The significant growth in the number of business disputes over the last few
decades has paralleled the significant increase in economic development of
nations. In India also, rapid economic globalization has resulted in an increase
in business disputes as a result of increased competitiveness.
the rate of industrialization, modernization, and improvement of socioeconomic
conditions has often exceeded the growth of dispute resolution systems. Rapid
development has resulted in increased caseloads for already overloaded courts in
many parts of India, resulting in notoriously delayed adjudication of business
As a result, alternative dispute resolution mechanisms, such as
arbitration, have become increasingly important for companies doing business in
India and those doing business with Indian companies. This research paper aims
to critically assess arbitration as a legal institution in India. The article
examines Indian arbitration legislation and practice, highlighting how the
current arbitration system in India is still riddled with inadequacies and
flaws, and how arbitration quality has not improved as a speedy and
cost-effective process for resolving business disputes.
The huge growth in the number of business disputes over the last few decades has
paralleled the significant increase in economic development of nations. Rapid
economic globalization, as well as the resulting increase in competitiveness,
has resulted in an increase in commercial conflicts in India.
the rate of industrialization, modernization, and improvement of socioeconomic
conditions has often exceeded the rate of growth of dispute settlement. As a
result, alternative dispute resolution methods, such as arbitration, have become
increasingly important for companies doing business in India and those doing
business with Indian companies.
As a worldwide economic powerhouse, Indian laws
have been altered numerous times to keep the country on level with legal regimes
in other top commercial law jurisdictions in the goal of integrating with the
global business community.
The three enactments that govern arbitration in India are the arbitration Act,
1940, the arbitration (protocol and convention) Act, 1935, and the foreign
awards (recognition and enforcement) Act, 1961.The legislation introduced a Bill
to consolidate and reform the law pertaining to domestic arbitration,
international commercial arbitration, and enforcement of foreign arbitral
decisions, as well as to clarify the law governing conciliation, taking into
account the UNCITRAL Model Law and Rules. On 16th August, 1996, the Arbitration
and Conciliation Act came into effect.
This research paper is an attempt to objectively analyze arbitration in India as
a legal institution, with the larger goal of examining relationships between the
quality of legal performance and economic growth. In sum, despite the fact that
the massive influx of global commercial transactions spurred by India's economic
growth has resulted in a large increase in commercial disputes, arbitration
practice has lagged behind.
The evolution of arbitration law and practice in
India has been explored in this paper, including how the contemporary
arbitration system in India is still plagued by many flaws and shortcomings, and
the quality of arbitration as a rapid and cost-effective process for resolving
commercial disputes has not fully developed.
Critical Analysis Of Arbitration Under The 1996 Act
The earlier law, the 1940 Act, did not meet the aspirations of the people in
general, and the business community in particular, therefore the 1996 Act was
enacted. Despite the fact that the 1996 Act was meant to fill in the gaps in the
1940 Act, it failed due to the arbitral system that developed beneath it. The
Act's major goal was to give the existing judicial system, which was plagued by
unreasonable delays and a backlog of cases, a more efficient and effective
conflict settlement process. However, an examination of the 1996 Act's
arbitration mechanism indicates that it failed to achieve its intended goals.
Speedy JusticeArbitration is common in India, but it is plagued by delays that stymie the
effective resolution of disputes. Although the 1996 Act gives arbitrators more
authority and protects them from court interference, it does not set a deadline
for the processes to be completed. This differs from the 1940 Act, which set a
deadline for the conclusion of arbitration proceedings. The time limit for
completing arbitration procedures was eliminated, based on the assumption that
court meddling is the main cause of delays in arbitration and that giving
arbitrators more autonomy would remedy the problem.
