i Overview of alternatives to litigation
Since India has permitted foreign investments in various industries and sectors through its new liberal policies, there has been a considerable increase in the number of commercial disputes. As a mechanism to deal with its heavy caseload, India has striven to encourage ADR mechanisms. In several areas, and even at the level of the High Courts and the Supreme Court, the law has allowed for parties to be directed towards ADR.
Arbitration framework in India
The arbitration framework in India has been outlined in the Arbitration Act, a Model Law-based legislation, which provides for various matters such as:
- judicial non-interference; arbitration agreement;
- interim measures by courts and tribunals; appointment and termination of arbitrators; doctrines of competence-competence and severability;
- procedural autonomy;
- place and procedure for the arbitration;
- court’s assistance in taking of evidence; and
- recourse against arbitral awards.
India is also party to the New York Convention, provisions of which have been incorporated into Chapter I of Part I of the Arbitration Act.
The Arbitration Act is applicable both to India-seated and foreign-seated arbitrations. Part I covers the scope of India-seated domestic and international arbitrations, whereas Part II covers foreign-seated arbitrations and the enforcement of foreign awards.
Trends in relation to arbitration
The initial years of the implementation of the Arbitration Act saw a regressive interpretation that allowed frequent and wide-sweeping judicial intervention from Indian courts. The judgments of the Supreme Court and High Courts have, however, broken the trend and are serving to restore confidence in India as a potential arbitration destination. The 2015 Amendment has also introduced various provisions that promote arbitration by reducing the timelines and costs involved.
Furthermore, although statistically there are more ad hoc arbitrations conducted in India, the use of institutional arbitration is growing gradually.
While the ground of ‘patent illegality’ was accepted and codified, its application was limited to domestic arbitrations. After the 2015 Amendment Act, in the landmark judgment of Ssangyong Engineering & Construction Co Ltd v. National Highways Authority of India (Ssangyong), the Supreme Court, inter alia, clarified and narrowed the scope of the most misused ground for setting aside an award, namely, contravention of the public policy of India. It has also been clarified in the context of the ground of patent illegality appearing on the face of the award, that in interpreting a contract, an arbitral tribunal must be fair-minded and reasonable, that is, its view must be a possible one. The Supreme Court has recently held that even an erroneous interpretation of a contract, unless patently perverse and unreasonable, does not lead to setting aside of the award.
Arbitration and Conciliation (Amendment) Act, 2019
The 2019 Amendment Act was aimed at institutionalisation of arbitration in India. It, inter alia, introduced Part IA to the Arbitration Act, which provides for the incorporation, constitution and functions of the Arbitration Council of India (ACI), a body established to oversee the grading of arbitral institutions and arbitrators, promote institutional arbitration and recommend policy changes.
Confidentiality has been formally recognised by the 2019 Amendment Act by inserting Section 42A to the Arbitration Act, by which the arbitrator, the arbitral institution and the parties to the arbitration agreement must maintain confidentiality of all arbitral proceedings, with the sole exception being where disclosure is necessary for the purpose of implementation and enforcement of award. Section 42A of the Arbitration Act also does not impose a duty of confidentiality expressly on witnesses and third-party service providers in arbitration, among other things.
Anyone can seek information pertaining to an arbitration, even if confidential, if the same is permitted under the Right to Information Act, 2005 (RTI Act). In RS Sravan Kumar v. Central Public Information Officer, information related to an international arbitration was sought by an application made under the RTI Act. As the information pertained to public expenditure, the application was allowed. Section 22 of the RTI Act gives it an overriding effect. This position has also been restated in Prakash Makhijani v. Central Public Information Officer Military Engineering Services.
Notably, the 2019 Amendment Act also introduced Section 42B to the Arbitration Act, providing immunity to arbitrators acting in good faith. Previously, there was no immunity provided to arbitrators, unless the rules of certain arbitral institutions contained a provision to that effect. This provision was required to safeguard the arbitrators, especially when the majority of arbitrations in India are ad hoc, to allow them to discharge their duties independently and impartially, without the threat of facing any civil liability.
