Branch Manager, Magma Leasing and Finance Limited and Ors. v.

Potluri Madhavilata
(2009)
Core issue: Does the arbitration agreement survive for the purpose of resolution of disputes
arising under or in connection with the contract even if its performance has come to an end
on account of termination due to breach?
Facts: PM hire purchase with MAGMA for purchase of a motor vehicle – pay in 46
installments – default in payment of few installments – MAGMA seized the vehicle – sent a
notice to PM intimating --- hire purchase agreement has been terminated.
PM filed suit against MAGMA seeking recovery of possession & injunction on further
transfer of vehicle. MAGMA application u/s 8—refer the dispute to arbitration. PM said hire
purchase agreement terminated, does not survive – the matter need not be referred to
arbitration. Civil court dismissed MAGMA’s application. HC also.
Supreme Court:
Heyman and Anr. v. Darwins Ltd.—Scope of arbitration clause in the context of a dispute
arising on the question of repudiation of a contract.
Lord Macmillan: “Arbitration clause in a contract is quite distinct from the other clauses. The
other clauses set out the obligations which the parties undertake towards each other, but the
arbitration clause does not impose on one of the parties an obligation in favour of the other. It
embodies the agreement of both parties that, if any dispute arises with regard to the
obligations which the one party has undertaken to the other, such dispute shall be settled by a
tribunal of their own constitution. And there is this very material difference, that whereas in
an ordinary contract the obligations of the parties to each other cannot in general be
specifically enforced and breach of them results only in damages, the arbitration clause can
be specifically enforced by the machinery of the Arbitration Act. The appropriate remedy for
breach of the agreement to arbitrate is not damages, but its enforcement.”
An accord and satisfaction only releases the parties from the obligations under a contract but
does not affect the arbitration clause in it. A dispute whether the obligations under a contract
have been discharged by an accord and satisfaction is no less a dispute regarding the
obligations under the contract. Such a dispute has to be settled by arbitration if it is within the
scope of arbitration clause and either party wants that to be done.
An arbitration clause is a collateral term in the contract, which relates to resolution disputes,
and not performance. Even if the performance of the contract comes to an end on account of
repudiation, frustration or breach of contract, the arbitration agreement would survive for the
purpose of resolution of disputes arising under or in connection with the contract.
Section 16(1) of the Act makes it clear that while considering any objection with respect to
the existence or validity of the arbitration agreement, an arbitration clause which forms part
of the contract, has to be treated as an agreement independent of the other terms of the
contract; and a decision that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause.
An arbitration clause, as is well known, is a part of the contract. It being a collateral term
need not, in all situations, perish with coming to an end of the contract. It may survive. This
concept of separability of the arbitration clause is now widely accepted. In line with this
thinking, the UNCITRAL Model Law on International Commercial Arbitration incorporates
the doctrine of separability in Article 16(1). The Indian law -- the Arbitration and
Conciliation Act, 1996, which is based on the UNCITRAL Model Law, also explicitly adopts
this approach in Section 16(1)(b).
As per Kishorilal Gupta, merely because the contract has come to an end by its termination
due to breach, the arbitration clause does not get perished nor rendered inoperative; rather it
survives for resolution of disputes arising "in respect of" or "with regard to" or "under" the
contract.
For s. 8’s applicability, the following conditions must be satisfied:
(a) that there exists an arbitration agreement;
(b) that action has been brought to the court by one party to the arbitration agreement against
the other party;
(c) that the subject matter of the suit is same as the subject matter of the arbitration
agreement;
Section 8 is in the form of legislative command to the court and once the prerequisite
conditions as aforestated are satisfied, the court must refer the parties to arbitration.
The trial court, in the circumstances, ought to have referred the parties to arbitration as per
arbitration Clause 22--- matter referred to arbitration.

National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2008)

Core issue: whether a dispute raised by an insured, after giving a full and final discharge
voucher to the insurer because he alleges that he was constrained to issue it due to coercion,
undue influence and economic compulsion, can be referred to arbitration?
Facts: BP obtained a standard Fire and Special Perils Policy from NICL to cover its goods
kept in godown. BP alleged – NICL forced it to accept a lower settlement – unless and until
an undated 'Discharge voucher-in-advance' acknowledging receipt of Rs. 2,33,94,964/- in full
and final settlement, no amount would be released towards the claim.
On account of the non- release of the claim, it was in a dire financial condition and it had no
alternative but to yield to the coercion and pressure. BP complained to IRDAI and sent a
notice to NICL as well, if not replied— notice invoking arbitration.
NICL refused arbitration so BP—application u/s 11.
Contentions:
NICL: When a discharge voucher was issued by the respondent, acknowledging receipt of the
amount paid by the appellant, in full and final settlement and confirming that there are no
pending claims against the appellant, such discharge voucher should be accepted on its face
value as a discharge of contract by full and final settlement. BP cannot, while retaining and
enjoying the benefit of the full and final payment, challenge the validity or correctness of the
discharge voucher.
BP: once the petitioner establishes that the contract between the parties contains an
arbitration agreement, and that the dispute raised is in respect of a claim arising out of such
contract, the dispute has to be referred to arbitration; that any contention by the appellant that
there is discharge of the contract by issue of full and final discharge voucher is a matter for
the arbitral tribunal to examine and decide, and cannot be held out as a threshold bar to
arbitration; and that the question whether there was accord and satisfaction, or whether there
was discharge of a contract by performance, is itself a question that is clearly arbitrable.
Where the discharge voucher is given under threat or coercion, resulting in economic duress
and compulsion, such discharge voucher is not valid nor binding on the claimant, and the
dispute relating to the claim survives for consideration and is arbitrable.
Supreme Court:
Referred UOI v. Kishorilal Gupta-- general principles as to when arbitration agreements
operate and when they do not operate:
1. An arbitration clause is a collateral term of a contract distinguished from its
substantive terms; but none the less it is an integral part of it.
2. Howsoever comprehensive the terms of an arbitration clause may be, the existence of
the contract is a necessary condition for its operation; and the arbitration clause
perishes with the contract.
3. A contract may be non est in the sense that it never came legally into existence or it
was void ab initio. In that event, as the original contract has no legal existence, the
arbitration clause also cannot operate, for along with the original contract, it is also
void.
4. Though the contract was validly executed, the parties may put an end to it as if it had
never existed and substitute a new contract for it, solely governing their rights and
liabilities. In such an event, as the original contract is extinguished by the substituted
one, the arbitration clause of the original contract perishes with it.
5. Between the two extremes referred to in paras (c) and (d), are the cases where the
contract may come to an end, on account of repudiation, frustration, breach etc. In
these cases, it is the performance of the contract that has come to an end, but the
contract is still in existence for certain limited purposes, in respect of disputes arising
under it or in connection with it. When the contracts subsist for certain purposes, the
arbitration clauses in those contracts operate in respect of those purposes.
Referred: SBP & Co. v. Patel Engineering Ltd.
1. Chief Justice/his designate will have to decide:
 (a) Whether the party making the application has approached the appropriate High
Court.
(b) Whether there is an arbitration agreement and whether the party who has applied
under Section 11 of the Act, is a party to such an agreement.
2. Chief Justice/his designate may choose to decide (or leave them to the decision of the
arbitral tribunal):
(a) Whether the claim is a dead (long barred) claim or a live claim.
(b) Whether the parties have concluded the contract/ transaction by recording
satisfaction of their mutual rights and obligation or by receiving the final payment
without objection.
3. Chief Justice/his designate should leave exclusively to the arbitral tribunal:
(a) Whether a claim made falls within the arbitration clause.
(b) Merits or any claim involved in the arbitration.

A claim for arbitration cannot be rejected merely or solely on the ground that a settlement
agreement or discharge voucher had been executed by the claimant, if its validity is disputed
by the claimant.
When a contract has been fully performed, there is a discharge of the contract by
performance, and the contract comes to an end. In regard to such a discharged contract,
nothing remains - neither any right to seek performance nor any obligation to perform – there
cannot be any dispute.
If the party who has executed the discharge agreement or discharge voucher, alleges that the
execution of such discharge agreement or voucher was on account of fraud/coercion/undue
influence practiced by the other party and is able to establish the same, then obviously the
discharge of the contract by such agreement/voucher is rendered void and cannot be acted
upon. Consequently, any dispute raised by such party would be arbitrable.
Bharat Heavy Electricals Ltd., - the question whether there was discharge of the contract by
accord and satisfaction or not, is a dispute arising out of the contract, which requires to be
referred to arbitration.
Held: prima facie, there is no accord and satisfaction in this case and the dispute is arbitrable.
But it is still open to the appellant to lead evidence before the arbitrator, to establish that there
is a valid and binding discharge of the contract by way of accord and satisfaction.
Finality given to the order of the court: the 'competence' of the arbitral tribunal to rule
upon its own jurisdiction and about the existence of the arbitration clause, when the Chief
Justice or his designate had appointed the Arbitral Tribunal under Section 11 of the Act, after
deciding upon such jurisdictional issue.
SBP Patel: Section 16 is said to be the recognition of the principle of Kompetenz -
Kompetenz. The fact that the arbitral tribunal has the competence to rule on its own
jurisdiction and to define the contours of its jurisdiction, only means that when such issues
arise before it, the Tribunal can and possibly, ought to decide them. This can happen when
the parties have gone to the arbitral tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under these Sections, before a reference is
made, Section 16 cannot be held to empower the arbitral tribunal to ignore the decision given
by the judicial authority or the Chief Justice before the reference to it was made.
Boghara Polyfab: prima facie of the view that there is no accord and satisfaction in this case
and the dispute is arbitrable. But it is still open to the appellant to lead evidence before the
arbitrator, to establish that there is a valid and binding discharge of the contract by way of
accord and satisfaction.

