The significant increase in the role of international trade in the economic development of nations over the last few decades has been accompanied by a considerable increase in the number of commercial disputes as well. In India too, rapid globalization of the economy and the resulting increase in competition has led to an increase in commercial disputes. However due to the other relevant factors such as rapid globalization, increasing competition, rate of growth of industrialization, modernization and socio-economic development has in many occasions outpaced the rate of growth of the dispute resolution machinery of India. In many parts of India, rapid development has meant increased caseloads for already overburdened courts, further leading to notoriously slow adjudication of commercial disputes which ultimately resulted in the emergence of the Alternative Dispute Resolution Mechanisms, which includes Arbitration, became more crucial for operating businesses in India as well as with those doing business with Indian Firms.
Arbitration in India can be traced back from its ancient times, where people often voluntarily submitted their dispute to a group of wise men of a community called as PANCHAYAT for binding resolution. Modern arbitration law in India was created by the Bengal Regulations in 1772, during the British Rule. The Bengal Regulations provided for reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract, amongst others.
Until 1996, the law in India consisted mainly of three statutes: (i) the 1937 Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the 1961 Foreign Awards (Recognition and Enforcement) Act. The 1940 Act was the general law governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the 1937 and the 1961 Acts were designed to enforce foreign arbitral awards (the 1961 Act implemented the New York Convention of 1958).
The government of India enacted the Arbitration and Conciliation Act, 1996 in an effort to modernize the outdated Act of 1940. The present Act of 1996 was modeled on the lines of the UNCITRAL Model Law. The primary purpose of this Act was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes. The 1996 Act covers both domestic arbitration and international commercial arbitration.
Problems before the Indian Arbitration Act, 1996
Arbitration in India is still evolving. One of the objectives of the 1996 Act was to achieve the twin goals of cheap and quick resolution of disputes, but current ground realities indicate that these goals are yet to be achieved. The problems faced with these twin goals i.e. Speedy Justice and Cost Effectiveness are discussed below.
Arbitration in India is rampant with delays that hamper the efficient dispensation of dispute resolution. Though the 1996 Act confers greater autonomy on arbitrators and insulates them from judicial interference, it does not fix any time period for completion of proceedings. This is a departure from the 1940 Act, which fixed the time period for completion of arbitration proceedings. The time frame for completion of the arbitration proceedings was done away with, on the presumption that the root cause of delays in arbitration is judicial interference, and that granting greater autonomy to the arbitrators would solve the problem. However, the reality is quite different. Arbitrators, who are mostly retired judges, usually treat the arbitration proceedings in the same manner as traditional litigations, and are willing to give long and frequent adjournments, as and when sought by the parties.
Although the scope of judicial intervention under the 1996 Act has been curtailed to a great extent, courts through judicial interpretation have widened the scope of judicial review, resulting in the admission of large number of cases that ought to be dismissed at the first instance. Moreover, the parties usually approach arbitration with a similar mindset as for litigation, with the result that awards invariably end up in courts, increasing the timeframe for resolution of the disputes. Parties also abuse the existing provision that allows ˜automatic stay™ of the execution of the awards on mere filing of an application for challenge of the awards. So, the objective of arbitration as a mechanism for speedy resolution of disputes gets obstructed due to obtrusive delays.
Arbitration is generally considered cheaper over traditional litigation, and is one of the reasons for parties to resort to it. However, the ground realities show that arbitration in India, particularly ad hoc arbitration, is becoming quite expensive vis-Ã -vis traditional litigation. A cost analysis on arbitration vis-Ã -vis litigation will throw light on the higher cost of arbitration over litigation. This is a crucial factor which weighs against developing a cost effective quality arbitration practice in India.
Need For E – Arbitration
To meet out the abovementioned problem, there emerges a need for an alternative remedy which can be easily fulfilled by adopting e-arbitration. Information Technological developments have significantly changed traditional arbitral practices and procedures. To match these developments, several arbitration tribunals across the globe have adopted the e- arbitration concept out of which ICC took the lead and has issued guidelines on the use of Information Technology (IT) in arbitration, devised a web-based system for conducting and managing arbitration proceedings, and established an online clearing house system for small claims.
