Op EdsOP. ED.

Part I of the Arbitration and Conciliation Act, 1996[1] (the Arbitration Act) has been enacted to consolidate and amend the law relating to domestic arbitration as well as international commercial arbitration in India after taking into account UNCITRAL[2] Model Law on International Commercial Arbitration, 1985 (UNCITRAL Model Law).[3] Like the UNCITRAL Model Law, the Arbitration Act follows the territoriality principle, according to which the law of the seat of arbitration will govern the conduct of the arbitration and challenge to the arbitral award.[4] Thus, any party to an arbitration proceeding having seat/place of arbitration in India aggrieved by an arbitral award will have to seek recourse under the Arbitration Act.

Section 34 of the Arbitration Act stipulates that any person aggrieved by an arbitral award can file an application seeking setting aside of the arbitral award in terms of Sections 34(2), (2-A) and (3) of the Arbitration Act, 1996.[5] Sections 34(2) and 34(2-A) of the Arbitration Act enumerate the grounds for setting aside of the arbitral award whereas Section 34(3) of the Arbitration Act sets out the time-frame within which the party aggrieved by the arbitral award needs to file an application before the Court.

There was divergence of judicial opinion in India on the scope of the powers of a court exercising jurisdiction under Section 34 of the Arbitration Act (Section 34 court). The High Courts of Karnataka,[6] Delhi[7] and Bombay[8]had taken a view that a Section 34 court can only quash the arbitral award leaving the parties to resume fresh arbitration proceedings for resolution of their disputes. On the other hand, the High Courts of Madras[9], Telangana[10] and Andhra Pradesh[11]had taken a view that a Section 34 Court can either set aside the arbitral award or modify the arbitral award by varying the findings in the arbitral award. Owing to these divergent views expressed by various High Courts in India and the recent judgment of the Supreme Court of India in National Highways Authority of India v. M. Hakeem[12] this article seeks to examine the true scope and purport of the power of a court exercising jurisdiction under Section 34 of the Arbitration Act to modify, vary or reverse the findings in the arbitral award. In order to accomplish this objective, the author will first examine the legislative history of Section 34 of the Arbitration Act resulting in its enactment. Thereafter, the author will examine the views of the Supreme Court of India and the divergent views expressed by the High Courts on the powers of a Section 34 court to modify or vary the findings in the arbitral award. The author will conclude by summarising his views on the powers of a Section 34 court to modify, vary or reverse the findings in the arbitral award.

Legislative history of Section 34 of the Arbitration and Conciliation Act, 1996

Since the Arbitration Act was enacted to give effect to the UNCITRAL Model Law, Section 34 of the Arbitration Act almost mirrors Article 34 of the UNCITRAL Model Law. While the Arbitration and Conciliation (Amendment) Act, 2015[13] amended Section 34 of the Arbitration Act to clarify the scope of “public policy” as a ground for interfering with the arbitral award, none of the amendments had any bearing on the power of the court to modify or vary the findings in the arbitral award under Section 34 of the Act.[14] Thus, the reports setting out the historical background for formulation of Article 34 of the UNCITRAL Model Law will still be relevant to ascertain whether Section 34 of the Act confers power on the court to modify or vary the findings of the arbitral award. Besides, it is settled principle of law in India that special committee reports preceding the enactment of a legislation can be looked into for interpreting meaning of the statute that is unambiguous and for appreciating the background leading to enactment of the provision.[15]

The reports/deliberations at the time formulating the UNCITRAL Model Law assume significance for another reason. One of the primary reasons for formulating UNCITRAL Model Law was to evolve a harmonised legal framework for settlement of international commercial disputes.[16] Moreover, in India, the provisions of domestic statute must be read to enhance conformity with the global legal regime.[17] Therefore, for all these reasons, the historical origins of Article 34 of the UNCITRAL Model Law will be an important factor that need to be considered while ascertaining whether Section 34 of the Arbitration Act confers power on a court to modify or vary the arbitral award. Hence, this section briefly examines the legislative history of Article 34 of the UNCITRAL Model Law.

In 1976, the Asian-African Legal Consultative Committee (AALCC)[18] invited UNCITRAL to consider the possibility of drafting a protocol to the United Nations Convention on Recognition and Enforcement of Foreign Awards, 1958 (NYC) to redress several issues arising from divergent interpretations of the NYC[19]. In light of the said proposal, the UNCITRAL requested the Secretary General to prepare a report on further steps to be taken by the UNCITRAL in respect of international commercial arbitration.[20]Accordingly, the Secretary General of the UNCITRAL submitted his report on further steps in respect of international commercial arbitration.[21] The participants at the consultative meeting unanimously agreed that the preparation of the Model Law on arbitration (instead of a Protocol) would be the most appropriate way to achieve the desired uniformity.[22] Accordingly, UNCITRAL entrusted the work to prepare draft Model Law on international commercial arbitration to Working Group on International Contract Practices (Working Group).[23]

The Working Group commenced its work of preparing the Model Law by preliminary exchange of views on possible features of the draft model law based on the report of the Secretary General of the UNCITRAL and questions contained in the note circulated by the UNCITRAL Secretariat.[24] In his report, the Secretary General had noted that there was great variety in national laws for “attacking” an arbitral award.[25] Hence, it was suggested that the Model Law should ideally streamline the various types of recourse against an arbitral award and provide “only one type of action of ‘attacking’ an award”.[26]The Working Group concurred with the suggestion and requested the UNCITRAL Secretariat to prepare draft provisions for challenging the arbitral award along these lines.[27]

Based on the discussions of the Working Group at its fourth session, the UNCITRAL Secretariat prepared draft articles providing recourse against arbitral award.[28]In line with the discussions of the Working Group, Draft Article 40 proposed by the Secretariat stipulated that the only recourse available to a party aggrieved by the arbitral award was to seek setting aside of the arbitral award.[29] Interestingly, Draft Article 41(4) proposed by the Secretariat set out the consequences of setting aside the arbitral award. It provided that

“if the court set aside the award, it may order that the arbitration proceedings to continue for retrial of the case [or] a party may within three months request reinstitution of the arbitration proceedings unless such measure is incompatible with a ground on which the award is set aside”.[30]

Divergent views were expressed as to the appropriateness of Draft Article 41(4). Under one view, there was no place in Model Law for such a provision since it insufficiently dealt with several procedural questions arising in various legal systems[31]. But, majority of the members of the Working Group expressed support for retaining the provision, since “the provision made it clear that the arbitration agreement did not necessarily lapse (on setting aside of the award) and it opened the way for remission to an Arbitral Tribunal”.[32]Therefore, a reading of the draft article and travaux préparatoires seems to suggest that Working Group only sought to confer power on the court to set aside the arbitral award and remit the matter to the tribunal for reconsideration. The Working Group never contemplated court modifying or varying the findings in the arbitral award. This is also evident from the subsequent modifications suggested to Draft Article 41(4) by the Working Group. Amongst other things, the Working Group at the fifth session wanted the UNCITRAL Secretariat to prepare a revised draft to clarify that “reinstitution” of arbitral proceedings would not necessarily mean that the proceedings would be conducted by the previous Arbitral Tribunal and to stipulate the authority to whom the party should make a request for reinstitution.[33]

Based on the recommendations of the Working Group at its fifth session, the UNCITRAL Secretariat redrafted the article relating to recourse against an arbitral award to provide that the “court when asked to set aside the award, may also order, where appropriate and if so requested by a party that the arbitral proceedings be continued.”[34]While there was some resistance to the idea of the court remitting the matter back to the tribunal, the Working Group ultimately adopted the proposal since it reduced the likelihood of arbitral awards being set aside for curable procedural defects.[35] Therefore, apart from setting aside the arbitral award, the Model Law envisaged that the court exercising power under Article 34 of UNCITRAL Model Law could only remit the matter to the Arbitral Tribunal to remedy curable defects so as to prevent setting aside of the arbitral award.[36] No substantial changes were neither proposed nor made in subsequent drafts considered by the Working Group.[37] Thus, Article 34 of the UNCITRAL Model Law provides that any person aggrieved by an arbitral award can either seeking setting aside or remission to the tribunal to remedy curable defects. Therefore, by implication, Article 34 of the UNCITRAL Model Law never envisaged that the court exercising jurisdiction under Article 34 of the UNCTIRAL Model Law can vary or modify the findings.

Two other aspects in the travaux préparatoires of the UNCITRAL Model Law fortify the conclusion that a court under Article 34 of the UNCITRAL Model was never conferred with the power to vary or modify the arbitral award. First, a proposal was made to include a provision in draft Model Law in case of setting aside of arbitral awards to exclude the time from commencement of arbitral proceedings till the date of setting aside of the arbitral award to enable the claimant/aggrieved party to pursue fresh arbitration/remedies in accordance with law.[38] While recognising the importance of such a provision, UNCITRAL eventually decided against its inclusion because it “touched upon issues regarded by many legal systems as matters of substantive law and might therefore be considered to be outside the scope of the model law”.[39] Most importantly, owing to paucity of time, UNCITRAL was not able to undertake a close study of issues involved for formulation of an appropriate rule.[40] Hence, from the aforesaid discussion, one may infer that Article 34 of the UNCITRAL Model Law only envisaged setting aside of arbitral awards. It was for this reason that UNCITRAL considered formulating a rule for excluding the time period from the date of commencement of arbitral proceedings till the date of setting aside of arbitral awards.

Second, in one of the UNCITRAL Secretariat working papers placed before the Working Group, the UNCITRAL Secretariat had recommended that UNCITRAL Model Law contain a provision regarding the manner in which a party may pursue a claim after setting aside of award under Article 34.[41] It was suggested, such a provision could clarify that, on setting aside of arbitral award, the original arbitration agreement stood discharged and parties were relegated to ordinary courts for adjudication of their disputes. Or, in the alternative, such a provision could recognise that original arbitration agreement was reactivated and the parties had to purse their claims by commencing fresh arbitration proceedings. But, for reasons not forthcoming from the record, it appears that the Working Group did not give serious consideration to the proposal. That said, in either of these cases, there was an implicit recognition of the fact that a court exercising power under Article 34 of the UNCITRAL Model Law could not vary or modify the award but only to set aside the award.

Hence, a meaningful reading of the preparatory works of UNCITRAL Model Law leads to conclusion that, on an application by a party, a court exercising jurisdiction under Article 34 of the UNCITRAL Model Law could remit the arbitral award to the tribunal to remedy curable defects. However, if the defects are not curable and grounds under Article 34(2) are made out by a party aggrieved by the arbitral award, the court can only set aside the arbitral award and not vary or modify the findings in the arbitral award.

Indian courts and divergent views on power under Section 34 of the Arbitration and Conciliation Act, 1996 to modify or vary the arbitral awards

This section will briefly examine the law laid down by the Supreme Court of India and the divergent views expressed by High Courts regarding the power of a Section 34 Court to vary or modify the arbitral award.

(i) Supreme Court of India

Since the law laid down by the Supreme Court of India binds all courts and tribunals in the country,[42] the judgments of the Supreme Court relating to power of a Section 34 Court to modify or vary the arbitral award will be examined first.

In McDermott International Inc. v. Burn Standard Co. Ltd.,[43] (McDermott case) the Supreme Court was seized of an appeal arising out of judgment of the Calcutta High Court dealing with challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. Prior to adverting to the contentions of the parties for setting aside the arbitral award, the Court opined that “the court (exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996) cannot correct errors of arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if so desired”. But, for reasons detailed below, these observations cannot be regarded as law declared by the Supreme Court of India on the power of a Section 34 Court to modify or vary the arbitral award.

It is settled law that not everything said by a Judge while giving a judgment constitutes a precedent.[44] The enunciation of the reason or principle (i.e. ratio decidendi) upon which a question before a court has been decided is alone binding as a precedent under Article 141 of the Constitution of India.[45] A proposition of law can be regarded as ratio decidendi of a case if a deliberate/conscious judicial decision has been arrived at after hearing an argument on a question which arose or was put in issue in the facts of the case before the court.[46]Hence, viewed in this backdrop, the question whether a Section 34 Court can modify or vary the arbitral award never arose for consideration in McDermott case[47]. There was neither any question raised nor any argument advanced on the power of a Section 34 Court to modify or vary the arbitral award. Hence, the abovementioned observations can hardly be termed as a conscious judicial decision on the power of a Section 34 Court to modify or vary the arbitral award.

The matter can be considered from another standpoint. Recently, in State of Gujarat v. Utility Users’ Welfare Assn.,[48]the Supreme Court adopted “the Inversion Test” propounded by Prof. Eugene Wambaugh, with some modifications[49]to identify the ratio decidendi of a judgment. According to the Court, in order to test whether a particular proposition of law is to be treated as the ratio decidendi of the case, the proposition is to be inversed i.e. remove the proposition of law from the text of the case as if did not exist. If the conclusion of the case would still have been the same even without examining the proposition, then it cannot be regarded as ratio decidendi of the case.[50] Applying the said test to McDermott case[51], it can safely be concluded that, even if the observation that the court cannot correct errors of the arbitrators, but only set aside the award is inversed (i.e. removed from the text of the case), the conclusion of the case would have still been the same. Hence, owing to these reasons, the observations of the Supreme Court in McDermott case[52]cannot be regarded as law declared under Article 141 of the Constitution of India.

At this juncture, it is pertinent to note another judgment of the Supreme Court in India wherein some observations appear to have been made on the power of the court to modify or vary the arbitral award under Section 34 of the Act. In Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd.,[53] (Dakshin Haryana case) an appeal was filed against the judgment of the High Court dismissing a petition under Section 34 of the Arbitration Act as time-barred under Section 34(3) of the Arbitration Act. Amongst other things, it was contended that the time period for filing the arbitral petition under Section 34 should be reckoned from the date of receiving the majority as well as the minority award from the Arbitral Tribunal since on several occasions courts had upheld minority awards while setting aside the majority award. The Court allowed the appeal on the ground that

“there is only date recognised by law i.e. date on which a signed copy of the final award is received by the parties, from which the period of limitation for filing objections (i.e. petition under Section 34 of the Arbitration and Conciliation Act, 1996) would start ticking.”[54]

Since 90 days had not lapsed from the date of receipt of signed copy of the arbitral award, the Court allowed the appeal and remanded the petition under Section 34 of the Arbitration Act for adjudication on merits. While dealing with the contention of the appellant on the relevance of minority arbitral award, the Court opined that

“under Section 34 of the Arbitration Act, the Court may either dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub-sections (2) and (2-A) of (Section 34)are made out. There is no power to modify the award”.

In support of this proposition, the Court relied on McDermott case[55]. As discussed earlier, McDermott case[56] is not an authority for the proposition that court cannot modify or vary the arbitral award.

That apart, for the reasons stated below, Dakshin Haryana case[57] also cannot be regarded as an authority for the proposition that court can only set aside the arbitral award. First, if the inversion test[58] (explained above) is applied to Dakshin Haryana case[59], it will become abundantly clear that, even if the observations that a Section 34 court can only set aside the arbitral award is “omitted” from the text of the judgment, the Supreme Court would still have come to the same conclusion that the time period for computing limitation under Section 34(2) is to be reckoned from the date of receipt of the signed copy of the arbitral award.

Second, not all observations of the Supreme Court while delivering a judgment are binding under Article 141 of the Constitution of India.[60] A judgment can be distinguished into two parts – ratio decidendi and obiter dictum.[61]As stated earlier, it is only the ratio decidendi i.e. principle upon which the case is decided by the Supreme Court of India that binds courts and tribunals under Article 141 of the Constitution of India.[62]An “obiter dictum”, unlike the ratio decidendi, is an observation by the court on a legal question suggested in a case before it but not arising in such a manner as to require decision.[63]Thus, in Dakshin Haryana case[64], once the Supreme Court of India had taken a view that the limitation had to be reckoned from the date of receipt of the signed copy of the arbitral award, it was wholly unnecessary to make any observations on the powers of a Section 34 court to modify or vary the arbitral award. Hence, the observations of the Supreme Court in Dakshin Haryana case[65] cannot be considered as law declared under Article 141 of the Constitution of India since the power of a Section 34 court to modify the arbitral award did not arise in such a manner to require decision.

Recently, in National Highways Authority of India v. M. Hakeem,[66] the Supreme Court was dealing with a batch of appeals from the Madras High Court wherein the said High Court had disposed of a large number of appeals filed under Section 37 of the Arbitration and Conciliation Act, 1996[67] holding that a Section 34 Court can modify the arbitral award and enhance compensation awarded by arbitrator under the National Highways Act, 1956[68]. The Supreme Court of India categorically held that a Section 34 Court cannot modify or alter the findings of the Arbitral Tribunal, but only set aside the arbitral award.

Four reasons primarily weighed in the mind of the Court to subscribe to the said view. First, Section 34 of the Arbitration Act was modelled on Article 34 of the UNCITRAL Model Law which did not permit modification of arbitral awards, but only setting aside of the arbitral award.[69]Second, the statutory scheme under Section 34 of the Arbitration Act was substantially different from the erstwhile Arbitration Act, 1940[70] wherein courts were specifically empowered to modify or correct an award.[71]Third, proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 did not permit challenge to an arbitral award on merits.[72] Thus, necessarily, a Section 34 Court cannot conduct a roving enquiry on merits and make de novo findings modifying the arbitral award. Fourth, the McDermott case[73],Dakshin Haryanacase[74] and Kinnari Mullick v. Ghanshyam Das Damani(Kinnari Mullick case) [75]had already settled the law that a Section 34 court cannot modify the arbitral award, but merely set aside the award leaving parties to commence fresh arbitration proceedings to settle their disputes.[76]For reasons stated supra, the McDermott case[77]and the Dakshin Haryana case[78] cannot be considered as authorities for the proposition that courts can only set aside, but not modify the arbitral award. Even Kinnari Mullick case[79] cannot be regarded as an authority for the said proposition because the court was only considering the power of a Section 34 Court to remand the matter to the arbitral tribunal under Section 34(4) of the Arbitration and Conciliation Act, 1996. The question as to whether a Section 34 court can modify the arbitral award was neither put in argument nor consciously decided by the Supreme Court in Kinnari Mullick case[80]. Hence, the observations therein can hardly qualify as laying down that a court can only set aside the arbitral award.

