Chief Justice of India delivered a lecture on ‘Law and Practice of commercial arbitration: Shared understandings and developments in UK and India’ at the United Kingdom Supreme Court. The lecture was hosted by Senior Advocate Mr. Gourab Banerji.
Lord Reed, the President of the United Kingdom Supreme Court; Lord Hodge, Deputy President, and other Justices of the Supreme Court were present during the lecture.
CJI opened his lecture with discussing the lecture by the Lord Chief Justice of England, Dame Sue Carr who dwelt on the shared learnings from mediation, arbitration and litigation. He said that in India, institutionally, the regime of judicial interference has been replaced with arbitration, with one that supports arbitration, recognizes party autonomy and structures the role of Courts in facilitating arbitration.
On UK and India’s relationship, he said that the two share a strong legal relationship and the development of arbitration law in the two jurisdictions is a shared heritage. The present system of arbitration law is based on principles drawn from the common law and civil law. He said that the founding parents of the Indian Constitution recognised the importance of arbitration and Article 51 of the Indian Constitution which exhorts the State to “encourage settlement of international disputes by arbitration” is evident of the same.
He discussed the Arbitration Act of 1698 drafted by John Locke and passed by Parliament with minor amendments, which laid down the framework of modern arbitration law. He illustrated that if there was an agreement to sell fifty barrels of oranges to a merchant in Antwerp in the early 16th century and the goods were delivered, the merchant accepted the goods, but refused to pay. To recover the price of the goods sold, the seller would have probably approached adroit arbitrators such as Thomas More or Thomas Cromwell to mutually settle the dispute with the Antwerp merchant. He recollected that Hilary Mantel in her book titled ‘Wolf Hall’ has described Cromwell as- “having a sideline in arbitration, commercial disputes mostly, as his ability to assess the facts of a case and give a swift impartial decision is trusted here, in Calais and in Antwerp. If you and your opponent can at least concur the need to save the costs and delays of a court hearing, then Cromwell is, for a fee, your man; and he has a pleasant privilege, often enough, of sending away both sides happy.”
CJI stressed that ‘pleasant privilege’ of sending both sides happy is not available with Judges today, but this prose gives the idea of arbitration — which is the resolution of disputes between parties by a neutral decision -maker outside domestic court systems. He said that the Indian judiciary functions on the mantra that no case is small or big. Every aggrieved person who approaches the doors of the judiciary has the right to a just remedy. However, he said that every case need not find a remedy before a Court, with emerging forms of dispute resolution such as arbitration and mediation gaining acceptance. The values of a liberal democracy enshrined in the Indian Constitution allows people to seek individualized solutions to their legal problems outside the judicial setup, if the solutions do not violate established law and Arbitration is one such alternative method of dispute resolution. He stated that arbitration is no longer an ‘alternative’, but the preferred method of seeking commercial justice.
He said that the future of arbitration lies in streamlining the law and practice of arbitration on three stages of arbitration- (i) mutual consent of parties to arbitrate; (ii) arbitral proceedings; and (iii) enforcement of arbitral awards. Even today, commercial arbitration is not immune from its deficiencies such as delay, cost, judicial interference, arbitrator bias, and lack of enforceability of awards.
Highlighting the theories on arbitration, CJI said that arbitration is a function of party autonomy. It is from the terms of the arbitration agreement that an arbitrator derives the power to arbitrate upon and adjudicate a dispute. The second important theory is the jurisdictional theory which holds that arbitration is essentially an adjudicative exercise involving independent decision-making by the arbitrator. This theory gives importance to the role of Courts in aiding and assisting arbitral proceedings. The UNCITRAL Model Law as well as domestic legislation suggests that present arbitration framework is an amalgam of both the contractual and jurisdictional theories.
First stage of Arbitration- mutual consent of parties to arbitrate
CJI said that the arbitration agreement is a record of the consent of the parties to submit to arbitration. The basic question for an arbitrator to answer is whether the parties have in fact consented to the arbitral process. Traditionally, consent is seen as an objective factor, however, this traditional notion of consent based on the bilateral nature of transactions cannot accommodate the complexity of modern transactions which involve participation of multiple parties. Global corporations now increasingly adopt sophisticated corporate group structures. Often, persons and entities assume commercial responsibilities and become intricately involved in a transaction without actually being a signatory to the underlying contract containing the arbitration agreement. He further discussed on the joinder of non-signatories which has vexed arbitrators and domestic Courts both in the UK and India. The determination that whether the Arbitral Tribunal has jurisdiction over the parties and the subject-matter, is characteristic of arbitration law and makes it an autonomous field distinct from other areas of law such as contract and corporate law.
