KB

89. Settlement of disputes outside the Court.—

(1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the
parties, the Court shall formulate the terms of settlement and give them to the parties for their
observations and after receiving the observations of the parties, the Court may reformulate the terms of a
possible settlement and refer the same for:--
(a) arbitration;
(b) conciliation;
(c) judicial settlement including settlement through Lok Adalat: or
(d) mediation.
(2) Were a dispute has been referred--
(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall
apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of
that Act;
(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of sub-
section (1) of section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that
Act shall .apply in respect of the dispute so referred to the Lok Adalat;
(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or
person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39
of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as
may be prescribed.]
Reading s. 89 with Order X R. 1A, 1B and 1C, it appears that the following conditions should be satisfied before
a
matter could be referred to ADR:
i. Existence of elements of settlement in the opinion of the court;
ii. The parties must share the opinion of the court;
iii. Formulation of the terms of settlement by the court;
iv. The court should invite the observation of the parties on the terms of settlement;
v. Observations of the parties must be received by the court;
vi. If need be, reformulate the terms of settlement and refer the same for ADR contemplated under s. 89.
Element of compromise – Discretion of the court (subject to the consent of the parties)
 Failure to exercise discretion by court?
 Shall formulate the terms of settlement – use of ‘shall’ and ‘may’ in s. 89
 Are there any anomalies in s. 89?
Afcon

On the contentions urged, two questions arise for consideration:

(i) What is the procedure to be followed by a court in implementing section 89 and Order 10 Rule 1A of the
Code?
(ii) Whether consent of all parties to the suit is necessary for reference to arbitration under section 89 of the
Code?
 KB

10. Section 73 of AC Act shows that formulation and reformulation of terms of settlement is a process
carried out at the final stage of a conciliation process, when the settlement is being arrived at. What is
required to be done at the final stage of conciliation by a conciliator is borrowed lock, stock and barrel into
section 89 and the court is wrongly required to formulate the terms of settlement and reformulate them at a stage
prior to reference to an ADR process. This becomes evident by a comparison of the wording of the two
provisions.
Section 73(1) of Arbitration and Conciliation Section 89(1) of Code of Civil Procedure Act, 1996 relating to the
final stage of relating to a stage before reference to an settlement process in conciliation. ADR process.
Where it appears to the Court that there exist elements of a settlement which may exist elements of a settlement
which may be acceptable to the parties, the Court shall formulate the terms of a possible settlement formulate
the terms of settlement and give and submit them to the parties for their them to the parties for their
observations. After receiving the observations of the parties, the conciliator parties, the Court may reformulate
the terms of a possible terms of a possible settlement and refer the settlement in the light of such observations.
same for (a) arbitration; (b) conciliation; (c) judicial settlement including settlement through Lok Adalat; or (d)
mediation.
Formulation and re-formulation of terms of settlement by the court is therefore wholly out of place at the stage
of pre ADR reference. It is not possible for courts to perform these acts at a preliminary hearing to decide
whether a case should be referred to an ADR process and, if so, which ADR process.
11. If the reference is to be made to arbitration, the terms of settlement formulated by the court will be of no use,
as what is referred to arbitration is the dispute and not the terms of settlement; and the Arbitrator will
adjudicate upon the dispute and give his decision by way of award. If the reference is to
conciliation/mediation/Lok Adalat, then drawing up the terms of the settlement or reformulating them is the job
of the conciliator or the mediator or the Lok Adalat, after going through the entire process of conciliation/
mediation. Thus, the terms of settlement drawn up by the court will be totally useless in any subsequent
ADR process. Why then the courts should be burdened with the onerous and virtually impossible, but
redundant, task of formulating terms of settlement at pre-reference stage?
16. In view of the foregoing, it has to be concluded that proper interpretation of section 89 of the Code requires
two changes from a plain and literal reading of the section. Firstly, it is not necessary for the court, before
referring the parties to an ADR process to formulate or re-formulate the terms of a possible settlement. It is
sufficient if the court merely describes the nature of dispute (in a sentence or two) and makes the reference.
Secondly, the definitions of `judicial settlement' and `mediation' in clauses (c) and (d) of section 89(2)
shall have to be interchanged to correct the draftsman's error. Clauses (c) and (d) of section 89(2) of the
Code will read as under when the two terms are interchanged:
(c) for "mediation", the court shall refer the same to a suitable institution or person and such institution or
person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39
of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for "judicial settlement", the court shall affect a compromise between the parties and shall follow such
procedure as may be prescribed.
The above changes made by interpretative process shall remain in force till the legislature corrects the mistakes,
so that section 89 is not rendered meaningless and infructuous.
Whether the reference to ADR Process is mandatory?
17. Section 89 starts with the words "where it appears to the court that there exist elements of a settlement".
This clearly shows that cases which are not suited for ADR process should not be referred under section
89 of the Code. The court has to form an opinion that a case is one that is capable of being referred to and
settled through ADR process. Having regard to the tenor of the provisions of Rule 1A of Order 10 of the Code,
the civil court should invariably refer cases to ADR process. Only in certain recognized excluded categories of
cases, it may choose not to refer to an ADR process. Where the case is unsuited for reference to any of the ADR
process, the court will have to briefly record the reasons for not resorting to any of the settlement procedures
prescribed under section 89 of the Code. Therefore, having a hearing after completion of pleadings, to consider
recourse to ADR process under section 89 of the Code, is mandatory. But actual reference to an ADR process in
all cases is not mandatory. Where the case falls under an excluded category there need not be reference to ADR
process. In all other case reference to ADR process is a must.
 KB

35. In the light of the above discussion, we answer the questions as follows:
(i) The trial court did not adopt the proper procedure while enforcing Section 89 of the Code. Failure to invoke
Section 89 suo moto after completion of pleadings and considering it only after an application under Section 89
was filed, is erroneous.
(ii) A civil court exercising power under Section 89 of the Code cannot refer a suit to arbitration unless all
the parties to the suit agree for such reference.
Key findings:
i. Consent of all parties [paras 36, 44(i) and (ii), 49(ii)]
ii. Stage of reference [para 24, 41]
iii. Suitability for reference to ADR process – object of s. 89 is that settlement should be attempted by adopting
an
appropriate ADR process [para 27 and 28]
iv. Scope of s. 89, Whether reference to ADR is mandatory
v. Anomalies in s. 89
Facts- Present Appeal arising out of – HC’s order dismissing the revision petition filed by the appellants against
the order of the trial court allowing the first respondent’s s. 89 application.
Issues –
i. General scope and applicability (nature of dispute, suitability of reference) of s.89 CPC / What is
the procedure to be followed by a court in implementing s. 89 and Order 10 Rule 1A of the Code?
ii. Whether s. 89 CPC empowers the court to refer the parties to a suit to arbitration without the
consent of both parties. Whether consent of a

Anomalies in s. 89 Correct interpretation

1 The section makes reference of a dispute to ADR subject to discretion of the court – evident from “where it
appears to the court…”. This is against the intended object of the s. 89 (including limiting court intervention and
reducing the burden on the courts) – also goes against the fundamental principles of ADR – party autonomy
and voluntariness
Scope of s. 89 - Reference to ADR is not mandatory – considering whether a dispute can be resolved by
ADR is mandatory. It is obligatory for the court to consider reference of a dispute to ADR [Statement of
Objects and Reasons, Afcons judgment para 26, 34.3, para 2.3 238th LCI Report]

2 Literal interpretation of s. 89 would render reference of dispute to ADR forum redundant, the court itself
may as well proceed to record the settlement – this in turn defeats the object of s. 89
8.2 “Formulation and reformulation of the terms of settlement by the court is wholly out of place at the
stage of pre-ADR reference” - requiring the court to formulate the terms of settlement first and give them to
the parties for their observation and then reformulate the terms of a possible settlement and then refer the same
for any one of the ADR processes – (putting the cart before the horse). If the procedure u/s 89 is to be literally
followed, then there is nothing left for the ADR forum to do, the court itself may as well proceed to record the
settlement as nothing more is required to be done, since a judge cannot do these (formulate/reformulate the
terms of settlement) unless he acts as a conciliator or a mediator and holds detailed discussions and negotiations.
Comparing the wordings of s. 73 of the A & C Act and s. 89 CPC. [para 16]

3 definitions of ‘mediation’ and ‘judicial settlement’ under clauses (c) and (d) of sub-section (2) of s. 89 are
mixed up.
 KB

- Clause (c) says that for “judicial settlement”, the court shall refer the same to the suitable institution or person
who shall be deemed to be a Lok Adalat. The Afcons decision rightly observes that “it does not make sense to
describe a reference made by a court to a suitable institution or person for arriving at a settlement as “judicial
settlement”, as is done in clause (c)”.
- Clause (d) provides that where reference is to “mediation”, the court shall effect a compromise between the
parties by following such procedure as may be prescribed. The Afcons decision rightly observes that “it makes
no sense to call a compromise effected by a court, as “mediation”, as is done in clause (d)”.
Afcons - Interchange of “judicial settlement” and “mediation” in clauses (c) and (d) make the interpretation of
the sections clearer.

Arbitrability
 Sections 2(3), 5 and 7
 Booz Allen & Hamilton v. SBI Home Finance (2011) 5 SCC 532
 246th LCI Report – Arbitrability “Arbitrability of Fraud and complicated issues of fact” – paras
50, 51, 52, 74. – suggested that the issue regarding arbitrability of fraud should be put to rest by
amending section 16 to expressly provide that allegations of fraud are arbitrable. The proposed
amendment was not carried out.
 Vidya Drolia v. Durga Trading [Supreme Court, 14 December 2020] sec 8, 11 and non-
interference [Khanna and Ramanna’s portions]
 Fulham Football Club (1987) Ltd v. Richards [2012] 1 All E.R. (Comm) 1148 (paras 24 to 42)
 ‘Arbitrability under contract’ (non-arbitrable claim) and ‘Arbitrability under law’ (non-
arbitrable subject matter).
‘Arbitrability under contract’ – Section 7 – parties should have mutually agreed to refer the disputes to
arbitration.
‘Arbitrability under law’ – question of arbitrability – significant to determine – as it establishes which
disputes can be lawfully submitted to arbitration. It is a limit on the autonomy of the parties to engage in
arbitration and thereby upon the arbitrator’s jurisdiction to adjudicate.
 Section 2(3) – “This Part shall not affect any other law for the time being in force by virtue of
which certain disputes may not be submitted to arbitration.”
 Section 5. Extent of judicial intervention – Notwithstanding anything contained in any other law
for the time being in force, in matters governed by this Part, no judicial authority shall intervene
except where so provided in this Part.
 The autonomy of the parties under Section 5 to formulate an arbitration agreement is subject to
Section 2(3). That is to say that “if any law which is for the time being in force were to provide,
either expressly, or by necessary implication, that the specified disputes may not be submitted to
arbitration, in that case, in spite of the non obstante provision in Section 5 of the Act, that law has
been saved by virtue of Section 2(3) of the Act.”

New York convention

Article II-
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit
to arbitration all or any differences which have arisen, or which may arise between them in respect of a defined
legal relationship, whether contractual or not, concerning a subject matter capable of settlement by
arbitration1.

1
Legal requirement.
 KB

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement,
signed by the parties or contained in an exchange of letters or telegrams.
3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have
made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties
to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being
performed.
Main contract is governed by Contract Act, Arbitration Agreement is subject to these three pre-quisites.

Article II(3) and Article 8(2) of the UNCITRAL Model Law provide that an arbitration agreement need not be
recognized and enforced if it is “null and void”, “inoperative”, or “incapable of being performed.”
Pathological clauses may in turn be interpreted in consonance with these Articles. Thus, a nuanced
understanding of the terms (i) “null and void” and (ii) “inoperative” and “incapable of being performed” is
imperative to better appreciate pathological clauses:
Categories that would qualify for cases of “null and void” can be listed in an non-exhaustive list which would
include, lack of consent due to misrepresentation, fraud, incapacity to agree, duress and undue influence.
Inoperative arbitration agreements are considered to have become ineffective, by the time a request is made
to direct parties to arbitration, despite the agreement’s initial validity. Therefore, an arbitration agreement which
has been rendered inoperative would not be applicable to the involved parties or the subject dispute at the
referral stage. Instances such as waiver, novation, revocation, repudiation or termination of the arbitration
agreement, would render an arbitration agreement inoperative.
The term “incapable of being performed” refers to impossibility and similar defences. The “incapable of
being performed” provision is generally understood as relating to situations where the arbitration cannot
effectively be set in motion.
“the expression ‘inoperative’ has no accepted meaning in English law, but it would seem apt to describe an
agreement which, although not void ab initio, has for some reason ceased to have effect for the future. Further,
there are three situations where an arbitration agreement could be envisaged as ‘inoperative’. First, where the
English court has ordered that the arbitration agreement shall cease to have effect, or a foreign court has
made a similar order which the English court will recognise. Second, there may be circumstances in which an
arbitration agreement might become ‘inoperative’ by virtue of the common law doctrines of frustration,
discharge by breach etc. Third, the agreement may have ceased to operate by reason of some further agreement
between the parties”. Further, the Supreme court of British Columbia in Canada (Seidel v. Telus
Communications Inc., 2008), while answering whether an arbitration agreement is inoperative because of a class
action proceeding is preferred, observed that “inoperative” would mean that the agreement, in law has ceased to
have effect for the future or is for some reason no longer enforceable. Reasons for such unenforceability could
be frustration, discharge by breach or subsequent agreement of the parties, or a declaration by the court.

Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719

Read with respect to the element of consent coming in from Afcons, when only consenting for a future consent
to arbitrate, should be concluded as non-existence of arbitration agreement in the present.
What is the difference between an arbitration agreement vs agreement to enter into an arbitration agreement in
future?
If any dispute touching the partnership arising between the partners, the same shall be mutually decided by the
parties or shall be referred to arbitration if the parties so determine.
Indicate a desire or hope to have the dispute settled by arbitration or a tentative arrangement-
• “Shall be referred for arbitration if the parties so determine “
• Determinate: the parties were required to reach a decision by application of mid.
• Parties can, if they so desire, refer their disputes to arbitration
 KB

• In the event of any dispute, the parties may also agree to refer the same to arbitration
• If a dispute arise between the parties, they should consider settlement by arbitration
In which section of the Arbitration and Conciliation Act defines the Arbitration agreement?
Section 7- Arbitration agreement means an agreement by the parties to submit to arbitration all or certain
disputes which have arisen, or which may arise between them in respect of a defined legal relationship, whether
contractual or not.

Mere use of the world” arbitration” or “arbitrator” in a clause will not make it an arbitration agreement, if it
requires or contemplates a further or fresh consent of the parties for reference to arbitration
There is no specific form of an arbitration agreement, the words used should disclose a determination and
obligation to go to arbitration and not merely contemplate the possibility of going to arbitration.
Facts- Partnership agreement between the appellant and the first respondent dated 09.01.1964.
Dispute arose in the context of dissolution of partnership firm and for rendition of accounts.
Clause 16 dealt with settlement of disputes.
Present appeal filed against an order of appointment of arbitrator – based on the finding that clause 16 is an
arbitration agreement
Issue– Whether clause 16 of the deed of partnership dated 09.01.1964 is an “arbitration agreement” within the
meaning of section 7 of the Act.
Petitioner Argument- Application for appointment of arbitrator, not maintainable as there is no arbitration
agreement in the Partnership deed.
Clause 16 is not an arbitration agreement in terms of s. 7 of the Act.
Respondents Argument- There exists an arbitration agreement between the parties.
Alternate contention: since the parties clearly intended to settle their disputes relating to the partnership by an
ADR mechanism – Clause 16 is a con-arb agreement - court can refer parties to arbitration u/s. 89 CPC.
Held- Presence of concluded consent of the parties to refer disputes to arbitration is indispensable.
Intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of
the agreement, there is no specific form of an arbitration agreement.
Mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement,
if it requires or contemplates a further or fresh consent of the parties for reference to arbitration.
Even if the words “arbitration” and “arbitral tribunal” are not used, it does not detract from the clause
being an arbitration agreement if it has the attributes or elements of an arbitration agreement.
Attributes/elements of an arbitration agreement: (a) agreement should be in writing; (b) the parties
should have agreed to refer any disputes (present or future) between them to the decision of a private
tribunal; (c) the private tribunal should be empowered to adjudicate upon the disputes in an impartial
manner, giving due opportunity to the parties to put forth their case before it; and (d) the parties should
have agreed that the decision of the private tribunal in respect of the disputes will be binding on them.

i. What constitutes an ‘arbitration agreement’, principles, exhaustively summarized.

ii. Necessity of existence of arbitration agreement as defined under s. 7 as a pre-requisite for courts to be
able to exercise power under s. 11.
iii. Mutual consent of all parties a pre-condition for reference to arbitration under s. 89.
 KB

This Court held that a clause in a contract can be construed as an 'arbitration agreement' only if an agreement to
refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this
juncture set out the well settled principles in regard to what constitutes an arbitration agreement :
(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of
the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the
agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the
decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an
arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not
merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties
agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid
and binding arbitration agreement.
(ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with reference to the process
of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause
relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the
attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing. (b) The
parties should have agreed to refer any disputes (present or future) between them to the decision of a private
tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner,
giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the
decision of the Private Tribunal in respect of the disputes will be binding on them.
(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be
referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to
have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to
make it an arbitration agreement.
But where the clause relating to settlement of disputes, contains words which specifically excludes any of the
attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not
be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim
or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides
that the decision of the Authority will not be final and binding on the parties, or that if either party is not
satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an
arbitration agreement.
(iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it
requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of
words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute,
the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they
should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is
not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the
disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to
arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes
settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a
dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when
the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or
consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an
arbitration agreement in future.
9. Para 16 of the Partnership deed provides that if there is any dispute touching the partnership arising between
the partners, the same shall be mutually decided by the parties or shall be referred to arbitration if the parties so
determine. If the clause had merely said that in the event of disputes arising between the parties, they "shall be
referred to arbitration", it would have been an arbitration agreement. But the use of the words "shall be referred
for arbitration if the parties so determine" completely changes the complexion of the provision. The expression
"determine" indicates that the parties are required to reach a decision by application of mind. Therefore, when
clause 16 uses the words "the dispute shall be referred for arbitration if the parties so determine", it means that
it is not an arbitration agreement but a provision which enables arbitration only if the parties mutually
decide after due consideration as to whether the disputes should be referred to arbitration or not. In effect,
the clause requires the consent of parties before the disputes can be referred to arbitration. The main attribute of
an arbitration agreement, namely, consensus ad idem to refer the disputes to arbitration is missing in clause 16
relating to settlement of disputes. Therefore it is not an arbitration agreement, as defined under section 7 of the
 KB

Act. In the absence of an arbitration agreement, the question of exercising power under section 11 of the Act to
appoint an Arbitrator does not arise.
10. Learned counsel for the first respondent next contended that clause 16 of the deed of partnership discloses a
clear intention on the part of the partners to settle their dispute relating to partnership by an alternative dispute
resolution process. He pointed out that clause 16 required the partners to "mutually decide the disputes" or "refer
the disputes to arbitration". This, according to him, is in the nature of a 'con-arb' agreement, that is, it requires
the parties to settle the disputes by negotiations (conciliation and mediation), and failing settlement by such
negotiations, refer the disputes to arbitration for settlement. He submitted that the clause provides what section
89 CPC now statutorily requires. It is contended that if under section 89 of CPC, parties can be mandated to
have recourse to alternative dispute resolution processes to settle their disputes, there is no reason why the
disputes between the parties in this case should not be referred to ADR process including arbitration under
clause 16. This contention, though attractive, has no merit. The object and scope of section 11 of the Act is
specific and narrow. Though the power exercised under section 11 of the Act has been held to be a judicial
power [see SBP & Co. vs. Patel Engineering Ltd - 2005 (8) SCC 618], the proceedings relate only to
appointment of Arbitral Tribunal. The disputes as such are not before the Chief Justice or his designate for
adjudication. Therefore, section 89 CPC has no application. It should not also be overlooked that even though
section 89 mandates courts to refer pending suits to any of the several alternative dispute resolution processes
mentioned therein, there cannot be a reference to arbitration even under section 89 CPC, unless there is a mutual
consent of all parties, for such reference. Be that as it may.
11. The existence of an arbitration agreement as defined under section 7 of the Act is a condition precedent for
exercise of power to appoint an Arbitrator/Arbitral Tribunal, under section 11 of the Act by the Chief Justice or
his Designate. It is not permissible to appoint an Arbitrator to adjudicate the disputes between the parties, in the
absence of an arbitration agreement or mutual consent. The designate of the Chief Justice of Delhi could not
have appointed the Arbitrator in the absence of an arbitration agreement.

Caravel Shipping Services Private Limited v. Premier Sea Food Exim Private Limited (2019)
Scope of Ss.7(4)(a), 7(5) and 8(3).

