Changing trends in the field of Alternate Dispute Resolution

Emergence of Online Alternate Dispute Resolution (ADR)

Prerna Khatri, Research Associate

Arbitration and conciliation as a means of alternate dispute resolution have been serving as an effective means of resolving dispute rather than resorting to the rather stringent and tedious litigation procedure. It serves as a means of peaceful and harmonious settlement between the conflicting parties by submitting the dispute to a neutral and unbiased person commonly known as the arbitrator/mediator/conciliator. This method proved to save time, money and effort and became hugely prevalent in all sectors such that it drove the legislators to amend the redundant 1940 enactment to mould it to suit the needs of the current society. The Act of 1996 incorporated international commercial arbitration to keep up with the globalisation of trade and commerce and economic liberalisation. The Act of 1996 paved way to resort disputes of an international nature. Considering that ‘trade’ was not merely restricted within the borders of a country, the enactment formulated rules for international commercial arbitration.

Though the term ‘commercial’ has not been expressly defined in the Act, it can be understood as, ‘Any activity or service in which modern business would be lubricant for the wheels of commerce is commercial.’ ((Fateh Chand V. State of Maharashtra AIR 1977 SC 1825 ; R.M. Investment & Trading Co. V. Boeing Co., AIR 1994 SC 1136))The Act has merely dealt with the immediate changes in the field, however, with the growth of technology and e-commerce, everything is gradually shifting to an online portal. The technology has developed so swiftly, that everything is now possible sitting in one place and available at our doorsteps. Not only is it restricted to shopping or other services, but also, there seems to be a paradigm shift with respect to online alternate dispute resolution. Various portals have already begun providing such services whereby the conflicting parties can choose their own arbitrator from a list provided, upload the relevant documents online, conduct the proceedings online as well as even record the proceedings for their future transactions.

This paper is an attempt to explore the changes in the field of alternative dispute resolution with the emergence of online dispute resolution; the laws that play an important role and the possible changes that will be required in the existing laws.

CONCEPT OF E-COMMERCE

First, it is essential to understand what is meant by e-commerce. It is a type of industry which uses computer networks to enter into transactions of buying and selling. The idea behind using internet as a business tool is to make services available to people at the click of a finger. People are largely dependent on the internet and making services such as clothes, books, food, cosmetics etc available at one’s doorstep, have increased the dependency of people on their online portals. Websites such as Flipkart, Myntra, Jabong, Makemytrip, Amazon, Redbus etc have been instrumental in causing an immense growth in the field of e-commerce.

Online means of dispute resolution has largely been unexplored in India mainly because of the existing mechanisms of judicial practice, issues of jurisdiction and enforcement. It can be seen slowly emerging but is yet to formulate rules and principles governing it. The following content aims to understand the growth of online dispute resolution and the current laws in picture.

GROWTH OF ONLINE ALTERNATE DISPUTE RESOLUTION IN INDIA

The concept of online dispute resolution in India is still taking its baby steps. It has entered the market and is growing prominence day by day. The idea has been adopted by the one followed in the European Union and the major reasons why conflicting parties are resorting to online dispute resolution is mainly because it is faster and much more cost effective. Since international trade is on the rise and most of the communication and legal formalities are complied with through the internet, communication in person has taken a backseat; to the extent that contracts are also drafted and signed online. When everything is done online, it would be easier to resolving the dispute by the same means.

This concept was recognized by the Supreme Court in Shakti Bhog V. Kola Shipping Ltd ((AIR 2009 SC 12)). and Trimex International V. Vedanta Aluminium Ltd (([2010] 3 SCC 1)). wherein it observed that online dispute resolution can arise out of either,

i)                    An online arbitration clause in a normal contract; or

ii)                  By means of an electronic contract (e-contract)

Considering these two alternatives, the laws that would immediately come into picture are, The Arbitration and Conciliation Act, 1996 to govern the arbitration proceedings and The Information Technology Act, 2000 to deal with the technological aspects. It is extremely important that the parties completely understand the nature of such agreement mainly because in arbitration and conciliation proceedings, what is laid down in the agreement will standing binding. It is only from the agreement do the arbitrators derive authority and this will apply only to the extent of what is contained in it ((Chauthmal V. Bhagwan Das AIR 1973 Bom. 337)).    

