Faculty of Law, Jamia Millia Islamia

ARBITRAL AWARD AND TERMINATION OF PROCEEDING

Report

CLINICAL COURSE-I

(ALTERNATIVE DISPUTE REDRESSAL)

Submitted By:

Name- MEHRAAN AHMED

Student ID-20179020

B.A.LL.B. (7th Sem.) (Self Finance)

Submitted to: Office of Dean, Faculty of Law, Jamia Millia Islamia, New Delhi

(19/11/2020)

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 ACKNOWLEDGEMENT

Firstly, I would like to express my profound sense of gratitude towards the Almighty
“ALLAH” for providing me with the authentic circumstances which were mandatory for the
completion of my research work. I am also thankful to professor Karishma Sheikh mam, for
her invaluable support, encouragement, supervision and useful suggestions throughout this
research work. Her moral support and continuous guidance enabled me to complete my work
successfully. Her intellectual thrust and blessings motivated me to work rigorously on this
study. In fact this study could not have seen the light of the day if her contribution had not
been available. It would be no exaggeration to say that it is her unflinching faith and
unquestioning support that has provided the sustenance necessary to see it through to its
present shape.

Mehraan Ahmed

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TABLE OF CONTENTS

1. Introduction
2. Arbitration in India
3. The Arbitration Act, 1940
4. The Arbitration And Conciliation Act, 1996
5. The Scheme Of The Arbitration And Conciliation Act, 1996
6. Salient Features Of The Arbitration And Conciliation Act, 1996
7. Genesis of the 1996 Act,
8. Scope Of Application And General Provisions Of The Indian Arbitration Act
9. Preamble
10. Arbitration
11. Advantages of choosing the route of arbitration instead of courts of law
12. Kinds Of Arbitration
13. What is Arbitration Agreement
14. Essentials Of Arbitration Agreement
15. Power Of Judicial Authority To Refer Parties To Arbitration
16. Who Can Refer?
17. Arbitral Award
18. Mandatory and non-mandatory requirements for an arbitral award.
19. Form And Contents Of Arbitral Award
20. Difference between an award and an interim order.
21. Kinds Of Awards
22. Cost Of Arbitration
23. Setting Aside Of An Arbitral Award
24. Finality And Enforcement Of Arbitral Awards
25. Correction, interpretation and additional award
26. Recourse against award
27. Recognition and enforcement of award
28. Grounds for refusing recognition or enforcement of award
29. Termination of the arbitration proceedings.
30. Determination and effect of arbitration agreement

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31. Intervention By Court
32. Enforcement Of Certain Foreign Award
33. Termination Of Arbitration Agreement
34. Determination and effect of Arbitration Agreement.
35. Conduct Of Arbitral Proceedings
36. Conduct Of Conciliation Proceeding
37. Termination of conciliation proceeding
38. Execution of an arbitral award as a decree.
39. Public policy of India
40. Conclusion
41. Bibliography

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INTRODUCTION

Administration of justice is one of the important functions of the state. Dispensation of justice
is generally through the courts of law. The judicial process is dilatory. Therefore, the need for
alternate dispute resolution method was realized. Arbitration is one of such methods. In the
history of judicial settlement, arbitration takes the priority. Even in the field of modern
international law, the institution of arbitration is recognized as dating back from the Jay
Treaty of 1794 between the United States of America and Great Britain. 1 The international
community devised arbitration as a method of pacific settlement of disputes by adopting the
Hague Convention, 1899. Resultantly, the permanent court of arbitration came into existence
in 1900 which continues to exist till date.

The states in their domestic field have judiciary as one of the vital organs yet arbitration has
been accepted as an effective and fair method of settlement of disputes. In India, the
Arbitration Act, 1940 was enacted for this purpose. This enactment became redundant in the
changed context. With the introduction of new economic order, the old forums and methods
of dispute resolution have become outmoded. In the changed scenario, arbitration for
settlement of commercial disputes has become a global phenomenon. Besides the Arbitration
Act, 1940, there were other legal provisions dealing with arbitration. 2 These provisions had
also become out of tune with the arbitral mechanism prevalent in other nations of the world.

The Arbitration and Conciliation Act,1996 demonstrates the impact of international pressures
on domestic enactment The statute consolidates and amends the domestic and international
law on arbitration by repealing the Arbitration (Protocol and Convention) Act, 1937, the
Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961.

1
J.G. Starke, Introduction to International Law 487 (10th ed.).
2
The Civil Procedure Code, 1908; The Arbitration (Protocol and Convention Act, 1937 and The Foreign
Awards (Recognition and Enforcement) Act, 1961.

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ARBITRATION IN INDIA

A Brief History of Arbitration Law in India

Ever since the East India Company came to be vested with the powers to frame
regulations by the British Parliament, the techniques of resolution of disputes by arbitration
received legal recognition in India. The East India Company framed several regulations
which were then applicable only to the three metropolis i.e. Bengal, Bombay and Madras e.g.
Bengal Regulation 1 of 1772, Bombay Regulation 1 of 1799 and Madras Regulation 1 of
1802. These regulations empowered the courts to submit matters in dispute in a suit to the
decision of an arbitrator mutually agreed to by the parties. But if the parties could not agree to
the appointment of an arbitrator or if their nominated arbitrator refused to act in the matter
and if the parties could not agree upon the appointment of another arbitrator, the court could
not appoint an arbitrator. The Code of Civil Procedure, 1859, for the first time, recognised
reference to arbitration without intervention of courts. Sections 312-327 of this Code also
dealt with arbitration in suits, filing in court, the agreements to refer to arbitration and for
filing of awards. These provisions were re-enacted with some modification in the Code of
1908 which continued to hold the field till the enactment of the ARBITRATION Act, 1940.

Arbitration has a long history in India. In ancient times, people often voluntarily
submitted their disputes to a group of wise men of a community called the Panchayat for a
binding resolution.3 Modern arbitration law in India was created by the Bengal Regulations in
1772, during the British rule. The Bengal Regulations provided for reference by a court to
arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and
breach of contract, amongst others.4

Until 1996, the law governing arbitration in India consisted mainly of three statutes:

1. The 1937 Arbitration (Protocol and Convention) Act,

2. The 1940 Indian Arbitration Act, and
3. The 1961 Foreign Awards (Recognition and Enforcement) Act.5

3
K Ravi Kumar, ‘Alternative Dispute Resolution in Construction Industry’, International Council of
Consultants (ICC) papers, www.iccindia.org. at p 2. K Ravi Kumar is assistant executive engineer, Salarjung
Museum, Hyderabad.
4
ibid.
5
ibid.

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The 1940 Act was the general law governing arbitration in India along the lines of the
English Arbitration Act of 1934, and both the 1937 and the 1961 Acts were designed to
enforce foreign arbitral awards (the 1961 Act implemented the New York Convention of
1958).6The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in
an effort to modernize the out-dated 1940 Act.

The 1996 Act is a comprehensive piece of legislation modelled on the lines of the
UNCITRAL Model Law. This Act repealed all the three previous statutes (the 1937 Act, the
1961 Act and the 1940 Act).7 Its primary purpose was to encourage arbitration as a cost-
effective and quick mechanism for the settlement of commercial disputes. 8 The 1996 Act
covers both domestic arbitration and international commercial arbitration.

In November 1978 the Law Commission of India forwarded to government its Report on the
Arbitration Act of 1940.But the report awaited implementation. A good deal of controversy
and confusion, created by the provisions of the Act of 1940, had shown the need for extensive
reforms in the law, and certain judicial pronouncements also indicated the inconvenience
caused by the content and language of the Act of 1940. Things would have remained as they
were, but for the fact that the policy of globalisation and liberalisation gave a fresh hope to
the prospects of reform. In the meantime, the United Nations Commission on International
Trade Law (UNCITRAL) had prepared a model law for arbitration and its provisions had
been adopted in several countries. All these developments encouraged the Government of
India to have a fresh look at the law, and the Act under consideration is the result. It is this
Act to which one must now make a reference, for ascertaining the law of arbitration as
applicable to arbitrations commencing on or after 25.1.1996, that being the date with effect
from which the ordinance no. 8 of 1996 was notified to commence.

The general approach in the new law — confining oneself to the subject of arbitration held
within India — is to reform the law, so as to make it speedy, economical and easily

6
The New York Convention of 1958, i.e. the 1958 Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, is one of the most widely used conventions for recognition and enforcement of foreign awards.
It sets forth the procedures to be used by all signatories to the Convention. This Convention was first in the
series of major steps taken by the United Nation since its inception, to aid the development of international
commercial arbitration. The Convention became effective on June 7, 1959.
7
The 1996 Act, Section 85.
8
Justice Ashok Bhan in his inaugural speech delivered at the conference on ‘Dispute Prevention and Dispute
Resolution’ held at Ludhiana, India, October 8, 2005.

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acceptable to all concerned. Following very closely the model law prepared by the
UNCITRAL, the Act has given us a fresh law. This fresh legislation, when compared with the
Act of 1940, will be found to repeat certain provisions, while modifying certain other
provisions and adding a few new propositions. A detailed study of the provisions of the new
law, as contrasted with the Act of 1940, will show that the new law adopts the following
types of approach.

THE ARBITRATION ACT, 1940

Till 1996, the law in India about arbitration was governed by the Arbitration Act 1940. The
Arbitration Act 1940 was repealed when the Arbitration and Conciliation Act 1996 came into
force on the 25 January 1996. Apart from certain major changes in the law, this Act
introduced for the first time in India the concept of conciliation. Though all the clauses in the
Act are serially numbered, the Act itself has 4 parts. Part I deals with arbitration (an award
under this part is considered as a domestic award), Part II deals with enforcement of certain
foreign awards, Part III deals with conciliation and Part IV contains supplementary
provisions about powers to make rules, repeal and saving, etc.

The Arbitration Act, 1940, dealt with only domestic arbitration. Under the 1940 Act,
intervention of the court was required in all the three stages of arbitration, i.e. prior to the
reference of the dispute to the arbitral tribunal, in the duration of the proceedings before the
arbitral tribunal, and after the award was passed by the arbitral tribunal. Before an arbitral
tribunal took cognizance of a dispute, court intervention was required to set the arbitration
proceedings in motion. The existence of an agreement and of a dispute was required to be
proved. During the course of the proceedings, the intervention of the court was necessary for
the extension of time for making an award. Finally, before the award could be enforced, it
was required to be made the rule of the court.

While the 1940 Act was perceived to be a good piece of legislation in its actual operation and
implementation by all concerned - the parties, arbitrators, lawyers and the courts, it proved to
be ineffective and was widely felt to have become out-dated.9

THE ARBITRATION AND CONCILIATION ACT, 1996

9
Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons.

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The 1996 Act, which repealed the 1940 Act, was enacted to provide an effective and
expeditious dispute resolution framework, which would inspire confidence in the Indian
dispute resolution system, attract foreign investments and reassure international investors in
the reliability of the Indian legal system to provide an expeditious dispute resolution
mechanism.

The 1996 Act has two significant parts – Part I provides for any arbitration conducted in India
and enforcement of awards thereunder. Part II provides for enforcement of foreign awards.
Any arbitration conducted in India or enforcement of award thereunder (whether domestic or
international) is governed by Part I, while enforcement of any foreign award to which the
New York Convention or the Geneva Convention applies, is governed by Part II of the 1996
Act. The 1996 Act contains two unusual features that differed from the UNCITRAL Model
Law. First, while the UNICITRAL Model Law was designed to apply only to international
commercial arbitrations,10 the 1996 Act applies both to international and domestic
arbitrations. Second, the 1996 Act goes beyond the UNICITRAL Model Law in the area of
minimizing judicial intervention.11

The changes brought about by the 1996 Act were so drastic that the entire case law built up
over the previous fifty-six years on arbitration was rendered superfluous. 12 Unfortunately,
there was no widespread debate and understanding of the changes before such an important
legislative change was enacted.13 The Government of India enacted the 1996 Act by an
ordinance, and then extended its life by another ordinance, before Parliament eventually
passed it without reference to a Parliamentary Committee—a standard practice for important
enactments.14 In the absence of case laws and general understanding of the Act in the context
of international commercial arbitration, several provisions of the 1996 Act were brought
before the courts, which interpreted the provisions in the usual manner.15

10
Article 1 of the UNICITRAL Model Law.
11
S K Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003’, ICA’s
Arbitration Quarterly, ICA, New Delhi, 2005 vol. XXXIX/No.4 at page 3. S K Dholakia is a Member of ICC
International Court of Arbitration and Senior Advocate, Supreme Court of India.
12
Sundaram Finance v. NEPC Ltd., (1999) 2 SCC 479.
13
supra, note 9
14
supra, note 9
15
supra, note 9

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The Law Commission of India prepared a report on the experience of the 1996 Act and
suggested a number of amendments.16 Based on the recommendations of the Commission, the
Government of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in
Parliament for amending the 1996 Act. 17 It has not been taken up for consideration. In the
meantime, Government of India, the Ministry of Law and Justice, constituted a Committee
popularly known as the ‘Justice Saraf Committee on Arbitration’, to study in depth the
implications of the recommendations of the Law Commission of India contained in its 176th
Report and the Arbitration and Conciliation (Amendment) Bill, 2003. The Committee
submitted its report in January 2005.

THE SCHEME OF THE ARBITRATION AND CONCILIATION ACT, 1996

The Act is a composite piece of legislation. It provides for domestic arbitration, international
commercial arbitration, enforcement of foreign award and conciliation (the latter being based
on the UNCITRAL Conciliation Rules of 1980).

The more significant provisions of the Act are to be found in Parts I and II thereof. Part I
contains the provisions for domestic and international commercial arbitration. Any arbitration
to be conducted in India would be governed by Part I, irrespective of the nationalities of the
parties. Part II provides for enforcement of foreign awards.

