The Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996 Arbitration is the means by which parties to a dispute get the same settled through the intervention of a third person (or more persons) but without recourse
to a Court of Law.

The settlement of dispute is arrived by the judgment of the third person (or more
persons) who are called Arbitrators. The parties repose confidence in the judgement of the arbitrator and show their willingness to abide by his decision.

The essence of arbitration is thus based upon the principle of keeping away the dispute from the ordinary Courts enabling the parties to substitute by a domestic tribunal.

It is, therefore, a reference of the
matter of disputes to the decision of one or more persons between the disputing parties.

United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985
and the General Assembly of the United Nations has
recommended that all countries give due
consideration to the said Model Law, in view of the
desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice.

The Arbitration and Conciliation Act, 1996 is based on United Nations Commission on International Trade Law (UNCITRAL)
Model Law on International Commercial Arbitration.

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?


The Arbitration and Conciliation Act, 1996 is an Act to consolidate and amend the law relating to domestic arbitration,
international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to
conciliation and for matters connected therewith or incidental thereto.

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

The history of the law of arbitration in India commences with Act VIII of 1859 which codified the procedure of Civil Courts.

Sections 312 to 325 of Act VIII of 1859 dealt with arbitration between the parties to a suit while Sections 326 and 327 dealt with arbitration without the intervention of the Court.

These provisions were in operation when the Indian Contract Act, 1872, came into force which permitted settlement of disputes by
arbitration under Section 28 thereof.

Act VIII of 1859 was followed by later codes relating to Civil Procedure, namely, Act X of 1877 and Act XIV of 1882 but not much change was brought about by the law relating to
arbitration proceedings.

It was in the year 1899 that an Indian Act entitled the Arbitration Act of 1899 came to
be passed.

It was based on the model of the English Act of 1899. The 1899 Act applied to cases where if the subject matter submitted to the arbitration was the subject of a suit, the suit could whether with leave or otherwise, be instituted in a Presidency town.

Then came the Code of Civil Procedure of 1908. Schedule II to the said Code contained the provisions relating to the law of arbitration which extended to the other parts of British India.

The Civil Justice Committee in 1925 recommended several changes in the arbitration law.

On the basis of the recommendations by the Civil Justice Committee, the Indian Legislature passed the Act, i.e., the
Arbitration Act of 1940.

This Act as its preamble indicates is a consolidating and amending Act and is an
exhaustive code insofar as the law relating to arbitration is concerned.

An arbitration may be without the intervention of a Court or with the intervention of a Court where there is no suit pending or it may be an arbitration in a suit.

With the passage of time the 1940 Act became outmoded, and need was expressed by the Law Commission of India and various representative bodies of trade and industry for its amendment so as to be more
responsive to the contemporary requirements, and to render Indian economic reforms more effective.

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

Arbitration and Conciliation Act, 1996

With a view to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and also to provide for a law relating to conciliation and related matters,

a new law called Arbitration and Conciliation Act, 1996 has been passed.

The new Law is based on United Nations Commission on International Trade Law (UNCITRAL), model law on International
Commercial Arbitration.

The Arbitration and Conciliation Act, 1996 aims at streamlining the process of arbitration and facilitating
conciliation in business matters.

The Act recognizes the autonomy of parties in the conduct of arbitral proceedings by the arbitral tribunal and abolishes the scope of judicial review of the award and minimizes the supervisory role of Courts.

A significant feature of the Act is the appointment of arbitrators by the Chief
Justice of India or Chief Justice of High Court.

The Chief Justice may either appoint the arbitrator himself or nominate a person or Institution to nominate the arbitrator.

The autonomy of the arbitral tribunal has further been strengthened by empowering them to decide on jurisdiction and to consider objections regarding the
existence or validity of the arbitration agreement.

The Act has been divided into four Parts and contains three Schedules.

