NOTE NO.

THE ARBITRATION AND CONCILIATION ACT, 1996

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ARBITRATION
Q. History and Development of Arbitration laws in India.

A. INTRODUCTION –

The present Arbitration and Conciliation Act, 1996 is not a sudden

invention but has evolved in stages of ancient days.

The System of Arbitration existed even in ancient India, but the legal
effect to the system of Arbitration was given only during British period.

The Economic Reforms and Globalization have widened the scope of

Arbitration and now the Systems of Arbitration, Conciliation and Mediation
have become important means of Settlement of Dispute in the Indian and
International Commercial World.

 ARBITRATION IN ANCIENT INDIA –

The Arbitration process is an age-old concept.

In ancient India, the Arbitration was prevalent in villages in the form of

Panchayats is a single or collective body rendering decisions, which were
binding in nature to the people of the particular village.

The Panchayats commanded high respect and they were regarded as

voice of the Almighty and they were obeyed without the protest. The
‘Head’ of the Panchayat was called “Panchas” (Arbitratior). There were
three grades in “Panchas”.

They were –

i. Puga

ii. Sreni

iii. Kula
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 The above three grade of Panchas were not in the nature of the legal
jury or Tribunal, but a mere system of Arbitration subordinate to Tribunal
or Courts.

According to Justice Martin, Arbitration was a striking feature of

Indian life and prevailed in all ranks of life.

The Ancient Indian Arbitration System was much more prevalent and
popular than the arbitration system that existed in England.

The Panchayat System was one of the important natural methods of

deciding many disputes in ancient India. They resembled Judicial Courts
and there need not be any agreement between the parties to refer the
matter to the panchayat, but the panchayat acted as customary Court
compelling the people to subject themselves to its jurisdiction and obey its
decisions.

The decisions of panchyats were also subject to revision. The

decisions of Kula were subject to revision by Sreni whose decisions could be
further be revised by Puga.

An Appeal from the decision of Puga was preferred to Pradivaca and

the final Revision was left to the Ruler or the King of the province.

Though no specific legal provisions were used in Panchas

proceedings and its decision, Custom, Equity and Justice were the basis for
all decisions of the panchas.

 ARBITRATION DURING BRITISH PERIOD –

Even after the British Rule started in India, the Panchayat System of
Arbitration was continued and to give legal effect to Panchayat System,
specific provisions were made in the Bengal Regulations, 1772.

The Bengal Regulations 1772 provided that in all cases of disputed

accounts, it is recommended to the parties to submit their cases to
Arbitration and the award so passed shall become a decree of the Court.

The Bengal Regulations 1780 and 1781 also provided provisions for
Arbitration and affirmed their binding nature.

Since, Arbitration was an original and ancient Hindu System, the

Arbitration was considered as a “Tribunal of the parties of their own
choice” and in the absence of misconduct in conducting the arbitration, the
parties were bound by the decision given by the Arbitrator.

The Regulations of 1780 and 1781 were not successful, as respectful

and qualified persons refused to serve as Arbitrators.
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 Under Bengal Regulations 1787, the Courts were empowered to
refer certain suits to Arbitration. But the failure of arbitration system was
that the Act did not provide for any remedy in case of difference of the
opinion between/ among the Arbitrators.

The Bengal Regulations 1793 empowered the Courts to refer

disputes to Arbitration with the consent of the parties where the value of
the suits did not exceeds Rs. 200/- and when it involved accounts,
partnership, breach of contracts, etc. Further, the success of the
arbitration was due to the reason that the Regulation laid down the
procedure for conducting the Arbitration.

The Madras Regulation 1816 empowers Panchayats to settle certain

disputes by them and the Bombay Regulations 1827 contained similar
provisions.

The Code of Civil Procedure, first enacted in the year 1859, also
contained Law relating to Arbitration. The Code of Civil Procedure, 1908
also contained provisions regarding to Arbitration in Schedule II of the Code
which was repealed after the advent of Arbitration Act of 1940.

 EVOLUTION OF PRESENT ARBITRATION LAW –

The Indian Arbitration Act, 1889 was made applicable to matters which
were not pending before a Court of law for adjudication.