E- Communication through various electronic submissions such as e-mails, voice over internet protocol and video conferencing paved the way for the e-arbitration. Arbitration agreements are concluded, proceedings conducted, and awards rendered by the electronic means in online settings. Therefore, now the issue before us is to ascertain that whether the law of the land allows the dispute to be submitted to a particular form of online dispute resolution hereinafter referred as e- arbitration. In order to answer the specific legal obstacles as mentioned above, a general picture of e-arbitration, including its background and definition, is to be discussed which has been done herein after. The initial issues regarding e-arbitration can categorically be divided into 3 parts.
1. Arbitration Agreement
2. Arbitral Proceedings
3. Arbitral Awards
First of all it is to be considered that there are 3 main conditions precedent for submitting or referring a dispute to an e-arbitration. They are: firstly, there must exist an e-contract containing an e-arbitration clause; secondly, the contract providing for e-arbitration shall be in a written form; thirdly, reference to e-arbitration after the dispute has arisen. The agreement entered by the parties to refer the dispute to the arbitral tribunal for decision must be intended to be enforceable by law and hence, it must comply with the requirements of section 10 of the Indian Contract Act, 1872 with a clear intention of entering into a legally binding relationship and parties must be ad-idem. The arbitration agreement has been defined under the provision of Section 7 of the Arbitration and Conciliation Act, 1996. Section 7 provides the essentials of a valid arbitration agreement which means if an e-arbitration clause passes a test of section 7 then it is deemed to be a valid arbitration clause. Sub section (4) clause (b) of section 7 reads as an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement should specify an assent by both the parties and a demonstrable meeting of minds as to the arbitration agreements. The question which arises before us is whether the agreement entered into by the parties with such other means of telecommunication is enforceable and binding on each other? What would be included in such other means of telecommunication? And finally can exchange of e-mails embodying an agreement to arbitrate be covered under section 7 of the Arbitration and Conciliation Act, 1996?
The e-mail exchange may also refer to a separate written arbitration agreement (incorporation by reference). The parties may also wish to reach agreement through a website. In such case, an exchange of electronic communications occurs through the party™s browser software. Either method (e-mail or website) will ultimately lead to the same question as to whether an electronic communication provides a required record of the agreement.
The answer was given in affirmative by the Hon™ble Supreme Court in the matters of Shakti Bhog and Trimax where the court upheld the validity of arbitration agreement entered into by exchange of emails though no formal agreement in writing signed by the parties had come into existence. In Trimax International FZE Ltd. V. Vedanta Aluminum Ltd. the petitioner submitted commercial offer through email for supply of bauxite to Respondent. Respondent conveyed acceptance of offer through e-mail and the parties entered into contract. The Contract contained an Arbitration Clause for resolution of disputes between the parties. Thereafter, Respondent refused to honour contract on the ground that there was no concluded contract between the parties and the parties are still not ad idem in respect of various essential features of the transaction. It was held by the Hon™ble Court that if the intention of the parties to arbitrate any dispute has arisen in the above offer and acceptance thereof, the dispute is to be settled through arbitration. Once the contract is concluded, the mere fact that a formal contract has to be prepared and initialed by the parties would not affect either the acceptance of the contract so entered into or implementation thereof, even if the formal contract has never been initiated.
Also Section 4 of the Information Technology Act, 2000 states as Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is-
(a) Rendered or made available in an electronic form; and
(b) Accessible so as to be usable for a subsequent reference .
Therefore this provision clearly renders legal recognition of such electronic transfer of communication admissible as evidence. Now it may be assumed that Section 7(3) of the Arbitration and Conciliation Act, 1996 read with Section 4 of the Information Technology Act, 2000 makes Cyber Arbitration Agreement valid in the eye of law as applicable in India and the same is true for written submissions made by the parties online. However it is also to be noted that although the e-commerce laws have legitimized electronic communications in the light of traditional paper based legal requirements, it does not mean that the controversies about arbitration agreement concluded online completely disappeared. Nor could one assume that every arbitration agreement concluded by an exchange of e-mails or electronic data interchange will be valid. The means of telecommunication applied must satisfy certain conditions, i.e. provide the agreements record which is accessible so as to be usable for subsequent reference.
