The origin of arbitration may be traced back to the age-old system of village Panchayats prevalent in ancient India. The decisions of Panchas while sitting collectively as Panchayat commanded great respect because of the popular belief that they were the embodiment of the voice of God and therefore had to be accepted and obeyed unquestionably.
The Arbitration Act, 1940 was replaced by the Arbitration and Conciliation Act, 1996 which, by virtue of its Section 85, repealed the earlier Act of 1940. The Act of 1996 was introduced in view of the growing complexities of modern commercial transactions in the wake of globalization of economy which necessitated an effective redressal mechanism for speedy settlement of domestic as well as international commercial disputes so as to ensure uninterrupted flow of trade and commerce.
The Arbitration & Conciliation Act, 1996 was intended to comprehensively cover international and commercial arbitrations and conciliation as also domestic arbitration and conciliation.
The course of arbitration flourished in India since the end of the 19th century. Arbitration has a long history and it is prevalent in India from the Vedic times. Sage Yajnavalkya refers to some arbitrary bodies like Puga, Kula and Sreni; they were known as Panchayat.
Bengal Regulation, 1772
The modern arbitration law was enacted in India as early as 1772 by the Bengal Regulation of 1772, during British rule. Arbitration in India was recognized as dispute resolution and for the first time when India Arbitration Act, 1899 was enacted. It was confined to three presidency towns: Madras, Bombay and Calcutta. It recommended to the parties to submit their decision of their cause to arbitration.
Bengal Regulation, 1781
For instance Bengal regulation 1781 provided that the judge do recommend and so far as he can without compulsion, prevail upon the parties to submit to arbitration of one person to be mutually agreed upon by the parties.
The Bengal Regulation of 1787, 1793 and 1795 introduced some procedural changes by empowering the court to refer suit to arbitration with the consent of parties and further authorizing the court to promote reference of cases not exceeding more than Rs 200 for dispute relating to debts, partnership accounts and breach of contract.
The Code Of Civil Procedure Act 1859
After establishment of the legislative Council of India in, 1834 and then Code of Civil Procedure Act, 1859 was passed with the object of codifying the procedure of civil courts but this code could not serve the purpose as this code was not made applicable to the supreme court (crown court under Royal Character).The Code of 1859 was amended regularly from time to time and was replaced by passing the civil the Civil Procedural Code, 1877. This code of 1877 and 1879 and the third civil procedure code was enacted in 1882, which replaced the previous code.
The Arbitration Act Of 1940
Then on 1st July, 1940 a more specific arbitration act came into force. It applied to the whole of India and this act of 1940 has many disputes, many criticisms and lacked in quite a lot of areas when it came to implementation although it brought uniformity in law across the nation. The provision made by the act of 1940 is:
- The arbitration act of 1940 made provision for protecting the agreement from being vitiated by the mere presence of the same lacuna in it.
- It made provision for arbitration without court intervention.
- In case of arbitration with court intervention, where a suit was actually pending in the court, all the interested parties might agree to refer any matter in dispute to arbitration.
The act of 1940 failed to achieve the desired objective and the entire process there became litigation-oriented.
Salient Features Of The Act
Replacement of three old statutes
The Act is a consolidation of three laws of arbitration previously in force – viz, the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937, and the Foreign Awards(Recognition and Enforcement) Act, 1961 into one enactment. Though the three Acts have been consolidated the provisions regarding each of the acts have been kept distinct within the 1996 Act.
Necessity of Arbitration Agreement
The Act emphasizes the importance of the Arbitration agreement without which arbitration proceedings cannot be instituted. The arbitration agreement is a clause in a contract or an agreement between parties stating
that any dispute will be referred to arbitration proceedings. The Act mentions that the arbitration agreement or arbitration clause must
contain the following information – the subject matter of dispute, the timing of dispute (past/present/future), of arbitrators, qualifications of number arbitrators, jurisdiction, and composition of the tribunal.
Application to Domestic and International Arbitration
The Act provides the procedure not only for domestic arbitration but also includes International Commercial Arbitration. The 1996 Act is a law that relates to the enforcement of foreign Arbitration awards and ensures greater autonomy in the process of arbitration and puts a limit on the intervention of the judiciary.
