Reinventing India’s Image As An Arbitration Friendly Jurisdiction
“For the First time in decades, there is an air of expectancy in arbitration circles in India; and for the first time, the proposed reforms are backed by solid political will, and, if one looks beyond the many contradictions and challenges of India, one cannot but reach an optimistic assessment of the future”.
Despite its salutary facade of facilitating platform for out of court settlement for commercial disputes, the forte of arbitration in India has a dark side too- for its focal objective of exclusion of judicial interruption is impaired. To envision India as an arbitration friendly jurisdiction and visualising it at par to one of the most arbitration efficient nation-Singapore is not an unattainable dream to aver. In enhancing its arbitration credentials India will do well to learn from Singapore in establishing itself as a leading International Arbitration hub in just few decades. This article thrives in pointing out the stumbling blocks in the arbitration regime of India and suggests a roadmap to foster the prospects to make it more efficient and compatible. India is a growing player in the field of Arbitration in both commercial as well as non-commercial pitch. An augmentation in the Arbitration and Conciliation Act of 1996 hereinafter referred to as ‘The Act’ will not only improve the perspective of investors in India but will also help to ameliorate its relationship worldwide. As will be apparent, arbitration has been a dynamic process in India, growing, modifying and changing to meet the needs of time and situation. With the shrinking of global distances because of phenomenal development and lowering of trade barriers, transactions have increased, giving rise to problems manifold with rising expectation and resulting in the need for better and improved solutions. Driven by three cardinal factors: trade and economic expansion with growth, investment escalation with booming trade and commerce and increase in competition have evolved and crystallized alternative dispute resolution mechanism and will so continue.
II. Retrival Of The Arbitration And Conciliation Act 1996:
There is a profound change taking place in the arbitral scenario of India which can be appreciated. The history of Arbitration law in India can be traced back to the 17th century. The Bengal Regulations in 1772, during the British rule introduced the concept of arbitration by providing reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract, amongst others. The law governing arbitration in India consisted mainly of three statutes: (i) the 1937 Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the 1961 Foreign Awards (Recognition and Enforcement) Act before 1996. Reform in the arbitration scenario began when the old act turned out to be a misnomer. The Public Accounts Committee of the Lok Sabha also commented adversely about arbitration in India. The new act of 1996 was the result of recommendations for reform, particularly in the matter of speeding up the arbitration process and reducing intervention by the court. This came to be dealt by the Law Commission in its 76th Report, which recommended certain amendments leading to the reform in the act. The law of arbitration must be simple, less technical and more responsible to the actual reality of the situations, responsive to the canons of justice and fair play.’ The changes brought about by the Act were so drastic that the entire case law built up over the previous fifty-six years on arbitration was rendered superfluous.The quandary of the object of the act is to free the arbitral process from the coils of the judicial system and to minimize the supervisory role of the courts in the arbitral process.
Steps of exponential growth has always been proposed but has proved to be redundant. In the year 2001, the Law ministry comprehensively reviewed the Act and submitted few proposals for amendment to the government by the 176th Law Commission Report. Accordingly, the Arbitration and Conciliation (Amendment) Bill 2003 was introduced in Rajya Sabha after considering the recommendations of the report and after consulting the state governments. Thereafter, a committee was formulated under the chairmanship of Justice Dr.B.P.Saraf to look into the amendments and it came out with a report which was submitted to the Departmental Related Standing Committee on Personnel, Public Grievances, Law and Justice for examination. The committee report was of the view that the provisions of the bill gave excessive room to judicial intervention, thus, leading to the withdrawal of the bill. After a major overhaul of almost nine years, the National Litigation Policy, 2010 was passed, which aims, interalia, to reduce average time for cases from fifteen years to three years and also aims at lessening government litigation in courts. Thereafter, Law Ministry finally released a consultation paper suggesting amendments to the act in the year 2010. If the proposal of this consultation paper is put to action, it will yield desirous results bringing a substantial change. The tilt of arbitration scenario towards the institutional set of rules is a favourable reposition. At its launch, the LCIA's Director General, Adrian Winstanley, noted that the LCIA saw India, an emerging global economic power, as a great source of demand for effective international dispute