The Industrial revolution in conjunction with the arrival of internet has led to the expansion of businesses at unprecedented scale. Where there are businesses disputes are inevitable, which may hinder economic activities if not addressed with efficiency and effectiveness. In such a scenario, where courts are known to consume plenty of one’s time and money, arbitration has emerged as the preferred choice for dispute resolution. This article aims at capturing the evolution of arbitration in India.
Arbitration in Ancient India
Arbitration in India can be traced back to the Indus Valley civilization. Then, arbitration consisted of several grades or bodies of which the three principal or primary bodies were the ‘Puja’ or a board of persons belonging to different sects and tribes but lived within the same locality; the ‘Sreni’ or assemblies of tradesmen and artisans belonging to different tribes but connected to each other; the ‘Kula’ or groups of persons bound by family ties. These grades or bodies were called ‘Panchayats’. The parties to a dispute would refer their dipute to the panchayat, which would then award the appropriate remedy. The Panchayat method continues to be followed within the villages of India[i].
Arbitration in Pre-Independence Era
The modern arbitration law in was created by the Bengal Regulations of 1772, 1780 and 1781, which were designed to encourage arbitration[ii]. Hence, there have been several Regulations and legislation that were brought in resulting considerable changes from 1772. After several Regulations containing provisions concerning to arbitration Act VIII of 1857 codified the procedure of Civil Courts except those established by the Charter, which contained Sections 312 to 325 concerned with arbitration in suits. Sections 326 and 327 provided for arbitration without the intervention of the court. After several other provisions from time to time Indian Arbitration Act,1899 was passed, built on the English Arbitration Act of 1889. It had been the first substantive law on the subject of arbitration but its application was limited to the Presidency – towns of Calcutta, Bombay and Madras. The Acts, however suffered from many defects and was subjected to severe judicial criticisms. In 1908 the Code of Civil Procedure was re-enacted. The Code made no substantial changes within the law of arbitration. The Arbitration Act of 1940 was enacted replacing the Indian Arbitration Act of 1899 and section 89 and clauses (a) to (f) of section 104(1) and also the Second Schedule of the Code of Civil procedure 1908. It amended and consolidated the law regarding arbitration in British India and remained a comprehensive law on Arbitration even within the Republican India until 1996.
The arbitration Act of 1940, which was enacted on 11th March 1940 and came into force on 1st July 1940 was the one that was followed till the year 1996. The 1940 act while it absolutely applied to several cases and led to some uniformity, had some drawbacks and criticisms and a few major lacuna when it came to implementing the act.
One of the foremost criticisms was that it had become litigation oriented and there was an excessive amount of court interference which rendered the act ineffective. The act also had no provision for the enforcement of foreign awards under the Geneva and New York Conventions and a separate act had to be created namely Foreign Awards (Recognition and Enforcement) Act, 1961. Because of the unsatisfactory functioning of the act, a law commission was formed in year 1997, which recommended a slew of amendments. This led to the enactment of the Arbitration and Conciliation Act, 1996.
The intention of the legislation behind the Arbitration and Conciliation Act1996, which came into force from 22nd August 1996, was to provide for a speedy solution to disputes between the parties and also to cut back the interference of courts. It also intended to cover the international and domestic commercial arbitration. The Act of 1996 consolidated and amended laws referring to Arbitration, International Commercial Arbitration and also for enforcement of the Foreign Arbitral Awards. Initially, within the Act of 1996, it had been held that the Court can pass interim orders under Section 9 of the Act, where Section 9 contemplates two stages, firstly, court can pass order during arbitral proceedings and secondly, that court can pass order before commencement of arbitral proceedings.
The straightforward difference between the 1940 and thus the 1996 Act was that within the previous one a side could commence proceedings in court by moving an application under Section 20 for appointment of an arbitrator and simultaneously could also move an application for interim relief under the Schedule read with Section 41(b) of the 1940 Act. The later one doesn’t contain any provision almost like Section 20 of the 1940 Act but the court can pass orders even before the commencement of the arbitration proceedings. Another difference was that within the previous act, there was no requirement to administer reasons for award/order until and unless agreed by the parties to arbitration. However, within the later Act, the award has to be given with reasons, which minimized the Court’s interpretation on its own. There have been changes with regard to the award by the arbitral tribunal within the 1940 and 1996 Act.
The 1996 Act since its enactment faced many challenges and therefore the Courts brought out what was actually intended by the legislation, the Courts clarified the said Act and the intention by various landmark judgments. Particularly, the landmark case of Bharat Aluminium Co., [iii]saw a minimum of three phases before the Hon’ble Supreme Court of India since the year 2001 till now i.e 2016 carrying from two Hon’ble Judges to the Constitution Bench.
In the first case, the Hon’ble Supreme Court was of the view that Part I is to use also the international commercial arbitrations which happens place out of India, unless the parties by agreement, express or implied exclude it or any of its provisions, it had been also held that the Arbitration Act of 1996 wasn’t a well drafted act and had some lacunas.
The Arbitration and Conciliation (Amendment) Act 2015
The 2015 Act is often looked as a boon for the party who succeeded before the arbitral tribunal, as within the earlier act of 1996 if the award by given out by the arbitral tribunal was challenged before the court, even on issuance of notice by the court would tantamount as a stay but by virtue of the amendment within the 2015 Act, a particular stay needs to be granted.
The amendment also confirmed that any interim orders given by the arbitral tribunal are enforced effectively, because the said interim orders which were passed at the time of 1996 Act weren’t effectively enforced since the provisions of Civil Procedure Code weren’t made specifically applicable to them.
The Arbitration Act in India has certainly evolved considerably. It is by no means perfect and still requires a lot of changes and indeed the act is going to undergo further amendments as special emphasis is being given to arbitration as an alternative to litigation. The subject is even going to be formally taught in law colleges of India. With corporates’ proclivity towards disposing off a dispute as quickly as possible, arbitration is coming up as the preferred method and it is only going to improve in the future.