standalone law on domestic arbitration

Maharashtra National Law University Mumbai’s Centre for Arbitration and Research in association with Young MCIA, EBC, and SCC Online organized an Oxford Style Debate on 18 August 2023. The motion of the debate was India needs a standalone law on domestic arbitration. The aim of the debate was to contribute to the ongoing discourse regarding the reform of India’s arbitration landscape. By presenting a balanced examination of the pros and cons of a standalone domestic arbitration law, the debate offered valuable insights that can assist in making informed decisions.

The debate comprised of several eminent speakers:

Jury: Hon’ble Justice Mr. Hemant Gupta (Chairperson, IIAC) and Dr. Sanjeev Gemawat (Group GC, Vedanta Resources Ltd.)

Presenter: Vyapak Desai (Head, Int’l Litigation & Dispute Resolution, Nishith Desai Associates)

Moderator: Chirag Balyan (Coordinator, Centre for Arbitration and Research, MNLU Mumbai)

For the motion: Ajar Rab (Partner, ANR Law LLP) and Aseem Chaturvedi (Partner, Khaitan & Co)

Against the motion: Tejas Karia (Partner, Shardul Amarchand Mangaldas & Co) and Bindi Dave (Partner, Wadia Ghandy & Co.)

Watch the event here:

Mr. Chirag Balyan in his opening remarks that part- I & part II of the Indian Arbitration and Conciliation Act, 1996 (1996 Act) are pertinent to this debate. The 1996 Act is based on the UNCITRAL Model Law, 1985. The provisions of Model Law which were intended primarily for international arbitration are used by India to govern both domestic as well as international arbitration. The part- I of the Act deals with domestic arbitration and Indian seated international arbitration; whereas, the part- II which is based on New York Convention, 1958 deals with recognition and enforcement of foreign arbitral awards. Thus, the issue underlying debate can be looked from two perspectives. First, whether under part I domestic arbitration and international arbitration should be dealt by separate laws? Second, whether there should be a separate law for part — I and part- II ?

In order to emphasize the importance of separate law for domestic arbitration and international arbitration, Mr. Balyan quoted Jan Paulson who famously stated ‘International Arbitration is not Arbitration’ to argue that while domestic arbitration has alternatives, there is no alternative for international arbitration. Mr. Balyan mentioned that this debate is not unique as Statement of Objects and Reasons of Arbitration and Conciliation (Amendment) Bill, 2003 pertinently stated, “The main problem with the existing Act was that UNCITRAL Model Law which was meant as a Model for International Arbitration was adopted also for domestic arbitration between Indian parties in India. In several countries the laws of arbitration for international and domestic arbitration are governed by different statutes.” Twenty years after the 2003 Bill, in 2023 the government has again set up a committee under the Chairmanship of Dr. T.K. Viswanathan to look into the very same issue.

Mr. Vyapak Desai introduced the debate by emphasizing its importance and history. He stated prior to 1996 Act, the law governing arbitration was dealt in three different statues. The Arbitration (Protocol And Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act to enforce the foreign awards in Geneva Convention and New York Convention, respectively; and the Arbitration Act, 1940 to deal with arbitration in India. The 1996 A&C Act consolidated the all these laws. It was based on the 1985 Model Law. The part — I of the 1996 act contains substantive and procedural provisions for conducting arbitration, part — II deals with enforcement of foreign award, part — III deals with conciliation, and part — IV deals with Miscellaneous provisions.

Mr. Desai contended that cases like Venture Global Engineering v. Satyam Computer Services and another as well as Bhatia International v. Bulk Trading S.A. created havoc in arbitration jurisprudence. In these cases, the court permitted use of part-I (section 9 & 34) of the Arbitration Act to the foreign seated international arbitration. These judgments resulted into interpretations by the court which were contrary to the spirit of 1996 Act.

In 2012, Bharat Aluminium Co. (BALCO) v. Kaiser Aluminium Technical Services Inc. gave way to Arbitration law in India to become a seat centric law. In BALCO judgment court held that applicability of part I of the Act, including section 9 will depend upon the seat of arbitration. The court held that when the seat of arbitration is in India, only then part I will apply. Mr. Desai contended that BALCO judgment also took an extreme view. He argued that the pendulum thus moved from one extreme (Bhatia) to another extreme (BALCO). To balance these two extremes, 2015 Amendment Act was introduced. After amendment Section 9 will still apply to foreign seated arbitration unless parties choose otherwise.

