Based on the Balco Judgment, the following were the new legal position w.r.t. arbitrations law in India which was in line with the purpose of the parliament when they passed Indian Arbitration Act in 1996:
- The Indian Arbitration Act had accepted the territoriality principle which had been adopted in the UNCITRAL Model Law. Accordingly, Part I of the Indian Arbitration Act applied only to arbitrations taking place in India irrespective of whether such arbitrations takes place between Indian parties or between the Indian and foreign parties ("Domestic Awards"). The Domestic Awards could be challenged (section 34) and were enforceable (section 36) under Part I of the Indian Arbitration Act.
- Part I of the Indian Arbitration Act had no application to arbitrations seated outside India irrespective of whether parties chose to apply the Indian Arbitration Act or not ("Foreign Awards"). The grounds to challenge of awards which were given in Part I (section 34) of the Indian Arbitration Act are thus applicable only to Domestic Awards and not to Foreign Awards.
- The law of the seat or place where the arbitration was held is normally the law to govern the arbitration. If the agreement provides for a "seat/place" outside India, Part I of the Indian Arbitration Act would be inapplicable to the extent inconsistent with the arbitration law of the seat/place, even if the agreement purports to provide that the Indian Arbitration Act shall govern the arbitration proceedings.
- In case of Domestic Awards, Indian laws would prevail if substantive law conflicts with the laws of India. In case of Foreign Awards, the conflict of laws rules of the country in which the arbitration took place would have to be applied.
- There was no provision under the Civil Procedure Code 1908 or under the Indian Arbitration Act for a court to grant interim measures in terms of Part I (section 9) of the Indian Arbitration Act in arbitrations which take place outside India, even though the parties by agreement may have made the Indian Arbitration Act as the governing law of arbitration. An inter-parte suit simply for interim relief pending arbitration outside India would not be maintainable in India.
Role of the Court
- One of the fundamental features of the Act was that the role of the court had been minimised. Accordingly, it was provided that any matter before a judicial authority containing an arbitration agreement shall be referred to arbitration (Section 8 provided the non - applicant objects no later than submitting its statement of defense on merits).
- Further, no judicial authority shall interfere, except as provided for under the Act (Section 5). In relation to arbitration proceedings, parties can approach the Court only for two purposes:
- For any interim measure of protection or injunction or for any appointment of receiver etc.6 ;
- For the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two appointed arbitrators fail to agree upon the third arbitrator.
- In such an event, in the case of domestic arbitration, the Chief Justice of a High Court may appoint an arbitrator, and in the case of international commercial arbitration, the Chief Justice of the Supreme Court of India may carry out the appointment.
- A court of law can also be approached if there is any controversy as to whether an arbitrator has been unable to perform his functions or has failed to act without undue delay or there is a dispute on the same. In such an event, the court may decide to terminate the mandate of the arbitrator and appoint a substitute arbitrator.
In an international commercial arbitration, parties are free to designate the governing law for the substance of the dispute. If the governing law is not specified, the arbitral tribunal shall apply the rules of law it considers appropriate in view of the surrounding circumstances. For domestic arbitration, however, (i.e., between Indian parties), the tribunal is required to decide the dispute in accordance with the substantive laws of India.
Determining the number of arbitrators required in an Arbitration matter
- Where the claim including determination of interest, if any, being claimed up to the date of commencement of arbitration in terms of Rule 15, does not exceed Rs. One crore and where the arbitration agreement does not specify three arbitrators, the reference shall be deemed to be to a sole arbitrator, unless the parties to the dispute agree to refer the dispute to three arbitrators within thirty days from the date of notification of request for arbitration.
- Where the claim including determination of interest, if any, being claimed up to the date of commencement of arbitration in terms of Rule 15 exceeds Rs. One crore, the dispute will be heard and determined by three arbitrators, unless the parties to the dispute agree to refer the dispute to a sole arbitrator within thirty days from the date of the notification of the request for arbitration.
- Where three arbitrators have to be appointed as per the above sub-rule and any of the parties to the dispute fails to make the necessary deposit towards the cost and expenses of arbitration, instead of three arbitrators, the Registrar may appoint a sole arbitrator, where the claim is up to One crore. Where the claim is for more than Rs. One crore, the Registrar may appoint arbitrator/s on behalf of the Respondent as well the as Presiding Arbitrator.
Formal and other requirements for an arbitration agreement
- In the form of an arbitration clause in a contract or in the form of a discrete agreement;
- Is in writing if it is contained in
- A document signed by the parties;
- An exchange of letters, telex, telegrams or other modes of telecommunication which provide a record of the agreement; or
- An exchange of statements of claim and defense in which theexistence of the agreement is alleged by one party and notdenied by the other.
- It can also be aninformation source in a contract to a document containing an arbitration clause if the contract is in writing and thereference is such as to make that arbitration clause part ofthe contract.
- An arbitration agreement is not enforceable in the following cases:
- If the party to the arbitration was under some incompetence and cannotbe bound by the arbitration agreement;
- The arbitration agreement is invalid under the law for the time itis in effect;
- The subject matter of the dispute is incapable of resolution byarbitration under the law for the time it is in force;
- If the agreement is void or otherwise not valid on account of incapacityor elimination of one of the parties to the contract; or
- In a contract wherein one of the contracting parties is an insolventand a dispute emerges the arbitration agreement cannot be enforced unless the receiver seeks approval from the judicial authority foran order directing that the matter in question shall be submittedto arbitration.
- The Arbitration Act does not provide for third-party participation in arbitration.