Arbitration has proven to be cost and time effective in settling legal disputes. It complies to all the principles of justice and also releases a humongous workload from the “over-burdened” Justice administration system of India. The below discussed are the main legislations that back up arbitration as a recommended dispute resolution mechanism.
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Code of Civil Procedure
The Code of Civil Procedure, 1859 in its sections 312 to 325 dealt with arbitration in suits while sections 326 and 327 provided for arbitration without court intervention. The Code of Civil Procedure (Act 5 of 1908) repealed the Act of 1882. The Code of Civil Procedure, 1908 has laid down that cases must be encouraged to go in for ADR under section 89(1). Under the First Schedule, Order XXXII A, Rule 3 a duty is cast upon the courts that it shall make an endeavor to assist the parties in the first instance, in arriving at a settlement in respect of the subject matter of the suit. The second schedule related to arbitration in suits while briefly providing arbitration without intervention of a court. Order I, Rule 1 of the schedule says that where in any suit, all the parties agree that any matter in difference between them shall be referred to arbitration, they may, at any time before judgment is pronounced; apply to the court for an order of reference. This schedule, in a way supplemented the provisions of the Arbitration Act of 1899.
Indian Arbitration Act, 1899:
This Act was substantially based on the British Arbitration Act of 1889. It expanded the area of arbitration by defining the expression ‘submission’ to mean “a written agreement to submit present and future differences to arbitration whether an arbitrator is named therein or not”.
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Arbitration (Protocol and Convention) Act 1937:
The Geneva Protocol on Arbitration Clauses 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 were implemented in India by the Arbitration (Protocol and Convention) Act, 1937. This Act was enacted with the object of giving effect to the Protocol and enabling the Convention to become operative in India.
The Arbitration Act of 1940:
The Arbitration Act, 1940, dealt with only domestic arbitration. Under the 1940 Act, intervention of the court was required in all the three stages of arbitration in the tribunal, i.e. prior to the reference of the dispute, in the duration of the proceedings, and after the award was passed.
This Act made provision for- a) arbitration without court intervention; b) arbitration in suits i.e. arbitration with court intervention in pending suits and c) arbitration with court intervention, in cases where no suit was pending before the court.
Before an arbitral tribunal took cognizance of a dispute, court intervention was required to set the arbitration proceedings in motion. The existence of an agreement and of a dispute was required to be proved. During the course of the proceedings, the intervention of the court was necessary for the extension of time for making an award. Finally, before the award could be enforced, it was required to be made the rule of the court. This Act did not fulfill the essential functions of ADR. The extent of Judicial Interference under the Act defeated its very purpose. It did not provide a speedy, effective and transparent mechanism to address disputes arising out of foreign trade and investment transactions.
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Arbitration and Conciliation Act, 1996:
The government enacted the Arbitration and Conciliation Act, 1996 in an effort to modernize the 1940 Act. In 1978, the UNCITRAL Secretariat, the Asian African Legal Consultative Committee (AALCC), the International Council for Commercial Arbitration (ICCA) and the International Chamber of Commerce (ICC) met for a consultative meeting, where the participants were of the unanimous view that it would be in the interest of International Commercial Arbitration if UNCITRAL would initiate steps leading to the establishment of uniform standards of arbitral procedure. The preparation of a Model Law on arbitration was considered the most appropriate way to achieve the desired uniformity. The full text of this Model Law was adopted on 21st June 1985 by UNCITRAL. This is a remarkable legacy given by the United Nations to International Commercial Arbitration, which has influenced Indian Law. In India, the Model Law has been adopted almost in its entirety in the 1996 Act. This Act repealed all the three previous statutes. Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes. It covers both domestic arbitration and international commercial arbitration. It marked an epoch in the struggle to find an alternative to the traditional adversarial system of litigation in India.
The changes brought about by the 1996 Act were so drastic that the entire case law built up over the previous fifty-six years on arbitration was rendered superfluous. Unfortunately, there was no widespread debate and understanding of the changes before such an important legislative change was enacted. The Government of India enacted the 1996 Act by an ordinance, and then extended its life by another ordinance, before Parliament eventually passed it without reference to Parliamentary Committee.
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Arbitration, as practiced in India, instead of shortening the lifespan of the dispute resolution, became one more “inning” in the game. Not only that, the arbitrator and the parties’ lawyers treated arbitration as “extra time” or overtime work to be done after attending to court matters. The result was that the normal session of an arbitration hearing was always for a short duration. Absence of a full-fledged Arbitration Bar effectively prevented arbitrations being heard continuously on day-to-day basis over the normal working hours, viz. 4-5 hours every day. This resulted in elongation of the period for disposal.
Veerappa Moily also said in the ADR congress held in the year 2010 that the 1996 Act, although modelled along international standards, has so far proved to be insufficient in meeting the needs of the business community, for the speedy and impartial resolution of disputes in India.
The Law Commission of India prepared a report on the experience of the 1996 Act and suggested a number of amendments. Based on the recommendations of the Commission, the Government of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in the Parliament. The standing committee of law ministry felt that provisions of the Bill gave room for excessive intervention by the courts in arbitration proceedings.