Part I is more comprehensive and contains extensive provisions based on the Model Law. It
provides, inter alia, for arbitrability of disputes, non-intervention by courts, composition of
the arbitral tribunal, jurisdiction of the arbitral tribunal, conduct of the arbitration
proceedings, recourse against arbitral awards and enforcement. Part II, on the other hand, is
largely restricted to enforcement of foreign awards governed by the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards18 or the Convention on the
Execution of Foreign Arbitral Awards.19 Part II is thus, (by its very nature) not a complete

16
The full report of the 176th Report of the Law Commission of India can be downloaded from
www.lawcommissionofindia.nic.in.
17
The Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in Parliament on December 22,
2003. It is available on the website www.lawmin.nic.in
18
New York, 10 June 1958 (‘New York Convention’).
19
Geneva, 26 September 1927 (‘Geneva Convention’).

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code. This led to judicial innovation by the Supreme Court in the case of Bhatia International
v. Bulk Trading.20 Here the Indian court’s jurisdiction was invoked by a party seeking interim
measures of protection in relation to arbitration under the Rules of Arbitration of the
International Chamber of Commerce International Court of Arbitration 21 to be conducted in
Paris. The provision for interim measure (section 9) was to be found in Part I alone (which
applies only to domestic arbitration). Hence, the court was faced with a situation where there
was no proprio vigore legal provision under which it could grant interim measures of
protection. Creatively interpreting the Act, the Supreme Court held that the ‘general
provisions’ of Part I would apply also to offshore arbitrations, unless the parties expressly or
impliedly exclude applicability of the same. Hence, by judicial innovation, the Supreme
Court extended the general provisions of Part I to foreign arbitrations as well.

It may be stated that this was premised on the assumption that the Indian courts would
otherwise have jurisdiction in relation to the matter (in the international sense). This became
clear in a subsequent decision of the Supreme Court in Shreejee Traco (I) Pvt Ltd v.
Paperline International Inc.22 Here the court’s assistance was sought for appointing an
arbitrator in a foreign arbitration. The power of appointment by the court exists under section
11 of Part I of the Act (which applies to domestic arbitration alone). The court declined to
exercise jurisdiction. It found that the arbitration was to be conducted in New York and that
the law governing the arbitration proceedings would be the law of seat of the arbitration.
Hence, the extension of Part I provisions to foreign arbitrations sanctified by Bhatia 23 would
not be resorted to in every case. The Indian courts would have to first determine if it has
jurisdiction, in the international sense.

SALIENT FEATURES OF THE ARBITRATION AND CONCILIATION ACT, 1996

20
2002 (4) SCC 105
21
Effective 1 January 1998 (‘ICC Rules’).
22
2003 (9) SCC 79.
23
Supra, n 7.

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The Arbitration and Conciliation Act, 1996 now constitutes the effective arbitration law for
all arbitrations that commenced on or after 25.1.1996. The new Act takes the place of the
following enactments, namely:

(a) The Arbitration Act, 1940;

(b) The Arbitration (Protocol and Convention) Act, 1937; and

(c) The Foreign Awards (Recognition and Enforcement) Act, 1961

The new Act also contains a chapter on conciliation.

The year 1996, besides yielding the usual crop of case law relating to the law of arbitration,
has witnessed a very important development, namely, the enactment of the Arbitration and
Conciliation Act, 1996 by Parliament. The Act was preceded by ordinances containing almost
identical provisions and promulgated by the President of India. These ordinances were
successively promulgated, the first such ordinance having been made effective from
26.1.1996. Some of the provisions of the new legislation are radical in nature and are likely to
change the course of arbitration proceedings considerably. It may be mentioned that
arbitration proceedings which commenced after 26.1.1996 are governed by the new
legislation. Pending arbitration proceedings will continue to be governed by the Arbitration
Act, 1940 unless the parties to the dispute agree otherwise.24

The Arbitration and Conciliation Act, 1996 lay considerable stress on the party autonomy.
The party to the dispute can decide the number of arbitrators, the rules of procedure, and the
rules governing the substance of the dispute, the place of arbitration and the language of the
arbitrators. The major advantage of the new law is that, it facilitates quick resolution of the
commercial disputes and speeds up arbitration procedure by minimizing intervention by the
Court. Under the new law, a Court may provide certain interim measures of protection at a
party’s request and may offer assistance in taking evidence or recovering documents at the
request of the arbitral tribunal or a party to the reference. The award of an arbitrator is itself
enforceable as a decree of Court and is not required to be made a “Rule of Court”. The
arbitrator has to give reasons for his award. However, no reasons need to be given if the
disputant parties agree beforehand to such a thing. In case of Babar Ali v. Union of India 25
case it was held by Supreme Court that, The Arbitration and Conciliation Act,1996 is neither
24
A Survey of Indian Law (ASIL).
25
(2000) 2 SCC 178

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unconstitutional nor in any way offends the basic structure of the Constitution of India, as
Judicial review is available for challenging the award in accordance with the procedure laid
down therein. The time and manner of the judicial scrutiny can be legitimately laid down by
the Act passed by the parliament.

The Indian Arbitration Act sought to achieve the following main objectives:

 To comprehensively cover international and domestic arbitration and conciliation;

 To make provision for an arbitral process which is fair, efficient and capable of
meeting the needs of each arbitral proceeding;
 To ensure that the arbitral tribunal gives reasons for its award;
 To ensure that the arbitral tribunal remains within the limits of its jurisdiction;
 To minimise the supervisory role of the Indian courts in the arbitral process;
 To permit an arbitral tribunal to use mediation, conciliation or other procedures
during the arbitral proceedings to encourage settlement of disputes;
 To provide that every final award is enforced in the same manner as if it were a
decree of the court;
 To provide that a settlement agreement reached by the parties as a result of
conciliation proceedings will have the same status and effect as an award rendered by
an arbitral tribunal; and
 To provide that every award made in a country that is party to an international
convention to which India is also a signatory will be enforceable as a foreign award.

The objectives mentioned above clearly indicate the legislative intent to make arbitral
proceedings more efficient and result-oriented. To achieve those objectives, and to encourage
the use of arbitration in all civil disputes at family, commercial, domestic and international
law levels, Section 89 was inserted into the Civil Procedure Code 1908 by the Civil
Procedure Code (Amendment) Act 1999. Its aim is to promote alternative methods of dispute
resolution by requiring the courts to consider the possibility of settlement through such
methods at any stage of legal proceedings.

GENESIS OF THE 1996 ACT

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The Arbitration Act, 1940 dealt with only domestic arbitration. In so far as international
arbitration was concerned, there was no substantive law on the subject. However,
enforcement of foreign awards in this country was governed by two enactments, the
Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and
Enforcement) Act, 1961. These two statutes, in their entirety, except for for section 3 (in both
of them) did not deal with international arbitration as such but merely laid down the
conditions for * enforcement of foreign awards ’ in India. Section 3, in both the statutes,
provided that if any party to an arbitration agreement commences any legal proceeding in any
court in India, any party to such legal proceeding may, at any time after appearance and
before filing a written statement or taking any other step in the proceeding, apply to the court
to stay the proceedings, and the court, unless satisfied that the agreement is null or void,
inoperative or incapable of being performed or that there is not, in fact, any dispute between
the parties with regard to the matters agreed to be referred, shall make an order staying the
proceeding.

The Arbitration Act of 1940, though a good piece of legislation, in its actual operation and
implementation by all concerned - the parties, arbitrators, lawyers and the courts - proved
ineffective. It was this feeling that led the Supreme Court26 to observe in exasperation:

Interminable, time consuming, complex and expensive court procedures impelled jurists to
search for an alternative forum, less formal, more effective and speedy for resolution of
disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940. However,
the way in which the proceedings under the Act are conducted and without an exception
challenged in Courts has made lawyers laugh and legal philosophers weep. Experience shows
and law reports bear ample testimony that the proceedings under the Act have become highly
technical accompanied by unending prolixity, at every stage providing a legal trap to the
unwary. Informal forum chosen by the parties for expeditious disposal of the disputes has by
the decision of the courts been clothed with " legalese " of unforeseeable complexity.

A few years later, the court suggested simplification of the law of arbitration releasing the
law from the shackles of technical rules of interpretation. The court observed:27

The law of arbitration should be simple, less technical and more responsible to the actual
realities of the situations, but must be responsive to the canons of justice and fair play and
26
M/s Guru Nanak Foundation v. M/s Rattan Singh & Sons,(1981) 4 SCC 634.
27
Food Corporation of India v. Joginderpal Mohinderpal,(1989) 2 SCC 347.

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make the arbitrator adhere to such process and norms which will create confidence, not only
by doing justice between the parties, but by creating sense that justice appears to have been
done.

SCOPE OF APPLICATION AND GENERAL PROVISIONS OF THE INDIAN

ARBITRATION ACT

The Indian Arbitration Act covers both domestic and international arbitrations (i.e., where at
least one party is not an Indian national), as well as mediation and conciliation. The Indian
Arbitration Act comprises four parts and three schedules, as follows:

 Part I: general provisions on arbitration (General Provisions);

 Part II: enforcement of certain foreign awards (Chapter I of Part II of the Indian
Arbitration Act deals with New York Convention awards and Chapter II covers
awards under the 1927 Geneva Convention);
 Part III: conciliation;
 Part IV: supplementary provisions;
 First Schedule: New York Convention;28
 Second Schedule: 1923 Geneva Convention;29 and
 Third Schedule: 1927 Geneva Convention.30

Accordingly, the Indian Arbitration Act puts domestic awards and foreign awards in two
different and distinct compartments, subject to certain overlapping provisions. The General
Provisions apply to all other parts and chapters of the Indian Arbitration Act, unless it is
expressly stated otherwise. For example, Part II provides a separate definition of “arbitral
award” and contains separate provisions for the enforcement of foreign awards. In addition, if
the arbitral proceedings are seated outside of India, all or some of the General Provisions may
be excluded by the express or implied agreement of the parties. However, if no such
exclusion is agreed, the General Provisions will apply to the arbitration and it will not be
open for the parties to argue that Part I of the Indian Arbitration Act is not applicable to the
arbitration.31

28
Indian Arbitration Act, Section 44.
29
Ibid, Section 53(a).
30
Ibid, Section 53(b).
31
Venture Global Engineering v. Satyam Computers Services, [2002] AIR SC 1432

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PREAMBLE

Preamble to the 1996 Act is an introductory, prefatory and an explanatory note about the
sections namely that of the Arbitration and Conciliation Act, 1996. United Nations
Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Model Law
on International Commercial Arbitration in 1985. Thereby, the General Assembly of the
United Nations recommended that all countries give due consideration to the said Model
Law, in view of the desirability of uniformity of the law of arbitral procedures and the
specific needs of international commercial arbitration practice. The United Nations
Commission on International Trade Law has adopted the UNCITRAL Conciliation Rules in
1980. Thereby, the General Assembly of the United Nations recommended the use of the
said Rules in cases where a dispute arises in the context of international commercial relations
and the parties seek an amicable settlement of that dispute by recourse to conciliation. The
said Model Law and Rules has a significant contribution to the establishment of a unified
legal framework for the fair and efficient settlement of disputes arising in international
commercial relations.

Based on the above facts the Parliament of India considered that it was expedient to
make law with respect to arbitration and conciliation, taking into account the aforesaid Model
Law and Rules in the forty seventh year of the Republic. The Arbitration and Conciliation
Act, 1996 repealed the Arbitration Act of 1940, the Arbitration (Protocol and Convention)
Act of 1937 and the Foreign Awards (Recognition and Enforcement) Act of 1961. Supreme
Court in Fuerst Day Lawson Ltd v. Jindal Exports Ltd 32 held that the provisions of the
Arbitration and Conciliation Act, 1996 have to be interpreted and construed independent to
that the Arbitration and Conciliation Act, 1940. In order to get any further help in construing
the provisions, it is more relevant to refer to the United Nations Commission on International
Trade Law. The Arbitration and Conciliation Act, 1996 is divided into following parts, Part I
deals with the “Domestic arbitration”. Part II deals with the “Enforcement of foreign
awards”. Part III deals with the “Conciliation procedures” and Part IV of the Act deals with
the “Supplementary provisions”. Act has three Schedules namely, The First Schedule on the
Convention on recognition and enforcement of foreign arbitral award as per New York
convention, the Second Schedule on the Protocol on Arbitration clauses and Third Schedule
on the convention on the execution of foreign arbitral awards as per Geneva Convention. In

32
A.I.R. 2001 S.C.2293

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Konkan Railways Corp. Ltd. v. Mehul Construction Co33 case, Supreme Court of India stated
that the Arbitration and Conciliation Act, 1996 was introduced in order to attract the
‘international mercantile community’ and at the time of interpretation, regard must be had to
the objectives behind the enactment of the Act.

ARBITRATION

The normal remedy for resolution of disputes arising between any two parties is for the
aggrieved party to approach the courts of law. Invariably, these law suits take long periods of
time to be decided as both the parties have recourse to appeals to the higher courts, till they
reach the Supreme Court. Parties to commercial contracts prefer that such disputes be settled
as early as possible so that their long business relationship can continue. They, therefore,
incorporate an arbitration clause allowing the parties to resort to arbitration instead of
approaching the courts, for resolving disputes that may arise during the course of
implementation of contracts.

Arbitration is a mechanism for resolving disputes that might arise during implementation of a
contract, either in interpreting the clauses in a contract or in assessing the effect of events
which may occur during the implementation of a contract. If adequate care has been taken to
draft the clauses in a contract precisely and without ambiguities, the need for interpretation of
a clause should not normally arise. However, disputes may arise in assessing the effects of
events such as scope, delays in delivery, etc.

Arbitration itself may be defined as the settlement of disputes and differences relating to civil
matters between one party and another in a judicial manner, by the decision of one or more
persons called arbitrators, appointed by the contending parties, without having recourse to a
court of law. The essence of arbitration is that it takes the place of a court of law and decides
the disputes between parties. There is a substitution of the arbitrators' award or decision for
judgment of a court.

Arbitration is one of the oldest methods of settling civil disputes between two or more
persons by reference of the dispute to an independent and impartial third person, called
arbitrator, instead of litigating the matter in the usual way through the courts. It saves time

33
(2000) 7 SCC 201.

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and expense. It also avoids unnecessary technicalities and at the same time ensures
“substantial justice within limits of the law”.

