Arbitration and Conciliation Act 1996
The Arbitration and Conciliation Act, of 1996 is divided into 86 sections and 4 chapters and extends to the whole of India. This Act was brought into force on 25th January 1996. Prior to the Arbitration and Conciliation Act, of 1996, India had the Arbitration Act, of 1940, which regulated arbitrations in India.
However, with India adopting the UNCITRAL (United Nations Commission on International Trade Law) resolution, it was imperative to bring about changes in arbitration law to ensure that it is UNCITRAL compliant and addresses issues concerning the regulation of ADR and arbitrations in India.
Table of Contents
- 1 Arbitration and Conciliation Act 1996
- 2 Definitions under Arbitration and Conciliation Act 1996
- 3 Scope of Arbitration and Conciliation Act 1996
- 4 Arbitration Agreement
- 5 Interim Measures by the Court
- 6 Composition of Arbitration Tribunal
- 7 Interim Measures by Arbitral Tribunal
- 8 Arbitral Award: Making, Finality, and Enforcement
- 9 Recourse Against the Arbitral Award
- 10 Appeals
Definitions under Arbitration and Conciliation Act 1996
Some of the important definitions as defined under the Arbitration and Conciliation Act, of 1996, are as follows:
- Arbitration means any arbitration, irrespective of whether it is administered by a permanent arbitral institution or not.
- An arbitration agreement means an agreement referred to in section 7.
- The arbitral award includes an interim award.
- An arbitral tribunal means a sole arbitrator or a panel of arbitrators.
- Court means the principal civil court of original jurisdiction in a district, and includes the High Court in the exercise of its ordinary original civil jurisdiction, having the jurisdiction to decide 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.
- International commercial arbitration means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered commercial under the law in India and where at least one of the parties is an individual or a body corporate or a company
Scope of Arbitration and Conciliation Act 1996
This part shall apply where the place of arbitration is in India. An Arbitral Award made under this part shall be considered a domestic award.
Where this part:
- Refers to the fact that the parties have agreed or that they may agree, or
- In any other way refers to an agreement of the parties, the agreement shall include any arbitration rules referred to in that agreement.
An arbitration agreement is a sine qua non of arbitration. Without an arbitration agreement, arbitration cannot commence. Arbitration can be contained in a specific clause or as a separate agreement or by way of reference to an arbitration clause in another agreement.
An arbitration agreement as defined in Section 7 of the Arbitration and Conciliation Act refers to an agreement by the parties to submit to arbitration all or certain disputes between them in respect of the legal relationship.
The disputes may pertain to the past or future, and the legal relationship may or may not be contractual. The important aspects of an arbitration agreement are as follows:
- It must be in writing
- It may be in the form of an arbitration clause in a contract.
- The arbitration agreement is said to be in writing if it is signed between the parties and there is an exchange of letters, faxes, or such other forms that record such agreements.
- In order to accept the application of arbitration, it must be accompanied by the original arbitration agreement or a certified copy of the agreement.
Interim Measures by the Court
Any of the parties in dispute, before or during the arbitral proceedings may apply to the court:
- For the appointment of a guardian of a person who is minor or a person who is of unsound mind for the purpose of the arbitral proceedings
- For an interim measure or protection with respect to the following:
- The preservation, interim custody for stopping the sale of any product
- Securing the amount in dispute in the arbitration
- The detention, preservation, and inspection of any property which is the subject matter of the dispute under the arbitration proceedings
- Interim injunction or the appointment of the receiver
- Such other measures that the court may feel just and fair
- The preservation, interim custody for stopping the sale of any product
The interim measures taken by the court ensure that the subject matter of the property is preserved and maintained. The jurisdiction of the interim measures shall lie before the civil court in which the arbitration is to be conducted.
The interim measures are an effective tool to ensure that the rights and interests of the concerned parties are protected till the disposal of the dispute by way of arbitration.
Composition of Arbitration Tribunal
Section 10 deals with the composition of an arbitral tribunal. The parties are free to determine the number of arbitrators, but the total number of arbitrators should not be an even number. Among the arbitrators, there should be one sole arbitrator.
Appointment of Arbitrators
While appointing the arbitrators, the following points should be considered:
- An arbitrator is a person who can be of any nationality as otherwise agreed by the parties.
