Arbitration as an ADR Mechanism 1

Introduction
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out
to them how the nominal winner is often a real loser— in fees and waste of time. As a
peacemaker, the lawyer has a superior opportunity of being a good man. There will still be
business enough.”-  Abraham Lincoln.

One of the main drawbacks of India’s legal system and law enforcement agencies are a lack
of effective delivery of legal remedies to the people in need. Pending cases are comparatively
much more than the cases settled. The main reason behind such a phenomenon is that
increase in the number of offences as well as time taking to solve the cases from the part of
the judiciary. In such a situation, Alternative Disputes Resolution mechanism plays an
important role in resolving disputes among people so that court can save its valuable time as
well as parties affected will be delivered with an effective solution for their disputes.

Alternative dispute resolution is not new to India. The concept is analogous to the panchayat
or similar bodies consisting of influential and elderly men from the community who were
bestowed with power to manage of religious and social functions and who were called upon
to decide the dispute between parties in the particular village, be it civil or criminal or
revenue.

Alternative Dispute Resolution in India was founded on the Constitutional basis of Articles
14 and 21 which deal with Equality before Law and Right to life and personal liberty
respectively. ADR also tries to achieve the Directive Principle of State Policy relating to
Equal justice and Free Legal Aid as laid down under Article 39-A of the Constitution.1

The Acts which deal with Alternative Dispute Resolution are:-

Arbitration and Conciliation Act, 1996 and the Legal Services Authorities Act, 1987.

Section 89 of the Civil Procedure Code, 1908 makes it possible for Arbitration proceedings
and provides an option of the parties to make a settlement of their dispute outside the court. 2 
Also, Arbitration was enshrined in three different enactments, namely:-

1
http://www.gktoday.in/alternative-dispute-resolution.
2
The Civil Procedure Code (Amendment) Act, 1999 carries Section 89.
 Arbitration as an ADR Mechanism 2

 The Arbitration Act, 1940;

 The Arbitration (Protocol and Convention) Act, 1937 and
 The Foreign Awards (Recognition and Enforcement) Act, 1961.

The Arbitration Act laid down the framework within which domestic arbitration was
conducted in India, and the other two Acts dealt with foreign awards. The Arbitration and
Conciliation Act, 1996 has repealed the three past acts, consolidated and amended the law
relating to domestic arbitration, international commercial arbitration and enforcement of
foreign arbitral awards and also defines the law relating to conciliation, providing for matters
connected therewith and incidental thereto on the basis of the Model Law on International
Commercial Arbitration adopted by the United Nations Commission on International Trade
Law (UNCITRAL) in 1985.

Arbitration is a method for settling disputes privately, but its decisions are enforceable by
law. An arbitrator is a private extraordinary judge between the parties, chosen by mutual
consent to sort out controversies between them. Arbitrators are so called because they have
an arbitrary power; for if they observe submissions and keep within due bounds their
sentences are definite from which there is no appeal. Arbitration offers greater flexibility,
prompt settlement of national and international private disputes and restricted channels of
appeal than litigation. In the words of Richard Cobden “At all events, arbitration is more
rational, just, and humane than the resort to the sword.”

Arbitration is a simplified version of a trial involving no discovery and simplified rules of

evidence. Either both sides agree on one arbitrator, or each side selects one arbitrator and the
two arbitrators elect the third to comprise a panel. Arbitration hearings usually last only a few
hours and the opinions are not public record. Arbitration has long been used in labour,
construction, and securities regulation, but is now gaining popularity in other business
disputes.

Background: Settlement of disputes during ancient times

In Roman law, there was no struggle to establish the jurisdiction of ordinary courts as against
trivial tribunal’s .Accordingly, contracts for submissions of disputes to the decision of
persons were recognized, and there were rules as to their effect and enforcement. Disputes
were settled by the method of arbitration in Greece during the sixth century B.C.
 Arbitration as an ADR Mechanism 3

Thedisputes included boundary fixation, title to colonies and land, assessment of damages tha
toccurred due to hostile invasion monetary claims between states and religious matters.

