The International Arbitration Review: India
The Arbitration and Conciliation Act, 1996 (Act) provides the framework for arbitration and conciliation in India. Drafted on the basis of the UNCITRAL Model Law, it is divided into four parts. Each part governs a different aspect of the arbitration and conciliation process:
- Part 1 governs commercial arbitration;
- Part 2 governs the enforcement of certain foreign awards;
- Part 3 governs conciliation; and
- Part 4 contains supplementary provisions (regarding the power of the court to make rulings, etc.).
i Applicability of Part 1
Part 1 of the Act applies to all arbitrations. However, a distinction is drawn in the case of arbitration with its seat in India and international commercial arbitration with its seat located outside India. In the former case, the provisions of Part 1 (barring the derogable ones) are compulsorily applicable. In the latter case, parties to an arbitration may by express or implied agreement agree to exclude all or any of the provisions of Part 1 of the Act,4 and in such case the laws or rules selected by the parties would prevail.
An arbitration is considered to be an international commercial arbitration when it involves a dispute that is commercial in nature and involves a party who is either a foreign national or 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.5 All other arbitration, by implication, is considered to be domestic arbitration.
ii Mandatory requirements of a valid arbitration agreement
Parties have the freedom to refer both current and possible future disputes arising out of legal or contractual relationships to arbitration. The substance of certain disputes, however, is recognised to be non-arbitral in nature, and is in the exclusive domain of specific tribunals and courts as a matter of public policy (e.g., landlord–tenant disputes, criminal proceedings, matrimonial matters, insolvency matters and competition disputes).
It is mandatory for an arbitration agreement to be in writing. It may be in the form of a clause in a contract or a separate agreement. An agreement is considered to be in writing when parties have entered into a written document and signed it, have exchanged written correspondence or telecommunications recording the agreement, or have exchanged pleadings in the form of a statement of claim and defence.6
iii Jurisdiction and role of the court
One of the primary objectives of the Act was to reduce judicial intervention in arbitration. This was given effect to by the recognition of the principles of the separability doctrine7 and the doctrine of Kompetenz-Kompetenz.8 Further, there is a specific bar on judicial authorities interfering in arbitration proceedings unless specifically permitted.9 The Act also makes it mandatory for a court to refer matters to arbitration on an application by a party to any action before it that is the subject of an arbitration agreement (provided 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 the appointment of an arbitrator,10 interim relief,11 assistance in the gathering of evidence,12 hearing challenges to an award,13 as well as appeals from certain orders.14
The court system in India is a complex single integrated hierarchical system based on territorial, pecuniary and special jurisdiction.
The structure of the Indian judicial system is as follows:
- 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 of which have ordinary original jurisdiction, and all exercise appellate jurisdiction over the orders of subordinate courts;
- underneath the high courts come the district courts, the highest court in each district; the principal court of civil jurisdiction in the district is that of the district and the sessions judge; and
- there are many subordinate courts to the court of the district and sessions judge in a three-tier system – the civil judge (junior) division is the lowest court on the civil side.
A question often arises: which court in India does one approach for judicial intervention or assistance? After the 2016 amendments, the Act now draws a distinction between the jurisdiction of courts in the case of an international commercial arbitration and a domestic commercial arbitration.15
In the case of domestic commercial arbitrations, a petition for judicial intervention or assistance must be made to a civil court of original jurisdiction, which 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 jurisdiction16 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, the Act provides exclusive jurisdiction to the court that exercises jurisdiction first.17
iv Appointment and challenge of arbitrators to the arbitral tribunal
Parties are free to determine the number of arbitrators if the number is not even. If parties fail to agree to an odd number, the tribunal will then comprise a sole arbitrator. Parties have the freedom to determine the nationality and qualifications of the arbitrators as well as set a procedure for appointing them.
If a party or the arbitrators fail to nominate an arbitrator or chair of the tribunal, a petition may be made to the chief justice to appoint an arbitrator. For an international commercial arbitration, the Supreme Court must be petitioned. 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.
An arbitrator is obliged to disclose in writing any circumstances that are likely to raise justifiable doubts as to his or her independence or impartiality. The 2016 amendments to the Act have introduced an onus on the arbitrator to make a written declaration to this effect: the Act now even prescribes a format for such declaration;18 and prescribed guidelines about the circumstances that would provide guidance as to whether there are justifiable doubts as to the independence and impartiality of an arbitrator.19
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 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.20 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.
v 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 1908 applies to court proceedings that arise in relation to arbitration.
