Domestic Arbitration

The Arbitration and Conciliation Act 1996, has been passed to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral award and also to define law relating to conciliation and for matters connected therewith or incidental thereto. The conciliation has been introduced for the first time in India for settlement of commercial disputes.

The 1996 Act is very different from the Arbitration Act, 1940. The provisions of this Act have therefore; to be interpreted and construed independently and in fact reference to 1940 Act may actually lead to misconstruction. In other words, the provisions of 1996 Act have to be interpreted being, uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions, it is more relevant to refer to Article 6 of the UNICTRAL Model Law rather than the 1940 Act.


Arbitration

Arbitration is the reference of a dispute or difference between not less than two parties for determination after hearing both sides in a judicial manner, by a person or persons, other than a Court of competent jurisdiction.

Arbitrator

Thepersons to whom a reference is made are called arbitrators. An arbitrator is thus a person to whom, the matters in dispute are submitted by the parties, a judge of the parties own choice, whose functions are judicial and whose duties are of an impartial judge to dispense equal justice to all parties and to decide the law and facts involved in the matters submitted with a view to decide and finally end the controversy.

Arbitration agreement

Arbitration agreement means an agreement by the parties to submit to arbitrators all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. An arbitration agreement shall be in writing. An arbitration agreement is in writing if it is contained in:

  • A document signed by the parties;
  • An exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
  • An exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and denied by the other.

The reference in a contract to a document containing an, arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Dispute

The existence of a dispute is a condition precedent to arbitration and if there is no dispute, there cannot be any arbitration. If the agreement provides for reference of any dispute to arbitration, it is an arbitration clause and the dispute can be referred to arbitration, when the disputes and differences have actually arisen.

Appointment of arbitrators

The parties are free to determine the number of arbitrators, provided that such numbers shall not be an even number. If the parties do not determine the number of arbitrators, the arbitral tribunal shall consist of sole arbitrator.

Reference of dispute to arbitration by judicial authority

A judicial authority before which an action is brought in a matter that is the subject of an arbitration agreement shall, if a party so applies not later than, when submitting his first statement on the substance of the dispute, refer the parties to arbitration. The application for arbitration shall not be entertained unless the original arbitration agreement or a duly certified copy thereof accompanies it.

Notwithstanding that an application has been made and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award be made.

Power of court to grant interim measures, etc

A party may, before or during arbitral proceedings or at any time after the making of an arbitral award, but before it is enforced apply to a court:

  • For the appointment of a guardian for a minor or a person of unsound mind for the purpose of arbitral proceedings; or
  • For the interim measure of protection in respect of any of the following matters, namely:
    • The preservation, interim custody or sale of any goods that are the subject matter of the arbitration agreement;
    • Securing the amount in dispute in the arbitration;
    • The detention, preservation or, inspection of any property or thing which is the subject matter of the dispute in arbitration or as to which any question may arise therein and authority for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of observing full information or evidence;
    • Interim injunction or the appointment of a receiver;


Such other interim measure of protection as may appear to the court to be just and convenient, and the court shall have the same power for making orders as a case for the purpose of, and in relation to, any proceedings before it.

Appointment of arbitrators

A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. Subject to the provisions, the parties may agree on a procedure for appointing the arbitrator or arbitrators.

Law applicable to commercial contract between parties of different countries

The law of arbitration is the same, as the proper law of contract is a commercial contract between parties of different countries. The parties have the freedom to choose the law, governing an international commercial arbitration agreement. They may choose the substantive law governing the arbitration agreement as well as the procedural law governing the conduct of the arbitration. Such choice is exercised either expressly or by implication. Where there is no express choice of the law governing the contract as a whole, or the arbitration agreement as such, a presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement. But that is only a rebut table presumption. However, the mere selection of a particular place for submission to the jurisdiction of the courts or for the conduct of arbitration will not in the absence of any other relevant connecting factor with that place be sufficient to draw an inference as to the intention of the parties to be governed by the system of law prevalent in that place. This is specially so in the case of arbitration, for the selection of the place of arbitration may have little significance where it is chosen, as is often the case, without regard to any relevant or significant link with the place. This is particularly true when the place of arbitration is not chosen by the parties themselves, but by the arbitrators or by an outside body and that too for reasons unconnected with the contract.

Challenge of arbitrator

An arbitrator before his appointment and during the arbitral proceedings shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. The appointment of an arbitrator can be challenged only if:

  • circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or
  • he does not possess the qualifications agreed to by the parties.

