Commercial Arbitration Process in India

Published on 17 Sep 2018 by Shreya

Commercial Arbitration is Alternative Dispute Resolution by which any disputes arising out of business transactions or contracts may be resolved out of Court by tribunals instituted for this purpose. Arbitration, especially commercial arbitration, is carried out when it has been agreed upon by the parties to the dispute. Arbitration is generally used to replace the traditional methods of dispute resolution by litigation in Courts and essentially reduce the time spent and also the burden of the Courts. In India, arbitration proceedings are governed and regulated by the Arbitration & Conciliation Act, 1996.

Also Read: Important Things To Know About Arbitration Process In India

The advantages of Commercial Arbitration are as follows:

  • Arbitration procedures are agreed upon by the parties to the dispute and hence, tailored to meet the needs of the parties. This is unlike court proceedings which are regulated by the Civil Procedure Code, 2015. It is also not necessary for the parties to the levels of adjudication as would be necessary for the litigation process.
  • The parties have the autonomy to choose the arbitrators for resolving the dispute, hence, giving them the freedom to select experts with specific practical experience and expertise necessary for that particular dispute.
  • Arbitration proceedings are confidential in nature, unlike Court proceedings, therefore, protecting the trade secrets as well as the reputation of the parties to the dispute. Commercial arbitrations are pertaining to sensitive financial and trade-centric which could potentially impact the reputation of the parties.
  • The jurisdiction of the seat of arbitration is derived from the agreement between the parties making the proceedings flexible and highly suitable for disputes involving foreign factors.
  • Arbitral awards, i.e., the result of the arbitration process, are enforceable as court verdicts.   

Also Read: How is Arbitration Law and Code of Civil Procedure related?

For settling a dispute by arbitration, the parties must have an arbitration agreement or an arbitral clause in the agreement entered into between them. Drafting an Arbitration Agreement that effectively lays down the rights and liabilities of the parties and ensures the protection of the same is essential. This essentially shows the intention of the parties to settle any legal dispute arising out of the business relationship by arbitration. The parties may also enter into an arbitral agreement after the dispute has arisen. Every commercial arbitration agreement must contain the following essential elements in India:

  • The agreement must necessarily be in writing as oral arbitration agreements are not recognized in India. The arbitral agreement, however, doesn’t necessarily be in any particular format.
  • An arbitral agreement must satisfy the essentials of a valid contract. The parties must have the necessary requisites for entering into the contract and must enter into the contract of their own free will.
  • The parties must have consensus ad idem, i.e., the parties must agree to enter into the contract with the necessary intention to do the same and must also agree to all its provisions in the right sense of the same. This must include such clauses as the seat of arbitration, choice of language, etc.
  • When the arbitration clause is inserted in an agreement entered into by the parties, it is treated as an independent clause. Even when the agreement becomes void, the arbitration clause doesn’t get invalidated.   

International Commercial Arbitration is essentially arbitration dealing with commercial arbitration where one of the parties is either a foreign nation or any company incorporated therein or a resident thereof. When the seat of an arbitration, as decided by the parties is outside India, Part 2 of the Arbitration & Conciliation Act, 1996 is applicable and Part 1 is applicable when the seat is in India. The provisions of International Commercial Arbitration provisions are also applicable for international commercial arbitration proceedings.

Must Read: Understanding the Types of Arbitration in India

When the seat of arbitration is in India, the procedure of arbitration proceedings is as follows:

  • The proceedings are initiated by one of the parties sending a notice of arbitration to the other.
  • Arbitration proceedings may also be initiated by the reference of the Court under Section 8 of the Act. There being an existing arbitration agreement, if one of the parties submits an application for arbitration before the Court along with a copy of the agreement, the Court is bound to refer the matter for arbitration.
  • After the notice has been received by the opposing party, arbitrators are appointed by both parties in accordance with the arbitration agreement or clause. The appointment of the arbitrators may be challenged on the basis of partiality of the arbitrato (s) towards one of the parties or if the qualification possessed by him/her doesn’t match those agreed upon in the arbitration agreement.
  • The next step is the drafting of a statement of claim which consists of the details regarding the dispute between the parties and the compensation claimed thereon. The opposing parting must then file a reply to the statement of claim along with the counterclaims. The statements must be well-drafted and good in law drafted by expertarbitration law professionals having knowledge of the matter.
  • The arbitral tribunal consisting of the arbitrators appointed by the parties will then hear both parties along evidence presented by both.
  • After the parties have been heard, the arbitral tribunal passes an award which is binding on both parties.
  • If any of the parties are not satisfied with the arbitral award, they may file a petition to set aside such award within 3 months of the award being passed. An appeal against an arbitral award may be filed before the High Court.
  • The party in whose favour the arbitral award has been passed must file for the enforcement or execution of the award.

With the increase in business proceedings, especially cross-border business proceedings, the necessity of commercial arbitration has also increased. Arbitration proceedings also impart a sense of security to the parties because of the provision for the parties to decide on all key aspects of the dispute resolution. Moreover, arbitration proceedings decrease the burden of the Courts and save valuable Court time. International commercial disputes can be resolved with ease by using international commercial arbitration procedures.

Must Read: Arbitration: The Best Alternative Dispute Resolution Remedy

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