Arbitration and Conciliation (Amendment) Act, 2021
On 4 November 2020, the Indian President promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020. Under the amended Section 36 of the Arbitration Act, which deals with an enforcement of awards arising out of India-seated arbitrations, the court is empowered stay on the award unconditionally pending annulment proceedings under Section 34, if it is prima facie satisfied that the arbitration agreement or the contract that is the basis of the award or the making of the award was induced or affected by fraud or corruption. The Ordinance also omits the Eighth Schedule of the Arbitration Act (which prescribed minimum qualifications and experience for arbitrators) and instead stipulates in Section 43 J that the qualifications, experience and norms for accreditation of arbitrators shall be prescribed by regulations, which will be framed by the ACI. Subsequently, the Arbitration and Conciliation (Amendment) Ordinance, 2020 was substituted by the Arbitration and Conciliation (Amendment) Act, 2021.
Recent judicial pronouncements by the Supreme Court of India have, inter alia, allowed enforcement of emergency awards arising out of India-seated arbitrations as court orders under Section 17(2) of the Arbitration Act, and disallowed unilateral appointment of arbitrators and modification of awards by courts.
Treatment of foreign awards
India has been a signatory to the New York Convention since its very inception and ratified it in 1960. The Indian courts have recognised that the objections to enforcement under Section 48 of the Arbitration Act ought to be treated as a shield rather than a sword. While hearing objections to the enforcement of foreign awards, the Supreme Court has recognised the pro-enforcement bias in the New York Convention, placing the burden of proof on the parties objecting to enforcement. In the landmark judgment of Vijay Karia v. Prysmian Cavi E Sistemi Srl, the Supreme Court, inter alia, reiterated that the grounds for refusing enforcement have to be narrowly interpreted, upheld the pro-enforcement bias of the New York Convention and observed that contravention of the ‘fundamental policy of Indian law’ must entail a ‘breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised’.
Furthermore, the Court observed that even a breach of the Foreign Exchange Management Act, 1999 does not constitute contravention of the public policy of India. The Foreign Exchange Regulation Act, 1973, per contra, stands on a different footing, and a breach thereof may result in the award being refused enforcement, depending on the facts and circumstances of each case.
The Supreme Court has also permitted two Indian parties to choose a foreign seat of arbitration. Furthermore, it has been settled by the Supreme Court that a foreign award against a non-signatory can be enforced under Part II of the Arbitration Act.
Although statistically there are more ad hoc arbitrations conducted in India, the use of institutional arbitration has steadily grown. Reputed arbitration institutions such as the Singapore International Arbitration Centre (SIAC) and International Chamber of Commerce (ICC) have set up establishments in India. Many Indian arbitral institutions have also been set up, including the Mumbai Centre for International Arbitration in 2016. The High Courts at Delhi, Karnataka, Punjab and Haryana, Madhya Pradesh, Madras and Odisha, inter alia, have also set up arbitration centres to provide recourse to credible yet affordable dispute resolution.
With a view to promote institutional arbitration, the Parliament enacted the New Delhi International Arbitration Centre Act, 2019 for creating an independent and autonomous centre for institutionalised arbitration. The New Delhi International Arbitration Centre (Amendment) Bill, 2022, passed by the Lok Sabha (lower house), intends to amend the name of the centre to ‘India International Arbitration Centre’. Notably, the International Arbitration and Mediation Centre (IAMC), Hyderabad has also been established, with its board of trustees comprising former judges and the Minister of Law, Telangana.
The most important component of mediation is that it is the parties to a dispute who decide the terms of settlement. In conciliation, however, the conciliator makes proposals, and formulates and reformulates the terms of settlement. Mediation was first given statutory recognition in the Industrial Disputes Act 1947, where officers appointed under Section 4 of the Act are ‘charged with the duty of mediating in and promoting the settlement of industrial disputes’. Mediation, as a form of dispute resolution, has not obtained independent force in India but is mostly institutionally annexed to the courts through Section 89 of the Code of Civil Procedure Code 1809. To that extent, this might compromise the independence of mediations from court-related procedures and interference. Nevertheless, it gives mediations greater legitimacy and compatibility with the formal dispute resolution processes in society.
Another point to be noted is the growing importance of mediation clauses in commercial agreements. Both mediation and consultation form a mandatory aspect of the pre-arbitration procedure. It has also been held by courts that mediation and consultation are a substantial part of the agreement and are to be followed prior to any arbitration being initiated. In the event that a dispute is referred first to arbitration, the tribunal has the power to render the petition inadmissible on the grounds of the pre-arbitration procedure prescribed by the agreement being violated by the parties.
