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This article is written by Pooja Bhardwaj.

Supreme Court precedents with respect to the Arbitration & Conciliation Act 

There is a consensus in the business community that arbitration is the principal method of resolving commercial disputes & this has led the arbitral process to distance itself from the risk of domestic judicial parochialism.

Bhatia Internationals v. Bulk Trading S.A.3 (‘Bhatia International’)

In Bhatia International, SC ruled that Part-I of the Act should extend to international commercial arbitration carried out outside India (‘outside arbitration’), though parties could explicitly or impliedly preclude the applicability of Part- The Court concluded that the following issues would occur if Part-I were considered to be inapplicable to these arbitrations:

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  1. There will be no legislation regulating arbitrations held in countries beyond the Convention. 
  2. Part-I will apply to Jammu &  Kashmir in all international commercial arbitrations (which include external arbitrations) but for the rest of India, Part-I will not apply to external arbitrations.
  3. There would be conflict between SectionSection2(4) & (5) & Section 2(2) of the Act.
  4. A party to an external arbitration will have no alternative recourse in seeking interim reliefs even though the properties which are the centre of attention of such an interim reliefs application are in India.

The above concept in Bhatia International has been mauled as entirely erroneous.
“One of Bhatia International’s rationales was that Part-I had not provided for transitional remedies in arbitrations held outside India. This was the principal question before the Court”. Before Bhatia International, High Court rulings on the jurisdiction of a court to order interim measures in an out-of-arbitration were contradictory. Some high courts held that the law did not give courts the authority to order interim measures in these cases6, whereas others ruled that because Part-I was applicable even to outside arbitrations, a court can order interim measures to be taken under Section 9. In Bhatia International, it has been argued that Art. 1(2) of the Model Law, which permitted interim measures even though the arbitration seat was not in the state where the request for such measures was sought, was not implemented in India. The contention was, therefore, that it was the legislative intent not to expand a court’s power to order interim measures in the event of arbitrations conducted outside India. 

Although it was emphatically rejected by the Supreme Court, the argument seems to be persuasive. On the contrary to the views of the Court that the Act was not a well-formed piece of legislation, it is argued that the Act is a carefully designed piece of legislation, but with certain deficiencies much like every other statute. While the drafters of the Arbitration & Conciliation Act took inspiration from the Model Law, the Act includes some minor but important improvements in pro- that are intended to ensure speedy & effective arbitration. Under such a carefully written legislation the lack of provisions for transitional measures under international arbitrations may not have been accidental.

The ‘lacuna’ was maybe intentional. Through refusing to provide for transitional measures for arbitrations held outside India, the drafters may have wanted to allow parties to choose India as the seat of arbitration, albeit strongly. The drafters ‘motive may have been to help Indian parties escape costly arbitration outside India, & to improve the Indian arbitration market. In any case, post-Bhatia International, it has been proposed that the law should be revised to restrict the applicability of Part-I to restricted provisions for external arbitrations, including provisional steps.

The Court’s error in Bhatia International was in interpreting Section 2(2), which provides that Part-I would apply to arbitration in India, to mean that Part-I would also apply to outside arbitration. The Court’s logic was that by not employing the term “only” in Section 2 (2), the Legislature’s intent was to make Part-I applicable even to outside arbitrations. This construction is completely out-of-sync with the literal reading of the provision. This has resulted in ambiguity on the applicability of Part-I of the Act to outside arbitrations leading to inconsistent decisions, especially on the issue of implied exclusion of Part-I of the Act to outside arbitrations. 

For several cases, courts held that Part-I was not excluded even if the location was outside India, the substantive law of the contract was a foreign law & the procedural law was not the rule. Though, in some decisions, Part-I was implicitly excluded in these cases. In some cases, courts observed that “Part-I would implicitly be excluded if the seat were international & the procedural law was not the Act. For instance, the substantive law of the contract was Indian law in Hardy Oil & Gas Ltd. v. Hindustan Oil Exploration Co. Ltd.,” “the substantive law of the arbitration agreement was English law, the arbitration was to be held in accordance with the rules of the London Court of International Arbitration & the venue was London. The Gujarat High Court held that Part- was specifically exempt because the parties had expressly chosen English law as the arbitration legislation.

The agreement provided for Indian law as the substantive law of contract” in Videocon Industries Ltd. v Union of India, Kuala Lumpur, Malaysia as the location of the arbitration, & English law as the law of arbitration. The Court held that “by virtue of English law being the law of arbitration, Part-I was excluded.” In Yograj Infrastructure Ltd v Ssang Yong Eng &  Construction Co Ltd-(I), “the agreement provided for the arbitration rules of the Singapore International Arbitration Center (‘SIAC’) as the arbitration rules & the seat was Singapore. In Aurohill Global Commodities Ltd v Maharashtra STC Ltd16 & Paragon Steels Pvt, the Court held that Part-I was excluded as the contract’s substantive law as per the agreement was Indian law. Per contra. Ltd v European Metal Recycling Ltd.,” The statutory substantive law was Indian law, London was the venue in both cases & non-Indian arbitral bodies were the procedural laws. However, Part-I was considered not to be excluded.