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, which specifies that (unless agreed otherwise) arbitration is deemed to have commenced on the date a party sends a request for arbitration.
After the recent 2016 amendments, arbitration in India was limited to a certain time frame of 12 months from the time the arbitral tribunal entered reference.21 Recognising the practical difficulties that this was causing both litigants as well as counsel, the recent 2019 amendments have relaxed the prescribed time frame, recognising the distinction between domestic and international commercial arbitrations.
The 2019 amendments amended the Act22 to now prescribe a period of six months (from the date the arbitral tribunal enters reference) for 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 instance may extend the period for sufficient cause. It also has the power to order a reduction of an arbitrator's fees by a sum not exceeding 5 per cent; 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.
The Act also now provides for a fast-track procedure that may be entered into with the consent of the parties and that 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.23
vi 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 in respect of relevant information and documents in this regard.24 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 in gathering evidence from witnesses or documents from the court, which must be made in a prescribed form.25
vii 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 measure.26
Alternatively, a party may seek interim measures from the court.27 An application to the court may be made before the commencement of an arbitration.28 These measures may only be 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.29
Furthermore, and 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 efficacious.30
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.31
viii Appealable orders
An appeal would lie 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 will lie 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.
ix Challenge and enforceability
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' is 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, as the case may be;
- 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.
The judgment of the Supreme Court of India in ONGC v. Saw Pipes Ltd 32 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, citing 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 has been severely criticised as it has opened the floodgates, giving parties a wider scope for challenging arbitral awards.
The 2015 amendment of the Act has 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 amendment was that once an award was challenged under Section 34, the award remained unenforceable under Part 1 of the Act pending the outcome of the challenge. The recent amendment to the Act has 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, like when a party appeals from a money decree.
An award passed under Part 1 of the Act may be enforced as a decree of the court as per the Civil Procedure Code 1908.33
A 2019 amendment has 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.
xi Part 2 of the Act: recognition of foreign awards
India is a signatory to both the New York Convention 1958 and the Geneva Convention 1927, and Part 2 of the Act is the legislation adopted by India to implement its commitments under the Conventions. India's accession to the New York Convention was dependent on it recognising only those awards that were made in Convention countries, which the central government of India has declared to be a reciprocating territory in the Official Gazette. Thus, an award does not enjoy the benefit of Part 2 of the Act if it is passed in a Convention country that is not a reciprocating country.
Scenarios in which challenges to the enforcement of an award may be entertained under Part 234 correspond to Article V of the New York Convention. Section 48(2), however, provides two additional reasons to refuse 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 2, it may be enforced as a decree of the court under the Civil Procedure Code 1908.
Prior to the recent 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 recent amendments to the Act have brought a welcome change, and any such application now has to be made before either the state high court that has original jurisdiction35 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.36
xii Institutional arbitration
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 in bringing about awareness of the benefits of institutional arbitration. The ICC recently appointed its first regional director for South Asia, and the SIAC has opened two representative offices in India. The LCIA has also been extremely active and popular in India.
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.
The year in review
i Developments affecting international commercial arbitration
Some much-required amendments to the Act were brought by way of the Indian Arbitration and Conciliation (Amendment) Act 2015. This was a step in the right direction by both the government, which is taking steps to introduce investment in the country and provide a robust dispute resolution mechanism for investors who come to do business in India, and the Indian judiciary, which has over recent years minimised its interference in the arbitral process.
Of the key amendments highlighted above, the most notable change has been that regarding the definition of court in Part 1 of the Act. By way of background, the Supreme Court of India's landmark decision in Bharat Aluminum Company v. Kaiser Aluminum Technical Limited recognised and overruled its earlier decisions in Bhatia International and Venture Global, clarifying and recognising that:
- Part I of the Act, which vests courts with the powers of awarding interim relief in support of arbitration and setting aside arbitral awards, only applies to arbitrations seated within India;
- awards rendered in foreign-seated arbitrations are only subject to the jurisdiction of Indian courts when they are sought to be enforced in India under Part II of the Act; and
- Indian courts cannot order interim relief in support of foreign-seated arbitrations.
