ADR
TOPIC: INDIA’S STEP TOWARDS BEING A PRO-ARBITRATION NATION: A
CRITICAL ANALYSIS
SUBMITTED TO:
DR. ROHIT SHARMA
(ASSISTANT PROFESSOR OF LAW)
RESEARCHED & AUTHORED BY:
SURUCHI SINGH
Enrollment No.- 1020202149
9TH SEMESTER
1|Page
ACKNOWLEDGEMENT
I would love to put a conversational expression of gratitude to Dr. Rohit Sharma,
Assistant Professor (Law), at National Law University, Shimla, for providing me an
opportunity through this project to explore ADR under the topic; India’s steps towards
being a pro – arbitration nation: a critical analysis; thereby helping me assimilate within
and pick up on it. I believe this will help me comprehend better and get an enhanced hang
on suits pertaining to this area of the Forensic science, through this project analyzation.
DECLARATION
I hereby declare that this project work is original and is neither published nor
underconsideration anywhere else.
DATE: 20/11/2024 SURUCHI SINGH
BALLB(Hons.)
2|Page
ABBREVIATION
S. No. Abbreviation Full Form
1. N.Y. Times New York Times
2. v. Versus
3. No. Number
4. Inc. Incorporated
5. Ltd. Limited
6. SCC Supreme Court Cases
7. AIR All India Reporter
8. Ed. Edition
LIST OF CASES
1. TDM Infrastructure Private Ltd. v. UE Development India Private Ltd., (2008) 14 SCC
271 (India)
2. Renusager Power Co. v. General Electric, A.I.R. 1994 SC 860 (India)
3. Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 (India)
4. Shri Lal Mahal Ltd. v. Progetto Grano Spa, Civil Appeal No. 5085 of 2013 (India)
5. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, Inc., (2012) 9 SCC 552
(India).
6. Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105 (India).
7. Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2014) Appeal No. 196
of 2014 in Arbitration Petition No. 1062 of 2012 (Bombay High Court).
8. World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pvt. Ltd., (2014) 11
SCC 639 (India).
9. Reliance Indus. v. Union of India, (2014) 7 SCC 603 (India).
3|Page
PROBLEM PROFILE
Arbitration serves as a comparatively newer field which is gaining traction since the 1990’s
despite being in existence long before it. India has more time than one been accused of failing
in becoming a pro-arbitration country in the past, however, due to recent developments India
is on it’s way to becoming a pro-arbitration nation. Through this assignment, we will be looking
at the steps India has taken as a nation to progress in favour of becoming a pro-arbitration
nation. Efforts have been made by both the legislature as well as the judiciary towards the same.
We will be looking at what was in the past, what steps were taken to transition, and what is the
current scenario of arbitration laws in India.
OBJECTIVES
Throughout the course of this assignment our objectives would be:
A. To analyse what the scenario regarding arbitration was in the past in order to understand
the historical background of the concept.
B. In order to see what steps did India take to become a pro-arbitration nation.
C. Inspect whether the steps were taken solely by the judiciary or the legislature as well?
D. Understanding what impact did these steps have on Indian Arbitration scenario.
E. Analysing the stance India holds today.
F. To analyse what the scenario regarding arbitration was in the past in order to understand
the historical background of the concept.
G. In order to see what steps did India take to become a pro-arbitration nation.
H. Inspect whether the steps were taken solely by the judiciary or the legislature as well?
I. Understanding what impact did these steps have on Indian Arbitration scenario.
J. Analysing the stance India holds today.
4|Page
TABLE OF CONTENT
SR. PARTICULARS PAGE
NO. NO.
1. ABBREVIATION 3
2. LIST OF CASES 3
3. PROBLEM PROFILE 4
4. OBJECTIVE 4
5. INTRODUCTION 6
6. RESEARCH QUESTIONS 7
7. CASE LAWS 11
8. AMENDMENTS 13
9. CONCLUSION 14
10. BIBLIOGRAPHY 15
5|Page
INTRODUCTION
As Mahatma Gandhi once said,
“I realised that the true function of a lawyer was to unite parties. A large part of my time during
the 20 years of my practice as a lawyer was occupied in bringing about private compromise of
hundreds of cases. I lost nothing hereby-not even money, certainly not my soul”1.
