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Arbitration and Conciliation Act
Arbitration and Conciliation Act
Conciliation Act
-ADVOCATE SOUMYA S. PANDEY
ADR means Alternative Dispute Resolution which includes various methods of settling a dispute without
getting into the intricacies of the court.
It is a method where parties try to resolve their disputes privately in front of a third-person expert. The
decision is binding on the parties like the decision of the court.
It includes methods like arbitration, mediation, conciliation and negotiation. These work on the principles
of justice, legal aid and speedy trial as given under Article 39A of the Indian Constitution. Even Section 89
of the Code of Civil Procedure, 1908 provides settling disputes by way of ADR.
The proceedings are flexible and creative. It provides satisfying solutions with reduced cost and time and
thus, is an emerging field in Law. The Parliament felt the need and passed an act regarding this matter.
The origin of arbitration may be traced back to the age old system of village
panchayats prevalent in ancient India.
Decision of panchas taken as they are embodiment of voice of God, hence
accepted and obeyed unquestionably.
In course of time this divine dispensation of justice underwent radical changes
with changing pattern of society and growth.
Objectives of the Act:
• Cover international and domestic commercial arbitration and conciliation comprehensively.
• Make a procedure which is fair, efficient and capable of meeting the needs of the society for arbitration and
conciliation.
• Provides reasons by the tribunal for granting any arbitral award.
• Ensure that the tribunal does not exercise its jurisdiction beyond the limits.
• Minimise the role of courts and reduce the burden on the judiciary.
• It permits the tribunal to opt for arbitration and conciliation as a method of dispute settlement.
• It makes sure that every award is enforced in the same manner as the decree of the court.
• It provides that the conciliation agreement reached by the parties has the same effect as the award granted by
an arbitral tribunal.
• It also works on the enforcement of foreign awards.
The Act is divided into four parts:
• Part I (Sections 2-43) – Applies to the place of arbitration in India. The award granted is treated as a
domestic award.
• Part II (Sections 44-60) – Enforcement of foreign awards.
• Part III (Sections 61-81) – Conciliation
• Part IV (Sections 82-86) – Supplementary provisions
It contains three schedules:
• Schedule I – Convention on the recognition of foreign awards of arbitration.
• Schedule II – Protocol to be followed on arbitration clauses.
• Schedule III – Convention for the execution of foreign arbitral awards.
Definition
SECTION 2(1)(a) ; arbitration means any arbitration whether or not administered
by permanent arbitral institution.
It is a process of dispute resolution between parties through arbitral tribunal
appointed by parties to the dispute or by the court at the request of a party.
Precisely it is an alternative to litigation as a method of dispute resolution.
According to Black Law Dictionary, it means a method of
resolving disputes which includes two parties and a neutral third
party whose decision is binding on both parties.
Arbitration agreement – Section 2(1)(b) of the Act says that for arbitration
agreement Section 7 of the Act must be referred.
Arbitral award – this has not been defined clearly in Section 2(1)(c) but mentions
that it includes interim award.
Arbitral tribunal – it means a sole arbitrator or panel of arbitrators who help in
arbitration. (Section 2(1)(d))
Courts – Section 2(1)(e) defines courts. It includes civil courts having original
jurisdiction in a district and the High Court having jurisdiction to decide issues
related to the subject matter of the arbitration.
International commercial arbitration – defined under Section 2(1)(f). It means
arbitration in disputes arising out of a legal relationship, whether contractual or not
and where one party is a national of another country, a body corporate in another
country, company under the control of any other country or government of a foreign
country.
Section 8 of the Act talks about the powers of any judicial authority to refer a case to
arbitration. It must be followed by an arbitration agreement. The Hon’ble Supreme
Court in the case of P. Anand Gajapati Raju v. P.V.G Raju (2000) gave certain
requirements necessary for referring parties to arbitration:
• An arbitration agreement must be there.
• A party must bring an action in court against others.
