International Arbitration in India with Seat in India
International arbitration with its seat in India has emerged as a robust and reliable mechanism for resolving cross-border commercial disputes. In an institutional arbitration framework, the underlying agreement stipulates that any dispute or difference arising between the parties shall be referred to and finally resolved by arbitration administered by a designated institution in accordance with its rules. These rules are deemed to be incorporated by reference into the arbitration clause, thereby ensuring procedural clarity and predictability. By opting for international arbitration, parties can effectively avoid the complexities and delays often associated with local court procedures, particularly in jurisdictions where the judiciary is overburdened.
Institutional arbitration has proven to be more successful than ad hoc arbitration in several key respects. Parties may lack the expertise, resources, or administrative capacity to arrange and conduct proceedings efficiently and productively on their own. Institutions, on the other hand, are specifically designed to ensure timely disposal of matters and cost effectiveness. They possess the requisite infrastructure, experienced workforce, and procedural know-how to execute and actively administer the arbitration process from start to finish. This administrative support extends to the appointment of arbitrators, management of timelines, and oversight of procedural matters, thereby instilling confidence in the parties and enhancing the overall quality of the proceedings.
The Arbitration and Conciliation Act, 1996 (the Act) provides the comprehensive statutory framework for arbitration and conciliation in India. Drafted on the basis of the UNCITRAL Model Law on International Commercial Arbitration, the Act is divided into four distinct parts, each governing a different aspect of the arbitration and conciliation process. Part I of the Act governs domestic and international commercial arbitration seated in India. Part II deals with the enforcement of certain foreign awards under the New York Convention and the Geneva Convention. Part III governs conciliation proceedings, while Part IV contains supplementary provisions relating to the power of courts to make rulings and other ancillary matters. The Act has been amended several times, most notably in 2015 and 2019, with the aim of making it more robust, efficient, and aligned with international best practices. These amendments have plugged many of the lacunae that existed in the original legislation and have addressed concerns raised by the international arbitration community regarding judicial intervention, timelines, and the enforceability of awards.
Scope and Applicability of Part I
Part I of the Act applies to all arbitrations seated in India. However, a crucial distinction is drawn between arbitrations with their seat in India and international commercial arbitrations with their seat located outside India. In the former case, the provisions of Part I, barring those that are derogable, are compulsorily applicable. This means that parties cannot contract out of the mandatory provisions of the Act, which are designed to ensure minimum standards of fairness, procedural integrity, and judicial oversight. In the latter case, where the seat of arbitration is outside India, the parties may, by express or implied agreement, agree to exclude all or any of the provisions of Part I of the Act. In such circumstances, the laws or procedural rules selected by the parties would prevail, subject to public policy and other mandatory considerations under Indian law.
An arbitration is considered to be an international commercial arbitration when it involves a dispute that is commercial in nature and involves at least one party who is either a foreign national, a person who habitually resides outside India, a company incorporated outside India, a company, body, or association of individuals that is centrally managed and controlled outside India, or a foreign government. All other arbitrations, by implication, are considered to be domestic arbitrations, even if they involve foreign parties. This distinction is significant because it determines the court that has jurisdiction over matters arising out of the arbitration, as well as the procedural rules that apply.