On the other hand, the reality is rather different. Arbitrators who are
usually retired judges, view arbitration hearings similar to ordinary
litigation, and are inclined to grant lengthy and frequent adjournments when
requested by the parties.Furthermore, the parties frequently approach
arbitration with same mindset as for litigation, resulting in awards that
ultimately wind up in courts, lengthening the time it takes to resolve
conflicts. Parties also take advantage of an existing rule that allows for
an automatic stay of the awards' execution simply by filing a
challenge application. As a result, the goal of arbitration as a vehicle for
resolving conflicts quickly is hampered by obvious delays.
Cost EffectiveArbitration is relatively more cost effective than litigation when the number of
arbitration proceedings is limited. The following is the standard procedure
before the arbitrators: the claimant is required to file his claim statement and
supporting documents at the first hearing; the opposing parties are required to
file their reply and supporting documents at the second hearing; and the
claimant is required to file his rejoinder at the third hearing.
normally two or three adjournments at each of these stages. Occasionally, either
party files an application for interim instructions, which increases
the arbitration sessions required to decide such interim applications. The first
time an arbitral tribunal considers a question of jurisdiction is usually after
the arbitral tribunal has issued at least 6 adjournments.
Litigation, on the other hand, are unquestionably less expensive if admitted,
even if they take a long time to resolve. This is because lawyers' costs are the
only significant expenditure in a lawsuit, and lawyers often charge the same, if
not more, per hearing.
Judicial InterventionOne of the main goals of the 1996 Act was to give arbitrators more power and
limit the court's supervisory role in the arbitration process. In reality, the
1996 Act allows for frequent judicial intervention.
- Public Policy:
In the 1996 Act, the term public policy is used twice.
If an award is in conflict with Indian public policy, it can be set aside
under Section 34 of the 1996 Act (Part I). Furthermore, if a foreign award
is detrimental to India's public policy, it may be rejected enforcement
under Section 48 of the 1996 Act (Part II). In the case of Renusagar Power
Electric Co v. General Electric Co (Renusagar) which included enforcement of an ICC
Award, the topic of public policy surfaced for the first time as an exemption
for enforcement of a foreign arbitral award.
The 1961 Act was used in this judgement. The Supreme Court (SC) concluded that the term
should be interpreted narrowly when it comes to the implementation of a foreign
award. Public policy has been used in a narrower sense, and the enforcement of
the award must evoke something more than a breach of Indian law in order to
attract the attention of the bar of public policy." according to the Court.
Applying the aforementioned criteria, it must be established that enforcement of
a foreign award would be refused on the basis of public policy if such
enforcement would be opposed to:
In Oil and Natural Gas Corporation v. Saw Pipes Ltdthe question was whether
an award made in India may be overturned on public policy grounds, claiming that
the arbitral tribunal had applied the law of liquidated damages wrongly. Despite
the Renusagar precedent, the SC ruled that any arbitral judgement that
contradicts Indian law provisions is patently invalid and against public
- Indian law's fundamental policy;
- India's interests;
- Justice or morality.
The court in Saw Pipes distinguished the case from Renusagar on the basis
that the latter's issue concerned the implementation of an award that had
reached finality under the 1961 Act. In Saw Pipes, on the other hand, the
award's legitimacy was questioned. As a result, in the Saw Pipes case,
Indian courts would oversee the domestic award because they were the
Furthermore, it was determined that if the term public policy was given a
restrictive interpretation, certain of the 1996 Act's provisions would be
rendered ineffective. As a result, the SC construed the 1996 Act's Section 34
(2)(b)(ii) to include the additional basis of "patent illegality". Illegality
must go to the "root of the matter" and not be minor in character.
- Misuse of the Public Policy doctrine post Bhatia International Case:
the Renusagar case, the SC gave a restrictive meaning of public policy, but in
the Saw Pipes case, it gave a broader reading. In effect, this means that
different interpretations of the term public policy existed for refusing to
set aside an arbitral award for public policy reasons on the one hand, and
refusing to enforce a foreign award for public policy reasons on the other.
has since modified as a result of the SC's decision in Bhatia International vs
Bulk Trading(Bhatia). The distinction between Part I and Part II was
erased in Bhatia International. It held, Part I would apply to all arbitrations
and all related proceedings. The provisions would be mandatory be applied in all
arbitrations held in India. Only the derogable provisions of Part I were subject
to change. In international commercial arbitrations, held outside India, the
provisions of Part I would apply by default unless the parties expressly or
impliedly, excluded all or any of its provisions.