• The subject matter must be the same as in arbitration.
• One party demands arbitration in court.
In another case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011), it
was held that there is no time limit to file an application but it should be filed before
submission of the first statement related to the dispute. Further, Section 9 provides
that the parties to arbitration may at any time refer to the court for interim
measures.
TYPES OF ARBITRATION
1. Domestic arbitration – It means that the proceedings of arbitration will take place as per Indian laws and be
subject to Indian jurisdiction.
2. International and commercial arbitration – This is done in cases involving disputes out of a legal
relationship where one of the parties is a foreign national, body corporated in some other country, a company
or group which is under the control of some other country and government of a foreign country.
3. Institutional arbitration – It is administered by arbitration institutions like the Indian Council of Arbitration,
the International Centre for Alternative Dispute Resolution (ICADR) etc.
4. Statutory arbitration – some acts provide for the resolution of disputes by arbitration. In case there is any
inconsistency between any Act and Part I of the Arbitration Act then the provisions given in that Act will
prevail.
5. Ad hoc arbitration – It means an arbitration where parties agree without any
assistance from the Arbitral tribunal.
6. Fast track arbitration – It is also called documentary arbitration. The
arbitration proceedings are very fast and time-saving. It is solely based on the
claim statement by one party and its written reply by another.
7. Look–sniff arbitration – It is a combination of an arbitral process and the
opinion of an expert. There are no formal submissions and hearings under this.
8. Flip–flop arbitration – It is also called pendulum arbitration. The parties in this
type of arbitration create the cases before and then invite the arbitrator to decide
any one of the two options.
ARBITRATION AGREEMENT
It is defined under section 7 of the Arbitration And Conciliation Act,1996
It means an agreement by the parties to submit to arbitrator all or certain disputes
which have arisen or which may arise between them in respect of defined legal
relationship.
It may be in the form of an arbitration clause in a contract or in a separate
agreement.
It shall be in writing and in form of signed document, exchange of letters, telex,
telegrams or other means of telecommunication.
BIHAR STATE MINERAL DEVELOPMENT CORP. V. ENCON BUILDERS
(P) LTD (AIR 2003 SC3688)
In this case The Supreme Court of India held that the essential elements of an
arbitration agreement are:-
There must be present or a future dispute in connection with some contemplated
affairs.
Intention of the parties to settle such dispute
Parties must agree to be bound by decision of such tribunal.
Parties must be ad idem (consensus between the parties)
Arbitral Tribunal
Composition of tribunals
It is the creation of an agreement which conforms with the law. Section 10 of the Act enables the parties
to determine freely the number of arbitrators to settle their dispute. The only restriction is that the
number of such arbitrators must not be even. If the parties are not able to decide then there will be only
1 arbitrator. But if there are even number of arbitrators then the agreement cannot be held invalid
merely on this ground. (Narayan Prasad Lohia v. Nikunj Kumar Lohia, 2002)
According to Section 2(1)(d) of Act arbitral tribunal means a sole arbitrator or a panel of arbitrators.
It is left to the parties to determine number of arbitrators for setting their dispute or difference, the only
limitation being that an even number of arbitrators shall not be appointed [Section 10(1)] .
In case the parties do not determine the number of arbitrators the arbitral tribunal shall consist of a sole
arbitrator. [Section 10(2)]
The arbitrator may be of any nationality and the parties are at liberty to agree on the procedure for
appointing arbitrator.
Procedure for appointment of arbitrators
Further, Section 11 of the Act provides the procedure for the appointment of arbitrators. The valid
requirements for any such appointment are:
• Party must give proper notice of appointment to the other party. If it does not do so, the
appointment is held invalid.
• A person appointed as an arbitrator must be duly informed and his consent must be taken.
• The consent must be obtained before finalising his appointment.
It also says that if the parties fail to appoint an arbitrator within 30 days of the request or if two
arbitrators are appointed and not the third one, then the appointment will be made by Chief Justice
or any person on his behalf designated by him but with the prior request of the parties.
