Introduction 

Indian courts are overcrowded with long unsettled cases. The problem is not of load alone, but the deficiency lies in the judicial system that is quite sluggish and rigid in procedural, yet setting up fast-track courts that already settled millions of cases even then also cases are pending in the courts. Consequently, there was a need to evolve a new procedure other than the ordinary judiciary so that disputes can be resolved smoothly also with less cost and delay. Therefore, Alternative Dispute Resolution (ADR) came into practice in India. ADR has diverse methods such as Arbitration, Conciliation, Mediation, Negotiation, and Lok Adalat helps in reducing the burden of the Indian Courts.

Article 51 of the Constitution of India, 1949 provides the state to promote international peace and security, to abide by the provision The Arbitration and conciliation Act, 1996 came into force repealing three acts, The Arbitration (Protocol and Convention) Act 1937, The Arbitration Act 1940 and The Foreign Awards (Recognition and Enforcement) Act 1961.

Purpose of the Act

The Act passed to integrate and amend the law relating to:

• -Domestic Arbitration :

  Where arbitration takes place in India or the subject matter of the contract is in India or governed by Indian law.

• -International Commercial Arbitration :

  To settle disputes through arbitration, at least one party is a foreign individual or an association whose central management is control outside India or a body corporate, incorporated in a foreign country, or the government of a foreign country.

• -Implementation of the Foreign Arbitral Award.

• -Define law pertains to conciliation and matters connected or incidental to it.

To bring uniformity in arbitration and conciliation mechanism, The General Assembly of the United Nations suggested all the countries follow the 1985 model law on International Commercial Arbitration prepared by United Nations Commission on International Trade Law (UNCITRAL). Therefore, for a fair and systematic settlement of commercial disputes, it was expedient in India to formulate a law taking into account the UNCITRAL model law so, on 22nd August 1996, the Arbitration and Conciliation Act comes into force, which extends to the whole of India.

What is Arbitration?

In the arbitration process, the parties may appoint a third party (either one or more) that plays the role of presiding officer and resolve the parties’ disputes like the ordinary judiciary. The presiding officers are known as arbitrators. The entire panel of arbitrators is called an Arbitral Tribunal. In this mechanism, the arbitrators review the evidence and impose the decision legally binding on both parties. The decision of the arbitrator is called an arbitral award.

According to section 2 of the Arbitration and Conciliation Act, Arbitration means any Arbitration regardless administered by the Permanent Arbitral Institution.

What is Arbitral Institution?

The Supreme Court or the High Court designate an arbitral institution. These arbitrators frame their own rules of arbitration. These rules go hand in hand with the Arbitration Act in matters of procedure or any other matter as the act permits. For example- The Indian Council of Arbitration (ICA), The Delhi International Arbitration Center, The International Centre for Alternative Dispute Resolution (ICADR), etc.

Arbitration Agreement (Section 7)

The parties mutually agree in an agreement to refer their dispute to arbitration is called an arbitration agreement. It is in the form of an arbitration clause or a separate agreement. Parties may submit conflicts that arise or may arise in the future between them as they share a legal relationship. This arbitration agreement is in writing either document signed by the parties or exchange of letters or through electronic means or exchange of statements of claim and defense in which existence of an agreement is claimed by one party and denied by the other.

Courts and appeals under Arbitration and Conciliation Act (Section 2)

Party will approach for remedy in the following sequence

• In Domestic Arbitration

District Court/ Single Judge of High Court => Appeal before Divisional Bench of High Court => Supreme Court

• International Arbitration

High Court=>Appeal before Division Bench =>Supreme Court

Scope of Arbitration (Section 2(2))

The Supreme court held in landmark case Bharat Aluminum Co, VS Kaiser Aluminum Technical Services Inc (2012) 9SCC 552 that the definition of ‘court’ is restricted to part 1 and applies where the place of arbitration is in India and confers jurisdiction to courts where the seat of arbitration is in India. Later, The Arbitration and Conciliation (Amendment) Ordinance Act, 2015 broadened the scope of part 1 by allowing subject to an agreement to the contrary, the provisions of sections 9, 27, and 37(3)(1) of the Act to apply to foreign seated arbitration as well.

