Survey on Arbitration Law in India – 2019

The article surveys significant legal developments in India in the field of arbitration law in the year 2019. The legislative and judicial approach has been to promote an arbitration friendly regime in India, but with mixed results.

Establishment of New Delhi International Arbitration Centre (NDIAC)

The Government promulgated New Delhi International Arbitration Centre (Ordinance), 2019, and subsequently Parliament passed an The New Delhi International Arbitration Centre Act, 2019 to establish NDIAC. The objective of NDIAC is to promote research, provide training and facilities for arbitration, and maintain a panel of accredited arbitrators. The operation of the Ordinance was initially stayed by the Delhi High Court on March 07, 2019 in a petition filed by International Centre for Alternative Dispute Resolution. Subsequently, it was partially vacated on May 16, 2019.

Amendments to the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘Act’)

The previous amendment to the Arbitration and Conciliation Act, 1996 was made in the year 2015. The following were the noteworthy amendments made in the year 2019:

• Establishment of “Arbitration Council of India”: It would be a body based in Delhi (Section 43 B). It would grade arbitral institutions inter-alia on infrastructure, quality and calibre of arbitrators etc. (Sec. 43 D)

• Appointment of Arbitrators: Based on the grading, the Supreme Court and High Court would designate arbitral institutions for appointing arbitrators. [Sec. 11(3A)] The applications will have to be filed before such arbitral institutions [Sec. 11(4)] and shall be decided within a period of 30 days from the date of the service of notice on the opposite party [Sec. 11(13)].

• Challenge to an award: The aggrieved party has to now establish its case “on the basis of the record of the arbitral tribunal” [34(2) (a)]. Earlier the provision stated “furnishes proof that,” which allowed a wider judicial review.

• Narrower grounds to refuse reference to Arbitration where New York Convention is applicable: If there is a prima-facie finding that the arbitration agreement was null and void, inoperative or incapable of being performed, the reference to arbitration would be refused (Sec. 45). Prior to the amendment, the Courts had to determine the objections on merits.

• Qualifications of Arbitrators: Qualifications and general norms have been prescribed in the Eight Schedule, primarily to deal with impartiality, independence, legal and practical competence etc.

The following provisions, introduced in the year 2015, have also been amended:

• Timeline for proceedings: (i) Pleadings have to be completed within 6 months from the date the arbitrator/s received notice, in writing, of their appointment [Sec. 23(3)]; and (ii) Award has to be passed within 12 months from the date of completion of the pleadings [Sec. 29A(1)]. In case of international commercial arbitration, an endeavor should be made to dispose of the matter within a period of 12 months from the date of completion of pleadings.

• No automatic termination of mandate of the Arbitrator: It continues as long as an application for extension of time for passing award is pending before the High Court [Sec. 29A(4)].

• Power to order an interim measure: The Arbitral tribunal has power to pass interim measure as long as arbitral proceedings are pending [Sec. 17(1)]. After the making of an award but before its enforcement, the power is with the concerned Court only.

The new Act also states that the amendments introduced in the year 2015 shall be applicable only arbitration proceedings commenced thereafter (Sec. 87). Justice RF Nariman had publicly expressed his displeasure about the amendments more than once.

Anti – Arbitration Injunction

The Delhi High Court maintained a consistent approach in as much as:

(a) interim injunction against arbitration proceedings was refused even though allegations of fraud, bribery and corruption were made (Republic of India vs. Agusta Westland International Ltd., (2019) 257 DLT 171);

(b) interference by domestic courts in arbitral proceedings under BIT was held to be permissible only in "compelling circumstances" in "rare cases;" (Union of India v. Khaitan Holdings (Mauritius) Limited & Ors., 2019 SCC Online Del 6755) and

(c) it was held in Himachal Sorang Power Private Limited vs. NCC Infrastructure Holdings Limited, 2019 SCC Online Del 7575, that only if proceeding initiated were vexatious and/or oppressive, the Court would interfere.

In Ravi Arya vs. Palmview Investments Overseas Ltd., 2019 SCC Online Bom 251, the Bombay High Court refused to stay arbitration proceedings, once the Tribunal had already ruled on its competence.

Group of Companies Doctrine

The doctrine was invoked by the Supreme Court in Mahanagar Telephone Nigam Ltd. vs. Canara Bank, 2019 SCC Online SC 995, to bind a non-signatory to the arbitration, while emphasizing on composite nature of transaction, single economic entity and intention of the parties to bind a non – signatory party as well. However, where a clear intention of the Foreign Affiliate to assent was not established, doctrine was not applied [Reckitt Benckiser (India) v. Reynders Label Printing India Private Limited, (2019) 7 SCC 62].

Reference to arbitration

The non – parties to an arbitration clause, were referred for arbitration, once they once they agreed before the Court for arbitration. The Plaintiff opposed reference since all Defendants were not signatory to arbitration clause. The Court was satisfied about a commonality of interest on their part. (R.V. Solutions Pvt. Ltd. v. Ajay Kumar Dixit, 2019 SCC Online Del 6531)

Likewise, disputes arising out of separate agreements having distinct clauses were referred to a joint arbitration under Section 8 of the Act, since agreement formed a composite transaction (Global Infonet Distribution Pvt. Ltd. vs. Lenovo (India) Pvt. Ltd., 2019 SCC Online Del 9980).

