History behind Arbitration
In ancient India, Hindus recognized decisions of
the Panchayats and entrusted them with power of management of their religion and
social functions. However, when power came to be vested in the East India
Company, regulations touching arbitration were framed by the Company. The object
behind replacing the Arbitration Act, 1940 with the Arbitration and Conciliation
Act, 1996 was to consolidate and amend India’s laws relating to domestic and
international commercial arbitration.
Arbitration – Its meaning
It is a reference to the decision of one or more
persons in respect of a particular matter.
It is a substitution by consent of the parties of
another tribunal other than the ones provided under the ordinary process of
International Commercial Arbitration – in
an arbitration of this nature one of the parties should be a foreigner.
Example: ABC Company Private Limited
rendered consultancy services to Hi-fliers International, a foreign company for
sale of aircrafts in India. Certain disputes arose between the parties which
were submitted to International Commercial Arbitration.
"Arbitration agreement" means an agreement by the
parties (to an Agreement) to submit to an arbitrator certain disputes which
have arisen (in present) or which may arise (in future) between the parties to
An arbitration agreement may be in the form of an
a) arbitration clause in a contract or
b) by way of a separate agreement.
An arbitration agreement must be in writing.
An arbitration agreement is void if a
party to the agreement is a minor or a person of unsound mind or one who is
incapable of contracting.
Example: An agreement involving dealing with a national enemy is illegal.
Hence, the arbitration agreement which forms a part of this agreement is void
Expert/Engineers: A contract between the
parties for resolution of disputes by an ‘expert’ does not amount to an
arbitration clause even though it is termed as such.
Winding-up Court: An arbitration clause
does not take away the jurisdiction of the company court.
Termination of Contract and its effect on
An arbitration clause is a collateral term of a
contract as distinguished from a substantive one. Nevertheless, it forms an
integral part of the contract. It perishes with the contract. If the contract is
null and void, it will not lead to the invalidity of the arbitration clause or
agreement therein contained in the contract.
It may sometimes include a single arbitrator or a
panel of arbitrators. The parties to Arbitration are free to determine the
number of Arbitrators except that this shall not be an even number. However, if
the parties fail to determine the number of arbitrators, then the arbitral
tribunal shall consist of a sole arbitrator.
Appointment of Arbitrators
A person of any nationality may become an
In case of three arbitrators, each party must
appoint one arbitrator and the two appointed arbitrators should appoint the
third arbitrator who will act as the "Presiding arbitrator". On failure of a
party to appoint an arbitrator within 30 days of the other party requesting
for such an appointment, the power vests with the Chief Justice of the High
Court or his designate to make such appointment.
When appointing an arbitrator in an International
Commercial Arbitration, the Chief Justice may appoint an arbitrator of a
The parties are free to agree on a
procedure for appointing arbitrator or arbitrators.
Grounds to challenge the authority of the
An Arbitrator may be challenged only,
A party to the arbitration can challenge his own
appointee but only on the ground which he became aware after the appointment. It
can be challenged within 15 days of becoming aware of the constitution of the
arbitral tribunal or after becoming aware of the circumstances of doubt.
Further, an interested person is disqualified from acting as an arbitrator. The
parties are free to agree on a procedure for challenging an arbitrator.
Example: A and B had agreed to submit
disputes between them to a common arbitrator C. A subsequently found out that C
and B were related to each other and hence he was justified in challenging the
authority of C to act as arbitrator between himself and B.
Extent of Judicial Intervention
The Courts are restrained from interfering in
disputes when there is an arbitration agreement between the parties. However,
the Court has:
Instances of Matters which cannot be referred to
A criminal complaint cannot be referred to
arbitration. The arbitrators cannot arrogate to themselves the powers of a
Magistrate and pass an award purporting to decide whether an offence has been
committed or not.
Matrimonial matters cannot be referred to
arbitration. However, civil disputes between a man and wife or between family
members are referable.
Power of a Judicial Authority
Power of a Judicial Authority to refer to
arbitration when there is an arbitration agreement – A judicial authority
shall refer the parties to arbitration provided there is an application in
writing made to such effect. Further, the Authority has to ensure that there
is an arbitration agreement; there is a dispute falling within the scope of
the arbitration agreement.
