v

SYLLABUS – SELF PACED

SET C
PAPER – 6: THE ARBITRATION AND CONCILIATION ACT, 1996
(100 MARKS)
Objective:
To develop an understanding of the Arbitration and Conciliation Law and acquire the ability of
understanding issues in practical situations.

Contents:

1. Introduction: Introduction to the various modes of Alternate Dispute Redressal Mechanism

(ADRs).
2. Fundamentals of Arbitration: General provisions, Arbitration Agreement, Conduct of
Arbitral Proceedings, Making of Arbitral Award and Termination of Proceedings, Recourse
against Arbitral Award, Finality and Enforcement of Arbitral Awards.
3. Enforcement of Certain Foreign Awards: Types of Arbitration, Arbitral Awards (Adhoc,
Domestic and International Commercial Awards), Enforcement of Foreign Awards (New
York Convention Awards and Geneva Convention Awards).
4. Conciliation: Difference between Arbitration and Conciliation, Commencement of
Conciliation Proceedings, Number of Conciliators, Appointment of Conciliators, Submission
of statements to Conciliator, Conciliator not bound by Certain Enactments, Role of
Conciliator, Administrative Assistance, Communication between Conciliator and Parties,
Disclosure of Information.
Note: If new legislation is enacted in place of the existing legislation, the syllabus would
include the corresponding provisions of such new legislation with effect from a date
notified by the Institute.
The specific inclusions/exclusions in the various topics covered in the syllabus will be
effected every year by way of Study Guidelines, if required.

© The Institute of Chartered Accountants of India

 vi

DETAILED CONTENTS
Page No.

CHAPTER-1: INTRODUCTION

1. Alternate Methods of Dispute Resolution .................................................................... 1.3

2. Arbitration .................................................................................................................. 1.3

3. Conciliation ................................................................................................................ 1.4

4. Mediation................................................................................................................... 1.5

5. Negotiation .............................................................................................................. 1.12

6. Lok Adalats.............................................................................................................. 1.18

7. Advantages of Alternation Dispute Resolutions (ADR) .............................................. 1.19

Test Your Knowledge ............................................................................................................ 1.19

CHAPTER-2: FUNDAMENTALS OF ARBITRATION

1. Introduction ............................................................................................................... 2.3

2. Arbitration – General Provisions ................................................................................. 2.4

3. Arbitration Agreement .............................................................................................. 2.13

4. Conduct of Arbitral Proceedings ............................................................................... 2.20

5. Making of Arbitral Award Termination of Proceedings ............................................... 2.33

6. Arbitral Award .......................................................................................................... 2.37

7. Recourse Against Arbitral Award .............................................................................. 2.48

8. Finality and Enforcement of Arbitral Awards ............................................................. 2.49

Test Your Knowledge ............................................................................................................ 2.51

© The Institute of Chartered Accountants of India

 vii

CHAPTER-3: ENFORCEMENT OF CERTAIN FOREIGN AWARDS

1. Arbitration and Its Types ............................................................................................ 3.3

2. Types of Arbitral Awards (AD HOC, Domestic and International

Commercial Awards) ................................................................................................ 3.15

3. Enforcement of Foreign Awards ............................................................................... 3.17

Test Your Knowledge ............................................................................................................ 3.32

CHAPTER-4: CONCILIATION

1. Conciliation ................................................................................................................ 4.2

2. Conciliation in India.................................................................................................... 4.4

3. Commencement of Process of Conciliation Proceedings ............................................. 4.5

4. Appointment, number and role of Conciliators ............................................................. 4.6

5. Settlement Agreement ............................................................................................. 4.12

6. Termination of Conciliation Proceedings ................................................................... 4.14

Test Your Knowledge ............................................................................................................ 4.15

© The Institute of Chartered Accountants of India

CHAPTER 1

INTRODUCTION

LEARNING OUTCOMES
At the end of this chapter, you will be able to understand:
 Various Modes of Alternate Dispute Redressal Mechanism
 Basic Idea of Arbitration and Conciliation
 Mediation – Concept, History, Key Points and Stages of Mediation, role of
Mediator
 Negotiation – Principles, Negotiation Process, Role of Negotiator,
Importance of Negotiation
 Lok adalats.
 Advantage of Alternate Dispute Redressal Mechanism.

© The Institute of Chartered Accountants of India

 1.2
1.2 THE ARBITRATION AND CONCILIATION ACT, 1996

CHAPTER OVERVIEW

Arbitration Features

Conciliation Features

History of
Mediation in India

Key Points

Mediation

Stages

Alternate methods
of Dispute
Resolution Role of Mediator

Principles

Negotiation
Process
Negotiation

Role of Negotiators

Lok Adalats
Importance in
ADRs
Advantages of
ADR

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.3 1.3

1. ALTERNATE METHODS OF DISPUTE RESOLUTION

Alternate methods of dispute resolution (ADR) are used to resolve disputes outside the ordinary
court system. In other words, these methods are an alternative to litigation. Two of the most common
methods of ADR are Arbitration and Conciliation. Other methods include Mediation, Negotiation, Lok
Adalats, case evaluation, neutral fact-finding, ombudsperson, etc. All the methods differ from each
other.

Alternate Methods of Dispute Resolution

Arbitration Conciliation Mediation Negotiation Lok Adalats

2. ARBITRATION
One of the popular methods of alternate dispute resolution is Arbitration. It could be understood as
a method of dispute resolution involving one or more neutral third person/s selected by the disputing
parties and whose decision is binding. Thus, arbitration has a few defining features:

Flexibility in procedure to be adopted;

Disputing parties have a choice to select decision makers;

Existence of privacy and confidentiality;

Renders final and binding decision;

Normally, no appeal against decision of Arbitrator;

Comparatively less formal than trial.

(Note: Arbitration will be discussed in detail in coming chapters)

© The Institute of Chartered Accountants of India

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1.4 THE ARBITRATION AND CONCILIATION ACT, 1996

3. CONCILIATION
Conciliation is a less formal form of arbitration. The process of conciliation is to facilitate the
settlement between the parties. In this process, the parties to the dispute engage a conciliator who
meets to hear both parties separately to settle their dispute. That conciliator meets each party with
intention of improving communication and interpretation to issue an order. Conciliation has the
following features:

Comparatively less formal form of

No prior agreement is essential;
arbitration;

If all the parties accept the

Parties are not bound by the
recommendations of the conciliator,
conciliation. They can reject the
those shall be final and binding on
recommendations of the conciliator;
them.

(Note: Conciliation will be discussed in detail in coming Chapters)

Difference between Arbitration and Conciliation

Basis Arbitration Conciliation

1. Third- Involves a neutral third party, called Involves a neutral third party, known as
Party an arbitrator or a panel of arbitrators, a conciliator, who facilitates
intervention who acts as a decision-maker. The communication and negotiation
arbitrator reviews the evidence, between the parties but does not make
listens to arguments, and renders a a binding decision.
final, binding decision on the dispute.

2. Decision- The arbitrator(s) have the authority to The conciliator does not have decision-
Making render a final, binding decision. This making authority. Instead, the focus is
Authority decision is enforceable by law, and on helping the parties find common
ground and reach a mutually acceptable

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.5 1.5

the parties are generally bound to agreement. The agreement can be

adhere to the arbitrator's decision. binding only when the parties choose to
formalize it through a separate contract.

3. Level of The process is typically more formal The process is generally less formal.
the Process and structured, resembling a The conciliator facilitates
simplified version of a court trial. communication, encourages
Evidence is presented, witnesses discussion, and helps in generating
may be called, and a final decision is creative solutions.
issued by the arbitrator.

4. Role of The arbitrator acts as a judge and has The conciliator acts as a facilitator,
the Neutral a more directive role in the process. helping the parties understand each
Third Party The decision is based on the other's perspectives and guiding them
evidence presented and the relevant toward a mutually acceptable solution.
law or contractual provisions.

5. Binding of The decision reached through The outcome is non-binding by default.

Decision arbitration is binding and legally If the parties reach an agreement during
enforceable. It provides a final conciliation, it becomes binding only if
resolution to the dispute. they choose to formalize it through a
separate agreement.

4. MEDIATION
Mediation is an alternative dispute redressal mechanism that facilitates the resolution of conflicts
between parties through an impartial third party, called the mediator. This method is gaining quite
popularity as an Alternative Dispute Resolution (ADR) mechanism. The reason behind this is its
effectiveness in promoting communication and increasing collaboration. This is an easy and
uncomplicated negotiation process where a third party acts as a mediator to resolve disputes
amicably by using appropriate communication and negotiation techniques.

History of Mediation in India

In India, mediation has ancient roots. Before adopting the formal British judicial system in India,
community issues were resolved by a group of village elders called Panchayat. Some disputes were
also referred to Mahajans, respected businessmen of society. However, Mediation got formal
recognition in the late 20th century. Further, the 2002 amendment to the Code of Civil Procedure
mandated court-annexed mediation. In the year 2005, the Honorable Supreme Court of India

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1.6 THE ARBITRATION AND CONCILIATION ACT, 1996

established the Mediation and Conciliation Project Committee (MCPC) to promote and regulate
mediation. The Commercial Courts Act of 2015 was another step to promote mediation for resolving
commercial disputes.

Key Points

Voluntary and Self-

Impartiality and Neutrality
Determination

Key Points

Confidentiality Explicit Consent

1. Mediation is Voluntary and Self-Determined: Mediation is a voluntary process, and all

concerned parties must participate willingly. Each party retains control over the outcome and also
actively engages in finding a solution that best suits their interests due to the voluntary nature of
mediation.
2. Impartiality and Neutrality: Impartiality and neutrality of mediator is central to the
effectiveness of mediation. The mediator serves as a neutral facilitator, refraining from taking sides
or imposing decisions. This nurtures an environment where parties feel safe expressing their
concerns and exploring potential solutions.

Example: X and Y entered into a contract to supply certain goods which was duly supplied by X. Y
found that the goods were not as per the quality contracted and he refused to make the payment.
Both X and Y decided to settle the dispute through mediation. For this purpose, X wants to appoint
Z, his brother as mediator. Here, Z couldn’t be impartial and neutral in the mediation process.
3. Confidentiality: Confidentiality is the foundation of the mediation process. Discussions and
arguments done during mediation are private and cannot be used as evidence in court. This
encourages open communication and allows parties to explore creative solutions without fear of
consequences.
Example: During the discussion by Z, the mediator found that X and Y, parties to the dispute shared
some personal information belonging to Y. Now Z is supposed not to disclose these information to
the other party i.e. X neither these can be taken as evidence in the court.

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.7 1.7

4. Explicit Consent: Before starting the mediation process, all parties must provide informed
consent, acknowledging their understanding of the process and its voluntary nature. This ensures
that parties enter the mediation with a clear understanding of what to expect and the potential
benefits of resolving.

Stages of the Mediation Process

Start

Introduction and Opening

Statements

Joint discussion with parties

Private discussion with parties

Negotiation and Problem-

Solving

Agreement

Closure

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1.8 THE ARBITRATION AND CONCILIATION ACT, 1996

1. Introduction and Opening Statements: The mediation process typically begins with an
introduction by the mediator, outlining the ground rules and emphasizing the voluntary nature of the
process. Each party then presents an opening statement, sharing their perspective on the issue at
hand.
2. Joint discussion with parties: Following the opening statements, the mediator facilitates a
joint discussion where parties can express their concerns, needs, and goals. This phase aims to
identify common ground and areas of disagreement while encouraging active communication.
3. Private discussion with parties: The mediator may hold private discussions with each party
individually. This allows for confidential discussions where participants can share sensitive
information or discuss specific concerns. This private discussion may provide an opportunity for the
mediator to explore potential solutions and strategies with each part.
4. Negotiation and Problem-Solving: The main part of the mediation process is negotiation
and problem-solving. Parties engage in negotiation to refine and agree upon potential solutions. The
mediator guides this process, facilitating communication, managing emotions, and assisting in the
development of mutually acceptable agreements.
5. Agreement: Once parties reach a consensus on specific terms, a formal agreement is
drafted. The agreement outlines the agreed-upon resolution and may be reviewed by the parties and
their legal advisors.
6. Closure: The mediator summarises the key points and ensures parties understand the terms
of the agreement. Parties may express their thoughts on the mediation process. The session
concludes with a sense of closure, marking the end of the formal mediation process.
Role of Mediator

Facilitation Impartiality and Neutrality

Role of Mediator

Communication Skills Conflict Resolution Expert

Creator

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.9 1.9

The mediator plays a pivotal role in guiding the mediation process to a successful resolution. This
involves various key functions:

1. Facilitation: The mediator acts as a facilitator, guiding the conversation, managing time, and
ensuring that all relevant issues are addressed. They create an atmosphere conducive to open
communication and collaboration.

2. Communication Skills: Effective communication is paramount in mediation. Mediators must

be skilled in active listening, paraphrasing, and reframing to help parties understand each other's
perspectives and foster a sense of empathy.

3. Impartiality and Neutrality: Maintaining neutrality is crucial for a mediator. They must avoid
favoritism, biasedness, or any actions that could compromise their impartiality. This ensures that the
mediation process remains fair and unbiased.

4. Conflict Resolution Expert: Mediators are trained in conflict resolution techniques and
possess a deep understanding of the dynamics of interpersonal disputes. Their expertise allows
them to navigate complex issues and guide parties toward mutually acceptable solutions.

5. Creator: A mediator encourages creative problem-solving by helping parties think beyond

traditional solutions. They assist in generating options and finding compromises that address the
underlying interests of all parties involved.

In conclusion, mediation stands as a transformative force in conflict resolution, embodying

principles of collaboration, communication, and compromise. The mediator's impartiality, guidance,
and commitment to fostering understanding create an environment conducive to mutually
satisfactory agreements. Mediation's adaptability transcends cultural and legal boundaries, offering
a flexible and efficient alternative to traditional adversarial methods. By prioritizing voluntary
participation, confidentiality, and empowerment, mediation not only resolves disputes but preserves
relationships. As we navigate an evolving global landscape, the enduring relevance of mediation
underscores its indispensable role in promoting justice, understanding, and sustainable resolutions
for individuals, communities, and nations alike.

© The Institute of Chartered Accountants of India

 1.10
1.10 THE ARBITRATION AND CONCILIATION ACT, 1996

Difference between Arbitration and Mediation

Basis Arbitration Mediation

1. Neutral Third- Involves a neutral third party, called Involves a neutral third party, known
Party Role an arbitrator or a panel of arbitrators, as a mediator, who facilitates
who acts as a judge and makes a communication between the parties
binding decision on the dispute after but does not have the authority to
considering evidence and impose a decision.
arguments from both parties.

2. Decision- The arbitrator(s) have the authority The mediator does not have
Making to render a final, binding decision, decision-making authority. Instead,
Authority which is enforceable by law. The the parties retain control over the
decision is typically based on the outcome and decide whether to
facts presented and the relevant law accept any proposed agreement.
or contractual provisions.

3. Binding of The decision reached through The outcome of mediation is non-

Decision arbitration is binding on the parties binding by default. The parties are
involved. It is a legally enforceable free to accept or reject the proposed
resolution, and the parties are settlement. If parties reach to an
generally obligated to adhere to the agreement, it becomes binding on
arbitrator's decision. them.

4. Adversarial The process is generally more The process is often more

vs. Collaborative formal and adversarial, resembling a collaborative and less formal. The
simplified version of a court trial. mediator focuses on helping the
Each party presents its case, and parties understand each other's
the arbitrator(s) make a decision perspectives, facilitating
based on the evidence and communication, and finding common
arguments. ground.

5. Status of The decision is final and legally Since the mediator does not impose
Decision binding, with limited options for a decision, the parties can choose to
appeal. Courts usually uphold and continue with other dispute resolution
enforce arbitration awards, methods if mediation does not lead to
providing a relatively swift resolution a resolution.
to the dispute.

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.11 1.11

Difference between Mediation and Conciliation

Basis Mediation Conciliation

1. Role A mediator plays a facilitative role The Conciliator plays a more

and attempts to guide the parties proactive role. He acts as a facilitator,
toward a solution. Thus the evaluator, and intervener. In other
solution should come from the words, he can also along with the
parties themselves. parties suggest solutions.

2. Outcome The outcome is an agreement The outcome is a settlement

between the parties. agreement.

3. Agreement The agreement reached by the The settlement agreement reached

parties is a contract enforceable by between the parties has the same
law. status as an arbitral award on agreed
terms. In other words, it is executable
as a decree of the civil court.

4. Governing Law Mediation is governed by Section Conciliation is governed by Part III of

89 of the Code of Civil Procedure, the Arbitration and Conciliation Act,
1908. 1996.

5. Extent of Mediation is governed by Conciliation is bound by

confidentiality confidentiality. However, confidentially. The extent of
confidentiality in mediation is often confidentiality is defined by the law. A
based on trust. breach of confidentially could be fatal
to the entire process.

6. Breach of If the agreement is breached, the The settlement agreement is

Agreement parties would have to proceed in enforced as an arbitral award. A
the usual process adopted for breach of the settlement agreement,
breach of contract. would be the same as a breach of an
arbitral award. The Arbitration and
Conciliation Act, 1996 provides
mechanisms for enforcing arbitral
awards and recourse in instances the
award is not followed.

© The Institute of Chartered Accountants of India

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1.12 THE ARBITRATION AND CONCILIATION ACT, 1996

5. NEGOTIATION
Negotiation is a dynamic process through which parties seek to reach a mutual agreement to settle
a dispute. It is the most common method of alternative dispute resolution. It is a non-binding
procedure in which discussions between the parties are initiated without the intervention of any third
party with the object of arriving at a negotiated settlement to the dispute. Negotiation occurs in
business, non-profit organizations, government branches, legal proceedings, among nations, and in
personal situations such as marriage, divorce, parenting, and everyday life.
Principles of Negotiation

Voluntary Process Honest Communication

Principles of
Negotiation

Mutual Agreement Flexibility

1. Voluntary Process: Negotiation is a voluntary process, and all parties must willingly engage
in discussions.
2. Honest Communication: Parties are expected to approach negotiations with sincerity and
good faith. Honest communication and a genuine commitment to finding common ground are vital
for successful negotiations.
3. Mutual Agreement: Negotiation thrives on the principle of mutual agreement. Parties work
collaboratively to identify shared interests and develop solutions that satisfy each party's concerns.
4. Flexibility: Negotiation is inherently flexible, adapting to the unique characteristics of each
dispute. The process accommodates various negotiation styles and can be tailored to different
cultural, legal, or interpersonal contexts.

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.13 1.13

Negotiation Process

Preparation: Successful negotiations

begin with thorough preparation. Each
Opening Statements: Next stage of
party must understand its own
negotiation process is the opening of
interests, priorities, and potential areas
statements. Parties initiate
of compromise. This stage may involve
negotiations after opening statements.
legal research, financial analysis, or
consultation with experts.

Bargaining and Concession: The

Closure and Agreement: As main part of negotiation process is
negotiations progress, parties aim to bargaining and concession. Parties
reach a final agreement. This stage exchange proposals, make
involves clarifying terms, documenting compromises, and work towards a
the agreement, and ensuring that all mutually acceptable resolution. Skilled
parties are satisfied with the proposed negotiators understand the art of give-
resolution. and-take, recognizing that concessions
contribute to building trust.

Role of Negotiators

Role of Negotiators

Effective Communication Creative Solutions

High Emotional Intelligence

© The Institute of Chartered Accountants of India

 1.14
1.14 THE ARBITRATION AND CONCILIATION ACT, 1996

1. Effective Communication: Effective communication is the cornerstone of successful

negotiation. Skilled negotiators listen actively, express themselves clearly, and navigate the
complexities of interpersonal dynamics.
2. Creative Solutions: Negotiators function as problem-solvers, identifying common interests
and creative solutions. This requires a strategic way to find options that address the underlying
concerns of all parties.
3. High Emotional Intelligence: Understanding and managing emotions play a crucial role in
negotiation. Negotiators with high emotional intelligence can navigate tense situations, build rapport,
and foster a positive atmosphere for resolution.

Importance of Negotiation in ADR

Preservation of
Tailored Solutions:
Time and Cost Effective: Relationships: Negotiation
Negotiation allows parties to
Negotiation is faster and cost- process is based on
craft personalized solutions
effective process. By avoiding collaboration. Parties have the
that address their unique
lengthy court processes, opportunity to maintain or even
needs and concerns. This
parties can swiftly resolve enhance their relationships
flexibility contributes to the
disputes, saving both time and while working towards a
durability and sustainability of
resources. solution that satisfies both
the agreements reached.
sides.

In conclusion, Negotiation, as a foundation of Alternative Dispute Resolution, illustrates the power

of collaborative problem-solving. As it is based on voluntariness, good faith, mutuality, and flexibility
its adaptability is better. By prioritizing the interests of disputing parties, negotiation not only resolves
conflicts efficiently but also fosters relationships and promotes enduring solutions.

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.15 1.15

Difference between Arbitration and Negotiation

Basis Arbitration Negotiation

1. Third-Party Involves a neutral third party, known May or may not involve a third party.
Involvement as an arbitrator or a panel of Negotiation typically involves direct
arbitrators, who acts as a decision- communication between the parties
maker. The arbitrator renders a in conflict, without the presence of a
binding decision on the dispute after neutral facilitator. However, third
considering evidence and parties, such as lawyers or
arguments from both parties. mediators, may be involved in some
negotiations.

2. Decision- The arbitrator(s) have the authority The parties involved retain control
Making Authority to make a final and binding decision over the decision-making process.
on the dispute. The decision is There is no neutral third party with
enforceable by law, and the parties the authority to impose a decision.
are generally obligated to adhere to The outcome is determined by the
the arbitrator's ruling. parties through mutual agreement.

3. Formality of The process is more formal and The process can be formal or
the Process structured, resembling a simplified informal, depending on the context. It
version of a court trial. The parties often involves a less structured and
present evidence, witnesses may be more flexible exchange of offers,
called, and the arbitrator issues a counter offers, and concessions
final decision. between the parties.

4. Confidentiality The proceedings are generally more The level of confidentiality varies
private and confidential. The depending on the parties'
arbitrator's decision may be legally agreements. While negotiations can
required to be kept confidential, and be conducted privately, they may
the process is less public than court also be subject to disclosure,
proceedings. especially in business or legal
contexts.

5. Finality The decision is typically final and The outcome is not necessarily final
legally binding, with limited options until an agreement is reached. The
for appeal. Courts generally uphold parties have the flexibility to continue
and enforce arbitration awards. negotiations until they are satisfied
with the terms. If an agreement is
reached, it is binding only to the
extent specified in the agreement
itself.

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 1.16
1.16 THE ARBITRATION AND CONCILIATION ACT, 1996

6. Adversarial The process is more adversarial, The process is generally more

vs. Collaborative resembling a simplified court trial collaborative, as the parties work
where each party presents its case together to find mutually acceptable
to the arbitrator, who makes a terms. While there may be
decision based on the presented differences and conflicts, the
evidence. emphasis is on reaching a voluntary
agreement.

Difference between Mediation and Negotiation

Basis Mediation Negotiation

1. Involvement of Involves a neutral third party, Can occur with or without a third
Third-Party known as a mediator, who party. Negotiation typically involves
facilitates the communication direct communication between the
between the parties in conflict. The parties in conflict, and there may not
mediator does not have decision- be a neutral facilitator.
making power but helps the parties
reach a voluntary agreement.

2. Decision- The mediator does not make The parties involved have direct
Making Power decisions or impose solutions. The control over the decision-making
power to make decisions rests with process. There is no neutral third
the parties involved, and the party influencing the outcome.
mediator's role is to assist them in
reaching a mutually agreeable
resolution.

3. Communication The mediator often employs active Communication may vary and can
Style listening and communication include a range of tactics and
techniques to help parties strategies used by the parties to
understand each other's achieve their individual goals. It can
perspectives. The focus is on be more adversarial in nature,
improving communication and especially in competitive
finding common ground. negotiations.

4. Goal The primary goal is to reach a The goal is often to secure the best
mutually acceptable agreement possible outcome for each party.
that satisfies the interests of both While reaching an agreement is
parties. The emphasis is on finding desirable, negotiations may end
common ground and preserving without a formal agreement if the
relationships. parties cannot find mutually
acceptable terms.

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.17 1.17

5. Confidentiality Generally, mediation proceedings Confidentiality depends on the

are confidential. The discussions context and the agreements made
that occur during mediation are between the parties. In some cases,
private, and the mediator is negotiations may be confidential,
typically bound by confidentiality while in others, they may be more
agreements. open.