The Indian courts used the Bhatia decision to overturn a foreign arbitration
award and appoint an arbitrator in a case that took place outside India.
This pushed many parties to commercial contracts drafted arbitration clauses
specifically excluding the use of Part I of the Act as a result of
Simultaneously, in reaction to mounting criticism of the Bhatia principle's
arbitration unfriendliness, Indian lower courts began to
limit the Indian court's ability to intervene in foreign arbitrations. These
decisions were highly criticized and as a result, parties frequently
& deliberately challenged foreign arbitration awards in Indian courts on public
policy grounds. This went against the New York Convention's essential concept
of mutual recognition and execution of arbitral rulings.
- A Shift in Interventionist Approaches to Foreign Awards:
concept was reversed in Bharat Aluminium Company v. Kaiser Aluminium Technical
Services ("BALCO"), which found that Part I of the Act only applies to
arbitrations held in India. The court stated in support of its decision that the
parties' choice of seat, and not the law underlying the contract or arbitration
agreement, determined whether the Indian courts had jurisdiction.
This was a
welcome clarification of an issue that had previously been a source of
uncertainty in SC decisions. The court observed, Part I and Part II of the Act
are mutually exclusive, due to the territoriality principle imposed by the Act.
As a result, the ability under section 34 of Part I of the Act to set aside an
arbitration award does not extend to arbitrations held outside of India. Only
arbitrations held in India are entitled to this power.
While BALCO reduced the authority of Indian courts to intervene in the conduct
of foreign-seated arbitrations, it left intact prior contentious SC decisions
regarding the public policy grounds for challenging an award, as well as the
scope of such challenges. As previously stated, the SC concluded in ONGC v. Saw
Pipes that an award that contradicted with Indian law was contrary to public
policy and so unenforceable. The Saw Pipes case raised the obvious worry among
parties that any award made outside of India could be subjected to substantive
review at the enforcement stage.
The Supreme Court, however, addressed this issue in Shri Lal Mahal Ltd v.
Progetto Grano. The Court ruled that the term "public policy of India"
should be given a narrower interpretation, and that foreign awards should only
be enforced if they are opposed to Indian law's fundamental policy, national
interests, justice, or morality. The SC upheld its judgement in Renusagar Power
Company Ltd v. General Electric Company and overturned Phulchand Exports' wide
interpretation of public policy. This has been a great respite for parties
involved in arbitrations held in foreign jurisdictions.
- Post BALCO Judgment:
The BALCO ruling improved India's investment and
business climate by limiting the scope of Indian courts' interference in
offshore arbitration. As a result of this decision, India has returned to its
pre-Bhatia International position. Nonetheless, there are at least two aspects
of the post-BALCO arbitral regime that could jeopardise the process's confidence
- The pre-BALCO system still applies
to parties who signed arbitration agreements before September 6, 2012. This is
due to the fact that the judgement simply states that it will "apply
prospectively to all arbitration agreements executed afterwards." Parties who
signed arbitration agreements before September 6, 2012 are still bound by the
- A significant feature of offshore arbitration:
the opportunity to go to Indian courts for interim remedies in support of
such proceedings - is no longer accessible to parties entering into new
arbitral agreements, to which the BALCO ruling applies. The Supreme Court
ruled that Part I and Part II of the Act are completely segregated, meaning
that "...any of the regulations included in Part I cannot be made applicable to
Unfortunately, Part I of the Act contains not just powers
that can be used to stymie offshore arbitration procedures, but also ones that
can help them, most notably the ability to mandate interim measures in support
of arbitration proceedings, which is found in section 9 of Part I of the Act.
