A structured Approach to Dispute Settlement through Arbitration Proceedings and the Paradox of Arbitral Award

Sunanda Malakar,

Campus Law Centre, Delhi University

INTRODUCTION –

Arbitration is one of the dispute resolution tools of Alternative Dispute Resolution that leaves the final decision related to the dispute to a third force, known as the Arbitrator whose decision is final and legally binding. Now arbitration may be a better choice for dispute resolution as unlike litigation where dispute resolution takes a protracted period, arbitration provides resolution in a shorter duration and is held in private. In the case of Mediation, also one of the branches of the Alternative Dispute Resolution, the decision is not legally binding but the authority in case of Arbitration enjoys a legally binding status.[i]

 Arbitration is the good-natured mode of resolution where quick and effective decision making along with no issue of breach of Privacy is encountered. Arbitration is mostly used in the case of commercial and contractual dispute resolution, where trade secrets and the business's reputation are held more prestigious in the long term than in profit-making in the short term.

Dispute resolution in cases involving family relations where children are involved may also be resolved without making the children go through a complicated process of formal or traditional resolution through litigation. [ii]

ALTERNATIVE DISPUTE RESOLUTION IN INDIA

The litigation route is often the traditional mode to resolve any dispute but as it is a lengthy process delays are inevitable thus overburdening of judicial system. In these types of cases, ADR such as arbitration, conciliation, mediation, etc. are preferred especially in commercial cases and international trade disputes. These modes come in handy and are substituted over the conventional methods of dispute settlement.[iii]

The Indian Arbitration Act, of 1899[iv] was the foremost formal statute related to arbitration in India, applicable to the presidential system of towns such as Calcutta and Bombay. The Code of Civil Procedure was subsequently adopted in 1908 wherein in the second schedule the mechanism for arbitration was constituted.

The aforementioned statutes gave way to detailed legislation titled the Arbitration Act, of 1940. The 1940 act was predominantly based on the foundations of the English Act of Arbitration of 1934 and continued for almost five decades.

The act of 1940 administered the domestic arbitration proceedings but the arbitral award was enforced by the Arbitration (Protocol and Convention) Act, of 1937 [v]for the Geneva Convention Awards and the Foreign Awards (Recognition and Enforcement) Act, 1961 for the New York Convention Awards[vi]. Subsequently, the Arbitration and Conciliation Act, of 1996 was enacted which is now the formal governmental law that administers arbitral proceedings in India.

Limitation to commencement of arbitration

Under Section 43(2) [vii]of the A&C act, it is stated that the time(date) from which the proceedings of arbitration start, the limitation period takes place, that is for the claimant to challenge the clause. Even if the period of limitation is not stated in the agreement, it is deemed to be constituted and no communication or any notice does not have the jurisdiction to defer the pronouncement of the action nor restrict the starting of the limitation period.

In many cases like in commercial disputes, speedy disposal often cannot happen as it takes a significant amount of time but interim relief can be granted to prevent the disruption of the subject matter of dispute. The Arbitration and Conciliation Act can be in case of a period barred by the Limitation Act of 1963 unless explicitly restricted by the act. The proceedings in case of arbitration be barred if they commence after three years of the date of action or representation.

THE STAGES OF ARBITRATION PROCEEDINGS IN INDIA –

In South Delhi Municipal Corporation case[viii] the court held that as per clause 16 of the agreement where the arbitrator was constituted until and unless the chosen arbitrator has to be accepted by both the parties and any dispute regarding the arbitrator has to be decided foremost then the arbitration proceedings will be formally started.

Notice to both the parties -

Under Section 21 of the Act[ix], the arbitration proceedings commence from the engagement of the plea for resolution is referred through arbitration is taken into consideration by the respondent. The parties must reply to the legal notice from the date of the receipt of the representation to the completion of the period.

Appointment of arbitrators

Under Section 10(1) [x]of the A&C Act and as held in the IBC Consultancy case[xi], the parties cannot object to deciding the arbitrators but the only condition is the ratio must be odd, and under Section 10(2) [xii]if the parties are not able to form a consensus in appointing the arbitrators, then Section 10(1) comes into the picture where the tribunal shall have only one arbitrator. Under section 11 [xiii]of the act of 1996, through judicial intervention following a detailed procedure, an arbitrator can be appointed too.[xiv]

Statement of claim

Under section 23[xv] of the A&C act, the parties must submit the relevant facts about the statement of claim, the problems, along the relief. The parties are required to submit the statement of claims of reference with documents of relevant facts and the issues, it also must be noted that the statement of right can be modified with the consent of both parties. Alteration and changes can be done during the arbitral proceedings or if the claim is deemed to be inappropriate.

Preliminary hearing and trade-off of information -

During the preliminary stage, a notice of hearing is sent to the arbitrator so that the date of arbitration can be decided. At the first stage, the preliminary meeting, the claims are discussed, and the informing trade-off is completed. Finally, a date is scheduled where the arbitrator would proceed with a written document named a ‘scheduling order.’ 

