The Arbitration and Conciliation Act, 1996
1. Introduction and Purpose
The Arbitration and Conciliation Act, 1996 is an Act enacted by Parliament to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, and the enforcement of foreign arbitral awards. It also defines the law relating to conciliation and matters connected therewith or incidental thereto. The Act came into force on the 22nd August, 1996. The Act is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law 1985, and the UNCITRAL Rules. The Act aims to minimize the supervisory role of courts in the arbitral process and ensure that every final arbitral award is enforced like a court decree.
2. Structure of the Act
The Act is divided into four Parts and contains 88 sections along with seven schedules.
- Part I: Deals with Arbitration, structured into ten chapters covering general provisions, arbitration agreements, composition of the arbitral tribunal, its jurisdiction, conduct of proceedings, making and termination of the arbitral award, recourse against the award, finality and enforcement, appeals, and miscellaneous provisions.
- Part IA: Deals with the Arbitration Council of India, inserted by a 2019 amendment.
- Part II: Deals with the Enforcement of Certain Foreign Awards, containing two chapters focused on New York Convention Awards.
- Part III: Deals with Conciliation.
- Part IV: Deals with Supplementary Provisions.
3. Key Concepts in Arbitration (Part I)
- Definitions:
- “Arbitration” means any arbitration, whether or not administered by a permanent arbitral institution.
- “Arbitration agreement” means an agreement referred to in section 7.
- “Arbitral award” includes an interim award.
- “Arbitral tribunal” means a sole arbitrator or a panel of arbitrators.
- “Court” has different meanings depending on the type of arbitration (international commercial or other) and the relevant amendments.
- “Arbitral institution” means an institution designated by the Supreme Court or a High Court.
- Arbitration Agreement:
- An agreement by the parties to submit all or certain disputes which have arisen or may arise between them regarding a defined legal relationship, whether contractual or not.
- Can be an arbitration clause in a contract or a separate agreement.
- Must be in writing.
- Is considered in writing if contained in a document signed by the parties, an exchange of letters, telecommunications (including electronic means) providing a record, or an exchange of statements of claim and defence where the existence of the agreement is alleged by one party and not denied by the other. Electronic means are included in telecommunication.
- Reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference makes the clause part of the contract. The reference must be clear enough to show the intention to incorporate the arbitration agreement.
- Key requirements for a valid arbitration agreement include writing, clarity of consent (intention to arbitrate must be clear), parties agreeing to a final and binding award, and the subject matter being capable of settlement by arbitration.
- The Act incorporates the doctrine of separability, meaning an arbitration agreement is independent of the main contract, so its validity is not affected merely because the principal contract is invalid.
- Once parties agree to arbitrate, they cannot unilaterally go to court; they would be referred to arbitration upon request by the other party.
- An arbitration agreement is generally not discharged by the death of a party and is enforceable by or against legal representatives. It can be extinguished by operation of law.
- Arbitral Tribunal:
- Performs the function of a judge, adjudicating the dispute.
- Consists of a sole arbitrator or a panel. The number of arbitrators shall not be an even number, unless the parties agree otherwise.
- Any person capable of contracting can, in theory, be an arbitrator. An arbitrator should be neutral, impartial, and unbiased.
- Qualifications, experience, and norms for accreditation are specified by regulations. Previously, the Eighth Schedule listed qualifications like advocate or chartered accountant with ten years’ experience, but this schedule was omitted in 2021.
- Arbitrators must disclose in writing any circumstances likely to give rise to justifiable doubts as to their independence or impartiality. Grounds for challenge include circumstances giving rise to justifiable doubts as to independence or impartiality.
- The Act provides procedures for appointment by the Court (High Court for domestic, Supreme Court for international commercial arbitration) upon a party’s request, especially if the parties’ agreed procedure fails. Amendments in 2019 shifted the appointment role from the courts to arbitral institutions designated by the courts.
- The mandate of an arbitrator can terminate in certain circumstances, such as failure or impossibility to act. A new arbitrator can be appointed according to the original method.
- Jurisdiction of Arbitral Tribunal:
- The arbitral tribunal is competent to rule on its own jurisdiction, including ruling on any objections concerning the existence or validity of the arbitration agreement (Kompetenz-Kompetenz).
- Conduct of Arbitral Proceedings:
- Parties shall be treated with equality.
- Parties are free to agree on the procedure.
