5/6/24, 10:14 AM Arbitration and ADR - Introductory

INTRODUCTORY

General

Article 39A of the Constitution of India which was added by the Constitution 42nd Amendment in
1976 reads equal justice and free legal aid to any citizen with economic and other disability.

The Supreme Court has also recognized "right to speedy trial" as being implicit in article 21 of the
Constitution of India (Hussainara Khatoon v. State of Bihar, MANU/SC/0119/1979 : AIR 1979 SC
1360).

In order to give effective mandate the Parliament of India has recognized various Alternative
Dispute Resolutions (ADR) mechanisms, viz Arbitration, Conciliation, Mediation and Lok Adalats to
strengthen both fair administration of justice and smooth judicial system.

Section 89 of Code of Civil Procedure expressly provides for the settlement of dispute through ADR
system.

Section 89(2) of the Code provides that where dispute has been referred to a Lok Adalat, the Court
shall refer the same in accordance with the provisions of section 20(1) of the Legal Services
Authorities Act, 1987. Further for a judicial settlement, the Court shall refer the same to a suitable
institution or person and such institution or person shall be deemed to be a Lok Adalat.

The Constitution of India was aimed at providing, besides other rights, protection of life and
personal liberty. The framers of the Constitution ensured that it safeguards any deprivation to the
common man by the State or the nation as a whole. For this purpose, the Constitution provides for
a system of courts. But, at the time when the Constitution was formally adopted in 1950, there
existed a unified structure of courts and laws, which were left undisturbed, as it would mean an
upheaval of the entire system. Unity and uniformity of the judicial structure was preserved in such
areas of law as criminal laws and procedures, civil procedures, Wills, succession, contracts, etc.

In India, at the apex of the entire judiciary is the Supreme Court of India with a High Court for
each State or a group of States. Under the High Court, there is a hierarchy of subordinate courts.
The courts provide ample safeguards for the enforcement of rights of citizens. Disputes of all the
citizens are settled through a well defined and recognised system of litigation. The courts have
formal rules for settlement of disputes and its decision is binding on the parties, but is subject to
appeal to the higher court. The system is highly technical and formal and the judge controls the
proceedings as well as the outcome of the litigation. But litigation does not always lead to
satisfactory results. It is expensive in terms of time and money. A case won or lost in a court of law
does not change the attitude of the litigants who continue to be adversaries and go on fighting in
appeal after appeals. These are the reasons due to which parties to a dispute look after an
alternative way of resolving their dispute. Resolving the dispute between the parties amicably
enables a change in the approach of the parties. Mahatma Gandhi wrote in his autobiography in the
following words: "...... I had learnt the true practice of law. I had learnt to find out the better side
of human nature and to enter man's heart. I realised that the true function of a lawyer was to unite
parties. The lesson was so indelibly burnt into me, that a large part of my time during the twenty

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 1/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

years of my practice as a lawyer was occupied in bringing about private compromise of hundreds of
cases. I lost nothing thereby, not even money, certainly not my soul ......"

Alternative Dispute Resolution (ADR)

What is ADR?

ADR is an abbreviation that stands for Alternative Dispute Resolution. ADR refers to all those
methods of resolving a dispute, which are alternatives for litigation in the Courts. ADR processes
are decision-making processes to resolve disputes that do not involve litigation or violence. ADR
includes a variety of processes through which litigants or potential litigants may resolve their
disputes. Unlike the courts, which use adversarial processes, ADR focuses on effective
communication and negotiation.

ADR includes Arbitration, Mediation, Conciliation, Negotiation, Expert Determination, Early Neutral
Evaluation by a third person, Mini-Trial, Dispute Resolution Board and Lok Adalat etc. The approach
of judges, lawyers and parties throughout the world is changing towards adoption of ADR instead of
Court-litigation. Arbitral institutions provide ADR services for quicker, less costly and consensual
resolution of civil disputes outside the crowded Court system. ADR provides creative options to the
parties to resolve the disputes that are not available in traditional dispute resolution forums. ADR
promotes communication between the parties. ADR enables the parties to work together to solve
the real concerns underlying the conflict by focusing on the parties' real interest instead of their
positions and claims.

When ADR is useful and recommended?

ADR can be used as an alternative to time consuming adversarial process of court-litigation. ADR is
an alternative for those parties who are willing to communicate with each other and make genuine
attempt to resolve the dispute with the help of a neutral party. Many disputes like consumer
complaints, family disputes, construction disputes, business disputes can be effectively resolved by
ADR. It can be used in almost every dispute, which can be filed in a court as a civil suit

What is the difference between ADR and civil suit in a court?

When a civil suit is filed in a court of law, a formal process occurs, which is operated by Advocates
and managed by the court. The parties virtually lose all control over the result of their dispute
when a court makes the decision. Litigation is a costly affair and it takes a lot of time to get a final
decision of the court. Litigation harms relationships and causes emotional stress. Participation in a
civil suit is unpleasant and cumbersome. On the other hand, ADR is a problem solving process,
which promotes creative solution to the parties, which emphasizes communication between the
parties. In ADR, parties work together to solve the dispute.

What is an 'ADR Neutral'?

An 'ADR Neutral' is an unbiased, impartial and third party not connected with the dispute, which
includes an Arbitrator, Mediator, Conciliator, Facilitator, Evaluator or any other person who helps the
parties to settle their conflicts by ADR.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 2/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

What are the features of ADR?

ADR processes are consensual and voluntary processes, which are chosen by the parties to the
dispute. These processes are expeditious because ADR avoids those components of traditional
litigation that prolong and delay resolution of dispute. ADR process is flexible which is handled and
resolved through an ADR agreement. The parties choose a particular ADR process, outline the
specific steps of the process, and establish time limits. It is a non-judicial process in which decision
is made by the parties themselves. In ADR, the parties control the process and the outcome.

What are the advantages of ADR?

ADR proceedings are flexible. They can be conducted in any manner to which the parties agree. It
may be as casual as a discussion around a conference table or structured as a private Court trial.
Also unlike the Courts, the parties have the freedom to choose the applicable law, a neutral third
party to act as Arbitrator/Conciliator in their dispute, on such days and places convenient to them
and also fix the fees payable to the third party. ADR is a private process and it offers confidentiality,
which is generally not available in Court proceedings. While a Court procedure results in a win or
lose situation for the disputants, in an ADR process such as Mediation or Conciliation, it is a win-
win situation for the parties because the solution to the dispute emerges with the consent of the
parties. ADR proceedings save considerable time and money. ADR has distinct advantages because
it involves increased respect and trust between the parties, more creative and satisfying solutions,
greater compliance with the settlement, reduced cost and emotional energy and faster resolution of
dispute. It improves communication and relationships between the parties.

Ensuring through speedy trial the alternative dispute resolution and case-flow management the
High Courts should adopt model ADR rules and case-flow management rules or frame rules, so that
a step forward is taken to provide to litigating public a fair, speedy and inexpensible justice (Salem
Advocates' Bar Association v. Union of India, MANU/SC/0450/2005 : AIR 2005 SC 3353).

Arbitration

What is Arbitration?

Where two or more persons agree that a dispute or potential dispute between them shall be
decided in a legally binding way by one or more impartial persons in a judicial manner, that is upon
evidence put before him or them, the agreement is called an Arbitration Agreement or a
submission to Arbitration. When, after a dispute has arisen, it is put before such person or persons

for decision, the procedure is called as Arbitration, and the decision when made is called 'award'1 .

Arbitration is a method whereby parties can resolve their disputes privately. It is known as an
Alternative Dispute Resolution mechanism. In this mechanism, instead of filing a case in a court,
parties can refer their case to an arbitral tribunal, which is the forum where Arbitration proceedings
are conducted. The arbitral tribunal considers the cause of the conflict between the parties and
arrives at a decision known as 'award'. The arbitral tribunal controls the process and outcome of
the dispute. Generally, the hearing is limited by rules agreed by parties and is conducted in private
and strangers cannot be present. While an Arbitrator does have greater flexibility than a judge, in

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 3/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

terms of procedure and rules of evidence then the arbitration process is akin to the litigation
process.

___________________

1. Ronald Bernstein Derek Wood in Handbook of Arbitration Practice, 2nd Edn., p. 9.

What are the advantages of Arbitration over litigation?

Arbitration is preferred over traditional litigation because Arbitration is generally less expensive
than litigation. It provides for faster resolution of dispute through flexible time schedule and
simpler rules. Arbitration offers advantages that cannot be provided by litigation. In many cases, a
big advantage is that the Arbitrator or arbitral tribunal is an expert in the field of the dispute so
that the entire procedure can be conducted without the intervention of lawyers, or other
representatives, with major gains in speed and economy. Thus, many disputes as to quality in the
commodity trades, many disputes as to the rent of commercial property, and many small consumer

disputes, are resolved in this way.1

What type of disputes can be settled by Arbitration?

The disputes, which can be settled by an agreement between the parties, can be settled by
Arbitration. All civil disputes can be referred to Arbitration unless prohibited by any law. Virtually,
all disputes can be settled by Arbitration, including contract disputes involving businesses and
consumers, employment claims, real estate and construction issues. As a general rule, matters
involving criminal question or questions of public law cannot be resolved by Arbitration. For
instance, the following matters are not referred for Arbitration:

Matrimonial matters, like divorce or maintenance;

Insolvency matters, like declaring a person as insolvent;

Criminal offences;

Dissolution or winding up of a company;

Disputes relating to age.

Put in a general way, it may be said that the disputes arising out of rights in personam may be
settled by Arbitration and the disputes arising out of rights in rem cannot be settled by Arbitration.

Statutory Arbitration

What is statutory Arbitration?

In India a lot of Central and State Acts specifically provide for arbitration in respect of disputes
arising out of matters covered by those enactments viz. Electricity Act, Electricity Supply Act. Since
such an arbitration would be also governed by 1996 Act, to provide for statutory arbitration in such
legislation is deemed to be arbitration agreement (Grid Corpn. of Orissa v. Indian Charge Chrome
Ltd., MANU/OR/0030/1998 : AIR 1998 Ori 101).

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 4/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

Ad hoc Arbitration

What is Ad hoc Arbitration?

Ad hoc arbitration is a proceeding administered by the parties themselves (and not a stranger or
institution) with rules created solely for that specific case. The parties make their own agreement
with respect to all aspects of arbitration including applicable laws and rules, etc.