6. Formality Can be a more formal or informal The formality of negotiations can

process, depending on the vary widely. It may involve legal
preferences of the parties and the professionals and follow established
mediator. The focus is on creating procedures or be more informal,
a collaborative environment such as in business negotiations.

Difference between Conciliation and Negotiation

Basis Conciliation Negotiation

1. Involvement Involves the intervention of a neutral May or may not involve a third party.
of Third-Party third party, known as a conciliator, Negotiation typically involves direct
who facilitates communication communication between the parties
between the disputing parties. The in conflict, without the assistance of a
conciliator's role is to help the neutral facilitator. However, third
parties understand each other's parties, such as lawyers or
perspectives and guide them toward mediators, may be involved in some
a mutually acceptable resolution. negotiations.

2. Role of the The conciliator actively participates If a third party is involved, their role
Third Party in the resolution process by may vary. In some cases, a mediator
encouraging dialogue, suggesting or facilitator may assist in
solutions, and helping the parties communication and problem-solving,
reach an agreement. However, the but the ultimate decision-making
conciliator does not have decision- power rests with the parties.
making authority and cannot impose
a resolution on the parties.

3. Decision- The conciliator does not have The parties involved retain control
Making decision-making authority. The goal over the decision-making process. In
Authority is to assist the parties in reaching a negotiations, the parties themselves
voluntary agreement, and any determine the terms of the
agreement reached is non-binding agreement, and any outcome is
unless the parties choose to voluntary.
formalize it separately.

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1.18 THE ARBITRATION AND CONCILIATION ACT, 1996

4. Formality of The process is typically less formal Negotiations can be formal or

the Process than arbitration and may involve informal, depending on the context
more informal discussions and and the preferences of the parties
interactions. The conciliator fosters involved. They often involve the
an atmosphere of collaboration to exchange of offers, counteroffers,
help the parties find common and concessions.
ground.

5. Finality The outcome is generally non- The outcome is determined by the

binding by default. If the parties parties' agreement. If they reach a
reach an agreement during mutually acceptable solution, it is
conciliation, it becomes binding only binding to the extent specified in the
if they choose to formalize it through agreement itself.
a separate agreement.

6. Adversarial The process is generally more While negotiations can be

vs. collaborative, as the conciliator collaborative, they can also involve
Collaborative actively works to foster adversarial elements as parties
communication, understanding, and advocate for their interests. The
cooperation between the parties. emphasis is on reaching an
agreement through direct
communication.

6. LOK ADALATS
Lok Adalats, meaning "People's Courts", are a distinctive feature of the Indian legal system,
established to provide accessible and swift justice. Operating under the Legal Services Authorities
Act, of 1987, Lok Adalats focus on alternative dispute resolution through mediation and conciliation.
What sets Lok Adalats apart is their voluntary nature, allowing parties to approach them willingly or
based on court recommendations. These forums prioritize easy settlements, encouraging active
participation from the disputing parties. With jurisdiction over family disputes, property conflicts,
motor accident claims, and more, Lok Adalats operates at various levels, including National, State,
and District forums.
The success of Lok Adalats lies not only in their ability to resolve disputes efficiently but also in their
contribution to reducing the backlog of cases in the formal judicial system. As an integral part of
India's legal landscape, Lok Adalats exemplifies a people-centric approach, embodying the
principles of accessibility, inclusivity, and expeditious justice.

© The Institute of Chartered Accountants of India

 INTRODUCTION 1.19 1.19

7. ADVANTAGES OF ALTERNATION DISPUTE

RESOLUTIONS (ADR)
1. It is more viable, economical, and efficient.
2. The procedural flexibility saves valuable time and money and there is no burden of a
conventional trial.
3. As the resolution of disputes takes place usually in private, they help maintain confidentiality.

4. The possibility of ensuring that specialized expertise is available on the tribunal in the person
of the arbitrator, mediator, conciliator, or neutral adviser.
5. This results in the form of creative solutions, sustainable outcomes, greater satisfaction, and
improved relationships.
6. Personal relationships may also suffer less.

TEST YOUR KNOWLEDGE

Multiple Choice Questions (MCQs)

1. Lok Adalat means _____
(a) Session Court
(b) Local Court
(c) District Court
(d) People’s Court
2. Panchayat is the form of ______
(a) Arbitration
(b) Conciliation
(c) Mediation
(d) All the above

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 1.20
1.20 THE ARBITRATION AND CONCILIATION ACT, 1996

3. A dispute arose between Kapil and Amit due to a collision between two vehicles riding by
these two, resulting in injuries to both. The dispute involves claims for compensation and
damages. Kapil claims that the accident occurred due to Amit’s reckless driving. Amit argues
that he had the right of way, and the accident was caused by Kapil’s failure to yield. The court
has referred the case to the Lok Adalat for a speedy resolution. Now, what is the primary
objective of a Lok Adalat in this case?

(a) To determine criminal liability for the accident and punishment for it.

(b) To impose a binding decision on the parties involved.

(c) To facilitate a voluntary settlement between Kapil and Amit.

(d) To prioritize financial compensation over reconciliation.

4. A dispute arose between a small business owner, Mrs. Megha, and her supplier,
Mr. Raghvendra when Mr. Raghvendra failed to deliver a consignment of raw materials on
time, causing production delays for Mrs. Megha's business. Mrs. Megha claims that the
delayed delivery has resulted in financial losses and damaged her business reputation.
Mr. Raghvendra argues that the delay was due to transportation issues and that was beyond
his control. Both parties express a desire to continue their business relationship but are firm
on their respective claims. To address the transportation issues raised by Mr. Raghvendra,
the conciliator should:

(a) Disregard the reasons provided by Mr. Raghvendra and focus solely on Mrs. Megha's
losses.

(b) Investigate the transportation issues to determine fault.

(c) Encourage Mr. Raghvendra to accept full responsibility for the delay.

(d) Explore possible solutions and compromise to prevent future delays.

5. M/s Nalanda Builders entered into a contract with M/s Life Design Architects for a construction
project. The construction contract specifies the quality standards and payment milestones. A
dispute arose where both parties have differing views on the quality of work delivered and
the payment owed. M/s Nalanda Builders claims that M/s Life Design Architects did not meet
the agreed-upon standards, leading to delays and additional costs. M/s Life Design Architects
insists that issues are minor and within acceptable industry standards. Both parties express

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 INTRODUCTION 1.21 1.21

a willingness to resolve the dispute through arbitration as outlined in their contract. How does
the arbitrator ensure impartiality and avoid conflicts of interest?

(a) By openly expressing biases during the proceedings

(b) By maintaining a transparent and fair decision-making process

(c) By favouring the party with a stronger legal argument

(d) By disregarding evidence that contradicts one party's claims

Answers to the Multiple Choice Questions

1. (d) 2. (c) 3. (c) 4. (d) 5. (b)

© The Institute of Chartered Accountants of India

CHAPTER 2

FUNDAMENTALS OF
ARBITRATION

LEARNING OUTCOMES

At the end of this chapter, you will be able to understand:

 Introduction and General Provisions relating to Arbitration
 Arbitration Agreement with basic characteristics and features and
conditions for its enforcement
 Conduct of Arbitral Proceedings – Prerequisites and Procedure
 Making of Arbitral Award and Termination of Proceedings
 Recourse against Arbitral Award,
 Finality and Enforcement of Arbitral Awards

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CHAPTER OVERVIEW

Arbitration

Process of Arbitration
Arbitration- General
Provisions
Basic features of
Arbitration

Authoriities

Definition and General

principles

Requirement of valid
Arbitration Agreement
Arbitration

Termination of
Fundamentals of Arbitration Arbitration Agreement

Conduct of Arbitral
Prerequisites
Proceedings

Making of Arbitral
Awared and
termination of
proceedings

Recourse against
Arbitral Award

Finality and
Enforcement of
Arbitral Award

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 FUNDAMENTALS OF ARBITRATION. 2.3

1. INTRODUCTION
Arbitration proceedings in India, are governed by Part I of the Arbitration and Conciliation Act, 1996
(The Act). The Act deals with the law relating to Domestic Arbitration, International Commercial
Arbitration, enforcement of Foreign Arbitral Awards and Conciliation. The said Act extends to the
whole of India. It came into enforcement on 22nd of August 1996 vide Notification G.S.R. 375(E) by
Central Government.
Need for the establishment of a unified legal framework: According to the Preamble of the Act,
the General Assembly of the United Nations has recommended that all countries shall give due
consideration to the United Nations Commission on International Trade Law (UNCITRAL) Model Law
on International Commercial Arbitration. It will help in bringing uniformity in the law and procedures
of arbitration proceedings and thereby facilitate International Commercial Arbitration practice.
The General Assembly of the United Nations has also recommended the use of and the UNCITRAL
Conciliation Rules, 1980 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
above-said Model Law and Rules make significant contribution to the establishment of a unified legal
framework for the fair and efficient settlement of disputes arising in international commercial
relations.
The Arbitration and Conciliation Act, 1996 has been drafted, taking into account the aforesaid Model
Law and Rules.
Importance of the Legislation: Various courts in India have uphold from time to time, the
importance of Arbitration and Conciliation mechanism as an alternate method of depute resolution.
The Supreme Court of India in its landmark judgment in the matter, "Salem Advocate Bar
Association, Tamil Nadu Vs. Union of India" directed that all courts shall direct parties to
alternative dispute resolution methods like Arbitration, Conciliation, Judicial Settlement or
Mediation.
The High Court of Madras, India had pronounced a landmark judgment on 21st February 2012 in the
matter, “A.K. Balaji v. Government of India & others”, holding that foreign lawyers cannot be
debarred to come to India and conduct arbitration proceedings in respect of disputes arising out of
a contract relating to international commercial arbitration.
Structure of the Act: The Arbitration and Conciliation Act,1996 is divided into 4 Parts, Containing
88 sections along with seven schedules. Part I contains ten chapters which deal with the Arbitration,
Part II contains two chapters which deal with the Enforcement of Certain Foreign Awards, Part III
deals with the Conciliation and Part IV deals with the Supplementary provisions.

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In the study material, we shall be covering general provisions related to Arbitration, enforcement of
certain foreign awards and the law relating to Conciliation proceedings.

2. ARBITRATION – GENERAL PROVISIONS

Alternative Dispute Resolution (ADR) mechanisms have evolved to address some of the major
shortcomings of the court-based adjudication system. One of the popular methods of ADR is
Arbitration.

Arbitration
Arbitration can be understood as a method of dispute resolution involving one or more neutral
person/s, selected by the disputing parties and whose decision is binding. Thus, arbitration has few
defining features:
♦ Flexibility in procedure to be adopted;
♦ Disputing parties have a choice to select decision makers;
♦ Existence of privacy and confidentiality;
♦ Renders final and binding decision.

Process of arbitration

Arbitral Tribunal (neutral third party)

Adjudication Appointment
Appointment
by Party 2
by Party 1

Arbitral Award (binding decision)

Party 1 Party 2

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 FUNDAMENTALS OF ARBITRATION. 2.5

Basic Features of Arbitration

(a) Arbitration Agreement - 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. An arbitration agreement may be in the form
of an arbitration clause in a contract or in the form of a separate agreement. An arbitration agreement
shall be in writing.
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.
(b) Arbitrator -It is also known as the Arbitral Tribunal, is similar to a judge of the court. The
arbitrator decides the disputes between the parties. Just like a judge, an arbitrator is also required
to be completely neutral, impartial and not to favour any party. In case the arbitrators are not
independent, they could be removed by the court.
Example: A dispute has been arisen between Raghu and Sameer. They appointed Lalit as their
arbitrator. Afterwards, Raghu found that Lalit is cousin of Sameer. Now, court may remove Lalit as
arbitrator on the request of Raghu.
(c) Seat of arbitration – It means the legal place of arbitration decided by the parties. It
determines the applicable law governing the Arbitration including the procedural aspects. The
Principal Civil Courts of the seat of Arbitration would provide assistance through supportive
measures. For example, if India is the seat of Arbitration, then Indian laws would apply and Indian
courts would have the authority to provide supportive assistance such as issuance of interim
measures, etc. It would also be the Indian court which would hear challenges against the arbitral
award.
(d) Autonomy of Parties in respect to procedure of Arbitration - Arbitration gives the parties
enormous flexibility to choose the type and kind of procedure they want to adopt for the arbitration
like kind of hearing (oral/written), number of Arbitrators, method of appointing arbitrator, place of
hearings, language of hearing, etc. It also gives the parties choice of applicable law, etc. especially,
if the arbitration is an international commercial arbitration.

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(e) Finality of outcome - Usually there is no appeal against an arbitral award. An arbitral award
can only be set aside on very few grounds such as invalid arbitration agreement, party’s incapacity,
independence and impartiality of an arbitrator, unfair procedure, etc.
(f) Confidentiality - An important feature of arbitration is that whatever that happens in
arbitration remains private. It is only known to the parties and the arbitrators. All of them are
prohibited to share with third parties who are not involved in arbitration, any document or information
that is received during the course of arbitration. This is done to ensure that parties feel free to share
all information during arbitration, so that a proper solution can be arrived at.

(g) Arbitral Awards – An arbitral award is a decision by the arbitrator on the dispute that was
submitted to it for adjudication.
(h) Enforcement of international arbitral awards - It is much simpler to enforce an arbitral
award in foreign nations than a judgment rendered by a court as such enforcement happens under
an international treaty.
Distinction between Litigation and Arbitration

Basis Litigation Arbitration

Place Litigation takes place in court. Place of arbitration is chosen by

the parties.

Appointment Judge is assigned by the court. The The arbitrator(s) is/are selected by
litigants have no say on who will judge the parties. Parties, therefore, are
their disputes. able to choose arbitrator with the
appropriate expertise, educational
qualifications, trade experience,
etc.

Procedure The procedure followed by the court is The parties have adequate
fixed and determined by the Rules of flexibility to choose the
the court. In India, it would be procedures that would apply to
governed by the Code of Civil their arbitration. They could either
Procedure and rules applicable to the make such procedures or adopt
particular court. procedures of an arbitral
institution.

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 FUNDAMENTALS OF ARBITRATION. 2.7

Confidentiality The proceedings are generally open Confidentiality is one of the most
to public. In other words, there is very important characteristics of
little privacy and confidentiality. arbitration. In other words, apart
from the parties (including their
lawyers), no other person is
permitted to participate in the
arbitral proceedings.

Grounds of Court decisions are subject to Arbitral awards can be challenged

Appeals numerous appeals. on very limited grounds.

Foreign Matters It is often difficult to enforce Enforcing an arbitral award in

judgments of court of one country in a foreign nations is much easier and
foreign country. is governed by international
treaties such as the Recognition
and Enforcement of Foreign
Arbitral Awards, 1958.

Authorities under Act

Under the Arbitration and Conciliation Act, 1996, there are three kind of authorities mentioned with
different powers, functions, and duties to perform.
(a) Judicial authority – the term judicial authority is not defined in the Act. The Supreme Court
in SBP Vs. Patel Engineering observed “A judicial authority as such is not defined in the Act. It
would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion,
include other courts and may even include a Special Tribunal like the Consumer Forum.” Therefore,
it is a concept wider than courts as ordinarily understood and would include Special Tribunals and
Quasi-Judicial authorities. The functions performed would include reference to arbitration. Every
court would be a judicial authority, but every judicial authority need not be a court.
(b) Court [Section 2(1)(e)] –The term Court for international commercial arbitration, would only
be the High Court, and for all other arbitration, it would be the District Court and High Court
exercising original jurisdiction.
(c) Supreme Court or High Court or any person or institution designated by such Court
(Section 11): Supreme Court and High Court are entrusted with a specific task that of appointment
of arbitrators upon request of a party. The Supreme Court would be the authority for appointing an
arbitrator in case of international commercial arbitration, while High Court would be the authority for

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 1.8 2.8 THE ARBITRATION AND CONCILIATION ACT, 1996

appointing an arbitrator in case of domestic arbitration. The Act also authorizes any person or
institution so designated by the Supreme and High Court to appoint the arbitrators.

Definitions - Section 2(1)

1. Section 2(1)(a): “Arbitration” means any arbitration whether or not administered by
permanent arbitral institution.
2. Section 2(1)(b): "Arbitration agreement" means an agreement referred to in section 7. As
per section 7, an 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.
3. Section 2(1)(c): “Arbitral award” includes an interim award.
4. Section 2(1)(ca): "Arbitral institution" means an arbitral institution designated by the
Supreme Court or a High Court under this Act.

5. Section 2(1)(d): "Arbitral Tribunal" means a sole arbitrator or a panel of arbitrators.

6. Section 2(1)(e): "Court" means:

(i) in the case of an arbitration other than international commercial arbitration, the principal Civil
Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary
original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter
of the arbitration if the same had been the subject-matter of a suit, but does not include any
civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;
(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary
original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter
of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High
Court having jurisdiction to hear appeals from decrees of courts subordinate to that High
Court;
7. Section 2(1)(f): "International Commercial Arbitration" means an arbitration relating to
disputes arising out of legal relationships, whether contractual or not, considered as commercial
under the law in force in India and where at least one of the parties is—
(i) an individual who is a national of, or habitually resident in, any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or

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 FUNDAMENTALS OF ARBITRATION. 2.9

(iii) an association or a body of individuals whose central management and control is exercised
in any country other than India; or
(iv) the Government of a foreign country;
8. Section 2(1)(g): "Legal representative" means a person who in law represents the estate
of a deceased person, and includes any person who intermeddles with the estate of the deceased,
and, where a party acts in a representative character, the person on whom the estate devolves on
the death of the party so acting;
9. Section 2(1)(h): "party" means a party to an arbitration agreement;
10. Section 2(1)(i): "prescribed" means prescribed by rules made under this Act;
11. Section 2(1)(j): "regulations" means the regulations made by the Council under this Act.

Scope - Section 2(2) – 2(9)

1. Section 2(2): Part I of Arbitration Act, 1996 (Section 1 to Section 43M) shall apply where
the place of arbitration is in India:
Provided that subject to an agreement to the contrary, the provisions of sections 9, 27, 37(1)(b) and
37(3) shall also apply to international commercial arbitration, even if the place of arbitration is outside
India and an arbitral award made or to be made in such place is enforceable and recognised under
the provisions of Part II of this Act.
2. Section 2(3): This Part shall not affect any other law for the time being in force by virtue of
which certain disputes may not be submitted to arbitration.
3. Section 2(4): This Part except section 40(1), sections 41 and 43 shall apply to every
arbitration under any other enactment for the time being in force, as if the arbitration were pursuant
to an arbitration agreement and as if that other enactment were an arbitration agreement, except
insofar as the provisions of this Part are inconsistent with that other enactment or with any rules
made thereunder.

4. Section 2(5): Subject to the provisions of sub-section (4), and save insofar as is otherwise
provided by any law for the time being in force or in any agreement in force between India and any
other country or countries, this Part shall apply to all arbitrations and to all proceedings relating
thereto.

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Construction of references
5. Section 2(6): Where this Part, except section 28, leaves the parties free to determine a
certain issue, that freedom shall include the right of the parties to authorise any person including an
institution, to determine that issue.
6. Section 2(7): An arbitral award made under this Part shall be considered as a domestic
award.
7. Section 2(8): Where this Part—
(a) refers to the fact that the parties have agreed or that they may agree, or
(b) in any other way refers to an agreement of the parties,
that agreement shall include any arbitration rules referred to in that agreement.

8. Section 2(9): Where this Part, other than section 25(a) or section 32(2)(a), refers to a claim,
it shall also apply to a counter-claim, and when it refers to a defence, it shall also apply to a defence
to that counter claim.

Clarification regarding Section 2(2)

It was decided in case of Bharat Aluminium Company Vs. Kaiser Aluminium Technical
Service, Inc. MANU/SC/0722/2012 that Part I of the Arbitration Act, 1996 shall apply to all
arbitrations which take place within India. Part I would have no application to international
commercial arbitration held outside India. Therefore, such awards would only be subject to the
jurisdiction of the Indian Courts when the same are sought to be enforced in India in accordance
with the provisions contained in Part II of the Arbitration Act, 1996. The provisions contained in the
Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the
provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.
This was also mentioned in Section 2(2).

Clarification regarding Section 2(1)(e)

Court is one which would otherwise have jurisdiction in respect of the subject-matter. The definition
does not provide that the Courts in India, will not have jurisdiction if an international commercial
arbitration takes place outside India. Courts in India would have jurisdiction even in respect of an
international commercial arbitration.

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 FUNDAMENTALS OF ARBITRATION. 2.11

Clarification regarding Section 2(1)(f)

The definition makes no distinction between international commercial arbitrations held in India or
outside India.

Receipt of written communications (Section 3)

Section 3- (1) Unless otherwise agreed by the parties,—

(a) any written communication is deemed to have been received if it is delivered to the addressee
personally or at his place of business, habitual residence or mailing address, and
(b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a
written communication is deemed to have been received if it is sent to the addressee's last known
place of business, habitual residence or mailing address by registered letter or by any other means
which provides a record of the attempt to deliver it.
(2) The communication is deemed to have been received on the day it is so delivered.
(3) This section does not apply to written communications in respect of proceedings of any
judicial authority.

Waiver of right to object (Section 4)

Section 4- A party who knows that—

(a) any provision of this Part from which the parties may derogate, or
(b) any requirement under the arbitration agreement,
has not been complied with and yet proceeds with the arbitration without stating his objection to such
non-compliance without undue delay or, if a time limit is provided for stating that objection, within that
period of time, shall be deemed to have waived his right to so object.

Section 4 provides for waiver of right to object. It was held in case of Darnley Vs. London, Chatham
and Dover Rwy, that waiver must be intentional act by a person with full knowledge of his rights.
Important points regarding right of waiver:
1. There must be a voluntary relinquishment of a known right by the party.
2. Either party can waive his right.
3. There is no waiver of right if party is proceeding with the arbitration under objection.
4. Objections should be raised within time limit.

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 1.12 2.12 THE ARBITRATION AND CONCILIATION ACT, 1996

5. There is no waiver if party is prevented on account of circumstances beyond his control for
an extended period of time from sending any communication.
Example: Company A initiates arbitration proceedings against Company B for a contract dispute.
Despite knowing its right to object, Company B actively participates in the arbitration without raising
any objections. Company B's subsequent attempt to challenge the proceedings or award may be
barred, as it could be deemed to have waived its right to object under the Arbitration and Conciliation
Act, 1996.

Extent of judicial intervention (Section 5)

Section 5- 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.

Example: Two parties, Company A and Company B, have a commercial contract containing an
arbitration clause. A dispute arises regarding the interpretation of certain contractual terms, leading
to potential arbitration. Both Company A and Company B voluntarily agree to submit their dispute to
arbitration as per the contract. Company A initiates arbitration proceedings by appointing an
arbitrator, and Company B acknowledges receipt of the notice. Section 5 emphasizes that the court
should not intervene unless there is a specific provision allowing it. The court, in adherence to
Section 5, refrains from intervening in the arbitration process initiated by the parties. The principle
is to uphold the autonomy of the parties and let the arbitral proceedings continue without
unnecessary judicial interference. After arbitration hearings, the arbitrator or arbitral tribunal renders
an award in favor of Company A. Section 5 reinforces that the court should respect and enforce the
arbitral award, recognizing the finality of the arbitration process. In this example, Section 5
underscores the importance of parties' autonomy and their commitment to resolve disputes through
arbitration. The court's role is limited, and it intervenes only in situations expressly provided by the
Act, promoting a pro-arbitration stance.

Administrative assistance (Section 6)

Section 6- In order to facilitate the conduct of the arbitral proceedings, the parties, or the
arbitral tribunal with the consent of the parties, may arrange for administrative assistance by
a suitable institution or person.

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 FUNDAMENTALS OF ARBITRATION. 2.13

3. ARBITRATION AGREEMENT
Since arbitration is a private method of resolving dispute as opposed to litigation in a court system,
at the heart of arbitration lies an arbitration agreement.

