Salient features of Arbitration and Conciliation Laws in India: Historical perspective, growth of law, and relevant provisions.

1. ARBITRATION AND
CONCILIATION ACT,
1996

2. ETYMOLOGY
• Arbitration, that is, reference of any particular dispute by consent of the parties to one or more
persons with or without an umpire and award enforceable by the sovereign power were
generally unknown in Ancient India.
• “Arbitration is the means by which parties to disputes get the same settled through intervention
of 3rd person who may or may not be a permanent arbitral institution”
- Fazallay Jivaji Raja v. Khimji Poonja & Company [AIR 1934 BOM 476]
• “Hindus recognize decisions of Panchayats or bodies consisting of wealthy, influential and
elderly men of the community and entrusted them with power of the management of their
religion and social function. The sanction against disobedience to their decision was
excommunications or ostracism and exclusion from all religious and social functions. An
agreement to abide by the decision of the Panchayat and its decision with regard to line of
boundary was held not to be conclusive, since a reference to arbitration and award properly so
called did not exist.”
- Food Corporation of India v. Joginderpal Mohinderpal, AIR 1989 SC 1263
• Indian Arbitration Act, 1899; but, its application was limited to the Presidency towns of
Calcutta, Bombay and Madras.
• Code of Civil Procedure, 1908: Second Schedule.

3. • Arbitration Act, 1940 which was based on the (English) Arbitration Act, 1934. The Act
repealed the Arbitration Act, 1899 and the relevant provisions in the Code of Civil Procedure,
1908, including the Second Schedule thereof.
• The 1940 Act however, did not deal with enforcement of foreign awards, and for which
purpose, the legislature had passed the Arbitration (Protocol and Convention) Act, 1937 to deal
with Geneva Convention Awards and the Foreign Awards (Recognition and Enforcement) Act,
1961 to deal with New York Convention Awards. The working of the 1940 Act, which dealt
with domestic arbitrations, was far from satisfactory.
• The working of the 1940 Act was also the subject of the 210th Report of the Public Accounts
Committee of the Fifth Lok Sabha. The Law Commission of India also examined the working
of the 1940 Act in its 76th Report.
• The problem became more acute and pronounced after the liberalisation of the economy in
1991. Foreign investors required a stable business environment and a strong commitment to the
rule of law, based on a predictable and efficient system of resolution of disputes. Thus,
alternative systems like arbitration, were seen as a prerequisite to attract and sustain foreign
investment.

4. D.A. Desai J. in Guru Nanak Foundation v Rattan Singh, (1981) 4 SCC 634:
“Interminable, time consuming, complex and expensive Court procedures impelled jurists to
search for an alternative Forum, less formal, more effective and speedy for resolution of disputes,
avoiding procedural claptrap and this led them to Arbitration Act, 1940 (“Act” for short).
However, the way in which the proceedings under the Act are conducted and without exception
challenged in Courts, has made Lawyers laugh and legal philosophers weep. Experience shows
and law reports bear ample testimony that the proceedings under that Act have become highly
technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary.
Informal Forum chosen by the parties for expeditious disposal of their disputes has by the
decisions of the Court been clothed with 'legalese' of unforeseeable complexity.”

5. Act of 1996
• Third Presidential ordinance in the year 1996.
• The Act is based on the UNCITRAL Model Law (a set of 36 Articles) which was drafted to
govern all international arbitrations by a working group of the United Nations and finally
adopted by the U.N. Commission on International Trade Law (UNCITRAL) on June 21st,
1985.
• The Resolution of the UN General Assembly envisages that all countries should give due
consideration to the Model Law, in view of the desirability of uniformity of the law on arbitral
procedures and the specific needs of international commercial practice. This is also duly
reflected in the Preamble of the Act of 1996 saying that: “it is expedient to make law respecting
arbitration and conciliation, taking into account the aforesaid Model Law…”.
• According to Section 2(1)(a)- “Arbitration” means any arbitration whether or not administered
by permanent arbitral institution. This definition corresponds to the definition contained in
Clause (a) of Article 2 of the UNICITRAL Model Law.
• 176th Report on the “Arbitration and Conciliation (Amendment) Bill, 2001— 2001
• 246th Report on the Amendments to the Arbitration and Conciliation Act 1996— August, 2014

6. • The main objectives of the act-
1. To comprehensively cover international and commercial arbitration and conciliation as
also domestic arbitration and conciliation.
2. To make provision for an arbitral procedure this is fair, efficient and capable of
meeting the needs of the specific arbitration.
3. To provide that the arbitral tribunal gives reasons for its arbitral award.
4. To ensure that the arbitral tribunal remains within the limit of its jurisdiction.
5. To minimize the supervisory role of courts in the arbitral process.
6. To permit an arbitral tribunal to use mediation, conciliation or other procedures during
the arbitral proceedings to encourage settlements disputes.
7. To provide that every final arbitral award is enforced in the same manner as if it were a
decree of a court.
8. To provide that a settlement agreement reached by the parties as a result of conciliation
proceedings will have the same status and effect as an arbitral award on agreed terms
on the substance of the dispute rendered by an arbitral tribunal and
9. To provide that, for purpose of enforcement of foreign awards , every arbitral award
made in a country to which one of the two International Conventions relating to
foreign arbitral awards to which India is a party applies , will be treated as a foreign
award.

