KIIT SCHOOL OF LAW

India's Arbitration Act: The Unfinished Business

SUBJECT: International Commercial Arbitration

SUBMITTED BY:
VARSHA SHARMA(1282119)
5th Year (9thSemester)
B.B.A LLB (B)

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Index

Introduction........................................................................................................................05
Indian Arbitration Regime..................................................................................................07
The Battle Continues..........................................................................................................09
Arbitration Ordinance........................................................................................................12
Emerging Issues in Indian Arbitration Laws.....................................................................15
Critical Analysis.................................................................................................................17
Bibliography......................................................................................................................18
References.........................................................................................................................19

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RESEARCH METHODOLOGY

Analytical and descriptive type of research methodology has been used to

make this project. Secondary source such as law books and internet is used.
Footnotes are provided wherever necessary to mention the citations of the case
citied.

OBJECTIVES

a. To understand the basic concepts of "India's Arbitration Act: The Unfinished

Business"
b. To analyze and describe the impact and effect of "Indian Arbitration Act,
1996"

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ACKNOWLEDGEMENT

Every project big or small is successful largely due to the effort of a number of wonderful
people who have always given their valuable advice or lent a helping hand. I sincerely
appreciate the inspiration; support and guidance of all those people who have been
instrumental in making this project a success.
I am extremely grateful to Mr .Sthita Prajna Mohanty for the confidence bestowed in me
and entrusting my project entitled . also extend my gratitude to my Project Guide to mam
who assisted me in compiling the project.
At this juncture I feel deeply honored in expressing my sincere thanks to Director N.K.
Chakraborty for making the resources available at right time and providing valuable insights
leading to the successful completion of my project.
I would also like to thank for providing all necessary documents and other resources
necessary for completion of the work assigned.
Last but not the least I place a deep sense of gratitude to my family members and my friends
who have been constant source of inspiration during the preparation of this project work.

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INTRODUCTION
Increasing international trade and investment is accompanied by growth in cross-border
commercial disputes. Given the need for an efficient dispute resolution mechanism,
international arbitration has emerged as the preferred option for resolving cross-border
commercial disputes and preserving business relationships. With an influx of foreign
investments, overseas commercial transactions, and open ended economic policies acting as a
catalyst, international commercial disputes involving India are steadily rising. This has drawn
tremendous focus from the international community on Indias international arbitration
regime. Due to certain controversial decisions by the Indian judiciary in the last decade,
particularly in cases involving a foreign party, the international community has kept a close
watch on the development of arbitration laws in India. The Indian judiciary has often been
criticized for its interference in international arbitrations and extra territorial application of
domestic laws to foreign seated arbitrations. . However, the latest developments in the
arbitration jurisprudence through recent court decisions clearly reflect the support of the
judiciary in enabling India to adopt international best practices. Courts have adopted a proarbitration approach and a series of pro-arbitration rulings by the Supreme Court of India
(Supreme Court) and High Courts have attempted to change the arbitration landscape
completely in India. From 2012 to 2015, the Supreme Court delivered various landmark rulings
taking a much needed pro-arbitration approach such as declaring the Indian arbitration law to be
seat-centric; removing the Indian judiciarys power to interfere with arbitrations seated outside
India; referring non-signatories to an arbitration agreement to settle disputes through arbitration;
defining the scope of public policy in foreign-seated arbitration; and determining that even fraud
is arbitrable. In furtherance of measures taken by the Indian government in support of the ease of
doing business in India, and after two aborted attempts in 2001 and 2010 to amend the
arbitration law, on October 23, 2015, the President of India promulgated the Arbitration and
Conciliation (Amendment) Ordinance, 2015 (Ordinance).

