Commercial arbitration has been recognised as a mode of settlement of disputes in India since at least 1840 under various enactments. The growth of domestic arbitration has been followed by growing recognition of international arbitration in the courts and statutes.
In fact it has often been said that the traditional system of resolution of disputes in villages by elected members of the Panchayats (village councils) was a form of arbitration.
It is significant that the Indian Constitution provides as part of the directive principles of State Policy that the state shall endeavour to encourage settlement of international disputes by arbitration (art 51(d)).
In keeping with the above directive policy, in July 1960, India acceded to the United Nations Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the New York Convention). Prior thereto India had also acceded to the Geneva Protocol on Arbitration Clauses 1923 (the Geneva Protocol) and the International Convention on the Execution of the Foreign Arbitral Awards 1927 (the Geneva Convention).
In international commercial contracts arbitration has always been the preferred method of dispute resolution. Even on the domestic front, arbitration clauses are widely prevalent. Most contracts entered into by public sector undertakings owned by the Government of India contain arbitration clauses whether the contracts are purely domestic in nature or international. Where such contracts are international commercial contracts they often incorporate the rules of institutions such as International Chamber of Commerce, International Court of Arbitration in Paris.
Currently the principal source of arbitration law in India is the Arbitration and Conciliation Act, 1996 (the 1996 Act), which broadly incorporates the UNCITRAL Model Law on International Commercial Arbitration (the Model Law). It is a comprehensive legislation covering both domestic and international arbitrations as well as conciliation.
The 1996 Act repealed the previous central government legislations on arbitration, being the Arbitration Act, 1940 (covering domestic arbitration), the Arbitration (Protocol and Convention) Act, 1937 (covering Geneva Convention arbitration and awards) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (covering New York Convention arbitrations and awards). Apart from the central law on arbitration, certain states have enacted State Arbitral Tribunal Acts which apply to contracts entered into by the state government or companies/corporations owned by the state for work carried out within such states. This is possible as, under the scheme of the Indian Constitution, laws relating to contract (including arbitration) can be legislated upon by both central government (ie federal government) and the state governments. However, only central government can legislate in respect of international commercial arbitrations. Accordingly, the state government’s power to legislate on arbitration is only in respect of domestic arbitrations within the state.
Court decisions are of great relevance in India. Under the Indian Constitution, the law declared by the Supreme Court of India is binding on all courts within the territory of India (art 141). Therefore, to the extent, that the Supreme Court interprets any provision of the 1996 Act, such interpretations become the law of the land (including all states). In so far as the states are concerned, a decision of the High Court of the state, which is not inconsistent with any decision of the Supreme Court of India, will be binding on all arbitral tribunals and lower courts within such state. A decision of any state High Court is not binding on any other state High Court but has persuasive value.
The 1996 Act is divided into four Parts. In essence, Part I is expressed to deal with domestic arbitrations; Part II with New York Convention arbitration and awards as well as the Geneva Protocol and Geneva Convention arbitrations and awards; Part III deals with conciliation; and Part IV makes supplementary provisions for the working of the Act.
Part I contains 42 sections (ss 2–43). It broadly incorporates the UNCITRAL Model Law and the procedural provisions of the UNCITRAL Arbitration Rules 1976 with some modifications. It was intended that Part I would apply only to arbitrations in India (s 2(2)) and therefore that an arbitral award made under Part I would be considered a domestic award in India (s 2(7)). In other words, both domestic and international arbitrations held within the territory of India result in a domestic award in so far as India is concerned. However, the Supreme Court of India has held that, unless expressly or implied excluded, Part I of the Act would also apply to international arbitrations held outside India.1 In Shreejee Traco (I) Pvt Ltd v Paperline International Inc (2003) 9 SCC 79, a single judge of the Supreme Court, then sitting in an administrative jurisdiction, while deciding an application for appointment of an arbitrator under s 11 of the Act, refused to exercise jurisdiction to appoint an arbitrator as the arbitration was to be in New York. It was held that as the venue of arbitration was in New York and the law applicable to the contract was not specified, the arbitration agreement would not be governed by the Indian Act. The judgment of the Supreme Court in Bhatia International v Bulk Trading SA (2002) 4 SCC 105 was not drawn to the attention of the court. Since, Shreejee Traco was decided in the administrative jurisdiction, its value as a precedent is doubtful, although the reasoning is legally sound.
Provisions in this Part of the 1996 Act include limiting the scope of the judicial intervention except as provided in Part I (s 5), statutory waiver of a right to object, if the objection is not taken without undue delay or, if a time is prescribed, within the prescribed time period. It provides for independence and impartiality of arbitrators (s 12). In a significant departure from the previous law, arbitral tribunals have been given power to rule on their own jurisdiction and for that purpose, an arbitration clause which forms part of a contract is to be treated as an agreement independent of other terms of the contract (s 16). The Act mandatorily provides for reasoned awards unless otherwise expressly agreed by the parties; it empowers the arbitrator to grant interest both pre-reference, pendente lite and post-reference (s 31(7)). Challenge to a domestic award is available on the grounds stipulated in s 34 which broadly incorporates similar though not identical grounds to those provided in art V of the New York Convention. One such material difference in the scope of challenge is that the ground of ‘public policy’ in domestic awards is wider than in the New York Convention. If an arbitral award is not challenged within three months (with a one-month extension available for just cause) from the date of the award being received by the party, the award becomes a decree of the court and can be executed as such (s 36).
Part II of the 1996 Act contains provisions relating to enforcement of New York Convention agreements and awards. Section 44 defines a ‘Foreign Award’. Section 45 provides for reference to arbitration when a party files an action in a civil court in India on a subject matter agreed to be referred to arbitration being an international commercial arbitration to which the New York Convention would apply. Section 48 provides the grounds on which the enforcement of foreign awards can be resisted, which are basically the grounds set out in art V of the New York Convention. Significantly, if the enforcing court enforces a foreign award, the order cannot be appealed under the statute. However, under the Code of Civil Procedure, 1908 a limited ground of challenge lies to the High Court under its revisional jurisdiction (grounds of material irregularity and lack of jurisdiction). A constitutional right for special leave to appeal to the Supreme Court is also available against such an order.
