Arbitration In India: A Quick Recourse to Justice?

Introduction

Arbitration has emerged as one of the most preferred modes of alternative dispute resolution in India, particularly in commercial matters. The promise of speedy justice, minimal court intervention, and flexibility has made arbitration an attractive alternative to traditional litigation. However, the question remains whether arbitration truly delivers on its promise of being a quick recourse to justice. This article examines the legal framework governing arbitration in India, analyzes landmark judgments that have shaped its trajectory, and evaluates whether the system fulfills its fundamental objective of expeditious dispute resolution.

The Arbitration and Conciliation Act, 1996, which consolidated and reformed India’s arbitration laws, was enacted to align with international standards, particularly the UNCITRAL Model Law on International Commercial Arbitration. Over the years, this legislation has undergone significant amendments in 2015, 2019, and 2020, each attempting to address practical challenges and make arbitration more efficient. Despite these reforms, questions persist about whether arbitration in India has truly become the swift remedy it was intended to be.

 

The Legal Framework: Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996, forms the backbone of arbitration law in India. This Act replaced three earlier enactments and brought Indian arbitration law in line with international best practices. The Act comprises four parts: Part I deals with domestic arbitration, Part II covers enforcement of foreign awards under the New York Convention and Geneva Convention, Part III addresses conciliation, and Part IV contains supplementary provisions.

The Act establishes several fundamental principles that govern arbitration proceedings in India. It recognizes party autonomy as paramount, allowing parties to determine their own procedural rules and appoint arbitrators of their choice. The legislation also emphasizes minimal judicial intervention, though this principle has been subject to considerable judicial interpretation over the years. The Act provides for interim measures, appointment of arbitrators, conduct of proceedings, and enforcement of awards.

One of the most significant aspects of the 1996 Act is its recognition of both domestic and international commercial arbitration. The Act defines international commercial arbitration as arbitration relating to disputes arising out of legal relationships, whether contractual or not, that are considered commercial under Indian law and where at least one party is a foreign national, corporation, or government. This distinction becomes crucial when examining the scope of judicial intervention and the applicability of various procedural timelines.

Judicial Interpretation: The Bhatia International Saga

The interpretation of the Arbitration and Conciliation Act, 1996, took a controversial turn with the Supreme Court’s decision in Bhatia International v. Bulk Trading S.A. in 2002 [1]. This case fundamentally altered the landscape of international arbitration in India and demonstrated how judicial interpretation can significantly impact the effectiveness of arbitration as a quick recourse to justice.

In Bhatia International, the Supreme Court was confronted with a dispute where parties had agreed to arbitration in Paris under ICC rules, but the Indian party sought interim relief from Indian courts. The central question was whether Part I of the Arbitration Act, which deals with domestic arbitration, would apply to international arbitrations held outside India. The Supreme Court held that Part I would apply to all international commercial arbitrations unless the parties expressly or impliedly excluded its application.

This interpretation had far-reaching consequences. It meant that Indian courts could grant interim measures, appoint arbitrators, and even set aside awards rendered in foreign-seated arbitrations. While the Court’s intention was to prevent parties from being left without recourse when they needed urgent interim relief, the practical effect was to create uncertainty and delay. Parties to foreign-seated arbitrations found themselves subject to the jurisdiction of Indian courts, which ran contrary to the principle that the law of the seat should govern the arbitration.

The Bhatia International decision essentially allowed Indian courts to exercise supervisory jurisdiction over arbitrations seated abroad. This led to a series of cases where parties approached Indian courts for interim relief or to challenge awards in foreign-seated arbitrations. The delays inherent in the Indian judicial system meant that even foreign-seated arbitrations involving Indian parties became protracted affairs, defeating the very purpose of choosing arbitration for its speed and efficiency.

The BALCO Correction: Restoring the Seat Theory

Recognizing the problems created by Bhatia International, the Supreme Court reconsidered its position in the landmark case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services (BALCO) in 2012 [2]. This case marked a watershed moment in Indian arbitration jurisprudence and demonstrated the judiciary’s willingness to correct course when faced with evidence that a previous interpretation was hindering rather than helping arbitration.

In BALCO, a five-judge Constitution Bench overruled Bhatia International and held that Part I of the Arbitration Act applies only to arbitrations seated in India. The Court emphasized the territoriality principle, stating that the seat of arbitration determines which country’s laws govern the arbitration process. If parties choose a foreign seat, they submit to the supervisory jurisdiction of that country’s courts, not Indian courts.

