Blog

India’s journey towards being a hub for international commercial arbitration has been steadfast thus far. Issues particularly concerning judicial intervention in arbitrations, reflect a complex interplay of legislative intent, judicial interpretation, and practical challenges that are often seen as an impediment towards India’s goal of being the sought after arbitration hub just like Singapore or London. This article examines the extent of judicial intervention that prevails in the appointment of arbitrators in domestic arbitrations and how the same influences decisions for selecting India for international arbitrations. Importantly, the Arbitration and Conciliation Act, 1996 [“the Act”], initially allowed substantial court involvement in arbitrator appointments. The 2015 amendment marked a significant shift towards limiting judicial intervention with the introduction of Section 11(6A). This provision aimed to expedite the appointment process by restricting judicial scrutiny to the mere “existence of an arbitration agreement”. However, its interpretation has been subject to varied judicial opinions. Judicial Interpretation: Navigating the Boundaries of Section 11(6A) Insertion of Section 11(6A) in the Act, diluted the extent of judicial involvement indicating a clear legislative intent. This was followed by a line of conflicting decisions by the Hon’ble Supreme Court, each giving a new direction to the interpretation of  Section 11(6A) of the Act and redefining the extent of judicial involvement in arbitration. The Narrow Approach: Duro Felguera In Duro Felguera S.A. v. Gangavaram Port Limited [(2017) 9 SCC 729][“Duro”], the Hon’ble Supreme Court upheld a narrow interpretation of Section 11(6A), emphasizing that courts were to limit themselves to a prima facie examination of the arbitration agreement’s existence. This decision initiated a range of interpretations by the courts, leading to Duro being selectively applied, as it has been distinguished, clarified, affirmed, and broadened by judicial decisions over time. The decision of the Hon’ble Supreme Court in United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd. [(2018) 17 SCC 607] although did not expressly overrule Duro, but it paved way for interpretation of Section 11(6A) of the Act in what was otherwise a watertight conclusion drawn out by the Hon’ble Supreme Court in Duro. Expanding the Scope: Garware Wall Ropes In Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd. [(2019) 9 SCC 209], the Hon’ble Supreme Court held that the arbitration clause must not only exist but also be legally valid and enforceable, thus expanding the scope of judicial inquiry. The Vidya Drolia Test: A Comprehensive Framework In a three-Judge Bench judgment of the Hon’ble Supreme Court in Vidya Drolia & Ors. v. Durga Trading Corporation [(2021) 2 SCC 1] [“Vidya Drolia”], Duro was holistically read and expanded upon in Vidya Drolia, however, not distinguished or overruled. The Court stated that the restrictive observation in Duro, (i.e., the court only has to see whether an arbitration agreement exists and nothing more, nothing less) had to be read with other observations in Duro that allow for examining the arbitrability of disputes between parties. The landmark judgment in Vidya Drolia v. Durga Trading Corporation further refined the approach, establishing a fourfold test for determining arbitrability: This test effectively allows courts to examine whether the dispute is arbitrable before appointing arbitrators, significantly expanding the scope of judicial inquiry at the appointment stage. The evolution of jurisprudence from Duro to Vidya Drolia reflects how the judiciary has grappled to balance the legislative intent of minimal intervention with the practical need to ensure the efficacy of the arbitral process. This balancing act raises several critical points: Legislative Response and Its Limitations The 2019 amendment introduced Section 11(6B) of the Act, allowing courts to delegate arbitrator appointments to arbitral institutions. However, its implementation has been stalled due to delays in designating institutions under Section 11(3A) of the Act. Conclusion: The Path Forward for India to be a hub for International Commercial Arbitration The evolution of the norms of judicial intervention in arbitrator appointments in India reflects a complex tapestry of legislative intent, judicial interpretation, and practical realities. While the trend towards minimal court intervention aligns with internationally recognised best practices, recent judgments indicate a nuanced approach that seeks to safeguard the integrity of the arbitral process. As India continues to position itself as a hub for international commercial arbitration, the challenge lies in striking a delicate balance between party autonomy, institutional integrity, and necessary judicial oversight. Moving forward, several key areas require attention: The journey of Indian arbitration law in this aspect is far from over. As the legal framework continues to evolve, it promises to offer rich insights into the delicate balance between judicial intervention and party autonomy in international commercial arbitration. The challenge for the Indian legal system is to develop an approach that respects party autonomy, upholds the integrity of the arbitral process, and aligns with global standards, all while addressing the unique challenges of the Indian legal landscape.