Chapter II of Part II of the 1996 Act makes provision to give effect to Geneva Convention awards. Section 57 provides the conditions for enforcement of such awards.
By Part III of the 1996 Act, for the first time, conciliation has been statutorily provided for as a separate adjunct of dispute resolution and this part incorporates the UNICTRAL Conciliation Rules, 1980 with some modifications.
Part IV provides supplementary provisions regarding the power to make rules, and provides for the repeals and savings of prior legislation.
The ICA, a national arbitral institution established in 1965, provides arbitration services in respect of both domestic and foreign trade relations. Under rule 4(c) of the ICA’s Rules of Arbitration (in force from 4 March 1998) the ICA is competent to function as ‘Appointing Authority’ under the UNCITRAL Arbitration Rules. The ICA also administers arbitrations under the UNCITRAL Rules. The ICA has entered into agreements with several institutions abroad to provide reciprocal administrative services in the conduct of arbitration proceedings taking place under their respective rules of arbitration. In the authors’ view, the ICA is far from satisfactory as an institution for the resolution of disputes by arbitration in international commercial arbitrations.
In May 1995, the International Centre for Alternative Dispute Resolution (ICADR) was registered and set up in New Delhi under the aegis of the central government. Its patron is the Chief Justice of India. It was formed at a time when the provisions of the 1996 Act were taking shape, and before they were enacted. It has promulgated a number of different sets of rules – the ICADR Arbitration Rules 1996, the ICADR Fast Track Arbitration Rules 1996, the ICADR Mini-Trial Arbitration Rules 1996, and the ICADR Conciliation Rules 1996. The ICADR has yet to establish its reputation as a permanent arbitral institution administering domestic and international commercial arbitration.
The names and addresses of the main institutions offering and providing arbitral facilities are listed below.
The Indian Council of Arbitration
Federation House, 1st Floor
Tansen Marg
New Delhi-110001
Tel: +91 11 373 8760 (to 70)
Fax: +91 11 332 0714 (/372 1504)
Federation of Indian Chambers of Commerce and Industry
Federation House
Tansen Marg
New Delhi-110001
Tel: +91 11 373 8760 (to 70)
Fax: +91 11 332 0714 (/372 1504)
International Centre for Alternative Dispute Resolution (ICADR)
Trikoot-II, 3rd Floor
Bhikaji Cama Place
New Delhi-110066
Tel: +91 11 610 2805 (/610 2806) (/610 2807)
Fax: +91 11 610 2803
The Punjab, Haryana & Delhi Chamber of Commerce & Industry
PHD House, Opp
Asian Games Village
New Delhi-110016
Tel: +91 11 685 3024
Fax: +91 11 686 3135
Bombay Chamber of Commerce & Industry
Mackinon Mackenzie Building
Ballard Estate
Mumbai-400001
Tel: +91 22 261 4681
Fax: +91 22 262 6213
Bengal Chamber of Commerce & Industry
PO Box 280, Royal Exchange
6 Netaji Subash Road
Calcutta-700001
Tel: +91 33 220 8393
Fax: +91 33 220 1289
The Travancore Chamber of Commerce
PO Box 4605
Alleppey-688012
Tel: +91 47 724 3277
There are also several industry associations as well as chambers of commerce, which provide arbitrations services.
The arbitration rules of some of these organisations have been compiled in S D Singh’s Law of Arbitration (Lucknow: Eastern Book Company, 10th edn, 1994) pp 952–999.
Although Indian law supports arbitration as a means of dispute resolution in commercial contracts, and provisions have been made in the law to give effect to such agreements, the existence of an arbitration agreement does not by itself oust the jurisdiction of the courts.
Where the seat of arbitration is in India, in the event of a party to the arbitration agreement invoking the court’s jurisdiction by filing a civil suit, the other parties to the agreement can seek dismissal of the suit and reference to arbitration by an application under s 8 of the 1996 Act. Such an application must be made not later than the time of submitting the first statement on the substance of the dispute. The application must be accompanied by the original arbitration agreement or a duly certified copy thereof. Since the existence of an arbitration agreement does not oust the jurisdiction of the courts, s 8 incorporates the doctrine of election. If the defendant does not make an application for reference to arbitration, but submits to the jurisdiction by filing its statement of defence, it would have waived its right to arbitration (s 4) and can be held to have abandoned the arbitration agreement. The court does not have suo moto powers to refer the parties to arbitration. It is, therefore, imperative that a foreign defendant who receives notice of an action (suit) filed in a court in India in respect of dispute agreed to be referred to arbitration, makes such an application and should not choose to ignore court proceedings.
If the existence of an arbitration agreement is admitted it is mandatory for the court to refer the parties to arbitration. If the existence of the arbitration agreement is denied, current law suggests that the court must still mandatorily refer the parties to arbitration in the first instance as the arbitral tribunal has the competence to determine its own jurisdiction (s 16).2 However, the recent judgment of the Supreme Court in SBP & Co v Patel Engineering Ltd and anor (2005) 8 SCC 618 (seven judges, with one dissenting), which does not directly deal with s 8, would suggest that if the existence of the arbitration agreement is denied, the court would have to determine the issue finally before referring the parties to arbitration. It was held that at the stage of appointment of arbitrators under s 11 of the 1996 Act, if the very existence of the arbitration agreement was challenged, the court has finally to decide the issue and make the appointment only if an arbitration agreement was found to exist. The judgment overruled an earlier constitution bench (five judges) judgment of the Supreme Court in Konkan Railway Corpn Ltd v Mehul Construction Co (2002) 2 SCC 388, which had held that at the stage of appointment of the arbitrator, the Chief Justice or his designate acts in an administrative capacity and is not required to decide any issue regarding existence or validity of the arbitration agreement. If raised, such issues were to be relegated to the arbitral tribunal to decide under s 16.