Even in India during the Vedic period Yajnavalkya and Narad have referred to various grades
of Arbitrators in ancient India, such as:

a) Puga: A board of persons belonging to different sects and tribes , but residents of the
same locality
b) Sreni: Belonging to different sects and tribes or assemblies and meetings of trades
men and artisans belonging to different tribes, but having some kind of connection
with one another through the profession practiced by them.
c) The Kula or meetings of kinsmen or assemblages of relations: There were
hierarchy in appeals also. From the decision rendered by Kula, an appeal lay to
Sreniand from the decision rendered by Sreni to Puga and from the decision of Puga
to the king’s judge and also to the king himself.

Therefore it can rightly be said that the process of dispute settlement was not adversarial as it
exists in the present time, but it was oriented towards the amicable resolution of the dispute.3

The Malimath Committee undertook a comprehensive review of the working of the court
system, particularly all aspects of arrears and Law’s delay and made various useful
recommendations for reducing litigation and making justice readily accessible to the people
at the minimum cost o time and money. It underlined the need for alternative dispute
resolution mechanism such as mediation, conciliation, arbitration, Lok Adalats etc. as a
viable alternative to the conventional court litigation.4

Definitions of Arbitration:

Section 2(1) (a) defines the term ‘Arbitration’. Arbitration means any arbitration whether or
not administered by permanent arbitral institution.5 The word ‘arbitration’, defined in the
present Act, connotes the same meaning as contained in Article 2(a) of the Model Law of
UNICITRAL. The Arbitration Act of 1940 did not contain the definition of the term
‘Arbitration’.
3
https://www.scribd.com/doc/54504931/Adr-Concept-and-Need.
4
Justice Malimath Committee Report (1989-90)
5
THE ARBITRATION AND CONCILIATION ACT, 1996.
 Arbitration as an ADR Mechanism 4

Arbitration is defined as “a means of settlement of disputes or differences by the decision not

of regular and ordinary courts of law but of a person or persons who are called arbitrators and
are appointed by the parties or with their actual or constructive consent”.6

“Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to

one or more arbitrators who make a binding decision on the dispute. In choosing arbitration,
the parties opt for a private dispute resolution procedure instead of going to court”.7

‘Arbitration’ includes practically every question, which might be determined by a civil

action, referred to arbitration.8 Thus, under English law, ‘Arbitration’ means the settlement of
disputes by the decision of one or more persons called arbitrators.

“The essence of arbitration is that some dispute is referred by the parties for settlement to a
tribunal of their own choice instead of to a court”.9

“ 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”.10

The definition provided by Romilly M.R. in the case of Collins V. Collins11, as “An
arbitration is a reference to the decision of one or more persons, either with or without an
umpire, of some matter or matters in difference between the parties”.12

The essence of arbitration without assistance or intervention of the court is settlement of the
dispute by a tribunal of the own choice of the parties.13

Arbitration has been defined as “the determination of a matter in dispute by the judgment of
one or more persons, called arbitrators, who in case of difference usually call in an umpire to
decide between them”.14

6
Encyclopaedia Britannica
7
World Intellectual Property Organisation (WIPO).
8
According to byrney’s law Dictionary.
9
Russel on Arbitration (20th Ed) Page 1.
10
Halsbury’s Laws of England,(4th Ed.),Vol.2, P.p 255, 501.
11
28 LJ Ch 186 : (1898) 26 Beav 306.
12
(1858)26 Beav.306, 312 reported in English cases pages 916-919
13
Dharma Pratishanam vs. Madhok Construction (p) Ltd., AIR 2005 SC 214.
14
Wharton’s Law Lexicon.
 Arbitration as an ADR Mechanism 5

