ARBITRATION & CONCILIATION ACT, 1996

Till 24th Jan 1996, the law of Arbitration was contained in the Arbitration Act,1940.
The Arbitration (Protocol and Convention) Act and the Foreign Awards (Recognition and
enforcement) Act,1961. Recently, the law of Arbitration has been consolidated and
amended on the lines of UNCITRAL Model Law of International Commercial Arbitration
and UNCITRAL Conciliation Rules, under the new Arbitration & Conciliation Act,1996,
which came into force w.e.f. 25th Jan,1996. This Act has repealed the aforesaid three
enactments though the pending arbitral proceedings would continue to be governed by
the repealed enactments, unless otherwise agreed by the parties. The Act apart from
providing the domestic as well as international commercial arbitration provides for a
greater autonomy in the arbitral process while at the same time limits the role of
judiciary. The law on arbitration places the country’s dispute resolving mechanism at par
with internal community to do more business with India. The Act has eliminated court
intervention in arbitration proceedings and the final award, by narrowing the scope for
challenging arbitration proceedings and the final award, by narrowing the scope for
challenging arbitration and by obviating the requirement for ratification of arbitral
awards.
The new law of arbitration applies to the whole of India. To the State of Jammu and
Kashmir, while the provisions relating to enforcement of foreign awards apply in full,
other provisions apply insofar as they relate to international commercial arbitration.

DOMESTIC ARBITRATION

ARBITRATION– MEANING: Arbitration is a mode of settling disputes, by referring them

to a nominated person who decides the issue in a quasi-judicial manner after hearing
both sides. For instance, reference of a dispute to ‘Panch” or ‘Panchayat’ is a prevalent
form of Arbitration. Thus, Arbitration is the means by which parties to a dispute get the
same settled through the intervention of a third person, but without having recourse to a
court of law.

ARBITRATION AGREEMENT/ CLAUSE: S.7 of the Act defines an Arbitration Agreement

as:-
(1) “Arbitration Agreement” means an agreement by the parties to submit to arbitration
all or certain disputes which have arisen or which may arise between them in respect of
a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or
in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in-
(a) A document signed by the parties;
(b) An exchange of letters, telex, telegrams or other means of telecommunication
which provide a record of the agreement; or
(c) An exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.
(5) There reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the reference is
such as to make that arbitration clause part of the contract.
SPECIMEN OF ARBITRATION CLAUSE: “Any dispute arising out of this agreement, or
as to interpretation operation or enforcement of the terms of this agreement, between
the parties or their legal representatives, assignees, nominees or heirs, as the case may
be, shall be referred for adjudication to the arbitrators to be appointed by each party to
the dispute, and the proceedings of such Arbitration shall be governed by the provisions
of the Arbitration and Conciliation Act, 1996, or any statutory modification or re-
enactment thereof for the time being in force, and the award or awards of such
Arbitration or the umpire, as the case may be, shall be binding on the parties to the said
dispute”.

EFFECTS OF ARBITRATION CLAUSE: Where an Arbitration clause is included in a

contract, and the contract is avoided due to misrepresentation or fraud, the Arbitration
clause may still continue to be binding. Where, however, there was no contract at all
between the parties or contract was void ab initio, the Arbitration clause cannot be
enforced.

FORM OF AGREEMENT: An Arbitration agreement/clause must be in writing. Although

no formal document is prescribed, however, it must be clear from the document that the
parties had agreed to the settlement of dispute through arbitration. Where the
Arbitration agreement or clause is contained in a document, the document must be
signed by both the parties. Besides, the Arbitration agreement may be established by:-
a) An exchange of letters, telex, telegram or other means of telecommunication; or
b) An exchange of statement of claim and defenses in which the agreement is alleged by
one party and is not by the other.

ADVANTAGES OF ARBITRATION: Arbitration has the following advantages over a

lawsuit:-
1. Arbitration is less costly than a suit in a court of law.
2. It is very simple and more expeditious, and serves the parties form waste of time and
the irritation caused thereby.
3. Its proceedings are conducted in closed doors and thus the dispute is not publicized.
4. The award is generally final since appeal is permitted only in certain cases.

