Judiciary, Executive and Legislative actions in making India arbitration friendly

By Jayashree Parihar , Counsel at PSL Advocates & Solicitors | Steering Committee Member- YIAMC.

This article encapsulates various initiatives and steps taken by India recently to make India a more arbitration friendly nation.

India has always used arbitration as a forum of dispute resolution for commercial disputes. This holds true, especially for contracts entered by and between corporations. Corporations often prefer opting for institutional arbitration as it provides a structured ecosystem for disputes. The government initiatives and legislative changes have further codified the pro-arbitration approach of India. This has led to formation and growth of various arbitral institutions in India, that have been used for both domestic and international arbitrations.

Over the past decade, India has made significant strides in positioning itself as an emerging hub for international arbitration. With a robust legal framework, supportive government initiatives, and increased institutional infrastructure, India is steadily gaining recognition as an attractive destination for resolving international commercial disputes through arbitration.

1. Accordingly, this article is broadly divided into 3 parts, (I) Legislative history and development of framework, (II) Judiciary’s role in promoting arbitration in India, and (III) Government of India’s initiatives in promoting international arbitration in India.

• Legislative development of arbitration framework

1. The Arbitration and Conciliation Act, 1996[1] (“Act”), as amended in 2021, is closely modeled on the 1985 UNCITRAL Model Law. Part I of the Act governs arbitral proceedings seated in India and Part II of the Act governs the recognition and enforcement of foreign-seated arbitral awards.

• Evolution of arbitration law framework in India:

• The Indian arbitration law was substantially reformed in 1996 by passing of the Act. Before the Act, the law of arbitration in India was governed by the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961.^[2]

• The Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015, which has been in effect since 23 October 2015^[3] (“2015 Amendment Act”). The amendment addressed issues such as the timely disposal of cases, the appointment of arbitrators, and limited judicial intervention, fostering a more arbitration-friendly environment.

• The Act was amended by the Arbitration and Conciliation (Amendment) Act, 2019. The 2019 Act, effective from 30 August 2019, was aimed at further streamlining the arbitration law in India in view of global arbitration standards and seeks to showcase India’s increasingly pro-arbitration approach^[4] (“2019 Amendment Act”).

• Further, the Arbitration and Conciliation (Amendment) Act, 2021^[5], was enacted and has been in effect from 4 November 2020 (“2021 Amendment Act”).

• Few notable amendments, which have significantly improved India’s perception in the eyes of international arbitration community, are tabulated below:

2015 Amendment Act	Section 29A	After the amendment in the Act in 2015, Section 29A was introduced which requires the award to be made within 12 months from the date of completion of pleadings. The period may be extended by another 6 months by consent of the parties. If an award is not made within the extended period, the mandate of the arbitrator(s) shall terminate unless the court has, prior to or after the expiry of the period so specified, extended the period.[6]
	Section 29B	Fast track procedure/arbitration: Documents only arbitration. Award to be made in 6 months from the date of tribunal entering reference.
	Section 34	Grounds for setting-aside a part I award/domestic award extremely limited.   As a difference between the setting-aside of a domestic award and the refusal to enforce a foreign award (for arbitrations other than international commercial arbitrations), the domestic arbitral award, additionally, maybe set aside if the award is vitiated by patent illegality.[7] However, patent illegality is not available for a Part-I, international commercial arbitration.
	Section 36(2)	Unless specifically granted by the court, there is no automatic stay on the enforcement proceeding before the court, if an application for annulment of the award has been filed.
	Section 48	More limited scope of interference than what is available for a Section 34 proceeding.
	Insertion of 5th & 7th Schedule	Schedule 5 and Schedule 7 of the Act are based on the IBA Guidelines on Conflict of Interests. A great step as independence of the tribunal is the key to a successful arbitral process.   An arbitrator may be challenged only if circumstances give rise to justifiable doubts as to his/her impartiality or independence,[8] or if s/he becomes de facto or de jure unable to perform his/her functions.[9]
2019 Amendment Act	Section 42A	The Act as amended by 2019 Act has made an express provision with respect to confidentiality. The section provides that the arbitrator, arbitral institution and the parties to an arbitration shall maintain the confidentiality of all arbitral proceedings, except for an award where its disclosure is necessary for the purposes of its implementation and enforcement.[10]
	Sections 43A-43M	Constitution of Arbitral Council of India (“ACI”) for accreditation of arbitrators. ACI is constituted with an aim to carry out various function to give a boost to institutional arbitration and also to remove the many practical difficulties such as framing policies to grade arbitral institutions and accredit arbitrators.
2021 Amendment Act	Section 36	The 2021 Amendment Act, effective from 4 November 2020, expanded the scope of Section 36 of the Act, by providing for an unconditional stay of the arbitral award if a prima facie case is made that either the arbitration agreement or contract between the parties or the arbitral award itself is induced or effected by fraud or corruption.
	Section 43J	While substituting Section 43J and omitting the 8th Schedule of the Act, grants the power to ACI to formulate regulations on the qualifications, experience, and norms for accreditation of arbitrators.