Mulheim Pipecoatings GmbH v. Welspun Fintrade Limited and Anr. (2014)

Facts: This dispute related to a share purchase agreement ("SPA") entered into by the parties
on 10 December 2004, which contained an arbitration clause. Following a dispute relating to
the transfer of the subject shares, the parties entered into a Memorandum of Understanding
("MOU") on 17 March 2010. That MOU provided new substantive terms that related to
some, but not all, of the subject matter of the SPA, and provided that, upon signing of the
MOU, the SPA would "stand null and void".
The parties continued to be in dispute, and the MP sought a reference to arbitration under
clause 11.13 of the SPA. The MP invoked Section 45 of the Arbitration and Conciliation Act
1996, which provides that when parties have made an arbitration agreement a judicial
authority seized of an action in a matter covered by that agreement shall upon a request being
made refer the parties to arbitration, unless the judicial authority finds that the said agreement
is null and void, inoperative or incapable of being performed.
Issue: whether the arbitration clause in SPA perished upon signing of the MOU and hence a
reference under Section 45 of the Act could not be made?
Mulheim’s contention:
The settlement between the parties as reflected in the MOU does not bring an end to the
arbitration agreement contained in the SPA for the purpose of resolving claims under or in
connection with the SPA prior to the date of the termination of the SPA. The MP submitted
that the MOU did not discharge, modify or vary the SPA and in effect, the arbitration
agreement which is embodied in the SPA constitutes a separate and independent agreement
by virtue of the provisions of Section 16 of the Act and Rule 6(4) of the ICC Rules to which
the parties have subjected themselves. Further, the Appellant submitted that the MOU has, in
fact, been entered into between the parties in exercise of the right of pre-emption under
Clause 8 of the SPA. Moreover, it was submitted that the MOU which was arrived at between
the parties arises out of or in connection with the SPA and the dispute which is sought to be
raised before the arbitral tribunal is for the tribunal to decide.
Welspun Fintrade’s contentions
The WF submitted that in order to make a reference under Section 45 of the Act there must
be a valid, binding and subsisting arbitration agreement between the parties. They contended
that the arbitration agreement in the SPA perished with the SPA by reason of the MOU being
executed and the MOU has no arbitration agreement. Moreover, they submitted that the
MOU put an end to the SPA completely and irrevocably substituted it by separate obligations
inconsistent with those of the SPA. The terms of the SPA and MOU are so inconsistent that
the two cannot subsist simultaneously and the MOU specifically provides that on its
execution, the SPA has become null and void. The rights and obligations between the parties
arise out of the MOU alone and not out of the SPA. Finally, they submitted that any dispute
under the MOU would have to be resolved without recourse to arbitration as the MOU does
not contain an arbitration agreement. The subject matter of the SPA is completely different
and the arbitration clause cannot cover disputes under the MOU even if the arbitration
agreement subsists.
Held:
Heyman v. Darwin
Kishorilal Gupta: That a contract has come to an end by frustration does not put an end to the
contract for all purposes, because there may be rights and obligations which had arisen earlier
when it had not come to an end, as it is only the future performance of the contract that has
come to an end.
Where an application is filed before the Court under Section 45, the issue as to whether the
arbitration agreement is null and void, inoperative or incapable of being performed has to be
decided by the Court. A decision on this cannot be relegated to the arbitral tribunal.
Section 16 contemplates that the arbitrator may determine its own jurisdiction. Absence of
such a provision in Part II Chapter I is suggestive of the requirement for the court to
determine the ingredients of Section 45, at the threshold itself. It is expected of the court to
answer the question of validity of the arbitration agreement, if a plea is raised that the
agreement containing the arbitration clause or the arbitration clause itself is null and void,
inoperative or incapable of being performed.
Section 45 requires the Court to focus upon whether the arbitration agreement is null and
void, inoperative or incapable of being performed. Parliament has carefully, in selecting the
language of the statutory provision, required the Court to apply its mind to the subsistence
and validity of the arbitration agreement and not to whether the main contract of which the
arbitration agreement is but a collateral part is valid or continues to subsist.
The arbitration agreement can be invalidated only on a ground which relates to the arbitration
agreement and is not merely a consequence of the invalidity of the main agreement. The
doctrine of separability requires direct impeachment of the arbitration agreement before it can
be set aside. This is an exacting test. The argument must be based on facts which are specific
to the arbitration agreement. Allegations that are parasitical to a challenge to the validity to
the main agreement will not do.
The Court held that, Section 45 incorporates the fundamental principle of the separability of
the arbitration agreement, as distinct from the underlying contract between the parties of
which the agreement to arbitrate is a part.
The court, to which an application under Section 45 of the Act has been made, has to
determine as to whether the parties have made an agreement in writing for arbitration to
which the New York Convention applies. If they have, the court has no discretion, but to
refer them to arbitration, unless the case falls in the exception which is carved out by the
provision. The exception is that the arbitration agreement must be found to be null and void,
inoperative or incapable of being performed.
what the MOU between the parties has sought to achieve is to provide for the discharge of the
remaining obligation under the SPA by an altered or substituted performance. It is in that
sense that the SPA is stated by the parties to have been rendered null and void.
With regards when the arbitration agreement would be null and void, the Court importantly
distinguished between termination bringing the further performance of the contract to an end
and termination bringing the existence of the contract to an end. It opined that in the former
case, like in the case at hand, the arbitration clause would survive whereas it was on in the
latter that the arbitration clause would not survive.
Formulating the essential features of the doctrine of separability the Court held that:
1. Upon the termination of the main contract, the arbitration agreement does not ipso
facto or necessarily come to an end and would depend upon the nature of the
controversy and its effect upon the existence or survival of the contract itself;
2. If the nature of the controversy is such that the main contract would itself be treated as
non est in the sense that it never came into existence or was void, the arbitration
clause could not operate, for along with the original contract, the arbitration
agreement would also be void;
3. Similarly, when the contract was validly executed but parties put an end to it, as if it
had never existed, and substitute it with new contract solely governing their rights and
liabilities thereunder, the arbitration clause forming a part of the old contract would
perish with it;
4. But where only the future performance of the contract has come to an end and the
contract is not put to an end for all purposes because there may be rights and
obligations which had arisen earlier when it had not come to an end, the contract
subsists for those purposes and the arbitration clause would operate for those
purposes;
5. The doctrine of separability requires, for the arbitration agreement to be null and void,
inoperative or incapable of performance, a direct impeachment of the arbitration
agreement and not simply a parasitical impeachment based on a challenge to the
validity or enforceability of the main agreement.

In holding that the arbitration clause had perished with the SPA in toto, the Learned Single
Judge has, with respect, overlooked that under Section 45 what the Court was called upon to
decide is not whether the main contract had been discharged, terminated or extinguished but
whether the arbitration agreement has been rendered null and void, inoperative or incapable
of performance. For that, the ground of challenge must be based on facts which are specific to
the arbitration agreement.
When by their mutual agreement they purported to resolve the modalities for working out the
performance of the clause on pre-emption, that did not render the arbitration agreement null
and void, inoperative or incapable of performance.
Once the exclusion contained in Section 45 is not attracted, parties must be referred to
arbitration.

N. Radhakrishnan v. Maestro Engineers and Ors. (2009)

Facts: Dispute was relatable to the factum of retirement of NRK from the partnership firm
and its reconstitution after the ME had created a new partnership deed to that effect without
NEK being a part of it, was unfair and not proper.
N. Radhakrishnan’s contention:
NRK had only made a conditional offer to retire from the firm provided his dues were settled
and the respondents had grossly made a wilful error in considering his offer as a final one
and, therefore, committed a grave error by reconstituting the partnership firm after taking the
appellant to have retired from the same.
NRK cited a catena of judicial pronouncements to contend that when there is an express
provision to that effect, the civil courts are bound to refer the matter to an Arbitrator in case
of any disputes arising between the parties. The appellant had raised various issues relating to
misappropriation of funds and malpractices on the part of the respondents and the allegations
to that effect have been made in the notice sent to the respondents and subsequently in its
written statement filed before the civil court.
Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums- If in an agreement
between the parties before the civil court, there is a clause for arbitration, it is mandatory for
the civil court to refer the dispute to an arbitrator.

Maestro Engineers’ Contention:

Sent a notice to the effect to NRK stating that his offer to retire from the firm was accepted
by them and his dues would be settled accordingly within 15 days from the receipt of the
notice dated 3rd of March, 2005 sent by the appellant intimating about his retirement.
when a case involves substantial questions relating to facts where detailed material evidence
(both documentary and oral) needed to be produced by either party, and serious allegations
pertaining to fraud and malpractices were raised, then the matter must be tried in court and
the Arbitrator could not be competent to deal with such matters which involved an elaborate
production of evidence to establish the claims relating to fraud and criminal
misappropriation.
Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak and Anr- There is no doubt that
where serious allegations of fraud are made against a party and the party who is charged with
fraud desires that the matter should be tried in open court, that would be a sufficient cause for
the court not to order an arbitration agreement to be filed and not to make the reference.
Oomor Sait HG v. Asiam Sait- Civil Court can refuse to refer matter to arbitration if
complicated question of fact or law is involved or where allegation of fraud is made.
Issue: whether the case falls within the jurisdiction of the Arbitrator, and if it does, whether
the procedural requirements under Section 8(2) of the Act had been complied with to the
satisfaction of the court.
Held: since the case relates to allegations of fraud and serious malpractices on the part of the
respondents, such a situation can only be settled in court through furtherance of detailed
evidence by either party and such a situation cannot be properly gone into by the Arbitrator.
Facts of the present case does not warrant the matter to be tried and decided by the Arbitrator,
rather for the furtherance of justice, it should be tried in a court of law which would be more
competent and have the means to decide such a complicated matter involving various
questions and issues raised in the present dispute.