NO SUIT LIES IN CASE OF ARBITRATION AGREEMENT: When the parties have

entered into an Arbitration agreement, they cannot file a suit in court of law in respect of
any matter covered by the agreement otherwise the very purpose of Arbitration will be
frustrated. The court will not intervene except under specified cases. However, if any
party disregards the agreement and files a suit, the other party may apply to the court
for referring the dispute to Arbitration. The application should be made not later than the
submission of the first statement on the substance of the dispute and should be
accompanied by the original Arbitration agreement or duly certified copy thereof. The
court shall then refer the matter to Arbitration. An arbitration may be commenced or
continued and an award made even when the application as aforesaid is pending,
provided there is a pre-existing Arbitration agreement. If there is no pre-existing
Arbitration agreement when a suit is filed no reference to Arbitration can be made even
if. After the filing of the suit, the parties agree to a reference being made to Arbitration.

WHO MAY REFER TO ARBITRATION? An arbitration agreement is a contract and thus,

any party to such an agreement must have the capacity to contract. Primarily, any
person competent to contract may enter into an arbitration agreement with the other
party to the dispute and may refer the dispute to Arbitration. Besides, the Karta or
Manager of and on behalf of a Joint Hindu family, an agent duly authorized by his
principal, an attorney or consultant having the requisite authority from his client, a
partner with specific authority from all other partners, a trustee of a trust, an Official
Assignee or receiver, and a guardian or minor or lunatic, may also refer a dispute to
Arbitration.

WHAT DISPUTE MAY BE REFERRED? As per Section 7, parties to an Arbitration

agreement may refer to Arbitration, a dispute:-
1. Which is arisen or which may arise between them
2. In respect of defined legal relationship, whether contracted or not.
Thus, all matters of civil nature whether they relate to present or future disputes
may form the subject matters of civil nature whether they relate to present or future
disputes may legal relationship. The legal relationship arises out of an obligation, the
preference of which is duty under the law and for its breach a remedy is provided. The
legal relationship, however, need not necessarily be contractual. Thus disputes such as
infringement of intellectual property rights shall also be covered.

WHAT DISPUTS CANNOT BE REFERRED? The following disputes cannot be referred

to Arbitration:
1. Insolvency proceedings
2. Lunacy proceedings
3. Proceedings for appointment of a guardian to a minor
4. Question of genuineness or otherwise of a will or matter relating to issue of probate
5. Matters of criminal nature
6. Matters concerning Public Charitable Trusts
7. Disputes arising from and founded on an illegal contract.

WAIVER OF RIGHT TO OBJECT TO ARBITRATION: If a party has not complied with a

provision of the Act or with some requirement of the Arbitration agreement, and the
other party who has knowledge of such non-compliance, does not object at the earliest,
he will be deemed to have waived the objection and cannot raise it at a later stage. In
other words, once a party has participated in Arbitration proceedings, despite some
illegality, which would otherwise render the proceedings invalid, the proceedings cannot
be challenged later on the ground of such illegality.

APPOINTMENT OF AN ARBITRATOR: An Arbitrator is the person appointed, with or

without mutual consent of the contending parties for the purpose of investigation and
settlement of a difference of dispute referred to him. The arbitral tribunal may be
constituted by one or more arbitrators.

WHO MAY BE APPOINTED? The arbitrator is an extra judicial court or the parties’ own
choice. There are no hard a fast rules as to the qualifications of an arbitrator. Thus, the
parties may appoint as arbitrator, whomsoever they please, however incompetent or
unfit, to arbitrate on their dispute. However, it is in the interest of all the parties that the
arbitrator is person of integrity and intelligence, known for his impartial behavior,
rational judgment and competence.

NUMMBER OF ARBITRATORS: The reference may be made either to a single arbitrator

or a panel of odd number (i.e. 3,5,7 etc) of arbitrators. The parties are free to fix the
number of arbitrators by agreement. If there is no agreement, the reference shall be
made a sole arbitrator.
NATIONALITY OF ARBITRATORS: Unless otherwise agreed by the parties, arbitrator
may be of any nationality. In case of an international commercial arbitration, where the
parties belong to different nationalities, the Chief Justice of India may appoint an
arbitrator of a nationality other than that of the parties.

