The increasing role of international trade in the economic development of nations has increased manifold over the years. Alongside, the risk of commercial disputes has also grown substantially. Consequently the importance of international dispute resolution mechanism, including arbitration as a means of resolving trade disputes, assumes greater significance.

Areas where arbitration has proved especially effective include building and civil engineering contracts; shipping; imports; exports and international trade; partnership disputes; insurance contracts; intellectual property agreements; and rent review in commercial leases. This list is not exhaustive, however, for almost any commercial dispute which can be resolved by litigation in court, can be resolved by arbitration, which has now become a globally popular choice.

Arbitration is preferred to litigation not merely because of the length of time taken in commercial cases in Courts - especially in a three-tier court system that is prevalent in India; but more importantly, because there is simply no other option.

THE INDIAN LEGISLATURE ON ARBITRATION

The Arbitration & Conciliation Act, 1996

The present Act is based on model law drafted by United Nations Commission on International Trade Laws (UNCITRAL), both on domestic arbitration as well as international commercial arbitration, to provide uniformity and certainty to both categories of cases.

The Act is divided in to following parts :

(a) Part I - Domestic arbitration.

(b) Part II - Enforcement of foreign awards.

(c) Part III - Conciliation procedures.

(d) Part IV - Supplementary provisions.

(e) First Schedule - Convention on recognition and enforcement of foreign arbitral award as per New York convention

(f) Second Schedule - Protocol on Arbitration clauses

(g) Third Schedule - Convention on the execution of foreign arbitral awards as per Geneva Convention.

WHAT IS ARBITRATION

Arbitration is a process of dispute resolution in which a neutral third party (called the arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. It is the means by which parties to a dispute get the same settled through the intervention of a third person, but without having recourse to court of law. An arbitrator is basically a private judge appointed with consent of both the parties.

Arbitration Agreement - The foundation of arbitration is the arbitration agreement between the parties to submit to arbitration all disputes which have arisen or which may arise between them. Thus, the provision of arbitration can be made at the time of entering the contract itself. It is also possible to refer a dispute to arbitration after the dispute has arisen. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The agreement must be in writing and must be signed by both parties

Court may refer the matter to arbitration in some cases - If a party approaches the court despite the arbitration agreement, the other party can raise an objection. However, such objection must be raised before submitting his first statement on the substance of dispute. Such objection must be accompanied by the original arbitration agreement or its certified copy. On such application the judicial authority shall refer the parties to arbitration. Since the word used is "shall", it is mandatory for judicial authority to refer the matter to arbitration.

ARBITRATION PROCEDURE

Submission of Statements of Claim and Defense - The claimant should submit statement of claims, points of issue and relief or remedy sought. The respondent shall state his defense in respect of these particulars. All relevant supporting documents must also be submitted. Such claim or defense may be amended or supplemented any time

Hearings and written proceedings - After submission of documents and defense, unless the parties agree otherwise, the Arbitral Tribunal can decide whether there will be oral hearing or proceedings can be conducted on the basis of documents and other materials. However, if one of the parties requests, the hearing shall be oral. Sufficient advance notice of hearing should be given to both the parties.

Settlement during arbitration - It is permissible for parties to arrive at mutual settlement even when arbitration is proceeding. In fact, even the Tribunal can make efforts to encourage mutual settlement. If parties settle the dispute by mutual agreement, the arbitration shall be terminated. However, if both parties and the Arbitral Tribunal agree, the settlement can be recorded in the form of an arbitral award on agreed terms. Such Arbitral Award shall have the same force as any other Arbitral Award.

Arbitral Award - The decision of Arbitral Tribunal is termed as 'Arbitral Award'. The arbitrator can decide the dispute ex aequo et bono (In justice and in good faith) if both the parties expressly authorise him to do so. The decision of Arbitral Tribunal will be by majority and the arbitral award shall be in writing and signed by the members of the tribunal. The award must state the reasons unless the parties agree otherwise. The award should be dated and place where it is made should be mentioned. Copy of award should be given to each party.

Cost of Arbitration - Cost of arbitration means reasonable cost relating to fees and expenses of arbitrators and witnesses, legal fees and expenses, administration fees of the institution supervising the arbitration and other expenses in connection with arbitral proceedings. The tribunal can decide the cost and share of each party. If the parties refuse to pay the costs, the Arbitral Tribunal may refuse to deliver its award.

Intervention by Court - One of the major defects of the 1940 Arbitration Act was that the party could access court almost at every stage of arbitration - right from appointment of arbitrator to implementation of final award. The New 1996 Act has drastically curtailed the right of appeal and such appeal to the court is now only on restricted grounds In some cases, if an objection is raised by the party, that objection is decided upon by the Arbitral Tribunal itself, after which the arbitration proceedings are resumed and the aggrieved party can approach the Court only after the Arbitral Award is made.

ADVANTAGES OF ARBITRATION

• Final, binding decisions - While several ADR mechanisms can help parties reach an amicable settlement, all of them depend ultimately, on the goodwill and mutual collaboration of the parties. However, a final and enforceable decision may be obtained by recourse to arbitration.
• Limited right of appeal - Although arbitral awards may be subject to being challenged, the grounds of challenge available against arbitral awards have been limited by the new Arbitration and Conciliation Act, 1996.
• Speed and economy - Arbitration is faster and less costly than litigation. The restricted scope for challenge against arbitral awards, as compared with court judgments, provides the edge. Arbitration ensures that the parties will not subsequently be tangled up in a protracted and expensive sequence of appeals.
• Flexibility of procedure - Further, arbitration also offers the parties the freedom and flexibility to decide on the number of hearings, selection of arbitrators, the venue of arbitration, procedure that may be conducted within an agreed time frame expeditiously and as economically as the circumstances allow.
  
• Confidentiality - Unlike trials, arbitration hearings do not take place in public and only the parties themselves receive copies of the awards.
• Neutrality - As per the arbitration agreement signed by the parties, arbitration may take place in any country, under any law in any language and with arbitrators of any nationality. With this flexibility, it is generally possible to structure a neutral procedure offering no unwarranted advantage to any party.
• Specialized competence of arbitrators - The Judicial system of any country will not permit the parties to a dispute to select their own judges. On the other hand, arbitration presents the parties an opportunity to nominate persons of their choice as arbitrators, provided they are independent. This enables the parties to have their disputes resolved by people who have specialized competence in the relevant field.

International recognition of arbitral awards - Arbitral awards enjoy much larger global recognition than judgments of national courts. Over 160 countries have pledged adherence to the "1958 New York Convention" and its provisions have been incorporated into the domestic laws of the contracting States. The Convention facilitates enforcement