Arbitration and Conciliation Act, 1996- An

insight into the key elements

• Arbitration is a form of Alternative Dispute Resolution (ADR). ADR
methods enjoy significant advantages such as lower costs, greater
flexibility of process, higher confidentiality, greater likelihood of
settlement, choice of forum, choice of solutions etc.
• Having said that one of the most popular widely recognized and
practiced forms of ADR is Arbitration.
• In an attempt to make arbitration a preferred mode of settlement of
commercial disputes and making India a hub of international commercial
arbitration some major amendments were introduced in the year to 2015
and 2019.
• The current law is a composition of several such amendments with the
latest amendments being introduced in 2019.
• Arbitration is the buzz word in the present day business contracts. The law
bestows a choice upon the parties to enter into commercial transactions
knowing well that in case, of a dispute, they will refer their dispute to this
simple, quick, convenient and cost effective process saving them from
tedious and complicated procedures of a court.
• The law bestows a choice upon the parties to enter into commercial
transactions knowing well that in case, of a dispute, they will refer
their dispute to this simple, quick, convenient and cost effective
process saving them from tedious and complicated procedures of a
court.
• The Act covers both Domestic and International Arbitration.
Key Elements of an Arbitration Agreement

1. Consent
• An arbitration cannot happen without the consent of the parties. The
consent is contained within an arbitration agreement.
• This agreement clearly specifies the desire of the parties to arbitrate their
dispute.
• In other words, they clearly note that in the event of a dispute between them
they would not go to the court, instead they will proceed to arbitrate their
dispute. This agreement takes the form of a binding contract.
• As per Section 7 of the Act, "arbitration agreement" means an agreement by
the parties to submit to arbitration all or certain disputes which have arisen
or which may arise between them in respect of a defined legal relationship,
whether contractual or not.
• The reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the
reference is such as to make that arbitration clause part of the contract.
• Therefore, an oral agreement to submit a dispute to arbitration is not
binding.
• It is not necessary that the agreement should be on a formal
document. It is sufficient that the written agreement has been orally
accepted by the parties or that one has signed and the other has
accepted.- Chander Nath Ojha vs. Suresh Jhalani
2. Presiding Authority
• The Authority adjudicating the dispute is better known as the arbitral
tribunal.
• It is similar to a judge that presides over a court of law.
• The presiding authority is known as the arbitrator, who is in charge of
deciding the disputes between the parties.
• Just like the judge an arbitrator also has several responsibilities set
out in the code.
• The arbitrator is under oath to perform its duties.
• He/She is bound to take decisions and conduct proceedings in a
neutral and impartial manner.
• One of the key features of an Arbitration Agreement is the fact that
the parties are free to choose their presiding authority.
• This legislative clause not only inspires confidence in the arbitrators
but also the process and the decisions taken.
• The Act also has provisions for removing arbitrators, if found guilty of
not being neutral and independent.
3. Seat of arbitration
• The seat of arbitration determines the courts which would exercise
jurisdiction over the arbitration proceeding.
• In absence of such an agreement, the 1996 Act solely operates within
the territory of India.
4. Party autonomy and procedure
• Arbitration gives the parties the choice to select applicable laws,
especially if the arbitration is an international commercial arbitration.
• Additionally, there is an enormous flexibility to choose the procedure
that shall be applicable.
• The Rules of the arbitration can be self - governed, however, the said
rules have to be in the spirit of Public Interest of India.
5. Finality of outcome
• No appeal lies against an arbitral award, however, an arbitral award
can only be set aside if the said award suffers from as invalid
arbitration agreement, party's incapacity to enter into an agreement,
independence and impartiality of an arbitrator, unfair procedure, etc.
LANDMARK CASE LAWS BASED ON ABOVE
PRINCIPLES - (JUDICIAL DICTA)

Mother Boon Foods Pvt Ltd vs. Mindscape One Marketing Pvt Ltd
O.M.P. (COMM) 136/2017

