ARBITRATION LAW IN INDIA Texas A and M University School of Law July 27, 2023


We greatly appreciate the opportunity to provide comments and make this submission. These comments focus on issues and inefficiencies that specifically impact users and practicing lawyers in India preventing them embracing arbitration in a more robust manner. We welcome the opportunity to provide more detailed input to the committee in whatever format (e.g., virtual, in writing) the Committee prefers.

Who We Are
Texas A&M School of Law houses one of the more established programs focusing on India. The program successfully launched a online master’s degree on enhancing cross-border advocacy focusing on South Asia.
This submission is from:

Srividhya Ragavan, Professor of Law & Director, International Legal Program, Texas A&M School of Law. Professor Ragavan is also a member of the Center for Learning Intellectual Property Rights. Her expertise is in intellectual property and trade law with a specific focus on issues that impact developing countries. She lends her experiences from the vantage of a user, an academic while drawing on her practice experience including at Wipro Ltd, and Titan Industries Ltd.

Parul Goyal, Attorney, Rajasthan High Court specializes in dispute resolution attorney. Her work focusses on domestic arbitration and international arbitration including investor treaty arbitration. She contributes her experience with arbitration from a practitioners’ perspective and the challenges faced by clients in ad-hoc domestic arbitrations in tier 2/3 cities in India.

We believe that the objective of this committee’s exercise should be to: a) promote arbitration as a dispute resolution tool which will preserve judicial time otherwise spent on these disputes; b) to promote arbitration as a viable tool for users, particularly private corporations considering the current growth trajectory in India and c) to carefully ensure that a mechanism meant to serve the public does not become a misused tool. With this, the key issues and suggestions in this document tend to be narrower focusing on select topics from the perspective of users/industry.

Industry in India has decried the need for imposing timelines in the arbitration process to minimize undue delays that plagues the efficiency of the system.
a. Outlining a mechanism for timely resolution will be in the interest of efficiency and promoting robust private enterprise. Discussions on timeliness should be cognizant of the interest that accumulates from delayed enforcement, which indirectly and unduly penalizes the affected party. While institutionalizing arbitration would automatically lend a level of efficiency to the system, the committee’s suggested amendments should be sensitive to the issues therein.
b. The question of how much courts can intervene in arbitral awards has a strong influence on timeliness. The committee should particularly focus on the nuances relating to courts powers relating to set-asides versus amending orders. For example, in Delhi High Court in Trichy Thanjavur Expressway v. National Highways Authority Of India in O.M.P.
(COMM) 106/2023 vide order dated 21.03.2023.. The court entertained the question of its role to sever parts of an award, modify and also partial-set-aside. Each of these can come at the cost of parties both in terms of finances and time. It may be worth for the committee
to consider clarifying these in the statute.

As an intellectual property law expert, and seeing this for a user-vantage, arbitrations by/against government entities are especially problematic. I particularly reference NITI Aayog’s proposals to address delayed enforcement in the light of Vivad se Vishwas Circular.
a. NITI Aayog proposed that government entities take the decision to initiate proceedings for setting aside the arbitral award. The propensity for the public sector and for the government  to appeal is much higher because the overall cost of that litigation is low for the government. The committee should be cognizant of the fact that such appeals disincentivizes Indian private entities from doing business because it can tie-in investments unnecessarily.
b. Government appeals to set-aside arbitral awards implicates the above-noted issue of the need to statutorily delineate the limit of courts to set-aside or amend or modify an award by using inputs from experts.
c. Where a government entity has challenged an arbitral award, NITI Ayog has proposed that 75% of such award will be paid by the government entity to the contractor against a bank guarantee and excluding the interest component. The per se idea of pre-payment is
commendable; nevertheless, the need for bank guarantees makes it cumbersome and unnecessarily posits the bank in the middle of an already festering dispute. It also leaves private parties at the mercy of banks to get guarantees further creating opportunities for delays. Instead, the committee should consider either regulations or statutory prescriptions to steer the parties towards settlement or even mediation to resolve the dispute after a certain period of delay (statutorily identified) to save judicial time and resolve the dispute.
d. In any case, the NITI Ayog Scheme of : a) waiting for the court to determine whether the award should be set-aside, b) then making a decision on whether to go behind contractors to either pay the remaining amount or seek refund, c) implicating a bank, and d) resolving through court ordered settlements creates an economic lag and increases inefficiencies in the systems. The committee’s goal should be to institute provisions that steer towards a quick settlement between parties.
e. Not resolving disputes in a timely fashion has the danger of interest accumulating over time much to the detriment of the government. Fact is, interest accumulates and becomes payable on account of systemic delays in resolving disputes. The Vivad Se Vishwas
document notes interest rates can sometimes far exceed cost of government funds.
Committee needs to carefully determine whether, and if so, how and using what mechanism (statute or regulation) to steer parties towards mediation and/or settlement at a stage where the delay creates a danger of interests exceeding at the cost of funds.

