ARBITRATION: SEAT OF ARBITRATION IN E-CONTRACTS By: Parikshit Bajaj & Vishal Aggarwal

ARBITRATION: SEAT OF ARBITRATION IN E-CONTRACTS

Authored By: Parikshit Bajaj[1] & Vishal Aggarwal[2]

1. Introduction

As a matter of fact, disputes are an integral part of every society where there are people, disputes are meant to especially in a country like India, which is one of the most populated country in the world with over 130 Crore people. The chances of arising disputes are also high in our country since we live in a diverse society with people belonging to different cultures and also due to its development stage which not only burdens to make a balance between the cultures within the country but from the different parts of the world. Furthermore, it must not be denied that being in the stage of development the country’s main focus id on ease of doing business which revolves around the word ‘Trust’, which when broken gives rise to conflicts and disputes therefore, imposing a major responsibility over the countries judicial system in order to maintain law and order within the territories of India and ensuring justice to all; And also keeping in view the countries image in the global market. Since, Global Market[3] plays a major role in countries development and building their goodwill. A company’s Image and goodwill can not only be maintained by focusing more over the issues relating to inter-country disputes, but by keeping the check over the mechanism or procedure by which a country handles all its disputes be it at domestic level or international level to ensure Prima facie trust of parties over the justice delivery mechanism of the land. Since, in cases of business transaction, it is very probable of a dispute to arise. Furthermore, time plays a very important role in a business, since undue delay generally causes huge loss to the business. Therefore, time becomes very important while resolving a dispute to which India lacks behind. This can be inferred form the Pending Court Cases Report, PIB, Ministry of Law and Justice, Government of India. According to this report there are about 48,418 cases of civil nature and 11,050 cases of criminal nature pending in the Hon’ble Supreme Court of India. Furthermore, 31,16,492 civil cases and 10,37,465 cases of criminal nature are pending in the High Court, District Court and other Inferior Courts. The above stated report clearly shows that currently Indian judicial system is not efficient and is overburdened. This clearly shows the need of change in the current justice delivery system to increase the pace of dispute resolution in India.

The commercial sector demands speedy and fair justice delivery system, since long breakages in a business cause loss to the business or may sometimes lead to its closer. As the business is like the rays of light and any disturbance in its path gives rise to a much larger shadow or darkness in its public Image therefore, in order to resolve disputes quickly the parties must refer their disputes to ADR (Alternative Dispute Resolution Mechanism) instead of going through normal court proceedings. ADR is based on the principle of “Consensus-ad-idem” and helps parties to resolve dispute quickly, avoiding the normal court proceedings. ADR is referred in Section 89 of Civil Procedure Code, 1908 which provides ADR a legal sanctity. Section 89 provides with various forms of dispute resolution such as arbitration, mediation, conciliation and lok adalats; but with contrast to commercial industrial disputes Arbitration may be referred to as the best form of ADR, since in other forms of ADR parties Give away their rights to avoid long court proceedings. Furthermore, it won’t be wrong to say that in other forms of ADR, parties simply give away their right and accept to negotiate in order to resolve dispute quickly. While, in arbitration the award is passed on the basis of evidence, written submissions, witnesses, etc. by avoiding the normal court proceedings and hence delivering the justice in much earlier time. Furthermore, the award passed is a legal binding on both the parties providing it a legal sanctity.  

1. Background of ADR and Arbitration in India

The term ADR i.e. “Alternative Dispute Resolution” which basically focuses to resolve disputes outside the court of law may had not been so prevalent in India, but is being practised since long in India. In ancient times the disputes were resolved by the elders of the family or King’s and latter on the kings passed this function of resolving dispute to its ministers. Subsequently, after the King’s rule in India. The Panchayat’s played an important role in resolving the disputes within the parties, lately, for the fist time in Vytla Sitanna v. Marivada Viranna[4], the Privy Council held that, “Reference to a village Panchayat is a time honored method of deciding disputes of this kind and has advantages like- it is comparatively easy for the Panchayatdars to ascertain true facts”. In the following case, the Honorable Privy Council affirmed the decision of the Panchayat in a family dispute. And the section 89 of C.P.C. provided ADR a legal sanctity in India with the belief that fast, speedy justice delivery system is the need of the time. Furthermore, 129th Law Commission Report and Malimath Committee also advocated the need of Amicable settlement of disputes between the parties. Furthermore, the clause for arbitration was introduced.

The term “arbitration” may be referred to as any arbitration whether or not administered by permanent arbitral institution[5].

Arbitration may be defined as a process in which two or more parties settle their disputes as to their legal rights and liabilities by referring the dispute to a particular person (arbitrator), who decide the dispute with a binding effect and by applying the law, instead of the parties going to the Court of law.[6]In other words, arbitration may be referred to as resolving the dispute in the presence of a neutral person (arbitrator) outside the court.

