RAYAT COLLEGE OF LAW,

RAILMAJRA.
ALTERNATIVE DISPUTE RESOLUTION

PROJECT TOPIC – CRITICAL ANALYSIS OF AR-

BITRATION AND CONCILIATION ACT, 1996.

SUBMITTED TO: SUBMITTED BY:

MR. SUKHWINDER SINGH NIVEDITA SHARMA
ASSISTANT PROFESSOR LL.B. 3 YEAR(II SEM)
ADR 221403
Acknowledgement…………………………………………. (i)

Table Of Cases………………………………………………(ii)

Introduction…………………………………………………2-3.

Critical Analysis of Arbitration and

Conciliation Under The 1996 Act…………………………….3-8.

Recent Amendments…………………………………………8-12.

Conclusion…………………………………………………...12-13.

Bibliography……………………………………………………14.
 ACKNOWLEDGEMENT
I would like to express my special thanks for gratitude to our subject teacher.
Mr. Sukhwinder Singh, who gave me the golden opportunity to do this wonder-
ful project of ADR on the TOPIC-Critical Analysis Of Arbitration and Concili-
ation Act, 1996.
I came to know about so many new things, and I’m really grateful for that.
Secondly, I would also like to thank my parents who helped me a lot in complet-
ing this project within the stipulated time frame.

NIVEDITA SHARMA
LL.B. – 3 Year
Second Semester
 A CRITICAL ANALYSIS OF ARBITRATION AND CONCILIATION
ACT, 1996

The significant growth in the number of business disputes over the last few decades has
paralleled the significant increase in economic development of nations. In India also, rapid
economic globalization has resulted in an increase in business disputes as a result of
increased competitiveness.
Simultaneously, the rate of industrialization, modernization, and improvement of
socioeconomic conditions has often exceeded the growth of dispute resolution systems. Rapid
development has resulted in increased caseloads for already overloaded courts in many parts
of India, resulting in notoriously delayed adjudication of business disputes.
As a result, alternative dispute resolution mechanisms, such as arbitration, have become
increasingly important for companies doing business in India and those doing business with
Indian companies. This research paper aims to critically assess arbitration as a legal
institution in India. The article examines Indian arbitration legislation and practice,
highlighting how the current arbitration system in India is still riddled with inadequacies and
flaws, and how arbitration quality has not improved as a speedy and cost-effective process for
resolving business disputes.

INTRODUCTION
The huge growth in the number of business disputes over the last few decades has paralleled
the significant increase in economic development of nations. Rapid economic globalization,
as well as the resulting increase in competitiveness, has resulted in an increase in commercial
conflicts in India.
Simultaneously, the rate of industrialization, modernization, and improvement of
socioeconomic conditions has often exceeded the rate of growth of dispute settlement. As a
result, alternative dispute resolution methods, such as arbitration, have become increasingly
important for companies doing business in India and those doing business with Indian
companies.
As a worldwide economic powerhouse, Indian laws have been altered numerous times to
keep the country on level with legal regimes in other top commercial law jurisdictions in the
goal of integrating with the global business community. The three enactments that govern
arbitration in India are the arbitration Act, 1940, the arbitration (protocol and convention)
Act, 1935, and the foreign awards (recognition and enforcement) Act, 1961.The legislation
introduced a Bill to consolidate and reform the law pertaining to domestic arbitration,
international commercial arbitration, and enforcement of foreign arbitral decisions, as well as
to clarify the law governing conciliation, taking into account the UNCITRAL Model Law and
Rules. On 16th August, 1996, the Arbitration and Conciliation Act came into effect.
In sum, despite the fact that the massive influx of global commercial transactions spurred by
India's economic growth has resulted in a large increase in commercial disputes, arbitration
practice has lagged behind.
The evolution of arbitration law and practice in India has been explored in this paper,
including how the contemporary arbitration system in India is still plagued by many flaws
and shortcomings, and the quality of arbitration as a rapid and cost-effective process for
resolving commercial disputes has not fully developed.

