This article provides a comprehensive overview of arbitration in India, detailing its historical development, from ancient practices to the modern Arbitration and Conciliation Act, 1996, and its subsequent amendments. It explains the essentials of a valid arbitration agreement, including the necessity of a written form and clear intent to arbitrate. The piece also covers the court's power in appointing and removing arbitrators, the limited provisions for appealing arbitral orders, and the binding nature of foreign awards under international conventions.

Introduction to Arbitration

Arbitration is a private, consensual, and binding method of dispute resolution where parties agree to submit their disputes to one or more neutral third parties (arbitrators) instead of going to court. The arbitrator(s) hear evidence and arguments from both sides and then render a final and binding decision, known as an arbitral award.

Arbitration Agreement

An arbitration agreement is the cornerstone of any arbitration proceeding. It is a legally binding contract in which parties agree to refer present or future disputes to arbitration. In India, Section 7 of the Arbitration and Conciliation Act, 1996, defines an arbitration agreement.[i]

Essentials of a Valid Arbitration Agreement:

• In Writing: The agreement must be in writing. This can be in a document signed by the parties, an exchange of letters, telex, telegrams, or other means of telecommunication providing a record of the agreement, or an exchange of statements of claim and defense where the existence of the agreement is alleged by one party and not denied by the other.
• Clear Intent to Arbitrate: There must be a clear and unequivocal intention of the parties to submit their disputes to arbitration and to be bound by the arbitral award. The agreement should not leave any room for ambiguity regarding the parties' choice of dispute resolution mechanism.
• Defined Legal Relationship: The disputes must arise in respect of a defined legal relationship, whether contractual or not.
• Present or Future Disputes: The agreement can cover disputes that have already arisen or those that may arise in the future.
• Subject Matter Arbitrability: The subject matter of the dispute must be capable of being resolved through arbitration under the law (i.e., not falling under categories explicitly deemed non-arbitrable by law, such as criminal matters, matrimonial disputes, guardianship, insolvency, etc.).
• Mutual Consent and Legal Capacity: Both parties must mutually consent to the arbitration agreement and possess the legal capacity to enter into such an agreement.

History and Development of Arbitration

The concept of arbitration is not new and has roots in ancient practices. In India, dispute resolution by village elders or "Panchayats" was a common practice even before British rule.

• Early Beginnings (British Era): Modern arbitration law in India began with the Bengal Regulations in 1772, which allowed courts to refer disputes to arbitration with the parties' consent. Subsequent regulations and acts, including the Indian Arbitration Act, 1899, and the Code of Civil Procedure, 1908, further developed the framework.
• The Arbitration Act, 1940: This Act consolidated the law relating to domestic arbitration. However, it was criticized for excessive court intervention at various stages, leading to delays.
• The Arbitration and Conciliation Act, 1996: This was a significant reform, modeled on the UNCITRAL Model Law on International Commercial Arbitration. It aimed to modernize arbitration law in India, reduce court intervention, and promote arbitration as a cost-effective and expeditious dispute resolution mechanism. It repealed the previous statutes and covers both domestic and international commercial arbitration.
• Subsequent Amendments: The Arbitration and Conciliation Act, 1996 has undergone further amendments (e.g., in 2015 and 2019) to address practical challenges, streamline the process, and further minimize judicial interference, aligning Indian arbitration law with international best practices.

Power of Court to Refer Parties to Arbitration

Section 8 of the Arbitration and Conciliation Act, 1996 deals with the power of the court to refer parties to arbitration, stating that if a party to an arbitration agreement initiates legal proceedings in court concerning a matter covered by the agreement, the other party may apply for the matter to be referred to arbitration; the court is then obliged to do so unless it finds that the arbitration agreement is null and void, inoperative, or incapable of being performed, thereby reinforcing a pro-arbitration approach and emphasizing the court's role in upholding valid arbitration agreements. In the case of Vidya Drolia v. Durga Trading Corporation, the Supreme Court emphasized a pro-arbitration approach, reiterating the court's obligation to refer parties to arbitration unless the agreement is null and void.

