Introduction
Nowadays, Arbitration is the most preferred alternative dispute resolution (hereinafter “ADR”) method over litigation. Whether it is a small supply contract or a big development contract, parties choose to settle their disputes through arbitration either by adding an arbitration clause in the contract or signing a different arbitration agreement. Arbitration has various benefits when it comes to resolving disputes between the parties. This article has been divided into multiple parts. The first part discusses the ADR. The second part covers various aspects of arbitration such as about arbitration, its types and advantages. The third part broadly covers the governing law in India related to arbitration. Lastly, the final part covers the concluding remark.
About ADR
Generally, when a dispute arises between the parties, they prefer to go to court to resolve their disputes. On the other hand, in ADR, the parties can resolve their dispute without going to court. It is a private way to resolve a dispute between the parties. Arbitration, Mediation, Conciliation, Lok Adalat, etc. are some of the types of ADR. ADR is both a cost and time-effective method of dispute resolution over protracted and costly litigation.
About Arbitration
As stated above, Arbitration is a type of ADR. When a dispute arises between the contracting parties, they can submit their dispute to arbitration for resolution of their dispute. In arbitration, the parties submit their disputes to a neutral third party who is appointed by them, to adjudicate their dispute. That neutral third party is called “Arbitrator” or “Arbitral Tribunal”. The decision of the arbitrator or arbitral tribunal is called the “Arbitral Award” and is binding to the parties. Arbitration is a private way to resolve disputes between the parties. Whereas, in litigation the disputes are adjudicated in an open court, on the other hand, in arbitration parties resolve their disputes in a venue decided by them and it is a closed room setup and no one other than the parties and arbitrator has access to the arbitration process.
An arbitration agreement is mandatory to submit disputes to arbitration. Parties can incorporate an arbitration clause or can execute a separate arbitration agreement for submitting their present and future disputes to arbitration. Moreover, parties can include or exclude certain disputes which can be submitted to arbitration. Also, parties can include the number of arbitrators, appointment procedure of arbitrator, and other procedural aspects of arbitration proceedings in the arbitration clause or the agreement. It is pertinent to mention that some disputes cannot be submitted to arbitration, such as matrimonial disputes related to divorce, fraud, bribery,
insolvency cases, etc.
Types of Arbitration
There are various types of arbitration. Broadly, it can be divided into two parts i.e., firstly, based on jurisdiction and secondly, based on procedure. Based on jurisdiction, it can further be divided into various parts, these are discussed below (here the example of India is taken):
a. Domestic Arbitration: In this type of arbitration, the disputes arise in India, the parties to the disputes are Indian and the disputes are resolved as per the substantive and procedural laws of India.
b. International Arbitration: In international arbitration, one of the parties to the dispute must be other than Indian.
c. International Commercial Arbitration: It is a type of international arbitration, where the relation between the parties are commercial in nature under the law.
d. Foreign Seated Arbitration: In this type of arbitration, irrespective of the nationality of the parties, the parties choose a neutral seat for arbitration. For example, two Indian parties can choose a seat of arbitration outside India.
Based on procedure it can further be classified into the following:
a. Ad-hoc Arbitration: In this type of arbitration, all the procedural rules are decided by the parties themselves.
b. Institutional Arbitration: All the procedural rules are decided by the appointed institutions. For example, the Singapore International Arbitration Centre, the Delhi International Arbitration Centre etc.
c. Statutory Arbitration: In statutory arbitration, the parties are referred to arbitration subject to the provision of some statute. For example, the Indian Telegraph Act, 1885, MSMED Act, 2006 etc.
Advantages of Arbitration
Various advantages of arbitration are discussed below:
a. Alternative to Litigation: The main advantage of arbitration is that it is an alternative to
litigation and is a method to resolve disputes outside the court. It is very cost and time-
effective compared to litigation.
b. Privacy: Arbitration is a private way of resolving disputes. No third party can have
access to the proceeding and it ensures the privacy of the proceeding.
c. Party autonomy: In arbitration, the parties not only decide what types of disputes will be
submitted to arbitration but also decide how to conduct the proceeding and governing
law. It reflects the party’s autonomy.
Governing Law in India
Arbitration in India is governed by the Arbitration and Conciliation Act, 1996 (hereinafter “Act”). The Act has two parts. Part I applies to domestic arbitration and Part II applies to foreign seated arbitration.
Conclusion
From the above discussion, we can conclude that parties can consider arbitration for resolving their disputes for its multiple advantages instead of litigation. Though it is an ‘out-of-court’ method of resolving disputes, the Act on Arbitration in India laid down some provisions where the courts or judicial authority can intervene in the arbitration proceedings. By exercising those provisions the courts or judicial authority should aid in the arbitration proceeding.
This article is authored by Diptesh Karmakar, who was the Top 40 scorer in the ADR quiz competition organized by Lets Learn Law.