ARBITRATION

Definition
Under sec 2(1)(a) of THE ARBITRATION AND CONCILIATION Act, 1996 “arbitration” means any
arbitration whether or not administered by permanent arbitral institution;

Introduction
Arbitration , nonjudicial legal technique for resolving disputes by referring them to a neutral party for a
binding decision, or “award.” An arbitrator may consist of a single person or an arbitration board,
usually of three members.

Arbitration is most commonly used in the resolution of commercial disputes and is distinct from
mediation and conciliation, both of which are common in the settlement of labour disputes between
management and labour unions. In mediation, the parties resort to a third person to offer a
recommendation for a settlement or to help them to reach a compromise. Such intervention by a third
party, which also occurs in international disputes between states in the form of diplomatic intervention
and good offices, has no binding force upon the disputants, unlike the arbitrator’s ruling.

What is Arbitration?

At its core, arbitration is a form of dispute resolution. Arbitration is the private determination of a
dispute by an independent third party. An arbitration hearing may involve the use of an individual
arbitrator or a tribunal. A tribunal may consist of any number of arbitrators though some legal systems
insist on an odd number for obvious reasons of wishing to avoid a tie. One and three are the most
common numbers of arbitrators.

The disputing parties hand over their power to decide the dispute to the arbitrator(s). Arbitration is an
alternative to court action (litigation), and generally, just as final and binding (unlike mediation,
negotiation and conciliation which are non-binding).

General principles of arbitration are as follows:

The object of arbitration is to obtain a fair resolution of disputes by an impartial third party without
unnecessary expense or delay.

Parties should be free to agree how their disputes are resolved, subject only to such safeguards as are
necessary in the public interest.

Courts should not interfere.

Arbitrators, or Tribunal members, are commonly appointed by one of three means:

1. Directly by the disputing parties (by mutual agreement, or by each party appointing one arbitrator)

2. By existing tribunal members (For example, each side appoints one arbitrator and then the arbitrators
appoint a third)

3. By an external party (For example, the court or an individual or institution nominated by the parties)

Arbitration, while being nicknamed the ‘businessman’s method of resolving disputes’, is governed by
state and federal law. Most states have provisions in their civil practice rules for arbitration. These
provide a basic template for the arbitration as well as procedures for confirmation of an arbitrator’s
award (the document that gives and explains the decision of an arbitrator), a procedure that gives an
award the force and effect of a judgment after a trial in a court. Many states have adopted the Uniform
Arbitration Act, although some states have specific and individual rules for arbitration.

Classifications Of Arbitration.
1. Commercial Arbitration is the most common of disputes. Just as it sounds, it is a dispute between two
commercial enterprises.

2. Consumer Arbitration surrounds disputes between a consumer and a supplier of goods or services.

3. Labor Arbitration involves the settlement of employment related disputes. This form or arbitration
can be divided into two main categories: Rights Arbitration and Interest Arbitration.

4. Rights Arbitration (a.k.a. Grievance Arbitration) deals with the allegation that an existing collective
agreement has been violated or misinterpreted. Various legislatures require that the parties who enter
into a collective agreement set out a procedure for the handling of disputes and differences. The idea is
that parties should be obliged to meet at different steps in their own specific grievance procedure to
review and discuss the grievance. However, the fact is that the parties themselves cannot resolve many
disputes and for this reason arbitration is necessary so that the matter may be determined. Typical
arbitration awards deal with a complaint that a specific item in collective agreement has been violated.

5. Interest Arbitration (a.k.a. Contract Arbitration) is normally imposed by a statute, and involves
adjudication on the terms and conditions of employment to be contained in a resulting collective
agreement. Since statutes, usually prohibit a legal strike, or lock out, these contract disputes must be
resolved somehow; in this case by interest arbitration. For example, collective bargaining in a new
collective agreement covering a fire force or a hospital may break down into an irresolvable deadlock.
The contractual matters still in dispute between the parties would be put to an interest arbitrator or
tribunal for a ruling and determination, which would then form the relevant provisions of the collective
agreement between the two parties.
The kinds of labor disputes taken to an arbitrator are as many and as different as the wide range of
decisions and actions that effect employers, employees and trade unions. Liability can span from cents
to millions, and there can be a solitary griever or a union of grievers.