Furthermore, some courts have applied a different rationale to exempt Section 34 of the Act as the courts seem to have agreed that Part-I would extend to all arbitrations. For example, in Force Shipping Ltd v Ashapura Minechem Ltd., Bulk Trading S. A. v Dalmia Cement (Bharat) Ltd., Inventa Fischer GmBH &  Co. v. Polygenta Technologies Ltd., The courts held that Section 34 of the Act (in Part-I) should not extend to outside arbitration awards on the grounds that general provisions such as Section 34 should extend when there were ‘special’ provisions for the compliance of arbitral awards. The Bombay High Court held in Goldcrest Exports v Swissgen N. V., that a foreign award cannot be contested under Section 34, since it would be impractical to have two rounds of litigation to enforce a foreign award.

In the English case of Roger Shashoua v. Mukesh Sharma (‘Roger Shashoua’) the ambiguity in the law is amply illustrated. In this event, when the judge sought to figure out the Indian law relating to the applicability of Part-I of the Act to an arbitration whose seat was London & with Indian law as the substantive law of contract, two former Indian Chief Justices gave contradictory evidence on the same.

There’s also some ambiguity as to whether the curial law principle is compatible with the arbitration governing law. In Financial Software &  Systems (P.) Ltd. v. ACI Worldwide Corp., The Madras High Court held that the SIAC Rules were the curial law but held that the law regulating arbitration was Singaporean. In Yograj Infrastructure Ltd. v. SsangYong Engg. &  Construction Co. Ltd.-(II), in a related provision, the Supreme Court’s two-judge Bench held that the Singaporean International Arbitration Act was the curial legislation.

From a transactional viewpoint, a significant consequence of Bhatia International is that it seriously limits Party autonomy. This gives the parties the option of either excluding Part-I in its entirety & thereby removing the right to sue an Indian court for emergency measures or not removing Part-I & thus keeping it within the scope of Section 34 of the Constitution. Nevertheless, it should be noted that in an external arbitration, Bhatia International provided that the parties could exempt any or all of Part-I provisions. This held that “any or any of the provisions of Part-I can also be omitted in the event of external arbitrations by an actual or implied agreement of the parties”. Thus, parties may choose to exclude Part-I, with the exception of Section 9, which would require a party to obtain provisional measures in India. Despite this, it is a difficult exercise even for attorneys to draw up arbitration clauses. It must be noted that in India, contract agreements are generally performed by businessmen with little to no legal counsel. The rule should be clear so that businesses can sign arbitration clauses. Now that the law has become complex, the transactional costs of foreign trade transactions are dramatically increasing.

Narayan Prasad Lohia v. Nikunj Kumar Lohia (‘Lohia’)

Section 10(1) specifies that an equal number of arbitrators are not to be named by the parties. In Lohia, notwithstanding the aforementioned clause, the Supreme Court held that the appointment of a tribunal with two members was valid. This came as a surprise to the Indian arbitration followers because the ruling was in utter contradiction with the statute.

The explanation for the Court was that because there was no basis on which an award could be set aside as it was approved by a two-member tribunal, the clause was not compulsory in nature. The Court noted that it would make no difference if two arbitrators were named & the matter could be referred to a third arbitrator in case of a dispute between them. Consequently, the Court interpreted “shall” in the provision to mean “may” & the logic of the Court may not be entirely right. Section 34(2)(a)(v) specifies, inter alia, that the award should be set aside on the basis that the arbitral tribunal was established “without observing the arbitration agreement” or, in the absence of such agreement, “without observing the Act. As argued in the event, “failing” would also imply the agreement’s interoperability. Section10 forbids an arrangement to name two Arbitrators. The arrangement would then be inoperable due to the bar provided for in Section 23 of the Indian Contract Act, 1872.

In terms of the consequences of the ruling, the fairness of a two-arbitrator tribunal would likely have had little negative effect on arbitration, while reading the law to mean anything when it actually meant the attracted extreme criticism to the contrary. Quite apart from the Supreme Court’s repudiation of the Section10 text, there appears to be no purpose accomplished in banning even-numbered tribunals. However, the judgment is a classic example of courts taking a stance contrary to the statute’s plain language.

Oil &  Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (‘Saw Pipes’)

In SAW Pipes, the Supreme Court highly regarded the public policy basis for putting aside arbitral awards to the dismay of many Indian arbitration stakeholders. The explanation for their distress was that even though it was patently unconstitutional, the Court ruled that an award should be set aside. This indicated that there could be a rigorous review of arbitral awards in the annulment proceedings which, as per the critics, reflected unwarranted judicial distrust & animosity against arbitration.