- Parties are free to agree on the place of arbitration.
- Arbitral proceedings commence on the date the respondent receives the request for the dispute to be referred to arbitration.
- Parties are free to agree on the language.
- Statements of claim and defence should be completed within six months from the date the arbitrator(s) received notice of their appointment.
- Unless otherwise agreed, the tribunal can decide whether to hold oral hearings or proceed based on documents. Oral arguments should ideally be held day-to-day, with costs for adjournments without sufficient cause.
- The arbitral tribunal can seek court assistance in taking evidence.
- Interim Measures:
- A party may apply to a Court for interim measures before or during arbitral proceedings, or after an award but before enforcement. However, the power of the court to grant interim measures after the arbitration has commenced is limited unless the remedy from the tribunal is inefficacious.
- The arbitral tribunal may order interim measures during the proceedings. The tribunal has similar powers to the Court for this purpose. Previously, the arbitral tribunal could also order interim measures after the award but before enforcement, but this was omitted in 2019.
- Arbitral Award:
- The decision of the arbitral tribunal.
- Must be in writing and signed by the members of the tribunal. In proceedings with more than one arbitrator, signatures of the majority are sufficient if the reason for omission is stated.
- Shall state the reasons upon which it is based, unless parties agreed otherwise or it is a settlement award.
- A signed copy shall be delivered to each party.
- An interim arbitral award can be made at any time during proceedings.
- Unless otherwise agreed, the tribunal may include interest on the award amount.
- The award must be made within a period of twelve months from the date the arbitral tribunal enters upon the reference. This period can be extended by agreement of the parties or by the Court.
- A fast track procedure allows parties to agree for an award within six months.
- Within a specified time, a party may request correction of errors, interpretation of the award, or an additional award for claims omitted.
- Recourse Against Arbitral Award:
- Recourse against an arbitral award can only be made by an application to the Court for setting aside the award in accordance with Section 34.
- Grounds for setting aside are specified in the Act, including incapacity of a party, invalid arbitration agreement, lack of proper notice or opportunity to present the case, the award dealing with matters outside the scope of the arbitration agreement, improper composition of the tribunal or procedure, the subject matter not being arbitrable, or the award conflicting with public policy. An explanation clarifies that for international commercial arbitration, patent illegality on the face of the award cannot be a ground for setting aside unless the award is vitiated by patent illegality appearing on the face of the award. Fraud or corruption inducing the award is also a ground related to public policy.
- Finality and Enforcement:
- Subject to Part I, an arbitral award shall be final and binding on the parties.
- An arbitral award is enforceable in the same manner as if it were a decree of the court.
- In cases where an application to set aside the award under Section 34 has been filed, the enforcement of the award is stayed upon filing of a separate application for stay, subject to conditions imposed by the court. A recent amendment (effective retrospectively from 23-10-2015) states that the court shall unconditionally stay enforcement if a prima facie case is made out that the arbitration agreement/contract or the making of the award was induced or affected by fraud or corruption.
- Costs:
- The arbitral tribunal or the Court has discretion to determine whether costs are payable, the amount, and when. “Costs” includes reasonable fees and expenses of arbitrators, courts, and witnesses, among others. The Act (as amended in 2015) prescribes a model fee structure for arbitrators in the Fourth Schedule. The arbitral institution determines fees according to Fourth Schedule rates, except for international commercial arbitration or where institutional rules apply.
- Confidentiality:
- The arbitrator, arbitral institution, and parties must maintain the confidentiality of all arbitral proceedings, except for the award where disclosure is necessary for implementation and enforcement [42A, 174, 138, 139].
4. Arbitration Council of India (Part IA)
- Inserted by the Arbitration and Conciliation (Amendment) Act, 2019.
- Established by the Central Government by notification.
- It is a body corporate with perpetual succession.
- Its duties and functions include promoting and encouraging arbitration, mediation, conciliation, and other ADR methods; framing policy and guidelines for uniform professional standards; grading arbitral institutions; accrediting arbitrators; maintaining an electronic depository of awards; and making recommendations to the Central Government.
- The Council may make regulations regarding norms for accreditation of arbitrators and maintaining the awards depository, in consultation with the Central Government.
5. Enforcement of Certain Foreign Awards (Part II)
- This part deals with the enforcement of foreign arbitral awards, specifically those covered by the New York Convention.
