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E-Notes

Class : BBA LL.B/ B.A.LL.B V Semester

Paper Code : LLB 309

Subject : Alternative Dispute Resolution (ADR)

UNIT III-

ARBITARTAION & CONCILIATION

Arbitration Agreement, Essentials, Rule of Severability

Arbitration is a form of alternative dispute resolution (ADR), which is a legal technique settling
the disputes outside courts, wherein the parties to a dispute refer it to one or more persons, by
whose decision they agree to be bound. The persons to whom the dispute is referred to are called
the arbitrator or arbitral tribunal. The basic concept of arbitration is that the parties must repose
trust and faith in a person or a committee for deciding and must agree to accept such decision.
Arbitration is a settlement technique in which a third party reviews the case and imposes a
decision that is legally binding for both sides. Other forms of ADR include mediation and non-
binding resolution by experts. It is more helpful, however, simply to classify arbitration as a form
of binding dispute resolution, equivalent to litigation in the courts, and entirely distinct from the
other forms of dispute resolution, such as negotiation, mediation, or determinations by experts,
which are usually non-binding.
Arbitration is most commonly used for the resolution of commercial disputes, particularly in the
context of international commercial transactions. In the recent past and at present Arbitration is
the most sought after mode of settling disputes between in view of the increased number of
pending cases and the time consuming processes of the courts. The main characteristics of
Arbitration are:
 Arbitration is consensual
 The parties choose the arbitrator(s)
 Arbitration is neutral
 Arbitration is a confidential procedure
 The decision of the arbitral tribunal is final and easy to enforce.

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 The Indian Government has passed the Arbitration Act, 1940 which was later replaced by
the Arbitration and Conciliation Act, 1996.

Arbitration Agreement

An Arbitration agreement means an agreement by the parties to submit to arbitration the disputes
which may have arisen or which may arise between them in respect of a defined legal
relationship, may it be contractual or not.
Section 2 (a) of the Arbitration Act, 1940 (now repealed) defines an arbitration agreement as a
written agreement to submit present future differences to arbitration, whether an arbitrator is
named therein or not. An arbitration agreement according to the 1940 Act should be a written
document with the consensus of the parties and reference to a dispute. This definition was
replaced by Section 7 in the 1990 Act. 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) 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
(c) An exchange of statements of claim and defense in which the existence of the agreement is
alleged by one party and not denied by the other.
There 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. This section is modeled on UNCITRAL Model Law. In
simple words an arbitration agreement is an agreement between the parties to refer their disputes
to the arbitral tribunal. To constitute arbitration agreement, first of all there should be an
agreement, that is, ad idem. An arbitration agreement like all other contracts must satisfy all the
essential requirements of section 10 of the Indian Contract Act, 1872 i.e., the parties to the
arbitration agreement must be competent to enter into a contract and the agreement should be
made by the free consent of the parties.
Furthermore, the parties should have the intention of entering into a legally binding obligation.
However, if the arbitration agreement does not fulfill the requirements of section 10 of the Indian
Contract Act, the arbitration agreement becomes void and any award given to either of the
parties will not be enforceable.

Features of Arbitration Agreement

1. Arbitration Agreement Should Be In Writing: S 7 clearly specifies that the

Arbitration Agreement should be in writing. It says that an Arbitration Agreement shall

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be in writing, an oral agreement to settle a dispute to Arbitration is not binding. If the

Agreement is in writing it will bind, even if some of its details are filed in by oral
understanding.
Telex and Fax
An agreement by telex has been held to be an agreement in writing. A tacit acceptance of
a written quotation which contained an arbitration clause is sufficient to comply with the
requirements of an agreement in writing. The court ruled this in the case of Banarasi Das
v Cane.
Exchange of Letters
In the case of, Ganga pollution control unit, U.P. Jal Nigam v. Civil Judge, a letter was
sent by one party to the other suggesting settlement of disputes, if any through arbitration.
The other party accepted the same. This exchange of letters was held to have constituted
an Arbitration agreement.
2. No Prescribed Form Of Agreement
In Rukmini bai v Collector, Jabalpur, the Supreme Court laid down that an arbitration
clause is not required to be stated in any particular form .If the intention of the parties to
refer the dispute to arbitration can be clearly ascertained from the terms of the agreement,
it is immaterial whether or not the expression arbitration or arbitrator has been used. Nor
is it necessary that it should be contained in the same contract document. An arbitration
clause may be incorporated into an existing contract by specific reference to it.
An Arbitration agreement may be in the form of a separate contract or in the form of a
clause in a normal contract. Section 16 (1) of the Arbitration and Conciliation Act, 1996
provides that an arbitration clause which forms part of a contract shall be treated as an
agreement independent of the other terms of the contract and that a decision by the
arbitral tribunal that the contract in null and void shall not ipso facto entail the invalidity
of the arbitration clause. Nevertheless, if a contract is illegal and void, an arbitration
clause which is one of the terms thereof is also illegal. The Supreme Court stated the
essential elements of an Arbitration agreement to be as follows,
o The existence of a present possibility or of a future difference.
o The intention of the parties to settle such difference by a private tribunal.
o The agreement in writing to be bound by the decision of the tribunal and that the
parties must be ad idem.
o Nature of disputes
o Disputes which can be referred to Arbitration are:
o Present or future disputes which are,
o In respect of a defined legal relationship whether contractual or not, Present or
future disputes All matters of a civil nature with a few exceptions, whether they
relate to present or future disputes, may form the subject of reference but not a
dispute arising from and founded on an illegal transaction. Though the existence
of a dispute is essential to the validity of a reference to arbitration, an arbitration
agreement may provide for a present or a future dispute. If the agreement relates

