By Anup P. Shah | Chartered Accountant
Laws and Business1.
Introduction :
1.1 Arbitration is one of
the oldest dispute resolution systems across the world. Even in India,
arbitration has been in existence from ancient times. Considering the time it
takes in India for a Court case to be resolved, the importance of arbitration
has increased manifold in the last few years. Almost all types of civil disputes
can be subjected to arbitration, such as disputes in relation to joint ventures,
infrastructure projects, concession agreements with the Government, property
matters, etc.
1.2 The Arbitration and
Conciliation Act, 1996 (‘the Act’) totally revamped the law in relation to
arbitrations in India. The Act replaces the Arbitration Act, 1940. Let us
examine the process in relation to an arbitration under the 1996 Act.
1.3 An arbitration means any
arbitration whether or not administered by permanent arbitral institution.
1.4 This Article gives a
bird’s-eye view of some of the important features of ‘arbitration’.
2.
Arbitration Agreement :
2.1 An Arbitration Agreement
means an agreement by the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect of a
defined legal relationship, whether contractual or not. An arbitration agreement
should be in writing and signed by both the parties. There is no prescribed form
for the same. It could also be by way of an exchange of letters, telex,
telegram, etc. The reference in a ‘contract document’ containing an arbitration
clause constitutes an arbitration agreement as that arbitration clause is part
of the contract.
2.2 The Arbitration
Agreement is the starting point by which parties refer disputes to arbitration.
Since it is an agreement, the provisions of the Indian Contract Act, 1872 must
also be borne in mind. Thus, provisions, such as capacity of parties to
contract, agreements opposed to public policy, etc., should be considered.
2.3 Salient features of an
Arbitration Agreement :
(a) The intention for
reference to arbitration must be clear and unambiguous.
(b) It should mention :
(i) the place/venue of
arbitration
(ii) the law which would
be followed
(iii) the procedure for
appointing
arbitrators
(iv) the language in
which the arbitration proceedings will be conducted
Full freedom is accorded to
the parties in selecting the above features. In addition, the agreement may also
lay down the procedure for conducting arbitration proceedings, use of experts,
etc.
2.4 An arbitration agreement
is not discharged by the death of one of the parties and his legal
representatives would step into the shoes of the deceased party.
2.5 The arbitration
agreement may also provide that arbitration would be the only dispute resolution
mechanism and none of the parties will approach any Court for resolving the
dispute.
3.
Arbitrators :
3.1 The parties can decide
on the number of arbitrators to be appointed, provided that the number of
arbitrators is not an even number. Thus, they could be 1, 3, 5, etc. If the
agreement is silent, then the Act provides for a sole arbitrator. Usually, an
arbitral tribunal consist of 3 arbitrators with each party appointing one
arbitrator and the two appointed arbitrators jointly appointing the third
arbitrator, who is known as the presiding arbitrator.
3.2 There is no
specification as to who can be appointed as an arbitrator. However, it is
preferable that he should be a man of commerce, law, or having expertise in the
field of dispute resolution and he should be someone who is perceived to be fair
and impartial to all parties. Usually, advocates, chartered accountants,
chartered engineers, bankers, and retired judges, etc. are appointed as
arbitrators.
3.3 If there is a failure to
appoint arbitrators, then the Chief Justice of the High Court has powers to
appoint an arbitrator under the Act.
3.4 Before accepting
appointment, the arbitrator must disclose to the parties any matters which are
likely to give rise to justifiable doubts about his independence or
impartiality. Similarly, the appointment of an arbitrator may be challenged on
grounds that there are circumstances which give rise to justifiable doubts about
his independence or impartiality. A challenge can also be made on grounds that
he does not possess the qualifications agreed to by the parties.
4.
Procedure of arbitration :
4.1 The arbitration tribunal
is not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act,
1872. The parties are, and failing them the tribunal, is free to determine the
procedure to be followed. In the absence of defined or agreed procedure.
4.2 The arbitral tribunal
would issue notice of hearing to the parties.
4.3 The parties would make their written and/ or oral submissions. The parties must submit their statement of claim and defence. They can also rely on various documents and evidence in support of their claims and defence. They may also rely on and submit expert testimony if so permitted by the tribunal or agreed upon by the parties. The other party may file rebuttal submissions against the expert testimony.
4.4 The arbitrator is bound to observe the principles of natural justice whilst conducting the proceedings. He must give an equal opportunity of being heard to both parties.
4.5 The arbitrator may also prescribe certain deposit for the costs of arbitration which both parties have to pay.
5. Award:
5.1 The award shall be in writing, state its date and place of making. It must be signed by the arbitrator.
5.2 The reasons on the basis of which award was passed, shall be recorded unless the parties agree otherwise. The sum awarded may include ‘interest’ if the claimant is entitled to interest either under the agreement or the arbitration agreement.
5.3 It must provide for the costs and which party would bear them. Costs would include costs relating to fees and expenses of the arbitrators and witnesses, legal fees, administration and other costs in connection with the arbitration proceedings.
5.4 A signed copy of the award must be delivered to each party. Within 30 days from the receipt of an award by a party, the party may request the arbitration tribunal to correct any errors in the award.
5.5 The arbitrator can also make an interim arbitral award.
5.6 The award is final and binding on the parties and it can be enforced under the Code of Civil Procedure, 1908 in the same manner as if it is a decree of the Court. However, this is subject to award not being be challenged and set aside by the Court.
6. Setting aside of an award:
6.1 The Court would set aside an award in the following cases:
a. The party was under some incapacity.
b. The arbitration agreement is invalid.
c. The party was not given proper notice of hearing or was unable to present its case.
d. The award deals with a dispute not contemplated by the agreement or contains matters beyond the scope of the agreement.
e. The award is in conflict with the public policy.
f. The composition of arbitral tribunal was not in accordance with the arbitration agreement.
6.2 An application for setting aside the award may be made to the Court u/s.34 of the Act. It must be made within 3 months from the receipt of the award. The Court may grant an additional 30 days in some circumstances.
7. Role of CAs:
7.1 CAs can play a very important role in arbitration proceedings of their clients. They can make submissions on behalf of their clients or appear as an expert and give testimony on subjects, such as valuation, accounting, etc., or can even preside as an arbitrator. They can get empanelled with Chambers of Commerce, such as IMC, CII, etc., as arbitrators. Considering the slow pace of court litigation, CAs should advise their clients to strongly consider arbitration as a dispute resolution mechanism. They could also advise the clients whilst reviewing contracts during the course of audit to have an ‘arbitration agreement’ unless an arbitration clause is already included in the contract.
