INTERNATIONAL COMMERCIAL ARBITRATION

LAW AND RECENT DEVELOPMENTS IN

INDIA

DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENT
FOR AWARD OF
POST GRADUATE DIPLOMA IN
ALTERNATIVE DISPUTE RESOLUTION

By
AUSHIM KHULLAR
40/ADR/ILI/2017-18

INDIAN LAW INSTITUTE

(DEEMED UNIVERSITY) NEW DELHI – 110001
2017-2018
 Sl. No. Description Page No.
1. PROLOGUE
2. INDIAN ARBITRATION REGIME
I History of Arbitration in India
II. Background to the Arbitration and Conciliation Act,
1996
III. Scheme of the Act
IV. Arbitration and Conciliation Amendment Act, 2015
3. INTERNATIONAL COMMERCIAL ARBITRATION –
MEANING
4. ARBITRABILITY UNDER INDIAN LAW
5. INTERNATIONAL COMMERCIAL ARBITRATION
WITH SEAT IN INDIA
I Notice of arbitration
II. Referral to arbitration
III. Interim reliefs
IV. Appointment of arbitrators
V. Challenge to appointment of arbitrator
VI Mandate of the arbitrator
VII Challenge to jurisdiction

VIII. Conduct of arbitral proceedings

IX. Hearings and Written Proceedings

X. Fast track procedure

XI. Settlement during arbitration

XII. Law of limitation applicable

XIV Interest and cost of arbitration
XV. Challenge to an award
XVI. Appeals
XVII. Enforcement and execution of the award
INTERNATIONAL COMMERCIAL ARBITRATION WITH
6. SEAT IN A RECIPROCATING COUNTRY
I. Referring parties to arbitration under part II
II. Enforcement and execution of foreign awards
III. Appealable orders
7. EMERGING ISSUES IN INDIAN ARBITRATION LAWS
I. Prospective applicability of the amendment act
II. Conundrum surrounding two Indian parties having
a foreign seat of arbitration
III Arbitrability of oppression and mismanagement cases
8. CONCLUSION
ANNEXURE
 I. Prospective Applicability of Arbitration and
Conciliation Amendment Act, 2015
II. Two Indian Parties Opting for Foreign-Seated
Arbitration: No Bar?
V. Allegations of Fraud not a Bar to Foreign Seated
Arbitration
VI. Enforcement of Foreign Awards Becomes Easier:
‘Patent Illegality’ Removed from the Scope of Public
Policy
VII. No Valid Arbitration if Clause in Unsigned
Agreement
X. Allegations of Fraud Are Arbitrable - Even in
Domestic Arbitrations in India
XI. Arbitration (Amendment) Act, 2015 Shall Apply
Retrospectively to Court Proceedings in Relation to
Arbitral Proceedings.
XIII. Employees as Arbitrators? No, Says Delhi HC
1. PROLOGUE

Increasing international trade and investment is accompanied by growth

in cross-border commercial disputes. Given the need for an efficient
dispute resolution mechanism, international arbitration has emerged as
the preferred option for resolving cross- border commercial disputes and
preserving business relationships. With an influx of foreign investments,
overseas commercial transactions, and open ended economic policies
acting as a catalyst, international commercial disputes involving India are
steadily rising. This has drawn tremendous focus from the international
community on India’s international arbitration regime.

Due to certain controversial decisions by the Indian judiciary in the last

decade, particularly in cases involving a foreign party; the international
community has kept a close watch on the development of arbitration laws
in India. The Indian judiciary has often been criticized for its interference in
international arbitrations and extra territorial application of domestic laws
in foreign seated arbitrations.

However, the latest developments in the arbitration jurisprudence

through recent court decisions clearly reflect the support of the judiciary
in enabling India to adopt best international practices. Courts have
adopted a pro-arbitration approach and a series of pro-arbitration rulings
by the Supreme Court of India (“Supreme Court”) and High Courts have
attempted to change the arbitration landscape completely for India. From
2012 to 2016, the Supreme Court delivered various landmark rulings
taking a much needed pro-arbitration approach such as declaring the
Indian arbitration law to be seat-centric; removing the Indian judiciary’s
power to interfere with arbitrations seated outside India; referring non-
signatories to an arbitration agreement to settle disputes through
arbitration; defining the scope of public policy in foreign-seated arbitration;
and determining that even fraud is arbitrable.

In furtherance of measures taken by the Indian government in support

of the ‘ease of doing business in India’, and after two aborted attempts in
2001 and 2010 to amend the arbitration law; on October 23, 2015, the
President of India promulgated the Arbitration and Conciliation
(Amendment) Ordinance, 2015 (“Ordinance”).
The Ordinance incorporated the essence of major rulings passed in the
last two decades and most of the recommendations of 246th Law
Commission Report, and have clarified major controversies that arose in
recent years.

Thereafter, on December 17, 2015 and December 23, 2015 respectively,

the Arbitration and Conciliation (Amendment) Bill, 2015 (“Bill”) was
passed by the Lok Sabha and Rajya Sabha respectively, with minor
additions to the amendments introduced by the Ordinance. On
December 31, 2015, the President of India signed the Bill and thereafter,
gazette notification was made on January 1, 2016. Accordingly, the
Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”)
came into effect, from October 23, 2015. The Amendment Act is
applicable prospectively to the arbitral proceedings commenced after
October 23, 2015.

This paper dissertation aims to summarize the position under Indian law
on international commercial arbitration (“ICA”), seated within and
outside India and discusses the recent judicial decisions in this field.
The changes introduced by the Amendment Act are a step in the right
direction towards ensuring an arbitration friendly nation, and have been
captured in this paper.
2. Indian Arbitration Regime
I. History of Arbitration in India

Until the Arbitration and Conciliation Act, 1996 (“Act”), the law governing
arbitration in India consisted mainly of three statutes:

i. The Arbitration (Protocol and Convention) Act, 1937 (“1937 Act”)

ii. The Indian Arbitration Act, 1940 (“1940 Act”) and

iii. The Foreign Awards (Recognition and

Enforcement) Act, 1961 (“1961 Act”)

The 1940 Act was the general law governing arbitration in India and
resembled the English Arbitration Act of 1934.

II. Background to the Arbitration and

Conciliation Act, 1996
To address raising concerns and with a primary purpose to encourage
arbitration as a cost-effective and time-efficient mechanism for the
settlement of commercial disputes in a national and international sphere,
India in 1996, adopted a new legislation modeled on the “Model Law” in the
form of the Arbitration and Conciliation Act, 1996 (“Act”).

The Act was also aimed to provide a speedy and efficacious dispute
resolution mechanism in the existing judicial system which was marred
with inordinate delays and backlog of cases.

III. Scheme of the Act

The Act has three significant parts. Part I of the Act deals with domestic
arbitrations and ICA when the arbitration is seated in India. Thus, an
arbitration seated in India between one foreign party and an Indian party,
though defined as ICA is treated akin to a domestic arbitration.

Part II of the Act deals only with foreign awards1 and enforcement under the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
1958 (“New York Convention”) and Convention on the Execution of Foreign
Arbitral Awards, 1927 (“Geneva Convention”). Part III of the Act is a
statutory embodiment of conciliation provisions.
In Part I, Section 8 regulates the commencement of arbitration in India,
Sections 3, 4, 5, 6, 10 to 26, and 28 to 33 regulate the conduct of
arbitration, Section 34 regulates the challenge to the award and Sections 35
and 36 regulate the recognition and enforcement of the award. Sections 1, 2,
7, 9,27, 37 and 38 to 43 are ancillary provisions that either support the
arbitral process or are structurally necessary.

The courts have found that Chapters III to VI, specifically, Section 10 to 33
of Part 1 of the Act, contain curial or procedural law which parties would
have autonomy to opt out from. The other Chapters of Part I of the Act form
part of the proper law, thus making those provisions non-derogable by
parties subjected to Part I, even by contract.

Part II, on the other hand regulates arbitration only in respect to the
commencement and recognition / enforcement of a foreign award and no
provisions under the same can be derogated by a contract between two
parties.

The objective of the Act is to provide a speedy and cost-effective dispute

resolution mechanism which would give parties finality in their disputes. In
1996, the Act was passed with a view to bring in winds of change, but fell
into a chasm of its own. A number of decisions from the courts slowly but
surely ensured that the preferred seat in any cross-border contract was
always a heavily negotiated point and, more often than not, ended up being
either Singapore, New York, or London (the established global arbitration
centers). Foreign investors and corporates doing business in India were just
not ready to risk with the Indian legal system.

IV. Arbitration and Conciliation Amendment

Act, 2015
The modifications introduced by the Amendment Act have made
significant changes to the Act and are in the right direction to clarify
several issues with regard to the objectives of the Act.

The Amendment Act provides with strict timelines for completion of the
arbitral proceedings along with the scope for resolving disputes by a fast
track mechanism.
The Amendment Act has introduced insertion of new provisions in
addition to amendments to the existing provisions governing the process
of appointment of an arbitrator. It also clarified the grounds to challenge
an arbitrator for the lack of independence and impartiality. As a welcome
move, the Amendment Act provides for assistance from Indian courts, even
in foreign-seated arbitrations in the form of interim relief before the
commencement of the arbitration. Further, the introduction ‘cost follow
the event’ regime in the Act has been inserted to bring the Act in line with
inter- national standards. The process of enforcement and execution under
the Act has also been streamlined so that challenge petitions do not
operate as an automatic stay on the execution process.

Below are the snapshots to the major amendments introduced by the

Amendment Act:

A. Pre-arbitral proceedings

i. Independence and impartiality

 Applications for appointment of an arbitrator should be

endeavored to be disposed of within a period of (60) sixty days from
date of service of notice on the opposite party.

 Detailed schedule on ineligibility of arbitrators have been put in

place.

ii. Interim reliefs

 Flexibility has been granted to parties with foreign-seated

arbitrations to approach Indian courts for aid in foreign seated
arbitration;

 Section 9 applications to be made directly before High Court in

case of international commercial arbitrations seated in India as
well as outside.

 Interim reliefs granted by arbitral tribunals seated in India are

deemed to be order of courts and are thus enforceable in the new
regime.

 Post grant of interim relief, arbitration pro- ceedings must

commence within 90 days or any further time as determined by
the court.
B. Arbitral proceedings

i. Expeditious disposal

 A twelve-month timeline for completion of arbitration seated in

India has been pre- scribed.

 Expeditious disposal of applications along with indicative timelines for filing

arbitration applications before courts in relation to interim reliefs,
appointment of arbitrator, and challenge petitions;

 Incorporation of expedited/fast track arbitration procedure to

resolve certain disputes within a period of six months.

ii. Costs

 Detailed provisions have been inserted in rela- tion to

determination of costs by arbitral tribunals seated in India;
introduction of ‘costs follow the event’ regime.

C. Post-arbitral proceedings

i. Challenge and enforcement

 In ICA seated in India, the grounds on which an arbitral award can

be challenged has been narrowed;

 Section 34 petitions to be filed directly before High Court in case of

international commercial arbitrations seated in India.

 Section 34 petition to be disposed of expedi- tiously and in any event

within a period of one year from date on which notice is served on
opposite party.

 Upon filing a challenge, under Section 34 of the Act, there will not
be any automatic stay on the execution of award – and more
specifically, an order has to be passed by the court expressly staying
the execution proceedings.
3. International Commercial Arbitration –
Meaning
Section 2(1)(f) of the Act defines an ICA as a legal relationship which must be
considered commercial,5 where either of the parties is a foreign national or
res- ident or is a foreign body corporate or is a company, association or body
of individuals whose central management or control is in foreign hands.
Thus, under Indian law, an arbitration with a seat in India, but involving a
foreign party will also be regarded as an ICA, and hence subject to Part I of
the Act. Where an ICA is held outside India, Part I of the Act would have no
applicability on the parties (save the stand alone provisions introduced by
the Amendment Act unless excluded by the parties, as discussed later) but
the par- ties would be subject to Part II of the Act.

The Amendment Act has deleted the words ‘a company’ from the purview
of the definition thereby restricting the definition of ICA only to the body
of individuals or association. There- fore, by inference, it has been made
clear that if a company has its place of incorporation as India then
central management and control would be irrelevant as far as its
determination of being an “international commercial arbitration” is
concerned.

The scope of this section was determined by the Supreme Court in the
case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.
wherein, despite TDM Infrastructure Pvt. Ltd. having a foreign control, it
was concluded that, “a company incorporated in India can only have
Indian nationality for the purpose of the Act.”

Thus, though the Act recognizes companies controlled by foreign hands

as a foreign body corporate, the Supreme Court has excluded its
application to companies registered in India and having Indian
nationality. Hence, in case a corporation has dual nationality, one based
on foreign control and other based on registration in India, for the
purpose of the Act, such corporation would not be regarded as a foreign
corporation.
4. Arbitrability under Indian Law

Arbitrability is one of the issues where the contractual and jurisdictional

facets of international commercial arbitration meet head on. It involves
the simple question of what type of issues can and cannot be submitted
to arbitration.

In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. the Supreme Court
discussed the concept of arbitrability in detail and held that the term
‘arbitrability’ had different meanings in different contexts: (a) disputes
capable of being adjudicated through arbitration, (b) disputes covered by
the arbitration agreement, and (c) disputes that parties have referred to
arbitration. It stated that in principle, any dispute than can be decided by a
civil court can also be resolved through arbitration. However, certain
disputes may, by necessary implication, stand excluded from resolution by
a private forum. Such non-arbitrable disputes include:
(i) disputes relating to rights and liabilities which give rise to or arise
out of criminal offences;
(ii) matrimonial disputes relating to divorce, judicial separation,
restitution of conjugal rights, or child custody;
(iii) guardianship matters;
(iv) insolvency and winding up matters;
(v) testamentary matters (grant of probate, letters of administration
and succession certificate); and
(vi) eviction or tenancy matters governed by special statutes where the
tenant enjoys statutory protection against eviction and only the
specified courts are conferred jurisdiction to grant eviction or decide
the disputes.

Also, the Supreme Court has held in N. Radhakrishnan v. M/S Maestro

Engineers that, where fraud and serious malpractices are alleged, the
matter can only be settled by the court and such a situation cannot be
referred to an arbitrator. The Supreme Court also observed that fraud,
financial malpractice and collusion are allegations with criminal
repercussions and as an arbitrator is a creature of the contract, he has
limited jurisdiction. The courts are more equipped to adjudicate serious
and complex allegations and are competent in offering a wider range of
 reliefs to the parties in dispute.
But the Supreme Court in Swiss Timing Limited v. Organizing Committee,
Commonwealth Games 2010, Delhi and World Sport Group (Mauritius) Ltd. v.
MSM Satellite (Singapore) Pte. Ltd. held that allegations of fraud are not a
bar to refer parties to a foreign-seated arbitration and that the only
exception to refer parties to foreign-seated arbitration is those which are
specified in Section 45 of Act. For example in cases where the arbitration
agreement is either
(i) null and void; or
(ii) inoperative; or
(iii) incapable of being performed. Thus, it seemed that though
allegations of fraud are not arbitrable in ICA’s with a seat in India
the same bar would not apply to ICA’s with a foreign seat.