Fast Track Arbitration

What is Fast Track Arbitration?

Where the parties agree that no oral hearings shall be held, then the arbitral tribunal could fast
track the arbitration process, by making the award only on the basis of documents submitted by
parties, in respect of their case.

Attributes of Arbitration Agreement

The arbitration agreement must contemplate that the decision of the arbitral tribunal will be binding
on the parties to the agreement.

The jurisdiction of arbitral tribunal to decide the rights of the parties must derive either from the
consent of parties, or from an order of

_______________

1. Michael Kerr in Handbook of Arbitration Practice, Introduction, p. 3.

court or from statute, the terms of which make it is clear that the dispute will be subject to
arbitration.

The agreement must contemplate that the substantive rights of the parties will be determined by
the arbitral tribunal.

The arbitral tribunal must determine the rights of the parties in an impartial and judicial manner.

The agreement of parties to refer their disputes to the decision of the arbitral tribunal should be
enforceable at law.

The agreement should contemplate that the tribunal will receive evidence from both sides and hear
their contention or at least, give the parties an opportunity to put them forward.

The agreement must contemplate that the tribunal will make a decision upon a dispute which is
already formulated at the time when the reference is made to the tribunal. (K.K. Modi v. K.N. Modi,
MANU/SC/0092/1998 : AIR 1998 SC 1297; Bharat Bhushan Bansal v. U.P. Small Industries Corpn.,
MANU/SC/0023/1999 : AIR 1999 SC 899).

Conciliation and Mediation

What is Conciliation?

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 5/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

Conciliation is a process in which a third party assists the parties to resolve their dispute by
agreement. A Conciliator may do this by expressing an opinion about the merits of the dispute to
help the parties to reach a settlement. Conciliation is a compromise settlement with the assistance
of a Conciliator.

Conciliation is a voluntary and non-binding process in comparison to Arbitration and Litigation. Any
party may terminate Conciliation proceedings at any time even without giving any reason. The
other important difference is that the parties control the process and outcome of the dispute, which
is not the case in Arbitration as well as litigation. Conciliation is a consensual process whereas
Litigation and Arbitration solemnly urge the parties for an amicable reconciliation and have no
control on the outcome of the dispute or the process.

What is Mediation?

Mediation is a process for resolving disputes with the aid of an independent third person that
assists the parties in dispute to reach a negotiated resolution. Mediation is the acceptable
intervention into a dispute of a third party who has no authority to make a decision. The objective
of the third party is to assist the parties in reaching an acceptable resolution of the dispute. The
Mediation process is voluntary and does not eliminate other dispute resolution options. It is
confidential, whether or not it results in the settlement and resolution of the dispute.

How is Mediation different from Conciliation?

Many a times, conciliation and mediation are used interchangeably and they are together referred
to as Mediation. A Mediator assists the parties to reach an agreement for resolving the dispute and
he does not express his opinion on merits of the dispute, whereas a Conciliator may express an
opinion about the merits of the disputes. In both, a third party is appointed to assist the parties to
reach a settlement of their dispute. The Mediator is not given any power to impose a settlement.
His function is only to try to break any deadlock and encourage the parties to reach an amicable
settlement. A Mediator does not determine a dispute between parties.

A Mediator may act as a communicator filtering out the emotional aspects and allowing the parties
to focus on the key issues. He encourages the parties to reach an agreement on their own as
opposed to having it imposed upon them.

What are the limitations of Conciliation?

ADR techniques such as Conciliation, Negotiation and Mini-Trials have the benefit of less time and
less cost but there is no assurance that they would result in a settlement of disputes as these are
non-binding and voluntary modes. These techniques bring the parties closer but the settlement is
not compulsory. Any party may walk out of such proceedings at any time or may not agree even to
a very fair settlement. Many times it has been observed that for the respondent, it is a case of
either total liability or no liability and to avoid liability he may refuse even a fair settlement.

What is 'Pre-Trial Mediation'?

A provision is introduced in section 89 of the Code of Civil Procedure as amended in 2002 for
encouragement of pre-trial alternatives for resolving the disputes. This provision provides for

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 6/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

Conciliation, Mediation and pre-trial settlement methodologies. Pre-trial Mediation is a settlement

of disputes by the efforts of the Courts before initiation of proceedings before it.

What do you mean by the expression 'Med-Arb'?

'Med-Arb' is a dispute resolution process that combines some of the features of both Mediation and
Arbitration. Most 'Med-Arb' proceedings call for a third-party Neutral to first mediate or help the
parties agree to as many issues as possible and then, by agreement of the parties, to arbitrate or
make a decision on those that remain. The same neutral person may perform both roles.

When an Arbitration proceeding is pending in an Arbitral Tribunal, the Arbitral Tribunal may
encourage the settlement of dispute by Mediation with the consent of the concerned parties. The
Arbitral Tribunal may use Mediation, Conciliation or other procedures at any time during the arbitral
proceedings with the consent of parties to encourage settlement. If, during arbitral proceedings,
the parties settle the dispute, the Arbitral Tribunal terminates the proceedings. The Arbitral Tribunal
can also record the settlement in the form of an Arbitral Award on agreed terms on the request of
the parties. Such an award has the same status and effect as any other Arbitral Award on the
substance of the dispute. It is called Mediation during Arbitration i.e. Med-Arbitration. Relevant
provision is provided in section 30 of the Arbitration and Conciliation Act, 1996 in this regard.

What is 'Hybrid Conciliation, Mediation and Arbitration'?

In this ADR process, if the parties are unable to reach resolution through Conciliation, the
Conciliator becomes an Arbitrator with written consent of the parties. He converts the proceedings
into one of Arbitration and seeks additional evidence from the parties as, since witnesses are not
normally called in Conciliation, and thereafter he renders an arbitral decision.

If the Conciliator fails in his efforts, he can proceed as an Arbitrator to make an award on the
substance of dispute. Initially, parties start with Conciliator but after sometime, they authorize the
Conciliator to act as Arbitrator and decide the dispute. However, in such cases consent of both
parties is required. These are called 'Hybrid Conciliation, Mediation and Arbitration'.

Negotiation

What is Negotiation?

Negotiation is an ADR process by which parties resolve their disputes. They agree upon course of
action and bargain for advantage. Sometimes, they try to adopt such a creative option that serves
their mutual interests. Because of its mutual advantages, people negotiate in almost all walks of
life, from home to the courtroom. It is the most common form of resolving a dispute and this
process solves most disputes. If Negotiations fail, it is necessary to seek the assistance of a neutral
third party or several neutral third parties to reach a solution.

How is a dispute resolved by Negotiation?

Negotiation bargaining is a process in which both the parties cooperate and seek a solution that is
mutually beneficial (a win-win solution or co-operative bargaining). It can also be confronting when
each side seeks to prevail over the other. If Negotiation succeeds, the parties sign a settlement

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 7/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

agreement incorporating the terms and conditions of the agreement or they can simply enforce the
agreement. The definition of the Negotiation process, and how the process occurs differs across
cultures.

What is 'Position-Based Negotiation'?

'Position-Based Negotiation' is a term that describes the traditional approach to Negotiation, in

which the parties are firmly committed to their bargaining positions. It exchanges proposals and
counter proposals in the anticipation that one or more parties will compromise to achieve a dispute
settlement that satisfies all parties.

What are Facilitated Negotiations and what is the role of a Facilitator?

The Negotiations which have a coordinator known as Facilitator are called Facilitated Negotiations.
Facilitated Negotiations are assisted by a qualified Facilitator. He runs the meetings, keeps the
parties focused, guides them in the process, encourages ground rules, and takes notes. He helps
the parties with divergent views to reach a goal or complete a task to the mutual satisfaction. He
improves the definition of issues, develops options, keeps on task, and ultimately increases the
likelihood that a consensus will be reached.

Expert Determination

What is Expert Determination?

Expert Determination is a non-binding and flexible ADR process in which the parties agree to
appoint an independent third party, who is expert in a particular field, to adjudicate on a dispute
within the field of his expertise. The parties may settle the dispute based on Expert Determination.
The decision of the expert is not binding on the parties but it opens the doors for an amicable
settlement.

When Expert Determination is useful?

Expert Determination is useful for determination of technical or legal disputes that require technical
expertise or evaluation by an expert to assist the parties to settle the dispute. In construction
contracts, the dispute relating to quantities is generally settled, based on the measurements
recorded by an expert appointed by the parties. Construction contracts generally have a clause in
the contract for determination of technical issues by an expert engineer or architect prior to
Arbitration. Expert Determination is also useful where the parties want to reduce the cost of
litigation or Arbitration and they are genuinely interested in an early and fair settlement.

What are the advantages of Expert Determination?

Expert Determination is an ADR process, which is very simple and does not require formal
meetings and presentation of pleading and evidence. It is an efficient, economical and efficient
process in which the parties can maintain a cordial relationship.

How does the Expert Determination proceed?

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 8/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

The procedure for an Expert Determination is decided by the parties or the expert. The process is
very flexible and efficient which may involve following steps:

(a) a meeting between the expert and the parties to decide the process for the
determination;

(b) providing relevant information or evidence to the expert;

(c) a visit to the site of dispute for determination by the expert;

(d) decision by the expert;

(e) consideration of the decision by the parties;

(f) settlement of the dispute.

Early Neutral Evaluation

What is 'Early Neutral Evaluation'?

'Early Neutral Evaluation' is an ADR process which is preventive in nature, the object of which is to
settle the dispute amicably at the earliest stage. It is non-binding, flexible and confidential process
in which a person experienced in the subject matter of the dispute is appointed by the parties for
'Early Neutral Evaluation' known as 'Evaluator' at the outset of the dispute. 'Early Neutral
Evaluation' provides the parties with an early and confidential evaluation of the merits of a dispute
at the initial stage. The Evaluator studies all materials provided to him, performs independent
research into the relevant case law, considers presentations carefully, clarifies positions and facts
through questioning and then he prepares an evaluation report.

How does 'Early Neutral Evaluation' proceed?

The Evaluator convenes a meeting to listen the parties who outline the key element of the dispute.
The Evaluator assesses the merits of case of each party and identifies the main issues to explore
possibilities of settlement. If there is no settlement, the Evaluator may assist the parties by making
procedural recommendations.

