Arbitration is an alternative dispute resolution (ADR) method where parties involved in a dispute agree to resolve their conflict outside traditional courts. Instead of a judge, a neutral third party, called an arbitrator, hears both sides and makes a binding decision. Arbitration is favored for its efficiency, confidentiality, and flexibility compared to lengthy court trials.
In India, arbitration is primarily governed by the Arbitration and Conciliation Act,1996 (amended in 2015, 2019, and 2021), which aligns with international standards such as the UNCITRAL Model Law on International Commercial Arbitration.
Both parties must consent to arbitration, either through an arbitration clause in a contract or a separate arbitration agreement after the dispute arises.
The arbitrator is an impartial decision-maker chosen by the parties or a court.
The arbitrator's decision, known as an "award," is final and enforceable under the law.
The procedure is more flexible than court processes, allowing parties to choose the rules and timelines.
The first step is a valid arbitration agreement, which can be a part of a contract (arbitration clause) or a standalone agreement signed by the disputing parties. It must specify that disputes will be resolved through arbitration, including details such as the number of arbitrators and the seat of arbitration (location).
Once a dispute arises, the arbitrator(s) are appointed. The parties may agree on a sole arbitrator or, if they prefer, appoint three arbitrators (each party appointing one and the third being a neutral presiding arbitrator). If parties cannot agree, the court can step in to appoint an arbitrator.
The arbitrator conducts an initial meeting to set the groundwork for the arbitration. This meeting sets timelines, decides procedural rules (such as the application of the Indian Arbitration Act or institutional rules like ICC or SIAC), and identifies key issues to be resolved.
Both parties are required to submit their claims, counterclaims, defenses, and any supporting documents or evidence. This is typically done in writing, but oral hearings may also be held.
Unlike a court trial, arbitration hearings are informal and can be customized by the arbitrator. These hearings can take place in person, via video conference, or through the submission of written documents, depending on what the parties have agreed upon.
After hearing both sides, the arbitrator issues an "award," which is a written decision detailing the outcome of the dispute. The award is final and binding. The parties must comply with the terms of the award, and if one party fails to do so, the other can seek enforcement through the courts.
Under the Arbitration and Conciliation Act, arbitral awards are enforceable in the same manner as a court decree. If a party refuses to honor the award, the other party can file for enforcement in a court.
A party can challenge an arbitral award on limited grounds, such as:
The time frame for arbitration varies based on the complexity of the case and the arbitration agreement. Under the 2019 Amendment to the Arbitration Act, arbitrators are required to deliver an award within 12 months of the completion of pleadings. This time can be extended by six months with mutual consent, after which parties must approach the court for further extensions. For institutional arbitration (administered by arbitration institutions like the ICC or LCIA), timelines may differ based on the rules of the institution.
An arbitrator must be an independent and impartial individual with expertise in the subject matter of the dispute. They can be legal professionals, retired judges, or industry experts depending on the nature of the conflict.
Parties can appoint arbitrators through mutual consent, or in cases where they cannot agree, the court can appoint one on their behalf. Institutional arbitration bodies also have panels of arbitrators to choose from.
Arbitration is a powerful tool for resolving disputes efficiently and effectively, offering flexibility and confidentiality. With the right understanding of the process and selection of qualified arbitrators, parties can avoid the pitfalls of lengthy litigation and achieve fair outcomes. For beginners, understanding the basic steps—starting with a valid arbitration agreement and leading to a binding award—is crucial for successfully navigating arbitration in India.