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to a present dispute it will generally amount to a reference but if it has been

entered into merely to provide for any future dispute it is an arbitration clause.
3. Defined legal relationship
S. 7 (1) of the arbitration and conciliation act, 1996 requires that the disputes must be in
respect of a defined legal relationship whether contractual or not. It follows that the
dispute must be of a legal nature. Matters of moral or spiritual relations are not fit
subjects for arbitration. If a contract is not enforceable for want of legal relationship, the
question of arbitration in respect of such a contract would not arise. The word defined
would signify the known categories of legal relationships and also upcoming categories.
If the matter or transaction is outside the known categories of relation under which legal
rights or liabilities are likelyto be created, it would not be an arbitral matter.

4. Cases of Special Jurisdiction

Where the law has given jurisdiction to determine certain matters to specified tribunals
only, such matters cannot be referred to Arbitrations, e.g.: Insolvency proceedings,
Probate proceedings, Suit under s 92 CPC, Proceedings for appointment of guardian,
Matrimonial causes--- except settlement of terms of separation or divorce, Industrial
disputes, Title of an immovable property and Claim for recovery etc.

Arbitration Agreement and Reference

The expressions arbitration agreement and reference have been separately defined. Explaining
the purpose and effect of this scheme the Supreme Court has observed,"The expression
(reference) obviously refers to an actual reference made jointly by the parties after disputes have
arisen between them for adjudication to named Arbitrator or Arbitrators, while the expression
Arbitration Agreement is wider as it combines two concepts”. A bare agreement between the
parties that disputes arising between them should be decided over or resolved through
Arbitration and an actual reference of a particular dispute for adjudication to named Arbitrator.
The term Arbitration Agreement covers both the concepts (a) and (b). If that be so its stands to
reason that only when the Arbitration agreement is of the former type, namely, a bare agreement
,a separate reference to arbitration with fresh assent of both the parties will be necessary and in
the absence of such consensual reference resort to s 20 will be essential, but where the
Arbitration Agreement conforms to the definition given in s 2 (1)b of 1996 act the party desiring
arbitration can straight away approach the arbitrator and resort to s 8 of 1996 act, is unnecessary
because consent to such actual reference to arbitration shall be deemed to be there as the second
concept is included in the agreement signed by the parties. The fact that differences or disputes
actually arose subsequently would be inconsequential because the arbitration agreement as
defined in s 7 of 1996 act covers not merely present but future differences also.
In the case of Banwari Lal Kotiya v P.C. Aggarwal there was a deal about shares between a stock
exchange member and an outsider under which a sum of money had become due to the member.

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The parties signed the contract-notes on a prescribed form. The transaction was subject to the
rules, regulations and bye-laws of the stock exchange, one of which provided for arbitration in
such matters. The member appointed his arbitrator the other refuse to reciprocate. In such cases
the rules provided for appointment for the Exchange. The latter accordingly appointed one. The
other party participated in the proceedings under protest that he had not given his consent and,
and therefore, the award would not be binding on him. The Supreme Court came to the
conclusion that no fresh consent was necessary on his part. He had consented to the rules and
regulations which contained elaborate machinery for submission. No fresh consent was
necessary.

Attributes Of an Arbitration Agreement

 The arbitration agreement must contemplate that the decision of the Tribunal will be
binding on the parties to the agreement.
 That the jurisdiction of the Tribunal to decide the rights of parties must derive either from
the consent of the parties or from an order of the Court or from a statute the terms of
which make it clear that the process is to be an arbitration,
 The agreement must contemplate that substantive rights of the parties will be determined
by the agreed Tribunal.
 That the Tribunal will determine the rights of the parties in an impartial and judicial
manner with the Tribunal owing an equal obligation of fairness towards both sides.
 That the agreement of the parties to refer their disputes to the decision of the Tribunal
must be intended to be enforceable in law and
 The agreement must contemplate that the Tribunal will make a decision upon a dispute
which is clearly formulated at the time when a reference is made to the tribunal.