While the Supreme Court acknowledged that the segregation theory would
prevent Indian courts from issuing interim measures in support of foreign
arbitrations, it also stated that rather than the Supreme Court, the
legislature should handle a matter to be redressed by the legislature. Parties to arbitration procedures
situated outside India will be unable to apply to Indian courts to preserve
assets or evidence, force the attendance of a witness, or seek an order for
security for costs until such reforms are adopted.
The efficiency and efficacy of the award enforcement regime is one of the
variables used to determine whether arbitration is a successful legal
institution. An arbitral award is enforceable as a court decision under Section
36 of the 1996 Act, and could be enforced in a suit under the rules of the Civil
Procedure Code, 1908.International treaties and conventions that stipulate
the acceptance and enforcement of arbitral awards govern the enforcement of an
award emanating from an international commercial arbitration.
The New York
Convention, 1958 and the Geneva Convention, 1927 which is incorporated in
Chapter II, Part I and Part II, respectively, of the 1996 Act, govern the
enforcement of foreign awards in India. The enforcement provisions of the 1940
Act and the 1996 Act are similar. Any party interested in foreign awards must
submit a written request to a court with jurisdiction over the subject matter of
the award. Under the 1996 Act, the decree holder must file the award, the
agreement on which it is based, and documentation to show that the award falls
under the category of foreign award.
- Arbitration and Conciliation (Amendment) Act, 2015
The 2015 Amendment Act made major improvements to the Act and went a long way
toward clarifying various concerns related to the Act's goals. It established
stringent deadlines for the conclusion of arbitral proceedings along with
a fast-track approach for settling conflicts. New provisions were added to the
2015 Amendment Act. In addition to existing provisions governing the appointment
of an arbitrator it amended the grounds for challenging an arbitrator's
appointment for a lack of independence and impartiality were further defined.
The following are some of the significant revisions made by the 2015 Amendment
- Proceedings Prior to Arbitration
- Impartiality and independence
- Applications for the appointment of an arbitrator shall be resolved
within sixty (60) days following service of notice on the opposing party.
- A precise schedule for arbitrator ineligibility has been put in place,
based on the IBA Guidelines on Conflict of Interest.
- Interim Reliefs
- Parties with foreign-seated arbitrations now have more flexibility in
approaching Indian courts for assistance in foreign-seated arbitrations.
- Section 9 applications must be filed directly with the High Courts in
the instance of International Commercial Arbitration ("ICA") based both in India and
- Interim reliefs given by arbitral tribunals seated in India are deemed to be
court orders under the new regime and are thus enforceable.
- Arbitration proceedings must begin within 90 days of the court's grant
of interim relief, or within any additional time decided by the court.
- Arbitral Proceeding Stage
- Expeditious disposal
- A twelve-month deadline was set for the completion of arbitrations held
- Expeditious application processing, as well as estimated timelines for
submitting arbitration applications before courts for interim relief,
arbitrator appointment, and contesting petitions.
- Incorporation of an expedited/fast track arbitration system to resolve
certain issues in six months or less.
- A new "costs follow the event" policy has been implemented.
- In relation to the assessment of expenses by arbitral tribunals seated
in India, certain detailed provisions have been added.
- Enforcement and Challenge
- The grounds for challenging an arbitral ruling in the context of an ICA based
in India have been narrowed.
- In the case of ICAs based in India, Section 34 applications must be filed
directly with the High Courts.
- Section 34 petitions must be resolved quickly and, in any case, within
one year of the date on which the opposing party is given the notice.
- There will not be an automatic stay on the award's execution if a
challenge is filed under Section 34 of the Act; rather, the court must issue
an order expressly halting the execution procedures.
- Arbitration and Conciliation (Amendment) Act, 2019The High-Level Committee to Review the Institutionalization of Arbitration
Mechanisms in India was formed to identify roadblocks to the development of
institutional arbitration in India, examine specific issues affecting the Indian
arbitration landscape, and develop a roadmap for making India a strong
international and domestic arbitration centre. The 2019 Amendment Act was
passed with the goal of making India a global centre for institutional
arbitration for domestic as well as international arbitration.