Mr. Desai highlighted that under part — I of the Arbitration Act the relevant criterion for determining whether arbitration is domestic or international is not based on seat but on the parties. So if one of the party is a foreign national or a foreign corporation then arbitration under part I will be considered as international.

Mr Desai highlighted incongruous usage of terms such as domestic arbitration, domestic award, and foreign award. He gave an example that if two Indian parties are arbitrating in part-I then it is domestic arbitration and resultant award is domestic. When one Indian and other non-Indian party arbitrate under part-I, though the arbitration is not international but the award be considered as domestic. Also, when both the parties are Indian but still award can be considered as foreign award if the seat is outside India.

He also highlighted the grounds for challenging the award for domestic arbitration and international arbitration are different under section 34. While patent illegality is a ground to challenge award under section 34; the same is not available in case of international arbitration.

He highlighted that countries like Switzerland and Australia have a separate law for domestic arbitration and international arbitration. He mentioned that If India has to follow the same path, then we must debate whether we will divide the law on the basis of seat or nationalities of the parties.

He concluded that because of the complexity and confusion regarding the foretasted concepts it is important to have some clarification which he hoped will come by the end of debate. With these preliminary insights, Mr. Desai invited the panellists to delve deeper into the issue.

  • For the Motion

Mr. Ajar Rab

His arguments were based on three key aspects:

  • What is the difference between unitary and dualist state?
  • What is it that India has done so far?
  • How would a separate law address those issues?

He started by giving examples of several countries that follow a dualist system. The first question was raised whether there is a need for more court intervention which will eventually determine the need for a separate or a unitary law addressing both aspects. He referred to Singapore having an opt in and opt out provision with an additional right of appeal against an award on questions against the law, the court having certain extensive powers of interim measures, and the court may vary, confirm or remit the award, which is not possible under the Model Law. By this, he brings attention to Model Law that took a unitary approach for domestic and international arbitration that originated from the New York convention. It laid down that grounds for recognition and enforcement as well as for setting aside were harmonised, and without this harmony an enforceable award could not be used across jurisdictions. He argued that the same approach is not required for arbitration in India. He added that Model Law was intended for international harmonisation but the same has led to a disruption in domestic arbitration in India with several instances of courts misapplying and choosing jurisprudence which technically does not apply to domestic arbitration and applying it like it was international arbitration. He concluded that this kind of harmonisation may not be required for domestic arbitration in India.

He stressed on the reason for enforcement of model law i.e. it wanted a framework which was acceptable to all states regardless of their legal system or economic situation. Model law effectively achieved four things — (1) enforcement of the arbitration agreement, (2) setting aside on limited grounds, (3)limited court intervention and (4) party autonomy. These hallmarks, especially limited court intervention and party autonomy are equally present in the domestic law of all these dualist states — France, Singapore, Switzerland etc. Therefore, the question whether India needs to imbibe what the model law lays in order to be a more effective jurisdiction.

He mentioned the amendment in 2006 to the Model Law where Article 2(a) was introduced regarding the international origin to promote uniformity in its application and observance through good faith. Large academic literature which suggest of an international public policy — domestic law and procedures. Thus, he concluded if India were to separate the law, it would be more pro-enforcement.

Further, he touched upon the problems currently faced in India through examples in the Arbitration Act, 1996. He referred to Section 8, which uses a different test for prima facia jurisdiction for domestic arbitrations and the Model Law test of null operative or incapable of being performed for international arbitration. He criticised judgment on stamp duty. He argued that the same does not apply to international arbitration but only domestic arbitration. Section 11 was mentioned which distinguishes between appointments of domestic arbitration by the High Court and international arbitration by the Supreme Court, he raised the importance of introducing Schedule 4 within it since, there were problems in domestic arbitration where arbitrators were charging exorbitant amount of fees. There was also a necessity to introduce timelines because of delay and then effectively removed timelines for international arbitrations. Then he mentioned that Section 34 had to come up with patent illegality, he stated a Supreme Court judgement regarding public policy being construed narrowly in international arbitration as opposed to domestic arbitration. The conclusion was to propose that India is already a dualist state, it may be applying Arbitration Conciliation Act as a stand-alone legislation but our interim provisions are borrowed from England — which is not a Model Law jurisdiction. He stated that all our sections i.e. fundamental procedures have already been amended by 2015, 2018 and 2021 amendments. Thus, India is already a separate dualist state, it is just an implied duality.

