Naresh Thacker
ELP Law, Mumbai

Ria Dalwani
ELP Law, Mumbai

Background

At the brink of the millennium, India began evolving its laws for commercial dispute resolution to address the needs of its globalizing economy and transnational businesses. The statutory amendments and jurisprudence have had a distinct impact on the conduct of arbitrations in India. In juxtaposition with Darwin’s Origin of Species, it is only fitting to recall that it is not the strongest of species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.

While the arbitration regime in India is consistently developing, inevitably, it has become a tedious task for parties situated in jurisdictions outside of India to stay abreast of on-ground developments (judicial and statutory). To aid stakeholders associated with an India-seated arbitration, we aim to chart through the course of an arbitration seated in India which could be initiated by/ against a foreign entity.

The Arbitration and Conciliation Act, 1996 (as subsequently amended in the years 2015, 2019, and 2021) (“Act”) is the main statute vis-a-vis the law of arbitration in India. In this write up, we dive into a few milestones provided in the Act and reflect upon issues / practices that are unique to the Indian jurisdiction.

Commencement of arbitration and notice of arbitration

Once disputes brew between two parties to a contract which contains an arbitration agreement^[1] and the pre-arbitral steps are complied with, the party seeking reference of disputes to arbitration must issue a notice of arbitration to the adversary, upon receipt of which the arbitration is commenced^[2]. While parties have the option to expressly waive the requirement for such notice, in the absence of a waiver, the notice becomes paramount^[3].

Practice note on arbitration notices

• In Alupro Building^[4], the Delhi High Court observed that the “trigger for the Court’s jurisdiction under section 11 of the Act is failure by one party to respond” to the notice of arbitration. Thus, the notice should be cautiously drafted, particularly since the views on the impact of a defective notice are not uniform. In Malvika Rajnikant^[5] , the court constituted the tribunal and left the issues related to the defective notice open for determination by the tribunal. However, in D.P. Construction^[6] the court declined to constitute the tribunal since the application was considered premature. It is advisable that the notice communicates the nature and quantum of the claim to the adversary, briefly elucidates the background in which the claim has arisen, cites the arbitration clause, calls upon the adversary to proceed with the appointment of an arbitrator and thus, establishes the intent to refer disputes to arbitration.

Court assistance in constitution of the tribunal

If the arbitrator is not appointed in accordance with the agreed procedure or the default procedure under the law (in the absence of an agreed procedure), the applicant may seek court assistance to constitute the tribunal under Section 11 of the Act^[7]. Although not notified yet, the Act provides for arbitral institutions to take over this function in the future.

Practice notes on Section 11 applications

• Section 11 applications in the case of an international commercial arbitration^[8] (“ICA”) (i.e., an arbitration involving a foreign party such as a foreign national, a foreign resident, or a body corporate incorporated outside India) are to be made to the Supreme Court of India. In matters other than ICAs they are to be made to the relevant High Courts having jurisdiction^[9].
• Given the vacuum in the law, in Nortel Networks^[10] it was held that the limitation period for filing an application under Section 11 would be three years^[11] from the date of failure to appoint the arbitrator.
• The law in India requires that before a document can be admitted into evidence, it must bear sufficient stamp duty^[12]. While the issue of whether an arbitrator can be appointed in a Section 11 application based on an unstamped or insufficiently stamped contract containing the arbitration agreement is still pending before the Constitution bench of the Supreme Court^[13]​​​​​​, to avoid delays in obtaining appointment of an arbitrator, the applicant ought to have the appropriate stamp duty assessed and paid.
• Foreign applicants often ask, “by when is an arbitrator likely to be appointed by the court?”. Although the statute provides that an effort should be made to dispose of applications within 60 days from date of service of notice to the adversary^[14] , depending upon the facts and tenability of defenses (such as existence of an arbitration agreement, time barred claims, excepted matters, arbitrability, etc.) this could take between a couple of months to a year. This is despite the Supreme Court observing that when in doubt, the disputes must be referred to arbitration, including when contentions relating to non-arbitrability are plainly arguable^[15] ​​​​​​and despite the holding in Shree Vishnu Constructions^[16] , that the applications for appointing arbitrators should be disposed expeditiously i.e., within six months from May 19, 2022.

Interim measures before the court

Parties have the option to seek court intervention to secure a host of interim measures^[17].

