Arbitral Tribunal vs.Courts

Vishnu Tandi:-

home-banner (2)

Arbitration is becoming an attractive dispute resolution mechanism due to its unique features. It is a specially designed tool established for the final and binding resolution of disputes[1]. With the rapid growth of International Trade, parties are free to determine the terms of their business relationship. This is in accord with the contractual doctrine of party autonomy. To this extent, arbitration agreements are often inserted in their contracts as a method of dispute settlement rather than the traditional method of dispute resolution through the instrumentality of the courts. By referring their disputes to arbitration, parties are in essence agreeing to be bound with finality by the award of the arbitral tribunal. The binding nature of the award does not however mean that the courts do not have a role to play in arbitral proceedings[2].

The Indian law also recognizes, arbitration, conciliation, judicial settlement including settlement through Lok Adalat and mediation as the mechanism of settlement of disputes, besides litigation. Some of the reasons for the growing popularities of these alternative modes include, time efficiency, cost efficiency and specialized adjudicator for resolving disputes[3].

Arbitral tribunal is an alternative to the national courts and a private dispute resolution mechanism organized and controlled by the parties. Its award is final and binding on the parties and is not subject to appeal to the regular courts save some recognized setting aside procedure. As compared with national courts, arbitration has the unique feature of being flexible, private and confidential. It is suitable for international transactions as it transcends the boundaries of national courts[4]. National courts, as compared to arbitration are usually rigid and lack the expertise in some complex international transactions.

The Indian judicial system is advancing progressively in the field of arbitration. In the last three years, India has seen a growth of nearly 200% in the number of disputes that have been referred to arbitration[5]. An award passed by an arbitral tribunal takes considerable time (around two to three years) to be enforced by Indian courts. However, with the reduction of court intervention in foreign seated arbitrations recently, it is anticipated that awards will be enforced proactively and at a faster pace.

HISTORICAL BACKGROUND

Arbitration is a system of justice, born of merchants. In one form or another, it has been in existence for thousands of years[6]. The earliest law dedicated to arbitration in England was in 1697. In 1883 the Court of Common Council of the City of London set up a committee to consider the establishment of a Tribunal for the Arbitration of trans-national commercial disputes arising within the ambit of the City. The first such statute was the English Arbitration Act of 1889, which was later consolidated into an act of 1950 and adopted by arbitration statutes in most countries of the British Commonwealth. In 1919 the world’s business community established the International Chamber of Commerce (“the ICC”). In India, the concept of Arbitral tribunal was introduced by Lord Mountbatten in the year 1947. At that time he was governor general of India. On one hand he made order to establish Lord Redcliffe’s boundary commission to define the physical boundary lines between new dominance and new province. On the other hand he made an Arbitral tribunal order 1947, on 12 August 1947 to settle all other matters which had to be provided for in view of the partition of British India[7].

The Code of Civil Procedure, 1908 (hereinafter the Code) is a consolidated document that is the primary procedural law relating to all civil disputes in India. The Code is a collection of all the laws that relate to the procedure adopted by civil courts and parties appearing thereunder. After three different formulations that governed the British colony of India in the late 19th century, the Code in its present form was formally brought into force in 1908.  Over the years a number of amendments have been passed to ensure the Code is more efficient and justice oriented but still a judicial lag exists in India.

MEANING AND DEFINITION

Arbitral tribunal and courts are different from each other. “Arbitral Tribunal” means an arbitrator or arbitrators appointed for determining a particular dispute or difference[8]. In other words an arbitral tribunal or arbitration tribunal is a panel of one or more adjudicators which is convened and sits to resolve a dispute by way of arbitration. It may consist of a sole arbitrator, or there may be two or more arbitrators[9], which might include either a chairman or an umpire. Under the Old Act[10], there was provision for appointment of an Umpire in case if number of arbiters is even.  The arbitrators had to appoint an umpire not later than one month from the latest date of their respective appointment. If the umpire was not appointed by the arbitrators, the court was empowered to make the appointment even after the expiry of one month[11]. The role of Umpire was limited that only in case where the appointed arbitrator did not agreed in award it was decided by umpire. Under the New Act[12] the provision of Umpire has been dropped. Under this Act the Umpire will be the Chairman of the tribunal who shall also sit with the Arbitrators and take part in the proceedings unlike under the old Act.

