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INTRODUCTION

The proliferation of international commercial disputes, usually involving


several parties, is an inevitable by-product of the global economy. Litigation
ceases to be an option in a country like India where delivering speedy
justice is but a distant dream due to inordinate delays and backlogs that are
characteristic of the Indian Judiciary. With more than 2500 bilateral
investments in place, investors are frantically looking for international
protection of their investments more specifically, in terms of an appropriate
dispute settlement mechanism. Arbitration, an outcome of discontentment

with the traditional rigid and adversarial court system, has emerged as a
favourite choice of dispute resolution mechanism especially in case of cross-
border disputes. The dramatic growth of international commercial
arbitration in recent years in the Asia-Pacific region has been extraordinary.
This reflects the rapid growth of international trade and commerce in this
region as well as an increased
* III year, B.A., LL.B. (Hons.), NALSAR University of Law, Hyderabad.
1. I CICERO, DELEGIBUS vi (1928 ed.).
willingness of commercial parties to resort to international arbitration as a
dispute resolution mechanism. 2

Arbitration as a method of Alternative Dispute Resolution3 is not free from


loopholes. Of late, this method of ADR has been a subject of criticism chiefly
on account of difficulty in enforcement of arbitral awards. In this respect, the
viability of arbitration as an efficient mechanism of dispute resolution has
come under question. This note shall set out to examine the factors that affect
the enforceability of foreign awards in India. Part I of the note is a primer on
the Arbitration law in India. Part II discusses the scope of the term
international commercial arbitration in light of judicial interpretation. Part III
discusses the meaning and scope of court intervention in arbitral process and
enforcement of foreign arbitral awards in India in light of the judicial
interpretation or rather intervention. Part IV of this note is a critical analysis of
the proposed amendments to the Arbitration and Conciliation Act, 1996
including suggestions to facilitate successful enforceability of foreign awards
in India with the least amount of judicial intervention. The conclusion
underscores the need to remove the hurdles in enforcing foreign awards in
India by adopting suitable reforms both on statutory and judicial avenues on
the lines of the suggested changes.

ft. ARBftTRATftON LAW ftN ftNDftA A PRftMER

Arbitration is a process used by agreement of the parties to resolve disputes. In


arbitration, disputes are resolved, with binding effect, by a person or persons
acting in a judicial manner in private, rather than by a national court of law
that would have jurisdiction but for the agreement of the parties to exclude it.
The decision of the arbitral tribunal is usually called an award. 4
Until 1996, the law governing arbitration in India was contained in mainly of three
statutes: the Arbitration (Protocol and Convention) Act 1937, the Indian
Arbitration Act 1940, and the Foreign Awards (Recognition and Enforcement) Act
1961.
The 1940 Act was the general law governing arbitration in India along the
lines of the English Arbitration Act of 1934. Both the 1937 and the 1961 Acts
were designed to enforce foreign arbitral awards (the 1961 Act implemented
the New York Convention of 1958).5

2. See Kyriaki Noussia, Arbitration Reform in Australia, I NT . ARB . L. R. 12 (2009) (This paper considers
amendment in order to ensure that the Act provides a comprehensive and clear framework governing
international arbitration in India, to improve the effectiveness and efficiency of the arbitral process and
to adopt the best practice development in national arbitration law from overseas.).
3. Hereinafter ADR.
4. II HALSBURYS LAWS OF ENGLAND 1201 (5th ed. 2008) (emphasis supplied).
5. The New York Convention of 1958, i.e. the 1958 Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, is one of the most widely used conventions for recognition and enforcement of
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In order to modernize the outdated 1940 Act, the government enacted the
Arbitration and Conciliation Act, 1996 (hereinafter the Act). The Act is a
comprehensive piece of legislation modeled on the lines of the UNCITRAL
Model Law on International Commercial Arbitration6 . It repealed all the three
previous statutes (the 1937 Act, the 1961 Act and the 1940 Act).7 Its primary
purpose was to encourage arbitration as a cost- effective and quick
mechanism for the settlement of commercial disputes. 8

The 1940 Act covered only domestic arbitration and while it was perceived to
be a good piece of legislation in its actual operation and implementation by all
concerned - the parties, arbitrators, lawyers and the courts, it proved to be
ineffective and was widely felt to have become outdated.9

The present Act is unique in two respects. First, it applies both to


international and domestic arbitrations unlike the UNCITRAL Model Law, which
was designed to apply only to international commercial arbitrations. 10 Secondly,
it goes beyond the UNCITRAL Model Law in the area of minimizing judicial
intervention. 11

ftft. ftNTERNATftONAL COMMERCftAL ARBftTRATftON: SCOPE OF THE ARBftTRATftON AND

CONCftLftATftON ACT, 1ftft6

The meaning and scope of the term International Commercial Arbitration


assumes great importance in the context of the discussion on enforcement of
foreign arbitral awards. This section analyses the term in light of contemporary
judicial interpretation.

International commercial arbitration means an arbitration relating to disputes


arising out of legal relationships, whether contractual or not, considered
as commercial under the law in force in India and where at least one of the
parties is an individual who is a national of, or habitually resident in, any
country other than India; or a body corporate which is incorporated in any
country other than India; or a company or an association or a body of
individuals whose central management and control is exercised in any country
other than India; or the Government of a foreign country.12
foreign awards. It sets forth the procedure to be used by all signatories to the Convention. This Convention
was first in the series of major steps taken by the United Nations to aid the development of international
commercial arbitration. The Convention became effective on June 7, 1959.
6. Hereinafter UNCITRAL Model Law.
7. 85, Arbitration and Conciliation Act, 1996 [hereinafter The 1996 Act].
8. Ashok Bhan, Dispute Prevention and Dispute Resolution (2005), available at http://www.ficci.com/icanet/
icanet/activity/annual-report.pdf (last visited on 9 July 2011).
9. Statement of Objects and Reasons, The 1996 Act.
10. See UNCITRAL Model Law, art. 1.
11. S K Dholakia, Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003, 39 ICAS ARB.
QUAT. 3 (2005).
12. 2(1)(f) , The 1996 Act.
Arbitration in India not for the Faint-Hearted: Enforcing Foreign Arbitral Awards

In the case of R. M. Investment Trading Co. Pvt. Ltd. v. Boeing Co13 the term
commercial relationship came under consideration. The Supreme Court of India
observed:

While construing the expression commercial in Section 2 of the Act it has to be


borne in mind that the Act is calculated and designed to subserve the cause of
facilitating international trade and promotion thereof by providing speedy
settlement of disputes arising in such trade through arbitration and any
expression or phrase occurring therein should receive, consistent with its literal
and grammatical sense, a liberal construction.
The Court further emphasized upon the activity that forms the structure of
commercial relationships by noting that trade and commerce is not mere traffic
in goods, but with modern dimensions coming into play, transportation,
banking, insurance, stock exchange, postal and telegraphic services, energy
supply and communication of information, etc., all form a part of commercial
behavior and transactions. Applying the same logic, the Supreme Court ruled
that a consultancy service for promotional sale is considered a commercial
transaction and hence any dispute there under is of that nature.

ftftft. COURT ftNTERVENTftON: A HURDLE ftN ENFORCEMENT OF ARBftTRAL AWARDS

It is noted that one of the greatest advantages of international commercial


arbitration is its cross-border enforceability. In other words, an award rendered
in one country can be taken, with relative ease, to another country and be
enforced. The principal source of this ease of enforcement is the 1958 New
York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, which as on date has 145 signatory states, following the accession
of Fiji to the treaty. The New York Convention provides for the recognition
of all foreign arbitral awards provided they meet certain basic minimum
standards (such as the award being in writing, and not contrary to public
policy).14
This Convention provides for the validity of the arbitration agreement,
recognition of their jurisdictional impact, and presumptive enforceability of
arbitration law. Furthermore, it emphasizes the importance of integrity of
national legal order by allowing the courts of a requested state to deny
enforcement to an

13. AIR 1994 SC 11 36, at 12 (A two judge bench of the Supreme Court deliberated on whether consultancy
service provided by appellant for promotion of Boeing was commercial in nature.).
14. See Mark Beeley, Arbitration in the Dubai International Financial Centre: A Promising Law, But will it
Travel Well? 12 INT. ARB. L. R. 1 (2009) (This paper discusses the reasons for the reluctance of western parties
to seat their arbitrations in Dubai even after fulfilling certain basic standards. However, now with the
advent of Dubai International Financial Centre Arbitration Law, western investors are more
confident and familiar with arbitration in Dubai.).
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award on the basis of inarbitrability defense and public policy


exception. The content of both the grounds is to be defined under the
respective national laws.15

However, it has been witnessed that the enforcement mechanism in this


method of alternate dispute resolution is plagued by what is known as court
intervention. This is an expression frequently used in arbitration
literature. The word intervention however, does not appear appropriate as
arbitration is a procedural mechanism based on the autonomy of the parties
and recognized by law as an alternative way of resolving disputes. 16 The
courts role therefore should be limited to assist the arbitral tribunal to achieve
the purpose of arbitration.
While it is accepted that the grounds for setting aside the award under the
applicable law (lex loci arbitri) should be as narrow as possible, progress
would be achieved if it were admitted that these grounds should be construed
on the basis of Article V of the New York Convention, as provided by
UNCITRAL Model law (Article 34).17
The most fundamental principle underlying the Model law is that of the
autonomy of the parties to agree on the rules of the game. Such recognition
of the freedom of the parties is not merely a consequence of the fact that
arbitration rests on the agreement of the parties but also the result of policy
considerations geared to international practice. 18

Although, it has been established that Courts have the power to interfere with
arbitral awards, if any award is against any statutory provision or is patently
illegal or is violating the public policy of India, as was demonstrated in the
19. AIR 2003 SC 2629 [hereinafter Saw Pipes].

18
more recent case of Oil & Natural Gas Corporation Ltd. v. Saw Pipes (P)
Ltd.19 , in our opinion, the principle of party autonomy should receive
paramount consideration by the apex court, as excessive court intervention in
the form of judicial review has retarded the dispute resolution.
National laws relating to arbitration could significantly affect the character
of the arbitral process. These requirements would entail some form of judicial
review of the merits of the arbitral awards at the enforcement stage.

15. See generally A VAN DEN BERG, THE NEW YORK CONVENTION OF 1958 (1982).
16. RICHARD B.LILLICH & CHARLES N.BROWER (EDS.), INTERNATIONAL ARBITRATION IN THE 21ST CENTURY: TOWARDS
JUDICIALIZATION AND UNIFORMITY, 12th SOKOL COLLOQUIUM (1992).
17. Id.
18. M. Hoellering, The UNCITRAL Model Law on International Commercial Arbitration, 20. INTL LAW 327,
338 (1986).

19. AIR 2003 SC 2629 [hereinafter Saw Pipes].

19
Arbitration in India not for the Faint-Hearted: Enforcing Foreign Arbitral Awards

In India, first, such court intervention is facilitated under Part I of the


Arbitration and Conciliation Act, 1996 which applies to arbitration
conducted in India and the awards thereunder; whereas Part II provides for
enforcement of foreign awards and has further been sub-divided into two
distinct chapters. Chapter one deals with the Awards as regulated by the New
York Convention; defined as per Section 44 of the Act.20 Chapter two deals
with Awards as regulated by the Geneva Convention; section 53 of the Act
covers it. 21 The arbitration conducted in India and the enforceability of such
awards (whether domestic or international) fall in the category of the Part I
whereas the enforceability of foreign awards in India, based on the guidelines
laid down in the New York Convention or the Geneva Convention is dealt with
in Part II of the Act, 1996.
Secondly, the challenges posed on the grounds that the award in question is in
conflict with public policy, as will be demonstrated in later parts of this note,
is increasingly becoming an avenue for judicial intervention in arbitral process.
The enforcement statistics for arbitral awards in the High Court and Supreme
Court for the period of 1996 to 2003 reveal that 29.41 percent of challenges on
the ground of jurisdiction; 17.64 percent on the ground of public policy;
17.64 percent on technical grounds- petition to be made under Section 48 and
not Section 34).22 Thus, the present status of enforcement of foreign arbitral
awards may be safely attributed to excessive court intervention.
Both the afore-mentioned instances of court intervention are sought to be
examined infra in an attempt to establish that arbitral process in India is
fraught with delay due to such intervention.

