Understanding the Basics of the Arbitration and Conciliation Act, 1996

18 July, 2025

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Introduction

The Arbitration and Conciliation Act, 1996, is one of the most significant legislative reforms in India, seeking to provide a robust and efficient framework for resolving disputes outside the courts. The Act was enacted with the primary objective of ensuring that arbitration and conciliation are recognized as legitimate and effective methods of dispute resolution, thereby aligning Indian law with international standards. This article provides an in-depth overview of the Act, including its key provisions, importance, and practical implications.

Introduction to the Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996, was enacted by the Indian Parliament to consolidate and amend the law relating to arbitration and conciliation in India. It was designed to provide an effective alternative to litigation in courts, to reduce the backlog of cases, improve the efficiency of the dispute resolution process, and foster international commercial arbitration. “An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.”

The Act is based on the UNCITRAL (United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration and the UNCITRAL Rules on Conciliation, which are widely recognized globally for arbitration and conciliation procedures.

The primary objectives of the Act are:

To ensure the effective enforcement of arbitral awards.
To provide a comprehensive framework for conducting arbitrations and conciliations in India.
To promote the use of arbitration and conciliation as efficient and time-bound mechanisms for dispute resolution.
To streamline the judicial intervention in arbitration and conciliation matters.

Structure

The Act consists of four parts:

Part I – Arbitration (Sections 1–43)
Part II – Enforcement of Foreign Arbitral Awards (Sections 44–60)
Part III – Conciliation (Sections 61–81)
Part IV – Supplementary Provisions (Sections 82–86)

Key Features of the Arbitration and Conciliation Act, 1996

Arbitration Agreement, the foundation of any arbitration proceeding. According to Section 7 of the Act, an arbitration agreement must be in writing, and it can either be a part of a contract or a standalone agreement. The parties must agree to resolve disputes through arbitration, and the agreement must specify the arbitral tribunal, the seat of arbitration, and the procedure for arbitration.
Arbitral Tribunal, the body that hears and resolves disputes in arbitration proceedings. Section 10 of the Act allows parties to agree on the number of arbitrators, which can be one or three. The Section reads, “The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.” If the parties fail to reach an agreement, the Act provides guidelines for the appointment of arbitrators by the appropriate authority.
Jurisdiction of the Arbitral Tribunal: The arbitral tribunal has the authority to rule on its own jurisdiction, including matters related to the existence and validity of the arbitration agreement. Section 16(1) of the Act states, “The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—
- an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
- a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”
Interim Measures: One of the crucial features of the Arbitration and Conciliation Act is the provision for interim measures (Section 9). The courts can grant interim relief before the constitution of the arbitral tribunal, or the tribunal itself can provide such relief once it is formed. This ensures that the parties' rights are preserved during the arbitration process.
Arbitration Procedure: The Act provides flexibility in the arbitration process. Under Section 19, the parties are free to decide on the procedure to be followed by the arbitral tribunal. If the parties do not agree on the procedure, the tribunal has the authority to determine the procedure, subject to the principles of natural justice.
Award by the Arbitral Tribunal: An arbitral award is the final decision rendered by the tribunal. The award must be in writing, signed by the majority of the arbitrators, and delivered to the parties involved in the dispute. As per Section 31 of the Act, the award should include the reasons for the decision unless the parties agree otherwise.
Enforcement of Arbitral Awards: Once an arbitral award is passed, it is enforceable in the same manner as a decree of a civil court. Under Part II of the Act, the award can be enforced both in India and internationally. Foreign awards are recognized and enforceable subject to certain conditions set out in the Act, such as whether they conflict with Indian public policy.

Conciliation under the Act

Conciliation is another dispute resolution mechanism under the Arbitration and Conciliation Act. It involves a neutral third party, the conciliator, who assists the parties in reaching an agreement. Conciliation can be voluntary or court-mandated, and it is a non-binding process unless the parties reach a settlement agreement.

Process of Conciliation: Under Section 61 of the Act, conciliation follows a structured process:
- The parties agree to engage in conciliation.
- A conciliator is appointed to facilitate discussions.
- The conciliator meets with the parties individually or jointly and encourages negotiation and settlement.
- If a settlement is reached, it is reduced to writing, signed by the parties, and becomes binding.
Role of Conciliators: Conciliators are expected to maintain neutrality and impartiality. They cannot impose a settlement but rather guide the parties toward mutually acceptable solutions. If no agreement is reached, the dispute can be referred to arbitration or litigation. Section 67 of the Act illustrates the ‘Role of Conciliator’.

Advantages of Conciliation

Conciliation is considered a less adversarial and more flexible approach to dispute resolution compared to arbitration or litigation. It is faster and more cost-effective, and it preserves relationships between the parties by encouraging collaborative solutions.

Judicial Intervention in Arbitration

One of the key aspects of the Arbitration and Conciliation Act is minimizing judicial intervention in the arbitration process. Section 5 of the Act emphasizes that courts should only intervene in arbitration matters under specific circumstances, such as:

To refer parties to arbitration when there is an arbitration agreement.
To set aside an award on specific grounds like fraud or public policy (Section 34).
To enforce an award under Section 36.

Limited Grounds for Setting Aside an Award

The grounds for challenging an arbitral award are limited to those specified in Section 34 of the Act, such as:

The award was passed in contravention of the principles of natural justice.
The award is in conflict with the public policy of India.

Recent Amendments to the Act

Since its enactment, the Arbitration and Conciliation Act, 1996, has undergone several amendments to make arbitration more effective and aligned with international standards. The most significant changes occurred through the Arbitration and Conciliation (Amendment) Act, 2015, and the Arbitration and Conciliation (Amendment) Act, 2019.

The amendments focused on:

Reducing the scope for judicial intervention.
Streamlining the process of appointment of arbitrators.
Setting strict timelines for the completion of arbitration proceedings.
Introducing provisions for the establishment of an Arbitration Council of India (ACI) to promote institutional arbitration.

Conclusion

The Arbitration and Conciliation Act, 1996, plays a vital role in resolving disputes in India by providing a clear framework for arbitration and conciliation. With its provisions for effective dispute resolution, minimal judicial interference, and alignment with international standards, the Act has significantly improved the efficiency of India's legal system. As businesses and individuals continue to prefer arbitration for its speed and flexibility, the Act’s role in shaping India as an attractive destination for international commercial disputes cannot be overstated.

Through continuous amendments, the Act continues to evolve and adapt to changing needs, ensuring that arbitration and conciliation remain viable and effective alternatives to traditional litigation.