Unit II

Arbitration:
◉ Meaning, Definition and Attributes, General principles of Arbitration;
◉ Different kinds of arbitration; Qualities and qualifications of an arbitrator;
◉ Arbitration agreement and its drafting;
◉ Appointment of Arbitrator; Principal steps of arbitration;
◉ Arbitral award; Arbitration under Arbitration and Conciliation Act, 1996.

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 ARBITRATION

 Arbitration has a long history in India. In ancient times, people often voluntarily
submitted their disputes to a group of wise men of a community—called the
Panchayat—for a binding resolution
 The first Arbitration law in India was the Arbitration Act 1899 which was based
on the English Arbitration Act 1899.
 Thereafter, the Arbitration Act, of 1940 was enacted in India to consolidate and
amend the law relating to arbitration effective from 1 July 1940
 The Arbitration and Conciliation Act was again modified in 1996 with the aim and
the objective of giving effect to the UNCITRAL Model Laws as adopted by the
United Nations Commission on International Trade Law on 21 June 1985.

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 Principal Characteristics

◉ Arbitration is consensual
◉ The parties are free to choose the arbitrator(s)
◉ Arbitration is neutral
◉ Arbitration is a confidential procedure
◉ The decision of the arbitral tribunal is final and easy to enforce

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 Main Objectives of the A & C Act, 1996

◉ To Comprehensively cover international commercial arbitration and

conciliation as also domestic arbitration and conciliation
◉ To make provisions for an arbitral procedure which is fair, efficient and
capable of meeting the needs of the specific arbitration;
◉ To provide that the Arbitral Tribunal gives reasons for its arbitral award;
◉ To ensure that the Arbitral Tribunal remains within the limits of its
jurisdiction;

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• To permit the arbitral tribunal to use methods such as mediation and
conciliation during the procedure of arbitration.
• To minimise the supervisory role of courts.
• To ensure that an arbitral award is enforceable as a decree of the court.
• To ensure that the result of conciliation proceedings may be treated as
arbitral awards on agreed terms.
• To treat awards given in a foreign country to which any one of the two
international conventions applies as followed by India as being a foreign
arbitral award.
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 Meaning & Definition of “ARBITRATION”

◉ According to WIPO: Arbitration

is a procedure in which a
dispute is submitted, by
agreement of the parties, to one
or more arbitrators who make a
binding decision on the dispute.
In choosing arbitration, the
parties opt for a private dispute
resolution procedure instead of
going to court.
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◉ In terms of Section 2 (1) (a) of the Arbitration & Conciliation Act, 1996,
“Arbitration means any arbitration whether or not administered by permanent
arbitral institution”.
◉ When the parties agree to have their disputes decided with the mediation of a
third person, but with all the formality of a judicial adjudication, that may be
called an arbitration.
◉ An Arbitration, therefore, means the submission by two or more parties of their
dispute to the judgement of a third person, called the “arbitrator”, who is to
decide the controversy judicially.

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◉ “ Arbitration” is defined by Romilly MR in the well–known case of Collins v.
Collins. (1858)
“ An arbitration is a reference to the decision of one or more persons, either
with or without an umpire, of a particular matter in difference between the parties.”
◉ The court further observed that proceedings are structured for dispute resolution
wherein executives of the parties to the dispute meet in the presence of a neutral
advisor. On hearing both sides and considering the facts and merits of the dispute,
an attempt is made for a voluntary settlement.

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 Matters That Can Be Referred to Arbitration

◉ Disputes relating to rights and liabilities which give rise to or arise out of
criminal offences;
◉ Matrimonial disputes relating to divorce, judicial separation, restitution of
conjugal rights, child custody;
◉ Guardianship matters;
◉ Insolvency and winding up matters;
◉ Testamentary matters (grant of probate, letters of administration and
succession certificate);
◉ Eviction or tenancy matters governed by special statutes
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11
 KINDS OF ARBITRATION

4. Statutory
Arbitration
3.
5. Domestic
Contractual
Arbitration
Arbitration

2. 6.
Institutional International
Arbitration Arbitration

1. Ad-hoc Kinds of 7. Foreign

Arbitration Arbitration Arbitration

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 1. Ad-hoc Arbitration

◉ When there is no contractual compulsion and parties agree to decide matters via
arbitration through mutual consent, it is called ad-hoc arbitration. It is one of the
most common types of arbitration in India. In such cases, parties to dispute may
mutually decide the process to be followed during arbitration.
◉ When a dispute or difference arose between the parties in the course of a
commercial transaction and the same could not be settled friendly by negotiation,
conciliation or mediation, in such case ad-hoc arbitration may be sought by the
conflicting parties.