The policy in favour of arbitration is also reflected in s 8(3) which allows the arbitral tribunal to continue proceedings and to make an award, pending a court action. However, in the case of multi-party disputes, where one or more of the defendants are not party to the arbitration agreement, even a party to the arbitration agreement cannot seek reference of its disputes to arbitration under s 8 of the 1996 Act.3
In the case of international commercial arbitrations to which the New York Convention applies, in the event of an action filed in an Indian court, a party to the arbitration agreement may apply to the court to refer the parties to arbitration. The court is mandatorily bound to do so unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed (s 45). Section 45 of the 1996 Act mirrors art II(3) of the New York Convention. In a recent decision of the Hon Supreme Court in the case of Shin-etsu Chemicals Co Ltd v Aksh Optifibre Ltd and anor (2005) 7 SCC 234, it was held that if an issue as to existence or validity of an arbitration agreement is raised in such an action, if the court is prima facie satisfied that there exists an arbitration agreement or that the agreement is valid and binding, it must refer the parties to arbitration. The issue, if raised before the arbitral tribunal, must be decided fully by the tribunal. The party raising such an issue could resist enforcement if the award goes against it and at the stage of enforcement the court must decide the issue finally on a detailed examination. If the court cannot reach prima facie satisfaction as to the existence of an arbitration agreement then the court must decide the issue finally after a detailed trial and only refer the parties if an arbitration agreement is found to exist or found to be valid and binding, as the case may be.
In the case of Geneva Protocol agreements, s 54 of the 1996 Act mirrors cl 4 of the Geneva Protocol.
Apart from the above, s 14 of the Specific Relief Act, 1963 suggests that the existence of an arbitration agreement to which Arbitration Act, 1940 does not apply would bar a suit. It is to be noted that the Specific Relief Act, 1963 has not been amended after the repealing of Arbitration Act, 1940. In view of the repealing of the Arbitration Act, 1940 by the 1996 Act, the efficacy of this provision remains to be tested although there is no reason why a court should not interpret the words ‘Arbitration Act, 1940’ as being substituted by the ‘Arbitration and Conciliation Act, 1996’. In other words, if the section is held to apply under the new circumstance, the existence of an arbitration agreement governed by a foreign law (not governed by the 1996 Act) should bar a suit.
2 Hindustan Petroleum Corpn Ltd v Pink City Midway Petroleum (2003) 6 SCC 503.
3 Sukanya Holdings Pvt Ltd v JH Pandya and anor (2003) 5 SCC 531.
The 1996 Act recognises the principle of ‘competence-competence’. The arbitral tribunal is empowered under s 16 to rule on its own jurisdiction, including in respect of the existence or validity of the arbitration agreement, and for that purpose the arbitration clause which forms a part of the contract is treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void does not ispo jure entail the invalidity of the arbitration clause.
A plea that the arbitral tribunal has no jurisdiction is to be raised no later than the submission of the statement of defence. A plea that the arbitral tribunal is exceeding the scope of its authority is to be raised as soon as the matter alleged to be beyond the scope is raised during the arbitral proceedings. However, the arbitral tribunal may allow a party to raise such pleas later, if it considers the delay justified.
A party is not precluded from raising such pleas merely because it appoints an arbitrator or participates in the appointment of an arbitrator.
Where the arbitral tribunal rejects an objection as to jurisdiction or validity of an arbitration agreement, it can continue with the arbitration proceedings and make an award. Such a decision is not construed as an interim award and therefore cannot be assailed by itself. It can only be assailed in accordance with s 16(6) when the award is made, by an action for setting aside of the award in accordance with s 34.
As grounds to set aside an award include lack of jurisdiction or excess of jurisdiction on the part of the arbitrator, the ultimate decision rests with the court. However, in accordance with the judgment of the Hon Supreme Court in SBP & Co v Patel Engineering Ltd and anor (2005) 8 SCC 618 where a plea of lack of jurisdiction is raised at the stage of appointment of an arbitrator (s 11) or at the stage when a party seeks interim relief from the court (s 9), the court must decide the issue finally in those proceedings.
If the jurisdiction of the arbitral tribunal is tested in court, either pursuant to s 8 or s 9 of the 1996 Act, a tribunal need not suspend the proceedings pending court action (s 8(3)) unless the court expressly injuncts the tribunal from continuing.
There is now considerable case law under the new Arbitration and Conciliation Act, 1996. Some of the recent commentaries on the provisions of the 1996 Act are listed below.
Books
R S Bachawats Law of Arbitration & Conciliation (Nagpur: Wadhwa, 4th edn, 2005)
Dr P Chandrasekhara Rao The Arbitration and Conciliation Act, 1996 (Delhi: Universal Law Publishing Co Pvt Ltd, 1997) (the author was the Law Secretary, Government of India and had a leading role in drafting the provisions of the 1996 Act)
H C Johari Commentary on Arbitration and Conciliation Act, 1996 (Calcutta: Kamal Law House, 1997)
G K Kwatra (Director, Indian Council of Arbitration) The New Arbitration & Conciliation Law of India (New Delhi: Indian Council of Arbitration, 1996, reprinted 1998)
O P Malhotra The Law and Practice of Arbitration and Conciliation: The Arbitration and Conciliation Act, 1996 (Lexis Nexis-Butterworths, 2002) Justice S B Malik Principles and Digest of New Arbitration and Conciliation Law (Allahabad: The University Book Agency, 2nd edn, 1997) P C Markanda Law relating the Arbitration and Conciliation (New Delhi: Wadhwa Law House, 5th edn, 2005) M V Mirchandani and V K Sharma Guide to New Arbitration Law (New Delhi: Om Law Book House, 1998) D P Mittal New Law of Arbitration, ADR and Contract in India (The Hague: Kluwer Law International, 1997)
Dr P C Rao and Judge W Shefield (of California) (eds) Alternative Dispute Resolution: What It Is and How It Works (Delhi: Universal Law Publishing Co Pvt Ltd, 1997) (a set of articles on ADR)
S K Roy Chowdhury and H K Saharay Law of Arbitration and Conciliation (New Delhi: Eastern Law House, 4th edn, 1997 reprint)
Dr Shroff and Jhunjhunwala Law of Arbitration and ADR (Delhi: Universal Law Publishing Co Pvt Ltd, 1997) There are other standard commentaries under the old law, the 1940 Act,
namely: P M Bakshi (ed) Paruck’s Law of Arbitration (N M Tripathi Pvt Ltd, 1991) S D Singh Law of Arbitration (Lucknow: Eastern Book Company, 10th edn, 1994)
Journals
ICA Arbitration Quarterly (Indian Council of Arbitration) Arbitration and Works Contract Law Journal (Suvidha Law House), quarterly journal Arbitration Law Reports (Arbitration Law Reporter), contains decisions of Indian courts under the 1940 Act, and now under the 1996 Act
All India Reporter (AIR) (All India Reporter Ltd), monthly compilation of Law Reports of all High Court decisions and of decisions of the Supreme Court of India. These include decisions on arbitration (domestic and foreign)
A separate volume is supplied annually for decisions of the Supreme Court of India, and for each High Court there is a separate annual AIR series. Citation for decisions of the Supreme Court is AIR (year) SC … , and citation of each High Court is AIR (year) Bom … , AIR (year) … Cal, AIR (year) … Madras etc
Supreme Court Cases (SCC) (Eastern Book Company), law reports containing decisions of the Supreme Court of India (including decisions of courts in matters pertaining to domestic and international arbitrations); also published under the heading The Supreme Court Cases. The citation of Supreme Court cases is: Year (Vol … ) SCC. It is also available in CD format.