From the discussion in the foregoing paragraphs, four basic features of arbitration are
discernible:

i. An alternative to the court litigation

The most salient factor differentiating court litigation from arbitration is the rigidity of
the court procedure. Arbitration can be much more flexible both in time and
procedure. As arbitration is consensual, the parties can choose the most suitable
procedure. Neither they nor the tribunal are tied to inflexible rules of court. The
Tribunal may also conduct the proceedings in the manner it considers appropriate in
case of default of the agreement by the parties. This power includes the power to
determine the admissibility, relevance, materiality and the weight of any evidence.15

ii. Arbitration Agreement

The essential requirement to attract provisions of the Arbitration and Conciliation Act
1996 is that there must be an arbitration agreement. The conception of Arbitration
Agreement is spelled out in Section 2 (1) (b) and Section 7 of the Arbitration and
Conciliation Act 1996.16 An arbitration agreement must necessarily be in writing.17

iii. Party Autonomy

The most salient feature of arbitration is party autonomy. Party autonomy

comprehends various options available to the parties with respect to the conduct of
arbitration. It also gives the parties freedom from judicial intervention except where
otherwise provided in the Act. Arbitration offers them neutrality in the choice of law,
procedure and tribunal and other details of the arbitration. As a matter of fact, Sec. 5
of the Arbitration and Conciliation Act 1996 permits court intervention in matters
governed by the arbitration law to the extent provided in the Act.

iv. Enforcement of the Award

15
Sec. 19 of The Arbitration and Conciliation Act 1996
16
Section 2 (1) (b) of the Arbitration and Conciliation Act 1996: “Arbitration Agreement means an Agreement
referred to in Section 7.
Section 7 – (1) In this Part, “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.
17
Sec. 7(3) of the 1996 Act.
 Arbitration as an ADR Mechanism 6

The award confers finality and the same has a binding effect upon the parties and also
the parties claiming under them respectively. 18 Arbitral Award means an award given
by the Arbitrator in an arbitral proceeding and Section 2(1) (c) 19 mentions that
“Arbitral Award” includes an interim award. Since the arbitrators are empowered to
give an interim award, all the provisions which are applicable to arbitral award will be
equally applicable to an interim award also. An award is nothing but a decision of the
arbitrators in writing duly signed by them.

The enforcement of an arbitral award shall be subject to law of limitation 20 as

applicable to ‘contracts’ and therefore a suit for specific performance of the award
could be filed within the prescribed period as laid down in Article 54 of the schedule
of the Limitation Act, 1963. It, therefore follows that a party cannot get an award set
aside after the expiry of the limitation period allowed in Section 34 (3) of the
Arbitration Act.

Section 36 of the present 1996 Act provides that the award shall be enforced under the
Code of Civil Procedure in the same manner as if it were a decree of a civil court.21

India is also a party to the following international conventions on arbitration:

 The Geneva Protocol on Arbitration Clauses of 1923

 The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927; and

 The New York Convention of 1958 on the Recognition and Enforcement of Foreign
Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and
ratified it on 13th July, 1961. 

Kinds of Arbitration

18
Sec. 35 of The Arbitration and Conciliation Act 1996,
19
Arbitration and conciliation Act !996.
20
Section 34(3) of The Arbitration and Conciliation Act, 1996
21
Section 33 in The Arbitration and Conciliation Act 1996 Enforcement.—Where the time for making an
application to set aside the arbitral award under section 34 has expired, or such application having been made,
it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the
same manner as if it were a decree of the Court.
 Arbitration as an ADR Mechanism 7

Arbitration may be broadly categorised into following types:-

1) Contractual Arbitration / Consensual arbitration;

2) Domestic Arbitration;
3) Ad hoc Arbitration;
4) Institutional Arbitration;
5) Statutory Arbitration;
6) International Arbitration;
7) Foreign Arbitration;
8) Flip-flop arbitration;

1) Contractual arbitration: In the present scenario, where the increase in trade and
business and growth of economy, commercial transactions increased leaps and bounds,
therefore, there were frequent occasions for cashes and disputes between the parties
which needed to be resolved. In order to seek early settlement of disputes without
approaching the court, the parties usually chose to insert an arbitration clause as an
integral part of the contract to refer their existing or future disputes to a named
arbitrator or arbitrators to be appointed by a designated authority. This has been called
as contractual in-built arbitration. The arbitration clause provides that if in future any
dispute arises between the parties they will be referred to a named arbitrator (s).