Finally, he argued that if India were to adopt a separate law then firstly, parties would have more autonomy for choosing an opt in and opt out — something that Bhatia judgment wanted to do but went sideways. It will give a scope to opt for less interventionist regime if a party opts for international arbitration. Second, party can choose the system of law which is adversarial and inquisitorial. Third, removing the characterization of domestic and international arbitration based on territoriality and location of parties and make it an opt in and opt out mechanism. Fourth, he drew attention to the confusion over seat and venue, where international jurisprudence is being applied to seat and venue debates in India. Fifth, there are problems also under the CPC where Sections 16 to 20 apply differently and therefore, there is confusion regarding jurisdiction hence, separate domestic law will be better able to address this issue. Ultimately, an academic point was made that there are gaps in the New York Convention and the Model Law hence, domestic law will be able to fill those gaps. There are many a times where practitioners face perverse awards that one rather have an appeal against it and parties will get finality on that question rather than restart the arbitration. He reinforced that it is time to allow domestic courts to confirm vary and remit the award. Thus, the fundamental point is the reason setting aside the way it was envisioned in the model law was that foreign courts could not apply substantive law of another jurisdiction. This would not happen in domestic law and therefore, appeals on question of law should also be permitted.

In the end, he posed the following three questions to be addressed by for the motion speakers:

  1. Does a unitary system make a more robust arbitration regime and fosters arbitration jurisprudence?
  2. Is an inconsistent unitary system better than an effective dual system?
  3. Doesn’t a separate regime give a better signal of India’s commitment to international trade?

  • Against the Motion

Mr. Tejas Karia

He put a spotlight on the history of consolidation of three arbitration laws in India over the last twenty-five years. He reinforced the reason for India to refer to the Model Law which aimed to have a unified arbitration law with uniform standards across jurisdictions to promote trade. He posed that if India aimed to do the same then why is there a need to treat domestic arbitration separate from international arbitration.

The major concern of lack of definition of domestic arbitration was also raised, since, there are two concepts one, international arbitration concept and other the foreign award versus domestic award. There is a need to analyse the structure of the present law. The Indian judiciary have always taken a pro-arbitration approach and came a long way by developing jurisprudence over arbitration.

Further, he critically examined the possible advantages of having a separate law. Firstly, the matter of separate applicability of the court intervention was resolved by 2015 amendment and the consensus was established that all matters related to international commercial arbitration will go to the High Court. Secondly, already a distinction was made between the appointment of arbitrator for international arbitration was going to the Supreme Court vis a vis High Court for domestic arbitration. Thirdly, in 2019, the timelines proposed were not working for international arbitrations because mostly international arbitrations are institutional arbitrations and institutional rules have their in-built timelines so there is no imposition of timelines on international commercial abirritation. Thus, there is different treatment within the act so making it two separate acts will not achieve anything additional. He brought up patent illegality as an additional ground but that was necessary because domestic arbitration is different so same should be its treatment. He questioned whether two Indian parties are not commercially astute and sound to do the arbitration the way international party does as well as the reliance on the court that can’t resolve such complex commercial disputes. Thus, he proposed that the mindset shall be changed rather than the law, by initiating to think that arbitration the it has to be done is only one way — no baggage of the court system, no hangover of the procedural rules or evidentiary rules. This will achieve speedier, less expensive and efficient result which is final and binding. The experience of Singapore was again touched upon with regards to their opt in and opt out model where the primary concern was less court intervention in international arbitration law, and relatively more in domestic arbitration law.

