Alternative Dispute Resolution : Arbitration Clause

Alternative Dispute Resolution : Amendments to the Arbitration and Conciliation Act 1996 to strengthen Ease of Doing business in India


May 2015
Prime Minister Narendra Modi-led government is trying to present India as an investor-friendly nation to the world and hence the laws should also be supporting this.
"There should be ease of doing business in India. Nobody is prepared to have an arbitration in India. The process gets delayed due to arbitration. We want to have a stipulated timeframe for this," Gowda said.Some of the amendments which maybe considered are 


  • Amending Section 34 of the Act which allows, among other grounds, for an award to be set aside if it is in conflict with the public policy of India. The amendment would make clear that this exception applies only where (i) an award has been obtained by fraud or corruption, (ii) an award is in conflict with a fundamental policy of Indian law or (iii) an award is against the basic notions of morality and justice.
  • Section 36 of the Act as it stands today allows for an automatic stay of the enforcement of an arbitral award if it has been challenged. The proposed amendment provides that no automatic stay would apply, and a party seeking such a stay must obtain a specific order to this effect.
  • An amendment regarding arbitrators’ fees, so that these would not be on the basis of the number of sittings or hearings, but rather on a composite basis.
  • Tribunals would be required to render arbitral awards within a period of nine months of the case being filed, unless the Court grants an extension. An arbitrator who delays the matter for their personal benefit can be barred from sitting in any new arbitration proceedings for a period of up to three years.
  • Courts would be required to dispose of any application to challenge an arbitral award within one year of the application being filed.
  • Where parties are unable to decide on their arbitrator they can approach the High Court or the Supreme Court (as the case may warrant), under Section 11 of the Act, and ask the Court to appoint an arbitrator. The amendments proposed state that Courts should dispose of such applications as expeditiously as possible, with the aim of doing so within 60 days.
  • The Court’s powers under Section 11 of the Act would be limited to examining, prima facie, the existence of an arbitration agreement and not delving into the merits of the dispute.

ICC Arbitration Court Paris to ramp up presence in India

March 2014 : Paris ICC Arbitration Court vows to ramp up India as first Indian lawyer joins from US LLM

  The Paris-headquartered International Court of Arbitration (ICA) of the International Chambers of Commerce (ICC) has hired its first Indian lawyer in a bid to expand in India by increasing visibility and uptake, despite the remaining problem of judicial interference.

Former Mulla & Mulla associate Abhinav Bhushan, who is a graduate of Government Law College (GLC) Mumbai in 2008 and the Columbia Law School LLM programme last year, has joined the ICC’s commonwealth team as one of the two deputy counsel.

He is working under common law counsel Allison Pearsall, who told Legally India: “As common law counsel and having spent some time studying in India, I am interested in developing ICC arbitration in India.”

Bhushan told Legally India that he competed with 100 other applicants, clearing several rounds of interviews, including a final interview with the deputy secretary general of the ICA in Paris.

Pearsall said that the total interview process took approximately two weeks after short listing 40 people, each of whom were interviewed by telephone, with six finally being selected for face-to-face interviews. “We work closely together here at the secretariat,” explained Pearsall about the stringent selection process for her team that has a caseload of around 170. “Our team is comprised of lawyers the UK, Canada and the United States. We felt that that deputy counsel from India could be advantageous given our caseload for India and our continuing work with Indian parties and practitioners.”

“Everybody has to pull together and get along. Everybody comes from different countries,” she said. “[It] brings with it other challenges, social skills are also helpful into working within an international organization in a small team.”

Managing Indian disputes from abroad

ICC India works with the ICA to propose qualified Indian arbitrators to sit on arbitral tribunals under ICC rules, and disburse ICC publications including statistics and rules among Indian exporters and importer.

Pearsall told Legally India that ICC India’s case load last year comprised about 35 cases involving more than 50 Indian parties, arbitrated in Delhi, Mumbai, Kolkata and Goa. Pearsall’s Paris-based Commonwealth team handled approximately half of those cases, with the other half managed by a Hong Kong-based team.

