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Development of Arbitration Law in India

The judicial system in India is plagued by inordinate delay. Quick redressal has become an elusive target. It can be said that the smooth and satisfactorily functioning system has now failed to deliver justice expeditiously. In fact, the citizen fears litigation due to the known delay factor. For all one knows, a delay in justice might be a denial of justice.

With a pendency of 30million cases in various courts and an average time span of 15 years to get these disputes resolved through the court system, hence, the Indian legal system can hardly be described as satisfactory. Hence Alternative Dispute Resolution (ADR) is an alternative to former legal system.

Delay in Decision:
In a country like India where we have such a huge population, the legal system has to be the most effective mechanism for welfare of its public. But unfortunately, the Indian legal system as whole is not satisfactory at all. As a result, there is inordinate delay in the disposal of cases. The number of cases in the courts is increasing day by day. Justice in India is highly time-consuming procedure.

The time taken to decide a case is more than four years on average[1]. Justice has become costlier, in terms of both time and money. Since the citizens are unable to apply costly lubrication in the process of this mechanism, their work is delayed and justice goes out of their reach.

Due to the non-payment of the litigation fees the cases keeps on delaying and as a result, justice is not sought and the parties remain disputed. Moreover, litigation process makes more rivals as it is not a friendly approach and due to the pendency of the case the dispute may get worse. Hence, justice delayed can often be termed as justice denied.

As there are many drawbacks of litigation process a new mechanism has to be adopted by Indian legal system for resolving the disputes more quickly.

Alternative Disputes Resolution:

Conflict is a fact of life. It is not good or bad. ADR refers to a variety of resolution techniques that are designed to resolve disputes or issues in controversy more efficiently when the normal negotiation process fails. ADR is placed as an alternative to the Formal Legal System. It is an alternative to litigation. ADR includes dispute resolution processes and techniques that are considered to act as a means for disagreeing parties to come to an agreement and resolve their dispute or issues. It is a collective term for the ways that parties can settle disputes, with (or without) the help of a third party[2].

The ADR came into use keeping in view the fact that the Courts are overburdened with cases and justice is being delayed. The system of resolving disputes by ADR techniques emanates from dissatisfaction of many people with the way the disputes are traditionally resolved and thus, resulting in criticism of the Courts, the legal profession and sometimes lead to a sense of alienation from the whole legal system. Thus, this is where the Alternatives to the legal system comes into place.

The rising popularity of ADR can be summed up by the increasing caseload on the traditional courts, the perception that ADR imposes fewer costs than litigation, a preference for confidentiality, and the desire of some parties to have greater control over the selection of the individual or individuals who will decide their dispute.[3]

Appropriate Dispute Resolution, Assisted Dispute Resolution, Additional Dispute Resolution, etc. were few more terms given for this mechanism but Alternative dispute resolution was found out to be the best amongst all.

Need for ADR:

  1. Lesser burden:
    as the Indian legal system is overburdened, over 30 million cases are pending till date and an average time span of 15years to get these disputes resolved.
  2. Saves time:
    As ADR is out of court settlement i.e. settling disputes without litigation, it saves a lot of time of parties.
  3. Cost effective:
    ADR is cost effective as compared to litigation which requires a lot of litigation fees. Most of the people cannot afford litigation fees and therefore do not take any action against their dispute.

Hence ADR was much needed for lessoning the burden of the courts, for speedy disposal of disputes with less cost.

Techniques of ADR:

  • Arbitration:
    Arbitration is a process in which a neutral third-party (arbitrator), after reviewing the facts, evidences and listening to arguments from both the sides, issues a decision award to resolve the case.
  • Mediation:
    Mediation is a process of facilitated negotiation in which a skilled and impartial third party seeks to enhance negotiations between parties to a conflict or their representatives, by improving the communication, identifying the interests of both the parties and exploring possibilities for a mutually agreeable resolution[4].
  • Conciliation:
    This is a process where the parties to a dispute use a conciliator (neutral person), who meets with both the parties separately and together as well, in an attempt to resolve their dispute[5].
  • Negotiation:
    Negotiation is defined as any form of direct or indirect communication whereby parties who have opposing interests discuss the form of any joint action which they might take to manage and ultimately resolve the dispute between them[6].

