In business, you don’t get what you deserve, you get what you negotiate
The law of Arbitration in India is governed by the Arbitration and
Conciliation Act, 1996 (the Act). The act has its origins based on the
UNCITRAL Model Law, 1985 on International Commercial Arbitration and the
UNCITRAL Conciliation Rules, 1980. It is of utmost significance to note that
the legislative intervention in Arbitration and Conciliation was to align
the National dispute resolution process with that of the international
practices. India had seen its first legislation on arbitration which was
promulgated in the year 1899 based up entirely upon the British Arbitration
Act. The Indian Arbitration Act, 1899 was constricted to the then presidency
towns of Calcutta, Bombay and Madras. The Indian Arbitration Act, 1899 had
by then casted a sense of uncertainty due to the absence of various
provisions and procedures to deal with cases arising on arbitration.
- It was stated by the Bombay High Court in the case of Dinkarrai
Lakshmiprasad vs. Yeshwantrai Hariprasad (1929) that It is high time
that those responsible for legislation in this country should seriously
consider the advisability of taking early steps to revise the law of
arbitration. On March 11, 1940, a specific act for Arbitration was
enacted under the British Regime termed as The Arbitration Act, 1940.
But such act heaped lot of criticism due to absence of important
provisions to govern arbitration and giving an unclear picture of
dealing with such cases in the real sense.
- The Supreme Court of India in the case of Guru Nanak Foundation
vs. Rattan Singh & Sons (1981) has emphasized that the way in which
the proceedings under The Arbitration Act, 1940 are conducted and
without an exception challenged in Courts, has made lawyers laugh and
legal philosophers weep.
This paved way to the Arbitration and Conciliation Act, 1996 (herein
referred to as the Act) that was enforced on 22nd August, 1996. The act
aimed for quicker solutions to the disputes to the parties which miserably
failed by the enactment of the erstwhile Arbitration Act, 1940. Thus the law
relating to Arbitration was introduced to the Indian landscape as the
replica of the British enactment in an incomplete manner in 1899 with the
omission of various governing principles to deal with cases of Arbitration
Meaning of Arbitration:
Black’s Law Dictionary defines Arbitration as The investigation and
determination of a matter or matters of difference between contending
parties, by one or more unofficial persons, chosen by the parties, and
, or referees
. The Supreme Court of India in
the case of Bhatia International vs. Bulk Trading S A. & Anr (2002)
held that Section 2(a) Arbitration and Conciliation Act, 1996
defines "arbitration" as meaning any arbitration whether or not
administered by a permanent arbitral institution.
Significance of Enactment of The Arbitration And Conciliation Act,1996:
The enactment of the Act was seen as a measure to reduce Judicial
Intervention. On deciphering Section 5, we can find that the Act itself
restrains judicial intervention in the proceedings of arbitration.
- It was held by the Delhi High Court in the case of M/S Shyam
Telecom Ltd. vs. Icomm Ltd (2010) that there should not be
unnecessary judicial intervention in the arbitration proceedings which
must be allowed to proceed and progress of which should not be allowed
to be scuttled by the parties.
- It was also held in the case of McDermott International Inc. v.
Burn Standards Co. Ltd that Intervention of the court is envisaged
in few circumstances only, like, in case of fraud or bias by the
arbitrators, violation of natural justice, etc.
Thus it was clearly contemplated that the Arbitration and Conciliation Act,
1996 could reduce the pendency of cases in arbitration and to stimulate the
ease of settlement of cases outside the court room. It would be pertinent
for us to note that the new born act of 1996 also gave formal recognition to
the Arbitral Institutions.
Scope of Arbitration:
The Act does not make provisions for the matters of inclusiveness within the
purview of Arbitration nor does it enlist cases that would exclude from the
focal point of Arbitration.
- The Supreme Court in the case of Booz-Allen & Hamilton Inc vs. Sbi
Home Finance Ltd. & Ors that The Arbitration and Conciliation Act, 1996
does not specifically exclude any category of disputes as being not
Going back to time, we can neither infer nor find any provisions from
either the Indian Arbitration Act, 1899 or The Arbitration Act, 1940
with respect to the matters to be under the blanket of Arbitration. This
postulates that what can be referred to the arbitrator is only that
dispute or matter which the arbitrator is competent or empowered to
decide. However certain cases are under the jurisdiction of the
concerned judicial courts.