 Arbitration itself has a long history and underwent a lot of amendments such as: -

• The Indian Arbitration Act, 1937
• Arbitration (Protocol and Convention) Act
• Arbitration Act, 1940
• Foreign Awards (Recognition and Enforcement) Act. 1961
•  Arbitration and Conciliation Act, 1996 which was based on UNCITRAL model and currently arbitration is being goverened by Arbitration and Conciliation (Amendment) Act, 2015 based on the Geneva convention. It may mot be wrong to suggest that with each of the changes in the legislation governing the arbitration in India the position of arbitration became better.

1. Why Arbitration should be chosen over other forms of ADR

In India, the arbitration proceedings are governed by the Arbitration and Conciliation Act, 2015 which provides the following distinct features: -

1. Interim Measures and Temporary Injunctions

Section 17 of the legislation[7] empowers the Arbitrational Tribunal to pass the interim measures such as detention, preservation, inspection, injunction, etc. at the time of an arbitrational award but before the enforcement of such award.

1. Neutral Arbitrator:

Though the legislation does not clearly state about Neutral Arbitrator but under section 12, gives the parties the right to challenge the award if there is an apprehension to the parties that the arbitrator was partial.

1. Distinct Procedure

Legislation under section 19 states that arbitral tribunal is not bound by C.P.C., 1908 or Indian Evidence Act, 1872. It also empowers parties or arbitral tribunal to agree over a particular procedure.

1. Limitation Clause

Section 29 of the legislation limits the time in which the arbitration proceedings must get over.

1. Need of Institutional Arbitration

Institutional Arbitration may be defined as the regulated arbitration or arbitration by professional arbitration tribunal. The need of arbitration can clearly be observed by the Pending Court Cases Report, PIB, Ministry of Law and Justice, Government of India, which clearly shows the overburdened justice delivery mechanism. Furthermore, according to the latest 2017 ranking of World Bank Ease of doing business India holds 131st rank amongst 189 countries. According to this report, it takes about 1420 days to enforce a contract in India. As India has such a poor record in relation to the world which hampers India’s growth.

The need of institutional arbitration can also be recognized by the reports of following committees:-

1. NITI Ayog

A three days global conference was organized by NITI Ayog along with some other reputed institutional arbitrations on 21st October, 2016. The conference revolved around the three basic things

First; to understand the current arbitration policy

Second; to analyse the arbitration policy &

Third; to evaluate and find out the challenges or obstacles in the growth of arbitration in India.

The conference focused on strengthening the role of institutional arbitration in India, which does not only mean to increase the no. of institutional arbitration and to spread awareness and hence increase its role in dispute resolution mechanism.

The key objectives of the conference may be termed as: -

• Streaming the scope of courts,
• Forming strict rules and procedures to challenge an arbitrational award,
• Ensuring time bound proceedings,
• Reviewing the panel selection mechanism,
• It also suggested to conduct regular training programmes for the arbitrators, and
• To ensure awareness and knowledge about arbitration in India

1. Indian Council of Arbitration and FICCI’s Symposium

        The Indian Council of Arbitration in association with FICCI organized a symposium, which revolved around the theme i.e. “Building the Future of Domestic and International Arbitration in India” The following symposium was held on 29th July, 2017 and was co-ordinally inaugurated by Justice. B.N. Srikrishna.

        The symposium focused on two basic Issues I.e.

First; Infrastructure in Institutional Arbitration

The need and role of proper infrastructure and technology in arbitration institutions was                expressed. Furthermore, the step taken by the Maharashtra Government via resolving commercial disputes by institutional arbitration was also appreciated.

Second; Professional’s Attitude towards Arbitration 

Justice, B.N. Srikrishna also focused on the attitude of arbitrators towards arbitration proceedings, he also suggested for professional and dedicated arbitrators.Furthermore, justice, B.N. Srikrishna also took a very strong objection against taking   arbitration as a part time exercise since according to him this would lead to mockery in Arbitration.   

1. High Level Committee Report

            High level committee was constituted under the chairmanship of Sh. B.N. Srikrishna on 13th January, 2017, to review the institutional arbitration and suggest reforms thereto. The report was divided into three parts.

First part; this part of the report suggested for the following

1. To setup an autonomous body, styled the Arbitration Promotion Council of India(APCI), which would constitute the representatives from all stakeholders for grading arbitral institutions in India.
2. It is further suggested that the Arbitration Promotion Council of India(APCI) must conduct regular training workshops and awareness spreading programmes.
3. The committee also suggested for certain arbitration bench within the premises of Courts.
4. The committee further suggested for the time bound arbitrational proceedings.

