ARBITRATION: HOW STARTUPS SHOULD MAKE USE OF ARBITRATION IN COMING YEARS

What is Arbitration?

Arbitration is a process to help parties resolve a dispute and come to an agreement. Arbitration is one of several forms of ADR designed to be cheaper, faster, and less formal than litigation, or going to court to try and settle the matter. In an arbitration, the disputing parties present arguments and evidence to an independent and impartial third party – a dispute resolution practitioner known as an arbitrator – who makes a determination. Similar to court, this arbitrator’s decision is binding.¹

The main reason why many businesses including well established businesses opt for arbitration in the first place instead of litigation is that arbitration is a faster and more flexible approach towards resolving a dispute. Also, it ideally ensures that both parties are made to understand what a particular outcome of an arbitration process is and why such outcome is concluded. Essentially arbitration is an out-of-court-settlement procedure that enables both parties to a dispute to resolve their dispute faster without spending a lot of time and money on litigation.

As such, startups having no or little money may take advantage of this procedure. It will help them get many disputes resolved without having to take the hassles of litigation which includes extensive paperwork as well as a lot of expenditure of money and is time consuming as well.

  Arbitration Process

The following is the process that is usually followed in arbitration¹²:

1.     Filing and Initiation: An arbitration case begins when one party submits a Demand for Arbitration to the AAA. The other party (the respondent) is notified by the AAA and a deadline is set for a response.
2.     Arbitrator Selection: The AAA works with the parties to identify and select an arbitration based on the criteria determined by the parties.
3.     Preliminary Hearing: The arbitrator conducts a preliminary hearing with the parties, to discuss the issues in the case and procedural matters, such as witnesses, depositions, sharing information, and other matters.
4.     Information Exchange and Preparation: The parties then prepare for presentations and exchange information.
5.     Hearings: At the hearing, both parties may present testimony and evidence to the arbitrator. Unless the case is very complex, this is usually the only hearing before the arbitrator.
6.     Post-Hearing Submissions: After the hearing, both parties may present additional documentation, as allowed by the arbitrator.
7.     The Award: Finally, the arbitrator closes the record on the case and issues a decision, including an award, if applicable.

    Where can arbitration be held?

The venues where arbitration can be held are usually specified within the contract of the disputing parties itself. Nonetheless, according to the type of contract, the nature of transaction entered into, the business of the parties and the jurisdiction, arbitration may be held at places according to the type of arbitration purported within the contract itself. As such, the following are the various types of arbitration proceedings. These effect the place of arbitration accordingly.

1.     Domestic Arbitration
2.     International Arbitration
3.     International Commercial Arbitration
4.     Institutional arbitration
5.     Ad hoc arbitration
6.     Fast track arbitration
7.     Voluntary & Mandatory Arbitration
8.     Binding & Non-Binding Arbitration

    Current Domestic Scenario of Arbitration

Arbitration in India is regulated by the Arbitration and Conciliation Act, 1996. The Act is based on the 1985 UNCITRAL (The United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976.⁴The history of Arbitration dates back to the British Era. The last Arbitration Law that was codified during that time was the Indian Arbitration Act, 1940. The Indian Arbitration Act, 1940 dealt solely with the previously uncodified body of law concerning domestic arbitration proceedings. The objective of the 1940 act was to consolidate and amend the law relating to arbitration.

Thereafter, after the adoption of the UNCITRAL model of the International Arbitration Law, the Arbitration and Conciliation Act, 1996 was enacted. The Arbitration & Conciliation Act, 1996 repeals the Arbitration Act, 1940; the Arbitration (Protocol and Convention) Act, 1937; and the Foreign Awards (Recognition and Enforcement) Act, 1961 and reformulates the law in one consolidated statue. It also seek to amend and consolidate the law relating to domestic arbitration, international arbitration and the enforcement of foreign arbitral awards.⁵

As per Section 5 of the Arbitration and Conciliation Act, 1996 the court cannot interfere in the arbitration proceeding except wherein provided by the act in the following situations:

1.     Where an arbitrator needs to be appointed when the parties cannot appoint a mutually independent arbitrator.
2.     In cases of taking the shreds of evidence.
3.     Where the court is ruling in the cases as the arbitrator is terminated due to incapacity or other sufficient reasons mentioned under the Act.

