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Arbitration and Conciliation

Act, 1996
Introduction
➢ It came into force on the 22nd day of August, 1996.
➢ It extends to the whole of India.
➢ It provides for domestic arbitration, international commercial arbitration and also
enforcement of foreign arbitral awards.
➢ It also provides for conciliation It proceeds on the basis of the UN Model Law so as to
make our law accord with the law adopted by the United Nations Commission on
International Trade Law (UNCITRAL).
➢ The General Assembly of the United Nations has recommended that all countries give
due consideration to the said Model Law, in view of the desirability of uniformity of the
law of arbitral procedures and the specific needs of international commercial arbitration
practice.
Objects and reasons
➢ It was widely felt that the 1940 Act, which contained the general law of arbitration,
had become outdated.
➢ Several representative bodies of trade and industry and experts in the field of
arbitration had proposed amendments to this Act to make it more responsive to
contemporary requirements.
➢ To comprehensively cover international commercial arbitration and conciliation as
also domestic arbitration and conciliation.
➢ to make provisions for an arbitral procedure which is fair, efficient and capable of
meeting the needs of the specific arbitration.
➢ to provide that the Arbitral Tribunal gives reasons for its arbitral award.
➢ to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction.
➢ to minimise the supervisory role of courts in the arbitral process.
➢ to permit an Arbitral Tribunal to use mediation, conciliation or other procedures
during the arbitral proceedings to encourage settlement of disputes;
➢ to provide that every final arbitral award is enforced in the same manner as if it were
a decree of the court.
➢ to provide that a settlement agreement reached by the parties as a result of
conciliation proceedings will have the same status and effect as an arbitral award on
agreed terms on the substance of the dispute rendered by an Arbitral Tribunal.
➢ to provide that, for purposes of enforcement of foreign awards, every arbitral
award made in a country to which one of the two International Conventions
relating to foreign arbitral awards, to which India is a party applies, will be treated
as a foreign award.
Beneficial features
(i) fair resolution of a dispute by an impartial tribunal without any unnecessary delay or
expense
(ii) Party autonomy is paramount subject only to such safeguards as are necessary in
public interest
(iii) The Arbitral Tribunal is enjoined with a duty to act fairly and impartially- Case 4 .
Centrotrade Minerals & Metals Inc v Hindustan Copper Ltd, (2006) 11 SCC 245.
Shortcomings
(i) No provision is made for expediting awards or the subsequent proceedings in the
courts where applications are filed for setting aside awards
(ii) an aggrieved party has to start again from the District Court for challenging the
award.

Further amendments
➢ The 1996 Act has been further amended in the years 2015, 2019 and 2021.
Case : Fuerst Day Lawson Ltd v Jindal Exports Ltd, (2001) 6 SCC 356: AIR 2001 SC 2293.
The Supreme Court observed that the object of the Act is to provide speedy and alternative
solution to the dispute and avoid protraction of litigation. The provisions of the Act have to
be interpreted accordingly.
Case:- Govind Saran Ganga Saran v CST, 1985 Supp SCC 205: AIR 1985 SC 1041.
It is well-settled that when the language of the statute is clear and admits of no ambiguity,
recourse to the statement of objects and reasons for the purpose of construing a statutory
provision is not permissible.
Case:- Bharat Singh v New Delhi Tuberculosis Centre, (1986) 2 SCC 614: AIR 1986 SC
842.Though objects and reasons cannot be the ultimate guide in interpretation of statutes, it
often-times aids in finding out what really persuaded the legislature to enact a particular
provision.
Section 1:- Short title, extent and commencement.
(1) This Act may be called the Arbitration and Conciliation Act, 1996
(2) It extends to the whole of India.
The Act was brought into force w.e.f. 22 August 1996.
PLACE OF ARBITRATION IN INDIA

➢ Section 2(2) says that "this part shall apply where the place of arbitration is in
India".
➢ The Amendment of 2015 has added a proviso to this statement that subject to an
agreement to the contrary, the provisions of Sections 9, 27 and 37(1)(b) and (3)
are also to apply to international commercial arbitration even if the place of
arbitration is outside India, and an arbitral award made or to be made at such
place is enforceable and recognised under the provisions of Part II of this Act.
Section 2(1)(a):- Arbitration
Case:- Dharma Prathishthanam v Madhok Construction (P) Ltd. (2005) 9 SCC 686,
The essence of arbitration is- without assistance or intervention of the court is
settlement of the dispute by a tribunal of the own choice of the parties.
Case:- Indian Oil Corpn Ltd v Raja Transport (P) Lal, (2009)8 SCC 520
It is a binding voluntary alternative forum chosen by the parties.