The enforcement of foreign arbitral awards in India has emerged as a critical topic of deliberation in recent years, reflecting the country’s growing role in international commerce and its commitment to fostering a business-friendly environment. As India continues to increasingly attract foreign investments and engage in cross-border transactions, the need for a reliable mechanism to enforce foreign arbitral awards has exacerbated. The present article seeks to analyze the current state of foreign award enforcement in India, examining recent legal developments, persistent challenges, and potential future directions. Legal Framework and Judicial Interpretation India’s legal framework for enforcing foreign arbitral awards has undergone significant evolution, primarily governed by the Arbitration and Conciliation Act, 1996 (“Act”). This legislation, which incorporates the principles of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, has been a cornerstone in shaping India’s approach to international arbitration. The Act has seen notable amendments in the year  2015, 2019, and most recently in 2021, each aimed at enhancing India’s standing as an arbitration-friendly jurisdiction. While the 2015 amendment acted towards limiting the scope of ‘public policy’ as a ground for refusing enforcement, the 2019 amendment refined the arbitration landscape by establishing the Arbitration Council of India. The 2021 amendment then sought to address concerns about fraudulent awards by allowing for unconditional stays on enforcement if the court finds that the arbitration agreement or award was induced by fraud or corruption. Key provisions of the Act governing foreign award enforcement include Section 44, which defines a ‘foreign award’,[1] Section 48, outlining grounds for refusing enforcement,[2] and Section 47, detailing the enforcement procedure.[3] The interpretation and application of these provisions have been significantly shaped by judicial decisions, creating a more nuanced and predictable enforcement regime. Indian courts have played a crucial role in shaping the enforcement regime through their interpretations of the Act. The judicial approach has generally evolved towards a more pro-enforcement stance, albeit with some inconsistencies. In this regard, the interpretation of ‘public policy’ as a ground for refusing enforcement of awards has been a contentious issue. The Hon’ble Supreme Court’s decision in Renusagar Power Co. Ltd. v. General Electric Co. (1994) narrowly construed this ground, limiting it to fundamental policy of Indian law, interests of India, and justice or morality.[4] Subsequent judgments have further refined this interpretation, with Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014) excluding ‘patent illegality’ from the scope of public policy for foreign awards,[5] and NAFED v. Alimenta S.A. (2020) reaffirming the narrow interpretation of ‘public policy’.[6] This judgment built upon the principles laid down in Vijay Karia v. Prysmian Cavi E Sistemi SRL (2020), which set a high threshold for public policy violations.[7] Procedurally, courts have streamlined the enforcement process.  In Fuerst Day Lawson Ltd v. Jindal Exports Ltd (2011), the process was streamlined by allowing direct enforcement of foreign awards.[8] This was reinforced in Sundaram Finance v. Abdul Samad (2018) by clarifying that foreign award holders can directly approach the court where assets are located for enforcement, without the need for a separate execution petition.[9] Recent judicial developments have also addressed specific challenges in enforcement with the Hon’ble Bombay High Court reinforcing the principle that Indian courts should not re-examine the merits of a foreign award during enforcement proceedings in the Banyan Tree Growth Capital LLC v. Axiom Cordages Ltd. (2020) judgement.[10] Persistent Challenges and Comparative Perspective Despite progress, several challenges remain in the enforcement of foreign awards in India. The Indian judicial system’s notorious backlog of cases continues to cause delays, even though the Act now prescribes a one-year timeline for disposing of enforcement applications. The case of Cruz City 1 Mauritius Holdings v. Unitech Limited (2017) is a stark example, where enforcement proceedings dragged on for years.