Salem Bar Association Vs. Union of India[7], the Supreme Court held that where it appears to the court that there exists a scope of settlement which may be acceptable to the parties, then the court may refer the parties, and opt for one of the methods of Alternative Disputes Resolution, namely Arbitration, Conciliation, Mediation, including settlement through Lok Adalat's. If the parties do not agree, then the court may refer to the litigation proceedings.


Whenever two persons come together in any business or for the purpose of any transaction, misunderstanding or conflict is very common between them. Hence a speedy and effective resolution is required for such conflicts. Besides litigation, Arbitration is another way of resolving the disputes.

Arbitration is a form of Alternative Dispute Resolution. It is a technique of solving the disputes outside the courts. Parties to a dispute refer it to arbitration and the arbitrator's decision can be either binding on the parties if both the parties agree with it or it can be set aside by either of the parties. Non-binding decision is similar to mediation, where a decision is not binding on the parties.

The reason behind the emergence of ADR was that the courts in India are burdened with huge pending litigations which require to be solved as early as possible but because of various factors the settlement of disputes by our formal courts has become a nightmare for the parties involved in the disputes.

The main purpose of Arbitration Law in India is to give to the parties quick and effective remedy. The decision of the arbitrator is regarded as the decree of the court.

The Arbitration and Conciliation Act, 1996:

The laws relating to arbitration in India is contained in the Arbitration and Conciliation Act, 1996. It came into force on the 25th day of January, 1996. The Act is of consolidating, amending in nature and is not exhaustive. However, this Act goes much beyond the scope of its predecessor Act that is the Act of 1940. The Act of 1996 provides for Domestic Arbitration, International Commercial Arbitration and also provides for the enforcement of foreign arbitral awards. It also contains features on conciliation.

Purpose of the Act:
The purpose of the Arbitration and Conciliation Act, 1996 was as follows:
An Act to consolidate and amend the law that are relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the laws relating to conciliation and for matters that are connected therewith or incidental thereto.[8]

Constitutional validity of the Act:

According to Article 51 (d), the state has to endeavor to encourage settlement of international disputes by arbitration.

The constitutional validity of the Act of 1996 was upheld by the Supreme Court in the case of Babar Ali v Union of India[9]. The Supreme Court in this case found that there is no question of the Arbitration and Conciliation Act, 1996 being unconstitutional or in any way offending the basic structure of the Constitution of India. Further, the court went on to state that as the High Court has rightly observed that judicial review is available for challenging the award in accordance with the procedure laid down in the Act.

Shortcoming of the Act, 1996:

  1. Section 9: This section may be misused by the party because party may not take the initiative to have the arbitral tribunal constituted, after obtaining an interim measure and may delay the process[10].
  2. Section 14: This section state that the mandate of an arbitrator shall terminate but after termination who (party) will pay the arbitrator for the services he rendered in the proceeding and what will be the quantum of fees.
  3. Section 15: This section is related with appointment of the substitute arbitrator after termination of the mandate under section 14. But there is nothing written in this section that could say that within what time the substitute arbitrator shall be appointed.
  4. There is no provision that could enable the arbitrator to give the award quickly. The Arbitration Act was enacted with the sole purpose to provide speedy settlement of dispute. Nowadays, the proceeding of a matter takes four to six years on average to settle the dispute or issue in question. Thus, the object of the Act of 1996 was not achieved.
  5. The aggrieved party was supposed to start again from the district court for challenging the award.
  6. There is no provision in the Act as to enable the court to give the judgment quickly where the applications are filed for setting aside the arbitral award.

The Arbitration and Conciliation (Amendment) Act, 2015

The ADR techniques has increasingly become a preferred option to settle commercial disputes globally as well as in India. It was high time to observe that urgent steps should be taken to facilitate quick enforcement of contracts, easy recovery of monetary claims, reduce the pendency of cases in courts and to hasten the process of dispute resolution in India, through arbitration, in order to encourage foreign investment by projecting India as an investor friendly country having a sound legal framework and ease doing business in India.

