Discuss the historical background and objectives of the Arbitration and Conciliation Act, 1996.
Ø Brief history of arbitration in India
1. Arbitration in the Ancient and Mediaeval period
Arbitration in India traces back to ancient times, even though it was not known as ‘arbitration’. Settling disputes was a necessity even back then as communities established themselves by building homes, rearing domestic animals, and owning properties, which often led to disputes among people. There was no formal legal framework in place nor was there a judiciary system as we have today. In such a situation, it was less about justice and more about strength. The stronger party to a dispute was often the winning party as those were the times of ‘jiski lathi uski bhains’. No wonder, this created an imbalance in society. Such informal norms and practices which often led to imbalances gave rise to the need for a more structured approach to dispute resolution. It was considered a necessity for the maintenance of law and order in society.
Soon official courts came into being in ancient India. Apart from these courts, ancient Indian society also saw the establishment of popular courts, which played a significant role in resolving disputes. For instance, the disputes regarding the boundaries of a particular property were settled by the village elders.
In the past, arbitration in India followed two main sets of laws, given their prevalence at that time: Hindu Law and Muslim Law. These laws provided the frameworks for settling disputes through the process of arbitration and were based on the respective religious and customary practices of both communities. Other than these laws, we had various customary laws, traditions, and local practices which played a significant role in resolving disputes.
· Arbitration under Hindu Law
Arbitration has always been a part of our alternative dispute redressal mechanism. The proof can be traced back to the Vedic times and can be found documented in various Upanishads. The Brihadaranyaka Upanishad, authored by Sage Yajnavalkya, is among the earliest texts to mention the common use of arbitration during this era. It mentions three distinct arbitral bodies, namely:
· Puga – A group of persons who live in the same locality, irrespective of their tribes and sects.
· Sreni – A council consisting of artisans and tradesmen connected by the same profession, irrespective of their tribes and sects.
· Kula – A group of people who belong to one family and are bound by familial ties.
These popular courts continued to flourish in India till the beginning of British rule. Over time, these three bodies collectively evolved into what we now recognise as ‘panchayats’. Disputes were resolved by a group of elders and wise men of society who acted as the arbitrators. This group was later known as panchayat and its members as ‘panchas’.
The panchayats held proceedings that were informal and simple compared to the formalities and complex procedures of a municipal court. The decisions given by these panchayats were final and had a binding effect on all the involved parties. They handle a wide range of issues, from marital and family disputes to property ownership matters, and occasionally even criminal cases.
· Arbitration under Muslim Law
In India, Muslims followed Islamic laws that were mentioned in detail in the Hedaya. The Hedaya is a detailed guide on Muslim Law in the form of commentary written by Imam Abu Hanifa, with the help of his students Imam Mohammad and Abu Yusuf. It also discusses arbitration as a method of resolving conflicts amicably while upholding the principles of fairness and justice.
In Arabic, the term ‘tahkeem’ is used to refer to arbitration. An arbitrator, known as ‘hakam’, oversaw the arbitration proceedings between the disputing parties. The arbitration agreement was known as Salisnama, which is a term derived from the Persian word for an arbitrator, Salis. According to Muslim law at that time, arbitrators were required to possess qualities similar to that of a Kazee, who was a judge in a court of law. The arbitrator’s decision was binding on everyone involved in the dispute.
2. Arbitration Law during the British Era
· Regulation Acts
During the early British rule in India, the East India Company made several rules and regulations which primarily focused on the administration of justice to help resolve disputes through legal means. The Bengal Regulation Act of 1772 became the foundation of modern arbitration law in India. It recognised the legality of arbitration agreements to settle disputes through arbitration and provided a basic framework for arbitration proceedings. This Act was followed by the Bengal Regulation Act of 1781, which similarly allowed parties to submit their disputes to an arbitrator. After the success of these regulations, similar regulations, namely the Bombay Regulation Act of 1799 and the Madras Regulation Act of 1802 were enacted for the presidency towns of Bombay and Madras respectively. These regulations were similar in many ways to the Bengal Regulation Act of 1772. They established a basic structure for arbitration proceedings within their respective jurisdictions.
The Bengal Regulation of 1882 (Regulation VII of 1822) is considered the first formal legislation on arbitration in India. It provided a formal framework for conducting arbitration and was applicable to the Bengal Presidency. It allowed for disputes to be settled outside of the regular court system by appointed arbitrators. This regulation mainly dealt with the settlement of land revenue and related disputes. It provided procedures for appointing arbitrators, conducting arbitration proceedings, and enforcing their decisions.
The Madras Regulation of 1816 took it a step forward by providing the disputing parties to refer their matters to the panchayats. The Madras Regulation of 1823 (Regulation VI of 1823) and Bombay Regulation of 1825 (Regulation IX of 1825), similar to the Bengal Regulation of 1822, played an important role in deciding the path of laws related to arbitration. These laws laid down a detailed structure for arbitration within their respective presidencies. Their focus was on ensuring a fair resolution of disputes related to land revenue.