Nature and Scope of

Arbitration Agreement

Requirement of valid Termination of

Definition and
arbitration Arbitration
General Principles
agreement agreement

Arbitration agreement: Definition and General Principles

Definition
Under the Indian law, every individual has the right to approach the court for resolution of his/her
dispute that may involve infringement of right(s) vested upon that individual. This protection is so
stringent that it cannot be contracted away. Section 28 of the Indian Contract Act, 1872, however,
notes an exception in favour of arbitration.
Arbitration cannot happen without the parties consenting to submit their dispute to arbitration.
Consent of the parties, therefore, is the most fundamental requirement for an arbitration to happen.
The document which notes this consent is referred to as the arbitration agreement. In other words,
an arbitration agreement records the consent of the parties that in the event of a dispute between
them that matter instead of being taken to court will be submitted for resolution to arbitration.
Arbitration agreement therefore is necessary to start arbitration. (SN Prasad, Hitek Industries
(Bihar) Ltd Vs. Monnet Finance Ltd (2011) 1 SC 320). However, instead of a separate agreement,
there may be an arbitration clause in a contract.

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 1.14 2.14 THE ARBITRATION AND CONCILIATION ACT, 1996

In India, arbitration agreement is governed by the Arbitration and Conciliation Act, 1996 in particular
sections 2(1)(b) and Section 7.

Section 2(1)(b) - In this Part, unless the context otherwise requires “arbitration agreement” means
an agreement referred to in section 7.

Section 7 Arbitration Agreement -

(1) In this Part, “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.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in –

a) a document signed by the parties;

b) An exchange of letters, telex, telegrams or other means of telecommunication

including communication through electronic means which provide a record of the
agreement; or

(5) 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.

The purpose of an arbitration agreement is to submit disputes to arbitration and the law defines an
arbitration agreement on the basis of whether existing or future disputes would be submitted to
arbitration.

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The two basic types of arbitration

agreement are:

Arbitration clause – It is a clause

contained within a principal contract. The
parties undertake to submit disputes in
relation to or in connection with the
principal contract that may arise in future
to arbitration.

Submission agreement – It is an
agreement to refer disputes that already
exist to arbitration. Such an agreement is
entered into after the disputes have
arisen.

Example: In 2014, Company A, an automobile manufacturer entered into a joint venture agreement
(JVA) with Company B, the largest manufacturer of tyres for supply of all terrain tyres for its latest
car. Both the companies are registered under the Companies Act, 2013.
Scenario I- The JVA carries the following clause “Clause 56.1. All disputes shall be arbitrated in
Mumbai.” This would be an arbitration clause. It is contained in the principal contract (JVA) and no
disputes have arisen till date. It concerns future disputes that may arise.

Scenario II - The JVA does not have any clause relating to arbitration. Disputes arose between the
parties concerning quality of tyres in 2016. In order to resolve this dispute, parties entered into an
agreement that noted “That all disputes including quality of tyres supplied by Company B to
Company A shall be submitted to arbitration. The parties hereby agree to abide by the decision of
the arbitrator.” Such an agreement that is made after the disputes have arisen would be called a
submission agreement.
Example: Generally, an arbitration clause is added in Partnership Deed. The specimen for that as-
“That in case of any dispute arising during the existence of this partnership or afterwards or in regard
to interpretation of the terms and condition of this deed and in general relating to any matter in regard
this partnership business, the same shall be referred to a sole arbitrator to be mutually appointed by
the partners and shall be governed by the provision of the Arbitration and Conciliation Act, 1996.”

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General Principles
1. Arbitration agreement is an agreement enforceable under the law. In other words, it is a
contract, and has to fulfill all requirements of a valid contract.
2. Consent (consensus ad idem): Parties have to clearly give their consent to arbitration.
Words utilized by the parties should clearly indicate that all parties want to proceed to
arbitration. Thus, if words used are uncertain or ambiguous, then there can be no consensus
ad idem, and in turn there can be no arbitration agreement. It was also confirmed in case of
Dresser Rand SA Vs. Bindal Agro Chem Ltd (2006) 1 SCC 751.

Section 29 of the Indian Contract Act, 1872 clearly notes that ‘agreements, meanings of which
are not certain or capable of being made certain are void’.

3. Ouster of jurisdiction: It is vital to understand that once the parties have agreed to arbitrate
their matter, neither of the parties can unilaterally proceed to court to litigate that matter. Any
party attempting to do that would be referred to arbitration, if the other party so requests.
4. Doctrine of Separability: The doctrine provides that an arbitration agreement even though
contained in a contract, is a separate agreement from the contract itself. In other words, an
arbitration agreement is an agreement independent of the main contract. It is done to ensure
that the agreement to arbitrate would not be rendered invalid merely because the principal
contract was invalid.
5. Competency to rule on its jurisdiction (Section 16): The arbitral tribunal has the capacity
to rule on its own jurisdiction even if involves a question of validity of the main contract. This
allows the arbitral tribunal to determine the validity of the main contract without contradicting
its own jurisdiction.

Requirements of a valid arbitration agreement

Requirements of an arbitration agreement can be gathered from two sources:
♦ Statutory Provisions, and
♦ Decided case laws
1. Writing - Unlike the possibility of an oral contract, arbitration agreement are required to be
mandatorily in writing. There is also no particular form or template for an arbitration
agreement.
Example: C owns a shop in Chandni Chowk dealing in readymade clothes. D is a supplier of
clothes to C. They have been doing business for many years. No separate written contract

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exists between them. However, for each consignment D issues an individual invoice to C on
the basis of which payment is made. Each invoice contains the following note “Disputes, if
any, pertaining to this transaction will be subject to the Arbitration Rules and Regulations of
Bharat Merchant Chamber". This is an arbitration agreement in writing.
Example: Vikram wants to start a sweet and confectionary shop and contacts Ahuja
Confectioners & Bakers for supply of cakes. The entire communication between the parties
took place over email. One of the emails received by Vikram from Ahuja Bakers had, among
other terms of service, the following condition “any disputes regarding quality or delivery shall
be submitted to arbitration conducted under the aegis of Indian Confectionary Manufacturers
Association. Please place your order if the above terms and conditions are agreeable to you.”
Vikram placed an order. The contract stood affirmed by reason of their conduct. This would
be an arbitration agreement in writing contained in correspondence between the parties.
2. Clarity of consent: The intention to go to arbitration must be clear in other words there must
be consensus ad idem. Utilization of vague words cannot be considered to be adequate. The
intention has to be gathered from the wordings of the agreement. The words used should
disclose a determination and obligation on the part of parties to go to arbitration and not
merely contemplate the possibility of going for arbitration. If it is only a possibility, then it is
not an arbitration agreement. (Jagdish Chander Vs. Ramesh Chander (2007) 5 SCC 719)
Example: The parties had a contract with a clause (16) that if during the continuance of the
partnership or at any time afterwards any dispute touching the partnership arises between
the partners, the same shall be mutually decided by the partners or shall be referred for
arbitration if the parties so determine." This would not be an arbitration agreement, because
of the need for parties to further agree whether or not to go for arbitration. The underlined
portion clearly highlights the need for further agreement between the parties.
3. Defined Legal relationship - This term has been borrowed from the UNCITRAL Model Law.
The statute does not define this term. The important idea here is that any dispute that arises
from a legal relationship can be submitted to arbitration unless it is expressly or impliedly
barred by a Statute. Thus, disputes concerning illegal activities cannot be submitted to
arbitration.
4. Final and binding award: Parties to the arbitration agreement must agree that the
determination of their substantive rights by a neutral third person acting as the arbitral tribunal
would be final and binding upon them.

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Example: ‘Any other questions, claim, right, matter, thing, whatsoever, in any way arising
out of or relating to the contract designs, drawings, specifications estimates, instructions, or
orders, or those conditions or failure to execute the same whether arising during the progress
of the work, or after the completion, termination or abandonment thereof, in the first place,
be referred to the Chief Engineer who has jurisdiction over the work specified in the contract.
The Chief Engineer shall within a period of ninety days from the date of being requested by
the Contractor to do so, give written notice of his decision to the contractor. Chief Engineer's
decision shall be final.’ Is this a valid arbitration agreement?

Answer: In the given case Chief Engineer is not a neutral party and has a Control over the
work specified in the contract, so this is not a valid arbitration agreement.
5. Specific words: The mere use of words like ‘arbitration’ or ‘arbitrator’ in a clause will not
make it an arbitration agreement. Usage of such words is not a necessary requirement.
6. Dispute: There must be a present or a future dispute/difference in connection with some
contemplated affairs that is proposed to be submitted to arbitration.

7. Arbitrability: The disputes submitted/ proposed to be submitted to arbitration must be

arbitrable. In other words, law must permit arbitration in that matter. There are certain
disputes that the law retains exclusively for the court, and the same cannot be submitted for
arbitration. The rationale is that given the nature of disputes, the courts are the only
appropriate forum for adjudicating the matter.
For example, criminal offences, matrimonial disputes, guardianship matters, testamentary
matters, mortgage suit for sale of a mortgaged property, etc. cannot be arbitrated.
8. Signature: It is only required when the arbitration agreement is contained in a contract i.e. in
one set of documents. However, no signature is required if the arbitration agreement is
contained in correspondence or exchange of pleadings.

Arbitration agreement through reference

The Arbitration and Conciliation Act, 1996 envisages a possibility of an arbitration agreement coming
into being through incorporation. In other words, parties to an agreement could agree to arbitrate by
referring to another contract containing an arbitration agreement. The requirement is that the
reference must leave no doubt in the mind of the reader that the parties indeed wanted to incorporate
the arbitration agreement into the agreement between them.
Example: In Groupe Chimique Tunisien SA Vs. Southern Petrochemicals Industries Corpn Ltd
2006 (2) ArbLR 435 (SC), the respondent had placed an order of purchase of various quantities of

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phosphoric acid from the petitioner. The purchase order noted that the terms and conditions were to
be as per the Fertilizer Association of India (FAI) Terms and Conditions for Sale and Purchase of
Phosphoric Acid. Clause 15 of the terms provided for settlement of disputes by arbitration.
Is this a valid reference for an arbitration agreement to come into existence?
Answer: Yes. It was held by the Supreme Court of India that for a reference to constitute an
arbitration agreement, the contract should be in writing and reference should be such as to make
that arbitration clause part of the contract. Both the conditions were held to be fulfilled in the present
instance.

Termination of an arbitration agreement

Like the manner in which parties enter into an arbitration agreement, they can also terminate an
arbitration agreement. Thus, an arbitration agreement could be put to an end by:
1. Mutual consent: Like any contract, the parties involved can jointly agree to put an end to a
particular arbitration agreement.
2. Termination of principal contract: An arbitration agreement always operates in relation to
a principal contract. If the principal contract is terminated through discharge or novation
(substitution), the arbitration agreement terminates with the contract. However, if the principal
contract is breached, then the arbitration agreement survives because of the operation of the
doctrine of separability.
3. The above view was upheld by Delhi High Court (“Delhi HC”) in B.L. Kashyap and Sons
Limited Vs. Mist Avenue Private Limited, where it inter alia held that the arbitration clause
in the original contract stands extinguished upon novation thereof.
Example: Raj Air-Conditioning services (RACS) and Voltas Limited entered into a service
agreement whereby RACS would provide annual maintenance services for all Voltas
commercial air conditioners in the NCR region. The contract provided that in the event of a
dispute between the parties, the matter would be submitted to arbitration.
Scenario 1: At the end of the third year, the Service Agreement was not renewed. The
contract terminates, and along with it the arbitration agreement also terminates.
Scenario 2: At the end of the second year, the two parties enter into a new contract, which
replaces the existing service agreement between the parties. The new contract does not have
an arbitration agreement. The arbitration agreement contained in the superseded service
agreement does not survive.

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Scenario 3: Voltas raises a dispute with RACS as regards quality of services provided and
terminates the agreement. Here, owing to separability doctrine, the arbitration agreement
survives to allow parties to arbitrate their dispute.
4. Death of parties: Under the Indian law, an arbitration agreement is not discharged by the
death of any party. It shall be enforceable by or against the legal representatives of the
deceased.
5. Operation of Law: An arbitration agreement can be extinguished by the operation of law by
virtue of which any right of action is extinguished.

4. CONDUCT OF ARBITRAL PROCEEDINGS

In the present scenario, arbitration maintains a robust scope, serving as a preferred method for
resolving business disputes, particularly in commercial, construction, and investment contexts.
The Arbitration and Conciliation Act, 1996 was enacted to consolidate and amend the laws
pertaining to domestic as well as international commercial arbitration and enforcement of foreign
awards. The Act also considered laws related to conciliation and connected matters.
In case of “State of Orissa Vs. Gangaram Chhapolia (1982)”, the court first time found the
sequence of the formal codification of law on arbitration which starting from Bengal Regulations of
1772 and 1780 to Bengal Regulation IX of 1883 which authorised Settlement Officers to refer
disputes to arbitration. Further the British Rulers introduced Arbitration law during their ruling in India
which includes the Act IX of 1840, the Specific Relief Act of 1878, the Code of Civil Procedure of
1908 and the Indian Arbitration Act of 1940.

Pre-requisites for conducting of Arbitral Proceedings

(a) Arbitration Agreement: We already discussed in this chapter that Section 7 of this act
provides the requirement of an arbitration agreement. This arbitration agreement must be in
writing and duly signed by the parties. The arbitration agreement can be in the form of an
arbitration clause in a contract or in the form of a separate agreement.
In was decided by Hon’ble Supreme Court in case of P.A.G Raju Vs. P.V.G. Raju (AIR 2000
SC 1886), that Arbitration agreement is not a pre-requirement for arbitration. If one party
applies to the court with a request to refer the matter to arbitration and if the other party does
not have any objection, then the court may refer the parties to the arbitration. Parties are
allowed to go for arbitration. The important requirement is the consensus of parties.

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Further in case of in the case of Bihar State Mineral Dev. Corpn. Vs. Encon Builders (I)
Pvt. Ltd. (AIR 2003 SC 3688), the court laid down the essential elements of an arbitration
agreement. According to the court, for arbitration agreement there must be:
(i) an intention to resolve differences through arbitration.
(ii) a written agreement to be bound by the decision of arbitration.

(iii) consensus ad idem among the parties to arbitration.

(iv) consent to refer the dispute to arbitration.
Example: M/s Ramanaa Fresh Fruits & Co. entered into a contract with Hotel Crimson Palace
to supply of the fruits of particular quality at certain price for the period of one year. Both
parties signed the agreement for terms and conditions in the contract but there was no clause
in the agreement regarding transfer of the dispute to arbitration. After two months, Hotel
Crimson Palace denied to make the payment of particular supply of fruits as that supply did
not match the quality as agreed. M/s Ramanaa Fresh Fruits & Co. filed the case to the court.
Hotel Crimson Palace requested the court to refer the matter to the arbitration. M/s Ramanaa
Fresh Fruits & Co. did not agree to refer the matter to arbitration. Now question arises whether
matter can be referred to the arbitration by court even if there was no clause in the agreement
regarding arbitration and other party i.e. M/s Ramanaa Fresh Fruits & Co. did not agree for
that?
Answer: Held, the matter under dispute could be referred to arbitration even if there was no
arbitration agreement for that. However, there should have been a consensus ad idem
(meeting of the minds) among the parties to arbitration. As the M/s Ramanaa Fresh Fruits &
Co. in this case did not agree to refer the matter to arbitration, court should not refer the
matter to arbitration.
(b) Notice required prior to referral of disputes: Section 21 of this Act provides “Unless
otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute
commence on the date on which a request for that dispute to be referred to arbitration is
received by the respondent.”
On the analysis of this section, it can be said that notice by one party to another party is
mandatory before referring the disputes to arbitration. In the case of Alupro Building
Systems Pvt Ltd Vs. Ozone Overseas Pvt. Ltd., Delhi HC, it was observed by the court
that the bare reading of Section 21 provides that the date of commencement of arbitration
proceedings is based on the receipt of notice by the other party. The court further ascertained
the object behind this provision is that the other party to the arbitration agreement against

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whom a claim through notice is made, should know what the claims are. The notice under
this provision serves an important purpose of reaching a consensus between parties on the
appointment of an arbitrator.
In case of Delhi Transport Corp. Ltd. Vs. Rose Advertising (2003), appointment request
of arbitrator was made by a party to the agreement before 25th January 1996 i.e. prior to the
new act came into being. But the arbitrator was appointed after 25th January 1996. The
arbitration agreement provided that the parties shall be governed by the law as in force at the
relevant time. As the parties acted under the 1996 Act, the Award would be governed by 1996
Act.
Section 21 provides the freedom to the parties to decide upon the date from which the
proceedings shall be deemed to have commenced. If there is no agreement between the
parties as to the date of commencement of arbitral proceedings, the arbitral proceedings shall
commence on the date on which a request for that dispute to be referred to arbitration is
received by the respondent. It is stated that determination of the date of commencement is
of critical importance to the parties in view of the applicability of the Law of Limitation. Once
the date of commencement of arbitration proceedings is decided, there can be no question
of the time limit subsequently expiring as regards cause of action included in the reference.

Note 1: Making a claim by party does not commence the Arbitral Proceedings:
In case of Babanaft International Vs. Avant Petroleum, the court observed that making a
claim by party does not show the existence of dispute, whereas request would arise only
when the dispute has arisen between the parties.
Example: A, B & C were partners in M/s ABC & Co. A filed a claim of Rs. 1,00,000 to the
firm. This claim cannot be considered as dispute among the partners.
Note 2: In case Arbitral Proceedings commence before enforcement of the Act, 1996
In case of U.P. State Sugar Corporation Ltd. Vs. Jain Construction Co., dispute between
concerned parties arose in 1991. The respondent filed an application u/s 20 of the Arbitration
Act, 1940 on 01.05.1991. According to section 21 of the Arbitration and Conciliation Act,
1996, the arbitral proceedings in respect of a particular dispute commence on the date on
which a request for that dispute to be referred to arbitration is received by the respondent. It
was held that in respect of arbitral proceedings commenced before coming into force of the
Act 1996, the provisions of the Act 1940 would apply.

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(c) Appointment of arbitrators: Section 10 provides that the parties are free to determine any
odd number of arbitrators. In cases where the parties fail to determine the number of
arbitrators, the arbitral tribunal shall consist of a sole arbitrator. In fact, the main advantage
of arbitration is that parties to an arbitration agreement are free to submit a dispute to judges
of their own choice.
Section 11 provides that the parties are free to agree on a procedure for the appointment of
arbitrator or arbitrators. But if there is no consensus on the appointment of the arbitrator, the
arbitrator cannot make a binding order award and if he makes any award, it will be a null and
void.
The appointment of an arbitrator by a party is complete only on its communication to the other
party.
As per the Arbitration and Conciliation Act, 1996 an arbitrator or tribunal cannot consult third
parties without disclosing it to the parties. In case of Husein Ebrahim Vs. Keshardeo
Kanaria & Co., the arbitrators approached a third person, who was not the party to the
arbitration agreement, by writing a letter to him. The arbitrators asked that third person for
certain information which was related to arbitration proceedings. However, they did not
discuss or disclose this information to the parties. The court held that the arbitrators were
guilty of misconduct.
Example: M/s Taj Leather was the regular supplier of raw materials to M/s Dabur Shoes,
Agra. A dispute arose between them which was referred to arbitration. Mr. Ankit Sharma was
appointed as the sole arbitrator in the matter. Mr. Ankit Sharma, to verify the reputation of
M/s Taj Leather, consulted other customers of it, which was not in the knowledge of either
party. Held, Mr. Ankit Sharma, the sole arbitrator was guilty of misconduct.
(d) Period of Limitation: Section 43 of the Act provides for the applicability of the Limitation Act,
1963 to arbitration proceedings. Accordingly, the date of commencement of arbitral
proceedings assumes relevance for calculating the time-limit for arbitral proceedings
under the Limitation Act, 1963. Any arbitration proceedings commenced after the limitation
period, will be time-barred.
Example: Sudeep has taken a loan of ` 1,00,000 from Kishore which was to be repaid on
01.03.2018. The loan was not repaid by Sudeep on the due date. Kishore filed the application
to refer the matter to arbitration on 15.04.2023. Held, as the repayment of loan has become
time – barred, it cannot be referred to arbitration.

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Equal Treatment of Parties

Section 18 – “the parties shall be treated with equality and each party shall be given a full opportunity
to present his case.”

In other words, Section 18 of the Act has two fundamental principles.

♦ Firstly, the parties to an arbitration proceeding shall be treated with equality.
♦ Secondly, that each party shall be given a full opportunity to present their case.
This section is a mandatory provision and the arbitral tribunal has to comply with it. The tribunal has
to act in an impartial manner to the parties and no party should be given an advantage over the
other.
The basic principles of natural justice for arbitrator may be:
1. Not to receive any information from one party, which is not disclosed to the other party.
2. Not to examine or witness one party in the absence of opposite party.
3. Without being expressly authorised by the parties, not to decide the matter on the basis of
secret enquiries.
The basic requirements for proper hearing that each party must have notice of place, date and time
of hearing. They must be given reasonable opportunity to be present throughout the hearing and to
present statements, documents, evidence and arguments in support of case. They must have
reasonable opportunity to cross-examine his opponents’ witness and reply to the arguments.
It was observed by the Court in the case of Wazir Chand Karam Chand Vs. Union of India (1989)
that the person who is to be prejudiced by the evidence, it should be present to hear it, should be
allowed to cross examine it, and should be given ample opportunity to find evidence to rebut it.

Determination of procedure to be followed for conduct of proceedings

Section 19 – (1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5
of 1908) or the Indian Evidence Act, 1872.
(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the
arbitral tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this
Part, conduct the proceedings in the manner it considers appropriate.
(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the
admissibility, relevance, materiality and weight of any evidence.

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In other words, section 19 provides that the application of the Code of Civil Procedure, 1908 or the
Indian Evidence Act, 1872 to the arbitral proceeding is also at the discretion of the parties. Further,
the Act recognises the right of the parties to agree on the procedural rules which are applicable in
conducting the arbitral proceedings. This provision provides the procedural autonomy to the parties.
In fact, in case the parties fail to agree on a procedure or frame the procedure, it grants the arbitral
tribunal a wide range of discretionary powers to frame the arbitral proceedings.
In case of J. Kaikobad Vs. F. Khambatta (1930), it was held that an arbitrator is not bound by all
the provisions of the Evidence Act, and his decision cannot be challenged on ground that he relied
upon documents which are inadmissible under the Indian Evidence Act, 1872. But the arbitrator
should be clear that –
♦ he should not violate the principles of natural justice,
♦ he should give a hearing to the parties, and
♦ he should give a reasonable time and opportunity to them to present their respective claims.
Example: In case of an arbitral proceeding between A & B, the arbitrator wants to take the oral
statement of A as evidence in the arbitration matter. Whether he can do so?
Answer: Generally oral evidence is not admissible as per the Indian Evidence Act but section 19
provides that the arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908)
or the Indian Evidence Act, 1872. Hence, arbitrator can do so.
It was also decided in case of SREI Infrastructure Finance Limited Vs. Tuff Drilling Private
Limited, that arbitral tribunal is not prohibited from drawing sustenance from the fundamental
principles underling the Code of Civil Procedure or Indian Evidence Act but the tribunal is not bound
to observe the provisions of Code with all its rigour.

Place of Arbitration
Section 20 – (1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be
determined by the arbitral tribunal having regard to the circumstances of the case, including the
convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise
agreed by the parties, meet at any place it considers appropriate for consultation among its
members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or
other property.

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The place of arbitration is of most importance because the laws of the place of arbitration play a
fundamental role in the arbitral proceeding. Section 20 provides that the parties are free to agree on
the place of arbitration and if they fail to agree, then the arbitral tribunal has to determine the place
of arbitration in a judicial manner, considering the circumstances of the case and convenience of the
parties. Some important points regarding the place of arbitrations are as below:
1. The arbitrator should not fix the venue of arbitration of his choice regardless of the
convenience of the parties.
2. Concerned parties are free to choose the venue of their choice.
3. If the parties fail to reach an agreement on the choice of venue, then and only then arbitral
tribunal should determine the place for holding arbitration meetings having regard to the
circumstances of the case, including the convenience of the parties.
In case of “Jagson Airlines Ltd. Vs. Bannari Amman Exports (P.) Ltd.”, the Court held that,
merely because a venue is at a different place, conducting the proceedings by the Arbitrator would
not nullify a binding clause, which gives exclusivity to a Court.