The Court, in its judgment overruling Bhatia International, had recognised that there was a need to provide a mechanism whereby a party would get effective interim relief for a foreign-seated arbitration. It had, however, recognised that neither the scheme of the Act nor the Code of Civil Procedure, 1908 provided for a mechanism wherein such interim relief could be obtained.
Taking a cue from this judgment and recognising the shortcoming in the legislation, the definition of court in Part 1 of the Act has now been amended, widening the jurisdiction of the high courts in India to aid foreign-seated arbitrations. Pursuant to this amendment and subject to the contrary, a party may now approach an Indian high court to seek relief for interim measures under Section 9 of the Act, or seek the assistance of the Indian High Court to enable the taking of evidence as envisaged under Section 27.
In short, the legislature has recognised that such orders need the force of the enforceability of a court order against a party who has no business interests outside India, which may not have been available if the same had been obtained from a foreign court or a foreign-seated arbitration.
While the amendments were a step in the right direction and well-intended, they were not without issues. Arbitrations in India were time-bound. This has led to practical issues wherein finding an established arbitrator to accept high-stake complex arbitrations in three-member tribunals has become increasingly challenging, as these individuals recognise that they may not be able to achieve the highly aggressive timelines stipulated in the amended Act, given how busy their diaries are, unless they are either the sole arbitrator or the chair of a tribunal. Furthermore, in complex disputes (e.g., in the oil and gas and construction industries) involving heavy record and expert testimony, it has become extremely challenging for both parties and counsel to meet the punishing timelines set by arbitral tribunals to accomplish an arbitration's schedule.
The government has addressed this issue by way of the introduction of the recent 2019 amendment, which excludes the 12-month timeline for all international commercial arbitrations seated in India. While some relaxation of the one-year timeline was required, the exclusion of any time line for international commercial arbitrations as a whole from any stipulated time frame is an unwelcome one in our view, as foreign investors and trading partners would have more confidence to invest and trade in India knowing that disputes would be timely decided.
The 2019 amendments have also introduced a proposal to establish the Arbitration Council of India (ACI), which, although described as an independent corporate body, could in effect be a pseudo regulator, with appointments to the Council being individuals nominated by the central government and secretaries to the government in the Department of Legal Affairs and the Department of Expenditure.
The ACI will have the responsibility of grading arbitral institutions on the basis of various criteria including infrastructure, the quality and calibre of the arbitrators, performance and compliance with time limits for the disposal of domestic or international commercial arbitration as may be specified in the ACI's regulations.
At the time of writing this chapter, the ACI has as yet not been set up; nor has the Council of the ACI been constituted or regulations formulated. There is much scepticism among practitioners as to whether this will impede the arbitral process or make the same more efficient. A lot will realistically depend upon how the ACI functions.
ii Arbitration developments in local courts
The courts have been very active in recent years in interpreting key aspects of the Act and local arbitration institutional rules, as well as arbitration clauses.
Stamping of arbitration agreements
By way of background, Indian law requires that parties pay stamp duty (a form of indirect taxation) on transactional documents depending upon the nature of the underlying transaction. The quantum and manner of payment of stamp duty is a concurrent subject with both the state and central governments prescribing their own stamp acts. One of the consequences of failing to pay the requisite stamp duty document is the inadmissibilty of such document into evidence. The Supreme Court of India M/s Dharmaratnakara Rai Bahadur v. M/s Bhaskar Raju & Brothers, while considering a Section 11 application for the appointment of an arbitrator, has held that if the court has before it any instrument containing an arbitration agreement, the court is bound to consider at the outset whether the instrument has been properly stamped. If the instrument is not stamped properly the court cannot hear the case, but must impound the instrument and refer the same to the collector of stamps for adjudication and proper payment of stamp duty.
Waiver of an arbitration clause
The Delhi High Court in the case of SIPL Lifestyle Pvt Ltd. v. Vama Apparels (India) Private Limited & Anr37 held that an arbitration clause may be waived by a party defendant by conduct under two circumstances wherein the plaintiff has filed a suit in violation of an arbitration clause under the contract, the first by filing a written statement in the suit proceedings instead of a Section 8 application (to have the matter referred to arbitration), the second by failing to file a Section 8 application by the period prescribed to file in which the statement of defence could have been filed.
The court held that the 2015 amendment to Section 8 is a conscious step towards prescribing a limitation period for filing a Section 8 application.