Termination of arbitrator
The grounds for termination are given under Section 14 and Section 15 of the Act.
These are:
• If he is not able to perform his functions without undue delay (whether de jure or de
facto),
• If he withdraws or is terminated by the parties,
• He shall be terminated where he withdraws himself or by agreement of the parties.
• On his termination, a substitute arbitrator will be appointed as per Section 15.
Jurisdiction
Section 16 of the Act provides that the tribunal will act in its jurisdiction. If the arbitral tribunal has no
jurisdiction then a plea will be raised but not later than when the statement of defence is submitted. It also
provides that in case a party is not satisfied with the arbitral award, it can make an application to set it aside
according to Section 34 of the Act. The Supreme Court in the case of Centrotrade
Minerals and Metals v. Hindustan Copper Ltd. (2006), held that any issue related to the jurisdiction can be
raised by people in the proceedings or anyone from outside. But if it is made by the party then it must be
done during the proceedings or at the initial stage.
Arbitral award
• Itis a process in which a third party helps the parties in dispute to resolve it by way
of agreement.
The person authorised to do so is called a Conciliator. He may do it by giving his
opinion regarding the dispute to help parties reach a settlement.
In other words, it is a compromise settlement between the parties.
Conciliation is informal process where a person called conciliator tries to a resolve a
dispute
• Amicable settlement of disputes between parties with help of third person
• All civil matters or breach of contract or dispute of movable or immovable
property can be referred to conciliation
Features of conciliation
• The person assisting the parties to come to a compromise is called a conciliator.
• Conciliators give their opinion regarding the dispute.
• The process of conciliation is voluntary.
• It is a non-binding process.
• The main difference between arbitration and conciliation is that, unlike arbitration, the
parties in this process control the whole procedure and the outcome.
• It is a consensual party and the desired outcome is the final settlement between the
parties based on their wishes, terms and conditions.
• A conciliator can become an arbitrator on the wish of the parties if no compromise
could be reached by the process of conciliation. This is known as Hybrid
Conciliation.
• The settlement agreement will have the same importance and status as the
arbitration award. (Section 74)
Proceedings of Conciliation under the Act
• Section 62 of the Act provides that in order to initiate the conciliation proceedings one party to the
dispute has to invite the other party in writing for conciliation. However, there will be no proceedings if
the other to whom notice/invitation is sent, reject it or does not reply.
• The general rule states that there must be one conciliator but in the case of more than one conciliator
they have to function together with each other as per Section 63 of the Act.
• The appointment of the conciliator like an arbitrator will be done by the parties themselves under
Section 64 of the Act.
• A party according to Section 65 of the Act is under an obligation to submit in writing the nature of the
dispute and all the necessary information related to it to the conciliator.
• The proceeding can be terminated following any of the procedures given under Section 78 of the Act.
Role of conciliator
It is mentioned under Section 67 of the Act:
• He must be independent and impartial.
• He must assist the parties to come to a settlement.
• He is not bound by the procedure given under the Code of Civil Procedure, 1908.
• He must adhere to the principles of fairness and justice.
The insertion of Section 2(2), which makes the provision for interim relief(s) also
applicable in cases where the place of arbitration is outside India, subject to an
agreement to the contrary.
This option is only applicable to parties to an "international commercial
arbitration" with a seat outside India. This means that the protection will not be
available to two Indian parties who choose to arbitrate outside India.
The Amendment Act provides that in case the court passes an interim order,
arbitration proceedings must commence within a period of 90 (ninety) days from
the date of such order or within such time as prescribed by the court.
This amendment was brought in to ensure that the practice of the parties of
misusing this provision, by strategically obtaining exparte or ad interim orders
and not proceeding with arbitration, is checked.