The decision of the Supreme Court in A Ayyasamy v. A Paramasivam &

Ors, has clarified that allegations of fraud are arbitrable as long as it is
in relation to simple fraud. In A Ayyasamy , the Supreme Court held that:
(a) allegations of fraud are arbitrable unless they are serious and complex
in nature; (b) unless fraud is alleged against the arbitration agreement,
there is no impediment in arbitrability of fraud; (c) the decision in Swiss
Timing did not overrule Radhakrishnan. The judgment differentiates
between ‘simplicitor fraud’ and ‘serious fraud’, and concludes while
‘serious fraud’ is best left to be determined by the court, ‘simplicitor
fraud’ can be decided by the arbitral tribunal.

However, in Vimal Shah & Ors. v Jayesh Shah & Ors, the Supreme Court
has held that disputes arising out of Trust Deeds and the Indian Trusts
Act, 1882 cannot be referred to arbitration.

6. International Commercial Arbitration

with seat in India
As per the 2015 QMUL International Arbitration Survey, the five
most preferred and widely used seats for international commercial
arbitration are London, Paris, Hong Kong, Singapore, and Geneva.
For instance, out of all disputes submitted to SIAC, one of the
highest number of filings were generated from India. Despite an
increasing number of Indian parties opting for arbitration to resolve
their disputes, the number of such international arbitrations with
seat in India has not increased significantly.
The laws applicable to ICA when seat of arbitration is India are
discussed in detail below.

I. Notice of arbitration
Arbitration is said to have commenced when the notice of arbitration
requires the other party to take steps in connection with the
arbitration or do something on his part in the matter of arbitration.
Under Section 21 of the Act, a notice of arbitration has to be served to
the other party, requesting that the dispute be referred to arbitration.
The day on which the respondent receives the notice, arbitral
proceedings commences under the Act. In a Notice of Arbitration, a party
communicates: a) an intention to refer the dispute to arbitration; and
b) the requirement that other party should do something on his part in
that regard. This will generally suffice to define the commencement of
arbitration under the Act.

Applicability of Amendment Act

The date of commencement of the arbitration in accordance with Section
21 of the Act is crucial with regards the applicability of the Amendment
Act.
In the event, the date of commencement is after October 23, 2015, the
provisions of the Amendment Act will be applicable, as against the Act
with respect to arbitral proceedings.

II. Referral to arbitration

Under Part I, the courts can refer the parties to arbitration if the subject
matter of the dispute is governed by the arbitration agreement. Section 8
of the Act provides that if an action is brought before a judicial authority,
which is subject-matter of an arbitration, upon an application by a
party, the judicial authority is bound to refer the dispute to arbitration.
It is important to note that the above application must be made by the
party either before or at the time of making his first statement on the
substance of the dispute and the application shall be accompanied by a
duly certified or original copy of the arbitration agreement.

Applicability of Amendment Act

The Amendment Act narrows the scope of the judicial authority’s power to
examine the prima facie existence of a valid arbitration agreement,
thereby reducing the threshold to refer a matter before the court for an
arbitration for purposes of arbitrations commenced on or after October
23, 2015.

More importantly, taking heed from the judgment of the Supreme Court in
Chloro Controls, which effectively applied only to foreign-seated arbitrations,
the definition of the word ‘party’ to an arbitration agreement has been
expanded under the Amendment Act to also include persons claiming
through or under such party.

Thus, even non-signatories to an arbitration agreement, insofar as domestic

arbitration or Indian seated ICA, may also participate in arbitration
proceedings as long as they are proper and necessary parties to the
agreement.

III. Interim reliefs

Under the Act, the parties can seek interim relief from courts and arbitral
tribunals under Section 9 and 17 respectively.

A party may, before, or during arbitral proceedings or at any time after the
making of the Arbitral Award but before it is enforced, apply to a court for
seeking interim measures and protections including interim injunctions
under Section 9 of the Act.

The Arbitral Tribunal in accordance with Section 17 can also provide

interim measures of protection or ask a party to provide appropriate
security in connection with the matter of dispute, as is found appropriate
during the course of the arbitral proceedings. However the powers of the
Arbitral Tribunal were narrow compared to the powers of the court under
Section 9 of the Act.
 IV. Applicability of Amendment Act
The Amendment Act has made significant changes which will affect the
granting of interim relief in an arbitration proceedings commenced after
October 23, 2015.

A. Interim reliefs under Section 9

a. If an arbitral tribunal has been constituted, an application for
interim protection under Section 9 of the Act will not be entertained
by the court unless the court finds that circumstances exist which
may not render the remedy provided under Section 17 inefficacious.

b. Post the grant of interim protection under Section 9 of the Act, the
arbitral proceedings must commence within a period of 90 (ninety)
days from the date of the interim protection order or within such time
as the court may determine.

B. Interim reliefs under Section 17

Section 17 has been amended to provide the Arbitral Tribunal the same
powers as a ‘civil court’ in relation to the grant of interim measures.
Notably, the Arbitral Tribunal would have powers to grant interim relief
post award but prior to its execution. Further, the order passed by an
Arbitral Tribunal in arbitrations seated in India will be deemed to be an
order of the court and will be enforceable under the Code of Civil
Procedure, 1908 (“CPC”) as if it were an order of the court, which pro- vides
clarity on its enforceability.

The intention appears to be vest significant powers with the Arbitral

Tribunal and reduce the burden and backlog before the courts. There has
been extensive confusion on the extent and scope of arbitrator’s powers to
grant interim relief, and enforceability of such orders has proven difficult.
This issue has been aptly addressed by making the enforceability of orders
issued under Section 9 and 17 of the Act identical in case of domestic and
international commercial arbitrations seated in India. However, in certain
situations, a party will be required to obtain an order of interim relief from a
court only (e.g. injunctive relief against encashment of a bank guarantee).
V. Appointment of arbitrators
The parties are free to agree on a procedure for appointing the arbitrator(s).
The agreement can provide for a tribunal consisting of three arbitrators and
each party will appoint one arbitrator and the two appointed arbitrators will
appoint the third arbitrator who will act as a presiding arbitrator. If one of the
parties does not appoint an Arbitrator within 30 days, or if two appointed
Arbitrators do not appoint third Arbitrator within 30 days, the party can
request Chief Justice of India (“CJI”) to appoint an Arbitrator in case of
international commercial arbitrations. The CJI can authorize any person or
institution to appoint an Arbitrator. Some High Courts have authorized
District Judge to appoint an Arbitrator. In case of domestic arbitrations,
application has to be made to Chief Justice of respective High Court within
whose jurisdiction the parties are situated.

VI. Applicability of Amendment Act

If one of the parties does not appoint an arbitrator within 30 days, or if two
appointed arbitrators do not appoint third arbitrator within 30 days, the
party can request the Supreme Court or relevant High Court (as
applicable) to appoint an arbitrator. The Supreme Court/High Court can
authorize any person or institution to appoint an arbitrator. In case of an
ICA, the application for appointment of arbitrator has to be made to the
Supreme Court and in case of a domestic arbitration, the respective High
Courts having territorial jurisdiction will appoint the Arbitrator.

The Amendment Act empowers the Supreme Court in an India-seated ICA

and High Courts in domestic arbitration to examine the existence of an
arbitration agreement at the time of making such appointment.

This should be noted against the threshold contained in a Section 8

application for referring a dispute to arbitration which empowers a court
only to merely examine the prima facie existence of an arbitration
agreement. A recent Delhi High Court decision has emphasized that the
courts, while deciding an application for appointment of an arbitrator
must confine their enquiry to the existence of an arbitration agreement.
The question of arbitrability of the issue would be decided by the arbitral
tribunal and not the courts.
The application for appointment of the arbitrator before the Supreme
Court or High Court, as the case may be, is required to be disposed of as
expeditiously as possible and an endeavor shall be made to do so within a
period of 60 days; such appointment would not amount to delegation of
judicial power and is to be treated as an administrative decision.

There has always been a concern in India with respect to the time taken
for appointment of arbitrators due to the existing jurisprudence and
procedure. The time-frame for such appointment was usually 12-18
months. This amendment seeks to address this delay by introducing a
timeline and clarifying the procedure of appointment to be an exercise of
administrative power by the courts.

VII. Challenge to appointment of arbitrator

An arbitrator is expected to be independent and impartial. If there are
circumstances due to which his independence or impartiality can be
challenged, he must disclose the circumstances before his appointment.

Appointment of an arbitrator can be challenged only if –

a. Circumstances exist that give rise to justifiable doubts as to his

independence or impartiality; or,

b. He does not possess the qualifications agreed upon by the parties.

The challenge to appointment has to be decided by the arbitrator

himself. If he does not accept the challenge, the proceedings can
continue and the arbitrator can make the arbitral award.

However, in such cases, application for setting aside the arbitral award can
be made to the court under Section 34 of the Act. If the court agrees to the
challenge, the arbitral award can be set aside. Thus, even if the arbitrator
does not accept the challenge to his appointment, the other party cannot
stall further arbitration proceedings by rushing to the court.
The arbitration can continue and challenge can be made in court only after the
arbitral award is made.
VIII. Applicability of Amendment Act
The Amendment Act provides a form for disclosure in the new Fifth
Schedule. Such disclosure is in accordance with internationally
accepted practices to be made applicable for arbitration proceedings
commenced on or after October 23, 2015.

In the Amendment Act, the legislators have listed scenarios in Seventh

Schedule which may result in justifiable doubts as to the
independence and impartiality of an arbitrator such as ‘relationship
with the parties, counsel or the subject matter of the dispute, such as
that of the employee of one of the parties’.

There is however, a decision of Punjab and Haryana High Court which has
held that there is no bar on a former employee to sit as an arbitrator in a
dispute. This is an indicative list in addition to disqualifying situations that
have been affirmed by case law such as the holding of the Supreme Court
that the arbitrator cannot be qualified to arbitrate if he is the part of the
contract.

IX. Mandate of the arbitrator

An encouraging position of Indian arbitration law is the jurisprudence

relating to the mandate of an arbitrator. The Supreme Court in its decision
in NBCC Ltd. v. J.G. Engineering Pvt. Ltd. has laid down that the mandate of
the arbitrator expires in case an award is not delivered within the time
limit stipulated by the parties in the arbitration agreement.

X. Applicability of Amendment Act

The Amendment Act has clarified the lacuna that existed since the
inception of the Act. The provision earlier only dealt with the expiration of
the man- date of an arbitrator and did not deal with the procedure for re-
appointment. For arbitrations commencing after October 23, 2015, a
fresh application for appointment need not be filed in case of
termination and substitution may be made, however the practical
application is yet to be tested.
 This will surely help a party to ensure a time bound arbitration process
while entering into a contract and in compelling the arbitrator to deliver
his award within the stipulated time- lines. At the same time it equally
becomes important to stipulate realistic timeliness for conclusion of an
arbitration process so as to avoid forced expiry of the arbitrator’s
mandate despite best efforts to deliver an award in a timely fashion.

XI. Challenge to jurisdiction

Under Section 16 of the Act, an Arbitral Tribunal has competence to rule

on its own jurisdiction, which includes ruling on any objections with
respect to the existence or validity of the arbitration agreement. The doctrine
of ‘competence-competence’ confers jurisdiction on the Arbitrators to decide
challenges to the arbitration clause itself. In S.B.P. and Co. v. Patel
Engineering Ltd. and Anr., the Supreme Court has held that where the
Arbitral Tribunal was constituted by the parties without judicial
intervention, the Arbitral Tribunal could determine all jurisdictional
issues by exercising its powers of competence-competence under Section
16 of the Act.

XII. Conduct of arbitral proceedings

A. Flexibility in Respect of Procedure, Place and Language

The Arbitral Tribunal should treat the parties equally and each party should
be given full opportunity to present its case. The Arbitral Tribunal is not
bound by the CPC or the Indian Evidence Act, 1872. The parties to
arbitration are free to agree on the procedure to be followed by the Arbitral
Tribunal. If the parties do not agree to the procedure, the procedure will be
as determined by the Arbitral Tribunal.

The Arbitral Tribunal has complete powers to decide the procedure to be

followed, unless parties have otherwise agreed upon the procedure to be
followed. The Arbitral Tribunal also has powers to determine the
admissibility, relevance, materiality and weight of any evidence. Place of
arbitration will be decided by mutual agreement. However, if the parties
do not agree to the place, the same will be decided by the tribunal.
Similarly, the language to be used in arbitral proceedings can be mutually
agreed. Otherwise, the Arbitral Tribunal can decide on the same.

B. Submission of Statement of Claim and Defense

The Claimant should submit the statement of claims, points of issue and
the relief or remedy sought. The Respondent should state his defense in
respect of these particulars. All relevant documents must be submitted.
Such claim or defense can be amended or supplemented at any time.

Applicability of Amendment Act

The Amendment Act now provides for an application for

counterclaim/set-off to be adjudicated upon in the same arbitration
proceeding without requiring a fresh one. The Arbitral Tribunal, under
the amended Section 25 of the Act, can also exercise its discretion in
treating the right of defendant to file the statement of defence as forfeited
under specified circumstances.

XIII. Hearings and Written Proceedings

After submission of pleadings, unless the parties agree otherwise, the

Arbitral Tribunal can decide whether there will be an oral hearing or
whether proceedings can be conducted on the basis of documents and
other materials. However, if one of the parties requests the Arbitral
Tribunal for a hearing, sufficient advance notice of hearing should be
given to both the parties. Thus, unless one party requests, oral hearing is
not mandatory.

Applicability of Amendment Act

For the expeditious conclusion of the arbitration proceedings a proviso

has been introduced by the Amendment Act on the conduct of ‘oral
proceedings’ and furnishing of ‘sufficient cause’ in order to seek
adjournments. The amended provision has also made a room for the
tribunal to impose costs including exemplary costs in case the party fails
to provide sufficient reasoning for the adjournment sought.

By the Amendment Act, the time limit for conduct of the arbitral
proceedings have been streamlined and arbitrators are mandated to
complete the entire arbitration proceedings within a span of 12 (twelve)
months from the date the Arbitral Tribunal enters upon the reference.
However, a 6 (six) months extension may be granted to the arbitrator by
mutual consent of the parties. Beyond 6 (six) months, any further
extension may be granted to the arbitrator at the discretion of the court
or else the proceedings shall stand terminated. An application for
extension of time towards completion of arbitral proceedings has to be
disposed of expeditiously. There is also a provision made for awarding
additional fees, as consented upon by the parties, to them for passing
the award within the time span of 6 months.

