This is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

The United Nations Commission on Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985. The General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice.

So, the Arbitration and Conciliation Act 1996 (No.26 of 1996) came to be passed on 16th August 1996, taking into account UNCITRAL Model Law and Rules and also making vast amendments in the law relating to domestic arbitration as contained in the Arbitration Act of 1940, the Arbitration (Protocol and Convention) Act 1937 and the Foreign Awards (Recognition and Enforcement) Act 1961. It also repealed the Arbitration and Conciliation (Third) Ordinance 1996, which was in promulgation before that Act came into force. The Act of 1996 seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards, as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

The main objectives of the Act are as under:

i) to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;

ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration.

iii) to provide that the arbitral tribunal gives reasons for its arbitral award;

iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

v) to minimize the supervisory role of courts in the arbitral process;

vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;

vii) To provide that every final arbitral award is enforced in the same manner as if it were a decree of the court;

viii) To provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and

ix) To provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two International Conventions relating to foreign arbitral award to which India is a party applies, will be treated as a foreign award.

The United Nations Commission on International Trade Law (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. It had earlier adopted in 1980 UNCITRAL Conciliation Rules. Both the Model Law and Conciliation Rules were recommended by the General Assembly of the United Nations for adoption by all the countries in international commercial arbitration and international commercial conciliation.

The present Act has used UNCITRAL Model Law and Rules as a model, with certain modifications, not only for international commercial arbitration, but also for domestic arbitration. It provides a unified regime for both international commercial arbitration and domestic arbitration of all types and also for conciliation.

To notice some of the important features of the present Act, the law relating to jurisdiction of arbitral tribunal has been radically changed. The law with regard to jurisdiction can be summed up in the form of three propositions. Earlier, an arbitrator has no power to decide on his own jurisdiction. He can, if he so wishes, decide question of his jurisdiction provisionally or tentatively and can proceed to make his award on that basis, but his provisional or tentative decision on the question of his jurisdiction would be subject to the final determination by the court.

The law as to jurisdiction of the arbitral tribunal enacted in section 16 of the present Act has completely reversed the above law. In reversal of proposition No.1 that an arbitrator has no power to decide on his own jurisdiction, the law as enacted now in section 16 is that the arbitral tribunal may rule on its own jurisdiction. In reversal of proposition No.2, it is now enacted by this Section that the arbitral tribunal may rule on any objections with respect to the existence or validity of the arbitration agreement. And in reversal of proposition No.3, section 16 enacts that while ruling on any objection with respect to existence or validity of the arbitration agreement, the arbitral tribunal for that purpose shall treat an arbitration clause which forms part of a contract as an agreement independent of the terms of the contract and a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

The present Act widens the powers of arbitral tribunal. Section 17 gives power to the arbitral tribunal to order a party to take any interim measure of protection in respect of subject matter of the dispute. This is in addition to the power of the court to grant any interim measure under section 9 of the Act. Under the previous law, in the absence of any power given under the arbitration agreement, the arbitrator had no power by statute to give orders about interim measures. Under the present law, the arbitral tribunal may also require a party to provide appropriate security in connection with any measure ordered by it.

There is also a great disparity regarding the appointment of arbitrator. Now it is open to the parties under sec.11 of the New Act to agree under procedure for appointing arbitrator or arbitrators. Failing any agreement referred to in sub-section (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. 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 Chief Justice or any person or institution designated by him.

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 30 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 the Chief Justice or any person or institution designated by him.

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,

the Chief Justice or the person or institution designated by him, shall appoint an arbitrator. While making such appointment they shall have due regard to -

a) any qualifications required of the arbitrator by the agreement of the parties; and

b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

As per Sub Section (9) of Section 11 of the New Act, in the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

Section (11) covers entire field regarding the appointment of arbitrator and on perusal of the said section, it would be seen that the ultimate authority regarding the appointment of arbitrator is a Chief Justice of the High Courts or Chief Justice of India depending on where the dispute has arisen.

Unlike as was found in the old Act, Section 16 of the present Act, gives jurisdiction of arbitral tribunals to decide question of its own jurisdiction. A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in appointment of an arbitrator.

A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. Only course open to the party who is aggrieved by arbitral award may make an application for setting aside such an arbitral award in accordance with section 34 of the Act.

It is clearly pointed out that the tribunal may rule on its own jurisdiction, which includes any objection with respect to the existence or validity of the Arbitration Agreement. The arbitration clause, which forms part of the contract, shall be treated as an agreement independent of the other terms of the contract. A plea that the tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

The arbitral tribunal may rule on a plea against the jurisidiction either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 of UNCITRAL to decide the matter which decision shall be subject to no appeal, while such a request is pending the arbitral tribunal may continue the arbitral proceedings and make an award.