For an arbitration agreement to be enforceable it must be in writing (s (7(3)). It may be in the form of an arbitration clause contained in a contract or in the form of a separate agreement to arbitrate (s 7(2)). An agreement is said to be in writing if it is contained in a document signed by the parties or in an exchange of letters, telexes, telegrams or other means of telecommunication which provide a record of the agreement, or an exchange of statement of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. It can also be incorporated by reference to other documents.
An essential requirement of an arbitration agreement is that the clause must provide an agreement to submit disputes which have arisen or which may arise between them in respect of a definite legal relationship, whether contractual or not, to arbitration.
The provisions of the 1996 Act in this regard are subject to certain constitutional provisions relating to contracts entered into by the Government of India or the state governments. In all such cases there is formal mandatory requirement that not only must the arbitration agreement be in a written instrument but it must also be expressed to have been made on behalf of the President of India or the governor of the state (as the case may be) and signed by persons duly authorised to sign on their behalf as provided in art 299 of the Constitution of India.
In so far as the statutory corporations are concerned, if the statute contains any specific provisions in relation to entering into contracts, those conditions must also be satisfied for a valid arbitration agreement.
There are no types of disputes for which arbitration is mandated.
The 1996 Act adopts the neutral policy of the Model Law (art 1(5)). It provides that the provisions in Pt I (which govern both domestic and international commercial arbitrations) do not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration (s 2(3)). The position under Indian law with regard to the nonarbitrability of disputes, broadly speaking, is as follows:
Under the old law (the Arbitration Act, 1940) if an arbitration clause was contained in a contract, then its validity depended upon the validity of the contract. If the contract perished, the arbitration clause perished along with it. Although disputes as to the existence or validity of the contract could be decided initially by the arbitrator, provided the arbitration clause was widely worded (in connection with, relating to, arising out of) the final authority was the court and the court’s jurisdiction could be invoked for such purpose even before or during arbitration.
The 1996 Act has brought about some change in the above position. As has been set out in section 4.2 above, the arbitration clause contained in a contract does not perish with the contract but is treated as a contract independent of the main contract. However, given the fact that the lack of jurisdiction of the arbitrator or invalidity of the arbitration agreement is a ground for challenging an award, the ultimate decision on the subject still rests with the court.
In the 1996 Act there are no specific provisions regulating qualifications of the arbitrators. However, parties are free to prescribe, by their agreement, any specific qualifications required of an arbitrator. In other words, unless otherwise agreed, any person (not being a minor or of unsound mind), whether qualified in law or not, can be appointed as an arbitrator. There are no restrictions as to the nationality of the person chosen to be the arbitrator (unless otherwise agreed).
The 1996 Act requires an arbitrator to be independent and impartial. It requires the arbitrator to disclose in writing, when approached for an appointment, any circumstance likely to give rise to justifiable doubts as to his independence or impartiality. If any such circumstance should arise during the course of arbitration, he is again bound to disclose it in writing to the parties. There is, however, an exception to the above, namely, if a party at the time of appointment knows that there may be circumstances likely to give justifiable doubts as to his independence and impartiality then it cannot subsequently challenge his appointment on the same ground (s 12(4)).
It is commonplace to have in government contracts clauses providing for arbitration by employees of the same corporation and even some times by persons who have dealt with the very same contracts or disputes arising thereunder. The Indian courts have consistently upheld such clauses although in effect it allows a party to be a judge in its own cause. The mere fact that a person is an employee of a corporation has been held not to constitute sufficient ground to doubt his impartiality or independence.4
9.2 Are there provisions governing the challenge or removal of arbitrators? Do the courts or other jurisdictions play/have a role in any such challenge?
Section 12 of the 1996 Act sets out the grounds for challenge of an arbitrator. There are only two available grounds. One is if he does not possess qualifications agreed to by the parties. The other is the existence of circumstances that give rise to the justifiable doubts as to the arbitrator’s independence or impartiality. The second ground is further qualified by s 12(4) limiting its applicability to, in case of an arbitrator appointed by a party or in whose appointment it has participated, reasons of which the party only becomes aware after the appointment is made.
Section 13 of the 1996 Act sets out the challenge procedure. Parties are free to agree on a procedure for challenging an arbitrator. If they have not so agreed, a party which comes to challenge an arbitrator must, within 15 days of becoming aware of the constitution of the tribunal or becoming aware of any circumstances which give rise to justifiable doubts as to the arbitrator’s independence or impartiality, send a written statement giving reasons for the challenge to the arbitrator/arbitral tribunal (s 13(2)). If the arbitrator who is challenged does not withdraw from his office or the other party does not agree to the challenge, the arbitral tribunal is required to decide on the challenge (s 13(3)). If the arbitrator does not uphold the challenge, the arbitrator/tribunal is required to continue with the proceedings. It is only on the making of an award that the party which has challenged the arbitrator may make an application for setting aside of the award under s 34 of the 1996 Act. One of the grounds for the setting aside of an award under s 34 is that the composition of the arbitral tribunal was not in accordance with the agreement of the parties or was not in accordance with the provisions of Pt I of the 1996 Act. This would include the impartiality or non-independence of the arbitrator.