Procedure to challenge the appointment of arbitrator

The parties may agree on a procedure for challenging an arbitrator. If the parties do not agree on a procedure for challenging an arbitrator or arbitrators, the rules and the procedure contemplated under the Arbitration & Conciliation Act 1996 applies.

Termination of mandate of an arbitrator

The mandate of an arbitrator shall terminate if:

  • he becomes de-jure or de-facto unable to perform his functions or for other reasons fails to act, without undue delay;
  • he withdraws from his office or the parties agree to the termination of his mandate;
  • he withdraws from office for any reason; or
  • by or pursuant to: agreement of the parties.

If a controversy remains concerning any of the grounds referred to in clause (a) above, a party may unless otherwise agreed by the parties, apply to the court to decide on the termination of the mandate.

Substitution of an arbitrator in case of termination of arbitrator

Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. Unless otherwise agreed by the parties, where an arbitrator is replaced any hearings previously held may be repeated at the discretion of the arbitral tribunal. Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.


Jurisdiction of arbitral tribunals

The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement. Any party to the arbitration may raise the plea that the arbitral tribunal does not have jurisdiction, not later than the submission of the statement of defence. However, a party may raise such a plea, even if he has appointed an arbitrator or participated in the appointment of an arbitrator.

Taking of interim measures by arbitral tribunal

Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measures of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. The arbitral tribunal may require a party to provide appropriate security in connection with such measure ordered.

Conduct of arbitral proceedings

Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which the respondent receives a request for that dispute to be referred to arbitration. The parties shall be treated with equality and each party shall be given a full opportunity to present his case.

Place of arbitration

The parties may agree on the place of arbitration. If the parties do not agree on the place of arbitration, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

Language to be used in arbitral proceedings

The parties may agree upon the language or languages to be used in the arbitral proceedings. If the parties fail to agree upon the language or languages, the arbitral tribunal shall determine the language or languages to be used in the arbitral proceedings.

Making of arbitral award by arbitrators

An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. unless otherwise agreed by the parties in arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made by a majority of all its members. The signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

Finality of an arbitral award

The arbitral award is final and binding on the parties, unless it is set aside by the court. There is no necessity of filing the award before a court and passing of decree by it.

Enforcement of an arbitral award

Where the time for making an application to set aside the arbitral award has expired or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure in the same manner as if it were a decree of the court.

Setting aside of arbitral award by court

An arbitral award made by an arbitral tribunal may be set aside by the court on an application made by a party on the reasonable and accepted ground enumerated in the Act.

The application for setting aside of an arbitral award may be made within three months from the date on which the award has been received by the party or if a request had been made for correction or interpretation of the award, from the date on which that request had been disposed off by the arbitral tribunal.

The application for setting aside of an arbitral award may be made within three months from the date on which the award has been received by the party or if a request had been made for correction or interpretation of the award, from the date on which that request had been disposed off by the arbitral tribunal.


Appeal to the court

An appeal shall be made to the court authorized by law to hear appeals from original decrees of the court from the following orders:

  • An order granting or refusing interim measures by court under section 9; or
  • An order setting aside or refusing to set aside an arbitral award under section 34; or
  • An order accepting the plea that the arbitral tribunal does not have jurisdiction or exceeding the scope of its authority; or
  • An order granting or refusing to grant an interim measure under section 17.

No appeal shall lie to the higher court against the order passed in appeal. However, appeal shall lie to the Supreme Court of India under Article 133 of the Constitution of India, if appeal is allowed under the provisions of that article.

Enforcement of foreign award

Foreign award

Foreign award means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India made on or after the 11th day of October, 1960:

  • in pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule applies; and
  • in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said convention applies.

Reference of dispute to arbitration by judicial authority

A judicial authority, when seized of an action in a matter with respect to which the parties have made an agreement, shall be at the request of one of the parties or any person claiming through or under him refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

When foreign award is binding

Any foreign award which would be enforceable shall be treated as binding for all purposes on the person as between whom it was made, and may accordingly be relied on by any of those persons by way of defense, set-off or otherwise in any legal proceedings in India and any references to enforcing a foreign award shall be construed as including references to relying on an award.

The award will not be enforced by a court in India if it is satisfied that the subject-matter of the award is not capable of settlement by arbitration under Indian law or the enforcement of the award is contrary to the public policy.