The Supreme Court in Perkins Eastman Architects DPC & Another v HSCC (India) Limited, 2019 SCC Online SC 1517, held that a person who has an interest in the outcome or decision of the disputes must not have the power to appoint a sole arbitrator.

Transferability of Arbitration Clauses

In Giriraj Goel vs. Coal India Limited, (2019) 5 SCC 192, the Supreme Court held that arbitration agreement can be incorporated by reference either from a parent agreement or by reference to a standard form contract. It held that incorporation by general reference in a single contract is valid, but in a 'two-contract case', the reference to the arbitration clause of the referenced contract must be specific.

Simple Allegation of Fraud – does not vitiate an Arbitration Clause

In Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710, the Supreme Court held that a mere allegation of simple or plain fraud are not sufficient to nullify an arbitration agreement. A two part test has to be followed: (a) whether the plea of fraud permeates the entire contract rendering it void and (b) whether the allegations of fraud touch upon the internal affairs of the parties, inter se having no implication in the public domain.

Stamping of an agreement

An arbitration clause in an agreement, which is not stamped as per law, cannot be given effect to until it is duly stamped. In Garware Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd., (2019) 9 SCC 209, it was held that if an unstamped or deficiently stamped agreement is presented, it must be impounded, and sent to the relevant authorities for payment of stamp duty and penalty (if any) for non-payment of stamp duty when the agreement was first executed. Only after such stamp duty and penalty have been paid, the Court should proceed with the application.

However, if a foreign award has not been stamped, it is still enforceable in India as the term “foreign award” is not includible in Schedule I of the Stamp Act [Shriram RPC Limted vs. Rioglass Solar SA, (2018) 18 SCC 313]. Following the same, the Delhi High Court, in Glencore International AG vs. Indian Potash Limited, 2019 SCC Online Del 9591, observed that “it could not the intention of legislature under the 1996 Act to insist on the stamping of foreign award under the Stamp Act as States in India have different rates for stamp duty, it would be nigh impossible for the enforcer to pay stamp duty in every State before seeking enforcement of a foreign award”.

Seat vs. Venue

In Brahmani River Pellets Limited vs. Kamachi Industries Limited, 2019 SCC Online SC 929, equated “venue” with “seat” in the context of domestic arbitration, in contrast to distinction drawn in earlier judgments. The Court held that the Madras High Court could not exercise jurisdiction for appointment of arbitrators, even though the agreement only stated “the venue” of Arbitration shall be Bhubaneshwar.

Judicial Intervention

It was reiterated in M/s. Mayavati Trading Pvt. Ltd. vs. Pradyuat Dev Burman, (2019) 8 SCC 714, that in an application for appointment of an arbitrator, the role of the Court is strictly confined to examining the existence of an arbitration agreement.

A plea for unconditional stay on the ground that the applicant is the Government was rejected in Pam Developments Private Ltd. vs. State of West Bengal, (2019) 8 SCC 112, because the Act does not provide for any differential treatment, unlike the Code of Civil Procedure.

In Ssangyong Engineering and Construction Co. Ltd. vs. NHAI, 2019 SCC Online 677, the Supreme Court held that irrespective of the commencement of arbitration, any challenge to an arbitration award made to a Court after 23.10.2015, (The amendments made in the year 2015 were operative from 23.10.2015) would be on limited grounds prescribed under the 2015 Amendment. It held that there cannot be a unilateral addition or alteration of contract. The award was set aside on the grounds that it was in conflict with “most basic notions of justice” and thereby conflicting with “public policy of India.”In Glencore International AG vs. Indian Potash Limited, 2019 SCC Online Del 9591, a foreign award was allowed to be executed, despite concluding that the arbitration was administered under the rules of an institution not agreed upon by the parties.

Enforcement of an Award:

In Glencore International AG vs. Indian Potash Limited, 2019 SCC Online Del 9591, a foreign award was allowed to be executed, despite concluding that the arbitration was administered under the rules of an institution not agreed upon by the parties.

The Supreme Court in LMJ International Ltd. v. Sleepwell Industries Co. Ltd., 2019 SCC OnLine SC 242, reaffirmed the narrow scope of review and refused to consider in piecemeal the maintainability of the execution of foreign awards and then issue of enforceability. Further, immediate enforcement action of a foreign award has been recognized in the absence of any minimum ‘waiting period’ under the Indian law [Rishima SA Investments LLC (Mauritius) vs. Shristi Infrastructure Development Corporation Ltd.].

Applicability of the Amendments made in the year 2015:

In case of domestic awards, the 2019 amendments had put the clock back to the legal position before 2015. Section 87 in the Amendment Act of 2019 stated that only those arbitration proceedings which commenced after the 2015 amendments, would be covered by the amended law.

The Supreme Court in Hindustan Construction Company vs. Union of India, 2019 SCC OnLine SC 1520, however, struck down Section 87 as being manifestly arbitrary and unconstitutional. It held that the new provision would result in a delay of disposal of arbitration matters and increase interference by courts, defeating the very object of arbitration law. Thus, the amendments made by the 2015 Amendment Act, will continue to apply to all court proceedings initiated after October 23, 2015, irrespective of the date of initiation of the arbitration proceedings.

About the Authors: Amit Gupta is a graduate from Oxford and Columbia Universities and a litigator based in New Delhi. He can be reached at aguptalaw@gmail.com

Vidhi Goel, is a law graduate from IP University.