18 Alternative Dispute Resolution Mechanisms in India: Arbitration, Conciliation and Mediation (Part-I)

Mr Madhav Mallya

1. INTRODUCTION

There are two ways to resolve the dispute which may arise in day to day life of the modern society. Either to approach Court of Law or to resort to Alternative dispute resolution (ADR) mechanism which consists of variety of approaches. ADR mechanism of settling any dispute includes Arbitration, Conciliation, Mediation, settlement through Look Adalat and with the intervention of Family Court, Judicial Settlement, Plea Bargaining, and Collective Bargaining etc. ADR process may be binding or non-binding, voluntary or mandatory depending upon various circumstances and contractual relation between the parties. In India this mechanism is not new but what is new is its proliferation in the modern days.The gradation of dispute resolution methods can be understood with the help of following flow chart:

India has been an arbitration friendly country right from the beginning, since the institution of arbitration, known variously, was in practice in this country even before the birth of codified laws. In the pre-court (in modern sense) period the leaders of the communities and the elders of the families used to act as arbitrators and people accepted the decisions of those arbitrators.

The old law, Arbitration Act 1940 was a big step forward in bringing about a comprehensive set of rules covering all important aspects of arbitration. However, to bring Indian law in conformity with United Nations Commission on International Trade Law (UNCITRAL), and match the pace of economic liberalization policies, India started in the 1990s, and to do away the shortcoming of Arbitration Act 1940, the Arbitration and Conciliation Act 1996 was enacted.

The brief history of the present day legislation i.e, Arbitration and Conciliation Act, 1996 can be depicted in the following manner:

LEARNING OUTCOMES:

(i)An understanding of the meaning of Arbitration and Conciliation and the object behind enactment of Arbitration and Conciliation Act 1996;

(ii)Appreciation of the circumstances under which judicial intervention is permitted during or after arbitral proceeding under the Arbitration and Conciliation Act 1996;

(iii) Knowledge of the laws relating to domestic arbitration, international commercial arbitration & enforcement of foreign arbitral awards and conciliation as envisaged under the Arbitration and Conciliation Act 1996; and

(iv) To provide an insight into the procedural aspect of adjudication of dispute through arbitration and the mechanism of conciliation under the Arbitration and Conciliation Act 1996.

A brief discussion of substantial and procedural law relating to domestic arbitration, foreign award and conciliation would be fruitful. The module, therefore, discusses the law on the subject under following headings: the object of the enactment; salient provisions of the act; foreign award; and conciliation. The word ‘Act’ wherever occurs in this module refers to the Arbitration and Conciliation Act 1996

THE OBJECT OF THE ENACTMENT

The object and purpose of the Arbitration and Conciliation Act 1996 is to consolidate and amend India’s laws relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and to minimize the supervisory role of courts and expedite justice.1 The main objects, amongst others, have been to make arbitral procedure fair, efficient and capable of meeting needs of specific arbitrations, to provide that the arbitral tribunal gives reasons for its award, to ensure that the tribunal remains within the limits of its jurisdiction and to provide that an award is enforced in the same manner as if it were a decree of the court.2 Another important purpose of the 1996 Act was to bring Indian arbitral law in conformity with the UNCITRAL (United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration which most countries around the world had ratified and incorporated into their own domestic law. The 1996 Act is primarily based on the UNCITRAL Model Law on International Commercial Arbitration.

The Model Law, basic though it is, reflects the modern movement towards finality of arbitration awards. There is a belief that, so far as international arbitrations are concerned, the parties should be prepared to accept the decision of the arbitral tribunal even if it is wrong so long as the correct procedures are followed. If a Court is allowed to review on the law or the merits, the speed and above all, the finality of arbitral process is lost. Indeed, arbitration then becomes merely the first stage in a process that may lead, by way of successive appeals, to the highest appellate court at the place of arbitration.3 Apart from bringing Indian Arbitral Law in conformity with international standards, another aim of the 1996 Act is to reduce judicial intervention in the arbitral process.

