Types of Arbitration

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type of arbitration

In arbitration a dispute is submitted to the ‘arbitral tribunal’ and not to a regular civil court or otherwise. The arbitral tribunal must give a decision on the dispute and this decision is thus binding on the parties in the dispute since they have no grounds to appeal.

When contrasted with the traditional approach of a judicial proceeding which ordinarilyhappens in a Court; and has to go through a lengthy process, and which usually leaves one party or both parties exhausted financially. An arbitration proceeding is not formal and does not involve judicial proceeding which can save a lot of time for the parties.

A few types of arbitrations in India on the basis of jurisdiction

Domestic Arbitration

Domestic arbitration is that type of arbitration, which happens in India, wherein both parties must be Indians and the conflict has to be decided in accordance with the substantive law ofIndia. The term ‘domestic arbitration’ has not been defined in the Arbitrationand Conciliation Act of 1996. However when reading Section 2 (2) (7) of theAct 1996 together, it is implied that ‘domestic arbitration’ means an arbitration in which thearbitral proceedings must necessarily be held in India, and according to Indian substantive andprocedural law, and the cause of action for the dispute has completely arisen in India, orin the event that the parties are subject to Indian jurisdiction.

International Arbitration

When arbitration happens within India or outside India containing elements which are foreign in origin in relation to the parties or the subject of the dispute, it is called as International Arbitration. The law applicable can be Indian or foreign depending upon the facts and circumstances of the case and the contract in this regard between the respective parties. To fulfill the definition of International Arbitration it is sufficient if any one of the parties to the dispute is domiciled outside India or if the subject matter of dispute is abroad. 

International Commercial Arbitration

‘International Commercial Arbitration’ is defined as ‘the substitution of many burning questions for a smouldering one’.[i] NaniPalkhiwala has stated that ‘International Commercial Arbitration’ ‘is a 1987 Honda car, which will take you to the same destination with far greater speed, higher efficiency and dramatically less fuel consumption’[ii] International Arbitration is considered to be‘commercial’ if it related to disputes arising out of a legal relationships irrespective of their contractual nature and are considered as commercial under the law in force in India and where at least one of the parties is-

(1) A national of, or habitual resident in, any country other than India or

(2) a body corporate which has to be incorporated in any foreign country, or

(3) An association or a body of individuals whose core management and control in a country which is not India or

(4) the government of a country other an India.[iii] In International Commercial Arbitration the arbitral tribunal is bound to decide the conflict according to the rules of law chosen by the parties as applicable to the substance of the dispute; any designation by the parties of the law or legal system of a given country can be interpreted, unless it has been expressed otherwise, one which directly refersto the substantive law of thatcountry and does not refer to its conflict of laws rules.

Types of arbitrations that are primarily recognized in India on the basis of procedure and rules:

a. Institutional arbitration

b. Ad hoc arbitration

c. Fast track arbitration

Institutional arbitration

When an arbitral Institution conducts arbitration, it is calledInstitutional Arbitration. The parties have the choice of specifying, in the arbitration agreement, torefer the differences to be determined in accordance with the rules of aselected arbitral Institution. One or more arbitrators can be appointed from a pre-selected panel by the governing body of the institution or the disputants themselves can select their panel but it has to be restricted to the limited panel. Arbitration and Conciliation Act1996 provides that where in Part I except section 28, the parties are free to determinea certain issue, that liberty encompasses the right the parties have to authorize anyperson including an institution, to determine that issue.[iv] The Actalso explicitly provides that where Part I ‘refers to the fact that the parties have agreed orthat they may agree, or in any other way refers to an agreement of the parties, thatagreement shall include any arbitration rules referred to in that agreement’.[v]

To sum up, the rules of these institutions follow a similar pattern, however they are specifically created for arbitrations that have to be administered by the institution concerned; for example, ICC recommends this clause be used by the states: “All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”[vi] Such a clause is clearly helpful, because even if at a future stage, if either party is reluctant to proceed further with arbitration proceedings, it will still be possible to arbitrate effectively, due to the existence of a set of rules that regulate the way in which the arbitral tribunal is to be appointed and the arbitration isto be administered and conducted.[vii]

An institution that has the relevant experience willordinarily have a list of possible arbitrators who have expertise in the field, fromwhich one can potentially appoint one or more especially in a case where the parties will notappoint the arbitrators on their own. Some arbitral institutions do not allow the parties to designate an arbitrator or a co arbitrator. They may, according totheir rules, select parties to choose an arbitrator from a list, which the institutionprovides. Some arbitral institutions can limit the arbitrators that appear on this listto people of their own nation, or to individuals, with a specialist background. Otherarbitral institutions may not necessarily use a list system at all and might give the parties completefreedom to select the arbitrator or arbitration at their choice.

