Vol. 6 No. 2 (2023): Pakistan Journal of International Affairs


Published 2023-06-20


Arbitration is a well-known and increasingly popular alternative dispute resolution method. It is a safe, cost-effective, and time-efficient alternative dispute resolution method. The arbitration system saves both parties time and money by avoiding lengthy legal proceedings. In the Indian subcontinent, arbitration has been practised for many years under the name "Panchayat." Even in the absence of a legal system, the Panchayat served to settle conflicts. In these panchayats, decisions were made in accordance with ethical standards, cultural norms, and religious principles, and the decisions made by the panchayat were respected and held in high regard. (Kumar, 2017) During the British Raj (1858–1947), the Panchayat system underwent a period of decline. The British legalized local arbitration and replaced it with a codified system of law. (Hussain & Arafat, 2022) They enacted numerous regulations, leading to the enactment of the Arbitration Act of 1940, which governs arbitration in Pakistan. Following Pakistan's independence in 1947, the Panchayat system was reinstated and is still widely used in rural areas, where it is carried out in accordance with cultural norms and usages. There are no provisions in the 1940 Act regarding the Panchayat system, and its amendment has the potential to harmonise the country's arbitration system. (Mukhtar. 2016) Pakistan introduced international arbitration by signing and later implementing the New York Convention in 1958 by enacting the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act and the Arbitration (International Investment Dispute) Act in 2011. Although Pakistan has signed the UNCITRAL Model Law on International Commercial Arbitration, it has not yet been incorporated into domestic law. A stable and comprehensive system of international arbitration has become a necessity at the current time to attract foreign investors and other stakeholders to the country. However, Pakistan needs to improve in many areas of international arbitration, particularly in the enforcement and recognition of foreign awards and lex arbitri. (Rizwan Hussain, 2012) These challenges are explained in this essay using case laws.