Aditya Vikram Bhat and Priyanka Shetty, AZB & Partners
A. LEGISLATION AND RULES
The Indian Arbitration and Conciliation Act, 1996 (“Act”) is the primary legislation governing arbitration in India. The Act has undergone a series of amendments focused on improving the eco-system for commercial arbitration in India and developing an institutional arbitration program that can benefit both domestic and international market participants.
On 4 November 2020, the President of India promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020 (“Ordinance”). Subsequently, on 11 March 2021, the Ordinance was replaced by the Arbitration and Conciliation (Amendment) Act, 2021 (“Amendment Act, 2021”). The Amendment Act, 2021 aims to address certain concerns that had been raised by stakeholders after the enactment of the Arbitration and Conciliation (Amendment) Act, 2019 (“2019 Amendment”). The primary purpose of the Amendment Act, 2021 was to ensure that all the stakeholder parties get an opportunity to seek unconditional stay of enforcement of arbitral awards, where the underlying arbitration agreement or contract or making of the arbitral award are induced by fraud or corruption.
Highlights of the Amendment Act, 2021 include:
- Automatic stay on arbitral awards: The Amendment Act, 2021 provides that an unconditional stay can be granted on the enforcement of an arbitral award (even during the pendency of the setting aside application) if the court is satisfied on a prima facie basis that: (a) the arbitration agreement or contract which is the basis of the arbitral award, or, (b) the making of the arbitral award, was induced or effected by fraud or corruption. This above amendment is applicable to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.
- Qualification of arbitrators: The Amendment Act, 2021 omits certain qualifications for arbitrators that were earlier introduced by the 2019 Amendment and states that the qualifications, experience and norms for accreditation of arbitrations will be specified by regulations. Presently, no such regulations have been introduced.
A.2 Institutions, rules and infrastructure
The year 2021 witnessed the establishment of a new arbitration and mediation center; International Arbitration and Mediation Centre at Hyderabad (IAMC). The institute provides time and cost-effective dispute resolution methods (arbitration, mediation and conciliation) for domestic as well as foreign investors. IAMC was established to achieve the vision of ease of doing business by ensuring effective and speedy dispute resolution mechanisms. The institute also seeks to provide services such as Med-Arb, emergency arbitration, online arbitration and mediation to its stakeholders. Multiple judicial fora including the Supreme Court of India have referred certain disputes to the institute for resolution through arbitration/mediation.
B.1 Investment treaty arbitrations
India executed a new Bilateral Investment Treaty (BIT) with Brazil on 25 January 2020. It is important to note that after the radical policy revamp introduced by the Government of India in 2017, which resulted in termination of a number of BITs, the government has only entered into new BITs with four jurisdictions, namely Belarus, Taiwan, Kyrgyzstan and Brazil, and is in the process of negotiations with Cambodia and the Philippines as well. The BITs with Kyrgyzstan and Brazil are yet to be ratified.
In September 2021, the Standing Committee on External Affairs published a report on India’s experience with bilateral investment treaties. The Committee, inter alia,made the following recommendations:
- Signing of new BITs especially in priority/core sectors particularly with jurisdictions with whom there were such treaties in the past should be encouraged while balancing investment protection of foreign investors in India and Indian investors abroad without comprising our national interests and priorities. Ministry of External Affairs should actively facilitate the process to initiate negotiations in the shortest possible time.
- Long drawn out process of negotiations should be reduced especially if there appears to be limited areas of convergence. Ministry of External Affairs to take proactive steps and coordinate with concerned ministries/departments to complete the negotiations and finalize the agreements at the earliest.
- Ministry of External Affairs should work in close coordination with the Department of Legal Affairs, Department of Economic Affairs and other concerned ministries/departments and make a combined effort to develop an in-house expertise and panel of lawyers’ experiences in investment treaty law.
- Ministry of External Affairs may organize a full term course along with workshops for the government officials for training and developing young counsel in the field of investment treaty and investment treaty arbitration.
- Ministry of External Affairs in consultation with other ministries/departments should make all out efforts to draft BITs cautiously leaving no scope of investment disputes and reduce the number of BIT claims against India. Steps may also be taken to settle such disputes outside the arbitration proceedings or before it proceeds to arbitration through pre-arbitration consultation/negotiation.
- Ministry of External Affairs should take proactive steps for better coordination and strengthening of Inter-Ministerial Group handling investment treaty disputes to minimize delays in the arbitration.
- The New Delhi International Arbitration Centre should be promoted and strengthened to become a world class arbitration centre.