The law has been completely reversed. In reversal of the earlier proposition No.1 that an arbitrator has no power to decide on his own jurisdiction, the law as enacted in this section is that the arbitral tribunal may rule on its own jurisdiction.

In reversal of proposition No.2, section 16 of the New Act enacts that while ruling on any objection with respect to the existence or validity of the arbitration agreement, the arbitral tribunal for that purpose shall treat an arbitration clause which forms part of a contract as an agreement independent of the terms of the contract and a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

In reversal of proposition No.3, it is now enacted by this Section that the arbitral tribunal may rule on any objections with respect to the existence or validity of the arbitration agreement.

The arbitral tribunal may admit the plea about lack of jurisdiction or about the arbitral tribunal exceeding the scope of its authority at a later stage, if sufficient cause for delay is shown and the arbitral tribunal considers the delay to be justified.

Where the arbitral tribunal takes a decision rejecting the plea, the arbitral tribunal shall continue with arbitral proceedings and make an arbitral award. A party aggrieved by such arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

The first matter to be attended to by the arbitral tribunal will be to see and consider the arbitration agreement itself. It is the arbitration agreement which furnishes the source of jurisdiction to the arbitral tribunal and which may also fix the scope of arbitration. The language of the arbitration agreement is material in this regard to determine whether certain matter falls within the scope of arbitration and is, therefore, arbitrable. It is next the reference, which has to be taken into consideration by the arbitral tribunal. The reference fixes the limits of the authority of the arbitral tribunal. The jurisdiction of the arbitral tribunal is confined to the disputes referred to in the reference. The arbitral tribunal cannot traverse beyond the matters referred to in the reference. The award must conform both in form and substance to the submission (reference). It may be stated here that there will be now no reference by the courts to arbitrators under the present Act as arbitration through intervention of the court has been done away with.

Section 9 uses for the court either before or during arbitral proceedings or at any time after making of the award and before it is enforced in accordance with the section 36. A party may apply to the court to pass an order for protection in respect of preservation, interim custody or sale of property which is subject matter of dispute before arbitrators and that will be empowered to authorise any person to enter upon the land or building in the possession of any party and the Court has power also to appoint a receiver or grant interim orders.

It is of course not unconditional and is subject to certain limitations.

Interim measures: The interim measures which court may be requested by a party to take are detailed in sub-clauses (a) to (e) of clause (ii) of the section 9. Similar measures were given in paragraphs 1 to 4 of the Second Schedule to Arbitration Act 1940. The improvement now made is that an omnibus provision in the shape of sub-clause (e) has now been added providing that an application may be made to the court for such other interim measures of protection as may appear to the court to be just and convenient. It may be mentioned here that clause (i) of the provision deals with the appointment of a guardian for a minor or a person of unsound mind by the court for the purpose of arbitral proceedings. These cannot be said to be interim measures. This explains why the word 'etc.' is found in the marginal heading of the section.

By section 41 (b) read with Second Schedule to Arbitration Act 1940, it was intended to empower the court to pass interim orders for the preservation or safety of the subject matter of the dispute during the pendency of the arbitration proceedings.

Section 10 deals with the appointment of arbitrators and number of persons who can be appointed and the parties are given freedom to determine the number so that there may not be any conflict. It should not be however an even number so that the arbitrators are not equally divided thus leading to a stalemate.

Section 11 is one of the important sections, which deals power to appoint arbitrator. Sub-section 6 enumerates circumstances under which the Chief Justice of the State or Chief Justice of India may appoint an arbitrator. The Chief Justice or his nominee can appoint an arbitrator when the parties are not agreed on the arbitrators to be appointed. This provision requires amendment as very often this may lead to stalemate. The Supreme Court in the case of Konkan Railways had to deal with this aspect and also referred to question to Larger Bench, the main question is whether it is an Administrative Act or Judicial Act. If it is under Administrative Act the same should be questioned before the court, which may lead to allow the party to file a writ in the High Court and then an appeal to Division Bench and further appeal to Supreme Court under Article 136 of the Constitution by way of leave. This will result in considerable delay and the object of making the law for an expeditious settlement of the matters to be decided by arbitration will be defeated. The object of having an arbitration clause and having the case decided quickly will be lost. The further reference to the High Court under Article 226 and further appeal to Supreme Court will nullify the object of passing the Act itself. It may be noticed that which depends on interpretation of such a level whether the action of the Chief Justice or his nominee is an Administrative Act or a Judicial Act.