One of the key features of the Arbitral tribunal is the relationship between the parties and the arbitrator and between them and their chosen arbitral institution. This is generally of a contractual nature and determines the nature of appointment including selection, challenges and liabilities of arbitrators.

On the other side a court is a tribunal, often as governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law[13]. According to the Arbitration and conciliation Act 1996 “Court” means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes[14].

JUDICIAL INTERPRETATION

The Supreme Court of India has elaborately discussed the role of Courts, establishment and functioning of tribunals and the difference between courts and tribunals in the matter of ‘Union of India Vs. R. Gandhi[15]. The term ‘Courts’ refers to places where justice is administered or refers to Judges who exercise judicial functions. Courts are established by the State for administration of justice that is for exercise of the judicial power of the state to maintain and uphold the rights, to punish wrongs and to adjudicate up on disputes.   Courts refer to the Civil Courts, Criminal Courts and High Courts. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law.   Tribunals can be either private tribunals such as Arbitral Tribunals or Tribunals constituted under the Constitution or Tribunals authorized by the Constitution or Statutory Tribunals which are created under a statute.

In another case it has been clearly held by the Apex court that the Arbitral Tribunal doesn’t constitute a court in technical sense[16].  Further as far as giving direction to the parties is concern the power of the Arbitral tribunal is primarily govern by the Arbitration Agreement as entered between the parties. The tribunal may also seek the assistance of the court under Sec. 27 of the Arbitration Act in taking evidence.

By discussing the above cases we can say that Every Court may be a tribunal but every tribunal necessarily may not be a Court

COMPOSITION AND CONSTITUTION

Generally, both parties select an arbitrator at the time a conflict arises or at the time the arbitration agreement is concluded. Appointed arbitrators then select a chairman, forming a Tribunal. The number of arbitrators to be appointed was to be determined by the agreement of the parties. If the agreement was silent about it, the law was that a sole arbitrator would be appointed[17].

According to Section 10 of the new Act, The parties are free to determine the number of arbitrators provided that such number is not an even number. If the parties have failed to provide for the number of arbitrators, Section 10 provides that an arbitral tribunal shall consist of a sole arbitrator. Here we can say that the S.10 in the Act is a modification to the Art.10 of the UNCITRAL Model in terms of number of arbitrators. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties[18].

In this Act the parties are also allowed to decide on a procedure for appointing the arbitrator or arbitrators, however, if an agreed procedure had not been acted upon, the parties could approach the Chief Justice of the High Court (Chief Justice of India in the matter of an international commercial arbitration), or his designate for appointment of an arbitrator. In absence of any agreement to appoint an arbitral tribunal, the Arbitration Act requires, in arbitration with three arbitrators, each party to appoint one arbitrator and the two appointed arbitrators to appoint the third arbitrator, as the presiding arbitrator[19]. If one of the parties does not appoint an arbitrator within thirty days, or if two appointed arbitrators do not appoint third arbitrator within thirty days, the party can request Chief Justice or any person or institution designated by him to appoint an arbitrator[20]. However, depending upon the choice of the governing rules, the appointment of the tribunal would also vary.

While on the other hand Indian Courts are divided into different parts. A separate civil and criminal system exists in each state with the High Court being the apex court for the State. It also can be categorised into lower judiciary and higher judiciary. High courts and Supreme Court come under higher judiciary and rest are lower judiciary.

The process of appointment to lower judiciary is carried out by the state public service commissions or through the high Court (PCSJ). The appointment to higher judiciary is done in the following manner:

  • Through Promotion from Lower Judiciary
  • Through direct elevation of practicing lawyers (has been an advocate for at least 10 years of a high court)
  • In case of Supreme Court through direct elevation and promotion from high courts. (has been a judge for at least 5 years in  High court/s)

JURISDICTION

Jurisdiction is the lifeblood of all legal proceedings. Where a court or tribunal lacks jurisdiction the entire proceedings would be a nullity no matter how well conducted. The legal principle that “you cannot put something on nothing and expect it to stand” remains trite and applicable to arbitral proceedings[21]. An arbitral tribunal must therefore operate within the powers and jurisdiction conferred upon it by the parties. In other words, the tribunal must remain within its terms of reference and not exceed it. Failure to abide by it would render the final award liable to be set aside or not recognized and enforced.

