Frequently asked questions for the Arbitration-Uninitiated

What is “arbitration”?

Arbitration is a means of resolving conflicts between two or more parties outside the traditional litigation/court system. Parties refer their disputes, usually, to an odd-numbered panel of neutrals known as “arbitrators”. The purpose of arbitration is to resolve disputes outside court and avoid unnecessary delay. The mantra of arbitration is “party agreement”.

Who is an arbitrator?

An arbitrator is a neutral third-party, appointed by the parties. They are similar to a judge in a court – they examine the claims, issues and testimony of the aggrieved parties before rendering a decision. They are appointed by the parties themselves in the following ways: (a) by mutual consent, through a pre-determined mechanism agreed by the parties; (b) through statute; (c) by institutions; (d) or by courts. A panel of more than one arbitrator is known as an arbitration tribunal. Any person can be an arbitrator irrespective of his nationality.

What is the function of an arbitrator?

Like a judge in a court, the arbitrator has the final say on resolving the dispute between the parties. They give relief to the parties in the form of “awards”, which may be monetary or permanent injunctions. Awards are capable of being enforced or executed by judges in traditional courts. In most cases, the arbitrator’s ruling has an impact on the court’s final decision. 

Are arbitrators influenced by any of the parties?

Arbitrators are independent, neutral and impartial. They usually do not have any interest in the result of the dispute. Under Section 12 of The (Indian) Arbitration & Conciliation Act, 1996, arbitrators must legally declare in writing about, “any direct or indirect, past or present relationship with the parties, counsel, subject-matter and outcome of arbitration, whether financial, professional, business or any other kind, which is likely to give rise to justifiable doubt as to the independence & impartiality or which would affect his ability to devote sufficient time to the arbitration and his ability to complete the entire arbitration within twelve months.” 

How are arbitrators appointed?

Section 11 of The Arbitration & Conciliation Act, 1996 describes the procedure for appointment of arbitrator(s). Accordingly:

  1. The parties can appoint arbitrator(s) mutually. They are free to determine the number of arbitrators. If the number is one, the parties must mutually consent to the appointment of one individual. If the number is three, each party usually appoints one arbitrator and the two individuals appointed by the parties will then mutually decide on a third arbitrator
  2. The parties can choose an institution to appoint arbitrators for them. Usually, such institutions are statutory or non-profit bodies that have empaneled arbitrators. Some examples of Indian statutory and non-profit institutions are (i) Mumbai Center for International Arbitration; (ii) Delhi International Arbitration Center; (iii) Nani Palkhivala Center for Arbitration; (iv) Reserve Bank of India; and, (v) MSME Facilitation Council.
  3. If the parties or the institution chosen by the parties fail to agree on anything, the appointment is done by (a) the High Court of the state in which the arbitration is supposed to take place; or, (b) the Supreme Court of India (only in arbitrations involving at least one non-Indian party).

What is an Arbitration Agreement?

Typically an arbitration agreement is a clause in a contract under which the parties agree to settle disputes by way of arbitration. But this is not necessary; arbitration agreements can be in the form of letters, emails, facsimiles, SMS, and even WhatsApp or other social media messages. In all these cases, the arbitration agreement must simply state that any disputes between the parties will be resolved by arbitration. In some cases, legislations provide for arbitration between parties to resolve disputes covered by the legislation; section 18 of The Credit Information Companies (Regulation) Act, 2005 and section 18(3) of the Micro, Small & Medium Enterprises Development Act, 2006 are a few examples of legislation that provide for arbitration.

How long does arbitration take?

Arbitrations may take two years or more. Still, it is quicker than litigation.

Can an award be appealed from?

An arbitration award cannot be appealed. However, it can be challenged under section 34 of The Arbitration & Conciliation Act, 1996. After it is rendered, an aggrieved party may file an application in the appropriate court to annul the award. An award can be annulled by the court only on the following grounds:

  1. Incapacity of a party, if it is found that the aggrieved party is a minor or of an unsound mind.
  2. The arbitration agreement being invalid under the law, in the same way and on the same grounds on which the contracts are invalid. If the contract entered into is invalid, it may render the resultant arbitration agreement invalid, but not always.
  3. If the aggrieved party was not given proper notice regarding the appointment of an arbitrator.
  4. If the aggrieved party to the dispute is unable to present their case for any reason (other than its own unwillingness), they can challenge the award.
  5. If the composition of arbitral tribunal was not in accordance with the agreement of parties, the award will be liable to set aside.
  6. All the disputes involving private rights of the parties can be referred to arbitration. But, matters of criminal nature or public rights cannot be decided by arbitration. Therefore, the nature of dispute should be capable of settlement by arbitration. [(2016) 10 SCC 386]
  7. The arbitral award is in conflict with the public policy of India or basic notions of morality or justice. The award can be annulled if it violates (a) the public policy of India; (c) if it is contrary to (i) the fundamental policy of law; (ii) the interests of India; (d) justice or public morality; and, (e) confidentiality and admissibility of provisions of the Act.

Is there a time limit to challenge the award?

Yes. An application for annulling an award must be made before the expiry of three months from the date on which the applicant received the arbitral award. Courts have the power to extend this time limit by 30 days, but no longer, if the applicant shows sufficient cause for delay.

What happens after an award?

Awards are enforced like a court’s judgment. When the time for an application to annul the award has expired under section 34, or the annulment fails, the award can be enforced by the party. Usually, this involves filing a separate application before the court to attach the losing party’s assets and bank accounts. If the losing party does not act in accordance with the award, the attached assets and bank accounts will be auctioned by the court to satisfy the award.

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