What is Arbitration?

Introduction

Arbitration is one of the most widely recognised and practised forms of Alternative Dispute Resolution (ADR). It serves as a private, legally binding method of resolving disputes without resorting to traditional courts. Arbitration is particularly popular in commercial, corporate, and international disputes, where parties seek efficiency, neutrality, and enforceability.

In simple terms, arbitration allows two or more parties to submit their dispute to an independent arbitrator (or panel of arbitrators), whose decision known as an award is final and binding.¹

Key Features of Arbitration

1. Consent of Parties: Arbitration arises from an agreement (an arbitration clause in a contract or a separate arbitration agreement). ²

2. Neutrality: Parties can choose a neutral forum and arbitrators, avoiding jurisdictional biases.

3. Finality: Unlike court judgments, arbitral awards have limited grounds for appeal.³

4. Confidentiality: Unlike litigation, proceedings are private, which is crucial in commercial disputes.

5. Enforceability: Awards are enforceable across borders under the New York Convention, 1958, ratified by over 170 countries.⁴

Types of Arbitration

1. Ad Hoc Arbitration

• Conducted without institutional involvement.

• Parties decide rules, procedure, and appointment of arbitrators.

• Example: Arbitration in India under the Arbitration and Conciliation Act, 1996, where parties directly appoint arbitrators.

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2. Institutional Arbitration

• Administered by recognised arbitral institutions.

• Institutions provide procedural rules, appointment of arbitrators, and administrative support.

• Examples:

  • ICC (International Chamber of Commerce), Paris.

  • LCIA (London Court of International Arbitration), UK.

  • SIAC (Singapore International Arbitration Centre), Singapore.

  • MCIA (Mumbai Centre for International Arbitration), India.

    
    

3. Domestic vs. International Arbitration

• Domestic Arbitration: Parties belong to the same country, governed by national arbitration laws.

• International Arbitration: Parties belong to different jurisdictions, often governed by the UNCITRAL Model Law or institutional rules.

  
  

Legal Framework of Arbitration

International

• UNCITRAL Model Law (1985, amended 2006): Framework for harmonising arbitration laws globally.⁵

• New York Convention (1958): Key treaty ensuring recognition and enforcement of foreign arbitral awards.⁶

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India

• Arbitration and Conciliation Act, 1996 (based on the UNCITRAL Model Law).

• Landmark Case: Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) clarified that Indian courts cannot intervene in foreign-seated arbitrations.⁷

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Process of Arbitration (Simplified)

1. Arbitration Agreement: A clause in a contract or a standalone agreement triggers arbitration.

2. Notice of Arbitration: One party formally notifies the other of a dispute.

3. Constitution of Tribunal: Parties appoint one or more arbitrators.

4. Statement of Claim & Defense: Each side submits its case, evidence, and arguments.

5. Hearings: Oral or written proceedings (depending on rules).

6. Award: The arbitrator issues a final and binding decision.

   
   

Advantages of Arbitration

• Speedier resolution compared to litigation.

• Expertise of arbitrators in technical/commercial fields.

• Global enforceability of awards.

• Confidentiality of proceedings.

  
  

Limitations of Arbitration

• Costly in institutional arbitration (fees + administration).

• Limited appeal rights, risk if the award is unfavourable.

• Unequal bargaining power between large corporations and smaller businesses can affect fairness.

• Enforceability challenges in non-New York Convention states.

  
  

Illustrative Example

Suppose an Indian IT company enters into a contract with a U.S. software firm containing an arbitration clause. A dispute arises over licensing fees. Instead of suing in Indian or U.S. courts, the parties may choose arbitration at SIAC in Singapore. The arbitrator’s award will be enforceable in both India and the U.S. under the New York Convention.

Conclusion

Arbitration strikes a balance between the formal authority of courts and the flexibility of private resolution. For businesses, it offers neutrality, confidentiality, and enforceability. As globalisation continues, arbitration is expected to remain the backbone of international commercial dispute resolution.

References

1. Redfern & Hunter, Law and Practice of International Commercial Arbitration (6th ed., Oxford University Press, 2015).

2. UNCITRAL Model Law on International Commercial Arbitration, 1985 (amended 2006).

3. ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705 (India).

4. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).

5. UNCITRAL Model Law on International Commercial Arbitration, 1985, Articles 7–36.

6. Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law International, 1981).

7. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.