1. Growth of Institutional Arbitration in India

As already discussed the concept of arbitration is not new in India, arbitration has always been supported by the judiciary, this could clearly be inferred from the famous case of Sumitomo Heavy Industries Ltd. v ONGC[8], in this case the Hon’ble Supreme Court stated that “If the conclusion of the arbitrator is based on a possible view of the matter, the Court is not expected to interfere with the award. The High Court has erred in so interfering. Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitration’’. 

But, Lately when there became the need for institutionalization of arbitration in India, it is now also recognizing the stage of growth in institutional arbitration, which can be inferred from the presence of following arbitration institutions in India such as, Indian Council of Arbitration, Singapore International Arbitration Centre, London Court of International Arbitration, Indo-German Chamber Of Commerce, Nana Palkhi Arbitration Centre, and recently India had its first own international  Arbitration centre setup in Maharashtra named the Mumbai Centre of International Arbitration. The growth of arbitration can not only be witnessed by the presence of new arbitration centres in India but also by increasing the ambit of their power recently in the case of A. Ayyasamy V. A. Paramsivam & Ors.[9], the Hon’ble Supreme court held that arbitration clause in an agreement can not only be ignored only on the appeal of fraud, but if it Prima facie appears to the courts that there is the serious case of fraud. Since, Criminal cases are not subject to arbitration the above stated case increased the ambit of matters to be dealt with arbitration, this must be termed as the sign of growth of arbitration in India.

1. Impact of Institutional Arbitration in India

The concept of institutionalization of arbitration may be defined as the procedure or steps taken to ensure professional and skilled arbitrators and hence making arbitration meaningful and not an additional step to reach justice. Institutionalization of arbitration have the impact on the following sectors: -

1. Impact on Judicial Mechanism

As form the PIB report it is very much clear that the courts in current judicial mechanism are overburdened and require a lot of time to reach its decision over issues. This discourages the faith and belief of people concerned in the judicial system. The other forms of ADR just provide a platform to the parties to negotiate their rights to avoid long judicial trails which can not be termed as delivering justice since justice does not means to compromise legal rights. Also, Ad-hoc arbitration can be termed as one of the right’s negotiating platform, therefore institutionalization due to its distinguished advantages over other forms of ADR and Ad-hoc arbitration helps in ensuring public interest back in law of the land. Furthermore, it also helps to reduce the burdens of the courts and ensure effective and efficient working mechanism for the courts. Since, the arbitration awards are binding on the parties, it does not prove to be an additional step to reach justice while other forms of ADR do not have a legal sanctity.

1. Impact on Law as a Profession

Since, institutionalized arbitration requires professional and skilled arbitrators the said job can best be done by the one who has basic knowledge about the concerned law, which can be expected from the lawyers. Furthermore, many committee’s suggested arbitration to be treated as the sole profession and not a part time job. Therefore, the law graduates completing law can opt for the arbitration as a future carrier, hence the institutionalization of arbitration will create more employment opportunities in the field of law.

1. Impact on Business

According, to the report of the World Bank Ease of doing Business Report, India is having a very poor condition world wide which discourages the global as well as the domestic investors, hence hampering the growth in India. One of the major reason for such poor condition of India world wide is due to delayed and slow justice delivery system. Therefore, the growth of institutional arbitration would encourage the global as well as the domestic investors since institutional arbitration helps in ensuring the fast and qualified awards in the presence of expertized arbitrators having legal sanctity.

1. Impact on Nations Growth

The institutional arbitration has a direct role to play in the nations growth, since, the institutionalization of arbitration would lead to encourage investments in the country and would also create more employment opportunities for the citizens. Both the factors will directly lead to the nations growth and building up goodwill for the country.

1. Institutional Arbitration over Ad-Hoc Arbitration

Arbitration may be classified into two types                         

1. Ad-hoc Arbitration &
2. Institutional Arbitration

Section 11 Of the Arbitration and Conciliation Act empowers the parties to choose their arbitrator by their own, by the way of which parties end up choosing someone they know before, this is known as Ad-hoc Arbitration, in such form of arbitration the arbitrators are unskilled and unaware about the arbitration proceedings. Furthermore, the Ad-hoc arbitration further leads to have no difference between the arbitration and other forms of ADR and parties end up giving their right of justice and hence making no difference between arbitration and other forms of arbitration. In simple words Ad-hoc arbitration may be referred to as a dispute resolution mechanism in the light of someone who is unqualified and amateur over the issue, ending up making no difference over arbitration and other forms of ADR, though this not be the case always.

While, Institutional Arbitration may be defined as the procedure of dispute resolution under the light of a professional who is well versed with the procedures of arbitration. In Institutional arbitration an institutional affiliated arbitrator is acknowledged with proper training and knowledge takes up all the proceedings ensuring fast and qualified arbitration awards. Therefore, Institutional Arbitration must always be preferred over Ad-hoc Arbitration since it ensures: -

1. Speedy proceedings
2. Professional and expertized arbitrators
3. To provide justifiable awards, &
4. Ensures fair and just arbitral proceedings.

