India has aligned itself with the global pro-arbitration trend, recognizing international arbitration as the preferred method for resolving commercial disputes. This shift is reflected in a series of recent legislative reforms and judicial rulings aimed at strengthening the arbitration framework. Central to international arbitration is the principle of party autonomy, which empowers parties to determine crucial aspects of the process, such as the arbitration seat, governing law, and the selection of arbitrators, ensuring greater flexibility and fairness in dispute resolution, especially for businesses engaged in international transactions.
Key Aspects of Party Autonomy
1. Choice of Arbitration Seat
One of the most important manifestations of party autonomy in international arbitration is the freedom to choose the arbitration seat. When one party is based in India, it is common for the contract to specify an arbitration seat in a neutral country. This choice is crucial as it determines the procedural law (lex arbitri) governing the arbitration process. Indian law allows parties (Indian or internationally located) to opt for a foreign seat, as reaffirmed in the case of Pasl Wind Solutions Pvt. Ltd. vs. GE Power Conversion India Pvt. Ltd., AIR 2021 SC 2517. Here, the Supreme Court of India held that parties to a contract may select a foreign seat of arbitration, recognizing the principle of party autonomy in domestic as well as international settings.
2. Choice of Governing Law
Supreme Court of India, in the matter of Union Of India & Others Vs. Uttar Pradesh State Bridge Corporation Ltd., (2015) 2 SCC 521, upheld that parties are free to choose the substantive law that will govern their contractual relationship and the arbitration proceedings. In international transactions involving an Indian party, it is not uncommon to opt for foreign law as the substantive law governing the contract. Indian courts have upheld the validity of such agreements. This flexibility allows parties to select a legal system with which they are more familiar or which they deem more favourable for their transaction.
3. Appointment of Arbitrators
Another important element of party autonomy is the freedom to appoint arbitrators. The parties can choose arbitrators based on their expertise, nationality, or familiarity with the applicable law. This principle has also been clearly laid down by the Supreme Court of India, in the case of Centrotrade Minerals And Metals vs Hindustan Copper Ltd., Civil Appeal No.2562/ 2006. In international arbitration involving an Indian party, it is common for arbitrators to come from neutral jurisdictions to ensure impartiality. Indian law also recognizes party autonomy in the appointment process, subject to certain statutory safeguards to prevent bias or conflict of interest.
4. Language and Rules of Arbitration
Similarly, parties to an international arbitration are free to select the language of the proceedings and the institutional or ad hoc rules that will govern the arbitration process. The choice of arbitration rules, such as those of the International Chamber of Commerce (ICC), the Singapore International Arbitration Centre (SIAC), or the London Court of International Arbitration (LCIA), significantly influences the procedural framework of the arbitration.
5. Waiver of Certain Rights under Indian Law
While party autonomy is generally upheld in India, there are certain statutory provisions under the Arbitration and Conciliation Act, 1996 (“the Act”) that parties may choose to exclude. For instance, Part I of the Act, which deals with domestic arbitrations, includes provisions for interim relief and judicial intervention. In international arbitrations seated outside India, the law allows parties to explicitly waive the applicability of Part I to limit the scope of Indian judicial interference. The Delhi High Court's decision in Ashwani Minda & Anr. vs. U-Shin Ltd., AIR 2020 (NOC) 953 (DEL.), has confirmed this dictum.
Problems Faced by International Commercial Arbitration in India
While Indian law strongly supports party autonomy, it imposes certain limitations, especially where public policy or mandatory law is at stake:
1. Public Policy Considerations
Under the Indian law on arbitration i.e., the Arbitration and Conciliation Act, 1996 (“the Act”), enforcement of domestic and foreign awards follow distinct enforcement processes. Domestic awards fall under Part I of the Act, while foreign awards are governed by Part II, in alignment with the provisions of the New York and Geneva Conventions, and face additional scrutiny, particularly in relation to Indian public policy.
The rationale behind the doctrine of public policy is that even though the parties have the autonomy to make a contract and can refer the dispute to arbitration, the arbitral award can be set aside if it can be held against the public interest in India.
