This article is written by Monesh Mehndiratta, a student of BA LLB, Graphic Era Hill University, Dehradun. This article talks about arbitration and conciliation as alternate forms of dispute resolutions and gives an overview of Arbitration and Conciliation Act, 1996. 

This article has been published by Sneha Mahawar.

Introduction

ADR means Alternative Dispute Resolution which includes various methods of settling a dispute without getting into the intricacies of the court. It is a method where parties try to resolve their disputes privately in front of a third-person expert. The decision is binding on the parties like the decision of the court. It includes methods like arbitration, mediation, conciliation and negotiation. These work on the principles of justice, legal aid and speedy trial as given under Article 39A of the Indian Constitution. Even Section 89 of the Code of Civil Procedure, 1908 provides settling disputes by way of ADR. The proceedings are flexible and creative. It provides satisfying solutions with reduced cost and time and thus, is an emerging field in Law. The Parliament felt the need and passed an act regarding this matter. The article deals with an act on arbitration and conciliation known as Arbitration and Conciliation Act, 1996. It lays out the object, extent and applicability and discusses the important provisions under the Act.  

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Applicability of the Arbitration and Conciliation Act, 1996

The Act applies to the whole of India but Part I, Part II, Part III and Part IV will extend to Jammu and Kashmir only if they relate to international commercial arbitration or conciliation. The Act was enforced on 22nd August 1996 but the ordinance was promulgated by the President on 16th January 1996. The other two ordinances i.e., Arbitration and Conciliation ordinances were passed on 26th March and 21st June 1996 respectively. 

Objectives of the Arbitration and Conciliation Act, 1996 

Earlier, the law on arbitration was dealt with under 3 acts which eventually became outdated. As a result of which the bodies of trade and industry and experts of arbitration demanded and proposed amendments to make the Act responsive and at par with the needs of the society. It was felt that the economic reforms in the country can only be dealt with if domestic and international commercial disputes and their settlement are not outside the purview of such reforms. The United Nations in 1985 adopted the Model Law on International Arbitration and Conciliation and asked all the countries to give due importance to it. This resulted in the enforcement of the said Act. The various objectives of the Act are:

  • Cover international and domestic commercial arbitration and conciliation comprehensively.
  • Make a procedure which is fair, efficient and capable of meeting the needs of the society for arbitration and conciliation. 
  • Provides reasons by the tribunal for granting any arbitral award.
  • Ensure that the tribunal does not exercise its jurisdiction beyond the limits. 
  • Minimise the role of courts and reduce the burden on the judiciary. 
  • It permits the tribunal to opt for arbitration and conciliation as a method of dispute settlement. 
  • It makes sure that every award is enforced in the same manner as the decree of the court. 
  • It provides that the conciliation agreement reached by the parties has the same effect as the award granted by an arbitral tribunal. 
  • It also works on the enforcement of foreign awards. 

Scheme of the Arbitration and Conciliation Act, 1996

The Act is divided into four parts:

  • Part I (Sections 2-43) – Applies to the place of arbitration in India. The award granted is treated as a domestic award. 
  • Part II (Sections 44-60) – Enforcement of foreign awards.
  • Part III (Sections 61-81) – Conciliation
  • Part IV (Sections 82-86) – Supplementary provisions

It contains three schedules:

  • Schedule I – Convention on the recognition of foreign awards of arbitration. 
  • Schedule II – Protocol to be followed on arbitration clauses.
  • Schedule III – Convention for the execution of foreign arbitral awards. 

Definitions under the Arbitration and Conciliation Act, 1996

Section 2 of the Act gives various definitions of some important terms given in the Act. These are:

  1. Arbitration – Section 2 (1)(a) of the Act defines arbitration as to any arbitration which is either administered or not by a permanent arbitral institution. 
  2. Arbitration agreement – Section 2(1)(b) of the Act says that for arbitration agreement Section 7 of the Act must be referred. 
  3. Arbitral award – this has not been defined clearly in Section 2(1)(c) but mentions that it includes interim award. 
  4. Arbitral tribunal – it means a sole arbitrator or panel of arbitrators who help in arbitration. (Section 2(1)(d))
  5. Courts – Section 2(1)(e) defines courts. It includes civil courts having original jurisdiction in a district and the High Court having jurisdiction to decide issues related to the subject matter of the arbitration. 
  6. International commercial arbitration – defined under Section 2(1)(f). It means arbitration in disputes arising out of a legal relationship, whether contractual or not and where one party is a national of another country, a body corporate in another country, company under the control of any other country or government of a foreign country. 
arbitration

