Arbitration

Posted on by user

Introduction
Arbitration is a private, party-driven method of dispute resolution by which parties agree to submit their disputes to one or more impartial third parties (arbitrators) for a final and binding decision (the award). In India, arbitration has moved from being an optional private mechanism to a central pillar of commercial dispute resolution policy — driven by statutory reform, judicial elucidation and international commitments (New York Convention). For Indian practitioners, arbitration is both a procedural strategy to avoid congested courts and a specialized forum requiring distinct pleading, evidentiary and tactical practices.

Core Legal Framework
– Primary statute: Arbitration and Conciliation Act, 1996 (hereafter “the Act”), read with amendments (notably Arbitration & Conciliation (Amendment) Acts, 2015 and 2019) and international instruments (New York Convention 1958 as implemented in India).
– Key definitions and provisions:
– Arbitration agreement — Section 7 (definition and scope): the agreement by parties to submit to arbitration all or certain disputes that have arisen or may arise between them.
– Power to refer to arbitration — Section 8: where a judicial proceeding involves an arbitration agreement, the court shall refer parties to arbitration.
– Appointment of arbitrators — Section 11: procedure for party appointment and court’s role when parties fail to appoint.
– Grounds for challenge of arbitrator — Section 12 (and Section 13: challenge procedure).
– Competence-competence — Section 16: arbitral tribunal’s competence to rule on its own jurisdiction.
– Interim measures:
– By court before/during arbitration — Section 9.
– By arbitral tribunal — Section 17 (and Section 17A for measures for preserving assets and evidence when enforced by courts).
– Making, filing and enforcement of award — Section 31 (award), Section 33 (correction/interpretation), Section 34 (application for setting aside award), Section 36 (filing of award and enforcement), Section 37 (appeals), Section 48 (recognition and enforcement of foreign awards).
– Part I vs Part II: Part I (domestic arbitration and arbitrations with seat in India) governs most supervisory jurisdiction; Part II implements enforcement of foreign awards (New York Convention and Geneva Convention) — distinctions between seat/venue and lex arbitri are critical in determining which provisions apply.

Practical Application and Nuances
1. Filing and invoking arbitration
– Trigger: A written arbitration clause (or subsequent submission) invoking arbitration brings the dispute within the Act. Ensure the clause is validly executed and covers the dispute in question (interpret traditional contract interpretation rules; parol evidence limited to what is necessary).
– Section 8 practice: When litigation is instituted despite an arbitration clause, practitioners should promptly move under Section 8 for a stay and reference to arbitration. Courts generally enforce arbitration clauses unless the clause is void, inoperative or incapable of being performed.

  1. Seat, place and governing law — tactical implications
  2. Seat (lex arbitri) determines supervisory court, procedural law of arbitration, curial law and the scope of judicial intervention. Always specify the seat, e.g., “seat of arbitration: Mumbai, India.” Distinguish seat from the physical venue (which can be in another city).

  3. Choice of substantive governing law should be explicit (e.g., “governing law of the contract: English law”); if silent, courts infer from contract.

  4. Interim measures — sequence and strategy

  5. If urgent relief is needed before constitution of tribunal: apply to Court under Section 9 (attachment, injunctions, preservation of evidence). Preserve evidence and assets; Courts will balance urgency and arbitration policy.
  6. Once tribunal constituted: apply under Section 17 for tribunal-ordered interim reliefs. Practically, many parties obtain interim orders from courts first (Section 9) and later seek continuation or enforcement from tribunals/courts under Section 17/17A.

  7. Evidence required: demonstrate prima facie rights and irreparable harm; for asset preservation attach supporting documentation; for freezing orders comply with principles of proportionality and disclose material facts.

  8. Composition and appointment of tribunal

  9. Draft appointing mechanism in clause: number of arbitrators (one or three), appointing authority (name an institution or a national court or a specific party), method of appointment and default mechanisms.

  10. Section 11 applications: when parties cannot agree on an arbitrator, approach the Chief Justice-designated authority in the High Court (procedure mandated by the Act and practice directions). Be meticulous in pleadings for Section 11 applications: attach arbitration agreement, correspondence, and specify dates and grounds of deadlock.

  11. Jurisdictional battles — competence-competence and interim tactics

  12. Section 16 establishes that the tribunal decides its own jurisdiction, including validity and existence of arbitration agreement. Practitioners should raise competence objections before the tribunal and preserve them for potential Section 34 challenges, but raise fundamental jurisdictional objections (e.g., no arbitration agreement) early in court (Section 8/11) because failure to do so can be fatal.

  13. Do not waive jurisdictional objections inadvertently by participating in proceedings without reservation; expressly record objections on the record.

  14. Evidence, hearings and award

  15. Arbitration is flexible — parties can agree on document-only proceedings, witness statements and limited cross-examination, or full evidentiary hearings. Where evidence is voluminous, consider pleading a bifurcated process (jurisdiction first, merits later).

  16. Seek a reasoned award; an award without reasons makes a Section 34 challenge easier. Use Section 31(3) (duty to state reasons) as leverage to obtain a reasoned award or correction/clarification under Section 33.

  17. Setting aside and enforcement (Section 34 and Section 36)

  18. Section 34 window: three months from receipt of award, extendable by 30 days by the Court (strict). Grounds are limited: incapacity, invalidity of agreement, lack of proper notice or inability to present case, award beyond scope, composition/procedure issues not in accordance with agreement, award vitiated by fraud or in conflict with public policy (see jurisprudence below).
  19. Evidence for challenge: contemporaneous records, tribunal’s failure to decide material pleas, proof of bias/fraud (preserve emails, payment records), demonstrable violation of natural justice.

