Arbitration and Conciliation Law of India : Introduction
In the past, statutory provisions
on arbitration were contained in three different enactments,
namely, The Arbitration Act, 1940, the Arbitration (Protocol
and Convention) Act, 1937 and the Foreign Awards (Recognition
and Enforcement) Act, 1961. The Arbitration Act laid down the
framework within which domestic arbitration was conducted in
India, while the other two Acts dealt with foreign awards. The
Arbitration and Conciliation Act, 1996 has repealed the Arbitration
Act, 1940 and also the Acts of 1937 and 1961, consolidated and
amended the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral awards
and also defines the law relating to conciliation, providing
for matters connected therewith and incidental thereto on the
basis of the Model Law on International Commercial Arbitration
adopted by the United Nations Commission on International Trade
Law (UNCITRAL) in 1985. The Ordinance which was promulgated
by the President of India on the 16th January, 1996 was brought
into force with effect from the 25th January, 1996. The Arbitration
and Conciliation Bill, 1996, was passed by both houses of Parliament
and received the President’s assent on 16th August, 1996 and
came on the Statute Book as The ARBITRATION AND CONCILIATION
ACT, 1996 (26 of 1996). Some of the notable features of the
Act may be briefly mentioned at this stage. The most important
departure made by the Act from the previous law is in regard
to judicial intervention with the process and product of arbitration.
Firstly, where there is an arbitration agreement, the judicial
authority is required to direct the parties to resort to arbitration
as per the agreement, provided the application for that purpose
is made before or when a written statement on the merits is
submitted to the judicial authority by the party seeking arbitration.
Secondly, the grounds on which award of an arbitrator may be
challenged before the court have been severely cut down so that,
broadly speaking, such a challenge will now be permitted only
on the basis of invalidity of the agreement, want of jurisdiction
on the part of the arbitrator or want of proper notice to a
party of the appointment of the arbitrator or of arbitral proceedings
or a party being unable to present its case. At the same time,
an award can now be set aside if it is in conflict with “the
public policy of India” — a ground which covers, inter alia,
fraud and corruption. Thirdly, the powers of the arbitrator
himself have been amplified by inserting specific provisions
on several matters, such as the law to be applied by him, power
to determine the venue of arbitration failing agreement, power
to appoint experts, power to act on the report of a party, power
to apply to the court for assistance in taking evidence, power
to award interest, and so on. Fourthly, obstructive tactics
sometimes adopted by parties in arbitration proceedings are
sought to be thwarted by an express provision whereunder a party
who knowingly keeps silent and then suddenly raises a procedural
objection will not be allowed to do so. Fifthly, the role of
institutions in promoting and organising arbitration has been
recognised. Sixthly, the power to nominate arbitrators has been
given (failing agreement between the parties) to the Chief Justice
or to an institution or person designated by him. Seventhly,
the time limit for making awards has been deleted. Eighthly,
present provisions relating to arbitration through intervention
of court when there is no suit pending or by order of the court
when there is a suit pending, have been removed. Ninthly, the
importance of transnational commercial arbitration has been
recognised and it has been specifically provided that even where
the arbitration is held in India, the parties to the contract
would be free to designate the law applicable to the substance
of the dispute. Finally, unless the agreement provides otherwise,
the arbitrators are required to give reasons for the award.
The award itself has now been vested with the status of a decree,
inasmuch as (subject to the power of the court to set aside
the award) the award itself is made executable as a decree and
it will no longer be necessary to apply to the court for a decree
in terms of the award. In the following paragraphs, an attempt
has been made to present an analytical study of the Arbitration
Act, 1940 and the new Arbitration and Conciliation Law.
1.1.1 Some Basic Expressions Relating to Arbitration
Settlement of disputes by arbitration
has been practised in India from the distant past and the legal
literature tells us of the ancient system of arbitration for
resolving disputes concerning the family, or the trade or a
social group. The Constitution of India also puts it as a Directive
Principle of State Policy that the State should encourage settlement
of international disputes by arbitration. [See article 51(d)].
