Arbitration in India has come a long way from its nascent stages as envisaged in the Brihadaranyaka Upanishad (which outlined three dispute resolution bodies puga, sreni and kula) to its first formal recognition in Indian law through the Arbitration Act, 1899.
The current Arbitration and Conciliation Act, 1996 has been amended time and again (through the 2015, 2019 and 2021 amendments) to tackle the evolving needs of arbitration.
Prior to the 2019 amendment, then Law Minister Ravi Shankar Prasad declared that the government intends to make India a hub of domestic and international arbitration by bringing in changes in law for faster resolution of commercial disputes.
The author aims to discuss the recent judicial decisions, legislative drafts and government notifications/circulars to ascertain if India is on the right path to build itself into an arbitration hub.
Government's efforts to promote Alternative Dispute Resolution (ADR)
On February 8, 2024, the Law Ministry put out a press release stating, "the Government has been at the forefront of promoting Alternative Dispute Resolution Systems." Some key efforts of the government have been captured below:
- The law has undergone significant changes in the years 2015, 2019 and 2021 (illustratively, setting up of timelines for completion of different stages of arbitration, doing away with automatic stay of enforcement of awards, demarcating the meaning of 'Court' in international and domestic arbitration, limiting the gamut of public policy under Section 34 of the Act).
- The Commercial Courts Act, 2015 was amended in the year 2018 to provide for a Pre-Institution Mediation and Settlement (PIMS) mechanism to tackle docket explosion. It provides that if a suit does not pray for any "urgent interim relief" then the same shall be instituted only after the petitioner has exhausted the remedy of pre-institution mediation. Unfortunately, the mechanism has not been as effective as contemplated (illustratively, see the Delhi Mediation Centre Report for October 2024).
- Mediation is slowly gaining popularity as a mode of dispute resolution, albeit for a small section of litigants. The enactment of the Mediation Act, 2023 has also been step in this direction.
- An enabling legal framework for resolution of disputes through ADR has been provided under Section 89, Civil Procedure Code, 1908.
Judicial developments
Within months after publication of the above discussed press release, a three-judge Bench of the Supreme Court, while exercising its extraordinary powers of jurisdiction under Article 137 and 142 of the Constitution, passed a judgment on April 10, 2024 which has profound implications on arbitration law in its entirety.
The dispute was between a State-owned company (DMRC) and a private SPV incorporated for the purpose of construction, operation and maintenance of the Delhi Airport Metro (DAMEPL). The arbitral award was against DMRC, which was challenged before the High Court. The challenge was dismissed, post which in appeal, a Division Bench of the High Court partially set aside the award. DAMEPL filed a Special Leave Petition challenging this judgment. The Supreme Court allowed the petition and restored the award. After a review was dismissed, DMRC filed the curative petition.
After four rounds of adjudication, the apex court held that its earlier judgment resulted in "a miscarriage of justice" which called for an intervention. The Court, while determining the correctness of the arbitral award, went back to the provisions of the agreement and interpretation thereof, and reconsidered the evidence submitted by the parties to support its conclusion that the award should be struck down. It thus quashed the ₹8,000 crore award against DMRC, terming it as 'patently illegal'.
Nonetheless, the Court was cognizant that this judgment could be misused and hence noted that "exercise of the curative jurisdiction of this Court should not be adopted as a matter of ordinary course." Regardless of its observation, this judgment has brought back a protectionist stance which might be a deterrent for international players and might open the floodgates to excessive litigation.
Recently, a three-judge Bench of the Supreme Court in an arbitration matter pertaining to grant of stay on arbitral awards (International Seaport Dredging Pvt Ltd v. Kamarajar Port Limited) held that the Act does not "distinguish between governmental and private entities..." and thus "Governmental entities must be treated in a similar fashion to private parties" in arbitration. In this light, the DMRC judgment does not sit right with the understanding of the law.
The steps of progress India has made over the years via the White Industries judgment and the recent amendments made to the Arbitration Act (which were focussed to promote a pro-arbitration approach) may have been undone by virtue of the DMRC judgment.
Guidelines for arbitration and mediation in public procurement contracts
Soon after the DMRC judgment, wherein the interest of a State-owned company was protected, the Ministry of Finance on June 3, 2024 released an Office Memorandum (OM) laying down its new policy decision stating that "arbitration as a method of dispute resolution should not be routinely or automatically included in procurement contracts/ tenders, especially in large contracts."
Further, if an arbitration clause is included in a contract, the same must be restricted to disputes with a value less than ₹10 crore (irrespective of the value of the contract). For all other cases, "arbitration will not be a method of dispute resolution in the contract" and if an arbitration clause is included in contradiction to the aforementioned scheme, then the same would need to be approved by the Ministry.
The Memorandum promoted mediation and suggested that government departments/organisations are "encouraged to adopt mediation... and/or negotiated amicable settlements". However, in the same breath, the OM stated that mediation "need not be routinely or automatically included" in procurement contracts/tenders.
In November 2024, the Karnataka government withdrew its 2014 circular which mandated that arbitration be compulsorily added to the dispute resolution clauses of government contracts and tenders "with immediate effect". Law Minister HK Patil explained that "the clause was heaping financial strain on the state" and now all disputes will be resolved through litigation.
The guidelines seem to be self-contradictory and ignore the practical fallacy that without effective dispute resolution, enforcing contracts is almost impossible.
Draft Arbitration and Conciliation (Amendment) Bill, 2024
The government in October last year invited comments on the Draft Bill from the public. Some key proposed amendments are discussed below:
- The Draft Bill proposes to curtail the court's power under Section 9 with respect to grant of interim relief during pendency of the arbitration since it considers that an arbitral tribunal under Section 17 is fully capable of handling this responsibility.
- The Bill suggests to formally recognise emergency arbitration through the introduction of Section 9-A (which was already recognised in Amazon.com judgment).
- The Bill proposes to impose strict timelines to decide and rule on various applications (at various stages including interim measures, appointment of arbitrator, appeal of orders, etc) to tackle the current delay in disposal of applications.
- The Bill proposes to amend Section 20 (specifically the phrase "place of arbitration") of the Act to end the long-standing debate of seat and venue.
- It suggests setting up of appellate arbitral tribunals to deal with challenges to arbitral awards, with a view to reduce reduce court involvement.
Some of the changes suggested are much required. However, other changes might complicate the law further. The Bill fails to address the ambiguities related to grounds for challenging international commercial arbitration and foreign awards or establishing a strict timeline for the completion of execution proceedings.
Concluding remarks
The later Fali S Nariman's speech at the 2023 UNCITRAL South Asia Conference commented that arbitration in India is in a "somewhat chronic state of animated suspension". Primarily due to the recent amendments and court decisions, "the 1996 Act 'went-off- the-rails'" and now the arbitration law has "too many conflicting judgments – on different provisions of the Act: all of which are yet to be reviewed by larger Benches of India's Supreme Court".
In the ever-changing world of arbitration, the changes being brought in by the government and the judicial decisions as discussed further muddle the law. On the one hand, the government issues a press release batting for ADR, while on the other hand, the Office Memorandum and judicial decisions do not seem to be on the same page.
India's most sincere efforts to promote itself as an arbitration hub seem to have been diluted. We still have a long way to go in order to establish an efficient dispute resolution system.
[This Article was first published on Bar & Bench]
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