Evolution of Arbitration law In India

“Differences we shall always have but we must settle them all, whether religious or other, by arbitration.” – Mahatma Gandhi

The Industrial revolution has led to rapid escalation in global trade and commerce. To correspond with the economic growth and avoid prolonged litigation, the parties resort to arbitration as the preferred dispute resolution mechanism. Not only in India but cohesive global growth strategies and economies have realized that arbitration happens to be a favourable way out for all. Cross border transactions and bilateral trade relations have fostered affiliations between countries thereby increasing legal intricacies.

The Modern Arbitration Law was enacted in India as early as 1772 by Bengal Regulation Act of 1772. This was a result of successful resolution of disputes amongst parties by choosing a tribunal. Thereafter, the same was promulgated to other presidency towns namely Bombay and Madras through Bombay Regulations Act of 1799 and Madras Regulation Act of 1802.

Arbitration Act 1940 – Unveiling Controversies

It was applied to the whole of India (Pre-Independence including Pakistan, Baluchistan). The same was modified vide an ordinance post-Independence. It was also observed that the Act fails in recognizing that the arbitration will fail in-case of non-existence and invalidity of an arbitration agreement.

Absence of provisions in 1940 Act prohibiting an arbitrator from resigning in the course of the arbitration proceedings exposed the parties to heavy losses particularly where the arbitrators acted mala fide. If an arbitrator appointed by the Court dies during the arbitration proceedings, there was no other provision in the said Act for appointment of a new arbitrator, which was a major flaw.

Enforcement of the Arbitration Act, 1996

The Act of 1996 consolidated and amended laws relating to Arbitration, International Commercial Arbitration and also for enforcement of the Foreign Arbitral Awards. Main intention was primarily to cover the international and domestic commercial arbitration and conciliation and minimize the role of courts and enforce the arbitral award as the decree of the court.

The landmark case of Bharat Aluminium Co., saw at least three phases before the Hon’ble Supreme Court of India since the year 2001 till 2016 carrying from two Hon’ble Judges to the Constitution Bench.

The second round started around 2005

When there was a difference of opinion between the two Hon’ble Judges of the Hon’ble Supreme Court and the said matter was thereafter, placed before a three Judge Bench, which by its order directed the matters to be placed before the Constitution Bench. The Constitution Bench was of the view that Section 2(2) makes it clear that Part I is limited in its application to arbitrations which take place in India and that the Parliament by limiting the applicability of Part I to arbitrations which take place in India has expressed a legislative declaration. The Bench further went ahead with a distinction between the arbitration in India and outside India. It held that Section 2(2) merely reinforces the limits of operation of the Arbitration Act, 1996 to India and it was further held that if Part I of the Act were applicable to arbitrations seated in foreign countries, certain words would have to be added to Section 2(2). The section would have to provide that “this part shall apply where the place of arbitration is in India and to

arbitrations having its place out of India.” The distinction is necessarily to be made between the terms “domestic awards” and “foreign awards”.

Third Round of Amendments in 2015

The question as to whether part I of the Arbitration and Conciliation Act, 1996 would apply to foreign arbitrations was first examined by the Hon’ble Supreme Court of India in a celebrated judgment by a three Judge bench in the year 2002 titled Bhatia International vs. Bulk Trading SA1 (“Bhatia International”). The core issue before Hon’ble Supreme Court was the interpretation of Section 2(2) of the un-amended Act which stated that, “This Part shall apply where the place of arbitration is in India.” The Hon’ble Apex Court had compared the said provision with the UNCITRAL Model Law2, which clearly stated in its preamble that, “the provisions of this Law… apply only if the place of arbitration is in the territory of this State.” Supreme Court in the case of Bharat Aluminium and Co. vs. Kaiser Aluminium and Co.3 (BALCO) had reconsidered the law laid down in Bhatia International and overruled the same. In the landmark judgment pronounced by the Constitution Bench of Hon’ble Supreme Court of India on September 06, 2012 it was concluded that “Part I of the Arbitration & Conciliation Act, 1996 is applicable only to the arbitrations which take place within the territory of India

Apex Court had observed as under:

“In our opinion, the provision contained in Section 2 (2) of the Arbitration & Conciliation Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration & Conciliation Act, 1996 is limited to all arbitrations which take place in India”.

Even the world’s two most prominent countries (India and Pakistan) also agreed to refer the dispute to Arbitration and had referred the dispute relating to the Indus Water Treaty 1960 to the Permanent Court of Arbitration. This move clarified and supported the importance of arbitration globally.

With the economic growth of the nation, the foreign entities started business through their 100% subsidiaries. Eventually, an exciting question of law came for consideration before the Hon’ble Apex Court which was whether it is permissible under the Arbitration Act, 1996 for two Indian Companies to agree to refer their commercial disputes to a place of arbitration outside India with governing law being English law.

The 2015 Act can be looked as a boon for the party who succeeded before the arbitral tribunal, as in the earlier act of 1996 if the award passed by the arbitral tribunal was challenged before the court, by virtue of the amendment in the 2015 Act, a specific stay has to be granted.

It is to be noted that not all matters/disputes can be referred to arbitration even if the agreement/contracts etc. contain an arbitration clause, its being noted that the disputes relating to Trust, trustees and beneficiaries arising out of the Trust Deed and the Trust Act are not capable of being decided by the arbitrator.

The amendment also confirmed that any interim orders passed by the arbitral tribunal are enforced effectively, as the said interim orders which were passed at the time of 1996 Act were not effectively enforced since the provisions of Civil Procedure Code were not made specifically applicable to them.

Conclusion

It is evident that arbitration has evolved over the years as the ideal tool for resolution of disputes that saves the court’s time and largely instrumental in assisting the parties to resort to quick remedial measures. Every arbitration is based on insightful application of law and its evolution is proof of its significance in the actual proceedings. Thus, arbitration has emerged as the most preferred platform for quick resolution of disputes especially in the industrial and the corporate realm.

Ref.: https://chambers.com/articles/evolution-of-arbitration-in-india