Legal analysis of the Arbitration and Conciliation Act, 1996

Arbitration (Part I)

It is defined under Section 2 (1)(a) of the Act. It is an alternative to litigation in courts and is advantageous as it provides flexibility and confidentiality. According to Black Law Dictionary, it means a method of resolving disputes which includes two parties and a neutral third party whose decision is binding on both parties. 

Section 8 of the Act talks about the powers of any judicial authority to refer a case to arbitration. It must be followed by an arbitration agreement. The Hon’ble Supreme Court in the case of P. Anand Gajapati Raju v. P.V.G Raju (2000) gave certain requirements necessary for referring parties to arbitration:

  • An arbitration agreement must be there. 
  • A party must bring an action in court against others.
  • The subject matter must be the same as in arbitration.
  • One party demands arbitration in court. 

In another case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011), it was held that there is no time limit to file an application but it should be filed before submission of the first statement related to the dispute. Further, Section 9 provides that the parties to arbitration may at any time refer to the court for interim measures. 

Types of Arbitration

  1. Domestic arbitration – It means that the proceedings of arbitration will take place as per Indian laws and be subject to Indian jurisdiction. 
  2. International and commercial arbitration – This is done in cases involving disputes out of a legal relationship where one of the parties is a foreign national, body corporated in some other country, a company or group which is under the control of some other country and government of a foreign country. 
  3. Institutional arbitration – It is administered by arbitration institutions like the Indian Council of Arbitration, the International Centre for Alternative Dispute Resolution (ICADR) etc. 
  4. Statutory arbitration – some acts provide for the resolution of disputes by arbitration. In case there is any inconsistency between any Act and Part I of the Arbitration Act then the provisions given in that Act will prevail. 
  5. Ad hoc arbitration – It means an arbitration where parties agree without any assistance from the Arbitral tribunal. 
  6. Fast track arbitration – It is also called documentary arbitration. The arbitration proceedings are very fast and time-saving. It is solely based on the claim statement by one party and its written reply by another. 
  7. Look–sniff arbitration – It is a combination of an arbitral process and the opinion of an expert. There are no formal submissions and hearings under this. 
  8. Flip–flop arbitration – It is also called pendulum arbitration. The parties in this type of arbitration create the cases before and then invite the arbitrator to decide any one of the two options. 

Advantages of arbitration 

  • A person appointed as arbitrator is based on the whims of the parties.
  • If parties agree only then an arbitral tribunal is taken into matter. 
  • It is inexpensive and saves time. 
  • It ensures a fair trial. 
  • Gives freedom to the parties from judicial intervention. 
  • Parties choose the place of arbitration themselves (Section 20).
  • The proceedings are kept private and confidentiality is maintained. 
  • The arbitral award is enforced in the same way a decree of the court is enforced. 

Disadvantages of arbitration

  • It does not always guarantee an expeditious resolution. 
  • The procedure is at times uncertain. 
  • It cannot give remedies like punishment, imprisonment, injunction, etc. which are given in courts. 
  • Due to flexibility, it is ineffective. 
  • The method cannot be easily used in disputes involving multiple parties. 

