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The Arbitration and Conciliation Act, 1996 : A Critique

The globalization of trade and commerce and economic liberalization created need for effective implementation of economic reforms. The rate of industrialization, modernization, and socio-economic advancement has frequently outpaced the creation of conflict resolution institutions. In many places of India, rapid growth has resulted in increasing caseloads for already overburdened courts, resulting in infamously slow adjudication of commercial disputes.

As a result, alternative conflict resolution processes like arbitration have grown in popularity. There was no comprehensive enactment in India to meet the present requirements to settle domestic and international commercial disputes amicably through arbitration and conciliation machinery. 

Indian laws have been changed multiple times in order to keep the country at par with legal systems in other top commercial law jurisdictions in order to integrate with the global business community. The Arbitration Act of 1940, the Arbitration (protocol and convention) Act of 1935, and the foreign awards (recognition and enforcement) Act of 1961 are the three statutes that regulate arbitration in India.

The legislation included a Bill to consolidate and modify the law controlling domestic arbitration, international commercial arbitration, and the enforcement of foreign arbitral decisions, as well as to clarify the law governing conciliation, all of which were based on the UNCITRAL Model Law and Rules. The Arbitration and Conciliation Act, 1996 went into force on August 16, 1996.

This article examines the evolution of arbitration law and practice in India, including how the current arbitration system in India is still riddled by many flaws and shortcomings, and how arbitration's quality as a quick and cost-effective method of resolving commercial disputes has not developed thoroughly.

Because the previous legislation, the 1940 Act, failed to fulfil the hopes of the general public and the business community in particular, the 1996 Act was passed. Despite the fact that the 1996 Act was intended to fill up the holes left by the 1940 Act, it failed because to the arbitral system that arose underneath it. The Act's main purpose was to make the current legal system more efficient and effective in resolving conflicts, which was beset by unjustified delays and a backlog of cases. 

The Arbitration and Conciliation Act, 1996

Because the previous legislation, the 1940 Act, failed to fulfil the hopes of the general public and the business community in particular, the 1996 Act was passed. Regardless of the fact that the 1996 Act intended to fill up the holes left by the 1940 Act, it failed due to various reasons. The Act's main purpose was to make the current legal system more efficient and effective in resolving conflicts, which was beset by unjustified delays and a backlog of cases. However, a review of the 1996 Act's arbitration system reveals that it fell short of its objectives.
  1. Curtailment of the Courts' Powers
    The Act has limited the powers of court rather restricted the exercise of judicial power, in other words, it has confined the extent of judicial intervention as under Section 5 of the Act-"Notwithstanding anything contained in any other 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."

    Finality of arbitral awards is given under Section 351 according to which an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Thus, the Act itself provides finality to arbitral awards and its enforcement (Section 36) without intervention of the Court.
     
  2. Arbitral Awards
    One of the elements used to judge whether arbitration is a successful legal institution is the effectiveness and usefulness of the award enforcement regime. Section 36 of the 1996 Act makes an arbitral award enforceable as a court judgement, and it can be used in a lawsuit under the norms of the Civil Procedure Code, 1908.

    The enforcement of an award resulting out of an international commercial arbitration is governed by international treaties and conventions that regulate the recognition and enforcement of arbitral decisions.

    The enforcement of foreign awards in India is governed by the New York Convention of 1958 and the Geneva Convention of 1927, both of which are contained in Chapter II, Part I and Part II of the Act of 1996. The 1940 Act and the 1996 Act have identical enforcement measures.

    Anyone interested in international awards must file a formal request with a court that has jurisdiction over the award's subject matter. The decree holder is required by the 1996 Act to register the award, the agreement on which it is based, and evidence demonstrating that the award is a foreign award.
     
  3. Swift proceedings
    Despite the fact that the 1996 Act provides arbitrators additional power and shields them from judicial intervention, it does not establish a timeframe for the proceedings to be completed. The 1940 Act, on the other hand, established a timeframe for the completion of arbitration procedures. The deadline for completing arbitration processes was removed, based on the notion that judicial intervention is the primary source of arbitration delays and that granting arbitrators more autonomy will solve the problem.