- Ministry of External Affairs should ensure the implementation of the Host Country Agreement between India and the Permanent Court of Arbitration (PCA), under which in future the PCA proceedings administered can be conducted in India, making India a hub for international arbitration.
- Ministry of External Affairs, Department of Legal Affairs, Department of Economic Affairs and concerned departments/agencies should work in close coordination to develop domestic talent in the form of panel of domestic lawyers and law firms having the requisite expertise and experience to represent India in investment treaty arbitrations.
- Ministry of External Affairs, Department of Legal Affairs, Department of Economic Affairs and concerned departments/agencies should endeavor to bring about improvement and suitable amendments in the light of new experience gained in disputes and arbitration arising out of the BITs and overall change in the global economic outlook. Therefore, the review of 2015 Model BIT should be a continuous process for a balanced and comprehensive BIT.
- Continuous efforts should be undertaken to remove any ambiguity to reduce arbitral discretion in the BITs.
- An in-depth study may be made of the working and outcome of the treaties adopted by advanced countries and their best practices and provisions may be incorporated in the Indian Model BIT.
B.1.1 Investment treaty claims against India
On 25 September 2020, the international arbitral tribunal constituted in the case of Vodafone International Holdings BV (“Vodafone”) v. The Republic of India held that India had violated the fair and equitable treatment provision guaranteed to Vodafone under the 1995 BIT between India and the Kingdom of Netherlands. To briefly revisit the background to this matter, the Supreme Court of India had discharged Vodafone of its tax liability imposed on it by the Income Tax Department for the Hutchinson Essar Limited – Vodafone share deal, holding that the sale of shares in question did not amount to transfer of a capital asset within the meaning of section 2(14) of the Income Tax Act, 1961. After this verdict of the Supreme Court, the parliament passed a retrospective law which brought disposing of or parting with an asset into the term “transfer.” Further, it was clarified that an asset or a capital asset being any share in a company incorporated outside India shall be deemed to be situated in India. Aggrieved by this, Vodafone invoked arbitration under the India – Netherlands BIT in 2012 before the Permanent Court of Arbitration. The arbitral tribunal held that India violated the fair and equitable treatment clause under the India – Netherlands BIT, and therefore directed India to reimburse approximately INR 850 million to Vodafone. Subsequently, India challenged the BIT award in a Singapore court.
On 23 December 2020, the arbitral tribunal constituted in the case of Cairn Energy PLC (“Cairn”) v. The Republic of India held that India had failed to accord Cairn’s investments fair and equitable treatment and therefore had breached its obligation under the UK-India BIT. The arbitral tribunal awarded Cairn an amount of USD 1.2 billion plus interest and costs. The dispute had arisen out of the demand of INR 10,247 crore by the Income Tax department in taxes on alleged capital gains made by Cairn on the basis of the retrospective law passed by the Indian Parliament after the Supreme Court decision in the Vodafone case. Subsequently, India challenged the BIT award before a Dutch court.
In August 2021, the Indian Government in its effort to improve India’s reputation as an attractive investment destination and to boost confidence amongst foreign investors, enacted the Taxation Laws (Amendment) Act, 2021 (“Taxation Amendment Act, 2021”). The Taxation Amendment Act, 2021 amended the Income Tax Act, 1961 and the Finance Act, 2012, thereby inter alianullifying the tax liability imposed under the Finance Act, 2012 upon the fulfillment of following conditions:
- If the said person/entity has filed any appeal or any writ petition in this regard, it must be withdrawn or the person/entity must submit an undertaking to withdraw it
- If the said person/entity has initiated or given notice for any arbitration, conciliation or mediation proceedings in this regard, the notices or claims under such proceedings must be withdrawn or the person/entity must submit an undertaking to withdraw them
- The said person/entity must submit an undertaking to waive the right to seek or pursue any remedy or claim in this regard, which may otherwise be available under any law in force or any bilateral agreement
- Other conditions, as may be prescribed
Upon the fulfillment of the aforesaid conditions, all assessment or reassessment orders issued in relation to such tax liability would be deemed to have never been issued. Further, if a person/entity becomes eligible for refund after fulfilling these conditions, the amounts will be refunded without any interest.
In view of the aforesaid amendment, in December 2021 both Cairn and Vodafone withdrew all their pending proceedings in relation to the retrospective tax dispute.
