ALTERNATIVE DISPUTE RESOLUTION

Module-2

Historical background of arbitration in India:

Arbitration has a long history in India. In ancient times, people often voluntarily submitted their disputes
to a group of wise men of a community—called the panchayat—for a binding resolution. The panchayati
raj system has found its place in various laws in India. Modern arbitration law in India was created by the
Bengal Regulations in 1772, during the British rule. The Bengal Regulations provided for reference by a
court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and
breach of contract, amongst others. Until 1996, the law governing arbitration in India consisted mainly
of three statutes: (i) the 1937 Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration
Act, and (iii) the 1961 Foreign Awards (Recognition and Enforcement) Act. The 1940 Act was general law
governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the 1937
and the 1961 Acts were designed to enforce foreign arbitral awards (the 1961 Act implemented the New
York Convention of 1958)

The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to
modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modeled on the
lines of the UNCITRAL (United Nations Commission on International Trade Law) Model Law. This Act
repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). Its primary
purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of
commercial disputes. The 1996 Act covers both domestic arbitration and international commercial
arbitration.

In India
The earliest evolution of arbitration in India can be traced back to Brihadaranyaka
Upanishad under the Hindu Law. It provided for various types of arbitral bodies which consisted of
three primary bodies namely:

1. The local courts

2. The people engaged in the same business or profession
3. Panchayats.

 The members of the Panchayats known as panchas, were that times arbitrators, which used
to deal with the disputes under a system.
 However thereafter the first legislative council for British India was formed and India got its
first enactment on Arbitration known as the €˜Indian Arbitration Act, 1899€™ but the Act was
applicable to only presidency towns i.e., Calcutta, Bombay, and Madras. This Act was
fundamentally based on the British Arbitration Act, 1889.
 Thereafter came the Arbitration Act, 1940 which applied to the whole of India including
Pakistan and Baluchistan. However, post independence the same was modified via
ordinance.
 Due to various shortcomings in the 1940 Act like lack of provisions prohibiting an arbitrator
from resigning any time during an arbitration proceeding, the rules providing for filing awards
 differed from one High Court to another, the act was replaced by the Arbitration and
Conciliation Act, 1996 that ratified the problems in 1940 Act.

The arbitration act,1940 and it’s shortcomings:

1. The Arbitration Act 1940 was enacted in India to consolidate and amend the law relating to
arbitration and is made effective from 1 July 1940. The Act repealed the Arbitration Act of 1899
and relevant provisions of CPC, 1908.

2. This Act empowered the Indian courts to modify the award, remit award to arbitrators for
reconsideration and to set aside the award on specific grounds.

3. The Act laid down the framework within which domestic arbitration was concluded in India.

4. The scheme of the Act is:

-to deal with arbitration without the intervention of the Court (Chapter II)
-to deal with arbitration with the intervention of the court where there is no suit pending (Chapter
III)
-to cover arbitration in suits (Chapter IV).
Provisions common to all three kinds of arbitration constitute the remaining proportion of the
Act (Chapters V to VII and the Schedules).

5. The Act extended to whole of India except the states of J&K.

PRINCIPLE SHORTCOMINGS OF THE ARBITRATION ACT OF 1940:

1. Though the Act was a big step forward in bringing a comprehensive law covering all
important aspects of arbitration, the need for its replacement started being felt with increasing
urgency in view of the liberalization programme of the Government of India.
The law lacked statutory recognition of conciliation as a means of settling the disputes.

2. The Act allowed courts to interfere at every stage of the arbitration proceeding; starting from
the appointment of the arbitrator through the interim stage till the passing of the award.*
This developed the culture of the court overseeing the arbitration proceedings and not giving
arbitration the status of an alternate resolution mechanism. This was coupled with the fact that
the Indian courts had enormous backlog of cases which delayed the resolution of the issues that
went to the court;

3. Any party interested in delaying the proceedings would resort to the court during any stage of
the proceedings taking advantage of the backlog of the cases;

4. The Act did not prohibit the parties from raising disputes relating to the proceeding or validity
of the arbitration agreement or the constitution of arbitration even after passing the award, while
they have participated in the arbitration without demur;

5. The Act allowed the award to be challenged on a large number of grounds, including the
merits of the award.

6. Foreign investors were reluctant to invest in India as they required for a stable business
environment and a strong commitment to the rule of law.

