Understanding the Arbitration and Conciliation Act: Key Features and Recent Updates

Introduction

The Arbitration and Conciliation Act, 1996 (hereinafter "the Act") forms the foundation of alternative dispute resolution (ADR) in India, covering domestic as well as international commercial arbitration. Modeled on the 1985 UNCITRAL Model Law, the Act has undergone seismic changes in 2015, 2019, and most recently in 2021 to streamline arbitration procedures, reduce judicial intervention, and align Indian law with global best practices.

Principal Purposes and Philosophy of the Act

Decreasing Judicial Intervention

The Act restricts the interference of the courts in arbitration proceedings, and courts intervene as facilitators and not controllers of arbitral process once parties have opted for arbitration. The provision is sealed under Section 5, which provides court intervention only as specifically provided by the Act.

Effective and Quick Dispute Settlement

Emphasizing speedy proceedings and the prompt enforcement of arbitral awards, the Act positions arbitration as the mechanism of choice for commercial dispute resolution.

Party Autonomy

The autonomy to select arbitrators, procedure, and the law applicable to their disputes continues to rest with the parties, thereby enhancing the concept of party autonomy.

Clarity and Certainty

The Act brings domestic and foreign arbitration and recognition and enforcement of foreign awards laws in conformity with each other to create a conclusive law on resolution of disputes in India.

What Disputes Are Arbitrable? Understanding the Scope

What Constitutes Arbitral Matters

No definitive list of arbitrable matters is contained in the Act. Instead, Indian courts have evolved the doctrine of arbitrability through landmark judgments:

• In Vidya Drolia v. Durga Trading Corporation (2020), the Supreme Court developed a four-pronged test for determining non-arbitrability:
  1. Actions in Rem: Disputes affecting rights against the public (e.g., patents, insolvency) are non-arbitrable.
  2. Third-Party Rights: Disputes affecting third-party rights or necessitating centralized determination are non-arbitrable.
  3. Sovereign/Public Interest Functions: Issues relating to sovereign functions (e.g., criminal prosecution) cannot be arbitrated.

4. Statutory Exclusion: Disputes excluded from arbitration under law.

Types of Disputes not Arbitrable

The following are usually non-arbitrable:

• Criminal Offences: Crimes against the state like public interest fraud are reserved for criminal courts.
• Matrimonial and Family Law: Divorce, child custody, guardianship, and adoption cases fall in the exclusive jurisdiction of family courts.
• Insolvency and Bankruptcy: IBC proceedings need to be decided centrally and are not arbitrable.
• Testamentary Matters: Probate, succession, and will matters need to be published and involve third parties, and therefore are non-arbitrable.
• Trust and Consumer Grievances: Trust matters (e.g., between trustee and beneficiary) and consumer complaints under the Consumer Protection Act are not arbitrable.
• Labour and Industrial Disputes: They are regulated by special legislations and cannot be privately arbitrated.
• Tenancy and Eviction under Rent Control Laws: Disputes under rent control law must be resolved by specialized courts, but tenancy disputes under the Transfer of Property Act can be arbitrable except to the extent such a statute overrides.

Example: In Himangni Enterprises v. Kamaljeet Singh Ahluwalia, the Supreme Court reiterated that disputes relating to tenancy covered by rent control legislations are non-arbitrable and must be resolved by public courts.

Arbitration Agreement: Essentials and Validity

Written Agreement

Section 7 mandates that a contract to arbitrate must be in writing, either as a part of a contract or in an independent contract. It may be evidenced by correspondence, email, or any other form of communication.

Binding on Parties

The agreement is binding on its signers, and as construed in Cox & Kings v. SAP India Pvt. Ltd (2023), can also be binding on non-signers under the "Group of Companies" principle when the contracting parties have definite intention and composite transaction.

Initiation

Arbitral proceedings are commenced by a notice under Section 21. Parties can seek the appointment of arbitrators under Section 11 in the event of non-compliance as and when required.

Composition and Powers of the Arbitral Tribunal

Number and Appointment

The tribunal may be an individual arbitrator or a panel, preferably of odd strength to preclude deadlocks. Appointment may be agreed upon by the parties jointly; otherwise, the Act provides default provisions.