Appointment of Arbitrator

Section 11 of the Arbitration and Conciliation Act, 1996 deals with the power of the court to appoint an arbitrator, providing that if the parties fail to agree on a sole arbitrator within 30 days of a request, or if the two party-appointed arbitrators fail to appoint the third arbitrator, a party may apply to the High Court or the Supreme Court, depending on whether it is a domestic or international arbitration, for the appointment.

Key Provisions

• After the 2015 Amendment, the role of the Chief Justice was replaced by "the Supreme Court or the High Court".
• Courts ensure the appointment is made in an unbiased and fair manner, respecting party autonomy.
• The court must act within 60 days from the date of notice.
• It ensures that the proposed arbitrator is impartial, independent, and meets the eligibility criteria under the Fifth and Seventh Schedules of the Act.

Circumstances for Removal of an Arbitrator by the Court

Section 13 of the Arbitration and Conciliation Act, 1996, provides a mechanism for challenging an arbitrator's appointment. The grounds for removal generally relate to ensuring fairness and impartiality in the arbitration process. Grounds for Challenge:

• Lack of Impartiality or Independence: If an arbitrator has a personal interest in the outcome or is biased.
• Failure to Meet Qualifications: If an arbitrator doesn't meet the agreed-upon qualifications.
• Conflict of Interest: A real or perceived conflict of interest.
• Relationship with Parties or Counsel: Any prior professional or personal relationship that could impact objectivity.

Provisions of Appeal under Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996, aims to minimize judicial intervention in arbitration proceedings. Consequently, the provisions for appeal are limited, reflecting the principle of finality in arbitral awards. Appeals are generally allowed only against specific orders of a court or an arbitral tribunal, and not against the arbitral award itself on its merits. Here's a breakdown of the provisions of appeal under the Act, primarily governed by Section 37:

• Appeals against Orders of a Court (Section 37(1))
  • Refusing to refer parties to arbitration under Section 8: If a court wrongly denies an application to refer parties to arbitration when there's a valid arbitration agreement.
  • Granting or refusing to grant any interim measure under Section 9: Orders related to interim protection before or during arbitral proceedings (e.g., injunctions, preservation of property).
  • Setting aside or refusing to set aside an arbitral award under Section 34: This is the most common ground for challenging an arbitral award. An application under Section 34 can be made to set aside an award on very limited grounds, such as incapacity of a party, invalid arbitration agreement, or lack of proper notice of the appointment.
     
• Appeals against Orders of an Arbitral Tribunal (Section 37(2))
  • Accepting the plea referred to in Section 16(2) or 16(3): These refer to the arbitral tribunal accepting a plea that it does not have jurisdiction, or that it is exceeding the scope of its authority. If the tribunal rejects such a plea, a party cannot appeal immediately; they must wait for the final award and then challenge it under Section 34.
  • Granting or refusing to grant an interim measure under Section 17: Similar to Section 9, but when such measures are ordered by the arbitral tribunal itself.
     
• No Second Appeal (Section 37(3)): A significant provision is that no second appeal shall lie from an order passed in appeal under Section 37. This means that if a party appeals to the High Court under Section 37, they cannot file a further appeal to a higher court (like a Division Bench of the High Court or the Supreme Court), except for an appeal to the Supreme Court under Article 136 of the Constitution of India (Special Leave Petition), which is a discretionary power of the Supreme Court and not a right of appeal.

In the case of Kandla Export Corporation v. OCI Corporation, the Apex Court held that no appeal lies under Section 37 against an order refusing to set aside a foreign award unless conditions under Section 50 are satisfied.
 

