MODULE 2

Introduction to Arbitration and Conciliation Act, 1996 (06)

2.1 Reasons responsible for Enacting the Legislation
2.2 Salient features of the Act
2.3 General Provisions
2.4 Receipt of Written Communication
2.5 Extent of Judicial Intervention
2.6 Administrative Assistance

Reasons responsible for enacting the legislation

Here are the main points about why India enacted the Arbitration and Conciliation Act in
1996:
1. The first law on arbitration in India was the Indian Arbitration Act in 1899, which
only applied to certain cities.
2. The Code of Civil Procedure in 1908 allowed for arbitration as a way to resolve
disputes.
3. These laws were replaced by the Arbitration Act of 1940, which only covered
domestic arbitrations.
4. The 1940 Act was based on a similar law in England and was in place for over 50
years.
5. In the case of Guru Nanak Foundation v. Rattan & Sons, the court found that the cost
of speedy justice and expeditious disposal of cases was borne by complex technical
proceedings and widespread use of legalese, or legal language. The court went on to
say that the arbitration process should be made simple, less technical and more
responsive to the expectations of justice.
6. Foreign arbitration awards were dealt with by separate laws.
7. In 1985, the United Nations created a model law on international commercial
arbitration, which aimed to create consistency between different countries' arbitration
laws.
 8. India needed to update its arbitration laws to attract foreign investment and to be
consistent with other countries.
9. Foreign investors wanted a reliable and affordable way to resolve disputes.
10. The 1940 Act did not meet these expectations.
11. So, India enacted the Arbitration and Conciliation Act in 1996, based on the UN
model law.
12. The new law came into effect in August 1996.

Salient Features of the Act

1. Replacement of three old statutes : The Act combines three previous laws related to
arbitration: the Arbitration Act of 1940, the Arbitration (Protocol and Convention)
Act of 1937, and the Foreign Awards (Recognition and Enforcement) Act of 1961.
Even though these three laws are now combined into one Act, the provisions of each
law are still separate and distinct within the 1996 Act.
2. Necessity of Arbitration Agreement: The Act says that the Arbitration agreement is
very important. This is a part of a contract or agreement between two or more parties
that says if they have a problem, they will solve it using arbitration. To have
arbitration, they must have this agreement. The Act also says that this agreement
should have specific information like what the problem is about, when it happened or
will happen, how many arbitrators will be there, what qualifications they need, and
where they will meet.
3. Application to Domestic and International Arbitration : The Act has rules for both
arbitration that happens within a country and arbitration that happens between
different countries for business purposes. The 1996 Act is a law that makes sure
foreign arbitration decisions are followed and makes the process of arbitration more
independent with less involvement from judges.
4. Procedural Advantage: Arbitral Tribunal has full powers to decide the procedure to be
followed unless parties agree on the procedure to be followed. The Tribunal also has
powers to determine the admissibility, relevance, materiality and weight of any
evidence. The place of arbitration will be decided by mutual agreement. However, if
the parties do not agree to the place, the same will be decided by a tribunal. Similarly,
language to be used in arbitral proceedings can be mutually agreed upon. Otherwise,
Arbitral Tribunal can decide. The Act allows parties to choose the substantive law to
be applied by the arbitration tribunal and this must also be mentioned in the
arbitration agreement.
5. Minimal Interference by Judiciary: One of the major defects of earlier arbitration law
was that the party could access court almost at every stage of arbitration – right from
the appointment of an arbitrator to implementation of the final award. Thus, the
defending party could approach the court has been at various stages and stall the
proceedings. Now, the approach to court has been drastically curtailed. In some cases,
if an objection is raised by the party, the decision on that objection can be given by
Arbitral Tribunal itself. After the decision, the arbitration proceedings are continued
and the aggrieved party can approach the court only after Arbitral Award is made.