India has already achieved that through Section 34 2(a) which is a separate ground for challenge of award on the grounds of patent illegality which is not available with the international arbitrations. He also clarified that the distinction of standards for Section 8 and 45 have been blurred which can be seen in several case laws and not it is treated as same. The arbitrability in India i.e. awards passed in India should confirm with public policy of India and therefore before referring to the matters to arbitrations the court should have prima facie. There are also series of judgements that say everything should be left to the arbitrators. He replied that stamp duty is a temporary problem and the curative petition is going to be heard, courts are alive to the problem and this does not indicate should throw away the law because of a bad judgement. The main idea is to streamline the whole process of arbitration and to achieve an user-friendly arbitration law which dividing into two won’t help. He gave suggestions in this regards as to ensure capacity building by training more young arbitrators with accordance to the international standards. There should have specialist arbitration bars and benches who can decide related problems and this will happen only through institutional arbitration. Since, the fees and the timelines are fixed, the rules where awards are scrutinized cannot be challenged. In conclusion, he supported that law is just a framework and it is the people who are ultimately making the arbitration process successful. The loopholes can be addressed by courts who have been arbitration – friendly jurisdiction. He reflected on India’s success in arbitration by saying that India has to give clear signal to the outside world it is ready to take on jurisdictions like Singapore, London — where most of the international commercial arbitration takes place. Thus, the solution to the problems can found by tweaking the law rather than going back and starting the journey again after achieving so much in arbitration.

  • For the Motion

Mr. Aseem Chaturvedi

He started by again mentioning the fact that domestic arbitration is not defined and there is a need to expand and frame a law that specifically deal with international and domestic arbitration separately. The current consolidation according to him caused confusion and overlap related to the applicability of part one and two of foreign seated awards. He stressed upon the several amendments as the arbitration jurisprudence evolves, which could have been avoided by just having two separate legislations so this confusion and overlap won’t continue and also enable international parties to come to Indian courts. He reinforced that Indian courts have been pro — arbitration but also interfere in arbitration matters thus, deterring international clients and parties to come to India because of the fear of cases like Bhatia and Balco judgements that will change the interpretation of law. There are issues should only be restricted to domestic arbitration such as the group of companies doctrine which has been deliberated by the constitutional bench and stampings.

The arbitration act in its current form has made distinction with respect to part one and two of the Arbitration Act, certain provisions of part one such as Section 9 applies to both domestic and international arbitration causing problems. Although Section 11 also have distinctions in terms of appointment of arbitrators there are certain common provisions that will apply to domestic and international arbitration such as section 27 and 37 1(a). Therefore, part one opposed to being strictly applicable to domestic arbitration is being applicable to arbitration seated in India which includes international commercial arbitration. Thus, perpetual intermingling of the applicability leads to various complications. He emphasized that owing to the confusion and overlap between domestic and international arbitration there will be exposure of international arbitration and entities to various district courts if it comes to section 9, 34, 37 or an appeal making the timeline infinite. So, in order to plug this loophole by coming into a separate legislation, it will insulate international arbitration and leave the multiple interpretations to domestic arbitrations.

He deliberated that international aspects are significantly different from domestic Indian law keeping in mind several jurisdictions in the international concept. While public international law will also come into place when there is international arbitration and that’s why it best to keep the arbitration laws separate and distinct. In most domestic arbitration, the substantive and curial law may be the same but that will not be the case in international arbitration. The complexity of international arbitration in terms of choice of law, seat, venue has to be recognized as different and need to be dealt by means of a separate legislation. He referred to Singapore as an arbitration hub solely because of their clarity as they have separate laws for both domestic and international arbitrations. They have tried and tested institutions with qualified people making international clients comfortable to go to Singapore. He proposed that this kind of clarity and comfort can be given in India with a separate legislation.

One major argument posed by him for others was that when the rules and procedures applicable to domestic and international arbitration in India is separate then why shouldn’t the legislation be different. He argued that most leading arbitration institutions in India and overseas have separate rules that govern international and domestic arbitration. Further he reemphasized the reasons to have separate legislations. Firstly, it will be in line with latest global practice that will bolster confidence in India as an arbitration hub. Secondly, the objective of providing and achieving ease of doing business would also be strengthened by paving way for better foreign investment into India. Thirdly, with the large scale and enhanced attempts to procure foreign business and also to support the make in India campaign a certain comfort needs to be provided to the foreign players to enable them to have confidence on not just Indian market but also the Indian legal system. Fourthly, eminent jurists and judges of the Supreme Court have stressed upon the need for separate laws because regimes are absolutely different, because sometimes interpretation of part one tends to have an overlook over the other part and creates more confusion. Finally, in response to Mr. Tejas Karia he claimed that having a separate legislation won’t set the clock back rather give more clarity.