  20. Enforcement: once award is filed under Section 36 (or recognized under Part II for foreign awards), it is enforceable as a decree under CPC. Practitioners should perfect the award with certified copies and follow execution procedures.

  21. Employment and statutory disputes — arbitrability caveats

  22. Contractual employment disputes (salary, bonus, termination for breach) are generally arbitrable if the parties agreed to arbitration. However, disputes implicating public law functions, statutory protections (e.g., certain aspects under Industrial Disputes Act or schemes providing non-waivable statutory rights), or criminal liability may be non-arbitrable.
  23. In employment law, courts scrutinise arbitration clauses for unconscionability, inequality of bargaining power, and statutory protections. For unionised/collective bargaining matters, administrative/industrial tribunals may have exclusive jurisdiction.

Landmark Judgments
– Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105 — The Supreme Court held that Part I of the Act could apply to arbitrations with foreign seat, thereby allowing Indian courts to exercise interim measures and supervisory jurisdiction even in foreign-seated arbitrations. This decision created procedural uncertainty and wide court intervention.
– Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO), (2012) 9 SCC 552 — Reversed the expansive reach of Bhatia International; the Supreme Court held that Part I of the Act does not apply to arbitrations with seat outside India. The decision brought clarity: the seat of arbitration determines the curial law and supervisory jurisdiction of Indian courts.
– S.B.P. & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618 — clarified the scope of Section 34 and the nature of judicial review of arbitral awards; the court held that interference in appeals under Section 34 is limited and a trial court should not re-appreciate evidence.
– National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 3 SCC 34 — The Supreme Court interpreted “public policy” under Section 34(2)(b)(ii) and allowed broad interference where an award is induced by fraud or in violation of fundamental public policy, including patent illegality. Later case law has tried to pare down the breadth of this ground to limit court interference, but Boghara remains important when alleging fraud or manifest illegality.

Strategic Considerations for Practitioners
– Drafting the arbitration clause
– Be specific: seat of arbitration, language, number of arbitrators, appointing authority, institutional rules (if any), governing law, interim relief mechanism, confidentiality and costs.
– Provide fallback appointment procedure for deadlock; name an appointing authority to avoid Section 11 delay.
– Seat selection and forum planning
– Choose seat considering neutrality, enforcement record, procedural approach of courts and ease of interim relief. For cross-border contracts, weigh national seats against institutional venues (e.g., London, Singapore).
– Preserve jurisdictional issues
– Raise jurisdictional objections immediately and in writing; preserve objections in the arbitration record. Do not delay on competence-competence issues.
– Use interim remedies adeptly
– Apply for Section 9 where urgent relief is required pre-constitution; once the tribunal exists, aim to get the same relief confirmed by tribunal under Section 17 and enforceable under Section 17A.
– Evidence and record-keeping
– Maintain contemporaneous documentary evidence of all communications and procedural irregularities. For fraud or bias allegations, collect objective proof (bank transfers, emails, meeting notes).
– Minimise Section 34 exposure
– Ensure tribunal composition and procedure comply strictly with the arbitration agreement; insist on reasoned awards; utilize Section 33 for corrections to reduce the chances of successful setting aside.
– Costs and security
– When seeking interim relief or initiating arbitrations against foreign parties, consider ordering security for costs, preservation of assets, or attachment where law permits.
– Institutional vs ad-hoc arbitration
– Institutional arbitration reduces appointment and administrative friction and offers emergency arbitration in many rulesets. Ad-hoc arbitration is cheaper but requires robust clause drafting and agreement on procedures.
– Employment-specific tips
– For employer clients: use narrowly tailored arbitration clauses to cover contractual disputes but exclude statutory or non-arbitrable claims; consider separate dispute resolution mechanisms for employees (grievance committees).
– For employee clients: challenge unconscionable clauses or argue non-arbitrability where statutory protections are at stake; seek immediate interim relief for reinstatement or protection of wages when necessary.

Common Pitfalls to Avoid
– Vague arbitration clauses: absence of seat, silent appointing authority — leads to Section 11 delays and forum-shopping.
– Waiver by conduct: participating in merits without reservation can be deemed waiver of jurisdictional objections.
– Missing Section 34 timelines: the three-month window (plus 30 days extension) is strictly construed; late applications are ordinarily dismissed.
– Failing to seek interim protection early: evidence and assets can dissipate quickly.
– Relying on broad public policy challenges: courts are increasingly reluctant to set aside awards on nebulous public policy grounds; save such arguments for clear cases of fraud, corruption or patent illegality.
– Treating institutional rules as a panacea: even under institutional arbitration, parties must draft careful seat, law and appointing authority clauses.

Conclusion
Arbitration in India is a sophisticated, statutory, and judicially curated mechanism that demands precision in drafting, promptness in tactical moves, and a granular evidence strategy. Mastery of key statutory provisions (Sections 7, 8, 9, 11, 16, 17, 33, 34, 36 and 48), an informed choice of seat and institution, early preservation of rights through interim relief, and an insistence on procedural regularity are the practical levers a practitioner must use to convert arbitration clauses into predictable and enforceable dispute-resolution outcomes. Arbitration remains the preferred route for commercial certainty — but it rewards meticulous preparation and disciplined advocacy.