In Union of India v. D.P Wadia & sons, 34 it was observed that arbitration is a domestic forum.
It is a forum other than a court of law for determination of disputes and differences, after
hearing both the sides, in a judicial manner.

The Arbitration and Conciliation Act, 1996 governs the “arbitration procedures” in India.
Part-I of the Arbitration and Conciliation Act, 1996 comprises of 43 sections spread over ten
chapters, making detailed provisions relating to domestic arbitration and International
commercial arbitration held in India under this Act. ‘Arbitration’ means, a process of dispute
resolution in which a neutral third party called arbitrator, renders a decision after a hearing at
which both parties have an opportunity to be heard 35. Arbitration is a consensual process. It is
not a matter of coercion.

No arbitration statute can require parties to arbitrate when they have not agreed to do so. Nor
can it prevent them from excluding certain claims from the scope of arbitration agreement in
any manner they choose. It requires Courts just to enforce privately negotiated agreements to
arbitrate, like other contracts, in accordance with their terms.36

As defined under Section 2(1) (a) of Arbitration and Conciliation Act, 1996 it covers any
arbitration whether it is administered by any permanent arbitral institution or not. It also
covers arbitration relied on voluntary agreement by the private parties or by operation of law.
The Arbitration and Conciliation Act, 1996 does not provide definition of the word
"Arbitration". Arbitration, in law, is a form of Alternative Dispute Resolution - specifically, a
legal alternative to litigation, whereby the parties to a dispute agree to submit their respective
positions (through agreement or hearing) to a neutral third party called the Arbitrator for
resolution of the dispute between them. The literal meaning is that "settlement" of differences
or disputes by mutual understanding or agreement by the parties where the rights and
liabilities of the parties are determined in judicial point of view which are binding to them,
such settlement may be before the arbitral tribunal but not by the Court of law.

34
A.I.R(1977) Bom 10
35
Black's Law Dictionary, 6th edn. (1990), West Publishing Co., p.105.
36
Volt Information Sciences, Inc V Leland Stanford University 489 US 468(1989)

17 | P a g e
 In Jivaji Raja V Khimiji Poonja & Company37, Bombay High Court observed that,
arbitration is the reference of dispute or difference between two or more parties to a person
chosen by the parties or appointed under statutory authority, for determination of the same. In
a broad sense, it is substitution of ordinary judicial machinery by a mutually chosen tribunal
i.e., an Arbitrator or an Arbitral Institution.

ADVANTAGES OF CHOOSING THE ROUTE OF ARBITRATION INSTEAD OF

COURTS OF LAW

There are many advantages of choosing the route of arbitration instead of courts of
law for resolving disputes. These are:

 Avoidance of payment of court fee upfront, based on the value of the dispute/
claim. It is, therefore, less costly.
 Speedy settlement. In the normal course, the process of arbitration is speedier
than that of the courts. Except in very rare cases, the arbitration awards are
final and binding on both parties and cannot be appealed against. If there is no
arbitration clause and the parties have chosen the route of courts of law, civil
cases by their very nature and volume of cases take considerable time before
they are decided upon. Secondly, both the parties have the freedom to resort to
appeals from one higher court to another and hence, it may take several years
before a dispute is resolved, as a result of which the decision itself may
became irrelevant.
 Invariably when disputes and differences of opinion arise, the business
relationship itself may not come to an end. Resorting to arbitration will not
disrupt the normal business relationship, whereas resorting to the courts of law
may affect that relationship, particularly when the process is prolonged.
 The procedure involved in arbitration is simpler than that of the courts.
 One of the important advantages of arbitration is the maintenance of
confidentiality. Resorting to arbitration does not become public knowledge,
whereas resorting to courts of law will invariably attract public attention
37
AIR 1934 Bom 476.

18 | P a g e
 through newspapers and other media, covering the proceedings in courts of
law.

KINDS OF ARBITRATION

Depending on the terms of arbitration agreement, the subject matter of the dispute in
arbitration, and the laws governing such arbitrations, arbitrations can be classified into
different types, such as

AD-HOC ARBITRATION

The Ad-hoc Arbitration is agreed to and arranged by the parties themselves without recourse
to an arbitral institution. It is to get the justice, in the balance of the un-settled part of their
dispute only. It may be either International or Domestic arbitration.

DOMESTIC ARBITRATION

The Domestic arbitration means, an arbitration which takes place in India, wherein parties are
Indians and the dispute is decided in accordance with substantive law in India

INTERNATIONAL ARBITRATION

An Arbitration, which may take place either within India or outside India but, where there are
ingredients of foreign origin in relation to the parties, or the subject matter of the dispute. In
this process, the dispute is decided in accordance with substantive law in India or any other
country, depending on the contract in this regard and the rules of conflict of laws are termed
as International Arbitration.

INSTITUTIONAL ARBITRATION

It means, an arbitration conducted by an arbitral institution in accordance with the prescribed

rules of the institution. In such kind of arbitration, there is prior agreement between the
parties that in case of future differences or disputes arising between the parties during their
commercial transactions, such differences or disputes will be settled by arbitration as per
clause provide in the agreement and in accordance with the rules of that particular arbitral
institution. The arbitrator or arbitrators, as the case may be is appointed from the panel
maintained by the institution either by disputants or by the governing body of the institution.

19 | P a g e
The Arbitration and Conciliation Act, 1996 gives recognition and effect to the agreement of
the parties to arbitrate according to institutional rules and subject to institutional supervision.
Some of the leading Indian institutions providing for institutional arbitration are, The Indian
Council of Arbitration (ICA), New Delhi, The Federation of Indian Chamber of Commerce
and Industries (FICCI), New Delhi and The International Center for Alternative Dispute
Resolution (ICADA). Some of the leading international institutions are The International
Chamber of Commerce (ICC), Paris, The London Court of International Arbitration (LCIA),
London and The American Arbitration Association (AAA). The World Intellectual Property
Organisation (WIPO) is an agency of the United Nations, which is offering its services
exclusively for the intellectual property disputes. WIPO is based in Geneva.38

Statutory Arbitration: It is mandatory form of arbitration, which is imposed on the parties by

operation of law. It is conducted in accordance with the provisions of an enactment, which
specifically provides for arbitration in respect of disputes arising on matters covered by the
concerned enactment byelaws or Rules made there under having the force of law. In such a
case, the parties have no option as such but to abide by the law of land. It is apparent that
statutory arbitration differs from the other types of arbitration for the reason that, the consent
of parties is not necessary, it is compulsory form Arbitration and it is binding on the Parties
as the law of land. As an example to it, Sections 24, 31 and 32 of the Defence of India Act,
1971 and Section 43(c) of The Indian Trusts Act, 1882 are the statutory provision, which
deals with statutory arbitration.

FOREIGN ARBITRATION

When arbitration proceedings are conducted in a place outside India and the Award is
required to be enforced in India, it is termed as Foreign Arbitration.

FAST TRACK ARBITRATION OR DOCUMENTS ONLY ARBITRATION

The Documents only arbitration is not oral and is based only on the claim statement and
statement of defence, and a written reply by the claimant, if any. It also includes the
documents the document submitted by the parties with their statements along with a list of
reference to the documents or other evidences submitted by them. The written submission
may take the form of a letter to the tribunal from the party or his representative, or may be a

38
Indu Malhotra & OP.Malhotra, The Law and Practice of Arbitration And Conciliation,2nd Edn 2006.p117

20 | P a g e
more formal document produced by lawyers.39 The parties may agree upon, or in default, the
tribunal may adopt the procedure to resolve the dispute only on the basis of the documents
submitted to the tribunal and without any oral hearing or cross-examination of the
witnesses.40

LOOK –SNIFF ARBITRATION

Institutions specialised in special types of disputes have their own special rules to meet the
specific requirements for the conduct of arbitration in their specialised areas. Look –Sniff
Arbitration is a hybrid arbitration, and also known as quality arbitration.

It is a combination of the arbitral process and expert opinion. On the bases of the evidence
and inspection of goods or commodities that are subject matter of the dispute placed before
the arbitrator, who is selected based on his specialised knowledge, expertise and experience
in a particular area of trade or business, the arbitrator decides the dispute and makes his
award. The award may relate to the quality or price of the goods or both. There is no formal
hearing for taking evidence or hearing oral submissions. For example, Rules of the London
Court of International Arbitration (LCIA) permit the arbitrator, on his own, to ascertain the
quality of goods and their prevalent price.41

FLIP –FLOP ARBITRATION

This type of arbitration has its origin in a United States arbitration case, which dealt with a
baseball player. In such arbitration, the parties formulate their respective cases beforehand.
They then invite the arbitrator to choose one of the two. On the evidences adduced by the
parties, the arbitrator decides which submission is the correct submission, and then makes an
award in favour of that party. After both parties have submitted their respective cases to the
arbitrator, he makes an award either favoring the claimant of the respondent. He cannot pick
and choose from a party’s case. If a party inflates its claim, then it is possible that it will
everything. This type of arbitration is also known as ‘pendulum arbitration’. 42 International

39
Russell on Arbitration,22nd edn,2003 pp195-96,para 5-128.
40
In shipping and Grain Trade Disputes , this method of arbitration is used.Rules of London Maritime
Arbitratirs Association(LMAA) and Grain and Feedstock Trade Association(GAFTA)
41
Indu Malhotra & OP.Malhotra, The Law and Practice of Arbitration And Conciliation,2nd Edn2006.p124-
125.
42
Tweeddale & Tweeddale, Arbitration of Commercial Disputes, International & English Law and Practice, 1st
edn, 2005, pp2728, paras 1.63 to 1.65.

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Commercial Arbitration: Section 2(1)(f) of the Arbitration and Conciliation Act,1996 defines
an 'International Commercial Arbitration' as the one in which at least one of the parties is a
resident of a country other than India, or a body corporate incorporated in any country other
than India, or a company or association or a body of individuals whose central management
and control is exercised in any country other than India. Arbitration with the government of a
foreign country is also considered to be an international commercial arbitration.

Thus, the above classifications of the process under different heads reflects that, the process
of arbitration is flexible enough so that, it can be altered and modified according to the
dispute to its best form, by the disputed parties. Thus, it is a fact that the above classification
is not exhaustive. The best method or the form of arbitration is to be chosen by the parties
according to their requirement, which can help them fulfill the objective of an amicable
resolution of the dispute for the betterment of all.

WHAT IS ARBITRATION AGREEMENT?

In Rukhmanibai v. Collector, Jabalpur43the arbitration clause in the contract between the

parties was as follows,

Whenever any doubt, difference or dispute shall hereafter arise touching the construction of
these presents or anything herein contained or any matter or things connected with the said
lands or the working or non-working thereof or the amount or payment of any rent or royalty
reserved or made payable hereunder the matter in difference shall be decided by the lessor
whose decision shall be final.

As required by article 299 of the Constitution the contract had to be expressed and executed
in the name of the Governor of the state. The lessor was thus the Governor. Normally, we are
inclined to believe that an arbitration agreement provides for the decision of disputes between
the parties by a third person. It is thus unusual to come across an arbitration agreement as
reproduced above. For, it says that the dispute or the matters of difference shall be decided by
the lessor, whose decision shall be final. It is usual in government contracts for a twofold
arrangement. Questions or claims arising during the performance of the contract are decided
by the departmental officer or the expert while differences or disputes go to the arbitrator for

43
A.LR. 1981 S.C. 479

22 | P a g e
decision. The departmental decision is either final and excluded from arbitration or that also
is subsequently referable to arbitration. But in this case one of the two parties to the contract
is itself the arbitrator. This may sound strange but is understandable because the lessor is the
government of the state. This is why the arbitration hearing was held by the secretary to the
government and the writ petition was filed against the collector who also represents the
government in the contract. Two points of importance thus emerge from the decision. Firstly,
when one of the parties to the contract is an institution. it can itself become the arbitrator. For,
it is not one person, but an impersonal association or body of persons and works as an
institution. There is nothing strange in a contract with the government providing that it would
nominate one of its officers to be the arbitrator. Indeed, this system has been established for a
long time by the working of the standard forms of government contracts. The only difference
is that in the above arbitration clause, the lessor himself is made the arbitrator. But it is well
understood that the executive government functions in the name of the Governor and the
Governor himself does not act personally. Therefore, the meaning of lessor being the
arbitrator is that the government would be represented by an authorised officer to act as
arbitrator. Secondly, the clause is an arbitration clause because a dispute or a difference is to
be decided thereunder. This is to be distinguished from a provision in a contract in which the
rights or claims cropping up during the performance of the contract are decided before they
become differences or disputes between the parties. A good example of a decision which is
not made by an arbitrable process was the State of U.P. v. Tipper Chand. 44 The decision in
Rukhmanibaf’s case is significantly different. The clause of the contract which is to be
construed refers to a difference or a dispute, the decision of which is the earmark of an
arbitration. The Supreme Court in Rukhmaniba ’s45case refers to the following passage in
Russell on Arbitration46to enable one to know when an agreement amounts to an arbitration
clause :

If it appears from the terms of the agreement by which a matter is submitted to a person’s
decision that the intention of the parties was that he should hold an inquiry in the nature of a
judicial inquiry and hear the respective cases of the parties and decide upon evidence laid
before him, then the case is one of an arbitration. Reliance was also placed on a previous
decision, Chief Conservator of Forests v. Rattan Singh.47 Both these decisions were followed
44
Supra note 20; see also V.S. Deshpande, Law of Arbitration in XVI A.S.LL.at 290-93 (1980).
45
Supra note 22.
46
5 Id. at 481.
47
A.I.R. 1967 S.C. 166 [LNIND 1966 SC 116].

23 | P a g e
in Mjs Praharaj Prts. v. State of Orissa 48in which a similar clause was construed to be an
arbitration agreement.