Further in case of “Aarka Sports Management Pvt. Ltd. Vs. Kalsi Buildcon Pvt. Ltd.”, it was held
that this is autonomy of the parties to choose a neutral seat of arbitration where no part of the cause
of action arose. Once the seat is determined, the Court of that place would have exclusive jurisdiction
to regulate the arbitration proceedings arising out of the agreement between the parties.
It is to be noted that the arbitral award shall state its date and the place of arbitration as determined
in accordance with section 20 and the award shall be deemed to have been made at that place.
Example: Mr. Ram and Mr. Shyam are partners in the firm M/s Sanatan Publishers registered at
Agra. A dispute arose between them regarding the distribution of profit of the firm. The matter was
referred to arbitration. Mr. Vishnu of Mathura was appointed as arbitrator in the matter with consent
of both the partners. Both Mr. Ram and Mr. Shyam could not decide the venue or place of arbitration
proceedings. Hence, Mr. Vishnu determined his office at Mathura as a place for arbitration
proceedings as he belongs to Mathura but parties did not agree. Can Mr. Vishnu do so?
Answer: Held, as per section 22 the parties are free to agree on the place of arbitration. In case
parties could not reach an agreement on the choice of venue, then and only then arbitrator should
determine the place for holding arbitration meetings having regard to the circumstances of the case,
including the convenience of the parties. Therefore, if the parties are dissatisfied with the selection
of the arbitration venue, Mr. Vishnu should change the venue.

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Language to be used in Arbitral Proceedings

Section 22 – (1) The parties are free to agree upon the language or languages to be used in the
arbitral proceedings.
(2) Failing any agreement referred to in sub-section (1), the arbitral tribunal shall determine the
language or languages to be used in the arbitral proceedings.
(3) The agreement or determination, unless otherwise specified, shall apply to any written
statement by a party, any hearing and any arbitral award, decision or other communication by the
arbitral tribunal.
(4) The arbitral tribunal may order that any documentary evidence shall be accompanied by a
translation into the language or languages agreed upon by the parties or determined by the arbitral
tribunal.

In other words, Section 22 deals with the language which has to be used in arbitral proceedings.
The parties to the arbitration agreement are free to choose the language or languages which have
to be used in the arbitral proceedings. But where the parties fail to arrive at such an agreement then
arbitral tribunal will decide the language or languages to be used in the arbitral proceedings. The
language shall also apply to any written statement by a party, any hearing and any arbitral award,
decision or other communication by the arbitral tribunal.

When the arbitral tribunal agrees on the language to be used in arbitral proceedings, it may order
that any documentary evidence shall be accompanied by a translation into the language agreed. The
arbitral tribunal must ensure that all the parties are able to follow and understand the proceedings.

Example: Mr. Venkataraman of Chennai is the regular supplier of raw material to Mr. Chaman of
Delhi. A dispute arose between them and was referred to Arbitral Tribunal for resolution. Mr.
Venkataraman insisted that proceedings should be in Tamil language while Mr. Chaman wanted it
to be in Hindi language. When there was no agreement between the parties regarding the language,
tribunal decided to do the proceedings in English language for which both agreed. Now, written
statements by the parties, any hearing, any arbitral award, decision or other communication by the
arbitral tribunal should be in English language only.

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Statement of Claim and Defence

Section 23 – (1) Within the period of time agreed upon by the parties or determined by the
arbitral tribunal, the claimant shall state the facts supporting his claim, the points at issue and the
relief or remedy sought, and the respondent shall state his defence in respect of these particulars,
unless the parties have otherwise agreed as to the required elements of those statements.
(2) The parties may submit with their statements all documents they consider to be relevant or
may add a reference to the documents or other evidence they will submit.
(2A) The respondent, in support of his case, may also submit a counter claim or plead a set-off,
which shall be adjudicated upon by the arbitral tribunal, if such counter-claim or set-off falls within
the scope of the arbitration agreement.
(3) Unless otherwise agreed by the parties, either party may amend or supplement his claim or
defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it
inappropriate to allow the amendment or supplement having regard to the delay in making it.
(4) The statement of claim and defence under this section shall be completed within a period of
six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in
writing, of their appointment.

The party who makes the claim is called the claimant while the party against whom the claim is made
is called the respondent. Section 23 provides that the claimant should file a statement of claims with
all facts and enclose all the relevant documents. The respondent, in support of his case, may also
submit a counter claim or plead a set-off. These will be adjudicated by the arbitral tribunal. Such
counter claim or set-off will be adjudicated only when they fall within the scope of the arbitration
agreement. The parties are permitted to amend or supplement their claim or defence during the
proceedings. But the arbitral tribunal may disallow such amendments or supplements if there is delay
in presenting it in the views of the arbitral tribunal.
In case of Ram Sarup Gupta Vs. Bishun Narain Inter College, the honorable Supreme Court held
that for the purpose of fair trial, the party should state the essential material facts so that the other
party may not be taken by surprise. Further in case of Ramchandran Vs. R.V. Jankiraman, it was
observed that pleadings or statement of claim and defence in absence of full particulars would not
be relevant.
It was also decided in case of Manoharlal Vs. N.B.M. Supply, that the arbitral tribunal may disallow
the amendments or supplements if a mala fide intention is shown of the party submitting
amendments or supplements which may cause injury to other party.

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Example: Two companies, Company X and Company Y, are involved in a commercial contract that
includes an arbitration clause for dispute resolution. Company X alleges that Company Y breached
certain delivery timelines, causing financial losses. Company Y denies the allegations and insists
that the delays were justified due to unforeseen circumstances. As the arbitration proceedings
unfold, Company X realizes that they want to amend their initial claim to include additional damages
related to what they believe are long-term consequences of the delays. There was a specific
agreement between the parties regarding the deadlines for amending claims. If Company X fails to
adhere to these deadlines and submits the amendment request after the specified timeframe, the
arbitrator may deny the request on procedural grounds.

Hearings and written proceedings

Section 24 – (1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether
to hold oral hearings for the presentation of evidence or for oral argument, or whether the
proceedings shall be conducted on the basis of documents and other materials.
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the
proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be
held.
Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for the
presentation of evidence or for oral argument on day-to-day basis, and not grant any adjournments
unless sufficient cause is made out, and may impose costs including exemplary costs on the party
seeking adjournment without any sufficient cause.

(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the
arbitral tribunal for the purposes of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or applications made to, the
arbitral tribunal by one party shall be communicated to the other party, and any expert report or
evidentiary document on which the arbitral tribunal may rely in making its decision shall be
communicated to the parties.

In other words, section 24 provides that in the absence of any prior agreement between the parties
on whether hearing are to be done orally or on the basis of written documents submitted to arbitral
tribunal, the arbitral tribunal has the power to decide whether the proceedings shall be held orally or
on the basis of documents and other materials.
It was confirmed in case of ADV Consultants Vs. Pioneer Equity Trade (India) Pvt. Ltd, if parties
request to have an oral hearing it becomes duty of the arbitrator to provide for the same.

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Example: In a contractual dispute between Company A and Company B, arbitration proceedings

unfold. Company B, the respondent, requests an oral hearing to delve into technical nuances. The
arbitral tribunal, consisting of neutral arbitrators, assesses the request's merits. Recognizing the
case's complexity, they decide to grant the oral hearing. During the proceeding, both parties present
arguments in person, providing a dynamic forum for clarification. Expert witnesses testify, enhancing
understanding. The tribunal's decision balances fairness and efficiency, ultimately contributing to a
comprehensive resolution that considers both written submissions and the insights gained from the
oral hearing.

Default of Party
Section 25 – Unless otherwise agreed by the parties, where, without showing sufficient cause,-
a) the claimant fails to communicate his statement of claim in accordance with sub-section (1)
of section 23, the arbitral tribunal shall terminate the proceedings;
b) the respondent fails to communicate his statement of defence in accordance with sub-section
(1) of section 23, the arbitral tribunal shall continue the proceedings without treating that
failure in itself as an admission of the allegations by the claimant and shall have the discretion
to treat the right of the respondent to file such statement of defence as having been forfeited;
c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral
tribunal may continue the proceedings and make the arbitral award on the evidence before
it;

If the claimant, without any sufficient cause, do not submit his statement of claim, the arbitral tribunal
has discretion to terminate the proceedings while the respondent fails to submit his statement of
defence, the arbitral tribunal shall continue the proceedings without treating that failure in itself as
an admission of the allegations made by the claimant. Further, if a party fails to appear at an oral
hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and
make the arbitral award on the evidence already before it.
It was observed in case of NRP Projects Private Limited Vs. Bharat Petroleum Corporation
Limited, where the respondent does not file any response to the claim of the claimant, then the
claim should not be straightway allowed by the arbitrators and the arbitrator must go into the merits
of the claim irrespective of the fact whether a response has been filed or not and the arbitral tribunal
shall not consider the failure to file response as an admission to the allegations of the claimant.
The very wordings of section 25 show that clause (a) is preceded by the expression “without showing
sufficient cause”. Thus, if sufficient cause is shown, there would be no need to terminate the

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proceedings before the Arbitral Tribunal even if the claimant has failed to file it claims on time. In
case of Bharat Heavy Electricals Ltd. Vs. Jyothi Turbopower Services 2016, it was held that the
claimant would have the right to move the Arbitral Tribunal to show, even if there was termination of
proceedings, that such termination was erroneous or was required to be recalled on sufficient cause
being shown.

Appointment of Experts
Section 26 – (1) Unless otherwise agreed by the parties, the arbitral tribunal may-
a) appoint one or more experts to report to it on specific issues to be determined by the arbitral
tribunal, and
b) require a party to give the expert any relevant information or to produce, or to provide access
to, any relevant documents, goods or other property for his inspection.

(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal
considers it necessary, the expert shall, after delivery of his written or oral report, participate in an
oral hearing where the parties have the opportunity to put questions to him and to present expert
witnesses in order to testify on the points at issue.
(3) Unless otherwise agreed by the parties, the expert shall, on the request of a party, make
available to that party for examination all documents, goods or other property in the possession of
the expert with which he was provided in order to prepare his report.

Section 26 provides that on specific issues the arbitral tribunal may-

♦ Appoint one or more experts,
♦ Ask such experts to determine specific issues,
♦ Deliberate upon such issues,
Further, the arbitral tribunal may also direct the party to:
♦ Give the expert any relevant information
♦ Produce and provide access to all relevant information/documents/goods etc. for inspection
The tribunal on written or oral request of any party shall:
♦ Ask the expert to participate in the oral arbitral proceedings,
♦ Permit the parties to put questions to such experts who had made the report,
♦ Permit the parties to present their own expert witnesses to have viewpoints over the issue.

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However, it is to be noted that the arbitral tribunal cannot appoint experts and delegate the duty of
determination of the dispute.

Example: In a construction dispute between Developer X and Contractor Y, the arbitral tribunal
faces technical intricacies related to structural defects. Both parties agree to the appointment of a
neutral structural engineer as an expert. The tribunal selects the expert based on their qualifications.
The appointed expert assesses the construction issues, presents a detailed report, and participates
in an arbitration hearing. The tribunal relies on the expert's findings to make an informed decision,
ensuring a fair resolution. The use of an appointed expert adds a specialized perspective, facilitating
a more thorough and accurate assessment of the disputed construction matters.

Court assistance in taking evidence

Section 27 – (1) The arbitral tribunal, or a party with the approval of the arbitral tribunal, may apply
to the Court for assistance in taking evidence.
(2) The application shall specify-
(a) the names and addresses of the parties and the arbitrators;
(b) the general nature of the claim and the relief sought;
(c) the evidence to be obtained, in particular,-
(i) the name and address of any person to be heard as witness or expert witness and a
statement of the subject-matter of the testimony required;
(ii) the description of any document to be produced or property to be inspected.
(3) The Court may, within its competence and according to its rules on taking evidence, execute
the request by ordering that the evidence be provided directly to the arbitral tribunal.
(4) The Court may, while making an order under sub-section (3), issue the same processes to
witnesses as it may issue in suits tried before it.
(5) Persons failing to attend in accordance with such process, or making any other default, or
refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct
of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by
order of the Court on the representation of the arbitral tribunal as they would incur for the like
offences in suits tried before the Court.
(6) In this section the expression "Processes" includes summonses and commissions for the
examination of witnesses and summonses to produce documents.

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Section 27 provides the arbitral tribunal with the power to apply for the court assistance in taking
evidence. A person can also be held guilty and tried before the court, if they refuse to give evidence
or cooperate in arbitral proceedings.
A request to the court for recording evidence may be made by the arbitral tribunal or any of the
parties with the approval of the arbitral tribunal.

The court can punish any witness if he is guilty of any contempt to the arbitrator. As there is no
prescribed procedure for service of notice through the court under the act, it should be served
according to the procedure prescribed in Civil Code. A tribunal cannot require the attendance of a
witness who refuses to attend and give evidence. A party may use courts procedure to compel his
attendance.
The Delhi High Court in case of Lilit Madhvan Vs. Building Committee, that the court assistance
can only be provided for the execution of the recording of the evidence because the court has no
power to direct evidence to be produced or recorded. It would be not proper on the part of an
arbitrator to disallow the request of a party for moving to the court to take out summons for the
appearance of the witnesses, especially when it is very important for the case.
Example: There is an international arbitration between M/s Delhi Fruits Bazar and M/s London Fruits
Juice Plc. The crucial evidence resides in a foreign jurisdiction. As the arbitral tribunal is facing
challenges in obtaining the evidence, it seeks court assistance. The tribunal files a request with the
relevant national court, outlining the need for assistance.
The court, recognizing the importance of the arbitration process, issues an order to facilitate the
collection of evidence. This court assistance proves instrumental in securing vital documents and
witness testimony, ensuring a comprehensive and just resolution to the dispute. The collaboration
between the arbitral tribunal and the court demonstrates the effectiveness of cross-jurisdictional
cooperation in arbitration proceedings.

5. MAKING OF ARBITRAL AWARD AND TERMINATION OF

PROCEEDINGS
In the realm of arbitration, the making of an arbitral award and the termination of proceedings are
pivotal milestones that encapsulate the resolution process. Crafting an arbitral award involves the
meticulous examination of evidence, legal arguments, and applicable laws to render a final and
binding decision on the dispute. The arbitrators, acting as impartial adjudicators, meticulously weigh
the presented facts before formulating the award. Simultaneously, the termination of proceedings

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signifies the conclusion of the arbitration process. This phase is reached when the arbitrators issue
their final decision, providing closure to the disputing parties. These twin processes, marked by
precision and adherence to procedural guidelines, underpin the efficacy of arbitration in delivering
swift and equitable dispute resolution.

Arbitral Award
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 Arbitration and Conciliation Act 1996, does not clearly define
the idea of an arbitral award. However, the concept of an award could also be understood as a final
determination of a particular issue or claim that had been submitted for arbitration. It represents a
resolution of dispute between the parties.
The arbitral award is a remedy to the parties depending on the issue of the dispute. This includes:
Injunction: It is order of the court directing a party to stop an action.

Monetary Award: Sometimes, one party will need to pay the opposite party based on the contract
or dispute controlling the award.
Incentives: An arbitrator has discretion to add incentives for certain behaviours to encourage the
parties to suits the award.

General Principles
(a) Who can challenge – Only a party to the arbitration agreement can challenge an arbitral
award. A person who is not a party to the arbitration cannot raise a challenge against an
arbitral award.
(b) Authority – An award can only be challenged before a court, which would include a District
Court and a High Court exercising original jurisdiction (for awards from domestic arbitration)
and High Court (for awards from international commercial arbitration).
(c) Timeline – Timeline refers to by when a challenge against arbitral award can be raised. The
law notes an initial time period of three months from when the award is received by party,
with a maximum extension of thirty more days by the court. (Consolidated Engineering
Enterprises Vs. Principal Secretary (Irrigation Department) 2008 (7) SCC 169).
Example: The award was rendered on 1st January 2023. Therefore, the award can be
challenged by 31st March 2023. This date could be extended by another 30 days on
application to the court i.e. till 30th April 2023. There can be no further extensions.

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(d) Automatic stay – According to the Act, there is no automatic stay on the enforcement. A
party has to specifically request for a stay, and the court at the time of granting stay can
impose conditions. [Section 36(2) & (3)]

An application for stay of the operation of the arbitral award, the Court may, subject to such
conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded
in writing.
Where the Court is satisfied that a prima facie case is made out,-
(a) that the arbitration agreement or contract which is the basis of the award; or
(b) the making of the award,
was induced or effected by fraud or corruption, it shall stay the award unconditionally pending
disposal of the challenge under section 34 to the award.

Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to
all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral
or court proceedings were commenced prior to or after the commencement of the Arbitration and
Conciliation (Amendment) Act, 2015.

Types of Arbitral Awards

Final Award Additional Award

Interim Award Settlement Award

Final Award – An award that is made in accordance with the requirements of the law (including
signature, reason and delivery), and finally adjudicates on the issues submitted to arbitration, would
be a final award.
Interim Award – There can be two types of interim awards, one which remains in force till the final
award is rendered, and another is final as regards the matters it deals with but not in respect to all
the matters under dispute. The latter is referred to as interim, because when it was rendered, there
were still other pending issues.

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Settlement Award – During the arbitration process, the parties may choose to settle the matter
instead of having it adjudicated by the arbitrator. In such a situation, the arbitrator could assist the
parties in arriving at the settlement. If a settlement is arrived at, and the arbitrator has no objection
with it, then terms of the settlement could be made part of an award. This is referred to as a
settlement award. (Section 30)
Additional Award – When a final award has been rendered, but it is later found out that certain
claims that had been submitted to the arbitral tribunal were not resolved/adjudicated, the parties can
request the arbitral tribunal to make an additional award covering the issues that had been left out.
Such a request must be made within 30 days from the date of receipt of the final award. [Section
33(4)]
Example: Nagpur Metro Rail Corporation (NMRC) entered into a long-term concession agreement
with Nagpur Airport Metro Express Private Limited (NAMEPL), a subsidiary of Reliance Infrastructure
to develop and operate the airport express metro project which included brining in rolling stock.
NAMEPL was to run the metro services for 30 years. This agreement was entered into in 2008 and
was terminated in 2012. The main disagreements were –
a) failure to fix civil structure defects,
b) misrepresentation as to viability of the project including expected passenger,
c) failure to transfer outstanding amounts, and
d) failure to acquire land hampering development of further lines.
All these according to NAMEPL led to delays in turn contributing to cost escalations. The matter was
submitted to a three-member arbitral tribunal for adjudication.
Scenario I – The arbitral tribunal gives an award dealing with all the four disagreements. It is one
comprehensive award with reasons for all conclusions. This would be a final award as it conclusively
deals with all the questions submitted to arbitration. There is nothing further left to be adjudicated.
Scenario II – The arbitral tribunal renders an award (Award no.1) which deals only with
disagreements (a), (b) and (c). The arbitrators inform the parties that they will render another award
dealing with disagreement (d). Award no.1 is an interim award.
Scenario III – The arbitral tribunal gave an award and informed the parties that this was the final
award. However, when the parties examined it, they realised that the award only dealt with
disagreement (a), (c) and (d). They bring it to the notice of the arbitral tribunal which gives another
award dealing with disagreement (b). This latter award is an additional award.

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Scenario IV – While the arbitral proceedings were going on, the lawyers of both parties met for long
discussions. They later informed the arbitral tribunal that the parties had settled the matter on all
disagreements. They submitted the settlement agreement to the arbitral tribunal with the request
that it be incorporated into an arbitral award. The arbitral tribunal after scrutinizing the agreement
gave an award in which they included all the terms of the agreement. This would be a settlement
award.

6. ARBITRAL AWARD
Rules applicable to substance of dispute
Section 28 – (1) Where the place of arbitration is situated in India-
(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall
decide the dispute submitted to arbitration in accordance with the substantive law for the time
being in force in India,
(b) in international commercial arbitration-
(i) the arbitral tribunal shall decide the dispute in accordance with the rules of law
designated by the parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal system of a given country shall be
construed, unless otherwise expressed, as directly referring to the substantive law of
that country and not to its conflict of laws/rules;
(iii) failing any designation of the law under clause (a) by the parties, the arbitral tribunal
shall apply the rules of law it considers to be appropriate given all the circumstances
surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the
parties have expressly authorised it to do so.
(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account
the terms of the contract and trade usages applicable to the transaction.

Arbitrations other than international commercial arbitration i.e. domestic arbitrations should follow
Indian arbitration law. However, for deciding disputes in international commercial arbitration, the
arbitral tribunal should follow the laws which the parties have agreed to apply in their agreement.
The selected law as agreed within the agreement should be construed unless expressly agreed
otherwise. In case of the absence of any such agreement or any indication of what would be the

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applicable laws once a dispute arises, the arbitral tribunal shall apply laws that are applicable and
relevant to the dispute. Furthermore, while deciding and making an award, the arbitral tribunal should
additionally take into account the terms of the contract and trade usage applicable to the
transactions.
The words “ex aequo et bono” means decision taken on equitable principles of justice and good
conscience without adhering to strict rule of court of law.

Decision-making by panel of arbitrators

Section 29– (1) Unless otherwise agreed by the parties, in arbitral proceedings with more than
one arbitrator, any decision of the arbitral tribunal shall be made by a majority of all its members.
(2) Notwithstanding sub-section (1), if authorised by the parties or all the members of the arbitral
tribunal, questions of procedure may be decided by the presiding arbitrator.

Section 29 provides the method of decision making by panel of arbitrator. In case of sole arbitrator,
such decisions are to be taken by such a sole arbitrator. Where there is a penal of arbitrators, the
opinion of majority shall prevail. The presence of arbitrators is not required at the same place. They
may make their decisions by using the modern means of communication such as telephone, telex,
fax etc.
Further, the decision on questions of procedure should be decided by all the members of arbitration
or by the presiding arbitrator if authorised by all the parties. In case there is difference of opinion
between each member of arbitration, the arbitral proceedings may have to be terminated as per
section 32.
It is to be noted that there is no umpire system under arbitration proceedings but it was observed by
SC in case of RBI Vs. S.S. Investment Ltd., when two arbitrators have given different arbitral
awards, appointment of arbitrator for making reference as umpire was justified.
Example: M/s Ranganathan Coconut Oil Company and M/s Middlearth Blu & Company entered in
contract to supply certain goods by former to later. There arose contractual dispute between them
and a three-member arbitral tribunal is tasked with rendering a decision. After thorough deliberations
on the evidence and legal arguments, a majority of the arbitrators, comprising two members, reach
a consensus on liability and damages. Despite a dissenting opinion from the third arbitrator, the
majority decision prevails, resulting in the issuance of the final award. This scenario highlights the
significance of majority rule in the arbitral process, ensuring that a clear decision is reached even in
the presence of differing perspectives within the tribunal.

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Time limit for arbitral award

The Arbitration and Conciliation (Amendment) Act, 2015 has inserted a new section 29A which deals
with time limit for arbitral award. Accordingly –

Section 29A– (1) The award in matters other than international commercial arbitration shall be made
by the arbitral tribunal within a period of 12 months from the date of completion of pleadings u/s
23(4).
Provided that the award in the matter of international commercial arbitration may be made as
expeditiously as possible and endeavor may be made to dispose of the matter within a period of 12
months from the date of completion of pleadings u/s 23(4).
(2) If the award is made within a period of 6 months from the date the arbitral tribunal enters
upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees
as the parties may agree.
(3) The parties may, by consent, extend the period specified in sub-section (1) for making award
for a further period not exceeding 6 months.

(4) If the award is not made within the period specified in sub-section (1) or the extended period
specified under sub-section (3) the mandate of the arbitrator(s) shall terminate unless the Court has,
either prior to or after the expiry of the period so specified, extended the period.

Provided that while extending the period under this sub-section, if the Court finds that the
proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order
reduction of fees of arbitrator(s) by not exceeding 5% for each month of such delay.

Provided further that where an application under sub-section (5) is pending, the mandate of the
arbitrator shall continue till the disposal of the said application.
Provided also that the arbitrator shall be given an opportunity of being heard before the fees is
reduced.
(5) The extension of period referred to in sub-section (4) may be on the application of any of the
parties and may be granted only for sufficient cause and on such terms and conditions as may be
imposed by the Court.
(6) While extending the period referred to in sub-section (4), it shall be open to the Court to substitute
one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings
shall continue from the stage already reached and on the basis of the evidence and material already

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on record, and the arbitrator(s) appointed under this section shall be deemed to have received the
said evidence and material.
(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus
reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under
this section.
(9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as
possible and endeavour shall be made to dispose of the matter within a period of 60 days from the
date of service of notice on the opposite party.