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Part one deals with Arbitration
(Sections 2 to 43);

Part two deals with enforcement of certain Foreign Awards (Sections 44 to 60);

Part three deals with conciliation (Sections 61 to 81);

and Part four contains supplementary provisions (Sections 82 to 86).

Similarly schedule one contains provisions relating to convention on the Recognition and Enforcement of Foreign Arbitral Awards;

Schedule two deals with Protocol on Arbitration Clauses and

Schedule three contains provisions relating to Execution of Foreign Arbitral Awards.

Defination of Arbitration

Section 2(1) (a) of the Act, defines the term โ€œarbitrationโ€ as to mean any arbitration whether or not administered by a permanent arbitral institution.


The term โ€œarbitratorโ€ is not defined in the Arbitration and Conciliation Act.

But โ€œarbitratorโ€ is a person who is
appointed to determine differences and disputes between two or more parties by their mutual consent.

It is not enough that the parties appoint an arbitrator.

The person who is so appointed must also give his consent to act as an arbitrator.

His appointment is not complete till he has accepted the reference.

The arbitrator must be absolutely disinterested and impartial.

He is an extra-judicial tribunal whose decision is binding on the parties.

Any interest of the arbitrator either in one of the parties or in the subject-matter of reference unknown to either of the parties or all the parties, as the case may be, is a disqualification for the arbitrator.

Such disqualification applies only in the case of a concealed interest. If the arbitrator has an interest in the subject-matter of reference well-known to the parties before they sign the submission, the award is good
notwithstanding his own interest.

Every disclosure which might in the least affect the minds of those who are
proposing to submit their disputes to the arbitration of any particular individual as regards his selection and fitness for the post ought to be made so that each party may have an opportunity of considering whether the reference to arbitration to that particular individual should or should not be made.

:- The parties may appoint whomsoever they please to arbitrate on their dispute. Usually the parties themselves appoint the arbitrator or arbitrators.

In certain cases, the Court can appoint an arbitrator or umpire.

The parties to an arbitration agreement may agree that any reference thereunder shall be referred to an arbitrator or arbitrators to be appointed by a person designated in the agreement either by name or as the holder for the time being of any office or appointment.

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

Arbitral Award

As per Section 2(1)(c), “arbitral award” includes an interim award. The definition does not give much details of the ingredients of an arbitral award.

However, taking into account other provisions of the Act, the following features are noticed:

  1. An arbitration agreement is required to be in writing. Similarly, a reference to arbitration and award is also required to be made in writing.

The arbitral award is required to be made on stamp paper of prescribed value (as applicable at the place of making the award) and in writing.

An oral decision is not an award under the law.

  1. The award is to be signed by the members of the arbitral tribunal.

However, the signature of majority of the members of the tribunal is sufficient if the reason for any omitted signature is stated.

  1. The making of an award is a rational process which is accentuated by recording the reasons.

The award should contain reasons.

However, there are two exceptions where an award without reasons is valid i.e.

(a) Where the arbitration agreement expressly provides that no reasons are to be given, or

(b) Where the award has been made under Section 30 of the Act i.e. where the parties settled the dispute and the arbitral tribunal has recorded the settlement in the form of an arbitral award on agreed terms.

The formulation of reasons is a powerful discipline and it may lead the arbitrator to change his initial view on the matter.

Award can be divided into four parts i.e. general, findings of fact, submissions of the
parties and conclusions of the tribunal.

The tribunal should explain its view of the evidence and reasons of its conclusions.

  1. The award should be dated i.e. the date of making of the award should be mentioned in the award.
  2. Place of arbitration is important for the determination of rules applicable to substance of dispute, and recourse against the award.

The arbitral tribunal is under obligation to state the place of arbitration as determined in accordance with Section 20.

Place of arbitration refers to the jurisdiction
of the Court of a particular city or State.

