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Arbitration and Conciliation Act, 1996: Your Guide to Friendly Dispute Resolution in India

Over the past few decades, while countries' economies have developed significantly, there has also been a notable rise in the number of business disputes. Arbitration and other alternative dispute resolution procedures are becoming increasingly important for companies doing business in India and for companies doing business with Indian companies.

In light of the wider investigation into the relationship between the standard of legal performance and economic expansion, this article aims to critically assess arbitration as a legal system in India. The primary role in conflict resolution is examined in this essay. This essay explores and assesses the 1940 and 1996 Acts that established India's International Arbitration Regime.

It also addresses key ideas such as arbitrators, arbitration agreements, and arbitral decisions, international honours, public policy, etc. This document delineates the Indian framework that oversees both local and international commercial arbitration, and it also addresses the acknowledgment and implementation of the verdict.

ADR procedures are widely used in international business arbitration contracts. Arbitration in particular is viewed as a way out since it is a private, impartial, and independent system, and it also has time and cost benefits that are considered to be its defining characteristics. Parties are using arbitration more and more frequently to resolve their domestic and international business issues. Lastly, we will conclude by giving the conclusion of this act and the idea which comes to mind while writing throughout the assignment.

Objective And Scope
The following goals are intended to be attained by this Act:
  • Facilitating the prompt settlement of business and labour conflicts by offering a channel for doing so, supporting the prompt and fair settlement of conflicts within a reasonable time frame.
  • Ensuring the protection of the rights of parties involved in conflicts by giving them access to justice.
  • Encouraging the parties to commercial or industrial issues to negotiate in good faith.
  • Enabling parties to settle disagreements economically.
  • Promoting the application of alternative conflict resolution procedures like arbitration and mediation.
  • Ensuring that just and equal treatment is given to all parties.

Giving disputing parties the chance to meet in person in order to establish a settlement agreement is crucial for promoting a settlement agreement.

Alternative Dispute Resolution, or ADR, refers to a range of techniques for resolving conflicts outside of the formalities of the legal system. Using this technique, parties attempt to settle their differences in private in front of an impartial third party expert. Similar to a court ruling, the decision is enforceable against the parties. It covers techniques such as negotiation, conciliation, arbitration, and mediation.

These are based on the Indian Constitution's Article 39A's guarantees of justice, legal aid, and a prompt trial. Even the Code of Civil Procedure, 1908, Section 89, allows for alternative dispute resolution. The processes are adaptable and imaginative. It offers satisfying solutions at lower costs and times, making it a developing area of law. The Parliament saw the need for this and created a law addressing it. The Arbitration and Conciliation Act of 1996 is the act on arbitration and conciliation that is discussed in this article. It explains the purpose, scope, and applicability of the Act and goes over its key clauses.

Whether The 1996 Arbitration And Conciliation Act Is Applicable

The Act is applicable across India, but only insofar as it relates to international commercial arbitration or conciliation will Parts I, II, III, and IV apply to Jammu and Kashmir. The President issued the ordinance on January 16, 1996, however the Act went into effect on August 22, 1996. The remaining two ordinances, which deal with arbitration and conciliation, were approved on March 26, 1996, and June 21, 1996, respectively.

The 1996 Arbitration And Conciliation Act's Goals

Formerly, three acts that addressed arbitration law eventually became out of date. As a result, the trade and industry associations as well as arbitration experts asked for and put forth changes to the Act to bring it into compliance with societal demands. It was believed that the country's economic reforms could only be addressed if the resolution of local and international business disputes fell under the reforms' ambit.

