The final decree

The government’s messaging on India being arbitration-friendly has been somewhat muddied by recent developments—in court and outside it

Last week, in a lecture on commercial arbitration at the Supreme Court of the United Kingdom, Chief Justice D.Y. Chandrachud spoke eloquently about the change in Indian courts’ approach from interference to facilitation. “Arbitration is no longer an ‘alternative’,” the Chief said, “It is in fact the preferred method of seeking commercial justice.” 

Indeed, some legislative and judicial developments over the last decade have indicated a concerted attempt to make arbitration a realistic and reliable option in high-value commercial disputes. Amendments to the Arbitration and Conciliation Act in 2015, 2019 and 2021 attempted to bring India’s arbitration practices at par with international standards (for instance, by making it clear that tribunals can pass interim orders). 

Until recently, the Supreme Court had walked the talk. Last year, a five-judge bench endorsed an expansionist approach to arbitration when it confirmed the application of the Group of Companies Doctrine in India. The decision reduces the wiggle room for large conglomerates to sidestep arbitration. 

A week later, a seven-judge bench reversed a five-judge bench decision to hold that an unstamped arbitration agreement was valid. The larger bench was hearing a curative petition in a different case, but decided to settle the question despite protests from the respondent counsel. The Bench reasoned that it was duty-bound to provide clarification “when a position of law is liable to cause grave public injury.”

But there’s a feeling among some practitioners that a couple of recent developments may have put a spoke in the wheel of India’s pro-arbitration messaging. 

CJI Chandrachud’s lecture in the UK came only weeks after a bench he led undid an arbitral award in a public-private infrastructure dispute. In April, the Court exercised its curative jurisdiction to lift a Rs. 7,500 crore liability off the shoulders of the Delhi Metro Rail Corporation, a public entity. The award had been granted by the tribunal to a private company for breach of contract. 

The decision may be unnecessary at best and unsettling at worst because it relies heavily on the issuance of a safety certificate that even the DMRC did not claim was conclusive before the tribunal.

Practitioners have said that by setting aside a well-reasoned award, the decision turned a blind eye to the principle of finality, forcing a tribunal to explicitly and unreasonably justify its conclusions about the evidence that it reviews. Experts have also pointed out that the protectionist stance could open the floodgate for excessive litigation and spook investors, particularly in the public-private space. 

Adding to the uncertainty is an Office Memorandum notified by the Expenditure Department’s Procurement Policy Division under the Ministry of Finance last week. It contains new guidelines for arbitration and mediation in domestic public procurement contracts. It intends to limit arbitration to only those disputes having a value of less than Rs. 10 crores. While suggesting that the government’s experience of arbitration has been “unsatisfactory” in many cases, the memo singles out the “reduced formality” in arbitration, which has led to “wrong decisions on facts and improper application of the law.” 

Though not widely discussed yet, the memo is likely to discourage parties from doing business with the government, especially since it calls for arbitration not to be “routinely or automatically included in procurement contracts/tenders, especially in large contracts.” 

Investors will be watching this space closely. In the Supreme Court, there are at least two cases pending before Constitution Benches that could influence the perception of whether the DMRC case was only a blip in what has been a more or less consistent approach over the last few years. In one, the Court will decide if an arbitrator who turns out to be ineligible has the power to appoint other arbitrators. In the other case, the bench will determine the extent of a court’s power to modify arbitral awards.

To be sure, the courts have a role to play in the architecture of India’s arbitration law, on matters ranging from referring parties to arbitration to enforcing awards. But the questions that keep cropping up are about the extent of judicial involvement. 

Matters are unlikely to be open-and-shut, especially when the government is a party. But to inspire commercial confidence and have India be spoken of in the same breath as the UK and Singapore, there is a need to create an ecosystem where an arbitral award is seen as set in stone rather than sand.


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