Mandatory Requirements of a Valid Arbitration Agreement
The Act grants parties the freedom to refer both current and possible future disputes arising out of a legal or contractual relationship to arbitration. However, the substance of certain disputes is recognized as non-arbitrable as a matter of public policy. These disputes are in the exclusive domain of specific tribunals and courts and include landlord-tenant disputes, criminal proceedings, matrimonial matters, insolvency proceedings, competition disputes, and matters relating to taxation, among others. The Act further mandates that an arbitration agreement must be in writing. It may take the form of an arbitration clause in a contract or a separate agreement. An agreement is considered to be in writing when the parties have entered into a written document and signed it, exchanged written correspondence or telecommunications recording the agreement, or exchanged pleadings in the form of a statement of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
Jurisdiction and Role of the Court
One of the primary objectives of the Act was to reduce judicial intervention in arbitration proceedings. This objective was given effect to by the recognition of the principles of the separability doctrine and the doctrine of Kompetenz-Kompetenz. The separability doctrine holds that the arbitration agreement is separate and independent from the underlying contract, and the invalidity or termination of the main contract does not automatically invalidate the arbitration agreement. The doctrine of Kompetenz-Kompetenz empowers the arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The Act also contains a specific bar on judicial authorities interfering in arbitration proceedings unless expressly permitted by the Act. Furthermore, the Act makes it mandatory for a court to refer the parties to arbitration on an application by a party to any action before it that is the subject of an arbitration agreement, provided that this application is made before the party has made its first submission on the substance of the dispute.
Courts are specifically permitted to intervene or assist in arbitration in certain limited circumstances. These include the appointment of an arbitrator in cases where the parties or the arbitrators fail to make a nomination, granting interim relief, assisting in the gathering of evidence, hearing challenges to an award, and hearing appeals from certain orders passed by the arbitral tribunal or by a court in the course of arbitration proceedings. The court system in India is a complex, single, integrated hierarchical system based on territorial, pecuniary, and special jurisdiction. The Supreme Court of India is the highest court of appeal. Below the Supreme Court, there are 24 high courts, located in different states. Some high courts have ordinary original jurisdiction, and all exercise appellate jurisdiction over the orders of subordinate courts. Underneath the high courts come the district courts, which are the highest courts in each district. The principal court of civil jurisdiction in the district is that of the district and sessions judge. Below the district courts, there are many subordinate courts in a three-tier system, with the civil judge (junior) division being the lowest court on the civil side.
A question that often arises is which court in India one should approach for judicial intervention or assistance in arbitration matters. After the 2015 amendments, the Act now draws a clear distinction between the jurisdiction of courts in the case of an international commercial arbitration and a domestic commercial arbitration. In the case of domestic commercial arbitrations, a petition for judicial intervention or assistance must be made to a civil court of original jurisdiction that would have jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit under the Civil Procedure Code, 1908. This court must also not be inferior to a principal civil court. In the case of international commercial arbitrations, the legislature has brought about a much-needed amendment wherein the jurisdiction of district courts has been curtailed. A petition for judicial intervention in such cases has to be made before either the state high court that has original jurisdiction if the subject matter of the award had been the subject matter of an ordinary civil suit, or, in states where original jurisdiction is before a lower court, the petition is to be made to the high court that would have had jurisdiction to hear appeals from decrees of courts subordinate to that high court. For a given cause of action, more than one court may entertain a suit. To prevent multiplicity of proceedings and conflicting decisions, the Act provides exclusive jurisdiction to the court that exercises jurisdiction first.
Appointment and Challenge of Arbitrators
Parties are free to determine the number of arbitrators, provided that the number is not even. If the parties fail to agree on an odd number, the arbitral tribunal will then comprise a sole arbitrator. Parties also have the freedom to determine the nationality and qualifications of the arbitrators, as well as to set a procedure for appointing them. This party autonomy is a cornerstone of arbitration and allows parties to select arbitrators with the appropriate expertise, experience, and linguistic skills for the particular dispute. If a party or the arbitrators fail to nominate an arbitrator or the chair of the tribunal, a petition may be made to the chief justice of the high court, or in the case of international commercial arbitration, the chief justice of the Supreme Court, to appoint an arbitrator. For an international commercial arbitration, the petition must be made to the Supreme Court. In the case of a domestic arbitration, the petition would lie before the high court within whose local limits the principal civil court is located. The 2015 amendments introduced an onus on the arbitrator to make a written declaration of independence and impartiality. The Act now prescribes a format for such a declaration and provides guidelines about the circumstances that would give rise to justifiable doubts as to the independence and impartiality of an arbitrator. A party may challenge the appointment of an arbitrator if there are doubts or circumstances that have not been disclosed and waived by the parties, or if the arbitrator does not possess the qualifications agreed to by the parties. Such a challenge must be made in writing to the tribunal within a period of 15 days of either the appointment or the receipt of knowledge of such circumstances. If a challenge to an appointment is unsuccessful, the arbitration must proceed, and the party challenging the appointment has the option to make an application to set aside the final award under Section 34 of the Act.
