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What is Arbitration?

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Arbitration is a private dispute resolution practice, to resolve disputes between the parties, without approaching the National Courts of a country. But at the same time the procedure of arbitration is regulated by law of each country. The procedural law governing the arbitration seated in India is Arbitration and Conciliation Act 1996.  The objective of arbitration is to provide speedy effective remedy to resolve commercial disputes without approaching the courts of the country.

Even though there are different reasons for the popular ity of arbitration globally, in India it is widely used for the following two reasons;

 

  1. Undue delay in disposal of cases by the courts
  2. Speedy finality of disputes.
  3. Expert Arbitrators

The Courts in India are heavily burdened due to the pendency of huge number of litigations and consequentially the speed in disposing of the cases badly get affected, despite the fullest efforts of the Judges. Due to the said overburdening of the courts, a normal litigation takes about 4 to 6 years to attain finality and logical conclusion. Such a situation cannot be tolerated by any corporate company or a commercial institution. An arbitration in India has to be completed within a period of 18 months from the date of formation of the arbitral tribunal. Moreover if the losing party wishes to challenge the arbitration award it requires to deposit about 75% of the award amount for getting stay of the execution proceedings. The winning party is also allowed to withdraw the above said amount after furnishing the bank guarantee. Hence the arbitration process is a much effective dispute resolution process in India for the resolution of commercial disputes.

 

Each commercial activity has certain commercial practices , underlying technology etc., Hence an arbitrator having experience in the same field of activity can understand the disputes between the parties more effectively and resolve the matter more efficiently. Such an expertise cannot be expected from a national court judge but an arbitrator can be chosen by the parties with the desired qualification and experience. For example an arbitrator having construction experience can resolve the construction disputes more efficiently then AZ with general legal qualifications. Hence, arbitration is the best method of resolving commercial disputes.

 

To resolve disputes by way of arbitration, the parties have to enter into an arbitration agreement specifying their intention to resolve all the disputes between them by way of arbitration, procedure of arbitration,  language of arbitration and the place of arbitration. Parties can enter into a separate independent arbitration agreement or incorporate an arbitration clause in the main contract between the parties. Once parties enter in to an arbitration agreement, then the national codes will not entertain any litigation between the parties. The following is a sample arbitration agreement:

Arbitration: In case of dispute between the parties, a sole arbitrator appointed by IDAC India will resolve the disputes by way of Arbitration. The language of arbitration shall be English place of arbitration shall be New Delhi. The arbitration shall be conducted as per the rules of IDAC India (www.idacindia.org).