“It is always important to keep in mind that users of arbitration, the parties, that bring cases to arbitration, when they draft their contracts, they have a choice of what institutions to bring their case to. You're offering a service; [it] has to be good [and] efficient.”

India future in dispute

Pearsall said that she sees a green flag for ICC India in the fast developing Indian arbitration market, which, in her perception, puts ICC at an advantage despite a number of other arbitral institutions, such as the LCIA and IIAM.

“I think there's a lot of potential for India, culturally and geographically, given the amount of business it does with Europe and Asia,” she said.

Even though India is well-placed commercially, said Pearsall, the perception of the degree of judicial interference in arbitration in India would need to be further addressed to improve India’s reputation as a seat of arbitration.

A modification of the Indian Arbitration Framework could improve India’s image as a desirable seat of arbitration similar to that enjoyed by the United Kingdom.

Popularity contested

When asked about the apparently greater popularity of domestic ad hoc arbitrations vis-à-vis institutional arbitrations in domestically drafted agreements, she said it could partly be attributable to a misconception that institutional arbitration is expensive, or that arbitrating parties have less control over the procedure.

The costs of an ICC arbitration are constantly monitored and even adjusted up or down, she explained.

The ICC offers a lot in terms of service, she claimed. “The cases are monitored by a truly international team coming from a number of different jurisdictions. ICC arbitration cases are monitored by lawyers. Awards are scrutinised by the court, comprised of seasoned international practitioners. No award is rendered without the court approving it as to its form.”

The entry into force of new ICC rules in January was an excellent opportunity to hold educational events on ICC arbitration in Delhi next month, she said. “This will be a good opportunity for the court, its secretariat and ICC India to work closely together to raise awareness of ICC arbitration.”

Arbitration clause - Administered Arbitration Vs Adhoc arbitration -Substantive law and procedural law as per Indian Arbitration and Conciliation Act 

Arbitration administered by an institution Vs Adhoc arbitration

 ·         Opting for Institutional Arbitration results in deciding in advance who should act as arbitrator and procedural rules applicable to the conduct of arbitration process. Also administrator charges

·         Adhoc arbitration achieves the objective of opting out of jurisdiction of courts and however, dispute has to be settled by a tribunal mutually agreed between parties.  This results in two open questions- who will be arbitrator and what are the rules to be followed by arbitrator.

The other variant is to specify the applicable rules and appointment of arbitrators to be made after the dispute arises.  

 Jurisdiction and location


Substantive law : The law to decide the merits of the dispute arising out of the contract.

Procedural Law : The law to be followed in conducting the proceedings of arbitration and interference of courts. In the absence of specification in contract, the seat/location of arbitration specified in the contract decides the procedural law. The popular arbitration friendly regimes opted for international arbitration are London, Newyork, Paris, Hongkong and Singapore. The tribunal may meet anywhere in the world and need not be at the place specified. The location specified is only relevant for the procedural law.



S. 28 of the Arbitration and Conciliation Act, 1996 (A&C) provides for the rules applicable to thesubstance of the dispute. However, s. 28 is applicable only when the place of arbitration is in India as it starts with the words ‘[w]here the place of arbitration is situate in India…’. Therefore s. 28 does not apply where the place of arbitration is outside India.

In international commercial arbitrations, it has become a practice that parties agree upon a substantive law and on curial law. It is in these circumstances, question arises as to whether Part I of A&C is excluded either expressly or impliedly by choosing procedural law other than A&C for conducing arbitration proceedings.

With the scope being limited to the premises stated above, decisions of the SC in the matter of Bhatia International Citation Infowares, Dozco v DoosanVideocon v Union of India and Gujarat HC’s decision in Hardy Oil are analysed below.

