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Legal Aspects:
Laws relating to Arbitration & Conciliation (both Domestic & International)
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The Arbitration and Conciliation Act, 1996 is the prime legislation relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith or incidental thereto. It repealed the three statutory provisions for arbitration:- (i) the Arbitration Act, 1940; (ii) the Arbitration (Protocol and Convention) Act, 1937; and (iii) the Foreign Awards (Recognition and Enforcement) Act, 1961.

Domestic Arbitration is defined as an alternative dispute resolution mechanism in which the parties get their disputes settled through the intervention of a third person and without having recourse to the court of law. It is a mode in which the dispute is referred to a nominated person who decides the issue in a quasi-judicial manner after hearing both sides. Generally, the disputing parties refer their case to an arbitral tribunal and the decision arrived at by the tribunal is known as an 'award'.

While, the term 'international commercial arbitration' means "an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in India and where at least one of the parties is:- (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) a company or 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".

The major provisions relating to Arbitration in the Act are:-

  • The parties to a present dispute may make an agreement called as the 'arbitration agreement' that instead of going to the court, they shall refer the dispute to arbitration. The parties to the agreement may refer to arbitration, a dispute:-

    • Which has arisen or which may arise between them,



    • In respect of a defined legal relationship, whether contractual or not.

    Thus, all matters of civil nature whether they relate to present or future disputes may form the subject matter of reference. Even disputes such as infringement of intellectual property rights shall also be covered.



  • Although no formal document is prescribed, an arbitration agreement/clause must be in writing. If the arbitration agreement/clause is contained in a document, the document must be signed by the concerned parties. Besides, the agreement may be established by:- (i) an exchange of letters, telex, telegram or other means of telecommunications; or (ii) an exchange of statements of claims and defence in which the agreement is alleged by one party and is not denied by the other.



  • The disputes that cannot be referred to arbitration are:-

    • Insolvency proceedings.



    • Lunancy proceedings.



    • Proceedings for appointment of a guardian to a minor.



    • Question of genuineness or otherwise of a will or matter relating to issue of a probate.



    • Matter of criminal nature.



    • Matters concerning public charitable trusts.



    • Disputes arising from and founded on an illegal contract.



  • The agreement mandatorily requires the appointment of an arbitrator. An arbitrator is a person appointed, with or without mutual consent of the contending parties, for the purpose of investigation and settlement of a difference or dispute referred to him. The arbitral tribunal may be constituted by one or more arbitrators. The parties are free to fix the number of arbitrators by agreement. Accordingly, the reference may be made either to a single arbitrator or a panel of odd number (i.e. 3,5,7 etc) of arbitrators. If there is no agreement, the reference shall be made to a sole arbitrator.



  • Unless otherwise agreed by the parties, an arbitrator may be of any nationality. In case of an international commercial arbitration, where the parties belong to different nationalities, the Chief Justice of India may appoint an arbitrator of a nationality other than that of the parties.



  • The parties are free to agree on a procedure for appointing the arbitrator or arbitrators. If there is such an agreement, the appointment has to be made in accordance with it. The agreement may provide for the number of arbitrators, qualifications of arbitrator, procedure of appointment, procedure of challenging the appointment, termination of appointment, procedure to be followed by arbitrators, place of arbitration, language, etc.



  • The duties of the Arbitral Tribunal are:- (i) to act independently and impartially and treat the parties equally; (ii) to give each party full opportunity to present his case.



  • The parties may agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. In the absence of such agreement, the arbitral tribunal may conduct the proceedings in the manner it considers appropriate and shall be empowered to determine the admissibility, relevance, materiality and weight of any evidence. The tribunal shall decide whether to hold oral hearings for presentation of evidence or for oral argument, or whether to conduct the proceedings on the basis of documents and other materials.



  • An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. The award shall state its date and place of arbitration. The arbitral award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or in case of award on a settlement between the parties. A signed copy of the award shall be delivered to each party.



  • An arbitral award is itself enforceable as a decree of the court, normally after three months from the date on which it was received by the parties, provided no application for setting aside the award is made or if it is made the same has been rejected. The arbitral award shall be final and binding on the parties and persons claiming under them respectively.