Note:- An arbitration is the reference of a dispute or difference between not less than
two parties for determination, after hearing both sides in a judicial manner, by a
person or persons other than a court of competent jurisdiction,"
Case:- Dharma Prathishthanam Madhok Construction (P) Ltd, (2005) 9 SCC 686.
The law of arbitration only aids implementation of an arbitration agreement. It remains
a private adjudication by a forum consensually chosen by the parties and made on a
consensual reference. It is not an adjudication by a statutory body.

Dispute of civil nature:- Whatever be the type of dispute, the matter in dispute must be
of civil nature.
Case:- H. Srinivas Pai v H.V. Pai, (2010) 12 SCC 521
➢ The Act applies to domestic arbitrations, international commercial arbitrations, and
conciliations.
➢ The applicability of the Act does not depend upon the dispute being a commercial
dispute.
➢ Reference to arbitration and arbitrability depends upon the existence of an arbitration
agreement and not upon the question whether it is a civil or commercial dispute. There
can be arbitration agreement also for adjudication of non-commercial disputes.
➢ Matters of criminal nature cannot be referred to arbitration.
Winding up of companies
The matter of the winding up of a company cannot be referred to arbitration-
Case:- Haryana Telecom Ltd. V. Sterlite Industries (India) Ltd., 1999 5 SCC 688: AIR
1999 SC 2354.
Section 8(1) of the Arbitration and Conciliation Act, 1996 provides that the judicial
authority before whom an action is brought in a matter will refer the parties to
arbitration the said matter in accordance with the arbitration agreement. This
however, postulates that what can be referred to the arbitrator is only that dispute or
matter which the arbitrator is competent or empowered to decide. The claim in a
petition for winding up is not for money. The petition filed under the Companies Act
would be to the effect, in a matter like this, that the company has become
commercially insolvent and, therefore, should be wound up. The power to order
winding up of a company is contained in the Companies Act and is conferred on the
court. An arbitrator, notwithstanding any agreement between the parties, would have
no jurisdiction to order winding up of a company.
Arbitration and litigation
This brings about a difference between judicial and arbitrator's powers. Emphasising this
fact, the Court of Appeal observed:" "The court does not have the power which the
arbitrator had. Court's jurisdiction was limited to determining and enforcing the
contractual rights of the parties. The arbitrator, on the other hand, because the parties'
agreement expressly gave him such power, was entitled to modify the parties' contractual
rights by substituting his own discretion. Accordingly, if the parties chose to litigate
rather than arbitrate the court would not have the same powers."
Arbitration agreement
Section 2(1)(b)- An 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.

Arbitral Award- Section 2(1)(c) states that ‘arbitral award’ includes an ‘interim
award’ procedural orders passed during the course of the arbitral proceedings are
necessary excluded from the concept of award- Case:- Harinarayan G. bajaj v.
Sharedeal Financial Consultations (P) Ltd., 2002 SCC Online Bom 1186: AIR 2003
Bom 296.
Arbitral Institution
Section 2(1)(ca) says that ‘arbitral institution’ means an Arbitral Institution
designated by the SC or the HC under the Act.
This section was inserted in 2019 to stress on the involvement of arbitral institutions
in the process of arbitration.