Be that as it may, the other observations of the Supreme Court in National Highways Authority of India v. M. Hakeem80, now make it amply clear that a Section 34 Court can only set aside the arbitral award, but not vary or modify the findings of the Arbitral Tribunal. The next section will examine the decisions of the High Court on the power of the Court to modify or vary the arbitral award.

(ii) High Courts and power of a Section 34 Court to modify or vary the arbitral award

The Bombay High Court81 and the Delhi High Court82had taken a view that, unlike a court exercising appellate powers under Section 96 of the Code of Civil Procedure, 190883, a Section 34 Court does not have the power to vary or modify the arbitral award or decree the claims dismissed by the Arbitral Tribunal. Therefore, a Section 34 Court can either uphold the arbitral award or set aside the arbitral award.

In Padma Mahadev v. Sierra Constructions84, the High Court of Karnataka had also taken a view that a Section 34 Court cannot vary or modify the findings of the Arbitral Tribunal, but only set aside the arbitral award. To arrive at the said finding, first, the High Court adverted to the McDermott case85 and concluded that the Supreme Court has declared the law that a Section 34 Court can only set aside the arbitral award, leaving parties free to begin fresh arbitration if they so desired.[81] Second, the High Court referred to Section 34(4) of the Arbitration Act that permits a Section 34 Court to remit the arbitral award to the Arbitral Tribunal to remedy curable defects which would obviate setting aside of the arbitral award. Based on this provision, the High Court concluded that the said sub-section would be rendered otiose if a Section 34 Court was held to have the power to vary or modify the arbitral award.[82]Third, the High Court referred to Section 43(4) of the Arbitration Act[83] which provides that, in case of setting aside of arbitral award, the time period from the commencement of arbitration to setting aside of arbitral award should be excluded for the purpose of computing limitation. Based on this provision, the High Court concluded that such a provision would have been wholly unnecessary if a Section 34 Court had the power to modify or vary the arbitral award and finally settle the list between the parties. Except for the erroneous reading of the law laid down in Mc Dermott case[84], the judgment does make a compelling case based on the text of the Arbitration and Conciliation Act, 1996 that a Section 34 Court can only set aside the arbitral award and not vary or modify the findings of the Arbitral Tribunal.

Contrary to the views of the Karnataka, Bombay and the Delhi High Courts, the Madras High Court,[85] Andhra Pradesh High Court[86] and  Telangana High Court[87] had taken a view that a Section 34 court can either set aside the arbitral award or vary the findings of the Arbitral Tribunal. In Kurra Venkateshwara Rao v. Competent Authority,[88]the Andhra Pradesh High Court held that the expression “recourse to a Court against an arbitral award” used in Section 34(1)[89] of the Arbitration Act could not be interpreted to limit the power of a Section 34 Court to merely set aside the arbitral award. Such an interpretation of Section 34(1) would leave parties in a worse off position than contemplated or deserved prior to commencement of arbitral proceedings. Thus, the words “recourse against an arbitral award” in Section 34 of the Arbitration and Conciliation Act, 1996 were interpreted to include the power of a Section 34 court to modify or vary the arbitral award along with the power to set aside the arbitral award. Further, the High Court sought to fortify its conclusion that a Section 34 Court can modify, vary or revise the findings of the Arbitral Tribunal by adverting to the general practice of the High Courts and the Supreme Court of India to vary, modify or revise arbitral findings while adjudicating Section 34 petitions under the Arbitration Act.

In the author’s opinion, the Andhra Pradesh High Court’s view is wholly erroneous on both counts. It is settled law that an interpretation that renders the provisions of a statute otiose or nugatory should be eschewed.[90]Section 34(1) of the Arbitration Act stipulates that recourse against an arbitral award may be made “only” by an application for setting aside such award in accordance with sub-sections (2) and (3). If the interpretation given by the Andhra Pradesh High Court to the expression “recourse against an arbitral award” is accepted, the word “only” in Section 34(1) of the Arbitration Act will be rendered otiose. It is obvious that the word “only” was used in Section 34(1) of the Arbitration Act to make it abundantly clear that recourse against an arbitral award was “only” by an application for setting aside the arbitral award and nothing else.

That apart, the reference to the general practice of the High Court and the Supreme Courts in varying or modifying arbitral awards while adjudicating petitions under Section 34 of the Arbitration Act is also entirely misplaced.

Undoubtedly, usage or practice developed under a statute is indicative of the meaning ascribed to its words.[91] The doctrine is based on the precept that the words used in the statute must be understood in the same way in which they are usually understood in ordinary common parlance by the persons whose duty it is to construe and apply it.[92] But the rule is not of universal application and can be applied only on fulfilment of following preconditions:

(a) First, contemporary construction placed by authorities can be looked at for construing a statute only if the meaning of a provision is obscure, but not when the meaning of the statute is plain, simple and unambiguous.[93]Section 34(1) of the Arbitration Act provides that filing of a setting aside application is the “only” recourse available against an arbitral award. Hence, there is no obscurity or ambiguity in the provision that warrants looking at the practice and usage developed under the Arbitration Act to ascertain the meaning of the provision.

(b) Second, practice or usage developed under the statute is only relevant for interpretation of an ancient statute, but not a modern statute.[94]This is for the obvious reason that, in ancient statutes/very old statutes, the language may itself have a different meaning at the time of the enactment of statute and the Judges who lived during that time or soon thereafter would be best able to decipher the intention of the legislature.[95]The Arbitration Act is of recent origin and was enacted in 1996 to give effect the UNCITRAL Model Law in India. No drastic changes have taken place in English language that would warrant Section 34(1) of the Arbitration Act being interpreted dehors the text of the provision, but with reference to the practice and usage of courts. Hence, in the author’s opinion, the Andhra Pradesh High Court does not lay down the correct law.

Furthermore, as rightly noted by the Supreme Court of India in National Highways Authority of India v. M. Hakeem,[96] in interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended the result. Since Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996, the Andhra Pradesh High Court could not have read such a power into Section 34 of Arbitration Act, 1996.

Like the Andhra Pradesh High Court, in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.,[97]the Madras High Court also held that a Section 34 Court can modify or vary the findings in the arbitral award. While examining the issue, the High Court noted the general practice of the Supreme Court of varying or modifying arbitral awards while considering appeals arising from petitions under Section 34 of the Arbitration Act.[98] Thereafter, the High Court held that Section 34(1) of the Arbitration Act merely prescribed the form (i.e. application for setting aside) in which a party can seek recourse against an arbitral award.[99] Hence, nothing in Section 34(1) of the Arbitration Act could be construed to limit the power of a Section 34 Court to modify or vary the arbitral award.[100]Further, the Court adverted to the observations of the Supreme Court in McDermott case[101] that a Section 34 court only exercises supervisory role, which was almost akin to revisional powers under Section 115 of the Code of Civil Procedure, 1908[102]. Since the revisional jurisdiction under Section 115 of the Code of Civil Procedure 1908 permitted correction of patent illegalities, the Court held that a Section 34 court can also modify or vary the findings in the arbitral award. This judgment was subsequently affirmed by the Division Bench of the Madras High Court.[103] Both these decisions of the Madras High Court have been declared per incuriam in National Highways Authority of India v. M Hakeem.[104]

Besides, both the reasons given by the Madras High Court are wholly fallacious. The Madras High Court’s interpretation renders the word “only” used in Section 34(1) of the Arbitration Act, 1996 otiose. The legislature has consciously used the word “only” in Section 34(1) of the Act to make it clear that an application for setting aside is the only recourse against an arbitral award. This is evident from examination of the scheme of the Arbitration Act. Section 43(4) of the Act provides that, the time period between commencement of arbitral proceedings and setting aside of award shall not be reckoned for computing limitation if the parties decide to pursue the claims that were subject-matter of the award set aside afresh. Such a provision would have been unnecessary if a Section 34 Court could modify or vary the arbitral award. That apart, if courts had the power to modify or vary the arbitral awards, there was no need to enact Section 34(4) of the Act that permits a Section 34 Court to remit the arbitral awards to the tribunal to correct curable defects to obviate setting aside of the award. If the courts could modify or vary the arbitral awards, the courts could have suo motu undertaken remedial measures instead of remitting the matter back to the tribunal. Hence, the interpretation of the Madras High Court is incompatible with the scheme of the Arbitration Act, 1996.

Further, the Madras High Court’s reference to Section 115 of the Code of Civil Procedure for interpreting Section 34 of the Arbitration and Conciliation Act, 1996 is also fallacious. Suffice it is to state that the language of both the provisions and scheme of their enactments are materially different. Therefore, no inspiration can be drawn from one provision to interpret the other. In any event, Section 115 of the Code of Civil Procedure, 1908[105] confers a specific power on the courts to vary or reverse the findings made by the subordinate court. There are no corresponding words in the text of Section 34(1) of the Arbitration Act permitting a court to vary or modify the arbitral award. Hence, the Madras High Court’s interpretation that a court can vary or modify the arbitral is without textual basis and deserves to be ignored.

Lastly, in Saptarishi Hotels (P) Ltd. v. National Institute of Tourism & Hospitality Management,[106] the Telangana High Court has subscribed to the view of the Madras High Court and held that a Section 34 Court can modify or vary the findings in the arbitral award. However, the judgment has used the words “modification” or “varying” the terms of the arbitral award in a broader sense to include partial setting aside of the awards, and not merely varying or modifying the arbitral award on merits.[107]

At this juncture, it may be noted that there is nothing in the text of the Arbitration and Conciliation Act, 1996 prohibiting “partial” setting aside of the arbitral awards.[108] Therefore, if the arbitral award is found bad in respect of some claims and perfectly tenable in case of other claims, a Section 34 Court will be well within its rights to set aside part of the arbitral award. Hence, there is no infirmity with the decision of the Telangana High Court to that extent. The term “modify” or “vary” has been used in this article to refer to only those instances wherein a Section 34 Court adverts to the merits of the dispute and modifies or varies the findings in the arbitral award. The word “modify” or “vary” in this article most certainly do not refer to partial setting aside of award by a Section 34 Court, which is obviously permissible under the Arbitration Act provided the grounds in Sections 34(2) and (2-A) of the said Act are made out.

Conclusion

The preparatory works of the UNCITRAL Model Law make it clear that the drafters envisaged remission to the Arbitral Tribunal for remedying curable defects or the setting aside of the arbitral award as the only recourses available to a party aggrieved by the arbitral award. The drafters did not intend to clothe the courts hearing challenges under Article 34 of the UNCITRAL Model Law with the power to vary or modify the arbitral awards. It is for this reason that the UNCITRAL Secretariat and the Working Group initially sought to engraft provisions setting out the consequences of setting aside the arbitral award which provided that, on setting aside of the arbitral award, the parties may start fresh arbitration proceedings for adjudication of the dispute. Further, there was also a proposal to exclude the time from commencement of arbitration till the date of setting aside the arbitral award for the purpose of reckoning claims if the arbitral award was ultimately set aside. These proposals were not adopted since such provisions did not sufficiently deal with procedural questions arising in various legal systems. But, it would have been wholly unnecessary to consider proposals to incorporate such provisions if the courts had the power to modify or vary the arbitral award and consequently, settle the dispute between the parties by varying or modifying the findings of the Arbitral Tribunal. Section 34 of the Arbitration Act is pari materia to Article 34 of the UNCITRAL Model Law. Moreover, since Section 34 of the Arbitration Act was enacted to give effect to UNCITRAL Model Law,[109]an interpretation in conformity with Article 34 of the UNCITRAL Model Law should be adopted. Hence, a Section 34 Court does have the power to modify or vary the findings in the arbitral award. It can only set aside the arbitral award if conditions set out in sub-sections (2) and (2-A) of Section 34 are satisfied.

Further, Section 5 of the Arbitration Act[110]stipulates that, notwithstanding anything contained in any other law for the time being in force, no judicial authority shall intervene in arbitration proceedings (including setting aside of arbitral award) except as provided in Part I of the Arbitration Act. Since Section 34(1) contained in Part I of the Arbitration Act provides that recourse against an arbitral award can be “only” by an application for setting aside the arbitral award, the judicial authority can only interfere by setting aside the arbitral award. Thus, by implication, any other manner of interference with the arbitral award including by way of varying or modifying the findings in the arbitral award is not permissible in light of Section 5 read with Section 34(1) of the Arbitration Act.

That apart, unlike UNCITRAL Model Law, Section 43(4) of the Arbitration and Conciliation Act, 1996 specifically stipulates that time period from the commencement of arbitration till the setting aside of the arbitral award should not be reckoned for computing limitation in case fresh proceedings initiated after the arbitral award has been set aside. If a Section 34 Court is held to have the power to modify or vary the arbitral award, there would be no need to exclude time period for fresh proceedings as courts could vary or modify the arbitral award and settle the lis (i.e. dispute) between the parties. Thus, Section 43(4) exists because Section 34 of the Arbitration Act only empowers courts to annul arbitral awards, not vary or modify them owing to the errors committed by the Arbitral Tribunal.

The judgment of the Supreme Court in National Highways Authority of India v. M. Hakeem[111] is welcome since it is line with the intent of the UNCITRAL Model Law and settles the law putting to rest the confusion that arose from divergent views of different High Courts.

Having said that, the concerns of the Madras High Court,[112] Telangana High Court[113] and the Andhra Pradesh High Court[114] are not entirely misplaced and without substance. The main reason that seems to have weighed with the High Courts in taking a view that a Section 34 Court has power to vary or modify the arbitral award was the fact that mere setting aside the arbitral award would “leave the parties in a position much worse than what they contemplated or deserved before the commencement of the arbitral proceeding.”[115] But, conferring power on the court to vary or modify the arbitral awards is not the panacea such a problem. In fact, the remedy lies in courts not interfering with the arbitral awards in a cavalier manner especially since the setting aside of the arbitral award entails such harsh consequences. Ultimately, the court will have to respect finality of the arbitral award and the party autonomy to get their dispute resolved through arbitration.[116] It is only in extraordinary circumstances wherein procedural fairness and safeguards are not complied with, powers under Section 34 of the Arbitration Act should be invoked to set aside the arbitral award.

Thus, for the aforesaid reasons, the power of the Section 34 Court is only confined to setting aside the arbitral award, but not varying or modifying the findings in the arbitral award. However, there is nothing in the Arbitration Act that prohibits partial setting aside of the arbitral awards. Therefore, modification or varying of the arbitral award by setting aside of the arbitral award in part is permissible. Obviously, the doctrine of severability and setting aside of the arbitral award in part only holds good if the bad parts of the arbitral award are severable from the sustainable parts of the award. If the bad parts of the arbitral award cannot be severed from the sustainable parts of the award, the court will have no option but to set aside the entirety of the arbitral award leaving parties to commence fresh arbitration proceedings.


*Author is an alumnus of National Law University, Jodhpur (’16) and practices dispute resolution in Bangalore, Karnataka, and can be reached at rohan231993@gmail.com.

[1]Arbitration and Conciliation Act, 1996.

[2]United Nations Commission on International Trade Law.

[3]Preamble, Arbitration and Conciliation Act, 1996; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552, para 68.

[4]Bharat Aluminium Co.v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, paras 73-75, 120-124; S. 2(2) of the Arbitration and Conciliation Act, 1996.

[5]S. 34(1) of the Arbitration and Conciliation Act, 1996.

[6]Padma Mahadev v. Sierra Constructions Pvt. Ltd., COMAP 2 of 2021, decided on 22-3-2021 (High Court of Karnataka), para 24.

[7]Nussli Switzerland Ltd. v. Organising Commonwealth Games, 2010, 2014 SCC OnLine Del 4834, para 34; State Trading Corpn. of India Ltd. v. Toepfer International Asia Pte Ltd., 2014 SCC OnLine Del 3426, para 7.

[8]Dirk India (P) Ltd. v. Maharashtra State Electricity Generation Co.Ltd.,2013 SCC OnLine Bom 481, para 14; Wind World (India) Ltd. v. Enercon GmbH, 2017 SCC OnLine Bom 1147, para 16.

[9]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.,2014 SCC OnLine Mad 6568, paras 23, 24, 29, 30, 39, 51-53; ISG Novasoft Technologies Ltd. v. Gayatri Balasamy,2019 SCC OnLine Mad 15819, para 42.

[10]Saptarishi Hotels (P)Ltd.v. National Institute of Tourism & Hospitality Management, 2019 SCC OnLine TS 1765, paras 27, 34 and 35.

[11]Kurra Venkateshwara Rao v. Competent Authority, CMAs No. 987-993 & 1014 of 2008, decided on 1-5-2020 (Andhra Pradesh High Court, DB), paras 23, 24, 28, 34.

[12]2021 SCC OnLine SC 473.

[13]Arbitration and Conciliation (Amendment) Act, 2015. http://www.scconline.com/DocumentLink/9ajA4z9b.

[14]Explanation, S. 34(2) and S. 34(2-A) of the Arbitration and Conciliation Act, 1996; Law Commission of India, Report No. 246 on  Amendments to the Arbitration and Conciliation Act, 1996, (2014), Chapter II, Paras 34-37; Law Commission of India, Supplementary to Report No. 246 on Amendments to the Arbitration and Conciliation Act, 1996 – “Public Policy” Developments Post Report No. 246, (2014).

[15]Kalpana Mehta v. Union of India, (2018) 7 SCC 1, paras123-135; see M. Dhyan Chinnappa and Rohan Tigadi, Section 7(4)(c) of the Arbitration and Conciliation Act, 1996: Acquiescence by Silence?, (2021) 3 SCC J-32,  33.

[16]A/RES/40/72, Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law (11-12-1985); Preamble, Arbitration and Conciliation Act, 1996.

[17]K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1, para 154; Commr. of Customs v. G.M. Exports,(2016) 1 SCC 91, paras 13-23; see M. Dhyan Chinnappa and Rohan Tigadi, Section 7(4)(c) of the Arbitration and Conciliation Act, 1996: Acquiescence by Silence?, (2021) 3 SCC J-32,  33.

[18]It is an international government organisation formed in 1956 to serve as an Advisory Board to member States on matters of international law.

[19]International Commercial Arbitration, Note by the Secretary General (A/CN.9/127).

[20]UNCITRAL Note by the Secretariat: Further Work in Respect of International Commercial Arbitration (A/CN.9/169), Para 2.

[21]UNCITRAL Report of the Secretary General: Study on the Application and Interpretation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (A/CN.9/168).

