New Delhi: A fortnight ago, a bench led by Chief Justice of India Surya Kant was shocked to learn that petitions arising from arbitration proceedings had been pending for close to a decade before the Madhya Pradesh High Court.
A lawyer representing a company that had approached the top court against a Madhya Pradesh HC order denying it an early hearing in an arbitration case made this disclosure. According to the order, the HC could not prioritise the case over other pending arbitration matters that had been in line before the court for nearly 10 years.
Giving the party liberty to re-agitate the issue before the HC, the CJI’s bench could only express its concern over delays in proceedings under a system that promises a quick alternative dispute redressal mechanism.
This matter, along with other arbitration litigation stuck in courts, risks India’s ambition of becoming a global arbitration hub.
Queen Mary University’s International Arbitration Survey typically does not feature India among the top-10 global arbitration hubs, while Singapore and London remain at the top. India loses points on parameters such as local court intervention and enforcement track record.
Overburdened courts
Arbitration involves a neutral third party resolving disputes through an arbitral award. Widely used in commercial matters, arbitration is meant to be faster than court litigation. However, legal tactics and court backlogs often stall the process, despite the top court’s pro-enforcement rulings emphasising time-bound execution.
While a large majority of foreign awards are eventually enforced, domestic awards often get stuck for years in overburdened district courts.
When the arbitration seat is in India, the arbitral award is classified as domestic under the Arbitration and Conciliation Act, 1996. Conversely, foreign awards—primarily governed by the New York Convention—are those where the seat of arbitration is in a recognised foreign jurisdiction.
Wariness about delayed enforcement in India, especially among foreign investors, compels them to take India-related disputes to Singapore or London.
Recent amendments to the Arbitration and Conciliation Act in 2019 and 2021 set a 12-month timeline (extendable) for arbitral tribunals to issue awards and abolished automatic judicial stays during an appeal. But chronic delays at the enforcement stage still threaten to derail the system.
Justice Hemant Gupta, a former Supreme Court judge and former chairperson of the India International Arbitration Centre (IIAC), observed, “In other jurisdictions, timelines fixed once are not permitted to be deviated from. The timelines are set in consultation with arbitrators, who share their calendars, as well as members of the Bar. But in our country, timelines are generally not adhered to. The availability of advocates is also an issue. We need a shift in mindset across stakeholders. It has to be a collective effort to make India a global arbitration hub.”
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The Achilles’ heel
Commercial contracts routinely include arbitration clauses, as businesses prefer it for its promise of faster dispute resolution.
“Arbitration is not an end in itself, but a means to an end. Its efficacy depends on timely enforcement of awards and procedural efficiency vis-à-vis traditional litigation,” said Senior Advocate Gourab Banerji, President of the Arbitration Bar of India.
Public Sector Undertakings (PSUs) remain the Achilles’ heel of India’s arbitration system. Disputes involving PSUs, for both domestic and foreign awards, often face inordinate delays due to sovereign immunity claims, prolonged appeals, and unilateral arbitrator appointments.
Following several high-value arbitration losses, NITI Aayog recommended online dispute resolution over arbitration for PSU disputes in a 2021 report.
Domestic & foreign awards
Domestic awards are governed under Part I of the Act, and foreign awards under Part II. While their enforcement procedures differ, both face procedural hurdles.
For domestic awards, enforcement follows a two-step process. First, the losing party may challenge the award within 90 days, with a 30-day condonable extension, on limited grounds such as public policy violations, procedural lapses, or patent illegality. If the challenge fails, the winning party may initiate execution proceedings before the relevant civil court.
Although a challenge does not automatically stay enforcement, legal manoeuvring often delays execution in practice.
The process for enforcing foreign awards is relatively streamlined. An enforcement petition is filed before the relevant High Court and examined on limited statutory grounds, such as incapacity of parties, an invalid arbitration agreement, procedural irregularities, inability to present one’s case, or public policy violations. Once upheld, the award is enforceable as a court decree.
Foreign awards are subject to narrower judicial scrutiny, contributing to higher enforcement success. However, delays can still arise due to complex litigation and public policy objections.
