This is an Insight article, written by a selected partner as part of GAR's co-published content. Read more on Insight

This article aims to provide a brief overview of the arbitration scene in India. The efforts taken by the Indian judiciary, executive and legislature in promoting arbitration as an effective means of dispute resolution has helped India in modelling its pro-arbitration attitude.

History of arbitration in India

The existence of the law of arbitration in India can be traced back to the 18th century. The first attempt at codifying the arbitration law was also made during the British rule, by enacting the Bengal Regulation in 1772 (the Regulation), applicable only to the Presidency Towns. Vide the Regulation, disputes in relation to accounts could be arbitrated. Subsequently, numerous regulations were enacted which extended the scope of matters that could be arbitrated which included disputes in relation to land, rent and revenue.

It was only in 1859 when the first Code of Civil Procedure (CPC) was enacted for India that contained express provisions relating to arbitration. The CPC was revised in 1877 and further in 1882; however, the provisions relating to arbitration remained unchanged. The arbitration provisions provided for arbitration of disputes after they had arisen; there was no provision for reference to arbitration of future disputes. To remedy this, the Indian Arbitration Act, 1899 (1889 Act) was enacted based on the English Arbitration Act, 1889. However, the application of this 1889 Act was limited to Presidency Towns and was subsequently extended to a few more commercial towns. Consequently, the Civil Procedure Code of 1908 (the Code) was enacted, which contained the provisions relating to arbitration in schedule II. Considering the drawbacks in the existing provisions, a need for consolidation and amendment of the law and its codification in a separate enactment was sensed. This resulted in the enactment of the Indian Arbitration Act, 1940 (the 1940 Act) which repealed schedule II of the Code.1

Prior to the enactment of the 1940 Act, in 1937 Indian legislature had enacted the Arbitration (Protocol and Convention) Act, 1937 (the 1937 Act) to give effect to the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Awards of 1927, as India was a signatory to these international agreements. Thereafter in 1961, the Foreign Awards (Recognition and Enforcement) Act 1961 (the 1961 Act) was enacted to give effect to the New York Convention of 1958.

As a result, until 1996, the law governing arbitration in India consisted mainly of three statutes: the 1937 Act; the 1940 Act; and the 1961 Act. While the 1940 Act was the general law governing arbitration in India, the 1937 Act and the 1961 Acts were designed to enforce foreign arbitral awards.

The 1940 Act enabled the parties to access courts at almost every stage of arbitration, defeating the very purpose of arbitration. The courts in India had therefore taken an interventionist approach rather than the intended supervisory approach. Therefore, in an effort to modernise the outdated 1940 Act, the legislature enacted the Arbitration and Conciliation Act, 1996 (the Act).

Overview of the Act

The Act is a comprehensive piece of legislation modelled on the lines of the UNCITRAL Model Law on International Commercial Arbitration, 1985. This Act repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). The primary object of the Act was to encourage arbitration as a cost-effective measure and to act as a quick mechanism for the settlement of commercial disputes. The main objectives of the Act are as follows:

  • to comprehensively cover both international and domestic and commercial arbitration and conciliation;
  • to minimise the supervisory role of courts in the arbitral process; and
  • to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court.

The Act is divided into four parts. The more significant provisions of the Act are to be found in part I and part II. Part I contains composite provisions for domestic and international commercial arbitration in India. Arbitrations conducted in India are governed by part I, irrespective of the nationalities of the parties. Part I, inter alia, provides for: arbitrability of disputes; non-intervention by courts; composition of the arbitral tribunal; jurisdiction of arbitral tribunal; conduct of the arbitration proceedings; and recourse against arbitral awards and enforcement. Part II, on the other hand, provides for enforcement of foreign awards, being largely restricted to awards governed by the New York Convention or the Geneva Convention. Part III deals with the conciliatory machinery, while part IV contains supplemental provisions of the Act.

