In the past, even before courts were established, people used to settle their problems with the help of a third party if they had a dispute. Courts are then established, and adequate dispute resolution procedures are in place. Eventually, the population increased, and many cases were pending in court, and cases increased, and after days of litigation, justice was served. This has slowed down justice for the people.

Due to population growth, the industry also developed rapidly, and as a result, trade disputes increased. To compensate for this, various out-of-court dispute resolution procedures have been developed. This method of resolving disputes outside the court or without involving the court is known as Alternate Dispute Resolution (ADR). There are several techniques in Alternate Dispute Resolution.

They are:

  • Arbitration
  • Mediation
  • Conciliation
  • Mini trial
  • Mediation-arbitration etc.

Due to delays in court decisions, some of these techniques have evolved significantly. One technique that developed rapidly is arbitration. The main purpose of arbitration is to bring the parties to justice quickly.

Arbitration and Conciliation Act, 1996:

The Arbitration and Conciliation Act 1996 contains arbitration laws. This law came into force on January 25, 1996. This act contains provisions regarding international commercial arbitration, domestic arbitration and enforcement of foreign arbitral awards.

It is based on a law similar to the United Nations model adopted by the United Nations Commission on International Trade Law (UNCITRAL).

The preamble to the law is defined as follows:

  • Domestic arbitration.
  • International Commercial Arbitration.
  • Enforcement of foreign arbitral awards.
  • Law on reconciliation and related issues.

Evolution in arbitration in India:

In India, arbitration was known even before British rule, but in the form of “Panch” and “Panchayat”, now known as “Arbitration” and “Arbitrator”. Panchayat means a trial before a person considers himself to be the village head and uses a peaceful settlement of disputes between the parties, and their decisions are considered final and binding on both parties.

Later, the 1787 ordinance laid down the rules for requesting arbitration if both parties agreed. However, these rules are unclear and do not provide a clear structure for the parties to govern the arbitration. Later an ordinance was issued to encourage only certain types of disputes in arbitration and encourage persons to act as arbitrators under Order XVI of 1793. Several regulations were later issued to promote arbitration. Finally, the 1996 law was passed and repealed three times to achieve its goals. The purpose of the 1996 Act is to amend and unify domestic arbitration and international commercial arbitration and enforce foreign arbitral awards. The law was also amended in 2015 and 2019 to reduce court involvement in the arbitration.

Section 89 of the Civil Procedure Code focuses on the importance of arbitration. It states that the parties may choose arbitration to resolve the dispute, provided that both parties agree. The arbitrator’s decision must be viewed as a court decision, and the parties must comply with the arbitrator’s decision.

Types of arbitration proceedings:

Domestic Arbitration:

Domestic arbitration is a type where the subject of the agreement or contract is wholly governed by Indian law or where the dispute is entirely in India or the parties choose Indian jurisdiction.

In Domestic arbitration cases, all procedures are governed by Indian law.

In Domestic arbitration:

  • The parties must not be a citizen or resident of any country other than India;
  • The company cannot be registered in any country other than India;
  • The government must not come from a foreign country;

In International arbitration:

International arbitration may lead to the application of different rules. In this type of arbitration, resolving the dispute can be either Indian law or foreign law. The arbitration may occur in India or outside India.

Clause (f) of sub-section (1) of section 2 of the Arbitration and Conciliation Act, 1996, defines international commercial arbitration. Under this section, arbitration is considered an international commercial arbitration if:

At least one of the parties is an individual resident in a country other than India.

A company not registered in India.

The government must be a foreign country.

Thus, the arbitration becomes international if at least one of the parties is based in a country other than India and the subject of the dispute is abroad. Depending upon contract terms, the applicable law for resolving the dispute may be Indian law or foreign law.

Ad Hoc Arbitration:

Unlike institutional arbitration, ad hoc arbitration is not conducted by any institution. The parties are free to choose the dispute resolution procedure in this type of arbitration. The parties can appoint an arbitrator and other procedures such as completing documents, applicable rules, etc. If the parties can not reach a decision, the arbitral tribunal will decide on such other procedures and rules as it deems appropriate.

However, the parties are free to adopt certain institutional rules without fully following the institutional arbitration procedures. Sometimes ad hoc arbitration may become institutional arbitration if the parties feel they are required and can arrange the appointment by appointment.

Institutional Arbitration:

In institutional arbitration, the parties use institutional assistance to settle the arbitration. Such an institution takes care of all procedures such as the appointment of arbitrators, schedule of submission of documents, etc. Institutional arbitration releases the parties through administrative assistance. This timely support helps smooth the arbitration process. The Institution will charge the parties a sum of money as a fee for their participation in the arbitration.

Some of the prominent institutions in India are:

  • International Arbitration Center in Mumbai
  • Indian Institute of Arbitration and Mediation, Delhi
  • International Center for Mediation, Arbitration and Conciliation in Bangalore.
  • Indian Institute of Technical Arbitrators, Chennai

Summing up:

Arbitration has grown rapidly in India, and justice is served to the citizens without delay. Nowadays, most people include an arbitration clause in their contract or agreement to resolve their dispute through arbitration without going to court. However, there are some decisions and regulations that are not interpreted.


This was all about the Arbitration and Conciliation Act, 1996. We at Book My lectures offer video lectures for CS, CA and CMA. Our faculties are highly experienced that helps them in clearing the concepts of aspirants with ease. Call us at +91 9881114466 to book your very own lectures today.

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