The Evaluator gives a non-binding decision indicating the way in which he considers the dispute
would be determined by a Judge or Arbitrator.

'Early Neutral Evaluation' may be conducted without an oral hearing. If the parties so desire, a
short hearing can be held to facilitate evaluation. The procedure at the hearing is determined by
the Evaluator but witnesses are not normally heard. The parties make short submissions within a
time limit set by the Evaluator. Settlement is very often achieved between the parties on the basis
of the evaluation. The parties may, if they wish, agree to be bound by the decision of the Evaluator.

The 'Early Neutral Evaluation' process is very useful where the dispute involves a difficult point of
law or interpretation of a contract that prevents the parties from successfully conciliating the
dispute or otherwise reaching settlement.

Lok Adalat

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 9/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

What is Lok Adalat? Write a short note on Lok Adalat

Lok Adalats are extempore Courts created as per the requirement of the people of a particular
area. Camps of Lok Adalat were started initially in Gujarat in March 1982 and now they have been
extended throughout the country. The evolution of this movement was a part of the strategy to
relieve heavy burden on the Courts with pending cases. The reason to create such camps was only
to dispose of the pending cases and to give relief to the litigants who were in a queue to get
justice. The seekers of justice are in millions and it is becoming rather difficult for the Courts to
cope up with the ever-increasing cases with the present infrastructure and manpower. Lok Adalats
are organized with financial assistance by the government and monitored by the judiciary. Lok
Adalats have set Conciliation process in motion in India. In Lok Adalat, voluntary efforts are aimed
at bringing about settlement of disputes between the parties through conciliatory and persuasive
efforts, and provide speedy and inexpensive justice. Members of Lok Adalats act as Conciliators.
Lok Adalats have assumed statutory recognition under the Legal Services Authorities Act, 1987.

Section 19 of the Legal Services Authorities Act, 1987 provides for organisation of Lok Adalats. The
section lays down that every State Authority or District Authority or the Supreme Court Legal
Services Committee or every High Court Legal Services Committee or, as the case may be, Taluk
Legal Services Committee may organise Lok Adalats at such intervals and places and for exercising
such jurisdiction and for such areas as it thinks fit.

The section further provides that every Lok Adalat organised for an area shall consist of such
number of-

(a) serving or retired judicial officers; and

(b) other persons,

of the area as may be specified by the State Authority or the District Authority or the Supreme
Court Legal Services Committee or the High Court Legal Services Committee, or as the case may
be, the Taluk Legal Services Committee, organising such Lok Adalat.

Sub-section (5) of section 19 of the Legal Services Authorities Act, 1987 lays down that a Lok
Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement between
the parties to a dispute in respect of-

(i) any case pending before; or

(ii) any matter which is falling within the jurisdiction of, and is not brought before, any court
for which the Lok Adalat is organised:

Provided that the Lok Adalat shall have no jurisdiction in respect of any case or
matter relating to an offence not compoundable under any law.

Section 21 of the Legal Services Authorities Act lays down that every award of the Lok Adalat shall
be deemed to be a decree of a civil court or, as the case may be, an order of any other court and
where a compromise or settlement has been arrived at, by a Lok Adalat in a case referred to it

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 10/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

under section 20(1), the court-fee paid in such case shall be refunded in the manner provided
under the Court Fees Act, 1870.

Every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and
no appeal shall lie to any court against the award.

Nayaya Panchayat and Gram Nayayalaya

What is Nyaya Panchayat?

Nyaya Panchayats are village Courts with civil, criminal and revenue powers as granted to them
under certain laws. Panchayat Courts also function in some States under various names like Nyaya
Panchayat, Panchayat Adalat, Gram Nyayalya, Kachheri, etc. to decide civil and criminal disputes of
petty and local nature.

Article 243B of the Constitution of India provides for the establishment of Panchayats at the village,
intermediate and district levels in every state. In ancient times, the village Panchayats comprising
of the elders, had administrative and judicial powers and exercised full control over the
villages.Now a days, Nyaya Panchayats are established under statutory enactments in many States
like Uttar Pradesh, Madhya Pradesh and West Bengal.

What is the History of Nyaya Panchayat?

The concept of Nyaya Panchayat was very popular and prevalent in ancient India. There was a
tradition of Nyaya Panchayats. In fact, the Panchayat, in its original conception was, primarily, an
instrument of law and order, a means of Conciliation and Arbitration within the community. The
awards were known as decisions of Panchayats, commonly known as Panchs. There were three
grades of judges or Panchs in ancient India, namely Puga, Sreni and Kula. The decision of
Panchayat was subject to revision. A decision given by a Kula could be revised by a Sreni and
further by way of second revision, it could be revised by a Puga. The decisions of the Panchayats
were of binding nature in law in force in those times.

During the ancient Hindu period, the villages enjoyed autonomy and were governed by the
Panchayats, which exercised administrative and judicial powers. These village bodies received a
setback under the Muslim rule and almost disappeared, though they were there in their old form
under the British, confining their authority only to the social life of the village community.

What is the jurisdiction of Nyaya Panchayats?

The Panchayat adalats, now called Nyaya Panchayats, were established in the Mainpuri district in
1949 under the U.P. Panchayat Raj Act, 1947, to adjudicate upon petty civil and criminal disputes
arising in the rural areas. The jurisdiction of a Nyaya Panchayat usually extends over an area of five
to ten Gram Sabhas, depending on the population of the constituent villages. Their scope, powers
and functions have been defined in the Act referred to above, and revisions against their decisions
lie to Sub-divisional Magistrates in criminal cases and to Munsifs in civil suits.

The jurisdiction and powers of the Nyaya Panchayats depends upon the respective statute under
which it is constituted. It is a matter of State list as given in the Constitution. In U.P. State, the

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 11/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

Nyaya Panchayats are empowered to try cases as given below:

(a) All cases under Panchayati Raj Act.

(b) The selected sections of I.P.C. i.e. involving property not exceeding an amount of Rs. 50
in value.

(c) The Nyaya Panchayats have original jurisdiction to try civil suits up to a valuation of Rs.
500.

(d) Any dispute not pending in any Court in accordance with some settlement compromise
on oath, if the parties concerned agree in writing to such a course. They are not authorized
to award sentences of imprisonment and can impose fines up to hundred rupees only.

(e) Any other cases as conferred by appropriate Government from time to time.

How Nyaya Panchayats are constituted?

The Nyaya Panchayat is a matter of State list; hence it is constituted under the respective State
law. Generally, the Panchs of Nyaya Panchayats are nominated from amongst the elected Panchs of
the Gram Panchayats by the District Magistrate with the assistance of an advisory body.

Members of the village Sabhas may also be nominated as Panchs in case the members of village
Panchayats with requisite qualifications are not available. These Panchs elect from among
themselves the Sarpanch, who is the Presiding Officer and an Assistant Sarpanch to assist him. The
Panchs are honorary workers and hold office for a period of 5 years. Their term may be extended
by another year by the State Government. The cases are heard and disposed of by benches
consisting of 5 Panchs. The presence of at least three Panchs including a sarpanch is essential at
every hearing.

Tribunals and Commissions

What are tribunals and why they are established?

The tribunal system was evolved in our country to provide an alternative to the regular Courts. The
tribunals are presided over by the experts of the respective fields and are not only less costly in
comparison to regular Courts but also they effectively resolve the disputes by taking much less
time in comparison to the regular Courts. Examples of tribunals are-Central Administrative
Tribunal, Income Tax Appellate Tribunal, Central Excise and Service Tax Appellate Tribunal etc.

Tribunals are established under varied circumstances, for example Article 323A of the Constitution
of India provides for the establishment of Administrative Tribunals for trial of disputes and
complaints with respect to recruitment, conditions of service of persons appointed to public
services and other allied matters. Article 323B of the Constitution makes provision for creation of
tribunals for judging or trial of disputes, complaints or offences connected with tax, foreign
exchange, industrial and labour disputes, land reforms, ceiling on urban property, election to
Parliament and State Legislature etc. The Parliament has power to enact any law under Article
323A while both Parliament and Legislatures can make laws on matters under Article 323B.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 12/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

Development of Alternative Dispute Resolution System in India

What is the history of development of law of Arbitration in India?

In India, an alternative system is available to the disputing parties including Arbitration,

Conciliation, Mediation, Negotiation etc. Arbitration was very popular and prevalent in ancient India
and awards were known as decisions of panchayat, which were binding in nature. During the British
Rule in India, the panchayat system was not abrogated. In West Bengal Regulation of 1772, a
provision for arbitration was made and subsequent Regulations also provided for arbitration in
certain matters. The Legislative Council for India came into existence in 1834 and Civil Procedure
Code, 1859 was enacted\ which also dealt with law of arbitration. The next Code of Civil Procedure
of 1882 repeated the same provisions about arbitration. Indian Arbitration Act was enacted in 1899
on the lines of English Arbitration Act, 1889. It made provision for reference of disputes, present as
well as future, to arbitration without intervention of the court. The Indian Arbitration Act, 1940
consolidated and amended the laws relating to domestic arbitration very exhaustively. There were
two more Arbitration Acts in India in relation to foreign

awards namely - the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards
(Recognition and Enforcement) Act, 1961, which were enacted in compliance of International
Conventions to which India was a party. Thus, the law of arbitration was scattered in three
enactments. The Arbitration and Conciliation Act, 1996 had amended and consolidated the law of
arbitration and repealed all the three enactments. The 1996 Act is based on the Model Law on
International Commercial Arbitration recommended by United Nations Commission on International
Trade Law (UNCITRAL).

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 13/14
5/6/24, 10:14 AM Arbitration and ADR - Introductory

© Universal law Publishing Co.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/Introductory.htm#General 14/14
5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

THE ARBITRATION AND CONCILIATION ACT, 1996

CHAPTER 1

GENERAL PROVISIONS OF ARBITRATION

I. OBJECTS AND REASONS OF THE ACT

Briefly discuss the objects of the Arbitration and Conciliation Act, 1996

The law on arbitration in India was substantially contained in three enactments, namely - the
Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards
(Recognition and Enforcement) Act, 1961. The Arbitration Act, 1940 was widely felt to have
become outdated. The Law Commission of India, several representative bodies of trade and
industry and experts in the field of arbitration had proposed amendments to this Act to make it
more responsive to contemporary requirements. It was also felt that economic reforms taking place
in India may not become fully effective if the laws dealing with settlement of both domestic and
international commercial disputes remains out of tune with such reforms. Conciliation, like
arbitration is also getting worldwide recognition as an instrument for settlement of disputes.