DISQUALIFICATIONS: A person is disqualified from being appointed as an arbitrator if

he has a personal interest in the matter to be referred for arbitration. It is the duty or the
person being appointed as an Arbitrator, to disclose in writing any circumstances likely
to give rise to justifiable doubts as to his independence or impartiality, so that each party
may have opportunity of considering whether the reference to that particular individual
should or should not be made. Any fraudulent concealment of interest shall invalidate
the arbitral award.

APPOINTMENT BY AGREEMENT: The parties are free to agree on a procedure for

appointing the arbitrator or arbitrators. If there is an agreement, the appointment has to
be made in accordance with it. The agreement may provide for number of arbitrators,
qualifications or arbitrator, procedure of appointment, procedure of challenging the
appointment, termination of appointment, procedure to be followed by arbitrator(s),
interim measures that may be ordered by the arbitrator, place of arbitration, language
etc. Appointment of sole arbitrator by agreement shall obviously be made by mutual
consent of the parties. The name of the arbitrator shall be proposed by one of the
parties, which should be accepted by the other party within 30 days of receipt, which the
appointment shall be made by the Chief Justice. In arbitration with three arbitrators,
unless otherwise agreed, each party shall appoint one arbitrator, and the two appointed
arbitrators shall appoint the third arbitrator, who shall act as the presiding arbitrator.

APPOINTMENT BY THE CHIEF JUSTICE: The appointment of arbitrator(s), shall be

made by the Chief Justice of the High Court having jurisdiction, in the following cases:-
1. When the parties fail to agree on the sole arbitrator, within 30 days.
2. When a party fails to appoint an arbitrator within 30 days.
3. When the two appointed arbitrators fail to agree on the third arbitrator within 30 days
of their appointment.
4. When a part fails to act as required under the agreed procedure for appointment.
5. When the parties, or the two appointed arbitrators, fail to reach an agreement
expected of them under the agreed procedure; or
6. When a person, including an institution, fails to perform any function entrusted to him
or it under the agreed procedure.
The appointment shall be made on a request being made by the party and the decision
of the chief Justice shall be final. In case of an international commercial arbitration, the
appointment of an arbitrator in the aforesaid circumstances shall be made by the Chief
Justice of India.

CHALLENGINNG APPOINTMENT: The appointment of an arbitrator may be challenged

by a party, if:-
a) Circumstances exist that give rise to justifiable doubts as to his independence or
impartially, or
b) He does not possess the qualifications agreed to by the parties.
The appointment can be challenged for only those reasons, which the party
became aware after the appointment of the arbitrator. The appointment cannot be
challenged on reasons, which were known to the party at or before the time of
appointment. The parties are free to agree on a procedure to be followed for challenging
the appointment of an arbitrator. If there is no such agreed procedure the party
intending to challenge the appointment of arbitrator shall send a written statement of
the reasons for the challenge to the arbitral tribunal, within 15 days after becoming
aware of the constitution of the arbitral tribunal or of the reasons on which the challenge
is based. The appointment of the challenged arbitrator shall stand terminated if he
himself withdraws from the office or the challenge is accepted by the other party.
Otherwise, the arbitral tribunal shall decide on the challenge.

TERMINNATION OF APPOINTMENT: The appointment of an arbitrator shall terminate

in following cases:
1. When the arbitrator becomes in law or in fact unable to perform his functions.
2. When the arbitrator for any reason fails to act without undue delay.
3. When the arbitrator withdraws from his office; or
4. When the parties agree to the termination.

APPOINTMENT OF A NEW ARBITRATOR: Where the appointment of an arbitrator is

terminated, a new arbitrator shall be substituted in his place. The procedure for
appointment of a substitute arbitrator shall be the same as applicable to the
appointment of the previous arbitrator.

