CHAPTER-6

INTERNATIONAL COMMERCIAL ARBITRATION-AN

INDIAN PERSPECTIVE
6.1 Historical Background and Development of the Arbitration Law in
India
Recognition of arbitration as a mode of resolution of disputes is
ingrained in the justice delivery system of India and forms a part of the psyche
of the Indian people. This cultural heritage has enabled ready acceptance and
evolution of arbitration as an Alternative Dispute Resolution (ADR)
mechanism in recent years. The complete overhauling of this mechanism by a
comprehensive new legislation in 1996 is the latest evidence of this historical
fact.
It is this ethos which enabled the great success of Lok Adalats as an
ADR mechanism to cope with the docket explosion in the law courts in recent
years for resolving disputes which did not require decision of any significant
question of law. By recent legislation the Lok Adalats have also received
statutory status. This ADR mechanism has contributed significantly to
reduction of backlog of cases in the subordinate courts.
Initially the field of arbitration in the presidencies of Bengal, madras
and Bombay was governed by regulations. Act 7 of 1870 and Act 10 of 1861
replaced these regulations. Certain provisions in the code of civil procedure,
1859 also provided for arbitration in certain areas. Indian Contract Act, 1872,
by section 28, recognized arbitration agreements as an exception to the
agreements in restraint of legal proceedings. The Specific Relief Act, 1963, by
section 21, made an arbitration agreement not specifically enforceable but the
right to plead in defense the agreement as a bar to suit was retained. Then
came Indian Arbitration Act, 1899, which had English Arbitration Act, 1899,
as a model. The Code of Civil Procedure, 1908 provided in the second
schedule for arbitration outside the scope of the arbitration act and related
mostly to arbitration in suits. This amended the law relating to arbitration
without the intervention of the court. The act did not apply to the subject
matter of the suits which were governed by the Code of Civil Procedure. This
act was replaced by the Indian Arbitration Act, 1940 which was a complete
code on the law of domestic arbitration. The Act of 1940 consolidated the law
contained in the Indian Arbitration Act, 1899 and the second schedule to the
Code of Civil Procedure. It was largely based on the English Arbitration Act,
1934. The Act dealt with (i) arbitration with intervention of a court (ii)
arbitration with intervention of a court where no suit was pending, and (iii)
arbitration suits. It applied to all arbitrations including statutory arbitrations
except as otherwise provided either by the Act or any other Act.
The requirement of reasons in the award, unless so required by the
arbitration agreement or any other statutory provision was not essential for the
validity of an award. The only grounds for setting aside an award were those
in section 30 of the Indian Arbitration Act ,1940, namely ,(I) Misconduct of
the arbitrator or proceedings (ii) Award being made after superseding of the
arbitration or the proceedings having become invalid and (iii) the award being
improperly procured or otherwise invalid. A non speaking award was,
therefore difficult to assail. It was held by the Privy Council in Champsey
Bhara and Company v. Jivraj Balloo Spinning and Weaving Company Ltd}
That an error of law on face of award was a ground to set aside the award
based on jurisdiction that exists in common law independently of statue. This
view was approved and followed by the Supreme Court of India in the later
decisions. However, the tendency was to widen the scope by looking into
some document in the record treating it as a document incorporated in the
award to make out a ground of invalidity when the award was found to be
unjust. However, the tendency of the arbitrators moved towards the non
speaking awards to eliminate the scope ofjudicial intervention.
The increased tendency towards non speaking awards in spite of the
growing awareness of the requirements of the reasons for transparency in the
decision making process gave rise to the demand for reasons even in the
arbitral awards. This led to the question being raised directly before the
Supreme Court in Raipur Development Authority v. Chokhamal Contractors?
However, the Supreme Court rejected the contention under the existing law
and held:

(1923) 25 BOMLR588
(1989)RD-SC 178 -79
 Having given our careful and anxious consideration to the contentions
urged by the parties we feel that law should be allowed to remain as it is until
the' competent legislature amends the law. In the result we hold that an award
passed under the arbitration act is not liable to be remitted or set aside merely
on the ground that no reasons have been given in its support except where the
arbitration agreement or the deed of submission or an order made by the court
such as the one under section 20 or section 21 or section 34 of the act or the
statute governing the arbitration requires that the arbitrator of the umpire
should give reasons for the award.
The Supreme Court, however, emphasized the need for the
requirement of reasons by incorporating such a term particularly in the
agreements to which the government or the instrumentalities are parties.
The enforcement of the foreign arbitral awards was covered by the
International Conventions namely, The Geneva Protocol on Arbitration
Clauses, 1923; the Geneva Convention on the Execution of the Foreign
Awards, 1927, to which India became a party on October 23,1937. India
enacted the Arbitration (Protocol and Convention) Act, 1937 for giving the
effect to the obligations under these instruments. India became a party to the
New York Convention on the Recognition and Enforcement of the Foreign
Arbitral Awards, 1958 . For giving affect to the obligations under this
Convention India Enacted the Foreign Awards (Recognition and Enforcement)
Act, 1961.
In the field of international commercial arbitration the stay of
proceedings in respect to the matters to be referred to the arbitration was
governed by Section 3 of the Foreign Awards Act, 1961 as amended by Act 47
of 1973. this question has arisen very often and the conditions for invoking
section 3 have been laid down by the Supreme Court in Renusagar Power Co.
Ltd. v. General Electric Co? ,as under:
I. There must be an agreement to which Article II of the Convention set
forth in the schedule applies.
II. A party to that agreement must commence legal proceedings against
another party thereto.

3
AIR 1994 SC 860;
 1//

III. The legal proceedings must be “in respect of any matter agreed to be
referred to arbitration” in such agreement.
IV. The application for stay must be made before filing the written
statement or taking any other step in the legal proceedings.
V. The court has to be satisfied that the agreement is valid, operative and
capable of being performed; this relates to the satisfaction about the
“existence and validity ” of the arbitration agreement;
VI. The court has to be satisfied that there are disputes between the parties
with regard to the matters agreed to be referred; this relates to effect
(scope) of the arbitration agreement touching the issue of the
arbitrability of the claims.
This position was reiterated in the Svenska Handelsbanken v. Indian
Charge Chrome Ltd.4
6.2 A New Dawn for Arbitration in India
International trade and commerce have grown rapidly with cross
border transactions being entered into by a growing number of entities,
including small and medium-sized ones. With the increasing use of electronic
commerce, where business is frequently conducted across national
boundaries, the need for effective and efficient dispute resolution systems
has become paramount. UNCITRAL has drafted the Model Law to assist
States in designing dispute resolution processes that are intended to reduce
costs of dispute settlement, foster maintaining a cooperative atmosphere
between trading parties, prevent further disputes and inject certainty into
international trade. By adopting the Model Law, and by educating parties
engaged in international commerce about its purposes, the parties will be
encouraged to seek non-adjudicative dispute settlement methods that will
increase cost-effectiveness in the marketplace.
As the role of India in the world's economy continues to grow, it is
inevitable that the number of international commercial disputes involving
Indian parties will increase. This presents a dilemma for many Japanese
investors who wish to take advantage of business opportunities in India but
are fearful of their capital being caught up in lengthy, unpredictable Indian

4
[1994] 1 S.C.C. 502
court litigation.
In August 2009, the Indian Prime Minister, Manmohan Singh,
conceded that "India has to suffer the scourge of the world's largest backlog
of cases" - with the number totalling 31.18 million as at 30 June 2009.5 For
India, arbitration has therefore long been seen as the solution to resolving
Indian-related disputes for commercial parties. As far back as November
2005, the then US Treasury Secretary, John Snow, commented that
India would be able to attract more long-term foreign capital if
international investors had the comfort of a commercial arbitration system to
turn to in contractual disputes. Mr. Snow called for the installation of an
arbitration system to reduce the uncertainty about the timeframe for Indian
dispute resolution.6 India undoubtedly has a number of the key features that
are necessary for arbitration to flourish at a domestic and international
level. It is a party to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (the "Convention") which provides
a system for the international enforcement of arbitral awards. In addition, the
Indian Arbitration and Conciliation Act 1996 (the "Act")provides a
legislative framework for the conduct of arbitration in the country based on
the UNCITRAL Model Law which in turn forms the basis of arbitration laws
in most of the world's leading arbitration centres.
Despite the existence of these key features, however, there will be
many hurdles to be overcome. Much of the effectiveness of an arbitral seat
depends on the willingness of the local, supervisory courts to support an
independent arbitral process. In this regard, Indian courts have a reputation
for interventionism in arbitrations which has unnerved many international
investors.
6.3 A Positive Development in Arbitration Case Law in India
On the issue of interventionism, in our Japan Dispute Avoidance
Newsletter of October 2008, we reported that the Supreme Court of
India had jeopardized confidence in the Indian arbitral process by expanding

5 17 August 2009, PM, Chief Justice Differ on Backlog of Cases. The

article breaks the 31.18 million down as Supreme Court: 52,592; High
Court:4,017,956; and subordinate courts:
6 27,119,092Financial Times, 8 November 2005, Snow Calls for an Arbitration System
in India
the grounds on which a foreign arbitral award may be challenged in India.
The case in question was Venture Global Engineering v Satyam Computer
Services Limited,7 which concerned an application to set aside an arbitral
r
award rendered in London.
In Venture Global, the Indian Supreme Court held that foreign
awards may be challenged under Part 1 of the Act, unless the parties
have specifically agreed otherwise; and in considering any such challenge,
the Indian courts can set the award aside (on the grounds of public policy) if it
contravenes any substantive provisions of Indian law or is patently illegal.
This broad application of the Convention right to refuse to enforce an
arbitral award on public policy grounds is far beyond the interpretation
applied by the national courts of most Convention signatories.
However, a recent appeal decision in the Delhi High Court (the "Appellate
Court") in Max India Limited v General Binding Corporation 8 has brought
reason for optimism that the interventionist approach of the Indian courts
towards arbitration may be shifting.
The case concerned a Singaporean law governed contract which
provided for arbitration in Singapore under the rules of the Singapore
International Arbitration Centre and for the Singaporean courts to
otherwise have jurisdiction. A dispute having arisen, the Indian party
applied to the Indian courts under the Act - rather than to the Singaporean
courts - for an interim injunction against its US counterparty pending the
constitution of an arbitral tribunal in Singapore.
The basis for the Indian party's application to the Indian courts was an
earlier Indian Supreme Court decision, Bhatia International v Bulk Trading
SA.9 This provided that provisions of Part 1 Of the Act - including Section 9
which enables Indian courts to grant interim measures where the assets
relating to the dispute are located in India - were applicable to international
commercial arbitrations, irrespective of whether the arbitration was to be
held in India or elsewhere, unless the parties had specifically agreed to the
contrary.10

Global Engineering v. Satyam Computer Services Limited (2008 4 SCC 190)

Max India Limited v. General Binding Corporation (FAO(OS) 193/2009)
Bhatia International v. Bulk Trading SA (2002 4 SCC 105)
Global Arbitration Review, The Asia Pacific Arbitration Review 2008, India
 In Max India, the Appellate Court upheld an earlier decision of the
Delhi High Court and ruled that it should not grant the injunction sought.
The Delhi High Court had found that there was a "manifest intention of
the Agreement . . . to exclude the jurisdiction of the Indian Courts" as
the parties had chosen Singaporean law, Singaporean arbitration and the
Singaporean courts and "knew very well" that the jurisdiction of Part I of the
Act had therefore been excluded.11
This case is noteworthy in that the appellate court resisted widening
the application of Bhatia International and upheld the clear intention of the
parties to resolve the dispute in arbitration outside India without interference by
the Indian courts. The judgement itself includes a re-statement of the ‘general
principles on which arbitration is founded” namely;
1. The object of arbitration is to ensure a fair resolution of disputes by an
impartial tribunal without unnecessary delay or expense
2. The parties should be free to agree how their disputes are resolved
subject only to such safeguards as are necessary in the public interest
3. Intervention of the courts should be restricted
It should be noted, however that Max India is only a decision of the
Appellate court and is therefore only persuasive rather than binding unless the
Supreme court of Parliament intervenes to reduce the scope for intervention by
the Indian courts the practice remains to advise international investors to include
in their India -related contracts arbitration clauses which provide for an arbitral
seat outside India and also to expressly exclude the application of Part-I of the
Act. The express exclusion of Part-I is recommended even when all the
elements of an arbitration clause specify another law and jurisdiction besides
that of India.
The courts ruling in Max India serve as two strong signals however that
India is becoming a more arbitration -friendly venue and one in which Japanese
investors may be able to place increased confidence in the future. As for
whether they represent a new dawn for arbitration in India, only time will tell
but we will certainly monitor developments with interest.

Max India Limited v. General Binding Corporation (OMP 136/2009)

 lOl

6.4 Adopting of Indian Arbitration Act-1996

The United Nations Commission on International Trade Law
(UNCITRAL) was established by the General Assembly in 1966 . In
establishing the Commission, the General Assembly recognized that
disparities in national laws governing international trade created obstacles to
the flow of trade, and it regarded the Commission as the vehicle by which the
United Nations could play a more active role in reducing or removing these
obstacles
The Model Law is designed to assist States in reforming and
modernizing their laws on arbitral procedure so as to take into account the
particular features and needs of international commercial arbitration. It covers
all stages of the arbitral process from the arbitration agreement, the
composition and jurisdiction of the arbitral tribunal and the extent of court
intervention through to the recognition and enforcement of the arbitral award.
It reflects worldwide consensus on key aspects of international arbitration
practice having been accepted by States of all regions and the different legal or
economic systems of the world.
Amendments to articles 1 (2), 7, and 35 (2), a new chapter IV bis to
replace article 17 and a new article 2A were adopted by UNCITRAL on 7 July
2006. The revised version of article 7 is intended to modernize the form
requirement of an arbitration agreement to better conform with international
contract practices. The newly introduced chapter IV bi-establishes a more
comprehensive legal regime dealing with interim measures in support of
arbitration. As of 2006, the standard version of the Model Law is the amended
version. The original 1985 text is also reproduced in view of the many national
enactments based on this original version.
6.5 Finding Harmony with Uncitral Model Law in India After the
Arbitration and Conciliation Act Of 1996
India’s adoption of the Arbitration and Conciliation Act of 1996
(“1996 Act”), has greatly enhanced its reputation in the eyes of the
international business community as a viable forum for commercial arbitration
disputes.12 Prior to the adoption of the 1996 Act, Indian rules of arbitration

12
Bansal, A.K., International Arbitration in India, 6 Am. Rev, Inti Arb. 191 (1995).
were contained in three different enactments, namely, the Arbitration Act of
1940, Arbitration Act of 1937, and the Foreign Awards Act of 1961.13
Arbitration under these measures was widely considered to be archaic,
unpredictable, untimely, and expensive, thereby discouraging foreign
investment.14 In response, India adopted the 1996 Act, based on the United
Nations Commission on International Trade Law’s (UNCITRAL’s) Model
Law on International Commercial Arbitration and Conciliation Rules (“Model
Law”). The 1996 Act ushered in a vital new era in the Indian arbitration
movement.
Now a decade after its adoption, the majority response to the 1996 Act
among legal commentators and the international business community has been
overwhelmingly positive.15 The 1996 Act has admirably achieved two goals.
First, it has unified the legal regime surrounding arbitration for both domestic
and international arbitration conducted in India.16 Second, it has improved
arbitral efficiency by reducing the need for judicial intervention, enforcing
awards as judicial decrees, and granting greater autonomy to arbitral tribunal
decisions.17 The result has been a fairer, efficient, and predictable procedure
that is better equipped to handle India’s unprecedented rise in international
commercial transactions.
Nevertheless, there remain a few chinks in the armor of the 1996 Act.
Tensions continue in areas that depart from Model Law such as the court’s
role in granting of interim measures, enforcement and challenge of foreign
arbitral awards, arbitrability of disputes, and challenge of biased arbitrators are
areas that either depart from or remain in significant tension with the Model
Law. This has raised concerns that India’s transformation into a dependable
forum for international commercial arbitration may still fall short of
international standards. Underlying these problems is the courts’ ongoing

See id.
See Raghavan, Vikram. New Horizons for Alternative Dispute Resolution in India:
The New Arbitration Law of1996. 13 J. Int’l Arb. 5,9-24 (No. 4,1996).
The vast majority of the research conducted for this comment begin with the idea that
the adoption of the 1996 Act was a major step forward in modernizing India’s
arbitration regime.
See Krishan, Ranbir. An Overview of the Arbitration and Conciliation Act 1996. 21
J. Int’l Arb. 263, 265 (No. 3, 2004). (stating the objects and reasons behind the
adoption of the 1996 Act).
Id.
struggle with relinquishing, control and giving primacy to the arbitral process
pursuant to international standards (i.e. Model Law or institutional arbitral
bodies).
The purpose of this comment is to provide a general picture of
international commercial arbitration and the rules it abides by, to offer a
context of the forces underlying India’s adoption of the 1996 Act, and to
explore the contemporary problems under the 1996 Act, while providing
suggestions where possible for resolving those problems. Part II explains why
arbitration has become the de facto choice for parties seeking international
commercial dispute resolution, provides a short overview of the UNCITRAL
Model Law framework from which the 1996 Act substantially borrows, and
offers a historical perspective of the rise of commercial arbitration in India and
the economic pressures driving system reform. Part III examines the
contemporary issues in international commercial arbitration under the 1996
Act and explores possible solutions.
6.6 Background
A. To Arbitrate or Not to Arbitrate
The tremendous expansion of international commerce in the past sixty
years has fuelled an increased need for dispute resolution distinct from public
litigation.18 Commercial arbitration has fast become the pre-eminent means of
dispute resolution between transnational trading partners because it greatly
reduces the complexities, time-drain, and expense associated with traditional
litigation.19 A defining characteristic of international arbitration is its non­
governmental nature and the parties’ ability to dictate through contractual
agreement the scope of settlement.20 A brief description of some of the chief
advantages and disadvantages are:
6.7 Advantages
1. Neutrality: Basic fairness and risk of bias in a foreign court system is of
great importance and concern to parties.21 Parties may feel misgivings

18 Fiske, William S., Should Small and Medium-Size Businesses “Going Global" Use
International Commercial Arbitration? 18 Transnat’I Law 455,485 (2005).
19 Gruner, Dora M., Accounting of the Public Interest in International Arbitration: The
Needfor Procedural and Structural Reform, 41 Colum, J. Transnat’l Law 923, 923
(2003).
See Huleatt-James and Nicholas Gould, International Commercial Arbitration: A
Handbook 9 (2d ed., LLP 1999).
21
Vijay Reddy & V. Nagaraj, Arbitrability: The Indian Perspective. 19 J. Int’l 117,
118 (No. 2,2002).
 x u*r

with regard to the judiciary and independence of the other party or may
simply feel uncomfortable in the legal system and culture of the other
'party.22 Arbitration gives each party an unbiased forum for dispute
resolution by allowing them to accept a neutral forum on negotiable
terms.23
2. Speed and Cost: Streamlined and less formalized discovery procedures
and simplified evidentiary rules facilitate time and cost efficiency.24
3. Customization and control: Arbitration allows each party to have a great

deal more control over the nature and conduct of the proceedings than
traditional court proceedings.25 Each party is free to choose procedural

matters to be employed, the rules pertaining to taking testimony,

evidentiary matters, presiding arbitrators, language, interim measures,

substantive law, and the degree of procedural formality.26

4. Confidentiality: International commercial arbitration may involve

commercially sensitive information that parties prefer to keep confidential.

Arbitration allows for confidentiality because most arbitral hearings

remain closed, and awards are generally kept confidential unlike

traditional courts where hearings are open and awards and decisions are
published.27 Arbitration gives a level of confidentiality that courts cannot

offer.

5. Expertise: Litigants in court often find that the judge or fact-finder lack

the expertise in a specialized subject area needed in making a well-

reasoned decision.28 Arbitration allows the parties to choose an arbitrator

with the requisite technical knowledge and experience enhancing the

quality of decision making in many cases.

See James Huleatt & Nicholas, Gould supra n. 9, at 4.

See Reddy & Nagaraj, supra n. 10, at 118.
See id
See Huleatt-James & Gould, supra n. 9, at 4.
Reddy & Nagaraj, supra n. 10, at 118.
See id
See id at 119.
6. Enforcement: Traditional court systems do not have a system of enforcing

judgments internationally which may result in great time and expense for a
' litigant seeking enforcement.29 Thus, foreign arbitral awards are generally

easier to enforce at a lower cost.

7. Finality: The arbitrator’s decision is final and binding. This usually

eliminates lengthy and expensive appeals.
6.8 Disadvantages
However, arbitration may not always be best alternative. Some of the
disadvantages peculiar to international arbitration are:
1. Lack of authority to grant specific remedies: Arbitrators lack the power to
grant coercive relief such as permanent injunctions, or order specific
performance, or award punitive damages under a tort theory.30
2. Unenforceabilitv for reasons of public policy. Parties may choose to draft
choice of law provisions that allow them to circumvent the laws of the
situs. Such awards that result from such provisions may be found to
unenforceable against public policy.
3. Conflict of laws problems: The inclusion of several legal regimes into the
arbitration proceeding complicates the issues of private international law
for the arbitrator. For instance, an action for arbitration may include law
of contract, law of the arbitration agreement, law of situs, law of situs of
enforcement, etc.31 An arbitrator may lack the expertise to address the
legal complexities of the proceeding.32
4. Non-arbitrabilitv: States may decide that certain areas are of exclusive
jurisdiction of state courts. Where the arbitral agreement concerns itself
with exclusive state jurisdiction, the arbitral agreement is unenforceable
and void.
5. Cost: Cost may be an issue where parties fail to tailor their proceedings
causing unnecessary delays and adding to the expense of the arbitration

29
See id.
30
See id. at 120 (stating that in most eases the arbitrators lack the power to grant
remedies that courts are normally able to grant).
31
Id. at 120.
32
Id.
 1 uu

proceeding. Also, arbitrator fees may be expensive and even more so

where a three-arbitrator panel is chosen.33
Disadvantages notwithstanding, the benefits of arbitration in the vast
r
majority of cases outweigh the benefits of litigation. Therefore, arbitration
will likely remain the most viable alternative to court-based litigation for the
foreseeable future.
B. International Commercial Arbitration under UNCITRAL Model Law
An understanding of the form and function of the UNCITRAL Model
law is relevant to understanding India’s arbitration framework because the
1996 Act is based substantially on the Model Law.
UNCITRAL promulgated the Model Law on International Commercial
Arbitration in June 1985 in response to the lack of uniformity in international
commercial arbitration.34 The Model Law harmonizes arbitration concepts of
different legal systems of the world thus allowing it to be universally
applicable.35 Currently, fifty countries and/or territories have based their
international arbitration legislation on the UNCITRAL Model Law on
International Commercial Arbitration,36 and one-hundred and thirty seven
countries are signatories to the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (“New York”) Convention of 1958.37
The Model Law’s stated goals envision an arbitral procedure which is
fair, efficient, and needs-focused to minimize the supervisory role of courts38
Other goals include: (1) limiting the role of national courts and to give
primacy to the will of the parties in establishing the procedure for the
settlement of their disputes; (2) securing procedural fairness by means of a
limited number of provisions from which the parties could not agree to depart;
(3) putting in place rules which advances arbitration, even if the parties have

See Krishan, Ranbir, supra n. 5, at 277 (stating that the tendency of the parties is to
appoint High Court/Supreme Court judges as arbitrators whose high fees contribute
to costs making it potentially more expensive than litigation); see also Reddy &
Nagaraj, supra n. 10, at 120 (stating that international arbitration is extremely
expensive and the cost often offsets the advantages of speed and flexibility)
Id. at 264.
Id. at 265.
United Nations Commission on International Trade Law, Status of UNCITRAL
Model Law on International Trade Law1985, http://www.uncitral.org/en/
uncitral_texts/ arbitration/ 1985Model_arbitration_status.html, (last visited 4/27/06).
Id. at http://www.uncitral.org/uncitral/en/uncitral texts/arbitration/ NYConvention_
status.html (last visited 4/27/06).
3S
Krishan, supra n. 5, at 265.
not reached agreement on all relevant procedural matters;39 (4) enforcing court
decrees as awards; and (5) that a settlement agreement reached by its
conciliation proceedings would have the same status as an arbitral award.40
Also, Model Law was drafted so as to give the parties to the arbitration
agreement as much autonomy as possible in drafting and carrying out their
agreement.41 Model Law provides for flexibility by allowing countries to
depart from the document to the extent it considers necessary to tailor the law
to its needs.42
With regards to jurisdiction, the Model Law is intended to be lex
specialis, i.e. it is to be a special regime of law that prevails over any
contradictory domestic law that deals with the same subject.43 National laws
dealing with subject matter not covered by the model law remain applicable;
however, the Model Law does not prevail over treaties in effect in the
adopting country.44
Finally, the Model Law was designed for ad hoc arbitration (i.e. those
in which the parties devise their own procedures) as opposed to “institutional”
arbitrations (i.e. those in which parties conduct arbitration according to an
arbitral institution such as International Court of Arbitration or American
Arbitration Association). Ad hoc arbitration is more prevalent in private
international arbitration mainly because of the high costs and time delays
associated with the administrative style of institutional arbitration.45
C. The Rise ofCommercial Arbitration in India
This section discusses the historical origins of arbitration in India, the
economic climate that served, and continues to serve, as an impetus to India’s
evolving arbitration law, and the importance of adopting the 1996 Act as a
corrective measure with regards to its previous arbitration regime.