The SC in Bhatia International’s case held that

“Part I of the A&C would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India, the provisions of Part I of A&C would compulsorily apply and the parties are free to deviate to the extent permitted by the derogable provisions of Part I. In cases of International Commercial arbitration 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. In that case the laws or rules chosen by the parties would prevail. Any provision in Part I which is contrary to or excluded by that law or rules will not apply.” (para 32)

The conclusion in unequivocal terms is that, that in international commercial arbitration where place of arbitration is outside India, the parties are free to agree upon the law governing the contract and the procedural law applicable to arbitral proceedings. Such law as agreed between the parties shall prevail over Part I of A&C. Therefore parties are free to choose the substantive law applicable to contract, curial law applicable to the arbitration proceedings and the judicial seat of arbitration. Where curial chosen is different from A&C, that law would prevail over A&C.

It has been succinctly expressed in the decision of Hardy Oil and Gas Limited’s case decided by the Gujarat High Court. To appreciate the views expressed by the Gujarat HC, the relevant clauses of the contract are extracted below-:

“Governing Law and Arbitration

1. This Agreement (except for the provisions of Clause 9.5.4 relating to arbitration) shall be governed by and construed in accordance with the substantive laws of India.

2. Any dispute or difference of whatever nature arising under, out of, or in connection with this Agreement, including any question regarding its existence, validity or termination, which the parties are unable to resolve between themselves within sixty (60) days of notification by one or more Parties to the other(s) that a dispute exists for the purpose of this Clause 9 shall at the instance of any Party be referred to and finally resolved by Arbitration under the rules of the London Court of International Arbitration (SLCIA), which Rules (Rules) are deemed to be incorporated by reference into this clause.

3. The Tribunal shall consist of two arbitrators who shall be Queen's Counsel, practicing at the English Bar in the Commercial Division of the High Court, ……………………….

4. The place of arbitration shall be London and the language of arbitration shall be English. The law governing arbitration will be the English law……..

The Gujarat HC relied on Bhatia International and has stated certain principles drawing on National Thermal Power Corporation vs Singer with reference to choice and applicability of substantive and curial law with specific reference to conflict of laws. The principles are given below in brief –

Ø Parties have freedom to choose the law governing an international commercial arbitration agreement. They may choose the substantive law governing the arbitration agreement as well as the procedural law governing the conduct of arbitration. Such choice is exercised either expressly or by implication.

Ø Where there is no express choice of law governing contract as a whole, or the arbitration agreement in particular, there is, in the absence of any contrary indication, a presumption that the parties have intended that the proper law of the contract as well as the law governing the arbitration agreement are the same as the law of the country in which the arbitration is agreed to be held.

Ø On the other hand, where the proper law of the contract is expressly chosen by the parties (as in the present case), such law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement which, though collateral or ancillary to the main contract, is nevertheless a part of such contract.

Ø In the absence of any indication to the contrary, the governing law of the contract being Indian law, it is that system of law which must necessarily govern matters concerning arbitration, although in certain respects the law of the place of arbitration may have its relevance in regard to procedural matters. The law governing such rights and liabilities is the proper law of the contract, and unless otherwise provided, such law governs the whole contract including the arbitration agreement, and particularly so when the latter is contained not in a separate agreement. This would be the situation where there is absence of a specific agreement to the contrary, as is the situation in the matter on hand.

In this case parties had expressly chosen laws of England as the law governing the arbitration proceedings and hence it was held that provisions of Part I of A&C were expressly excluded and it would be the English law that would govern arbitration proceedings. Therefore parties could not invoke the Indian Courts under Part I of A&C.

A different view has been taken in Citation Infowares where the SC distinguished the case from the principles enumerated in NTPC’s case, and holds that provisions of Part I of A&C act are applicable to the subject dispute. The relevant arbitration clause between the parties is given below-

“This agreement shall be governed by and interpreted in accordance with the laws of California, USA and matters of dispute, if any, relating to this agreement or its subject matter shall be referred for arbitration to a mutually agreed Arbitrator"

The SC held that the parties had agreed upon the substantive law and had not agreed either on the judicial seat of arbitration or the curial law. It also stated that there was nothing in the arbitration clause to exclude impliedly provisions of Part I of A&C and hence it was held that Part I of A&C is applicable and powers were exercised under Section 11 of the Act to appoint the arbitrator.

