Which laws apply to arbitration in India?

The Arbitration and Conciliation Act, 1966 (“Arbitration Act”) is the primary legislation which governs arbitration in India. The Arbitration Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015, which came into effect on October 23, 2015 (“Amendment Act”). Principles from the Indian Contract Act, 1872 may be applied to the construction of an arbitration agreement and provisions of the Code of Civil Procedure, 1908 govern the enforcement of arbitral awards and applications to court in support of arbitral proceedings, in addition to the Arbitration Act. Various High Courts have notified rules governing the conduct of judicial proceedings in support of arbitration like Bombay High Court Rules Relating to the Arbitration & Conciliation Act, 1996. The rules of arbitration institutions will apply to arbitration proceedings, where institutional arbitration is adopted like the Mumbai Centre for International Arbitration (“MCIA”) Rules, 2016 or Delhi International Arbitration Centre (Arbitration Proceedings) Rules, 2018.

Is the Indian Arbitration and Conciliation Act based on the UNCITRAL Model Law?

Yes, The Arbitration Act is based largely on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Conciliation Rules, 1980, (together, “Model Law”), but deviates from the Model Law in certain aspects.

Are there different laws applicable for domestic and international arbitration?

Currently, India has a consolidated legislation i.e. the Arbitration Act, under which Part I applies to arbitrations seated in India, and Part II relates to the enforcement of certain foreign awards, such as awards under Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention”), 1958 and the Convention on the Execution of Foreign Awards, 1923 (“Geneva Convention”). Pursuant to the Amendment Act, certain provisions of Part I of the Arbitration Act such as seeking interim relief from courts, assistance of court in taking evidence, also apply to arbitrations seated outside of India, unless the arbitration agreement specifically excludes such an application.

Has India acceded to the New York Convention?

India signed the New York Convention on June 10, 1958 and ratified it on July 13, 1960 subjecting its applicability to the following conditions:

• Only awards made in the territory of another contracting state that are also notified as reciprocating territories by India would be recognised and enforced;

• Only differences arising out of legal relationships, whether contractual or not, that are considered commercial under the national law would be considered arbitrable.

Can parties agree on foreign arbitration institutions (i) if both parties are domiciled in the country, (ii) if one party is domiciled in the country and the other party abroad?

The Arbitration Act provides that parties may contractually agree on the procedure for arbitration and does not stipulate restrictions on the choice of arbitration institutions even if both parties are domiciled in the country or one party is domiciled in the country and the other party abroad. Therefore, parties may choose to agree on a foreign arbitration institution. However, in the absence of clarity in the Arbitration Act and due to conflicting judicial pronouncements, it is unclear whether two domestic parties could agree on foreign seated arbitration i.e. where both the judicial seat of the arbitration and the procedure governing the arbitration derogate from Indian law.

Does the Indian arbitration law contain substantive requirements for the arbitration procedures to be followed?

There are no substantive requirements for the procedure to be followed under the Arbitration Act. The Arbitration Act permits the parties to agree on the procedure to be followed by the arbitral tribunal. In the event that parties are unable to agree on the procedure to be followed, then the arbitral tribunal may decide the procedure. Proceedings conducted by arbitration institutions will be governed by the procedure laid down in the institutional rules.

Does a valid arbitration clause bar access to state courts?

An arbitration clause does not operate as an absolute bar on the courts of India. If a dispute in a matter covered by a valid arbitration clause is brought to court, the court is required to refer that to arbitration, if an application to that effect is made by the defendant not later than the date of submitting the first statement on the substance of the dispute to the court. The precondition is therefore an application before the court seeking reference to arbitration In addition, parties may be able to approach the courts (i) for appointment (Section 11) and removal (Section 13 & 14) of arbitrators, (ii) seeking interim relief pending arbitration (Section 9), (iii) seeking to set aside awards (Section 34) and (iv) enforcement of awards (Section 36). The jurisdiction of Indian courts is different in cases where the arbitration is seated in India and where it is seated abroad.

What are the main arbitration institutions in India?