Practice notes on Section 9 applications

• Interim relief from courts can be granted prior to constitution of the tribunal, which in case of institutional arbitrations would include prior to the appointment of an emergency arbitrator^[18] . The same can be sought even after the constitution of the tribunal, but only if the court finds that the arbitral tribunal would be unable to grant an equally effective remedy.^[19]
• When the interim relief is sought prior to the constitution of the tribunal, the arbitration is to be commenced within 90 days from the date of decision under the Section 9 application^[20]. However, we note that a practice has arisen where, with consent of the parties, the courts have proceeded to appoint arbitrator(s) during the proceedings under Section 9 of the Act. Having done so, the courts then request the parties to seek interim measures from the tribunal under Section 17 of the Act, instead of the court under Section 9.
• Parties should understand that the principles for granting interim relief stems from other Indian laws and precedents. Therefore, while attempting to restrain the invocation of unconditional and irrevocable bank guarantees, parties may face an uphill task compared to other jurisdictions.

Challenging the arbitral appointment

In line with the International Bar Association’s Guidelines on Independence and Impartiality of Arbitrators (“IBA Guidelines”), the Act was amended (in 2015) to introduce the Fifth Schedule of the Act^[21] which enumerates illustrative circumstances that may lead to a successful challenge to an arbitrator. Also, the Seventh Schedule lists circumstances under which an arbitrator is ineligible^[22]. As universally understood, these are circumstances which give rise to justifiable doubts as to the arbitrator’s independence and impartiality; and which may affect his/her ability to devote time and complete the arbitration^[23].

Practice notes

• Considering the introduction of grounds to challenge the appointment, coupled with the jurisprudence of the courts, pivotal issues plaguing the arbitration regime have been addressed; for example, unilateral appointment of arbitrators is now barred^[24], giving much needed relief in government contracts.

Statutory time limits

Unique to India, to address the protracted non-institutional arbitrations, the legislature came up with timelines within which an arbitration is to be completed.

Practice notes

• The completion of pleadings is to be achieved within six months from the date the tribunal enters reference. The Act implies that the time limit for completion of pleadings applies to both ICAs as and domestic arbitration^[25].
• The completion of the arbitration is to be achieved within twelve months from the date of completion of the pleadings with a further extension available through parties’ consent^[26] and then through court permission^[27]. The time limit for completion does not apply to ICAs but the tribunal in an ICA is expected to “endeavor” to complete the proceedings within 12 months from the date of completion of pleadings^[28].

Interim measures before the tribunal

Parties have a right to apply for interim measures before the tribunal, at any time “during the arbitral proceedings”^[29]. The tribunal wields the same power as the court for making orders^[30].

Practice notes

• Emergency arbitration, if provided for under the institutional rules, in an arbitration seated in India is now recognized by virtue of the decision in Amazon.Com^[31]. The emergency award, though a misnomer, is enforceable under Section 17. In arbitrations seated outside India, the emergency award is unenforceable in India under Section 17. Instead, parties will need to approach the court under Section 9 to seek identical relief^[32].
• The debate on whether the tribunal can issue interim measures that will bind a third party is far from settled^[33]. Thus, it may be appropriate to assess if the court ought to be approached in such cases.
• Enforcement of an order of the tribunal awarding interim relief under Section 17 can be done through execution in courts and through contempt proceedings^[34].

Challenge to the jurisdiction of the tribunal

Like in all jurisdictions, the tribunal is empowered to rule on its own jurisdiction, including on objections which challenge the existence or validity of the arbitration agreement.^[35] The application must be offered prior to or at the time of filing the Statement of Defence. Nonetheless, the tribunal may admit the application at a later stage, if the delay can be justified^[36]. If the tribunal accepts the jurisdictional challenge, the aggrieved party may appeal before a court under Section 37(2)(a)^[37]. In the event the challenge is rejected, the aggrieved party may only challenge the resulting final award.^[38] 

Practice notes on Section 16 challenges

• Depending upon whether the jurisdictional objection involves material questions of fact, the tribunal may postpone a decision until the final award and is under no obligation to decide the challenge at the outset, although it must be decided prior to the final award^[39].  Nonetheless, upon an objection to the existence of an arbitration agreement, the tribunal would do well in disposing the challenge at a preliminary stage^[40].   
• As a dilatory tactic, parties have sought to prematurely challenge the order of the tribunal rejecting a challenge under Section 16 by invoking the writ jurisdiction of courts, albeit unsuccessfully^[41].
• Interestingly, when the jurisdiction of the tribunal is challenged on the ground that the claims are barred by limitation, an order on the point of limitation under Section 16 of the Act qualifies as an “interim award” under the Act^[42]. This interim award would be amenable to challenge under section 34 of the Act, even prior to the conclusion of the arbitration proceeding. 

