India passed the 1996 Arbitration & Conciliation Act in order to implement the
UNICITRAL Model Law on Arbitration and in response to a significant economic
shift brought about by the 1991 New Economic Policy (NEP). This Act offers a
workable legal foundation for resolving business disputes outside of the court
system. It incorporates several legal standards pertaining to arbitration and
skirts the previous laws.
Nevertheless, the last 20 years of experience applying
this Act have shown that it needs to be amended because it has significant
flaws, mostly related to inadequate legal strategy that required excessive
judicial interventions and overreach, which resentment among those who were
willing to use this Act's alternative dispute resolution provisions while
maintaining India as the seat of arbitration. The goal of the succeeding
governments' numerous attempts was to modify the 1996 Act.
However, none of
those efforts succeeded. However, under the current government, there have been
major reforms and changes in the Indian Arbitration Laws. Arbitration has
emerged as an important alternative dispute resolution mechanism globally,
including in India.
India has worked hard in the last few decades to establish arbitration as the
go-to process for settling business conflicts. The goal has been to offer a more
rapid, effective, and economical method of resolving conflicts in order to draw
in foreign capital and make doing business in the nation easier. India has had a
number of significant changes in the arbitration field in recent years.
Legislative changes and court rulings have fuelled these advancements by
attempting to bring the nation's arbitration laws into compliance with global
norms and resolving some of the long-standing issues that parties to arbitration
proceedings have faced. To improve the effectiveness of India's arbitration
system, institutionalizing arbitration is a crucial step. Everyone knows that
the ad hoc arbitration system is used in India for thousands of arbitrations.
The ad hoc arbitration system gives arbitrators and parties the authority to
determine how the arbitration will proceed and sets their own fees. In certain
instances, the fees set by the arbitrators and the duration of arbitrations
exceeded reasonable bounds; consequently, the Indian arbitration community has
harshly criticized the aforementioned system. The effectiveness of the ad hoc
arbitrations depended on the cooperation of the parties' attorneys and the
individual qualifications of the arbitrators.
However, the majority of
arbitrations conducted worldwide are managed by organizations, and they are
subject to the arbitral institutions' regulations. The aforementioned Rules of
the Arbitral Institutions outline the protocols that the Institution's
Administration and Arbitrators must adhere to when conducting arbitrations.
transparent fee calculator based on the amount of the claim and the workload is
also provided by the aforementioned Rules. Even though there are currently a few
arbitral institutions in India offering services, the government's efforts will
undoubtedly advance the field.
Alignment Of Indian Laws With International Standard:
India's journey in aligning its arbitration laws with global standards has been
pivotal in fostering a robust and progressive legal framework for resolving
commercial disputes. The adoption of international best practices, especially
those outlined in the UNCITRAL Model Law, has significantly influenced and
shaped India's Arbitration and Conciliation Act, 1996.
Incorporation of Key Principles: India's Arbitration and Conciliation Act, 1996,
was formulated with the intent to reflect international standards and practices.
Key principles such as party autonomy, minimal judicial intervention, and the
finality and enforceability of arbitral awards have been fundamental aspects
adopted from international arbitration norms.
- Party Autonomy: India's legislation upholds the principle of party autonomy, allowing the parties involved in a dispute to determine the procedures for arbitration, the choice of arbitrators, and the substantive law governing the dispute. This principle aligns with global standards and provides flexibility to the parties involved.
- Minimum Judicial Intervention: The Act restricts judicial interference in arbitral proceedings, adhering to the international standard of limiting court intervention to only essential matters such as the appointment of arbitrators or enforcement of awards. This approach ensures the autonomy of arbitration proceedings.
- Enforceability of Awards: The Act ensures the enforceability of arbitral awards both domestically and internationally, in line with the principles of the New York Convention. The clear and concise provisions for enforcing awards make India an attractive jurisdiction for international arbitration.
Adoption of UNCITRAL Model Law Principles: India's Arbitration and Conciliation
Act, 1996, was substantially influenced by the UNCITRAL Model Law on
International Commercial Arbitration. The Act's structure, provisions related
to the conduct of arbitral proceedings, recognition, and enforcement of awards
draw inspiration from this globally accepted model.
- Procedural Flexibility:
The Act provides procedural flexibility akin to the UNCITRAL Model Law, allowing parties to tailor arbitration proceedings according
to the specific needs of their dispute. This flexibility ensures that
arbitration can adapt to a wide range of commercial disputes.
- Recognition of Institutional Arbitration:
The Act recognizes institutional arbitration, emphasizing the importance of
arbitration institutions in administering proceedings. This recognition
aligns with international practices, ensuring professionalism, and adherence
to rules and standards set by reputable arbitral institutions.
