The International Arbitration Review: India


The Arbitration and Conciliation Act, 1996 (Act) provides the framework for arbitration and conciliation in India. Based on the UNCITRAL Model Law, it is divided into four parts as follows:

  1. Part 1 governs commercial arbitration;
  2. Part 2 governs the enforcement of certain foreign awards;
  3. Part 3 governs conciliation; and
  4. Part 4 contains supplementary provisions (regarding the power of the court to make rulings, etc.).

Recent amendments in 20162 and 20213 have been introduced to make the Act more robust.

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 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 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., criminal proceedings, matrimonial matters, insolvency matters and competition disputes).

It is mandatory for an arbitration agreement to be in writing (i.e., 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 It may be in the form of a clause in a contract or a separate agreement.

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 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:

  1. the Supreme Court of India is the highest court of appeal;
  2. 24 state high courts below the Supreme Court, some of which have ordinary original jurisdiction, and all exercise appellate jurisdiction over the orders of subordinate courts;
  3. 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
  4. 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 provided it is not an even number. 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:

  1. it was somehow incapacitated;
  2. the arbitration agreement was invalid under the law the parties had subjected it to or the applicable law, as the case may be;
  3. it was not given proper notice of the arbitration and appointment of the arbitrator, or was unable to present its case;
  4. 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;
  5. the composition of the tribunal or the procedure was not as agreed between the parties;
  6. the court finds that the substance of the disputes was not capable of being settled by arbitration; or
  7. 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 Ltd32 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

x Confidentiality

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.

The International Chamber of Commerce appointing its first regional director for South Asia, the Singapore International Arbitration Centre (SIAC) opening two representative offices in India and the London Centre for International Arbitration (LCIA) being extremely active and popular in India are all evidence of positive steps being taken by international arbitration institutions to invest in the Indian market, bringing about awareness of the benefits of institutional arbitration.

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 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 a much-needed, state of the art, arbitration facility as a venue to hold arbitrations.

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. Key amendments such as the widening of Indian High Courts' jurisdiction to aid foreign-seated arbitrations are a step in the right direction. However, these amendments are not without issues.

Adhering to stringent timelines has made finding an established arbitrator, especially in complex disputes such as those pertaining to the oil and gas and construction industries, to accept high-stake complex arbitrations in three-member tribunals has become increasingly challenging, as these individuals worry meeting the highly aggressive timelines stipulated in the amended Act, given their busy schedules and the recording of heavy evidence and expert testimony.

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 timeline 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 but draft rules governing the functioning of the ACI have been floated by the government, inviting comments on the same from various stakeholders. There is much scepticism among practitioners as to whether this will impede the arbitral process or make it more efficient. A lot will realistically depend upon how the ACI functions.

The central government has on 12 March 2021 notified the Arbitration and Conciliation (Amendment) Act, 2021 which operates retrospectively, having deemed to have come into force on 4 November 2020. The 2021 Amendment Act endeavours to make India the next International Arbitration hub and address the rise in corrupt practices in conclusion of contracts or grant of arbitral award vide its various amendments. These amendments, inter alia, include an immediate stay on an award if, on the face of it, it is found to be induced by fraud or corruption and the omission of the eighth schedule, which was introduced by the 2019 Amendment Act, containing the required qualifications and experience of a person to act as an arbitrator. The qualification and experience of an arbitrator is to now be governed by regulations as and when made and notified by the central government.

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.

Minimal interference with foreign arbitral awards

The enforcement of foreign arbitral awards is liable to be refused if the said award falls under any of the reasons set out in Section 48 of the Act. One such reason is if the court finds that the enforcement of the award is contrary to the public policy of India. The Supreme Court in the Vijay Karia37 case analysed what constitutes 'public policy of India' and in doing so held that to qualify as a conflict with the public policy of India, there must be a contravention of some legal principle or legislation that goes to the root of Indian law and shocks the conscience of the court. The Apex Court further held that there ought to be minimalistic interference with foreign awards and thus took a stance of pro-enforcement of such awards.

However, in a subsequent decision, the Supreme Court38 appears to have watered down the strict approach as laid down in Vijay Karia and as previously adopted by the courts before interfering with foreign awards. This case also interpreted the words 'public policy' in a broader sense, as opposed to its interpretation in Vijay Karia (which was in a narrower sense). It, thus, appears that the Apex Court's view has broadened Indian courts' scope in interfering with foreign arbitral awards as opposed to its previous practice of limited interference.

Period of limitation for filing an application to enforce a foreign award

Prior to the institution of any civil proceedings, the courts must be satisfied that the same fall within the period of limitation as prescribed by the Limitation Act, 1963. Petitions for the enforcement of foreign arbitral awards under Sections 47 and 49 of the Act are no exception. The Supreme Court in Government of India v. Vedanta Ltd. & Ors.39 recognising the varied views taken by the High Courts in India on the period of limitation applicable for filing of a petition for the enforcement of a foreign award, held that Article 137 of the Limitation Act, 1963 would apply as opposed to Article 136, which only deals with enforcement of decrees or orders passed by Indian courts. Thus, the period of limitation for filing a petition for the enforcement of a foreign award is three years from the date on which the right to apply accrues.

Indian parties are free to choose foreign law to govern arbitration agreement

The Delhi High Court40 has held that parties can choose foreign law to govern the arbitration agreement entered into by them. The court based its finding on the reasoning that three different sets of laws apply to foreign arbitrations and that an arbitration agreement is an independent contract between parties. The court thus held that because an arbitration agreement is independent from the substantive contract, governing only the dispute resolution mechanism of the parties thereto, it may be governed by its own law, which need not necessarily be Indian law.