Evidentiary hearings and final hearings

The Act provides parameters to ensure effective conduct of hearings. Largely, the freedom of procedure exists, subject to the principles of natural justice.

Practice notes

•  Although the arbitral proceedings are not bound by the rigors of procedural and evidentiary laws, the principles underlying such laws do apply^[43] and more so if the members of the tribunal are retired judges.
• As live transcription is an expensive service in India, stenographers are often availed for transcribing and recording oral evidence. Resultantly, the process is fairly long drawn.

Award

Just as the proof of the pudding is in the eating, the true test of success for all stakeholders lies in the Award. Section 31 of the Act chalks out the requisites of an Award. 

Practice notes

• Although the Act does not provide for payable stamp duty on the award, it is advisable to check the applicable stamp duty and have it paid.
• As the registries of different courts can cause procedural issues during execution, it is advisable to obtain hard copies of the award certified by the tribunal, particularly when the original award is not filed with the registry.

Challenge to the award

A party aggrieved by an award can initiate a challenge on the limited grounds crystalized under Section 34 of the Act. The Act provides strict timelines to challenge an award i.e., within three months from the date of receipt of the award extendable by 30 days^[44].   

Practice notes on challenges to awards

• The timelines for filing a challenge are mandatory, and courts will not entertain an application thereafter^[45].
• Akin to other jurisdictions, the grounds for challenge are fairly narrow.
• Although the dictum laid down by law and the Supreme Court is that reappreciation of evidence is not permitted^[46] while considering a challenge to the award, it is quite common for courts to address the merits of the matter in a Section 34 challenge.
• For the most part, however, challenges are quite rarely successful. Some relevant exceptions exist^[47].

Enforcement of the award 

After the time limit to file an application challenging an award under Section 34 expires, an award holder can seek enforcement of the award akin to a decree of a court^[48]. To prevent frivolous challenges, the Act was amended to remove automatic stay against enforcement the moment a challenge is filed. Now, the award debtor has to seek a stay against enforcement, which may be granted by a court subject to conditions, including deposit of the award amount with the court^[49]. Unconditional stay can be granted only if a prima facie case is made out that fraud or corruption was induced with respect to the (i) arbitration agreement, or the contract forming the basis of the award or (ii) the making of the award. However, bare allegations of fraud will not satisfy the threshold^[50].

Practice notes on enforcement

• While staying the enforcement of the award, the quantum of deposit depends upon the facts of each case^[51]. This ranges from 50% of the award amount to 100%, as seen in Power Mech^[52].  Government entities are not exempt from this requirement to deposit the decreed amount^[53]. 

•    Enforcement of the award brings the arbitral process into the realm of execution courts which are plagued with procedural roadblocks, multiple layered objections, tedious asset tracing and, where applicable, compliance with foreign exchange and taxation laws to secure remittance abroad. 

Conclusion

Supplementing the constant legislative development, the Supreme Court has also been pro-arbitration. In April 2021, through the judgment delivered in PASL Wind Solutions Private Ltd.^[54], the Supreme Court gave a green signal for two Indian parties to designate a foreign seat of arbitration and the decks have been cleared to enforce the consequent award in India. In Amazon.Com^[55], it recognized emergency arbitrators for arbitrations seated in India. 

The legislature and judiciary are leaving no stone unturned to ensure arbitrations seated in India are run with ease. Contrary to views that the rampant changes in the arbitration law in India portray instability, we see them as mobilizing efforts to build a robust dispute resolution mechanism. The process of evolution is not always perfect, but the results are promising.

 

^[1]Section 7, the Act, defines an “Arbitration agreement”.

^[2]Section 21, the Act.

^[3]Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd., 2017 SCC OnLine Del 7228.

^[4]Ibid.

^[5]Malvika Rajnikant Mehta v. JESS Construction, Arbitration Application No. 425 of 2019, decided on 28.04.2022 by the Bombay High Court

^[6]M/s D.P. Construction v. M/s Vishvaraj Environment Private Ltd, Miscellaneous Civil Application (Arbitration) No. 31 of 2021 in the High Court of Judicature at Bombay, Nagpur Bench, decided on 06.07.2022.

^[7]Section 11, the Act.

^[8]Section 2 (1)(f), the Act, Definitions, “international commercial arbitration”.

^[9]Section 11(4), the Act.

​​​​​^[10]BSNL v. Nortel Networks (India) (P) Ltd., (2021) 5 SCC 738.

^[11]Article 137 of the Limitation Act, 1963.

^[12]Section 35, Indian Stamp Act, 1899.

