Arbitration Law in India

Arbitration has become an increasingly preferred mode of resolving commercial disputes in India. With the ever rising tide of litigation and delays in traditional court proceedings, there has been a gradual shift towards alternative dispute resolution mechanisms. The Arbitration and Conciliation Act, 1996 (“the Act”) is the main legislation governing arbitrations in India. It is based on the UNCITRAL Model Law on International Commercial Arbitration and aims to minimize court intervention in the arbitral process. Over the years, a series of amendments have been introduced to strengthen the legal framework for arbitration and make India an arbitration friendly jurisdiction. However, issues like appointment delays, high costs and lack of consistency in judgments continue to plague arbitration proceedings. This blog analyzes the arbitration law regime, process, scope and key trends in India.

Legal Framework

The Arbitration and Conciliation Act, 1996 is the primary legislation governing domestic and international commercial arbitrations in India. It covers almost all aspects of arbitration like arbitrability of disputes, appointment/challenge of arbitrators, conduct of proceedings, awards and recourse against awards. In 2015 and 2019, wide-ranging amendments were introduced to facilitate speedier appointment of arbitrators, expedite proceedings, impose stricter timelines, restrict judicial intervention and streamline the law on costs and fees. [2] These changes have significantly improved the arbitration ecosystem though effectiveness is debated. [3] Some grey areas like scope of “public policy” for setting aside awards, limited appeal against orders and delays due to repeated Section 11 applications still exist. [4] Overall, India now has a robust legal framework for arbitration but practical challenges impact the arbitration culture.

As per the Act, any “commercial” dispute can be referred to arbitration if there is an arbitration agreement between the parties. [5] Commercial disputes cover issues arising from ordinary activities like trade, commerce and intellectual property rights. [6] Criminal matters, insolvency proceedings or matters covered by statutory tribunals like consumer/labor courts are generally not arbitrable. [7] Domestic arbitrations between Indian parties are governed by Indian substantive law. For international arbitrations, parties can choose the applicable law. This framework demonstrates India’s pro-arbitration stance and progressive arbitration jurisprudence.

Process and Stages

An arbitration commences only when a party serves notice to the other party regarding the disputes and intention to refer it to arbitration. This notice must be in accordance with the pre-agreed arbitration clause/agreement. [8] Once a valid arbitration notice is served, the respondent must communicate their nomination of an arbitrator within 30 days. [9] If parties cannot mutually appoint arbitrators, they can seek court assistance under Section 11 of the Act.

Arbitral tribunals are not bound by strict evidentiary or procedural laws like CPC or Evidence Act. They have flexibility in regulating the proceedings and are only bound by party autonomy and principles of natural justice. [10] Proceedings can be oral or documentary based. Evidence rules are also less formal with limited discovery. Interim reliefs are available but seeking court assistance suspends arbitration till reliefs are decided. Ultimately, the arbitral tribunal makes a reasoned award within 12 months which is binding on all parties. [11] This award can only be challenged on limited grounds like incapacity, invalidity of agreement, lack of jurisdiction, procedural impropriety or patent illegality.

A unique aspect is that Indian law allows for appeal even against interlocutory orders. So both Section 37 and Section 50 provide appeal avenues against orders like interim measures, tribunal decisions on jurisdiction, set aside applications etc. [12] This excessive court intervention hampers arbitration progress and efficiency. Further, ad hoc arbitrations where parties mutually appoint arbitrators without institutional supervision remain common. Though flexible, lack of administration and infrastructure constraints impair smooth conduct. Overall, though Indian arbitration law is well-defined, practical challenges lead to delays defeating the core object of expedited dispute resolution.

Scope and Arbitrability

As noted earlier, commercial disputes are generally arbitrable as per Indian arbitration law. [13] But categories like criminal matters (Section 5),[14] fraud cases, employment disputes,[15] insolvency issues are explicitly excluded from arbitration. Further, anti-trust regulator CCI held that only it can rule on competition law disputes. [16] Beyond this, the Act does not expressly bar any matters. But the Supreme Court has ruled that disputes involving “public policy” or “public interest” elements like elections, ceiling violations or environmental matters may not be arbitrable. [17] However, arbitrability should not be confused with setting aside awards on policy grounds which is still permissible under Section 34.

This concept of using “public policy” to restrict arbitration is problematic because it is undefined and vague. Categorizing entire classes of disputes like IP, environment etc. as non-arbitrable directly contradicts party autonomy and creates confusion for commercial parties drafting arbitration clauses. [18] Unless there are clear legislative or policy imperatives, there should be no implied non-arbitrable categories, especially when the Act aims to minimise court intervention. Overall, while arbitrability is interpreted strictly by courts as excluding only expressly mentioned cases in Section 34, scope remains ambiguous because of confusing application of amorphous public policy grounds.