It is also worthy to note that some labor disputes employ ‘med/arb’ to resolve their differences as
opposed to straight arbitration. Med/arb takes place when disputants agree from the start that if
mediation fails to result in agreement the mediator, or another neutral third party, will act as arbitrator
and be empowered to reach a binding decision for disputants.

Advantages Of Artbitration
Supporters of arbitration hold that it has a multitude of advantages over court action. The following are
a sample of these advantages.

Choice of Decision Maker – For example, parties can choose a technical person as arbitrator if the
dispute is of a technical nature so that the evidence will be more readily understood.

Efficiency – Arbitration can usually be heard sooner than it takes for court proceedings to be heard. As
well, the arbitration hearing should be shorter in length, and the preparation work less demanding.

Privacy – Arbitration hearings are confidential, private meetings in which the media and members of
the public are not able to attend. As well, final decisions are not published, nor are they directly
accessible. This is particularly useful to the employer who does not want his ‘dirty laundry’ being aired.

Convenience – Hearings are arranged at times and places to suit the parties, arbitrators and witnesses.

Flexibility – The procedures can be segmented, streamlined or simplified, according to the

circumstances.

Finality – There is in general, no right of appeal in arbitration. (Although, the court has limited powers
to set aside or remit an award).

Drawbacks of Arbitration
Having cited the above list of advantages, it is only appropriate to mention some of the most commonly
perceived drawbacks of arbitration.

Cost - One or both of the parties will pay for the arbitrator’s services, while the court system provides
an adjudicator who does not charge a fee. The fees for an arbitrator can be hefty. To give an example,
for an amount of claims up to $100,000, the minimum fee for a single arbitrator is $2,000. The maximum
fee can reach ten percent of the claim. However, supporters of arbitration argue that this should be
more than compensated for by the potential for the increase in the efficiency of arbitration to reduce
the other costs involved.
‘Splitting the Baby’ – Thomas Crowley states that because of the relaxation of rules of evidence in
arbitration, and the power of the arbitrator to ‘do equity’ (make decisions based on fairness), the
arbitrator may render an award that, rather than granting complete relief to one side, splits the baby by
giving each side part of what they requested. Thus both parties are leave the table feeling that justice
was not served.

No Appeal – Unless there is evidence of outright corruption or fraud, the award is binding and usually
not appealable. Thus if the arbitrator makes a mistake, or is simply an idiot, the losing party usually has
no remedy.

Narcotic/Chilling Effects – The chilling and narcotic effects are two related concepts, which many
theorists, including David Lipsky, believe to be inadequacies of interest arbitration. Chilling occurs when
neither party is willing to compromise during negotiations in anticipation of an arbitrated settlement.
Two measures most commonly used to weigh this effect are: the number of issues settled during
negotiations versus the amount of issues left for arbitration, and a comparison with the management’s
and union’s initial offers (chilling takes place when the two parties take extreme positions and are not
willing to budge). The narcotic effect refers to an increasing dependence of the parties on arbitration,
resulting in a loss of ability to negotiate. Common methods of assessing the narcotic effect are: the
proportion of units going to arbitration over time and, perhaps more importantly, the number of times
an individual unit returns to arbitration over a series of negotiations.

Typical Steps in an Arbitration

The process of arbitration differs among cases. The following is a list of the main steps in arbitration,
however it should not be viewed as an exhaustive list.

Initiating the Arbitration – A request by one party for a dispute to be referred to arbitration.

Appointment of Arbitrator – Arbitrators may be appointed by one of three ways: (1) Directly by the
disputing parties, (2) By existing tribunal members (For example, each, each side appoints one arbitrator
and then the arbitrators appoint a third), (3) By an external party (For example, the court or an
individual or institution nominated by the parties).

