HISTORY OF ARBITRATION IN INDIA

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ABSTRACT

The given article seeks to explore the evolution of the Arbitration laws in the Indian sub context from stem to stern. The article traces the journey of Arbitration from the enactment of the very first legislative piece in 1899 until the most recent amendment of 2019.

INTRODUCTION

In order to decipher the insightful journey of the arbitration laws, it shall be necessary to first comprehend the meaning of the term ‘arbitration’. Colloquially speaking, the term ‘arbitration’ basically means an adjudication of disputes by an impartial and independent third party i.e. arbitrator. Thus, arbitration is a private, out of the court procedure. Regular court procedures are usually complex, expensive, and time-consuming. Adjudication of the disputes via the less formal and alternate forums such as the ‘arbitration’ provides a more effective and speedy resolution of disputes.

Thus, Arbitration is the result of written agreements between the parties wherein the parties agree to submit the accruing present or future disputes arising out of a legal relationship between them to an arbitrator.

ARBITRATION PRACTICE IN THE ANCIENT WORLD

The practice of arbitration has been pervasive throughout the world since ancient times. King Solomon of the ancient Jewish empire is usually hailed as one of the first arbitrators as per the Old Testament. The book by Elkouri and Elkouri1 describes in length the arbitration proceedings of Solomon that bear resemblance to the modern-day arbitration practice. Further, the Greece historian Homer also gave detailed accounts of arbitration in his poem wherein the third party adjudicators settled the disputes between the masses.

In the Indian subcontinent, mentions of arbitration can be found in ancient texts of Brhadaranayaka Upanishads2 that mentioned about srenis, kulas, pugas, and other autonomous bodies which adjudicated arbitration proceedings. Instances of local adjudication of disputes without the intervention of courts via the panchayats can also be found in Mauryan and Mughal times. Even today, the Khap panchayats are examples of such extra-judicial bodies that arbitrate disputes among the parties involved.

SCOPE OF THE LEGISLATIVE ENACTMENTS

1. THE INDIAN ARBITRATION ACT 1899
The said Act3 came into force on 1 st July 1899 and was drawn on the lines of the English Arbitration Act. It was the first legal attempt to formalize and codify the laws and procedures pertaining to the arena of arbitration by filling in the void created due to the absence of legislative enactments. The Act sought to amend and facilitate the process of Arbitration by agreement between the parties which therein gave away the need for engaging in the long-drawn tedious and complex procedures of the civil laws. However, the applicability of the Act was limited only to the presidency towns of Madras, Bombay, and Calcutta.

The Act provided that if the parties explicitly agreed in writing to refer to an arbitrator in the event of any dispute, then in the event of an eruption of any dispute, an application could be made to the court, having jurisdiction in the said matter, to enforce the arbitration agreement, the subject matter of which should be legal off course, in accordance with the provisions of the agreement and appoint an arbitrator, in absence of any agreed provision for appointment of any specific arbitrator between the parties thereto.

The Act lays down in length and breadth about the ifs and nots for appointment of an arbitrator, procedure for the perusal of the evidence, grounds of mistake for setting aside an arbitration award, powers of the court to enact arbitration agreement, enforcement of arbitration award, stay of proceedings, award of the decree, and a host of other provisions.

The scope of Arbitration further got modified and codified with the enactment of CPC in 1908 under Clause 1 to 16 of Schedule II, whereby the provisions of arbitration were extended to the other parts of India. However, the infancy of the Indian Arbitration Act with its inborn imprudence coupled with the technicalities of the CPC 1908 proved to be incapable of governing the catena of arbitration and thus paved the way for the enactment of The Arbitration Act 1940.

2. THE ARBITRATION ACT 1940
The act4 provided systematic and comprehensive legislation on arbitration by improving upon the shortcomings of the previous Act. It came into force on 1 st July 1940 and extended to the entire Indian territory except for the State of Jammu and Kashmir. The Act sought to amend, bolster and integrate laws relating to arbitration and provide for a hassle-free arbitration experience, thereby saving the precious time of civil courts.

The Act provided for agreement between the parties thereto for the appointment of an arbitrator by a third party and; the appointment of up to three arbitrators by the parties themselves. The appointment of an arbitrator could be revoked only by the leave of the court and further, the death of the parties did not discharge the arbitration agreement. The Act widened the horizon of the court by empowering it to appoint, modify or remove the arbitrators; or modify/ remit the arbitration award after its filing in the court, if it deemed it to be fit. The Act also imbibed the provisions for insolvency of the parties, powers of the arbitrator to grant interim awards, powers, and procedure of civil courts, etc. It is to be noted that the Act was subservient to the provisions of the Indian Limitation Act 1908.

The major flaw of the Act was that it only dealt with adjudication of domestic arbitration rewards and had no imbibed provision for the enforcement of foreign awards. Further, ineffective application of the provisions of the Act, leading to irregular and faulty proceedings gave a major blow to the applicability and usefulness of the Act. In the case of Guru Nanak Foundation v Rattan Singh5, the Supreme Court lamented over the inefficacious working of the Act which had led to time-consuming and complex procedural claptraps.

