Arbitration in its essence means the settlement of a dispute by people who are appointed by the parties to the dispute. It involves the dispensation of justice through a private agency. This idea exists in India since ancient times. There were different institutions in ancient India that can be regarded as precursors of modern-day arbitration. Thus Yajanavalka mentions about three different types of “popular courts” namely, puga, sreni, and kula involved in the settlement of disputes. Narada also mentions such institutes.
Dr. P.V. Kane, the author of monumental History of Dharamasastras, observes that the three institutes involved in the settlement of disputes mentioned by ancient writers like Yajanvalka and Narada were “practically arbitration tribunals”. Moreover, the panchayat system which has many similarities with arbitration has been an integral part of Indian society since time immemorial. Panchayat system is prevalent in villages which is a tribunal of five people. This system is so deeply entrenched in the Indian social fabric that it has been recognized by the Indian Constitution as one of the directive principles of state policy. Article 40 advises the State to “take steps to organise village panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self- governments.” Establishment of Panchyati Raj has been one of major goals of successive Indian governments in the recent past.
Thus the task of settlement of disputes in India since ancient times is not entrusted to the judiciary only. The judicial organ of the government knows that arbitration is a very important limb of the machinery involved in settling disputes.
The seeds of the modern arbitration law in India were sowed during the British rule. Initial endeavors were made in the years 1772, 1780, and1781. The 1781 Act particularly provided that an award passed in an arbitration proceeding can be annulled only in the event of “gross corruption or partiality.” In the next century, the arbitration law kept on developing slowly and steadily. The major development was the Indian Arbitration Act, 1899. This Act was a big stride in the development of arbitration law in India as it provided for arbitration without the intervention of courts, nevertheless, it was restricted to the Presidency towns and in other parts, its application was contingent upon notification by the local governments.
Although the Civil Procedure Act 1908 extended the scope of arbitration to the other parts of the country, that is, beyond the Presidency towns but it also did not give comprehensive treatment to arbitration and the laws dealing with arbitration were relegated to the II Schedule. It was the Indian Arbitration Act 1940 which for the first time gave a comprehensive treatment to the subject of arbitration in India. The 1940 Act was modeled on the English Arbitration Act 1934. The 1940 Act provided for domestic arbitration only. In the year 1937, the government had enacted Arbitration Protocol and Convention Act 1937. This was to give effect to the Geneva Protocol on Arbitration Clauses 1923 and the Geneva Convention on the Execution of foreign arbitral Awards 1927. After becoming a signatory to the New York Convention, the government enacted The Foreign Awards Recognition and Enforcement Act 1961, which provided for the enforcement of foreign arbitration awards.
After the liberalization of the Indian economy in 1991, a need was felt to establish a new regime of arbitration. After opening the Indian economy to the world market the economy started growing at a fabulous rate. Wherein in the 80s, the economic growth rate was lingering around 2 to 2.5 % which sarcastically was termed as the Hindu growth rate, in the 90s it witnessed a 2 to 3 fold increase. A fast-growing economy needs a speedy mechanism for the settlement of commercial disputes. The 1940 Act was too old to meet the demands of the new age. It was too dependent upon the courts as it required the help of courts at all three stages of arbitration. On the other hand, internationally, arbitration was entering into an era of less judicial intervention and uniformity.
These circumstances necessitated the enactment of new arbitration law. In order to meet the demands of the new economic environment, the government enacted The Arbitration and Conciliation Act, 1996. This act is based on the UNCITRAL Model law.
- A History of Alternative Dispute Resolution: The Story of a Political, Cultural and Social Movement.
- P.V. Kane, History of Dharmasastra
- O. P. Malhotra and Indu Malhotra, The Law and Practice of Arbitration and Conciliation
- Krishna Sharma, Development and Practice of Arbitration in India
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