EVOLUTION OF ARBITRATION IN INDIA: JOURNEY TOWARDS INTERNATIONAL RECOGNITION

Introduction

Abraham Lincoln once remarked on the importance of discouraging litigation and encouraging compromise, noting that the nominal winner in court battles often becomes the real loser through accumulated fees, expenses, and wasted time. This wisdom resonates profoundly in today’s globalized commercial landscape, where arbitration has emerged as the preferred mechanism for resolving international disputes. The term arbitration refers to an alternative dispute resolution process wherein parties voluntarily submit their disagreements to one or more neutral arbitrators rather than pursuing conventional litigation. The arbitrators’ decisions bind the parties, offering finality without the protracted timelines typical of court proceedings. Arbitration framework in India undergone substantial transformation since its inception, responding to the demands of an increasingly interconnected commercial world. Arbitration offers distinct advantages including time efficiency, cost-effectiveness, party autonomy, and procedural flexibility. These characteristics have made arbitration indispensable for the commercial community. Contemporary investors scrutinize a nation’s arbitration infrastructure and the supportiveness of its legal ecosystem before committing capital, making robust arbitration frameworks critical for economic development.

This article examines the historical evolution of arbitration in India, analyzes key legislative amendments, and explores pathways through which India can position itself as a premier international arbitration destination.

Historical Foundations of Arbitration in India

The concept of alternative dispute resolution finds deep roots in Indian civilization. Ancient India employed various indigenous mechanisms for settling disputes outside formal court systems. Village councils known as Kulani, trade corporations called Sreni, and assemblies termed Puga all served as dispute resolution forums. Commercial matters fell under the jurisdiction of Mahajans and Chambers, while panchayats functioned as arbitration bodies operating under the supervision of established courts.

Modern arbitration law arrived in India with the enactment of the Arbitration Act 1899, which drew inspiration from the English Arbitration Act of 1899. This legislation marked the first formal legal recognition of arbitration as a dispute resolution mechanism in India. However, its application remained geographically limited to the three presidency towns of Calcutta, Madras, and Bombay. Subsequently, the Code of Civil Procedure 1908 incorporated arbitration provisions within Section 89 and Schedule II, extending arbitration’s reach to other regions of British India.

The technical complexity and impracticality of the 1899 Act and the procedural code’s arbitration provisions necessitated comprehensive reform. Parliament responded by enacting the Arbitration Act 1940, modeled after the English Arbitration Act 1934. This legislation provided a detailed framework for domestic arbitration but contained no provisions addressing the enforcement of foreign arbitral awards. While English arbitration law continued evolving through the Arbitration Acts of 1950, 1975, and 1979, Indian arbitration law remained stagnant during this period.

The 1940 Act’s implementation proved deeply unsatisfactory, failing to achieve its intended objectives. Justice D.A. Desai articulated the Supreme Court’s frustration in Guru Nanak Foundation v. Rattan Singh and Sons, observing that proceedings under the Act had become highly technical and complex, transforming the informal forum chosen by parties into a legalistic maze creating traps for unwary participants at every stage.[1]

On the international front, the 1923 Geneva Protocol on Arbitration Clauses sought to ensure enforceability of arbitral awards across national boundaries. The 1927 Geneva Convention on the Execution of Foreign Arbitral Awards supplemented this framework. India became signatory to both instruments and enacted the Arbitration (Protocol and Convention) Act 1937 to implement these international obligations. However, these conventions complicated rather than simplified international arbitration procedures.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted in New York in 1958, addressed the shortcomings of earlier international frameworks. This convention entered into force on June 7, 1959, with India acceding on July 13, 1960. Parliament subsequently passed the Foreign Awards (Recognition and Enforcement) Act 1961 to incorporate the New York Convention into domestic law. India thus operated under three parallel arbitration statutes: the Protocol and Convention Act 1937, the Arbitration Act 1940, and the Foreign Awards Act 1961.