Challenge and Substitution

Grounds for challenging an arbitrator are bias, lack of independence, or inability to act. The Act provides for challenges and substitutions so as to ensure impartiality.

Arbitration Council of India

The 2019 amendment established this council to enhance quality of arbitration by advocating for standards of accreditation of arbitrators.

Jurisdiction and Kompetenz-Kompetenz Principle

Tribunal's Authority

Section 16 encapsulates the Kompetenz-Kompetenz principle, which grants the arbitral tribunal power to determine its own jurisdiction, including as to the existence or validity of the arbitration agreement.

Judicial Referral

Post-2015 reforms mandate courts to direct parties to arbitration in cases of a valid agreement unless the agreement is prima facie invalid. In addition, the 2019 amendment of Section 11(6A) (not yet notified) emphasizes that courts have to consider only the existence of an agreement at the appointment stage and not the merits or arbitrability of some claims.

Conduct of Proceedings and Party Rights

Equal Treatment

The Act ensures that all parties are treated equally and provides an equal opportunity to present their case.

Procedural Flexibility

Parties may agree on procedural rules, and failing agreement, the procedure is determined by the tribunal taking into consideration efficiency and justice.

Interim Relief

Courts (Section 9) and arbitral tribunals (Section 17) are authorized to direct interim measures for safeguarding parties' interests during proceedings.

Setting Aside and Enforcement of Arbitral Awards

Reserving Awards: Section 34

There are reasons for setting aside awards, and these are controlled by invalid agreements, insufficient notice, arbitrability of claims, or public policy awards.

Appeals: Section 37

Section 37 prescribes the procedure for appeals against refusals to refer parties to arbitration or orders setting aside an award as long as the process of appeal remains organized.

Enforcement (Section 36, 2021 amendment)

Once the period for challenging an award runs out, or a challenge is dismissed, the award can be enforced as an order of the court.

2021 Amendment

This amendment granted an automatic stay of enforcement in the event the court determines a prima facie case of fraud or corruption relating to the arbitration agreement or award, retrospectively covering all ongoing cases.

Norms for Arbitrators

The 2021 Section 43J amendment tasked regulatory bodies with framing qualifications and norms of accreditation of arbitrators and removed the Eighth Schedule that had laid down qualifications.

Example: In a dispute between Tata Sons and Siva Industries, arbitration was initiated under the agreement. But concurrent insolvency proceedings had the effect of a moratorium, demonstrating the interaction between arbitration and statutory process like insolvency.

Recent Judicial Developments and Clarifications

Fraud and Arbitrability

The Supreme Court in Vidya Drolia reversed earlier rulings, holding that fraud claims can be arbitrated if they relate to civil disputes, barring where the fraud makes the arbitration clause itself ineffective.

Non-Signatories and Group of Companies Doctrine

Non-signatories may be subjected to arbitration if intent, relationships, and subject matter between the parties show a composite transaction, as decided by the Supreme Court.

Referral at Appointment Stage

The Supreme Court clarified that during the appointment stage of the arbitrator under Section 11, courts must limit themselves to examining whether there exists an arbitration agreement, and not go into the question of arbitrability of specific claims, leaving this determination to the tribunal.

Practical Insights and Best Practices

• Formulating Arbitration Clauses: Clearly stipulate the subject matter of arbitrable disputes, seat, and location of arbitration, as well as procedural laws so that there are no future uncertainties.
• Appointment of Arbitrators: Appoint the right type of arbitrators with the necessary expertise while ensuring compliance with current accreditation standards.
• Interim Relief: Utilize interim relief effectively for the seizure of assets and evidence while arbitrating.
• Enforcement of Awards: Act promptly to enforce awards and remain up-to-date with the latest legal innovations in the area of stays in respect of claims of fraud or corruption.

Conclusion

The Arbitration and Conciliation Act, 1996, and amendments thereto give a comprehensive and modern paradigm of arbitration in India. Its evolution, with legislative amendments and judicial interpretations, has given rise to a pro-arbitration climate balancing party autonomy with requisite protection. Knowledge of the subtleties of arbitrability limits, arbitral tribunal powers, and modern enforcement strategies is crucial to businesses, attorneys, and anyone involved in commercial disputes in India.