Arbitration: meaning, kinds and salient features of the 1996 Act

1. Meaning

Section 2(1)(a) of the Arbitration and Conciliation Act, 1996 defines “arbitration” only as any arbitration whether or not administered by a permanent arbitral institution. The meaning comes from the scheme: a reference of a dispute, by agreement of the parties (section 7) or under a statute (section 2(4)), to one or more persons chosen by them, who decide it judicially after hearing both sides, by an award that is final and binding (section 35). In K.K. Modi v. K.N. Modi, 1998 INSC 63, (1998) 3 SCC 573, the Court identified the attributes of an arbitration agreement: the parties agree to refer to a private tribunal; the tribunal decides after giving both sides an opportunity to be heard; the parties intend to be bound by the decision; the tribunal's jurisdiction comes from consent or from a statute; and the dispute is one that the tribunal determines in an impartial, judicial manner. An expert valuation or a decision that the parties do not intend to be binding is not arbitration.

2. Attributes and general principles

• Consent and party autonomy: the parties choose the tribunal, the number of arbitrators (section 10), the procedure (section 19(2)), the place (section 20) and the language (section 22).
• Neutrality, independence and impartiality of the arbitrator (section 12 and the Fifth and Seventh Schedules).
• Equal treatment and full opportunity to each party (section 18).
• Minimal judicial intervention (section 5).
• Kompetenz-kompetenz and separability: the tribunal may rule on its own jurisdiction, and an arbitration clause survives the invalidity of the main contract (section 16(1)).
• Finality: the award binds the parties (section 35) and can be set aside only on the limited grounds in section 34.
• Confidentiality of all proceedings except the award (section 42A, inserted in 2019).

3. Kinds of arbitration

• Ad hoc arbitration: the parties themselves set up the tribunal and manage the process, with the court's help only under section 11 if appointment fails.
• Institutional arbitration: administered by an institution under its rules, such as the Mumbai Centre for International Arbitration, the Delhi International Arbitration Centre, the Indian Council of Arbitration, the ICC or the SIAC. A statute of 2019 set up what is now the India International Arbitration Centre in New Delhi as an institution of national importance.
• Statutory arbitration: imposed by a statute, not by agreement, for example under section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 or the National Highways Act, 1956. Part I applies as if the statute were the arbitration agreement (section 2(4)), except where inconsistent.
• Domestic arbitration: seated in India between Indian parties.
• International commercial arbitration (section 2(1)(f)): a commercial dispute where at least one party is a foreign national or resident, a body corporate incorporated abroad, an association whose central management and control is abroad, or a foreign government. If seated in India, Part I applies, with the High Court as the “Court” (section 2(1)(e)(ii)) and the Supreme Court as the appointing court under section 11.
• Foreign arbitration: seated outside India; the award is enforced in India under Part II. Even two Indian parties may choose a foreign seat: PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, 2021 INSC 264, (2021) 7 SCC 1.
• Fast-track arbitration (section 29B): on written agreement, a sole arbitrator decides on documents without oral hearing unless all parties request one or the tribunal finds it necessary, and the award is due within six months.
• Emergency arbitration under institutional rules: an emergency arbitrator's order is an order under section 17(1), enforceable under section 17(2): Amazon.com NV Investment Holdings LLC v. Future Retail Limited, 2021 INSC 385, (2022) 1 SCC 209.

4. The Act: background and structure

The 1996 Act repealed the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 (section 85). It is based on the UNCITRAL Model Law, 1985 and the UNCITRAL Conciliation Rules, 1980.

• Part I (sections 2 to 43): arbitration seated in India. Agreement (sections 7 to 9), tribunal (10 to 15), jurisdiction and interim measures (16 and 17), conduct (18 to 27), award (28 to 33), recourse (34), enforcement (35 and 36), appeals (37), and miscellaneous including confidentiality (42A) and limitation (43).
• Part IA (sections 43A to 43M, inserted in 2019): the Arbitration Council of India.
• Part II: enforcement of foreign awards, New York Convention (sections 44 to 52) and Geneva Convention (sections 53 to 60).
• Part III (sections 61 to 81): conciliation.
• Part IV: supplementary provisions; and Schedules, including the Fourth (model fees), Fifth (grounds giving rise to justifiable doubts), Sixth (form of disclosure) and Seventh (ineligibility).

5. Salient features

• A single law for domestic arbitration, international commercial arbitration, enforcement of foreign awards and conciliation.
• Written arbitration agreement, including by electronic communication (section 7).
• Mandatory reference by a judicial authority where there is a valid agreement (section 8).
• Limited court intervention (section 5).
• Tribunal rules on its own jurisdiction (section 16) and can grant interim measures enforceable as court orders (section 17).
• Time limit for the award (section 29A) and fast-track procedure (section 29B).
• Reasoned award (section 31(3)) and a statutory regime for costs (section 31A).
• Narrow grounds of challenge (section 34) and enforcement as a decree (section 36).
• Conciliation settlements enforceable as awards (section 74).

6. The amendments

• 2015 (Act 3 of 2016, in force from 23 October 2015): limited the court's inquiry under sections 8 and 11 to the existence of an agreement (section 11(6A)); disclosure and the Fifth, Sixth and Seventh Schedules (section 12); interim orders of the tribunal made enforceable (section 17(2)); time limit (section 29A) and fast track (section 29B); costs (section 31A); narrowed “public policy” and added patent illegality for domestic awards (section 34); no automatic stay on filing a section 34 application (section 36).
• 2019 (Act 33 of 2019): brought into force from 30 August 2019 (S.O. 3154(E)) only in part: post-award interim relief removed from section 17; six months for pleadings (section 23(4)); twelve months from completion of pleadings for the award, with international commercial arbitration exempted (section 29A); section 34(2)(a) challenges to be established on the record of the tribunal; confidentiality and immunity of arbitrators (sections 42A and 42B). The amendments to section 11 (appointment by designated arbitral institutions) and Part IA were not among the provisions notified then, and a later notification bringing them into force could not be confirmed.
• 2021 (Act 3 of 2021, deemed in force from 4 November 2020): a further proviso to section 36(3) requiring an unconditional stay where the agreement or the making of the award was prima facie induced by fraud or corruption; section 43J substituted, leaving qualifications of arbitrators to regulations; the Eighth Schedule omitted.

The Department of Legal Affairs published a Draft Arbitration and Conciliation (Amendment) Bill, 2024 for public comment in October 2024. It is a consultation draft, not law.

7. BALCO: the seat decides which Part applies

In Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc., 2012 INSC 379, (2012) 9 SCC 552, a Constitution Bench held that section 2(2) adopts the territoriality principle: Part I applies only to arbitrations seated in India, and Indian courts have no power under Part I (sections 9 or 34) over foreign-seated arbitrations. It overruled Bhatia International (2002), prospectively, for arbitration agreements made after 6 September 2012. The 2015 amendment then added a proviso to section 2(2) making sections 9 and 27 and the related appeal provisions of section 37 available to foreign-seated international commercial arbitrations unless the parties agree otherwise.

How this is examined

“Explain the salient features of the Arbitration and Conciliation Act, 1996” appears in both November 2021 and December 2019; “Discuss the different kinds of arbitration” in December 2019. For salient features, give the background, the four Parts, the features in section 5 above and one line on each amendment. For kinds, the list in section 3 with a statutory reference for each is what scores.