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Arbitration Laws in India (Part II - The 2019 Amendment and Party Autonomy)

Hari Narayan & Kavya Varma[i]


The 2019 Amendment- An analysis

1. Insertion of Part 1A- One of the key changes incorporated by the 2019 Amendment Act is the establishment of an independent Arbitration Council of India (“ACI”). ACI shall be a governmental body designated to promote and encourage arbitration, mediation or other ADR mechanisms. Section 43D imposes ACI with a wide array of functions, including,

  1. Framing policies governing the grading of arbitral institutions,

  2. Review the grading arbitral institutions and arbitrators,

  3. Frame, review and update norms to ensure a satisfactory level of arbitration and conciliation,

  4. Make recommendations regarding personnel, training and infrastructure of arbitral institutions.

On the face of it, the establishment of ACI provides for an assurance so as to strengthen the arbitration regime in India. Once the provisions come in to force, it would be interesting to note whether the incorporation of such a measure was indeed a positive step to boost arbitration or not.

2. Amendment to Section 11- Section 11 of the 1996 Act provides for the appointment of arbitrations. The Section has been amended to include the power of SC and HC to designate arbitral institutions, which have been graded by ACI. An interesting point to note here is that it reduces judicial intervention in cases of appointment of arbitrators and is only open to those institutions/arbitrators graded by ACI. The SC/HC will no longer have the power to designate an ungraded institution. This provision is, however subject to the working of ACI. Once the ACI is established and functioning, only then the extent of such grading and designations shall be understood.

3. Amendment to Section 17- The 2019 Amendment Act has done away with the right of parties to apply for interim measures post rendering of the award as envisaged by the 2015 Amendment Act.

4. Amendment to Section 23- As per the insertion of Section 23(4), the statement of claim and defense shall be completed within six months, from the date the arbitrator/s, received notice, in writing, of their appointment. The practical possibility of completion of pleadings within a time frame of six months still needs to be looked into. On the other side, if the time frame is strictly adhered to by the parties, it would further help to boost the speedy redressal of the disputes.

5. Amendment to Section 29A- The 2019 Amendment Act extends the deadline for the arbitrators to make an award. By 2015 Act, it was twelve months from the date the arbitrators enter upon the reference whereas the 2019 Act makes it twelve months from the date of completion of pleadings. However, the timelines appear to be mandatory only for domestic arbitration and not for international commercial arbitration.

6. Insertion of Section 42A- Addition of Section 42A introduced a concept of confidentiality in the Indian arbitration regime according to which the parties are required to maintain the confidentiality of all arbitral proceedings except in case such disclosure is necessary for implementation and enforcement of an award.

A major debated provision under the 2019 Amendment Act was Section 87 which provided that 2015 Amendment Act shall apply only to arbitral proceedings commenced on or after the commencement of the 2015 Amendment Act and to court proceedings arising out of or in relation to such arbitral proceedings. Section 87 was hence largely contrary to the observations made by SC in BCCI judgment and effectively the position as laid accordingly was diluted. However, it is interesting to note that recently, a three-judge bench of SC in Hindustan Construction Company & Ors. v. Union of India[ii], struck down Section 87 by placing reliance on the doctrine of manifest arbitrariness. It was held the Section 87 is manifestly arbitrary, having been enacted unreasonably, without adequately determining the principle and contrary to the public interest sought to be subserved by the 1996 Act.[iii] In effect, the BCCI judgment will continue to apply and Section 87 will not be in force.

Party Autonomy to choose foreign seat of Arbitration

Here, an analysis shall be made on the question as to whether two Indian parties can choose a foreign seat of arbitration and completely oust the jurisdiction of the Indian Courts. With respect to the proposition of two Indian parties choosing a foreign seat for arbitration, the scheme of the Act itself does not permit it, meaning the Act, as amended in 2015 and 2019 is silent on the said issue. However, there have been judicial pronouncements in favour of parties choosing a foreign seat.

An interpretation of the 1999 judgment of the SC in Atlas Exports Industries v. Kotak Company[iv], would mean that merely because arbitrators were situated in a foreign country cannot by itself be enough to nullify arbitration agreement when parties willingly entered into an agreement. Although, the same was countered with the argument that the decision is under the 1940 Act and there have been numerous decisions which emphasized that courts must exercise caution in applying the decisions under the 1940 Act to matters under the 1996 Act. In applying decisions under the 1940 Act to matters under the 1996 Act, the ratio of the decision ought to have equal application and it is also supported by the fact that decisions under the 1996 Act, has kept reliance upon the ruling of Atlas exports.