Anuj Berry, a partner at Trilegal, noted, “No foreign party readily agrees to India-seated arbitration because of the post-award timeline challenges.”
According to Berry, an optimistic average is 4-5 years. He said identifying the requirement of a deposit from the party challenging a domestic money award was a positive step. But he emphasised the need for further pro-enforcement measures.
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The amendments
Interim applications during arbitration proceedings also cause delays. Filed on a litany of issues, they seek stays, raise jurisdictional objections, dispute asset valuations, demand discovery, or challenge court fees and stamp requirements.
The blockades continue despite the Supreme Court establishing critical guardrails for enforcing domestic awards.
In 2021, the Supreme Court ordered that an arbitral award would not be automatically stayed upon challenge and that courts must require a 30 percent security deposit before granting any stay. The court also emphasised that any review must be limited to statutory grounds, not the merits of the case.
Previously, in 2019, the Supreme Court limited judicial intervention to set aside an arbitral award. It limited the scope to public policy, establishing that courts cannot act as appellate courts to re-appreciate evidence or correct factual errors.
Justice Gupta said that courts were aware that jurisdiction under sections 34 and 37 of the 1996 A&C Act “is not appellate jurisdiction—but supervisory jurisdiction”. But while noting that courts are slow to interfere in factual matters and that questions of fact should not be examined in supervisory jurisdiction, Justice Gupta added, “Still, some matters warrant intervention.”
The Supreme Court has repeatedly demonstrated a strong pro-enforcement resolve regarding foreign awards as well. It prioritises international standards over domestic ones and has limited public policy exceptions to narrow grounds.
Moreover, revisiting the facts of the conflict remains off-limits for enforcement. These SC rulings underscore that there is no scope for a fresh trial during execution, and that courts must not look beyond the decree itself.
Berry termed the timelines for foreign awards as encouraging, citing his experience of enforcement in under a year. “India is respecting foreign awards, and low interference is commonly accepted,” he said.
Consequently, enforcement of foreign arbitral awards is increasing unless serious issues, such as violation of Indian public policy, arise.
“While the Supreme Court has, on multiple occasions, reaffirmed India’s pro-enforcement bias, particularly in relation to foreign awards, structural and procedural bottlenecks remain. As a result, the culmination of arbitral proceedings often proves illusory,” said Advocate Banerji. “Indian courts, themselves, have characterised such outcomes as a ‘pyrrhic victory’—success in securing an award, followed by a protracted and uncertain enforcement battle.”
Cases in point
Supreme Court decisions have consistently highlighted the enforcement paralysis in India. In 2022, while resolving a 1992 arbitration dispute, a Supreme Court bench of Justices M.R. Shah and B.V. Nagarathna had also expressed its dismay.
“This is a glaring example of frustrating the arbitration proceedings…,” it said. “If the award, under the Arbitration Act, is not executed at the earliest—it will frustrate the purpose and object of the Arbitration Act, as well as the Commercial Courts Act.”
“…I will say that it is not a happy situation,” Justice Gupta stated. Arbitration primarily concerns commercial disputes, where the issue is about money. It shows that unpaid amount of the Award with inflation does not meet the loss suffered by a successful party. Delay in the payment of Award amount, does not compensate the successful party. The delay draws criticism towards the judicial system.”
In a separate case, an Australian company tried to enforce a 2002 foreign award against Coal India for nine years. Finally, it initiated arbitration proceedings against the Centre under the India-Australia Bilateral Investment Treaty (BIT). The tribunal indicted India for breaching the Most Favoured Nation (MFN) provision of the BIT. It held that India failed to provide the Australian company with the “effective means” to enforce its rights because of delays in Indian courts. This invocation of “denial of justice” brought unprecedented international condemnation upon India.
Even so, Berry remains optimistic about the future. He said, “Courts are adopting a more pro-arbitration approach.” However, the lack of consistency in timelines prevents India from becoming a Singapore in arbitration, at least for now, he opined.
Saumya Sharma is an alum of ThePrint School of Journalism, currently interning with ThePrint.
(Edited by Madhurita Goswami)
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