Arbitral Tribunal
Section 2(1)(d) only says that an "Arbitral Tribunal means a sole arbitrator or a
panel of arbitrators.
Receipt of written communications
Any written communication is deemed to have been received if it is delivered to the
addressee personally or at his place of business, habitual residence or mailing address, and
(a)if none of the places referred to in clause (a) can be found after making a reasonable
inquiry, a written communication is deemed to have been received if it is sent to the
addressee's last known place of business, habitual residence or mailing address by
registered letter or by any other means which provides a record of the attempt to deliver
it.
(2) The communication is deemed to have been received on the day it is so delivered.
(3) This section does not apply to written communications in respect of proceedings of any
judicial authority.
Mode of Communication
➢ under Section 21, the arbitral proceedings are deemed to commence on the date on
which a request is received that the dispute be referred to arbitration.
➢ Section 3 provides that the parties can agree as to the way they would serve
communications on each-other or the Tribunal would communicate with them.
➢ In the absence of any such agreement, any written communication is deemed to have
been received if it is delivered to the addressee personally or at his place of business,
habitual residence or mailing address.
➢ The communication may be sent by registered letter or by any other means which
provides a record of the attempt to deliver it.
Case:- Kailash Rani Dang v Rakesh Bala Aneja, (2009) 1 SCC 732.
A copy of the award was sent to the party at the place which was in fact the subject-
matter of dispute between the parties. The statement of the postman was that the party
was not present at the place. On the next day he refused to receive the communication.
When it was tendered to him. The postman endorsed this fact on the envelope and
returned it to the sender. It was held that by virtue of Section 3(1)(a) read with Section
3(3), it could be presumed that the document had been delivered to the party.
WAIVER OF RIGHTS
Section 4:- Waiver of right to object:- A party who knows that:
(a)any provision of this Part from which the parties may derogate, or
(b)any requirement under the arbitration agreement,
has not been complied with and yet proceeds with the arbitration without stating his
objection to such non-compliance without undue delay or, if a time limit is provided for
stating that objection, within that period of time, shall be deemed to have waived his
right to so object.
Acquiescence and estoppel
If there has been a non-compliance with a non-mandatory provision of Part I or With a
similar requirement under the arbitration agreement and a party does not object at the
earliest, he will be deemed to have waived the objection and cannot raise it at a later
stage.
Case:- BSNL v Motorola India (P) Ltd, (2009) 2 SCC 337; AIR 2009 SC 357
Where an order appointing an arbitrator was passed by a High Court without any
objection by the other party and no objections were raised prior to the first hearing by
the arbitration, it was held that the appellant were to be taken to have waived their
right to object.
➢ If either party desires to raise any such objection, it must do so at the earliest
opportunity, or not at all.
Case:- New India Assurance Cov Dalmia Iron & Steel Ltd, 1964 SCC OnLine Cal 34:
AIR 1965 Cal 42
If a party allows the arbitrator to proceed with the reference without objecting to his
jurisdiction or competence, he will not subsequently be heard to say that the award be
set aside on any such ground.
JUDICIAL INTERVENTION
Section 5:- Extent of judicial intervention.
No judicial authority shall intervene except where so provided in this Part.
This section bars the jurisdiction of courts to interfere or to intervene in arbitration
proceedings except to the extent provided in Part I.
This intervention of Courts in the following cases:-
(1) Section 8- Making reference in a pending suit
(2) Section 9- Passing interim orders.
(3) Section 11- Appointment of arbitrators
(4) Section 14(2)- Terminating mandate of arbitrator
(5) Section 27- Court assistance in taking evidence
(6) Section 34- Setting aside an award
(7) Section 37- Entertaining appeals against certain orders
(8) Section 39(2)- Directing delivery of award.
Section 6:- Administrative Assistance
In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral
tribunal with the consent of the parties, may arrange for administrative assistance by a
suitable institution or person.
Delegation of functions by arbitrators
Section 6 enables the parties and the Arbitral Tribunal to obtain administrative
assistance in order to facilitate the conduct of arbitration proceedings. The arbitrators
can take administrative assistance in respect of acts of ministerial and clerical nature. or
acts for which one has necessarily to depend upon persons of skill and experience or acts
for which functioning is usually delegated to others or for any other act with the consent
of the parties.
'Arbitration Agreement (Secs. 7-9)’
Section 7(1) of the Act, '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.

Form of Arbitration Agreement: An arbitration agreement may be in the form of


an arbitration clause in a contract or in the form of a separate agreement (Sec. 7(2).
An arbitration agreement shall be in writing (Sec. 7(3))
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
including communication through electronic means 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 (Sec. 7(4).

Case:- V.M. Thomas v. Tata Projects Limited, Hyderabad [2001 (2) ALD 588]
Arbitration application has been dismissed where there does not exist any arbitrary
clause for taking recourse to a reference.
Attributes of Arbitration Agreement
Case:- K.K. Modi v. K.N. Modi, (1998 (3) SCC 573)
The Supreme Court has laid emphasis on:
(1) the agreement must be related to the dispute as against interim to avoid future disputes.
(2) The tribunal or form must be chosen and agreed by the parties through the agreement
or from the order of the Court or from statute.
(3) The agreement must contain that the decision of the arbitral tribunal will be binding on
the parties of the agreement.
(4) The agreement must contemplate that substantive rights of the parties will be
determined by the agreed tribunal after taking into account relevant evidence before it.
(5) The decision is intended to bind the parties.
➢ The arbitration agreement must not be uncertain, and it should be capable of being
ascertained.
➢ However, the agreement will become void ipso facto even there is any uncertainty,
and it can be rectified. The agreement of arbitration must be certain relating to the
dispute, parties and identity of the arbitral tribunal and its composition.
➢ Arbitration agreement is a contract. Hence there must be offer and acceptance.
Consideration for the contract comprises in the promise by each party to the other that
in case of any dispute or difference between them he would abstain from any action in
a Court of Law.
➢ Mutual obligation of each to the other to abstain from legal action and to perform the
award of the arbitrator forms the consideration for the contract.
➢ Parties to the arbitration agreement must be legal persons.
➢ They must be ad idem.
➢ The agreement to submit disputes to arbitration should be mutual and be signed by
the parties.
➢ Subject-matter to which the dispute may relate must be lawful.

