Arbitration Before 1996

In one line

Arbitration in India was governed by three separate statutes until 1996, and section 85 of the Arbitration and Conciliation Act, 1996 repealed all three, replacing a scattered and heavily litigated regime with one consolidated Act built on the UNCITRAL Model Law.

Before the 1940 Act

The Indian Arbitration Act, 1899 was the first Indian statute devoted to arbitration, but it applied only to arbitrations by agreement without the intervention of a court, and only in the Presidency towns, so most of the country was outside it.

Everywhere else, the Second Schedule to the Code of Civil Procedure, 1908 governed. Arbitration was therefore an annexe of the Code of Civil Procedure, treated as a mode of disposing of a suit rather than as a separate contractual mechanism, which is why so much of the pre-1940 law reads like procedure.

Two statutes plus a Schedule, differing in text and in reach, is what the 1940 Act was passed to replace.

The Arbitration Act, 1940

The Arbitration Act, 1940 repealed the 1899 Act and the Second Schedule and gave the whole of British India a single law of domestic arbitration.

But it did not cover foreign awards at all, and two further statutes had to be enacted for them:

The Arbitration (Protocol and Convention) Act, 1937, which gave effect to the Geneva Protocol of 1923 and the Geneva Convention of 1927;

The Foreign Awards (Recognition and Enforcement) Act, 1961, which gave effect to the New York Convention of 1958.

So on the eve of the 1996 Act there were THREE statutes: 1937 for Geneva awards, 1940 for domestic arbitration, 1961 for New York awards. Naming the three is the whole of the historical question, and section 85(1) of the 1996 Act names them in that order.

What went wrong with the 1940 Act

The 1940 Act's defect was that the court was everywhere.

An award had no effect until it was FILED IN COURT and a judgment and decree were pronounced in its terms, so an arbitration ended not with an award but with a fresh round of litigation about the award.

The Act allowed the award to be REMITTED for reconsideration and set aside on wide grounds, including the vague ground of misconduct of the arbitrator or of the proceedings, which was read to cover legal error.

And it gave no time limits worth the name, so a reference could last as long as the parties' appetite for it.

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

Facts. A dispute between a foundation and its contractor went to arbitration under the 1940 Act, and the proceedings ran through repeated applications to court over many years.