He said that the expression “party” has been defined in a similar manner in the UK and India legislation, to include any person “claiming through or under” a party. The English Courts have deployed traditional contract law doctrines such as assignment, agency, succession or subrogation to determine the ‘consent’ of a non-signatory to be bound by the arbitration agreement and they give a greater consideration to the ‘doctrine of privity of contract’ in comparison to Courts and Tribunals across the Channel.
Regarding India’s stand on the application of the Group of Companies Doctrine, he discussed Cox & Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1, wherein a Constitution Bench of five Judges (presided by CJI) reconsidered a line of precedent which held that the Group of Companies doctrine is part of the Indian arbitration jurisprudence. The modern and pragmatic approach was adopted to determine the consent of the parties. He said that the doctrine is merely a tool at the disposal of the Arbitral Tribunal to decide whether it can extend its jurisdiction over non-signatory parties based on the facts and circumstances at hand. It allows the Tribunal to balance the requirements of contract law and company law against the need of the tribunal to exercise jurisdiction over all the “veritable” parties to the arbitration agreement.
Second stage of Arbitration — Arbitral proceedings
CJI said that Arbitral autonomy is an important facet of arbitral proceedings. By consenting to resolve their disputes through arbitration, parties intend to distance themselves from domestic Courts as institutions for adjudication. The parties bestow authority on the arbitral tribunal to decide disputes that may arise between them without interference from domestic Courts. He stated that the principle of judicial non-interference is the cornerstone of arbitral autonomy and is a guarantee enshrined in the law.
He said that domestic Courts cannot normally intervene in arbitral proceedings. However, there has to be, a mandate of law allowing the Courts to interfere. One situation where domestic arbitration law allows Courts to intervene pertains to the appointment of arbitrators. This allows Courts to facilitate the arbitration process rather than create a judicial roadblock. In the India scenario, he said that arbitration is still at an incipient stage of institutional arbitration, since a majority of arbitration is ad-hoc and takes place outside the institutional setup, the Courts are required to step in if the parties fail to mutually appoint arbitrators. In 2019, amendments have been introduced to the Arbitration Act empowering the Supreme Court and the High Courts to designate arbitral institutions who will carry out the appointments, however, these amendments are yet to be given complete effect by the legislature, and for the time being, parties to an international commercial arbitration agreement have to approach the Supreme Court for appointment of arbitrators where there is a refusal by the other party. He cited SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, wherein the Supreme Court held that Courts have to necessarily decide the validity of arbitration agreements at the referral stage. The result of the decision was that an application under Section 11 for appointment of arbitrators turned into a mini trial because the referral Courts had to decide whether the agreement was valid before appointing arbitrators.
Further, he cited Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, In re, 2023 SCC OnLine SC 1666, wherein it was held that Arbitral Tribunal, and not the referral Court, is the appropriate forum to examine the instruments and impound them if they are unstamped or insufficiently stamped. The Court held that any issues which affect the jurisdiction of an Arbitral Tribunal have to be decided by the tribunal itself, including the existence and validity of an arbitration agreement. He also highlighted the importance of doctrine of kompetenz-kompetenz, which is intricately connected to the presumption of the separability of an arbitration agreement. He said that the separability presumption ensures that an arbitration agreement survives even if the underlying contract is void. In practice, this ensures that the arbitral Tribunal continues to exercise jurisdiction on the substantive rights and obligations of the parties to the underlying contract, even when it is no longer valid.
He said that,
“whenever there is a talk about arbitral proceedings, one cannot but speak about the role of arbitrators. Robert Browning, in a poem titled Rabbi Ben Ezra, asks:
“Now, who shall arbitrate? Ten men love what I hate, shun what I follow, slight what I receive; … whom shall my soul believe?”
CJI went ahead and posed the question that- How do parties to an arbitral process develop and sustain a sense of confidence that their arbitrator is capable of making independent and impartial decisions? He stressed that every now and then there are appeals before the Supreme Court in the Special Leave Jurisdiction arising from challenges before the High Court against Arbitral Orders. He said that although, the arbitrators are private actors, they perform adjudicatory functions which require impartial decision-making. Article 18 of the UNCITRAL Model Law enshrines that the arbitrator has to act fairly and treat each party with equality. The principles of impartiality and independence are also mandated in our domestic arbitration laws. A perceived lack of impartiality then assumes as much importance as a demonstrable lack of it. Further, he said that there is a difference between independence and impartiality, the UNCITRAL Model Law requires an arbitrator to be both independent and impartial. Regarding the Indian legislation, he said that it also contains provisions requiring an arbitrator to be independent and impartial. He referred to Section 12 mandates an arbitrator to disclose any circumstance which may give rise to justifiable doubts as to their independence or impartiality.