Example: If the pleadings are completed on 12.04.2022, then the award should be made by the
arbitral tribunal –
(a) in case of domestic arbitration upto 12.04.2023.
(b) in case of international commercial arbitration, there is no time limit but tribunal should try to
complete upto 12.04.2023.
In case of Suryadev Alloys, Madras High Court confirmed the validity of arbitral award which was
passed a year after the period fixed by the court had lapsed. The HC was on view that section 28(1)
of Arbitration Act 1940, has given the wide powers to court to enlarge the time for making an award.
In case of ONGC Petro Additions, an application was filed by the petitioner with the contention that
the time limit to pass award u/s 29A is not applicable to international commercial arbitrations. The
court held that there is no time limit of 12 months for international commercial arbitrations seated in
India.

Fast track procedure

The Arbitration and Conciliation (Amendment) Act, 2015 has inserted a new section 29B with the
purpose to provide for fast-track procedure. According to section 29B –

Section 29B– (1) Notwithstanding anything contained in this Act, the parties to an arbitration
agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal,
agree in writing to have their dispute resolved by fast-track procedure specified in sub-section (3).
(2) The parties to the arbitration agreement, while agreeing for resolution of dispute by fast- track
procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen
by the parties.

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(3) The arbitral tribunal shall follow the following procedure while conducting arbitration
proceedings under sub-section (1):
(a) The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and
submissions filed by the parties without any oral hearing;
(b) The arbitral tribunal shall have power to call for any further information or clarification from
the parties in addition to the pleadings and documents filed by them;
(c) An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal
considers it necessary to have oral hearing for clarifying certain issues;

(d) The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held,
and adopt such procedure as deemed appropriate for expeditious disposal of the case.
(4) The award under this section shall be made within a period of 6 months from the date the
arbitral tribunal enters upon the reference.
(5) If the award is not made within the period specified in sub-section (4), the provisions of sub-
sections (3) to (9) of section 29A shall apply to the proceedings.

(6) The fees payable to the arbitrator and the manner of payment of the fees shall be such as
may be agreed between the arbitrator and the parties.

Example: On 10.06.2022, parties referred the arbitral tribunal for fast track proceedings. The award
should be made upto 10.12.2022. If award is not made upto this date, it will not be considered as
fast track procedure and provisions of section 29A regarding time limit for award in normal procedure
will be applicable.

Settlement

Section 30– (1) It is not incompatible with an arbitration agreement for an arbitral tribunal to
encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may
use mediation, conciliation or other procedures at any time during the arbitral proceedings to
encourage settlement.

(2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall
terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal,
record the settlement in the form of an arbitral award on agreed terms.

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(3) An arbitral award on agreed terms shall be made in accordance with section 31 and shall
state that it is an arbitral award.

(4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral
award on the substance of the dispute.

Section 30 states a new function to encourage settling the dispute. To settle the dispute mutually
between the parties, the arbitral tribunal may have to adopt the procedure of mediation and
conciliation.
During the arbitral proceeding, if any settlement is reached between the parties, the proceeding will
terminate and the settlement will be recorded as arbitral award. The tribunal may reject the request
made by parties for settlement of their dispute, only if the circumstances are opposed to public policy
in India, terms of settlement are unfair and fraudulent, etc.
It was observed in case of Harendra H. Mehta Vs. Mukesh H. Mehta that during arbitral
proceedings parties entered into settlement. It was held by honourable Supreme Court that
settlement arrived between the parties did not have effect of revoking arbitration agreement. Award
passed under settlement will be considered arbitral award.
Example: There was a dispute between Raja & Ravi regarding the quality of consumer goods
supplied. The case was referred to arbitration and arbitral proceedings were started with Mr.
Saurabh, the arbitrator. During the arbitral proceedings, both the parties agreed to settle the dispute
and they requested Mr. Saurabh to terminate the arbitral proceedings. Now, Mr. Saurabh was
empowered to reject the request made by parties for settlement of their dispute, if the circumstances
are opposed to public policy in India, fraud and unfair terms of settlement etc.

Form and contents of arbitral award

Section 31– (1) An arbitral award shall be made in writing and shall be signed by the members
of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the
signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the
reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons upon which it is based, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under section 30.

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(4) The arbitral award shall state its date and the place of arbitration as determined in accordance
with section 20 and the award shall be deemed to have been made at that place.
(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral
award on any matter with respect to which it may make a final arbitral award.
(7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the
payment of money, the arbitral tribunal may include in the sum for which the award is made interest,
at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any
part of the period between the date on which the cause of action arose and the date on which the
award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry
interest at the rate of two per cent higher than the current rate of interest prevalent on the date of
award, from the date of award to the date of payment.
Explanation.— The expression "current rate of interest" shall have the same meaning as assigned
to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).
(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with
section 31A.

Section 31 deals with form and contents of an arbitral award. The section outlines the essential
elements that an award must encompass. It mandates that the award should be in writing and signed
by the arbitrators. The decision must state the reasons upon which it is based, unless the parties
agree otherwise. Furthermore, the award should include the date and place of arbitration.
Compliance with these requirements ensures transparency and clarity in the arbitration process.
Section 31 plays a crucial role in upholding the integrity of arbitral awards and fostering confidence
in alternative dispute resolution mechanisms.

The Supreme Court held in case of Dwarka Das Vs. India Engineering that an arbitral award must
not merely be in writing but it should also be duly signed by arbitrator or arbitrators, as the case may
be.

Further in case of Raipur Development Authority Vs. Chokhamol Contractors, SC held that the
arbitrator must give reasons for the arbitral award. He was bound to give reasons if the arbitration
agreement so stipulated or if the parties so require.

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Furthermore, in case of Sree Kamatchi Amman Constructions Vs. The Divisional Railway
Manager (Works) Palghat 2010, the Court held that if there is a specific bar against payment of
interest in the contract, the arbitrator cannot award any interest for the pre-reference period or
pendente lite (i.e. during litigation) unless otherwise agreed by the parties. The arbitrator was bound
by the terms of the contract in regard to the award of interest from the date of the cause of action to
the date of the award. Hence, where the parties had agreed that no interest shall be payable, the
arbitral Tribunal cannot award interest between the date when the cause of action arose to the date
of the award.

Example: In a construction dispute, the arbitral tribunal having three arbitrators, following procedural
guidelines, issues arbitral award between Builder M/s Narmada Constructions Private Limited and
Developer M/s Marwadi Developers & Co. The award meticulously outlines the tribunal's findings on
liability, quantification of damages, and legal reasoning. It adheres to the agreed-upon format,
providing clarity and specificity. The document also includes a clear operative part, stating the
decisions on each issue. The award document was signed by only two arbitrators and no reason
was mentioned for not signing by third arbitrator. Held, this award cannot be considered as valid as
section 31(2) provides that in arbitral proceedings with more than one arbitrator, the signatures of
the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for
any omitted signature is stated.

Regime for costs Section 31A

Section 31A– (1) In relation to any arbitration proceeding or a proceeding under any of the
provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding
anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to
determine—
(a) whether costs are payable by one party to another;
(b) the amount of such costs; and
(c) when such costs are to be paid.
Explanation.—For the purpose of this sub-section, "costs" means reasonable costs relating to—
(i) the fees and expenses of the arbitrators, Courts and witnesses;
(ii) legal fees and expenses;

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(iii) any administration fees of the institution supervising the arbitration; and
(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the
arbitral award.
(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,—
(a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the
successful party; or
(b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.
(3) In determining the costs, the Court or arbitral tribunal shall have regard to all the
circumstances, including—
(a) the conduct of all the parties;
(b) whether a party has succeeded partly in the case;

(c) whether the party had made a frivolous counter-claim leading to delay in the disposal of the
arbitral proceedings; and
(d) whether any reasonable offer to settle the dispute is made by a party and refused by the other
party.
(4) The Court or arbitral tribunal may make any order under this section including the order that
a party shall pay—

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date.
(5) An agreement which has the effect that a party is to pay the whole or part of the costs of the
arbitration in any event shall be only valid if such agreement is made after the dispute in question
has arisen.

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 1.46 2.46 THE ARBITRATION AND CONCILIATION ACT, 1996

Termination of Proceedings
Section 32– (1) The arbitral proceedings shall be terminated by the final arbitral award or by an
order of the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings
where—
(a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral
tribunal recognises a legitimate interest on his part in obtaining a final settlement of the
dispute,
(b) the parties agree on the termination of the proceedings, or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason
become unnecessary or impossible.

(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal
shall terminate with the termination of the arbitral proceedings.

The Termination of Arbitral Proceedings under the Arbitration and Conciliation Act, 1996, is
important aspect of the Indian arbitration framework. Section 32 of the Act delineates the
circumstances under which arbitral proceedings stand terminated. Firstly, the tribunal must render
its final award, bringing the proceedings to a close. Alternatively, parties may mutually agree to
terminate the proceedings, notifying the tribunal in writing. Additionally, the Act empowers the
tribunal to terminate proceedings if it finds the claimant's non-compliance or abandonment of the
claim. Furthermore, the Act allows for termination in case of procedural misconduct or if the tribunal
determines that it cannot continue proceedings due to exceptional circumstances.
There was no provision regarding termination in old Arbitration Act 1940. However, the new
Arbitration and Conciliation Act, 1996 which came into force with effect from 22.08.1996 provides
section 32 which states that the arbitral proceedings shall be terminated by final award or by an
order of the tribunal.
Further, in the case of Sai Babu Vs. M/S Clariya Steels Private Limited (2019), the Supreme
Court held that once the sole arbitrator terminates the arbitration proceedings under Section 32(2)(c)
of Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the same cannot be subsequently
recalled.

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Correction and interpretation of award; additional award

Section 33– (1) Within thirty days from the receipt of the arbitral award, unless another period of
time has been agreed upon by the parties—
(a) a party, with notice to the other party, may request the arbitral tribunal to correct any
computation errors, any clerical or typographical errors or any other errors of a similar nature
occurring in the award;
(b) if so agreed by the parties, a party, with notice to the other party, may request the arbitral
tribunal to give an interpretation of a specific point or part of the award.
(2) If the arbitral tribunal considers the request made under sub-section (1) to be justified, it shall
make the correction or give the interpretation within thirty days from the receipt of the request and
the interpretation shall form part of the arbitral award.
(3) The arbitral tribunal may correct any error of the type referred to in clause (a) of sub-section
(1), on its own initiative, within thirty days from the date of the arbitral award.
(4) Unless otherwise agreed by the parties, a party with notice to the other party, may request,
within thirty days from the receipt of the arbitral award, the arbitral tribunal to make an additional
arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award.
(5) If the arbitral tribunal considers the request made under sub-section (4) to be justified, it shall
make the additional arbitral award within sixty days from the receipt of such request.
(6) The arbitral tribunal may extend, if necessary, the period of time within which it shall make a
correction, give an interpretation or make an additional arbitral award under sub-section (2) or sub-
section (5).
(7) Section 31 shall apply to a correction or interpretation of the arbitral award or to an additional
arbitral award made under this section.

Section 33 provides for correction and interpretation of award and additional award. It deals with
three functions of arbitral tribunal-
(i) correction in award, if any.
(ii) interpretations of specific points of the award
(iii) additional award.
According to the section, the arbitral tribunal on request of party may correct the mistake or give
interpretation of the award within 30 days from the receipt of request. Further, if something remained

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undecided or left out in arbitral award, an additional award can be requested. Additional award can
be made only on justifiable request made to arbitral tribunal by an aggrieved party. Under
extraordinary circumstances, the tribunal is empowered to extend the time limit i.e. 30 days.
Example: After the arbitration between Ram and Rahim, an award is issued, but discrepancies arise.
The tribunal, upon request, undertakes the correction and interpretation of the award. If there's
ambiguity or oversight, the tribunal rectifies these issues to ensure clarity and accuracy.
Additionally, if matters not addressed in the initial award surface, the tribunal may issue an additional
award, settling any remaining disputes. This process safeguards the integrity of the arbitration,
providing a mechanism for precision and completeness in the resolution between Ram and Rahim.

7. RECOURSE AGAINST ARBITRAL AWARD

Application for setting aside arbitral award
Under Section 34 of the Arbitration and Conciliation Act, 1996, a party can file an application for
setting aside an arbitral award. This provision outlines specific grounds on which the court may set
aside the award. The application must be submitted to the court within three months of receiving the
arbitral award, or within the extended time allowed by the court under exceptional circumstances.
Followings are the grounds on which an arbitral award may be set aside:
1. Grounds on which application from party is required:

Incapacity: If a party was under some legal incapacity or the arbitration agreement is not valid under
the law.
Violation of Due Process: If the party making the application was not given proper notice of the
appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present its
case.
Jurisdiction Issues: If the arbitral tribunal exceeded its jurisdiction or conducted the proceedings
not in accordance with the arbitration agreement.
2. Grounds on which no application from party is required:
Contrary to the terms of Arbitration Agreement: The subject matter of the dispute is not capable
of settlement by arbitration under the law.
Against Public Policy: If the award is in conflict with the public policy of India.

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The court's decision to set aside an arbitral award is discretionary and is based on a careful
examination of the grounds presented in the application. It's essential for the party filing the
application to provide substantive evidence supporting the grounds for setting aside the award.
In case of Sanjay Madan Vs. National Insurance Company, the court stated that if the provisions
of the old Act, i.e. Arbitration Act, 1940, were applicable to the case, then the objections under
section 34 of Arbitration and Conciliation Act, 1996, were not maintainable.
Further it was observed in case of The Tata Hydro-Electric Power Supply Co. Ltd. Vs. Union of
India that the arbitrator's decision cannot be set aside only because the Court would itself have
come to a different conclusion; but if it appears on the face of the award that the arbitrator has
proceeded illegally, as, for instance, by deciding on evidence which was not admissible, or on
principles of construction which the law does not countenance, there is error in law which may be
ground for setting aside the award.

8. FINALITY AND ENFORCEMENT OF ARBITRAL AWARDS

Finality of arbitral awards
35. Subject to this Part an arbitral award shall be final and binding on the parties and persons
claiming under them respectively.

Section 35 provides that the final arbitral award is binding upon the parties and any other persons
claiming under them. The arbitral award cannot be challenged after the expiry of the period
mentioned in section 34, i.e. within 3 months or such extended period as may be allowed by the
court.
In case of R.K. Textiles Vs. Sulabh Textiles Ltd., the Bombay HC held that an award which has
become final, and binding can be questioned before the court only on the ground of lack of
jurisdiction and not on any other ground.

Enforcement
36. (1) Where the time for making an application to set aside the arbitral award under section 34 has
expired, then, subject to the provisions of sub-section (2), such award shall be enforced in
accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner
as if it were a decree of the Court.
(2) Where an application to set aside the arbitral award has been filed in the Court under section
34, the filing of such an application shall not by itself render that award unenforceable, unless the

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Court grants an order of stay of the operation of the said arbitral award in accordance with the
provisions of sub-section (3), on a separate application made for that purpose.
(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral
award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of
such award for reasons to be recorded in writing:
Provided that the Court shall, while considering the application for grant of stay in the case of an
arbitral award for payment of money, have due regard to the provisions for grant of stay of a money
decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908):
Provided further that where the Court is satisfied that a prima facie case is made out that,—
(a) the arbitration agreement or contract which is the basis of the award; or
(b) the making of the award,
was induced or effected by fraud or corruption, it shall stay the award unconditionally pending
disposal of the challenge under section 34 to the award.
Explanation.—For the removal of doubts, it is hereby clarified that the above proviso shall apply to
all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral
or court proceedings were commenced prior to or after the commencement of the Arbitration and
Conciliation (Amendment) Act, 2015 (3 of 2016).

Section 36 pertains to the enforcement of arbitral awards. It outlines the procedure for enforcement
and the grounds on which a court may refuse enforcement. The key provisions of Section 36 can be
explained as below:
i) Enforceability: An arbitral award, irrespective of the country in which it was made, is
enforceable as a decree of the court.
ii) Filing for Enforcement: Once an arbitral award is received, the party seeking enforcement
may file it before the court within the jurisdiction where the subject matter is situated or where the
assets of the losing party are located.
iii) Stay of Enforcement: The court may grant a stay on the enforcement of the award if a party
files an application challenging the award under Section 34 (setting aside of the award).
iv) Conditions for Refusal of Enforcement: The court may refuse enforcement if the party
against whom the award is invoked furnishes proof of certain conditions, such as incapacity of a
party, invalidity of the arbitration agreement, procedural irregularities, etc.
Section 36 is a crucial provision as it ensures the swift and effective enforcement of arbitral awards,
promoting the finality and efficacy of the arbitration process.

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TEST YOUR KNOWLEDGE

Multiple Choice Questions (MCQs)

1. Satish Cake Shop was a leading shop for cakes and pastries. Manish is a regular customer
and always orders his requirement on What’s App. One day he orders 100 cakes again on
What’s App but this time he added a clause, “any disputes regarding quality shall be referred
to a sole arbitrator to be mutually appointed by both parties and shall be governed by the
provision of the Arbitration Act. Please place your order if the above terms and conditions are
agreeable to you.” Satish Cake Shop supplied the order. Whether there is any arbitration
agreement between Satish Cake Shop and Manish.
(a) No, there is no Arbitration agreement between Satish Cake Shop and Manish.
(b) No, merely mentioning on What’s App cannot be termed as arbitration agreement.
(c) Yes, mentioning on What’s App is considered as arbitration agreement.
(d) No, Arbitration agreement between Satish Cake Shop and Manish can be done only after
formal acceptance by Satish Cake Shop.
2. Hotel Crimpson Palace was entered into a contract with M/s Jain Lift Maintenance Services
for annual maintenance of lifts in Hotel Crimpson Palace for one year. An arbitration clause
regarding the reference of dispute to arbitration was also added in the contract. After the
expiry of period, service agreement was further renewed for one year, but this time arbitration
clause was not separately added. Whether arbitration agreement continued or not?
(a) No, Arbitration agreement ends with the end of original agreement.
(b) Yes, once arbitration clause added in original service agreement always continues.
(c) Yes, no need to add arbitration clause again in renewal.
(d) Even arbitration agreement ends with the end of original agreement; renewal agreement
will have same effect as original service agreement.
3. A, B & C were partners in M/s ABC & Co. A was interested to retire from the firm. He informed
the firm about his retirement and on the date of retirement his share in firm’s capital funds
including accumulated profits and reserves was Rs. 4,00,000. A has filed the claim of his
share to the firm. Whether claim is dispute among the partners?
(a) Yes, filing claim is clear indication of dispute.

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(b) No, mere filing of claim cannot be considered as dispute among the partners.

(c) No, because it depends on the decision of creditors of the firm.

(d) Yes, it is dispute and can be referred to arbitration.

4. In a dispute between M and N, Z was appointed as arbitrator. On the matter of dispute, Z

consulted with one of his client but this was unknown to the parties to dispute neither he
informed them even after. M and N informed the court about his misconduct. Z argued that
he has done it for the purpose of resolution of dispute only. Find the correct option;

(a) Z is correct in his argument.

(b) Z is guilty of misconduct.
(c) Whether, Z is guilty of misconduct will be decided by parties to dispute.
(d) Whether, Z is guilty of misconduct will be decided by court.
5. A dispute arises from a contract for the supply of electronic components, where Alpha
Electronics claims that the delivered components do not meet the agreed-upon specifications,
leading to financial losses. Beta Manufacturing argues that the components meet the
contractual requirements, and any issues are a result of Alpha Electronics' mishandling during
installation. The contract between Alpha Electronics and Beta Manufacturing includes a
clause stating that any disputes shall be resolved through arbitration but it does not specify
the place of arbitration. Both parties have submitted evidence supporting their claims, and
there is no agreement on the preferred place for the arbitration proceedings. When deciding
the place of domestic arbitration, the arbitrator should consider:
(a) The convenience of the arbitrator
(b) The preferences of the party initiating the arbitration
(c) The neutrality and impartiality of the chosen location
(d) The proximity to the parties and the location of relevant evidence and witnesses

Answers to the Multiple Choice Questions

1. (c) 2. (a) 3. (b) 4. (b) 5. (d)

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CHAPTER 3

ENFORCEMENT OF
CERTAIN FOREIGN AWARDS

LEARNING OUTCOMES
At the end of this chapter, you will be able to understand:
 Various Types of Arbitration and Their Features
(Ad hoc Arbitration, Institutional Arbitration, Domestic Arbitration,
International Arbitration, Contractual Arbitration, Statutory Arbitration,
Fast Track Arbitration, Foreign Arbitration)
 Various Types of Arbitral Awards & Their Characteristics
(Ad hoc Arbitral Award, Domestic Arbitral Award, International
Commercial Award)
 Enforcement of Foreign Awards –
♦ New York Convention Awards – Chapter I of Part II of the
Arbitration and Conciliation Act, 1996
♦ Geneva Convention Awards – Chapter II of Part II of the Arbitration
and Conciliation Act, 1996

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 3.2 THE ARBITRATION AND CONCILIATION ACT, 1996

CHAPTER OVERVIEW
Ad hoc Arbitration,

Institutional Arbitration,

Domestic Arbitration,

International
Arbitration,
Types of Arbitration
Contractual Arbitration,

Statutory Arbitration,

Fast Track Arbitration,

Foreign Arbitration
Enforcement of
certain Foreign
Awards
Ad hoc,

Types of Arbitral
Domestic,
Awards

International
Commercial

New York Convention

Awards
Enforcement of Foreign
Awards
Geneva Convention
Awards

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.3 .

1. ARBITRATION AND ITS TYPES

We have discussed in previous chapters that arbitration is a private, consensual dispute resolution
process where parties choose a neutral arbitrator or panel to hear their case. It offers a flexible,
efficient alternative to litigation, allowing for expert decision-making. Arbitration awards are legally
binding, and the process is widely used for resolving various disputes, especially in international
contexts.

Ad-hoc Arbitration Contractual Arbitration

Institutional Arbitration Statutory Arbitration

Types of
Arbitration
Domestic Arbitration Fast Track Arbitration

International Arbitration Foreign Arbitration

I) Ad hoc Arbitration
Ad-hoc arbitration refers to a type of arbitration where the parties involved in a dispute manage the
arbitration process themselves, without the assistance of an established arbitration institution or
organization. In ad hoc arbitration, the parties have greater flexibility and autonomy in shaping the
procedural rules, selecting arbitrators, and managing the overall arbitration proceedings.
Features of Ad hoc Arbitration

Selection of Arbitrator Cost

Procedural Rules Features of Enforceability

Ad hoc
Administration Arbitration Expertise of Arbitrator

Flexibility Level of Confidentiality

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a) Selection of Arbitrator: In this type of arbitration, the parties are free to choose their
arbitrators. They may agree upon a sole arbitrator, or a panel of arbitrators based on mutual
consent.
b) Procedural Rules: The parties are responsible for determining the procedural rules that will
govern the arbitration. They have the flexibility to tailor the process to their specific needs,
subject to any mandatory legal requirements.
c) Administration: Ad hoc arbitration requires the parties to handle administrative tasks
themselves. This includes setting hearing dates, managing document exchange, and
coordinating communication.
d) Flexibility: Flexibility is the main feature of Ad hoc arbitration. The parties can adapt the
procedure as per the complexity and nature of the dispute. This flexibility is particularly
valuable when dealing with unique or industry-specific issues.
e) Cost: Ad hoc arbitration is cost-effective compared to institutional arbitration because the
parties do not incur administrative fees charged by arbitration institutions. However, parties
should be mindful of the potential administrative burden and costs associated with self-
management.
f) Enforceability: The arbitral award issued in ad hoc arbitration is typically as enforceable as
an award from institutional arbitration. The enforceability is governed by national and
international laws, such as the New York Convention on the Recognition and Enforcement
of Foreign Arbitral Awards.
g) Expertise of Arbitrator: The parties can choose arbitrators with expertise in the specific
subject matter of the dispute. This allows for a more tailored and specialized approach to
dispute resolution.
h) Level of Confidentiality: Ad hoc arbitration proceedings often offer a high level of
confidentiality because the parties have greater control over the process and can agree on
confidentiality provisions.
In simple words, ad hoc arbitration provides parties with a high degree of control and flexibility. It
may be more suitable for parties who are familiar with arbitration procedures or have legal
representation experienced in managing arbitrations independently. Despite the flexibility, parties
should ensure that their ad hoc arbitration agreements are well-drafted to avoid potential pitfalls
and disputes over procedural issues.

