BURNISHED LAW JOURNAL

ISSN: 2582 - 5534

BURNISHED LAW JOURNAL

2020
Burnished Law
Journal
Certificate course on

A L T E R N A TIV E
D I SP U T E
R E D R E SSA L
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Module 1

An Introduction to Arbitration

1. INTRODUCTION

Arbitration is one of the forms of the out of court settlement. In arbitration, one or more than one
person is appointed to decide upon the dispute that has been brought by the parties. The person/persons
who decides upon the dispute are called arbitrator/arbitrators. The decision that has been reached is
called an arbitral award. The arbitral award binds both the parties and is enforceable in the court of
law.

1. Arbitration v/s Conciliation

Arbitration is the process where a third party adjudges the dispute and creates an arbitral award that is
binding on both parties. Conciliation, on the other hand, is a non-binding process where the conciliator
is an advisor suggesting the parties of a suitable way to resolve the conflict. 1

2. Arbitration v/s Mediation

Mediation is the process wherein a neutral third party facilitates dialogue between the parties. The role
of the conciliator surpasses that of a mediator. The conciliator has to suggest an effective way of
resolving the dispute to the parties.2

1
https://www.legalbites.in/meaning-and-scope-of-conciliation/
2
Ibid.

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2. INTERNATIONAL COMMERCIAL ARBITRATION

International arbitration is a way of resolving disputes bobbing up below international industrial

contracts. It is used as an alternative to litigation and is controlled often by the terms formerly agreed
upon by means of the contracting events, in preference to by using national regulation or procedural
rules. Most contracts contain a dispute decision clause specifying that any disputes bobbing up under
the contract will be dealt with through arbitration instead of litigation. The events can specify the
forum, procedural rules, and governing regulation on the time of the agreement.

One region where international arbitration will usually have an advantage over any court gadget is
extent go party control, and that is reflected maximum strongly within the capability in many cases for
parties to pick arbitrators thru a mechanism in their choice.

2.1 BENEFITS OF ARBITRATION

Arbitration is considered beneficial as compared to litigation in following ways :

• Less Time : The dispute can be quickly solved by way of arbitration as compared to court cases.
The right by way of appeal is also limited, thus it helps in avoiding the delays in the execution of
award.
• More Flexibility: The process offers flexibility to the parties referring to arbitration. The matters in
court have to be solved while following the statutory laws and procedural rules.
• Cost effective: Arbitration regularly is less expensive than court docket litigation, primarily due to
the compressed schedule for the crowning glory of discovery and trial. In courtroom litigation,
significant expenses are dedicated to pre-trial discovery processes, consisting of written
interrogatories and depositions of witnesses. However, the invention process that is typical in
litigation more and more has emerge as a regular part of arbitration as well, for that reason growing
costs.
• Arbitrator / Judge: The soundness of any adjudication is largely dependent upon the high-quality
of the arbitrator or trial decide. In the arbitration process, the events pick the arbitrator(s). Any pre-
listening to disputes among the events are determined through the same arbitrator(s) that ultimately
determine the case. In contrast, in many courts, no man or woman choose is assigned to a case and,
therefore, a couple of judges may be concerned in adjudicating pre-trial disputes. The decide is
assigned through the court with out enter from the events. Thus, arbitration gives the events the
ability to pick out the decider, whereas court docket litigation does not.

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• Expertise: Arbitrators are decided on from a pool of professionals, usually with revel in within the
construction enterprise and, therefore, may offer a more level of information than a choose. Such
humans ought to have a extra functionality to realize project problems and documents and to
scrutinize legal responsibility and damages claims not unusual to the construction enterprise than
maximum trial judges.

Rules of Law and Evidence:When in court, judge’s selections are constrained by means of statutory
and case law and the conduct of the trial is governed by established regulations of proof. In contrast,
an arbitrator has sizable flexibility to take into account any proof he/she deems applicable and may
trouble an award based totally upon perceptions of fairness or fairness and not necessarily on the
evidence or policies of regulation.