The Ordinance incorporated the essence of major rulings passed in the last two decades, as
well as most of the recommendations of 246th Law Commission Report, and have clarified
the major controversies that arose in recent years. Thereafter, on December 17, 2015 and
December 23, 2015 respectively, the Arbitration and Conciliation (Amendment) Bill, 2015
(Bill) was passed by the Lok Sabha and Rajya Sabha respectively, with minor additions to
the amendments introduced by the Ordinance. On December 31, 2015, the President of India
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signed the Bill and thereafter, gazette notification was made on January 1, 2016.
Accordingly, the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act)
came into effect, from October 23, 2015. The Amendment Act is applicable prospectively to
the arbitral proceedings commenced after October 23, 2015. This paper aims to summarize
the position of Indian law on international commercial arbitration (ICA) both seated within
and outside India and discusses the recent judicial decisions in this field. The changes
introduced by the Amendment Act are a step in the right direction in ensuring that India
moves towards being an arbitration friendly nation. This paper also highlights the potential
obstacles faced by parties who are governed by the Act, with the new law in place.

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.Indian Arbitration Regime

I. History of Arbitration in India Until the Arbitration and Conciliation Act, 1996
(Act):
The law governing arbitration in India consisted mainly of three statutes:
i. The Arbitration (Protocol and Convention) Act, 1937 (1937 Act)
ii. The Indian Arbitration Act, 1940 (1940 Act) and
iii. The Foreign Awards (Recognition and Enforcement) Act, 1961 (1961 Act)
The 1940 Act was the general law governing arbitration in India and resembled the English
Arbitration Act of 1934.
II. Background to the Arbitration and Conciliation Act, 1996 :
To address these concerns and with a primary purpose to encourage arbitration as a costeffective and time-efficient mechanism for the settlement of commercial disputes in the
national and international sphere, India in 1996, adopted a new legislation modelled on the
Model Law in the form of the Arbitration and Conciliation Act, 1996 (Act). The Act was
also brought in to provide a speedy and efficacious dispute resolution mechanism to the
existing judicial system which was marred with inordinate delays and a backlog of cases.
III. Scheme of the Act:
The Act has three significant parts. Part I of the Act deals with domestic arbitrations and ICA
when the arbitration is seated in India. Thus, an arbitration seated in India between one
foreign party and an Indian party, though defined as ICA is treated akin to a domestic
arbitration.
Part II of the Act deals only with foreign awards1 and enforcement under the Convention on
1

the Recognition and Enforcement of Foreign Arbitral Awards, 1958 , or Convention on the
Execution of Foreign Arbitral Awards, 1927.

1
2

New York Convention

Geneva Convention.

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Part III of the Act is a statutory embodiment of conciliation provisions.

In Part I, Section 8 regulates the commencement of arbitration in India, Sections 3, 4, 5, 6, 10
to 26, and 28 to 33 regulate the conduct of arbitration, Section 34 regulates the challenge to
the award and Sections 35, and 36 regulate the recognition and enforcement of the award.
Sections 1, 2, 7, 9, 27, 37, and 38 to 43 are ancillary provisions that either support the arbitral
process or are structurally necessary. The courts have found that Chapters III to VI,
specifically. Section 10 to 33 of Part 1 of the Act, contain curial or procedural law which
parties would have autonomy to opt out from. The other Chapters of Part I of the Act form
part of the proper law , thus making those provisions non-derogable by parties subjected to
Part I, even by contract. Part II, on the other hand regulates arbitration only in respect to the
commencement and recognition /enforcement of a foreign award and no provisions under the
same can be derogated by a contract between two parties.
The objective of the Act is to provide a speedy and cost-effective dispute resolution
mechanism which would give parties finality in their disputes. In 1996, the Act was passed
with a view to bring in winds of change, but fell into a chasm of its own. A number of
decisions from the courts slowly but surely ensured that the preferred seat in any cross-border
contract was always a heavily negotiated point and, more often than not, ended up being
either Singapore, New York, or London, the established global arbitration centres. Foreign
investors and corporates doing business in India were just not ready to risk the Indian legal
system.