Case:- K. Venkulu v. State of A.P., [AIR 2004 AP 85]


It has been observed that no private parties by their agreement or even the Government
can compel a Civil Court to arbitrate a dispute. Even Section 89 CPC does not oblige
Courts to conduct arbitration. It is not permissible to confer such power on a Court
under an agreement of parties.
Case:- Waverly Jute Mills v. Rayman and Co., [AIR 1963 SC 90]
It has been observed that if the contract itself is illegal and forbidden by law, the
arbitration clause will also be illegal and void being a constituent part of the contract.
An arbitration clause of legal contract or agreement is implementable. Thus, where
there has been no contract at all, there cannot be existence of an agreement to
arbitrator.
Case:- Union of India v. L.K. Ahuja, [AIR 1988 SC 1172]
It has been observed that where the agreement itself has come to an end, an
arbitration clause of the agreement cannot survive independently and
consequently, any further dispute or claim cannot become arbitrable, and any
reference to an arbitration by invoking such arbitration clause which does not
subsist is impotent and unenforceable.
The arbitration agreement should not suffer from uncertainty as to:-
(1) the existence of a dispute;
(2) place of arbitration; and
(3) composition or identity of the arbitration award.

The subject-matter to which the dispute for arbitration relates must also be lawful.
Mutuality being the sine-qua-non of the validity of a contract, Similarly there
should be mutuality with regard to initiation of arbitration proceedings.
➢ The arbitration clause must give bilateral right of reference to both the parties
i.e., either party may, in the event of dispute, refer the matter to arbitration.
➢ It is not necessary to specify the dispute either in arbitration agreement or in the
reference to the arbitrator.
➢ Such specifications can also be made in the proceedings before the arbitrator.
Power to Refer Parties to Arbitration where there is an Arbitration
Agreement

➢ A judicial authority, before which an action is brought refer the parties to


arbitration unless it finds that prima facie no valid arbitration agreement
exists.
➢ The application referred shall not be entertained unless it is accompanied by
the original arbitration agreement or a duly certified copy thereof.
➢ Provided that where the original arbitration agreement or a certified copy thereof is
not available with the party and the said agreement or certified copy is retained by
the other party to that agreement, then, the party so applying shall file such
application along with a copy of the arbitration agreement and a petition praying the
Court to call upon the other party to produce the original arbitration agreement or
its duly certified copy before that Court.

➢ The judicial authority has no power to stay the legal proceedings suo motu unless
the party has filed an application for it and requested to refer to arbitration.
Before disposing of the application for stay and referral to arbitration, the judicial
authority has to decide-
(i) whether there is an arbitration agreement among the parties;
(ii) whether all the parties to the suit are parties to the arbitration agreement;
(iii) whether the disputes which are the subject-matter of the suit fall within the
scope of the arbitration agreement;
(iv) whether the defendant had applied under Section of the Act for reference before
submitting his first statement on the substance of the dispute; and
(v) whether the reliefs sought in the suit are such as can be adjudicated and granted
in an arbitration.
➢ The order made by the judicial authority for staying or refusing to stay legal
proceedings cannot be challenged in appeal because such an order is not
included as 'appealable order' under Section 37 of the Act.
➢ Therefore, the Court has no other discretion but to refer the matter to
arbitration.
Interim measures, etc. by Court:- Section 9 of the Arbitration and Conciliation Act,
1996 provides
(1) A party may, before or during arbitral proceedings or at any time after the making of
the arbitral award but before it is enforced in accordance with Section 36, apply to a
Court:
(i) for the appointment of a guardian for a minor or a person of unsound mind for the
purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters,
namely:
(a) the preservation, interim custody or sale of any goods which are the subject-matter
of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the
subject-matter of the dispute in arbitration.
(d) Interim injunction or the appointment of a receiver;
(e) such other interim measure, the court think to be just and convenient

(2) Once the arbitral tribunal has been constituted, the Court shall not entertain an
application under sub-section (1) unless the Court finds that circumstances exist which may
not render the remedy provided under Section 17 efficacious.
Case:- Bhatia International V. Bulk Trading S.A and another, [ 2002 (2) SCC 105]
It has been observed that an application for interim measure can be made to the
Courts in India, whether or not the arbitration takes place in India, before or during
the arbitral proceedings.