The main issue in the setting aside proceedings was the validity of the tribunal’s decision on the evidence of loss incurred when a liquidated damages clause was in the agreement. The award was contested by ONGC on the grounds, inter alia, that the award was opposed to India’s public policy under section 34(2)(b)(ii) of the Act. The Supreme Court subsequently had to determine if ‘public policy’ was sufficient to cover the award’s patent illegality. While the Court acknowledged that public policy can be interpreted strictly or generally depending on the situation, it nonetheless ruled that there’s no need to strictly interpret the term & also believed that such a construction would make other sections of the Act ambiguously defined, such as Section 28. It claimed that an award passed in violation of section 24, 28 or 31 & challenges pursuant to section 13(5) or section 16(6) could only be brought under section 34 by specific interpretation of public policy. It, therefore, held that an award pursuant to Section 34(2)(b)(ii) should be set aside even though the award was obviously unconstitutional.

SAW Pipes was criticized for subverting the arbitral proceedings & for contradicting the policies embodied in the Act, in particular the principle of finality of awards & minimum judicial interference in the arbitral proceedings. The judgment, it was argued, struck at the very heart of arbitration in India by potentially revealing all awards to be challenged in the courts & in the courts.

Although the rationale in SAW Pipes appears to indicate that even errors of law would be contrary to public policy, at the conclusion of its public policy debate, the Supreme Court acknowledged that illegality could not be trivial in nature. Some courts interpreted the Supreme Court as suggesting that the award would only be liable to be set aside if it was patently illegal. However, other courts have t. The Supreme Court, for example, in DDA & Co. v. R.S. Sharma remarked: 

“The following concepts derive from the decisions cited above:

  •  An Award, which is 
  1.  In contravention of substantive legal provisions; or
  2. the provisions of the Arbitration & Conciliation Act, 1996; or
  3. Outside the terms of the applicable contract; or
  4. patently illegal, or 
  5. [sic] Prejudicial of parties ‘interests, 

is subject to action by the Court as provided for in Section 34(2) of the Act.

  •  Award could be set aside if it is contrary to: 
  1.  fundamental policy of Indian Law; or
  2. the interest of India; or
  3. justice or morality;
  1.  Furthermore, the Award may be set aside if it is so unjust & unfair that it threatens the Court’s conscience.
  2. It is open to the Court to decide whether the Award is contrary to the specific terms of the contract and, if so, to intervene with it on the grounds that it is obviously unconstitutional & contrary to India’s public policy.”
    Nevertheless, the irony of the concern that the finality of arbitral awards negatively impacted by SAW Pipes can only be gagged on the grounds of empirical proof.

Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (‘Centrotrade’)

In Centrotrade, a Supreme Court bench of Division comprising Sinha & Tarun Chatterjee, JJ, differed with the validity of an arbitration provision allowing for two-tiered arbitration in respect of the Act. While Sinha, J, acknowledged that there were some rulings there under 1940 Arbitration Act where two-tier arbitration clauses were deemed valid, the two-tier arbitration, as proposed in the arbitration clause, was nevertheless rendered invalid.

The arbitration provision allowed for domestic arbitration under the Indian Arbitration Council Regulations (‘ICA’) & for arbitration appeals under the International Chamber of Commerce Rules in London. The judge noted that it would have been “possibly” true had the provision given to the ICA for arbitral appeal. As, in the first place, the arbitration provision provided for domestic arbitration, that should, he claims, mean that the award was legally binding as a decision because the award was not appealed within the time limit stated in Section 34. Sinha, J. submitted that the Act did not consider an appeal from a domestic award resulting in a foreign award, & thus the arbitration provision was unconstitutional. He differentiated the two-tier arbitration proposed by two-tier arbitrations held under the aegis of arbitral bodies in the arbitration clause.

“We are not unaware that certain chambers ‘rules consider such a clause but in such a case the one provided by the first arbitrator doesn’t become final. The Committee of Appeal follows the same process, depending on the same facts, unless more proof is allowed either by the parties ‘consent or otherwise. Applicability of a specific set of laws is not envisaged because of such a method. It comes under the same jurisdiction. There are two separate & distinct jurisdictions which it does not recognize. Yet in the present case, no such trade agreement or collective association was binding on the parties. Since the parties were independent entities & are only directed by the agreement, the latter situation could not apply.”

The Act was meant as an upgrade from the Law of 1940. When such arbitration clauses were legal under the 1940 Act, it is challenging to foresee how unconstitutional a multi-tiered arbitration clause was because such a provision was not considered under the new & revised legislation. A recent commentary states that Centrotrade was concerned with an unusual arbitration provision in which both awards were “final in their own ways” & both were regulated by separate laws in various jurisdictions. The statement clarifies that the decision “does not cast doubt on situations where multi-level provisions do not consider the applicability of different procedures to different arbitration levels.”

On the contrary, there are indications in the judgment, listed below, that the invalidity might also extend to multi-tiered arbitration with the rates controlled by the same jurisdiction. The judge claimed that Section 36 allowed for a legal fiction that, upon the expiration of the limitation period laid out in Section 34, the award would acquire the status of a decree. Therefore, an appeal “to another award forum & that even though an element of the award is a domestic award & another part is an international award is not considered under the 1996 Act”. The logic behind the award is definitive & binding even on domestic two-tier arbitrations. When the award is granted at first instance, it is legally binding as a decree unless contested under section 34. However, much like the lack of a provision in the Act that indicates a two-tier arbitration clause to be applicable with one tier being a domestic arbitration & the other being an international arbitration, the Act also silences domestic two-tier arbitration provisions.