The United Nations Commissions on International Trade Law (UNCITRAL) adopted the 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. The UNCITRAL also adopted a set of Conciliation Rules in 1980.
The General Assembly of the United Nations has recommended the use of these Rules in cases
where the disputes arise in the context of international commercial relations and the parties seek
amicable settlement of their disputes by recourse to conciliation. An important feature of the said
UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and
conciliation of different legal systems of the world and thus contain provisions which are

designed for universal application. The UNCITRAL Model Law and Rules, though, are intended to
deal with international commercial arbitration and conciliation, they could, with appropriate
modifications, serve as a model for legislation on domestic arbitration and conciliation.

In India, in order to consolidate and amend the law relating to domestic arbitration, international
commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to
conciliation, taking into account the Model Law and Conciliation Rules adopted by the UNCITRAL,
the President of India promulgated on 16th January, 1996, the Arbitration and Conciliation
Ordinance, 1996 as the Parliament was not in session and the circumstances existed which
rendered it necessary to take immediate action. The ordinance could not be replaced by an Act as
the Parliament session was prorogued without passing the Bill. But in order to give further
continued effect to the provisions of the said Ordinance, the President promulgated the Arbitration
and Conciliation (Second) Ordinance, 1996 on 26th March, 1996 which could also not be passed by
the Parliament. On 21st June, 1996, the President promulgated the Arbitration and Conciliation
(Third) Ordinance, 1996. To replace the Ordinance of 21st June, 1996, the Arbitration and

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 1/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

Conciliation Bill was introduced in the Parliament. The Bill was passed by both the Houses of
Parliament and received the assent of the President on 16th August, 1996 and was titled as the
Arbitration and Conciliation Act, 1996.

The main objects of the Act are-

(i) to comprehensively cover international and 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 minimise 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 awards to which India as a party applies, will be treated as a foreign award. .

Extent and Commencement of the Act

The Arbitration and Conciliation Act, 1996 extends to the whole of India:

Provided that Parts I, III and IV of the Act shall extend to the State of Jammu and Kashmir only
insofar as they relate to international commercial arbitration or as the case may be international
commercial conciliation.

The Act of 1996 came into force on 22nd August, 1996. But the Arbitration and Conciliation
Ordinance as promulgated by the President of India on 16th January, 1996 came into force on 25th
January, 1996 and till the Act of 1996 came into force on 22nd August, 1996, two Arbitration and
Conciliation Ordinance were passed on 26th March, 1996 and 21st June, 1996 respectively.

Scheme of the Act

The Arbitration and Conciliation Act, 1996 has four Parts.

As per section 2(2) the provisions of Part I (section 2 - section 43) apply only where the place of
arbitration is in India. Sub-section 3 of section 2 lays down that Part I of the Act shall not affect

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 2/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

any other law by virtue of which certain disputes may not be submitted to arbitration. An award
made under the provisions of Part I shall be considered as a domestic award [section 2(7)]. Part II
(section 44 - section 60) of the Act provides for enforcement of certain foreign awards. The
provisions contained in Part III (section 61 - section 81) deals with conciliation and Part IV (section
82 - section 86) lays down some supplementary provisions.

The three Schedules of the Act are-

First Schedule - Convention on the recognition and enforcement of foreign arbitral award.

Second Schedule - Protocol on arbitration clauses.

Third Schedule - Convention of the execution of foreign arbitral award.

II. DEFINITIONS

Arbitration

Define the term arbitration

Section 2(1)(a) lays down that arbitration means any arbitration whether or not administered by
permanent arbitral institution.

This definition does not give a clear picture about what arbitration is. So, let us look at some
authoritative definitions of arbitration. According to Black's Law Dictionary, arbitration is a method
of dispute resolution involving one or more neutral third parties who are agreed to by the disputing
parties and whose decision is binding. According to Halsbury's Laws of England (4th Edn.,) an
arbitration is the reference of a dispute or difference between not less than two parties for
determination, after hearing both sides in a judicial manner, by a person or persons other than a
court of competent jurisdiction. According to Ronald Bernstein, where two or more persons agree
that a dispute or a potential dispute between them shall be decided in a legally binding way by one
or more impartial persons in a judicial manner, that is upon evidence put up before him or them,
the agreement is called an arbitration agreement or a submission to an arbitration. In his words,
"In an arbitration your claim, instead of being heard publicly in court and decided by a judge, is
heard privately by one, two or three persons (arbitrators) chosen by agreement between you and
the person against whom you are claiming (the respondent); or, if you cannot agree upon the
choice, chosen by someone whom you have agreed upon to choose; if all else fails, chosen by the
Court. The procedure for deciding your claim can, if you insist, be almost as formal as if you had
gone to court. But it is much more likely to be a relaxed and informal procedure...... If there is a
hearing, it will be in private...... Above all, it is in most cases much quicker than going to court.
And when the arbitrator has made his decision (which is called an "award"), it can be enforced as if
it were an order of the court". According to M.A. Sujan, arbitration in popular parlance may be
defined as a private process set up by the parties as a substitute for court litigation to obtain a

decision on their disputes.1

Thus, arbitration is an alternative to the Court litigation and is advantageous insofar as it offers
procedural flexibility and confidentiality. It also ensures a speedy resolution of the dispute(s)

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 3/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

between the parties. At one time, arbitration was regarded as ousting the jurisdiction of the courts
but in Scott

v. Avery, (1856) 5 HL Cas 811, it was held that arbitration do not oust the jurisdiction of the court
and hence, legal. But an arbitration agreement cannot totally oust the jurisdiction of courts over
the subject matter of arbitration. If it does so, the agreement itself become void as being contrary
to public policy. In the words of Sir John Donaldson, MR, arbitrators and Judges are partners in the
business of dispensing justice, the Judges in the public sector and the arbitrators in the private

sector.2

What are the different types of arbitration?

Types of Arbitration

(a) Domestic arbitration.-Domestic arbitration means an arbitration proceeding which takes

place in India and in accordance with the Indian law and the cause of action wholly arisen in
India between the parties who are subject to Indian jurisdiction.

(b) International commercial arbitration.-International commercial arbitration means an

arbitration relating to disputes arising out of legal relationship, whether contractual or not,
considered as commercial under the law in force 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. [Section 2(1)(f)]

_________________

1.M.A. Sujan: Law of Arbitration.

2.Quoted by Ronald Bernstein in the Handbook of Arbitration Practice.

In an international arbitration there are elements of foreign origin in relation to the

parties or the subject-matter of the dispute.

(c) Institutional arbitration.-This type of arbitration is administered by an arbitration

institution. The parties to an arbitration agreement may stipulate in the agreement to refer
the dispute between them to an arbitration institution for resolution. The Indian Council of
Arbitration (ICA), New Delhi, Federation of Indian Chambers of Commerce and Industry,
New Delhi, and International Center for Alternative Dispute Resolution (ICADR), New Delhi
are the leading arbitration institutions in India.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 4/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

(d) Statutory Arbitration.-Some Central and State Acts provide for resolution of disputes
arising under the Act by arbitration. Section 2(4) of the Arbitration and Conciliation Act
provides that except sections 40(1), 41 and 43, Part I of the Act shall apply to every
arbitration under any other enactment as if the arbitration were pursuant to an arbitration
agreement and as if that other enactments were an arbitration agreement, unless the
provisions of Part I are inconsistent with that other enactment or with any rules made
thereunder.

In the case of any inconsistency between the provisions of that Act and the provisions of
Part I of the Arbitration Act, the provisions of that Act will prevail.

(e) Ad hoc arbitration.-Ad hoc arbitration refers to arbitration where the procedure is either
agreed by the parties or in the absence of an agreement, the procedure is laid down by the
arbitral tribunal at a preliminary meeting once the arbitral tribunal has been constituted. In
ad hoc arbitration, the Arbitration is agreed to and arranged by the parties themselves
without any assistance from an Arbitral Institution. If the parties do not agree as to the
person who will be the Arbitrator or if one of the parties is reluctant as to the choice of the
Arbitrator or in appointing the Arbitrator, the other party will have to resort to court for
relief under section 11 of the Arbitration and Conciliation Act. In ad hoc arbitration, the fees
of the Arbitrator is agreed upon by the parties or fixed by the arbitral tribunal.

(f) Fast track arbitration or document only arbitration.-Fast track arbitration is a specialised
type of arbitration, which is very fast and time bound. It can be adopted for the resolution
of international as well as domestic disputes. The agreement for the resolution of dispute
through fast track arbitration is the same as for the ordinary arbitration, except that, in
addition to the provision for arbitration, it provides that the parties have agreed for fast
track arbitration. The parties can adopt the Fast Track Arbitration Rules of any institution for
the speedy and time bound resolution of their dispute. Fast track arbitration is suitable for
those disputes where the parties wish a resolution of disputes very fast, such as within a
few days or few weeks.

Documents only arbitration is based only on the claim statement and statement of defence
and a written reply by the claimant if any. The written submission by the parties may be in
the form of letters written to the tribunal or may be a formal document produced by
lawyers.

(g) Look-sniff arbitration.-Look-sniff arbitration or quality arbitration is a combination of the

arbitral process and expert opinion. The arbitrator in this type of arbitration is a person
having special knowledge and expertise in a particular area of business. The expert in the
field examines the commodity concerned or its samples and gives to the parties his decision
on the quality of the goods based on such inspection. There are no formal hearings or
submissions by the parties.

(h) Flip-flop arbitration or pendulum arbitration.-In this type of arbitration, the parties
formulate their cases beforehand and then they invite the arbitrator to chose one of the
two. The arbitrator makes an award favouring any one of the parties. He cannot decide

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 5/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

somewhere in between. He must, after hearing the evidence adduced by the parties, decide
as to the case of which of the parties is correct. In this type of arbitration, the party who
inflates his claim may loose everything.

This type of arbitration is also called baseball arbitration.

