Imagine that you are still battling a case that your ancestors filed decades ago in court. No end in sight, endless hearings, and mountains of paperwork. What if I told you there is a way to resolve disputes without going through this long, exhausting journey. That way is Alternative Dispute Resolution (ADR). Arbitration in India is one of the methods of ADR which is frequently opted by parties in recent times.
Alternative Dispute Resolution is a technique to resolve disputes between parties through negotiation and discussion, while keeping up with the applicable laws. An alternative means the privilege of choosing one of the options offered at one’s choice. It does not mean the choice of an alternative court but something that can be an alternative to court proceedings.
ADR aims to provide the parties with a cheap, speedy & informal remedy to the aggrieved party best after the fact, but during the British Era, these traditional institutions of dispute resolution somehow started withering & they introduced a formal legal system in India.
Background of ADR
The ADR system is not a new topic to this country. It has been prevalent in India since time immemorial. It has been traced to the Vedic period, in which there are various types of arbitral bodies, i.e., (i) Puga (ii), Sreni (iii), and the Kula.
At the time of the Gupta Empire, they had a separate designated judicial system. In which the lowest level of the judicial system was handled by village Panchayats through discussion & negotiation.
The same procedure is followed by the Mughal dynasty, wherein most villages resolve their cases in the village courts themselves.
Types of Alternative Dispute Resolution
- Arbitration – Both the parties involved in the dispute, choose the person to hear and determine their dispute through a negotiation, the award is like a decree. The Arbitration and Mediation Act of 1996 governs arbitration in India, which will be under focus later.
- Conciliation – The parties, however, are not obliged or are not bound by the conciliation, in a sense that negotiations can be carried out until the parties arrive at a mutually pleasing settlement. The Conciliator is an active participant.
- Mediation – The main advantage of mediation is that the settlement is made by the parties themselves rather than a third party. It is not legally binding on the parties. The Mediation Act of 2023 now governs mediation in India.
- Judicial Settlement (inclusive of Lok Adalats) – In Lok Adalats, disputes in the pre-litigation stage could be settled amicably. It was established as one of the ADRs through the Legal Services Authority Act, 1987.
- Negotiation – A non-binding procedure in which discussions between the parties are initiated without the intervention of any third party with the object of arriving at a negotiated settlement to the dispute.
History of Arbitration in India
Arbitration is not a new concept in India, and was introduced in the British era. Let’s have a look at the statutes which laid the foundation of arbitration in India.
The Indian Arbitration Act 1899
The first clear arbitration enactment in India was the Indian Arbitration Act of 1899, which applied only to the presidency towns such as Madras, Bombay & Calcutta.
Later, the Code of Civil Procedure 1908 in its second schedule provided the provision for arbitration by expanding its scope.
The Arbitration Act 1940 was enacted by replacing earlier provisions in the CPC. Most parts of the Act were inspired by the English Arbitration Act, 1934, & remained in force for over 50 years. This act mainly dealt with domestic arbitration.
For foreign arbitral awards, India had separate laws such as the Arbitration (Protocol & Convention) Act 1937—for enforcement of Geneva Convention Awards & the Foreign Awards (Recognition & Enforcement) Act 1961—for enforcement of New York Convention Awards.
In 1985, the UNCITRAL Model Law on International Commercial Arbitration was adopted globally to harmonize arbitration practice. India, too, decided to meet the expectations with this system to maintain its global standards.
The Arbitration and Conciliation Act 1996
Due to various drawbacks in previous statutes in respect of growing foreign investment, India needed a modern arbitration law.
Therefore, India enacted the Arbitration & Conciliation Act 1996, which came into force on 22nd August 1996. This Act repealed the 1940 Act, the 1937 Act & the 1961 Act, consolidating everything into one modern law. It was based on the UNCITRAL Model Law and brought India’s framework closer to international practice. The main aim of this Act is to minimize the court interference and align arbitration with global standards.
Objectives behind the 1996 Act
• Create International Commercial Arbitration
• Reduce Court Interference
• Ensure Arbitral tribunal remain within the limit of jurisdiction.
• Ensure Finality of arbitral tribunal.
• Make arbitration & conciliation fair & efficient.
• Encourage mediation & conciliation during arbitral proceeding.
• Enforce Arbitral awards like Court Decree.
This Act deals with four Parts, whereas Part I of the Act deals with arbitration. Part II of the Act deals with enforcement of certain foreign awards. Part III deals with conciliation, international as well as domestic. Part IV is of general nature & deals with supplementary provision.
Amendments to the Arbitration Act 1996
The Arbitration & Conciliation Act 1996 has been amended various times to improve its efficiency, reduce delay, and align it with international standards.
- 2015 Amendment: To make arbitration more efficient in India, this amendment introduced some very important edits. The main focus of this amendment was on reducing delays & minimizing court intervention, introducing the adjudication of courts in arbitration matters, providing for the appointment of arbitrators & ensuring the independence of arbitrators.
- 2019 Amendment: This amendment further strengthened the institutional arbitration framework by establishing the Arbitration Council of India (ACI) to oversee & promote arbitration. It also introduced provisions for faster enforcement of awards.
- 2021 Amendment: The main focus of this amendment was on issues related to fraud & corruption in arbitral awards by allowing an automatic stay on the enforcement of an arbitral award in case the court finds evidence of fraud or corruption. Also, this amendment also omitted the eighth schedule, which was related to arbitrator qualification norms.
Landmark cases on Arbitration in India
- K.K. Modi v. K.N. Modi (1998)
The Supreme Court explained that an arbitration clause must be clear and certain. A clause will amount to arbitration clause only if contemplates that the decision of tribunal will be binding on the parties to the agreement. The Court held that any uncertainty cannot be treated as a valid arbitration agreement.
As addressed by the Apex Court, “In a proceeding under the Arbitration Act, the appellants could not have raised an alternative plea that in case the impugned decision is treated not as an award. but as a decision, the same is bad in law. This plea could only have been raised by filing a separate suit. Similarly in the suit, the appellants could not h ave raised an alternative plea that in case the impugned decision is considered as an award, the same should be set aside. ”
In this case, the court set a boundary line between matters purely fit for arbitration and matters that should be dealt with in courts. Matters related to criminal offences, matrimonial disputes, tenancy matters under rent control laws, insolvency, and winding up are reserved for courts, as they involve public rights.
- BALCO case (Bharat Aluminum Co. v. Kaiser Aluminium Technical Service Inc., 2012):
Before this case, Indian courts sometimes intervened in arbitral proceedings even in arbitrations seated outside India. The Supreme Court in BALCO is held that Part I of the Arbitration and Conciliation Act, 1996 applies only to arbitrations seated in India. Thus, Indian courts lost the authority to intervene in foreign-seated arbitrations. Additionally, the judgement reinforced the applicability of territoriality principles embedded in the UNCITRAL Model Law, rendering Part I of the 1996 Act applicable solely to arbitrations situated domestically.
Conclusion
The historical context and evolution of arbitration law in India, coupled with education and awareness campaigns highlighting successful arbitration experiences, potential cost savings, and quicker resolution times, can significantly contribute to fostering a cultural shift towards accepting arbitration as a mainstream dispute resolution method. Engaging with key influencers and building trust and confidence in the arbitration process can enable India to unlock the full potential of arbitration for businesses, individuals, and the wider society.
The concept of ADR and arbitration in India is decoded by our intern, Ms Himani Gill. She has been assisting the team in bringing informational legal blogs.