• Appeal Rights: An arbitration award is very last and binding and, in many jurisdictions, there is a
limited right of appeal, despite the fact that the arbitrator makes a mistake of reality or regulation.
Although trial court docket verdicts aren't without difficulty reversed, judges sometime make
mistakes and the ability to request a overview of a selection via an appellate panel is an important
procedural safeguard.3

3. ARBITRATION IN INDIA

The first legislation dealing with arbitration was the Act of 1940 which was under the British Regime.
However, it was modified after independence by passing the ordinance. The act was criticized for
many reasons as the implementation of the provisions of the act was difficult in reality, Thus the act
was replaced by The Arbitration and Conciliation Act,1996. The Act was introduced in order to bring
the resolution process in consonance with the International regime. The principles of the Act are based
on the UNCITRAL Model Law. The practice of arbitration is regulated by Part I of The Arbitration
and Conciliation Act,1996. The act aims to empower and incorporate the changes in law concerning
domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards.
But, it also deals with the concept of conciliation and the matters that are related to the process.4 The
act defines “arbitration” as means any arbitration whether or not administered by permanent or ad-

3
https://www.tuckerlaw.com/2015/02/13/advantages-disadvantages-arbitration-vs-court-litigation/
4
Preamble, The Arbitration and Conciliation Act,1996

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hoc arbitral institution.5 The Arbitration and Conciliation Act, 1996 was passed with the following
objects and reasons:

3.1 OBJECTS AND REASONS OF THE ACT

The Statement of Objects and Reasons set forth the main objectives of the Act as follows:

“i) to comprehensively cover international and commercial arbitration and conciliation as also
domestic arbitration and conciliation;

ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs
of the specific arbitration;

iii) to provide that the arbitral tribunal gives reasons for its arbitral award;

iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

v) to minimize the supervisory role of courts in the arbitral process;

vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral
proceedings to encourage settlement of disputes;

vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of
the court;

viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings
will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute
rendered by an arbitral tribunal; and

ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a
country to which one of the two International Conventions relating to foreign arbitral awards to which
India is a party applies, will be treated as a foreign award.”6

5
Section 2(a) of The Arbitration and Conciliation Act,1996
6
https://ipba.org/media/fck/files/Arbitration%20in%20India.pdf

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3.2 SUBJECT MATTER OF ARBITRATION

Any commercial matter including an action in tort if it arises out of or relates to a contract can be
referred to arbitration. However, public policy would not permit matrimonial matters, criminal
proceedings, insolvency matters, anti-competition matters or commercial court matters to be referred
to arbitration. Employment contracts also cannot be referred to arbitration but director - company
disputes are arbitrable.7

3.3 ARBITRATION CLAUSE

An arbitration clause may be there in the contract, when the parties have agreed to get their dispute
solved by way of arbitration. Though jurisdiction might not be specified in the contract. The act
empowers the parties to appoint an arbitrator mutually. However, more the parties can determine the
number of arbitrators, however the number must be even. In case there’s no agreement as to number
of arbitrators between them then there will be a sole arbitrator. The procedure relating to appointment
of arbitrator is dealt by Section 11 of the Arbitration and Conciliation Act, 1996.

Fifth Schedule to the Act (Annexure-A) incorporates a list of grounds giving upward thrust to
justifiable doubts as to the independence or impartiality of an arbitrator. The Seventh Schedule
(Annexure-B) lays the grounds which make someone ineligible to be appointed as an arbitrator.

3.4 AWARDS

Arbitral award is the verdict of the arbitral tribunal. Arbitral award also includes an interim award. 8

The court in Jeuro Development Sdn Bhd v Teo Teck Huat (M) Sdn Bhd9 defined an award per Blacks
Law Dictionary 10 as:

“The decision or determination rendered by arbitrators or commissioners, or other private or extra-

judicial deciders, upon a controversy submitted to them; also the writing or document embodying such
decision”.

