A. LEGISLATION AND RULES
A.1 Legislation
The Indian Arbitration and Conciliation Act, 1996 (“Arbitration Act”) is the primary legislation governing arbitration in India. The Arbitration Act has undergone several amendments in recent years, primarily focusing on enhancing the commercial arbitration ecosystem in India and establishing an institutional arbitration program beneficial for both domestic and international stakeholders.
In the past year, there have been no legislative amendments to the Arbitration, except for Part III of the Arbitration Act (related to conciliation) being amended by the Mediation Act, 2023. The Mediation Bill, 2023 received presidential assent on 14 September 2023 and has been enacted as the Mediation Act, 2023. The Mediation Act, 2023 seeks to broaden the scope of mediation by statutorily recognizing various forms, including pre-litigation mediation, community mediation, online mediation and conciliation, within the definition of “mediation.” The Mediation Act, 2023, inter alia, amends the Arbitration Act to clarify that any provision in any other enactment providing for the resolution of disputes through conciliation in accordance with the Arbitration Act shall be construed as a reference to mediation under the Mediation Act, 2023.
Separately, the government of India has constituted an expert committee to evaluate the functioning of the Indian arbitration law and propose reforms to the Arbitration Act. Acknowledging the imminent need to enhance the arbitration process and expedite the enforcement of arbitral awards, the expert committee aims to bolster India’s standing as an attractive jurisdiction for foreign investments. The expert committee has yet to publish its report.
A.2 Institutions, rules and infrastructure
The year 2023 witnessed the notification of the India International Arbitration Centre (Conduct of Arbitration Proceedings) Regulations, 2023 (“IIAC Regulations 2023”). The India International Arbitration Centre (IIAC) seeks to, inter alia: (i) implement targeted reforms to enhance its status as a flagship arbitration institution; (ii) encourage research and study in the field of arbitration; (iii) provide facilities and administrative support for arbitration, conciliation and mediation proceedings; (iv) maintain panels of accredited arbitrators, conciliators, and mediators; and (v) establish parameters for various alternative dispute resolution mechanisms. The IIAC Regulations 2023 provide for, inter alia, the procedures and norms for the conduct of arbitral proceedings, arbitrator appointments, fast-track procedure for issuance of awards, and emergency arbitrator — in view of the global standards, intending to strengthen and promote the arbitration regime in India.
B. CASES
B.1 Unstamped or insufficiently stamped arbitration agreements are not unenforceable
A seven-judge constitution bench of the Supreme Court of India (“Supreme Court”) in “In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899”[1] held that arbitration agreements that are not stamped or are inadequately stamped are not rendered void ab initio or unenforceable, and the same is a curable defect.
The seven-judge bench of the Supreme Court, inter alia, observed as follows:
- Non-payment of stamp duty renders an instrument inadmissible but not void, pursuant to Section 35 of the Stamp Act, which provides that an instrument lacking adequate stamp duty cannot be “admitted in evidence” or given effect to unless the deficient amount is paid. The phrase “admitted in evidence” pertains to the inadmissibility of the instrument and does not impact its validity. The absence of proper stamping on an instrument constitutes a defect that is curable by adhering to the prescribed procedure established by the Stamp Act. Therefore, an unstamped/insufficiently stamped arbitration agreement is not void or invalid.
- The doctrine of separability ensures that non-existence, ineffectiveness, invalidity, illegality or termination of the underlying contract does not necessarily nullify the “separable” arbitration agreement between the parties, and the arbitral tribunal can decide on the validity of the said agreement under the principle of kompetenz-kompetenz, as enshrined under Section 16 of the Arbitration Act.
- The negative connotation of the doctrine of separability indicates that the arbitral tribunal should decide on the challenge to its jurisdiction and can adjudicate on the matter of stamp duty. Particularly, courts cannot examine the tribunal’s jurisdiction based on the payment of stamp duty on a prima facie basis, and as such, dealing with the said issue would be against the legislative intent of the Arbitration Act at the stage of Section 11— appointment of arbitrators, or Section 8 — arbitral reference by judicial authority, of the Arbitration Act.