resolution.An imperative move in making Indian Arbitral jurisdiction welcoming and affable is the launch of Arbitration Rules which is to a large extent based on LCIA’s own tried and tested principles, but with changes incorporated to reflect the interface with the Indian Act, the practice of arbitration in India and the various judicial decisions of Court in India. Article 14 of the LCIA rules is the most crucial one as it lays down a philosophical keystone which places corresponding duties on parties and tribunals to ensure that the proceedings are conducted fairly, efficiently and expediously. Unlike the LCIA rules which provide London as a default seat, the LCIA India rules do not provide for a default seat. In the absence of parties’ agreement the seat would be determined by the LCIA Court, taking into account, interalia, and the parties proposals. The adoption of LCIA rules by India with substantial amendments which suits its jurisdiction features the fabrication of the Indian outlook of salvage towards arbitration in the country. The cases decided in 2010 by the Indian Judiciary shows the Pro-Arbitration approach leading to a rediscovery. Though a much belated move, it strides that India is poignant towards making its Jurisdiction arbitration friendly and wants a brisk growth in its economy as this move will ensure that arbitral scenario in India is no longer “an weekend hobby or an evening pastime” or a naive start to a proceeding for the litigators.
III. The New Interpretation Of ‘Implied Exclusion’:
To reinvent India’s image as an arbitration friendly jurisdiction it’s crucial to point out the vision of the Indian judiciary which has adopted a more convivial approach lately. It will be prudent to begin with embracing an optimistic approach and bring into limelight the recent developments in Indian Arbitration regime. The paper commences by brandishing the very recent judgment of the Supreme Court in the Videocon Industries which has revamped the formula of determining what constitutes implied exclusion and put to rest the “test of Implication” in case of International commercial arbitration where the parties have expressly or impliedly excluded the applicability of Indian Law.
Nearly a decade into this saga, no judgment can be ascertained that has determined as to what implied exclusion would be. There were no prescribed standards that would suggest the same. The above stated rule from the Bhatia International has been the source of much litigation before the Indian courts on the question as to what amounts to “implied” exclusion of Part I. Courts have spent long hours in determining an ‘implied exclusion’ by going into the validity of the arbitration agreement, the contract, lex arbitri etc giving way to protracted litigation but had failed to lay down a definite principle. There was a constant dispute regarding the same. But finally the Videocon Judgement resolved the perplexity by laying down the canon to be followed in determining ‘implied exclusion’.
“We hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of International Commercial Arbitration held out of India provisions of Part I would apply unless the parties by agreement express or implied, exclude all or any of its provisions”.
An agreement having an arbitration clause mentioning any three of these four requisites will be assumed to have impliedly excluded the Indian law:
1. Foreign seat of Arbitration
2. Foreign Curial law (can be presumed) - Since Bhatia Internationalsays that providing a foreign seat (and by implication foreign curial law) is not sufficient, there has to be mandatory third component which is foreign.
3. Foreign Proper law of contract.
4. Jurisdiction of Foreign courts over disputes.
It is a 3/4th formula to determine implied exclusion. The only logical exception to this formula is a case where the curial law is specifically mentioned to be Indian when the seat is foreign, thereby rebutting the presumption that the curial law is the same as that of the seat of arbitration. Determining the benefits of what precise clarity would be, dissuaded several parties for initiating proceedings before Indian courts. Thus, this is a stride of maturity in the Indian Arbitration scenario as the courts are enduring towards reinventing arbitration in India as a more expedient and opportune method.
IV. Effort To Rein The Effect Of Saw Pipes:
A shift in the locus of powerful judgements as that of Saw pipes is an instance of rethinking and a move towards development. The issue of “Patent Illegality” in the Saw pipes judgment instead of being criticized and condemned craft a fundamental forte where the amplification of arbitration is discernable. Glancing the issue with an optimistic mindset, it can be articulated that criticism of the Saw pipes judgment by legal luminaries as well as experts and the non reliability of the courts on the principle laid down in the case brings out a futuristic attitude of the nations approach towards arbitration. The judgment was criticized as it sets the clock back to the same position that existed before the 1996 Act, and it increases the scope of judicial Intervention in challenging arbitral awards. The issue of ‘Patent illegality’ was rebutted on the ground that the parliament did not adapt the concept while enacting the 1996 Act; the Supreme Court cannot introduce the same through the term “public policy”.