METHODS OF ONLINE DISPUTE RESOLUTION

There are mainly two methods of online dispute resolution complied in general by countries worldwide, they are categorised into

I)    Consensual

           i.      Automated Negotiation

         ii.      Assisted Negotiation

II)    Adjudicative

CONSENSUAL

i)                    Automated Negotiation

According to this method, technology takes over most parts of negotiation. It is also called the Blind Bidding system which follows the pattern of an auction which is designed to settle economic disputes. It has two forms,

  1. a.      Double Blind Bidding –  Where a single monetary issue is discussed between two parties
  2. b.      Visual Blind Bidding- Which can be applied to negotiations between any number of parties and issues

This kind of negotiation is useful mainly in the starting stages of a business or probably when the disputes are between insurance companies where the dispute involves money and the conflicting parties find it rather easier to settle it through a means which is faster and cost effective.

ii)                  Assisted Negotiation

As the term suggests, in this method, the technology merely acts as a mediator. It assists the negotiation and processes information so as to provide advice. They are operated in such a manner so as to provide assistance to the parties by means of a third party or software. The major advantage of such process is that it is fast, user friendly and informal.

ADJUDICATIVE – ONLINE ARBITRATION

It is necessary to understand that such method of dispute resolution through an online portal is not forbidden by law. It merely provides a user friendly and less expensive means of arbitration by letting technology come into play. The only thing that is relevant here is to draft a strict regulatory framework whereby the benefit is derived to the fullest and the dispute between the conflicting parties is actually settled rather than prolonging it. Technologies such as Skype or Google Hangouts are very common in this regard. Here, documents are uploaded online, proceedings are conducted by means of a video conference and to the extent that the parties can even obtain a recorded footage of the same. The world is shrinking with technology and dispute resolution is not far behind.

PURPOSE OF ONLINE DISPUTE RESOLUTION

As per the most recent statistics by the Law Commission there are 57,179 pending cases in the Supreme Court as on 30th June 2011 and 42, 17,903 pending cases in the High Court as on 30.09.2010 ((Available at http://pib.nic.in/newsite/erelease.aspx?relid=73624)). The position in subordinate and lower courts is even worse where there is an estimated of 2 crore backlog of cases and the expected time to clear them off would be at least 25-30 years which is a delay by at least a minimum of 20 years to the filing of the case which proves this saying right, ‘Justice delayed is justice denied.’

The sole purpose of introducing the concept of alternative dispute resolution such as arbitration, conciliation, mediation and negotiation was to reduce the backlog of cases and provide speedier, effective and less expensive remedies. According to the reports of the Department of Justice, United States, there was 69% success rate in ADR cases in 2012, 73% in 2011 and 77% in 2010 ((http://www.justice.gov/olp/adr/doj-statistics.htm)). It has shown a vast difference in the costs incurred by traditional courts in comparison to the alternative dispute resolution methods. It not only saves money but also saves a lot of time since the cases are disposed faster and the award by an arbitral tribunal is final and not subject to appeal. It can only be set aside on the grounds laid down under the Act ((Section 34, The Arbitration and Conciliation Act, 1996 – Application for setting aside Arbitral Award)). Moreover, an award passed by an arbitral tribunal is binding and has standing before the Court of Law.

ADVANTAGES OF ONLINE DISPUTE RESOLUTION

Considering the current scenario in India and its increased dependency upon e-commerce, the prevalence of online dispute resolution is most apt. It will serve as an important medium to resolve disputes effectively as well reduce costs. It will act as a saviour to reduce the tremendous backlog of cases. The advantages of this method have been listed below:

  • Existence of strong bases such as AAA and ICC – In India, there is a strong base previously established. Institutions such as AAA and ICC have established ground rules which have paved a smooth path for the growth of online dispute resolution.
  • Cost effective – The idea is to make dispute resolution cheaper and online dispute resolution is definitely much cheaper than the traditional means of dispute resolution.
  • Time effective – Compared to the traditional means of dispute resolution, where each dispute takes years and years to be resolved, this method would make it speedy and faster.
  • Reachable – The technology used for the purpose of online dispute resolution is by means of video conferencing via Skype and Google Hangouts and the like. This makes it reachable and affordable as well. Parties can sit at the convenience of their houses or offices and still resolve the dispute conveniently.