The Arbitration and Conciliation Act 1996: A Watershed Moment

Economic liberalization in 1991 exposed the inadequacies of India’s fragmented arbitration framework. Foreign investment required a streamlined, predictable dispute resolution mechanism aligned with international standards. Parliament responded by enacting the Arbitration and Conciliation Act 1996, which repealed the Arbitration Act 1940 and consolidated arbitration law. Based on the UNCITRAL Model Law on International Commercial Arbitration 1985, this legislation unified the legal regime governing domestic arbitration, international commercial arbitration, foreign award enforcement, and conciliation.[2]

The 1996 Act aimed to establish a speedy, cost-effective dispute resolution mechanism producing outcomes equivalent to court decrees while minimizing judicial intervention. Despite these laudable objectives, implementation revealed significant deficiencies. Arbitration proceedings remained expensive and protracted, as the Act imposed no time limits for completing arbitration. Excessive judicial interference at every stage undermined arbitration’s efficiency. Moreover, challenges to arbitral awards under Section 34 resulted in automatic stays of execution, rendering awards effectively unenforceable during lengthy court proceedings.

The Supreme Court’s decision in Bhatia International v. Bulk Trading S.A. generated considerable controversy by holding that Part I of the Act applied to arbitrations seated outside India unless expressly or impliedly excluded.[3] This interpretation was subsequently overruled in the landmark Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. judgment, which clarified that Indian courts lack jurisdiction to grant interim relief in international commercial arbitrations seated abroad. Indian courts could only exercise jurisdiction when parties sought to enforce foreign awards in India under Part II of the Act.

The 2015 Amendment: Addressing Systemic Issues

Recognizing the 1996 Act’s shortcomings, the Ministry of Law and Justice solicited recommendations from prominent lawyers, jurists, and legal experts. A committee chaired by Justice (Retd.) B.N. Srikrishna examined the Act’s functioning and proposed reforms. Parliament subsequently enacted the Arbitration and Conciliation (Amendment) Act 2015, introducing several significant modifications.

The 2015 Amendment empowered parties to request arbitrator appointments from the Supreme Court or High Courts, which were required to complete such appointments within sixty days. The Amendment added the Fifth and Seventh Schedules establishing arbitrator ineligibility criteria aligned with International Bar Association Guidelines on Conflicts of Interest. Section 9 provisions concerning court assistance, Section 27 regarding evidence-taking, and Section 37 governing appeals became applicable to international commercial arbitrations regardless of seat location.

The Amendment granted interim reliefs issued by arbitral tribunals seated in India the same status as court orders under revised Section 17. Parties in foreign-seated arbitrations received liberty to seek assistance from Indian courts. Once interim relief was granted, arbitration proceedings had to commence within ninety days or such extended period as courts might allow.

The Amendment imposed a strict twelve-month timeline for completing arbitration proceedings seated in India, with possible six-month extensions granted by courts. Tribunals completing proceedings within six months qualified for additional fees, while delays beyond specified periods resulted in up to five percent monthly fee reductions. Fast-track disposal provisions required proceedings to conclude within six months. Applications challenging arbitral awards required disposal within one year.

The Amendment introduced a “costs follow the event” regime through Section 31A, empowering courts or tribunals to determine costs payable by losing parties, including arbitrator fees and expenses, court fees, witness costs, legal fees, institutional administrative costs, and other arbitration-related expenses. Section 2’s definition of “court” was amended to designate only High Courts for international commercial arbitrations. Automatic stays upon filing Section 34 challenges were eliminated. Grounds for challenging international commercial arbitrations seated in India were narrowed.

Section 36 received comprehensive revision, providing that once the period for challenging arbitral awards elapsed, awards would be enforced under the Code of Civil Procedure 1908 as court decrees. This provision generated controversy regarding its applicability to pending Section 34 proceedings on the Amendment’s enforcement date. The Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. held that revised Section 36 applied to pending proceedings as it was procedural in nature.[4]

The Law Commission recommended adopting the terms “seat” and “venue” instead of “place” of arbitration to align with international usage, but the 2015 Amendment did not incorporate this suggestion. The Supreme Court in BGS SGS Soma JV v. NHPC Ltd. clarified that the place of arbitration, whether termed seat or venue, determines which courts possess exclusive jurisdiction unless otherwise indicated.[5]

The 2019 Amendment: Promoting Institutional Arbitration

While the 2015 Amendment addressed numerous deficiencies, it failed to adequately promote institutional arbitration in India. On January 13, 2017, a high-level committee chaired by Justice (Retd.) B.N. Srikrishna was constituted to develop strategies for promoting institutional arbitration and establishing India as a premier domestic and international arbitration hub.