126.96.36.199 Domestic Arbitration
Some expressions which are commonly
used in arbitration, though statutorily defined, may be briefly
The term “Domestic Arbitration”
denotes arbitration which takes place in India, when the subject
matter of the contract, the merits of the dispute and the procedure
for arbitration are all governed by Indian law or when the cause
of action for the dispute has arisen wholly in India or where
the parties are otherwise subject to Indian jurisdiction.
The new law makes a mention of
"domestic arbitration" in the long title and the preamble, and
of "domestic award" in section 2(7) read with section 2(2).
International Arbitration” has
a foreign ingredient. Arbitration becomes “International” when
at least one of the parties involved is resident or domiciled,
outside India or the subject matter of the dispute is abroad.
The law applicable to an arbitration proceedings may be the
Indian law or a foreign law, depending on the terms of the contract
in this regard and the rules of conflict of laws.
2(1)(f) of the new law defines "International Commercial Arbitration"
as arbitration relating to disputes arising out of legal relationships,
whether contractual or not, considered as commercial under the
law in force in India where at least one of the parties is:
- an individual
who is a national of, or habitually resident in any country
other than India; or
- a body
corporate which is incorporated in any country other than
- a company
or an association or a body of individuals whose central management
and control is exercised in any country other than India;
Government of a foreign country.
[See section 28 of the new Act for the significance
of the definition]
188.8.131.52 Foreign Arbitration
184.108.40.206 Ad hoc Arbitration
“Foreign arbitration” is an arbitration
conducted in a place outside India, where the resulting award
is sought to be enforced as a "foreign award".
220.127.116.11 Institutional Arbitration
Ad hoc arbitration” is arbitration
agreed to and arranged by the parties themselves without recourse
to an Institution. The proceedings are conducted by the arbitrator(s)
as per the agreement between the 'parties' or with concurrence
of the parties. It can be domestic, international or foreign
Institutional arbitration” is arbitration conducted under the
Rules laid down by an established arbitral organization. Such
Rules are meant to supplement provisions of the Arbitration
and Conciliation Act in matters of procedure and other matters
the Act permits. The rules may provide for domestic arbitration
or for international arbitration or for both and the disputes
dealt with may be either general in character or specific.
Of the many organizations providing facilities for arbitration,
only a few cater to the settlement of international disputes.
Among them the most important in India are the Indian Council
of Arbitration, the Federation of Indian Chambers of Commerce
and Industry, the Bengal Chamber of Commerce and Industry, Indian
Chamber of Commerce the East India Cotton Association Ltd. and
the Cotton Textiles Export Promotion Council. The Bengal Chamber
of Commerce, though providing facilities for arbitration of
all commercial disputes, administers arbitration primarily in
the jute trade. The East India Cotton Association and the Cotton
Textiles Export Promotion Council likewise deal with settlement
of disputes in the field of foreign cotton trade and foreign
trade in textiles respectively.
Though facilities for international arbitration are available
with all these organizations, the Indian Council of Arbitration
being the apex body, has handled the maximum number of international
arbitration cases in India.
18.104.22.168 Specialized Arbitration
While there was no specific reference
to institutional arbitration in the old Act though such arbitration
has been long established and availed of, the new Act expressly
recognises the role of Arbitral Institutions. In order to facilitate
the conduct of the arbitral proceedings, Section 6 provides
that the parties or the arbitral tribunal, with the consent
of the parties, may arrange for administrative assistance of
a suitable institution. Further, section 2(8) expressly facilitates
the adoption of institutional rules.
22.214.171.124 Statutory Arbitration
"Specialized arbitration" is
arbitration conducted under the auspices of arbitral institutions
which might have framed special rules to meet the specific requirements
for the conduct of arbitration in respect of disputes of particular
types, such as, disputes as to commodities, construction or
specific areas of technology. Some trade associations concerned
with specific commodities or Chambers of Commerce also specify
that arbitration under their rules will be conducted only between
members of that organisation.