Receipt of Written Communication

According to the Act, any receipt of written communication is deemed to have been received
when it is delivered to the residential or business place of the person concerned. If in any case
his place is not described under the agreement then the receipt is sent to the addressee’s last
known place of work and habitual residence.
Extent of Judicial Intervention
Section 5 of the Arbitration Act specifies the scope of judicial interference, stating that if
there are other laws currently in effect, no judge or court can interfere in the matters that are
governed by the specific part of the law mentioned here, except for the cases where it is
specifically allowed in that same part of the law. In simpler terms, it establishes that the
particular part of the law mentioned will be followed exclusively and judicial authorities
cannot interfere unless it is allowed in that same part of the law.

It establishes the scope of judicial intervention in arbitration. It explicitly outlines the

objectives of the Arbitration Act, which is to minimize court interference and stimulate swift
and cost-effective dispute resolution through the arbitration proceedings in circumstances
where disputes are encompassed by an arbitration agreement.

The phrase “notwithstanding anything contained in any other law” implies that even though
any other law in effect contains provisions permitting a judicial authority to interfere, the said
authority may not do so except if the intervention is authorized by one of the provisions of
Part I of the Act. Consequently, judicial interference has been restricted and minimized. The
judicial authority’s intervention under the Act is confined to the grounds specified in the Act
itself.

Following are some of the circumstances the Judiciary can intervene:

1. Section 8 : Court to refer parties to Arbitration
2. Section 9: Interim measures by the court
3. Section 11: Appointment of Arbitrator
4. Section 14 and 15: Termination of the mandate of Arbitrators
5. Assistance of court for procuring evidence: Section 27
 MODULE 3

3) Arbitration Agreement (05)

3.1 Essentials
3.2 Kinds
3.3 Who can enter into Arbitration Agreement?
3.4 Validity
3.5 Reference to Arbitration
3.6 Interim Measures by Court

Explain the essentials of Arbitration Award and discuss the procedure to execute the same
under the Arbitration and Conciliation Act, 1996.

A and B entered into an agreement to submit their differences to arbitration. The parties have
reduced the agreement to writing but have not signed it. However, they have given the
consent verbally.
Is an oral agreement between parties to submit their differences to arbitration valid?
Is the agreement valid?
If an agreement is in writing, one of the terms of the arbitration is that the arbitrator will be
appointed by C, who is not a party to the agreement. Is the clause valid?

Draft an application for interim relief under Section 9 of the Arbitration and Conciliation Act,
1996.

What are the interim measures which the court may grant under the Arbitration and
Conciliation Act, 1996? Explain the same in detail with relevant case laws.

Meaning
The Arbitration Agreement is said to be a reflection of autonomy and flexibility provided
under the Arbitration as a method of dispute resolution. It can be an independent agreement
or form the part of any other agreement governing the relationship between the parties.

Essentials
1. Existence of an arbitral dispute: Only where there has been a dispute, can the
arbitration agreement be considered valid. They cannot invoke the arbitration clause
and oppose the settlement if they have resolved their dispute and reached an
agreement.
 2. In writing: Arbitration agreement shall be in writing as per Section 7(3) of the Act.
Further, Section 7(4) recognizes varied forms in which arbitration agreement may
exist. The written agreement should be contained in a document signed by the parties,
an exchange of letters, telegrams etc. which provide an existence of the agreement or
an exchange of statements of claim and defense in which the existence of the
agreement is alleged by one party and not denied by the other.
3. Composition of Arbitral Tribunal: The parties’ intention with respect to the
composition of the arbitral tribunal shall be precisely defined. The number of
arbitrators and the procedure for appointment shall be clearly agreed. Section 10 of
the Act states that the number of arbitrators shall not be even. As per Section 11 of the
Act the parties can appoint a person of any nationality as arbitrator.
4. Language of Arbitration: It is vital to specify the language of arbitration in the
agreement itself. In the absence of any provision a dispute may arise related to this
clause.
5. Governing Law: The parties to agreement should expressly mention the law
according to which the arbitration proceedings between them shall be governed.
6. Seat of arbitration: the parties are required to mutually decide the seat of arbitration
which shall be a part of arbitration agreement.
7. Intent to submit the dispute to arbitration: The agreement in substance implies the
acceptance of arbitration as a mode of dispute resolution therefore the acceptance of
the parties shall be clear. Such acceptance may be in the form of a signature of both
the parties or it can take the form of a document signed by only one party to the
contract that contains the terms and acceptance by the other party. It will also be
enough if one side signs the agreement and the other acknowledges it.