There is, therefore, no provision for court interference to the challenge or removal of an arbitrator until after the award is made. The initial challenge is only before the arbitrator. The court’s role in such a challenge is only at the stage of a challenge to the award.
If an objection as to an arbitrator’s independence or impartiality or lack of agreed qualification is not made within the 15-day period, then by application of s 4 of the 1996 Act, the party is deemed to have waived its right to make such challenge.
The 1996 Act does not contain any provision relating to immunity of an arbitrator/arbitral tribunal or arbitral institutions, although both judges and tribunals constituted by statute do enjoy immunity. Theoretically, therefore, an arbitrator could be liable for damages in tort if it were to be established that he acted either negligently or fraudulently. Fraudulent acts would include corruption. Mere errors in the award, whether in relation to fact or law, which would not constitute negligence, by application of general principles under Indian law, would not attract liability. There is, however, no judgment of any court as yet on this issue.
10. PARTY REPRESENTATION
In the 1996 Act there are no provisions specifying qualifications for party representatives (counsel) acting in any arbitration in India. In other words, parties may appear in person or through an authorised representative who may or may not be a qualified lawyer. In practice, in most arbitrations, parties are represented by lawyers. The authority for a lawyer to act on behalf of a party is usually in the form of a Vakalatnama (power of attorney).
Neither the 1996 Act nor any other statute prohibits foreign lawyers from appearing in an arbitration in India.
The 1996 Act leaves it to the parties to agree on the ‘place of arbitration’ (s 20(1)). If the place of arbitration is India, Part I of the Act is applicable (s 2(2)). The expression ‘place of arbitration’ in ss 2(2) and 20 is used in its legal sense, ie to denote the judicial seat of the arbitration.
Section 20(2) of the Act provides that where there is no agreement of the parties as to the place of arbitration, ‘the place of arbitration will be determined by the arbitral tribunal having regard to the circumstances of the case including the convenience of the parties’: phrases which are directly derived from art 20 of the Model Law.
The 1996 Act provides that notwithstanding the parties’ agreement on the ‘place of arbitration’ (in its legal sense) the arbitral tribunal is not precluded from meeting at any place it considers appropriate for consultation among its members or for hearing the parties, or witnesses or experts, or for inspecting documents, goods or other property (s 20(3)).
The place of arbitration in its legal sense determines the place where the award shall be made. The arbitral award must state the place of arbitration as determined in accordance with s 20 and the award shall be deemed to have been made at that place (s 31(4)).
As the law stands at present, under the 1996 Act, any arbitration held outside India in which at least one of the parties is from India would be subject to Pt I of the 1996 Act, unless its provisions are impliedly or expressly excluded (Bhatia International v Bulk Trading SA (2002) 4 SCC 105).
With regard to procedures of arbitration, s 18 of the 1996 Act prescribes in a mandatory fashion that the parties are to be treated with equality and each party is to be given full opportunity of presenting its case. Subject to this overriding requirement, the parties are free to agree on the procedure to be followed by the arbitral tribunal in the conduct of its proceedings (s 19(2)).
Section 19(1) provides that the arbitral tribunal is not bound by the Code of Civil Procedure, 1908 which is applicable to Indian court proceedings or the Indian Evidence Act, 1972.
Further, unless the procedure, including by reference to any institutional rules is otherwise agreed, ss 23–25 of the1996 Act provide for exchange of pleadings, conduct of hearings, generally incorporating the principles of natural justice. Unless otherwise agreed by the parties, the language of the arbitral proceedings is to be decided by the arbitral tribunal.
In practice, most ad hoc arbitrations in India are conducted much like court proceedings in terms of pleadings, evidence and hearing except that arbitral tribunals do not strictly follow the provisions of the (Indian) Evidence Act, 1972 or the Code of Civil Procedure, 1908.
Unless otherwise agreed, the arbitral tribunal has full freedom to determine the admissibility, relevance, materiality and weight of evidence submitted by the parties (s 19(4) read with s 19(3)), and is not bound by the rules of evidence prescribed for courts under the Indian Evidence Act, 1972.
Subject to the parties’ agreement otherwise, eg by reference to a set of institutional rules, parties are required to submit along with their statement of claim and defence, or at a subsequent stage, all documents they consider to be relevant and copies of all such documents must be supplied to the other party. Although there is no specific power conferred on the arbitral tribunal to order production of any documents it considers necessary and relevant, such a power is implicit in s 19(3), which empowers the tribunal to conduct arbitral proceedings in the manner it considers appropriate.
In practice, it is commonplace that evidence is recorded. The evidence-inchief is usually submitted in the form of affidavits. It is up to the parties to decide whether they wish to cross-examine the witnesses produced by the other side based on the affidavit tendered. In most cases cross-examination does follow the tendering of affidavit evidence. The cross-examination is usually recorded and copies made available to all concerned.
The arbitral tribunal has power to administer oaths and affirmations to witnesses, but is not obliged to do so. The Oaths Act, 1969 prescribes the form of such oaths and affirmations. Under the Oaths Act, 1969, every person giving evidence whether before a court or before persons having by law or consent of parties authority to receive evidence (eg before arbitrators) is bound to state the truth. In practice, witnesses do give their testimony before arbitrators on oath or affirmation.
Section 26(1) of 1996 Act provides that unless otherwise agreed by the parties, the arbitral tribunal may appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal, and to require a party to furnish to that expert relevant information, and for that purpose provide access to him to any relevant documents or goods or make other properties available for his inspection. If a party so requests, or if the arbitral tribunal considers it so necessary, the expert shall, after delivery of a written or oral report, participate in the oral hearing where the parties must have the opportunity to put questions to him, and also to present their own expert witnesses in order to testify on the points at issue. The expert shall, on request of a party, make available to that party for examination, all documents, goods or other properties in the possession of the expert, with which he was provided in order to prepare his report (s 26(2) and (3)).