The Act is divided into three parts. Part I deals with Arbitration. Part II deals with the International Commercial Arbitration and enforcement of foreign awards and Part III deals with conciliation. Part IV deals with supplementary provisions.

3. SALIENT PROVISIONS OF THE ACT

Section 1 of the Act states that though Part I shall apply to the whole of India, Parts I, III and IV shall apply to the State of Jammu and Kashmir (J&K) only in so far as they relate to International Commercial Arbitration. Part II deals with the enforcement of foreign awards and applies to the whole of the country. This is because article 253 of the Constitution provides for legislation giving effect to international agreements for the whole or any part of the country. Entry 13 of the Concurrent List, Vii Schedule provides for arbitration. This, coupled with J&K’s special status under article 370, allows J&K to have its own law on arbitration and conciliation dealing with domestic arbitration only. Article 253 read with Entry 14 in List 1 gives the necessary authority to extend and implement treaties and agreements with foreign countries to the whole of India, which is in effect, what Part II of the Act does.

Part I of the Act contains Chapter I to Chapter X and provides for definition of various terms including arbitration agreement, appointment of arbitral tribunal, composition of arbitral tribunal, jurisdiction of arbitral tribunal, the manner in which the proceeding before the tribunal has to be conducted, the manner the award has to be made/passed, termination of proceeding by the tribunal, extent of judicial intervention in an arbitral proceedings, remedies available against award passed by the tribunal and finality and enforcement of award etc.

4. ARBITRATION

Section 2, Chapter I, deals with several definitions including defining the meaning of ‘arbitration’, ‘arbitration agreement’, arbitral ward, arbitral tribunal, court, international commercial arbitration, legal representative etc. It also provides that an award made under this part shall be considered as domestic award (as opposed to a foreign award, enforceable under Part II of the Act). There is a difference between the terms “international award” and “foreign award”. A foreign award is an award rendered outside India and an international award is simply an award rendered in an international commercial arbitration, where both parties belong to different nations. It also provides that arbitral award to include an interim award and defining international commercial arbitration to be an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one party is habitually resident of a foreign country, or a foreign national, a body corporate incorporated abroad, or the government of a foreign country.

Section 2(2) states that Part I shall apply where the place of arbitration is in India. While Section 2(2) has been source of much confusion, after the BALCO judgment,4 it is clear that Part I applies to all arbitrations where the seat of arbitration is in India, whether it is a domestic arbitration or an international commercial arbitration.

Section 3 provided the manner in which the communication of an arbitral proceeding is made and deemed to be complete.

Section 4 deals with the waiver of right to object. It provides that a party who proceeds with an arbitration with the knowledge that there has been non-compliance of a provision of Part I from which the parties cannot derogate or any requirement under the arbitration agreement and without stating his objection to such non-compliance without undue delay, or if a time limit is provided for stating that objection, shall be deemed to have waived his right to so object. Section 5 limits the scope of judicial intervention except in the circumstances provided under the act, notwithstanding anything contained in any other law for the time being in force. Section 6 gives freedom to arbitral tribunal to take administrative assistance for conduct of arbitral proceeding.

4.1 Arbitration Agreement

A per section 7 “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not which may be in the form of an arbitration clause in a contract or in the form of a separate agreement, in writing. Section 8 states that a judicial authority before which an action is brought in a matter which is subject of an arbitration agreement shall, if a party so applies not later than submitting his first statement on the substance of the dispute, refer the parties to arbitration. Therefore, when there is an agreement for referring the dispute for adjudication through arbitration, the party to that agreement cannot approach the court for redressal of their grievances except in the circumstances permitted under the Act. For instance parties to such agreement, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced may apply to a court under section 9 for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings or for an interim measure of protection in respect of any of matters specified therein.

