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Arbitration: India's Arbitration and Conciliation Act, 1996

Arbitration law in India is governed by the Arbitration and Conciliation Act, 1996. The act aims to establish the procedures for resolving disputes by arbitration or conciliation, both in domestic and international commercial settings. It outlines the process for conducting arbitration and conciliation, including the appointment of arbitrators or conciliators, execution of awards, and overall functioning. The article simplifies all the significant sections and rules of the law related to the arbitration procedure in India mentioned under the Arbitration and Conciliation Act, 1996.

Historical Background of the Arbitration and Conciliation Act, 1996 in India

The enactment of the Arbitration and Conciliation Act, 1996 in India was driven by a rich historical context. It aimed to consolidate and reform the legal framework governing domestic arbitration, international commercial arbitration, and the enforcement of foreign arbitral awards. Here is a concise overview of its historical evolution:
  • Ancient Roots: The origins of arbitration in India can be traced back to antiquity, with the traditional 'Panch' and 'Panchayat' systems evolving into modern concepts of 'Arbitration' and 'Arbitrators'.
  • Influences from English Law: Indian arbitration law has been influenced by English Law of Arbitration. The Indian Arbitration Act of 1899, modeled after the English Arbitration Act of 1889, marked the initial legislative step in India's arbitration domain.
  • Progressive Regulations: Over time, India introduced various regulations to enhance the arbitration process, including the Bengal Regulations starting from 1772 and the Common Law Procedure Act of 1854.
  • Alignment with UNCITRAL Model Law: The adoption of the 1996 Act aligned with the Model Law on International Commercial Arbitration by UNCITRAL and recommendations from the 76th Report of the Law Commission of India in 1978, aiming to modernize the outdated Arbitration Act of 1940.
The primary goal of the Act is to establish a comprehensive legal framework for the fair and efficient resolution of disputes outside traditional court settings, in line with the global trend towards alternative dispute resolution mechanisms.

The act consists of a preamble, 4 parts, 86 sections, and 7 schedules.

The Preamble
The preamble of the Arbitration and Conciliation Act elucidates the motive of the implementation of this act. The Enforcement of the act was the result of the following:
  • The United Nations adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985 and recommended that all countries consider this model law for achieving uniformity in arbitral procedures.
  • The UNCITRAL Conciliation Rules were adopted in 1980 and recommended for use in cases where a dispute arises in international commercial relations and parties seek an amicable settlement through conciliation.
  • The model law and rules contribute significantly to establishing a unified legal framework for fair and efficient dispute resolution in international commercial relations.
  • The importance of making uniform laws regarding arbitration and conciliation was realized as the growing rate of Alternative Dispute Resolutions was preferred.

4 Parts Of The Act:
Part 1:
Part 1 of the act consists of 10 chapters from sec. 2 to sec. 43 which states the provisions regarding the arbitration process, the functioning of arbitration tribunals, the execution of arbitral awards and appeals.

Part 2:
Part 2 of the act consists of 2 chapters that basically deals with the enforcement of foreign arbitration award and more specifically the execution of the New York and Geneva Convention.

Part 3:
Part 3 of the act mentions the provisions related to the conciliation proceedings, conciliation agreement and the conciliator.

Part 4:
Part 4 of the act states the powers of the High Courts and the Central Government.

What is Arbitration
Arbitration is a dispute resolution process outside of the courtroom, where conflicting parties use an arbitrator or a panel of arbitrators to decide their dispute. The arbitration process is typically faster and more flexible than traditional court proceedings. Parties agree on arbitration rules and procedures in advance, and the arbitrator's decision is binding. Additionally, the process is confidential, unlike regular court proceedings that are usually open to the public.