Usually an expert would be a person ‘specially skilled’ in any branch of science or art, or foreign law or for identifying handwriting (s 45 of the Indian Evidence Act, 1972).
Section 27 of the 1996 Act makes provision for the arbitral tribunal (or one of the parties with the approval of the arbitral tribunal) to apply to the appropriate court ‘for assistance in taking evidence’ – such assistance includes the issue of a summons to witnesses – to compel a witness to give evidence before the arbitral tribunal and/or for ensuring the production of documentary evidence before the arbitral tribunal. The court’s power, in aid of arbitration, would also include the power to order the issue of a commission or a letter of request for examination of a witness out of the jurisdiction of the court. The court cannot and does not hear witnesses who are unwilling to appear before the arbitrators, but an unwilling witness can be compelled to give evidence before the arbitral tribunal by serving him with summons (or process) issued by the appropriate court for the purpose. The powers of the court to secure attendance of witnesses before arbitrators are the same as the court has to secure the attendance of witnesses before itself.
Persons failing to appear before the arbitral tribunal in accordance with the summons issued by the court, or refusing to give evidence before the arbitral tribunal after being properly summoned by such court, can be held to be in contempt, and are also subject to disadvantages, penalties and punishments which may be imposed by order of the court on the representation of the arbitral tribunal (s 27(5)).
In this respect there is no difference between domestic and international arbitration so long as the seat of arbitration is in India. Under the 1996 Act, no special provisions exist for arbitrators appointed pursuant to international treaties.
A party may before or during arbitral proceedings (or even at any time after the making of the arbitral award but before it is enforced) apply to an appropriate court for an interim measure of protection in respect of the following matters, namely: the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement; securing the amount in dispute in the arbitration; the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration; interim injunction or the appointment of a receiver; and for such other interim measure of protection ‘as may appear to the Court to be just and convenient’ (s 9).
The court has the same powers for making orders of interim protection as it has for the purposes of and in relation to any proceedings before it.
Unless otherwise agreed by the parties, the arbitral tribunal at the request of a party (not on its own motion) may order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute, and for this purpose require a party to provide appropriate security (s 17(1)).
The powers of the court under s 9 and of the arbitrator under s 17 to grant interim measures of protection are more or less the same. Against an order passed (or an order refusing interim relief under s 17) an appeal lies to the court. Similarly, against an order passed by a court under s 9 either granting or refusing interim relief, an appeal lies to the appellate court.
Currently, if a foreign arbitrator conducts hearings within India in relation to Indian-seated arbitrations, by application of the Indian Income Taxes Act, 1961 such income arising from the hearings would be deemed to be income accruing in India and therefore subject to income tax in India. In fact, if an Indian company or firm and, under certain circumstances, professionals were to pay the foreign arbitrator’s fees, they would be obliged to deduct withholding tax, ie income tax, at source at approximately 5 per cent and provide a certificate of tax paid. To the extent that any double taxation treaty between India and the foreign arbitrator’s resident state provides for tax credit on such tax paid in India, a benefit of the Indian income tax paid could be taken by the foreign arbitrator.
If the seat of arbitration is outside India and, for convenience, one or more sittings are held in India, then it could be said that the foreign arbitrator’s income from such sittings has not accrued in India and would not therefore be taxable in India to Indian income tax. However, this issue has not yet arisen for consideration by the courts.
Section 25 of the 1996 Act provides that unless otherwise agreed by the parties, where, without showing sufficient cause, the claimant fails to communicate its statement of claim as provided in s 23, the arbitral tribunal shall terminate the proceedings. Conversely, where the respondent fails to communicate its statement of defence, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegation made by the claimant. It is also provided that unless otherwise agreed by the parties, where without showing sufficient cause a party fails to appear at an oral hearing or to produce documentary evidence the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it. If a party seeks an adjournment of arbitral proceedings, it is in the discretion of the arbitrator/arbitral tribunal to grant such adjournment whether sufficient cause is shown or not.
The award is required to be made in writing and to be signed by the members of arbitral tribunal – but where the arbitral tribunal consists of more than one arbitrator, the signatures of the majority of members of the tribunal shall be sufficient, ‘so long as the reasons for any omitted signatures is stated’ (ss 31(1) and (2)). The arbitral tribunal is required to state the reasons on which it is based unless the parties have agreed that no reasons are to be given, or the award is an arbitral award on agreed terms of settlement under s 30 (s 31(3)). The arbitral award must state its date and the place of arbitration as determined in accordance with s 20 (parties being free to agree on the place of arbitration or failing agreement the place of arbitration being determined by the arbitral tribunal). The award is deemed to have been made at that place.
Where an arbitral tribunal consists of three arbitrators (or a larger number which shall not be an even number) the 1996 Act does not make any provision for a dissenting opinion nor as to whether the dissent may or may not be annexed to the award. The law is that it need not be so annexed.
The Supreme Court of India has held that in arbitrations where one of the parties is not Indian, the arbitrators have the power to make an award for a sum of money expressed in a foreign currency, but the arbitrators should provide in the award for the rate of exchange at which the sum awarded should be converted. If they omit to do so, the court enforcing the award must fix the rate of conversion (Forasol v ONGC 1984 Suppl SCC 263; approved and applied to New York Convention awards in Renusagar Power Co Ltd v General Electric Co 1994 Suppl (1) SCC 644). The provision for conversion would apply only if the award for payment of money is against an Indian party and is to be enforced or recovered from assets in India.
After the arbitral award is made a signed copy must be delivered to each party (s 31(5)). An award affecting title to immovable property must be registered under the Registration Act, 1908 (s 17 of that Act) – within four months of its date – before it can be enforced. This registration is to be before the Sub-Registrar of Assurances at the place where the immovable property is located. Separate registration fees are prescribed. No separate registration is necessary under the Registration Act, 1908 (or any other enactment) for awards in commercial matters not involving determination of rights to, or in respect of, immovable property. All awards are chargeable with stamp duty depending upon the amount involved in the award. Different rates of stamp duty are prescribed in different states.