  • Against the Motion

Ms. Bindi Dave

She responded firmly by claiming that she could not be convinced by the speakers for the motion as there was no specific ground or reason for the requirement of a separate law for domestic arbitration. She argued that there is one compelling factor i.e. want for interference by court which is the main driving force behind the debate. She resurfaced over the history of arbitration laws in India and argued that over the past years significant consideration was given to having a separate domestic arbitration law through committees and amendments. Thus, the problem was actively completely already examined at various time periods.

Presently, she agreed that India has a dual system, while it is consolidated and combined into one statute, there are different provisions wherever the legislator deemed appropriate and required. Additionally, there is a difference in the provisions for domestic operations and for international commercial operations. Hence, the checks and balances have already built in to the law.

She emphasized that when a party chooses arbitration whether Indian, foreign or commercial business house, they are conscious of the fact that they have opted outside the court which means it is understood that they don’t want further court interreference. She spoke against Mr. Aseem Chaturvedi’s point that the concern should have been that stricter tests are being applied to domestic arbitration and hence, that should be opened up but he said otherwise how international parties are made to come to Indian courts and the domestic arbitration tests are being applied which is not the problem.

She believes the law as it currently stand is dual in nature, the legislature in its wisdom has skulled out separate provisions for both international and domestic arbitration. She states that courts are reasonably interpreting them by keeping in mind the legislation. She concluded by saying if at all any specific concerns are identified, amendment is appropriate as opposed to having an overhaul substitution with a new or separate law. She ended by reemphasising that courts should be empowered to modify the award as opposed to relegating them to a whole new round of arbitration if the award is set aside for both international and domestic arbitration.

Jury’s Verdict

Dr. Sanjeev Gemawat, commended that the debate was exceptionally engaging and appreciated that the speakers put forward strong arguments. He highlighted that the objectives of both sides were the same but from the process standpoint they had different perspectives. He reflected on getting frustrated form his own experiences as a user of the court system regarding court interreference. He acknowledged both Mr. Karia and Mr. Rab over their points regarding less court interference. He personally went ahead with against the motion, because he believed that enactment of a new legislation may not serve the purpose since the judicial innovations at times are so high that justice is not given to the legislation. By this, he meant that having a separate law means courts across India will interpret the same in a different manner. He stressed upon fact that courts such as district courts have absolutely different perspectives to interpret the law. Thus, having a separate legislation won’t help because there are various levels at which the same is happening. He concluded by saying that legislature is proactive in formulating a new law, but somewhere there is a loss of track and laws are interpreted differently. Thus, he ultimately went ahead with against the motion.

Justice Hemant Gupta, agreed that both sides were equally persuasive. He highlighted that arbitration is not alternate dispute resolution but a parallel dispute resolution. With this he emphasised that it is important that the parties have confidence in the parallel justice system. For that, the quality of award shall be good, but the issue is that there are different processes of appointing arbitrator. That’s why there is a need to harmonise this method to ensure that there is uniformity in appointment. He emphasises that difficulty has arisen because different grounds of challenges have been made with respect to domestic and international award. He argued that grounds of challenging and process of appointing arbitrator should be the same. He advised that rather than taking divergent views, there should be a middle path, with a common law and parity of appointment of arbitrator and setting of award. He mentioned an argument made regarding giving power to the court to modify awards, to this he remarked that in this situation court will be court of appeal which is unwarranted as they will look into the niceties of the award. He referred to a judgement by Supreme Court where they had restored the award which was set aside by two courts, he reflected that paramount importance was given to the arbitration awards. He emphasised that courts should not be given opportunity to interfere and suggest modification in the award. He proposed that current act requires fine tuning, instead of having two separate laws by introducing new act which encompasses both domestic and international arbitration laws dealt in a similar manner rather than differently. Ultimately, he went forward with against the motion.

In conclusion, the rich academic arguments by the esteemed speakers highlighted the current contemplation of having a separate law for domestic arbitration. Although, the jury tilted towards against the motion. However, the viewers of the debate in majority believed in having a separate legislation. In the end, it is the evolving and adaptive nature of the law that will decide the discourse of efficient justice delivery mechanism for India.

Disclaimer: The views expressed by the speakers were not their personal views or the view of their respective firms. The views were expressed pursuant to an academic exercise.)

(Jayati Karia is a copy editor at Indian Review of International Arbitration and student at Maharashtra National Law University Mumbai)

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