DISADVANTAGES

Every coin has two sides and thus, the down side for online dispute resolution would definitely be the lack of a regulatory framework and insufficiency in the existing laws. Despite the fact that there exists The Arbitration and Conciliation Act, 1996 and the Information Technology Act, 2000, yet, the two Acts have not been framed keeping in mind the changes that may occur in the technological sphere.

  • It lacks in terms of infrastructure as well as human institutions to conduct such proceedings.
  • Technological disadvantage – for those who are not equipped with technology, no knowledge with use of technology etc.
  • Frivolous complaints and unnecessary adjournments. Lawyers should ensure that each complaint is disposed of quickly without any backlog.

Despite its drawbacks, it seems like an effective key to resolve disputes which concerns B2B – Business to Business and B2C – Business to Customer. India is yet developing in this sphere and requires assistance from those countries which practice this more frequently. It definitely has a massive role to play in current scenario in India.

THE MODRIA EXAMPLE – EXISTENCE OF ONLINE PLATFORM FOR DISPUTE RESOLUTION

Speaking of online dispute resolution, the largest investment in this field was granted to Modria, a start-up, started by the Online Dispute Resolution Head of EBay ((See http://www.modria.com/)). This start-up based upon the European Commission on ODR Regulation allows parties to place complaints online and the model is based upon understanding the needs of the client and addressing their issues by means of arbitration, mediation and negotiation before it enters litigation. It allows the parties to choose their arbitrators, upload documents as well as conduct proceedings all through a virtual platform. The technology adopted by Modria involves a client interface which provides the different dispute settlement options based upon the dispute and clients could use customized versions such as presenting of questionnaires, transparent discussions, uploading online “evidence” etc to make their claims. It is completely user-friendly and informal and the parties can decide what’s best for them. This idea has been so successful that it has expanded to countries in the European Union and is not merely restricted to any particular field, and has claims even in the sector of tax, real estate etc. it is considered as one of the most advanced means of dispute resolution and is widely used in The United States of America and Canada especially for tax related issues. Other existing online platforms include SquareTrade, www.virtualcourthouse.com and many others.

In a country like India, this technology could be extremely useful in settling disputes not only to reduce costs and save time but also reduce the backlog of pending cases.

RELEVANT LAWS

From a broad perspective, the two laws that play an important role with respect to online dispute resolution are:

  1. The Arbitration and Conciliation Act, 1996
  2. The Information Technology Act, 2000

The traditional rules of dispute resolution will be followed as per those provisions laid down in The Arbitration and Conciliation Act, 1996. Once again, the arbitration agreement will play an extremely major role even when it concerns online dispute resolution. An online dispute resolution will be initiated either by formally having an online resolution clause in a normal agreement or by enacting an electronic contract (e-contract). The bottom line of the transaction will be governed on the principles laid down in the agreement. The arbitrators thus appointed would derive their authority only from the agreement.

The other important enactment would be The Information Technology Act, 2000 merely because the transaction and the proceedings will be conducted through an online portal. It is necessary that a strict regulatory and enforcement mechanism be drafted in order to face the challenges that might arise. The International Chamber of Commerce has laid down certain guidelines to be followed while laying down an online alternative dispute resolution model ((Guidelines passed on March 25th, 2004 titled ‘Operating Standards for using IT in International Arbitration’)). Here, the guidelines discuss that if electronic documents be admissible in law ((Section 4 and 5, Information Technology Act, 2000 read with Section 65-B, The Evidence Act, 1872))then, a similar interface can be used to resolve disputes by means of an alternate dispute. Some of the guidelines include:

a) File names should always be given a unique name/identifier for each electronic document so as to identify the originator, class of document and place of arbitration.

b) The same form of file naming system should be used throughout the arbitration for all electronic documents.

c) The file name and the date of the original document (e.g. the date shown on a letter that is submitted as evidence) shall appear on the first page of the electronic document, either at the top right corner or at the bottom.

d) If data loss occurs and the affected participant cannot itself reconstitute the lost electronic documents, the other participants shall help to reconstitute the electronic file(s) by providing copies of the pertinent files that they control.

e) A uniform method of mode of transmission and storage of emails should be practiced.

f) Whether any confirmation of receipt of email has to be given should be mentioned beforehand.

g) File format for sending attachments, like. PDF, Doc, HTML, ASCII should be generally followed unless specifically mentioned otherwise.

