Ancient India used to have an extraordinarily indigenous and unique method of resolving disputes between individuals or even groups of people. Community affairs in all were managed primarily by village headmen, or a council of five or more members termed the Panchayat. Any kind of aberration or violation in contravention of the panchayat’s sanctions or diktats would result in exclusion from all religious and social functions of the community and some times even result in ex-communication.
However, gradually during the British era, beginning with the year 1600, the East India Company was incorporated by the royal charter under the aegis of Queen Elizabeth 1 and was initially established in Bengal now known as West Bengal and also in Benaras now called Varanasi. Various Regulations were promulgated by the company as an exercise of the powers granted to the company by England’s parliament. The Bengal regulations of 1722 and 1781 stated that parties that were a party to a dispute linked to accounts would have to submit the dispute to arbitration. However, arbitration was only formally recognized in suits(or actions) that were filed in courts.
Muffasal courts were also known as district courts were established in British India by the East India company starting from the year 1773. These courts are set up to administer over the Hindus before the Hindus laws were eventually codified and for the Mohammedans in matters of property and succession and others linked to private and familial issues.
The British governance of India primarily began in the year 1786 with Lord Cornwallis being appointed the Governor-General of India and the Commander in Chief. Lord Cornwallis in his capacity as Governor-General gave effect to the directives received from the Board of Commissioners for Indian affairs that had been established by the Parliament in England; he also framed rules for the administration of justice relying based on ancient law and local parlance and usages that prevailed all across India at the time.
It was essential during this period that regulations pertaining to arbitration were promulgated and framed for arbitration in suits filed in courts.
The Legislative Council for India which was established in the year 1834 and also the first enactment to regulate civil courts was under Act V||| of 1859 which was then known as the Code of Civil Procedure Act, 1859. The council codified the Civil procedure in civil courts and provided for inter alia for reference to arbitration among parties for suits filed in the courts. It also ended up permitting for the first time references of disputes to arbitration by parties in civil suits without any kind of intervention of the court.
The Code of Civil procedure of 1859, ended up introducing the following sections.
Sections 312 to 325( which primarily dealt with arbitration between parties to a suit)
Section 326( which dealt with the filing of an agreement between two or more parties to refer existing disputes and differences to arbitration without the prior intervention of the court)
Section 327( which provided for the filing in court by arbitrators of his awards).
Several provisions of the Code of Civil Procedure,1859 were re-enacted, with alterations, by-laws subsequently enacted in lieu of Act X of 1877 - C.P.C. of 1877 then by Act X|V of 1882- C.P.C. of 1882, and ultimately then by Act V of 1908. The Civil Procedure Code of 1908 even with several subsequent amendments remains in operation today.
Each of these respective codes of civil procedure recognized references to arbitration but only in terms of disputes which had arisen (not future/hypothetical ones), it also provided for the mention of such disputes to an arbitrator named by parties.
Source: Harmony Amidst Disharmony: The Indian Framework- Fali S Nariman