• Judiciary’s role in promoting international arbitration in India.

1. No interference under Section 34 to a well-reasoned arbitral award.

1. The Delhi High Court, in the case of Ircon International Limited v. Afcons Infrastructure Limited (2023)[11], emphasized that challenges to an arbitral award under Section 34 must meet the criteria as set forth in the Act. The legislative intent behind the Act was to ensure a speedy and effective resolution of disputes through arbitration, reducing court interference. An award can only be set aside if it satisfies specific legal grounds.

• Referring to previous cases, the court reiterated that the court’s intervention in challenges under Section 34 is limited. It does not have the authority to act as an appellate body or re-examine the facts and evidence of the case. The court held that the scope of interference with an arbitral award under Section 34 is narrow, and thus, the court should not intervene unless it is evident that the arbitrator, as the master of evidence, made a mistake in considering the facts, circumstances, evidence, and materials before them.Top of FormBottom of Form

• In the case of UHL Power Co. Ltd. v. State of H.P. (2022)[12], the Supreme Court held that as it is, the jurisdiction conferred on courts under Section 34 Act is fairly narrow, and when it further comes to the scope of an appeal under Section 37, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed.

• Further in Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019)[13], the Supreme Court went on to say that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality in a Section 34 petition. The court also noted that the grounds for challenging an award under Section 34 are extremely limited.

• No statutory appeal if party fails to resist enforcement of a foreign award

• Kandla Export Corporation and Another v. OCI Corporation (2018)[14], related to an arbitration award issued in London. When the Gujarat Commercial Court granted the award holder’s  application to enforce the award, the award debtor (who had previously appealed the award, without success, to both the English High Court and the Court of Appeal) sought to appeal the decision granting enforcement of the award, to the Commercial Appellate Division of the Gujarat High Court (created pursuant to the Commercial Courts Act, 2015). The debtor relied on Section 13(1) of the said Act, which allows parties a right of appeal from a judgment of a Commercial Court to the Commercial Appellate Division of that High Court.

• The question before the Supreme Court was whether the right of appeal in section 13(1) of the Commercial Courts Act, 2015 was applicable in the context of a decision by a Commercial Court granting enforcement of an arbitral award. The Supreme Court considered that the objective of the Commercial Courts Act, 2015 was a “speedy resolution of disputes of a commercial nature” and any construction that created a further right of appeal would be contrary the purpose of both the Commercial Courts Act and the Arbitration Act. It concluded that there was no further right of appeal under the Commercial Courts Act in this context.

• This is a welcome judgment as it clarifies that award debtors do not have a second ‘bite of the cherry’ under the Commercial Court regime.

• Stamp duty on arbitration agreements

• In the case of M/s NN Global Mercantile Pvt Ltd v. M/s Indo Unique Flame Ltd & Others (2023)[15], Supreme Court held that “an instrument which is exigible to stamp duty may contain an arbitration clause and which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act and is not enforceable under S 2(g) of the Contract Act”.

• Arbitrability of disputes (including fraud)

• In the case of Vidya Drolia v. Durga Trading Corporation (2020)[16], the Supreme Court brought clarity to the growing debate surrounding the arbitrability of disputes based on their subject matter in the Indian context and the pro-arbitration stance of the judiciary.

