Discuss the conduct of Arbitral proceedings under the Arbitration and conciliation act, 1996

Abstract:

“Discuss the conduct of Arbitral proceedings under the Arbitration and conciliation act, 1996”

Arbitration is the current flavour of the legal and corporate world. And it does come in various flavours, one has domestic arbitration, institutional arbitration, ad hoc arbitration, international arbitration, forced arbitration, sole arbitrator arbitration, three member arbitration, named arbitration and arbitration by an expert, current employee, retired judge or as per mutual understanding.

What started as an alternate to complex court proceedings dominated by complex legal language and pitfalls, became the favoured child in the tri-family of alternate dispute resolution mechanism, the other two being mediation and conciliation has now grown up to encompass various countries, legal processes, territorial jurisdictions and trans national laws and become even more complex and complicated than law of any nation could ever aspire to be. Hence, this paper tries to show how the proceedings of such arbitrations takes place, according to the Arbitration and conciliation act, 1996.

Abbreviations

ADR- alternative dispute resolution

What is Arbitration?

Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), by whose decision (the “award”) they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.[1] Other forms of ADR include mediation[2] (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause.

The Terms and Wording of the Arbitration Clause

The clauses should be specific

Arbitration agreements must be in writing in virtue of most arbitration statutes. Proof of the terms of the agreement would otherwise be extremely difficult if not impossible.

Sources of law

States regulate arbitration through a variety of laws. The main body of law applicable to arbitration is normally contained either in the national Private International Law Act (as is the case in Switzerland) or in a separate law on arbitration (as is the case in England). In addition to this, a number of national procedural laws may also contain provisions relating to arbitration.

By far the most important international instrument on arbitration law is the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Some other relevant international instruments are:

§ The Geneva Protocol of 1923

§ The Geneva Convention of 1927

§ The European Convention of 1961

§ The Washington Convention of 1965 (governing settlement of international investment disputes)

§ The UNCITRAL Model Law (providing a model for a national law of arbitration)

§ The UNCITRAL Arbitration Rules (providing a set of rules for an ad hoc arbitration)

Who decides – the arbitrator or the court?

In the United States, the loss of the right to arbitrate because of a time bar has been held to be a procedural rather than a substantive matter, and thus, under federal law, it is the arbitrator, not the court, who must decide the issue of timeliness.[3]

In the United Kingdom, Lord Diplock in The Morviken,after drawing a distinction between jurisdiction clauses and arbitration clauses, indicated that the arbitrator must determine the proper law of the contract and apply that proper law to the interpretation of the arbitration clause. He hinted, however, that if the arbitrator, by relying on a choice of law clause, rendered the arbitration clause null and void under the law of the place where the contract was made, then the arbitrator would have to treat the choice of law clause as null and void. In other words, the arbitrator’s discretion not to apply The Hague/Visby Rules, and specifically art. 3(6), would seem to be very narrow.

In India, the Arbitration and Conciliation Act 1996, has been passed to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral award and also to define law relating to conciliation and for matters connected therewith or incidental thereto. In this Act, conciliation has been introduced for the first time in India for settlement of commercial disputes.

What is Conciliation?

The terms conciliation and mediation are interchangeable in the Indian context. Conciliation is a voluntary process whereby the conciliator, a trained and qualified neutral, facilitates negotiations between disputing parties and assists them in understanding their conflicts at issue and their interests in order to arrive at a mutually acceptable agreement. Conciliation involves discussions among the parties and the conciliator with an aim to explore sustainable and equitable resolutions by targeting the existent issues involved in the dispute and creating options for a settlement that are acceptable to all parties. Parties may submit statements to the conciliator describing the general nature of the dispute and the points at issue. Each party sends a copy of the statement to the other. The conciliator may request further details, may ask to meet the parties, or communicate with the parties orally or in writing. Parties may even submit suggestions for the settlement of the dispute to the conciliator.