This decision is noteworthy not because it disregards the law text, but because it is too obedient to the statute document. The judgment raised doubt about the fairness of arbitration clauses of two-tiered type.

SBP &  Co. v. Patel Engineering Ltd. (‘Patel Engineering’)

One of the earliest concerns under the Act was the scope of the Kompetenz-Kompetenz doctrine. As per a three-judge bench of the Supreme Court in Konkan Rly. Corpn. Ltd. v. Mehul Construction Co., The Chief Justice’s position under Section11 was merely to serve as an appointing authority in the event that the nomination process agreed upon by the parties failed. The Court held that excessive competence-competence was promoted in the Act. According to the Court, the Chief Justice’s judgment was thus an administrative decision, & all jurisdictional issues, including questions pertaining to the fairness of the arbitration arrangement, were to be brought before the arbitral tribunal. This decision was confirmed by a five-judge Bench in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd.

In Patel Engineering, a Supreme Court’s seven-judge Bench had to agree on the essence of the chief justice’s (or his designate’s) role under section 11 of the Act. The question was whether the chief justice should settle any question of disputed jurisdiction before sending the parties to arbitration. Section 11(7) stipulates the judgment of the Chief Justice is final. Section 11(6) specifies that if the appointment process decided directly or indirectly by the parties fails, a party can request the chief justice or his appointee to assist in the establishment of the court. This does not outline the essence of the Chief Justice’s work. The clause is unclear on issues such as whether he is bound by statute to refer a dispute to arbitration regardless of whether arbitration of such disputes is not permitted.

The Court held that when any tribunal exercises jurisdiction, it must be comfortable with the presence of conditions, recognized as jurisdictional facts, that would require it to do so. As per the Court, where a statute grants the tribunal the authority to “judge” & finalize its judgment, such a judgment is of a judicial nature. According to the Court, the tribunal must be satisfied with the validity of the facts of jurisdiction. Accordingly, the Court held that the Chief Justice must clearly be comfortable with the presence of facts of jurisdiction such as the presence of an arbitration arrangement, the existence of such an agreement between the parties to the appeal, etc. The Court upheld its finding with the following reasons:

  1. If a statute gives power to the highest judicial authority, it is appropriate for the authority to conduct judicially unless it is specified by the statute.
  2. If a court rules on the validity of an arbitration agreement under Section 8, it is improper for the highest judicial authority not to be allowed to rule on the nature of the arbitration agreement under Section 11.
  3. Credibility is the reason why the statute grants Chief Justice such a role. There would be no trust in the Chief Justice’s decision if he referred the matter to arbitration because the dispute for reasons of such non-existence or invalidity of an arbitration agreement would not have been referred to arbitration. Such a decision may have significant monetary consequences on the respondent. This view is strengthened by the fact that in the event that a technical reference is made by the chief justice & the tribunal fails to acknowledge the legitimate argument of the respondent regarding the non-existence or invalidity of the arbitration agreement, the respondent must wait until the final award is issued & request that the award be set aside. This method is beneficial because in view of the court’s acceptance of the presence of jurisdictional facts the tribunal should not rule on jurisdictional issues.

Venture Global Engineering v. Satyam Computer Services Ltd. (‘Venture Global’)

In Venture Global, the Supreme Court had to determine whether an Indian court can have a supervisory role through an arbitration that had its seat outside India. A dispute arose between the parties under a shareholders’ agreement & was referred to arbitration in London. The arbitrator passed an award that was taken up by Satyam Computer Services Pvt. Ltd (‘Satyam’) for enforcement in the Michigan District Court, USA.

For setting the award aside, Venture Global Engineering (‘Venture’) approached Indian courts. The matter eventually went to the Indian Supreme Court, where the issue was whether the international award could be put aside under section 34 of the Act. All parties relied on Bhatia International to back up their respective claims & thus had to understand Bhatia International by the Court. The Court interpreted Bhatia International as meaning that Part-I, including Section 34, extended to all domestic or foreign arbitrations & the Court could set aside a clearly unconstitutional foreign award for breaching India’s public policy.

The Bench comprising Tarun Chatterjee & Sathasivam, JJ, held that Bhatia International never removed international awards from the applicability of Part I of the Act; rather, Bhatia International had been incorrectly interpreted by the courts. After thoroughly citing Bhatia International, the Court determined that the legislative purpose of not explicitly specifying that Part-I would only apply to domestic arbitration was to make Part-I applicable only to external arbitrations; but by not specifically stating that Part-I will apply to external arbitrations, the purpose was to allow the parties to agree that Part-I or any provision thereto.

The Court also held that by bringing the award to a foreign country to enforce it, the expanded concept of public policy which includes patent illegality may be bypassed. Finally, the Court held that, by pursuing enforcement of the award in the Michigan District Court rather than in Indian courts, Satyam was motivated by the desire to circumvent the legal & regulatory scrutiny to which the transaction would have been subject had it been implemented in India, although the award was closely related to India due to many factors, such as the position of the company in India. 

