On this page you will read detailed information about Arbitration and Conciliation Act 1996.
As a business professional in India, it is important to have a strong grasp of the Arbitration and Conciliation Act 1996. This legislation provides the legal framework to efficiently resolve commercial disputes through arbitration, mediation and conciliation while avoiding prolonged litigation. Gaining expertise in the key provisions of this act will allow you to make informed decisions when faced with a business disagreement. Understanding best practices for drafting arbitration clauses, initiating proceedings, appointing arbitrators and enforcing awards will prove invaluable. This article will walk you through the salient features of the law in clear and simple terms. The aim is to equip you with essential knowledge on alternative dispute resolution under the Arbitration and Conciliation Act 1996 so you can protect your business interests in a fair and timely manner.
Overview of the Arbitration and Conciliation Act 1996
The Arbitration and Conciliation Act 1996 provides a comprehensive code on arbitration and conciliation in India with the objective to minimize litigation in courts. It covers domestic arbitration, international commercial arbitration and conciliation. The Act aims to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards.
Domestic Arbitration
The Act provides provisions for arbitrating disputes between Indian parties within India. It allows parties to define the procedure to be followed by the arbitral tribunal in conducting its proceedings. The Act aims to reduce the supervisory role of courts in the arbitral process.
International Commercial Arbitration
The Act incorporates the UNCITRAL Model Law of 1985. It aims to facilitate and promote international commercial arbitration in India. The Act provides provisions for arbitrating disputes between Indian and foreign parties. It gives primacy to party autonomy and limits the intervention of domestic courts in the arbitral process.
Enforcement of Foreign Awards
The Act aims to facilitate the enforcement of foreign arbitral awards in India. It provides that foreign awards will be enforced in India except under limited circumstances. The limited grounds for refusing enforcement of foreign awards as per the Act are in line with Article V of the New York Convention of 1958.
Conciliation
The Act provides for settlement of disputes through conciliation. It contains provisions relating to the appointment of conciliators and the conduct of conciliation proceedings. The settlements reached through conciliation have the same status and effect as arbitral awards on agreed terms.
In summary, the Arbitration and Conciliation Act 1996 provides a robust framework for institutional arbitration in India. It aims to make India a hub of international commercial arbitration by limiting court intervention and promoting party autonomy. The Act has been successful in achieving the objective of reducing litigation in courts to a considerable extent.
Key Provisions in the Act
Definitions of Key Terms
The Act defines important terms like ‘arbitration’, ‘arbitral tribunal’, ‘arbitration agreement’ and ‘arbitral award’. These provide clarity regarding the scope and applicability of the Act.
Arbitration Agreement
The Act recognizes arbitration agreements in written form. It provides that such agreements are valid and irrevocable. However, it permits non-binding pre-arbitration negotiations to settle disputes. The Act also allows parties to approach a court to obtain interim measures of protection before or during arbitral proceedings.
Composition of Arbitral Tribunal
The Act contains provisions relating to the composition and appointment of arbitral tribunals. It provides flexibility to parties to determine the number of arbitrators. In case parties fail to determine the number, the arbitral tribunal shall consist of a sole arbitrator. The Act also provides a procedure for appointment of arbitrators in case parties fail to nominate them.
Jurisdiction of Arbitral Tribunals
The Act provides that arbitral tribunals may rule on their own jurisdiction and any objections to their jurisdiction must be raised before the tribunal at the earliest. The tribunal’s decision that it has jurisdiction can only be challenged in court after the final award is made.
Conduct of Arbitral Proceedings
The Act grants flexibility to arbitral tribunals and parties to determine the procedure for arbitral proceedings subject to some basic principles of natural justice. It lays down the procedure to be followed where parties fail to determine the procedure. The Act provides that parties must be treated equally and given fair and reasonable opportunity to present their case. It also deals with matters such as appointment of experts, place of arbitration, etc.
In the previous post, we had shared information about Understanding Quasi Contract Under the Indian Contract Act, so read that post also.
