Navigating Arbitration Laws And Practices In India: An Overview

Introduction

India’s arbitration law is intricate, governed by the Arbitration and Conciliation Act of 1996. This comprehensive legislation addresses various arbitration scenarios, including domestic and international arbitration, the enforcement of foreign awards, and conciliation as per the UNCITRAL Conciliation Rules of 1980. This article explores the nuances of arbitration in India, exploring critical aspects such as the legal prerequisites for arbitration agreements, the jurisdiction of Indian courts, choice of law rules, and the selection of arbitrators, among others.

Legal Requirements of an Arbitration Agreement

Form and Writing: An arbitration agreement in India may assume different forms, such as an arbitration clause within a contract or a standalone agreement. The pivotal requirement is that the agreement must be in writing. Additionally, if it is contained within written correspondence or an exchange of letters, it is considered valid.[1]

Stamp Duty: All agreements in India are subject to stamp duty under the Indian Stamp Act.[2] The specific duty varies from one state to another. Importantly, failing to properly stamp an agreement can render it unenforceable. A recent Supreme Court decision clarified that unstamped arbitration agreements are not enforceable until the required duty and penalty are paid.[3]

Other Key Elements in an Arbitration Agreement

Seat of Arbitration: Designating the seat of arbitration holds paramount significance. This determination decides whether the arbitration proceedings fall under Part I or Part II of the Arbitration and Conciliation Act. Part I applies to domestic arbitrations, while Part II governs offshore arbitrations. An amendment to the legislation has made it clear that Indian courts can grant interim relief for foreign-seated arbitrations.[4]

Enforcement of Arbitration Agreements

Section 8 mandates that if parties have a valid arbitration agreement, and one party objects to the initiation of court proceedings for a dispute covered by that agreement, the court must refer the matter to arbitration unless the agreement itself is invalid.[5]

Arbitrability: Not all disputes are arbitrable in India. Examples of non-arbitrable disputes include criminal offenses, matrimonial disputes, and insolvency matters. The arbitrability of a dispute may also depend on whether the parties can privately settle it through a contract.

Selecting the Governing Law

In domestic arbitrations, Indian law is the default governing law. In other cases, parties can either expressly select a governing law or it can be inferred from the contract and surrounding circumstances. Typically, the proper law of the arbitration agreement aligns with the proper law of the underlying contract. There is a presumption that it corresponds to the seat of arbitration.[6]

Arbitral Tribunal Selection Process

Party Autonomy: Arbitrators in India do not need specific qualifications. Parties have significant autonomy in selecting arbitrators, although principles of fairness and impartiality remain paramount.[7]

Default Procedure: The Arbitration and Conciliation Act provides a default procedure for appointing arbitrators when parties cannot agree or when their chosen mechanism fails. The Supreme Court or High Court, depending on the type of arbitration, can make the necessary appointments.[8]

Procedural Framework in Arbitration

In India, arbitrators have significant discretion in conducting proceedings. Section 19 of the Act states that the arbitral tribunal is the “master of its own procedure” and may conduct proceedings “in the manner it considers appropriate.” This power includes “the power to determine the admissibility, relevance, materiality, and weight of any evidence.” Unlike court proceedings, neither the Code of Civil Procedure, 1908, nor the Indian Evidence Act, 1872 applies to arbitrations.

The tribunal is required to treat the parties with equality and ensure each party has a full opportunity to present its case, including providing sufficient advance notice of any hearing or meeting. An oral hearing may be held if a party requests it, unless the parties have agreed otherwise. The arbitrators have the power to proceed ex-parte when the respondent fails to communicate their statement of defense or appear for an oral hearing without sufficient cause. However, such a failure is not treated as an admission of the allegations, and the tribunal must determine the matter based on the available evidence, if any.

Preliminary Relief and Interim Measures in Arbitration

Arbitral Tribunals in India are permitted to award preliminary or interim relief. Section 17 of the Act provides the framework for granting such relief. Previously, interim orders of the tribunal were not enforceable without resorting to fresh court proceedings. However, since an amendment in 2015, an interim order passed by an arbitral tribunal is enforceable in the same manner as a court order. Disobedience of such an order can result in contempt of court proceedings.

Further, under Section 9 of the Act, a party can approach a competent court for interim relief before or during the arbitral proceedings or even after the award is pronounced but before it is enforced. However, the court’s jurisdiction to entertain such an application is restricted once the tribunal has been constituted, except in cases where recourse to the tribunal is inefficacious.

Evidentiary Considerations in Arbitration

Section 19 of the Act specifies that the arbitral tribunal is not bound by the provisions of the Evidence Act. However, fundamental principles of natural justice and public policy are considered applicable. Therefore, while technical rules of evidence contained in the Evidence Act do not apply, the tribunal must ensure a fair and just process during the proceedings.

Further, Section 27 of the Act empowers the arbitral tribunal, or a party with the tribunal’s approval, to apply to the court for assistance in taking evidence, including any disclosure, discovery, or attendance of witnesses. Therefore, if parties do not voluntarily comply with requests for disclosure, discovery, or attendance of witnesses, the tribunal can seek the court’s assistance. Indian courts generally order discovery if it is necessary for a fair resolution of the dispute or for cost-saving purposes.

Making the Arbitral Award An arbitral award in India must fulfill several legal requirements as provided under Section 31 of the Act:

• It must be in writing.
• It must be signed by the arbitrator or a majority of the arbitrators if more than one is appointed.
• It must state the reasons upon which it is based unless the parties have agreed otherwise, or it is an award on agreed terms.
• It must specify the date and place of the award.

Enforcing the Arbitral Award

The enforcement of arbitral awards in India is governed by Part II of the Arbitration and Conciliation Act, 1996, which incorporates the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). India is a signatory to the New York Convention.

Setting Aside an Arbitral Award

Under Section 34 of the Arbitration and Conciliation Act, 1996, there are grounds on which an award can be set aside by the court. These include:

• Invalid arbitration agreement.
• Lack of proper notice of the arbitration proceedings.
• The arbitral tribunal exceeds its jurisdiction.
• The award is in conflict with the public policy of India.

Conclusion

India’s arbitration landscape is intricate, encompassing a wide spectrum of scenarios under the Arbitration and Conciliation Act of 1996. From the fundamental legal requirements of arbitration agreements to the enforcement of arbitral awards and the procedures in between, this comprehensive overview provides insight into the key facets of arbitration in India. The Act strikes a balance between party autonomy and legal safeguards, making arbitration a viable and efficient method for dispute resolution in the country. As India continues to play a prominent role in international commerce, its arbitration laws and practices remain a critical element in facilitating fair and effective dispute resolution both domestically and on the global stage.

FAQs

[1] Arbitration and Conciliation Act of 1996, Section 7

[2] The Indian Stamp Act, 1899 [Act no 2 of 1899]

[3] N.N. Global Mercantile Private Limited v. Indo Unique Flame Ltd. 2023 SCC OnLine SC 495.

[4] Arbitration and Conciliation (Amendment) Act, 2015 

[5] Arbitration and Conciliation Act of 1996, Section 8

[6] NTPC v. Singer Co. (1992) 3 SCC 551

[7] Perkins Eastman Architects DPC & Another v. HSCC (India) Limited (2019) 2019 SCC OnLine SC 1517 

[8] Arbitration and Conciliation Act of 1996, Section 11

King Stubb & Kasiva,
Advocates & Attorneys

Click Here to Get in Touch

New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Mangalore | Pune | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com