Previously a party could make an application for appointment of an arbitrator. Such application could be made under section 8 (2) or section 20 of the Arbitration Act 1940. Now under the present Act a party will have to make a request to the Chief Justice or his designate for appointment of an arbitrator made either under sub-section (4) or sub-section (5) or there would be a request to take necessary measure, in which case request would be made under sub-section (6). As the schemes framed by Chief Justice of various High Courts would show such requests will have to be made in writing giving certain particulars. It can be stated that requests are not different from applications. As such, it may be proper to say that all those persons, who were held entitled to make an application under section 8 (2) or section 20 of the Arbitration act 1940 will be entitled to make request to the Chief Justice or his designate for appointment of arbitrator under the present section.

Before making an appointment the court must hear both the parties. The parties have to be heard not only with regard to the appointment but also with regard to the person to be appointed.

Section 12 which deals with grounds for challenge i.e. regarding appointment of the arbitrator. Article 12 of Model Law of on UNCITRAL provides the grounds for challenge as follows:

1. When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.

2. An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

Sub-section (3) of section 12 of the New Act specifies the grounds in general terms on which the appointment of an arbitrator may be challenged. It also limits the grounds to those mentioned in that sub-section. Those grounds are that -

a) circumstances exist that give rise to justifiable doubts as to arbitrator's independence or impartiality; or

b) the arbitrator does not possess the qualifications agreed to by the parties.

Now such challenge shall have to be made, unless the parties have agreed on a different procedure, to the arbitral tribunal itself; vide sub-section (3) of section 13 of the Act. It is rather odd that a challenge such as that an arbitrator is biased will have to be made to the very arbitrator whose bias is alleged, if he happens to be the sole member of the arbitral tribunal. If he happens to be one of the members in the arbitral tribunal, even then the challenge will be considered by the members of the tribunal, including the member challenged. If the challenge is rejected and arbitral tribunal gives an award, the only remedy left to the aggrieved party would be to make an application for setting aside the award inter alia on the ground that the arbitrator was biased. Under the UNCITRAL Model Law, it is provided that if the challenge is not successful, the challenging party may approach the court to decide on the challenge; vide clause (3) of Article 13. Such a remedy has not been given under the Act and the aggrieved party will have to wait till an award is given.

Sub-section (4) restricts the rights of a party ot challenge appointment of an arbitrator, whom the party had itself appointed or in whose appointment the party had participated. This sub-section states that in regard to such arbitrator, challenge may be made only for reasons of which the party became aware after the appointment had been made. In other words, reasons of which the party became aware upto the point of time when the appointment was made shall not be taken in the challenge to such an arbitrator. That is so because the party knowing of the reasons but still appointing or participating in the appointment of an arbitrator would be deemed to have waived the grounds based on those reasons.

Section 13 deals with the procedure to challenge an arbitrator. Section 13 reads as follows:

(1)Subject to sub-section (4) the parties are free to agree on a procedure for challenging an arbitrator.

(2)Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to an sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3)Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge the arbitral tribunal shall decide on the challenge.

(4)If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5)Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6)Where an arbitral award is set aside on an application made under sub-section (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees.

Article 13 of the Model Law provides when the parties are free to agree on procedure for challenging an arbitrator which is pro subject to para 3 of the Model Law which as follows:

"If a challenge under any procedure agreed upon by the parties or under the procedure of paragraph (2) of this article is not successful, the challenging party may request within thirty days after having received notice of the decision rejecting the challenge, the court or other authority specified in Article 6 to decide on the challenge, which decision shall be subject to no appeal while such a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.

It is rather odd that challenge regarding the procedure to be adopted questioning the appointment of the arbitrator will have to made to the very arbitrator whose bias is alleged. If he happens to be a sole arbitrator even if he happens to be one of the members of the tribunal will have to me made to the arbitrators and the arbitrator whose appointment is challenged will be one among them. There is no provision that he should not take part in the proceedings even if a specific allegation is made against him. If the challenge regarding appointment rejected, and the tribunal gives an award the only remedy left to the aggrieved party whose challenge was rejected would be to make an application for setting aside the award. In Model Law it is provided that if the challenge is not successful the challenging party may approach the court to set aside the order on the challenge on the basis of clause 3. Under this act if remedies are not given, the aggrieved party whose challenge was rejected will have to wait till the award is given.

Section 14 provides that the mandate of the arbitrator shall terminate if he is unable to perform his functions or he withdraws from the post of arbitrator.

Section 17 deals with interim measures, which can be ordered by the tribunal during the pendency of the dispute.

Section 19 specifically states that the arbitral tribunal is not bound by either CPC or Evidence Act. Of course as is specified in various proceedings the settlement of claims and defence shall be filed before the arbitral proceedings and it is open to the parties to file amendments to those proceedings. Act can also provides powers of the arbitrators while conducting the proceedings and under what circumstances the parties can be set exparte and the Section 26 empowers arbitrators to appoint expert to report on specific issues to be determined by the arbitral tribunal who will be provided with all the relevant data and material to enable the experts to submit his report.