The Model Law on International Arbitration and Conciliation was adopted by the UN in 1985, and all nations were urged to accord it the respect it deserves. As a result, the aforementioned Act was put into effect. The various objective of the act are:
  • Provide a thorough overview of domestic and international commercial arbitration and conciliation.
  • Create a process for arbitration and conciliation that is equitable, effective, and able to satisfy the demands of the community.
  • Gives the tribunal's justification for every arbitral award it has made.
  • Make sure the tribunal doesn't overreach in using its authority.
  • Reduce the workload of the judiciary and the role of courts.
  • It gives the tribunal the option to resolve disputes through conciliation and arbitration.
  • It ensures that all awards are carried out in accordance with the court's ruling.
  • It stipulates that the parties' conciliation agreement has the same legal force and effect as an arbitral tribunal's ruling.
  • Additionally, it improves enforcement of foreign awards.

Plot Of The Arbitration And Conciliation Act Of 1996:

Sections of the Act:

  • Sections 2-43 of Part I: pertain to the arbitral venue in India. The given reward is regarded as though it were domestic.
  • Sections 44�60 of Part II: deal with the enforcement of foreign awards.
  • Sections 61�81 of Part III: Conciliation
  • Sections 82�86 of Part IV: Supplementary clauses

Schedules included in it:

  • Schedule I: Convention on the recognition of international arbitration awards.
  • Schedule II: The procedure for arbitration clauses is outlined.
  • Schedule III: The Convention on the enforcement of foreign arbitral awards.

The 1996 Arbitration And Conciliation Act's Goals

A number of significant terms included in the Act are defined in different ways in Section 2 of the Act. These are the following:
  1. Arbitration: Any arbitration that is either managed or not by a permanent arbitral institution is defined as arbitration under Section 2 (1)(a) of the Act.
  2. Arbitration agreement: The Act's Section 2(1)(b) mandates that Section 7 of the Act be referred to in relation to arbitration agreements.
  3. Arbitral award: This is mentioned in Section 2(1)(c) but is not explicitly defined. It also includes interim awards.
  4. Arbitral tribunal: It is a group of arbitrators who assist in arbitration, or it can be a single arbitrator. (Section 2(1)(d))
  5. Courts: Defined under Section 2(1)(e). It comprises district-level civil courts with original jurisdiction and the High Court with the authority to rule on matters pertaining to the arbitration's subject matter.
  6. International commercial arbitration: Define in Section 2(1)(f). It refers to arbitration in cases involving legal disputes, whether or not they are contractual in nature, and in which one of the parties is a foreign national, a foreign corporation, a foreign government, or a body corporate.

The Arbitration And Conciliation Act, 1996: A Legal Analysis

Arbitration (Part - I)
It is described in the Act's Section 2 (1)(a). It is a flexible and private alternative to courtroom litigation, and it has several benefits. It is defined by the Black Law Dictionary as a process of settling conflicts between two parties and an impartial third party, the decision of which is final and binding on both sides.
A case may be sent to arbitration by any court body, according to Section 8 of the Act. It needs to be followed by a contract for arbitration. In the case of P. Anand Gajapati Raju v. P.V.G. Raju, (2000), the Hon'ble Supreme Court established the following conditions that must be met in order for parties to be referred to arbitration:
  • There needs to be an arbitration agreement.
  • A party must file a lawsuit against other parties in court.
  • The same subject matter as in arbitration must be covered.
  • In court, one party requests arbitration.

In a different case, Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011), it was decided that although there is no deadline for filing an application, it must be submitted prior to the first statement pertaining to the dispute being submitted. Additionally, Section 9 stipulates that the parties to the arbitration may request temporary remedies from the court at any point.

Types of Arbitration:

  • Domestic arbitration: denotes that the arbitration will be conducted in accordance with Indian law and fall under Indian jurisdiction.
  • International and commercial arbitration: is used to settle legal disputes between individuals who are foreign nationals, corporations incorporated in another nation, organisations or companies governed by another nation, and foreign governments.
  • Institutional arbitration: This type of arbitration is managed by organisations such as the International Centre for Alternative Dispute Resolution (ICADR), the Indian Council of Arbitration, and others.
  • Statutory arbitration: A few laws mandate arbitration as a means of resolving conflicts. The provisions of Part I of the Arbitration Act must take precedence over any other Act in the event of any inconsistency.
  • Ad hoc arbitration: It is defined as an arbitration in which the parties agree without the arbitral tribunal's help.
  • Documentary arbitration: Another name of fast track arbitration. The arbitration process moves quickly and saves a lot of time. It is only predicated on the written response from one party to the claim statement made by the other.
  • Look-sniff arbitration: This combines the powers of an arbitral tribunal with the advice of a specialist. Under this, there aren't any official submissions or hearings.
  • Pendulum arbitration: It's another name is flip-flop arbitration. In this kind of arbitration, the parties first draft their cases before inviting the arbitrator to choose between the two choices.

Benefits of Arbitration:

  • The arbitrator is chosen by the parties at their discretion.
  • Only with the parties' consent will an arbitral tribunal be involved.
  • It saves time and is reasonably priced.
  • It guarantees a just trial.
  • Allows the parties to be free from judicial interference.
  • The arbitral location is selected by the parties independently (Section 20).
  • Confidentiality and privacy are upheld during the proceedings.
  • The arbitral award is upheld in the same manner as a court order.

Negative aspects of Arbitration:

  • It doesn't necessarily ensure a speedy conclusion.
  • The process is not always clear-cut.
  • It is unable to provide remedies that are granted by courts, such as fines, incarceration, injunctions, etc.
  • It is ineffectual because of its flexibility.
  • The approach is difficult to apply in conflicts where there are several parties involved.

Matters Not Submitted For Arbitration
Arbitration is typically used in civil rights matters where damages are the remedy; however, Section 2(3) of the Act lists certain instances that are not eligible for arbitration.

These are the following:
  • any company's winding up procedures;
  • Haryana Telecom Ltd. v. Sterlite Industries (1999);
  • disputes that, in accordance with any applicable laws, must be decided by a specific tribunal;
  • actions pertaining to insolvency;
  • Probate procedures;
  • question of sincerity and willpower;
  • guardianship issues;
  • debates about succession;
  • disagreements involving real estate;
  • instances of illicit transactions;
  • proceeding in accordance with the Code of Criminal Procedure, Section 145;
  • Arbitration cannot be used in a criminal prosecution;

Tribunals For Arbitral Disputes
Tribunal Composition
It involves drafting a contract that complies with the law. The Act's Section 10 gives the parties the freedom to choose how many arbitrators would hear their case. The sole limitation is that there cannot be an even number of these arbitrators. There will only be one arbitrator if the parties are unable to reach a decision. However, the agreement cannot be deemed void for this reason alone if the number of arbitrators is even. (Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002).

The Process For Designating Arbitrators:
Additionally, the Act's Section 11 outlines the process for arbitrator appointments. The following criteria are acceptable for any such appointment:
  1. Both parties must provide the other with appropriate notice of the appointment. The appointment is deemed invalid if it doesn't.
  2. An arbitrator must be adequately informed and have given his assent before being appointed.
  3. Obtaining the consent is necessary prior to confirming his appointment.

Additionally, it states that the Chief Justice or another person named by him will appoint an arbitrator in the event that the parties do not name a third arbitrator within 30 days of the request being made, or if two arbitrators are appointed without the third's appointment. However, this will only happen with the parties' prior request.

Arbitrator's termination
The Act's Sections 14 and 15 specify the grounds for termination. These are the following:
  • If, either de jure or de facto, he is unable to carry out his duties without excessive delay,
  • If he withdraws or is terminated by the parties,
  • It will be at his own discretion or with the consent of the parties.
  • In accordance with Section 15, a replacement arbitrator will be chosen upon his termination.