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 2. Institutional Arbitration

◉ In institutional arbitration, the parties are free to choose a particular arbitral

institution in the arbitration agreement itself. The institution’s governing body or
the parties can appoint one or more arbitrators from a panel of arbitrators that had
previously been agreed upon. Part I of the Act gives parties the freedom to appoint
an arbitrator to deal with a specific issue.
◉ The institution selects one or more arbitrators who possess the skills and
experience stipulated applicable in a given case when the parties do not appoint an
arbitrator themselves. On the other hand, if the parties choose to appoint one
themselves they can choose from the list provided by the institution.

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◉ It is mainly used by business organisations worldwide owing to a specific procedure being
deployed as well as an efficient dispute resolution procedure provided by the institutions.
◉ A few prominent arbitration centres are the
Chartered Institute of Arbitrators UK, the London Court of International Arbitration, the Nati
onal Arbitration Forum USA, Singapore International Arbitration Centre, and the Internation
al Court of Paris
.
◉ In MS Nandan Biomatrix Limited v. D 1 Oils Limited, (2009), the parties had agreed to
resolve any dispute arising from the agreement via institutional arbitration. The Supreme
Court assessed the validity of the agreement and whether the absence of a specific institution
would make the agreement invalid. It was held that the parties had expressly desired to settle
the disputes through institutional arbitration, making the agreement between them valid.

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 3. Contractual Arbitration

◉ A contract is an official document in which several terms are agreed upon by the
parties. Sometimes, parties to a contract include an arbitration clause which
clarifies referring any dispute to arbitration before heading towards the courts. In
such cases, terms mentioned in the arbitration clause decide the way parties go
ahead with dispute resolution through an arbitrator.

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 4. Statutory Arbitration

◉ It is also called as Mandatory Arbitration

◉ In such a case parties have no option but to abide by the law of the land.
◉ There are some laws or statutes that specify dispute resolution through arbitration
only. While dealing with legal relationships under such laws, arbitration is the way
out for settling disputes.

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 5. Domestic Arbitration

◉ In domestic arbitration, both the parties must be Indians and the proceedings must
take place in India itself. In the Arbitration and Conciliation Act, 1996 there is no
specific definition given to domestic arbitration.
◉ A mere reading of Section 2(2) can lead us to infer that domestic arbitration is
when the parties had agreed to resolve any disputes that arise in India.
◉ The proceedings must be held in the domestic territory and must be in lieu of the
procedural and substantive law in India.

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 6. International Arbitration

◉ As the name suggests, international arbitration occurs outside the domestic

territory because of either a clause inserted in the agreement between the parties
or the cause of action that arises from a foreign element relating to the dispute or
to the parties. According to the circumstances that led to a case being filed foreign
or Indian law would be applicable.
◉ Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 defines the term
“International Commercial Arbitration” as arbitration relating to disputes arising
out of a legal relationship, whether contractual or not, considered as commercial
under the law in force in India where at least one of the parties is-

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(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
(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.

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 7. Foreign Arbitration

◉ When one of the parties is Indian and they have mutually agreed to follow
the rules of a foreign land through arbitration while dealing with legal
disputes, it is called foreign arbitration. In such cases, regardless of
whether the arbitration takes place in India or the other country, foreign
arbitration laws are followed.

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22
 Arbitration Agreement (Section 2(1)(b)

◉ Section 2(1)(b) of the Act of 1996 provides that the word “Arbitration
Agreement” is to be interpreted and understood regarding Chapter II,
Section 7 of the Arbitration and Conciliation Act, 1996.
◉ 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.

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(2) An arbitration agreement may be in the form of an arbitration clause in a contract or 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 tele- communication
[including communication through electronic means] which provide a record of the
agreement; or
(c) an exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.
(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.
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 Essential Elements of Valid Arbitration Agreement

◉ Arbitration agreement is 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 and has the following essential elements:
• It must be in writing
• It must have all the essential elements of a valid contract
• It must refer a dispute, present or future, to arbitration
• It may be in the form of an arbitration clause in a contract the form of a separate
agreement or the form of a reference in a written contract containing an arbitration
clause.
• an arbitral award must be founded on the principle of mutuality.