4.2 Composition of Arbitral Tribunal

Section 10 provides for the number of arbitrators and prescribes that the number shall not be an even number. Section 11 provides for the appointment of arbitrators which shall be as per agreement of the parties and stipulates an elaborate scheme for the appointment of arbitrators by the Chief Justice of a High Court (or the Supreme Court, in case of international commercial arbitration) in case the appointment procedure which the parties had agreed to has failed. Thus if there is an arbitration agreement between the parties to resolve a dispute then parties have no option but to approach the arbitrator, if named or appoint the arbitrator as provided under their arbitration agreement or get the same appointed with the intervention of the court in accordance with section 11 of the Act.

Section 12 states the grounds for challenging the appointment of an arbitrator. Section 12(1) states that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any justifiable doubts as to his impartiality or independence. He has a duty to do the same during the arbitral proceedings, if such circumstances do arise. His appointment may be challenged only if there are justifiable grounds which give rise to doubts as to his impartiality or independence or he does not possess the qualifications as agreed by the parties. Section 13 lays down the challenge procedure for an arbitrator. Section 14 states that the mandate of an arbitrator shall terminate if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay or if he withdraws from office or the parties agree to the termination of his mandate. Section 15 states that a substitute arbitrator shall be appointed where the mandate of an arbitrator terminates, according to the rules that were applicable to the appointment of the arbitrator being replaced. Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.

4.3 Jurisdiction of Arbitral Tribunals

Chapter III, Section 16 incorporates the principle of “Kompetenz –Kompetenz” which is that an arbitral tribunal is competent to rule on its own jurisdiction. It also states that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. A plea that an arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of an arbitrator. Where a plea challenging the jurisdiction of a tribunal is rejected, the tribunal shall continue with arbitral proceedings and make an award. A party aggrieved by such an award may make an application for setting aside such an award in accordance with section 34.

Section 17 deals with interim measures by the arbitral tribunal. However, it is considered ineffective, since there are no sanctions if such an order is disobeyed.5

4.4 Conduct of Arbitral Proceedings

Under chapter IV detailed mechanism has been provided for rules of procedure applicable to the dispute before the arbitral tribunal, place of arbitration, commencement of arbitral proceeding, language of the arbitral proceeding, the manner in which the claim/ defense/counter claim has to be lodged before the arbitral tribunal, hearing before the tribunal has to take place, consequence of default of party, appointment of expert by the arbitral tribunal and court assistance in taking evidence:

Section 18: that parties shall be treated with equality and each party shall be given full opportunity to present his case.

Section 19: that the arbitral tribunal shall not be bound by the Code of Civil Procedure 1908 or the Indian Evidence Act 1872 and are free to agree on the procedure to be followed by the arbitral tribunal in course of proceedings. The Arbitrator or for that matter arbitral panel/ are not bounded to follow the procedure as envisage under Code of Civil Procedure, 1908 or Indian Evidence Act, 1872 . There is flexibility in adopting the procedure for determination of dispute.

Section 20: parties are free to agree on the place of arbitration.

Section 21: commencement of arbitral proceeding.

Section 22: gives freedom of choosing the language for the conduct of the arbitral proceeding.

Section 23: the manner in which parties may file their respective claim or defense, and the manner (oral or on the basis of documents available on record/ evidence to be brought) in which the proceeding may be conducted.

Section 25: consequences of default of any party before the arbitrator.

Section 26: gives freedom for appointment of expert by the arbitral tribunal and seek his opinion.

Section 27: deals with Court assistance in taking evidence.

4.5 Making of Arbitral Award and Termination of Proceedings

Chapter VI details about the rules applicable to the dispute before the arbitral tribunal, the duty of arbitral tribunal to encourage settlement, the form and contents of the arbitral award, the manner of termination of the proceeding by arbitral tribunal and the correction in the award, if any.

According to section 28 when a place of arbitration is situated in India, in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India and in an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the rules of law designated by the parties as applicable to the substance of the dispute. Any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not its conflict of law rules. Conflict of Law rules come into play when there is a difference between the laws of two or more jurisdictions with some connection to a case, such that the outcome depends on which jurisdiction’s law will be used to resolve each issue in dispute.6 The tribunal can also decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so. In all cases, the tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of trade applicable to the transaction. Section 30 of the Act cats a duty upon the arbitral tribunal to encourage the parties before it for a settlement though mediation, conciliation or through other procedure.

