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Report No. 176

The Arbitration and Conciliation (Amendment) Bill, 2001

1. Chapter I Broad framework of the Arbitration and Conciliation Act, 1996 and certain drawbacks experienced in its working 1-14
2. Chapter II Discussion on proposals for amendments and Commission's recommendations 15-196
3. Chapter III Summary of recommendation with Explanatory notes 197-227
4. Annexure I The Arbitration and Conciliation (Amendment) Bill, 2001 (1-40)
5. Annexure II Consultation Paper on review of working of the Arbitration and Conciliation Act, 1996 (1-89)

Chapter I

Broad framework of the Arbitration and Conciliation Act, 1996 and certain drawbacks experienced in its working

At the request of Shri Arun Jaitley, Hon'ble Minister for Law, Justice & Company Affairs, Law Commission has taken up the review of the Indian Arbitration and Conciliation Act, 1996 and is proposing various amendments as suggested in this Report.

1.1 The Arbitration & Conciliation Act, 1996 is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. It came into force on 22.8.1996 and is deemed to have come into force on 25.1.96 (vide M/s Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., 2001 (3) SCALE 708).

The Act is based on the Model Law (a set of 36 Articles) which was drafted to govern all international arbitrations by a working group of the UN and was finally adopted by the U.N. Commission on International Trade Law (UNCITRAL) on June 21, 1985. The Resolution of the UN General Assembly envisages that all countries should give due consideration to the Model Law, in view of the desirability of uniformity of the law on arbitral procedures and the specific needs of international commercial practice. It is also stated in the Preamble of Act of 1996:

"it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law.".

The Act of 1996 covers both international and domestic arbitration, i.e., where at least one party is not an Indian national and also arbitrations where both parties are Indian nationals respectively. By virtue of sec. 85 of the 1996 Act, the old Arbitration Act, 1940 (relating to domestic arbitration) and also the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Award (Recognition and Enforcement) Act, 1961, (relating to international arbitration) were repealed, thus enabling the Act of 1996 to govern both domestic and international arbitrations.

1.2 Part I of the Act entitled 'Arbitration' is general and contains chapters I to X while Part II deals with 'Enforcement of Certain Foreign Awards and Chapter I of part II deals with New York Convention Awards and Chapter II deals with Geneva Convention Awards. Part III of the Act of 1996 deals with Conciliation with which we are not concerned in this report. Part IV deals with supplementary provisions. The Act contains three Schedules.

The First Schedule refers to Convention on the Recognition and Enforcement of Foreign Arbitration Awards (see sec.44); the Second Schedule refers to Protocol on Arbitration Clauses (see sec.53) and the Third Schedule to the Convention on the Execution of Foreign Arbitration Awards.

In this Report we are concerned only with Part I of the 1996 Act which deals with arbitration in India and not with Part II and Part III of the Act. Although the Model Law does not take the form of a treaty, legislators of various countries who decided to review their arbitration laws since 1985 have all given 'due consideration' to the UNCITRAL Model Law. Some countries adopted certain provisions of the Model Law, but considered that they could extend, simplify or liberalise the Model Law. Examples include the Netherlands in 1986 and Switzerland in 1987.

Because of the specificity of their legal systems, Italy and England decided not to follow the Model Law closely. By March 31, 1999, a total of 29 countries (including Australia, Bahrain, Bermuda, Bulgaria, Canada, Cypres, Egypt, Finland, Germany, Guatemala, Hungary, India, Iran, Ireland, Kenya, Lithunia, Malta, Mexico, New Zealand, Nigeria, Oman, Peru, the Russian Federation, Scotland, Sweden, Sri Lanka, Tunisia, Ukraine, Zimbabwe alongwith Hong Kong, 8 American States and all 12 Canadian provinces and territories) adopted legislation based to some extent on the UNCITRAL Model Law (see International Commercial Arbitration by Fouchard, Gaillard, Goldman, 1999, page 109, para 2.5; also website for updating:http//www.un.or.at/uncitral).

The importance of this gradual process of harmonization is that court decisions applying Model Law, from all the countries that have adopted or adapted it, have been published since 1992. There is thus a growing body of case law concerning the interpretation of the Model Law (See CLOUT, available on Website
http://www.ur.or at/uncitral and CLOUT XXII Y.B.Com. Arb. 297-300 (1997)(Fouchard, ibid, p.109, para 2.5).

The 1996 Act was the result of recommendations for reform, particularly in the matter of speeding up the arbitration process and reducing intervention by the court. In Guru Nanak Foundations Vs. Rattan Singh (AIR 1981 SC 2075 at 2076-77), the Supreme Court, while referring to the 1940 Act, observed that "the way in which the proceedings under the Act are conducted and without an exception challenged in courts, has made lawyers laugh and legal philosophers weep" in view of "unending prolixity, at every stage providing a legal trap to the unwary."

The Public Accounts Committee of the Lok Sabha had also commented adversely about arbitration in India (9th Rep. 1977-78 pp 201-202). The matter came to be dealt by the Law Commission in its 76th Report, which recommended certain amendments, including a proviso to be inserted in section 28 of the Act of 1940 forbidding, an extension beyond one year, in respect of the time for making the award except for special and adequate reasons to be recorded. The Supreme Court in Food Corporation of India Vs. Joginderpal (AIR 1981 SC 2075at 2076-77) observed that the law of arbitration must be 'simple, less technical and more responsible to the actual reality of the situations', 'responsive to the canons of justice and fair play'.



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