In 1940, the Indian Law on Arbitration was drafted in the form of

Arbitration Act, 1940. This Act was based on English Arbitration Act,
1934.

The Arbitration Act, 1940 continued to remain in force till 1996 when
it was substituted by the present Arbitration and Conciliation Act, 1996.

The economic reforms and globalization of trade and commerce in

the last two decades necessitated the redrafting of Arbitration Act, 1940
as its provisions have become outdated and could not meet the new
challenges of modern International economy of India.

Further the legal experts and the several trade and industrial
associations and bodies proposed important changes in the Indian
Arbitration Act, 1940, since it suffered from many lacunae and defects.

In 1996, the President of India promulgated an ordinance in the form of

Arbitration and Conciliation Bill, 1996 and this Bill was passed by the
Parliament and received the assent of President on 16th August, 1996. The
Act was given effect from 27th January, 1996 i.e. from the date the ordinance
was passed.
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New legal techniques like Conciliation, Negotiation and Mediation are
now statutorily recognized in the present Arbitration and Conciliation Act,
1996 in addition to the existing method of Arbitration.

Further, the need for passing the Arbitration and Conciliation Act,
1996 was due to the developments in UNO regarding International
Arbitration Law.

The UNO worked out a comprehensive and uniform Model Arbitration

Law and after approval by its member countries, with suitable
modifications, a model law on International Commercial Arbitration
called “United Nations Commissions on International Trade Law” was
passed on 21st June 1985, it is called as “UNICITRAL”.

Based on the UNICITRAL, India also was forced repeal the Arbitration
Act, 1940 and adopt a similar law like UNICITRAL, called Arbitration and
Conciliation Act, 1996.

 SCOPE OF ARBITRATION LAW –

The present Arbitration Law can decide disputes or differences relating

Commercial Matters.

The Commercial Matters include shipping, sale, purchase banking,

insurance, building construction, engineering, technical assistance,
scientific know-how, patents, trade – marks, management consultancy,
commercial agency, labour etc., arising between the parties in India or a
party in India and a party in a foreign country or between two or more
foreign parties who agree for Arbitration under the Act, 1996.

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Q. Objectives of the Arbitration and Conciliation Act, 1996.

A. The main OBJECTIVES of the Arbitration and Conciliation Act,

1996 -

1. To make provisions for an arbitral procedure which is fair, efficient

and capable of meeting the needs of the specific arbitration.

2. To provide that the Arbitral Tribunal gives reasons for its arbitral
award.

3. To ensure that the Arbitral Tribunal remains within the limits of its
jurisdiction.

4. To minimise the supervisory role of Courts in the arbitral process.

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5. To permit an Arbitral Tribunal to use mediation, conciliation or
other procedures during the arbitral proceedings to encourage
settlement of disputes.

6. To provide that every final arbitral award is enforced in the same

manner as if it were a decree of the Court.

7. To provide that a settlement agreement reached by the parties as a

result of conciliation proceedings will have the same status and effect
as an arbitral award.

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Q. Advantages and Disadvantages of Arbitration.

A. ADVANTAGES OF ARBITRATION –

The followings are the ADVANTAGES of Arbitration –

1. Arbitration proceedings is held in private and hence, there is no

publicity. So, confidentiality is maintain.

2. The Arbitration proceedings are informal, as simple procedure is

followed.

3. The Arbitration proceedings are relatively quick and hence, there is no

time delay. Further, since there is no appeal, the award is final and
becomes enforceable immediately.

4. The expenses of conducting arbitrary proceedings are minimum and

very low when compared to Court proceedings.

5. Since, there are no lengthy proceedings, as in trial in Civil Court, time

and money are saved.

6. In technical matters, the arbitrator of the arbitral proceedings is a

technical person and hence, his decision is superior to that of a Civil
Court Judge.

7. Since there is consent by both the parties to the dispute, the award
becomes final and enforceable and hence, it is superior to a
Judgment, as the Judgment is appealable.

 DISADVANTAGES OF ARBITRATION –

1. The arbitrator may not be a legally qualified person and hence, he is

not as competent as of a Judge and hence, his decision may not have
quality as that of a Judgment of a Court.

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 2. Since, simple procedure is followed in arbitral proceedings, there is
high probability of injustice creeping in the proceedings and the
award.

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