[22] Note by the Secretariat: Further Work in Respect of International Commercial Arbitration (A/CN.9/169), Para 6.

[23]UNCITRAL, Report of Working Group on International Contract Practices on the Work of its Third Session, A/CN.9/216, Para 1; Dhyan Chinnappa and Rohan Tigadi, Section 7(4)(c) of the Arbitration and Conciliation Act, 1996: Acquiescence by Silence?, (2021) 3 SCC J-32,  33-34.

[24] UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Third Session, A/CN.9/216, Paras 6 and 13.

[25] Report of the Secretary General: Possible Features of a Model Law on International Commercial Arbitration (A/CN.9/207), Para 108.

[26]Working Paper Submitted to the Working Group on International Contract Practices at its Third Session (16-2-1982 to 26-2-1982): Note by the Secretariat: Possible Features of a Model Law on International Commercial Arbitration : Questions for Discussions by the Working Group (A/CN.9/WG.II/WP.35), Para 31; UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fourth Session (Vienna, 4-10-1982 to 15-10-1982), A/CN.9/232 (10-11-1982), Paras 13 and 14.

[27] UNCITRAL, Report of the Working Group on International Contract Practices of its Fourth Session (Vienna, 4-10-1982 to 15-10-1982), A/CN.9/232 (10-11-1982), Paras 13 and 14.

[28]UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fifth Session (New York, 22-2-1983 to 4-3-1983) (A/CN.9/233), Para 132.

[29]UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fifth Session (New York, 22-2-1983 to 4-3-1983) (A/CN.9/233), Paras 178-180.

[30]UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fifth Session (New York, 22-2-1983 to 4-3-1983) (A/CN.9/233), Para 181.

[31]UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fifth Session (New York, 22-2-1983 to 4-3-1983) (A/CN.9/233), Para 190.

[32]UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fifth Session (New York, 22-2-1983 to 4-3-1983) (A/CN.9/233), Para 191.

[33]UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Fifth Session (New York, 22-2-1983 to 4-3-1983) (A/CN.9/233), Para 192.

[34] UNICTRAL, Report of the Working Group on International Contract Practices on the Work of its Sixth Session (Vienna, 29-8-1983 to 9-9-1983) A/CN.9/245, Para 150.

[35] UNICTRAL, Report of the Working Group on International Contract Practices on the Work of its Sixth Session (Vienna, 29-8-1983 to 9-9-1983) A/CN.9/245, Para 154.

[36] UNICTRAL, Report of the Working Group on International Contract Practices on the Work of its Sixth Session (Vienna, 29-8-1983 to 9-9-1983) A/CN.9/245, Para 154.

[37] UNCITRAL, Report of the Working Group on International Contract Practices on the Work of its Seventh Session (New York, 6-2-1984 to 17-2-1984), A/CN.9/246, Para 139; Report of the United Nations Commission on International Trade Law on the Work of its Eighteenth Session, 3-6-1985 to 21-6-1985, A/40/17, Paras 272, 305-307.

[38]Report of the United Nations Commission on International Trade Law on the Work of its Eighteenth Session, 3-6-1985 to 21-6-1985, A/40/17, Paras 183-187.

[39] Report of the United Nations Commission on International Trade Law on the Work of its Eighteenth Session,3-6-1985 to 21-6-1985, A/40/17, Para185.

[40]Report of the United Nations Commission on International Trade Law on the work of its Eighteenth Session, 3-6-1985 to 21-6-1985, A/40/17, Para 185.

[41]UNCITRAL Secretariat, Composite Draft Text of a Model Law on International Commercial Arbitration: Some Comments and Suggestions for Consideration: Note by the Secretariat (A/CN.9/WG.II/WP.50), Paras 24-26.

[42]Art. 141 of the Constitution of India; Director of Settlements v. M.R. Apparao, (2002) 4 SCC 638, para 7.

[43](2006) 11 SCC 181, para 52.

[44]Union of India v. Dhanwanti Devi, (1996) 6 SCC 44, para 9.

[45]Krishena Kumar v. Union of India, (1990) 4 SCC 207, para 20; Union of India v. Dhanwanti Devi, (1996) 6 SCC 44, para 10.

[46]Union of India v. Dhanwanti Devi, (1996) 6 SCC 44, paras9 and10; Shah Faesal v. Union of India, (2020) 4 SCC 1, para 25; Krishena Kumar v. Union of India, (1990) 4 SCC 207, para 20; Union of India v. Dhanwanti Devi, (1996) 6 SCC 44, para 20.

[47](2006) 11 SCC 181.

[48](2018) 6 SCC 21, paras 113 and 114.

[49] There is a difference between the “Inversion Test” propounded by Professor Wambaugh and as understood by the Supreme Court of India. According to Professor Wambaugh, in order to apply the “inversion test”, the person has to formulate the supposed proposition of law that is ratio decidendi of the case. Then, he has to insert in that proposition a word reversing its meaning. Thereafter, he has to inquire whether, if the court had conceived of the new proposition (i.e. inversed proposition) as good, would the decision in the case have been the same. If the answer is the in the affirmative, then, however, excellent the original proposition may be, the case is not a precedent for that proposition (Wambaugh’s Inversion Test).

In contrast, the Supreme Court of India, in State of Gujarat v. Utility Users’ Welfare Assn.,(2018) 6 SCC 21 formulates a far simpler test. In order to apply this test, the person has to simply remove the supposed proposition of law from the text of judgment and examine if the decision in the case would have still been the same. If yes, then the proposition of law is not ratio decidendi (Supreme Court’s Inversion Test).  The slight nuance can be best be explained with the help of an illustration.

Wambaugh’s Inversion Test: In Mcdermott case, (2006) 11 SCC 181, let us assume that the Courts are only permitted to set aside the arbitral awards and not correct error of the arbitrators is the supposed proposition of law. If inverted, the new conceived proposition will read “Courts are permitted, not only permitted to set aside the arbitral awards but also correct errors of the arbitrator”. Then, under Wambaugh’s Inversion Test, Court has to make an enquiry whether the Supreme Court of India in McDermott case, (2006) 11 SCC 181 would have arrived at the same decision even if the Judge had conceived the new proposition. If yes, the original proposition “court can only set aside the arbitral award but not correct errors of arbitrators” is not the ratio decidendi.

Supreme Court’s Inversion Test: In McDermott case, (2006) 11 SCC 181, let us assume that the supposed proposition of law “court can only set aside the arbitral award, but not correct the errors of the arbitrators. According to the Supreme Court’s inversion test, if the final decision in the case would be the same even after the supposed proposition of law is removed from the text of the judgment, then the said proposition is not the ratio decidendi of the case. Hence, unlike Wambaugh’s Test, the Indian courts are not required to evaluate whether the final outcome will be the same even if the Judge conceived the new inverted proposition to deduce ratio decidendi.

[50]State of Gujaratv. Utility Users’ Welfare Assn.,(2018) 6 SCC 21, para 114.

[51](2006) 11 SCC 181.

[52](2006) 11 SCC 181.

[53]2021 SCC OnLine SC 157.

[54]Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., 2021 SCC OnLine SC 157, paras 5(vii), (xvi) and(xvii).

[55](2006) 11 SCC 181.

[56](2006) 11 SCC 181.

[57]2021 SCC OnLine SC 157.

[58]State of Gujaratv. Utility Users’ Welfare Assn., (2018) 6 SCC 21, para 114; Also see Nevada Properties (P) Ltd. v. State of Maharashtra, (2019) 20 SCC 119, para 13.

[59]2021 SCC OnLine SC 157.

[60]Union of India  v. Dhanwanti Devi, (1996) 6 SCC 44, para 9; Krishena Kumar v. Union of India,. (1990) 4 SCC 207, para 19; Director of Settlementsv. M.R. Apparao,(2002) 4 SCC 638, para 7; Nevada Properties (P) Ltd. v. State of Maharashtra, (2019) 20 SCC 119, para 13.

[61]Shah Faesal v. Union of India, (2020) 4 SCC 1, para 25; Director of Settlements v. M.R. Apparao, (2002) 4 SCC 638.

[62]Union of India v. Dhanwanti Devi, (1996) 6 SCC 44, paras 9 and 10; Krishena Kumar v. Union of India, (1990) 4 SCC 207, paras 19 and 20; Director of Settlementsv. M.R. Apparao, (2002) 4 SCC 638, para 7; Nevada Properties (P)Ltd. v. State of Maharashtra (2019) 20 SCC 119, para 13

[63]Director of Settlements v. M.R. Apparao, (2002) 4 SCC 638, para 7; Also see Fibre Boards (P)Ltd. v. CIT, (2015) 10 SCC 333, para 31.

[64]2021 SCC OnLine SC 157.

[65]2021 SCC OnLine SC 157.

[66]2021 SCC OnLine SC 473, paras 29 and 40.

[67]http://www.scconline.com/DocumentLink/0Vi7sQsH.

[68]http://www.scconline.com/DocumentLink/Ehv7iE72.

[69]Project Director, National Highways Authority of India v. M. Hakeem, 2021 SCC OnLine SC 473, paras 15 and 16.

[70]http://www.scconline.com/DocumentLink/3610ik0w.

[71]Project Director, National Highways Authority of India v. M. Hakeem, 2021 SCC OnLine SC 473, paras 17-20.

[72] National Highways Authority of India v. M. Hakeem, 2021 SCC OnLine SC 473, paras 21-28.

[73](2006) 11 SCC 181.

[74]2021 SCC OnLine SC 157.

[75](2018) 11 SCC 328.

[76]National Highways Authority of India v. M. Hakeem, 2021 SCC OnLine SC 473, para 40.

[77](2006) 11 SCC 181.

[78]2021 SCC OnLine SC 157.

[79](2018) 11 SCC 328.

[80](2018) 11 SCC 328.

802021 SCC OnLine SC 473.

81Dirk India (P) Ltd. v. Maharashtra State Electricity Generation Co. Ltd.,2013 SCC Online Bom 481, para 14; Wind World (India) Ltd.v. Enercon GmbH, 2017 SCC Online Bom 1147, para 16.

82Nussli Switzerland Ltd. v. Organising Committee Commonwealth Games, 2010, 2014 SCC OnLine Del 4834, para 34; State Trading Corpn. of India Ltd. v. Toepfer International Asia Pte Ltd., 2014 SCC OnLine Del 3426, para 7; Cybernetics Network (P) Ltd.v. Bisquare Technologies (P) Ltd., 2012 SCC OnLine Del 1155; Puri Construction (P) Ltd. v. Larsen & Tourbo Ltd., 2015 SCC OnLine Del 9126, paras 115-118.

83http://www.scconline.com/DocumentLink/XRnQ45N9.

84COMAP 2 of 2021, decided on 22-3-2021 (High Court of Karnataka).

85(2006) 11 SCC 181.

[81]Padma Mahadev v. Sierra Constructions, COMAP 2 of 2021, decided on 22-3-2021 (High Court of Karnataka), para 16.

[82]Padma Mahadev v. Sierra Constructions COMAP 2 of 2021, decided on 22-3-2021 (High Court of Karnataka), para 22.

[83]Section 43(4) of the Arbitration Act.

[84](2006) 11 SCC 181.

[85]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568, paras23, 24, 29, 30, 39, 51-53; ISG Novasoft Technologies Ltd.v. Gayatri Balasamy, 2019 SCC OnLine Mad 15819, para 42.

[86]Kurra Venkateshwara Rao v. Competent Authority, CMAs No. 987-993 & 1014 of 2008, decided on 1-5-2020 (Andhra Pradesh High Court, DB).

[87]Saptarishi Hotels (P) Ltd. v. National Institute of Tourism & Hospitality Management, 2019 SCC OnLine TS 1765.

[88]Kurra Venkateshwara Rao v. Competent Authority, CMAs No. 987-993 & 1014 of 2008, decided on 1-5-2020 (DB)  paras 28, 34.

[89] Section 34(1) of the Arbitration and Conciliation Act, 1996 reads as under:

34. Application for setting aside arbitral award.—(1) Recourse to a court against an arbitral award may be made by an application for setting aside such award in accordance with sub-ss. (2) and (3).”

[90]High Court of Gujaratv. Gujarat Kishan Mazdoor Panchayat, (2003) 4 SCC 712, paras 35 and36.

[91]Justice G.P. Singh, Principles of Statutory Interpretation (12th Edn., 2011) p. 341; National and Grindlays Bank Ltd.v. Municipal Corpn.of Greater Bombay,(1969)1 SCC 541, para 5; Principles of Statutory Interpretation (12th Edn., 2011), p. 341; Rohitash Kumarv. Om Prakash Sharma, (2013) 11 SCC 451; J.K. Lakshmi Cement Ltd.v. CTO, (2016) 16 SCC 213, para 34.

[92]J.K. Lakshmi Cement Ltd.v. CTO, (2016) 16 SCC 213, para 34; Ultratech Cement Ltd.v. State of Rajasthan, 2020 SCC OnLine SC 582, para 102.

[93]National and Grindlays Bank Ltd.v. Municipal Corpn.of Greater Bombay,(1969) 1 SCC 541, para 5; Doypack Systems (P)Ltd.v. Union of India (1988) 2 SCC 299, para 61; J.K. Lakshmi Cement Ltd.v. CTO, (2016) 16 SCC 213, para 35; Rohitash Kumarv. Om Prakash Sharma,(2013) 11 SCC 451, para 11.

[94]J.K. Lakshmi Cement Ltd.v. CTO, (2016) 16 SCC 213, para 34; Doypack Systems (P) Ltd.v. Union of India (1988) 2 SCC 299, para 61.

[95] Justice G.P. Singh, Principles of Statutory Interpretation (12th Edn., 2011) pp. 341-342.

[96]2021 SCC OnLine SC 473, para 46.

[97]2014 SCC OnLine Mad 6568.

[98]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.,2014 SCC OnLine Mad 6568, paras 30-39.

[99]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.,2014 SCC OnLine Mad 6568, paras 50-52.

[100]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.,2014 SCC OnLine Mad 6568, paras 50-52.

[101](2006) 11 SCC 181.

[102]Section 115, Code of Civil Procedure, 1908.

[103]ISG Novasoft Technologies Ltd. v. Gayatri Balasamy, 2019 SCC OnLine Mad 15189, paras 41 and 42.

[104]2021 SCC OnLine SC 473, paras 29-37.

[105]S. 115(1) of the Code of Civil Procedure, 1908 reads as follows:

115. Revision.—(1) The High Court may call for the record of any case which has been decided by any court to such High Court and in which no appeal lies thereto, and if such subordinate Court appears—

(a) to have exercised a jurisdiction not vested in it by law; or

(b) to have failed to exercise a jurisdiction so vested, or

(c) to have acted in exercise of its jurisdiction illegally or with material irregularity.

the High Court may make such order in the case as it thinks fit:

Provided that the High Court shall not, under this section, vary or reverse any order made, or any order deciding an issue, in the course of a suit or other proceeding, except where the order, if it had been made in favour the party applying for revision, would have finally disposed of the suit or other proceedings.”                                                                                                                                                                                                                                                     (emphasis supplied)

[106]2019 SCC OnLine TS 1765, paras 27, 34 and 35.

[107]Saptarishi Hotels (P) Ltd. v. National Institute of Tourism & Hospitality Management, 2019 SCC OnLine TS 1765, para 34.

[108]R.S. Jiwani v. Ircon International Ltd., 2009 SCC OnLine Bom 2021, paras 30-38; J.G. Engineers (P)Ltd. v. Union ofIndia, (2011) 5 SCC 758, para 25.

[109]Para 3, Statement of Objects and Reasons, Arbitration and Conciliation Act, 1996.

[110]Section 5 of the Arbitration Act.

[111]2021 SCC OnLine SC 473.

[112]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568; ISG Novasoft Technologies Ltd.v. Gayatri Balasamy, 2019 SCC OnLine Mad 15819.

[113]Saptarishi Hotels (P) Ltd. v. National Institute of Tourism & Hospitality Management, 2019 SCC OnLine TS 1765.

[114]Kurra Venkateshwara Rao v. Competent Authority, CMAs No. 987, 988, 989, 990, 991, 992 993 & 1014 of 2008, decided on 1-5-2020 (Andhra Pradesh High Court, DB).

[115]Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568, para 51; Kurra Venkateshwara Rao v. Competent Authority, CMAs No. 987-993 & 1014 of 2008, decided on 1-5-2020 (DB), para 28; Saptarishi Hotels (P) Ltd. v. National Institute of Tourism & Hospitality Management, 2019 SCC OnLine TS 1765, paras 34 and35.

[116]Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1, para 24.

Case BriefsSupreme Court

Supreme Court: A Division Bench comprising of L. Nageswara Rao and S. Ravindra Bhat, JJ. upheld the arbitral award of Rs 2782.33 crore plus interest made by the Arbitral Tribunal in favour of  Delhi Airport Metro Express (P) Ltd. The Supreme Court reversed the judgment of the Division Bench of the Delhi High Court which had interfered with the Tribunal’s award. While so deciding, the Supreme Court also observed that:

“There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention …”

Following is a comprehensive report of Supreme Court’s analysis of law on the subject and merits of the appeal.

Facts and Appeal

Delhi Metro Rail Corporation Ltd. (“DMRC”) entered into a ‘Concession Agreement’ with Delhi Airport Metro Express (P) Ltd. (“DAMEPL”) for design, installation, commissioning, operation and maintenance of the Airport Metro Express Line. Whereas, DMRC itself undertook design and construction of basic civil structure for the project. After completion of work, safety clearance were obtained from the Commissioner of Metro Railway Safety (“CMRS”) and commercial operations ensued in February 2011.

Defects emerged in the civil structure constructed by DMRC. DAMEPL issued a notice on 9-7-2012, asking DMRC to cure the defects in its works within a period of 90 days from the date of the notice, failing which it shall be treated as a breach having Material Adverse Effect on the Concessionaire (DAMEPL) under the Concession Agreement. Thereafter, on 8-10-2012, DAMEPL issued a notice terminating the Concession Agreement as the defects were not cured within 90 days, resulting in an Event of Default under the Agreement.

DMRC invoked arbitration under the Concession Agreement. The Arbitral Tribunal made an award of Rs 2782.33 crore plus interest in favour of DAMEPL. DMRC filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award, which was dismissed by a Single Judge. However, on DMRC’s appeal under Section 37, a Division Bench partly set aside the award passed by the Arbitral Tribunal. Aggrieved, DAMEPL approached the Supreme Court.

