LAWS GOVERNING ARBITRATION

There are various laws governing Arbitration all over the globe. However, the
primary act which governs the domestic arbitrations all over India is the
ARBITRATION AND CONCILIATION ACT 1996 (ACT), before which the
Arbitration act 1940 was prevalent in India.

Brief HISTORY: -

THE ARBITRATION ACT 1940:

 The act was enacted on 11th March 1940, which came into force on 1st
July 1940. termed as 'The Arbitration Act, 1940'. It was applied to the
whole of India (including Pakistan, Baluchistan)8. The same was
modified vide an ordinance, post-Independence. This act came into force
during the British Regime.
 The scope of the Act of 1940 was wide enough but the same was also
under many criticisms. In some of the cases, it was observed that the
Arbitration Act, 1940, distinguishes between an application for setting
aside an award and one for a decision that the award is a nullity. This
implies that it does not legally exist and contemplates that an application
for setting aside an award may be made under Section 30 and an
application of that award is a nullity under Section 33.
 Further, it was also observed that the said act fails in recognizing that the
arbitration will fail in-case of non-existence and invalidity of an
arbitration agreement.
 The Act also did not speak anything about the shortcomings inherent in
individual private contracts.
  The rules providing for filing awards differed from one High Court to
another.
 The lack of provisions prohibiting an arbitrator or umpire from resigning
at any time in the course of the arbitration proceedings, exposed the
parties to heavy losses particularly where the arbitrators or umpire acted
mala fide.
 It was also seen that if an arbitrator appointed by the Court dies during
the arbitration proceedings, there was no other provision in the said act
for appointment of a new arbitrator, which was also seen as a major flaw
in the 1940 Act. Another concern in the act was that the Marginal Notes
were not regarded as part of an Act

THE ARBITRATION & CONCILIATION ACT 1996:

 A roar of criticism & lacking existent in the Arbitration Act 1940 led to
the enactment & enforcement of the Arbitration and Conciliation Act
1996, which came into force from 22nd August 1996.

 The basic intent of the legislation was to provide for a speedy solution to
disputes between the parties and also to limit the judicial intervention.
The main intention of the Legislation was primarily to cover the
international and domestic commercial arbitration and conciliation.

 The Parties disputing also agreed on various occasions to continue with

the new law instead of the old one.
  The Act of 1996 consolidated and amended laws relating to Arbitration,
International Commercial Arbitration and also for enforcement of the
Foreign Arbitral Awards. Initially, in the Act of 1996, it was held that the
Court can pass interim orders under Section 9 of the Act, where Section 9
contemplates two stages, firstly, court can pass order during arbitral
proceedings and secondly, that court can pass order before
commencement of arbitral proceedings [the said act underwent major
amendments, on 23rd October, 2015 [Arbitration and
Conciliation (Amendment) Act  2015] & on 9th August 2019 [The
Arbitration And Conciliation (Amendment) Act 2019]

ON 6TH SEPTEMBER 2012

A 5- judge bench of the Supreme Court, in Bharat Aluminium Company v.

Kaiser Aluminium Technical Services (2012) 9 SCC 552 (BALCO) held that:

 In cases of international commercial arbitrations, where the seat of

arbitration is outside India, Part I of the Act would not apply – heralding
a new dawn for Indian arbitration.
 It overruled the previous stand taken by the Supreme Court in Bhatia
International v. Bulk Trading SA (2002) 4 SCC 105 which said that the
curial jurisdiction of the courts under Part I of the Act would apply to all
arbitrations, even those seated outside India. 
 Therefore, consequently thereto the Indian Courts could not assert
jurisdiction concerned with foreign-seated arbitrations under Sections 9,
11 and 34, mainly.
 Not necessary for parties to expressly exclude the application of Part I
for foreign seated arbitrations. Part I would apply only to arbitrations
seated in India, both domestic and foreign.
  There was also a Negative consequence whereby there was no provision
for seeking urgent interim reliefs in cases of foreign seated arbitrations in
India.

DEFICIENCIES IN THE ARBITRATION & CONCILIATION ACT

1996:

The Act of 1996 was heavily criticised in India due to the following reasons:
The foremost criticism was the interpretive loopholes in the Act, which allowed
interference of the Courts in arbitration proceedings, leaving the ‘expeditious’
mechanism for dispute resolution as time consuming as litigation, if not more
so.

RECOMMENDATIONS MADE BY THE 246TH REPORT OF THE LAW

COMMISSION:
1. Amendment to Preamble to reaffirm the objectives of the Act.

2. Fairness / Speedy Disposal/ Economy in dispute resolution.

3. Insertion of Section 6A – determination of imposition of costs and the

quantum thereof.

4. Insertion of Sections 3A and 3B to bring it in conformity with

UNCITRAL Model Law on International Commercial Arbitration.

5. Reduction of role of Courts in granting interim relief under S. 9.

6. Reforms in provisions regarding ‘independence and impartiality’ of

arbitrators.

7. If arbitrator fell under one of the categories in Schedule 5, he would be

deemed not be able to perform his duties.
 8. Under Section 17, arbitral tribunal to be given the same powers as that of
a Civil Court under the CPC in relation to grant of interim injunctions.