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The Battle Continues

Arbitration is sought-after as a private, faster and cheaper means of dispute settlement.
However, excessive and unpredictable court intervention has rendered the Indian arbitration
regime unreliable. With the amendments in place, the Act has expressly prohibited a review
on merits under fundamental policies of Indian law or patent illegality. While this proves
to be a welcome move, there still remains ambiguity in what these expressions entail. The
three-pronged approach to the interpretation of fundamental policy of Indian law prescribed
in Western Geco leaves little understanding of how judges will determine whether the tribunal
applied a judicial approach or whether the award is reasonable, especially in light of the
prohibition on a review on merits. The Act has ensured a minimal standard of protection by
preventing such review, but the building blocks of conflict with public policy remain
undefined. Further, another judicial bench may very well alter the approach in Western Geco
and expand or narrow down the meaning of the fundamental policies of Indian law. It may
also be pertinent to consider how appropriate it is to draw principles of administrative law
into arbitration and to what extent it may be permissible. The same question has been
answered in the negative in Singapore in Sui Southern Gas Co Ltd v Habibullah Coastal
3

Power Co (Pte) Ltd , where the Wednesbury principle was categorically rejected as a matter
of principle and authority by the court as a ground for review of awards. The Court observed
that there was no appropriate analogy to draw between administrative and arbitral decisions.
The former is subject to judicial scrutiny on the Wednesbury principle because it is presumed
that when the Parliament gives an administrative decision-maker some discretion, it will be
exercised reasonably. In contrast, parties to an arbitration contractually agree to abide by the
decision of the tribunal and consent to the finality of the award. Further, even if the award is
so unreasonable as to be perverse, it will still be an examination of the error of law or fact.
The Court however, cannot sit in appeal on a final and binding arbitral award. Thus, an import
of administrative law principles into public policy, and in particular, the Wednesbury principle
may be questionable.

3
[2010] SGHC 62
4 Associated Provincial Picture Houses Ltd. v Wednesbury Corporation [1948] 1 KB 223 is an English law case
that sets out the standard of unreasonableness of public-body decisions that would make them liable to be
quashed on judicial review, known as Wednesbury unreasonableness.

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The unpredictability of the Indian arbitration regime has been especially cumbersome for
international businesses who fail to have any clarity and assurance of dispute settlement here.
Excessive judicial intervention reduces trust in arbitration as a system of adjudication within
India and abroad, and the legislature must take more responsibility in setting clear outlines to
the expressions devised by the judiciary. Until then, the public policy of India remains to
some extent, a threatening dark sea in Indian arbitration.

Therefore on 23 October 2015, the President of India enacted an Ordinance that significantly
revises the 1996 Indian Arbitration and Conciliation Act (the Act). The goal of the
Ordinance is to improve the efficiency and reliability of arbitration as a private disputeresolution mechanism in India. Among other things, it imposes strict time limits on when
arbitrations must be concluded, limits court involvement (including with respect to
jurisdictional issues), and allows parties to non-Indian seated arbitrations to obtain interim
relief from Indian courts.
The Ordinance reflects many of the recommendations contained in a 2014 report by the Law
1

Commission of India that sought to address perceived inadequacies in the Act. While the
Ordinance came into immediate effect, Parliament must approve the Ordinance during its
winter session or the Ordinance will cease to have effect.
Key elements of the Ordinance are :
I. Efforts to Increase the Speed and Efficiency of Arbitral Procedures in Indian-Seated
Arbitrations
Strict time limits for the arbitral tribunal to render a final award.
Fast-track arbitration
Limits on hearing adjournments
II. Limited Judicial Intervention
Limits on the courts authority to grant interim relief following the constitution
of an arbitral tribunal.
A new process for court appointment of arbitrators where a party fails to do.
Standard of review for applications for referral to arbitration.
5 http://indiacorplaw.blogspot.in/2016/07/guest-post-public-policy-of-india-and.html:
22.09.2016 at 20:30 pm.

last

visited

on

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III. Limited Scope of Public Policy

IV. Arbitrator Challenges
V. Other Noteworthy Amendments to the Act
Judicial assistance with respect to foreign-seated arbitrations.
No automatic stay on enforcement pending a courts resolution of a set-aside
application.
Enforceability of arbitral tribunals interim measures orders.
Loser pays approach to costs.
Schedule of tribunal fees.

