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Till 24th Jan 1996, the law of Arbitration was contained in the Arbitration Act 1940. The
Arbitration (Protocol and Convention) Act and the Foreign Awards (Recognition and
enforcement) Act 1961. Recently, the law of Arbitration has been consolidated and amended
on the lines of UNCITRAL Model Law of International Commercial Arbitration and UNCITRAL
Conciliation Rules, under the new Arbitration & Conciliation Act 1996, which came into force
w.e.f. 25th Jan 1996. Act has repealed the aforesaid three enactments though the pending
arbitral proceedings would continue to be governed by the repealed enactments, unless
otherwise agreed by the parties. The Act apart from providing the domestic as well as
international commercial arbitration provides for greater autonomy in the arbitral process
while at the same time limits the role of judiciary. The law on arbitration places the country’s
dispute resolving mechanism at par with internal community to do more business with India.
The Act has eliminated court intervention in arbitration proceedings and the final award, by
narrowing the scope for challenging arbitration proceedings and the final award, by
narrowing the scope for challenging arbitration and by obviating the requirement for
ratification of arbitral awards.

The new law arbitration applies to the whole of India. To the State of Jammu and Kashmir,
while the provisions relating to enforcement of foreign awards apply in full other provisions
apply insofar as they relate to international commercial arbitration.
Arbitration – Meaning
Arbitration is a mode of settling disputes, by referring them to a nominated person who
decides the issue in a quasi-judicial manner after hearing both sides. For instance, reference
of a dispute of ‘Panch” or ‘Panchayat’ is a prevalent form of Arbitration. Thus, Arbitration is
the means by which parties to a dispute get the same settled through the intervention of a
third person, but without having recourse to a court of law.

Arbitration Agreement / Clause

When the parties to a present dispute make an agreement that instead of going to the court,
they shall refer the dispute to Arbitration, the agreement is called “Arbitration Agreement”.
The parties may also agree in anticipation of all ‘Arbitration clause’ in a contract. For
instance in a contract of partnership, or sale of goods, or insurance, or carriage of goods,
etc., the parties may agree to and include an Arbitration Clause.

Specimen of Arbitration Clause

“Any dispute arising out of this agreement, or as to interpretation operation or enforcement
of the terms of this…Agreement, between the parties or their legal representatives,
assignees, nominees or heirs, as the caser may be, shall be referred for adjudication to the
arbitrators to be appointed by each party to the dispute, and the proceedings of such
appointed by each party to the dispute, and the proceedings of such Arbitration shall be
governed by the provisions of the Arbitration and Conciliation Act, 1996, or any statutory
modification or re-enactment thereof for the time being in force, and the award or awards of
such Arbitration or the umpire, as the case may be, shall be binding on the parties to the
said dispute”.

Effects of Arbitration Clause: Where an Arbitration clause is included in a contract, and the
contract is avoided due to misrepresentation or fraud, the Arbitration clause may still
continue to be binding.

Where, however, there was no contract at all between the parties or contract was void ab
initio, the Arbitration clause cannot be enforced.

Form of Agreement: An Arbitration agreement/clause must be in writing. Although no formal

document is prescribed, however, it must be clear from the document that the parties had
agreed to the settlement of dispute through arbitration.

Where the Arbitration agreement or clause is contained in a document, the document must
be signed by the parties. Besides, the Arbitration agreement may be established by –
a) An exchange of letters, telex, telegram or other means of telecommunication; or
b) An exchange of statement of claim and defenses in which the agreement is alleged
by one party and is not by the other.

Advantages of Arbitration
Arbitration has the following advantages over a lawsuit
1. Arbitration is less costly than a suit in a court of law.
2. It is very simple and more expeditious, and serves the parties form waste of time and
the irritation caused thereby.
3. Its proceedings are conducted in closed doors and thus the dispute is not publicized.
4. The award is generally final since appeal is permitted only in certain cases.

No suit lied in case of Arbitration Agreement.