19
20. 44 of the Act provides that: .unless the context otherwise requires, foreign award means an arbitral
award on differences between persons arising out of legal relationships, whether contractual or not,
considered as commercial under the law in force in India, made on or after the 11th day of October, 1960
(a) In pursuance of an agreement in writing for arbitration to which the Convention set forth in the
First Schedule applies, and (b) In one of such territories as the Central Government, being satisfied that
reciprocal provisions have been made may, by notification in the Official Gazette, declare to be
territories to which the said Convention applies
21. 53 of the Act states that: foreign award means an arbitral award on differences relating to matters
considered as commercial under the law in force in India made after the 28th day of July, 1924,(a) In
pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies,
and (b) between persons of whom one is subject to the jurisdiction of some one of such Powers as the
Central Government, being satisfied that reciprocal provisions have been made, may, by notification in
the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom
the other is subject to the jurisdiction of some other of the Powers aforesaid, and (c) in one of such
territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by
like notification, declare to be territories to which the said Convention applies, and for the purposes of
this Chapter an award shall not be deemed to be final if any proceedings for the purpose of contesting the
validity of the award are pending in the country in which it was made
22. Sumeet Kachwaha, Enforcement of Arbitration Awards in India, 4 ASIAN INT. ARB . J. 81, 5 (2008).

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A. Enforceability of/Challenging Foreign Awards

It is submitted that the distinction between the jurisdiction for enforceability


of foreign awards and the jurisdiction for challenging a Foreign Award is a
blurred line. With respect to enforcement of foreign awards, Article 3 of the
New York Convention states that Foreign Awards are binding as per the
rules and the procedure of the territory where the award is relied upon.
Article 5, on the other hand, lays down the grounds under which the
Recognition & Enforcement of an award may be challenged or refused. The
Indian Act has identified the role of the Foreign Territory in the finality of the
Challenging Jurisdiction in Section 48 clause 1 sub clause (e) of Part II of the
Act - if the Judgment Debtor as per the Award shows that the Award is not
final, the court of the enforcing jurisdiction may refuse the enforcement of
the Award.
The above mentioned distinction between the Challenging Jurisdiction & the
Enforcement Jurisdiction leads us to ask the following questions: Whether the
current structure of the conventions allows for the Challenging Jurisdiction of
convention awards to be considered concurrent between the territory where
the award is relied upon & the territory where the award is enforced?
What are the current Challenging Jurisdiction as per the Act & its judicial
interpretation? Given the inherent conflict between the rules and methods
of arbitral process across various territories, how effectively has the Indian
judiciary enforced foreign awards or alternatively, responded to challenges
to the binding effects of foreign arbitral awards?
As per the New York Convention and the Geneva Convention 23 , while
enforcing an award, the courts in the enforcing territory have no jurisdiction
to entertain any challenge to the binding nature of Convention Awards due
to an obligation on enforcing territories to recognize the enforcement of
such arbitral awards. The grounds for challenging an arbitral award may be
different between two different countries. However, this does not give rise to
concurrent jurisdiction of courts in the enforcing territory. A plain reading of
the scheme & provisions of the Act leads to the conclusion that such
concurrent jurisdiction is discouraged in case of Convention Awards.

An analysis of cases under the Indian judiciary proves that the Indian
approach to the enforceability of foreign arbitral awards is fraught with many
shortcomings. This note analyses cases viz. Bhatia International v. Bulk Trading
S.A. and Anr.24 ,

23. Hereinafter Conventions.


24. (2002) (4) SCC 105 [hereinafter Bhatia] (A three judge bench of the Supreme Court held that an ouster of
jurisdiction cannot be implied but expressed. Provisions of Part I of the Arbitration and Conciliation Act,
1996 are applicable also to international commercial arbitration which take place outside India unless the
parties by agreement express or impliedly excluded it or any of its provisions. Such an interpretation does
Arbitration in India not for the Faint-Hearted: Enforcing Foreign Arbitral Awards

Inventa Fisher Gmbh & Co v. Polygenta Technologies 25 , Saw pipes case, Venture Global
Engineering v. Satyam Computer Services Ltd 26 and McDermott International Inc v. Burn
Standard Company Ltd.27 in order to highlight the excessive judicial intervention in
arbitral process, which frustrates the very purpose of the Act.
In Bhatia, the parties to a multi territorial contract chose to settle their dispute
through arbitration according to the rules of International Chambers of
Commerce, Paris; the seat of the arbitration being Paris. The foreign party
being concerned with the enforceability of Non-Convention Awards i.e. those
awards not recognized for enforcement under Part II of the Act, applied to
Indian courts for interim measures based on an interim award to secure the
property of the Indian party to the Arbitration. The Indian party filed an
objection to the application since the seat of the arbitration was in Paris and
under the New York Convention there were no provisions to allow interim
measure until an arbitration is held under either Convention. The
Honourable High Court rejected the above plea, which was upheld by the
Honourable Supreme Court. In brief, the Supreme Court of India held that Part
I of the Arbitration and Conciliation Act, 1996, which gives effect to the
UNCITRAL Model Law by conferring power on an Indian court to grant
interim measures despite that the arbitration was held outside India. This
decision of the Supreme Court has received severe flak from scholars and
legal luminaries. It has also been argued that the statement of law in Bhatia
did not bring Convention Awards under Part I. It was this view that was
argued before the Honorable High Court of Bombay in the Inventa case where
the arbitration agreement was executed in Bombay but the arbitration was to
be seated in Geneva as per the ICC rules.
In the context of this discussion, it is important to understand the meaning of
the term foreign award. As per section 44 of the Act a foreign award is one
which is made by means of an arbitral award on or after 11th October, 1960
in pursuance

not lead to any conflict between any of the provisions of the Act. Thus, art. 23 of the ICC Rules permits
parties to apply to a competent judicial authority for an interim and conservatory measures. Therefore
in such cases an application can be made under 9 of the said Act.).
25. (2005) (2) Bom CR 364 [hereinafter Inventa] (A single judge bench of the Supreme Court discussed the issue
whether the award, which has been made at Switzerland can be challenged by filing an application under
34 of the Act in India. The court held although Indian law governs underlying contract, the law of arbitration
and the procedural law was Swiss law.).
26. (2008) (1) Arb. LR 137 (SC) [hereinafter Venture Global] (This two judge bench held that in case of
international commercial arbitrations 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.).
27. (2006) 11 SCC 181, at 211 [hereinafter McDermott] (The two judge considered (i) whether an arbitrator has
the jurisdiction to make a partial award which is the subject matter of challenge under Section 34. (ii) The
court also held that additional Award under Section 33 (4) of Indian Arbitration Act, 1940 was not vitiated in
law and that Section 33 (4) empowers Arbitral Tribunal to make additional awards in respect of claims
already presented to Tribunal.).
of a written agreement for arbitration, made in a territory notified by the
Central Government. Convention awards are applicable only if they are not
classified as domestic awards. This further makes the ruling as per the
Bhatia case difficult to reconcile with a plain reading of the statute. If
domestic awards are defined as not foreign award and foreign awards are not
domestic awards, the definition of both foreign awards and domestic awards
falls short. The scheme of enforcement under the two Parts of the Act requires
a distinction to be made between the two awards. Domestic awards that are
made a subject matter of disputes in India as per Section 34 of the Act can be
enforced as if it were a decree of an Indian Civil Courts as per Section 36 of
the Act. Foreign Awards are executable as a decree of a foreign court. Foreign
awards are executable subject to the existence of a reciprocal arrangement
between the territories concerned as allowed by section 44A of the Code of
Civil Procedure, 1908. It is important to note that location is not the only
relevant criteria in defining a foreign award.

Whether a foreign award falls within the scope of Indian law thereby invoking
Part I of the Act is critical in determining its force and effect in India this issue
mostly arises in international commercial arbitration as defined by section 2
(1) (f) of the statute and not convention awards. This was discussed in detail by
the Honorable High Court of Gujarat in Nirma Ltd. v. Lurgi Energie Und
Entsorgung GMBH, Germany.28 Further, in the case of Trusuns Chemical Industry
v. Tata International Ltd29 , High Court of Gujarat held that Section 34 of the Act
shall not apply to Convention Awards.
It is important to note that in several recent cases30 , where the agreement
involved a foreign party, the apex court has reinforced the ratio laid down in
the Bhatia case and held that the provisions of Part-I of the Arbitration and
Conciliation Act, 1996, would be equally applicable to International
Commercial arbitrations held outside India, unless any of the said provisions
are excluded by agreement between the parties expressly or by implication.31
Such cases demonstrate the propensity of the Indian courts to interfere with
domestic as well as foreign arbitral awards. While this risk cannot be
eliminated, it is possible to include provisions in the agreement to arbitrate
aimed at mitigating this risk.

Thus, it is not important whether the terms of challenge under section 34 of the
Act and section 48 of the Act are the same. The legal presumption that a
foreign

28. AIR (2003) GUJ 145 [hereinafter Nirma] (A two judge bench of the Gujarat High Court identified two
issues (a) Whether the Indian Court would have jurisdiction to entertain an application for setting aside
the impugned partial award? and (b) Whether an application to set aside the impugned partial award was
maintainable under 34 of the Act?).
29. AIR (2004) GUJ 274 (Single judge of Gujarat Court decided whether the Court had territorial jurisdiction).
30. Venture Global Engineering v. Satyam Computer Services Ltd, (2008) (1) Arb. LR 137 (SC).
31. INDTEL Technical Services Pvt. Ltd. v. W.S. Atkins PLC, (2008) 10 SCC 308.
award is valid and binding upon receipt by the correct authority in India is
relevant to this discussion. Further section 48 (1) (e) of the Act clearly
stipulates that foreign awards need to be binding as per the law of the land
where the Challenging Jurisdiction rests. This clearly suggests that there
is a differentiation between Challenging Jurisdiction and the Enforcement
Jurisdiction.
The rules governing judicial enforcement of arbitral awards must
accommodate two competing policy interests - first, the one limiting the
courts review of the merits of the dispute and the arbitrators decision thereon
in order to give effect to the parties choice of arbitration; secondly, the other
reflecting the courts inherent supervisory interests in correcting (or at least not
giving effect to) genuine excesses or abuses by the arbitrators and in enforcing
any relevant mandatory rules of the jurisdiction. In the context of
international commercial transactions, the former concern increasingly
outweighs the latter. The parties confidence in the enforceability of the
arbitral award without judicial review of the merits is, of course, what makes
the system of international commercial arbitration an attractive alternative to
domestic litigation in the first place.32

B. The Public Policy Conundrum

It is submitted that Public Policy as a ground of challenge under Section 34


of the Act also poses hurdles for the enforcement of foreign arbitral awards in
India.
In 1824, public policy was described as an unruly horse where in once you
get astride it youll never know where it will carry you and that it is never
argued at all, but when all other points fail.33 Public policy includes
fundamental principles of law and justice, instances such as bribery and
corruption. The phrase the award is in conflict with the public policy of the
state should not be interpreted as excluding circumstances or events relating
to the manner in which it was arrived at.34
In 2002, the International Law Associations Committee on International
Commercial Arbitration35 conducted a conference on public policy and adopted

the resolution that public policy refers to international public policy of the state
32. See David P. Stewart, National Enforcement of Arbitral Awards Under Treaties and Convention
in RICHARD B. LILLICH & CHARLES N. BROWER (EDS.) INTERNATIONAL ARBITRATION IN THE 21ST CENTURY: TOWARDS
JUDICIALIZATION AND UNIFORMITY?, 12TH SOKOL COLLOQUIUM (1992).
33. Richardson v. Mellish, 1824 All E R 258 (per BURROUGH J.).
34. See REPORT OF THE UNCITRAL COMMISSION, commenting on public policy as understood in the New York
Convention and Model Law, UN Doc. A/40/17, at 297, 303, referred to in Interim Report, Part III, under
UNCITRAL Model Law.
35. See International Law Association, Final Report on Public Policy as a Bar to Enforcement of International
Arbitral Awards, REPORT OF THE COMMITTEE ON INTERNATIONAL COMMERCIAL ARBITRATION, adopted at New
Delhi in 2002.
and includes:

(i) fundamental principles, pertaining to justice or morality that the State wishes
to protect even when it is not directly concerned;

(ii) rules designed to serve the essential political, social or economic interests of
the State, these being known as lois de police or public policy rules; and

(iii) the duty of the State to respect its obligations towards other States or
international organisations.
One of the main objectives of the Arbitration and Conciliation Act of India,
1996, was the minimization of the supervisory role of the Courts.36 In this
regard, the Act contemplates only three situations where the judiciary may
intervene in an arbitral process: matters regarding the appointment of
arbitrators 37 , deciding on whether the mandate of the arbitrator stands
terminated owing to his incapacity and inability to perform his functions38
and invalidating an award when it contravenes the provisions relating to its
enforcement as stated in the Act.39
With an understanding of this legislation and internationally recognized
principles of judicial intervention it can be inferred then that the Courts have
no power to get into the merits of an arbitral dispute.40 This principle was put
to test by the Supreme Court in the Saw Pipes Case, where an award was
challenged on the ground that the arbitral tribunal had incorrectly applied
the law of the land in rejecting a claim for liquidated damages.
It is submitted that two errors of great magnitude have been committed in this
case. First, while reviewing the merits of this case, the court failed to consider
external factors like the effect of the labor strike in entire European
continent, something which was neither under the control nor could be
predicted by Saw Pipes. This particular aspect has been completely
overlooked by the court and its impact on the decision. Secondly, the decision
of the two judges Bench in Saw Pipes has bypassed the ruling of the three
judges Bench of Supreme Court in the Renusagar Power Ld. v. General
Electric case. 41 This shows both judicial indiscipline and violation of the
binding precedent of a larger Bench. While the Bench in Renusagar case held
that the term public policy of India was to be interpreted in a narrow

36. Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781. 37.