THE ARBITRATION and CONCILIATION ACT OF 1996:

The Arbitration and Conciliation Act, 1996 is an Act to consolidate and amend the law relating
to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral
awards and to define the law relating to conciliation and for matters connected therewith or
incidental thereto.
In order to meet the various shortcomings expressed in the 76th report of the Law Commission
the Act of 1996 came into force on 22.08.1996. The Act is based on the UNCITRAL Model Law
on Internal Commercial Arbitration, 1985 and UNCITRAL Conciliation Rules, 1980

OBJECT OF THE ACT:

1. To comprehensively cover international commercial arbitration and conciliation as also

domestic arbitration and conciliation;

2. To minimize the supervisory role of courts in the arbitral process;

3. To provide that every final arbitral award is enforced in the same manner as if it was a decree
of court.

4. To make provision for an arbitral procedure which is fair, efficient and capable of meeting the
needs of specific arbitration

5. To provide that arbitral tribunal gives reasons for its arbitral award,

6. To ensure that the arbitral tribunal remains within the limits of its jurisdiction.

7. To permit arbitral tribunal to use mediation, conciliation or other procedures during arbitral
proceedings to encourage settlement of disputes.

UNCITRAL Model Law:

UNCITRAL stands for United Nations Commission on International Trade Law. It adopted the UNCITRAL
Model Law on International Commercial Arbitration on 21 June 1985. The objective of the Model Law to
provide a set of rules which would facilitate the settlement of international commercial disputes by
bringing about uniformity in the laws of member countries in reforming and modernising their national
laws on arbitration.

Key Highlights of the Model Law:

It covers every stage in the arbitration process as-

 beginning from the recognition of the need to curtail judicial intervention to the formation of
the arbitration agreement.

 appointment of the arbitral tribunal

 any challenges to such appointment

 basic rules of conduct of arbitration proceedings

 termination of proceedings by the making of the award

 finality of awards and grounds on which the arbitral award challenged before the national
courts.

The Model Law also forms the basis for the Arbitration & Conciliation Act 1996 in keeping with India’s
International obligations.
 MODULE-3

Concept of arbitration:

Arbitration is an effective alternative dispute resolution. It is the forum in which parties by an

agreement between them choose a forum other than the court of law to resolve their disputes.
The reason behind the evolution of arbitration is to minimize the burden from the shoulders of
the court of law and provide speedy remedy to the parties.

Arbitration is a form of Alternative Dispute Resolution in which the parties work

out the disputed issue without going to court. An impartial third party, known as
an Arbitrator, is chosen by the parties to listen to their case and make a
decision. 

The process of arbitration is overseen by a professional arbitrator, who facilitates

communication between two sides of a dispute. An arbitrator may or may not be
an attorney, and many retired judges take positions as arbitrators.

Types of arbitration:

DOMESTIC ARBITRATION -- Domestic arbitration refers to arbitration, which takes place

in India, wherein parties are Indians and disputes are decided in accordance with the substantive
law of India. it is apparent that ‘domestic arbitration’ means an arbitration in which the arbitral
proceedings are held in India, and in accordance with Indian substantive and procedural law, and
the cause of action for the dispute has wholly arisen in India, or where the parties are subject to
Indian jurisdiction.
INTERNATIONAL ARBITRATION -- When arbitration takes place within India or outside
India containing ingredients of foreign origin in relation to the parties or the subject mater of the
dispute is called as International Arbitration.

STATUTORY ARBITRATION -- When arbitration is conducted in accordance with the

provisions of a special enactment, which specifically provides for arbitration in respect of
disputes arising on matters covered by that enactment, it is called Statutory Arbitration. Statutory
Arbitration is such a proceeding where the parties are referred to the arbitrator in terms of the
provision made in a particular statute. There are a number of Central and State Acts, which
provide for such arbitrations.

SPECIALIZED ARBITRATION -- Specialized Arbitration” is arbitration conducted under the

auspices of arbitral institutions which might have framed special rules to meet up the exact needs
for the conduct of arbitration in respect of disputes of particular types, such as, disputes as to
commodities, construction or specific areas of technology.

