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The Arbitration and Conciliation Act, 1996: Historical Background and Salient Features of the Act

Updated: Nov 10, 2021

The Arbitration and Conciliation Act, 1996:

Historical Background and Salient Features of the Act


The Term 'Arbitration' literally means "Settlement or determination of a dispute outside the court by a private individual". The person, who acts as a mediator between .the disputants to settle the dispute/matter is called Arbitrator'. While the term 'Conciliation' means `to concile or to bring together opposing sides". A person who brings the opponents into harmony is called "Concilator". In other words, conciliation is a process for settlement of a dispute outside the Courts by reference to a third party called " Conciliator". The law relating to arbitration and conciliation is governed by the Arbitration and Conciliation Act, 1996.


Historical Background : The law relating to Arbitration in India is based on the English Law of Arbitration. In England, the traders and merchants used to refer their disputes for settlement to persons called 'Arbitrators'. The Arbitration Act 1697 was the first statutory enact- ment passed in England to settle such disputes.Further, the Common Law Procedure Act, 1854 also made some provisions for arbitration with a view to make the award more binding and enforceable upon the parties. With the passing of the Arbitration Act, 1889, the English enactments relating to Arbitration were repealed.


In India, the first statutory enactment on Arbitration was, the Indian Arbitration Act, 1899. It was modelled on the Arbitration Act, 1889 of England. Before the passing of the Act of 1899, the Bengal Regulation of 1772 made certain provisions relating to arbitration law. The Regulations of 1781 and 1782 brought certain changes with regard to witnesses on oath and appointment of arbitrators. Regulation of 1787 empowered the Court to refer the disputed matters to arbitration with the consent of the parties. The operational part of the arbi- tration law was made more effective by the Bengal Regulation of 1793. It also laid down the procedure to be followed in conducting arbitration proceedings. The provisions of the Regulation of 1793 were extended to the territory of Banaras by the Regulation of 1795. These provisions were made applicable to Oudh by the Regulation of 1803. Further, the Madras Regulation of 1816 and the Bombay Regulation of 1827 conferred certain powers on the Panchayats to settle disputes by arbitration.


The Code of Civil Procedure also made provisions for the law relating to arbitration. Chapter VI of the Code Civil Procedure, 1859 provided for the law relating to Sections 89, 104 and Second Schedule made elaborate provisions relating to arbitration. (Sections Ito 16 of the Second Schedule deal with arbitration in suits. Sections 17 to 19 provide for mechanism to enforce an agreement for reference. Sections 17 to 19 provide for to enforce an agreement for reference. Sections 20 to 21 lay down the procedure to enforce in a court of law, an arbitration award made with out the intervention of a Court.)


The Indian Arbitration Act, 1899 continued to be applied in respect of the matters, which were not before a court of law for adjudication. In 1925, the Civil Justice Committee recommended several changes in the arbitration law. As a result, the Indian Legislature passed the Arbitration Act of 1940 by consolidating and redrafting the law on arbitration.


The Arbitration Act, 1940 was modelled on the Arbitration Act, 1934 of England. The British Parliament has been changing its Arbitration law from time to time so as to meet the changing conditions. As such, the English Arbitration Act, 1934 was modified by the Act of 1950 and was replaced subsequently by the Arbitration Act of 1979. The Indian Arbitration Act, 1940 remained in force until it was replaced by the new/ present Arbitration and Conciliation Act, 1996. Prior to the passing of the Arbitration and Conciliation Act, 1996, there were three Acts dealing with Arbitration Law in India viz., the Arbitration Act, 1940, the Arbitration (Petrocol and Convention) Act, 1937 and 'the Foreign Awards (Recognition and Enforcement) Act, 1961. The First one dealt with domestic arbitration, while the other two dealt with International Commercial Arbitration.


The law relating to International Commercial Arbitration drèw the attention of the United Nations Organisation and comprehensive uniform Model Arbitration Law at the International level was adopted by the United Nations Commission on International Trade Law (UNCITRAL) on 21st June, 1985. The U.N. General As- sembly, in its resolution dated 11-12-1985 recom- mended that all states should adopt the model law on International Commercial Arbitration. In pursuance of the Model Law, the Arbitration and Conciliation Act, 1996 was passed in India.


THE ARBITRATION AND CONCILIATION ACT, 1996 In pursuance of the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law (UNCITRAL), the 76th Report of Law Commission of India in November 1978 recommending for updating/re-drafting the Arbitration Act, 1940 and several representations made by the legal experts and other representative bodies of the trade and industry, the arbitration and Conciliation Bill, 1996 was promulgated by the President. The ordinance was re- promulgated twice and finally passed as the Arbitration and Conciliation Act 1996. It received the assent of the President of India on 16th August, 1996 and- came into force from 27th January, 1996, 'the day, the relevant ordinance was passed..


The Arbitration and Conciliation Act, 1996.contains 86 Sections divided into four parts, besides the Preamble and three Schedules. Section 1 deals with short title. extent and commencement. Part-I containing Sections 2 to 43 divided into ten chapters deals with the general provisions on Arbitration. Part-II containing Sections 44 to 60 divided into two chapters deals with enforcement of certain foreign awards. Part-III containing Sections 61 to 81 deals with Conciliation and Part-IV containing Sections 82 to 86 provides for the supplementary provisions.

The Act is applicable to the whole of India. However, Section 1 (2) provides that parts- I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or as the case may be, international commercial conciliation.


Object : The main object in passing of the Arbitration and Conciliation Act, 1996 is to consoiidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of fore.gn arin! awards and also to provide for a law relating to conciliation and related matters. The main purpose of the Act is to meet the challenges of the modern developing economy as a consequence of the globalization of International Commercial Arbitration and the need for effective economic reforms. It aims to ensure smooth and amicable settle- ment of domestic and international commercial disputes.


