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Law of Arbitration in India

Submitted by asandil on

A dispute is presented to one or more arbitrators through the arbitration procedure with the consent of the parties, who subsequently provide a formal decision on the case. The parties decide to use arbitration as a private dispute resolution procedure rather than going to court.

A legal system known as arbitration encourages the mutual resolution of conflicts between two or more parties by the selection of a neutral third party, whose decision is final and binding on all parties involved.

In these contemporary times when there is a shortage of time, arbitration is a successful method of hastening the resolution of conflicts.

As stated by the Hon’ble Apex Court in the case of Booz., not all disagreements are arbitrable and certain disputes fall outside the categories of arbitrable disputes. These are:

  • criminal offenses
  • guardianship matters
  • insolvency and winding up proceedings
  • matters of probate, letters of administration, succession certificates, etc
  • eviction proceedings
  • patents, trademarks, copyright
  • Anti-Trust/ competition laws
  • Bribery/Corruption Laws
  • Fraud

Need for Arbitration

The development of flexible, reasonable, favorable, and time-saving methods of dispute resolution was required by the advancement, liberalization, and globalization of international business relations. This was done to avoid subjecting the parties to the lengthy, resource-intensive, and rigorous process of the traditional justice delivery system.


Advantages of Arbitration

  • Reducing the amount of court intervention
  • A decrease in the expense of resolving disputes.
  • Timely and efficient disposal
  • Enforcement of judgments through the arbitrator’s objectivity
  • Promotion of foreign investment by highlighting the nation’s strong legal system.
  • Maintaining and conducting solid foreign relations effectively.

Many of these factors have increased the demand for arbitration in the modern era.

International Commercial Arbitration has emerged as a popular method for amicably resolving international business disputes and preserving international company relationships.

International commercial arbitration has become a crucial component of the process for resolving international disputes thanks to the skill of the arbitrators as well as their knowledge of international laws governing international trade and the customs of the parties.

Appointment of the Arbitrator

Under Section 11 of the Act, an arbitrator may be appointed. The Act gives the parties complete discretion to select an arbitrator of any nationality unless agreed by the parties. The parties may, however, ask the court to appoint an arbitrator if they failed to appoint an arbitrator by themselves. In domestic arbitration cases, the Chief Justice of the High Court has the power to name an arbitrator, and in cases of international commercial arbitration, the Chief Justice of India has the power to name an arbitrator because, in India, foreign disputes must be resolved by the highest judicial officials.

The Supreme Court ruled in Konkan Railway Corporation v. Rani Construction Pvt Ltd, 2002, that the Chief Justice of India and his designees have the responsibility of ensuring the appointment of an arbitrator who is independent, qualified, and impartial and who to the best of his knowledge, resolves the disputes between the parties.

Power and Duties of Arbitrator


  • Passes Interim Order
  • Decide the Process of Arbitration Proceedings
  • Possesses the power to terminate the procedure
  • Appointing an Expert person
  • Asks for the Court’s permission in taking evidence
  • Rectifies the error in the interpretation of the award



  • Order of Appointment
  • Timely adjudicate the matter
  • Act Judicially and Impartial
  • Encourage settlement of the matter
  • Misconduct is not allowed
  • Pass the final award


Challenging an Arbitrator

Under Section 12 of the Act, an arbitrator may be contested in the following two situations;

  • Grounds lined to his impartiality or independence.
  • If the parties have agreed that he lacks the necessary qualifications.

According to Section 13, the challenge procedure and the time limit under Section 13(2) that Within 15 days of becoming aware of the constitution of the Arbitral Tribunal and any other circumstance, a party may submit a written statement outlining the reasons for the Arbitral Tribunal and not the court.

Termination of an Arbitrator

In accordance with Section 14 of the Act, an arbitrator may be terminated under the following two conditions;

  • If he doesn’t take action right away, and
  • If either De jure or De facto prevents him from carrying out his duties.
  • The parties may approach the court if there is any dispute over the circumstances.

Types of Arbitration Proceedings

Arbitration proceedings in India can be broadly divided into two types: Ad-hoc arbitration and institutional arbitration.

In ad hoc arbitration, the parties themselves initiate the arbitration process and control how it is conducted. If the parties In ad hoc arbitration are not able to choose a mutual arbiter, either party may invoke Section 11 of the Act. Ad hoc arbitration requires the arbitrator, the parties, and themselves to all agree on the fee for the arbitration proceedings which is usually expensive.

Under institutional arbitration, the arbitration institution is in charge of managing the arbitration. Any arbitration institution may be contacted by the parties, who choose their own arbiter and start the arbitration proceedings. The Indian Institution consists of the Indian Council of Arbitration and the International Centre for Alternative Dispute Resolution. The International Court of Arbitration and the American Arbitration Association are both a part of the international institution. To deal with any potential disagreements, all of these institutions have explicitly created regulations that call for arbitration.