The BALCO judgment brought Indian law in line with international arbitration practice and the UNCITRAL Model Law. It clarified that Indian courts cannot grant interim measures, appoint arbitrators, or set aside awards in foreign-seated arbitrations. This was a significant step toward making arbitration more predictable and efficient, as it removed the uncertainty about which courts had jurisdiction over different aspects of the arbitral process.

However, the BALCO judgment contained an important caveat that limited its immediate impact. The Court held that the decision would apply only prospectively, meaning it would govern arbitration agreements entered into after September 6, 2012. For agreements entered before that date, the Bhatia International regime would continue to apply unless the parties had expressly or impliedly excluded Part I. This meant that the problematic Bhatia regime would continue to affect arbitrations for several years, creating a dual system that itself generated confusion.

The 2015 Amendment: Introducing Time Limits

The Arbitration and Conciliation (Amendment) Act, 2015, represented the first major legislative reform aimed at addressing delays in arbitration. The amendment introduced strict timelines for arbitral proceedings, seeking to ensure that arbitration lived up to its promise of being a swift alternative to litigation [3].

The most significant innovation of the 2015 amendment was the introduction of Section 29A, which mandated that arbitral tribunals complete their proceedings and make awards within twelve months from the date the tribunal enters upon the reference. This period could be extended by six months with the consent of both parties. If the award was not made within eighteen months, any party could approach the court for further extension. Importantly, the Act provided that if the tribunal failed to conclude proceedings within the stipulated time without obtaining an extension, its mandate would terminate.

The 2015 amendment also introduced the concept of fast-track arbitration under Section 29B. This provision allowed parties to opt for an expedited procedure where the arbitration would be concluded within six months by a sole arbitrator, primarily on the basis of written pleadings without oral hearings. This was particularly beneficial for parties seeking even quicker resolution of their disputes.

Another crucial reform in 2015 was the limitation on court intervention in granting stays of arbitral awards. Prior to the amendment, filing an application to set aside an award automatically stayed its enforcement. The amendment changed this, providing that awards could be enforced even while challenges were pending, unless the court specifically ordered otherwise. This was intended to prevent parties from using the challenge process merely as a delaying tactic.

The 2015 amendment also clarified that courts should not undertake a merits-based review when considering enforcement of foreign awards. It inserted an explanation in Section 48 making clear that when examining whether an award violates public policy, the court cannot review the merits of the dispute. This was meant to ensure that enforcement proceedings remained summary in nature rather than becoming a full rehearing of the case.

The 2019 Amendment: Promoting Institutional Arbitration

The Arbitration and Conciliation (Amendment) Act, 2019, took a different approach to improving arbitration efficiency by promoting institutional arbitration and refining the timeline provisions introduced in 2015 [4]. The amendment recognized that while strict timelines were necessary, they needed to be realistic and appropriately calibrated to different types of disputes.

One of the most significant changes in 2019 was the modification of Section 29A to provide that the twelve-month period would run from the completion of pleadings rather than from when the tribunal enters upon the reference. This gave parties and tribunals more realistic timeframes, as the period during which pleadings are exchanged could vary significantly depending on the complexity of the dispute. The amendment also introduced Section 23(4), requiring that written statements of claim and defense be completed within six months from the date the arbitrator receives notice of appointment.

Importantly, the 2019 amendment removed the mandatory twelve-month timeline for international commercial arbitrations. Instead, it provided that tribunals should endeavor to complete international arbitrations expeditiously, preferably within twelve months. This change recognized that international arbitrations often involve complex multi-jurisdictional issues that may require more time for proper resolution.

The 2019 amendment also introduced several provisions aimed at promoting institutional arbitration. It provided for the establishment of the Arbitration Council of India, an independent body tasked with grading arbitral institutions, accrediting arbitrators, and maintaining uniform professional standards. The amendment envisaged that arbitral institutions, rather than courts, would handle the appointment of arbitrators, thereby reducing the burden on the judiciary and expediting the process.

Section 42A was introduced to ensure confidentiality of arbitration proceedings, with disclosure permitted only where necessary for implementation or enforcement of awards. Section 42B provided immunity to arbitrators from legal action for acts done in good faith during the discharge of their functions. These provisions were intended to make arbitration more attractive by protecting the privacy of proceedings and encouraging qualified professionals to serve as arbitrators without fear of litigation.