11, The 1996 Act.
38. 12, The 1996 Act.
39. 34 and 36, The 1996 Act. See also Sumeet Kachwaha, The Indian Arbitration Law: Towards a New
Jurisprudence, 10 INT. A.L.R. 13 (2003).
40. Id .
41. 1994 SCC Supl. (1) 644.
Arbitration in India not for the Faint-Hearted: Enforcing Foreign Arbitral Awards

sense, the Division Bench went ahead unmindful of the prior precedent and
expanded the same to such an extent that arbitral awards could now be
reviewed on their merits. This is a huge step backwards in laws relating to
alternate dispute resolution in the era of globalization.

Thus a new expansive head of public policy was created whereby an award is
open to challenge under the head public policy if it is patently illegal. The Court
went on to explicitly state that public policy shall now include: fundamental policy
of Indian law; or the interest of India; or justice or morality, or in addition, if it is
patently illegal.
The latest decision of the Honorable Supreme Court on the point of setting
aside foreign awards for reasons of public policy as allowed as per Section 34
of the act is the Venture Global case. Relying on an earlier judgment in
Bhatia the Honorable Supreme Court found that it is up to the parties to
exclude the application of the provisions of Part I of the act by expressed and
implied agreement, failing which Part I of the Act would entirely be
applicable. Further, it held that the application of Section 34 to a foreign
award would not be inconsistent with Section 48 of the 1996 Act, or any other
provision of part II and that the judgment-debtor cannot be deprived of his
right under Section 34 to evoke the public policy of India, to set aside the
award. Thus, the extended definition of public policy cannot be bypassed by
taking the award to foreign country for enforcement.
In the Mc Dermott case, the Supreme Court admitted that the decision laid
down in the Saw Pipes case was subjected to considerable adverse comments
and went on to observe that only a larger Bench can consider its correctness or
otherwise.42 One is left wondering as to why the court shied away from
referring the matter to a larger bench?

C. Consequential drawbacks in enforcement of Foreign Awards


The root cause of all the delays in enforcement/challenging the awards has
been the ever-widening powers of the court to review the awards, be it
domestic or international. Excessive judicial interference resulting in
admission of large number of cases which should never be entertained in the
first place is yet another evil that hampers the settlement of commercial
disputes in turn retarding the growth and development of the economy.

Indian courts have so grossly misinterpreted the Act to suit their whims and
fancies that it is impossible to achieve results conducive to healthy business
with Indian companies. The innumerable errors on the part of the courts to pass
decisions in accordance with the

42. Mc Dermot, supra note 27.

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Conventions is not only frustrating but also setting a negative trend, possibly
discouraging parties from opting for arbitration as a means of dispute
settlement in India.
Other very prominent criticisms that are identified to be flowing from the
interpretation of the Act is that the time period for the enforcement of the
arbitral award is not provided, which is indeed counter-productive. By not
setting a time limit for the enforcement of the awards one finds that the
inordinate delays in arbitral proceeding are no different from that of the
innumerable pending court cases, thus defeating the very provisions of the Act.
The parties and arbitrators, who are mostly retired judges, treat arbitration as a
long standing litigation process and bank on the long and frequent
adjournments, to delay the process as much as possible.
Further, the reason why arbitration was picked over litigation as the ultimate
legal procedure to be followed, the reason why it held such an appeal for the
masses was its cost-effectiveness. Traditional litigation cost a humungous amount
primarily because it was excruciatingly time consuming. Although conceived
as a cheaper alternative to litigation, arbitration has become quite expensive
now. The first occasion for considering any question of jurisdiction does not
normally arise until the arbitral tribunal has issued at least six adjournments. 43
It must be noted that arbitral process proves to be inexpensive only when the
number of arbitration proceedings is limited.
Thus, issues of speed and cost-efficiency are the hallmarks of the procedure,
and are often identified as the core reasons why arbitration very clearly
surpasses litigation as a suitable choice for dispute resolution, especially
with respect to commercial disputes. It must be remembered that these
26
shortcomings are capable of hindering the progress of international trade and
commercial arbitration, and with the constant inflow of business this might in
effect hamper our economy. One way to mitigate the risk of court intervention
is to provide for an appointing authority, since this limits the ability of the
parties to apply to the local courts under Part I of the Act for the appointment
of arbitrators in default of the agreed process.44

ftV. PROPOSED AMENDMENTS TO THE ACT AN ANALYSftS

The Act provides a single effective framework for the recognition and
enforcement in India of the arbitration agreements and foreign arbitral awards
and thus, it is believed that a review of the Act is a natural warranted
progression if India is to be properly equipped to meet the challenges of the
21st century. The Act

43. Law Commission of India, 176TH REPORT ON ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2001, at 68.
44. Frances Van Eupen, Reach of Judicial Review of arbitral award, INT . A.L.R., N-75 (2008).

27
Arbitration in India not for the Faint-Hearted: Enforcing Foreign Arbitral Awards

is set for a major overhaul, in the form of Proposed Amendments, a


consultation paper suggesting various changes to Part I and Part II of the Act.
It is believed that the intention of the legislature in creating such a
consultation paper is a stoic attempt to curtail the extensive scope and
intrusion of the judiciary in the process of arbitration. However, when
reviewed closely, the proposed amendments suggest otherwise. This part of
the note is a detailed analysis of the proposed amendments.
First, the amendment to Section 2(2)45 of the 1996 Act [Part I] implies that it
applies only to arbitrations held in India. However, this is immediately negated
by extending the applicability of the very loosely worded Section 9 and
Section 27 of the 1996 Act, to an international commercial arbitration in which
the award would be enforceable under Part II of the 1996 Act. Thus, these
amendments would, in effect, give license to the judiciary to interfere, even
in international commercial arbitrations under the pretext of protecting the
essential issue of the arbitration, by invoking authority under Section 9 and
Section 27 of the 1996 Act.?
Secondly, the Consultation Paper heightens the ambiguity that could be
imparted in interpreting the phrase public policy under Section 34(2) (b) of
the Act, by giving it a restrictive definition and a definite scope. This has been
done by permitting the court to consider a challenge to an arbitral award on the
very nebulous grounds of patent illegality or if it is likely to cause
substantial injustice to the applicant; as has already been discussed above.
Such phrases would be more susceptible to an open and wide interpretation
than public policy.
Thirdly, while parties have autonomy in appointing the arbitrators (as per
Section 11 of the Act), where they are unable to amicably agree on the arbitral
tribunal, the Chief-Justice of the High Court and the Chief-Justice of India (in
the case of international commercial arbitrations) are granted the power to
appoint the arbitrator(s) by Section 11(6) and (9) of the Act respectively.
Whether this power of appointment is an administrative or judicial power is
an on-going debate.
The primary implications of the power being judicial are twofold: the Chief-
Justice would have to go into the arbitrability of the claim, validity of the
arbitration agreement and other jurisdictional issues and; the order passed by

the Chief-Justice would be subject to an appeal before the Supreme Court


under Article 136 of the Constitution of India.
45. The proposed amendment to 2 (2) provides that: Sections 8, 9, 27, 35 and 36 of this Part shall apply also
to international arbitration (whether commercial or not) where the place of arbitration is outside India
or is not specified in the arbitration agreement. Thus, sections 8, 9, 27, 35 and 36 are to be applied to
international arbitrations where the place of arbitration is outside India or where the place of arbitration is
not specified. Also that Part I of the Act will apply to the cases of purely domestic arbitrations between
Indian nationals and in cases of international arbitrations where at least one party is not an Indian national,
and in both such arbitrations, the place of arbitration is in India. (emphasis supplied).
Nalsar Student Law Review

The Supreme Court in the landmark decision of S B Patel Engineering 46


declared the power of appointment to be a judicial power. The Court
concluded that this power could not be exercised by a non-judicial authority
and hence the power to delegate the power of appointment (which is
statutorily provided) was restricted to delegating the power of appointment
to another judge of the High Court/ Supreme Court. Such power could not
even be delegated to a judge of the district court, the Court concluded. As a
result, the provisions in Sections 11(4), (5), (7), (8) and (9) which permit the
Chief Justice (of the High Court and Chief Justice of India in case of Section
11(9)) to delegate their power to a person or institution, have, to the
detriment of institutional arbitration been rendered nugatory. The
Consultation Paper also proposes to transfer the power of appointment to
the High Court (and Supreme Court in the case of Section 11(9)) and to grant
the High Court the discretion to delegate the power to any person or
arbitral institution.
In order to check the possibility of appeals arising from orders passed under
Section 11, before a Division Bench of the High Court, the Law Ministry
has proposed the insertion of a provision stating that no appeal including a
letter patent appeal shall lie against such decision. However, such a provision
does not rule out a special leave petition before the Supreme Court under
Article 136 of the Constitution of India since a mere statutory provision
cannot take away a constitutional right.
Fourthly, to address the issue of transparency, it has been suggested that the
arbitrator disclose any circumstances, such as the existence of any past or
present relationship, either direct or indirect, with any of the parties or their
counsel, or any 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 their independence or impartiality. This change is
welcome, yet there are apprehensions that such disclosures might become
another bone of contention between the parties thereby resulting in further
delay.
Fifthly, in order to preclude the escalating costs of arbitration, a significant
amendment in the form of a deemed arbitration clause in every commercial
contract having a consideration of Rs 5 crores or more (Rupees 50 million or
more) has been suggested. This stipulation, however, is not mandatory and
parties will be given the freedom to choose the mode of dispute resolution,
including the intention of the parties to resort to an ad hoc arbitration.
Sixthly, there is also a proposal to include an obligation on the High Court/
Supreme Court/ delegate of the High Court or Supreme Court to exercise
the

46. SBP Co. v. Patel Engineering, (2005) 8 SCC 618.


Arbitration in India not for the Faint-Hearted: Enforcing Foreign Arbitral Awards

power of appointment within 60 days. While this provision is welcome, it


may prove difficult to implement unless some modifications are made to the
language of the proposed clause (4), (5) & (6) of Section 11 as in its present
state it is ambiguous enough to be interpreted to mean that the Courts may take
up to 60 days to authorize an arbitral institution/ individual to make an
appointment, which/who will necessarily require more time to make the
appointment. In such a scenario, the delegate may be unable to dispose of the
application within 60 days of the application first being filed before the Court.
It is suggested that a time limit of 30 days be set, for the Court to delegate its
power to an individual or an arbitral institution would be a step in the right
direction, providing the delegate another 30 days to exercise its power.
Seventhly, the application of the suggested amendment47 to Section 36 of the
Act will ensure that the filing of an appeal will not automatically delay the
execution of an award. Nevertheless, this does restate the tremendous
importance given to the function of the court in such matters. With the help of
these amendments a broader range of discretion will be granted to the judiciary
which may render the whole purpose of amending the Act futile.
Furthermore, it is suggested that, a separate international organization on the
lines of the International Convention on the Settlement of Investment
Disputes (Hereinafter ICSID) and Court of Arbitration for Sport (Hereinafter
CAS) be formed. This, it is submitted, becomes imperative, in the light of
proposed amendments. . Such organization would have the authority to
deliberate upon the issues that are considered by courts at the seat of the
arbitration as well as the matters considered by courts at the place or places of
enforcement. On receiving the award it should be automatically enforceable
upon registration in accordance with national procedures but no national courts
should be empowered to review it. 48 Time limits for rendering a decision should
be imposed upon the new organization so as to ensure speedy disposal of arbitral
disputes. The procedure adopted must be standardized just like the procedure
followed by CAS. Also such an organization dealing with international
commercial arbitration should adopt a self-contained review process much like
the ICSID.

