The Arbitration Law Of India: A Critical Analysis

Profession:Kachwaha & Partners

Article by Sumeet Kachwaha*?

This is a updated version of Article first published in AIAJ Vol 1. No. 2 2005

India opened a fresh chapter in its laws in 1996 when it enacted the Arbitration & Conciliation Act (Act). This article presents salient features of the Act and analyses its working in its near one decade of existence.


Prior to 1996, the arbitration law of the country was governed by a 1940 Act. This Act was largely premised on mistrust of the arbitral process and afforded multiple opportunities to litigants to approach the court for intervention. Coupled with a sluggish judicial system, this led to delays rendering arbitrations inefficient and unattractive. A telling comment on the working of the old Act can be found in a 1981 judgment of the Supreme Court where the Judge (Justice D.A. Desai) in anguish remarked "the way in which the proceedings under the (1940) Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep ."1


India, (in the good company of several other nations) enacted its new Arbitration Act based on the UNCITRAL Model Law (1985) and the UNCITRAL Rules (1976). This was in January 1996. The Statement of Objects and Reasons to the Act made no bones of the inefficiency of the old legislation. It said that the same had "become outdated" and there was need to have an Act, more responsive to contemporary requirements." It added: "Our economic reforms may not become fully effective if the law dealing with settlement of both domestic and international commercial disputes remains out of tune."

Amongst the main objectives of the new Act (set out in the Statement of Objects and Reasons) are .to minimize the supervisory role of courts in the arbitral process. and "to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court."

This is how the Supreme Court dwelled on the new Act:

"To attract the confidence of International Mercantile community and the growing volume of India.s trade and commercial relationship with the rest of the world after the new liberalization policy of the Government, Indian Parliament was persuaded to enact the Arbitration & Conciliation Act of 1996 in UNCITRAL model and therefore in interpreting any provisions of the 1996 Act Courts must not ignore the objects and purpose of the enactment of 1996. A bare comparison of different provisions of the Arbitration Act of 1940 with the provisions of Arbitration & Conciliation Act, 1996 would unequivocally indicate that 1996 Act limits intervention of Court with an arbitral process to the minimum.2"


The Act is a composite piece of legislation. It provides for domestic arbitration; international commercial arbitration; enforcement of foreign award and conciliation (the latter being based on the UNCITRAL Conciliation Rules of 1980).

The more significant provisions of the Act are to be found in Part I and Part II thereof. Part I contains the provisions for domestic and international commercial arbitration. Any arbitration to be conducted in India would be governed by Part I, irrespective of the nationalities of the parties. Part II provides for enforcement of foreign awards.

Part I is more comprehensive and contains extensive provisions based on the Model Law. It provides inter alia for arbitrability of disputes; non-intervention by courts; composition of the arbitral tribunal; jurisdiction of arbitral tribunal; conduct of the arbitration proceedings; recourse against arbitral awards and enforcement. Part II on the other hand, is largely restricted to enforcement of foreign awards governed by the New York Convention or the Geneva Convention. Part II is thus, (by its very nature) not a complete code. This led to judicial innovation by the Supreme Court in the case of Bhatia International v. Bulk Trading3. Here the Indian courts jurisdiction was invoked by a party seeking interim measures of protection in relation to an arbitration under the ICC Rules to be conducted in Paris. The provision for interim measure (section 9) was to be found in Part I alone (which applies only to domestic arbitration). Hence the Court was faced with a situation that there was no proprio vigore legal provision under which it could grant interim measure of protection. Creatively interpreting the Act, the Supreme Court held that the .general provisions. of Part I would apply also to offshore arbitrations, unless the parties expressly or impliedly exclude applicability of the same. Hence by judicial innovation, the Supreme Court extended the "general provisions "of Part I to off-shore arbitrations as well.

It may be stated that this was premised on the assumption that the Indian Court would otherwise have jurisdiction in relation to the matter (in the international sense). This became clear in a subsequent decision of the Supreme Court in Shreejee Traco (I) Pvt. Ltd. v. Paperline International Inc.4 Here the Court.s assistance was sought for appointing an arbitrator in an off-shore arbitration. The power of appointment by court exists under Section 11 of Part I of the Act (which applies to domestic arbitration alone). The Court declined to exercise jurisdiction. It found that the arbitration was to be conducted in New York and that the law governing the arbitration proceedings would be the law of seat of the arbitration. Hence, the extension of Part I provisions to foreign arbitrations sanctified by Bhatia5 would not be resorted to in every case. The Indian Courts would have to first determine if it has jurisdiction, in the international sense.


The Act applies to all types of arbitrations viz. statutory or non-statutory - institution administered or adhoc. The only qualification being that the dispute must be arbitrable.6 The salient features of the Act are discussed below:

1. Arbitration Agreement defined:

An arbitration agreement has to be in writing, and may be even contained in exchange of letters of any other means of telecommunication which provide a record of the agreement. The agreement need not be signed and the unsigned agreement affirmed by the parties conduct would be valid as an arbitration agreement.7 An arbitration agreement would also be considered to be in writing if there is an exchange of a statement of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.8

2. Arbitrability of Disputes

The Act states that the relationship between the parties need not be contractual. Hence a dispute in tort can also be referred. The Supreme Court in the case of Renu Sagar Power Co. v. General Electric Co.9 stated this as follows:

"The question is not whether the claim lies in tort but the question is whether even though it has lain in tort it .arises out of . or is .related to. the contract, that is to say, whether it arises out of the terms of the contract or is consequential upon any breach thereof.."

The Court in Renusagar also approved an English decision in the case of Woolf Vs. Collis Removal Service, [1947] 2 All ER 260 where the Court of Appeal held that though the claim in negligence was a claim in tort and not under contract, yet there was a sufficient close connection between that claim and the transaction to bring the claim within the arbitration clause. Citing this, the Court in Renu Sagar continued:

"this authority clearly shows that even though a claim may not directly arise under the contract which contains an arbitration clause, if there was sufficient close connection between that claim and the transaction under the contract, it will be covered by the arbitration clause.."

Hence, whether an action lies in tort or contract, it would lie before an arbitral forum, unless it can be demonstrated that the cause of action is de hors the contract which contains the arbitration clause.

A controversy arose whether arbitrators would have jurisdiction to order specific performance of a contract. The High Court of Delhi held10 that the power to grant specific performance is discretionary and statutorily conferred on civil courts under the Specific Relief Act, 1963. Hence, an arbitral tribunal would have no such power. On the other hand, the High Courts of Punjab, Bombay and Calcutta11 took a view that the arbitrators can grant specific performance. The Supreme Court put to rest the controversy in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan12 and held that the arbitrators do have the power to order specific performance of contract. The Court relied on Halsbury.s Laws of England13 which states that the differences or disputes which may be referred must consist of "..... a justifiable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction".

In the case of Hindustan Petroleum Corporation v. Pink City14, the defendant resisted arbitration on the ground that the cause of action made out by the appellant State Corporation (i.e. short delivery and tampering with weights and measures and seals) was essentially a criminal offence under special statutes. It was contented that the defendants conduct could be investigated only by officers so authorized under statute and that the offence, if any, can be tried only by a court of competent jurisdiction and not by an arbitrator. The Supreme Court negatived this contention holding that the State Corporation had rights under the contract which are independent of the statutory provisions and hence the contractual rights could be enforced through the arbitration process: "The existence of dual procedure; one under the criminal law and the other under the contractual law is a well-accepted legal phenomenon in Indian jurisprudence."15

The Supreme Court has however held that a claim for winding up16 is not arbitrable and hence a court action for winding up cannot be dismissed on a contention that...

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