stipulate the recognition and enforcement of arbitral
awards. Enforcement of foreign awards in India is governed by the 1958 New York Convention and
the 1927 Geneva Convention, which are incorporated in Chapter II, Part I and Part II, respectively, in
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the 1996 Act. The provisions of enforcement are the same under the 1940 Act and the 1996 Act. Any
party interested in foreign awards must apply in
writing to a court having jurisdiction over the subject matter of the award. The decree holder
must file the award, the agreement on which it is based and evidence to establish that the award
comes under the category of foreign award under the 1996 Act.
The rate of enforcement of arbitral awards is high. Under the 1996 Act, the Supreme Court of
India declined to enforce or recognize awards in only two out of twenty four cases relating to
enforcement of arbitral awards (Section 36 of the 1996 Act) that came before it. Both cases
involved Indian parties and Indian law.
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Any other reliefs as the court may in its discretion may deem proper considering the
Comparison of Interim relief provisions in the Old Act and New act:
Under the Arbitration Ac t , 1940,a party could commence e proceedings in a Court by moving
an application under Section 20 for appointment of an arbitrator and simultaneously it
could move an application for interim relief under the Second Schedule read with
Section 41(b) of the old Act . Under the New Ac t 1996, Section 9 empowers the
court to order a party to take interim measure e or protection when an application is made.
Besides this Section 17 gives power to the Arbitral Tribunal to order interim measure
unless the agreement prohibits such power .
15
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disputes by arbitration would stand frustrated. A party should always be discouraged to knock
the door of the Court particularly when the arbitrator is seized of all the relevant or even
ancillary disputes.
Judicial Precedents:
Let us now refer to some important judgments for understanding the effectiveness or limited
effectiveness of Section 17.
No power to Arbitral tribunal to enforce its orders u/s17
Supreme court of Indi a in the case of M D Arm y WHO Vs Sumangal services (P)
Lt d6 observed that even under S. 17 of the 1996 Act the power of the Arbitrator is
a limited one. It cannot issue any direction which would go beyond the reference or t he
arbitration agreement . Even under S. 17 of 1996 Ac t , an interim order must relate
to the protection of subject - matter of dispute and the order may be addressed only to a party
to the arbitration. It cannot be addressed to other parties. Even under S. 17 of the
1996 Act , no power is conferred upon the Arbitral Tribunal to enforce its order nor
does it provide for judicial enforcement thereof .
5
6
17
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CONCLUSION
It is submitted that lacunas in the provisions of interim measures should be set right by
legislative initiation. Six years have passed but the Amendment Bill, 2003 has not been made
into law because the Legislature feels that there are many other important issues like
enforcement of interim orders and Costs of proceedings which need to be taken care of before
making these Amendments to Ss.9 & 17.
The system of dual agency for providing relief needs to be abolished or otherwise some
enforcement mechanism be provided for enforcement of the interim measures of protections
ordered by the Arbitral Tribunal. It would be better that application of interim measures is put to
the Arbitral Tribunals as they are seized of the subject matter under dispute. Only when a party is
not able to get relief from the Arbitral Tribunal, it should be allowed to knock the doors of the
Court. This will be in line with the objectives of the Act to minimise the intervention of the
Court in arbitral proceedings.
One aspect in all the statutes /rules is common: they follow the policy of minimal role to be
played by Courts. Thus, one of the ways by which courts may determine whether they are
required to interfere in granting an interim measure is by keeping in mind the powers exercisable
by the Tribunal, thereby ascertaining whether in a given case the interim relief claimed by the
applicant can be granted by the Arbitral Tribunal. If held in the affirmative, the next question
they would be required to answer is whether the said relief can be granted quickly and effectively
as the situation demands and herein unless the applicant is able to demonstrate that the delay will
cause irreparable hardship or injury, in which case the court may intervene in order to meet the
ends of justice, the court should, in all other circumstances, refrain from interfering and direct the
parties to seek relief from the Arbitrators.
While drafting arbitration clause, one should keep in mind whether the arbitral tribunal
should be given the power to grant interim relief or not . If arbitration clause provides
for such power to arbitral Tribunal , then one need not approach the court for such relief .
But there exists a doubt about its enforceability, if it is not complied with by the
party. Courts can be approached only if interim relief as prayed is refused u/s 37(2)b) but
not for enforcing the interim relief granted by the arbitrator . It is high time that Law
makers should amend the Act to make interim award enforceable like that of Final award.
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