On the applicability of Part-I of the Act to the case, the Court concluded that Part-I was not specifically or indirectly omitted due to the existence of the non-obstante clause in Clause 11.05(c) of the shareholders ‘agreement, the light of the fact that the terms of the contract regulating law was Michigan law.


Venture Global & Multilocalisation

The decision has entirely disregarded the doctrine of seats, which is the prevalent standard in international commercial arbitration. Also, the Model Law is based on the principle of territoriality with the seat of arbitration having supervisory power & jurisdiction over arbitral proceedings taking place within its territory. When addressing the issues concerning the territorial applicability of the Model Law during its drafting, it was stated explicitly that the parameters used to assess the applicability of the Model Law must be in accordance with the Convention (which also recognizes the seat theory) to prevent any dispute between them. It indicated that the Model Law was to be enforced on the basis of the arbitration seat. Art. 1(2) of the Model Law specifies that the Model Law will only apply where the place of arbitration is in the State’s jurisdiction.” 

The seat theory argues that the arbitration seat rule is the lex arbitri. Lex arbitri is the law which “gives the parties or arbitrators the freedom to lay down rules which may also impose certain limitations on them & which, more importantly, will regulate the use of that freedom & prohibit any violation by setting aside the award.” Lex arbitri is a crucial aspect of international commercial arbitration, as it gives legal effect to arbitration. Seat law requires a party to appeal the arbitral award for its legal validity. Venture Global has rendered it more burdensome for international awards to be applied as it requires the award not only to have avoided opposition in the arbitration seat but also not to fall foul of section 34 of the Act. The Convention contemplates an award challenge only in the arbitration seat. Also in another region, which is not in compliance with the Convention, Venture Global provides for challenge.

Though not keeping anything explicitly on the condition of Indian law, the court held: “This whole approach [of the respondent opposing the award in India] is that of asking the courts in India to do what only the courts of the country of the arbitration seat can do.”

Aside from being contrary to the prevailing norms of international commercial arbitration, multi-localization causes serious difficulty for the party in respect of which the award was awarded because that party would have to face annulment proceedings in more than one jurisdiction.

Doctrine of Optional Public Policy -A contradictio in terminis

The Supreme Court incorporated a principle into jurisprudence in Venture Global that has actually never been heard about the idea about discretionary public policy up to now. The word : “public policy” connoted the general good or the public interest in common use, legal parlance & even in Saw Pipes. An award contrary to Section 34 will be foul. In Venture Global, while holding that an award which contravened the public interest or the public good should be set aside, the Court also held that the parties had the option of excluding Part I & thus allowing the parties to avoid invalidation of awards which contravened “public policy”. A public policy rule cannot be such if it is optional. 

TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd. (‘TDM Infrastructure’)

In the case of TDM Services, another instance of the Court’s digression from the law text in TDM Infrastructure Pvt. Ltd. & UE Technology India Private Limited were both Indian-registered companies. TDM’s founders & shareholders had been Malaysian citizens. The arbitration provision provided for New Delhi as the venue & the proceedings had to be held in compliance with the 1940 Arbitration Act. An appeal for the arbitrator’s appointment was lodged by TDM in the Supreme Court.

UEDI opposed the application on the basis that the arbitration was a domestic arbitration & that it was only the applicable High Court which had jurisdiction. However, TDM argued that the company’s central management was in Malaysia, & that arbitration was therefore an international commercial arbitration & supported its claim with Section 2(1)(f) of the Act, which specified international commercial arbitration as meaning,, inter alia, “(ii) a body corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management & control is exercised in any country other than India”.

The Court ruled otherwise. If none of the corporate bodies were licensed overseas, then arbitration between them would not be international commercial arbitration, according to the Court. This rationale suggested that paragraphs 2(1)(f)(ii) & 2(1)(f)(iii) were inconsistent with regard to companies registered in India but whose central management & control were outside India. The Court declared that when formed in any country other than India, a company is “a national of, or habitually resident in, any country other than India,”. According to the Court, a company cannot have two nationalities at the same time; if registered in India, an Indian company must be an Indian corporation, & arbitration between two Indian companies would not be international commercial arbitration, irrespective of whether the control or management is outside of India. Section 2(1)(f)(iii) was read by the Court to be applicable only where section 2(1)(f)(ii) did not apply.

It seemed that the following two things made the Court conclude so:

  1. The Court held that the issue of power was not entirely objective, & that there could be circumstances where control issues would arise when the supposed control is outside India. In issues involving jurisdiction, therefore, the Court justified its viewpoint on the grounds of certainty.
  2. Section 28 provides the parties with the option of choosing substantive law of another country in an international commercial arbitration held in India. Nevertheless, Indian substantive laws are mandatorily applicable to Indian parties. Accordingly, the Court claimed that an Indian company is not authorized to deflect away from India’s substantive law for public policy reasons. The Court undoubtedly contemplated that Indian laws could be managed to evade by Indian firms simply by making them regulated or handled from outside India. The judgment seems to directly contradict the text of the law, which indicates that if a corporation is licensed or if its management or control is outside India, it will be an international tribunal to arbitrate such a corporation. The decision was condemned for raising the Act’s flexibilities & being detrimental to party autonomy.