Enforcement of Foreign Awards: The New York Convention Framework

India’s approach to enforcement of foreign arbitral awards is governed by Part II of the Arbitration and Conciliation Act, 1996, which implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 [5]. India ratified the New York Convention on July 13, 1960, with two reservations that continue to shape its enforcement regime.

Under the first reservation, India applies the Convention only to awards made in territories that have been specifically notified as reciprocating territories. While 172 countries are parties to the New York Convention, India has notified only 48 countries as reciprocating territories. This means that awards rendered in non-notified Convention states cannot be enforced in India under Part II of the Act. Under the second reservation, India applies the Convention only to disputes arising from legal relationships, whether contractual or not, that are considered commercial under Indian law.

The enforcement of foreign awards in India is a two-stage process. First, the party seeking enforcement must file an application before the appropriate court, producing the original arbitral award or a duly authenticated copy, along with the original arbitration agreement or a certified copy. Once the court is satisfied that the conditions for enforcement are met, the award is deemed to be a decree of the court and can be enforced accordingly.

Section 48 of the Act specifies the grounds on which enforcement of a foreign award may be refused. These grounds mirror Article V of the New York Convention and include lack of proper notice, excess of jurisdiction by the tribunal, improper composition of the tribunal, non-arbitrability of the subject matter, and violation of public policy. The explanation to Section 48 clarifies that an award is in conflict with public policy if it was induced by fraud or corruption, or if its enforcement would be contrary to the fundamental policy of Indian law or the most basic notions of morality or justice.

The Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano Spa clarified that when examining public policy grounds for refusing enforcement, courts should adopt a narrow interpretation. The Court held that the public policy exception should not be used to undertake a detailed merits review of the arbitral award. This pro-enforcement approach has made India a more attractive jurisdiction for enforcement of foreign awards, contributing to the efficiency of arbitration as a dispute resolution mechanism.

Practical Challenges: Does Arbitration Deliver Speed?

Despite the legislative reforms and judicial developments discussed above, the practical reality of arbitration in India presents a mixed picture regarding its speed and efficiency. While the framework has improved significantly, several challenges continue to hinder arbitration from being the quick recourse to justice it promises to be.

The strict timelines introduced in 2015 and refined in 2019 were intended to ensure expeditious resolution. However, in practice, these timelines are frequently breached. Parties often consent to extensions, and tribunals routinely approach courts for further extensions beyond the initial eighteen months. Court proceedings for extending time limits themselves contribute to delays, as Indian courts are burdened with heavy caseloads. The very mechanism designed to ensure speed has, in some cases, created additional procedural steps that consume time.

The challenge to arbitral awards under Section 34 of the Act remains another source of delay. While the 2015 amendment limited the grounds for challenge and removed automatic stays, parties continue to file setting aside applications as a matter of course. These applications can take years to resolve, particularly given the possibility of appeals to High Courts and, in exceptional cases, to the Supreme Court. During this period, enforcement of the award remains uncertain, defeating the objective of quick resolution.

The institutional infrastructure for arbitration in India, while improving, still has considerable room for development. Although institutions like the Mumbai Centre for International Arbitration and the Delhi International Arbitration Centre have been established, ad hoc arbitrations remain common. In ad hoc arbitrations, parties often face challenges in appointing arbitrators, particularly when one party is uncooperative. The courts remain involved in such appointments, adding to delays.

The quality and availability of arbitrators is another practical concern. While India has a large pool of legal professionals, the number of experienced arbitrators with expertise in specialized commercial matters remains limited. The Arbitration Council of India, which was intended to address this issue through a system of accreditation, has yet to be operationalized in the manner envisaged by the 2019 amendment. This means that the professionalization of arbitration practice remains incomplete.

Cost is also a factor that affects the accessibility and efficiency of arbitration. While arbitration is often less expensive than protracted litigation, the costs can still be substantial, particularly in complex commercial disputes. Arbitrator fees, administrative costs of institutions, and legal fees can add up significantly. For smaller businesses and individual parties, these costs may be prohibitive, limiting arbitration’s utility as a quick recourse to justice for all segments of society.

Recent Developments and Future Directions

The arbitration landscape in India continues to evolve, with recent judicial decisions and proposed amendments indicating a continued commitment to making arbitration more effective. Courts have increasingly adopted a hands-off approach, respecting party autonomy and limiting intervention to situations explicitly provided for in the Act.