Procedure during the Arbitration
Parties are given full autonomy to agree to the rules of procedure, the extent of pleadings to be adopted, the necessity of oral hearings, and the seat and language of the arbitration. Failing such agreement, the tribunal has the authority to determine these issues. The arbitral tribunal is not bound by either the Civil Procedure Code, 1908, or the Indian Evidence Act, 1872. However, the Civil Procedure Code applies to court proceedings that arise in relation to arbitration, such as applications for interim relief or for setting aside an award. The Indian Limitation Act, 1963, applies to arbitrations as it applies to court proceedings. For the purposes of limitation, an arbitration is deemed to commence on the date referred to in Section 21 of the Act, which specifies that, unless agreed otherwise, arbitration is deemed to have commenced on the date a party sends a request for arbitration to the other party. After the 2015 amendments, arbitration in India was limited to a certain timeframe of 12 months from the time the arbitral tribunal entered reference. Recognizing the practical difficulties that this was causing both litigants and counsel, the 2019 amendments relaxed the prescribed timeframe, distinguishing between domestic and international commercial arbitrations. The 2019 amendments amended the Act to prescribe a period of six months from the date the arbitral tribunal enters reference for the completion of pleadings. In the case of an international commercial arbitration, the award is required to be made as expeditiously as possible, with an endeavour to dispose of the arbitration within 12 months from the completion of pleadings. In arbitrations other than international commercial arbitrations, the award is required to be made within 12 months from the completion of pleadings. This period may be extended with the consent of the parties for a maximum period of six months. Any further extension can only be done by way of an application to the court. The court, in such an instance, may extend the period for sufficient cause and also has the power to order a reduction of an arbitrator's fees by a sum not exceeding five percent, substituting one or all of the arbitrators with the arbitration continuing on the basis of the evidence and material already on record, and imposing actual or even exemplary costs on a party responsible for the delay. The Act also now provides for a fast-track procedure that may be entered into with the consent of the parties. This requires the arbitral tribunal to publish its award within a period of six months. The tribunal is required to decide the dispute based on written pleadings, documents, and submissions of the parties without an oral hearing, unless the parties request a hearing for cross-examination of witnesses.
Expert Witnesses and Court Assistance in Gathering Evidence
The tribunal is empowered to appoint its own expert to report directly to it on specific issues. Parties are bound to fully cooperate with the expert in respect of relevant information and documents. Unless agreed otherwise, parties have the right to examine the report of the tribunal's expert and also examine such expert at the oral hearings, as well as presenting their own experts. The arbitral tribunal has also been empowered under the Act to seek assistance from the court in gathering evidence from witnesses or documents. Such a request must be made in a prescribed form and is subject to the court's discretion.
Interim Measures
A party seeking interim measures may approach the arbitral tribunal seeking such measures of protection, unless agreed otherwise by the parties. The tribunal is empowered under the Act to require a party to provide security as appropriate in aid of such a measure. Alternatively, a party may seek interim measures from the court. An application to the court may be made before the commencement of an arbitration. These measures may only be granted for the reasons and in the instances set out in Section 9 of the Act. Where a court passes protective measures as sought, the arbitral proceedings are required to be commenced within a period of 90 days. Furthermore, after the 2015 amendment, once an arbitral tribunal is constituted, the courts are required not to entertain any application for interim measures unless there are exceptional circumstances that may not render the remedy provided by the tribunal efficacious. Prior to the 2019 amendments, a tribunal was empowered to provide interim relief even after an award had been rendered. This power has now been curtailed, and a party must approach the court for interim relief once an award has been finally passed.