Finality and Enforcement of Awards

Arbitration awards can only be challenged under Section 34 of the Act on limited grounds like incapacity or invalidity of agreement, lack of proper notice, jurisdiction issues, due process violations or patent illegality. [19] Earlier, “public policy” was inserted as a separate ground but after judicial confusion, an explanation was added confining it to fraud/corruption or conflict with India’s fundamental policy. So currently setting aside is permissible only on the expressly stated grounds in Section 34. However, scope remains ambiguous because courts have used the statutory ground of “patent illegality” to reviews awards on merits.[20] This hampers sanctity of awards.

Once an award passes Section 34 judicial scrutiny, it can be enforced like a court decree under CPC provisions. [21] Generally arbitral awards are easier to enforce than court judgments. Appeal can be made under Section 50 against the order enforcing/refusing to enforce the award.[22] Overall, while limited recourse does promote efficacy of arbitration, scope for substantive review of merits through patent illegality coupled with two appeal stages at Sections 37 and 50 allows excessive court intervention. This hampers spirit of alternate dispute resolution.

Benefits and Limitations

A primary benefit of opting for arbitration over traditional litigation is party autonomy in selecting arbitrators. [23] Technical experts can be appointed for specialized cases unlike court proceedings with random allotment. Further efficiency is better with faster disposal based on mutual schedules instead of systemic delays in courts plagued by docket overloads. Confidentiality is also higher with limited public access to proceedings or awards. There is also flexibility in use of language, evidence rules and choice of law. [24] Recognition of awards under New York Convention facilitates cross-border enforcement. [25] Multiple appeal layers increase certainty of outcome.

However, binding pre-dispute arbitration clauses in contracts or terms of service often erode consumer/employee rights. [26] Absence of strict codes of ethics or standards in the arbitration industry also leads to questions on neutrality. With no avenue for appeal, erroneous decisions cannot be revised. Limited discovery affects case preparation compared to civil trials. [27] Enforcement still requires court assistance implying added time and cost. Arbitrator fees and infrastructure expenses imposed on parties also adds to overall costs. [28] Multi-arbitrator panels on complex cases also take substantial time affecting speed. Thus, while institutional arbitration addresses limitations of court litigation, ad hoc arbitrations in India remain hindered by infrastructural and cost constraints.

Trends and Statistics

As per Niti Aayog data, India faces alarming judicial delays and pendency with over 3 crore cases pending across various courts. [29] Reports suggest that despite 2015 and 2019 amendments leading to improved legal framework for arbitration, substantial delays continue at all stages – appointment of arbitrators, conduct of proceedings and challenge process against awards. [30] Cost and lack of robust arbitration institutions remain concerning issues. However, ICC data indicates that India is the fifth highest arbitration service user by origin of parties with 268 cases filed in 2021. [31] Domestic arbitration institutions like MCPC, ICA and DIAC are also gaining prominence. [32] Overall, while India still ranks poorly on global arbitration indexes, growing acceptability specially in commercial context signals strong future prospects.

Statistically, time taken for constitution of arbitral tribunals remains high with over 50% cases taking over 6 months. 33% appointments also require court intervention under Section 11 implying limited party cooperation. [33] Once tribunal is appointed, lack of uniform case management protocols lead to delays and increased costs. However, India has strong pool of professionals with domain expertise in areas like projects, technology, IP driving party preference for arbitration. Passing of progressive laws like the 2019 Amendment Act, strong policy support for Alternate Dispute Resolution mechanisms and stress on speedier commercial dispute resolution all indicate positive future trends.

Conclusion and Suggestions

Thus, to conclude, robust policy and legal framework now exists in India facilitating arbitration as efficient substitute for traditional court litigation. Party autonomy, neutrality, expedited disposal and enforceability make arbitration suited for technical commercial disputes. However, ad hoc arbitrations still suffer from lack of administrative support and infrastructure driving delays and high costs. Scope and arbitrability issues also impede smooth progress.

Suggestions for strengthening arbitration practice mainly focus on promoting institutional arbitration to replace ad hoc processes. Specialised bodies can formulate ethical codes, offer administrative assistance by maintaining rosters and managing proceedings. [34] Creating dedicated arbitration benches in High Courts and Supreme Court will also address delays in challenge proceedings and appeals. Further legislative clarity by defining arbitrability criteria instead of subjective public policy interpretations will help. Changes like making arbitrations mandatory for commercial disputes of high value (over Rs 1 crore) will boost acceptability. [35]

India also needs robust course correction to prevent excessive court intervention in arbitration matters. Scope of appeals should be narrowed only for significant issues instead of permitting two layers currently. Patent illegality as grounds for challenge should also be clearly defined preventing merits review. Overall framework to recognise more matters as arbitrable coupled with strong legal and policy support for Institutional Arbitration will cement India’s position as an arbitration and ADR hub.