XIV. Fast track procedure

The Amendment Act has inserted new provisions to facilitate an expedited
settlement of disputes based solely on documents subject to the
agreement of the parties. The tribunal for this purpose consists only of a
sole arbitrator who shall be chosen by the parties.

For the stated purpose the time limit for making an award under this
section has been capped at 6 months from the date the Arbitral Tribunal
enters upon the reference.

Parties can before constitution of the Arbitral Tribunal, agree in writing to

conduct arbitration under a fast track procedure. Under the fast track
procedure, unless the parties otherwise make a request for oral hearing or if
the arbitral tribunal considers it necessary to have oral hearing, the Arbitral
Tribunal shall decide the dispute on the basis of written pleadings,
documents and submissions filed by the parties without any oral hearing.

XV. Settlement during arbitration

It is permissible for parties to arrive at a mutual settlement even when the

arbitration proceedings are going on. In fact, even the tribunal can make
efforts to encourage mutual settlement. If parties settle the dispute by
mutual agreement, the arbitration shall be terminated. However, if both
parties and the Arbitral Tribunal agree, the settlement can be recorded in
the form of an arbitral award on agreed terms, which is called consent
award. Such arbitral award shall have the same force as any other arbitral
award.

Under Section 30 of the Act, even in the absence of any provision in the
arbitration agreement, the Arbitral Tribunal can, with the express consent of
the parties, mediate or conciliate with the parties, to resolve the disputes
referred for arbitration.

XVI. Law of limitation applicable

The Limitation Act, 1963 is applicable to arbitrations under Part I. For this
purpose, date on which the aggrieved party requests other party to refer
the matter to arbitration shall be considered. If on that date, the claim is
barred under Limitation Act, the arbitration cannot continue. If arbitration
award is set aside by court, time spent in arbitration will be excluded for the
purposes of Limitation Act. This enables a party to initiate a fresh action in
court or fresh arbitration without being barred by limitation.

XVII. Arbitral award

A decision of an Arbitral Tribunal is termed as ‘Arbitral Award’. An arbitral
award includes interim awards. But it does not include interim orders
passed by arbitral tribunals under Section 17. Arbitrator can decide the
dispute “injustice and in good faith” only if both the parties expressly
authorize him to do so. The decision of Arbitral Tribunal will be by majority.
The Arbitral Award shall be in writing and signed by all the members of the
tribunal.

It must state the reasons for the award unless the parties have agreed that
no reason for the award is to be given. The Award should be dated and the
place where it is made should be mentioned (i.e. the seat of arbitration). A
copy of the award should be given to each party. Arbitral Tribunals can also
make interim awards.

XIII. Interest and cost of arbitration

The interest rate payable on damages and costs awarded, unless the
arbitral award otherwise directs, shall be 18 percent per annum, calculated
from the date of the award to the date of payment.

Applicability of Amendment Act

The interest rate payable on damages and costs awarded, as per the
Amendment Act shall, unless the arbitral award otherwise directs, shall be
2 percent higher than the current rate of interest prevalent on the date of
award, from the date of award to the date of payment.

A. Regime for Costs (Introduced by the Amendment Act)

Cost of arbitration means reasonable cost relating to fees and expenses

of Arbitrators and witnesses, legal fees and expenses, administration fees
of the institution supervising the arbitration and other expenses in
connection with arbitral proceedings. The tribunal can decide the cost
and share of each party. If the parties refuse to pay the costs, the Arbitral
Tribunal may refuse to deliver its award. In such case, any party can
approach the court. The court will ask for a deposit from the parties and
on such deposit, the award will be delivered by the tribunal. Then court
will decide the cost of arbitration and shall pay the same to Arbitrators.
Balance, if any, will be refunded to the party.

The regime for costs has been established which has applicability to both
arbitration proceedings as well as the litigations arising out of
arbitration.

The explanation defining the term ‘costs’ for the purpose of this sub-
section has been added. The circumstances which have to be taken into
account while determining the costs have been laid down in the sub-
section (3) of the freshly added section (Section 31A). In a nutshell this
provision is added to determine the costs incurred during the
proceedings including the ones mentioned under Section 31(8) of the
Act.

XIX. Challenge to an award

Section 34 provides for the manner and grounds for challenge of the
arbitral award. The time period for the challenge is before the expiry of 3
months from the date of receipt of the arbitral award (and a further
period of 30 days on sufficient cause being shown for condonation of
delay). If that period expires, the award holder can apply for execution of
the arbitral award as a decree of the court. But as long as this period has
not elapsed, enforcement is not possible.
Under Section 34 of the Act, a party can challenge the arbitral award
on the following grounds-

i. the parties to the agreement are under some incapacity;

ii. the agreement is void;

iii. the award contains decisions on matters beyond the scope of the
arbitration agreement;

iv. the composition of the arbitral authority or the arbitral procedure

was not in accordance with the arbitration agreement;

v. the award has been set aside or suspended by

a competent authority of the country in which it was made;

vi. the subject matter of dispute cannot be settled by arbitration

under Indian law; or

vii. the enforcement of the award would be contrary to Indian public

policy.

Applicability of Amendment Act

The Amendment Act has added an explanation to Section 34 of the Act.
In the explanation, public policy of India has been clarified to mean only
if:

(a) the making of the award was induced or affected by fraud or

corruption or was in violation of Section 75 or 81; or

(b) it is in contravention with the fundamental policy of Indian law; or

(c) it is in contravention with the most basic notions of the morality or

justice.
 Process for Challenge & enforcement

The Amendment Act clarifies that an award will not be set aside by the
court merely on erroneous application of law or by re-appreciation of
evidence. A court will not review the merits of the dispute in deciding
whether the award is in contravention with the fundamental policy of
Indian law. The Amendment Act has also introduced a new section
providing that the award may be set aside if the court finds that it is vitiated
by patent illegality which appears on the face of the award in case of
domestic arbitrations. For ICA seated in India, ‘patent illegality’ has been keep
outside the purview of the arbitral challenge.

Domestic Award/ICA Enforcement of Award a Appeals

seated in India as a decree

3 months + 30
days of the date of
receipt of District court or HC (as
award/date of applicable), where
correction subject matter of
dispute lies or where
respondent resides or
carries on business in
case of domestic award
Application to set
aside the award
Appeals
A challenge under this section can be filed only after providing prior
notice to the opposite party.

A challenge has to be disposed of expeditiously and in any event within a

period of one year from the date of the prior notice referred above. The
amended section also states that where the time for making an application
under section 34 has expired, then subject to the provisions of the CPC,
the award can be enforced.

Under the Act, there was an automatic stay once an application to set
aside the award under Section 34 of the Act was filed before the Indian
courts.

The Amendment Act now requires parties to file an additional

application and specifically seek a stay by demonstrating the need for
such stay to an Indian court. However, there is lack of clarity on
whether a challenge initiated after 23 October 2015 to an arbitral
award, passed prior to that date, would result in an automatic stay
because of conflicting High Court decisions on the same.
 GROUNDS FOR
CHALLENGE
Domestic Award/ICA seated in India
Pre-Amendment
a. Party was under some incapacity;
b. Arbitration agreement not valid under the
governing law of the agreement;
c. Applicant not given proper notice
and not able to present its case;
d. Award deals with a dispute not contemplated
by terms of the submission to arbitration, or
beyond the scope of the submission to
arbitration;
e. Composition of Arbitral Tribunal or the
arbitral procedure not in accordance with
the agreement or not in accordance with Part
I of the Act;
f. Subject-matter of the dispute not
capable of settlement by arbitration
under the law;
g. Award in conflict with the public policy of India
(if induced or affected by fraud or corruption
or was in vio- lation of confidentiality
requirements of a conciliation or where a
confidential settlement proposal
in a conciliation is introduced in an arbitration).
TIME -LINES FOR
CHALLENGE
Pre- Amendment
NA
Post-Amendment
Ground (a) – (f) in the pre-amendment era has
been retained with the addition of the following:
a. In the explanation to Section 34 of the Act,
public policy of
India has been clarified to mean only if:
(a) the making of the award was induced or
affected by fraud or corruption or was in
violation of Section 75 or 81; or (b) it is in
contravention with the fundamental policy of
Indian law; or (c) it is in contravention with the
most basic notions of the morality or justice;
b. A new section has been inserted providing
that the award may be set aside if the court
finds it vitiated by patent illegality which
appears on the face of the award. For
international commercial arbitrations
seated in India,
‘patent illegality’ has been keep outside
the purview of the arbitral challenge;
c. An award will not be set aside by the court
merely on erroneous application of law or by re-
appreciation of evidence;
d. A court will not review the merits of the dispute
in deciding whether the award is in
contravention with the fundamental policy of
Indian law.
Post-Amendment
Challenge can be filed only after providing prior
notice to the opposite party and has to be
disposed of expeditiously and in any event within
a period of one year from the date of the prior
notice.
XVI. Appeals
Only in exceptional circumstances, a court can be approached under the
Act. The aggrieved party can approach the court only after arbitral award
is made or in case of an order passed under Section 17 of the Act, after
the order is passed. Appeal to court is now permissible only on certain
restricted grounds.

An appeal lies from the following orders and from no others to the court
authorized by law to hear appeals from original decrees of the court
passing the order

i. granting or refusing to grant any measure under Section 9;

ii. setting aside or refusing to set aside an Arbitral Award under Section 34

However, a three judge Bench of the Supreme Court has recently held in
Centrotrade Minerals & Metal v. Hindustan Copper that parties may
provide for an appeal to lie from the award to an appellate arbitral tribunal.
Such a clause was held not to be contrary to the laws of the country and
thus enforceable. It appears that the scope of appeal in such cases is far
wider than an appeal to a court.

Applicability of Amendment Act

The Amendment Act has widened the ambit of appeal by including the order
refusing to refer the parties to arbitration under Section 8 of the Act.

Appeal shall also lie to a court from an order of the Arbitral Tribunal-

i. accepting the plea referred to in sub-section (2) or sub- section (3) of Section
16; or

ii. granting or refusing to grant an interim meas- ure under Section 17.
Moreover, no second appeal shall lie from an order passed in appeal under
this Section but nothing in Section 37 shall affect or take away any right
to appeal to the Supreme Court.
XVII. Enforcement and execution of the award
In India, the enforcement and execution of arbitral awards both domestic
and foreign are governed by the Act read with the CPC. While the former
lays down the substantive law governing enforceability and execution of an
award, the latter deals with the procedures required to be followed when
seeking execution of an award.

According to Section 35 of the Act, an arbitral award shall be final and

binding on the parties and persons claiming under them. Thus an arbitral
award becomes immediately enforceable unless challenged under Section
34 of the Act.

When the period for filing objections has expired or objections have been
rejected, the award can be enforced under the CPC in the same manner as
if it were a decree passed by a court of law.

An ex parte award passed by an Arbitral Tribunal under Section 28 of the

Act is also enforceable under Section 36. Even a settlement reached by the
parties under Section 30 of the Act can be enforced under Section 36 of the
Act as it were a decree of the court.

A. Institution of Execution Petition

For execution of an arbitral award the procedure as laid down in Order XXI
of the CPC has to be followed. Order XXI of the CPC lays down the detailed
procedure for enforcement of decrees. It is pertinent to note that Order XXI
of the CPC is the longest order in the schedule to the CPC consisting of 106
Rules.

Where an enforcement of an arbitral award is sought under Order XXI CPC

by a decree- holder, the legal position as to objections to it is clear. At the
stage of execution of the arbitral award, there can be no challenge as to its
validity. The court executing the decree cannot go beyond the decree and
between the parties or their representatives. It ought to take the decree
according to its tenor and cannot entertain any objection that the decree was
incorrect in law or in facts.
All proceedings in execution are commenced by an application for execution.
The execution of a decree against property of the judgment debtor can be
effected in two ways –

i. Attachment of property; and

ii. Sale of property of the judgment debtor

The courts have been granted discretion to impose conditions prior to

granting a stay, including a direction for deposit. The amended section also
states that where the time for making an application under section 34 has
expired, then subject to the provisions of the CPC, the award can be enforced.

Also, the mere fact that an application for setting aside an arbitral award has
been filed in the court does not itself render the award unenforceable unless
the court grants a stay in accordance with the provisions of sub-section 3, in
a separate application. It is the discretion of the court to impose such
conditions as it deems fit while deciding the stay application.

B. Attachment of Property

‘Attachable property’ belonging to a judgment debtor may be divided into

two classes: (i) moveable property and (ii) immoveable property. If the
property is immoveable, the attachment is to be made by an order
prohibiting the judgment debt or from transferring or charging the property
in any way and prohibiting all other persons from taking any benefit from
such a transfer or charge. The order must be proclaimed at some place on
or adjacent to the property and a copy of the order is to be affixed on a
conspicuous part of the property and upon a conspicuous part of the
courthouse.

Where an attachment has been made, any private transfer of property

attached, whether it be movable or immovable, is void as against all
claims enforceable under the attachment.

If during the pendency of the attachment, the judgment debtor

satisfies the decree through the court the attachment will be
deemed to be withdrawn. Otherwise the court will order the property
to be sold.
C. Sale of attached property
Order XXI lays down a detailed procedure for sale of attached property
whether movable or immovable. If the property attached is a move- able
property, which is subject to speedy and natural decay, it may be sold at
once under Rule 43. Every sale in execution of a decree should be con-
ducted by an officer of the court except where the property to be sold is a
negotiable instrument or share in a corporation which the court may
order to be sold through a broker.
 7. International Commercial Arbitration
with seat in a reciprocating country

Post the decision of the Supreme Court in BALCO , Indian arbitration law
has been made seat-centric. The Amendment Act clarifies that Part I of the
Act will not be applicable in foreign seated arbitrations, save and except the
standalone provisions discussed below in the table.

Pre Balco Post-Balco Amendment Act

(Bhatia Regime)
Unless impliedly or Part I of the Act will not Part I of the Act will not
expressly excluded apply in case of foreign apply in case of foreign
by the parties, Part seated arbitration. The seated arbitration except
I of the Act will decision was given Sections 9, 27 and 37
apply even to a prospective effect and unless a contrary intention
foreign seated there- fore applied to only appears in the arbitration
arbitration. arbitration agreements agreement.
executed on or after
September 6, 2012. If the The Amendment Act is
arbitration agreement was applicable prospectively
executed prior to with effect from October
September 6, 2012, 23, 2015 (i.e. the
necessary modifications commencement of the
would have to be made in arbitral proceedings
the arbitration agreement should be on or after
in order to be governed by October 23, 2015)
the ruling in
BALCO.