Arbitral Award

An arbitral award is the final decision rendered by an arbitral tribunal in an arbitration proceeding. It is equivalent to a decree of a court and is legally binding on the parties to the arbitration agreement. The primary goal of an arbitral award is to resolve the dispute submitted to arbitration finally and conclusively.
  Form and Content of an Arbitral Award (Section 31)

• Written Form: The award must be in writing and signed by the members of the tribunal.
• Reasoned Award: It must state reasons upon which it is based, unless parties agree otherwise or it is an award on agreed terms (settlement).
• Date and Place: It must mention the date and the place of arbitration.
• Final and Binding: Once delivered, it is binding unless set aside under Section 34.
• Costs: The tribunal may fix costs of arbitration, including fees and expenses of arbitrators, and legal expenses.

Validity of an Award
An arbitral award's validity refers to its legal soundness and enforceability. It essentially means that the award has been made in accordance with the applicable laws and the arbitration agreement, and therefore, it is legally binding on the parties and capable of being enforced by a court.

In the context of the Indian Arbitration and Conciliation Act, 1996, an award is considered "valid" if it meets certain fundamental requirements and is not liable to be set aside by a court.

Key Aspects Determining Validity of an Award:

• Proper Jurisdiction
• Compliance with Section 31
• Fair Hearing (Natural Justice)
• Not in Conflict with Public Policy
• Patent Illegality (For domestic awards)
• Timely Delivery
• Not Vitiated by Grounds Under Section 34
   

Binding Nature of a Foreign Award

In India, the enforceability of foreign awards is primarily governed by Part II of the Arbitration and Conciliation Act, 1996, which deals with enforcement of certain foreign awards. This part incorporates provisions from two international conventions:

• The New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958): Chapters I of Part II (Sections 44 to 52) deal with the enforcement of "foreign awards" under the New York Convention.
• The Geneva Convention (Protocol on Arbitration Clauses, 1923, and the Convention on the Execution of Foreign Arbitral Awards, 1927): Chapters II of Part II (Sections 53 to 60) deal with the enforcement of "foreign awards" under the Geneva Convention. While historically significant, most international commercial arbitrations now fall under the New York Convention.
   

A foreign award will be binding on the parties and enforceable in India if it meets the following conditions (primarily referring to New York Convention awards, which are far more common):

• Reciprocity: The country in which the award was made must be a signatory to the New York Convention and a "reciprocating territory" as declared by the Central Government of India in the Official Gazette.
• Valid Arbitration Agreement: There must have been a valid arbitration agreement between the parties under the law to which they subjected it.
• Arbitrability: The subject matter of the dispute must be capable of settlement by arbitration under Indian law.
• No Grounds for Refusal of Enforcement: The court can refuse to enforce a foreign award only on very limited grounds, which are largely aligned with Article V of the New York Convention. These grounds are defensive and not for reviewing the merits of the award. They include:
  • Incapacity of a party.
  • Invalid arbitration agreement.
  • Lack of proper notice of the appointment of the arbitrator or of the arbitral proceedings.
  • Inability of a party to present its case.
  • The award dealing with a dispute containing decisions on matters beyond the scope of the submission.
  • Improper composition of the arbitral authority or arbitral procedure.
  • The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
  • The recognition or enforcement of the award would be contrary to the public policy of India. (This ground is interpreted narrowly and does not allow for a review of the merits of the award, only fundamental violations of Indian law or justice).

If these conditions are met, the foreign award is deemed to be a decree of an Indian court and can be executed as such under section 49 of the Arbitration and Conciliation Act.
 

View and Review of an Arbitral Award

1. View: Courts do not sit in appeal over the arbitral award. The arbitral tribunal is the final judge of facts and law, provided it acts within the scope of its authority.
2. Review (Challenge under Section 34): An arbitral award may be set aside by the court on limited grounds:
   • Incapacity of a party
   • Invalid arbitration agreement
   • Lack of proper notice or opportunity to present the case
   • Award deals with matters beyond the scope of arbitration
   • Conflict with the public policy of India
   • Award is vitiated by patent illegality (in domestic arbitrations)

The application to set aside the award must be made within 3 months (extendable by 30 days for sufficient cause).
 