Preliminary Meeting – It is a good idea to have a meeting between the arbitrator and the parties, along
with their legal council, to look over the dispute in question and discuss an appropriate process and
timetable.

Statement of Claim and Response – The claimant sets out a summary of the matters in dispute and the
remedy sought in a statement of claim. This is needed to inform the respondent of what needs to be
answered. It summarizes the alleged facts, but does not include the evidence through which facts are to
be proved. The statement of response from the respondent is to admit or deny the claims. There may
also be a counterclaim by the respondent, which in turn requires a reply from the claimant. These
statements are called the ‘pleadings’. Their purpose is to identify the issues and avoid surprises.
Discovery and Inspection – These are legal procedures through which the parties investigate
background information. Each party is required to list all relevant documents, which are in their control.
This is called ‘discovery’. Parties then ‘inspect’ the discovered documents and an agreed upon selection
of documents are prepared for the arbitrator.

Interchange of Evidence – The written evidence is exchanged and given to the arbitrator for review
prior to the hearing.

Hearing – The hearing is a meeting in which the arbitrator listens to any oral statements, questioning of
witnesses and can ask for clarification of any information. Both parties are entitled to put forward their
case and be present while the other side states theirs. A hearing may be avoided however, if the issues
can be dealt with entirely from the documents.

Legal Submissions – The lawyers of both parties provide the arbitrator with a summary of their evidence
and applicable laws. These submissions are made either orally at the hearing, or put in writing as soon as
the hearing ends.

Award – The arbitrator considers all the information and makes a decision. An award is written to
summarize the proceedings and give the decisions. The award usually includes the arbitrator’s reasons
for the decision.

Commercial arbitration
Commercial arbitration is a means of settling disputes by referring them to a neutral person, an
arbitrator, selected by the parties for a decision based on the evidence and arguments presented to the
arbitration tribunal. The parties agree in advance that the decision will be accepted as final and binding.

Historically, commercial arbitration was used in resolving controversies between medieval merchants in
fairs and marketplaces in England and on the European continent and in the Mediterranean and Baltic
sea trade. The increased use of commercial arbitration became possible after courts were empowered
to enforce the parties’ agreement to arbitrate. The first such statute was the English Arbitration Act of
1889, which was later consolidated into an act of 1950 and adopted by arbitration statutes in most
countries of the British Common wealth . It was followed in the United States by an arbitration statute
of the state of New York in 1920 and the Federal Arbitration Act of 1925. The latter dealt with the
enforcement in federal courts of arbitration agreements and awards in maritime transactions and those
involving interstate and foreign commerce. Most U.S. states adopted, sometimes with minor changes,
the Uniform Arbitration Act of 1955, as amended in 1956, which had been promoted by the
Commissioners on Uniform State Laws and recommended by the American Bar Association. This act
provided for the judicial enforcement of an agreement to arbitrate existing and future disputes and
thereby made the arbitration agreement no longer revocable, as it had been under common law. It also
provided for the substitution of arbitrators in the event of a party’s failing to select an arbitrator and for
a suspension of any court action instituted in contravention of a voluntary arbitration agreement. The
courts thereby play an important role in implementing arbitration agreements and making judicial
assistance available against a recalcitrant party. This concept of modern arbitration law, which
recognizes the irrevocability of arbitration agreements and the enforceability of awards, also prevails in
the arbitration statutes of nearly all countries.

International commercial arbitration

As per section2(1) (f) of Arbitration and Conciliation Act 1996 “international commercial arbitration”
means an arbitration relating to disputes arising out of legal relationships, whether contractual or not,
considered as commercial under the law in force in India and where at least one of the parties is—

(i) an individual who is a national of, or habitually resident in, any country other than India; or

(ii) a body corporate which is incorporated in any country other than India; or

(iii) a company or an association or a body of individuals whose central management and control is
exercised in any country other than India; or

(iv) the Government of a foreign country;

International commercial arbitration between traders of different countries has long been recognized by
the business community and the legal profession as a suitable means of settling trade controversies out
of court. The procedure in international commercial arbitration is basically the same as in domestic
arbitration. In the mid-1960s, in order to establish more uniformity in procedure and to make access to
arbitration facilities more easily available, the United Nations economic commissions published new
rules applying to international arbitration for Europe and Asia.