1. While the decision covered multiple issues, like the arbitrability of tenancy disputes for instance, the judgement assumes great significance for its observations pertaining to the curious landscape of the arbitrability of fraud in India. In Vidya Drolia, the Court reaffirmed the presumption in favour of arbitrability even in matters relating to fraud, as was recently laid down by the apex court itself in Avitel Post Studioz Limited v. HSBC PI Holding (2020). The decision has finally brought an end to the previously held belief that an allegation of fraud would be a justifiable ground to refuse to refer a dispute to arbitration.

• Habitual foreign resident, makes an arbitration an international commercial arbitration under Section 2(1)(f) of the Act.

1. In an appeal filed before the Supreme Court in the case of Amway India Enterprises (P) Ltd. v. Ravindranath Rao Sindhia (2021)[17], against an order of the Delhi High Court appointing an arbitrator notwithstanding the fact that one of the parties was a foreign resident, the Supreme Court has reiterated that a foreign habitual resident as a party to an arbitration proceeding would render the same as international commercial arbitration.

• Minimal interference with foreign arbitral awards

1. The enforcement of foreign arbitral awards is liable to be refused if the said award falls under any of the reasons set out in Section 48 of the Act. One such reason is if the court finds that the enforcement of the award is contrary to the public policy of India. The Supreme Court in the case of Vijay Karia v. Prysmain Cavi E Sistemi SRL (2020)[18] analysed what constitutes ‘public policy of India’ and in doing so held that to qualify as a conflict with the public policy of India, there must be a contravention of some legal principle or legislation that goes to the root of Indian law and shocks the conscience of the court. The Supreme Court further held that there ought to be minimalistic interference with foreign awards and thus took a stance of pro-enforcement of such awards.

• Indian parties are free to choose foreign law to govern arbitration agreement

1. The Delhi High Court, in the case of Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd. (2020)[19], has held that parties can choose foreign law to govern the arbitration agreement entered into by them. The court based its finding on the reasoning that three different sets of laws apply to foreign arbitrations and that an arbitration agreement is an independent contract between parties. The court thus held that because an arbitration agreement is independent from the substantive contract, governing only the dispute resolution mechanism of the parties thereto, it may be governed by its own law, which need not necessarily be Indian law.

1. In the case of GMR Energy Limited v. Doosan Power System India Ltd. & Ors.[20], the court examined the same proposition i.e. whether two Indians can agree to arbitrate out of Indian law. The court’s ruling was based on previous judgments by the Supreme Court in Atlas Exports[21] and Sasan Power Limited[22], which established that two Indian entities can indeed opt for a foreign seated arbitration.

• Freedom of Indian parties to choose foreign seats

1. The High Court of Gujarat, in the case of GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited (2021)[23], has held that where both parties are Indian, they may refer their disputes to arbitration having a foreign seat. The court based its finding on the reasoning that Section 28(a) of the Act does not per se prohibit two Indian parties from designating a foreign court and vesting in it exclusive jurisdiction to govern arbitration proceedings conducted by a foreign seat.

1. Recognition of an award passed by an Emergency Arbitrator.

1. The status of an ‘Emergency Arbitrator’ and that of an ‘award’ passed by him has been a point in issue on the Indian arbitration landscape for a while now. In its recent decision, the Supreme Court of India in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. & Ors. (2022)[24] held that the ‘award’ passed by an Emergency Arbitrator in an arbitration seated in India is enforceable under Section 17(2) of the Arbitration and Conciliation Act, 1996 of India (the Act) as an interim order of an arbitral tribunal made under Section 17(1) of the Act. This has, for the moment, settled the position of law with regard to the status of emergency arbitrations and the enforcement of their decision in India, in the context of an India-seated arbitration governed by Part-I of the Act.

• Third-Party Funding and mulcting liability on a Funder

1. Recently, a Division Bench of the Hon’ble Delhi High Court, in the case of Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. and Ors. (2023)[25], made encouraging observations on the role and importance of third-party funders in ensuring access to justice.