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.5 .

II) Institutional Arbitration

Institutional Arbitration is a dispute process where there is a 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 and will be referred to an
established arbitration institution or organization. It is to be noted that such arbitration institutions
offer procedural guidance, administrative support, and a pool of qualified arbitrators, contributing
to a more structured and standardized arbitration process compared to ad hoc arbitration.
Features of Institutional Arbitration

Administration Impartiality

Features of
Procedural Rules Institutional Costs and Fees
Arbitration

Appointment of Arbitrator Confidentiality

Support of Institution

a) Administration: Institutional arbitration is administered by a specialized arbitration

institution. This institution facilitates and administers the arbitration process, providing
procedural rules, administrative support, and, in some cases, a roster of arbitrators.
b) Procedural Rules: The institution provides a set of rules that govern the arbitration
proceedings. Procedural rules help standardize the arbitration process, ensuring a
consistent and fair framework for resolving disputes.
c) Appointment of Arbitrator: The institution often assists in the appointment of arbitrators.
This is done either by providing a list of qualified individuals or through a specific
appointment mechanism outlined in its rules. This also ensures the impartial selection of
arbitrators, contributing to the perceived fairness of the arbitration process.
d) Support of Institution: The institution supports case management, handling administrative
tasks such as scheduling hearings, managing communication between parties, and
overseeing the submission of documents. The institution also maintains records of the
arbitration proceedings, including communications, submissions, and the final award.

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e) Impartiality: Arbitration institutions are designed to be neutral and impartial, providing a

level playing field for all parties involved. Parties often choose institutional arbitration for its
credibility.
f) Costs and Fees: Costs are on the higher side as compared to ad hoc arbitration.
Institutions typically charge fees for their services, including administrative costs and
arbitrator fees.
g) Preservation of Confidentiality: Institutional arbitration rules often include provisions to
preserve the confidentiality of the proceedings. This is especially important for parties who
wish to keep the details of their dispute private.
In simple words, institutional arbitration offers a structured and efficient dispute resolution process
with the support of a recognized arbitration institution. The features provided by these institutions
contribute to the reliability, efficiency, and enforceability of the arbitration process.
Difference between Ad hoc Arbitration and Institutional Arbitration
Basis Ad hoc Arbitration Institutional Arbitration
1. Appointment of Parties have greater flexibility in An external arbitration institution
Arbitrator choosing arbitrators and can is involved in the process of
directly appoint them without appointment of arbitrators.
relying on any external
institution.
2. Selection The selection process is typically Arbitrators are selected based on
Process outlined in the arbitration appointment rules established by
agreement between the parties. Institutions for a more structured
and impartial selection process.
3. Rules and Parties have the flexibility to Arbitration institutions provide a
Procedures determine the rules and set of established rules and
procedures that will govern the procedures that parties must
arbitration process. follow.
4. Administration Parties are responsible for The arbitration institution plays a
and Support administering the arbitration more active role in administering
process, including managing the proceedings including
administrative tasks, scheduling managing communication
hearings, and ensuring between the parties and the
compliance with procedural tribunal and overseeing the
requirements. overall process.
5. Arbitration Fees Parties have more control over Arbitration institutions typically
arbitration fees as they are charge fees for their services.
directly involved in managing the This fees cover administrative

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.7 .

arbitration process. However, costs, the appointment of

this also means that they bear arbitrators, and other support
the responsibility for services.
administrative tasks.
6. Arbitration Costs Costs may be lower compared to While institutional arbitration may
institutional arbitration, but this involve higher upfront costs these
depends on various factors, can be saved in the long run.
including the complexity of the
case and the efficiency of the
process.

III) Domestic Arbitration

The term “Domestic Arbitration” denotes arbitration which occurs in India. In this type of arbitration,
both parties must be Indians and the conflict has to be decided by the substantive law of
India. Though Domestic Arbitration has not been defined in the Arbitration and Conciliation Act,
1996, however when reading Section 2(2) with 2(7) of the Act 1996 together, it can be construed
that domestic arbitration means an arbitration in which the arbitral proceedings must necessarily
be held in India, and according to Indian substantive and procedural law.
Features of Domestic Arbitration

Rules and Regulations Awards

Flexibility in Procedure Confidentiality

Features of
Domestic
Arbitration Agreement Arbitration Cost Effectiveness

Selection of Arbitrator Expertise of Arbitrator

Powers of Tribunal Informal Process

a) Rules and Regulations: Domestic arbitration is typically governed by the laws of the
country or jurisdiction where the arbitration is taking place. India arbitration laws or statutes
outline the procedures and rules for conducting Indian domestic arbitrations.

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b) Flexibility in Procedure: Parties in a domestic arbitration have significant autonomy and

flexibility in determining the procedures and rules that will govern the arbitration process.
They are free to choose the arbitrators, establish the arbitration agreement, and define the
scope of the arbitration.
c) Arbitration Agreement: A valid arbitration agreement is a main requirement for domestic
arbitration. This agreement specifies their intent to resolve disputes through arbitration
rather than through traditional litigation.
d) Selection of Arbitrator: In domestic arbitration, parties are free to select their arbitrators.
The number of arbitrators, their qualifications, and the method of appointment are typically
outlined in the arbitration agreement or agreed upon by the parties.
e) Powers of Tribunal: In domestic arbitration, the arbitral tribunal has the authority to make
decisions on procedural matters, consider evidence, and render a final award. Generally,
the arbitration agreement and applicable national laws determine the scope of the tribunal's
powers.
f) Awards: Domestic arbitration awards are generally enforceable in the same way as court
judgments within the jurisdiction. National laws may govern the recognition and
enforcement of domestic arbitration awards.
g) Confidentiality: Confidentiality is a common feature of domestic arbitration. Generally,
parties prefer the private nature of arbitration proceedings and many arbitration laws
include provisions that protect the confidentiality of the arbitration process and the related
documents.
h) Cost Effectiveness: Domestic arbitration is often chosen for its perceived cost-
effectiveness and efficiency compared to traditional litigation. Parties may avoid lengthy
court proceedings and the arbitration process can be decided according to the specific
needs of the parties.
i) Expertise of Arbitrator: Parties can select an arbitrator who is an expert in the subject
matter of the dispute. This allows for a more informed and specialized decision-making
process, particularly beneficial when the dispute involves technical or industry-specific
issues.
j) Informal Process: Domestic arbitration proceedings are generally less formal than court
proceedings. This informality and flexibility contribute to a more accelerated and adaptable
dispute resolution process.

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.9 .

IV) International Arbitration

Where at least one of the parties involved is domiciled or resident outside India or the subject
matter of the dispute is related to place outside, such arbitration is treated as International
Arbitration. In other words, international arbitration is a method of resolving disputes between
parties from different countries or involving cross-border transactions.
Features of International Arbitration

Parties Selection of Arbitrator

Arbitration agreement Features of Confidentiality

International
Arbitration
Impartial Forum Cultural Sensitivity

Autonomy Witnesses of Experts

Ad hoc or Institutional Limited Grounds for

Cost – Effective
Challenge

a) Parties: International arbitration involves parties from different countries or transactions

with an international dimension, necessitating a neutral forum for dispute resolution.
b) Arbitration agreement: It requires a valid arbitration agreement specifying the intent to
resolve disputes through arbitration, which is generally included in international contracts.
c) Impartial Forum: It provides a neutral and impartial forum, allowing parties to avoid
potential biases associated with national courts.
d) Autonomy: International arbitration allows parties under dispute to choose the governing
law for the substance of the dispute, providing flexibility and predictability in the resolution
process.
e) Ad hoc or Institutional: It can be conducted through ad hoc arbitration or institutional
arbitration with established rules.

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f) Selection of Arbitrator: In international arbitration, parties are free to select arbitrators

with international expertise. Generally, they are chosen for their familiarity with diverse legal
systems and cultural backgrounds.
g) Confidentiality: Normally, international arbitration includes confidentiality provisions for
safeguarding sensitive business information and maintaining privacy in the resolution
process.
h) Cultural Sensitivity: Due importance is given to cultural diversity to accommodate different
legal traditions and business practices, fostering a more inclusive and acceptable dispute
resolution process.
i) Witnesses of Experts: In the case of international arbitration, the presentation of expert
witnesses is allowed to address technical or industry-specific issues, enhancing the
tribunal's understanding of complex matters.
j) Limited Grounds for Challenge: Awards in international arbitration are final and binding
with limited grounds for challenge, contributing to a more conclusive resolution of disputes.

k) Cost–Effective: It offers a potentially cost-effective alternative to litigation, though costs

can vary based on factors like complexity and arbitrator fees.
Difference between Domestic Arbitration and International Arbitration

Basis Domestic Arbitration International Arbitration

1. Geographical Takes place within the borders Involves parties from different
Scope of a single country, involving countries or transactions with a
parties from the same cross-border dimension.
jurisdiction or transactions with
purely domestic elements.
2. Rules and Governed by the laws of the Governed by a combination of
Regulation country in which the arbitration international conventions and the
is conducted including national laws chosen by the parties in the
arbitration laws or statutes. arbitration agreement.
3. Arbitration Requires a clear and Similarly requires a valid arbitration
Agreement enforceable agreement between agreement but may involve
parties to resolve disputes additional considerations.
through arbitration.
4. Selection of Parties have more flexibility in Generally, arbitrators with
Arbitrator selecting arbitrators and the international expertise are chosen
process may be outlined in the for their familiarity with diverse legal
arbitration agreement. systems and cultural backgrounds.

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5. Procedural The parties have significant It can be conducted through ad hoc

Rules autonomy in determining the arbitration or institutional arbitration
procedural rules, evidence with established rules.
submission, and other aspects
of the arbitration process.
6. Enforceability Awards are enforceable within Awards are generally enforceable
of Awards the jurisdiction where the across borders under international
arbitration took place subject to conventions providing a global
the national laws governing enforcement mechanism.
arbitration.
7. Cultural Involves a more homogeneous Recognizes and accommodates
Diversity legal and cultural context within diverse legal traditions, cultural
the boundaries of a single norms, and business practices,
country. requiring a more flexible and
adaptable approach.

V) Contractual Arbitration
In modern times, the growth of commercial activities and transactions gives rise to frequent
occasions for differences and disputes between the parties which need early and satisfactory
solutions. For this purpose, the parties choose to incorporate an arbitration clause as a part of the
agreement to refer to their future differences and disputes. This is called contractual arbitration.
Features of Contractual Arbitration

Arbitration Clause Confidentiality

Enforceability of Arbitration
Freedom of Parties Features of Awards
Contractual
Arbitration
Selection of Arbitrator Speedy Resolution

Rules of Arbitration Procedural Flexibility

a) Arbitration Clause: In such type of arbitration, parties include an arbitration clause or

agreement in their contract, which indicates their mutual consent to resolve disputes
through arbitration.

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b) Freedom of Parties: The parties are free to add the arbitration clause in their agreement
according to their specific needs, specifying details such as the number of arbitrators,
arbitration rules, and the place of arbitration.
c) Selection of Arbitrator: The parties are also free to select the arbitrator according to the
expertise required as per the subject matter of the contract.

d) Rules of Arbitration: The parties may choose ad hoc procedural rules or may establish
rules provided by different arbitration institutions.
e) Confidentiality: The arbitration agreement may include provisions to maintain the level of
confidentiality for the sensitive information obtained during arbitration proceedings.
f) Enforceability of Arbitration Awards: Arbitration awards arising from arbitration are
enforceable in the same way as the judgments of the court.
g) Speedy Resolution: Generally, the arbitration clause is added in the agreement for the
early and speedy resolution of differences and disputes.
h) Procedural Flexibility: In such arbitration, parties have the flexibility to design the
arbitration process according to requirements in the subject matter.
VI) Statutory Arbitration
It is mandatory arbitration imposed by the operation of law on parties. Parties have no option but to
abide by the law of the land. It is different from other types of arbitration because in such type of
arbitration consent of parties is not required. It is binding on the parties.
Example: Section 43(c) of The Indian Trust Act, 1882 provides to deal the dispute to arbitration.
Features of Statutory Arbitration
a) Basis of Law: This arbitration is based on specific legislation and laws. These laws
determine the procedures, rules, and other requirements of arbitration for certain types of
distribution.
b) Requirements: Requirements for a valid arbitration agreement are decided by statutory
provisions. It may include language required for an arbitration agreement, a form of notice,
etc.
c) Types of disputes: Statutory provisions of law determine the type of disputes to which
these provisions will apply.

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d) Selection of Arbitrator: Statutory arbitration laws may determine the required

qualifications for the arbitrator. Laws may also provide the formal mechanism for the
selection and appointment of arbitrators.
e) Requirement of specific expertise: In some cases, statutory arbitration may provide for
special expertise relevant to the specific subject matter for being an arbitrator.

f) Confidentiality: Some statutory provisions may include provisions to maintain the level of
confidentiality for the sensitive information obtained during arbitration proceedings.
g) Cost–Effective: Generally, statutory arbitration is designed to provide a cost-effective and
efficient alternative dispute resolution to court litigation.
Difference between Contractual Arbitration and Statutory Arbitration

Basis Contractual Arbitration Statutory Arbitration

1. Authority The authority is derived from the Authority is mandated by specific
agreement between the parties. statutory laws.
2. Arbitration An arbitration agreement includes No such clause is included in the
Clause an arbitration clause to refer the arbitration agreement. The
dispute to arbitration. requirement of arbitration is
imposed by law.
3. Selection of The parties are also free to select Statutory arbitration laws may
Arbitrator the arbitrator according to the determine the required
expertise required as per the qualifications for arbitrators. Laws
subject matter of the contract. may also provide the formal
mechanism for the selection and
appointment of arbitrators.
4. Enforceability Arbitral awards are enforceable Awards are enforceable as
of Award based on the agreement of the mandated by the relevant statutes.
parties.
5. Procedural Procedural rules are flexible as Procedural rules are prescribed by
Rule per the agreement between the specific statutory laws.
parties.

VII) Fast Track Arbitration

Section 29B of the Arbitration and Conciliation (Amendment) Act, 2015 provides that the parties to
an arbitration agreement may agree in writing to have their dispute resolved by the fast-track
procedure. It generally deals with trade-related matters. It is a time-bound device to resolve the
dispute within six months.

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Features of Fast Track Arbitration

Accelerated Process Short Timing Process

Limited Requirement of
Cost Effective
documents Features of
Fast Track
Arbitration
Simple Procedure Arbitration Award

Selection of Arbitrator Flexibility

Limited Number of Hearings

a) Accelerated Process: This process of arbitration is faster and more efficient as compared
to the regular arbitration process. This process emphasizes on early resolution of disputes.
b) Limited Requirement of documents: For early resolution of dispute, this process of
arbitration may restrict the requirement of the entire document by focusing on the key
documents and information relevant to the subject matter.
c) Simple Procedure: Fast-track arbitration is a simplified procedure. This includes a more
focused discovery process and shorter hearings.
d) Limited Number of Hearings: The number and duration of hearings are generally reduced
in fast-track arbitration. This process involves limiting witness testimony and expert
presentations to essential matters.
e) Selection of Arbitrator: In the selection of an arbitrator in fast-track arbitral proceedings,
priorities are always given to individuals with experience in handling expedited cases.
f) Short Timing Process: The timeline for fast-track arbitration is compressed compared to
standard arbitration.
g) Cost Effective: One of the goals of fast-track arbitration is to reduce the overall cost of the
arbitration process. This can be achieved through a combination of limited discovery,
shorter timelines, and a simplified procedural structure.

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h) Arbitration Award: Arbitration awards in fast-track proceedings are intended to be final

and binding. The limited grounds for challenging awards in this process contribute to the
efficiency and finality of the process.
i) Flexibility: While fast-track arbitration follows an accelerated framework, there is still some
flexibility. Parties may agree on specific procedures or modify the process to suit the
particular needs of their dispute.
(VIII) Foreign Arbitration
When the arbitration proceedings are conducted in a place outside India, it is called “foreign
arbitration”. In such type of arbitration, a “foreign award” is sought.

2. TYPES OF ARBITRAL AWARDS (AD HOC, DOMESTIC

AND INTERNATIONAL COMMERCIAL AWARDS)
(I) Ad hoc Arbitral Awards
Ad hoc arbitral awards refer to arbitration awards that are issued in ad hoc arbitrations. Ad hoc
arbitral awards arise from arbitration proceedings where the parties manage and organize the
process themselves without the involvement of a specific arbitration institution. The effectiveness
of ad hoc arbitration depends on the willingness of the parties to cooperate and adhere to the
agreed-upon procedures.
(II) Domestic Arbitral Awards
Domestic arbitral awards are issued in the context of arbitration proceedings where the dispute is
resolved within the borders of a single country. The arbitration process is subject to the laws and
regulations of the specific country where the arbitration takes place, and the awards are
enforceable within that jurisdiction. Domestic arbitral awards play a crucial role in the realm of
dispute resolution, offering parties a forum to efficiently resolve their conflicts within the confines of
a single country's legal system. The arbitration proceedings and the resulting award are governed
by the domestic laws of the country where the arbitration takes place. This feature ensures that the
legal principles, rules, and procedures applied are consistent with the domestic legal system,
providing a familiar and enforceable framework.
Domestic arbitral awards are subject to the enforcement mechanisms provided by the domestic
legal system. Recognition and enforcement may also be facilitated by international conventions,
with many countries adhering to the principles outlined in the New York Convention.

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(III) International Commercial Awards

International commercial arbitral awards are issued in the context of arbitration involving parties
from different countries, often related to international business transactions. International
commercial arbitration is a widely used method for resolving disputes arising from international
business transactions. Instead of resorting to national courts, parties involved in cross-border
transactions often choose arbitration as a means of resolving their disputes, and the resulting awards
are termed international commercial awards.
Features and Characteristics

Applicable Law Procedural Rules

Features and
Arbitration Agreement Characteristics
of International Cost and Time Effectiveness
Commercial
Appointment of Arbitrator Awards

Confidentiality
Enforcement

a) Applicable Law: The legal framework governing international commercial arbitral awards is
often international rather than solely based on the laws of one country. The parties usually
agree on the governing law for their contract and arbitration agreement. The arbitration
proceedings and the resulting award are then based on this agreed-upon legal framework.

b) Arbitration Agreement: Similar to domestic arbitration, parties typically include an

arbitration clause or agreement in their international commercial contracts, specifying that any
disputes arising from the contract will be resolved through arbitration. The arbitration agreement
outlines key details such as the number of arbitrators, the arbitration rules to be followed, and
the seat of arbitration.

c) Appointment of Arbitrator: In international commercial arbitration, the appointment of

arbitrators is often a crucial aspect. Parties often seek arbitrators with diverse backgrounds
and expertise. Institutions like the International Chamber of Commerce (ICC) or the London
Court of International Arbitration (LCIA) may play a role in arbitrator appointments, ensuring
a level of neutrality and expertise.

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d) Enforcement: The recognition and enforcement of international commercial awards are

facilitated by international conventions such as the New York Convention. This convention
provides a framework for the enforcement of arbitral awards in over 160 countries, streamlining
the enforcement process. The enforceability of international commercial arbitral awards
across borders adds a layer of certainty and reliability to the resolution process.
e) Arbitral Procedural Rules: International commercial arbitration allows for flexibility in
procedural matters, catering to the unique aspects of each dispute. Procedural rules may
be determined by the chosen arbitration institution or agreed upon by the parties, striking a
balance between formality and efficiency.
f) Cost and Time Effectiveness: While international commercial arbitration may be costlier
than domestic arbitration, it is often considered more cost-effective than litigating in multiple
national courts. The efficiency of the arbitration process contributes to a timely resolution of
disputes, crucial in the fast-paced world of global business.
g) Confidentiality: Confidentiality is often a significant concern in international commercial
arbitration. International commercial arbitration strikes a balance between the transparency
required for fairness and the confidentiality desired by businesses. Confidentiality
provisions may be outlined in institutional rules or agreed upon by the parties, safeguarding
sensitive commercial information.

3. ENFORCEMENT OF FOREIGN AWARDS

Chapter I of Part II of Arbitration and Conciliation Act 1996 with headings “Enforcement of Certain
Foreign Awards” and “New York Convention Awards” respectively were enacted to incorporate the
Foreign Awards (Recognition and Enforcement) Act, 1961 with certain modifications. Some of
them were as under:
a) Section 45 of Arbitration and Conciliation Act, 1996 modifies the provisions of section 3 of
the 1961 Act i.e. to stay of proceedings in respect of matters to be referred to arbitration.
b) Section 49 of the Arbitration and Conciliation Act, 1996 regarding enforcement of the
foreign awards were introduced while sections 4(1), section 5, and Section 6 of the 1961
Act were omitted.
c) Section 50 of the Arbitration and Conciliation Act, 1996 was introduced to deal with the
matters relating to appeals against certain orders made under section 45 and section 48.

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In the same way, Chapter II was enacted for certain modification in the Arbitration (Protocol and
Convention) Act, of 1937. Some of them are as below:
a) Section 54 of Arbitration and Conciliation Act, 1996 modifies the provisions of section 3 of
the 1937 Act i.e. to stay of proceedings in respect of matters to be referred to arbitration.
b) Section 58 of the Arbitration and Conciliation Act, 1996 regarding enforcement of foreign
awards was introduced while sections 4(1), section 5, and section 6 of the 1937 Act were
omitted.
c) Section 59 of the Arbitration and Conciliation Act, 1996 was introduced to deal with the
matters relating to appeals against certain orders made under section 54 and section 57.
New York Convention Awards – Chapter I of Part II of the Arbitration and Conciliation Act,
1996
Definition

Section 44 – In this Chapter, unless the context otherwise requires, "foreign award" means an
arbitral award on differences between persons arising out of legal relationships, whether
contractual or not, considered as commercial under the law in force in India, made on or after the
11th day of October, 1960—
a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in
the First Schedule applies, and
b) in one of such territories as the Central Government, being satisfied that reciprocal
provisions have been made may, by notification in the Official Gazette, declare to be
territories to which the said Convention applies.

Section 44 of the Arbitration and Conciliation Act, 1996 is based on Article I of the New York
Convention and Section 2 of the 1961 Act. Accordingly, the term “foreign award” means the award
made as a result of the foreign arbitration which is not a domestic arbitration. The Calcutta HC in
the case of Serajuddin Vs. Michael Golodetz held the essential elements for a “foreign
arbitration”:
i) arbitration should be held in a foreign country by the foreign arbitrator,
ii) application of foreign laws,
iii) foreign nationals are involved as a party.
It was observed by the Supreme Court in case of NTPC Vs. Singer Company that an interim

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award was made in London in an arbitration agreement governed by the Indian Laws. The SC held
in this case that such an arbitral award cannot be considered a foreign award and it is purely a
“domestic award” which is governed by Indian Laws.
Power of Judicial Authority to Refer Parties to Arbitration

Section 45 – Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908
(5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties
have made an agreement referred to in section 44, shall, at the request of one of the parties or any
person claiming through or under him, refer the parties to arbitration, unless it prima facie finds
that the said agreement is null and void, inoperative or incapable of being performed.

Section 45 of Arbitration and Conciliation Act, 1996 is based on Article II (3) of the New York
Convention and Section 3 of the 1961 Act. Section 45 provides that the judicial authority may refer
the parties to arbitration at the request of one of the parties or any person claiming through or
under him. But before referring the parties to arbitration, the judicial authority has to make sure
that the arbitration agreement is valid, operative, and capable of being performed. The SC
observed in the case of Renusagar Power Co Ltd. Vs. General Electric Company that the
expression “shall” used in section 45, denotes that the judicial authority must refer the parties to
arbitration if conditions mentioned in the arbitration agreement are satisfied. But the court cannot
refer the parties to arbitration suo-moto except where the court is competent to proceed with the
case.
Further, in the case of Goyal MG Gases Ltd. Vs. Griesheim GMBH, the court held that section 45
provides clearly and apparently that judicial authority when seized of an action in a matter in
respect of which the parties have agreed on the nature as provided to in section 44, shall, refer the
parties to arbitration at the request of one of the parties or any person claiming through or under
him.
When foreign award-binding

Section 46 – Any foreign award which would be enforceable under this Chapter shall be treated as
binding for all purposes on the persons as between whom it was made, and may accordingly be
relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings
in India and any references in this Chapter to enforcing a foreign award shall be construed as
including references to relying on an award.