The arbitration act 1940 had no provision analogous to this section. The law in India and England was on the same lines. Before the enactment of the arbitration act of 1996, it was almost recognized practice for the arbitral tribunal to decide the objection taken to their jurisdiction. This was considered as an ‘inherent’ power of tribunal. However, the usual practice under modern international law and institutional rules of arbitration is to spell out in express terms, as it is often put, its competence to decide upon its own jurisdiction or, as is often put, its competence to decide upon its own competence.[22] Section 5 of the Act also bars the jurisdiction of courts to interfere or to intervene in arbitration proceedings except to the extent provided in part I.

Article 16 of UNCITRAL Model Law is regarded as one of the ‘pillars’ of the Model Law. This article however, only regulates the arbitrator’s decision that they do have jurisdiction .The eventuality that the arbitral tribunal rules that it has no jurisdiction, is not covered by the Model law[23]. Section 16 (1) of this act integrates the seperability and kompetenz- kompetenz doctrines, which reinforce the autonomy of the tribunal process.

Arbitral Tribunal is now empowered under the new Act to rule on its own jurisdiction, including ruling on any objections with respect to existence or validity of Arbitration Agreements. The party can now contest that the Arbitral Tribunal is lacking powers necessary to adjudicate upon this reference. The Arbitration and Conciliation Act, 1996 mandates that prior to assumption of the jurisdiction, the plea u/s 16 shall be decided as it strikes at very authority.

PRINCIPLE OF KOMPETENZ KOMPETENZ:-

The Arbitration and Conciliation Act, 1996[24] recognizes the principle of kompetenz kompetenz. Section 16(1) of the Act empowers an arbitral tribunal to “rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement”. This, along with the principle of separability[25], operates to give primary responsibility to the tribunal to determineits own jurisdiction. The kompetenz-kompetenz principle is closely related to rules regarding the allocation of jurisdictional competence between arbitral tribunals and national Courts and to rules concerning the nature and timing of judicial consideration of challenges to an arbitral tribunal‟s jurisdiction[26].

It is generally accepted that an arbitral tribunal has the power to investigate its own jurisdiction[27].The principle that arbitrators have jurisdiction to consider and decide the existence and extent of their own jurisdiction is variously referred to as the competence-competence doctrine or the kompetenz- kompetenz principle or the „who decides‟ question[28].

This principle was first recognized in India through the enactment of the Act in 1996, the position in English law has been well settled since the decision of Mr. Justice Devlin in Brown v.GenossenschaftOsterreichischerWaldbesitzer[29] .Therein, it was laid down in no uncertain words that, “[Arbitrators] are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties – because they cannot do so – but for the purpose of satisfying themselves as a preliminary matter about whether they ought to go on with the arbitration or not.”

In a nutshell, the principle of kompetenz-kompetenz recognizes the competence of an arbitral tribunal to rule on its own jurisdiction.

 DOCTRINE OF SEPARABILITY

The separability doctrine is another way of giving effect to the arbitral process. It is said that “while competence competence empowers the arbitration tribunal to decide its own jurisdiction, separability affects the outcome of this decision. The principle traditionally gives the arbitral tribunal power to separate the arbitration agreement from the main contract where it is contained. This is to enable the tribunal determine a case where one of the parties is challenging its jurisdiction on grounds of invalidity or termination of the arbitration agreement.

