Understanding Arbitration


Arbitration is a form of alternative dispute resolution where a neutral third party, the arbitrator, is appointed to resolve a dispute between two or more parties. The arbitrator's decision, known as an arbitral award, is typically final and binding and can be enforced in accordance with the governing law or arbitration agreement. Arbitration is often used as a faster and more cost-effective alternative to traditional court proceedings.


Arbitration Clause

An arbitration clause or agreement is mandatory to submit any dispute between private entities to arbitration. Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement. This agreement shall arise between a defined legal relationship whether contractual or not, in writing and a very clear reference to arbitration has been made. Such agreement has to be signed by the parties, communicated in a manner which can provide a record and not denied by either party. 

An arbitration agreement shall explicitly refer to arbitration. If more than one dispute resolution mechanism is applicable then that should be mentioned in the clause. For example, all disputes arising shall be referred to mediation and if the parties fail to settle under mediation, then the termination or breach of contract shall be resolved by arbitration. 

The parties shall also decide between institutional, ad-hoc or online dispute resolution which shall govern procedural rules of arbitrations. Usually, to avoid any further disagreements, the process of selecting, qualifying and number of arbitrators shall be decided before any disputes arise. The mode of hearing can be oral or written which can be explicitly mentioned in the clause. The language, seat and venue of the arbitration are also mentioned in the arbitration clause. 

An exact time can also be provided stating that the awards shall be passed within 100 days of the appointment of the sole arbitrator. The arbitration clause can also specify costs and other fees of arbitration. 

Arbitration Proceedings 

  1. Notice of Arbitration- When any party chooses to invoke arbitration, she or he must show the existence of a dispute. If an arbitrator is not nominated in the arbitration clause, then the same can be done in the notice of arbitration. Any arbitrator with his details can be mentioned in the notice of arbitration. Also, the party sending notice of arbitration may ask the other party to nominate an arbitrator. 
  2. Reply to notice of Arbitration- The expected date of reply to the notice of arbitration is usually mentioned in the notice of arbitration. If the party chooses to approach the court instead of replying to the notice of arbitration, then a Section 8 application can be filed before the High Court by the other party. If an arbitration agreement is already in place to resolve disputes, then no party shall approach the judicial authority. 
  3. Interim Measures-
  • Petition for appointment of Arbitration- A petition for appointment of arbitration is a formal request made to a court or other authorized body to appoint an arbitrator to resolve a dispute. The petition typically outlines the nature of the dispute and provides supporting evidence. The appointment of an arbitrator is usually done in accordance with the terms of an arbitration agreement or a relevant statute. Once appointed, the arbitrator will conduct the arbitration proceedings and issue a binding decision.
  • Cost of Arbitration - The 2015 amendment brought several changes. Fourth Schedule and Section 31A were inserted in the Arbitration and Conciliation Act, 1996 by the 2015 amendment act to regularise the fees of arbitration. Usually, the unsuccessful party pays for the arbitration fees but after the addition of Section 31A, the power to decide this has been allotted to the Arbitral Tribunal. 
  • Submissions- Submissions for arbitration refer to the evidence and arguments presented by each party during the arbitration proceedings. These submissions can include witness statements, expert reports, legal briefs, and other relevant documents. The purpose of the submissions is to persuade the arbitrator to rule in favour of the party making the submission. The arbitrator will consider all the submissions and issue a final decision.
  • Statement of Claims- A statement of claims is a document filed by a party in an arbitration proceeding that outlines the legal and factual basis for their claims. It typically includes a description of the dispute, the relief being sought, and the legal and factual arguments supporting the claim. The statement of claims is an important document that sets out the initial position of the claimant and helps to guide the proceedings.
  • Statement of Defence- A statement of defence is a response to a statement of claims filed by the opposing party in an arbitration proceeding. It outlines the respondent's position on the disputed issues and presents the legal and factual arguments in support of their defense. The statement of defense is an important document that sets out the respondent's case and helps to guide the proceedings.
  • Counterclaim- A counterclaim in arbitration is a claim made by the respondent against the claimant in response to the original claim. It is a separate claim that arises from the same underlying dispute and is brought within the same arbitration proceeding. The counterclaim typically sets out the respondent's version of the events and seeks relief or damages against the claimant. The arbitrator will consider the counterclaim along with the original claim and issue a final decision on both.
  • Evidence- Evidence in arbitration consists of the information and materials presented by the parties to support their respective claims or defenses. This evidence may include documents, witness testimony, expert reports, and other forms of proof that are relevant to the issues in dispute.
  • Arbitral Awards- Arbitral awards are the final decisions or judgments issued by the arbitrator or arbitration panel at the conclusion of an arbitration proceeding. The award is a legally binding and enforceable decision that determines the rights and obligations of the parties involved in the dispute. The arbitrator's award may include the resolution of all disputed issues and can also provide for the payment of damages, costs, or other remedies as appropriate. The award is typically final and binding, subject to limited grounds for challenge or appeal in accordance with the governing law or arbitration agreement.
  • Execution- Execution in arbitration refers to the process of enforcing the final and binding arbitral award issued by the arbitrator. This may involve seeking a court judgment to enforce the award or working with relevant authorities to ensure compliance with the award. The execution process may involve seizing assets, garnishing wages, or taking other measures to enforce the award. The enforceability of an arbitral award will depend on the governing law and the party's arbitration agreement.
  • Challenge of Arbitral Awards-  A challenge of an arbitral award is a legal action that seeks to challenge the validity or enforceability of the award. The grounds for challenge are typically limited and may include procedural irregularities, lack of jurisdiction, or corruption on the part of the arbitrator. The challenge is usually made in a court of law, which will review the award and the grounds for challenge before upholding or setting aside the award.
  • Appeals- Appeals in arbitration are generally limited due to the finality and binding nature of arbitral awards. Parties may agree to allow for a limited right of appeal or may have the option of appealing to a higher court on specific grounds, such as procedural irregularity or lack of jurisdiction. However, such appeals are typically subject to strict timelines and procedural requirements, and the scope of review may be limited. The availability and procedures for appeals may vary depending on the governing law and the parties' arbitration agreement.