Relevant paras – 6 to 10
Facts- The Respondent (PSF) filed a recovery suit against the appellant (CSS) before a district court in Kochi to
recover INR 26,53,593. The bill of lading was expressly stated to be a part of the cause of action.
Issue: Whether Clause 25 of the bill of lading is an arbitration agreement in terms of s. 7 of the Act
Petitioners Arguments- Parties had agreed to be bound by the bill of lading.
Reference in the contract to the arbitration clause and since it is in writing and the reference is such that the
arbitration clause formed part of the contract s. 7(5).
Respondents Arguments- Contended that as per S. 7(4)(a) arbitration agreement is to be in a document that is
signed by the parties. Bill of lading was not signed by the respondent – therefore Clause 25 not binding on the
respondent.
The present stage of the suit – issues framed, and one witness is being examined.
Decision- Bill of lading clearly states that the parties have expressly agreed to be bound by all the terms,
conditions, clauses and exceptions on both sides of the bill of lading whether, typed, printed or otherwise.
Respondent has relied on the bill of lading as a cause of action in the recovery suit.
Stage of the suit – not a bar to s. 8 application since the same was filed in the same year as the suit.
On the other hand, Mr. P.A. Noor Muhamed, learned counsel for the respondent, invited our attention to Section
7(4) of the Act and argued that Section 7(4)(a) requires an arbitration agreement to be in a document that is
signed by the parties. Since the Bill of Lading was not signed by his client, according to him, he is, therefore,
not bound by the arbitration clause contained in that document. Further, he has also argued that at present the
stage of the suit is that issues have been struck and one witness is being examined.
 KB

7) Having heard learned counsel for both parties, we are of the view that the Bill of Lading makes it clear that
the term “Merchant” (which is defined in the Standard Conditions Governing Multimodal Transport Documents
- Clause (1) (e) as meaning shipper, consigner or consignee) expressly agrees to be bound by all the terms,
conditions, clauses and exceptions on both sides of the Bill of Lading whether typed, printed or otherwise. The
arbitration clause, which is Clause 25 being a printed condition annexed to the Bill of Lading, reads as under:

“25. Jurisdiction/Arbitration:
The contract evidenced by the Bill of Lading shall be governed by the laws of India, and subject to the exclusive
jurisdiction of court in Chennai only. Disputes/difference arising out of this contract and/or connection with the
interpretation of any of its clauses shall be settled by arbitration in India in accordance with the Arbitration &
Conciliation Act, 1996.
The No. of Arbitrators shall be three, the Arbitrators shall be commercial persons the venue for arbitration shall
be Chennai.”
8) A perusal of the same shows that the respondent has expressly agreed to be bound by the arbitration clause
despite the fact that it is a printed condition annexed to the Bill of Lading. Secondly, it must be remembered
that the respondent has itself relied upon the Bill of Lading as part of its cause of action to recover the
sum of Rs.26,53,593/- in the suit filed by it. The respondent, therefore, cannot blow hot and cold and argue
that for the purpose of its suit, it will rely upon the Bill of Lading (though unsigned) but for the purpose of
arbitration, the requirement of the Arbitration Act is that the arbitration clause should be signed.
9) In addition, we may indicate that the law in this behalf, in Jugal Kishore Rameshwardas vs. Mrs. Goolbai
Hormusji, AIR 1955 SC 812, is that an arbitration agreement needs to be in writing though it need not be signed.
The fact that the arbitration agreement shall be in writing is continued in the 1996 Act in Section 7(3) thereof.
Section 7(4) only further adds that an arbitration agreement would be found in the circumstances mentioned in
the three sub-clauses that make up Section 7(4). This does not mean that in all cases an arbitration agreement
needs to be signed. The only pre-requisite is that it be in writing, as has been pointed out in Section 7(3).
10) This being the case, the present is a clear case where, under Section 7(5) of the Act read with M.R.
Engineers and Contractors Pvt. Ltd. (supra) (paras 22 & 24), the reference in the Bill of Lading is such as to
make the arbitration clause part of the contract between the parties.

IN- arbitrability AT might not be able to provide the reliefs that you want, but that does not mean you cannot ask
for contractual damages.
Fulham Football Club (1987) Ltd v Richards [2012]
Facts- The case concerned an unfair prejudice petition brought by Fulham Football Club regarding allegations
that Sir David Richards, chairman of the Football Association Premier League, had acted as an unauthorised
agent with respect to the transfer of Peter Crouch from Portsmouth to Tottenham Hotspur Football & Athletic
Company Limited, to the detriment of Fulham. The FAPL was incorporated in 1992 to give the Premier League
commercial independence. Each of the 20 clubs in the Premier League holds one share in the FAPL and these
shares cannot be traded or sold and are only transferred upon relegation of a club. The FAPL and its member
clubs are bound by and required to comply with the FAPL’s Articles of Association, the Football Association
(“FA“) Rules and the FAPL Rules. The FA and FAPL rules contain widely drafted dispute resolution clauses
which refer all disputes arising between the clubs or between a club and the FAPL or an official to arbitration.
• However, rather than going to arbitration, Fulham brought court proceedings against Sir Richards and the
FAPL seeking an injunction prohibiting Sir Richard from acting as unauthorised agent in the future and
alternatively requesting the removal of Sir Richard as chairman of the FAPL. Fulham contended that its
unfair prejudice petition under section 994 invoked the supervisory jurisdiction of the court and that
• the subject matter was therefore not arbitrable; and/or
• the arbitration clauses in question should be construed so as to exclude a dispute about unfair prejudice.
 KB

Held- Patten LJ, who gave the main decision, said that the laws in place didn't specifically say that certain unfair
prejudice disputes couldn't go to arbitration. This made them wonder if there was an implicit rule or some
other reason why these types of claims shouldn't be settled through arbitration.
• Patten LJ explained that there's a difference between the main issue of the dispute (the claim of
unfair prejudice), which he believed could be settled through arbitration, and the solutions that could
be given. He recognized that some solutions, like ordering the closure of a company or regulating its
affairs, could only be granted by a court. These solutions affected more than just the people in the
dispute and couldn't be given by an arbitration panel.
• However, just because certain solutions were unavailable in arbitration didn't mean the main
problem couldn't be settled that way. In other words, even if an arbitration panel couldn't provide
specific types of help to third parties, members of a company could still agree to solve their problems
through arbitration.
• Patten LJ pointed out that even if someone sought a solution only a court could give, the agreement to use
arbitration should first let the arbitrator decide on the main issue before going to court.
• Longmore LJ, who gave the second opinion, agreed and emphasized that there wasn't a general rule against
using arbitration for disputes about a company's internal management based on public policy.

France (Code Civil, 1804)

Article 2059. One can arbitrate with respect to all rights of which one can dispose freely.
Article 2060. One cannot submit to arbitration questions of status and capacity of persons, questions relative to
divorce and separation, or questions respecting controversies that concern public entities or public
establishments and more generally any matter that concerns the public order.
Italy (1990 Italian Code of Civil Procedure as amended in 2006)
Article 806. (Arbitrable disputes) The parties may have disputes that have arisen between them decided by
arbitrators provided the subject matter does not concern rights that may not be disposed of, except in case of
express prohibition by law.
Japan (Arbitration Law No.138 of 2003) Article 13. (Effect of Arbitration Agreement)
Unless otherwise provided by law, an arbitration agreement shall be valid only when its subject matter is a civil
dispute that may be resolved by settlement between the parties (excluding that of divorce or separation).

Portugal (2011 Act on Voluntary Arbitration)

Any dispute relating to disposable rights, which has not been exclusively submitted by a special [legislative] act
to a court or to compulsory arbitration, may be submitted by the parties to decision by arbitrators.

Doctrine of Kompetenz-Kompetenz
• The doctrine of Kompetenz-Kompetenz recognizes the authority of an arbitral tribunal to determine
the scope of its own jurisdiction, including deciding on challenges to its jurisdiction. In other
words, the tribunal has the power to rule on its own competence.
Instances:
1. First Instance Competence: If a party challenges the jurisdiction of the arbitral tribunal, the tribunal
itself has the initial authority to decide on the issue.
2. Question on validity of arbitration agreement: If a party questions the validity of the arbitration
agreement, the arbitral tribunal has the competence to decide whether the agreement is valid, binding,
and enforceable. This is consistent with the idea that the tribunal is in the best position to assess the
scope and validity of its own authority.
 KB

The Kompetenz-Kompetenz principle is widely recognized and applied in international arbitration, including
under various arbitration laws and international conventions.
This doctrine helps maintain the efficiency and autonomy of the arbitral process, allowing the tribunal to
determine its jurisdiction without immediate interference from the courts, subject to subsequent judicial review
if necessary.

Approaching the court in cases where an arbitration agreement exists may run contrary to the intent, however
despite being in writing if the mode of settling disputes is unclear - the court has to assist. Such clauses are
commonly called “pathological clauses.” Although they indicate the intention of the parties to resolve their
disputes, however, effectuating them in the way they are worded may not be feasible. The role of the courts in
such cases, when approached, is concerned with a) investigating intent to arbitrate; and b) effectuating intent (if
established) given ambiguities; while restraining itself to not go beyond what the parties would have intended
and impose its own version.

Enercon India Ltd. v. Enercon GmBH, AIR 2014 SC 3152

ISSUES:
1. Whether the Parties can refuse to arbitrate on the grounds that there was no validly concluded IPLA?
Further, whether the Court decides this issue or if it is an issue that is to be left for the Arbitral Tribunal
to decide?
2. Assuming that there is an arbitration agreement in place, whether the arbitration clause is vague
and ‘unworkable’?
3. Assuming that the arbitration clause is ‘workable’ whether the seat of arbitration is in London or India?
4. Assuming that the seat is India, whether the English Courts would have concurrent jurisdiction as the
venue of arbitration is in London?
ARGUMENT - There is neither a concluded IPLA between the parties nor is there a legally enforceable
arbitration agreement. In any event, the arbitration can not proceed as the arbitration clause itself is unworkable.
As noticed earlier, learned senior Counsel has submitted that in the absence of a concluded contract, there can be
no arbitration agreement.
Since the IPLA is not concluded there can be no severability of the arbitration agreement and there is no
arbitration clause.
COUNTER ARGUMENT: The intention of the parties to arbitrate is clear. Even if the existence of the
main contract is under dispute, the court is concerned only with the arbitration agreement i.e. the
arbitration clause. absence of IPLA will not nullify the arbitration clause.
• Arbitration Agreement is valid and existing
• The Supreme Court started out by stating that the legislative mandate under Section 45 of the Indian
Arbitration Act only allowed the court to decline referring a dispute to arbitration if the agreement was
found to be “null and void, inoperative or incapable of being performed“.
• The Supreme Court held that the signing of the IPLA by the parties together with evidence of past
dealing – all of which were subject to arbitration – was enough for the court to arrive at a prima facie
conclusion that the parties intended to arbitrate and on that basis refer the parties to arbitration.
• The Supreme Court supported its above conclusion by asserting that parties cannot be permitted to
avoid arbitration without satisfying the court that it would be just and in the interest of all the parties
not to proceed with arbitration. The Court also considered the widely worded arbitration clause where
all disputes (including those with regard to the validity of the IPLA) were to be referred to arbitration.
• The Court reiterated the concept of separability of the arbitration agreement and held that an
arbitral tribunal had jurisdiction to consider claims even where there is a dispute as to the
validity of the underlying contract. (DOCTRINE OF KOMPETENZ-KOMPETENZ). The Supreme
 KB

Court went on to hold that in the present case, the issue as to whether the IPLA was properly concluded
would be one for the Arbitral Tribunal to decide.
Arbitration Agreement is not ‘unworkable’
• The Supreme Court held that although there were some errors in the drafting of the clause – such as the
clause’s failure to specify the procedure for appointment of a third arbitrator – the clause was not
‘unworkable’ or pathological.
• The Supreme Court held that courts are required to adopt a pragmatic approach and when faced
with a seemingly unworkable arbitration clause, it is the courts’ duty to make the same workable
within the limits permissible under the law.
• The Court held that the arbitration clause in the IPLA was missing a line to the effect that the two
arbitrators appointed by the parties shall appoint the third arbitrator. The Court felt that this omission
was so obvious that the court was entitled to legitimately supply the missing line in the clause. In
the interests of time however the Supreme Court appointed the third arbitrator itself, as the
parties had already appointed an arbitrator each.
Seat of arbitration is India
• The Supreme Court relied heavily on the ratio of the case of Naviera Amazonica Peruana S.A. v
Compania Internacional De Seguros Del Peru and applied the closest and intimate connection test to
determine the seat of arbitration.
• The Supreme Court held that Indian law was chosen as the law applicable to all aspects of the
agreement and the arbitration; i.e. the law governing the contract, the law governing the arbitration
agreement and the procedural law of the arbitration were all Indian law.
• English Courts do not have concurrent supervisory jurisdiction over the arbitration
• The Bombay High Court had concluded that although the seat of arbitration was in India, the English
courts would have concurrent jurisdiction over the dispute as the venue chosen was London. The
Supreme Court disagreed with this finding and held that the overarching aim of arbitration is to enable
the parties to resolve the disputes speedily, economically and finally and there are several difficulties
that can be caused by courts in two countries exercising concurrent jurisdiction over the same subject
matter. The court held that (consistent with the law in most arbitration friendly jurisdictions) once the
seat of arbitration has been fixed as India, then it is the Indian courts that would have the exclusive
jurisdiction to exercise supervisory powers over the arbitration.

The NN global mercantile cases

Issue: validity of an arbitration agreement found within an unstamped or inadequately stamped contract
 NN Global I – held - non-payment of stamp duty on the underlying contract would not invalidate the
arbitration agreement and render it non-existent in law, an arbitration agreement in an unstamped
or inadequately stamped contract was enforceable on the basis of: the doctrine of severability and
kompetenz kompetenz.
 Doctrine of severability
 Kompetenz-Kompetenz
3 judge bench view
• The Court acknowledged the doctrine of separability and observed that Section – 16 of the Arbitration
Act is sufficient enough to support the doctrine of separability and proved that fact that arbitration
clauses in substantive contracts are independent and separate. Subsequently, the Court stated that since
arbitration clauses survive independence, they are enforceable and an Arbitral Tribunal can be
appointed. Therefore, the tribunal will be eligible to address such concerns related to validity of
arbitration agreement under the doctrine of kompetenz – kompetenz. The Court shall only address the
question of existence of the arbitration agreement and once that is established, the Tribunal shall
be the one addressing the question of its validity. The opinion of the Court in this case righteously
 KB

implemented the legislative intent with insertion of Section – 11(6A) in the Arbitration Act i.e.,
minimal court intervention.

NN Global II
 5 judge bench – majority opined that an unstamped or inadequately stamped contract would not
invalidate the arbitration agreement is not good law.
 Emphasis was laid on the object of the Stamp Act and it was held that Stamp Act serves as a fiscal
measure designed to be rigorously enforced, with its stringent provisions aimed at generating and
safeguarding revenue.
 What happens if a document is not stamped or insufficiently stamped?
5 judge bench view
• An arbitration agreement within the meaning of Section 7 of the Arbitration and Conciliation Act
attracts stamp duty and which is not stamped or insufficiently stamped cannot be acted upon in view of
Section 35 …..the arbitration agreement contained in such instrument as being non-existent in law
until the instrument is validated under the Stamp Act.
NN Global III
 7 judge bench
 Arguments of the petitioner (in favour of upholding the validity of an arbitration agreement):
- The deficiency in stamping is a curable defect under the Stamp Act – the legislative intent behind the
enactment of the Stamp Act is to safeguard public revenue rather than disrupt commercial activities by rendering
essential instruments, that are otherwise crucial for the seamless conduct of trade and commerce, invalid;
- Requiring the court (acting in supervisory capacity u/s. 8 or 11) to address stamping related issues would
defeat the object of the Act – i.e., to minimize judicial intervention (s. 5)
- It would also flout the principles of separability and kompetenz-kompetenz – nullifies s. 11 (6A) and s. 16.
Held:
NN Global II and other similar judgments overruled to the extent that it fails to:
 consider and apply the principles of severability and kompetenz-kompetenz
 fails to distinguish between inadmissibility and invalidity
 disproportionately weighs the intent of the Stamp Act over the Arbitration Act – fails to harmoniously
construe the two legislations
 goes against the object of minimizing judicial interference (s. 5)
7 judge bench view
• The recent 7-judge bench clarified the distinction between inadmissibility and voidness of the
contract, emphasizing that stamping deficiencies make instruments inadmissible but not void under the
Stamp Act. The Court recognized the distinct and separable nature of arbitration agreements from the
main contract and also held that the issue of stamping is a jurisdictional matter and if such issue is
raised before an arbitral tribunal, then the tribunal can impound and examine such instrument.
• The Court further advocated a harmonious interpretation of the Arbitration Act, the Stamp Act, and the
Contract Act. It asserted the primacy of the Arbitration Act in relation to arbitration agreements over
other statutes since it is a special law designed for conducting arbitration.
 KB

Booz Allen & Hamilton v. SBI Home Finance (2011) 5 SCC 532
Paras 19, 21, 22, 32 to 39
Rights in rem: required to be adjudicated by courts and public tribunals
- It a right exercisable against the world at large
-Judgment that determines status or condition of property

Right in personam:
- Judgment against a person as distinguished from a judgment against a thing, right or statutes.

- Whether the disputes are capable of adjudication and settlement by arbitration?

- Whether the disputes are covered by the arbitration agreement?

- Whether the parties have referred the disputes to arbitration?

An agreement to mortgage does not involve transfer of a right in rem but creates only a personal obligation.
Therefore, if specific performance is sought in regard to an agreement to mortgage, the claim for specific
performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for
sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a
mere money suit. Being enforcement of a right in rem, it will have to be decided by courts of law and not by
arbitral tribunals.
Examples- - Disputes relating to rights and liabilities which give rise to or arise out of criminal offences.
-Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody.
-Insolvency
Whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely
among themselves but also against all persons at any.
From a transnational perspective, non-arbitrability may arise from distinct situations, these include:
(ii) The non-existence of an arbitration agreement between the parties.
(iii) The arbitration agreement being invalid under the applicable law.
(iv) A disputed issue falling outside the scope of the arbitration agreement.
(v) The applicable law prohibits arbitration of a disputed issue/subject-matter.
(vi) An essential precondition or prerequisite for referring the matter to arbitration is not met by either or both of
the parties.
(vii) The party seeking arbitration has waived its right to arbitrate or is estopped from claiming that right.
 The term “arbitrability” has different meanings in different contexts. The 1996 act does not specifically
exclude any category of disputes as being non-arbitrable. However, Sections 34(2)(b) and 48(2)
provide that an arbitral award will be set aside if the court finds that “the subject matter of the dispute
is not capable of settlement by arbitration under the law for the time being in force.”
 The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under:
a) Whether the disputes are capable of adjudication by arbitration? – nature of disputes – whether the
disputes, having regard to their nature, could be resolved by a private forum chosen by the
parties.
Well recognized examples of non-arbitrable disputes are – disputes relating to rights and liabilities which give
rise to or arise out of criminal offences; matrimonial disputes relating to divorce, judicial separation,
restitution of conjugal rights, child custody; guardianship matters; insolvency and winding up matters;
 KB

testamentary matters; eviction and tenancy matters where tenant enjoys statutory protection against
eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
a) Whether the disputes are covered by the arbitration agreement? i.e., whether the disputes are
enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether
the disputes fall under the “excepted matters” excluded from the purview of the arbitration agreement.
b) Whether the parties have referred the disputes to arbitration? i.e., whether the disputes fall under the
scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of
claim and counterclaim filed before the arbitral tribunal. A dispute, even if it is capable of being
decided by arbitration and falling within the scope of arbitration agreement, will not be “arbitrable” if it
is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list
of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal.
c) Nature of rights in question – ‘right in rem’ and ‘right in personam’
A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which
is an interest protected solely against specific individuals.
d) Actions in personam refer to actions determining the rights and interests of the parties themselves in
the subject-matter of the case, whereas actions in rem refers to actions determining the title to property
and the rights of the parties, not merely among themselves but also against all persons at any time
claiming an interest in that property.
e) Generally, and traditionally all disputes relating to rights in personam are considered to be amenable to
arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public
tribunals being unsuited for private arbitration. However, this is not a rigid or inflexible rule. Disputes
relating to subordinate rights in personam arising from rights in rem have always been
considered as arbitrable. E.g., dispute regarding validity of a patent may not be arbitrable but
the rights under a patent license may be arbitrable.
f) Arbitral Tribunals are private for a chosen voluntarily by the parties to the dispute, to adjudicate their
disputes in place of courts and tribunals which are public for a constituted under the laws of the
country.
g) Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a
court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of
the Arbitral Tribunals is excluded either expressly or by necessary implication.
h) Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public
for a as a matter of public policy. Consequently. Where the cause/dispute is non-arbitrable, and where a
suit is pending the court will refuse to give effect to the arbitration agreement (refer parties to arb u/s.
8).
For e.g., arbitration agreements in consumer contracts. “while considering both the provisions in the Consumer
Protection act, 1986” and the Arbitration act, 1996, has held that the Consumer Protection Act being a special
and beneficial legislation, the remedies provided therein are special remedies and a consumer cannot be
deprived of them should they choose to avail such a remedy, in spite of an arbitration agreement between the
parties.” – consumer disputes are non-arbitrable. Hemalatha Devi v. Udayasri SC 2023

Hemalatha Devi v. Udayasri SC 2023

Arbitrability of consumer disputes
 Arbitration agreements in consumer contracts. “while considering both the provisions in the Consumer
Protection act, 1986 and the Arbitration act, 1996, held that the Consumer Protection Act being a
special and beneficial legislation, the remedies provided therein are special remedies and a consumer
cannot be deprived of them should they choose to avail such a remedy, in spite of an arbitration
agreement between the parties.” – consumer disputes are non-arbitrable.
 “Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a
court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of
the Arbitral Tribunals is excluded either expressly or by necessary implication.” Booz Allen (2011).
 KB

 Even private and commercial disputes become inarbitrable “when private commercial conduct
implicates public interest”. “When a commercial dispute involves public policy, most arbitration laws
provide that it is inarbitrable because of its subject-matter. To some extent, subject-matter
inarbitrability overlaps with the public policy exception to arbitration.”

