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INSTITUTIONAL, STATUTORY AND AD-HOC ARBITRATION

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INSTITUTIONAL, STATUTORY AND AD-HOC ARBITRATION
By: Mr. M. GOVINDARAJAN
February 18, 2020
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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Arbitration

Arbitration is a method in which the parties to a dispute in business refer the dispute to one or more third persons known as ‘arbitrators’.  The arbitrator examines the evidences placed by the parties to the dispute and passes an arbitral award.  The parties to the dispute are binding to the award passed by the arbitrator.  The arbitration is preferred by the business entities in resolving the dispute because of speed, flexibility and confidentiality.  A large number of companies are considering arbitration over litigation in settling their disputes.

The arbitration may be institutional arbitration or ad-hoc arbitration.  Some statutes provides for statutory arbitration to resolve the dispute. 

Institutional arbitration

The institutional arbitration is common throughout the world. In an institutional arbitration, the arbitration agreement may stipulate that in case of dispute or differences arising between the parties, they will be referred to a particular institution.

One of the advantages of adopting institutional arbitration is that it provides a mechanism and time frame for selection of the arbitral tribunal.  In developed countries institutional arbitration is preferred owing to presence of institutions, bespoke of administration of the proceedings offered by such institutions, uniform rules and procedure, absence of interference from the country’s legal system and arbitration friendly infrastructure available in such countries.

A country may have a single institutional arbitration or many.  China has nearly 230 institutional arbitrations.  Singapore has only one institutional arbitration.  The institutional arbitration may be for the domestic purpose and may be for resolving international commercial disputes.  These institutions may have offices in other countries also.  The international arbitral proceedings may be held in any country. 

The following are the well known international arbitral institutions established by various countries-

  • The London Court of International Arbitration;
  • London Maritime Arbitration Association;
  • International Centre for Settlement of Investment Disputes;
  • Grain and Feed Trade Association, London;
  • The International Chamber of Commerce, Paris;
  • The Hong Kong International Arbitration Centre;
  • Singapore International Arbitration Centre;
  • International Centre for alternative Dispute Resolution, India;
  • American Arbitration Association, New York;
  • The WIPO Arbitration and Mediation Center, World Intellectual Property Organization, Geneva Switzerland;
  • The Board of Trade of Thailand;
  • The Korean Commercial Arbitration Association;
  • The Chamber of National and International Arbitration of Milan;
  • The China International Economic and Trade Arbitration Commission
  • Greek Arbitration association, Athens, Greece;
  • The Australian Centre for International Commercial Arbitration;
  • The Cairo Regional centre for International Commercial Arbitration;
  • The Danish Committee of International Arbitrators.

The Law Commission of India, in its 246th report recommends promoting institutional arbitration, in India, which may provide qualified arbitrators empanelled with the institution.  All these institutions have framed their own rules of arbitration which would be applicable to arbitral proceedings conducted by these institutions. Such rules supplement provisions of the Arbitration Act in matters of procedure and other details as the Act permits. They may provide for domestic arbitration or for international commercial arbitration or both and the disputes dealt with by them may be general or specific in nature.

 In India, the following are some of the leading institutions dealing arbitration-

  • Indian Council of Arbitration , New Delhi;
  • Federation of Indian Chamber of Commerce and Industry;
  • Bengal Chamber of Commerce and Industry;
  • Indian Chamber of Commerce;
  • The East India Cotton Associations Limited;
  • The Cotton Textiles Export Promotion Council;
  •  The Mumbai Centre for International Arbitration.

Recent developments

The Arbitration and Conciliation Act, 1996 has been amended by the Arbitration and Conciliation (Amendment) Act, 2019 which got the assent of the President of India on 09.08.2019.  This amendment has brought importance to the institutional arbitration.

The amendment provides for the establishment of the Arbitration Council of India which shall promote institutional arbitration by strengthening arbitral institutions.  The arbitral institution, according to the amended Act, is an arbitral institution designated by Supreme Court or High Court under this Act. 