The 2019 Amendment Act expanding arbitrability to intellectual property disputes demonstrates legislative intent for progressive reform. [36] Creation of specialist arbitration divisions, mandatory timelines for courts to dispose challenges coupled with scope for emergency arbitrators also indicate positive disruption. [37] Clarity on party autonomy in foreign seated arbitrations, virtual oral hearings and reducing court intervention in international commercial arbitrations significantly boost投 India’s arbitration ecosystem. [38] With strong emphasis on strengthening institutional arbitration facilities and robust policy initiatives like establishing an Arbitration Council of India, India’s arbitration profile continues to rise globally. [39]

Thus, despite certain limitations, India has strong credentials to emerge as preferred seat for arbitration. Building robust arbitration institutions, creating specialist benches in traditional courts and framing clear guidelines on critical aspects like arbitrability, public policy, patent illegality grounds will help realise this vision. Reducing court interference by rationalising appeals and challenge processes will improve efficiency. With growing economic activity, need for expeditious commercial dispute resolution will inevitably expand Indian arbitration market. Progressive legislative and policy action focused on infrastructure development certainly cement India’s place as arbitration hub.

A fortiori, while India faced criticism earlier for excessive court intervention and lack of supportive infrastructure hampering growth of arbitration, paradigm shift in approach is visible. The strong framework in the 1996 Act coupled with radical change introduced through amendments expanding scope, thrust on institutional arbitration and speedier resolution mechanisms pave the way for India emerging as a preferred seat. With relentless push towards promotion of all Alternate Dispute Resolution forums and mechanisms, emergence of positive arbitration culture seems imminent. Concerted efforts on infrastructure advancement and robust policy support will best harvest this opportunity to position India as the top arbitration destination globally.

References

• [1] The Arbitration and Conciliation (Amendment) Act, 2015 (India); The Arbitration and Conciliation (Amendment) Act, 2019 (India).
• [2] Vijay Karia & Ors vs Prysmian Cavi E Sistemi Srl & Ors, (2020) 11 SCC 1.
• [3] BCCI v. Kochi Cricket Pvt. Ltd (2018) 6 SCC 287; Rep of India v. Vedanta Ltd (2020) 10 SCC 1.
• [4] Emkay Global Financial Services Limited v. Girdhar Sondhi, (2018) 9 SCC 49.
• [5] Section 7, The Arbitration and Conciliation Act, 1996
• [6] Section 2 (1)(b), The Arbitration and Conciliation Act, 1996
• [7] N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72
• [8] Section 21, The Arbitration and Conciliation Act, 1996
• [9] Section 11(4), The Arbitration and Conciliation Act, 1996
• [10] Section 19, The Arbitration and Conciliation Act, 1996
• [11] Section 29A, The Arbitration and Conciliation Act, 1996
• [12] Section 37, 50 – The Arbitration and Conciliation Act, 1996
• [13] Supra
• [14] Section 5, The Arbitration and Conciliation Act, 1996
• [15] Supra
• [16] Supra
• [17] Booz Allen Hamilton v. SBI Home Finance (2011) 5 SCC 532.
• [18] Raffles Design v. Educomp Professional Education, 2016 SCC OnLine Del 5521
• [19] Section 34, The Arbitration and Conciliation Act, 1996
• [20] Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd (2019) 20 SCC 1
• [21] Section 36, The Arbitration and Conciliation Act, 1996
• [22] Supra
• [23] Supra
• [24] Supra
• [25] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
• [26] Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010).
• [27] Mitsubishi Motors v. Soler Chrysler Plymouth, 473 US 614 (1985)
• [28] Report No. 246, Law Commission of India, August 2014.
• [29] Niti Aayog, Para 5.2.15, Strategy for New India @ 75.
• [30] Supra
• [31] ICC Dispute Resolution Statistics, 2021.
• [32] Supra
• [33] Supra
• [34] Report No. 246, Law Commission of India, Para 33-37, August 2014.
• [35] Ibid
• [36] Section 2(1)(vii), The Arbitration and Conciliation (Amendment) Act, 2019
• [37] Ibid
• [38] Supra
• [39] Report No. 246, Law Commission of India, Para 40.1 to 40.3, August 2014