India: Arbitration In India: Overview 2008

Last Updated: 22 April 2009
Article by Sumeet Kachwaha

First published in International Bar Association's Arbitration Newsletter, March 2009

The Indian Arbitration & Conciliation Act, 1996 (Act) is faithfully based on the Model Law. The Indian Supreme Court's interpretation of the law however has been somewhat controversial and (some would say), at variance with the Model Law. This past year saw some significant, far reaching and controversial judgments being delivered by the Supreme Court. This note presents a snapshot:

(i) Venture Global Engineering v. Satyam Computer Services

The year started with a bang when on the 10th of January 2008 the Court pronounced the Venture Global Judgment. Before we get into the judgment it may be worthwhile to outline the provisions of the Act relating to enforcement of arbitral awards:

Scheme Of The Act: Broadly stated the Act has two parts. Part I provides for domestic arbitration. Any arbitration taking place in India (whether it is between Indian or foreign parties) would be governed by Part I. Part II only provides for enforcement of certain types of foreign awards i.e. New York Convention awards and Geneva Convention awards. Part I of the Act, vide Section 34 contains provisions for setting aside of domestic awards (based on Article 34 of the Model Law). There is no provision, corresponding to Article 35 of the Model Law, requiring a successful party to apply for enforcement of a domestic award. In other words once objections to an award are dismissed (or there are no objections) the award can be enforced straightaway without the need for any proceedings for enforcement of an award. The position for a foreign award is different in a significant aspect that there is only a provision (Section 48) to enforce the foreign award (on the New York Convention grounds). There is no provision to set aside a foreign award. This is since the New York Convention envisages (vide Article V (e) ) that an award can be challenged or suspended by the competent authority of the country in which it was made or under the laws of which it was made.

Hence, to sum up, the statutory scheme is that there is a provision to challenge a domestic award but there is none to challenge a foreign award - the only provision being to enforce (or refuse to enforce) a foreign award on the New York Convention grounds.

Facts And Issue: In Venture Global, the Supreme Court was concerned with a situation where an award had been rendered in London under the Rules of the LCIA and was sought to be enforced by the successful party (an Indian party) in the District Court of Michigan, USA, as the losing party was situated there. The dispute arose out of a shareholder's agreement. The award held that there was an "event of default" under the shareholder's agreement and as a result of which the successful party could exercise its option to purchase the shares of the appellant at book value. The JV company was situated in India but the successful Indian party (Respondent) took the unusual steps to try to enforce the award in the USA. The appellant contented that as transfer of shares in an Indian company were involved and Indian procedures and compliances would need to be gone through, Indian courts would have jurisdiction and challenged the award in India by way of a civil suit. The issue before the Supreme Court was whether a foreign award can be challenged in India and if so under what provision.

Decision Of The Court: The Supreme Court held that even though there may be no express provision for challenging an arbitration award rendered outside India, the same could be challenged applying the provisions available under the Act for challenging a domestic award (Section 34 of the Act appearing in Part I). Applying a previous decision in the case of Bhatia International v. Bulk Trading, the Court held that Part I of the Act would also apply to Part II arbitrations, unless the parties have expressly or impliedly opted out of the same.

Comment: What irked the court was that the properties were situated in India. Indian compliance and regulatory mechanism would be triggered. Indian interest would be affected. But the award would not be tested here. Instead the award would be enforced indirectly through the threat of contempt of court mechanism of a foreign court. This may be an unusual feature of the case but in the process the court ended up laying down bad law:

First and foremost, Venture Global has taken judicial law making to a new height. It has created a procedure for challenging an award where none exists (by borrowing the law which exists for domestic awards). Secondly the court has ignored the scheme of the Act which (in accord with the New York Convention) envisages that a foreign award can be challenged only in the country where it was rendered or under the laws of which it was rendered. Third, the decision has muddied the waters considerably. Section 34 of the Act (providing for challenge to domestic awards) permits a challenge on merits i.e. patent illegality on a wide interpretation of the public policy ground, (applying a previous 2003 Supreme Court decision in Saw Pipe's case) whereas this is not permissible for a foreign award (applying another 1994 Supreme Court decision in Renusagar's case). Under the new judge made regime of Venture Global, a foreign award can now be challenged on merits under Section 34, even though the New York Convention grounds do not contemplate such challenge. Furthermore, no application for enforcement can proceed till an application for setting aside (perhaps in a different form of the choice of losing party) has worked itself out. The enforcement mechanism for foreign awards has thus been rendered inefficient, clumsy and uncertain. Parties would therefore be well advised to incorporate a clause opting out of Part I of the Indian Arbitration Act, in the case of foreign arbitrations.

(ii) TDM Infrastructure Pvt. Ltd. v. U.E. Development India Pvt. Ltd.