The other factors which are relevant include whether the agreement contemplates that the
Tribunal will receive evidence from both sides and hear the contentions or at least give the
parties an opportunity to put them forward; whether the working of the agreement is consistent
or inconsistent with the view that the process was intended to be an arbitration, and whether the
agreement requires the Tribunal to decide the dispute according to law. Therefore, our courts
have laid emphasis on the existence of disputes as against intention to avoid future disputes; the
Tribunal or Forum so chosen is intended to act judicially after taking into account relevant
evidence before it and the submissions made by the parties before it and the decision is intended
to find the parties. Thus we can conclude the essential features of Arbitration Agreement From
the above discussion, as the parties should have the intention to enter into an arbitration
agreement. The agreement should comply with all the conditions of a contract as per the Indian
Contract Act, 1872. The agreement should in reference to a dispute i.e., it should be for the
reference of an existing or a future dispute to an arbitrator or a arbitral tribunal. The arbitration
agreement should be in written

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Doctrine of Severability

The “severability doctrine" was articulated comprehensively by the United States Supreme Court
in Prima paint Corp v. Flood & Conklin Manufacturing Co. where the Court ruled that
arbitration clauses can be ‘separable’ from the contracts in which they are included. The plaintiff
in Prima paint Corp brought an action to rescind a contract on the grounds that the contract has
been fraudulently induced. The defendant moved to stay the court action, invoking the contract’s
arbitration clause and contending that an arbitrator, and not a court, should decide whether the
contract was valid. Agreeing with the defendant, the Supreme Court concluded that because the
plaintiff was challenging the underlying contract generally rather than the arbitration clauses
specifically, arbitration of plaintiff’s fraudulent inducement claims were required. The court was
careful to distinguish this from a claim that the arbitration clause itself had been fraudulently
induced. The doctrine would not apply in situations where parties claim that they never agreed to
arbitrate, or they were fraudulently induced into signing an arbitration agreement.
In the international context, arbitration clauses are generally deemed to be presumptively
"separable" or "severable" from the underlying contract within which they are found. The
"severability doctrine" is specifically provided for by leading institutional arbitration rules, and
by national arbitration legislation or judicial decisions from many jurisdictions, including the
United States and India.
The severability doctrine provides that an arbitration agreement, even though included in and
related closely to an underlying commercial contract, is a separate and autonomous agreement.
According to a leading international arbitral award, "The principle ... of the autonomy or the
independence of the arbitration clause has been upheld by several decisions of international case
law." The analytical rationale for the severability doctrine is that the parties' agreement to
arbitrate consists of promises that are distinct and independent from the underlying contract: "the
mutual promise to arbitrate form the quid pro quo of one another and constitute a separable and
enforceable part of the agreement."
The severability doctrine is regarded as having important consequences for the arbitral process:
"Acceptance of autonomy of the international arbitration clause is a conceptual cornerstone of
international arbitration." Among other things, the severability doctrine is generally understood
as implying the continued validity of an arbitration clause (notwithstanding defects in the parties'
underlying contract), and as permitting the application of different substantive laws to the parties'
arbitration agreement and underlying contract.
The UNCITRAL Model Law, the Swiss Law on Private International Law, the English
Arbitration Act, 1996, the Indian Arbitration and Conciliation Act, 1996 and the Federal
Arbitration Act ("FAA"), as well as provisions from the UNCITRAL, ICC, and LCIA arbitration
rules introduce the severability doctrine.
A Soviet arbitral tribunal in All-Union Export-Import Association v. JOC Oil Ltd, by its award
dealt rigorously with the severability doctrine and other related issues. The "Association" or
"SNE" was a foreign trade organization established under the laws of the former Union of Soviet
Socialist Republics ("USSR"). In 1976, SNE entered into various agreements to sell quantities of
oil to JOC Oil Limited ("JOC"), a Bermuda company. The purchase agreements incorporated
SNE's standard conditions, which contained the following arbitration clause: "All disputes or