Types of Arbitration
Types on the basis of Jurisdiction
1. Domestic Arbitration: It is the type of Arbitration, which happens in India wherein
both the parties must be Indians and the conflict has to be decided in accordance with
the substantive law of India. It has not been defined under the Act however Section 2
(2) it is implied 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.
2. International Arbitration: It 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.
3. International Commercial Arbitration: As per Section 2(1)(f), it is the type of
arbitration that takes place because of a dispute arising from a commercial contract
where either one of the parties reside in a foreign country or is a foreign national, or
the core management committee of an association, company or a body of individuals
is controlled by foreign individuals.

Types on the basis of procedures and rules

1. Institutional Arbitration:
 In this, 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 been previously agreed upon.
  The Part I of the Act, gives the 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 choose to
appoint one themselves, they can choose from the list provided by the
institution.
 It is mainly used by business organizations worldwide owning to a specific
procedure being deployed as well as an efficient dispute resolution procedure
provided by the institutions.
2. Ad Hoc Arbitration:
 Refers to when parties with mutual consent opt for arbitration to resolve the
dispute.
 It is the most common form of arbitration used in India owning to reasonable
costs and adequate infrastructure.
 It is conducted without having any institutional proceedings, that is, it does not
comply with the rules of an arbitral institution.
 The parties have the option to choose the rules and the procedure to be
followed.
 Can be used for international commercial transactions and domestic disputes.
3. Fast Track Arbitration:
 It is the type of arbitration that can be seen as an effective solution to solving
the problems faced because of delays and time-consuming proceedings in
other forms of arbitration.
 It does not involve any procedure that takes time and upholds the main
objective or arbitration, that is, to resolve a dispute in a short period of time.
 In the provision of the Act, fast-track arbitration is given a stipulated time
period of 6 months.
 The arbitrator only makes use of the written submission and unlike other
forms of arbitration, one sole arbitrator is sufficient to resolve the dispute.

Who can enter into arbitration agreement?

 Only competent person to a contract can enter into an arbitration agreement, hence
minors and lunatic persons cannot enter into or be a part of the agreement.
 In case of partnership or joint hindu family or company, partners, karta and directors
can make a valid reference to the arbitration and where they act bona fide and the
award binds other members.

Validity of an arbitration agreement

Section 7 of the Arbitration Act deals with the essentials of a valid agreement. The validity of
the arbitration agreement depends on the following:
1. Written agreement: Section 7(3) of the Act states that the arbitration agreement
must be in writing. Valid arbitration agreements can be:
a document signed by the parties;
an exchange of letters, telex, telegrams or other means of telecommunication which
provide a record of the agreement; or
non denial of existence of arbitration agreement by other party
However, there is no particular form of the arbitration agreement.
2. Intention of the parties: The intention of the parties to refer the dispute to
arbitration is sufficient. The use of words ‘arbitrator’, ‘arbitration’ is not necessary.
 The intention should not be a mere probability. However, it must be determinant in
nature
3. Separable from the main contract: A valid arbitration agreement is separable
from the main contract. The validity of the arbitration agreement does not depend on
the main agreement. The invalidity of the main agreement does not mean the
arbitration agreement is also invalid.
4. Signature of the parties: The validity of the arbitration agreement depends on the
signatures of both parties. Also, both parties should accept the terms and conditions of
the agreement.
5. Binding Decision of the tribunal: It must be specified in the contract that the
tribunal’s decision will be binding. In other words, the tribunal will be fair and equal
to both parties. The agreement must be enforceable by law.
The intention of the parties plays a crucial role in the agreement. After all, arbitration
agreements help in saving one’s time and efforts. Parties must keep in mind all the
important points while drafting the agreement. Parties must be mutually and
physically capable of entering into a contract with each other. The agreement must
also contain all necessary information. Both parties must include all the crucial points
in the arbitration agreement. In conclusion, the validity of the arbitration agreement is
an important aspect.

