A Guide On The Arbitration And Conciliation Act, 1996

Index

1. Introduction: Arbitration And Conciliation Act, 1996
2. When Arbitration And Conciliation Act Is Applicable
3. Changes In Arbitration And Conciliation Act
4. Important Definitions Under Arbitration And Conciliation Act
5. Types Of Arbitration
6. Advantages And Disadvantages Of Arbitration
7. What Is An Arbitration Tribunal
8. What Is An Arbitral Award
9. What Are Foreign Awards
10. What Is Conciliation
11. Conclusion 

Introduction: Arbitration And Conciliation Act, 1996

 The Arbitration and Conciliation Act, 1996 is a comprehensive legislation enacted by the Parliament of India on August 16, 1996. This Act consolidates and amends the law relating to domestic arbitration, international commercial arbitration, and the enforcement of foreign arbitral awards. It aims to provide a legal framework for the resolution of disputes through arbitration and conciliation, both domestically and internationally. The Act is based on the UNCITRAL Model Law on International Commercial Arbitration, emphasising the importance of uniformity in arbitral procedures and the specific needs of international commercial arbitration practice.

When Arbitration And Conciliation Act Is Applicable

The Act applies throughout India. It came into force on 22nd August 1996, after the President promulgated an ordinance on 16th January 1996. Two other ordinances, related to arbitration and conciliation, were passed on 26th March and 21st June 1996.

Generally, civil rights cases seeking damages often refer to arbitration, but Section 2(3) of the Act specifies certain types of cases ineligible for arbitration. These include matters concerning company winding-up proceedings, disputes that specific tribunals must resolve as per the law, insolvency proceedings, probate issues, questions of will authenticity, guardianship matters, succession disputes, immovable property disputes, illegal transaction cases, proceedings under Section 145 of the Code of Criminal Procedure, and criminal cases.

Changes In Arbitration And Conciliation Act

Previously, arbitration law was governed by three outdated acts. Trade and industry bodies, along with arbitration experts, requested amendments to align the Act with societal needs. It was recognized that economic reforms required resolving domestic and international commercial disputes within the framework of these reforms. In 1985, the United Nations adopted the Model Law on International Arbitration and Conciliation, urging all countries to prioritise it. This led to the enforcement of the Act in question.

The proposed changes were that the procedure for international and domestic commercial arbitration and conciliation should be designed to ensure fairness, efficiency, and meeting societal needs. This involves establishing clear guidelines for the tribunal to follow, including providing reasons for any arbitral award granted and ensuring that the tribunal stays within its jurisdictional limits. The goal is to minimise court intervention and reduce the burden on the judiciary, allowing the tribunal to choose arbitration or conciliation as a dispute resolution method.

Furthermore, the process should ensure that every award is enforced in the same manner as a court decree, providing parties with confidence in the arbitration or conciliation outcome. This includes recognizing that a conciliation agreement reached by parties holds the same weight as an award from an arbitral tribunal. Additionally, the system should address the enforcement of foreign awards, creating a comprehensive framework for resolving both domestic and international commercial disputes efficiently and effectively.

Important Definitions Under Arbitration And Conciliation Act

Section 2 of the Act provides crucial definitions for key terms within the legislation. Firstly, arbitration, as per Section 2(1)(a), encompasses any arbitration process, whether administered by a permanent arbitral institution or not.

Secondly, the Act defines an arbitration agreement under Section 2(1)(b), stipulating that reference must be made to Section 7 of the Act to understand the specifics of such an agreement.

Thirdly, the term arbitral award, while not explicitly defined in Section 2(1)(c), is indicated to encompass interim awards, adding a layer of understanding to its scope within the Act.

An arbitral tribunal, as outlined in Section 2(1)(d), refers to either a single arbitrator or a group of arbitrators who facilitate the arbitration process.

The term courts, defined in Section 2(1)(e), encompasses civil courts with original jurisdiction within a district.

International commercial arbitration, as per Section 2(1)(f), pertains to disputes arising from a legal relationship, whether contractual or not, where one party involved is either a national of a foreign country, a foreign-based corporate entity, a company under foreign control, or a government entity of another nation.

Types Of Arbitration

Domestic arbitration, as defined, denotes arbitration proceedings conducted according to Indian laws and under Indian jurisdiction.

International commercial arbitration is applied in disputes arising from a legal relationship involving a foreign national, a corporation based in another country, a company under foreign control, or a government entity of a foreign nation.

