Arbitrate Wherever You Want: Indian SC Sets Free Indian Parties

On 20.04.2021, the Hon’ble Supreme Court of India widely opened the gates for Indian Companies to arbitrate and resolve their disputes in a foreign country, even if such disputes have originated in India. 

The Indian Arbitration and Conciliation Act, 1996, provides for a flexible scheme to the parties under Part I of the Act to mutually select the place and seat of arbitration, the rules and procedure that governs the arbitration proceeding, the number of arbitrators in the arbitral tribunal and the method of appointment of arbitrator, the language and regime of the cost of the Arbitration Proceeding.

Yet there was no clarity on the basic point of law that “Can two Indian Parties choose a place outside India to Arbitrate their dispute?”

A three (3) judges’ bench of the Hon’ble Supreme Court, on 20.04.2021, has cleared the doubt around the point of law which mandated two Indian parties to conduct arbitration proceedings in India as per the Arbitration and Conciliation Act, 1996 and Rules made thereunder.

The Apex Court held that the Arbitration and Conciliation Act, 1996 makes no reference to an arbitration being conducted between two Indian parties in a country other than India, and it, therefore, cannot be said that two Indian parties are prohibited from resolving their disputes at a neutral forum in a country other than India. Though this decision may lead to some heartburn in various arbitration forums in India while for ease of doing business in India it’s a big thumbs up. 

This judgment passed by the Apex Court came at a time when businesses in India are disrupted due to the “appearing to be never-ending” challenge of COVID-19 pandemic. The businesses are stuck in a deadlock, where at one instance they are facing severe market collapse due to the pandemic, which in turn is leading to several disputes between the transacting entities and at the same time, the Courts in India are either shut or are operating with limited functioning for over a year now, which could resolve such disputes between the parties.

The instant decision in such testing times has come as a ray of hope for such businesses, which by mutual agreement can now opt to resolve their disputes in foreign locations.

Needless to say, when Indian parties are given an option to arbitrate at a neutral foreign location which would provide a faster dispute resolution mechanism, the aspiration of India to become a preferred destination for international arbitrations would be dented.  

To be fair to the Indian arbitration regime, despite 25 years of the passing of the Arbitration and Conciliation Act, 1996, the jurisprudence on the same is at a very nascent stage and is still evolving by way of amendments and judicial precedents. 

In view of the ever-evolving nature of the Arbitration and Conciliation Act, 1996, the primary characteristic of which is an expeditious and economical method of dispute resolution, has lost its significance in India. Even after the adjudication of disputes by arbitral tribunals, the appeal or execution of such awards are dragged on in the Court of law and prolonged. 

These two-tire arbitrations have become a common characteristic of the Arbitration regime in India, which in turn destroys the commercial significance of the dispute for the parties. 

By the present judgment, the Hon’ble Supreme Court has by necessary implication, provided the Indian parties a dynamic way of dispute resolution, whereby the parties can resort to arbitration in foreign locations, which are declared to be territories to which the New York Convention applies, such as  Singapore, Qatar, United Kingdom, amongst others and thereafter execute the award passed therein in India as a foreign award. 

This breakthrough is expected to chuck out the long litigation delay from the arbitration proceeding between Indian parties especially at such times, when the disputes are ever-rising and courts in India are functioning with limited capacities. The dynamic way of resolution of dispute would provide the Indian parties an ease of doing business by resolving disputes expeditiously.

Although with this recent development, the arbitration lawyering community in India will have to work harder to remain attractive for India to become a centre of alternative dispute centre in times to come. With India becoming the sixth biggest economy in the world it would be important in the long run for cities like Mumbai and Delhi to emerge as global arbitration centres like Hong Kong and Singapore.