Section 1 & 2 of Arbitration and Conciliation Act, 1996

Section 1

Short title, extent and commencement.

This act is called as Arbitration and Conciliation Act, 1996. It extends to the entire territory of India, ensuring a consistent and unified approach to arbitration and conciliation.

The name of the Act emphasizes its primary objectives: 1) Arbitration – which provides a legal framework for resolving disputes outside traditional court systems & 2) Conciliation – which encourages amicable dispute resolution through mutual agreement between parties.

Section 2

Definitions.

This section of the act contains the definitions of the terms that are used throughout the act, such as –

Arbitration –

The term “arbitration” refers to a dispute resolution process where an independent third party, the arbitrator, resolves conflicts between parties outside the formal court system. This term includes all forms of arbitration, whether administered by a permanent arbitral institution or conducted independently (ad hoc).

According to Black’s Law Dictionary –

It is a method of resolving disputes where an impartial third party, known as an arbitrator, listens to both sides during a hearing and delivers a decision. In cases where arbitration is voluntary, the parties involved mutually choose the arbitrator, who is authorized to issue a binding resolution.

According to Vidya Drolia And Others (S) v. Durga Trading Corporation (S). 2020 INSC 697 Arbitration is a private dispute resolution mechanism whereby two or more parties agree to resolve their current or future disputes by an arbitral tribunal, as an alternative to adjudication by the courts or a public forum established by law.

Arbitration Agreement –

An arbitration agreement is the cornerstone of the arbitration process. It represents a mutual commitment by the parties to resolve current or potential disputes through arbitration rather than the traditional court system. By signing this agreement, the parties:

Relinquish their right to have those disputes settled in a court of law; and

Authorize private arbitrators to exercise jurisdiction and make binding decisions regarding the issues under dispute.

According to Vidya Drolia And Others (S) v. Durga Trading Corporation (S). 2020 INSC 697 Arbitration agreement gives contractual authority to the arbitral tribunal to adjudicate the disputes and bind the parties. The expression ‘arbitration agreement’ has been defined in clause (d) of sub-section (2) to mean an agreement as described in Section 7 of the Arbitration Act.

The term ‘agreement’ is not defined in the Arbitration Act, albeit it is defined in Section 10 of the Indian Contract Act, 1872, as contracts made by free consent of parties competent to contract for a lawful consideration and with a lawful object, and are not thereby expressly declared to be void. Thus, an arbitration agreement should satisfy the mandate of Section 10 of the Contract Act, in addition to satisfying other requirements stipulated in the Section 7 of the Arbitration Act.

Arbitral Award –

According to Section 2(1)(c) of the Act, the term “arbitral award” includes an interim award but does not define it precisely. An arbitral award is the final decision made by the Arbitral Tribunal after examining arguments and evidence from both parties. It serves as a binding resolution and can be monetary or non-monetary. A monetary award specifies the amount one party must pay the other, often as compensation or damages. A non-monetary award imposes obligations or restrictions, such as directing a party to refrain from specific actions. This ensures clarity and enforceability, providing an effective resolution to the dispute.

Arbitral Tribunal –

An Arbitral Tribunal is a body comprising either a single arbitrator or a panel of arbitrators appointed to resolve disputes through arbitration. It functions as the decision-making authority in arbitration, similar to a judge in court but within a private and consensual dispute resolution framework. The tribunal’s authority comes from the arbitration agreement between the parties and relevant arbitration laws, such as the Arbitration and Conciliation Act, 1996.

Court –

Under the Arbitration and Conciliation Act, 1996, the term “Court” is defined in Section 2(1)(e) as the principal civil court of original jurisdiction in a district, typically the District Court, or the High Court exercising ordinary original civil jurisdiction. It explicitly excludes any civil court of a lower grade and Courts of Small Causes. Only three High Courts in India—Calcutta, Bombay, and Madras—have ordinary original civil jurisdiction, making them the “principal Civil Court” for arbitration matters in their respective jurisdictions. The use of the terms “means” and “includes” in the definition underscores its exclusive and comprehensive nature, leaving no room for interpretation beyond the stated courts. Notably, this definition influences the interpretation of the term “Court” in other provisions of the Act, such as Section 42, which deals with jurisdiction, and Section 36, which pertains to the enforcement of arbitral awards.

International Commercial Arbitration –

International commercial arbitration involves resolving disputes arising from legal relationships recognized as commercial under Indian law, whether contractual or otherwise. Furthermore, parties classify arbitration as international if at least one party has a cross-border connection.

For instance, this applies when an individual is a national of or habitually resides in a country outside India. Additionally, it includes cases where a corporate entity is incorporated in a foreign country. Similarly, an association or body of individuals managed and controlled from a foreign country qualifies. Lastly, it also covers situations involving a foreign government as one of the parties. This definition ensures that arbitration involving international parties or entities is addressed within the legal framework of Indian arbitration law, providing clarity and efficiency in resolving cross-border disputes.

Legal Representative –

Under Section 2(11) of the Code of Civil Procedure (CPC), a “legal representative” refers to a person who legally represents the estate of a deceased individual. This definition includes individuals who manage or intermeddle with the deceased’s estate. Furthermore, it applies to cases where a party sues or is sued in a representative capacity, including the person to whom the estate devolves upon the party’s death. Similarly, Section 2(1)(g) of the Arbitration and Conciliation Act, 1996, provides a comparable definition. Additionally, it recognizes a legal representative as someone who represents the estate of a deceased individual in legal matters. Both definitions highlight the role of a legal representative in ensuring the continuation of legal proceedings involving the deceased’s estate.

Party –

party means party to an Arbitration Agreement.

Disclaimer: This blog is for informational purposes only and does not constitute any legal advice. Readers should seek expert legal counsel before taking any action based on the content.