Swiss Timing Limited v. Organising Committee, Commonwealth Games (2014)

Facts: from notes.
the concept of separability of the arbitration clause/agreement from the underlying contract
has been statutorily recognised by this country Under Section 16 of the Arbitration Act, 1996.
Having provided for resolution of disputes through arbitration, parties can not be permitted to
avoid arbitration, without satisfying the Court that it will be just and in the interest of all the
parties not to proceed with the arbitration. Section 5 of the Arbitration Act provides that the
Court shall not intervene in the arbitration process except in accordance with the provisions
contained in Part I of the Arbitration Act. This policy of least interference in arbitration
proceedings recognises the general principle that the function of Courts in matters relating to
arbitration is to support arbitration process. A conjoint reading of Section 5 and Section 16
would make it clear that all matters including the issue as to whether the main contract was
void/voidable can be referred to arbitration. Otherwise, it would be a handy tool available to
the unscrupulous parties to avoid arbitration, by raising the bogey of the underlying contract
being void.
Section 8 of the Arbitration Act, which provides that a reference to arbitration shall be made
if a party applies not later than when submitting his first statement on the substance of the
dispute. In contrast, Section 45 of the aforesaid Act permits the Court to decline reference to
arbitration in case the Court finds that the agreement is null and void, inoperative or
incapable of being performed.
The Court ought to decline reference to arbitration only where the Court can reach the
conclusion that the contract is void on a meaningful reading of the contract document itself
without the requirement of any further proof.
This case is clearly distinguishable and hence is not applicable into the facts and
circumstances of the present case because of the following reasons: Firstly, there has been no
conviction in the present case, though the trial has been going on against the officials of both
the parties. Secondly, there is no injunction or any other order restraining the Petitioner from
invoking the Arbitration Clause. Lastly, all the conditions precedent for invoking the
arbitration clause have been satisfied by the Petitioner, as observed earlier.

A. Ayyasamy v. A. Paramasivam (2016)

Core issue: arbitrability of fraud claims in domestic arbitration cases.
The case arose out of a dispute between brothers who entered into a partnership deed for
running a hotel. The respondents filed a suit against the appellants seeking a declaration of
their entitlement to participate in the administration of the hotel. The appellants filed an
application under Section 8 in order to give effect to the arbitration clause in the partnership
deed. The respondents resisted the application by claiming that since there were serious
allegations of fraud, the case could not be referred to the arbitrator. The respondents relied on
Maestro, whereas the appellants relied on Swiss Timings to oppose it.
The Court at the very outset established that the issue was that of "arbitrability", by noting
that the Act "does not make any specific provision excluding any category of disputes
terming them to be non-arbitrable". Arbitrability in its accepted usage means that the subject
matter of a dispute is "capable of being resolved by arbitration". It may sometimes be used in
a broader meaning, covering even the existence and validity of the arbitration agreement.
However, such usage is often criticized for creating confusion.
Certain disputes are exclusively reserved for national courts due to their very nature as
adjudication of such disputes may have public consequences. This is termed as objective
arbitrability. Arbitrability has been defined as "one of the issues where the contractual and
jurisdictional natures of international commercial arbitration collide head-on." In determining
arbitrability, a court should assume that the process of arbitration is effective and efficient
and the consent of the parties is implied. In our opinion, the Court's consideration of the issue
of arbitrability was bereft of any such assumption and its conclusion is a result of its
apprehensions towards the process of arbitration. In Ayyasamy, the Court held that in a
Section 8 application, the Court must decide the arbitrability of the dispute. It went on to
consider the existing authorities of Abdul Kadir and Maestro. The Court distinguished the
dicta in both cases by holding that they are applicable when there are "serious allegations of
fraud" and not when there are mere allegations of fraud. So, the Court found that "serious
allegations of fraud" are not arbitrable whereas "mere allegations of fraud" are. The authors
find the distinction between a "serious allegation" and a "mere allegation" a very vague one.
If serious allegations of fraud would have meant allegations of fraud deserving a criminal
trial (which the judgment contemplates to an extent), it would have been in line with the
Booz Allen test as such fraud would affect rights in rem. But this understanding is partly
correct. Whether the allegations are "serious" or not must be determined by looking at the
amount and nature of the evidence which would be adduced before the tribunal to establish it.
This interpretation gives the court a wide amount of discretion in deciding what amounts to a
serious allegation of fraud. The use of vague phrases like "serious allegations" allows the
Courts to find discretion when there should be none. No uniformity can be achieved through
the distinction between "serious" and "mere allegations", since it will depend upon the
attitude of the Court towards arbitration. A court which is pro-arbitration might find that the
arbitral tribunal is capable of dealing with a certain amount and nature of evidence, as well as
civil courts can. However, a court which, is apprehensive about arbitration may decide
otherwise. The judgment in Ayyasamy is clearly a result of the Court's apprehensions
towards arbitration. In this regard the Law Commission suggested amendments to Section 16
which would affirm the tribunal's power to rule on "serious questions of law, complicated
questions of fact or allegations of fraud, corruption etc." This suggestion not only implies that
fraud should be arbitrable, but also contemplates negative kompetenz-kompetenz, wherein
the tribunal shall rule on issues of fraud. The legislature did not incorporate the suggestions in
the 2015 amendment Act.

A simple allegation of fraud may not be a ground to nullify the effect of an arbitration
agreement. However, when serious allegations of fraud are involved, the Supreme Court held
that courts can dismiss an application to refer a dispute to arbitration under Section 8 of the
Act. Serious allegations of fraud would involve:

 Allegations that would make a virtual case of criminal offence;

 Allegations of fraud so complicated that it becomes essential that such complex issues
can be decided only by civil court on the appreciation of the voluminous evidence that
needs to be produced;
 Serious allegations of forgery/fabrication of documents in support of the plea of fraud;
 Where fraud is alleged against the arbitration provision itself or is of such a nature
that permeates the entire contract, including the agreement to arbitrate, meaning
thereby in those cases where fraud goes to the validity of the contract itself of the
entire contract which contains the arbitration clause or the validity of the arbitration
clause itself.
In Ayyasamy, the Supreme Court had further held that in the scenario where there are simple
allegations of fraud touching upon the internal affairs of the parties inter se without any
implication in the public domain, the arbitration clause need not be avoided and the parties
can be relegated to arbitration.
Critiquing Ayyasamy
The decision of the Indian Supreme Court in A. Ayyasamy v. A. Paramasivam (‘Ayyasamy’)
[(2016) 10 SCC 386] has been previously discussed on this blog here, and here. This post
seeks to analyse the distinction between arbitrability of fraud concerning India-seated
arbitrations and foreign-seated arbitrations created as a result of this judgment.
The court in World Sport Group Ltd. v. MSM Satellite (‘World Sport’) [(2014) 11 SCC 639]
had concluded that disputes involving fraud are arbitrable (without making a differentiation
between mere allegations of fraud and serious allegations of fraud as made in Ayyasamy), so
far as foreign-seated arbitrations are concerned. However Ayyasamy declares that serious
allegations of fraud are inarbitrable in India-seated arbitrations, thus creating an artificial
difference concerning arbitrability of fraud between foreign-seated and India-seated
arbitrations. While all disputes involving fraud are arbitrable for foreign-seated arbitrations,
serious allegations of fraud are inarbitrable for domestic arbitrations. There appears to be no
legal basis for this differentiation.
Indian case law, as well as jurisprudence in other countries have indeed differentiated
between domestic and international public policy, the latter often construed more narrowly
than the former for considerations of international trade and commerce. However courts
haven’t used public policy as the reason for having different standards for arbitrability of
fraud for domestic and international arbitrations, which but would have also required making
differentiation between international commercial arbitrations seated in India, and pure
domestic arbitrations seated in India.
The reasoning of courts rather, is rooted in the competence of the arbitral tribunal; though
there exists no evidence to the effect that tribunals appointed in foreign-seated arbitrations are
more competent than those appointed for arbitrations seated in India, nor do these form two
separate groups – the same arbitrator can be appointed for both foreign and India seated
arbitrations. The argument that it is more legitimate to interfere in domestic awards than in
foreign awards might be plausible, but has not been fleshed out by the court either.
§8 and 45 provide for the powers of the Indian courts to refer disputes to arbitration, when
there exists an arbitration agreement concerning the dispute prescribing for India-seated and
foreign-seated arbitrations respectively. The difference in the language of §§8 and 45 of the
Indian Arbitration and Conciliation Act, 1996, where the latter allows for more interference
than the former, can be argued as a source of this differentiation similar to the rationale in the
case of Swiss Timing Ltd. v. Organising Committee [(2014) 6 SCC 677, ¶28]. However there
is a difference between the issues of court interference in the determination of arbitrability
and determination of whether a particular dispute is arbitrable. The former is a procedural
enquiry, while the latter is substantive. The difference in the language of the aforementioned
sections can at best be a source of the procedural enquiry, i.e. for the argument that courts can
decide arbitrability of the dispute before making a reference under §45, as against under §8;
but not for the substantive enquiry. Though the difference in the substantive enquiry resulting
from the difference in the languages of §§ 8 and 45 has been undertaken in previous cases as
well. [See, Shin-Etsu Chemicals Co. v. Aksh Optifibre Ltd., (2005) 7 SCC 234; Kalpana
Kothari v. Sudha Yadav, (2002) 1 SCC 203; Chloro Controls India (P) Ltd. v. Severn Trent
Water Purification Inc., (2013) 1 SCC 641; India Household & Healthcare Ltd. v. LG
Household & Healthcare Ltd., (2010) 1 SCC 72; Sundaram Brake Linings v. Kotak Mahindra
Ltd., (2010) 4 Comp. L.J. 345 (Mad).]
If anything, the difference in language demanded explanation from the bench in World Sport,
when it expanded the ambit of arbitrability under §45 in comparison with §8. This is because
even assuming that the difference in language can be a source of the substantive enquiry as
well, language of §45 is more permissible than that of §8 (allowing for greater interference in
foreign-seated arbitrations), leading to a reverse conclusion from the present position of law.
Chandrachud J. in his concurring opinion in Ayyasamy indeed misses the opportunity to
notice this flaw. In the course of his opinion, he draws attention to the difference in the
language of §8 of the Act, and the corresponding provision in the UNCITRAL Model Law,
the latter also allowing the courts to decline reference to arbitration when the AA is “null and
void, inoperative and incapable of being performed”. This leads the court to conclude that §8,
as against the provision in UNCITRAL Model Law, is mandatory in nature (though the
conclusion reached by the court in Ayyasamy does not seem to be in accordance with this
peremptory language). §45 mirrors the language of UNCITRAL Model Law, yet ironically,
the court concludes that the ambit of arbitrability while making a reference under §8 is
narrower than §45 (while the court does not state so explicitly, though the legal position after
the pronouncement of Ayyasamy is exactly this).
At another level, it is suspect if Indian law should at all govern the question of arbitrability in
all foreign arbitrations, unless Indian courts also have exclusive natural jurisdiction over the
dispute. If such jurisdiction does not exist, the issue should be decided in accordance with the
law of the seat or the law of the place of enforcement. Hence, application of Indian law to the
question of arbitrability in foreign-seated arbitrations is in itself problematic. Indian courts, as
against elsewhere in the world, have applied the substantive law of contract to the question of
arbitrability (Reliance Industries Ltd. v. Union of India, 2014 SCC Online SC 411, ¶76: Note
that this judgment was passed after World Sport). Yet, in the context of arbitrability of fraud,
without making the analysis of the applicable law, courts have used Indian law for making
the determination. For instance in World Sport, the substantive law of contract was that of
England and Wales, where fraud, irrespective of its seriousness, is arbitrable (Fili Shipping v.
Premium Nafta Products, [2007] UKHL 40), yet this did not find traction in the judgment of
the court.
Lastly, the position as it stands right now goes against the precedent in National Insurance
Co. Ltd. v Boghara Polyfab Pvt. Ltd. [(2009) 1 SCC 267], which had explicitly denied the
court the power to rule upon the question of arbitrability at the stage of reference, ruling this
to be the mandate of the arbitral tribunal under §16 of the Act. [See also, Meguin GmBH v.
Nandan Petrochem Ltd. (2007) 5 RAJ 239 (SC) (appointed arbitrator in accordance with §11,
despite involvement of issues of fraud in the dispute); SBP & Co. v. Patel Engineering Ltd.,
(2005) 8 SCC 618; Arasmeta Captive Power Co. (P) Ltd. v. Lafarge India (P) Ltd., (2013) 15
SCC 414].
Incidentally, §7 as well was sought to be amended by the 246th Report, making it clear that
the subject matter of the arbitration had to be capable of settlement by arbitration for it to be a
valid AA, however this suggestion was not introduced in the final amendment act.
As suggested previously, the language of neither §45, nor §§8 and 11, warrant the court to
answer the question of arbitrability. Indeed both Swiss Timing and World Sport are decisions
based on this reasoning, rather than arbitrability of fraud. Ayyasamy on the other hand,
licenses the court to determine the question of arbitrability and analyse the merits of the
dispute to the extent required in determining whether allegations of serious fraud are
involved. The tribunal might in fact feel obligated by such determination by the court, even
when it might think otherwise.