To add further insult to injury to the whole litigation system which was the primary means of
resolving disputes in that era, Abraham Lincoln further encouraged people to “persuade your
neighbours to compromise whenever you can … the nominal winner is often a real loser in
fees, in expenses, and waste of time.2 Hence, it is not a surprise at all that most of the world’s
leading countries share similar philosophies with regard to dispute resolution.3
India being one of the world’s largest economies and populations, it’s attractiveness to
arbitration is quite obvious. It has been claimed to be the best place to initiate a business and
also turns out to be a favourable location for foreign direct investments4. The availability of
human resources in India are paving the way, if not already for India to be a global leader in
the world of business.
A possibility crosses the mind of a common man that the same notion which has led India to
become dominant in the commercial world would lead to an overlap in the legal India as a
consequence as well. However, the courts have a huge burden of pendency along with multiple
judicial positions remaining unfilled and this problem does not seem to come to an end or
improve5. This backlog of cases and the very fact that businesses prefer efficient, inexpensive
as well less-adversarial proceedings makes arbitration turn out to be a choice which would be
appealing to the parties which have found themselves stuck between commercial disputes in
India.
The process of Arbitration in India is currently governed by the Arbitration and conciliation
Act of 19966. Part I of the Act governs the arbitration proceedings which are conducted in
India, regardless of the nationalities of the parties, and Part II of the act deals with the
1
ALBERT FIADJOE, ALTERNATIVE DISPUTE RESOLUTION: A DEVELOPING WORLD
PERSPECTIVE 3 (2004).
2
Erik Svane, Persuade Your Neighbors to Compromise, N.Y. TIMES, Jan. 19, 1991.
3
Matthew Maragulia, The Continuing Pro-Arbitration Trend in India: A New Global Hub?, 8 Y.B. Arb &
Mediation 252 (2016)
4
See generally Government of India Ministry of Commerce & Industry, Fact Sheet on Foreign Direct
Investment, DEP’T OF INDUS. POL’Y & PROMOTION (June 2015),
[Link]
6
The Arbitration and Conciliation Act, No. 26 of 1996, INDIA CODE (1996), [Link]
ACT/1996/The%20Arbitration%20and%20Conciliation%20Act, %[Link].
6|Page
enforcement of foreign awards. Judicial decisions in the past as well as the proposals for
amendment have showcased India’s stance as a pro-arbitration nation and it’s desire to stand
on the same ground as New York, London and Singapore as the most desired places for
international arbitration
RESEARCH QUESTIONS
Q.1 WHAT IS THE AN OVERALL SCENARIO RELATING TO
ARBITRATION IN INDIA
The rapid process of globalisation in India since the 1990’s economic reform has led the
development of a very competitive environment economically, wh comes hand in hand with
disputes. However, Arbitration, as a concept is not as new as the economic boom of the 1990’s
and has been practiced since ancient times in India. The people in India, since historic times
have been voluntarily going to the panchayat, which, roughly translated refers to the wise man
of the community, in order to resolve the disputes in a manner which is binding to the parties 7.
The current and formal arbitration was regulated under the British rule by the Bengal
Regulation of 17728.
Before 1996, Arbitration as a concept in India was discussed in India in 3 statutes, namely a.
The 1937 Arbitration (Protocol and Convention) Act9, b. the 1961 Foreign Awards
(Recognition and Enforcement) Act10 and c. the Arbitration Act of 194011.
A. THE INEFFECTIVENESS OF THE 1940 ARBITRATION ACT
Despite Arbitration being so deeply rooted in India’s history, as discussed previously, the
rules governing arbitration in India, initially failed in demonstrating a very pro-arbitration
stance. For instance, the 1940 Arbitration Act which was the country’s first major
7
Harprett Kaur, Note, the 1996 Arbitration and Conciliation Act: A Step Toward Improving Arbitration
in India, 6 HASTINGS BUS. L.J. 261, 262 (2010).