Critical Analysis of Arbitration and Conciliation Under The 1996 Act

The earlier law, the 1940 Act, did not meet the aspirations of the people in general, and the
business community in particular, therefore the 1996 Act was enacted. Despite the fact that
the 1996 Act was meant to fill in the gaps in the 1940 Act, it failed due to the arbitral system
that developed beneath it. The Act's major goal was to give the existing judicial system,
which was plagued by unreasonable delays and a backlog of cases, a more efficient and
effective conflict settlement process. However, an examination of the 1996 Act's arbitration
mechanism indicates that it failed to achieve its intended goals.

1. Speedy Justice
Arbitration is common in India, but it is plagued by delays that stymie the effective resolution
of disputes. Although the 1996 Act gives arbitrators more authority and protects them from
court interference, it does not set a deadline for the processes to be completed. This differs
from the 1940 Act, which set a deadline for the conclusion of arbitration proceedings. The
time limit for completing arbitration procedures was eliminated, based on the assumption that
court meddling is the main cause of delays in arbitration and that giving arbitrators more
autonomy would remedy the problem.

On the other hand, the reality is rather different. Arbitrators who are usually retired judges,
view arbitration hearings similar to ordinary litigation, and are inclined to grant lengthy and
frequent adjournments when requested by the parties.[1] Furthermore, the parties frequently
approach arbitration with same mindset as for litigation, resulting in awards that ultimately
wind up in courts, lengthening the time it takes to resolve conflicts. Parties also take
advantage of an existing rule that allows for an automatic stay of the awards' execution
simply by filing a challenge application. As a result, the goal of arbitration as a vehicle for
resolving conflicts quickly is hampered by obvious delays.

2. Cost Effective
Arbitration is relatively more cost effective than litigation when the number of arbitration
proceedings is limited. The following is the standard procedure before the arbitrators: the
claimant is required to file his claim statement and supporting documents at the first hearing;
the opposing parties are required to file their reply and supporting documents at the second
hearing; and the claimant is required to file his rejoinder at the third hearing.
There are normally two or three adjournments at each of these stages. Occasionally, either
party files an application for interim instructions, which increases the arbitration sessions
required to decide such interim applications. The first time an arbitral tribunal considers a
question of jurisdiction is usually after the arbitral tribunal has issued at least 6 adjournments.
Litigation, on the other hand, are unquestionably less expensive if admitted, even if they take
a long time to resolve. This is because lawyers' costs are the only significant expenditure in a
lawsuit, and lawyers often charge the same, if not more, per hearing.

3. Judicial Intervention
One of the main goals of the 1996 Act was to give arbitrators more power and limit the
court's supervisory role in the arbitration process. In reality, the 1996 Act allows for frequent
judicial intervention.

(a.) Public Policy

In the 1996 Act, the term public policy is used twice. If an award is in conflict with Indian
public policy, it can be set aside under Section 34 of the 1996 Act (Part I). Furthermore, if a
foreign award is detrimental to India's public policy, it may be rejected enforcement under
Section 48 of the 1996 Act (Part II). In the case of Renusagar Power Electric Co v. General
Electric Co (Renusagar) which included enforcement of an ICC Award, the topic of public
policy surfaced for the first time as an exemption for enforcement of a foreign arbitral award.
The 1961 Act [4] was used in this judgement. The Supreme Court (SC) concluded that the
term public policy should be interpreted narrowly when it comes to the implementation of a
foreign award. Public policy has been used in a narrower sense, and the enforcement of the
award must evoke something more than a breach of Indian law in order to attract the attention
of the bar of public policy." according to the Court. Applying the aforementioned criteria, it
must be established that enforcement of a foreign award would be refused on the basis of
public policy if such enforcement would be opposed to:
1. Indian law's fundamental policy;
2. India's interests;
3. Justice or morality.
In Oil and Natural Gas Corporation v. Saw Pipes Ltd the question was whether an award
made in India may be overturned on public policy grounds, claiming that the arbitral tribunal
had applied the law of liquidated damages wrongly. Despite the Renusagar precedent, the SC
ruled that any arbitral judgement that contradicts Indian law provisions is patently invalid and
against the public policy. The court in Saw Pipes distinguished the case from Renusagar on
the basis that the latter's issue concerned the implementation of an award that had reached
finality under the 1961 Act. In Saw Pipes, on the other hand, the award's legitimacy was
questioned. As a result, in the Saw Pipes case, Indian courts would oversee the domestic
award because they were the principal courts.
Furthermore, it was determined that if the term public policy was given a restrictive
interpretation, certain of the 1996 Act's provisions would be rendered ineffective. As a result,
the SC construed the 1996 Act's Section 34 (2)(b)(ii) to include the additional basis of "patent
illegality". Illegality must go to the "root of the matter" and not be minor in character.