Section 46 of the Arbitration and Conciliation Act, 1996 is based on Article III of the New York
Convention and Section 4(2) of the 1961 Act. Section 46 addresses the enforceability of foreign

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arbitral awards. According to the section, any foreign award under this chapter becomes
enforceable in India and shall be binding on the parties between whom it was made. These parties
may rely on such foreign award by way of defense, set off, or otherwise in any legal proceedings
initiated in India.
Evidence

Section 47 – (1) The party applying for the enforcement of a foreign award shall, at the time of the
application, produce before the Court-
a) the original award or a copy thereof, duly authenticated in the manner required by the law of
the country in which it was made,

b) the original agreement for arbitration or a duly certified copy thereof; and
c) such evidence as may be necessary to prove that the award is a foreign award.
(2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the
party seeking to enforce the award shall produce a translation into English certified as correct by a
diplomatic or consular agent of the country to which that party belongs or certified as correct in
such other manner as may be sufficient according to the law in force in India.
[Explanation.—In this section and in the sections following in this Chapter, "Court" means the High
Court having original jurisdiction to decide the questions forming the subject-matter of the arbitral
award if the same had been the subject-matter of a suit on its original civil jurisdiction and in other
cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to
such High Court.]

Section 47 of the Arbitration and Conciliation Act, 1996 is enacted parallel to Article IV of the New
York Convention and on the pattern of Section 8 of the 1961 Act. Section 47 of the Arbitration and
Conciliation Act, 1996 deals with the specific conditions required to be fulfilled by parties for
enforcement of a foreign award. In other words, section 47 prescribes the evidence that the party
has to be made prima facie before the court for enforcement of a foreign award.
On analysis of section 47(1), it can be said that the following documentary evidence must be
produced by the parties before the court while filing the application for the enforcement of a foreign
award:
a) Original award or a copy thereof which must be authenticated as per the law of the country
in which it was made,
b) The original agreement for arbitration or a duly certified copy arbitration agreement,

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c) Such evidence as may be necessary to show that the award is a foreign award.
The court may allow the party to fulfill the above conditions even during the proceedings.
Further, sub-section 2 provides that if such an award or arbitration agreement is in a foreign
language, it should be translated into English and translated copies should be produced. It is to be
noted that these copies must be certified by a diplomatic or consular agent of the country to which
that party belongs or certified as correct in such manner as may be sufficient according to the law
in force in India.
Regarding the phrase “at the time of the application” given in section 47(1) of the Act, whether the
conditions mentioned in clauses (a) to (c) of section 47(1) should be fulfilled only at the time of
application or these can be fulfilled even after the application i.e. during the proceedings.
Following the opinion of several commentators and foreign courts, the phrase should be adhered
to two strictly and the party should be permitted to fulfill the conditions even during proceedings.
It was held by the Supreme Court in the case of M/s Fuerst Day Lawson Ltd. Vs. Jindal Exports
Ltd. that a foreign award given after the commencement of the Arbitration and Conciliation Act,
1996 can be enforced only under this 1996 Act even arbitral proceedings might have been
commenced before the commencement of 1996 Act.
Condition for enforcement of foreign awards

Section 48 – (1) Enforcement of a foreign award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the Court proof that—
(a) the parties to the agreement referred to in section 44 were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law of the country
where the award was made; or
(b) the party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to
present his case; or
(c) the award deals with a difference not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from
those not so submitted, that part of the award which contains decisions on matters

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submitted to arbitration may be enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with
the agreement of the parties, or, failing such agreement, was not in accordance with the law
of the country where the arbitration took place; or
(e) the award has not yet become binding on the parties, or has been set aside or suspended
by a competent authority of the country in which, or under the law of which, that award was
made.
(2) Enforcement of an arbitral award may also be refused if the Court finds that—

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law
of India; or
(b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the
public policy of India, only if,—
i) the making of the award was induced or affected by fraud or corruption or was in violation of
section 75 or section 81; or
ii) it is in contravention with the fundamental policy of Indian law; or
iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with
the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(3) If an application for the setting aside or suspension of the award has been made to a
competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it
proper, adjourn the decision on the enforcement of the award and may also, on the application of
the party claiming enforcement of the award, order the other party to give suitable security.

Section 48 of the Arbitration and Conciliation Act, 1996 is based on Article V of the New York
Convention and Section 7 of the 1961 Act. It provides the conditions for enforcement of foreign
awards. On analysis of section 48(1), the enforcement of a foreign award may be refused on the
request of the party against whom this foreign award is made but party has to prove any of the
conditions mentioned in clauses (a) to (e) below:
a) If the parties, to the arbitration agreement made under section 44, are under some
incapacity or

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 If the arbitration agreement is not valid under the law to which the parties have
subjected it or
 If the arbitration agreement is contrary to the law of the country where the award was
made.
b) If the aggrieved party against whom award is made, was not given:

 proper notice of the appointment of arbitrator or arbitral proceedings, or

 proper opportunity to present his case.
In fact, clause (b) is based on the principle of natural justice and if a foreign award is made
in violation of this principle cannot be enforced.
c) Foreign award must deal only with the questions actually submitted to arbitral tribunal by
the parties. Award must be refused for being enforced if it contains decision on the matters
beyond the scope of arbitration agreement.
d) According to clause (d), foreign award cannot be enforced:
 If the composition of the arbitral authority is not according to arbitration agreement;
or
 If the arbitral procedure adopted is not in accordance with the agreement; or
 If arbitration agreement itself, is contrary to the law of the country where the
arbitration took place.
e) If the award has been set aside or suspended by a competent authority of the concerned
country or it has not become binding on the parties.
Section 48(2) provides additional grounds for refusal of enforcement of foreign arbitration
award. Accordingly, the court may refuse to enforcement:
 If the subject-matter of the difference between parties is not capable of settlement by
arbitration under the law of India; or
 If the enforcement of the foreign award is opposed to the public policy of India.
The expression “public policy” was interpreted in explanation 1 attached. Accordingly, an
award is in conflict with the public policy of India, only if,—
 the making of the award was induced or affected by fraud or corruption or was in
violation of section 75 or section 81; or

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 it is in contravention with the fundamental policy of Indian law; or

 it is in conflict with the most basic notions of morality or justice.
It is clarified in explanation 2 that the assessment of whether there is a violation of the
fundamental policy of Indian law does not involve a revaluation of the merits of the dispute.
Section 48(3) provides that where the party has made an application before the court for the
setting aside or suspension of the foreign award, the court is empowered to adjourn the decision
on the enforcement of the award and may also order the other party to give suitable security.
The decision taken in case of Perfint Healthcare Pvt. Ltd. Vs. California Institute of Computer
made it obligatory on the party against whom the award is made, to furnish before the court that
such award is not enforceable under any ground set out in the section 48. The obligation of party
for making the request and furnishing proof for existence of any condition mentioned in sub-section
1 of section 48 before the court was also confirmed in case of Glencore Grain Rotterdam
B.V. Vs. Shivnath Rai Harnarain (India).
Enforcement of foreign awards

Section 49 – Where the Court is satisfied that the foreign award is enforceable under this Chapter,
the award shall be deemed to be a decree of that Court.

Section 49 of the Arbitration and Conciliation Act, 1996 is enacted on the basis of Article III of the
New York Convention. Section clearly provides that the court not only of the opinion but should be
satisfied that the foreign award can be enforced and such award shall be deemed to be decree of
the court.

The Appealable orders

Section 50 – Notwithstanding anything contained in any other law for the time being in force, an
appeal shall lie from the order refusing to—
(a) refer the parties to arbitration under section 45;
(b) enforce a foreign award under section 48
to the Court authorised by law to hear appeals from such order.
(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in
this section shall affect or take away any right to appeal to the Supreme Court.

Section 50 of the Arbitration and Conciliation Act, 1996 deals with the kinds of orders which are
appealable. Sub–section 1 provides an appeal can be filed against certain orders made under

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section 45 and section 48. Sub–section 2 provides that no second appeal is possible against such
orders. However, right to appeal to Supreme Court as provided in Constitution of India, is not
taken away.
Saving

Section 51 – Nothing in this Chapter shall prejudice any rights which any person would have had
of enforcing in India of any award or of availing himself in India of any award if this Chapter had
not been enacted.

In other words, chapter I do not weaken the rights that any individual would have had to enforce an
award in India or to benefit from an award in India if this chapter had not been enacted.
Chapter II not to apply

Section 52 – Chapter II of this Part shall not apply in relation to foreign awards to which this
Chapter applies.

In simple words, the foreign awards to which Chapter I of Part II apply, Chapter II of Part II shall
not apply in respect of them.
Geneva Convention Awards – Chapter II of Part II of the Arbitration and Conciliation
Act, 1996
Interpretation

Section 53 – In this Chapter "foreign award" means an arbitral award on differences relating to
matters considered as commercial under the law in force in India made after the 28th day of July,
1924,—
(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second
Schedule applies, and

(b) between persons of whom one is subject to the jurisdiction of someone of such Powers as
the Central Government, being satisfied that reciprocal provisions have been made, may,
by notification in the Official Gazette, declare to be parties to the Conventions set forth in
the Third Schedule, and of whom the other is subject to the jurisdiction of some other of the
Powers aforesaid, and
(c) in one of such territories as the Central Government, being satisfied that reciprocal
provisions have been made, may, by like notification, declare to be territories to which the
said Convention applies,

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 3.26 THE ARBITRATION AND CONCILIATION ACT, 1996

and for the purposes of this Chapter an award shall not be deemed to be final if any proceedings
for the purpose of contesting the validity of the award are pending in the country in which it was
made.

Section 53 of the Arbitration and Conciliation Act, 1996 is based on Article 1 of Geneva Protocol
and Article 1(1) of Geneva Convention and section 2 of 1937 Act. Section 53 provides the meaning
of “Foreign Award”. According to it, foreign award is an arbitral award on disputes in respect of
matter which has been referred to arbitration as commercial matter under the law in force in India
after 28th of July, 1924.
According to section 53, the Central Government, by notification in official gazette, has to declare
the territories to which Geneva Convention would be applied. If the award is made in such
territories which are not the parties to Geneva Convention, provisions of Chapter II will not be
applicable. Further, foreign award will not be considered final if any proceeding, in respect of
validity of such a foreign award, is pending in the country in which it was made.
Power of judicial authority to refer parties to the arbitration

Section 54 – Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908
(5 of 1908), a judicial authority, on being seized of a dispute regarding a contract made between
persons to whom section 53 applies and including and arbitration agreement, whether referring to
present or future differences, which is valid under that section and capable of being carried into
effect, shall refer the parties on the application of either of them or any person claiming through or
under him to the decision of the arbitrators and such reference shall not prejudice the competence
of the judicial authority in case the agreement or the arbitration cannot proceed or becomes
inoperative.

Section 54 is based on Article 4 of the Geneva Protocol. According to section 54, provisions of
Part I or in the Code of Civil Procedure, 1908 will not be applied if these are contrary to the
provisions of Chapter II of Arbitration and Conciliation Act, 1996. The judicial authority has the
power to refer the parties to the decision of the arbitrators if the following conditions are fulfilled:
a) There should be a dispute regarding a contract between the persons to section 53 applies,
b) The contract must include an arbitration agreement whether referring to present or future
differences,
c) There must be an application to refer the arbitration by any party to the arbitration
agreement or any person claiming through the decision of the arbitrator,
d) The judicial authority thinks that agreement or arbitration can proceed and is operative.

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.27 .

e) The judicial authority must be satisfied that the arbitration is valid under section 53.
It is to be noted that there is no time limit in section 54. It is at the discretion of judicial authority of
based on the circumstances of the case.
Foreign awards when binding

Section 55 – Any foreign award which would be enforceable under this Chapter shall be treated as
binding for all purposes on the persons as between whom it was made, and may accordingly be
relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings
in India and any references in this Chapter to enforcing a foreign award shall be construed as
including references to relying on an award.

Section 55 is based on Article 11(1) of the Geneva Convention and Section 4(2) of The
This section provides that a foreign award enforceable under Chapter II will act as a binding force
upon the parties against whom it is made.
Further, such foreign award shall be considered as a basis for seeking defense, set-off, or
otherwise any legal proceedings in India.
Evidence

Section 56 – (1) The party applying for the enforcement of a foreign award shall, at the time of
application produced before the Court—
(a) the original award or a copy thereof duly authenticated in the manner required by the law of
the country in which it was made;
(b) evidence proving that the award has become final; and
(c) such evidence as may be necessary to prove that the conditions mentioned in clauses (a)
and (c) of sub-section (1) of section 57 are satisfied.
(2) Where any document requiring to be produced under sub-section (1) is in a foreign language,
the party seeking to enforce the award shall produce a translation into English certified as correct
by a diplomatic or consular agent of the country to which that party belongs or certified as correct
in such other manner as may be sufficient according to the law in force in India.
[Explanation.—In this section and in the sections following in this Chapter, "Court" means the High
Court having original jurisdiction to decide the questions forming the subject-matter of the arbitral
award if the same had been the subject-matter of a suit on its original civil jurisdiction and in other

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 3.28 THE ARBITRATION AND CONCILIATION ACT, 1996

cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to
such High Court.]

Section 56 of the Arbitration and Conciliation Act, 1996 is enacted parallel to Article 4 of the
Geneva Convention and on the pattern of Section 8 of the 1937 Act. Section 56 of Arbitration and
Conciliation Act, 1996 deals with the specific conditions required to be fulfilled by parties for
enforcement of a foreign award. In other words, section 56 prescribes the evidence that the party
has to be made prima facie before the court for enforcement of a foreign award.
On analysis of section 56(1), it can be said that following documentary evidences must be
produced by the parties before the court while filing the application for the enforcement of a foreign
award:
a) Original award or a copy thereof which must be authenticated as per the law of the country
in which it was made,

b) The proof that award is final,

c) Such evidence as may be necessary to fulfill the conditions mentioned in clauses (a) and
(b).
The court may allow the party to fulfill above conditions even during the proceedings.
Further, sub-section 2 provides that if such award or arbitration agreement is in foreign language,
it should be translated in English and translated copies should be produced. It is to be noted that
these copies must be certified by a diplomatic or consular agent of the country to which that party
belongs or certified as correct in such manner as may be sufficient according to the law in force in
India.

Conditions for enforcement of foreign awards

Section 57 – (1) In order that a foreign award may be enforceable under this Chapter, it shall be
necessary that—
(a) the award has been made in pursuance of a submission to arbitration which is valid under
the law applicable thereto;
(b) the subject-matter of the award is capable of settlement by arbitration under the law of
India;
(c) the award has been made by the arbitral tribunal provided for in the submission to
arbitration or constituted in the manner agreed upon by the parties and in conformity with
the law governing the arbitration procedure;

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.29 .

(d) the award has become final in the country in which it has been made, in the sense that it
will not be considered as such if it is open to opposition or appeal or if it is proved that any
proceedings for the purpose of contesting the validity of the award are pending;
(e) the enforcement of the award is not contrary to the public policy or the law of India.
[Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the
public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of
section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with
the fundamental policy of Indian law shall not entail a review on the merits of the dispute.]
(2) Even if the conditions laid down in sub-section (1) are fulfilled, enforcement of the award
shall be refused if the Court is satisfied that—

(a) the award has been annulled in the country in which it was made;
(b) the party against whom it is sought to use the award was not given notice of the arbitration
proceedings in sufficient time to enable him to present his case; or that, being under a legal
incapacity, he was not properly represented;
(c) the award does not deal with the differences contemplated by or falling within the terms of
the submission to arbitration or that it contains decisions on matters beyond the scope of
the submission to arbitration.
Provided that if the award has not covered all the differences submitted to the arbitral tribunal, the
Court may, if it thinks fit, postpone such enforcement or grant it subject to such guarantee as the
Court may decide.
(3) If the party against whom the award has been made proves that under the law governing the
arbitration procedure there is a ground, other than the grounds referred to in clauses (a) and (c) of
sub-section (1) and clauses (b) and (c) of sub-section (2) entitling him to contest the validity of the
award, the Court may, if it thinks fit, either refuse enforcement of the award or adjourn the
consideration thereof, giving such party a reasonable time within which to have the award annulled
by the competent Tribunal.

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 3.30 THE ARBITRATION AND CONCILIATION ACT, 1996

Section 57 of the Arbitration and Conciliation Act, 1996 is based on Article 1, Article 2 of the
Geneva Convention and Section 7 of the 1937 Act. It provides the conditions for enforcement of
foreign awards. On analysis of section 57(1), for the enforcement of a foreign award, the party
seeking enforcement has to prove any of the conditions mentioned in clauses (a) to (e) below:
a) If the terms submitted to arbitration are invalid or illegal or contrary to the provisions of law
in force, the award given by arbitral tribunal will not be enforceable.
b) The dispute or difference should be arbitrable under the law of India.
c) The award made by arbitral tribunal should be constituted as per the agreed terms between
the parties and also in accordance with the law governing the arbitral proceedings.
d) The award has become final in the country in which it has been made, unless-
 it is open for being opposed or appealed or

 it is proved that in respect of the validity of the award any proceedings are pending.
e) Award should not be opposed to public policy of India.
According to section 57(2), even the conditions mentioned in sub-section (1) the court must refuse
the enforcement of foreign award if following conditions are satisfied:
a) The award has been invalidated or canceled in the country where it was rendered.
b) If the aggrieved party against whom award is made,
 was not given sufficient time notice of the arbitral proceedings, or
 is being under legal incapacity, he was not properly represented.
c) Foreign award must deal only with the questions actually submitted to arbitral tribunal by
the parties. Award must be refused for being enforced if it contains decision on the matters
beyond the scope of arbitration agreement.
However, Court is empowered to postpone the enforcement of a foreign award or may order to
provide any guarantee in this regard if such award has not covered all the differences submitted to
the arbitral tribunal.
Further, section 57(3) empowers the court to refuse the enforcement of the reward or adjourn the
enforcement of the award by giving a reasonable time to the party against whom award is made if
such party provides and proves extra grounds, other than grounds mentioned in section 57(1)(a),
section 57(1)(c), section 57(2)(b) and section 57(2)(c), to oppose the enforcement of foreign
award.

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.31 .

It was held in case of Societa Anonmina Vs. Gorakharam Gokalchand that if the contract is
illegal, the award given by the arbitral tribunal in pursuance of arbitration clause in the contract
shall not be enforceable.
Enforcement of foreign awards

Section 58 – Where the Court is satisfied that the foreign award is enforceable under this Chapter,
the award shall be deemed to be a decree of the Court.

Section 58 of the Arbitration and Conciliation Act, 1996 is enacted on the basis of Article 1(1) of
the Geneva Convention. These provisions are also similar to the provisions given in section 49 of
this Act. Section clearly provides that the court not only of the opinion but should be satisfied that
the foreign award can be enforced and such award shall be deemed to be decree of the court.
Appealable orders

Section 59 – (1) An appeal shall lie from the order refusing—

(a) to refer the parties to arbitration under section 54; and
(b) to enforce a foreign award under section 57,
to the court authorized by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in
this section shall affect or take away any right to appeal to the Supreme Court.

Section 59 of the Arbitration and Conciliation Act, 1996 deals with the kinds of orders which are
appealable. Sub – section 1 provides an appeal can be filed against certain orders made under
section 54 and section 57. Sub – section 2 provides that no second appeal is possible against
such orders. However, right to appeal to Supreme Court as provided in Constitution of India, is not
taken away.
Saving

Section 60 – Nothing in this Chapter shall prejudice any rights which any person would have had
of enforcing in India of any award or of availing himself in India of any award if this Chapter had
not been enacted.

In other words, chapter II does not weaken the rights that any individual would have had to enforce
an award in India or to benefit from an award in India if this chapter had not been enacted.

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 3.32 THE ARBITRATION AND CONCILIATION ACT, 1996

Test Your Knowledge

Multiple Choice Questions (MCQs)

1. Mr. Rahul, an entrepreneur, entered into a business partnership with Ms. Saniya to develop
and market a new line of eco-friendly products. As the venture progressed, disagreements
arose regarding profit distribution and the allocation of responsibilities. In an attempt to
resolve the disputes, both parties agreed to opt for ad hoc arbitration without involving any
specific institutional rules. The proceedings took place with the ad hoc arbitration
agreement and were not subject to any institutional rules. Which of the following statements
is true about ad hoc arbitration?
(a) It always involves a three-member arbitral tribunal.

(b) The procedural rules are predetermined by an institution.

(c) It is more cost-effective than institutional arbitration.
(d) Less confidentiality as compared to institutional arbitration.

2. There was a dispute between M/s Sara Sara Developers and M/s Ramanna Properties.
Although, the parties had never expressed their intention to choose Manchester as the
‘seat’, but, in the absence of any agreement on the question, Manchester was chosen by
the arbitrator as the place of arbitration. Except for being the place of arbitration,
Manchester had no significant connection with the contract or the parties. The award
decided in this case should be considered as:
(a) International Award
(b) Foreign Award
(c) Domestic Award
(d) Interim Award
3. A dispute arose between M/s Goyal Glasses & Co. and CA Sumit Jain regarding the
payment of his professional fees. CA Sumit Jain filed the case to the local court. M/s Goyal
Glasses & Co. requested the court to refer the case to arbitration.
(a) Judicial authority cannot refer the case to arbitration.
(b) Judicial authority has always to refer the case to arbitration on the request of part.

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 ENFORCEMENT OF CERTAIN FOREIGN AWARDS 3.33 .

(c) Judicial authority may refer the parties to arbitration at the request of one of the
parties only after assuring that the arbitration agreement is valid, operative, and
capable of being performed.
(d) Once a dispute is referred to court cannot be referred to arbitration.
4. A dispute was referred to arbitration before the commencement of the Arbitration and
Conciliation Act 1996 and arbitral proceedings were also commenced before the
commencement of this Act. The foreign award was given after the commencement of the
Arbitration and Conciliation Act 1996. Under which Act, the award should be enforced?
(a) Arbitration and Conciliation Act, 1996
(b) Act subsisting at the time of Commencement of Arbitral Proceedings
(c) Act subsisting at the time of reference of dispute to Arbitration
(d) Foreign Arbitration Law
5. Mr. Sahil entered into a contract with Mr. Lalit to give his hotel to him on lease for five years
at an annual rent of Rs. 1,00,00,000 on the condition that if a gamble house is run in the
hotel the annual rent will increase to Rs. 1,25,00,000. The contract also had an arbitration
clause for resolving the dispute in the future. Initially, no gambling house was run in the
hotel but Mr. Lalit was allowed the gamble only for two days on the occasion of New Year.
A dispute arose regarding the amount of rent and was referred to arbitration. The dispute
was resolved and submitted to the court for enforcement.
(a) The award is enforceable.
(b) As the contract regarding running the gambling house is illegal, the award cannot be
enforceable.
(c) An arbitration award is always enforceable. It does not make adifference even
though the contract was illegal.
(d) It is the discretion of the court whether the award may be enforceable or not.

Answers to the Multiple Choice Questions:

1. (c) 2. (c) 3. (c) 4. (a) 5. (b)

© The Institute of Chartered Accountants of India

CHAPTER 4

CONCILIATION

LEARNING OUTCOMES
At the end of this chapter, you will be able to understand:
 Definition, Meaning and Characteristics of the process of conciliation
 Appointment and Role of Conciliator
 Commencement of process of Conciliation Proceedings
 Submission of statements of Conciliator
 Communication between Conciliator and Parties
 Termination of Conciliation Proceedings

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CHAPTER OVERVIEW

Conciliation

Definition and
Characteristics

Commencement
Appointment,
of conciliation Submission of
number and Disclosure of Settlement
proceedings statements to
role of Information Agreement
and its conciliator
conciliators
termination

1. CONCILIATION
Arbitration is one of the many ADR methods utilized to resolve dispute outside the court system.
However, Arbitration remains adversarial in nature. It mimics the court system, and, therefore, like
a court adjudicates a matter. This, however, means that the parties remain as adversaries, with
one party having won and the other losing the contest. This win-loss creates a feeling of
bitterness, and often tends to destroy relations. In order to avoid these consequences of
arbitration, Conciliation method of ADR can be adopted. Conciliation involves a neutral third party
who is known as the conciliator and who facilitates communication between the conflicting parties.
The main object of conciliation is to assist the parties to find common ground, reach a mutually
acceptable solution and rebuild relationships.

Conciliation

Definition & Characteristics of Enforcement of Settlement

Conciliation Role of Conciliators Agreement

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 CONCILIATION 4.3 .