Other International Regulations Recognizing e- Arbitral Proceedings
An e-arbitration system is almost the same as the traditional arbitration model. The only difference between the two is their medium/mode of practice. E- Arbitration is entirely internet based, meaning that the users may conduct the proceeding through the website, or through a service provider. E-communication tools allow the parties to do communications through secure channels such as filing request, exchanging information. There are many arbitration institutes which have already opened the possibility of performing arbitral proceedings online. The arbitration institution either gets used to the existing arbitration rules to the online environment, or they set up new rules for e-arbitration.
Also, procedural rules have been framed by organizations providing online dispute resolution (ODR) in their respective specialized areas of e-disputes. This institutional dispute resolution practiced online has attracted public confidence and provided an efficient alternative to litigation in national courts, especially in case of e-disputes wherein parties to a dispute, are often from different jurisdictions and the issue of jurisdiction itself becomes a point of preliminary objection. However, this point of contention never arises in ODR as parties mutually agree to resolve their cross border e-disputes employing the mode and the manner they both agree on. The parties may have entered into an agreement containing an arbitration clause providing that in the event when a dispute arises between the parties it shall be resolved by means of arbitration conducted electronically, or later as and when the dispute arises they may agree to resolve it through ODR. Many parties wish to incorporate organizational rules to ensure that all the important clauses have been inserted and a fair and secure agreement is arrived at.
The following arbitration rules are one of the most common rules which serve as the model clause to the parties.
1. ICC Rules of arbitration and ICC Rules of Optional conciliation.
2. International Centre for settlement of Investment disputes model clauses
3. WIPO™s Arbitration and Mediation Rules.
4. UNCITRAL Arbitration and Conciliation Rules.
5. LCIA™s Model clauses for Arbitration Rules.
6. American Arbitration Association™s Model Clauses for Arbitration Rules.
World Intellectual Property Organization (WIPO) has already developed an e-arbitration system for administering commercial disputes involving intellectual property. The arbitration institution is the WIPO Arbitration and Mediation Centre. The Swiss Supreme Court has decided that arbitrators need not meet in person and are free to conduct deliberations by electronic means, including e-mail, provided precautions are taken “the only mandatory requirement is that all the arbitrators must participate in a real way in each discussion and decision.” This institution applies this system of e- arbitration in disputes relating to internet domain names.
It is however always to be considered that the legal framework for e-arbitration requires multiple layers of regulations at different level of proceedings. The International Commercial Arbitration not only encompasses the institutional rules of arbitration and private contractual agreements but also international conventions, bilateral treaties, model laws (such as UNCITRAL model laws) and national arbitration laws. All these aspects need to be taken care of even in an e-arbitration.
E-Arbitration can be of either Ad-hoc Arbitration or Institutional Arbitration. In either case the parties should clearly specify the law governing the contract, the law governing the arbitration agreement, the procedural law, the jurisdiction of courts, applicability of part I of the Act of 1996, language of the proceedings, place of arbitration and other procedural details.
In case of e-arbitration, procedures relating to use of technology have to be either agreed by the parties or laid down by the Institutions. Whereas, parties applying for institutional arbitration are in a better position than the parties which choose sole arbitrator because institutional arbitration may clearly lay down the details which are required in an e-arbitration. The parties which follow the rules of a particular institution are not faced with any additional difficulties.
It is important to lay down these details because in an e-arbitration, unlike conventional arbitration parties do not meet physically. The meeting is a virtual meeting, therefore extra caution needs to be taken and minute details are needed to be put into the rules and procedures.
Since arbitration proceedings are meant to be confidential in nature, the mechanism that is agreed by the parties to be followed must not only provide confidentiality but must also be reliable.
It is universally accepted rule that the party™s autonomy have a significant role in determining the conduct of the arbitral proceedings. In addition to it, the parties also have the right to change the rules of procedure whenever they want. It is clearly provided in Article V(1)(d) of New York Convention that recognition and enforcement of the award may be refused if the procedure is not in accordance with the agreement of the parties. Similar rules are also provided under Article IV of the European Convention where the parties to an arbitration agreement shall be free to organize the arbitration by agreement.