Consistent Interpretation with International Precedents: Indian courts have
consistently referred to and interpreted the Act in line with international
precedents and arbitration norms. Decisions from international forums and
prominent arbitral institutions like the ICC, SIAC, and LCIA have been cited and
considered by Indian courts, ensuring a harmonious interpretation and
application of arbitration laws.
Continuous Reforms in Line with Global Trends: India's commitment to aligning
its arbitration laws with international standards is evident through ongoing
reforms. Amendments, such as those introduced in the Arbitration and
Conciliation (Amendment) Act, 2021, have aimed to further streamline arbitration
processes and strengthen India's position as an arbitration-friendly
Recent Developments In Indian Arbitration:
Arbitration, once a secondary method for dispute resolution in India, has
evolved into a primary choice for settling commercial disputes. Recent
legislative amendments, judicial pronouncements, the establishment of
specialized institutions, and a growing emphasis on aligning with international
standards have significantly shaped the landscape of arbitration laws in India.
The Arbitration and Conciliation (Amendment) Act, 2021 represents a landmark
development aimed at addressing long-standing challenges and streamlining
arbitration proceedings. The amendments sought to promote institutional
arbitration, minimize judicial interference, and expedite the resolution of
disputes. One of the key provisions is the introduction of a mechanism for the
automatic stay on enforcement of arbitral awards on grounds of fraud or
corruption, pending a decision from the courts. This measure aimed to prevent
frivolous attempts to stall the enforcement of arbitral awards.
Act also focused on the establishment of the Arbitration Council of India (ACI)
to promote institutional arbitration and maintain professional standards. The
ACI is envisioned to frame policies for grading arbitral institutions and
accredit arbitrators, further enhancing the credibility of the arbitration
Emergence of Specialized Arbitration Institutions: India has witnessed the
establishment and growth of specialized arbitration institutions aimed at
providing world-class arbitration services. The Mumbai Centre for International
Arbitration (MCIA), Delhi International Arbitration Centre (DIAC), and other
institutions have emerged as robust forums for resolving domestic and
These institutions prioritize transparency, efficiency, and adherence to
international best practices. Their existence not only provides a credible
alternative for resolving disputes but also reflects India's commitment to
becoming a hub for arbitration in the region.
Judicial Pronouncements & Precedents: Indian courts have played a pivotal role
in shaping arbitration jurisprudence, aligning with global standards. Landmark
judgments, such as the Bharat Aluminium Co. v. Kaiser Aluminium Technical
. (BALCO) case, clarified the scope of judicial intervention in
arbitration proceedings, emphasizing minimal interference in arbitral awards.
In the recent Vijay Karia v. Prysmian Cavi E Sistemi SRL
 case, the Supreme
Court reinforced the pro-enforcement stance of arbitral awards, promoting a
pro-arbitration approach by upholding the sanctity of the arbitral process.
These judgments not only contribute to the consistency and predictability of
arbitration outcomes but also reinforce India's commitment to enforcing arbitral
awards in line with international standards.
Focus on Expedited Dispute Resolution: Recognizing the importance of time-bound
resolution, India has introduced mechanisms for fast-track arbitration and
interim relief. These measures aim to reduce the time and cost involved in
arbitration proceedings, enhancing the attractiveness of arbitration as a speedy
dispute resolution mechanism. The provision for emergency arbitrators and the
establishment of designated commercial courts for arbitration-related matters
further exemplify India's commitment to expediting dispute resolution.
Technological Integration in Arbitration: In response to the global shift
towards digitalization, India has embraced technological advancements in
arbitration proceedings. Virtual hearings, electronic evidence management
systems, and online dispute resolution platforms have gained traction, ensured
uninterrupted proceedings and made arbitration more accessible, especially in
the wake of the COVID-19 pandemic.
India As A Hub Of International Commercial Arbitration:
Common Law System: Indian legal system is based on the common law system which
is followed widely throughout the world and English is the language used. Hence,
in terms of the commonality of language and legal traditions, India is better
suited as a seat of international arbitration.
- Strong Legal Institutions and Traditions: India has a well-structured dispute resolution infrastructure with District Courts (which generally hear arbitration matters) at the lower rung and the Supreme Court at the apex. The decisions of the Indian Courts especially that of the Supreme Court are cited in courts of several countries.
- Availability of Quality Lawyers and Experts in other Professions: India has one of the finest legal professionals in the world. To become a prominent arbitral destination, it is not enough if there are law professionals alone. The industry has to be supported by other professionals such as interpreters, translators, accountants, engineers, financial experts, and experts in other fields who can immensely contribute to resolve a dispute effectively. India has no dearth for such professionals.
- New York Convention: India is a signatory to the New York Convention. Currently, the Government of India has notified more than 40 countries as affording reciprocity treatment in line with the reciprocity reservation it took in the New York Convention and as recognized statutorily in Section 44 of the 1996 Act.