Amendment Act made several significant changes to India's arbitration landscape:
The Supreme Court addressed the issue of the 2015 Amendment Act's retrospective
applicability in 2018. The Supreme Court made a clear distinction between the
two limbs of Section 26 of the 2015 Amendment Act and explained the
applicability of the 2015 Amendment Act in the case of Board of Control for
Cricket in India v. Kochi Cricket Pvt. Ltd. ("BCCI"). The first section of
Section 26 deals solely with arbitral proceedings before the arbitral tribunal.
The second section, according to the Court, only deals with court procedures
relating to the arbitral proceedings.
- The 2019 Amendment Act aimed to create the Arbitration Council of India,
which would have powers such as grading arbitral institutions, recognizing
professional institutes that provide arbitrator accreditation, giving
arbitral institution suggestions and guidelines, as well as taking
initiatives to make India a centre for domestic and international
arbitrations. This amendment, however, has yet to be notified.
- In addition, the 2019 Amendment Act modifies the 2015 Amendment Act by
allowing the Supreme Court and High Court to nominate arbitral institutes
that have been accredited by the Arbitration Council of India to choose
arbitrators. This change has also yet to be notified.
- The 2015 Amendment Act established a 12-month deadline for the
conclusion of arbitration proceedings from the moment the arbitral tribunal
accepts the reference (which can be extended to 18 months with the approval
of the parties). The 2019 Amendment Act changes the start date of the time
limit to the completion of the pleadings. The pleadings must be finished in
- In addition, the 2019 Amendment Act exempts "foreign commercial
arbitration" from the time limit for completing arbitration proceedings.
- The 2019 Amendment Act adds explicit provisions on arbitration processes
confidentiality and arbitrator immunity.
- The Eighth Schedule of the 2019 Amendment Act further establishes
minimal standards for a person to be accredited/act as an arbitrator. The
2020 Ordinance has now removed the Eighth Schedule.
It then determined that the 2015 Amendment Act is prospective in nature, and
that it will apply to (i) arbitral procedures that began on or after 23rd
October, 2015, and (ii) judicial proceedings that began on or after 23rd
October, 2015. The Supreme Court, decided that the revision to Section 36 of the
Act, which removes the implied automatic hold on the execution of arbitral
awards, is retroactive because it is procedural in nature.
The 2019 Amendment Act added Section 87, which states that the 2015 Amendment
Act, which took effect on 23rdOctober, 2015, applies only to arbitral procedures
that began on or after 23rdOctober, 2015 and to court proceedings that arise
from such arbitral proceedings. In terms of the implementation of Section 36 of
the Act, this was in stark contrast to the Supreme Court's decision in BCCI. In
the case of Hindustan Construction Company Ltd. v. Union of India, however,
the SC declared Section 87 unconstitutional. As a result, the Supreme
Court's decision in the BCCI case has been reinstated.
- Arbitration and Conciliation (Amendment) Act, 2020
On 4th November, 2020 the Arbitration and Conciliation (Amendment) Ordinance,
2020 was promulgated, further revising the Act. Two amendments resulted as a
result of this:
- An unconditional stay on the enforcement of an India-seated arbitration
award (including both domestic and international arbitration awards) until
the challenge to the award is resolved, where the court concludes prima
facie that the arbitration agreement or contract on which the award is
based, or the award itself, was induced or accomplished by fraud or
- The much-debated qualifications, experience, and norms for arbitrator
accreditation established in the Arbitration Act's Eighth Schedule have been
The amendment to the enforcement of an arbitration award that has been tainted
by fraud or corruption has been retroactively applied, meaning that it will
apply to all court cases involving arbitral processes, whether they began before
or after 23rd October, 2015.