Non-intervention
 Sections: 5, 8, 11, 34
 Emaar v MGF
 Ssangyong Construction Limited v NHAI [Supreme Court, 8 May 2019]

Number of Arbitrators
S4,10,16
Choosing arbitrators
The skill, experience, and knowledge of the arbitrators will have a significant impact on the quality of the
process and of the award.
Qualifications- Knowledge and Experience, Lawyers or non-lawyers, availability, specifications and
requirements
The Practice Experienced practitioners agree that the appointment of arbitrators is a critical step in the arbitral
process.
As Sylwester Pieckowski has noted:
“The quality of the tribunal is decisive, and the consequences are tragic if you choose wrong.”
Assume the claimant is from Austria, and the law applicable to the merits is Swiss law. Should claimant now
appoint a Swiss arbitrator or perhaps an Austrian arbitrator?
If claimant decides to appoint an Austrian arbitrator, the other side may well appoint a Swiss arbitrator. At this
point, claimant may be concerned about whether the chair should be Swiss, because it might not want the chair
and the other arbitrator to be too close on the legal questions. However, if the chair is well known, and highly
respected for both his knowledge of Swiss law and the strength of his character and personality, then it would
not really matter if the chair is also Swiss. Depending on the case, knowledge of the applicable law may not be
as important as other qualities, such as understanding pertinent industry practices, technical matters or other
elements in dispute.
Claudia Kälin-Nauer Switzerland

Vidya Drolia v Durga Trading

paras 51 to 54, 61, 62, 73, 74, 76, 78, 82
He also argued that Section 11(6A) of the Arbitration & Conciliation Act should be read in a purposive manner,
and that “existence” of an arbitration agreement that is spoken of would also refer to disputes which are non-
arbitrable as such.
The 246th Law Commission Report, which led to the enactment of Section 11(6A), stated as follows:- Section
11(6A) of the amendment contemplates a two-step process to be adopted by a judicial authority when
considering an application seeking the reference of a pending action to arbitration. The amendment envisages
that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an
arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the
arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the
arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority
 KB

concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The
amendment also envisages that there shall be a conclusive determination as to whether the arbitration
agreement is null and void.” (emphasis supplied)
6. It will be seen that though the Law Commission Report speaks not only of “existence” but also of an
arbitration clause being null and void, this has not translated itself into the language of Section 11(6A). On
the contrary, Section 11(6A) is to be contrasted with Section 16(1) of the Act which reads as follows:
“16. Competence of arbitral tribunal to rule on its jurisdiction.—(1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration
agreement, and for that purpose,—
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other
terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of
the arbitration clause.”
7. It will be noticed that “validity” of an arbitration agreement is, therefore, apart from its “existence ”. One
moot question that therefore, arises, and which needs to be authoritatively decided by a Bench of three learned
Judges, is whether the word “existence” would include weeding-out arbitration clauses in agreements which
indicate that the subject-matter is incapable of arbitration.
The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions
in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position
continued till the amendment brought about in 2015. After the amendment, all that the courts need to see
is whether an arbitration agreement exists— nothing more, nothing less. The legislative policy and
purpose is essentially to minimise the Court’s intervention at the stage of appointing the arbitrator and
this intention as incorporated in Section 11(6-A) ought to be respected.”
“35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their
disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every
civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in
principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral
Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of
proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other
categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by
necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is
inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of
the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.”
Paragraph 36 then goes on to give certain well recognized examples of non-arbitrable disputes as follows:
“36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities
which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial sepa-
ration, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up
matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi)
eviction or tenancy matters governed by spe- cial statutes where the tenant enjoys statutory protec- tion against
eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”
Paragraphs 37 and 38 then go on to state that a right in rem is a right exercisable against the world at large, and
is not amenable to arbitration, whereas a right in personam, in which an interest is protected against specific
individuals, is. It was also stated that disputes relating to subordinate rights in personam arising from rights in
rem have always been considered to be arbitrable.
Non- Arbitral subject-matter
• The accuse of action and subject-matter of the dispute relates to action in rem
• The cause of action and subject-matter of the dispute affects third-party rights
• Where rights or obligations are owed towards all, require centralized adjudication and mutual
adjudication would not be appropriate and enforceable.
 KB

• The cause of action and subject-matter of the dispute relates to inalienable sovereign and public interest
functions of the state and hence mutual adjudication would be unenforceable.
• The subject-matter of the dispute is expressly or by necessary implication non-arbitration as per
mandatory statutes
Is Intellectual Property Arbitrable?
Non-arbitrability, held, insolvency, intra-company disputes, grant and issue of patents and registration of
trademarks, criminal cases, matrimonial disputes, probate and testamentary matters, are non-arbitrable.
Question regarding arbitrability of fraud in contractual disputes
 Fourfold test to determine when claims in or subject matter of a dispute are not arbitrable. The test has
to be applied with care and caution, it is not meant to be a straight-jacket formula: (para 76)
1. The cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to
subordinate rights in personam that arise from rights in rem.
Exclusion of actions in rem from arbitration, exposits the intrinsic limits of arbitration as a private dispute
resolution mechanism, which is only binding on “the parties” to the arbitration agreement. Arbitral tribunals not
being courts of law or established under the auspices of the State cannot act judicially so as to affect those who
are not bound by the arbitration clause and arbitration is unsuitable when it has erga omnes effect, that is, it
affects the rights and liabilities of persons who are not bound by the arbitration agreement.
1. The cause of action and subject matter of the dispute affects third party rights, have erga omnes
effect i.e., where rights or obligations are owed towards all, require centralized adjudication, and
mutual adjudication would not be appropriate and enforceable;
2. The cause of action and subject-matter of the dispute relates to inalienable sovereign and public
interest functions of the State and hence mutual adjudication would be unenforceable;
3. The subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per
mandatory statute(s).

At what stages can the issue of non-arbitrability be decided? (para 82)

At three stages:
1. Before the court on an application for reference under s. 11 or 8;
2. Before the Arbitral Tribunal during the course of the arbitration proceedings.
3. Before the court at the stage of the challenge to the award or its enforcement.

Arbitrability of fraud (61,62, 73, 74 and 78)

 A reference to arbitration may be rejected on the ground of non-arbitrability where fraud is alleged
against the arbitration provision itself or is of such a nature that permeates the entire contract, including
the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the
contract itself which contains the arbitration clause or the validity of the arbitration clause itself.
 Two working tests for determining whether allegations of fraud go to the question of arbitrability:
i. Does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it
void, or
ii. Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no
implication in the public domain.
 The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot
be said to exist in a clear case in which the court finds that the party against whom breach is alleged
cannot be said to have entered into the agreement relating to arbitration at all.
 KB

 The second test is met in cases in which allegations are made against the state or its instrumentalities of
arbitrary, fraudulent, or mala fide conducts, thus, predominantly questions arising from the contract
itself or breach thereof but questions arising in the public law domain.

Arbitrability of landlord-tenant disputes under the TP Act (para 79)

 Landlord-tenant disputes governed by TP Act are arbitrable as they are not actions in rem but pertain to
subordinate rights in personam that arise from rights in rem. Such actions normally would not affect
third-party rights or have erga omnes affect or require centralized adjudication.
 Landlord-tenant disputes are arbitrable as the TP Act does not forbid or foreclose arbitration. However,
landlord-tenant disputes covered and governed by rent control legislation would not be
arbitrable when specific court or forurm has been given exclusive jurisdiction to apply and decide
special rights and obligations. Such rights and obligations can only be adjudicated and enforced by
the specified forum/court, and not through arbitration. (See section 2(3) of the 1996 act).

Lohia vs. Lohia (2002) 1 Arb LR 493 (SC)

Composition of arbitral tribunal- Section 10. Number of arbitrators.
(1) The parties are free to determine the number of arbitrators, provided that such a number shall not be an
even number.
(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.
Section 11. Appointment of arbitrators.
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or
arbitrators.
(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall
appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the
presiding arbitrator.
Number of appointment if two arbitrators by agreement of parties; does not mean that the agreement
itself becomes invalid.
The two arbitrators should appoint a third arbitrator to act as presiding arbitrator.
The appointment if the third arbitrator should be made at the beginning.
 In this case the parties had agreed on a two-member arbitral tribunal.
 Arbitral award rendered and at the stage of challenge objection under s. 10 was raised. The SC allowed
the enforcement of the award and held that Section 10 was a derogable provision.
 ‘Stipulation of even number of arbitrators was not in violation of public policy, but in the event of an
impasse, the arbitrators could agree upon a third, presiding arbitrator.’
 One of the reasons for allowing enforcement – the party which had acceded to the process for so long
[parties agreed on a two-member tribunal – conducted the entire proceedings – award issued and then
one of the parties raised an objection under s. 10(1)], had waived its right to object to the number of
arbitrators. It was also emphasized that this case was an exception, and the parties must be careful
in implementing the restriction under section 10(1).

MMTC Ltd. vs. Sterlite Industries Ltd. (1996) 6 SCC 716

• The validity of an arbitration agreement does not depend on the number of arbitrations. Section
7 and section 10
 KB

• The arbitration agreement in question was entered into before the commencement of the 1996 Act,
providing for appointment of one arbitrator each by the concerned parties and an umpire by the said
arbitrators. After commencement of the 1996 Act, one of the parties, invoking the arbitration clause
appointed its arbitrator which was opposed by the other party on the ground that the agreement
provided for two arbitrators, which is not permitted under s. 10(1) of the 1996 Act. Thus, arbitration
cannot be resorted to and the only remedy is to file a civil suit. The SC rejected this contention and held
that the arbitration agreement was valid under the requirements of the1940 Act (para 2 First Schedule)
as well as the 1996 Act (s. 7).
• “The validity of an arbitration agreement does not depend on the number of arbitrators specified in
Section 7. The number of arbitrators is dealt with separately in Section 10 which is a part of machinery
provision for the working of the arbitration agreement. Therefore an agreement specifying an even
number of arbitrators cannot be a ground to render the arbitration agreement invalid under the New
Act.”

Removal of arbitrators
Porter v Magill
Reasonable Man test
The parties were agreed that the common law test for apparent bias was as set out in Porter v Magill [2002] AC
357 at 102: i.e. whether “a fair minded and informed observer, having considered the facts, would conclude that
there was a real possibility that the tribunal was biased”.-
 HL ruled that the power to sell property to tenants in the hope of gaining party political advantage was
unlawful. This was because the power conferred on LA had to be used for its intended purpose, which
did not include electoral gain.
 The test to be used for bias was “whether the fair-minded observer, having considered the facts,
would conclude that there was a real possibility that the tribunal was biased” (Lord Hope), as
opposed to the “real danger” test in Gough.

Real Danger Test- R V Gough

This was a case involving a juror who was the next-door neighbour of the brother of the accused but swore an
affidavit that she wasn’t aware of the fact until after the jury delivered its verdict.
The court refused to quash the decision on the basis of bias, since the test for bias is whether there was a “real
danger” that a trial may not have been fair as a result of bias - the “real likelihood” test.

AT&NT V Saudi Cable

AT&T Corp and Saudi Cable Co entered into an arbitration agreement for resolving disputes. The arbitration
was conducted by a panel of three arbitrators, including Yves Fortier, a non-executive director of Nortel, a
competitor of AT&T Corp. AT&T Corp alleged bias and misconduct on the part of Mr Fortier and challenged the
awards.
Issue- Whether the awards should be set aside or Mr Fortier should be removed as an arbitrator due to bias or
misconduct.
Decision- The court found no grounds for setting aside the awards or removing Mr Fortier based on bias or
misconduct. The non-disclosure of Mr Fortier's directorship of Nortel was inadvertent and did not amount to
misconduct. The ICC Rules do not provide any support for an allegation of misconduct due to an error in the
CV. AT&T failed to establish a case of bias or apparent bias and did not invoke the court's jurisdiction to order
Mr Fortier's removal. The court also declined to exercise its discretion in AT&T's favour under section 23 of the
1950 Act.
Reasoning- The court held that the Gough approach, which requires a real danger of bias, is binding on courts in
this jurisdiction. Sir Sydney Kentridge's argument that the reasonable apprehension or suspicion of bias provides
 KB

a better test is not strictly binding where an arbitrator is involved, particularly in an international arbitration.
However, the court found that both the real danger and the reasonable suspicion tests subsume the test
laid down by Lord Hewart that justice must manifestly be seen to be done. The real danger test is a working
test designed to give effect to that dictum, while having regard to substance as well as appearance. If a party
alleges reasonable suspicion or real danger of bias as similarly affording a reason to set aside a decision, the
court should investigate the factual basis for the allegation in order to see whether there is any real cause for
concern. In this case, AT&NT failed to establish bias or apparent bias on the part of Mr Fortier.
The court also found that Mr Fortier's non-executive directorship of Nortel does not call into question his
independence as an arbitrator. AT&T's primary complaint concerned the possible disclosure of confidential
information to a non-executive director of a competitor, rather than Mr Fortier's independence as an arbitrator.
The court held that Mr Fortier's inadvertent failure to tick the second box in the Statement of
Independence could be seen as a procedural mishap but declined to exercise its discretion in AT&T's
favour under section 23 of the 1950 Act.
Statutes and Rules Cited
• 1950 Act, section 23
• ICC Rules, Article 2.7, Article 8

IBA Guidelines on Conflicts of Interest in International Arbitration

 Part – I – General Standards Regarding Impartiality, Independence and Disclosure
 Part – II - Practical Application of the General Standards
 Red List - an objective conflict of interest exists from the point of view of a reasonable third person
having knowledge of the relevant facts and circumstances. The Waivable Red List covers situations
that are serious but not as severe.
 Orange List - The Orange List is a non-exhaustive list of specific situations that, depending on the facts
of a given case, may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality
or independence. the arbitrator has a duty to disclose such situations.
 Green List - no appearance and no actual conflict of interest exists from an objective point of view. The
arbitrator has no duty to disclose situations falling within the Green List.
 The borderline between the categories that comprise the Lists can be thin. It can be debated whether a
certain situation should be on one List instead of another. The Lists reflect international principles and
best practices to the extent possible.
Red List
 Non-Waivable
1.1 Identity between a party and the arbitrator, the arbitrator is a legal representative or employee of an entity
that is a party in the arbitration.
1.2 The arbitrator is a manager, director or member of the supervisory board, or has a controlling influence on
one of the parties, or an entity that has a direct economic interest in the award.
1.3 The arbitrator has a significant financial or personal interest in one of the parties, or the outcome of the case.
1.4 The arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or
his or her firm derives significant financial income therefrom.
 Waivable
2.1 Relationship of the arbitrator to the dispute
2.2 Arbitrator’s direct or indirect interest in the dispute
2.3 Arbitrator’s relationship with the parties or counsel
 KB

2.1 Relationship of the arbitrator to the dispute

The arbitrator has given legal advice, or provided an expert opinion, on the dispute to a party or an affiliate of
one of the parties.
Prior Involvement in the dispute.
2.2 Arbitrator’s direct or indirect interest in the dispute
The arbitrator holds shares, either directly or indirectly, in one of the parties, or an affiliate of one of the parties,
this party or an affiliate being privately held.
A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
The arbitrator, or a close family member of the arbitrator, has a close relationship with a non- party who may be
liable to recourse on the part of the unsuccessful party in the dispute.

 3.1 Previous services for one of the parties or other involvement in the case
The arbitrator has, within the past three years, served as counsel for one of the parties, or an affiliate of one of
the parties, or has previously advised or been consulted by the party, or an affiliate of the party, making the
appointment in an unrelated matter, but the arbitrator and the party, or the affiliate of the party, have no ongoing
relationship.
The arbitrator has, within the past three years, been appointed as arbitrator on two or more occasions by one of
the parties, or an affiliate of one of the parties.
The arbitrator has, within the past three years, served as counsel against one of the parties, or an affiliate of one
of the parties, in an unrelated matter.
 3.2 Current services for one of the parties
The arbitrator’s law firm is currently rendering services to one of the parties, or to an affiliate, without creating a
significant commercial relationship for the law firm and without the involvement of the arbitrator.
A law firm or other legal organisation that shares significant fees or other revenues with the arbitrator’s law firm
renders services to one of the parties, or an affiliate of one of the parties, before the Arbitral Tribunal.
The arbitrator or his or her firm represents a party, or an affiliate of one of the parties to the arbitration, on a
regular basis, but such representation does not concern the current dispute.
 3.3 Relationship between an arbitrator and another arbitrator or counsel
The arbitrator was, within the past three years, a partner of, or otherwise affiliated with, another arbitrator or any
of the counsel in the arbitration.
The arbitrator and another arbitrator, or the counsel for one of the parties, are members of the same barristers’
chambers.
The arbitrator and another arbitrator are lawyers in the same law firm.
A lawyer in the arbitrator’s law firm is an arbitrator in another dispute involving the same party or parties, or an
affiliate of one of the parties.
 3.5 Other circumstances
The arbitrator holds shares, either directly or indirectly, that by reason of number or denomination constitute a
material holding in one of the parties, or an affiliate of one of the parties, this party or affiliate being publicly
listed.
The arbitrator has publicly advocated a position on the case, whether in a published paper, or speech, or
otherwise.
The arbitrator holds a position with the appointing authority with respect to the dispute.
 KB

The arbitrator is a manager, director or member of the supervisory board, or has a controlling influence on an
affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the
arbitration.
 4.1.1 The arbitrator has previously expressed a legal opinion (such as in a law review article or public
lecture concerning an issue that also arises in the arbitration (but this opinion is not focused on the
case).
 4.2.1 A firm, in association or in alliance with the arbitrator’s law firm, but that does not share
significant fees or other revenues with the arbitrator’s law firm, renders services to one of the parties,
or an affiliate of one of the parties, in an unrelated matter.
 4.3 Contacts with another arbitrator, or with counsel for one of the parties
 The arbitrator has a relationship with another arbitrator, or with the counsel for one of the parties,
through membership in the same professional association, or social or charitable organization, or
through a social media network.
 The arbitrator teaches in the same faculty or school as another arbitrator or counsel to one of the
parties, or serves as an officer of a professional association or social or charitable organisation with
another arbitrator or counsel for one of the parties.
 The arbitrator and counsel for one of the parties have previously served together as arbitrators.
 The arbitrator was a speaker, moderator or organiser in one or more conferences, or participated in
seminars or working parties of a professional, social or charitable organisation, with another arbitrator
or counsel to the parties.
 4.4 Contacts between the arbitrator and one of the par
The arbitrator has had an initial contact with a party, or an affiliate of a party (or their counsel) prior to
appointment, if this contact is limited to the arbitrator’s availability and qualifications to serve, or to the names
of possible candidates for a chairperson, and did not address the merits or procedural aspects of the dispute,
other than to provide the arbitrator with a basic understanding of the case.
The arbitrator holds an insignificant amount of shares in one of the parties, or an affiliate of one of the parties,
which is publicly listed.
The arbitrator and a manager, director or member of the supervisory board, or any person having a controlling
influence on one of the parties, or an affiliate of one of the parties, have worked together as joint experts, or in
another a professional capacity, including as arbitrators in the same case.
The arbitrator has a relationship with one of the parties or its affiliates through a social media network.