Most of the judicial decisions on arbitration in India are centred on the important provisions contained in part I and part II of the Act. A brief overview of the important features of the Act is discussed below.

Scope of the subject matter of arbitration

Any commercial matter, including an action in tort if it arises out of or relates to a contract, can be referred to arbitration. However, matrimonial, criminal, insolvency or anti-competition matters, or matters related to disputes involving rights in rem, cannot be referred to arbitration. Likewise, employment contracts and matters covered by statutory reliefs through statutory tribunals are also non-arbitrable.

Minimal judicial intervention

One of the key features of the Act is that the role of the court has been minimised. Accordingly, section 8 of the Act provides that any matter before a judicial authority containing an arbitration agreement shall be referred to arbitration. Moreover, section 5 makes it clear that no judicial authority shall interfere, except as provided for under the Act. Parties can approach courts only for: seeking any interim measure of protection, including for injunction or for any appointment of receiver, etc; the appointment of an arbitrator in the event that a party fails to appoint an arbitrator or if two appointed arbitrators fail to agree upon the third arbitrator; terminating the mandate of the arbitrator; and seeking court’s assistance in taking evidence.

Interim measures by court and arbitral tribunal

Section 9 of the Act empowers the parties to seek interim measures by a court before or during the arbitral proceedings, or at any time after making the arbitral award but before it is enforced. Interim measures sought can be for preservation of any property or any goods which are the subject-matter of arbitration; securing the amount in dispute in the arbitration; interim injunction or appointment of a receiver, etc.

Under the Act, unlike the predecessor 1940 Act, the arbitral tribunal is empowered by section 17 to make orders amounting to interim measures as necessary in respect of the subject-matter of the dispute. The need for section 9, inspite of section 17 having been enacted, is that section 17 would operate only during the existence of the arbitral tribunal and it being functional. During that period, the power conferred on the arbitral tribunal and the court may overlap to some extent, but so far as the period pre and post arbitral proceedings is concerned, the party requiring an interim measure of protection would have to approach only the court.2

Appointment and jurisdiction of the arbitral tribunal

Section 11 of the Act prescribes the procedure for appointment of arbitrators. Parties are free to agree on a procedure for appointing the arbitrator or arbitrators. In case of appointment of a sole arbitrator, it can be a predetermined individual already named in the arbitration clause, or by consensus of the parties, or by the intervention of the court under section 11. For appointing an arbitral tribunal consisting of three arbitrators, each party appoints one arbitrator and the two arbitrators appoint the third arbitrator. However, if a party fails to appoint an arbitrator or the two arbitrators fail to appoint the third arbitrator, the appointment, upon a request of a party, is made by the chief justice of the High Court or his designate. Further, in case of an international commercial arbitration, the appointment of sole or third arbitrator is made by the chief justice of India or his or her designate.

As far as the jurisdiction of the arbitral tribunal is concerned, the Kompetenz-Kompetenz principle holds good in India and the arbitral tribunal is empowered to rule on its own jurisdiction. However, owing to the decision of the seven-judge bench of the Supreme Court of India (the Supreme Court) in SBP & Company v Patel Engineering Limited,3 the Kompetenz-Kompetenz principle was diluted as the Supreme Court declared that the power of the chief justice to appoint an arbitrator is judicial and not administrative in nature. Effectively, when an application is made before the chief justice for the appointment of an arbitrator, and the chief justice pronounces that it has jurisdiction to appoint an arbitrator or that there is an arbitration agreement between the parties or that there is a live and subsisting dispute to be referred to arbitration, this would be binding and the matter cannot be raised again by the parties before the arbitral tribunal. Therefore, when the arbitral tribunal is appointed by the parties, the arbitral tribunal can rule on its own jurisdiction, unlike when the appointment is made by the chief justice, as discussed above.