[11] Furthermore, the enforcement landscape is complicated by inconsistencies in judicial interpretations, especially at the lower court level, which often leads to uncertainty for parties seeking enforcement. This unpredictability is exacerbated when dealing with state entities, where the process becomes particularly challenging. Issues of sovereign immunity and broad interpretations of public policy are frequently invoked as shields against enforcement, creating additional hurdles for award creditors. Adding to these complexities are various procedural requirements, such as stamp duty payments and, in certain instances, the necessity of obtaining prior government approval which adds to the delay. When compared to other major jurisdictions, India’s approach to enforcing foreign awards shows both similarities and differences. The United States, under its Federal Arbitration Act, has similar grounds for refusal but allows more expansive discovery in enforcement proceedings. The United Kingdom is generally more pro-enforcement, with fewer grounds for refusal under its Arbitration Act 1996. Singapore stands out as highly pro-arbitration, with a streamlined enforcement process under its International Arbitration Act. While India has made significant strides, it still lags behind these jurisdictions in terms of efficiency and predictability of enforcement. The Road Ahead: Potential Reforms and Future Directions To address current challenges and further improve its foreign award enforcement regime, India should adopt a multifaceted approach, combining legislative, judicial, institutional, and technological reforms. Legislative reforms could include clarifying the scope of ‘public policy’ in the Act to reduce ambiguity. This could draw inspiration from the UK Arbitration Act 1996, which narrowly defines public policy grounds. Additionally, introducing specific provisions for enforcing awards against state entities, similar to those in the US Foreign Sovereign Immunities Act, could provide much-needed clarity. Judicial reforms are equally important. Establishing specialized arbitration benches in High Courts, as recommended by the Hon’ble Supreme Court in Garware Wall Ropes v. Coastal Marine Constructions & Engineering Ltd. (2019), could ensure more consistent and expeditious decisions.[12] Moreover, regular judicial training programs, potentially in collaboration with international arbitration institutions, could foster a deeper understanding of global best practices. Institutionally, enhancing the Arbitration Council of India’s role could be transformative. The Council could develop guidelines for enforcing foreign awards, similar to the IBA Guidelines on Party Representation in International Arbitration. Besides, the integration of technology presents another avenue for enhancement. Implementing e-filing

Introduction In a surprising move, the Ministry of Finance issued a memorandum bearing no. F 1/2/2024 PPD on June 3, 2024 (“Memorandum”), effectively removing arbitration clauses from public procurement contracts exceeding Rs. 10 crores. This decision marks a significant shift in the government’s approach to dispute resolution over the past three decades. The Memorandum stipulates that arbitration may be restricted to disputes valued at less than Rs. 10 crores, while disputes exceeding this threshold will require careful consideration and approval from senior officials. Instead of arbitration, the government is promoting mediation and amicable settlement. The government’s rationale for this shift appears to stem from concerns about the integrity of arbitrators and the perceived difficulty in challenging unfavorable awards. However, this stance overlooks the fundamental principles of arbitration, such as the independence and impartiality of arbitrators, and the limited grounds for challenging awards as a deliberate feature to ensure finality. This memorandum also raises legal concerns and potential conflicts with established arbitration jurisprudence in India. Incorrect Assumptions by the Government In the Memorandum, the Government has made some incorrect assumptions about Arbitration, as a dispute resolution method seemingly setting the stage for promoting mediation as an alternative. However, it completely overlooks the fact that most government contracts already include a process of conciliation before arbitration is invoked. The Memorandum should have recommended making mediation a mandatory step before arbitration, rather than removing arbitration clauses altogether. The Memorandum fails to consider that without an arbitration agreement, any unresolved mediation would lead parties to the courts, which are already overburdened and lack the resources to handle a surge of disputes that arbitration currently resolves. It is important to emphasize that courts struggle to address challenges to arbitral awards within the statutory period of 1 year. Expecting Courts to manage entire trials, which would otherwise have been part of the Arbitration process, is unreasonable and impractical. It is not out of place to mention