For audio and video conferencing during online arbitration ICC has stated that the arbitral tribunal, in consultation with the parties, will issue directions giving details for the conference, such as:

  • Day and hour and applicable time zone;
  • Places where a conference front-end is required;
  • Who shall participate and number of persons at each front-end;
  • special requirements, such as visualization of documents;
  • any other requirements.

These are the basic guidelines which need to be complied with while conducting an online dispute resolution as prescribed by the International Chamber of Commerce (ICC). Besides these, the other procedural guidelines laid down in the Act ((Section 18 – 27, The Arbitration and Conciliation Act, 1996))need to be strictly complied with including the rules of natural justice, good conscience and equity.

The purpose of resolving disputes by means other than the regular court proceedings is to ensure that justice be done, faster and effectively. Hence, to implement online dispute resolution effectively and properly, it is necessary to clearly lay down all the guidelines and ensure that justice is done.

CONCLUSION

In the kind words of Abraham Lincoln he believed,

“Discourage litigation. Persuade your neighbours to compromise whenever you can. Point out to them how the nominal winner is often the real loser — in fees, and expenses, and waste of time. As a peace-maker the lawyer has a superior opportunity of being a good man. There will still be business enough.”

The purpose of alternative means of dispute resolution is to ensure that there is harmonious settlement of disputes between parties and that justice is achieved in a speedy manner. To cope up with the changing trends in the society with respect to technology, online dispute resolution is emerging at a large scale. Using the medium of the internet and the like, disputes are resolved and it is slowly paving its way in the India as well. The need of the hour is to establish the law and lay down ground rules to ensure that the fullest benefit is derived from it. Justice should not only seem to be but also must be done in its truest sense.

It is necessary to amend, mould and frame the guidelines to streamline it in such manner that the disputes are resolved harmoniously and effectively. Considering that technology has made everything affordable and reachable, justice should not be far away. Online means of dispute resolution, if regulated and enforced properly, would be the light in changing the modifying the justice deliverance system in India. It not only will reduce the backlog of cases but will also go a long way in restoring the faith of the people in the justice deliverance system of the country.

Powers of the High Court in Arbitration

Prerna Khatri, Research Associate

The Arbitration and Conciliation Act, 1996 is a comprehensive statute, consolidating and amending in nature and goes way beyond the scope of its predecessor enactment, The Act of 1940. It provides for domestic and international arbitration much in line with the law adopted by the United Nations Commission on International Trade Law (UNCITRAL). The current enactment goes a long way in setting right the flaws in the previous enactment. The beneficial features of the Act have been described by the Supreme Court as follows ((Centrotrade minerals and Metals Inc V. Hindustan Copper Ltd. (2006) 11 SCC 245)),

(i)                 Fair resolution of a dispute by an impartial tribunal without any unnecessary delay or expense;

(ii)               Party autonomy is paramount subject only to such safeguards as are necessary in public interest; and

(iii)             The Arbitral Tribunal is enjoined with a duty to act fairly and impartially.

The legislative intent of the enactment is to minimise/limit/restrict the supervisory power of the court in the arbitral process and quick nomination/appointment of the arbitrator, leaving all contentious issues to be decided in the arbitration ((Food Corporation of India V. Indian Council of Arbitration (2003) 6 SCC 564: AIR 2003 SC 3011)). One of the main aims is to settle all the disputes between the parties to avoid further litigation ((ShyamaCharanAgarwala& Sons V. Union of India (2002) 6 SCC 201: AIR 2002 SC 2659)).

POWER OF THE HIGH COURT

Subject to the provisions of the Arbitration and Conciliation Act, 1996, there are certain situations where the High Court has certain role to play. For instance, in accordance with Section 8, The High Court has the power to refer the parties to a dispute to arbitration. In P. AnandGajapathiRaju V. P.V.G.Raju ((AIR 2000 SC 1886 : 2000 (4) SCC 539)), the Supreme Court laid down the following conditions to be fulfilled, to exercise the power under Section 8 :-

(i)                 There is an arbitration agreement.