Case:- Sundaram Finance Ltd. v. NEPC India Ltd., [AIR 1999 SC 565]
It has been held that interim orders can be granted by Court even before
commencement of arbitral proceedings.
Composition, Powers, Duties and
Responsibilities of Arbitral
Tribunal
Composition of Arbitral Tribunal
1. Number of Arbitrators: Under Section 10(1) of the Arbitration and Conciliation
Act, 1996, the parties are free to determine the number of arbitrators, provided
that such number shall not be an even number.
2. This sub-section is taken from Article 10(1) of the Model Law of UNCITRAL.

Note:- Although this section restricts the freedom of the parties to appoint only an
uneven number of arbitrators whereas Article 10(1) of the Model Law gives freedom
to the parties to appoint both even and uneven number of arbitrators.
➢ Section 10(2) of the Arbitration and Conciliation Act, 1996 ensures that if the
parties could not arrive into agreement in respect of number of arbitrators (only an
uneven number), the arbitral Tribunal shall consist of a sole arbitrator.

➢ Under Article 10(2) of the Model Law, failing agreement between the parties the
practice prevails in international commercial arbitration to be adopted, that is the
number of arbitrators shall be three.
Appointment of Arbitrators
Under Section 11 of the Arbitration and Conciliation Act, 1996, the following are the
provisions relating the appointment of arbitrators:
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the
parties.
(2) However, the parties may restrict themselves to certain nationalities of the States to
be appointed as an arbitrator. There is no discrimination in respect of nationality of
an arbitrator. Hence, a foreigner may be appointed as an arbitrator.
(3) sub-section (6), the parties are free to agree on a procedure for appointing arbitrator
or arbitrators subject to certain restriction.
(3) If the parties fail to agree on a procedure for appointing the arbitrator or arbitrators
and the number of arbitrators agreed upon is 3, each party shall appoint one arbitrator,
and the two appointed arbitrators shall appoint the third arbitrator who shall act as the
presiding arbitrator. Thus, sub-section would not apply if the agreed number of arbitrators
is any other number than 3
(3A) The Supreme Court and the High Court shall have the power to designate, arbitral
institutions, from time to time, which have been graded by the Council.
Note: Provided where no graded arbitral institution are available, then, the Chief Justice
of the concerned High Court may maintain a panel of arbitrators for discharging the
functions and duties of arbitral institution the arbitrator appointed by a party shall be
entitled to such fee at the rate as specified in the Fourth Schedule.
Provided further that the Chief Justice of the concerned High Court may, from time to
time, review the panel of arbitrators.
4) If the appointment procedure in sub-section (3) applies and,-
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a
request to do so from the other party; or
(b) The two appointed arbitrator fail to agree on the 3rd arbitrator within 30 days
from the date of their appointment,
The appointment shall be made, on an application of the party, by the arbitral
Institution designated by the Supreme Court, in case of international commercial
arbitration, or by the High Court, in case of arbitrations other than international
commercial arbitration
Where, under an appointment procedure agreed upon by the parties,-
(a) a party fails to act as required under that procedure or the parties,
(b) or the two appointed arbitrators, fail to reach an agreement expected of them under
that procedure or
(c) a person, including an institution, fails to perform any function entrusted to him or it
under that procedure,
the appointment shall be made, on an application of the party, by the arbitral institution
designated by the Supreme Court, in case of international commercial arbitration, or by the
High Court, in case of arbitrations other than international commercial arbitration, to take
the necessary measure, unless the agreement on the appointment procedure provides other
means for securing the appointment.
➢ The designation of any person or institution by the Supreme Court or, as the case
may by the High Court, for the purposes of this section shall not be regarded as a
delegation of judicial power by the Supreme Court or the High Court.
➢ An application made under this section for appointment of an arbitrator or arbitrators
shall be disposed of by the arbitral institution within a period of thirty days from the
date of service of notice on the opposite party.
➢ The arbitral institution shall determine the fees of the arbitral tribunal and the
manner of its payment to the arbitral tribunal subject to the rates specified in the
Fourth Schedule.

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