  • The arbitral proceedings shall be terminated when:-

    • The final arbitral award is made,



    • The claimant withdraws his claim, and the respondent does not object to it,



    • The parties agree on the termination,



    • The continuation of proceedings has for any other reason become unnecessary or impossible.
The Arbitration and Conciliation Act provides statutory recognition to conciliation as a distinct mode of dispute settlement. Conciliation is defined as the process of amicable settlement of disputes by the parties with the assistance of a conciliator. It differs from arbitration in the sense that in arbitration the award is the decision of the third party or the arbitral tribunal, while in the case of conciliation the decision is of the parties which is arrived at with the mediation of the conciliator.

The major provisions relating to Conciliation in the Act are:-

  • A party initiating the conciliation shall send a written notice to the other party, briefly identifying the subject of the dispute and inviting it for conciliation. The conciliation proceedings shall commence on acceptance of invitation by the other party. If the party initiating conciliation does not receive a reply within 30 days from the date the invitation was sent or within the specified period, it may opt to treat this as a rejection and inform the same to the other party. If it rejects the invitation, there can be no conciliation proceeding.



  • Unless otherwise agreed there shall be one conciliator. The parties may however, agree that there shall be two or three conciliators, who shall act jointly. The sole conciliator shall be appointed by mutual consent of the parties. In case of two conciliators, each party may appoint one conciliator. In case of three conciliators, each party may appoint one conciliator and the third conciliator may be appointed by mutual agreement of the parties who shall act as the presiding conciliator. However, the parties may agree that a conciliator shall be appointed or recommended by an institution or a person.



  • Each party shall submit to the conciliator a brief written statement describing the general nature of the dispute and the points at issue. A copy of the same shall be sent to the other party. The conciliator may require of each party to send a detailed statement supported by documents and other evidence, a copy whereof shall be sent to the other party also. Any factual information concerning the dispute received by the conciliator from a party, shall be disclosed to the other party to allow it an opportunity to present any explanation, except however, when a party gives any information subject to a condition that should be kept confidential.



  • The parties involved shall co-operate with the conciliator in good faith, comply with requests for submitting written materials, providing evidence and attending meetings. A party may submit to the conciliator suggestions for the settlement of the dispute.



  • The functions of a Conciliator are:-

    • To assist the parties in an independent and impartial manner, to reach an amicable settlement of their dispute.



    • To be guided by principles of objectivity, fairness and justice.



    • To give consideration to rights and obligations of the parties, trade usages, circumstances surrounding the dispute and any previous business practice between the parties.



    • To conduct the conciliation proceedings in an appropriate manner, taking into account the circumstances of the case and wishes of the parties.



    • To make proposals for a settlement of the dispute.



    • Not to act as an arbitrator or as a representative of a party in any arbitral or judicial proceeding in respect of the same dispute, unless otherwise agreed by the parties.



    • Not to act as a witness in any arbitral or judicial proceedings.



  • If it appears to the conciliator that a settlement is possible, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. The conciliator shall then reformulate the possible settlement in the light of observations received from the parties. If the parties reach on a settlement, they may draw up and sign a written settlement agreement with the assistance of the conciliator. The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties. The settlement agreement shall be final and binding on the parties and shall have the same effect as of an arbitral award.



  • The conciliation proceedings shall be terminated when:-

    • A settlement agreement is signed by the parties,



    • A written declaration is made by the conciliators after consultation with the parties, that further efforts at conciliation are no longer justified,



    • A written declaration is made by the conciliator, after the deposits required in relation to costs of the proceedings are not received from the parties, that the proceedings are terminated,



    • A written declaration is made by the parties to the conciliator, that the conciliation proceedings are terminated,



    • A written declaration is sent by a party to the other party and the conciliator, that the conciliation proceedings are terminated.

'Foreign Award' has been defined to mean "an award on differences between persons arising out of legal relationships, whether contractual or not and considered as commercial under the law in force in India, and made in pursuance of an agreement in writing for arbitration to be governed either by the New York Convention or by the Geneva Convention, in the territory of a notified foreign State". Some of the provisions of the Act relating to foreign award are:-

  • Where a commercial dispute covered by an arbitration agreement to which either of the Convention apply, arises before a judicial authority in India, it shall at the request of the party be referred to arbitration.


  • The party applying for the enforcement of a foreign award shall produce the original award or a duly authenticated copy thereof, the original arbitration agreement or a certified copy thereof, and evidence to prove that the award is a foreign award.


  • If the court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of the court. An appeal shall lie against the order of the court refusing to refer the parties to arbitration or refusing to enforce a foreign award.


  • Any foreign award which is enforceable under the Act, shall be binding and may be relied upon by the parties by way of defence, set off or otherwise in any legal proceedings in India.

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