39
Huleatt & Gould, supra n. 9, at 25.
40
Huleatt & Gould. Supra n. 27, at
41
Dore, Isaak, The UNCITRAL Framework for Arbitration in Contemporary
Perspective 101 (1st ed., Kluwer 1993).
42
Id.
43
Dore, supra n. 30, at 101.
44
Id.
45
But see Huleatt & Gould, supra n, 9, at 28. (stating that institutional arbitration is
favored where future disputes are likely to be substantial and where co-operation of
the other party cannot be taken for granted i.e., the other party comes from a country
whose legal system is not supportive of arbitration).
 185

1. Historical Roots
Although India has only recently experienced a major expansion into the
areas of arbitration and conciliation,46 arbitration has long been recognized as
a valid mechanism for dispute resolution.47 A three-tier structure of dispute
resolution existed in ancient India closely related to modern-day arbitration
called Panchayats. Historians have suggested that early Indian law-givers
gave more importance to the resolution of disputes by arbitrators than through
judges appointed by the King49 The structure of Panchayats essentially
survived until the arrival of the British in India when the traditional legal
system underwent considerable change including codification of arbitration
laws with the passage of the first Code of Civil Procedure of 1859.50
The Indian Arbitration Act of 1899 was the first Indian legislation
devoted entirely to arbitration and was built on English common law
principles.51 As the Act of 1899 was largely unsatisfactory,52 it was
consolidated and amended by the Indian Arbitration Act of 1940 (“1940
Act”)—a code of arbitration that lasted for over fifty-years.53
Laws pertaining to international commercial arbitration were initially
addressed in the context of recognition and enforcement of foreign arbitral
awards.54 India had become a party to the Geneva Protocol on Arbitration
Clauses 1923, the Geneva Convention on the Execution of Foreign Arbitral

46
Justice K.A. Abdul Gafoor, Arbitration Law - Needfor Reforms ICA Quarterly, (Sept
2003).
47
Narayanan, Shri K.R. President of India at the Inauguration of the International
Council for Commercial Arbitration Conference. 17 J. Int’l Arb. 153, 154 (Oct.
2000). (President of India K.R. Narayan stressing in a speech to the Council for
Commercial Arbitration 2000 that two celebrated Indians, Mohan Das Karamchand
Gandhi and Gautama, the Buddha, espoused the values put forth by arbitration in
their lifetimes. Gandhi, as an attorney, was able to say that he had helped settle more
cases than those cases won in court: “I lost nothing thereby, not even money,
certainly not my soul.” Narayan noted that the Buddha spoke of the need for
resolution arises when the one’s living is sought through means that bring harm to
others.)
48
Raghavan, supra n. 3, at 6. The structure was comprised of the Puga, the Srenti, and
the Kula, each representative of a class or locality of people.
49
Id.
50
Id.
51
Id.
52
Id. See also Krishan, supra n. 5, at 265 (providing a list of laws that the 1996 Act
amends and repeals).
53
See generally Raghavan, supra n. 3, at 7-29 (detailing the Indian Arbitration Acts of
1940 and 1937).
54
Jambholkar, Lakshmi. Recent Developments in Indian Law. 19 J. Int’l Arb. 601, 601
(No. 6,2002).
Awards 1927, and the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards.55 Recognition of these frameworks
came in three Acts: the 1940 Act, the 1937 Act, and the 1961 Act.56
r
2. India’s New Economic Reality
A brief look at India’s remarkable economic success gives context and
meaning to the adoption of the 1996 Act.
Much of India’s recent economic success is attributable to the New
Industrial Policy of 1991 (NIP)—an economic liberalization strategy that
sought to free its economy from the chains of over-regulation and
bureaucracy.57 Following a near economic collapse in 1991,58 India adopted
the NIP59 which brought its economy to a state of parity with other developed
economies by introducing broad economic initiatives60 aimed at increasing
foreign direct investment (FDI), privatizing India’s burdensome state-owned
enterprises, and removing the myriad of restrictions on private sector business
activity.61
The NIP has certainly succeeded in its purpose as India has recently
burgeoned into an economic giant.62 India has achieved better efficiency and
harmony in world trade and continues to realize its vast economic potential.63
The numbers give pause even to the most pessimistic of observers: India’s
GDP currently ranks sixth in the world at $3,699 trillion;64 its combined

See Bansal, supra n. 1, at 191.

Work, Tracy, Student Author, India Satisfies Its Jones for Arbitration: New
Arbitration Law in India, 10 Transnat'l Law, 217,220 (1997).
See id. at 220-221 (explaining the background to a near economic collapse. India’s
economy prior to the NIP consisted of socialistic goals prescribed in five major
industrial policies from 1947 to 1980. These policies were designed to construct a
self-reliant economy which empowered the government to play a heavy regulatory
role in directing and regulating foreign investment. The government applied the
regulations scrupulously such that foreign investment was near impossible for
commercial lenders thus driving their investment money away. With foreign
exchange reserves of less than a billion (two weeks worth of imports) and a soaring
foreign debt (external debt service payments relative to current receipts was 35.3%)
India’s economy was on the brink of default by the late 1980s).
See. India and the IMF, http://www.imf.org/extemal/country/IND/index.htm (last
visited 4/30/06).
Id. at 220.
Bansal, A.K. Towards a New Law on International Arbitration in India. 12 J. Int’l
Arb. 67 (No. 3, 1995).
Schurer, Wolfgang. 29 Fletcher F. World Aff. 145,145-146 2005.
Reddy &Nagaraj, supra n. 10, at 117.
Central Intelligence Agency (CIA), The World Factbook,
http://www.cia.gov/cia/publications/factbook/rankorder/2001rank.html (last viewed
4/27/06).
 ivu

markets grew at a robust 7.0% per annum over the last decade;65 and its
productivity numbers rose to an industrious 4.1%.66 The economy is also
showing signs of diversification as manufacturing output has risen to 9% per
annum, close to catching its services sector at 10% per annum.67 Some
observers predict that India’s economy will surge ahead of China’s economy
within a few decades given its favorable demographics, its vast functioning
democracy,69 and the eventual benefits of its economic reforms. As India
continues to adopt the economic liberalization strategies of the NIP, India
remains poised to become the next great economic power.
3. In Need of Arbitration Reform
The increase in FDI and international commercial transactions in India
created a distinct pressure to improve on its mechanisms for dispute resolution
system. With economic liberalization in full swing, the Indian legal system,
infamous for its delays and unpredictability, was ill-equipped to deal with the
impending increase of commercial disputes.70 Foreign investors who wished
to resolve their dispute either by litigation or by alternative means under
India’s infamously gridlocked court system could not afford to wait decades
for a dispute to reach finality.71
Arbitration under the previous laws governing arbitration (1940 Act,
1937 Act, and the various foreign arbitration conventions) provided a poor
alternative and little guarantee that relief would be given quickly and

The Cato Institute, India vs. China, http://www.cato.org/Dub display .php?pub id

=3767&print=Y, (last viewed May 14,2005).
Dharam Shourie, Productivity: China twice as good as India. http://in.rediff.
com/money/2006/jan/18china.htm (last updated Jan 18,2006).
Bradsher, Keith. A Younger India is Flexing its Industrial Brawn.
http://select.nvtimes.com/search/restricted/article?res=F30914F6355A0C728CDDA0
089 4DE404482 (last visited Sept 29,2006).
Id. (arguing that a prime reason India is now developing into the world’s next big
industrial power is that many global manufacturers are already looking ahead to a
serious demographic squeeze facing China. Because of China’s “one child” policy,
family sizes have been shrinking there since the 1980’s, so fewer young people will
be available soon for factory labor.)
See Baker, Mark. Awakening the Sleeping Giant: India and Foreign Direct
Investment in the 2Is1 Century 15 Ind. Int’l & Comp. L. Rev. 389,390 (2005)
See Baker, supra n. 56 (stating that “[Cjonvenience and justice are not on speaking
terms”).
Newsweek, Unclogging the Courts http://www.msnbc.msn.com/id/8525757/site/
newsweek/from/RL.2/ (last visited 4/27/06) (reporting that India's lower courts
currently have a backlog of about 20 million civil and criminal cases. An additional
3.2 million cases are pending before the high courts, while the Supreme Court has
about 20,000 old cases on the docket. As a result, each case takes an average of 20
years to litigate).
effectively, if at all.72 Indian courts frequently failed to enforce arbitral
awards, reconsidered arbitral decisions on the merits, and denied enforcement
of awards as contrary to public policy.73 Arbitration was also painfully slow,
often taking a decade or more to obtain and enforce an award74 deterring
potential foreign investors from investing in India.75 Foreign investors who
sought an efficient or, at the least, a predictable dispute resolution system,
could take little solace when settling commercial disputes through arbitration
in India. Thus, without the ability to resolve a dispute efficiently, frill-scale
investment in India was a risky proposition for international businesses.
4. Adoption of the 1996 Act as a Move Towards Consensus
The judiciary and business leaders called for arbitration reform as it
became apparent that dispute resolution in India was a deterrent to foreign
investment.76 Indian leaders converged in 1995 to revise the rules on
commercial arbitration and to join international consensus on the issue.77
Consequently, the Minister of Law introduced the 1996 Act which was
substantially based on UNCITRAL Model Law.78 The main aims of the 1996
Act were to consolidate and amend the law relating to domestic arbitration,
international commercial arbitration, and the enforcement of foreign arbitral
awards.79 A further aim was to make provisions for a fair and efficient arbitral
procedure in which arbitrators would need to give reasons for their
conclusions.80
The adoption of the, 1996 Act was significant for two reasons. First,
the 1996 Act unified three separate bodies of arbitration law by consolidating,

72
Bansal, supra n. 50, at 67.
73
Id.
74
Id.
75
Bansal, supra n. 1, at 194 (stating that settling abroad was the only viable
alternative).
76
See Raghavan, supra n. 3, at 24 (emphasizing that the call for change was echoed by
various associations of Indian industry and commerce as well as the Judiciary). See
also Guru Nanak Foundation v. Rattan Singh and Sons, AIR 1981 SC 2075, 2076 in
which the Supreme Court famously echoed the growing frustration at how arbitration
in India took place: “|T]he way in which the proceedings under the [previous Acts]
are conducted and challenged in Courts, has made lawyers laugh and legal
philosophers weep.” See also Raipur Development Agency v. Chokhamal
Contractors, AIR 1990 SC 1426.
77
Motiwal, O.P. Alternative Dispute Resolution in India. 15 J. Int’l Arb. 117 (1998).
78'
Raghavan supra n. 3, at 13.
79
Id
80
Id.
repealing, and amending the previous law relating to domestic arbitration,
international commercial arbitration, and the enforcement of foreign arbitral
awards.81
r

Second, adoption of the UNCITRAL Model Law brought efficiency

and predictability where little existed before. The Model Law, already widely
in use internationally, ensured India would be consonance with international
standards of arbitration practice.82 Thus, in adopting the UNCITRAL Model
Law, India’s arbitration system moved a step closer to gaining international
acceptance.
6.9 Contemporary Issues of International Commercial Arbitration under
the 1996 Act
The 1996 Act addresses both international and domestic arbitration.
Part II of the 1996 Act pertains to international commercial arbitration.
Nevertheless, Part I contains select portions that are also applicable to
international arbitration. This section examines several areas of arbitration
that remain unsettled a decade after the 1996 Act’s implementation which
include: (1) interim measures of protection; (2) enforcement and challenge of
foreign awards; (3) arbitrability of disputes; and (4) challenge and removal of
biased arbitrators.
A. Interim Measures ofProtection in Foreign Arbitrations
Interim measures refer to intermediary protective actions taken by a
court or arbitral tribunal at the request of a party in order to save itself from
irreparable harm or grave inconvenience before the final award is issued.83
Interim measures have the effect of compelling parties to behave in a manner
conducive to the success of the proceedings, preserving the rights of the
parties, preventing self-help, and ensuring that an eventual final award can be
implemented.84 Examples of interim measures include temporary injunction,

Bansal, supra n. 1, at 191.

Work, supra n. 46, at 228.
See Prathiba Singh and Devashish Krishnan, The 1996 Arbitration Act: Solutions for
a Current Dilemma, 18 J. Int’l Arb. 41, 41 (2001). (stating that interim measures
perform three central functions: (1) to conserve certain elements of proof (2) to
safeguard the rights and interests of the parties and (3) to prevent any aggravation of
the dispute).
Ferguson, Stephen. Interim Measures of Protection in International Commercial
Arbitration: Problems, Proposed Solutions, and Anticipated Results. 12 Currents
Int’l Trade L.G. 55 (Winter 2003).
partial payment of claims, posting of security for costs, or appointment of
receiver for a disputed property.85 Section 9 of the 1996 Act empowers parties
to'apply to the court for interim measures of protection.86 Section 17 of the
r

1996 Act empowers the arbitral tribunal to order a party to make interim
measures of protection in response to a request.87
An unresolved issue that has arisen with regard to interim measures is
whether Indian courts have jurisdiction to grant interim measures of protection
where the seat of arbitration is foreign,88 This might occur where two parties
(Indian national v. non-Indian) hold arbitration outside of India and the Indian
party needs an interim measure of protection of an Indian court to secure their
rights (i.e. to secure assets, to appoint receivership, etc). Since interim
measures are of great practical importance to the parties involved, the
determination. of which decision-making body to approach is of critical
importance.89 Unfortunately, the Supreme Court has not yet settled the issue,
and the answer “has, like a burning ember, been tossed from court to court.”90
The underlying conflict centers on the extent of judicial restraint the
courts should apply when dealing with supplementary actions in foreign
arbitrations. On one hand, a reduced role for the courts makes good sense
given the over-reaching and disruptive role it played in arbitrations prior to the
1996 Act.91 This is supported by the 1996 Act which envisions a reduced role
for the courts in arbitration hearings.92 Another reason why courts should be
wary of intervening during a foreign arbitration proceeding is that the benefits
in efficiency, cost, confidentiality, and reduced complexity of the arbitration
process diminish.
On the other hand, there is a flaw in taking this concern with court
intervention too literally. Without recourse to a court, parties to a foreign
arbitration simply will not have the option to seek interim measures which

Singh & Krishnan, supra n. 95, at 42.

Section 9 of the 1996 Act corresponds to Article 9 of the UNCITRAL Model Law.
Rwatra, G.K., Arbitration and Conciliation Law of India: With Case Law on
UNCITRAL Model Law and Sale of Goods. 35-36 (2004 ed., Indian Council of
Arbitration).
Singh & Krishnan, supra n. 95, at 43.
Id at 41.
Id. at 43.
See id. at 43.
See Krishan, supra n. 5, at 265.
may result in a denial ofjustice.93 Court assistance may be essential to justice
because in many cases jurisdiction of the foreign arbitral tribunal is limited
and it inherently lacks enforcement capabilities.94 The very purpose of § 9’s
interim measures is to give the court co-extensive power with the arbitral
tribunal to provide relief without jeopardizing the arbitral process.95
Therefore, although one of the main purposes of the 1996 Act was to minimize
the supervisory role of the Courts, a literal reading of § 2(2) carries the risk of
depriving the parties of an important avenue of protection.96
The problem is essentially one of statutory construction and
interpretation. The 1996 Act is divided into three parts of which Parts I and II
are relevant here.97 Part I § 2(2) (provisions governing arbitration) applies
“where the place of arbitration is in India.” Further, § 2(7) states that all
awards made under Part I shall be domestic awards. Part II incorporates the
New York and Geneva Conventions for enforcement of foreign arbitral
awards. However, interim measures under § 9, is found in Part I. Therefore,
on its face, it seems that courts have jurisdiction to grant interim measures
under § 9 only in domestic arbitrations, not in foreign arbitrations. To
complicate matters further, this reading is contrary to the UNCITRAL Model
Law which confers extraterritoriality to Article 9 (the equivalent to § 9 of the
1996 Act).98
Indian courts have fluctuated on this point. A split of high courts99 has
advanced several lines of reasoning calling for a position of judicial restraint.
One such court reasons that confusion about the applicability of § 9 extra-
territorially should be resolved by reference to § 2(2) which contains definitive

93
Singh & Krishan, supra n. 95, at 50.
94
Id
95
Id
96
Id.
97
Part III addresses Conciliation under the 1996 Act.
98
See Singh & Krishnan, supra n. 95, at 44 footnote 15 (citing Art. 1(2) of the
UNCITRAL Model Law: “The provisions of this Law, except articles 8, 9, 32, and
36, apply only if the place of arbitration is in the territory of this State).
99
IndiaMart, India File - Government System http://finance.indiamart.com/
govemment_india/judicial.html (Last visited 4/30/05). (noting that the legal system
is based on English common law, the Supreme Court is the apex court in the
country., and the High Court stands at the head of the state's judicial administration.
Each state is divided into judicial districts presided over by a district and sessions
judge, who is the highest judicial authority in a district).
language that Part I shall apply to domestic arbitration only.100 The court
further reasons that since the 1996 Act was so clearly absent of the Model Law
provisions to apply extraterritoriality to § 9, the Indian Legislature must have
intended to limit the scope of all the provisions in Part I to domestic
arbitrations only.101 Other courts have maintained that the judicial restraint
position is in line with the main objective of the Act—to minimize the
supervisory role of the courts in arbitration proceedings.102 Finally, courts
have held that § 2(2) and 2(5) read together leads to the conclusion that § 2(2)
is redundant and therefore it cannot be read to be an inclusive definition.103
The contrarian line of cases is represented by the Delhi High Court in
Dominant Offset Pvt. Ltd. v. Adamovske Strojiny A.S.104 which applied the
doctrine of “harmonious construction” between § § 2(2) and 2(5).105 Section
2(5) states in part that Part I “shall apply to all arbitrations and to all
proceedings relating thereto” which seems to extend the applicability of Part I
to all arbitrations. The judge reasoned:
A conjoint reading of all the provisions clearly indicates that
sub-section (2) of section 2 [contains] an inclusive definition
and that it does not exclude the applicability of Part I to those
arbitrations not taking place in India. The aforesaid
interpretation gets support from the provisions of sub-section
(5) of section 2 which provides that Part I shall apply to all
arbitrations and to all proceedings relating thereto.”106

Singh & Krishan, supra n. 95, at 45.

Id. See also East Coast Shipping Ltd v. M.J. Scrap Pvt. Ltd.,1997 (3) ICC 429 (Cal);
Keventer Agro Ltd v. Seagram Company Ltd., Civil Appeals No. 1125 and 1126 in
two unreported orders (APO 490 of 1997; APO 499 of 1997 and C.S. No. 592/97)
dated 27 January 1998 and 23 April 1998, Calcutta High Court.
See supra note 97 Keveqter.
Singh & Krishnan, supra n. 95, at 49. (citing Marriot International Inc. v. Ansal
Hotels, 1999 (82) DLT 137, where the court maintained: “The only way in which
subsections (2) and (5) of Section 2 can be harmoniously read together is that Part I
of the Act shall apply to all arbitrations being held under an agreement between the
parties or under the rules and bye-laws of certain associations of merchants, stock-
exchanges, chambers of commerce, or under a statute where the place of arbitration
is in India”)
1997 (2) Arbn. LR 335.
Singh & Krishan, supra n. 94, at 46.
See id
The court used the broad language of § 2(5) to give an inclusive meaning to §
2(2) thereby making Part I applicable to extra-territorial arbitrations. Other
high courts have also followed this line of reasoning.107
Given the skepticism of court intervention under the 1996 Act, one
workable approach is given by the ICC in Article 23(2) which provides that a
party must fulfill an appropriate test before obtaining court protection.108 The
Indian Supreme Court in Sunderam Finance109 followed this approach by
holding that once a court is satisfied that there is 1) a valid arbitration
agreement and 2) the applicant’s intention to take the dispute to arbitration, the
court can exercise its discretion whether the application merits the grant of an
interim measure.110 Though this case was restricted to the issue of whether an
interim measure could be granted before the start of arbitration proceedings,
the Sundaram standard could be expanded more generally to place the burden
on the moving party to prove that the interim measures are not being used to
frustrate the arbitral process.*111* Only the English model comes close to this
standard by defining preconditions for court intervention where the arbitral
tribunal is the first resort and the court is the last resort.112
UNCITRAL is in the process of making significant revisions on
interim measures of protection and enforcement. The revisions generally
reveal that interim measures of protection issued by arbitral tribunals are to be
recognized and enforced by the courts except for specific circumstances.113
The Indian legislature should adopt such language because by reducing the
number of situations in which a party must seek redress in the courts, fewer
abuses of launching diversionary proceedings in the courts are likely to occur.
In the past, courts have played a heavy-handed role in arbitration, only to strip
the arbitral process of its cost and time efficiency. Reducing the courts role

107 See Singh & Krishnan, supra n. 95, at 46-47 (citing Marriot International v. Ansa/
Hotels, 1999 (82) DLT 137 and Suzuki Motor Corporation v. Union ofIndia,)
108 See id. at 52.
109 AIR 1999 SC 565.
110 Singh & Krishan, supra n. 95, at 52.
111 Id.
112 See id. at 52.
1,3 See Ferguson, supra n. 96, at 64. (Sub-paragraph 2(a) identifies the situations in
which a court may refuse to recognize and enforce an interim measure on the request
of a party including issues of jurisdiction, notice, opportunity to be heard, and
suspension. Sub-paragraph 2(b) allows the court to refiise to recognize and enforce
the interim measure on its own finding that it does not have the power by its laws to
enforce the measure or such enforcement would be contrary to public policy).
maximizes efficiency by streamlining the arbitration process. Thus, where the
objective in arbitration reform seeks to make arbitration a more viable process,
a position ofjudicial restraint should be adopted.
B. Enforcement and Challenge ofForeign Arbitral Awards
Prior to the 1996 Act, foreign arbitral awards were governed by The
Foreign Awards (Recognition and Enforcement) Act, 1961.154 Under the 1961
Act, the Indian judiciary recognized foreign arbitrations conducted pursuant to
the 1958 New York Convention.115 Similarly, Part II of the 1996 Act provides
for the enforcement of foreign arbitral awards under the 1958 New York
Convention and, in addition, the Geneva Protocol of 1923 on Arbitration
Clauses and the Convention for the Execution of Foreign Arbitral Awards of
1927 (the “Geneva Conventions”).116 Under the 1996 Act, an award is foreign
if delivered outside of India in a signatory country to the 1958 New York
Convention on matters that are commercially arbitrable under Indian law.117
1. Enforcement of Foreign Awards
The 1996 Act requires certain conditions to be met before a court may
enforce a foreign award. First, evidence of an award requires proof of: (1) the
original award or a copy thereof, authenticated in a manner as required by the
law of the country where the award was issued; (2) the original arbitration
agreement or a copy thereof; and (3) any additional evidence that may be
necessary to prove that the award is foreign.118
The primary benefit under the 1996 Act is that it obviates the need for
getting a decree from an Indian court to enforce a foreign award.119
Previously, an enforcing party would have to get a decree from the court
thereby adding an extra layer of bureaucracy and uncertainty to the arbitration.
But, under the 1996 Act, valid20 arbitral awards automatically become court

114
Anita T. Anand, and John R. Dingess. Update on Indian Arbitration: The
Arbitration and Conciliation Ordinance, 1996, 11-3 Mealey’s Int’l Arb. Rep. 19,
21 (No. 12,1996).
115
Id.
116
Id
117
Id.
118
Kwatra, supra n. 95, at 94.
119
Work, supra n. 46, at 236.
120
See Jambholkar, supra n. 43, at 605 (Validity is a prerequisite for transforming the
arbitral award into a court-ordered decree.)
decrees and are made effective by separate notification.121 In other words, if a
court is satisfied that an award to which the New York Convention under § 48
applies is enforceable,122 that award is “deemed to be a decree of that Court.”
r
The Supreme Court has recognized that foreign arbitral awards are
enforced in countries other than were the award originates, that awards must
be enforceable internationally, and therefore should be international in their
validity and effect.123 The Court went a step further in Renusagar Power Co.
Ltd v. General Electric Co., AIR 1994 SC 860, and endorsed the view that
foreign awards are to be enforced more liberally than domestic awards for
reasons of comity.124
2. Challenge of Foreign Awards
Similar to the UNCITRAL approach, § 48(1-2) of the 1996 Act
provides the court may set-aside a foreign arbitral award where (1) there is
incapacity of one the parties or an invalid arbitration agreement; (2) there is
improper notice of hearing or appointment of arbitrator; (3) the award
addresses matters that go beyond the scope of the arbitration agreement; (4)
the composition of procedure of the arbitral tribunal was not in accordance
with the laws of the award issuing country; (5) the award has not yet become
binding on the parties, or has been set aside or suspended by a competent
authority under the award issuing country; (6) a dispute is non-arbitrable under
the laws of India; or (7) the enforcement of the award would be against the
public policy of India.125
Section 34(2)(b)(ii) of Part I sets out virtually the same standards for
set-aside of domestic awards as § 48(2)(b) provides for set-asides of foreign
awards. Like many other countries, setting aside of arbitral awards under the
ground of public policy has been problematic.