Despite the inherent malaise in the applicability of the act, combined with other infirmities, the act remained operational until the year 1995. The economic liberalization policy of the 1990s necessitated the creation of a favorable and conducive business environment so as to attract investments and provide speedy dispute resolutions, thereby enhancing the ease of business. Now, in order to simplify the tedious and complex court procedures and facilitate the businesses, arbitration as a method for commercial dispute resolution was encouraged and it was in this background that the Arbitration and the Conciliation Act 1996 was passed by the parliament.

3. THE ARBITRATION AND THE CONCILIATION ACT 1996
The act6 came into force on 25th January 1996 and repealed the Arbitration Act 1940. The Act was enacted in consideration to and in consonance with the UNCITRAL Model Law on International Commercial Arbitration.

The Act provides for domestic as well the foreign commercial arbitration coupled with the enforcement of the international awards. The Act for the first time carved out an avenue for the process of conciliation. The Act is divided into four parts, spanning 87 Sections. Part 1 provides for the procedural details of domestic arbitration and Part 2 provides for enforcement of certain foreign awards in the light of New York and Geneva conventions while Part 3 deals with the aspect of Conciliation by elucidating it in length and breadth.

In the case of Bhatia International v. Bulk Trading S.A. and Another7, it was held that the arbitration benches seated outside India shall be subjected to Part 1 of the 1996 Act unless it was impliedly or expressly excluded.

The Act gives paramount importance to the autonomy of parties which can be adduced by the expressions used in the Act such as “with the agreement of the parties” every now and then. The Act underpins the necessity of the arbitration agreements for enforcement of arbitration proceedings, gives full autonomy to the arbitration tribunal to carve out the procedures, and seeks to clearly distinguish between arbitration and conciliation. Moreover, the Act intends to provide for speedy resolutions which could be deduced from the fact that it did not provide a second appeal except for an appeal to the SC.

In the case of Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd8, the court underpinned the fair and impartial adjudication process of the arbitration tribunals that gave paramount consideration to the party autonomy and safeguards therein. However, the court criticized the cumbersome procedure for setting aside the arbitration awards.

Given the beneficiary aspect of the said Act, it suffered from the twin malady of excessive court intervention and procedural expensiveness. Challenge of an Arbitral award under Section 34 of the Act would put an automatic stay on the execution of an award thus, making it executable. Also, a charge of excessive fees by the arbitrators and absence of time limit for adjudication of the arbitration award would make the option of arbitration altogether as a means for dispute resolution unfeasible and cumbersome.

This necessitated the needful improvisations in the said act and hence the Arbitration and Conciliation Amendment Act was passed in 2015, incorporating the required amendments.

4. THE ARBITRATION AND CONCILIATION AMENDMENT ACT 2015
The act9 came into force on 23 rd October 2015 and sought to amend and consolidate the Arbitration and Conciliation Act 1996. The Act amended Section 2(1), 7, 8, 9, 11, 12, 14, 17, 23, 24, 25, 28, 29, 31, 34, 36, 37, 47, 48, 56, and 57, and furthermore, added a fourth, fifth, sixth and seventh schedule to the principal Act. The key features of the amended Act are as follows:

  • The Act added to the meaning and interpretation of the term “courts” with respect to domestic and international arbitration. As regards domestic arbitration, the term ‘court’ shall include both principal civil courts in districts and High Courts in the exercise of their original jurisdiction and with regards to international arbitration, the term ‘court’ shall include only High Courts in the exercise of their original civil jurisdiction.
  • International commercial arbitrations whose benches are seated outside India shall also be subject to the provisions of 9, 27, and 37 of the Act, and the ensuing arbitral reward of such cases shall be perfectly enforceable in India.
  • As regards interim protection awarded by the courts, the arbitration proceedings shall commence within a period of 90 days or if any as determined by the court, from the date of order for grant of interim protection.
  • In order to curb the unnecessary court interventions and uphold the spirit of the arbitration agreement, the act makes it necessary to refer the subject matter disputes to arbitration in case of the existence of arbitration agreements for such matters.
  • The Act seeks to curb the discretionary power of CJI and bring to the center stage, the twin institutions of the Supreme Court and High Courts instead of keeping CJI and his nominated institutions at the forefront for the task of appointing arbitrators.
  • The Act confers power upon the central government to amend the fourth schedule.
  • In order to enhance the efficiency and effectiveness of the process of arbitration, the Act prescribes a period of 12 months for the completion of the arbitration proceedings under the Act and also accordingly awards the arbitrators for speedy dispute resolutions.
  • To encourage transparency, impartiality, and fairness of the entire scheme of arbitration proceedings, the Act prescribes for disclosure of any past/present or direct/ indirect relationship of the arbitrator with parties thereto or subject matter of the dispute that may give rise to justifiable doubts as regards to impartiality and independence of the proceedings. The fifth schedule of the Act extensively and methodically lists out the cases of arbitrator’s relationship with parties thereto that are likely to vitiate independence and fairness of the proceedings.
  • The Act provides a scope for the appointment of guardians during the course of arbitration proceedings for minors or for persons of unsound mind.
  • The Act seeks to encourage to the greatest extent, the scheme for oral hearings. Moreover, the Act drives to foster the virtue of regularity as regards the arbitration proceedings and dissuades adjournments by levying heavy costs.
  • The Act equips the arbitrators/ courts with discretion to determine and award the costs to be paid by the parties to each other and to the arbitrators/ courts per se.
  • The Act uncovers speculations by defining the conditions that lead to a conflict of public policy in India. The conditions include the cases of fraud and contravention of Indian law and notions of morality or justice.