8
Krishna Sarma et al., Development and Practice of Arbitration in India – Has it Evolved as an Effective
Legal Institution? CTR. ON DEMOCRACY, DEV., & RULE OF LAW (Oct. 2009),
[Link]
9
The Arbitration (Protocol and Convention) Act, No. 6 of 1937, INDIA CODE (1993), [Link]
10
The Foreign Awards (Recognition and Enforcement) Act, No. 45 of 1961, INDIA CODE (1993),
[Link]
11
The Arbitration Act, No. 10 of 1940, INDIA CODE (1993), [Link]
7|Page
legislation on Arbitration only addressed the concept of domestic arbitration and, thereby
putting a limit on its applicability12. Since India did not have guidelines on international
arbitration, and due to emerging trend of globalization, parties generally considered India’s
arbitration regime as unappealing and unpredictable13.
Furthermore, the Act of 1940 placed heavy reliance on the intervention by court 14, which
was contradictory to the entire principle of arbitration. As per the Act, the court was needed
to interfere in every facet of arbitration. Before a dispute was referred to the tribunal, it was
mandated by the court that the parties prove the presence of an agreement and the dispute
in order to initiate arbitral proceedings. While the proceedings were in process, the court
was needed to intervene for purposes of time and in order to make an award. Once the
award was given, the Act needed the court to rule on the award before it could be enforced.
Adding plight to the misery, the enforcement of the award itself posed issues. Since the Act
of 1940 allowed court intervention, the party which was on the losing end often used the
court in order to delay or avoid the enforcement of the award altogether.
As the 1940 Act ultimately faced a downfall, the parties to a dispute turned weary of
arbitration in India. Realising that this legislation was outdated, the Government of India
repealed all previous statutes and enacted the Arbitration and Conciliation Act in the year
1996 in order to create and efficient system of arbitration with the goal of attracting foreign
investors15.
B. THE ARBITRATION AND CONCILIATION ACT, 1996
The Act of 1996 came into being with the objective of creating confidence in the Indian
Arbitration regime. This Act had two important parts with the first providing for rules
governing domestic as well as international arbitration in India and the second providing
for rules governing the enforcement of foreign awards in India.
The 1996 Act is majorly based on UNCITRAL Model Law16, it has two features which
differ from the same. The first is that the UNCITRAL Model Law is only applicable to
international commercial arbitration whereas the 1996 Act is applicable to both domestic
12
Kaur, supra note 11, at 262; see also The Arbitration Act, No. 10 of 1940.
13
Kaur, supra note 11, at 262-63 (noting that the increase in commercial transactions in India and the ever-
growing judicial backlog established a need for efficient and reliable dispute resolution).
14
See The Arbitration Act, No. 10 of 1940.
15
The Arbitration and Conciliation Act, No. 26 of 1996, Statement of Objects and Reasons,
[Link]
16
See United Nations Commission on International Trade Law (UNCITRAL), G.A. Res. 31/98 (Dec. 15
1976), [Link] [hereinafter UNCITRAL]
(created for the purpose of establishing “harmonious international economic relations” through arbitration).
8|Page
as well as international arbitration. Further, the 1996 Act also lays down the principle of
minimal court intervention in a more elaborate manner than the UNCITRAL Model Law 17.
As per the Act, any commercial matter can be subjected to arbitration, except for few
exceptions of public policy. Resembling the law in the U.S., the arbitration clause is treated
as distinct from the main contract; hence, the parties which seek to challenge the arbitration
clause, have to challenge the arbitration clause specifically 18. This separability grants
jurisdiction to the arbitrator even in the cases wherein the main contract would be
considered to be void. Under the 1996 Act, there are only two ways of challenging an
arbitrator: a. in case evidence of impartiality exists, or in case the arbitrator turns out to be
not as qualified as the parties believed19. Hence, arbitrators in India, similar to the
arbitrators in the global hubs, hold abundance of power with them.
In the Act, the rules which govern the domestic as well as international arbitration are very
much in consonance except for a few differences. Firstly, any civil dispute is subject to
domestic arbitration, but in case of international arbitration a prerequisite exists which is
that the dispute must also be considered commercial in nature 20. Secondly, any High Court
in India is given the power to intervene and appoint a domestic arbitral tribunal, however,
in the international scenario, only the Supreme court can do the same21.