Arbitral Tribunal has full powers to decide the procedure to be followed unless parties agree on the procedure to be followed. The Tribunal also has powers to determine the admissibility, relevance, materiality, and weight of any evidence. The place of arbitration will be decided by mutual agreement. However, if the parties do not agree to the place, the same will be decided by a tribunal. Similarly, language to be used in arbitral proceedings can be mutually agreed upon. Otherwise, the Arbitral Tribunal can decide. The Act allows parties to choose the substantive law to be applied by the arbitration tribunal and this must also be mentioned in the arbitration agreement.
The concept of party autonomy is the central theme of the Act. The expressions used in the Act – ‘unless otherwise agreed by the parties’, ‘with the agreement of parties’, ‘if the parties in dispute have expressly authorized’ etc., strengthens the idea of party autonomy.
Minimal Interference by Judiciary
One of the major defects of earlier arbitration law was that the party could access court almost at every stage of arbitration – right from the
appointment of an arbitrator to implement the final award. Thus, the defending party could approach the court at various stages and stall the proceedings. Now, the approach to court has been drastically curtailed. In some cases, if an objection is raised by the party, the decision on that objection can be given by the Arbitral Tribunal itself. After the decision, the arbitration proceedings are continued and the aggrieved party can approach Court only after an Arbitral Award is made.
Decision of Arbitral Tribunal is termed as ‘Arbitral Award’. The arbitrator can decide the dispute ex aequo et bono (In justice and in good faith) if both the parties expressly authorized him to do so. The decision of the Arbitral Tribunal will be by majority. The arbitral award shall be in writing and signed by the members of the tribunal. The award should be dated and the place, where it is made, should be mentioned. Copy of the award should be given to each party.
The award must be in writing and signed by the members of the Arbitral Tribunal. It must state the reasons for the award unless the parties have agreed that no reason for the award is to be given. Previous to this act reasoning of the award by the arbitrator was not mandatory
Advantages Of Arbitration
It must be stated that among the available dispute resolution alternatives to the courts, arbitration is by far the most commonly used nationally internationally. The reasons for this are as follows:-
- The decision (i.e. award) of an arbitral tribunal is final and binding on the parties. While several mechanisms can help parties reach an amicable settlement, all of them depend upon goodwill and cooperation of the parties. A final and enforceable decision by amicable settlement can generally be obtained only by recourse to arbitration because arbitral tribunals are not subject to appeal. Arbitral awards may be challenged only on a very few limited grounds.
- Arbitral awards enjoy much greater international recognition than judgements of national Courts. The New York Convention facilitates enforcement of awards in all contracting states.
- Neutrality and mutuality are perhaps the most redeeming features of the arbitration process. At least in matters such as-:
- Place of arbitration,
- Language to be used,
- Procedure or rules to be applied,
- Nationality of arbitration (in case of international arbitration) and;
- Legal representation, the parties can place themselves on equal footing.
- Arbitration offers parties a unique opportunity to designate persons of their choice as arbitrators, which is not possible in case of courts. This enables the parties to have their disputes resolved by people who have specialized competence and expertise in the relevant field.
- Arbitration is faster and less expensive than litigation in courts.
- The element of confidentiality which is wanted in judicial proceedings is an attribute of the arbitration system. Arbitration hearings are not public and only the parties receive the copies of the arbitral award.
Arbitration & Conciliation Self Contained Code
In Girnar Traders v. State of
Maharashtra (2011) 3 SCC 1 case, the
apex code held that for an Act to be a
self-contained code, it must be shown that the special statute is a complete legislation for the purpose for which it was enacted, or under which the applicability of any other statute is barred by specific language, or by necessary implication”.
The Arbitration and Conciliation Act, 1996 excludes the applicability of general law procedure, and is a complete code for designing, consolidating, and amending the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards.
In Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC 333 case, the Court held that where a special Act sets out self-contained code, the applicability of general law procedure would be impliedly excluded. Since the 1940 Act was held to be a self-contained code from its inception till 2004, the 1996 Act, which aimed at consolidating, amending, and designing the law relating to Arbitration, must be held to be more so. The 1996 Act carries with it,” a negative import that only such acts as are mentioned in the Act are permissible to be done, and acts or things not mentioned therein are not permissible to be done”.
Thus, the Arbitration and Conciliation Act, 1996 is a self-contained code and exhaustive in nature.
The Arbitration and Conciliation Act, 1986 is the consolidation of three previous statutes. It takes into consideration all the essential ingredients necessary for providing an easy and unambiguous procedure for dispute resolution. It makes the procedure provided by it in line with the Model Law. The Act tries to make the procedure smooth by minimizing the interference by Courts. The reasoned award makes the procedure transparent.