Stage of hearing 

The hearing stage is where the statements are put forward to the arbitrator(s) for hearing and in most cases for the arbitration proceedings, physical presence is presumed mandatory unless due to some special circumstances, the proceedings are taken over by video conferencing or over the telephone or prior submission of the written documents or agreements is presented then virtual presence may be granted. After the hearing at this stage is completed, the final submissions are to be produced to the arbitrator(s).

After the final hearing and determination for the final decision is over a separate date is foxed for award issuance. [xvi]

The Paradox – Execution of Award

According to S.17 of the A&C Act, an interim award is granted to the party if they apply for it, then under this, the condition applies that requires that the party submit the claim amid the ongoing arbitration proceedings or any time before the enforcement of the award.

The arbitral award is the significant right of the party for compensation for the damages and after the final award is cited, the catch is that the arbitral award can be challenged through an application that restricts the execution of the award for the time being. The court also has the power -

• Due to the incapability of the party

• When the agreement for dispute resolution through arbitration is deemed to be not valid against the challenged dispute.

• If proper notice is not given to the party for the engagement of the arbitrator.

• If the award is not within the ambit of arbitration.

Under the A&C Act, when the arbitral award has been granted to the party, the enforcement and execution of the award takes 3 months which can also be extended by 30 days, and under section 34 [xvii]of the Act of 1996 can also be challenged. On achieving finality if no objection is raised then following S.36(3) [xviii]of the A&C Act, for the execution of the award, the party has to go to the court which defeats the purpose of Alternative Dispute Resolution as the party has to inevitably look towards the court for the enforcement of the award.

The paradox is that there is no limitation period for the enforcement and execution of the settlement(award) under the Act of 1996 which in a way overturns the whole purpose of justice in terms of compensation for the infringement of the rights of the parties. The maximum time limit for arbitration is 18 months for finalizing and announcement of the final decision.

The purpose of providing justice promptly gets defeated by the enormous delays in the execution of the arbitral award.[xix]

Conclusion -

Arbitration is a significant way of resolving disputes in a short period with no breach of privacy but the execution of the arbitral award is what causes a hurdle in its speedy disposal. The Arbitration process was enacted to provide resolution to the procedural roadblocks in the litigation proceedings that create a hurdle in ensuring justice swiftly but the delays in the arbitration process especially the post-award stage an anathema and has to be seriously overhauled to execute the whole process in a time-bound manner and to avoid the adjudication courts.

The delays can be restricted by announcing a limitation period in the execution of the award or by displaying a provisional enforcement of the award with condition to the outcome. The Government of India in its recent decisions announced that it has established a committee for reforms in the A&C Act which may answer the paradox of arbitral award execution and change the landscape of Alternative Dispute Resolution in India.

References -

[i] Giambrone Law, https://www.giambronelaw.com/site/advice/dispute-resolution/family-disputes/using-arbitration-dispute-resolution/ (last visited August 6, 2024).

[ii] Id at 1

[iii] arbitration-and-mediation, 1, https://legalaffairs.gov.in/sites/default/files/arbitration-and-mediation_0.pdf

[iv] Indian Arbitration Act, 1899, No. IX, Acts of Parliament, 1899, (India)

[v] Arbitration (Protocol and Convention) Act, 1937, No. 6, Acts of Parliament,1937\1342, (India)

[vi] Id at 3

[vii] Arbitration and Conciliation Act, 1996 § 43(2), No. 26, Acts of Parliament, 1996, (India)

[viii] South Delhi Municipal Corporation vs. Sms AamwTollways Pvt. Ltd, Appeal (Civil), 11249 of 2018

[ix] Arbitration and Conciliation Act, 1996 § 21, No. 26, Acts of Parliament, 1996, (India)

[x] Arbitration and Conciliation Act,1996 § 10(1) No. 26, Acts of Parliament, 1996, (India)

[xi] IBI Consultancy India Pvt. Ltd. vs. DSC Limited aironline 2018   SC 24

[xii] Arbitration and Conciliation Act, 1996 § 10(2), No. 26, Acts of Parliament, 1996, (India)

[xiii] Arbitration and Conciliation Act, 1996 § 11, No. 26, Acts of Parliament, 1996, (India)

[xiv] Mohd Sarim Khan, Arbitration procedure under the Arbitration and Conciliation Act, IPleaders, (August 6, 2024, 8:45 PM) https://blog.ipleaders.in/arbitral-process/#Stages_of_the_arbitral_procedure

[xv] [xv] Arbitration and Conciliation Act,1996 § 23 No. 26, Acts of Parliament, 1996, (India)

[xvi] Id at 5

[xvii] Arbitration and Conciliation Act, 1996 § 34, No. 26, Acts of Parliament, 1996, (India)

[xviii] Arbitration and Conciliation Act, 1996 § 36(3), No. 26, Acts of Parliament, 1996, (India)

[xix] Neetika Bajaj, Enforcement Of Arbitral Awards In India: The Paradox, Live Law, https://www.livelaw.in/law-firms/law-firm-articles-/arbitral-awards-adr-arbitration-and-conciliation-act-zeus-law-associates-code-of-civil-procedure-233381 (august 6, 2024, 11:23 PM)