(b.) Misuse of the Public Policy doctrine post Bhatia International Case:
In the Renusagar case, the SC gave a restrictive meaning of public policy, but in the Saw
Pipes case, it gave a broader reading. In effect, this means that different interpretations of the
term public policy existed for refusing to set aside an arbitral award for public policy reasons
on the one hand, and refusing to enforce a foreign award for public policy reasons on the
other. This has since modified as a result of the SC's decision in Bhatia International vs Bulk
Trading [6] (Bhatia). The distinction between Part I and Part II was erased in Bhatia
International. It held, Part I would apply to all arbitrations and all related proceedings. The
provisions would be mandatory be applied in all arbitrations held in India. Only the derogable
provisions of Part I were subject to change. In international commercial arbitrations, held
outside India, the provisions of Part I would apply by default unless the parties expressly or
impliedly, excluded all or any of its provisions.
The Indian courts used the Bhatia decision to overturn a foreign arbitration award[7] and
appoint an arbitrator in a case that took place outside India.[8] This pushed many parties to
commercial contracts drafted arbitration clauses specifically excluding the use of Part I of the
Act as a result of these judgements.
Simultaneously, in reaction to mounting criticism of the Bhatia principle's
arbitration unfriendliness, Indian lower courts began to limit the Indian court's ability to
intervene in foreign arbitrations. These decisions were highly criticized and as a result, parties
frequently & deliberately challenged foreign arbitration awards in Indian courts on public
policy grounds. This went against the New York Convention’s [9] essential concept of mutual
recognition and execution of arbitral rulings.

(c.) A Shift in Interventionist Approaches to Foreign Awards:

The Bhatia concept was reversed in Bharat Aluminium Company v. Kaiser Aluminium
Technical Services [10] ("BALCO"), which found that Part I of the Act only applies to
arbitrations held in India. The court stated in support of its decision that the parties' choice of
seat, and not the law underlying the contract or arbitration agreement, determined whether the
Indian courts had jurisdiction.
This was a welcome clarification of an issue that had previously been a source of uncertainty
in SC decisions. The court observed, Part I and Part II of the Act are mutually exclusive, due
to the territoriality principle imposed by the Act. As a result, the ability under section 34 of
Part I of the Act to set aside an arbitration award does not extend to arbitrations held outside
of India. Only arbitrations held in India are entitled to this power.
While BALCO reduced the authority of Indian courts to intervene in the conduct of foreign-
seated arbitrations, it left intact prior contentious SC decisions regarding the public policy
grounds for challenging an award, as well as the scope of such challenges. As previously
stated, the SC concluded in ONGC v. Saw Pipes that an award that contradicted with Indian
law was contrary to public policy and so unenforceable. The Saw Pipes case raised the
obvious worry among parties that any award made outside of India could be subjected to
substantive review at the enforcement stage.

The Supreme Court, however, addressed this issue in Shri Lal Mahal Ltd v. Progetto Grano.
[11] The Court ruled that the term "public policy of India" should be given a narrower
interpretation, and that foreign awards should only be enforced if they are opposed to Indian
law's fundamental policy, national interests, justice, or morality. The SC upheld its judgement
in Renusagar Power Company Ltd v. General Electric Company and overturned Phulchand
Exports' wide interpretation of public policy. This has been a great respite for parties involved
in arbitrations held in foreign jurisdictions.

(d.) Post BALCO Judgment:

The BALCO ruling improved India's investment and business climate by limiting the scope
of Indian courts' interference in offshore arbitration. As a result of this decision, India has
returned to its pre-Bhatia International position. Nonetheless, there are at least two aspects of
the post-BALCO arbitral regime that could jeopardise the process's confidence

(i) The Pre-BALCO system still applies to parties who signed arbitration agreements before
September 6, 2012. This is due to the fact that the judgement simply states that it will "apply
prospectively to all arbitration agreements executed afterwards." Parties who signed
arbitration agreements before September 6, 2012 are still bound by the Bhatia's principles.