The development of international commercial arbitration was furthered by uniform arbitration

legislation prepared by the UN Conference on International Commercial Arbitration in 1958 and by the
Council of Europe and the Inter-American Juridical Committee of the Organization of American States.
One particularly difficult problem of international commercial arbitration is the enforcement of awards
in a country other than the one in which they were rendered. Statutory municipal laws usually do not
contain provisions for the enforcement of foreign awards, and parties are faced with uncertainty about
the law and practice of enforcement procedure in a country other than their own.

International agreements facilitate the enforcement of foreign awards to the extent that no further
action is necessary in the country in which the award was rendered; the opposing debtor must establish
that the award has been set aside or that its effects have been suspended by a competent authority,
which thus shifts the burden of proof of the nonbinding character of the award to the losing party.
Further development of international commercial arbitration has been encouraged by the UN
Commission on International Trade Law, which aims at promoting the harmonization and unification of
laws in the field of international commercial arbitration.
Appointment Of Arbitrator
Section 11 of the Arbitration and Conciliation Act, 1996 deals with the appointment of arbitrators. A
person of any nationality may be appointed arbitrator unless the contrary intention is expressed by the
parties. The parties are free to agree on a procedure for appointment of arbitrator or arbitrators. Where
parties fail to appoint three arbitrators, each party shall appoint one arbitrator and the two arbitrators
shall appoint the third arbitrator. Hence, appointing three arbitrators is mandatory, with the third one
being the presiding arbitrator.

Where a party fails to appoint an arbitrator in accordance with the third arbitrator with the within thirty
days from the date of receipts of a request to do so from the other party or two appointed arbitrators
fail to agree on the third arbitrator within 30 days from the date of their appointment, the appointment
shall be made, upon a request of a party, by the Chief Justice of the High Court or any person or
institution designated by him.

In the absence of any procedure to appoint a sole arbitrator, if the parties fail to agree on the arbitrator
within 30 days from receipt on a request by one party from the other party to so agree, the
appointment shall be made upon request of a party, by the Chief Justice of the High Court or any person
or institution designated by him.

Where under an appointment procedure agreed upon by the parties:

A) a party fails to act as required under that procedure; or,

B)the parties or two appointed arbitrators fail to reach an agreement as required under that procedure,
or

C)a person including an institution fails to perform any function as required under that procedure, a
party may request the Chief Justice of the High Court or any person or institution designated by him to
take the necessary measures in absence of an agreement for other means of securing the appointment.

The decision of the Chief Justice of the High Court or the person or the institution designated by him in
appointing an arbitrator shall be final.

In such appointment, two considerations are to be made:

D)Required qualifications of the arbitrator as provided in the agreement of the parties, and

E)independent and impartial person as an arbitrator.

These are the circumstances under which the Chief Justice of a High Court can make an appointment.

In case of appointment of a sole or third arbitrator in international commercial arbitration, the

appointing authority is the Chief Justice of India or a person or institution designated by him.
Important case laws:
In Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss S. Gem Mfg. Co. Ltd., it has been held that no
retired High Court Judge can be appointed as an arbitrator by the court when the arbitration clause
states categorically that the difference/dispute shall be referred to an arbitrator by the Chairman and
Managing Director of IPDL who is the appellant in this case.

In National Aluminium Co.Ltd v. Metalimpex Ltd., a Bangladeshi company failed to nominate its
arbitrator in terms of the arbitration agreement on an application under S.11 of the Arbitration and
Conciliation Act, 1996, the Chief Justice of India nominated an arbitrator to act on behalf of the
Bangladeshi company.

