LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2016 Question Paper with Solutions

For full marks, cover: the problem the Model Law was written to solve, which is what makes its role "predominant"; the Preamble, which recites it by name; the role in enactment and the role in interpretation separately, since the question distinguishes them; and then the objectives, grouped by the defect in the Arbitration Act, 1940 that each was meant to cure.

The problem the Model Law was written to solve

Before 1985 every trading nation had its own arbitration statute, and they differed on everything that mattered: whether a tribunal could rule on its own jurisdiction, whether an award had to give reasons, how far a court could review it, and whether a foreign party could be sure of the procedure before agreeing to arbitrate. A party choosing a seat was choosing an unfamiliar and unpredictable body of law, and the cost of that uncertainty fell on international trade.

The role in enactment

The Preamble to the Arbitration and Conciliation Act, 1996 recites the whole history, and quoting it is the direct answer. It records that the Commission adopted the Model Law in 1985; that the General Assembly recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice; that the Commission adopted the Conciliation Rules in 1980 and the General Assembly recommended their use; that the Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations; and that it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules.

Part III supplied a law of conciliation based on the Conciliation Rules of 1980, which no Model Law jurisdiction had. Sections 61 to 81 are still in force in their original form, and a candidate who writes otherwise is repeating an error the textbooks have already made. The Mediation Act, 2023 would substitute them by its Sixth Schedule, so that every statutory reference to conciliation would be read as a reference to mediation; but the Schedule operates through section 61 of that Act, and the commencement notification S.O. 4384(E) of 9 October 2023 brought into force only sections 1, 3 and 26, sections 31 to 38, sections 45 to 47, sections 50 to 54 and sections 56 to 57. Section 61 was not among them. The substitution is enacted and awaiting commencement.

The 2015 amendment added provisions the Model Law does not contain: section 29A on time limits, section 29B on the fast track, section 31A on costs, and the Fifth and Seventh Schedules with section 12(5), which draw on the IBA Guidelines on Conflicts of Interest in International Arbitration.

The role in interpretation

Because the Act was enacted to give effect to the Model Law, the Model Law is a legitimate aid to construction, and Indian courts have used it to decide the largest questions in the subject.

The limit of the interpretive role should be stated. Where the Indian Act departs from the Model Law, the departure governs and the Model Law cannot be used to read it away. Section 34(2A) and the application of Part I to domestic arbitration are the two clearest examples.

The objectives, grouped by the defect each cures

The Statement of Objects and Reasons of the Bill listed the objectives, and grouping them by the failure of the Arbitration Act, 1940 which each addresses shows why they were chosen.

Defect: three overlapping statutes. The Act of 1940 governed domestic arbitration, the Act of 1937 the Geneva instruments and the Act of 1961 the New York Convention. Objective: to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation, achieved by repealing all three and enacting four Parts.

Defect: the court present at every stage, with filing under section 14, modification under section 15, remission under section 16, supersession under section 19 and a decree under section 17. Objective: to minimise the supervisory role of courts in the arbitral process, implemented by section 5, which excludes judicial intervention except as provided in Part I; by section 8, which requires a reference on a prima facie standard; and by sections 35 and 36, which make the award final and binding and enforceable as a decree without any order of a court.

Defect: no mechanism for settlement inside the arbitration. Objective: to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement, implemented by section 30, which also allows a settlement to be recorded as an award on agreed terms with the same status and effect as an award on the merits.

Defect: an award was worth nothing until a decree was obtained on it. Objective: to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court, implemented by section 36.

The institutional objective has been achieved only in part. S.O. 3154(E) of 30 August 2019 brought into force only section 1, sections 4 to 9, sections 11 to 13 and section 15 of the 2019 Amendment Act, leaving out sections 2, 3, 10 and 14, which are the provisions amending section 11, creating the Arbitration Council of India and inserting the Eighth Schedule. Section 10 was afterwards commenced by S.O. 4486(E) of 12 October 2023, so Part IA is now in force; the Council itself is established only when the Central Government notifies under section 43B. Section 3 has still not been commenced, so the graded-arbitral-institution scheme in section 11(3A) is not the law, and the Eighth Schedule that section 14 would have inserted was omitted in 2021.

In interpretation the Model Law has decided the largest questions, most conspicuously in BALCO, where the territoriality principle in Article 1(2) held that Part I applies only to arbitrations seated in India, and in Ssangyong Engineering, where it supported the narrowing of the public policy ground. The Act's objectives, each answering a defect of the 1940 scheme, are comprehensive coverage, a fair and efficient procedure, reasoned awards, a tribunal kept within its jurisdiction, minimal court intervention, settlement during arbitration, enforcement as a decree, conciliated settlements with the status of awards, and effect given to both Conventions; and of the objectives added by amendment, timeliness, impartiality and enforceability pending challenge have been achieved while institutional arbitration has never been brought into operation.