7
Comed Chemicals Ltd. v. C.N. Ramchand 2008 (13) SCALE 17
8
Section 2(1)(c) of The Arbitration and Conciliation Act,1996
9
[1998] 6 M.L.J. 545
10
(1990, 6th ed., West Publication Co.)

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3.5 CONDITIONS OF ARBITRAL AWARD

Though forms and contents have been laid down under Section 31 of The Arbitration and Conciliation
Act, 1996.11 The court summed up the contents of arbitral award in Charan

Sharan Khemka vs Achint Chemicals and Anr.12 and it is observed that to every award, five things are
incidental, namely.-

(i) a matter in controversy,

11 31. Form and contents of arbitral award.—

(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral
tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the
signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the
reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons upon which it is based, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under section 30.
(4) The arbitral award shall state its date and the place of arbitration as determined in accordance
with section 20 and the award shall be deemed to have been made at that place.
(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral
award on any matter with respect to which it may make a final arbitral award.
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the
payment of money, the arbitral tribunal may include in the sum for which the award is made interest,
at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part
of the period between the date on which the cause of action arose and the date on which the award is
made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry
interest at the rate of eighteen per centum per annum from the date of the award to the date of
payment.
(8) Unless otherwise agreed by the parties,—
(a) the costs of an arbitration shall be fixed by the arbitral tribunal;
(b) the arbitral tribunal shall specify—
(i) the party entitled to costs,
(ii) the party who shall pay the costs,
(iii) the amount of costs or method of determining that amount, and
(iv) the manner in which the costs shall be paid. Explanation.—For the purpose of clause (a), “costs”
means reasonable costs relating to—
(i) the fees and expenses of the arbitrators and witnesses,
(ii) legal fees and expenses,
(iii) any administration fees of the institution supervising the arbitration, and
(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award.
12
2005 (2) ARBLR 72 Raj

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(ii) a submission,

(iii) parties to the submission,

(iv) arbitrators, and

(v) the delivery of the award

4. INTERIM AWARD

In Numero Uno International Ltd. v. Prasar Bharti13 the court laid down that passing of an interim
award ensures that the party, to who an amount is admittedly payable, does not have to await
determination of other disputes to be finally resolved, which may take several years. It further states
that the making of the interim award, would not prevent the Tribunal from making adjustments at the
stage of making the final award.

Section 2 of the Act and Article 32(1) of the IEM Arbitration Rules 2003 (hereinafter referred to as
“the IEM Rules”) provide for interim awards. They are often used:

(a) where disputes can conveniently be divided into stages;

(b) where the determination of preliminary issues may save the time and cost of a prolonged reference;

(c) where the arbitrator’s award of costs is dealt with separately from the substantive issues.

An example where an interim award may be suitable arises when there is a question whether or not a
claim is time-barred under the Limitation Act 1953. If the claim is time-barred then there is no need to
proceed further. Similarly, an interim award may obviate the need for a further pursuit of the claim if
a dispute as to the validity in principle of a claim may often be dealt with as a preliminary issue.

While the interim award does not determine all the matters in dispute between the parties but all the
matters referred to in an interim award are determined finally therein. The word “interim” does not
imply that those matters decided in the interim award are subject to review. For example, an interim
award where liability is decided in respect of certain items of the claim but not other items provided a
final determination of those issues of liability. Only quantum issues on those items are to be decided

13
2008(1)ArbLR446(Delhi)

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in another award.14 For eg: for the appointment of a guardian for a minor or person of unsound mind
for the purposes of arbitral proceedings.15 Interim injunction or the appointment of a receiver.16 Any
such other interim measure of protection as may appear to the arbitral tribunal to be just and
convenient, and the arbitral tribunal shall have the same power for making orders, as the Court has for
the purpose of, and in relation to, any proceedings before it.17

4.1 INTERIM INJUNCTIONS

Courts regulate the grant of temporary injunction according with the manner laid down in Order
XXXVIII and Order XXXIX of the CPC. Order XXXVIII of the CPC pertains to positive reliefs which
can be to be had at any level of the fit prior to the judgment which include arrest of defendant as well
as furnishing security, if a court is convinced that defendant intends

to delay or hinder the execution of a decree passed towards it by casting off its property or poses a
danger to the property in dispute.18

