Arbitration is a method of resolving disputes as an alternative to the usual and common judicial method. ADR was established by the Sovereign or the State. The concept of parties to a dispute settling their dispute in a binding manner by reference to a person or persons of their choice or private tribunals was well known to ancient and medieval India. Appeals were also often provided against the decisions of such persons or tribunals to the courts of judges appointed by the king and ultimately to the king himself. However the law of arbitration as is known to modern India owes its elaboration, in phase, to the British rule of India. Through a series of what were knows as Regulations framed by the East India Company in exercise of the power vested in them by the British Government, beginning with the Bengal Regulation of 1772, the courts in different parts of the British India were empowered to refer, either with the consent of the parties or at the instance of the parties, certain suits to arbitration. The successive Civil Procedure Codes enacted in 1859, 1877 and 1882, with codified the procedure of civil courts, dealt with both arbitration between parties to a suit and arbitration without the intervention of a court.
The law relating to contracts also developed in certain principles related to arbitration. Disputes arising under a contract have to be settled by courts established by the State.
Section 28 of the Contract Act, 1872 provides that every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Thus no man can exclude himself from the protection of courts by contract. Section 21 of the Specific Relief Act, 1877 also provided that, same as provided by the Code of Civil Procedure and the Indian Arbitration Act, 1899, no contract to refer present or future differences to arbitration could be specifically enforced; but if any person who had made such contract and had refused to perform it, sued in respect of any subject which he had contracted to refer, the existence of such contract would bar the suit.
The first Indian Arbitration Act was enacted in 1899. This act was largely based on the English Arbitration Act of 1889. The scope of this act was confined to arbitration by agreement without the intervention of the court.
The Code of Civil Procedure enacted in 1908 left the arbitration provisions much as they were in the earlier codes except that it placed the said provisions in a schedule- the Second Schedule- in the hope that they would be transferred later into comprehensive Arbitration Act.
The Second Schedule dealt with arbitrations outside the operation and scope of the Arbitration Act, 1899. It contained an alternative method whereby the parties to a dispute or any of them could file their arbitral agreement before a court which, after a certain procedure, referred the matter to an arbitrator.
The year 1940 is an important year in the history of the law of arbitration in British India, as in that year was enacted the Arbitration Act, 1940.It consolidated and amended the law relating to arbitration as contained in the Indian Arbitration Act, 1899 and the Second Schedule to the Code of Civil Procedure, 1908. It was also based on the English Arbitration Act of 1934 and came into force on July 1, 1940. It extended to the whole of India except the State of Jammu and Kashmir. The Act dealt with three kinds of arbitrations:
• Arbitration without the intervention of the court.
• Arbitration with the intervention of the court where there is no suit pending.
• Arbitration in suits.
It applied to all arbitrations, including statutory arbitrations.
There are certain International Conventions which deal with enforcement of foreign arbitral awards. The Geneva Protocol on Arbitration Clauses, 1923, came into force on 28th July, 1924.
The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927, came into force on 25th July, 1929. India became a party to both the Protocol and the Convention on 23rd October, 1937. For giving effect to the obligations, India enacted the Arbitration(Protocol And Convention) Act, 1937. India also became a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 in the year 1960. For giving effect to the obligations under this convention, India enacted the Foreign Awards(Recognition and Enforcement)Act, 1961.
Thus prior to the commencement of the Arbitration and Conciliation Act, 1996the law of arbitration in India was contained in three enactments: the 1937 Act, the 1940 Act, the 1961 Act. The act consolidates and amends the laws relating to arbitration in India. English Arbitration Act, 1950 was amended by the Arbitration Act, 1975, and the Arbitration Act, 1979, to keep pace with the developments in the field of arbitration, the Indian Act had remained static. The Indian courts also noticed the “widespread abuse of arbitral processes” in recent years and underlined the need of evolving effective safeguards to arrest such abuses.
The Public Accounts Committee of the Lok Sabha had also commented adversely on the working of the Arbitration Act. It complaints mainly related to the long delays that took place in the completion of arbitral proceedings. After this The Government of India consulted the State Governments for recommendations. There are about twenty five million cases pending in different courts in India. The subject matter of arrears of cases in courts had engaged the attention of various Commissions and Committees in India. The arrears committee knows as the Malimath Committee, constituted by the Government of India on the recommendations of the Chief Justices conference made a number of recommendations in a report submitted in 1990. Similarly Law Commission of India submitted as many as 16 reports containing recommendations on various aspects of the frightful problem of mounting arrears of cases in courts. The Malimath Committee as also the Law Commission had then recommended a number of alternative modes such as arbitration, conciliation, and mediation for dispute resolution.
On 4th December, 1993, a meeting of the Chief Ministers and Chief Justices was held under the chairmanship of the Prime Minister of India to evolve a strategy for dealing with the congestion of cases in the courts. The meeting adopted a resolution that sets forth ways and means to deal with the arrears problems as fast as possible. While dealing with arrears of cases in courts and tribunals, the resolution also recommended that a number of disputes lent themselves to resolution by alternative means such as arbitration, mediation and negotiation. Thus ADR is seen as part of a package system designed to meet the needs of consumers of justice, especially in the context of recent reforms in the economic sector. The Government of India also felt that its economic reforms might remain incomplete if corresponding charges were not brought in the law relating to settlement of disputes, especially through arbitration and conciliation.
The Supreme Court of India hence observed:
We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situations but must be responsive to the cannons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating sense that justice appears to have been done.