The Non-Waivable Red List includes situations deriving from the overriding principle that no person can be
their own judge. Therefore, acceptance of such a situation cannot cure the conflict. The Waivable Red List
covers situations that are serious but not as severe. Because of their seriousness, unlike circumstances described
in the Orange List, these situations should be considered waivable, but only if and when the parties, being aware
of the conflict-of-interest situation, expressly state their willingness to have such a person act as arbitrator
(1) Non-Waivable Red List 1.1 There is an identity between a party and the arbitrator, or the arbitrator is a legal
representative in the arbitration, or employee of a person or entity that is a party in the arbitration. 1.2 The
arbitrator is a manager, director, or member of the supervisory board, or has a controlling influence on one of
the parties or an entity that has a direct economic interest in the award to be rendered in the arbitration. 1.3 The
arbitrator has a significant financial or personal interest in one of the parties, or the outcome of the case. 1.4 The
arbitrator currently or regularly advises a party, or an affiliate1 of a party, and the arbitrator or the arbitrator’s
firm or employer derives significant financial income therefrom.
(4) Waiver by the Parties (a) If, within 30 days after (i) the receipt of any disclosure by the arbitrator, or (ii) a
party otherwise learns of facts or circumstances that could constitute a potential conflict of interest for an
arbitrator, a party does not raise an express objection with regard to that arbitrator, subject to paragraphs (b) and
(c) of this General Standard, the party is deemed to have waived any potential conflict of interest in respect of
the arbitrator based on such facts or circumstances and may not raise any objection based on such facts or
 KB

circumstances at a later stage. A party shall be deemed to have learned of any facts or circumstances under 4(a)
(ii) that a reasonable enquiry would have yielded if conducted at the outset or during the proceedings. (b) If facts
or circumstances exist as described in the Non-Waivable Red List, any waiver by a party (including any
declaration or advance waiver, such as that contemplated in General Standard 3(b)), or any agreement by the
parties to have such a person serve as arbitrator, shall be regarded as invalid. (c) A person should not serve as an
arbitrator when a conflict of interest, such as those exemplified in the Waivable Red List, exists. Nevertheless,
such a person may accept appointment as arbitrator, or continue to act as an arbitrator, if the following
conditions are met: (i) all parties, all arbitrators and the arbitration institution, or other appointing authority (if
any), have full knowledge of the conflict of interest; and (ii) all parties expressly agree that such a person may
serve as arbitrator, despite the conflict of interest. (d) An arbitrator may assist the parties in reaching a settlement
of the dispute, through conciliation, mediation, or otherwise, at any stage of the proceedings. However, before
doing so, the arbitrator should receive an express agreement by the parties that acting in such a manner shall not
disqualify the arbitrator from continuing to serve as arbitrator. Such express agreement shall be considered to be
an effective waiver of any potential conflict of interest that may arise from the arbitrator’s participation in such a
process, or from information that the arbitrator may learn in the process. If the assistance by the arbitrator does
not lead to the final settlement of the case, the parties remain bound by their waiver. However, consistent with
General Standard 2(a) and notwithstanding such agreement, the arbitrator shall resign if, as a consequence of the
arbitrator’s involvement in the settlement process, the arbitrator develops doubts as to the arbitrator’s ability to
remain impartial or independent in the future course of the arbitration
(6) Relationships (a) The arbitrator is in principle considered to bear the identity of the arbitrator’s law firm or
employer, but when considering the relevance of facts or circumstances to determine whether a potential conflict
of interest exists, or whether disclosure should be made, the activities of an arbitrator’s law firm or employer, if
any, the law firm’s or employer’s organisational structure and mode of practice, and the relationship of the
arbitrator with the law firm or employer, should be considered in each individual case. The fact that the
activities of the arbitrator’s law firm or employer involve one of the parties shall not necessarily constitute a
source of such conflict, or a reason for disclosure. Similarly, if one of the parties is a member of a group with
which the arbitrator’s law firm or employer has a relationship, such fact should be considered in each individual
case, but shall not necessarily constitute by itself a source of a conflict of interest, or a reason for disclosure. (b)
Any legal entity or natural person having a controlling influence on a party, or a direct economic interest in, or a
duty to indemnify a party for the award to be rendered in the arbitration, may be considered to bear the identity
of such party. (c) Any legal entity or natural person over which a party has a controlling influence may be
considered to bear the identity of such party.

Problem is that India copied from these guidelines, but did not copy verbatim, where the non-exhaustive red list
would lead to automatic disqualification, in India this does not exist, and they are further labelled as justifiable
doubts case not automatic disqualification.

Multi-Tiered Dispute Resolution

The inclusion of Multi-Tiered Dispute Resolution (MTDR) clauses under legal contracts provides parties with
the option of resolving their dispute through one or other forms of dispute redressal mechanisms, before
submitting to the jurisdiction of an arbitral tribunal or the court.
 MTDR clauses are formed by amalgamation of two or more remedies.
 Parties usually take a bottom to top approach when it comes to MTDR clauses. The bottom tier starts
with non-binding dispute resolution methods which includes informal talks, negotiations, mediation
and goes all the way up to a binding dispute resolution mechanism like arbitration or litigation.
 The binding nature of these pre-arbitral or pre-litigation steps has been a matter of contention before
courts – whether they are mandatory or merely directory in nature.
 The question as to whether the pre-arbitral steps are mandatory or directory in nature is to be
determined by examining certain factors, the most important factor being ‘intention of the parties’. The
intention of the parties is deemed to be reflected by the terms of the contract that they have agreed to,
particularly the dispute resolution clause.
 KB

 Courts have rendered diverging opinions on this issue. The simple reason for this is that the mandatory
or directory nature of the MTDR clause depends on the manner in which the clause is worded/framed,
and also the conduct of the parties.
 Courts can enforce MTDR clauses and compell parties to make a good faith attempt to amicably
resolve disputes through mutual discussions before resorting to arbitration, where the parties by virtue
of the MTDR clauses have categorically agreed to do so (emphasis on use of the word ‘shall’ in such a
clause).

The Attributes of Multi-Tiered Clauses: Mandatory v. Directory

The Indian courts have been torn between two views - the majority view is that pre-arbitral steps are mandatory,
while the minority view believes that the characteristics of an MTDR can only be directorial and not mandatory
in nature.
Minority view- Courts following this view argue that the MTDR clause merely provides a discretionary right to
the parties to resolve the dispute amicably. If the parties find this mechanism not useful for their circumstances,
they are within their rights to invoke arbitration.
Case Laws-
• Sikand Construction Co. v. State Bank of India, wherein it was held that pre-arbitral conditions are
directory provisions and if there is an agreement to arbitrate, then the onus is on the Court to direct
such filing of the arbitration agreement and appoint the arbitrator according to the relevant arbitration
clause.
• Baga Brothers and Siemens Limited concluded the position of the pre-arbitral procedures and held that
they are not mandatory and are merely directory in nature, based on the decision of the Courts in the
earlier cases of Ravinder Kumar, Saraswati Construction and Sikand Construction.

Majority view- The majority view, supported by several Indian court rulings, asserts that pre-arbitral steps are
mandatory. This view is based on the interpretation and wording of the clause. Courts following this view have
given a liberal approach to MTDR clauses, concluding that they are mandatory in nature.
Case laws-
• SBP & Co. v. Patel Engineering, (2005) 8 SCC 61: the dispute resolution procedure agreed by the
parties should be followed since the parties have given a free intention for the dispute resolution
mechanism. Further, the parties should not be allowed to skip the pre- arbitral conditions and directly
jump to arbitral proceedings.
• Haldiram Manufacturing: skipping is a result of the unbalanced bargaining power of the parties. The
power dynamics amongst the parties to commercial contracts often lead to the "major player" acting
unilaterally.
• Simpark Infrastructure M/s. S.B. Arbitration Application No. 26/2011 Pvt. Ltd. v. Jaipur Municipal
Corporation- Whether the agreed arbitral procedure of dispute resolution which has been made
condition precedent for invoking the arbitration clause is required to be followed or not by the
Applicant?
Condition Precedant- Any Dispute or Difference or controversy of whatever nature howsoever arising under or
out of or in relation to this Agreement (including its interpretation) between the parties and so notified in writing
by either party to the other party (“the Dispute”) shall, in first instance attempted to resolved amicably.
The parties agree to see their best efforts for resolving all disputes arising under or in respect of this Agreement
promptly, equitably and in good faith and further agree to provide each other with reasonable access during
normal business hours to all non-privileged records, information and data pertaining to any dispute
Conciliation
 KB

In the event of any Dispute between the parties, either party may require such Dispute to be referred to the Chief
Executive Officer and/or Mayor of the Authority and the Director of the Developer for the time being (in case of
consortium/JV the director of th Lead Member), for amicable settlement. Upon such reference, the two shall
meet at earliest and not later than seven (7) days from the date of reference to discuss and attempt to amicably
resolve the dispute. If such meeting does not take place within the period of seven (7) days or Dispute is not
amicably settled within fifteen (15) days of the meeting or the Dispute is not resolved as evidenced by signing
the written terms of settlement within thirty (30) days of notice in writing referred to in clause 16.1.1 above or
such longer period as may be mutually agreed by the parties, either party may refer the Dispute to arbitration in
accordance with the provisions of clause 16.3.
Arbitration
Any Dispute which is not resolved amicably shall be referred to a panel of three (3) arbitrators in terms of the
Arbitration and Conciliation Act, 1996. For this purpose Authority will make out a panel of five (5) possible
arbitrators. Each party shall nominate an arbitrator out of this panel submitted by the Authority and these two (2)
arbitrators will appoint the third arbitrator in writing and also inform the concerned parties about such
appointment and call upon the other party to appoint its arbitrator. If within fifteen (15) days of receipt of such
intimation the other party fails to appoint its arbitrator, the party seeking appointment of arbitrator may take
further steps in accordance with Arbitration and Conciliation Act, 1996. The arbitrator shall give item- wise and
reasoned award. Where three (3) arbitrators have been appointed, the award of the majority will prevail.

Enforceability- interpretation, parties’ intention, validity.

Centrotrade 1
Facts- The arbitration clause in the agreement provided for a two-tier arbitration mechanism whereby any
dispute was to be settled by a Sole Arbitrator under the aegis of the Indian Council of Arbitration (ICA). In the
event of any party disagreeing with the award rendered by the Sole Arbitrator, it would have a right to appeal to
a Second Arbitration in London under the aegis of the International Chamber of Commerce (ICC).
The ICA Sole Arbitrator passed an award rejecting the claims made by Centrotrade Minerals. This award was
challenged by the American company before the second arbitration in London, which ultimately passed a
reasoned award in favour of Centrotrade Minerals. The dispute reached up till the apex court on the issues
pertaining to the validity of the arbitration clause and the enforceability of the ICC Arbitral Award (in appeal)
passed in favour of Centrotrade Minerals. However, it was referred to the three-Judge Bench of the Hon'ble
Supreme Court of India as the Division Bench comprising of HMJ S.B. Sinha and HMJ Tarun Chatterjee
failed to reach a consensus upon the validity of the arbitration clause.
While deciding the first issue regarding the validity of the said arbitration clause, the three-Judge Bench of the
Hon'ble Supreme Court comprising of HMJ Madan B. Lokur, HMJ R.K. Agrawal and HMJ D.Y. Chandrachud
in its landmark judgment reported as Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd., reported
as (2017) 2 SCC 228 held that two-tier arbitration agreement is valid and legally permissible under the
Arbitration and Conciliation Act 1996 and the parties may opt for such a mechanism for resolving their disputes

While deciding the first issue regarding the validity of the said arbitration clause, the three-Judge Bench of the
Hon'ble Supreme Court comprising of HMJ Madan B. Lokur, HMJ R.K. Agrawal and HMJ D.Y. Chandrachud
in its landmark judgment reported as Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd., reported
as (2017) 2 SCC 228 held that two-tier arbitration agreement is valid and legally permissible under the
Arbitration and Conciliation Act 1996 and the parties may opt for such a mechanism for resolving their disputes
(A) Whether a settlement of disputes of difference through a two-tier arbitration procedure as provided for in
Clause 14 of the contract between the parties is permissible under the laws of India?
Article 2(b) and article 7 in no way exclude the concept of a two-tier arbitration that is capable of being
enforced under two different chapters.
 KB

Applicable Laws
 Applicable law [lex causea - law applicable to the substance of the dispute]
 why is it important? what is its impact?
(i) jurisdiction vis-à-vis matters of substance (affects cause of action/rights);
(ii) liability (legal basis/requirements; burden of proof);
(iii) Remedy;
(iv) Limitation
 Extent of party autonomy in ‘Applicable law in domestic arbitration’ v. ‘applicable law in international
commercial arbitration’
 Curial Law/Procedural Law/Law applicable to the conduct of arbitral proceedings [lex arbitri – law
applicable to the arbitral proceedings – determined by ‘seat’] [ss. 2(2), 19 esp. 19(2)]
 Redfern and Hunter on the question, what is lex arbitri:
“a body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the
conduct of arbitration. The law governing the arbitration comprises the rules governing interim measures …, the
rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into
difficulties … and the rules providing for the exercise by the Court of its supervisory jurisdiction over
arbitrations… ” (not an exhaustive definition)
 Party autonomy is at the heart of ADR mechanisms including arbitration. In light of party autonomy,
the parties have the freedom to decide how the arbitration will be conducted, this includes where the
arbitration would be conducted.
 Why is it important to determine the seat of arbitration:
 Due to its impact on jurisdiction of courts (whether Part I is applicable or Part II) which may be
involved in the granting of interim measures or in assisting with the constitution of the tribunal, and
even in dealing with challenges to the award.
 Parties are free to decide on the law that governs the arbitration procedure. However, the agreed
procedure cannot be against the provisions of the Arbitration and Conciliation Act. [Sec. 19(2)]

A. Law governing the Arbitration Agreement [See R&H paras 3.09 to 3.15]
 Parties are free to choose the law applicable to the arbitration agreement and performance of the
arbitration agreement. This can be different from the law applicable to the substance of the dispute
(substantive law/lex causae) and the law governing the arbitration (lex arbitri).
 In case parties do not expressly (or impliedly) designate a separate law governing the arbitration
agreement, the tribunal considering the circumstances of the case would determine the law applicable
to the arbitration agreement. There is a strong presumption in favour of “substantive law of the
contract” (in the absence of any contrary indication). This principle has been followed in many cases.
 In many cases, the tribunal has also held the law of the “seat of arbitration” to govern the arbitration
agreement. For example the Art. 16(4) of the LCIA Rules provides that:
“The law applicable to the Arbitration Agreement and the arbitration shall be the law applicable at the seat of the
arbitration, unless and to the extent that the parties have agreed in writing on the application of other laws or
rules of law and such agreement is not prohibited by the law applicable at the arbitral seat.”
 What is the basis for the autonomy of parties to decide on a separate law governing the arbitration
agreement – doctrine of separability. “It is the separability of an arbitration clause that opens the way
for the possibility that it may be governed by a different law from that which governs the main
agreement”.
 KB

b. Law governing the Arbitration [See R&H paras 3.37 to 3.40, 3.46, 3.47, 3.53 to 3.64, 3.66 to 3.68]
 Law applicable to the arbitration procedure – lex arbitri – the law governing the existence and
proceedings of the arbitral tribunal
 What is lex arbitri? – It is a body of rules which sets a standard external to the arbitration agreement,
and the wishes of the parties, for the wishes of the parties, for the conduct of arbitration. The law
governing the arbitration comprises the rules governing interim measures, the rules empowering
the exercise by the court of supportive measures to assist an arbitration which has run into
difficulties, and the rules providing for the exercise by the Court of its supervisory jurisdiction
over arbitrations.
 Determination of lex arbitri impacts the following issues (not an exhaustive list):
- Arbitrability of a dispute (disputes that are capable of being resolved by arbitration);
- The constitution of the arbitral tribunal and any grounds for challenge of that tribunal;
- Procedure before the arbitral tribunal (for instance see sections 18-27 of the Arbitration Act)
- Interim measures;
- Extent of judicial assistance in the conduct of arbitral proceedings;
- Scope of powers of the arbitrator;
- Form and validity of the arbitral award;
- Finality of the award including procedure and grounds for challenging the arbitral award;
 Parties have the autonomy to decide on a neutral location as the ‘seat of arbitration’. ‘seat’ does not
mean only the geographical location of the arbitration, but it is the “territorial link between the
arbitration itself and the law of the place in which that arbitration is legally situated”.
 The implication is that the law of the ‘seat’ would govern the arbitration proceedings. Choosing a seat
does not compel the parties to conduct all of the arbitration proceedings at the ‘seat’
 If the parties do not make an express choice as to the seat of arbitration the choice is made for them by
either the arbitral tribunal or by the designated arbitral institution (according to the institutional rules).
- Art. 18(1) of the UNCITRAL Arbitration Rules states: ‘If the parties have not previously agreed on the
place of arbitration, the place of arbitration shall be determined by the arbitral tribunal having regard to
the circumstances of the case.’
- Art. 18(1) of the ICC Rules states that: ‘The place of arbitration shall be fixed by the Court, unless
agreed upon by the parties.’

c. Law applicable to the substance of the dispute [See R&H paras 3.91 to 3.94, 3.97 to 3.100, 3.105, 3.107 to
3.110]
 Law applicable to the substance of the dispute – “applicable law” – also known as “proper law of the
contract”, “substantive law”, “governing law”
 Impacts the questions surrounding interpretation and validity of the contract, the rights and obligations
of the parties, the mode of performance, and the consequences of breach of the contract.
 Parties have the right/autonomy to choose the law that would govern their contractual relationship –
recognized in international instruments Art. 35(1) of the UNCITRAL Rules – “The arbitral tribunal
shall apply the rules of law designated by the parties as applicable to the substance of the dispute.”; Art.
21(1) of the ICC Rules – “The parties shall be free to agree upon the rules of law to be applied by the
arbitral tribunal to the merits of the dispute… ”
 KB

 The principle was in place in the context of choice of law in international contracts, even before it was
recognized by the above mentioned international instruments. Rome I Regulation (law applicable to
contractual obligations within the EU) recognizes and accepts, as a basic principle, the right of parties
to contract to choose, expressly or by implication, the law that is to govern their contractual
relationship.
 Restrictions on party autonomy – public policy restrictions.

d. Conflict of Rules and the search for the applicable law [see R&H paras 3.198 ]
 Parties have the autonomy to decide the ‘substantive law/proper law of the contract’.
 If there is no agreement as to choice of ‘substantive law/proper law of the contract’, it becomes difficult
to ascertain the rights and liabilities of the parties. The question then falls on the arbitral tribunal.
 How will an arbitral tribunal decide this issue? No uniformly applicable hard law on this issue – there
are guidelines and best practices. ILA’s recommendations are contained in the report on Ascertaining of
the Content of the Applicable Law in International Commercial Arbitration.
 As per Rome I Regulations (modern set of conflict of law rules applicable in the EU), in the absence
of express choice of law by the parties, the proper law of the contract shall be that of the country with
which it is most closely connected. There is a rebuttable presumption that the contract is most closely
connected with the country in which the party which is to effect the ‘performance characteristic of the
contract’ has its central administration, principal place of business, or other place of business through
which the performance is to be effected.
 Different conventions have different provisions regarding choice of proper law of contract in the
absence of express agreement by the parties in this regard.
 The Model Law promotes an approach where the arbitral tribunal is entitled to choose the governing
law of the contract in the absence of any express or implied choice of law by the parties themselves.
 In reaching its decision on the law to be applied in the absence of any choice by the parties, an arbitral
tribunal is entitled (unless otherwise directed by the applicable rules or the lex arbitri) to select any of
the systems or rules of law upon which the parties themselves might have agreed, had they chosen to
do so.

Domestic Arbitration-
1. Definition: Involves disputes between parties both located within the same country.
2. Applicable Laws: Governed by the national arbitration laws of the country where the arbitration takes
place.
3. Court Intervention: Courts may play a more active role, including appointing arbitrators, granting
interim measures, and reviewing awards.
4. Procedural Formalities: May involve more procedural formalities and adherence to local legal
processes.
5. Enforcement: Enforcement of awards typically follows the national laws and procedures of the
country where arbitration occurs.
International Arbitration:
1. Definition: Involves disputes between parties from different countries or with an international element.
2. Applicable Laws: Governed by international arbitration laws or conventions, such as the UNCITRAL
Model Law or the New York Convention.
3. Court Intervention: Courts generally have a more limited role, focusing on support and enforcement
rather than active intervention in the arbitration process.
 KB

4. Procedural Flexibility: Allows for more procedural flexibility, and parties often have greater
autonomy in selecting arbitrators and determining procedures.
5. Enforcement: Awards can be enforced internationally, often under the New York Convention,
providing a streamlined process for recognition and enforcement across multiple jurisdictions.

• the law governing the arbitration agreement and the validity, scope, and enforcement of that agreement;
• the law governing the existence and the proceedings of the arbitral tribunal (the lex arbitri or, as it is
sometimes called, the curial law);
• the law, or the relevant legal rules, governing the substantive issues in dispute (generally described as
the ‘applicable law’, the ‘governing law’, the substantive law’, or ‘the proper law of the contract’);
• other applicable rules and non-binding guidelines and recommendations;
• the law governing recognition and enforcement of the award.

Law Governing the agreement to arbitrate

Why Important?
• ARBITRABILITY- The law of the arbitration agreement will be relevant if there is a dispute over
whether the tribunal’s jurisdiction extends to a particular issue.
• NON-SIGNATORIES- The law of the arbitration agreement will be relevant to determining whether
the arbitration agreement extends to third parties, such as the parent company of one of the parties.
• VALIDITY- The law of the arbitration agreement will determine the validity of the arbitration
agreement.
• CHOOSING RELEVANT METHOD FOR CHOICE OF LAW- The law of the arbitration agreement
may also be relevant to deciding the applicable method of dispute resolution, where the parties’ choice
is not clear.

What if it is not expressly mentioned?