The New York Convention, the European convention, The UNCITRAL Model Law and as discussed above the Arbitration and Conciliation Act, 1996 do not present any obstacles if the parties agree to use electronic means to conduct the arbitration proceedings. If the parties have not specifically agreed to do so, the arbitral tribunal itself may agree on the use of electronic means, such as hearing witnesses via video conferences or transmitting documents electronically. The central principle is equal treatment of the parties. The principle of tribunal™s impartiality and equal treatment of parties as enshrined in Section 18 read with Section 12 of the Arbitration and Conciliation Act, 1996 is relevant. According to this principle, the parties have the right of equal access to the information, so they must also have the ability to have equal access. For example, if one of the parties does not have the facilities to read CD-ROMs, it would not be acceptable to impose transmission of documents via CD-ROM.
If applicable the parties must spell out the procedure which would be adopted by the parties, and in case of Institutional Arbitration, rules to be followed by the parties. In addition, the statement of Claims and Defenses etc. which need to be sent by transmitting the physical copies can be transmitted in electronic form. For Example, they can be sent through attaching PDF or JPEG files and in addition, signed copies can be later sent through courier. The Section 4 & 5 of the Information Technology Act, read with section 65 of the Evidence Act come to the aid of the parties. Such pleadings can be transmitted in electronic form without losing recognition of law. Article 3(2) of the ICC Rules specifically authorizes electronic communication with the Court and the Secretariat of the ICC. If there is any conflict between the institutional rules on e-arbitration and the intent of the party then such rules can be categorically amended/ deleted by an express agreement between the parties.
The need for clarity may arise when provisions of applicable arbitration rules require inter alia, references in a written form or a physical appearance of the parties before the arbitral tribunal. As already stated above, many arbitration institutions have already adapted or supplemented their rules to include online proceedings. It will not be pre-mature to say that such problems are gradually reducing.
In e-arbitration, parties may decide to conduct proceedings online and examine and cross examine witness, or hear experts using various technologies such as video conferencing or teleconferencing etc. The factors that may hinder the use of information technology in e-arbitration proceedings relate to technology itself and the law of the land.
Problems relating to technology may be of various types such as the cost of equipments for online proceedings may be very high and may need large investment by the parties, quality of transmission, link failure, system failure, electricity failure, delays and interruptions and witness may not be clearly seen or heard. Other related issues are data protection, privacy of parties, confidentiality, and evidence adducing during the arbitral proceeding. Therefore the rules of an agreement or an institution must provide for keeping backup or alternative provision for information/ data fed in the system (so that lost data can be retrieved). However, Section 72 of Information Technology Act, 2000 takes care of the confidentiality and privacy of the electronic record, book, register, information, document, correspondence or other material without the consent of the person concerned.
The major legal issue regarding the e-arbitration proceeding is the evidence produced online. There can be online filing platforms where the parties to an e-arbitration may file their documents and evidence through an independent and authorized third party provider. Such online filing is part of the institutional rules or necessary procedural orders passed by the Arbitral Tribunal. Documents and evidence that are filed before the Arbitral Tribunal may be scanned copies of the originals or can be protected and authenticated with the help of digital signatures. If a document bears a digital signature then it is presumed to be unaltered. The Indian Information Technology Act, 2000 lays down blanket permission for records not to be denied as illegal if they are in electronic form as long as they are accessible for future reference. The Act amends the definition of ˜Evidence™ in section 3(2), the interpretation clause of the Indian Evidence Act 1872 reads ˜Evidence™ as means and includes all documents including electronic records produced for the inspection of the Court.
ICC has taken a lead and framed certain Standards for On-line Arbitration. Some of them are:
¢ The rules for giving file names with a unique name/identifier for each electronic document.
ïƒ¼ To identify the originator,
ïƒ¼ Class of document
ïƒ¼ Place of arbitration
¢ This file naming system shall be used throughout the arbitration for all electronic documents.
¢ The file name and the date of the original document (e.g. the date shown on a letter that is submitted as evidence) shall appear on the first page of the electronic document, either at the top right corner or at the bottom.