According to the principles of jurisprudence, the intention of the legislators behind the act should always be a major criterion in its interpretation. The Supreme Court by rendering such a wider meaning to the term the “public policy” defy the rule. It was also criticized on the grounds that giving a wider meaning to the term ‘public policy’ was wrong, when the trend in international Arbitrations is to reduce the scope and extent of ‘public policy’. Nevertheless, the judiciary has further tried to recuperate its flaws and rein the effect of Saw pipe. By correcting its own flaws, the judiciary has ascertained that it’s keen towards improvement and reinvention of arbitration regime in India. The Supreme Courts decision in the case of McDermott International Inc. v. Burn Standard Co. Ltd somewhat read down the Saw Pipes judgment:
“The 1996 Act makes a provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. the court cannot correct error of the arbitrator again if it is desired. So, scheme of the provisions aims at keeping the supervisory role of the court at minimal level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finally offered by it.”
Even few high Courts have sought to give a narrower meaning to Saw pipes case on the ground that a literal construction of the judgment would expand judicial review beyond all limitations contained not only under the new Act, but even under the old act of 1940. It was also held that Saw pipes does not intend to efface the time-tested legal propositions and judicial tenets on arbitration and thus ought not to be construed away from the well-established trend set by a string of decisions preceding the same. To accept a literal construction on Saw Pipes would be to radically alter the statutorily and judicially circumscribed limits to the court’s jurisdiction to interfere with arbitration awards. Its been determined by various High Courts that there is very limited scope of judicial review of arbitral awards and in many of its verdicts courts are of the view that challenge under Sec 34 of the Act does not amount to appeal against the award. Review and Appeal are two different concepts which is misconstrued at times and considered to be analogous. Indian courts have taken initiative to exonerate this point and has profound that it is not permissible for the court to correct the error of the arbitrator or grant relief which is the subject of dispute in Arbitration. Recently in Sumitomo Heavy Industries Ltd v. ONGC , the Supreme Court has laid down that:
“It is true that if there is an error apparent on the face of the award or where the umpire had exceeded his jurisdiction or travelled beyond the reference, the court can interfere, if the conclusion of the arbitrator is based on a possible view of the matter, the court is not expected to interfere with the award…the high court has erred in so interfering. Court while considering challenge to arbitral award does not sit in appeal over the findings and the decisions of the arbitrator.”
When the Sage of Saw pipes says that it’s been a blemished verdict, we have to sit up and en- route the approach of the courts towards the principle. The ruling in Saw pipes gave ‘Public Policy’ a wider connotation, but it’s an appreciable fact that the courts did not consider it as a canopy to take shelter under. Saw pipes say that if the award is contrary to the substantive provision of law, or the provisions of the Act, or against the terms of the contract, it would be patently illegal and could be interfered u/s 34. The concept of public policy connotes some matter which concerns public good and the public interest. The award which is on face of it, patently in violation of statutory provisions cannot be said to be in public interest. Bombay High Court held that accepting literal construction of Saw Pipes would be to radically alter the statutorily and judicially circumscribed limits to the Courts jurisdiction to interfere with arbitral awards. The legislature is also initiating corrective measures to restore the position of “Public policy” prior to Saw pipes. In the consultation paper released by the Law ministry, it’s been recommended that the wide interpretation of the concept of ‘Patent illegality’ should be eliminated and the grounds of challenge of an award should only be something which is contrary to the Fundamental policy of India, Interest of India and Justice and morality. What needs to included is the new ground for challenges viz. mistake appearing on face of award in case of Domestic arbitration. This will reduce the number of litigations initiated due to the wide interpretation of the concept of ‘Patent illegality’. An opportunity of providing recourse to a party aggrieved by a patent and serious illegality in the award which has caused substantial injustice and irreparable harm to the applicant is desirable. To strike a balance between two equally important but conflicting considerations, namely giving finality to the arbitral award and redressing substantial injustice caused by some patent and serious illegality in the award is a delicate task.