Appointment of arbitrator

The Supreme Court and the High Court shall have power to designate arbitral institutions, from time to time, which have been graded by the Arbitration Council of India.  In respect of those High Court jurisdictions, where no graded arbitral institutions are available, then the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of the arbitral institution.  Any reference to the arbitrator shall be deemed to be an arbitral institution.

The Supreme Court shall appoint arbitral institution in case of international commercial arbitration. The High Court shall appoint arbitral institution in case of domestic arbitration.

Where more than one request has been made to different arbitral institutions by the parties, the arbitral institution to which the request has been first made shall be competent to appoint the arbitrator.   Where the matter arises in an international commercial arbitration or any other arbitration, the reference to the arbitral institution shall be construed as a reference to the arbitral institution designated under section 11(3A).

An application made for the appointment of arbitrator or arbitrators shall be disposed by the arbitral institution within a period of 30 days from the date of service of notice on the opposite party.

Fees for institutional arbitration

 The arbitral institution shall determine the fees of the arbitral tribunal and the manner of its payment subject to the rates specified in Fourth Schedule. This will not apply to international commercial arbitration and in arbitrations, other than international commercial arbitration, where parties have agreed for determination of fees as per the rule of arbitral institution.

Confidentiality of information

The amendment act provides that the arbitrator, the arbitral institution and the parties to the arbitral agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

Ad-hoc Arbitration

Ad-hoc arbitration is an arbitration agreed to and arranged by the parties themselves, without recourse to an arbitral institution.  The parties to the arbitration may agree to adopt the rules framed by a particular institution without submitting its disputes to that institution.  It may be domestic or international commercial arbitration.

In Ad-hoc arbitration, if the parties are not able to nominate arbitrator/arbitrators by consent, the appointment of arbitrator is made by the High Court (in case of domestic arbitration) and by the Supreme Court (in case of international commercial arbitration). In India, still most of the arbitrations are Ad-Hoc Arbitrations.

Russell on Arbitration has to say, ‘The expression ‘Ad-hoc’ in ‘Ad-hoc arbitration’ is used in two different senses-

  • an agreement to refer an existing dispute;
  • an agreement to refer either future or existing disputes to arbitration

 without an arbitral institution being specified to supervise the proceedings or at least to supply the procedural rules for arbitration.

Ad-hoc arbitration is a do yourself arbitration.  The geographical location of the ad-hoc arbitration will be of great importance because most of the difficulties concerning the arbitration will be resolved in accordance with the national law of the seat of arbitration.

Majority of the Indian companies preferred ad-hoc arbitration than institutional arbitration.    It is flexible than institutional arbitration.  It may lead to a longer time frame for constitution of arbitration tribunal and administrative procedure.

Statutory Arbitration

When arbitration is conducted in accordance with the provisions of special act that specifically provides for arbitration in respect of disputes arising on matters covered by that Act, then such arbitration is called as ‘statutory arbitration’.   Arbitration under an enactment is known as statutory arbitration.  In this type of arbitration the arbitrator is appointed in terms of the provisions of that Act.   Statutory arbitration is provided in many of the Central as well as State Acts.  Among them are-

  • Indian Telegraph Act, 1885;
  • The Railways Act, 1890;
  • The Land Acquisition Act, 1894;
  • The Indian Electricity Act, 1910;
  • The Forward Contracts Regulation Act, 1956.

A statutory arbitration is distinct from a consensual arbitration, which is the result of agreement between the two parties.  A statute may provide that disputes of particular class shall be determined by arbitration of a particular sort, either in every case or upon certain steps taken by the parties.  Where such a provision applies, the arbitral tribunal laid down by the statute has exclusive jurisdiction over such disputes. 

The matters covered by a statutory provision requiring adjudication in a particular manner cannot be permitted to be referred to arbitrator even with the consent of parties.  There are a large number of disputes arising out of statutory relationship.  Such statutes provide for settlement of disputes arising under them. 