Arbitration institutions such as the Mumbai Centre for International Arbitration (“MCIA”), and institutions attached to various High Courts such as Delhi International Arbitration Centre (“DIAC”) in Delhi, Karnataka, Punjab and Haryana, to name a few. Apart from these, there are arbitration institutions run by the Chambers of Commerce in different states such as the Bombay Chambers of Commerce and Madras Chambers of Commerce. The Singapore International Arbitration Centre has also opened an offshore office in Mumbai given the increasing number of commercial arbitrations in India, although this office does not directly administer any India related arbitrations.

Addresses of major arbitration institutions in India?

Mumbai Centre for International Arbitration (MCIA)
20th Floor, Express Towers,
Nariman Point,
Mumbai – 400021 (India)
Tel: +91-022-61058888
Website: www.mcia.org.in

Delhi Centre for International Arbitration (DCIA)
Delhi High Court Campus
Shershah Road
New Delhi – 110503
Tel: +91-11-23386492, 23386493
E-mail: delhiarbitrationcentre@gmail.com
Website: www.dacdelhi.org

Arbitration Rules of major arbitration institutions?

The above-mentioned arbitration institutions have a specific set of rules which is available on their websites, as provided above.

What is/are the Model Clause/s of the major arbitration institutions?

The model clauses of the arbitration institutions are available on their respective websites. For MCIA, the following clause has been suggested as a model clause22:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in accordance with the Arbitration Rules of the Mumbai Centre for International Arbitration (“MCIA Rules”), which rules are deemed to be incorporated by reference in this clause. The seat of the arbitration shall be_______________ .
The Tribunal shall consist of [one/three] arbitrators).
The language of the arbitration shall be _______________ .
The law governing this arbitration agreement shall be
The law governing the contract shall be _____________.” 

The Delhi Centre for International Arbitration recommends the following arbitration clause in the contracts23:

“All dispute and differences arising out of or in connection with or relating to the present agreement shall be settled under the Rules of Delhi International Arbitration Centre by one or more arbitrators appointed in accordance with its Rules.

Note: Parties may consider adding the following:

(a) The number of arbitrator(s) shall be .
(b) The language of the arbitration proceedings shall be .
(c) Specific qualifications of the arbitrator(s) including language,
technical qualifications and experience, if any.
(d) The place of arbitration shall be the Delhi International
Arbitration Centre at Delhi.

How many arbitrators are usually appointed? 

Under Section 10 of the Arbitration Act, the parties may choose to determine the number of arbitrators. However, such number must be an odd number. In the absence of any agreement between the parties on the number of arbitrators, a sole arbitrator is appointed.

An arbitrator may be challenged on the following grounds:

• if circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

•  if he does not possess the qualifications agreed to by the parties.

The grounds which given rise to the above circumstances have been mentioned in the Fifth Schedule of the Arbitration Act. A separate procedure for challenging the arbitrator(s) is provided for in Section 13 of the Arbitration Act.

Are there any restrictions as to the parties’ representation in arbitration proceedings? 

The Arbitration Act does not impose any restrictions on the representation of parties during proceedings. However, the specific rules of the respective arbitration institution may prescribe certain restrictions.

When and under what conditions can courts intervene in arbitrations?

For arbitrations under the Arbitration Act, a court may not intervene in an arbitration proceeding except on application by either of the parties under the following circumstances:

(i) application for dispute to be referred to arbitration under Section 8 for domestic arbitrations and Section 45 for international arbitrations;

(ii) application for interim measures under Section 9, for international arbitrations as well, subject to any agreement to the contrary;

(iii) application for court to appoint arbitrator under Section 11;

(iv) application challenging the appointment of an arbitrator under Section 13;

(v) application to determine the termination of mandate of an arbitrator and appointment of a substitute arbitrator under Section 14;

(vi) application for assistance in taking evidence under Section 27;

(vii) application to set aside an arbitral award under Section 34;

(viii) enforcement of the award under Section 36;

(ix) appeals from certain orders of the court under Section 37;

(x) application to order the tribunal to deliver the award to the applicant on payment to the court under Section 39;

(xi) application for jurisdiction under Section 42;

(xii) extension of time period under Section 43;

In relation to arbitrations seated outside India, apart from points (i) (ii) and (vi) above, a court in India may intervene in relation to the enforcement of such foreign award delivered outside India under Sections 48 and 57.