Part II of the Act is applicable to all foreign awards sought to be enforced

in India and to refer parties to arbitration when the arbitration has a seat
outside India. Part II is divided into two chapters, Chapter 1 being the
most relevant one as it deals with foreign awards delivered by the
signatory territories to the New York Convention which have reciprocity
with India, while Chapter 2 is more academic in nature as it deals with
foreign awards delivered under the Geneva Convention.

A foreign award under Part II is defined as (i) an arbitral award (ii) on

differences between per- sons arising out of legal relationships, whether
contractual or not,
(iii) considered as commercial under the law in force in India, (iv) made on or
after 11th day of October, 1960 (v) in pursuance of an agreement in writing
for arbitration to which the convention set forth in the first schedule applies;
and (vi) in one of such territories as the Central Government, being satisfied
that reciprocal provisions made may, by notification in the Official Gazette,
declare to be territories to which the said convention applies.

Thus, 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. In the case of Bhatia International v Bulk Trading,
(“Bhatia International”) the Supreme Court expressly clarified that an
arbitration award not made in a convention country will not be considered a
foreign award.

About 48 countries have been notified by the Indian government so far. They
are:- Australia; Austria; Belgium; Botswana; Bulgaria; Central African
Republic; Chile; China (including Hong Kong and Macau) Cuba;
Czechoslovak Socialist Republic; Denmark; Ecuador; Federal Republic of
Germany; Finland; France; German; Democratic Republic; Ghana; Greece;
Hungary; Italy; Japan; Kuwait; Malagasy Republic; Malaysia; Mauritius,
Mexico; Morocco; Nigeria; Norway; Philippines; Poland; Republic of Korea;
Romania; Russia; San Marino; Singapore; Spain; Sweden; Switzerland;
Syrian Arab Republic; Thailand; The Arab Republic of Egypt; The
Netherlands; Trinidad and Tobago; Tunisia; United Kingdom; United
Republic of Tanzania and United States of America.

Thus, to reach the conclusion that a particular award is a foreign award, the
following conditions must be satisfied -

i. the award passed should be an arbitral award,

ii. it should be arising out of differences between the parties;

iii. the difference should be arising out of a legal relationship;

iv. the legal relationship should be considered as commercial;

 v. it should be in pursuance of a written agreement to which the New York
Convention applies; and,

vi. the foreign award should be made in one of the aforementioned 47

countries.

I. Referring parties to arbitration under part II

A judicial authority under Section 45 of the Act has been authorized to

refer those parties to arbitration, who under Section 44 of the Act have
entered in an arbitration agreement. The Section is based on Article II (3)
of New York Convention and with an in-depth reading of the Section 45 of
the Act, it can be clearly understood that it is mandatory for the judicial
authority to refer parties to the arbitration.

Section 45 of the Act starts with a non obstante clause, giving it an

overriding effect to the provision and making it prevail over anything
contrary contained in Part I or the CPC. It gives the power to the Indian
judicial authorities to specifically enforce the arbitration agreement
between the parties.

But as an essential pre-condition to specifically enforcing the arbitration

agreement, the court has to be satisfied that the agreement is valid,
operative
and capable of being performed. A party may not be entitled to a stay of
legal proceedings in contravention to the arbitration agreement under
Section 45
in the absence of a review by the court to determine the validity of the
arbitral agreement. The review is to be on a prima facie basis.

A. Distinction between Section 8 and Section 45

Section 8 and Section 45 of the Act, both pertaining to court referring
disputes to arbitration, vary with regards to the threshold of discretion
granted to the courts.

The primary distinction appears to be that Section 8 of the Act leaves no

discretion with the court in the matter of refer- ring parties to arbitration
whereas Section 45 of the Act grants the court the power to refuse a
reference to arbitration if it finds that the arbitration agreement is null
and void, inoperative or incapable of being performed.
The Supreme Court in World Sport Group (Mauritius) Ltd v MSM Satellite
(Singapore) Pte. Ltd. has opined that no formal application is necessary to
request a court to refer the matter to arbitration under Section 45 of the
Act. In case a party so requests even through affidavit, a court is obliged
to refer the matter to arbitration with the only exception being cases
where the arbitration agreement is null and void, inoperative and
incapable of being performed, thus limiting the scope of judicial scrutiny
at the stage of referring a dispute to foreign seated arbitrations.

Thus, though Section 8 of the Act envisages the filling of an application by

a party to the suit seeking reference of the dispute to arbitration, Section
45 needs only a ‘request’ for that purpose.

Further, Section 45 can only be applied when the matter is the subject of
a New York Convention arbitration agreement, whereas Section 8 applies
in general to all arbitration clauses falling under Part I of the Act.
In Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc. &
Ors., the Supreme Court has held that the expression ‘person claiming
through or under’ as provided under Section 45 of the Act would mean
and include within its ambit multiple and multi-party agreements. Hence
even non-signatory parties to some of the agreements can pray and be
referred to arbitration.

This ruling has widespread implications for foreign investors and parties
as now, in certain exceptional cases involving composite transactions and
inter- linked agreements, even non-parties such as a parent company,
subsidiary, group companies or directors can be referred to and made
parties to an ICA.

II. Enforcement and execution of foreign awards

When a party seeking enforcement of a New York Convention award under
the provisions of the Act, must make an application to the Court of
competent jurisdiction with the following documents –

i. The original/duly authenticated copy of the award;

ii. The original/duly authenticated copy of the agreement; and

 iii. Such evidence as may be necessary to prove that the award is a foreign
award.

There are several requirements for a foreign arbitral award to be

enforceable under the Act –

A. Commercial transaction
The award must be given in a convention country to resolve commercial
disputes arising out of a legal relationship. In the case of RM
Investment & Trading v. Boeing, the Supreme Court observed that the
term “commercial” should be liberally construed as having regard to
manifold activities which are an integral part of international trade.

B. Written agreement
The Geneva Convention and the New York Convention provide that a
foreign arbitral agreement must be worded formally or be in accordance
with a particular format.

C. Agreement must be valid

The foreign award must be valid and arise from an enforceable
commercial agreement. In the case of Khardah Company v. Raymon &
Co. (India), the Supreme Court held that an arbitration clause cannot
be enforceable when the agreement of which it forms an integral part is
declared illegal. Recently, the Delhi High Court in Virgoz Oils and Fats
Pte. Ltd. v National Agricultural Marketing Federation of India has held
that a contract containing an arbitration agreement must be signed by
all parties to the contract, in order to make the arbitration agreement
valid and binding upon the parties.

D. Award must be unambiguous

In the case of Koch Navigation v. Hindustan Petroleum Corp., the Supreme
Court held that courts must give effect to an award that is clear,
unambiguous and capable of resolution under Indian law.

Under Section 48 of the Act, in case of a New York Convention award, an

Indian court can refuse to enforce a foreign arbitral award if it falls
within the scope of the following statutory defenses –
 i. the parties to the agreement are under some incapacity;

ii. the agreement is void;

iii. the award contains decisions on matters beyond the scope of the
arbitration agreement;

iv. the composition of the arbitral authority or the arbitral procedure was not
in accordance with the arbitration agreement;

v. the award has been set aside or suspended by a competent authority of

the country in which it was made;

vi. the subject matter of dispute cannot be settled by arbitration under

Indian law; or,

vii. the enforcement of the award would be contrary to Indian public policy.

The term “public policy” as mentioned under Section 48 (2) (b) is one of the
conditions to be satisfied before enforcing a foreign award. The Supreme
Court in Renusagar Power Co. Ltd. v. General Electric Co., (“Renusagar”)
held that the enforcement of foreign award would be refused on the ground
that it is contrary to public policy if such enforcement would be contrary to:

(i) fundamental policy of India; or

(ii) the interest of India; or

(iii) justice or morality.

Thus by the above decisions, the courts in India have laid down certain
threshold which defines “public policy” for enforcing foreign awards in
India. The courts, after the land mark judgment, have further narrowed
down the meaning of the words “public policy” in order to give effect to the
Act.

In Penn Racquet Sport v. Mayor International Ltd.,the petitioner, a company

based in Arizona, sought to enforce in India an International Chamber of
Commerce (“ICC”) award passed in its favor. The respondent, an Indian
company, challenged the execution of the award on grounds, inter alia, that
the award was contrary to the public policy of India.

In a well-reasoned decision, the Delhi High Court, rejected the objections

raised by the Indian company and held that the foreign award passed in
favor of the American company was enforceable in India. It held that because
the award went against the interest of an Indian company was not enough to
qualify as working against the “public policy of India”.

However, in Shri Lal Mahal Ltd. v. Progetto Grano Spa(“Lal Mahal”), it was held
that enforcement of foreign award would be refused under Section 48(2) (b) only
if such enforcement would be contrary to (i) fundamental policy of Indian law;
or (ii) the interests of India; or (iii) justice or morality. The wider meaning given
to the expression “public policy of India” occurring in Section 34(2)(b)(ii) in Saw
Pipes is not applicable where objection is raised to the enforcement of the
foreign award under Section 48(2)(b). The Supreme Court further discussed
Phulchand Exports Limited v. O.O.O. Patriot (“Phulchand”), wherein it was
accepted that the meaning given to the expression “public policy of India” in
Section 34 in Saw Pipes, must be applied to the same expression occurring in
Section 48(2)(b) of the 1996 Act. The Supreme Court concluded that “public
policy of India used in Section 48(2) (b) has to be given a wider meaning and
the award could be set aside, if it is patently illegal” does not lay down correct
law, and has hence overruled the earlier decisions on this point.

On fulfilling the statutory conditions mentioned above, a foreign award

will be deemed a decree of the Indian court enforcing the award and
thereafter will be binding for all purposes on the parties subject to the
award.

The Supreme Court has held that no separate application needed 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. Foreign
arbitration awards, if valid, are treated on par with a decree passed by
an Indian civil court and they are enforceable by Indian courts having
jurisdiction as if the decree had been passed by such courts.
 Once the court decides that the foreign award is enforceable, it shall
proceed to take further steps for execution of the same, the process of
which is identical to the process of execution of a domestic award.

The Amendment Act seems to have taken into account the findings
of the court in pro-arbitration judgments such as Shri Lal Mahal Ltd.
Vs Progetto Grand Spa by now specifically providing an explanation
in Section 48, for the avoidance of all doubts, that an award is in
conflict with the public policy of India, only if (i) the making of the
award was induced or affected by fraud or corruption or was in
violation of section 75 or section 81; or (ii) it is in contravention with
the fundamental policy of Indian law; or (iii) it is in conflict with the
most basic notions of morality or justice.

III. Appealable orders

Under Section 50 of the Act, an appeal can be filed by a party against

those orders passed under Section 45 and Section 48 of the Act. How-
ever, no second appeal can be filed against the order passed under this
Section. These orders are only appealable under Article 136 of the
Constitution of India (“Constitution”) and such an appeal is filed before
the Supreme Court.

The Supreme Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., held
that-

“While a second appeal is barred by Section 50, appeal under Article

136 of the Constitution of India to the Supreme Court has not been
taken away. However, Article 136 does not provide a party a right to an
appeal;

It is a discretion which the Supreme Court may choose to exercise.

Thus, where there existed an alternative remedy in the form of a
revision under Section 115 of the Civil Procedure Code or under Article
227 of the Constitution before the High Court, the Supreme Court
refused to hear an appeal under Article 136 even though special leave
had initially been granted…”
Out of several issues raised in Jindal Exports Ltd. v. Fuerst Day
Lawson Ltd., one was whether a letters patent appeal would lie against
an order under Section 50 of the Act wherein a petition seeking
execution of an award was dismissed and no appeal was maintainable
under the Act. Further, the single judge, under Section 45, refused to
refer the parties to arbitration. A letters patent appeal was filed against
the impugned order. The matter was later referred to the Supreme
Court to clarify whether the appeal was maintainable.

The Supreme Court in its decision held –

“… In light of the discussions made above, it must be held that no letters

patent appeal will lie against an order which is not appealable under
Section 50 of the Arbitration and Conciliation Act, 1996…”

Thus it is clearly understood that an order under Section 45 is only

appealable under Article 136 of the Constitution.
7. Emerging Issues in Indian Arbitration Laws

In the recent past, there has been a lot of enthusiasm on evolving laws of
arbitration in India and the emerging issues therein, such as (a)
prospective applicability of the Amendment Act; (b) whether two Indian
parties can chose a foreign seat of arbitration; (c) whether it is possible to
arbitrate a dispute arising over allegations of oppression and
mismanagement.

I. Prospective applicability of the amendment act

There are conflicting decisions of various High Courts. The Madras High
Court in New Tripur Area Development Corporation Limited v. M/s.
Hindustan Construction Co. Ltd. & Ors., had ruled that the language used
in the Section 26 of the Amendment Act only refers to arbitral
proceedings and not court proceedings due to deletion of the language “in
relation to.” Section 26 of the Amendment Act is not applicable to the
stage post arbitral proceedings. This view has been supported by the
division bench of Calcutta High Court in Tufan Chatterjee v. Rangan Dhar
AIR 2016 Cal 213;

However, the division bench of Delhi High Court in Ardee Infrastructure

Pvt. Ltd. v. Anuradha Bhatia has held that the amended provisions would
not be applicable to ‘court proceedings’ initiated post-amendments,
unless they were merely ‘procedural’ and did not affect any ‘accrued
right’. Therefore, if a challenge petition is filed post amendment, it would
be governed by the un-amended Section 34 of the Act so long as
arbitration was invoked in the pre-amendment era.

II. Conundrum surrounding two Indian parties

having a foreign seat of arbitration
Even though this issue has been addressed by a number of High Courts in
the past, there is still no clarity on ability of two Indian parties to choose a
foreign seat of arbitration. In Addhar Mercantile Private Limited v. Shree
Jagdamba Agrico Exports Pvt. Ltd., the Bombay High Court expressed a
view that two Indian parties choosing a foreign seat and a foreign law
governing the arbitration agreement could be considered to be opposed to
public policy of the country.

Recently, in the case of Sasan Power Ltd v. North America Coal

Corporation India Pvt. Ltd., the Madhya Pradesh High Court opined that
two Indian parties may conduct arbitration in a foreign seat under English
law.

The Madhya Pradesh High Court primarily relied on the ruling in the case
of Atlas Exports Industries v. Kotak & Compan wherein the Supreme
Court ruled that two Indian parties could contract to have a foreign-seated
arbitration; although, the judgment was in context of the 1940 Arbitration
Act. Under appeal, although expected, the Supreme Court did not opine on
this issue.

However, one must be wary of the ruling in TDM Infrastructure, wherein

the court ruled that two Indian parties could not derogate from Indian law
by agreeing to conduct arbitration with a foreign seat and a foreign law.
But as TDM Infrastructure was a judgment under Section 11 of the Act,
there are questions on its precedential value.