Arbitration Process

Arbitration typically involves the following stages:

  • Agreement to Arbitrate: The parties involved agree to resolve their dispute through arbitration. This agreement is often outlined in a contract or a separate arbitration agreement.
  • Selection of Arbitrator(s): The parties may agree on a single arbitrator or a panel of arbitrators. The chosen arbitrator(s) will act as a neutral third party to hear the case and make a decision.
  • Preliminary Hearing: An initial meeting may be held to discuss procedural matters, set timelines, and clarify the issues in dispute.
  • Exchange of Information: Each party presents their evidence, documents, and arguments to support their case. This exchange of information is similar to the discovery process in litigation.
  • Hearing: The parties present their case before the arbitrator(s) at a formal hearing. Witnesses may be called, and evidence is presented.
  • Decision: After considering the evidence and arguments presented, the arbitrator(s) will render a decision, known as an arbitral award. This decision is final and binding on the parties.
  • Enforcement: The arbitral award can be enforced through the courts, if necessary, as it carries the same weight as a court judgment.
These steps may vary depending on the specific arbitration rules agreed upon by the parties or the laws governing the arbitration process in a particular jurisdiction.

Basic Rules For Arbitration

Sec. 3 of the Arbitration and Conciliation Act, 1996 states that written communication is considered received when delivered to the recipient in person, at their workplace, home, or mailing address. If the recipient cannot be found at these places, sending the communication to their last known workplace, home, or mailing address by registered mail or any other traceable means is also considered as received. The communication is deemed received on the day of delivery.

According to Sec. 4 of the Act, if a party proceeds with arbitration knowing that a provision or requirement has not been met without promptly raising an objection, they are considered to have waived their right to object.

Parties or the arbitral tribunal, with the parties' consent, may seek administrative assistance from a suitable institution or person to help with the arbitration process as mentioned in sec. 6 of the act.

Arbitration Agreement

According to Section 7, an arbitration agreement is a contract between parties to resolve disputes through arbitration relating to a defined legal relationship. It can be in the form of an arbitration clause in a contract or a separate agreement. The agreement must be in writing and can take the form of a signed document, exchange of correspondence providing a record of the agreement, or through statements of claim and defense where the existence of the agreement is acknowledged. If a contract refers to a document that contains an arbitration clause and the contract is in writing, that reference makes the arbitration clause part of the contract.

When an action is brought before a judicial authority on a matter covered by an arbitration agreement, it has the power to refer the parties to arbitration under certain circumstances. If one party applies for referral before submitting the first statement on the substance of the dispute, the judicial authority must refer the parties to arbitration, provided that a valid arbitration agreement exists.

With regards to Section 8 of the act, to apply for referral, the party must submit the original arbitration agreement or a certified copy of it. If the original agreement is not available with the applying party, they can file a petition to request the other party to produce it.

Referring to section 9 of the Act, parties can seek interim measures from a court before, during or after arbitral proceedings. These include appointing a guardian, interim protection for goods, securing disputed amounts, property preservation, interim injunction, or other necessary measures.

If a court orders interim measures before arbitration begins, it should start within ninety days from that order, unless extended by the court.

Once the arbitral tribunal is formed, the court should not entertain applications for interim measures unless circumstances exist where the remedy under section 17 may not be effective.

Composition of Arbitral tribunal

Section 10 states that the number of arbitrators in a dispute resolution is determined by the parties involved. However, the number of arbitrators cannot be an even number. If the parties are unable to agree on the number of arbitrators, then a sole arbitrator will be appointed.

Appointment Of Arbitrator As Per The Guidelines Mentioned Under Section 11 Of The Act:

  • Any person of any nationality can be an arbitrator unless agreed otherwise by the parties.
  • Parties can agree on a procedure for appointing arbitrators.
  • In an arbitration with three arbitrators, each party appoints one, and the two appointed arbitrators select the presiding arbitrator.
  • If parties fail to appoint arbitrators within 30 days or agree on the third arbitrator, the Supreme Court, High Court, or designated person/institution will make the appointment.
  • In an arbitration with a sole arbitrator, if parties can't agree within 30 days, the appointment will be made by the Supreme Court, High Court, or designated entity.
  • If parties fail to follow the agreed appointment procedure, necessary measures can be requested from the Supreme Court, High Court, or designated entity.
  • Decisions made by the Supreme Court, High Court, or designated entity on arbitration matters are final without appeal.
  • Before appointing an arbitrator, the Supreme Court, High Court, or designated entity must seek a written disclosure from prospective arbitrators and consider qualifications for an impartial appointment.
  • In international commercial arbitration, an arbitrator of a different nationality can be appointed if parties have different nationalities.
  • The Supreme Court or High Court may establish appropriate schemes to handle matters from sub-sections (4), (5), and (6).
  • When multiple requests are made to different High Courts, the first court to receive the request will decide.
  • In international commercial arbitration, references to the Supreme Court or High Court are construed accordingly.
  • Applications for arbitrator appointments should be resolved promptly, aiming for completion within 60 days.
  • The High Court can establish rules for determining fees of the arbitral tribunal based on considerations specified in the Fourth Schedule, excluding international commercial arbitration cases with fee agreements per arbitral institution rules.