Conduct of the arbitral proceedings

The parties are free to agree on the procedure to be followed by the arbitral tribunal. If the parties do not agree to the procedure, then the procedure will be determined by the arbitral tribunal. Section 19 explicitly states that the arbitral tribunal is not bound by the Code or the Indian Evidence Act, 1872. Also the Act makes it amply clear that the arbitral tribunal should give equal treatment to the parties and that each party should be given full opportunity to present its case.

Setting aside of awards

The grounds for setting aside an award rendered in India, as provided in section 34 of the Act, are substantially the same as contained in article 34 of the UNCITRAL Model Law for challenging an enforcement application. An award can be set aside if:

  • a party was under some incapacity;
  • the arbitration agreement was not valid under the governing law;
  • a party was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings;
  • the award deals with a dispute not contemplated by or not falling within the terms of submissions to arbitration, or it contains decisions beyond the scope of the submissions;
  • the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties;
  • the subject matter of the dispute is not capable of settlement by arbitration; or
  • the arbitral award is in conflict with the public policy of India.

A challenge to an award is to be made within three months from the date of receipt of the award. The courts may, however, condone a delay of maximum 30 days on evidence of sufficient cause. Subject to any challenge to an award, the same is final and binding on the parties and enforceable as a decree of the court.

Enforcement of foreign awards

This is covered by part II of the Act. As discussed earlier, a ‘foreign award’ is an award from a country that is a signatory to the New York Convention or the Geneva Convention and notified by the government of India. To date, the government of India has notified around 40 countries for the purposes of foreign award enforcement. A party in whose favour such a foreign award is passed can directly file an execution petition in India for its enforcement and the court, on being satisfied that the award is enforceable, shall deem the award as the decree of that court and proceed with its execution. Enforcement of a foreign award may be refused only at the request of the party against whom it is invoked, provided the party satisfies the grounds enumerated in section 48 of the Act which are more or less the same as those in section 34 for setting aside awards.

Role of the Indian judiciary in shaping arbitration

Until recently, the Indian judiciary was known to have adopted an interventionist approach in arbitration matters due to which most of the judicial decisions are not in tune with the spirit of the Act. Initially, the conduct of the judiciary was nowhere nearing the primary objective of the Act and this can be gauged by the decisions of the various Indian courts.

The Supreme Court in Bhatia International v Bulk Trading SA4 extended part I of the Act to international commercial arbitration held outside India; however, in Venture Global Engineering v Satyam Engineering,4 which heavily relied on Bhatia International, the Supreme Court largely rendered superfluous the statutorily envisaged mechanism for enforcement of foreign awards by applying domestic arbitration law to foreign awards and consequently setting aside the foreign award (under part I of the Act as against merely refusing to enforce the foreign award under part II of the Act).

Meanwhile, the Supreme Court, vide the ONGC v Saw Pipes5 judgment, widened the scope of ‘public policy’ by including ‘patent illegality’ within the ambit of ‘public policy’, which is now one of the grounds available for setting aside an arbitral award. Until that point, the concept of ‘public policy’ was interpreted in a narrower sense, in line with the court’s previous decisions which insisted that no new heads of ‘public policy’ should be easily created.

A further blow came by way of the Supreme Court’s decision in SBP & Co v Patel Engineering Ltd,6 wherein the power of the chief justice in appointing an arbitrator was held to a judicial power, not an administrative one. This meant that Indian courts had to actually look into the validity of the arbitration agreement before proceeding to appoint arbitrators. Subsequently, there have been a number of instances where the Supreme Court and various High Courts have assumed jurisdiction in arbitration matters both onshore and offshore.

In recent years the Supreme Court – in Dozco India P Ltd v Doosan Infracore Co Ltd,7 Videocon Industries v Union of India8 and Yograj Infrastructure Limited v Ssang Yong Engineering and Construction Company Limited9 – has helped to blur the requirement of ‘express exclusion’ of part I of the Act which was initiated by the Bhatia International case. However, in the past year, the Supreme Court, and various High Courts, have rendered judgments which can be considered arbitration-friendly. The foremost step towards this approach has been the prospective over-ruling of the Bhatia International judgment (as discussed below).

