Study Notes: Arbitration and Conciliation Act, 1996: Object, Development and Salient Features

By Shivani Chauhan 21 Minutes Read

Arbitration- Meaning, Scope and Sources:

• The term “Arbitration” has been derived from Roman Law. Arbitration is outside the court settlement of a dispute by one or more (odd number) persons who are appointed as arbitrators by both the parties.
• According to Section 2(1)(a) of the Arbitration and Conciliation Act, 1996 “Arbitration means any arbitration whether or not administered by permanent arbitral institution”.
• Generally, parties entrust arbitration to arbitration institutions that administer the arbitration proceedings, arrange facilities for conducting arbitration and provide a list of arbitrators (Institutional Arbitration). However, instead of applying to these institutions, parties can also directly appoint arbitrators and provide them facilities to conduct arbitration (Ad-hoc Arbitration).

Scope:

• The provisions of the Act- extend to the whole of India; and have no retrospective effect.
• The 1940 Act would apply to arbitral proceedings commenced before repeal of the Act unless otherwise agreed to by the parties.
• However, a foreign award passed after the commencement of 1996 Act can be enforced only under the new Act [and not under Foreign Awards (Recognition and Enforcement) Act, 1961]- Thyssen Stahlunion Gmbh v. Steel Authority of India Ltd. [(1999) 9 SCC 334].
• Part I applies when place of arbitration is in India [Section 2(2)].
• Certain matters cannot be referred to arbitration for which any other law exists that prohibits such reference. Hence, such excluded disputes cannot be submitted to arbitration and such other law would prevail. For instance, disputes assigned by law to special tribunals for matters relating to insolvency, industrial disputes, testamentary matters etc. [Section 2(3)].
• Arbitration may be: consensual or statutory.
  
  Consensual Arbitration– When parties form arbitration agreement to refer disputes to arbitration.
  
  Statutory Arbitration– When a particular special statute provides provisions requiring the dispute to be referred to arbitration, that statute is deemed to be an arbitration agreement (For instance, Companies Act 1956, Cooperative societies Act 1912, Trusts Act 1882, etc.).
  
  The provisions of Part I of 1996 Act as far as they are consistent with statute would be applicable to such arbitration. In case, of any inconsistency between them, the special Act would prevail over the general Act (Generalis Specialibus non Derogant- special law is given superiority over later general law). [Section 2(4)]

• Matters of civil nature affecting private rights can be subject matter of arbitration.
• Criminal matters which cannot be the subject of a civil action; cases which affect right in rem; cases falling under Section 2(3) cannot be referred to arbitration.

Kinds of arbitration:

• Domestic arbitration– In domestic arbitration, both the parties must be Indians and the proceedings take place in India itself.
• International commercial arbitration
• It occurs where either one of the parties resides in a foreign country or is a foreign national/association/company (Section 2(1)(f)).
• Hence, it can either take place in India or in a foreign country
• Part I applies to International commercial arbitration when arbitration takes place in India (Section 2(2)), whereas Part II applies when arbitration takes place outside India.
• Arbitral award made under Part I is considered as domestic award (Section 7).
• Institutional Arbitration– The parties are free to choose a particular arbitral institution in the arbitration agreement itself. The institution’s governing body or the parties can appoint one or more arbitrators from a panel of arbitrators that had been previously agreed upon.
• Ad-hoc Arbitration– Ad-hoc arbitration refers to when parties with mutual consent opt for arbitration to resolve the dispute without having any institutional proceedings.
• Consensual Arbitration– When parties form arbitration agreement to refer disputes to arbitration.
• Statutory Arbitration– When a particular special statute provides provisions requiring the dispute to be referred to arbitration, that statute is deemed to be an arbitration agreement (For instance, Companies Act 1956, Cooperative societies Act 1912, Trusts Act 1882, etc.).
• Fast track Arbitration– Fast-track arbitration is given a stipulated time period of six months (Section 29B in 2015).
• The concept of fast track arbitration came up with the recommendations of 246th Law Commission Report on 5th August 2014, which referred to a number of cases to provide the benefits of a speedy proceeding. Following this, came up the Amendment Act of 2015, where section 29B of the Arbitration and Conciliation Act, 1996 with the addition of amendments, talked about the procedure involved for fast track arbitration.
• Appointment of sole arbitrator
• Proceedings shall end within 6 months
• There is no provision for oral proceedings, instead of written pleadings suffice the matter.

Difference Between Litigation And Arbitration:

THE ARBITRATION AND CONCILIATION ACT, 1996

Objectives:

• To consolidate and amend laws relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards.
• To define laws relating to conciliation.
• Other objectives:
• Comprehensively (completely) covers international commercial arbitration and conciliation as well as domestic arbitration and conciliation.
• Makes provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration.
• To ensure that the arbitral tribunal remains within the limits of its jurisdiction.
• To minimize the supervisory role of courts in the arbitral process.
• To permit an arbitral tribunal to use Mediation, Conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes.
• To provide that every final arbitral award is enforced in the same manner as if it were a decree of the court.
• To provide that a settlement agreement reached by the parties as a result of conciliation proceedings, it will have the same status and effect as an arbitral award.
• To provide that for the purpose of enforcement of foreign awards, every arbitral award made in a country which is one of the parties to the international conventions i.e. the New York Convention and the Geneva Convention will be treated as a foreign award.