121 Ramaswamy, P., Enforcement of Annulled Award: An Indian Perspective 19 J. Int’l

Arb. 461,466 (2002).
122 See id. (stating that to be valid, the award must meet the conditions in article V of
the New York Convention, which corresponds to § 48 of the 1996 Act).
123 Ramaswamy, supra n. 134, at 466 (citing Brace Transport Crop. Of Monrovia,
Bermuda v. Orient Middle East Lines Ltd, 1994 (All India Reporter Supreme Court)
1715,1720).
124 Id.
125 1996 Act Part II Sec. 48(2)(a-b).
a. The Public Policy Exception
Challenge on grounds of “public policy” is by far the most contentious aspect
of the 1996 Act because of the high degree of subjectivity that courts employ
to the term. The 1996 Act, on its face, sets a high threshold for a party seeking
to set-aside or resist recognition or enforcement of an arbitral award on
grounds of public policy.126 In order for the award to be against the public
policy of India, the award must rise to the level of having been induced by
fraud or corruption.127
In Renusagar Power, the Supreme Court held that mere contravention
of law would not attract the bar of public policy, but the award must be
contrary to (i) fundamental policy of Indian law, or (ii) the interests of India,
or (iii) justice or morality. In addition, if the award is actually induced by
fraud or corruption, or it violates the rule of confidentiality, or the rules of
evidence, then the award is void for public policy and may be set-aside under
the 1996 Act.128
Much to the displeasure of the arbitration movement, the Supreme
Court has recently expanded the public policy justification for setting aside a
domestic award under Part I § 34 of the 1996 Act. In Oil and Natural Gas
Corp. v. Saw Pipes Ltd. (“Saw Pipes”), the Supreme Court of India
substantially broadened the standard of violating public policy by creating a
new ground of “patent illegality.” The facts of the case relate to the supply of
casing pipes by Saw Pipes Co. to the Oil and Natural Gas Co. (“ONGC”).
Timely delivery was of the essence. Saw Pipes Co. could not deliver on time
and requested an extension from ONGC who acceded to this under the
condition that liquidated damages would be received for the delay in delivery.
This deduction was disputed by Saw Pipes Co. and the dispute went to
arbitration. The arbitral tribunal held that ONGC had not suffered any damage
at all and was precluded for asking for liquidated damages in the amount of
$304,970.
After deciding it had jurisdiction to hear the matter, the Supreme Court
held that there is “no necessity of giving a narrow meaning to the term public

126 Nadia Darwazeh & Rita F. Linnane. The Saw Pipes Decision: Two Steps Back for
Indian Arbitration? 19-3 Mealey’s Int’l Arb. Rep. 15 (No. 3,2004).
127
See id. (Recently, “error of law” has been found to be a ground for set-asides).
128
Krishan, supra n. 5, at 272-273.
policy of India. On the contrary, wider meaning is needed so that the patently
illegal award passed by the arbitral tribunal could be set aside.” [emphasis
added]129 The Supreme Court went on to explain that the term “public policy”
is to be read “depending upon the object and purpose of the legislation. In
essence, the award which is passed in contravention of sections 24, 28, or 31
could be set aside.”130 The Court went on to reconsider the award on its merits
and held that the appellant did not need to prove its loss and was rightfully
entitled to liquidated damages.131
The decision is problematic for three reasons. First, the party
aggrieved by an arbitral award can challenge an award by contending that such
an award is allegedly in mere contravention of law and thus in conflict with
the public policy of India. The decision significantly lowered the threshold of
the public policy justification for setting-aside an award by including the
ground of “patently illegal” to the three grounds already established in
Renusagar. The Court accomplished this by interpreting “public policy” to
include the concept of “error of law.” Although “error of law” was not stated
as a grounds for a set-aside under § 34(2)(b)(ii), the Court found that this was
appropriate in context of set-asides.132 The Court then went on to equate
“patent illegality” with “error of law” essentially creating a new category for
setting-aside an award on public policy grounds133
Second, it creates a new avenue for judicial reconsideration under § 34
set-asides by distorting the meaning of “illegality.”134 Illegality in the
enforcement of arbitral awards has traditionally meant “. . . facilitation or
promotion of drug trafficking, terrorism, subversion, prostitution, child abuse,
slavery, and other forms of human rights violations.” The underlying conflict
of liquidated damages in Saw Pipes was clearly not within the traditional

129 Gaya, Javed. Judicial Ambush of Arbitration in India. 120 Law Q. Rev. 571, 573
(Oct. 2004).
130 Id.
131 Darwazeh & Linnane, supra n. 139, at 3.
See id. at 5-6 (positing that the legislator did not intend to include “error of law” as a
public policy ground under § 34(2)(b)(ii) of the 1996 Act. The Law Commission of
India proposed a bill in April 2001 amending the 1996 Act. A further bill was
introduced to Parliament as recently as December 2003. In both bills, “error of law”
is contemplated as a new ground for setting aside domestic awards. This only goes to
show that it as not already included under the 1996 Act at the time of the Saw Pipes
decision and putting the legal correctness of Sow Pipes in doubt).
133
Id.
134
See id. at 4.
meaning of “illegal.” Such expansion of the meaning might allow courts
another justification to set-aside many more cases than it previously could.
Third, and perhaps most importantly, this interpretation allows the
court through its set-aside authority to review the arbitration on its merits.
After ruling that the award was “patently illegal,” the court used the public
policy ground as a means to conduct a review of the merits of the case and to
“substitute its own view [with the one] taken by the arbitrators.”135 Thus, the
Court retains a backdoor way to review the merits of an arbitral proceeding—a
step in contravention of the “letter and spirit” of the 1996 Act.136
Though the “public policy” justification appears to apply only to
domestic awards under § 34,137 it is possible that such reasoning may well
extend to foreign awards as well. Arguably, since the foreign award set-aside
provisions in Part II § 48(2)(b) mirror the domestic award set-aside provisions
in Part I § 34, it is plausible that the courts may use the Saw Pipes decision to
reach foreign awards, thereby opening the floodgates to reconsideration of
foreign arbitral awards. The question was further complicated by the 2001
case Bhatia International v. Bulk Trading SA where the Court held that Part
I provisions should apply to international arbitrations—thus opening the door
even more for a Saw Pipes reasoning to extend to foreign awards.
For the time being, it remains unclear whether the decision marks a
regression to the interventionist approach that courts took prior to adoption of
the 1996 Act or whether this was a singular decision of an over-reaching court.
Thus far, the courts have not used the Saw Pipes reasoning extensively.
Nonetheless, many have advocated for an explicit overruling of this case and
the adoption of a narrower definition of the public policy exception.139 For the
purposes of protecting the arbitral process, a narrower interpretation of the

135
Id. at 6.
136
Id. at 2. (Under the 1996 Act, a court is no longer allowed to review the merits—
directly or indirectly—since set-asides are no longer possible for errors of law or
fact).
137
See Gaya, supra n. 142, at 574 (stating that the Saw Pipes court rationalized that the
principles laid down in the case apply only to domestic awards because a foreign
award is subject to challenge in the country where the award is made, whereas for a
domestic award, the only recourse for an aggrieved party is under § 34 in Part I of the
Act).
138
[2002] 1 LRI 703.
139
See generally Gaya, supra n. 142; see also Darwazeh & Linnane, supra n. 139.
 ' zuz

public policy justification is preferable because such a meaning prevents

backdoor reconsideration of the arbitral decision by Indian courts.
C. Arbitrability ofDisputes
Arbitrability refers to “whether a dispute is capable of settlement by
arbitration under the applicable law.”140 Usually, where the subject matter of
the dispute has to do with everyday business transactions, the state will not be
concerned. However, where a dispute concerns public claims, states reserve a
right to intervene in such disputes.141 Examples of public claims include
constitutional issues, welfare of individuals, insolvency rights, anti-trust
issues, banking and finance regulations, regulatory functions of government,
natural resource development, or criminal matters.142 Accordingly, awards
made pursuant to disputes which are considered non-arbitrable by the state of
enforcement, will not be enforceable.143
The problem of arbitrability arises often in international arbitration
because there may be more than one system of law involved in the proceeding
as to whether the subject matter of the dispute is arbitrable.144 To illustrate, in
a contract between trading partners from Pakistan and India, the contract
provisions may be governed under Canadian law and substantive disputes be
governed under US law. Here, after taking into account each party’s native
country’s laws, an arbitrator potentially has to address four different legal
systems.
Diversity of national rules further complicates the picture because
developed countries such as the US, Australia and Canada, have adopted more
liberal approach to arbitrability than developing countries which are wary of
ceding state control for fear that arbitrators will under-enforce important state
development objectives.145 As a result, an award made according to a

Reddy & Nagaraj, supra n. 10, at 121.

Huleatt-James & Gould, supra n. 9, at 16; see also Reddy & Nagaraj, supra n. 10, at
124-125 (stating that the following areas have generally been found to be non-
arbitrable in India: 1) constitutional issues; 2) matrimonial matters; 3) insolvency;
4) welfare legislation; 5) mandatory non-private arbitration provided by statute; 6)
taxation or foreign currency matters; 7) tortious claims; 8) public policy based on
illegal activity; and 9) criminal matters).
See generally Reddy & Nagaraj, supra n. 10, at 124-126
New York Convention of1958, Articles V(l)(a) and 2(a) (1958).
Reddy & Nagaraj, supra n. 10, at 122.
Id. at 124-125. (State objectives include constitutional matters, matrimonial matters,
insolvency, welfare legislation, special tribunals, taxation, tortious claims, public
policy, and criminal matters).
jurisdiction where the dispute is arbitrable may not be enforceable in a country
where the dispute is not deemed an arbitrable matter.
1. - Defining “Commercial” under the 1996 Act
The meaning of “commercial” is important as it determines the extent to
which the scope of international arbitration would be covered under the 1996
Act. International disputes that fall outside the definition of “commercial”
would not be arbitrable.146 Too narrow a definition would lead to many
foreign awards not being enforced. Too broad a definition wrests from state
control important state objectives.
But what is “commercial?”147 Both the Model Law and 1996 Act take
similar approaches but differ slightly in practice. Model Law Art. I applies to
“international commercial arbitration.” Interestingly, the Model Law provides
a working definition but does so only in a footnote to Article l.148 The
footnote to Article 1 states:
The term commercial should be given a wide interpretation so
as to cover matter arising from all relationships of a
commercial nature, whether contractual or not. Relationships
of a commercial nature, include, but are not limited to the
following transactions: any trade transactions for the supply or
exchange of goods and services; distribution agreement;
commercial representation or agency; factoring, leasing;
construction of works; constructions; engineering; licensing;
investment; financing; banking; exploitation agreement of
concession; joint venture and other forms of industrial or
business cooperation; carriage of goods or passengers by air,
sea, rail, or road.149
This footnote was intentionally excluded from the main body of the
Model Law because there was a concern that in adopting a precise definition
for such a sensitive and important term, countries, especially socialist and
developing countries, would lose the freedom to retain judicial control over

Id. at 135.
Id
See id Most legal systems do not rely on the use of footnotes for reading statutes.
UNCITRAL Model Law on International Commercial Arbitration and Conciliation.
Footnote to Art. 1 (1985).
 with regard to the judiciary and independence of the other party or may
simply feel uncomfortable in the legal system and culture of the other
'party.22 Arbitration gives each party an unbiased forum for dispute
resolution by allowing them to accept a neutral forum on negotiable
terms.23
2. Speed and Cost: Streamlined and less formalized discovery procedures
and simplified evidentiary rules facilitate time and cost efficiency.24
3. Customization and control: Arbitration allows each party to have a great

deal more control over the nature and conduct of the proceedings than
traditional court proceedings.25 Each party is free to choose procedural

matters to be employed, the rules pertaining to taking testimony,

evidentiary matters, presiding arbitrators, language, interim measures,

substantive law, and the degree of procedural formality.26

4. Confidentiality: International commercial arbitration may involve

commercially sensitive information that parties prefer to keep confidential.

Arbitration allows for confidentiality because most arbitral hearings

remain closed, and awards are generally kept confidential unlike

traditional courts where hearings are open and awards and decisions are
published.27 Arbitration gives a level of confidentiality that courts cannot

offer.

5. Expertise: Litigants in court often find that the judge or fact-finder lack

the expertise in a specialized subject area needed in making a well-

reasoned decision.28 Arbitration allows the parties to choose an arbitrator

with the requisite technical knowledge and experience enhancing the

quality of decision making in many cases.

See James Huleatt & Nicholas, Gould supra n. 9, at 4.

See Reddy & Nagaraj, supra n. 10, at 118.
See id.
See Huleatt-James & Gould, supra n. 9, at 4.
Reddy & Nagaraj, supra n. 10, at 118.
See id.
See id at 119.
6. Enforcement: Traditional court systems do not have a system of enforcing

judgments internationally which may result in great time and expense for a
r litigant seeking enforcement.29 Thus, foreign arbitral awards are generally

easier to enforce at a lower cost.

7. Finality: The arbitrator’s decision is final and binding. This usually

eliminates lengthy and expensive appeals.
6.8 Disadvantages
However, arbitration may not always be best alternative. Some of the
disadvantages peculiar to international arbitration are:
1. Lack of authority to grant specific remedies: Arbitrators lack the power to
grant coercive relief such as permanent injunctions, or order specific
performance, or award punitive damages under a tort theory.30
2. Unenforceability for reasons of public policy: Parties may choose to draft
choice of law provisions that allow them to circumvent the laws of the
situs. Such awards that result from such provisions may be found to
unenforceable against public policy.
3. Conflict of laws problems: The inclusion of several legal regimes into the
arbitration proceeding complicates the issues of private international law
for the arbitrator. For instance, an action for arbitration may include law
of contract, law of the arbitration agreement, law of situs, law of situs of
enforcement, etc.31 An arbitrator may lack the expertise to address the
legal complexities of the proceeding.32
4. Non-arbitrabilitv: States may decide that certain areas are of exclusive
jurisdiction of state courts. Where the arbitral agreement concerns itself
with exclusive state jurisdiction, the arbitral agreement is unenforceable
and void.
5. Cost: Cost may be an issue where parties fail to tailor their proceedings
causing unnecessary delays and adding to the expense of the arbitration

29
See
30
See id. at 120 (stating that in most cases the arbitrators lack the power to grant
remedies that courts are normally able to grant).
31
Id. at 120.
32
Id.
essential state regulated objectives.150 The compromise was to include a
footnote giving adopting countries the freedom to retain control over essential
activities while still encouraging the widest interpretation possible.151 Thus,
r
the Model Law gives wide latitude to charter countries to define those
“commercial” matters that would give rise to arbitration.
The 1996 Act § 2(1 )(f) defines “commercial” as “disputes arising out

of a legal relationship, whether contractual or not, considered as commercial

under the law in force in India.”152 No mention is made of the Model Law

Article 1 footnote stated above. This is significant considering that the 1996
Act is substantially based on Model Law.153 The omission may have been the

Indian legislature’s attempt at giving courts discretion to decide the definition

of “commercial.”154 This would allow the courts to narrow or broaden their

definition according to their needs.

Previously, the court made a distinction between a contract for the

transfer of services and a contract for the sale of goods—of which only the
latter was considered “commercial” in nature.155 For instance, a contract for

technical assistance does not involve the direct participation of profits between

the parties and is therefore not “commercial.” But, the court took a big step
forward in R.M. Investment and Trading Co. v. Boeing Co.156 where the court

held that “commercial” must be given a wide interpretation consistent with the

purpose of the New York Convention and to promote international trade and

150
Reddy &Nagaraj, supra n. 10, at 127.
151
Id. (emphasizing that too restrictive a definition of “commercial” could lead to
foreign arbitral awards not being enforced).
152
See generally Reddy & Nagaraj, supra n. 10, at 123-128 (noting that the 1996 Act
specifies that the legal relationship need not be contractual. This means that matters
relating to torts, intellectual property, and securities regulation could potentially be
considered under “commercial” under the new Act. Though Indian courts have been
reluctant to extend arbitrability that far, the modem trend favors expansion of
arbitrable subject-matter by extending non-contractual transactions to the
“commercial” realm).
153
Id. at 135.
154
Id.
155
See id. at 135 (citing Kamani Engineering Corp. v. Societe de Tractions e
d’Electricite Societe Anyonyme where he court held that a contract for technical
assistance in which there was no participation of profits between the parties was not
“commercial” in nature).
156
A.I.R. 1994 S.C. 1136.
commercial relations.157 Significantly, the court also referenced Model Law
1 <0
Article 1 footnote and said that guidance could be taken from its wording.

r However, in that same decision, the court left the question of whether
the distinction between a contract for transfer of services and a contract for
sale of goods is valid. It is not yet clear that a contract for a transfer of
services (i.e. technology exchange, technical support, etc.) would be arbitrable
under the 1996 Act. Some have called for inclusion of such services to the
meaning of “commercial” since these services can be traded just like a
contract for sale of goods.159
Thus far, the court has maintained a broad definition of “commercial,”
in line with internationally accepted standards of the term and should continue
to do so.
2. Defining “International” under the 1996 Act
Another problem related to the concept of arbitrability in international
arbitration is defining what is meant by “international.” This is warrants
attention for two reasons. First, whether a dispute is arbitrable may be
defined differently under either domestic or international rules of arbitration.
As a result, a dispute which may be arbitrable under “international” arbitration
rules may not be so under domestic rules. Second, in context of the 1996 Act,
it follows that if a dispute was not considered “international,” then
enforcement of foreign awards found in Part II under the 1996 Act and select
provisions of Part I would be inapplicable to an arbitral proceeding. Thus,
how arbitration law defines an “international” dispute become important for
parties that seek to take advantage of international commercial arbitration
rules.
The Model Law considers an arbitration “international” if (1) the place
of business of the parties is in different States; or (2) the place of arbitration is
outside the state of which the parties have their places of business; or (3) the
place where a substantial part of the obligations of the commercial relationship
is to be performed is outside the state in which the parties have a business; or
(4) the place with which the subject matter of the dispute is most closely

157
Id.
158
Id.
159
Reddy & Nagaraj, supra n. 10, at 137.
connected is in a state other than the one in which the parties have their places
of business; or (5) the subject matter of the arbitration agreement is related to
more than one state.160 Thus, the Model Law focuses primarily on the place of
r
the parties, arbitration, or dispute.
The 1996 Act definition of what constitutes “international” is at
variance with the Model Law. Section 2(l)(f) of the 1996 Act provides that an
arbitration is international where at least one of the parties is: (1) an
individual who is a national of, or habitually resident in, any country other
than India; or (2) a body corporate which is incorporated in any country other
than in India; or (3) a company or an association or a body of individuals
whose central management and control is exercised in any country other than
India; or (4) the government Of a foreign country.
The key distinction is that the 1996 Act focuses more on the status of
the parties rather than the place of performance of the contract—an emphasis
on form rather than substance.161 For example, under 1996 Act definition, any
contract between an Indian national and a foreign national or a non-resident
Indian habitually resident abroad, automatically is considered “international”
and subject to international arbitration standards regardless of whether the
transaction was local in nature.162 By the same token, a foreign company in
India would not be subject to international arbitration under the 1996 Act
whose “management and control” is exercised within India.163 By focusing on
the status of the parties, the Indian approach seems to ignore the parties’ actual
connections to international trade and commerce and the forum connected to
that commerce. As a result, there is a danger that “international” arbitrations
will be categorized arbitrarily potentially aggrieving a party wishing to
arbitrate under international rules.
The Model Law’s approach should be adopted because of its focus on
the substance of the commercial interaction reflects more accurately the
commercial reality of the parties and/or forum. The result would be a more

Dore, supra n. 29, at 102.

Reddy & Nagaraj, supra n. 10, at 135.
Id
Id. (noting that another problem is that indicators used for determining what
constitutes “management and control” remain unclear).
predictable application of the rules to parties seeking to take advantage of
international arbitration rules in India.
D.' Challenge and Removal ofa Biased Arbitrator
One of the defining features of the Model Law is to offer an
international yardstick to satisfy the needs of a speedy and impartial
arbitration.164 The Model Law states that where bias is suspected, an arbitrator
may be removed by the court if the arbitrator did not act with timeliness, acted
with misconduct during the proceedings, or where the arbitrator is de jure or
de facto incapable of performing their duties.165 An arbitrator’s mandate also
ends where he/she withdraws from the proceedings or the parties agree on
removal.166
The 1996 Act departs significantly from Model law in the case of
challenging and removing a biased arbitrator. Both the Model Law (Art. 12)
and the 1996 Act (§ 12) place a duty on the arbitrator to disclose at the earliest
“any circumstances likely to give rise to justifiable doubts as to his
independence or impartiality” and also gives the right to the party aggrieved to
challenge the authority of the defaulting arbitrator.167
The 1996 Act and Model Law diverge with regards to providing a
remedy for a party failing in its challenge to remove an arbitrator. Under
Article 13(3) of the UNCITRAL Model Law, a party failing in its challenge of
an arbitrator may elect the remedy before the court or other authority specified
in Article 6 (i.e. re-selection or appointment of arbitrator by the parties or an
appointing authority).168 A successful challenge usually mandates substitution
by a new arbitrator.169
Unfortunately, the 1996 Act omits this remedy in its effort to expedite
the arbitration and prevent diversionary tactics in the courts. Section 13(4)
simply provides that if a challenge “is not successful, the arbitral tribunal shall
continue the arbitral proceedings and make an arbitral award.”170 The only

Gupta. Sunil, No Power to Remove a Biased Arbitrator under the New Arbitration
Act ofIndia. 17 J. Int’l Arb. 123,124 (No. 4,2000).
UNCITRAL Model Law on International Commercial Arbitration, Art. 9-12 (1985).
Arbitration and Conciliation Ordinance sec. 15(a) and (b) (Jan. 16,1996).
Gupta, supra 153, at 126.
UNCITRAL Model Law, supra n. 154, at sec. 13(3).
Krishan, supra n. 5, at 269.
Gupta, supra n. 153, at 126.
recourse is for the challenging party to set aside the entire award under § 34
(domestic awards) and § 48 (foreign awards) in the post-award stage. This
method requires a re-hearing of the entire case which inevitably wastes
precious time and money. Complicating matters, under §§ 34 or 48, a charge
r
of “bias” is not enumerated as one of the circumstances that an award may be
set aside under. Thus, the problem of challenging and removing an arbitrator
remains unsolved both at the arbitration stage and at the post-award stage.
Adherence to the Model Law is preferable here because it supplies a
remedy early in the process before the parties expend time and money on the
arbitration. Also, by providing a judicial remedy, the parties are not left out
on a limb waiting for a potentially biased arbitrator to rule on him/herself.
Other countries have dealt with this problem by accepting not only courts but
also institutional arbitration bodies as mechanisms for challenging biased
arbitrators. For instance, the ICC relies on the International Court of
Arbitration (ICA) to decide any challenge to an arbitrator suspected of bias.171
Likewise, the American Arbitration Association (AAA) handles a claim of
bias under its Rule 20 in which a complaint of partiality is submitted to AAA
for determination of disqualification. However, if the complaint is denied, the
complaining party still has a right to a claim of bias after the award has been
preserved.172
India would be well-served to amend the 1996 Act to provide either a
judicial remedy or provide for institutional safeguards to decide on a charge of
bias. In a legal system where bias has been a concern in the past, a provision
such as this would go a long way towards holding biased arbitrators
accountable.
6.10 Supreme Court’s Role Vis-A -Vis Indian Arbitration and
Conciliation Act, 1996
Arbitration is a process of settling disputes well known to the Indian
system of justice. It is an old practice that panchayats in villages would settle
disputes between the parties. The Panchayats have now got a constitutional
recognition under the Constitution (Seventy Third Amendment Act 1992)
which was inserted as Part IX of the Constitution of India It consists of

171 The ICA is attached to the ICC.

172 See Gupta, supra n. 153, at 129.

/
Articles 243 to 243 O. The British during their regime had introduced various
laws relating to arbitration 173 which were applicable either to a part of the
country or subsequently to the whole nation 174
6.11 India in International Forums
India has been an active participant and party to various international
conventions on international commercial arbitration. It was a party to the
Geneva Protocol, 1923, and Geneva Convention, 1927 under the League of
Nations. As required under these international treaties the Arbitration
(Protocol and Convention) Act, 1937 was enacted. Subsequent changes in
international treaties resulted in the Parliament enacting Recognition and
Enforcement of foreign arbitral awards, 1956 which was based on the New
York Convention.
Parties to international trade and commerce have often felt jittery as to
which method to fall back on in the event of any dispute. The judicial
resolution of a dispute results in a judgment / decree which have often been
found to be unrecognized and unacceptable in the courts of the country in
which it has to be enforced. This has compelled the parties to adopt arbitration
as a sound alternative. The United Nations Commission on International Trade
Law had been working for several years to come up with an acceptable model
law. The UNCITRAL (United Nations Commission on International Trade
Laws) began work on model arbitration law in 1979 and after working for
several years, on June 21st 1985 it proposed a Model Law on international
commercial arbitration. The General Assembly of United Nations passed a
resolution accepting the Model Law and India being a party adopted the
Model Law in the form of Arbitration and Conciliation Act, 1996.
The Model Law had several distinctive features but suffice is to say
that great emphasis was put on allowing the conduct of arbitration in
accordance with the expectations of the parties rather than the general rules
which may be applicable in accordance with the laws of the country. The