The Act's Section 16 states that the tribunal will act within its authority. A plea will be made in the event that the arbitral tribunal lacks jurisdiction, but not later than the submission of the statement of defence. It further stipulates that a party may apply to have the arbitral verdict set aside under Section 34 of the Act if it is dissatisfied with it. In the Centrotrade Minerals and Metals v. Hindustan Copper Ltd. (2006) case, the Supreme Court ruled that anyone involved in the proceedings or someone outside of it may raise any question pertaining to jurisdiction. However, if it is made by the party, it needs to be done early on in the process or during the proceedings.

Arbitral Awards

It is the arbitral tribunal's ultimate decision about a claim, a portion of a claim, or a counterclaim. It must be in writing and properly signed by the arbitral tribunal's members, as specified by Section 31 of the Act. Additionally, the Section grants the tribunal the authority to issue interim rulings on any subject. In the event that money is paid, it may provide interest based on what the tribunal deems to be reasonable, just, and equitable.

The arbitral tribunal may end the proceedings by issuing a final arbitral award under Section 32 of the Act. Section 33 of the Act specifies the process for making any corrections to the award or interpreting it. Additionally, it grants the tribunal or arbitrator the authority to change, fix, or eliminate any faults of any type within 30 days, but it makes no mention of judicial review. Beyond what has been specified in this section, the tribunals are not authorised to exercise their jurisdiction.

Categories Of Awards Made By Arbitrators:
  1. Interim award: The resolution of any matter resulting from the primary dispute. It is a provisional agreement made to appease a party and is contingent upon the ultimate decision.
  2. Extra award: In line with Section 33 of the Act, parties may, following notice to other parties, ask the arbitral tribunal to issue an additional award to cover any unresolved claims in the event that they discover that certain claims that they brought to the proceedings were overlooked.
  3. Settlement awards: These are given out when the parties reach a consensus on specific settlement conditions. In accordance with Section 30 of the Act, the arbitral tribunal is empowered to employ any form of conflict resolution, including negotiation, conciliation, and mediation, in order to help the parties reach a settlement.
  4. Final award: This is the decision that settles all of the points of contention in a dispute. Unless reversed by a court, it is final and enforceable against the parties.

How to appeal arbitral awards
If a party is dissatisfied, they may apply under Section 34 of the Act to have the arbitral tribunal's award set aside. Three months from the date of the arbitral award is the maximum amount of time that can pass before making such an application. The reasons include
  1. Parties' incapacity.
  2. Absence of the arbitration agreement.
  3. Did not adhere to the proper protocol.
  4. The arbitral panel made a mistake in using its authority.
  5. Incorrect arrangement of the arbitral panel.
  6. It is not possible to refer the subject matter to arbitration.
  7. It is not in accordance with public policy.
  8. Corruption or fraud.
A person may file an appeal with the court under Section 37 of the Act if they are dissatisfied with the tribunal's decision. After an appeal has been filed, there are no provisions for a second appeal. The decision in Pandey and Co. Builders Pvt. Ltd. v. State of Bihar (2007) established that the definition of court provided in Section 2 of the Act must be used to determine the appellate authority in any dispute that is sent to arbitration.

International Awards (Part II)
Foreign awards are granted in cases involving legal relationships that may or may not be contractual in nature, and they are governed by national business laws. Put simply, it refers to the judgements rendered in international business arbitration. Under the Act, foreign awards made in other nations are enforceable in India. There are two chapters in it:
  1. The 1958 New York Convention
  2. The 1927 Geneva Convention

Section 44 of the Act governs the international award linked to the New York Convention, while Section 53 of the Act governs the award relating to the Geneva Convention. Sections 48 and 57 of the Act provide the requirements for enforcing these awards within the nation, respectively.

Conciliation (Part III)
It is a procedure where a third person assists the disputing parties in coming to a mutually agreeable resolution. A conciliationist is the one who has the authority to do this. To assist the parties in reaching a settlement, he might accomplish this by offering his assessment of the matter. To put it another way, the settlement represents a compromise between the parties.

