A Concise History of Arbitration in the Subcontinent: 700 BC to 1899 AD

This article endeavours to recap the legislative history of arbitration in the Indian subcontinent. This historical perspective is very important for young practitioners to understand the legislative evolution of arbitration. It is by no means a conclusive account of legislations or related concepts. Given the subcontinent’s rich history and constantly changing political atmosphere, it is extremely difficult (and, to an extent, impossible) to track all historical legislations relating to arbitration.

The concept of resolving disputes in a binding manner is not unique to the South Asian hemisphere and is present at the grass root level. The source of this adjudicatory process is estimated to have been composed in 700 BCE in the treatise of Brhadaranayaka Upanishad, which is one of the ancient Upanishadic scriptures of Hinduism. The scripture floated the concepts of ‘puga’ (local courts), ‘srenis’ (people engaged in similar business or profession) and ‘kulas’ (members concerned with the social matters of a particular community). These bodies were commonly referred to as the ‘panchayats’, which have been acknowledged by the Privy Council in Vytla Sitanna versus Marivada Viranna and others (reported as AIR 1934 PC 105) as a legitimate method of resolving disputes between parties, in the following words (at page 107):

“Reference to a village panchayat is the time-honoured method of deciding disputes of this kind, and has these advantages, that it is generally comparatively easy for the panchayatdars to ascertain true facts, and that as in this case, it avoids protracted litigation…”

The resolution of disputes by panchayats seemed adequate for the time but, in 1612, the international trade cooperation settled between the Mughal Emperor, Nuruddin Jahangir, and His Highness King James I of Britain opened new trading avenues. The British East India Company was granted exclusive rights by the Mughal Emperor to operate in various areas of the Mughal Empire in the following words:

Upon which assurance of your royal love I have given my general command to all the kingdoms and ports of my dominions to receive all the merchants of the English nation as the subjects of my friend; that in what place soever they choose to live, they may have free liberty without any restraint; and at what port soever they shall arrive, that neither Portugal nor any other shall dare to molest their quiet; and in what city soever they shall have residence, I have commanded all my governors and captains to give them freedom answerable to their own desires; to sell, buy, and to transport into their country at their pleasure… For confirmation of our love and friendship, I desire your Majesty to command your merchants to bring in their ships of all sorts of rarities and rich goods fit for my palace; and that you be pleased to send me your royal letters by every opportunity, that I may rejoice in your health and prosperous affairs; that our friendship may be interchanged and eternal.”[1]

Thus, with flourishing trade in the Mughal Empire for over a century (and change of power in due course), the British felt the need to codify regulations for the resolution of civil and commercial disputes. To this end, the Bengal Regulations of 1772 were made. These introduced the concept of reference to arbitration before a tribunal. This was further broadened by successive regulations which inter alia gave powers to the Court to refer disputes to arbitral tribunals. Likewise, Bombay and Madras adopted similar regulations in 1799 and 1802, respectively. In 1827, Bombay’s Regulation VII sophisticated the settlement of civil disputes by outlining the requirement of writing, reference to named arbitrators and a time-period for the announcement of award.

It is not until mid-19th Century that the concept of arbitration (especially with respect to the recognition and enforcement of arbitral awards) was elaborately codified in the Code of Civil Procedure, 1859 (“1859 Code”). The 1859 Code introduced the distinction between arbitration with the mutual consent of the parties (Sections 312), arbitration with the intervention of the Court (Sections 326) and arbitration without the intervention of the Court (Section 327). In short, these Sections stated the following:

  1. As to arbitration with mutual consent, parties to a suit could apply to the Court for order of reference to arbitration if they were desirous of resolving the dispute through arbitration. The parties were required to submit an application in the Court (prior to final judgment) and nominate arbitrators. Under Section 315, the Court would pass an order of reference of the dispute to the appointed arbitrators and also fix a time to conclude the arbitration. On passing of the arbitral award, the arbitrator or the parties would file the same in the Court. The Court, subject to any statutory challenge to the award (Sections 322 to 324), would proceed to pass judgment on the basis of the arbitral award (Section 325), followed by a decree. The Court was then required to initiate execution proceedings in the matter.
  2. As regards arbitration with the intervention of the Court, parties to an arbitration agreement (concluded exclusively in writing) could file an application under Section 326 in a Court requesting the agreement be filed in the Court. On filing of the application, the Court would direct the other party to explain as to why the dispute should not be referred to arbitration. If the defending party fails to offer any plausible reason for objecting such a referral, the Court would pass an order of reference and follow the procedure as mentioned in the above paragraph.
  3. The 1859 Code, in Section 327, also recognised arbitral awards made in arbitration between the parties initiated without the intervention of the Court. In this case, once an arbitral award had been issued, the arbitrator or the parties could file the same in the Court, which would then ask the other party to explain as to why the award should not be filed and enforced. If the defending party is unable to provide sufficient reasons then, the Court would pronounce the judgment followed by a decree and initiate enforcement proceedings.

The 1859 Code was repealed by its successive legislations in 1877 and 1882 but the chapter on arbitration (including the above provisions) was retained.

Thereafter, the Indian Arbitration Act, 1899 was enacted which comprehensively covered the area of law and was applicable to the entire British India. This Act was on the same lines as the English Arbitration Act at the relevant time and improved the concept of arbitration without the intervention of the Court. For example, under Section 6 of the Act, certain implied conditions were introduced through the First Schedule including, if parties have not agreed the number of arbitrators, reference would be to a sole arbitrator or that, unless otherwise agreed, the award would be made within three months of entering upon reference. Under Section 7 of the Act, the parties could also agree that an arbitrator may be appointed by a third party, such as a respective chamber of commerce. Importantly, the courts were given supervisory powers in the event that the parties could not amicably resolve matters relating to arbitration. This included powers to (i) appoint arbitrators, umpire or third arbitrator (Sections 8 and 9); enlarge time for making of the award (Section 12); remit award for reconsideration (Section 13) or set aside the award (Section 14); remove arbitrators (Section 16); award costs (Section 17); and stay legal proceedings where one party has initiated a suit in violation of the arbitration agreement (Section 19). Likewise, the Act also envisaged powers of arbitrators such as to administer oath and witness appearing, request an opinion from the court, correct award in case of clerical mistake and errors (Section 10).

This legislation later evolved into becoming the Arbitration Act, 1940. The 1940 Act adopted, and improved, the provisions of the 1899 Act relating to arbitration without the intervention of the Court (Chapter II). In addition, this law also reintroduced the concept of arbitration with the intervention of the Court (Chapter III) and also provided various general provisions. This new legal regime was concise and adequately catered for the need of arbitration at the relevant time. In Pakistan, at the federal level, this Act is still in field. Given that Pakistan has developed substantial jurisprudence in this area, I would endeavour to evaluate the most commonly applied (and/or controversial) Sections of the 1940 Act in my succeeding articles for this forum.

References

  1. Fordhamedu, ‘Indian History Sourcebook: England, India, and The East Indies, 1617 CE’ (Fordhamedu, June 1998) <https://sourcebooks.fordham.edu/halsall/india/1617englandindies.asp> accessed 29 March 2018

Author:

Hassan Ali Raza

Mr Raza is a Senior Associate at Orr, Dignam & Co.'s Islamabad office, and manages the firm's disputes practice in Islamabad, the Punjab and Khyber Pakhtunkhwa.