that the infrastructure disputes, which will be particularly impacted by the Memorandum, are complex and involve extensive documentation, court proceedings in these cases, could take 10 to 15 years to conclude. The Memorandum asserts that arbitration is unsuitable due to the frequent transfer of government officials, which impedes the effectiveness of arbitration proceedings. However, the Memorandum overlooks that this very issue persists in litigation as well. If anything, arbitration offers the flexibility more flexibility than Litigation. Further, the Memorandum criticizes the Arbitration Act by claiming that it leads to more litigation. The reality is that every statute offers a different recourse which eventually ends in adjudication by a competent Court. The fact of the matter is that no individual or entity should be denied the right to seek legal recourse. Conflict with Legislative Intent and Jurisprudence The government’s memorandum appears to contradict the legislative intent behind the Arbitration and Conciliation Act, 1996 and its subsequent amendments. The Act was specifically designed to promote arbitration as an efficient dispute resolution mechanism, aligning India with international best practices. It is important to underscore that the Memorandum was issued just days after Dr. S. Jaishankar inaugurated the Arbitration Bar of India wherein he remarked “Arbitrate in India’ is actually a facet of Make in India”. By discouraging arbitration for high-value disputes, the government seems to be contradicting legislative and judicial efforts to enhance arbitration in India. This policy shift could potentially undermine years of development aimed at establishing India as a favorable jurisdiction for arbitration. Infringement of Party Autonomy: The principle of party autonomy is a cornerstone of arbitration law globally and in India. Arbitration is a product of mutual agreement between the parties involved. It allows for the selection of arbitrators who are experts suited to the specific nature of the dispute. Furthermore, the parties have the freedom to design the process thereby ensuring a more efficient and fair resolution. By unilaterally deciding to exclude arbitration clauses from high-value contracts, the government is effectively overriding the parties’ freedom to choose their preferred dispute resolution mechanism. Moreover, it raises questions about the government’s role in dictating dispute resolution mechanisms in commercial contracts, potentially overstepping into the domain of private contractual relationships. This overstepping measure will eventually increase disputes. Conflict with International Obligations: India is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which obliges member states to recognize and enforce arbitration agreements. The government’s policy could be viewed as inconsistent with these international commitments. In the context of international arbitration, this policy might deter foreign investors who rely on arbitration clauses as a neutral and efficient means of dispute resolution. It could potentially lead to conflicts with bilateral investment treaties that often include arbitration as a dispute resolution mechanism. Suggestions It is important to acknowledge that the government’s issuance of the Memorandum was not without careful consideration, and their concerns are indeed valid. However, the proposed solution presents certain challenges. In light of this, we respectfully suggest the introduction of Med-Arb clauses in all government contracts, thereby ensuring a consistent and uniform approach in all cases. Further, it is important to emphasize that merely adding the Mediation clause would not solve the problem, without ensuring that the appointed Mediators are independent, impartial, highly skilled, and accredited to fully realize the benefits of mediation. Further, the Government should also encourage officials to present settlement proposals without fear of repercussions or vigilance inquiries. It is respectfully stated that a more nuanced approach, addressing specific issues is required rather than removing arbitration clauses from all procurement contracts over the sum of Rs. 10 Cr. Conclusion We, in concurrence with the Arbitration Bar of India, humbly suggest the Hon’ble Minister review and withdraw the Memorandum in its current form. The Memorandum risks undoing the significant strides made since 2015, when the government introduced commendable reforms to Arbitration Law in India. Such a move would not only harm the country’s reputation as an investment-friendly destination but also undermine the progress achieved by both the legislature and judiciary in promoting