Applicable Orders under the Arbitration Act

• Section 9 – Interim measures by the court
• Section 11 – Appointment of arbitrators
• Section 17 – Interim measures by the arbitral tribunal
• Section 34 – Application for setting aside an arbitral award
• Section 36 – Enforcement of the award
• Section 37 – Appeal against certain orders
   

Conciliation

Conciliation is an alternative dispute resolution (ADR) method provided under Part III of the Arbitration and Conciliation Act, 1996. It is a voluntary, non-adjudicatory process where parties seek to resolve their dispute amicably with the help of a neutral third party called the conciliator.

Key Features of Conciliation

• Voluntary Process: Initiated by one party and accepted by the other in writing (Section 62).
• Neutral Conciliator: One or more conciliators (usually one or two) are appointed by mutual agreement (Section 63).
• Flexibility: The procedure is not rigid or formal; the conciliator is not bound by the Code of Civil Procedure or the Indian Evidence Act.
• Role of the Conciliator: Helps parties reach a settlement by proposing solutions and guiding discussions (Section 67).
• Confidentiality: Proceedings are confidential and information shared cannot be used in any future arbitral or judicial proceedings (Section 75).
   

Settlement Agreement (Section 73)

• If the parties reach an agreement, the conciliator prepares and signs a settlement agreement.
• The agreement has the same status as an arbitral award on agreed terms under Section 74, making it final and binding.
   

Legal Status

• Unlike arbitration, the conciliator does not pass a decision or award.
• The settlement is enforceable as a contract and has the status of a decree under law.
   

Procedure of Conciliation

1. Initiation – Section 62: Conciliation starts when one party sends a written invitation to the other party to settle the dispute amicably. It commences only if the other party accepts in writing within 30 days; otherwise, the offer is treated as rejected.
2. Appointment of Conciliator(s) – Section 63: Parties may agree to appoint one or more conciliators. If there is more than one, they must act jointly and cooperatively.
3. Role and Functions of Conciliator – Sections 65 to 67: The conciliator requests written statements, holds meetings, and helps parties explore settlement terms. They act impartially and guide the parties towards a voluntary agreement.
4. Confidentiality – Section 75: All proceedings, communications, and admissions during conciliation are confidential. Such information cannot be used in court or arbitral proceedings later.
5. Settlement Agreement – Section 73: If parties reach a mutual understanding, the conciliator prepares a written settlement agreement. Once signed, it becomes binding and is treated like an arbitral award on agreed terms (Section 74).
6. Termination of Proceedings – Section 76: Conciliation ends when the settlement agreement is signed, or if the conciliator or either party declares in writing that further conciliation is not useful.
7. Role of Court: Courts do not interfere during conciliation. However, a settlement agreement can be enforced through court if a party defaults, as it has the status of a binding award.
    

National Legal Services Authority

The National Legal Services Authority (NALSA) is a statutory body established under the Legal Services Authorities Act, 1987 to provide free and competent legal services to the weaker sections of society and to ensure that justice is not denied to any citizen by reason of economic or other disabilities, as per Article 39A of the Constitution of India.

Key Provisions Related to NALSA

1. Establishment – Section 3: NALSA was constituted on 9th November 1995. It is headed by the Chief Justice of India as the Patron-in-Chief, and a Senior Judge of the Supreme Court is nominated as its Executive Chairman.
2. Objectives – Section 4: NALSA's main aim is to organize Lok Adalats, spread legal awareness, and frame policies and principles for legal aid at national and state levels. It also works to promote a uniform legal aid system across the country.
3. Entitlement to Free Legal Aid – Section 12: Legal aid is provided to persons like women, children, SC/ST members, industrial workmen, victims of trafficking, persons in custody, and others with low income or disabilities.
4. Functions – Section 6: NALSA lays down policies, monitors implementation of legal aid programs, coordinates activities of State Legal Services Authorities (SLSAs), and undertakes legal literacy campaigns.
5. Lok Adalats – Section 19-22: NALSA organizes Lok Adalats at regular intervals to facilitate speedy and amicable resolution of disputes without formal litigation.
6. Permanent Lok Adalats – Section 22B: For public utility services (like transport, postal, or telegraph), Permanent Lok Adalats (PLAs) are constituted, which have jurisdiction to decide disputes even without consent of both parties.
    