6 https://www.wilmerhale.com/pages/publicationsandnewsdetail.aspx?NewsPubId=17179880117: last visited

on 22.09.2016 at 18:08 pm

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Despite some significant deviations, the Arbitration Ordinance is largely based on the
recommendations of the 246th Report of the Law Commission of India. Many of the changes
are welcome and can provide a significant impetus to improving the culture of arbitration in
India. If implemented purposively, these amendments will serve to make arbitration in India
more efficient and better aligned with international standards.

Important omissions after Arbitration Ordinance was observed:

Enforcement of emergency arbitrator decisions: The Law Commissions Report

recommended that express provisions must be inserted in the Arbitration Act to facilitate
decisions made by emergency arbitrators. The Arbitration Ordinance does not, however,
contain provisions to give effect to this recommendation. This is an important omission that
requires fixing. Emergency arbitrator provisions are now to be found in arbitration rules of
most of the established international arbitral institutions and they have also been widely used
in arbitrations involving Indian parties. Modern arbitration statutes across the world contain
specific provisions to enforce decisions of emergency arbitrators and it is essential that India
adopt the same approach in modernising its arbitration law and making it state-of-the-art.

No time limit for enforcement of foreign arbitral awards: The amendment to section 34
requires a court to decide a challenge to a domestic award within a one year timeframe.
However, quite inexplicably, the Arbitration Ordinance has not specified a corresponding
timeline for the enforcement of foreign arbitral awards. Against the backdrop of the White
Industries decision (where India was held to be in breach of its BIT obligations for the failure
of its courts to enforce a foreign arbitration award within a reasonable timeframe), this
omission is indeed baffling and requires to be corrected urgently.

Confidentiality: Confidentiality is often cited as one of the important perceived advantages of

arbitration over litigation, and commercial parties will often opt for arbitration in order to
7

After two aborted attempts, in 2001 and 2010 (surveyed here), the Arbitration and Conciliation Act
1996 (the
Arbitration Act) has finally been amended. On 23 October 2015, the President of India promulgated an
ordinance (the Arbitration Ordinance) to bring into force a number of amendments to the Arbitration Act.

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keep the details of their dispute private. In India, confidentiality of proceedings is not
expressly recognised or provided for in the Arbitration Act and this is an important omission
in the statute In this regard, it would be useful to derive guidance from the LCIA Arbitration
Rules and insert a provision along the following lines into the 1996 Act:

The parties shall be required as a general principle to keep confidential all awards
in the arbitration, together with all materials in the arbitration created for the
purpose of the arbitration and all other documents produced by another party in the
proceedings not otherwise in the public domain, save and to the extent that disclosure
may be required of a party by legal duty, to protect or pursue a legal right, or to
enforce or challenge an award in legal proceedings before a state court or other legal
authority.

It is also possible, in circumstances where an award is challenged before the courts, that nonparties may access the award and relevant documents produced in the arbitration. A potential
breach of confidentiality in these circumstances can be prevented by inserting a provision to
the following effect:

An arbitral award or awards, or any materials created for the purpose of the
arbitration and all other documents produced by another party in the proceedings not
otherwise in the public domain that are filed in court may only be inspected with the
express permission of the court.

Failure to address the notification hurdle to enforcement of foreign arbitral awards: In

acceding to the New York Convention, India has made the reciprocity reservation, whereby
India will only recognise and enforce arbitration awards made in another New York
Convention State. However, the manner in which India has implemented the reciprocity
reservation is not in line with the provisions of the New York Convention. Section 44 of the
Arbitration Act imposes a two-fold requirement for the enforcement of foreign arbitral awards
in requiring that :

(i) the award be made in a reciprocating country; and

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(ii) the reciprocating country must be declared as such by the Central Government by
notification in the Official Gazette.

