Arbitration and Conciliation Act,

1996

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.

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became outdated.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.
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 New York Convention (1958)

 The Geneva Convention (1927)
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)

 Section 82 empowers the High Court to make rules relating to any
provision of the Act.
 The Central Government has the power to remove any kind of
difficulties and make rules in the Act as per Section 83 and Section
84 respectively.
 There were 3 Acts dealing with the arbitration in India which have now
been repealed by the Act of 1996. These were:
o The Indian Arbitration Act, 1940

o The Arbitration (Protocol and Convention) Act, 1937

o Foreign Awards (Recognition and Enforcement) Act, 1961
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.