Arbitration and Conciliation Act, 1996

July 5th, 2012


Purpose of Arbitration Act is to provide quick redressal to commercial dispute by private Arbitration. Quick decision of any commercial dispute is necessary for smooth functioning of business and industry. Internationally, it is accepted that normally commercial disputes should be solved through arbitration and not through normal judicial system. Hence, the need of Alternate Dispute Resolution. (ADR). There are four methods of ADR – negotiation, mediation, conciliation and arbitration. ‘Negotiation’ is cheapest and simplest method. If it does not work, mediation through a mediator can be tried. If it does not work, conciliation and arbitration will be useful. Arbitration Act makes provision for conciliation and arbitration as ADR mechanisms. An arbitrator is basically a private judge appointed with consent of both the parties. Object of arbitration is settlement of dispute in an expeditious, convenient, inexpensive and private manner so that they do not become the subject of future litigation between the parties.

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Scheme of the Act –  The Act is divided in to following parts :

  • Part I – Domestic arbitration.
  • Part II – Enforcement of foreign awards.
  •   Part III – Conciliation procedures.
  • Part IV – Supplementary provisions.
  • First Schedule – Convention on recognition and enforcement of foreign arbitral award as per New York convention
  • Second Schedule – Protocol on Arbitration clauses
  • Third Schedule – Convention on the execution of foreign arbitral awards as per Geneva Convention.

LAW BASED ON UNCITRAL MODEL LAW – The present Act is based on model law drafted by United Nations Commission on International Trade Laws (UNCITRAL), both on domestic arbitration as well as international commercial arbitration, to provide uniformity and certainty to both categories of cases.

MATTERS NOT REFERABLE TO ARBITRATION – Certain matters which are not arbitrable are

  • Suits for divorce or restitution of conjugal rights.
  • Taxatio.
  • Non-payment of admitted liability.
  • Criminal matters.

Arbitration Agreement – The foundation of an arbitration is the arbitration agreement between the parties to submit to arbitration all are certain disputes which have arisen or which may arise between them. Thus, the provision of arbitration can be made at the time of entering the contract itself, so that if any dispute arises in future, the dispute can be referred to arbitrator as per the agreement. It is also possible to refer a dispute to arbitration after the dispute has arisen. Arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The agreement must be in writing and must be signed by both parties. The arbitration agreement can be by exchange of letters, document, telex, telegram etc. [section 7].

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Court must refer the matter to arbitration in some cases – If a party approaches court despite the arbitration agreement, the other party can raise objection. However, such objection must be raised before submitting his first statement on the substance of dispute. Such objection must be accompanied by the original arbitration agreement or its certified copy. On such application the judicial authority shall refer the parties to arbitration. Since the word used is “shall”, it is mandatory for judicial authority to refer the matter to arbitration. [section 8]. However, once first statement to court is already made by the opposite party, the matter has to continue in the court. Once an application is made by other party for referring the matter to arbitration, the arbitrator can continue with arbitration and even make an arbitral award.

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APPOINTMENT OF ARBITRATOR – The parties can agree on a procedure for appointing the arbitrator or arbitrators. If they are unable to agree, each party will appoint one arbitrator and the two appointed arbitrators will appoint the third arbitrator who will act as a presiding arbitrator. [section 11(3)]. If one of the party does not appoint an arbitrator within 30 days, or if two appointed arbitrators do not appoint third arbitrator within 30 days, the party can request Chief Justice to appoint an arbitrator. [section 11(4)]. The Chief Justice can authorise any person or institution to appoint an arbitrator. [Some High Courts have authorised District Judge to appoint an arbitrator]. In case of international commercial dispute, the application for appointment of arbitrator has to be made to Chief Justice of India. In case of other domestic disputes, application has to be made to Chief Justice of High Court within whose jurisdiction the parties are situated. [section 11(12)]