COMMENTS ON A. AYYASAMY V. A. PARAMASIVAM

Arbitrability of fraud claims
Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak (1962)
The issue of arbitrability of fraud claims was authoritatively dealt with by the Supreme Court
for the first time in the landmark case of Abdul Kadir Shamsuddin Bubere v. Madhav
Prabhakar Oak ("Abdul Kadir"). In Abdul Kadir, the court relied on the Chancery Division's
judgment in Russell v. Russells and held that in a case where fraud has been alleged, if the
party charged with fraud desires so, the matter shall not be referred to arbitration. According
to the Court, the party charged with fraud must get an opportunity to prove himself innocent
in an open court. Abdul Kadir was decided under the Arbitration Act, 1940, which gave the
courts a wide discretion with regard to referring a case to arbitration. The Madras High Court
also opined on the issue of arbitrability of fraud claims prior to Abdul Kadir, wherein
Schwabe, C.J. opined that if the court finds that an arbitral tribunal cannot mete out complete
justice or that there are charges of fraud, reference to arbitration may be refused. Authors
have noted that this approach was based purely on an apprehension towards arbitration and
that by considering Russell, the Supreme Court adopted a more "tempered view". The Court,
in Abdul Kadir, was aware of the wide discretion conferred upon it, which was the
"hallmark" of the 1940 Act. On finding the facts, however, the Court found that the
allegations of fraud, which related to statements of accounts and records of stock of goods,
were not "serious allegations of fraud". These allegations were not serious enough to warrant
a trial in an open court over arbitration. The Court did not clarify what it meant by "serious
allegations of fraud", nor did it lay down any parameters for determining the same. It was left
to the discretion of the Courts to determine such an issue, a discretion which the 1940 Act
accorded to them.
Arbitrability of fraud u/ 1996 Act
While Abdul Kadir was good law for a very long time, it was necessary to reconsider it for
two reasons. Firstly, because Russell, on which the Court in Abdul Kadir placed substantial
reliance, had some glaring problems which were pointed out by the House of Lords as well as
Indian Courts." Secondly, because the 1996 Act curtailed the discretion of the Courts with
regard to reference to arbitration under Section 8. The Apex Court considered the issue again
in N. Radhakrishnan v. Maestro Engineers ("Maestro"). Maestro was decided by a Division
Bench under Section 8. In Maestro, the Court found at the outset that the arbitration clause in
the case covered the dispute in question. However, it proceeded to rule that that the case can
only be settled in court as it involved serious allegations of fraud. The court reasoned that
such allegations require adducing of detailed evidence, which cannot be dealt with properly
by an arbitrator. The Apex Court relied upon a number of cases, including Abdul Kadir, to
arrive at its conclusion. However, it failed to distinguish Abdul Kadir as an authority under
the old Act, perhaps because there was no need to do so. Maestro was interpreted as a blanket
ban on referring parties to arbitration when fraud has been alleged, whereas the Law
Commission Report recognized Abdul Kadir as an "authority for the proposition that a party
against whom an allegation of fraud is made in a public forum, has a right to defend himself
in that public forum."
The most problematic aspect of Maestro is its use of the term "serious allegations of fraud".
The Court, in Maestro, uses this term to distinguish non-arbitrable subject matters. However,
it fails to define any set parameters to assess the "seriousness" of an allegation of fraud. The
judgment in Ayyasamy also attempted to distinguish between a mere allegation of fraud and a
serious allegation of fraud; however, the Court failed in that regard.
MSM & Swiss Timing
Academic works and even Courts often read the cases of World Sport Group (Mauritus) Ltd.
v. MSM Satellite (Singapore) ("MSM") 16 and Swiss Timing Ltd. v. Organising Committee,
Commonwealth Games 201017 ("Swiss Timing") as rulings on arbitrability of fraud. But
neither of these cases dealt with the issue of arbitrability of fraud claims. Rather, the Apex
Court in both instances dealt with the principles of kompetenz-kompetenz and autonomy
(separability) of the arbitration agreement.
In Swiss Timing, the issue framed was not of arbitrability but again that of jurisdiction. The
Court had to decide whether the contract between the parties was void on the ground of there
being fraud. The Court refused to apply Maestro and held it to be per incuriam for not relying
on the cases of Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums and P.
Anand Gajapathi Raju Ors. v. P.V.G. Raju (Dead) & Ors., where the Apex Court held that
Section 8 mandates a reference to arbitration according to the terms of the agreement. The
Court, in Swiss Timings, also noted that the judgment in Maestro did not rely on Section 16 of
the Act and thus ignored the cardinal principles of arbitration, i.e., autonomy of the
arbitration agreement and kompetenz-kompetenz. The Court adopted the policy of least
interference embodied in Section 5 and Section 16 to arrive at its conclusion that the Court
should decline reference to arbitration only when it finds that the contract is void on a reading
of the contract itself (without requiring any external evidence).
Even though none of the cases dealt with the issue of arbitrability, they are often discussed in
the context of arbitrability of fraud claims. Both these cases did not consider a fraud claim as
something which is not capable of settlement by arbitration. Instead, they relied on well-
established principles and policies of arbitration and deferred to the statutory provisions to
arrive at their conclusions. The judgment came into question because a bench of lower
strength cannot overrule a decision by a bench of higher strength. Thus, even though Swiss
Timings took a progressive view it did not lay down any precedent and the issue of
arbitrability of fraud was governed by the Maestro dicta until Ayysamy.

JURISDICTION OF INDIAN COURT IN FOREIGN SEATED ARBITRATION:

Applicability of Part I of the act in foreign seated arbitration
It was being said that the unamended s. 2(2) said that part I of the act applies to arbitration
taking place in India—this means in a foreign seated arbitration, the Indian court will have no
jurisdiction. But Bhatia said that it will have jurisdiction unless by express provision or by
necessary implication the parties have excluded the applicability of Part I of the act in a
foreign seated arbitration.
Bhatia International v. Bulk Trading S.A. and Ors. (2002)
Bhatia entered into a contract with the Bulk Tr- arbitration as per the rules of ICC. Bulk Tr.
filed a request for arbitration with ICC – held in Paris. A sole arbitrator was appointed by
ICC. Bulk Tr. filed an application under Section 9 before the IIIrd Additional District Judge,
Indore, M.P. against Bhatia. One of the interim reliefs sought was an order of injunction
restraining Bhatia from alienating, transferring and/or creating third party right, disposing of,
dealing with and/or selling their business assets and properties. The Bhatia questioned the
maintainability of the application contending that Part I of the said Act would not be
applicable to the arbitrations where the place of arbitration is not in India. Dismissed by the
Additional District Judge and it was held that the court had the jurisdiction thus holding the
application maintainable. The Bhatia filed a writ petition in the High Court and the same was
dismissed.
Issue: power of Indian court to grant interim relief in a foreign seated arbitration.
Contentions:
The main contention of Bhatia was that the Part I of the said Act was only applicable to
arbitrations where the place of arbitration is in India. They submitted that if the place of
arbitration is not in India, then Part II of the said Act would apply. Bhatia submitted that sub-
section (2) Section 2 of the said Act which provides that Part I shall apply where the place of
arbitration is in India. It was also contended that the said Act is based on UNCITRAL Model
Law of which Article 1(2) of which the section provides that the law, except Articles 8, 9, 35
and 36 of the Model Law, would apply only if the Arbitration takes place in the territory of
the State. It was submitted that whilst framing the said Act the Legislature has purposely not
adopted Article 1(2) of the UNCITRAL Model Law which clearly shows the intention of the
Legislature that they did not want Part I to apply to arbitrations which take place outside
India. When arbitration is being held in Paris i.e. out of India, to such arbitrations part I does
not apply. Sec 9 and 17 fall in part I. Therefore, Sec 9 and 17 would not apply and cannot be
used in cases where the place of arbitration is not in India.
In cases, where arbitrations take place outside India they would be governed by the rules of
the country or the body under whose jurisdiction they are being conducted. He submits that
under the ICC Rules of Arbitration Article23 provides for interim measures. The remedy, if
any, is to apply for interim relief under Article 23.
Court’s observations:
The Court observed that by accepting the arguments of the appellant it would mean that the
court is holding that the legislature has left a void in the said Act. There would be a lacuna as
neither part I or II would apply to arbitrations held in a country which is not a signatory to the
New York Convention or the Geneva Convention (non-convention country). It would
indicate that there is no law, in India, governing such arbitration.
A party would be left remediless inasmuch as in international commercial arbitration which
take place out of India the party would not be able to apply for interim relief in India even
though the properties and assets are in India. Thus, a party may not be able to get any interim
relief at all.
Lead to a conflict between sub-section (2) of Section 2 on one hand and sub-sections (4) and
(5) of Section 2 on the other. Further sub-section (2) of Section 2 would also be in conflict
with Section 1 which provides that the Act extends to the whole of India.
Lead to an anomalous situation, inasmuch Part I would apply to Jammu and Kashmir in all
international commercial arbitrations but Part I would not apply to the rest of India if the
arbitration takes place out of India.
The said Act nowhere provides that its provisions are not to apply to international
commercial arbitrations which take place in a non-convention country. Admittedly Part II
only applies to arbitrations which take place in a convention country. The definition does not
provide that the Courts in India, will not have jurisdiction if an international commercial
arbitration takes place outside India. An ouster of jurisdiction cannot be implied. An ouster of
jurisdiction has to be express.
Sub-section (2) of Section (2) provides that Part I would apply where the place of arbitration
is in India. To be immediately noted that it is not providing that Part I shall not apply where
the place of arbitration is not in India. It is also not providing that Part I will "only" apply
where the place of arbitration is in India. The omission of the word "only" in Section 2(2)
indicates that this sub-section is only an inclusive and clarificatory provision.
By omitting to provide that Part I will not apply to international commercial arbitrations
which take place outside India the affect would be that Part I would also apply to
international commercial arbitrations held out of India.
To conclude we hold that the provisions of Part I would apply to all arbitrations and to all
proceedings relating thereto. Where such arbitration is held in India the provisions of Part I
would compulsory apply and parties are free to deviate only to the extent permitted by the
derogable provisions of Part I. In cases 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. 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.

