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Arbitration: Law, Need, and Advantages

The dictionary meaning of ‘arbitration’ is the process of solving an argument between people by helping them to agree to an acceptable solution
Arbitration is a part of the Alternative Dispute Resolution mechanism that benefits parties who want to avoid the normal lengthy recourse to the local courts for settlement of disputes. It is in fact a legal technique for the resolution of dispute outside the courts, wherein the parties to a dispute refer it to one or more persons namely arbitrator(s) by whose decision (the “award”) they agree to be bound.

What is Arbitration law?

Arbitration is the dispute settlement process between two agreeable parties to appoint an arbitrator to give a binding solution on the dispute. It is a way to settle disputes outside the courts thereby saving time and resources at the same time.

Arbitration is a legal mechanism encouraging settlement of disputes between two or more parties mutually by the appointment of a third party whose decision is binding on the parties referring the said dispute.

Arbitration is an effective way of expediting resolution of disputes in these modern times when there is scarcity of time.

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All disputes however are not arbitrable and there are certain disputes which fall outside categories of arbitrable disputes as held by the Hon’ble Apex Court in the matter of Booz Allen and Hamilton Inc V. SBI Home Finance Ltd. These are:

  • ⦿ Criminal offences
  • ⦿ Guardianship matters
  • ⦿ Insolvency and winding up proceedings
  • ⦿ Matters of probate, letters of administration, succession certificate etc
  • ⦿ Eviction proceedings
  • ⦿ Patents, Trademarks, Copyright
  • ⦿ Anti Trust/ Competition laws
  • ⦿ Bribery/Corruption Laws
  • ⦿ Fraud

International Commercial Arbitration

Section 2 (1) (f) of the Arbitration and Conciliation Act 1996 defines International Commercial Arbitration as under:
“an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial law in force in India and where at least one party is:

  1. An individual who is a national of, or habitually resident in, any country other than India
  2. A body corporate which is incorporated in any country other than India
  3. A company or an association or a body of individuals whose central management and control is exercised in any country other than India
  4. The government of a foreign country

International Commercial Arbitration is a means of resolution of disputes that arise under the commercial contracts, which are international in nature.

An arbitration that is often an alternative to litigation wherein the parties to the arbitration mutually control the terms thereby avoiding their national legislation or rules of procedure.

An arbitration to resolve cross border disputes without having to file in national courts thereby avoiding long and technical procedures of national courts.

As per the Article 1 (3) United Nation Commission on International Trade Law (UNCITRAL) arbitration is international when :

  1. Parties to the arbitration agreement have at the time of the conclusion of the agreement, their places of business in different states
  2. One of the following places is situated outside the State in which parties have their places of business:
    1. The place of arbitration, if determined in or pursuant to, the arbitration agreement, is situated outside the State in which the parties have their place of business
    2. Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is most closely connected
    3. The parties have expressly agreed on the subject matter of the arbitration agreement, relates to more than one country.

Need for Arbitration

Advancement, liberalisation and globalisation of international business relations necessitated the invention of a flexible, reasonable, favourable and time saving method of resolution of disputes without making the parties to go through the rigorous, time consuming and resource exhausting procedure of the traditional justice delivery system.

Advantages of Arbitration

  1. Minimalization of court intervention
  2. Reduction in costs of dispute redressal and resolution
  3. Expeditious and timely disposal
  4. Enforcement of awards through neutrality of arbitrator
  5. Encouragement of foreign investment by recognising the country as that having a sound legal framework
  6. Effective conduct of and maintaining sound foreign relations

All these have boosted the need for Arbitration in these modern times.

International Commercial Arbitration has risen as an agreeable mechanism to effectively resolve cross border commercial disputes and ensuring the preservation of cross border business relations.
The expertise of the International Commercial Arbitrators armed with the proper knowledge of international laws governing international trade and customs of the parties have made the international commercial arbitration as a quintessential ingredient of international dispute redress/resolution process.

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