According to section 12, arbitrator candidates must disclose in writing any circumstances that could cast doubt on their impartiality or independence. An arbitrator can be challenged only if there are reasonable doubts about their impartiality or independence, or if they lack the agreed-upon qualifications. The parties may waive the requirement to appoint a person as an arbitrator if their relationship falls under any of the categories listed in the Seventh Schedule.

Section 13 states, the parties can agree on a procedure for challenging an arbitrator. If there is no agreement, a party must send a written statement of the reasons for the challenge to the arbitral tribunal within 15 days. The tribunal will decide on the challenge, and if it's not successful, the proceedings will continue, and an arbitral award will be made. The challenging party may apply for setting aside such an award, and if granted, the court may decide on the arbitrator's entitlement to fees.

Referring to Section 14, an arbitrator's mandate can be terminated and replaced by another if they become incapable of performing their duties or fail to act promptly. If there is a dispute regarding the arbitrator's removal, a party can apply to the court for a decision. If an arbitrator resigns or is removed, it does not imply acceptance of the validity of any grounds for their removal.

An arbitrator's mandate terminates if they withdraw or if the parties agree. If the mandate terminates, a substitute arbitrator will be appointed according to the same rules. Any hearings previously held may be repeated at the discretion of the arbitral tribunal, and previous orders or rulings are still valid, as stated under section 15.

Jurisdiction Of Arbitral Tribunals

According to section 16, the arbitral panel is empowered to decide on its authority, addressing any challenges regarding the presence or legality of the arbitration pact. An objection asserting that the arbitral panel lacks jurisdiction must be presented prior to submitting the defense statement. When the arbitral panel dismisses the objection, it will proceed with the arbitration process and issue an arbitration decision. A party dissatisfied with said decision can file a request to annul it as per section 34.

As per section 17, during arbitration, a party can request interim measures from the arbitral tribunal, such as appointing a guardian for a minor or a person of unsound mind involved in the proceedings. These measures can include actions like preserving goods, securing disputed amounts, inspecting properties, issuing injunctions, or appointing receivers. The arbitral tribunal has the authority to issue orders similar to those of a court. Any orders made by the tribunal are considered court orders and can be enforced as such under the Code of Civil Procedure, 1908.

Conduct Of Arbitral Proceedings:
  • The parties involved in an arbitration process should be treated equally and given the opportunity to present their case.
  • The arbitral tribunal is not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872.
  • The parties can agree on the procedure to be followed by the arbitral tribunal or the tribunal can conduct proceedings in the manner it deems appropriate.
  • The tribunal has the power to decide the admissibility, relevance, materiality, and weight of any evidence.
  • The place of arbitration can be agreed upon by the parties or determined by the arbitral tribunal based on the circumstances of the case. The tribunal may meet at any place it considers appropriate for consultation between members, hearing witnesses, experts, or parties, or inspecting documents, goods, or other property.

Commencement of arbitral proceedings:

Unless the parties agree otherwise, arbitral proceedings for a particular dispute will begin on the date when the respondent receives a request to refer that dispute to arbitration.

  1. The parties are free to decide which language or languages to use for the arbitral proceedings.
  2. If the parties fail to agree on the language to be used, the arbitral tribunal will determine it.
  3. The chosen language will apply to any written statement, hearing, arbitral award, decision, or other communication by the arbitral tribunal, unless otherwise specified.
  4. The arbitral tribunal may require that any documentary evidence be accompanied by a translation into the language agreed upon by the parties or determined by the tribunal.

Section 23 states that, the claimant must state the facts supporting their claim, the points at issue, and the relief or remedy sought and the respondent must provide their defense in respect of these particulars.

According to Section 24, the arbitral tribunal shall decide whether to hold oral hearings or conduct proceedings based on documents and other materials and the parties shall be given sufficient advance notice of any hearing or meeting of the arbitral tribunal.

