Arbitration As A Dispute Resolution Mechanism

This article is written by Anvika Shukla, student at Dharmashashtra National Law University


Dispute resolution is the process of deciding a dispute that has arisen between parties. The decision can be arrived at either in an amicable manner or adversarial manner, either by the parties themselves or a neutral third party. There are three ways of dispute resolution. They are arbitration, mediation and conciliation. This project will focus on arbitration as a means of dispute resolution.

As mentioned by the only female founder of the American Arbitration Association Frances Kellor in her book, ‘American Arbitration: Its History, Functions and Achievements’ has put it pithily when she said “Of all mankind’s adventures in search of peace and justice, arbitration is amongst the earliest. Long before laws were established, or courts were organized, or judges formulated principles of law, men had resorted to arbitration for the resolving of discord, the adjustment of differences, and the settlement of disputes.”

Arbitration has developed as an institution of dispute resolution, earlier people used to voluntarily submit their dispute to a group of wise and old men of the society and called these panchayats.

Another reason for the introduction of arbitration was to curb delays of judicial proceedings and act as an alternative. It was mainly beneficial for commercial disputes where most of the time, the most important aspect for them is time. So this concept was introduced.

So as colonial rule began in India, the laws were made for the process of arbitration such as the arbitration act 1940, British arbitration act 1889. Later after the independence arbitration and conciliation act, 1996 was introduced on the basis of UNCITRAL law, further, it was last amended in 2015. This chronology would be dealt with in the project in brief.

The significant increase in the economic development of nations over the last few decades has been accompanied by a considerable increase in the number of commercial disputes as well. As a result, alternative dispute resolution mechanisms including arbitration have become more crucial for businesses operating in India as well as those during businesses with Indian firms.

Keeping in mind the broader exploration between the quality of legal performance and economic growth, this paper is an attempt to critically evaluate arbitration in India as a legal institution.


Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. 3 This is the definition of arbitration as per the world intellectual property organisation.

Arbitration has been a part of society in informal means since time immemorial. People used to form groups and discuss the problems of each of them within themselves. The result was accepted by both the parties and it was seen as a command by the eldest of the society.

It later came to be known as panchayats and it continues to be part of our society now, known as gram panchayats. Also when we discuss our problems in a family and try to settle them by ourselves, this could be considered as the smallest unit of arbitration in the society, where the order of the head of the family is obligatory on us.

Formally for the first time, arbitration was introduced in 1772 with the advent of the Bengal regulation act of 1772, it was a result of successful dispute resolution between the parties through a tribunal. Based on the same, acts were also introduced in other presidencies of Bombay and Madras.

Then, the first so-called Indian arbitration act was introduced in 1889 but this was also applicable only to the three presidencies of Bengal, Bombay and Madras. It was incorporated in section 89 and schedule 2 of the civil procedure code of 1908. But this proved to be inefficient, complex, and bulky, so this needed to be repealed. It was repealed by the Arbitration act of 1940 which was based on the lines of the English arbitration act 1934. The main aim of the act was fast disposal of cases. It was the first act which was applicable pan India. It came with its own limitations. First of all, it applied only to domestic disputes and had no mention of foreign awards. Also, it has no mention of the condition when a contract has no mention of arbitration clauses. The process of appointment of arbitrators and their term of appointment was also not clearly mentioned. Further, there was no provision to stop an arbitrator from resigning in the middle of the proceedings, which caused a lot of financial loss for both parties.


Though the arbitration act 1940 had faced various criticism still the efforts to amend or repeal the same has not been done. After economic liberalisation in 1991, efforts were made to connect with the world and bring ease of doing business. At that time arbitration and conciliation act came into being in 1996 which was based on UNCITRAL Model Law on international commercial arbitration, 1985.

The primary objective of UNCITRAL is to harmonize and unify international commercial trade through formulating sets of legal rules and texts.

Another reason for the introduction of the arbitration act 1996 was to curb delays of arbitration and to limit judicial interference. Furthermore, it gave a broader aspect to arbitration in India. The 1940 act had only domestic jurisdiction but the arbitration and conciliation act of 1996 covered both domestic and international commercial arbitration.

The act of 1996 was brought to curb the challenges or drawbacks of the act of 1940, and to an extent it was successful. The fact that the former act provides that arbitral award should be given with reasons which was not the case in the later act, supports the notion that it has been successful in bringing improvements.

Yet this act of 1996 had its own drawbacks, such as the time limit for disposal of a case was not predetermined, so the cases continued for years, hence the problem of long proceedings as in court cases remained intact. Also, arbitrators demanded a lot of money to hear the case and then delayed it on purpose to financially benefit themselves. Another defect of this act was the interference of judges in this process which would make enforcement of the award difficult. Here many awards were not able to come in effect as they are said to be against public policy.

The drawbacks of this act were taken care of by amendment of the year 2015. In this amendment, a provision was inserted to limit the making of an arbitral award to twelve months. Further, the scope of interference of courts was lessened. Moreover, the scope of public policy of India was also defined to be effective if against basic ideas of morality or justice.

The Amendment act of 2015 made up for many drawbacks as seen above but as we all know with the advent of power we also find a way to abuse that power, so this amendment could not be a panacea and hence certain issues were prevailing in arbitration. One of these was the lack of arbitration culture in India; the main reason for this is the ad hoc set up of arbitration. A high-level committee was set up to work for the development of arbitration culture, headed by B.N. Srikrishna, in the year 2017. As per its recommendation, the amendment act of 2019 formed the Arbitration council of India. This act also defined the qualification of an arbiter which is he should be an advocate within the aspects of advocates act, 1961.


The progress of arbitration has been traced in this project. The journey from village panchayats to the Arbitration and Conciliation Amendment Act of 2019, arbitration has made great progress.

Arbitration was brought as an alternative to court proceedings and to lessen the burden of courts. It was mainly brought for easy disposal of cases of commercial disputes. This process has gone through a major evolution in past years. Arbitration has made its way. It has been able to overcome many of the difficulties it had before.

Arbitration has been able to set up its permanent structure in the form of an arbitration council of India but now the development of arbitration in India depends on the functioning of this body.


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