- The parties are normally free to talk about and finalize the procedure of selecting an arbitrator.
- If three arbitrators are to be appointed, each party in the dispute shall appoint an arbitrator, and the third arbitrator shall act as the sole arbitrator. The sole arbitrator shall be appointed by the two arbitrators appointed.
- If the party in a dispute cannot appoint the arbitrator within 30 days or the first two arbitrators fail to appoint the sole arbitrator, the arbitrator shall be appointed by the Chief Justice of a High Court or any other person or institution designated by him.
If there is any doubt as to whether the appointed arbitrator shall be able to act impartially or independently, then in that case his appointment can be challenged under Section 12 of the Act.
Interim Measures by Arbitral Tribunal
The Arbitrator or Arbitration Tribunal does have the right to provide the interim measure of protection to the parties in dispute if they deem fit. The arbitral tribunal, at the request of the parties, may take any interim measure for the protection of any of the parties as it may deem fit in the best interest of the parties in dispute.
The interim measure may be of the following nature:
- To withhold the sale/or assets of any of the products related to the subject matter of the dispute
- Any other relief they feel is necessary for the settlement of the dispute
The arbitral tribunal may also provide adequate security to the party for any of the interim measures provided in the above points.
Arbitral Award: Making, Finality, and Enforcement
An arbitral award shall be in writing and should be signed by the majority of the members of the arbitral tribunal. The arbitral award shall have a date and place and shall be delivered to each of the parties.
If the arbitral award is to be given in monetary terms, the award may include the amount that shall be included in the award along with the rate of interest payable whatever the arbitral tribunal members deem fit and reasonable.
In case of the absence of the information, the arbitration award shall carry the interest rate of 18% from the date of award till the time of payment. Unless otherwise agreed, the cost of arbitration shall be fixed by the arbitral tribunal.
The arbitral tribunal shall specify:
- The party is entitled to the cost
- The party that shall pay the cost
- The amount of the cost
- The mode of payment for the cost
With the giving of the arbitration award, the arbitration proceedings are terminated.
Correction of the Award
The parties may request to correct clerical or computation errors, if any, within 30 days of receipt of the award. The additional arbitration award can be provided within 60 days if such a request is made, provided that the members of the arbitral tribunal consider it necessary and in the interest of the parties.
Finality of Award
As per Section 35 of the Act, an arbitration award shall be final and binding upon the parties.
Enforcement of Award
The arbitral award shall be endorsed under the Civil Procedure Code, 1908, in the same manner as if it is a decree of a court of law
Recourse Against the Arbitral Award
Recourse against an arbitral award is provided under Section 34 of the Arbitration and Conciliation Act, 1996. It can be made by making an application for setting aside the award in accordance with sub-sections (2) and (3) of this Section. Section 34 (2) states that an arbitral award may be set aside by the court if a party furnishes proof that:
- The party was under some incapacity.
- The arbitration agreement is not valid under the law
- The party making an application was not given proper information about the appointment of the arbitrator.
- The arbitration tribunal has dealt with a matter that does not fall under the purview of the arbitration agreement.
- The composition of the arbitration tribunal was not according to the arbitration agreement.
- If the court finds that the subject matter of the dispute is not capable of being settled by arbitration.
- The arbitral award is in conflict with the public policy of India.
Section 34 (3) states that the request for setting aside the award shall be within three months of the receipt of the arbitral award.
This section especially focuses on the fact that an award passed could only be challenged on the grounds of impropriety, partiality, or patent illegality. The award could never be set aside based on the facts of a given case, i.e., once the award is passed by the arbitral tribunal, the award is final with respect to the determination of the facts of the case.
In other words, Section 34 only comes into play if the arbitrator or parties have committed gross illegality or an unwarranted act that affects the interests of the parties in dispute.
Section 37 deals with appeals. Appeals shall lie from the following orders to the court authorized by law to hear appeals from the original decrees of the court which are as follows:
- Granting or refusing to set aside the award as mentioned above in Section 34 (2) and/or Section 34 (3)
- Granting or refusing to grant a measure in Section 9, wherein interim measures are to be provided by the court.
An appeal shall also lie to the court if the arbitral tribunal refuses to provide interim measures to the parties and where the arbitral tribunal is exceeding its jurisdiction or deciding matters that are not in its scope.