2) Domestic Arbitration: Domestic arbitration refers to arbitration, which takes place in

India, wherein parties are Indians and disputes are decided in accordance with the
substantive law of India. The term ‘domestic arbitration’ as such has not been defined
in the Arbitration and Conciliation Act of 1996. However a co joint reading of Section
2 (2) (7) of the Act 1996, it is apparent that ‘domestic arbitration’ means an arbitration
in which the arbitral proceedings are held in India, and in accordance with Indian
substantive and procedural law, and the cause of action for the dispute has wholly
arisen in India, or where the parties are subject to Indian jurisdiction.

3) Ad hoc arbitration: Without resorting to an Institution, if the parties themselves agree

and arrange for arbitration, it is termed as Adhoc Arbitration. It may be domestic,
international or foreign arbitration. In the course of a commercial transaction if a
 Arbitration as an ADR Mechanism 8

dispute arises and could not be settled amicably either by way of mediation or
conciliation, the parties have the right to seek adhoc arbitration. It is a process entrusted
to a non-institution with all the procedural laws set out in specific agreement of the
parties for that particular arbitration only.

‘Ad Hoc Arbitration’ is, therefore, arbitration agreed to and arranged by the parties
themselves, without recourse to an arbitral institution. It is; however, open to the parties
to agree to adopt the Rules framed by a particular arbitral institution without submitting
its disputes to such institution. ‘Ad Hoc Arbitration’ may be domestic or international
commercial arbitration. Section 6 of the Arbitration and Conciliation Act 1996 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 such administrative
assistance by a suitable institution or persons.

4) Institutional arbitration: When arbitration is conducted by an arbitral Institution, it is

called Institutional Arbitration. The parties may specify, in the arbitration agreement, to
refer the dispute or differences to be determined in conformity with the rules of a
particular arbitral Institution. One or more arbitrators are appointed in such arbitration
from a pre-selected panel by the governing body of the institution or even by selection
by the disputants themselves but restricted to the limited panel. “Institutional
Arbitration” is arbitration conducted under the rules laid down by an established
arbitral organization. In this kind of arbitration there will be a prior agreement between
the parties regarding the institution that they will refer to in order to resolve their
disputes in the course of a commercial transaction.

Some of the leading Indian institutions are The Indian Council of Arbitration (ICA),
New Delhi, Federation of Indian Chambers of Commerce and Industry (FICCI), New
Delhi, International Centre for Alternative Dispute Resolution (ICADR), New Delhi,
Bengal Chamber of Commerce and Industry, Indian Chamber of Commerce, the East
India Cotton Association Ltd., and the Cotton Textiles Export Promotion Council.
There are a large number of such institutions in the other metropolitan cities.

Some of the leading international institutions are, International Chamber of

Commerce (ICC), Paris, London Court of International Arbitration (LCIA), London,
London Maritime Arbitration Association (LMAA), International Centre for Settlement
 Arbitration as an ADR Mechanism 9

of Investments Disputes (ICSID), London, Grain and Feed Trade Association

(GAFTA), London, and American Arbitration Association (AAA), New York. World
Intellectual Property Organization (WIPO).

5) Statutory Arbitration: When arbitration is conducted in accordance with the

provisions of a special enactment, which specifically provides for arbitration in respect
of disputes arising on matters covered by that enactment, it is called Statutory
Arbitration

If by operation of law the court provides that the parties have to refer the matter to
arbitration it is termed as statutory arbitration.  In this kind of arbitration the consent of
the parties is not required. Thus statutory arbitration differs from the other varieties of
arbitration in two vital aspects:

i. While ad hoc, contractual and institutional arbitrations are based on the consent
of the parties, there is no question of consent in case of statutory arbitration.
ii. The other arbitrations are voluntary whereas statutory arbitration is obligatory
and binding on the parties as the law of land.

