Report No. 246

Chapter II

Introduction to the Proposed Amendments

1. Litigating in courts in India is a time-consuming and expensive exercise, and justice usually eludes both parties to an action. The injustice is particularly egregious in commercial disputes, where cases remain pending for years. It is in this context that one must examine "arbitration" as a method of dispute resolution that aims to provide an effective and efficient alternative to traditional dispute resolution through Court.

2. In India, as in most developed legal systems, commercial contracts, whether with private persons or with the State, usually contain an arbitration clause where parties agree to settle any prospective dispute through arbitration instead of going to court. Arbitration has thus emerged as a commercially significant method of dispute resolution; and its importance has only grown since liberalisation in 1991.

3. The Arbitration and Conciliation Act, 1996 (hereinafter "the Act") is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Conciliation Rules, 1980. The Act has now been in force for almost two decades, and in this period of time, although arbitration has fast emerged as a frequently chosen alternative to litigation, it has come to be afflicted with various problems including those of high costs and delays, making it no better than either the earlier regime which it was intended to replace; or to litigation, to which it intends to provide an alternative.

Delays are inherent in the arbitration process, and costs of arbitration can be tremendous. Even though courts play a pivotal role in giving finality to certain issues which arise before, after and even during an arbitration, there exists a serious threat of arbitration related litigation getting caught up in the huge list of pending cases before the courts. After the award, a challenge under section 34 makes the award inexecutable and such petitions remain pending for several years. The object of quick alternative disputes resolution frequently stands frustrated.

4. There is, therefore, an urgent need to revise certain provisions of the Act to deal with these problems that frequently arise in the arbitral process. The purpose of this Chapter is to lay down the foundation for the changes suggested in the report of the Commission. The suggested amendments address a variety of issues that plague the present regime of arbitration in India and, therefore, before setting out the amendments, it would be useful to identify the problems that the suggested amendments are intended to remedy and the context in which the said problems arise and hence the context in which their solutions must be seen.