B.2 Two Indian parties can choose a foreign arbitral seat
In PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, the Supreme Court of India dealt with following issues; whether two companies incorporated in India can choose a forum for arbitration outside India. Secondly, whether the award passed at such forum can be said to be a “foreign award” under Part II of the Act. The Respondent inter alia contended that per section 28(1)(a) and section 34 (2A) of the Act, two Indian parties cannot opt out of the substantive law of India and therefore, ought to be confined to arbitrations in India and Indian public policy. The Supreme Court rejected the argument and held that section 28 of the Act cannot be interpreted to interdict two Indian parties from resolving their disputes at a neutral forum in a jurisdiction other than India. In agreeing to a neutral forum outside, the court observed that the parties are provided with two options; firstly, the opportunity to challenge the award on the grounds available in that jurisdiction where arbitral award is passed. Secondly, parties avail of the option of resisting the enforcement of the foreign award between two Indian parties on the grounds mentioned under section 48 of the Act. The Supreme Court upheld party autonomy to be the “brooding and guiding spirit of arbitration” and held that Indian parties can choose a foreign seat of arbitration.
While the Supreme Court held that two Indian parties could choose a foreign seat of arbitration, it has kept open the possibility of arguing that two Indians can choose a foreign substantive law where the seat of the arbitration is overseas. However, in view of the earlier decisions by the Supreme Court in TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd. and the Bombay High Court in Addhar Mercantile Pvt. Ltd. v. Shree Jagdamba Agrico Exports Ltd., the possibility of the Indian courts holding that since all parties are Indian, any derogation from the Indian law as the substantive law of the contract would constitute breach of the public policy of India, cannot be ruled out.
B.3 Enforceability of foreign award against non-signatories to the arbitration agreement who are named as a party in such a foreign award, under Indian law
The Supreme Court of India in Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd. held that a foreign award made against a non-signatory to an arbitration agreement can be enforced against such party in accordance with the Act. In the present case, the third party to the arbitration agreement was a group company of the respondent in the arbitration and had participated in the arbitration proceedings. The court observed that section 46 of the Act refers to “persons as between whom it was made” which is a wider term than “parties” and therefore, can include non-signatories to the agreement. The court held that enforcement of a foreign arbitral award cannot be resisted on the ground that it has been passed against a non-signatory under section 48(1) of the Act. The Supreme Court reiterated that the enforcement of a foreign award also cannot be refused on the ground that the foreign award violates substantive law of the agreement and thus, reinforces the pro-enforcement bias by emphasizing the restrictive scope of grounds on which enforcement of a foreign award may be refused under the Act.
B.4 Applicability of the group of company doctrine to arbitrations
In the case of ONGC Ltd. v. Discovery Enterprises (P) Ltd and Ors.., the Supreme Court, in the context of domestic arbitrations, traced the jurisprudential evolution of the Group of Companies Doctrine, i.e., the doctrine that postulates that an arbitration agreement which has been entered into by a company within a group of companies, can bind its non-signatory affiliates or sister concerns if the circumstances demonstrate a mutual intention of the parties to bind both the signatory and affiliated, non-signatory parties. The Supreme Court in this case held that in order to decide whether a company within a group of companies which is a non-signatory to an arbitration agreement can be bound on the basis of the Group of Companies Doctrine, the following factors are required to be considered by the law in its present state:
- The mutual intent of the parties
- The relationship of a non-signatory to a party which is a signatory to the agreement
- The commonality of the subject-matter
- The composite nature of the transaction
- The performance of the contract
B.5 Scope of challenge to the arbitration award under section 34 of the Act
The Supreme Court of India in PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees V.O. Chidambranar Port Trust Tuticorin reiterated that in an application filed under section 34 of the Act seeking to challenge a domestic arbitration award, the court is not expected to re-appreciate evidence or take on the role of an appellate court. The scope of interference would be limited to grounds provided under section 34 of the Act and mere erroneous application of law would not be a ground for interference. A finding in an arbitral award based on no evidence or which has been made in ignorance of vital evidence would be perverse and liable to be set aside on ground of patent illegality. Further, the court held that in a case where an arbitral tribunal rewrites a contract, it would amount to a breach of fundamental principles of justice, wherein the court would be entitled to interfere since such case would shock the conscience of the court.
The Supreme Court of India in Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail Corporation, whilst determining the scope of the powers of courts under section 34 of the Act, held that a mere contravention of a statute is no longer a sufficient ground for setting aside of an arbitral award. The Supreme Court observed that an arbitrator’s construction of the terms of the subject agreement cannot be substituted by a court. A court is empowered to set aside an arbitral award only on the grounds of public policy or public interest. The court reiterated that the principal objective of the Act is to minimize the supervisory role of courts in an arbitral process and judicial deference with arbitral awards is limited to the grounds specified under section 34 of the Act.
