India as a Pro-Arbitration Seat: Supreme Court's Jurisprudential Vanguard

The Arbitration and Conciliation Act, 1996 is built on limited court intervention: Section 5 bars judicial intervention in matters governed by Part I except where the Act provides for it. Arbitration cases nonetheless reach the Supreme Court by two main routes.

First, in an international commercial arbitration, an application for the appointment of an arbitrator under Section 11 is made directly to the Supreme Court, by virtue of Section 11(12)(a). An arbitration is international and commercial under Section 2(1)(f) where at least one party is a foreign national or habitual resident, a body corporate incorporated outside India, an association whose central management and control is exercised outside India, or a foreign government. In domestic arbitrations, the application goes to the High Court.

Second, decisions of High Courts in arbitration matters, whether on appointment under Section 11, on challenges to awards under Section 34, in appeals under Section 37, or on the enforcement of foreign awards, can be challenged by special leave petition under Article 136. Section 37(3) bars a second appeal but expressly preserves the right to approach the Supreme Court. Because each of these stages is itself narrow, so is the Supreme Court's scrutiny.

How much a court should examine before appointing an arbitrator has been the most contested question in Indian arbitration law. In SBP & Co. v. Patel Engineering Ltd., a seven-judge Bench held that the power under Section 11 is judicial rather than administrative, and that the Chief Justice or the designated Judge could decide preliminary questions such as the existence of a valid arbitration agreement and whether there was a live claim. That approach led to extensive litigation at the threshold.

Parliament responded in 2015 by inserting Section 11(6A), which confines the court to 'the examination of the existence of an arbitration agreement'. A later amendment of 2019 omitting that provision has not been brought into force, so Section 11(6A) continues to apply. In Vidya Drolia v. Durga Trading Corporation, a three-judge Bench explained that the referral court's review is prima facie, and that it should decline a reference only where the claims are manifestly non-arbitrable, the agreement plainly does not exist, or the claim is ex facie time-barred and dead; otherwise the rule is 'when in doubt, do refer'.

The seven-judge Bench in In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 took the point further. Overruling N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., it held that an arbitration agreement that is unstamped or insufficiently stamped is not void; the defect makes it inadmissible in evidence until cured, but the objection is for the arbitral tribunal to decide and not a ground on which the court should refuse to appoint an arbitrator. In SBI General Insurance Co. Ltd. v. Krish Spinning, the Court applied the same reasoning to an objection that the contract had been discharged by 'accord and satisfaction' through a full and final settlement: that question, too, is for the tribunal.

In international cases, the Supreme Court commonly appoints a sole arbitrator or the presiding arbitrator from among retired Judges or experienced arbitrators, leaving all questions of jurisdiction and merits to the tribunal under Section 16.

Who is a 'party' is not always answered by the signatures on the contract. In Cox and Kings Ltd. v. SAP India (P) Ltd., a Constitution Bench held that the 'group of companies' doctrine is part of Indian arbitration law, grounded in Section 7 read with the definition of 'party' in Section 2(1)(h). A non-signatory may be bound where the circumstances show a mutual intention that it should be, judged by factors such as its role in the negotiation and performance of the contract, the relationship between the companies, and the commonality of the subject matter. The Court added that at the referral stage the question is ordinarily best left to the tribunal.

Not every dispute can be arbitrated. Vidya Drolia v. Durga Trading Corporation set out a four-part test of non-arbitrability: a dispute is not arbitrable where it concerns actions in rem rather than rights in personam; where it affects third-party rights, has effect against the world at large or requires centralised adjudication; where it relates to inalienable sovereign or public interest functions of the State; or where a statute makes it non-arbitrable expressly or by necessary implication. Applying that test, the Court held that landlord-tenant disputes governed by the Transfer of Property Act are arbitrable, while those governed by rent control legislation are not, and that allegations of fraud do not by themselves make a civil dispute non-arbitrable.

Since 2015, Section 12(5) read with the Seventh Schedule makes certain persons ineligible to act as arbitrators, including employees, consultants and advisers of a party. The ineligibility can be waived only by an express agreement in writing made after the disputes have arisen.

In Perkins Eastman Architects DPC v. HSCC (India) Ltd., the Court held that a person who has an interest in the outcome of the dispute can neither act as an arbitrator nor appoint a sole arbitrator, so a clause allowing one party's officer to nominate the sole arbitrator could not be acted upon. A Constitution Bench developed the principle in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), holding by majority that the principle of equal treatment of parties applies at the stage of appointment, that clauses allowing one party to appoint a sole arbitrator unilaterally offend that principle and, in public-private contracts, Article 14, and that requiring the other party to choose its nominee from a panel curated by the first party is likewise impermissible. The majority directed that, for three-member tribunals, its ruling would apply prospectively to appointments made after the date of the judgment.