Jagdish Chander v. Ramesh Chander: The intention of the parties to enter into an arbitration
agreement shall have to be gathered from the terms of the agreement. If the terms of the
agreement clearly indicate an intention on the part of the parties to the agreement to refer
their disputes to a private tribunal for adjudication and a willingness to be bound by the
decision of such tribunal on such disputes, it is arbitration agreement. While there is no
specific form of an arbitration agreement, the words used should disclose a determination and
obligation to go to arbitration and not merely contemplate the possibility of going for
arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future,
as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding
arbitration agreement.

Execution of an Arbitration Agreement

Section 36 of the Arbitration and Conciliation Act talks about the execution or enforcement
of arbitral awards. Once an award is made, the award holder has to wait for a period of 90
days to apply to the appropriate forum for its execution. In this period of 90 days, the award
might be challenged under Section 34 for the award to be set aside.
The Court has the authority to enforce an award concerning a sum of money, attachment of
property, damages, specific performance, etc. There have been instances where a party has
also asked the Court for a declaration that the award is binding. The Court is also capable to
grant an anti-suit injunction to prevent the award from being challenged in a court other than
the court of the seat of arbitration.
2015 Amendment
There has been an important amendment with respect to this section in 2015. After the
amendment, a section 34 application does not anymore provide for an automatic stay to the
execution proceedings. The execution proceedings may still continue even after an S. 34
application has been made. The party wanting to set aside the award under S. 34 shall have to
approach the court with a separate application asking for a stay on enforcement of the award.
The Court may direct the party objecting to the enforcement to deposit the amount of the
award in an escrow account or as a security deposit in the court.
S. 35 of the Act states that an award is final and binding. Hence, it becomes immediately
enforceable unless it is challenged under an S. 34 application. If the award is not challenged
in its entirety under S. 34 and only a part of the award is applied to set aside, then the
unchallenged part becomes final and is enforceable under Section 36 irrespective of the
pendency of the application under Section 34.

Interim measures by court

Interim measures are often used in arbitrations to secure a party before, during and possibly
after an award has been made. These type of measures are typically given to ensure that an
award that can be applied against related assets is not made ineffective.

Interim measures by court under Section 9

A court can grant temporary measures under Section 9 of the Act. It provides for interim
measures of security not only before the start of arbitral proceedings and during them, but
also after the arbitral award has been issued but prior to its enforcement.