POWER OF ARBITRAL TRIBUNAL TO AWARD INTERIM MEASURES: The arbitral

tribunal may, at the request of a party, order a party to take such interim measure of
protection as may be considered necessary in respect of the subject matter of the
dispute. The arbitral tribunal may require a party to furnish adequate security in
connection with a measure being ordered. The parties may, however agree that such
power shall not be exercised by the arbitral tribunal.

INTERIM ORDERS BY COURT: A party may, before or during arbitral proceedings or at

any time after the making of the arbitral award but before its enforcement, apply to the
court for any of the following matters:-
1. Appointment of a guardian for a minor or a person of unsound mind for the purposes
of arbitral proceedings.
2. Preservations, interim custody or sale of any goods, which are the subject matter of
the arbitration agreement.
3. Securing the amount in dispute in the arbitration
4. Detention, preservation or inspection of any property of thing which is the subject
matter of the dispute, or to authorize for any of the aforesaid purposes any person to
enter upon any land or building in the possession of any party, or authorizing any
samples to be taken or any observation to be made, or experiment to be tried, which
may be necessary or expedient for obtaining full information or evidence.
5. Interim injunction or the appointment of a receiver; or
6. Such other interim measure of protection as may appear to the court to be just and
convenient.
In a recent judgment, the Supreme Court has held that a court has jurisdiction
under Section 9 or the Act to pass interim orders even before arbitral proceedings
commence and before an arbitrator is appointed.

DUTIES OF ARBITRAL TRIBUNAL: The parties may agree pm the proceedings. In the
absence of such agreement, the arbitral tribunal may conduct the proceedings in the
manner it considers appropriate and shall be empowered to determine the admissibility,
relevance, materially and weight of any evidence. The tribunal shall not be bound by the
Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. The place of arbitration
and the language to be used shall be as agreed between the parties or as determined by
the arbitral tribunal.

STATEMENT OF CLAIMS AND DEFENCES: The claimant shall submit the statement of
claim stating:-
i) The facts supporting his claim,
ii) The points at issue, and
iii) The relief or remedy sought.
The respondent shall submit the statement of defense stating his defense in
respect of these particulars. The statement of claim and defense shall be filed by the
respective parties within the time agreed upon by the parties or as specified by the
arbitral tribunal. The statement shall be supported by relevant documents or may
include reference to such document / evidence. If the statement of claim is not
furnished, the arbitral tribunal shall terminate the proceedings. If, however, the
statement of defense is not furnished, the proceedings shall be continued and decided
on merits.

ARBITRAL PROOCEEDINGS: The parties are free to agree as to how the proceedings of
the arbitral tribunal shall be conducted. In the absence of any such agreement, the
arbitral tribunal shall decide whether to hold oral hearing for presentation of evidence or
for oral argument, or whether to conduct the proceedings on the basis of documents and
other materials. Unless oral hearing has been specifically excluded by agreement, the
arbitral tribunal shall hold oral hearings at an appropriate stage, on the request of a
party. The parties shall be given sufficient advance notice of any hearing or meeting of
the arbitral tribunal. All statements, documents or other information furnished by a party
or any expert report or evidentiary document relied upon by the arbitral tribunal shall be
communicated to the parties. If a party fails to appear on oral hearing or to produce
documentary evidence, the proceedings shall be continued and decided on merits.

APPOINTMENT OF EXPERT: The arbitral tribunal may appoint one or more experts,
unless there is a contrary agreement between the parties. The expert may be required to
report on specific issues. The tribunal may direct a party to furnish any relevant
information, documents, etc., to the expert.

ASSISTANCE OF COURT: The arbitral tribunal or a party with the approval of the
tribunal, my apply to the court for assistance in taking evidence.

RULE OF MAJORITY: Unless otherwise agreed by the parties, in case of three or more
arbitrators, the decision of the arbitral tribunal shall be made by a majority. However, if
authorized by the parties or all the arbitrators, a question of procedure may be decided
by the presiding arbitrator.