Advantages and Disadvantages of Arbitration

Discuss the advantages and disadvantages of arbitration

Advantages-

(i) Parties are free to appoint the person of their choice as arbitrator.

(ii) Arbitration entitles the parties to agree upon procedural rules to be followed by the
arbitral tribunal in conducting the proceeding.

(iii) Much less expensive and less time consuming than court litigation.

(iv) Ensures a fair trial by an impartial tribunal.

(v) Arbitration gives the parties freedom from judicial intervention except where otherwise
provided in the Act.

(vi) Parties have the freedom to choose a place for the arbitration proceedings.

(vii) Arbitration proceedings are conducted in private and are protected by the laws of
privilege and confidentiality.

(viii) It is not necessary to appoint lawyers for representing the parties in the arbitration
proceedings. The parties may represent themselves in person or they may appoint
specialists and experts in a particular field e.g., Engineers, Scientists etc. for representing in
the arbitration proceedings.

(ix) An arbitral award has the enforceability like a decree of a Court. Further foreign arbitral
awards are also enforceable under the Arbitration and Conciliation Act, 1996.

Disadvantages-

(i) Though arbitration is regarded as an expeditious and less expensive method of resolution
of disputes between the parties but it cannot always guarantee an expeditious resolution of
dispute. The arbitrator also charge substantial amount of fees. Further, under certain
circumstances, an expeditious disposal of the dispute may be advantageous for one party
while for the other it may be disastrous.

(ii) The procedure in an arbitral proceeding although is flexible but is uncertain and will
have to be ascertained by the parties which may prove to be expensive.

(iii) Some benefits are available only in court litigation and not in arbitration, e.g.
injunction.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 6/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

(iv) The lack of procedural rigidity in arbitral proceeding may make the arbitral procedure
less effective than court procedure.

(v) In case of multi party dispute relating to the same subject-matter, it is often difficult to
join the parties to arbitration and to consolidate the arbitration proceedings.

Arbitration Agreement

Define Arbitration Agreement

Section 2(1)(b) provides that "arbitration agreement" means an agreement referred to in section 7.

According to section 7(1), "arbitration agreement" means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in respect of
a defined legal relationship, whether contractual or not.

For detailed discussion on arbitration agreement, see Chapter 2.

Arbitral Award

What is meant by arbitral award?

Section 2(1)(c) only lays down that an arbitral award includes an interim award and does not
clearly define what an arbitral award is.

In simple language, an arbitral award is the expression by an arbitral tribunal of adjudication of a

dispute between the parties before the tribunal. In H.G. Bajaj v. Share Deal Finance Consultants
Pvt. Ltd., MANU/MH/0864/2002 : AIR 2003 Bom 296, it was held that an arbitral award is the final
determination of a claim or part of a claim or counter-claim by the Arbitral Tribunal. Section 31
provides that an arbitral award shall be made in writing and shall be signed by the members of the
arbitral tribunal. If the arbitral tribunal consists of more than one arbitrator, it will be sufficient if a
majority of the members of the tribunal sign it provided reasons are given for the omitted
signatures.

An arbitral award, as long as clear and unambiguous, cannot be flawed merely because it does not
subscribe to any particular format. Thus an unstamped or insufficiently stamped award is a curable
irregularity, but not vitiating the award [Subhash Projects and Marketing Ltd. v. Assam Urban
Water Supply and Sewerage Board, 2003 (Supp) Arb LR 382 (Gau) (DB)].

Types of Award

What are the different types of arbitral award contemplated under the Arbitration and
Conciliation Act, 1996?

The following four types of award are contemplated under the Arbitration and Conciliation Act,
1996,-

(i) Interim award - An interim award is the determination of some preliminary issue(s)
arising out of the dispute. It is a temporary or provisional arrangement and is subject to
final determination of the dispute. An interim award should clearly specify as to which of the

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 7/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

claims or issues it relates, otherwise the award may be liable to be set aside under section
34. An interim award is final with respect to those issues which it has decided and is binding
on the parties and persons claiming under them.

(ii) Additional award - Section 33(4) lays down that where a party on receipt of an arbitral
award finds that it has omitted to decide certain claims which were presented in the arbitral
proceedings, in the absence of an agreement to the contrary, that party on a notice to the
other within thirty days from the receipt of the award, may make a request to the arbitral
tribunal to make an 'additional award' with respect to the claims so omitted. If the arbitral
tribunal considers the request made is justified, it shall make the additional arbitral award
within sixty days of receipt of the request [Section 33(5)]. However, the arbitral tribunal
may extend the time limit for making the additional award [Section 33(6)].

(iii) Settlement or agreement awards - This type of award is made on the basis of the terms
of a settlement or agreement between the parties.

Section 30(2) provides that if, during an arbitral proceeding, the parties settle the dispute,
the arbitral tribunal shall terminate the proceedings and if requested by the parties and not
objected to by the arbitral tribunal, record the settlement in form of an arbitral award or
agreed terms. It is permissible for the arbitral tribunal with the agreement of the parties, to
use mediation, conciliation or other Alternative Dispute Resolution procedure at any time
during the course of arbitral proceedings for bringing about settlement between the parties
[Section 30(1)].

An arbitral award so made on the basis of agreed terms shall have the same status and
effect as any other arbitral award on the substance of the dispute [Section 30(4)]. A
settlement or agreed award is final and binding on the parties and persons claiming under
them (Section 35).

(iv) Final award - A final award of an arbitral tribunal finally determines all the issues in
dispute between the parties.

A final award determines all the issues in the arbitration once and for all. It is a complete decision
on the matters dealt with. Such an award is final and is binding on the parties and on any person
claiming under them. A final award is conclusive as to the issues with which it deals, unless and
until it is set aside by the Court under section 34 of the Act.

Foreign Awards

Write a short note on foreign award

Foreign awards are those awards which are made in foreign countries. These awards are
enforceable in India under the Arbitration and Conciliation Act, 1996. The term foreign award in
relation to the New York Convention is defined in section 44 in Chapter I of Part II of the Act. It
lays down that a 'foreign award' means an arbitral award on differences between persons arising
out of legal relationships, whether contractual or not, considered as commercial under the law in
force in India, made on or after the 11th day of October, 1960-

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 8/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

(a) in pursuance of an agreement in writing for arbitration to which the convention set forth
in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal
provisions have been made may, by notification in the official Gazette, declare to be
territories to which the said convention applies.

The term foreign award, in relation to the Geneva Convention Awards is defined in section 53 in
Chapter 2 of Part II of the Act. It lays down that "foreign award" means an arbitral award on
differences relating to matters considered as commercial under the law in force in India made after
the 28th day of July, 1924,-

(a) in pursuance of an agreement for arbitration to which the protocol set forth in the
Second Schedule (Protocol on Arbitration Clauses) applies, and

(b) between persons of whom one is subject to the jurisdiction of some one of such powers
as the Central Government, being satisfied that reciprocal provisions have been made, may,
by notification in the Official Gazette, declare to be parties to the convention set forth in the
Third Schedule (Convention of the Execution of Foreign Arbitral Awards), and of whom the
other is subject to the jurisdiction of some other of the powers aforesaid, and

(c) in one of such territories as the Central Government, being satisfied that reciprocal
provisions have been made, may, by like notification, declare to be territories to which the
said convention applies.

A foreign award under Chapter 2 of Part II of the Act (dealing with Geneva Convention Award) shall
not be deemed to be final if any proceedings for the purpose of contesting the validity of the award
are pending in the country in which it was made.

The New York Convention Award and the Geneva Convention Award are enforceable in India under
sections 48 and 57 of the Arbitration and Conciliation Act, 1996.

Arbitral Tribunal

What is an arbitral tribunal?

Section 2(1)(d) says that an "arbitral tribunal" means a sole arbitrator or a panel of arbitrators.

An arbitral tribunal is creature of agreement. The parties to the arbitration confer upon it such
power and prescribe such procedure as they deem fit. However, the agreement which creates an
arbitral tribunal must be in conformity with law and the tribunal must also act and make its award
in accordance with the law of the land and the agreement. [Irrigation Deptt. Govt. of Orissa v. G.C.
Roy, MANU/SC/0142/1992 : (1992) 1 SCC 508].

Section 10 says that the parties to an arbitration are free to determine the number of arbitrators.
But such number shall not be an even number. In the case of failing of parties to determine the
number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.

Under section 11 of the Act, the parties can agree on a procedure for appointing an arbitrator.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 9/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

An arbitrator may be a person of any nationality unless otherwise agreed by the parties [Section
11(1)].

The appointment of an arbitrator may be challenged under the provisions of section 12 if-

(a) circumstances exist that give rise to justifiable doubts as to his independence or
impartiality, or

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

Court

Define the expression ‘court’ as defined in the Arbitration and Conciliation Act, 1996

Section 2(1)(e) defines the expression 'Court' as the principal civil court of original jurisdiction in a
district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having
jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had
been the subject- matter of a suit, but does not include any civil court of a grade inferior to such
principal Civil Court, or any Court of Small Causes.

Thus Court under the Arbitration and Conciliation Act, 1996 means-(i) principal Civil Court of
original jurisdiction in a district, and (ii) the High Court in exercise of its ordinary original civil
jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the
arbitration.

But any civil court of a grade inferior to a principal civil court or a court of small causes does not
come under the purview of the term court as defined under section 2(1)(e) of the Act.

Definition of "Court" under section 2(e) excludes any civil court inferior to principal civil court in
district or any court of small causes. The District Courts are deemed to be Principal Civil Court of
original jurisdiction. The "Principal District Judge" of district alone will have jurisdiction to decide
question forming subject-matter of arbitration and not other court (S.M. Suparies M/s v. Karnataka
Bank, AIR 2011 Karn 38).

The principal Civil Court of original jurisdiction in a district is the District Court [Ankati Satyamaiah
v. Sallangula Lalaiah, (2003) 2 Arb LR 431 (435) (AP)]. In a district, the court of District Judge is
the 'principal Civil Court' for the purposes of the Act. The expression District Judge includes
Additional District Judge and Joint District Judge.

In the definition of court under section 2(1)(e), a High Court having ordinary original jurisdiction is
also included within the expression 'principal

Civil Court of original jurisdiction'. Only three High Courts in India have ordinary original civil
jurisdiction. These High Courts are the High Courts of Calcutta, Delhi and Bombay. Thus, only the
High Courts in these cities are the 'principal Civil Court' for the purposes of the Act.