However, the Act was amended in 2015, which limits the misuse of the public policy doctrine, clarifying that mere non-compliance with the Indian law does not justify reviewing the merits of a dispute or setting aside the award. In line with the amendment, the Supreme Court of India, in the case of Government of India vs. Vedanta Limited AIR 2020 SC 4550, observed that public policy incorporates India's fundamental policy, interests, justice, and morality.
In recent years, while judgments have effectively narrowed the scope of public policy, enforcement of an international award in India, may face judicial scrutiny, along with technical and procedural challenges.
2. Non-Arbitrability of Certain Disputes
In India, certain disputes are considered non-arbitrable due to their nature or public interest implications. These include criminal offences, matrimonial disputes, insolvency matters, and issues related to rights in rem. Such disputes require judicial intervention as they impact broader societal or public law concerns.
The Supreme Court, in the matter of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532, has outlined that while arbitration supports party autonomy, certain matters, particularly those involving public rights or third-party interests, must remain under the purview of the courts for proper governance and oversight.
3. Interim Measures and Judicial Intervention
Another challenge to the efforts of making India an arbitration-friendly jurisdiction is the extent of judicial intervention. Under Section 9 of the Act, Indian courts have the authority to grant interim measures to safeguard the rights of parties before or during arbitration, even in cases of International Arbitration, unless specifically barred by contract.
Courts often intervene in arbitral proceedings, concerning interim measures, setting aside awards, jurisdictional challenges, and in challenges to the final award, which can undermine the autonomy of the arbitration process.
4. Impleadment of non-signatories to an arbitration proceeding
Under certain circumstances, laws in India allow an organization that is not a signatory to the arbitration agreement, to be made a party to an ongoing arbitration under the doctrine of ‘Group of Companies’. This can undermine party autonomy in situations where a particular party was intentionally excluded from the arbitration agreement.
5. Different rules governing different arbitration institutions:
As arbitration grows in India, various institutions have emerged, each with its own procedural rules. This creates complications for parties involved in multiple arbitrations, especially when procedural rules conflict regarding the consolidation of claims. For example, while some institutions allow for the consolidation of claims arising from separate transactions between the same parties, others do not. This inconsistency forces parties to manage separate arbitration processes, increasing their administrative burden and costs, while limiting their ability to streamline dispute resolution.
6. Delays:
While India is a signatory to the New York Convention, which mandates swift enforcement, the process can be slowed down by challenges based on public policy, the involvement of multiple legal layers, and technical objections raised by parties. Courts may entertain objections that prolong the enforcement timeline, despite the pro-arbitration stance adopted by recent legal reforms.
These delays undermine the efficiency of arbitration as a quick and effective dispute resolution mechanism, causing concerns among foreign investors and businesses.
Conclusion
Recent developments signal India's clear intent to become a hub for international arbitration, making it an increasingly attractive jurisdiction for cross-border dispute resolution. The ability to select the arbitration seat, governing law, and procedural elements offers parties greater flexibility, fostering a more efficient and fair arbitration process.
However, challenges remain, particularly with respect to judicial intervention, enforcement of arbitral awards, and broad interpretations of public policy. Parties should carefully consider these issues when choosing the applicability of Part I of the Arbitration and Conciliation Act, the jurisdiction, and the arbitral institution.
Organizations planning business in India can effectively utilize the pro-arbitration stance, by ensuring that arbitration clauses in contracts are clearly defined, specifying the governing law, the seat of arbitration, and the applicable rules. This clarity helps avoid disputes over the interpretation and other procedural issues that may arise during the arbitration process.
Choosing a reputable arbitration institution that aligns with the line of business and has established procedural rules is also crucial. This choice can significantly impact the efficiency and effectiveness of the arbitration process.
While the Indian arbitral framework has come a long way, it is still a work in progress. By adopting these practices, organizations can maximize the benefits of arbitration, ensuring timely and effective resolution of disputes while maintaining focus on their core objectives.