Typically, commercial parties may not be fully aware that distinct laws could apply to different aspects of the
same contract. Thus, they might reasonably presume that a single law governs all contractual terms, including
the arbitration clause/agreement.
Despite the common assumption, the well-established principle of the separability and autonomy of an
arbitration agreement challenges this notion. The very separability of an arbitration agreement allows for the
possibility, in principle, that the law governing the entire contract and the law governing the arbitration
agreement may differ.
Arbitral Institutions – Various institutions have a default rule that the law of the seat applies in the absence of
the parties’ choice.
English common law – It looks in the first instance for the parties’ express or implied choice of applicable law
by reference to principles of English contract law, which establish a presumption that the law applicable to the
contract as a whole also applies to the arbitration agreement.
Where there is no applicable law clause, an English court will identify the system of law to which the arbitration
agreement is ‘most closely connected’—a test.
French law - It gives precedence to the express choices made by the parties. In situations where there is no
explicit choice, French law considers the parties' implied preferences.
 KB

Unlike English law, the emphasis in French law is on the autonomy of the arbitration agreement. It is seen as
legally independent from the main contract, and there is no necessity to refer to a specific national law to
understand and respect the parties' intentions.

Seat V Venue
(Law governing the conduct of Arbitration Tribunal)
 Internal Matters (Curial Law)- (e.g: - Composition and appointment of the tribunal, requirements for
arbitral procedures and due process, formal requirements for an award)
o Ad hoc- (UNCITRAL Model Law or National Laws such as Indian Arbitration and
Conciliation Act, 1996)
o Institutional- Institutional Rules (e.g: - ICC Rules, SIAC Rules, LCIA Rules)
 External Matters- (e.g: - arbitrability, decision on jurisdiction, national court intervention in support
of arbitration, grounds on which awards may be challenged and set aside.

Procedural Law: Lex Arbitri

Where parties to an international arbitration agreement choose for themselves a seat of arbitration, they usually
choose a place that has no connection with either themselves or their commercial relationship. They choose a
‘neutral’ place. By doing so, they do not necessarily intend to choose the law of that place to govern their
relationship. Indeed, as well as choosing a place of arbitration, they may well choose a substantive law that has
no connection with that place
If the parties do not make an express choice of the place of arbitration, the choice will have to be made for them,
either by the arbitral tribunal itself or by a designated arbitral institution.
The UNCITRAL Rules, for instance, state: ‘If the parties have not previously agreed on the place of arbitration,
the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the
case.’ (56) Similarly, Article 18.1 of the ICC Rules leaves the choice to the ICC Court.
In cases of this kind, the place of arbitration will usually be determined by reference to the priority of neutrality
as between the parties, and choosing a place that can provide a supportive and reliable supervisory jurisdiction
to the arbitration process.

Substantive Law
Subject only to the qualifications of good faith, legality, and no public policy objection, the conventions and
rules on arbitration that have been mentioned make it plain that the parties may choose for themselves the
substantive law applicable to the dispute. Parties to an international commercial agreement should make full and
proper use of this freedom, inserting a ‘choice-of-law’ clause into their contract and into any arbitration
agreement in that contract.
It is usually sufficient to say: ‘This agreement shall in all respects be governed by the law of England’
The choices that may be available to the parties include:
1. national law;
2. public international law (including the general principles of law);
3. transnational law (including international development law, the lex mercatoria, codified terms and
practices, and trade usages); and
Non- binding guidelines- IBA Rules on the Taking of Evidence in International Arbitration (2020)
• IBA Guidelines on Conflicts of Interest in International Arbitration (2014)
• IBA Rules of Ethics for International Arbitrators (1987)
 KB

• IBA Guidelines on Party Representation in International Arbitration (2013)

Bhatia International v Bulk Trading SA (2002) 4 SCC 105

FACTS
Bhatia International (appellant) and Bulk Trading SA (respondent) entered into a contract with an arbitration
clause providing for arbitration as per the rules of the International Chamber of Commerce (ICC). A sole
arbitrator was appointed by the ICC on request of the respondent and the parties agreed for arbitration to be held
in Paris. Thereafter, the respondent filed an application under s.9 of the Act in the District Court, Indore, for
obtaining an order of injunction restraining the appellant from transferring its business assets and properties
located in India.
The appellant opposed the application by contending that Part I of the Act, which contains s.9, applies only to
arbitrations conducted in India. Dismissing this objection, the lower court admitted the application. Hence, an
appeal was made to the Supreme Court for deciding whether an Indian court can provide interim relief
under s.9 in cases where an international commercial arbitration is held outside India.
Issue
Whether an Indian court can provide interim relief under s.9 in cases where an international commercial
arbitration is held outside India?
Held
The Court opined that s. 2(2) does not specify that Part I is to “only” apply where the place of arbitration is in
India. This implies that it is only an inclusive and clarificatory provision. It explained the significance of this
omission in the following words:
By omitting to provide that Part I will not apply to international commercial arbitrations which take place
outside India the affect would be that Part I would also apply to international commercial arbitrations held out of
India. But by not specifically providing that the provisions of Part I apply to international commercial
arbitrations held out of India, the intention of the Legislature appears to be to ally parties to provide by
agreement that Part I or any provision therein will not apply. Thus in respect of arbitrations which take place
outside India even the non- derivable provisions of Part I can be excluded. Such an agreement may be express or
implied.

Venture Global Engineering v Satyam Computer Services Ltd. [AIR 2008 SC 1061]
Facts
In this case, the dispute related to appellant‟s commission of an event of default under its Shareholders
Agreement with the respondent in respect of their Joint Venture in India. The respondent claimed its right to buy
the appellant‟s shareholding in the Joint Venture and an award was made in its favour in an international
commercial arbitration held at the London Court of International Arbitration. The respondent sought to enforce
the award through the United States District Court at Michigan. In response, the appellant instituted a suit in
India for setting aside the award under s.34 of the Act. The lower courts held that a foreign award cannot be set
aside by the Indian courts under s.34. Thus, the Supreme Court was presented with the question whether s. 34
applies to such awards.
Can a foreign award be set aside under Section 34?
Held
The Court ruled that s. 34 was applicable in such cases and the Indian courts have the power to set aside foreign
awards arising out of international commercial arbitration held outside India.
The ruling has fundamentally altered the jurisdiction of Indian courts in respect of foreign awards. Previously,
such awards could only be scrutinized under s. 48 at the stage of enforcement. The most significant distinction
between s.34 and s.48 is the wider definition of public policy under the former. While “patent illegality‟ is a part
of public policy under s.34, it is excluded for the purpose of judicial review under s.48. Thus, such awards have
become vulnerable to be set aside on the ground of violation of Indian public policy and law. More importantly,
 KB

the setting aside of a foreign award has an international effect of rendering the award unenforceable in all
Convention countries while the refusal to enforce has an effect limited to only that country.

Seat and venue

 Sections 2(2), 19, 20
 Cases:
o Bharat Aluminium Company (BALCO) v Kaiser Aluminium Technical Service Inc.

o Union of India v. Reliance Industries, (2015) 10 SCC 213;

 Principles for determining seat of arbitration

Place of arbitration
 Section 2(2) - Scope—This Part shall apply where the place of arbitration is in India.
 Section 19 – Determination of rules of procedure
CPC and Evidence Act are not applicable during arbitral proceedings. In other words, the arbitral tribunal is not
bound by CPC and Evidence Act during the arbitral proceedings and subject to Part 1, the parties are free to
decide on the procedure that will govern the arbitral proceedings. It is important to note that this restriction is
applicable only till the stage of passing of the arbitral award, post passing of the award, the Code is applicable as
usual (execution proceedings).
 Section 20 – Place of arbitration
(1) The parties are free to agree on the place of arbitration
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the
arbitral tribunal having regard to the circumstances of the case, including the convenience of the
parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed
by the parties, meet at any place it considers appropriate for consultation among its members, for
hearing witness, experts or the parties, or for inspection of documents, goods or other property.
 S. 20 (1) and (2) – seat of arbitration; 20(3) – venue of arbitration [BALCO judgment paras 98, 99]
 Sections 2(2) r/w s. 2(1)(e), 19, 20.
 How to determine ‘seat’ of arbitration:
- Agreement between the parties (express or implied)
- In the absence of agreement between the parties, the tribunal may determine the seat “having regard to
the circumstances of the case, including the convenience of the parties.”
Intention of the parties to be determined from circumstances of the case including the dispute resolution clause,
conduct of the parties.

THE SHASHOUA PRINCIPLE

 Distinction between ‘seat’ and ‘venue’ – parties have the autonomy to decide seat of arbitration to be
same or different from the venue of arbitration. The intention of the parties is to be determined from the
dispute resolution clause.
 Significance – seat of arbitration determines what courts will have supervisory jurisdiction over the
matter and also what would be the curial (procedural) law applicable to the arbitral proceedings.
 KB

 What happens in cases where the Dispute resolution clause uses terms such as – ‘place of arbitration’,
‘arbitration shall be administered at xxx’, ‘arbitration shall be conducted at xxx’.
 Shashoua principle – “when parties had selected a venue of arbitration without designating a seat of
arbitration, it is safe to conclude that the venue is the seat of arbitration provided that the parties have
selected a supranational body of rules to govern the arbitration and there is no other indication to the
contrary…”
 Shashoua principle approved in BALCO judgment [para 110].

Bharat Aluminium Co v. Kaiser Aluminium Technical Services (‘BALCO’)

FACTS
BALCO is an international commercial arbitration case where the applicable law was Indian law and arbitration
was to be governed by English law.
“17.1 Any dispute or claim arising out of or relating to this agreement shall be in the first instance, endeavored
to be settled amicably by negotiation between the parties hereto and failing which the same will be settled by
arbitration pursuant to the English arbitration law and subsequent amendments thereto.
17.2 The arbitration proceedings shall be carried out by two arbitrators one appointed by BALCO and one by
KATSI chosen freely and without any bias. The Court of Arbitration shall be held wholly in London, England
and shall use English language in the proceeding. The findings and award of the Court of Arbitration shall be
final and binding upon the parties.
22. Governing Law – This agreement will be governed by the prevailing law of India and in case of arbitration,
the English law shall apply.”
 The arbitration proceedings were carried out in England and the arbitral tribunal made two awards. The
appellant filed s. 34 application before District court in Bilaspur.
 Question arose as to applicability of Part 1 to an international commercial arbitration where the seat
was outside India.
 Held (para 194) – “the 1996 Act accepts the territoriality principle adopted in the UNCITRAL Model
Law. s. 2(2) makes it clear that Part 1 is applicable to arbitrations situated in India. Held further that –
Part 1 would have no applicability to international commercial arbitration held outside India. An
international commercial arbitration award could be subjected to the jurisdiction of Indian court when
the same is sought to be enforced in India in accordance with Part II. ‘In our opinion, the provisions
contained in the Arbitration Act 1996 make it crystal clear that there can be no overlapping or
intermingling of the provisions contained in Part I with the provisions contained in Part II of the
Arbitration Act, 1996.’”
 Deviation from the Shashoua principle in UoI v. Hardy Exploration – here Kuala Lampur was the
venue of arbitration - no mention regarding seat. The arbitration was conducted in Kuala Lampur, the
award was also signed in Kuala Lampur. The appellant approached the Delhi High Court asking for the
award to be set aside – on the ground that Delhi was the seat of arbitration.
 The Court held – since both the parties and the Tribunal had not chosen the seat of arbitration – and
that parties designated Kuala Lumpur as the venue of arbitration (and not seat) it did not mean that
Kuala Lumpur had become the seat of arbitration. The Court concluded that a venue could become a
seat of arbitration only if something else is added to it as a concomitant. This was against the Shashoua
principle which was approved in BALCO.
 BGS Soma – when an arbitration clause designates a place as the venue of arbitration, it can be deemed
to be the seat of arbitration as well provided that parties have not made any other contrary indication
that the venue is not the seat of arbitration.
 KB

The parties had agreed on the supply of equipment and the modernisation and upgrading of manufacturing
facilities. Inevitable disagreements occurred and were sent to arbitration in England, with awards in favour of
the Respondent. The Appellant had applied to the Chhattisgarh High Court under Section 34 of the Act to have
the award set aside.
ISSUE
1. Whether the two awards which were passed in England could be challenged in India u/s. 34 of the Act?
2. Whether Section 9 of the act was applicable or not?
Held
The Indian Supreme Court in BALCO unequivocally overruled Bhatia and Venture Global on the basis that Part
I of the 1996 Act does not apply to foreign-seated arbitrations. This conclusion principally stems from two
fundamental propositions that the court underscored in its judgment viz.
(i) the application of the UNCITRAL Model Law was intended to be limited to the territorial jurisdiction
of the seat of arbitration i.e. the territoriality principle and
(ii) the seat of the arbitration is the ‘centre of gravity’ of the arbitration and therefore a choice of a foreign-
seated arbitration by the parties ordinarily meant that the parties also agreed to the application of the
curial law of that foreign country.
The Bhatia and Venture Global decisions was tantamount to giving extra-territorial application to the 1996 Act,
which was not the intention of the Indian Parliament when it enacted this law. The BALCO decision will apply
prospectively.
 For cases that qualify as domestic arbitrations with their juridical seat in India – substantive law
shall be Indian law. This is to ensure that Indian parties do not circumvent Indian law by resorting to
arbitrations. Whereas in international commercial arbitrations where the juridical seat is in India,
parties are free to choose the substantive law applicable to the disputes, and if the parties do not
mutually agree, then the arbitral tribunal shall decide. [para 118]
 Seat and venue debate – significance of the BALCO decision – already discussed in the context of the
Shashoua principle i.e., when there is no express agreement with respect to the seat of arbitration and
the agreement between the parties mentions the venue of arbitration, the venue shall be deemed to be
the seat provided no contrary indication regarding a different place being the ‘seat’ exists. To determine
whether a place is the ‘seat’ or the ‘venue’, court/arbitral tribunal to look into the circumstances of the
case to determine the intention of the parties.
 BALCO also reinforces the principle of territoriality – Territorial relationship between place of
arbitration and law governing said arbitration (recognized under the Model Law) – Law of the
seat governs the arbitration - where the seat of arbitration is in India, Part I applies – the 1996
Act makes the ‘seat’ of arbitration the centre of gravity of the arbitration. Where the seat is
situated outside India, applicability of Part I is excluded and in holding so, BALCO overrules the
decisions in Bhatia International and Venture Global. [paras 76, 194-197 ]
 Part I regulates a domestic arbitration (arbitration seated in India) at all four stages:
i. Commencement of arbitration,
ii. Conduct of arbitration,
iii. Challenge to award,
iv. Recognition or enforcement of award.
 Part II regulates arbitrations which have their juridical seat outside India (foreign arbitrations) –
governs stages (i) and (iv) only. [paras 88 to 94 and 120 to 136].
 Parties free to decide on a convenient ‘venue’ – can be different from the ‘seat’ – however this would
not have the effect of changing the juridical ‘seat’ of arbitration [paras 99, 100].
 Applicability of BALCO is prospective [para 197].
 KB

In Enercon (India) Ltd. v. Enercon GmbH5, the arbitration clause mentioned London as the venue of arbitration.
However, all the three laws applicable to the arbitration proceedings were stated to be Indian laws. This implied
that the seat of arbitration must be India. The Bombay High Court held that both Indian and English courts
would have concurrent jurisdiction. However, the Supreme Court set aside the judgment of the High Court and
held that only Indian courts will have jurisdiction over the arbitration. An agreement as to the seat is analogous
to an exclusive jurisdiction clause. It determines the courts that will have exclusive jurisdiction to oversee the
arbitration proceedings. Moreover, the seat normally carries with it the choice of that country’s arbitration/curial
law. In Reliance Industries Ltd. v. Union of India6 although the agreement expressly provided that London
would be the seat of arbitration, the Delhi High Court entertained Section 34 application on the ground that the
proper law of contract was law of India. The Supreme Court, while setting aside the impugned order reiterated
that seat is analogous to an exclusive jurisdiction clause. Once the parties had consciously agreed that the
juridical seat of arbitration would be London and that the arbitration agreement would be governed by the laws
of England, it was no longer open to them to contend that Part I of the Act would also be applicable.

Union of India V Reliance Industies

Facts:
 Two production sharing contracts (PSC) were executed between RIL, UoI, BG Exploration, GAIL and
ONGC.
 The relevant clauses of the contract (Articles 32 and 33) provided that the substantive law would be
Indian law, venue of arbitration would be London, and the law governing the arbitration agreement
shall be English law.
 Arbitration commenced, parties appointed their arbitrators. Subsequently, parties mutually agreed to
designate London as the seat of arbitration.
 Arbitral award issued – UoI challenged the award u/s 34 before the Delhi High Court. Delhi High court
held that the s. 34 petition was maintainable.
 The matter came before the SC in RIL v. UoI (2014) 7 SCC 603 – reversed the decision of the Delhi
HC – held even if the Bhatia International ratio is applied (since the rule in BALCO was held to apply
prospectively), the parties had by necessary implication excluded the applicability of Part I of the Act.
 The ratio in Bhatia International was “In cases of international commercial arbitrations held out of
India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all
or any of its provisions. In that case the laws or rules chosen by the parties would prevail.” (concurrent
jurisdiction of Indian courts).

Issue:
 The present mater came before the SC from a s. 14 application that was dismissed by the Delhi HC.
The issue here is – in a pre-BALCO contract and dispute, can Part I be applicable to an international
commercial arbitration seated outside India?
Held:
 Even if the decision in Bhatia International is applied, Part I cannot be applicable to an international
commercial arbitration seated outside India. Bhatia International recognizes that parties can by express
or implied agreement exclude the applicability of Part I. In the present case, by virtue of the fact that
the parties chose the seat of arbitration to be London, they impliedly agreed to exclude the applicability
of Part I of the 1996 Act.
 Therefore, even in cases where the Bhatia International principle applies, it is only those cases in
which agreements stipulate that the seat of the arbitration is in India or on whose facts a judgment
cannot be reached on the seat of arbitration as being outside India that would continue to be governed
 KB

by the Bhatia International principle. Also, it is those agreements which stipulate or can be read to
stipulate that the law governing the arbitration agreement is Indian law which would continue to be
governed by the Bhatia International rule.

Interim measures (sections 9 and 17)

Under Order 39 Rule 1, C.P.C. the court is empowered to issue a temporary injunction in any suit. Similarly,
under Rule 2 the court has been given a power for issue of temporary injunction to restrain the repetition or
continuance of breach in a suit.
 The court is empowered to grant interim measures under s. 9:
- Before the arbitral tribunal has been constituted. If interim relief is granted before the constitution of
the arbitral, the arbitral proceedings should be commenced within 90 days from the date of such interim
order [s. 9(2)].
- After the award has been made and prior to its enforcement.
- During the course of arbitral proceedings, when an interim measure granted by the tribunal would not
be efficacious.
- S. 9 does not prescribe any specific standards for grant of interim reliefs by the court. However, courts
have applied the standards under Order 39 CPC – since the nature of proceedings are similar.
- S. 9 applicable to part II awards – for the limited purpose of facilitating enforcement.

Who can apply for interim measure u/s. 17?

 Any party to the arbitration agreement can make an application for interim measures during the arbitral
proceedings.
 However, once the award has been rendered, only the successful party is entitled to seek the
enforcement of such an award. (u/s. 9)

Consequence of Non-compliance of interim orders?

The principle of judicial non-interference in international arbitral proceedings
 Parties agree to refer their disputes to arbitration due to the procedural efficacy in international
arbitration as opposed to the procedure before national courts.
 The article (Gary Born) addresses – the background of principle of judicial non-interference and its
legal bases in the New York Convention (and other international arbitration conventions) and in
national arbitration legislation.
Objectives of Arbitral Procedures in International Arbitration
 Procedural neutrality and fairness – to ensure that (unless parties agree otherwise) disputes will not be
resolved in accordance with the procedures of one party’s – and not the other party’s – home
jurisdiction, which may favor, explicitly or implicitly, one party over the other.
 International arbitration designed with the objective of avoiding the formalities and technicalities that
are associated with many national litigation systems… This permits – indeed, requires – dispensing
with many of the procedural protections that are designed for domestic litigation involving individual
litigants, and instead adopting procedures that will achieve commercially practicable results.
 UNCITRAL Notes on Organizing Arbitral Proceeding:
 KB

“Procedural flexibility is useful in that it enables the arbitral tribunal to take decisions on the organization of
proceedings that take into account the circumstances of the case, the expectations of the parties and of the
members of the arbitral tribunal, and the need for a just and cost-efficient resolution of the dispute.”

Parties’ Procedural Autonomy under International Arbitration Conventions

- Article V(1)(d) of the NY Convention – permits non-recognition of arbitral award if the composition of
the arbitral authority or the arbitral procedure was not in accordance with the law of the country where
the arbitration took place.
- Article II requires courts of Contracting States to recognize valid arbitration agreements and refer the
parties to arbitration pursuant to such agreements. This obligation extends to all material terms of an
agreement to arbitrate – including the parties’ agreement regarding arbitral seat, number of arbitrators,
institutional rules, and arbitral procedures (subject to the exceptions of public policy)
- Article IV(1)(b)(iii) of the European Convention provides that the parties shall be free “to lay down the
procedure to be followed by the arbitrators”.
- Articles 2 and 3 of the Inter-American Convention provides that arbitration shall be conducted
according to the “agreement of the parties”. These provisions affirm, in more direct and mandatory
terms than the language of the NY Convention, the parties’ procedural autonomy in international
arbitration.
- The UNCITRAL Model Law provides, in Article 19(1), that “subject to the provisions of this Law, the
parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the
proceedings.

