Conduct of Arbitral Proceedings under the Arbitration and

Conciliation Act, 1996

1. General Principles Governing Arbitration

The Arbitration and Conciliation Act, 1996, is based on the principles of fairness, efficiency, and
minimal court intervention. Arbitration is designed to provide an alternative to lengthy litigation by
allowing parties to resolve disputes outside traditional courts.

Equal Treatment of Parties (Section 18)

One of the fundamental principles of arbitration is that both parties must be treated equally. The
tribunal must provide each party with an equal and fair opportunity to present their case. No party
should face procedural disadvantages, ensuring a neutral and unbiased process.

Determination of Procedure (Section 19)

The parties have the freedom to decide on the procedural rules governing arbitration. This means
they can agree on aspects like deadlines, modes of communication, and evidence presentation. If no
agreement is reached, the tribunal has the authority to determine the procedure. Unlike traditional
court proceedings, arbitration does not strictly follow the Civil Procedure Code (CPC) or the Indian
Evidence Act, making the process more adaptable to the needs of the parties.

2. Place, Language, and Commencement of Arbitration

Place of Arbitration (Section 20)

The place of arbitration can be decided mutually by the parties. If they fail to agree, the tribunal
determines the place based on practical considerations such as convenience, neutrality, and
accessibility. This flexibility allows arbitration to be conducted across different locations and even
virtually.

Language of Arbitration (Section 22)

Since disputes can involve parties from different linguistic backgrounds, this section allows the
parties to mutually decide the language of arbitration. If no agreement is reached, the arbitral
tribunal chooses a suitable language to ensure clarity and understanding.

Commencement of Arbitration (Section 21)

Arbitration proceedings are considered to have commenced when the respondent receives a
request for arbitration from the claimant. This date is crucial because it marks the beginning of legal
timelines, such as limitation periods, and determines procedural deadlines.

3. Filing of Claims and Defenses

Statement of Claim and Statement of Defense (Section 23)

To initiate arbitration formally, the claimant submits a Statement of Claim, which must include:
  A detailed explanation of facts leading to the dispute.

 Legal arguments supporting the claim.

 The remedies or relief sought, such as monetary compensation or specific performance.

The respondent must file a Statement of Defense, which may:

 Accept or deny the claims made by the claimant.

 Present counterarguments and supporting evidence.

 Include counterclaims against the claimant.

The tribunal may set time limits for submission to ensure efficiency. Parties must comply with these
deadlines to avoid unnecessary delays.

4. Hearings, Presentation of Evidence, and Default Proceedings

Mode of Conducting Hearings (Section 24)

Arbitration proceedings can be conducted through:

 Oral hearings, where parties present arguments and examine witnesses.

 Written submissions, where the dispute is decided based on documents alone.

The tribunal has the discretion to determine the process. However, if either party requests an oral
hearing, the tribunal is obligated to grant it. Adequate notice must be given before a hearing.

Failure of a Party to Participate (Section 25)

If a party fails to appear or submit documents, the tribunal may proceed with the arbitration based
on available evidence. The consequences of default are:

 If the claimant does not submit the statement of claim, the proceedings may be terminated.

 If the respondent fails to submit the statement of defense, arbitration continues without
them, and an award may be passed in their absence.

This provision ensures that arbitration is not delayed due to non-cooperation by any party.

5. Appointment of Experts and Collection of Evidence

Expert Assistance (Section 26)

The tribunal may appoint experts to examine specific aspects of the dispute, such as technical
evaluations, financial audits, or specialized industry knowledge. Experts must submit their findings in
writing, and parties have the right to question them.

Court Assistance in Taking Evidence (Section 27)

While arbitration is independent of courts, sometimes judicial intervention is necessary. This section
allows the tribunal or parties to seek court assistance to:
  Summon witnesses.

 Order the production of documents.

 Ensure compliance with the tribunal’s orders.

Courts do not interfere with arbitration unless required for gathering crucial evidence.

Conclusion

The Arbitration and Conciliation Act, 1996, ensures that arbitration proceedings are structured yet
flexible, allowing parties to resolve disputes efficiently. The tribunal is empowered to conduct
hearings, collect evidence, and render decisions while ensuring fairness and minimal court
involvement.

Meaning of Arbitral Awards

An arbitral award is the decision rendered by an arbitration tribunal at the conclusion of an
arbitration proceeding. This decision resolves the disputes that the parties have submitted
to arbitration. Arbitral awards serve a function similar to a court judgement, providing a binding
resolution to the conflict between the disputing parties.

Key Characteristics:

 Binding: Arbitral awards are legally binding on the parties involved and can be enforced like
a court decree.

 Finality: Generally, arbitral awards are final and cannot be appealed, though they can be
challenged on specific grounds such as procedural misconduct or public policy violations.