The goal of the 1996 Act was to establish speedy and cost-effective conflict
resolution. In India, arbitration is a popular method of resolving business
disputes. An examination of arbitration in India finds that the institution is
still developing and has not yet reached the stage where it can effectively meet
the needs exacerbated by commercial growth. In the aggregate, India does not
appear to be a jurisdiction with an anti-arbitration tendency.
despite their interventionist impulses and extended judicial review, refrain
from interfering with arbitral rulings. In order to attract foreign investment,
a fast-growing economy requires a trustworthy, stable conflict resolution
mechanism. Due to the massive backlog of cases pending in Indian courts,
commercial players both in India and overseas have established a strong
preference for resolving conflicts through arbitration.
Despite being one of the
original signatories of the New York Convention, Indian arbitration has not
always followed worldwide best practises. However, there has been a significant
shift in attitude in the previous five years. Indian arbitration legislation has
been brought in line with worldwide best practises by courts and legislators.
With the courts' pro-arbitration approach and the 2015, 2019 and 2021 Amendment
Acts in place, there is reason to believe that these best practises will soon be
incorporated in Indian arbitration law. The Indian arbitration jurisprudence is
in for some exciting times, and our courts are prepared to tackle a number of
cases involving the interpretation of the Act's numerous changes.
- Bharat Aluminium Company v. Kaiser Aluminium Technical Services, 2012
(8) SCALE 333.
- Bhatia International vs Bulk Trading, 2002 (4) SCC 105.
- Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd., (2018)
6 SCC 287.
- Hindustan Construction Company Ltd.v. Union of India, AIR 2020 SC 122.
- Intel Technical Services Pvt Ltd v. WS Atkins Plc, (2008) 10 SCC 308.
- Oil and Natural Gas Corporation v. Saw Pipes Ltd, (2003) 5 SCC 705
- Renusagar Power Electric Co v. General Electric Co, AIR 1994 SC 860.
- Shri Lal Mahal Ltd v. Progetto Grano, (Civil Appeal No. 5085 of 2013
arising from SLP(c) No. 13721 of 2012).
- Venture Global Engineering v. Satyam Computer Services Limited, (2008) 4
- Geneva Convention, 1927.
- The Convention on the Recognition and Enforcement of Foreign Arbitral
- Law Commission Reports
- Law Commission of India, 176th Report.
- Legislations & Codes
- Arbitration and Conciliation Act, 1996.
- The Foreign Awards (Recognition and Enforcement) Act, 1961.
- Websites And Blogs
- Justice Indu Malhotra: Ad-hoc Arbitrations keep on lingering as lot of
Retd Judges delay them deliberately' (Latest Laws.Com, 21 June,
- Justice Indu Malhotra: Ad-hoc Arbitrations keep on lingering as lot of Retd
Judges delay them deliberately' (Latest Laws.Com, 21 June, 2020)
accessed 22 September 2021
- Law Commission of India, 176th Report, Arbitration and Conciliation
(Amendment) Bill, 2001 at p 68.
- AIR 1994 SC 860
- The Foreign Awards (Recognition and Enforcement) Act, 1961
- (2003) 5 SCC 705
- 2002 (4) SCC 105
- Venture Global Engineering v. Satyam Computer Services Limited (2008) 4 SCC
- Intel Technical Services Pvt Ltd v. WS Atkins Plc (2008) 10 SCC 308
- The Convention on the Recognition and Enforcement of Foreign Arbitral
- 2012 (8) SCALE 333
- (Civil Appeal No. 5085 of 2013 arising from SLP(c) No. 13721 of 2012).
- Arbitration and Conciliation Act 1996, s.36.
- Geneva Convention, 1927.
- Arbitration and Conciliation Act 1996, s.56.
- Arbitration and Conciliation (Amendment) Ordinance, 2020 (No. 33 of
- (2018) 6 SCC 287.
- AIR 2020 SC 122.
- Arbitration and Conciliation Act 1996, s.87.
- Arbitration and Conciliation (Amendment) Ordinance, 2020 (No. 14 of
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