ARBITRATION AND CONCILIATION ACT, 1996

The law relating to Arbitration is contained in the Arbitration and Conciliation Act, 1996.
It came into force on the 25
th
day of Janary 1996. This Act is of consolidating and
amending natre and is not e!hasti"e. #t it goes mch beyond the sco$e of its
$redecessor, the 19%& Act. It $ro"ides for domestic Arbitration and also enforcement of
foreign arbitral awards. It also contains the new featre on conciliation. It $roceeds on
the basis of the '( )odel *aw so as to ma+e or law accord with the *aw ado$ted by
the 'nited (ations Commission on International Trade *aw ,'(ICIT-A*..
The main objectives of the Act are:
1 to com$rehensi"ely co"er international commercial arbitration and conciliation as
also domestic arbitration and conciliation.
! to ma+e $ro"ision for an arbitral $rocedre which is fair, efficient and ca$able of
meeting the needs of the s$ecific arbitration
" to $ro"ide that the Arbitral tribnal gi"es reasons for its arbitral award.
# to ensre that the Arbitral tribnal remains within the limits of its /risdiction.
$ to minimi0e the s$er"isory role of corts in the arbitral $rocess.
6 to $ermit an Arbitral Tribnal to se mediation conciliation or other $rocedre
dring the arbitral $roceedings to encorage the settlement of dis$tes.
% to $ro"ide that e"ery final arbitral award is enforced in the same manner as if it
were the decree of the cort.
& to $ro"ide that a settlement agreement reached by the $arties as a reslt of
conciliation $roceedings will ha"e the same stats and effect as an arbitree
award on agreed terms on the sbstance of the dis$te rendered by an Arbitral
Tribnal1 and,
9 to $ro"ide that, for $r$oses of enforcement of foreign awards, e"ery arbitral
award made in a contry to which one of the two international con"entions
relating to foreign arbitral awards to which India is a $arty a$$lies will be treated
as a foreign award.
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(eanin) of Arbitration * + !,1- .
In the terms of sb2section ,1. ,a., arbitration means 3any arbitration whether or not
administered by $ermanent arbitral instittion4. *aw encorages $arties as far as
$ossible, to settle their differences $ri"ately either by mtal concessions or by the
mediation of a third $erson. 5hen the $arties agree to ha"e their dis$tes decided with
the mediation of a third $erson, bt with all the formality of a /dicial ad/dication, that
may be s$ea+ing broadly, called as arbitration. An arbitration, therefore, means the
sbmission by two or more $arties of their dis$te to the /dgment of a third $erson
called the 3arbitrator4, and who is to decide the contro"ersy in a /dicial manner.
3Arbitration4 is ths defined by -omilly ) - in the well2+nown case of Co//ins v Co//ins:
3An Arbitration is a reference to the decision of one or more $ersons, either with
or, withot an m$ire of a $articlar matter in difference between the $arties.4
Arbitration re6ires a dis$te. An agreement to refer ftre dis$tes to arbitration
is only an agreement, and not arbitration. 7"en where a dis$te has arisen and the
$arties agree to ha"e it decided by a third $erson that may not be arbitration nless that
$erson is to act /dicially.
Ths the sal featres of arbitration are the e!istence of dis$te between the $arties
and their agreement to refer it to the decision of a third $erson with the intention that he
shall act /dicially.
5hate"er be the ty$e of dis$te, the matter in dis$te mst be of a ci"il natre.
)atters of criminal natre cannot be referred to arbitration. In most cases, reference to
arbitration shts ot the /risdiction of the corts, e!ce$t as $ro"ided in the Act and
since criminal corts cannot be de$ri"ed of their /risdiction to try criminals, no criminal
matter can be referred to arbitration.
The second im$ortant featre of arbitration is the agreement between the
$arties to a dis$te to refer the matter to arbitration. The word 8reference9 was defined in
:ection ,2. ,e. of the now re$eated Arbitration Act, 19%&, this way; 8reference9 means
reference to Arbitration.
The :$reme Cort has $assed the following obser"ation on why arbitration
shold be $referred. 3Arbitration is considered to be an im$ortant alternati"e dis$te
redressal $rocess which is to be encoraged becase of high $endency of cases in the
corts and cost of litigation. Arbitration has to be loo+ed $ to with all earnestness so
that the litigant has faith in the s$eedy $rocess of resol"ing their dis$tes4.