- A judicial authority, when presented with a matter subject to a New York Convention arbitration agreement, shall refer the parties to arbitration at the request of a party, unless it prima facie finds the agreement null, void, inoperative, or incapable of being performed.
6. Conciliation (Part III)
- Applies to conciliation of disputes arising out of legal relationships, whether contractual or not, unless otherwise provided by law or agreed by parties.
- It is a voluntary process. Parties initiate proceedings by sending a written invitation to conciliate.
- Conciliation involves a neutral third party (conciliator or panel) selected by the parties. The conciliator assists parties in resolving their dispute through confidential discussion and dialogue.
- The conciliator’s role is to assist parties in reaching an amicable settlement. They may suggest terms of settlement.
- The process is confidential. Views, suggestions, admissions, or proposals made during conciliation proceedings are not admissible as evidence in arbitral or judicial proceedings.
- If parties reach an agreement, a settlement agreement is drawn up and signed.
- A signed settlement agreement has the same status and effect as an arbitral award on agreed terms.
- Conciliation proceedings terminate by signing of the settlement agreement, written declaration by the conciliator that further efforts are not justified, or written declaration by the parties.
7. Supplementary Provisions (Part IV)
- Includes provisions allowing High Courts to make rules consistent with the Act.
- Repealed the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940, and the Foreign Awards (Recognition and Enforcement) Act, 1961.
- The provisions of the repealed Acts apply to arbitral proceedings commenced before the 1996 Act came into force, unless parties agree otherwise. The 1996 Act applies to proceedings commenced on or after its commencement.
8. Key Amendments
- Arbitration and Conciliation (Amendment) Act, 2015 (w.e.f. 23-10-2015): Made significant changes. Clarified the definition of “Court”. Enabled arbitration agreements through electronic means. Enhanced the powers of the arbitral tribunal to grant interim measures. Introduced time limits for pleadings and the making of the award. Introduced the fast track procedure. Established a regime for costs, including a model fee structure for arbitrators. Added explanations regarding the public policy ground for setting aside awards. Clarified the applicability of certain Part I provisions (like interim measures and court assistance in taking evidence) to international commercial arbitration even if the seat is outside India, unless the parties agree otherwise. Introduced the Fourth, Fifth, and Seventh Schedules.
- Arbitration and Conciliation (Amendment) Act, 2019 (various effective dates): Established the Arbitration Council of India. Changed the procedure for appointing arbitrators through designated arbitral institutions instead of courts. Mandated time limits for deciding appointment applications. Specified that arbitral institutions determine fees based on the Fourth Schedule rates (with exceptions). Introduced confidentiality and protection provisions for arbitrators. Inserted Section 87 retrospectively (w.e.f. 23-10-2015) clarifying that the 2015 amendments apply only to arbitral and court proceedings commenced on or after 23-10-2015, unless parties agree otherwise. Omitted Section 26 of the 2015 Act retrospectively. Inserted the Eighth Schedule on arbitrator qualifications (later omitted).
- Arbitration and Conciliation (Amendment) Act, 2021 (w.e.f. 04-11-2020, some provisions retrospectively): Inserted a proviso in Section 36(3) providing for an unconditional stay on the enforcement of an award if a prima facie case of fraud or corruption is made out regarding the arbitration agreement, contract, or the making of the award. This proviso applies to all relevant court cases irrespective of when they or the arbitral proceedings commenced. Substituted Section 43J to state that arbitrator qualifications/experience are specified by regulations. Omitted the Eighth Schedule.
9. Relation to Other Laws
The Act operates alongside other Indian laws. The enforceability and regulation of arbitration agreements in India are governed by the Act itself and read with the Indian Contract Act, 1872. The Indian Contract Act, 1872, treats arbitration as an exception to agreements in restraint of legal proceedings. The powers of the arbitral tribunal regarding interim measures are similar to those of a court under the Code of Civil Procedure, 1908. The status and effect of a settlement agreement in conciliation are comparable to an arbitral award and enforceable under the Act. The Limitation Act, 1963, is applicable from the date arbitral proceedings commence. The Mediation Act, 2023, applies to mediation in India and specifically covers disputes involving government/public bodies, providing a framework for mediation which is distinct from conciliation under the 1996 Act, and effectively replaces the conciliation part of the Act for disputes covered by it, for example, in public procurement. Disputes involving claims above a certain threshold may be adjudicated under the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.