The view taken in the Bhatia International and Venture Global judgments came into consideration before a constitution bench of the Supreme Court in Bharat Aluminium v Kaiser Aluminium,10 wherein the Supreme Court, overruling said judgments, with prospective application ruled in favour of non-intervention by Indian courts in arbitrations seated outside India. The Court, relying on the principles of territoriality, party autonomy and minimal judicial intervention, held that Indian courts did not have power to intervene in foreign arbitrations by way of either providing interim relief or entertaining a challenge to foreign arbitral awards in India. The Bharat Aluminium judgment has laid down the position that no interim relief would be available in foreign arbitrations (ie, arbitrations seated outside India either under the Civil Procedure Code, 1908 or section 9 of the Act). In addition, the judgment also reinforces the fact that the seat of arbitration would be the determining factor in deciding the curial law and that part I and part II of the Act apply to arbitrations seated in India and outside India respectively. This judgment has gone a long way in clearing past ambiguity (as discussed above) in the judicial pronouncements preceding it.

The Delhi High Court in NNR Global Logistics (Shanghai) Co Ltd v Aargus Global Logistices Pvt Ltd and Ors11 was faced with the issue of validity of an application for the setting-aside of a foreign arbitral award, the seat of arbitration for which was in Malaysia and the curial law being the Malaysian Law. Applying the Bharat Aluminium judgment, the validity of this application was upheld as said judgment is applicable only to arbitration agreements executed after 6 September 2012.

Similarly, in matters dealing with domestic awards, one of the best examples of non-interference can be seen in Sumitomo Heavy Industires v ONGC,12 wherein the Supreme Court demonstrated that if the award by the arbitrator is a well-reasoned one then courts should not interfere.

As far as directing the parties to arbitration is concerned, the Bombay High Court in Parcel Carriers Ltd v Union of India,13 while dealing with severability of arbitration clause, made it amply clear that if the dispute is covered by prerequisites contained in section 8 of the Act (power of the court to refer the parties to arbitration), the judicial authority has no option but to refer the dispute to arbitration.

As regards favouring enforcement of foreign awards, the Delhi High Court in Penn Racquet Sports v Mayor International Ltd,14 refused the challenge to the enforcement of a foreign award by holding that the ground of ‘public policy’ must be narrowly interpreted when refusing enforcement of foreign awards. Subsequently in Pacific Basin Ihx (UK) Ltd v Ashapura Minechem Ltd,15 the Bombay High Court was faced with the dilemma of being technically forced to stay the proceedings seeking enforcement of a foreign award. The Bombay High Court ordered a stay, however, on the condition that the claim amount awarded should be deposited in full by the party seeking the stay.

Recently, a positive step towards favouring enforcement of a foreign award was taken by the Supreme Court in Fuerst Day Lawson v Jindal Exports,16 wherein it was held that no letters patent appeal will lie against an order enforcing a foreign award. This is because section 50 of the Act provides for an appeal only against an order refusing to enforce a foreign award.

Another landmark judgment in the field of arbitration of the Supreme Court – a full-bench judgment – was Chloro Controls (I) P Ltd v Severn Trent Water Purification17 in September 2012, which clarified the scope of a judicial authority to make reference to arbitration in case of multiple multiparty agreements, as well as the judicial authority’s power to make a reference in cases of non-signatories, in exceptional circumstances. A similar view has been taken by the Delhi High Court in Delhi High Court in HLS Asia Ltd v Geopetrol International Inc & Ors,18 where non-operators were considered to be a necessary party to the arbitration proceedings arising out of the arbitration agreement between operators and contractors, in view of the interrelationship between the operator and the non-operators.