Under Order XXXIX of the CPC, a court may additionally grant brief injunctions and interlocutory
orders if in any suit, it's miles proved that any belongings in dispute is in threat of being broken or
alienated via any birthday celebration to the suit, or wrongfully bought in execution of a decree, or
defendant threatens, or is about to remove or dispose of

his assets with motive to defraud his creditors. Courts in such instances may additionally grant transient
injunction to restrain such act, or provide such different order for the purpose of staying and preventing
the damaging, alienation, sale, removal or disposition of the assets furnished the celebration can satisfy
the three requirements in relation to:

i. Prima facie case

ii. Balance of convenience

14
http://www.myiem.org.my/assets/download/PMTD_Talk_TheArbitrationAward_121206.pdf
15
Section 17(1)(i) of The Arbitration and Conciliation Act,1996
16
Section 17(1)(ii)(d) of The Arbitration and Conciliation Act,1996
17
Section 17(1)(ii)(e) of The Arbitration and Conciliation Act,1996
18

http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Interim_Reliefs_in_Arbitral_Proce
edings.pdf

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iii. Irreparable injury.19

However, sometimes the award of the arbitrator may be challenged by the parties .

5. CHALLENGE TO ARBITRATOR

An arbitrator may be challenged only in two situations. First, if circumstances exists that give rise to
justifiable grounds as to his independence or impartiality; second, if he does not posses the
qualifications agreed to by the parties. A challenge is required to be made within 15 days of the
petitioner becoming aware of the constitution of the arbitral tribunal or of the circumstances furnishing
grounds for challenge. If the challenge is not successful the tribunal shall continue with the arbitral
proceedings and render the award, which can be challenged by an aggrieved party at that stage. This
is another significant departure from the Model Law, which envisages recourse to a court of law in the
event the arbitral tribunal rejects the challenge. 20

The Hon’ble Supreme Court in International Airports Authority of India v. K.D. Bali & Anr 21, held
that “the apprehension of bias must be judged from a healthy, reasonable and average point of view
and not on mere apprehension of any whimsical person. Vague suspicions of whimsical, capricious
and unreasonable people are not our standard to regulate our vision.”

6. ENFORCEABILITY

An award holder might need to await a length of three months after the receipt of the award prior to
making use of for enforcement and execution. During the intervening duration,22 the award can be
challenged in accordance with Section 34 of the Act. After expiry of the aforesaid period, if a court
finds the award to be enforceable, at the degree of execution, there may be no in addition assignment
as to the validity of the arbitral award.

Prior to the current Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”), an
application for setting apart an award would tantamount to a stay on proceedings for execution of the

19
Ibid
20
Article 13 of Model Law
21
(1988) 2 SCC 360
22
A further period of 30 days may be granted by a court upon sufficient cause being shown for condonation of
delay.

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award. However, by distinctive feature of the Amendment Act, a party hard an award would should
pass a separate software on the way to are seeking a live at the execution of an award.23

Besides the statutory recognition of enforceability of interim orders granted by the tribunal, the
Supreme Court, in a recent case, rendered non-compliance of an arbitral tribunal’s order or conduct
amounting to contempt during the course of the arbitration proceedings, as triable under the Contempt
of Courts Act, 1971.24

7. ROLE OF COURTS

The Hon’ble Apex Court court has analysed the role of the courts in the Mc Dermott International Inc
v. Burn Standard Co. Ltd and others 25, the Hon'ble Supreme Court has held as under:-

"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award
only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case
of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of
the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is
desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum
level and this can be justified as parties to the agreement make a conscious decision to exclude the
court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."

23
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Enforcement_of_Arbitral_Aw
ards.pdf
24
Alka Chandewarv. ShamshulIshrar Khan 2017 SCC OnLineSC 758
25
(2006) 11 SCC 181

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