Author: Ashwin Gupta, Foreign Attorney: India

India’s legal system is polishing its latest gem- international arbitration. However, this promise is severely undermined by persistent judicial intervention that disrupts the arbitration process. Despite efforts to create an arbitration-friendly environment through legislative reforms, Indian courts’ tendency to intervene in arbitration proceedings continues to impede the growth and effectiveness of international arbitration.[i]

The Indian dream was simple: a dispute resolution system that could harmonize international arbitration practices.[ii] The Arbitration and Conciliation Act, of 1996, is a shimmering copy of the UNCITRAL Model Law, a globally recognized standard designed to harmonize international arbitration practices. This legislative framework aims to provide a predictable and efficient means of resolving disputes, with provisions that include the recognition and enforcement of foreign arbitral awards, interim measures by courts, and the independence and impartiality of arbitrators.[iii] This promised efficiency for businesses and a boost to India’s reputation as a global trade player.

However, beneath this borrowed brilliance lies a fondness for tradition. Indian courts are known for their tendency to involve themselves in various stages of the arbitration process, leading to significant delays, increased costs, and uncertainty for the parties involved. The courts, despite recent whispers of change, have not entirely ditched their active role.[iv]

In a high-profile case, the Supreme Court in 2024 quashed an arbitral tribunal award directing the Delhi Metro Rail Corporation (DMRC) to pay (INR) 76.87 billion (about USD 917 million) to Delhi Airport Metro Express Private Limited (DAMEPL), a special purpose vehicle of Reliance Infrastructure Limited and Spain’s Construcciones Y Auxiliar de Ferrocarriles SA.[v] A three-judge Bench headed by Chief Justice of India D.Y. Chandrachud exercised the Supreme Court’s rare powers under Article 142 of the Constitution in a curative petition filed by DMRC to undo a “grave miscarriage of justice” from the arbitral award of 2017.[vi]

Notably, the Supreme Court undertook three rounds of review of the judgment by the Delhi High Court(special leave petition and a review petition) and finally overturned its own previous judgment of 2021 through a curative petition.[vii] For context, a two-judge Bench of the Supreme Court had upheld the 2017 arbitral award, overruling the decision of a Division Bench of the Delhi High Court.[viii] The Division Bench of the Delhi High Court had found the arbitral award against DMRC perverse and irrational.[ix] In a scathing comment about the Supreme Court’s unwarranted interference through the review petition route in 2021, Chief Justice Chandrachud observed that “by setting aside the judgment of the Division Bench, this court had restored a patently illegal award which saddled a public utility with an exorbitant liability.”[x]

In another case, the Supreme Court ruled that an unstamped arbitration agreement “does not exist in law” and cannot be acted upon and that courts must first resolve stamping issues.[xi] This decision significantly affects disputes governed by Indian law, particularly those involving foreign investors who remain unaware of such obligations until a dispute arises. It complicates ongoing arbitrations and challenges, providing an easy excuse for parties to delay proceedings by arguing non-compliance with stamp duty. This also complicates matters for Indian arbitral institutions, undermining India’s push for institutional arbitration and its ambition to be an international disputes hub.

Businesses left with overturned awards lose faith in the system, and foreign investment suffers. This not only undermines confidence in the arbitration process but also raises questions about the court’s impartiality and the influence of public utility concerns over the sanctity of contractual and arbitral agreements. Intervention often revolves around technicalities or exceeding the scope of review. This judicial activism undermines the very foundation of arbitration – finality.  Investors and international businesses view this as a sign that India is an unpredictable and risky jurisdiction for arbitration, prompting them to seek more stable venues like Singapore or London, leaving India’s potential as a global leader in arbitration unrealized.

Costs add another layer of complexity. Domestic institutions offer a potentially cost-effective alternative to established international bodies, but concerns about arbitrator fees, administrative expenses, and legal counsel charges remain. The absence of standardized fee structures and clear regulations on third-party funding – where an external party finances the arbitration in exchange for a portion of the award- further complicates the financial landscape. It is like offering a camel a sleek sports car- powerful, yes, but not quite practical without a roadmap.

Furthermore, there have been instances where judicial intervention has led to lengthy delays in the enforcement of arbitral awards. For example, in the case of Vedanta Ltd. v. Shenzen Shandong Nuclear Power Construction Co. Ltd., the Supreme Court’s prolonged deliberation on the enforceability of the award caused significant uncertainty and financial strain for the parties involved.[xii] Such instances highlight the unpredictability and inefficiency that can arise from excessive judicial involvement.

To truly emerge as a global arbitration hub, India must address these systemic issues. This involves not only refining its legislative framework to reduce judicial interference but also adopting the best international practices in arbitration cost management and third-party funding. Establishing specialized arbitration courts or tribunals with expertise in handling complex arbitration matters could also help in minimizing delays and ensuring consistent and fair outcomes.

India’s journey in international arbitration is akin to a diamond with a hidden flaw. It has the potential to be a jewel, but the lingering shadow of judicial intervention casts doubt. Until these issues are addressed, India’s dream of becoming a true arbitration hub might remain just that – a mirage in the legal desert.

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[i] Report of the High-Level Committee to review the Institutionalization of Arbitration Mechanism in India (2017).

[ii] Indivjal Dhasmana, ‘PM for making India global arbitration hub’ Business Standard (New Delhi, October 2016).

[iii] Anonymous, ‘Reform of the Indian Arbitration and Conciliation Act’ 1/2016 <https://www.nortonrosefulbright.com/en/knowledge/publications/5b8ffbc0/reform-of-the-indian-arbitration-and-conciliation-act> accessed 24 July 2024.

[iv] Nish Shetty, ‘Indian arbitration – one step forward, one step back’ 6/2023 accessed 24 July 2024.

[v] Delhi Metro Rail Corporation v. Delhi Airport Metro Express Private Limited (2023) 2024 INSC 292 (Supreme Court of India).

[vi] Anonymous, ‘Indian Supreme Court Sets Aside Arbitral Award for “Grave Miscarriage of Justice’ 5/2024 <https://www.jonesday.com/en/insights/2024/05/indian-supreme-court-sets-aside-arbitral-award-for-grave-miscarriage-of-justice> accessed 24 July 2024.

[vii] Kanu Sarda, ‘Top Court flips own verdict asking DMRC to pay Rs 8000 cr to Reliance Infra’s DAMEPL’ India Today (New Delhi, April 2024).

[viii] Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation 2021 INSC 464 (Supreme Court of India).

[ix] Delhi Metro Rail Corporation v. Delhi Airport Metro Express Private Limited (2018) FAO(OS) (COMM)- 104/2018 (High Court of Delhi).

[x] Dhananjay Mahapatra, ‘CJI-led bench tears into 2021 SC order in favour of Reliance Infrastructure’ Times of India (New Delhi, April 2024).

[xi] In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 (2023) 2023 INSC 1066 (Supreme Court of India).

[xii] Vedanta Limited v. Shenzen Shandong Nuclear Power Construction Co. Ltd. (2018) 2018 INSC 959 (Supreme Court of India).