Parliament enacted the Arbitration and Conciliation (Amendment) Act 2019 to implement the committee’s recommendations. This legislation introduced the Arbitration Council of India with powers to grade arbitral institutions, recognize professional institutes providing arbitrator accreditation, issue recommendations and guidelines for arbitral institutions, and undertake measures establishing India as an arbitration hub. These provisions remain unnotified and thus inoperative. The Amendment empowered the Supreme Court and High Courts to delegate arbitrator appointment authority to institutions accredited by the Arbitration Council of India, though this provision also awaits notification.

The 2015 Amendment’s twelve-month timeline for arbitration proceedings commenced from the date proceedings began before arbitral tribunals. The 2019 Amendment modified this commencement date to when pleadings conclude, with possible six-month extensions granted with party consent. However, pleadings must conclude within six months. Significantly, the 2019 Amendment imposed no time limits on international commercial arbitration proceedings.

The Amendment introduced express provisions regarding arbitration proceedings’ confidentiality and arbitrator immunity. It also prescribed minimum arbitrator qualifications through the Eighth Schedule. Section 87 of the 2019 Amendment provided that the 2015 Amendment’s provisions, effective from October 23, 2015, applied only to arbitration proceedings commenced on or after that date. This provision contradicted the Supreme Court’s decision in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and undermined the 2015 Amendment’s objectives.

In Hindustan Construction Company Limited v. Union of India, the Supreme Court struck down Section 87 as manifestly arbitrary, reaffirming that procedural provisions apply to pending proceedings.[6]

The 2021 Amendment: Fine-Tuning the Framework

The Arbitration and Conciliation (Amendment) Ordinance 2020, promulgated on November 4, 2020, was replaced by the Arbitration and Conciliation (Amendment) Act 2021, which received parliamentary assent on March 10, 2021. This Amendment introduced two significant modifications addressing concerns raised by the arbitration community.

First, it removed the controversial Eighth Schedule and Section 43J added by the 2019 Amendment. The Eighth Schedule had prescribed extensive arbitrator qualification requirements that undermined party autonomy, a fundamental arbitration principle. The deletion restored parties’ freedom to select arbitrators based on their preferred criteria rather than rigid statutory qualifications.

Second, the Amendment added a proviso to Section 36 subsection 3 mandating unconditional stays of arbitral awards where courts are satisfied that prima facie cases exist indicating that arbitration agreements, underlying contracts, or award-making processes were induced or affected by fraud or corruption. This provision received retrospective effect from October 23, 2015, coinciding with the 2015 Amendment’s commencement date.

While intended to prevent enforcement of fraudulently obtained awards, this provision raised concerns about increased judicial intervention. The requirement of merely a prima facie finding rather than conclusive proof potentially enables award-debtors to delay enforcement by making unsubstantiated fraud allegations. This represents a departure from pro-arbitration principles favoring limited judicial interference and expeditious award enforcement.

Regulatory Framework and Enforcement Mechanisms

India’s current arbitration regime operates under the Arbitration and Conciliation Act 1996 as amended in 2015, 2019, and 2021. The Act divides into four parts: Part I governs arbitrations seated in India, Part II addresses enforcement of foreign awards under the New York Convention and Geneva Convention, Part III covers conciliation, and Part IV contains supplementary provisions.

For domestic arbitrations, parties enjoy considerable autonomy in determining procedural rules, appointing arbitrators, and selecting the arbitration seat. Where parties fail to agree on arbitrator appointments, courts intervene to ensure proceedings commence without undue delay. The Act prescribes arbitrator qualification requirements and disqualification grounds, ensuring neutrality and competence.

Arbitral tribunals possess authority to grant interim measures protecting subject matter, preserving evidence, and maintaining the status quo pending final awards. These interim orders carry the same enforceability as court orders. Tribunals conduct proceedings according to agreed procedures or, absent agreement, in manners they deem appropriate, subject to fairness and natural justice requirements.