The following are the two main criticisms: 

  1. The decision differs from the statute’s unequivocal language & statutory intention. 
  2. This will restrict a foreign parent company’s option of providing a non-Indian substantive law where its Indian specific purpose entity or subsidiary signs an arbitration agreement with an Indian party, thus rendering the Act more rigid.

It is argued that while the criticisms pose legitimate concerns, on balance, the Supreme Court may have been correct to give priority to an understanding that prevented Indian law from being evaded.

N. Radhakrishnan v. Maestro Engineers (‘Maestro Engineers’)

In Maestro Engineers, the Supreme Court ruled that a court could decline to refer a dispute to arbitration if it contained fraud or misappropriation allegations. The conflict originated from a cooperation arrangement. One of the partners, Radhakrishnan, asked the company’s return on its investment & income to allow it to leave the partnership as it detected fraud from the other partners. The other partners objected that they were liable to pay Radhakrishnan & asked the Court for a statement that Radhakrishnan was not a partner & for a permanent injunction that stopped Radhakrishnan from disrupting the company’s peaceful operation. Radhakrishnan filed a request for referral of the pending disputes to arbitration under section 8 of the Act.

The matter eventually reached the Supreme Court. Based on Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, The Court dismissed the request claiming that the arbitrator cannot decide the dispute when serious allegations of fraud were raised. According to the Court, the evidence of fraud involved the elaboration of facts & “such a condition cannot be properly resolved by the arbitrator”. The Court held that the courts should have greater authority & would “have the means to resolve such a complicated matter involving different issues & questions posed in the dispute” & that it was in the interests of justice that the matter should not be tried by the arbitrator.

Section 8 of the Act makes the court obligated to refer a matter to arbitration if an arbitration arrangement exists. Section 8 also places those conditions where the conflict will be submitted to arbitration for resolution. Disputes cannot be arbitrated solely on two grounds. Firstly, parties may wish to avoid recourse to arbitration for any conflicts occurring in connection with an agreement. Of example, some technical disputes are referred to experts, whose decisions are definitive & binding, & are held out of the jurisdiction of arbitration. Furthermore, legislation that forbids arbitration of disputes, typically for political reasons. Although Section 8 specifically allows for the former, it does not discuss the latter. Notwithstanding the absence of the latter, a court has to refrain from referring to a conflict which cannot be resolved by arbitration while ruling on an application under Section 8. In Maestro Engineers, the Court decided not to refer the case to arbitration by stating that it could not be arbitrated. The Supreme Court’s decision is a retrograde move in improving India’s arbitration law.

The Maestro Engineers decision also goes against the existing arbitration procedure, as expressed in the Act. Unless the requirements set out in section 8 of the Act are met, the judicial authority is obliged to refer the issue to arbitration, except Section 20 of the Arbitration Act, 1940. There is no implicit choice.

Refusal to appeal to fraud-related arbitration cases as illustrated in Russell v. Russel has been abandoned in England, too. The English Arbitration Act, 1996 does not include any clause under which courts may decline to refer to arbitration of a dispute involving allegations of fraud for the following reason: “The parties ‘arrangement to refer future conflicts to arbitration would triumph over a right of public defence, & in any case there was no reason to believe that arbitrators were unable to comply with fraud problems on their merits & to draw appropriate conclusions.”  However, Maestro Engineers have been ruled without due consideration of past Supreme Court & High Court decisions which have contemplated arbitrator determination of fraud-related matters.

“There may be some other grounds for not referring disputes involving allegations of fraud such as impact of fraud on third parties, right of the public to know fraudulent conduct & so on. These concerns must be balanced with the need for speedy resolution of commercial disputes. Obsolete arguments to the effect that arbitrators are not capable of handling disputes involving elaborate production of evidence must be cast-off at once.”

Indian arbitration law has seen a sea change in the last couple of years especially after the decision of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012), popularly known as BALCO. The issues of applicable law, seat, venue & the jurisdiction of the Indian court in a foreign seated arbitration have been set at rest by the aforesaid decision of the Apex Court in India. The potential intervention of the Indian courts over the foreign seated arbitration especially after the decision of the Hon’ble Supreme Court in Bhatia International v. Bulk Trading SA (2002) became a major concern for the foreign investors. In Bhatia International the Court held that Part I of the Indian arbitration Act shall be applicable even to a foreign seated arbitration until & unless the application of part I has been excluded either in express terms or by necessary implication. 

As a result of the decision, in an arbitration between one Indian party & a Swiss party, & the arbitration taking place in London, the Indian court will have jurisdiction to deal upon the matters which are enumerated in part I of the Act. The extension of the application of the Act vis-a ̀-vis the extension of the jurisdiction of the Indian courts in a foreign seated arbitration faced widespread criticism from the international arbitral community. Further, the jurisdiction of the Indian courts in a foreign destined arbitration was extended not only in the matter of granting interim measures as decided in Bhatia case but also in the matter of the appointment of arbitrator & setting aside a foreign arbitral award.

