CP-401-BUSINESS LAW

ARBITRATION PROCEDURE

By________ Shailendra,
Param Das & Prajna Deb.
1

What is Arbitration ?
o Arbitration is a method of having a dispute between two or more parties resolved by impartial persons who are knowledgeable in the areas in controversy. Those persons are called arbitrators. o Arbitration of broker-dealer disputes has long been used as an alternative to the courts because it is a prompt and inexpensive means of resolving complicated issues. o Most importantly, perhaps, is the fact that an arbitration award is final and binding, subject to review by a court only on a very limited basis.

CP-401-BUSINESS LAW

ARBITRATION AGREEMENT
oMeans 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 or not. [sec.7 (1)] oThe arbitration agreement is ordinarily a clause in a larger contract. oThe dispute may be about the performance of a specific contract, a claim of unfair or illegal treatment in the workplace, a faulty product, among other various issues.
CP-401-BUSINESS LAW 3

Contd
The person who is appointed to determine differences and disputes is called the ARBITRATOR or ARBITRAL TRIBUNAL. The proceedings before arbitrator are called arbitration proceedings. Arbitrators decision is called an AWARD. Arbitral tribunal may consist of a sole arbitrator or a panel of arbitrators. The no. of arbitrators shall not be in even number

PRELIMINARY INFORMATION
o The process of arbitration is governed by the arbitration and conciliation Act, 1996. The act has been bought into force with effect from 25 January, 1996. o The act is broadly based on the model law on arbitration adopted by the United Nations commission on international trade law (UNCITRAL). o It extends to the whole of India: except that certain parts are applicable within the State of Jammu and Kashmir only if they relate to international commercial arbitration.

Types of Arbitration
The Indian Arbitration and Conciliation Act, 1996 applies to both domestic arbitration in India and to international arbitration. Section 2(1)(f) of the Act defines "International Commercial Arbitration" as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India where at least one of the parties is: an individual who is a national of, or habitually resident in any country other than India; or 1. a body corporate which is incorporated in any country other than India; or 2. a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
CP-401-BUSINESS LAW

3. the Government 4. of a foreign country.

Essentials of Arbitration Agreement:

It must be in writing.[sec.7(3)] It must have all the essential elements of a valid contract. It must be to refer a dispute, present or future, between the parties to arbitration. It may be in the form of an arbitration clause in a contract or in the form of a separate agreement.[sec.7(2)]

 Arbitral Tribunal: The arbitral tribunal means a sole arbitrator or a panel of arbitrators. Arbitrator: A person of any nationality who is appointed by the parties themselves by their mutual consent to act as a judge to decide their dispute out of the court is called an arbitrator. The act gives the parties the freedom to fix the number of arbitrators, provided that such number shall not be even number. If they fail to determine the number of arbitrator, the arbitral tribunal shall consist of a sole arbitrator.
CP-401-BUSINESS LAW 8

Composition Of Arbitral Tribunalarbitrators: Any number, as long as it is Number of

an even number, else a single arbitrator may be appointed.

Any nationality unless otherwise agreed by the parties. Impartial and independent. Each party may appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. One or more experts may be appointed to report on specific issues.

CP-401-BUSINESS LAW

Contd
If one party fails to appoint arbitrator within 30 days, or if the two appointed arbitrators fail to agree on the third arbitrator, then the Chief Justice of High Court may appoint any person or institution. Chief Justice of High Court will pay due regard to any qualifications required of the arbitrator by the agreement of the parties and any other considerations required to appoint an independent and impartial arbitrator. In case of International commercial arbitration, CJ will be CJ of India
CP-401-BUSINESS LAW 10

Jurisdiction Of Arbitral Tribunals

o Arbitral tribunal means a sole arbitrator or a panel of arbitrators. o It can rule on its own jurisdiction, i.e. for questions regarding existence or validity of arbitration agreement. So arbitration clause is an agreement that is independent of other terms of contract. o So if A.T. rules that contract is null and void, that does imply invalidity of the arbitration clause.

CP-401-BUSINESS LAW

11

Arbitration Procedure
o Submission of Statements of Claim and Defense o Hearings and written proceedings o Settlement during arbitration o Arbitral Award o Cost of Arbitration o Intervention by Court

CP-401-BUSINESS LAW

12

Advantages of Arbitration
Final, binding decisions Limited right of appeal Speed and economy Flexibility of procedure Confidentiality Neutrality

Disadvantages of Arbitration

If it is based on biased or incompetent arbitrator. Informality of the procedure.

13

CP-401-BUSINESS LAW

Conduct Of Arbitral Proceedings

The parties shall be treated with equality and each party shall be given a full opportunity to present their case. The parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. Failing any agreement, the A. T. may conduct the proceedings in the manner it considers appropriate. It has the power to determine admissibility, relevance, materiality and weight of any evidence

CP-401-BUSINESS LAW

14

Contd
Location may be decided by parties, failing which, decision may be taken by A. T. The arbitral proceedings for a particular dispute shall commence on the date on which a request for arbitration is received by the respondent. Any language/s; failing which A.T. may decide. A.T. may order any documentary evidence to be accompanied by translation.

CP-401-BUSINESS LAW

15

Hearings And Written Proceedings

A.T. may decide whether to conduct oral or written proceedings. Parties shall be given sufficient advance notice of any hearing/meeting of the arbitral tribunal for inspecting documents, goods or other evidence. All statements / documents / applications / other information supplied to the A.T. by one party shall be communicated to the other party. Any expert report or evidentiary document on which the A.T. may rely in making its decision shall be communicated to the parties.
CP-401-BUSINESS LAW 16

Contd
If claimant fails to communicate his claim, A.T. will terminate the proceedings. If the respondent fails to communicate his defense, proceedings will continue, without assuming admission of claim. If a party fails to appear at an oral hearing or to produce documentary evidence, the A.T. may continue the proceedings and make the arbitrat award on the evidence before it.
CP-401-BUSINESS LAW 17

Arbitral Award:
A judgment or final decision of arbitrator on matters referred to him is called the arbitral award. Form And Contents Of Award
o An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. o An arbitral award shall state the reasons upon which it is based unless so agreed by parties. o The arbitral award shall state its date and the place of arbitration.
CP-401-BUSINESS LAW 18

Contd
After the arbitral award is made, a signed copy shall be delivered to each party. The A.T. may, make an interim award on any matter. If arbitral award is for the payment of money, the A.T. may include interest at reasonable rate on whole or part of the sum, for whole or any part of period between cause of action and date of award. If not stated, interest will be 18%p.a. from date of award to date of payment.

CP-401-BUSINESS LAW

19

 Cost of arbitration shall be fixed by A.T. A.T. will specify:

Party entitled to costs Party which will pay costs Amount and method of calculating it Manner in which it shall be paid.

Costs will include:

Legal fees/expenses Fees/expenses of arbitrators/witnesses Fees of the institution supervising the arbitration.