Qualities of the Conciliation:

  • A conciliator is a person who helps the parties reach a compromise.
  • Conciliators offer their assessment on the disagreement.
  • Conciliation is a voluntary process.
  • The process is non-binding.
  • Conciliation differs from arbitration primarily in that the parties involved in the process have complete influence over the course of action and its result.
  • The final settlement between the parties, based on their wishes, terms, and circumstances, is the desired conclusion in this consensual party situation.
  • If the parties are unable to reach a solution through the conciliation procedure, a conciliator may be asked to become an arbitrator at their request. We refer to this as hybrid conciliation.
  • The arbitration ruling and the settlement agreement will be of equal weight and standing. (Section - 74)

Act-Required Conciliation Procedures:

  • According to Section 62 of the Act, one party to the disagreement must send the other a written invitation to begin the conciliation process. However, if the person to whom the notice or invitation is delivered rejects it or does not respond, there will be no further action taken.
  • As per Section 63 of the Act, if there are many conciliators, they must collaborate with one another in addition to the basic requirement that there be only one conciliator.
  • According to Section 64 of the Act, the parties themselves will appoint the conciliator, who will function similarly to an arbitrator.
  • A party shall provide the conciliator with written notice of the nature of the dispute and any pertinent facts as required by Section 65 of the Act.
  • Any of the processes outlined in Section 78 of the Act may be used to end the proceeding.

The conciliator's role:

  • It is stated in the Act's Section 67:
  • He needs to be impartial and self-reliant.
  • He has to help the parties reach a resolution.
  • The process outlined in the 1908 Code of Civil Procedure does not apply to him.
  • He needs to follow the rules of justice and fairness.

Supplementary Provisions (Part IV):

  1. The High Court may establish regulations pertaining to any Act provision by virtue of Section 82.
  2. According to Sections 83 and 84 of the Act, the Central Government is able to eliminate any obstacles and establish regulations.
  3. Three Acts that addressed arbitration in India have now been superseded by the 1996 Act. These were the following:
    1. Act of 1940 on Indian Arbitration
    2. Act of 1937 on Arbitration (Protocol and Convention)
    3. Act of 1961 on Foreign Awards (Recognition and Enforcement)

Frequently Requested Inquiries
Describe arbitration.
It is defined by the Black Law Dictionary as a process of settling conflicts between two parties and an impartial third party, the decision of which is final and binding on both sides.

What were the nation's earlier arbitration-related laws?
Three statutes addressed arbitration in India:
  • Act of 1940 on Indian Arbitration
  • Act of 1937 on Arbitration (Protocol and Convention)
  • Act of 1961 on Foreign Awards (Recognition and Enforcement)

The Arbitration and Conciliation Act of 1996, however, eliminated several Acts and combined them into one.

Which Statute Serves As The Foundation For The 1996 Act?
Its foundation is the 1985 UNCITRAL Model Law on International Commercial Arbitration.

What Distinguishes Mediation From Conciliation?
In contrast to conciliation, the mediator in mediation does not offer his assessment of the case. He is not granted the authority to force a solution; instead, this ability belongs to a conciliator. His sole responsibility is to break the impasse and motivate the parties to come to a just conclusion.

The Act addresses efficient, affordable, and time-efficient alternative dispute settlement techniques. People these days typically choose to resolve disputes outside of court with the use of alternative dispute resolution (ADR) processes like arbitration, conciliation, mediation, etc. because of the backlog of cases, the strict procedural requirements of the courts, and the desire to avoid litigation. The Act outlines the process to be followed in arbitration proceedings, the composition of the arbitral tribunal, the tribunal's conduct, and the arbitral awards that will be rendered in a dispute. In an arbitration agreement, the ruling is presented as an arbitral award that is legally binding on the parties. It also specifies how disputes should be resolved by going through the court appeals process.

  • Law of Arbitration & Conciliation and ADR System written by Avtar Singh published by Eastern Book Company, Lucknow (U.P).
  • Ashwinie Kumar Bansal & Rahul Kaushik "Arbitration & ADR", Universal Law Series.

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