In Vimal Kishor Shah & Ors v. Jayesh Dinesh Shah & Ors,38 while applying the principle of specific remedy and the fact that there is provision for the adjudication of disputes in the Trust Act, 1882, the Supreme Court held that disputes arising out of trust deeds are not arbitrable. Thus, the Court added a seventh exception to arbitrable cases (in addition to the six39 recognised in its previous judgment in Booz Allen & Hamilton v. SBI Home Finance).40
In Himangni Enterprises v. Kamaljeet Singh Ahluwalia,41 the Supreme Court, after relying on the decision in Booz Allen & Hamilton In v. SBI Home Finance Ltd,42 had held that a Section 8 application requesting the court to refer parties in a civil suit (seeking eviction from the premises as tenancy matters) is non-maintainable as disputes pertaining to tenancy rights are non-arbitrable. This issue once again came up before the Supreme Court in a recent case, Vidya Drolia & Others v. Durga Trading Corporation,43 before a division bench that, after considering the case, which arose out disputes arising under the Delhi Rent Act, referred the matter to a three-judge bench to reconsider the arbitrability of tenancy disputes, as decided in Himangni Enterprises.
In A Ayyaswamy v. A Paravisam,44 the Supreme Court of India recognised that the arbitrability of a dispute is to be decided by the Court in its review under Section 8 of the Act. The Court also held that fraud is one of the exceptions to arbitrable disputes due to it falling within the exclusive domain of public fora. However, the Court warned against allegations of fraud made merely with the purpose of avoiding the process of arbitration. The Court held that for a dispute to be non-arbtirable, these allegations should be such that not only are these allegations so serious that, in the normal course they may even constitute a criminal offence: they must also be complex in nature and demand extensive evidence.
Interpretation and enforcement of arbitration clauses
In line with the recent trend of a pro-arbitration approach, the courts have upheld the validity of arbitration agreements, and interpreted vague arbitration agreements in a manner that is pro-arbitration and workable bearing in mind that parties always intended to take their disputes to arbitration.
In Icomm Tele v. Punjab State Water Supply & Sewerage Board, the Supreme Court of India had to consider an arbitration clause that required the claimant to pre-deposit 10 per cent of its claims in arbitration prior to invoking the arbitration provisions. The clause formed part of the invitation to tender floated by the Punjab State Water Supply & Sewerage Board. Taking a pro-arbitration approach, the Supreme Court held that not only would such a clause go against the principle of de-clogging the court system but would render the arbitral process ineffective and expensive. The Court therefore struck down the requirement of a pre-deposit of 10 per cent, holding that parties may proceed to arbitration, and that such a requirement in the arbitration clause was severable from the rest of the arbitral clause.
The Supreme Court of India in Centrotrade Minerals & Metals Inv v. Hindustand Copper45 held that there is nothing in the Act, explicitly or implicitly, which prevents any party from opting for a two-tier arbitration (i.e., one where there is an appeal from one arbitral tribunal to another, as chosen by parties in their agreement). The Court went on to clarify that the two-tier arbitration clause in the agreement did not violate the fundamental or public policy of India.
Juridical seat of arbitration, exclusive jurisdiction of the courts
In the case of Bgs Sgs Soma Jv vs NHPC Ltd, the Supreme Court held that the intention of a party designating a seat of arbitration was to confer exclusive jurisdiction on the courts having supervisory jurisdiction of said seat. Furthermore, the place of arbitration designated in the arbitration clause, whether described by the nomenclature of seat or venue or place, is the juridical seat of arbitration unless there is a contrary intention. This judgment was once again affirmed by the Supreme Court in its judgment in Hindustan Construction Company Ltd v. NHPC Ltd & Anr.
Enforcement or annulment of awards and recognition of the ICC Rules
In Imax Corporation v. M/s E-City Entertainment (I) Pvt Limited,46 the Supreme Court of India had before it a case arising out of a unique dispute resolution clause. The brief facts are as follows. The parties had in their contract expressly agreed that:
- the governing law of the contract would be the law of Singapore;
- the parties were free to approach the Singapore court in relation to any non-arbitrable dispute that may arise out of the contract or possibly a dispute regarding the correctness or validity of an arbitration award; and
- any dispute arising out of the agreement or concerning the rights and duties or liabilities of parties were to be settled by arbitration pursuant to the ICC Rules of Arbitration.