One example for statutory arbitration may be the provisions contained in Indian Telegraph Act, 1885.  Section 7B(1) of the Indian Telegraph Act, 1885 provides that except as otherwise expressly provided in this Act, if any dispute concerning any telegraph line, appliance or apparatus arises between the telegraph authority and the person for whose benefit the line, appliance or apparatus is, or has been, provided, the dispute shall be determined by arbitration and shall, for the purposes of such determination, be referred to an arbitrator appointed by the Central Government either specially for the determination of that dispute or generally for the determination of disputes under this section.  Section 7B (2) provides that the award of the arbitrator appointed under sub-section (1) shall be conclusive between the parties to the dispute and shall not be questioned in any Court.

Section 7B of the Indian Telegraph Act, 1885 provides for statutory arbitration for settlement of particular disputes-

  • any dispute concerning any telegraph line,
  • any dispute concerning any appliance;
  • any dispute concerning any apparatus

arises between the Telegraph Authority and the consumers.  Such disputes shall be determined by arbitration.  The arbitrator shall be appointed by the Central Government.  There is no option for the consumer to appoint an arbitrator.  The award of the arbitrator shall be final and conclusive and the same could not be questioned by any court.

When the Consumer Protection Act, 1986 was enacted numerous complaints have been filed before the Consumer forum all over India against the non functioning of the telephone wrong billing etc.,  The complaints were dismissed because of provision Section 7B of the Indian Telegraph Act on the contention that the Consumer forum has no jurisdiction to entertain such complaint and it shall be settled only by statutory arbitration.

Compulsory or statutory arbitration is difficult to situate it within the framework of arbitration, since the latter takes place pursuant to the agreement of the parties, and not because it is mandatory to refer the dispute to an arbitrator.

Limitation

Section 43 of the Act provides that the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings the Court. 

Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within the time fixed by the agreement.  The Court may extend the time for such period if it is of the opinion that in the circumstances of the case undue hardship would otherwise be caused.

The limitation will not be applicable to statutory arbitrations.  The application of Indian Limitation Act is excluded for statutory arbitrations.

In ‘Municipal Board, Farrukhabad v. Babu Ram’ it was held that an arbitrator appointed under the UP Co-Operative Societies Act is a statutory arbitrator since for his appointment other party’s consent or contract is not necessary.    The Limitation Act applicable to the arbitration proceeds does not apply to statutory arbitrations. 

In Dalpat Singh v. Registrar, Co-op Societies, Punjab’ [1962 (1) TMI 87 - PUNJAB & HARYANA HIGH COURT] it was held that an arbitrator appointed under the Punjab Co-operative Societies Act can give an award even in regard to a time barred claim.

Conclusion

Arbitration remains a preferred dispute resolution mechanism even though there are loopholes and shortcomings in the system.  The international commercial arbitration is growing manifold with the increase in commercial trade.  We may open ourselves to the outside world and incorporate best practices for creating world class by which our country may be developed as a global hub for international arbitration.

Reference:

  1. https://www.lawteacher.net/free-law-essays/commercial-law/statutory-arbitrations-and-conciliation-commercial-law-essay.php
  2. https://shodhganga.inflibnet.ac.in/bitstream/10603/201577/9/09_chapter%203.pdf
  3. https://www.lexology.com/library/detail.aspx?g=cc10c568-c17f-4638-b41f-c5e38eb7d888
  4. http://www.supremecourtcases.com/index2.php?option=com_content&itemid=5&do_pdf=1&id=58
  5. https://niti.gov.in/writereaddata/files/document_publication/Arbitration.pdf
  6. https://singhania.in/wp-content/uploads/practice_lead_files/Arbitration%20Organisations.pdf
  7. www.pwc.in

 

By: Mr. M. GOVINDARAJAN - February 18, 2020

 

 

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