Do arbitrators have powers to grant interim or conservatory relief?

Under Section 17 of the Arbitration Act, the arbitral tribunal may, at the request of a party, grant interim relief in respect of the subject matter of the dispute or require a party to furnish appropriate security for the relief granted. Furthermore, the rules of certain arbitration institutions also allow an arbitral tribunal to grant interim relief. For instance, under the MCIA Rules, 2016 Article 15.1 allows an arbitral tribunal to “at the request of a party, issue an order granting and injunction or any other interim relief it deems appropriate. The Tribunal may order the party requesting interim relief or provide appropriate security inconnection with the relief sought.”

What are the formal requirements for an arbitral award (form; contents; deadlines; other requirements)?

• Forms and Contents

The form and contents of an arbitral award have been set out under Section 31 of the Arbitration Act. The following are the key requirements under the above provision:

An arbitral award has to be in writing and must be signed by the members of the arbitral tribunal.

• The arbitral award must state the reasons upon which it is based, unless:

– the parties have agreed that no reasons are to be given, or
– the award is an arbitral award on agreed terms in the form of a settlement under Section 30.

• The arbitral award must provide the date and the place of arbitration.

• In the event that the arbitral award contemplates the payment of money, the award must include the sum, the rate of interest as considered reasonable by the tribunal and the duration for the interest to be paid.

• Section 31 A inserted by the Amendment Act has introduced a regime for costs. The arbitral tribunal will determine which party is entitled to costs and the amount of costs and the manner in which the costs are to be paid. The general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party.

• Deadlines for issuing arbitral awards 

The Arbitration and Conciliation (Amendment) Act, 2015 stipulates that the arbitral tribunal is to render its award within twelve months from when the matter was referred to the tribunal. The arbitral tribunal is deemed to be in reference on that date on which the arbitrator, or all the arbitrators, have received notice of their appointment to the case. There can be a further extension of a maximum period of six months with the consent of both the parties. If the tribunal is in requirement of more than eighteen months for issuing an award, then it may apply for such an extension to the Court having jurisdiction. However, the Court is likely to grant such extension only when sufficient cause has been shown and the arbitrators may be penalized for the delay, with a proportionate reduction of their fees, if the same can be attributable to them.

• Other formal requirements for arbitral awards 

An arbitral award may be required to be stamped in accordance with applicable stamping statutes.

(a) Stamp Duties requirements

The Arbitration Act is silent on the stamping and registration of an award. However, stamping of the arbitral award is required as per the requirements of the Indian Stamp Act 1899 or the relevant state stamp duty statutes, as may be applicable. Documents which are required to be stamped will not be admissible in evidence “for any purpose” if it is not duly stamped. In addition, penalties may also be levied. The rates at which stamp duty is levied may vary across states. Recently, the Supreme Court of India in Shriram EPC Ltd v Rioglass Solar SA held that an award under Item 12 of 115 INDIA Schedule I of Stamp Act, 1899 will not include ‘foreign award’ and therefore a foreign award is not liable to incur stamp duty for its enforcement in India.

(b) Registration requirements

While the Arbitration Act is silent on registration requirements, pursuant to the Registration Act 1908, awards that purport to impact immovable property, must be registered. Failure to register a document that is mandatorily registered under the statute renders it unenforceable. The registration fee varies depending on the state in which the award is sought to be enforced.

On what conditions can arbitral awards be (i) appealed or (ii) rescinded? 

There are no appeals against arbitral awards. However, Section 34 of the Arbitration Act permits a party to make an application to a court to challenge an arbitral award under the following circumstances:

(i) if a party was under some incapacity;

(ii) the arbitration agreement is not valid under law;

(iii) the party making the application was not given proper notice as required;

(iv) the arbitral award deals with a dispute not contemplated in the submission; or

(v) the composition of the tribunal was not in accordance with the agreement of the parties.

Section 34 also permits a court to set aside an arbitral award if the court finds that the subject matter is not capable of settlement by arbitration or if the arbitral award is in conflict with the public policy of India.