Jurisdiction of Civil CourtJurisdiction of civil court can be classified into various categories like Territorial jurisdiction, pecuniary jurisdiction, original and appellate jurisdiction. The code of civil procedure, 1908 specifies the jurisdiction of civil court in India. Sec 20 of CPC allows suit to be instituted in a court within the local limit of the jurisdiction where the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain. The court also has the jurisdiction to try all Suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.[30]

Where a suit is for compensation for wrong done to the person or to movable property, if the wrong was done within the local limits of the jurisdiction of one Court and the defendant resides, or carries on business, or personally works for gain, within the local limits of the jurisdiction of another court, the suit may be instituted at the option of the plaintiff in either of the said courts[31].

The Supreme Court in its recent judgment of State of West Bengal & Ors. (“Petitioner”) vs. Associated Contractors (“Respondent”)[32]has analysed the scope and applicability of Section 2(1) (e) and Section 42 of the Arbitration and Conciliation Act, 1996 (“the Act”) and has laid down principles determining which ‘court’ would have the jurisdiction to entertain and decide applications under Part I of the Act.

In order to facilitate quicker resolution of disputes and to reduce the burden upon civil courts, Section 89 of the CPC enables civil courts which are seized of a matter to refer parties to arbitration so that the disputes may get resolved earlier. While doing so, the civil courts have to look at the nature of issues involved and decide if the issues involved in the suit of such nature are capable of being resolved through arbitration.

NATIONAL COURTS AND ARBITRATION

When parties choose arbitration as a means of resolving their disputes, they are in a way excluding the courts from acting as their arbiter. They effectively relegate the courts to the back stage when an arbitral tribunal is seized of a matter. The assistance and intervention of the courts are often required by the parties and the arbitral tribunal to remove difficult issues from the way of proceedings. The courts are as a result enjoined in their role to always consider the principles of party autonomy, terms of reference and the governing applicable laws[33]. The partnership between courts and arbitration in an ideal situation is described by Lord Mustill as akin to a relay race where the race baton is in the hands of the court whose assistance may be needed to set up the tribunal[34]. The baton is passed on to the tribunal at the commencement of arbitration and handed back to the courts at the end of the arbitration at which stage the assistance of the court is called upon to enforce the arbitral award[35]. In practice however, the situation is not as rosily described. The assistance or intervention of the court is usually required by parties during the arbitral process[36].

 APPLICABLE LAW

According to the Arbitration and Conciliation Act, the arbitral tribunal is not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872[37]. Parties have freedom to agree as regards the procedure to be followed by the arbitral tribunal[38] but if there is no such agreement then the arbitral tribunal can follow such procedure as it considers appropriate[39]. Section 28 of the new law provides for the rules applicable to substance of disputes in domestic and international commercial arbitrations. Where the place of arbitration is in India, the following principles apply to domestic and international commercial arbitrations respectively-

  • In domestic arbitration, the arbitral tribunal shall decide the dispute in accordance with the substantive law for the time being in force in India.
  • In international commercial arbitration, the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute.

On the other hand, if parties approach the court, then the code of civil procedure will be applicable to settle the dispute. The provision under Section 89 is an attempt to bring about resolution of disputes between parties, minimize costs and reduce the burden of the courts. It is provided for with the sole objective of blending judicial and non-judicial dispute resolution mechanism and bringing alternate dispute mechanism to the centre of the Indian Judicial System.

ADVANTAGE OF ARBITRAL TRIBUNAL

The first and foremost advantage of Arbitral tribunal is the flexibility of the proceedings, compared to the rigid and inflexible procedure of the courts. The parties can choose the procedure that is most suited to them and their situation, which then results in a more relaxed and informal hearing compared to a court. Part of this flexibility, is that the parties can choose the hearing time and place to suit them, instead of having to organise themselves around set court times.

Another advantage is cost, as most arbitral proceedings are cheaper than going to court. However, if a professional arbitrator is used his fees may be expensive and it will also be expensive if the parties opt for a formal hearing, with lawyers representing both sides and witnesses giving evidence.

The flexibility of the proceedings of the arbitral tribunal is also reflected in the fact that the parties can choose their own arbitrator. As such they can decide whether the matter is best dealt with by a lawyer, technical expert, or a professional arbitrator. Their choice will be influenced by the type of issues at stake, so if it is a legal point then it can be dealt with by a lawyer, but if it is a technical point then it can be dealt with by a technical expert. This is especially useful if there is a question of quality in a consumer dispute, as the arbitrator can already be an expert in this particular field. This saves the expense that would be used in calling an expert witness and the time needed to explain these technicalities to a judge.