Therefore, even if a country is a signatory to the NY Convention, this does not necessarily
mean that an award made in that country would be automatically enforceable in India. The
language of Section 44 seems to indicate that the award would only be enforceable if the
country has been notified by the Central Government as a country to which the NY
Convention applies. Only around 50 countries have been so notified by the Central
Government thus far.

The second condition is not one that is permitted under the New York Convention. Therefore,
in order to prevent a situation where Indian is held to be in breach of its international law
obligations, it is necessary that section 44 be amended by simply deleting the notification
requirement.

Failure to clarify if the amendments will operate prospectively or retrospectively: Whether,

and how, the amendments will affect arbitration agreements entered into prior to 23 October
2015, arbitral proceedings and court actions is a crucial area which has been left substantially
unaddressed by the Arbitration Ordinance. This is a topic which requires detailed treatment in
itself and will be the subject matter of a future piece on this website.

8 http://barandbench.com/when-good-intentions-are-not-good-enough-the-arbitration-ordinance-inindia/:last visited on 22.08.2016 at 16:46 pm

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Emerging Issues in Indian Arbitration Laws

In the recent past, there has been a lot of enthusiasm on some of the emerging issues
concerning the arbitration laws in India, such as
(a) prospective applicability of the Amendment Act;
(b) whether two Indian parties can chose a foreign seat of arbitration;
(c) whether it is possible to arbitrate a dispute arising over allegations of oppression and
mismanagement.
I. Prospective applicability of the amendment act Recently, the Madras High Court in New
Tripura Area Development Corporation Limited v. M/s. Hindustan Construction Co. Ltd. &
9

Ors. , has ruled that the language used in the Section 26 of the Amendment Act only refers to
arbitral proceedings and not court proceedings due to deletion of the language in relation
to. Section 26 of the Amendment Act is not applicable to the stage post arbitral proceedings.
However, the Calcutta High Court in Electrosteel Castings Limited v. Reacon Engineers
(India) Private Ltd.

10

has given a contrary view, and held that the Amendment Act will not

apply and Section 34 petitions in case of arbitration proceedings commenced prior to October
23, 2015, would act as automatic stay.
II. Conundrum surrounding two indian parties having a foreign seat of arbitration Even
though this issue has been addressed by a number of High Courts in the past, there is still no
clarity on ability of two Indian parties to choose a foreign seat of arbitration. In Addhar
11

Mercantile Private Limited v. Shree Jagdamba Agrico Exports 95 . Judgment in

12

Arbitration . Pvt. Ltd., the Bombay High Court expressed a view that two Indian parties
choosing a foreign seat and a foreign law governing the arbitration agreement could be
considered to be opposed to public policy of the country. Recently, in the case of Sasan Power
Ltd v. North America Coal Corporation India Pvt. Ltd. , the Madhya Pradesh High Court
opined that two Indian parties may conduct arbitration in a foreign seat under English law.
The Madhya Pradesh High Court primarily relied on the ruling in the case of Atlas Exports
Industries v. Kotak & Company, wherein the Supreme Court ruled that two Indian parties
could contract to have a foreign-seated arbitration; although, the judgment was in
9
10
11
12

Application No. 7674 of 2015 in O.P. No. 931 of 2015

Judgment in Arbitration Petition No. 1710/2015 dated January 14, 2016.
Application No. 7674 of 2015 in O.P. No. 931 of 2015 96
Arbitration Petition No. 1710/2015 dated January 14, 2016

