UNIT-I

Arbitration & Conciliation Act, 1996:

History, Development, Kinds & Definition Clauses

SUBJECT - Alternative Dispute Resolution

Semester - VII

Mr. NITIN KUMAR (Adv.)

Visiting Faculty
Faculty of Law,
University of Lucknow,
Lucknow

Disclaimer: The e-content is exclusively meant for academic purposes and for enhancing teaching
and learning. Any other use for economic/commercial purpose is strictly prohibited. The users of the
content shall not distribute, disseminate or share it with anyone else and its use is restricted to
advancement of individual knowledge. The information provided in this e-content is authentic and
best as per my knowledge.

1
 ARBITRATION & CONCILIATION ACT, 1996
 HISTORY

 Regulation of the conduct of arbitration has a long history in India. The first direct law on
the subject of arbitration was the Indian Arbitration Act, 1899; but, its application was
limited to the Presidency towns of Calcutta, Bombay and Madras.
 This was followed by the Code of Civil Procedure, 1908 where the Second Schedule was
completely devoted to arbitration.
 The first major consolidated legislation to govern the conduct of arbitrations across the
country was the Arbitration Act, 1940 which was based on the (English) Arbitration Act,
1934. The Act repealed the Arbitration Act, 1899. The 1940 Act however, did not deal
with enforcement of foreign awards, and for which purpose, the legislature had passed the
Arbitration (Protocol and Convention) Act, 1937 to deal with Geneva Convention Awards
and the Foreign Awards (Recognition and Enforcement) Act, 1961 to deal with New York
Convention Awards. The working of the 1940 Act, which dealt with domestic arbitrations,
was far from satisfactory.
 The problem became more acute and pronounced after the liberalization of the economy in
1991. Foreign investors required a stable business environment and a strong commitment
to the rule of law, based on a predictable and efficient system of resolution of disputes.
Thus, alternative systems like arbitration were seen as a prerequisite to attract and sustain
foreign investment.
 In order to address these problems, the earlier regime was sought to be replaced by the
Arbitration and Conciliation Bill, 1995 which was introduced in Parliament. Since the
requisite legislative sanction could not be accorded to the 1995 Bill, the President of India
promulgated the Arbitration and Conciliation Ordinance, 1996 on the same lines as the
1995 Bill. Finally, Parliament passed the Bill in terms of the Arbitration and Conciliation
Act, 1996 (hereinafter “the Act”) which received the assent of the President of India and
came into force on August 22, 1996.

2
  The 1996 Act is based on the UNCITRAL Model Law on International Commercial
Arbitration, 1985 and the UNCITRAL Conciliation Rules, 1980. The 1996 Act repealed
all three earlier laws (the 1937 Act, the 1940 Act and the 1967 Act as set out above) and
applied to (i) domestic arbitrations; (ii) enforcement of foreign awards; and (iii)
conciliations.

Reason of bringing the 1996 Act -

1. the need to curtail delays in the arbitral process
2. bring in its fold, international commercial arbitrations

 INTRODUCTION

In simple terminology arbitration means a process by which a dispute or difference between

two or more parties as to their mutual legal rights and liabilities is submitted to and
determined judicially and with binding effect by the application of the law by one or more
person (the arbitral tribunal) instead of by a court of law.

Types of Arbitration on the basis of Jurisdiction:

Domestic Arbitration: The Arbitration and Conciliation Act of 1996 does not specifically
define the term „Domestic Arbitration‟. Though, section 2(7) of the Act says that a „domestic
award‟ is an award that is made Part I. Further, Section 2(2) states that Part I shall be
applicable when the place of arbitration is within India. Thus, it can be said that when the
arbitration proceedings takes place within India, under the purview of Indian laws, and when
the cause of the dispute occurred India, such an arbitration may be called domestic arbitration.