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differences which may arise out of this contract or in connection with it are to be settled, without
recourse to the general Courts of law, in the Commission of the U.S.S.R. Chamber of Commerce
and Industry in Moscow ["FTAC"], in conformity with the rules of procedure of the above
Commission". JOC took delivery of 33 oil shipments (worth approximately $100 million)
without paying for them. Following JOC's non-payment, SNE initiated arbitration under the
arbitration clause set forth above. JOC replied, in part, by claiming that the purchase agreement
had not been executed by two authorized representatives of SNE and accordingly was void under
Soviet law. JOC also alleged that, as a consequence, the arbitral tribunal lacked competence to
adjudicate the dispute because the arbitration clause was void. SNE claimed that the sales
agreement was not void and that, even if it were, the arbitration clause was separable and the law
applicable to that agreement did not require two signatures to be valid. As a result the arbitral
tribunal held that "the Commission has recognized that an arbitration agreement (arbitration
clause) is a procedural contract, independent from the material-legal contract and that therefore
the question as to the validity or invalidity of this contract does not affect the agreement of the
parties about the submission of the existing dispute to the jurisdiction of the FTAC. The
Commission has come to the conclusion that the arbitration clause contained in the contract is
valid and therefore in accordance with the right assigned to it has recognized itself as competent
to hear the dispute as to its essence and to rule upon it. The arbitral tribunal further held that,
although the underlying sales contract was void, Soviet principles of restitution applied. Under
these principles, the tribunal awarded SNE the value of the oil shipped to JOC Oil, at the then-
prevailing international oil prices. It also awarded SNE lost profits realized by JOC Oil (in an
amount equal to market interest rates. This produced an award of approximately $200 million in
SNE's favour.
After the arbitral award was made against JOC Oil, Sojuznefte export sought to enforce it in
Bermuda. The first instance court denied recognition on various grounds, including that the
arbitral tribunal lacked jurisdiction. The court held that "based on the Tribunal's finding that the
underlying contract was invalid ab initio, then under both Soviet and English law there never was
any contract between the parties from the very onset as such there never was an arbitration clause
or agreement which could be submitted to arbitration." This judgment was reversed on appeal.
Finally, the U.S. Supreme Court's decision in Prima Paint Co. v. Conklin Mfg Co., is one of the
cases of seminal treatment of the severability doctrine by a national court, Justice FORTAS said
"This case presents the question whether the federal court or an arbitrator is to resolve a claim of
"fraud in the inducement," under a contract governed by the Federal Arbitration Act, 1925,
where there is no evidence that the contracting parties intended to withhold that issue from
arbitration”. Flood & Conklin Manufacturing Company ("F&C") entered into a Consulting
Agreement with Prima Paint Corporation ("Prima Paint"); at about the same time, Prima Paint
also purchased F&C's paint business. The Consulting Agreement obligated F&C to assist Prima
Paint's exploitation of the paint business, and forbid it from competing with that business.
The agreement contained what the Court termed "a broad arbitration clause," which provided:
"Any controversy or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration in the City of New York, in accordance with the rules then
obtaining of the American Arbitration Association..." One week after the Consulting Agreement
was executed; F&C filed a bankruptcy petition. Prima Paint thereafter withheld amounts payable

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under the agreement and notified F&C that it had breached the contract by fraudulently
representing that it was solvent. F&C then served a notice of intention to arbitrate. Prima Paint
responded by filing suit in federal district court, seeking to rescind the Consulting Agreement on
grounds of fraudulent inducement. F&C moved to stay the judicial action pending arbitration.
The District Court granted F&C's motion to stay the action pending arbitration, holding that a
charge of fraud in the inducement of a contract containing an arbitration clause as broad as this
one was a question for the arbitrators and not for the court. For this proposition it relied on
Robert Lawrence Co. v. Devonshire Fabrics, Inc120. The Court of Appeals for the Second
Circuit dismissed Prima Paint's appeal. It held that the contract in question evidenced a
transaction involving interstate commerce; that under the controlling Robert Lawrence Co.
decision a claim of fraud in the inducement of the contract generally as opposed to the arbitration
clause itself, is for the arbitrators and not for the courts and that this rule of "national substantive
law" governs even in the face of a contrary state rule. We agree, albeit for somewhat different
reasons, and affirm the decision of the District Court.
The case of Great Offshore Ltd. v. Iranian Offshore Engineering and Construction Company,
decided by a single judge bench of the Supreme Court as recently as August 2008, is a very
important shot in the arm for arbitration in India. The case involved a dispute between the two
parties over the existence of an arbitration agreement. The contentions centred upon a series of
mutual exchanges of faxes and letters, at the conclusion of which Great Offshore Ltd. (GOL)
sent a Charter Party Agreement (CPA) to Iranian Offshore Engineering and Construction
Company (IOE) on 22 August 2005. GOL subsequently contended that a faxed copy of the CPA
with its signature was provided to it by IOE on 12 October, whereas IOE alleged that the
document was forged.
In the meanwhile, IOE, in an email dated 14 September had stated that the CPA was ready and
had even agreed to deliver it to GOL. However, in a subsequent letter on 23 September, it put in
certain specific demands as a pre-condition to its signing the CPA. GOL contended that the pre-
conditions were not acceptable. And in any event, it alleged that IOE had given its approval to
the CPA through the 14 September email. Consequently, it requested IOE to dispatch the signed
CPA as soon as possible and honour its commitments. IOE, in response, strongly denied any
concluded contract between the parties and contended that the matter had not progressed beyond
the negotiation stage. Therefore, on the ground that there was an arbitration agreement, GOL
moved the Supreme Court for the appointment of a sole arbitrator under Section 11 of the
Arbitration and Conciliation Act. As per its holding in the Patel Engineering Case, the Supreme
Court limited its consideration to the judicial determination of the existence of an arbitration
agreement. This hinged on the fact whether a valid contractual agreement existed between the
parties. GOL raised a number of contentions. First, that the CPA was signed by both the parties.
Second, this fact was not denied in the pleadings. Third, placing reliance on 14 September email,
it contended IOE had signed the original CPA. Fourth was that this fact was not initially denied
by IOE. IOE, in its counter, contended that the original copy was never sent back to GOL as the
matter was pending negotiations. Further, it requested the Court to look at the ‘intent’ of the
parties, rather than disputed documents. Thus, it asserted that as most of the material clauses in
the contract were left unsettled, there was no ‘meeting of minds’ between the parties. The Court
remarked that the matter turned on the question whether the faxed CPA with IOE’s signature was