^[13]N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd and Ors., 2021 SCC OnLine SC 13.

^[14]Section 11 (13), the Act

^[15]Mohammad Masroor Shaikh v. Bharat Bhushan Gupta and Others, 2022 SCC OnLine SC 132; Vidya Drolia & Ors. v. Durga Trading Corp., (2021) 2 SCC 1

^[16]Shree Vishnu Constructions v. The Engineering-in-Chief Military Engineering Service & Ors. Order dated 19.05.2022 passed by the Supreme Court in SLP (C) No. 5306 of 2022.

^[17]Section 9(1), the Act.

^[18]Amazon.Com NV Investment Holdings LLC V. Future Retail Limited & Ors., (2022) 1 SCC 209.

^[19]Section 9(3), the Act .

^[20]Section 9(2), the Act.

^[21]Explanation 1 to Section 12 (1), the Act.

^[21]Section 12 (5), the Act.

^[23]Section 12, the Act; Section 13, the Act.

^[24]Ellora Paper Mills Ltd. v. State of Madhya Pradesh, (2022) 3 SCC 1; Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760; and Lite Bite Foods Pvt. Ltd. v. Airports Authority of India, 2019 SCC OnLine Bom 5163

^[25]Proviso to Section 29-A(1) r/w Section 23 (4), the Act.

^[26]Section 29-A(3), the Act.

^[27]Section 29-A(5), the Act.

^[28]Proviso to Section 29-A(1), the Act.

^[29]Section 17 (1), the Act.

^[30]Section 17 (1), the Act read with Section 17 (2)

^[31]Amazon.Com NV Investment Holdings LLC V. Future Retail Limited & Ors., (2022) 1 SCC 209

^[32]Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd. & Ors., 2016 SCC OnLine Del 5521; HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd. & Ors, 2014 SCC OnLine Bom 102

^[33]State Bank of India v. Ericsson India Pvt. Ltd. and Ors., (2018) 16 SCC 617; MD Army Welfare Housing Organization v Sumangal Services Pvt. Ltd., (2004) 9 SCC 619

^[34]Alka Chandewar v. Shamshul Ishrar Khan, 2017 SCC OnLine SC 758 

^[35]Section 16 (1), the Act

^[36]Section 16 (2) and 16(4), the Act

^[37]Section 37, the Act

^[38]Section 16 (5) and 16(6), the Act

^[39]Pankaj Arora v. AVV Hospitality LLP & Ors., O.M.P. (T) (COMM.) 32/2020 and I.As. 5832-5833/2020, decided on 20.07.2020 by the Delhi High Court; Maharshi Dayanand University & Anr. v Anand Coop L/C Society Ltd. & Anr. (2007) 5 SCC 295 

^[40]Kvaerner Cementation India Limited v Bajranglal Agarwal & Anr., (2012) 5 SCC 214

^[41]Odisha State Road Transport Corporation v. ARSS Bus Terminal Pvt. Ltd., (2021) 4 Arb LR 570

^[42]Indian Farmers Fertilizer Co-operative Limited v. Bhadra Products, (2018) 2 SCC 534 

^[43]Sahyadri Earthmovers v. L&T Finance Ltd. , 2011 (4) MhLJ 203t

^[44]Section 34 (3), Act; and Section 33, the Act

^[45]Mahindra and Mahindra Financial Services Ltd. v. Maheshbhai Tinabhai Rathod & Ors., (2022) 4 SCC 162 

^[46]Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail Corporation Ltd., (2022) 1 SCC 131

^[47]Ssangyong Engineering and Construction Company Ltd. v. NHAI, (2019) 15 SCC 131

^[48]Section 36, the Act

^[49]Section 36(2) and 36 (3), the Act

^[50]Proviso to Section 36(3), the Act; State of Maharashtra v. Jaykumar Fulchand Ajmera, (2021) 5 Arb LR 575

^[51]PFS Shipping (India) Ltd. v. V.K. Gupta and Ors., 2016 SCC OnLine Bom 10048

^[52]Power Mech Projects Ltd v. Sepco Electric Power Construction Corporation, 2020 SCC OnLine Del 2049; Manish v. Godawari Marathawada Irrigation Development Corporation,SLP (C) Nos. 11760-11761/2018

^[53]Pam Developments Pvt. Ltd. v. State of West Bengal, (2019) 8 SCC 112

^[54]PASL Wind Solutions Private Ltd. v. GE Power Conversion India Private Ltd., (2021) 7 SCC 1

^[55]Amazon.Com NV Investment Holdings LLC V. Future Retail Limited & Ors, (2022) 1 SCC 209