Arbitral Award
The Act requires arbitral awards to be in writing and signed by members of the arbitral tribunal. It lays down the form and content of arbitral awards. The Act permits arbitral tribunals to award interest on the sum awarded and also costs of arbitration. It provides for correction and interpretation of awards by arbitral tribunals upon application by parties.
Applicability of the Act
The Arbitration and Conciliation Act, 1996 applies where the place of arbitration is in India. Section 2(2) of the Act states that it shall apply where the place of arbitration is in India. The Act does not apply to international commercial arbitration and the enforcement of foreign arbitral awards in India. Part II of the Act deals with enforcement of foreign arbitral awards in India in accordance with the New York Convention.
Domestic Arbitration
Part I of the Act contains provisions for domestic arbitration, conciliation and enforcement of domestic arbitral awards. It applies to all arbitrations which take place in India between Indian parties. The Act provides default rules for the conduct of arbitration proceedings if the parties fail to determine certain issues in their agreement.
Commercial Arbitration
The Act applies to commercial arbitrations, whether contractual or not. The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature. Relationships of a commercial nature include, but are not limited to, the following: trade transactions for the supply or exchange of goods or services, distribution agreements, commercial representation or agency, factoring, leasing, construction of works, consulting, engineering, licensing, investment, financing, banking, insurance, exploitation agreements or concessions, joint ventures and other forms of industrial or business cooperation.
Non-commercial Arbitration
The Act also applies to non-commercial arbitrations, if the parties choose to adopt its provisions. Section 2(1)(f) provides that the provisions of Part I would apply to any arbitration relating to disputes arising out of legal relationships whether contractual or not, which are considered as commercial under the law in force in India.
The Arbitration and Conciliation Act, 1996 aims to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. It provides a unified framework for the fair and efficient settlement of disputes through a quasi-judicial procedure.
Arbitration Agreement Under the Act
Nature of the Agreement
Under Section 2(b) of the Arbitration and Conciliation Act, 1996, an arbitration agreement refers to an agreement between parties to submit to arbitration all or certain disputes which have arisen or which may arise between them. Such an agreement must be in writing. It can be in the form of an arbitration clause in a contract or in the form of a separate agreement.
Essentials of a Valid Agreement
For an arbitration agreement to be valid under the Act, it must comply with the following essentials:
- It must be in writing: An oral arbitration agreement is invalid. ‘Writing’ includes an agreement in electronic form.
- It must be signed by the parties: Digital signatures are also accepted.
- It must contain the agreement to refer disputes to arbitration: The agreement must specify the disputes that shall be resolved through arbitration. A broad arbitration clause referring ‘all disputes’ to arbitration is valid.
Arbitrability of Disputes
The Act prescribes that only those disputes can be referred to arbitration which are capable of settlement by arbitration. Disputes concerning criminal offences are not arbitrable. Disputes relating to:
-Matters of public policy, -Adultery, -Matrimonial causes, -Guardianship, -Insolvency and winding up, etc.
are also generally not arbitrable. The arbitrability of a dispute is decided by the courts. Subject to the above, most commercial disputes and civil disputes can be referred to arbitration.
Enforcement of Agreements
An arbitration agreement, like any other agreement, needs to be enforced by courts. Section 9 of the Act empowers courts to pass orders for interim measures like attachment of property before the commencement of arbitral proceedings or during their pendency to protect the rights of the parties.
To conclude, an arbitration agreement creates binding obligations on the parties to refer their disputes to arbitration and the courts enforce these obligations and the resultant awards. By entering into an agreement, the parties choose an expeditious alternative forum for dispute resolution instead of going to courts.
Appointment of Arbitrators
The Arbitration and Conciliation Act 1996 sets out the procedure for appointment of arbitrators. According to Section 11, the parties are free to determine the number of arbitrators, provided that such number shall not be an even number. Failing the determination of the number of arbitrators by the parties, the arbitral tribunal shall consist of a sole arbitrator.
Nomination of Arbitrators
As per Section 12, the parties are free to agree on a procedure for appointing the arbitrator(s). Failing such agreement, in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator. If a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party, or if the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made upon request of a party, by the Chief Justice of India or any person or institution designated by him.