This overreaching approach of the Indian judiciary has been remedied to a large extent by BALCO where the Constitutional Bench of the Hon’ble Supreme Court overruled its much criticized decision in Bhatia International & made it abundantly clear that part I of the Arbitration & Conciliation Act, 1996 would not be applicable to arbitrations with a foreign seat. This was a highly welcoming decision of the Hon’ble Supreme Court as the decision consolidated the golden principle of commercial arbitration — i.e., ‘Least Judicial Intervention’. In fact, during the last few years a series of court decisions in India have strengthened the pro arbitration stance in the Indian judiciary.

Reference may be had to the decision of the Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano SpA” (2014) where the court very correctly held that the application of the doctrine of public policy of India for the purpose of enforcement of a foreign arbitral award is more limited than the application of the same expression in respect of the domestic arbitral award & thereby restricted the scope of the refusal to enforcement of a foreign award in India.

Another notable example to recognize the progressive step of the Indian judiciary is the decision of the Supreme Court in World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd. (2014). In this case the Court was of the view that in cases of foreign seated arbitrations, the arbitrations could be stayed only when the arbitration agreement is void, inoperative or incapable of being performed & the mere allegation of fraud could not prevent foreign seated arbitration from the proceedings.

This is definitely a step forward in establishing India as a pro arbitration jurisdiction especially if we recall the Court’s other way attitude towards the issue of fraud in N. Radhakrishnan v. Maestro Engineers (2009). Reliance Industries Ltd. v. Union of India (2014) also deserves attention on this note. The court held that Indian courts have no jurisdiction to set aside an award rendered in London. Though the court decided the issue on the line of the ratio in Bhatia International as the parties entered into the contract before 6th September, 2012 &  thereby being governed by Bhatia, but the court correctly read implied exclusion of the application of Part I of the Arbitration & conciliation Act as the seat of the arbitration was London &  the law governing the arbitration agreement was also English law.

The change in the Supreme Court’s attitude was also visible in Enercon (India) Ltd. v. Enercon Gmbh (2014) where the court held that an arbitration agreement cannot be avoided on the basis that there is no concluded contract between the parties. In the context of international commercial arbitration a reference to arbitration can only be avoided if the arbitration agreement is null & void, inoperative or incapable of being performed.

An averment that the underlying contract containing the arbitration clause is not a concluded contract does not fall within the scope of these phrases. We must admit that the observation of the court is in the line of Art II of the New York Convention (1958) which says that the each contracting State must give due recognition to the arbitration agreement & the courts of the contracting states when seized with an action in a matter in respect of which the parties have made agreement, shall refer the parties for arbitration unless it finds that the agreement is null & void, inoperative or incapable of being performed.

Further in the recognition of the party autonomy which we call as one of the most cardinal principles of international commercial arbitration, the Supreme Court in Centrotrade Minerals &  Metal Inc. v. Hindustan Copper Ltd. (2016) approved the incorporation of appellate arbitration clauses in the parties’ concluded agreement. In this case the parties referred the dispute to Indian council of Arbitration & the arbitrator rendered a nil award. The second part of the arbitration clause was invoked by Centrotrade & accordingly the second arbitration took place in London. The second arbitration was conducted as per the ICC Rules & the award was given in favour of Centrotrade.

While enforcing the award in India under section 48 of the Act, HCL sought to resist the enforcement on the ground of the illegality of the contract. HCL contended that the Act does not permit any appeal against the arbitral award & therefore the contract which provided a second appeal before another arbitral tribunal was in derogation of the statutory requirement. The court very rightly distinguished the present issue of appeal before the tribunal from the statutory bar of appeal before the national court. It was very much apt to hold that party autonomy was the backbone of the commercial arbitration & finality attached to an arbitral award shall always be subject to recourse to arbitration in the second instance.

Though there may be a very few decisions of the Indian courts in the post BALCO era which may mark a regressive step in the ‘non-interference’ trend but in my opinion, the interference of the Indian judiciary in a foreign destined arbitration being the most thorny issue has been curbed. On this note, the observation of the Chief Justice of India J.S. Khehar deserves to be quoted. The Hon’ble Chief Justice said, “…… the efforts are on that neither the Govt. nor its agencies will have interference in the international arbitration process. The zero interference by the Govt. will give room for foreign traders in India that the process here is neutral.

The resolution of commercial disputes in India was facing some of the daunting challenges which included inordinate delay, spiralling cost & an undue interference of the national court. This caused an impediment in attracting foreign direct investment & also had put India at a very low international ranking for the ‘ease of doing businesses.’ Two major developments deserve special mention in this regard, in order to revolutionize the resolution of commercial disputes in India. The 2015 Amendment to the Arbitration & Conciliation Act 1996 is the most crucial step which aims to reckon all the judicial pronouncements in international as well as domestic arbitration of the commercial disputes & splash the consequential anomalies. 