¢ If data loss occurs and the affected participant cannot itself reconstitute the lost electronic documents, the other participants shall help to reconstitute the electronic file(s) by providing copies of the pertinent files that they control.
¢ Mode of transmission and storage of emails
¢ Whether any confirmation of receipt of email has to be given.
¢ File format for sending attachments, like. PDF, Doc, HTML, ASCII
¢ Rules for audio and video conferencing
ïƒ¼ The arbitral tribunal, in consultation with the parties, will issue directions giving details for the conference, such as:
(i) Day and hour and applicable time zone;
(ii) Places where a conference front-end is required;
(iii) Who shall participate and number of persons at each front-end;
(iv) Special requirements, such as visualization of documents;
(v) Any other requirements.
Apart from ICC, WIPO is also successfully carrying out dispute resolution electronically for domain name and other disputes.
Other Institutions should also take initiative in establishing rules for e-arbitration. The procedural requirements of having the virtual proceedings have to be clearly spelt out in the arbitration agreement or in the rules as the case may be, including the details for exchange of pleadings, video conferencing and audio conferencing. At this place, a word of caution may be added. In e-arbitration most of the time circumstances may prevail where parties and the arbitrators may be placed at different ends of the system in different geographical areas. Various conditions may arise, for example, a party may be sitting with an arbitrator at one end while the two arbitrators may be sitting at the second end and the other party may be sitting at the third end. This may lead to allegations of non compliance of Section 18 read with section 12 of the Arbitration & Conciliation Act, 1996. Rules for holding proceedings should be formulated in such a manner that in holding of virtual proceedings principles of equality and impartiality to the parties is ensured.
It is a known fact that courts have recognized appearance of accused and also cross examinations through video conferencing not only in England and Wales but also India. The discussion amongst the arbitrators and the final signing of the proceedings can be ensured by exchange of drafts through emails, which, as already stated above, provide a valid record for future reference and are acceptable under the law.
Place of Arbitration
The place of arbitration constitutes the seat of arbitration. The seat of arbitration is of much importance in case of international arbitrations because it determines the nationality of the award, which plays a crucial role when the arbitral tribunal seeks the assistance of local courts and issues relating to jurisdiction for setting aside of arbitral awards. When the parties decide the seat of arbitration, they should consider geographical location, facilities and most importantly the law of the land that will enforce the arbitral award.
The issues related to jurisdiction in e-arbitration will be more complex as compared to conventional arbitration unless a formal seat of arbitration is decided either unanimously by the parties or by the arbitral rules or by the arbitral tribunal. Article 20 of the UNCITRAL Model Law stipulates that if the parties have not decided the place of arbitration, then the place of arbitration shall be determined by the Arbitral Tribunal based on the circumstances of the case. Section 20(1) of the Arbitration and Conciliation Act, state that the parties are free to agree upon the place of arbitration. Also Section 20(2) provides that if the parties have not agreed to such place of arbitration then the arbitral tribunal would determine the place of arbitration having regard to the circumstances of the case including the convenience of the parties. Sometimes parties chose the place of arbitral institution to be the place of arbitration. Thus, deciding a place of arbitration can be achieved through unanimous decision of parties either directly or by reference to the arbitral rules or by the arbitrators if the rules are silent or where the parties fail to decide the same unanimously.
Enforcement of arbitral Awards
It is always easier to enforce international arbitration awards in foreign courts than it is to enforce foreign courts judgments. Therefore taking into consideration the legal perspective in mind, primarily two questions need to be answered to enforce the e-arbitral awards.
