The New Arbitration and Conciliation Law of India : Introduction

Introduction

In the past, statutory provisions on arbitration were contained in three different enactments, namely, The Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration Act laid down the framework within which domestic arbitration was conducted in India, while the other two Acts dealt with foreign awards. The Arbitration and Conciliation Act, 1996 has repealed the Arbitration Act, 1940 and also the Acts of 1937 and 1961, consolidated and amended the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also defines the law relating to conciliation, providing for matters connected therewith and incidental thereto on the basis of the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. The Ordinance which was promulgated by the President of India on the 16th January, 1996 was brought into force with effect from the 25th January, 1996. The Arbitration and Conciliation Bill, 1996, was passed by both houses of Parliament and received the President’s assent on 16th August, 1996 and came on the Statute Book as The ARBITRATION AND CONCILIATION ACT, 1996 (26 of 1996). Some of the notable features of the Act may be briefly mentioned at this stage. The most important departure made by the Act from the previous law is in regard to judicial intervention with the process and product of arbitration. Firstly, where there is an arbitration agreement, the judicial authority is required to direct the parties to resort to arbitration as per the agreement, provided the application for that purpose is made before or when a written statement on the merits is submitted to the judicial authority by the party seeking arbitration. Secondly, the grounds on which award of an arbitrator may be challenged before the court have been severely cut down so that, broadly speaking, such a challenge will now be permitted only on the basis of invalidity of the agreement, want of jurisdiction on the part of the arbitrator or want of proper notice to a party of the appointment of the arbitrator or of arbitral proceedings or a party being unable to present its case. At the same time, an award can now be set aside if it is in conflict with “the public policy of India” — a ground which covers, inter alia, fraud and corruption. Thirdly, the powers of the arbitrator himself have been amplified by inserting specific provisions on several matters, such as the law to be applied by him, power to determine the venue of arbitration failing agreement, power to appoint experts, power to act on the report of a party, power to apply to the court for assistance in taking evidence, power to award interest, and so on. Fourthly, obstructive tactics sometimes adopted by parties in arbitration proceedings are sought to be thwarted by an express provision whereunder a party who knowingly keeps silent and then suddenly raises a procedural objection will not be allowed to do so. Fifthly, the role of institutions in promoting and organising arbitration has been recognised. Sixthly, the power to nominate arbitrators has been given (failing agreement between the parties) to the Chief Justice or to an institution or person designated by him. Seventhly, the time limit for making awards has been deleted. Eighthly, present provisions relating to arbitration through intervention of court when there is no suit pending or by order of the court when there is a suit pending, have been removed. Ninthly, the importance of transnational commercial arbitration has been recognised and it has been specifically provided that even where the arbitration is held in India, the parties to the contract would be free to designate the law applicable to the substance of the dispute. Finally, unless the agreement provides otherwise, the arbitrators are required to give reasons for the award. The award itself has now been vested with the status of a decree, inasmuch as (subject to the power of the court to set aside the award) the award itself is made executable as a decree and it will no longer be necessary to apply to the court for a decree in terms of the award. In the following paragraphs, an attempt has been made to present an analytical study of the Arbitration Act, 1940 and the new Arbitration and Conciliation Law.

Settlement of disputes by arbitration has been practised in India from the distant past and the legal literature tells us of the ancient system of arbitration for resolving disputes concerning the family, or the trade or a social group. The Constitution of India also puts it as a Directive Principle of State Policy that the State should encourage settlement of international disputes by arbitration. [See article 51(d)].

Some expressions which are commonly used in arbitration, though statutorily defined, may be briefly explained.

The term “Domestic Arbitration” denotes arbitration which takes place in India, when the subject matter of the contract, the merits of the dispute and the procedure for arbitration are all governed by Indian law or when the cause of action for the dispute has arisen wholly in India or where the parties are otherwise subject to Indian jurisdiction.

The new law makes a mention of "domestic arbitration" in the long title and the preamble, and of "domestic award" in section 2(7) read with section 2(2).

International Arbitration” has a foreign ingredient. Arbitration becomes “International” when at least one of the parties involved is resident or domiciled, outside India or the subject matter of the dispute is abroad. The law applicable to an arbitration proceedings may be the Indian law or a foreign law, depending on the terms of the contract in this regard and the rules of conflict of laws.

Section 2(1)(f) of the new law defines "International Commercial Arbitration" as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India where at least one of the parties is:



1. an individual who is a national of, or habitually resident in any country other than India; or
2. a body corporate which is incorporated in any country other than India; or
3. a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
4. the Government of a foreign country.

[See section 28 of the new Act for the significance of the definition]

“Foreign arbitration” is an arbitration conducted in a place outside India, where the resulting award is sought to be enforced as a "foreign award".

Ad hoc arbitration” is arbitration agreed to and arranged by the parties themselves without recourse to an Institution. The proceedings are conducted by the arbitrator(s) as per the agreement between the 'parties' or with concurrence of the parties. It can be domestic, international or foreign arbitration.