As per Section 25, if the claimant fails to communicate their statement of claim, the proceedings will be terminated.

If the respondent fails to communicate their statement of defense, the proceedings will continue without admission of allegations by the claimant.

If a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.

Making Of Arbitral Awards And Termination Of Proceedings:

  • Rules applicable to substance of dispute: In India, the arbitral tribunal must follow Indian law for domestic arbitration and the parties' chosen rules for international commercial arbitration. If no rules are chosen, the tribunal will apply appropriate laws based on the circumstances.
  • Decision making by panel of arbitrators: In cases with multiple arbitrators, decisions are made by majority vote unless agreed otherwise. The presiding arbitrator can decide procedural matters if authorized.
  • Time limit for arbitral award: The award should be given within 12 months, extendable by mutual agreement for up to 6 months. Delays may lead to fee reductions for arbitrators.
  • Fast track procedure: Parties can opt for a fast track procedure with a sole arbitrator, based on written submissions. The award must be given within 6 months.
  • Settlement: The tribunal can encourage settlement, and if parties settle, the tribunal can record the agreement as an arbitral award.
  • Form and contents of arbitral award: The award must be in writing, signed by the majority of arbitrators, state reasons, and be delivered to each party. It can include interest on payments and determine costs.
  • Regime for costs: The tribunal or court can decide on costs, typically with the unsuccessful party paying the successful party's reasonable costs.
  • Termination of proceedings: Proceedings end with a final award or tribunal order due to claim withdrawal, mutual agreement, or if continuation is unnecessary.
  • Correction and interpretation of award; additional award: Parties can request corrections or interpretations within 30 days. The tribunal can also correct errors or make additional awards for omitted claims within certain timeframes.

Recourse against arbitral awards
Section 34 outlines the process for challenging an arbitral award in court. The award can only be set aside if certain conditions are met, such as incapacity of a party, invalidity of the arbitration agreement, lack of proper notice, or the award dealing with issues beyond the scope of arbitration. It also specifies that an award can be annulled if it goes against public policy or is vitiated by patent illegality. An application for setting aside must be made within three months of receiving the award, unless there is a valid reason for delay. The court can adjourn proceedings to allow the arbitral tribunal to address issues raised in the application. Additionally, the application must be filed with prior notice to the other party and must be resolved within one year from serving the notice.

Finality and enforcement of arbitral awards
Sec. 35 Finality of arbitral awards: Arbitral awards are final and binding on the parties and those claiming under them, subject to the provisions outlined.

Sec. 36 Enforcement: Once the time for challenging the arbitral award has passed, the award can be enforced like a court decree under the Code of Civil Procedure, 1908. Filing an application to set aside the award does not automatically make it unenforceable unless a separate application for a stay order is granted by the court. The court can grant a stay of the award's operation under certain conditions, especially in cases involving payment of money, with reasons recorded in writing.

Appeals Of Arbitral Awards:
This section specifies the orders from which an appeal can be made to the designated court. These include orders related to refusing or granting arbitration, refusing or granting measures, and setting aside or refusing to set aside an arbitral award. Appeals can also be made regarding orders from the arbitral tribunal accepting certain pleas or granting or refusing interim measures. It clarifies that no second appeal is allowed from an order passed in appeal under this section, but parties still retain the right to appeal to the Supreme Court.

In conclusion, the Arbitration Act has become an important tool in resolving disputes in various industries. Its provisions have contributed to the growth of arbitration as a preferred method of dispute resolution, both domestically and internationally. The Act has also helped to reduce the burden on the courts and provided parties with a more efficient and cost-effective means of resolving disputes.

However, there is still room for improvement in terms of promoting greater transparency in the arbitration process and addressing certain challenges that arise in practice. Overall, the Arbitration Act remains a key legislative framework for arbitration in many jurisdictions, and its continued development and evolution will be important to ensure its ongoing effectiveness in the years to come.

  •  Arbitration and Conciliation Act 1996 : All about Conciliation Proceedings (,_1996.pdf (
  • The Arbitration And Conciliation Act, 1996 (
  • The Arbitration and Conciliation Act, 1996 : an overview - iPleaders

Award Winning Article Is Written By: Ms.Ayesha Shahid
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