47. 36 of the Act in its current state provides that the enforcement of the award will come to a stop upon
the filing of an application under sub-section (1) of 34 to set aside the award. So parties are now filing
such applications even though there is no substance whatsoever in such applications. 36 is therefore
proposed to be amended by designating the existing section as sub-section (1) and omitting the words
which state that the award will not be enforced once an application is filed under sub-section (1) of 34.
48. Mark Mangan, With the Globalisation of Arbitral Disputes, is it time for a new Convention?, 1 INT ARB . L. R.
133 (2008).
ARBITRATION IN INDIA: AN OVERVIEW


By Sumeet Kachwaha and Dharmendra Rautray, Kachwaha & Partners

Background to arbitration legislation:

1
The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996 (Act).
The Act is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration
and the UNCITRAL Arbitration Rules 1976. The Statement of Objects and Reasons of the Act
recognises that Indias economic reforms will become effective only if the nations dispute
resolution provisions are in tune with international regime. The Statement of Objects and
Reasons set forth the main objectives of the Act as follows:

i) to comprehensively cover international and commercial arbitration and conciliation as


also domestic arbitration and conciliation;

ii) to make provision for an arbitral procedure which is fair, efficient and capable of
meeting the needs of the specific arbitration;

iii) to provide that the arbitral tribunal gives reasons for its arbitral award;

iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

v) to minimise the supervisory role of courts in the arbitral process;

vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during
the arbitral proceedings to encourage settlement of disputes;

vii) to provide that every final arbitral award is enforced in the same manner as if it were
a decree of the court;

The authors are partners of the law firm, Kachwaha & Partners.
1
Full text of the Act can be viewed at: http://www.kaplegal.com/statutes/index.html.

3
4
viii) to provide that a settlement agreement reached by the parties as a result of
conciliation proceedings will have the same status and effect as an arbitral award on
agreed terms on the substance of the dispute rendered by an arbitral tribunal; and

ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award
made in a country to which one of the two International Conventions relating to
foreign arbitral awards to which India is a party applies, will be treated as a foreign
award.

Scheme of the Act:

The Act is a composite piece of legislation. It provides for domestic arbitration; international
commercial arbitration; enforcement of foreign award and conciliation (the latter being based on
the UNCITRAL Conciliation Rules of 1980).

The more significant provisions of the Act are to be found in Part I and Part II thereof. Part I
contains the provisions for domestic and international commercial arbitration in India. All
arbitration conducted in India would be governed by Part I, irrespective of the nationalities of the
parties. Part II provides for enforcement of foreign awards.

Part I is more comprehensive and contains extensive provisions based on the Model Law. It
provides inter alia for arbitrability of disputes; non-intervention by courts; composition of the
arbitral tribunal; jurisdiction of arbitral tribunal; conduct of the arbitration proceedings; recourse
against arbitral awards and enforcement. Part II on the other hand, is largely restricted to
enforcement of foreign awards governed by the New York Convention or the Geneva
Convention. Part II is thus, (by its very nature) not a complete code. This led to judicial
2
innovation by the Supreme Court in the case of Bhatia International v. Bulk Trading . Here the
Indian courts jurisdiction was invoked by a party seeking interim measures of protection in
relation to an arbitration under the ICC Rules to be conducted in Paris. The provision for interim
measure (section 9) was to be found in Part I alone (which applies only to domestic arbitration).
Hence the Court was faced with a situation that there was no proprio vigore legal provision
under which it could grant interim measure of protection. Creatively interpreting the Act, the
Supreme Court held that the general provisions of Part I would apply also to offshore
arbitrations, unless the parties expressly or impliedly exclude applicability of the same. Hence by
judicial innovation, the Supreme Court extended applicability of the general provisions of Part I
to off-shore arbitrations as well.

It may be stated that this was premised on the assumption that the Indian Court would otherwise
have jurisdiction in relation to the matter (in the international sense). This became clear in a
subsequent decision of the Supreme Court in Shreejee Traco (I) Pvt. Ltd. v. Paperline
3
International Inc. Here the Courts assistance was sought for appointing an arbitrator in an off-
shore arbitration. The power of appointment by court exists under Section 11 of Part I of the Act.
The Court declined to exercise jurisdiction. It found that the arbitration was to be conducted in
New York and that the law governing the arbitration proceedings would be the law of seat of the
4
arbitration. Hence, the extension of Part I provisions to foreign arbitrations sanctified by Bhatia
could not be resorted to in every case. The Indian Courts would have to first determine if it has
jurisdiction, in the international sense.

2
(2002) 4 SCC 105 (Bhatia).
3
(2003) 9 SCC 79.
4
Supra.
Subject matter of arbitration:

Any commercial matter including an action in tort if it arises out of or relates to a contract can be
referred to arbitration. However, public policy would not permit matrimonial matters, criminal
proceedings, insolvency matters anti-competition matters or commercial court matters to be
referred to arbitration. Employment contracts also cannot be referred to arbitration but director -
5
company disputes are arbitrable (as there is no master servant relationship here) . Generally,
matters covered by statutory reliefs through statutory tribunals would be non-arbitrable.

Role of the court:

One of the fundamental features of the Act is that the role of the court has been minimised.
Accordingly, it is provided that any matter before a judicial authority containing an arbitration
agreement shall be referred to arbitration (Section 8 provided the non - applicant objects no later
than submitting its statement of defense on merits). Further, no judicial authority shall interfere,
except as provided for under the Act (Section 5).

In relation to arbitration proceedings, parties can approach the Court only for two purposes: (a)
6
for any interim measure of protection or injunction or for any appointment of receiver etc. ; or
(b) for the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two
appointed arbitrators fail to agree upon the third arbitrator. In such an event, in the case of
domestic arbitration, the Chief Justice of a High Court may appoint an arbitrator, and in the case
of international commercial arbitration, the Chief Justice of the Supreme Court of India may

5
Comed Chemicals Ltd. v. C.N. Ramchand 2008 (13) SCALE 17.

6
This can be even prior to the institution of arbitration proceedings, provided that it is clear that the applicant
intends to take the dispute to arbitration.
7
carry out the appointment . A court of law can also be approached if there is any controversy as
to whether an arbitrator has been unable to perform his functions or has failed to act without
undue delay or there is a dispute on the same. In such an event, the court may decide to terminate
the mandate of the arbitrator and appoint a substitute arbitrator.

Jurisdiction of the arbitrator:

The Act provides that the arbitral tribunal may rule on its own jurisdiction, including any
objections with respect to the existence or validity of the arbitration agreement. The arbitration
agreement shall be deemed to be independent of the contract containing the arbitration clause,
and invalidity of the contract shall not render the arbitration agreement void. Hence, the
arbitrators shall have jurisdiction even if the contract in which the arbitration agreement is
contained is vitiated by fraud and/or any other legal infirmity. Further, any objection as to
jurisdiction of the arbitrators should be raised by as party at the first instance, i.e., either prior to
or along with the filing of the statement of defence. If the plea of jurisdiction is rejected, the
arbitrators can proceed with the arbitration and make the arbitral award. Any party aggrieved by
such an award may apply for having it set aside under Section 34 of the Act. Hence, the scheme
is that, in the first instance, the objections are to be taken up by the arbitral tribunal and in the
event of an adverse order, it is open to the aggrieved party to challenge the award.

8
In SBP & Co. v. Patel Engg Ltd. the Supreme Court of India (in a decision rendered by a Bench
of Seven Judges) held that the nature of power conferred on the Court under Section 11 of the
Act is judicial (and not administrative) in nature. Accordingly, if parties approach the Court for
appointment of arbitral tribunal (under Section 11) and the Chief Justice pronounces that he has
7
Section 11 of the Act.
8
(2005) 8 SCC 618
jurisdiction to appoint an arbitrator or that there is an arbitration agreement between the parties
or that there is a live and subsisting dispute to be referred to arbitration and the Court constitutes
the Tribunal as envisaged, this would be binding and cannot be re-agitated by the parties before
the arbitral tribunal.

In S.B.P & Co. case the Supreme Court has defined what exactly the Chief Justice, approached
with an application under Section 11 of the Act, is to decide at that stage. The Chief Justice has
the power to decide his own jurisdiction in the sense whether the party making the motion has
approached the right court. He has to decide whether there is an arbitration agreement, as defined
in the Act and whether the person who has made the request before him, is a party to such an
agreement. He can also decide the question whether the claim was a dead one; or a long-barred
claim that was sought to be resurrected and whether the parties have concluded the transaction
by recording satisfaction of their mutual rights and obligations or by receiving the final payment
without objection.

The Court in SBP & Co case, inter alia, concluded as follows:

(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India
under Section 11(6) of the Act is not an administrative power. It is a judicial power.

(ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief
Justice of the High Court only to another Judge of that Court and by the Chief Justice of
India to another Judge of the Supreme Court.
(iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power
that is exercised by the designated Judge would be that of the Chief Justice as conferred
by the statute.

(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary
aspects as indicated in the judgment. These will be, his own jurisdiction to entertain the
request, the existence of a valid arbitration agreement, the existence or otherwise of a live
claim, the existence of the condition for the exercise of his power and on the
qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge
would be entitled to seek the opinion of an institution in the matter of nominating an
arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order
appointing the arbitrator could only be that of the Chief Justice or the designated Judge.

(v) The District Judge does not have the authority under Section 11(6) of the Act to make
appointment of an arbitrator.

(vi) The High Court cannot interfere with the orders passed by the arbitrator or the Arbitral
Tribunal during the course of the arbitration proceedings and the parties could approach
the Court only in terms of Section 37 of the Act (appealable orders) or in terms of Section
34 of the Act (setting aside or arbitral award).

(vii) Since it is a judicial order, an appeal will lie against the order passed by the Chief Justice
of the High Court or by the designated Judge of that Court only under Article 136 of the
Constitution to the Supreme Court.
(viii) No appeal shall lie against an order of the Chief Justice of India or a Judge of the
Supreme Court designated by him while entertaining an application under Section 11(6)
of the Act.

(ix) Where an Arbitral Tribunal has been constituted by the parties without having recourse to
Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all
matters as contemplated by Section 16 of the Act.

Challenge to arbitrator:

An arbitrator may be challenged only in two situations. First, if circumstances exists that give
rise to justifiable grounds as to his independence or impartiality; second, if he does not posses
the qualifications agreed to by the parties. A challenge is required to be made within 15 days of
the petitioner becoming aware of the constitution of the arbitral tribunal or of the circumstances
furnishing grounds for challenge. Further, subject to the parties agreement, it is the arbitral
tribunal (and not the court - unlike under the old Act of 1940) which shall decide on the
challenge. If the challenge is not successful the tribunal shall continue with the arbitral
proceedings and render the award, which can be challenged by an aggrieved party at that stage.
This is another significant departure from the Model Law, which envisages recourse to a court of
9
law in the event the arbitral tribunal rejects the challenge.

The Indian courts have held that the apprehension of bias must be judged from a healthy,
reasonable and average point of view and not on mere apprehension of any whimsical person.

9
Article 13 of Model Law
Vague suspicions of whimsical, capricious and unreasonable people are not our standard to
10
regulate our vision.

Conduct of arbitration proceedings:

The arbitrators are masters of their own procedure and subject to parties agreement, may conduct
the proceedings in the manner they consider appropriate. This power includes- the power to
11
determine the admissibility, relevance, materiality and weight of any evidence. The only
restrain on them is that they shall treat the parties with equality and each party shall be given a
12
full opportunity to present his case, which includes sufficient advance notice of any hearing or
13
meeting. Neither the Code of Civil Procedure nor the Indian Evidence Act applies to
14
arbitrations. Unless the parties agree otherwise, the tribunal shall decide whether to hold oral
hearings for the presentation of evidence or for arguments or whether the proceedings shall be
conducted on the basis of documents or other material alone. However the arbitral tribunal shall
hold oral hearings if a party so requests (unless the parties have agreed that no oral hearing shall
15
be held).

Arbitrators have power to proceed exparte where the respondent, without sufficient cause, fails
to communicate his statement of defence or appear for an oral hearing or produce evidence.
However, in such situation the tribunal shall not treat the failure as an admission of the
allegations by the respondent and shall decide the matter on the evidence, if any, before it. If the

10
International Airports Authority of India v. K.D. Bali & Anr; (1988) 2 SCC 360.
11
Section 19 (3) and (4)
12
Section 18
13
Section 24 (2)
14
Section 19 of Act and Section 1 of the Evidence Act.
15
Section 24

9
claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to
16
terminate the proceedings.