As stated above such a term in the agreement does not differ from a term that one of the
parties would be entitled to appoint its own employee as the arbitrator. This was so provided
in clause 37 of the contract which was under consideration in N. Krishna Rao v. The Indian
Oil Corpa.49 An application was filed by contractor against the appointment of its employee
as the arbitrator by the respondent. The court rejected the contention saying :

It is nowhere complained in the affidavit that clause 37 which enables the respondent to
appoint its own officer as arbitrator is illegal. It means that such a clause is binding on the
respondent as well. Having agreed to such an appointment of its own officer by the
respondent as the arbitrator should there be any difference between the contracting parties, it
is not now open to the applicant to pray for appointment of the arbitrator by resorting to
section 9(b) of the Arbitration Act50

The first stage in arbitration is the formulation of the arbitration agreement whereby the
parties agree to submit their present or future differences to arbitration. Section 2 (1)(b) does
not give a definition of the term, but states that “Arbitration agreement” means an agreement
referred to in section 7. As per Section 7, the arbitration agreement is defined as, 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. Thus, the provision of arbitration can be made at the time of entering the contract
itself, so that if any dispute arises in future, the dispute can be referred to arbitrator as per the
agreement. It is also possible to refer a dispute to arbitration after the dispute has arisen. It
was held by the Supreme Court in the Wellington Association Ltd V Kirti Mehta 51 case that,
the word in the Section 7(1) “means an agreement by the parties to submit to arbitration”,
postulates an agreement which necessarily or rather mandatory requires the appointment of
an arbitrator or arbitrators.

Section 7 does not cover a case where the parties agree that they “may” go to a suit or that
they “may” also go to arbitration. Arbitration agreement may be in the form of an arbitration

48
A.I.R. 1981 Ori. 104 [LNIND 1981 ORI 21].
49
A.I.R. 1981 Mad. 367 [LNIND 1981 MAD 188].
50
Id. at 367-68.
51
AIR 2000 SC 1379.

24 | P a g e
clause in a contract or in the form of a separate agreement. Section 7(3) of the Act requires
that the arbitration agreement must be in writing. Section 7(2) provides that it may be in the
form of an arbitration clause in a contract or it may be in the form of a separate agreement.
Under Section 7(4), an arbitration agreement is in writing, if it is contained in:

1. A document signed by the parties,

2. An exchange of letters, telex, telegrams or other means of telecommunication,
providing a record of agreement,
3. Or an exchange of claims and defense in which the existence of the agreement is
alleged by one party and not denied by the other. Sec.7 (5) of the act expressly
provides that reference to a document containing an arbitration clause would
constitute an arbitration agreement.

In Jayant N.Seth v Gyaneshwar Apartment Cooperative Housing Society Ltd 52, case the
Court laid down the essential ingredients of an arbitration agreement as defined in Clause
2(1) (b) read with Section 7 as, there should be a valid and binding agreement between the
parties. Such an agreement may be contained as a clause in a contract or in the form of a
separate agreement. Such an agreement is deemed to be in writing if it is contained in a
document signed by the parties or in 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 not
denied by the other. Reference in a contract to a document containing an arbitration clause
also constitutes an arbitration agreement, provided the contract is in writing and the reference
is such as to make that arbitration clause part of the contract. Parties intend to refer present or
future disputes to arbitration. The dispute to be referred to an arbitrator is in respect of a
defined legal relationship, whether contractual or not. In Motilal v Kedarmal Jainarayan
Bharadiya53 case, it is held that, arbitration is an alternate dispute resolution system of quasi-
judicial nature and if no judicial functions are attributed to the nominated persons, the
document cannot be said to be an arbitration agreement. The Supreme Court of India in Firm
Ashok Traders v. Gurumukh Das Saluja54 case held that, under the scheme of the Arbitration
and Conciliation Act, 1996, the Arbitration clause is separable from other clause of
partnership deed. The arbitration clause constitutes an agreement by itself.
52
2000(1) RAJ 117 (Bom)
53
2002(3) RAJ 403 (Bom)
54
2004 (3) SCC 155.

25 | P a g e
 In Tamil Nadu Electricity Board v. Sumathi and others 55, case there was no arbitration
agreement within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996. The
dispute relating to the payment of compensation for the death due to electrocution was under
the consideration of the High Court under Article 226. The High Court appointed an
arbitrator in exercise of its power under the 1996. The Supreme Court quashed the order of
the High Court, as the Suo-motu appointment of arbitrator in the absence of agreement to that
effect is not provided for under the provisions of the Arbitration and Conciliation Act, 1996.

The Section 4 of the Arbitration and Conciliation Act, 1996 is a deeming provision. It
lays down that, where a party precedes with the arbitration without stating his objection to
non-compliance of any provision of Part I from which the parties may derogate or any
requirement under arbitration agreement, it shall be deemed that he has waived his right to so
object.56 In Basheshar Nath v. Commissioner of Income Tax57, the Supreme Court held that,
‘There must be an international relinquishment of a known right or the voluntary
relinquishment or abandonment of a known existing legal right , or conduct such as warrants
an inference of relinquishment of a known right or privilege’. In Union of India V MAA
Agency,58 it was held that, it was open to the petitioner to challenge either the jurisdiction of
the arbitral tribunal to adjudicate upon the third claim or to raise the plea that the tribunal was
exceeding its scope of authority. However, the petitioner did not raise any such objection and
on the contrary, proceeded with a defense to the claim on merits, thereafter, which an award
was passed.

This being the case, it may be deemed that the petitioner had waived its rights under Section
4, to object on the ground that any requirement of the arbitration agreement had not been
complied with.

The Supreme Court of India in P.Anand Gajapathi Raju v. PVG Raju 59, held that Section 5 of
the Arbitration and Conciliation Act, 1996 brings out clearly the object of the Act, namely
that of encouraging resolution of disputes expeditiously and less expensively and when there
is an arbitration agreement, the Court’s intervention should be minimal.

55
2000(4) SCC 543
56
Section 4, The Arbitration and Conciliation Act, 1996
57
AIR 1959 SC 149
58
2003(3) RAJ 335 (Bom)
59
AIR 2000 SC 1886.

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In BHEL v. CN Garg & Ors60 case, it was held that, Section 5 was inserted to discourage
judicial intervention. It is seen that a party having grievances against an arbitrator on account
of bias or prejudice is not without remedy. It only has to wait till the award is made and then
it can challenge the award on various grounds under Section 34 of the Arbitration and
Conciliation Act, 1996.

Determination on the applicability of Section 2(1)(f) of the Indian Arbitration and

Conciliation Act, 1996 the Supreme Court of India in the case of TDM Infrastructure Private
Limited v. UE Development India Private Ltd 61 held that, when both the companies are
incorporated in India, and have been domiciled in India, the arbitration agreement entered
into by and between them would not be an international commercial arbitration agreement.
The MM Acqua Technologies Ltd v. Wig Brothers Builders Ltd case62 helps in explaining the
definition of a binding agreement between parties. In order to be a binding arbitration
agreement between the parties, the same must be in writing and the parties should have
specifically agreed to settle their disputes by arbitration. An arbitration agreement cannot be
inferred by implication.

ESSENTIALS OF ARBITRATION AGREEMENT

 It must be in writing, though it need not be in formal document. Signatures of the

parties to the agreement are not necessary but it must be shown that they have agreed
to the settlement of disputes by arbitration.
 It must have all the essentials of a valid contract.
 It must refer to a dispute, present or future, between the parties to arbitration.
 It may be in the form of an arbitration clause in a contract or in the form of separate
agreement.
 The reference in a contract to a document containing an arbitration clause constitutes
an arbitration agreement if the contract is in writing and reference is such as to make
that arbitration clause part of the contract.

60
2001(57) DRJ 154 (DB)
61
(2008) SCC 2263
62
(2008) SCC 2263

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POWER OF JUDICIAL AUTHORITY TO REFER PARTIES TO ARBITRATION

A judicial authority before which an action is brought in a matter which is the subject of an
arbitration agreement shall refer the parties to arbitration if a party so applies. The party
should however apply before submitting his first statement on the substance of the dispute.

Further the application shall not be entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof. Even where such an application has
been made and the issue is pending before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made.

Conditions to stay for legal proceedings:

 There must be valid and a substantial arbitration agreement capable of being

enforced.
 The subject matter in question in the legal proceedings must be within the scope
of the arbitration agreement.
 The application must be made by a party to the arbitration or by some person
claiming under him.
 The applicant must take the application at the earliest stage of the proceedings.
 The application must be made to the judicial authority before which the
proceedings are pending.
 The application must be accompanied by the original arbitration agreement or by a
duly certified copy thereof.
 The judicial authority must be satisfied that there is no sufficient reason why the
matter should not be referred.
 Matters which can be referred to arbitration
 All matters in dispute between parties relating to private rights or obligations
which civil courts may take cognizance may be referred to arbitration, unless a
reference is forbidden by a statute or opposed to public policy.

Some of the matters which can be referred are:

 Determination of damages in case of breach of contract.

 Question of validity of marriage.
 Question of law or of law and fact in terms of separation between husband and wife.

28 | P a g e
  Matters of personal or private rights of the parties, e.g., right to hold the office of a
priest in a temple.
 Disputes regarding compliment and dignity.
 Time-barred claims.

Matters which cannot be referred are:

 Matrimonial matters, e.g, divorce or restitution of conjugal rights.

 Testamentary matters like the validity of a will
 Insolvency matters
 Matters relating to public charities and charitable trusts
 Matters relating to the guardianship of a minor.
 Lunacy proceedings.
 Matters of criminal nature or based on illegal transactions.
 Execution proceedings.

WHO CAN REFER?

The arbitration agreement is a contract. The parties thereto must be competent to enter
into a contract so that they can be bound by the award of the arbitrator. The capacity of
various persons to submit disputes to arbitration is as follows.

 Minor or lunatic:
A minor or lunatic cannot refer disputes to arbitration. But a natural guardian can
enter into arbitration.
 Manager of a joint Hindu family:

He can submit to arbitration the partition of the joint family property provided he is acting
bona fide for the benefit of the family.

 Agent:

An agent duly authorised has power to refer the matter in dispute to arbitration.

 Attorneys and counsels:

29 | P a g e
 They have a general authority over the suit, the mode of conducting it, and all that is
incidental to it.

 Partner:

A partner can refer a dispute to arbitration only when express authority is given to him by
partnership agreement or by custom or usage of trade.

 Insolvent:

An insolvent cannot submit disputes to arbitration so as to bind his estate or the official
receiver or assignee.

ARBITRAL AWARD

The decision of an arbitral tribunal on the substance of the dispute which has been referred to
it is defined as an arbitral award.63 An arbitral award can either be an interim award or a final
award.64 Through an interim award, an arbitral tribunal renders a final determination of
certain issues which have been raised in the arbitration proceedings but keeps the arbitral
reference pending for determination of the remaining issues.65 On the other hand, a final
63
See UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its
Seventh Session, UN/Doc A/CN 9/246, A/CN 9/246, 6 March 1984, paras 192–194 [The Working Group
attempted to define the term “arbitral award”, however the term has been left undefined in the Model Law];
Travaux Prepatoires, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York,
1958, E/CONF 26/L 18- Israel: proposed definition of the words “arbitral awards”, 26 May 1958, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_travaux.html. Last accessed on 1
March 2017. [Like the Model Law, the New York Convention does not contain a definition of an arbitral award
despite being discussed]; Blackaby, Partasides, et al, Redfern and Hunter on International Arbitration, 5th Edn,
pp 514–515, para 9.06.
64
See section 2(c) and section 31(6) of the Arbitration and Conciliation Act, 1996; ICC Rules of Arbitration
2012, Article 2(v); McDermott International Inc v Burn Standard Co Ltd, (2006) 11 SCC 181 [LNIND 2006 SC
413].
65
The ICC Rules of Arbitration Article 28 (1) [authorizes the arbitral tribunal to order any interim or
conservatory measure it deems appropriate either as an order or in the form of an award]; Blackaby, Partasides,
et al, Redfern and Hunter on International Arbitration, 6th Edn, pp 501–568, paras 9.19–9.21; Satwant Singh
Sodhi v State of Punjab, (1999) 3 SCC 487 [LNIND 1999 SC 311].

30 | P a g e
award disposes of all issues which have been referred to the tribunal for its decision and
terminates the arbitration proceedings.66

The decision of the Arbitral Tribunal is termed as 'Arbitral Award'. Arbitrator can decide the
dispute ex aequo et bono (in justice and in good faith) if both the parties expressly authorize
him to do so67. Section 28 of the Arbitration and Conciliation Act,1996 grants autonomy to
the parties to choose the substantive law to be applied to ‘Arbitration other than an
international commercial arbitration’ as well as to an ‘international commercial arbitration’,
where the place of arbitration is in India. The Supreme Court of India in the case of
Sumitomo Heavy Industries v. Oil and Natural Gas Co Ltd 68 held that, where the parties had
made an express choice of Indian law as proper law of the contract, then it would follow that
the proper law of the arbitration agreement is also Indian Law. It was held as the arbitration
agreement is part of the substance of the underlying contract and terms of arbitration clause
are held to be clear in that respect69.The provisions has made a vital improvement in making
international commercial arbitration considerably more user-friendly and flexible 70. In the
arbitral proceedings with more than one arbitrator, the decision of Arbitral Tribunal will be
by majority71. In the case of Shin-Etsu Chemical Co Ltd. V..Aksh Optifibre Ltd and another 72
Case it was held that, in an application for reference rejected on the ground of invalidity of
agreement under Section 45 of the Act, the judicial authority is required to pass reasoned
order after hearing parties. Impugned order is liable to appeal under Section 50(1) (a) of the
Act.

MANDATORY AND NON-MANDATORY REQUIREMENTS FOR AN ARBITRAL

AWARD

66
Rocket Jewellery Box Inc v Noble Gift Packaging Inc, 157 F 3d 174, 176 (2d Cir 1998)
67
The Arbitration and Conciliation Act, 1996. Section 28(2)
68
1998 (1) 1 SCC 305
69
Channel Tunnel Group Ltd Vs Balfour Beatty Construction Ltd.1993 (1) ALL ER 664
70
Peter Binder, International Commercial Arbitration In UNCITRAL Model Law Jurisdictions, second
edn,2005 p 238 , para 6-019.
71
The Arbitration and Conciliation Act, 1996. Section 29
72
(2005)7SCC234

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 An arbitration seated in India, regardless of whether it is ad hoc or institutional, would
ordinarily be governed by the provisions of the Arbitration and Conciliation Act, 1996 (the
Act).73 An award rendered under such proceedings would need to be in accordance with the
terms of section 31 of the Act. That is consistent with the localised doctrine under which the
form and contents of an arbitral award must comply with the lex arbiti. The Act sets out
certain mandatory requirements as to the form of an arbitral award and non-mandatory
requirements as to its contents.74 This approach is consistent with the doctrine of party
autonomy. If the mandatory requirements are not complied with, the decision of the arbitral
tribunal does not qualify as an award and arguably leads to its invalidity. 75 Therefore, an
arbitral award that does not comply with the mandatory requirements of the Act is not an
award under the Act and cannot be enforced.

