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Does the Indian legal system support Arbitration?

A country is as strong as its judicial system. when you read about the appalling reports that about 2.5 Crore cases that are pending in Indian Courts, first thing that comes to your minds is that why we have come to this situation? Possible answers to this question are the pathetic 1:10 ratio of judge to population, abysmal budgetary allocation to judiciary and the failure of alternative dispute resolution methods in the country.

Arbitration is a form of dispute resolution. Arbitration is the private, judicial determination of a dispute, by an independent third party. An arbitration hearing may involve the use of an individual arbitrator or a tribunal.[1] Arbitration is one of four parts of Alternative Dispute resolution which are negotiation, mediation, collaborative law, and arbitration. Arbitration was first introduced in India in the year 1772 by Bengal Regulation Act of 1772, this act was surprisingly successful for its time.

The legislative act in the field of arbitration was first passed in the year 1940. Presently the practice of arbitration is governed by the Arbitration and Conciliation Act 1996. This Act is based on n the 1985 UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976. The Act is a composite piece of legislation. It provides for domestic arbitration; international commercial arbitration; enforcement of foreign award and conciliation (the latter being based on the UNCITRAL Conciliation Rules of 1980).

Even though the practice has not exactly been a successful one on India, it does have a lot of advantages over the ‘well established’ courts.
These advantages include[2]
  • Unlike in court, parties can select an arbitrator with an appropriate degree of practical experience.
  • Arbitration is often faster than litigation in court, and a time limit can be placed on the length of the process.
  • Arbitration can be cheaper and more flexible, more commercial and less formal than court.
  • Unlike court rulings, arbitration proceedings and arbitral awards are confidential.
  • Unlike in court, there are very limited avenues for appeal of an arbitral award, which limits the duration of the dispute and any associated liability.

Reasons for which the act was considered for amendment

The earlier arbitration law was not considered as being as effective as it should have been. The main reason was that the former arbitration law did only cover dispute settlements of domestic nature compared to the 1996 Act. The 1996 Act seeks to provide an effective mode of settlement for domestic as well as international commercial arbitration. In addition, methods of conciliation have also been introduced, since none of the earlier laws provided any mode of conciliation between the parties. Several changes were made. However, several challenges occur such as appointment of arbitrator, venue, costs, delays, and courts interventions. I believe it is safe to say that the practice failed in the past because the law governing it wasn’t enough and did not cater to the more contemporary requirements.

Amendments in the Arbitration and Conciliation Act 1996

The Arbitration and Conciliation Act 1996 was amended in the year 2015 and the following changes were made some of the most prominent changes made in the act were:
  • Starting of arbitration proceedings within 3 months of granting of interim relief by the court and doing away with court interference during the arbitration proceedings under Section 9 of the act.
  • Giving a time period of 60 days for the appointment of arbitrators and fixing the fees of the arbitrators depending on the claim amount under Section 11 of the act.
  • Making it mandatory for the arbitrators to declare any conflict of interests with any of the party or to declare his inability to efficiently complete arbitration proceeding under Section 12.
  • Replacement of an arbitrator by another arbitrator under Section 14 of the act.
  • Giving the tribunal the power to provide interim reliefs, if any, during the arbitration proceedings as if given by a civil court under Section 17 of the act.
  • Bringing the provision for filing a counter-claim or filing a set-off under Section 23 of the act.
  • Providing a more strong and efficient mechanism to provide exemplary costs in case of intentional or avoidable defaults by either party under Section 24.
  • One of the most significant amendment is to provide a specific time period for the completion of arbitration. It is mandated that the arbitration must complete within a period which can be extended by 6 months and in case it does not gets completed within the said period, arbitrators’ fee can be reduced for every month of delay under Section 29A.

As it is evident that most of these changes were much needed. Even after this amendment the act was further amended in the year 2018 and one of the most important change made was, for the appointment of arbitrators, Supreme Court or a high court can directly appoint arbitrators from designated arbitral institutions. Some of these institutions are Mumbai Centre For International Arbitration, Indian Institute Of Arbitration And Mediation and the IMC Chamber of Commerce and Industry.


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