The industrial revolution has led to rapid escalation in global trade and commerce. To correspond with the economic growth and avoid prolonged litigation, the parties resort to arbitration as the preferred dispute resolution mechanism. Not only in India but cohesive global growth strategies and economies have realized that arbitration happens to be a favourable way out for all. Cross border transactions and bilateral trade relations have fostered affiliations between countries thereby increasing legal intricacies. Needless to say, disputes have also become inevitable and there is a demand for a methodology to expedite legal remedies.
The earliest evolution of arbitration can be traced back to the era when King Solomon during his rule followed the biblical theory when he settled the issue between two mothers where each one was claiming the right on the baby boy and the issue was who the true mother of a baby boy1 was. Thereafter, arbitration was used by the rulers to settle territorial disputes and also for commercial disputes. According to historical references, arbitration has been in place even before the times of Christ. There have been references that prove the same. For instance, the Arabic word for arbitration is Tahkeem and the arbitrator is Hakam. Similarly, in the case of the Persian language, an arbitrator is called a Salis and the party to the same is known as Salisee. Moreover, the first law for arbitration came into force in England in the year 1697.
Hindu Law: Glimpse into ancient Arbitration
As per the Hindu Law, one of the earliest known treatise that mentions arbitration is “Brhadaranayaka Upanishad”2. It elaborates on the various types of arbitral bodies which consist of 3 primary bodies namely ‘Puga’ the local courts, ‘Srenis’ the people engaged in the same business or profession and the ‘Kulas’, who were members concerned with the social matters of a particular community and all these three bodies were cumulatively known as Panchayats. The members of the same were the Panchas, the then arbitrators, used to deal with the disputes under a system, we now refer to as Arbitration.3 It has been seen that the disputes which were referred to the Panchas and the courts have been duly recognised and have received credence to the awards passed by them. The same was observed by the Privy Council in the case of Vytla Sitanna vs. Marivada Viranna4.
The Modern Arbitration Law was enacted in India as early as 1772 by the Bengal Regulation Act of 1772. This was a result of successful resolution of disputes amongst parties by choosing a tribunal. Thereafter, the same was promulgated to other presidency towns namely Bombay and Madras through Bombay Regulations Act of 1799 and Madras Regulation Act of 1802.
Birth of India’s 1st Legislative Council
The 1st Legislative Council for India was formed in 1834, followed by the First Indian Arbitration Act on 1st July, 1899. It came into force and said act was fundamentally based on British Arbitration Act, 1889 but the application of the Indian Arbitration Act was confined only to the presidency towns’ i.e Calcutta, Bombay and Madras. A unique feature in the Act was that the names of the arbitrators were to be mentioned in the agreement, the arbitrator at that point can also be a sitting judge, as was in Nusserwanjee Pestonjee and Ors. v.
Meer Mynoodeen Khan Wullud Meer Sudroodeen Khan Bahadoor5. In the case of Gajendra Singh vs. Durga Kunwar6 it was observed that the Award as passed in an arbitration is nothing but a compromise between the parties. In Dinkarrai Lakshmiprasad vs. Yeshwantrai Hariprasad7, the Hon’ble High Court observed that the said Indian Arbitration Act, 1889 was very complex, bulky and needed reforms.
Arbitration Act 1940 – Unveiling Controversies
Under the British Regime a more specific arbitration act was enacted on 11th March 1940, which came into force on 1st July 1940. termed as ‘The Arbitration Act, 1940’. It was applied to the whole of India (including Pakistan, Baluchistan)8. The same was modified vide an ordinance, post Independence.
The Act of 1940, was referred to many disputes but the same was also under many criticisms. In some of the cases, it was observed that the Arbitration Act, 1940, distinguishes between an application for setting aside an award and one for a decision that the award is a nullity. This implies that it does not legally exist and contemplates that an application for setting aside an award may be made under Section 30 and an application of that award is a nullity under Section 33. Further, it was also observed that the said act fails in recognizing that the arbitration will fail in-case of non-existence and invalidity of an arbitration agreement9.
The Act was silent about the shortcomings inherent in individual private contracts. The rules providing for filing awards differed from one High Court to another. The lack of provisions prohibiting an arbitrator or umpire from resigning at any time in the course of the arbitration proceedings, exposed the parties to heavy losses, particularly where the arbitrators or umpire acted mala fide. It was also seen that if an arbitrator appointed by the Court dies during the arbitration proceedings, there was no other provision in the said Act for the appointment of a new arbitrator, which was also seen as a major flaw in the 1940 Act10. Another concern in the act was that the Marginal Notes were not regarded as part of the Act11.
Enforcement of the Arbitration Act, 1996
The Arbitration Act of 1940 had been facing a lot of criticisms and lacked in quite a lot of areas when it came to implementation in the real sense. Although it brought uniformity in law across the nation, it needed to be replaced by The Arbitration and Conciliation Act 1996, which came into force on 22nd August 1996. The basic intent of the legislation was to provide for a speedy solution to disputes between the parties and also to limit judicial intervention. The main intention of the Legislation was primarily to cover international and domestic commercial arbitration and conciliation. It was also to make the arbitral tribunal fail, provide them reasons to pass awards, minimize the role of courts, enforce the arbitral award as the decree of the court.