The Bombay High Court in the case of Board of Control for Cricket in India v. Deccan Chronicles Holding Limited, observed that an arbitral tribunal cannot travel beyond the law or the contract for adjudication as the same would amount to ‘patent illegality’. Delving into the scope of the challenge to the arbitration award under section 34 (2A) of the Act, the court held that if the arbitral tribunal has not taken a reasonable view while interpreting a contract, the same would amount to ‘perversity’, which is covered under the ambit of ‘patent illegality’. The judgment discourages the arbitral tribunal from importing principles of public law, reasonableness and arbitrator’s notions of fairness and compliance while interpreting a contract, unless the contract explicitly requires the arbitral tribunal to do so. The judgment also reaffirmed that the arbitral tribunal must record reasons for accepting or rejecting each claim in the award, failing which, the award may be vulnerable to a challenge under section 34 of the Act.
B.6 Instrument bearing arbitration clause to be stamped
The Supreme Court in the case of Intercontinental Hotels Group (India) Pvt. Ltd. v. Waterline Hotels Pvt. Ltd, upheld the view taken by a different bench of the court in the case of N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd and held that a court at the stage of appointment of an arbitrator under section 11 of the Arbitration Act, cannot ascertain whether the agreement is inadequately stamped. In light of the pendency of the issue of the effect of non-stamping of the main agreement on the enforceability of the arbitration agreement before the Constitution Bench of the Supreme Court, it was observed that due to the pendency of the said issue courts must ‘ensure that arbitrations are carried on, unless the issue before the Court patently indicates existence of deadwood’. This position was recently re-affirmed by the Supreme Court in Weatherford Oil Tool Middle East Ltd. v. Baker Hughes Singapore PTE.
B.7 Grant of pendente lite interest by the arbitral tribunal
In Garg Builders v. Bharat Heavy Electricals Limited the Supreme Court of India held that if the contract bars payment of pre-reference and pendente lite interest, the arbitrator cannot award interest for the said period. The Supreme Court observed that Act gives paramount importance to the contract executed between the parties in respect of the interest to be awarded by the arbitrator. Further, the court observed that when there is an express statutory permission for the parties to contract out of receiving interest and they have done so without any vitiation of free consent, it is not open for the arbitrator to grant pendente lite interest.
B.8 Applicability of Limitation Act, 1963 to arbitration proceedings
The Supreme Court of India in Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd. has held that the Act does not provide for a period of limitation under section 11 of the Act. The Supreme Court suggested that the parliament may consider amending section 11 to prescribe a limitation period for filing an application for appointment of arbitrator. The court also observed that due to the vacuum in law, the lower courts have taken recourse to the limitation period prescribed by article 137 of the Limitation Act, 1963 i.e., three years from the date when the right to apply accrues, which is unduly long and defeats the underlying objective of swift resolution of disputes. The Supreme Court has also held that in rare and exceptional cases, where the claims are ex facie time barred and it is manifest that there is no subsisting dispute, the court may refuse to make the reference for appointment of the arbitrator.
The Supreme Court of India in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd. has held that the date of receipt of a signed copy of the arbitral award is the date from which the period of limitation for filing objections under section 34 of the Act would commence.
In Silpi Industries Etc. v. Kerala State Road Transport Corporation and Anr., the Supreme Court held that as per section 43 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), provisions of the Limitation Act would apply to an arbitration, since under section 18(3) of the MSMED Act, when a dispute goes to arbitration, provisions of the Act apply to the dispute as if there was an arbitration agreement between the parties. It was also held that section 23(2A) of the Act would apply to proceedings before the Facilitation Council set up under MSMED Act, and its non-applicability may lead to parallel proceedings and conflicting findings by various fora.
B.9 Applicability of section 9 of the Act to foreign arbitration
The Calcutta High Court in the case of Medima LLC v. Balasore Alloys Ltd.. held that (i) section 9 filed post issuance of a foreign seated arbitration award is maintainable before the Indian courts, and (ii) a foreign law governing the arbitration agreement in a foreign seated arbitration cannot be interpreted to have impliedly excluded application of section 9 of the Act. The court held that merely choosing a foreign seat or a foreign governing law would not amount to an agreement to exclude the applicability of section 9 of the Act in view of the Arbitration and Conciliation (Amendment) Act, 2015. In other words, the arbitration agreement must indicate in clear and express terms the intent to exclude the operation of section 9, from the purview of the arbitration agreement.