The conciliator does not decide for the parties, but strives to support them in generating options in order to find a solution that is compatible to both parties. The process is risk free and not binding on the parties till they arrive at and sign the agreement. When elements of settlement exist, he may draw up the terms of settlement and send it to the parties for their acceptance. If both the parties sign the settlement document, it shall be final and binding on both. Once a solution is reached between the disputing parties before a conciliator, the agreement had the effect of an arbitration award and is legally tenable in any court in the country.

Conduct of arbitration proceedings

The Arbitration and Conciliation Act, 1996 is the prime legislation relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith or incidental thereto. It repealed the three statutory provisions for arbitration:- (i) the Arbitration Act, 1940; (ii) the Arbitration (Protocol and Convention) Act, 1937; and (iii) the Foreign Awards (Recognition and Enforcement) Act, 1961.

The Arbitration and Conciliation Act provides statutory recognition to conciliation as a distinct mode of dispute settlement. Conciliation is defined as the process of amicable settlement of disputes by the parties with the assistance of a conciliator. It differs from arbitration in the sense that in arbitration the award is the decision of the third party or the arbitral tribunal, while in the case of conciliation the decision is of the parties which is arrived at with the mediation of the conciliator.The arbitrators are masters of their own procedure and subject to parties agreement, may conduct the proceedings “in the manner they consider appropriate.” This power includes- “the power to determine the admissibility, relevance, materiality and weight of any evidence”.[4] The only restrain on them is that they shall treat the parties with equality and each party shall be given a full opportunity to present his case, which includes sufficient advance notice of any hearing or meeting. Neither the Code of Civil Procedure nor the Indian Evidence Act applies to arbitrations.[5] Unless the parties agree otherwise, the tribunal shall decide whether to hold oral hearings for the presentation of evidence or for arguments or whether the proceedings shall be conducted on the basis of documents or other material alone. However the arbitral tribunal shall hold oral hearings if a party so requests (unless the parties have agreed that no oral hearing shall be held). Arbitrators have power to proceed exparte where the respondent, without sufficient cause, fails to communicate his statement of defence or appear for an oral hearing or produce evidence.However, in such situation the tribunal shall not treat the failure as an admission of theallegations by the respondent and shall decide the matter on the evidence, if any, before it. If the claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to terminate the proceedings.Taking of evidence in arbitral proceedingsThe Indian Oath’s Act 1969 extends to persons who may be authorized by consent of parties to receive evidence. This Act thus, encompasses arbitral proceedings as well.17 Section 8 of the said Act states that every person giving evidence before any person authorized to administer oath“shall be bound to state the truth on such subject.” Thus, witnesses appearing before an arbitral tribunal can be duly sworn by the tribunal and be required to state the truth on oath and upon failure to do so, commit offences punishable under the Indian Penal Code.[6] However, the arbitrators cannot force unwilling witnesses to appear before them and for this court’s assistance is provided for vide Section 27 of the Act. Under this provision the arbitral tribunal or a party with the approval of the tribunal may apply to the court seeking its assistance in taking evidence (this is also provided for in the Model Law). However, Section 27 of the Indian Act goes beyond the Model Law as it states that any person failing to attend in accordance with any order of the court or making any other default or refusing to give evidence or guilty of any contempt of the arbitral tribunal, shall be subject to like penalties and punishment as he may incur for like offences in suits tried before the court. Further, the court may either appoint a commissioner for taking evidence or order that the evidence be provided directly to the arbitral tribunal.Governing Law:In an international commercial arbitration, parties are free to designate the governing law for the substance of the dispute. If the governing law is not specified, the arbitral tribunal shall apply the rules of law it considers appropriate in view of the surrounding circumstances. For domestic arbitration, however, (i.e., between Indian parties), the tribunal is required to decide the dispute in accordance with the substantive laws of India.Form and content of awards:The arbitrators are required to set out the reasons on which their award is based, unless the parties agree that no reasons are to be given or if it arises out of agreed terms of settlement. The tribunal may make an interim award on matters on which it can also make a final award. Indian law provides for a very healthy 18% interest rate on sums due under an award. Thus, unless the arbitral tribunal directs otherwise, the award will carry interest at 18% per annum from the date of the award till the date of payment. The tribunal is free to award costs, including the cost of any institution supervising the arbitration or any other expense incurred in connection with the arbitration proceedings.Setting aside of awards:The grounds for setting aside an award rendered in India (in a domestic or internationalarbitration) are provided for under Section 34 of the Act. These are materially the same as in Article 34 of the Model