Institutional arbitration involves arbitration proceedings managed by arbitration institutions such as the Indian Council of Arbitration, the International Centre for Alternative Dispute Resolution (ICADR), among others.

Statutory arbitration refers to dispute resolution methods prescribed within specific acts. If any inconsistency arises between such an act and Part I of the Arbitration Act, the provisions of the relevant act will take precedence.

Ad hoc arbitration involves parties reaching an arbitration agreement independently, without the involvement of an arbitral tribunal.

Fast track arbitration, also known as documentary arbitration, is characterised by swift and time-efficient proceedings. It revolves around the claim statement submitted by one party and the written reply provided by the other, resulting in expedited arbitration.

Look-sniff arbitration is a unique blend of an arbitral process and expert opinion, devoid of formal submissions and hearings.

Flip-flop arbitration, also known as pendulum arbitration, involves parties presenting two cases and inviting the arbitrator to choose between the two options for resolution.

Advantages And Disadvantages Of Arbitration 

Arbitration boasts several advantages. Firstly, the selection of an arbitrator is guided by the parties preferences, ensuring a tailored approach to dispute resolution. The involvement of an arbitral tribunal occurs solely upon mutual agreement between the parties, streamlining the process and enhancing efficiency while saving time and costs.

Additionally, arbitration offers a fair trial environment, granting parties freedom from extensive judicial intervention. It also allows parties to choose the arbitration venue themselves, maintains privacy throughout the proceedings, and ensures that arbitral awards are enforced with the same authority as court decrees, bolstering the credibility and finality of arbitration outcomes.

Arbitration, despite its benefits, comes with certain drawbacks. It may not always ensure a swift resolution, and the procedural aspects can be uncertain. Unlike courts, arbitration lacks the authority to provide remedies such as punishment, imprisonment, or injunctions, which can limit its effectiveness. Moreover, the flexibility inherent in arbitration can sometimes make it challenging to apply in cases involving multiple parties.

What Is An Arbitration Tribunal

Arbitral tribunals are formed based on agreements that comply with the law, as specified in Section 10 of the Act. Parties have the freedom to decide the number of arbitrators for resolving their disputes, with the only restriction being that the number must not be even. If parties cannot agree, a single arbitrator will be appointed. However, even if an agreement results in an even number of arbitrators, it will not render the agreement invalid solely on this basis.

Section 11 of the Act outlines the procedure for appointing arbitrators, emphasising specific requirements for a valid appointment. These include providing proper notice of appointment to the other party, ensuring the appointed arbitrator is duly informed and consents to the appointment before it is finalised. If parties fail to appoint an arbitrator within 30 days of the request or do not complete a three-member panel, the Chief Justice or designated representative, upon prior request from the parties, will make the appointment.

The appointment process under Section 11 aims to ensure transparency and mutual consent in selecting arbitrators. It underscores the importance of timely notice and obtaining the arbitrator’s consent before finalising the appointment, while also detailing the protocol for judicial intervention in case parties are unable to fulfil the appointment requirements within the specified timeframe.

The Act outlines grounds for terminating an arbitrator’s role in Sections 14 and 15. These grounds include instances where the arbitrator is unable to perform their duties without undue delay, whether due to legal or practical reasons, or if they withdraw voluntarily or are terminated by mutual agreement of the parties.

In case of termination, either by the arbitrator’s withdrawal or by agreement between the parties, Section 15 stipulates the appointment of a substitute arbitrator to continue the arbitration proceedings.

Section 16 of the Act mandates that the arbitral tribunal shall operate within its jurisdiction. Any challenge to the tribunal’s jurisdiction must be raised no later than when submitting the statement of defence. Furthermore, if a party is dissatisfied with the arbitral award, they have the option to file an application for setting it aside under Section 34 of the Act.

What Is An Arbitral Award

An arbitral award is a final decision made by the arbitral tribunal regarding a claim, part of a claim, or a counterclaim. It must be in writing and signed by tribunal members, as required by Section 31 of the Act. The tribunal also has the authority to issue interim awards for any matter and can include reasonable interest on money payments deemed fair and just by the tribunal. Section 32 of the Act allows the arbitral tribunal to conclude proceedings by issuing a final arbitral award. The process for correcting or interpreting the award is detailed in Section 33. Additionally, the tribunal or arbitrator has 30 days to rectify any errors but does not mention judicial review. 

