The British introduced the following legislations to regulate the conduct of arbitrations in India:
(a) Act IX of 1840 — Under the Charter Act of 1833 the Legislative Council for India was established in 1834. It passed Act IX of 1840, which amended the law with reference to Arbitration, Damages and Interested Witnesses.
(b) Act VIII of 1859, CPC — Sections 312 to 327 of this Act related to arbitrations. Section 312 permitted references to arbitration in pending suits and Sections 313-325 laid down the procedure for the arbitration. Sections 326 and 327 allowed arbitration without intervention of courts. This Act, however, was not made applicable to the Supreme Court, or the Presidency Small Cause courts or non-regulation provinces
(c) Act X of 1877 and Act XIV of 1882 — The Code of Civil Procedure was revised in the year 1882 and the provisions relating to arbitration were reproduced verbatim in sections 506 to 526. No change in the law of arbitration was effected by the said acts of 1877 and 1882.
(d) Act I of 1872 — Indian Contract Act — Section 28 of this Act recognized two exceptions as to the agreement in restraint of legal proceedings. The first exception related to agreements to refer to arbitration any disputes which may arise between the parties. If any party to such an agreement in contravention of the terms thereof, filed a suit, the other party was given the right to plead the existence of such a contract as a bar to the suit. The second exception relates to agreements to refer to arbitration any dispute which has already arisen between the parties. This Act, therefore, recognized for the first time, agreements to refer to arbitration present as well as future disputes.
(e) Specific Relief Act, 1878 — Section 21 of this Act provided that though future disputes could not be referred as per Code of Civil Procedure, but if a person entered into a contract to refer future disputes and later tried to wriggle out of it, by going to the courts on the same matter, he would not be allowed to do so.
(f) Act IX of 1899 — Indian Arbitration Act — The Indian Arbitration Act of 1899 was based on the English Arbitration Act of 1889. It was the first direct law on the subject of arbitration but its application was limited to the Presidency — towns of Calcutta, Bombay and Madras. The Act allowed reference of present as well as future disputes to arbitration. It recognized arbitration agreements, whether or not an arbitrator was named therein or not.
(g) Code of Civil Procedure, 1908 — In this Code, the Second Schedule was devoted completely to arbitrations. This Act contained (a) provisions for arbitration in respect of the subject-matter of suits, (b) provisions where under parties to a dispute might file their arbitration agreements before the court, which would then refer the matter to arbitration, and (c) provisions for arbitration without the intervention of court.
(h) Indian Arbitration Act, 1940 — This Act repealed the Arbitration Act of 1899 and Sections 89 and 104(1), clauses (a) to (f) and the Second Schedule of the Code of Civil Procedure and continued to govern the law of arbitration in India till 1996. This Act was based upon the (English) Arbitration Act of 1934.
(i) The Arbitration and Conciliation Act, 1996 — To consolidate and to amend the law relating to arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for mattes connected therewith or incidental thereto, the Arbitration and Conciliation Bill, 1995 was introduced in the Parliament. Initially the President of India promulgated the Arbitration and Conciliation Ordinance, 1996. Since the Parliament could not deliberate upon the Ordinance within the time allowed under the Constitution, the Ordinance had to be re-promulgated twice. The Bill was passed after due discussions in both Houses of Parliament and received the assent of the President of India on 16th August, 1996. Though the Arbitration and Conciliation Act, 1996 came into force on 22nd day of August, 1996 but it was made effective to cases where the arbitral proceedings commenced as on 25th January, 1996. The Act is based on the UNCITRAL Model law of Arbitration and Rules of Conciliation.
The President of India on 2nd March, 2000 while delivering the inaugural address of International Council for Commercial Arbitration at Delhi said:
“… It may be observed that Gandhi made his breakthrough, as a barrister, not in a conventional courtroom success in South Africa, but by arbitrating a settlement between the firm of Dada Abdulla in Durban, and its rival firm of Tyebji Seth based in Pretoria. Facts are the ingredients of any lawsuit. If facts are adhered to and convincingly demonstrated before the court, it is reasonable to assume that law will come to the aid of the factually correct side. But Gandhi was aware of the ‘the fatal futility of Fact’ to use the words of Henry James. He knew that there is a truth that lies above factual truth, above literalism. This is the truth that a just concord is higher even than facts in their one sidedness; the truth that the letter of the fact can kill, while the spirit of concord can give life. Pyarelal, Gandhi’s biographer, has written as follows about the case taken up by Gandhi:
‘He had never any doubt as to Dada Abdulla’s success. The facts were on Dada’s side. So also was the law bound to be on his side. But he clearly saw that if the case dragged on, no matter who won, both parties would ultimately be financially ruined. The lawyer’s fees were steadily mounting up. Under the law, the winning could never fully recover the costs. He felt disgusted with his profession. Why could not the parties be brought together to settle the suit out of court by arbitration? After all Tyebji Seth and Dada Abdulla both came from the same town and were kin. He succeeded in persuading the parties concerned to agree to arbitration.
