Discharge of Agreement and its Effect on Arbitration Clause -

Discharge of Agreement and its Effect on Arbitration Clause -Introduction

Background of Arbitration

In India, arbitration came to be known and given recognition when the Arbitration Act 1899 was enacted but its applicability only extended to Bombay, Madras and Calcutta. The provisions were given an extension to the remaining areas in Section 89 as well as Schedule II of the Code of Civil Procedure, 1908. However, it was observed that arbitration did not reap the expected benefits to the public at large and to meet the economic reforms in the country, the Arbitration Act was enacted in 1940. The previous Act along with the provisions in the Code of Civil Procedure was repealed.

The Act can be seen as a consolidation of the existing laws; however, there was no stipulated procedure pertaining to the enforcement of foreign awards. It was confined to the domestic territory and therefore, it did not achieve the purpose behind its enactment. In the case of Guru Nanak Foundation v Rattan Singh, 1981, Justice D.A Desai criticized the ineffectiveness and poor implementation of the Act. He explained how the complex, expensive and time-consuming court procedure involved to resolve disputes compelled jurists to switch to a more effective forum; however, the way the forum operates has invited harsh criticism from the courts.

The Arbitration and Conciliation Act, 1996 was then introduced with the objective of providing speedy dispute resolution. The Act covered international arbitration as well and was based on the UNCITRAL Model Law on International Commercial Arbitration. The Act, however, was met with criticism due to exorbitant costs, absence of a stipulated time period for making an arbitral award, interference by the court beyond a reasonable limit which went against the essence of the Act.

Subsequently, the Arbitration and Conciliation (Amendment) Act, 2015 was passed with a number of amendments. After taking into account the recommendations made by a committee headed by Justice B.N. Srikrishna, the Arbitration and Conciliation (Amendment) Act, 2019 was enacted. The Arbitration Council of India was instituted with the goal to promote ADR in India, boost the established arbitration in the country, and evaluate the functioning of the arbitral institutions and the arbitrators.

On November 4, 2020, the Arbitration and Conciliation (Amendment) Ordinance, 2020 was implemented with two major amendments. First, the enforcement of an arbitration award could be stayed unconditionally if the court can infer that the contract/agreement or the award was given fraudulently or under undue influence. Second, after much scrutiny and discourse, the qualifications and experience required for approving an arbitrator were deleted from the Eighth Schedule of the said Act.

What is Arbitration?

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.

Arbitration is an out-of-court method for resolving a dispute between two parties. Arbitration takes place in front of a neutral decision-maker called an “arbitrator” (or in some cases, a group or “panel” of arbitrators) that will listen to each side and make a decision about the case.Arbitration has emerged as a way to preserve the relationships between two companies and resolve a dispute amicably. Arbitration typically provides a speedier resolution than proceeding in court. The limited right to appeal arbitration awards typically eliminates an appeal process that can delay finality of the adjudication.

Alternative Dispute Resolution (ADR) which is also referred to as appropriate or amicable dispute resolution is another way of resolving disputes between parties without taking them to the courts. While courts decide the outcome in a case, ADR resolves the dispute effectively, efficiently, and amicably. Arbitration is one of the prominent forms of ADR.

If your contract contains an arbitration clause, it might be compulsory to resolve your dispute through arbitration rather than going to court. If the clause makes arbitration compulsory and you attempt to take the case to court, the other party can apply to the court to have the proceedings stayed.