International Commercial Arbitration

Under Section 2(f) of the Act, international commercial arbitration is defined. Although domestic and international arbitration is not governed by the Act, there are differences between the two in Part I of the Act, which are as follows:

  • In the event that an arbitrator is chosen;
  • In regard to deciding what law would apply.

It can be described as an arbitration in which at least one of the parties, who may be an individual, a company, or an association of individuals, is from outside of India and whose central management is controlled in another country rather than by the Indian government and whose habitual residence is outside the jurisdiction of India.

Application of a foreign judgement

Part II of the Act, which refers to both the New York Convention award and the Geneva Convention award, provides for the execution of the foreign award.

What is a foreign award?

According to Section 44 of the Act, every county to which the Central government grants recognition as a territory by publishing a notification and to which the New York Convention applies shall render an arbitration award. A country must receive additional notification from the Central government in order for it to be recognized as a territory, even if it is a signatory to the New York Convention.

Only 43 nations have received approval from the Central government to operate as territories and execute their awards in India so far.

The Supreme Court of India's decision in the matter of Bharat Aluminium Co. v. Kaiser Aluminium technical services Ltd, (2012) 9 SCC 552, altered the landscape of international commercial arbitration in 2012. the BALCO case, which established the following principles:

  1. Indian courts cannot hear requests for interim relief in cases of international commercial arbitration where the seat is located outside of India because they lack the necessary jurisdiction.
  2. Only when an international commercial arbitration award is intended to be enforced in India would it fall under Indian jurisdiction?

Requirements for enforcement of Foreign award.

The following essential must be created to enforce any foreign award and they are: 

  • Original award or authorized copy of the location, where the award was made;
  • Proof to prove that it is a foreign award;
  • The award must be given in a Convention country;
  • The agreement must be in writing;
  • The agreement must be valid and should arise from a Commercial agreement.
  • The award made must be unambiguous.

Some important judgments.

The Saw Pipes Judgement

In the history of arbitration, the Case of ONGC v. Saw Pipes Ltd., AIR 2003 SC 262 was a seminal case. Although the courts lack the authority to intervene in arbitration processes, this was tested. The arbitration ruling, which rejected the liquidated damages, worried the court. It is protected by Section 74 of the Indian Contract Act of 1872 under Indian law. It was decided during the proceedings that the award given will also be a reason to set aside the award rendered if it breaches any Act or legal provision. The judgment also broadened the definition of "public policy" and stated that if the award conflicts with public policy, it is unquestionably unlawful.

This ruling, though, is solely applicable to domestic arbitration awards.

In Phulchand Export Ltd vs. OOO Patriot, 2011, the court held that the phrase "public policy" has a deep meaning and can be overturned if it is obviously unconstitutional. 

According to the Hon’ble Supreme Court’s ruling in the SAIL case, “the award is not susceptible to appeal on the grounds that the arbitrators have reached the wrong decision” because the arbitrator has been designated as the final arbiter of issues between the parties.

In Sarvesh Chopra vs Ircon International Ltd, The Hon’ble Delhi High Court ruled that the court should not have inquired into a factual finding that is not perverse. Further, it was decided that courts should avoid attacking the disputed award’s facts while making decisions under Section 34 of the ACT.

Mentioning the Supreme Court’s ruling in Shree Ram Mils Ltd v. Utilities Premises Pvt Ltd is also appropriate because it stated that “where the issue under the contract is under negotiation or consideration, the limitation for arbitration would be regarded to have not begun.” So, it was made clear that the cause of action for resorting to arbitration could not be regarded to have begun when the parties were actively attempting to resolve the issue.

The Hon’ble Supreme Court of India concluded that the condition in Section 34(2) of the Act of 1996 is the only restriction on the application of Section 34 of the Act. The words “An arbitral award may be set aside by the court only if” in Section 34(2) are mandatory and eliminate the court’s authority to set aside the award on any of the grounds listed in the section. It was made clear that the court is not anticipated to hear an appeal involving the arbitral tribunal’s decisions or to reconsider the evidence as an appellate court.

When deciding on the rate of interest awarded in the arbitration decisions in the case Union of India v. Ambika Construction, the Hon’ble Supreme Court ruled that the rate of interest should be awarded and calculated from the date the arbitration was initiated until the final realization of the sum.

In a recent judgment, the Hon’ble High Court held that the agreement that forbids interests only prohibits the claim for interest, not the arbitrator’s authority to grant interest.

When defining the court’s jurisdiction under Section 34 of the Act in the case of Oil and Natural Gas Corporation Vs Saw Pipes Ltd, the Hon’ble Supreme Court of India held that the courts are to intervene if there is obvious illegality resulting involved if there is obvious illegality resulting from statutory or contractual provisions or if the decisions shock the court’s conscience.