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Arbitration Law | July 11, 2025

How the Arbitration and Conciliation Act, 1996, Governs Domestic Arbitration

ADR stands for Alternative Dispute Resolution, which encompasses various methods of resolving a dispute without involving the intricacies of the court. The decision is binding on the parties like the decision of the court. It includes various methods like arbitration, mediation, conciliation, and negotiation. These work on the principles of justice, legal aid, and speedy trial. Article 39A of the Indian Constitution and Section 89 of the Code of Civil Procedure, 1908, provide for settling disputes by way of ARD. The proceedings are flexible and creative. It provides satisfying solutions and reduces cost and time, and thus is emerging in the field of law. The parliament felt the need and passed an act regarding this matter, and then an act on arbitration and conciliation, also known as the Arbitration and Conciliation Act, 1996, was passed. It lays out the object, extended applicability and discusses the important provisions under the Act.  

Enacted to address the shortcomings of the previous Arbitration Act of 1940, the ACA of 1996 marked a significant shift towards a more party-centric and efficient arbitration regime. Drawing inspiration from the UNCITRAL Model Law on International Commercial Arbitration, the ACA introduced several key features:

• Emphasis on Party Autonomy: Parties gained greater control over the arbitral process, including the appointment of arbitrators, selection of the seat of arbitration, and tailoring of procedural rules.
• Minimal Court Intervention: The Act aimed to minimise unnecessary court intervention, promoting the finality and binding nature of arbitral awards.
• Expedited Procedures: Provisions were introduced for faster resolution of disputes through expedited timelines for proceedings.
• Recognition and Enforcement of Foreign Awards: India's accession to the New York Convention facilitated the enforcement of awards issued abroad.

 

LEGAL FRAMEWORK:

The domestic provisions of the Arbitration and Conciliation Act, 1996 include a critical framework for understanding the legal mechanism of arbitration agreements and interim measures. Section 7 of the Act deals with Arbitration Agreements. 

 "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. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. An arbitration agreement shall be in writing.  An arbitration agreement is in writing if it is contained in a document signed by the parties, an exchange of letters, telex, telegrams or other means of telecommunication ¹[including communication through electronic means] which provide a record of the agreement; or an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.   

 Section 11 of the provision deals with the appointment of the arbitrators.

Any person of any nationality can be an arbitrator, unless the parties agree otherwise. 

Appointment procedure:  Parties are free to agree on a procedure for appointing arbitrators, subject to subsection (6). In the absence of an agreement, for a three-arbitrator tribunal, each party appoints one arbitrator, and the two appointed arbitrators select the third (presiding) arbitrator. 

Role of Arbitral Institutions:  The Supreme Court and High Courts can designate graded arbitral institutions for appointing arbitrators. In jurisdictions without graded institutions, the Chief Justice of the High Court may maintain a panel of arbitrators. These arbitrators are deemed to be arbitral institutions and are entitled to fees as specified in the Fourth Schedule.

Sole arbitrator appointment:  If parties fail to agree on a sole arbitrator within 30 days, the appointment is made as per subsection (4).

Domestic Arbitration (Part 1)  means an arbitration relating to a dispute arising out of a legal relationship, whether contractual or not, where neither of the parties is:
i) An individual who is a nationality 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) 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.

 

Conciliation (Part III): Conciliation is an option out-of-court dispute resolution instrument whereby the parties to a dispute use a conciliator, who meets with the parties both separately and together in an attempt to resolve their differences.

Just like another ADR method, Mediation, Conciliation are also a deliberate, confidential and consent-based procedure. The parties deliberate and strive to arrive at a mutually acceptable, amicable dispute settlement agreement with the help of the neutral Conciliator.

The sole distinction between Conciliation and Mediation ADR methods is that during Conciliation, the neutral Conciliator can offer to the Parties to dispute a non-binding settlement proposal. Whereas the Mediator, as a procedural Rule, always refrains from making such a settlement proposal.

 

ANALYSIS:

Emkay Global Financial Service Limited v. Giridhar Sondhi

Issue: 

1. Whether seat is akin to exclusive jurisdiction clause?
2. Whether evidence may be lead under Section 34 proceedings?

 

Rule:

Section 34 of the Arbitration and Conciliation Act, 1996:

The section the grounds for setting aside an arbitral award. According to any party to an application to set aside an award if he furnishes proof that he was under some incapacity, the arbitration agreement is invalid, the award is against the public policy of India.

Analysis:

Issue1:

The Supreme Court first relied on its own judgment in Indus Mobile Case, where it held that as soon as a seat is determined in an arbitration, it becomes parallel to an exclusive jurisdiction clause. The court held that, under law of arbitration, CPC, which implies suits, a seat can be chosen by parties to an arbitration clause. Such a place may not have jurisdiction as per CPC. However, in arbitration, the reference to a seat in the clause bestows such a court with jurisdiction. If the seat is Mumbai, the court of Mumbai shall have exclusive jurisdiction over the dispute automatically. Therefore, the Mumbai court will have exclusive jurisdiction owing to the agreement and the NSE bye-laws in the present case.      

Issue 2:

Subsequently, the Court analysed the second aspect of the Delhi High Court order. The Delhi High Court had directed District Court to conduct a trial on the question of the fact relating to jurisdiction by allowing parties to lead evidence on it.

The court, while pointing out an precedents set by Delhi High Court, pointed the same court had held there is no requirement under Section 34 for the parties to lead evidence. Additionally, the Apex court had held that, unlike in a normal suit, as per order XIV Rule 1 of the CPC, issues were not required to be framed in proceedings under section 34, as it was a summary trial. Thus, the Court indicated that proceeding under Section 34 may not have the facets of a normal civil suit.