It may be seen under the provisions of the Act, the arbitral tribunal or the party with approval of the arbitral tribunal may apply to the court for assistance in taking evidence. Rules applicable to substance of dispute, which specify under section 28, which is in force at that time.

" In the case of domestic arbitration (though the expression 'domestic arbitration' has been studiously avoided through out the present Act, except that a single reference appears to it in the long title of the Act), the arbitral tribunal is required to adjudicate in accordance with the substantive law for the time being in force in India. The arbitral tribunal does not have the authority to decide the matters on compassionate grounds or in an arbitrary or capricious manner. But it is now provided that if the parties have expressly authorized the arbitral tribunal to do so, it shall decide matters according to what it regards as just and good (ex aequo et bono) or in a sympathetic and flexible manner (as amiable compositor) vide sub-section (2) of the present section. This is a new provision. But, if there is no express agreement of that kind, the arbitral tribunal has to decide the dispute submitted to its arbitration in accordance with the substantive law for the time being in force in India.

An arbitrator cannot award any amount he likes either on grounds or mercy, kindness or otherwise. If he is permitted to do so, the very sanctity of contract would disappear. Surely, such a situation cannot be countenanced. Otherwise, the power of the arbitrator becomes totally arbitrary, unanalyzed and absolute. His award must abide by the general law of the land.

Where the award is a fair and honest settlement of a doubtful claim based both on legal and moral grounds, it should not be interfered with.

The settlement of disputes which is main consideration for passing the act and also quickly and to the satisfaction of the parties concerned, it is the duty of the arbitrators to encourage settlement of disputes. The tribunal may use protection, conciliation rather procedures during the arbitral proceedings to encourage settlements.

It is incumbent on the arbitrators to give reasons for the passing of the award unless the parties have agreed before hand and satisfy tht no reasons ought to be given.

Powers have also been given to the tribunal to correct errors occurring in the award.

Section 34 provides for setting aside the award and which deals with various reasons under which the awards can be set aside.

Sub-section 2 deals with reasons under which the award can be set aside which are as follows:

An arbitral award may be set aside by the court only if

a) the party making the application furnishes proof that

i) a party was under some incapacity; or

ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission t arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this part;

The court finds that -

i) the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or

ii) the arbitral award is in conflict with

the public policy of India.

Explanation: Without prejudice to the generality of sub clause (ii) of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

Though time limit for filing an application for setting aside the award is 3 months, power has been given to the court to extend the period if sufficient causes shown by another 30 days.

Section 37 provides for an appeal against the orders passed in section 34 relating to setting aside the award or refusing to set aside the award.

The Limitation Act 1963 shall apply to arbitrations as it applies to proceedings in court and the arbitration is deemed to have commenced in respect of particular dispute on the date on which the request for their dispute is referred to arbitration is received by the respondent. Then it also mentions where the court order with an arbitral award is set aside, the period between the commencement of the arbitration and the date of the order of the court shall be excluded in computing the time prescribed by Limitation Act, 1963. There is a specific chapter in part 2 dealing with increasing international trade providing for arbitral procedure and execution of the awards. The effect of the provision was that only domestic awards could be enforced by the courts on member states.

Section 44, which falls in Chapter I of Part-II of the Act, deals with, what are called, New York Convention Awards. Chapter II of Part II of the Act deals with Geneva Convention Awards. The point to be emphasized is that New York Convention Awards and Geneva Contention Awards even taken together are not synonymous with foreign awards. There may be foreign awards which may not be either New York Convention Awards or Geneva Convention Awards. Such foreign awards, which may be referred to as non-convention awards cannot be enforced with the same facility as in the case of convention awards, which are enforceable under Chapter I or Chapter II of Part - II of the present Act.

"Trade and commerce do not mean merely traffic in goods, i.e. exchange of commodities for money or other commodities. In the complexities of modern conditions, I their sweep are included carriage of persons and goods by road, rail, air and waterways, contracts, banking, insurance, transactions in the stock exchanges and forward markets, communication of information, supply of energy, postal and telegraphic services and many more activities - too numerous to be exhaustively enumerated which may be called commercial intercourse".

However, in a suit based on a foreign judgment brought in India, the cause of action would arise at the foreign place where the judgment was given. It would not arise within the limits of the jurisdiction of the courts in India. Hence, such a suit would be beyond the jurisdiction of Indian courts.

Section 45 deals with judicial authority to refer parties to arbitration. Enforcement of foreign awards is specified in Section 48 and the enforcement of foreign awards is dealt with in Sections 48 and 49 of the Act and the appellate provision is specified in Section 50 and the binding nature of foreign awards is specified in Section 55 and part III deals with conciliation and the role of the conciliator and part IV deals with the power of the High Court to make rules and also power of Central government by notification make rules for carrying on the provisions of the Act.