There is no time limit fixed under the 1996 Act for the making of the award – but there is nothing to preclude parties from agreeing in the arbitration agreement (or under applicable arbitration rules) to such a time limit.
Generally, under Indian law, an arbitrator being the creature of the contract is required to act within and in accordance with the contract and cannot take a decision contrary to its express terms. However, arbitrators are free to interpret the contract. If such interpretation requires that the contract be read in a manner consistent with unforeseen or changed circumstances, or to make the contract workable, such an interpretation being within the bounds of reasonable interpretation on the facts and circumstances, it would not be beyond the arbitrator’s authority to do so and to thereby fashion an appropriate remedy.
An arbitrator does not have power to impose punitive or exemplary damages, unless expressly agreed to by the parties, ie by the parties expressly providing in the arbitration agreement or otherwise that the arbitrator’s jurisdiction would include the power to grant such damages. Similarly, an arbitrator would not be entitled to rectify a document unless the parties agree that the relief of rectification would be within the arbitrator’s jurisdiction.
An arbitrator has power to grant interest whether pre-reference, pendente lite and post-reference (s 31(7)) unless prohibited by the terms of the contract. Unless a rate of interest is provided in the contract the rate and manner of computing interest (simple or compound), would be within the arbitrator’s jurisdiction. The grant of compound interest is, however, limited under Indian law to circumstances where it is provided by contract or found in custom or usage (s 3(3)(c) of the Interest Act, 1978).
Under the 1996 Act, if the award does not expressly stipulate the rate of interest on the awarded amount, it carries interest at 18 per cent per annum from the date of award to the date of payment (s 31(7)(b)). This provision was made in 1996 when interest rates in India on commercial contracts were in the range of 18 per cent per annum or more. Notwithstanding the changed circumstances prevalent now, the provision has not yet been amended.
An arbitrator has power to award costs, which are defined to mean reasonable costs relating to the fees and expenses of the arbitrator(s) and witness(es), legal fees and expenses, any other expenses incurred in connection with the arbitral proceedings and the arbitral award and any administration fees of the institution supervising the arbitration (s 31(8)).
Under s 33, within 30 days from receipt of an arbitral award, a party may request the arbitral tribunal to correct any computational, clerical or typographical errors, or other errors of a similar nature occurring in the award. If the arbitral tribunal considers the request justified, it must make the correction within 30 days from the receipt of the request for correction. The arbitral tribunal is also empowered to correct such errors on its own initiative within 30 days from the date of the award.
As regards interpretation of the award, within 30 days of receipt of the award a party may request the arbitral tribunal to give an interpretation of a specific point or part of the award but only if it is so agreed by the parties (not otherwise). If the arbitral tribunal considers the request for interpretation to be justified it must give its interpretation within 30 days of the receipt of such request. Such interpretation shall form part of the arbitral award.
As to when a request for correction or interpretation is ‘justified’ is left to the discretion of the arbitral tribunal.
The 1996 Act also empowers the arbitral tribunal to make an ‘additional arbitral award’ only with respect to claims presented in arbitral proceedings but omitted from the arbitral award. A request for such an additional award must be made within 30 days of the receipt of arbitral award. If the arbitral tribunal considers the request to be justified, it must make the additional arbitral award within 60 days from the receipt of such request (s 33(4) and (5)).
The specific periods of time prescribed for the arbitral tribunal to make corrections, give interpretations or make an additional arbitral award are subject to extension by the arbitral tribunal (s 33(6)).
There is no arbitral appeal to a second arbitral instance envisaged under the 1996 Act. Rules and bylaws of some trading associations (eg East India Cotton Association) and of stock exchanges in India do provide for an internal appeal from an award to an appellate authority, eg in commodity arbitrations and in disputes with regard to transactions in shares and securities on the stock exchanges. These would be valid under the 1996 Act.
There is no appeal possible to a court on the merits of the award under the 1996 Act. Recourse to a court against an arbitral award may be made only by an application to set aside an award in accordance with the provisions of s 34(2). No separate action for setting aside is permissible (s 5). Such an application must be made within three months from the receipt of the award which period may be extended by one month for sufficient cause. Thereafter, there is no power for the court to condone any delay in filing such an application.
Pursuant to s 34(2), arbitral awards made in India pursuant to the seat of arbitration being in India (whether purely domestic or pursuant to international commercial arbitration held in India) may only be set aside by the court on the following grounds:
The ground of public policy in ONGC v SAW Pipes (2003) 5 SCC 705 has been held to include the fundamental policy of Indian law, justice or morality and patent illegality. Patent illegality includes where the award is contrary to substantive law of India; contrary to the non-derogatory provisions of the 1996 Act and contrary to the express terms of the contract. However, such patent illegality must go to the root of the matter affecting the rights of the parties. The court, however, cannot reappraise evidence and come to a different conclusion of fact. Similarly, where the arbitrator is required to interpret a contract, if the view taken is a plausible one, even if it be wrong, it would not be patently illegal. Grounds for setting aside an award on jurisdictional issues are subject to non-waiver. Where in the first instance a party proceeds with the arbitration without raising objections of jurisdiction within the stipulated time provided under the 1996 Act, in terms of s 4, such objections would be waived and would no longer constitute a ground for setting aside under s 34.
A right of appeal lies from an order of a court to set aside or refusing to set aside an arbitral award under s 34. The right of the Supreme Court of India under art 136 of Constitution of India to grant special leave to appeal from any order of a court or tribunal is unimpaired by the provisions of the 1996 Act. Therefore, from the appellate order, a party may approach the Supreme Court of India for grant of special leave to appeal.
Where the time for making an application to set aside an award under s 34 has expired, or such application having been made, and been refused, the award must be enforced in the same manner as if it were a decree of a court.
For domestic awards, the 1996 Act provides that where the time for making an application to set aside the arbitral award under s 34 has expired – ie more than three months (plus one month for sufficient cause) have elapsed from the date on which the party making the application has received the arbitral award – or where such application having been made and been refused, the award shall be enforced under the Code of Civil Procedure, 1908 ‘in the same manner as if it were a decree of the Court’ (s 36).