  1. The arbitral tribunal may include in the sum for which award is made, interest upto the date of award and also a direction regarding future interest.
  2. The award may also include decisions and directions of the arbitrator regarding the cost of the arbitration.
  3. After the award is made, a signed copy should be delivered to each party for appropriate action like implementation or recourse against arbitral award.

Arbitral Tribunal

โ€œArbitral tribunalโ€ means a sole arbitrator or a panel of arbitrators.[Section 2(1)(d)].


โ€œCourtโ€ means the Principal Civil Court of original jurisdiction in a district and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court or any Court of Small Causes.[Section 2(1)(e)]

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

International Commercial Arbitration

โ€œInternational commercial arbitrationโ€ means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under law in force in India and where at least one of the parties is:

(i) an individual who is a national of, or habitual resident in, any country other than India; or

(ii) a body corporate which is incorporated in any country other than India; or

(iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or

(iv) the Government of a foreign country. [Section 2(1)(f)]

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

Legal Representative

The definition of โ€œlegal representativeโ€ given under Section 2(1)(g) has been taken verbatim from the definition in Section 2(11) of the Code of Civil Procedure.

The following are the persons who are legal representatives:

(a) A person who in law represents the estate of a deceased person.

(b) A person who intermeddles with the estate of the deceased.

(c) A person on whom the estate of a deceased person devolves on the death of the party acting in a representativeโ€™s capacity.

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

The following persons are generally included in the list of legal representatives.

(i) Executors and administrators properly appointed.

(ii) Person who has taken on himself duties and responsibilities which belong to the executor or administrator though only in respect of a part of the estate.

(iii) Heirs-at-law whether they take succession or by survivorship.

(iv) Revisioners when the action has been brought by or against the widow representing her husbandโ€™s estate.

(v) Universal legatee.

The following are the illustrations of those who do not come within the meaning of legal representative, so far as the Act is concerned:

(i) An assignee from a deceased zamindar or to whom the holding reverts on the death of a tenant.

(ii) A trespasser or a person who claims adversely the estate of the deceased.

(iii) A new trustee appointed or elected on the death of the deceased trustee.

๐ฐ๐ก๐š๐ญ ๐ข๐ฌ ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐งโ€ฆ?

Arbitration Agreement

โ€œArbitration agreementโ€ means

an agreement referred to in Section 7 [Section 2(1)(b)].

Under Section 7, the โ€œArbitration agreementโ€ has been defined to mean an agreement by parties to submit the arbitration or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not.

Sub-section (2) says that an arbitration
agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

Sub-section (3) specifically states that an arbitration agreement shall be in writing.

Sub-section (4) spells out that an arbitration agreement is in writing if it is contained in

(a) a document signed by the parties, or

(b) an exchange of letters, telex, telegrams or other means of telecommuni-cation, which provide a record of the agreement, or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

Thus, arbitration agreement stands on the same footing as any other agreement. It is binding upon the parties unless it is influenced by fraud or coercion or undue influence, etc.

As per Section 7, one of the essential ingredients of an arbitration agreement is that such an agreement should be in writing. An oral arbitration agreement is not recognised as an arbitration agreement according to this Section.

Sub-section (5) states that the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.

Sub-section (3) only requires that an agreement by the parties should be in writing.

It is not necessary that the words arbitration, arbitrator or arbitration agreement should appear in the arbitration clause so long as the parties have valid agreement to allow the matter of dispute to be decided by persons of their own choice.

Under the present law, certain disputes such as matrimonial disputes, criminal prosecutions, questions relating to guardianship about the validity of a will, etc. are treated as not suitable for arbitration.

Subject to this qualification Section 7(1) of the Act makes it permissible to enter into an arbitration agreement โ€œin respect of a defined legal relationship, whether contractual or notโ€.

It expressly recognizes that the arbitrator
will have such a power to commence or continue the arbitral proceedings though the objecting party can obtain a ruling of the court at the appropriate time.


The Arbitration and Conciliation Act 1996

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