Any civil court of a grade inferior to the principal Civil Court and any court of small causes are
expressly excluded from the purview of the term court under section 2(1)(e). An interesting case
on this point is Surat Singh v. State of Himachal Pradesh, 2003 (3) Arb LR 606 (HP)(DB). In this

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 10/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

case, an arbitral award was challenged by an application under section 34 of the Act, before the
High Court of Himachal Pradesh. The Court directed the application to be returned for presentation
to the Court of Senior Sub-Judge, Shimla because it did not have the pecuniary jurisdiction in the
case for setting aside the arbitral award. The Senior Sub-Judge, Shimla doubted his jurisdiction to
deal with the application for setting aside the arbitral award under section 34 because his court did
not come under the definition of 'Court' in section 2(i)(e) of the Act. He referred the matter to the
Division Bench of the High Court. The Division Bench held that the Court of the Senior Sub-Judge
would not fall within the definition of 'Court' as defined in the Act and transferred the application to
the Court of District Judge, Shimla.

International Commercial Arbitration

What is International Commercial Arbitration?

Section 2(1) (f) lays down that "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 force 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.

International commercial arbitration can take place in India or in any other country. When such
arbitration takes place in India, it will be governed by Part I of the Act and award made in such
arbitration will be a domestic award.

International commercial arbitration is the result of private contract between the parties but after
an award is made in the arbitration proceedings, its enforcement assumes a public character and
can be enforced by the municipal courts of a country through its local laws.

A foreign award is enforceable in India under sections 49 and 58 of the Act and it is immaterial
whether or not the arbitration agreement was governed by the law in India.

Legal Representative

Define the expression 'legal representative' as defined in the Arbitration and Conciliation Act,
1996

Section 2(1)(g) defines the term legal representative as a person who in law represents the estate
of a deceased person, and includes any person who intermeddles with the estate of the deceased,
and, where a party acts in a representative character, the person on whom the estate devolves on
the death of the party so acting.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 11/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

Three types of persons are included in the definition of legal representative under section 2(1)(g).
They are-(i) a person who in law represents the estate of a deceased person; (ii) a person who
intermeddles with the estate of the deceased; and (iii) a person on whom the estate of the
deceased devolves where the deceased was acting in a representative character.

When a party to an arbitration agreement dies, his legal representatives are entitled to submit the
dispute arising out of the contract to arbitration and the award made in the arbitration proceedings
is final and binding on the legal representatives. If a person dies intestate, the definition would
cover the legal heir and successors of the deceased.

The definition includes an intermeddler as a legal representative. An intermeddler is a person who

confers a benefit on another without being requested or having a legal duty to do so, and who

therefore has no legal grounds to demand restitution for the benefit conferred.1 In Chocklingam v.
Kruppan, MANU/TN/0272/1947 : AIR 1948 Mad 386, it was held that the term intermeddler has
been used in the sense as executor de son tort, i.e. a person who, without legal authority, takes on
the responsibility to act as an executor or administrator of a decedent's property to the detriment
of the estate's beneficiaries or creditors. In Andhra Bank Ltd. v. R. Srinivasan,
MANU/SC/0022/1961 : AIR 1962 SC 232, it was held that even if a person intermeddles with a part
of the estate of the deceased, he is a legal representative and is liable to the extent of the property
in his possession. Where the claim is of a representative character, a person on whom the estate
devolves on the death of the party to arbitration acting in a representative capacity, is a legal
representative. [Sumshwar Bind v. Baldeo Sahu, MANU/UP/0462/1934 : AIR 1935 All 390]. It is to
be noted that an arbitral award to be binding on the legal representatives of a decreased party to
the arbitration agreement must be made after bringing the name of the legal representatives on
record of the arbitral proceedings.

Party

Define the term 'party' as defined in the Arbitration and Conciliation Act, 1996

Section 2(1)(h) lays down that "party" means a party to an arbitration agreement.

For becoming a party to an arbitration agreement, a person (natural or artificial) must be eligible to
enter into a contract under section 11 of the Indian Contract Act, 1872, every person who is of the
age of majority according to the law to which he is subject, and who is of sound mind and is not
disqualified from contracting by any law to which he is subject, has the capacity to enter into a
contract. Thus, a minor or a lunatic cannot be a party

_______________

1. Black's Law Dictionary, 7th Edn., p. 1114.

to an arbitration agreement. Further, any person who was disqualified by any law cannot be a party
to an arbitration agreement. A person who is usually of sound mind, but occasionally of unsound
mind, loses the capacity to contract during the period when he is of unsound mind but can enter
into contract during the period when he is of sound mind.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 12/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

A contract entered into by a minor is void ab initio. But a joint contract entered into by a major
party and a minor party is enforceable against the major party but not enforceable against the
minor party [Jamna Bai v. Vasant Rao, 43 IA 99]. The provisions as to lunacy or minority does not
effect the contractual capacity of artificial persons like companies, societies etc. but these legal
persons cannot enter into a contract if prohibited by any law to enter into a contract.

Scope and applicability of Part I (Section 2 - Section 43)

Section 2(2) provides that Part I of the Act shall apply where the place of arbitration is in India.

In Bhatia International v. Bulk Trading S.A., MANU/SC/0185/2002 : AIR 2002 SC 1432, the
Supreme Court interpreting the words of section 2(2) that "This Part shall apply where the place of
arbitration is in India", observed that it is not provided in section 2(2) that Part I shall not apply
where the place of arbitration is not in India nor that Part I will 'only' apply where the place of
arbitration is in India. Concluding from this the Court held that the provisions of Part I would apply
to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India,
the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent
permitted by the derogable provisions of Part I. In case of international commercial arbitrations
held out of India, provisions of Part I would apply unless the parties by agreement, express or
implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties
would prevail. Any provision in part I which is contrary to or excluded by that law or rules will not
apply.

According to the Court such an interpretation of section 2(2) is necessary otherwise there would be
a lacunae in the Act as neither Part I nor Part II would apply to arbitrations held in a country which
is not a signatory to the New York Convention or the Geneva Convention (i.e. a convention
country) and it would mean that there is no law, in India, governing such arbitrations. Further, a
contrary interpretation of section 2(2) will lead to an anomalous situation, inasmuch as Part I
would apply to Jammu and Kashmir in all international commercial arbitrations but Part I would not
apply to the rest of India if the arbitration takes place out of India. The Court was of the view that
if the provisions of Part I is not made applicable to an arbitration proceeding held in a country other
than India, a party would be left remediless inasmuch as in international commercial arbitrations
which take place out of India. The party would not be able to apply for interim relief in India even
though the properties and assets are in India. Thus a party may not be able to get any interim
relief at all.

Thus, the present position of law after the decision of the Supreme Court in Bhatia International
case, MANU/SC/0185/2002 : AIR 2002 SC 1432, is that an award made in international commercial
arbitration held in a non-convention country is a 'domestic award' and such award is enforceable
under the provisions of Part I of the Act.

Certain disputes may not be submitted to arbitration

Which disputes cannot be referred to arbitration?

Section 2(3) lays down that Part I of the Act shall not affect any other law for the time being in
force by virtue of which certain disputes may not be submitted to arbitration.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 13/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

Usually, disputes effecting civil rights where damages is the remedy can be referred to arbitration.
But there are certain disputes of civil nature which cannot be referred to arbitration because either
decisions of courts or some express provisions of law prohibits such disputes from referring it to
arbitration. Matters of criminal nature may be referred to arbitration subject to the policy of the law
permitting such matters to be compromised. If the matter is non-compoundable under law, it
cannot be referred to arbitration. In Fazal Ellahie v. Nazir Ahmed, AIR 1938 Sind 130, it was held
that arbitrators cannot assume powers of a magistrate and an arbitral award acquitting certain
persons of the offence of criminal misappropriation is a nullity.

The following is an illustrative list of disputes which cannot be referred to arbitration.

(i) Proceedings for winding up of a company under the Companies Act, 1956 [Haryana
Telecom Ltd v. Sterlite Industries, MANU/SC/0401/1999 : (1999) 5 SCC 688].

(ii) If under the law certain particular kind of disputes is to be determined by a particular
tribunal.

(iii) Insolvency proceedings including the question whether or not a certain person should
be declared to be an insolvent [Managilal v. Devicharan, MANU/NA/0022/1947 : AIR 1949
Nag 110].

(iv) Probate proceedings [Gopi Rai v. Baij Nath, MANU/UP/0201/1930 : AIR 1930 All 840].

(v) Questions of genuineness or otherwise of a Will [Khelawati v. Chet Ram, AIR Punj 67].
But disputes as to construction of a Will can be referred to arbitration [Russell on
Arbitration, 19th Edn.].

(vi) Guardianship proceedings [Sami Chetti v. A.K. Chetti, MANU/TN/0346/1923 : AIR 1924
Mad 484].

(vii) Dispute as to succession to the office of a muttawali falling within the scope of section
92 of the Code of Civil Procedure [Mahomed Ibrahim Khan v. Ahmed Said Khan, ILR (1910)
32 All 503].

(viii) Dispute as to any immovable property situated outside India [Nachiappa Chettiar v.
Subramaniam Chettiar, MANU/SC/0185/1959 : AIR 1960 SC 307].

(ix) Disputes leading to a change of status e.g. divorce petition.

(x) Disputes arising from and founded on an illegal transaction [Haji Habib Haji Peer Mohd.
v. Bhikam Chand Janakilal, AIR 1954 Nag 306].

(xi) A matter in proceedings under section 145, Cr. P.C. [Kalikanath Barman v. Rajnath
Barman, AIR 1952 Assam 118]. Arbitrators have no power to decide on the point of actual
possession. They can only submit a report and the Magistrate would then be bound to take
that report into consideration before passing an order under section 145, Cr. P.C.
[Gangadhar v. Balakrishna, MANU/NA/0074/1929 : AIR 1929 Nag 285].

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 14/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

(xii) A criminal complaint cannot be referred to arbitration [Malka v. Sardar, AIR 1929 Lah
394].

Statutory Arbitration

What is statutory arbitration?

