Salient features of the Arbitration and Conciliation Act, 1996

By Naina Chawla 20 Minutes Read

Introduction

The Arbitration and Conciliation Act of 1996 is an important legislative statute in India that oversees dispute resolution through arbitration and conciliation. It provides a framework for conducting arbitration, recognizing, and enforcing awards, and promoting dispute resolution through conciliation. The Act was created to modernize and streamline India’s arbitration procedure, align it with international norms, and promote alternative dispute resolution alternatives. It replaced the outdated provisions of the Indian Arbitration Act, 1940 bringing India’s arbitration framework in conformity with the UNCITRAL Model Law on International Commercial Arbitration.

Arbitration, as defined in the Act, involves parties agreeing to refer disputes to a neutral third party or panel of arbitrators. The Act establishes a legal framework for conducting arbitration processes, which includes appointing arbitrators, holding hearings, submitting evidence, and issuing awards. It also assures that the arbitral proceedings are fair, efficient, and unbiased. The Act also recognizes the use of conciliation as an alternative method of dispute resolution. Conciliation entails the appointment of a conciliator to assist the parties in reaching a mutually agreeable settlement. The Act establishes the procedure for initiating and conducting conciliation proceedings, maintaining secrecy and allowing the parties to actively participate in finding a solution for the dispute which has arisen.

One of the most notable aspects of the Arbitration and Conciliation Act of 1996 is its pro-arbitration stance, which emphasizes limited judicial participation in the arbitration process. The Act restricts the court’s involvement in arbitration procedures, except when it is required to promote justice, integrity, or public policy. This strategy is meant to increase parties’ autonomy in choosing arbitration as a dispute resolution mechanism while also expediting conflict settlement. Furthermore, the Act allows for the recognition and enforcement of both domestic and international arbitral rulings. It sets a clear structure for enforcing arbitral awards, ensuring that they are considered as legally binding and enforceable court judgments.

Scheme of the Arbitration and Conciliation Act, 1996

India’s legislative framework for arbitration is centered on the Arbitration and Conciliation Act of 1996, which is the foundation of arbitration legislation in India. It is divided into four components that protect the parties’ autonomy in most procedural concerns. The list is as follows:

• Part I (Sections 2-43): These sections outline general provisions governing domestic arbitration. It is quite significant and mainly based on the UNCITRAL Model Law. It establishes the basis for arbitration proceedings in India.
• Part IA (Section 43A to 43M): These provisions cover the Arbitration Council of India.
• Part II (Sections 44-60): These sections focus on the enforcement of foreign awards. It is essential for international arbitration. Chapter I of Part II focuses on awards covered by the New York Convention, whereas Chapter II focuses on awards covered by the 1927 Geneva Convention.
• Part III (Sections 61-81): These provisions outline the legal framework for settling disputes through conciliation.
• Part IV (Sections 82-86): These provisions contain supplemental provisions.

Key objectives of the Arbitration and Conciliation Act, 1996

The following are the main goals of the 1996 Arbitration and Conciliation Act:

• The Act provides broad coverage for both domestic and international commercial arbitration and conciliation proceedings.
• The final award has the same legal force and effect as the court’s decree.
• The arbitral process limits court intervention.
• To ensure that the arbitration process is fast, transparent, and fair in order to provide justice to the disputing parties.
• To guarantee that the arbitral tribunal provides a rationale for the decision made.
• To authorize the arbitral tribunal to use conciliation, mediation, or other methods to resolve the dispute.
• To stipulate that every arbitral award rendered in a nation that is a party to the international conventions, such as the New York Convention and the Geneva Convention, will be regarded as a foreign award for the purposes of foreign award enforcement.

Key features of the Arbitration and Conciliation Act, 1996

The key features of the Arbitration and Conciliation Act of 1996 are as follows:

1. Scope and Application

The Act applies to both domestic and international arbitration. It applies to all arbitrations, including those deriving from legal disputes, commercial agreements, and civil cases.

2. Arbitration Tribunal

If two parties decide to resolve their economic problems through arbitration, an arbitral panel is formed. This tribunal is made up of one or more arbitrators who adjudicate and decide the dispute before granting an arbitral decision. Part I, Chapter III of the Act details the formation of an arbitral tribunal. A disagreement is submitted to an arbitral panel rather than a regular civil court. The arbitral panel must then rule on the issue. The decision is issued in the form of an arbitral award that is binding on all parties involved.

3. Arbitration Agreement

Section 7 of the Act defines the provisions for an arbitration agreement. It defines an arbitration agreement as an agreement between the parties to submit certain issues arising from their legal relationship, whether they have already occurred or may arise in the future, to arbitration[1]. It might be a separate agreement between the parties or inserted as an arbitration clause in a contract. Sub-section (3) of this provision requires that an arbitration agreement be in writing[2]. This indicates that an oral arbitration agreement does not qualify as an arbitration agreement under this article.