Therefore, the adjudication of dispute through arbitration is on merits of the case which is open to challenge in the court of competent jurisdiction under section 34 on the grounds available therein. However, the settlement arrived at by the intervention of the arbitral tribunal is not open to challenge under normal circumstances.

4.6 Recourse against Arbitral Award

Chapter VII, section 34 has been much debated provision of the Act as it has been noticed that the party loosing before the arbitral tribunal has tendency to challenge the award against it before the court of competent jurisdiction. Therefore, after one round of adjudication by arbitral tribunal, second round of adjudication is sought to be invoked by the losing party in the court pushing the prime objective of minimum intervention of the court in arbitral proceedings to the back seat.

Section 34 states the grounds for setting aside an arbitral award and lays down certain limited procedural grounds which can only be used to set aside an award. These grounds inter alia include, the arbitration agreement being not valid under the law to which the parties have subjected to, a party was not given proper notice of the appointment of an arbitrator or was otherwise unable to present his case, a party was under some incapacity, 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 submission to arbitration, where the composition of the arbitral tribunal or arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this part from which the parties cannot derogate, or failing such agreement was not in accordance with this part, if the award is in conflict with public policy or if the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. An award is in conflict with the public policy of India if the making of the award was influenced by fraud or corruption or was in violation of sections 75 or 81 of the Act.

4.7 Appeals, Finality and Enforcement of Arbitral Award

Chapter VIII and IX deal with the Appeals, Finality and Enforcement of Arbitral Award. Section 35 states that subject to Part I, an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Section 36 states that an award shall be enforced as if it were a decree of the Court. Act further provides for appeal but on limited grounds and that too up to limited extent.

Under section 37 appeals are permissible only against an order passed under sections 9, 34, 16 and 17 of the act. No second appeal is permitted. However, nothing in this section affect or take away the right to appeal to the Supreme Court.

This chapter provides for the fixation of fee by arbitral tribunal, manner of payment of fee, the consequences arising from the none-payment of fee leading to the termination of the proceeding, lien on arbitral ward for unpaid cost of the arbitration. Section 40 provided that arbitration agreement shall not be discharged by the death of the parties to the agreement and survived with respect to the legal representative of such deceased party.

Section 42 is one of the important provisions of the act and aimed at curtailing the forum shopping. It provides that notwithstanding anything contained elsewhere in part I of the Act or in any other law for the time being in force, where with respect to an arbitration agreement any application under said part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.

As per section 43 the provisions of the Limitation Act 1963 applies to the arbitration proceeding as it applies to the proceeding in the court.

5. FOREIGN AWARD

Part II deals with the enforcement of foreign awards. Part II , Chapter I deals with the enforcement of New York Convention (an instrument which provides for the enforcement of an arbitral award in a country other than the country where its enforcement is sought and the procedure for the same.). India is a signatory to the New York Convention.

Section 44 defines a foreign award. The New York Convention is set forth in the first schedule to the 1996 Act. A foreign award means an award on differences between persons arising out of legal relationships, whether contractual or not , considered as commercial under the law in force in India, made on or after the 11th day of October 1960, in pursuance of an agreement in writing for arbitration to which the convention set forth in the first schedule applies and in one of such territories as the Central Government, being satisfied   that reciprocal provisions have been made, may by notification in the Official Gazette, declare to be territories to which the said convention applies.

Section 45 refers to the power of a judicial authority to refer parties to arbitration. It says that notwithstanding anything contained in Part I or the Code of Civil Procedure 1908, where parties have made an agreement referred to in section 44, a judicial authority when seized of an action in such a matter, shall refer the parties to arbitration unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Section 46 states that a foreign award enforceable under this chapter would be treated as binding for all purposes on the persons 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 and any references in this chapter to enforcing a foreign award, shall be construed as references to relying on an award.