(ii)               A party to the agreement brings an action in court against the opposite party to the dispute.

(iii)             Subject matter of the action is same as the subject matter of the arbitration agreement.

(iv)             The other/opposite party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute.

In addition to Section 8, the High Court can also grant some interim measures under Section 9, based on an application by a party before, or during arbitral proceedings or at any time after making of the arbitral award but before it is enforced in accordance with Section 36. It is a discretionary power of the court and hence, the court while considering such application would consider the various aspects of the matter such as ((N. Sekar V. M/s. Akash Housing, Chennai, 2011 (3) LW 357 (Mad.) ; Transmission Corporation of A.P. Ltd. V. LancoKondapalli Power (P) Ltd. (2006) 1 SCC 540 ; Bans Ropan V. IIIrd A.D.J., AIR 1993 A.P. 117; N.V. Choudhary V. Hindusthan Steel Works Construction Ltd., AIR 1984 A.P. 110));

(i)                 Existence of prima facie case,

(ii)               Balance of convenience, and

(iii)             Potential for irreparable loss or injury.

The court would weigh every possibility to ensure that it’s done in aid of the arbitration proceedings and not to frustrate them ((J&K Forest Department V. Abdul Karim Wasi, AIR 1989 SC 1498, 1508-09  )).

Where the provision can apply

An application to the court to grant interim measures can be made on specified purposes under the Act ((Section 9, The Arbitration and Conciliation Act, 1996)),

(i)                 For the appointment of a guardian for a minor or person of unsound mind for the arbitral proceeding;

(ii)               To obtain custody, preservation and sale of  any goods provided such goods are the subject matter of the arbitration agreement;

(iii)             To cause recovery of the amount as a result of the arbitral award;

(iv)             To detain, preserve and inspect any property or thing which is subject matter of the arbitration agreement;

(v)               To obtain interim injunction;

(vi)             To appoint a receiver.

This power is discretionary in nature and not all interim measures have been provided herein. The court must objectively examine the merits of each case and determine the extent of interim relief to be guaranteed. This power vested upon the courts cannot be taken away by the parties by consent as it is specifically provided by the Act. The provisions of Section 9 are largely entwined with various other provisions of the Act. For instance, under Section 31(6), the arbitrator at any point of the arbitral proceedings can make an interim arbitral award at any time with respect to any matter to which the arbitrator has the authority to make the final award. In addition, interim measures can be granted under Section 17. However, the provisions herein provide that the arbitral tribunal is empowered to issue any interim measures at the request of the party during the arbitration proceedings, but the tribunal cannot order any interim measures before the commencement of the arbitration proceedings or after the arbitral award has been made.

Purpose of interim relief

The purpose of interim relief has been explained in depth by the Allahabad High Court in Deepak Mitra V. District Judge, Allahabad ((AIR 2000 All 9 at p. 20)). The court said:

“Interim measures can be issued under Section 9 only for the purpose of arbitration proceedings and with a view to protect the interest of the parties which otherwise cannot be protected or safeguarded by the arbitral tribunal. The power intended under Section 9 is not intended to frustrate the arbitration proceedings. This power cannot be exercised by the court if it would prejudice the powers vested in the arbitrator and render him incapable of resolving the dispute.”

Effect of interim measures:

An interim measure does not put to rest the rights of the parties. The rights of the parties are required to be adjudicated finally when a reference is made. The court has the authority and jurisdiction to pass interim orders for protection and preservation of the rights of the parties during the arbitration proceedings. However, this does not imply that if a party has availed of a benefit under this jurisdiction, the other party cannot put his claim in the main proceedings before the arbitrator. The interim measure/arrangement made by the court has to be given the necessary interim status. When an arbitration clause exists in a contract and an order, relating to the contract has been passed and the parties do not abdicate the arbitration clause and, on the contrary, take recourse to the same, then all the disputes, inclusive of benefits arising or having already arisen, have to be decided by the arbitrator ((Arvind Iron and Steel Corporation V. Steel Authority of India Ltd. AIR 2000 MP 247)).