7. SALIENT FEATURES
• IV Parts, 86 Sections, Seven Schedules (Schedule 4 to 7 added by Act of 2015)
• Extent to whole of India.
• Part I: Arbitration (Section 1 to 43)
• Part II: Enforcement of Certain Foreign Awards
1. New York Convention Awards (Section 44 to 52)
2. Geneva Convention Awards (Section 53 to 60)
• Part III: Conciliation (Sections 61 to 81)
• Part IV: Supplementary Provisions (Sections 82 to 86)

8. • Domain of Judicial intervention defined— Section 6 of the Act.
• Scott V. Avery Clause — Section 7 of the act: The agreement must be in writing and must be
signed by both parties. The arbitration agreement can be by exchange of letters, document,
telex, telegram etc.
Act of 2016 added communication through electronic means aswell.
• Power to refer parties to Arbitration where there is an Arbitration Agreement
• Impartiality— Section 12 of the Act.
An arbitrator is expected to be independent and impartial.when he is approached for the
appointment for such post, he shall disclose circumstances:
a. That give rise to justifiable doubts as to his independence or impartiality, as guided in
schedule fifth;
b. That are likely to affect his ability to devote time and complete the arbitration in 12 months.
The disclosure shall be made as per the performa provided in Schedule sixth.
Further, Act of 2015 added another ground in consonance with Schedule Seventh.
• Appointment of Arbitrator can be challenged only if (a) Circumstances exist that give rise to
justifiable doubts as to his independence or impartiality (b) He does not possess the
qualifications agreed to by the parties. [section 12(3)] Challenge procedure is provided in
Section 13

9. • Conduct of Arbitral Proceedings
The Arbitral Tribunal should treat the parties equally and each party should be given full opportunity to
present his case. [section 18].
The Arbitral Tribunal is not bound by Code of Civil Procedure, 1908 or Indian Evidence Act, 1872.
[section 19(1)].
• Law Of Limitation Applicable
Limitation Act, 1963 is applicable[section 43(2)].
If Arbitration award is set aside by Court, time spent in arbitration will be excluded for purpose of
Limitation Act(Section 14 of Limitation Act)
• Settlement During Arbitration
It is permissible for parties to arrive at mutual settlement even when arbitration is proceeding. In fact, even
the Tribunal can make efforts to encourage mutual settlement. If parties settle the dispute by mutual
agreement, the arbitration shall be terminated. However, if both parties and the Arbitral Tribunal agree, the
settlement can be recorded in the form of an arbitral award on agreed terms. Such Arbitral Award shall have
the same force as any other Arbitral Award. [section 30].
• Arbitral Award
Ex aequo et bono (In justice and in good faith)[section 28(2)].
The decision of Arbitral Tribunal will be by majority.
The award must be in writing and signed by the members of Arbitral Tribunal.
Reasoned decision [section 31(3)].

10. • Section 17 (Interim Measures by Arbitral tribunal): The new amendment also clarifies that if an
arbitral tribunal is constituted, the Courts should not entertain applications under Section 9 barring
exceptional circumstances.
• Cost
Law commission pointed out in 246th report that Arbitration, much like traditional adversarial
dispute resolution, can be an expensive proposition.
The savings of a party in avoiding payment of court fee, is usually offset by the other costs of
arbitration – which include arbitrator’s fees and expenses, institutional fees and expenses, fees and
expenses in relation to lawyers, witnesses, venue, hearings etc.
Salem Advocate Bar Association v Union of India, AIR 2005 SC 3353— “rules of the game” to
the parties early in the litigation so as to avoid frivolous and meritless litigation/arbitration.
• Rates of Arbitration— Section 11(14), r/w Section 11A of the Act, as amended and inserted by the
Act of 2015.

11. Sum in dispute Model Fees
Upto Rs. 5,00,000 Rs. 45,000
Above Rs. 5,00,000 and up to Rs.
20,00,000
Rs. 45,000 plus 3.5 per cent. of the claim
amount over and above Rs. 5,00,000
Above Rs. 20,00,000 and up to Rs.
1,00,00,000
Rs. 97,500 plus 3 per cent. of the claim
amount over and above Rs. 20,00,000
Above Rs. 1,00,00,000 and up to Rs.
10,00,00,000
Rs. 3,37,500 plus 1 per cent. of the claim
amount over and above Rs. 1,00,00,000
Above Rs. 10,00,00,000 and up to Rs.
20,00,00,000
Rs. 12,37,500 plus 0.75 per cent. of the
claim amount over and above Rs.
1,00,00,000
Above Rs. 20,00,00,000 Rs. 19,87,500 plus 0. 5 per cent. of the
claim amount over and above Rs.
20,00,00,000 with a ceiling of Rs.
30,00,000

12. Also, In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional
amount of twenty-five per cent. on the fee payable as per the table set out before.
• Conciliation: Part III of the Act makes provision for conciliation proceedings.
In conciliation proceedings, there is no agreement for arbitration.
The conciliator has no authority to give any award.
He only helps parties in arriving at a mutually accepted settlement. After such agreement they
may draw and sign a written settlement agreement.
It will be signed by the conciliator.
Settlement agreement has the same status and effect as an arbitral award.
Conciliation is the amicable settlement of disputes between the parties, with the help of a
conciliator.

13. Mahatama Gandhi, An Autobiography, (1959), p. 97
I had learnt the true practice of law. I had learnt to find out the better side of human
nature and to enter men's hearts. I realized that the true function of a lawyer was to
unite parties riven asunder. The lesson was so indelibly burnt into me that a large part
of my time during the twenty years of my practice as a lawyer was occupied in
bringing about private compromises of hundreds of cases. I lost nothing thereby - not
even money, certainly not my soul.
”
“