The structural changes which are brought to the Act  

The definition of the court as defined in section 2(1)(e) of the Act has been modified & now all the 26 High Courts have been included within the definition as compared to the previous scenario where only the High courts with ordinary original civil jurisdictions (Bombay, Delhi &  Calcutta) could exercise its power. Unless otherwise agreed by the parties, the provision of section 9 (granting of interim measures by the national court), section 27 (Court’s assistance in taking evidence) & section 37 (Appeal from order granting/refusing to grant interim measures by court) will also apply to international commercial arbitration even if the place of the arbitration is outside India. The authority to appoint the arbitrator is now with the Supreme Court in case of international commercial arbitration & that of the High Courts in case of domestic arbitration in place of the Chief Justices as envisaged in the 1996 Act.

Tribunal’s power to grant interim measures has been made at par with the power of the national court as the interim measures granted by the tribunal are made enforceable in the same manner as if it is an order of the national court. Further the power of the national court in relation to the grant of interim measures has been restricted & the courts shall not entertain any such application once the arbitral tribunal has been constituted. Application for the appointment of the arbitrator shall be disposed within a period of 60 days. No appeal including the Letters Patent Appeal shall lie against the decision of the court under Section 11. The arbitration proceedings shall commence within 90 days from the date an interim order has been taken from the national court under Section 9 of the Act. Fast track procedure of the arbitration has been introduced under the Act. An application to set aside the arbitral award shall be disposed by the court within a period of one year.

The Changes which are sought to bring more transparency in the arbitral process

The court while confronted with the appointment of the arbitrator shall confine only to the existence of an arbitration agreement. At the time of appointment of arbitrator, the Court shall seek a disclosure from the prospective arbitrator to clarify any doubts as of his independence & impartiality. The new Amendment has elaborated the relative provisions of independence & impartiality in a more lucid manner. Greater clarity & details have been added in section 12 of the Act enunciating the different circumstances which are affecting the neutrality of the arbitrator. One notable change in this regard is the addition of two new schedules, namely the Fifth Schedule & the Seventh Schedule. The schedules contain different grounds & circumstances in which justifiable doubts as to the independence & impartiality of the arbitrator shall arise & thereby rendering a person ineligible to act as an arbitrator. These two schedules are modelled on 2014 IBA Guidelines & certainly in the line with international best practices. This will assure the confidence of the foreign investors in India.

Several provisions of the 1996 Act have also been modified in view of making arbitration cost effective & time efficient. This can be summarized as follows

Endeavour should be made to dispose of an application for the appointment of an arbitrator as expeditiously as possible & possibly within 60 days from the date of service of notice to the opposite party. The tribunal shall complete the arbitration within a period of twelve months, not to grant adjournments without sufficient cause & impose exemplary costs on the party seeking frivolous adjournments. The stipulated twelve months’ time limit can be extended by the parties for another six months but not beyond that. Any further extension of time limit can only be done by the national court. Penalty provision by way of reduction of the fees has also been inserted for the arbitrators in case the arbitration is not completed within the stipulated time. 

So the whole hearted efforts of the Govt. are to make arbitration in our country easier, faster & more cost effective & aim to revolutionize the arbitration regime in India. As it has been seen in the working of the 1996 Act that in absence of a clear definition of the term public policy, the judiciary adopted an expansive approach to its interpretation & it became a continuing worry & opened a floodgate of litigation. The 2015 Amendment has put a cap on the width of the expression on the basis of the recommendations of the Law Commission. The move is a welcome step although the cap seems to be minimal, leaving the interpretation in the hands of the judiciary.

The practice of keeping in-house arbitrators seems to have received a jolt as the amendment has elaborated the issue of independence & impartiality of the arbitrators. This move has certainly put the Indian law at par with the international practices but the courts need to exercise caution while applying the amended provisions. A partial reading of the provisions could lead to unintended consequences. The Amendment fails to address the situations of enforcement proceedings as unlike the setting aside proceedings, the Amendment lacks provision encompassing a time limit enforcement proceedings.

Many of the recommendations of the Law commission of India have been followed in order to successfully capture the growing concerns of the judicial interference. However, leaving out some important recommendations of the Law Commission like the role of an emergency arbitrator, arbitrability of fraud etc. the Amendment seems to have missed some opportunities to reform the law in a more compassionate way. We need to wait for another couple of years to see the real effects of the Amendment, but undoubtedly the Amendment aims to bring positive changes in the arbitration regime by plugging the existing loopholes & anomalies in India’s arbitration law.

Another remarkable move is that the Govt. of India in its quest for enhancing the ease of doing business in India has introduced the Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts Act, 2015 which provide for the constitution of the commercial courts for adjudicating commercial disputes. This is invariably a step forward for the swift disposal of commercial disputes of a specified value or more. This initiative will certainly reduce the burden of the civil courts & can be viewed as a stepping stone to reforming the civil justice system in India although the application of the new initiatives depends on the promptness for the creation of additional judicial & physical infrastructure, filling up the vacancies etc.

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