III. Arbitrability of oppression and

mismanagement cases
A landmark judgment on this issue was delivered by the Bombay High
Court in Rakesh Malhotra v. Rajinder Kumar Malhotra, wherein the court
held that disputes regarding oppression and mismanagement cannot be
arbitrated, and must be adjudicated upon by the judicial authority
itself. However, in case the judicial authority finds that the petition is
mala fide or vexatious and is an attempt to avoid an arbitration clause,
the dispute must be referred to arbitration. Arguably, this could have an
unintended impact on the prima facie standard in section 8, as amended
and introduced by the Amendment Act.

The Bombay High Court opined that a petition under Sections 397 and
398 of the Companies Act, 1953 may comprise of conduct of
clandestine non-contractual actions that result in the mismanagement
of the company’s affairs or in the oppression of the minority
shareholders, or both.

In such cases, even if there is an arbitration agreement, it is not necessary

that every single act must, ipso facto, relate to that arbitration agreement.
Further, the fact that the dispute might affect rights of third parties who
are not party to the arbitration agreement renders such disputes non
arbitrable. In addition to the above emerging issues, the Annexure to this
dissertation includes details of some more related matters which cover
the analysis of the recent judgments and issues faced in the arbitration
regime in India.

8. Conclusion

A fast-growing economy requires a reliable stable dispute resolution process

in order to be able to attract foreign investment. With the extreme backlog
before Indian courts, commercial players in India and abroad have
developed a strong preference to resolve disputes via arbitration.

In spite of India being one of the original signatories of the New York
Convention, arbitration in India has not always kept up with international
best practices. However, the last five years have seen a significant positive
change in approach. Courts and legislators have acted with a view to bringing
Indian arbitration law in line with international practice.

With the pro-arbitration approach of the courts and the Amendment Act in
place, there is cause to look forward to best practices being adopted in Indian
arbitration law in the near future. Exciting times are ahead for Indian
arbitration jurisprudence and our courts are ready to take on several matters
dealing with the interpretation of the Amendment Act.
 Annexure

I. Prospective Applicability of Arbitration and

Conciliation Amendment Act, 2015

 Prospective applicability of Arbitration & Conciliation (Amendment)

Act 2015 would be limited to arbitral proceedings and not to court
proceedings;

 Section 26 of the Amendment Act cannot be extended to include

post arbitration proceedings, when the award is passed before the
commencement of the Amendment Act;

 Separate application needs to be filed to stay enforcement of

arbitral award as court proceedings are distinct from arbitral
proceedings.

A. Background

The Arbitration and Conciliation Amendment Act, 2015 (“Amendment

Act”) has introduced certain amendments to the provisions of the
Arbitration and Conciliation Act, 1996 (“Act”) and is deemed to be
effective from October 23, 2015. However, Section 26 inserted in the
newly enacted Amendment Act stipulates that “nothing in the Amended
Act, shall apply to ‘arbitral proceedings’ commenced as per Section 21 of
the Act, before the commencement of the Amendment Act.”

B. Introduction and Factual Matrix

The Madras High Court (“Madras HC”) in its recent judgment of New
Tirupur Area Development Corporation Ltd. (“NTADCL”) v. M/s
Hindustan has Construction Co. ltd. (“HCC”)dealt with the
interpretation and applicability of Section 26 of the Amendment Act. The
Madras HC held that Section 26 of the Amendment Act is not applicable
to post arbitral proceedings and therefore separate application needs to
be filed under Section 36 (2) of the Act as required under the amended
provisions to stay enforcement proceedings pending challenge of an
arbitral award.
Section 36 (2) and (3) as introduced by the Arbitration Ordinance, 2015
with effect from October 23, 2015 stipulates a condition for filing a
separate application along with the Section 34 petition for setting aside
the arbitral award to stay the enforcement proceedings.

E.Contentions of the Parties

NTADCL had filed certain applications under Section 36 (2) of the Act for
stay on enforcement of arbitral awards in the on-going petitions for
setting aside the arbitral awards dated August 17, 2015 before the Madras
HC. The issue before the Madras HC in the present case pertains to
interpretation and applicability of Section 26 of the Amendment Act to
post arbitral proceedings.

NTADCL had filed its challenge to an arbitral award and contended that
since Section 26 of the Amendment Act clarifies that it is not applicable to
arbitration proceedings commenced under the Act, there is no
requirement to file a separate stay application. By virtue of filing the
challenge petition under Section 34 of the Act, the arbitral award
automatically becomes unenforceable till such time the challenge petition
under section 34 of the Act is disposed of.

Further relying on the Supreme Court ruling of Thyssen Stahl Union GMBH v.
Steel Authority of India Ltd., NTADCL argued that the requirement of filing of
separate stay application under the amended Section 36 (2) would apply
only in relation to arbitral proceedings commenced on or after the date of
commencement of the Amendment Act. The Supreme Court in Thyssen held
that the expression “in relation to arbitral proceedings” would also cover
court proceedings within its ambit due to the usage of the words “in relation
to”. The judgment was rendered in the con- text of repeal and savings clause.
Section 85(2) of the Act is applicable in two limbs which clarifies that pro-
visions of the old act would apply to arbitral proceedings which commenced
prior to the Act coming into force unless otherwise agreed by the parties and
Act would apply in relation to arbitral proceedings which commenced on or
after the Act came into force.
The usage of the words “in relation to” cannot be interpreted in a narrow
manner and would include all proceedings including court proceedings.

HCC contended that there is a difference between arbitral proceedings and

court proceedings and literal interpretation needs to be given to the language
of the statute. Accordingly, HCC contended that though pro- visions of the
Amendment Act, would not apply to any arbitral proceedings initiated prior
to the commencement of the Amendment Act but nothing prevents the
application of the provisions of the Amendment Act to court proceedings
initiated after October 23, 2015. Section 26 of the Amendment Act provides
that it will not be applicable to arbitration proceedings commenced prior to
coming into effect of the Amendment Act.
D. Judgement and Analysis
Based on the comparative study of Section 26 of the Amended Act and
Section 85(2) of the Act,cthe Madras HC held that the legislative
intention under Section 85 (2) of the Act was to apply the provisions
in relation to arbitral proceedings which commenced before the Act
and included court proceedings within its ambit.

The court held that the legislative intent of making the provisions of the
Amendment Act applicable to court proceedings was clear in view of the
following:

1. In section 26, the expression “in relation to” before “arbitral

proceedings” is deleted. In Thyssen, the Supreme Court interpreting
the repeal and savings clause held that the usage of the words “in
relation to arbitral proceedings” threw an ambiguity and could not be
interpreted in a narrow manner to mean only pendency of the
arbitration proceedings before Arbitrator but would also cover
proceedings before court;

2. absence of the expression “court proceedings” in section 26;

3. Insertion of the Section 36(2), which in the facts of this particular

case, specifically provides for filing a separate application to stay the
enforcement of the award.

The Madras HC held that the interpretation of Section 26 cannot be

extended to include post arbitral proceeding (including court
proceedings), even where the award has been passed before the
commencement of the Amendment Act. Section 36 (2) & (3) have been
inserted for a specific purpose to ensure that an application challenging
the award does not automatically render the award unenforceable but a
separate application is required to be filed to stay enforcement
proceedings.

These sections are applicable to post arbitral proceedings. The procedure

to be followed during the stage of arbitral proceedings and after the award
are distinct. Court proceedings are not arbitral proceedings.
Therefore the Madras HC held that the applicability of the provisions of
the Amendment Act should be read with the new provisions (Section 26
read with amended Section 36 (2) of the Act).

Interestingly the applicability of Amendment Act has been considered by

the Calcutta High Court and contrary decision has been passed. The
Calcutta High Court in the case of Electro Steel Casting Limited v. Reacon
(India) Pvt. Ltd. while explaining the application of Section 26 on arbitral
proceedings, held that where arbitration proceedings commences before
the commencement of Amendment Act, the provisions of the Act would
apply, and enforcement of the award would be stayed automatically upon
the filing of application for setting aside an award.

This judgment deals only with the scenario of post arbitral proceedings
however the ruling may have a much wider impact in case of other types
of court proceedings (interim reliefs, seeking evidence, appeals) initiated
post October 23, 2015 in cases where arbitration proceedings may have
commenced prior to coming into force of the Amendment Act. There will
be two set of laws applicable in such cases with no clarity on the
practical implementation of the different regimes to arbitral and court
proceedings.
 II. Two Indian Parties Opting for Foreign- Seated
Arbitration: No Bar?

 Madhya Pradesh High Court upholds arbitration agreement

mandating two Indian Parties to take recourse to a foreign-seated
arbitration with foreign substantive law;

 Holds that the resultant award would be a ‘foreign award’, as

envisaged under Part II of the Arbitration & Conciliation Act, 1996;

 This is a step forward in the longstanding debate on whether

arbitration proceedings between two Indian entities can be seated in
a foreign country.

A. Background

The Madhya Pradesh High Court (“Court”) in its recent decision in Sasan
Power Ltd v. North America Coal Corporation India Pvt Ltd has held that two
Indian parties may conduct arbitration in a foreign seat under English law.

The Court relied upon an earlier decision of a Division Bench of the Supreme
Court of India (“Supreme Court”) in Atlas Exports Industries v. Kotak & Company
(“Atlas Exports”) wherein the Supreme Court, under the Arbitration Act, 1940
(“1940 Act”), had held that it was not against the public policy of India when two
Indian parties contract to have a foreign-seated arbitration.

Whilst this judgment provides certain answers in the longstanding and yet
inconclusive debate on the issue of whether two Indian parties can seat their
arbitration abroad, it also throws up larger questions.

B. Factual Matrix
Sasan Power entered into an association agreement with North
American Coal Corporation-US (“NACC-US”) in 2007 (“Agreement”). The
Agreement, inter alia, provided for resolution of disputes by way of
arbitration to be administered by ICC in London, England, under laws
of the United King- dom. In 2011, NACC-US assigned its rights, liabilities
and obligations under the Agreement to the Respondent - North
America Coal Corporation India Pvt Ltd. (“NACC-India”) by way of an
Assignment Agreement. Interestingly, whilst an assignment to NACC-
India was conducted, it appears that the obligations and liabilities of
NACC-US under the Agreement continued.

In 2014, NACC-India terminated the Agreement and filed a request for

arbitration claiming compensation of INR 1,82,59,301. Sasan Power filed
its objection to this request for arbitration. Sasan Power, thereafter, filed
a suit before the District Court and sought an anti-arbitration
injunction. The injunction was granted by the District Court.

A second request for arbitration was filed by NACC-US before the ICC.
Sasan Power filed a second suit challenging the request for arbitration
filed by NACC-US.

NACC-India filed applications for rejection of plaint under Order VII Rule
11 of the Code of Civil Procedure, 1908 (“Code”) read with Section 45 of
the Arbitration & Conciliation Act, 1996 (“Act”) and vacation of the anti-
arbitration injunction granted by District Court (“Applications”), before
the District Court. The District Court allowed the Applications moved by
NACC-India and dismissed the suit filed by Sasan Power. Consequently,
Sasan Power filed this appeal under Section 96 of the Code.

C. Issues
The Court, amongst other things, considered:

1. Whether the appeal filed by Sasan Power was maintainable in light

of Section 50 of the Act?

2. Whether two Indian parties could choose to seat their arbitration in a

foreign country?

D. Gist of Arguments
Sasan Power contended that TDM Infrastructure did not permit two Indian
parties to derogate from Indian law by agreeing to conduct arbitration with
a foreign seat and a foreign substantive law. Further, reliance on Atlas
Exports was erroneous since it was a judgment under the 1940 Act and
only the Act would be applicable to the present case.
The mandate of Section 45 of the Act would not be attracted since an
arbitration clause contemplating a foreign seated arbitration between two
Indian parties was invalid; hence Applications based on such a void, null
and inoperative arbitration clause would not be maintainable.

NACC-India argued that that no appeal laid against an order passed under
Section 45 of the Act. Further, it was argued that TDM Infrastructure was
limited in scope to appointment of an arbitrator during proceedings
under Section 11(6) of the Act, where the seat of arbitration was India. The
provisions of Section 28(1) of the Act were not applicable in the present
situation since the seat of arbitration was England. Atlas Exports,
wherein it was stated that by virtue of the Exception 1 to Section 28 of the
Contract Act, two Indian parties could have a foreign seated arbitration;
would apply. Given that Atlas Exports was passed by a two- judge bench, it
would be considered precedent even assuming TDM Infrastructure were
to apply not only in cases related to Section 11(6) of the Act.

E. Highlights of the Judgment

The Court saw no reason to interfere with the impugned judgment which
referred the parties to arbitration under Section 45 of the Act and
dismissed the appeal, while providing the following reasons:

1. The Court observed that only orders refusing to refer parties to

arbitration could be appealed as per Section 50 of the Act.

2. The Court, while, placing reliance on the judgment in Atlas Exports,

observed that Section 28 of the Indian Contract Act, 1872 read with the
Exception 1 would not be a bar to a foreign seated arbitration. Further,
it was observed that when two Indian parties had willingly entered into
an agreement in relation to arbitration, the contention that a foreign
seated arbitration would be opposed to Indian public policy was
untenable.

3. The Court stated that the principle laid down in Atlas Exports (that
was by a larger bench than TDM Infrastructure) would, in light of the
decision in Fuerst Day Lawson Ltd v. Jindal Exports, wherein it was
observed by the Supreme Court that there was not much difference
between provisions of the Act and 1940 Act; be binding precedent in
relation to the issue at hand.
4. The Court noted that in TDM Infrastructure the Supreme Court had
clarified by way of an Official Corrigendum that:

“It is, however, made clear that any findings/ observations made
hereinbefore were only for the purpose of determining the jurisdiction of this
Court
as envisaged under Section 11 of the 1996 Act and not for any other
purpose.”

5. The Court observed that the scheme of the Act indicated that the
classification of an arbitration as an international commercial
arbitration depended only on the nationality of the parties, which is
only relevant for the appointment arbitrators as contemplated under
Section 11 of the Act.

6. The Court opined that the nationality of the parties would not
influence the applicability of Part II of the Act, the applicability of
which would flow depending on the seat of arbitration.

7. The Court, relying upon Enercon (India) Private Limited v. Enercon GMBH
and Chatterjee Petroleum v. Haldia Petro Chemicals, was of the opinion
that where the parties had agreed to resolve their disputes through
arbitration, the courts were to give effect to the intention of the
parties and interfere only when the agreement was null or void or
inoperative.

8. The Court observed that once parties by mutual agreement had

agreed to resolve their disputes by a foreign-seated arbitration, Part I
of the Act would not apply. Further where the agreement fulfilled the
requirements of Section 44, provisions of Part II of the Act would
apply. It was held that a court, under Section 45, would have to refer
parties to arbitration where it was found that the agreement was not
null or void or inoperative.
F. Analysis

This judgment interprets the scheme of the Act, whereby it clarifies that
applicability of Part II of the Act is not based on the nationality of the
parties but on the basis of where the arbitration is “seated”. If
arbitration is seated outside India, irrespective of the nationality of the
parties involved, it will be considered to be a “foreign award”.