Section 8 is a companion section which says “where a party has approached the judicial court to dissolve a dispute and it is exclusively to be trailed by the arbitrator, then the court must direct the person to start the arbitration proceeding first without any delay and may come later to the court when arbitration award has been made.”⁶

    Frequent Issues in Arbitration

Arbitration is not an option to choose if problems are to be avoided totally. Arbitration faces some issues such as:

1.     Delay due to clashing dates for the legal representatives of both the parties.
2.     Delay due to non-availability of Arbitrator.
3.     Issues relating to administration and management of arbitral institutions.⁷
4.     There is a small scope of appeal in the arbitration award. The very fact that there is less scope of appeal in awards is one of the most glaring disadvantages of arbitration. whenever there is a problem with the award, there would be no scope of appeal or correction.⁸
5.     In some countries, there are different statutes for domestic and international arbitration. This makes it difficult to ascertain the applicability of the laws relating to international arbitration.⁹
6.     One of the major issues faced during arbitration is the cross-cultural language barrier. There is always a discrepancy in the language and culture of the two regions. It becomes very difficult to bridge the gap and come to a unified solution.¹⁰
7.     There is no jury to decide the outcome of a dispute, but rather, the decision rests solely in the hands of the arbitrators, whom usually consist of one individual or a panel of three persons, that may or may not be able to remain entirely impartial during all proceedings regarding all matters.¹¹

 Conclusion

In a country like India, where there is a high pendency of cases and the Courts are usually taking up only urgent matters due to the pandemic, it becomes a very attractive option for many disputing parties to opt for arbitration instead of going to the Court. Also, recently the Legislature passed an Act establishing an International Hub for Arbitration at New Delhi. Thus, the Government is also inclined to encourage arbitration matters. As such, going for arbitration becomes even more reasonable.

  References

1.     https://biztechlawyers.com/arbitration/.
2.     https://en.wikipedia.org/wiki/International_arbitration.
3.     Supra at point 2.
4.     https://www.clearias.com/arbitration-in-india/.
5.     Uzair Ahmad Khan, Concept of Arbitration in India, iPleaders BLOG, (Oct. 13, 2021, 8:20 PM),

https://blog.ipleaders.in/conceptarbitration/#:~:text=%20Concept%20of%20Arbitration%20in%20India%20%201,repeals%20the%20Arbitration%20Act%2C%201940%B

%20the…%20More%20.

6.     Shreya Tripathi, An Overview of Arbitration in India, iPleaders BLOG, (Oct. 13, 2021, 8:30 PM), https://blog.ipleaders.in/an-overview-of-arbitration-in-india/.
7.     https://www.clearias.com/arbitration-in-india/#:~:text=Issues%20relating%20to%20administration%20and%20management%20of%20arbitral,trained%20administrative%20staff%2C%20lack%20of%20qualified%20arbitrators%2C%20etc.
8. https://www.legalbites.in/advantages-and-disadvantages-of-arbitration/#:~:text=Disadvantages%20of%20Arbitration%201%20No%20Appeals%3A%20There%20is,language%20and%20culture%20of%20the%20two%20regions.%20.
9. Ibid.
10. Ibid.
11. https://www.lawfirms.com/resources/lawsuits-and-disputes/arbitration/disadvantages-arbitration.htm.
12. https://www.thebalancesmb.com/what-is-the-arbitration-process-how-does-arbitration-work-397420#:~:text=%20How%20the%20Arbitration%20Process%20Works%20%201,prepare%20for%20presentations%20and%20exchange%20information.%20More%20