An award may be set aside only on the grounds in Section 34: incapacity of a party, an invalid agreement, lack of notice or inability to present one's case, matters beyond the reference, an improper tribunal or procedure, non-arbitrability, or conflict with the public policy of India.

The meaning of 'public policy' has moved back and forth. Renusagar Power Co. Ltd. v. General Electric Co. confined it, in the context of foreign awards, to the fundamental policy of Indian law, the interests of India, and justice or morality. ONGC Ltd. v. Saw Pipes Ltd. widened review of domestic awards by adding patent illegality. Associate Builders v. Delhi Development Authority then catalogued the heads of review, while insisting that the arbitrator is the ultimate master of the quantity and quality of evidence and that a court does not sit in appeal over an award.

The 2015 amendments narrowed the ground to awards induced or affected by fraud or corruption, awards contravening the fundamental policy of Indian law, and awards in conflict with the most basic notions of morality or justice, and provided that the test of fundamental policy does not entail a review on the merits. Section 34(2A) allows a domestic award, but not an award in an international commercial arbitration, to be set aside for patent illegality appearing on the face of the award, but not merely for an erroneous application of the law or by reappreciation of evidence.

In Ssangyong Engineering & Construction Co. Ltd. v. NHAI, the Court explained the effect of these changes: an award that is perverse because it rests on no evidence or ignores vital evidence may still be patently illegal, and an award that rewrites the contract by applying terms the parties never agreed may be set aside, but a possible view on the evidence or a plausible interpretation of the contract must be left alone.

Section 34(3) requires the challenge to be filed within three months of receipt of the award, extendable by thirty days for sufficient cause 'but not thereafter'. Filing it does not by itself stay the award; under Section 36 a separate application is needed, and a money award is usually stayed only on deposit or security. Since 2021, the court must stay an award unconditionally if it is prima facie satisfied that the arbitration agreement, the contract or the making of the award was induced or effected by fraud or corruption.

Section 34 speaks of setting aside an award, and Section 34(4) allows the court to adjourn the proceedings so that the tribunal can eliminate the grounds for setting it aside. In Project Director, NHAI v. M. Hakeem, the Court held that a court hearing a challenge under Section 34 has no power to modify the award, as opposed to setting it aside.

A Constitution Bench revisited the question in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.. By majority, it held that courts exercising jurisdiction under Sections 34 and 37 have a limited power to modify an award: they may sever and set aside an invalid part of the award where it is separable from the rest, correct clerical, computational or typographical errors apparent on the face of the record, and in some circumstances modify post-award interest. It added that Article 142 is to be used in this context with great care and caution.

Section 37 allows an appeal only against the orders it lists: refusing a reference under Section 8, granting or refusing interim measures under Section 9, setting aside or refusing to set aside an award, and certain orders of the tribunal under Sections 16 and 17. In commercial disputes, these appeals lie under Section 13 of the Commercial Courts Act, 2015.

An appeal under Section 37 is no wider than the Section 34 jurisdiction from which it arises, and the Supreme Court applies the same restraint on a special leave petition. The Court will interfere where the High Court has gone beyond its limited jurisdiction, by reappreciating evidence or substituting its own interpretation of the contract, or where it has refused to interfere with an award that is plainly perverse or patently illegal.

In Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express (P) Ltd., the Court allowed a curative petition and set aside its own earlier judgment, which had restored an award that a Division Bench of the High Court had set aside as patently illegal, holding that the earlier judgment had resulted in a miscarriage of justice. The Court emphasised that the curative jurisdiction is exceptional and is not to be used as a further round of appeal.

In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., a Constitution Bench held that Part I of the Act, including the power to set aside awards under Section 34, applies only to arbitrations seated in India, overruling the contrary view in Bhatia International. The ruling applies to arbitration agreements made after 6 September 2012. The 2015 amendments then added a proviso to Section 2(2) making Sections 9 and 27, and the related appeal provisions of Section 37, available in support of arbitrations seated abroad unless the parties agree otherwise.

Identifying the seat is therefore critical. In BGS SGS Soma JV v. NHPC Ltd., the Court held that where an agreement names a 'venue' for the arbitral proceedings and there is no contrary indication, that place is the juridical seat, and the courts of the seat have exclusive supervisory jurisdiction.

A foreign award governed by the New York Convention is enforced under Part II, and enforcement may be refused only on the grounds in Section 48. Under Section 50, an appeal lies against an order refusing enforcement but not against an order enforcing the award. In Vijay Karia v. Prysmian Cavi E Sistemi SRL, the Court held that in such cases it would interfere under Article 136 only in a rare case involving a flagrant violation of the Act, and that the ground that a party was 'otherwise unable to present his case' is to be read narrowly.