1. Online Arbitration Clause Over the Seat of Arbitration Tribunal

Arbitration and Conciliation Act, 1996 provides legislation for the arbitration, the following legislation provides the parties with the arbitration agreement which empowers the parties to decide their arbitration seat. But, the problem arises when there is a dominant party involved in a contract. And, this can majorly be seen in situations of E- contracts. This must not be denied that in case of E- contracts the terms and conditions of the contract are mostly ignored to which the dominating party usually takes advantage of. This can be seen since many online contracts contain an arbitration clause which refers the seat of arbitration beyond the territories of the native country. Since, arbitration is an avoidable part of a contract it leads to avoiding justice and giving up of legal rights due to unaffordability either of time or money. Since, it is possible for a common man to regularly go beyond the territories of the country and take part in the arbitration proceedings. The courts also have a very strong view which is the major obstacle for the common person to seek justice, this may be inferred from the case of Eacom’s Controls (India) Ltd. V. Bailey Controls Co.[10] in this case the Hon’ble court held that insufficiency of funds can not be termed as a valid reason to avoid arbitration, furthermore the court held that the fact that the performance of the contract has become difficult or onerous is not sufficient to claim frustration.

Also, in the case of Atlas Export Industries V. Kotak & co.[11] the Hon’ble Supreme Court held that the fact that the seat of arbitration is present beyond the territories of country is not a ground to avoid arbitration.

Therefore, from the cases referred above insufficiency of funds and presence of seat of arbitration beyond the territories is no ground to avoid arbitration. Since the arbitration beyond territories of India is in itself not possible for a common person hence the justice is indirectly denied for the poor and is made possible only for the rich. Hence, it won’t be wrong to say that an arbitration clause in E-contracts provides guard to the businesses from the legal actions.

1. CONCLUSION

The concept of ADR is prevalent in India since ancient times in the forms of Elders, Rajas, assigned Minister of the state enacting the role of arbitrators, mediators, etc.  to resolve the disputes in the society. It includes four major kinds of dispute resolution mechanism namely arbitration, conciliation, lok adalat and mediation. Amongst these, arbitration may be referred to as the best form of dispute resolution mechanism in India. This may be referred since the arbitral award has a legal sanctity, arbitral award is based on the evidence, documents and hence applying the law avoiding the regular form of court proceedings. Ensuring fast and just dispute resolution mechanism. Arbitration can further be classified into two parts namely Ad-hoc arbitration and institutional arbitration. Since, ad-hoc arbitration has many dis- advantages such as delayed proceedings, unprofessional arbitrators, unjustifiable awards, leading the parties to negotiate their legal rights. While institutional arbitration includes professional and qualified arbitrators to resolve all the above disadvantages of the ad-hoc arbitration. Therefore, the institutional arbitration is observing fast growth in India. Recently India had its own international arbitration centre launched in Maharashtra on 8th day of October, 2016, named as The Mumbai Centre of International Arbitration. Institutionalization of arbitration also has a very huge impact on the India’s national growth. It has a direct impact on creating new employment opportunities for the upcoming lawyers and helps in increasing goodwill of the country by motivating the investors to invest more and more in India.

Despite of all the benefits in arbitration, there is a loophole left in the current arbitration legislation in India i.e. the seat of arbitration specially in the matters of e-contracts. Despite it being questioned again and again the judiciary do not think it of great concern. During the e-contracts, the terms and conditions are ignored most of the times and accepted without even giving it a check contains an arbitration clause guiding the people of the native state to go beyond its national territories to reach justice, which has a direct impact on the fact that the poor or a person from an ordinary family finds it difficult or rather impossible to seek justice and hence leaving the option to attain justice to the rich class, which is against the public policy. It is suggested that the arbitration proceedings must be referred to the arbitration centre on the comfort of financially weak party or in the case where the party can not afford to pay arbitration cost or transportation charges the cost must either be borne by the government or the arbitration must be avoided in such cases.

[1] Author, BBA.LLB(H), LLM, GGSIP UNIVERSITY, NEW DELHI (ADVOCATE).

[2] Co- Author, BBA.LLB(H), GGSIP UNIVERSITY, NEW DELHI (ADVOCATE).

[3] Market beyond the territory of India.

[4] (1934) ILR 57 MAD 749.

[5]Section 2(a) Arbitration and Conciliation Act, 1996.

[6]Butterworths, HALSBURY’S LAW OF ENGLAND (4th edition, 1991).

[7] Arbitration and Conciliation (Amendment) Act, 2015  

[8](1998 (1) SCC 305)

[9] Civil APPEAL Nos. 8245- 8246 of 2016

[10] AIR 1998 Del 365 : (1998) 2 Arb LR 188

[11] AIR 1999 SC 3286