Law for challenging an enforcement application. An award can be set aside if:a) a party was under some incapacity; orb) the arbitration agreement was not valid under the governing law; orc) a party was not given proper notice of the appointment of the arbitrator or on thearbitral proceedings; ord) the award deals with a dispute not contemplated by or not falling within the termsof submissions to arbitration or it contains decisions beyond the scope of thesubmissions; ore) the composition of the arbitral tribunal or the arbitral procedure was not inaccordance with the agreement of the parties; orf) the subject matter of the dispute is not capable of settlement by arbitrationThe major provisions relating to Conciliation in the Act are:- A party initiating the conciliation shall send a written notice to the other party, briefly identifying the subject of the dispute and inviting it for conciliation. The conciliation proceedings shall commence on acceptance of invitation by the other party. If the party initiating conciliation does not receive a reply within 30 days from the date the invitation was sent or within the specified period, it may opt to treat this as a rejection and inform the same to the other party. If it rejects the invitation, there can be no conciliation proceeding. Unless otherwise agreed there shall be one conciliator. The parties may however, agree that there shall be two or three conciliators, who shall act jointly. The sole conciliator shall be appointed by mutual consent of the parties. In case of two conciliators, each party may appoint one conciliator. In case of three conciliators, each party may appoint one conciliator and the third conciliator may be appointed by mutual agreement of the parties who shall act as the presiding conciliator. However, the parties may agree that a conciliator shall be appointed or recommended by an institution or a person. Each party shall submit to the conciliator a brief written statement describing the general nature of the dispute and the points at issue. A copy of the same shall be sent to the other party. The conciliator may require of each party to send a detailed statement supported by documents and other evidence, a copy whereof shall be sent to the other party also. Any factual information concerning the dispute received by the conciliator from a party, shall be disclosed to the other party to allow it an opportunity to present any explanation, except however, when a party gives any information subject to a condition that should be kept confidential. The parties involved shall co-operate with the conciliator in good faith, comply with requests for submitting written materials, providing evidence and attending meetings. A party may submit to the conciliator suggestions for the settlement of the dispute. The functions of a Conciliator are:- To assist the parties in an independent and impartial manner, to reach an amicable settlement of their dispute. To be guided by principles of objectivity, fairness and justice. To make proposals for a settlement of the dispute. Not to act as an arbitrator or as a representative of a party in any arbitral or judicial proceeding in respect of the same dispute, unless otherwise agreed by the parties. Not to act as a witness in any arbitral or judicial proceedings. If it appears to the conciliator that a settlement is possible, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. The conciliator shall then reformulate the possible settlement in the light of observations received from the parties. If the parties reach on a settlement, they may draw up and sign a written settlement agreement with the assistance of the conciliator.[7] The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties. The settlement agreement shall be final and binding on the parties and shall have the same effect as of an arbitral award. The conciliation proceedings shall be terminated when:- A settlement agreement is signed by the parties, A written declaration is made by the conciliators after consultation with the parties, that further efforts at conciliation are no longer justified, A written declaration is made by the conciliator, after the deposits required in relation to costs of the proceedings are not received from the parties, that the proceedings are terminated, A written declaration is made by the parties to the conciliator, that the conciliation proceedings are terminated, A written declaration is sent by a party to the other party and the conciliator, that the conciliation proceedings are terminated. ‘Foreign Award’ has been defined to mean “an award on differences between persons arising out of legal relationships, whether contractual or not and considered as commercial under the law in force in India, and made in pursuance of an agreement in writing for arbitration to be governed either by the New York Convention or by the Geneva Convention, in the territory of a notified foreign State”.[8] Some of the provisions of the Act relating to foreign award are:- Where a commercial dispute covered by an arbitration agreement to which either of the Convention apply, arises before a judicial authority in India, it shall at the request of the party be referred to arbitration. The party applying for the enforcement of a foreign award shall produce the original award or a duly authenticated copy thereof, the original arbitration agreement or a certified copy thereof, and evidence to prove that the award is a foreign award. If the court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of the court. An appeal shall lie against the order of the court refusing to refer the parties to arbitration or refusing to enforce a foreign award. Any foreign award which is enforceable under the Act, shall be binding and may be relied upon by the parties by way of defence, set off or otherwise in any legal proceedings in India.