Also pertinent to note is the judgment in Shakti Bhog Foods Ltd v Kola Shipping Ltd & Anr,19 in the High Court of Delhi; the court held that the arbitrator’s failure to disclose the fact that he had been an arbitrator on behalf of the respondent in an arbitration on a related issue gave rise to justifiable doubts as to his independence and impartiality; hence, the arbitral award was set aside on the ground that the constitution of the arbitral tribunal was invalid. It was further held that an award rendered by an arbitrator of whose independence and impartiality there are justifiable doubts is opposed to the public policy of India.

The Bombay High Court, in its recent decision in Sahyadri Earthmovers v L&T Finance Ltd,20 has ruled that a guarantor would also be subject to arbitration provisions contained in the loan agreement even if he is not a party to the loan agreement and the deed of guarantee does not contain an arbitration clause.

These decisions indicate that the Indian courts have been less keen to interfere in arbitration matters, thereby adopting a pro-arbitration approach.

Consultation paper on arbitration: Indian legislature’s efforts to introduce better legislation

As discussed above, persistent judicial interpretation and constant undermining of the Act has by and large resulted in defeating the object of the Act. For instance, the definition of ‘public policy’ was extended to cover ‘patent illegality’ in Oil and Natural Gas Company Limited v Saw Pipes,21 which was misused for challenging arbitration awards and also saw the filing of frivolous applications for objecting the enforcement of foreign awards. This particular ground for a challenge of award granted under section 34 of the new Act is vehemently misused and contravening views of the different High Courts are being highlighted under this provision of law. Also, the absence of contractual exclusion of part I provisions in an international commercial arbitration held outside India has hampered the growth of international commercial arbitration in India. In recognition of all these pitfalls in the Act, the Indian Ministry of Law and Justice took the much-needed step in addressing the challenges being faced by arbitration in India and released the consultation paper on proposed amendments to the Act in 2010. The amendments proposed are as follows.

Part I of the Act: applicable only to arbitrations taking place in India

This amendment was proposed to curtail the effect of conflicting decisions of the Indian courts on applicability of part I of the Act where the seat of arbitration is outside India. However, the Constitution Bench of the Supreme Court in the Bharat Aluminium judgment has settled this conflict by holding that the part I of the Act is not applicable to foreign seated arbitrations.

Promoting institutional arbitration

This proposed amendment provides for an ‘implied arbitration clause’ in every commercial contract worth 50 million rupees and any dispute in relation to these contracts have to compulsory be referred to institutional arbitration. The arbitration in such cases is to be administered by an approved arbitral institution.

Narrower meaning to be assigned to the term ‘public policy’

The Consultation Paper proposes to rectify the extended definition given to ‘public policy’ in Saw Pipes (supra) by removing the ground of ‘patent illegality’ from the definition of ‘public policy’ while retaining it as a separate ground in a modified form.

No automatic stay on enforcement of award

This amendment proposes to tackle the loophole of automatic stay on enforcement of an award, stipulated in section 36 of the Act. Section 36 provides that enforcement of an award is stayed when the other party files an application to set aside the award. In order to expedite the enforcement of awards, this amendment provides that filing of an application to set aside an award will not operate as an automatic stay on enforcement of award, unless upon a separate application being made, the court agrees to grant stay of the operation of the award for reasons to be recorded in writing.

Recent trends in arbitration in India

The executive, judiciary and legislature in their own rights have strived hard to bring in efforts to promote arbitration in India. Some of the recent trends in arbitration in India are discussed below.

Introduction of the National Litigation Policy

In 2010 the then-law minister Veerappa Moily announced the national litigation policy, which aims to reduce the average length of proceedings from 15 years to three years. The policy also recommends the use of arbitration as a cost-effective and expeditious way to resolve disputes for the government departments and the public sector undertakings. It points out that the main cause for delay in arbitration proceedings has been poor drafting of arbitration agreements and clauses, and urges that these issues must be addressed soon.