Because of these differences, it is significant to determine if the issue in any case is related
to domestic or international arbitration. In case the conduct happened exclusively in India,
yet it can be subject to international arbitration u/s 2(f)22. The contrary is true as well.
Moreover, the rules which govern the setting aside of awards for international as well as
domestic arbitration have been set out u/s 34 and are practically the same as the
UNCITRAL Model Law.
17
Kaur, supra note 10, at 263.
18
The Arbitration and Conciliation Act, No. 26 of 1996, § 7(2); see also Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 446-48 (2006) (reaffirming the importance of the separability doctrine in U.S.
arbitration).
19
The Arbitration and Conciliation Act, No. 26 of 1996, § 12(3).
20
Id. at § 2(1)(f).
21
Id. at § 11.
22
Section 2(f) of the 1996 Act defines international commercial arbitration is as an arbitration relating to
disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in
force in India and where at least one of the parties is-
(i) an individual who is a national of, or habitually resident in, any country other than India; or
(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 and control is exercised in
any country other than India; or
(iv) the Government of a foreign country.
The Arbitration and Conciliation Act, No. 26 of 1996, § 2(f).
9|Page
The 1996 Act was enacted with the objective of filling in the gaps which were left behind
by the downfall of the 1940 Act23. Similar to almost all legislations, the 1996 Act was
welcomed with various criticisms. One of them was that the 1996 failed in achieving its
primary objective of creating an efficient, alternative dispute resolution system. Unlike the
act of 1940, which provided for an explicit time limit within which the process of arbitration
had to be completed, the Act of 1996 eliminated the deadline and placed reliance on judicial
constraints of court intervention in order to fasten the arbitration proceedings. Majority of
arbitrators are retired judges, in consequence of which, many of them treat the arbitral
process at least with regard to time similar to litigation proceedings.
Another criticism with regard to the 1996 Act as well as the concept of arbitration in general
was that it was meant to reduce the expensive cost of litigation. While generally, arbitration
is definitely cheaper than the traditional litigation, the critics say that an analysis of costs
depicts that arbitration in India can at times turn out to be more expensive than litigation.
Such costs include venue fees, arbitrators’ fees, professional fees inclusive of experts and
witnessed along with administrative fees while on the other hand, in India, litigation costs
generally only involve the court fee and attorney fee. Due to the high fee charged by
arbitrators in India, arbitration is cheaper in India only in those cases wherein a cap exists
on the amount of proceedings.
Additionally, the judicial pronouncements in India have somewhat broadened the scope of
court intervention while challenging awards. The critics are fearful of the fact that the 1996
Act will face the same fate as the 1940 act.
Despite all of the criticism, the 1996 Act is still an improvement from the previous act and
demonstrates a positive movement towards a stable and predictable arbitration system in
place. The courts tend to now intervene when absolute necessity is felt and the legislature
can further limit such intervention if the arbitral tribunal is more pivotal in the process. By
leaning towards a more uniform process, the 1996 Act is most likely to entice parties to
arbitrate in India. The recent case laws and well as amendments focus on this proposition
along with the challenges the arbitration system would still face.
Q 2. WHAT ARE THE RECENT TRENDS FAVORING ARBITRAL
INDEPENDENCE IN INDIA
23
The Arbitration and Conciliation Act, No. 26 of 1996, Statement of Objects and Reasons.
10 | P a g e
The judicial as well as legislative history in India demonstrate that in order to fulfil the
objective of making India an efficient arbitration global hub, the courts, government,
corporate entities as well as lawyers all need to work in consonance. Similar to the United
States, wherein the judiciary has interpreted and essentially altered the Federal Arbitration
Act24, the courts in India have performed an in-depth analysis of the 1996 Act and the
government has in turn, approved key amendments25. While the process of Arbitration in
India is still carrying ample problems creating a burden, recent Indian laws seem to
demonstrate a pro-arbitration stance.