Write a short note on statutory arbitration

Arbitration may be under an arbitration agreement entered into between the parties or it may be
under the provisions of a statute specifically providing for arbitration about matters covered under
that statute. In the latter case, where the reference to arbitration emanates from an enactment of
the Parliament or a state legislature, the arbitration is called statutory arbitration. There are many
Central and State Acts which provide for reference to arbitration of any dispute arising under that
statute. Some examples are:- Contract Act, 1872 (section 28), Electricity Act, 1910 (section 52),
Industrial Disputes Act, 1947 [sections 2(aa), 2(b) and 10A], Payment of Bonus Act, 1965 [section
2(7)] etc.

Examples of some of the State Acts are:-

Assam Land and Revenue Regulation, 1886 (section 143); West Bengal Security Act, 1950
[section 29(3)(b)]; Delhi Cooperative Societies Act, 1972 (sections 60 and 61); Punjab
Cooperative Societies Act, (Sections 55, 56 and 82) etc.

Sub-section (4) of section 2 of the Arbitration and Conciliation Act, 1996 lays down that Part
I of the Act except sections 40(1), 41 and 43 shall apply to every arbitration under any
other enactment as if the arbitration were pursuant to an arbitration agreement and as if
that other enactment were an arbitration agreement, except insofar as the provisions of
Part I are inconsistent with that other enactment or with any rules made under that Act.

In case of statutory arbitration, its parameters are circumscribed by the statute itself and
the statute is a complete code with respect to the procedure and practice of arbitration. The
award resulting from statutory arbitration is enforceable as provided in the statute itself and
such statute, generally, expressly exclude the application of the arbitration statutes. In
Mysore State Electricity Board v. Bangalore Woollen Cotton and Silk Mills Ltd.,
MANU/SC/0007/1962 : AIR 1963 SC 1128 (1134), the Supreme Court in view of the
provisions of section 76(1) of the Indian Electricity Act, 1910, held that the dispute relating
to revision of rates of tariff was not arbitrable under the Arbitration Act.

III. RECEIPT OF WRITTEN COMMUNICATIONS

When a written communication is deemed to have been received under the provisions of the
Arbitration and Conciliation Act, 1996

Section 3(1) lays down that unless otherwise agreed by the parties,-

(a) any written communication is deemed to have been received if it is delivered to the
addressee personally or at his place of business, habitual residence or mailing address, and

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 15/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

(b) if none of the places mentioned to in (a) above can be found after making a reasonable
inquiry, a written communication is deemed to have been received if it is sent to the
addressee's last known place of business, habitual residence or mailing address by
registered letter or by any other means which provides a record of the attempt to deliver it.

The arbitration award was duly sent by the arbitration with acknowledgment due. The envelop was
returned with endorsement "not claimed" was sufficiently stamped. It was held that since petitioner
failed to prove that award was not served though endorsed "not claimed". The petitioner filed after
lapse of statutory period of 120 days hence the application was barred by limitation (New Globe
Transport Corporation v. Magma Shrachi Finance Ltd., MANU/WB/0102/2011 : AIR 2011 Cal 72).

Section 3(2) then lays down that the communication is deemed to have been received on the day it
is so delivered. Thus, under the provisions of sub-sections 1 and 2 of section 3, the service of a
written communication can be made in the following ways-

1. By delivering it personally to the addressee.

2. By delivering it at his place of business, habitual residence or mailing address; or

3. If the places mentioned in 2 above cannot be found after making a reasonable inquiry,
the communication will be deemed to have been received by the addressee if it is sent to
his last known place of business, habitual residence or mailing address by a registered letter
or by any other means which provide a record of the attempt to deliver it.

4. The communication will be deemed to have been received by the addressee on the date
when it is so delivered to him.

How service of a written communication is made under the Arbitration and Conciliation Act,
1996?

In an arbitration proceeding, it is necessary to inform a party about certain procedural step or that
there are arbitration proceedings going on to which he is a party. Sometimes, addresses of a party
is not known. Section 3 of the Act thus deals with the issue as to when written communication is
deemed to have been received by the addressee. The words 'unless otherwise agreed by the
parties' in section 3(1) indicate that the parties are free to choose a particular procedural rule for
the receipt of their communication and in cases where they have not choosen any such rules, the
provisions of section 3 applies. If a person, to whom the communication is addressed, refuses to
receive it, the serving officer shall affix a copy of the document on the outer door or some other
conspicuous part of the house in which the addressee ordinarily resides or carries on business or
personally works for gain. If that is not done, the service will not be effective [Surinder Kumar v.
Union of India, 1994 (1) Arb LR 16 (Del)]. The burden of showing that the addressee has duly
received the communication lies on the serving party. [Schumacher v. Laurel Island Ltd., The Santa
Cruz Tres, (1995) 1 Lloyd's Rep. 208]. The written communication shall be deemed to have been
received by the addressee when his place of business, habitual residence or mailing address cannot
be found after mailing a reasonable inquiry and the communication is sent to the addressee's last
known place of business, habitual residence or mailing address by registered letter, it will be

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 16/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

deemed to have been received on the date the communication is delivered to the addressee at his
last known place of business etc. and not when it was sent.

Section 3(3) provides that the provisions of section 3 does not apply to written communication in
respect of proceedings of any judicial authority.

IV. WAIVER OF RIGHT TO OBJECT

What a party is said to have waived him right to object? What are the pre-conditions for waiver
of the right to object?

Section 4 of the Act provides that a party who knows that-

(a) any provision of this Part from which the parties may derogate, or

(b) any requirement under the arbitration agreement, has not been complied with and yet
proceeds with the arbitration without stating his objection to such non-compliance without
undue delay or, if a time limit is provided for stating that objection, within that period of
time, he shall be deemed to have waived his right to so object. The word waiver means
voluntary relinquishment or abandonment, express or implied, of a legal right or
advantage. The party alleged to have waived a right must have had both knowledge of the

existing right and the intention of forgoing it.1 The term waiver has been judicially defined
as the abandonment of a right in such a way that the other party is entitled to place the

abandonment by way of confession and avoidance if the right is thereafter asserted.2

Waiver is an intentional relinquishment of known right or such conduct as warrants an
inference of the relinquishment of that right. It is an intentional act and implies consent to
disperse with or forego something to which a person has a right. Waiver on the part of a
party is referable to a conduct signifying intentional abandonment of right. It may be
express or even may be implied but should be manifest from some overt act. It is a mixed
question of fact and law and must, therefore, be considered in the light of facts of each
case. [Ram Babu v. Ramprasad, 1981 Jab LJ (SN) 39]. Under the provisions of section 4,
there are four pre-conditions for waiver of the right to object:-

(i) Non-Compliance of a non-mandatory provision of the Act or arbitration

agreement.-There must be non-compliance with a non-mandatory provision of Part I
of the Act or with any covenant of the arbitration agreement by a party to the
arbitral proceedings. If a party has not complied with the requirements of any of
such provisions the other party has the right to object to the arbitral proceedings
and if he does not so object he will be deemed to have waived his right to so object.
Similarly, non-compliance with any covenant of the arbitration agreement by a party
entitles the opposite party to object to such non-compliance and if he does not
object to the non-compliance, he will be deemed to have waived his right to so
object.

(ii) Knowledge of non-compliance.-The defaulting party must have the knowledge of

such non-compliance of a non-mandatory provision or any provision of the

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 17/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

arbitration agreement before it can be deemed to have waived its right to object.
Such knowledge may be inferred from the circumstances because existence of
knowledge may be

________________

1. Black's Law Dictionary, 7th Edn., p. 1574.

2. A/e N9/264, Art. 5, para. 2.

proved by proof of circumstances from which the knowledge can be inferred. In the absence
of the knowledge of such non-compliance, there is no occasion for the party to raise his
objection, and the other party cannot set up the plea of waiver.

(iii) Proceeding with the arbitration.-If a party proceeded with the arbitration proceeding
without objecting to the breach of the statutory or contractual right, he will be deemed to
have waived his right to object. Thus, once a party has participated in the arbitration
proceedings, despite some disability, of which the party had knowledge, which would
otherwise render the arbitration proceedings invalid, he cannot later challenge it on the
ground of such illegality. If a party allows the arbitrator to proceed with the reference
without objecting to his jurisdiction or competence, he will not subsequently be heard to say
that the award be set aside on any such ground [New India Assurance Co. v. Dalmia Iron &
Steel Ltd., MANU/WB/0017/1965 : AIR 1965 Cal 42].

(iv) Failure to state objection without delay.-For the purpose of establishing the plea of
waiver, it must be shown that the defaulting party failed to state his objection as to non-
compliance of the statutory or contractual requirement without undue delay or if a time
limit is provided for stating that objection, within that period of time. If the\ party does not
state his objection without undue delay or if a time limit is provided, within that period of
time, he will be deemed to have waived his right to object. If any irregularity comes to the
knowledge of a party at the time of reference, he must state his objection in his pleading
before the arbitral tribunal and then proceed with the arbitral proceedings. In cases where
the] irregularities comes to the knowledge of a party during the arbitration proceedings but
before the award is made, he must state his objection\ forthwith and then continue with the
proceedings. By so objecting, he preserves his right to challenge the arbitral proceedings
and the resulting award at a later stage on the ground of such irregularity. But if a party
comes to know about the irregularity after the making of the award, the provision of section
4 are not attracted. However, the party can file an application under section 34 of the Act
for setting aside the award.

Distinction between Waiver and Estoppel

Distinguish between waiver and estoppel

Estoppel Waiver

1. Estoppel accentuates intentional 1. Waiver does not involve any

representation by one person to representation by one of the parties to

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 18/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

another to believe something to be true the other.It is an intentional

and act upon such belief. If the latter relinquishment of known right or such
has acted upon such belief, the former conduct as warrants an inference of
will not be allowed by the Court to the relinquishment of that right.
deny the truth of his representation in
legal proceeding.

2. Estoppel is governed by the rule of 2. Waiver is contractual and is an

evidence and it is a matter only of agreement to release or not to assert
proof. It is a matter of conduct of the a right.
person concerned who by his
representation to another has induced
the latter to alter his position.

3. In case of estoppel by representation, 3. Waiver is created upon knowledge

the fact that the plea of estoppel. of all the facts by both the parties.

4. Estoppel is a rule of evidence and it 4. Waiver may constitute a cause of

does not create any substantive right. action when a person agrees to waive
his right.