ARBITRAL AWARD: An arbitral award shall be made in writing and shall be signed by
the members of the arbitral tribunal. The award shall state its date and place of
arbitration. The arbitral award shall state the reasons upon which it is based, unless the
parties have agreed that no reasons are to be given or in case of award on a settlement
between the parties. A signed copy of the award shall be delivered to each party. The
arbitral tribunal may make an interim arbitral award on any matter with respect to which
a final award shall be made later. Where the award is for payment of money the tribunal
may order for payment of interest, at a reasonable rate for the specified period, unless
there is an agreement to the contrary. If the award does not make any direction on
interest, the sum directed to be paid under the award shall carry interest @ 18% p.a.
from the date of the award to the date of payment. The arbitral tribunal may make order
as to costs as well. The arbitral award shall be final and binding on the parties and
persons claiming under them respectively.

CORRECTION OR INTERPRETATION OF AWARD: The arbitral tribunal may correct

any computation, clerical or typographical error in the award, or give an interpretation
on a specific point or part of the award, on request by a party within 30 days from the
receipt of the award.

ADDITIONAL ARBITRAL AWARD: If any claim presented in the arbitral proceedings is

omitted from the award, the tribunal shall make an additional arbitral award, on request
by a party.

TERMINAYION OF PROCEEDINGS: The arbitral proceedings shall be terminated when:-

1. The final arbitral award is made
2. The claimant withdraws his claim, and the respondent does not object to it.
3. The parties agree on the termination,
4. The continuation or proceedings has for any other reason become unnecessary or
impossible, the arbitral tribunal shall also terminate with the termination of proceedings.

ENFORCEMENT OF AWARD: An arbitral award is itself enforceable as a decree of the

court, normally after three months from the date on which it was received by the parties,
provided no application for setting aside the award is made or if it is made the same has
been rejected.

SETTING ASIDE AN AWARD: An application for setting aside an arbitral award may be
made before the court, by a party within three months of receipt of the award by him.
The court may set aside an award on the following grounds:
1. A party was under some incapacity;
2. The arbitration agreement is not valid under the law;
3. The party making the application was not given proper notice of the appointment of
an arbitrator or of the arbitral proceedings or was otherwise unable to present his case.
4. The award deals with a dispute not contemplated by or beyond the scope of the
submission to arbitration.
5. The composition of the arbitral tribunal or the arbitral proceedings was not in
accordance with the agreement or with the law;
6. The subject – matter of the dispute is not capable of settlement by arbitration under
the law; or
7. The arbitral award is in conflict with the public policy of India.

APPEAL: An appeal shall lie before the court, against the following orders:-
1. Granting or refusing to grant any measure under Section 9
2. Setting aside or refusing to set aside an arbitral award under Section 34, and
3. Granting or refusing to grant an interim measure of protection under Section 17.
No second appeal shall lie against the appellate order of the court, except,
however, that an appeal may be made to the Supreme Court.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS: Part II dealing with enforcement of
foreign awards consists of two chapters. Chapter I relate to New York Convention Awards
and Chapter II deal with Geneva Convention Awards. ‘Foreign Award’ has been defined
to mean an award on difference between persons arising out of legal relationships,
whether contractual or not and considered as commercial under the law in force in India,
and made in pursuance of an agreement in writing for arbitration to be governed either
by the New York Convention or by the Geneva Convention, in the territory of notified
foreign state. Where a commercial dispute covered by an arbitration agreement to which
either of the convention applies, arises before a judicial authority in India, it shall at the
request of a party be referred to arbitration. Any foreign award which is enforceable
under this part shall be binding and may be relied upon by parties by way of defense, set
off or otherwise in any legal proceedings in India. The party applying for the enforcement
of a foreign award shall, produce the original award or a duly authenticated copy thereof,
the original arbitration agreement or a certified copy thereof, and evidence to prove that
the award is a foreign award.
Sections 48 and 57 contain the conditions for enforcement of a foreign award and
thus set out the grounds on which the enforcement may be refused. If the court is
satisfied that the foreign award is enforceable, the award shall be deemed to be a
decree of the court. An appeal shall lie against the order or court refusing to refer the
parties to arbitration or refusing to enforce a foreign award.