Arbitration in India
Updated: Mar 15
Arbitration is a form of Alternate Dispute Resolution, wherein two or more parties involved in a commercial transaction or civil dispute resolve it out of court by appointing an Arbitrator. For an Arbitration process to undertake, the key essential ingredient is the arbitration agreement which is undertaken during the signing of a contract by parties, which specifies that disputes would be resolved through an arbitrator instead of taking the matters to court. Once in place, the parties can't approach the judicial courts for resolving their matters instead of hearing it through an arbitrator first. Arbitration Law in India is primarily contained in the Arbitration and Conciliation Act of 1996.
The main objective of the act is to minimize the supervisory role of courts in the arbitral procedure, provide that every final arbitral award is enforced in the same manner as the decree of the court, cover international and domestic arbitration and conciliation and Arbitral tribunals gives the reason for its arbitral awards and are within the limits of its jurisdiction.
Why do parties go for Arbitration instead of Judicial procedure?:
The foremost reason why parties choose to go for arbitration is due to the speedy disposal of cases. Unlike in Judicial procedure which can be at times be delayed due to lengthy court hearings and can be an expensive, timely affair for the parties. In Arbitration the parties choose the Arbitrator who would be heading the case and delivers the judgment as the sole objective of the Arbitrator would be to help the parties come to a consensus the turnaround time for the award is faster than the judicial courts. Also, the Arbitrator would focus only on the facts of the case and questions of law that are connected to the case. Also, Arbitration awards and cases are recognized worldwide.
When can a party approach the court?:
Although, Arbitration is outside the purview of the court. And Civil Court does not interfere in the matters of arbitration proceedings, arbitral awards. They are certain scenarios where a party approaches the court for setting the Arbitral Awards, under Sec 34 of The Arbitration and Conciliation Act 1996.
Sec 34(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application furnishes proof that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties unless such agreement was in conflict with a provision of this
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
However, the challenge to the award can only be made within the limitation period of three months from the date of receipt of the award. This period of limitation can be further extended by 30 days in cases where the applicant can show sufficient cause for delay in filing petition under Section 34.
Apart from the above, a party can also approach the court for Interim Measure and Appointing of Arbitrator if there is no consensus between the parties in appointing an arbitrator.
Enforcing of Foreign Awards and Arbitration in India:
Foreign Award becomes binding under Sec 46 of the Arbitration Act, 46. Any foreign award which would be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India.
(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court— (a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made; (b) the original agreement for arbitration or a duly certified copy thereof; and (c) such evidence as may be necessary to prove that the award is a foreign award. (2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India. Notable Arbitration Cases in India:
Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India: The case pertains to the Rs 24,500-crore tax demand on capital gains made by the oil major in the reorganization of its India business in 2006-07. India lost the case and has to pay Rs 8,842 crore to the UK firm. The award was given by the Permanent Court of Arbitration in The Hague.
Vodafone tax dispute case: In September 2020, the Government of India lost the tax arbitration case against Vodafone at the Permanent Court of Arbitration in Hague. The court ruled seeking Rs 22,100 crore in taxes from Vodafone using retrospective legislation, was in breach of the "guarantee of fair and equitable treatment" guaranteed under the bilateral investment protection pact between India and The Netherlands.