9. Discouraging frequent and baseless adjournments and holding day to day

hearings.

10.Recommendation for addition of Sections 34(5) and 48(4) for expeditious

disposal of disputes, within a period of 1 year.

THE ARBITRATION & CONCILIATION [AMENDMENT] ACT 2015

After the said recommendations/criticism & upon a calling pertaining to the
need of the hour, the Government promulgated the Arbitration and Conciliation
(Amendment) Ordinance, 2015 which received assent from the President on
23rd October 2015.

THE AMENDMENT MADE SOME MAJOR CHANGES IN THE

PARENT ACT, SOME OF WHICH ARE AS FOLLOWS:

1. S. 2(2) – makes Part I applicable to foreign seated arbitrations, unless

expressly excluded in the agreement.

2. S. 7 - arbitration agreement in electronic form will be deemed to be an

“agreement in writing”.

3. S. 8 - authority shall refer the parties to arbitration, unless it finds that no

valid arbitration agreement exists.

4. S.9 - Power to pass interim orders by Courts: -

a) If court passes order before commencement of arbitration;

 b) Arbitration must commence within 90 days from date of such
order;
c) Court to refrain from passing an order U/s 9 once arbitration starts;
d) Can do so only if efficacious remedy is not available under S. 17.

5. S.11 – appointment of arbitrators to be made by the Supreme Court/ High

Courts within 60 days from the date of any such Application.

6. S.12 – Independence and Impartiality of arbitrators to be decided by

examining:

a) grounds enlisted in Schedule 5;

b) categories enumerated in Schedule 7

7. S.14 – if the mandate of an arbitrator is terminated, he is to be substituted

by another.

8. S. 17 – Gave tribunals same powers qua interim measures as available to

courts under the CPC.

9. S. 23 – empowers respondent to make counterclaim or plead a for set-off.

10.S. 24 – mandates tribunal to hold hearings on a day to day basis and

preclude from granting many adjournments.

11.S. 25 – right to file statement of defence has to be forfeited, if time limits

are not adhered to.
12.S. 28 – while making an award, the Tribunal to take into account the
terms of the contract and trade usages whenever applicable.

13.Sections 29A and 29B – with intent to Fastrack proceedings & time
bound arbitrations –

a) award to be rendered within 12 months from date of reference.

b) Extension for a maximum period of 6 months for completion.
c) Extension contingent on consent of parties and Court’s discretion.
d) Application for extension to be disposed of in 60 days.
e) Parties to agree to Fastrack proceedings under S. 29B in advance,
as also the fees payable to the arbitrator.

14.S. 31 – Sum directed to be paid as part of the award would carry an

interest at the rate of 2% higher than current rate of interest.

15.S. 31A – discretion to be exercised by Court or Tribunal to determine:

a) Whether costs are payable by a party.

b) Amount of such costs.
c) When they must be paid.

16.Explanation 1 to S. 34(2)(b) – The award to be treated in conflict with

‘public policy’ only if it is:

a) Obtained by fraud, Violates confidentiality;

b) Admissibility of evidence of conciliation proceedings;
c) Controverts the fundamental policy of India law;
 Explanation 2 to S.34(2)(b) – for determining contravention of
fundamental policy of India, no review of dispute on merits.

Sub-section (2A) – ‘Patent Illegality” added as an additional ground to

challenge the award

Sub-section (5) – application can be filed only after giving notice to

opposite party.

Sub-section (6) – Application to be disposed of in one year.

17.S. 36 – If application under S. 34 is not made within time limit specified,

the award becomes final. Mere filing of application under S. 34 would not
render the award unenforceable and automatically stay the award. A
separate application needs to be filed praying for grant of stay of the
Award.

 CONFUSION TO THE APPLICABILITY OF THE

ACT TO THE PRIOR ARBITRATION
PROCEEDINGS:
o During the period between Ordinance and enactment, there
was confusion as to whether the amendments applied to
pending arbitration proceedings.
o Thus, Section 26 was introduced in the Amendment Act that
states:
“Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the provisions
of section 21 of the principal Act, before the commencement
of this Act unless the parties otherwise agree but this Act
 shall apply in relation to arbitral proceedings commenced
on or after the date of commencement of this Act."
o Despite the aforementioned provision, Courts in India have
differed on the applicability of the Amendment Act, 2015 to
arbitral and arbitration-related court proceedings in various
judgment.

18.S. 37 – Appeal can be filed to the court on the following grounds:

a) Refusal to refer parties to arbitration u/s 8.
b) Refusal to grant measure u/s 9.
c) An order passed u/s 34.

Similar amendments as above were made to Part II of the Act in provisions

relating to challenging validity of the award and the appeal provisions, wherever
applicable.

ARBITRATION AND CONCILIATION ACT 1996 (ACT): -

 The Indian law of arbitration is contained in the Arbitration and

Conciliation Act 1996 (Act).