1. This Court opined that “a third party might be bound by the arbitral award only if it had been compelled to arbitrate and was a party to the arbitration proceedings. The Court further opined that “the principle of binding non-signatories to an arbitration, was not well founded. Further, consent was fundamental to arbitration. Thus, the principles on which non-signatories might be held bound by the arbitration agreement, had no application where the signatories to an arbitration agreement had expressly agreed to the contrary”. The Court also observed that third-party funding is essential to ensure access to justice.

• Government of India’s initiatives in promoting international arbitration in India.

1. The Government of India has actively engaged in regional and global collaborations to promote arbitration. It is a signatory to the New York Convention, facilitating the recognition and enforcement of foreign arbitral awards. India has also signed agreements for mutual cooperation in arbitration with various countries, fostering international cooperation and enabling cross-border resolution of disputes.

• The Indian government has even demonstrated a pro-business approach by actively promoting arbitration as an effective means of dispute resolution. Initiatives such as the “Make in India” campaign and the “Ease of Doing Business” drive have underscored India’s commitment to attract foreign investment and facilitate smoother dispute resolution mechanisms.

• The Department of Legal Affairs, Ministry of Law and Justice on 13 January, 2017 constituted a ten Member, High-Level Committee under the Chairmanship of Justice B. N. Srikrishna, Retired Judge, Supreme Court of India. The High-Level Committee was given the mandate to review the institutionalization of arbitration mechanisms and suggest reforms thereto. Most of the recommendations were soon incorporated into arbitration law either by legislative changes or judicial pronouncements.

• The prime minister of India, during his valedictory speech at a conference organised by the NITI Aayog on ‘National Initiative towards Strengthening Arbitration and Enforcement in India’[26], while quoting Roscoe Pound, affirmed that “The law must be stable but it must not stand still.” As arbitration cannot survive in isolation, the role of domestic courts to “aid/support” the arbitration process at various stages like for the appointment of arbitrators, grant of interim relief and assistance in taking evidence cannot be ignored while discussing the effectiveness of a comprehensive effort to strengthen arbitration in the country. Under the same Global Conference, a national initiative was taken to make stronger arbitration law and their enforcement in India specially for cross-border disputes. The Judges of the Supreme Court of India, top government officials, luminaries, legal experts and corporate heads took part in the panel discussions. The interactive sessions focused on all processes involved in creating a robust and cost-effective arbitration ecosystem.

• Most importantly, India has witnessed the establishment of world-class arbitration institutions, and at the moment has about 35 different arbitration centres, such as the International Arbitration and Mediation Centre, Hyderabad (IAMC),  Mumbai Centre for International Arbitration (MCIA), the Delhi International Arbitration Centre (DIAC), and the very newly established India International Arbitration Centre (IIAC). These institutions provide state-of-the-art facilities and a panel of experienced arbitrators, instilling confidence in parties seeking arbitration services in India.

• Additionally, New Delhi International Arbitration Centre Bill, 2019[27] was passed by the Parliament and received the assent of the President. It came into effect on 26 July 2019 and provided for the incorporation of the New Delhi International Arbitration Centre (“NDIAC”) for creating an autonomous regime for institutionalised arbitration. The Parliament soon passed a bill, which received assent and came into force in 2022, to rename the NDIAC as the India International Arbitration Centre (“IIAC”).[28]

• Additionally, experience and facts show that MNCs and foreign commercial entities, particularly in the case of international commercial arbitration, did not prefer India as a place of arbitration proceedings, because they were not allowed to bring lawyers and law firms from their own countries to advise them in arbitral proceedings, thus, making them prefer London, Singapore, Paris, etc. To curb this issue, recently, the Bar Council of India (“BCI”) notified the Bar Council of India Rules for Registration and Regulation of Foreign Lawyers or Foreign Law Firms in India, 2022[29]. Through this recently published notification, allowing foreign lawyers and law firms to practise in India, the BCI particularly emphasized that the new rules will help India become a global hub of international commercial arbitration.

Conclusion

1. As detailed in the preceding section, the Government of India has taken various initiatives to ensure that India emerges as a hub of international arbitration.

• All arbitration related matters requiring the assistance of courts are handled by the commercial benches of either the district, state or apex (Supreme Court of India) level, depending on either the monetary value of the subject-matter/relief or the nature of the assistance sought.