ADVANTAGES OF CONCILIATION

• Conciliation offers a more flexible alternative to arbitration as well as litigation, for resolution of disputes in the widest range of contractual relationships, as it is an entirely voluntary process.
• In conciliation proceedings, the parties are free to withdraw from conciliation, without prejudice to their legal position, at any stage of the proceedings.
• The matter is settled at the threshold of the dispute, avoiding protracted litigation efforts at the courts. As conciliation can be scheduled at an early stage in the dispute, a settlement can be reached much more quickly than in litigation.
• Parties are directly engaged in negotiating a settlement.
• The conciliator, as a neutral third party, can view the dispute objectively and can assist the parties in exploring alternatives which they might not have considered on their own.
• Parties generally save money by cutting back on unproductive costs such as traveling to court, legal costs of retaining counsels and litigation and staff time.
• Conciliators may be carefully chosen by the parties for their knowledge and experience.
• Conciliation enhances the likelihood of the parties continuing their amicable business relationship during and after the proceedings.
• Creative solutions to special needs of the parties can become a part of the settlement.

Conclusion

India has in place a modern, an efficient Arbitration Act. There have been some decisions which

are not in tune with the letter or spirit of the Act. Hopefully, these would be addressed by the

judiciary in the near future and continuing popularity of arbitrations would be served by a truly

efficient ADR mechanism.

Bibliography

Christian Buhring-Uhle and Gabriele Lars Kirchhof. Arbitration and Mediation in International Business, 2nd Edition (2006)

Dionne, Georges (1992). Foundations of Insurance Economics: Readings in Economics and Finance. Springer. ISBN 0792392043.

Gary Born. International Commercial Arbitration (2009 Kluwer)

Shell, R.G. (2006). Bargaining for advantage. New York, NY: Penguin Books.

Sullivan, arthur; Steven M. Sheffrin (2003). [http://www.pearsonschool.com/index.cfm? locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4 Economics: Principles in action]. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 324. ISBN 0-13-063085-3.

Second Edition, 1989, Butterworths

Lynch, J. “ADR and Beyond: A Systems Approach to Conflict Management”, Negotiation Journal, Volume 17, Number 3, July 2001, Volume, p. 213.

Sustac, Zeno, Ignat, Claudiu. “Alternative ways of solving conflicts (ADR)”, Publisher: University, p. 242.

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[1] Sullivan, arthur; Steven M. Sheffrin (2003). [http://www.pearsonschool.com/index.cfm? locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4 Economics: Principles in action]. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 324. ISBN 0-13-063085-3.

[2] http://www.wikimediation.org/

[3] Louis Dreyfus Corp. v. Cook Ind.505 F. Supp. 4 at p. 6, 1981 AMC 1550 at pp. 1553-1554 (S.D.N.Y. 1980)

[4] International Airports Authority of India v. K.D. Bali & Anr; (1988) 2 SCC 360.

[5] Section 19 of Act and Section 1 of the Evidence Act.

[6] Section 191 and 193 of the Indian Penal Code.

[7] F Nariman, ‘India and International Arbitration’, (2010) 41 The Geo. Wash. Int’l L. Rev. 367 at 376.

[8] Geneva, 26 September 1927 (‘Geneva Convention’).