Statutory Scheme: As stated above, the Act has two Parts. Part I applies to any arbitration seated in India irrespective of the identity of the parties (i.e. Indian or foreign). Part I thus provides for a common set of provisions for both domestic and international arbitrations. There are however two specific provisions for international commercial arbitrations. The first is that if there is a break down of the parties stipulated mechanism for constitution of the arbitral tribunal (or no mechanism is stipulated and the parties cannot agree), then in the case of international commercial arbitration, the appointment is to be made by the Chief Justice of the Supreme Court of India or his nominee, whereas in the case of a domestic arbitration the appointment is to be made by the Chief Justice of the High Court or his nominee having jurisdiction in relation to the dispute. The second difference is of substance and that is, in an international commercial arbitration parties are free to designate a governing law other than Indian law. An arbitration between domestic parties on the other hand shall be decided in accordance with the substantive law of India. In view of this difference between the provisions for domestic arbitration and international arbitration, it became necessary for the Act to define "International Commercial Arbitration". This is defined in Section 2 (1) (f) of the Act as follows:

(f) "international commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is –

  1. an individual who is a national of, or habitually resident in, any country other than India; or
  2. a body corporate which is incorporated in any country than India; or
  3. a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
  4. the Government of a foreign country;

Facts And Issue In TDM Case: In TDM case the Supreme Court was called upon to interpret the meaning of "International Commercial Arbitration". The context was that a 100% subsidiary of a Malaysian company brought arbitration against another 100% subsidiary of a Malaysian company. The Petitioner contented that all its shareholders are Malaysians and all directors are Malaysians too. Further all meetings of the Board of Directors took place in Malaysia (except for one meeting, statutorily required to take place at the registered office in India).

Under these circumstances, the Petitioner contented that though both the companies are incorporated in India, the Petitioner is a company whose "central management and control is exercised in a country other than India and therefore the arbitration qualifies as an "international commercial arbitration" within the meaning of Section 2 (1) (f) (iii).

Decision Of The Court: The Supreme Court rejected this contention. It drastically read down Section 2 (1) (f) (iii). It held that the said Section would not apply to a company but would only apply to unincorporated associations or body of individuals. It held that if both companies are incorporated in India then the arbitration between them would necessarily be a domestic arbitration (irrespective of where the central control or management may be). The court rested its decision on the proposition that as a matter of "public policy", Indian companies i.e. companies incorporated in India can only opt for Indian law as the governing law of the contract. If an arbitration between them is held to be an "international commercial arbitration" they would be able to opt for a foreign law, which the Court held would be contrary to Indian public policy.

Comment: The Supreme Court of India has re-read Section 2(1)(f)(iii) and rendered significant portions of it otiose or meaningless. Firstly the court ignored the disjunctive "or" between Section 2 (1) (f) (ii) and Section 2 (1) (f) (iii). If incorporation outside India was to be the sole and conclusive test, there would be no need for the word "or" at the end of Section 2 (1) (f) (ii). The alternative test laid down in 2 (1) (f) (iii) was simply overlooked (because it did not fit in with what the court felt to be the public policy of India). Secondly the court ignored a plain reading of Section 2 (1) (f) (iii) in so far as it expressly applies to a company.

More significantly the court laid down far reaching law stating that once a company is incorporated in India it cannot opt for a foreign law (as a matter of public policy). This ignores the fact that there may be SPVs or 100% subsidiaries of foreign companies set up in India which may legitimately like to resolve their contractual difference through governing law other than Indian. It is not the public policy of India (and there is nothing in Section 28 of the Act to suggest) that a company which is owned, controlled and managed from outside India cannot opt for a foreign law merely because it is incorporated in India. The TDM Judgment not only ignores a plain reading of Section 2 (1) (f) of the Act, it lays down a far reaching proposition that as a matter of law, companies incorporated in India cannot opt for a governing law other than India in contractual matters. Indeed it casts a doubt that such companies can opt for foreign law even in relation to off-shore arbitrations.

(iii) Comed Chemicals Ltd. v. C.N. Ramchand:

Facts And Issue: The issue before the Supreme Court was whether a contract of employment or a contract where there is a master-servant relationship is arbitrable or not. The Respondent, a British national, was the Director (Technical) of the applicant company. The company terminated his services and raised disputes. There existed an arbitration agreement between the parties. At the stage of appointment of an arbitrator, two questions arose before the Court. The first was whether the dispute was one which could be considered to be "commercial" under Indian laws (a requirement of Section 2 (1) (f) of the Act in relation to international commercial arbitration - please see above). The other issue was whether the dispute between parties was arbitrable.

Decision Of The Court: The Supreme Court adapted the wide interpretation of the expression "commercial" in accordance with foot note to Article 1 (1) of the Model Law ("The term 'commercial' should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature ..........."). Accordingly it held that notwithstanding the employer - employee relationship the disputes between the parties would be considered to be commercial.

The next issue was whether the disputes would be arbitrable. The court held that if the contract between the parties was merely a contract of employment or a master-servant contract, the dispute would not be arbitrable but if the contract stipulates performance of functions which could be undertaken by a business man there would be an element of commerce and the dispute would be arbitrable. The court referred to various provisions under the Companies Act to conclude that a director of a company is not a mere employee or a servant of a company. A director is a controller of the affairs of the company. Hence the disputes between the parties would be arbitrable.

Comment: The significance of the case lies in that it holds that an ordinary contract of employment would not be arbitrable - though a dispute of a company with its director would be arbitrable. However the court did not lay down any lucid test as to the circumstances under which disputes between a company and its (non-director) senior executives would be arbitrable. In a given case it may become controversial and a disputed question of fact as to whether such disputes are arbitrable or not. There are no helpful guidelines laid down by the court to resolve this. The end result being that save in the case of directors there is a cloud of doubt as to whether disputes between a company and its employees are arbitrable or not and accordingly it may be better to eschew an arbitration clause in a contract of employment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.