Law

Contours of Court’s power to review arbitral awards

Cumulatively reading the UNCITRAL Model Law and Rules, the legislative intent with which the Arbitration and Conciliation Act, 1996 is made, and Sections 5 and 34 of the 1996 Act, the Supreme Court noted that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re-appreciation of matters of fact as well as law. The Court relied on SsangYong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131.

The Court said that the limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. It was observed:

“There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award.”

The Court was of the opinion that such approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards.

Patent illegality

Observing that ‘patent illegality’ should be illegality which goes to root of the matter, the Court explained that:

“[E]very error of law committed by the Arbitral Tribunal would not fall within the expression ‘patent illegality’. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression ‘patent illegality’.”

The Court restated that permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of ‘patent illegality’ is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression ‘patent illegality’.

Public policy

Next, Section 34(2)(b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. The Court summarised that the award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. It was explained:

“[C]ontravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law.”

Conscience of the court and Morality

Lastly, the Court said that if an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice. It was observed:

“The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day”

Merits

Validity of the termination notice and consequences of the CMRS sanction

Actual date of termination

By referring to certain paragraphs of the award, the High Court held that there was confusion in the mind of the Arbitral Tribunal relating to the actual date of termination, which would have a material bearing on the exegesis of the article in the Concession Agreement dealing with termination by DAMEPL for DMRC Event of Default. However, the Supreme Court disagreed. Reading the arbitral award as a whole, the Supreme Court found that there was no ambiguity in the findings of the Arbitral Tribunal regarding the time given for curing the defects and the effective date of termination of the Concession Agreement.

Period for curing the defects

An ancillary issue arose that whether the period for curing the defects was 180 days or 90 days under the Concession Agreement. On this, the Court was of the view that construction of a provision of the Concession Agreement was within the domain of the Arbitral Tribunal. The view taken by the Arbitral Tribunal that the defects had to be cured within 90 days from the date of the cure notice, failing which DAMEPL was entitled to terminate the Concession Agreement, was a possible interpretation of the relevant article.

Certificate of fitness

Next, the High Court had held that the Tribunal committed a grave error in ignoring the CMRS fitness certificate as the Tribunal lost sight of the binding nature of the certificate. On the basis of the certificate issued by the Commissioner, DMRC argued that all the defects pointed out by DAMEPL had been cured.

The Supreme Court said that the certificate by itself could not come to the rescue of DMRC to show that the defects pointed out by DAMEPL were cured within the expiry of 90 days from 9-7-2012. The Court held that the Arbitral Tribunal’s finding that the defects were not cured is one of fact which could not be interfered with by the court. The issue before the Tribunal was whether the defects were cured within 90 days from the notice dated 9-7-2012 and the fitness certificate dated 18-1-2013 was not relevant for deciding the said issue.

The Supreme Court concluded that the High Court’s judgment that award of the Arbitral Tribunal suffered from patent illegality and shocks the conscience of the court,  was erroneous. It was observed:

“The members of the Arbitral Tribunal, nominated in accordance with the agreed procedure between the parties, are engineers and their award is not meant to be scrutinised in the same manner as one prepared by legally trained minds. In any event, it cannot be said that the view of the Tribunal is perverse. …

As the arbitrator is the sole judge of the quality as well as the quantity of the evidence, the task of being a judge on the evidence before the Tribunal does not fall upon the court in exercise of its jurisdiction under Section 34.”

Adjusted Equity

Another issue arose as to the computation of Termination Payment. The Arbitral Tribunal focused inter alia on ‘Adjusted Equity’ as one of the components of Termination Payment. The Tribunal had held that the expression ‘Adjusted Equity’ should include the money brought in by DAMEPL’s promoter and concluded that an amount of Rs 611.95 crore was used as expenses, thereby qualifying as ‘Concessionaire’s Capital Costs’ under the Concession Agreement. Whereas, the High Court concluded that the expression ‘Adjusted Equity’ in the Concession Agreement should be calculated by taking into account only the share capital of DAMEPL.

Having carefully examined the Concession Agreement and the findings recorded by the Tribunal and the High Court, the Supreme Court found that opinion of the Tribunal on inclusion of Rs 611.95 crore under ‘Adjusted Equity’ was a reasonable and possible view. It was observed:

“Even assuming the view taken by the High Court is not incorrect, we are afraid that a possible view expressed by the Tribunal on construction of the terms of the Concession Agreement cannot be substituted by the High Court. This view is in line with the understanding of Section 28(3) of the 1996 Act as a ground for setting aside the arbitral award …”

The Court also did not find any fault with the Tribunal’s approach that the understanding of the term equity as per the Companies Act, 2013 was not relevant for the purposes of determining ‘Adjusted Equity’ in light of the express definition of the term in the Concession Agreement. It was observed:

“As has been held in SsangYong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, mere contravention of substantive law as elucidated in Associate Builders v. DDA, (2015) 3 SCC 49 is no longer a ground available to set aside an arbitral award.”

In view of the foregoing, the Supreme Court set aside the findings of the High Court and upheld the award by the Arbitral Tribunal in respect of computation of Termination Payment.

Decision

Having concluded as above, the Supreme Court allowed the appeal filed by DAMEPL and set aside the judgment of the Division Bench of the High Court.

It may also be noted that the Supreme Court simultaneously considered a separate appeal filed by DMRC against the same judgment of the High Court in relation to issues which went against DMRC such as refusal to grant relief of specific performance of the Concession Agreement, waiver of termination notice due to DAMEPL’s conduct, etc. However, the Court did not find merit in any of the submissions advanced by DMRC in its appeal, which was consequently dismissed. [Delhi Airport Metro Express (P) Ltd. v. DMRC, 2021 SCC OnLine SC 695, decided on 9-9-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Advani & Co.Experts Corner

Introduction

The Arbitration and Conciliation Act, 1996 (A&C Act) is based on the 1985 UNCITRAL Model Law and came into force on 25-1-1996. The Indian Legislature recognised the need to honour India’s obligations under 1958 New York Convention and implement the modern arbitration regime to promote comity of nations in the field of international commercial arbitration and to foster international trade. The A&C Act has in Section 5 embodied the policy of minimal judicial interference. Although, the principle of minimised judicial interference is recognised by the most leading arbitration jurisdictions, the national courts of the seat have a supervisory jurisdiction to oversee the arbitration proceedings. Some extent of judicial oversight is considered necessary to ensure that the justice rendered through this private method of adjudication is in conformity with the fundamental principles of law of those nations with which it has a territorial connection. Therefore, the parties to arbitration proceedings must approach the national court of the jurisdiction where it wishes to have the arbitral award enforced and that court has the exclusive power to ensure that the arbitral award is not in contravention with the fundamental principles of law recognised by it and is also in conformity with its idiosyncratic public policies. The term “public policy” is dynamic in nature and is subject to varying interpretations, each depending on the field of law to which it is applied. It is diverse depending on the peculiarities of each jurisdiction. An early comment connoting the complexities of the term “public policy” can be traced back to the opinion of Burrough, J. when he went to warn the courts of law by saying it is a  “very unruly horse and once you get astride it you never know where it will carry you”.[1]

 

The connotation “public policy” in the context of setting aside of an arbitral award should not be confused with a review of the award on merits. It is a recognised principle of arbitration law that an arbitral award is final and binding on the parties and cannot be reviewed by the courts on merits at the setting aside or enforcement proceeding. Section 34(2) of the A&C Act contains seven grounds on which an arbitral award may be set aside and is divided into two parts. The grounds in Section 34(2)(a) are procedural in nature and precise. The grounds in Section 34(2)(b) are substantive and have been subject to judicial controversy over the years. Section 34(2)(b)(ii) of the A&C Act has laid down that a court may set aside an award if the award is in conflict with the public policy of India. The term “public policy” in Section 34(2)(b)(ii) is ambiguous and has been subject to varied interpretations. The present article will be divided into 6 parts each based on a particular phase and will carefully examine the evolution in jurisprudence with regard to the fluctuating boundaries of the term “public policy of India” in the context of an application made under Section 34(2) of the A&C Act.

 

I : From Renusagar to the Saw Pipes Eclipse

 

The decision of the Supreme Court in Renusagar Power Electric Co. Ltd. v. General Electric Co.[2] (Renusagar) was an early decision under the pre-1996 regime where the Supreme Court had the opportunity to expound the concept of public policy of India in the context of the enforcement of a foreign arbitral award. In Renusagar[3], the Court was confronted with elucidating the expression “public policy” embodied in Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 with respect to enforcement of an arbitral award passed by the International Chamber of Commerce. The appellant had raised a number of objections against the award that included a contention that the award is in blatant violation of the Foreign Exchange Regulation Act, 1973. At the time of opining on the invocation of the public policy ground, the Court observed that the said term could be subject to a narrow and a broad meaning. It went on to establish a dichotomy between the application of public policy to the domestic arena and the international arena. It is undoubted that this was the prevailing international standard at the time. The Court observed that the public policy of India should be narrowly construed in the context of private international law while keeping in mind the pro-enforcement bias that was envisaged by the 1958 New York Convention that abolished double exequatur. The Court adopted a narrow interpretation of the term “public policy” and held that a foreign arbitral award would not be refused enforcement only because it is in violation of an aspect of Indian public policy. Applying this criterion, it was held that a foreign award would be refused enforcement by the courts in India only on the ground of public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; (ii) the interest of India; and (iii) justice or morality. The dictum of the Supreme Court in Renusagar[4] was appraised internationally and it became a seminal authority on the rule that an arbitral award must not be reviewed on merits at the enforcement stage. It is in our opinion that this decision was exemplary, well balanced and judiciously nuanced rightly paying heed to the pro-arbitration bias that prevailed in international arena at the time.

 

After the enactment of the A&C Act in 1996, the Foreign Awards (Recognition and Enforcement) Act, 1961 stood repealed. The A&C Act served as a complete code for the practice of arbitration in India. Section 34 in Part I of the A&C Act made provisions of the enforcement of domestic arbitral awards whereas Section 48 in Part II of the A&C Act made provisions for the enforcement of foreign awards in India. The public policy ground to resist enforcement was retained in both Sections 34 and 48. The precedential value of Renusagar[5] was shadowed by uncertainty unless it were to obtain judicial endorsement under the new arbitration regime.

 

The Supreme Court was confronted with this challenge in the year 2003 in the infamous case of ONGC v. Saw Pipes Ltd.[6] (Saw Pipes), where it had to define the contours of public policy in Section 34(2)(b)(ii) of the A&C Act in the context of setting aside a domestic arbitral award. The decision in Saw Pipes[7] appeared to be in polar contrast with the decision in Renusagar[8]. The Court had to decide whether it had the jurisdiction under Section 34 of the A&C Act to set aside an award which was inter alia “patently illegal” or in contravention of the A&C Act or in other words whether the court could review the merits of the award. The Court propounding a meticulous ratio, undoubtedly flawed in many aspects answered this question in the affirmative. The Court held that an Arbitral Tribunal was a creation of the A&C Act and therefore if the Arbitral Tribunal violated the provisions of the A&C Act, it would warrant intervention by the Court. The Court employing the rule that every right should have remedy appears to have ignored the principle that parties to arbitration have the right to contract out of an appeal like recourse against the arbitral award. The Court appears to have forgone the sacrosanct principles of party autonomy and minimal judicial intervention while thwarting the mechanism employed in Section 34(2) that separates procedural from substantive irregularities. The Court conflated jurisdictional with procedural violations and wrongly held that every violation of the A&C Act by the Arbitral Tribunal would amount to a jurisdictional violation. The Court categorically opined that it could act as an appellate and revisional court in a proceeding under Section 34. Further to strengthen the precedential value of Saw Pipes[9], the Court added the ground “patent illegality” to those enumerated by the Court in the Renusagar[10]. It is our opinion that the decision of the Court in Saw Pipes[11] is extremely flawed and is against the true spirit of the 1958 New York Convention and 1985 UNCITRAL Model Law which can be discerned from its travaux préparatoires. Apart from opening the floodgates for proceedings under Section 34(2), another major issue that was brought about by the decision in Saw Pipes[12] was that the criterion adopted therein was to apply to Section 48 of the A&C Act with respect to foreign arbitral awards. It is needless to say that the exemplary approach adopted by the Supreme Court in Renusagar[13] was eclipsed by Saw Pipes[14]. The decision in Saw Pipes[15] received a considerable amount of criticism and therefore warranted attention by the legislature. It is pertinent to note that decision of the Supreme Court in Venture Global Engg. v. Satyam Computer Services Ltd.[16] (Venture Global) worsened the effect of Saw Pipes[17] as it went on to lay down that a foreign award may be challenged under Section 34 of the A&C Act. It is our opinion that that this decision suffered from many infirmities.

 

It is interesting to mention at this juncture, that in spite of the eclipse cast by Saw Pipes[18], there was a school of thought that was cognizant of its deficiencies and insinuated much-needed dissent. In a 2006 often cited judgment of the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd.[19] (McDermott International) the Court although following Saw Pipes[20] made succinct observations regarding the restrictive role of courts at the time of hearing applications for setting aside of arbitral awards under Section 34 of the A&C Act. Later in 2012, a similar observation was made in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran[21] (Rashtriya Ispat) in polar contrast to the dictum in Saw Pipes[22]. The Court in Rashtriya Ispat[23] laid down with regard to the interpretation of the substantive contract by an arbitrator, that if the view taken by the arbitrator is a possible one it cannot be capriciously subjected to judicial interference even if the contract is capable of two interpretations. It was hoped that these rulings would act as a hint and help the Supreme Court pre-empt more problematic jurisprudence.

 

II : Foreign Awards : The Transition from Phulchand Exports to Shri Lal Mahal

 

In Phulchand Exports Ltd. v. O.O.O. Patriot[24] (Phulchand Exports) the Supreme Court had to deliver an opinion on the scope of public policy in Section 48 of the A&C Act. The Court in a rather capricious manner departed from the commonly accepted norm that the public policy filter should be assessed narrowly with respect to foreign awards. Further in blatant ignorance to the comity of nations and the global pro-enforcement bias, it held that the criterion laid down in Saw Pipes[25] would be applicable to foreign awards. This decision was undoubtedly detrimental to the prospect of India becoming an arbitral-friendly jurisdiction as now Indian courts could set aside foreign awards on the unreasonably broad “patent illegality” test laid down in Saw Pipes[26] which was in fact propounded in the context of a domestic award. It is our opinion that this approach was gravely erroneous.

 

However, it was in 2012 where the Constitutional Bench of the Supreme Court made a corrective approach to the attitude of the judiciary when they were confronted with exercise of their supervisory jurisdiction with respect to foreign arbitrations. The Constitutional Bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.[27] (BALCO) after a rather extensive analysis on the prevailing jurisprudence at the time prospectively overruled the position laid down in Bhatia International v. Bulk Trading SA[28] (Bhatia International) and that held Part I of the A&C Act would not apply to international arbitrations unless otherwise agreed by the parties.

 

In the aftermath of the landmark decision of the Supreme Court in BALCO[29], the Court delivered another much-awaited judgment. In Shri Lal Mahal Ltd. v. Progetto Grano Spa[30] (Shri Lal Mahal) when Lodha, J. was confronted with the enforcement of an arbitral award passed in London, it appeared he was inclined to reconsider his own decision in Phulchand Exports[31] by holding that the public policy criterion in Section 48 would have to be construed in conformity with decision in Renusagar[32] and held that foreign arbitral awards cannot be denied enforcement on the “patent illegality” ground laid down in Saw Pipes[33]. The decision in Shri Lal Mahal[34] undoubtedly remedied the negative effect that Saw Pipes[35] had cast on the international arena, although the menace played by Saw Pipes[36] did not end here.

 

It is pertinent to note the decision of the Constitutional Bench in BALCO[37] had only prospectively overruled the decision in Bhatia International[38] which meant BALCO[39] would apply from the date of the decision and therefore the arbitration agreements entered into before 6-9-2012 would continue to be governed by Bhatia International[40]. This meant that Saw Pipes[41] and Venture Global[42] would continue to be the standard that would be applicable to the arbitral awards rendered in these arbitrations and that foreign awards could be challenged on the ground “patent illegality”. It is also evident that the decisions in Phulchand Exports[43] and Venture Global[44] are the negative repercussions of the perspective adopted by the Supreme Court in Saw Pipes[45] and Bhatia International[46]. Thus, there was considerable anguish in the arbitration fraternity at the time and a much-awaited intervention was desired from the legislature, that came only after the labyrinth was made more complex by two more controversial decisions of the Supreme Court.