(ii) A significant feature of offshore arbitration:

the opportunity to go to Indian courts for interim remedies in support of such proceedings - is
no longer accessible to parties entering into new arbitral agreements, to which the BALCO
ruling applies. The Supreme Court ruled that Part I and Part II of the Act are completely
segregated, meaning that "...any of the regulations included in Part I cannot be made
applicable to Foreign Awards...".

Unfortunately, Part I of the Act contains not just powers that can be used to stymie offshore
arbitration procedures, but also ones that can help them, most notably the ability to mandate
interim measures in support of arbitration proceedings, which is found in section 9 of Part I
of the Act.

While the Supreme Court acknowledged that the segregation theory would prevent Indian
courts from issuing interim measures in support of foreign arbitrations, it also stated that
rather than the Supreme Court, the legislature should handle a matter to be redressed by the
legislature. Parties to arbitration procedures situated outside India will be unable to apply to
Indian courts to preserve assets or evidence, force the attendance of a witness, or seek an
order for security for costs until such reforms are adopted.

4. Award Enforcement

The efficiency and efficacy of the award enforcement regime is one of the variables used to
determine whether arbitration is a successful legal institution. An arbitral award is
enforceable as a court decision under Section 36 of the 1996 Act, and could be enforced in a
suit under the rules of the Civil Procedure Code, 1908. International treaties and conventions
that stipulate the acceptance and enforcement of arbitral awards govern the enforcement of an
award emanating from an international commercial arbitration.

The New York Convention, 1958 and the Geneva Convention, 1927which is incorporated in
Chapter II, Part I and Part II, respectively, of the 1996 Act, govern the enforcement of foreign
awards in India. The enforcement provisions of the 1940 Act and the 1996 Act are similar.
Any party interested in foreign awards must submit a written request to a court with
jurisdiction over the subject matter of the award. Under the 1996 Act, the decree holder must
file the award, the agreement on which it is based, and documentation to show that the award
falls under the category of foreign award.

RECENT AMENDMENTS
A. Arbitration and Conciliation (Amendment) Act,2015
The 2015 Amendment Act made major improvements to the Act and went a long way
toward clarifying various concerns related to the Act's goals. It established stringent
deadlines for the conclusion of arbitral proceedings along with a fast-track approach
for settling conflicts. New provisions were added to the 2015 Amendment Act. In
addition to existing provisions governing the appointment of an arbitrator it amended
the grounds for challenging an arbitrator's appointment for a lack of independence and
impartiality were further defined.

The following are some of the significant revisions made by the 2015 Amendment
Act:

1. Proceedings Prior to Arbitration

 i. Impartiality and independence

 Applications for the appointment of an arbitrator shall be resolved within sixty (60)
days following service of notice on the opposing party.
 A precise schedule for arbitrator ineligibility has been put in place, based on the IBA
Guidelines on Conflict of Interest.
ii. Interim Reliefs

 Parties with foreign-seated arbitrations now have more flexibility in approaching

Indian courts for assistance in foreign-seated arbitrations.
 Section 9 applications must be filed directly with the High Courts in the instance of
International Commercial Arbitration ("ICA") based both in India and abroad.
 Interim reliefs given by arbitral tribunals seated in India are deemed to be court orders
under the new regime and are thus enforceable.
 Arbitration proceedings must begin within 90 days of the court's grant of interim
relief, or within any additional time decided by the court.

(b) Arbitral Proceeding Stage

(i) Expeditious disposal

 A twelve-month deadline was set for the completion of arbitrations held in India.
 Expeditious application processing, as well as estimated timelines for submitting
arbitration applications before courts for interim relief, arbitrator appointment, and
contesting petitions.
 Incorporation of an expedited/fast track arbitration system to resolve certain issues in
six months or less.

(ii) Costs

 A new "costs follow the event" policy has been implemented.