Example; Section 43 (c)22; Section 24, 31 and 32 of the Defence of India Act, 197;
Section 5 of the Delhi Transport Laws (Amendment) Act, 1971 are some of the
examples which contain provisions relating to statutory arbitration.

6) International Arbitration: When arbitration takes place within India or outside India
containing ingredients of foreign origin in relation to the parties or the subject matter of
the dispute is called as International Arbitration. Depending upon the facts and
circumstances of the case and the contract in this regard between the respective parties
the law applicable may be Indian or foreign law. To satisfy the definition of
International Arbitration it is suffice if any one of the parties to the dispute is resident
or domiciled outside India or if the subject matter of dispute is abroad.

7) Domestic Arbitration: Domestic arbitration refers to arbitration, which takes place in

India, wherein parties are Indians and disputes are decided in accordance with the
substantive law of India. The term ‘domestic arbitration’ as such has not been defined

22
Indian Trust Act, 1882.
 Arbitration as an ADR Mechanism 10

in the Arbitration and Conciliation Act of 1996. However a co joint reading of Section
2 (2) (7) of the Act 1996, it is apparent that ‘domestic arbitration’ means an arbitration
in which the arbitral proceedings are held in India, and in accordance with Indian
substantive and procedural law, and the cause of action for the dispute has wholly
arisen in India, or where the parties are subject to Indian jurisdiction.

8) Flip-Flop Arbitration: Flip-flop Arbitration is defined as being ‘A form of arbitration

under which the arbitrator bases his award on the submission he considers most
reasonable. It is claimed that this encourages parties to be more reasonable in their
submissions and reduces polarization’ .Flip Flop Arbitration is also called as
‘Pendulum Arbitration’.

International Commercial Arbitration23

The term ‘International Commercial Arbitration’ has been defined in Sec. 2 (1) (f) of the
Arbitration and Conciliation Act 1996. International Arbitration is ‘commercial’ if it relates
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-

(1) An individual who is a national of, or habitually resident in, any country other than
India or
(2) A body corporate which is incorporated in any country other than India, or
(3) A company or an association or a body of individuals whose central management and
control is exercised in any country other than India or
(4) The government of a foreign country.

In International Commercial Arbitration the arbitral tribunal shall decide the dispute in
accordance with the rules of law designated by the parties as applicable to the substance of
the dispute; any designation by the parties of the law or legal system of a given country shall
be construed, unless otherwise expressed, as directly referring to the substantive law of that
country and not to its conflict of laws rules.24

23
Section 2 (1) (f) of Arbitration and Conciliation Act 1996.
24
Sec. 28 (b) (i) (ii) of the Arbitration and Conciliation Act.
 Arbitration as an ADR Mechanism 11

In Gas Authority of India Ltd. Vs Spie Capag.,25 it was held that a commercial arbitration
agreement will be international in character in the following circumstances-

(1) If one of the parties has business located abroad; or

(2) The agreement has to be performed abroad; or
(3) The subject-matter of the transaction is located abroad; or
(4) One of the parties to the transaction is a foreign nation.

Fast Track Arbitration

The establishment of Fast Track Arbitration is a recent development in the arbitration regime
for achieving timely results thereby lowering the cost and eliminating difficulties associated
with traditional arbitration. Fast Track Arbitration is a time bound device with stricter rules
of a procedure which do not allow for any laxity or scope for extensions of time and delays.

Fast Track Arbitration is particularly useful in resolving disputes relating to patents, trade-
mark laws, time-bound construction work projects, licensing contracts, franchises etc. where
urgent decisions are required to be taken.