- Limited Grounds for Annulment: The 2015 Act restricts the grounds on which an award could be set aside. Prior to 2015, public policy was expansively interpreted. The 2015 amendments curb this expansive notion in two ways. Insofar as international commercial arbitration is concerned, the amendment seeks to do away with the patent illegality test.
Challenges & Adaptations In India's Arbitration Framework:
Future Prospects & Implications:
Judicial Intervention & Delay: Historically, one of the prominent challenges in Indian arbitration has been excessive judicial intervention, leading to delays in the resolution of disputes. Courts' involvement in routine arbitration matters often prolonged proceedings, defeating the purpose of choosing arbitration for speedy resolution. Recent legislative reforms, particularly the Arbitration and Conciliation (Amendment) Act, 2021, aimed at reducing judicial interference. Measures promoting institutional arbitration and limiting court intervention to essential matters have been introduced to expedite the arbitration process.
Interpretation of Public Policy: The broad interpretation of "public policy" by Indian courts has been a challenge, leading to increased instances of setting aside arbitral awards on public policy grounds. This subjective interpretation posed uncertainties and hindered the enforceability of awards. Courts are now inclined towards a more restrained approach while invoking public policy as a ground for setting aside arbitral awards. Greater clarity in defining and restricting the application of public policy grounds has been sought through judicial pronouncements, aligning with international norms for a more predictable enforcement regime.
Lack of Specialized Skills and Expertise: The shortage of specialized arbitrators and legal professionals well-versed in arbitration practices was a significant hurdle. The absence of a pool of experienced arbitrators often led to delays and compromised the quality of arbitration proceedings. Efforts to address this challenge include the establishment of training programs, workshops, and initiatives to enhance the skills of arbitrators and legal practitioners. Institutions like the Chartered Institute of Arbitrators (CIArb) and the Arbitration and Mediation Center at the Indian Institute of Corporate Affairs (IICA) offer certification programs to groom professionals in arbitration.
Arbitration Costs and Transparency: Arbitration costs in India, including administrative fees and legal expenses, have been a concern, particularly for smaller businesses. Lack of transparency in fee structures and proceedings deterred parties from choosing arbitration as a cost-effective alternative. Institutional reforms aimed at improving transparency in fee structures and administrative processes have been introduced. Specialized arbitration centres like the MCIA and DIAC provide transparent fee schedules and guidelines, making arbitration more accessible and predictable.
Need for Legislative Clarity: Ambiguities in the legal framework posed challenges in enforcing arbitral awards and interpreting provisions, leading to prolonged legal battles. Ongoing efforts through legislative amendments and court decisions seek to provide greater clarity in arbitration laws. The aim is to bridge gaps and ambiguities, ensuring a more coherent and enforceable arbitration regime in line with international standards.
- Institutional Strengthening and Capacity Building: The establishment of the Arbitration Council of India is expected to standardize practices, accredit arbitrators, and foster institutional growth, ensuring the availability of competent arbitrators and efficient arbitration forums.
- Technological Advancements: Continued integration of technology will streamline proceedings, improve accessibility, and reduce administrative burdens, thereby attracting more parties to opt for arbitration as their preferred mode of dispute resolution.
- International Recognition & Collaboration: India's efforts to align with global standards will enhance its credibility as a seat of arbitration internationally. Collaborations with established international arbitration institutions will facilitate knowledge exchange and best practices adoption.
- Enhanced Enforcement of Awards: The focus on enforcing arbitral awards promptly and minimizing judicial intervention will instil confidence in parties opting for arbitration, further promoting India as a pro-arbitration jurisdiction.
In India, arbitration is not a novel idea; it was practiced as early as
antiquity. However, it can be argued that arbitration is still in its infancy
and is not the preferred method of resolving conflicts in India. In order to
improve its efficacy going forward, the current arbitration system must be
This applies to both domestic and international commercial
arbitration. Although arbitration is properly classified as one of the forms of
alternative dispute resolution (ADR), since the court frequently intervenes in
the arbitration process, the essence of ADR is undermined.
Although the Act has undergone commendable modifications, arbitration will still
need to advance a few steps before it becomes India's preferred method of
resolving disputes. It is unlikely that enforcing legislative changes will be
the only way to improve arbitration's professionalism and efficiency. More
lawyers with expertise in arbitration should be available, and arbitration
should be given priority over Indian court litigation rather than taking a
ONGC v. Saw pipes, (2003), is an example of how judicial interference in the
arbitration process can take foundation when there is even the slightest
vagueness and ambiguity in the arbitration law, with the intrusion being of such
magnitude that legislative change is necessary to remedy it.
- UNCITRAL Model Law on International Commercial Arbitration
- 2010 1 SCC 72
- CA 1544/2020 with CA 1545/2020
- United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958)
- Arbitration and Conciliation Act, 1996
- The Arbitration and Conciliation (Amendment) Bill, 2021
- 2003 (4) SCALE 92