· Indian Arbitration Act, 1899
In India, the first Arbitration Act was enacted in 1899. It came into force on July 1, 1899. Based on the English Arbitration Act, 1889, the Indian Arbitration Act, 1899 applied only to the presidency towns of Bombay, Calcutta, and Madras. A uniqueness of this Act was that the names of the arbitrators had to be mentioned in the arbitration agreement and that the arbitrator could also be among the sitting judges at the time.
The Indian Arbitration Act, 1889, being very complex and bulky, needed reforms, that is why a formal law, which was more specific, came into force in 1940 during the British regime itself.
· The Civil Procedure Code, 1908
The Code of Civil Procedure (CPC), 1908 had a significant impact on arbitration proceedings during the British era in India. The Second Schedule of the Code was entirely related to arbitration. However, it was repealed by the Arbitration Act, 1940. Together with the 1899 Act, the Code of Civil Procedure set the foundation for arbitration law in British India long before any comprehensive Acts, like the Arbitration Act of 1940, were introduced.
Later, the provisions related to arbitration were inserted in Section 89 by the Civil Procedure Code (Amendment) Act, 1999, which came after the enactment of the Arbitration and Conciliation Act, 1996.
· The Arbitration (Protocol and Convention) Act, 1937
The Arbitration (Protocol and Convention) Act of 1937 was introduced to implement foreign arbitration agreements, specifically, those outlined in the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927.
The Act recognised and aimed to enforce foreign arbitral awards in India. Such recognition and enforcement, then, in turn, helped the arbitration laws of India to match the then-existing international standards. By providing a robust legal structure, this Act allowed the parties involved in international contracts to resolve their disputes through arbitration. Thus, it promoted and strengthened international business relationships. The Act ensured that India fulfilled its international commitments under the Geneva Protocol and Convention and promoted cross-border arbitration, enhancing India’s reputation and credibility in international trade and commerce.
· The Arbitration Act, 1940
The Arbitration Act of 1940 came into force on July 1, 1940. It was the first formal legislation that specifically covered the ADR mode of arbitration in independent India. It obviously replaced the Indian Arbitration Act of 1899 and the provisions related to arbitration in the Second Schedule of the Code of Civil Procedure, 1908.
This Act divided arbitration into three types: arbitration without court intervention, arbitration with court intervention, and arbitration in suits. Such categorisation was deliberate as it clarified when and how arbitration could be used as a mechanism for resolving conflicts. This Act also laid down several rules and regulations regarding the conduct of arbitration proceedings, ranging from rules on the duties and powers of arbitrators to rules on arbitration awards. One of the provisions of the Act, which is worth noting, is the provision that distinguishes between an application to set aside an award and a decision that the award is invalid.
However, there are also several limitations and drawbacks to the Act. One major problem was that different High Courts had different rules for filing awards. Another major drawback was that if the court-appointed arbitrator died during the arbitration proceedings, there was no provision in the 1940 Act for appointing a replacement arbitrator. The Act was also silent about the in-built shortcomings in individual private contracts. There was no provision in the Act to prohibit an arbitrator from resigning at any moment during the arbitration proceedings. This subjected the parties to significant damages, especially where the arbitrators acted mala fide. It did contain a provision for arbitration without court intervention. However, it failed to achieve the desired result and the entire process then became more litigation-oriented.
3. Arbitration laws in the post-independence era
· The Foreign Awards (Recognition and Enforcement) Act, 1961
Post-independence, a need was felt for new legislation so as to align India’s domestic laws related to arbitration with the rapidly globalising world. This ‘need’ could not be ignored as India became a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. Therefore, the Foreign Awards (Recognition and Enforcement) Act, 1961 came into being. This was a significant step towards modernising India’s approach to arbitration, especially when it came to handling foreign arbitral awards under the jurisdiction of the New York Convention.
It applied to commercial arbitral awards made on or after October 11, 1960 in countries that are party to the New York Convention or with which India has declared reciprocal enforcement through a notification. A person interested in enforcing a foreign award could apply to a competent Indian court to have the award filed and registered. The court can then order enforcement of the award unless certain limited grounds for refusal are established.
The FARE Act was repealed in 1996 and its provisions are now incorporated into the Arbitration and Conciliation Act, 1996.
· The Arbitration and Conciliation Act, 1996
The post-independence era saw significant developments in laws related to arbitration. One such development came to us in the form of the Arbitration and Conciliation Act, 1996. This Act replaced the Arbitration Act, 1940 and repealed the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. However, these latter two Acts were not done for. The provisions of the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 were incorporated under Part II of the 1996 Act. These provisions can still be found under Part II of the Act, albeit with some modifications over the years.