FORM AND CONTENTS OF ARBITRAL AWARD

The award must be in writing and signed by the members of Arbitral Tribunal 76.Therefore,
an award is complete and final only when the arbitrators sign it. It was also held that once an
arbitrator has signed an award, he becomes functus officio. It is not necessary that it should
also be delivered, pronounced, or filed in the Court 77. It must state the reasons for the award
unless the parties have agreed that no reason for the award is to be given 78. Reasons are the
link between the material on which certain conclusions are based and the actual conclusion.
This was held by the Supreme Court of India in the case of Union of India v. Mohanlal
Kapoor79 case. The Arbitration and Conciliation Act, 1996 does not prescribe any particular
form for a reasoned award. The reasoned award is emphasized under the 1996 Act in order to
enable the parties and the reviewing Courts80 to understand the facts and the general
reasoning which led the arbitrator to conclude that this was the decisive point, and to
73
Section 2(2) of the Act; Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552
[LNIND 2012 SC 1181]
74
State of West Bengal v Shree Shree Ma Engineering, AIR 1987 SC 2229 [LNIND 1987 SC 636]
75
Satwant Singh Sodhi v State of Punjab, (1999) 3 SCC 2040 .
76
The Arbitration and Conciliation Act,1996. Section 31(1)
77
Satwant Singh Sodhi Vs State of Punjab 1999 (3) SCC 487
78
The Arbitration and Conciliation Act,1996. Section 31(3)
79
1972 (2)SCC 836
80
Russell on Arbitration ,22nd Ed ,2003 ,p 238,para 6-028.

32 | P a g e
understand the facts and so consider the position with respect to reviewing the award on any
other issue which arose before the arbitrators81. In the case of AK Kraipak v. Union Of India82
the Supreme Court of India held that there is increasing emphasis on the requirement of
reasons in all judicial, quasi- judicial and arbitral decisions. The award should be dated and
place where it is made should be mentioned. Copy of award should be given to each party83.

In the case of Union of India v. Tecco Trichy Engineers and Contractors 84 case, it was held
that, according to Section 31(5), 'after the arbitral award is made, a signed copy shall be
delivered to each party'. Section 2(1) (h) defines a "party" as meaning 'a party to an
arbitration agreement'. In a large organization like the Railways, "party" as referred to in
Section 2(1) (h) read with Section 34(3) has to be construed to be a person directly connected
and involved in the proceedings and who is in control of the proceedings before the arbitrator.
The delivery of an arbitral award, to be effective, has to be 'received' by the party and this
delivery by the tribunal and receipt by the party sets in motion several periods of limitation,
therefore it is an important stage in the arbitral proceedings.

DIFFERENCE BETWEEN AN AWARD AND AN INTERIM ORDER

Interim orders are issued by the tribunal in accordance with powers conferred on it by section
17 of the Act.85 These are typically in the form of interim measures, and include granting of
both positive or injunctive interim relief. 86 Such orders do not finally dispose of any
substantive issue. In terms of the 2015 Amendment these interim measures can be enforced

81
Transcatalana De Commercio SA Vs Incobrasa Industrial E Commercial Brazileria SA [1995]1 Lloyd’s Rep
215
82
1969 (2)SCC 262
83
The Arbitration and Conciliation Act, 1996.Section 31(5)
84
2005(1) RAJ 506 (SC)
85
See Article 17(2) of the UNCITRAL Model Law; Firm Ashok Traders v Gurumukh Das Saluja, (2004) 3 SCC
155.
86
Section 17 of the Act; MD Army Welfare Housing v Sumangal Services, AIR 2004 SC 1344 [LNIND 2003
SC 865].

33 | P a g e
as if they were orders passed by a Court. 87 The requirements pertaining to an arbitral award
under section 31 of the Act do not apply to procedural orders or interim orders issued by an
arbitral tribunal.88 This is because section 31 applies only to arbitral awards and interim
orders are not covered by its statutory definition.89

KINDS OF AWARDS

The Arbitration and Conciliation Act, 1996 contemplates four types of awards, namely the
definition of award under Section 2(c) includes an interim award. Section 31(6) authorizes an
arbitral tribunal to make an interim award on any matter with respect to which it may make
final arbitral award at any time during the arbitral proceeding. Interim award deals only with
some of the matters referred, so that the remaining matters will be dealt with later. As in case
of additional award, Section 33 (4) provides that, in the absence of an agreement by the
parties to the contrary, a party with notice to the opposing party may, within 30 days from the
receipt of the award, request the arbitral tribunal to make an additional award as to claims
presented in the arbitral proceedings but omitted from arbitral award. If the tribunal considers
such request to be justified, it shall make the additional award within 60 days from the receipt
of the request90. If the parties settle their dispute during arbitration proceeding, the arbitral
tribunal shall terminate the proceedings and if request by the parties and not object to by the
arbitral tribunal, it shall record the settlement in the form of an arbitral award on agreed
terms.91 Section 35 of Arbitration and Conciliation Act,1996 says that once an arbitral award
has been made, signed and delivered to the parties, subject to the provisions of part 1 of the
Act, it shall be final and binding on the parties and persons claiming under them respectively.
Corollary rule is that an award must dispose of all the issues in dispute, unless parties have so
agreed. There is the residuary power in the arbitral tribunal to terminate proceeding where it
finds that a continuation thereof has for any other reason, become unnecessary or impossible.
If the situation develops where the arbitration proceedings becomes in-fructus, or with the
87
Section 17(2), the Arbitration and Conciliation (Amendment) Act, 2016.
88
Shri Mohan Das v The Addl District Judge, 2010 SCC OnLine Raj 768 : AIR 2010 Raj 80 [LNIND 2010 RAJ
244]; See ICC Rules of Arbitration 2012, Article 28; SIAC Rules, 2013, rule 26.1; LCIA Arbitration Rules,
Article 25.
89
See section 2(c) of the Act.
90
The Arbitration and Conciliation Act,1996. Section 33(5)
91
The Arbitration and Conciliation Act,1996. Section30(2)

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continuation of the proceedings becomes impossible, the tribunal shall order termination of
the arbitral proceeding. Likewise if the subject matter of the dispute is not arbitrable, or the
contract has been frustrated or become impossible of performance and so on the tribunal shall
terminate the arbitral proceedings.92

In the case of Bhatia International v. Bulk Trading S.A 93 case, it was held that foreign awards
are those where arbitration takes place in a convention country; awards in arbitration
proceedings, which take place in a non-convention country, are considered neither as foreign
awards nor as domestic awards under the Act. The Court also stressed that 'Domestic Awards'
include all awards made under Part I of the Act. Awards made in an international commercial
arbitration held in a non-convention country will also be considered to be a 'domestic award'.

COST OF ARBITRATION

The cost of arbitration means reasonable cost relating to fees and expenses of arbitrators and
witnesses, legal fees and expenses, administration fees of the institution supervising the
arbitration and other expenses in connection with arbitral proceedings. The tribunal can
decide the cost and share of each party 94. If the parties refuse to pay the costs, the Arbitral
Tribunal may refuse to deliver its award. In such case, any party can approach Court. The
Court will ask for deposit from the parties and on such deposit, the award will be delivered by
the Tribunal. Then Court will decide the costs of arbitration and shall pay the same to
Arbitrators. Balance, if any, will be refunded to the party95.

SETTING ASIDE OF AN ARBITRAL AWARD

On an application of a party an Award may be set aside on, inter alia, the following grounds:

(a) The applicant was under some incapacity;

(b) The Arbitration Agreement is not valid under the law applicable;

92
The Arbitration and Conciliation Act,1996. Section 32 (2) c , Maharashtra State Electricity Board Vs Datar
Switchgears Ltd, 2003 (Supp) Arb LR 39, 63 (Bom).
93
2002 AIR SC 1432
94
The Arbitration and Conciliation Act, 1996 Section 31(8)
95
Section 39

35 | P a g e
(c) The applicant was not given proper notice of the appointment of Arbitrator;

(d) The applicant was not given proper notice of the arbitral proceedings;

(e) The applicant was unable to present his case;

(f) The Award has dealt with a dispute not contemplated by the parties;

(g) The Award was not within the terms of reference or submissions to arbitration;

(h) The Award decides a matter beyond the scope of submission to arbitration;

(i) If the Award can be separated then part of the Award which is outside the reference can be
set aside;

(j) The composition of the Tribunal was not in accordance with the agreement;

(k) The procedure of the Tribunal was not in accordance with the agreement of the parties
provided the agreement was not in conflict with any provision of Part I from which the
parties cannot derogate;

(l) The compositions of the Tribunal was not in accordance with provisions of Part I;

(m) The subject-matter of the dispute is not capable of arbitration under the law in force;

(n) The Award is in conflict with the public policy of India. An Award is in conflict with the
public polity of India if making of the Award was induced or affected by fraud or corruption
or it was in violation of confidentiality of matters disclosed at the time of conciliation for
settlement agreement;

(o) Award relied on or evidence was adduced from the subject-matter of conciliation
proceedings in respect of:

(i) Views expressed or suggestions for settlement;

(ii) Admission made by a party in course of conciliation proceedings;

(iii) Proposal made by the Conciliator;

(iv) Willingness to accept proposal for settlement suggested by the Conciliator.

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(p) Barred by limitation.— The limitation is three months from the date of receipt of the
Award or from the date of disposal of the application for correction, interpretation of Award
or for additional Award. Section 5 of the Limitation Act applies to the extent that the Courts
can extend time for not more than 30 days. (Sec. 34).

The arbitration award made by the arbitral tribunal is open to challenge on the grounds
mentioned in section 34 of the 1996 Act. These grounds include incapacity of a party,
invalidity of the arbitration agreement, improper notice of appointment of the arbitrators,
dispute not contemplated by or not falling within the terms of the arbitration, composition of
the arbitral tribunal not in accordance with the agreement of the parties, dispute incapable of
settlement by arbitration under the law for the time being in force and the award being in
conflict with the public policy of India. It was held by the Supreme Court in P. Anand
Gajapathi Raju Vs P.V.G .Raju96 case that, the Court to which the party shall have recourse to
challenge the award would be the Court as defined in Section 2 (e) and not the Court to which
an application under Section 8 of the Arbitration and Conciliation Act,1996. The Supreme
Court of India in, Union of India Vs Popular Construction Co 97 case held that, by virtue of
Section34(1), recourse to the Court against an arbitral award cannot be made beyond the
prescribed period. The time limit prescribed under Section34 to challenge an award is
absolute and un-extendible by Court under Section5 of Limitation Act.

The grounds of challenge under the Arbitration Act1940 were very wide and included
grounds such as 'errors of law arising on the face of the award' making them more open to the
challenge procedure. The Arbitration and Conciliation Act, 1996 has very limited grounds of
challenge based on the UNCITRAL Model Law. Apart from jurisdictional grounds, the
arbitral award made by the arbitral tribunal can be set aside if the award is in conflict with the
public policy of India. In ONGC v. Saw Pipes Ltd 98 case, the Supreme Court interpreted the
meaning of 'public policy' in a wide sense in case of a domestic arbitration. It held that an
arbitral award could be challenged on the ground that it is contrary to fundamental policy of
Indian law, the interest of India; or justice or morality, patently illegal; or so unfair and
unreasonable that it shocks the conscience of the Court. Illegality of a trivial nature, however,
can be ignored. Under the 1996 Act, awards that have become final and binding are

96
AIR 2000 S.C 1886
97
2001 (8)SCC 470.
98
2003 (5)SCC 705.

37 | P a g e
enforceable in the domestic Courts system in India and are deemed to be decrees of the
Court.

FINALITY AND ENFORCEMENT OF ARBITRAL AWARDS

The finality of arbitral awards in an arbitral proceeding is subject to Part VIII of The
Arbitration and Conciliation Act 1996. An award becomes final it prevents the successful
party from subsequently raising a claim on which he has succeeded. Likewise, it prevents the
losing party from raising the issue on which it has lost ‘just because he believes that on the
second occasion he may have a more sympathetic tribunal, more convincing witnesses, or a
better advocate. There must be an end to disputes99. Thus, Section 35 provides that an arbitral
award shall be final and binding on the parties and persons, claiming under them respectively.

Prior to 1940 an award could be executed in the same manner, to the same extent and subject
to the same limitation as a decree of the Court100.Under the Arbitration Act 1940, under
section17 ,an award could be enforced by filing it in the Court and obtaining a judgment and
decree on it.

The Arbitration and Conciliation Act ,1996 under Section 36, provides that, where the time
for making an application to set aside the arbitral award under section 34 has expired, or such
application having been made, it has been refused, the award shall be enforced under the
Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the
Court. This section provides for the summary procedure for excluding Court intervention at
the enforcement stage, because most of the object of arbitration would be defeated if a
claimant who succeeds in an arbitration has again stand in the queue of litigations seeking to
enforce their agreements. The fact that an arbitral award is enforceable as if it were a decree
does not render the arbitral proceeding as proceeding in a suit. Nor does it render an
arbitration a suit .All that this section provides is that for the purpose of enforcement, an
arbitral award can be enforced as if it were a decree101.

The Supreme Court of India in Fuerst Day Lawson Ltd v. Jindal Exports Ltd 102 case held that,
as the object of the Arbitration and Conciliation Act, 1996 is to provide speedy and

99
Mustin and Boyd , Commercial Arbitration, second edn,1989,p413.
100
Kanhaya Lal Gauba Vs People’s Bank of Northern India Ltd AIR 1935 Lah 49.
101
Saurabh Kalani Vs Tata Finance Ltd 2003(Supp)Arb LR 217,238 (Bom).
102
AIR 2001 SC 2293.