Awards must be rendered within twelve months from pleading completion, extendable by six months with party consent. Awards require written form with reasoning and must address all claims submitted. Parties may seek corrections, interpretations, or additional awards within limited timeframes.

Challenges to arbitral awards under Section 34 are confined to specific grounds including invalid arbitration agreements, improper notice, awards exceeding submission scope, improper tribunal composition, non-arbitrability, and public policy violations. Courts cannot review awards on merits, respecting arbitral tribunal findings on factual and legal issues. Section 34 applications require disposal within one year from filing.

For international commercial arbitrations, Part I applies to India-seated arbitrations. Foreign-seated arbitral awards fall under Part II, which implements the New York Convention. Foreign awards qualify for enforcement if made in convention countries concerning differences arising from legal relationships considered commercial under Indian law. Enforcement may be refused on limited grounds mirroring New York Convention provisions, including invalid agreements, improper notice, awards exceeding submission scope, improper tribunal composition, non-finality, awards being set aside or suspended in origin countries, non-arbitrability, and public policy violations.

Institutional Arbitration Development

Despite legislative reforms, India’s institutional arbitration infrastructure remains underdeveloped compared to premier international arbitration centers. Several institutions have emerged including the Delhi International Arbitration Centre, Mumbai Centre for International Arbitration, and Nani Palkhivala Arbitration Centre. However, these institutions lack the global recognition and caseload volumes of established centers like the Singapore International Arbitration Centre, International Chamber of Commerce International Court of Arbitration, and London Court of International Arbitration.

The proposed Arbitration Council of India, once notified, will play a crucial role in developing institutional arbitration by grading institutions, establishing quality standards, accrediting arbitrators, and promoting best practices. This regulatory oversight should enhance institutional credibility and attract international arbitration work to India.

Judicial Approach to Arbitration in India

Indian courts have increasingly adopted pro-arbitration approaches, recognizing the importance of minimal judicial interference and respecting party autonomy. Landmark judgments have clarified jurisdictional issues, limited grounds for award challenges, and expedited enforcement procedures. Courts have emphasized that arbitration is an autonomous process requiring judicial support rather than supervision.

The Supreme Court has repeatedly affirmed that Section 34 does not permit appeals on merits, limiting judicial review to specific statutory grounds. This jurisprudence has gradually reduced frivolous challenges and encouraged award finality. However, the 2021 Amendment’s fraud-based stay provision potentially undermines these gains by enabling increased court involvement based on preliminary findings rather than conclusive determinations.

Pathways to Becoming a Global Arbitration Hub in India

Despite progressive legislative reforms and evolving judicial attitudes, India faces several challenges in establishing itself as a preferred international arbitration destination. Addressing these challenges requires multifaceted interventions across legal, institutional, and cultural dimensions.

India requires development of full-time arbitration practitioners who dedicate their entire professional practice to arbitration rather than treating it as ancillary to litigation practice. Currently, many Indian lawyers conduct arbitration hearings after court hours, resulting in inadequate attention and preparation. Establishing a specialized arbitration bar with members exclusively practicing arbitration would enhance procedural quality and expertise levels comparable to international standards.

While India has established several arbitration institutions, none have achieved recognition comparable to premier international centers. This stems partially from the absence of renowned permanent arbitrators similar to those practicing in Singapore, London, and Paris. Developing a cadre of full-time, internationally respected arbitrators requires sustained investment in training, quality assurance, and reputation building.

Reducing judicial intervention remains critical despite legislative attempts to limit court involvement. The 2021 Amendment’s unconditional stay provision for fraud allegations represents a concerning step backward. Every award-debtor can potentially delay enforcement by alleging fraud or corruption, knowing that courts will grant automatic stays upon prima facie findings. This undermines arbitration’s efficiency and finality, core advantages over litigation. Future reforms should consider raising the threshold for fraud-based stays, requiring clear and convincing evidence rather than mere prima facie cases.

Establishing an independent arbitration bar association would provide a forum for discussing challenges, sharing best practices, and advocating reforms. Such associations could organize training programs, publish practice guides, facilitate networking among practitioners, and represent collective interests to policymakers. Professional bodies strengthen practice standards and enhance community cohesion.

