Role and Purpose of Arbitration
Arbitration is the settlement of differences or disputes by mutual understanding or agreement by the parties where the rights and liabilities of the parties are determined in judicial point of view, which are binding to them. Arbitration as a mode for settlement of disputes between the parties has a tradition in India. Arbitration was acceptable as a legitimate forum of alternative dispute resolution in ancient India in the form of the institution of Panchayat. Strong social sanctions assisted in the enforcement of the decision of the Panchayat.
Subsequently, the British rulers of India found the dispute settlement by a person of one’s own choice to be useful for its own advantage of quickness of decision, simplicity of procedure and inexpensiveness and provided it in the form of Bengal Resolutions 1772 and 1780. These regulations enjoined upon the Judges to encourage a person of character and credit to become arbitrator but without the coercive means. The arbitrators were also expected to work without reward or fee.
The Civil Procedure Code was revised in 1908. The law relating to arbitration was transferred to the Second Schedule in the end of that code. The special committee presided over by Sir Erle Richards expressed hope that the arbitration law would be enacted in a separate code. However, the hope could be fulfilled after 32 years with the enactment of the Arbitration Act, 1940. It primarily dealt with domestic arbitral tribunals. However, in respect of arbitration agreement entered into entered into outside India and foreign awards; a special law dealing with the procedure of filing foreign awards, their recognition and enforcement was enacted in the shape of Arbitration (Protocol and Convention) Act 1937. Similarly, the Foreign Awards Act, 1961 was passed to incorporate the New York Convention 1958 in the municipal law of India. These Acts were primarily meant to deal with award made in the other countries on the reciprocal basis.
The Arbitration Act, 1940, which contained the substantive law on the arbitration in India had failed to keep pace with the changed world scenario. The arbitration proceedings instead of becoming alternative to judicial forum and to take the burden of primarily commercial disputes; became an added burden on the judicial courts itself. Painful slowness and expensive dispensation of justice were the other factors of rethinking in this branch of law. The economic reforms were felt to be ineffective in the absence of adequate informal dispute settlement institutions and legislation in this respect.
In order to make law more responsive to the desires of experts in the field of arbitration and representative bodies of trade and industries, the Parliament found the Model law framed by the United Nations Commissions on International Trade Laws (UNCITRAL) recommended for adoption by the General Assembly of United Nations in the year 1985 to be handy. Further the Conciliation Rules adopted in the year 1980 were also added as an ADR supplement as well as to encode all laws of Arbitration in one comprehensive Act.
All the laws of arbitration including the laws of recognition and enforcement of foreign awards are encoded in one Act. Adopting International Model Law has the further advantage of coming at par with universally applicable Arbitration laws which would be helpful in the growth of the world trade. With this background, the Arbitration and Conciliation Act 1996 was enacted. The Act has brought about qualitative changes in the field of Arbitration law.
New Act contemplates minimal role of Court during the conduct of arbitral proceedings till the making of the award. It is intended that Court will not interfere in the arbitral proceedings till the arbitral award is made. It proposes to amend and consolidate the laws of the Arbitration in India. It has also harmonized the legal principles of Common Law and Civil Law by providing Conciliation as a mode of alternative dispute resolution. The Act of 1996 is based on Model Law which intends to bring about global uniformity in the Arbitration Laws. The Model Law is close to the Rules of International Chambers of Commerce.