• The Court held that an arbitration agreement, as per the 1996 Act,
has to be in writing. Since the arbitration clause, which is a part of the
contract, was in writing, the same could not have been superseded by
any oral demand or agreement.
K.K. Modi v. K.N. Modi; Bharat Bhushan Bansal v. U.P. Small Industries
Corpn. Ltd; Bihar State Mineral Development Corpn. v. Encon Builders (I) (P)
Ltd; and State of Orissa v. Damodar Das

• The Hon'ble Supreme Court of India had the occasion to refer to the
attributes or essential elements of an arbitration agreement and held that
a clause in a contract can be construed as an "arbitration agreement" only
if an agreement to refer disputes or differences to arbitration is expressly
or impliedly spelt out from the clause. It was observed that the intention
of the parties to enter into an arbitration agreement shall have to be
gathered from the terms of the agreement. It has been held that where
there is merely a possibility of the parties agreeing to arbitration in
future, as contrasted from an obligation to refer disputes to arbitration,
there is no valid and binding arbitration agreement.
Key Elements of an Arbitration Procedure
• As stated in the previous slides, the key elements of the agreement
states that the parties have the right to choose the procedure and
persons as to who would act as arbitrators in their dispute.
• However, this right to choose is not absolute but is subject to certain
limitations.
• There are two aspects to appointment, namely number of arbitrators,
and the actual procedure of appointment.
• There are many things that should be kept in mind at the time of
appointment of arbitrators, for instance the fees of the arbitrators,
complexity of the matter, time required for meetings, duration of
sessions when oral arguments would be made, etc.
• More than two arbitrators result in greater discussions which can improve
the quality of awards.
• It also brings greater expertise as arbitrators may be from different
specialty and background.
• Law mandates that an odd number of Arbitrators constitute the tribunal
always.
• It may be noted that the India arbitration is governed by the Arbitration
and Conciliation Act, 1996 read with the Indian Contract Act, 1872.
• The two Acts together provide the legal framework governing and
regulating arbitration in India. The 1996 Act is based on the UNCITRAL
Model Law of 1986, and was amended vide the Arbitration and Conciliation
(Amendment) Act, 2015.
• Since the arbitrators cannot act ultra - vires of their powers under the
code, the act has established a higher authority to keep checks and
balances on the practices of the ADR.
• The Courts have been defined in the act as they are required to
performs several important functions for setting up this institution.
The Court performs the Supervisory function as regards that
arbitration.
• This supervisory function would include granting of interim measures,
challenge to an arbitral tribunal, review of an award, and
enforcement of awards, etc.
• It has been observed that on several occasions, the parties come to a
loggerhead, in appointing an arbitrator on their own.
• On several occasions if one party nominates the name of an Arbitrator, the
opposite party fails to comply in appointing one at its end.
• This is when the Supreme Court and High courts are entrusted the task of
appointing an arbitrator best suited for the dispute in hand.
• The code entails Supreme Court to be the designated the authority for
appointing an arbitrator in cases of international commercial arbitration,
while High Court is the authority for appointment of an arbitrator in cases
of domestic arbitrator.
• The Act also authorizes any person or institution so designated by the
Supreme and High Court to appoint the arbitrators.
LANDMARK CASE LAWS BASED ON ABOVE PRINCIPLE - (JUDICIAL
DICTA)