Regarding UK legislation, he said that there is no express statutory duty on arbitrators to disclose any matters concerning their independence or impartiality. He cited Haliburton Company v. Bermuda Insurance Ltd.1 wherein, the UK Supreme Court held that there is a duty to disclose any circumstances which may reasonably give rise to justifiable doubts as to the arbitrator’s impartiality. The duty of disclosure was held to be implicit in the duty to act fairly and impartially in Section 33 of the UK Arbitration Act, 1996.
Third stage of Arbitration — Enforcement of Arbitral Awards
CJI remarked that it is a great paradox of arbitration that the parties have to rely on those very domestic Courts from which they wanted to insulate themselves when they entered into an agreement to arbitrate. To solidify his statement, he said that the Courts have been empowered to set aside an arbitral award on specified grounds, including the ground that the award is contrary to public policy of the State. Further, he cited the decision of English High Court of Justice in Federal Republic of Nigeria v. Process and Industrial Developments Ltd.2 wherein, two Irish businessmen entered into a gas supply and processing agreement with the Nigerian Ministry of Petroleum Resources. According to the agreement, the Nigerian government was supposed to provide wet gas, which it failed. The Tribunal granted an award against the Nigerian Government requiring it to pay USD 6.6 billion to the claimants. The amount of the award reached a staggering USD 11 billion, nearly half of Nigeria’s budget for 2023. It was later revealed that the businessmen had bribed the Nigerian legal team during the arbitration process. On appeal, the High Court held that the manner in which the award was procured was contrary to public policy.
CJI stated that the intervention of Courts in such situations where the arbitral award will cause grave injustice essentially upholds the rule of law and the Nigeria case also shows the importance of Court systems for the efficient functioning of Arbitral Tribunals and enforcement of the awards. If judges were not to interfere when the process of arbitration has been subverted on matters bordering on fraud, the credibility and legitimacy of the universe of arbitration may be in danger of being brought into disrepute.
Further, he added that every day, Arbitral Awards rendered by arbitrators have huge financial implications not only for the parties, but also for numerous people and business around the world and these systems work because the parties trust the institutions that govern the process. Institutions such as the London International Arbitration Centre, International Chamber of Commerce, Singapore International Arbitration Centre, Permanent Court of Arbitration and the International Centre for Settlement of Investment Disputes, have created and sustained a culture of international commercial arbitration. Parties approach these institutions because they are confident of a just resolution of their disputes by professional arbitrators.
While concluding his lecture, CJI said that he firmly believes that now is the time for countries such as India to step up to the occasion to create and promote a culture of commercial arbitration. The robust institutionalization of arbitration will further the culture of arbitration in the Global South. In recent years, institutions such as the India International Arbitration Centre and Mumbai and Delhi International Arbitration Centres have been set up and are seeing a steady flow of arbitration matters. But the mere creation of institutions is not sufficient. We have to ensure that these new institutions are not controlled by a self-perpetrating clique. These institutions must be based on the foundation of robust professionalism and the ability to generate consistent arbitral processes. Transparency and accountability, values by which the work of conventional Courts is assessed and critiqued, cannot be alien to the world of arbitration. On the aspect of technology and its significance, he said that future of arbitration is steeped in technology, it plays a major role in how the arbitration proceedings are being carried out. He illustrated that when one party is based in Delhi, another in Bengaluru, while the arbitrators are in London, Mumbai and Singapore, the technology provides the digital environment allowing them to participate in arbitral proceedings virtually. E-filing, digitization of records, video conferencing, live transcription of speech to text using machine learning, translation of the nearly thirty-seven thousand judgments of the Supreme Court into Indian languages through AI assisted software, deploying AI to facilitate the judicial process in the filing registries — these are some of the initiatives which our courts have adopted. Technology offers cost-effective and time-effective solutions.
However, he said that he wished that technology does not replace the essential function of adjudication and said that an arbitrator’s assessment of the demeanour of a witness, however human and subject to failings is essential to the process. Arbitrating commercial disputes is a complex task which cannot be reduced to a mathematical formulation. It requires a touch and feel of the human mind to understand and process the submissions in arriving at a just decision. In concluding remarks, he said that the law of international commercial arbitration is an amalgam of the diversity of legal cultures and practices. Although the core of arbitration law could be traced to the traditions of common law and civil law, it is infused with new legal ideas and innovations every day.
He said that the next step is to draw out more people from the Global South to act as counsel and commercial arbitrators and steps are being taken with the creation of the Arbitration Bar of India.
He thanked Lord Reed, Lord Hodge and the Justices of the Supreme Court and all other present.
Vote of thanks by Senior Advocate Mr. Gourab Banerji
He thanked Lord Reed, Lord Hodge and the Justices of the Supreme Court and expressed his gratitude towards the CJI for gracing his presence and for his address. He said that the lecture left an alarming impact on everyone present. Further, he thanked all the organisers and hard-working team behind the scenes.
1. [2020] UKSC 48 [49].
2. [2023] EWHC 2638 (Comm).