The issue before the court was whether two Indian parties could seat an
arbitration in a foreign country with foreign law as the substantive law
governing the dispute. The concern with allowing the same has been the
permissibility for Indian parties to be governed by laws other than the laws
of India. The consequence of such an act, allowing Indian parties to expressly
con- tract out of Indian law, being arguably against Indian public policy; is a
matter of concern since it would impact the enforceability of the award.

The present judgment applies Atlas Exports, while restricting the

applicability of TDM Infrastructure to issues related to Section 11(6) of the
Act, to reiterate the legality of two Indian parties choosing to seat their
arbitration in foreign country. An argument was raised that such
arbitrations would be limited by the restriction contained in Section 28(1) of
the Act and parties would not be permitted to choose a foreign substantive
law when only parties having Indian nationality were involved. The court
clarified the same stating that when the seat of arbitration is outside India,
the conflict of law rules of the country in which the arbitration takes place
would have to be applied and it would not be an arbitration under Part I of
the Act.

That being said, the restrictive interpretation of TDM Infrastructure

adopted by the Court may, in effect, be a reading down of a judgment
that categorically states that Indian parties cannot derogate from Indian
law, as a matter of public policy. The resultant issues that it raises,
needing further consideration, are (i) whether Indian parties would be
allowed to choose a foreign substantive law; and (ii) whether, as held in
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc, by
choosing a foreign seat the non- derogable substantive provisions of Part
1 would not be available to parties, thereby denying access to Indian
courts.
This issue may require greater clarity from the Supreme Court in light
of a recent decision of the Bombay High Court in M/s Addhar
Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt Ltd
which interpreted a vague arbitration clause which provided for
“Arbitration in India or Singapore and English law to be apply” between
two Indian parties. The court found that the clause to mean arbitration
in India with Indian law applicable taking a view that arbitration would
have to be conducted in India and making English law applicable would
make the clause pathological.

However, the Court also noted that position was qualified with a
statement that “if the seat of arbitration would have been at
Singapore, certainly English law will have to be applied”.

It is pertinent to note that this was in relation to an application for

appointment of arbitrators under Section 11, therefore, the Bombay
High
Court was bound by the decision of the Supreme Court in TDM
Infrastructure.

Should this judgment be upheld, another potential issue that may arise is
that since the arbitrability of a dispute is determined by the law of the
seat, it would not be unimaginable for Indian parties to refer disputes,
which would otherwise not be arbitrable in India, to binding arbitration
merely by choosing foreign seat.

In the meanwhile, this judgment would come as some relief for Indian
companies (especially subsidiaries of foreign companies) that may have
unwittingly entered into arbitration agreements providing for a foreign seat
and a foreign substantive law, with other Indian parties; perhaps unaware of
the complexities surrounding this issue.

At the very least, enforcement of such award still remains untested and
may prove to be a challenge. In light of the contentious point of law and
the various issues, it is expected that this matter may find its way before
the Supreme Court in due course. The judgment of the Supreme Court is
eagerly awaited in this respect.
III. Allegations of Fraud not a Bar to Foreign
Seated Arbitration

 Supreme Court held that allegation of Fraud is not a bar to refer

parties to foreign seated arbitrations;

 The law does not require a formal application to refer parties to

arbitration;

 If an arbitration agreement exists and a party seeks reference to a

foreign seated arbitration, court is obliged to refer the par- ties to
arbitration;

 The only exception is in cases where the court finds the arbitration
agreement to be null and void or inoperative or incapable of being
performed.

A. Introduction

In a landmark decision the Supreme Court of India has expressly removed

allegations of fraud as a bar to refer parties to foreign seated arbitrations.
The Supreme Court by its decision dated January 24, 2014 in World Sport
Group (Mauritius) Ltd (“WSG”) v. MSM Satellite (Singapore) Pte. Ltd (“MSM”) set
aside the judgment of the Division Bench of the Bombay High Court
(“Bombay HC”) in MSM Satellite (Singapore) Pte. Ltd v. World Sport Group
(Mauritius) Ltd dated September 17, 2010 (“Impugned Judgment”).
Previously as the law stood, allegations of fraud were arguably not
arbitrable under Indian Law. The Supreme Court has now clarified the
position, removing another possible hurdle that one could face while
arbitration against Indian Parties outside India.

B. Background
The dispute pertained to obtaining media rights for the Indian sub-
continent from the Board of Cricket Control of India. In this regards WSG
and MSM entered into a Deed for Provision of Facilitation Services
(Facilitation Deed”), where under MSM was to pay WSG ₹ 4,250,000,000 as
facilitation fees.
 The Facilitation Deed was governed by English Law and parties had agreed
to settle their disputes through arbitration before the International
Chamber of Commerce (“ICC”), with a seat of arbitration in Singapore
(“Arbitration Agreement”).

Eventually, MSM rescinded the Facilitation Deed alleging certain

misrepresentations and fraud against WSG and initiated a civil action
before the Bombay HC for inter alia a declaration that the Facilitation
Deed was void an for recovery of sums already paid to WSG. WSG filed a
request for arbitration with ICC and ICC issued notice to the MSM to file
its answer. In response MSM filed initiated a fresh action seek- ing an
anti-arbitration injunction against WSG from proceeding with the ICC
arbitration.

C. MSM’s Case
It was MSM’s case that since the Facilitation Deed, which contained the
Arbitration Agreement, in null and void on account of the
misrepresentation and fraud of WSG, the Arbitration Agreement itself
was void and could not be invoked.

D. WSG’s Case
It was WSG’s case unless the Arbitration Agreement, itself, apart from the
Facilitation Deed, is assailed as vitiated by fraud or misrepresentation; the
Arbitral Tribunal will have jurisdiction to decide all issues including
validity and scope of the arbitration agreement.

E. Impugned Judgment
The Bombay HC had, in the impugned Judg- ment, held that disputes
where allegation of fraud and serious malpractice on the part of a party are
in issue, it is only the court which can decide these issues through
furtherance of judicial evidence by the party and these issues cannot be
properly gone into by the arbitrator, thereby granting the anti-arbitration
injunction sought for. This decision of the Bombay HC was the only
judgment where an Indian Court had held allegations of fraud as a bar to
foreign seated arbitrations, though such findings were prevalent in the
sphere of domestic arbitrations.
F. Judgment of the Supreme Court
The Supreme Court, by re-enforcing its pro-arbitration approach, set aside
the Impugned Judgment and held that only bar to refer parties to foreign
seated arbitrations are those which are specified in Section 45 of the
Indian Arbitration and Conciliation Act, 1996 (“Act”) i.e. in cases where the
arbitration agreement is either (i) null and void or (ii) inoperative or (iii)
incapable of being performed.

While explaining the term null and void, the Supreme Court clarified
that the arbitration agreement being a separate agreement does not
stand vitiated if the main contract is terminated, frustrated or is
voidable at the option of one party.

The Supreme Court held that a court will have to see in each case whether
the arbitration agreement is also void along with the main agreement or
whether the arbitration agreement stands apart from the main
agreement and is not null and void, thus accepting the submissions of
WSG.

The Supreme Court interpreted the terms inoperative and incapable

narrowly, adopting the interpretation of the international authors of
these terms in Article II (3) of the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”).
The expression ‘inoperative’ is under- stood to cover situations where the
arbitration agreement has ceased to have effect such as where parties
may have by conduct or otherwise revoked the arbitration agreement.
Further, ‘incapable of being performed’ covers situations where the
arbitration cannot be effectively set into motion and covers the practical
aspects of the prospective arbitration. Accordingly, the court held that
arbitration agreements do not become “inoperative and incapable of being
per- formed” where allegations of fraud have to be inquired into and the
court cannot refuse to refer the parties to arbitration as provided in
Section 45 of the Act. The Supreme Court also opined that no formal
application is necessary to request a court to refer the matter to
arbitration under Section 45 of the Act and in case a party so requests
even through affidavit, a court is obliged to refer the matter to arbitration
with the only exception being cases where the arbitration agreement is
null and void, inoperative and incapable of being performed, thus limiting
the scope of judicial scrutiny at the stage of referring a dispute to foreign
seated arbitrations.

G. Analysis
This is a welcome decision for foreign parties having arbitration
agreements with Indian counter-parts. Before this judgment was delivered,
Indian parties were increasing challenging arbitrability of disputes where
allegations of fraud were made against them, relying of the Supreme
Court’s own decision in the case of N. Radhakrishnan v. Masestro Engineers
& Ors (“N Radhakrishnan”). By this decision the Supreme Court has
limited the applicability of its decision in N Radhakrishnan to domestic
arbitrations hence clarifying that, allegations of fraud against a party or
consequential rescission of the main agreement is not a bar on
arbitrability of disputes between the parties under Indian Law, when the
seat of arbitration is outside India.
 IV. Enforcement of Foreign Awards Becomes
Easier: ‘Patent Illegality’ Removed from
the Scope of Public Policy

The ever-growing judicial support to international commercial arbitration

and the seminal shift in judicial mindset is now more than established
from yet another landmark ruling of the apex court of the land in Shri Lal
Mahal Ltd. v. Progetto Grano Spa, where the court has gone ahead to in fact
overrule its own decision passed less than two years back. The Supreme
Court while dealing with objections to enforceability of certain foreign
awards on the grounds that such awards are opposed to the public policy
of India, has significantly curtailed the scope of the expression ‘public
policy’ as found under Section 48(2)(b) of the Arbitration and Conciliation
Act, 1996 (“Act”) and thereby have limited the scope of challenge to
enforcement of awards passed in foreign seated arbitrations.

The judgment unmistakably establishes a difference between the scope of

objections to the enforceability of a foreign award under Section 48 of the
Act and a challenge to set aside an award altogether under section 34 of
the Act.

A. Facts
The dispute arose out of a contract between an Indian seller (“Appellant”)
and a foreign buyer (“Respondent”) whereby the Appellant had agreed to
supply certain type of wheat to the Respondent. The Respondent had
alleged that the wheat supplied was not of the quality as agreed to by the
parties and as a result it had suffered significant damages.

The matter was referred to the Arbitral Tribunal of the Grain and Feed Trade
Association, London (“GAFTA”), which passed an award in favour of the
Respondent. Thereafter, the Appellant carried such award in appeal before
the Board of Appeal of GAFTA, which also passed the award in favour of the
Respondent. The awards were then challenged by the Appellant before
the courts in U.K., where again the awards were upheld.

The Respondent then sought the enforcement of the awards in India in

accordance with the provisions of the Act, to which the Appellant took
objection by asserting that the award is against the public policy of India
and accordingly enforcement of such awards in India ought to be refused.
The Appellant contended the award to be opposed to public policy of India
on the ground that such award was contrary to clearly terms of the
contract entered into by the parties. The questions pertained to the
certification provided by the expert regarding the quality of the wheat and
whether such certification was in the form which was agreed by the
parties.

The Respondent on the other hand argued that the matters as raised by
the Appellant were questions regarding appreciation of evidence and were
questions of fact which could not be gone into at the stage of challenge to
enforcement of a foreign award under section 48 of the Act.

B. Issue
Thus, issue arose regarding the scope and interpretation of the
expression ‘public policy’ which is provided as a ground to refuse
enforcement of a foreign award under section 48(2)(b) of the Act and
whether the enforcement of the awards could be refused on the grounds
as alleged by the Appellant.

The issue further was whether the expression ‘public policy’ shall have the
same meaning and purport under section 34(2)(b)(ii) and section 48(2)(b) of the
Act?

C. Judgment
As the question revolved around the interpretation of the scope of the
expression ‘public policy’ the Supreme Court considered the following three
landmark rulings in this regard:

1. Oil and Natural Gas Corporation Ltd. v. Saw Pipes

Ltd. (“ONGC”);

2. Phulchand Exports Limited v. O.OO. Patriot (“Phulchand”);

and

3. Renusagar Power Co. Limited v. General Elec- tric

Company (“Renusagar”).
The Supreme Court overruling the judgment in Phulchand held that the
meaning of the expression ‘public policy’ under Section 48 was narrower as
compared to section 34. Relying on Renusagar, the Court made a highly
important observation that there is a fine distinction between applying the rule
of public policy in a matter governed by domestic laws and a matter involving
conflict of laws as is the case in majority of international commercial
arbitrations. The court observed that the applicability of the doctrine of public
policy is comparatively limited in cases involving conflict of laws and matters
involving foreign element such as a foreign seated arbitration, the courts would
not be easily inclined to invoke such doctrine.

The court further observed that ONGC dealt with a situation where the
arbitral award was sought to be set aside under section 34 as opposed to
an application to refuse enforcement of an award under section 48. It
was stated that the expression ‘public policy of India’ under 34 was
required to be interpreted in the context of the jurisdiction of the
court where the validity of the award is challenged before it becomes
final and executable in contrast to enforcement of award after it
becomes final. Thus, it was seen that under Section 34 the expression
public policy would also entail within its folds any ‘patent illegality’ for
setting aside the award.

Accordingly, the court held that:

“enforcement of foreign award would be refused under Section 48(2)(b) only if

such enforcement would be contrary to

1. fundamental policy of Indian law; or

2. the interests of India; or

3. justice or morality.

The wider meaning given to the expression “public policy of India” occurring
in Section 34(2)(b) (ii) in Saw Pipes (ONGC) is not applicable where objection is
raised to the enforcement of the foreign award under Section 48(2)(b).”

Thus, relying on the above law, the Supreme Court observed that the
same ground had also been raised by the Appellant before the courts in
U.K. to have the award set aside.
However, the High Court of Justice at London did not consider the
ground to be sufficient enough for the award to be set aside. Thus, the
court viewed that the same argument could hardly be good enough to
refuse enforcement. The court further provided that section 48 does not
offer an opportunity to have a second look at the foreign award at the
enforcement stage. The court affirmed that sec- tion 48 does not permit
review of the award on merits and also that procedural defects in course
of foreign arbitration do not necessarily imply that foreign award would
be unenforceable. Accordingly, the appeal was dismissed by the court
and that award was held to be enforceable.

D. Analysis
The judgment in ONGC led to expansion of the meaning of the
expression ‘public policy’ as pro- vided under section 34 of the Act, which
opened the
floodgates to petitions challenging the arbi- tral award on the ground of
‘patent illegality’. The decision was criticized as it allowed the parties to
have a second bite at the matter, to the extent that the ground of patent
illegality was viewed broad/y.