TRF Ltd v. Energo Engineering Projects Ltd Civil Appeal No. 5306 of
2017
• Once the arbitrator has become ineligible by operation of law, he
cannot nominate another as an arbitrator. It is inconceivable in law
that a person who is statutorily ineligible can nominate a person.
Needless to say, once the infrastructure collapses, the superstructure
is bound to collapse.
Key elements of an Award
• An award is the passing of the conclusive reasoning to the questions
and issues forming the disputes that are put forward before the
arbitral tribunal to decipher.
• The award is passed after reasonable opportunity has been granted
to all parties to present their case and produced the evidence.
• An arbitral award is similar to a judgment given by a court of law. In
other words, an arbitral award is given by the arbitral tribunal as a
decision on various issues in a matter which the parties had placed
before the arbitral tribunal.
• The awards are several types: Final Award, Interim Award and
Settlement Award.
• A settlement award is reached by the consensus amongst the parties,
hence the said award in non-appealable.
• The Arbitration and Conciliation Act, 1996 prescribes certain
requirements for an arbitral award.
• The necessary requirements are:
a. Must be a decision by the majority - An arbitration Tribunal consisting of three
arbitrators must pass an award in light of the majority consensus in which they shall
also record the objection of the arbitrator not in alignment of the two arbitrators.
b. Must be made in writing, signed and dated - An award has to be in writing and
having the signature of majority of the members of the arbitral tribunal.
c. Must be reasoned - An award should be reasoned. Failure to state reasons would
make the award invalid. It must not be vague. The arbitral award should be both
certain and clearly note which party has to do what.
d. Capable of being performed - Apart from being enforceable it should be must be
realistic in what it suggests, and should not ask parties to do something that is not
possible or illegal. An unenforceable award would .be set aside.
LANDMARK CASE LAWS BASED ON ABOVE PRINCIPLE- (JUDICIAL DICTA)

Ravindra Kumar Gupta & Co. v. Union of India

• It is reiterated that reappraisal of evidence by the Court is not permissible.
Where the reasons have been given by the arbitrator in making the award
the court cannot examine the reasonableness of the reasons. If the parties
have selected their own forum, the deciding forum must be conceded the
power of appraisement of evidence.
• The arbitrator is the sole judge of the quality as well as the quantity of
evidence and it will not be for the court to take upon itself the task of
being a Judge on the evidence before the arbitrator.
Food Corporation of India-vs-Joginderpal Mohinderpal & Anr.
AIR 1989 SC 1263
The court should not substitute its own view for the view taken by the
arbitrator while dealing with the proceeding for setting aside an award.
Where the arbitrator acts within jurisdiction, "the reasonableness of
the reasons" given by the arbitrator is not open to scrutiny by court.
Key elements of an Appeal
• The Act provides for setting aside of an Arbitral Award by the Court.
• A comprehensive list of circumstances under which an Arbitral Award can be set
aside by the Court and they are where the party is under some incapacity;
Arbitration agreement between the parties is not valid; Lack of notice of
appointment of arbitrator or of holding of arbitral proceeding; Arbitral award
deals with a dispute not contemplated by or not falling within the terms of the
submission to arbitration or it contains decisions on matters beyond the scope of
submission of arbitration; Composition of arbitral tribunal or arbitral procedure
was not in accordance with the agreement of the parties; The Court finds that the
subject matter of the dispute is not capable of settlement by arbitration under the
Law; and lastly, the Award is in conflict with the Public Policy. The unlikely
challenges to be entertained by the courts are that the arbitral tribunal is
favouring or is biased in favour of one of the parties. Such a challenge should be
first at the first instance of its knowledge coming to the parties. The parties to the
dispute may appeal to the court establishing vested interest of the arbitrator.
LANDMARK CASE LAWS BASED ON ABOVE PRINCIPLE - (JUDICIAL DICTA)
Hemadari Cements Pvt. Ltd. v. Walchandnagar Industries Ltd
• Unreasoned Arbitral Award [Section 31(1)]- In this case, the Petitioners
filed for setting aside the award under Section 34 on the ground that the
award passed by the Arbitral Tribunal is an unreasoned award and liable to
be set aside in view of the provision under Section 31(1) of the Act.
• In the case of Hemadari Cements Pvt. Ltd. v. Walchandnagar Industries
Ltd., the Division Bench of Andhra Pradesh High Court held that an award
even if it is valid is liable to be set aside, if the award in question does not
contain any reasons.
Jajodea (Overseas) Pvt. Ltd. v. IDC of Orissa Ltd
• The Supreme Court in the case of Jajodea (Overseas) Pvt. Ltd. v. IDC
of Orissa Ltd., settled the legal position that A speaking or reasoned
award is one which discusses or sets out the reasons which led the
Arbitrator to make the award.
• Setting out the conclusions upon the questions of issues that arise in
the arbitration proceedings without discussing the reasons for
coming to these conclusions does not make an award a reasoned or
speaking award.