Taking of evidence in arbitral proceedings:


The Indian Oaths Act 1969 extends to persons who may be authorized by consent of parties to
17
receive evidence. This Act thus, encompasses arbitral proceedings as well. Section 8 of the said
Act states that every person giving evidence before any person authorized to administer oath
shall be bound to state the truth on such subject. Thus, witnesses appearing before an arbitral
tribunal can be duly sworn by the tribunal and be required to state the truth on oath and upon
18
failure to do so, commit offences punishable under the Indian Penal Code. However, the
arbitrators cannot force unwilling witnesses to appear before them and for this courts assistance
is provided for vide Section 27 of the Act. Under this provision the arbitral tribunal or a party
with the approval of the tribunal may apply to the court seeking its assistance in taking evidence
(this is also provided for in the Model Law). However, Section 27 of the Indian Act goes beyond
the Model Law as it states that any person failing to attend in accordance with any order of the
court or making any other default or refusing to give evidence or guilty of any contempt of the
arbitral tribunal, shall be subject to like penalties and punishment as he may incur for like
offences in suits tried before the court. Further, the court may either appoint a commissioner for
taking evidence or order that the evidence be provided directly to the arbitral tribunal. These
provisions extend to any documents to be produced or property to be inspected. Section 26
provides for appointment of experts by the arbitral tribunal for any specific issue. In such
situation a party may be required to give the expert any relevant information or produce any

16
Section 25
17
Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721.
18
Section 191 and 193 of the Indian Penal Code.
relevant document, goods or property for inspection as may be required. It will be open to a party
(or to the arbitral tribunal) to require the expert after delivery of his report, to participate in an
oral hearing where the parties would have an opportunity to put questions to him.

Governing Law:

In an international commercial arbitration, parties are free to designate the governing law for the
substance of the dispute. If the governing law is not specified, the arbitral tribunal shall apply the
rules of law it considers appropriate in view of the surrounding circumstances. For domestic
arbitration, however, (i.e., between Indian parties), the tribunal is required to decide the dispute
in accordance with the substantive laws of India.

19
The Supreme Court in TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd. held that
irrespective of where the central management and control is exercised by a company,
companies incorporated in India, cannot choose foreign law as the governing law of their
arbitration. The nationality of companies incorporated in India being Indian, the intention of the
legislature is that Indian nationals should not be permitted to derogate from Indian law as it
would be against public policy. The Court was of the view that "international commercial
arbitration" meant an arbitration between parties where at least one of it is a body corporate
incorporated in a country other than India. Where both companies are incorporated in India (and
thereby had Indian nationalities), then the arbitration between them cannot be said to be an
international commercial arbitration (even though the central management and control of the
company may be exercised from a country other than India).

19
2008 (2) Arb LR 439 (SC)

11
Form and content of awards:

The arbitrators are required to set out the reasons on which their award is based, unless the
parties agree that no reasons are to be given or if it arises out of agreed terms of settlement. The
tribunal may make an interim award on matters on which it can also make a final award. Indian
law provides for a very healthy 18% interest rate on sums due under an award. Thus, unless the
arbitral tribunal directs otherwise, the award will carry interest at 18% per annum from the date
of the award till the date of payment. The tribunal is free to award costs, including the cost of
any institution supervising the arbitration or any other expense incurred in connection with the
arbitration proceedings.

Setting aside of awards:

The grounds for setting aside an award rendered in India (in a domestic or international
arbitration) are provided for under Section 34 of the Act. These are materially the same as in
Article 34 of the Model Law for challenging an enforcement application. An award can be set
aside if:

a) a party was under some incapacity; or

b) the arbitration agreement was not valid under the governing law; or

c) a party was not given proper notice of the appointment of the arbitrator or on the
arbitral proceedings; or

d) the award deals with a dispute not contemplated by or not falling within the terms
of submissions to arbitration or it contains decisions beyond the scope of the
submissions; or

e) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties; or

f) the subject matter of the dispute is not capable of settlement by arbitration; or


g) the arbitral award is in conflict with the public policy of India.

A challenge to an award is to be made within three months from the date of receipt of the same.
The courts may, however, condone a delay of maximum 30 days on evidence of sufficient cause.
Subject to any challenge to an award, the same is final and binding on the parties and enforceable
as a decree of the Court.

Considerable controversy has been generated as to whether an award is liable to be challenged


under Section 34 on merits. The earlier view, as expounded by the Supreme Court in Renu
20
Sagar Power Co. Ltd. v. General Electric Co. was that an award could be set side if it is
contrary to the public policy of India or the interests of India or to justice or morality but not on
the grounds that it is based on an error of law or fact. The Supreme Court in that case was faced
with the issue to determine the scope of public policy in relation to proceedings for enforcement
of a foreign award under the Foreign Awards (Recognition and Enforcement) Act, 1961. The
Court also held that in proceedings for enforcement of a foreign award the scope of enquiry
before the court in which the award is sought to be enforced would not entitle a party to the said
proceedings to impeach the award on merits.

However, in a later Supreme Court of India decision in Oil and Natural Gas Corporation vs. Saw
21
Pipes the Court added an additional ground of patent illegality, thereby considerably
widening the scope of judicial review on the merits of the decision. In Saw Pipes case the court
accepted that the scheme of Section 34 which dealt with setting aside the domestic arbitral award
and Section 48 which dealt with enforcement of foreign award were not identical. The court also

20
(1994) Supp (1) SCC 644
21
(2003) 5 SCC 705
accepted that in foreign arbitration, the award would be subject to being set aside or suspended
by the competent authority under the relevant law of that country whereas in domestic arbitration
the only recourse is to Section 34. The Supreme Court observed:

But in a case where the judgment and decree is challenged before the Appellate Court
or the Court exercising revisional jurisdiction, the jurisdiction of such Court would be
wider. Therefore, in a case where the validity of award is challenged there is no necessity
of giving a narrower meaning to the term 'public policy of India'. On the contrary, wider
meaning is required to be given so that the 'patently illegal award' passed by the arbitral
tribunal could be set aside.

.. Similarly, if the award is patently against the statutory provisions of substantive


law which is in force in India or is passed without giving an opportunity of hearing to the
parties as provided under Section 24 or without giving any reason in a case where
parties have not agreed that no reasons are to be recorded, it would be against the
statutory provisions. In all such cases, the award is required to be set aside on the
ground of 'patent illegality'.

The court in Saw Pipes case although adopted the wider meaning to the term public policy but
limited its application to domestic awards alone. The Saw Pipes case has generated some
controversy, and it remains to be seen if it will stand the test of time.

The position of a foreign award has also undergone some recent controversy. A foreign award is
enforceable under Part II of the Act if it is rendered in a country that is a signatory to the New
York Convention or Geneva Convention and that territory is notified by the Central Government
of India. Once an award is held to be enforceable it is deemed to be a decree of the court and can
be executed as such. Under the Act there is no procedure for setting aside a foreign award. A
foreign award can only be enforced or refused to be enforced but it cannot be set aside.

This fundamental distinction between a foreign and a domestic award has been altered by the
Supreme Court in the recent case of Venture Global Engineering v. Satyam Computer Services
22
Ltd. (Venture Global). Here the Supreme Court was concerned with a situation where a foreign
award rendered in London under the Rules of the LCIA was sought to be enforced by the
successful party (an Indian company) in the District Court, Michigan, USA. The dispute arose
out of a joint venture agreement between the parties. The respondent alleged that the appellant
had committed an event of default under the shareholders agreement and as per the said
agreement exercised its option to purchase the appellants shares in the joint venture company at
book value. The sole arbitrator appointed by the LCIA passed an award directing the appellant to
23
transfer its shares to the respondent. The respondent sought to enforce this award in the USA.
The appellant filed a civil suit in an Indian District Court seeking to set aside the award. The
District Court, followed by the High Court, in appeal, dismissed the suit holding that there was
no such procedure envisaged under Indian law. However, the Supreme Court in appeal, following
24
its earlier decision in the case of Bhatia International v. Bulk Trading held that even though
there was no provision in Part II of the Act providing for challenge to a foreign award, a petition
to set aside the same would lie under Section 34 Part I of the Act (i.e. it applied the domestic
award provisions to foreign awards). The Court held that the property in question

22
(2008) 4 SCC 190.
23
A somewhat strange move considering that the shares were in an Indian company and various Indian regulatory
steps and authorities would be involved for transfer of shares. The Respondents move was perhaps influenced by the
fact that the governing law under the Agreement was the law of the State of Michigan and the appellant was situated
in the USA. The Respondent thus attempted to bypass the natural forum (India) hoping to enforce the award through
the contempt of court mechanism of the U.S. Courts. This did not go well with the Indian Supreme Court.

24
(2002) 4 SCC 105.
(shares in an Indian company) are situated in India and necessarily Indian law would need to be
followed to execute the award. In such a situation the award must be validated on the touchstone
of public policy of India and the Indian public policy cannot be given a go by through the device
of the award being enforced on foreign shores. Going further the Court held that a challenge to a
foreign award in India would have to meet the expanded scope of public policy as laid down in
Saw Pipes (supra) (i.e. meet a challenge on merits contending that the award is patently illegal).

The Venture Global case is far reaching for it creates a new procedure and a new ground for
challenge to a foreign award (not envisaged under the Act). The new procedure is that a person
seeking to enforce a foreign award has not only to file an application for enforcement under
Section 48 of the Act, it has to meet an application under Section 34 of the Act seeking to set
aside the award. The new ground is that not only must the award pass the New York Convention
grounds incorporated in Section 48, it must pass the expanded public policy ground created
under Section 34 of the Act. In practice, the statutorily enacted procedure for enforcement of a
foreign award would be rendered superfluous till the application for setting aside the same (under
Section 34) is decided. The statutorily envisaged grounds for challenge to the award would also
be rendered superfluous as notwithstanding the success of the applicant on the New York
Convention grounds, the award would still have to meet the expanded public policy ground
(and virtually have to meet a challenge to the award on merits). The Venture Global case thus
largely renders superfluous the statutorily envisaged mechanism for enforcement of foreign
awards and substitutes it with a judge made law. The Judgement thus is erroneous. Moreover, in
so far as the Judgment permits a challenge to a foreign award on the expanded interpretation of
public policy it is per incuriam as a larger, three Bench decision in the case of Renu Sagar
(supra) holds to the contrary. Further Saw Pipes (on which Venture Global relies for this
proposition) had clearly confined its expanded interpretation of public policy to domestic awards
alone (lest it fall foul of the Renu Sagar case which had interpreted the expression narrowly).
The Supreme Court in Venture Global did not notice this self-created limitation in Saw Pipes nor
did it notice the narrower interpretation of public policy in Renu Sagar and therefore application
of the expanded interpretation of public policy to foreign awards is clearly per incuriam

THE ARBITRATION LAW OF INDIA: A CRITICAL ANALYSIS

by Sumeet Kachwaha*

[This article was first published in Asia International Arbitrational Journal, Volume 1, Number 2,
Pages 105-126]
India opened a fresh chapter in its arbitration laws in 1996 when it enacted the Arbitration and
Conciliation Act (the Act or new Act). This article presents salient features of the Act and
analyses its workings in its near one decade of existence.

A. The Pre-1996 Position

Prior to 1996, the arbitration law of the country was governed by a 1940 Act. This Act was
largely premised on mistrust of the arbitral process and afforded multiple opportunities to
litigants to approach the court for intervention. Coupled with a sluggish judicial system, this led
to delays rendering arbitrations inefficient and unattractive. A telling comment on the working of
the old Act can be found in a 1981 judgment of the Supreme Court where the judge (Justice DA
Desai) in anguish remarked the way in which the proceedings under the (1940) Act are
conducted and without an exception challenged in Courts, has made lawyers laugh and legal
philosophers weep .

B. A New Act, A New Beginning

India (in the good company of several other nations) enacted its new Arbitration Act based on the
United Nations Commission on International Trade Law Model Law on International
Commercial Arbitration2 and the Arbitration Rules of the United Nations Commission on
International Trade Law 1976.3 This was in January 1996. The Statement of Objects and Reasons
to the Act made no bones of the inefficiency of the old legislation. It said that the same had
become outdated and there was need to have an Act more responsive to contemporary
requirements. It added: Our economic reforms may not become fully effective if the law
dealing with settlement of both domestic and international commercial disputes remains out of
tune.

Amongst the main objectives of the new Act (set out in the Statement of Objects and Reasons)
are to minimize the supervisory role of courts in the arbitral process and to provide that every
final arbitral award is enforced in the same manner as if it were a decree of the Court.

This is how the Supreme Court dwelled on the new Act:

To attract the confidence of International Mercantile community and the growing volume of
Indias trade and commercial relationship with the rest of the world after the new liberalization
policy of the
Government, Indian Parliament was persuaded to enact the Arbitration & Conciliation Act of
1996 in UNCITRAL model and therefore in interpreting any provisions of the 1996 Act Courts
must not ignore the objects and purpose of the enactment of 1996. A bare comparison of
different provisions of the Arbitration Act of 1940 with the provisions of Arbitration &
Conciliation Act, 1996 would unequivocally indicate that 1996 Act limits intervention of Court
with an arbitral process to the minimum.4

C. The Scheme of the Act

The Act is a composite piece of legislation. It provides for domestic arbitration, international
commercial arbitration, enforcement of foreign award and conciliation (the latter being based on
the UNCITRAL Conciliation Rules of 1980).

The more significant provisions of the Act are to be found in Parts I and II thereof. Part I contains
the provisions for domestic and international commercial arbitration. Any arbitration to be
conducted in India would be governed by Part I, irrespective of the nationalities of the parties.
Part II provides for enforcement of foreign awards.