Arbitrators’ Procedural Discretion in International Arbitration

- Although leading international arbitration conventions and national law in most developed states
permit parties to agree upon the arbitral procedures, subject to only minimal mandatory due process
requirements, parties in practice often do not agree in advance on detailed procedural rules for their
arbitration.
- Instead, arbitration agreements will ordinarily provide simply for arbitration pursuant to a set of
institutional rules, which supply only a broad procedural framework. Filling in the considerable gaps in
this framework will be left to the subsequent agreement of the parties or if they cannot agree, the
arbitral tribunal. The arbitrators’ discretion to determine the arbitral procedure, in the absence of
agreement between the parties on such matters, is another one of the foundations of the international
arbitral process.
Mandatory Procedural Requirements in International Arbitration:
- The parties’ freedom to agree upon the arbitral procedures and tribunal’s discretion to adopt such
procedures are subject to the mandatory requirements of applicable national and international law.
- Articles V(1)(b) and V (2)(b) of the NY Convention and parallel provisions of other conventions have
been interpreted to afford the parties and arbitral tribunal substantial freedom to establish the arbitral
procedures. Nonetheless, these provisions permit national courts to deny recognition to arbitral awards
that are based upon fundamentally unfair, arbitrary, or unbalanced procedures, applying either a
uniform international standard of procedural fairness under Article V(1)(b) or local procedural
protections guaranteed by mandatory national law under Article V(2)(b). Both of these provisions
provide limited grounds on which either parties’ procedural agreements, or an arbitral tribunal’s
procedural orders can be overridden by national law for the purposes of recognition.
Principle of Judicial Non-Interference in International Arbitration
• Under the New York Convention (indirect treatment) – Under Article II (3) of the NY Convention the
national courts are simply required to “refer the parties to arbitration” where an arbitration agreement
exists. Subsequent judicial involvement is limited to annulment or recognition proceedings, and does
not provide for supervision by national courts in case of an ongoing arbitration.
 KB

• Under the Inter-American Convention

• Under the European Convention – similar to the NY Convention nothing in the European convention
provides for judicial supervision of arbitral procedures; instead, it contemplates national court’s
involvement only in relation to jurisdictional decisions, interim relief, and review of awards.
Conclusion
• Existence of interlocutory challenges or appeals from arbitrators’ procedural decisions would have
damaging consequences for the arbitral process. To prevent this, both international conventions and
national arbitration statues either expressly or implicitly adopt a principle of judicial non-interference
in international arbitral proceedings.
Forum non conveniens- England If there is another court with competent jurisdiction
For 25 years, since Angeliki Charis Compania Maritima SA v Pagnan Spa (The Angelic Grace) [1995] 1
Lloyd’s Rep 87, it has been clear that anti-suit injunctions should be granted to restrain foreign proceedings
brought in breach of an English law arbitration agreement, unless there is strong reason not to.
In Aggeliki Charis Compania Maritima SA v Pagnan SpA, also known as The Angelic Grace (1995), the English
Court of Appeal addressed the issue of anti-suit injunctions, particularly concerning arbitration agreements. The
case established important principles regarding when English courts can intervene to prevent parties from
pursuing litigation in foreign jurisdictions that would breach an arbitration agreement.
The Angelic Grace (1995)
Facts of the Case:
In The Angelic Grace, Aggeliki Charis Compania Maritima SA (the shipowners) had entered into a charter party
with Pagnan SpA (the charterers). The contract included an arbitration clause specifying that any disputes would
be resolved in London. However, Pagnan initiated proceedings in Italy, despite the arbitration clause. Aggeliki
Charis sought an anti-suit injunction from the English courts to stop Pagnan from pursuing the Italian action.
Holding:
The Court of Appeal, led by Lord Justice Millett, granted the anti-suit injunction. The court held that:
1. Enforcement of Arbitration Clauses: Where parties have agreed to arbitrate disputes in a specific
jurisdiction (in this case, London), it is appropriate for the English courts to intervene to enforce that
agreement by preventing litigation in a foreign jurisdiction.
2. No Need for Comity Concerns in Arbitration: Unlike cases involving foreign court jurisdiction
clauses, the court emphasized that comity (mutual respect for foreign judicial proceedings) was not a
significant concern in the context of arbitration clauses. This distinction allowed the English court to
act more decisively in enforcing the arbitration agreement.
3. Minimal Threshold for Anti-Suit Injunctions: The court found that if there is a clear and binding
arbitration agreement, there is generally no need to demonstrate additional factors like irreparable
harm. The existence of the arbitration agreement itself is enough to justify an injunction to prevent a
party from violating it by pursuing litigation elsewhere.
Significance:
The Angelic Grace case is significant for establishing that English courts have broad authority to issue anti-suit
injunctions to uphold arbitration agreements. This case made it clear that in arbitration contexts, the English
courts prioritize the enforcement of arbitration agreements without requiring a high threshold of proof or
extensive concerns about international comity.
This ruling has since become a foundational case for anti-suit injunctions in arbitration, underscoring the
English courts' strong pro-arbitration stance.
 KB

Security of costs
Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v.
Turkmenistan
The Tribunal applied the following tests for determining whether to grant security for costs, based on ICSID
Arbitration Rule 39(1):
1. Authority to Order Security for Costs
 The Tribunal confirmed its authority to grant provisional measures under Article 47 of the ICSID
Convention and ICSID Arbitration Rule 39(1), provided the requesting party:
1. Specifies the rights to be preserved.
2. Specifies the measures sought.
3. Demonstrates the necessity of the requested measures under the circumstances.
2. High Threshold of Exceptional Circumstances
 The Tribunal emphasized that orders for security for costs require exceptional circumstances, which
include factors such as:
o The claimant's insolvency.

o The presence of third-party funding.

o The explicit exclusion of third-party funders from liability for adverse cost awards.

 It referred to jurisprudence, including the EuroGas v. Slovak Republic case, which noted that
insolvency and third-party funding "do not necessarily constitute per se exceptional circumstances."
3. Balancing Prejudice
 The Tribunal considered whether the harm to the respondent if security was not granted would
outweigh the potential harm to the claimant.
o For Turkmenistan:

 The Tribunal highlighted the practical impossibility of recovering costs due to:
1. Unionmatex's insolvency.
2. The explicit exclusion of liability by the third-party funder.
o For the Claimant:

 It acknowledged potential prejudice to access to justice but found this mitigated

because:
1. The Claimant could obtain a bank guarantee.
2. The third-party funder was financing the arbitration.
4. Lack of Alternative Assurances
 The Tribunal considered the absence of any alternative financial assurances from the Claimant or the
funder that adverse costs could be recovered.
 It noted that in the absence of security, there was a certainty, not just a risk, that Turkmenistan would
not be able to recover costs.
5. Relevance of Misconduct or Past Non-Compliance
 While the Claimant argued that misconduct or a history of non-compliance was necessary to meet
the threshold for exceptional circumstances (citing RSM v. Saint Lucia), the Tribunal found that these
factors were not strictly required but could strengthen a case for security for costs.
 KB

Conclusion:
The Tribunal ultimately applied a combination of these tests, focusing on:
 Exceptional circumstances (insolvency + exclusion of funder liability).
 Prejudice balancing (certainty of non-recovery vs. potential access to justice concerns).

Case Facts- Here’s a summary of the judgment regarding security for costs:
1. Tribunal’s Authority:
o The Tribunal confirmed its authority to order security for costs under Article 47 of the ICSID
Convention and ICSID Arbitration Rule 39(1), emphasizing that such measures can be taken
to preserve the respective rights of the parties.
2. Exceptional Circumstances Requirement:
o The Tribunal acknowledged the high threshold for granting security for costs, requiring
exceptional circumstances. These circumstances involve more than financial difficulty or
reliance on third-party funding.
3. Respondent’s Position:
o Turkmenistan argued for security for costs based on:

 Unionmatex’s insolvency.
 Third-party funding by La Française, which explicitly excluded liability for any
adverse costs award.
4. Claimant’s Counterarguments:
o The Claimant emphasized:

 Security for costs should only be ordered in truly exceptional cases, not solely based
on financial distress or third-party funding.
 His right to access ICSID arbitration must not be impeded.
5. Tribunal’s Majority Decision:
o The Tribunal found exceptional circumstances existed due to:

 Unionmatex’s insolvency.
 The explicit exclusion of liability by La Française for adverse costs.
o The Tribunal ordered the Claimant to provide security in the amount of USD 3 million via an
escrow account or an irrevocable bank guarantee, to be maintained as a condition for
continuing arbitration.
6. Balancing Prejudice:
o While recognizing potential prejudice to the Claimant’s access to justice, the Tribunal
emphasized the Respondent’s risk of irrecoverable costs as outweighing this concern.
o The Tribunal suggested that the cost of the security should fall within La Française’s
commitment to cover arbitration expenses.
7. Minority Opinion:
o A dissenting arbitrator disagreed with the majority, highlighting:

 The Claimant’s bankruptcy under German law did not guarantee non-payment of
costs.
 KB

 The exceptional circumstances threshold was not met, as there was no evidence of
misconduct or abuse by the Claimant.
 The Claimant’s ability to pursue the case outweighed the Respondent’s risk of non-
recovery.
8. Outcome:
o The Claimant was ordered to post security for costs of USD 3 million within 14 days.

o The Claimant’s request for security for claim was denied.

o All other claims were dismissed, and costs were reserved for the final award.

Emergency Arbitration
 A special procedure whereby an Emergency Arbitrator is appointed to hear applications for urgent
interim relief prior to the constitution of the Tribunal. Once the arbitral tribunal is constituted, the
mandate of the Emergency arbitrator can be reviewed, modified or suspended or terminated by
the arbitral tribunal. Depending on the applicable rules, if an arbitral tribunal is not constituted within
‘x’ days from the date of passing of the EA award, the mandate of the EA award automatically
terminates.
 The Arbitration Act, 1996 does not expressly recognize Emergency Arbitration - Issues regarding
recognition and enforceability.
 EA procedure under the SIAC Rules:
i. Application for the appointment of an Emergency Arbitrator
ii. Determination of application for emergency interim relief
iii. If application for emergency interim relief is accepted, Emergency Arbitrator to be appointed within 1
day
iv. Issuance of order/award of interim relief within 14 days.

Siac
30. Interim and emergency relief
Interim and Emergency Interim Relief
30.1 The Tribunal may, at the request of a party, issue an order or an Award granting an injunction or any other
interim relief it deems appropriate. The Tribunal may order the party requesting interim relief to provide
appropriate security in connection with the relief sought.
30.2 A party that wishes to seek emergency interim relief prior to the constitution of the Tribunal may apply for
such relief pursuant to the procedures set forth in Schedule 1.
30.3 A request for interim relief made by a party to a judicial authority prior to the constitution of the Tribunal,
or in exceptional circumstances thereafter, is not incompatible with these Rules.

Amazon v. future 2021 SCC Online del 1279

 Amazon (Petitioner), Future Coupons Private Limited/ FCPL (Respondent No.1), Future Retail
Limited/FRL (Respondent No.2)
 The Amazon-FCPL Agreements – amazon invested 1431 Cr in FCPL based on certain special, material
protective/negative rights available to FCPL in FRL i.e., the retail assets of FRL would not be alienated
without the petitioner’s prior written consent and never to a restricted person. FCPL and FRL further
agreed that FRL would remain the sole vehicle for conduct of its retail business. Pursuant to this the
entire 1431 Cr was invested by FCPL into FRL. Thus, FRL received the benefit of the Petitioner’s
entire investment of 1431 Cr.
 KB

 Disputes arose between the parties under the Amazon-FCPL Agreements. Amazon alleged that the
Respondents (FCPL, FRL and KMP of FCPL and FRL) began breaching the Amazon-FCPL
Agreements by permitting their shareholding in FRL to get further encumbered. Further FRL permitted
the transfer of its retail assets to Reliance Group.
 Amazon initiated arbitration proceedings for disputes arising out of the Amazon-FCPL Agreement.
 Arbitration agreement – resolution of disputes between the parties according to SIAC Rules, agreement
shall be governed by and construed in accordance with Laws of India and the courts at New Delhi shall
have the exclusive jurisdiction over all matters relating to the agreement - seat of arbitration shall be
New Delhi.
 Amazon filed an application seeking emergency interim relief under the SIAC Rules, asking for
injunctions against transactions in breach of the Amazon-FCPL Agreements initiated by the Future
group.
 An Emergency Arbitral Award was granted injuncting the Future-Reliance deal.
 Amazon approached the Delhi High Court [u/s 17(2)] for enforcement of the emergency arbitral award.
Future group objected the maintainability of the enforcement petition on the ground that the
Emergency Arbitrator is not an arbitrator within the meaning of s. 2(1)(d) and the interim order
(emergency arbitral award) is not an order under s. 17(1) and therefore not enforceable under s.
17(2) of the Act.
 FRL (R2) raised two objections – firstly, that there is no arbitration agreement between the petitioner
and R2, the EA has misapplied the group of Companies doctrine to implead R2, the doctrine applies
only in s. 8 proceedings. Secondly, the EA Award is a nullity insofar as R2 is concerned because, there
is no arbitration agreement between the petitioner and R2 and combining/treating all the agreements as
a single integrated transaction would result in violation of the FEMA Act and Rules.
Principal issue – recognition and validity of the Emergency Arbitral Award under the 1996 Act.
“What is the legal status of an Emergency Arbitrator i.e., whether the Emergency Arbitrator is an arbitrator
under the 1996 Act and whether the interim order of the Emergency Arbitrator is an order under s. 17(1) and is
enforceable under 17(2) of the Act.”
Findings of the Emergency arbitrator on the issue of recognition and validity of EA awards under the Indian
Arbitration framework:
 Objections by the future group – Part I of the 1996 Act does not contemplate a remedy before
emergency arbitrator; and the definition of “arbitral tribunal” u/s 2(1)(d) does not include
emergency arbitrator (despite the same having been recommended by the 246 th LCI Report).
Held:
 The 1996 Act allows parties to determine the arbitral procedure, reliance placed on s. 2(6 )
acknowledging the existence of party autonomy to determine certain issues relating to the arbitration
between them, or “to authorize any person including an institution, to determine that issue”. Therefore,
Indian law accepts that the parties have the right to agree to arbitrate under SIAC Rules.
 S. 2(8) expressly provides that where Part I of the 1996 Act refers to an “agreement of the parties”,
such agreement shall include the arbitration rules referred to in the parties’ agreement. In this way, the
Indian Arbitration Act, 1996 provides that any arbitration rules agreed to by the parties are incorporated
into the arbitration agreement. Unless expressly excluded, it is trite that the parties cannot resile from
the terms of their arbitration agreement, including their agreement to allow either party to request the
appointment of an emergency arbitrator.
 Further, s. 17 does not preclude or intimate that parties cannot agree to institutional rules which
allow recourse to emergency arbitration. Unless there is a mandatory prohibition contained in
the 1996 Act or there are public policy constraints, the parties may agree to any arbitral
procedure.
 There is no bar under the 1996 Act, on parties to agree to arbitrate under institutional rules that allow
either party to request appropriate relief from an emergency arbitrator. Respondents could not cite any
authority to the contrary.
 KB

 Also noted that – institutional rules in several domestic Indian arbitration institution rules provide for
appointment of an emergency arbitrator.
 Objection regarding FRL being a non-signatory to arbitration agreement was rejected – there is no
dispute w.r.t the fact that a valid arbitration agreement exists under the Amazon-FCPL contract – the
limited question then is whether third parties (FRL) who are not explicitly mentioned in the arbitration
agreement made in writing, may be bound by it as a ‘party’ to the arbitration as per Indian law.
 Under Indian law, circumstances evidencing a single “integrated bargain” include: (a) direct
relationship with the party signatory to the arbitration agreement; (b) direct commonality of the subject
matter; (c) the agreement between the parties being a composite transaction and (d) the parties,
especially the non-signatory, engaging in conduct that demonstrates its consent to be bound by the
arbitration agreement.
 Group of companies doctrine applied to make FRL a party to the arbitration agreement based on the (a)
content of the Agreements; (b) simultaneous discussions and negotiations on all the Agreements; (c)
single/common team representing all Respondents including FRL; (d) full awareness and knowledge of
all the Respondents (including FRL) that protective, special and material rights are being created in
favor of R1 (FPCL) for the Claimant’s benefit; (e) R2 is the ultimate beneficiary of investment by the
claimant; (f) conduct of the parties…
DHC ruling:
 EA is an arbitrator for all intents and purposes – clear from a conjoint reading of sections 2(1)(d), 2(6),
2(8), 19(2) of the 1996 Act.
 u/s 17(1), the tribunal has the same powers as a court to make interim order, u/s 17(2) such an order is
enforceable in the same manner as if it were an order of the court. Such an interim order is appealable
u/s 37 of the Act.
 The current legal framework is sufficient to recognize the Emergency Arbitration and there is no
necessity for an amendment in this regard – the argument referencing the 246 th LCI report does not help
the respondents.

Resort Condominiums International Inc. v. Ray Bolwell & Resort Condominius (Australasia) Pty. Ltd.23
When it comes to the form of the EA decision, it should be noted that this issue varies in different arbitration
rules (e.g. order in ICC Rules and Court of Arbitration at the Confederation of Lewiatan20; order or award in
HKIAC Rules; decision in SCC Rules). Since the New York Convention applies only to the recognition and
enforcement of foreign arbitral awards and similarly state jurisdictions refer mostly to the enforcement of
arbitral tribunals’ awards, it is crucial to address this issue and determine whether the form of the EA decision,
matters for the purposes of enforcement. Such considerations should lay in the background, since it is
reasonable to expect that the state courts would not be constrained by formalistic distinctions of the label applied
to the EA decisions21. Irrespective of the nomenclature given to EA decision, most jurisdictions recognize
the principle of substance over the form, which means that the merit of the decision should be taken into
consideration over its name in different rules. Therefore, in deciding whether the decision on interim
measures comes within the scope of New York Convention, or the provisions of national law allowing for the
enforcement of arbitral awards, the content of the decision should prevail22. To illustrate abovementioned
argumentation, the judgment of the Supreme Court in Queensland is worth pointing out. In Resort
Condominiums International Inc. v. Ray Bolwell & Resort Condominius (Australasia) Pty. Ltd.23, the sole
arbitrator in order to enhance enforcement, labeled the decision on interim measure as “interim
arbitration order and award”. The Queensland Court pointed out that the sole indication of the decision, as an
“award” did not shape such a decision as an award in the meaning of the New York Convention. In Court’s view
the interim measure is of interlocutory and procedural nature, thus in no way finally resolves parties’ legal
rights. Moreover, the Court added that such injunction is provisional, since it is liable to be rescinded,
suspended, varied or reopened by the tribunal, which pronounced it. Accordingly, the award shall be both final
and binding in order to be enforceable under Article I (1) of the New York Convention. Hence, the enforcement
of an arbitral interim measure was denied, irrespective of the fact that it was taken in the form of an award.
Therefore, when the enforceability of the EA decision is concerned, the form of the decision is of secondary
importance. The sole fact that EA has granted the decision on interim measures in the frames of the award
 KB

would not increase the chances of enforcement. Hence, especially when the recourse to the New York
Convention is needed in order to obtain enforceability clause, the issue of finality of such decision prevails.

Conduct of arbitral proceedings (sections 18-27)

 S. 18 – Equal Treatment of parties – recognizes the principles of natural justice: fair play, equal
treatment of parties, reasoned award.
 S. 19 – Determination of rules of procedure – CPC and Evidence Act not binding on the process of
arbitration (until passing of the award). – courts should be slow in intervening with orders of the
arbitral tribunal on rules of procedure.
 S. 20 - Place of arbitration – seat and venue of arbitration
 S. 21 – Commencement of arbitral proceedings – calculation of limitation
 S. 22 – Language
 S. 23 – Statement of claim and defence
 S. 24 – Hearings and written proceedings
 S. 25 – Default of a party
 S. 26 – Expert appointment by arbitral tribunal
 S. 27 – Court assistance in taking evidence

Arbitral awards (sections 28-33)

 Government of Meghalaya v. M/s BSC- C&C JV
 Martin Hunter, Simon Weber, et al., 'Chapter 9:Arbitral Awards in Indian Arbitrations', in Dushyant
Dave , Martin Hunter , et al.(eds), Arbitration in India,(© Kluwer Law International; Kluwer Law
International 2021) pp. 173 -194.
 S. 28: Rules applicable to the substance of the dispute – ‘international commercial arbitration’ – party
centric definition applicable to Part I – choice of substantive law by the parties – failing choice of law,
arbitral tribunal to apply rules of law as it considers appropriate given all the circumstances
surrounding the dispute.
 S. 29: Decision making by panel of arbitrators
 S. 29A: Time limit for arbitral award
 S. 29B: Fastrack procedure
 Sections 29A and 29B specify time limit for making arbitral award. Section 29B prescribes Fast Track
procedure for arbitral award expeditiously. Award shall be made within a period of six months, from
the date the arbitral tribunal enters upon the reference. If it is not possible within prescribed time, then
provisions of subsections (3) to (9) of S. 29A shall apply.