When the parties have entered into an Arbitration agreement, they cannot file a suit in court
of law in respect of any matter covered by the agreement, otherwise the very purpose of
Arbitration will be frustrated. The court will not intervene except under specified cases.
However, if any party disregards the agreement and files a suit, the other party may apply
to the court for referring the dispute to Arbitration. The application should be made not later
than the submission of the first statement on the substance of the dispute and should be
accompanied by the original Arbitration agreement or duly certified copy thereof. The court
shall then refer the matter to Arbitration. An arbitration may be commenced or continued
and an award made even when the application as aforesaid is pending, provided there is a
pre-existing Arbitration agreement. If there is no pre-existing Arbitration agreement when a
suit is filed no reference to Arbitration can be made even if. After the filing of the suit, the
parties agree to a reference being made to Arbitration.

Why may refer to Arbitration?

An arbitration agreement is a contract and thus, any party to such an agreement must have
the capacity to contract. Primarily, any person competent to contract may enter into an
arbitration agreement with the other party to the dispute and may refer the dispute to
Arbitration. Besides, the Karta or Manager of and on behalf of a Joint Hindu family, an agent
duly authorized by his principal, an attorney or consult having the requisite authority from
his client, a partner with specific authority from all other partners, a trustee of a trust, an
Official Assignee or receiver, and a guardian or minor or lunatic, may also refer a dispute to

What Dispute may be referred?

As per Section 7, parties to an Arbitration agreement may refer to Arbitration, a dispute –
1. Which is arisen or which may arise between them
2. In respect of defined legal relationship, whether contracted or not.

Thus, all matters of civil nature whether they relate to present or future disputes may form
the subject matters of civil nature whether they relate to present or future disputes may
legal relationship. The legal relationship arises out of an obligation, the preference of which
is duty under the law and for its breach a remedy is provided. The legal relationship,
however, need not necessarily be contractual. Thus disputes such as infringement of
intellectual property rights shall also be covered.

What Disputes cannot be referred?

The following disputes cannot be referred to Arbitration:
1. Insolvency proceedings
2. Lunacy proceedings
3. Proceedings for appointment of a guardian to a minor
4. Question of genuineness or otherwise of a will or matter relating to issue of probate
5. Matters of criminal nature
6. Matters concerning Public Charitable Trusts
7. Disputes arising from and founded on an illegal contract.

Waiver of Right to Object to Arbitration

If a party has not complied with a provision of the Act or with some requirement of the
Arbitration agreement, and the other party who has knowledge of such non-compliance,
does not object at the earliest, he will be deemed to have waived the objection and cannot
raise it at a later stage. In other words, once a party has participated in Arbitration
proceedings, despite some illegality, which would otherwise render the proceedings invalid,
the proceedings cannot be challenged later on the ground of such illegality.

Appointment of an Arbitrator
An Arbitrator is the person appointed, with or with out mutual consent of the contending
parties for the purpose of investigation and settlement of a difference of dispute
referred to him. The arbitral tribunal may be constituted by one or more arbitrators.
Who may be appointed?
The arbitrator is an extra judicial court or the parties’ own choice. There are no hard a fast
rules as to the qualifications of an arbitrator. Thus, the parties may appoint as arbitrator,
whomsoever they please, however incompetent or unfit, to arbitrate on their dispute.
However, it is in the interest of all the parties that the arbitrator is person of integrity and
intelligence, known for his impartial behavior, rational judgment and competence.

Number of Arbitrators
The reference may be made either to a single arbitrator or a panel of odd number (i.e. 3,5,7
etc) of arbitrators. The parties are free to fix the number of arbitrators by agreement. If
there is no agreement, the reference shall be made a sole arbitrator.

Nationality of Arbitrators
Unless otherwise agreed by the parties, arbitrator may be of any nationality. In case of an
international commercial arbitration, where the parties belong to different nationalities, the
Chief Justice of India may appoint an arbitrator of a nationality other than that of the parties.

