Arbitration (Meaning and Law)
Arbitration is an alternate dispute resolution mechanism in which the dispute is submitted to a neutral third-party known as the arbitrator(s). He is appointed by both the parties, who subsequently holds the arbitral proceedings, analyses evidence and adjudges on the matter by passing an award.
Need for Arbitration for a Start-up
- It is a faster and more simpler method of resolving disputes;
- More economical than hardcore litigation;
- Start-ups are not financially phenomenal and therefore, arbitration is financially feasible;
- Private proceedings rather than courtroom drama for a start-up;
- A judge may not be the expert in the concerned arena but an expert arbitrator in that arena may be appointed.
The Arbitration Clause
The following arbitration clause is a must for a contract. It is not a legal requirement but for a speedy out-of-court settlement:
“Any dispute or difference arising between the parties to this contract out of or in connection to this contract including the question regarding its meaning, scope, legality, existence, operation, termination, validity of its breach or of compensation payable thereof shall be settled through the means of arbitration in accordance with the Rules of International Commercial Arbitration of the Indian Council of Arbitration and the award made in pursuance to such process shall be binding on the parties hereto.”
Key Terms & Conditions of a detailed Arbitration Agreement
- Validity of the arbitration agreement;
- Enforcement of arbitration agreement;
- Appointment of arbitrators;
- Place of arbitration;
- Arbitrability of dispute;
- Choice of law (substantial and procedural);
- Type of arbitration (institutional, ad-hoc or any other);
- Multi-party agreements.
Important things to Remember
- Arbitration may be binding or non-binding upon the parties, i.e., a party may even reject the award of the arbitration;
- Arbitration award can only be set aside and not appealed;
- In some cases, the costs of arbitration may even exceed the costs of litigation;
- Indian courts may refuse to allow the choice of law between the parties on the grounds of public policy.
Statutory Law References
Indian Arbitration and Conciliation Act, 1996
Indian Contract Act, 1872
ONCG v Saw Pipes, (2003) 5 SCC 705
Venture Global Engineering LLC v Satyam Computer Services Ltd, (2008) 4 SCC 190
Bharat Aluminium Co Ltd v Kaiser Aluminium Technical Service Inc, (2012) 9 SCC 649
Important Do(s) & Don’t(s)
- Legal consultation or online legal advice is essential for drafting arbitration agreement and arbitration proceedings;
- A start-up should always go for arbitration which is financially feasible;
- An arbitration agreement should be drafted in a detailed manner so as to outline the whole process;
- Even no. of arbitrators should not be appointed but only in odd numbers such as 1, 3, 5, 7, etc;
- Hold consolidate arbitration proceedings in case of multi-party agreements.
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