Appealable Orders
An appeal lies from orders of the court that grant or refuse to grant relief for interim measures and that refuse to set aside an arbitral award. Similarly, an appeal lies from orders of the arbitral tribunal that grant or refuse to grant interim measures and from findings in favour of parties who have challenged the tribunal's jurisdiction or authority.
Challenge and Enforceability of Awards
An award must be a reasoned award unless agreed otherwise by parties. Any party aggrieved by the award may challenge it under Section 34 of the Act within a period of 90 days from receipt of it. Prior to the 2019 amendments, courts in India could set aside an award if satisfactory proof was furnished by the party challenging the award that: it was somehow incapacitated; the arbitration agreement was invalid under the law the parties had subjected it to or the applicable law; it was not given proper notice of the arbitration and appointment of the arbitrator, or was unable to present its case; the award deals with disputes beyond the reference to arbitration, provided that, if feasible, the court can separate and set aside only those issues where jurisdiction was exceeded; the composition of the tribunal or the procedure was not as agreed between the parties; the court finds that the substance of the disputes was not capable of being settled by arbitration; or the award is against the public policy of India. Following the 2019 amendments, a party challenging the award must establish these grounds of challenge only on the basis of the record before the arbitral tribunal and is not able to introduce fresh evidence to support its challenge. This amendment is aimed at ensuring finality and reducing the scope for de novo review of arbitral awards by courts.
The judgment of the Supreme Court of India in ONGC v. Saw Pipes Ltd had attracted a great deal of criticism from the international arbitration community. The Supreme Court examined the scope and ambit of the jurisdiction of the court under Section 34 of the Act. The Court first held that an award is patently illegal if it is contrary to the substantive laws of India. It then went on to expand the meaning of the phrase public policy of India, stating that the phrase needed to be given a wider meaning and that the concept of public policy connotes some matter that concerns the public good and the public interest. It further held that an award that is patently in violation of statutory provisions could not be said to be in the public interest. Furthermore, the Court held that an award could be set aside if it were contrary to the fundamental policy of Indian law, the interests of India, or justice or morality, or is patently illegal. This holding of the Supreme Court was severely criticized as it opened the floodgates, giving parties a wider scope for challenging arbitral awards. The 2015 amendment of the Act narrowed down the wide import of the term public policy and the manner in which matters were virtually being heard de novo on the merits to examine whether they violated the fundamental policy of Indian law. By way of introduction, Explanation No. 1 to Section 34 clarifies that an award is said to be in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption, or was in violation of Section 75 or 81; it contravened the fundamental policy of Indian law; or it is in conflict with the most basic notions and morality of justice. The legislature has also clarified by way of the introduction of Explanation No. 2 to Section 34 that the test as to whether there is a contravention of the fundamental policy of Indian law shall not entail a review on the merits of a dispute.
A peculiarity of the Act prior to the recent amendments was that once an award was challenged under Section 34, the award remained unenforceable under Part I of the Act pending the outcome of the challenge. The 2015 amendment sought to address this issue. A party seeking to challenge and set aside an award is now bound to obtain a stay on the execution of the award from the court, failing which the award holder may seek execution of the award. This is a welcome change and will enable courts to impose terms on parties requiring them to put up security towards the monies awarded under the award, similar to when a party appeals from a money decree. An award passed under Part I of the Act may be enforced as a decree of the court as per the Civil Procedure Code, 1908.
Confidentiality in Arbitration
The 2019 amendment introduced a statutory obligation by way of a new Section 42A upon arbitrators, arbitral institutions, and parties to an arbitration to maintain the confidentiality of all proceedings except where the disclosure of an award is necessary for the purpose of the implementation and enforcement of the award. This provision brings Indian arbitration law in line with international best practices and addresses a long-standing concern regarding the confidentiality of arbitral proceedings in India.