• Indian Parliament has also made significant amendments to improve the arbitral landscape in India. Amendments like Section 29A, 36(2), narrowing grounds under Section 34, has greatly promoted the pro-arbitration approach of India.

• The most significant change in the incorporation of the lists in Schedules 5 and 7 of the Act, as independence of the arbitral tribunal is the key to a successful arbitral process.

• As detailed above, the Indian courts have also supplemented these efforts. Several pro-enforcement judgments have been given e.g. Vijay Karia v. Prysmian, Associate Builders, Amazon v. Future Retail, Kandla Export Corporation and Another v OCI Corporation, Ssangyong Engg. v. NHAIetc. All of them clearly indicate that India is a robust hub of international arbitration.

• From and since the amendments several institutional bodies have also come up. Be it IAMC, the latest IIAC, etc. with a common aim to make India more arbitration friendly.

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^[1]                 Available at: https://indiacode.nic.in/bitstream/123456789/1978/1/199626.pdf.

[2]                  Section 85 of the Act. The consolidated text of the Act is available at https://indiacode.nic.in/bitstream/123456789/1978/1/199626.pdf.

[3]                  Available at: http://lawmin.gov.in/arbitration-and-conciliation-amendment-act-2015.

[4]                  Available at: http://egazette.nic.in/WriteReadData/2019/210414.pdf.

[5]                  Available at: https://egazette.nic.in/WriteReadData/2021/224958.pdf.

[6]                  Section 29 A of the Act.

[7]                  Section 34(2A) of the Act.

[8]                  Section 12 of the Act.

[9]                  Section 14 of the Act.

[10]                     Section 42 A of the Act

[11]                     Ircon International Limited v. Afcons Infrastructure Limited, 2023 SCC Online Del 2350.

[12]                     UHL Power Co. Ltd. v. State of H.P., 2022 SCC Online SC 19.

[13]                     Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), civil appeal no. 4779 of 2019, available

at https://www.sci.gov.in/supremecourt/2017/19190/19190_2017_Judgement_08-May-2019.pdf.

[14]                     Kandla Export Corporation and Another v. OCI Corporation, (2018)14 SCC 715.

[15]                     M/s NN Global Mercantile Pvt Ltd v. M/s Indo Unique Flame Ltd & Others, 2023 SCC Online SC 495.

[16]                     Vidya Drolia and Ors. v. Durga Trading Corporation, Civil Appeal No. 2402 of 2019 available at

https://main.sci.gov.in/supremecourt/2018/26779/26779_2018_32_1501_25180_Judgement_14-Dec-2020.pdf.

[17]                     Amway India Enterprises (P) Ltd. v. Ravindranath Rao Sindhia, 2021 SCC Online SC 171.

[18]                     Vijay Karia v. Prysmian Cavi E Sistemi SRL & Ors., civil appeal no. 1544 of 2020, available at

https://main.sci.gov.in/supremecourt/2019/11180/11180_2019_4_1502_20493_Judgement_13-Feb-2020.pdf

[19]                     Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd. (2020), 2020 SCC Online Del 1476.

[20]                     GMR Energy Limited v. Doosan Power Systems India Private Limited, CS (Comm) 447 of 2017, Delhi High Court, available at:

https://vlex.in/vid/gmr-energy-limited-vs-696546757

[21]                     Atlas Exports v. Kotak and Co., (1999)7 SCC 61.

[22]                     Sasan Power Limited v. North American Coal Corporation India Private Limited, (2016)10 SCC 813.

[23]                     GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited 2021 SCC Online SC 331.

[24]                     Amazon.com NV Investment Holdings LLC v. Future Retail Ltd., (2022) 1 SCC 209.

[25]                     Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. and Ors. (2023) SCC Online Del 3191.

[26]                     Arbitrate in India Conclave by the Indian Dispute Resolution Centre, NITI Aayog (2016).

[27]                     New Delhi International Arbitration Centre Bill, 2019

[28]                     New Delhi International Arbitration Centre (Amendment) Act, 2022

[29]                     Bar Council of India Rules for Registration and Regulation of Foreign Lawyers or Foreign Law Firms in India, 2022.