Law · Public Policy

Need for Arbitration in India

Settling disputes by the disputants by referring them to persons in whom disputants have confidence is known as arbitration. In an organized society, people cannot take law into their own hands particularly as judicial machinery is provided by the State for getting matters settled by competent courts, where judges are appointed by the State and the litigants are meant to bring disputes before them.

Arbitration is an extra-judicial forum and an alternative method of settlement of such disputes. It is a process in which parties agree in writing to abide by the judgement of particular persons in specific matters instead of going to the courts for justice. Arbitration has many advantages: it is inexpensive, cases can be speedily disposed off and there are no procedural technicalities. The word arbiter was originally used as a non-­technical designation of a person to whom controversy was referred to for decisions irrespective of any law.

It signified the referral of a dispute outside of or above the ordinary law. But in due course, the word came to mean a person selected for settlement of disputes. Though it is not judicial in the strictest sense, yet arbitration is regulated by law by implication and the arbitrators cannot act arbitrarily, capriciously or misconduct themselves. In ancient India, there were several grades of arbitration, for example the Puga or a board of persons who belonged to different sects and tribes but lived in the same locality; the Sreni or assemblies of tradesmen, the Kula or groups of persons bound by family ties. From early times, the decisions of Panchayats were accepted as binding. According to Colebrooke (an English scholar and commentator on ancient Hindu law), Panchayats were different systems of arbitration subordinate to the regular courts of law.

The decision of a Kula or kin group was subject to revision by the Sreni which, in turn, could be revised by the Puga. From the decision of the Puga, appeal was maintainable to Predvivaca and finally to the sovereign and the prince. The objects of arbitration are speed, economy, convenience, simplicity of procedure, secrecy and the encouragement of healthy and friendly relations between the disputants. Arbitration is increasingly being used in national and international commercial transactions, and arbitrators are like private judges between the concerned parties.

In India, the process of the appointment of arbitrators and the proceedings of arbitration are prescribed by a law known as the Arbitration Act, 1940. The scheme of the Act is to provide a domestic forum for speedy and substantial justice unhampered by legal technicalities. Almost all matters in dispute that are not of a criminal nature can be referred to arbitration. All matters of a civil nature, therefore, with a few exceptions, where they relate to present or future disputes, may form the subject of reference, but not a dispute that has arisen from and is founded on an illegal transaction.

However, where the law has given jurisdiction to determine a matter to specified tribunals only and determination of that matter by other tribunals is excluded, they cannot be referred to arbitration. Proceedings in insolvency including the question whether or not a certain person should be declared insolvent, or matters regarding tenancy, the Rent Act, etc. cannot be referred to arbitration.

The principles of natural justice including Audi Alteram Partem an Memo Judice in re Suo Moto must be observed. The parties can lead evidence and file documents. The arbitrators must give their award within four months. However, this time can be extended by the parties themselves by consent or if any one of the parties does not consent, then the court has the power to extend the time in proper cases after hearing the parties. The umpire has also to give award within four months. The Act also provides that in a pending case before the court, if it is felt that the questions involved are too technical and require expert knowledge and if the parties agree, the court refers the case to arbitration. Such reference is known as reference by the court. Most of the awards do not go into reasons, so there are less chances of finding fault by the courts. When no reasons are recorded for arriving at the award the courts do not speculate into the mental process or reasons which may have carried weight with the arbitrator.

However, there are limited grounds on which the award can be challenged. These are:

(i) That an arbitrator or umpire has misconducted himself in the proceedings.

(ii) That an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under Section 35;

(iii) That an award has been improperly procured or is otherwise invalid.

The court may, upon hearing the parties, either affirm or set aside the award. There are further appeals up to the Supreme Court by either party. The arbitrator’s fees and other expenses are paid by the parties. However, in the award, the arbitrators can also give directions about payment of costs by a party or parties.

About the Author

ashutoshAshutosh Shukla is pursuing law from NLU, Visakhapatnam, has keen interest in sports especially volleyball and basketball and has represented Uttar Pradesh in Volleyball Nationals. He is a follower of Swami Vivekananda and Former Indian President Dr. APJ Abdul Kalam. His ideology and success mantra is a very famous quote of Swami Vivekananda “Arise, awake and stop not till the goal is reached”. His inspiration for life is his father who is a Police Officer. Ashutosh also aims to crack Civil Services after completion of Law. He is currently pursuing his internship with Alexis Centre for Public Policy and International Relations.

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