Part II of the Act: Recognition and Enforcement of Foreign Awards
India is a signatory to both the New York Convention, 1958, and the Geneva Convention, 1927, and Part II of the Act is the legislation adopted by India to implement its commitments under these conventions. India's accession to the New York Convention was dependent on its recognition of only those awards that were made in convention countries which the central government of India has declared to be reciprocating territories in the Official Gazette. Thus, an award does not enjoy the benefit of Part II of the Act if it is passed in a convention country that is not a reciprocating country. The grounds for refusal of enforcement under Part II correspond to Article V of the New York Convention. Section 48(2), however, provides two additional grounds for refusing enforcement, namely when the subject matter of the dispute is not capable of settlement by arbitration in India, and where the enforcement of the award results in the contravention of India's public policy. If an award is recognised as per the prescribed procedure in Part II, it may be enforced as a decree of the court under the Civil Procedure Code, 1908. Prior to the 2015 amendments, any application for recognition and enforcement of an award would have to be made to the court that had jurisdiction over the territory where the assets of the award holder were located. This meant that in many cases such applications were filed in remote district courts, and sometimes before judges who were not familiar with the New York Convention. This naturally slowed down the recognition and enforcement procedure. The 2015 amendments to the Act brought a welcome change, and any such application now has to be made before either the state high court that has original jurisdiction if the subject matter of the award has been the subject matter of an ordinary civil suit, or, in states where original jurisdiction is before a lower court, the petition is to be made to the high court that would have had jurisdiction to hear appeals from decrees of courts subordinate to that high court.
Institutional Arbitration in India
While the Act recognises institutional arbitration and permits parties to allow an institution to administer the arbitration, historically arbitration in India, and especially in all government contracts, has been of an ad hoc nature. However, there has been a paradigm shift in recent years in the outlook of parties and the legal community, who have slowly started accepting the many added benefits of arbitration being administered by an institution. This has been reflected in the positive steps being taken by international arbitration institutions, which have been investing in the Indian market to bring about awareness of the benefits of institutional arbitration. The International Chamber of Commerce (ICC) recently appointed its first regional director for South Asia, and the Singapore International Arbitration Centre (SIAC) has opened two representative offices in India. The London Court of International Arbitration (LCIA) has also been extremely active and popular in India, with many Indian parties opting for LCIA arbitration. The 2019 amendments introduce a very welcome provision by granting powers to the Chief Justice of the Supreme Court of India and the chief justices of the high courts to designate arbitral institutions to appoint arbitrators pursuant to Section 11 (i.e., instances when a party or the arbitrators fail to nominate an arbitrator or chair of the tribunal). This appointment is to be made within a period of 30 days. This is a welcome move as it will greatly reduce the time taken by the courts, which due to their heavy caseload could take anywhere up to a year to make such appointments under Section 11. The oldest local arbitration institution is the Indian Council of Arbitration (ICA), which was established in 1965. It is the largest arbitral organisation at the national level. The ICA is allied to both the Federation of Indian Chambers of Commerce and Industry and the International Centre for Alternative Dispute Resolution. To provide arbitration services under the rules of foreign arbitral organisations, the ICA has entered into international mutual cooperation agreements with important foreign arbitral institutions in more than 40 countries. Notwithstanding this, during the ICA's existence over the past 45 years, a significant majority of arbitrations have been ad hoc. In late 2016, the Mumbai Centre for International Arbitration (MCIA) was launched, with the adoption of the MCIA Rules. These Rules provide for international best practices like those adopted by international arbitration institutions, including those for the appointment of arbitrators and an emergency arbitrator, and the submission and review of draft awards. The MCIA has also provided much-needed local physical infrastructure by creating a vital local state-of-the-art arbitration facility as a venue to hold arbitrations. While private Indian parties have been open to arbitration administered by both international arbitration institutions such as the ICC, LCIA, SIAC and the American Arbitration Association as well as local arbitration institutions like the ICA and the MCIA, public sector undertakings and public sector companies continue to be less open to arbitration, still preferring to adopt ad hoc clauses in their standard form contracts. However, the trend is gradually changing, and there is increasing recognition of the benefits of institutional arbitration, including procedural efficiency, administrative support, and the availability of experienced arbitrators.
