INDIA: An Introduction to Dispute Resolution: Arbitration

Introduction

India moved away from its socialist policies from the 1990s and progressively embraced economic reforms. This has led to sustained economic growth and robust foreign investment. India is consistently among the leading FDI destinations. The World Bank’s India Development Update Report, 2024 identifies India as the fastest-growing major economy (with a growth rate of 8.2% in FY 2023–24). Government data shows that FDI in India grew by 28% in the April–June 2024 quarter.

Judicial System

India is a vast and diverse jurisdiction in every imaginable way. Politically, India has a quasi-federal structure. The judiciary, however, is unified and has a broadly three-tier structure. Each administrative district (of which there are more than 600) is headed by a district court and each state by a High Court. There are 26 High Courts in total, with some states, such as Punjab and Haryana, sharing a High Court. At the apex is the Supreme Court of India, situated in New Delhi.

The language of all High Courts and the Supreme Court is English. Some High Courts, however, like those in Rajasthan, Madhya Pradesh and Bihar, allow parallel use of Hindi as their official language.

Beside the regular courts, there is a large number of judicial tribunals. The significant ones include the National Company Law Tribunal; the Competition Commission; the Consumer Protection Courts; and the Debt Recovery Tribunals (for claims by any bank or financial institution against debtors).

All significant commercial laws are derived from English common law and are applied across India. English common law is routinely referred to and relied upon by the Indian courts.

Judiciary and Judicial Delays

India’s judiciary is robust and independent. It is also unbiased vis-à-vis foreign companies. However, there is a huge problem with judicial delays and poor case management. Court proceedings can be frustratingly long and expensive, compounded by the fact that Indian courts do not grant realistic costs. Therefore, it is of utmost importance to incorporate an arbitration agreement in all commercial contracts.

Indian Arbitration Act

India was a frontline jurisdiction in laying the foundation of modern-day arbitration. Its contribution can be seen from the fact that India was among the handful of (six) Asian nations to sign the Geneva Convention of 1927. Later, it was among the ten original signatories to the New York Convention and the fourth to ratify the same, in July 1960.

In January 1996, India completely recast its arbitration laws with a new statute. The Indian Arbitration Act, 1996 (the “Arbitration Act”) is based on the 1985 Model Law and the UNCITRAL Rules of 1976. It is thus in sync with international arbitration jurisprudence. Being mindful of court delays, the Arbitration Act keeps court interventions to a bare minimum. An approach to a court is permitted in a few situations, including: for an interim or injunctive relief prior to constitution of the tribunal; appointment of an arbitrator (if the parties’ stipulated mechanism fails); or for court assistance in taking evidence (if so requested by the arbitral tribunal). Any other court recourse (including a challenge on the ground of bias or lack of jurisdiction) is back-ended to once the award has been rendered.

The Act has two main parts: Part I applies if an arbitration is seated in India, irrespective of the parties’ nationality, and Part II provides for enforcement of foreign awards. Certain provisions of Part I can be resorted to even for a foreign-seated arbitration. These include Section 9 (recourse to a court for an injunctive or interim relief) and Section 27 (court assistance in taking evidence at the request of the tribunal).

International arbitration

The Act confers certain advantages on an arbitration considered to be an “international commercial arbitration”. The chief benefit is that the grounds to challenge an award in an international commercial arbitration are narrower compared to those available for a domestic arbitration. A domestic parties’ award is capable of being challenged on the ground of “patent illegality”, but not on the merits of the dispute. This ground is not available in relation to an international commercial arbitration.

However, an arbitration is not considered to be an “international commercial arbitration” merely because a party is owned or controlled from outside India. If the entity is incorporated in India, it is deemed to be an Indian entity, and its arbitration is not an international commercial arbitration. At the same time, if only one party is incorporated outside India or (if an individual) is a foreign citizen or normally resides outside India, the arbitration qualifies as an international commercial arbitration.

Seat

In India, seat designation is critical, as it determines the court which will have jurisdiction in relation to the arbitration.

It is important not only to specify the country (as that can be vague in a large jurisdiction like India) – the city where the arbitration will be seated must also be specified. Sometimes, parties unwittingly agree to a seat that is distinctly disadvantaged. For instance, parties may designate a commercially unsophisticated city, or a jurisdiction where the relevant court is the district court (and not the High Court) or where the official language is not English. The seat need not have any connection to the location of the parties or where the cause of action may arise.

Overall, one can say that Delhi and Mumbai have a distinctive advantage over others when it comes to selection of the seat.

Recent trends

India is a large and diverse jurisdiction, and the judges are not all uniform in their approach. This has impeded the smooth working of the Act. Legislative intervention was made in 2015 by a comprehensive set of amendments putting to rest some controversial judgments. Further refinements to the Act were made in 2019 and 2021. Some amendments were, however, hasty and have not yet been brought into force (although they remain on the statute book). The government is currently considering a fresh round of amendments to iron out the creases.

Conclusion

There are several factors in India that give comfort to foreign litigants. India has an English-speaking bar and sophisticated legal talent. Its commercial laws and legal traditions are based on and derived from the English system and are familiar to the international legal community. The courts are independent and robust.

India has aspirations to be counted among the prime arbitration jurisdictions, and the government and all the stakeholders are working towards this end.