The amendments to Section 17 empowers the arbitral tribunal with the same
powers as that of a court under Section 9. In order to facilitate the parties to
approach the arbitral tribunal and reduce the intervention of courts, the
Amendment Act provides that once the arbitral tribunal has been constituted,
courts cannot entertain application for interim measures, unless there are
circumstances which may not render the remedy of obtaining interim orders from
the arbitral tribunal efficacious
The Amendment Act also clarifies that such interim measures granted by the
arbitral tribunal would have the same effect as that of a civil court order under the
Civil Procedure Code, 1908 ("CPC"). This is a significant development as the
interim orders of the arbitral tribunal under the earlier arbitration regime could not
be statutorily enforced, virtually rendering them meaningless.
The amended Section 8 empowers the judicial authority to refer the parties to
arbitration when there is an arbitration agreement, unless it finds prima facie that
no valid arbitration agreement exists.
While the scope under amended Section 11 is limited to the examination of the
existence of an arbitration agreement; scope under amended Section 8 appears to
be broader in as much as the judicial authority can also examine the validity of the
arbitration clause.
The scope of "public policy" in Section 34 has been narrowed and the award can
be set aside only if the arbitral award (i) was induced or affected by fraud or
corruption; or (ii) is in contravention with the fundamental policy of India; or (iii)
conflicts with the most basic notions of morality or justice.
Prior to the Amendment Act, mere filing of a challenge petition to the arbitral award would
result in an automatic stay of the arbitral award. The court would take several years to decide
the petition, making the process of arbitration time consuming and ineffective.
In a welcome move, the Amendment Act provides that there would be no automatic stay of
the arbitral award and a separate application will have to be filed seeking stay of the arbitral
award.
The court is now required to record reasons for grant of stay and the provisions of the CPC for
grant of stay of a money decree have been made applicable, meaning thereby that the losing
party will necessarily be required to either deposit some part or the entire sum awarded in the
arbitral award, or furnish security, as the court deems fit.
The Amended Act provides for faster timelines to make the arbitration process more effective. Proviso
to Section 24 has been added providing for the arbitral tribunal to hold oral hearings for evidence and
oral argument on day-to-day basis and not grant any adjournments unless sufficient cause is made out.
The arbitral tribunal has been vested with the power to impose heavy costs for adjournments without
sufficient cause. Every arbitral award must be made within 12 (twelve) months from the date the
arbitrator(s) receives a written notice of appointment.
The parties may mutually decide to extend the time limit by not more than 6 (six) months. If the award
is not made within 18 (eighteen) months, the mandate of the arbitrator(s) will terminate unless the court
extends the period upon an application filed by any of the parties. However, there is no time period
fixed for approaching the court seeking extension of time which may again contribute to delays.
Section 29B has been introduced which gives an option to the parties to agree on
a fast track mechanism under which the award will have to be made within a
period of 6 (six) months from the date the arbitrator(s) receiving written notice of
appointment. The dispute would be decided based on written pleadings,
documents and submissions filed by the parties without any oral hearing. Oral
hearing can be held only if all the parties request or the arbitral tribunal considers
it necessary for clarifying certain issues. There may not be too many occasions
where the parties to an on-going dispute agree on anything, let alone agree on a
fast track procedure.
Section 31A has been introduced which gives wide powers to the arbitral tribunal
to award costs. The expansive regime to award costs based on rational and
realistic criterion rule, as recommended in the Law Commission Report, has been
accepted. The arbitral tribunal can decide whether the costs are payable, the
amount of costs to be paid and when they need to be paid. The provision further
provides that generally the unsuccessful party will be ordered to pay the costs to
the successful party. The costs may include fees and expenses of the arbitrators,
courts and witnesses, legal fees and expenses, administrative costs of the
institution and any other costs incurred in relation to the arbitral or court
proceedings and the arbitral award. The conduct of parties is a determining factor
in awarding costs including the refusal of a party to unreasonably refuse a
reasonable offer of settlement made by the other party.
THANK YOU……