Legal Tips on how Parties can invoke Arbitration Clause enshrined in an Agreement: Lawyers Advice

Arbitration in India is supervised by the Arbitration and Conciliation Act, 1996 which says that for implementing arbitration as a dispute resolution device, an agreement in that respect, should be signed between the disputing parties.
Laws governing Arbitration Clause/Agreement in India: –
Section 7(1) of the Arbitration and Conciliation Act, 1996 (as amended in 2015) explains Arbitration Agreement as: –
In the presence of a legal relationship between the parties, a relation which may or may not be a contractual, an agreement is signed between parties deciding arbitration as the mechanism for resolution of disputes, wholly or in part, that may arise or have already arisen between the parties.
There can be a complete separate agreement for arbitration or there can be an arbitration clause included in the main agreement.
The arbitration agreement should be in written form with the following essentials: –
• Parties to the contract having signed a written document.
• An exchange of telegrams, letters, information through electronic means which also includes telecommunication.
• If in a contract, an indication has been made to the document to have the arbitration clause as part of the agreement, then the part that contains the arbitrations clause is deemed to be an arbitration agreement, as a whole only if the contract is in written form and the purpose is to make the arbitration clause part of the agreement.

Stages of Arbitration
The following are stages of arbitration are explained step by step: –
• Arbitration Clause – An agreement or the clause explicitly affirming that if a dispute arises between the parties, resolution will be through the process of arbitration.
• Arbitration Notice – In the event a dispute has arisen and the party has chosen to follow the process of arbitration then the party that has been wronged will issue an arbitration notice with the intention of invoking arbitration between the parties.
• Appointment of Arbitrator– Upon getting the notice by other parties, both parties will assign arbitrators in a manner as detailed in the arbitration agreement or arbitration clause.
• Statement of Claim– After appointing an Arbitrator, the next step is drafting a statement of claim. Statement of claim highlights the dispute between the parties, what lead to the dispute and the reward demanded from the defaulting party. The other party has an option to file a statement of counterclaim alongside a reply to the statement of claim.
• Hearing of Parties – Both the parties will present their evidence and the Arbitral tribunal will hear them.
• Award – Upon hearing both parties, the arbitral tribunal will pass their decision. The verdict of the tribunal is known as ‘Award’ and is binding on both parties. However, there is an option of appeal against the arbitral award that can be filed before the High Court.
• Execution of Award – Once the award has been given by the tribunal, it has to be enforced. The party that benefits from the award that has been passed has to file for an enforcement or execution of award.

It must be noted that as per the case of Union of India vs M/S. Baga Brothers & Anr. (FAO No. 387 of 2006), it was held that before arbitration proceedings are successfully pursued, parties must alternatively have mutual negotiations within a sensible time period. In case, mutual negotiations or conciliation proceedings fail to conclude within such time period, then arbitration proceedings for determination of the rights can be sustained.

The Limitation Act, 1963 applies on all such proceedings under the Arbitration and Conciliation Act, the same way it applies to proceedings in Indian courts, except on those expressly omitted from the Arbitration and Conciliation Act. Any arbitration proceedings started after the limitation period, which is three years from the date of cause of action, will be barred by time.

Notice for Invoking Arbitration Clause: –
In the case of Alupro Buildings Systems Pvt Ltd v. Ozone Overseas Pvt Ltd. (O.M.P. 3 of 2015), the Hon’ble Delhi High Court gave the much needed clarity was given on rational behind issuing the notice under Section 21 of the Arbitration and Conciliation Act, deciding that the legal provisions under Section 21 of the Act are compulsory in nature and cannot be tampered with and forms an important part in beginning and referencing disputes between the parties.

It was also held that the provisions of Section 21 are not only restricted to the purpose of deciding limitation and that a party cannot file a claim straight away before any Arbitrator without delivering the notice under Section 21 of the Arbitration and Conciliation Act.

The judgment imbued obligatory undertones to the stipulations of Section 21 and called it a fundamental procedure in the initiation of an arbitration process between parties and avoiding the same could be a cause for challenge of the award under Section 34 of the Act.

The Delhi High Court case had objections raised under Section 34 of the Act to an award given by an Arbitrator, selected unilaterally by the Respondent, without having invoked arbitration under the conditions of Section 21. The violation of Section 21 of the Act made the arbitration proceedings unsustainable in the eyes of law, making the award void and lacking jurisdiction.

Important legal points to consider for Notice of Arbitration under Section 21 of the Arbitration & Conciliation Act of 1996: –
• The party against whom a claim is made should be aware of the claims. It is likely that in reply to the notice, said party may accept some of the claims either in whole or in part, and therefore, the dispute between the parties may thus be less complicated.
• Issuing a notice gives a chance to the receiver of the notice to recognize if the claims are barred by time or barred by law of estoppel or is unsustainable in relation to the facts of the dispute between the parties.
• A notice highlights the method to be approved for the manner of the arbitral proceedings as well as selection of an arbitrator.
• The notice under Section 21 plays a crucial role in enabling a consensus on the selection of an arbitrator since arbitration clauses do not consider one party unilaterally appointing an arbitrator.
• If at all a notice under Section 21 of the act allows one party alone to choose the arbitrator, even then it’s essential that other party is informed, in advance, the details of the individual they recommend.

In conclusion, given that the intention behind the Act is ensuring consensus between the parties at every step, Section 21 performs an vital role of establishing such consensus over aspects such as the extent of disputes, the decision over which dispute remains unsettled, which disputes are barred by time, classification of claims and counter-claims and most notably, the decision on the arbitrator.
Authored By: Adv. Anant Sharma & Parinay Guptm