Author – Anurag Kumar
College – Lloyd Law College
To The Point:
The Arbitration and Conciliation Act, 1996 (“the Act”) is the main law in India that governs arbitration and conciliation. It was enacted to consolidate and amend the law related to domestic arbitration, international commercial arbitration, and enforcement of foreign awards. The Act was partly inspired by the UNCITRAL Model Law on International Commercial Arbitration, 1985, and the UNCITRAL Conciliation Rules, 1980. The main objective of the Act was to reduce judicial oversight, allow greater autonomy to the parties to an arbitration agreement, and provide a faster and cheaper alternative to traditional litigation. The Arbitration and Conciliation Act, 1996 has been amended several times during the last 25 years (2015, 2019, and 2021) to bring Indian arbitration in line with international practices and to makeIndia more attractive as a destination for arbitration.
Use of Legal Jargon:
A working knowledge of this subject requires an understanding of a few recurring terms:
Arbitration Agreement (Section 7): A written agreement for submission to arbitration of a present or a future difference.
Seat and Venue of Arbitration: Seat is the location which determines the curial law and court jurisdiction in relation to arbitration proceedings. The venue, on the other hand, is just a place where hearing can be held.
Kompetenz-Kompetenz (Section 16): The law laid down in this Section establishes that the arbitration tribunal decides whether there is an arbitration agreement and whether the dispute is arbitrable or not.
Interim Measures (Sections 9 and 17): These refer to the measures that can be taken by a court or tribunal to protect the rights of a party before or during arbitral proceedings.
Arbitral Award (Section 2(1)(c)): This is an award, opinion or decision made by the arbitral tribunal.
Public Policy of India (Section 34): This encompasses fraud and corruption, which means that any award which is against the fundamental policy of Indian law or morality, or in any way opposed to the notions of justice or morality can be set aside.
Enforcement (Section 36): Once an award has become final, the next step is its enforcement. An award made in India must, therefore, be enforced as a decree of a civil court by the court competent to enforce such a decree.
New York Convention / Geneva Convention Awards (Sections 44-60): The sections are concerned with awards falling under the New York or Geneva Convention and provide for the process for enforcing such awards.
Conciliation (Part III): This refers to an out-of-court, amicable method for resolving a dispute by using a neutral party called conciliator.
The Proof :
The arbitration law is divided into four parts:
Part I: Domestic arbitration and International commercial arbitration seated in India (sections 2-43)
Part II: Enforcement of foreign awards (sections 44-60)
Part III: Conciliation (sections 61-81)
Part IV: Miscellaneous provisions (sections 82-103)
The following are the main features of the arbitration law that make it objective-oriented:
Minimal judicial intervention (section 5): Unless specifically provided by the arbitration law, courts could not intervene in arbitration proceedings
Party autonomy: arbitration law allows the parties to an arbitration agreement to decide on the number of arbitrators, arbitral procedure, seat of arbitration, and law applicable to the arbitration agreement.
Interim measures: According to section 9, courts could issue interim measures necessary for the protection of the rights of the parties. Moreover, according to section 17, arbitration tribunals could also issue interim measures.
Time limits: The 2015 and 2019 Amendments introduced section 29A, which imposes a time limit on arbitration proceedings. The arbitration tribunal should issue the award within 12 months from the date of submission of pleadings by all the parties to the dispute. The time limit could be extended by six months with the consent of all the parties to the dispute, and then only upon the decision of the court.
Fast-track procedure: According to section 29B, the arbitration proceedings could be held on the basis of the written pleadings submitted by the parties.
Neutral arbitration: The 2015 Amendment introduced section 12 and the Fifth / Seventh Schedules, which determine specific requirements for disclosing information and the circumstances for the arbitration tribunal to disqualify an arbitrator to ensure neutrality. Arbitration law provides that an arbitrator should not have any relationships that could prejudice and appear to prejudice in the exercise of his or her duties. The amendment was introduced due to several allegations of corrupt practices.