Referring to a glaring example of misuse of power by the arbitrator and the need for some recourse at least in such extreme cases is the Sikkim Subba Associates v. State of Sikkim case where without any basis or proof as required by law the arbitrator awarded an astronomical sum as damages in total disregard to the basic and fundamental principles. The award was set aside on the ground of gross illegality by the Supreme Court. The grave nature of the illegality in the award in that case is evident from the following observations of the Supreme Court:
“The arbitrator who is obliged to apply law and adjudicate claims according to law, is
found to have thrown to the winds all such basic and fundamental principles and chosen
to award an astronomical sum as damages without any basis or concrete proof of such
damages, as required in law”.
Thus, in cases like the above Sec 34 lacks in providing justice. Need of positive judgment to rein the effect of Saw pipes is of urgent necessity.
V. Extending The Scope Of Public Policy To Foreign Awards:
India’s move in reinventing its jurisdiction can also be ascertained by scrutinizing the statistics related to enforcement of foreign awards. The provision for enforcement of foreign award in the Indian Jurisdiction is incredibly rigid. Want of filling an application for enforcement of the awards in Indian courts as well as no provision to set aside foreign awards turns out to be a stern rule. But, recently the Venture Global Case lays down new procedure and new grounds for challenge of a foreign award. It says that along with filling an application for enforcement of award under Section 48 of the Act; it has to meet an application under Section 34 seeking to set aside an award on the grounds of ‘Public Policy’. More so, the judgement was criticized because it increases the hurdles in enforcement of a foreign award as “public policy” is also made one of the complying requisites. This development is contrary to the object and scheme of the New York Convention and also violates Article III of the convention, in as much as it introduces an additional ground for challenging a foreign award. The decision of the Supreme Court is also contrary to the precedent laid in Saw pipes, wherein the court had accepted that the scope of Section.34 and Section.48 are not identical. The Supreme Court did not notice the narrower interpretation of public policy in Renu Sagar case also. The Renu Sagar Case which constituted of a larger bench, contrary to the above lay down that an enforcement of a foreign award can be refused only on the grounds of Fundamental policy of India, Interest of India and Justice and morality. So, it can be stated that still the criteria of applicability of concept of Public Policy to foreign awards are construed according to the principle of Renu Sagar case. Therefore application of the expanded interpretation of public policy to foreign awards is clearly per incuriam. Although, the judgement has not made any changes to the status quo in relation to enforcing foreign awards in India. Relying on the enforcement statistics of High Courts and Supreme Court in relation to foreign awards, it’s worth notable that the courts have leaned in favour of enforcement of foreign awards and they are invariably upheld. Judged on this touchstone India qualifies to be an arbitration friendly nation.
VI. Disclosure Of ‘Circumstances’ In Appointment Of An Arbitrator:
Article 12(1) of the act lays down that an arbitrator has to disclose any circumstance which is likely to give rise to impartiality or independence. But the dispute which creeps in is that the act does not specify any standards of disclosure. The circumstances disclosed are mostly within his personal knowledge. The Act can be said to be a vaguely drafted legislation as it leaves open the interpretation of the term ‘circumstance’ in Sec 12(1). This may lead to several discrepancies as the arbitrator might not disclose few imperative actualities. Its important to create a obligation to disclose all relevant facts, without limiting them to those which, in his view, can raise justifiable doubts as there is likelihood of an unfair adjudication. In the same regard a progressive move was the recommended to include the standards of IBA guidelines in disclosing the ‘circumstances’ by the arbitrator in his appointmentin the 176th Law Commission Report. The suggested amendment in the section was to include existence of any past or present relationship, either direct or indirect, with any of the parties or any of their counsel, whether financial, business, professional, social or other kind or in relation to the subject matter in dispute, which are likely to give rise to justifiable doubts as to his independence or impartiality or any other circumstances as may be provided in the Rules made by the Central Government in this behalf. The IBA guidelines lay down globally accepted standard of disclosures, which if approved will lead to lesser adjudication relating to appointment of arbitrators, bringing a gigantic revolution in the arbitral scenario of India.