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 Process of Arbitration Proceedings

◉ Initiating Arbitration
◉ Appointment of Arbitrator
◉ Preliminary Meeting
◉ Filing of Statement of Claims & other Pleadings
◉ Hearings
◉ Framing of Issues for determination
◉ Interchange of Evidence by way of Affidavits
◉ Deposition of the Witnesses
◉ Passing of Award
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Stages of Arbitration Proceedings

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COMPOSITION OF ARBITRAL TRIBUNAL

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 NUMBER OF ARBITRATORS (SECTION 10)

◉ Section 10. Number of arbitrators:

(1) The parties are free to determine the number of arbitrators,
provided that such number shall not be an even number.
(2) Failing the determination referred to in sub-section (1), the
arbitral tribunal shall consist of a sole arbitrator.
◉ UNCITRAL MODEL LAW
◉ In M.M.T.C. Ltd. V. Sterlite Industries (India) Ltd

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 Who is “Arbitrator”?
◉ The person who is appointed to determine the disputes is called the arbitrator.
◉ According to Russell, the term “Arbitrator” is defined as follows:- “An arbitrator
is neither more nor less than a judge of a private court (called an arbitral tribunal)
who gives a private judgement (called an award). He is a judge in that a dispute is
submitted to him, he is not a mere investigator but a person before whom material
is placed by the parties, he gives a decision by his duty to hold the scales fairly
between disputants following a recognised system of law and the rules of natural
justice.

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◉ He is private insofar as:-
1. He is chosen and paid by the disputants
2. He does not sit in public
3. He acts by privately chosen procedure so far as that is not the
requirement to public policy
4. His powers and authority is given by the disputant’s agreement

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 APPOINTMENT OF ARBITRATOR SECTION 11

◉ Section 11: Appointment of Arbitrator

(1) A person of any nationality may be an arbitrator unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or
arbitrators.
(3) Failing any agreement referred to in subsection (2), in an arbitration with three arbitrators, each party shall
appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the
presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and—
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other
party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their
appointment,
the appointment shall be made, upon request of a party, by [the Supreme Court or, as the case may be, the
High Court or any person or institution designated by such Court];
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(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties
fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to
so agree the appointment shall be made, upon request of a party, by 1[the Supreme Court or, as the case may
be, the High Court or any person or institution designated by such Court].
(6) Where, under an appointment procedure agreed upon by the parties,—
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them
under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under
that procedure,
◉ a party may request [the Supreme Court or, as the case may be, the High Court or any person or
institution designated by such Court] to take the necessary measure unless the agreement on the
appointment procedure provides other means for securing the appointment.

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◉ [(6A) The Supreme Court or, as the case may be, the High Court while considering any application under
sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order
of any Court, confine to the examination of the existence of an arbitration agreement.
◉ (6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High
Court, for this section shall not be regarded as a delegation of judicial power by the Supreme Court or the
High Court.]
◉ (8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by
such Court, before appointing an arbitrator, shall seek disclosure in writing from the prospective
arbitrator in terms of sub-section (1) of section 12, and have due regard to—
(a) any qualifications required for the arbitrator by the agreement of the parties; and
(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an
independent and impartial arbitrator.]

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◉ (9) In the case of appointment of sole or third arbitrator in international
commercial arbitration, [the Supreme Court or the person or institution designated
by that Court] may appoint an arbitrator of a nationality other than the
nationalities of the parties where the parties belong to different nationalities.
◉ (11) Where more than one request has been made under sub-section (4) or sub-
section (5) or sub-section (6) to the Chief Justices of different High Courts or their
designates, [different High Courts or their designates, the High Court or its
designate to whom the request has been first made] under the relevant sub-section
shall alone be competent to decide on the request.

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◉ (13) An application made under this section for appointment of an arbitrator or arbitrators shall be
disposed of by the Supreme Court or the High Court or the person or institution designated by such
Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the
matter within a period of sixty days from the date of service of notice on the opposite party.

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◉ 14) For the purpose of determination of the fees of the arbitral tribunal
and the manner of its payment to the arbitral tribunal, the High Court may
frame such rules as may be necessary, after taking into consideration the
rates specified in the Fourth Schedule.
◉ Explanation.— For the removal of doubts, it is hereby clarified that this
sub-section shall not apply to international commercial arbitration and in
arbitrations (other than international commercial arbitration) in case
where parties have agreed for determination of fees as per the rules of an
arbitral institution.]