Section 47 speaks about the required evidence to be relied upon by a party seeking to enforce a foreign award including the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made, the original agreement for arbitration or a duly certified copy thereof, evidence as may be necessary to prove that an award is a foreign award.

Section 48 lays down the conditions for enforcement of a foreign award.

Section 49 states that an award that is enforceable under this chapter shall be deemed to be an award of court.

Chapter II of Part II deals with Geneva Convention awards, which has been rendered obsolete and is not much in use. The Provisions of Chapter II are similar to those of Chapter I. Part III deals with Conciliation, and Part IV deals with supplementary provisions.

6.CONCILIATION

The Act does not defined conciliation. However it broadly includes processes of settling dispute/ arriving at a compromise in a friendly manner through extra judicial means with the help of an independent person/body with an intention to avoid dispute adjudication by the Court or other means e,g arbitration. .

Section 61 of the act provides for a conciliation of any dispute arising from a legal relationship, whether contractual or not and to all proceedings relating thereto.

Section 62 provides that the party initiating conciliation shall send to the other party a written invitation to conciliate under this Part, briefly identifying the subject of the dispute and the conciliation proceedings shall commence when the other party accepts in writing the invitation to conciliate. It further provides that if the other party rejects the invitation, there will be no conciliation proceedings.

Sections 63 and 65 lays down the number and the manner of appointment of conciliator and the submission of statements to conciliator. Section 66 provides that conciliator is not bound by the Code of Civil Procedure 1908 or the Indian Evidence Act 1872.

According to section 67 the conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute. It further provides that the conciliator shall be guided by principles of objectivity, fairness and justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties. It further provides that the conciliator may conduct the conciliation proceedings in such a manner as he considers appropriate, taking into account the circumstances of the case, the wishes the parties may express, including any request by a party that the conciliator hear oral statements, and the need for a speedy settlement of the dispute.

Section 73 prescribe that with the consent and assistance of the of the parties, conciliator may draw Settlement Agreement which shall be final and binding on the parties and persons claiming under them respectively, and Sections 75 and 81 provide for confidentiality and admissibility of evidence in other proceedings giving the parties open space for coming to a common ground of settlement of dispute.

It is evident from the above description that if there is an arbitration agreement, then parties have no option but to get the same adjudicated through arbitration. However, the door of conciliation mechanism opens only with the consent of the parties. Arbitral award may be challenged in the court of competent jurisdiction. However, settlement agreement is not open to challenge under the Act.

CONCLUSION

The rationale behind the adoption of a system of ADR is undoubtedly the need to find a method of circumventing and eventually effacing the tremendous problems which beset the litigative system. These problems include delay, expense, rigidity of procedures, and reduction in the participatory role of parties.

ADR has been increasingly used, both alongside and integrated formally into Indian legal systems, in order to attain the constitutional goal of justice, i. e., and speedy justice to the satisfaction of the parties at dispute. The procedure are flexible, process at times may be determined and controlled by the parties to the dispute, entails lower costs, has less complexity, offers practical solution, save energy, time resources, afford confidentiality and preservation of relationships and the preservation of reputations.

The Arbitration and Conciliation Act 1996 though done away with the some of the shortcoming of the Arbitration Act 1940 act and limited the scope of judicial intervention under sections 9, 11, 14(2), 27, 34, 37, 38(2), 39(4), 41 (2) and 43(3), yet it is alleged that arbitration does not do justice to the term ‘Alternative Dispute Resolution’. First and foremost, the traditional adversarial system bias continues in arbitral proceedings, where there is a claimant and a respondent. Secondly, arbitral proceedings are emasculated by delay as both parties take a significant amount of time in presenting their submissions, resulting in adjournments and delays in the final award. Thirdly, the cost of arbitration is as hefty as that of the traditional litigation system, Lastly, the participatory role of parties, though an improvement from the litigative system, is not satisfactory as submissions are almost always made by the parties’ counsel.

Web Resources:

• http://www.icaindia.co.in/ http://www.ijal.in/
• http://adrr.com/
• http://www.uncitral.org/
• http://lexarbitri.blogspot.in/