- Under Section 8 and Section 11 of the Arbitration Act, a court is only required to undertake a prima facie standard of review. Therefore, an objection to the stamping of an arbitration agreement does not fall for the determination of the courts under Sections 8 or 11 of the Arbitration Act but falls within the ambit of the Arbitral Tribunal.
B.2 Application of the Group of Companies doctrine under Indian law
The Supreme Court in Cox and Kings Ltd. v. SAP India Private Ltd.[2]upheld the Group of Companies Doctrine, recognizing its capacity to bind non-signatories to arbitration agreements. The Supreme Court observed, inter alia, the following:
- A non-signatory company within a group of companies may be bound by an arbitration agreement entered by its affiliate companies if it is established that it was the mutual intention of both signatories and non-signatories to be bound by such agreement.
- The underlying basis for the application of the Group of Companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the non-signatory party to the arbitration agreement.
- The need for a written arbitration agreement does not preclude the potential of binding non-signatory parties, provided that a defined legal relationship exists between the signatory and non-signatory entities. Thus, signatures to the document containing the terms of the arbitration agreement are not mandatory.
- The specification of the role and relationship of a third party in the agreement could indicate their consent to be bound by the terms of the arbitration agreement.
- A crucial consideration for the courts is whether such non-signatory parties intended/consented to be bound by the arbitration agreement through their acts, conduct or rights.
- The Group of Companies doctrine has an independent existence as a legal principle derived from a harmonious reading of Section 2(1)(h) in conjunction with Section 7 of the Arbitration Act.
- Courts, while dealing with an application for appointment of an arbitrator, should defer to the arbitral tribunal to adjudicate on the issue of whether non-signatories are bound by the arbitration agreement.
- The principle of alter ego or piercing the corporate veil cannot be the basis of the application of the Group of Companies doctrine.
- The decision in Chloro Control India (P) Ltd. v. Severn Trent Water Purification Inc.,[3] to the extent it placed reliance on “claiming through or under” in Section 8 of the Arbitration Act for application of the doctrine, is erroneous and against the well-established principles of contract law and corporate law. The Supreme Court held that a non-signatory cannot be “claiming through or under” a signatory entity. Pursuant to Section 2(1)(h) along with Section 7 of the Arbitration Act, a “party” includes both signatory and non-signatory parties, and there is a distinction between “party” and “persons claiming through or under a party.” Those claiming through or under can only assert their rights in a derivative capacity.
B.3 The validity of an arbitration clause can be examined against the criterion of arbitrariness under Article 14 of the Constitution of India
The Supreme Court in Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited[4] held that for an arbitration clause to be legally binding, it has to be in consonance with the “operation of law,” which includes the Constitution and pre-deposit clauses, which are vague would be arbitrary and violative of Article 14 of the Constitution of India (“Constitution”). A pre-deposit arbitration agreement mandates the claimant to deposit a specified percentage of the claimed amount in order to initiate arbitration proceedings.
The Supreme Court held that an arbitration agreement could be legally binding only when it is aligned with the “operation of law,” with the Constitution serving as the “grundnorm.” Consequently, the Supreme Court held that the courts have the authority to examine the validity of such a pre-deposit arbitration agreement/condition against Article 14 of the Constitution. The Supreme Court further observed that a pre-deposit requirement involving a deposit of a certain percentage of the claimed amount could dissuade a party from the option for arbitration, thereby contradicting the objective of alleviating the burden on the court system.
B.5 Power to modify an award under Section 34 of the Arbitration Act
The Supreme Court in Larsen Air Conditioning and Refrigeration Company v. Union of India[5] held that courts do not have the power to modify an arbitral award. The Supreme Court observed that under Section 34 of the Arbitration Act, the courts have extremely limited and restricted jurisdiction to interfere with an award, such as on the grounds of patent illegality, i.e., that “illegality must go to the root of the matter and cannot be of a trivial nature,” that the tribunal “must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground,” and the ground of denial of natural justice. The Supreme Court further observed while the Arbitration Act of 1940 contained a provision enabling the court to modify an arbitral award, the Parliament had intentionally omitted the said power while enacting the Arbitration Act. Therefore, the courts only have the power to set aside an arbitral award partially or wholly once the conditions stipulated under Section 34 of the Arbitration Act have been established.