OTHER POWERS OF THE HIGH COURT

Besides the powers explained above, the parties to the dispute or the arbitral tribunal, may apply to the court to seek assistance with respect to taking evidence as under Section 27. An application must be made to the court which shall specify:

(i)                 The names and addresses of the parties and the arbitrators;

(ii)               The general nature of the claim and the relief sought;

(iii)             The evidence to be obtained, in particular:

  1. The name and address of any person to be heard as witness or expert witness and a statement of the subject-matter of the testimony required;
  2. The description of any document to be produced or property to be inspected.

In comparison to the Act of 1940 where only the tribunal or the umpire could apply for assistance, the Act of 1996 empowers even a party to the dispute to apply for such assistance after seeking permission of the Tribunal.

Persons who fail to attend as required, or make any other default, or refuse to give evidence; are guilty of contempt of the Arbitral Tribunal and shall be dealt with by the Court on representation of the Arbitral Tribunal in the same way as the person who was guilty of like offences in suits before courts.

Similar to a court’s proceedings, matters where the assistance has been sought, should be dealt in the same manner as if it is before a Court. The rules of natural justice will strictly follow with no exceptions. Failure to follow these basic principles of Rule of Law, would render the award invalid and liable to be set aside ((K.P. Poulose V. State of Kerala, AIR 1975 SC 1259)).

The Delhi High Court in Lalit Mohan V. Building Committee ((AIR 1995 Del. 180)), has held that once the arbitrator has permitted the witness to be examined, it is not proper on the part of the arbitrator to decline to issue summons to the sole witness. The award would be liable to be set aside on grounds that the summons weren’t issued.

This provision to seek the court’s assistance in taking evidence of witness is necessary because the arbitral tribunal has not been conferred power to summon witnesses or to issue process as such.

CONCLUSION

The Arbitration and Conciliation Act, 1996 though minimises the aspect of judicial intervention, also leaves scope wherein the parties to the dispute or the Tribunal may seek for some kind of assistance from the Court in critical situations. This not to enhances the decision making capacity of the Arbitral Tribunal by vesting them with the sole authority to make decisions but also respects the Judicial setup without compromising on the interests of the parties. 

Arbitration Agreements under Arbitration and Conciliation Act 1996

Author: Prerna Khatri, Research Associate

For an arbitrator goes by the equity of a case, a judge by the law, and arbitration was invented with the express purpose of securing full power for equity.”  Aristotle

In layman’s terms, arbitration can be understood as an alternative means of resolving a dispute between conflicting parties. It is the submission of a dispute to an unbiased and neutral third party, known as an arbitrator, in order to settle the differences between the parties. The parties mutually agree to abide by the arbitrator’s decision, referred to as an award, which is final and rarely re-examined by the courts. The purpose of arbitration, as a means to resolve disputes, is to ensure speedy, efficacious and a reliable remedy to the parties as well as preserve the contractual/business/legal relationship.

Arbitration is increasingly growing to avoid the stringent court formalities and technical laches associated with it. It is largely preferred to litigation in the context of international transactions where for the purposes of trade and commerce, a foreign element is involved. In such a scenario, arbitration plays an important role if a dispute arises at the time of completion of the contract. To avoid confusion and chaos with respect to the prevailing law, the arbitration clause incorporated in the terms of the agreement would be of much help in case of a dispute since it clearly lays down the formalities to be followed at the time of an arbitration.

It is important to note that, not all matters can be referred to arbitration. There are certain exceptions, areas where the law of arbitration cannot be applied such as criminal proceedings, matters relating to divorce, guardianship insolvency, testamentary matters, dissolution of a company and matters concerning charitable trusts, among many others depending upon the relevant subject matter. Usually, all matters concerning civil rights such as contractual relationships, enforcement of contract, breach etc., can be referred to arbitration.