173 Bengal regulation of 1772 and 1780, Sir Elijah Imphey’s regulation of 1781,
Regulation of 1784, Regulation XVI of 1793, XVI Regulation VI of 1813,
Regulation XXVII of 1814, Bengal regulation VII of 1822, Bengal regulation IX of
1883, Regulation of Madras, Regulation for Bombay.
174 Act IX of 1840, Act VII of 1859, CPC, Act X of 1877 and Act XIV of 1882, Act I of
1872- Indian Contract Act, Specific Relief Act, 1878, Act IX of 1899- Indian
Arbitration Act, Code of civil procedure, 1908, Indian Arbitration Act, 1940
 AL\J

restriction was only in respect of major defects in the arbitral procedure, the
violation of due process, denial of justice and serious breaches of rules of
international justice. The Model Law emphasizes in no uncertain terms that
international commercial arbitration is an alternative and outside the normal
judicial system.
Most member states adopted the Model Law while enacting law
relating to international commercial arbitration as in India. Some of its broad
features were that for the first time conciliation was adopted as a possible
method of resolution of commercial disputes though in practice it has hardly
worked. It is difficult to pinpoint the reasons why it hasn’t as in several other
countries the counsels for the parties put a great deal of pressure that it is
desirable that the parties to; the dispute settle rather than litigate by way of
arbitration or litigation. Unfortunately it is indeed very rare that Counsel do so
or when they do both the parties accept their recommendation. The preamble
of Arbitration and Conciliation Act clearly states that “in view of the
desirability of uniformity of the law of arbitral procedures and the specific
needs of international commercial arbitration practice” and since the “Model
Law and Rules make significant contribution to the establishment of a unified
legal framework for the fair and efficient settlement of disputes arising in
international commercial relations”, the said Arbitration and Conciliation Act
was passed by the Parliament. The Act is divided into - Part I which deals
with arbitration, Part II provides for enforcement of foreign awards and Part
El is titled as ‘Conciliation’ and Part IV with supplementary provisions. The
drafting of the Act has obviously not received the necessary attention as Part
HI dealing with conciliation should have been right in the beginning as its
failure would lead to arbitration or judicial proceeding by the parties, whereas
it finds a mention at the end in Sections 61 to 81 of Part III of the Act. The
Act also received some sharp rebuke by the Supreme Court when it observed
“it must be stated that the said Act does not appear to be a well drafted
legislation”.175

Bhatia International v. Bulk Trading S.A, (2002) 4 SCC 105; AIR 2002 SC 1432.
The Supreme Court in this case was considering whether part I of the Act will be
applicable to international commercial arbitration or it is meant only for domestic
arbitration. The court held that part I is also applicable to International commercial
arbitration. This interpretation has also opened up a plethora of grounds for
challenging an international arbitration awards.
6.12 Areas of Conflict - Appointment of Arbitrators
In its less than 12 years of operation the 1996 Act has kept the
Supreme Court fairly busy on some serious issues and some not so serious
r
(appointment of the arbitrator). Section 11 deals with the appointment of the
arbitrator by the court when one of the parties refuses to follow the provisions
of the arbitration agreement regarding the conduct of the arbitration
proceedings. The Supreme Court was faced with the issue of the nature of the
appointment of the arbitrator by the court as being judicial or administrative in
nature. This question was first considered by a three Judge bench of the
176
Supreme Court in Konkcm Railway Corporation v. Mehul Construction Co.
when it held that when the Chief Justice of the High Court or the Supreme
Court of India appoints an arbitrator under Section 11 of the Act, it was in
exercise of administrative powers of the Chief Justice. This was found to be
doubtful and a larger five Judge bench in Konkcm Railway v. Rani
Construction Pvt Ltd 177reconsidered the same question and came to the same
conclusion. Three years down the line the said question came to be
reconsidered by a larger Bench of seven Judges in SBP & Co. v. Patel
Engineering Ltd.m which by a majority of six to one held that the power to
appoint an arbitrator under Section 11 is judicial in nature.
This thread bare surgery on this point of law became important as
under the Constitutional scheme of things in India if the exercise of power of
appointment of arbitrator is administrative no further judicial challenge is
possible whereas if it is judicial the same can be challenged either under
Article 226,227 of the Constitution or under Article 136 of the Constitution as
the case may be.179

(2000) 7 SCC 201

(2002) 2 SCC 388
(2005) 8 SCC 618
For view prior to the decision in SBP v. Patel Engineering see Ranbir Krishan,
‘Appointment of arbitration proceedings under the Indian Arbitration and
Conciliation Act, 1996’ Int. A.L.R.2001, 4(3), 90-93. he recommended that the view
then prevalent that the Chief Justice of the High Court or his designate under section
11(6) acts in an administrative capacity and no appeal would lie to Supreme Court of
India under Article 136 of the Constitution. See Ador Sarnia Pvt Ltd v. Peekay
Holding Ltd. (1999) 3 Arb.L.R. 185 SC; (1999) 8 SCC 572; AIR 1999 SC 3246,
Konkan Railway Corp Ltd. v. Mehul Constructions Co. (2002) 3 Arb.L.R. 162 SC;
(2000) 7 SCC 201; see also a five judge Bench’s unanimous decision in Konkan
Railway Corp Ltd. v. Rani Constructions Pvt. Ltd. AIR 2002 SC 778; (2002) 2 SCC
388. The author concluded that Ador Sarnia, Mehul Construction require
reconsideration as they ignored section 37(3) of the Act.
 The Indian judicial system vis a vis arbitration was and is proactive
which is least desirable for promoting international trade and commerce. The
Supreme Court has by this decision created another ground for challenging the
arbitral process. It can be safely said that uncertainty of the outcome of a
dispute is some thing which does not need to be promoted.
6.13 Public Polity — and Judicial Intervention
Rule 34 of the UNCITRAL Model Rules provides grounds for setting
aside an arbitral award and one of the grounds is that where the award is in
conflict with the public policy of the state180 . This provision was inserted in
the Model Rules after a great deal of debate and the words ’’public policy” of
the State were preferred in view of its universal acceptance. Public policy is
always an unsafe and treacherous ground for legal decision 181 and it has also
been described as ‘a very unruly horse, and when you get astride it you never
know where it will carry you’182. More recently the British courts held that in
order to be contrary to the public policy, the impugned conduct should involve
more than inadvertence and should, save very exceptionally, involve
something that could be described as unconscionable or reprehensible.183
There is no disagreement to the fact that public policy is capable of a
wide or a narrow construction. In USA the courts have preferred the narrow
interpretation largely with a view to give finality to an international
commercial award and to discourage parties from challenging the same before
judicial forums 184, .The United States believes in its commitment to more than
one hundred other countries that American courts will enforce arbitration
clauses in international commercial agreements. The goal of the New York
convention is “to encourage the recognition and enforcement of commercial
arbitration agreements in international contracts and to unify the standards by

Rule 34(2)(b)(ii) of UNCITRAL

Janson v. Dreifontein Consolidated Gold Mims Ltd, 1902 AC 482,500 : (1900-03)
All ER REP 426 : 87 LT 372 (HL)
Richardson v. Mellish ,(1824) 2 Bing 229,252 :130 ER 294
Culfet Chartering v. Carousel Shipping Co Ltd [2001]1 All ER (Comm) 398 and
Profilati Italia Sri v. Painewebber Inc [2001]1 All ER (Comm) 1062 applied
Mitsubishi Motors Corp v. Soler Chrysler- Plymouth, Inc (1985)473 US614, 87 L Ed
2d 444. The Public Policy defense to recognition and enforcement of foreign arbitral
awards, 7 Cal .W.Int’L.J.228 (1977) (“ the court have given the public policy defense
so narrow a construction that it now must be characterized as a defense without
meaningful definition”.
which agreements to arbitrate are observed....in signatory countries” 185. the
American Supreme Court referring to the obligations under the international
transaction that “ a contractual provision specifying in advance the forum in
which disputes shall be litigated and the law to be applied is, therefore, an
almost indispensable precondition to the achievement of the orderliness and
predictability essential to any international business transaction.”186.
6.14 Public Policy and the Indian Experience
Rule 34 as mentioned above was verbatim reproduced in Section 34 of
the Arbitration and Conciliation Act, 1996. The words ‘public policy’ finds
place in two other provisions 187. The term public policy in context of
arbitration proceedings came to be examined by the Supreme Court in
Renusagar Power Plant Co. v. General Electric Co.188 by three Judge Bench.
The short facts in this case were that Renusagar had entered into a contract
with General Electric Co., a company incorporated under the laws of State of
New York in USA under which it had to supply equipment and power services
for setting up a thermal power plant. The said contract was approved by the
Government of India. The total price of the contract was US$13,195,000. All
the items were to be delivered in 15 months from the effective date and the
completion of the plant was to be done within 30 months. The contract
provided for payment in installments and also required execution of
unconditional negotiable promissory notes for all the installments. The
contract contained an arbitration clause which provides that any disagreement
arising out of or related to the contract which the parties are unable to resolve
by sincere negotiation shall be finally settled in accordance with the
Arbitration Rules of the International Chamber of Commerce. Each party
would appoint one arbitrator and the Court of Arbitration of the ICC would
appoint a third arbitrator (Article XVII). It was also agreed that the rights and
obligations of the parties under the contract shall be governed in all respects
by the laws of the State of New York, USA (Article XIX-A). It seems there

185 Vimar Segurosy Reaseguros, S.A. v. M/Vsty reefer, 515 U.S 528, 538 (1995)
186 Scherk, 417 U.S. at 516
187 34(2)(b): Application for setting aside arbitral award (b) The court finds thati. the
subject - is matter of the dispute is not capable of settlement by arbitration under the
, law for the time being in force, or
ii. The arbitral award is in conflict with the public policy of India.
188 AIR 1994 SC 860; 1994 Supp (1) 644.
was some delay on the part of General Electric in adhering to the time
schedule for supply of equipment and consequently Renusagar rescheduled the
payment installments and certain installments were unpaid under due dates.
Renusagar approached the Government of India for approval of the revised
schedule regarding the payment of installments which was not approved by
the Government of India and Renusagar was asked to take necessary action to
make the payment of the past installments immediately. At this stage General
Electric initiated arbitration proceedings before the Arbitration Court of ICC.
Both the sides filed civil suits in Bombay and Calcutta High Courts the details
are not mentioned as they are not relevant to the arbitration proceedings. The
arbitration proceedings resulted in an award in favour of General Electric and
it also awarded compensatory damages and computed the same by applying
the average prime rate to the amount withheld. The award came to be
challenged on several grounds and one of them was that it was contrary to
public policy of India, the reason being the order relating to the payment of
interest in particular in foreign exchange would be contrary to the Foreign
Exchange Regulation Act. This case arose in particular under Section 7 of the
Foreign Awards (Recognition and Enforcement) Act, 1961. The Supreme
Court was faced with the question whether to give the words ‘public policy’ a
narrow or a broad meaning. The Supreme Court referred to Albert Jan van den
Berg in his treatise The New York Arbitration Convention of 1958: Towards a
uniform Judicial Interpretation, has expressed his view:
“It is generally accepted interpretation of the Convention that the court
before which the enforcement of the foreign award is sought may not review
the merits of the award. The main reason is that the exhaustive list of grounds
for refusal of enforcement enumerated in Article V does not include a mistake
in fact or law by the arbitrator. Furthermore, under the Convention the task of
the enforcement judge is a limited one. The control exercised by him is limited
to verifying whether an objection of a respondent on the basis of the grounds
for refusal of Article V(l) is justified and whether the enforcement of the
award would violate the public policy of the law of his country. This limitation
must be seen in the light of the principle of international commercial
arbitration that a national court should not interfere with the substance of
arbitration.”189
Similarly Alan Redfem and Martin Hunter have said:
“The New York Convention does not permit any review on the
merits of an award to which the Convention applies and in this
respect, therefore, differs from the provisions of some systems
of national law governing the challenge of an award, where an
appeal to the courts on points of law may be permitted.”190
While observing that “from the very nature of things, the expressions ‘public
policy’, ‘opposed to public policy’ or ‘contrary to public policy’ are incapable
of precise definition” this court laid down:
“Public policy.. .connotes some matter which concerns the public good and the
public interest. The concept of what is for the public good or in the public
interest or what would be injurious or harmful to the public good or public
interest has varied from time to time.”191
The need for applying the touchstone of public policy was explained by Sir
William Holdsworth:
“in fact, a body of law like the common law, which has grown
up gradually with growth of the nation, necessarily acquires
some fixed principles, and if it is to maintain these principles it
must be able, on the ground of public policy or some other like
ground, to suppress practices which, under ever new disguises,
seek to weaken or negative them.” (History of English Law,
Vol. Ill, p.55) since the doctrine of public policy is somewhat
open-textured and flexible, Judges in England have shown
certain degree of reluctance to invoke it in domestic law. There
are two conflicting positions which are referred as the ‘narrow
view’ and the ‘broad view’. According to the narrow view
courts cannot create new heads of public policy whereas the

Albert Jan van den Berg in his treatise The New York Arbitration Convention of
1958: Towards a uniform Judicial Interpretation, p. 269
Redfem and Hunter, Law and Practice of International Commercial Arbitration, 2nd
Edn., p.461
191
Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986)3 SCC
156
 broad view countenances judicial law making in this areas 192.
Similar is the trend of decision in India. In Gherulal Parakh v.
Mahadeodas Maiya193 the Supreme Court favored the narrow
view when it said:
“....though the heads are not closed and though theoretically it may be
permissible to evolve a new head under exceptional circumstances of a
changing world, it is admissible in the interest of stability of society not to
make any attempt to discover new heads in these heads”
After referring to the various decisions of the English, and American
courts and quoting classic textbooks on international commercial arbitration
the Supreme Court went on to very rightly give narrow interpretation to the
words public policy and held that
1. the payment of interest on interest (compound interest),
2. possibility of violation of FERA,
3. payment of damages,
4. possibility of unjust enrichment by General Electric the above did not
amount to or was not contrary to the public policy of India.
The Supreme Court concluded that “it is obvious that since the Act is
calculated and designed to sub-serve the cause of facilitating international
trade and promotion thereof by providing for speedy settlement of disputes
arising in such trade through arbitration, any expression or phrase occurring
therein should receive, consisting with its literal and grammatical sense, a
liberal construction.”
Renusagar thus was very correctly decided, when it took a narrow view
of the word ‘public policy’ thus leaving little scope of judicial interference in
arbitration proceedings and the final determination of awards. It considered
the laws in UK194, USA195 and France196 before coming to this conclusion.
The next in line of cases decided by Supreme Court on the
interpretation of the words ‘public policy’ is Oil and Natural Gas Corporation

192 1959 Supp 2 SCR 406: AIR 1959 SC 781

193 Chitty on Contracts, 26th Ed., Vol.I, para 1133, p.685-686
194 Chitty on Contracts, 26th Ed., Vol.I, para 1133, p.685-686
195 Parsons & Whittemore Overseas Co. Inc. v. Societe Generala De L'lndustrie Du
Papier (Rakta) and Bank ofAmerica, 508 F.2d 969 (1974), p.456-457
196 Redfem and Hunter, Law and Practice International Commercial Arbitration, 2nd
Edn.., p.445.
Ltd. v. Saw Pipes Ltd.197. The short facts are that ONGC ordered pipes from
the respondent on certain terms and conditions and for dispute resolution it
also'had an arbitration clause. Disputes arose as the respondent was unable to
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conform to the time schedule prescribed for supplies due to the strike of the
workers in Europe for almost two months. Respondent informed these facts .to
ONGC which in turn replied that damages as per the contract would have to be
paid. The respondent thereafter supplied the pipes and ONGC deducted a
large sum from the bill on account of delay without there being any
adjudication or determination by a third party. The matter was eventually
referred to arbitration and an order was passed in favor of the respondents. The
same was challenged before a single Judge of High Court which dismissed the
petition. A further challenge before a division bench was also negated. An
appeal to the Supreme Court under Article 136 (Special Leave Petition) came
to be heard by two Judges who allowed the appeal and set aside the award.
This judgment has come to be severely criticized 198 and in this writer’s view
very rightly so. Some of the features were however not noted by any of the
writers and the same are a being pointed out below:
1. The Judges first went down to lay the law and then narrated the facts of
the case, which is unusual and very rarely done.
2. the Judges referred to various judgments which were totally unrelated
to arbitration law like M.V. Elisabeth v. Harwan Investment &
Trading (P) Ltd199 which was a case dealing with admiralty
jurisdiction, Dhannalalv. Kalawatibai 200this was a case dealing with a
landlord tenant problem
3. Central Inland Water Transport Corp. Ltd v. Brojo Nath
Ganguly?0lvfhich is an oft quoted judgment on public policy but relates
to labour laws in which the services of an employee were terminated
without following due process. The Court however seems to have

ONGC v. Saw Pipes Ltd., AIR 2003 SC 2629; (2003) 5 SCC 705.
Kachwaha, Sumeet, ‘The Indian Arbitration Law : Towards a New Jurisprudence’,
Int. A.L.R. 2007, 10(1), 13-17, Gaya, Javed, ‘Judicial Ambush of Arbitration in
India’, L.Q.R.2004, 120 (OCT), 571-574, Hilmer, Sarah, ‘Did Arbitration Fail India
or Did India Fail Arbitration’, Int. A.L.R. 2007,10(2), 33-37
199
1993 Supp (2) SCC 433.
200
(2002) 6 SCC 16.
201
(1986) 3 SCC 556, para 25
 missed out some very apt lines of the judgment which are -
“The story of mankind is punctuated by progress and retrogression. Empires
have risen and crashed into dust of history. Civilizations have flourished,
reached their peak and passed away. In the year 1625, Carew, C.J., while
delivering the opinion of the House of Lords in Re the Earldom of Oxford 202,
in a dispute relating to the descent of that Earldom said:
.......and yet time hath his revolution, there must be a period
and an end of all temporal things, finis rerum, an end of names
and dignities, and whatsoever is terrene.....
The cycle of change and experiment, rise and fall, growth and decay,
and of progress and retrogression recurs endlessly in the history of man and
the history of civilization. T.S. Eliot in the First Chorus from “The Rock” said:
• Perpetual revolution of configured stars,
• Perpetual recurrence of determined seasons,
• World of spring and autumn, birth and dying;
The endless cycle of idea and action, Endless invention, endless
experiment. The law exists to serve the needs of the society which is governed
by it. If the law is to play its allotted role of serving the needs of the society, it
must reflect the ideas and ideologies of that society. It must keep time with the
heartbeats of the society and with the needs and aspirations of the people. As
the society changes, the law cannot remain immutable. The early nineteenth
century essayist and wit, Sydney Smith, said: “When I hear any man talk of an
unalterable law, I am convinced that he is an unalterable fool.” The law must,
therefore, in a changing society march in tune with the changed ideas and
ideologies. Legislatures are, however, not best fitted for the role of adapting
law to the necessities of the time, for the legislative process is too slow and the
Legislatures often divided by politics, slowed down by periodic elections and
over burdened with myriad and other legislative activities. A constitutional
document is even less suited to this task, for the philosophy and the ideologies
underlying it must of necessity be expressed in broad and general terms and
the process of amending a Constitution is too cumbersome and time
consuming to meet the immediate needs. This task must, therefore, of

202
(1625) W Jo 96,101: (1626) 82 ER 50,53
necessity fall upon the courts because the courts can by the process of judicial
interpretation adapt the law to suit the needs of the society.”
Yet another two decisions referred to and relied upon by the Court
were A. Schroeder Music Publishing Co. Ltd v. Macaulay 203, which was a
pure contract dispute and it referred to Kedar Nath Motani v. Prdhlad Rai204
(Land dispute), Murlidhar Agarwal v. State of UP 20S. These two cases do deal
with public policy but one fails to appreciate how with such diverse fact
situation the same could be used to determine whether an award in
international commercial arbitration determined is in accordance with the
UNCITRAL Model Law or not. It then goes on to consider Renusagar (failing
to mention or notice that it is a three Bench unanimous decision and binding
on them) and the argument advanced was that Renusagar considered the
question of execution of an award finally determined while in the case before
them the question was for setting aside a finally determined award and finally
hold “in our view in addition to narrower meaning to the term public policy in
Renusagar case it is required to be held that the award could be set aside if it is
patently illegal.” It then considers the facts of the case, an instance of ‘having
found the boots now lets find the feet’ and like an accountant concluded that
ONGC was justified in deducting the amount and the arbitrators were wrong
in awarding the amount with interest and set aside the award. It failed to notice
that the Court in Renusagar was aware of the two possible interpretations of
“public policy”, namely narrow and wide meanings and had after considering
the pros and cons of the two, preferred the narrower meaning. The Court also
did not consider the fact that the delay caused in supplying the pipes was for
reasons beyond the control of Renusagar namly a prolonged strike of steel
workers in Europe. It shows total lack of judicial discipline, not following a
binding principle of law which if a lower Court had done would have been
regarded as contempt. As pointed out above the Court referred to judgments
on all sorts of subjects but does not apply well known principles of
interpretation namely refer to the Preamble and Statement of Objects and
Reasons of the Act. It does not consider the fact that the parties have adopted

203
(1974)1 WLR1308
204
AIR 1960 SC 213
205
(1974) 2 SCC 472
and accepted another mode of resolution of their dispute, namely arbitration,
and so be it.
Three years later the Supreme Court had an opportunity to refer the
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matter to a larger Bench which it did not though it accepted that ONGC had
invited considerable adverse comments.206 ONGC’s decision came up for
some sharp criticism. In an article entitled ‘Judicial Ambush of Arbitration in
India’, 207it was observed that arbitration is not for faint hearted in India.
Quoting from Jam Paulson it observed that the courts of India have revealed
an alarming propensity to exercise authority in a manner contrary to the
legitimate expectation of the international community. According to him “the
judgment can be relied upon to encourage further litigation by the aggrieved
party to arbitration, and in doing so diminish the benefits of arbitration as a
mode of dispute resolution. A parallel can be drawn from the current state of
the Indian Supreme Court. The special jurisdiction of the supreme court under
Article 32 and 136 of the Constitution has been diluted with excessive
litigation reducing what was intended be a constitutional court to an appellate
/■

body, leaving over thousand of matter everywhere without giving any proper
clarity as to the state of law at any given time”208. This is extremely apt and
accurate except for his reference to Article 32 the Supreme Court invariably
directs the parties to first go to the high court under article 226 & 227 of the
constitution,
Markanda in the preface to his book has criticized the ONGC judgment
by saying that the “Supreme Court has vastly enlarged the scope of challenge
to awards - much more that what was available under Act of 1940. It is thus
contrary to the very spirit of the act of 1996” 209.
ONGC has impinged upon arbitration as an effective method of dispute
resolution and threatened “certain key goods of arbitration namely those of
speed and efficiency” and it is no longer sure that when an award is rendered it
will be final210.