 In relation to the assessment of expenses by arbitral tribunals seated in India, certain
detailed provisions have been added.
(c) Post-arbitral Proceedings

(i) Enforcement and Challenge

 The grounds for challenging an arbitral ruling in the context of an ICA based in India
have been narrowed.
 In the case of ICAs based in India, Section 34 applications must be filed directly with
the High Courts.
 Section 34 petitions must be resolved quickly and, in any case, within one year of the
date on which the opposing party is given the notice.
 There will not be an automatic stay on the award's execution if a challenge is filed
under Section 34 of the Act; rather, the court must issue an order expressly halting the
execution procedures.

B. Arbitration and Conciliation (Amendment) Act, 2019 - The High-Level Committee to

Review the Institutionalization of Arbitration Mechanisms in India was formed to identify
roadblocks to the development of institutional arbitration in India, examine specific issues
affecting the Indian arbitration landscape, and develop a roadmap for making India a strong
international and domestic arbitration centre. The 2019 Amendment Act [15] was passed with
the goal of making India a global centre for institutional arbitration for domestic as well as
international arbitration.

The 2019 Amendment Act made several significant changes to India's arbitration
landscape:

(i) 2019 Amendment Act aimed to create the Arbitration Council of India, which would have
powers such as grading arbitral institutions, recognizing professional institutes that provide
arbitrator accreditation, giving arbitral institution suggestions and guidelines, as well as
taking initiatives to make India a centre for domestic and international arbitrations. This
amendment, however, has yet to be notified.

(ii) In addition, the 2019 Amendment Act modifies the 2015 Amendment Act by allowing the
Supreme Court and High Court to nominate arbitral institutes that have been accredited by
the Arbitration Council of India to choose arbitrators. This change has also yet to be notified.

(iii) The 2015 Amendment Act established a 12-month deadline for the conclusion of
arbitration proceedings from the moment the arbitral tribunal accepts the reference (which
can be extended to 18 months with the approval of the parties). The 2019 Amendment Act
changes the start date of the time limit to the completion of the pleadings. The pleadings must
be finished in six months.

(iv) In addition, the 2019 Amendment Act exempts "foreign commercial arbitration" from
the time limit for completing arbitration proceedings.

(v) The 2019 Amendment Act adds explicit provisions on arbitration processes
confidentiality and arbitrator immunity.

(vi) The Eighth Schedule of the 2019 Amendment Act further establishes minimal standards
for a person to be accredited/act as an arbitrator. The 2020 Ordinance has now removed the
Eighth Schedule.
The Supreme Court addressed the issue of the 2015 Amendment Act's retrospective
applicability in 2018. The Supreme Court made a clear distinction between the two limbs of
Section 26 of the 2015 Amendment Act and explained the applicability of the 2015
Amendment Act in the case of Board of Control for Cricket in India v. Kochi Cricket Pvt.
Ltd. [16] ("BCCI"). The first section of Section 26 deals solely with arbitral proceedings
before the arbitral tribunal. The second section, according to the Court, only deals with court
procedures relating to the arbitral proceedings.

It then determined that the 2015 Amendment Act is prospective in nature, and that it will
apply to (i) arbitral procedures that began on or after 23rd October, 2015, and (ii) judicial
proceedings that began on or after 23rd October, 2015. The Supreme Court, decided that the
revision to Section 36 of the Act, which removes the implied automatic hold on the execution
of arbitral awards, is retroactive because it is procedural in nature.

The 2019 Amendment Act added Section 87, which states that the 2015 Amendment Act,
which took effect on 23rdOctober, 2015, applies only to arbitral procedures that began on or
after 23rdOctober, 2015 and to court proceedings that arise from such arbitral proceedings. In
terms of the implementation of Section 36 of the Act, this was in stark contrast to the
Supreme Court's decision in BCCI. In the case of Hindustan Construction Company Ltd. v.
Union of India, however, the SC declared Section 87unconstitutional. As a result, the
Supreme Court's decision in the BCCI case has been reinstated.