Government involvement in arbitration institutions raises independence concerns. The New Delhi International Arbitration Centre and proposed Arbitration Council of India include government representatives in governance structures. By contrast, leading international arbitration institutions like the Singapore International Arbitration Centre, International Chamber of Commerce, and London Court of International Arbitration operate independently without government participation in decision-making. Insulating arbitration institutions from government influence ensures perceived neutrality, particularly in disputes involving state entities or politically sensitive matters.

Public awareness of arbitration benefits remains limited in India. Most businesses and individuals remain unfamiliar with arbitration procedures, advantages, and accessibility. Arbitration institutions should conduct extensive outreach campaigns, organize conferences, publish accessible materials, and engage with business communities. Law schools must integrate arbitration into curricula, exposing students to arbitration practice and encouraging arbitration careers.

Infrastructure development, including modern hearing facilities, technological integration, and administrative support systems, enhances arbitration attractiveness. Institutions should invest in state-of-the-art facilities comparable to international standards, offering video conferencing capabilities, electronic case management, and comprehensive support services.

Cost competitiveness represents a significant Indian advantage. Arbitration in India generally costs substantially less than in traditional arbitration hubs while maintaining quality standards. Emphasizing this cost advantage in international marketing could attract price-sensitive parties, particularly from developing countries.

Conclusion

India’s arbitration evolution reflects a sustained effort to align domestic frameworks with international standards while addressing unique challenges. From ancient indigenous dispute resolution mechanisms through colonial-era legislation to contemporary reforms based on UNCITRAL models, the journey demonstrates responsiveness to changing commercial needs and global integration demands.

The Arbitration and Conciliation Act 1996 and its subsequent amendments have progressively refined India’s arbitration architecture, introducing time limits, reducing judicial intervention grounds, promoting institutional arbitration, and enhancing enforcement mechanisms. Judicial decisions have generally supported arbitration autonomy, limiting review scopes and expediting proceedings.

However, challenges persist. Institutional infrastructure requires strengthening, specialized practitioners remain scarce, cultural preferences for litigation prevail, and recent legislative changes like the 2021 fraud stay provision create enforcement uncertainties. Addressing these challenges requires coordinated efforts from legislature, judiciary, arbitration institutions, practitioners, and business communities.

India possesses inherent advantages including a sophisticated legal system, English language proficiency, cost competitiveness, and strategic geographic location. Leveraging these advantages while addressing weaknesses through targeted reforms can establish India as a premier arbitration destination rivaling established centers in Singapore, London, and Paris. The foundation exists; sustained commitment to quality, independence, and efficiency will determine whether India realizes its arbitration hub aspirations.

The path forward requires balancing party autonomy with necessary safeguards, ensuring institutional independence, developing specialized expertise, promoting public awareness, and maintaining pro-arbitration legislative and judicial approaches. With concerted efforts across all stakeholder groups, India can achieve its objective of becoming a global arbitration leader, fulfilling Abraham Lincoln’s vision of efficient, economical dispute resolution serving parties’ interests while advancing economic development objectives.

References

[1] Supreme Court of India. (1981). Guru Nanak Foundation v. Rattan Singh and Sons, AIR 1981 SC 2075. 

[2] United Nations Commission on International Trade Law. (1985). UNCITRAL Model Law on International Commercial Arbitration. Available at: https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration 

[3] Supreme Court of India. (2002). Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105. 

[4] Supreme Court of India. (2018). Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287. 

[5] Supreme Court of India. (2019). BGS SGS Soma JV v. NHPC Ltd., (2020) 4 SCC 234. 

[6] Supreme Court of India. (2020). Hindustan Construction Company Limited v. Union of India, (2020) 17 SCC 324. 

[7] Ministry of Law and Justice, Government of India. The Arbitration and Conciliation Act, 1996. Available at: https://www.indiacode.nic.in/handle/123456789/1978 

[8] New York Convention. (1958). Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Available at: https://www.newyorkconvention.org/ 

[9] Delhi International Arbitration Centre. About DIAC. Available at: https://diac.ind.in/