Domestic awards may also be set aside if found to be vitiated by patent illegality appearing on the face of the award, provided that the award cannot be set aside on the ground that there was an erroneous application of the law or there is a requirement for re-appreciation of evidence. Similarly, Section 48 states that the enforcement of a foreign award may be refused under the following conditions:

(i) if the parties were under some incapacity or the agreement was not valid under the law of the country where the award was made, or the agreement was subject to;

(ii) the party against whom the award is invoked was not given proper notice as required;

(iii) the award deals with a difference not contemplated by the submission to arbitration;

(iv) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties;

(v) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country under the law of which that award was made;

(vi) the subject matter of the dispute is not capable of being settled under the laws of India;

(vii) if the enforcement of the award would be contrary to the public policy of India.

In order to harmonise various decisions of the courts, the Amendment Act has clarified that an award is in conflict of public policy if the making of the award was induced or affected by fraud or corruption, is in contravention of the fundamental policy of Indian Law or in conflict with the basic notions of morality or justice. However, the court shall not review the merits of the dispute in order to examine whether the award is contrary to the fundamental policy of Indian Law.

What procedures exist for enforcement of foreign and domestic awards? 

i. Enforcement of Domestic Awards

Under Section 36 of the Arbitration Act, once an award is final or an application to set aside the arbitration award has been rejected, then such an award shall be executed under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the court.

ii. Enforcement of Foreign Awards

If the court is satisfied that the foreign award is enforceable, it will be deemed to be a decree of the court. The party applying for the enforcement of the foreign award must produce the following: (a) the original award or authentic copy; (b) original arbitration agreement or authentic copy; (c) evidence necessary to prove that it is a foreign award. Further, if the award is in a foreign language, the party must produce a copy of the award that has been translated into English that is also certified by the diplomatic or consular agent of such country.

The Supreme Court in M/s. Fuerst Day Lawson Ltd v. Jindal Exports Ltd, held that under the Arbitration Act a foreign award is already stamped as the decree. It observed that, “In one proceeding there may be different stages. In the first stage the Court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award as a rule of court/decree again.”

Can a successful party in the arbitration recover its costs? 

The Amendment Act has introduced Section 31 A which is a regime of costs. While the arbitrators will determine whether costs are payable by one party to another, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. The tribunal may make a contrary award by recording its reasons in writing.

Any agreement which has the effect that one of the parties has to pay the whole or part of the costs of the arbitration in any event shall only be valid if such agreement is made after the dispute in question has arisen.

Each arbitration institution will also have separate rules governing costs. For instance, under the MCIA Rules, Rule 32.6 of the MCIA Rules defines “costs of the arbitration” to include: “(a) The Tribunal’s fees and expenses and the Emergency Arbitrator’s fees and expenses, where applicable; (b) the MCIA’s administrative fees and expenses; and (c) the costs of expert advice and of other assistance reasonably required by the Tribunal.” Rules 32 and 33, inter alia, provide for detailed rules on fixing the aforementioned “costs of the arbitration”, including directing parties to make advance payments of such costs. The Registrar of the MCIA has the ultimate power to determine the costs and their payment, including directing payment of advance on the costs. Rule 29, inter alia, however, allows for the arbitral tribunal to make orders on apportionment of costs between the parties.

Are there any statistics available on arbitration proceedings in the country? 

A 2013 PWC study found that 47% of Indian companies that had chosen arbitration as their preferred method of dispute resolution chose ad hoc proceedings.24 India has an estimated 31 million cases pending in various courts. As of 31.12.2015 there were 59,272 cases pending in the Supreme Court of India, around 3.8 million cases are pending in the High Courts and around 27 million pending before the subordinate judiciary. 26% of cases, more than 8.5 million, are more than 5 years old.25

Are there any recent noteworthy developments regarding arbitration in the country (new laws, new arbitration institutions, significant court judgments affecting arbitration etc.)?