A party can refer matter which is the subject of an arbitration agreement to the judicial authority?

According to Section 8 of the Act, the party can approach the Judicial authority on a matter resting on an arbitration agreement. The Judicial authority refers the dispute to arbitration when satisfied that the arbitration agreement is valid and could be resolve by the arbitration.

When a party has an objection to such dispute made before the Judicial authority for settlement under section 8, the party should object to it in the first statement of defence. Application to The Court accompanied by the original arbitration agreement or by duly certified copy will only be considered by the court. The arbitration proceeding will still begin or continues, or an arbitral award shall pass, even the issue is pending before The Court.

Interim measures ordered by Court (Section 9) and Interim measures ordered by Arbitral Tribunal (Section 17) 

Party can make an application for interim relief to the Court or the Arbitral Tribunal at any time after the arbitration agreement comes into existence but before enforcement of an arbitral award (section 36). A party first approach the Arbitral Tribunal for Interim relief under section 17. Afterward, if he fails to get an Interim relief, he can approach the court under section 9. If the court passes an order for an interim measure, the Arbitration proceedings should commence within 90 days from the date of such order or within such further time as the court may fix.

Composition of Arbitral Tribunal

Section 10 provides parties are free to choose the number of arbitrators but has to be an odd number. The SC held in M.M.T.C Ltd VS Sterlite Industries Ltd (1996)6 SCC 716 that an arbitration agreement cannot be invalid on the ground of even number of arbitrators specified in the arbitration agreement. If parties fail to fix the number of arbitrators, the Arbitral Tribunal will consist of a sole arbitrator in that case.

Appointment of Arbitrators (Section 11)

• Appointment of Arbitrators by The Parties:

A person of any nationality can be an arbitrator, and parties can freely choose the procedure for their appointment. In the absence of an agreement or plan concerning the arbitrator’s appointment, each party appoints one arbitrator, appointed arbitrators by parties will appoint the third arbitrator, who will act as the presiding arbitrator.

• Appointment of Arbitrators by The Court:

A party fails to appoint an arbitrator as per the agreement within 30 days from receipt of a request of the other party, or two appointed arbitrators fail to appoint a third arbitrator within 30 days from the date of their appointment, the arbitral institution appoints the arbitrators designated by the Supreme Court or the High Court.

Grounds for the challenge (Section 12)

When a person is selected to be an arbitrator, he has to declare in writing that he neither directly nor indirectly or previously or currently has a relationship or interest in any of the parties relating to the subject matter in dispute. He also has to state the circumstances which may affect his ability to give proper time to the arbitration and complete arbitration proceedings within 12 months. The written declaration or disclosure should be according to the 6th schedule of the Act. An arbitrator must be independent and impartial to take the decisions required in arbitration proceedings and should not have any direct or indirect interest in the parties subject to arbitration dispute. If the party comes to know after the arbitrator’s appointment that the arbitrator’s decision is biased, or the arbitrator doesn’t have the required qualifications to settle the arbitral dispute, relying upon the circumstances given in the 5th schedule arbitrator’s appointment can be challenged.

If the arbitrator falls under the category given in the 7th schedule, a person shall be ineligible to be appointed as arbitrator, except if arbitration agreement or clause allows it.

Challenge procedure (section 13)

Parties can freely decide the procedure for challenging an arbitrator appointment and can mutually remove the arbitrators appointed. Party intending to challenge an arbitrator appointment shall, within 15 days after becoming aware of such ground which could be challenged under section 12, sends a written statement to the arbitral tribunal stating the reason behind the challenge. If the challenge is unsuccessful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. At this stage of proceedings, the challenging party has a right to approach the court to set aside an award passed by the arbitral tribunal.

Section 14 provide the mandate of an arbitrator will terminate when an arbitrator becomes de jure or de facto unable to perform functions as an arbitrator in the arbitration proceeding or resigns from his office or both parties agree to terminate his mandate. Section 15 provides a substitute arbitrator is appointed, following the same appointment procedure after the termination of an arbitrator’s mandate.