a. From the vantage of a user, it is imperative that the committee addresses this largely jurisdictional issue. The jurisdiction for enforcement of the award and for overseeing the execution should be defined and delineated. Otherwise, this becomes a loophole where parties forum shop within India. For instance, in Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Ltd. [MANU/SCOR/125921/2022] despite having a favorable arbitration award, the matter went from the Supreme Court which
considered it on SLP onto the Delhi High Court, in turn delaying the execution of the award. Eliminating cumbersome procedures will help encourage private investment from entities with capacity to invest in the country but also invest in arbitration.
b. The committee should clarify what seems to be a lack of clarity between the statute and the judicial prescriptions here. For instance, § 42 of the Arbitration and Conciliation Act, 1996 of India states that:
“42. Jurisdiction.—Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.”
In practice, there is a conflict between court of primary application under § 42 above, and “seat” of jurisdiction under §20 of the Act. Courts also contributed to the confusion here.
For instance, BGS SGS Soma JV v. NHPC Ltd. [(2020) 4 SCC 234] discussed “juridical seat” of arbitral proceedings and noted that a seat delineated by the arbitration agreement would alone have exclusive jurisdiction over all arbitral proceedings. Basically, the court construed the parties choice of “venue” as the arbitral “seat” for proceedings distinguishing them from arbitral “tribunals” which were construed as “a convenient place of meeting!”
In line with this reasoning, the Supreme Court in Sundaram Finance Ltd. v. Abdul Samad

[(2018) 3 SCC 622], held that S.42 of the Arbitration and Conciliation Act would not be applicable to execution applications.
Considering this, clarity on jurisdiction for enforcement and for overseeing the execution should be defined and delineated.

Committee must statutorily address consequence of non-invocation of arbitration within 90 days to disincentivize parties from sitting over the interim reliefs. Section 9(2) of Arbitration and Conciliation Act, 1996 states “if a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.” The section is silent on consequences of non-invocation of arbitration within 90 days of passing of interim order. Some High Courts, such as in Hinduja Leyland Finance Ltd. V. Avinandan Mukherjee, Calcutta HC, AP 165 OF 2017 has opined that the interim order is automatically vacated if party with a favorable interim order chooses to not invoke arbitration within 90 days, Other High Courts, such as in Epimoney Private Limited v. Manidhari Oils Pvt. Ltd. And 3 Ors, 2019 SCC OnLine Bom 4861 have allowed the interim orders to continue in the ‘interest of justice’ or by exercising judicial discretion. T
The need for clarity here is imminent.

The committee needs to engage with experts to clarify interest provisions. While on the face of it, section 31(7) of the Arbitration and Conciliation Act, 1996 provides some clarity, the Supreme Court in UHL Power Company Limited v State of Himachal Pradesh [2022 SCC OnLine SC 19], held that the arbitrator has power to grant compound interest including post-award interest.
The committee should consider the option of providing model guidance/stipulations to enable parties to choose interest provisions and provide for parties to stipulate that in the contract while also carefully preserving the flexibility to the parties to adopt a different model.

The committee needs to engage on issues that implicate foreign versus local arbitral awards. In my work, foreign corporations when forced to engage with issues under Indian intellectual property statute, use foreign jurisdictions to gain an edge over Indian litigants. For example, in IP disputes, foreign companies file “abuse of process” litigations in the US to gain bargaining parity and leverage if Indian companies report any statutory violation in India.
The committee should specifically engage in issues that private entities face in: a) engaging in and, b) enforcing or executing foreign arbitral awards. The committee should consider whether and if so, foreign jurisdictions can detrimentally affect Indian businesses through cumbersome procedures and whether some of these can be alleviated by providing local recourse statutorily. Otherwise, bargaining parities tend to be skewed against the Indian entrepreneurs. The lack of sophistication in this area further disadvantages private Indian enterprises.

Overall, we believe that institutionalizing arbitration will address some of the systemic woes including the use of technologically savvy arbitrators and having a technologically current system to serve the efficiency needs of parties choosing arbitration.
While as a trade and intellectual property law expert we submit this with a mere user insight into arbitration, I will be grateful if we are granted time to explain our thoughts virtually on some of the questions delineated above.