Condition for enforcement of foreign awards

The enforcement of a foreign award may be refused at the request of the party against whom it is invoked, only if that party furnishes to, the court proof that:

  • The parties to the agreement were under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or failing any indication thereon, under the law of the country where the award was made; or
  • The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
  • The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the, submissions to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration, may be enforced; or
  • The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
  • The award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which that award was made;
  • The subject-matter of difference is not capable of settlement by arbitration under the laws of India; or
  • The enforcement of the award would be contrary to the public policy of India. If an application for setting aside or suspension of the award has been made to a competent authority, the court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

Enforcement of foreign awards

Where the court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of the court.

Power of judicial authority to refer parties to arbitration

A judicial authority, on being seized, of a dispute regarding a contract made between persons to whom the provisions of preceding section applies and including an arbitration agreement, whether referring to present or further differences, which is valid under that section and capable of being carried into effect, shall refer the parties on the application of either of them, or any person claiming through or under him to the decision of the arbitrator and such reference shall not prejudice the competence of the judicial authority in case the agreement or the arbitration cannot proceed or becomes inoperative.

Foreign awards when binding

Any foreign award, which would be enforceable, shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defense, set-off or otherwise in any legal proceedings in India and any references to enforce a foreign award shall be, construed as including references to relying on an award.

Conciliation

The Arbitration and Conciliation Act, 1996 has for the first time provided legal provisions relating to conciliation of commercial disputes. The part relating to conciliation applies to disputes arising out of legal relationship, whether contractual or not and to all proceedings relating thereto.

Number of conciliators

Unless the parties agree that there shall be two or three conciliators, there shall be one conciliator. Where there is more than one conciliator, they ought, as a general rule, to act jointly.

Appointment of conciliators

In conciliation proceedings with one conciliator, the parties may agree on the name of a sole conciliator. In conciliation proceedings with two conciliators, each party may appoint one conciliator. In conciliation proceedings with three conciliators, each party may appoint one conciliator and the party may agree on the name of the third conciliator, who shall act as the presiding conciliator.

Termination of conciliation proceedings

The conciliation proceedings shall be terminated:

  • by the signing of the settlement agreement by the parties, on the date of agreement; or
  • by a written declaration of the, conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified, on the date of the declaration; or
  • by a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated, on the date of the declaration; or
  • by the written declaration of "a party to, the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date of the declaration.

Non-initiation of judicial or arbitral proceedings during conciliation proceedings


During the conciliation proceedings, the parties shall not initiate any arbitral or judicial proceedings in respect of a dispute that is the subject matter of the conciliation proceedings except that a party may initiate arbitral or judicial proceedings, where, in his opinion, such proceedings are necessary for preserving his rights.

Non-admissibility of evidence in other proceedings

The parties to conciliation proceedings shall not rely on or introduce any evidence in arbitral or judicial proceedings, whether, or not such proceedings relate to the dispute that is the subject of the conciliation proceedings:

  • Views expressed or suggestions made by the other party in respect of a possible settlement of the dispute;
  • Admissions made by the other party in the course of the conciliation proceedings;
  • Proposals made by the conciliator;
  • The fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator.

High Court Rules Section 82 of Arbitration and Conciliation Act, 1996 may make rules consistent with this Act as to all proceedings before the court under this Act.

Stamp duty

The stamp duty is payable on an agreement to refer dispute to arbitration under Article 5(c) of Schedule I to the Indian Stamp Act, 1899. The rates in different states on such agreements are different. The stamp duty is payable on an award in writing by an arbitrator or umpire under Article 12 of Schedule I to the Indian Stamp Act, 1899. The rates on the award are also different in different states. However, the awards given in references made by a court in a pending suit or directing a partition are exempt from the payment of any stamp duty.

Registration

The arbitration agreement to refer a dispute to arbitration is not required to be registered. The awards, which deal with immovable property of the value of Rs. 100 or above, are required to be registered, unless they are delivered in reference made by a court. The awards not creating or declaring any interest in any immovable property of the value of Rs. 100 or above do not require registration. The, award is presented for registration by the arbitrators or the umpire, and it should be presented for registration within four months of the date of its execution. If the award deals with movable as well as immovable property and is compulsorily to be registered and it is not registered, then effect can be given to the part of award, which deals with movables, if that part can be separated with reasonable clearness from the bad part. But if it cannot be separated, the award cannot be enforced and has to be rejected as a whole.

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