A person is disqualified from being appointed as an arbitrator if he has a personal interest in
the matter to be referred for arbitration. It is the duty or the person being appointed as an
Arbitrator, to disclose in writing any circumstances likely to give rise to justifiable doubts as
to his independence or impartiality, so that each party may have opportunity of considering
whether the reference to that particular individual should or should not be made. Any
fraudulent concealment of interest shall invalidate the arbitral award.

Appointment by Agreement
The parties are free to agree on a procedure for appointing the arbitrator or arbitrators. If
there is an agreement, the appointment has to be made in accordance with it. The
agreement may provide for number of arbitrators, qualifications or arbitrator, procedure of
appointment, procedure of challenging the appointment, termination of appointment,
procedure to be followed by arbitrator(s), interim measures that may be ordered by the
arbitrator, place of arbitration, language etc.

Appointment of sole arbitrator by agreement shall obviously be made by mutual consent of

the parties. The name of the arbitrator shall be proposed by one of the parties, which should
be accepted by the other party within 30 days of receipt, which the appointment shall be
made by the Chief Justice.

In arbitration with three arbitrators, unless otherwise agreed, each party shall appoint one
arbitrator, and the two appointed arbitrators shall appoint the third arbitrator, who shall act
as the presiding arbitrator.

Appointment by the Chief Justice

The appointment of arbitrator(s), shall be made by the Chief Justice of the High Court having
jurisdiction, in the following cases:
1. When the parties fail to agree on the sole arbitrator, within 30 days
2. When a party fails to appoint an arbitrator within 30 days
3. When the two appointed arbitrators fail to agree on the third arbitrator within 30 days
of their appointment
4. When a part fails to act as required under the agreed procedure for appointment
5. When the parties, or the two appointed arbitrators, fail to reach an agreement
expected of them under the agreed procedure; or
6. When a person, including an institution, fails to perform any function entrusted to
him or it under the agreed procedure.

The appointment shall be made on a request being made by the party and the decision of
the chief Justice shall be final. In case of an international commercial arbitration, the
appointment of an arbitrator in the aforesaid circumstances shall be made by the Chief
Justice of India.

Challenging Appointment of an Arbitrator: The appointment of an arbitrator may be

challenged by a party, if –
a) Circumstances exist that give rise to justifiable doubts as to his independence or
impartially, or
b) He does not possess the qualifications agreed to by the parties.

The appointment can be challenged only those reasons, which the party became aware after
the appointment of the arbitrator. The appointment cannot be challenged on reasons, which
were known to the party at or before the time of appointment.

The parties are free to agree on a procedure to be followed for challenging the appointment
of an arbitrator. If there is no such agreed procedure the party intending to challenge the
appointment of arbitrator shall send a written statement of the reasons for the challenge to
the arbitral tribunal, within 15 days after becoming aware of the constitution of the arbitral
tribunal or of the reasons on which the challenge is based. The appointment of the
challenged arbitrator shall stand terminated if he himself withdraws form the office or the
challenge is accepted by the other party. Otherwise, the arbitral tribunal shall decide on the

Termination of Appointment: The appointment of an arbitrator shall terminate in

following cases:
1. When the arbitrator becomes in law or in fact unable to perform his functions.
2. When the arbitrator for any reason fails to act without undue delay.
3. When the arbitrator withdraws form his office; or
4. When the parties agree to the termination.

Appointment of New Arbitrator:

Where the appointment of an arbitrator is terminated, a new arbitrator shall be substituted
in his place. The procedure for appointment of a substitute arbitrator shall be the same as
applicable to the appointment of the previous arbitrator.

Power of Arbitral Tribunal to Order Interim Measures:

The arbitral may at the request of a party, order a party to take such interim measure of
protection as may be considered necessary in respect of the subject matter of the dispute.
The arbitral tribunal may require a party to furnish adequate security in connection with a
measure being ordered. The parties may, however agree that such power shall not be
exercised by the arbitral tribunal.