A Court may refuse to stay the suit/action in
certain instances including those:
Where the Court finds that the arbitration is
beset with difficulties and arbitration may never be possible.
Where Court Orders have been flouted by the
Serious allegations are made against the
The appointment of a guardian for a minor or a
person of unsound mind;
For an interim measure of protection in respect
of goods and /or security.
Securing the amount in dispute in the
Interim injunction or the appointment of a
Place of Arbitration
If the parties do not agree on a place, the place
of arbitration must be determined by the Arbitral tribunal with regard to
circumstances of the case and convenience of the parties.
Commencement of Arbitration
It is said to commence on the date on which a
request is received by the respondent from the claimant to refer the
dispute to arbitration.
The parties are free to agree upon the language to
be used in the arbitral proceedings. On failure to agree upon the language,
Arbitral tribunal will determine the same.
Procedure of Arbitration
The claimant has to file his statement of claim
and the respondent, his written statement.
The arbitrator may terminate the proceedings
where the claimant fails to file his statement of claim in time without
The arbitrator may proceed with the arbitration
proceedings without the respondent, if the respondent does not file his
written statement of defence in reply to the claimant’s statement in time.
The tribunal has the power of judicial review and
can recall its order of termination of proceedings provided sufficient cause
was shown. There is no right in the arbitrator to restore proceedings without
sufficient cause. He becomes ‘functus officio’.
It is the duty of the arbitrator to treat each of
the parties to the arbitration with equality. The arbitrator is bound to
observe the principles of natural justice in conducting the proceedings.
The arbitral tribunal may appoint an Expert for
help in the proceedings.
Example: In case of a family dispute
relating to immovable properties the arbitrator can take the assistance of a
valuer for valuing the properties.
Settlement of a dispute
The arbitral tribunal can encourage the settlement
of a dispute with the agreement of parties and may use procedures such as
mediation, conciliation or other procedures to encourage settlement. The
arbitration proceedings shall be terminated on a settlement.
An award is a final determination of a claim or a
part of a claim by the Arbitral Tribunal. Under the Arbitration Act, 1940 an
award was required to be filed in Court. However, this requirement has been done
away with under the present Act. An award becomes binding on the expiry of 3
months from date of receipt of award by the parties.
Successive Awards: There may be as many
awards as there are disputes out of the contract.
Contents of Arbitral Award
An Arbitral award must be in writing and signed
by the members of the arbitral tribunal.
The award must state the reasons on which it is
given except when the parties have agreed that no reason be given or
when the award is on the agreed terms.
Date and place of the Arbitration must be
mentioned in the award.
Correction and interpretation of Award,
Within 30 days from the receipt of an award by a
party, the party may request the tribunal to correct any errors in the award or
for the interpretation of the award. If a party is desirous for an additional
award to be passed in the same proceeding, then it may request the tribunal
within 60 days from the receipt of the award to pass an additional award.
Setting aside Arbitral Award by the Court
An award may be set aside by the Court in the
The party making the application furnishes proof
a party was under some incapacity or
the agreement of arbitration is not valid or
improper notice as regards the appointment of
the award deals with a dispute not contemplated
under the reference.
composition of arbitral tribunal or arbitral
proceedings was not in accordance with the agreement
Application for setting aside the award is to be
made within 3 months of the award.
An appeal lies to the Court authorized by law from
a) order granting or refusing interim measures
under section 9 or
b) award by arbitral tribunal.
Enforcement of Award
An award can be enforced under Code of Civil
Procedure as if it were a decree of the court.
Registration and Stamping of Award
When an award relates to creation of any right in
immovable property of ` 100 or upwards it requires registration. An award is
chargeable to stamp duty.
Lien as to Arbitral Award and deposits as to
The Arbitral Tribunal has a lien on the arbitral
award for any unpaid costs of the arbitration proceedings. The Court may, on an
application in this behalf, order the Tribunal to deliver the award to the
applicant on payment of the costs (demanded by the Tribunal) in the Court by the