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alternative solution to the dispute. Thereby, for the enforcement of a foreign award there is no
need to take separate proceedings, one for deciding the enforceability of the award to make it
a rule of the Court or decree and other to take up execution thereafter. In one proceeding, the
Court enforcing a foreign award can deal with the entire matter.

ENFORCEMENT OF AN ARBITRAL AWARD

The regime for enforcement and execution of arbitration awards in an Indian seated
arbitration and a foreign seated arbitration have different procedural starting points. For
Indian seated arbitrations, Indian law is more robust than the UNCITRAL Model Law, which
requires an application for enforcement to be filed even if the award is not challenged by the
losing party. On the contrary, under the Arbitration Act, if no application for setting aside an
India-seated award has been made within the prescribed time limit, the award can be
executed as a decree of the court and there is no separate procedure for resisting its
enforcement.

In India-seated arbitrations, the award holder is required to wait for a period of 90 days to
apply for its execution, pending the possibility of an application being filed by the aggrieved
party to set aside the arbitral award under section 34 of the Arbitration Act. This period can
be extended by the court by a further period of 30 days on sufficient cause being shown, but
not thereafter. Section 36 of the Arbitration Act then sets out that where the time for
challenging an award has expired or such an application having been made is refused, the
award shall be executable.

In respect of foreign awards, if an award is made in a State which is a signatory to the New
York Convention or the Geneva Convention, and in a territory which has been notified as a
convention country by India, the award needs to go through the mechanism of enforcement,
after which, under section 49 of the Arbitration Act 103 it becomes executable. In Fuerst Day
Lawson v Jindal Exports,104 the Supreme Court held that a single application is sufficient to
decide the question of the execution of the foreign arbitral award as well as the decree of the
award. In fact, if a court finds an arbitral award to be enforceable, there can be no further

103
Section 49 for New York Convention Awards; section 58 for Geneva Convention Awards.
104
Fuerst Day Lawson v Jindal Exports, AIR 2001 SC 2293 [LNIND 2001 SC 1180]: (2001) 6 SCC 356
[LNIND 2001 SC 1180].

39 | P a g e
challenges as to its validity at the stage of execution. Once the award attains finality, it can be
executed in more than one jurisdiction depending on where the assets of the judgment debtor
lie.

CORRECTION, INTERPRETATION AND ADDITIONAL AWARD

An application may be made for correction, interpretation or for additional Award within 30
days from the date of receipt of the Award or within the period extended with the consent of
the parties. A party can on notice to the other party request the Tribunal to correct any error
in computation, clerical or typographical error or any error of similar nature. Copy of such
application to be given to the other party. A party with notice to the other party may request
the Tribunal to give an interpretation of a specified point or in a part of the Award. If the
Tribunal considers the request to be justified it shall make the necessary correction or give
the interpretation within 30 days of such request. Such correction and interpretation will form
part of the Award. The Tribunal on its own initiative within 30 days of signing the Award
may correct any error in computation, clerical or typographical error or any other error of
similar nature within 30 days of the date of the Award. A party with due notice to other side,
within 30 days of receipt of the Award may request the Tribunal to make an additional Award
in respect of the claims presented to the arbitration proceedings but omitted from the Award.
The Tribunal, if it considers such request to be justified, may make an additional Award
within 60 days. The Tribunal has the power to extend the time within which it shall make the
corrections, interpretation or additional Award. The form and contents of such correction,
interpretation or additional Award should be as to the Award itself [Article 33].

RECOURSE AGAINST AWARD

An award may be set aside by the Court on an application being made by the aggrieved party
containing the proof that:

40 | P a g e
  He was under some incapacity or the agreement was not valid under the law
applicable to the parties or under the law of the State; or
 The applicant was not given proper notice of appointment of arbitrator or of the
arbitration proceedings or was unable to present his case; or
 The Award deals with disputes not covered by the agreement or terms of submission
or the award contains decisions on matters not covered by the submissions or if the
matters submitted to arbitration can be separated from those not so submitted then that
portion of the Award which deals with matters not submitted to arbitration is liable to
be set aside; or
 The composition of the Arbitral Tribunal or the procedure was not in accordance with
a valid arbitration agreement or failing such agreement, the composition or procedure
was not in accordance with the law; or
 The subject-matter of the disputes is not capable of settlement by arbitration under the
law of the State; or
 The Award is in conflict with the Public Policy of the State.

An application for setting aside the award can be made after 3 months from the date of
receipt of the award or from the date on which the request for correction, interpretation or
additional Award was disposed off. When application for setting aside an award is made, the
Court may suspend the proceedings before it in order to give the Arbitral Tribunal an
opportunity to resume the same proceedings or to take such other steps as will eliminate the
grounds for setting aside the Award [Article 34].

RECOGNITION AND ENFORCEMENT OF AWARD

An award shall be recognised as binding and shall be enforceable on an application being

made. Such an application should contain a certified copy of the Award, a certified copy of
the Arbitration Agreement and an authenticated translation of the documents relied on in the
language of the concerned Court [Article 35].

GROUNDS FOR REFUSING RECOGNITION OR ENFORCEMENT OF AWARD

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Recognition or enforcement of an Award may be refused if the respondent furnished to the
Court proof that:

(a) The respondent was under some incapacity or that the Arbitration Agreement is not valid
under the law applicable to the parties under an agreement, if there be no such agreement
then under the law of the country where the award was originally made; or

(b) The respondent was not given proper notice of the appointment of the arbitrator or of the
arbitration proceedings or he was otherwise unable to present his case; or

(c) The Award deals with disputes not originally contemplated by the parties or not falling
within the terms of the submissions made or it contains decisions on matters beyond the
scope of the submissions. However, if the decisions on the matters submitted to arbitration
can be separated from those not so submitted, then that part of the award which contains
decisions on matters submitted to arbitration may be recognised and enforced; or

(d) The composition of the Tribunal or the procedures was not in accordance with the
agreement and in absence of agreement, it was not in accordance with the law of the country
where the arbitration took place; or

(e) The Award has not yet become final and binding on the parties or has already been set
aside or suspended by a Court of the country in which the Award was made or the Court finds
that the subject-matter of the disputes is not capable of settlement by arbitration under the law
of the State; or

(f) The recognition or enforcement of the award would be contrary to the Public Policy of the
State.

If the Court finds that the Award has not become final and binding or it has been suspended
by a Court of the country in which or under the law of which the Award was originally made
and the Court considers it proper it may adjourn the matter and on an application of the
Award-holder may order the respondent to furnish appropriate security [Article 36].

TERMINATION OF THE ARBITRATION PROCEEDINGS

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The arbitral proceedings shall be terminated on making of the Award or by an order of
Tribunal passed under specified circumstances. The Tribunal shall issue an order terminating
the arbitral proceedings if the claimant withdraws his claim and the respondent does not
object to such withdrawal or the parties agree to such termination of the proceedings or the
Tribunal finds that further proceedings have become unnecessary or impossible under the
circumstances. The mandate of the Tribunal terminates on giving the award subject to the
parties rights asking for correction, interpretation and for additional award [Article 32].

DETERMINATION AND EFFECT OF ARBITRATION AGREEMENT

An Arbitration Agreement shall be in writing but it may contain in one or more documents or
agreements or any correspondence in the form of letters, telex, telegrams or
telecommunications. In the Statement of Claim or Statement of Defence, if it is alleged
existence of any arbitration agreement and not denied by the other party, then it will have the
effect of an arbitration agreement. A Contract may refer to another containing an arbitration
clause. The Court before whom any proceeding is pending may refer the parties to arbitration
if there is an agreement or if the parties agree. (8) If there is an arbitration agreement, then if
a dispute arises any party may apply to the Court for interim measure. Such an application
can also be made during the arbitral proceedings and after any award is made but before the
award is executed as a decree [Sec. 9].

INTERVENTION BY COURT

One of the major defects of earlier arbitration law was that the party could access Court
almost at every stage of arbitration - right from appointment of arbitrator to implementation
of final award. Thus, the defending party could approach Court at various stages and stall the
proceedings. Now, approach to Court has been drastically curtailed. In some cases, if an
objection is raised by the party, the decision on that objection can be given by Arbitral
Tribunal itself. After the decision, the arbitration proceedings are continued and the aggrieved

43 | P a g e
party can approach Court only after Arbitral award is made. Appeal to Court is now only on
restricted grounds. Of course, Tribunal cannot be given unlimited and uncontrolled powers
and supervision of Courts cannot be totally eliminated. An application to challenge the award
will not be maintainable if the party proposing to challenge it has accepted and acted upon it.
The Supreme Court in Pooran Chand Nangia v. National fertilisers Ltd, 105 held that the
appellant had received the money, which was due to him under the award accepting it
unequivocally and without any reserve and so the challenge was not maintainable that it did
not lie in his mouth to challenge the award. In Union of India v. Popular Constructions Co, 106
the Supreme Court held that by virtue of Sec34 (1) , recourse to the Court against an arbitral
award cannot be made beyond the prescribed period. The time limit prescribed under Sec 34
to challenge an award is absolute and un-extendable by Court under Section 5 of Limitation
Act.

In the Venture Global Engineering v. Satyam Computer Services Ltd. and Another 107 it was
held that, in case of international commercial arbitrations held out of India provisions of Part-
I would apply unless the parties by agreement express or implied, exclude all or any of its
provisions.

The Arbitration and Conciliation Act, 1996 has limited the powers of Court. This Act has
restricted the exercise of judicial powers, in other words confined the extent of judicial
intervention as provided under Section 5 of the Arbitration and Conciliation Act, 1996.
Section 5 says that, "Notwithstanding anything contained in any other law for the time being
in force, in matters governed by this part, no judicial authority shall intervene except where
so provided in this part." The Supreme Court of India in the case of P. Anand Gajapathi Raju
v. P.V.G Raju108 held that, section 5 brings out clearly the object of the 1996 Act, namely,
that of encouraging resolution of dispute expeditiously and less expensively and when there
is an arbitration agreement, the Court’s intervention should be minimal. Finality of Arbitral
Award under Section 35 is subject to the part according to which an arbitral award shall be
final and binding on the parties and persons claiming under them respectively. Thus, Section
36 of the 1996 Act provided finality of arbitral awards and its enforcement, without

105
2003 (8) SCC 245.
106
2001 (8) SCC 470 and MD, Army Welfare Housing Organisation Vs Sumangal Services Pvt Ltd (2004) 9
SCC 619.
107
(2008)4SCC190
108
AIR 2000 S.C 1886

44 | P a g e
intervention of the Court. The Arbitral Tribunals are empowered to settle any objections rose
in respect of jurisdiction or scope of authority of the arbitrators.

The 1996 Act provides for appeals against orders granting or refusing to grant interim
measures of protection under section 9 and orders setting aside or refusing to set aside, the
arbitral award under section 17 shall lie to the Court authorized by law to hear the appeals
from original decrees of the Court passing the order 109. Orders concerning the jurisdiction or
authority of the tribunal or award under Section 16(2), (3) are also appealable. The appellate
Court is usually the High Court. No other statutory appeal is provided. Section 37 (3)
prohibits a second appeal against the appellate order under section 37 (1) and (2). These
mandatory provisions shut the door on the face of the second appeal whether through
Scetion100 of the Code of Civil Procedure 1908, or a Letters Patent appeal. In Nirma Ltd v.
Lurgi Lent Jes Energietechnik GmbH110 case, dealing with a petition for special leave to
appeal under Art 136 of the Constitution, against an appellate order passed by City Civil
Court, Ahmedabad under Section 37(2), a two judge Bench of the Supreme Court contented
itself by echoing the first part of the Shyam Sundar Agarwal and Co v. Union of India 111 case
stating that, ‘merely because a second appeal against the appellant order is barred by the
provisions of Section 37(3) of the Act 1996 ,the remedy of revision under Section115 of Code
of Civil Procedure does not cease to be available to the petitioner’. In other words if the Act
contains a provision which bars revisional power of the High Court which militates against
giving effect to a provision of the Act, the revisional jurisdiction will stand superseded under
the Act. Any subsequent appeal can go only to the Supreme Court by way of a special
leave.112

ENFORCEMENT OF CERTAIN FOREIGN AWARD

A Foreign Award is an Award on differences arising between persons out of a legal

relationship considered as “commercial” under Indian Law. Such legal relationship must be
in pursuance of an agreement in writing for arbitration to which the Convention on the
Recognition and Enforcement of the Foreign Award applies and the New York Convention
applies to the other country [Sec. 44].

109
The Arbitration and Conciliation Act,1996 Section 37
110
2002 (5) SCC 520.
111
1996(2) SCC 132,143.
112
The Arbitration and Conciliation Act,1996. Section 37 (3)

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In view of its relative simplicity, economy, speed and privacy, alternative dispute redressal
methods have particular attractions in the international sphere. For instance, a party from one
country would always have reservations in suing the other party in another country where the
procedures are unfamiliar and the approach of the Courts may be different because of
different legal and cultural perspectives. Even if the party were to sue the other in its own
country, the enforceability of award in the foreign country where the other party may be
having property would pose multifarious problems. As against this, recourse to arbitration
avoids the need to resort to Courts. It is always easier to enforce arbitral awards than Court
judgments because of presence of the multilateral conventions.

Part II of The Arbitration and Conciliation Act, 1996 deals with enforcement of New
York Convention awards and Geneva Convention awards and empowers Indian Courts to
refer matters coming before them to arbitration where the seat of arbitration is outside India.
The Arbitration and Conciliation Act,1996 deals with the enforcement of foreign awards in
Part II only in relation to States which were parties to the New York Convention on the
Recognition and Enforcement of Foreign Awards of 1958113, and the Geneva Protocol on
Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Awards
of 1927114. India made reservations to those instruments on the grounds of reciprocity and for
confining the disputes to matters of commercial nature. Consequently, the Arbitration and
Conciliation Act, 1996 did not deal with international arbitration or with international
conciliation in general in relation to States that were not parties to the Geneva or New York
Conventions. Arbitral awards given in the States that are not parties to those conventions are
treated as non-convention awards, but even the awards made in States that are parties to the
conventions but are not covered by the reciprocity reservation might fall outside the purview
of Part II.