The Supreme Court in TDM Infrastructure (P) Ltd. v. UE Development Private Limited[v], held that it would not be open to two Indian parties to opt for a foreign seat of arbitration as it might be derogating from the laws of India, being against the public policy. The Court ruled that the determination of nationality of parties plays an important role in the matter of appointment of the arbitrator. Where both parties have Indian nationalities, then the arbitration between such parties cannot be said to be international commercial arbitration.[vi]

In Addhar Merchantile[vii], Bombay HC concurred that two Indian nationals should not be permitted to derogate from Indian law and held that arbitration shall, therefore, be conducted in India.

In the case of Reliance Industries[viii], it has been held that two Indian parties can choose a foreign seat, provided that there is a foreign element involved in the case. The foreign element can be a combination of various foreign factors, the foreign seat, the crucial law and the law governing the arbitration agreement.

The decision of Madhya Pradesh HC in Sasan Power Limited v. North America Coal Corporation India Pvt. Ltd.[ix], was a very welcoming judgment which held that merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have their eyes open willingly entered into the agreement. The Court hence allowed two Indian parties to choose a foreign seat. The Court observed that based on the seat of arbitration, the question of permitting two Indian companies or parties to arbitrate out of India is permissible.[x] Although on appeal to SC, the court refrained from giving any finding on this issue but it did observe the presence of any foreign element between the Indian parties would allow them to have a foreign seated arbitration.[xi]

In the case of GMR Energy Limited v. Doosan Power Systems Private Limited and Ors.[xii], the Delhi High Court has held that an arbitration agreement is an independent self-contained agreement not dependent on the substantive agreement, therefore irrespective of the contractual rights and obligations parties can opt for international arbitration. For this reason, the Court thus confirmed that Indian parties were free to choose a foreign seat of arbitration.

The Act is silent as to whether two Indian parties can choose a foreign seat of arbitration and oust the jurisdiction of the Indian court. The conflicting decision by SC and HCs necessitate the need for a provision under the Act governing the same. Enactment of such a provision would further enhance party autonomy. The provision shall also lay down as to the extent to which the Indian Courts can exercise jurisdiction in such a scenario. The uncertainty on the law in India will continue till the legislature amends the 1996 Act, or the SC makes a definitive pronouncement on the issue.

(To be continued..)


[i] Hari Narayan is a Senior Partner at United Maritime Law Chambers, a boutique admiralty law firm based out of Cochin, Kerala. Hari through his firm, UMLC has acted for a wide variety of institutions involved in International trade including MNC’s, FMCG’s, ship owners, Corporate Houses, insurers, and P & I Clubs. Hari is also a visiting faculty and Counsel, Indian Maritime University, and Gujarat Maritime University. Hari has served as a faculty for training Judges from the Federal Capital Territory High Court of Nigeria. He regularly holds Master Class on Marine Insurance and Cargo claims at Dubai, Singapore, and Kuala Lumpur.

Kavya Varma is a Graduate of National University of Advanced Legal Studies (NUALS). [ii] Hindustan Construction Company v. Union of India, A.I.R. 2020 S.C. 122. [iii] Id, Para 48. [iv] Atlas Exports Industries v. Kotak Company, (1999) 7 S.C.C. 61. [v] TDM Infrastructure (P) Ltd. v. UE Development Private Limited, (2008) 14 S.C.C. 271. [vi] Id, Para. 15. [vii] Addhar Merchantile Private Limited v. Shree Jagadamba Agrico Exports Pvt. Ltd., 2015 SCC OnLine Bom 7752. [viii] Reliance Industries Limited & Anr. v. Union of India, (2014) 7 SCC 603. [ix] Sasan Power Limited v. North America Coal Corporation India Pvt. Ltd., 2016 (2) ArbLR 179 (MP). [x] Id, Para. 55. [xi] Sasan Power Limited v. North American Coal Corporation India Private Limited, (2016) 10 S.C.C. 813. [xii] GMR Energy Limited v. Doosan Power Systems Private Limited and Ors., 2017 (6) ArbLR 447 (Delhi).

Preferred Citation: Hari Narayan and Kavya Verma, Arbitration laws in India, Arbitration & Corporate Law Review, Published on 17th August, 2020.

Hari Narayan Arbitration Laws in India
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Note: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Arbitration & Corporate Law Review.

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