B.6 Unilateral revision of fees by an arbitrator does not automatically terminate the mandate of the arbitrator
In Chennai Metro Rail Limited Administrative Building v. Transtonnelstroy[6] the Supreme Court held that while unilateral revision of fees by an arbitral tribunal is not permissible, such an action does not automatically result in the termination of an arbitral tribunal’s mandate on the basis of ineligibility, as set out in Section 12 of the Arbitration Act (grounds for challenging an arbitrator). The Supreme Court noted that it is only when the circumstances set out in the Seventh Schedule of the Arbitration Act that an arbitral tribunal can be considered ineligible, and consequently the mandate is terminated. It placed reliance on the decision of ONGC v. AFCONS Gunasa JV2[7] (“ONGC”) and noted that the Supreme Court in ONGC held that an arbitral tribunal could adjust its fees only through consultation and mutual agreement between the disputing parties. However, the Supreme Court, in the instant case, clarified that a breach of the rule laid down in ONGC does not render an arbitral tribunal ineligible. Consequently, the act of unilaterally increasing fees by an arbitral tribunal, which is not expressly entailed in Section 12(5) in conjunction with the Seventh Schedule of the Arbitration Act, does not lead to the arbitrator being deemed ineligible. Therefore, such an action does not result in the termination of the arbitral tribunal’s mandate.
B.7 Arbitral awards cannot be set aside based on mere potential alternate interpretation of facts or contract
The Supreme Court, in Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking,[8] observed that an arbitral award cannot be set aside based on the mere potential existence of an alternative perspective regarding facts or the interpretation of the contract. It reiterated that the jurisdiction conferred under Section 34 of the Arbitration Act is invoked solely to assess whether the arbitral tribunal’s decision/award is either manifestly arbitrary or perverse. As such, arbitral awards should not be interfered with in a “casual and cavalier manner” merely due to the existence of several interpretations unless a determination establishes that the award passed is manifestly arbitrary or perverse “without there being a possibility of alternative interpretation which may sustain the arbitral award.” The Supreme Court additionally observed that the extent of judicial intervention in an appeal under Section 37 of the Arbitration Act, scrutinizing an order either setting aside or refusing to set aside an award, is limited and governed by the similar grounds applicable for challenging an award under Section 34 of the Arbitration Act. Put differently, the jurisdictional scope under Section 37 of the Arbitration Act is not similar to the normal appellate jurisdiction of courts. Consequently, when exercising jurisdiction in an appeal under Section 37 of the Arbitration Act, a contractual clause/contract cannot be reinterpreted.
B.8 Illegality must be apparent on the face of the award for an award to be vitiated by “patent illegality”
The Supreme Court, in Reliance Infrastructure Limited v. State of Goa,[9] noted that for an award to be vitiated by “patent illegality,” such illegality should be evident from the face of such an award. It observed that the High Court, in its decision from which appeal has been preferred before the Supreme Court, has dissected and reassessed factual aspects of the dispute (for example, a review of inconsequential sections of the agreement and an analysis of documentary evidence), despite the fact that the arbitral tribunal had already taken a “possible view” on that set of evidence. The Supreme Court underscored the principle that an arbitral award could not be “lightly interfered with by the Courts,” emphasizing that such interference should not involve a re-evaluation of evidence by courts. Therefore, the limited scope of “patent illegality” cannot be transgressed merely by using expressions that refer to “error” and not to “patent illegality.” Additionally, the extent of judicial intervention under Section 34 or Section 37 of the Arbitration Act is extremely limited and is not similar to an appeal or revision against a decision of other courts.