A. Proposed Legislative Changes to The Arbitration Act: 

The government introduced new amendments via The Arbitration and Conciliation (Amendment) Bill, 2018 (the Amendment Bill) on July 18, 2018 which is yet to be passed by the Rajya Sabha. The highlights of the Amendment Bill are as follows:

a) The Amendment clarifies that the amendments to the Act that were introduced with effect from 23 October 2015 are prospective, i.e., the amended Act will only apply to arbitrations and court proceedings relating to arbitrations, if the arbitration itself was commenced after 23 October 2015.

b) Any request for appointment of arbitrator (s) is required to be disposed within thirty days from the date of service of notice on the opposite party. Parties can approach designated arbitration institutions for the appointment of arbitrators. For international commercial arbitrations, the appointments will be made by institutions designated by the Supreme Court of India. For domestic arbitrations, appointments will be made by the institution designated by a High Court. In the event there are no designated arbitral institutions available, the Chief Justice of the concerned High Court will maintain a panel of arbitrators to perform the functions of the arbitral institutions.

c) The Amendment Bill proposes the establishment of a statutory authority called the ‘Arbitration Council of India’ (“the ACI”). The ACI will, inter alia, identify and grade qualifying arbitration institutions to be considered for designation, by High Courts or the Supreme Court for appointment of arbitrators.

d) The Amendment Bill 2018 now requires that the statement of claim and statement of defence are filed within six months of the arbitral tribunal’s appointment. The arbitration award must be passed by the arbitral tribunal within twelve months from the date of completion of pleadings. The timeline for passing an award, prescribed by the Act cannot be extended in the case of international commercial arbitrations.

e) The Amendment Bill 2018 provides for the training of arbitrators in India to equip them with skills to handle complex commercial arbitration.

f) An express confidentiality provision to govern arbitration proceedings is proposed. An express provision on immunity of arbitrators is also proposed.

g) Applications challenging an award would require to be decided only on the basis of the record of the arbitral tribunal, and not on extraneous evidence.

2. Recently, The Lok Sabha passed the New Delhi International Arbitration Centre Bill, 2018, which aims to establish the New Delhi International Arbitration Centre to conduct arbitration. The bill is yet to be passed by the Rajya Sabha. The Bill also aims to declare the NDIAC as an institution of national importance and promote the development of alternate dispute resolution in India.

B. Recent Supreme Court Decisions in relation to Arbitration 

In Board of Control for Cricket in India v. Kochi Cricket Private Limited, the Supreme Court held that the amended provisions of the Arbitration Act would apply to pending applications for setting aside all arbitral awards filed before October 23, 2015. The judgment debtor would now need to specifically seek a stay of the arbitration award or prepare to pay the award notwithstanding the pending challenge. The decision is another step towards ensuring speedy disposal of matters since stays on arbitral awards as noted by the Supreme Court itself would sometimes be in effect for a few years before being adjudicated.

In K. Kishan v. Vijay Nirman Company, Civil Appeal No. 21824 of 2017, The Supreme Court of India held that Corporate Insolvency Resolution Proceedings (CIRP) under the Insolvency and Bankruptcy Code, 2016 cannot be initiated against an operational debtor when an arbitral award, which has been passed in favour of the creditor is still being adjudicated upon under Section 34 of the Arbitration Act, as the pendency of such proceedings amount to a dispute under the Insolvency and Bankruptcy Code, 2016.

In Emaar MGF Land Limitd v. Aftab Singh, The Supreme Court of India held the arbitration clause cannot ouster the jurisdiction of the consumer courts. If a statue provides a special remedy to the party who is also under an arbitration agreement, the aggrieved party has an option to opt the special remedy provided under the statute i.e. the consumer courts under the Consumer Protection Act, 1986 or initiate arbitration. However, a party cannot after initiating an arbitration proceeding, apply for a special remedy.

In Union of India v. Hardy Exploration and Production (India) INC, the Supreme Court held that in the absence of additional conditions in the contract the term “place” or “venue” of arbitration used in an arbitration agreement can be read as “seat”.

In S.P Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh and Others, the Supreme Court held that any challenge to the arbitrator appointed should be raised before the arbitrator in the Arbitration Act in the first instance and only thereafter can be raised at the time of setting aside of the arbitral award under section 34 of the Arbitration Act.

In Simplex Infrastructure Ltd. V Union of India, the Supreme Court held that the three months timeline for filing of an application to set aside an arbitration award cannot be extended except for a further period of thirty days on showing sufficient cause.

Authors:

Zia Mody, Founder and Managing Partner
Aditya Vikram Bhat, Senior Partner