 

III: Western Geco and Associate Builders

 

The three-Judge Bench in ONGC v. Western Geco International Ltd.[47] (Western Geco) offset the improvements that were made on the subhead “patent illegality” by laying down a comprehensive exposition of the subhead “fundamental policy of Indian law”. The Court was confronted with an application to set aside an arbitral award passed in an international commercial arbitration that had its seat in India. In Western Geco[48] the parties had entered into an agreement for upgradation of the appellant’s seismic survey vessel by installing hydrophones. The performance could not be completed as the respondent was not able to obtain a licence from the regulatory bodies of the US Government for the sale of hydrophones. Due to this the respondent invoked the force majeure clause, the Tribunal held that the respondent was not entitled to invoke the force majeure clause as the delay that occurred was not solely attributable to the failure of the authorities to furnish the licence. However, the Tribunal also held that the entire period of delay was not attributable to the respondent. The appellant aggrieved by this sought to challenge the award under Section 34 of the A&C Act. Naturally, the respondent contended that these findings of the Tribunal cannot be re-examined by the Court as it would entail a reassessment of the case on merits. At this juncture, it was hoped that the 3-Judge Bench would in the light of all the criticism be inclined to remove the eclipse cast by the decision in Saw Pipes[49] and bring back Renusagar[50]. However, the Court followed Saw Pipes[51] decided to go a step further. The Court noted that the decision in Saw Pipes[52] although laying down the branches of public policy including “fundamental policy of Indian law” did not define their scope. Therefore, it held that it was an appropriate time to exposit the boundaries of “fundamental policy of Indian law”. The Supreme Court laid down that there are three important principles that are fundamentally embedded in Indian law to comprise the “fundamental policy of Indian law”. These are the duty of the judicial forum to follow a judicial approach, to strictly follow the principles of natural justice and be reasonable enough when passing a judgment. It is pertinent to note that the Court’s judgment in Western Geco[53] has permitted an inquiry into the merits of an arbitral award as is evident from a bare reading of the relevant portion of the judgment:

 

(a) A Judicial Approach: “Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge.”[54]

(b) Principles of Natural Justice: “Besides the celebrated audi alteram partem rule one of the facets of the principles of natural justice is that the court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defect that is fatal to any adjudication.”[55]

(c) The Wednesbury Principle of Reasonableness: “a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury principle of reasonableness”.[56]

 

Thereafter, the Court found it appropriate to divide the delay into four components as against the method adopted by the Tribunal and thereby found that they are unable to agree with the decision of the Tribunal. The Court characterised this as an error resulting in the miscarriage of justice apart from the fact that it failed to appreciate and draw inferences that logically flow such proved facts. It is our opinion that this decision is flawed. Firstly, the Court has allowed an inquiry into the merits under the “fundamental policy of Indian law” violating the true essence of Renusagar[57]. Secondly, the Court has erred by failing to take cognizance of the fact that the test of public policy is to be applied to check whether the enforcement of the award would lead to a violation of public policy and not that arbitral award and the merits of the award. By employing this ratio and without realising its side effects, the Court has inextricably linked the public policy of India with the merits of an arbitral award. It is our opinion that the Court in Western Geco[58] has done exactly what its predecessors had pre-empted 20 years ago in Renusagar[59], where the Court refrained from reviewing the award for the grant of interest in arrears as a violation of the Foreign Exchange Regulation Act, 1973. In addition to this, in Renusagar[60] it was made clear that a court cannot set aside an award just because it disagrees with the reasoning of the arbitrator on law or facts. It is needless to say that court in Western Geco[61] has done the exact opposite and has disregarded the dictum of the judgment in Renusagar[62] in totality while contributing to the menace played by its decision in Saw Pipes[63]. Finally, it is pertinent to note that Court’s exposition of “fundamental policy of Indian law” has led to a duplication of the grounds already enumerated in Section 34(2)(a). The principles of natural justice is already a ground available in Section 34(2)(a)(iii), while following a judicial approach as explained in para 35 of Western Geco[64] would nonetheless entail following the principles of natural justice. Therefore, the procedural irregularities contemplated by Section 34(2)(a) are now also a part of Section 34(2)(b)(ii). This has left room for recalcitrant parties to play mischief by using a backdoor to challenge arbitral awards. It is in our opinion that this decision should have been the wake call for the legislature. However, it was not until another problematic decision, that the Law Commission of India pulled up the legislature.

 

The Division Bench of the Supreme Court comprising Nariman and Gogoi, JJ. in Associate Builders v. DDA[65] (Associate Builders) delivered soon after Western Geco[66] made some laudable observations in its dictum in spite of the precedential burden cast upon it by the decision of the three-Judge Bench in Western Geco[67] that followed and approved Saw Pipes[68]. The decision of the Court in Associate Builders[69] although compelled to follow the earlier judgments undoubtedly had a mitigating effect on the damaging ramifications of the earlier rulings. The Court appeared to be well intentioned and cognizant of the problems in the prevailing jurisprudence and decided to tackle them head on in spite of the doctrine of stare decisis. At first, the Court on a conjoint reading of Section 34 with Section 5 of the A&C Act categorically laid down that the merits of an arbitral award are assailable under Section 34 only when the award is in conflict with the public policy of India. The Court then went on to enumerate and lay down the contours of all the subheads of public policy while imposing some fetters in an attempt to remedy the nuisance created by Western Geco[70] and Saw Pipes[71].

 

At the time of defining the heads of “public policy of India”, the Court followed and elucidated Western Geco[72] and held that “fundamental policy of Indian law” would comprise (i) compliance with the statutes and judicial precedents; (ii) need for judicial approach; (iii) natural justice compliance; and (iv) Wednesbury reasonableness.[73] It is interesting to note here, that the Court found it appropriate to lay an emphasis on Wednesbury reasonableness as it observed with regard to it that where (i) a finding is based on no evidence; (ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; and (iii) ignores vital evidence in arriving at its decision, such a decision would necessarily be perverse.[74]

 

Moreover, it is also interesting to note that the Court in Associate Builders[75] endeavoured for the first time to lay down an exposition on the other two heads of “public policy of India” coined in Renusagar[76]. The Court with regard to the subhead “interest of India”, held that an award may be set aside if contrary to the interests of India and that this would entail it if concerns itself with India as a member of the world community in its relation with foreign powers.[77] The Court with respect to the subhead “justice or morality” held that an award can be said to be against justice when it shocks the conscience of the court.[78] Lastly, with regard to “patent illegality” the Court followed and elucidated Saw Pipes[79] in connoting that this would entail (i) contravention of substantive law of India; (ii) contravention of A&C Act, 1996; and (iii) contravention of the terms of the contract.[80]

 

It is evident that the Court has not been able to correct the erroneous duplication of procedural irregularities embodied in Section 34(2)(a) in the sub heads of public policy in India. Although, it has been held that the grounds mentioned in Section 34(2)(a) would strictly not entail a review on merits of the award, it is needless to say that this observation has been made redundant. The duplication of the procedural irregularities contemplated by Section 34(2)(a) are evident in the subheads of “fundamental policy of Indian law” and “patent illegality” as thus there is always a backdoor for parties to misuse the recourse in Section 34 by disguising procedural irregularities as violations of public policy of India and thus vandalising the ethos of the 1985 UNCITRAL Model Law.

 

At this juncture, it is important to observe the positive aspect of the judgment in Associate Builders[81] where in spite of being compelled to follow Western Geco[82] and Saw Pipes[83], the Court was successful in remedying some mischief. The method adopted by the Court to achieve this is worthy of appraisal, as it relied on the dictum of earlier judgments where the courts appeared conscious of their duty to exercise judicial restraint at the time of hearing an application under Section 34. The Court in Associate Builders[84] has tactfully relied on the dictum of McDermott International[85] and Rashtriya Ispat[86] to give primacy to the findings of the arbitrator with regard to interpretation of the contract in spite of having to concede to Saw Pipes[87] that the contravention of the terms of the contract would amount to “patent illegality”. The Court held that if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. It laid emphasis by stating that the construction of the terms of a contract is primarily for an arbitrator to decide and only if the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do, that it would warrant judicial interference.

 

The Court relying on three earlier judgments also laid down that when a court is applying the public policy test to an arbitral award it does not act as a court of appeal and consequently errors of fact cannot be corrected, clearly departing from the position adopted in Saw Pipes[88] and Western Geco[89]. It was also noted that a possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Moreover, it supplemented this ratio by stating that an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score, provided that it is found that the arbitrator’s approach is not arbitrary or capricious.[90] The judgment in Associate Builders[91] can most definitely be considered as a remarkable one which marked an inception of a more pro-arbitration approach with regard to upholding arbitral awards, in spite of the precedential burden that was cast upon Nariman and Gogoi, JJ.

 

IV : The Law Commission of India admonishes the Legislature : The 2015 Amendment

 

The Law Commission of India published a comprehensive report known as the 246th Law Commission Report in August 2014 suggesting amendments to Section 34 of the A&C Act, heavily criticising judgment in Saw Pipes[92]. The Law Commission also made observations on all the landmark decisions of the Supreme Court in the arbitration domain such as Shri Lal Mahal[93], BALCO[94], Bhatia International[95], etc. while suggesting a reinstatement of Renusagar[96].

 

It is interesting to note that even after the scathing observations that were made in the Law Commission Report with regard to the broad scope of public policy, the 3-Judge Bench of the Supreme Court delivered the judgment in Western Geco[97] in September 2014 only a month after the publication of the Report. It is needless to say that the judgment in Western Geco[98] did exactly what the Law Commission warned the judiciary to refrain from doing. Subsequently, 2 months after this in November 2014 came the decision in Associate Builders[99] reinforcing the broad scope of public policy. In the aftermath of these two controversial decisions that were in blatant disobedience of the 246th Law Commission Report, the Law Commission was too quick to re-join by publishing a strongly worded supplement to the 246th Law Commission Report on 6-2-2015 titled as “Public Policy” – Developments Post Report No. 246. This supplement heavily criticised the judgments in Western Geco[100] and Associate Builders[101] and strongly urged to legislature to implement the amendments recommended by the Law Commission. It is interesting to see the exasperation and anguish expressed by the Law Commission by reproducing a small extract from the supplement where it stated at para 6 “the Supreme Court’s judgment in Western Geco[102] undermines the Commission’s attempts to bring the Act in line with international practices and will discourage the possibility of international arbitration coming to, and domestic arbitration staying in India”[103].

 

Thereafter, the legislature passed the 2015 amendment of the A&C Act incorporating the recommendations made by the Law Commission. The amendments that were made to Section 34(2)(b)(ii) of the A&C Act include two Explanations and an additional ground by insertion of Section 34(2-A). The amendments are reproduced below for better analysis:

 

Explanation 1.– For avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,–

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.– For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(2-A) An arbitral award arising out of arbitration other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

 

On a bare perusal of the amendments made to Section 34(2)(b)(ii) it is evident that the legislature has enumerated in Explanation 1 what constitutes a violation of public policy of India while endorsing statutory recognition to the subheads enumerated in Renusagar[104]. The legislature has then in Explanation 2 categorically laid down that a contravention of “fundamental policy of Indian law” shall not entail a review on merits, thereby statutorily superseding the Western Geco[105] and Associate Builders[106]. Moving on to the newly inserted Section 34(2-A) it is clear that the legislature has also statutorily endorsed the mischievous ground of “patent illegality” laid down in Saw Pipes[107]. However, in an attempt to prevent its misuse it has added a proviso disallowing any reappreciation of evidence thereby statutorily superseding Saw Pipes[108] while appearing to converge with the positive aspect of ratio laid down in Associate Builders[109]. The proviso has also protected the fate of awards passed in international commercial arbitrations from being challenged on the ground of “patent illegality” clearly adopting the Court’s opinion in Shri Lal Mahal[110]. It is our opinion, that the 2015 amendment of the A&C Act was long overdue and has correctly imposed fetters on the power of the courts when they are confronted with an application for setting aside of an arbitral award.

 

V : The Post-Amendment Renaissance

 

The 2015 amendment of the A&C Act had a drastic impact on the jurisprudence and the arbitration fraternity witnessed the conscious effort that was being made by the judiciary to correct their approach when they were confronted with Section 34 applications. A few exemplary judgments are briefly discussed in this part.

 

In November 2017, the Supreme Court in Venture Global Engg. LLC v. Tech Mahindra Ltd.[111] observed that an award can be set aside only on the grounds specified in Section 34 and no other grounds. It was further held that the Court is barred from acting as an appellate forum to examine the legality of the arbitral award and is strictly barred from reassessing facts.

 

Soon after this, in Sutlej Construction Ltd. v. State (UT of Chandigarh)[112] it was held that when the arbitrator has taken a plausible and reasonable view, the Court cannot capriciously substitute the view of the arbitrator with its own just because it has a different view or opinion. It was further laid down that setting aside of an arbitral award on the ground of public policy would be limited to a rare situation where the award shocks the conscience of the court and this would not include what the court thinks would be unjust on the facts of the case. It is evident that the Court has followed the legislative mandate and has employed the positive aspect of the ratio in Associate Builders[113].

 

More recently, in Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd.[114] the Court relying on Associate Builders[115], McDermott International[116] and Rashtriya Ispat[117] has held that if an arbitrator construes a term of the contract in a reasonable manner it will not mean that the award can be set aside on that ground as the construction of the terms of a contract is primarily for the arbitrator. Moreover, it went on to reiterate that when a court is applying the public policy test to an arbitration award it does not act as a court of appeal and therefore the errors on facts cannot be corrected. It is evident that the Saw Pipes[118] and Western Geco[119] regime was abandoned.

 

Lastly, with regard to applicability of the 2015 amendment, it has been held in the landmark decision of the Supreme Court in BCCI v. Kochi Cricket (P) Ltd.[120] (Kochi Cricket) that the 2015 amendment will apply prospectively both to arbitral and court proceedings which have commenced on or after the 2015 Amendment Act came into force unless otherwise agreed by the parties.

 

VI : Ssangyong Engg. and Construction Co. Ltd. v. National Highways Authority of India : The End of Western Geco and Restoration of Renusagar

 

In a recent landmark judgment of the Supreme Court in Ssangyong Engg. and Construction Co. Ltd. v. National Highways Authority of India[121] (Ssangyong Engg.), the Division Bench comprising Nariman and Saran, JJ. made extensive observations on the position after the 2015 amendment of the A&C Act and clarified its interplay with the judgments in Western Geco[122], Associate Builders[123] and Renusagar[124]. The Court held that the broad interpretation of “fundamental policy of Indian law” as propounded in Western Geco[125] and followed in Associate Builders[126] would be improper in the light of the 2015 amendment of the A&C Act. The Court relied on the 246th Law Commission Report and its supplementary and further laid down that the interpretation of the subhead “fundamental policy of Indian law” would now be in line with Renusagar[127]. Further it laid emphasis that this subhead would now entail (i) the contravention of a law protecting national interest; (ii) disregarding the orders of superior courts; and  (iii) the principles of natural justice. Thus, it is evident that the Court has done away with the ground of non-adoption of a judicial approach correctly pre-empting that this would force an entry into the merits of the award which is clearly prohibited by the legislative intervention.

 

The Court then went to make observations with regard to the other species of public policy of India, wherein it held that the head “interest of India” would no longer warrant place in our jurisprudence. However, Nariman, J. found it appropriate to preserve the head “justice or morality” by stating that this head would now have to be construed as a conflict with the “most basic notions of morality or justice” in line with his earlier opinion in Associate Builders[128]. Thus only those arbitral awards that shock the conscience of the Court could attract this ground.

 

The Court then recalibrated the subhead “patent illegality” in the light of its statutory recognition by the insertion of Section 34(2-A) by laying down that there must be “patent illegality” appearing on the face of the award which must mean that such an illegality goes to the root of the matter but excluding an erroneous application of law by the Tribunal or reappreciation of evidence as an appellate court. The Court enumerated the circumstances that would attract a “patent illegality” appearing on the face of the award by conclusively laying down that this ground may be invoked if (i) the arbitrator fails to give reasons in the award in violation of Section 31(3) of the A&C Act; (ii) the arbitrator has taken an impossible view in construing the contract; (iii) the arbitrator transgresses his jurisdiction, and lastly in complete consensus with Associate Builders[129]; and (iv) if the arbitrator has made a perverse finding based on no evidence, overlooking vital evidence or based on documents taken up as evidence without giving proper notice to the parties. The Court also affirmed the findings in Kochi Cricket[130] with regard to the prospective applicability of the 2015 amendment of the A&C Act.

 

It is in our opinion that the judgment in Ssangyong Engg.[131] has definitely been long awaited and the Court has correctly given effect to the intention of the legislature and the Law Commission of India by rectifying the shortcomings in its earlier decisions thus removing the eclipse that was cast by Saw Pipes[132] by reinstating Renusagar[133].

 

In a recent judgment of May 2020 in Patel Engg. Ltd. v. North Eastern Electric Power Corpn. Ltd.[134] (Patel Engg.) the 3-Judge Bench of the Supreme Court has held with regard to the newly inserted Section 34(2-A) affirmed the position laid down in Associate Builders[135] followed in Ssangyong Engg.[136] The Court in Patel Engg.[137] has also affirmed the judgment in Kochi Cricket[138].

 

Conclusion

 

After a concentrated examination of the expansion and contraction of the term “public policy of India” embodied in Section 34(2)(b)(ii) of the A&C Act beginning from the 1994 judgment in Renusagar[139] to the 2019 judgment in Ssangyong Engg.[140], it is apparent that there has been a long-drawn battle between the Supreme Court of India and the “unruly horse” that has lasted more than two decades and which still continues to persist. The Supreme Court has time again had sand thrown into its eyes when it had to construe the term “public policy of India” and has often deviated from giving effect to the essence of the 1958 New York Convention. The Court has diluted the rationales of the pro-enforcement bias and minimum judicial intervention both which are incorporated in the A&C Act.

 

In spite of the far-reaching effects of the judgments in McDermott International[141], Shri Lal Mahal[142], Associate Builders[143] and Ssangyong Engg.[144] there still appears to be room for mischief that could be detrimental to the arbitration landscape in India. It is in our opinion that there is need for a complete overruling of Saw Pipes[145] as its interplay with the other existing and future judgments could be problematic. In addition to this, it is evident that in spite of the efforts made to correct the semantics there still appears to be a duplication of procedural irregularities in the subheads of public policy of India.

 

It is also interesting to note that the term “public policy of India” has shadowed the subject-matter arbitrability of disputes in India for decades until the Supreme Court articulated the rights test in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.[146] and more recently by articulating the fourfold test in Vidya Drolia v. Durga Trading Corpn.[147] The Indian courts have also erred by applying the domestic notions of public policy to foreign awards, although the courts have taken cognizance of this error it is in our opinion that this transgression is likely to occur again. In this context, I would like to give credit by citing the remarkable writings of Professor Pierre Lalive where he attempts to demonstrate that there exists a concept of a “truly” international or transnational public policy in the field of international commercial arbitration.[148] Professor Lalive in his writings stresses on the need to recognise the dichotomy between the two types of public policy when he attempts to explain the underlying objective of Article V of the 1958 New York Convention[149]. Professor Lalive says that this automatic assimilation or the confusion between those two kinds of “public policy” is particularly dangerous.[150] He lays emphasis by stressing on the importance of distinguishing domestic arbitration from the specificity of international arbitration by correctly improvising and applying to international arbitration those mandatory rules enacted and conceived for domestic arbitration.[151] It is our opinion that Supreme Court had correctly followed this approach in Renusagar[152] and then later was swayed by the “unruly horse”. Although, Nariman, J. in Ssangyong Engg.[153] has restored Renusagar[154], it is our opinion that there is a need for a more authoritative ruling by the Supreme Court that strictly imposes fetters on the powers of the judiciary thereby preventing it from reading deeper into the term “public policy of India” and thus emerging triumphant in its battle with the “unruly horse”.

