NexaSoft Private Ltd., an Indian IT services provider, entered into a five-year contract with TechknoTech Inc., a U.S.-based software solutions company, to develop and maintain a cloud-based enterprise resource planning

CS Professional · Arbitration, Mediation and Conciliation · PYQS · June 2025
NexaSoft Private Ltd., an Indian IT services provider, entered into a five-year contract with TechknoTech Inc., a U.S.-based software solutions company, to develop and maintain a cloud-based enterprise resource planning (ERP) system. The contract outlined key provisions, including project milestones, payment schedules, performance benchmarks, data security measures, intellectual property rights, liability limitations, and dispute resolution. The arbitration clause specified that any disputes would be resolved through arbitration. As the project progressed, disagreements emerged regarding timelines, scope changes, and security requirements. TechknoTech alleged that NexaSoft failed to meet crucial deadlines, and that the software contained performance issues and security vulnerabilities, exposing it to potential regulatory risks. TechknoTech further claimed that NexaSoft's delays led to business losses and customer dissatisfaction, which ultimately compromised its market position. NexaSoft, in contrast, argued that TechknoTech had frequently modified the project requirements without formal amendments, resulting in delays and additional costs. NexaSoft also claimed that TechknoTech had defaulted on payment obligations, leaving several invoices unpaid for completed work. Due to these disputes, TechknoTech terminated the contract, refused to clear pending invoices, and sought damages for losses incurred. NexaSoft, contesting the validity of the termination, invoked the arbitration clause to resolve the matter. However, a dispute arose regarding the arbitration mechanism. NexaSoft preferred ad hoc arbitration, emphasizing cost efficiency and procedural flexibility, while TechknoTech insisted on institutional arbitration, arguing that a structured process was necessary for a cross-border technology dispute. A sole arbitrator was eventually appointed under institutional arbitration rules. During the arbitration proceedings, NexaSoft objected to the admissibility of TechknoTech's damage claims, stating that they were filed beyond the contract's limitation period and that TechknoTech had implicitly waived its right to claim damages by continuing the project despite alleged deficiencies. TechknoTech countered that the damages were a direct result of NexaSoft's breach and that the contract did not restrict compensation for consequential losses. Additionally, TechknoTech raised concerns about NexaSoft's handling of sensitive data, alleging that the security flaws in the software had potentially exposed confidential information to third parties. NexaSoft denied the allegations, asserting that no actual data breach had occurred, making TechknoTech's claim speculative and unsubstantiated. After several hearings and an assessment of expert reports, the arbitrator ruled partially in favor of TechknoTech, granting compensation for delays and performance deficiencies but rejecting claims related to business losses and data security failures, citing insufficient evidence and speculative calculations. Dissatisfied with the ruling, NexaSoft challenged the arbitral award in an Indian court under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the arbitrator had exceeded jurisdiction by admitting time-barred claims, misinterpreted key contract provisions, and issued an award contrary to Indian public policy by imposing damages beyond contractual terms. The court was now tasked with balancing the principles of judicial intervention and arbitral finality. With reference to above facts, answer the following: (b) Explain the difference between ad hoc and institutional arbitration.

Answer & Explanation:

Ad hoc arbitration: Ad hoc arbitration is an arbitration procedure agreed and arranged by the parties themselves. If they fail to do so then it becomes the responsibility of the arbitration tribunal. This enables the parties to tailor the procedure to its needs. That is its main attraction. This flexibility is an advantage but one must not lose sight of the fact that it is not an easy thing to create the procedure. It requires a lot of expertise. However the trouble of creating the said procedure can be escaped by choosing the rules of an arbitral institution to govern the arbitration proceedings without submitting the arbitration to an institution. The major disadvantage of ad hoc arbitration is that if the arbitration encounters some troubles especially because of non- cooperation of a party, the recourse to save arbitration is to be made to the national courts. This is problematic because parties had opted for arbitration as they did not want to go to courts. In India ad hoc arbitration is said to be more prevalent than institutional arbitration. Institutional arbitration: When arbitration is conducted under the supervision of an institution in accordance with its rules of procedure it is termed as institutional arbitration. There are various institutions which administer arbitration proceedings. They have their own set of rules to conduct the proceedings. Some of the institutions prominent internationally are the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC), American Association of Arbitration (AAA) etc. As far as India is concerned, some of the well-known arbitration institutions are The Indian Council of Arbitration (ICA) and Federation of Indian Chamber of Commerce and Industry (FICCI). The biggest advantage of institutional arbitration is that parties are saved the trouble of framing the procedure of arbitration, since it would be conducted under the rules of the selected institution. Another advantage is the administrative support provided by the highly trained staff which these institutions have. Also they have good infrastructure to conduct the proceedings and a list of competent arbitrators to choose from. Most importantly if arbitration encounters any problem there will be effective support from the institution to save it as they have their own internal mechanism to save arbitration without making recourse to the national courts. For example in the event of non- cooperation by a party to appoint an arbitrator or if emergency measures are to be taken even prior to the establishment of the tribunal the institution has mechanisms and rules to deal with such situations. Institutional arbitration may be more expensive than ad-hoc arbitration but it offers a lot more facilities than the latter. Institutional arbitrations are conducted pursuant to institutional arbitration rules, almost always overseen by an administrative authority with responsibility for various aspects relating to constituting the arbitral tribunal, fixing the arbitrators' compensation and similar matters. In contrast, ad hoc arbitrations are conducted without the benefit of an appointing and administrative authority or generally pre-existing arbitration rules, subject only to the parties arbitration agreement and applicable national arbitration legislation.

Topics: Arbitration and Conciliation Act, 1996

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