126.96.36.199 Submission to
“Statutory Arbitrations” are
arbitrations conducted in accordance with the provisions of
certain special Acts which provide for arbitration in respect
of disputes arising on matters covered by those Acts. There
are about 24 such Central Acts. Among them are the Cantonments
Act, 1924, the Indian Electricity Act, 1910, the Land Acquisition
Act, 1894, the Railways Act, 1890 and the Forward Contracts
Regulation Act, 1956. Many State Acts also provide for arbitration
in respect of disputes covered by those Acts, including Acts
relating to co-operative societies. The provisions of the Arbitration
Act, 1940 generally apply to those arbitrations unless they
are inconsistent with the particular provisions of those Acts,
in which case the provisions of those Acts will apply (Sections
46 and 47, Arbitration Act, 1940).
188.8.131.52 Arbitration Clause
“Submission to Arbitration” is a reference by the parties of
a dispute between them to arbitration.
It is not a term defined as such, in the new law, though the
word 'submit' is used.
An ‘Arbitration Clause’ is a
clause contained in and forming part of the main contract for
the reference to arbitration of differences between the parties.
The differences may be present (already arisen) or future (likely
to arise in future). In legal phraseology, it can constitute
an arbitration agreement [Section 2(a), Arbitration Act, 1940].
1.1.2 Practice of Arbitration
The new law maintains the above
position in substance, but deals in some detail with the subject
[Sections 7(1) to 7(5) of the new law].
All the different forms of arbitration
— ad hoc, institutional, specialised and statutory — have been
practised in India.
The new law expressly recognises
institutional arbitration, and also permits ad hoc arbitration.
Specified arbitrations and statutory arbitrations, however,
remain unaffected by the new law [See Section 2(4) and 2(5)].
1.2.1 International Conventions
184.108.40.206 Multinational Conventions
India is a party to the Geneva
Protocol on Arbitration Clauses of 1923, the Geneva Convention
on the Execution of Foreign Arbitral Awards, 1927 and the New
York Convention of 1958 on the Recognition and Enforcement of
Foreign Arbitral Awards. It became a party to the 1958 Convention
on 10th June, 1958 and ratified it on 13th July, 1961. India
has enacted implementing legislations to give effect to the
Protocol and the two Conventions. The Arbitration (Protocol
and Convention) Act, 1937 which came into force on 4th March,
1937, gave effect to the Protocol of 1923 and the Convention
of 1927. It provides for the enforcement of arbitral agreements
to which the Protocol applied and the enforcement of foreign
arbitral awards to which the Convention of 1927 applied. The
Foreign Awards (Recognition and Enforcement) Act, 1961 which
came into force on 30th November, 1961 had been enacted pursuant
to the New York Convention of 1958 and it prescribed the law
and procedure for the enforcement of foreign awards in India
to which the said Convention applied.
220.127.116.11 Bilateral Conventions
1.2.2 Judicial Decisions
The Acts of 1937 and 1961 mentioned
above have been repealed in the new Act, Part II of which incorporates
their operative provisions.
Matters arising under the three
repealed Acts, namely, the Arbitration Act, 1940, the Arbitration
(Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition
and Enforcement) Act, 1961 have been the subject matter of decisions
by the Privy Council (before 1949), High Courts and the Supreme
Court of India. The law expounded by the courts is as much part
of the law as statute law. A few important decisions have also
been handed down by the Supreme Court and the High Courts interpreting
the provisions of the 1937 and the 1961 Acts (dealing with the
enforcement of foreign awards). These decisions, to the extent
that these are not inconsistent with the new Act, will continue
to have their binding force.
Council of Arbitration
Tansen Marg, New Delhi 110001
Tel: 91-11-23719103, 23319760, 23319849,
Fax: 91-11-23320714, 91-11-23721504