Salient Features : The Arbitration and Conciliation Act, 1996 introduced some basic and qualitative changes in the Arbitration Law in India. The salient features or the changes brought about by the new Act, can be explained under the following heads :

  1. A Comprehensive Statute;

  2. An Explanatory Code;

  3. Prescribed Qualification for Arbitrator;

  4. Abolition of Umpire System;

  5. Curtailment of the Court's Powers;

  6. Procedure for Conduct of Arbitration and Awards in Detail; anoth

  7. Precised Powers of the Court;

  8. Powers of the Arbitrators Enhanced;

  9. A new form of Conciliation

  10. International Applicability;

  11. Provision for Interim Orders; noltsilinno

  12. No provision for Appeal;


A Comprehensive Staie : The Title of the Act itself indicates that, the Act, in addition to arbitration, recognized conciliation as a means for settlement of commercial disputes. The Act is more comprehensive than the earlier Act of 1940. It consists of 86 Sections divided into four parts, besides the preamble and three Schedules. It lays down the provisions relating to domestic, international and inter-state arbitrations. The Act aims to make the arbitration 1. and conciliation law in consonance with the recommendations of the United Nations Commission on International Trade Law (UNCIRAL)


An Explanatory Code : The old Act of 1940 made no provision for international arbitration. Where as the new Act of 1996 is an explanatory and a complete code and it specifically defines "international Commercial arbitration". For the first time, procedure for Arbitral Tribunals is provided for under the Act. Prescribed Qualification for Arbitrator : The Act of 1940 prescribed no qualification for appointment of an arbitrator. It resulted in certain problems in respect of the settlement of disputes between the on parties, which are of technical nature viz., science, technology, mining or other special fields. To remove uo this problem, the Act of 1996 prescribed certain RA qualifications for appointment of an arbitrator. Therefore, only such persons, who are really al b competent and well versed in the relevant field are Isio appointed as arbitrators. 3.


Abolition of Umpire System : The significant feature of the Act of 1996 is the abolition of the "Umpire System". Under the Act of 1940, if the dispute/ matter is referred to a number of arbitrators, an umpire is to be appointed. An umpire, is a person, empowered to decide the controversy between the arbitrators. The umpire was to act only when the arbitrators failed to reach a decision and make an award for whatever reasons within the third specified time or there was a difference of opinion between two arbitrators (Part-II, Schedule-I, of the Arbitration Act, 1940). Section 10 of the Act of 1996 provides that the Parties are free to determine the number of arbitrators provided that such number shall not be an even number. The arbitrators so appointed shall appoint a third arbitrator called "the presiding Arbitrator". Where the parties fail to appoint, the Chief Justice of the High Court shall have the power to appoint the presiding Arbitrato Such power is vested in the Chief Justice of India respect of a dispute involving internationa commercial arbitration.


Curtailment of the Court's Power : The Act a1940 allowed the Civil Courts to intervene in the arbitral proceedings. As a result of such interference the arbitral tribunals could not function effectively le The Act of 1996 has limited the powers of the court rather restricted the exercise of judicial power. As provided under Section 5 of Act, "Notwithstanding any thing contained in any law for the time being in force, in matters governed by this part, no judicial - authority shall intervene except where so provided, in this part." Further, Section 35 of the Act states that subject to this part (Part -1), the arbitral award shall be final and binding on the parties. Section 36 provides for the enforcement of the award without 5. intervention of the court.


Procedure for conduct of Arbitration and awards in Detail : Chapter V containing sections 18 to 27 of the Act of 1996 provide for the detailed procedure and practice for conduct of arbitration and awards. Arbitral Tribunals are empowered to settle any - objections raised in respect of jurisdiction or scope of authority of the arbitrators.


Precised Powers of the Court : The powers of the court have been considerably curtailed by the Act of 1996, when compared with the Act of 1940. The Act has precised the powers of the court by taking Wan assistance only in certain specific matters. The court assistance can be sought in taking evidence only with the prior approval of the arbitral tribunal or a party with the approval of the arbitral tribunal may mapply to the court for assistance in taking evidence. Mitigation of Court's interference/ power enables the arbitrator to work more independently and impartially with added sense of responsibility.


Powers of the Arbitrators Enhanced : The Act of 1996 has enhanced the powers of the Arbitrators in Is respect of the Jurisdiction of Arbitral Tribunals an a also improved the competence of the Arbitrators to St rule. Chapter IV (of Part -I) containing Sections 16 and 17 of the Act provides for the enhanced powers bob with regard to the jurisdiction of the Arbitral Tribunals.


A new form of Conciliațion : The title of the Act itself indicates that the Act recognized conciliation (in addition to Arbitration) as a means for settle- ment of commercial disputes. Part-III of the Act, containing sections 61 to 81 provides for conciliation as a means for settlement of commercial disputes. The Act of 1940 made no provisions for conciliation. The Act of 1996 accorded the same status to 9. conciliation like the arbitral award. Now, the domestic and international commercial disputes can be settled/ resolved through conciliation.


International Applicability : The Act of 1940 made no provisions for applicability of any interim award made -by the Foreign Arbitral Tribunal. But, the nem act has made provision for applicability of Foreign Arbitral Tribunal's awards.


Provision for Interim Orders : Another significant feature of the Act of 1996 is the provision for interim measures. The Act empowers the arbitrator to pass interim orders in respect of the subject matter of the dispute at the request of the party. There was no such provision under the Act of 1940.


No Provision for Appeal : Under the Act of 1996, bas there is no provision for appeal against an arbitral award. The arbitral award is final and binding al between the parties. However, the aggrieved may make recourse to law court for setting aside the lenlarbitration award on specific grounds as provided under Section 34 of the Act.




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