Tag: arbitration act

Introduction

Industrialization has resulted in a dramatic increase in global trade and business. To keep up with financial growth and avoid lengthy lawsuits, the parties have chosen arbitral proceedings as their preferred method of dispute resolution¹.
Arbitration is not at all a modern process, especially in India. It can be traced back to the Vedic ages². Even though it had been in practice for ages, it is still in its evolving stage. Arbitration is a type of “alternative dispute resolution” (ADR). Some other forms of ADR include mediation, Lok adalats, negotiation, etc. There are a number of pending cases that need resolution. Hence, ADR techniques have been proven to be very useful to reduce the pressure on the conventional court system. The recommendation made by the “Malimath committee” was related to mandating the usage of ADR techniques. In the article, there is mention of certain problems with these techniques (especially arbitration).

History of arbitration in India

If we want to trace back the origins of arbitration procedures in India, we would find the reference to the panchayat system ³. It showed a lot of improvement mainly in the nineteenth century. The “Indian Arbitration Act, 1899” had been very very important legislation that has changed the dynamics of the arbitration process. This Act was relevant only in Calcutta, Madras, and Bombay. This Act was quite lengthy and confusing. The same was held in the case of Dinkarrai Lakshmiprasad vs. Yeshwantrai Hariprasad ⁴ . To end the complexities of the Act, a new Act needed to be enacted. Therefore, in the year 1940, “The Arbitration Act, 1940” came into action. It applied to the whole country and not only to specific presidency towns. Later arbitration was codified under Section 89 and Schedule II of the “Code of Civil
The procedure, 1908”.

Arbitration had also been mentioned in ancient times. “Brihadaranyaka Upanishad” is one of the ancient scriptures that supposedly talks about arbitration. In the 1700s and 1800s, separate regulations were present that were applicable in Calcutta, Bombay, and Madras. In the case of Gajendra Singh v. Durga Kunwar _⁵, it was considered that arbitration is more of a “compromise between two parties”.
In the year 1996, following the UNCITRAL model, the “Arbitration and Conciliation Act” came into action.

Advantages and disadvantages of arbitration

Arbitration has proven to be more effective as compared to litigation (going to the court). It is more flexible than litigation techniques. Also, arbitration is comparatively less time-consuming and more cost-effective when compared to litigation. Many believe that justice provided through arbitration is of better quality.

Along with the pros mentioned above, there are some cons too. When compared to other ADR techniques (for instance, mediation), arbitration is a more expensive and time-consuming method. In the case of an arbitration proceeding, the arbitrator has to study the evidence and hear both sides before making a decision. This whole procedure takes quite some time. Unlike mediation, in the case of an arbitral proceeding, there is a scene where a party
wins and the other loses. Due to such a win or loss situation, the relation between the two parties often gets stressed.

Present status of arbitration in India

Judiciary in India has been trying a lot to simplify the processes of arbitration (especially in cases of “International Commercial Arbitration”) ⁶. There are some significant differences that the 1996 Act had when compared to the previous legislation. One of the most significant changes in the judicial involvement to the arbitral product. If an arbitration agreement is present, the judicial system has to direct the parties to opt for arbitration. The powers that an
arbitrator can exercise have been improved too. A specific mention of “domestic arbitration”⁷ had also been mentioned in the Act. In 2015, an act was enacted in order to make amendments to the existing 1996 Act. This 2015 Act was declared to be applicable to arbitral as well as court proceedings⁸.
Recently, an “Arbitration and Conciliation (Amendment) Act” was enacted in March 2021. One of the main purposes of this Act was to promote India as a center of international arbitration. To ensure the above purpose, Schedule VIII of the 1996 Act was scrapped off. This schedule banned certain categories of people from being selected as arbitrators in India.

Conclusion

From this article, it can be concluded how arbitration had become a preferred method of dispute resolution. We can see how arbitration in India is in an evolving stage. Lots of amendments are still required to make. This process had already evolved a lot if the scenario is compared to the pre-British era and in the past in general. It has also been mentioned by the experts that more professionalism is expected on the part of the arbitrators. This would
improve the scenario of this dispute resolution process in India. In order to improve the situation of arbitration procedures in India, the mechanism should be made more time effective and cost-efficient. People should be made more aware of the ADR techniques.