Procedure for the appointment:

Section 11 only confers power on the High Court to appoint an arbitrator or presiding arbitrator only
when the following conditions are fulfilled:

F)where there is a valid arbitration agreement;

G)the agreement contains for the appointment of one or more arbitrators;

H)the appointment of the arbitrator is to be made by mutual consent of all the parties to the dispute.

I)differences have arisen between the parties to the arbitration agreement; or between the appointed
arbitrators;

J)the differences are on the appointment or appointments of arbitrators.

Appointment of a third arbitrator by the court in case of disagreement between two arbitrators:

In ICICI Ltd. v. East Coast Boat Builders & Engineers Ltd., two arbitrators were appointed by respective
parties, but they did not agree on the name of the third arbitrator. The petitioner made an application
for appointment of the third arbitrator by the court under s.11 of the Act. The court accepted the prayer
and appointed the third arbitrator.

Lack of jurisdiction to appoint the arbitrator:

In Kanagarani Durairaj v. Dwaragan, it was held that:

in absence of a delegation of power by the Chief Justice of High Court under sec 11 of the Act, the City
Civil Court has no jurisdiction to appoint an arbitrator under s.11 of the court.

The disagreement between arbitrators:

If there is any disagreement between the arbitrators, there is no award and the jurisdiction of the
presiding arbitrator can be invoked. In the absence of any contrary provision in the arbitration
agreement, the presiding arbitrator can adjudicate the whole case if the arbitrators disagree on any
particular point, as held in Probodh v. Union of India.

Appointment of Presiding Officer (Umpire)

The question for the appointment of Presiding Officer arises only when there is a conflict of opinion
between an even number of arbitrators. Appointment of the third arbitrator may be made in any one of
the two following cases:

K)By the parties themselves at the time of submission, and

L)by the arbitrators.

Appointment of the sole arbitrator:

Where a sole arbitrator is appointed, it must be notified to the other side, otherwise, his appointment
cannot be considered valid.

Appointment of presiding arbitrator:

As soon as the arbitrators accept their appointments and communicate with each other the reference,
they are presumed to have entered upon the reference. When one of the arbitrators refuses to act or
concur on the appointment of a third arbitrator, there is a disagreement and in such as case, the Chief
Justice of the High Court is competent to make the appointment of the presiding arbitrator.

Decisions
There is an important distinction between an arbitral award and other decisions made by an arbitral
tribunal during the course of an arbitration. A decision that has the status of an award can be challenged
or appealed to a national court and can be enforced under the relevant international conventions. In
contrast, a decision that has the status of a procedural order cannot.

Given the significance of the distinction, it’s perhaps surprising that there is no internationally accepted
definition of the term “award”.

Arbitration laws and institutional rules may prescribe the formal requirements for an award (for
example, requiring the decision to be in writing, to contain reasons, to be dated and signed by the
tribunal), but they do not address the substantive requirements of an award.

One point that is generally accepted is that the term “award” should be reserved for decisions that
finally determine a substantive issue, as opposed to decisions made in relation to procedural or
evidential matters.
However, it’s not always easy to draw that distinction, particularly in cases where the decision relates to
a procedural or evidential issue that may have a determinative effect of the outcome of the dispute; for
example, a decision on a strike out application or on a point of procedure that has jurisdictional aspects.

The recent decision in K v S highlights the problems that can arise and illustrates the English courts
approach the question of what constitutes an award.

Execution
Execution under the Code of Civil Procedure, 1908

An overview of the provisions for execution and requirement for transfer of a Decree from a Court to
another for execution under the Code of Civil Procedure, 1908 (hereinafter referred to as 'Code'), is
being dealt summarily here.