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context of the 1940 Arbitration Act. An appeal has been filed challenging this decision and is
pending adjudication before the Supreme Court. However, one must be wary of the ruling in
TDM Infrastructure, wherein the court ruled that two Indian parties could not derogate from
Indian law by agreeing to conduct arbitration with a foreign seat and a foreign law.
III. Arbitrability of oppression and mismanagement cases :
A landmark judgment on this issue was delivered by the Bombay High Court in Rakesh
Malhotra v. Rajinder Kumar Malhotra, wherein the court held that disputes regarding
oppression and mismanagement

13

cannot be arbitrated, and must be adjudicated upon by the

judicial authority itself. However, in case the judicial authority finds that the petition is mala
fide or vexatious and is an attempt to avoid an arbitration clause, the dispute must be referred
to arbitration. Arguably, this could have an unintended impact on the prima facie standard in
section 8, as amended and introduced by the Amendment Act. The Bombay High Court
opined that a petition under Sections 397 and 398 of the Companies Act, 1953 may comprise
of conduct of clandestine non-contractual actions that result in the mismanagement of the
companys affairs or in the oppression of the minority shareholders, or both. In such cases,
even if there is an arbitration agreement, it is not necessary that every single act must, ipso
facto, relate to that arbitration agreement. Further, the fact that the dispute might affect rights
of third parties who are not party to the arbitration agreement renders such disputes nonarbitrable. In addition to the above emerging issues, please find enclosed Annexure
containing detailed list of our hotlines which cover the analysis of the recent judgments and
issues faced in the arbitration regime in India.

13
14

14

Rakesh
Malhotra
v.
Rajinder
Kumar
Malhotra,
(2015)
2
CompLJ
288
(Bom).
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/International_Commercial_Arbi

tration.pdf: last visited on 23.09.2016 at 02:04am

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Critical Analysis
A fast-growing economy requires a reliable stable dispute resolution process in order to be
able to attract foreign investment. With the extreme backlog before Indian courts, commercial
players in India and abroad have developed a strong preference to resolve disputes via
arbitration. In spite of India being one of the original signatories of the New York
Convention, arbitration in India has not always kept up with international best practices.
However, the last five years have seen a significant positive change in approach. Courts and
legislators have acted with a view to bringing Indian arbitration law in line with international
practice. With the pro-arbitration approach of the courts and the Amendment Act in place,
there is cause to look forward to best practices being adopted in Indian arbitration law in the
near future. Exciting times are ahead for Indian arbitration jurisprudence and our courts are
ready to take on several matters dealing with the interpretation of the Amendment Act.

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BIBLIOGRAPHY:

Statute referred:
The Companies Act, 1953.
The Indian Arbitration Act,1996.

Ordinance:
Indian Arbitration Act Ordinance, 2015.

Links:
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Interna
tional_Commercial_Arbitration.pdf
https://www.wilmerhale.com/pages/publicationsandnewsdetail.aspx?NewsPubId=171
79880117
http://barandbench.com/when-good-intentions-are-not-good-enough-the-arbitrationordinance-in-india/
http://www.ficci-arbitration.com/htm/acts.pdf
http://indiacorplaw.blogspot.in/2016/07/guest-post-public-policy-of-india-and.html

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REFERENCES:

Links:
http://www.mondaq.com/india/x/494184/Arbitration+Dispute+Resolution/Critical+A
nalysis+Of+The+Arbitration+And+Conciliation+Amendment+Act+2015
http://www.kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf
http://kluwerarbitrationblog.com/2015/11/06/arbitration-in-india-a-new-beginning/
http://globalarbitrationreview.com/insight/the-asia-pacific-arbitration-review2017/1036993/india
http://thefirm.moneycontrol.com/story_page.php?autono=3794361
http://www.icaindia.co.in/icanet/judgment.htm
http://www.legalservicesindia.com/article/article/arbitral-award-its-challenge-&enforcement-433-1.html
http://www.naavi.org/wp/?p=4143
http://www.chambersandpartners.com/guide/practice-guides/location/265/7771/2060200

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