Jurisdiction of Arbitral Tribunals (section 16)

The Arbitral Tribunal can decide only on those matters mentioned in the arbitration clause or agreement or authorized by the court. It is the responsibility of the Arbitral Tribunal to check the validity of an arbitration agreement. Tribunal can treat an arbitration clause as valid even entire business agreement turned out invalid. A party can object that the arbitral tribunal lacks the necessary power to adjudicate the arbitral dispute or, exceeding its jurisdiction but has to raise such objection as soon as possible during the arbitral proceedings.

Conduct of Arbitral Proceedings

Section 18 provides parties have to be treated equally in the arbitral proceedings. Section 19 says parties are free to decide the conduct in which arbitral proceedings will take place. The Arbitral Tribunal is free to take decisions in arbitral proceedings and not be bounded by the Code of Civil Procedure and The Indian Evidence Act. The arbitral proceedings begin on the date decided by parties in an arbitration agreement. If no date is specified, then the day on which the respondent receives a request to refer the dispute to arbitration will be considered the date arbitral proceedings commenced (Section 21).

Procedure for Arbitral Proceedings

Section 23 provides that statement of claim of plaintiff and defense of respondent in arbitral proceedings should complete within six months from the date on which arbitrators obtained written notice for their appointment. The claimant states the supporting facts, the dispute in question, and the remedy he wants from his claim. The respondent states his defence in response to such claims made by the claimant in arbitral proceedings.

Section 25 provides if the claimant fails to give his statement of claims, the arbitral tribunal will end the proceedings there only. But if the respondent fails to communicate his defence, the arbitral proceedings will continue, or even the Arbitral Tribunal can pass ex-parte order.

Section 26 & 27 provide the Arbitral Tribunal can take the Court assistance in taking evidence and also have the option to appoint an expert to get help in complex issues.

Time Limit for an arbitral award to be passed

Section 29A provides an arbitral award that has to be made by the arbitral tribunal, should be passed within 12 months from the date of completion of pleadings. By consent of parties, this time limit can be extended but not exceeding six months. Whenever an Arbitrator fails to pass an Arbitral Award, the mandate of an arbitrator shall terminate or a reduction in fees of arbitrators not exceeding 5% for unreasonable delay imposed by The Court.

Section 29B provides parties want their dispute resolved by fast-track procedure, no oral hearings done in that case except if parties feel necessary to resolve the dispute through oral hearing. The sole arbitrator has to pass an arbitral award within six months. Section 29A will apply to the proceedings if the sole arbitrator cannot deliver an arbitral award on time.

Application setting aside the arbitral award (section 34)

An arbitral award passed by the arbitral tribunal will be set aside on the following grounds:

If party proofs:

• -That party was under disability or incapability or,

• -The arbitration agreement is invalid under the law in force or,

• -Lack of apt notice for appointment of an arbitrator or arbitral proceedings or was not able to present his case or,

• -Lack or excess of jurisdiction w.r.t disputes or,

• -Beyond arbitration agreement or composition of the arbitral tribunal or arbitral proceedings not proper and agreement not according to part 1.

If the Court finds that:

• -Dispute is not arbitrable.

• -The award conflicts with public policy in India

An Arbitral Award got influenced by fraud or corruption or under Section 75, and Section 81 violated or the fundamental policy of India is violated or conflicts with basic notions of morality or justice.

• -Patent illegality is apparent in the award.

Time limit to set aside an arbitral award under section 34

Application to set aside an arbitral award has to be approached within three months from the date of an arbitral award passed. If the parties have reasonable cause for delay in making an application, time may further extend for 30 days but not more than that. Application for setting aside an arbitral award has to be disposed of by the court within one year from the day when the other party received notice.

Finality and enforcement of the arbitral award (Section 35 and 36)

The arbitral award will be conclusive and binding on both the parties and will be enforceable according to the provision of the code of civil procedure, 1908. According to the new amendment 2021, if the court founds that arbitration agreement or award is induced or effected by corruption or fraud, it will grant an unconditional stay on an arbitral award from the day application for setting aside the award was made.

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