Venture Global Engineering v. Satyam Computer Services Ltd., IR 2008 SC 1061

(April)
Javed Gaya, Judicial ambush of arbitration in India L.Q.R.1004,120 (OCT), 571-574
Murlidhar Aggarwal v. State ofU.P., (1974) 2 SCC 472.
P.C.Markanda, Law relating to Arbitration and Conciliation, preface to sixth edition,
2006
Nadia Darwazeh, “Set Aside and Enforcement Proceedings: The 1996 Indian
Arbitration Act Under Threat”, Int.A.L.R. 2004,p 81-87.
 It has been very rightly concluded that “the court must take the law
forward based on the trust and confidence in the arbitral system” and the
“Indian judiciary....” contain the interventionist role it has assumed for itself
211

The last words on the subject were well said by the eminent advocate
and jurist F. S. Nariman “the division bench of the two judge has altered the
entire road map of arbitration law and put the clock back to where we started
under the old 1940 Act”212
6.15 Extention of ‘Patent Illegality” to International Commercial
Arbitration
There is one other recent judgment 213 which needs to be noted. The
short facts were that the two i.e. the appellant and respondent entered into a
joint venture agreement and by another agreement formed a joint venture
company in which both of them had equal shareholding. As the appellant, was
likely to get into bankruptcy proceedings the respondent applied for arbitration
under the second agreement in Michigan as per the arbitration clause. An
award was passed to transfer the shares in the new joint venture company in
favor of the respondent and enforcement proceedings were initiated in
Michigan. At this stage the appellant filed a civil suit in a district court in India
and obtained a stay order against the transfer of shares on the ground that the
award was in violation of public policy namely it being contrary to FEMA
(Foreign Exchange Management Act) and the Companies Act the respondent
though an Indian company and fully aware of the court’s order continued its
efforts to enforce the award in Michigan. The respondent filed an appeal
before the Secunderabad High Court. The High Court dismissed the appeal
holding that the award could not be challenge even it were against the public
policy and in contravention of the statutory provision. The appellant filed a
special leave petition against the said order before Supreme Court of India.
Based on the earlier judgment in Bhatia International214, Supreme Court held
that it is open to the parties to exclude the application of the provisions of part

211 Sumeet Kachwaha, The Indian Arbitration Law: towards a new jurisprudence, Int.
A.L.R. 2007, pl3-17
212 Transcript of the speech delivered at the inaugural session of “legal reform in
infrastructure” New Delhi, May 2,2003
213 Venture Global Engineering v. Satyam Computer Services Ltd. AIR 2008 SC 1061
214 Bhatia International v. Bulk Trading SA, (2002) 4 SCC 105.
I by express and implied agreement, failing which the whole part one would
apply. Further it held that to apply section 34 to foreign award would not be in
consistent with section 48 of the 1996 Act, any other provision of part II and
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that the judgment-debtor could cannot be deprived of his right under section
34 to evoke the public policy of India, to set aside the award. Thus, the
extended definition of public policy cannot be bypassed by taking the award to
foreign country for enforcement.
Very strangely this case makes no reference to Renusagar and goes on
to very heavily rely on ONGC as if it was a binding precedent. The challenge
to the award on the ground of public policy was that it would offend
provisions of Foreign Exchange Management Act which are far more lenient
than the Foreign Exchange Regulation Act (which in Renusagar Supreme
Court held would not amount to a breach of public policy). Another aspect
which needs to be noted is that the question of whether there was or wasn’t a
breach of public policy was sent back to the Trial Court for determination. The
consequences of such a course of action are frightening. Here was a party
which had an award in its favor under international arbitration conventions
and it tried to enforce the same in the forum agreed upon. They are now being
sent back to the District Court that it shall dispose of the same within six
months from the date of the copy of the judgment. Our own practical
experience shows that this rarely happens. As all orders passed in trial
proceedings are liable to be challenged either in revision or in appeal and a
final order is in any way liable to be challenged in a statutory appeal and a
further second appeal on question of law and finally a Special Leave petition
to the Supreme Court.
The experience of the Indian Courts in deciding civil cases is pathetic,
slow and rarely determined finally in even one decade. The courts should at
least keep in mind when interfering with international commercial arbitration
that such uncertainty and delay would not promote international trade and
business as a foreign party is entitled to a quick disposal, least expensive, and
with an element of finality. The Courts should keep in mind two factors - one
that the statement of Object and Reasons has set out clearly stated (to
minimize the supervisory role of courts in arbitral process) 2I5and every time
the courts interfere with a final arbitral award they are doing exactly the
opposite. Secondly, setting aside a finally determined award does not
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necessarily imply that the view taken by the Judges is superior tot hat of the
Arbitrators. One must never forget that both are human beings. Another factor
one should keep in mind is that the award of the Arbitrator should be
considered binding as both the parties had agreed to resolve the disputes by
him.
Sadly no judgment refers to Section 5 of the Arbitration and
Conciliation Act, 1996 and naturally its impact on judicial interpretation does
not come to surface 216.
Satyam’s judgment is most unfortunate in its application of the
doctrine of “patent illegality” to an international commercial arbitration award.
If one reads between the lines, the court was peeved by the fact that the
respondent which is an Indian Company knew about the injunction granted by
an Indian court and yet went ahead with the enforcement of the award in
Michigan. How dare you do that, we will show you is what the court has tried
to do. How one wishes it had looked at its repercussion on the Indian
international trade and commerce.217
Wolfgang Koehling writing on the ‘Economic Consequence of a Weak
Judiciary: Insight from India’ has concluded that ‘the data indicate that a weak
judiciary has a negative effect on economic and social development, which
leads to (i) lower per capita income; (ii) higher poverty rates; (iii) lower
private economic activity (iv) poorer public infrastructure; and, (v) higher
crime rates and more industrial riots. The results are robust and the
correlations are strong and negative. Its correlation is strong and negative. In
addition, through a forecasting simulation I have shown that an increase in

See generally Markanda opt cited on p.8 and p.9 Also see clause 4(v) of the
statement of objects and reasons, of the Arbitration and Conciliation Act, 1996 which
reads “to minimize the supervisory role of courts in the arbitral process”.
Indian Arbitration and Conciliation Act, 1996, Section 5: “Extent of Judicial
Interpretation - Notwithstanding anything contained in any other law for the time
being enforce, in matters governed by this part, no judicial authority shall intervene
except where so provided in this part.”
Supra FN 40.
predictability and a speeder judiciary substantially increase the per capita
income growth rate” 218
6.f6 Intervention in Interim Stages
r
The recent decision of the Supreme Court in Shin-Etsu Chemical Co.
Ltd v. Aksh Optifibre Ltd?19 is a very fine example to study whether the court
is promoting international arbitration as a method of resolving disputes or not.
The facts of this case are: The appellants and the respondent entered into an
agreement which contained an arbitration clause which reads as follows -
All disputes arising out of in relation to this agreement which cannot
be related by mutual accord shall be settling by arbitration in Tokyo, Japan in
accordance with the rule of conciliation and arbitration of International
Chamber of Commerce. The award of arbitration shall be final and binding
upon the parties” 220.
The material facts set out in the judgment are very brief as it seems
there was no controversy for examination of the legal question involved. There
was a long term sale and purchase agreement between the Japanese company
and an Indian company and consequent upon some issue Japanese company
terminated the agreement. The agreement provided for it shall be governed
and construed and interpreted under laws of Japan. The Indian company filed
a suit for “cancellation of the agreement on the ground that it was
unconscionable, unfair and unreasonable and against public policy and the
same was entered into under undue influence and therefore void ab initio and
incapable of performance and cannot be given affect to.” The Japanese
company made an application in the suit praying that the Indian company be
directed to submit to arbitration which had been initiated in Tokyo, Japan. The
application was filed under section 8. The trial court gave an order in favor of
the Japanese company. This order was challenged before the High Court in its
supervisory jurisdiction under the Constitution, which remands the matter
back to trial court as it found that the court had not considered the legal
provisions properly.

http://econpapers.rerec.org/paper/wpawuwple/0212001.htm
(2005) 7 SCC 234
(2005) 7 SCC 234
 The Japanese company however preferred to appeal to the Supreme
Court by way of Special Leave Petition. The Supreme Court found the core
issue to be “whether the finding of the court....... that the arbitration
r
agreement....... is or is not “null and void, inoperative or incapable of being
performed” should be final expression of the view of the court or should it be
a prima facie opinion formed without a full fledged trial?”
The civil courts in India are so heavily burdened; the backlog in some
courts could run into hundred of thousands of cases. So a practice has
developed of making interim application during the pendency of the suit and
courts decide these applications on a prima facie view of the matter. These
applications are normally for injunction, appointment of court receiver, and
temporary attachment during the pendency of the suit etc. Any orders from
these applications are appealable to the High Court and it is not uncommon for
the Supreme Court to interfere with such orders (as in this case). Needless to
say the outcome of the interim application is crucial if not critical as the final
hearing and disposal of the suit could take not less than a decade and
sometimes two decades not to mention appeals, revising etc to a higher court.
In Shin-Etsu Chemicals Ltd. v. Aksh Optifibre Ltd?21 (it was a 2-1
majority) minority view was that the application challenging the validity of the
agreement should be decided on merits, final and binding and not prima facie.
This should be done by giving parties opportunity to file documents and
affidavits by way of evidence. However no oral evidence would be examined.
The majority view was that the trial court should take prima facie view of the
matter, and “the court must afford full opportunities to the parties to lead
whatever documentary or oral evidence they want to lead....... like a trial of a
preliminary issue.”
On analysing above, both the views are wrong, against the underlying
principle of “least judicial interference in international commercial arbitration”
(see sections 5, 8, 48(l)(a) and 50) and more so since in this case the Japanese
law would decide the validity of the agreement. The minority view of the final
finding of validity of agreement on grounds of undue influence, unfair,
unconscionable etc on the basis of affidavit evidence (where one party will

221
(2005) 7 SCC 234
make allegations and the other will deny it) is beyond comprehension, and
makes mockery of process of judicial decision making. The majority view is
to' record evidence but take only a prime facie view (why when the parties
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have been given full opportunity) is still worse - pray when does the trial court
take a final decision after 20 years when the suit comes up for hearing. The
court had a simple solution of directing the parties before the Arbitrator for
decision on all the questions and allow a full fledged challenge after the award
was made.
6.17 Conclusion
The question raised what should be the role of courts when dealing
with international commercial agreements and finally determined awards in
accordance with the arbitration clause therein. It can hardly be debated that the
role should be minimal as is set out in the UNCITRAL Model Law on which
the Arbitration and Conciliation Act, 1996 is based. The Act is barely twelve
years old and what is the Indian experience is obvious by the fact that the
court’s interference is not minimal but the courts are hyper active. The
Supreme Court has been time and again making the mistake of not relying
upon the provisions of UNCITRAL Model Law though it must be said in their
defense that “public policy” is one of the grounds on which the final award
can be se aside under Rule 34 of the UNCITRAL Model Law (Section 34 of
the Arbitration and Conciliation Act, 1996 is verbatim reproduction of this
Rule). ONGC and Satyam are clear examples of the Supreme Court ignoring
this principle. They continue to fall in the trap of looking backwards (frequent
references to the cases under the 1940 Act or continuing to follow the
underlined unwritten principle in the 1940 Act) that judicial interference is
desirable and necessary which has been totally given a go by under the new
Act and in particular in international commercial arbitration awards. The
continuous following of the old jurisprudence will certainly not give a boost to
the Indian international trade and business which is the underlying principle
and reasoning of the new Act. Another wrong approach of the Supreme Court
as pointed out in Satyam and Shin-Etsu Chemicals of remanding the matter
back to the trial court is not healthy. In fact the Supreme Court should follow
its principle that it should not interfere with interim orders under Article 136
of the Indian Constitution. It will be well advised to follow that with more
stringently in international Commercial arbitration and awards. The Supreme
Court has also forgotten that the 1996 Act was intended as an alternative
dispute resolution method as it was both less time consuming and was
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effective and for promoting international trade and commerce and by

continuously interfering in such matters these purposes are defeated.
6.18 International Commercial Arbitration -Vital Issues in Indian
Scenario
Enterprises, the word over, now conduct business on a dramatically
more on international scale. The growth of the world economies is directly
connected with the millions of commercial contracts, which are becoming
more international in character owing to global integration. Centuries ago
international traders learned that business disputes were inevitable. Disputes
arose over failure to ship or deliver goods, over the quality of merchandise,
over interpretations of terms of agreement which set forth the risks of seller
and buyer etc., The scientific and technical revolution of modem times has not
only increased radically the exchange of goods between different regions of
the world but also enhanced the quality and character of these disputes. The
importance of arbitration as a means of resolution of business disputes has
been increasing with the advent of globalization and liberalization of trade-in­
goods, services and ideas during the last decade. The General Assembly of the
United Nations has recommended that all countries give due consideration to
the model law on International Commercial Arbitration and Conciliation Rules
adopted by the United Nations Commission on International Trade
Law(UNCITRAL). The said Model Law and Rules make significant
contribution to the establishment of a united arbitral legal frame work and
procedure for the fair and efficient settlement of disputes arising in
international commercial relations. The Government of India has also enacted
the Arbitration and Conciliation Act, 1996 to consolidate and amend the law
relating to domestic arbitration, international commercial arbitration and
enforcement of foreign arbitral awards as also to define the law relating to
conciliation and for matter connected therewith or incidental thereto. WHAT
IS INTERNATIONAL COMMERCIAL ARBITRATION? Sec.2(l)(f) of the
Arbitration and Conciliation Act, 1996 defines ‘International Commercial
Arbitration’ to mean an “arbitration relating to dispute arising out of legal
relationships, whether contractual or not, considered as commercial under the
law in India where at least one of the parties is: i. An individual who is a
national of, or habitually resident in, any country other than India; or ii. A
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body corporate which is incorporated in any country other than India, or; iii. A
company or an association or a body of individuals whose central management
and control is exercised in any country other than India; or iv. The
Government of a foreign country.” The definition has two elements -
conceptual and physical. The conceptual element is that the legal relationship
between the parties should be commercial in nature. The physical element is
that one party should be a foreigner - a foreign national or resident, or a
foreign body corporation, or a company whose central management or control
is in foreign hands. Simply stated, in international commercial arbitration
disputes arise out of legal relationship, whether contractual or not, which are
considered commercial under the law in force in India. The term ‘commercial’
is given a wide interpretation so as to cover matters arising out of all
relationships, which are of commercial nature. For example, sale or purchase
of goods is a classic case of commercial transaction. Secondly, at least one of
the parties involved in the dispute is resident or domiciled outside India or is
managed and controlled from abroad. CONCEPT OF COMMERCIALITY In
1958, forty five countries, including India and the United States, participated
in the U.N conference that culminated in the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, 1958(the New York
Convention).
The Convention encourages the recognition and enforcement of
international arbitration agreements and awards. Article 1(3) of the
Convention provides that a State may declare that it will apply the Convention
‘only’ to differences arising out of legal relationships, whether contractual or
not, which are considered as ‘commercial under the national law’ of the State.
The rationale behind this ‘declaration’ i.e., states can restrict applicability of
convention, probably derives from the recognition of the legal regimes in civil
law countries, where a distinction exists between “commercial” and “non­
commercial” contracts. A commercial contract can broadly be understood to
be a contract made by merchants and traders in the ordinary course of their
business. These commercial contracts are governed by a special code of
commercial law. In many civil law countries, only dispute arising out of
commercial contracts can be submitted to. arbitration. The first aspect should
be-noted in this context is that of the 137 states that are signatories to the
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Convention, only 46 adopted the ‘commercial reservation’ with respect to the
Convention. Interestingly, many common law countries like India, the U.S.A.,
Canada etc., have also adopted this reservation, despite the fact that there is no
general distinction between “commercial” and “non-commercial” contracts as
understood in civil law countries. One possible reason why these countries
kept the “commercial reservation” could be because they were concerned
about issues relating to sovereign immunity. Thus, the effect of the reservation
was that each country could restrict the application of the Convention to only
those matters which were considered to be commercial under the law of that
particular country. Since different countries defined and interpreted the word
“commercial” differently, it gave rise to many problems. Hence, during the
drafting of the UNCITRAL Model Law, when there was a renewed exercise to
bring about unification and harmonization of ICA law across the world, there
was an attempt to provide a definition of the word “commercial”. However,
this did not prove to be an easy task. Countries like Mexico specifically
wanted foreign direct investments and financial transactions entered by the
government to be excluded as they are considered to be part of the public debt.
On the other hand, countries like Germany and the United States specifically
wanted a clause to expressly state that the nature of the transaction i.e.,
whether it was commercial of not would not depend on the nature and
character of the parties to the transaction. Thus, for example the fact that a
person who is not a merchant had entered into an otherwise commercial
transaction would have no effect on the eommerciality of the transaction.
These differing view points among various countries were almost
irreconcilable and hence as a compromise, it was decided to annexe a footnote
to Article-1 of the Model Law to aid in the interpretation of the term. As a
result, Footnote-2 to Articlel(l) of the Model Law reads: “the term
‘commercial’ should be given a wide interpretation so as to cover matters
arising from all relationships of a commercial nature, whether contractual or
not. Relationships of a commercial nature include, but are not limited to, the
following transactions: any trade transaction for the supply or exchange of
goods or services; distribution agreement; commercial representation or
agency; factoring; leasing; construction of works; consulting; engineering;
licensing; investment; financing; banking; insurance; exploitation agreement
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or concession; joint venture and other forms of industrial or business co­
operation; carriage of goods or passengers by air, sea, rail or road.” However,
uncertainty remains about the legal effect of such a footnote. Many countries
do not adopt this kind of legislative technique. While Footnote 1 of the Model
Law states that Article Headings are to be used for reference purposes only
and are not to be used for purposes of interpretation, there is no mention of the
use of the Footnotes themselves. A problem also might arise where a national
legislation although based on the Model Law specifically makes a requirement
of the transaction being “commercial” under the law of that nation. In such a
situation it is unclear what effect the footnote might have. This is because the
Footnote might include certain transaction to be commercial which are not
considered as commercial under the nation’s legal system. An example of such
a national legislation is the Indian Act. It makes a specific reference to the
Model Law and is almost an identical replica of the Model Law. It however
contains a requirement that the dispute need to be commercial under the law in
force in India. The relevant portion of the Indian law is as follows:
“Sec.2(l)(f): “International Commercial Arbitration” means an arbitration
relating to disputes arising out of legal relationship, whether contractual or
not, considered as commercial under the law in force in India and ...” Some
other aspects of the Footnote in the Model Law are: v The list is illustrative
and not exhaustive, v The legislative intent behind the footnote is to construe
the term ‘commercial5 in a broad manner, v Although the Footnote has not
referred to it, transactions for supply of electrical energy, transport of liquefied
gas via pipeline and non-transactions such as claims of damages arising out of
a commercial context are meant to be covered, v Labour or employment
disputes and ordinary consumer claims are not meant to be covered. It can
reasonably inferred that the Model Law progresses from the Convention, as
the Convention had no guidance on this issue whatsoever and left it
completely at each nation’s discretion. However, it should be noted that the
interpretation of the word “commercial” still remains important. This is
because India and some other countries have retained the commercial
reservation even after enacting a new law on the lines of the Model Law. The
convention might still govern a number of cases despite the fact that the
countries have enacted the Model Law. Moreover as compared to the
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Convention, only 48 states have enacted legislations based on the Model Law.
COMMERCIAL1TY- BY INDIAN COURTS The Indian Judiciary has mostly
interpreted the term ‘commercial’ quite broadly.
In Josef Meisaner GMBR & Co., Vs. Kanoria Chemicals & Industries
Ltd.222, and KamaniEngg.Corp.Ltd., Vs. Societe De Traction Et D’Electricity
Sociate Anonyme223 the High Court of Calcutta and High Court of Bombay
held that the transactions involving in supply of technical know-how were non
commercial. So also, in Indian Organic Chemicals Ltd., Vs. Chemtex Fibres
Inc.224, the Bombay High Court held that technology transfer agreement was
considered to be non-commercial. It was further observed that, it would be
necessary to prove that it was commercial by virtue of a provision of law or
operative legal principle in force in India. In Renusagar Power Co.Ltd., Vs.
General Electric Co?25, the Supreme Court held that the Foreign Awards
(Recognition and Enforcement) Act, 1961 (which contain a similar provision
with respect to commerciality) was meant to facilitate international trade and
hence the expression should receive a liberal construction. In the case of RM
Investments & Tradiing Co. Pvt. Ltd., Vs. Boing Co.226, the Supreme Court
held that the term commercial should be considered broadly and the Model
Law can be referred to. In this case, the court held that consulting was a
commercial activity and commercial need not always imply trade. Many
courts dealing with the arbitration law have cited the famous case of Atiabari
Tea Co. Ltd., Vs. State ofAssam227 in which the Hon’ble Supreme Court held
that, “Trade and Commerce do not mean merely traffic in goods, i.e.,
exchange of commodities for money or other commodities. In the
complexities of modem conditions, in their wide sweep are included carriage
of persons and goods by road, rail, air and waterways, building contracts
banking, insurance, transactions in the stock exchanges and forward markets,

222 AIR 1985 Calcutta 45

223 A.I.R. 1965 Bomll4
224 A.I.R. 1978 Bom 106
225 (1984) 4 SCC 679
226 AIR 1994 SC 1136
227 A.I.R. 1961 SC 232
 ZJZ

communication of information, supply of energy, postal and telegraphic

services and many more activities - too numerous to be exhaustively
^numerated - which may be called commercial intercourse”. With respect to
commerciality, given the aims of international commercial arbitration law and
the current era of globalization, a broad construction should be adopted. While
it is impossible to exhaustively list each and every commercial relationship, an
express amendment to the Indian Act in the main body of the statute, similar
to Footnote 2 of the Model Law, would help in bringing about the clarity and
certainty. It would be advantageous for the global business if courts globally
give liberal construction to the word ‘commercial’. Only then, the
international commercial arbitration would be able to sub-serve the cause of
facilitating international trade and promotion thereof by providing for speedy
settlement of dispute arising in such trade through arbitration. Otherwise, the
world business community would be busy interpreting the word ‘commercial’
and in the process defeating the very purpose of the commercial arbitration.
INTERNATIONAL COMMERCIAL ARBITRATION - INTERIM
MEASURES. Sec.9 of the Arbitration and Conciliation Act which
corresponds to Article-9 of the UNCITRAL model Law, inter alia provides
that a party may, before or during arbitral proceedings, or at any time after the
making of the arbitral award, apply to a court for interim relief. Sec.9 of the
Act reads as under:- “Interim measures, etc., by court.- A party may, before or
during arbitral proceedings or at any time after the making of the arbitral
award but before it is enforced in accordance with Section-36, apply to a
Court:-
i) For the appointment of a guardian for a minor or a person of unsound mind
for the purpose of arbitral proceedings; or
ii) For an interim measure of protection in respect of any of the following
matters, namely
a. The preservation, interim custody or sale of any goods which are the
subject matter of arbitration agreement;
b. Securing the amount in dispute in the arbitration
c. The detention, preservation or inspection of any property or thing
which is the subject matter of the dispute in arbitration, or as to which
any question may arise therein and authorizing for any of the aforesaid
 purposes any person to enter upon any land or building in the
possession of any party, or authorizing any samples to be taken or any
observation to be made, or experiment to be tried, which may be
necessary or expedient for the purpose of obtaining full information or
evidence.
d. Interim injunction or the appointment of a receiver.
e. Such other interim measure of protection as may appear to the Court
to be just and convenient. And the Court shall have the same power for
making orders as it has for the purpose of, an in relation to, any
proceedings before it. In Marriat International Inc Vs. Anasal Hotels
Ltd.228, it was held that the Courts in India have no power to issue
interim orders under S.9 of the Arbitration and Conciliation Act, 1996
in the matter when the arbitration is held at a place outside India. In
Bhatia International Vs. Bulk Trading S.A. & another229, the parties
agreed that as per the rules of International Chambers of Commerce
the arbitration would be held in Paris. One of the parties, however,
filed an application in the Court at Indore in India seeking an
injunction restraining the Indian party not to alienate its property or
assets. An objection was taken that the international commercial
arbitration was taking place out of India and as the provisions of Part-I
of the Arbitration and Conciliation Act, 1996 are not applicable and
Section-9 of the Act, which authorizes a court to give interim relief is
applicable where the arbitration is in India and not outside. This type
of argument had been accepted by the High Court of Orissa, Bombay,
Madras, Delhi and Culcutta which held that Part-I of the Act, in which
Section 9 provided for interim relief, is not applicable where the
arbitration took place outside India. The Supreme Court over ruled the
Judgments of the High Courts and has held as under: -
1) The very object of the Act was to establish a uniform legal
framework for the fair and efficient settlement of disputes
arising in international commercial arbitration.