As the Arbitration and Conciliation (Amendment) Bill 2003 and the Consultation paper for amendment in the arbitration scenario is already proposed, it will not be prudent if the same suggestions are incorporated in this paper as well. It will be ardent to highlight few major points of the proposed amendment that has a pressing need to be enforced. Introducing a section similar to that of Sec 99 of Civil Procedure Code will be a worthy move. The section lays down that no decree is to be reversed or modified for error or irregularity not affecting merits or jurisdiction. On the same grounds it is proposed that all matter which comes to the court against the award is to be listed for preliminary hearing and could be rejected before notice. To remove the obstacles created by Sec 36 precluding enforcement of award merely because an application to set aside the award is filled and pending is also proposed. Mere filling of such an application should not amount to automatic stay of the award. Publication of arbitral awards is yet another issue that has to be dealt. What needs to be looked up is whether confidentiality is a valid objection for arbitral awards. Publication of awards helps in having a precedent on record to help the further development of commercial arbitration. Examining various legislation and scholarly works it can be concluded that there is no overriding principle that would impede publication. The UNICTRAL and the ICC protects privacy and not confidentiality.The Act also crafts a major threat of contravening the Stamp and Registration laws as it does not extend any need to file an award in the court after it’s passed by the arbitral tribunal, leaving no public record of the content of the awards. Therefore, a compulsory provision checking the verity of the awards is to be created. Further a virtuous recommendation in the Amendment Bill of 2003 for setting up dedicated division benches in the high court to avoid the present procedure at two levels, one in the subordinate courts (or original side of High Court) and another by way of appeal to or in the High Court was a noteworthy move. For the same purpose Commercial Division of High Courts Bill, 2009 was passed in the Lok Sabha. The said law will entertain applications under Section 34 and Section 36 and appeals under section 37 of the Arbitration and Conciliation Act, 1996 where the arbitration relates to “Commercial Disputes” of specified value. As the application under Section 34 would be filed before the Commercial Division of the High Court, appeal against order passed by the Commercial Division under Section 37 would lie before the Supreme Court. A glimpse into the developing arena of arbitration regime till very recent gives us a foresight and a strong realization that India is reinventing its jurisdiction to be a friendly one. Little effort by the judiciary and the government will make Indian jurisdiction worth for investment.
# Thomas Ajay, Light at the End of the tunnel or Light of an oncoming Train?, The Asia-Pacific Arbitration Rev.1. 2011, available at http://www.global arbitrationreview.com
# ICC International Court of Arbitration Bulletin, Vol.18/No.1, 2007.
# Singapore is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This means that an Arbitral Award made in Singapore is enforceable in any of the approximately 140 Countries which are signatories to the Convention, India being one of them. A 2007 report published by the ICC International Commercial Arbitration ranked Singapore as the top city in # Asia for ICC Arbitrations and of the five most popular venues since 2000, alongside Paris, London,, Geneva and Zurich.
# Honorable Shri K.G Balakrishnan, Chief Justice of India, Address at the LCIA India Establishment Celebration April 18, 2010 available at
# http:// www.lcia-India .org/News.Launch.aspx (Last visited on 4th May 2011).
# K.Ravi Kumar, Alternative Dispute Resolution in Construction Industry, International Council of Consultants (ICC) papers, available at
# www.iccindia.org. (Last visited on 4th May 2011)
# Id., 15
# Public Accounts Committee of Lok Sabha, 9th Rep. 1977-78 at pp 201-202.
# Food Corporation of India v. Joginderpal, AIR 1981 SC 2075 at 2076-77.
# Sundaram Finance v. NEPC Ltd, 1999 2 SCC 479.
# The Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons.
# Arbitration and Conciliation (Amendment) Bill 2003 presented to the Rajya Sabha on 4th August 2005.
# The Departmental Related Standing Committee on Personnel, Public Grievances, Law and Justice, Ninth Report on Arbitration and Conciliation (Amendment) Bill 2003.