 


† Hiroo Advani, Senior Managing Partner at Advani & Co.

†† Manav Nagpal, Associate at Advani & Co.

 

[1] Richardson v. Mellish, (1824) 2 Bing 229, 242 : 130 ER 294.

[2] 1994 Supp (1) SCC 644.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] (2003) 5 SCC 705.

[7] Ibid.

[8] 1994 Supp (1) SCC 644.

[9] (2003) 5 SCC 705.

[10] 1994 Supp (1) SCC 644.

[11] (2003) 5 SCC 705.

[12] Ibid.

[13] 1994 Supp (1) SCC 644.

[14] (2003) 5 SCC 705.

[15] Ibid.

[16] (2008) 4 SCC 190.

[17] (2003) 5 SCC 705.

[18] Ibid.

[19] (2006) 11 SCC 181.

[20] (2003) 5 SCC 705.

[21] (2012) 5 SCC 306.

[22] (2003) 5 SCC 705.

[23] (2012) 5 SCC 306.

[24] (2011) 10 SCC 300.

[25] (2003) 5 SCC 705.

[26] Ibid.

[27] (2012) 9 SCC 552.

[28] (2002) 4 SCC 105.

[29] (2012) 9 SCC 552.

[30] (2014) 2 SCC 433.

[31] (2011) 10 SCC 300.

[32] 1994 Supp (1) SCC 644.

[33] (2003) 5 SCC 705.

[34] (2014) 2 SCC 433.

[35] (2003) 5 SCC 705.

[36] Ibid.

[37] (2012) 9 SCC 552.

[38] (2002) 4 SCC 105.

[39] (2012) 9 SCC 552.

[40] (2002) 4 SCC 105.

[41] (2003) 5 SCC 705.

[42] (2008) 4 SCC 190.

[43] (2011) 10 SCC 300.

[44] (2008) 4 SCC 190.

[45] (2003) 5 SCC 705.

[46] (2002) 4 SCC 105.

[47] (2014) 9 SCC 263.

[48] Ibid.

[49] (2003) 5 SCC 705.

[50] 1994 Supp (1) SCC 644.

[51] (2003) 5 SCC 705.

[52] Ibid.

[53] (2014) 9 SCC 263.

[54] Id.,para 35.

[55] Id., para 38.

[56] Id., para 39.

[57] 1994 Supp (1) SCC 644.

[58] (2014) 9 SCC 263.

[59] 1994 Supp (1) SCC 644.

[60] Ibid.

[61] (2014) 9 SCC 263.

[62] 1994 Supp (1) SCC 644.

[63] (2003) 5 SCC 705.

[64] (2014) 9 SCC 263.

[65] (2015) 3 SCC 49.

[66] (2014) 9 SCC 263.

[67] Ibid.

[68] (2003) 5 SCC 705.

[69] (2015) 3 SCC 49.

[70] (2014) 9 SCC 263.

[71] (2003) 5 SCC 705.

[72] (2014) 9 SCC 263.

[73] Associate Builders, (2015) 3 SCC 49, paras 27-30.

[74] Id., para 31.

[75] (2015) 3 SCC 49.

[76] 1994 Supp (1) SCC 644.

[77] Associate Builders, (2015) 3 SCC 49, para 35.

[78] Id., paras 36 to 39.

[79] (2003) 5 SCC 705.

[80] Associate Builders, (2015) 3 SCC 49, para 42.

[81] (2015) 3 SCC 49.

[82] (2014) 9 SCC 263.

[83] (2003) 5 SCC 705.

[84] (2015) 3 SCC 49.

[85] (2006) 11 SCC 181.

[86] (2012) 5 SCC 306.

[87] (2003) 5 SCC 705.

[88] Ibid.

[89] (2014) 9 SCC 263.

[90] Associate Builders, (2015) 3 SCC 49, paras 32 to 34.

[91] (2015) 3 SCC 49.

[92] (2003) 5 SCC 705.

[93] (2014) 2 SCC 433.

[94] (2012) 9 SCC 552.

[95] (2002) 4 SCC 105.

[96] 1994 Supp (1) SCC 644.

[97] (2014) 9 SCC 263.

[98] Ibid.

[99] (2015) 3 SCC 49.

[100] (2014) 9 SCC 263.

[101] (2015) 3 SCC 49.

[102] (2014) 9 SCC 263.

[103] Supplementary to Report No. 246 on Amendments to the Arbitration and Conciliation Act, 1996 at para 6.

[104] 1994 Supp (1) SCC 644.

[105] (2014) 9 SCC 263.

[106] (2015) 3 SCC 49.

[107] (2003) 5 SCC 705.

[108] Ibid.

[109] (2015) 3 SCC 49.

[110] (2014) 2 SCC 433.

[111] (2018) 1 SCC 656.

[112] (2018) 1 SCC 718.

[113] (2015) 3 SCC 49.

[114] (2019) 7 SCC 236.

[115] (2015) 3 SCC 49.

[116] (2006) 11 SCC 181.

[117] (2012) 5 SCC 306.

[118] (2003) 5 SCC 705.

[119] (2014) 9 SCC 263.

[120] (2018) 6 SCC 287.

[121] (2019) 15 SCC 131.

[122] (2014) 9 SCC 263.

[123] (2015) 3 SCC 49.

[124] 1994 Supp (1) SCC 644.

[125] (2014) 9 SCC 263.

[126] (2015) 3 SCC 49.

[127] 1994 Supp (1) SCC 644.

[128] (2015) 3 SCC 49.

[129] Ibid.

[130] (2018) 6 SCC 287.

[131] (2019) 15 SCC 131.

[132] (2003) 5 SCC 705.

[133] 1994 Supp (1) SCC 644.

[134] (2020) 7 SCC 167.

[135] (2015) 3 SCC 49.

[136] (2019) 15 SCC 131.

[137] (2020) 7 SCC 167.

[138] (2018) 6 SCC 287.

[139] 1994 Supp (1) SCC 644.

[140] (2019) 15 SCC 131.

[141] (2006) 11 SCC 181.

[142] (2014) 2 SCC 433.

[143] (2015) 3 SCC 49.

[144] (2019) 15 SCC 131.

[145] (2003) 5 SCC 705.

[146] (2011) 5 SCC 532.

[147] (2021) 2 SCC 1.

[148] Pierre Lalive, “Transnational (or Truly International) Public Policy and International Arbitration” in Pieter Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration (ICCA Congress Series, vol. 3, Kluwer Law International 1987).

[149] Id., para 9.

[150] Id., para 9.

[151] Id., para 9.

[152] 1994 Supp (1) SCC 644.

[153] (2019) 15 SCC 131.

[154] 1994 Supp (1) SCC 644.

Op EdsOP. ED.

I. Introduction

The imposition of retrospective taxation by the Government of India in 2012[1] triggered at least three major Bilateral Investment Treaty (BIT) arbitration proceedings – Vodafone International Holdings BV v. The Republic of India[2] (Vodafone); Cairn Energy Plc and Cairn UK Holdings Ltd v. The Republic of India[3] (Cairn) and Vedanta Resources Plc v. The Republic of India[4] (Vedanta). Two of these proceedings, Vodafone[5] and Cairn[6] have concluded, with the Permanent Court of Arbitration, ruling in favour of the investor companies stating that the Indian Government’s retrospective tax demand was in breach of the guarantee of fair and equitable treatment under the BITs. The award in Vodafone[7] has been challenged by India at the Singapore High Court[8] and that in Cairn[9] is also set to be challenged, if latest reports are to be believed to be true.[10]

Prior to the communiqué from the Government, Cairn Energy wrote to the Indian Government seeking enforcement of the award, stating that since India is a signatory to the New York Convention, the award can be enforced in other countries as well. The letter warned that the company shall endeavour to get Indian assets situated abroad attached in the event of non-enforcement,[11] a practice being heavily resorted to these days for recovery.[12] Most recently, the company has moved courts in the United States, United Kingdom, the Netherlands, Canada, UAE, Singapore, Japan and Cayman Islands seeking enforcement of the award.[13]

Even as India has decided to challenge the award in Cairn[14], Cairn Energy’s letter and subsequent legal action provoke some obvious, yet very compelling inquiries – is attachment of Indian assets in foreign countries the only way to enforce the arbitral award passed by the Arbitral Tribunal? What, if any, is the usual legal recourse that would be available with Cairn Energy to enforce the arbitral award in India? It is in the backdrop of these imperative inquiries that this present study attempts to analyse how and if BIT arbitral awards are enforceable in India. It also studies whether the current position vis-à-vis enforcement is also the correct position, and what other alternatives exist.

II. Enforcing investment arbitral awards in India: A Herculean task

In India, the enforcement of arbitral awards determined by international commercial arbitration proceedings is fairly simple although, elaborate. Governed by the Arbitration and Conciliation Act, 1996[15] (the Act of 1996), the jurisprudence surrounding enforcement of international commercial arbitration awards has greatly evolved and is well developed. Per contra, enforcement of arbitral awards passed in BIT arbitrations is neither simple, nor is the jurisprudence around it properly formulated.

India is not a signatory nation to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965[16] (the ICSID Convention). As a result, inter alia, there is no obligation upon India to enforce BIT awards under ICSID. Not just this, India has also opted for reservation provided in Article I(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention) by virtue of which, only such New York Convention awards will be enforceable in India that arise out of differences that are considered “commercial” under the Indian law.[17] The biggest impediment to enforcement of BIT arbitral awards, however, is posed by the conflicting decisions passed by the High Courts at Calcutta and Delhi,[18] on the applicability of the Act of 1996, thereto. While the former Court held the Act of 1996 to be applicable, the latter held to the contrary. Such inconsistency in judicial positions resulted in grave uncertainty on the enforceability of BIT arbitral awards in India, which necessarily warrants assessment.

a)  India is not a party to the ICSID Convention

Crucially, the ICSID Convention grants finality to the award passed under the Convention and prohibits any appeal before national courts.[19] It also provides that the enforcing States must treat arbitral awards passed thereunder as decisions passed by national courts and ensure enforcement of pecuniary obligations imposed by the award.[20] Since India is not a signatory to the Convention these obligations do not concern, let alone bind India.

The ICSID Additional Facility Rules (the Additional Facility Rules), however, are relevant to the present discussion. The ICSID Additional Facility Rules were created on 27-9-1978 to offer arbitration, conciliation and fact-finding services in situations wherein, inter alia, one of the parties to the BIT is not a signatory to the ICSID Convention or is a national of a contracting State.[21] Several BITs signed by India provide for arbitration under these Rules. Notably, the primary subject that these Rules deal with is the administration of arbitration proceedings, and very little is offered in terms of enforcement of BIT arbitral awards, making it susceptible to the whims of the enforcing State.

In order to address the likely consequences of the aforesaid regime, the Additional Facility Rules provide that arbitrations thereunder shall be conducted only in New York Convention States.[22] It can be inferred that such a provision was inserted to guarantee enforcement of awards as per the New York Convention. While this provision might mitigate an impediment to enforcement in several States that are parties to the New York Convention, the same may not be true for India, since India has availed the reservation provided for under Article I(3) of the New York Convention.

b) Effect of reservation under Article I(3) of the New York Convention

As per Article I(3), inter alia, any State signing, ratifying or acceding to the New York Convention may restrict its applicability to awards passed in disputes arising out of only such relationships that are considered to be “commercial” under the domestic law of the enforcing State. India has availed the reservation provided for under Article I(3) of the New York Convention.[23] Accordingly, even if the inference that an award passed under Additional Facility Rules must be enforced in accordance with the New York Convention is relied upon, enforcement cannot be guaranteed unless arbitral awards passed under a BIT can be said to have arisen out of differences that are considered as “commercial” under the Indian law.

At this point, accordingly, it is befitting to explore the contours of the term “commercial” under the Indian law.

III. Whether a BIT award can be said to arise out of a “commercial relationship” or not? An analysis

In order to ascertain the above, the authors rely upon UNCITRAL Model Law on International Commercial Arbitration, 1985[24] (the UNCITRAL Model Law), the Model Text for the Indian BIT (the Model BIT) and judgments of the Supreme Court of India.

a) “Commercial” under the UNCITRAL Model Law

The second footnote to Article I of the UNCITRAL Model Law provides that the term “commercial” must be given a wide interpretation in order to ensure that all matters of a commercial nature are covered in its ambit, whether contractual or otherwise. It further lays down a non-exhaustive list of transactions that fall under the meaning of the term “commercial”. It is imperative to note that the subjects enlisted in the footnote include “investment” as well.[25]

The Act of 1996 is based upon the UNCITRAL Model Law, as stated in the Preamble to the Act[26]. The Supreme Court of India has also held on several occasions that the Act of 1996 must be interpreted in accordance with the UNCITRAL Model Law.[27] Pursuant to the Supreme Court decisions and the statutory recognition of the UNCITRAL Model Law as the source of the Act of 1996, the term “commercial” must be interpreted as inclusive of “investment”.

b) “Commercial” under Model BIT issued by the Department of Economic Affairs (DEA), Ministry of Finance, Government of India

Before studying the relevant provision of the Model BIT, it is essential to understand what BITs are and the purpose they serve. BITs are instruments signed by two countries that establish the terms and conditions pursuant to which nationals and companies from the countries invest in one another, such investments are popularly known as Foreign Direct Investments (FDIs). FDIs are intended to spur growth and development in the states involved. BITs lay down the rights and obligations of the parties and thereby guarantee smooth flow of such investments. At the same time, they also guarantee the rights of and offer protection to the investing nationals and companies. In essence, therefore, BITs balance the interests of the host States with those of the investors.

Given that the ultimate goal served by a BIT is using trade and commerce to advance economic growth in countries and ensuring unhindered returns to the investors, it is argued that investments under BITs are inherently arising out of commercial relationships. The view was also echoed in a speech delivered by the Chief Justice of Singapore on International Arbitration, Mr Sundaresh Menon who said,

“Investment treaties were designed to encourage foreign direct investment by providing an additional safeguard of a foreign investor’s commercial interests and protecting this from being adversely affected by Government action in the host State.”[28]

(emphasis supplied)

Legally speaking, however, the Government of India had no clear policy as to whether “investments” under BITs were to be deemed as “commercial transactions” under the Indian Law or not until 2016. It was only when the DEA, while issuing Model BIT in 2016 put the conundrum to rest once and for all. Article 27.5 was introduced in the Model BIT, which provides[29],

27.5. Finality and enforcement of awards.—A claim that is submitted to arbitration under this article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention.                                                                                                                              (emphasis supplied)

Article 27.5 left no room for doubt as to the interpretation of the term “commercial” vis-à-vis enforcement of BIT arbitral awards. As per the article, claims submitted to arbitration under the Model BIT would be treated as commercial “for the purposes of Article I of the New York Convention”. This implies that awards (including awards passed in arbitrations under the Additional Facility Rules) that must be enforced as per the New York Convention are to be treated as arising out of commercial relationship under the Indian law.

As a note of caution, it is found germane to state that the Model BIT must be employed to ascertain the contours of the term “commercial” not merely for the purposes of BITs entered into after 2016, but also to those entered into before 2016. In our view, any interpretation to the contrary would be erroneous and legally untenable, as the nature and purpose of BITs as well the general understanding of the term “commercial” have remained the same over the years, notwithstanding the deeming clause.

c) “Commercial” as per the decisions of the Supreme Court

As mentioned hereinabove, Indian courts have always argued in favour of attributing a “wide import” to the term “commercial” under the Act of 1996[30]. It has also been held in a gamut of decisions that the Act of 1996 must be interpreted as per the UNCITRAL Model Law[31].

Yet another of the Supreme Court’s observations in R.M. Investments and Trading Co. (P) Ltd. v. Boeing Co. (R.M. Investments) merit attention at this point. In the said decision, while examining the ambit of the term “commercial” in relation to the Act of 1996, the Supreme Court held that:

  1. The expression “commercial” should, therefore, be construed broadly having regard to the manifold activities which are integral part of international trade today.[32]

In arriving at the aforesaid conclusion, the Court relied upon its decisions in Renusagar Power Co. Ltd. v. General Electric Co.[33] (Renusagar) and Koch Navigation Inc. v. Hindustan Petroleum Corpn. Ltd.[34] (Koch Navigation). In Koch Navigation, the Court held:

  1. Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and any expression or phrase occurring therein should receive, consistent with its literal and grammatical sense, a liberal construction.

The abovementioned judgments of the Supreme Court of India make it clear that all such activities that are intended to facilitate international trade and promotion thereof fall within the ambit of the term “commercial” within the meaning of the Act of 1996. It is further clarified that the term must be given a vast, liberal interpretation so as to include the many activities that make part of international trade today. The purpose of any BIT, as elucidated above, is indeed the promotion of international trade and development in the countries that are parties thereto. BITs are entered into so that investments can be made internationally by natural or juridical persons from one country into another, and as such, investment made pursuant to a BIT is squarely covered within the ambit of a commercial relationship and any disputes or differences arising therefrom are liable to be considered as arising out of a “commercial relationship”.

IV. Conflicting decisions of two Indian High Courts on the applicability of the Act of 1996 to investment arbitral awards

Notwithstanding the UNCITRAL Model Law, Article 27.5 of the Model BIT and the decisions of the Supreme Court in R.M. Investments[35], Renusagar[36] and Koch Navigation[37], two decisions of the Delhi High Court, Union of India v. Khaitan Holdings (Mauritius) Ltd.[38] and Union of India v. Vodafone Group Plc[39] have held that arbitral awards under a BIT fall outside the ambit of differences whch are considered as commercial under the Indian law, consequently holding the Act of 1996 as inapplicable to enforcement of BIT arbitral awards. The decisions are also contrary to the 2014 Calcutta High Court judgment in Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS[40], wherein the Court assumed that the Act of 1996 is applicable to BIT arbitral awards and proceeded with such assumption.