Definition
There is no single definition of Conciliation. It can be understood as a process of getting the
parties to come to an agreement about a common problem/dispute through confidential discussion
and dialogue. In its operation, it is very similar to mediation and like mediation, it is voluntary,
flexible and completely at parties’ initiative.
Characteristics

Voluntary Assisted procedure

Characteristics

Non-Adversarial Finality of settlement

Confidentiality

(a) Voluntary – The process of conciliation is voluntary which implies that all parties have to
agree to have their disputes conciliated. Unless all the parties involved in the dispute agree,
the matter cannot be conciliated. No party can be forced to conciliate matter or attend
conciliation proceedings. If a party is forced, then the outcome of such conciliation would
not be binding on that party. Thus, party autonomy and consent are important aspects of
conciliation. This was also held by the Supreme Court of India in the case of Afcons
Infrastructure Ltd. Vs. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC 616.
Example: S Ltd. purchased goods from M Ltd. Later on, a dispute arose on the price of
goods supplied to S Ltd. M Ltd. was interested in resolving the dispute through conciliation
process but S Ltd. refused. Held, conciliation process cannot be started as both the parties
to dispute are not agreed for it.
(b) Non-Adversarial – Unlike arbitration or court based adjudication, the parties do not
compete against each other to prove themselves as correct and others as wrong. Parties do
not behave as adversaries, who can only win by defeating the other party. Instead of
focusing on win-lose, the attempt is to find a solution to the problem that best suits all the
parties involved, in such a manner that no party is at worse off position.

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 4.4 THE ARBITRATION AND CONCILIATION ACT, 1996

(c) Assisted procedure – The conciliation proceedings can be crafted in a manner which most
suits the parties’ convenience. In order to assist the parties at all times in arriving at a
solution, the conciliator(s) are present. They, along with the parties, craft a procedure for
sharing information among the parties so as to reach an amicable settlement.
(d) Finality of settlement – The outcome i.e. settlement as an end result of the conciliation
process is final and binding between the parties.
(e) Confidentiality – All aspects of the conciliation process are confidential. In other words, the
conciliator(s) and the parties cannot disclose to persons who are not party to conciliation,
any matter relating to the conciliation proceedings. Thus, confidentiality primarily operates
to cover the process and its participants. It prevents leak of information. However, during
the process, information received by the conciliator from one party must be disclosed to the
other party, unless the party giving the information has specifically requested that it be kept
confidential. Even the agreement arrived at by the parties is covered under the broad
spectrum of confidentiality. This is important because it assures the parties that any
information, they share would remain private and would not be used against them in an
adversarial manner.
Example: During the conciliation proceedings between A and B, conciliator obtained some
information from B but B requested the conciliator not to disclose this information to A and
to keep it confidential. Now, it is the duty of conciliator to maintain the confidentiality and
not to share the information with A or any other person.

2. CONCILIATION IN INDIA
In India, conciliation is governed by Part III (Section 61 to 81) of the Arbitration and Conciliation
Act, 1996 and by Section 89 of the Code of Civil Procedure 1908. Any dispute arising out of a legal
relationship, whether contractual or not, can be conciliated. Thus only those disputes which are not
prohibited by law from being conciliated can be submitted to conciliation.
Application and Scope
Section 61 — (1) Save as otherwise provided by any law for the time being in force and unless the
parties have otherwise agreed, this Part shall apply to conciliation of disputes arising out of legal
relationship, whether contractual or not and to all proceedings relating thereto.
(2) This part shall not apply where by virtue of any law for the time being in force certain disputes
may not be submitted to conciliation.

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Section 61 provides for application and scope of conciliation machinery provided in the part III of
the Arbitration and Conciliation Act, 1996. According to sub – section (1), provisions of Part III will
not be applicable to the disputes if any other law restricts the use of this part/act or if the parties
have agreed not to follow the provisions of this part/Act in their dispute redressal. Further, the
provisions of Part III are applicable to all disputes whether contractual or non – contractual. Parties
are free whether to follow or not to follow the provisions of this Part.
Sub – section (2) provides that if the existing law declares that certain disputes cannot be
submitted for conciliation, Part III of Arbitration and Conciliation Act, 1996 shall not be applied.

3. COMMENCEMENT OF PROCESS OF CONCILIATION

PROCEEDING
Commencement of conciliation proceedings
Section 62 — (1) The party initiating conciliation shall send to the other party a written invitation to
conciliate under this Part, briefly identifying the subject of the dispute.
(2) Conciliation proceedings, shall commence when the other party accepts in writing the
invitation to conciliate.
(3) If the other party rejects the invitation, there will be no conciliation proceedings.
(4) If the party initiating conciliation does not receive a reply within thirty days from the date on
which he sends the invitation, or within such other period of time as specified in the invitation, he
may elect to treat this as a rejection of the invitation to conciliate and if he so elects, he shall
inform in writing the other party accordingly.

Section 62(1) deals with the initiation of conciliation. Any party to dispute wishing to initiate
conciliation proceedings has to fulfill following conditions:
(a). The party initiating conciliation must send a written invitation to other party.
(b). This written invitation should contain the subject of dispute.
(c). The party should also state that the invitation is under Part III.
According to section 62(2), the other party must give his acceptance for conciliation in writing. The
verbal or oral acceptance has not been considered in section 62(2).

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 4.6 THE ARBITRATION AND CONCILIATION ACT, 1996

Section 62(3) empowers the other party to reject the invitation to conciliation. In case the other
party rejects the invitation, the conciliation proceedings cannot be initiated.
The party initiating conciliation may mention the time limit for acceptance in written invitation to
other party. Section 62(4) provides that if the party does not receive any reply within 30 days of
sending the invitation or such other period as mentioned in the invitation, he has an option to treat
this as rejection of the invitation to conciliate and if he treats it as rejection of invitation, he must
communicate this by sending a written intimation.
Example: In a dispute between A & B, A sent a written invitation to B containing the subject of
dispute and request for reply within 20 days. B did not reply within the said period. Here, A is free
to treat this as rejection of the invitation to conciliate. A opts for rejection and so he should send a
written intimation.

4. APPOINTMENT, NUMBER AND ROLE OF

CONCILIATOR
Number of conciliators
Section 63 — (1) There shall be one conciliator unless the parties agree that there shall be two
or three conciliators.
(2) Where there is more than one conciliator, they ought, as a general rule, to act jointly.

Section 63 deals with the number of conciliators that can be appointed for conciliation
proceedings. But, first of all, we should understand the term “Conciliator”. The Cambridge
Dictionary provides that a “Conciliator” is a person who helps two sides in a disagreement, like
employers and employees, to meet and talk about their different ideas in the hope of ending the
disagreement. According to Halsbury’s laws of England, a “Conciliator” is a neutral third party
appointed to facilitate the resolution of a dispute between conflicting parties. It must be noted that
whereas decision of the arbitrator is binding on the parties, findings of the conciliator is
recommendatory in nature.
On the analysis of section 63, appointment of sole conciliator is preferred but parties to dispute are
free to appoint two or three conciliators by their mutual agreement. But question arises, why a sole
conciliator is preferred. There may be following reasons for it:
1. A sole conciliator can help in minimising the complexity of the proceedings compared to
multiple conciliators, making it easier for the parties to navigate the resolution process.

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 CONCILIATION 4.7 .

2. Appointment of a sole conciliator often leads to a quicker resolution.

3. Appointment of sole conciliator will be comparatively less expensive.
4. A sole conciliator ensures a consistent and unified approach to the resolution process.
5. With a sole conciliator, communication channels are clearer and more direct.
6. With fewer individuals involved, there may be a heightened level of confidentiality in the
conciliation process.
7. The involvement of a sole conciliator may empower the parties to take more active roles in
the resolution process.

8. A sole conciliator can be selected based on specific expertise related to the nature of the
dispute, ensuring a more targeted and relevant approach to resolution.
9. The process of drafting a settlement agreement may be more efficient with a sole
conciliator, as there is a single point of coordination for finalizing the terms.
Further, section 63(2) provides that if there is more than one conciliator, all the conciliators have to
conciliate jointly and have to settle the dispute.
Appointment of conciliators
Section 64 — (1) Subject to sub-section (2),—
(a) in conciliation proceedings with one conciliator, the parties may agree on the name of a sole
conciliator;
(b) in conciliation proceedings with two conciliators, each party may appoint one conciliator;
(c) in conciliation proceedings with three conciliators, each party may appoint one conciliator
and the parties may agree on the name of the third conciliator who shall act as the presiding
conciliator.
(2) Parties may enlist the assistance of a suitable institution or person in connection with the
appointment of conciliators, and in particular,—
(a) a party may request such an institution or person to recommend the names of suitable
individuals to act as conciliator; or
(b) the parties may agree that the appointment of one or more conciliators be made directly by
such an institution or person:

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 4.8 THE ARBITRATION AND CONCILIATION ACT, 1996

Provided that in recommending or appointing individuals to act as conciliator, the institution or

person shall have regard to such considerations as are likely to secure the appointment of an
independent and impartial conciliator and, with respect to a sole or third conciliator, shall take into
account the advisability of appointing a conciliator of a nationality other than the nationalities of the
parties."

Section 64 deals with the procedure for appointment of auditor. According to it, there may be sole
conciliator or two or three conciliators. Section 64(1)(a) empowers the parties to decide the name
of sole conciliator in case, on agreement, one conciliator is appointed to conduct conciliation
proceedings. Clause (b) of above sub – section provides that where two conciliators are appointed
by parties for conducting conciliation proceedings, each party is empowered to appoint one
conciliator.
According to clause (c) of sub – section (1) of Section 64, if three conciliators are appointed for
conciliation proceedings, each party is authorised to appoint one conciliator and the third
conciliator will be appointed by mutual agreement between the parties and such conciliator will act
as presiding conciliator. It is to be noted that presiding conciliator is not authorised to take binding
decision where there is difference in the opinion between the conciliators. However, the parties
may, by agreement, authorise the presiding conciliator.
Sub – section (2) of Section 64 provides that parties are free to seek the assistance of a suitable
institution (like certain chamber of commerce, etc.) or person in connection with the appointment of
conciliators. This can be done through the following means:
♦ A party may request such an institution or person to recommend the names of suitable
individuals to act as a conciliator.
♦ The parties may agree that the appointment of one or more conciliators be made directly by
such an institution or person.

Further, proviso to Section 64(2) provides the guidelines to the institution or the person to
recommend or appoint the conciliators. Accordingly, such institution or person should give due
regard to the principle of independence and impartiality while recommending or appointing the
conciliator. In addition, while appointing a sole or third conciliator, they should consider the
desirability of appointing a conciliator of a nationality different from that of the parties, so as to
ensure that appointment is more favorable to any one party.

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 CONCILIATION 4.9 .

Submission of statements to conciliator

Section 65 — (1) The conciliator, upon his appointment, may request each party to submit to him
a brief written statement describing the general nature of the dispute and the points at issue. Each
party shall send a copy of such statement to the other party.
(2) The conciliator may request each party to submit to him a further written statement of his
position and the facts and grounds in support thereof, supplemented by any documents and other
evidence that such party deems appropriate. The party shall send a copy of such statement,
documents and other evidence to the other party.
(3) At any stage of the conciliation proceedings, the conciliator may request a party to submit to
him such additional information as he deems appropriate.
Explanation.—In this section and all the following sections of this Part, the term "conciliator"
applies to a sole conciliator, two or three conciliators, as the case may be.

Sub – section (1) of Section 65 provides that when conciliator is appointed, he should request
each party to submit a written statement summarising the nature of dispute and specified points of
issue. Each party will also send a copy of such submission of statement to other party. The
purpose of such submission of written statement is to provide information about general nature of
dispute to conciliator.
Sub – section (2) provides that the conciliator may demand from each party, a further written
statement to clarify his position and also to support his grounds of the facts. These may be
supplemented by other documents and evidences, if the party thinks appropriate. Further, this sub
– section makes it obligatory on the parties to submit the copy of these documents and evidences
to the other party.
Sub – section (3) empowers the conciliator to request the party/ parties to submit additional
information, which in his opinion, is necessary for the purpose of accelerating the conciliation
proceedings.
Conciliator not bound by certain enactments
Section 66 — The conciliator is not bound by the Code of Civil Procedure, 1908 (5 of 1908) or the
Indian Evidence Act, 1872 (1 of 1872).

Section 66 provides that conciliator is not bound by the provisions of Code of Civil Procedure,
1908 or the Indian Evidence Act, 1872. It is to be noted that conciliator should be bound to follow
the principles of natural justice. He should be impartial, unbiased and transparent while conducting

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 4.10 THE ARBITRATION AND CONCILIATION ACT, 1996

conciliation proceedings.
In Haresh Dayaram Thakur Vs. State of Maharashtra and Ors., Honorable Supreme Court held
a conciliator is a person who is to assist the parties to settle the disputes between them amicably.
For this purpose, the conciliator is vested with wide powers to decide the procedure to be followed
by him untrammeled by the procedural law like the Code of Civil Procedure or the Indian Evidence
Act, 1872.
Role of conciliator
Section 67 — (1) The conciliator shall assist the parties in an independent and impartial manner in
their attempt to reach an amicable settlement of their dispute.
(2) The conciliator shall be guided by principles of objectivity, fairness and justice, giving
consideration to, among other things, the rights and obligations of the parties, the usages of the
trade concerned and the circumstances surrounding the dispute, including any previous business
practices between the parties.
(3) The conciliator may conduct the conciliation proceedings in such a manner as he considers
appropriate, taking into account the circumstances of the case, the wishes the parties may
express, including any request by a party that the conciliator hear oral statements, and the need
for a speedy settlement of the dispute.

(4) The conciliator may, at any stage of the conciliation proceedings, make proposals for a
settlement of the dispute. Such proposals need not be in writing and need not be accompanied by
a statement of the reasons therefor.

Section 67(1) deals with the role of conciliator. According to it, a conciliator has to render
assistance in an independent and impartial manner to the parties who are trying to settle the
dispute in a friendly process of conciliation.
Section 67(2) provides that the conciliator should follow objectivity, fairness, and justice principles
throughout the conciliation proceedings. In other words, the conciliator should treat both the
parties equally and not favour one party over the other. The conciliator, while conducting
conciliation proceedings, should consider various factors including:
♦ the rights and obligations of the parties,
♦ the usages of the trade concerned,
♦ the circumstances surrounding the dispute,
♦ any previous business practices between the parties.

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 CONCILIATION 4.11 .

Section 67(3) provides flexibility in selecting the manner for conducting the conciliation
proceedings on the basis of circumstances of the case. Further, if a party requests the conciliator
to hear oral statements to speed-up conciliation proceedings and thereby enable early settlement
of dispute, the conciliator should consider such requests.
Section 67(4) empowers the conciliator to make proposal for settlement of the dispute, at any
stage of the conciliation proceedings and such proposals are not required to be made in writing.
Further, the conciliator is also not bound to state the reasons therefore.
Administrative Assistance
Section 68 — In order to facilitate the conduct of the conciliation proceedings, the parties, or the
conciliator with the consent of the parties, may arrange for administrative assistance by a suitable
institution or person.

Section 68 deals with provisions for administrative assistance for facilitating conciliator
proceedings. This administrative assistance may be in form of providing list of conciliators,
providing communication services and interpretation of law provisions services.
Communication between Conciliator and Parties
Section 69 — (1) The conciliator may invite the parties to meet him or may communicate with
them orally or in writing. He may meet or communicate with the parties together or with each of
them separately.
(2) 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.

Sub – section (1) of Section 69 empowers the conciliator to communicate with the parties to
conciliation. According to the sub – section, the conciliator is authorised to:
♦ invite the parties to meet him or
♦ communicate with them orally or in writing.
♦ meet or communicate with the parties together or
♦ meet or communicate with each party separately.
Sub – section (2) of Section 69 empowers the parties to conciliation to determine the place of
meeting with their mutual consent. If there is no such agreement, the conciliator may determine the
place for meeting after consulting the parties. The conciliator should also consider the

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 4.12 THE ARBITRATION AND CONCILIATION ACT, 1996

circumstances of the conciliation proceedings.

Example: A dispute between A and B is referred for conciliation. A belongs to Agra and B belongs
to Mathura. A is interested that place of conciliation meeting should be at Agra while B wants it to
be in Mathura. As there is no agreement between the parties regarding place of meeting,
conciliator may decide the place for meeting after in consultation with A and B.
Disclosure of Information
Section 70 — 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.
Provided 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 party.

Section 70 provides that if conciliator receives any information from one party regarding any facts
related to dispute, he should disclose the substance of that information to the other party so that
other party may provide the appropriate explanation to that information. Further, the proviso to
section 70 provides that if any party provides any information to the conciliator with the specific
condition that it should be kept confidential, the conciliator should not disclose the information to
the other party.

5. SETTLEMENT AGREEMENT
Section 73 — (1) When it appears to the conciliator that there exist elements of a settlement
which may be acceptable to the parties, he shall formulate the terms of a possible settlement and
submit them to the parties for their observations. After receiving the observations of the parties,
the conciliator may reformulate the terms of a possible settlement in the light of such observations.
(2) If the parties reach agreement on a settlement of the dispute, they may draw up and sign a
written settlement agreement. If requested by the parties, the conciliator may draw up, or assist
the parties in drawing up, the settlement agreement.
(3) When the parties sign the settlement agreement, it shall be final and binding on the parties
and persons claiming under them respectively.
(4) The conciliator shall authenticate the settlement agreement and furnish a copy thereof to
each of the parties.

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 CONCILIATION 4.13 .

Section 73 of the Arbitration and Conciliation Act, 1996 deals with the procedure for successful
completion of conciliation proceedings. Sub – section (1) provides that if the conciliator is satisfied
that he is in position to frame the acceptable settlement between the parties, he will prepare the
terms of settlement and submit them to the parties. Further, the parties are empowered to submit
their observations on above terms. In case observations are submitted by parties, conciliator may
reframe terms considering such observations.
Sub – section (2) provides that if the parties are on the settlement terms framed by conciliator,
they may draw up and sign a written settlement agreement. The conciliator may also help in
drawing the settlement agreement, if requested by the parties.
Sub – section (3) provides that at the point of time at which parties sign the settlement agreement,
it attains finality and would be binding on the parties and persons claiming under them
respectively.
Example: Two disputing parties A & B, reached a settlement, after a conciliation proceeding. As
per the terms of conciliation, A was to pay to B Rs. 6 Lakh as full and final settlement for four
pending invoices. B claimed Rs. 6 lakh but later wanted to sue A for transportation charges which
were already included in invoice saying Rs 6 Lakh was only for supply of goods. In such case, B
cannot sue A as the settlement agreement is binding on him as he has already taken Rs. 6 Lakh
as full and final settlement.
Sub – section (4) requires the conciliator to authenticate the settlement agreement and to furnish a
copy thereof to each of the parties. In case, there are more than one conciliator, all the conciliators
should authenticate the settlement agreement.
In Haresh Dayaram Thakur Vs. State of Maharashtra and Ors the honorable SC also held that
the settlement takes shape only when the parties draw up the settlement agreement or request the
conciliator to prepare the same and affix their signatures to it. Under sub-section (3) of Section
73, the settlements agreement signed by the parties is final and binding on the parties and persons
claiming under them. It follows therefore that a successful conciliation proceeding comes to an end
only when the settlement agreement signed by the parties comes into existence.
Status and effect of Settlement Agreement
Section 74 — The settlement agreement shall have the same status and effect as if it is an arbitral
award on agreed terms on the substance of the dispute rendered by an arbitral Tribunal under
section 30.

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 4.14 THE ARBITRATION AND CONCILIATION ACT, 1996

Section 74 provides that settlement agreement has been given the same status and effect as if it is
an arbitral award as rendered by arbitral Tribunal under section 30.
It was held in case of Harsh Dayaram Thakur Vs. State of Maharashtra, the conciliation
settlement between parties is binding as arbitral award. Further, the Supreme Court held in case of
Mysore Cement Ltd. Vs. Suedalla Barmac Ltd. that all agreements do not acquire the status of
Arbitral Award. There should be an agreement between the parties only as per the section 73.

6. TERMINATION OF CONCILIATION PROCEEDINGS

Section 76 — The conciliation proceedings shall be terminated—
(a) by the signing of the settlement agreement by the parties, on the date of the agreement; or
(b) 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; or
(c) by a written declaration of the parties addressed to the conciliator to the effect that the
conciliation proceedings are terminated, on the date of the declaration; or
(d) by a written declaration of a party to the other party and the conciliator, if appointed, to the
effect that the conciliation proceedings are terminated, on the date of the declaration.

Section 76 provides the grounds where the conciliation proceedings can be terminated. These are
as below:

Acts for Termination Effective date of

Termination
a) By the signing of the settlement agreement by the parties. On the date of the
agreement.
b) By a formal written declaration by conciliator, if he is of the opinion, On the date of the
after consultation with the parties that no further conciliation declaration.
proceedings are required.
c) By a written declaration by the parties addressed to the conciliator On the date of the
for termination of the conciliation proceedings. declaration.
d) By a written declaration by a party to the other party and the On the date of the
conciliator, if appointed, for termination of the conciliation declaration.
proceedings.

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 CONCILIATION 4.15 .

TEST YOUR KNOWLEDGE

Multiple Choice Questions (MCQs)

1. S & Co. is regularly getting supplies from R & Co. at particular rate. After a change in the
management, R & Co. increased the price of supplies. S & Co. requested R & Co. not to
increase the price as it will result in a big loss to it, in the peak season but R & Co. refused
to it. S & Co. requested R & Co. to refer the matter for conciliation. Find the correct option.
(a) Matter may be referred to conciliation even if R & Co. does not gives its consent.
(b) Matter may be referred to conciliation only if R & Co. gives its consent.
(c) Matter may be referred to conciliation only on the intension of S & Co. and the
outcomes would be binding.
(d) There is no autonomy of parties for conciliation.
2. Ram and Shyam are partners in a firm. Ram was authorised to purchase the goods while
Shyam was responsible for selling the goods in the firm. Dispute arose regarding the selling
price. Ram was of the view that the price should be increased while Shyam did not agree
for that with the view that due the market competition price cannot be increased. Both of
them agreed to have the matter conciliated. Now, conciliation proceeding shall commence:
(a) When Ram sends to Shyam a written invitation to conciliate under this Part, briefly
identifying the subject of the dispute.
(b) When Shyam accepts in writing the invitation to conciliate.
(c) When Shyam rejects the invitation.
(d) When both Ram & Shyam agrees for conciliation.
3. A dispute arose between Raman and Saman. Both agreed to have matter conciliated.
Raman suggested the name of Vishnu for conciliator but Saman did not agree for the same.
Saman suggested that there may be more than one conciliator in their matter. Which is the
incorrect statement among the following:
(a) In conciliation proceedings with one conciliator, the parties may agree on the name
of a sole conciliator;
(b) In conciliation proceedings with two conciliators, each party may appoint one
conciliator;

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 4.16 THE ARBITRATION AND CONCILIATION ACT, 1996

(c) In conciliation proceedings with three conciliators, each party may appoint one
conciliator and the conciliators will appoint the third conciliator who shall act as the
presiding conciliator.
(d) In conciliation proceedings with three conciliators, each party may appoint one
conciliator and the parties may agree on the name of the third conciliator who shall
act as the presiding conciliator.
4. Which of the following statements is true regarding the conciliation process described?
(a) Conciliation proceedings commence immediately upon receipt of the written
invitation by the other party.
(b) If the other party rejects the invitation, conciliation proceedings may still proceed with
the consent of both parties.
(c) The party initiating conciliation must receive a reply within thirty days of sending the
invitation, or within a specified time frame mentioned in the invitation, for conciliation
proceedings to commence.
(d) If the initiating party does not receive a reply within the stipulated time frame, they
have the option to proceed with conciliation proceedings without the consent of the
other party.
5. Which of the following statements regarding the role of the conciliator in conciliation
proceedings is correct?
(a) The conciliator is not authorized to request written statements from the parties
involved in the dispute.
(b) Each party is required to submit a brief written statement to the conciliator upon his
appointment, but they are not obligated to share it with the other party.
(c) The conciliator may request each party to submit a further written statement of their
position and supporting evidence, and these submissions must be shared with the
other party.
(d) The conciliator is prohibited from requesting additional information from the parties at
any stage of the conciliation proceedings.

Answers to the Multiple Choice Questions:

1. (b) 2. (b) 3. (d) 4. (c) 5. (c)

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