Cases not referred to arbitration

Generally, cases of civil rights where the remedy is the damages are referred to arbitration but Section 2(3) of the Act gives the list of such cases which cannot be submitted to arbitration. These are:

  • Winding up proceedings of any company. (Haryana Telecom Ltd. v. Sterlite Industries (1999);
  • Disputes that have to be determined by any particular tribunal as the law may provide;
  • Proceedings related to insolvency; 
  • Probate proceedings;
  • Question of will and genuineness;
  • Guardianship matters;
  • Succession disputes;
  • Disputes related to immovable property; 
  • Illegal transaction cases;
  • Proceeding under Section 145 of the Code of Criminal Procedure; and 
  • A criminal case cannot be referred to arbitration;

Arbitral tribunals

Composition of tribunals

It is the creation of an agreement which conforms with the law. Section 10 of the Act enables the parties to determine freely the number of arbitrators to settle their dispute. The only restriction is that the number of such arbitrators must not be even. If the parties are not able to decide then there will be only 1 arbitrator. But if there are even number of arbitrators then the agreement cannot be held invalid merely on this ground. (Narayan Prasad Lohia v. Nikunj Kumar Lohia, 2002) 

Procedure for appointment of arbitrators

Further, Section 11 of the Act provides the procedure for the appointment of arbitrators. The valid requirements for any such appointment are:

  • Party must give proper notice of appointment to the other party. If it does not do so, the appointment is held invalid. 
  • A person appointed as an arbitrator must be duly informed and his consent must be taken. 
  • The consent must be obtained before finalising his appointment. 

It also says that if the parties fail to appoint an arbitrator within 30 days of the request or if two arbitrators are appointed and not the third one, then the appointment will be made by Chief Justice or any person on his behalf designated by him but with the prior request of the parties. 

Termination of arbitrator

The grounds for termination are given under Section 14 and Section 15 of the Act. These are:

  • If he is not able to perform his functions without undue delay (whether de jure or de facto),
  • If he  withdraws or is terminated by the parties,
  • He shall be terminated where he withdraws himself or by agreement of the parties. 
  • On his termination, a substitute arbitrator will be appointed as per Section 15. 

Jurisdiction 

Section 16 of the Act provides that the tribunal will act in its jurisdiction. If the arbitral tribunal has no jurisdiction then a plea will be raised but not later than when the statement of defence is submitted. It also provides that in case a party is not satisfied with the arbitral award, it can make an application to set it aside according to Section 34 of the Act. The Supreme Court in the case of Centrotrade Minerals and Metals v. Hindustan Copper Ltd. (2006), held that any issue related to the jurisdiction can be raised by people in the proceedings or anyone from outside. But if it is made by the party then it must be done during the proceedings or at the initial stage.  

Arbitral award 

It is a final determination of a claim or a part of it or a counter-claim awarded by the arbitral tribunal. It must be written and duly signed by the members of the arbitral tribunal as given under Section 31 of the Act. The Section further gives the power to the tribunal to make interim awards for any matter. In case of payment of money, it can award the interest which seems reasonable, just and fair to the tribunal. 

Section 32 of the Act empowers the arbitral tribunal to terminate the proceedings by making a final arbitral award. The procedure for any correction in the award or its interpretation is given under Section 33 of the Act. It also gives the power to the tribunal or the arbitrator to amend, correct or remove any errors of any kind within 30 days but is silent on judicial review. The tribunals cannot exercise their jurisdiction beyond whatever has been mentioned in this section. 

Types of arbitral awards

  1. Interim award – It is the determination of any issue arising out of the main dispute. It is a temporary arrangement to satisfy a party and is subject to the final award. 
  2. Additional award – According to Section 33 of the Act, if the parties find that certain claims have been missed out by the arbitral tribunal and they were present in the proceedings then it can after notifying other parties, make a request to the arbitral tribunal to make an additional award and cover the claims which have been left. 
  3. Settlement awards – It is made if the parties agree on certain terms of the settlement. As per Section 30 of the Act, the arbitral tribunal may use any method of dispute resolution like mediation, conciliation or negotiation to bring a settlement between the parties. 
  4. Final award – It is an award which finally determines all the issues in a dispute. It is conclusive unless set aside by courts and binding on the parties. 

Recourse against arbitral awards

Under Section 34 of the Act, a party if not satisfied can make an application to set aside the award granted by an arbitral tribunal. The time limit to make such an application is not more than 3 months from the date the arbitral award was made. The grounds are:

  • Incapacity of parties.
  • Non-existence of the agreement of arbitration.
  • Did not follow the due process. 
  • Error on the part of the arbitral tribunal to exercise its jurisdiction. 
  • Improper composition of the arbitral tribunal.
  • The subject matter is not capable of being referred to arbitration. 
  • It is against public policy. 
  • Fraud or corruption.