Freedom of Indian parties to choose foreign seats

The High Court of Gujarat41 has held that where both parties are Indian, they may refer their disputes to arbitration having a foreign seat. The court based its finding on the reasoning that Section 28 (a) of the Act does not per se prohibit two Indian parties from designating a foreign court and vesting in it exclusive jurisdiction to govern arbitration proceedings conducted by a foreign seat. Thus, the court held that where the parties chose Zurich as a foreign seat, the same was not forbidden by any Indian laws and could neither be said to be contrary to the public policy of India. The court further held that it was immaterial of what nationality the parties were when seeking to enforce a foreign award under Part II of the Act.

When this case went to the Supreme Court in an appeal,42 the said Court in upholding the judgment of the Gujarat High Court held that Part II, which deals with enforcement of awards is mutually exclusive of Part I that deals with arbitration proceedings and thus Part I will not apply in international arbitrations. The Court clarified that 'international commercial arbitration' is to be read as an arbitration that takes places outside of India, thus, awards passed therein are enforceable under Section 10(1) of the Commercial Courts Act. The Court agreed with the Gujarat High Court's view that Section 28 (1) (a)43 of the Act44 makes no reference to arbitration between two Indian parties in a different county and cannot be construed so as to bar Indian parties from resolving their disputes in a foreign country. The Apex Court's decision thus cements the position that two Indian parties can choose foreign arbitration seats for settlement of their disputes.

Seat and venue

The Supreme Court45 in yet another dispute concerning the seat and venue of the arbitration, held that where the seat of such arbitration is sought to be changed, it may done on mutual agreement by the parties and recorded by the arbitrator on his or her award with no challenges made by either party in this regard. The Apex Court reiterating its stance taken in the BSG46 case, used 'seat' and 'venue' interchangeably and concluded that the courts in Ahmedabad, as opposed to Jaipur, would have exclusive jurisdiction, Ahmedabad being the new seat or venue of the arbitration.

Invoking the arbitration clause

In deciding the issue of whether an arbitration agreement subsisted pursuant to the supersession of the agreement in which the said arbitration clause was contained, the Delhi High Court in Sanjiv Prakash v. Seema Kukreja47 has held that the arbitration agreement stood rescinded and thus there was no existing arbitration agreement. The court in the course of its findings held that an arbitration agreement is a creature of an agreement that may be subsequently destroyed vide another agreement. Thus, an arbitration clause contained in a superseded contract stands terminated and thus cannot be said to be valid and existing to be enforced by the parties thereto.

However, where two related agreements contained two different arbitration clauses, the Supreme Court in Balasore Alloys Ltd. v. Medima LLC48 adopted the rule of harmonious construction and held that where both clauses can be harmonised, the courts must do so and reconcile the two clauses to achieve the true intention of the parties and apply the relevant arbitration clause. The Apex Court in its attempt to harmonise and reconcile the two clauses took into consideration the manner in which the arbitration clause was invoked and the nature of the dispute sought to be resolved. The Supreme Court thus adopted a pro-arbitration approach.

Emergency arbitrators

The ongoing feud between Amazon and Future Group has brought India's position on emergency arbitrators into the spotlight. Indian law does not expressly recognise emergency arbitrators but courts in the past have, in refusing to interfere with awards passed by such arbitrators, given a nod to their existence. The present case saw Amazon obtaining an emergency award under SIAC. Future, in turn, sought an injunction from the Delhi High Court against Amazon on the grounds that emergency awards are not enforceable in India. The Delhi High Court, in consonance with previous views of Indian courts, upheld the emergency award and held that an emergency arbitrator is an arbitrator within the four corners of the Arbitration and Conciliation Act, 1996. The court even went a step further and provided interim reliefs such as attachment of Future's assets. While this Order for the Single Judge was stayed by a Division Bench of the same court, the Supreme Court in Amazon's appeal against the order of stay of the Division Bench, upheld the order of the single judge. The Apex Court has currently stayed the dispute before the Delhi High Court and is subjudice. It is hoped that this case settles the ambiguity surrounding emergency arbitrators.

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:

  1. 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;
  2. the protection granted under the treaty would not apply to either tax laws or any action taken to enforce a tax obligation; and
  3. 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 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 case laws 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:

  1. 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;
  2. having not signed the ICSID Convention, India has not acceded to ouster of the jurisdiction of the domestic courts over BIT jurisdiction;
  3. there is no Indian legislation enacted to give effect to BITs; and
  4. 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

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, 2021.

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 Vijay Karia's case v. Prysmian Cavi E Sistemi SRL [2020 SCC OnLine SC 177].

38 National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A. (C.A. 667 of 2012).

39 (C.A.No. 3185 of 2020).

40 Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd. [CS (COMM) 286/2020 decided on 24 November 2020].

41 In GE Power Conversion Pvt. Ltd. v PASL Wind Solutions Ltd. (R/Petn. No. 131 of 2019 with R/Petn. No. 134 of 2019).

42 PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited [CA 1647 OF 2021].

43 (1) Where the place of arbitration is situate in India . . .

(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India.

44 Arbitration and Conciliation Act, 1996.

45 M/s. Inox Renewables Ltd. v. Jayesh Electricals Ltd. Judgement dated 13 April 2021 in Civil Appeal No. 1556 of 2021.

46 BSG SGS SOMA JV v. NHPC Limited (2020) 4 SCC 234 (BSG SGS). In the said case, the Supreme Court held that 'venue' of arbitration will be the 'seat' in the absence of any contrary intention of the parties to the arbitration.

47 2021 SCC OnLine 282.

48 2020 SCC OnLine SC 743.

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