Venture Global Engineering v. Satyam Computer Services Ltd. and Ors. (2008)
VGE, a company incorporated in the United States of America and SCS entered into a Joint
Venture Agreement to constitute a company named Satyam Venture Engineering Services
Ltd in which both the appellant and respondent have 50 per cent equity shareholding.
Another agreement was also executed between the parties on the same day being the
Shareholders Agreement which provides that disputes have to be resolved amicably between
the parties and failing such resolution, the disputes are to be referred to arbitration.
Disputes arose between the parties. SCS alleged that VGE had committed an event of default
under the Shareholders Agreement. SCS filed a request for arbitration with the London Court
of International Arbitration which appointed a sole arbitrator. Arbitrator passed an award
directing VGE to transfer its share to SCS. SCS filed a petition to recognize and enforce the
award before the US Court. VGE objected to the enforcement of the Award saying it was in
violation of Indian Laws and Regulations specifically FEMA. VGE filed a suit City Civil
Court, Secunderabad seeking declaration to set aside the award and permanent injunction on
the transfer of shares under the Award. District court passed ex parte ad interim order of
injunction. SCS appealed before the AP HC. HC dismissed the appeal holding that the award
cannot be challenged even if it is against the public policy and in contravention of statutory
provisions.
Issue: jurisdiction of Indian court for setting aside a foreign award u/s 34.
VGE’s Contentions: The claim that Part I of the Arbitration and Conciliation Act, 1996
applies to foreign awards is covered by the judgment of this Court in Bhatia. SCS could not
have pursued the enforcement proceedings in the District Court in Michigan, USA in the
teeth of the injunction granted by the Courts in India which also, on the basis of the Comity
of Courts should have been respected by the District Court in Michigan.
SCS’ contentions: In view of Section 44 of the Act and the terms of the agreement, no suit
would lie in India to set aside the Award, which is a foreign Award. No application under
Section 34 of the Act would lie to set aside the Award. In view of the provisions of the Act
and the terms of the agreement, the SCS rightly sought enforcement of the Award in
Michigan, USA, hence the civil suit filed at Secunderabad is not maintainable.

Ruling:
In any event, to apply Section 34 to foreign international awards would not be inconsistent
with Section 48 of the Act, or any other provision of Part II as a situation may arise, where,
even in respect of properties situate in India and where an award would be invalid if opposed
to the public policy of India, merely because the judgment-debtor resides abroad, the award
can be enforced against properties in India through personal compliance of the judgment
debtor and by holding out the threat of contempt as is being sought to be done in the present
case. In such an event, the judgment-debtor cannot be deprived of his right under Section 34
to invoke the public policy of India, to set aside the award.
The extended definition of public policy, as provided in the case of ONGC v. Saw Pipes, can
be by-passed by taking the award to a foreign country for enforcement.
The court agrees with the conclusions of Bhatia that:

 provisions of Part I of the Act would apply to all arbitrations including international
commercial arbitrations and to all proceedings relating thereto.
 where such 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.
 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.
SCS, in enforcing the Award in the US District Court instead of Indian Courts was motivated
by the intention of evading the legal and regulatory scrutiny to which this transaction would
have been subject to had it been enforced in India. In the light of the statutory provisions as
provided in the Companies Act and FEMA.
The effort of SCS was to avoid enforcement of the Award under Section 48 of the 1996 Act
which would have given VGE, the benefit of the Indian Public Policy rule based on the
judgment in the Saw Pipes case and for avoiding the jurisdiction of the Courts in India though
the award had an intimate and close nexus to India in view of the fact that, (a) the company
was situated in India; (b) the transfer of the "ownership interests" shall be made in India
under the laws of India as set out above; (c) all the steps necessary have to be taken in India
before the ownership interests stood transferred. If therefore, SCS was not prepared to
enforce the Award in spite of this intimate and close nexus to India and its laws, the VGE
herein would certainly not be deprived of the right to challenge the award in Indian Courts.
In this proceeding, we are not deciding the merits of the claim of both parties, particularly,
the stand taken in the suit filed by the appellant- herein for setting aside the award. It is for
the concerned court to decide the issue on merits and we are not expressing anything on the
same. The present conclusion is only with regard to the main issue whether the aggrieved
party is entitled to challenge the foreign award which was passed outside India in terms of
Section 9/34 of the Act.
Though in Bhatia International (supra) the issue relates to filing a petition under Section 9 of
the Act for interim orders the ultimate conclusion that Part I would apply even for foreign
awards is an answer to the main issue raised in this case. We agree with this conclusion, and
we have not expressed anything on the merits of claim of both the parties.
Criticism of Venture:
The new procedure is that a person seeking to enforce a foreign award has not only to file an
application for enforcement under Section 48 of the Act, it has to meet an application under
Section 34 of the Act seeking to set aside the award. The new ground is that not only must the
award pass the New York Convention grounds incorporated in Section 48, it must pass the
expanded; public policy’ ground created under Section 34 of the Act. In practice, the
statutorily enacted procedure for enforcement of a foreign award would be rendered
superfluous till the application for setting aside the same (under Section 34) is decided. The
statutorily envisaged grounds for challenge to the award would also be rendered superfluous
as notwithstanding the success of the applicant on the New York Convention grounds, the
award would still have to meet the expanded ‘public policy’ ground (and virtually have to
meet a challenge to the award on merits).

Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd. the parties had not chosen the
law governing the arbitration procedure including the seat/venue of arbitration and it was,
therefore, that the Court went on to exercise the jurisdiction under Section 11(6) of the Act. It
was specifically found therein that there was no exclusion of the provisions of the Act by the
parties either expressly or impliedly, which is clear from the observations made in the
paragraph 37 of that judgment.

Citation Infowares Limited v. Equinox Corporation (2009) S JB

Facts: Citation (Indian Co.) entered into an agreement in India with Equinox (US company).
The governing law in this agreement was stipulated as the law of California, United States. In
pursuance of the agreement, CI created some infrastructure in Gurgaon, for Equinox’s
business. Disputes arose between the parties which resulted in Equinox terminating the
agreement. CI incurred huge loss. CI consequently claimed for damages, along with its
outstanding payment. Further, CI issued a notice to arbitrate to invoke the dispute resolution
clause and sought appointment of a sole arbitrator under the final agreement. However, the
parties could not mutually agree upon a sole arbitrator to adjudicate the dispute. This resulted
in the filing of an application under Section 11(5) of the Arbitration and Conciliation Act
before the chief justice of India in order to appoint the sole arbitrator.
Issues: Whether Chief Justice of India had jurisdiction to entertain an application for
appointment in an agreement wherein the parties had agreed that Californian law would be
the governing law of the contract.
Whether Part I of the Arbitration and Conciliation Act, which applies to arbitrations, the seat
of which is in India and contains Section 11, was applicable where there is no agreement on
the place of arbitration.
Contentions: According to CI, it is only this Court which would have the jurisdiction to
appoint the Arbitrator, while according to the Equinox this Court does not have the
jurisdiction to appoint the Arbitrator as the provisions of the Arbitration Act would
necessarily stand excluded in view of the specific language of Clause 10.1 of the agreement
wherein the governing law would be the law of California, USA.
CI relied on Bhatia and Venture.
Ruling:
There can be no dispute that such appointment can be made by this Court only and only if
Part I of the Arbitration and Conciliation Act is applicable to the present arbitration
proceedings.
Indtel Technical Services' case: when an arbitration agreement is silent as to the law and
procedure to be followed in implementing the arbitration agreement, the law governing the
said agreement would ordinarily be the same as the law governing the contract itself. The
decision in Bhatia International's case has been rendered by a Bench of three Judges and
governs the scope of application under Section 11, thereby expressing the binding nature of
the judgment.
Indtel said the above by relying on NTPC case.
there is no agreement in respect of the law governing the procedure of arbitration. Again in
paragraph 25 the Court expressed that the party had the freedom to choose the law governing
international agreement of choosing substantive law of arbitration agreement as well as the
procedural law governing the conduct of the arbitration. It is then the choice to be exercised
by the parties or by implication, except to such situations where there is no express choice of
the law governing the contract as a whole or the arbitration agreement in particular. There is,
in absence of any contrary intention, a presumption that the parties have intended that the
proper law of contract as well as the law governing arbitration agreement are the same as the
law of the country in which the arbitration is agreed to be held. Here again the stress is on the
agreement about the country where the arbitration is agreed to be held and precisely this
situation is absent in the present case. Here the substantive law of contract governing the
contract is specifically agreed upon. However, the place where arbitration would be held is
not to be found in the language of Clause 10.1. Therefore, the situation in National Thermal
Power Corporation's case (cited supra) was not applicable to the present case.
if the parties intended specifically in this case that the law governing the contract was
Californian law, as expressed in Bhatia International as well as in Indtel Technical Services'
case (cited supra), an implied exclusion of Part I should be presumed – I am afraid it is not
possible to read such an implied exclusion. It cannot be forgotten that one of the contracting
parties is the Indian party. The obligations under the contract were to be completed in India.
Further considering the nature of the contract, it is difficult to read any such implied
exclusion of Part I in the language of Clause 10.1.
Identical view has been taken even in Venture Global Engineering's case (cited supra) where
the Court took the view that even the foreign award could be challenged under Section 34 of
the Act.
Final holding: sole Arbitrator would be entitled to decide upon the procedure to be followed
in the arbitration proceedings, sittings of the proceedings as also to settle his fees in respect
thereof. However, the law governing the contract would be the Californian Law.