o Invocation of Section 9
The following are the circumstances wherein the court can exercise powers under Section
9 of the Act for giving interim reliefs:
1. Prior to the establishment of the Arbitral Tribunal i.e. prior to the formation of the
Arbitral Tribunal
2. After the arbitral award is issued but before it is issued but before it is enforces
3. When the remedy provided by Section 17 will be ineffective
o Who can apply
Any party to the arbitration agreement can seek interim measures at any time during the
arbitral proceedings. However, only a successful party who is entitled to claim the
enforcement of the arbitral award may apply to the court under Section 9 for protection
under Section 9 (ii) of the Act after the arbitral award is made. The party whose argument
has been dismissed by the award cannot apply for provisional measures under Section 9
of the Act if the award is set aside. This is founded on the fact that, under Section 34 of
the Act, the court should not act as an appeals court.
o Which court to apply
Following the Supreme Court‘s judgment in Bharat Aluminum Company v. Kaiser
Aluminum, the court of the seat of arbitration will have jurisdiction under the Act. 5 The
‘court,‘ as described in Section 2(1)(e) of the Act, may be either a district court or a High
Court with ‘original jurisdiction,‘ which would have the authority to determine the
arbitration subject matter as though it were a civil suit. Only a High Court of a state in
India will have jurisdiction over an international commercial arbitration, that is, an
arbitration relating to a commercial dispute in which at least one of the parties is not an
Indian.
o Reliefs that can be sought
A simple reading of section 9 indicates that a party may apply to the court for interim
measures of protection before or during the arbitral proceedings, or at any time after the
arbitral award is made but before it is implemented in accordance with Section 36. The
following is a list of possible interim measures of protection:
  Appointment of a guardian for a minor or a mentally ill person;
 If the items are perishable, preservation, temporary custody, or selling is required
 Securing the sum of claims is required;
 Permitting inspection, granting an interim injunction, or appointing a receiver;
 Any other relief that the court, in its discretion, deems appropriate given the facts
of the case.
In the case of M/s. Sundaram Finance Ltd. v. M/s. NEPC India Ltd., AIR 1999 SC 565,
Supreme Court was to examine the issue whether u/s 9 of the Arbitration and Conciliation
Act, 1996, the Court has jurisdiction to pass interim orders even before arbitral proceedings
commence and before an arbitrator is appointed. SC held that it is not necessary that arbitral
proceedings must be pending or at least a notice invoking arbitration clause must have been
issued before an application under Section 9 is filed.
o Enforceability of interim measure
A court’s relief provided under Section 9 in the form of an order can be applied like any
other order issued by the court under any other law. Parties may choose to initiate civil
contempt proceedings for wilful non-compliance/disobedience of the judgment/order
under Section 2 (b) of the Contempt of Courts Act, 1971 in the event of wilful non-
compliance/disobedience of the judgment/order and may be punished with the maximum
punishment as provided in terms of Section 12 of the said Act.

Interim relief by arbitral tribunal under section 17

Interim measures directed by an arbitral tribunal are set out in Section 17 of the Act, which is
based on Article 17 of the Model Law. This clause is only invoked at the request of a party to
the arbitral proceedings, and only after the tribunal had been established. A party can request
interim relief up until the tribunal issues an award.

o When can this provision be invoked?

The following are the circumstances when the arbitral tribunal is at liberty to decide
an application under Section 17:
 During the ongoing arbitral proceedings, that is, after the tribunal has been
established.
 Prior to the issuance of an arbitral award by the arbitral tribunal.
o What are the reliefs that can be sought?
Before the 2015 Amendment Act came into force, Section 17 gave a broad range of
powers to the arbitral tribunal as the tribunals had powers to issue any sort of interim
measures of protection and there was no exception carved out in the 1940 Act. The
Amendment Act 2015, on the other hand, has made much-needed amendments to the
grant of interim reliefs by an arbitral tribunal, adding clarification to the types of
reliefs that can be granted and bringing them in line with the interim reliefs that can
be granted by courts under Section 9 of the Act. The following are certain reliefs that
may be granted by an arbitral tribunal:
 Securing the sum of dispute in arbitration;
 Retaining, preserving, or inspecting any property or thing that is the subject of
the arbitration dispute;
 Interim injunctions and the appointment of a receiver;
 Every other just and convenient interim action.
o What is the enforceability of interim measure granted by the arbitral tribunal?
Despite the arbitral tribunal‘s power to issue interim measures, the Act‘s lack of a
mechanism for implementing any interim relief given raised questions about the
 arbitral process‘ effectiveness in India. In the case of interim reliefs given by arbitral
tribunals, however, an amendment to Section 17 of the Act has clarified that an order
of the tribunal would be enforceable like an order of the court.

Interim Measures under Section 9 and 17 are distinguishable

In Firm Asok Traders Vs Gurumukhdas Saluja AIR2004 SC 1433, the Apex court observed
that Section 17 would operate only during the existence of the Arbitral Tribunal. During that
period power conferred on Arbitral tribunal u/s 17 and power of court u/s 9 may over lap to
some extent but so far as the pre and post the arbitral proceedings are concerned, party
seeking interim measure of protection has to approach only court.