The reduced span of time makes it cost effective. As the arbitral process became more and
more complex, the ultimate users, i.e. The major arbitral institutions all over the world,
notably the ICC court became 55 more critical about the usual arbitral process and started
looking for more time as well as cost effective ways for resolving the disputes by arbitration
albeit getting through the surrounding foliage in order to reach to the essential issues as soon
as possible by adopting an accelerated procedure. This generated the notion of ‘Fast Track
Arbitration’ or ‘Documents only arbitration’. This precisely means that in the absence of an
agreement by the parties that there shall not be oral hearings, the arbitral tribunal may upon
request, and put forth by a party shall permit oral hearing during the appropriate phase of the
proceedings. Awards in fast track arbitrations are final and binding, are like decrees of the
court, and are most effective when immediate dispute redress is required, and there is no need
to go into minute details of facts, and intricate questions of law. Pleadings are filed within the
stipulated time frame, failing which, the arbitration does not proceed or proceeds ex parte,
and arbitrators make the arbitration does not proceed or proceeds ex parte, and arbitrators
make the award in the least possible time. It is relevant to note here that Fast Track
25
AIR 1994 Del. 75.
 Arbitration as an ADR Mechanism 12

Arbitration, as its name suggest, is still an arbitral process seeking to resolve the dispute
between the parties by arbitration and it is not an ADR technique like mediation or
conciliation. The resulting award is binding on parties26 and enforceable as a decree of the
court.27

Advantages of Arbitration over Litigation

1. Arbitration carries a number of advantages over usual method of dispute resolution of

redresses through a court of Law.

2. Arbitration promises privacy. In a civil court, the proceedings are held in public.

3. Arbitration provides liberty to choose an arbitrator, who can be a specialist in the

subject matter of the dispute. Thus, arbitrators who are sector specialists can be selcted
who resolve the dispute fairly and expeditiously.

4. The venue of arbitration can be a place convenient to both the parties. Likewise the
parties can choose a language of their choice.

5. Even the rules governing arbitration proceedings can be defined mutually by both the
parties.

6. 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.

7. 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.

8. 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. 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.

26
Sec. 35 of The Arbitration and Conciliation Act 1996
27
Sec. 36 of The Arbitration and Conciliation Act 1996
 Arbitration as an ADR Mechanism 13

9. 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.

10. In a large number of cases, ‘Arbitration’ facilitates the maintenance of continued

relationship between the parties even after the settlement.

Some Important Concepts

Arbitration Agreement

“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 out of a defined legal
relationship, whether contractual or not. An Arbitration Agreement maybe in the form of an
arbitration clause in a contract or in the form of a separate agreement. It shall be in writing.

An Arbitration Agreement is the very foundation on which the whole arbitration procedure
rests. If there is no valid Arbitration Agreement, there can’t be a valid arbitration. An
Arbitration Agreement is a contract and it must satisfy all the essential elements of a contract.
As per the Contract Act, 1872, an agreement between two parties which is enforceable by law
is a contract. Section 11 of the Contract Act provides that all agreements are contract if they
are:

1. Made by the “Free Consent” of parties competent to contract.

2. For a Lawful Consideration and with Lawful objects, and

3. Are not expressly declared to be void.

The essential requirement to attract provisions of the Arbitration and Conciliation Act 1996
is that there must be an arbitration agreement. The question what is an arbitration agreement
assumes importance because an arbitration agreement is the foundation on which the
jurisdiction of an arbitrator rests.
 Arbitration as an ADR Mechanism 14

The conception of Arbitration Agreement is spelled out in Section 2 (1) (b) of the Arbitration
and Conciliation Act 199628 and Section 7 of the Arbitration and Conciliation Act 1996.29
These provisions are analogous to Section 2(a) of the old Act 1940 30 and Article 7 of
UNCITRAL Model law31.The applicability of the Act does not depend upon the dispute being
a commercial dispute. Reference to arbitration and arbitrability depends upon the existence of
an arbitration agreement and not upon the question whether it is civil dispute or commercial
dispute. Therefore significance is attached to the framework of arbitration agreement.

