Historical Development of Arbitration Law in India

Arbitration in India has a continuous history from the guild and village tribunals of the ancient period to the Arbitration and Conciliation Act, 1996. The colonial period converted an indigenous practice into a procedure supervised by the courts; the Act of 1940 consolidated that procedure and, in doing so, made it so court-bound that the process lost its advantage; and the Act of 1996, drawn from the UNCITRAL Model Law, restored the autonomy of the tribunal and confined the court to named occasions. The three amendments since 2015 have been attempts to make that scheme work in practice.

Which statute replaced which, and what the 1996 Act consolidated

1. The Ancient and Medieval Period

The Smriti writers describe a graded system of popular tribunals below the King's court. Yajnavalkya places them in ascending order: the Kula, the assembly of the family or kinship group; the Sreni, the assembly of a guild or corporation of persons following the same trade; and the Puga, the assembly of persons of different trades and castes living in the same locality. An appeal lay from each to the next and from the Puga to the royal court. The decision bound the parties, the persons deciding were chosen for their standing in the community rather than appointed by the State, and the process was conciliatory in character. The village panchayat performed the same function locally and continued to do so into the colonial period.

The medieval period retained the pattern. Islamic law recognised sulh, meaning amicable settlement, and tahkim, meaning reference to a hakam or arbitrator, and both are treated in the Hedaya and in the Fatawa-i-Alamgiri. Trading communities maintained their own machinery, with the mahajans and the chief of the trade deciding disputes among merchants according to trade custom, enforced by the commercial consequences of exclusion from the guild.

2. The Colonial Regulations

British administration did not abolish arbitration; it regulated it. The Bengal Regulation of 1772 recommended that parties to suits of accounts and partnership submit their disputes to arbitration and provided that the award should be a decree of the court. The Regulation of 1781 provided that a court should recommend arbitration where the parties agreed, and that no award should be set aside except on proof of gross error or corruption in the arbitrator. The Bengal Regulations of 1787, 1793 and 1795 elaborated the procedure, the Madras Regulation of 1816 provided for village panchayats, and the Bombay Regulation of 1827 made similar provision. The Code of Civil Procedure, 1859 contained provisions for reference to arbitration in a pending suit, carried forward into the Codes of 1877 and 1882.

3. The Working of the Act of 1940

The Act of 1940 governed domestic arbitration for more than half a century. Its defect was structural rather than accidental. The award had no effect by itself: it had to be filed in court under Section 14, notice issued to the parties, objections heard under Section 30, and a judgment and decree pronounced in terms of the award under Section 17 before anything could be executed. The court could remit the award for reconsideration under Section 16 and could modify or correct it under Section 15. The result was that every arbitration was followed by litigation, and the losing party had an incentive to treat the award as the beginning of the dispute rather than its end.

The Law Commission had examined the position in its 76th Report of 1978 and recommended amendment. The course ultimately taken was replacement rather than amendment, and the occasion was supplied by developments in international trade law.

4. The Act of 1996

The United Nations Commission on International Trade Law adopted the Conciliation Rules in 1980 and the Model Law on International Commercial Arbitration in 1985, and the General Assembly recommended in each case that States give due consideration to them. India responded with a single statute covering domestic arbitration, international commercial arbitration, the enforcement of foreign awards and conciliation. It was first promulgated as an Ordinance in January 1996 and re-promulgated twice; the Act received assent on 16 August 1996 and was deemed to have come into force on 25 January 1996. It repealed the Acts of 1937, 1940 and 1961.

• Judicial intervention was confined by Section 5 to the occasions provided in Part I.
• The award was required to state reasons by Section 31(3), unless the parties agreed otherwise or the award was on agreed terms.
• The requirement of filing the award in court and obtaining a decree upon it was abolished; Section 35 makes the award final and binding and Section 36 makes it enforceable as if it were a decree.
• The tribunal was given power to rule on its own jurisdiction under Section 16 and to order interim measures under Section 17.
• Grounds for setting aside were confined by Section 34 to the matters listed, which broadly follow Article 34 of the Model Law.

5. The Amendments

1. 2015, following the Law Commission's 246th Report of 2014: the Fifth, Sixth and Seventh Schedules on the independence and impartiality of arbitrators, Section 29A on the time for making an award, Section 29B on fast track procedure, Section 31A on costs, the narrowing of the public policy ground with patent illegality added for purely domestic awards by Section 34(2A), and the removal of the automatic stay of enforcement on the mere filing of a challenge.
2. 2019, following the report of the High Level Committee chaired by Justice B.N. Srikrishna: arbitral institutions designated by the Supreme Court and the High Courts for appointment under Section 11, provision for the Arbitration Council of India, and confidentiality under Section 42A. Section 87, inserted by this amendment, was struck down in Hindustan Construction Co. Ltd. v. Union of India, (2020) 17 SCC 324.
3. 2021, with retrospective effect from 23 October 2015: a proviso to Section 36(3) requiring an unconditional stay of enforcement where a prima facie case is made out that the agreement, the contract or the award was induced by fraud or corruption, and omission of the Eighth Schedule prescribing qualifications for arbitrators.

Institutional development accompanied the amendments. The New Delhi International Arbitration Centre Act, 2019 established what is now the India International Arbitration Centre and declared it an institution of national importance. The Commercial Courts Act, 2015 concentrated arbitration applications of the specified value before designated courts.

6. The Present Position

Three developments define the current state of the law. The Mediation Act, 2023, by Section 61 read with its Sixth Schedule, replaced Sections 61 to 81 of the 1996 Act, so that Part III no longer contains a conciliation procedure and a reference to conciliation in any other enactment is read as a reference to mediation. A draft Arbitration and Conciliation (Amendment) Bill, 2024, prepared after the report of the expert committee chaired by Dr. T.K. Viswanathan, was circulated for public consultation in October 2024 and proposes statutory recognition of emergency arbitration, audio-visual hearings and the removal of the conciliation provisions; it remains a draft. And in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., decided on 30 April 2025, a Constitution Bench held by a majority that a court has a limited power to modify an award under Sections 34 and 37, a question on which the decisions had been in conflict.

7. Related Topics and Provisions