Part I is more comprehensive and contains extensive provisions based on the Model Law. It
provides, inter alia, for arbitrability of disputes, nonintervention by courts, composition of the
arbitral tribunal, jurisdiction of the arbitral tribunal, conduct of the arbitration proceedings,
recourse against arbitral awards and enforcement. Part II, on the other hand, is largely restricted
to enforcement of foreign awards governed by the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards5 or the Convention on the Execution of Foreign Arbitral
Awards.6 Part II is thus, (by its very nature) not a complete code. This led to judicial innovation
by the Supreme Court in the case of Bhatia International v Bulk Trading.7 Here the Indian courts
jurisdiction was invoked by a party seeking interim measures of protection in relation to an
arbitration under the Rules of Arbitration of the International Chamber of Commerce
International Court of Arbitration8 to be conducted in Paris. The provision for interim measure (s
9) was to be found in Part I alone (which applies only to domestic arbitration). Hence, the court
was faced with a situation where there was no proprio vigore legal provision under which it
could grant interim measures of protection. Creatively interpreting the Act, the Supreme Court
held that the general provisions of Part I would apply also to offshore arbitrations, unless the
parties expressly or impliedly exclude applicability of the same. Hence, by judicial innovation,
the Supreme Court extended the general provisions of Part I to foreign arbitrations as well.
It may be stated that this was premised on the assumption that the Indian courts would otherwise
have jurisdiction in relation to the matter (in the international sense). This became clear in a
subsequent decision of the Supreme Court in Shreejee Traco (I) Pvt Ltd v Paperline International
Inc.9 Here the
courts assistance was sought for appointing an arbitrator in a foreign arbitration. The power of
appointment by the court exists under s 11 of Part I of the Act (which applies to domestic
arbitration alone). The court declined to exercise jurisdiction. It found that the arbitration was to
be conducted in New York and that the law governing the arbitration proceedings would be the
law of seat of the arbitration. Hence, the extension of Part I provisions to foreign arbitrations
sanctified byBhatia10 would not be resorted to in every case. The Indian courts would have to
first determine if it has jurisdiction, in the international sense.

D. Salient Features of the Act

The Act applies to all types of arbitrations, viz statutory or non-statutory, institutionally
administered or ad hoc, the only qualification being that the dispute must be arbitrable.11 The
salient features of the Act are discussed below.

1. Arbitration Agreement Defined

An arbitration agreement has to be in writing, and may be even contained in an exchange of


letters or any other means of telecommunication which provide a record of the agreement. The
agreement need not be signed and the unsigned agreement affirmed by the parties conduct would
be valid as an arbitration agreement.12 An arbitration agreement would also be considered to be
in writing if there is an exchange of a statement of claim and defence in which the existence of
the agreement is alleged by one party and not denied by the other.13

2. Arbitrability of Disputes

The Act states that the relationship between the parties need not be contractual. Hence, a dispute
in tort can also be referred. The Supreme Court in the case of Renu Sagar Power Co v General
Electric Co14 stated this as follows:

The question is not whether the claim lies in tort but the question is whether even though it has
lain in tort it arises out of or is related to the contract, that is to say, whether it arises out of the
terms of the contract or is consequential upon any breach thereof.
The court in Renu Sagar I also approved an English decision in the case of Woolf v Collis
Removal Service15 where the Court of Appeal held that though the claim in negligence was a
claim in tort and not
under contract, yet there was a sufficiently close connection between that claim and the
transaction to bring the claim within the arbitration clause. Citing this, the court in Renu Sagar I
continued:this authority clearly shows that even though a claim may not directly arise under the
contract which contains an arbitration clause, if there was sufficient close connection between
that claim and the transaction under the contract, it will be covered by the arbitration clause.

Hence, whether an action lies in tort or contract, it would lie before an arbitral forum, unless it
can be demonstrated that the cause of action is de hors the contract which contains the arbitration
clause.

A controversy arose as to whether arbitrators would have jurisdiction to order specific


performance of a contract. The High Court of Delhi held16 that the power to grant specific
performance is discretionary and statutorily conferred on civil courts under the Specific Relief
Act 1963. Hence, an arbitral tribunal would have no such power. On the other hand, the High
Courts of Punjab, Bombay and Calcutta17 took the view that arbitrators could grant specific
performance. The Supreme Court put to rest the controversy in Olympus Superstructures Pvt Ltd
v Meena V ay Khetan18 and held that arbitrators do have the power to order specific
performance of a contract. The court relied on Halsburys Laws of England19 which states that
the differences or disputes which may be referred must consist of a justifiable issue triable
civilly. A fair test of this is whether the difference can be compromised lawfully by way of
accord and satisfaction.

In the case of Hindustan Petroleum Corporation v Pink City,20 the respondent resisted arbitration
on the ground that the cause of action made out by the claimant (ie short delivery and tampering
with weights and measures and seals) was essentially a criminal offence under special statutes. It
was contended that the respondents conduct could be investigated only by officers so authorised
under statute and that the offence, if any, can be tried only by a court of competent jurisdiction
and not by an arbitrator. The Supreme Court negatived this contention, holding that the claimant
had rights under the contract which are independent of the statutory provisions and hence the
contractual rights could be enforced through the arbitration process: The existence of dual
procedure; one under the criminal law and the other under the contractual law is a well-accepted
legal phenomenon in Indian jurisprudence.21
The Supreme Court has, however, held that a claim for winding up22 is not arbitrable and hence
a court action for winding up cannot be dismissed on a contention that the parties had entered
into an arbitration agreement.

The case of Man Roland v Multicolour Offset23 made a significant inroad into the sanctity of an
arbitration agreement. Here the Supreme Court held that the Monopolies and Restrictive Trade
Practices Commission of India (Commission) would have jurisdiction to entertain a claim for
damages arising out of an alleged unfair trade practice (in this case, sale of alleged defective
goods and deficiency in services). The contract between the parties contained an arbitration
agreement providing for arbitration in Paris, under ICC Rules with German law applying. The
Supreme Court held that the Monopolistic and Restrictive Trade Practices Act 1969 (MRTP
Act) provides for statutory remedies in respect of statutorily defined offences and these remedies
are in addition to the usual remedies available to the parties under the Contract Act. Hence, the
complaint for damages under the MRTP Act would be maintainable despite an arbitration
agreement between the parties. This case assumes significance, for an unfair trade practice is
defined rather widely under the MRTP Act. It includes any unfair or deceptive practice for sale
of goods or services. The Indian claimant here was thus able to bypass the arbitration agreement
and sue for damages in India (with Indian law applying) by adapting the MRTP route.

3. Expert Determination Distinguished from Arbitration

The Supreme Court had occasion to consider this extensively in the case of KK Modi v KN
Modi24 where, after citing Mustill & Boyds Commercial Arbitration25 and Russell on
Arbitration,26 it concluded that, by and large, there were no conclusive tests one could follow to
determine whether the agreement was to refer an issue to an expert or whether the parties had in
fact agreed to resolve disputes through arbitration. It held:

therefore our courts have laid emphasis on (1) existence of disputes as against intention to avoid
future disputes; (2) the tribunal or forum so chosen is intended to act judicially after taking into
account relevant evidence before it and the submissions made by the parties before it; and (3) the
decision is intended to bind the parties. Nomenclature used by the parties may not be conclusive.
One must examine the true intent and purport of the agreement.27

4. International Commercial Arbitration

As mentioned earlier, the Act governs both domestic and international commercial arbitrations
through Part I. There are only two situations where Part I treats domestic arbitration differently
from international commercial arbitration. One is in relation to an appointment of an arbitrator by
the court and the other is in relation to the determination of governing law (and these are
discussed below).
International commercial arbitration is defined as an arbitration where at least one of the parties
is a national or habitual resident in any country other than India or a body corporate which is
incorporated in any country other than India or a company or association or a body of
individuals whose central management and control28 is exercised in any country other than
India.29

5. The Principle of Non-intervention by the Courts

The principle that the courts shall not interfere in arbitral proceedings is a fundamental theme
underlying the Act. Indeed the Act contemplates of only three situations where judicial authority
may intervene in arbitral proceedings. These are:

i. appointment of arbitrators, where the parties envisaged method for the same fails (s 11);
ii. ii. ruling on whether the mandate of the arbitrator stands terminated due to inability to
perform his functions or failure to proceed without undue delay (s 14(2)); and
iii. iii. provide assistance in taking evidence (s 27).
iv. As would be noticed, Indian law is far more restrictive in allowing court intervention
(compared to the Model Law).
v.

Section 5 of the Act provides, through a non-obstante clause, that in ma ers governed by Part I,
no judicial authority shall interfere except where so provided for.

Section 8 is a companion section. It states that a judicial authority before which an action is
brought in a matter which is the subject matter of an arbitration agreement shall refer the parties
to arbitration. The only condition being that the party objecting to the court proceedings must do
so no later than his first statement on the substance of the dispute. In the meanwhile, the
arbitration proceedings may be commenced and continued with and an award rendered.

Two points are noteworthy. The first is that s 5 (departing from the Model Law) contains a non-
obstante clause. Section 8 also departs from the Model Law. The corresponding provision (Art 8
of the Model Law) permits the court to entertain an objection to the effect that the arbitration
agreement is null and void inoperative or incapable of being performed. The departures made
by the Indian law demonstrate the legislative intent to keep the courts out and let the arbitral
stream flow unobstructed.
By and large the Indian courts have well understood the spirit and intent behind the principle of
non- intervention. Thus, in CDC Financial Services (Mauritius) Ltd v BPL Communications30
the respondent
obtained an antiarbitration injunction from the High Court on the ground that the pledge of
shares which was sought to be enforced through arbitration would enable the claimants to take
control of a telecom company which (as it was a foreign company) would be contrary to Indian
law. On appeal, the Supreme Court rejected this contention, stating that this was a plea on merits
and thus within the sole jurisdiction of the arbitrators. Interestingly, the court not only vacated
the injunction, it also restrained the respondent from moving any further applications which
would have the effect of interfering with the continuance and conclusion of the arbitration
proceedings.31 In Sukanaya Holdings v Jayesh Pandya,32 however, the Supreme Court refused
to stay the court action on the ground that the subject matter of the arbitration agreement was not
the same as the subject matter of the civil suit. Besides, the parties in the two actions were not
identical. The court held that the entire subject matter of the suit should be the subject matter of
the arbitration agreement in order for the mandatory provisions of s 8 to apply.

6. Interim Measures of Protection

A party which seeks interim measures has essentially two avenues open to it. It can approach the
court or it can approach the arbitral tribunal. Section 9 enables a party to approach a competent
court33 before or during the arbitral proceedings or even after the award is pronounced, but
before it is enforced. The Model Law in fact has a more restrictive provision: it does not
contemplate recourse to a court for an interim measure after the award is pronounced (Art 9).

The Supreme Court in the case of Sundaram Finance v NEPC34 held that if a court is approached
before the arbitral proceedings are commenced, the applicant must issue a notice to the opposing
party invoking the arbitration clause or, alternatively, the court would have to be first satisfied
that the applicant will indeed take effective steps to commence the arbitral proceedings without
delay. Further, the court would have to be satisfied that there exists a valid arbitration agreement
between the parties.35

The arbitral tribunal also has powers to make an order for any interim measure of protection or to
provide appropriate security in connection with the measures ordered (s 17). However, this
provision is perceived to be ineffective and usually not resorted to. This is for several reasons.
Firstly, the applicant has to wait for the arbitral tribunal to be constituted (thus ruling out this
route in the case of urgency). Further, there are no sanctions if the order is disobeyed. From a
practical viewpoint also, third parties cannot be affected. Further, any interim measure would
come to an end with the making of an award (unlike a court obtained order which can continue
till enforcement).
Commenting upon the inherent limitations of the provision, the Supreme Court in MD Army
Welfare Housing Organisation v Sumangal Services36 stated:

the power of the arbitrator is a limited one. He cannot issue any direction which would go
beyond the reference or the arbitration agreement. An interim order must relate to the protection
of the subject- matter of dispute and the order may be addressed only to a party to the arbitration.
It cannot be addressed to other parties no power is conferred upon the Arbitral Tribunal to
enforce its order nor does it provide for judicial enforcement thereof.

It may be mentioned that orders passed under ss 9 and 17 are appealable.37

7. Arbitrators

a. Appointment of Arbitrators

The Act allows full freedom to the parties in the matter of appointment of arbitrators. However, if
there is a failure of the parties agreed mechanism for appointment, the Chief Justice of a High
Court (in the case of a domestic arbitration) or the Chief Justice of the Supreme Court of India
(in the case of an international commercial arbitration) may be approached for this purpose. This
is the first instance in which the Act envisages recourse to a court in relation to arbitration
proceedings.