 Content: Typically includes the tribunal’s decision on the merits of the case, the reasoning
behind the decision and any applicable remedies or damages.

Arbitral awards offer a flexible, efficient and private method of resolving disputes, making arbitration
a popular alternative to traditional litigation.

Types of Arbitral Awards

Arbitral awards can take various forms depending on the nature of the dispute and the stage at
which the tribunal makes its decision. Below are the primary types of arbitral awards:

1. Final Award

The final award is the most common type of arbitral award. It resolves all the disputes submitted to
arbitration and brings the arbitration proceedings to a close.

Key Features:

 Conclusive: Decides all claims and issues presented in arbitration.

 Binding: Legally enforceable like a court decree.

  No Appeal: Generally, there is no appeal against a final award except on limited grounds
under the Arbitration and Conciliation Act, 1996.

Once the final award is issued, the tribunal’s role ends, and the parties are expected to comply with
the decision.

2. Interim Award

An interim award is made during the arbitration process, before the final award is issued. It deals
with specific issues that need urgent resolution to facilitate the smooth continuation of arbitration.

Key Features:

 Temporary Relief: Addresses matters requiring immediate attention, such as interim reliefs
or security for costs.

 Enforceable: Can be enforced in the same manner as a final award.

 Preservation of Rights: Ensures that parties' rights are protected until the final resolution of
the dispute.

Examples include ordering a party to maintain the status quo, preserving assets, or requiring the
payment of money pending the final decision.

3. Partial Award

A partial award resolves some, but not all, of the issues in the dispute. This is particularly useful in
complex cases where different claims or issues can be settled independently.

Key Features:

 Selective Resolution: Addresses specific claims while leaving other matters for later
resolution.

 Binding: The resolved issues are final and enforceable.

 Efficiency: Helps streamline arbitration by resolving certain aspects early, sometimes leading
to an overall settlement.

For instance, a tribunal may issue a partial award on liability first and then decide on the quantum of
damages separately.

4. Consent Award

A consent award is issued when the parties reach a settlement agreement during arbitration and
request the tribunal to record it as an arbitral award.

Key Features:

 Mutual Agreement: Reflects the terms agreed upon by both parties.

 Legally Binding: Has the same effect as a final arbitral award.

  Time-Saving: Encourages amicable resolution, reducing time and costs associated with
arbitration.

This type of award formalizes the settlement, making it legally enforceable.

5. Default Award

A default award is issued when one party fails to participate in the arbitration proceedings without a
valid reason. In such cases, the tribunal proceeds ex parte (in the absence of the defaulting party)
and decides the case based on the evidence available.

Key Features:

 Unilateral Decision: Made in the absence of the defaulting party.

 Binding: The defaulting party is legally bound by the award.

 Due Process: Ensures that the participating party’s claims are addressed even if the other
party abstains.

However, the defaulting party may challenge the award if it proves that the absence was due to a
justified reason.

6. Additional Award

An additional award is issued when the arbitral tribunal unintentionally omits certain claims or
issues from the final award. This award ensures that all matters presented in arbitration are
resolved.

Key Features:

 Supplementary Nature: Complements the final award by covering overlooked issues.

 Binding: Has the same enforceability as the original final award.

 Correction Mechanism: Ensures a comprehensive resolution of the dispute.

The tribunal can issue an additional award only if a party requests it within a specified period after
the final award is issued.

7. Costs Award

A costs award deals specifically with the allocation of arbitration-related expenses, such as
arbitrators’ fees, legal fees, and administrative costs.

Key Features:

 Determines Cost Liability: Specifies which party bears the arbitration costs.

 Binding: Must be followed by the parties.

 Separate Award: May be issued separately from the final award.

The tribunal may decide that the losing party bears the entire cost or that the costs be shared based
on the circumstances of the case.

Legal Grounds for Setting Aside an Arbitral Award

Section 34(2) and 34(2A) of the Act provide specific, limited grounds under which a court may set
aside an arbitral award. The purpose of these grounds is to strike a balance between judicial
oversight and the finality of arbitration as an alternative dispute resolution mechanism.

Each ground is explored in detail below:

1. Incapacity of Parties

An arbitral award can be set aside if one of the parties was incapable of entering into the
arbitration agreement at the time of its execution. Incapacity may arise due to:

 Legal Disability: If a party was a minor or a person of unsound mind at the time of signing
the agreement, the agreement is void or voidable.

 Lack of Proper Representation: If a party was not properly represented due to a lack of
authority (e.g., a company official signing without authorization), the award can be set aside.

Legal Reference: Section 9 of the Act allows for the appointment of a guardian in such cases, but
failure to do so may result in an invalid arbitration.