Ad-hoc arbitration

If the parties agree among themselves and arrange for arbitration, it is called Adhoc Arbitration without having an institutional proceeding. It can either be domestic, international or foreign arbitration. Russell on Arbitration says that, “The expression ‘Ad Hoc’, as in ‘Ad Hoc Arbitration’ or ‘Ad Hoc Submission’ is used in two quite different senses: an agreement to refer an existing dispute, and/or an agreement to refer either future or existing disputes to arbitration without an arbitration institution being specified to supervise the proceedings, or at least to supply the procedural rules for the arbitration. This second sense is more common in international arbitration.”[viii] Ad Hoc Arbitration means that the arbitration should not be conducted according to the rules of an arbitral institution. Since, parties do not have an obligation to submit their arbitration to the rules of an arbitral institution; they are free to state their own rules of procedure. The geographicaljuridiction of Adhoc Arbitration is of essence, since most of the issues concerning arbitration will be resolved in accordance with the national law of the seat of arbitration

The number of arbitrators and the party to appoint them is generally dependent on the arbitration and procedural rules of the nation, which is the seat of arbitration. If for example, the seat of arbitration is in India, then it will be decided according to The Arbitration and Conciliation Act 1996, if the parties are unable to determine the number of arbitrators, the arbitral tribunal shall consist of one arbitrator, who shall be appointed by the Chief Justice of the Supreme Court of India or the Chief Justice of a High Court of India. Another example is in the event the place of arbitration is determined to be Cairo, then the Eygyptian Arbitration Law 1994 will be followed, failing a determination by the parties of the number of arbitrators, the number of arbitrators appointed shall be three, and the court of appeals of Cairo will thenappoint the co arbitrator of that has been unable to appoint an arbitrator. The two co arbitrators have 30 days time period to agree on the third arbitrator, if they unable to, then the court of appeals of Cairo will also appoint the third arbitrator. ‘Ad Hoc Arbitration’ is, thus, arbitration,which is agreed to and arranged by the parties themselves. Although the parties are freeto take the Rules framed by a particular arbitral institution without actually submitting its disputes to such institution. ‘Ad Hoc Arbitration’ can be either domestic or international commercial arbitration. The Arbitration and Conciliation Act 1996 also provides that in order to conduct arbitral proceedings, either the parties or the arbitral tribunal, after taking the consent of the parties can arrange for such administrative assistance by a suitable institution or persons.[ix]

Fast track arbitration

Even the other processes of arbitration can be lengthy and tedious and thus this process of arbitration works like a remedy to the issue of time. Fast track arbitration is a method, which is time dependent in the provision of the arbitration and conciliation act. Its procedure is established in a way that it has abandoned all the methods, which consume time, and uphold the simplicity which is the originally the prime purpose of such arbitration.

Frequently Asked Questions

1. Does India have the infrastructure to support institutional arbitration?

The infrastructure to support such institutional arbitration has been in continuous progression in India. The foreign direct investment in the companies in India has contributed to the complexities that also have increased demand for the institutional arbitration.In India, the first International institution for arbitration was established in 2016 in Mumbai. It is called Mumbai center for international Arbitration. However, owing to the inaccessibility of this method of arbitration, it is still a very new concept, which is growing with its demand. This is because all the states in India have not yetinaugurated an arbitration institution.

2. Which type of arbitration is practiced the most in India?

Ad hoc arbitration is the most frequently exercised in India because it is supported by the infrastructure we have in our country. Further it is also a cost-effective medium upon which the dispute can be resolved. It has certain other procedure requirements as well. Firstly, the number of appointed arbitrator should be odd in number even if it is not one. Secondly the two arbitrators will appoint the third arbitrator. Thirdly, the parties must choose their arbitrator on their own. Lastly, the award has to be given within a period of twelve months.

3. What are considered to be essential procedural requirements in fast track arbitration?

The time stipulated to resolve the dispute should be within six months from the beginning of the arbitration proceedings. In fast track arbitration procedure the arbitrator must only rely on the written submissions and is not mandated to use the oral submission. The arbitrator may however call upon the parties to appear and address clarifications in the written submissions. This format relies on a sole arbitrator only, unlike other methods or arbitration.

Edited by Shuvneek Hayer

Approved & Published – Sakshi Raje

Reference:

[i]Justice JS Verma (former Chief Justice of India), New Dimensions of Justice, Article ‘Courts and theArbitral Process’, ch. 17, 12

[ii]NaniPalkhiwala, ‘Chapter International Arbitration V. Litigation’ We The Nation205, 209

[iii]Arbitration and Conciliation Act 1996, Section 2(f)

[iv]Arbitration and Conciliation Act 1996, Section 2(6)

[v]Arbitration and Conciliation Act 1996, Section 2(8)

[vi]International Chamber of Commerce,Standard ICC Arbitration Clause<https://iccwbo.org/dispute-resolution-services/arbitration/arbitration-clause/>

[vii]Redfern and Hunter, Law and Practice of International Commercial Arbitration (4th ed. 2004)47, 1–99

[viii]Russell on Arbitration (21st ed. 1997) 42

[ix]Arbitration and Conciliation Act 1996, Section 6