Arbitration is a private, binding process where parties agree to refer their disputes to a neutral third party, known as an arbitrator, who delivers a final decision known as an arbitral award.
According to Section 2(1)(a) of the Arbitration and Conciliation Act, 1996:
“Arbitration means any arbitration whether or not administered by a permanent arbitral institution.”
Key Features of Arbitration:
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Voluntary Agreement: Arbitration arises from a mutual agreement between the parties, often through an arbitration clause in a contract.
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Neutral Third Party: The arbitrator is independent and impartial, chosen either by the parties or a designated institution.
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Private Process: Arbitration is conducted in a confidential setting, protecting the reputation and sensitive data of parties.
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Binding Award: The decision or award of the arbitrator is legally binding and enforceable like a court decree.
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Limited Judicial Intervention: Courts have minimal interference in arbitration proceedings, which promotes autonomy.
Types of Arbitration:
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Domestic Arbitration: Takes place in India between Indian parties under Indian law.
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International Commercial Arbitration: Involves at least one foreign party; may take place in India or abroad.
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Institutional Arbitration: Administered by recognized arbitration institutions like ICC, LCIA, or ICA.
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Ad Hoc Arbitration: Managed by the parties themselves without any institutional framework.
Arbitration Agreement (Section 7):
An arbitration agreement is the foundation of the arbitration process. It is:
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A written agreement in the form of a clause within a contract or a separate agreement.
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It must clearly express the intent to submit disputes to arbitration.
No arbitration can proceed without such an agreement.
Arbitration Procedure:
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Reference to Arbitration: When a dispute arises, the matter is referred to arbitration as per the agreement.
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Appointment of Arbitrator(s): The parties select an arbitrator (or panel of three).
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Statement of Claim and Defence: Both sides submit their positions, evidence, and witnesses.
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Hearings and Proceedings: Arbitrator conducts hearings, examines evidence, and hears arguments.
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Arbitral Award: A final decision is given, typically within 12 months in domestic arbitration (extendable by court).
Arbitral Award:
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The award must be in writing, signed, and state the reasons for the decision.
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It is final and binding, enforceable like a civil court decree.
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An appeal can be made only on limited grounds, such as fraud, lack of jurisdiction, or violation of public policy (Section 34).
Advantages of Arbitration:
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Speedy resolution of disputes
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Cost-effective compared to prolonged litigation
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Confidentiality is maintained
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Expertise of arbitrators in technical matters
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Cross-border enforceability under the New York Convention
Limitations of Arbitration:
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Limited grounds for appeal or review
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Costly in complex international disputes
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Not suitable for criminal or matrimonial matters
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Requires mutual consent, cannot be forced