What is Arbitration?

Meaning of Arbitration

Where two or more persons agree that a dispute or potential dispute between them shall be decided in a legally binding way by one or more impartial persons in a judicial manner, that is upon evidence put before him or them, the agreement is called an Arbitration Agreement or a submission to Arbitration. When, after a dispute has arisen, it is put before such person or persons for decision, the procedure is called as Arbitration, and the decision when made is called 'award'.

Arbitration is a method whereby parties can resolve their disputes privately. It is known as an Alternative Dispute Resolution mechanism. In this mechanism, instead of filing a case in a court, parties can refer their case to an arbitral tribunal, which is the forum where Arbitration proceedings are conducted. The arbitral tribunal considers the cause of the conflict between the parties and arrives at a decision known as 'award'. The arbitral tribunal controls the process and outcome of the dispute. Generally, the hearing is limited by rules agreed by parties and is conducted in private and strangers cannot be present. While an Arbitrator does have greater flexibility than a judge, in terms of procedure and rules of evidence then the arbitration process is akin to the litigation process.

Advantages of Arbitration over litigation

Arbitration is preferred over traditional litigation because Arbitration is generally less expensive than litigation. It provides for faster resolution of dispute through flexible time schedule and simpler rules. Arbitration offers advantages that cannot be provided by litigation. In many cases, a big advantage is that the Arbitrator or arbitral tribunal is an expert in the field of the dispute so that the entire procedure can be conducted without the intervention of lawyers, or other representatives, with major gains in speed and economy. Thus, many disputes as to quality in the commodity trades, many disputes as to the rent of commercial property, and many small consumer disputes, are resolved in this way.

Disputes which can be settled by Arbitration

The disputes, which can be settled by an agreement between the parties, can be settled by Arbitration. All civil disputes can be referred to Arbitration unless prohibited by any law. Virtually, all disputes can be settled by Arbitration, including contract disputes involving businesses and consumers, employment claims, real estate and construction issues. As a general rule, matters involving criminal question or questions of public law cannot be resolved by Arbitration. For instance, the following matters are not referred for Arbitration:

·         Matrimonial matters, like divorce or maintenance;

·         Insolvency matters, like declaring a person as insolvent;

·         Criminal offences;

·         Dissolution or winding up of a company;

·         Disputes relating to age.

Put in a general way, it may be said that the disputes arising out of rights in personam may be settled by Arbitration and the disputes arising out of rights in rem cannot be settled by Arbitration.

Statutory Arbitration

In India a lot of Central and State Acts specifically provide for arbitration in respect of disputes arising out of matters covered by those enactments viz. Electricity Act, Electricity Supply Act. Since such an arbitration would be also governed by 1996 Act, to provide for statutory arbitration in such legislation is deemed to be arbitration agreement (Grid Corpn. of Orissa v. Indian Charge Chrome Ltd.,AIR 1998 Ori 101).

Ad hoc Arbitration

Ad hoc arbitration is a proceeding administered by the parties themselves (and not a stranger or institution) with rules created solely for that specific case. The parties make their own agreement with respect to all aspects of arbitration including applicable laws and rules, etc.

Fast Track Arbitration

Where the parties agree that no oral hearings shall be held, then the arbitral tribunal could fast track the arbitration process, by making the award only on the basis of documents submitted by parties, in respect of their case.

Attributes of Arbitration Agreement

• The arbitration agreement must contemplate that the decision of the arbitral tribunal will be binding on the parties to the agreement.
• The jurisdiction of arbitral tribunal to decide the rights of the parties must derive either from the consent of parties, or from an order of court or from statute, the terms of which make it is clear that the dispute will be subject to arbitration.
• The agreement must contemplate that the substantive rights of the parties will be determined by the arbitral tribunal.
• The arbitral tribunal must determine the rights of the parties in an impartial and judicial manner.
• The agreement of parties to refer their disputes to the decision of the arbitral tribunal should be enforceable at law.
• The agreement should contemplate that the tribunal will receive evidence from both sides and hear their contention or at least, give the parties an opportunity to put them forward.
• The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when the reference is made to the tribunal.