Videocon Industries Limited v. Union of India (UOI) and Ors. (2011) did not assume
jurisdiction as in other cases.
The dispute arose out of provisions of a Production Sharing Contract (PSC) signed between
the Government of India (UoI) on the one hand and a consortium consisting of four
companies on the other. This PSC could be amended by a written instrument signed by all the
parties. Contract - governed by laws of India. AA by laws of England.
The arbitration clause in the PSC provided for Kuala Lumpur, Malaysia as the seat of
arbitration. Due to the outbreak of SARS disease, the arbitration proceedings were held in
Amsterdam and London. In October 2003, the Tribunal passed a consent order which read:
“By consent of parties, seat of the arbitration is shifted to London.” The issue was whether
this meant a transfer of the seat of arbitration itself or merely a consensus between the parties
to the arbitration to hold the proceedings in London but to retain Kuala Lumpur as the seat.
Videocon argued that there was a transfer of seat and Union of India argued that there was no
transfer of seat.
UOI challenged partial award dated by filing a petition in the High Court of Malaysia at
Kuala Lumpur, also requested to order the arbitral proceedings to continue in Kuala Lumpur.
Videocon questioned the maintainability of the case before the High Court of Malaysia by
contending that in view of Clause 34.12 of the PSC only the English Courts have the
jurisdiction to entertain any challenge to the award. HC held remaining arbitral proceedings
will be held in London only.
UOI filed application u/s 9 in Delhi High Court for stay of the arbitral proceedings and also
challenges the partial award. Videocon pleaded that the Courts in India do not have the
jurisdiction to entertain challenge to the arbitral award. Delhi High Court overruled the
objection of Videocon and held that it has the jurisdiction to entertain the petition filed u/s 9.
Videocon’s contention:
even if the petition filed by UOI under Section 9 could be treated as maintainable, the High
Court did not have jurisdiction over the arbitration proceedings because the same are
governed by the laws of England. Also, after having expressly consented to the shifting of the
seat of arbitration from Kuala Lumpur to Amsterdam in the first instance and effectively
taken part in the proceedings held at London, Videocon is estopped from claiming that the
seat of arbitration continues to be at Kuala Lumpur.
UOI’s contention:
mere fact that the arbitration was held outside Kuala Lumpur due to the outbreak of epidemic
SARS, the venue of arbitration cannot be said to have been changed from Kuala Lumpur to
London. Once Kuala Lumpur was decided as the venue of arbitration by written agreement,
the same could not have been changed except by amending the written agreement. London
cannot be treated as juridical seat of arbitration merely because the parties had decided that
the arbitration agreement contained in Article 34 will be governed by the laws of England.
Issues:
1. whether Kuala Lumpur was the designated seat or juridical seat of arbitration and the
same had been shifted to London?
2. whether the Delhi High Court could entertain the petition filed by the Respondents
under Section 9 of the Act.
Holding:
On first issue:
Neither there was any agreement between the parties to the PSC to shift the juridical seat of
arbitration from Kuala Lumpur to London nor any written instrument was signed by them for
amending Clause 34.12. Therefore, the mere fact that the parties to the particular arbitration
had agreed for shifting of the seat of arbitration to London cannot be interpreted as anything
except physical change of the venue of arbitration from Kuala Lumpur to London.
Referred Dozco India P. Ltd. v. Doosan Infracore Co. Ltd. which has quotes Redfern &
Hunter: “there is only one "place" of arbitration. This will be the place chosen by or on behalf
of the parties; and it will be designated in the arbitration agreement or the terms of reference
or the minutes of proceedings or in some other way as the place or "seat" of the arbitration.
This does not mean, however, that the arbitral tribunal must hold all its meetings or hearings
at the place of arbitration. each move of the arbitral tribunal does not of itself mean that the
seat of the arbitration changes. The seat of the arbitration remains the place initially agreed by
or on behalf of the parties.”
On 2nd issue:
Referred Bhatia and Venture.
Hardy Oil and Gas Limited v. Hindustan Oil Exploration Company Limited and Ors. (2006)
Guj HC:
During the pendency of the arbitration proceedings, an application was filed by the Appellant
in the District Court, Vadodara under Section 9 of the Act.
Contract—Indian law. Proceedings -- London Court of International Arbitration (SLCIA).
Place of arbitration – London. Law governing arbitration—English law.
“once the parties had agreed to be governed by any law other than Indian law in cases of
international commercial arbitration, then that law would prevail and the provisions of the
Act cannot be invoked questioning the arbitration proceedings or the award. Parties' intention
was to be governed by English law in respect of arbitration. It can be interpreted only to mean
that in case of any dispute regarding arbitration, English law would apply. District Court,
Vadodara did not have the jurisdiction to entertain the petition filed under Section 9 of the
Act because the parties had agreed that the law governing the arbitration will be English
law.”
The parties in Videocon had agreed that notwithstanding Article 33.1, the arbitration
agreement contained in Article 34 shall be governed by laws of England. This necessarily
implies that the parties had agreed to exclude the provisions of Part I of the Act. As a
corollary to the above conclusion, we hold that the Delhi High Court did not have the
jurisdiction to entertain the petition filed by the Respondents under Section 9 of the Act and
the mere fact that the Appellant had earlier filed similar petitions was not sufficient to clothe
that High Court with the jurisdiction to entertain the petition filed by the Respondents.
Note: The reasoning here by referring to the Guj HC case is flawed because the GJ HC has
denied jurisdiction because the law governing the arbitration was English law (law governing
contract was Indian law, law governing AA was not specified and the seat was London), but
here in Videocon case, the law governing contract is Indian law, law governing AA is
English law and seat is kuala lumpur, law governing arbitration is not specified (arbitration
should be conducted under the law of seat of arbitration).

Dozco India P. Ltd. v. Doosan Infracore Co. Ltd. (2010)

Facts: Dozco (Indian co.) Doosan (South Korean). Disputes have arisen in between these two
companies out of a Distributorship Agreement. On disagreement on appointment of arbitrator
—application by Dozco u/s 11(6).
Doosan’s contention: only the Rules of Arbitration of ICC would apply in accordance with
the Agreement between the parties. It is contended by the respondent that this Court will have
no jurisdiction much less under Section 11(6) of the Act to appoint Arbitrator, particularly,
because it has been specifically agreed in Article 22 and 23, that agreement (contract) by
Korean law, seat (Seoul), proceedings- ICC rules. Dozco would not be entitled to maintain
the present proceedings in India by invoking the provisions of the Act.
Dozco’s contention:
Bhatia, Indtel, Citation all have held that even in case of international commercial arbitration
which are to be held out of India and to be governed by foreign law, the provisions of Part I
of the Act would still apply unless the parties by agreement, express or implied, excludes all
or any of provisions of Part I of the Act.
From all these three judgments, it becomes clear that unless the jurisdiction of the Indian
Courts is not specifically excluded at least Part I of the Act whereunder there is a power to
appoint Arbitrator is covered by Section 11(6) of the Act, this Court would have jurisdiction
to appoint an Arbitrator even if the arbitration is to be governed by foreign law.

Issue: whether this Court would be justified and would have the jurisdiction to appoint an
Arbitrator under Section 11(6) of the Act.
Court’s observation:
It would be clear from this that the bracketed portion in the Article was not for deciding upon
the seat of the arbitration, but for the convenience of the parties in case they find to hold the
arbitration proceedings somewhere else than Seoul, Korea.
the law laid down in Bhatia International v. Bulk Trading S.A. and Anr. (cited supra) and
Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd. (cited supra), as also in
Citation Infowares Ltd. v. Equinox Corporation (cited supra) is not applicable to the present
case. Since the interpretation ohf Article 23.1 suggests that the law governing the arbitration
will be Korean law and the seat of arbitration will be Seoul in Korea, there will be no
question of applicability of Section 11(6) of the Act and the appointment of Arbitrator in
terms of that provision.
For discussion on the Sumito Heavy Industries case, refer notes.