C. Arbitration and Conciliation (Amendment) Act, 2020

On 4th November, 2020 the Arbitration and Conciliation (Amendment) Ordinance, 2020 was
promulgated, further revising the Act.[19] Two amendments resulted as a result of this:

a. An unconditional stay on the enforcement of an India-seated arbitration award (including

both domestic and international arbitration awards) until the challenge to the award is
resolved, where the court concludes prima facie that the arbitration agreement or contract on
which the award is based, or the award itself, was induced or accomplished by fraud or
corruption
b. The much-debated qualifications, experience, and norms for arbitrator accreditation
established in the Arbitration Act's Eighth Schedule have been removed.
The amendment to the enforcement of an arbitration award that has been tainted by fraud or
corruption has been retroactively applied, meaning that it will apply to all court cases
involving arbitral processes, whether they began before or after 23rd October, 2015.

Conclusion
The goal of the 1996 Act was to establish speedy and cost-effective conflict resolution. In
India, arbitration is a popular method of resolving business disputes. An examination of
arbitration in India finds that the institution is still developing and has not yet reached the
stage where it can effectively meet the needs exacerbated by commercial growth. In the
aggregate, India does not appear to be a jurisdiction with an anti-arbitration tendency.
Indian courts, despite their interventionist impulses and extended judicial review, refrain from
interfering with arbitral rulings. In order to attract foreign investment, a fast-growing
economy requires a trustworthy, stable conflict resolution mechanism. Due to the massive
backlog of cases pending in Indian courts, commercial players both in India and overseas
have established a strong preference for resolving conflicts through arbitration.
Despite being one of the original signatories of the New York Convention, Indian arbitration
has not always followed worldwide best practises. However, there has been a significant shift
in attitude in the previous five years. Indian arbitration legislation has been brought in line
with worldwide best practises by courts and legislators.

With the courts' pro-arbitration approach and the 2015, 2019 and 2021 Amendment Acts in
place, there is reason to believe that these best practises will soon be incorporated in Indian
arbitration law. The Indian arbitration jurisprudence is in for some exciting times, and our
courts are prepared to tackle a number of cases involving the interpretation of the Act's
numerous changes.
THANKYOU.
BIBLIOGRAPHY
A. Conventions
1. Geneva Convention, 1927.
2. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
1958.

B. Law Commission Reports

1. Law Commission of India, 176th Report.

C. Legislations & Codes

1. Arbitration and Conciliation Act, 1996.
2. The Foreign Awards (Recognition and Enforcement) Act, 1961.

SOURCES:
1. Justice Indu Malhotra: Ad-hoc Arbitrations keep on lingering as lot of Retd Judges delay them
deliberately' (Latest Laws.Com, 21 June, 2020)
2. https://www.latestlaws.com/latest-news/justice-indu-malhotra-ad-hoc-arbitrations-keep-on-
lingering-as-lot-of-retd-judges-delay-them-deliberately/ accessed 22 September 2021
3. Law Commission of India, 176th Report, Arbitration and Conciliation (Amendment) Bill, 2001
at p 68.
4. AIR 1994 SC 860
5. The Foreign Awards (Recognition and Enforcement) Act, 1961 (2003) 5 SCC 705 ;2002 (4) SCC
105
6. Venture Global Engineering v. Satyam Computer Services Limited (2008) 4 SCC 190.
7. Intel Technical Services Pvt Ltd v. WS Atkins Plc (2008) 10 SCC 308
8. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958;2012
9. Arbitration and Conciliation Act 1996, s.87.
10. Arbitration and Conciliation (Amendment) Ordinance, 2020 (No. 14 of 2020).
TABLE OF CASES:
CASES:
1. Bharat Aluminium Company v. Kaiser Aluminium Technical Services, 2012 (8)
SCALE 333.
2. Bhatia International vs Bulk Trading, 2002 (4) SCC 105.
3. Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC
287.
4. Hindustan Construction Company Ltd. Union of India, AIR 2020 SC 122.
5. Intel Technical Services Pvt Ltd v. WS Atkins Plc, (2008) 10 SCC 308.
6. Oil and Natural Gas Corporation v. Saw Pipes Ltd, (2003) 5 SCC 705
7. Renusagar Power Electric Co v. General Electric Co, AIR 1994 SC 860.
8. Shri Lal Mahal Ltd v. Progetto Grano, (Civil Appeal No. 5085 of 2013 arising
from SLP(c) No. 13721 of 2012).
9. Venture Global Engineering v. Satyam Computer Services Limited, (2008) 4 SCC
190.
---------------------------------------------------------------------------------------------------