Independence and Impartiality
The arbitrators play a crucial role in the arbitral proceedings and the ultimate outcome depends on their decision. Hence, it is important that the arbitrators must be independent and impartial. According to Section 12 (5), the arbitrator appointed by the parties or by the Chief Justice should not be ineligible by virtue of any circumstances as laid down under Section 12 (5). The arbitrator should disclose any circumstances to the parties likely to give rise to justifiable doubts as to his independence or impartiality. If he fails to do so, it can be a ground to challenge the arbitrator under Section 12. The arbitrator shall also be debarred by order of the High Court from acting as an arbitrator under section 14 (2).
In summary, the Act aims to facilitate the appointment of independent and impartial arbitrators to conduct the arbitral proceedings. The parties have the autonomy to determine the appointment procedure, subject to default mechanisms prescribed under the Act. It is advisable for the parties to agree on a fair procedure to appoint suitable arbitrators for resolving their disputes.
Arbitration Proceedings and Awards
Once arbitration commences, the proceedings will follow the guidelines set out in the Arbitration and Conciliation Act 1996. The arbitral tribunal, comprising of either a sole arbitrator or a panel of arbitrators, will hold preliminary meetings to determine the rules and procedures that will govern the arbitration. This includes determining the language of the proceedings, the law governing the contract, the rules of evidence, and a timetable for submissions and hearings.
During arbitration proceedings, parties present their case through written pleadings called statements of claim and defense, witness statements, expert reports, and other documentary evidence. The arbitral tribunal will review the evidence and hold evidentiary hearings for the examination and cross-examination of witnesses and experts. At the conclusion of the proceedings, the arbitral tribunal will deliberate and issue a reasoned arbitral award.
An arbitral award is legally binding on the parties and enforceable in court. However, parties may challenge an award on certain limited grounds, such as lack of jurisdiction, serious irregularity in the proceedings, and patent illegality. The appropriate court will review the award on the grounds pleaded, and may remit it to the arbitral tribunal for reconsideration, set it aside, or dismiss the challenge. If the award survives challenge, it can be enforced like a court judgment.
Parties seeking to enforce an arbitral award in India or overseas may do so under the New York Convention or the Geneva Convention respectively. The award must be formally made in accordance with the requirements of the relevant convention and the proper procedure for authentication and certification must be followed. With over 160 countries as signatories, the New York Convention provides an effective mechanism for the recognition and enforcement of foreign arbitral awards.
In summary, arbitration proceedings in India are governed by the Arbitration and Conciliation Act 1996 and the rules agreed between the parties. The resulting arbitral award, if valid and binding, can provide an efficient mechanism for resolving commercial disputes and enforcing contractual rights.
Recourse Against Arbitral Awards
Under Section 34 of the Arbitration and Conciliation Act 1996, a party can file an application in court to set aside an arbitral award. The court may set aside the award if the party furnishes proof that the award is contrary to the public policy of India. This ground can be invoked if the award is patently illegal or violates the provisions of the Act or any other substantive law of India.
The arbitral tribunal acts in a quasi-judicial capacity and derives its powers from the arbitration agreement between the parties. Hence, the award passed by the tribunal must be in consonance with the terms of the agreement and should not violate the principles of natural justice. If the arbitral procedure or award violates the principles of natural justice or the due process of law, it can be challenged under Section 34 (2) (a) (iii) by filing an application on the ground of “patent illegality”.
An award would be considered patently illegal if it is contrary to the provisions of substantive law or the terms of the contract. The contravention of statutory provisions or the terms of the contract is considered a serious flaw, as it amounts to excess of jurisdiction by the arbitral tribunal. In such cases, the courts can set aside the arbitral award to prevent injustice.
The period of limitation for filing an application under Section 34 to set aside an arbitral award is 3 months. The period begins from the date when the party making the application receives the arbitral award or the date on which the request made under section 33 is disposed of by the arbitral tribunal. The court has the discretion to extend this period by another 30 days if it is satisfied that there was sufficient cause for not filing the application within the prescribed time limit.