5. The principle behind estoppel is that 5. The principle behind waiver is that
if a person has acted to his detriment when an irregularity is committed in
or altered his position on the basis of arbitration proceedings, the party who
any declaration, act or omission of considers himself to be adversely
another person, that other person will affected by it, must object to it without
not be allowed in any suit or undue delay. If he does not, the court
proceedings between himself and the would not permit him to lie by or act is
other person or his representative to go an indecisive manner, so as to obtain
back upon it to the detriment of the the benefit of the award if it is in his
opposite party. [Haji Muhammad Yunus favour
v. and endeaHaji Muhammad Ismail, [Pioneer Engg. Works v. Union of
PLD vors to set it aside if it is not in 159 India, MANU/BH/0102/1959 : AIR
(WP) Kara 755] his favour. 1959 Pat 374]

Certain illustrative cases where waiver was held to have taken place

In Kripa Sindhu v. Sudha Sindhu, AIR 1993 Cal 496, a dispute was referred without intervention of
court to three arbitrators under an arbitration agreement. After the hearing was concluded, one of
the three arbitrators died. Only two remaining arbitrators then made the award. Before the death
of the third arbitrator, the parties had entered into an agreement providing that if one of the
arbitrators became incapable of acting, the unanimous award by the remaining two arbitrators
would be binding on the parties. It was held that the condition that the award was to be by three
arbitrators was waived by the parties when they entered into a record agreement providing that
award by two arbitrators would be binding.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 19/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

In Hindustan Construction Co. Ltd. v. Governor of Orissa, MANU/SC/0436/1995 : (1995) 3 SCC 8,

in course of arbitral proceedings it was noticed that the dispute under reference was beyond the
pecuniary jurisdiction of the arbitral tribunal. The State Government then referred the dispute to a
special tribunal which proceeded with the arbitration and made its award. In view of the fact that
the State Government itself had constituted the special tribunal and had participated in the
proceedings without raising any objection, till the award was made, the Supreme Court held that
the government could not be permitted to raise the belated objection merely because the award
was made against it.

In R.C. Bhalla v. N.C. Bhalla, AIR 1996 Del 24, both the parties to an arbitration proceedings, in
relation to a dispute regarding distribution of assets, participated in the proceedings. The parties
argued on all questions in issue and also participated in the division of assets. One of the parties
was, thereafter, not permitted to raise an objection before the court that the question of division of
assets and liabilities was beyond the scope of the reference.

In Jagmohan v. Suraj Narain, AIR 1935 Oudh 499, an objection was taken against the award that
there had been no proper reference to arbitration inasmuch as there was no written application as
required by Paragraph 1 of Schedule II, C.P.C., and also because the matters in difference which
the arbitrator was required to determine were not clearly set forth. It was held that when the
arbitrator started his proceedings, no objection was raised on behalf of the applicant about the
arbitrator having no jurisdiction to proceed with the matter. The applicant took his chance before
the arbitrator, and the award having gone against him, he could not be permitted to raise that
objection.

In Board of Trustees of Paradeep Port Trust v. Natwar Iron and Steel Works Co., 1994 (1) Arb LR
54, there was contract between the parties for the purchase of scrap from the Paradeep Port Trust.
The entire stock of the scrap could not be removed by the purchaser. Thereafter, the Port Trust
forfeited the security deposit and terminated the contract. The dispute which thus arose was
referred for arbitration to an employee of the Paradeep Port Trust. Both the parties put their
respective claim and counter-claim before the arbitrator and also placed materials before him. The
arbitrator made an award which went against Paradeep Port Trust. The Port Trust then challenged
the award inter alia on the ground that there was no arbitration clause in the agreement and
therefore reference to arbitration was invalid. It was held that the Paradeep Port Trust having itself
referred the dispute to one of its employees and having also participated in the arbitration without
objection, it was not entitled to raise an objection that in the absence of an arbitration clause, the
reference was bad in law.

Certain illustrative cases where waiver was held not to have taken place

In President of India v. Kesar Singh, AIR 1966 J&K 113, there were two contracts between the
parties. The new contract replaced the old one. There was no arbitration clause in the new
contract. However, reference was made to the arbitrator under the new contract. The contractor
objected to the jurisdiction of the arbitrator but participated in the arbitration proceedings. It was
held that the contractor's participation thereafter did not constitute

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 20/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

waiver. The whole arbitration proceeding was invalid and the whole award was liable to be set
aside.

In Dilip Singh v. Khilan Singh, MANU/MP/0025/1979 : AIR 1979 MP 117, an application was made
under section 14 of the Arbitration Act, 1940, for making an award rule of the court, no step was
taken for appointment of guardian ad litem of minor non-applicant. It was held that order of the
court making the award rule of the court was void ab initio. The order was set aside and the trial
court was directed to proceed with the appointment of guardian ad litem for minor and thereafter
to proceed afresh in accordance with law.

In Paramjit Singh v. State of Himachal Pradesh, MANU/HP/0003/1979 : AIR 1979 HP 17, the
person acting as an arbitrator was transferred and did not thereafter wish to continue as an
arbitrator, but was required to continue under the directions of his superior officer, and who
thereafter made the award. It was held that an arbitrator could not be compelled to work in the
face of his refusal and the entire proceedings in which the arbitrator had been compelled to work in
spite of his refusal were void ab initio. Submission to such proceeding could not validate the
proceedings.

It is to be noted that an objection regarding inherent want of jurisdiction in the arbitrator can be
allowed to be raised at any stage. The mere fact that the party objecting had appeared before the
arbitrator at earlier stages of the proceedings and also participated would not operate as estoppel
against it in challenging the jurisdiction. [Jagannath Kapoor v. Premier Credit and Instalment Co.
(P) Ltd., MANU/UP/0018/1973 : AIR 1973 All 49]. It is also to be noted that mere signature by a
party to an award does not necessarily in all cases estop the party from afterwards disputing the
correctness of the award. It must be clear that when the party attached his signature he was aware
that the irregularity had been committed. [Alagappa v. Chidambaram, MANU/TN/0246/1930 : AIR
1931 Mad 619].

V. EXTENT OF JUDICIAL INTERVENTION

To what extent courts can interfere with an arbitration proceedings?

Section 5 of the Arbitration and Conciliation Act, 1996 lays down that in matters governed by Part I
of the Act, no judicial authority shall intervene except where so provided in this Part.

This section intends to minimise the intervention of judicial authorities in arbitration proceedings.
Sometimes, the parties to arbitration proceedings take recourse to dilatory tactics by obtaining stay
of the arbitration proceeding by an order of the court.

This section, by allowing less chance to delay or stall proceedings by intentionally taking recourse
to dilatory court proceedings, functions to accelerate the arbitration proceedings.

This section prohibits not only the law courts from interfering with the arbitration proceedings
except so far as provided by Part I of the Act, but it also prohibits any other authority on which the
judicial power of the state is conferred.

Part I of the Act permits judicial intervention in the arbitration proceeding in the following cases-

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 21/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

(1) Section 8: Power to refer parties to arbitration where there is an arbitration agreement.

(2) Section 9: Power of the Court to pass interim orders.

(3) Section 13(5): Where an arbitral award is made, after a party to the arbitration
proceeding challenged the arbitrator, either under any procedure agreed upon by the parties
or under section 13(2), and has failed, the party challenging the arbitrator may make an
application under section 34 for setting aside the award.

(4) Section 14(2): If a controversy remains regarding whether the mandate of an arbitrator
terminated on the ground of his becoming de jure or de facto unable to perform his
functions or for other reasons failing to act without undue delay, a party may, unless
otherwise agreed by the parties, apply to the Court to decide on the termination of
mandate.

(5) Section 16(6): When a contention is raised before an arbitral tribunal regarding its
jurisdiction or competence and the tribunal made an award rejecting such contentions, the
party aggrieved by such an arbitral award may make an application under section 34 for
setting aside the award.

(6) Section 27: Court's power to provide assistance to the arbitral tribunal in taking
evidence.

(7) Section 34: Power of the Court to set aside an arbitral award or to remit the award to
the arbitral tribunal.

(8) Section 37: Appellate Court's jurisdiction to hear appeals from:-

(i) Original decrees of the court passing an order granting or refusing to grant any
measure under section 9.

(ii) Original decrees of the Court setting aside or refusing to set aside an arbitral
award under section 34.

(iii) Arbitral Tribunal's order accepting the plea referred in sub section (2) or sub-
section (3) of section 16.

(iv) Arbitral tribunal's order granting or refusing to grant an interim measure under
section 17.

9. Sub-sections (2) and (4) of Section 39: If in any case, an arbitraltribunal refuses to
deliver its award except on payment of the costsdemanded by it, the Court may, on an
application in this behalf,order that the arbitral tribunal shall deliver the arbitral award to
theapplicant on payment into Court by the applicant of the costsdemanded. The Court then,
after such inquiry as it thinks fit, orderthat out of the money so paid into Court there shall
be paid to thearbitral tribunal by way of costs such sum as the Court may
considerreasonable and the balance, if any, shall be refunded to theapplicant.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 22/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

The Court may make such orders as it thinks fit respecting the costs of the arbitration
where any question arises respecting such costs and the arbitral award contains no
sufficient provision concerning them.

10. Section 43(3): Where the arbitration agreement provides that any claim relating to a
dispute to which the agreement applies shall be barred unless some step to commence the
arbitral proceedings is taken within a time fixed by the agreement, the Court may extend
the time for such period as it thinks proper.

VI. ADMINISTRATIVE ASSISTANCE

When an arbitral tribunal can take administrative assistance?

Section 6 of the Act provides that in order to facilitate the conduct of the arbitral proceedings, the
parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative
assistance by a suitable institution or person.

The object of this section is to expedite the arbitral proceedings. This section gives freedom to the
parties to an arbitration proceeding to engage an arbitration institution (e.g. Indian Council of
Arbitration), or a person who has specialisation in conducting arbitration proceedings.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 23/24

5/6/24, 10:15 AM Arbitration and ADR - Chapter I - The Arbitration and Conciliation Act, 1996

© Universal law Publishing Co.

student.manupatra.com/Academic/Abk/Arbitration-and-ADR/CHAPTER-1.htm#I. OBJECTS AND REASONS OF THE ACT 24/24