228
2000(3) Arb.L.R., 369
229
(2002) 4 SCC 105
2) The Act is a consolidated and integrated Act. General
provisions applicable to all types of arbitration such as those
contained in Sections 9 & 17 are, therefore, not repeated in
every Chapter and Part of the Act. Such general provisions
apply to all Chapters and Parts unless it is expressly stated that
they are not to apply or where separate provisions have been
made in a particular Chapter or Part.
3) The words ‘this Act” used in Section 1(1) mean the entire
Act. This shows that the entire Act, including Part-I applies to
the whole of India. The Act applies compulsorily to all
arbitrations held in India and all proceedings relating thereto.
Parties, can however, deviate only to the extent permissible by
the derogable provisions of Part-I.
4) Provisions of Part-I are equally applicable to international
commercial arbitrations held outside India, unless any or all
such provisions have been excluded by agreement between the
parties, expressly or by implication. Therefore, unless Section-9
has been excluded, the parties may seek interim relief from a
court as defined in Section 2(l)(e).
5) The definition of ‘International Commercial Arbitration”
under Section 2(1 )(f) makes no distinction between
international commercial arbitration held in India or outside
India. An international commercial arbitration may be held in a
country, which is a signatory to either the New York
Convention or the Geneva Convention, hereinafter referred to
as ‘convention countries’. An international commercial
arbitration may be held in a non-convention country. The Act
nowhere provides that its provisions are not to apply to
international commercial arbitration, which takes place in a
non-convention country. Admittedly, Part-II only applies to
arbitrations which take place in a convention country.
6) Article-23 of the I.C.C. Rules permits parties to apply to a
competent judicial authority for interim or conservatory
measures. Therefore, where arbitration is to be carried out as
 per rules of the ICC, the parties can seek relief under Section-9
of the Act.
7) The definition of ‘court’ under section 2(1 )(e) of the Act
does not provide that the courts in India will not have
jurisdiction if an international commercial arbitration takes
place outside India. Thus, courts in India would have
jurisdiction even in respect of an international commercial
arbitration, v An award made in an international commercial
arbitration held in a non-convention country would also be
considered as a ‘domestic award’.
8) Court must identify the interpretation, which represents the
true intention of the legislature, always bearing in mind, that a
court should not try to legislate. While deciding what is the true
meaning and intention of the legislature, court must consider
the consequences that would result from the various alternative
constructions. Court must reject constructions, which lead to
hardship, serious inconvenience, injustice, absurdity, anomaly
or uncertainty and friction in the very system that the statute
concerned is supposed to regulate and preference should be
given to that construction which avoids such results.
9) Judicial art of interpretation and appraisal is imbued with
creativity as well as realism because interpretation implies a
degree of discretion and choice, regardless of the conventional
principle that judges are to expound, not legislate.
The Apex Court concluded that, “Indian Court could grant interim
relief in respect of international commercial arbitration which was held out of
India. The Judgment has settled the law that Indian Courts can grant interim
relief, even if arbitration is held outside India, for the reason that the property
is situated in India and there is need to safeguard the interest of the parties.
The Bill amends Section-9 to restructure and regulate the powers of the court
for interim measures. It also provides that a party who obtains an interim order
does not take undue advantage. The court can pass restitution order, depending
on the circumstances. It also provides that where the place of arbitration under
Part-I of the existing Act is in India, whether in regard to arbitration between
Indian Parties or an international arbitration in India, the Indian Law will
apply. There was an occasion for the Andhra Pradesh High Court to deal with
the consideration of application for grant of interim measures by Indian Courts
in the ease of International Commercial Arbitration held outside India. The
facts of the case in National Aluminium Company Ltd., Vs. Gerald Metis SA,
Switzerland230. The facts in the case are that, NALCO is a producer of
Aluminum. NALCO entered into an agreement with the Transworld
(Aluminum) Ltd., on 30-11-1998 for sale of 79,000 MT of sandy metallurgical
grade collimated alumina for a period of five years from 1999 to 2003. The
port at Visakhapatnam was identified as a loading port for loading the cargo
for transhipment. In between, Gerald Motors entered into the shoe of
Transworld (Aluminum) Ltd. Thereafter a Deed of Novation was entered into
between NALCO and Gerald Motors on 5-12-2002. There was a dispute
between the parties. There was an arbitration clause in the agreement and the
venue of Arbitration shall be London, England and the provisions of English
Law to apply to the proceedings. In this background, Gerald Metals moved an
application u/s 9 of the Arbitration and Conciliation Act, 1996 before the
District Judge, Visakhapatnam, who passed the interim order in LA.No.
187/2004 in O.P.No.21/2004. Aggrieved by the said interim order, NALCO
carried the matter in appeal in C.M.A. 258/2004 challenging that the District
Judge had no jurisdiction to entertain an application u/s 9 of the Arbitration
and Conciliation Act, 1996. Taking into consideration the ratio laid down in
the Bhatia International Case, High Court of Andhra Pradesh held that the
Section-9 of the Arbitration and Conciliation Act applicable to the proceedings
in International Commercial Arbitration where the venue of the Arbitration is
even outside India. CHOICE OF LAW/APPLICABLE LAW (PROPER LAW
OF CONTRACT) An international commercial arbitration involves a foreign
element which gives rise to questions as to the choice of law and the
jurisdiction of the courts. Unlike in the case of persons belonging to the same
legal system, contractual relationships between persons belonging to different
legal systems may give rise to various private international law questions such
as the identity of the applicable law and the competent forum. The term

230
2004(3) ALT 749
‘proper law of contract’ means the system of law by which the parties
intended the contract to be governed. International commercial Arbitration
“applicable law” assumes significance. Section 28(l)(b) of the Arbitration and
Conciliation Act, states as under: “28. Rules applicable to substance of
dispute:-
(1) Where the place of arbitration is situate in India,
(a) in an Arbitration other than an international
commercial arbitration, the arbitral tribunal shall decide
the dispute submitted to arbitration in accordance with
the substantive law for the time being in force in India;-
(b) In international commercial arbitration:-
(i) The arbitral tribunal shall decide the dispute
in accordance with the rules of law designated
by the parties as applicable to the substance of
the dispute.
(ii) any designation by the parties of the law or
legal system of a given country shall be
construed, unless otherwise expressed, as
directly referring to the substantive law of that
country and not to its conflict of law rules;
(iii) failing any designation of the law under
clause(a) by the parties, the arbitral tribunal shall
apply the rules of law it considers to be
appropriate given all the circumstances
surrounding the dispute.
Simply stated, it means, that the parties may decide the law applicable to the
substance of the dispute. Second, the designated law or legal system by the
parties of a given country is to be construed to be the substantive law of that
country. Third, if the parties fail to designate any law, the arbitral tribunal
shall apply the rules of law it considers appropriate. In that event, the Courts
endeavour to impute an intention by identifying the legal system with which
the transaction has its closest and most real connection. When the intention of
the parties to a contract with regard to law governing the contract is not
expressed in words, their intention is to be inferred from the terms and nature
of the contract, and from the general circumstances of the case, and such
inferred intention determines the proper law of the contract. The true intention
of the parties, in the absence of an express selection, has to be discovered by
applying sound ideas of business, convenience and sense to the language of
the contract itself. According to Diecy, the proper law of contract will be the
law of the country where it is made. However, where the contract is made in
one country and it is to be performed in another country, the proper law may
be presumed to be the law of the country where it is to be performed.
The following are the general principles being adopted in international
commercial arbitration. LEXI ARBITRI. The Lex Loci Arbitri is the Latin
term for “law of the place where arbitration is to take place” in the conflict of
laws. The Lex Loci Arbitri is an element in the choice of law rules applied to
cases testing the validity of the contract. In the absence of selection of a proper
law by the parties, the courts will usually take the nomination of a forum as a
‘connecting factor’ i.e., a fact that links a case to a specific geographical
location. For these purposes, one of the forums that may be selected is
arbitration. Hence, the fact that the parties have chosen a state as the place of
arbitration is an indication that the parties may have intended the local law to
apply. This indication will be weighed alongside other connecting factors. The
state that has the largest number of connecting factors will be the lex causae
applied to resolve the dispute between the parties. If there is a tie, the
connecting factors which relate to performance will be given a greater
weighting. LEX SITUS: Lex Situs, the Latin term, refers to the law of the
place in which the property is situated for the purpose of the conflict of laws.
For example, the property may subject to tax pursuant to the law of the place
of the property or by virtue of the domicile of its owner. This choice of law
rule applied to identify the lex cause for cases involving title to, or the
possession and use of the property. In law, there are two types of property, v
REAL PROPERTY: Real property is land or any permanent feature or
structure above or below the surface. Ownership of the land is an aspect of the
system of real property or realty in common law systems, v PERSONAL
PROPERTY: All other property other than the real property is considered as
personal property in common law systems and movables in civil law systems
and the conflict of laws, and this property is either tangible or intangible i.e., it
is either physical property that can be touched like a computer, or it is an
enforceable right like a patent or other form of intellectual property. Land has
traditionally represented one of the most important and cultural and economic
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forms of wealth in society. Because of this historical significance, it is vital

that any judgment affecting title to or the use of the land should be enforceable
with the minimum difficulty. Hence, compliance with the lex situs should
produce a judgment in rem. LEXI LOCI CONTRACTUS: Lex Loci
Contractus, the Latin term, means, “law of the land where the contract is
made” in the conflict of laws. Lex Loci Contractus is one of the possible
choice of law rules applied to cases testing the validity of the contract. LEXI
LOCI SOLUTIONIS Lex Loci Solutionis, the Latin term, means “law of the
place where relevant performance occurs’ in the conflict of laws. Lex Loci
Solutionis is one of the possible choice of law rules applied to cases testing the
validity of the contract and in tort cases.
LEX PATRIAE: Lex Patriae the Latin term, means “the law of the
nationality” in the conflict of laws which is the system of public law applied to
any suit where there is a choice to be made between several possibly relevant
laws and a different result will be achieved depending on which law is
selected. The lex patriae is a civil law choice of law rule to test the status and
capacity of the parties to the case. For example, suppose that a person with a
nationality in Denmark decides to take a ‘round the world’ trip. It would be
inconvenient if this person’s legal status and capacities changed every time he
or she entered a new state, e.g., that he or she might be considered an infant or
an adult, married or free to marry, bankrupt or creditworthy, etc., depending
upon the nature of the laws of the place where he or she happened to be.
Assuming that there are no public policy issues raised under the relevant lex
fori, the lex patriae should apply to define all major issues and so produce an
in rem outcome no matter where the case might be litigated.
LEXI LOCI DELICTI COMMISSI This Latin term means, “law of the place
where the tort was committed” in the conflict of laws. Lex Loci Delicti
Commission is one of the possible choice of law rules applied to cases arising
from an alleged tort. LEX DOMICILII: This Latin term means, “law of the
domicile” in the conflict of laws. The lex domicilii is a common law choice of
law rule applied to cases testing the status and capacity of the parties to the
case. In Brij Raj Marwari Vs. Anant Prasad 231 it was held that, whether the
proper law is the law lex loci contractus or lex loci solution is a matter of
presumption. There are, however accepted rules for determining which of
them is applicable, where the parties have expressed themselves, the intention
so expressed overrides the presumption. But when there is no express intention
that the rule to apply is to infer from the intention of the terms of the contract
and the circumstances of the case. In Armour Shipping Co.Ltd., Vs. Caisse
Algerienic 232 , it has been held by the Court of Appeal in England that the
proper law to be applicable in respect of the contract is that which applied at
the time when it was made. In such a case the choice of the parties to the
forum of the suit in London haws no relevance when the proper law of bond
did not have any connection with England courts and for enforcement of such
bond no English court could entertain jurisdiction. In the matter of discharge
of contracts the proper law of contract does not depend upon the debtor’s
place or residence even though a contractual debt will be normally regarded as
suit at the debtor’s place of residence. But the discharge of the debt whether
by performance or through other means does not depend upon lex suits of the
debt, but to the proper law of conflict from which it arises. In United Railways
of the Havana and Regal Warehouse Ltd.233,, it was held that, in the matter of
novation of contract the proper law of contract does not depend on lex situs,
but depends probably on the law of the country with which the substitution of
the new debtor by novation is most closely connected. In Hamlic & Co., Vs.
Tallisker Distillery234, it has been made clear that the fact that one aspect of
the contract is to be governed by the law of one country does not necessarily
mean that the law is to be proper law of contract as a whole. Hence, the proper
law of contract can vary in different aspects of the contract, namely discharge
of contract, novation of contract, performance of contract etc.
In international trade the contract some times specifies a foreign
country in which the disputes will be adjudicated. Cheshire on Private
International Law has observed as follows: “As distinct from the expressed or
implied choice of proper law the express choice of a foreign tribunal is not

231 A.I.R. 1942 Cal 309,

232 . (1982) 1 ALL ER 498
233 (1962) 2 ALL ER 214
234 (1894) AC 202
absolutely binding in accordance with the excellent principles that contractual
undertaking should be honoured, there is indeed a prima facie rule that as
action brought in England in difference of an agreement to submit to
r
arbitration abroad will be stayed, but nevertheless the court has discretion in
the matter and where parties are amenable to the jurisdiction, as for example,
the defendant is person of England, it will allow the English action to continue
if it considers that the ends of justice will be better served by a trial in this
country” The Bombay High Court has also agreed with the above principle in
the case of Hazi Abdulla Vs. G.RStamp235, where the contract provided for
adjudication by arbitration in England the court stayed the action in India so
that the parties are compelled to go for arbitration in England. Contrary to the
above, the Division Bengh of Calcutta High Court in the case of Lyods
Triestinco Societa Vs. Laxmi Narain Ram Nivas236, held that where on a
consideration of the circumstances the court came to the conclusion that it
would be unjust or unfair to stay the suit, it would refuse to grant a stay. It was
also observed that there is no doubt that the proper law of the contract in this
case was the Italian Law, but the parties could not oust the jurisdiction of the
Indian court by agreement whether executed in India or outside. A Division
Bench of our Hon’ble High Court of Andhra Pradesh in the case of Black Sea
Steamship Vs. Union of India231, observed as follows: “It is open to the court
to consider the balance of convenience, the interest of justice and the
circumstances when it decided the question of jurisdiction of the court in the
light of the clause in the agreement between the parties chosen one of the
several courts or forums which were available to them. Indeed such a
consideration is essential in the interest of international trade and commerce
for the better relationship between the countries and the people of the world”.
The Supreme Court has also reiterated the above principles in the case of
United Commercial Bank Vs. Bank of India233, In National Thermal Power
Company Vs. Siniger Company239, the parties have agreed that that in the
event of any dispute between the parties, the arbitration would be in

A.I.R. 1924 Bom 381

A.I.R. 1959 Cal 669
A.I.R. 1976 A.P. 103
A.I.R. 1981 SC 1428.
AIR 1993 SC 908
accordance with ICC rules. In this case, regarding the applicable, Supreme
Court of India observed, “An international commercial arbitration necessarily
involves a foreign element giving rise to questions as to the choice of law and
the jurisdiction of courts. Unlike in the case of persons belonging to the same
legal system, contractual relationships between persons belonging to different
legal system may give rise to various private international law questions such
as the identity of the applicable law and the competent forum. An award
rendered in the territory of a foreign State may be regarded as a domestic
award in India where it is sought to be enforced by reason of Indian law being
the proper law governing the arbitration agreement in terms of which the
award was made.
The Foreign Awards Act, 1961, incorporating the New York
Convention, leaves no room for bout on the point” Judgments referred above,
makes it clear that the aspect of jurisdiction in any contract is not what is
agreed by the parties alone but circumstances of each case, novation of
contract, performance etc., However once the parties are amenable to the
jurisdiction of a particular court, it is open to the court in that particular
country though the parties agree to have their action adjudicated in a different
country to entertain the cause and adjudicate upon it considering that the ends
of justice will be better served. FORUM SHOPPING: Forum shopping is the
informal name given to the practice adopted by some plaintiffs to get their
legal case heard in the court thought most likely to provide a favourable
judgment, or by some defendants who seek to have the case moved to a
different court. This is an increasingly serious problem because it balances the
concept of party autonomy against broader concerns of justice and fairness.
Some states have become notorious as plaintiff-friendly jurisdictions and so
have become litigation magnets even though there is little or no connection
between the legal issues and the jurisdiction in which they are to be litigated.
For example, through its expansive acceptance of personal jurisdiction, the
United States has attracted foreign litigants wishing to take advantage of the
more generous awards of damages and alimony, the extensive discovery rules
and, most importantly, the contingent fee system. The standard preliminary
issue in every case, whether purely domestic or including a foreign element, is
the test to determine whether the court of first instance has jurisdiction and, if
it has, whether it is most appropriate forum. The principle expressed as forum
non conveniens is the Latin for “inconvenient forum”, and a judge may
decline to hear, or to transfer, a case if the court selected is not the most
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convenient for the case. Every state drafts rules to determine where a lawsuit
must be filed and some times, a centralized but distant location may be
inconvenient for the parties or witnesses. So long as the case is domestic, there
can be no cause for complaint. The state has no brief to make often specialized
resources available in the parties home towns. But, if the courts in two states
would accept civil jurisdiction, the plaintiff must be able to show that justice
requires the trial to take place in the plaintiffs proposed forum. This is a
significant issue because the plaintiff might have selected one forum because:
It is believed that the defendant or key witnesses will not be able to travel to
the state selected. There may be problems of cost, physical health or visa/entry
permit eligibility. This strategy would enable the plaintiff to win the case by
default.
The court or judge or body of law or rules of evidence are most likely
to favour the plaintiffs case. Hence, there are two different forms of action
that may arise: v The defendant may appear in the forum court to argue that it
should reject the jurisdiction; tactical considerations will determine whether
there should also be an application to transfer the case to an allegedly more
convenient forum; or v If a case has been filed in another jurisdiction, the
defendant may seek injunctive relief against the plaintiff in a second state,
requiring that the plaintiff discontinue the action in the first forum and instead
submit the case for hearing in this allegedly more convenient forum. In both
cases, the first step is to determine whether the first instance forum is the
natural forum, i.e., the forum that has the closest connection with the action
and the parties. This requires the court to determine whether there is another
forum that is clearly more appropriate. The basis of the test is the Doctrine of
Comity, i.e., the immediate forum court must respect the right of a foreign
court to assume jurisdiction. The Canadian case of Braintech Inc., Vs.
Kostiuk240 considered the effect of the internet in relation to defamation and
recognized that if every jurisdiction in the world which has access to the

240
- (1999) B.C.J. No.622
internet took jurisdiction, it would have a crippling effect on the freedom of
expression. Domestic courts therefore test the results arising from the choice
ofthe venue against criteria such as “oppressive” or “vexatious”. Because the
court is balancing practical issues of justice, there may be injustice to the
defendant if the plaintiff is allowed to pursue the immediate proceedings, but
also of injustice to the plaintiff if he or she is not allowed to do so. So, as a
general rule, the court will not grant an application to transfer or an injunction
if, by doing so, it will unjustly deprive the plaintiff of advantages in the first
instance forum. Nevertheless, there should be a real and substantial connection
between the venue and the cause(s) of action to provide some protection
against defendants from being pursued in jurisdictions having little or no
connection with the transaction or the parties. But, if the alternative venue
court concludes that the first instance court has assumed jurisdiction either
without considering whether there was an alternative forum or reached an
obviously unreasonable conclusion on the merits, an injunction would be a
reasonable response. Equally, if the foreign court has reasonably concluded
that there was no more convenient forum, Comity requires the second venue
court to respect that decision and the application for an injunction and transfer
should be dismissed. In cases where there is a sound argument to be made in
favour of both courts, the court in the second venue should not arbitrarily
claim a better right to decide for both jurisdictions. In most cases, it will be
obvious whether the foreign court has acted on principles similar to those
applied in the second venue court, and if so, the second venue court should
refuse the relief. In Brace Transport Corporation of Monoria Bermuda Vs.
Orient Middle East Lines Ltd.241,
Supreme Court of India held that, “a party seeking to enforce an award
in an international commercial arbitration may have a choice of country in
which to do so. In other words the party may be able to go for forum shopping,
however, it depends upon the location of the losing party. Since the purpose of
enforcement proceedings is to ensure compliance with an award by the legal
attachment or seizure of the defaulting party’s assets. These legal proceedings
must be taken in the State or States in which the property or other assets of the

241
A.I.R. 1994 SC 1715
losing party are located”. RECOURSE AGAINST ARBITRAL AWARD -
PUBLIC POLICY An arbitral award can be challenged in a court by way of an
application. According to Sub Section (2) of Section-2, ‘Court” means the
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principal Civil Court of original jurisdiction in a district and includes the High
Court in exercise of its ordinary original civil jurisdiction on the subject matter
of the arbitration. As far as grounds of challenging an arbitration award are
concerned, Sub-Section (2) of Sec.34 specifies the grounds on which an
arbitral award may be set aside by the court. An arbitration award can be
challenged, inter alia, if it is in conflict with the public policy of India. The
concept of “public policy” in international commercial arbitration, therefore,
assumes importance. PUBLIC POLICY An arbitration award is invalid f it is
in conflict with the public policy of India. If a contract is made contrary to
public policy, its performance cannot be enforced either at law or in equity.
However, neither the Arbitration and Conciliation Act, 1996 or the Indian
Contract Act defines the expression “public policy” or “opposed to public
policy” or “contrary to public policy”. Obviously, from the very nature of
things, the expressions are incapable of precise definition. Public policy is not
the policy of a particular Government. It connotes some matter, which
concerns the public good or public interest. The concept of what is for the
public good or in the public interest or what would be injurious or harmful to
the public good or the public interest varies from time to time. Courts have
laid down principles as to what is opposed to public policy. Lord Davey in
Janson Vs. Driefontein Consolidated Mines Ltd?42, has said, “Public policy is
always an unsafe and treacherous ground for legal decision”. Justice Burrough
in Richardson Vs. Mellish 243, described public policy as, “a very unruly horse,
and when once you get astride it you never know where it will carry you.”
Lord Dennning MR in Enderby Town Footbal Club Ltd., Vs. Football
Association Ltd.,244, said, “With a good man in the saddle, the unruly horse
can be kept in control. It can jump over obstacles.” In 42 Harvard Law Rev.76,
Winfield defined Public Policy as, “a principle of judicial legislation or
interpretation founded on the current needs of the community”.

242
(1902) AC 484
243
(1824) 2 Bing 229
244
(1971) Ch.591
 In Central Inland Water transport Corporation Vs. Brojo Nath
Ganguly 245, Supreme Court of India defined public policy as, “Public Policy
connotes some matter which concerns the public good and the public interest.
The concept of what is for the public good or in the public interest or what
would be injuries or harmful to the public good or the public interest has
varied from time to time STATUTORY FRAME WORK:- v Article-2(2)(e) of
the Geneva Convention provides:- to obtain such recognition or enforcement,
it shall further be necessary that the recognition or enforcement of the award is
not contrary to the public policy or to the principles of the law of the country
in which it is sought to be relief upon, v In Section-7(l) of the Act, 1937, it is
provided that, in order that enforcement of the foreign award must not be
contrary to the public policy or the law of India, v According to Sec.57(l)(e)
of the Act, 1996, in order that a foreign award may be enforceable, it shall be
necessary that the enforcement of the award is not contrary to public policy or
the law of India, v Article-V(2)(b) of the New York Convention provides that,
recognition and enforcement of an arbitral award may also be refused if the
competent authority in the country where recognition and enforcement is
sought finds that the recognition and enforcement would be contrary to the
public policy of that country. Sec-7(l)(b)(ii) of the Act 1961, provides that:- a
foreign award may not be enforced under this Act if the Court dealing with the
case is satisfied that the enforcement of the award will be contrary to public
policy. See.48(2)(b) of the Act, 1996 provides that:- Enforcement of an
arbitral award may also be refused if the Court finds that the enforcement of
the Award would be contrary to the public policy of India. The question before
the Supreme Court of India in Renusagar Power Co., Vs. General Electric
Co246., it has held whether award of interest on interest or compound interest
was contrary to public policy of India. Supreme Court observed that the award
of interest on damages or interest on interest, that is, compound interest is not
regarded as being against public policy in England, Australia and Canada.
However, in India, there is no absolute bar on the award of interest by way of
damages and it would be permissible to do so if there is a usage or contract,
express or implied, or any provision of law to justify the award of such

245
A.LR. 1986 SC 1571
246
in AIR 1994 SC 860
interest. Payment of compound interest on loans advanced by banks and
financial institutions are provided in contracts for such loans and law enforces
tho"Se contracts. It was held that award of interest on interest cannot be said to
be against the public policy.
The Supreme Court laid down the following principles while
interpreting Sec.7(l)(b)(ii) of the Foreign Awards(Recognition and
Enforcement) Act, 1961. v The use of the words “public policy” instead of
“public policy of India” in Sec.7(l)(b)(ii) of he Foreign Awards (Recognition
and Enforcement) Act, 1961, did not mean that the court was free to examine
the validity of the award from the point of view whether it violated the Public
Policy of the country in which it was rendered or the country whose law
governed the contract; v In- order to attract the bar of Public Policy, the
enforcement of award must involve something more than mere violation of the
law of India; v The phrase Public Policy must be construed in the sense in
which doctrine of public policy is applied in the field of private international
law; v The enforcement of a foreign award would be contrary to Public Policy,
if would be contrary to, (i) fundamental policy of the Indian law; and (ii) the
interest of India; and (iii) justice and morality Where enforcement of a foreign
arbitration award is sought, the court, if satisfied that the enforcement thereof
would be contrary to the public policy of India, may decline to enforce the
award. It is quite clear from the language in the section that the expression
‘public policy’ refers to ‘public policy of India’ and, therefore, the recourse
against domestic arbitral award and enforcement of a foreign arbitral award in
India cannot be questioned on the ground that it is contrary to the public policy
of any other country.
In the above Judgment, the Supreme Court of India, further observed
that, “it is the fundamental principle of law that orders of the Courts must be
complied with for any action which involves disregard for such orders would
adversely affect the administration of Justice and would be destructive of the
rule of law and would be contrary to public policy” In Smitha Conductors Vs.
Euro Alloy Ltd,247, the Supreme Court of India held that the expression,
“public policy” means Public Policy of India and the recognition and