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 Qualities and Qualifications of an Arbitrator(s)

◉ Competency
◉ Experience
◉ Professionalism
◉ Task management
◉ Legal Educational expertise
◉ Drafting and Writing Skills
◉ Attending Certified Courses (Charted Institute of Arbitrators)
◉ Impartial and Fair
◉ Management Skills

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 You can &
Powers also split of
Duties your content
Arbitrator

Powers Duties
• Pass Interim Orders • To see his appointment is in order
• Decide the procedure of the arbitration • Adjudicate the matter timely
proceedings • Act judicially & impartially
• Termination of Proceedings •Declare in writing any circumstances
• Appoint an Expert likely to give rise to doubts as to his
• Seek Court assistance in taking impartiality
evidence • Encourage settlement
• Correction in errors in, and • Shall not misconduct
interpretation of, award • Pass a final award.
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 CONDUCT OF ARBITRAL PROCEEDINGS (SECTIONS 18-27)

◉ Equal Treatment of Parties (Section 18)

◉ Determination of the Rules of Procedure (Section 19)
◉ Place of Arbitration (Section 20)
◉ Commencement of Arbitral Proceedings (Section 21)
◉ Language (Section 22)
◉ Statement of Claims and Defence (Section 23)
◉ Hearings and Written proceedings (Section 24)
◉ Default of a Party (Section 25)
◉ Appointment of Experts (Section 26)
◉ Courts Assistance (Section 27)
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41
 Arbitral Award

◉ The tribunal hears both parties, and after doing so, it applies the law to the case at
hand, forms an opinion, and makes a decision. This decision is referred to as an
“award.”
◉ The term “arbitral award,” however, is not defined anywhere in the 1996 Act.
There is only a mere reference to the term “arbitral award” under Section 2(1)(c)
of the 1996 Act, which is to say that an arbitral award would also include an
interim award.
◉ Further, Section 31(6) of the 1996 Act empowers an arbitral tribunal to pass an
interim award at any time during the continuance of the proceedings. This interim
award can be based on any matter on which the tribunal may pass a final award.

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 Settlement – Section 30

◉ Section 30 provides and encourages mutual settlement of disputes by

parties before the arbitral tribunal.
◉ Section 30(1) states that the function of an arbitral tribunal is to
encourage the parties to settle their dispute by mutual agreement.
◉ Thus, to settle the dispute mutually between parties, the arbitral tribunal
may have to adopt the course of mediation by some person or conciliation
under the Act.

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 Form and Contents of Arbitral Award (Section 31)

• Firstly, the arbitral award must be in written form.

• Secondly, it must be signed by the members of the tribunal. However, it is pertinent to mention that the
signatures of all members are not mandatory to make an award valid. If the arbitral tribunal is composed
of more than one arbitrator, the signatures of all the members don't need to be provided. If the majority of
the members of the tribunal provide their signature, that shall suffice so long as the arbitrator who has not
signed provides the reason behind such an omission.
• Thirdly, the award must be a reasoned one.
• Fourthly, the award should provide the date of passing the award. As per Section 31 of the 1996 Act, the
award should also provide the place at which it was made. For the purposes of this requirement, it would
be deemed that the award was made at the seat or place of arbitration determined in line with Section 20
of the 1996 Act.
◉ Thus, by virtue of Section 31 of the 1996 Act, any award that fails to meet the requirements specified
under Section 31 may be declared invalid.

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 RECOURSE AGAINST ARBITRAL AWARD

◉ Recourse against Arbitral Award

An award can be challenged before the Courts by the aggrieved party. However, the
Arbitration Act provides very limited grounds on which, the award can be challenged.
◉ Application for Setting Aside Arbitral Award (Section 34)
◉ Grounds for setting aside
1. A party was under some incapacity
2. The Arbitration agreement is not valid
3. Party making an application was not given proper notice
4. Against public policy

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 Finality and Enforcement of Arbitral Awards

◉ Finality of Arbitral Awards - Section 35

◉ The Arbitral award is final and is binding upon the parties and any other
persons claiming under them.
◉ Rights and liabilities of the parties will be determined only based on
award.

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 Enforcement – Section 36

◉ According to Section 36 of the 1996 Act, an arbitral award can be enforced only
when the two conditions are fulfilled
1. The time limit for challenging the award under Section 34 of the 1996 Act has
expired.
◉ This time limit for challenging the award under the grounds mentioned in Section
34 of the 1996 Act has been specified under Section 34(3).
◉ As per Section 34(3) of the 1996 Act, the arbitral award may be challenged within
3 months from the date on which the arbitral award is received.
2. Such application has been made but it has been refused.