International Arbitration: When arbitration happens within India or outside India

containing elements which are foreign in origin in relation to the parties or the subject of the
dispute, it is called as International Arbitration. The law applicable can be Indian or foreign
depending upon the facts and circumstances of the case and the contract in this regard
between the respective parties. To fulfill the definition of International Arbitration it is
sufficient if any one of the parties to the dispute is domiciled outside India or if the subject
matter of dispute is abroad.
3
 Types of Arbitration on the basis of Procedure:

Ad-hoc Arbitration: In this type, the parties to dispute themselves agree and make
arrangements for the procedure of arbitration without the involvement of an arbitrational
tribunal. In ad- hoc arbitration if the parties are not able to come to a conclusion as to who
will be the arbitrator, according to Section 11 of the Arbitration and Conciliation Act of 1996
, the arbitrator will be appointed by the chief justice of a High Court or the Supreme Court(in
matters of international arbitration)or their designate.

Institutional Arbitration: The Arbitration and Conciliation Act, 1996 categorically mentions
the role of arbitral institutions. For the purpose of assisting in the process of arbitration
proceedings, section 6 provides the provisions according to which the parties may, with the
consent of the parties in dispute seek administrative assistance of an institution. Some of the
prominent arbitral organizations in India are Indian Council of Arbitration (ICA), Bengal
Chamber of Commerce and Industry (BCCI).

Fast Track Arbitration: Fast track arbitration is a form of arbitration where the rules are
stricter and the process is time bound which excludes the option of delay. Fast track
arbitration is most suitable for cases in which does not include much of oral hearings or
examination of witnesses and a conclusion can be reached on the basis of documents.

Statutory Arbitration: The process of Arbitration may initiate by an agreement that is

entered into by both the parties and when a statute categorically has provisions for arbitration
to be used for resolution in certain matters. When the statute of Parliament or a state
legislature provides for arbitration, such arbitration is called statutory arbitration. Statutory
arbitration is different from other kinds of arbitration as the consent of the parties is not a
necessary condition.

OBJECTIVES OF ACT

a) To comprehensively cover international commercial arbitration and conciliation as also

domestic arbitration and conciliation, i.e., where at least one party is not an Indian national
and where both parties are Indian nationals respectively.

4
b) To minimize the supervisory role of courts in the arbitral process;
c) To provide that every final arbitral award is enforced in the same manner as if it was a
decree of court.

SUMMARY OF ACT

Part I of the 1996 Act titled „Arbitration‟ is general in nature and contains ten chapters. Part
IA deals with „Arbitration Council of India‟. Part II deals with „Enforcement of Certain
Foreign Awards‟. Chapter I of Part II deals with New York Convention Awards and Chapter
II deals with Geneva Convention Awards. Part III of the 1996 Act deals with Conciliation.
Part IV of the 1996 Act deals with supplementary provisions. The 1996 Act also contains
three Schedules. The First Schedule refers to the Convention on the Recognition and
Enforcement of Foreign Arbitration Awards (also covered under Section 44 of the 1996 Act).
The Second Schedule refers to Protocol on Arbitration Clauses (also covered under Section
53 of the 1996 Act). The Third Schedule refers to the Convention on the Execution of Foreign
Arbitration Awards.

Domestic Arbitration takes place in India when the arbitration proceedings, the subject matter
of the contract and the merits the dispute are all governed by Indian law, or when the cause of
action for the dispute arises wholly in India, or where the parties are otherwise subject to
Indian jurisdiction. International Arbitration can take place either within India or outside
India in cases where there are ingredients of foreign origin relating to the parties or the
subject matter to the dispute. The law applicable to the conduct of the arbitration and the
merits of the dispute may be Indian Law or Foreign, depending on the contract in this regard
and the rules of conflict of laws.

A foreign arbitration is an arbitration conducted in a place outside India and the resulting
award is sought to be enforced as a foreign award.

5
 PART I - ARBITRATION
SCOPE OF PART I
DEFINITIONS (Section 2)
ACQUIESENCE AND ESTOPPEL (Section 4)
ARBITRATION AGREEMENT (Section 7)
ARBITRAL TRIBUNAL
COMPOSITION
JURISDICTION
ARBITRAL PROCEEDINGS
ARBITRAL AWARD
MAKING
CHALLENGING
APPEAL
ENFORCEMENT

SCOPE OF PART I

According to Sec. 2(2), Part I applies where the “Place of arbitration” is in India.
1. Contract b/w Indian Co. and Foreign Co. - Arbitration clause specifies New York to be
place of arbitration - can the application lie before CJI/ SC judge for appointment of
arbitral tribunal?
2. The parties expressly claimed that Arbitral Proceedings are to be conducted in Singapore
- will part I apply?