2. Invalid Arbitration Agreement

For an arbitral award to be enforceable, it must be based on a valid arbitration agreement. An

award may be challenged if:

 The agreement is not in writing, as required under Section 7 of the Act.

 The agreement was never signed or formally executed by both parties.

 The arbitration clause is vague or uncertain, leading to confusion about jurisdiction.

 The agreement is illegal or contrary to law, such as in cases where arbitration is used to
circumvent statutory protections in labor laws or consumer disputes.

 The agreement is insufficiently stamped, as ruled by the Supreme Court in N.N. Global
Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. (2023).

3. Lack of Proper Notice

The principles of natural justice require that all parties be given a fair opportunity to participate in
arbitration. If a party is not given proper notice regarding:

 The appointment of an arbitrator, leading to an unfair selection process.

 The date, time, or location of hearings, resulting in their inability to present their case.
  Procedural aspects of arbitration, such as filing deadlines or submission of evidence.

Then, the award can be set aside. Courts have consistently emphasized that arbitration must be fair
and transparent, ensuring both parties are given an opportunity to be heard.

4. Award Exceeding Scope of Arbitration Agreement

An arbitral award must strictly adhere to the terms of the arbitration agreement and should only
address disputes that were submitted for arbitration. If the tribunal:

 Decides on issues not covered by the arbitration agreement.

 Grants relief beyond the authority given to the arbitrators.

 Issues an award that modifies contractual terms instead of interpreting them.

Then, the award may be set aside only to the extent that it exceeds the mandate, while the valid
parts of the award may still be enforced.

Example: In Associate Builders v. Delhi Development Authority (2014), the Supreme Court held that
an award exceeding the scope of the arbitration agreement violates public policy and can be
annulled.

5. Improper Constitution of the Arbitral Tribunal

The arbitration process must strictly comply with the agreed-upon procedure for appointing
arbitrators. An award may be set aside if:

 The tribunal was not constituted as per the arbitration agreement.

 An arbitrator was appointed unilaterally, leading to bias or conflict of interest.

 The arbitrator failed to disclose circumstances that create doubts about their impartiality,
as required by Section 12.

 The tribunal violated the principles of neutrality and fairness in arbitration.

Case Law: In Perkins Eastman Architects v. HSCC (India) Ltd. (2019), the Supreme Court ruled that a
party cannot unilaterally appoint a sole arbitrator, as it violates the principle of natural justice.

6. Disputes Not Arbitrable

Certain disputes are not capable of being resolved through arbitration due to their public interest
implications. If an arbitral tribunal issues an award on such matters, it is automatically void. Non-
arbitrable disputes include:

 Criminal offenses (e.g., fraud, theft, or financial crimes).

 Matrimonial disputes (e.g., divorce, child custody, maintenance).

 Insolvency and bankruptcy cases, as they involve statutory adjudication.

  Matters concerning fundamental rights, such as labor rights and consumer protection.

 Landlord-tenant disputes under rent control laws.

Legal Precedent: In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011), the Supreme Court
established a test for arbitrability, holding that cases involving public policy or statutory rights
cannot be arbitrated.

7. Violation of Public Policy

A crucial ground for setting aside an award is if it violates the public policy of India. The Supreme
Court in Renusagar Power Co. v. General Electric Co. (1994) defined public policy as including:

1. Fraud and Corruption – If the award was obtained through fraud, coercion, or undue
influence.

2. Contravention of Fundamental Legal Principles – If it violates basic Indian laws or

constitutional values.

3. Impact on India’s Sovereignty or Security – If the award affects India’s economic interests,
national security, or relations with foreign states.

The scope of public policy was further clarified in ONGC v. Western Geco International Ltd. (2014),
where the court held that gross legal errors or irrational awards could also be set aside under this
ground.

8. Patent Illegality

The 2015 amendment to the Act introduced "patent illegality" as a ground for setting aside
domestic awards (but not foreign awards). An award is considered patently illegal if:

 The arbitrator ignored a clear statutory provision.

 There is a manifest error in law or interpretation.

 The reasoning in the award is contradictory or illogical.

However, the Supreme Court has held that mere erroneous legal interpretation is not sufficient
unless the error is so blatant that it shocks the conscience of the court.

Example: In Ssangyong Engineering & Construction Co. v. NHAI (2019), the Supreme Court set aside
an award for patent illegality, as the arbitrator rewrote the contract, which was beyond their
jurisdiction.

Conclusion

The grounds for setting aside an arbitral award under Section 34 are narrowly defined to prevent
unnecessary judicial intervention. While the courts ensure that arbitration is conducted fairly and
legally, they also emphasize that minor errors or unfavorable outcomes do not justify setting aside
an award.