RELEVANT BARE PROVISIONS: Arbitration and Conciliation Act, 1996

Statement of object and purpose: Consolidate and amend the law relating to domestic
arbitration, international commercial arbitration and enforcement of foreign arbitral awards.
Preamble: UNCITRAL has adopted the UNCITRAL Model Law on International
Commercial Arbitration, 1985—recommended that all countries give due consideration to the
said Model Law, in view of the desirability of uniformity of the law of arbitral procedures
and the specific needs of international commercial arbitration practice.
s. 2(d) arbitral tribunal means a sole arbitrator or a panel of arbitrators.
s. 2(e) court—in arbn. other than ICA, principal civil court of the district and HC in its
ordinary original civil jurisdiction. In ICA, HC in exercise of its ordinary original civil
jurisdiction.
s. 2(f) ICA—arbn. relating to disputes arising from a commercial relationship where atleast
one of the parties is a foreign national or the body corp. has been incorporated in a foreign
country, or an asso. whose principal management is in a foreign country, or the Government
of a foreign country.
s. 2(2) This Part shall apply where the place of arbitration is in India:
Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and
37(1)(a), 37(3) shall also apply to international commercial arbitration, even if the place of
arbitration is outside India, and an arbitral award made or to be made in such place is
enforceable and recognised under the provisions of Part II of this Act. (it means that the other
country where the award is made must be a convention following country).
s. 2(7) An arbitral award made under this Part shall be considered as a domestic award.
s. 5—Extent of judicial intervention—no judicial authority shall intervene except where so
provided in this Part.
s. 7(3)—arbitration agreement shall be in writing.
s. 8(1)—Power to refer parties to arbitration where there is an arbitration agreement—
judicial authority, before which an action is brought in a matter which is the subject of an
arbitration agreement shall refer the parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists.
s. 8(3), even if an application has been made under 8(1) and the issue is pending before the
judicial authority, an arbitration may be commenced or continued and an arbitral award
made.
s. 11(5) – if the parties fail to agree on the arbitrator within 30 days from receipt of a
request by one party from the other party to so agree, the appointment shall be made, upon
request of a party, by the Supreme Court or, as the case may be, the High Court or any person
or institution designated by such Court.
s. 12—an arbitrator may be challenged only if circumstances exist that give rise to justifiable
doubts as to his independence or impartiality, or he does not possess the qualifications agreed
to by the parties---- this is about challenging the impartiality, independence, qualification of
the arbitrator before the arbitral tribunal.
s. 16—Competence of arbitral tribunal to rule on its jurisdiction—
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration agreement,
(1)(a) an arbitration clause that forms part of a contract shall be treated as an
agreement independent of the other terms of the contract;
(1)(b) a decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause.
(2) a party shall not be precluded from raising a plea that the tribunal does not have
jurisdiction merely because that he has appointed, or participated in the appointment
of, an arbitrator.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-
section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue
with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting
aside such an arbitral award in accordance with section 34.
s. 28—Rules applicable to substance of dispute—
(1)(a) Where the place of arbitration is situated in India— in an arbitration other than
an international commercial arbitration (purely domestic arbitration with parties and seat both
being India), the arbitral tribunal shall decide the dispute submitted to arbitration in
accordance with the substantive law for the time being in force in India, i.e., the A&C Act,
1996.
 (1)(b) in international commercial arbitration with Indian seat—
(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 laws 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.

s. 34—Application for setting aside arbitral award—

(1) Recourse to a Court against an arbitral award may be made only by an application
for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application establishes on the basis of the record, a
party was under some incapacity, arbitration agreement is not valid as per the
law governing the arbitration agreement, fair hearing was not given, dispute
doesn’t fall within the terms of the agreement, composition of the arbitral
tribunal or the arbitral procedure was not in accordance with the agreement of
the parties.
(b) the Court finds that the subject-matter of the dispute is not capable of
settlement by arbitration under the law in force, or the arbitral award is in
conflict with the public policy of India.
Explanation 1: an award is in conflict with the public policy of India, only if, the
making of the award was induced or affected by fraud or corruption or was in violation
of section 75 (confidentiality) or section 81 (evidence in mediation can't be taken in
arbitration). Or it is in contravention with the fundamental policy of Indian law, or is
in conflict with the most basic notions of morality or justice (policy and m&j taken from
Renusagar case).
Explanation 2—the test as to whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial
arbitrations, may also be set aside by the Court, if the Court finds that the award is
vitiated by patent illegality appearing on the face of the award.
Provided an award shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
(3) limitation period three months.
 (6) application under this section shall be disposed of expeditiously within a period of
one year.
s. 36—Enforcement—
(1) after limitation period of three months from the date of award expires (time limit
for making an application for setting aside the award), award enforced as decree of a
civil court.
(2) filing of setting aside application shall not by itself render that award
unenforceable, unless the Court grants an order of stay of the operation of the said
arbitral award (3) reasons are recorded in writing.
Provided where the Court is satisfied that a Prima facie case is made out that the
arbitration agreement or contract which is the basis of the award; or the making of the
award, was induced or effected by fraud or corruption, it shall stay the award
unconditionally pending disposal of the challenge under section 34 to the award.
s. 44—New York Convention awards.
s. 45—Power of judicial authority to refer parties to arbitration – a judicial authority,
when seized of an action in a matter in respect of which an AA exists (in ICA) shall, at the
request of one of the parties refer the parties to arbitration, unless it prima facie finds that the
said agreement is null and void, inoperative or incapable of being performed. This is
notwithstanding the provisions of s. 5 (principle of least interference) and s. 16 (principle of
kompetenz-kompetenz) of part I.
s. 48(1)—Enforcement of a foreign award may be refused, at the request of the party against
whom it is invoked, only if that party furnishes to the court proof that parties under
incapacity, agreement not valid, no proper hearing, outside the scope of agreement,
composition of tribunal and procedure was not in accordance with the terms agreed by the
parties (grounds same as that in s. 34(2)(a)).
s. 48(2) Enforcement of an arbitral award may also be refused if the Court finds that the
subject-matter of the difference is not capable of settlement by arbitration under the law of
India; or the enforcement of the award would be contrary to the public policy of India.
Meaning of public policy same as that in explanation 1 to s. 34.
s. 53—Geneva Convention awards
s. 87—Effect of arbitral and related court proceedings commenced—
(a) 2015 amendments shall not apply to—
(i) arbitral proceedings commenced before the commencement of Amendment
Act, 2015 (23rd October, 2015);
(ii) court proceedings arising out of or in relation to such arbitral proceedings
irrespective of whether such court proceedings are commenced prior to or
after the commencement of the Amendment Act, 2015;
 (b) apply only to arbitral proceedings commenced on or after the commencement of
the Amendment Act, 2015 and to court proceedings arising out of or in relation to such
arbitral proceedings.
CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN
ARBITRAL AWARDS (New York Convention 1958)
Article I: the convention applies to a country when an award is given in a country other than
the country where recognition and enforcement of the award is sought. Also apply to arbitral
awards not considered as domestic awards in the State where their recognition and
enforcement are sought.
Article II.3: The court of a Contracting State, when seized of an action in a matter in respect
of which the parties have made an agreement within the meaning of this article, shall, at the
request of one of the parties, refer the parties to arbitration, unless it finds that the said
agreement is null and void, inoperative of incapable of being performed—this has been
incorporated in s. 45 of A&C Act.
Article V: Recognition and enforcement of the award may be refused---grounds same as s.
34 and 48.
(1)(a) The parties to the agreement referred to in article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law of the country where
the award was made; or
Note: separability presumption gets legal credence from Article V of the NY Convention
which says -- agreement is not valid under the law to which the parties have subjected it…
here it doesn’t say -- the law that the contract is subject to.

CONVENTION ON THE EXECUTION OF FOREIGN ARBITRAL AWARDS

(Geneva Convention, 1923)

UNCITRAL MODEL LAW ON ICA (1985)—first 36 articles almost same as first 36

articles of A&C Act, 1996.

Article 28. Rules applicable to substance of dispute:

(1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are
chosen by the parties as applicable to the substance of the dispute. Any designation of the law
or legal system of a given State shall be construed, unless otherwise expressed, as directly
referring to the substantive law of that State and not to its conflict of laws rules.
(2) Failing any designation by the parties, the arbitral tribunal shall apply the law determined
by the conflict of laws rules which it considers applicable.
(3) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the
parties have expressly authorized it to do so.
(4) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract
and shall take into account the usages of the trade applicable to the transaction.

