India has more than 100 years of history in regard to arbitration legislation. During the British rule, India had its first legislation on arbitration in the form of Indian Arbitration Act, 1899. Its jurisdiction was limited to the Presidency towns of Calcutta, Bombay and Madras. Thereafter, in the Code of Civil Procedure, 1908 the Second Schedule was introduced which was completely devoted to arbitration. In order to consolidate the law, the Arbitration Act, 1940 was passed. It repealed the Arbitration Act, 1899 and the relevant provisions in the Code of Civil Procedure, 1908, including the Second Schedule thereof. The 1940 Act did not deal with enforcement of foreign awards. To enforce the Geneva Convention on Foreign Awards, the legislature passed the Arbitration (Protocol and Convention) Act, 1937. The Foreign Awards (Recognition and Enforcement) Act, 1961 was brought in picture to enforce the New York Convention Awards. (Law Commission 246th Report.)
The working of the 1940 Act was reviewed in the 210th Report of the Public Accounts Committee of the Fifth Lok Sabha and Law Commission’s 76th Report.
The Indian economy had a bad patch in the early nineties and foreign reserves were touching nadir. To attract investment, the Indian economy was opened up in 1991 and the industrial, financial and foreign policy was overhauled. After the liberalisation of the economy, it was imperative to provide a stable, efficient and swift rule of law and dispute resolution mechanism. In order to address these problems, the Arbitration and Conciliation Bill, 1995 was introduced in Parliament to bring the Indian legislation at par with the international standards. The Act aimed at bringing the international commercial arbitration standards in line with the UNCITRAL model, enforcement of foreign awards, domestic awards and conciliation. Since the requisite legislative sanction could not be accorded to the 1995 Bill, the President of India promulgated the Arbitration and Conciliation Ordinance, 1996 on the same lines as the 1995 Bill. The Ordinance was promulgated twice because Parliament could not enact the law in the required time period. Finally, Parliament passed the Bill in terms of the Arbitration and Conciliation Act, 1996 which received the assent of the President of India on 16.08.1996 and came into force on 22.08.1996. (Notification No G.S.R. 375(E), dated 22.08.1996.) However, the Act was made applicable to arbitration proceedings commenced on or after 25.01.1996.( Fuerst Day Lawson Ltd v. Jindal Exports Ltd, (2001) 6 SCC 356)
In the year 2001, the government made a reference to the Law Commission to undertake a comprehensive review of the Arbitration and Conciliation Act, 1996 in view of the various shortcomings observed in its working and also the various representations received by the government in this regard. The Commission in its 176th Report pointed out that the UNCITRAL Model which is mainly intended to have a common law for ‘International Commercial Arbitration’ has been made applicable also to cases of purely domestic arbitration under the 1996 Act. It was also observed that there are conflicting judgments of various high courts with regard to the interpretation of the provisions of the 1996 Act. The government considered these recommendations and after consulting the state governments and various institutions, decided to accept almost all the recommendations. Accordingly, the Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on December 22, 2003.
Thereafter on 22.07.2004, the government constituted a committee known as the “Justice Saraf Committee on Arbitration” under the chairmanship of Justice B.P. Saraf to make an in-depth study of the analysis of the recommendations of the 176th Report of the Law Commission and all aspects of the Arbitration and Conciliation (Amendment) Bill, 2003. The Justice Saraf Committee gave a detailed report on 29.01.2005. In the light of this Committee’s Report, the Arbitration and Conciliation (Amendment) Bill, 2003 was then referred to the Departmental Related Standing Committee on Personnel, Public Grievances, Law and Justice for study and analysis. The committee was of the view that the provisions of the Bill gave room for substantial intervention by the court in the arbitration process. It stressed upon the need for promoting institutional arbitration in India and called for establishment of an institution in our country in this regard which would be on par with international standards. In view of these recommendations and observations, the 2003 Bill was withdrawn from the Rajya Sabha.
In order to undertake a study for suggesting amendments to the 1996 Act, the Ministry of Law and Justice also issued a Consultation Paper (http://lawmin.nic.in/la/consultationpaper.pdf) inviting suggestions/comments from eminent lawyers, judges, industry members, institutions and various other sections of the government and other stakeholders. Taking into account the comments and suggestions, the ministry prepared draft proposals and ‘Draft Note for the Cabinet’. Thereafter, the Ministry of Law and Justice requested the Law Commission to undertake a study of the amendment proposed to the Act in the ‘Draft Note for the Cabinet’. Pursuant to the said reference the Law Commission gave its 246th Report (http://lawcommissionofindia.nic.in/reports/Report246.pdf ) dated 05.08.2014.