Section 37 of the Act provides that if a person is not satisfied with the order passed by the tribunal, he/she can appeal to the court.  However, there are no provisions for a second appeal once an appeal has been made. In the case of Pandey and Co. Builders Pvt. Ltd. v. State of Bihar (2007), it was held that the appellate authority in any case which is referred to arbitration must be decided from the definition of court given under Section 2 of the Act.  

Foreign awards (Part II)

Foreign awards are given in the disputes arising out of some legal relations which can either be contractual or not and are considered under any commercial law of the country. In simple terms, it means the awards given in International commercial arbitration.  Foreign awards are granted in foreign countries and are enforceable in India under the Act. It is divided into two chapters:

The foreign award related to the New York Convention is given under Section 44 of the Act and that related to the Geneva Convention under Section 53 of the Act. The conditions to enforce these awards in the country are given under Section 48 and Section 57 of the Act respectively. 

Conciliation (Part III)

It is a process in which a third party helps the parties in dispute to resolve it by way of agreement. The person authorised to do so is called a Conciliator. He may do it by giving his opinion regarding the dispute to help parties reach a settlement. In other words, it is a compromise settlement between the parties. 

Features of conciliation

  • The person assisting the parties to come to a compromise is called a conciliator. 
  • Conciliators give their opinion regarding the dispute. 
  • The process of conciliation is voluntary. 
  • It is a non-binding process.
  • The main difference between arbitration and conciliation is that, unlike arbitration, the parties in this process control the whole procedure and the outcome. 
  • It is a consensual party and the desired outcome is the final settlement between the parties based on their wishes, terms and conditions. 
  • A conciliator can become an arbitrator on the wish of the parties if no compromise could be reached by the process of conciliation. This is known as Hybrid Conciliation. 
  • The settlement agreement will have the same importance and status as the arbitration award. (Section 74)

Proceedings of Conciliation under the Act

  • Section 62 of the Act provides that in order to initiate the conciliation proceedings one party to the dispute has to invite the other party in writing for conciliation. However, there will be no proceedings if the other to whom notice/invitation is sent, reject it or does not reply. 
  • The general rule states that there must be one conciliator but in the case of more than one conciliator they have to function together with each other as per Section 63 of the Act. 
  • The appointment of the conciliator like an arbitrator will be done by the parties themselves under Section 64 of the Act. 
  • A party according to Section 65 of the Act is under an obligation to submit in writing the nature of the dispute and all the necessary information related to it to the conciliator. 
  • The proceeding can be terminated following any of the procedures given under Section 78 of the Act. 

Role of conciliator

It is mentioned under Section 67 of the Act:

  • He must be independent and impartial. 
  • He must assist the parties to come to a settlement.
  • He is not bound by the procedure given under the Code of Civil Procedure, 1908.
  • He must adhere to the principles of fairness and justice. 

Supplementary provisions (Part IV)

Landmark case laws

Haryana Space Application Centre (HARSAC) v. Pan India Consultants Pvt. Ltd. (2021)

Facts of the case 

In this case, an application was filed under Section 29 A(4) of the Act wherein it was stated that the decision of the arbitral tribunal was ready to be pronounced by the authorities. Also, the required cost was paid to the tribunal. On this, the other party argued that the application must be denied on the ground that it lacks reasons for extension under the Section. However, the argument was rejected and an extension of 3-months was granted. HARSAC in a response filed a revision in the High Court. But it again granted a four-month extension. To this, a special writ application was filed to the Supreme Court. 

Issue involved in the case

Whether the extension be given to the party or not?

Judgement of the Court

It was ruled by the court that the clause given in Section 12 is obligatory when it is dealt together with the Schedule of the Act. It was also held that the Principal Secretary is not qualified to be an arbitrator. If been the one, he would probably influence HARSAC. The court also directed to appoint another arbitrator who will continue the proceedings and help them come to an agreement within 6 months. 

Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund (2021)

Facts of the case

Indus Biotech issued some preference shares which are convertible at the option to funds of Kotak India. A clause was added in the agreement of shareholders but they could not agree on how to convert these shares into paid-up equity shares. As a result, Kotak India filed an application when the other party failed to redeem those shares. 

Issue involved in the case

Whether the subject matter of the dispute falls in those that could be referred to arbitration if the case is pending in NCLT?

Judgement of the Court

The Supreme Court opined that the case cannot be referred to arbitration if the process is in rem. It further stated that if any proceedings are pending before NCLT under Section 7 of IBC, then any application under the Arbitration and Conciliation Act, 1996 will not be entertained. In the instant case, the Supreme Court held that the decision of NCLT was reasonable and the case (Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund, 2021) was successfully referred to an arbitral tribunal. 

Oriental Structural Engineers Pvt. Ltd. v. State of Kerala (2021)

Facts of the case

In this case, there was a contract to upgrade the segments of roads. The contractor demanded extra interest for any late payment. But in the letter, there was no such provision of any interest on late payments. 

Issue involved in the case

Whether the contractor must get such interest even when it is not mentioned in the letter?

Judgement of the Court

The Supreme Court held that if the tribunal wishes, it can grant interest as a compensatory award to the contractor. It also referred to the case of G.C. Roy v. Secretary Irrigation Department (1991). The fact that the payment of interest in such cases was not excluded particularly in the agreement was taken into consideration. But the rate on such payment was missing and not agreed upon by the parties. The High Court in this same asked the parties to fill up the blank details that they left in the appendix. The Supreme Court held that this decision was incorrect and impermissible. It ruled that the tribunal was right in providing compensation as there was no clause in the contract which mentioned exclusion of payment of interest if the payment was delayed.  

Conclusion 

The Act deals with alternate dispute resolution methods which are effective, cost-friendly, and time-saving. Due to the pendency of cases and rigid procedural laws of the courts and to prevent litigation, people nowadays generally prefer settling a dispute outside the courts with the help of ADRs like arbitration, conciliation, mediation etc. The Act provides the procedure to be followed in arbitration proceedings, arbitral tribunal, the conduct of the tribunal along with the arbitral awards to be made in a dispute. The decision is binding on the parties and given in the form of an arbitral award in an arbitration agreement. It also prescribes the procedure of appeal to courts in case of discrepancies. 

Frequently asked questions

What is arbitration?

According to Black Law Dictionary, it means a method of resolving disputes which includes two parties and a neutral third party whose decision is binding on both parties. 

What were the previous acts related to arbitration in the country?

There were 3 acts dealing with the arbitration in India:

  • The Indian Arbitration Act, 1940
  • The Arbitration (Protocol and Convention) Act, 1937
  • Foreign Awards (Recognition and Enforcement) Act, 1961

However, these Acts have been consolidated into one and repealed by The Arbitration and Conciliation Act of 1996. 

Which law is the basis of the Act of 1996?

It is based on Model Law on International Commercial Arbitration adopted in 1985 UNCITRAL. 

What is the difference between conciliation and mediation?

Unlike in conciliation, the mediator in mediation does not give his opinion regarding the dispute. Neither he is given the power to impose a settlement but a conciliator has this power. His only function is to resolve the deadlock and encourage parties to reach a reasonable settlement. 

In how many parts and schedules has the Act been divided?

The Act is divided into four parts:

  • Part I (Section 2-43) – Applies to the place of arbitration in India. The award granted is treated as a domestic award. 
  • Part II (Section 44-60) – Enforcement of foreign awards.
  • Part III (Section 61-81) – Conciliation
  • Part IV (Section 82-86) – Supplementary provisions

It contains three schedules:

  • Schedule I – Convention on the recognition of foreign awards of arbitration. 
  • Schedule II – Protocol to be followed on arbitration clauses.
  • Schedule III – Convention for the execution of foreign arbitral awards. 

What do you mean by foreign award?

Foreign awards are granted in foreign countries for any dispute referred to arbitration in international cases and are enforceable in India under the Act. It is divided into two chapters under the Act:

  • The New York Convention
  • The Geneva Convention 

References 

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