The clause notably was silent as to the seat of arbitration.
The parties invoked arbitration and, in accordance with Article 14 (1) of the ICC Rules, after consulting both parties the ICC determined that the seat of arbitration would be London. The arbitration thereafter progressed, both parties participated, and there were two partial awards and one final award passed by the tribunal. E-City Entertainment filed a Section 34 petition, seeking to set aside the awards before the Bombay High Court on the basis that Part 1 of the Act was not specifically excluded. The Bombay High Court ruled in favour of E-City Entertainment,47 and Imax Corporation approached the Supreme Court of India on appeal.
The Supreme Court, in yet another pro-arbitration ruling, overruled the Bombay High Court's judgment explicitly, recognising:
- that the ICC Rules provide for the entire conduct of arbitration from commencement to the passing of an award, and also the power of the ICC court to decide the place of arbitration under Article 14(1) of the ICC rules;
- the freedom of parties to an arbitration agreement pursuant to Section 2(7) of the Act to permit any person, including an institution, to determine an issue such as the place of arbitration;
- that the parties had agreed to exclude Part 1 of the Act by permitting the ICC to determine the place of the arbitration. The possibility that the ICC could have chosen India is not a counterindication to this, as Part 1 was excluded when the ICC chose London after consulting the parties who thereafter participated in such proceedings; and
- that it is the place of arbitration that would determine the law that would apply to the arbitration and related matters like challenges to the award.
End of the employee arbitrator
Historically, several public sector undertakings (PSUs) in India provided for an arbitration clause providing that all disputes would be referred to an arbitration to heard by the person holding a certain post in the PSU (e.g., a general manager). Such clauses have been upheld in the past to be valid by Indian courts. However, the position of the law changed with the recent amendments to the Act. In Assignia-Vil JV v. Rail Vikas Nigam Ltd, the Delhi High Court was faced with a situation wherein the parties had entered into a long-term construction contract and had referred certain disputes to arbitration. This arbitration was before arbitrators who comprised retired and serving employees of the respondent. During the pendency of this arbitration and the performance of the contract, certain further disputes arose. Furthermore, and during this intervening period, the new amendments to the Act became effective. Assignia-Vil JV therefore approached the Delhi High Court seeking the appointment of an independent panel of arbitrators (i.e., arbitrators that did not comprise serving employees and ex-employees). The respondent contended that the issues with respect to the new dispute should be referred to the first tribunal, which was already constituted and hearing the previous arbitration. The Delhi High Court took a pragmatic view, however, holding that these were fresh disputes and that the arbitration had been invoked after the new legislation had come into force. The Court therefore held in favour of a fresh tribunal being constituted.
However, in The Government of Haryana PWD Haryana (B and R) Branch v. M/s GF Toll Road Pvt Ltd & Ors, the Supreme Court of India had before it an ICA-administered arbitration wherein the public works department (PWD) of the Haryana government had challenged the ICA's decision not to permit the PWD to nominate an ex-employee as its nominee arbitrator. The Supreme Court considered the first entry in Fifth Schedule of the Act and held that, while there was a clear bar to a current employee from acting as an arbitrator, there is no automatic bar in the case of an ex-employee, and that this would have to be tested under the standard of reasonable apprehension of bias. In the instant case, the Court held that there was no such case made out, especially since the retired employee in question had retired nearly 10 years before his nomination as an arbitrator.
End of a sole arbitrator being appointed by one of the parties
In the case of Perkins Eastman Architects DPC & Anr v. HSCC India Ltd, the Supreme Court had before it a Section 11 application wherein it had to consider the validity of the authority of the respondent's managing director to appoint the sole arbitrator. The Court held that a person who has an interest in the outcome of an arbitration must not be given the power to appoint the sole arbitrator.
The Supreme Court further clarified in its subsequent judgment in the case of Proddatur Cable TV Digi Services v. Siti Cable Network Limited that the judgment in the Perkin Eastman case would also apply to ongoing arbitrations that were being conducted under the Act as amended by the 2015 amendment.