CASE LAWS
Since the year 2012, ever since the decision in the case of Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services, Inc. (“BALCO”), India has experienced a radical positive
revolution in terms of the area of international commercial arbitration26.
Before the BALCO case, the laws pertaining to arbitration in India were governed by the
controversial case of Bhatia International v. Bulk Trading S.A., in which the court held that
Part I of the 1996 Act was applicable even when the arbitration seat was outside the territory
of India27. As a consequence of this judgement, court intervention increased since now the
Indian courts had the jurisdiction to challenge an award which was given in India even
when the terms of the contract mentioned the applicability of the laws of another state.
Realising the problems created by such degree of court intervention, the Supreme Court of
India overruled the Bhatia by the decision given in BALCO case a decade later28. By way
of the decision given in the BALCO case, further restrictions were placed on the power of
the court by holding that only the Indian Parliament had the sole power to fill the gaps
which were present in the 1996 Act. Due to the decision in the BALCO case, businesses
would no longer fear intervention by court when holding arbitration in India, and the need
to cater their arbitration clauses specifically for India does not exist any longer. The BALCO
decision, specifically held as follows:
24
See generally Jodi Wilson, How the Supreme Court Thwarted the Purpose of the Federal Arbitration
Act, 63 CASE W. RES. L. REV. 91 (2012).
25
LAW COMMISSION OF INDIA, REPORT NO. 246, Amendments to the Arbitration and Conciliation Act
1996, (2014), [Link] [hereinafter Amendments].
26
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, Inc., (2012) 9 SCC 552 (India).
27
Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105 (India).
28
Bharat Aluminium, (2012) 9 SCC 552 (holding that Part I and II of the 1996 Act are mutually exclusive
and no section of Part II applies to any arbitration seated outside of India).
11 | P a g e
“Section 28(1)(a) makes it clear that in an arbitration under Part I to which Section 2(1)(f)
does not apply, there is no choice but for the Tribunal to apply the Indian substantive law
applicable to the contract. This is clearly to ensure that two or more Indian parties do not
circumvent the substantive Indian law, by resorting to arbitrations. This provision would
have an overriding effect over any other contrary provision in such contract.”
After the BALCO decision, many more cases were filed before the Indian high courts which
demonstrated how the Indian judiciary is not recognizing arbitral independence. In the case
of Avital Post Studioz & Ors v. HSBC PI Holdings, HSBC became aware of the possible
illegitimacy of Avitel’s business and as a conclusion of the same, sought an interim
injunctive relief in order to compel the payment due as per the arbitration proceedings in
Singapore29. Avitel in response posed the argument that as per the agreement of the parties,
they were governed by Indian Law and Indian Law does not arbitration is disputes
pertaining to fraud. The findings of the Bombay High Court were in favour of HSBC, and
hence, arbitration in general, by holding that the parties had expressly agreed to arbitrate
matters in Singapore, which allowed the arbitral tribunals to decide claims raised on frauds.
Another significant case which upheld an arbitration agreement is the case of World Sports
Group v. MSM Satellite30. In this case the Supreme Court of India established a standard
which is to be applied when it is essential to compel arbitration and held that the courts are
needed to compel the parties to arbitration following their agreement unless the agreement
is held to be “null and void, inoperative, or incapable of being performed”. Similar to the
HSBC case, an agreement does not become inoperative only due to the ground that the
dispute deals with fraud.
In both the above discussed cases, the High Courts of India have upheld arbitration
agreements and expanded the scope of powers held by the arbitrator’s in order to decide on
the issues of fraud. In essence, these cases upheld the doctrine of kompetenz-kompetenz in
India31.
The Supreme Court of India further reaffirmed the pro-arbitration stance in India in the
case of Reliance Industries v. Union of India by putting a limit on the court’s jurisdiction32.
In this case, the contracts entered into by the parties themselves were governed by Indian
29
Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2014) Appeal No. 196 of 2014 in Arbitration
Petition No. 1062 of 2012 (Bombay High Court).
30
World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pvt. Ltd., (2014) 11 SCC 639 (India).