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CHALLENGE TO APPOINTMENT OF ARBITRATOR – An arbitrator is expected to be independent and impartial. If there are some circumstances due to which his independence or impartiality can be challenged, he must disclose the circumstances before his appointment. [section 12(1)]. Appointment of Arbitrator can be challenged only if (a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality (b) He does not possess the qualifications agreed to by the parties. [section 12(3)]. Appointment of arbitrator cannot be challenged on any other ground.. The challenge to appointment has to be decided by the arbitrator himself. If he does not accept the challenge, the proceedings can continue and the arbitrator can make the arbitral award. However, in such case, application for setting aside arbitral award can be made to Court. If the court agrees to the challenge, the arbitral award can be set aside. [section 13(6)]. Thus, even if the arbitrator does not accept the challenge to his appointment, the other party cannot stall further arbitration proceedings by rushing to court. The arbitration can continue and challenge can be made in Court only after arbitral award is made.

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Conduct of Arbitral Proceedings – The Arbitral Tribunal should treat the parties equally and each party should be given full opportunity to present his case. [section 18]. The Arbitral Tribunal is not bound by Code of Civil Procedure, 1908 or Indian Evidence Act, 1872. [section 19(1)].  The parties to arbitration are free to agree on the procedure to be followed by the Arbitral Tribunal. If the parties do not agree to the procedure, the procedure will be as determined by the arbitral tribunal.

LAW OF LIMITATION APPLICABLE – Limitation Act, 1963 is applicable. For this purpose, date on which the aggrieved party requests other party to refer the matter to arbitration shall be considered. If on that date, the claim is barred under Limitation Act, the arbitration cannot continue. [section 43(2)]. If Arbitration award is set aside by Court, time spent in arbitration will be excluded for purpose of Limitation Act. [so that case in court or fresh arbitration can start].

FLEXIBILITY IN RESPECT OF PROCEDURE, PLACE AND LANGUAGE – Arbitral Tribunal has full powers to decide the procedure to be followed, unless parties agree on the procedure to be followed. [section 19(3)]. The Tribunal also has powers to determine the admissibility, relevance, materiality and weight of any evidence. [section 19(4)]. Place of arbitration will be decided by mutual agreement. However if the parties do not agree to the place, the same will be decided by tribunal. [section 20]. Similarly, language to be used in arbitral proceedings can be mutually agreed. Otherwise, Arbitral Tribunal can decide. [section 22].

SUBMISSION OF STATEMENT OF CLAIM AND DEFENCE – The claimant should submit statement of claims, points of issue and relief or remedy sought. The respondent shall state his defence in respect of these particulars. All relevant documents must be submitted. Such claim or defence can be amended or supplemented any time [section 23].

HEARINGS AND WRITTEN PROCEEDINGS – After submission of documents and defence, unless the parties agree otherwise, the Arbitral Tribunal can decide whether there will be oral hearing or proceedings can be conducted on the basis of documents and other materials. However, if one of the parties requests, the hearing shall be oral. Sufficient advance notice of hearing should be given to both the parties. [section 24]. [Thus, unless one party requests, oral hearing is not compulsory].

SETTLEMENT DURING ARBITRATION – It is permissible for parties to arrive at mutual settlement even when arbitration is proceeding. In fact, even the Tribunal can make efforts to encourage mutual settlement. If parties settle the dispute by mutual agreement, the arbitration shall be terminated. However, if both parties and the Arbitral Tribunal agree, the settlement can be recorded in the form of an arbitral award on agreed terms. Such Arbitral Award shall have the same force as any other Arbitral Award. [section 30].

Arbitral Award – Decision of Arbitral Tribunal is termed as ‘Arbitral Award’.  Arbitrator can decide the dispute ex aequo et bono (In justice and in good faith) if both the parties expressly authorise him to do so. [section 28(2)]. The decision of Arbitral Tribunal will be by majority. The arbitral award shall be in writing and signed by the members of the tribunal. [section 29]. The award must be in writing and signed by the members of Arbitral Tribunal. [section 31(1)].. It must state the reasons for the award unless the parties have agreed that no reason for the award is to be given. [section 31(3)]. The award should be dated and place where it is made should be mentioned. Copy of award should be given to each party. Tribunal can make interim award also. [section 31(6)].