Considering the prevalent factors and the need of time, the Government promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015, in order to amend certain provisions of the Arbitration and Conciliation Act of 1996, and these amendments received assent from the President on 23rd October, 2015.[11]

Few Amendments:

  • Amendment to Section 7: An Arbitration agreement contained through electronic communication shall also be treated as an arbitration agreement in writing
  • Amendment to Section 9: Where the Court passes, before the commencement of the arbitral proceedings an order for any interim measure under sub-section (1) of Section 9, the arbitral proceedings shall then commence within a period of ninety days from the date of such order.
  • Amendment to Section 11: Under the amendment, the Appointment of arbitrator shall now be made by the Supreme Court or the High Court, as the case may be, instead of the Chief Justice of India or the Chief Justice of the High Court.
  • Amendment to Section 14: When an arbitrator is terminated on termination of his mandate, the arbitrator is to be substituted by another arbitrator.
  • Amendment to Section 23: This amendment to this section provided that the respondent in support of his case, can also submit a counterclaim or a set-off, if such counterclaim or set-off falls within the scope of the arbitration agreement.
  • Amendment to Section 24: The Arbitral tribunal is supposed to hold oral hearing for the presentation of evidence or oral arguments on day-to-day basis and the tribunal shall not grant any adjournments without any sufficient cause.

The Arbitration and Conciliation (Amendment) Act, 2019

The Arbitration and Conciliation (Amendment) Act of 2019, received Presidential Assent on August 9, 2019 and has formally been published in the Official Gazette. This act has introduced noteworthy modification of the very own Arbitration and Conciliation Act of 1996, at the same time significantly improving some of the formulations which were introduced by the Arbitration and Conciliation (Amendment) Act of 2015.

The objective of the "Arbitration and Conciliation (Amendment) Bill, 2019, was to amend certain provisions and to introduce some new aspects in the existing Arbitration and Conciliation Act.

Key Highlights of 2019 Act:

  1. Arbitral Institution
    Section 1(ca) has been introduced in order to define the term 'arbitral institution' as an institution designated by the Supreme Court or a High Court under the Act.
  2. The Arbitration Council of India
    A new titled "Part IA" was added after "Part I" of the principal act. This part relates to the establishment of a new institution 'The Arbitration Council of India'. The ACI is to be located in Delhi. This part includes the definition clause, establishment and incorporation of the ACI, composition of the Council, their duties and functions, among others.
  3. Confidentiality of information
    Section 42A was added which explicitly incorporated a requirement for arbitrators, arbitral institutions and the parties as well to maintain the confidentiality of the arbitration proceedings, except in cases where the disclosure of the award is necessary for the purpose of its implementation and enforcement.
  4. Protection to arbitrators
    Section 42B of the Amendment Act provides for the protection to the arbitrators from any suit or other legal proceedings for any action done in good faith or intended to be done under the Act or the rules or regulations made thereunder.
  5. Time limit
    Time limit for awarding the arbitral award have been modified. This Amendment Act has however, relaxed the stringent time-period for awarding the arbitral award as was prescribed under the 2015 Amendment Act to a certain extent. The time limit for giving the arbitral award in matters, other than the matters of international commercial arbitration, should be within the period of twelve months from the date of completion of proceedings.
  6. Completion of Pleadings
    Section 23 of the Act has been amended in order to provide that the statement of claim and defence must be completed within a period of six months from the date the arbitrator or all the arbitrators (as the case maybe) received notice of their appointment in writing.

The position of Indian legal system is not the same as it was, when it was adopted from the British system. The justice is not delivered on time, due to pendency of cases in the courts which leads everyone to a saying, Justice delayed is Justice denied. As a result, there was an urgent need for a new and better mechanism which could help in resolving disputes effectively and on time without any delay.

Hence, ADR was the new sunshine as an emerging mechanism which through its techniques solved the disputes. ADR has increasingly become a preferred option to settle disputes. However, as ADR techniques were new there were some drawbacks to it as well but after the amendment of the Arbitration and Conciliation Act, 2015 these drawbacks were amended to a certain level, to meet the requirement of that time.

The amendments were made with a view that Arbitration techniques will become more easier and effective mechanism to resolve commercial disputes. However, in the fast-moving world of technological advancements and Globalization, commercial activities have become more complex and it is difficult to be familiar with the complex foreign laws.

Therefore, dispute arising out of international commercial transactions has to be settled through Arbitration. Thus, keeping all this in mind, the Arbitration and Conciliation (Amendment) Bill, 2019 was presented, to further bring about changes in the existing laws and make the laws better to meet the needs of the present times.


  7. 6 SCC 344 (2005)
  9. 2 SCC 178 (2002)

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