B.10 Arbitral Tribunal cannot pass ex-parte ad interim order
The Bombay High Court in Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd., held that an ex-parte ad-interim order could not be passed by an arbitral tribunal without providing sufficient notice to the parties concerned. Section 18 of the Act contemplates that the parties shall be treated equally and each party ‘shall be’ given a full opportunity to present its case. The tribunal, therefore, must provide for fair, equal, and equitable treatment of all parties at all stages of the arbitral proceedings, which includes an adequate opportunity to present their case.
B.11 Violation of Foreign Exchange Management Act, 1999 not a ground to resist enforcement of foreign award
The Calcutta High Court in EIG (Mauritius) Limited v. McNally Bharat Engineering Company Limited held that violation of provisions of the Foreign Exchange Management Act, 1999 and the Securities Contracts (Regulation) Act, 1956, even if assumed to be correct, would not render an award unenforceable. The High Court also held that the threshold for breach of the fundamental policy of Indian law must be a breach of the most basic principles of Indian law which form the substratum of the laws of the jurisdiction. The court observed that in light of section 48 of the Act, there exists a presumption of enforceability of a foreign award unless the refusal rests on grounds which are patent and obvious. The court stated that the enforcement and execution of a foreign award can be considered in the same proceeding. In an appeal against the aforesaid judgment, the Supreme Court refused to interfere with the High Court judgment.
B.12 Indian courts, when granting interim reliefs under section 9 of the Act, are bound by principles embodied in the Code of Civil Procedure, 1908 but not by the rigors or technical procedure under the Code of Civil Procedure, 1908
The Supreme Court in Essar House (P) Ltd. v. Arcellor Mittal Nippon Steel India Ltd held that in granting an interim relief under section 9 of the Act, the court cannot ignore the basic principles of the Civil Procedure Code, 1908 (CPC). At the same time, the power of the court to grant interim relief is not constrained by the procedural rigors of every provision in the CPC. In exercise of its powers to grant interim relief under section 9 of the Act, the court is not strictly bound by the provisions of the CPC. Further the court, while affirming the views of various high courts, held that the power of the court under section 9 of the Act is wider than powers under the provisions of CPC. The court observed that:
“[i]f a strong prima facie case is made out and the balance of convenience is in favor of interim relief being granted, the court exercising power under section 9 of the Arbitration Act should not withhold relief on the mere technicality of absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 of the CPC.”
Lastly, the court held that a strong possibility of diminution of assets is sufficient for a court to grant relief under section 9 of the Act and proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realization of an impending arbitral award is not necessary.
The authors would like to thank Mehul Bachhawat for his assistance.
 Section 2 of the Amendment Act, 2021.
 Explanation to section 2 of the Amendment Act, 2021.
 Vodafone International Holdings BV v. Union of India and Ors, (2012) 6 SCC 613.
 Finance Act, 2012, section 9(1).
 PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, (2021) 7 SCC 1.
 (2008) 14 SCC 271
 Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd., 2021 SCC OnLine SC 572.
 ONGC Ltd. v. Discovery Enterprises (P) Ltd and Ors., (2022) 8 SCC 42.
 PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508.
 Delhi Airport Metro Express (P) Ltd. v. DMRC, 2021 SCC OnLine SC 695.
 Board of Control for Cricket in India v. Deccan Chronicles Holding Limited, 2021 SCC OnLine Bom 834.
 Intercontinental Hotels Group (India) Pvt. Ltd. v. Waterline Hotels Pvt. Ltd., 2022 SCC OnLine SC 83.
 N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379.
 Weatherford Oil Tool Middle East Ltd. v. Baker Hughes Singapore PTE, 2022 SCC OnLine SC 1464.
 Garg Builders v. Bharat Heavy Electricals Limited, 2021 SCC OnLine SC 855.
 Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd., 2021 SCC Online SC 207.
 Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC Online SC 157.
 Silpi Industries Etc. v. Kerala State Road Transport Corporation and Anr.,2021 SCC OnLine SC 439.
 Medima LLC v. Balasore Alloys Ltd., AP/267/2021.
 Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd., 2021 SCC OnLine Bom 3448.
 EIG (Mauritius) Limited v. McNally Bharat Engineering Company Limited, 2021 SCC OnLine Cal 2915.
 Essar House (P) Ltd. v. Arcellor Mittal Nippon Steel India Ltd; 2022 SCC OnLine SC 1219