Under the 1996 Act the arbitral award is enforced as a court decree, by an application to the executing court. The Code of Civil Procedure, 1908 therefore provides the manner in which the award ultimately is executed. It is only where an application for execution is made more than two years after the date of the award that leave must be obtained from the executing court for attachment of assets, and the court must then issue a notice to the person against whom execution is applied for requiring him to show, on a date to be fixed, cause why the decree should not be executed against him by attachment of assets.
Where no application is made to set aside the arbitral award under the 1996 Act, within the period prescribed, or such application having been made, and refused, enforcement of the award as a court decree cannot be resisted on any ground except, if any, grounds for objecting to execution (Ord XXI of the Code of Civil Procedure, 1908) exists.
The procedure governing the enforcement of New York Convention awards (foreign awards) is set out in Chapter I of Pt II of the 1996 Act (ss 46–49). Its principal features are as follows:
Where an arbitral award or arbitration agreement to be produced is in a foreign language, the party seeking to enforce the award must produce a translation into English certified as correct by a diplomatic or consular agent of that country to which the party belongs or certified ‘as correct in such other manner as may be sufficient according to the law in force in India’. In the case of a document in a foreign language, Indian courts require a translation by a person competent to translate and the certificate should indicate his qualification for translating the document (s 47(2)). If the certificate is obtained from a country other than India, it should bear the seal of the Consulate of India in that country.
Section 48 is a virtual reproduction of art V of the New York Convention. It provides that enforcement of a foreign award may be refused at the request of the party against whom it is invoked only if that party furnishes to the court proof that:
Enforcement of an arbitral award may also be refused if the court finds that the subject matter of the dispute is not capable of settlement by arbitration under the law of India, or the enforcement of the award would be contrary to the public policy of India. It is statutorily declared that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption (s 48(2)).
Where the court is satisfied that the foreign award is enforceable the award shall be deemed to be a decree of that court.
A right of appeal lies from an order refusing to enforce an award under s 48. Such appeal must be made to the court authorised by law to hear appeals from such an order. Where an order refusing to enforce a foreign award is made by a single bench of the High Court an appeal lies to the Division Bench of the High Court of the state (subject to the relevant High Court Rules) or to the Supreme Court of India.
The violation of rules of public policy is a ground for refusal of enforcement or a ground for setting aside. Indian law does not restrict (or extend) this ground to violation of international public policy even where the arbitration is an international commercial arbitration. Where enforcement of a foreign award is sought in any court in India, the rules of public policy applicable will only be the ‘Public Policy of India’.
In Renusagar Power Co Ltd v General Electric Co (1994) Suppl (1) SCC 644, whilst construing the provisions of s 7(1)(b)(ii) of the Foreign Awards Act,1961 (which reproduced art V(2)(b) of the New York Convention), the Supreme Court of India held that in order to attract the bar of public policy the enforcement of the award must involve something more than violation of Indian law; the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement was contrary ‘to the fundamental policy of Indian law or justice or morality’. It was held that any violation of the Foreign Exchange Regulation Act, 1973 (since repealed), which was enacted for the national economic interest, would be contrary to the public policy of India. The enforceability of a foreign award could not be resisted as violating the public policy of India where an award, however, directed payment of compound interest, or directed payment of compensatory damages or where the arbitral tribunal had awarded an amount higher than should have been awarded or where costs awarded by the arbitral tribunal were excessive. Since s 48 of the 1996 Act is para material to s 7 of the 1961 Act, the Renusagar judgment continues to be applicable under the 1996 Act.
It has been held in India that an award rendered abroad (which is not governed by a multilateral Convention) is enforceable in India by suit (or action) on the same grounds and in the same circumstances in which it is enforceable in England, ie under the common law, on grounds of justice, equity and good conscience. But such an award, since it is founded on a contract, cannot claim any international status and can be enforced in India (by way of a suit) only if it possesses the essential attribute of a judgment, ie that of finality.5
Indian court decisions on the New York Convention (or more appropriately, on the Foreign Awards (Recognition and Enforcement) Act, 1961 giving effect thereto) are constantly reported in ICCA’s Yearbook Commercial Arbitration.
A comprehensive list of countries notified by the Government of India under the Geneva Protocol and Geneva Convention is reproduced at Appendix I (pp 139–140) of G K Kwatra’s The New Arbitration & Conciliation Law of India (New Delhi: Indian Council of Arbitration, 3rd edn, 1998). Similarly, the list of the countries notified by the Government of India under the ‘reciprocity’ reservation to India’s accession to the New York Convention is set out in the same book at Appendix II, pp 141–142.
India is not party to any other conventions or multilateral or bilateral treaties regarding enforcement of foreign arbitral awards. India is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (the Washington or ICSID Convention).
5 Badat & Co v East India Trading Co AIR 1964 SC 538.
It has never been customary in India to publish awards. Neither the ICA nor any other organisation in India has published awards made in India.
Information on arbitration cases and awards can be gathered from court cases on arbitration: these are published in the law reports and in law journals (eg Arbitration Quarterly, published by the ICA).
There is no provision under Indian law directly dealing with the confidentiality of arbitration proceedings. To the extent that any such duty exists, claiming damages for a breach would require the proof of the normal elements of a tort claim. However, in arbitrations seated in India, it is arguable that a violation of confidentiality would impair the public policy provisions of the 1996 Act where a conciliation – arbitration – method (or ‘multi-tiered dispute resolution’) is adopted. The Explanation to s 34(2)(b)(ii) provides that an award is in conflict with the public policy of India if it is violation of s 75 or 81. Sections 75 and 81 deal with the confidentiality and preserve the sanctity of evidence gained in conciliation proceedings.
Generally, the courts in India are inclined to enforce arbitration agreements and to uphold arbitral awards. However, the court system is slow and in view of the provisions of appeal and exercise of revisional jurisdiction under the Code of Civil Procedure, it can take considerable time even post award to ultimately recover the amount awarded. In the case of foreign awards, given the more summary nature of proceedings to decide objections under s 48 of the 1996 Act, the time taken is slightly shorter than domestic awards which are subject to challenge under s 34 but yet from the international perspective, the time taken can be said to be considerable.