Development/ History:

England

• Generally, traders and merchants used to settle their disputes via arbitration.
• First statute was The Arbitration Act, 1697 which was repealed by The Arbitration Act, 1889.
• The Arbitration Act, 1934
• The Arbitration Act, 1979

India

• Indian arbitration law is based on English Law.
• When the British set up the East India Company in Bengal, they brought with them their methods of settling disputes and as per the Bengal Regulation of 1772, all matters were to be submitted to arbitration, the award of which would be considered to be the decree of the court. Arbitration was governed by the Bengal Regulation of 1772.

Further changes were brought by Regulations of:

• 1781 & 1782 (witnesses on oath, appointment of arbitrators);
• 1787 (empowered Court to refer disputes to arbitration with parties consent);
• Bengal Regulation of 1793 (made operational part of arbitration more effective, procedure for arbitration proceedings);
• Madras Regulation of 1816 & Bombay Regulation of 1827 (conferred powers on Panchayats to settle disputes by arbitration).
• CPC 1859 replaced all arbitration acts. The Act empowered parties to a suit to refer the matter to arbitration by applying to the Court.
• Discrepancies were found in this Act so, a specific Act dealing with arbitration was passed. The first enactment- The Indian Arbitration Act, 1899 was based on Act of 1889 of England. It provided for an agreement to refer future disputes to arbitration and also reference for arbitration without interference of the Court.
• Code of Civil Procedure, 1908 replaced the earlier Code. The new and improved Code contained elaborate provisions dealing with arbitration under Sections 89 and 104 of the Second Schedule.
• It was repealed by the Arbitration Act of 1940 (based on Arbitration Act, 1934 of England) passed on the recommendations of Civil Justice Committee.
• Skepticism about its complex technical aspects, abuse of the arbitration process, cost of speedy justice and expeditious disposal of cases. Due to then many complaints against the Act of 1940, the Government of India referred the matter to the Law Commission of India which, in its 76^th Report, under the chairmanship of H.R Khanna, recommended an amendment to the Act.
• 3 acts were governing arbitration-
  1. The Arbitration Act, 1940- for domestic arbitration
  2. The Arbitration (Protocol and Convention) Act, 1937- for international arbitration
  3. The Foreign Awards (Recognition and Enforcement) Act, 1961- for international arbitration
• Law relating to International Commercial Arbitration drew attention of UN and so, a comprehensive uniform Model Arbitration Law at international level was adopted by United Nations Commission on International Trade Law (UNCITRAL) on 21^st June 1985. All states were obligated to adopt this model law. In pursuance to this Model and recommendations of 76^th Report of Law Commission of India 1978, came in India:
  The Arbitration and Conciliation Act, 1996

Salient features:

• The Arbitration and Conciliation Act, 1996 is based on UNCITRAL Model Law on International Commercial Arbitration and UNCITRAL Conciliation Rules.
• The Act is divided into 4 Parts, 87 Sections and 7 Schedules.
• PART I (Section 2-43)- Arbitration
• PART I A (Section 43A-43M)- Arbitration Council of India (added by 2019 Amendment)
• PART II (Section 44-60)- Enforcement of certain Foreign Awards
• PART III (Section 61-81)- Conciliation
• PART IV (Section 82-87)- Supplementary Provisions

AND

• 1^st SCHEDULE- Convention on the recognition and enforcement of foreign arbitral awards
• 2^nd SCHEDULE- Protocol on Arbitration clauses
• 3^rd SCHEDULE- Convention on the execution of foreign arbitral awards
• 4^th SCHEDULE
• 5^th SCHEDULE
• 6^th SCHEDULE
• 7^th SCHEDULE
  

2015 Amendment

• Amended definition of “Court” to provide that in the case of international commercial arbitration, the court should be the High Court.
• Provided that Indian Court can exercise jurisdiction to grant interim measures etc. even when seat of arbitration is outside India.
• Arbitral Tribunal to make award within 12 months from the date of reference to it. Although parties can further extend it up to 6 months, but beyond this only court can extend the time period on sufficient cause.
• Provided for neutrality of arbitrators.

2019 Amendment

• It strengthened institutional arbitration in India by inserting Part I-A that providing for establishment of independent body known as Arbitral Council of India for grading arbitral institutions, accrediting arbitrators etc.
• It amended provision of “Appointment of Arbitrators” by Supreme Court/High Court to a system where arbitrators shall be appointed by arbitral institutions designated by the Supreme Court/High Court.
• It provided that if no graded arbitral institution is available, the Chief Justice of High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institutions.
  