References:

1. “India: Evolution of Arbitration in India”, [October 21, 2016], https://www.mondaq.com/india/arbitration-dispute-resolution/537190/evolution-of-arbitration-in-india.
2. Ashutosh Singh, “Evolution of arbitration in India and the lack of professionalism”, [October 9, 2021], https://blog.ipleaders.in/evolution-arbitration-india-lack-of-professionalism/#Arbitration_in_pre-British_era.
3. “Evolution Of the Arbitration Law in India”, https://www.legalserviceindia.com/legal/article-4145-evolution-of-the-arbitration-law-in-india.html.
4. Dinkarrai Lakshmiprasad v. Yeshwantrai Hariprasad, [1930 AIR BOM 98].
5. Gajendra Singh v. Durga Kunwar, [1925 ILR 47A II 637].
6. Aditi Goyal, “Arbitration Law in India: Everything You Want to Know”, https://viamediationcentre.org/readnews/NTUy/Arbitration-law-in-India-Everything-you-want-to-know.
7. Section 2(7), Arbitration and Conciliation Act 1996.
8. Abhinav Kumar, “Making India a global hub for arbitration”, [March 24, 2021], https://www.thehindubusinessline.com/opinion/making-india-a-global-hub-for-arbitration/article34152992.ece.

This article is written by Aaratrika Bal student at National Law University Odisha.

A 3 judge bench of the Supreme Court has held that the expression “existence of arbitration agreement” which is included in Section 11 of the Arbitration Act shall also include the aspect of validity of arbitration agreement.

The Supreme Court also explained that at the stages that are included in Section 8 and 11 of the Arbitration Act the courts should undertake a prima facie examination to determine the validity of the arbitration agreement.

SECTION 8 AND SECTION 11 OF THE ARBITRATION AND CONCILIATION ACT

Section 8 of the Arbitration and Conciliation Act actually obligates any judicial authority to refer the dispute to arbitration where there was a valid arbitration agreement. A clear reading of Section 8 of the Act would give you an idea about what it says. It clears the fact that when it is compared to the UNCITRAL Model Law it differs from the Article 8 of the model law The Article 8 actually enables a court to decline to refer parties to arbitration in case the arbitration agreement is found to be void or null or in capable of being performed. In this aspect Section 8 has made a departure which indicates that it has a wider ambit and reach. Section 8 uses the expansive expression judicial authority instead of the term court.

Section 11 of the Arbitration and Conciliation Act deals with the appointment of arbitrators.

While answering a reference made to it by a division bench on the issue of whether landlord tenant disputes under the transfer of property act are arbitrable  the Apex court held that such disputes could become the subject matter of the arbitration if they are not covered by rent control laws.

The court also went on to discuss the issues relating to the stages when the question of arbitrability can be decided and the scope of examination under section 11 and section 8 of the act.

OBSERVATIONS MADE IN THE JUDGMENT-

The judgement also observed that during the reference stage the courts do not perform ministerial functions and they exercise and perform judicial functions whenever they take decisions on objections in terms of Section 8 and 11 of the Arbitration Act.

While discussing prima facie examination under Section 8 the Court was of the opinion that Section 8(1) after the 2016 amendment has enjoined the court to undertake prima facie examination when it comes to the validity of an agreement.

The Judgement went on to clarify that prima facie case in the context of Section 8 of the Arbitration Act should not be confused for the merits of the case that have been put up by the parties which has to be established before the arbitral tribunal. Its restriction lies in the subject matter of the being prima facie arbitrable when it falls under a valid arbitration agreement. Here prima facie case would mean that the  assertions on these aspects are bonafide.

The code explained how prima facie examination is not full review but is actually a primary first review in order to manifestly weed out invalid arbitration agreement sand non arbitrable disputes. The review at the reference stage in terms of prima facie is done in order to cut the dead wood  and trim the branches in terms of straight forward cases where the dismissal is quite evident and where the law and facts dealing with the litigation must stop at the first stage.

Everything depends upon the certainty of the court that there is no valid arbitration agreement that exists or the subject matter of the disputes are not arbitrable and only then an application under Section 8 could be rejected.

The judgement also had in opinion about Section 11 subsection 6A that had been inserted with the coming in off the 2016 amendment and prescribe that the court at the stage of appointing an arbitrator should confine itself to examine whether there was the existence of an arbitration agreement. However this subsection was later removed in the 2019 amendment. The court however made it noted that the existence of an arbitration agreement would mean an arbitration agreement that is able to satisfy the statutory requirements of the Arbitration Act as well as the contract act and also to meet ends and be enforceable in law.

The apex court thus made it clear that section 8 and 11 are indeed complementary provisions and the court also made it clear that it can read the mandate of a valid arbitration agreement in Section 8 into the mandate of section 11 which would include the existence of an arbitration agreement.