Parties to foreign-seated arbitrations can seek interim relief in India
In Aircon Beibars FZE v. Heligo Charters Pvt Ltd,48 the Bombay High Court confirmed that the parties could move for interim relief under Section 9 of the Act even if they have chosen a foreign seat of arbitration and foreign law. The High Court had deliberated on whether, by virtue of choosing foreign law as the governing law, the parties excluded the application of Part 1 of the Act as provided in a proviso to Section 2(2). The Court had rejected the submission that the choice of foreign law as the substantive law of the contract would restrict the applicability of Section 9 of the Act, as that would be tantamount to the exclusion of Part 1.
Contempt powers for non-compliance with arbitral orders
In Alka Chandewar v. Shamshul Ishrar Khan,49 the Supreme Court held that Section 27(5) of the Act empowers the court to punish a party for contempt for non-compliance with or the disobeying of any orders of the arbitral tribunal, and it cannot be restrictively interpreted to be applicable only in respect of orders passed for taking evidence. It was held that the entire object of providing that a party may approach an arbitral tribunal instead of a court for interim relief would be stultified if interim orders passed by such tribunal are toothless.
iii Investor–state disputes
Being a signatory to over 80 bilateral investment treaties (BITs) over the past five years, India has found itself being enjoined as a host state party in approximately 10 or 12 investor–state arbitrations. Most of these disputes have arisen as a result of either the cancellation of a compulsory licence or the manner in which the revenue authorities have made an attempt to recover indirect and direct taxes from the Indian entity of an investor (e.g., cases brought against India by Vodafone, Nokia and Cairn Energy).
Given this position, and given that India is currently in advanced negotiations with various party states, including both the European Union and the United States, it has carried out various amendments to its template model bilateral treaty, which we understand will now form the template for its future negotiations.
Some of the notable changes are as follows:
- an investor is required to either exhaust all local remedies, or to have pursued them for a minimum of five years prior to any dispute becoming arbitrable under the treaty;
- the protection granted under the treaty would not apply to either tax laws or any action taken to enforce a tax obligation; and
- the definition of the term investment now incorporates the test in Salini Costruttori Spa and Italstrade Spa v. Kingdom of Morroco, making the definition dependent on whether it makes a concrete impact on or bears a risk to the economic development of the host state.
Notably, there is no explicit definition of a fair and equitable standard of treatment, which is the most common yardstick applied when a party seeks protection under a BIT.
The model treaty does, however, provide for a protective regime prohibiting the host state from committing violations of customary international law that amount to a denial of justice, a fundamental breach of due process, targeted discrimination or manifestly abusive treatment.
Furthermore, the model treaty provides for a national treatment standard whereby a foreign investor must be treated on a par with a domestic investor of the host state. Given the robust manner in which the standard has been set for the protection of fundamental rights and rights of an Indian citizen, this does set a rather high standard of protection in the Indian context.
Two recent pieces of case law have clarified that the Act does not apply to BIT arbitrations. The Delhi High Court, while hearing an anti-arbitration application brought by the Union of India against Vodafone PLC (who had invoked investment arbitration under the India–UK BIT), has, inter alia, held:
- the jurisdiction of Indian courts is not barred in relation to BIT arbitration, as there is neither a statutory bar nor any case law that bars such jurisdiction;
- having not signed the ICSID Convention, India has not acceded to ouster of the jurisdiction of the domestic courts over BIT jurisdiction;
- there is no Indian legislation enacted to give effect to BITS; and
- the Act, including Part 2, does not apply to BIT arbitrations. When acceding to the New York Convention, India made the commercial reservation under Article I.3 to apply the Convention 'only to differences arising out of legal relationships . . . which are considered as commercial under the national law of the State making such declaration'. BIT arbitrations are a separate type of arbitration that are not of a commercial nature under Indian law, thus they fall outside the ambit of the Act.
The Delhi High Court has in a preliminary order affirmed its position in the Vodafone case in the case of Khaitan Holdings in relation to a BIT arbitration under the India–Mauritius BIT. It further held that jurisdiction of Indian courts in relation to BIT arbitrations are governed by the Code of Civil Procedure.
Outlook and conclusions
While the new amendments have brought about a spate of new issues, they are well-intended, and they have provided a tremendous amount of promise to make arbitration in India more robust, cheap and efficient. In the first few years following the amendments, the courts have also interpreted the amendments in a manner that is pro-arbitration.