‘The arbitrator gave a verdict in Dada Abdulla’s favour. Now if Dada Abdulla had insisted on immediate execution of the arbitrator’s award, Tyebji Seth could have gone bankrupt, as he could not have paid all at once the entire amount, about 37000 pounds and costs. And this would have been a tragedy. For among the Indian merchants death was deemed preferable to the ignominy of bankruptcy. There was only one way. Dada Abdulla should be generous and agree to payment being made in easy instalments spread over a long period. To get him to do this proved even harder than getting him to agree to arbitration. But Gandhiji’s persistence won the day, and both the parties were happy over the result.
“Throughout his legal career of some twenty years, thereafter, the future Mahatma declined to use his legal knowledge to score victories, rather to bring parties together on the grounds of equity and justice. He was able to say with satisfaction in the end that he had helped settle more cases out of court than through the suit-route. He was being both frank and wise when he went on to say ‘I lost nothing thereby, not even money, certainly not my soul’.
“Today, even in India this old system of arbitration is being overtaken by the review by courts making matters one of endless litigation. It may not be certainly possible today to exempt commercial arbitration from the review in a court of law.
UNCITRAL and Arbitration and Conciliation Act, 1996
United Nations Commission on International Trade Law (UNCITRAL) is a specialised commission of the United Nations created by the General Assembly in 1966 in order to harmonize and unify international trade law. The General Assembly approved the Model Law described UNCITRAL as “the core legal body within the United Nations system in the field of international trade law with a mandate to co-ordinate legal activities in this field in order to avoid duplication of effort and to promote efficiency, consistency and coherence in the unification and harmonization of international trade law”.
Taking into consideration the value of arbitration and its importance in the field of international trade law, UNCITRAL has taken a number of significant projects in the field of commercial dispute resolution. In 1976 it completed the UNCITRAL Arbitration Rules; in 1980 UNCITRAL Conciliation Rules came into force.
The advent of the UNCITRAL Model Law on International Commercial Arbitration constitutes the most remarkable development and influential accomplishment in the field of commercial arbitration in the eighties. The UNCITRAL Model Law constitutes the third major contribution of the United Nations to the development of a fair and efficient process of resolving disputes in international commercial transactions, the first being the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the second being the UNCITRAL Arbitration Rules.
The General Assembly of the United Nations recognised that the UNCITRAL Model Law serves the goals of modernisation and unification when it recommended in its resolution 40/72 of 11th December, 1985 that all States give due consideration to the UNCITRAL Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of the international arbitration practice. The mobile and the truly international arbitral process calls for a wide range of choices as regards the place of arbitration and requires easily obtainable, accurate information about the law of the country in question.
The Resolution of the General Assembly of the United Nations begins by recognising “the value of arbitration as a method of settling disputes arising in international commercial relations”. In the second paragraph it had been stated that the General Assembly is “convinced that the establishment of a model law on arbitration that is acceptable to the States with different legal, social and economical system contributes to the development of harmonious international commercial relations”.
Recourse to arbitration helps to improve international economic relations by providing a mechanism that reduces the risk of transnational commerce. While entering into business relations, the business houses do hope that there would be no failure disagreements but nevertheless there is always a fear of disputes. This fear gets compounded further when the businessman is not sure of the availability of the reliable procedures for resolution of such disputes not only promptly but also fairly. When the risk factor is high because of non-availability of effective dispute resolution procedure, the businessman would normally (i) refuse to enter into the transaction, or (ii) raise the price to compensate for the additional hazard. Needless to say that in either case, the free flow of trade is greatly hampered. On the other hand if the business knows that effective dispute resolution mechanism is available, the conduct of the trade and investment is facilitated.
In view of its relative simplicity, economy, speed and privacy, arbitration has particular attractions in the international sphere. For instance, a party from one country would always have reservations in suing the other party in another country where the procedures are unfamiliar and the approach of the courts may be different because of different legal and cultural perspectives. Even if the party was to sue the other in its own country, the enforceability of award in the foreign country where the other party may be having property would pose multifarious problems. As against this, recourse to arbitration avoids the need to resort to courts. It is always easier to enforce arbitral awards than court judgments because of multilateral conventions.
(i) The Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016)