1. Can an arbitral award be validly pronounced by the Arbitral Tribunal over the internet or online?
2. Whether such e-arbitral awards be enforced by national courts within the existing legislative framework?
The section 31 of the Arbitration and Conciliation Act, 1996 requires the award to be in writing and signed by the arbitrators. The award must be a reason based until and unless it has been expressly agreed by the parties that no reason is required or the award is pursuant to the settlement between the parties. It is also mandatory to incorporate the date and place of the arbitration so that it shall be deemed to have been made at that place. Section 31(5) states that after the arbitral award are made, a signed copy shall be delivered to each party. By interpreting section 31 it is clear that the award may be issued through e-mails by sending scanned copies in various formats such as JPEG, MS WORD or PDF. Later the actual copy may be send through post, courier or other messenger services. Also, it is possible that the arbitrators may affix digital signatures to provide authenticity and integrity to the award. The awards received through above mentioned modes can be placed before the courts for the enforcement of the award. Section 15 of the Information Technology Act, 2000 deals with the secure digital signatures. Electronic signatures can be provided for both authenticity and integrity. They are comparable to hand written signatures and should carry the same evidential value. Recognized electronic signatures should not be restricted only to the digital signature, but should extend to all types of procedures used to electronically attach a signature to a document, provided they;
(a) Identify the user;
(b) Are in the exclusive control of the user; &
(c) Encrypt document in such a manner that any subsequent alteration is noticeable.
Section 11 of the Information and Technology Act, 2000 provides for the attribution of the electronic records. Therefore the combined reading of Section 15 & Section 11 provides that a secure digital signature can be attributed to the originator of such signature. Thus now it can be said that if the arbitration award is digitally signed by the arbitrator then it can be deemed to have been signed by him. Also the digitally signed agreement and award appear to meet the requirements of the New York Convention.
Now a question that arises before is whether the above mentioned solution be recognized under the law. This question can further be divided into two parts i.e. firstly whether such certification is acceptable under the law; & secondly, who should be capacitated to certify. I however tried to answer the above question as, in e-arbitration; the winning party mostly likes to enforce the arbitral award in its own national court. In that case the e-arbitration would probably be examined by that national court. It is also to be noted that the internet do not have any boundaries, therefore the first point to be considered is affirming the place of arbitral award. According to New York Convention, an award is deemed to be made at the seat of arbitration, irrespective of the place of hearing or where the arbitrators signed the award. So, in case of e-arbitration the place which is indicated in the award should be affirmed as the seat of arbitration under the explanation in the preceding paragraph. In order to bring clarity and to determine the jurisdiction of the Courts in case of e-arbitration it is always to be considered that for enforcing the award an arbitration agreement or clause contemplating the e-arbitration must specifically mention the place of arbitration. Further, the New York Convention does not determine the law applicable to certification. Being silent on the said issue it may be interpreted as allowing the enforcing Court to apply the law of either the country of origin of the award or country in which enforcement is sought, at the option of the party seeking enforcement. This issue would be resolved if law of one of these two countries recognizes the digital signatures as equivalent to handwritten signatures. In that event the enforcement court should hold that the arbitration and the award are validly certified by way of a digital signature. In case of India, it has already been proved above that the Information and Technology Act, 2000 recognizes the digital signatures as equivalent to handwritten signatures.
It has been discovered that the concept of e-arbitration is in no way different from the conventional arbitration. E-arbitration is fast, economic, and efficient, it should be a preferable way of dispute resolution. However there are few points of uncertainty, but in order to avoid these uncertainties, the Arbitration and Conciliation Act, 1996 along with the Information and Technology Act, 2000 would need to be interpreted broadly. It is now needless to state that the concept of e-arbitration inescapably falls within the Indian legal framework where an award may be sought, enforced and challenged like that of traditional arbitration. It is also to be noted that the parties and the arbitrators should always consider the legality of the applicable arbitration agreements and procedure, choice of law, seat of arbitration and form of the awards. The said precautions will assist e-arbitration to work within the framework of existing national and international conventions.
It is also to be noted here that in an e-arbitration, some legal issues may arise. The courts will have to deal with them in the future. We shall see the issues which may arise with the help of following hypothetical situation:
In a contract the arbitration agreement provides for appointment of 3 arbitrators, out of which one is in India and the other two are in two different countries. Some the issues that will arise in this situation are:
1. What will be the proper and crucial law regarding the arbitration agreement?
2. Which nation would be considered as to be the seat of arbitration?
3. What would be the nature of the award i.e. whether it would be a domestic or foreign award?
4. In case of filing an application for setting aside the arbitral award, whether Section 34 or Section 48 would be applicable?
5. Whether the award made would be enforced