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a ‘forged document’. It observed that as CPA appeared to be prima facie valid and IOE could not
discharge its burden to prove forgery, the CPA was not forged. Therefore, it concluded that as
the document was validly signed contractual agreement, IOE was bound by the same.
It buttressed its conclusions by relying on Section 7 of the Arbitration & Conciliation Act, 1996.
Section 7 defines ‘arbitration agreement’. Section 7(3) states that the agreement should be in
writing. Section 7(4) (a) states that an arbitration agreement is in writing if it is a document
signed by both the parties. Section 7(4) (b) provides that an exchange of letters, telex or other
means of telecommunications can amount to an agreement in writing, provided a record of such
agreement is contained therein. Relying on these provisions, the Court concluded that there is no
requirement of the document containing the contract to be original (in this case, the CPA; a faxed
copy of the same was sent back to GOL while IOE had retained the original). It can be a copy of
the original.
It also observed that there is no requirement of the document to be signed on every page.
Interpreting Section 7(4) (b), it stated that ‘fax’ comes under the purview of ‘other means of
telecommunication’ and signature of the parties is sufficient attestation of an agreement on
record. Thus, the Supreme Court made light work of the objections raised by IOE on formalities
and technicalities of the requirement of an arbitration agreement, and concluded that a valid
arbitration clause was in existence.
This case is important mainly for the reason that by giving a wide scope to the language of
Section 7, and bringing communication by fax within the ambit of Section 7, the Court has
shown itself to be abreast of times, especially with regard to commercial transactions. There is an
increasing awareness in the commercial world that transactions are no longer limited to paper
and pen, and traditional laws must be evolved to take into accounts disputes that arise out of
transactions that take place through electronic media. As recently as 2003, for instance, an
advisory opinion has been written that seeks to include electronic media within the scope of the
United Nations Convention on Contracts for the International Sale of Goods (CISG).
Furthermore, it can also be said that in this judgment the Court has given primacy to substance
over form, holding that if, in actuality, an arbitration agreement was concluded, it should not be
rejected on mere technicalities. Thus, on both these grounds, the judgment of the Supreme Court
can be praised as one that will improve the perception of India as a destination both for
commerce, and for the use of arbitration.
The scope of this judgment is limited to arbitration agreements, which may or may not be part of
the main contract between the parties, and therefore can be viewed at independent of the
requirements to complete a contract under the ICA. Even in situations where the arbitration
agreement is part of the main contract between the parties, there is an interesting issue relating to
the doctrine of severability. In accordance with the doctrine of severability, the arbitration clause
can be treated separate from the main contract and its existence and validity is to be established
separately from the main contract. For example, there may be a situation where a standard form
contract is being used, that contains the arbitration clause as well. Suppose further that the
offeror chooses to revoke his offer with the simple phrase, "I revoke my offer to purchase x from
you." Under the doctrine of severability, while the original offer is certainly revoked, it can be
argued that such revocation did not extend to the arbitration agreement as well. Carrying the
doctrine of severability to its logical conclusion, the tests of validity of contracts and of

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arbitration agreements therefore need not be the same. So this judgment is important in
upholding one particular way of the formation of arbitration agreements, as opposed to main
contracts.
Hence what in effect needs to be done is clarity on the doctrine and its applicability under Indian
conditions for a clearer picture of the Indian Arbitration scenario and more particularly the trade
and commercial space in India.

Composition of Arbitral Tribunals

Section 12.Number of arbitrators: The parties are free to determine the number of arbitrators.
Failing such determination, the number of arbitrators shall be three.

Section 13.Appointment of arbitrators: The arbitrators shall be impartial and independent of

the parties and shall be qualified for the office. The parties shall if possible appoint the
arbitrators jointly.
If the arbitral tribunal is to comprise three arbitrators and the parties fail to agree on its
composition, each party shall appoint one arbitrator. The time-limit for making the appointment
shall be one month after the party received the request to appoint an arbitrator. The two
arbitrators thus appointed shall within one month jointly appoint the third arbitrator who shall act
as chairman of the arbitral tribunal. If the arbitral tribunal cannot be established pursuant to the
agreement or subsections 2 or 3, each of the parties may ask the court to appoint the remaining
arbitrator or arbitrators. Such appointment shall not be subject to any appeal. The parties may
contract out of the provisions of subsections 1, 2 and 3.