# Union Ministry of law and justice, Consultation Paper (12 April 2010).
# Adrian Winstanley, Director General LCIA, Address at the LCIA India Establishment Celebration: The Road to LCIA India (April 18, 2009), available at
# http://www.lcia.org/INDIA_folder/LCIAaddress.pdf. (Last visited on 4th May 2011)
# LCAI Arbitration Rules, launched in April 2010, at a conference held in Mumbai, available at
# www.lcia. India.org (Last Visited on May 1, 2011).
# Bhushan Steel Limited v Singapore International Arbitration Centre & Anr IA No 11355/2009 in CS(OS) No. 1392/2009, Sumitomo Heavy Industries v. ONGC 2010 (3) Arb. LR 151 (SC)
# Videocon Industries Ltd v. Union of India & Anr Civil Appeal No. 4269 OF 2011 (Supreme Court) (Unreported)
# Id., 9.
# Civil Appeal No. 4269 OF 2011 (Supreme Court) (Unreported)
# Bhatia International Vs. Bulk Trading (2002) 4 SCC 105
# (2002) 4 SCC 105
# Financial Software and systems v. ACI Worldwide Corp 2011-2-LW-654 (Mad)
# Mr. Adithya Reddy, The 3/4th Formula to Determine Implied Exclusion, available at www.Indiacorplaw.blogspot.com (Last visited on 19th May 2011)
# Oil & Natural Gas Corpn. Ltd. v. Saw Pipes Ltd, (2003) 5 SCC 705.
# (2003) 5 SCC 705
# Ashok H Desai, Challenges to an award – use and abuse, ICA’s Arbitration Quarterly, ICA, 2006, vol. XLI/No.2.
# Pravin H Parekh, Public Policy as a ground for setting aside the award, ICA’s Arbitration Quarterly,
# ICA, 2005, vol. XL/No.2, p 19.
# Sumeet Kachwaha, Enforcement of Arbitration Awards in India, Asian International Arbitration
# Journal, 2008, vol.4, number 1, p 68.
# 2006(11) SCC 181 at p 208.
# 2006(11) SCC 181 at p 208.
# Indian Oil Corporation Ltd. v. Langkawi Shipping Ltd 2004 (3) Arb LR 568
# Sushila. N. Rungta v. Mita M. Sheth, 2005 (suppl) Arb LR 575
# Maharastra Small Scale Industries Development Corporation v. Snehadeep Structures Ltd. 2008 2 Arb LR 175.
# 2010 (3) Arb. LR 151 (SC).
# Oil & Natural Gas Corpn. Ltd. v. Saw Pipes Ltd (2003) 5 SCC 705,
# Indian Oil Corporation v. Langkawi Shipping Ltd. 2004 (3) Arb. LR 508
# Pravin H Parekh, ‘Public Policy as a ground for setting aside the award’, ICA’s Arbitration Quarterly,
# ICA, 2005, vol. XL/No.2, p 19.
# Union Ministry of law and justice, Consultation Paper (12 April 2010).
# (2001) 5 SCC 629
# Venture Global Engineering v. Satyam Computers Services 2008(1) SCALE 214.
# 1969 (2) SCC 554.
# See generally Statistics from High Court and Supreme Court (1996 to September 2007) (suggesting that courts have distinctly leaned in favour of enforcement and save for a lone case, foreign awards have invariably been upheld and enforced) available at
# IBA Guidelines on Conflict of Interest in International Arbitration, approved on 22nd May 2004 by the International Bar Association.
# Section 12(1) of the Arbitration and Conciliation Act 1996–“A person who is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing “any circumstances likely to give rise to justifiable doubts as to his independence or impartiality”.
# Article 25(4) of the UNICITRAL Arbitration provides “hearing shall be held in camera” but confidentiality is not mentioned per se.
# Article 20(7) of ICC rules of Arbitration provides that “Arbitral tribunal may take measure for protecting trade secrets and confidential information”
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