Following is a discussion on these judgments.

a) Board of Trustees of the Port of Kolkata Louis Dreyfus Armatures[41] (Louis Dreyfus)

In Louis Dreyfus, a request for an anti-arbitration injunction was made by Kolkata Port Trust under Section 45 of the Act of 1996[42]. The Court allowed the said application. However, it is to be noted that Section 45 deals with the power of a judicial authority to refer parties to arbitration in matters of international commercial arbitration. The Court assumed that the section, as also the Act of 1996 would apply to BIT arbitral awards as they would to awards passed in commercial arbitrations.

b) Union of India v. Vodafone Group Plc[43] (Vodafone suit)

In this case, even as arbitration was pending before the Permanent Court of Arbitration under the India-Netherlands BIT between India and Vodafone, its parent company Vodafone Plc initiated arbitration under the India-UK BIT. Consequently, India filed a civil suit before the Delhi High Court inter alia seeking a stay on arbitration under the India-UK BIT, arguing that the proceedings amounted to an abuse of due process, and were null and void. The Court, by way of an order dated 22-8-2017 granted a temporary injunction in favour of India on the basis of preliminary findings.

The final judgment and order in the Vodafone suit was passed on 7-5-2018. In essence, the Court held that it was not devoid of jurisdiction in matters concerning investment treaty arbitrations under compelling circumstances wherein no alternative efficacious remedy was available. It further held that an arbitration agreement between an investor and a State did not by itself constitute a treaty, but only a contract upon which the Court had the power to adjudicate. In so doing, however, the Court also acknowledged the role of international law and held that interests of investors are better served if the arbitration agreement is governed thereunder, as opposed to State law. The Court vacated the interim injunction it had granted on 22-8-2017 and permitted arbitration under the India-UK BIT.

Peculiar and worrying questions of law flow from the Court’s collective adjudication of the issues related to the jurisdiction of domestic courts in dealing with BIT arbitrations, and the applicability of private international law or other domestic law to BIT arbitrations and suits related thereto. The Court rejected Vodafone’s contention that national courts did not possess the requisite jurisdiction or should refrain from exercising its jurisdiction with respect to Bilateral Investment Protection Agreements (BIPA) on the premise that if the contention were true, such courts would also be powerless in enforcing BIT awards. In a nutshell, then, the Court upheld its jurisdiction to interfere with BIT arbitrations.

However, in a few paragraphs thereafter, the Court also went on to hold that albeit BITs give rise to arbitration agreements between investors and host States, they did not qualify as domestic or international commercial arbitration, thereby declaring that the Act of 1996 is not applicable to BIT arbitrations. It held that BIT arbitration disputes are fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances and so, are not commercial in nature.

In addition to the above, the very premise of rejecting the applicability of the Act of 1996 to BIT arbitral awards, that such awards are not a result of a commercial relationship between the investor and the host State, does not seem to be founded on a sound legal basis. It is noteworthy that none of the parties to the suit addressed any arguments with respect to the proposition that BIT arbitrations are not commercial arbitrations. The New York Convention and India’s reservation thereto make it abundantly clear that an award which arises out of a commercial relationship is liable to be enforced under the said Convention read with Section 45 of the Act of 1996[44]. What is commercial is to be determined in accordance with the domestic law of India.

The High Court, without taking into consideration the existing precedent which defines “commercial” has arrived at the erroneous conclusion that BIT awards are fundamentally different from commercial disputes. Furthermore, even apart from the precedent, the High Court could have considered the definition of the term “commercial” under the UNCITRAL Model Law[45] as the guiding principle to determine whether BIT awards fall within the definition of the term “commercial” or not. The Court also erred in not appreciating the fact that the recent series of BITs concluded by India, under Article 27.5 provide that “a claim that is submitted to arbitration under this Article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention”. Therefore, the Delhi High Court has grossly erred in arriving at the conclusion that BIT awards and their enforcement would not be covered under the Act of 1996.

c) Union of India v. Khaitan Holdings[46] (Khaitan Holdings)

In Khaitan Holdings, the Delhi High Court refused to grant an anti-arbitration injunction in favour of the Union of India, reiterating its position in Vodafone suit[47] that intervention of courts in arbitrations under BITs was warranted only in compelling and rare circumstances. Whereas the non-interventionist approach of the court is welcomed, the Court also held that BITs make for a separate “species” of arbitration which is not covered under the ambit of the Act of 1996. This decision in Khaitan Holdings[48], like in Vodafone suit[49], sets a problematic precedent. The ouster of BIT arbitration from the umbrella of the Act of 1996 leaves it with virtually no regime to enforce awards passed thereunder.

V. Conclusion

It is conclusively established from the discussion above that the two decisions of the Delhi High Court in Khaitan Holdings[50] and Vodafone suit[51] have rendered the enforcement of BIT arbitral awards in India virtually impossible, especially if the awards are adverse to India. A Pandora’s box is opened by the said decisions, passed without considering the judgments of the  Supreme Court in R.M. Investments[52], Renusagar[53] and Koch Navigation[54], a bare reading whereof would make it clear that investments under a BIT and disputes arising therefrom fall within the contours of the term “commercial relationship” under the Act of 1996.

Furthermore, in both the decisions[55], the High Court has also failed to consider the Model BIT prepared by India, Article 27.5 of which makes it abundantly clear that claims arising out of the BIT shall be considered as arising out of a commercial relationship. The term “commercial” as understood under the UNCITRAL Model Law has not been given any weightage either. Devoid of these considerations, the decisions are founded on a purely academic difference identified by the High Court between commercial and BIT arbitrations, ignorant of the practical and statutorily-identified likeness between the two.

In any case, the option to close the Pandora’s box continues to rest with the Delhi High Court itself, considering that the decision in Khaitan Holdings[56] is an interim one. In arriving at any final conclusion pursuant to the enforcement of BIT arbitral awards, the Court must take into account established precedent, the Model BIT as well as the UNCITRAL Model Law, thereby setting the position straight. Such course correction is the dire need of the hour in light of the increasing number of BIT arbitrations, since there is no set regime for enforcement of such awards until then. Notably, a BIT award cannot be treated as a “decree” under the Code of Civil Procedure too, since awards are neither “decree” nor “judgment”.

Immediate course correction is also important, for in the absence thereof, there will only be two possible alternatives that investor companies such as Cairn could exercise – one, to either file a new suit where the arbitral award would have mere evidentiary value, rendering the entire purpose of speedy resolution of investment treaty disputes defeated; and two, the seizure of Indian assets abroad. Not just this, absence of a robust regime for enforcement of an arbitral award militates against India’s efforts of becoming the global hub for international arbitration. Other than anything, it is only wise to remember that India continues to be one of the most attractive destinations for FDI. With an increase in FDI, which is governed by BITs, a surge in the number of disputes has also been recorded. As a developing economy, India must not want to push the investors away by setting an image of not honouring decisions passed by arbitral tribunals, nor should the Delhi High Court.


* Managing Partner, Miglani Varma and Co. –Advocates, Solicitors and Consultants, New Delhi, India.

**Managing Partner, Miglani Varma and Co. –Advocates, Solicitors and Consultants, New Delhi, India.

*** Legal Trainee, Miglani Varma and Co. –Advocates, Solicitors and Consultants, New Delhi, India.

[1] Finance Act, 2012.

[2] PCA Case No. 2016-35.

[3] PCA Case No. 2016-07.

[4] PCA Case No. 2016-05.

[5]  Supra Note 2

[6] Supra Note 3.

[7] Supra  Note 2.

[8]Dilasha Seth, India Challenges Vodafone Arbitration Award, Plans the Same in Cairn Case (Business Standard, 25-12-2020) <https://www.business-standard.com/article/companies/india-challenges-vodafone-arbitration-award-plans-the-same-in-cairn-case-120122401064_1.html> (accessed 13-2-2021).

         [9] Supra Note 3.

[10]Aanchal Magazine and Sandeep Singh, Govt. to Contest Cairn Award, Suits in International Courts, (The Indian Express, 20-2-2021) <https://indianexpress.com/article/business/govt-to-contest-cairn-award-suits-in-international-courts-7196419/> (accessed 26-2-2021).

[11]Cairn threatens to seize Indian assets overseas to collect $1.4 bn award (The Hindu, 26-1-2021) https://www.thehindu.com/business/cairn-energy-threatens-to-enforce-arbitration-award-against-indian-assets-overseas/article33665842.ece> (accessed 13-2-2021).

[12]US firm ConocoPhillips recouped multi-billion dollar of compensation awarded in arbitration from Venezuela; Malaysian Government impounded plane owned by Pakistan State carrier, Pakistan International Airlines. For discussion, see India May Offer Cairn Oilfield against $1.4 Billion Arbitration Award (Business Standard, 31-1-2021) <https://www.businesstoday.in/current/economy-politics/india-may-offer-cairn-oilfield-against-14-billion-arbitration-award/story/429690.html> (accessed 13-2-2021).

[13] Cairn Energy Arbitration: India Should Honour its Word and Pay $1.4 Billion, says Company (The Hindu BusinessLine, 7-3-2021) <https://www.thehindubusinessline.com/companies/cairn-energy-arbitration-india-should-honour-its-word-and-pay-14-billion-says-company/article34010972.ece> (accessed 9-3-2021).

        [14] Supra Note 3.

        [15] http://www.scconline.com/DocumentLink/QWdt5a4f.

[16] For the full list of parties to the ICSID Convention, see List of Contracting States and Other Signatories of the Convention at https://icsid.worldbank.org/sites/default/files/ICSID-3.pdf (as of 9-6-2020, accessed 13-2-2021).

[17]India recorded its reservation under Art. I(3) of the New York Convention in the following words: “In accordance with Art. I of the Convention, the Government of India declare that they will apply the Convention to the recognition and enforcement of awards made only in the territory of a State, party to this Convention. They further declare that they will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the law of India.” For the list of all Contracting States to the New York Convention, and countries that have availed reservation therein, see https://www.newyorkconvention.org/countries .

[18]Infra, Part IV: Conflicting decisions of two Indian High Courts on the applicability of the Act of 1996 to investment arbitral awards.

[19]Convention on the Settlement of Investment Disputes between States and Nationals of Other States – International Centre for Settlement of Investment Disputes, Washington 1965, Article 53.

[20] ICSID Convention, Article  54.

[21] Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes (Additional Facility Rules), Article 2.

[22] Additional Facility Rules, Article 19.

[23] Supra Note 11.

[24] UNCITRAL Model Law on International Commercial Arbitration, 1985.

[25] The footnote provides, “The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”

[26] Preamble to the 1996 Act.

[27]R.M. Investment and Trading Co. (P) Ltd. v. Boeing Co., (1994) 4 SCC 541,  Sundaram Finance Ltd. v. NPEC India Ltd. (1999) 2 SCC 479

[28] “The Coming of New age for Asia (and Elsewhere)” delivered at ICCA Congress, 2012; cited by Mr. Sumeet Kachwaha in his submissions as the Amicus Curiae in Union of India v. Vodafone Group Plc, 2018 SCC OnLine Del 8842.

[29] Department of Economic Affairs, Model Text for the Indian Bilateral Investment Treaty, Article 27.5; for full text of the Model BIT, see <https://dea.gov.in/sites/default/files/ModelBIT_Annex_0.pdf>.

[30] Supra, Note 19.

[31] Ibid.

[32] (1994) 4 SCC 541, 547

[33] (1984) 4 SCC 679 

[34] (1989) 4 SCC 259, 262

[35] (1994) 4 SCC 541 

[36]  (1984) 4 SCC 679 

[37] (1989) 4 SCC 259

[38] 2019 SCC OnLine Del 6755

[39] 2018 SCC OnLine Del 8842 

[40] 2014 SCC OnLine Cal 17695 

[41]  Ibid.

[42] Section 45 of the Act of 1996.

[43] Supra Note 39.

[44]Section 45 of the 1996 Act.

[45] Supra Note 18.

[46] Supra Note 38.

[47]  Supra Note 39.

[48] Supra Note 38.

[49] Supra Note 39.

[50] Supra Note 38.

[51] Supra Note 39.

[52] Supra Note 35.

[53] Supra Note 33.

[54] Supra Note 34.

[55] Khaitan Holdings, supra Note 38 and Vodafone suit, supra Note 39.

[56] Supra Note 38.

Case BriefsForeign Courts

Federal Court of Australia: While deciding the instant appeal dealing with interpretational technicalities associated with international arbitration, the Court clarified the principles and distinctions between recognition and enforcement of arbitral awards vis-à-vis the ICSID Convention. The Court also clarified the legal position over the question that whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.

Facts: The dispute between the parties is related to the investment by the Respondents of EUR139,500,000 into solar power generation projects within the territory of Spain. The respondents were encouraged to do so by a subsidy program put in place by Spain, which was subsequently withdrawn. The Respondents alleged that the withdrawal of the subsidy program was a contravention of the Energy Charter Treaty (ECT). Pursuant to Article 26(3)(a) of the ECT, Spain agreed that it gave its unconditional consent to the submission of the dispute to international arbitration and, by the virtue of Article 26(4)(a) it agreed to an international arbitration under the auspices of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The arbitrators eventually awarded the Respondents EUR101,000,000 with interest. The respondents applied to the Federal Court at first instance for an order that Spain pay it that amount with interest. Spain filed a notice contesting the jurisdiction of the Federal Court of Australia on the basis that it was immune from suit as a foreign state under S. 9 of the Foreign States Immunities Act 1985.

Issues: The following key issues were involved in the dispute-

  • Whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.
  • Meaning of recognition and enforcement in Art 54 and execution in Art 55 of ICSID Convention.
  • Whether Spain’s accession to the ICSID Convention constitutes submission to the jurisdiction of the Federal Court.

Contentions: Spain put forth the following arguments-

  • The word ‘execution’ in Article 55 must be understood as including a proceeding to ‘enforce’ an award (the reasons for this are, to an extent, complex and discussion of this issue may be postponed for now).
  • Even if ‘execution’ in Articles 54(3) and  55 does not mean ‘enforcement’, nevertheless, the question of the proper construction of Art 55 can only be definitively resolved by the International Court of Justice. Until then it is arguable Spain’s accession to Articles 54 and 55 cannot represent its clear agreement to submit to jurisdiction of Federal Court.

Relevant statutes: The case revolves around the interpretation of Articles 54 and 55 of the ICSID Convention. Article 54 deals with the recognition and enforcement of the pecuniary obligations imposed by the award. Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought. Article 55 states that –“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution”.

The other statutory provisions that were highlighted in the case were Sections 3, 9 and 10 of the Foreign States Immunity Act, 1985. The provisions respectively deal with interpretation of an agreement (including international treaties and agreement); immunity of a foreign state from the jurisdiction of the courts of Australia; and, instances wherein a foreign state has to submit to the jurisdiction of the Australian law and courts.

Observations: The Court noted that, “The principal difficulty at the centre of the debate is linguistic or semantic” – (Allsop, CJ.,). With the parties to the dispute seeking lucidity on the aforementioned provisions, the Court examined them and made the following observations, with Perram, J., elucidating the key aspects of the provisions in question-

Regarding Articles 54 and 55

  • It was noted that ‘recognition’, ‘enforcement’ and ‘execution’ are concepts predating and existing outside of the ICSID Convention. Broadly “recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law. Enforcement refers to the process by which a successful party seeks the municipal court’s assistance in ensuring compliance with the award (as recognised) and obtaining the redress to which it is entitled. Execution refers to the formal process by which enforcement is carried out”.
  • Since the issue at hand orbits around ICSID provisions, therefore the concepts must be interpreted accordingly. Perram, J., noted that under Art. 54 the Contracting States are required to recognise an award. It also permits a party having the benefit of an award to apply to a competent court for its recognition. It also permits a party to apply for the enforcement of the award by application to a competent court. “As such the Article explicitly contemplates two distinct applications to the competent court (or other authority). If enforcement in Art 54(2) were synonymous with recognition this distinction would appear to be pointless. The Article therefore recognises the distinction between the two applications and requires applications for both to be made to the ‘competent court’”.
  • The Judge further pointed out that Article 54(1) imposes two obligations on a Contracting State, first, recognition of the award as binding; and, secondly, (implicitly in relation to an award which has been recognised), enforcement of the pecuniary obligations imposed by the award ‘as if’ it were a final judgment of a domestic court. Article 54 does not contemplate the enforcement of awards which have not been recognised.
  •  “Article 55 does not refer to recognition and there can be no warrant for reading it as if it did”. Interpreting the Article along with the preceding provision (Article 54), the Court stated that the combined effect of Article 54 is that a Contracting State is required to recognise an award when a certified copy of the award is furnished to the competent court (or other authority).
  • If ‘execution’ were construed to include ‘recognition’ in Article 55 there could be no circumstance in which the recognition application expressly contemplated by Art 54(2) could ever be made against a Contracting State. This would render the recognition procedure in Art 54(2) perpetually unavailable against a Contracting State and would have the consequence that the obligation to recognise an award in Art 54(1) as binding could never be engaged. “It may be noted that the fact that recognition is wholly distinct from enforcement (including, if necessary, execution) is also reflected in the heading to Section 6: ‘Recognition and Enforcement of the Award’ where Art 54 and Art 55 are contained. For those reasons, Art 55 does not apply to recognition proceedings and is unavailable to modify the meaning of Art 54(1) and (2) in relation to such proceedings”.

Regarding Spain’s submission to Federal Court’s Jurisdiction: Deliberating upon the question that whether Article 54(1) and (2) constitute Spain’s agreement to submit to the jurisdiction of the Federal Court in a recognition proceeding, the Court answered in affirmative. Article 54(2) is in terms Spain’s agreement with Australia that the Respondents may apply to a competent court for recognition and the Federal Court has been designated as a competent court for the purposes of Article 54. Spain has therefore agreed to submit to the jurisdiction of this Court in relation to a recognition proceeding. Article 55 can have no impact on that conclusion because it has no application to recognition proceedings.

Making an interesting observation, the Court pointed out that the ICSID Convention had been done in English, Spanish and French. Article 33 of the Vienna Convention provides that where ‘a treaty has been authenticated in two or more languages, the text is equally authoritative in each language’; where a difference in meaning emerges which cannot otherwise be resolved by ordinary principles of interpretation ‘the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.’ Allsop, C.J., noted that the relationship between recognition and enforcement can be seen by the wording of the ICSID Convention itself. “Whether the French and Spanish languages have a penumbra or range of meaning in the words exécution and ejecutar to encompass a non-execution procedure of enforcement would be a matter of evidence. I am unconvinced that the question of resolution of the meaning of the English, French and Spanish texts can be done in ignorance of the content by way of evidence of two of the three languages”.[Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3, decided on 01-02-2021]


Sucheta Sarkar, Editorial Assistant has put this story together.