Section 14.Grounds for challenge of arbitrators: When a person is approached in connection

with his possible appointment as an arbitrator, he shall of his own accord disclose any
circumstances likely to give rise to justifiable doubts about his impartiality or independence.
From the time of his appointment and throughout the arbitral proceedings, an arbitrator shall
immediately disclose any new such circumstances to the parties.
An arbitrator may only be challenged if there are circumstances that give rise to justifiable
doubts about his impartiality or independence or if he does not possess the qualifications agreed
on by the parties. A party may challenge an arbitrator in whose appointment he has participated
only for reasons of which he became aware after the appointment was made.

Section 15.Challenge procedure: Unless the parties have agreed to a different procedure, a
challenge of an arbitrator shall state the reasons for the challenge and shall be submitted in
writing to the arbitral tribunal within fifteen days after the party became aware of the
appointment of the arbitrator and the circumstances on which the challenge is based. Unless the
challenged arbitrator withdraws from his office or the other party agrees to the challenge, the
arbitral tribunal shall decide on the challenge. If a challenge is unsuccessful and the parties have
not agreed to a different procedure, the challenging party may bring the issue before the courts
within one month after he received notice of the decision rejecting the challenge. The court shall

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determine the issue by way of interlocutory order. The interlocutory order shall not be subject to
appeal. The challenge may not subsequently be invoked as grounds for invalidity or an objection
to recognition and enforcement of the award. While such issue is pending before the courts, the
arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and
make an award.

Section 16.Failure by an arbitrator to perform his functions: If an arbitrator becomes de jure

or de facto unable to perform his functions or if an arbitrator for other reasons fails to act without
undue delay, his mandate shall terminate if he withdraws from his office or if the parties agree on
the termination. Otherwise, any party may ask the courts to decide by way of interlocutory order
whether the mandate shall terminate for one of the said reasons. The interlocutory order shall not
be subject to appeal.
The withdrawal by an arbitrator from his office or an agreement between the parties to terminate
the mandate pursuant to subsection 1 or section 15 subsections 1 shall not imply acceptance of
the validity of any challenge pursuant to subsection 1 or section 14 subsections 2.

Section 17.Appointment of substitute arbitrator: Where the mandate of an arbitrator

terminates pursuant to sections 15 or 16 or because of his withdrawal from office for any other
reason or because of the revocation of his mandate by agreement of the parties or in any other
case of termination of his mandate, a substitute arbitrator shall be appointed according to the
rules that were applicable to the appointment of the arbitrator to be replaced.
If a substitute arbitrator is appointed, all previous arbitral proceedings that form part of the basis
for the ruling in the case shall be repeated.
The parties may contract out of the provisions of this section.

Jurisdiction of Arbitral Tribunal

Section 18.Competence of the arbitral tribunal to rule on its jurisdiction: The arbitral
tribunal rules on its own jurisdiction, including any objections to the existence or validity of the
arbitration agreement.
For the purpose of rulings pursuant to subsection 1, an arbitration agreement which forms part of
a contract shall be treated as an agreement independent of the other terms of the contract. A
decision by the arbitral tribunal that the contract is null and void shall not in itself entail that the
arbitration agreement is null and void.
An objection that the arbitral tribunal does not have jurisdiction over the case or the claim shall
be raised no later than the submission of the first statement of such party on the merits of the
case. The arbitral tribunal may allow such an objection to be raised later if the party is not
significantly to be reproached for not raising the objection earlier. A party is not precluded from
raising such an objection by the fact that he has participated in the appointment of the arbitral
tribunal.
The arbitral tribunal may rule on an objection to its jurisdiction either during the arbitral
proceedings or in an award on the merits. If the arbitral tribunal rules during the arbitral

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proceedings that it has jurisdiction, any party may, within one month after he received notice of
that ruling, bring the issue before the courts, which shall determine the issue by way of
interlocutory order. While such issue is pending before the courts, the arbitral tribunal may
continue the arbitral proceedings and make an award.

Section 19.The power of the arbitral tribunal to order interim measures: The arbitral
tribunal may, at the request of a party, order any party to take such interim measures as the
arbitral tribunal may consider necessary based on the subject matter of the dispute. As a
condition for effecting and implementing the measure, the arbitral tribunal may order the
applicant of the measure to provide security for any consequences thereof within a prescribed
time-limit.
The arbitral tribunal may reduce or revoke an interim measure.
If it transpires that the claim to be secured by the interim measure did not exist when the interim
measure was decided, the party who requested the measure shall indemnify other parties for the
loss suffered by them as a result of the measure. The arbitral tribunal shall decide the claim for
indemnification if requested to do so by a party.
The parties may contract out of the provisions of this section.