The foreign awards, which can be enforced in India, are The New York convention award
made after 11 October 1960 and The Geneva convention award made after 28 July 1924, but
before the concerned Government signed the New York convention. Since most of the
countries have signed New York convention, normally, New York convention awards are
enforceable in India. New York convention was drafted and kept in United Nations for
signature of member countries on 21st December, 1958. Each country became party to the
convention on the date on which it signed the convention.
113
The Arbitration and Conciliation Act,1996. Part III, Chapter I and Schedule I
114
The Arbitration and Conciliation Act,1996. Part III, Chapter II and Schedules II and III

46 | P a g e
 The party which intends to enforce a foreign award has to produce the arbitral award
and agreement of arbitration in original or its certified copy to the District Court having
jurisdiction over the subject matter of the award. Court can refuse the enforcement of award
only in cases specified in section 48. Section 48 of the 1996 Act enumerates the conditions
for the refusal to enforce a foreign award in an Indian Court.

Thus, if the subject matter of the dispute or difference is not capable of settlement by
arbitration in India or if the enforcement of the award was contrary to public policy of India,
the Court may refuse to enforce the award. Otherwise, the foreign award is enforceable
through Court as if it is a decree of the Court296.If the Court declines to enforce the arbitral
award, appeal can be made to the Court where appeal normally lies from the District Court.
However, no further appeal can be made except appeal to Supreme Court. Probably, the
aggrieved party may be able to approach International Court of Justice, as the convention is
an international convention, signed by many of the member countries. One advantage of
foreign award, according to foreign parties, is that Indian Courts come into picture only at the
time of implementation of award.

The Courts can refuse to implement the award only on limited grounds.

In Shin Estu Chemicals Co Ltd v. Aksh Optifiber Ltd 115 case, the Supreme Court ruled that
any objection raised about the agreement being null and void, inoperative or incapable of
being performed raised before a judicial authority is required to be decided by the Court by
taking a prima-facie view merely for the purpose of making reference and leaving the parties
to a full trial before the arbitral tribunal itself or before the Court at the post award stage.

The Supreme Court of India in Thyssen Stahlunion Gmbh v. Steel Authority of India Ltd 116
Case held that a foreign award given after the commencement of the 1996 Act could be
enforced only under the Arbitration and Conciliation Act, 1996. There is no vested right to
have the foreign award enforced under the Foreign Awards (Recognition and Enforcement)
Act, 1961. After the Arbitration and Conciliation Act, 1996 has come into force, parties
cannot agree to the applicability of the Arbitration Act, 1940. The Arbitration and
Conciliation Act, 1996 would be applicable on or after the Act came into force. In cases
where arbitral proceedings have commenced before the coming into force of the 1996 Act
and are pending before the arbitrator, it is open to the parties to agree that the 1996 Act be
115
2005(3) Arb LR 1 (SC).
116
1999 (9)SCC 334

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applicable to such arbitral proceedings and they could so agree even before the coming into
force of the 1996 Act. There is nothing in the language of Section85 (2) (a) which barred the
parties from so agreeing.

In Kalpana Kothari v. Sudha Yadav117 case Supreme Court of India held that, the fact that the
earlier application under the Arbitration Act1940 was got dismissed as not pressed in the
teeth of the repeal of the said Act cannot constitute any legal impediment for having recourse
to and avail of the avenue thrown open to parties under the Arbitration and Conciliation
Act,1996.

TERMINATION OF ARBITRATION AGREEMENT

The mandate of an arbitrator shall terminate if the arbitrator becomes de jure or de facto
unable to perform his functions or for other reasons fails to act without undue delay and in
the cases where the arbitrator withdraws from his office or the parties agree to the termination
of his mandate . If a controversy remains concerning any of the grounds referred to in clause
(a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court
to decide on the termination of the mandate 118. If, under this section or sub-section (3) of
section 13, an arbitrator withdraws from his office or a party agrees to the termination of the
mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred
to in this section or sub-section (3) of section 12119.

Thus, these three grounds constitute arbitrators inability. The first being the arbitrators de jure
inability, which is to refer his legal disability to perform his functions. Such situation of legal
disability is found in the lex loci arbitri and relate to circumstances under which the arbitrator
is by law, barred and from continuing in the office, for reasons such as incapacity, bankruptcy
and conviction for a criminal offense. Likewise, the inability on the part of the arbitrator to
make award within the time prescribed in the agreement of the parties, renders him de jure
unable to continue with the proceedings, and has the effect of terminating of his mandate 120.
The second ground of inability concerns cases of factual situations in which the arbitrator is

117
2002 (1) SCC 203.
118
Section 14 (2)
119
Section 14 (3)
120
Shyam Telecom Ltd Vs.Arm Ltd 2004 (3) Arb. L R 146,153 (Del).

48 | P a g e
physically prevented form fulfilling his functions for instance serious illness, other physical
disability or death. Moreover, the third ground refers to other factors influencing the level of
expectations like the ability to function efficiently and expeditiously and any special
competence or other qualification required of the arbitrator by agreement of the parties.

In addition to the circumstances, referred to in section 13 or section 14, the mandate of an

arbitrator shall terminate in the cases where he withdraws from office for any reason; or by or
pursuant to agreement of the parties. In such cases 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 121. Unless otherwise agreed by
the parties, where an arbitrator is replaced under sub section (2), 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 under this section shall not be invalid solely because there has been a change in the
composition of the arbitral tribunal122. Thus, Section 15 is designed for appointment of a
substitute arbitrator, rather than the grounds for the termination of his mandate. Thus the
wording, ‘the rules that were applicable to the appointment on the arbitrator’ in Section 15(2)
indicates the party autonomy set forth in Section 11 of the Act. As per the decision taken in
case of San-A Tradubg Co.Ltd v. I.C.Textiles Ltd it is held that Sec 15 of Arbitration and
Conciliation Act, 1996 a new arbitrator can be appointed if the named arbitrator, refuses to
act123.

In Kalyan People’s Cop Bank Ltd v. Dulhabibi Aqual Aminsaheb Patil 124 case, the Supreme
Court of India held that, where there is a change in the constitution of the arbitral tribunal and
the parties consented to the procedure that the tribunal could rely on the evidence adduced
before the tribunal prior to its reconstruction, it would not be open to the parties subsequently
to question the procedure.

In the case of India Household and Healthcare Ltd. V. LG Household and Healthcare Ltd 125,
it is held by the Supreme Court of India that, Fraud has the effect of vitiating the entire
agreement formed between the parties including the arbitration clause formed under the
121
Section 15 (1)(a)(b)and (2).
122
Scetion 15 (1) to(4)
123
(2006) 3 MLJ 154 SC Arbitration Petition No 8and 9 Of 2005.
124
AIR 1966 SC 1072.
125
(2007)5SCC510

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agreement. Doctrine of comity or amity126 required a Court not to pass and order which would
be in conflict with another order passed by a competent Court of law. An application for
appointment of an arbitrator is not maintainable unless the procedure and mechanism agreed
to by and between the parties is complied with.

CONDUCT OF ARBITRAL PROCEEDINGS

The Section 16 of the Arbitration and Conciliation Act, 1996 provides that the arbitral
tribunal may rule on its own jurisdiction, including ruling on any objections with respect to
the existence or authority of the arbitration agreement127. For this purpose, an arbitration
clause that forms part of a contract will be treated as an agreement independent of the other
terms of the contract; and a decision by the arbitral tribunal that the contract is null and void
will not entail, ipso jure, the invalidity of the arbitration clause. A plea that the arbitral
tribunal does not have jurisdiction, will however have to be raised not later than the
submission of the statement of defense. However, a party shall not be precluded from raising
such a plea merely because he has appointed, or participated in the appointment of an
arbitrator. In Nissho Iwai Corpn v. Veejay Impex 128 case, it was held that Civil Court is not
competent to decide the question with respect to the existence or validity of arbitration. The
Arbitral Tribunal only has jurisdiction to decide such questions.

In National Agricultural Co-op. Marketing Federation India Ltd. V. Gains Trading Ltd 129
case, it was held that, the arbitration clause forming part of the contract is to be treated as an
agreement independent of the other terms of the contract.

The Arbitration and Conciliation Act, 1996 under Section 16 does not take away the
jurisdiction of the Chief Justice of India or his designate if need be, to decide the question of
the “existence” of the arbitration agreement. In Wellington Associates Ltd v. Kirit Mehata
case130, Supreme Court of India held that, Section 16 does not declare that except the Arbitral
Tribunal, none else can determine such question. Merely because the new Act of 1996
permits the arbitrator to decide this question, it does not necessarily follow that at the stage of
126
Doctrine of comity or amity requires a Court not to pass any order which would be in conflict with another
Order passed by a competent Court of law.
127
Shree Subhlaxmi Fabrics Pvt. Ltd. Vs.Chand Mal Baradia, Civil appeal no: 7653 of 2004.
128
AIR 2000 Cal .207
129
(2007) 5 SCC 629
130
2000 S.C. 1379

50 | P a g e
Section 11 the Chief Justice of India or his designate cannot decide a question as to the
existence of the arbitration clause. In Owners and Parties interested in the Vessel M.V.
“Baltic Confidence” v. State Trading Corporation Ltd131 it was held by the Supreme Court
that, whether a particular dispute arising between the parties comes within the purview of the
arbitration clause as incorporated in the Bill of Lading is a matter to be decided by the
arbitrator or the Court. However, that does not mean that despite incorporation of arbitration
clause in the Bill of Lading by specific reference the parties had not intended that an
arbitrator should resolve the disputes arising on the Bill of Lading.

A plea that the arbitral tribunal is exceeding the scope of its authority has to be raised as
soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings132. The arbitral tribunal, in either of the cases referred to above, may admit later a
plea if it considers the delay justified. The arbitral tribunal has to decide on a plea about lack
of jurisdiction or about the tribunal exceeding the scope of its authority. Where the arbitral
tribunal takes a decision rejecting the plea it shall continue with the arbitral proceedings and
make the arbitral award133. Section 16(6) of the 1996 Act provides that, a party aggrieved by
such an arbitral award is free to make an application for setting aside the award under section
34 of the Act. Section 34(2) (a) inter alia permits a challenge to an award on the above
grounds.

In the case of Heavy vehicle factory, Rep By SGM Avadi Madras v. Oscar Equipments(p)Ltd
Rep By MD Kolkotta and another134 it was held by the Madras High Court that, the Court will
not exercise its power under section 34 interfere with the reasoned award passed after
consideration of the entire evidence, merely because another conclusion is possible.

The power of the arbitral tribunal to grant interim relief generally depends on the
authority of the tribunal as agreed upon by the parties. This may be done expressly in the
arbitration agreement, or by the choice of institutional rules, which allow arbitrators to grant
such relief. This power is generally classified as a matter of procedure and therefore is
governed primarily by law governing the arbitration concerning the place of arbitration. In
addition, regard may be given to the law of the place where the interim measures is to be

131
2001 (7) SCC 473
132
The Arbitration and Conciliation Act,1996. Section 16 (3)
133
The Arbitration and Conciliation Act,1996. Section 16 (4) and (5).
134
(2006) 4 MLJ 1420

51 | P a g e
enforced135.The Supreme Court of India in MD, Army Welfare Housing Organisation v.
Sumangal Services Pvt. Ltd136 held that, the interim order of the arbitrator which was in the
nature of an interim award, in view of the restricted jurisdiction of arbitrator under Section
17, was held to be wholly without jurisdiction and thus a nullity, being coram non judice.
Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party,
order a party to take any interim measure 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 a measure ordered under sub-section
(1)137. The Arbitration and Conciliation Act, 1996, unlike the predecessor Act of 1940, the
Arbitral Tribunal is empowered by Section 17 of the Act to make order amounting to interim
measures. The need for Section 9, in spite of Section 17 having been enacted is that, Section
17 would operate only during the existence on the Arbitral Tribunal and its being functional.
During that period, the power conferred on the Arbitral Tribunal under Section17 and the
power conferred on the Court under Section 9 may overlap to some extent but so far as the
period pre and the post arbitral proceeding is concerned, the party requiring an interim
measure of protection shall have to approach only the Court of laws138.

CONDUCT OF CONCILIATION PROCEEDING

A conciliation proceeding could be initiated in India when, one of the parties to the dispute
arising out of legal relationship invites the other parties to get the dispute resolved through
conciliation. The conciliation can start only if other party accepts in writing the invitation to
conciliate.

If, however, the other party rejects the invitation for settlement through conciliation, no such
proceeding would be initiated. Even if no response were sent within thirty days to the
invitation, it would be deemed that the said request is rejected.139

A statement of their respective cases is to be submitted by the parties to the conciliator in

order to enable the conciliator to understand the case of the parties and to form an opinion 140.
135
Lew, Mistelis, Kroll, Comparative International Commercial Arbitration,2003,pp587-588.
136
2004 (9) SCC 619.
137
The Arbitration and Conciliation Act,1996. Section17 (1)and (2).
138
Firm Ashok Traders Vs Gurumukh Das Saluja 2004 (3)SCC 155.
139
The Arbitration and Conciliation Act,1996. Section62(1)to (4)
140
The Arbitration and Conciliation Act,1996. Section65(2)

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He can call for additional statement of facts and information in order to enable him to give
his suggestion to the parties.141

The Conciliation proceeding could be classified into two types namely, facilitative
conciliation and evaluative conciliation. In facilitative conciliation, the conciliator avoids
opinion and judgments and he merely assists the parties to clarify their communications,
interest and priorities. On the other hand, in evaluative conciliation, the conciliator expresses
his opinion on the merit of the issues so as to enable the parties to approach settlement. His
opinion is a third party view on the merit but such opinion would not be conclusive and
binding142.