The above decision coupled with the pre- BALCO scenario i.e. applying the
law as enunciated under the Bhatia International case, permitted
awards passed in arbitrations seated outside India to be challenged under
section 34 in certain cases. This led to a very broad ground being available
to parties to set aside awards passed in international commercial
arbitrations. Though, the BALCO decision has now clarified that awards
passed in foreign seated arbitrations cannot be challenged under section
34, the difficulty arose on account of the judgment of Phulchand.

Phulchand expanded the meaning of the expression ‘public policy’ as

provided under section 48 of the Act and provided that the scope and
purport of the expression under section 34 and 48 would be the same.
The decision of Phulchand thus also received heavy criticism. Surprisingly,
Hon’ble Justice R.M. Lodha, who previously wrote the judgment in
Phulchand on behalf of the bench has now himself, overruled the decision
of the court of Phulchand and it has now been laid down that the
meaning of the expression ‘public policy’ is narrower under section 48 as
compared to section 34.
Therefore, now enforcement of foreign awards would not be refused so
easily. Thus, a practical takeaway from the above would be to give
preference to a foreign seated arbitration as a mechanism for dispute
resolution as this would afford a speedy remedy without significant court
interference.
V. No Valid Arbitration if Clause in Unsigned
Agreement
DELHI HIGH COURT:

 Reaffirms the criteria to deem a foreign arbitral award valid under

section 44 of the Arbitration and Conciliation Act, 1996 and the
Convention on the Recognition and Enforcement of Awards, 1958.

 A contract containing an arbitration agreement must be signed by

all parties to the contract, in order to make the arbitration
agreement valid and binding upon the parties.

A. Introduction
The Delhi High Court (“Court”) in the case of Virgoz Oils and Fats Pte. Ltd.
(“Vigoz”) v National Agricultural Marketing Federation of India (“NAFED”) has
refused the enforcement of a foreign arbitral award after allowing an
objection to its enforcement under Section 48 of the Arbitration and
Conciliation Act, 1996 (“The Act”). The Court has referred to and relied upon
the requirements set out under the Convention on the Recognition and
Enforcement of Awards, 1958 (“The Convention”) and the Act, to examine
the requirements of a valid arbitration agreement. Applying these
guidelines, the Court has held that the arbitration agreement between the
parties in the present matter, was a part of a written agreement which was
not signed by NAFED. Thereby, rendering the arbitration agreement
inoperable and invalid against NAFED.

B. Facts
Virgoz and NAFED, through a broker, had entered into negotiations for
the sale of edible oil by Virgoz to NAFED. Through the negotiations, a series
of sales contracts were formed, which were transmitted to NAFED by the
broker. NAFED, upon receipt of the same, requested a deferred date of
shipment of the goods to the broker, who in turn, communicated the
same to Virgoz. The contracts were amended accordingly by Virgoz with
the changes in the date of shipment being the only material alteration.
The contracts were signed by the broker and Virgoz, but not by NAFED or
its representatives (“Impugned Contracts”). Virgoz, proceeded, with its
obligations under the Impugned Contracts assuming the same to have
become effectively concluded between the parties and shipped the goods
to NAFED. Upon NAFED’s failure to provide a Letter of Credit, as per the
terms of the Impugned Contracts, Vigoz declared NAFED to be in default.
Thereafter, Virgoz proceeded to initiate arbitration proceedings before an
arbitral tribunal constituted under the Palm Oil Refiners Association of
Malaysia, Rules of Arbitration and Appeal (“PORAM Rules”), in accordance
with the arbitration clause contained in the contracts.

The Tribunal passed an award on April 5, 2012, which accepted two key
submissions advanced by Virgoz being (a) a letter dated July 29, 2008,
from NAFED requesting a deferred date of shipment while making
reference to the contracts, was evidence of the existence of a contractual
arrangement between the parties and (b) the signing of an Agreement by
a broker on behalf of the buyer, was ‘common practice’ in the industry. The
award was passed in favor of Virgoz.

Virgoz, vide an enforcement petition filed before the Court sought to

enforce the award against NAFED and its assets in India.

C. Issue
Whether there existed a valid arbitration agreement between the
parties.

D. Contentions
Virgoz advanced two primary contentions to establish that the award
being a foreign award must be enforced under Part II of the Act, they
were
(a) the parties were dealing with each other through a broker and therefore
there was no requirement for NAFED to sign the Impugned Contract and
(b) the Letter dated July 29, 2008, indicated that NAFED had accepted the
terms of the Impugned Contract and requested a deferred date of shipment.

NAFED, stated that there were no communications directly between Virgoz

and NAFED implying that NAFED had consented to the terms of the
Impugned Contract. Further, NAFED had not signed the Impugned
Contract thereby making it invalid against NAFED.

E. Judgment
The Court analyzed the definition of a ‘foreign award’ under section 44 of the
Act, which stipulates that the award must be rendered in pursuance of an
arbitration agreement in writing between the parties, to which the
Convention shall apply. In order to examine whether there was a valid
arbitration agreement in terms of the Convention, the Court analyzed
Paragraph 2 of Article II of the Convention, which states that an ‘agreement
in writing’ would inter alia mean an arbitration clause contained in a
contract signed by the parties or contained in an exchange of letters or
telegrams.

The Court held that, Virgoz had relied upon an arbitration agreement
contained in the Impugned Contracts and not in any correspondence
exchanged between the parties. Therefore, as per the aforementioned
requirements under the Convention, the Impugned Contracts should have
been signed by all parties to the contract in order to deem it as a valid
arbitration agreement. This requirement was not met as NAFED had not
signed the contracts, thus, resulting in the arbitration agreement
becoming invalid and inoperative with respect to NAFED. The Court also
examined the communications between the par- ties, holding that the
Letter dated July 29, 2008, did not evidence the intention of NAFED to bind
itself to the terms of the Impugned Contract or the arbitration clause
contained therein.

The Court based its judgment on the following reasoning:-

1. Although NAFED was described as a buyer, with a specific provision

for its signature in the Impugned Contract, no signatures appear by
NAFED at the designated parts of the Impugned Contracts.

2. The broker signed the Impugned Contract in his own capacity and not
for and on behalf of NAFED

3. There were no correspondences exchanged between the parties

establishing a meeting of minds as to their intention to submit
their disputes to arbitration.
Thus, the Court concluded that under section 48, there were valid
reasons to refuse the recognition and enforcement of the award and
passed orders effecting the same.

F. Analysis
The judgment of the Court, might be construed as a departure from the
pro-arbitration stance adopted by the judiciary of late. If an appeal was to
be preferred it would be interesting to observe whether the Appellate Court
would consider (a) the usual trade practice between parties trading in palm
oil in India to have unsigned contracts; (b) the correspondence exchanged
between the parties by which the Impugned Contract was deliberated upon
and amended and (c) the verdict of an expert body mandated to preside
over disputes in that particular industry.

However, it must be noted that the legal analysis con- ducted by the Court
which formed the basis of the judgment is sound. The requirement of an
agreement in writing, when evidenced in an arbitration agree- ment, results
in the consequent requirement that the agreement must be of the nature
of a valid contract. The lack of a party’s signature upon the contract, would
be strong evidence as to the lack of the party’s consent to the agreement and
consequently to an arbitration clause contained therein.
A valuable take away from this pronouncement is to ensure that all parties to a
contract containing the arbitration agreement should sign the same even if
they are being represented by another for all practical purposes. Further, if
parties intend to enter into commercial transactions basis communications
exchanged, then they must ensure to incorporate a dispute resolution
mechanism in the same.

VI. Allegations of Fraud Are Arbitrable - Even in

Domestic Arbitrations in India

The Supreme Court has held that:

 Allegations of fraud are arbitrable unless serious and complex in

nature;

 N. Radhakrishnan did not make blanket exclusion of fraud from

the purview of arbitration;

 Swiss Timing does not over-rule N.

 Radhakrishnan since it arose under Section 11 of the A&C Act;

 Issues of fraud are arbitrable unless the arbitration agreement

itself is impeached.

A. Introduction
The Supreme Court of India (“Supreme Court”), in A. Ayyasamy (Appellant) v.
A. Paramasivam & Ors. (Respondents) has held that disputes involving
allegations of fraud arising out of contracts bearing an arbitration clause shall
be referred to arbitration.
Distinguishing, yet not casting away, the oft- cited ruling of the
Supreme Court in the case of N. Radhakrishnan v. Maestro Engineers in
matters involving arbitrability of fraud, a division bench of the
Supreme Court has held that N. Radhakrishnan did not subscribe to
the blanket proposition of non- arbitrability of fraud and that
allegations which could be adjudicated upon in courts could also be
adjudicated upon in arbitral proceedings, subject to certain carve-outs.

B. Facts
The parties entered into a partnership deed on 1 April 1994 for running a
hotel. While the Appellant was entrusted with administration, the
Respondents alleged that the Appellant had failed to make regular
deposits of money into the common operating bank account and had
fraudulently siphoned off an amount of INR 10,00,050.
In a separate raid conducted by the CBI on premises of the Appellant’s
relative, an amount of INR 45,00,000 was seized and alleged to have
been given by the Appellant for business of the hotel.
The Respondents filed a civil suit seeking right of administration of the
hotel. The Appellant sought reference of the dispute to arbitration under
Section 8 of the Arbitration & Conciliation Act, 1996 (“A&C Act”). The
High Court rejected the Appellant’s application on the ground that the
dispute involved allegations of fraud. Aggrieved by the decision, the
Appellant preferred an appeal before the Supreme Court.

C. Contentions of the Respondents

The Respondents made the following contentions:

 The allegations constituted acts of fraud which were attributed

to the Appellant.

 Where allegations of fraud are involved, civil courts are the

appropriate forum for adjudication. The Respondents took
recourse to judgment of the Supreme Court in N. Radhakrishnan
wherein disputes revolved around serious malpractices,
manipulation of accounts and cheating by the partners. The
Supreme Court had held that since the allegations were serious
and required evaluation of detailed evidence, they could “not be
properly gone into by the Arbitrator”.
D. Findings of the Supreme Court

i. Minimum intervention by courts

The Supreme Court delved into the underlying objective of the A&C Act to
minimize court interference in disputes involving arbitration. It held that
Section 8 of the A&C Act mandated reference to arbitration unless, on a
prima facie evaluation, the arbitration agreement was found to be invalid.
It noted that Section 8 offered little discretion to courts to assume
jurisdiction and made a conscious departure from the language of its
equivalent provision under the UNCITRAL Model Law where reference could
be rejected on wider grounds (viz. where the arbitration agreement was
null and void, inoperative or incapable of being performed).

The Court held that Section 16 of the A&C Act also operated in the same
vein while equipping the arbitrator to rule upon its own jurisdiction and
minimizing court intervention. Further, the doctrine of separability (where
the arbitration agreement survived nullity, even if embodied in a contract
assailed on the grounds of fraud), helped to retain powers of the arbitral
tribunal and adjudicate upon nullity of the contract. Thus, tribunals are
vested with jurisdiction to consider issues of fraud.

ii. No demarcation of arbitrable and non-arbitrable disputes

under the A&C Act

Noting that arbitrability is quintessential to ensure enforcement of awards

and that the A&C Act is silent on types of non-arbitrable disputes, the
Supreme Court outlined judicially enumerated issues which cannot be
referred to arbitration - based on analysis of the types of rights involved
(rights in rem or in personam), conferment of jurisdiction on special courts
or on public policy. These include matters involving crimes, matrimony,
insolvency and winding up , guardianship, tenancy, testamentary
matters and consumer protection.
However, it held that the law did not exclude issues of fraud as being non-
arbitrable.
iii. N. Radhakrishnan is frequently misread

The Court held that N. Radhakrishnan involved serious allegations of fraud

which necessitated evaluation of detailed evidence. This could only be done
properly by Courts. However, the Supreme Court considered that in ruling
so, N. Radhakrishnan had relied extensively on the judgment of Abdul Kadir
Shamsuddin Bubere v. Madhav Prabhakar Oak which arose under the
Arbitration and Conciliation Act, 1940 - offering wide discretion to courts to
assume jurisdiction. However, the A&C Act had limited court discretion and
intervention under Section 8.

Despite the aforesaid observation, the Supreme Court did not expressly
reject the reasoning in N. Radhakrishnan and held that serious allegations
of fraud were non-arbitrable, while mere allegations of fraud would be
arbitrable. It distinguished, by way of example, between simple and serious
allegations of fraud.

However, it emphasized that it was incumbent upon courts to sift through

the materials and identify, on a prima facie basis, if the case involved
allegations of a serious nature. Since the present dispute did not involve
complex issues but merely matters of accounts, the Supreme Court held
that the allegations could be easily ascertained by the arbitrator.

iv. Swiss Timing does not over-rule N. Radhakrishnan

The Supreme Court considered the ruling in Swiss Timings Ltd. v.

Commonwealth Games 2010 Organizing Committee where a Single
Judge of the Supreme Court held that N. Radhakrishnan (delivered by
Division Bench) was per incuriam. The Supreme Court clarified that
Swiss Timing dealt with Section 11(6) of the A&C Act which conferred
winding up, guardianship, tenancy, testamentary power on the Chief
Judge of India or the Chief Justice of the High Court as a designate to
appoint an arbitrator. The exercise of power by the Court under Section
11 and the judgment so delivered could not be deemed to have
precedential value. Therefore, it cannot be deemed to have overruled the
proposition of law laid down in N. Radhakrishnan.
v. Reliance on foreign case law to focus on party intent

Relying on decisions of the UK courts , the Court held that it is inconceivable

that ordinary businessmen would engage in a contractual tug of war by
intending that questions of nullity of contract would be decided by the
arbitrator while issues of fraud would be decided by the court. Arbitration is
intended to be a one-stop forum unless parties expressly excluded cer- tain
disputes from its ambit. Therefore, unless the arbitration clause itself is
impeached on grounds of fraud, the disputes will be capable of reference to
arbitration. However, it was rare for a party to procure an arbitration
agreement fraudulently, even in cases where the contract may have borne
connection with fraud.

vi. Multiple allegations of civil and criminal wrongdoing

Rejecting the general notion that elements of criminal wrongdoing or

statutory violation detracted from the jurisdiction of the arbitral tribunal,
the Supreme Court held that contractual power did not conflict with
statutory power. Parties could exercise the power under the arbitration
agreement; thereby giving teeth to the well accepted phenomenon of
acceptance of criminal and contractual procedures.

E. Analysis
The judgment is seminal in the arena of fraud related disputes arising
out of contracts bearing arbitration clauses in India seated domestic
arbitrations. In case of foreign seated arbitrations, the Supreme Court
in World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte.
Ltd. had held that allegations of fraud did not prevent the court from
making reference to arbitration under Section 45 of the A&C Act.
However, in the case of India seated domestic arbitrations, there was a
cloud on efficacy of arbitral proceedings to resolve issues of fraud,
particularly in light of the ruling in N. Radhakrishnan.