The final advantage of arbitration is that under the Arbitration and Conciliation Act 1996, the award made by the arbitral tribunal is normally final and can be enforced through the courts. According to this Act, award passed by tribunal shall automatically become decree after four months of passing of the award.

 CONCLUSION

Hence as per the study it is concluded that Arbitral tribunal is an alternative to the national courts and a private dispute resolution mechanism organized and controlled by the parties. Arbitral tribunal is not permanent institution and it must be constituted for every case and dissolves on determination of each case. On the other side, Court means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction.

When a Civil disputes between people have occurred, there have always been decisions to be made, as to which way to solve a dispute. This question focuses on whether the Civil Courts offer the best means of solving disputes, or whether there is an alternative. Arbitration commences with the consent of all the parties. Arbitration puts an end effectively to the dispute.

By above discussion, it is clear that arbitral tribunal offer the best means of solving disputes.

[1] Lew, J. et al, Comparative International Commercial Arbitration (The Hague, Kluwer Law, 2003) p.1

[2] Sec 5 of the Arbitration and conciliation Act 1996

[3] Dispute Resolution in India, Available at http://khemkafoundation.in/

[4] Supra,p.5

[5] Article on Emerging trends in arbitration in India, Available at-http://www.ey.com/IN/en/Services/Assurance/Fraud-Investigation—Dispute-Services/EY-emerging-trends-in-arbitration-in-india

[6] Sources for the History of Arbitration” by Derek Roebuck (1998) 14 Arb Intl.; “Cleopatra Compromised: Arbitration in Egypt in the First Century BC” (2008) 74 Arbitration 3 at 263.

[7] The Arbitral Tribunal in India 1947-48, Cambridge University Press, Vol. 36,p 61-74 at p. 63

[8] Rule 2,Indian Council of Arbitration

[9] Sec 2(1)(d) of the Arbitration and conciliation Act 1996

[10] The Arbitration Act 1940

[11] Sec 11(4)(b) of the Arbitration Act 1940

[12] The Arbitration and conciliation Act 1996

[13] Walker, David (1980). The Oxford companion to law. Oxford: Oxford University Press. p.301. ISBN 0-19-866110-X

[14] Engineering Mazdoor Sabha Vs. Hind Cycles Ltd, 1963 AIR 874

[15] (2010) 96 CLA 222 (SC)

[16] Engineering Mazdoor Sabha Vs. Hind Cycles Ltd, 1963 AIR 874

[17] Sec 10(1), The Arbitration and Conciliation Act 1940

[18] Sec 11(1) The Arbitration and Conciliation Act 1996

[19] Sec 11(3)

[20] Sec 11(4) (b)

[21] See Lord Denning M.R. in Mcfoy v. UAC LTD. [1961] 3 WLR, p. 405 at 409.

[22] OP Malhotra & Indu Malhotra, The law and Practices of Arbitration and Conciliation,2nd edition,lexis nexis butterworths,2006,p.no 622

[23] Supra note 1 at page no 226

[24] The Arbitration and ConcilliationAct , 1996, No.26, Acts of Parliament, 1996 (India) [hereinafter “TACA”]

[25] Ibid Art 16(1)(a)

[26] GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 852 (2010).

[27] ALAN REDFERN ET. AL., LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION, 346 (5th ed., 2009)

[28] BORN, supra note 3, at 853.

[29] [1954] 1 Q..B. 8

[30] Sec 9, The Code of Civil Procedure 1908

[31] Sec 19, Of Code of Civil Procedure 1908

[32] Civil Appeal No. 4808 of 2013

[33] See Lew, J., et al. supra, note 1, p.361

[34] Redfern, A., and Hunter, M., Law and Practice of International Commercial Arbitration (London, Sweet and Maxwell, 2004) note 7, p.391.

[35] Ibid

[36] Ibid

[37] Sec 19(1)

[38] Sec 19(2)

[39] Sec 19(3)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s