Interim Orders by court:

A party may, before or during arbitral proceedings or at any time after the making of the
arbitral award but before its enforcement, apply to the court for any of the following matters

1. Appointment of a guardian for a minor or a person of unsound mind for the purposes
of arbitral proceedings.
2. Preservations, interim custody or sale of any goods, which are the subject matter of
the arbitration agreement.
3. Securing the amount in dispute in the arbitration
4. Detention, preservation or inspection of any property of thing which is the subject
matter of the dispute, or to authorize 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 obtaining full information or evidence.
5. Interim injunction or the appointment of a receiver; or
6. Such other interim measure of protection as may appear to the court to be just and
In a recent judgment, the Supreme Court has held that a court has jurisdiction under Section
9 or the Act to pass interim orders even before arbitral proceedings commence and before
an arbitrator is appointed.

Duties of Arbitral Tribunal:

The parties may agree pm the proceedings. In the absence of such agreement, the arbitral
tribunal may conduct the proceedings in the manner it considers appropriate and shall be
empowered to determine the admissibility, relevance, materially and weight of any
evidence. The tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian
Evidence Act, 1872.

The place of arbitration and the language to be used shall be as agreed between the parties
or as determined by the arbitral tribunal.
Statements of Claim and Defense:
The claimant shall submit the statement of claim stating
i) The facts supporting his claim,
ii) The points at issue and
iii) The relief or remedy sought.
The respondent shall submit the statement of defense stating his defense in respect of
these particulars.

The statement claim and defense shall be filed by the respective parties within the time
agreed upon by the parties or as specified by the arbitral tribunal. The statement shall be
supported by relevant documents or may include reference to such document / evidence.

If the statement of claim is not furnished, the arbitral tribunal shall terminate the
proceedings. If, however, the statement of defense is not furnished, the proceedings shall be
continued and decided on merits.

Arbitral Proceedings:
The parties are free to agree as to how the proceedings of the arbitral tribunal shall be
conducted. In the absence of any such agreement, the arbitral tribunal shall decide whether
to hold oral hearing for presentation of evidence or for oral argument, or whether to conduct
the proceedings on the basis of documents and other materials.

Unless oral hearing has been specifically excluded by agreement, the arbitral tribunal shall
hold oral hearings at an appropriate stage, on the request of a party.

The parties shall be given sufficient advance notice of any hearing or meeting of the arbitral
tribunal. All statements, documents or other information furnished by a party or any expert
report or evidentiary document relied upon by the arbitral tribunal shall be communicated to
the parties.

If a party fails to appear on oral hearing or to produce documentary evidence, the

proceedings shall be continued and decided on merits.

Appointment of Expert:
The arbitral tribunal may appoint one or more experts, unless there is a contrary agreement
between the parties. The expert may be required to report on specific issues. The tribunal
may direct a party to furnish any relevant information, documents, etc., to the expert.

Assistance of Court:
The arbitral tribunal or a party with the approval of the tribunal, my apply to the court for
assistance in taking evidence.

Rule of Majority:
Unless otherwise agreed by the parties, in case of three or more arbitrators, the decision of
the arbitral tribunal shall be made by a majority. However, if authorized by the parties or all
the arbitrators, a question of procedure may be decided by the presiding arbitrator.

Arbitral Award:
An arbitral award shall be made in writing and shall be signed by the members of the
arbitral tribunal. The award shall state its date and place of arbitration. The arbitral award
shall state the reasons upon which it is based, unless the parties have agreed that no
reasons are to be given or in case of award on a settlement between the parties. A signed
copy of the award shall be delivered to each party.

The arbitral tribunal may make an interim arbitral award on any matter with respect to
which a final award shall be made later.

Where the award is for payment of money the tribunal may order for payment of interest, at
a reasonable rate for the specified period, unless there is an agreement to the contrary. If
the award does not make any direction on interest, the sum directed to be paid under the
award shall carry interest @ 18% p.a from the date of the award to the date of payment.