247
2001(3) Arb.L.R., 175
enforcement of foreign award cannot be questioned on the ground that it is
contrary to the foreign country public policy. The Supreme Court of India, in
the case of ONGC Ltd., Vs. SAW Pipes Ltd.24*, has deliberated whether the
Court would have jurisdiction under S.34 of the Act to set aside an award
passed by the arbitral tribunal which is patently illegal or in contravention of
the provisions of the Act or any other substantive law governing the parties or
is against the terms of the contract. While expanding the scope of the word
“Public Policy” to include “patent illegality”, the Supreme Court observed
that, the phrase ‘public policy of India’ is not defined under the Act and the
term is required to be given meaning in the context and also considering the
purpose of the section and the scheme of the Act. The concept of public policy
is considered to be vague, susceptible to narrow or wider meaning depending
upon the context in which it is used. Lacking the precedent, the court has to
give its meaning in the light and principles underlying the Arbitration Act,
Contract and the constitutional provisions. The Supreme Court observed that,
“it is thus, clear that the principles governing public policy must be and are
capable, on proper occasion, of expansion or modification. Practices, which
were considered perfectly normal at one time, have to-day become obnoxious
and oppressive to public conscience. If there is no head of public policy,
which covers a case, then the court must in consonance with public conscience
and in keeping with public good and public interest declare such practice to be
opposed to public policy. Above all, in deciding any case, which may not be
covered by authority, our courts have before them the beacon light of the
preamble to the Constitution. Lacking precedent, the court can always be
guided by the light and the principles underlying the fundamental rights and
the directive principles enshrined in our constitution” The Apex Court after
analysis of the ambit and scope of court’s jurisdiction under S.34 of the Act as
aforesaid, has held as under:
The jurisdiction or the power of the arbitral tribunal is prescribed under
the Act and if the award is de hors the said provisions, it would be, on the face
of it, illegal. The decision of the Tribunal must be within the bounds of its
jurisdiction conferred under the Act or the contract. In exercising jurisdiction,

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the arbitral tribunal cannot act in breach of some provision of substantive law
or the provisions of the Arbitration and Conciliation Act, 1996. v Reading
Section 34 conjointly with other provisions of the Arbitration and Conciliation
Act, 1996, it appears that the legislative intent could not be that if the award is
in contravention of the provisions of the Arbitration and Conciliation Act,
1996, still, it could not be set aside by the Court. If it were held that such
award could not be interfered, it would be contrary to basic concept ofjustice.
If the arbitral tribunal has not followed the mandatory procedure prescribed
under the Act, it would mean that it has acted beyond its jurisdiction and
thereby the award would be patently illegal which could be set-aside u/s 34 of
the Act. v Procedural law cannot fail to provide relief when substantive law
gives the right since there cannot be any wrong without a remedy, v If the
award was contrary to the substantive provisions of law or the provisions of
the Act, or against the terms of the contract, it would be patently illegal, which
could be interfered under S.34., However, such failure should be patent
affecting rights of the parties, v For achieving the object of speedier disposal
of the dispute, justice in accordance with law cannot be sacrificed. Giving
limited jurisdiction to the Court for having finality to the award and resolving
the dispute by speedier method would be much more frustrated by permitting
patently illegal award to operate. Patently illegal award is required to be set at
naught, otherwise, it would promote injustice. The phrase, ‘Public Policy of
India” used in S.34 in context is required to be given a wider meaning. It can
be stated that, the concept of public policy connotes some matter, which
concerns public good and the public interest. What is public good or in public
interest or what would be injuries or harmful to the public good or public
interest has varied from time to time. However, the award, which is on the
face of it, patently in violation of statutory provisions, cannot be said to be in
public interest. Such award/Judgment/decision is likely to adversely affect the
administration of justice. Hence, in addition to narrower meaning given to the
term ‘public policy’ in Renusagar’s case, the Apex Court held that, the award
could 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. In addition, if it is patently
illegal. Illegality must go to the root of the matter and if the illegality is trivial
in nature, it cannot be held that award is against the public policy. Award
could also be set aside if it is so unfair and unreasonable that it shocks the
conscience of the Court. Such award is opposed to public policy and it
required to be adjudged void.
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SOVEREIGN IMMUNITY Generally speaking it is the doctrine that the

sovereign or Government cannot commit a legal wrong and is immune from
civil suit or criminal prosecution. The doctrine of sovereign immunity is based
on international law. It is one of the rules of international law that a sovereign
state should not be impleaded in the courts of another sovereign state against
its will. Like all the rules of international law, this rule is said to arise out of
the consensus of the civilized nations of the world. All nations agree upon it.
So, it is part of the law of nations. The problem of a State invoking its
immunity as a ground to thwart arbitration on a commercial dispute could
hardly be ignored. True, most of the States which embark on trade activities
are reluctant to raise this protective shield for fear of losing credit. Some in
fact have made a distinction between their acta jure imperii and their acta jure
gestiones allowing jurisdiction to courts in the latter category. But, this
distinction is not universal. There are two theories with regard to sovereign
immunity. The Doctrine of Absolute Immunity: A century ago no sovereign
state engaged in commercial activities. It kept to the traditional functions of a
sovereign - to maintain law and order; to conduct foreign affairs; and to see to
the defence of the country. It was in those days that England with most other
countries adopted the rule of absolute immunity. It was adopted because it was
considered to be the rule of international law at that time. The doctrine of
restrictive immunity: In the last 50 years, there has been a complete
transformation in the functions of a sovereign state. Nearly every country now
engages in commercial activities. It has its departments of state or creates its
own legal entities which may go into the market places of the world. They
charter ships, buy commodities, issues letters of credit etc., This
transformation has changed the rules of international law relating to sovereign
immunity. Many countries have now departed from the rule of absolute
immunity and many of the countries have departed from it that it can no longer
be considered a rule of international law. It has been replaced by the doctrine
of restrictive immunity. This doctrine gives immunity to acts of a
governmental nature, described in Latin as jure imperii, but no immunity to
acts of a commercial nature, jure gestionis. In 1951, Sir Hersch Lauteipacht
showed that, even at that date, many European countries had abandoned the
docMne of absolute immunity and adopted that of restrictive immunity. The
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Supreme Court of the United States of America in Alfred Dunhill of London
Inc., Vs. Republic of Cuba, vide its Judgment Dated: 24th day of May, 1976,
observed that, “...The United States abandoned the absolute theory of
sovereign immunity and embraced the restrictive view under which immunity
in our courts should be granted only with respect to causes of action arising
out of a foreign state’s public or governmental actions and not with respect to
those arising out of its commercial or proprietary actions. In Rahimtoola Vs.
Nizam of Hyderabad (1958) 1 A.C. 379, Lord Denning observed that, “if the
dispute brings into question, for instance, the legislative or international
transactions of a foreign government, or the policy of its executive, the could
should grant immunity if asked to do so because it does offend the dignity of a
foreign sovereign to have the merits of such a dispute convassed in the
domestic courts of another country; but, if the dispute concerns, for instance,
the commercial transactions of a foreign government(whether carried on by its
own departments or agencies or by setting up separate legal entities), and it
arises properly within the territorial jurisdiction of our courts, there is no
ground for granting immunity”.
In Thai-Europe Tapioca Service Ltd., Vs. Government of Pakistanm
Directorate ofAgricultural Supplied1*9, it was observed by Lord Denning that,
“....a foreign sovereign has no immunity when it enters into a commercial
transaction with a trader here and a dispute arises which is properly within the
territorial jurisdiction of our courts. If a foreign government incorporates a
legal entity which buys commodities on the London Market; or if it has a state
department which charters ships on the Baltic Exchange; it thereby enters into
the market places of the world; and international comity requires that it should
abide by the rules of the market.”. Another leading case on the point of
sovereign immunity is Trendtex Corporation Vs. Central Bank of Nizeria, in
which the majority Judges observed that, “The facts in that case are that, (i)
The Central Bank of Nigeria is a Central Bank Modelled on the Bank of

249
- (1975) 1 W.L.R. 1485
England, (ii) It has governmental functions in that it issues legal tender; it
safeguards the international value of the currency; and it acts as banker and
financial adviser to the government; (iii) its affairs are under a great deal of
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government control in that the Federal Executive Council may over rule the
board on monetary and banking policy; (iv) it acts as banker for other banks in
Nigeria and abroad and maintains accounts with other banks. It acts as a
banker for the states within the federation; but has few, if any, private
customers. In these circumstances, I have found it difficult to decide whether
or not the Central Bank of Nigeria should be considered in international law a
department of the Federation of Nigeria, even though it is a separate legal
entity. But, on the while, I do not think it should be. This conclusion would be
enough to decide the case, but I find it so difficult that I prefer to rest my
decision on the ground that there is no immunity in respect of commercial
transactions, even for a government department.” Thus, when a sovereign state
enters into the field of commercial transactions world through its entities are
not entitled to claim immunity of being sued and only when the sovereign
state enters into any transactions of public/sovereign functions, it is entitled to
claim immunity.
Enforcement of Foreign Awards in India enacted its new Arbitration Act based
on the United Nations Commission on International Trade Law Model
Law (UNCITRAL) on International Commercial Arbitration and the
Arbitration Rules of the United Nations Commission on International
Trade Law 1976. The foreign awards which can be enforced in India are as
follows-
a. New York Convention Awards
b. Geneva Convention Awards
In the Venture Global Engineering Vs Satyam Computer Services 250 Limited the
SC bench of Justices Tarun Chatterjee and P Sathasivam said:
“The provisions of Part I of the Act (Arbitration and
Conciliation Act, 1996) would apply to all arbitrations
including international commercial arbitrations and to all
proceedings relating thereto. We further hold that where such

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AIR 2009-SC-5712
 arbitration is held in India, the provisions of Part-I would
compulsorily apply and parties are free to deviate to the
extent permitted by the provisions of Part-I. It is also clear that
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even in the case 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.”
The Supreme Court of India relied heavily on the case law of Bhatia
International Vs. Bulk Trading S.A. & An?'51 , whereby under the provisions
of Part I of the Act, interim relief was available to parties under the general
provisions with respect to the enforcement of a foreign arbitration award in
India, and that Part 1 of the Act was applicable to international commercial
arbitration.
The Court stated that paragraphs 32 and 35 of Bhatia International case
made it clear that the provisions of Part I of the Act would apply to all
arbitrations including international commercial arbitrations and to all
proceeding relating thereto.
The Court held that where such arbitration is held in India, the
provisions of Part lwouldcompulsorily apply and parties were free to deviate
to the extent permitted by the provisions of Parti. The Court further
stated that that even in the case of international commercial arbitrations
held out of India, provisions of Part 1 of the Act would apply unless the parties
by agreement express or implied, excluded all or any of its provisions.
The reason behind such a judgment was that the relief contained
in the award violated certain Indian statutes and was therefore contrary to
Indian public policy pursuant to pursuant to provisions contained in Section 34
of Part I of the Arbitration Act. Part I of Arbitration and Conciliation Act,
1996. The public policy of India has been widely defined in the case of Oil &
Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.252 to include-
1. the fundamental policy of India; or
2. the interests of India; or
3. justice or morality; or

251
(2002) 4 SCC 105
252
(2003) 5 SCC 705
 4. in addition, if it is patently illegal.
6.19 Negative Effect
Indian Arbitration Act is not clear and reliable for the potential foreign
investors as the legislation fails to provide all the provisions in clarity. With
this judgment, they have hold all the provisions of part I enforceable on all the
foreign awards including section 9, which is a wrong provision of law
wherein without moving for arbitral tribunal, either of the parties are
authorised to ask interim stay, which does not give any security. There should
be proper provisions of stay before the arbitral tribunal with specific power
and the power under section 9 should be complied with only after the arbitral
award of the tribunal, which is not so in this case.
With regard to the issue in the instant case, the civil court of
Secundrabad has been allowed to hear the matter, ignoring judgment passed
by the Michigan Court. It does not show a trustful picture, keeping in view the
comity of the foreign judgments by the courts of different jurisdictions. This
judgment gives the Indian courts more authority to review the merits under
Indian law of any arbitration award issued in another country, thus making
the enforceability of international arbitration awards in India more uncertain.
6.20 How far the foreign awards are enforced in India
It is gravely feared if almost all foreign awards are challenged in the
courts, there would be confusion and mistrust in international trade and
commercial contract with Indian companies. It is our understanding that to
overcome this obstacle of court interference only, 1996 Act came into force,
which now with this SC judgment makes the very reason behind formulating
the 1996 Act a failure.
Unless the Indian courts resist the appeal to intervene in arbitrations, it
will always portray a picture of distrust amongst the foreign companies having
any kind of trade relations with India while inculcating an arbitration clause.
Arbitration is considered not only just an attractive option for resolving
disputes, it is also essential to maintaining the integrity of the Indian legal
system and keeping the trust intact in the Indian judicial system. However,
the courts must refrain from intervening in the arbitral process
unnecessarily.
Second, for a country like India, the legal system has to act efficiently
and predictable to make foreign investment an attractive option to foreign
investors. It is no secret that it is costly and time consuming to approach
Indian courts for remedies. Keeping this in mind, when commercial parties
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enter into transactions, they calculate the potential legal costs of enforcing
their rights as the legal system of India lacks in guarantying a speedy and
effective remedy. There is also an added clause of risk that is added to the
cost of the transaction which may deter any foreign investor from entering
into any commercial transaction with and in India. Foreign investors
generally prefer arbitration and avoid Indian courts due to prolonged
delays in litigation.
The new interpretation should be applied effective January 10, 2008
to any new contract incorporated after January 10, 2008, and should not be
applicable to the contracts that have been incorporated the arbitration clause
before January10, 2008 thereby relying on the original Act. Many foreign
companies having relevant business interests in India have relied heavily
upon Indian law based on the Act itself and already opted for Arbitration
procedures. This recent judgment has totally turned over the original
intention of the legislators while enacting the Act, thereby infusing a strong
feeling of insecurity in dealings of foreign companies with their Indian
counterparts.
6.21 Conflict of Laws: An Overview of Enforcement of Foreign
Judgments And Foreign Awards In India
With the advent of globalisation and with India poised as a major
international and global player in the world economy, it is apposite to consider
the law concerning enforcement of foreign judgments in India. This is
primarily enshrined in Section 1325j> of the Code of Civil Procedure, 1908,
which is a rather slender section; despite its brevity in terms of the statute, it

“13. When foreign judgment not conclusive—A foreign judgment shall not be
conclusive as to any matter thereby directly adjudicated upon between the same
parties or between parties under whom they or any of them claim litigating under the
same title except—
(a) where it has not been pronounced by a court of competent jurisdiction;
(b) where it has not been given on the merits of the case;
(c) where it appears on the face of the proceedings to be founded on an incorrect
view of the International Law or a refusal to recognise the law of India in cases in
which such law is applicable;
(d) where the proceedings in which the judgment is obtained are opposed to natural
justice;
(e) where it has been obtained by fraud;
(f) where it sustains a claim founded on breach of any law in force in India.”
has been subjected to the judicial scrutiny of various High Courts and the
Supreme Court of India, through a tapestry of significant case law. The subject
of the present article falls within the ambit of what is considered in law as the
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doctrine of “conflict of laws” or what has often been described as “Private
International Law”. A trenchant exposition of this subject has been eloquently
summarised by J H C Morris, in his classical treatise, The Conflict of Law254
in the following terms: "'The conflict of laws is that part of the private law ofa
particular country which deals with cases having a foreign element. ‘Foreign
element’ simply means a contact with some system of law other than that of
the forum that is the country whose courts are seized ofthe case. " The Code
of Civil Procedure, as its name suggests, governs all aspects of civil
procedure. It is therefore somewhat surprising to find this law ensconced in an
otherwise elaborate statute concerning procedural law. The Supreme Court of
India has held in Sardar Maloji Nar Singh Rao Vs. Sankar Saran,255 that the
rules laid down in Section 13 are rules of substantive law and not merely of
procedure.
6.22 The Relevance of Enforcement of Foreign Judgments and Foreign
Awards
During the course of my legal practice overseas in Dubai between
1982 and 1997, I had the opportunity to examine and handle cases which
pertained to the enforcement of judgments and arbitration awards passed in
different parts of the world; the enforcement having to be done in the
jurisdiction of Dubai, United Arab Emirates. This work galvanised my interest
in the subject and after my return to India in 1997,1 came across a wealth of
case law enunciated by the Supreme Court, which proved to be both
instructive and illuminating. There have been instances when divorce decrees
passed by courts overseas, concerning non resident Indians [NRIs], have been
tested by the courts in India. Further, decrees obtained by banks overseas are
brought for enforcement in the courts in India, particularly in those cases
where NRIs who may have been guarantors for banking facilities abroad, have
left their overseas jurisdictions and returned to India. As India is entrenched in
the global arena, it is therefore a logical sequitur that India’s pivotal role may

254 Morris: The Conflict of Laws’. 5th Edition by David McClean, 2000, London, Sweet
and Maxwell page 2
255 Sardar Maloji Nar Singh Rao vj. Sankar Saran All India Reports 1962 Supreme
. Court 1737 (at page 1741)
pave the way for more judicial precedents being rendered by our courts in the
realm of Private International Law
6.23 Judgments of the Supreme Court Concerning Section 13
Despite the staccato nature of Section 13, some of the Supreme
Court’s finest decisions on Private International Law have been rendered in
the context of this section. A judgment of a foreign court to be conclusive
between the parties, it must be a judgment pronounced by a court of competent
jurisdiction.256 Such a judgment must be by a court, competent both by the law
of the State which has constituted it and in an international sense, it must have
directly adjudicated upon the “matter” which is pleaded as res judicata257 In
order to operate as res judicata, a foreign judgment must have been given on
the merits of the case. A judgment is said to have been given on the merits
when, after taking evidence and after applying his mind regarding the truth or
falsity of the plaintiffs case, the judge decides the case one way or the other.
For instance, in In Narsimha Rao Vs. Venkata Lakshmi,258 the Supreme Court
observed that if a foreign judgment has not been given on the merits of the
case, the courts in India will not recognise such a judgment.
In International Woollen Mills Limited vs. Standard Wool (UK)
Limited259 the Supreme Court has rendered a well-reasoned decision,260 and
has also given a comprehensive exhaustive analysis, with reference to the
ingredient of Section 13(b), dealing with the “merits of the case”. A judgment
based upon an incorrect view of International Law or a refusal to recognise the
law of India, where such law is applicable, is not conclusive. In other words, a
foreign judgment may be impeached on the ground that it is founded upon an

Viswanathan vs. Abdul Wajid 1963 Supreme Court 1 (at pages 14-15):: Satya vs Teja
Singh; (1975) 1 Supreme Court Cases 120 (at pages 136-137): Sankaran vs.
akshmi, (1975) 3 Supreme Court Cases 351 (at page 368
Viswanathan vs Abdul Wajid Ml India Reports 1963 Supreme Court 1 (at page 117)
(1991) 3 Supreme Court Cases 451
International Woollen Mills Limited vs. Standard Wool (UK) Limited (2001) 5
Supreme Court Cases 5 SCC 265
“We also cannot accept the proposition that the decree was on merits as all
documents and particulars had been endorsed with the statement of claim. With the
greatest of respect to the learned judges, they seem to have forgotten that at the stage
of issuance of writ of summons the court only forms, if it at all does, a prima facie
opinion. Thereafter the court has to consider the case on merits by looking into the
evidence led and documents proved before it, as per its rules. It is only if this is done
that the decree can be said to be on merits.” (Paragraph 22 at page 277)
inaccurate view of the law of India or of International Law. In Narsimha
Rao vs. Venkata Lakshmi262, the Supreme Court of India noted that “where the
judgment is founded on a refusal to recognise the law of this country in cases
in which such law is applicable, the judgment will not be recognised by the
courts in this country. ”
A foreign judgment is made conclusive as to any matter, thereby
directly adjudicated upon between the same parties. But it is the essence of a
judgment of a court that it must be obtained after due observance of the
judicial process, i.e. the court rendering the judgment must observe the
minimum requirements of natural justice, it must be composed of impartial
persons, acting fairly, without bias, and in good faith, it must give reasonable
notice to the parties concerned and afford each party adequate opportunity of
presenting his case. The concept of audi alteram partemis deemed to be of
universal, not merely of domestic application.263
In a few leading decisions, it is heartening to observe the Supreme
Court having been vigilant to detect an element of fraud in some of the
judgments rendered by foreign courts. It is a well-established principle of
Private International Law that if a foreign judgment is obtained by fraud, it
will not operate as res judicata.264 In Chengalvaraya Naidu vs. Jagannath,265
the Supreme Court has categorically ruled as follows: “It is the settled
proposition of law that ajudgment or decree obtained by playingfraud on the
court is a nullity and non-est in the eyes of law. Such a judgment/decree by
the first court or by the highest court, has to be treated as a nullity by eveiy
court, whether superior or inferior. It can be challenged in any court even in
collateral proceedings. ”
In Satya vs. Teja Singh266 a. husband obtained a decree of divorce
against his wife from the Nevada Court in the USA averring that he was

Viswanathan vs. Abdul Wajid, All India Reports 1963 Supreme Court 1 (at pages 21-
23)
Narsimha Rao vs. Venkata Lakshmi [1991] 3 Supreme Court Cases 451
Sankaran vs. Lakshmi, (1975) 3 Supreme Court Cases 351 (at page 367);
Viswanathan vs. Abdul Wajid, All India Reports 1963 Supreme Court 1 at page
25; Narsimha Rao vs. Venkata Lakshmi [1991] 3 Supreme Court Cases 451 at
page 463
Sankaran vs. Lakshmi, (1975) 3 Supreme Court Cases 351 (at pages 356, 359);
Chengalvaraya Naidu vs. Jagannath, (1994) 1 Supreme Court Cases 1 (at page 2)
(1994) 1 Supreme Court Cases 1
(1975) 1 Supreme Court Cases 120
domiciled in America. The Nevada Court derived jurisdiction to entertain and
hear the divorce petition on the basis of averment that the applicant was a
bona fide resident of and domiciled in Nevada. Since the statement was not
true and as the applicant never lived in Nevada, the Supreme Court of India
ruled that the Nevada Court had no jurisdiction to pass a decree of divorce
and it was a nullity. In the incisive words of the court: “It is therefore wrong
to think that judgments in rent are inviolable. Fraud in any case bearing on
jurisdictional facts, vitiates all juridical acts whether in rent or in
personam.”
Where a foreign judgment is founded on a breach of any law in force
in India, it cannot be enforced in India. Similarly, a decree for divorce passed
by a foreign court cannot be approved or recognised by an Indian court, if
under the Indian law the marriage is indissoluble.16 The pithy observations of
the Supreme Court in Satya Vs. Teja Singh267 with regard to public policy are
indicative of the caution that the court has rightly exercised while considering
the recognition and enforcement of foreign judgments.
6.24 Foreign Judgment and Res Judicata
The rule of conclusiveness of a foreign judgment as enacted in Section
13 of the Code of Civil Procedure, 1908, is somewhat different in its
application from the rule of res judicata. In the leading case of Viswanathan
vs. Abdul Wajid268 Justice J.C. Shah explained the difference in the following
manner:
“The rule ofconclusiveness of a foreign judgment as enacted in Section 13 is
somewhat different in its operation from the ride of res judicata.
Undoubtedly, both the rules are founded upon the principle of sanctity of
judgments competently rendered. But the rule of res judicata applies to all
matters in issue in a former suit which have been heard and finally decided
between the parties, and includes matters which might and ought to have been
madefaj ground of attack or defence in the former suit. The rule of
conclusiveness of foreign judgments applies only to matters directly
adjudicated upon. Manifestly, therefore, every issue heard and finally

267
Satya vs. Teja Singh (1975) 1 Supreme Court Cases 120 Narsimha Rao vs. Venkata
Lakshmi, 1991 3 Supreme Court Cases 451
268
Viswanathan vs. Abdul Wajid, All India Reports 1963 Supreme Court 1
decided in a foreign court is not conclusive between the parties. What is
conclusive is the judgment...... ”
6125 Doctrine of Merger
There has been considerable debate concerning the relevance of the
legal doctrine of merger in the context of enforcement of foreign judgments.
Justice J.R. Mudholkar in Badat and Company Vs. East India Trading
Company/269 sets out the following definitive propositions in the majority

decision of the court:

“No doubt, the English doctiine of merger has been
consistently held in England not to apply to a foreign judgment
with the result that despite the fact that a plaintiff has obtained
a foreign judgment • he may nevertheless sue in an English
Court upon the original cause of action, instead [of] upon the
judgment. When he sues upon the original cause of action, no
doubt, the court within whose jurisdiction the cause of action
arose would be entitled to entertain the suit. But, if on the
other hand, he chooses to sue upon the judgment, he cannot
found jurisdiction for the institution of the suit on the basis of
the original cause of action because once he chooses to rest
himself on the judgment obtained by him in a foreign court, the
original cause of action will have no relevance whatsoever
even though it may not have merged in thatjudgment. ”
This proposition of law sets out one of the cardinal principles in
Private International Law in the Indian context with regard to the legal basis
on which the enforcement of the foreign judgment is perceived by the courts
in India. The difference enunciated above by the Supreme Court is subtle, yet
definitive.