The Act demonstrates its sensitivity towards a foreign litigant embroiled in an arbitration in
India. Thus, while parties to a domestic dispute have to approach the Chief Justice of the High
Court of the state, the parties in an international commercial arbitration would be able to
approach the highest judicial officer of the country, viz, the Chief Justice of India. (In contrast,
the Model Law envisages the appointment to be made by a court.38) Commenting on the
mandate resting on the highest judicial officer of the land, the Supreme Court in Konkan Railway
Corporation v Rani Construction Pvt Ltd39 commented:

The function has been le to the Chief Justice or his designate advisedly, with a view to ensure
that the nomination of the arbitrator is made by a person occupying high judicial office or his
designate, who would take due care to see that a competent, independent and impartial arbitrator
is nominated.

A question arose as to whether the Chief Justice is required to carry out his duty (of appointment)
in an administrative or in a judicial capacity. If the Chief Justice is required to act in a judicial
capacity, a certain procedure would have to be followed which would necessarily entail delays
and the decision may tend to embarrass the arbitrators jurisdiction to decide issues of merit or
jurisdiction independently. There may also be a possibility of conflicting decisions. After some
difference of opinion, the controversy was finally se led by a Constitution Bench of the Supreme
Court (ie a bench comprising
of five judges) in the Konkan case.40 Here the court unanimously held that the function of
appointment is administrative in nature and not judicial. It held that one of the objects of the law
is to have the arbitral tribunal constituted as expeditiously as possible. Even formal pleadings for
this purpose would not be required and the opposing party would need to be only notified so that
it may know of it and may if it so choose, assist the Chief Justice or his designate in the
nomination of an arbitrator.41

This significant judgment ensures that the arbitral process does not get stultified in the process of
seeking court assistance for constitution of the arbitral tribunal. Thus, in a given case, if there is
any controversy as to the existence or validity of the arbitration agreement, it has to be le to the
arbitral tribunal alone and the Chief Justice would not get diverted into determining this issue. In
the subsequent case of Nimet Resources v Essar Steels42 the Supreme Court clarified that even
if there is any doubt in the mind of the Chief Justice or his designate as to the existence or
validity of an arbitration agreement, the same must be referred to the arbitral tribunal to be
resolved. It is only if the Chief Justice can be absolutely sure43 that there is no arbitration
agreement in existence between the parties that the power of appointment under s 11 can be
declined.

b. Challenge to an Arbitrator

Like Art 12 of the Model Law and Art 10 of the UNCITRAL Arbitration Rules, the Act also
requires the arbitrators (including party appointed arbitrators) to be independent and impartial
and make full disclosure in writing of any circumstance likely to give rise to justifiable doubts on
the same.44

At this stage, one may point out a peculiar practice in India (essentially in government and public
sector building contracts) providing for arbitration by an owners employee or nominee (eg
arbitration by the managing director or engineer of the corporation). This practice has been
sanctified with usage and continues under the new regime as well. Though the matter has not
been tested under the 1996 Act, it is quite possible that this practice of appointment would
continue to be upheld.

An arbitrator may be challenged only in two situations. First, if circumstances exist that give rise
to justifiable grounds as to his independence or impartiality; second, if he does not possess the
qualifications agreed to by the parties. A challenge is required to be made within 15 days of the
petitioner becoming aware of the constitution of the arbitral tribunal or of the circumstances
furnishing grounds for challenge. Further, subject to the parties agreement, it is the arbitral
tribunal (and not the court unlike under the old regime) which shall decide on the challenge. If
the challenge is not successful the tribunal shall continue with the arbitral proceedings and render
the award, which can then be challenged by an aggrieved party at that stage. This is another
significant departure from the Model Law, which envisages recourse to a court of law in the
event the arbitral tribunal rejects the challenge.45
The Indian courts have held that the apprehension of bias must be judged from a healthy,
reasonable and average point of view and not on mere apprehension of any whimsical person.
Vague suspicions of whimsical, capricious and unreasonable people are not our standard to
regulate our vision.46

c. Termination of Mandate of an Arbitrator

The Act provides that the mandate of an arbitrator shall terminate in two circumstances: (1) if he
becomes de jure or de facto unable to perform his functions; or (2) if he fails to act without
undue delay. If there is any controversy as to the above, a party may, unless otherwise agreed,
apply to the court for a decision (the second instance of court intervention envisaged by the Act).

8. Jurisdiction of the Arbitral Tribunal

Section 16 of the Act (corresponding to Art 16 of the Model Law) is a key provision of the Act.
The section provides that the arbitral tribunal may rule on its own jurisdiction, including with
respect to the existence or validity of the arbitration agreement. Further, the arbitration clause
shall be treated as independent of the underlying contract and a decision that the contract is null
and void shall not entail ipso jure the invalidity of the arbitration clause. Where the arbitral
tribunal rejects an objection to its jurisdiction, it shall continue with the arbitral proceedings and
make the award. Any challenge to the award would be available at that stage. If, on the other
hand, the arbitral tribunal accepts the plea as to its lack of jurisdiction, an appeal shall lie to a
court of law.47

This again marks a significant departure from the Model Law which contemplates recourse to a
court from a decision of the arbitral tribunal rejecting a challenge to its jurisdiction. The Indian
legislatures keenness to keep the courts out of the arbitral process thus becomes evident with
every step of the legislation.

9. Arbitral proceedings

a. Conduct of Arbitral Proceedings

The arbitrators are masters of their own procedure and subject to parties agreement, may
conduct the proceedings in the manner they consider appropriate. This power includes the
power to determine the admissibility, relevance, materiality and weight of any evidence.48 The
only restraint on them is that they shall treat the parties with equality and each party shall be
given a full opportunity to present his case,49 which includes sufficient advance notice of any
hearing or meeting.50 Neither the Code of Civil
Procedure 1908 (CCP) nor the Indian Evidence Act 1872 apply to arbitrations.51 Unless the
parties agree otherwise, the tribunal shall decide whether to hold oral hearings for the
presentation of evidence or for arguments or whether the proceedings shall be conducted on the
basis of documents or other material alone. However, the arbitral tribunal shall hold oral hearings
if a party so requests (unless the parties have agreed that no oral hearing shall be held).52

The arbitrators have power to proceed ex parte where the respondent, without sufficient cause,
fails to communicate his statement of defence or appear for an oral hearing or produce evidence.
However, in such a situation the tribunal shall not treat the failure as an admission of the
allegations by the respondent and shall decide the matter on the evidence, if any, before it. If the
claimant fails to communicate his statement of claim, the arbitral tribunal shall be entitled to
terminate the proceedings.53

b. Taking of Evidence in Arbitral Proceedings

The Indian Oaths Act 1969 extends to persons who may be authorised by consent of parties to
receive evidence. This Act, thus, encompasses arbitral proceedings as well.54 Section 8 of the
said Act states that every person giving evidence before any person authorised to administer
oaths shall be bound to state the truth on such subject. Thus, witnesses appearing before an
arbitral tribunal can be duly sworn by the tribunal and be required to state the truth on oath and
upon failure to do so, commit offences punishable under the Indian Penal Code.55 However, the
arbitrators cannot force unwilling witnesses to appear before them and for this the courts
assistance is provided vide s 27 of the Act. Under this provision the arbitral tribunal or a party
with the approval of the tribunal may apply to the court seeking its assistance in taking evidence
(this is also provided for in the Model Law). However, s 27 of the Act goes beyond the Model
Law as it states that any person failing to attend in accordance with any order of the court or
making any other default or refusing to give evidence or guilty of any contempt of the arbitral
tribunal, shall be subject to like penalties and punishment as he may incur for like offences in
suits tried before the court. Further, the court may either appoint a commissioner for taking
evidence or order that the evidence be provided directly to the arbitral tribunal. These provisions
extend to any documents to be produced or property to be inspected. Section 26 provides for
appointment of experts by the arbitral tribunal for any specific issue. In such a situation, a party
may be required to give the expert any relevant information or produce any relevant document,
goods or property for inspection as may be required. It will be open to a party (or to the arbitral
tribunal) to require the expert, after delivery of his report, to participate in an oral hearing where
the parties would have an opportunity to put questions to him.
10. Governing Law

For determining the rules of law applicable to the substance of the dispute, the law makes a
distinction between international commercial arbitration and arbitration between Indian
parties.56

In international commercial arbitration the arbitral tribunal shall decide the dispute in accordance
with the rules of law designated by the parties as applicable to the substance of the dispute and,
failing any such designation, the rules of law the tribunal considers appropriate given all the
circumstances. Indian courts have long since accepted that in the absence of express or implied
choice, the arbitrators would apply the law which has the closest and most real connection with
the contract.57

In arbitration between Indian parties, however, the tribunal is obliged to apply the substantive law
for the time being in force in India.

The Act provides that where the award is for payment of money, the tribunal may include interest
at such rate as it deems reasonable for the whole or part of the period between the date of accrual
of the cause of action and the date of the award.58 Further, a sum directed to be paid by the
arbitral tribunal shall (unless the award otherwise directs) carry interest at 18% per annum from
the date of the award to the date of payment.59 The rather healthy rate of 18% interest from the
date of the award till payment (not to be found in the Model Law) seems to be designed to deter
any unwarranted challenge to the award. This rate of interest may, however, not apply to any
foreign award being enforced in India, as the provision is to be found in Part I alone. For foreign
awards, the rate of interest would be governed by the CCP which empowers the court to order
pendente lite interest as well as interest from the date of decree to the date of payment. For
commercial transactions, the rate of interest shall not exceed the contractual rate or where no
contractual rate is specified, the rate at which moneys are lent or advanced by banks in relation
to commercial transactions.60

11. General Powers of the Arbitral Tribunal

There is a long line of case law which states that the arbitrator is the sole judge of the evidence
before it. This is how a Supreme Court decision puts it:
Appraisement of evidence by the arbitrator is ordinarily never a matter which the Court questions
and considers. The arbitrator in our opinion is the sole judge of the quality as well as the quantity
of evidence and it will not be for the Court to take upon itself the task of being a judge of the
evidence before the arbitrator.61
Interpretation of a contract is an issue of law and also within the sole prerogative of an arbitrator:

When the arbitrator is required to construe a contract then merely because another view may be
possible the court would not be justified in construing the contract in a different manner and then
to set aside the award by observing that the arbitrator has exceeded his jurisdiction in making the
award.62

The court by purporting to construe the contract cannot take upon itself the burden of saying that
the construction was contrary to the contract and as such beyond jurisdiction.63 However, in
construction contracts if there is no provision for escalation or for additional quantity of work,
the arbitrator cannot allow the same.64

The arbitrator is bound to state the reasons for the award unless the parties have agreed otherwise
or the award is on agreed terms (as a result of a settlement). An award, however, cannot be
challenged for lack of adequate reasons65 (or indeed the reasonableness of the reasons66).

The arbitral tribunal is empowered to make typographical or clerical corrections to the award
either on its own initiative or on an application of the parties.

The tribunal may at any time during the arbitral proceedings make an interim award on any
matter with respect to which it may make a final award.67

12. Arbitral Awards

a. Recourse against Awards

A domestic award can be challenged and set aside only by way of an application under s 34 of
the Act and only on the grounds contained thereunder. Section 34 is based on Art 34 of the Model
Law. To paraphrase the provision, an award can be set aside if:
(1) the party making the application was under some incapacity; or (2) the arbitration agreement
was not valid under the law agreed to by the parties (or applicable law); or (3) the party making
the application was not given proper notice of the appointment of the arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or (4) the award deals with a dispute not
contemplated by or falling within the terms of submissions to arbitration or it contains decisions
beyond the scope of the submissions to arbitration; or (5) the composition of the arbitral tribunal
or the arbitral procedure was not in accordance with the agreement of the parties; or (6) the
subject matter of the dispute was not capable of settlement by arbitration; or (7) the arbitral
award is in conflict with the public policy of India.
Section 34 (deviating somewhat from the Model Law) goes on to add an Explanation in relation
to the ground of public policy to clarify that an award would be in conflict with the public policy
of India if the same was affected by fraud or corruption or was in violation of the confidential
requirements a ached to the conciliation proceedings provisions prescribed under the Act.68

An application for setting aside an award must be made within three months of receipt of the
award by the applicant subject to a further extension of 30 days on sufficient cause being shown.
An application beyond this period is time barred and further delay cannot be condoned.69

b. The Saw Pipes Judgment

The limited grounds of challenge provided for under s 34 reflect the very jurisprudence on which
the Model Law is formulated, viz of trust in the arbitral process. It is abundantly clear that the
courts have no power to get into the merits of the matter. However, this basic proposition was
put to the test and suffered a setback in the case of ONGC v Saw Pipes Ltd.70 There the court
succumbed to the temptation to correct perceived errors of judgment. The court was concerned
with an arbitral award which disallowed liquidated damages. The Indian law of liquidated
damages is contained in s 74 of the Indian Contract Act 1872.71 The position is different from
common law in as much as reasonableness of the compensation becomes an issue even where
liquidated damages are stipulated. The Supreme Court in Saw Pipes came to the conclusion that
the impugned award, in so far as it disallowed liquidated damages on the premise that they have
to be proved, was legally fl awed. In the process it held as a matter of law, that an award can also
be challenged on the ground that it contravenes the provisions of the Act or any other
substantive law governing the parties or is against the terms of the contract.72 Further, the
judgment expanded the concept of public policy to add that the award would be contrary to
public policy if it is patently illegal. An earlier Supreme Court decision, by a larger bench, in
the case of Renu Sagar Power Co v General Electric Corporation73 had construed the ground of
public policy narrowly as confined to the fundamental policy of Indian law or the interest of
India or justice or morality. The Supreme Court in Saw Pipes distinguished Renu Sagar II on the
ground that the said judgment was in the context of a foreign award. The reasoning of the court is
that in foreign arbitration, the award would be subject to being set aside or suspended by the
competent authority under the relevant law of that country, whereas in domestic arbitration there
is no such recourse and the award attains finality74 (thus, the greater need for judicial scrutiny).
Hence, the ratio of Saw Pipes in so far as the expansion of public policy is concerned, would be
confined only to domestic awards. The expansion of s 34 to include patent illegality may also
not apply to
foreign awards since this expansion was premised by the court on the provisions of Part I of the
Act (which would not apply to foreign awards). Thus, foreign awards would be saved from the
application of the said judgment.