The case of Jayant N. Seth v. Gyneshwar Apartment Cooperative Housing Society Ltd.[3] (1998) highlighted the key components of an arbitration agreement. The Bombay High Court explained that Section 2(1)(b), read with Section 7 of the Act, establishes the basic elements of an arbitration agreement, which include:

•  The parties should have signed a legitimate and binding agreement.
• Such an agreement could be included as a clause in a contract or made through a separate agreement[4].
• The agreement must be in writing, whether it is part of a document and signed by the parties or shared via letters, telexes, telegrams, or any other form of telecommunication that provides a record of the agreement[5]. If a contract includes an arbitration clause, it becomes an arbitration agreement if it is in writing and explicitly references the clause[6].
• Parties must express their intention to refer current or future disputes to arbitration.
• The dispute must be related to a defined legal relationship, whether contractual or not.

4. The number of Arbitrators

Section 10 discusses the number of arbitrators[7]. Sub-section (1) states that the parties may choose any odd number of arbitrators for convenience. Furthermore, Sub-section (2) states that if the parties fail to agree on the number of arbitrators, the arbitral tribunal will be made up of a single arbitrator.

5. Appointment of Arbitrators

The Act allows for the appointment of arbitrators[8]. If the parties fail to agree on the number of arbitrators, a single arbitrator is appointed by default.[9] The Act also establishes a method for challenging an arbitrator’s appointment if there are legitimate concerns about impartiality or independence[10].

6. Disclosure by Arbitrator

Section 12 explains the rules for disclosures made by an arbitrator when approached about an appointment. The arbitrator must provide a written disclosure of:

• the existence of any past or present relationship, any interest (direct or indirect), whether financial, business, professional, or otherwise, with any of the parties involved or the subject matter in dispute, likely to raise justifiable doubts about their independence or impartiality[11]; and
• any facts which are likely to affect their ability to devote sufficient time to the arbitration, particularly in completing the entire procedure[12].

Moreover, Sub-section (3) of this section offers two grounds for contesting the arbitrator’s appointment:

• the existence of any circumstances that might give rise to reasonable doubts about their impartiality or independence[13], or
• the arbitrator’s failure to meet the qualifications that the parties agreed upon for the arbitrator’s appointment[14].

7. Conduct of Arbitration Proceedings

The Act guarantees a fair and unbiased conduct of arbitration proceedings. It enables parties to introduce evidence, make their argument, and question witnesses again. The arbitral proceedings are not governed by the Code of Civil Procedure, 1908, or the Bharatiya Sakshya Adhiniyam, 2024 (formerly the Indian Evidence Act, 1872)[15].The Act also allows the arbitrator to take temporary actions, such awarding injunctions and protecting property.

8. Powers and Obligations of Arbitrations 

The Arbitration and Conciliation Act of 1996 allows arbitrators broad authority to oversee arbitration processes. This includes:

• Power to rule on jurisdiction and the validity of the arbitration agreement.
• Administer an oath to the parties and witnesses in the arbitration.
• Pass interim measures[16].
• Determine the admissibility and influence of the evidence given.
• Power to proceed ex parte[17];
• Settle the issue based on merits, keeping in mind the prevailing legislation, and decide the rules of procedure and contract terms[18].
• Power to appoint experts[19].
• There are various procedures available to support resolution, such as conciliation.
• Determine and distribute the arbitration expenses between the parties.
• Deliver a reasoned and just award, with an obligation to interpret or correct the award[20].

If an arbitral award conflicts with Indian public policy, it is null and void and may be overturned by the Court. Arbitrators must follow natural justice principles when exercising their powers. They must give both parties proper notice of the hearing and an equal opportunity to submit their case. They should be neutral and fair, with no vested interest in the appointing party. Their conclusions and judgments should be based solely on the information presented by the parties; personal knowledge should not interfere with the arbitration proceedings.

9. Time limit for Arbitral Awards

Section 29A of the Act establishes the rules for making an award. Section 29A, sub-section 1, states that awards must be made within 12 months of the arbitral tribunal’s completion of pleadings, save in the instance of international commercial arbitration[21]. Furthermore, sub-section 3 of Section 29A states that the parties may, with their cooperation, extend the 12-month period for issuing an award by no more than 6 months[22].