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Arbitration a)reement
:ection ,<. ,1. of the Arbitration and Conciliation Act, 1996, defines 8an
arbitration agreement as an agreement by $arties to sbmit to arbitration all or certain
dis$tes which ha"e arisen or which may arise between them in res$ect of a defined
legal relationshi$, whether contractal or not. The section re6ires that the dis$te mst
be in res$ect of a defined legal relationshi$ whether contractal or not. It follows that the
disci$line mst be of a legal natre. The word 8defined9 wold signify the +nown
categories of legal relationshi$s and also the $coming categories. If the matter or
transaction is otside the +nown categories of relations nder which legal rights or
liabilities are li+ely to be created, it wold not be an arbitrable matter * ICICI Lt0, v
1ast Coast Boat B2i/0ers an0 1n)ineers Lt0, ,199&- 9 +CC %!&.
=is$tes which can be referred to arbitration are ,a- $resent or ftre dis$tes
which are ,b- in res$ect of a defined legal relationshi$, whether contractal or not. All
matters with a ci"il natre, with a few e!ce$tions, whether they relate to $resent or
ftre dis$tes may form the sb/ect of reference bt not the dis$te arising from and
fonded on an illegal transaction. If the agreement relates to a $resent dis$te it will
generally amont to a reference, bt if it has been entered into merely to $ro"ide for any
ftre dis$te, it is an arbitrational clase.
1 No 3rescribe0 form of a)reement:
:ection < ,2. says that an arbitration agreement may be in the form of an
arbitration clase in a contract or in the form of a se$arate agreement. :ection <,5.
clearly $ro"ides that the reference in a contract to a docment containing an arbitration
clase constittes an arbitration agreement if the contract is in writing and the reference
is sch as to ma+e the arbitration clase as a $art of the contract.
Therefore no formal from of agreement has been $rescribed. In R24manibai
523ta v Co//ector, 6aba/32r, the :$reme Cort has laid down that an Arbitration
clase is not re6ired to be stated in any $articlar form. If the intention of the $arties to
refer the dis$te to arbitration can be clearly ascertained from the terms of the
agreement, it is immaterial whether or not the e!$ression 8arbitration9 or >arbitrator> has
been sed. (or is it necessary that it shold be contained in the same contract
docment. ?ence, the whole thing trns $on the intention of the $arties.
! A)reement to be in 7ritin):
:ection < ,@. most em$hatically $rescribes that 8an arbitration agreement shall
be in writing9. An oral agreement to sbmit a dis$te to arbitration is not binding. If the
agreement is in writing it will bind, e"en if some of its details are filled in by oral
nderstanding. The Act recogni0es in :ection <,%. some three methods of arri"ing at a
written agreement. :ection <,%. $ro"ides that an arbitration agreement is in writing if it is
contained in a docment signed by the $arties1 or in e!change of letters, tele!,
telegrams or other means of telecommnication which $ro"ide a record of the
agreement or in an e!change of statement of claim and defence in which the e!istence
of the agreement is alleged by one $arty and not denied by another.
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1ffect of Arbitration A)reement: +ta8 of s2its ,+&-,sha//-
The Arbitration and Conciliation Act, 1996 is intended to hel$ the $arties to settle
their differences $ri"ately by conciliation or by arbitration and thereby to s$are
themsel"es of wastefl and "e!ation litigations. In recognition of this $rinci$le :.A,1. of
the act $ro"ides that if any $arty to an arbitration agreement brings before a /dicial
athority the matter co"ered by the agreement, the other $arty may a$$ly for stay of the
sit and for order of reference to arbitration. A /dicial athority before which an action is
soght shall refer the $arties to arbitration. The only condition is that the a$$lication
shall be accom$anied with the original arbitration agreement or a dly certified co$y
thereof.
'nder the 19%& Act, the cort shold stay sch $roceedings if it fond that there
were no sfficient reason why the matter shold not be referred in accordance with the
agreement. #t now nder the 1996 Act, :.A is a mandatory form nder :.@% of the
erstwhile 19%& Act the cort has the discretion in the matter either to stay the sit or
bring abot arbitration or to $ermit the sit to go on. 'nder the 1996 Act ,:.A. the word
ses is 8shall9. The effect is that the cort has no choice or discretion in the matter and is
bond to refer the $arties to arbitration.