- This can be evidenced in the case of Haryana Telecom limited vs.
Sterlite Industries India Limited where the Supreme Court of India
Where a petition is filed for the purpose where the company is
commercially insolvent is bound to wind up under the Companies Act. The
power to order winding up of a company is contained under the Companies
Act and is conferred on the court. An arbitrator, notwithstanding any
agreement between the parties, would have no jurisdiction to order
winding up of a company.
- In a distinctive case under Insolvency and Bankruptcy Code, 2016,
the Income tax Appellate Tribunal (Delhi) in the case of Shamken
Multifab Ltd., New Delhi vs. Dcit (2019) cited the judgement
delivered by the Supreme Court of India in the case of Alchemist
Asset Reconstruction Pvt. Ltd & Anr vs. M/S Hotel Gaudavan Pvt. Ltd. &
Anr (2016) that even arbitration proceedings cannot be initiated
after imposition of the moratorium u/s 14 (1) (a) of the Code.
So there came the question pertaining to the presence of specific
condition or rather provisions in different enactments to refer the
matter under the purview of Arbitration.
- A distinct perspective was seen in the case of Olympus
Superstructures Pvt Ltd vs. Meena Vijay Khetan and others (1999)
involving the case whether the arbitrator has the power and jurisdiction
to grant specific performance of contracts relating to immovable
property falling under the Specific Relief Act, 1963 wherein the Supreme
Court of India held that There is no prohibition in the Specific Relief
Act, 1963 that issues relating to specific performance of contract
relating to immovable property cannot be referred to arbitration as
contrasted with Section 15 of the English Arbitration Act, 1950 or
Section 48(5)(b) of the English Arbitration Act, 1996 which contained a
prohibition relating to specific performance of contracts concerning
- The Significant judgement by the Calcutta High Court can be inferred
to chalk out the scope of Arbitration. The Calcutta High Court in the
case of Keventer Agro Ltd vs. Seegram Comp. Ltd (1998) opined
that matters like criminal offences and matrimonial disputes may not be
subject matter of resolution by arbitration, matters incidental thereto
may be referred to arbitration. Reference is made there to certain
disputes like criminal offences of a public nature, disputes arising out
of illegal agreements and disputes relating to status, such as divorce,
which cannot be referred to arbitration. It has, however, been held that
if in respect of facts relating to a criminal matter, (say) physical
injury, if there is a right to damages for personal injury, then such a
dispute can be referred to arbitration.
It can be hence brought out that unless any act specifically brings out
the jurisdiction of a specific autonomy of the Court then such cases would
not come under the ambit of Arbitration. It was conventional to be decided
by the courts of law what kind of disputes would come under arbitration and
what would not. Judiciary had in a conservative manner dealt with the
magnitude of the case and reiterated the cases to be settled under
arbitration to avoid time expanding litigation.
Arbitration Agreement – Section 7:
The Arbitration Act, 1996 has made it clear that an Arbitration proceeding
or reference would not subsist unless an arbitration agreement exists.
Section 7 elucidates that arbitration agreement means an agreement by the
parties to submit to arbitration all or certain disputes which have arisen
or which may arise between them in respect of a defined legal relationship,
whether contractual or not. The most important ingredient to be present to
constitute a valid arbitration agreement is Consensus ad idem i.e. agreeing
to the same thing in the same sense by the parties.
- The Supreme Court in the case of Visa International Ltd. vs.
Continental Resources (USA) Ltd. (2009) observed that In
circumstances where the parties mutually consent to resolve the disputes
through Arbitration and Conciliation, what is required to be gathered is
the intention of the parties from the surrounding circumstances
including the conduct of the parties and the evidence such as exchange
of correspondence between the parties.
