Arbitration is of the most popular method of ADR and infact it has gained immense popularity amongst business entities and the results are quite positive and this resulted in having the Statutory Arbitration under the provisions of MSME.  Arbitration is a simplified version of a trial proceedings involving limited discovery and simplified rules of evidence. At the time of entering into business relations, Parties enter into a binding commercial contract wherein arbitration clause is a part of it or separate arbitration agreement that allows them to lay out major terms for the arbitration process. Arbitration can be either Ad-Hoc Arbitration and/or Institutional Arbitration and Parties are free to decide which method to be adopted for their resolution of disputes, if any arose between them. Arbitration in India is at present governed by the Arbitration and Conciliation Act 1996 (as amended) and certain relevant provisions are as under:

1. Parties are free to determine the procedure, language, and place of Arbitration and also the Rules of Arbitration which shall be made applicable for resolution of disputes. However, in my view the Parties shall take the advice of the Lawyer to ensure that the Arbitration clause is not unfair and is in favour of closing the matter within time limit. Further, the Parties shall adopt institution arbitration rules for faster results.

2. Arbitration proceedings are not bound by Code of Civil Procedure 1908 or the Indian Evidence Act 1872, but the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings in Court.

3. Parties are free to determine the number of arbitrators and procedure for their appointment.

4. It is mandatory that there has to be an Arbitration Agreement or clause being agreed for referring the dispute to Arbitration.

5. Notice under Section 21 is mandatory to invoke to Arbitration proceedings as issuing of Section 21 stops the expiry of limitation period

6. Parties have been given the right to approach High Court directly to get the interim order and or before Arbitration Tribunal.

7. The Arbitral Award shall be made within Twelve (12) months from the date the arbitral tribunal enters upon a reference, and the Parties may by consent, extend the time for a further period of six months but not thereafter without permission of the Court and with reasonable reasons.

8. There are appeal provisions but to get the stay on the Arbitration Award, Award money has to be mandatory deposit and filing of Appeal under Section 34 is not an automatic stay on the Arbitration Award.

9. Section 37 and 59 of the Act covers the type of appealable orders. A second appeal shall not lie in those sections, but parties are free to prefer an appeal before the Supreme Court.

Advantages of Arbitration, in brief, are as under:

1. Faster than Court proceedings.

2. Can say it is cheaper and more flexible but this seems now on another end, as the charges have been on very higher side and hence Parties shall take the advice of Lawyer to ensure appropriate Arbitration Proceedings Rules

3. Arbitral proceedings and Award are Confidential.

4. In Arbitral Proceedings the language of Arbitration may be chosen, whereas in judicial proceedings the official language of the competent Court will be automatically applied.

5. Limited Avenues for appeal of an Arbitral Award.

6. When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed as one cannot choose judge in litigation.

Disadvantages of Arbitration, in brief, are as under

1. Arbitrators sometimes are subject to pressures from the powerful Party.

2. Although usually thought to be speedier, when there are multiple arbitrators on the penal, juggling their schedules for hearing dates in long cases can lead to delays.

3. Arbitration awards themselves are not directly enforceable. A party seeking to enforce arbitration award must resort to judicial remedies.

Contractual Arbitration:

The term “Contractual” means, a contract between two parties doing business or entering into any legal transaction under the laws of India. Any business transaction which is of legal in nature is a contract, either in writing or oral. However, it is always advisable to have contract in writing or at least if not, then action shall be written such as supplying the goods on written work order or purchase order, having delivery challan as proof of supply, email correspondence, etc. further, it is also meant the terms the business parties have agreed too. The term “Arbitration” means a private process set up by the parties as a substitute for court litigation to obtain a decision on their dispute. The Arbitration in India is regulated by Arbitration and Conciliation Act, 1996 (as amended). The term “Contractual Arbitration” means, wherein the business parties have agreed in writing either in form of Purchase Order or separate agreement dealing with terms of business or separate arbitration agreement and contains the clause of referring the disputes to arbitration means contractual arbitration. The term “contractual arbitration” itself speaks of its binding force under the Laws of India. The business contracts are regulated by Indian Contract Act, 1872.

