The Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996: A Comparison

The two statutes differ in scope, in the role they give to the court, and above all in what happens to an award once it is made. Under the Act of 1940 an award was inert until the court had been persuaded to make it a rule of court, and the persuading gave the losing party a second contest. Under the Act of 1996 an award is final and binding when it is made and is enforced as if it were a decree, with the court entering only if a challenge is brought on the narrow grounds allowed. Every other difference between the statutes follows from that change.

1. The Two Routes from Award to Execution

The step the 1996 Act removed, and the effect on finality

Under the Act of 1940 the arbitrator was required by Section 14 to sign the award and to file it in court, or to cause it to be filed, and to give notice to the parties. The court then heard objections. Section 30 allowed the award to be set aside where the arbitrator had misconducted himself or the proceedings, where the award had been made after the issue of an order superseding the arbitration, or where the award had been improperly procured or was otherwise invalid. Section 16 allowed the court to remit the award for reconsideration and Section 15 allowed it to modify or correct the award in stated circumstances. Only when these were disposed of did the court pronounce judgment according to the award under Section 17, and only then did a decree follow which could be executed.

Under the Act of 1996 there is no filing in court and no decree upon the award. Section 31(3) requires the award to state the reasons on which it is based. Section 35 makes it final and binding on the parties and persons claiming under them. Section 36 provides that where the time for making an application under Section 34 has expired, the award is enforced in accordance with the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the court. Since the amendment of 2015, the mere filing of an application under Section 34 does not operate as a stay; a separate application must be made and the court may grant a stay on conditions.

2. The Principal Differences

Basis	Arbitration Act, 1940	Arbitration and Conciliation Act, 1996
Scope	Domestic arbitration only; foreign awards were governed by the Acts of 1937 and 1961	Domestic arbitration, international commercial arbitration, enforcement of foreign awards and, originally, conciliation
Source	Modelled on the English Arbitration Act, 1934	Based on the UNCITRAL Model Law, 1985 and the UNCITRAL Conciliation Rules, 1980
Types of reference	Three modes: without court intervention, with court intervention where no suit is pending, and in a pending suit	A single scheme founded on the arbitration agreement
Court intervention	Extensive and at large, including power to supersede the arbitration and to modify the award	Confined by Section 5 to the occasions the Part itself provides
Reasons for the award	Not required	Required by Section 31(3), unless the parties agree otherwise or the award is on agreed terms
Effect of the award	Inert until filed in court and made a rule of court under Section 17	Final and binding under Section 35, enforceable as a decree under Section 36
Challenge	Section 30: misconduct of the arbitrator or the proceedings, award improperly procured or otherwise invalid	Section 34: incapacity, invalid agreement, want of notice, excess of scope, irregular composition or procedure, non-arbitrability, public policy; patent illegality for purely domestic awards under Section 34(2A)
Jurisdiction of the tribunal	Objections went to the court	Section 16: the tribunal rules on its own jurisdiction, with the clause treated as separable
Interim measures	Section 41 and the Second Schedule, by the court	Section 9 by the court and Section 17 by the tribunal, the latter enforceable as an order of the court
Time for the award	Four months under the First Schedule, extendable by the court	Section 29A: twelve months from completion of pleadings, extendable by six months by consent and thereafter by the court
Foreign awards	Outside the Act	Part II, Chapters I and II, giving effect to the New York and Geneva Conventions

3. Why the Change Was Made

📖 Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634

Held: The informality with which arbitration proceedings were intended to be conducted had been lost; proceedings under the Act of 1940 had become highly technical and attended by unending prolixity, and the interminable delay that followed made the process anything but expeditious.

Significance: The observation is quoted in the Statement of Objects and Reasons preceding the 1996 legislation and is the standard authority for the proposition that the defect lay in the design of the 1940 Act and not merely in its administration.

Three features of the earlier statute produced that result. The award had to pass through the court before it had any effect, which built a round of litigation into every arbitration. The grounds of challenge were open-textured, since misconduct of the proceedings was capable of covering almost any complaint about the conduct of the reference. And the court could modify or remit the award, which invited the losing party to argue the merits again in the guise of an objection.

4. The Approach to Construing the New Act

📖 Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479

Held: The Act of 1996 is not an amendment of the Act of 1940 but a new statute based on the UNCITRAL Model Law. Its provisions are to be construed on their own terms, and decisions under the earlier Act are not a safe guide. An application under Section 9 may be made before the commencement of arbitral proceedings, provided the applicant manifests an intention to take the dispute to arbitration.

Significance: The decision prevented the jurisprudence of the 1940 Act from being carried into the new statute, which would have reintroduced the very interventionism the change was meant to end.

⚠ The 1940 Act still governs some proceedings

Section 85 of the Act of 1996 repeals the Acts of 1937, 1940 and 1961, but saves their operation in relation to arbitral proceedings which commenced before the new Act came into force, unless the parties agree otherwise. Arbitral proceedings are taken to commence for this purpose on the date on which a request for the dispute to be referred is received by the respondent, as Section 21 provides. Very old references and proceedings arising from them may therefore still be governed by the 1940 Act, which is why its provisions retain practical as well as historical interest.

5. What the 1996 Act Did Not Solve

The comparison is usually stated as a straightforward improvement, and in structure it is. The qualifications are that the new statute did not by itself produce speed, because ad hoc references conducted on a per-sitting basis remained slow and expensive until Section 29A was inserted in 2015; that the public policy ground in Section 34 was for a time given so wide a construction that the merits were reopened notwithstanding the new scheme, which the amendment of 2015 corrected by narrowing the ground and confining patent illegality to purely domestic awards; and that the automatic stay of enforcement on the filing of a challenge, which the courts read into the original Section 36, reproduced the delay of the 1940 Act until it was removed in 2015. The history of the last decade is largely the history of closing these gaps.

One further qualification arises from Gayatri Balasamy v. ISG Novasoft Technologies Ltd., decided on 30 April 2025, in which a Constitution Bench held by a majority that the court has a limited power to modify an award under Sections 34 and 37: by severing an invalid portion from a valid one, by correcting clerical, computational or typographical errors apparent on the face of the record, by modifying post-award interest in some circumstances, and by the Supreme Court under Article 142 of the Constitution. The power of modification, which was one of the features of the 1940 Act deliberately omitted in 1996, has to that extent been restored by construction, though in a form far narrower than Sections 15 and 16 of the earlier statute.

6. Related Topics and Provisions

Topic or provision	Connection
Historical Development of Arbitration Law in India	The sequence of statutes and the reports behind each
Object and Scheme of the Arbitration and Conciliation Act, 1996	The structure and objects of the present Act
UNCITRAL Model Law and Indian Arbitration Law	The source from which the 1996 scheme is drawn
Sections 14, 15, 16, 17 and 30, Arbitration Act, 1940	Filing, modification, remission, judgment on the award and setting aside
Sections 5, 16, 31, 34, 35, 36 and 85, A&C Act, 1996	Intervention, jurisdiction, reasons, challenge, finality, enforcement and savings