Lok Adalat

A Lok Adalat, literally meaning People's Court, is an effective alternative dispute resolution mechanism in India, aimed at providing speedy, economical, and amicable settlement of disputes. It is based on the principles of justice, equity, and fair play, and is recognized under the Legal Services Authorities Act, 1987.

Key Features of Lok Adalat

• Statutory Status: Established under Section 19 of the Legal Services Authorities Act, 1987.
• Composition: A Lok Adalat typically consists of a judicial officer (serving or retired) acting as the chairman, and other members such as lawyers, social workers, or other persons involved in legal services.
   
• Jurisdiction: Lok Adalats have jurisdiction to determine and arrive at a compromise or settlement between parties to a dispute in respect of:
  • Any case pending before any court.
  • Any matter which is falling within the jurisdiction of, and is not brought before, any court. However, they generally do not deal with non-compoundable criminal offenses.
     
• Nature of Proceedings: Proceedings in a Lok Adalat are informal, conciliatory, and voluntary. There is no strict application of procedural laws like the Code of Civil Procedure or the Indian Evidence Act.
   
• Conciliation and Settlement: The members of the Lok Adalat act as conciliators, guiding the parties towards a mutually acceptable settlement. They hear both sides, explore common ground, and propose solutions.
   
• No Compulsion: Participation in a Lok Adalat is voluntary, and no party can be compelled to accept a settlement. If a settlement is not reached, the case is returned to the court (if it was a pending case) or the parties are advised to seek other remedies.
   
• Binding Award: If the parties arrive at a compromise or settlement, an "award" is made by the Lok Adalat. This award is deemed to be a decree of a civil court and is final and binding on all parties. Importantly, no appeal lies against such an award.
   
• No Court Fee: There is no court fee payable when a matter is filed in a Lok Adalat. If a court fee has already been paid in a pending case that is subsequently referred to and settled by a Lok Adalat, the fee is refunded.
   
• Types of Cases Handled:
  • Civil matters (including matrimonial, land, and money disputes, Cheque Bounce)
  • Compoundable criminal cases
  • Motor accident claims
  • Bank recovery and labour disputes
     

Legal Effect of the Award:

• The award passed by a Lok Adalat is deemed a decree of a civil court (Section 21).
• It is final and binding, with no appeal permitted.
• If no compromise is reached, the matter is returned to the appropriate court for regular proceedings.
  
  

Conclusion
In conclusion, arbitration stands as a crucial alternative dispute resolution mechanism in India, emphasizing party autonomy and expeditious justice. While its historical roots are deep, the Arbitration and Conciliation Act, 1996, with its subsequent amendments, has significantly modernized its framework, minimizing judicial intervention and bolstering the finality of arbitral awards.

This robust legal structure, encompassing valid agreements, defined appointment and removal processes, and limited appeal provisions, underscores arbitration's pivotal role in fostering an efficient and effective dispute resolution landscape. Together with mechanisms like NALSA, India continues to strengthen its commitment to accessible and equitable justice.

End Notes

1. Indian Kanoon: https://indiankanoon.org/doc/1846895/
2. AIR 2020 SC 929
3. Civil Appeal No. 1661-1663 of 2018

Written By: Mr.Syed Mohd Osama Azam, Ll.B. Final-Year Student, Saifia Art, Commerce & Law College, Barkatullah University, Bhopal (Mp)
Email: osamaazam593@gmail.com, Ph no: 7000657720