Bharat Aluminium Company (BALCO) v. Kaisar Aluminium Technical Services Inc

[(2012) 9 SCC 552] The Constitutional bench of the Supreme Court of India overruled its
earlier decisions of Bhatia Trading v. Bulk trading (2002) 4 SCC 105 and Venture Global
Engineering v. Satyam Computer Services ltd (2010) 8 SCC 660 on 6th September 2012 and
held that Indian courts do not have jurisdiction to interfere with foreign awards passed in
International Commercial Arbitration. The Apex Court observed that the Part I of the Indian

6
Arbitration and Conciliation act, 1996 does not apply to arbitration proceeding that are held
outside India and Indian Court cannot pass interim orders or set aside the foreign awards by
resorting to Part I of the Act. Therefore, if seat is in foreign, Part I would be inapplicable.

Though theoretically a sound provision it created problems as well. Eg: The properties of
either party are in India. It may dispose them off as the Section 9 (interim measures) will not
be applicable.

NOTE: Amendment Act of 2015 has now applied Section 9, 27 and 37 (1)(a) & (3) to
International Commercial Arbitration even if seat of arbitration is outside India. It shall not
apply to disputes where the law provides may not be submitted to the arbitration.

DEFINITIONS

 Section 2(a) - Arbitration - Disputes whereby adjudication of rights b/w private parties is
in question, there arbitration can be conducted. Matters of criminal nature which cannot be
compromised cannot be referred. Compoundable offences may be referred. Disputes eg.-
partnership, tenancy, land, marriage, contractual, service etc.
 Section 2(e) - Court (amended by 2015 Act)
(i) In the matters of arbitration other than ICA - court means Principal Civil Court of
original Jurisdiction in a district, High court - having ordinary original jurisdiction.
(ii) In the matters of ICA - High court having ordinary original jurisdiction and in other
cases - HC having appellate jurisdiction

The PCC or HC have the original jurisdiction to examine the subject matter of arbitration
as if it had been the subject matter of suit.

 Section 2(f) - International Commercial Arbitration – Arbitration disputes out of legal

relationships + commercial in nature + where atleast one of the parties is individual (NRI),
body corporate (incorporated in any other country), association (management & control
exercised by other country) OR govt. of foreign country. {amended in 2015- word co.
removed} – intenion is to determine the residence of the company based on the place of
incorporation and not central management or control.

7
 ACQUIESENCE AND ESTOPPEL

“Waiver of Right to object” Section 4 of the act incorporates the Rule of acquiescence and
estoppel. If there has been a non-compliance with a non-mandatory provision of the Part I or
either a similar requirement under the Arbitration Agreement, and a party does not object at
the earliest he will be deemed to have waived the right of objection and cannot raise it at later
stage. When an irregularity is committed by arbitrator or the other party, the party which
considers itself adversely affected by it must object immediately. If he participates in the
arbitration proceedings despite some disability, which would otherwise render the
proceedings invalid he would be barred by the principle of acquiescence and estoppel to
challenge it later. If either party has to object, it must do at the earliest or not object at all. For
e.g. A party may be estopped from questioning the validity of the appointment of arbitrator by
the other side, if no objection is taken until after the award is delivered.

JUDICIAL INTERVENTION
(Section 5)

Jurisdiction of courts to interfere in arbitration proceedings is as follows-

Intervention by the court

Pre Arbitration During Arbitration Post Arbitration

Sec 8- Reference by the court Sec.34 - Setting aside the award

Sec 9- Interim measures Sec.36- recognition & enforcement
Sec 11- Appointment of Arbitrator Sec.37- Appeal against the award

Sec 9- Interim measures (when remedy u/s 17 exhausted)

Sec 14- Termination of mandate of arbitrator
Sec 27 - Court‟s assistance in taking evidence