Several High Courts have updated their rules to streamline procedures for arbitration-related applications. Commercial Courts, established under the Commercial Courts Act, 2015, have been given jurisdiction over arbitration matters involving commercial disputes above a specified value. These specialized courts are intended to handle commercial and arbitration matters more efficiently than traditional civil courts.

The Supreme Court has also issued several decisions clarifying aspects of arbitration law. In decisions like Vidya Drolia v. Durga Trading Corporation, the Court has emphasized that referral to arbitration should be the rule rather than the exception, with courts exercising minimal interference at the referral stage. The Court has clarified that only in cases of clear non-arbitrability should parties be denied access to arbitration.

Looking ahead, further reforms are likely needed to fully realize arbitration’s potential as a quick recourse to justice. The operationalization of the Arbitration Council of India remains crucial for developing a robust institutional framework. Improving the quality and quantity of specialized arbitrators, particularly those with expertise in technical and industry-specific matters, will enhance the quality and speed of arbitral proceedings.

Technology adoption presents another avenue for improving efficiency. Virtual hearings, electronic filing, and online case management systems can reduce delays and make arbitration more accessible. The COVID-19 pandemic accelerated the adoption of virtual proceedings, demonstrating that many aspects of arbitration can be conducted efficiently online.

Conclusion

Arbitration in India has come a long way since the enactment of the Arbitration and Conciliation Act, 1996. Landmark judgments like BALCO have aligned Indian law with international standards, while amendments in 2015 and 2019 have introduced important procedural reforms. The legislative and judicial framework now in place is significantly more arbitration-friendly than it was two decades ago.

However, whether arbitration truly serves as a quick recourse to justice depends heavily on implementation. The statutory timelines, while well-intentioned, are frequently breached in practice. Challenges to awards continue to consume substantial time, and institutional infrastructure remains underdeveloped. The efficiency gains promised by the reformed legal framework have yet to be fully realized on the ground.

For arbitration to fulfill its promise, a multi-pronged approach is needed. This includes not just legislative reform, but also a cultural shift among practitioners, judges, and parties toward truly embracing arbitration’s objectives of speed, efficiency, and finality. Courts must maintain their increasingly restrained approach to intervention. Parties and their counsel must embrace reasonable timelines and avoid using procedural tactics to delay proceedings. Arbitrators must be trained to manage proceedings efficiently while ensuring fairness.

Ultimately, arbitration can and should be a quick recourse to justice in India. The legal framework is largely in place. The challenge now is one of implementation and culture change. As India seeks to position itself as a hub for international arbitration, the test will be whether the promise of swift justice translates into consistent reality for the thousands of parties who choose arbitration each year.

References

[1] Supreme Court of India. (2002). Bhatia International vs Bulk Trading S.A. & Anr. (2002) 4 SCC 105. Retrieved from https://indiankanoon.org/doc/110552/ 

[2] Supreme Court of India. (2012). Bharat Aluminium Co vs Kaiser Aluminium Technical Services. (2012) 9 SCC 552. Retrieved from https://indiankanoon.org/doc/173015163/ 

[3] Government of India. (2015). Arbitration and Conciliation (Amendment) Act, 2015. Ministry of Law and Justice. Retrieved from  https://lawmin.gov.in/sites/default/files/ArbitrationandConciliation.pdf 

[4] Government of India. (2019). The Arbitration and Conciliation (Amendment) Bill, 2019. PRS Legislative Research. Retrieved from https://prsindia.org/billtrack/the-arbitration-and-conciliation-amendment-bill-2019 

[5] United Nations. (1958). Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). New York Convention Guide. Retrieved from https://newyorkconvention1958.org/index.php?lvl=notice_display&id=1728 

[6] Government of India. (1996). The Arbitration and Conciliation Act, 1996. India Code. Retrieved from https://www.indiacode.nic.in/handle/123456789/1978 

[7] UNCITRAL. UNCITRAL Model Law on International Commercial Arbitration. Legal Affairs Division, Government of India. Retrieved from https://legalaffairs.gov.in/sites/default/files/arbitration-and-mediation_0.pdf 

[8] Kluwer Arbitration Blog. (2012). The Bharat Aluminium Case: The Indian Supreme Court Ushers In a New Era. Retrieved from https://arbitrationblog.kluwerarbitration.com/2012/09/26/the-bharat-aluminium-case-the-indian-supreme-court-ushers-in-a-new-era/ 

[9] International Bar Association. Arbitration Guide – India. IBA Arbitration Committee. Retrieved from https://www.ibanet.org/document?id=India-country-guide-arbitration