S. 29A Time limit for arbitral award

 Award to be made within a period of 12 months from the date of completion of pleadings under s. 23(4)
– for arbitrations other than international commercial arbitration. In case of ICAs, an endeavor shall be
made to render the award within a period of 12 months from the date of completion of pleadings under
s. 23(4).
 The said 12-month period is extendable up to a maximum of 6 months subject to mutual agreement
between the parties. [s. 29A (3)].
 KB

 If award is rendered within 6 months – arbitral tribunal entitled to receive additional fee – to be
mutually agreed by the parties.
 If award not made within 18 months – mandate of the arbitrator terminates, unless extended by the
Court (upon application of any of the parties). [S. 29A(4) and (5)] – see provisos to sub-section (4).
 Court while considering an application under sub-section (4), may substitute (“shall be open to the
Court to”) substitute one or all of the arbitrators – if done – arbitration to continue from the stage where
it was left of before substitution of arbitrators. [sub-section (6)] – see also s. 12(1)(b) and s. 15.
 Second proviso to sub-section (4) and sub-sections (8) and (9).
 29B Fast track procedure

s. 30 settlement
 The 1940 Act did not contain such a provision.
 Article 30 of the Model Law deals with the situation where the parties have reached a settlement during
the pendency of arbitral proceedings, and determines the legal requirements for making it binding.
 S. 30 (1) gives statutory recognition to the agreed terms of the settlement between the parties. It goes a
step further in stating that it is not incompatible with the arbitration agreement for the arbitrator to
encourage settlement of the dispute. The parties are entitled to settle their disputes at any time, and in
any manner they choose. If during the course of the arbitral proceedings at any time, the parties decide
to resolve their disputes by mutual settlement, the arbitral tribunal should not only encourage them, but
can also use mediation, conciliation or any other ADR Procedures for facilitating the same.
 S. 30(4) – settlement award shall have the same status and effect on merits as any other arbitral award,
on the substance of the dispute. This clearly implies that whether it is an award on agreed terms, or an
award on the substance of the dispute, the effect and the status on agreed terms, or an award on the
substance of the dispute, the effect and the status is the same.

Arbitral award
Form and content of an arbitral award [s. 31]:
 Form and content requirements
 Writing and signing requirements
 Reasoned Award
 Dates concerning Award
 Interests and Costs
‘Arbitral award’ - an award made in writing and signed by a majority of all members of the arbitral tribunal,
along with reasons for the omissions of any signatures.

Correction and Interpretation of Arbitral Award:

Interpretation of Awards – Presumption of certainty
Correction of Awards [s. 33]
Types of Arbitral Awards:
Final Award
Interim Award
 KB

Additional Award [s. 33]

Consent Award [s. 30(4)]

Section 32- termination of proceedings- Termination by issuance of final arbitral award [s. 32(1)]
 Termination by [s. 32(2)]:
- 32(2)(a) - Claimant withdraws the claim
- 32(2)(b) - Parties agree on termination of the proceedings
- 32(2)(c) - Arbitral tribunal finds that the continuation of proceedings has become unnecessary or
impossible – residuary power in the arbitral tribunal to terminate proceedings – for instance: if the
subject matter is not arbitrable, or there is a situation where the dispute does not survive (unnecessary),
or the contract has been frustrated, or become impossible of performance.
 Under s. 32(2), there is no decision on the merits of the dispute. These are where the proceedings come
to an end before adjudication, or in the course thereof. E.g., termination in terms of s. 25(a), this will be
read along with s. 32(2)(c)
 The termination of the arbitral proceedings is coextensive with termination of the mandate of the
arbitrator [s. 32(3)] - exception being s. 33 and s. 34(4).

s. 33 Correction and interpretation of award; additional award

 Corrections and omissions. 33(1) – includes ‘any other error of similar nature’ – construes ejusdem
generis
 Distinction between 33(1)(a) and 33(1)(b) - State of Arunachal Pradesh v. Damani Construction Co.
(2007) 10 SCC 742
- A request for correction of computation, clerical or any other error can be made by any party, a request
for interpretation of any specific point or part of the award under clause (b) is permissible only if the
parties so agreed.
- Power under s. 33(1)(a) can be exercised by the tribunal, not only on the request of a party, but also on
its own initiative. However, interpretation of a specific point or part of the award can be given only on
request of a party, with notice to the other party. Likewise, an additional award can be made by the
tribunal only on request of a party, with notice to the other party, with notice to the other party.
- Consequently, correction award/additional award shall be final in terms of s. 35 and enforceable, as if it
were a decree of a court under s. 36. It is also amenable to be challenged on the grounds contained in s.
34(2) of the Act.
 Errors of substance, law or judgment – if an error can reasonably be attributed to the exercise of
judicial consideration or discretion, it not being an error u/s. 33, cannot be corrected because the
tribunal has no power to correct errors of substance, law or judgment – the proper course would be to
apply under 34(4).

Challenge to arbitral Award

Section 34 Journey- 2015 AMENDMENT

• 2015 Amendment introduced Section 34 (2A) in order to further demonstrate and reaffirm the Act’s
focus on achieving the objectives of fairness, speed and economy in resolution of disputes through
arbitration.
 KB

• The Commission recommended the addition of section 34 (2A) to deal with purely domestic awards,
which may also be set aside by the Court if the Court finds that such award is vitiated by “patent
illegality appearing on the face of the award.”
• In order to provide a balance and to avoid excessive proviso intervention, it is clarified in the proposed
section 34 (2A) that such “an award shall not be set aside merely on the ground of an erroneous
application of the law or by re-appreciating evidence.”
• The Commission has further recommended the restriction of the scope of “public policy” in both
sections 34 and 48.
HISTORY
• The Supreme Court in Renusagar Power Plant Co Ltd v General Electric Co, AIR 1994 SC 860 while
construing the term “public policy” in section 7(1)(b)(ii) of Foreign Awards (Recognition and
Enforcement) Act, 1961, held that an award would be contrary to public policy if such enforcement
would be contrary to
(i) fundamental policy of Indian law; or
(ii) the interests of India; or
(iii) justice or morality.
TURNING POINT
• However, in ONGC Ltd. vs Saw Pipes Ltd. (2003), the apex court opened the floodgates for appeal
against arbitral awards when it included ‘patent illegality’ as the fourth ground to the above-stated three
grounds of Renusagar. This was particularly so because the ground of patent illegality, essentially,
meant that an award, which in the opinion of the court was unfair and unreasonable, could also
be now set aside by going into the merits of the dispute.
• Further, in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 the Supreme Court had
interpreted Fundamental Policy of Indian Law to include “all fundamental principles as providing a
basis for administration of justice and enforcement of law in this country”, including but not limited to,
(a) the judicial approach of the arbitrator; (b) the principles of natural justice, and (c) Wednesbury’s
principles of reasonableness. These judgments were once again referred and cited with approval
in Associate Builders vs DDA (2014).

Ssangyong Engineering & Construction Co. Ltd. v National Highways Authority of India (NHAI)
• In 2015, with the introduction of the amendments, various explanations were attached to Sections 34
and 48 and certain changes were also made in Section 28 in order to clarify the term ‘public policy’ and
accordingly, overcome the disparate interpretations assigned to the term by the courts in India.
• Ssangyong Engineering was the first case after the 2015 Amendment Act to deal with the interpretative
conundrum of the ‘public policy’ ground.

Constituents Past Interpretation Ssangyong’s Interpretation

Fundamental Policy of Includes– Includes–

Indian law
i. Violation of the Foreign Exchange Act; i. Violation of a statute linked with public policy or
public interest.
ii. Disregarding orders of superior courts in India;
ii. Disregarding orders of superior courts in India.
iii. Binding effect of the judgment of a superior
court; iii. Binding effect of the judgment of a superior
court
iv. Judicial approach of the arbitrator; and
Excludes–
v. Principles of natural justice including, ‘audi
alteram partem‘ rule and application of mind in i. Judicial approach of the arbitrator; and
adjudication
ii. Principles of natural justice including, ‘audi
 KB

alteram partem‘ and application of mind in adjudication

vi. Wednesbury’s principle of reasonableness
iii. Wednesbury’s principle of reasonableness

This concerns itself with India as a member of the

Interest of India international community in its relations with foreign No more a ground under public policy.
powers.

An award can be said to be against justice only when it

Justice Same as earlier.
shocks the conscience of the court.

Constituents Past Interpretation Ssangyong’s Interpretation

Only applicable to domestic arbitrations under Part I

and forms a separate ground u/s 34(2A).
Patent illegality refers to illegality going to the root of
the matter but which does not amount to mere erroneous
application of the law.
Includes–
Patent illegality refers to illegality
going to the root of the matter i. Contravention of Section 31(3) of the 1996 Act
including- (no reason for the award);
i. an award opposed to the terms ii. Construction of the terms of a contract in a
of the parties’ contract; manner that no fair-minded or reasonable person would;
ii. a contravention of the iii. Dealing with issues outside the contract or with
Patent substantive law of India; matters not allotted;
Illegality iii. a contravention of the iv. Wednesbury’s principle of reasonableness
Arbitration Act itself; including, finding based on no evidence at all;
iv. prejudicial to the rights of the v. Award ignoring vital evidences in arriving at its
parties; and decision; and
v. unfair and unreasonable award vi. Finding based on documents taken behind the
that shocks the conscience of the back of the parties.
Court.

Excludes–
i. Contravention of a substantive law of India not
linked to public policy or public interest; and
ii. Re-appreciation of evidence.

s. 34 application for setting aside arbitral award

 Applicable to arbitrations seated in India – against an interim award and final award.
 A s. 34 application should contain a concise statement of ‘material facts’ and ‘grounds’ for the matter to
be brought under court’s scrutiny.
 KB

 Limited scope of judicial intervention – court cannot review the award on merits - Reappreciation of
evidence not permissible.
 Based on Art. 34(4) of the UNCITRAL Model Law
Grounds:
 S. 34(2)(a) – (i) to (v) – grounds to set aside arbitral award – can be considered on application of either
party - Burden of proof on the applicant.
 S. 34(2)(b) – (i) and (ii) – grounds to set aside arbitral award – application by either party for these
grounds not necessary – burden of proof not on the applicant court has the power to examine the ward
to see if the grounds under s. 34(2)(b) are satisfied.
 Public policy – excess of jurisdiction or lack of due process.
 If the concealed facts disclosed after the passing of the award have a causative link with the facts
inducing the award, such facts are relevant in a setting aside proceeding, and the award may be set
aside as affected or induced by fraud.
 DDA v. RS Sharma & Co. (2008) 13 SCC 80
(a) An award which is
i. Contrary to the substantive provisions of law; or
ii. Contrary to the provisions of the A&C Act
Or
- Against the terms of the contract; or
- Patently illegal; or
- Prejudicial to the rights of the parties.
(b) Award can be set aside if it is contrary to:
i. Fundamental policy of Indian law; or
ii. The interest of India; or
iii. Justice or morality
(c) If it is so unfair and unreasonable that it shocks the conscience of the court
(d) Open for the court to consider whether award is against specific terms and conditions and if so, it may be set
aside on the ground of: patent illegality or public policy.

Associate builders V DDA

 In this case, a s. 34 petition was filed before the HC – dismissed objections against awarding certain
claims as to establishment expenses by applying Hudson formula and damages for prolongation of
contract. DB of the Hcin appeal u/s. 37 set aside the said order and negatived the award on the ground
that arbitrator mechanically applied the Hudson formula and held that the value of “work completed”
should have been taken into account for calculating establishment expenses and not the entire contract
value.
 SC held – different formulae can be applied in different circumstances and whether damages should be
computed by taking recourse to one or other formula, having regard to the facts and circumstances of a
particular case, would fall within the domain of arbitrator – Arbitrator, in his wisdom having applied
the Hudson formula, establishment expenses are to be ascertained in accordance with said formula by
taking into account the contract value that is awarded and not the work completed and the DB decision
exceeded its jurisdiction in interfering with said calculation – Further, that by ignoring vital work
completion certificate granted by respondent DDA itself, and unnecessarily relying on facts which were
 KB

neither pleaded nor proved, DB of the HC exceeded its jurisdiction in interfering with a pure finding of
fact forgetting that arbitrator is the sole judge of the quality of evidence before him.
 Scope of public policy u/s. 34 – caution on and limits on power of court to interfere with arbitral award
under the various heads of public policy
 Fundamental policy of Indian law: i. compliance with statutes and judicial precedents; ii. need for
judicial approach; iii. Natural justice compliance; iv. Wednesbury reasonableness
 Patent illegality – contravention of substantive law of India; contravention of the A&C Act;
contravention of the terms of the contract.
 When any of the heads/sub-heads of the test of “public policy” is applied to an arbitral award, the court
does not act as court of appeal – interference is permissible only when findings of arbitrator are
arbitrary, capricious or perverse, or when conscience of the court is shocked, or when illegality is not
trivial bit goes to the root of the matter – not when merely another view is possible. Once it is found
that the arbitrator’s approach is neither arbitrary nor capricious, no interference is called for on facts.
 Award when against justice or morality – held only when it shocks the conscience of the court – DB’s
interference with the merits of the award on the ground that it itself would to ‘rough and ready justice’
on the facts – permissible court intervention u/s. 34 (on the ground of justice) does not include what the
court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the
arbitrator’s view and does what it considers ‘justice’
 Question of appreciation of evidence – Arbitrator is the sole judge of quantity and quality of evidence
when he delivers arbitral award. Thus, award based on little evidence or on evidence which does not
measure up in quality to a trained legal mind cannot be held invalid – once it is found that the
arbitrator’s approach is nether arbitrary nor capricious, then no interference is called for in facts.
 S. 34 and 28(3) – construction of terms of a contract is primarily within the domain of the arbitrator to
decide – interference by court is permitted only when arbitrator construes the contract in such a way
that no fair minded or reasonable person could.
 Paras 15-19, 27-40, 42, 48-52, 56, 62

Larsen Air Conditioning & Refrigeration Co. v. Union of

India

 parties entered into a contract involving a tender – dispute arose in 1997 – award rendered in 1999,
wherein it ordered the four respondents to pay an interest rate of 18% pendente lite, and future
compound interest based on certain claims. Unsatisfied with this award, the respondent-state
challenged this award under section 34. district court dismissed the application on the ground that there
was unsatisfactory evidence supporting their claims – Allahabad HC
 After considering the arguments, reduced the rate of interest from compound interest to 18% to 9%
simple interest per annum. The High Court further stated that this modification in the interest rate was
made due to the fact that the arbitration proceedings were governed by the Arbitration Act, 1940, and
not the Act of 1996. The case was then appealed before the Hon’ble Supreme Court, arguing as to how
the high court had overstepped its bounds, resulting in the present case.
 Issues:
1. Whether the High Court had the power to modify the arbitral award?
2. What’s the scope of judicial intervention in arbitral awards under the Act?
Held: limited scope of intervention - the court specified that the only power which the courts are vested with,
pertaining to sections 34 and 37 of the Arbitration and Conciliation Act, 1996, is to only partially or wholly set
 KB

the award aside, and that too only under the exceptional cases or grounds as mentioned under the provisions of
the Act.

Dmrcl v. delhi airport metro express limited

 DAMEPL bagged the contract for construction, operation and maintenance of Delhi Airport Metro
Express Limited in 2008. The concession agreement was based on a PPP model for providing metro
rail connectivity between New Delhi Railway Station and IGI Airport and other points in Delhi.
 DAMEPL expressed its intention to halt operations, alleging that the line was unsafe to operate –
operations halted on 08.07.2012. On 09.07.2012, DAMEPL issued a notice to DMRC containing a
‘non-exhaustive’ list of eight defects which according to them affected the performance of their
obligations under the concession agreement (“the cure notice”) – the notice stated that the defects were
attributable to the faulty construction and deficient designs which affected project safety. – causing
‘material adverse effect’ on the performance of the obligations by it to operate, manage and maintain
the project - DMRC requested to cure the defects within 90 days from the date of the notice – failing to
do so would constitute a ‘material breach’ under the concession agreement and a ‘DMRC event of
default’ – which would give DAMEPL the right to terminate the contract.
 Defects not cured – DAMEPL issue notice of termination on 08.10.2012.
 Disputes referred to arbitration – award rendered on 11.05.2017 in favor of DAMEPL awarding it: (a)
2782 cr + interest; (b) expenses incurred in AMEL from 07.01.2013 to 30.06.2013 and debt service
made by DAMEPL during this period of 147 Cr + interest; (c) to refund the BG of 62.07 + interest; (d)
return security deposit amount 56.8 lakhs + interest and that DMRC was entitled to concession fee for
the period from 23.02.2012 to 07.01.2013.
 Application to set aside the arbitral award filed under s. 34 before the Delhi HC – dismissed by the
single judge – appeal u/s. 37 before the DB – appeal partly allowed – SLP filed before the SC assailing
the DB decision – SC allowed the appeal and restored the award – review petition filed against SC’s
decision which was dismissed hence last resort curative petition filed.
 Issues involved here – (a) whether curative petition maintainable; and (b) whether the SC was justified
in restoring the arbitral award which had been set aside by the DB of the HC on the ground that it
suffered from patent illegality.
Held:
 Curative jurisdiction may be invoked if there is a miscarriage of justice (paras 30-32)
- Court should not entertain an application seeking reconsideration of an order of the SC which has
become final on dismissal of a review petition. It is neither advisable nor possible to enumerate all the
grounds on which such a petition may be entertained.
- In essence, the jurisdiction of the SC, while deciding a curative petition, extends to cases where the
court acts beyond its jurisdiction, resulting in a grave miscarriage of justice.
- In this case – patent illegality – an award without reasons would suffer from patent illegality - a
‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its
decision – interpreted as ‘miscarriage of justice’ – set aside under the ground of patent illegality.
Award set aside on ground of patent illegality (para 43-65)
 (as held by the DB) Arbitral award was perverse, irrational and patently illegal since it ignored the
express terms of clause 29.5.1.(i) which stipulated that if ‘effective steps’ were taken during the cure
period by DMRC, the contractual power to terminate could not be exercised - the vital evidence of
CMRS certification in deciding the validity of termination was ignored as irrelevant by the SC –
overlooking the statutory certification deeming it irrelevant without reasons and thus the award was
patently illegal according to the test in Associate Builders.
 Clause 29.5.1 (i) entitled DAMEPL to terminate the agreement if DMRC failed to “cure such breach or
take effective steps for curing such breach” within the cure period. The tribunal found that since certain
defects remained after the cure period, this was indicative of the fact that no effective steps were taken.
 KB

The SC (curative petition stage) held that, the fact that defects existed at the end of the cure period
relates to one aspect of the termination clause – that the defects were not completely cured. It does not
explain whether effective steps were taken within the cure period.
 Clause interpreted incorrectly by the arbitral tribunal – the intention of the parties appears to be that
incremental progress, even if it does not lead to complete cure, is an acceptable course of action to
prevent termination according to the concession agreement. – tribunal failed to appreciate the
individual import of the two phrases ‘cure defects’ and ‘take effective steps to cure defects’.
 CMRS certificate obtained by the DMRC during the cure period was a vital piece of evidence ensuring
tha safety of the structure – ignored by the tribunal and the SC – shows that DMRC took effective steps
to cure defects – sufficient to satisfy the condition precluding termination under clause 29.5.1 (i)
 Breach of PNJ, award perverse, arbitrary and irrational when findings are: (i) based on no evidence; (ii)
based on irrelevant material; or (iii) ignores vital evidence. [Ssangyong (paras 40, 41) and Associate
Builders (paras 42.3 to 45)]
 “Interference with an arbitral award cannot frustrate the ‘commercial wisdom behind opting for
alternate dispute resolution’, merely because an alternate view exists. However, the interpretation of a
contract cannot be unreasonable, such that no person of ordinary prudence would take it. The contract,
which is a culmination of the parties’ agency, should be given full effect. If the interpretation of the
terms of the contract as adopted by the Tribunal was not even a possible view, the award is perverse.”
Section 35 – Finality of Arbitral Awards
Section 36 – Enforcement
- To be enforced in accordance with the provisions of CPC
- Filing of a challenge against the award shall not in and of itself render the award unenforceable unless
stay is granted
- Court can unconditionally stay an arbitral award (pending disposal of a s. 34 application) in case a
prima facie case is made out that:
(a) 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
- The enforcement of an domestic award it to take place after the time period for making a s. 34
application has expired.
 Section 43 – Limitation

Public Policy
Public policy is a ground for setting aside an arbitral award under section 34 of the Arbitration and Conciliation
Act, 1996.
Renusagar
THE NARROW VIEW OF PUBLIC POLICY
In the landmark decision in Renusagar Power Co Ltd v. General Electric Co,2 dealing with the Foreign Awards
(Recognition and Enforcement) Act 1961 section 7(1)(b)(ii), the Supreme Court stated the law: "Since the
Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by
the principles of private international law, the expression "public policy" in section 7(l)(b)(ii) of the Foreign
Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of
private international law, Applying these criteria it must be held that the enforcement of a foreign award would
be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i)
fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality." Though this
statement of law was made in the context of enforcement of a foreign (New York Convention) award, it has
 KB

been held to be relevant for setting aside arbitral awards under section 34(2)(b)(ii) on the ground that the award
is in conflict with the public policy of India as well.4 The implication of this decision is that an award with a
patent illegality can be enforced, as long as that illegality itself is not contrary to the public policy of India.

ONGC v. SAW Pipes Ltd.