The framing of section 34 provides for wording such as furnish proof as to the existence of the grounds under Section 34, which leads to the assumption of leading evidence. 

Conclusion:

The objective underlying the enactment of the Arbitration Act in  1996 was speedy resolution of disputes. If issues are framed and oral evidence is lead in a summary proceeding under Section 34, then obviously, the objective would be vitiated.  With the present judgment, the Court has tightened the lid around Section 34 proceedings and set the law in its right place. 

Even so, the judgment leaves room for challenges in the future. There may be situation where parties may want to bring on record facts which came to post the arbitral proceeding.

Hence, under limited circumstances, certain material facts should be allowed to be examined in proceeding under Section 34. One may argue that even after the adoption of the language under the proposed amendments, the court can still examine additional facts in light of arbitral tribunal's record and give the findings.

 

Advantages of Arbitration over Litigation:

Arbitration carries a number of advantages over usual method of dispute resolution of redressal through a court of Law. Courts in India are already burdened with the pending litigation before it which naturally increases the time frame for the disposal of a dispute before a court.

1. Arbitration promises privacy. In a civil court, the proceedings are held in public which may embarrass the parties, especially during cross-examination.

 2. Arbitration provides liberty to choose an arbitrator, who can be a specialist in the subject matter of the dispute. Arbitrators who are sector specialists can resolve the dispute fairly and expeditiously as they are well versed with the usage and practices prevailing in the trade or industry.

 3. The venue of arbitration can be a place convenient to both the parties. It need not be a formal platform. A simple office cabin is enough. Likewise the parties can choose a language of their choice. 

4. Even the rules governing arbitration proceedings can be defined mutually by both the parties. For example, the parties may decide that there should not be any oral hearing.

 5. A court case is a costly affair. The claimant has to pay advocates, court fees, process fees and other incidental expenses. In arbitration, the expenses are less and many times the parties themselves argue their cases. Arbitration involves few procedural steps and no court fees.

 6. Arbitration is faster and can be expedited. A court has to follow a systematic procedure, which takes an abnormally long time to dispose off a case. It is a known fact that millions of unresolved cases are pending before the courts. 

7. A judicial settlement is a complicated procedure. A court has to follow the procedure laid down in the Code of Civil Procedure, 1908 and the Rules of the Indian Evidence Act. In arbitration, the procedure is simple and informal. An arbitrator has to follow the principles of natural justice. The Arbitration and Conciliation Act, 1996 specifically states that the Arbitral Tribunal shall not be bound by The Code of Civil Procedure, 1908 and The Indian Evidence Act, 1872. 

8. Section 34 of the Act provides very limited grounds upon which a court may set aside an award. The Act has also given the status of a decree for the award by arbitrators. The award of the arbitrators is final and generally no appeal lies against the award. While in a regular civil suit there maybe an appeal and an appeal against an appeal.

 9. In arbitration, the dispute can be resolved without inflicting stress and emotional burden on the parties which is a common feature in court proceedings. 

10. In a large number of cases, ‘Arbitration’ facilitates the maintenance of continued relationship between the parties even after the settlement.

 

CONCLUSION:

The Arbitration and Conciliation Act, 1996, is Indias main law on domestic arbitration and it has to a large degree modernised how disputes are resolved outside the courtroom. Based on the UNCITRAL Model Law, the statute puts party choice at the centre and curtails excessive judicial oversight, creating a faster, less combative setting than ordinary litigation provides. Important sections address the drafting of arbitration agreements (section 7), the selection of arbitrators (section 11), and the overall conduct of hearings (sections 18 through 27), giving parties wide scope to shape the procedure.  

 

The Act also lets arbitral panels decide their own jurisdiction (section 16) and to issue interim orders (section 17), which cuts down the need to approach a court between sittings. A strict timetable for rendering awards is imposed by section 29a, and once issued an award can be enforced as a courts decree under section 36, enhancing certainty for all involved. Section 34 does allow limited challenge on specified grounds, yet the overall tone remains pro-enforcement. Through these features the Act seeks to lighten the judicial load and offer the business community in India a quicker, more reliable way to settle disputes.

 

REFRENCES:

“Arbitration Agreement.” Drishti Judiciary, www.drishtijudiciary.com/ttp-arbitration-and-conciliation-act/arbitration-agreement

iPleaders. (n.d.). Arbitration and Conciliation Act, 1996. https://blog.ipleaders.in/arbitration-and-conciliation-act-1996

Government of India. (n.d.). The Arbitration and Conciliation Act, 1996. India Code. https://www.indiacode.nic.in/show-data?abv=null&statehand

Drishti Judiciary. (n.d.). Section 11 of the Arbitration & Conciliation Act, 1996. https://www.drishtijudiciary.com/current-affa

VIA Mediation Centre. (n.d.). A long and winding road: A look at the history of arbitration. https://viamediationcentre.org/readnews/MTYx

Indian Dispute Resolution Centre. (n.d.). What is domestic arbitration. https://theidrc.com/content/adr-faqs/what-is-domestic-arbitration

Indian Dispute Resolution Centre. (n.d.). What is conciliation. https://theidrc.com/content/adr-faqs/what-is-conciliation

iPleaders. (n.d.). Important judgments on the Arbitration and Conciliation Act, 1996. https://blog.ipleaders.in/important-judgments-arbitra

Centre for Advanced Arbitration and Advocacy. (n.d.). The Arbitration and Conciliation Act, 1996. https://www.caaa.in/Image/04%20.pdf