Emerging Trends and the Future of Arbitration in India
The arbitration landscape in India is undergoing a significant transformation, driven by legislative reforms, judicial pronouncements, and a growing acceptance of alternative dispute resolution mechanisms. The 2015 and 2019 amendments to the Arbitration and Conciliation Act, 1996, represent a concerted effort by the Indian government to make India a preferred seat for international arbitration. These amendments have addressed many of the concerns that were previously raised by the international arbitration community, such as excessive judicial intervention, delays in the appointment of arbitrators, and the narrow grounds for challenging awards. The establishment of the Mumbai Centre for International Arbitration and the expansion of the Indian Council of Arbitration are also positive developments that signal the growing maturity of the arbitration ecosystem in India. The increasing number of international arbitration institutions establishing a presence in India further underscores the potential of the Indian market. The New Delhi International Arbitration Centre Act, 2019, which establishes the New Delhi International Arbitration Centre (NDIAC) as a statutory body, is another significant development that is expected to provide a major boost to institutional arbitration in India. The NDIAC is envisioned as a world-class arbitration centre that will provide a robust alternative to foreign arbitration centres.
Court Support and Judicial Attitude
The Indian judiciary has generally adopted a pro-arbitration stance, particularly after the 2015 and 2019 amendments. The Supreme Court and various high courts have consistently emphasized the need to minimise judicial interference in arbitral proceedings and to uphold the autonomy of the arbitral process. The courts have also been proactive in referring disputes to arbitration, even in cases where the arbitration agreement is not in a standard form. The courts have also played a crucial role in interpreting the provisions of the Act in a manner that facilitates the efficient resolution of disputes through arbitration. However, the courts have also been vigilant in ensuring that arbitral awards are not patently illegal or against the public policy of India. The courts have also been cautious in granting interim relief in aid of arbitration, ensuring that such relief is not granted lightly and only in cases where there is a genuine urgency or where the remedy provided by the arbitral tribunal is not efficacious. The overall judicial attitude is one of support for arbitration, but with a strong emphasis on the need for arbitral tribunals to adhere to the principles of natural justice and to render reasoned awards that are not contrary to the law and public policy.
Challenges and Opportunities
Despite the significant progress that has been made, there remain several challenges that need to be addressed to fully realize the potential of international arbitration in India. One of the key challenges is the backlog of cases in Indian courts, which can delay the resolution of arbitration-related applications, particularly in the case of appointment of arbitrators and challenges to awards. Another challenge is the lack of awareness and understanding of arbitration among the business community, particularly in the small and medium enterprise sector. Many businesses in India are still not fully aware of the benefits of arbitration or the provisions of the Arbitration and Conciliation Act. There is also a need for more trained and experienced arbitrators, particularly in specialized areas such as construction, infrastructure, and technology. The growth of institutional arbitration, while encouraging, also needs to be accompanied by the development of a robust institutional infrastructure, including well-trained staff, modern hearing facilities, and transparent fee structures. However, there are also significant opportunities. The Indian economy is growing rapidly, and there is a corresponding increase in cross-border commercial transactions, which inevitably lead to disputes. The Indian government's focus on improving the ease of doing business and its commitment to promoting alternative dispute resolution mechanisms creates a fertile ground for the growth of international arbitration in India. The development of arbitration institutions such as the MCIA and the NDIAC is expected to attract more international arbitration to India and to position India as a major hub for arbitration in Asia.