This view is contrary to principle enumerated in NTPC’s case wherein it was held that where there is no separate arbitration agreement but, arbitration agreement forms part of the principal agreement as a clause thereof and if there is no specific agreement between the parties to the contrary, law governing principal agreement would govern the arbitral proceedings. In Citation Infowares, though the parties had agreed upon the substantive law applicable to the contract, and the contract was silent on the curial law, it would have been the law of the contract that would be applicable to the arbitration proceedings. Since place of arbitration was not specified, SC held that the principle enunciated in the NTPC case would not be applicable. In my view, the omission by the parties to agree on place of arbitration makes Part I of A&C applicable is contrary to principles stated earlier. It introduces one more criterion to be considered in determining the intention of the parties which did not exist previously. When the parties had contemplated laws relating to California as the substantive law and there was nothing in the agreement to suggest that the parties negated the applicability of Californian laws as curial law. The natural inference would be that parties had positively agreed to subject themselves to laws of California as substantive and curial law.

In Dozco vs Doosan, SC held that by specifying the substantive law, and the seat of arbitration as Republic of Korea it becomes fairly clear that the parties had agreed to exclude Part I of A&C and hence petition under Part I is not maintainable.

The arbitration clause that was agreed by the parties is given below for ready reference -

Article 23.1

“This agreement shall be governed by and construed in accordance with the laws of The Republic of Korea.

All disputes arising in connection with this Agreement shall be finally settled by arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of agreement then in force of the International Chamber of Commerce (emphasis supplied)”

The SC held that language of Article 23.1 clearly suggests that all the three laws i.e the substantive law, curial law and the law relating to conduct of arbitration are the laws of The Republic of Korea. Hence parties impliedly excluded the application of Part I of A&C.

SC in Dozco’s case though has not stated in as many words but has followed the principles laid down in NTPC case. As in Bhatia International, the parties in Dozco had agreed upon ICC Rules of Arbitration. Since the substantive law applicable to the contract was the law relating to the Republic of Korea and the place of arbitration was Seoul which added up to enable SC reach conclusion that Part I of A&C was excluded by the parties and hence petition under Section 11 before SC was not maintainable. However as stated earlier, parties had agreed on ICC Rules and not on procedural law of Republic of Korea.

Lastly, traversing the decision in Videocon Industries Ltd vs Union of India, SC upheld the decision of Gujarat HC and the principles enunciated in Bhatia International and NTPC’s case. The clause of arbitration read as follows-

33.1 Indian Law to Govern

Subject to the provisions of Article 34.12, this Contract shall be governed and interpreted in accordance with the laws of India.

33.2 Laws of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India.

34.12. Venue and Law of Arbitration Agreement

The venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia, and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England.

The above clauses make it amply clear that substantive law is Indian Law and the curial law applicable is English law. Therefore the forum to be approached is English Courts and all the arbitration proceedings including interim measures, setting aside of award shall be in accordance with the provisions of English law.

To conclude, the decision of Bhatia International and NTPC is followed in all the cases. There is a distinction made in the case of Citation Infowares where even though the parties had agreed on the substantive law, and had omitted to agree on the place of arbitration and curial law, the SC differed from NTPC’s principle and held that omission by the parties to agree upon judicial seat of arbitration and language of arbitration resulted in applicability of Part I of A&C. When the parties had agreed upon the substantive law, the SC ought not to have looked at other considerations to determine applicability of Part I of A&C and the law governing the contract would be curial law as there is no contrary intention demonstrated by the parties to negate the applicability of substantive law as curial law. The decision is also not practically in accordance with the intention of the parties as SC appointed an Indian National to adjudicate the dispute in accordance with the laws of State of California.

It is necessary to state here that SC in Dozco’s case relies on the principle stated by Mustill and Boyd “In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the 'seat' of the arbitration, i.e. the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings. So in order to determine the curial law in the absence of an express choice by the parties it is first necessary to determine the seat of the arbitration, by construing the agreement to arbitrate.”