The amendment sought to minimize the need to approach the Courts for appointment of arbitrators and make India a robust center for institutional arbitration both domestic and international.

2021 Amendment

• Omitted 8^th Schedule that laid down the qualifications, experience and norms for accreditation of arbitrators because it specified regulations for the same.

• A more comprehensive statute- It consolidates 3 Acts & applies to domestic and international commercial arbitration.

• International Commercial Arbitration defined- It defines the term “International Commercial Arbitration” under Section 2(1)(f)- one of the parties to the dispute should be a foreigner, foreign company, or foreign government.

• Part 1 applies only if place of arbitration is in India-Section 2(2)

• Necessity of Arbitration Agreement: It is generally a clause in a contract between the parties stating that any dispute will be referred to arbitration. The agreement contains- subject-matter of dispute, timing of dispute (past/present/future); no. of arbitrators, qualification of arbitrators, jurisdiction, composition of tribunal.

• Party autonomy-The concept of party autonomy is the central theme of the Act. Expressions like- ‘unless otherwise agreed by the parties’, ‘with the agreement of parties’, ‘if parties have expressly authorised’ etc. strengthens the idea of party autonomy.

• Procedural advantage–
  1. Arbitral Tribunal has power to decide the procedure unless parties agree on the procedure to be followed.
  2. Tribunal has power to determine admissibility, relevance, materiality, and weight of any evidence.
  3. Place if arbitration is decided by mutual agreement. If they do not agree, then Tribunal decides.
  4. Language to be used is mutually agreed upon- otherwise Tribunal decides.
  5. Parties choose substantive law to be applied by the Tribunal and this must be mentioned in the arbitration agreement.

• Curtails courts intervention except in certain cases– one of the aims of the Act is to restrict reliance and interference of courts. In earlier act, party had to access court almost at every stage of arbitration- from appointment of arbitrator to implementation of final award. Hence, proceedings used to get stalled. Now, the tribunal takes care of all the matters.
  
  The power of the court under the Act of 1996 has been considerably curtailed as compared with the earlier Arbitration Act of 1940. The arbitrator has been endowed with absolute powers and he is completely immune from the court’s control during the arbitration proceedings.

• Empower to pass interim orders: another notable feature of the Act of 1996 is the provision relating to the interim measures, which empower the arbitrator or arbitral tribunal to pass interim orders in respect of the subject matter of the dispute at the request of the party. 1940 act did not have this provision.

• Abolishes Umpire system of arbitrators– introduces the concept of appointment of odd number of arbitrators.
  
  Another important feature of the Act of 1996 is the abolition of the umpire system. The earlier Act of 1940 provided that where an even number of arbitrators were appointed and such arbitrator failed to make an award within the specified time, or where there was difference of opinion between two arbitrators, the umpire should enter on the reference instead of the arbitrators.
  
  But now under the new Act of 1996, the number of arbitrators to determine the dispute has been left to the parties, the only limitation being that an even number of arbitrators shall not be appointed. The arbitrators so appointed shall appoint a third arbitrator called the Presiding Arbitrator (umpire).

• Makes compulsory for arbitrators to give reasons for Arbitral Award- Previous statute gave discretionary powers to arbitrators to give reasons for the award.
  
  Arbitrator to give reasons for the award: Section 31(3) provides that an arbitral tribunal must state reasons for its award. However, where the parties themselves have agreed in writing that no reasons are to be given or where the award is in terms of a settlement reached between the parties, the requirement of a reasoned award may be waived off. In previous Act, reasoning of the award was not mandatory.
  
  Arbitral award shall be in writing and signed by the arbitrator, dated and place should be mentioned. Copy should be given to each party.

• Arbitral award treated at par with a decree of court– it is enforceable as court decree, meaning that, arbitral award is enforceable in the same manner as a decree of a law court.

• Award cannot be appealed in court except under Section 34. Award is final, binding and non-appealable.

• Arbitral award in conflict with public policy is void: the new Act of 1996 provides that an Arbitral award which is in conflict with the public policy in India shall not be valid in law being null and void and can be set aside by the court.

• Provides provisions for enforcement of foreign awards– The Act of 1996 provides for enforcement of certain foreign awards made under the New York Convention and Geneva Convention respectively as contained in Part II of the said Act as a decree of the court. The countries which have neither adopted the New York convention nor the Geneva convention are outside the scope of Part II of the Act and therefore their awards are not enforceable as foreign awards in India.

• Includes provisions related to conciliation– Part III gives legal recognition to conciliation and makes the settlement agreement binding when signed by both the parties and conciliator. 1940 Act had no provision for conciliation. Here, no prior agreement is required. In fact, conciliation can be done even if there is arbitration agreement.

Shivani Chauhan

Shivani is a Contributing Editor @LegalWires. She has done B.A.LL.B.(Hons.) from Dr. RMLNLU and has completed her LL.M. in Business law. Her areas of interest are Competition Law, IPR and Sports Law.