Establishment of the LCIA India: a dawn for institutional arbitration in India

Out of the two arbitration procedures of ad hoc and institutional arbitration, India is still in the nascent stage as far as institutional arbitration is concerned as mostly ad hoc arbitration is followed. However, the launching of the London Court of International Arbitration India (the LCIA India) and the introduction of its LCIA India Rules (the Rules) have to some extent reinforced a global appeal to the existing structure of institutional arbitration in India. Although the Rules are largely based on the tried and tested LCIA Rules, they provide a well-complemented approach to the ethos of arbitration in India. These provisions include setting forth obligations of the parties and tribunal to ensure fairness and expediency in arbitration and granting greater power to the LCIA Court to ensure an organised and a workable arbitral process.

SIAC in Mumbai

The Singapore International Arbitration Centre (SIAC) has opened its first overseas office in Mumbai. Unlike LCIA, SIAC would not have separate rules for India. The office will not administer cases itself but will promote SIAC arbitration in India and help grow awareness of international best practice.

Development of ICC India

The International Court of Arbitration (ICA) of the International Chamber of Commerce (ICC) recently hired its first Indian lawyer to address the problems of judicial intervention in India, and also to expand its increasing visibility in India. Over the last couple of years, there has been an increase in the number of arbitrations referred to the ICC, as opposed to other arbitral institutions in India, and the ICA’s move would certainly add to the advancement of ICC India, while also helping to improve India’s reputation as an arbitration destination.

Foreign lawyers visiting India

The Madras High Court, in AK Balaji v Government of India & Ors,22 held that, under the Indian Advocates Act, 1961, foreign law firms and lawyers cannot practise law in India without first enrolling with the Bar Council of India. However, foreign lawyers can visit India for a temporary period on a ‘fly in and fly out’ basis to advise their clients on aspects of foreign law. With regard to the aim and object of the international commercial arbitration introduced in the Act, the Madras High Court took the view that foreign lawyers cannot be debarred from coming to India and conducting arbitration proceedings in respect of disputes arising out of a contract relating to international commercial arbitration.

By and large, arbitration in India has developed as an effective and effectual institution for the settlement of domestic and cross-border disputes. Recent key developments have, in addition, successfully brought about a long-awaited renaissance in arbitration in India, indicating that it may well be seen as an arbitration-friendly country.

The authors would like to thank trainee Ratul Das for his assistance in this chapter.

  1. State of Orissa v Gangaram Chhapolia and Anr. AIR1982 Ori 277.
  2. Firm Ashok Traders v Gurumukh Das Saluja (2004) 3 SCC 155.
  3. (2005) 8 SCC 618.
  4. 2002(4) SCC 105.
  5. (2008) 4 SCC 190.
  6. (2003) 5 SCC 705.
  7. Supra at 4.
  8. (2011) 6 SCC 179.
  9. 2011 (2) Arb. LR 180 (SC).
  10. Civil Appeal No. 7562 of 2011, arising out of SLP No. 25624 of 2010, decided on 1 September 2011 by the Supreme Court.
  11. (2012)9 SCC 552.
  12. 2012 VII AD (Delhi) 125.
  13. Appeal No. 114 of 2013, Bombay High Court.
  14. AIR 2010 SC 3400.
  15. 2010 (112) Bom. LR 2258.
  16. 2011 (1) Arb. LR 244 (Delhi).
  17. 2011 (113) Bom LR 74.
  18. (2011) 8 SCC 333.
  19. (2013)1 SCC 641.
  20. 196 (2013) DLT 52.
  21. 193 (2012) DLT 421.
  22. 2013(2) Mh.L.J 302.
  23. (2003) 5 SCC 705.
  24. WP 5614 of 2010 and MP Nos 1, 3 to 5 of 2010, decided by the Madras High Court on 21.02.2012.

Unlock unlimited access to all Global Arbitration Review content