 It is important that the arbitration clause so drafted is not vague, confusing or uncertain in
any manner whatsoever. It must clearly bring out the intention of the parties to refer all or
certain disputes, as the case may be, to arbitration, as well as the manner in which such
arbitration is to be conducted. Some essentials of an arbitration agreement can be as under:

i. An arbitration agreement must be in writing;

28
Section 2 (1) (b) of the Arbitration and Conciliation Act 1996:
“Arbitration Agreement means an Agreement referred to in Section 7.
29
Section 7 –
(1) In this Part, “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.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in - (a) a document signed by the parties (b) an
exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the
agreement or
(c) 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.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration
agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the
contract
30
Section 2 in The Arbitration Act, 1940 Definitions:
In this Act, unless there is anything repugnant in the subject or context,-
(a) " arbitration agreement" means a written agreement to submit present or future differences to
arbitration, whether an arbitrator is named therein or not;
31
Article 7 – Definition and form of arbitration Agreement;
(1) “Arbitration Agreement’ is 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 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.
(2) The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document
signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which
provide a record of the agreement, or in an exchange of statements of claim and defence in which the
existence of an agreement is alleged by one party and not defied by another. The reference in a contract to a
document containing an arbitration clause constitutes an arbitration agreement provided that the contract is
in writing and the reference is such as to make that clause part of the contract.
 Arbitration as an ADR Mechanism 15

ii. An arbitration agreement must comply with the requirements of a valid contract;

iii. An arbitration agreement must be in respect of a dispute that is arbitrable;

iv. Parties may agree on the number of arbitrators and their nationalities (subject to it
being an odd number);

v. Parties may agree on the seat and the venue of the arbitration proceedings;

vi. Parties may agree on their choice of procedure or even to have the arbitration
administered by an arbitral institution under its rules;

vii. Parties may agree on the language of proceedings and pleadings;

In cases of an international commercial arbitration, in addition to the above:

viii. Parties can choose the governing law of the contract and the governing law of the
arbitration agreement;

ix. Depending upon the seat of the arbitration, parties can also choose whether they
prefer to exclude any or all provisions contained in Part 1 of the Act.

Parties must also decide whether they wish to refer disputes to an arbitral institution instead
of ad-hoc arbitration. It may be noted here that institutional arbitration in India has now come
of age and reputed institutions like the London Court of International Arbitration and the
Singapore International Arbitration Centre have a presence in India.

Parties must take care to ensure that the arbitration agreement is crystal clear and leaves no
room for creative and ingenious misinterpretation. Their intention to resolve disputes by way
of arbitration and the manner in which such arbitration is to be conducted must come through
without a doubt. It must be remembered that the devil can and often does lie in the details.

In a recent judgment , in the case of Mody v. Kerwala32, a learned Single Judge of the

Bombay High Court has considered the requirement that an arbitration agreement must be in
writing. The learned single Judge has held that s. 7 not only imposes a requirement that the
arbitration agreement must be in writing; but also provides for the exclusive modes
of proving the existence of the written agreement.

32
Delivered on September 19, 2013.
 Arbitration as an ADR Mechanism 16

The definition contemplates two types of agreements. One in which the parties agree to refer
to arbitration certain or specific disputes only and the agreements in which “all disputes” are
agreed to be referred.

For example, in a building and engineering contract parties agree to refer to arbitration
certain disputes and exclude from the scope of arbitration certain other types of disputes such
as quality of materials, workmanship, etc. Such provisions are called in the construction
industry as “excepted matters”.

If one party asserts a right and the other repudiates the same that is a dispute. The meaning of
the word ‘dispute’ is “a controversy having both positive and negative aspects. It postulates
the assertion of a claim by one party and its denial by the other” - Canara Bank and others
V. National Thermal Power Corporation and another33.

Reference can be made if there is a dispute, i.e. a assertion made by one party and rejected or
denied by the other party and the reference has to be made in accordance with the provisions
of the agreement - Continental Construction Ltd., V. National Hydro electric Power Corp.
Ltd34.

The application for arbitration can be made only when a dispute arises between the parties to
the arbitration - Jammu Forest Co. V. State of J & K35.

Dispute must be in respect of a defined legal relationship whether contractual or not as

required under Section 7 (1)36. There are number of relationships which are legal such as a
landlord and tenant, employer and employee, businessman and customer, employer/owner
and contractor, partner and partner. These relationships are also contractual irrespective of the
fact whether there exists a formal contract or not. The phrase “whether contractual or not”
also covers disputes arising out of quasi contractual relationships, of the type contemplated
by Section 70 of the Indian Contract Act.