B.9 Adverse costs award cannot be enforced against third-party funders
The Delhi High Court in Tomorrow Sales Agency v. SBS Holdings[10] held that under the Arbitration Act, an arbitral award passed by the tribunal cannot be enforced against a third-party funder who was not a party to the arbitration agreement/proceedings. The Delhi High Court observed that a third-party funder was not liable for an award and, consequently, was not obligated to furnish security for its enforcement. The High Court rejected the proposition that an entity could be considered a party to an arbitration agreement and be bound by an award in the proceedings thereunder. The Delhi High Court emphasized the policy of ensuring that third-party funders are not “mulcted with liability” that is neither undertaken by them nor they are aware of, as otherwise, the potential uncertain imposition of liability could discourage funding.
B.10 The 12-month time limit prescribed under Section 29A of the Arbitration Act is not applicable to international commercial arbitration
The Supreme Court in Tata Sons (P) Ltd. v. Siva Industries and Holdings Ltd.[11] held that the 12-month time limit for rendering an arbitral award prescribed under Section 29A of the Arbitration Act applies exclusively to domestic arbitrations and not to international commercial arbitrations. The Supreme Court observed that the 12-month time limit is mandatory only for domestic arbitrations but only a directory provision for international commercial arbitrations (i.e., in international commercial arbitrations, the tribunal is encouraged to complete proceedings within the 12-month time limit, but it is not obligatory).
Further, with regard to the prospective or retrospective application of the said amendment, the Supreme Court emphasized that the removal of the time limit under Section 29A for international commercial arbitration does not create new rights or liabilities; rather, the amendment is remedial. Therefore, Section 29A would be retrospective and thus apply to pending arbitral proceedings as of the effective date of the said amendment, i.e., 30 August 2019.
B.11 Enforceability of consent foreign awards under the New York Convention in India
The Delhi High Court in Nuovopignone International SRL v. Cargo Motors Private Limited and Anr.[12] dealt with the issue of enforceability of consent foreign awards under the Arbitration Act. The arbitration tribunal rendered a consent award based on the settlement agreement entered into between the parties. When enforcement of the said consent foreign award was sought by the award debtor, the respondent contested its enforceability on, inter alia, the grounds that: (i) the New York Convention does not acknowledge awards that record settlements between the parties; (ii) an award typically presupposes the existence of a “dispute” between the parties and requires adjudication on merits by the tribunal; and (iii) the New York Convention’s legislative history suggests that there was no consideration to broaden its scope to include settlements.
The Delhi High Court held that: (i) the award embodies the settlement between the parties, reflecting their mutual agreement to resolve their dispute through arbitration, which extends beyond a mere private agreement; (ii) the New York Convention, particularly under Article V, does not explicitly exclude consent awards, within its scope, resulting from a settlement; and (iii) consent awards are expressly recognized as enforceable awards in various institutional arbitral rules and the Arbitration Act.
[1] In Re Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 SCC OnLine SC 1666.
[2] Cox and Kings Ltd. v. SAP India Private Ltd., 2023 SCC OnLine SC 1634.
[3] Chloro Control India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.
[4] Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited, 2023 SCC OnLine SC 1422.
[5] Larsen Air Conditioning and Refrigeration Company v. Union of India, 2023 SCC OnLine SC 982.
[6] Chennai Metro Rail Limited Administrative Building v. Transtonnelstroy Afcons (JV) and Another, 2023 SCC OnLine SC 1370.
[7] ONGC v. AFCONS Gunasa JV2, (2022) 10 SCR 660.
[8]Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking, (2023) 9 SCC 85.
[9] Reliance Infrastructure Limited v. State of Goa, 2023 SCC OnLine SC 604.
[10] Tomorrow Sales Agency v. SBS Holdings, 2023 SCC OnLine SC 3191.
[11] Tata Sons (P) Ltd. v. Siva Industries and Holdings Ltd., (2023) 5 SCC 421.
[12] Nuovopignone International SRL v. Cargo Motors Private Limited and Anr., 2023 SCC OnLine SC 3297.
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