Carefully tracing back history to find the evolution of arbitration
agreement, it is to be noted that the words ‘Arbitration Agreement’ was
not used since the inception of The Indian Arbitration Act, 1899 till
the Introduction of Arbitration (Protocol and Convention) Act, 1937
which was later amended and known to be as The Arbitration Act, 1940
which first introduced the definition of Arbitration Agreement. This was
done as the Government wanted to meet the widely expressed desire of the
commercial world that arbitration agreements should be ensured effective
recognition and protection. Prior to the enactment of the said Act, the
word submission was used in place of Arbitration agreement.
word Submission was defined under Section 4(b) read along with
Section 27 of The Indian Arbitration Act, 1899 as Submission means a
written agreement to submit present or future difference to arbitration
whether an arbitrator is named therein or not.
- The Supreme Court of India in the case of V/O Tractor Export, Moscow
vs. M/S. Tarapore & Company & Anr (1969) has opined that The word
"submission" must be regarded as synonymous with the term "arbitration
Arbitration agreement is most common in the form of a clause forming
part of the parent contract. On interpretation, subject to different
contracts it could be noticed that the Arbitration clauses are very
generic in nature and not specific on the nature of dispute to be taken
to arbitration. The Act mandates that arbitration agreement if executed
shall be in writing. Thus oral arbitration agreements are not
enforceable and are void.
- The Delhi High court in the case of Aspire Investments Private
Limited vs. M/S Nexgen Edusolutions Private Limited (2009) had
elucidated that a valid arbitration agreement is one whereby parties
agree to submit their disputes to arbitration whether arising out of a
contract or otherwise, and this agreement is reflected in a writing.
Wherein the Arbitration condition is drafted as a clause forming a part
of contract, its independency has been tested over time. Time after time
it was a question of whether the arbitration agreement would be
independent or governed by the principal terms of the main contract
wherein other modes of dispute settlement had also been recognized.
- The Supreme court in a substantive manner in the case of Enercon
(India) Ltd. vs. Enercon Gmbh & Anr. (2014) held that The
Arbitration clause forming part of a contract shall be treated as an
agreement independent of such a contract. The concept of separability of
the arbitration clause/agreement from the underlying contract is a
necessity to ensure that the intention of the parties to resolve the
disputes by arbitration does not evaporate into thin air with every
challenge to the legality, validity, finality or breach of the
The Act on the other hand has not made distinction on the form of the
Arbitration agreement or the manner in which the Arbitration clause
shall be drafted to form a part of contract. The arbitration agreement
shall disclose the moral imperative act of the parties to go for dispute
settlement through the means of arbitration. The clause or agreement
shall not just be a postulate of possibility to go for arbitration but
should reflect the will of the parties to choose Arbitration as a means
of dispute settlement mechanism.
- The Supreme Court of India in the case of Jagdish Chander vs.
Ramesh Chander & Ors (2007) held that While there is no specific
form of an arbitration agreement, the words used should disclose a
determination and obligation to go to arbitration and not merely
contemplate the possibility of going for arbitration.
Therefore Arbitration agreements empower parties to settle disputes in a
flexible manner by setting out the salient terms also thereby acting as
a legal resort to save parties from cumbersome dispute settlement
The invocation of Arbitration and Conciliation Act, 1996 has been seen a
birth of a new legislation and has reduced the time of disposal of cases
along with creating a win-win situation in cases. History had shown that the
earlier enactments in the area of Arbitration had needed reforms, but the
employing legislative amendments are also bringing in fresh influx of
procedures to deal with dispute settlement mechanism outside the court.
reforms are also aimed at strengthening the Institutional Arbitration by the
establishment of an Independent body to lay down the standards in the
practice of Arbitration, make the process more cost-effective and to ensure
timely disposal of cases.
Undoubtedly the practice of Arbitration itself provides a new dimension and
also plays a pivotal role to streamline the settlement of corporate
disputes. The parties in an arbitration are usually encouraged to
participate fully and sometimes even to help structure the resolution, they
are often more likely to work together peaceably rather than escalate their
hostility toward one another thereby serving as a non-judicial mechanism for
solving contractual or legal disputes.
While history had shown the gradual
evolution from the enactment of an incomplete legislation in 1899 to the
enactment of a substantive regulation in 1996, India is on the rise to
increase the corporate literacy and removing every barrier to being a
successful organization in today’s world.
Written by: Vignesh Kumar. G, Licentiate Company Secretary
Email: [email protected]