Section 20.Equal treatment of the parties: The parties shall be treated equally at all stages of
the arbitral proceedings and each party shall be given a full opportunity to present his case.

Section 21.Procedural rules: The arbitral tribunal shall conduct the arbitration in such manner
as it considers appropriate within the limits prescribed in the arbitration agreement and this Act.
As soon as it is appointed, the tribunal or the chairman shall draw up a plan for the further
conduct of the case following discussion with the parties, unless otherwise agreed.

Section 22.The place of arbitration: Failing agreement on the place of arbitration, the arbitral
tribunal shall determine the place of arbitration having regard to the practical conduct of the case,
including the prospects for the parties to participate in oral proceedings.
Notwithstanding the place of arbitration, the arbitral tribunal may, unless otherwise agreed
between the parties, meet at any place it considers appropriate to deliberate among its members,
to examine witnesses, experts or parties, or to inspect evidence.

Section 23.Commencement of arbitral proceedings: Unless otherwise agreed between the

parties, the arbitral proceedings are deemed to commence on the date when the respondent
received the request for the dispute to be referred to arbitration.

Section 24.Language of the arbitration: Failing agreement on the language of arbitration, the
arbitral tribunal shall determine the language of the arbitration. If the language of the arbitration
is Norwegian, the proceedings may also be conducted in Swedish or Danish.
The language of the arbitration shall apply to any written statement by a party, any oral hearings
and any ruling or other communication by the arbitral tribunal.
The arbitral tribunal may order that any documentary evidence shall be accompanied by a

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translation into the language agreed on by the parties or determined by the arbitral tribunal. The
parties may contract out of the provisions of subsections 2, 3 and 4.

Section 25.Particulars of claim and reply: The claimant shall submit particulars of claim to the
arbitral tribunal within the time-limit agreed between the parties or determined by the arbitral
tribunal. The particulars shall state the claim that is being made, a prayer for relief which states
the outcome the claimant is requesting by way of award, the factual and legal grounds on which
the claim is based and the evidence that will be presented.
The respondent shall submit a reply to the arbitral tribunal within the time-limit agreed between
the parties or determined by the arbitral tribunal. The reply shall state whether the claim is
accepted or contested and whether there are objections to the arbitral tribunal dealing with the
case. The reply shall contain the respondent's prayer for relief which states the outcome the
respondent is requesting by way of award, the factual and legal grounds on which the prayer for
relief is based and the evidence that will be presented. If the respondent is also bringing a claim
in respect of which he requests an award, the provisions on particulars of claim and reply shall
apply to such claim.
The parties may contract out of the provisions in subsections 1 and 2 on the requirements of the
particulars of claim and the reply.
Unless otherwise agreed between the parties, either party may bring new claims, broaden the
prayer for relief in respect of existing claims, submit new grounds on which to base such prayer
and present new evidence. At the request of a party, the arbitral tribunal may disallow the
amendment if it finds that it should not be permitted out of regard for the progress of the case or
other important consideration.

Section 26.Oral hearings and written proceedings: The arbitral tribunal shall decide whether
to hold oral hearings or whether the case shall be decided on the basis of written proceedings. A
party may request an oral hearing, which hearing shall then be held at an appropriate stage of the
proceedings.
The arbitral tribunal shall give the parties reasonable advance notice of any oral hearing and of
any meeting which the parties are entitled to attend.
All statements, documents and other information supplied to the arbitral tribunal by one party
shall at the same time be communicated to the other parties. If the arbitral tribunal receives
material directly from third parties, it shall immediately send copies to the parties. The parties
may contract out of the provisions of this section, except in consumer relations.

Section 27.Default of a party: The arbitral tribunal shall terminate the arbitral proceedings if
the claimant fails without reasonable cause to submit particulars of claim in accordance with
section 25 subsection 1. The arbitral tribunal shall continue the proceedings if the respondent
fails without reasonable cause to submit a reply in accordance with section 25 subsection 2. Such
failure on the part of the respondent shall not be construed as an admission of the claims
submitted by the claimant.
If a party fails without just cause to appear at an arbitral hearing or fails to submit documentary
evidence, the arbitral tribunal may continue the proceedings and make the award on the basis of

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the evidence before it. The parties may contract out of the provisions of this section.

Section 28.Evidence: The parties are responsible for substantiating the case and are entitled to
present such evidence as they wish. The arbitral tribunal may disallow evidence that is obviously
irrelevant to the determination of the case. The arbitral tribunal may limit the presentation of
evidence if the extent of such presentation is unreasonably disproportionate to the importance of
the dispute or the relevance of the evidence to the determination of the case. The parties may
contract out of the provisions of this section.