The case of Perkins Eastman Architects DPC and Ors. vs. HSCC (India) Ltd.10 dealt with the unilateral appointment of the arbitrators, wherein the two judges bench of SC held that a person who was ineligible to act as an arbitrator cannot appoint one of his choices and the court could exercise its power under the Section11(6) of the Arbitration Act 1996 and appoint an independent arbitrator to maintain fairness and impartiality of the proceedings.

In spite of the much-sought amendments brought in by the Amendment Act of 2015, the lack of institutionalized arbitration mechanism was deep-rooted in the country. In order to perpetuate the institutionalization of systematic arbitration, an ad-hoc committee headed by Justice B.N Srikrishna was constituted. On the lines of proposed improvements suggested by the committee, the Arbitration and Conciliation Amendment Act 2019 was enacted.

5. THE ARBITRATION AND CONCILIATION AMENDMENT ACT 2019
The amendment Act of 201911 came into force on 9th August 2019. The act seeks to amend Section 2, 11, 17, 23, 29A, 34, 37, 42 43, 45, 50, and 86 of the Principal Act. The Act further adjoins the eighth schedule and part 1A to the Act. The salient features of the Act are as follows:

  • The act seeks to ease out the responsibility of the already overburdened HCs and SC by provisioning the addition of arbitral institutions for presiding over the process of arbitration which shall be accordingly designated by the SC and respective HCs, thereby ensuring speedy disposal of the disputes. In the absence of designation of arbitral institutions by the HCs, the CJ of the concerned High Court shall appoint a panel of arbitrators for the purpose of discharging the said functions of arbitral institutions.
  • The arbitral institutions so constituted shall have the authority to adjudicate the cases of international arbitration.
  • In order to expedite the process of admittance of claims and defenses during the course of arbitration proceedings and encourage speedy disposal of cases, the act provides for completion of the above-said claims and defenses within a period of six months from the appointment of arbitrators.
  • The Act curbs the extraneous application of other laws as regards appeal under this Act and provides for only those appeals that are listed and validated by Section 37 of the Act.
  • The Act absolves the liability of the arbitrators from those impugned actions that are done in good faith.
  • In order to boost the competency of the arbitrators, the act prescribes minimum qualifications for the appointment of the arbitrators which shall ultimately lead to the excellence of the arbitration mechanism.
  • The showstopper of the amended Act is the establishment of the Arbitration council of India that will seek to regulate the niche practice of Arbitration and Conciliation in India and make the country, a booming hub for inexpensive, effective, and sought after hub for the process of arbitration. Part 1A inserted via the amendment Act of 2019, describes in length about the constitution, functioning, and governance of the Arbitration Council of India.

CONCLUSION

The practice of arbitration as means for the settlement of commercial disputes has been a popular tool. Being speedy, cost-effective, and efficient, it provides viable options for the resolution of disputes that would otherwise take tremendous time, cost, and effort of the parties involved under regular civil litigation. The legislative enactments in the field of arbitration underwent major amendments since 1899 in order to keep abreast with the latest developments. The recent amendment of 2015 and 2019 took leap-bound steps to inculcate practices that would encourage transparency, independence, and impartiality of the arbitration proceedings, thereby preventing unnecessary intervention of the courts and ensuring speedy and timebound disposal of the cases.

References:

  1. https://core.ac.uk/download/pdf/216936738.pdf
  2. http://csjournals.com/IJITKM/PDF%2010-2/21.%20Sumit.pdf
  3. http://jkarchives.nic.in/Record_Holdings_PDF/Acc.%20No.%201149.pdf
  4. https://indiankanoon.org/doc/1052228/
  5. (1981) 4 SCC 634
  6. https://legislative.gov.in/sites/default/files/A1996-26.pdf
  7. (2002) 4 SCC 105
  8. 2006 11 scc 245
  9. https://lawmin.gov.in/sites/default/files/ArbitrationandConciliation.pdf
  10. SC/1628/2019
  11. https://egazette.nic.in/WriteReadData/2019/210414.pdf

Written by Riya Ganguly student at Bharati Vidyapeeth New Law College, Pune.

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