31
The kompetenz-kompetenz doctrine gives the arbitral tribunal the ability to rule on their own jurisdiction.
CARBONNEAU, supra note 20 at 35.
32
Reliance Indus. v. Union of India, (2014) 7 SCC 603 (India).
12 | P a g e
law, however the arbitration agreement inside the contract was to be governed by the
English laws, which mentioned London as the seat of arbitration. In this case, the Union of
India argued that the Indian laws and hence Part I of the 1996 Act should govern since the
agreement was signed in India and the dispute also emerged in India only. On the other
hand, Reliance argued that by choosing London as the seat of arbitration and the laws of
England to be the governing laws in the arbitration clauses, both the parties had expressly
intended to ignore Part I of the 1996 Act being applicable. The Supreme Court of India
upheld the arbitration agreement and held the decision in favour of Reliance.
The court’s decision lead to the limiting of court’s interference effectively with respect to
foreign-seated arbitration and demonstrates a view which is favouring towards international
arbitration. An important fact to be noted here is that the Reliance case dealt with the
arbitration agreement which had been executed before the BALCO case. Hence, the parties
which had entered into arbitration agreements before the 6 th of September, 2012 would still
have recourse as well as protection from court intervention in an arbitration which is foreign
seated.
By enlarging the applicability of international arbitration as well as narrowing the ability
of the courts to intervene, the Indian courts have taken significant steps towards
transforming the country from a country which is not favourable for arbitration to a country
with pro-arbitration stance.
• AMENDMENTS
Via the 2019 amendment, arbitral proceedings were streamlined and an Arbitral Council
of India was introduced. Time bound arbitrations were also mandated, needing the
pleadings to be finished within 6 months of the appointment of the arbitrator.
The 2019 amendment demonstrates another step towards becoming a pro-arbitration state,
simplifying the already existing procedure.
13 | P a g e
CONCLUSION
From a single piece of legislation to another, India has evolved with regard to it’s arbitral
jurisprudence in a way where courts also followed along the way. In the process of filling
in the gaps of previous legislation, the 1996 Act significantly improved the not so efficient
act of 1940. While the 1996 Act has flaws of it’s own, recent trends for instance reduced
court intervention and upholding of arbitration agreements have the aim to improve the
hindrances as well.
India has surely come a long way from the arbitration pitfalls which had plagued the nation
in the 1940s. With the new legislation and judicial decisions supporting the same
contention, India as a seat for arbitration has become more attractive. While the courts in
India have demonstrated a pro-arbitration stance, the jurisdiction itself still has quite a way
to go and get on board with the best methods of international arbitration which are being
practiced in the global hubs today.
14 | P a g e
BIBLIOGRAPHY
Articles
1. Dholakia, Bharat. "India's Shift Toward Arbitration: Key Reforms and Challenges."
Indian Journal of Arbitration Law, vol. 7, no. 1, 2023, pp. 45–58.
2. Khanna, Vikramaditya. "Institutional Arbitration in India: Assessing the Role of
Recent Amendments." National Law School Review, vol. 15, no. 2, 2022, pp. 123–
140.
3. Malik, Radhika. "Pro-Arbitration Trends in Indian Judiciary: A Critical Perspective."
Economic and Political Weekly, vol. 58, no. 4, 2023, pp. 30–35.
Reports and Official Documents
1. The Arbitration and Conciliation (Amendment) Act, 2015. Government of India,
Ministry of Law and Justice, 2015.
2. Report of the High-Level Committee to Review the Institutionalisation of Arbitration
Mechanism in India (Justice Srikrishna Committee Report), 2017.
3. UNCITRAL Model Law on International Commercial Arbitration. United Nations
Commission on International Trade Law, 1985.
Online Resources
1. Centre for Arbitration and Mediation in India. "Reforms in Arbitration Law in India."
Accessed November 2024. [Link]
2. Jain, Shubham. "Analysis of India’s Pro-Arbitration Journey." Bar and Bench.
Accessed November 2024. [Link]
3. Singhania & Co. LLP. "Key Features of Arbitration and Conciliation in India."
Lexology. Accessed November 2024. [Link]
15 | P a g e