Legislation UpdatesStatutes/Bills/Ordinances

President promulgates Arbitration and Conciliation (Amendment) Ordinance, 2020

Amendment of Section 36

In Section 36 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the principal Act), in sub-section (3), after the proviso, the following shall be inserted and shall be deemed to have been inserted with effect from 23rd day of October, 2015, namely:—

“Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”.

Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.

Substitution of new Section for Section 43J

For section 43J of the principal Act, the following section shall be substituted, namely:-—

Norms for accreditation of arbitrators

“43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”

Omission of Eighth Schedule

The Eighth Schedule to the principal Act shall be omitted.

Read the Ordinance here: ORDINANCE


Ministry of Law and Justice

[Dt. 04-11-2020]

Op EdsOP. ED.

I. Introduction

Arbitration is a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons named arbitrator or arbitrators, who derive their powers from a private agreement, not from the authorities of a State, and who are to proceed and decide the case on the basis of such an agreement.

Halsbury’s Laws of England notes that the term “arbitration” as the process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially and with binding effect by the application of law by one or more persons constituting the “Arbitral Tribunal” instead of by a court of law.

A concise definition of “arbitral award” may be as follows: “An arbitral award is a decision made under an arbitration agreement by an Arbitral Tribunal, to which the parties have granted the task to decide a dispute of arbitrable nature.”

Arbitration is considered to be extremely important in modern legal thought. This is due to multiple factors such as time and convenience. Due to large pendency of cases in courts, as well as the very real perception that cases in courts take too much time to be disposed, arbitration is considered to be a better choice as it ensures speedy delivery of justice. Furthermore, the parties to the dispute are free to agree how their disputes are resolved (seat, venue, etc.) subject only to such safeguards as are necessary in public interest. Therefore, it is important to recognise arbitration as a dynamic dispute resolution mechanism and to encourage parties to opt for such mechanisms.

Party autonomy is the ultimate power determining the form, structure, system and other details of the arbitration. Most laws are largely permissive and aim to support and enforce the agreement to arbitrate, rather than to intervene. The parties to the arbitration should have accepted that not only will arbitration be the form of dispute settlement, but also that they will accept and give effect to the arbitration award.

Due to the advantages discussed above, in principle arbitration was seen as an alternative to court proceedings which would render fair resolution of disputes by an impartial tribunal without “unnecessary delay or expense”. However arbitration has been frequently administered in such a way that although it could be short and economical, it has become a long and expensive procedure, and is also perceived as such.

It is to be noted that the awards rendered by these Tribunals are considered to be final and binding, and no appeal is allowed from an Arbitral Tribunal to the courts. This is in order to provide finality and certainty to the awards and to ensure their proper enforcement, but there are various problems regarding the enforceability of such awards as many jurisdictions, including India, have provisions for parties to approach courts for the setting aside of such awards.

This paper shall focus on this, and many other aspects involving the enforceability of awards and attempt to put forward suggestions to improve enforceability and actions that can be taken to make India an arbitration hub.

II. Enforceability of awards in India

In India, arbitration proceedings are regulated as per the Arbitration and Conciliation Act of 1996 (as amended in the year 2015). The Act provides that when the time for making an application to set aside the arbitral award has expired, or when such application has been made and rejected, the award would be enforced under the Code of Civil Procedure, 1908 as if it were a decree of the civil court.[1] The Act also declares that all arbitral awards shall be final and binding on the parties and those claiming under them.[2]

The important point to be noted is that the award becomes enforceable under the Act only if the time for making an application to the court to set aside the award has expired, or if such application has been made and rejected by the court. Therefore, it is important to examine the provision regarding application to set aside the award i.e. Section 34 of the Act.

Section 34 provides that no application can be made after the expiry of 3 months from the date of receipt of award by the party, subject to a 30-day relief period that may be granted by the court at its discretion. The Act also provides that the application may be made by a party only if he furnishes proof of the grounds specified in Section 34(2)(a) of the Act or if the court finds that the subject-matter of the dispute is not arbitrable or if the award was against the public policy of India.

At this juncture, it is crucial to examine how courts have interpreted the provision and the powers it has granted them, in order to see if the courts of India have taken a pro-arbitration stance or have engaged in unnecessary interference which renders the enforcement of such awards difficult.

Perhaps the most controversial decision on this aspect would be the Supreme Court’s decision in ONGC v. Saw Pipes Ltd.[3] (Saw Pipes judgment), where the Court held that in addition to the grounds mentioned in Section 34, an award could also be challenged if it contravenes the provisions of the Arbitration Act, or “any other substantive law governing the parties”. It also expanded the scope of “public policy” to state that an award could be set aside if it was “patently illegal”.

In our view, the decision in this case is incorrect as the Supreme Court through its judgment in this case, allows a court to sit on appeal on the merits of the award, thereby going against the very principle and object of arbitration. Fortunately, in subsequent cases like McDermott International Inc. v. Burn Standard Co. Ltd.[4], the Supreme Court tried to limit the effect of its previous decision by explicitly holding that the intervention of courts is envisaged only in few circumstances and stating that “the Court cannot correct the errors of the arbitrators. It can only quash the award leaving parties free to begin arbitration again, if required”. The Bombay High Court went one step further and held that a literal interpretation of the Saw Pipes judgment[5] “would be to radically alter the statutorily and judicially circumscribed limits to the court’s jurisdiction to interfere with arbitration awards. It would indeed confer a first appellate court’s power on a court exercising jurisdiction under Section 34 of the 1996 Act. There is nothing in the 1996 Act which indicates such an intention on the part of the legislature.”[6]

Therefore, it is evident that courts have tried to reverse the effect of the Saw Pipes judgment[7] and move towards a more arbitration-friendly approach. It is the hope of the authors that the Supreme Court expressly overrules the Saw Pipes judgment[8] at the earliest opportunity.

However, the judgment that truly cemented India’s position as an arbitration-friendly nation was the judgment of the Supreme Court in Enercon (India) Ltd. v. Enercon GmbH[9] (Enercon judgment) in 2014, where the Court answered multiple important questions with regard to arbitration and applicable law.

Firstly, the Court held that an arbitration agreement could not be avoided on the ground that the substantial contract was not concluded. Simply put, the Court held that the arbitration clause in a contract is severable from the underlying contract and held that the arbitration agreement and the substantive agreement formed two separate contracts, and that the invalidity of one would not affect the other. The Court held that the distinction between the two could be found in the Arbitration Act itself[10], making it clear that as long as there was a clear intention to arbitrate by both parties, arbitration proceedings could not be avoided on such grounds. In fact, whether the substantive contract was concluded or not in itself would have to be determined by the Arbitral Tribunal as per the Court.

Secondly, the Court held that when an arbitration agreement is seemingly unworkable, the courts must adopt a pragmatic, reasonable business person’s approach and seek to overcome the lacunae by constructing the agreement in such a manner that arbitration becomes workable. The Court held that it must play a supportive role in encouraging arbitration and not allow the proceedings to come to a halt. In case there existed an omission in the agreement that would be obvious to the bystander, the Court has the power to make good the omission to give force to the agreement.[11]

Finally, the Court also relied upon its judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, Inc.[12] and applied the “closest connection test” to decide on the seat of arbitration. In the case, even though the venue was decided as London, the Court held that since the law governing the arbitration agreement was agreed to be Indian law, the law governing the substantive contract and the conduct of the arbitration was also Indian, the Court held that the applicable law would be Indian law and hence, seat of arbitration would be India.

The authors feel that the approach taken by the Supreme Court in the instant case has been extremely pragmatic and is appreciable. The Court has clearly expressed the viewpoint that the court’s role must be one of minimal interference and support to arbitration so that the awards of Arbitral Tribunals may be enforced without any undue delay.

Though the Enercon judgment[13] positions India as arbitration friendly, the authors feel that there is more to be done in emerging areas such as two-tier arbitrations and multiparty arbitrations and would discuss this in the coming chapters of this paper.

Further, it is pertinent to note the limitation period within which an arbitral award can be enforced:

(i) Domestic awards.— Since arbitral awards are deemed as decrees for the purposes of enforcement[14] and the Limitation Act, 1963 applies to arbitrations, the limitation period for enforcement of such an award is twelve years.

(ii) Foreign awards.— Various High Courts have given varying interpretations on the limitation period within which a party may enforce an award. However, the Supreme Court in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.[15], held that under the Act a foreign award is already stamped as the decree. It observed that,

31. … In one proceeding there may be different stages. In the first stage the court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award a rule of court/decree again.

Hence, the party having a foreign award has got twelve years time like that of a decree-holder.

III. Suggestions for legislative action for two-tier arbitrations

It has been the global practice to allow parties to have appellate arbitration in order to ensure that the errors of facts and law are corrected. In Union of India v. U.P. State Bridge Corpn. Ltd.[16], the Supreme Court of India opined that there are two fundamental principles that govern the 1996 Act — first is the principle of fair, speedy and inexpensive trial by an Arbitral Tribunal, and second is the principle of party autonomy in the choice of procedure. Thus, the elementary position is that the parties to an arbitration agreement have autonomy to decide not only the procedural law to be followed but also the substantive law. The choice of jurisdiction is left to the contracting parties. Thus, in case the parties to the contract agree on a two-tier arbitration system with the construction of the contract to be made in accordance with the laws of India, nothing erroneous can be found with it.

The Supreme Court has reaffirmed the above stance in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd.[17] by holding that there is no explicit or implicit prohibition on two-tier arbitrations in the Arbitration and Conciliation Act, 1996, but there remains a lot of confusion regarding the same in the Indian context due to lack of statutory regulations. There are also no judicial pronouncements clarifying the procedure on the same.

In the light of Section 35 of the Act, the crucial question is as to whether the award of the first-tier Arbitral Tribunal will be considered a “final award”. If it is so, then that would leave open the option to file a petition under Section 34 to both parties. This would create a legal conundrum as one party may file a petition to the court for setting aside of the arbitral award, while the other party may file an appeal against the award to the second?tier/Appellate Tribunal. In such a scenario, or even otherwise, it becomes important to have a clear set of rules and regulations that would govern two?tier arbitrations and the enforceability of such awards in order to provide legal certainty regarding the same.

It is the suggestion of the authors that the following procedure may be adopted in order to have effectiveness in, and clarity about the enforcement of awards from 2-tier arbitration process.

(A) All arbitration agreements that prescribe a two-tier arbitration process shall specify a time period within which either of the parties may prefer an appeal to the second tier/Appellate Tribunal. As arbitration is supposed to be a speedy dispute resolution process, if the parties fail tomention any such period, it shall be deemed that the parties have 90 days to approach the Appellate Tribunal. A delay in filing the appeal may be condoned by the second tier at its discretion for a maximum period of 30 days. No application shall be made to the court for setting aside of the award of the first tier during the pendency of this time period.

(B) If the time period provided to file an appeal to the second tier lapses with neither of the parties preferring an appeal, the award of the first tier would be considered final for the purposes of the Act. The limitation period of 120 days to file an application to set aside an award under Section 34 (inclusive of the maximum delay to be condoned) would commence on the day the time for filing an appeal to the Appellate Tribunal lapses.

(C) In case an appeal is preferred by one of the parties to the second tier/Appellate Tribunal, then whatever the award of the second-tier Tribunal, it shall be considered to be the final award which shall merge with the earlier award and therefore, would be enforceable as a decree of the court for the purposes of the Act. This means that the 120-day time period for filing an application to set aside the award of the Arbitral Tribunal under Section 34 of the Act would commence on the day the Appellate Tribunal passes its award.

Such a system would ensure minimal court interference in the middle of the 2-tier process and eliminates the risk of an award passed by the first-tier Arbitral Tribunal becoming a decree during the pendency of the appeal proceedings before the second tier. It is the submission of the authors that the very reason the parties would opt for a two-tier structure of arbitration is to provide themselves with the option of appeal against the order of the Arbitral Tribunal. The authors feel that it would go against the very idea of a two-tier structure and party autonomy to allow the court to get involved in the process without giving the opportunity to the parties to avail them of the remedy in the arbitration agreement.

Hence, this system will provide a clear procedure with respect to two-tier arbitrations and will also make enforceability of awards from such bodies much easier and with minimal interference of the courts, which would encourage parties to choose India as the seat of arbitration.

IV. Intricacies in enforcing multiparty arbitral awards in India

A multiparty arbitration is an arbitration that includes more than two parties: usually including parties to the original arbitration agreement. These parties can be joined into the arbitration in certain circumstances. The most obvious circumstance would be when an arbitral proceeding between 2 parties affects the rights and liabilities of the third parties. In this case, the third parties may be joined in the proceeding so that all matters relating to the proceeding are heard together and in order to avoid further litigation regarding the same matter. For similar reasons, in cases where there is one substantive contract between two parties (a “mother agreement”) under which multiple contracts with multiple parties exist (spiderweb contracts), and an arbitral proceeding is initiated between the two parties, other parties may be joined in the arbitration due to the fact that they are related to the contract.

Multiparty arbitrations have been recognised as valid by the Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.[18], in which the Supreme Court recognised the “group of companies doctrine”, which allows the extension of an arbitration agreement which was signed by only one or some of the companies belonging to a group of companies, to the non-signatory companies which are also a part of the same group, under certain conditions.

The problem, however, with such a doctrine is that the right or obligation to attend arbitral proceedings is contractual. An arbitration agreement is the fundamental basis for an arbitral award and hence, questions may arise as to how awards can bind those who are not parties to the original agreement. Even the New York Convention[19] explicitly talks about awards only in the context of the parties, and therefore, it is reasonable to assume that there are intricacies and difficulties in enforcing awards against those who are third parties to the arbitral award.

However, the recognition and support for multiparty arbitration is necessary. The reason parties opt for arbitration is for quick and speedy disposal of cases with minimal interference. If multiparty arbitrations are not allowed, it could lead to the third parties filing separate suits in court which would interfere with the arbitral proceeding and could lead to multiplicity of suits, adding to the confusion.

Hence, various international agreements and conventions have now begun dealing with the specific question of multiparty arbitrations. The most recent development is the issuance of the Draft Arbitration Rules, 2017, by the Stockholm Chamber of Commerce (SCC). The Draft Rules allows the SCC Board of Directors to join one or more additional parties to the arbitration on the request of an existing party.[20] The Rules also allow for consolidation of a new arbitral proceeding with an existing proceeding.[21]

However, various rules issued by different organisations are in contrast to the Draft Rules of the SCC including rules of the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Hong Kong International Arbitration Centre, and the Singapore International Arbitration Centre. For the purposes of this paper, the rules of the LCIA are most pertinent.

The LCIA allows the Tribunal to join additional parties to the arbitration on application of a party provided that all parties are given a reasonable opportunity to state their views and that the applicant and the additional party/parties give their consent to the joinder in writing.[22] Similarly, the LCIA Tribunal can consolidate to one or more arbitral proceedings provided that all parties to the arbitration give their consent in writing.[23]

In order to solve this issue of consent in multiparty arbitrations, especially in India, the authors have the following suggestions to make enforcement against third parties legally sound:

(1) No third party may be joined in the arbitral proceeding without its consent. Such consent shall either be recorded and submitted in writing as per the LCIA Rules, or recognised and referred to by the Tribunal in interim or preliminary orders so that an official record of the consent remains, in case written consent is not obtained.

(2) No third party may be joined in the arbitral proceeding without the consent of the parties to the arbitration. This requirement may differ from the LCIA Rules to the extent that as per the LCIA Rules, only the written consent of the applicant party is required. It may be made mandatory for all existing parties to the arbitration to consent to the joinder, in order to prevent further issues from arising in the future. Such consent may either be explicitly recorded and submitted to the court, recognised and referred to by the Tribunal in interim or preliminary orders or may be implied consent i.e. the parties have agreed to conduct the arbitration under certain rules, which allow for multiparty arbitration.

(3) There must not be any requirement of the additional party being a party to the same arbitration agreement. This can allow for joinder of parties even in multi-contract situations.

If this is the case, then no party can later complain that the multiparty arbitral proceeding has violated their rights, as they would have consented to take part in the proceeding.

V. Conclusion

The authors have hereby attempted to provide suggestions to ensure the enforceability of arbitral awards in India which would go a long way in ensuring that India can be made an arbitration hub. The most important issue that the authors have tried to tackle is the issue of party autonomy.

Further, the authors have included various suggestions on 2-tier and multiparty arbitrations. These are still developing areas in the global arbitration scenario and it is the hope of the authors that India can capitalise on these growing fields and serve as an effective arbitration hub in the future.

 

* Vth year student, BBA LLB (Hons.), School of Law, Sastra Deemed University.

** Vth year student BBA LLB (Hons.), School of Law, Sastra Deemed University.

[1]  S. 36,  Arbitration and Conciliation Act, 1996.

[2]  S. 35, Arbitration and Conciliation Act, 1996.

[3]  (2003) 5 SCC 705 : AIR 2003 SC 2629.

[4]  (2006) 11 SCC 181.

[5]  (2003) 5 SCC 705 : AIR 2003 SC 2629.

[6]  Indian Oil Corpn. Ltd. v. Langkawi Shipping Ltd., 2004 SCC OnLine Bom 460 : (2004) 3 Arb LR 568.

[7]  (2003) 5 SCC 705 : AIR 2003 SC 2629.

[8]  (2003) 5 SCC 705 : AIR 2003 SC 2629.

[9]  (2014) 5 SCC 1.

[10]  S. 16, Arbitration and Conciliation Act, 1996.

[11]  In this case, the agreement stated that there would be 3 arbitrators, with each party appointing one arbitrator. The Court made good the unworkability of this agreement (since there were only 2 parties), by holding that the 2 arbitrators appointed by the party could appoint the 3rd arbitrator together, and that he would serve as the umpire of the Bench.

[12]  (2012) 9 SCC 552.

[13]  (2014) 5 SCC 1.

[14]  Umesh Goel v. H.P. Coop. Group Housing Society, (2016) 11 SCC 313.

[15]  (2001) 6 SCC 356 at p. 371.

[16]  (2015) 2 SCC 52.

[17]  (2006) 11 SCC 245.

[18]  (2013) 1 SCC 641.

[19]  Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

[20]  Art. 13, SCC Draft Arbitration Rules, 2017.

[21]  Art. 15, SCC Draft Arbitration Rules, 2017.

[22]  Art. 22(viii), LCIA Rules.

[23]  Art. 22(ix), LCIA Rules.