Limited grounds for setting aside awards: According to section 34, arbitration awards could only be set aside on specific jurisdictional, procedural, or public policy grounds. Courts were prohibited from reviewing the merits of a dispute.
Costs: According to section 31A of the arbitration law, costs in arbitration proceedings were subject to the “loser pays winner” principle. The costs were introduced to prevent abuse of arbitration proceedings and to encourage commercial disputes. The provision was added to make Indian arbitration law more attractive by adopting the international practice concerning arbitration costs.
Arbitration Council of India: The 2019 Amendment Act introduced the Arbitration Council of India, which was supposed to establish standards for rating arbitration institutions and arbitrators. The objective of the amendment was to promote institutional arbitration in India rather than ad hoc arbitration.
Abstract :
Arbitration offers commercial disputes a less public, more technical and faster dispute resolution mechanism than the one of the civil courts. The Arbitration and Conciliation Act, 1996 was enacted to replace the old Arbitration Act, 1940 which had become ineffective in providing a proper legal framework due to its extreme judicial interventions. The 1996 Act was modeled on the UNCITRAL Model Law and thus tried to bring international arbitration standards in India; this was done to promote trade and commerce. However, the interpretation of Part I for foreign seated arbitrations, the arbitral award’s public policy ground for setting aside, and the excessive interference by the Indian courts in the arbitral proceedings created various issues. Due to these complications, the legislature amended the Arbitration and Conciliation Act, 1996 through the 2015, 2019, as well as 2021 Amendments. The judiciary also contributed to arbitration law developments through various decisions by the Supreme Court of India. The Court’s jurisprudence provided greater clarity on matters concerning seat and venue, arbitration clauses’ separability, and the scope of judicial review at referral, interim relief, and award stages. Therefore, the Arbitration and Conciliation Act, 1996 continues to develop as a dynamic law to ensure proper arbitration proceedings in India. Some of the current arbitration law developments comprise institutional arbitration, arbitration agreements stamp duties, and emergency arbitrator’s awards enforceability.
Case Law :
1. Bhatia International v. Bulk Trading S.A. (2002) The Supreme Court ruled that Part I of the Act will govern even those arbitrations seated outside India, unless the parties have expressly or impliedly excluded its application, creating confusion about the extent of the jurisdiction of Indian Courts over foreign seated arbitrations.
2. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO) (2012) A Constituion Bench of the Supreme Court, while overruling the Bhatia International ruling prospectively, laid down that Part I applies only to arbitrations seated in India, adopting the “seat theory”, which is in consonance with the territoriality principle followed universally.
3. ONGC Ltd. v. Saw Pipes Ltd. (2003) In this case, the Supreme Court took a very liberal view of the meaning of “public policy” under Section 34 and held that the challenge to an award on grounds of “patently illegal” would be valid, thereby opening floodgates for such challenges by Indian Courts against awards. This trend was significantly curtailed by the 2015 Amendment Act, 2015, which narrowed down this ground to only “domestic awards”, with reasons, for “patent illegality”, and clarified that mere misinterpretation of law or reassessment of facts would not invalidate the award.
4. Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2019) This case dealt with the appointment of a sole arbitrator by one of the parties in case of disagreement about the appointment of the tribunal and held that it may not be done by a party having an interest in the matter, thus holding in favor of neutrality in appointment of arbitrators by the parties.
5. Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. (2021) The Supreme Court recognized the enforceability of an emergency arbitrator award/order under the Act, and ruled that orders passed under Section 17(1) by an emergency arbitrator could be enforced as if they were orders of a Court under Section 17(2), encouraging the practice of emergency arbitration in India.
6. Vidya Drolia v. Durga Trading Corporation (2020) The Supreme Court lays down a four-point test for arbitrability of disputes and indicates the limited judicial scrutiny at the stage of reference under Section 11 of the Act, and favours a “prima facie” approach for deciding on “arbitrability” of disputes, thus reserving detailed scrutiny of the issues for arbitral tribunals and promoting the principle of kompetenz-kompetenz.
7. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. (2021, later heard by a Constition Bench of the Supreme Court in 2023) This case deals with the enforceability of arbitration agreements contained in unstamped instruments, and the Supreme Court clarified that though objections to stamping could be raised, they would have to be cured, and would not result in invalidation of the arbitration agreement at the stage of section 11 reference, thus clarifying the law on separability.
Conclusion :
The Arbitration and Conciliation Act, 1996 marks a paradigm shift from the litigious practices of the time to a system focusing on party autonomy, as well as expertise and expediency. While the early years of this Act witnessed the judiciary creating various grounds for interference, particularly through the “public policy” route, subsequent amendments as well as a more arbitration-friendly judiciary have progressively moved Indian law in a direction true to the spirit of minimal interference and pro-arbitration mandate. The Arbitration and Conciliation Act has, through these amendments, moved towards encouraging arbitration through a more business-friendly outlook while simultaneously bolstering institutional arbitration. The introduction of time frames, as per Section 29A, stricter standards of impartiality, as well as the inclusion of emergency arbitration procedures, have all aided this process. However, there is still room for improvement, with institutional arbitration being relatively underutilized and enforcement still taking a relatively long time, sometimes in practice, as well as differences in law and practice (particularly stamping and unilateral appointment of arbitrators) still dragging the Indian arbitration landscape before the Supreme Court. If India is to truly position itself as a hub for international commercial arbitration, legislative amendments as well as judicial and institutional measures will need to be taken to expedite and improve arbitration processes to make them truly reliable and quick.
FAQ :
Q1. What is the difference between arbitration and conciliation under the Act?
Arbitration is an adjudicative process which ends with an award by the arbitral tribunal after hearing both the parties. It is similar to a trial. Conciliation is a non-adjudicative process under Part III of the Act. Conciliator tries to assist the parties to arrive at a settlement amicably. Conciliator cannot decide the dispute; he can only help the parties in reaching an amicable settlement.
Q2. Can the Court go into the merits of the arbitral award?
No. The court cannot go into the merits of the award passed by the arbitral tribunal. Section 34 provides that no court can call in question an arbitral award on the grounds of evidence or on questions of law. The award can be challenged on grounds such as arbitration agreement being not valid, the parties to arbitration not being competent, failure to give notice of arbitration, the award deals with disputes not referred to arbitration, the tribunal has acted ultra vires, the award is contrary to public policy etc.
Q3. What is the importance of the seat of arbitration?
The seat of arbitration determines the law that governs the arbitration. It is the court of the country where the arbitration is taking place that has supervisory jurisdiction over the arbitration proceedings. As per BALCO, Indian Courts have no jurisdiction under Part I of the Act to intervene in arbitration proceedings seated outside India. However, in case of international commercial arbitration, the Indian courts can grant interim relief in accordance with Section 9 of the Act, unless the arbitration agreement excludes such jurisdiction.
Q4. Is arbitration agreement unstamped valid or not?
An arbitration agreement which is unstamped or insufficiently stamped is not invalid per se. Various judgments have held that the arbitration clause is severable from the main contract and the arbitration agreement can be enforced even if the agreement is not stamped properly. It was held that insufficiency in stamping is a curable defect and does not make the arbitration agreement void or unenforceable at the stage of reference.
Q5. How long time can an arbitral tribunal take to decide a dispute?
Except in case of international commercial arbitration, an arbitral tribunal has to decide the dispute within a period of twelve months from the date on which the tribunal enters upon reference (commencement of proceedings) as per Section 29A. This period can be extended by the tribunal with the consent of the parties by a further period of six months. The period can be extended further by the court on an application made by the parties. The tribunal may also decide to reduce the fees payable to the arbitrator(s) if the extension of time is due to the failure of the tribunal itself.