The present judgment sets to rest the conundrum created by N.

Radhakrishnan.
It recognizes that disputes which can be adjudicated upon by courts
can, by default, be adjudicated upon by arbitral tribunals and that
exceptions to this rule lie in limited frontiers of public policy, statutory
legislation and rights in rem. It carefully pulls the rope bearing the
weight of N. Radhakrishnan – its primary reliance on the judgment in
Abdul Kadir. It clarifies that N. Radhakrishnan can be applied only
where serious and complex allegations of fraud necessitating extensive
evaluation of evidence are involved. Pursuant to this ruling, N.
Radhakrishnan cannot be used for the purpose of making an
unimpeachable statement on non-arbitrability of fraud, nor can it be
used as a subterfuge to detract from jurisdiction of the arbitral tribunal
by masking allegations as fraud. Every allegation of fraud would need
to be weighed on a scale of seriousness and complexity, with an eye
that sifts through material to identify veracity of the allegations.

The Court has also subtly stated that allegations of fraud can be
adjudicated upon in courts when the person against whom such
allegations are levelled desires to be tried in court. This will be an
additional factor to be considered by courts in deciding applications for
reference to arbitration. It will also be crucial for courts to scrutinize if
fraud is directed at the arbitration agreement, thereby impeaching the
agreement (and the resultant arbitration, the same being creature of the
arbitration agreement), as contra-distinguished from the main contract.

The judgment acts as a fail-safe judgment as it takes into account

universally-accepted principles of kompetenz kompetenz, separability and
party autonomy as the epicenter of arbitration, and accords due respect to
ordinary business rationale underlying arbitration clauses in contracts. It
fortifies the intention of the judiciary to be a partner in arbitral
proceedings and offer support, both in an active and passive manner, where
questions arise with respect to reference to arbitration.
 VII. Arbitration (Amendment) Act,2015 Shall
Apply Retrospectively to Court
Proceedings in Relation to Arbitral
Proceedings
The Delhi High Court

 Holds that provisions of the Arbitration & Conciliation ( Amendment

Act), 2015 (“Amendment Act”) to apply retrospectively to all court
proceedings related to arbitration proceedings instituted post the
Amendment Act even if the arbitration commenced prior to the
Amendment Act;

 Recognizes that the position regarding non- applicability of Part I of

the Arbitration & Conciliation Act, 1996 (“Act”) with respect to foreign
seated arbitrations stands amended by virtue of Section 2 (2)163 of
the amended Act thereby making Section 9 of the Act available to
parties even in case of a foreign seated arbitration even if the
arbitration commenced prior to the Amendment Act;

 Holds that choosing a foreign law or foreign seat or foreign

institutional rules does not amount to implied exclusion of Section 9
of the Act;

A. Brief facts

Recently, the Delhi High Court (“Court”) in Raffles Design International

India Pvt Ltd. (“Petitioner”) vs. Educomp Professional Education Ltd.
(“Respondent”) allowed a petition seeking interim relief under Section
9 of the Act (“Petition”) in a Singapore seated arbitration, and held
that the provisions of the Amendment Act would apply to all court
proceedings in relation to arbitral proceedings instituted after the
Amendment Act came into force, even if the arbitration commenced
prior to the Amendment Act.

The parties had agreed to resolve their disputes through arbitration

seated in Singapore, with the governing law as Singapore Law, and
arbitration to be conducted in accordance with the rules of the
Singapore International Arbitration Centre (“SIAC”).
Certain disputes arose between parties wherein the Petitioner
proceeded to initiating arbitration in Singapore and also filed for the
appointment of an emergency arbitrator under the SIAC rules,
pursuant to which certain reliefs were granted to the Petitioner
which were later confirmed by the arbitral tribunal. Due to
subsequent contravention of the emergency award by the
Respondent, the Petitioner filed the present Petition before the Court,
to which the Respondent raised a preliminary objection regarding its
maintainability.

B. Respondent’s Objections
The Respondent’s primary objection was on the ground that Part I of
the Act is inapplicable to proceedings held outside India and that by
choosing Singapore as the Seat, the parties have impliedly excluded the
applicability of Section 9 of the Act and that therefore the present
Petition is not maintainable. The Respondent’s also contended that the
Amendment Act is inapplicable to the present arbitral proceedings by
virtue of Section 26 of the Amendment Act, as the arbitral proceedings
had commenced prior to the date of commencement of the Amendment
Act.

C. Petitioner’s Contentions
The Petitioner contended that the very purpose for the amended Section
2 (2) was to confer jurisdiction on Indian Courts in respect of Sections 9
and 27 of the Act, even if the seat is foreign and that the expression
“subject to an agreement to the contrary” as found in the amended
Section 2 (2) would mean and require something more than mere
choice of law and seat of arbitration. It was also contended that the
expression “to arbitral proceedings” as used in the first limb of Section
26 does not apply to court proceedings and that therefore the
Amendment Act ought to apply to the present case.

D. Issues Before The Court

 Whether the provisions of the Amendment Act were applicable to the
present Petition?
 If the answer to the above is in the affirmative, whether the parties
had excluded application of Part I of the Act, since the arbitration was
seated in Singapore with the governing law being Singapore Law?

E. Judgment & Analysis

The Court clarifies that Section 26 of the Amendment Act is in two
parts, the first couched in negative form, and the second in the
affirmative. Relying upon the decision of the Supreme Court in Thyssen
Stahlunion Gmbh vs. Steel Authority of India the Court observes that
the usage of the word ‘to’ in the first limb instead of ‘in relation to’
clearly restricts the import of the first limb of Section 26. The Court
therefore holds that the use of the phrase “in relation to” indicates that
the legislature intended the second limb of the provision to have a wider
sweep thus covering all proceedings connected to arbitral proceedings,
and that therefore the amendments would apply to Court proceedings
instituted post commencement of the Amendment Act.

In coming to such a conclusion, the Court has upheld recent

judgments of the Madras High Court [Click Here to access NDA
hotline], the Bombay High Court and the Calcutta High Court
which came to similar conclusions.

The Court however, also observes that the two limbs of Section 26
of the Amendment Act are not exhaus- tive as the first limb refers
only to proceedings commenced in accordance with Section 21
(found
in Part 1) of the Act, and that therefore Section 26 is silent regarding
applicability of the Amendment Act to proceedings which are not
expressly indicated therein. Due to the lack of any express
indication as to the applicability of the Amendment Act to
arbitrations instituted outside India, the Court adopts a purposive
interpretation, sets out the legislative intent behind the
Amendment Act, and holds that even in cases where there is no
express provision regarding retrospective applicability of the new
law, the Courts should look to further intention of the legislature.
Considering that the very purpose of the amended Section 2 (2) of
the Act was to enable a party to approach Indian Courts for
interim relief even in foreign seated arbitrations, the Court
clarifies that the position regarding non-applicability of Part I of
the Act in foreign seated arbitrations, as held in Bharat Aluminium
Company Vs. Kaiser Aluminium Technical Services Inc., stands
amended as far as Section 2 (2) of the Act is concerned and that
parties now have recourse to Section 9 of the Act even in foreign
seated arbitrations. The Court therefore allows the present
Petition and makes it clear that choice of a foreign law or a foreign
seat or foreign institutional rules does not amount to implied
exclusion of Section 9 of the Act.

The Court has demonstrated its pro-arbitration approach in

adopting an effective and purposive interpretation of the
provisions to further the intention of the legislature regardless of
an apparent lacuna in the law so as to make the provisions of
the Amendment Act effective immediately. Such an approach
adopted by Courts would go a long way in enhancing the
effectiveness of the alternate dispute resolution scenario in
India. Parties can now choose a foreign seat and foreign law and
still retain the benefit of seeking recourse to Indian courts for
interim measures. The question of law regarding the
retrospective applicability of the Amendment Act to arbitral
proceedings vis-à-vis court proceedings how- ever, is currently
pending before the Supreme Court.
VIII. Employees as Arbitrators? No, Says
Delhi
HC

 The Delhi High Court clarifies applicability of Arbitration and

Conciliation Amendment Act, 2015 (“Amendment Act”) in case of
invocation of arbitrations post October 23, 2015.

 The Delhi High Court stresses the significance of adhering to the

detailed guidelines on ineligibility of arbitrators as provided in the
Seventh Schedule to the Amendment Act.

 Positive move to do away with the practice of appointment of in-

house arbitrators for resolution of disputes.

A. Introduction
The Delhi High Court (“Delhi HC”) in one of its recent judgment in
Assignia-Vil (“Petitioner”) JV v Rail Vikas Nigam Ltd.(“Respondent”),
taking cognizance of the amendment to Section 12(5) of the
Arbitration & Conciliation Act, 1996 (“Act”) held that under the
Amendment Act, the court is duty bound to secure appointment of
an independent and impartial Arbitral Tribunal.

B. Brief Facts
The parties entered into a works contract (“Contract”) under which
the Petitioner undertook to carry out certain construction works
(“Work”) for the Respondent, to be completed by February 15,
2015. Certain disputes arose between the parties. The Petitioner
had raised three claims (“First Dispute”) against the Respondents
during the execution of the Contract and sought payments. Due to
failure of Respondent, to resolve issues amicably, an arbitral
tribunal (“the First Tribunal”) was constituted in relation to these
three claims. The First Tribunal consisted of serving and retired
employees of the Respondent and was constituted before the
commencement of the Amendment Act.
During the pendency of the First Dispute, an extension of time for
completion of work was granted to the Petitioner, however before
this period had lapsed the Respondent served a notice of termination
to the Petitioner due to faulty execution of the Work. The Petitioner
opposed the termination and sought losses suffered due to untimely
termination. As the attempt to resolve disputes amicable failed, the
Petitioner by its letter dated October 26, 2015 invoked arbitration
(“Second Dispute”) and called upon the Petitioner to suggest five names
for constituting an independent arbitral tribunal. The Respondent’s
failure to respond to the said invocation of arbitration, lead to the
present application under Section 11 (6) of the Act.

C. Issue
The issue before the Delhi HC was whether the dispute relating to the
termination of the Contract had to be referred to the First Tribunal for
resolution, or to a newly constituted independent arbitral tribunal, in
view of the Amendment Act.

D. Arguments

Contentions of the Petitioner

The Petitioner based their arguments on the following main

contentions:-

1. Issue of termination of Contract constitutes a distinct and

complicated issue;
2. First Tribunal had been constituted to adjudicate specific
issues and only to deal with the three original claims;
3. Nomination of arbitrators who are serving or retired
employees would not constitute an independent and
unbiased tribunal;
4. Arbitration with respect to the Second Dispute was invoked
post October 23, 2016, making provisions of the
Amendment Act applicable.
 The Second Dispute, therefore cannot be referred to First Tribunal.

Contentions of the Respondent

1. The Respondent argued that there was already an existing tribunal

and new claims could be added to the pending arbitration. The
Respondent had given its consent to add/modify claims subsequent to
the termination of contract, to be considered by First Tribunal itself.
Placing reliance on State of Orissa v Asis Ranjan and HL Batra & Co. v State
of Haryana and Shyam Charan Agarwal & Sons the Respondent argued
that additional claims could be raised before the First Tribunal and that
there was no legal justification in restricting the scope of arbitration, as
the aim of the procedure was to settle all disputes between the parties
and avoid future litigation.

2. No objections were raised on the independence or impartiality of the

First Tribunal by the Petitioner till date and therefore the Second
Dispute may also be dealt with by the same tribunal. The Respondent
contended that the Petitioner could not demand constitution of a new
Tribunal and take benefit of its own mistake, after failing to participate
in the proceedings before the First Tribunal

E. Judgment
The Delhi HC, after hearing all the submissions, held that in the normal
course, with due consent of parties, the issue of termination of Contract
could contract should also be referred to the First Tribunal in the pending
arbitration proceedings itself. This would be in the interest of time, cost-
efficiency and to avoid conflicting decisions.

The Respondents had relied upon certain case laws to argue that ‘all
disputes’ arising out of an agreement could be referred to the same Arbitral
Tribunal, and that therefore the issue of the untimely termination of the.
The Delhi HC refered to the Supreme Court’s decision in Dolphin Drilling
Limited v Oil and Natural Gas Corporation Limited which had dealt with the
issue of disputes arising between the parties prior to the invocation of
arbitration and those arising during the pendency of the arbitration dealing
with the past disputes.
The Delhi HC thereafter noted that the First Dispute was invoked before the
commencement of the Amendment Act and the Second Dispute was
invoked post commencement. On the question of applicability of the
Amendment Act, the Delhi HC highlighted that the arbitration clause in the
Contract encompassed statutory modifications to the Arbitration and
Conciliation Act, 1996, and therefore, since the amendments came into
force prior to the invocation of arbitration of the Second Dispute, the
provisions of the Amendment Act would apply.

In light of the amendments brought about by the Amendment Act, the Delhi
HC held that it was the prerogative of the Petitioner to seek constitution of
an independent and impartial Arbitral Tribunal for adjudicating the issue of
termination of the Contract, due to change in law under Section 11 (8) of
the Act and the fact that the First Tribunal comprised of employees of the
Respondent. Having the same tribunal resolve the Second Dispute would
negate the very purpose of the amendments to Section 12 of the
Amendment Act.

F. Analysis

The recent judgment may be amongst the first of many heralding a new era
for the arbitration regime in India, bringing it in line with international best
practices having stringent conflict of interest regimes. It has been common
practice for public sector undertakings in India to have a panel of in-house
arbitrators that are technically proficient in that particular sector, leading to
an unfair advantage over the opposite party.

This judgment has dealt with several aspects in relation to appointment of

arbitrators and procedure required to be followed pre and post amendment
of the Act. The recourse to statutory provisions for appointment of
arbitrator under Section 11(6) arises only upon failure of one party to follow
procedure based on terms and conditions of the agreement. It is settled law
that in the event of a corporation forfeiting its right to appoint an arbitrator,
with similar clauses providing for employees as Arbitrators, the courts are
entitled to appoint an independent and impartial arbitrator, giving a go-bye
to the terms of the arbitration clause.
In the short term, this judgment may result in the constitution of multiple
tribunals dealing with disputes under the same agreement if new disputes
have arisen post the Amendment Act, while proceedings are pending for
previous disputes before an arbitrator tribunal, unless both parties consent
otherwise.

This judgment marks the end of such in-house arbi- trators and stresses
the importance of compliance with guidelines provided under Section 12(5)
read with Seventh Schedule of the Amendment Act for appointment of
arbitrators to maintain independence and impartiality. Interestingly, the
Delhi HC, by directing the parties to appear before the Delhi International
Arbitration Centre, may have taken a conscious decision to go in for
institutional arbitration, instead of ad-hoc. This may also be in line with the
push for institutional arbitration as was envisaged under the law
commission report but did not find place in the Amendment Act.