ARBITRATION AGREEMENT

An arbitration clause usually finds place either as a provision inserted in the contract or as an exclusive contract to facilitate arbitration in case of a dispute ((Section 7, The Arbitration and Conciliation Act, 1996)). The purpose of the ‘Arbitration and Conciliation Act, 1996’ is to ensure that in case of a dispute, an amicable settlement is achieved by the parties. It promotes a fair and unbiased means of resolving a dispute following the principles of natural justice ((Maneka Gandhi vs Union of Indian [1978 AIR 597, 1978 SCR (2) 621].))and the basic rules embodied in Article 14, The Constitution of India, 1950. The prime object of enacting such legislation was laid down by the Supreme Court in Food Corporation of India vs. Joginderpal, ((AIR 1981 SC 2075at 2076-77.))wherein it was observed that,

The law of arbitration must be `simple, less technical and more responsible to the actual reality of the situations’, `responsive to the canons of justice and fair play.”

The most important requirement for an arbitration agreement is that it must necessarily be in writing. Oral arbitration agreements that were acceptable by the old Arbitration Act, 1940 no longer find any relevance in the provisions of Section 7, The Arbitration and Conciliation Act, 1996. The Bombay High Court in Jayanth N. Sheth v Gnaneshwar Apartment Co-operative Housing Limited ((2000(1) RAJ 117 (Bom). 96))held that,

“A mere oral understanding between the parties to refer the dispute to arbitration will not make it a written agreement.”

The Act is liberal and very broad in terms of interpreting the term ‘the agreement must be in writing’. It is based upon the mutual consent of the parties as to how they want their agreement to be and what formalities are to be followed during the proceedings ((Impex Corporation AndOrs. vsElenjikal Aquamarine Exports AIR 2008 Ker 119)). All the conditions laid down in Section 7, The Arbitration and Conciliation Act 1996 must be complied with to be regarded as a valid arbitration agreement. It is essential that the agreement must be communicated between the parties in any form which can be either by mails, telefax, telecommunications, exchange of statement of claim and defence and the like, as prescribed in the Act ((M/S. Amk&Amp; Co. vs Deputy Chief Materials Manager [Writ Petition (MD) No.8856 of 2010].)).

The arbitration clause in the contract may also stipulate the following criteria which can be decided by the parties such as:

  • The law governing the contract;
  • The number of arbitrators to be appointed;
  • The language and the place of the proceedings; and
  • Other essentials which the parties agree upon during the course of the contract.

The terms of the arbitration agreement must be clear and unambiguous. It is extremely important to discuss and draft the terms of the agreement carefully. In a situation where foreign parties are involved, the national laws and other special requirements, if any, must be thoroughly examined to avoid any liability at a later stage. There must be consensus between the parties at every level with respect to the agreement.

In Videocon Industries Limited v. Union of India and Anr, ((SLP(C) No.16371 of 2008))whilst the agreement was to be governed by the law of India and the venue of arbitration was agreed to be Kuala Lumpur, Malaysia, parties had agreed that the arbitration agreement would be governed by the laws of England. The Supreme Court held that this would operate as an implied exclusion of Part 1 of the Act of 1996. Further inYograj Infrastructure Limited v. Ssang Yong Engineering and Construction Company Limited, ((SLP(C) No.25624 of 2010))the Supreme Court, amongst other things, held that once the parties had agreed to arbitrate under the Singapore International Arbitration Centre Rules with the seat of arbitration in Singapore, Part 1 of the Act would stand excluded. Once the terms of the agreement have clearly been laid down, it makes the arbitration proceedings convenient and free from any technical difficulties such as deciding the jurisdiction or the applicable law.

CONCLUSION

“When will mankind be convinced and agree to settle their difficulties by arbitration?” – Benjamin Franklin

The law is clearly laid down with respect to the essential conditions to be followed in drafting an arbitration agreement and deciding the other formalities. The Act is liberal in granting several rights and benefits to the parties to decide the terms of the proceedings. All in all, arbitration is a very useful means of peacefully resolving disputes between parties. It aims at arriving at an amicable solution keeping in mind the fundamental principles of fair play and natural justice. It ensures that the parties involved are given ample opportunity to present their case and after considerable discussions and deliberations only the decision is announced. Quite obviously it has its own downsides, but the benefits of arbitration, as an alternative means of resolving a dispute, clearly outweighs its negatives. Hence, it is largely preferred and extremely beneficial.

The most important element of a successful arbitration is the arbitration agreement. Once the agreement is properly drafted in accordance with the terms of the Act, nothing else can go wrong.