The new amendments have brought about a spate of new issues, meaning that while they are well-intended and have a tremendous amount of promise to make arbitration in India more robust, cheap and efficient, a lot depends on how the courts in India interpret and apply the legislation that has been recently introduced.
If the past two or three years have offered a compass as to how the courts will interpret and give effect to these amendments, there is real reason for hope given the growing trends of Indian courts respecting the autonomy of arbitral tribunals by refusing to interfere in their functioning, and recognising and enforcing both domestic as well as New York Convention awards.
1 Shardul Thacker is a partner at Mulla & Mulla & Craigie Blunt & Caroe.
2 Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016).
3 Arbitration and Conciliation (Amendment) Act, 2019.
4 Bhatia International v. Bulk Trading SA (2002) 4 SCC 105.
5 Section 2(f) of the Arbitration and Conciliation Act, 1996.
6 Section 7 of the Arbitration and Conciliation Act, 1996.
7 Reva Electric Car Company Private Limited v. Green Mobil AIR 2012 SC 739.
8 Ashok Traders v. Gurumukh Das Saluja (2004) 3 SCC 155. Section 16(1).
9 Section 5 of the Arbitration and Conciliation Act, 1996.
10 Section 11 of the Arbitration and Conciliation Act, 1996.
11 Section 9 of the Arbitration and Conciliation Act, 1996.
12 Section 27 of the Arbitration and Conciliation Act, 1996.
13 Section 34 of the Arbitration and Conciliation Act, 1996.
14 Section 37 of the Arbitration and Conciliation Act, 1996.
15 Section 2(1)(e) of the Arbitration and Conciliation Act, 1996.
16 Three high courts – Bombay, Calcutta and Madras (being chartered high courts, established pre-independence, under the Letters Patent granted by Queen Victoria in 1862) – are the only high courts in India that enjoy original jurisdiction.
17 Section 42 of the Arbitration and Conciliation Act, 1996.
18 Section 12 of the Arbitration and Conciliation Act, 1996.
19 Seventh Schedule, Arbitration and Conciliation Act, 1996 (Act No. 26 of 1996).
20 Section 13 of the Arbitration and Conciliation Act, 1996.
21 Section 29-A of the Arbitration and Conciliation Act, 1996.
22 Section 23 of the Arbitration and Conciliation Act, 1996.
23 Section 29–B of the Arbitration and Conciliation Act, 1996.
24 Section 26 of the Arbitration and Conciliation Act, 1996.
25 Section 27 of the Arbitration and Conciliation Act, 1996.
26 Section 17 of the Arbitration and Conciliation Act, 1996.
27 Section 9 of the Arbitration and Conciliation Act, 1996.
28 Ashok Traders (see footnote 8).
29 Section 9 (2) of the Arbitration and Conciliation Act, 1996.
30 Section 9 (3) of the Arbitration and Conciliation Act, 1996.
31 Section 9 & Section 17 of the Arbitration and Conciliation Act, 1996.
32 ONGC v. Saw Pipes Ltd (2003) 5 SCC 705.
33 Section 36 of the Arbitration and Conciliation Act, 1996.
34 Section 48(1) of the Arbitration and Conciliation Act, 1996.
35 See footnote 16.
36 Section 47 of the Arbitration and Conciliation Act, 1996.
37 CS (COMM) 735/2018, judgment dated 19 February 2020.
38 (2016) 8 SCC 788.
39 The recognised examples of non-arbitrable disputes in this judgment are:
- disputes relating to rights and liabilities that give rise to or arise out of criminal offences;
- matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody;
- guardianship matters;
- insolvency and winding up matters;
- testamentary matters (grant of probate, letters of administration and succession certificate); and
- eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
40 (2011) 5 SCC 532.
41 Civil appeal No. 16850 of 2017 (Supreme Court).
42 (2011) 5 SCC 532.
43 Civil appeal No. 2402 of 2019.
44 A Ayyaswamy v. A Paravisam (2016) 10 SCC 386.
45 Centrotrade Minerals & Metals Inv v. Hindustand Copper AIR 2017 SC 185.
46 Imax Corporation v. M/s E- City Entertainment (I) Pvt Limited AIR 2017 SC 1372.
47 2013 (6) BCR 654 (reversed).
48 Comm Arbitration Petition (L) No. 208 of 2017 (Bombay High Court).
49 Civil appeal No. 8720 of 2017 (Supreme Court).