Section 29.Experts: The arbitral tribunal may appoint one or more experts to report to it on
specific issues to be determined by the arbitral tribunal. The arbitral tribunal may require the
parties to provide the expert with relevant information and to produce or provide access to
evidence.
If requested by a party or the arbitral tribunal, an expert who has submitted a written report is
obliged to attend an oral hearing where the parties have the opportunity to put questions to him
and to present expert witnesses to testify on the points at issue.
The provisions on challenge of arbitrators in sections 14 and 15 subsection 1 apply
correspondingly to experts appointed by the arbitral tribunal as far as they are appropriate. The
parties may contract out of the provisions of this section.

Section 30.Court assistance in taking evidence: The arbitral tribunal or a party with the
consent of the arbitral tribunal may ask the court to take testimony from parties and witnesses
and take other evidence. The arbitral tribunal shall be given reasonable advance notice of the
taking of evidence. The arbitrators are entitled to be present and to ask questions. Unless
otherwise agreed between the parties, an arbitral tribunal that is required to take a position on the
interpretation of the EEA Agreement, including its protocols, annexes and the legislative acts
with which such annexes are concerned, may, of its own accord or at the request of a party, ask
the courts to submit the interpretation issue to the EFTA Court pursuant to the provisions of
section 51 a of the Courts of Justice Act. The courts may seek an advisory opinion from the
EFTA Court on the interpretation of the EEA Agreement.

Arbitration Award, Termination and Enforcement

Section 36.The award: The award shall be made in writing and shall be signed by all
arbitrators. In arbitral proceedings with more than one arbitrator, the signatures of the majority of
the members of the arbitral tribunal shall suffice provided that the reason for any omitted
signature is stated in the award.
The award shall state the reasons on which it is based unless it is an award on agreed terms
pursuant to section 35. The award shall state whether it is unanimous. If it is not unanimous, the
award shall state who is in dissent and to which issues the dissent relates.
The award shall state its date and the place of arbitration pursuant to section 22 subsection-1.
The award shall be deemed to have been made at that place.

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The award shall be delivered to the parties.
The arbitral tribunal shall send one signed copy of the award to the local district court to be filed
in the archives of the court.
The parties may contract out of the provisions of subsections 2 and 4

Section 37.Termination of proceedings: The arbitral proceedings are terminated by the final
award or by an order of the arbitral tribunal for the termination of the arbitral proceedings in
accordance with subsections 2 to 4.
The arbitral tribunal shall issue an order for termination of the arbitral proceedings if the
claimant withdraws his claim, unless the respondent objects to the termination and the arbitral
tribunal finds that the respondent has a legitimate interest in an award being made.
The arbitral tribunal shall issue an order for termination of the arbitral proceedings if the parties
agree on such termination.

The arbitral tribunal shall issue an order for termination of the arbitral proceedings if it finds that
it has become unnecessary or impossible to continue the proceedings.
The mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings,
subject to the provisions of sections 38 and 44, subsection-2.

Section 45.Recognition and enforcement: An arbitral award shall be recognized and

enforceable pursuant to this provision.

Section 46 irrespective of the country in which it was made. Recognition and enforcement of an
award is dependent on a party providing the original award or a certified copy thereof. If the
award is not made in Norwegian, Swedish, Danish or English, the party shall also provide a
certified translation thereof. The court can require documentary proof of the existence of an
agreement or other basis for arbitration.
Enforcement shall take place pursuant to the provisions of the Enforcement Act except as
provided by this Chapter.

Section 47.Adjournment and provision of security: If an action to set aside an award has been
brought before a court referred to in section 46 subsection 1 f), the court may, if it considers it
proper, adjourn its ruling on recognition and enforcement. In that case the court may, at the
request of the party asking for recognition or enforcement of the award, order the other party to
provide security.

Conciliation and it Mechanism

Conciliation is a process of settlement of disputes that have been widely spread throughout the
centuries. In ancient cultures, parties in a dispute would visit the village old men for advice.
They sought ways to resolve their dispute through the advice given by the old experienced men.
Consequently, with the evolution of ADR, conciliation as an informal institutional practice

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gained popularity. This was furthered by the introduction of various guidelines framed to
regulate the process of conciliation.
The Indian legal system has always been adaptive to the development in the international
scenario in the case of amicable settlement of disputes. Section 89 of the Code of Civil
Procedure contains the term conciliation providing the provision for out-of-court settlement of
disputes. Furthermore, the Arbitration and Conciliation Act, 1996 made on the lines of
UNCITRAL model laws contains explicit instructions to regulate the conduct of the process of
conciliation.
In the Arbitration and Conciliation Act, 1996 Sections 61-81 contain the clauses with regards to
Conciliation. It has a detailed list of guidelines from the commencement of the proceeding with
the selection of the conciliator to the principals of confidentiality and privacy to be maintained
and later the provisions of the termination of judicial proceedings. The office of the conciliatory
officer is specifically provided under Section 12 of the Industrial Dispute Resolution.

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