10. Fast Tracked Arbitration

Section 29B of the Arbitration and Conciliation Act of 1996 provides for a fast-track arbitration procedure. It is an effective approach to dispute resolution. It is time-bound, using streamlined methods to expedite the arbitration process. The Arbitration & Conciliation (Amendment) Act of 2015 included this provision, making the arbitration procedure even more effective.

Fast-track arbitration allows the parties to reach an agreement and resolve their disputes within six months. Undoubtedly, it has become a popular alternative in India because it lets the parties resolve conflicts swiftly.

The key characteristics of fast-track arbitration are as follows:

• The goal of fast-track arbitration is to expedite the arbitral procedure and resolve disputes within the time constraints established by the Act, which must be obeyed by arbitrators and participating parties.
• The arbitrator must make the award within six months of the arbitration procedures beginning. If the award is not issued within the six-month time limit, the parties may extend the deadline. However, such an extension may not exceed six months.
• The parties decide the arbitrators’ fees depending on their agreement.
• The parties must clearly agree in writing, at any moment, either before or after the appointment of the arbitral tribunal, to resolve their issues through a fast-track procedure.
• Fast-track arbitration involves written rather than oral processes. The arbitral tribunal decides the dispute based on the parties’ written arguments and documentation, without an oral hearing. However, if both parties file a request or the arbitral tribunal considers it is important to clarify specific matters, an oral hearing may be held.
• The arbitrator is chosen by the parties. If the parties like, they can agree that the arbitral tribunal shall be made up of just one arbitrator. The courts do not intervene in the selecting process.

11. Enforcement of Foreign awards

One of the highlights of this act is that it provides for the enforcement of certain international awards issued under the New York Convention and the Geneva Convention, as specified in Part II of the Act, as a court decision. Countries that have not ratified either the New York Convention or the Geneva Convention are outside the ambit of Part II of the Act, and hence their awards are not enforceable as foreign awards in India.

12. Mediation and Conciliation

Conciliation and mediation are recognized by the Act as alternative conflict resolution procedures, and their usage is encouraged. It describes the steps involved in conducting conciliation and mediation processes and offers a legal foundation for the selection of conciliators and mediators.

13. Elimination of the Umpire System

Before the Arbitration and Conciliation Act of 1996, an earlier act from 1940 stated that in cases when an even number of arbitrators were appointed and one of them failed to render an award within the allotted time frame or in cases where two arbitrators could not agree on a matter, the umpire would enter on the reference rather than the arbitrators. However, under the 1996 Act, the parties determine how many arbitrators will be appointed, with the caveat that an even number of arbitrators will not be appointed. A third arbitrator known as the Presiding Arbitrator (umpire) will be chosen by the arbitrators in this manner.

14. Intervention of the Court

The Act limits the ability of courts to meddle in arbitration procedures. Only certain situations, such the nomination of arbitrators, the annulment of an arbitral ruling, and the enforcement of an arbitral award, allow for the involvement of courts.

The Act allows the arbitral tribunal to seek court assistance in gathering evidence. In this situation, the witness may be required by the court to give the testimony directly to the arbitral panel. However, the Arbitral Tribunal lacks the authority to call witnesses. Thus, the court may grant an application for help in gathering evidence from the arbitral tribunal or from a party acting on the arbitral tribunal’s authority.

15. Capable of issuing Provisional Orders

The Arbitrators may issue temporary orders regarding the dispute’s related topics in accordance with the Act of 1996.

Conclusion

The Act addresses efficient, affordable, and time-efficient alternative dispute settlement techniques. People these days typically choose to resolve disputes outside of court with the use of alternative dispute resolution (ADR) processes like arbitration, conciliation, mediation, etc. because of the backlog of cases, the strict procedural requirements of the courts, and the desire to avoid litigation. The Act provides a comprehensive process for arbitration, covering the tribunal’s composition, conduct, and issuance of awards. In an arbitration agreement, the ruling is presented as an arbitral award that is legally binding on the parties. It also specifies how disputes should be resolved by going through the court appeals process.

[1] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), s.7.

[2] Id. at s.7(3).

[3] 1999(1)BOMCR774

[4] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), s.7(2).

[5] Id. at s.7(4)(b).

[6] Id. at s.7(5).

[7] Id. at s.10.

[8] Id. at s.11.

[9] Id. at s.10(2).

[10] Id. at s.12(3)(a).

[11] Id. at s.12(1)(a).

[12] Id. at s.12(1)(b).

[13] Id. at s.12(3)(a).

[14] Id. at s.12(3)(b).

[15] Id. at s.19(1).

[16] Id. at s.17.

[17] Id. at s.25.

[18] Id. at s.19.

[19] Id. at s.26.

[20] Id. at s.33.

[21] Id. at s.29A(1).

[22] Id. at s.29A(3).

Naina Chawla