INSTITUTIONAL ARBITRATION -- When arbitration is conducted by an arbitral Institution,

it is called Institutional Arbitration. The parties may specify, in the arbitration agreement, to refer
the dispute or differences to be determined in conformity with the rules of a particular arbitral
Institution. One or more arbitrators are appointed in such arbitration from a pre-selected panel by
the governing body of the institution or even by selection by the disputants themselves but
restricted to the limited panel.

AD-HOC ARBITRATION – If the parties agree among themselves and arrange for arbitration,
it is called ad hoc arbitration without having an institutional proceedings. It can either be
domestic, international or foreign arbitration. AD-HOC arbitration means that the arbitration
should not be conducted according to the rules of arbitral institutions. Since parties do not have
an obligation to submit their arbitration to the rules of an arbitral institutions, they’re free to state
their own rules of procedure.

INTERNATIONAL COMMERCIAL ARBITRATION:

The term ‘International Commercial Arbitration’ has been defined in Sec. 2(f) of the Arbitration
and Conciliation Act 1996. International Arbitration is ‘commercial’ if it relates to disputes
arising out of a legal relationships, whether contractual or not, considered as commercial under
the law in force in India and where at least one of the parties is-

(1) an individual who is a national of, or habitually resident in, any country other than India or

(2) a body corporate which is incorporated in any country other than India, or

(3) a company or an association or a body of individuals whose central management and control
is exercised in any country other than India or

(4) the government of a foreign country.

In International Commercial Arbitration the arbitral tribunal shall decide the dispute in
accordance with the rules of law designated by the parties as applicable to the substance of the
dispute; any designation by the parties of the law or legal system of a given country shall be
construed, unless otherwise expressed, as directly referring to the substantive law of that country
and not to its conflict of laws rules.

ARBITRATION AGREEMENT:

The term arbitration agreement is defined under section 7 of this act.

(1) In this Part, “Arbitration agreement” means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in -

(a) a document signed by the parties

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a
record of the agreement or

© An exchange of statements of claim and defence in which the existence of the agreement is
alleged by one party and not denied by the other.

Features of arbitration agreement:

1. The arbitration agreement must contemplate that the decision of the tribunal will be binding on
the parties to the agreement.

2. That the jurisdiction of the tribunals to decide the rights must derive either from the consent of
the parties or from an order of the Court or from a statute, the terms of which make it clear that
the process is to be an arbitration.

3. The agreement must contemplate that substantive rights of parties will be determined by the
agreed tribunal.

4. That the tribunal will determine the rights of the parties in an impartial and judicial manner
with the tribunal owing an equal obligation of fairness towards both sides.

5. That the agreement of the parties to refer their disputes to the decision of the tribunal must be
intended to be enforceable in law and lastly,
6. The agreement must contemplate that the tribunal will make a decision upon a dispute which
is already formulated at the time when a reference is made to the tribunal.

Reference to arbitration: section-8

(1) A judicial authority, before which an action is brought in a matter which is the subject of an
arbitration agreement shall, if a party to the arbitration agreement or any person claiming through
or under him, so applies not later than the date of submitting his first statement on the substance
of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any
Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration
agreement exists.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied
by the original arbitration agreement or a duly certified copy thereof.

Provided that where the original arbitration agreement or a certified copy thereof is not available
with the party applying for reference to arbitration under sub-section (1), and the said agreement
or certified copy is retained by the other party to that agreement, then, the party so applying shall
file such application along with a copy of the arbitration agreement and a petition praying the
Court to call upon the other party to produce the original arbitration agreement or its duly
certified copy before that Court.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is
pending before the judicial authority, an arbitration may be commenced or continued and an
arbitral award made.

Interim measures, etc., by Court.—3 section-9

[(1)] A party may, before or during arbitral proceedings or at any time after the making of the
arbitral award but before it is enforced in accordance with section 36, apply to a court—
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of
arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:—

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the
arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter
of the dispute in arbitration, or as to which any question may arise therein and authorising for
any of the aforesaid purposes any person to enter upon any land or building in the possession of
any party, or authorising any samples to be taken or any observation to be made, or experiment
to be tried, which may be necessary or expedient for the purpose of obtaining full information or
evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient
and the Court shall have the same power for making orders as it has for the purpose of, and in
relation to, any proceedings before it.

(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any
interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced
within a period of ninety days from the date of such order or within such further time as the
Court may determine.