Course Material of the subject of Alternative Dispute Resolution

The modern arbitration law was enacted in India as early as 1772 by Bengal Regulation of
1772, during the British rule. Arbitration in India was recognized as dispute resolution and
for the first time when India Arbitration Act, 1899 was enacted. It was confined to three
presidency town: Madras, Bombay and Calcutta. It recommended to the parties to submit
their decision of their cause to arbitration.
The Legislative Council enacted the Indian Arbitration Act in the year 1899. It was based on
model of English Act of 1899. This act applied to the cases where if subject matter submitted
to arbitration were the subject of suit, the suit could whether with leave or otherwise
instituted in presidency town.

Pre 1940 phase

The first enactment devoted solely to arbitration in India was the Indian Arbitration Act,
1899. However, its application was limited only to the Presidency Towns of Calcutta,
Bombay and Madras. The other dedicated law for arbitration was the Second Schedule of
Civil Procedure Code, 1908. Reference of arbitration was also found in the Indian Contract
Act, 1872 (Sections 10 and 28) and Specific Relief Act, 1877 (Section 21).

As evident from above, the law related to arbitration was scattered in multiple statutes and
there was no consolidated law governing arbitration. The lack of a consolidated law was a
major concern for the legislators and therefore several committees were set up to revise the
existing law and create a more robust framework for arbitration.

The 1940-1996 Phase – The Arbitration Act of 1940

In the year 1940, a consolidated law related to arbitration was enacted which repealed the
existing laws related to arbitration. The Arbitration Act, 1940 was based on the English
Arbitration Act, 1934 and was a complete code for domestic arbitrations. However, the Act
did not contain any provisions related to enforcement of foreign awards. Foreign awards were
enforced in India through two separate legislations viz. (i) the Arbitration (Protocol and
Convention) Act, 1937 (for Geneva Convention Awards) and (ii) the Foreign Awards
(Recognition and Enforcement) Act, 1961 (for New York Convention Awards).

The arbitral regime in India, under the 1940 Act and ancillary enactments, was far from
satisfactory and was severely criticized before different fora. It failed to achieve its desired
objective of providing a speedy and efficacious dispute resolution mechanism. The working
under the regime was slow, complex, expensive, hyper-technical and fraught with judicial
interference. The disastrous effect of the 1940 regime was aptly summed up by the Supreme
Court in the following judgements:

Guru Nanak Foundation v Rattan Singh

“Interminable, time consuming, complex and expensive Court procedures impelled jurists to
search for an alternative Forum, less formal, more effective and speedy for resolution of
disputes, avoiding procedural claptrap and this led them to Arbitration Act, 1940 (“Act” for
short). However, the way in which the proceedings under the Act are conducted and without
exception challenged in Courts, has made Lawyers laugh and legal philosophers weep.
Experience shows and law reports bear ample testimony that the proceedings under that Act
have become highly technical accompanied by unending prolixity, at every stage providing a
legal trap to the unwary. Informal Forum chosen by the parties for expeditious disposal of
their disputes has by the decisions of the Court been clothed with 'legalese' of unforeseeable
complexity.”

The Post-1996 phase - The current regime

i) The Act of 1996

The 1940 regime was recognized as an antithesis to the growth that India was witnessing post
the economic liberalisation. Thus, a new statutory regime was the need of the hour, a
statutory regime which would complement such growth and attract foreign investors in the
country.
In this backdrop, the watershed moment in the Indian arbitration law was the enactment of
Arbitration and Conciliation Act, 1996 (“the Act”). The Act was based on the UNCITRAL
Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Conciliation
Rules, 1980. It was enacted with the following key purposes:
1. Creating a consolidated legal framework dealing with arbitrations (both
domestic and international) and conciliation
2. Minimising judicial interference and supervision
3. Creating a speedy and cost-effective dispute resolution mechanism
4. Providing a robust enforcement system for arbitration awards

However, over time the new law became afflicted with the same malaise it sought to cure.
The arbitration process suffered from long delays and was atrociously expensive. These
problems were compounded by ever-increasing judicial interference at all stages of
arbitration, which led to further delays and defeated the very object of the Act i.e. moving
away from the rigmaroles of traditional litigations.

ii) Amendment of 2015

The first attempt to amend the Act was made through the Arbitration and Conciliation
(Amendment) Bill 2003. However, several concerns were raised about the proposed
amendments which led to the Bill being withdrawn from Parliament.

Finally, under the chairmanship of Hon’ble Justice (Retd.) A.P. Shah, a new committee was
formed to look into the Act and suggest amendments. This Committee suggested various
changes to the existing Act and most of these changes were accepted by the legislature. This
culminated and led to the enactment of the Arbitration and Conciliation (Amendment Act),
2015. This Amendment Act substantially changed the existing regime and ushered in a new
era of arbitration which greatly enhanced the public perception towards arbitration. The key
changes brought about by the 2015 amendment act can be broadly classified under the
following categories:
 1. Restricting Judicial Intervention: Arbitration was conceptualised as a process
with minimal court intervention. However, owing to several judicial
pronouncements, court intervention became a norm. Thus, a key object of this
Amendment Act inter alia was to limit such judicial interference. Pursuant to
such objectives, the Amendment Act inserted express provisions which
drastically curtailed the powers of the Court and its interference in arbitral
proceedings.
2. Expediting the process of arbitration: Another key object of the 2015
Amendment Act was to eradicate the delays and turn arbitration into a
speedier and an effective dispute resolution mechanism. To achieve this
objective, specific timeframes were introduced for different stages of arbitral
process. A time-frame of 12 months (extendable by further 6 months) was also
prescribed for completion of the entire arbitration proceeding, failing which
parties had to approach court for extension. The courts were also given liberty
to issue appropriate directions while granting such extension, including
directions for replacement of arbitrators.
3. Improving the overall functioning of arbitration: The 2015 Amendment Act
also sought to bring various improvements in the overall governance of
arbitration and make it a more appealing to the public at large. Such changes
included creating a model fee schedule for arbitrators to limit expenses, setting
up mechanisms to ensure neutrality and impartiality of arbitrators.

IV) Amendment of 2019

Even though the 2015 Amendment Act, brought a new lease of life to arbitration, it failed to
promote institutional arbitration in India and make it a hub for international commercial
arbitration. Institutionalised arbitration in India is still lacking and it has led to parties
electing foreign seats like Singapore, Hong-Kong for arbitration.
The 2019 Amendment Act was introduced with a specific focus on promoting institutional
arbitrations in India. To promote such institutional arbitration, the Act vested the power of
appointing arbitrators solely with arbitral institutions designated by the Supreme Court or the
High Court. The Amendment Act also created an apex body for arbitration, the Arbitration
Promotion Council of India (“APCI”), consisting of different stakeholders, for the purpose of
monitoring and promoting arbitration in India.

However, these changes related to institutional arbitration and creation of APCI are yet to be
notified.