33
(2001) 1 SCC 43
34
1998 (1) Arb LR 534 (Del)
35
AIR 1968 J & K. 86
36
The Arbitration and Conciliation Act 1996
 Arbitration as an ADR Mechanism 17

Apart from statutory relationships, there are tortuous relationships. Claims based on tort can
be subject matter of arbitration, if arising out of, or in relation to, or in connection with, the
contract - BHEL V. Assam S. E. Bd.37 referred to U.O.I. V. Sahreen Timber Construction38.

Arbitral Tribunal: Sec 2(1)(d) defines the term Arbitral Tribunal to mean a sole arbitrator or a
panel of arbitrators. The number of arbitrators is mutually decided by the parties. However,
the Arbitral Tribunal must consist of an uneven number of arbitrators e.g. one, three or five
arbitrators.

Referring disputes to Arbitration:

Generally speaking, all disputes of a civil nature or quasi-civil nature, which can be decided
by a civil court, can be referred to arbitration. Thus disputes relating to property, right to hold
an office, compensation for non-fulfilment of a clause in a contract, disputes in a partnership
etc. can be referred to arbitration. Thus disputes arising in respect of defined legal
relationship, whether contractual or not, can be referred to Arbitration.

Disputes which cannot be referred to Arbitration: 

All disputes arising between the parties out of a valid contract are preferable to the arbitration
for adjudication excepting those which are directly or impliedly prohibited by law to be
referred to the arbitration. It may be noted as a general rule that all matters of a civil nature
which can form the subject matter of a suit within the meaning of Section 9 of the Code of
Civil Procedure can be referred to arbitration. In other words criminal matters, especially the
ones which the policy of law would not permit to be compromised, cannot be referred to
arbitration. The matters covered by a statutory provision requiring adjudication in a particular
manner, cannot be permitted to be referred to the arbitrator even with the consent of the
parties. Where the law has given jurisdiction to determine, certain matters to specified
tribunals only, such matters cannot be referred to arbitrations, examples which is not
exhaustive.

If a matter is governed by any other law which excludes reference to Arbitration, this Act will
not apply. Since in those cases, the law has given precise jurisdiction to specified courts or

37
(1990) 1 Arb. LR 335 Gau. J
38
AIR 1969 SC 488
 Arbitration as an ADR Mechanism 18

tribunals only, those cases cannot be decided through the mechanism of Arbitration. The
following matters in general practice, are not arbitrable.

 Insolvency matters;

 Matrimonial causes (except matters pertaining to settlement of terms of separation or

divorce)

 Testamentary matters; e.g validity of a Will.

 Suit under section 92 of the Code of Civil Procedure, 1908.

 Proceedings for appointment of guardian of a minor or lunatic person.

 Industrial disputes.

 Criminal proceedings [excepting matters relating to compoundable offences].

 Relating to charities.

 Pertaining to dissolution or winding up of a company incorporated and registered

under the provisions of the Companies Act, 1956 (Haryana Telecom Ltd. vs. Sterlite
Ind. Ltd.) 1999 (4) L.J. (S.C.) 389.

 Pertaining to title to immovable property in a foreign countr- Nachiappa Chettiar V.

Subramaniam Chettiar 39

 Relating to possession of leased premises governed by the provisions of the Bombay

Rent, Hotel and Lodging House Rates Control Act, 1947.

 Claim for recovery of octrio duty - Union of India V. Nagar Mahapalika40

 Similarly matters which are exclusively within the jurisdiction of the matrimonial
courts cannot be referred to the arbitrator for adjudication - V.V. Pushpakaran V.
P.K. Sarojin41

39
AIR 1960 SC 307.
40
ILR 1971 All 795 (FB)
41
AIR 1992 Ker. 9.
 Arbitration as an ADR Mechanism 19

Conclusion