In 9rinters, (8sore Lt0, v 9athan 6ose3h the :$reme Cort too+ the
o$$ortnity to em$hasi0e that the $ower to stay a legal $roceeding nder :.@% of the
19%& Act was discretionary and the $arty ma+ing sch an a$$lication cold not as of
right claim of stay. The discretionary element in the $ower of the cort is not a$$licable
in the 1996 Act. 'nder the new $ro"isions ,:.A. of the 1996 Act, the re6irements of
stay a$$lication and of an order for reference to arbitration were stated by the :$reme
Cort in 9 Anan0 5aja3ati Raj2 v 9:5 Raj2 as follows;
1. there mst be an arbitration agreement
2. a $arty to an agreement brings an action to the cort against the other $arty,
@. the sb/ect matter of the action is the same as the sb/ect matter of the
arbitration agreement.
%. the other $arty mo"es the cort for referring the $arties to arbitration before
sbmitting the first statement on the sbstance of the dis$te.
The cort contined to say that the last mentioned re6irement creates a right in
the $erson bringing the action to ha"e the dis$te ad/dicated by the cort once the
other $arty has sbmitted his first statement of defence. #t, if the $arty, e"er after
ma+ing the statement of defence, $rays that the matter be referred to arbitration and the
other $arty has no ob/ection, there is no bar on the cort referring the $arties to
arbitration. The cort was of the "iew that the $hrase 8which is the sb/ect matter of an
arbitration agreement9 does not necessarily re6ire that the agreement mst already be
in e!istence before the action is broght in the cort. The $hrase wold also co"er the
sitation where the arbitration agreement is broght into e!istence while the action is
$ending.
Da/i3 Constr2ction Co v ;in02stan +tee/s Lt0
It was held that the e!istence of a dis$te was essential before a matter cold
be referred to arbitration. ?ence, the /risdiction of an arbitrator de$ends $on the
e!istence of the claim or the accral of any corse of action, bt $on the e!istence of a
dis$te.
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9rovision of Interim Re/ief b8 Co2rts .
:.9 $ro"ides for the ma+ing of orders for interim measres to $ro"ide interim relief to the
$arties in res$ect of arbitrations before it becomes a decree. The $ower of the cort
inclde an order in res$ect of the following matters.
i. The $reser"ation, interim cstody or sale of any goods which are the sb/ect
matter of the reference.
ii. :ecring the amont in dis$te in the reference.
iii. The detention, $reser"ation or ins$ection of any $ro$erty or thing which is the
sb/ect of the reference or as to which any 6estion may arise therein and
athorising for any of the aforesaid $r$oses any $erson to enter $on or into any
land or bilding in the $ossession of any $arty to the reference.
i". Interim in/nction or the a$$ointment of a recei"er.
". The a$$ointment of a gardian for a minor or $erson of nsond mind for the
$r$oses of arbitral $roceedings.
"i. :ch other interim measre of $rotection as may a$$ear to the cort to be /st and
con"enient.
'nder :.%1,b. of the old Act, an a$$lication for interim relief cold be mo"ed only if some
arbitration $roceeding was $ending and not otherwise. #t nder :.9 of the $resent Act
sch an a$$lication can be made 2
,i. before arbitration $roceedings ha"e commenced or
,ii. dring arbitral $roceedings or
,iii. at any time after ma+ing of th arbitral award bt before it is
enforced in accordance with :.@6.
The :$reme Cort in :ndaram Binance *td. "s (7CC India *td. ,1999. has
e!$ressed the "iew that relief can be $ro"ided in sch cases throgh arbitral
$roceedings ha"e not been commenced $ro"ided there is $roof of the fact that the $arty
does not $t at rest the rights of the $arties.
1ffect of Interim meas2res
An interim measre does not $t to rest the rights of the $arties. The rights of th
$arties are re6ired to be ad/dicated finally when a reference is made. The cort has
the athority and /risdiction to $ass interim orders for $rotection and $reser"ation of
rights of the $arties dring the arbitration $roceedings bt that does not necessarily
mean that if a $arty has a"ailed of a benefit nder this /risdiction, the other $arty cannot
$t his claim in the main $roceeding which is before th arbitrator. The interim
arrangement made by the cort has to be gi"en the interim stats.