Type of Contractual Arbitration

Contractual Arbitration can be either Ad-Hoc Arbitration and/or Institutional Arbitration

Ad-Hoc Arbitration Institutional Arbitration
This method of arbitration comes from the terms agreed between the Parties. It is the Parties who decide what Arbitration Set-Up they want.
Example Clause of Ad-hoc:

Each Party will allow the other reasonable opportunity to comply before it claims that the other has not met its obligations under this Agreement. The Parties will attempt in good faith to resolve all disputes, disagreements, or claims between the parties relating to this Agreement and in the event of failure on the part of the Parties, to amicable resolve the disputes arising out of or in connection with this Agreement shall be finally settled by arbitration which shall be held in Vashi, Navi Mumbai, Maharashtra, India in accordance with the laws of India and Arbitration and Conciliation Act, 1996 (As amended) then in effect. The arbitration award shall be final and binding for the Parties without appeal and shall be in writing and set forth the findings of fact and the conclusions of law. The Seat and Venue shall be at Vashi, Navi Mumbai, Maharashtra, India. The Arbitration Proceedings shall be completed within 120 days. The number of arbitrators shall be three, with each side to the dispute being entitled to appoint one arbitrator. The two arbitrators appointed by the parties shall appoint a third arbitrator who shall act as chairman of the proceedings. If one of the parties refuses or otherwise fails to appoint an arbitrator within 30 days of the date the other party appoints its, the first appointed arbitrator shall be the sole arbitrator, provided that the arbitrator was validly and properly appointed. All proceedings shall be conducted, including all documents presented in such proceedings, in the English language. The English language version of this Agreement prevails over any other language version. 

Example Clause of Institutional:

All disputes or differences whatsoever arising between the parties out of or relating to the construction, meaning or operation or effect of this Contract or breach thereof shall be settled by Arbitration in accordance with the Rules of Arbitration and Conciliation of the IIAM (One can put the name of any Institution having their own rules of arbitration. Ex, are Bombay Chamber of Commerce & Industry) and the Award made in pursuance thereof shall be binding on the Parties. The Seat and Venue shall be at Mumbai (Place parties can decide)

In Ad-Hoc, Parties agree upon a set-up of Arbitration which can be specific to a particular contract or dispute, without referring to any arbitral institution. The Parties may at their options choose to devise and agree to initiate arbitral process by their own rules. Institutional arbitration, as the name suggests, refers to arbitrations conducted in accordance with the rules and procedures of an arbitration institution. Examples of arbitral institutions include:

  • Bombay Chamber of Commerce and Industry
  • Nani Palkhivala Arbitration Centre
  • IIAM
  • NSE 
Best part of Ad-Hoc arbitration is that it can be tailored to the specific needs of the Parties and the nature of the dispute. However, the drafting of clause may involve lengthy negotiations and therefore may be more expensive and time consuming and hence great care is needed to ensure that any arbitral process is both enforceable and workable. In this, the clauses can be modified to suit the needs of the Parties. However, being this institutional, already set-up is ready and Parties just have to concentrate on their matter
Ad-Hoc Arbitration depends, to a certain extent, on the co-operation of the Parties which may be difficult to achieve if the relationship has broken down. Generally Ad-Hoc Arbitration is more vulnerable to procedural challenges and obstructive tactics. Parties may seek redress from the applicable procedural law but this will be both time consuming and expensive Institutional arbitration gives Parties the benefit of using a tried and tested process and a proven set of terms and conditions to rely upon. This means that the fundamental steps of the process, including costs, are managed and controlled by the institution
The choice of ad hoc or institutional arbitration is unlikely to have a fundamental impact on the costs of the proceedings as this largely depends on the method and rate adopted by the institution or tribunal. However, it may be argued that institutional arbitration offers more clarity on the issue of costs as the institutions have in place a framework of charges for administration services and arbitrators. A further advantage of institutional arbitration is that the major institutions can hold funds on behalf of the parties if appropriate. Arbitration Institutions have the benefit of a professional administration service which, in theory, ensures the smooth running of the proceedings, however with ad hoc arbitrations the appointment of an administration secretary may achieve the same result.
In practice, there is unlikely to be little difference between the processes.
One of the main advantages of arbitration is that awards are confidential to the parties and are not made available to the general public

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*Content of this post is a Copyright work and is owned by Adv. Lalit K Jain (THE LEGAL DESK)

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I have been in Law Practice since more than 15 Years . My practice areas include: (a) Drafting of Commercial and Non-commercial Agreements/Contracts; (b) Recovery Matters before all Forums/Courts; (c) Arbitration and Conciliation; (d) Cross-Examination, Admission and Interim Stay; (d) Devising Strat View Full Profile

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