6.26 Mode of Enforcement of Foreign Judgments

A foreign judgment which is conclusive under Section 13 of the Code of Civil
Procedure, 1908, can be enforced in India by:
1. instituting a suit on such judgment; or

269
Badat and Company vs. East India Trading Company (1964) 4 Supreme Court
Reports 19; Roshanlal vs. Mohan Singh, (1975) 4 Supreme Court Cases 628 (at page
637)
 2. by instituting execution proceedings.
A foreign judgment may be enforced by instituting a suit on such foreign
judgment. The general principle of law is that any decision by a foreign court,
r

tribunal or quasi-judicial authority is not enforceable by a country, unless

such decision is embodied in a decree of a court of that country.270 A suit on a
foreign judgment must be filed within a period of three years from the date of
the judgment.271
6.27 Execution Proceedings
A foreign judgment may also be enforced by proceedings in execution in
certain specified cases mentioned in Section 44-A of the Code of Civil
Procedure, 1908. The case of M.V.A.L. Quamar Vs. Tsavliris Salvage
(International) Ltd. and others272 provides a fascinating insight concerning
the interpretation of Section 44A of the Code of Civil Procedure, 1908 and
contains an excellent overview of this very significant aspect of enforcement
of foreign judgments.
6.28 Enforcement of Foreign Awards
India’s global exposure in international arbitration is well-known. Ever
since the enactment of the Arbitration and Conciliation Act, 1996, there has
been a surge in international commercial arbitration. It is noteworthy that the
Arbitration and Conciliation Act, 1996,is based on what is popularly known
as the UNCITRAL model. [The United Nations Commission on International
Trade Law (UNCITRAL) adopted the Model Law on International
Commercial Arbitration in 1985]. With foreign direct investment flowing into
India surely and steadily, international commercial arbitration with an India­
centric focus is gaining momentum. In this context, the question of the
enforcement of foreign awards has formed the subject of intense judicial
debate. It is interesting to observe that the Legislature in its wisdom has
consciously chosen to statutorily incorporate international covenants into
domestic law. These are contained in Part II of the Arbitration and
Conciliation Act, 1996 and include Chapter I, being the New York

270
[1964] 4 Supreme Court Reports 19
271
Article 101, Limitation Act, 1963
272
[ 2000] 8 Supreme Court Cases 278
Convention Awards, and Chapter II, being the Geneva Convention
Awards.
A leading case in point concerning foreign awards and their execution
r

is Fuerst Day Lawson Ltd vs. Jindal Exports Limited.273 The Supreme

Court of India has carefully analysed the difference between the Arbitration

Act, 1940 and has compared it with the Arbitration and Conciliation Act,

1996. A few important extracts from this judgment are quoted below:

“30.Prior to the enforcement of the Act, the Law of Arbitration in this

country was substantially contained in three enactments namely (1) The

Arbitration Act, 1940, (2) The Arbitration (Protocol and Convention) Act,

1937 and (3) The Foreign Award (Recognition and Enforcement) Act, 1961. A

party holding a foreign award urn required to take recourse to these

enactments. Preamble of the Act makes it abundantly clear that it aims at to

consolidate and amend Indian laws relating to domestic arbitration,

international commercial arbitration and enforcement of foreign arbitral

awards. The object of the Act is to minimize supervisory role of court and to

give speedy justice. In this view, the stage of approaching court for making

award a rule ofcourt as required in Arbitration Act, 1940 is dispensed with in

the present Act. If the argument of the respondent is accepted, one of the

objects of the Act will be frustrated and defeated. Under the old Act, after

making award and prior to execution, there was a procedure for filing and

making an award a nde of court i.e. a decree. Since the object of the Act is to

provide speedy and alternative solution of the dispute, the same procedure

cannot be insisted under the new Act when it is advisedly eliminated.”

“31... As per Section 49, if the Court is satisfied that a foreign award is

enforceable under this Chapter, the award shall be deemed to be a decree of

that court and that court has to proceedfiirtlter to execute the foreign award

as a decree of that court. If the argument advanced on behalf of the

273
(2001)6 Supreme court case 356
respondent is accepted, the very purpose of the Act in regard to speedy and

effective execution of foreign award will be defeated. ”

r The Indian courts have developed a reasoned, cautious and a

sophisticated approach concerning the enforcement of foreign judgments and

the enforcement of foreign awards. This necessarily augurs well for the

growth and development of legal jurisprudence in India in the field of

“conflict of laws”.

6.29 Cyber Arbitration - Online International Commercial Arbitration:

The Scope for Development in the Indian Context
Information Technological developments have significantly changed
traditional arbitral practices and procedures. To match these developments,
ICC took a lead and has issued guidelines on the use of information
Technology (IT) in arbitration, devised a web-based system for conducting
and managing arbitration proceedings, and established an online clearinghouse
system for small claims.
Electronic submissions by e-mails or VoIP (Voice over Internet Protocol) or
videoconferencing pioneered the IT-intense online arbitration. Arbitration
agreements are concluded, proceedings conducted, and awards rendered by
electronic means in online settings. The issue is whether an online arbitration
is fully admissible and effective under the current legal framework? Before
coming to the specific legal obstacles that might be encountered, a general
picture of online arbitration274, including its background and definition, is
discussed herein after. The arising issues will be divided into three major
categories relating to:
i)arbitration agreements,
(ii) arbitral proceedings, and
(iii) arbitral awards.,
There can be three possible situations for submitting or referring a
claim, dispute or difference to an online arbitration. Firstly, an e-contract
containing an online arbitration clause. Secondly, a written contract providing
for online arbitration; and lastly, reference to online arbitration after the

274
website http://www.odr.info/Re%20greetings.doc.
dispute has arisen. The agreement of the parties to refer their disputes to the
decision of the arbitral tribunal must be intended to be enforceable by law and
hence, it must satisfy the requirement of enforceability as prescribed by
Section 10 of the Contract Act, 1872 with a clear intention of entering into a
legally binding relationship and parties must be ad-idem. Arbitration
Agreement has been defined under Section 7 of the Arbitration and
Conciliation Act, 1996. If an online arbitration clause passes a test of Section
7 then it is deemed to be a valid arbitration clause. Exchange of letters, telex,
telegrams or “’other means of telecommunication” should signify an active
assent by both parties and a demonstrable meeting of minds as to the
arbitration agreements275. Whether any agreement entered into through such
other means of telecommunication is enforceable? What would be included in
such other means of telecommunication? Can exchange of emails embodying
an agreement to arbitrate be covered under Section 7?
The e-mail exchange may also refer to a separate written arbitration
agreement (“incorporation by reference”). The parties may also wish to reach
agreement through a website. In such case, an exchange of electronic
communications occurs through the parties’ browser software. Either method
(e-mail or website) will ultimately lead to the same question as to whether an
electronic communication provides a required record of the agreement.
The answer was given in affirmative by the Hon’ble Supreme Court in
the case of Trimex International FZE Ltd. v. Vedanta Aluminium Ltd276 In this
case, the Petitioner submitted commercial offer through email for supply of
bauxite to Respondent. Respondent conveyed acceptance of offer through e-
mail and the Parties entered into contract. The Contract contained an
Arbitration Clause for resolution of disputes between the parties. Thereafter,
Respondent refused to honour contract on the ground that there was no
concluded contract between the parties and the parties are still not ad idem in
respect of various essential features of the transaction. It was held by the
Hon’ble Court that if the intention of the parties to arbitrate any dispute has
arisen in the above offer and acceptance thereof, the dispute is to be settled
through arbitration. Once the contract is concluded, the mere fact that a formal

275
Shakti Bhog Foods Ltd,. v. Kola Shipping LtdAIR 2009 SC 12
276
(2010) 3 SCC 1
contract has to be prepared and initiated by the parties would not affect either
the acceptance of the contract so entered into or implementation thereof, even
if the formal contract has never been initiated.
Needless to state that Section 4 of the Information Technology Act,
2000 renders legal recognition of such electronic transfer of communication
which is admissible as evidence. Though, e-commerce laws have
“legitimized” electronic communications in the light of traditional paper-based
legal requirements, it does not mean that the controversies about arbitration
agreement concluded online completely disappeared. Nor could one assume
that every arbitration agreement concluded by an exchange of e-mails or
electronic data interchange will be valid. The means of telecommunication
applied must satisfy certain conditions, i.e. provide the agreement’s record that
is “accessible so as to be usable for subsequent reference”.
6.30 Applicable regulations of international and domestic laws
A number of arbitration institutions have already opened the possibility
to perform arbitral proceedings online. They have made an effort to either
acclimatize their existing arbitration rules to the online environment, or to set
up new sets of rules for online arbitration. The legal framework for online
arbitration requires multiple layers of regulation at different level. The
international commercial arbitration not only encompasses the institutional
rules of arbitration and private contractual agreements but also international
conventions, bilateral treaties, model laws (such as UNCITRAL model laws)
and national arbitration laws. All these aspects need to be taken care of even in
online arbitration.
Entering into arbitration agreements in certain online settings may
conflict with the basic principle of international arbitration law that the
consent of the parties is a conditio sine qua non to validly agree on
arbitration277. To give an example of a peculiar but common situation, when a
single mouse click suffices to accept an offer with an arbitration clause, it may
of course sometimes happen that an alleged acceptance does not reflect the
fully informed consent of a party. It is important in an online arbitration that
the contents of the arbitration clause are meticulously drafted and take into

277 A. Broches, Commentary on the UNCITRAL Model Law on International

Commercial Arbitration (Deventer: Kluwer, 1990) at 38

i
account, inter alia, the governing law of the arbitration agreement, jurisdiction
of the courts (whether exclusive or non-exclusive), procedure for the
nomination and/or appointment of the arbitral tribunal, place or seat of the
arbitration, language of the arbitral proceedings and applicable institutional
rules on online arbitration.
6.31 Arbitral proceedings
Information Technology is already used rampantly in arbitral
proceedings. It is indeed cost effective and convenient but involves legal
questions of vital importance to be settled first. Parties are free to agree that
the whole or part of arbitral proceedings are conducted online, with the use of
whether asynchronous278 (e.g. e-mail) or synchronous (e.g. video- or audio­
conference) electronic means.
It is pertinent to analyse the applicable mandatory rules of procedure as
place’, or seat’, of online arbitration is literally “virtual”. The principles of
tribunal’s impartiality and equal treatment of parties, enshrined in Section 18
read with section 12 of the Arbitration and Conciliation Act, are relevant.
These online techniques can be used in arbitral proceedings, provided that
their application does not prejudice one party for example “if it had less access
to or know-how of the technology than the other party”. I am of the view that
in order to safeguard the fairness of online arbitral proceedings, the
implementation of information technology, regardless of its scope, should be
suitably and carefully codified in procedural orders issued by the arbitral
tribunal or, preferably, by agreement between the parties at the outset. If
parties agree on institutional online arbitration, applicable rules also have to be
taken into account. Article 3(2) of the ICC Rules specifically authorizes
electronic communication with the Court and the Secretariat of the ICC. If
there is any conflict between the institutional rules on online arbitration and
the intent of the party then such rules can be categorically amended/ deleted
by an express agreement between the parties.
The need for clarity may arise when provisions of applicable
arbitration rules require inter alia, references in a written form or a physical
appearance of the parties before the arbitral tribunal. As already stated above,

278
Asynchronous electronic means are those where there is a time lapse between an
initial communication and a reply.
many arbitration institutions have already adapted or supplemented their rules
to include online proceedings. It will not be pre-mature to say that such
problems are gradually reducing.
In online arbitration, parties may decide to conduct hearings online
and to examine and cross-examine witnesses, or hear experts, using
teleconferencing or videoconferencing technology279. However, according to
my understanding two major problems may hinder the use of Information
technology in the online arbitration, either under domestic or international
scenario. First of them relates to technology itself, and the other to law.
Cost of procuring equipments for online proceedings is no less and
even after large investment quality of transmission is still a cause of concern.
Delays and interruptions cannot often be avoided, and witnesses are not
clearly seen and heard. Other issues pertaining to technology as prevalent in
India are the issue involving data protection, confidentiality of the documents
and evidence adduced during the arbitral proceedings and privacy of the
parties. India has introduced Personal Data Protection Bill 2006 but it could
not see the light of the day. Section 72 of the Information Technology Act
takes care of the confidentiality and privacy of the electronic record, book,
register, correspondence, information, document or other material without the
consent of the person concerned.
A major legal issue concerning electronic hearings in online
arbitration concerns the legal significance of evidence produced online. Many
practitioners and academicians have mooted for a blend of both online and
offline methods for procuring or taking evidence on record. There can be
online filing platforms where the parties to the online arbitration may file their
documents and evidence through an independent and authorised third party
provider. Such online filing be part of the institutional rules or necessary
procedural orders passed by the Arbitral tribunal. Documents and evidence
that are filed before the Arbitral tribunal may be scanned copies of the
originals or can be protected and authenticated with the help of digital

219 The use of tele- and video-conferences in court proceedings is currently admissible in
many jurisdiction. Probably the most innovative web-based broadband video
conferencing system, that allows solicitors to conduct their court hearings from a
remote source, has been recently set up in Singapore (see: online
<http://www.justiceonline.com.sg/index.html>).
signatures280. If a document bears a digital signature then it is presumed to be
unaltered281
6.32 The place of arbitration
r It will not be an exaggeration to state that international commercial
arbitration has achieved a considerable degree of independence from national
courts. Nonetheless the whole arbitral proceedings remain subject to the laws
of the many jurisdictions in which arbitration takes place and in which award
is to be enforced. If arbitral proceedings are conducted entirely online at a
distance, with parties and arbitrators in distinct places, prima facie, it seems
difficult, or even impossible, to determine the place, or seat282, of the
arbitration. It is indispensable to ascertain the seat or place of arbitration
which is online. The issues'involving jurisdiction in online arbitration will be
more complex as compared to conventional arbitration unless a formal seat of
arbitration is decided either unanimously by the parties or by the Arbitration
Rules or by the arbitral tribunal. Section 20(1) of the Act states that the parties
are free to agree on the place of arbitration. Importantly, Section 20(2)
indicates that if the parties have not agreed to such place then arbitral tribunal
would determine the place of arbitration having regard to the circumstance of
the case including the convenience of the parties. Parties sometimes choose
the place of institution to be the place of arbitation. Thus, deciding a place of
online arbitration can be achieved through unanimous decision of parties
(either directly or by reference to the arbitration rules) or by a arbitrators if the
rules are silent or if parties fail to decide the same unanimously. Case law
allows the seat of arbitration to be “a strictly legal concept dependent on the
will ofthe parties's283.

Electronic signatures can provide for both authenticity and integrity (they encrypt the
contents of the message in such a way that its content cannot be altered without
prior decryption and subsequent re-encryption). They are comparable to handwritten
signatures and should carry the same evidential weight.
R. Hill, Online Arbitration: Issues and Solution, Kluwer Law International, 1999
Ahrenwald, Out-of-court dispute settlement systems for e-commerce, online:
<http://www.vahrenwald.com/doc/part4.pdf> at 83.
The decision of Court of Appeal of Paris, 28 October 1997, Societe Precedes de
pr6fabrication pour le b6ton v. Lybie, Revue de ID arbitrage, 1998, at 399.
6.33 Arbitral Awards
There are legal impediments which have to be taken care of when it
comes to Arbitral Awards. According to my understanding these can primarily
r
be: Can an arbitral award be validly pronounced by the Arbitral Tribunal over
the internet or online? And whether such online arbitral award be enforced by
national courts within the existing legislative framework?
Section 31 of the Arbitration and Conciliation Act deals with Form and
contents of the arbitral award. Such an award must be in writing and signed by
the members of the arbitral tribunal. Such an award must state the reasons
upon which it is based unless the parties have agreed that no reason is required
or the award is pursuant to the settlement between the parties. It is important
to note that the Act also makes it mandatory to incorporate the date and the
place of the arbitration so that it shall be deemed to have been made at that
place. An arbitration clause contemplating an online arbitration must
specifically fix the place of arbitration even though the arbitral proceeding
would be held online. Section 31(5) states that after the arbitral award is made,
a signed copy shall be delivered to each party. The New York Convention on
Recognition and Enforcement of Foreign Awards (herein after referred to as
“the NYC”) merely requires a party seeking enforcement to furnish the duly
authenticated original award or a duly certified copy thereof. I am of the
opinion that electronic documents can be considered, originals’ within the
meaning of the NYC by invoking the doctrine of “functional equivalence”284.
Section 15 of the Information Technology Act, 2000 deals with secure digital
signature. Electronic signatures can provide for both authenticity and integrity
(they encrypt the contents of the message in such a way that its content cannot
be altered without prior decryption and subsequent re-encryption). They are
comparable to handwritten signatures and should carry the same evidential
weight. Recognised electronic signatures should not be restricted to digital
signature, but extend to all types of procedures used to electronically attach a
signature to a document, provided they
(a) identify the user,

The “functional equivalent” approach is promoted by the Model Law on Electronic

Commerce. See also: Guide to Enactment of the UNCITRAL Model Law on
Electronic Commerce (New York, 1997) at 20 (section 15).
 (b) are in the exclusive control of the user and
(c) encrypt document in such a manner that any subsequent alteration
is noticeable. It can be inferred from the combined reading of Sections
15 and 11 of the Information Technology Act, 2000 that a secure
digital signature can be attributed to the originator of such signature.
Thus, if an award is digitally signed by the arbitrator then it can be deemed to
have been signed by him. Further, if the arbitrators digitally sign the
arbitration agreement and the award, the goal of the New York convention
appears to be met. Would such a solution be recognized? This poses a double
question: first, whether such certification is acceptable; second, who should
be capacitated to certify.
The New York convention does not determine the law applicable to
certification. This silence is usually interpreted as allowing the enforcing court
to apply the law of either the country of origin of the award or country in
which enforcement is sought, at the option of the party seeking
enforcement.285 The issue would be resolved if law of one of these two
countries recognizes digital signatures as equivalent to handwritten signatures.
In that event the enforcement court should hold that the arbitration and the
award are validly certified by way of a digital signature.286
These issues regarding the recognition and enforceability of online
arbitral awards can be reduced if the online arbitration clause is drafted
meticulously and with due care or if it refers to specialised institutional rules
on online arbitration. Indeed the New York Convention is "the single most
important pillar on which the edifice of international arbitration rests"287.
Arbitral awards rendered in online procedure have all attributes of traditional
arbitral awards: they are authoritative, binding and final, subject to an action to
set aside for limited procedural and substantive grounds.

See E. Gaillard and J. Savage (eds), Fouchard Gaillard Goldman on International

Commercial Arbitration para. 1675; J.F. Poudret and S. Besson, Droit compare de
arbitrage Internationa, para. 920; and A.J. van den Berg, The New York Convention
of1958, para. 252-253.
See R. Hill, Online Arbitration: issues and solutions 1999 (published by Kluwer Law
International), page 222.
J. Wetter, “The Present Status of the International Court of Arbitration of the ICC:
An Appraisal” (1990) 1 Amer. Rev. of Int'l Arb. 91 at 93.
 Needless to state that online arbitral awards inescapably fall within the
national legal framework where the award is sought to be enforced or
challenged and, to the same extent as offline arbitration. Such awards are
subject to be reviewed by the national court. The recognition and enforcement
of such online awards are hit by the territorial principle. Article 1.1 of the
NYC, which defines the scope of the NYC’s application by the reference to
“arbitral awards made in the territory ofa State other than the State where the
recognition and enforcement ofsuch awards
6.34 The Need for Effective Utilisation of ADR Facilities in India
Alternative dispute Resolution in India is not new and it was in
existence even under the previous Arbitration Act ,l940.The Arbitration Act
,1940.the Arbitration and ConcilaitionAct,1996 has been enacted to
accommodate the harmonisation mandates of the UNICTTRAL Model. Now a
decade after its adoption, the majority response to the 1996 Act among legal
commentators and the international business community has been
overwhelmingly positive. To steam line the Indian legal system the traditional
civil law known as Code of Civil Procedure,1098 has been amended thereby
provides an option for the settlement of disputes outside the court. Section 89
of CPC provides that where it appears to the court that there exist elements,
which may be acceptable to the parties, the court may formulate the term of
possible settlement and refer the same for arbitration,conciliation, mediation
or judicial settlement. As per Order X rule 1A after recording the admissions
and denials, the court shall direct the parties to the suit to opt for any one
mode ofalternative dispute resolution.
Alternative dispute resolution includes dispute resolution processes
and techniques that fall outside of the government judicial process. Despite
historic resistance to ADR by both parties and their advocates, ADR has
gained widespread acceptance among both the general public and the legal 1
profession in the recent years .Even though drastic amendment made in CPC
as per Act 46 of1999 w.e.f1-7-2002 that enabled the court to optfor the mode
of alternative dispute resolution an effective utilisation of this facility is still
not much progressed. Through the proper ultilisation of the alternative dispute
resolution facilities various types of disputes can be solved fastly and
effectively.
 There us a growing awareness among them asses as well regarding
alternative dispute resolution and people are increasingly using the same for
getting disputes settled putside the court .this will also reduce the ‘backlog
problem ’ that India is facing. It is now universally accredited that ‘Justice
delayed is Justice denied’. Tin legislative sensitivity towards providing a
speedy and efficacious justice in India is mainly reflected in two enactments.
The first one is the Arbitration and Conciliation Act,1996 and the second one
is in the incorporation of section 89 in the traditional Civil Procedure Code.
In the reported cause Salem Advocate Bar Association v. U. 0.1, the Hon’ble
Supreme Court had directed the constitution of an expert committee to
formulate the manner in which section 89 and other provisions introduced in
CPC have to be brought into operation. The court also directed to devise a
model case management formula as well as rules and regulations, which
should be followed while taking recourse to alternative dispute redressal
referred to in section 89 of CPC. All these efforts are aimed at securing the
valuable right to speedy trail to the litigants.
In addition to the judicial settlement including the settlement through Lok
Adalat ,the alternative dispute resolution facilities are Arbitration,
Conciliation and Mediation.
635 Need for An International Commercial Arbitration in India for An
Effective Economic Development
Arbitration is today most commonly used for the resolution of
commercial disputes ,particularly in the context of international commercial
transactions and sometimes used to enforce credit obligations., In almost all
the countries ADR facilities are used to resolve other types of disputes also
such as labour disputes or family disputes, consumer disputes and for the
resolution of certain disputes between states and between investors and states
etc.
One the reason that arbitration is so popular in international trade as a means
of dispute resolution, is that it is often easier to enforce an arbitration award in
a foreign country than it is to enforce a judgement of the court.
As part of the Economic Reforms Programme initiated in 1991 , the foreign
investment policy of the Government of India was liberalised and negotiations
undertaken with a number of countries to enter into Bilateral Investment
Promotion & Protection agreement (BIPAs) in order to promote and protect on
reciprocal basis investment of the investors. Government of India have so far
sighed BIPA’s with 68 countries out of which 50 BIPA’s have already come
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into force and the remaining agreement s are in the process of being enforces
.In addition, agreements have also been finalised and /or being negotiated with
a number of other countries.
The important features of BIPA are : National Treatment for foreign
investment: MFN treatment for the foreign investment and investors, free
repatriation/transfer of returns on investment; recourse to domestic disputes
resolutions and international arbitration for investors-state and state-state
disputes, nationalization /expropriation only in public interest on a non-
discriminatory basis and against compensation.
Under the New York convention 1958, an award issues a contracting state can
generally be freely enforced in any other contracting state, only subject to
certain,limited defences.
Virtually, every significant commercial country in the world is a party
to the Convention, but relatively few countries have a comprehensive network
for the cross-border enforcement of the judgement of the court.
The other characteristic of the cross border enforcement of arbitration
awards that makes them appealing to commercial parties in that they are not
limited to awards of damages. Whereas in most of the countries only monetary
judgements are enforceable in the cross-border context, no such restrictions
are imposed on arbitration awards so it is theoretically possible (although
unusual in practice) to obtain an injunction or an order for specific
performance in an arbitration proceeding which could then be enforced in
another New York Convention contracting state.
The New York Convention is not actually the only treaty with cross-
border enforcement of the arbitration awards. The earlier Geneva Convention
on the Execution of Foreign Arbitral Award 1927 remains in force ,but the
success of the New York Convention means the Geneva Convention is rarely
utilised in practice.
India’s adoption of the Arbitration and Conciliation Act of 1996 has
admirably achieved two goals. First, it has unified the legal regime
surrounding arbitration for both domestic and International arbitration
conducted in India. Second, it has improved arbitral efficiency by reducing the
need for judicial intervention, enforcing awards as judicial decrees and
granting greater autonomy to arbitral tribunal decisions. The result has been
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fairer, efficient and predicable procedure that is better equipped to handle
India’s unprecedented rise in international commercial transactions.
Nevertheless, there remain a few chinks in the armour of the 1996 Act.
Tensions continue in areas that depart from Model law such as the
court’s role in granting of interim measures enforcement and challenge of
foreign arbitral awards, arbitrability of disputes, and challenge of biased
arbitrators are areas that either depart from or remain in significant tension
with the Model law. this has raised concerns that India’s transformation into a
dependable forum for international commercial arbitration may still fall short
of international standards. Underlying these problems is court’s ongoing
struggle with relinguishing control and giving primacy to the arbitral process
pursuant to international standards (i.e Model Law or Institutional arbitral
bodies)
The parliament should take the difficulties faced by courts in a serious
manner. Necessary steps should be taken to modify our existing law to suit the
changing economic and trade conditions. This will result in the growth of
trade and commercial activities and the smooth and amicable of disputes.

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