The arbitral tribunal may make order as to costs as well.

The arbitral award shall be final and binding on the parties and persons claiming under them

Correction or Interpretation of Award:

The arbitral tribunal may correct any computation, clerical or typographical error in the
award, or give an interpretation on a specific point or part of the award, on request by a
party within 30 days from the receipt of the award.

Additional Arbitral Award:

If any claim presented in the arbitral proceedings is omitted from the award, the tribunal
shall make an additional arbitral award, on request by a party.

Termination of Proceedings:
The arbitral proceedings shall be terminated when
1. The final arbitral award is made
2. The claimant withdraws his claim, and the respondent does not object to it.
3. The parties agree on the termination,
4. The continuation or proceedings has for any other reason become unnecessary or
The arbitral tribunal shall also terminate with the termination of proceedings.

Enforcement of Award:
An arbitral award is itself enforceable as a decree of the court, normally after three months
form the date on which it was received by the parties, provided no application for setting
aside the award is made or if it is made the same has been rejected.
Setting aside an Award:
An application for setting aside an arbitral award may be made before the court, by a party
within three months of receipt of the award by him. The court may set aside an award on
the following grounds:
1. A party was under some incapacity;
2. The arbitration agreement is not valid under the law;
3. The party making the application was not given proper notice of the appointment of
an arbitrator or of the arbitral proceedings or was otherwise unable to present his
4. The award deals with a dispute not contemplated by or beyond the scope of the
submission to arbitration.
5. The composition of the arbitral tribunal or the arbitral proceedings was not in
accordance with the agreement or with the law;
6. The subject – matter of the dispute is not capable of settlement by arbitration under
the law; or
7. The arbitral award is in conflict with the public policy of India.

An appeal shall lie before the court, against the following orders –
1. Granting or refusing to grant any measure under Section 9
2. Setting aside or refusing to set aside an arbitral award under Section 34, and
3. Granting or refusing to grant an interim measure of protection under Section 17.

No second appeal shall lie against the appellate order of the court, except, however, that an
appeal may be made to the Supreme Court.


Part II dealing with enforcement of foreign awards consists of two chapters. Chapter I relate
to New York Convention Awards and Chapter II deal with Geneva Convention Awards.
‘Foreign Award’ has been defined to mean an award on difference between persons arising
out of legal relationships, whether contractual or not and considered as commercial under
the law in force in India, and made in pursuance of an agreement in writing for arbitration to
be governed either by the New York Convention or by the Geneva Convention, in the
territory of notified foreign state.

Where a commercial dispute covered by an arbitration agreement to which either of the

convention applies, arises before a judicial authority in India, it shall at the request of a party
be referred to arbitration.

Any foreign award which is enforceable under this part, shall be binding and may be relied
upon by parties by way of defense, set off or otherwise in any legal proceedings in India.

The party applying for the enforcement of a foreign award shall, produce the original award
or a duly authenticated copy thereof, the original arbitration agreement or a certified copy
thereof, and evidence to prove that the award is a foreign award.

Sections 48 and 57 contain the conditions for enforcement of a foreign award and thus set
out the grounds on which the enforcement may be refused. If the court is satisfied that the
foreign award is enforceable, the award shall be deemed to be a decree of the court.

An appeal shall lie against the order or court refusing to refer the parties to arbitration or
refusing to enforce a foreign award.
Conciliation is the process of amicable settlement of disputers by the parties, with the
assistance of the conciliator. Conciliation differs form arbitration in the sense that in
arbitration the award is the decision of the arbitral tribunal while in the case of Conciliation
the decision is of the parties arrived at with the mediation of the Conciliation.

The main advantages of Conciliation are more flexibility and minimum formality. Besides,
since the proceedings are held in closed doors, there is complete confidentiality assured.

