Business Law - Law of Arbitration

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With the increase in the international trade and the economic development of countries, there has also been an increase in the number of disputes related to commerce. Our country has also been the battleground of many disputes. Many Indian courts are already overburdened for justice in many serious cases, resulting in the lack of priority for commercial disputes. As a result, various alternative dispute resolution mechanisms like arbitration come into play.

One of the best examples of arbitration in India would be the panchayat system. People used to submit their disputes to the panchayats to seek justice. The Arbitration Act was passed in 1940 and hence was the law governing arbitration in India.

The Arbitration Act, 1940

Only domestic arbitration was dealt with by this act. According to this act, there were three stages of arbitration −

• Before the reference of the dispute to the arbitral tribunal
• During the proceedings before the arbitral tribunal
• After the award was passed by the arbitral tribunal

This act required all the intervention of the court in all the three stages of the arbitration process. It was needed to prove the existence of an agreement of the dispute. It was necessary for the award to become a rule of the court before the making of the award.

The Arbitration and Conciliation Act, 1996

The 1940 act was revisited in 1996. The 1940 act was revisited in order to provide an effective dispute resolution framework. The 1996 act has two important parts.

• Part I is involved in any arbitration conducted in India and enforcement of awards respectively.

• Part II is involved in the enforcement of foreign awards.

• Any arbitration or enforcement of award with respect to the arbitration (whether domestic or international) conducted in India is enacted by Part 1 of the 1996 Act.

• The enforcement of any foreign award, to which the New York Convention or the Geneva Convention applies, is enacted by Part II of the 1996 Act.

• The 1940 Act was designed for international arbitrations only, whereas the 1996 Act applies both to international as well as domestic arbitration.

• The 1996 law goes beyond the 1940 Act with respect to the area of minimizing judicial intervention.