A. LEGISLATION AND RULES

A.1       Legislation

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 ecosystem 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 an 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 prima facie basis that either:
    • The arbitration agreement or contract which is the basis of the arbitral award.
    • The making of the arbitral award, was induced or effected by fraud or corruption.[1]

The 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.[2]

  • 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, the 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. CASES

B.1       Investment Treaty Arbitrations

India executed a new BIT with Brazil on 25 January 2020.[3] It is important to note that after the radical policy revamp introduced by the Government of India in 2017, which resulted in the termination of a number of BITs, the government has only entered into new BITs with four nations, namely Belarus, Taiwan, Kyrgyzstan and Brazil, and is in the process of negotiations with Cambodia and 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.[4] The Committee, inter alia, made the following recommendations:

  • The signing of new BITs especially in priority/core sectors particularly with countries with whom there were such treaties in the past should be encouraged while balancing investment protection of foreign investors in the country and Indian investors abroad without comprising Indian national interests and priorities. The Ministry of External Affairs should actively facilitate the process to initiate negotiations in the shortest possible time.
  • The long-drawn-out process of negotiations should be reduced especially if there appear to be limited areas of convergence. The Ministry of External Affairs is to take proactive steps and coordinate with concerned ministries/departments to complete the negotiations and finalize the Agreements as soon as possible.
  • The 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 in-house expertise and panel of lawyers experiences in investment treaty law.
  • The 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.
  • The Ministry of External Affairs, in consultation with other ministries/departments, should make all-out efforts to draft BITs cautiously, leaving no scope for investment disputes and reducing 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.
  • The Ministry of External Affairs should take proactive steps for better coordination and strengthening of the inter-ministerial group handling of investment treaty disputes to minimize delays in arbitration.
  • The New Delhi International Arbitration Centre should be promoted and strengthened to become a world-class arbitration center.
  • The 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, PCA-administered proceedings can be conducted in India, making India a hub for international arbitration.
  • The 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 a panel of domestic lawyers and law firms having the requisite expertise and experience to represent India in investment treaty arbitrations.
  • The 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 the 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[5] had discharged Vodafone of the 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 Supreme Court verdict, the Parliament of India passed a retrospective law[6] that 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 PCA. The arbitral tribunal held that India violated the fair and equitable treatment clause under the India – Netherland BIT, and therefore directed India to reimburse approximately INR 850 million (approximately USD 11 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 (approximately USD 1.3 million) 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 alia nullifying the tax liability imposed under the Finance Act, 2012 upon the fulfillment of the 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 these 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 a 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       Emergency Arbitration under Indian Law

The Supreme Court of India in Amazon.com NV Investment Holdings LLC v. Future Retail Limited[7] held that an emergency arbitrator’s award in an arbitration seated in India is an order of an arbitral tribunal under section 17(1) and is enforceable by a court under section 17(2) of the Act. The Supreme Court held that the Act does not prohibit contracting parties from choosing institutional rules providing for an award being made by an emergency arbitrator and nothing in the Act interdicts an emergency award from being made.

Further, the Supreme Court also held that no appeal shall lie against an order passed by a court under section 17(2) of the Act for enforcement of an emergency arbitrator’s award. The court observed that section 37 provides for appeals only from orders made by an arbitral tribunal granting or refusing interim measures under section 17(1) but not against orders made by a court under section 17(2) of the Act for enforcement of a tribunal’s interim order. The decision minimizes the court’s intervention by not permitting appeals against orders enforcing an emergency award in India-seated arbitration under section 17(2) of the Act. Further, the judgment shall encourage parties to opt for institutional arbitration seated in India.

 

B.3       Arbitration Act does not prohibit Indian parties from choosing foreign arbitral seat

In PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited[8], the Supreme Court of India dealt with the 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 country 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 country where arbitral award is passed. Secondly, parties avail 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.