There is no doubt that this Act of 1996 has marked itself as a landmark development when it comes to arbitration laws in India. It has aligned Indian arbitration practices with international standards, specifically those established by the United Nations Commission on International Trade Law (UNCITRAL). The Arbitration and Conciliation Act, 1996 aimed to modernise and bring consistency to the arbitration framework in India so that it could align with the existing global practices. Another significant objective behind the enactment of this Act was to facilitate India in becoming a global centre for arbitration.
Here are some more objectives of the Arbitration and Conciliation Act of 1996, which consolidated, strengthened, and amended arbitration laws in India:
· Amend and consolidate laws related to domestic arbitration and international commercial arbitration;
· Define the legal framework for conciliation;
· Facilitate the enforcement of foreign arbitral awards;
· Establish a just and effective arbitral procedure;
· Reduce the supervisory role of courts and limit their interference in the arbitral process.
That’s not all. This Act empowered arbitral tribunals to make use of other forms of ADR, including mediation, conciliation, and other procedures, throughout arbitral proceedings to resolve disputes effectively. Another noteworthy objective was to significantly limit the grounds on which an arbitral award could be contested in court.
Before delving further into the 1996 Act, let’s discuss, in brief, the law governing international arbitration in India, i.e., the UNCITRAL Model Law and the UNCITRAL Rules, 1976.
Established in 1966, the United Nations Commission on International Trade Law is one of the core legal bodies of the U.N. in the field of international trade law. The official function of UNCITRAL is to modernise and harmonise the rules of international business. Its work includes globally accepted conventions, model laws, and rules; legal and legislative guides, and practical recommendations; up-to-date information on case law and uniform commercial law enactments; technical assistance in law reform projects; and regional and national seminars on uniform commercial law.
The guidelines provided in the Travaux Preparatoires led to the enactment of the UNCITRAL Model Law on International Commercial Arbitration. This Model Law was adopted in 1985 and later amended in 2006 so as to meet the evolving needs of the international community. Through this Model Law, the United Nations General Assembly aimed to instil proactiveness amongst the countries across the globe towards modernisation of their respective domestic arbitration-related legal frameworks. It suggested enacting arbitration legislation based on this Model Law. Of course, India was also heavily influenced by this global event. Soon, the Indian Parliament codified the guidelines of the Model Law on International Commercial Arbitration in the Arbitration and Conciliation Act, 1996.
The Model law, with the exception of a few provisions, was adopted in its entirety in India in the form of the Arbitration and Conciliation Act, 1996. The following provisions were adopted by the Act:
· Form and definition of the arbitration agreement,
· Duty of the courts to refer parties to arbitration where a suit is brought before the court in breach of the arbitration agreement,
· Power of courts and tribunals to provide interim measures of protection in support of an arbitration agreement,
· Composition of the arbitral tribunal,
· Appointing arbitrators,
· Grounds to challenge an arbitrator,
· Termination of the mandate of an arbitrator because of his failure to act,
· Provisions for substitution of an arbitration when his mandate is terminated,
· Procedure for arbitration,
· Enforceability of arbitral awards and appeal against them.
While the enactment of the 1996 Act is a significant development, the evolution of arbitration laws in India did not cease with its enactment. It has faced several criticisms. Over the years, many committees were formed to modify this Act. This is why it can be said that the 1996 Act that we know today in its present form is a culmination of the various reports submitted by the Law Commission and other committees. Apart from these reports, subsequent amendments of 2015, 2019, and lastly, 2021 along with judicial interpretations over the years have continued to shape and refine the arbitration landscape in India.
Ø Objectives of the Act
· Ensure that the rules are laid down for both domestic and international arbitration and conciliation
· Ensure that these procedures are adequate
· To reduce the involvement of the court in this procedure
· To save time and money
· To have the mutual agreement of both the parties
· Arbitration and conciliation is an unbiased procedure since it depends on both parties to choose the venue, time, and language
Ø Nature and Scope of Arbitration and Conciliation Act, 1996
In arbitration, the dispute between the two parties is settled through a quote by a third person chosen by both sides. The general point of view is that legal action is costly, tedious, and full of obstacles. Hence, arbitration presents an alternate way to resolve disputes, where the parties can settle their dispute outside the court of law.
The method of resolving issues without the court’s involvement or outside the court of law is called alternative dispute resolution. There are other methods in alternative dispute resolution, such as:
· Conciliation
· Arbitration
· Mediation
Due to the delay in justice by the court, these techniques have been very effective and time-saving. Arbitration has rapidly developed in our country. Its primary motivation is to provide instant justice to both parties.
References:
2. Legal Education in India: Challenges, Innovations, and a Vision
4. Salient features of Arbitration and Conciliation Act, 1996.
5. Disscuss the Differences between Arbitration and Conciliation
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