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 Foreign Award- Section 44

◉ A foreign arbitration is an arbitration conducted in a place outside India, and the resulting award is sought
to be enforced as a foreign award.
◉ They are governed by various international treaties, conventions, and respective national laws to ensure
uniformity and predictability in their recognition and enforcement on a global scale.
◉ According to Section 44: 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.
◉ To be considered as a foreign award (for the Act), the same must fulfil two requirements.
1. it must deal with differences arising out of a legal relationship (whether contractual or not) considered
commercial under the laws in force in India.
2. that the country where the award has been issued must be a country notified by the Indian Government to
be a country to which the New York Convention or Geneva Convention applies.

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◉ The provisions regarding conditions for enforcement of foreign awards made
under the New York Convention or the Geneva Convention are almost the same.
Once an award is held to be enforceable it is deemed to be a decree of the court
and can be executed as such.
◉ Under the Act there is no procedure for setting aside a foreign award. A foreign
award can only be enforced or refused to be enforced but it cannot be set aside.

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 When Foreign Award Binding- Section 46

◉ Section 46 of the Arbitration and Conciliation Act,1996 provides the criterion as

to when such foreign award would be binding on the parties.
◉ According to the said Section, any foreign award which would be enforceable
shall be treated as binding for all the purposes on the persons between whom it
was made, and may accordingly be relied on by any of those persons by way of
defence, set-off or any other purpose in any legal proceedings in India. Such right
in a third country can be enforced after the execution of the Arbitral Award in that
particular country.
◉ Therefore, an Award may be recognized without being enforced, but if it is
enforced, then it is necessarily recognized.

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 Enforcement of foreign arbitral awards in India-

◉ The enforcement of arbitral awards involves two primary aspects:

1. domestic award, governed by Section 36 of Part I of the Arbitration and
Conciliation Act, 1996, and
2. foreign arbitral awards, which are recognized and enforced through two avenues:
the New York Convention, outlined in Chapter I of Part II of the Arbitration and
Conciliation Act, 1996, and the Geneva Convention, specified in Chapter II of
Part II of the Arbitration and Conciliation Act, 1996.
◉ When the arbitral award from one country is recognized and enforced in another,
this involvement is considered as the enforcement of foreign arbitral awards.

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 Conditions for Enforcement of Foreign Awards

◉ The enforcement of a foreign award in India is a two-stage process which

is initiated by filing an execution petition.
◉ Initially, a court would determine whether the award adhered to the
requirements of the Act.
◉ Once an award is found to be enforceable it may be enforced like a decree
of that court.

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 Requirements for enforcement of Foreign Award [Section 47]

◉ Section 47 of the Act provides that the party applying for enforcement of foreign award
“shall” at the time of application produce before the court
1. The original award or a duly authenticated copy thereof;
2. The original arbitration agreement or a duly certified copy thereof; and
3. Such evidence as may be necessary to prove that the award is a foreign award.
4. Where the award or agreement is in a foreign language, the party seeking to enforce the
award is required to produce a certified translated copy in English.
5. Where the Court is satisfied that the foreign award is enforceable, the award shall be deemed
to be a decree of that Court.

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◉ Foreign Award when not enforceable [Section 48]
1. The Indian courts may refuse to enforce the foreign award on satisfactory proof
of any of the grounds mentioned in Section 48(1) of the ACT, 1996, by the party
resisting the enforcement of the award.
2. The provisions set out in Section 48 are in the nature of defences available to the
party resisting the enforcement application.
3. The party, against whom the award is invoked, may use any of the following
grounds as a defence before the Court for refusal of enforcement of the foreign
awards:

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◉ the parties were under some incapacity under the law applicable to them or the arbitration agreement is
not valid under that law; or
◉ 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
◉ the award deals with a difference not falling within the terms of submission to arbitration OR
◉ the composition of the arbitral authority or the arbitral procedure was not in accordance with the
agreement of the parties or in the law of the country where the arbitration took place; or
◉ the award has not yet become binding or has been set aside or suspended by a competent authority of the
country in which or under the law of which, the award was made; or
◉ the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

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◉ The enforcement of the award would be contrary to the public policy of India.
◉ In the case of Venture Global Engineering v Satyam Computer Services (2008), it
was held by the SC that the new procedure of enforcement requires that a person
seeking to enforce a foreign award has not only to file an application for
enforcement u/s 48 of the 1996 Act, it has to meet an application u/s 34 of the
1996 Act seeking to set aside the award.
◉ The new ground is that the award passes the New York Convention grounds
incorporated in Section 48, it must pass the expanded „public policy‟ ground
created under section 34 of the 1996 Act.

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