In summary, the grounds available under Section 34 essentially aim at achieving justice between the parties and upholding the rule of law. The courts can exercise sufficient control over the arbitral process to ensure that the arbitral tribunals function within the scope of their authority and pass awards in accordance with the law.
Role of Conciliation Under the Act
The Arbitration and Conciliation Act 1996 provides for conciliation of disputes arising out of legal relationships. Conciliation is a less formal method of dispute resolution compared to arbitration. Under conciliation, a third party called the ‘conciliator’ helps the disputing parties come to an agreement. The conciliator facilitates communication between the parties, identifies the issues, reduces misunderstandings, and helps the parties explore the options for settlement.
The conciliator has no authority to impose a settlement on the parties. The settlement is created by the parties themselves with the help of the conciliator. The conciliator helps the parties understand the strengths and weaknesses of their cases and negotiate a mutually acceptable settlement. Conciliation is a voluntary process, and any party can withdraw from the conciliation proceedings at any time. If the conciliation succeeds, the settlement agreement is signed by the parties. This agreement is binding and enforceable like any other contract.
Confidentiality
The conciliation proceedings are confidential, and statements made by parties during conciliation cannot be used as evidence in any subsequent arbitral or judicial proceedings. This ensures that the parties participate openly in the conciliation process without fear of their statements being used against them later. The confidentiality extends to the settlement agreement as well unless its disclosure is necessary for implementation or enforcement.
In conclusion, conciliation aims to resolve disputes in a cooperative manner through open communication and negotiation. The conciliator facilitates this process but has no authority to impose a solution. Conciliation can lead to win-win outcomes as the solution is tailored to the interests of all parties. Confidentiality of the process encourages free exchange of information to facilitate settlement. Overall, conciliation promotes harmony and goodwill among the disputing parties.
FAQs on the Arbitration and Conciliation Act 1996
The Arbitration and Conciliation Act 1996 provides a framework for the settlement of disputes between parties through the intervention of a third person (the arbitrator) who is chosen by the parties to the dispute. The Act covers domestic and international commercial disputes. It aims to facilitate arbitration and conciliation.
Almost all commercial disputes, except those relating to criminal offenses, can be referred to arbitration. Matters relating to immovable property, succession or marriage may also be referred to arbitration. However, certain disputes like patent and trademark disputes cannot be arbitrated without the permission of the concerned authority.
The parties are free to determine the number of arbitrators and the method of their appointment. If they fail to agree, a sole arbitrator shall be appointed. The arbitrator must be impartial and independent. The arbitrator’s mandate can be terminated if justifiable doubts arise as to their impartiality or independence.
The arbitrator has the power to determine the admissibility, relevance and weight of any evidence. They can decide on their own jurisdiction and pass interim orders. The arbitrator must treat the parties equally and give them full opportunity to present their case. Any ex-parte order can be set aside on application by the party left out. The arbitrator must make a reasoned award that should be signed and dated, with the place of arbitration mentioned.
An arbitration agreement must be in writing. It should specify the disputes that shall be referred to arbitration, the number of arbitrators, their appointment procedure, the place of arbitration, language of the arbitration and applicable rules. If the agreement lacks any of these details, the Act provides the necessary framework. An arbitration agreement must not be contrary to public policy.
In summary, the Arbitration and Conciliation Act 1996 aims to provide parties with an efficient dispute resolution mechanism through the cost-effective and expeditious settlement of disputes by private arbitrators. By familiarizing yourself with the key provisions and processes under the Act, you will have a firm understanding of how to resolve commercial disputes in India.
Conclusion
As you have seen, the Arbitration and Conciliation Act 1996 is a key piece of legislation that governs arbitration, conciliation and settlement procedures in India. By understanding the key provisions of this act, you are now equipped with knowledge about the arbitration process, from appointment of arbitrators to enforcement of awards. Moving forward, you can use your learnings to make informed decisions when faced with a potential dispute. Whether participating in arbitration yourself or advising clients on it, your grasp of the act’s requirements and procedures will prove invaluable. Though complex legislation, the knowledge you have gained demystifies the act and sets you up for success in alternative dispute resolution through arbitration and conciliation in India.
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