Akin to the Arbitration Rules 2006, the judges of the Salem bench also recommended the adoption of the Civil Procedure Mediation Rules 2006. These Rules govern almost the whole of the mediation process starting from the procedure for appointment of the mediator by both the parties from a panel of mediators that has already been formed for this purpose by the district courts. The qualifications and disqualifications for the panel, the venue of the mediation, the removal of a mediator from the panel, mediators’ impartiality and independence, the procedures during the mediation itself, confidentiality, privacy, the settlement agreement and many other aspects are governed by these Rules.
It is pertinent to note also the popularity of court-annexed mediation whereby mediation centres have been set up by various High Courts, including in Delhi, Madras, Gujarat, Calcutta, Kerala, Allahabad and Karnataka.
In July 2019, India signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention), by which India has formally recognised enforceable settlement agreements arising out of mediation in international commercial disputes. In January 2020, the Supreme Court constituted a special committee comprising of subject-matter experts to draft a legislation to give legal sanctity to disputes settled through mediation. In December 2021, the Mediation Bill, 2021 was introduced in the Rajya Sabha (upper house), containing provisions, inter alia, on its applicability, form and contents of a mediation agreement, mandatory mediation, interim reliefs from court or tribunal, appointment of a mediator, enforcement of mediation agreements and setting up of the Mediation Council of India.
On 13 July 2022, the Parliamentary Standing Committee on Law and Justice issued a report on the Mediation Bill, 2021, to provide certain recommendations with respect to its non-applicability to non-commercial disputes involving government and its agencies, definition of ‘international mediation’, potential misuse of mandatory mediation, lack of clarity on the provisions of ‘pre-litigation mediation’ and ‘court annexed mediation’, long timelines, lengthy provisions and lack of modalities in the provision on online mediation.
In recent years, India has witnessed an unprecedented push towards mediation, which has also been reflected in its legislation. For example, under the Consumer Protection Act, 2019, the District Commission, at the first hearing or at any later stage, if satisfied that there exists an element of a settlement, may direct the parties to have their dispute settled by mediation. The Act prescribes a time limit of 30 days for the completion of mediation. As stated above, Section 12A of the Commercial Courts Act mandates pre-institution mediation in all cases except in suits or applications in which urgent relief is sought, and further prescribes a maximum period of three months for the completion of the process of mediation. Without complying with this requirement, a suit in a commercial dispute instituted after 20 August 2022, would be barred and visited with rejection of the plaint under Order VII Rule 11 of the CPC.
iv Other forms of alternative dispute resolution
Conciliation has been inserted in Part III of the Arbitration Act and is less formal than arbitration, but more formal than mediation. To the extent that it requires only mutually consenting parties and not a formal written document executed to be able to conciliate, it proves to be an easier form of dispute resolution. The parties can appoint up to three conciliators. An important requirement of conciliation proceedings is the independence and impartiality of the conciliator and the attempt to ensure the appointment of a conciliator not having the nationality of either of the parties. The conciliators form a medium of communication between the parties inviting them for proceedings and helping them exchange documents and evidence. When the conciliators are of the opinion that elements of a settlement exist, they can draw up the terms of conciliation and, after being signed by the parties, they shall be final and binding on them to the same extent as an arbitral award.
An interesting mechanism is found in the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). Section 18 of the MSME Act stipulates that a company falling within the category of MSMEs can resolve its disputes, by mandatory conciliation and, if it fails, by arbitration, after making a reference to the MSME Facilitation Council. Recently, in Gujarat State Civil Supplies Corpn Ltd v. Mahakali Foods (P) Ltd, the Supreme Court has held that Chapter V of the MSME Act overrides the provisions of the Arbitration Act. The Facilitation Council initiating the conciliation can thus act as an arbitrator despite the bar under Section 80 of the Arbitration Act. Furthermore, the Court held that a party is not be precluded from making a reference to the Facilitation Council despite an independent arbitration agreement. During this process, the civil courts cannot entertain such matters and must refer them to the Facilitation Council for adjudication. The Supreme Court has also held that challenging an arbitral award mandatorily requires a pre-deposit of 75 per cent of the amount value in the civil court of appropriate jurisdiction in accordance with Section 19 of the MSME Act.
Similarly, the Code on Industrial Relations, 2020, provides for the appointment of conciliation officers as one of the measures for the resolution of industrial disputes.