The case of Saw Pipes makes a significant dent in the jurisprudence of arbitration in India. The
judgment has come in for some sharp criticism. Eminent jurist and lawyer Mr FS Nariman
minced no words when he said that the judgment has:

virtually set at naught the entire Arbitration and Conciliation Act of 1996

To have introduced by judicial innovation a fresh ground of challenge and placed it under
the head of Public Policy, was first contrary to the established doctrine of precedent the
decision of a Bench of three Judges being binding on a Bench of two Judges. It was also
contrary to the plain intent of the new 1996 Law viz., the need for finality in alternate
methods of dispute resolution without Court interference.

If Courts continue to hold that they have the last word on facts and on law notwithstanding
consensual agreements to refer matters necessarily involving facts and law to adjudication by
arbitration the 1996 Act might as well be scrapped.

The Division Bench decision of the two Judges of the Court has altered the entire road-map of
Arbitration Law and put the clock back to where we started under the old 1940 Act.75

The Saw Pipes judgment skews the delicate balance, carefully crafted by the Model Law (and
enshrined in s 34), between finality of arbitral awards on one hand and permissible judicial
review on the other. The judgment is quite contrary to both the letter and spirit of arbitration law
in India. The judgment is especially unsuitable for India, where courts are bogged down with
enormous workload. In such a situation, to open the door to challenge on merits howsoever
guardedly is to undermine the efficacy of this dispute resolution mechanism.

13. Enforcement of Foreign Awards

This brings us to Part II of the Act. The Act provides for enforcement of both the New York
Convention awards and the Geneva Convention awards vide Part II thereof. India is not a party to
the Convention on the Settlement of Investment Disputes between States and Nationals of Other
States 1965 (Washington Convention) or indeed any other convention or treaty pertaining to
enforcement of foreign arbitral awards.
For the purposes of this article, we deal with the provisions relating to the New York Convention
alone (since the provisions pertaining to the Geneva Convention are now otiose).

a. Definition of Foreign Award

This is contained in s 44 of the Act. A peculiar feature of Indian law is that a foreign award by
definition means an award passed in such territory as the Central Government by notification
may declare to be a territory to which the New York Convention applies. Hence, even if a
country is a signatory to the New York Convention, it does not ipso facto mean that an award
passed in such country would be enforceable in India. There has to be further notification by the
Central Government declaring that country to be a territory to which the New York Convention
applies.

The reservation carved out by the Indian legislation (though in terms of and permitted by the
New York Convention) may well prove to be a legal trap for the unwary. Only 43 countries have
been notified so far by the Indian government. Thus, while France, Germany, United Kingdom,
United States of America, Japan and Singapore have been notified; Hong Kong and Australia
(amongst many others) have not yet been notified.76

14. Reference of Parties to Arbitration

Section 45 of the Act provides that notwithstanding anything contained in the CCP, a judicial
authority when seized of an action in respect of a matter where the parties have entered into an
arbitration agreement shall, at the request of any party, refer the parties to arbitration. The only
exception is if the court finds the agreement to be null and void, inoperative or incapable of being
performed. It would be noticed that this section (though in tune with Art 8 of the Model Law) is a
little different from its corresponding provision in the Act for domestic arbitrations (s 8) in as
much as it permits a court to retain jurisdiction on the ground that the arbitration agreement is
null and void, inoperative or incapable of being performed. So while these contentions would
not furnish grounds for avoiding the arbitral process in a domestic arbitration, the position in
relation to foreign arbitrations would be different. This difference in the Act between Indian and
foreign arbitrations is possibly premised on the fact that it may be too harsh to compel an Indian
party to undergo arbitration in a foreign country if it could demonstrate that the arbitration
agreement is null and void, inoperative or incapable of being performed (and in any case the
Model Law also envisages court intervention to this extent).
An interesting issue arose in Shin-Etsu Chemical Co Ltd v Aksh Optifibre Ltd77 as to whether a
ruling by the court on the validity or otherwise of an arbitration agreement is to be on a prima
facie basis or a final decision. If it were to be a final decision, it would involve a full trial and
consequently years and years of judicial proceedings which would frustrate the arbitration
agreement. Keeping this and the object of the Act in mind, the Supreme Court, by a 2:1 decision,
held that a challenge to the arbitration agreement under s 45 on the ground that it is null and
void, inoperative or incapable of being performed is to be determined on a prima facie basis. It
said:

If it were to be held that the finding of the court under Section 45 should be a final, determinative
conclusion, then it is obvious that, until such a pronouncement is made, the arbitral proceedings
would have to be in limbo. This evidently defeats the credo and ethos of the Act, which is to
enable expeditious arbitration without avoidable intervention by judicial authorities.

This would mean that a court decision under s 45 would not operate as res judicata and the
aggrieved party would be able to challenge the same in subsequent proceedings. Thus, in effect, a
person challenging an arbitration agreement on the ground that it is null and void, inoperative or
incapable of being performed would have three rounds to vent his grievances: the first, under s
45 before an Indian court; the second time around before the arbitral tribunal itself; and, finally,
at the stage of enforcement of the arbitral award. The judgment of the Supreme Court is no doubt
welcome. Any other interpretation would have brought about a situation where it would take
very little for a dishonest litigant to derail a foreign arbitration. At the same time an issue would
remain as to what is to be done in cases where the court does in fact come to a conclusion that
the arbitral agreement is null and void, inoperative or incapable of being performed. A decision to
this effect is appealable under s 50 of the Act. Thus, a ruling on a prima facie view alone would
not be satisfactory. One of the judges addressed this and held that if the court were to arrive at a
prima facie conclusion that the agreement is in fact null and void, it would go ahead and hold a
full trial and enter a final verdict. In such a situation, therefore, a foreign arbitration may well
come to a halt pending final decision from an Indian court, but otherwise proceedings under s 45
would not have any significant effect impeding progress of a foreign arbitration.

15. Conditions for Enforcement of Foreign Award

Where the court78 is satisfied that a foreign award is enforceable, it shall be deemed to be a
decree of that court.79 Grounds for refusal of enforcement are provided for under s 48 of the Act
and these are virtually the same as the New York Convention grounds (and, therefore, not
markedly different from the Model Law). There are two noteworthy differences between ss 48
and 34. Section 34 (in relation to domestic awards) permits the court to set aside an award;
whereas s 48 provides only for refusal to enforce a foreign award. (Refusal to enforce an award
would not therefore by itself prevent an applicant from seeking to enforce it in some other
jurisdiction.) There is no provision in Indian law for setting aside
a foreign award. Thus, if a foreign award is to be set aside in India, the only
remedy would be by way of a civil suit under the Specific Relief Act 1963.80
The second difference between ss 34 and 48 is that the latter (in relation to
foreign awards) contains an additional ground under which the court could
decline to enforce a foreign award and that is if the award has not yet become
binding on the parties, or has been set aside or superseded by a competent
authority of the country in which, or under the laws of which, the award was
made. (The second difference flows from the provisions of the New York
Convention.)

Earlier, in relation to s 34, it was pointed out how the ground of public
policy has been narrowly construed by the Supreme Court inRenu Sagar
II.81 In that case, a three-judge bench of the Supreme Court after an in-depth
consideration of the case law opted for the narrow interpretation of the
public policy ground as affording a challenge to enforcement of an award.
The court held that the award may be refused to be enforced if it is contrary
to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii)
justice or morality.82

If the court is satisfied that the foreign award is enforceable, the same shall be
deemed to be a decree of the court. The Supreme Court has held83 that no
separate application need be filed for execution of the award. A single
application for enforcement of award would undergo a two-stage process. In
the first stage, the enforceability of the award, having regard to the
requirements of the Act (New York Convention grounds) would be
determined. Once the court decides that the foreign award is enforceable, it
shall proceed to take further steps for execution of the same.84

An appeal shall lie from an order of the court refusing to enforce a foreign
award. However, interestingly (unlike for domestic awards), there is no
appeal provided for against an order of the court rejecting objections to
enforce the award.85 Hence, an order upholding the foreign award is not
appealable. However, the constitutional remedy by way of a (discretionary)
Special Leave Petition to the Supreme Court of India would still be
maintainable

Conclusion:

The business and operating conditions in the present globalised economy


underscore the advantage of arbitration as a process of dispute resolution,
over litigation, especially in cross-border disputes. The 1996 Act was enacted
to achieve quick and cost-effective dispute resolution. An examination of the
working of this system in India reveals that arbitration as an institution is still
evolving, and has not yet become effective to fulfill the ever changing needs of
the world economy incidental to commercial growth.

In theory, arbitration; whether international or national, has become the


duplication of a Court process that even provides for appeals. Further, the
rulings in the Saw Pipes and Venture Global cases clearly make it unfruitful
for any investor or individual seeking to arbitrate in India.

Mr. Javed Gaya49 has stated that the Supreme Courts judgment in Saw Pipes
would encourage further litigation by the aggrieved party, and in doing so
diminish the benefits of arbitration as a mode of dispute resolution. The harsh
reality is that courts are totally inept at dealing with the task of meeting the
basic expectations of the litigating community. Mr. Kachwaha 50 opines that
these very courts cannot be leaned upon to salvage the perceived inadequacies
of the arbitral system through their greater intervention. Rather, the courts
must take the law forward based on trust and confidence in the arbitral system.
In our opinion, these discrepancies highlight that law in action and law in
books are not one and the same. Legal Realism is not that which exists only in
Statutes and Acts but in the Judges interpretations thus resulting in the politics
of law.

Thus, it has been suggested that a global commercial arbitration system would
promote international trade and commerce by reducing the risk that potential
commercial disputes would be determined by counter-parties home courts.51

Notwithstanding the open questions that plague the model organization


suggested, one must remember that rational men and women do not intend
the inconvenience of having the possible disputes arising from their
transactions potentially litigated before three (or more) very different
echelons i.e. the arbitral body, the courts at the seat of arbitration and the
courts at the place of enforcement.

The above highlighted issues concerning the enforcement of foreign arbitral


awards in India reinforces the premise that arbitration in India is not for the
faint- hearted. Therefore, it is imperative to remove the difficulties and lacunae
in the Act

42. Javed Gaya, Judicial Ambush of Arbitration in India, 120 L. QUAT. R. 571 (2004).
43. Sumeet Kachwaha, The Indian Arbitration Law: Towards a New Jurisprudence, 10 INT. A. L. R. 17 (2007).
44. Holtzmann, A Task for the 21st Century: Creating A New International Court for Resolving Disputes on the
Enforceability of Arbitral Awards, INTERNATIONALIZATION OF INTERNATIONAL ARBITRATION: THE LCIA CENTENARY
CONFERENCE,111 (1995).
coupled with efforts to establish an international organization so that arbitration as a method of ADR
becomes a favoured and popular choice of international commercial dispute resolution. These steps will
also go a long way in fulfilling the objectives of the Arbitration law in India.

India has in place a modern, an efficient Arbitration Act. There have been some decisions which
are not in tune with the letter or spirit of the Act. Hopefully, these would be addressed by the
judiciary in the near future and continuing popularity of arbitrations would be served by a truly
efficient ADR mechanism.

[The law as stated herein is as on April 2009]