Order XXI of the Code of Civil Procedure, 1908, provides detailed provisions for making an application
for execution of a Decree and the manner by which such applications will be entertained, dealt with and
decided. Section 38 of the Code contemplates that a Decree may be executed either by the Court which
passed it or by the Court to which it is sent for execution. Section 37 defines the expression 'Court which
passed a decree' and Section 39 provides for the transfer of a Decree for execution by the Court which
passed it to another Court of competent jurisdiction and the conditions for such transfer. Sections 40 to
45 provide the conditions of transfer to another State, the powers of executing Court and for execution
of Decrees passed in reciprocating territories. Section 46 provides for issuance of precepts by the Court
which passed a decree to another Court for execution. However, in most cases, the Court which passed
the Decree or Order is the executing Court.

Execution under Arbitration Act , 1940

As Per Section 17 of the Arbitration Act 1940, the person in whose favor an Award was passed, had to
approach the competent Civil Court to get judgment being passed in terms of the award before he could
execute the decree drawn as per the judgment. The original award had to be filed in Court under Section
14(2) of the 1940 Act and the Court was obliged to issue notice to the parties about the same.
Thereafter, the Court was empowered to modify or correct the award, in terms of the provisions of
Section 15. The Court also had the power to remit the Award under Section 16 of the 1940 Act. If the
Court saw no reason to remit the award or to set aside the award for any of the reasons provided in the
Act of 1940, the Court would pronounce a judgment under Section 17. A decree would follow
pronouncement of such judgment under Section 17. Thus, only the decree passed in terms judgment
pronounced under Section 17 and it was executable. This decree would be executed in terms of the
provisions of the Code.

Execution under the Arbitration and Conciliation Act , 1996

Section 2(1)(e) of the Act defines 'Court' and Section 42 which provides for jurisdiction determines the
Court to which all applications under Part I of the Act are made before, during or after arbitral
proceedings. The Hon'ble Supreme Court34 while interpreting these provisions held that the expression
'with respect to an arbitration agreement' widens the scope of Section 42 to include all matters which
directly or indirectly pertain to an arbitration agreement.

Section 36 of the Act likens an Arbitral Award to a Decree of the Civil Court and therefore provides for it
to straightaway be executed to realize the decretal amount. However, there is no provision in the Act
which likens the Arbitral Tribunal to a Court which passed the Decree. There is also no provision for an
Arbitral Tribunal to execute its own Award. Inevitably, the Decree has to be brought for execution
before an executing Court. As per the Code, a decree can be executed by the Court which passes the
decree or where the Judgment Debtor is residing or carrying on business or having immovable property.
However, the Act of 1996 is special law which prevails over the general provisions of the Code35.

In view of this, a doubt is raised as to whether an Award can be executed under Section 36 of the Act in
any jurisdiction different to the place where the Award has been passed, without requiring such award
to be transferred to the executing Court by the competent Court as per Section 42 .

Conclusion
The concept of assignment in arbitration is based on the principles of transfer of contractual rights.
Assignment can be undertaken during any of the stages and this is beneficial to the parties involved in
arbitration. Assignment may be beneficial in various ways. Prior to the dispute if there is some
acquisition which occurs or the party does not want to further invest in the project then it can assign the
contractual rights (including right to arbitrate to the other parties). During the proceedings, the stressed
companies with no real assets but pending arbitration claims can assign their claim to the party whom
the debt is own. However, all of this will depend on the agreement of the concerned parties.

It is to be noted that Indian courts have held that assignment of claim is not allowed. However,
assignment has been allowed during the arbitral proceedings. This is contradictory, since the pending
arbitration proceeding will be considered as a claim only. The courts or the legislature should address
this issue.

Therefore, Indian courts may have taken the view that assignment in arbitration is permissible.
However, its scope is not clarified and therefore it should be included in the Arbitration and Conciliation
Act, 1996 as well, so that the unaddressed issues can be settled and assignment becomes a right in the
hand of a party having a legitimate claim. Such a statutory recognition will introduce certainty in the
arbitral regime of the country and will help India in its stride to become a hub for international
arbitration.

REFERENCE:

Investopidia.com

legalserviceindia.com
mondaq.com

mediate.com/articles

ASSIGNMENT BY LAXMI S. SANKESHWARI