Discuss the impact of the two major amendments to the Arbitration and Conciliation
Act 1996 in order to make commercial arbitration a cost effective and speedy mode of
dispute resolution.
2015 amendment
1. NO AUTOMATIC STAY OF ARBITRAL AWARD UPON FILING OF A
CHALLENGE TO THE ARBITRAL AWARD
Prior to the Amendment Act, mere filing of a challenge petition to the arbitral award would
result in an automatic stay of the arbitral award. The court would take several years to decide
the petition, making the process of arbitration time consuming and ineffective. In a welcome
move, the Amendment Act provides that there would be no automatic stay of the arbitral
award and a separate application will have to be filed seeking stay of the arbitral award. The
court is now required to record reasons for grant of stay and the provisions of the CPC for
grant of stay of a money decree have been made applicable, meaning thereby that the losing
party will necessarily be required to either deposit some part or the entire sum awarded in the
arbitral award, or furnish security, as the court deems fit.
2. TIME BOUND PROCEEDINGS
The Amended Act provides for faster timelines to make the arbitration process more
effective. Proviso to Section 24 has been added providing for the arbitral tribunal to hold oral
hearings for evidence and oral argument on day-to-day basis and not grant any adjournments
unless sufficient cause is made out. The arbitral tribunal has been vested with the power to
impose heavy costs for adjournments without sufficient cause. Every arbitral award must be
made within 12 (twelve) months from the date the arbitrator(s) receives a written notice of
appointment. The parties may mutually decide to extend the time limit by not more than 6
(six) months. If the award is not made within 18 (eighteen) months, the mandate of the
arbitrator(s) will terminate unless the court extends the period upon an application filed by
any of the parties. However, there is no time period fixed for approaching the court seeking
extension of time which may again contribute to delays.
Further, while extending the time for making the award, if the court finds that the delay was
attributable to the arbitral tribunal, it may order reduction in the arbitrator's fee by not
exceeding 5% (five percent) for each month of such delay. The court while extending the
time limit would also have the right to change the arbitrator(s) as it may deem fit. An
application to the court, as stated above would be endeavoured to be disposed by the court
within 60 (sixty) days from the date the opposite party receives the notice. A challenge to an
arbitral award should be disposed expeditiously and in any event within a period of one year
from the date on which notice is served upon the other party. Section 11 will now have to be
decided within a period of 60 (sixty) days from the date of service of notice to the opposite
party.
In an arbitration regime that was plagued with delays and costs, this is a good development.
However, the parties would be forced to go court to seek extensions of time to complete the
arbitrations, which is an undesirable situation in a court system burdened with huge pendency
of cases.
Interestingly, it would appear that even the arbitration institutions would be required to make
an application for extension of time if the award is not rendered within the specified period. It
is indeed an undesirable situation to have parties including the institutional arbitrations with
their own set of rules, to be forced to come to court seeking extension of time to complete the
arbitration proceedings.6
Further, the proposed time line of 12 (twelve) months to pass the arbitral award is very
ambitious, even by international standards. There are some complex disputes, the resolution
of which may not be possible within this time frame. Even the Law Commission Report had
recommended a time period of 24 (twenty four) months to complete the arbitration
proceedings. Such ambitious time lines may act as a deterrent for foreign parties to choose
India as the seat of arbitration, particularly in complex disputes. Providing ambitious
timelines may actually backfire and go contrary to the very purpose of introducing these
amendments.
3. FAST TRACK PROCEDURE
Section 29B has been introduced which gives an option to the parties to agree on a fast track
mechanism under which the award will have to be made within a period of 6 (six) months
from the date the arbitrator(s) receiving written notice of appointment. The dispute would be
decided based on written pleadings, documents and submissions filed by the parties without
any oral hearing. Oral hearing can be held only if all the parties request or the arbitral tribunal
considers it necessary for clarifying certain issues. There may not be too many occasions
where the parties to an on-going dispute agree on anything, let alone agree on a fast track
procedure.
4. CAP ON FEES TO ARBITRATOR
The Fourth Schedule has been introduced which provides the model fees in case of
arbitrations other than international commercial arbitrations and in cases where parties have
agreed to the rules of an arbitral institution, with a view to ensure that the arbitration process
does not become very expensive. Section 11A (2) has been introduced which details the
procedure for Central Government to amend the Fourth Schedule. However, since the High
Court of each State is required to frame rules after taking into consideration the rates
mentioned in the Fourth Schedule, this may lead to a disharmonised fee regime 7 across the
country.
2019 amendment
  Timely conduct of proceedings
As per the newly introduced Section 23(4), the statement of claim and defence shall be
completed within a period of six months from the date of appointment of the arbitrator(s) and
as per Proviso to the amended Section 29(1), the award in the matter of international
commercial arbitration may be made as expeditiously as possible with an endeavour to
deliver it within 12 months from the date of completion of pleadings under Section 23(4).
Whilst it is a welcome step – certainly with the right intent – it may lead to conflicts with the
rules of an arbitral institution as it overlooks the procedural aspects inherent to a complex
international arbitration. In international arbitration, the arbitrators routinely hold a case
management hearing, and after consultation with the parties, issue an order on the procedural
timetable for completion of pleadings, conduct of hearings etc. (e.g., see Rule 24 of the 2017
ICC Arbitration Rules). However, if Section 23(4) restricts a tribunal from being in control
of its proceedings, then it may be impossible to effectively conduct complex multi-party
arbitrations involving massive documents, where it may be practically impossible to complete
pleadings in six months. Similarly, the autonomy of parties to decide on a more flexible
procedural schedule will be severely limited. Most importantly, the parties will always be
wary of the fate of an award where the time requirements of Section 23(4) are not strictly
abided.

2021 amendment
AUTOMATIC STAY ON AWARDS
The amendment in Section 34 on automatic stay of the Principal Act's awards is the most
significant change in the Amendment Act of 2021. In the present system, a party can file an
application before the Court under Section 34 of the 1996 Act for setting aside an arbitral
award. However, after the 2015 amendment to the Act, an automatic stay would not be
granted on the award's operation by merely filing an application for setting it aside.
The 2021 Amendment has introduced a material change by adding a proviso under section
36(3) to ensure that if courts are prima facie satisfied by the case made out of either (i) the
arbitration agreement or contract, which is the basis of the award; or (ii) the making of the
award, was induced or affected by fraud or corruption. It shall stay the award unconditionally
pending disposal of the challenge. This has a retrospective effect, deemed to be effective
from October 23, 2015.
Many parliamentarians criticised the unconditional stay during introduction of the Bill In Lok
Sabha. Experts also point out that an unconditional stay amounts to a blanket stay, which will
hurdle India's efforts towards a pro-arbitration regime. This is primarily because it becomes
easy for losing party to allege corruption and automatic stay on the arbitral award's
enforcement.
This may defeat the very purpose of alternate dispute mechanism by drawing parties to courts
and making it prone to litigation. Another primary concern with this amendment is that the
legislation does not describe either fraud or corruption, creating an ambiguous situation
where defendant parties may suffer the litigation heat even if they are correct. This
amendment's retrospective effect might also open up a floodgate of litigation cases and
overburden the courts.
In cases where an application under Section 36(2) of the Act is pending adjudication before a
court, the applicants will now have to make renewed applications based on the grounds listed
in the new amendment. This is likely to involve delays and increased costs unless the courts
can sua sponte take notice of this new amendment and dispose of it with the filing of new
submissions.
Therefore, this amendment will affect enforcement of awards, and India might further slip in
ease of doing business reports. This amendment takes a regressive step and does not help
India's aim of a pro-arbitration regime.
In response to the amendment's backlash, The Law Minister stated that despite the use of
words, fraud and corruption in Section 34 were necessary as latter does not provide an
"automatic stay" of the award. He further added that the Government wanted to promptly
prevent parties collusive attempts to seek the benefit of an award tainted with corruption.
These arguments are unconvincing as he does not provides the reasoning behind his claim.
Furthermore, pro-amendment scholars have argued that enabling this change relieves persons
affected due to fraudulent elements in the arbitration award. They cite examples like Venture
Global Engineering, where there was alleged fraud by the respondent's Tech Mahindra and
Satyam Computers.
This fraud was discovered only after three years after the enforcement of the award, as a
result, the award had to be revisited and accordingly set aside. However, it is still unclear
how widening the Act's scope would protect several innocent parties where the challenge is
only made to delay the enforcement of awards.

Discuss the scope of the concept of the public policy in the annulment of an arbitral
award.

Read chapter 3 of book

legal rights and duties can not exist in a vacuum but must have a place within a legal system
that is available for dealing with such questions as the validity, application, and interpretation
of contracts, and, generally, for supplementing their express provisions.
Like a contract, an arbitration does not exist in a legal vacuum. It is regulated, first, by the
rules of procedure that have been agreed or adopted by the parties and the arbitral tribunal;
secondly, it is regulated by the law of the place of arbitration.
It is possible to identify at least five different systems of law that, in practice, may have a
bearing on an international arbitration:
1. the law governing the arbitration agreement and the performance of that agreement;
2. the law governing the existence and proceedings of the arbitral tribunal or law
governing the arbitration (the lex arbitri);
3. the law, or the relevant legal rules, governing the substantive issues in dispute
(generally described as the ‘applicable law’, the ‘governing law’, ‘the proper law of
the contract,’ or ‘the substantive law’);
4. law governing the parties' capacity to enter into an arbitration agreement
5. other applicable rules and non-binding guidelines and recommendations; and
6. the law governing recognition and enforcement of the award (which may, in practice,
prove to be not one law, but two or more, if recognition and enforcement is sought in
more than one country in which the losing party has, or is thought to have, assets).
Law governing the arbitration agreement
It might be assumed that this is the same law as that which the parties chose to govern the
substantive issues in dispute—but this is not necessarily a safe assumption.
It would therefore be sensible, in drafting an arbitration agreement, also to make clear what
law is to apply to that agreement. If no such express designation has been made and it
becomes necessary to determine the law applicable to the agreement to arbitrate, the principal
choice—lies between the law of the seat of the arbitration and the law that governs the
contract as a whole.
1. Law of the contract:
Since the arbitration clause is only one of many clauses in a contract, it might seem
reasonable to assume that the law chosen by the parties to govern the contract will
also govern the arbitration clause. If the parties expressly choose a particular law to
govern their agreement, why should some other law—which the parties have not
chosen— be applied to only one of the clauses in the agreement, simply because it
happens to be the arbitration clause? The autonomy of the arbitration clause and of the
principal contract does not mean that they are totally independent one from the other,
as evidenced by the fact that acceptance of the contract entails acceptance of the
clause, without any other formality.
An arbitration clause is taken to be autonomous and to be separable from other
clauses in the agreement. If necessary, it may stand alone. In this respect, it is
comparable to a submission agreement. It is this separability of an arbitration clause
that opens the way for the possibility that it may be governed by a different law from
that which governs the main agreement.
The New York Convention points towards this conclusion. In the provisions relating
to enforcement, the Convention stipulates that the agreement under which the award
 is made must be valid ‘under the law to which the parties have subjected it’, or failing
any indication thereon, ‘under the law of the country where the award was made’
(which will be the law of the seat of the arbitration).

2. Law of the seat of arbitration:

There are cases in different jurisdictions in which a court or arbitral tribunal has taken
the law of the seat of the arbitration to be the appropriate law to govern the parties'
arbitration agreement.
Where the parties failed expressly to specify the law of the arbitration agreement, it
was necessary to consider whether the parties had made an implied choice of law.
Where it was not possible to establish the law of the arbitration agreement by
implication, it was necessary to consider what would be the law with the ‘closest and
most real connection’ with the arbitration agreement. In the circumstances of the case,
the arbitration agreement had its closest and most real connection with the law of the
place where the arbitration was to be held, which would exercise the supporting and
supervisory jurisdiction necessary to ensure the effectiveness of the arbitral
procedure. In arriving at its decision.

What is lex arbitri or law governing the arbitration?

A body of rules which sets a standard external to the arbitration agreement, and the wishes of
the parties, for the conduct of the arbitration. The law governing the arbitration comprises the
rules governing interim measures (eg Court orders for the preservation or storage of goods),
the rules empowering the exercise by the Court of supportive measures to assist an arbitration
which has run into difficulties (eg filling a vacancy in the composition of the arbitral tribunal
if there is no other mechanism) and the rules providing for the exercise by the Court of its
supervisory jurisdiction over arbitrations (eg removing an arbitrator for misconduct).
Each state will decide for itself what lawsit wishesto lay down to govern the conduct of
arbitrations within its own territory.