Arbitral awards come in various types, each serving specific purposes within the dispute resolution process. Firstly, interim awards are temporary decisions addressing specific issues within the main dispute, providing temporary relief until a final award is issued.

Secondly, settlement awards are made when parties reach an agreement on certain terms of settlement. Section 30 of the Act allows the arbitral tribunal to employ methods like mediation, conciliation, or negotiation to facilitate a settlement between parties. Additionally, if any claims are inadvertently omitted in the arbitral proceedings and parties notify each other, Section 33 permits a request for an additional award to cover these missed claims. Finally, the final award conclusively resolves all issues in the dispute and is binding on the parties unless overturned by a court.

Section 34 of the Act grants parties dissatisfied with an arbitral award the right to apply for its annulment. This application must be made within three months of the date the award was issued. The grounds for such an application include situations of party incapacity, non-existence of the arbitration agreement, failure to follow due process, errors in exercising tribunal jurisdiction, improper tribunal composition, referring to a non-arbitrable subject matter, actions against public policy, or instances of fraud or corruption.

Furthermore, Section 37 of the Act allows individuals displeased with a tribunal order to appeal to the court. However, it’s important to note that there are no provisions for a second appeal once an initial appeal has been made. This underscores the importance of thoroughly reviewing and presenting one’s case during the appeal process, as subsequent appeals are not permitted under the Act.

What Are Foreign Awards 

Foreign awards are rulings issued in disputes arising from legal relations, whether contractual or not, that fall under the purview of any commercial law of a country. These awards typically arise from international commercial arbitration cases. They are granted in foreign jurisdictions and are legally enforceable in India as per the Act, which is divided into two chapters: The New York Convention (1958) and The Geneva Convention (1927).

Under the Act, Section 44 governs foreign awards related to the New York Convention, while Section 53 addresses those related to the Geneva Convention. The conditions for enforcing these awards within India are specified in Section 48 for New York Convention awards and Section 57 for Geneva Convention awards, outlining the legal framework for recognizing and executing foreign awards in the country.

What Is Conciliation 

Conciliation, as outlined in Part III, involves a third party assisting disputing parties in reaching an agreement. This third party, known as a Conciliator, can offer opinions to help the parties reach a compromise and resolve their dispute amicably through a settlement agreement.

Conciliation involves a third party known as a conciliator, who assists parties in reaching a compromise. Conciliators offer their opinions on the dispute, but the process itself is voluntary and non-binding, distinguishing it from arbitration.

The key difference between arbitration and conciliation lies in control: in conciliation, parties retain full control over the procedure and the final outcome. The goal is a consensual agreement, where parties settle based on their own terms and conditions, ensuring a mutually agreeable resolution.

If conciliation fails to yield a compromise, the conciliator can transition to an arbitrator, per the parties’ agreement, creating a hybrid process known as Hybrid Conciliation. The resulting settlement agreement holds the same importance and status as an arbitration award, as stipulated in Section 74 of the Act.

Under the Act, initiating conciliation proceedings requires one party to invite the other party in writing for conciliation, as stated in Section 62. However, if the invited party rejects the invitation or does not respond, no proceedings will take place. 

Regarding the composition of the conciliation panel, the general rule mandates a single conciliator, but if multiple conciliators are involved, they must collaborate as outlined in Section 63. Additionally, parties are responsible for appointing the conciliator, similar to how arbitrators are appointed, as specified in Section 64. Furthermore, Section 65 places an obligation on parties to provide the conciliator with written details about the dispute and all relevant information. Conciliation proceedings can be terminated using procedures outlined in Section 78 of the Act.

As per Section 67 of the Act, the role of the conciliator includes maintaining independence and impartiality while assisting parties in reaching a settlement. The conciliator is not obligated to follow the procedures outlined in the Code of Civil Procedure, 1908, but must adhere to principles of fairness and justice throughout the conciliation process.

Conclusion 

The Act focuses on alternative dispute resolution methods that are efficient, cost-effective, and time-saving. With court backlogs and stringent procedural laws, many people prefer resolving disputes outside of court using methods like arbitration, conciliation, and mediation. The Act outlines procedures for arbitration proceedings, the role of the arbitral tribunal, and the issuance of arbitral awards, which are binding on the parties. It also specifies the appeal process to courts in case of discrepancies, promoting smoother dispute resolution outside traditional litigation.