Notice of Conciliation
A party initiating the Conciliation shall send a written notice to the other party, briefly
identifying the subject of the dispute and inviting him for Conciliation. The Conciliation
proceedings shall commence on acceptance of inviting by the other party. If he rejects the
invitation, there can be no Conciliation proceedings.

If the party initiating Conciliation does not receive a reply within 30 days from the date on
which the invitation was sent or within the specified period, he may opt to treat this as a
rejection and inform the same to the other party.

Number of Conciliators:
Unless otherwise agreed there shall be one Conciliator. The parties may, however, agree
that there shall be two of three Conciliators, who shall act jointly.

Appointment of Conciliators:
A sole conciliators shall be appointed by mutual consent of the parties. In case of two
Conciliators, each party may appoint one Conciliator. In case of three conciliators, each
party may appoint one Conciliator and the third Conciliator may be appointed by mutual
agreement of the parties who shall act as the presiding conciliator. The parties may,
however, agree that a Conciliator shall be appointed or recommended by an institution or a

Submission of Statements:
Each party shall submit to the Conciliator a brief written statement describing the general
nature of the dispute and the points at issue. A copy of the same shall be sent to the other
party. The Conciliator may require of each party to send a copy whereof shall be sent to the
other party.
Functions of Conciliators:
1. To assist the parties in an independent and impartial manner, to reach an amicable
settlement of their dispute.
2. To be guided by principles of objectivity, fairness and justice
3. To give consideration to rights and obligations of the parties, trade usages,
circumstances surrounding the dispute and any previous business practice between the
4. To conduct the Conciliation proceedings in an appropriate manner, taking into
account the circumstances of the case and wishes of the parties.
5. To make proposals for a settlement of the dispute.
6. Not to act as an arbitrator or as a representative of a party in any arbitral or judicial
proceedings in respect of the same dispute, unless otherwise agreed by the parties.
7. Not to act as a witness in any arbitral or judicial proceedings.

Disclosure of Information:
Any factual information concerning the dispute received by the conciliation from a party,
shall be disclosed to the other party to allow him an opportunity to present any explanation,
except however, when a party gives any information subject to a condition that it be kept

Co-operative of Parties:
The parties shall co-operative with the conciliator in good faith, comply with request for
submitting written materials, providing evidence and attending meetings. A part may submit
to the conciliating suggestions for the settlement of the dispute.

Settlement Agreement:
If it appears to the conciliator that a settlement is possible, he shall formulate the terms of a
possible settlement and submit them to the parties for their observations. The conciliator
shall them reformulate the possible settlement in light of observations received from the
parties. If the parties reach on a settlement, they may draw up and sign a written settlement
agreement with the assistance of the conciliator. The conciliator shall authenticate the
settlement agreement and furnish a copy thereof to each of the parties and shall have the
same effect as of an arbitral award.

Termination of Conciliation Proceedings

The Conciliation proceedings shall be terminated when:
1. A settlement agreement is signed by the parties.
2. A written declaration is made by the conciliation after consultation with the parties,
that further efforts at conciliation are no longer justified.
3. A written declaration is made by the conciliator, after the deposits required in
relation to costs the proceedings are not received from the parties, that the
proceedings are terminated.
4. A written declaration is made by the parties to the conciliator, that the conciliation
proceedings are terminated.
5. A written declaration is sent by a party to the other party and the conciliator, that the
conciliation proceedings are terminated.

Const of Conciliation
Upon termination of the conciliation proceedings, the conciliators shall fix the costs of the
conciliation, including the fee and expenses of the conciliator and the witnesses, cost
relating to any expert advice and other expenses incurred in connection with the
proceedings. A written notice of the costs shall be sent to the parties. The costs shall be
borne equally by the parties unless the settlement agreement provides for a different
apportionment. All expenses incurred by a party shall be borne by him.

The conciliator may require each party to deposits an advance for the costs, which the
experts will be incurred. He may also ask for supplementary deposits during the course of