Institutional arbitration” is arbitration conducted under the Rules laid down by an established arbitral organization. Such Rules are meant to supplement provisions of the Arbitration and Conciliation Act in matters of procedure and other matters the Act permits. The rules may provide for domestic arbitration or for international arbitration or for both and the disputes dealt with may be either general in character or specific.

Of the many organizations providing facilities for arbitration, only a few cater to the settlement of international disputes. Among them the most important in India are the Indian Council of Arbitration, the Federation of Indian Chambers of Commerce and Industry, the Bengal Chamber of Commerce and Industry, Indian Chamber of Commerce the East India Cotton Association Ltd. and the Cotton Textiles Export Promotion Council. The Bengal Chamber of Commerce, though providing facilities for arbitration of all commercial disputes, administers arbitration primarily in the jute trade. The East India Cotton Association and the Cotton Textiles Export Promotion Council likewise deal with settlement of disputes in the field of foreign cotton trade and foreign trade in textiles respectively.

Though facilities for international arbitration are available with all these organizations, the Indian Council of Arbitration being the apex body, has handled the maximum number of international arbitration cases in India.

While there was no specific reference to institutional arbitration in the old Act though such arbitration has been long established and availed of, the new Act expressly recognises the role of Arbitral Institutions. In order to facilitate the conduct of the arbitral proceedings, Section 6 provides that the parties or the arbitral tribunal, with the consent of the parties, may arrange for administrative assistance of a suitable institution. Further, section 2(8) expressly facilitates the adoption of institutional rules.

"Specialized arbitration" is arbitration conducted under the auspices of arbitral institutions which might have framed special rules to meet the specific requirements for the conduct of arbitration in respect of disputes of particular types, such as, disputes as to commodities, construction or specific areas of technology. Some trade associations concerned with specific commodities or Chambers of Commerce also specify that arbitration under their rules will be conducted only between members of that organisation.

“Statutory Arbitrations” are arbitrations conducted in accordance with the provisions of certain special Acts which provide for arbitration in respect of disputes arising on matters covered by those Acts. There are about 24 such Central Acts. Among them are the Cantonments Act, 1924, the Indian Electricity Act, 1910, the Land Acquisition Act, 1894, the Railways Act, 1890 and the Forward Contracts Regulation Act, 1956. Many State Acts also provide for arbitration in respect of disputes covered by those Acts, including Acts relating to co-operative societies. The provisions of the Arbitration Act, 1940 generally apply to those arbitrations unless they are inconsistent with the particular provisions of those Acts, in which case the provisions of those Acts will apply (Sections 46 and 47, Arbitration Act, 1940).

The above position continues in substance under the new Act. [See Section 2(4) and 2(5)].

“Submission to Arbitration” is a reference by the parties of a dispute between them to arbitration.

It is not a term defined as such, in the new law, though the word 'submit' is used.

An ‘Arbitration Clause’ is a clause contained in and forming part of the main contract for the reference to arbitration of differences between the parties. The differences may be present (already arisen) or future (likely to arise in future). In legal phraseology, it can constitute an arbitration agreement [Section 2(a), Arbitration Act, 1940].

The new law maintains the above position in substance, but deals in some detail with the subject [Sections 7(1) to 7(5) of the new law].

All the different forms of arbitration — ad hoc, institutional, specialised and statutory — have been practised in India.

The new law expressly recognises institutional arbitration, and also permits ad hoc arbitration. Specified arbitrations and statutory arbitrations, however, remain unaffected by the new law [See Section 2(4) and 2(5)].

India is a party to the Geneva Protocol on Arbitration Clauses of 1923, the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and ratified it on 13th July, 1961. India has enacted implementing legislations to give effect to the Protocol and the two Conventions. The Arbitration (Protocol and Convention) Act, 1937 which came into force on 4th March, 1937, gave effect to the Protocol of 1923 and the Convention of 1927. It provides for the enforcement of arbitral agreements to which the Protocol applied and the enforcement of foreign arbitral awards to which the Convention of 1927 applied. The Foreign Awards (Recognition and Enforcement) Act, 1961 which came into force on 30th November, 1961 had been enacted pursuant to the New York Convention of 1958 and it prescribed the law and procedure for the enforcement of foreign awards in India to which the said Convention applied.

The Acts of 1937 and 1961 mentioned above have been repealed in the new Act, Part II of which incorporates their operative provisions.

There are no bilateral Conventions between India and any other country concerning arbitration.

Matters arising under the three repealed Acts, namely, the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 have been the subject matter of decisions by the Privy Council (before 1949), High Courts and the Supreme Court of India. The law expounded by the courts is as much part of the law as statute law. A few important decisions have also been handed down by the Supreme Court and the High Courts interpreting the provisions of the 1937 and the 1961 Acts (dealing with the enforcement of foreign awards). These decisions, to the extent that these are not inconsistent with the new Act, will continue to have their binding force.