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Cost of Arbitration – Cost of arbitration means reasonable cost relating to fees and expenses of arbitrators and witnesses, legal fees and expenses, administration fees of the institution supervising the arbitration and other expenses in connection with arbitral proceedings. The tribunal can decide the cost and share of each party. [section 31(8)]. If the parties refuse to pay the costs, the Arbitral Tribunal may refuse to deliver its award. In such case, any party can approach Court. The Court will ask for deposit from the parties and on such deposit, the award will be delivered by the Tribunal. Then Court will decide the costs of arbitration and shall pay the same to Arbitrators. Balance, if any, will be refunded to the party. [section 39].

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Intervention by Court – One of the major defects of earlier arbitration law was that the party could access court almost at every stage of arbitration – right from appointment of arbitrator to implementation of final award. Thus, the defending party could approach court at various stages and stall the proceedings. Now, approach to court has been drastically curtailed. In some cases, if an objection is raised by the party, the decision on that objection can be given by Arbitral Tribunal itself. After the decision, the arbitration proceedings are continued and the aggrieved party can approach Court only after Arbitral Award is made. Appeal to court is now only on restricted grounds. Of course, Tribunal cannot be given unlimited and uncontrolled powers and supervision of Courts cannot be totally eliminated.

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ARBITRATION ACT HAS OVER-RIDING EFFECT – Section 5 of Act clarifies that notwithstanding anything contained in any other law for the time being in force, in matters governed by the Act, the judicial authority can intervene only as provided in this Act and not under any other Act..

Conciliation – Part III of the Act makes provision for conciliation proceedings. In conciliation proceedings, there is no agreement for arbitration. In fact, conciliation can be done even if there is arbitration agreement. The conciliator only brings parties together and tries to solve the dispute using his good offices. The conciliator has no authority to give any award. He only helps parties in arriving at a mutually accepted settlement. After such agreement they may draw and sign a written settlement agreement. It will be signed by the conciliator. However after the settlement agreement is signed by both the parties and the conciliator, it has the same status and effect as if it is an arbitral award. Conciliation is the amicable settlement of disputes between the parties, with the help of a conciliator.

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OFFER FOR CONCILIATION – The conciliation proceedings can start when one of the parties makes a written request to other to conciliate, briefly identifying the dispute. The conciliation can start only if other party accepts in writing the invitation to conciliate. Unless there is written acceptance, conciliation cannot commence. If the other party does not reply within 30 days, the offer for conciliation can be treated as rejected. [section 62] All matters of a civil nature or breach of contract or disputes of movable or immovable property can be referred to conciliation. However, matters of criminal nature, illegal transactions, matrimonial matters like divorce suit etc. cannot be referred to conciliation.

Enforcement of Foreign Awards – The foreign awards which can be enforced in India are as follows : – (a) New York convention award (made after 11th October, 1960) (b) Geneva convention award – made after 28th July, 1924, but before the concerned Government signed the New York convention. Since most of the countries have signed New York convention, normally, New York convention awards are enforceable in India. New York convention was drafted and kept in United Nations for signature of member countries on 21st December, 1958. Each country became party to the convention on the date on which it signed the convention.

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Party which intends to enforce a foreign award has to produce the arbitral award and agreement of arbitration [original or its certified copy] to the district court having jurisdiction over the subject matter of the award. [section 47]. The enforcement of award can be refused by court only in cases specified in section 48. Otherwise, the foreign award is enforceable through court as if it is a decree of the court. [section 49]. If the court declines to enforce the arbitral award, appeal can be made to the court where appeal normally lies from the district court. However, no further appeal can be made (except appeal to Supreme Court) – (section 50). [Probably, the aggrieved party may be able to approach International Court of Justice, as the convention is an international convention, signed by many of the member countries].

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One advantage of foreign award, according to foreign parties, is that Indian courts come into picture only at the time of implementation of award. The courts can refuse to implement the award only on limited grounds.

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