 

B.4       Enforceability of foreign award against non-signatories under Indian law

The Supreme Court of India in Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd.[9] held that a foreign award can be binding on non-signatories to the arbitration agreement and thus can be enforced against them. 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. Therefore, a foreign award can be enforced against non-signatories to an arbitration agreement. The Supreme Court reiterated that the enforcement of a foreign award cannot be refused on the ground that the foreign award violates substantive law of the agreement. The decision 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.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[10] 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 the 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 the ground of patent illegality. Further, the court held that in case 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 a 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[11], 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[12]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 Intercontinental Hotels Group (India) Pvt. Ltd. v. Waterline Hotels Pvt. Ltd.[13], has ruled that even if a document containing the arbitration clause is alleged to be inadequately stamped (i.e., although stamp duty has been paid, it may be inadequate), courts can appoint an arbitrator under section 11 of the Act. In cases where stamp duty has been paid, the courts cannot review the sufficiency of the stamp duty under section 11(6) of the Act as the ambit of section 11(6) does not allow for the court to determine the adequacy of the stamp duty. The Supreme Court further observed that the concerns regarding alleged inadequate stamping are distinct from the concerns arising out of non-payment of stamp duty. The issue of the interplay between appointment under section 11 and complete non-stamping of the underlying document containing the arbitration clause is pending for consideration before a larger bench of the Supreme Court in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited.[14]

 B.7       Grant of Pendente lite interest by the arbitral tribunal

In Garg Builders v. Bharat Heavy Electricals Limited[15] 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 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.[16] 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 the appointment of an 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. 3 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.[17] 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.[18], 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, 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..[19] held that:

  • Section 9 filed post-issuance of a foreign seated arbitration award is maintainable before the Indian Courts.
  • A foreign law governing the arbitration agreement in a foreign seated arbitration cannot be interpreted to have impliedly excluded the 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.[20], held that an ex-parte ad-interim order could not be passed by an arbitral tribunal without providing sufficient 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[21] has 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 country. 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 that 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     Limited jurisdiction under Article 227 of the Constitution of India, 1950

The Delhi High Court in Future Retail Ltd. vs Amazon. Com NV Investment Holdings LLC[22] held that a High Court cannot interfere with procedural orders passed by an arbitral tribunal under article 227 of the Constitution of India, 1950. The High Court observed that the scope of interference under article 227 is limited to cases with exceptional circumstances such as lack of inherent jurisdiction or in cases where the order is completely perverse. The arbitral tribunals have greater flexibility in choosing the procedure of the arbitration proceedings and the court interfering with this would be violative of autonomy vested in the arbitral tribunal. The court observed that procedural orders relating to the scheduling of the arbitration proceedings are completely within the domain of the arbitral tribunal. The court stated that mere fixations of tight timelines or denial of requests for adjournment by the arbitral tribunal or deciding the order in which the arbitral tribunal considers the applications filed by the parties cannot be reason enough to contend that the orders of the arbitral tribunal are perverse or lacking in inherent jurisdiction. An appeal against the High Court decision is pending before the Supreme Court of India.

The authors would like to thank Ayush Chadda for his assistance with this chapter.

[1] Section 2 of the Amendment Act, 2021.

[2] Explanation to section 2 of the Amendment Act, 2021.

[3]Available on https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5912/download (Last accessed on February 15, 2022 at 10:00 P.M. IST).

[4] Available on http://164.100.47.193/lsscommittee/External%20Affairs/17_External_Affairs_10.pdf (Last accessed on February 15, 2022 at 10:00 P.M. IST).

[5] Vodafone International Holdings BV v. Union of India and Ors, (2012) 6 SCC 613.

[6] Finance Act, 2012, section 9(1).

[7] Amazon.com NV Investment Holdings LLC v. Future Retail Limited, 2021 SCC OnLine SC 557.

[8] PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited, (2021) 7 SCC 1.

[9] Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd., 2021 SCC OnLine SC 572.

[10] PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508.

[11] Delhi Airport Metro Express (P) Ltd. v. DMRC, 2021 SCC OnLine SC 695.

[12] Board of Control for Cricket in India v. Deccan Chronicles Holding Limited, 2021 SCC OnLine Bom 834.

[13] Intercontinental Hotels Group (India) Pvt. Ltd. v. Waterline Hotels Pvt. Ltd., 2022 SCC OnLine SC 83.

[14] N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited., (2021) 4 SCC 379.

[15] Garg Builders v. Bharat Heavy Electricals Limited, 2021 SCC OnLine SC 855.

[16] Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd., 2021 SCC Online SC 207.

[17] Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC Online SC 157.

[18] Silpi Industries Etc. v. Kerala State Road Transport Corporation and Anr.,2021 SCC OnLine SC 439.

[19] Medima LLC v. Balasore Alloys Ltd., AP/267/2021.

[20] Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd., 2021 SCC OnLine Bom 3448.

[21] EIG (Mauritius) Limited v. McNally Bharat Engineering Company Limited, 2021 SCC OnLine Cal 2915.

[22] Future Retail Ltd. v. Amazon. Com NV Investment Holdings LLC, 2022 SCC OnLine Del 13.