    The reality, on the other hand, is rather different. Arbitrators often treat arbitration hearings in the same way they treat regular litigation, and they are more likely to grant extensive and numerous adjournments when the parties want them. Moreover, the parties typically approach arbitration with the same attitude as they do litigation, leading to awards that end up in courts, prolonging the time it takes to settle disputes.

    Parties can also use an existing provision that provides for an automatic stay of the awards' execution by submitting a challenge application. As a result, the objective of arbitration as a mechanism for speedily settling disputes is impeded by noticeable delays.
     
  4. Cost effective
    When the number of arbitration procedures is less, arbitration is more cost effective than litigation. The claimant must file his claim statement and related documentation at the first hearing, the opposing parties must file their reply and necessary documentation at the second hearing, and the claimant must file his rejoinder at the third hearing, according to the standard procedure before the arbitrators. At each of these stages, there are usually three to four adjournments.

    If any party makes an application for interim instructions, it lengthens the number of arbitration sessions necessary to resolve such applications. An arbitral tribunal normally addresses a question of jurisdiction for the first time after issuing at least six adjournments.

Amendments
After much clamor, the Arbitration and Conciliation Act, 1996 was finally amended in 2015. The Act was significantly improved by the Arbitration and Conciliation (Amendment) Act, 2015, which went a long way toward resolving many complaints about the Act's intentions. It imposed strict timelines for the completion of arbitral procedures as well as a fast-track approach to conflict resolution.
  1. The amended Section 8 empowers the judicial authority to refer the parties to arbitration when there is an arbitration agreement, unless it finds prima facie that no valid arbitration agreement exists.
  2. The Amended Act allows for shorter deadlines to make the arbitration procedure more efficient. Section 24 has been amended to include a proviso requiring the arbitral tribunal to perform oral hearings for evidence and oral argument on a daily basis and not to grant any adjournments unless there is good cause.
  3. Section 29B has been added, which allows the parties the option of agreeing on a fast track process in which the award must be issued within 6 months of the arbitrator(s) getting written notice of appointment.
  4. Section 31A has been added, giving the arbitral tribunal broad authority to award costs. The Law Commission Report's recommendation for an expansive system to award expenses based on logical and realistic criteria rule was approved.
  5. The scope of "public policy" in Section 34 has been narrowed and the award can be set aside only if the arbitral award (a) was induced or affected by fraud or corruption; or (b) is in contravention with the fundamental policy of India; or (c) conflicts with the most basic notions of morality or justice.

The Arbitration and Conciliation (Amendment) Ordinance, 2020 was declared on November 4, 2020, further modifying the Act; to make the law more responsive and effective to suit most with the law dealing with the settlement of disputes in respect of domestic and international commercial matters.
  1. An unconditional stay on the enforcement of an India-seated arbitration award (including both domestic and international arbitration awards) until the challenge to the award is resolved, where the court concludes prima facie that the arbitration agreement or contract on which the award is based, or the award itself, was induced or accomplished by fraud or corruption.
  2. The qualifications, experience, and norms for arbitrator accreditation established in the Arbitration Act's Eighth Schedule have been removed.
  3. A court must now grant an unconditional stay on the enforcement of an award if a prima facie case is made out that the arbitration agreement or contract which is the basis of the award, or the making of the award itself was "induced or effected" by fraud or corruption.

Conclusion

Despite being one of the New York Convention's founding signatories, Indian arbitration has not always adopted international best practices. However, in the previous some years, there has been a considerable movement in this perspective. Courts and lawmakers in India have brought Indian arbitration laws in line with international best practices.

The purpose of the The Arbitration and Conciliation Act, 1996 was to develop a quick and cost-effective means of resolving disputes. Arbitration is a common technique of resolving commercial disputes in India. Arbitration in India is still expanding and has not yet reached the point where it can successfully address the requirements aggravated by business expansion.

The Act has been amended multiple times over the years to meet the changing demands of society and to encourage participation in the processes of arbitration, mediation, and conciliation, as well as other alternative conflict resolution techniques. The multinational companies/enterprises are pouring into India in the field of banking, insurance, building construction, electricity, telecommunication, etc. and there is commercial interaction between India and foreign countries wherein parties agree or have agreed for arbitration in case of dispute arising out of such commercial activities and the dispute shall be determined and settled in accordance with the Arbitration and Conciliation Act.

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