The ONGC case marked a regression to the pre-1996 era, allowing arbitral awards to be challenged for errors of
law apparent on their face. This contradicted the intent of the UNCITRAL Model Law and the Arbitration and
Conciliation Act, 1996, which sought to limit judicial interference. The Renusagar decision narrowly defined
"public policy of India," restricting judicial intervention to three specific grounds. However, the Supreme Court
in this case expanded the definition, allowing awards to be annulled for patent illegality in addition to the
Renusagar criteria.
Case Facts:
 The respondent agreed to supply casing pipes to the appellant and sourced steel plates from an Italian
supplier.
 Due to a general steelworkers’ strike in Europe, the respondent sought an extension for supply
deadlines. The appellant granted it but imposed liquidated damages for delay.
 In arbitration, the appellant failed to prove actual losses from the delay, and the tribunal ruled that the
deduction of liquidated damages was wrongful.
 The Bombay High Court upheld the award, stating a violation of law alone does not justify annulment
under section 34(2)(b)(ii).
Supreme Court’s Ruling:
1. Expanded Scope of "Public Policy": The Court held that "public policy of India" includes
considerations of public good, public interest, and prima facie violations of statutory provisions. An
award violating public policy can be annulled if it is patently illegal, provided the illegality affects the
root of the matter.
2. Threshold for Intervention: Errors must be blatant, manifest, and obvious, not requiring complex
reasoning or debatable interpretations.
3. Blatant Errors: Examples include awards inconsistent with constitutional provisions, statutory laws,
or judicial precedents. Such defects render awards null, void, and unenforceable.
4. Judicial Oversight: Courts can intervene in awards that are patently illegal or shock the conscience of
the court, ensuring that grossly unfair or unreasonable decisions are not upheld.
Implications:
The judgment grants courts jurisdiction to annul awards for obvious legal errors and patent illegality, balancing
finality in arbitration with the need to prevent enforcement of flawed awards. However, trivial errors cannot
justify setting aside an award. The decision redefines judicial boundaries, emphasizing fairness and adherence to
legal standards.
In light of this position of law, ONGC was justified in adding a fourth imperative head to the three set forth in
Renusagar. It is relevant to note here that the three heads set out in Renusagar were stated by the court for the
first time. Before that, the parameters of the scope of public policy of India had not been defined. Therefore, if
one bench of the Supreme Court could list the three heads of the public policy of India in Renusagar, there is no
justifiable reason to fault ONGC merely because another bench has added one more head to the three already
existing. It is rather surprising, however, that in this of all areas the courts should be expected to surrender their
function of developing the law.

The Supreme Court, in its recent decision in Shri Lal Mahal Ltd v Progetto Grano Spa³ expressly
overruled Phulchand and declined to consider the merits of a foreign arbitral award in an enforcement
proceeding. The decision in Shri Lal Mahal represents another significant pro-arbitration step taken by the
Indian Supreme Court in recent times.
 KB

Shri Lal Mahal Ltd v. Progetto Grano Spa (2013)

This is a landmark judgment relating to enforceability of foreign awards.
Facts
The dispute arose from a contract dated May 12, 1994, between Shiv Nath Rai Harnarain (sellers) and Italgrani
Spa, Naples, Italy (buyers), for the sale of 20,000 MT of Indian Durum wheat at $162/MT. The contract required
certification of quality by S.G.S. India as final and conclusive, with quality standards including a moisture
content of ≤12% and at least 80% vitreous content.
Key Events:
1. Dispute on Quality:
o The wheat was shipped in August 1994 and certified by S.G.S. India as meeting the contract
specifications.
o Buyers later alleged that S.G.S. Geneva found the wheat to be soft wheat, breaching the contract.

2. GAFTA Arbitration:
o Buyers initiated arbitration with GAFTA, which ruled in their favor on December 4, 1997,
awarding $1,023,750 in damages and interest.
o Sellers contested GAFTA's jurisdiction in the Delhi High Court, which dismissed their petition.
Their appeal to the Supreme Court of India was also dismissed.
3. Appeals and Enforcement:
o The GAFTA Board of Appeal upheld the tribunal’s decision, finding the wheat was soft wheat.
Sellers challenged one award in the High Court of Justice in London, which dismissed their
appeal. The other award went unchallenged, making both awards final.
o Buyers sought enforcement of the awards in the Delhi High Court. Sellers objected, arguing that
enforcement violated public policy and contradicted the contract’s certification terms.
4. Court Rulings:
o The Delhi High Court rejected the sellers' objections, ruling the awards enforceable. The court held
it could not re-examine factual findings decided by GAFTA or its Board of Appeal.
o Sellers, represented by Shri Lal Mahal Ltd., appealed to the Supreme Court of India, claiming
enforcement violated public policy and the contract terms.
The case underscores the finality of international arbitration awards and the limited scope of judicial
intervention under Indian law, particularly regarding public policy objections.
Issue Involved
 Whether the awards passed in the favour of the respondent (No. 3782 and no. 3783) are enforceable under
Section 48 of the Arbitration and Conciliation Act, 1996 (A & C Act)?

Analysis
 It is to be noted that Section 7 (1) (b) (ii) of Foreign Awards Act provides that a foreign award shall not be
enforced if the Court dealing with the case was satisfied that the enforcement of award would be contrary to
public policy.
 Following the case of Renusagar Power Co. Limited v. General Electric Company (1994), the Court
held that for the purposes of Section 48(2)(b), the expression "public policy of India" must be given narrow
meaning and the enforcement of foreign award would be refused on the ground that it is contrary to public
policy of India if it is contrary to public policy of India if it is covered by one of the three categories
enumerated in Renusagar Power Co. Limited v. General Electric Company (1994).
 KB

 The application of ’public policy of India’ doctrine for the purposes of Section 48(2)(b) is more limited
than the application of the same expression in respect of the domestic arbitral award.
 The Court held that the enforcement of foreign award would be refused under Section 48 (2) (b) only if
such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or
(iii) justice or morality.
 The Court further held that the scope of inquiry under Section 48 does not permit review of foreign
award on merits.
 The Court in the present facts observed that the present award is not the one which is liable to be set aside
as it does not fall under any of the grounds on which a foreign award can be aside.
 Therefore, the Court refused to set aside the foreign award in this case.
Conclusion
 The judgment discusses the law regarding setting aside of the foreign award.
 The grounds for setting aside the foreign award are when it is found contrary to:
o Fundamental policy of Indian Law

o The interests of India

o Justice or morality

On this basis the court refused to apply the definition of the term 'public policy' as applied in the context of
setting aside proceedings and as laid down in ONGC v Saw Pipes in the context of a challenge during an
enforcement action. The court followed the decision in Renusagar and held that enforcement can only be
opposed on grounds of public policy where it is contrary to:
 Fundamental policy of Indian law;
 The interests of India; or
 Justice and morality.
In particular, the court expressly declined to allow a challenge on the grounds of 'patent illegality'.
Since the challenge raised by the seller required reconsideration of the merits of the case and re-looking at the
facts, the court declined to entertain the challenge and allowed enforcement.
Analysis
The decision of the Supreme Court in Shri Lal Mahal is a welcome development, especially for those seeking to
enforce foreign seated arbitral awards in India. The overruling of Phulchand significantly reduces the ability of
Indian courts to accept invitations to interfere with foreign awards and prevents a re-opening of the case in
enforcement proceedings. This more restrictive approach to the public policy grounds for resisting enforcement
is more consistent with an emerging international consensus.

ONGC V Western GECO

The Western Geco case examined judicial interference in arbitral awards under the Indian Arbitration and
Conciliation Act, 1996, particularly under Section 34, which allows awards to be set aside but does not empower
courts to modify them.
Key Facts:
 Contract and Dispute: ONGC contracted with Western Geco International Ltd. (GECO) to supply U.S.-
origin hydrophones. After 9/11, U.S. regulatory restrictions prevented GECO from sourcing the
hydrophones, and it invoked the force majeure clause. ONGC rejected this claim, demanding
immediate delivery. GECO offered compatible alternatives, which ONGC conditionally accepted with
a deduction for liquidated damages. Arbitration arose when ONGC deducted these damages.
 KB

 Arbitral Award: The tribunal ruled in GECO’s favor, holding that ONGC’s deduction of liquidated
damages was invalid.
 Court Proceedings: ONGC challenged the award under Section 34. The Bombay High Court partially
set aside the award, deleting interest components but upholding the tribunal's decision. Dissatisfied,
ONGC appealed to the Supreme Court.

Supreme Court's Ruling:

 Judicial Standards: Relying on ONGC v. Saw Pipes, the Court stated that an award could be challenged
if it violated the "fundamental policy of Indian law." It defined this as requiring:
 A judicial approach involving the application of judicial mind.
 Adherence to natural justice principles.
 Prevention of decisions that are perverse or irrational to the extent that no reasonable person could
reach the same conclusion.
Scope of Review: The Court expanded the scope of Section 34 by holding that a perverse or irrational finding
could justify judicial intervention. It stated that tribunals’ decisions that fail to make necessary inferences or
draw incorrect conclusions could be "challenged, modified, or cast away."
Modification of Award: The Court modified the tribunal’s decision, allowing ONGC to deduct liquidated
damages, rejecting GECO's argument that courts cannot interfere with the content of an award under Section 34.
Impact:
Blurring Boundaries: The judgment blurred the distinction between setting aside and modifying awards, a power
not explicitly granted under Section 34.
Judicial Overreach: By modifying the award, the Court exceeded its statutory mandate, potentially undermining
the finality of arbitration and contradicting the Act’s intent to minimize judicial interference.
This ruling expanded the scope of judicial review in arbitration, raising concerns about its compatibility with
pro-arbitration principles.

Part II – enforcement of certain foreign awards

Foreign awards and their enforcement (sections 44-48, 53)
 Section 44 – Definition
 Section 45 - Power of judicial authority to refer parties to arbitration
 Section 46 – When foreign award binding
 Section 47 – Evidence
 Section 48 – Condition for enforcement of foreign awards
 Section 49 – Enforcement of foreign awards
 Section 50 – Appealable orders

 An award shall be construed as a foreign award, if decided outside India (place centric definition of
international commercial arbitration), irrespective of whether Indian law is used or not, provided:
i. The agreement is in writing to which the NY convention applies.
ii. It should be passed in one of the territories where it has been notified by the Central government in the
official gazette that the NY Convention applies.
 Matters of Evidence –
The party seeking enforcement of a foreign award has to produce at the time of th application the following
documents:
 KB

i. The original award or its copy which is duly authenticated in the manner required by the law of the
country in which the award was made;
ii. The original agreement of arbitration or duly certified copy;
iii. Such evidence as is necessary to be proved that the award is a foreign award.

 Section 48 – Conditions for enforcement of foreign awards

- Grounds to be narrowly construed – courts not to carry a second review of the merits of the given
award. This is in light of the prevailing policy of the Act which is to give finality to arbitral awards.
- This provision has two broad objectives: first is to ensure that awards that suffer from procedural
defects and deficiencies do not get enforced. Second it aims to maintain particular interests of India by
ensuring that the arbitral award is not against the public policy of India
- Principle of double exequatur – requires that courts which are enforcing the award to give effect to the
authority of the courts of the place of arbitration – aims to minimize the possibility of repeated
litigation on the same issue. Thus, in case, objections regarding procedural defects have already been
dealt with and rejected by the courts of the place of arbitration, a party against whom the award is
being enforced may not reagitate the same issue before the court where the award is sought to be
enforced.
Procedural defects – failure to comply with the arbitral procedure, improper constitution of the arbitral tribunal,
failure of the tribunal to adopt correct procedures etc.

Conflict with Public Policy

 Award contravenes public policy if the award is/was:
- Induced by fraud or corruption
- In violation of section 75 or 81
- In contravention with the fundamental policy of Indian law
- In conflict with morality or justice

 National Agricultural Cooperative Marketing Federation of India v Alimenta SA 2020 SCC OnLine SC
381
 Centrotrade Minerals and Metals Inc v. Hindustan Copper Limited [Supreme Court, 2 June 2020]
 Reliance Industries Limited and Anr v. Union of India, (2014) 7 SCC 603

Shin Etsu Chemical co ltd v M/s Aksh Optifibre Ltd & Anr

Civil Appeal No 5048 of 2005

The case Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. & Anr. (2005) is a landmark judgment by the
Supreme Court of India concerning foreign arbitral awards and their enforcement under the Arbitration and
Conciliation Act, 1996.
Background:
 KB

Parties & Dispute: Shin-Etsu Chemical Co. Ltd. (a Japanese company) and Aksh Optifibre Ltd. (an Indian
company) entered into an agreement with an arbitration clause specifying Japan as the seat of arbitration.
Disputes arose, leading Shin-Etsu to invoke arbitration.
Proceedings in India: Aksh Optifibre resisted arbitration, filing a suit in India, claiming the arbitration agreement
was invalid. The question before the courts was whether the enforcement of a foreign arbitration clause and
subsequent award could be challenged on the grounds of validity under Indian law.
Issues Before the Court: Whether the validity of a foreign arbitration agreement should be assessed at the
interim stage before enforcement, Whether Section 45 of the Arbitration and Conciliation Act, 1996, mandates
judicial scrutiny of the validity of the arbitration agreement when a party applies for reference to arbitration.
Supreme Court's Ruling:
 Limited Judicial Review Under Section 45: The court held that at the stage of referring parties to
arbitration (under Section 45), judicial scrutiny is limited to examining whether the arbitration
agreement is "null and void, inoperative, or incapable of being performed." This examination must be
prima facie and not exhaustive.
 Prima Facie Examination Standard: The validity of the arbitration agreement should be assessed based
on a prima facie standard, ensuring minimal interference by courts. This is in line with the pro-
arbitration ethos of the UNCITRAL Model Law, which the Arbitration Act incorporates.
 Distinction Between Domestic and Foreign Awards: The court differentiated between domestic
arbitration (Sections 11 and 34) and foreign arbitration (Sections 45 and 48). For foreign awards, the
Act intends limited judicial intervention, primarily at the enforcement stage under Section 48.
 Pro-Enforcement Bias: The judgment reinforced India's commitment to the New York Convention,
emphasizing the enforceability of foreign arbitration agreements and awards unless explicitly invalid.
Significance:
 The judgment underlined India’s pro-arbitration approach, emphasizing minimal court interference in
foreign arbitral processes.
 It clarified the scope of judicial review at the pre-arbitration stage, aligning Indian arbitration law with
international standards.
 The decision strengthened the enforceability of foreign arbitration agreements, boosting India’s
credibility as an arbitration-friendly jurisdiction.
 This case remains a critical precedent for issues concerning the enforcement of foreign arbitral
agreements and awards in India.

Non-signatories to the arbitration agreement

Usually, only those who have signed the arbitration agreement should be obligated and connected to the
arbitration proceedings ensuing from a dispute. (Doctrine of Privity of Contract)
However, can arbitration agreement bind non-signatories and make them parties to the dispute?
THE ANSWER IS ‘YES’!
Group of Companies Doctrine - The Doctrine envisages, under certain circumstances, the extension of an
arbitration agreement signed only by one or some of the companies of a group to other non-signatory companies
of the same group. The Group of Companies Doctrine – when applied to arbitration law - implies that an
arbitration agreement which is entered into by a company within a group of companies, it may bind non-
signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind
both signatories and non-signatories.
Issue with applying the doctrine to arbitration law – it interferes with the established legal principles such as
party autonomy, privity of contract, and separate legal personality.

Chloro Controls v. Severn Trent (2013) 1 SCC 641

In Chloro Controls (India) Pvt. Ltd. v. Severn Trent Water Purification Inc. [(2013) 1 SCC 641], the
dispute arose from a joint venture agreement between Chloro Controls (India) Pvt. Ltd., an Indian company, and
 KB

Severn Trent Water Purification Inc., a foreign entity, along with other related group companies. The joint
venture aimed to produce and market water purification systems and involved multiple interconnected
agreements, including a Shareholders Agreement containing arbitration clauses. Disputes arose when Severn
Trent alleged breaches by Chloro Controls. A key issue was whether disputes involving non-signatories to the
agreements could be referred to arbitration under the "sister company doctrine."
ISSUE
Whether the non-signatory sister-company, Capital Control (Colmar), could invoke the arbitration clause in the
Shareholders’ Agreement, and whether the disputes, which arose under all the agreements, could be heard in one
arbitration?
HELD
The Court proceeded to state that a non-signatory may also be bound, ‘without their prior consent’ and to
‘serve the ends of justice’ if,
(1) there is a direct relationship between the non-signatory and the signatory,
(2) the disputes involve a common subject matter, and
(3) there is a ‘composite transaction … where performance of [the] mother agreement may not be feasible
without [the] aid, execution and performance of the supplementary or ancillary agreements, for achieving
the common object and collectively having borne on the dispute’

Companies outside of an arbitration agreement can be made parties to arbitration proceedings as per the Group
of Companies doctrine.
Cox & Kings Ltd. v. SAP India Pvt. Ltd., (ARBIT. PETITION No. 38/2020)
• On December 14th, 2010, a travel company named (C&K) entered into a software licensing agreement
with SAP India. SAP specialises in creating and selling software to aid companies in marketing,
finance, human resources and other areas of interest for large businesses.
• In October 2015, as C&K began developing its own e-commerce platform SAP India approached them
with an offer to install a new software. The two companies entered into three new agreements to use
SAP’s ‘Hybris Solution’ software. SAP India stated that the new software was already 90% compatible
with C&K’s current software and that only an additional 10 months were needed in order to customise
the remaining 10%.
• One of the agreements, the General Terms and Conditions Agreement (GTC), contained an arbitration
clause. The two companies agreed to resolve future disputes through arbitration. They also agreed to be
bound by the Arbitration Act and conduct any future arbitrations in Mumbai. However, the project to
implement the Hybris software faced difficulties. C&K then reached out to SAP SE—the main branch
of SAP based in Germany—and requested their assistance.
• C&K sent a notice to SAP SE as well to make them a party to the arbitration even though SAP SE was
not a signatory to any of the agreements.
• When SAP did not appoint any arbitrator, C&K approached the Supreme Court under Section 11 of the
Arbitration Act and requested the Court to appoint one. The petitioners claimed that SAP SE could be
included as a party to the arbitration even though they did not sign any of the agreements. C&K argued
that SAP SE took full responsibility of the project and gave their implied consent to be bound by the
agreement. Further, SAP India was a subsidiary of SAP SE and was fully owned by them.
ISSUES:
 Can non-signatories be included as parties to an arbitration agreement? In other words, whether joinder
of non-signatories as a party to the arbitration agreement is permissible under the Arbitration Act
 If so, under what circumstances can non-signatories be included as parties to an arbitration agreement?
In other words, whether the GoC doctrine is valid and appliable in the Indian arbitration context, if so,
under what conditions and circumstances? And who does the burden of proof lie on? Standard of
proof?
 KB

HELD
Firstly, the Court held that the Doctrine is very well ingrained in the Indian Arbitration Law. However, the mere
inclusion of a non-signatory entity within a corporate group does not automatically entail its inclusion in
an arbitration agreement entered into by another entity in the group. The application of the doctrine is
contingent on the specific facts and circumstances surrounding the relationship among the various entities in the
group. In this context, the intention of the non-signatory holds paramount importance. The Court emphasized
that while the initial step involves establishing the presence of a group of companies, the subsequent and more
crucial step is determining whether the non-signatory demonstrated an intention to be a party to the
arbitration agreement, despite not formally signing it.
In addition, the Court examined the definition of an arbitration agreement under Section 7 of the Act. It
observed that while the Act mandated a written agreement, there was no stipulation requiring signatures from all
parties. An arbitration agreement could be demonstrated through an exchange of communications.
Consequently, even those who hadn’t signed the arbitration agreement (non-signatories) could be considered
parties to the agreement if they had indeed consented (express or implied) to it.
The Supreme Court further asserted that certain factors must be considered when assessing the applicability of
the Doctrine. However, it cautioned that the application of these factors must be tailored to the specific facts,
taking into account the intricacy of contemporary commercial projects. These factors include:
The mutual intent of the parties;
The relationship of a non-signatory to a party that is a signatory to the agreement;
The commonality of the subject-matter;
The composite nature of the transactions; and
The performance of the contract.
 An arbitration agreement entered into by a company within a group of companies may bind its non-
signatory affiliates. This is subject to a fact specific enquiry wherein factors including: language
employed by the parties, circumstances surrounding the formation, performance and discharge of the
contract, composite nature of the transaction and commonality of the subject matter are to be
considered.
 “a non-signatory party could be considered as a party to the arbitration agreement on the basis of their
role in the negotiation, performance, or termination of the underlying contract containing the arbitration
agreement.”
 an arbitration agreement arises out of a legal relationship existing between or among persons/entities
which may be contractual or otherwise;
 it is not necessary for the persons or entities to be signatories to the arbitration agreement to be bound
by it and in case of non-signatory parties, the important determination for the courts is whether the
persons or entities intended or consented to be bound by the arbitration agreement or the underlying
contract containing the arbitration agreement through their acts or conduct;
 the requirement of a written arbitration agreement does not exclude the possibility of binding effect on
the non-signatory parties in those situations where there is a defined legal relationship between the
signatory and non-signatory parties;
 once the validity of an arbitration agreement is established, the court or tribunal can determine the issue
of which parties are bound by such agreement.