The section 69 of Arbitration and Conciliation Act, 1996 contains the provision regarding
communication between conciliator and parties whether orally or in writing and about place
of meeting. The conciliator may meet or communicate with the parties together or with each
of them separately. Unless the parties have agreed upon the place where meetings with the
conciliator are to be held, such place shall be determined by the conciliator, after consultation
with the parties, having regard to the circumstances of the conciliation proceedings. When the
conciliator receives factual information concerning the dispute from a party, he shall disclose
the substance of that information to the other party in order that the other party may have the
opportunity to present any explanation, which he considers appropriate. In the proviso to the
section 70, it is stated that when a party gives any information to the conciliator subject to a
specific condition that it be kept confidential, the conciliator shall not disclose that
information to the other party143. The Supreme Court of India in Haresh Dayaram Thakur Vs
State of Maharashtra144 case reinstated that under the provisions of section 72 each party may,
on his own initiative or at the invitation of the conciliator, submit to the conciliator
suggestions for the settlement of the dispute.

The success of a conciliation proceeding depends upon the genuine and honest desire of the
parties to settle the dispute amongst themselves with the assistance of the conciliator. The
parties shall in good faith cooperate with the conciliator and, in particular, shall endeavor to
comply with requests by the conciliator to submit written materials, provide evidence and
141
The Arbitration and Conciliation Act,1996. Section65(3)
142
Mackie, Miles, Marsh and Allen, The Alternative Dispute Redressal methods Practice Guide; Commercial
Dispute Resolution, 2nd edn, 2000,p 12,para1.3.3
143
The Arbitration and Conciliation Act,1996. Section 70
144
2000(6) SCC 179.

53 | P a g e
attend meetings145. Thus, good faith of the parties in cooperation with the conciliator in the
conciliation proceeding, is a sine qua non for arriving at an amicable settlement of the dispute
and in the absence of good faith and bona fide co-operation by the parties, no conciliator can
succeed in bringing about an amicable settlement.

The parties are entitled to suggest terms of settlement, which would be discussed by the
parties wherein suggestions could be given by the conciliator on such terms for their
observations but the conciliator, cannot impose a settlement as conceived by him on the
parties146. Under Section 73 of Arbitration and Conciliation Act, 1996 it is provided that, after
considering the reformulated terms of possible settlement, if the parties reach a settlement of
the dispute, they may draw up and sine a written agreement. Otherwise, the parties may
request the conciliator to draw up or to assist them in drawing up the settlement agreed upon
by them. The parties shall sign the settlement agreed upon by them. Such settlement shall be
final and binding on the parties and persons claiming under them respectively. The
conciliator is then required to authenticate the settlement agreement and furnish a copy of it
to each one of the parties.

The Supreme Court of India in Haresh Dayaram Thakur v. State of Maharashtra 147 case held
that, a successful proceeding comes to an end only when the settlement agreement signed by
the parties comes into existence. It is such an agreement, which has the status and effect of
legal sanctity of an arbitral award under Section 74 of Arbitration and Conciliation Act, 1996.
In Mysore Cements Ltd v. Svedal Barmac Ltd 148 the Supreme Court noted that from the
Memorandum of Conciliation Proceedings and Letter of Comfort, it did appear that parties
had agreed to certain terms, but they could not straightaway be enforced by taking up the
execution proceedings. It falls short the essential legal pre-requisites to be satisfied for being
assigned the status of a legally enforceable agreement of settlement between the parties. In
case the parties arrive at a settlement during the discussion and the proceeding, a settlement
agreement is drawn up which would have the same effect and status as an arbitral award on
agreed terms as envisaged under section 30 of the Act 149. The same thereafter could be
enforced as a decree of the Court under the Code of Civil Procedure 1908. A party desiring to

145
The Arbitration and Conciliation Act,1996. Section 71.
146
The Arbitration and Conciliation Act,1996. Section72.
147
AIR 2000 SC 2281.
148
2003 (10) SCC 375.
149
The Arbitration and Conciliation Act,1996. Section 74.

54 | P a g e
avail the remedy could take resort to the said procedure during pre-litigation and even during
the pendency of litigation. If the effort does not succeed, the parties can always come back to
litigation.150 However, during the pendency of conciliation preceding a party is not entitled to
pursue any arbitral or judicial proceedings in respect of a dispute that is the subject matter of
the conciliation proceedings. This is subject to one exception that, a party may initiate arbitral
or judicial proceedings where, in his opinion, such proceedings are necessary for the
preserving his rights151.

TERMINATION OF CONCILIATION PROCEEDING

The provision of the Arbitration and Conciliation Act, 1996 set forth the situation and the
point of time at which the conciliation proceedings terminate. Accordingly, the conciliation
proceedings shall be terminated152 primarily by settlement. The conciliation proceeding are
terminated on the date the parties sign the ‘settlement agreement’. The proceeding shall be
terminated 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. The conciliation proceeding can be terminated by the parties on the date when
they make a declaration in writing addressed to the conciliator to the effect that the
conciliation proceeding are terminated. The conciliation proceeding can be terminated by a
party on the date when it makes a declaration in writing to the other party and to the
conciliator, if appointed to the effect that the conciliation proceedings are terminated.

On the termination of the conciliation proceeding in any of the situation enlisted above under
Section76; the conciliator shall fix the costs of the conciliation and give written notice thereof
to the parties. Costs means reasonable costs incurred during the conciliation proceeding.

The costs shall include the fee and expenses of the conciliator and witnesses requested by the
conciliator with the consent of the parties, the expenses in relation to any expert advice
requested by the conciliator with the consent of the parties, expenses incurred for the
assistance of an institution or a person in connection with the appointment of a conciliator 153
and the administrative assistance to facilitate the conduct of the conciliation proceedings154. In
150
Conciliation and Mediation By Justice Dr.M.K.Sharma. Judge, High Court of Delhi,p1-4
151
The Arbitration and Conciliation Act, 1996. Section 77.
152
The Arbitration and Conciliation Act,1996. Section76.
153
Section 64(2),The Arbitration and Conciliation Act,1996.
154
Section 68,The Arbitration and Conciliation Act,1996

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addition to this, it also includes any other incidental expenses incurred in connection with the
conciliation proceedings and the settlement agreement 155. The settlement agreement may
provide the mode and the manner of apportionment of the costs to be fixed by the conciliator
after the termination of the conciliation proceeding. In the absence of such provisions in the
settlement agreement, the cost shall be borne equally by the parties. All the expenses incurred
by a party shall be borne by that party156.

Section 38 if the Arbitration and Conciliation Act, 1996 empowers an arbitral tribunal to call
for deposits in an arbitral proceeding. The conciliator may direct each party to deposit an
apportioned amount as an advance for the costs referred to under section 78(2) which he
expects will be incurred during the conciliation proceeding342. By Section 79 (2), the
conciliator during the course of the conciliation proceedings, if he considers it expedient to
call for further deposits, he may ‘direct supplementary deposits in equal amount from each
party’. If both the parties default in paying the amount called for by the conciliator within 30
days from the date of direction to deposit, the conciliator may suspend the proceedings.
Alternatively, he may make a declaration to the parties in writing that the conciliation
proceedings stands terminated. Under Section79 (4) it is provided that, after termination of
the conciliation proceedings, the conciliator is required to render an accounting to the parties
of the deposits received by him and the conciliator shall refund any unexpended balance to
the parties. The Arbitration and Conciliation Act, 1996 under Section 80, prohibits the
conciliator from acting as an arbitrator or as a representative or council of any party, in any
arbitral or judicial proceedings in, respect of a dispute that is the subject matter of the
conciliation proceedings. The provision further prohibits the parties from presenting a
conciliator as a witness in any arbitral or judicial proceeding.

There is no conflict between litigation and a conciliation or mediation proceeding. Thus, they
can be said to be complimentary to each other, like a bye pass. Choice is of the parties to
choose one but one has a choice to come back to the main thoroughfare the litigation also,
when so intended. Moreover, when a reference is made by the Court under section 89 Code
of Civil Procedure, 1908 to a conciliator or a mediator, not only the Court retains the
supervisory jurisdiction over the matter but the lawyers and the litigants continue to be
participants therein.

155
Section 78(2),The Arbitration and Conciliation Act,1996
156
Section 78 (3),The Arbitration and Conciliation Act,1996

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It is with the active support of all the three participants along with an additional player,
namely, the mediator or conciliator that a negotiated mutual settlement is arrived at.
Therefore, the system of alternative dispute resolution through mediation and conciliation
may not and should not be seen as competitive to litigation in Court.

The mechanism of conciliation has also been introduced for settling industrial disputes under
Industrial Disputes Act, 1947 and by the Arbitration and Conciliation Act, 1996. The City
Disputes Panel, UK which offers a range of dispute resolution processes, facilitative,
evaluative and adjudicative stated that conciliation “is a process in which the Conciliator
plays a proactive role to bring about a settlement” and mediator is “a more passive
process”.157

EXECUTION OF AN ARBITRAL AWARD AS A DECREE

When it comes to execution, the procedure in the case of both Indian and foreign seated
arbitration awards is similar. For Indian seated arbitrations, section 36 of the Act gives the
arbitral award (including ex-parte arbitral awards passed by a tribunal under section 28 of the
Act as well as any settlement reached by parties under section 30 of the Act) the force of a
decree. Therefore, once declared enforceable, the award is executed in accordance with the
provisions of the Code of Civil Procedure, 1908 (CPC). 158 That is similarly so in the case of
foreign seated arbitrations, where after being declared as enforceable under section 47 of the
Act, the award can be executed in the manner set out in the CPC, because it stands on the
same footing as a decree obtained from a court in India.

The relevant mechanism under the CPC concerning execution of a decree are set out in
sections 36–74 and O XXI which comprises of 106 rules, making it one of the lengthiest of
all the provisions in the CPC. These provisions, which have operated for over a hundred
years, did not take into account the 1872 observation of the Privy Council which stated that
“the difficulties of a litigant in India begin when he has obtained a Decree”. Much of that has
yet to change on the ground.159

157
Brown ,Handbook of the City Disputes Panel, UK.1997 ( p 127)
158
Toepfer International Asia Pvt Ltd v Thapar Ispat Ltd, AIR 1999 Bom 417 [LNIND 1999 BOM 363]
159
Court of Wards v Maharajah Coomar Ramaput Singhad, PC, 1872.

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PUBLIC POLICY OF INDIA

In so far as the ground regarding the award being in conflict with the public policy of India is
concerned, the ambit thereof is quite distinct and different and depends upon the nature of the
award i.e. domestic or international. The Supreme Court in Renu Sagar, 160 while construing
the provisions of section 7 of Enforcement and Recognition of the Foreign Award Act which
are in pari materia with section 48 of the 1996 Act, held that the Indian courts would be
justified in refusing enforcement of a foreign award on the ground that the award is in
conflict with the public policy of India, if such enforcement is contrary to (a) the fundamental
policy of Indian law; (b) Indian interest; and (c) morality and justice. It was clarified that
enforcement of foreign award being governed by the principles of private international law,
the doctrine of public policy, as applied in the field of international law alone would be
attracted. The court further clarified that a mere infraction of a domestic law per se would not
amount to a conflict with the public policy of India.

Insofar as domestic awards are concerned, what precisely would be the scope of challenge of
an award on the ground of public policy of India remains to be settled as yet. Surely, an
adjudicator of a dispute in India, who is required to apply the laws of India in the process of
such adjudication, would be bound by such laws. If an award is demonstrably contrary to the
law of the land, it would be in conflict with the public policy of India. But then a further
question would arise as to the nature of such law, which could be said to comprehend within
itself the public policy of India. Would all the plenary legislations fall in this category? Or,
would it be open to the courts to scrutinize whether the law, which is alleged to be infringed,
is directory or mandatory? Does every provision of law lay down a public policy? Would the
subordinate legislations fall in the category of laws for the purpose? And these questions have
to be traced right up to the notifications and orders issued under the statutes.

If there were to be two independent statutes dealing with the domestic and international
arbitrations, much of these questions could be dealt with more conveniently than the law in
the form as it stands at present.

Section 31 of the Act requires the arbitral award to state the reasons upon which it is based
unless the parties agree that no reasons are to be given. Section 34, however, does not in turn

160
Renu Sagar Power Company Ltd. v. General Electric Company, (1994) Supp. 1 SCC 644.

58 | P a g e
specify a ground for setting aside an award, which fails to comply with the requirement of
stating the reasons upon which it is based.

What is the object of requiring every arbitral award to state reasons upon which it is based?
Foremost among the objective is to enable the litigating parties to know why the arbitrator
has decided the dispute one way or the other. Secondly, in the event of the challenge to the
award, the court could satisfy itself that the arbitrator did apply his mind to the relevant facts
and law. The court, however, cannot sit in appeal over such decisions, but in the absence of
any application of mind, it would be open to the court to hold that the requirement of stating
reasons have not been complied with which should be a ground for setting aside such an
award.

CONCLUSION

Arbitration process has been compared to a relay race. The following words of Lord Mustill
which has been quoted in the Supreme Court Decision In adhunik Steels v. Orissa manganese
and minerals (p) ltd.161 aptly describes this process:

Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages,
before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that
stage there is no other organization which could take steps to prevent the arbitration
agreement from being ineffectual. When the arbitrators take charge they take over the baton
and retain until they have made an award. At this point, having no longer a function to fulfill,
the arbitrators hand back the baton so that the court can in case of need lend its coercive
powers to the enforcement of the award.

Therefore, to have a successful and effective arbitral process there should not be delay at each
stage of the arbitral process. The parties should not indulge in dilatory tactics and the
institutions involved should also function efficiently. The arbitration law should enable the
arbitral process to proceed smoothly and efficiently and discourage dilatory tactics by the
parties to prolong the litigation.
161
(2007) 7 SCC 125 [LNIND 2007 SC 842] at 133-34.

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A survey of the arbitration decisions rendered by the Supreme Court during 2007 would show
that there is a limited success in this regard. The increasing number of cases before the
Supreme Court at the first leg of the relay race in the arbitral process, namely, on the
appointment of arbitrators would establish this. There are considerable delays in the arbitral
process at subsequent stages also. This would clearly show that parties successfully adopt
dilatory tactics to prolong the litigation which would defeat the very purpose of enacting the
Arbitration and Conciliation Act, 1996 Act (the Act) by adopting the UNCITRAL Model
Law.

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