 The Act is based on the 1985 UNCITRAL Model Law on International

Commercial Arbitration and the UNCITRAL Arbitration Rules 1976

 The Statement of Objects and Reasons set forth the main objectives of the
Act as follows:
1. To comprehensively cover international and commercial arbitration
and conciliation as also domestic arbitration and conciliation;

2. To make provision for an arbitral procedure which is fair, efficient

and capable of meeting the needs of the specific arbitration;

3. To provide that the arbitral tribunal gives reasons for its arbitral
award;

4. To ensure that the arbitral tribunal remains within the limits of its
jurisdiction;

5. To minimise the supervisory role of courts in the arbitral process;

6. To permit an arbitral tribunal to use mediation, conciliation or

other procedures during the arbitral proceedings to encourage
settlement of disputes;

7. To provide that every final arbitral award is enforced in the same

manner as if it were a decree of the court;

8. 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

9. 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 awards to
which India is a party applies, will be treated as a foreign award.”

CODE OF CIVIL PROCEDURE 1908

The Code of Civil Procedure, (CPC) 1908 has also been amended and section
89 has been introduced.

Section 89 (1) of CPC provides an option for the settlement of disputes outside
the court. It provides that where it appears to the court that there exist elements,
which may be acceptable to the parties, the court may formulate the terms of a
possible settlement and refer the same for arbitration, conciliation, mediation or
judicial settlement.

While Arbitration and Conciliation Act, 1996 is a fairly standard western

approach towards ADR, the Lok Adalat system constituted under the National
Legal Services Authority Act, 1987 is a uniquely Indian approach.

CHOICE OF LAW TO BE APPLIED: -

The validity of the arbitration agreement is primarily governed by the law

chosen by the parties. Typically, international business contracts do not contain
specific choice of law clauses for the arbitration agreement contained in such
contracts. The general choice of law clause contained in the contract and
specifying the proper law of the contract does not necessarily extend to the
arbitration agreement which is a separate contract.
Absent a choice of law by the parties, the law of the seat of the arbitration plays
a dominant role in determining the law applicable to the arbitration agreement.
It governs the following issues, three of which relate to the validity of the
arbitration agreement:

1. The substantive validity of the arbitration agreement absent a choice of

law;

2. The formal validity of the arbitration agreement if it is to be determined

by the tribunal;

3. The objective arbitrability of the subject matter of the dispute;

4. The arbitral procedure.

This significance of the law of the seat has an important harmonizing effect on
the determination of the law applicable to the validity of the arbitration
agreement. It serves to avoid frictions and contradictions that might arise if
different laws apply to these issues. Decisional harmony created by the seat is
important because the arbitration agreement constitutes the very basis of the
tribunal's jurisdiction. This requires hard, fast, workable and generally accepted
conflict rules in order to avoid further complications if the jurisdiction of the
tribunal is contested by one side. This is also in line with the notion of party
autonomy as one of the principal maxims of international commercial
arbitration. The seat is typically chosen by the parties or by the tribunal or by
the arbitral institution on their behalf. The choice of the seat thus becomes a
direct or indirect choice of law by the parties with respect to the issues listed
above.
If the issue at stake relates to the personal status of a party or to the protection
of the other party, the significance of the seat is overridden by other connecting
factors which are better able to do justice to these policy considerations.

This applies to:

1. The parties" capacity to arbitrate ("subjective arbitrability"), which is

governed by the law of the country where the party has its residence,
domicile or seat, and
2. The issue of whether a party was duly represented when concluding the
arbitration agreement, which is governed by the law of the state where the
agent has concluded the arbitration agreement

Thus, there are only three different connecting factors, the seat reigning most
prominently among them, with respect to the determination of the law
governing all aspects of the validity of international arbitration agreements for
different legal issues.

FOREIGN AWARDS & THE NEW YORK CONVENTION

It is often easier to enforce arbitration awards in a foreign country than court

judgments. Under the New York Convention 1958, an award issued in a
contracting state can generally be freely enforced in any other contracting state,
only subject to certain, limited defences.

Only foreign arbitration awards are enforced pursuant to the New York
Convention. An arbitral decision is foreign where the award was made in a state
other than the state of recognition or where foreign procedural law was used.
In most cases, these disputes are settled with no public record of their existence
as the loser complies voluntarily, although in 2014 UNCITRAL promulgated a
rule for public disclosure of investor-state disputes.

Virtually every significant commercial country in the world is a party to the

Convention while relatively few countries have a comprehensive network for
cross-border enforcement of judgments their courts. Additionally, the awards
not limited to damages. Whereas typically only monetary judgments by national
courts are enforceable in the cross-border context, it is theoretically possible
(although unusual in practice) to obtain an enforceable order for specific
performance in an arbitration proceeding under the New York Convention.

Article V of the New York Convention provides an exhaustive list of grounds

on which enforcement can be challenged. These are generally narrowly
construed to uphold the pro-enforcement bias of the Convention

CONCLUSION: -

Thus the Arbitration in India is primarily governed by the Arbitration and

Conciliation Act 1996, however there are many institutions in India & Abroad
which have their own set of rules and regulations to be followed if the Parties to
the dispute have agreed to refer to Arbitration through that particular institution.