Courts give teeth to international arbitration

By Deepesh, Kochhar & Co.

The Indian Arbitration and Conciliation Act, 1996, was amended in 2015 by legislation (amendment act), which altered the entire landscape of the arbitration regime. This followed the 2014 Law Commission report number 246, which found the original act inadequate for its stated purpose.

These changes signalled an invitation to parties and practitioners in other jurisdictions to conduct arbitration in India. The aim was to strengthen India’s position in the world. The following are some of the significant changes introduced by the amendment act to facilitate international arbitrations.

The Supreme Court, in the case of international arbitration, or the High Court, in considering any application for the appointment of an arbitrator, shall confine itself to examining the existence of an arbitration agreement.

Section 34 of the amendment act has narrowed the scope of judicial intervention in setting aside an international arbitration award. While the grounds of patent illegality is no longer available, an international arbitration award can be set aside if it is against the public policy of India.

Section 36 of the amendment act provides that merely challenging an arbitration award under section 34 does not render the award unenforceable unless the court grants a stay of the award subject to such conditions as it deems fit.

Kochhar & Co.

These and other provisions of the amendment act have certainly seen a shift in the approach taken by the courts. In Pammvi Exports Pvt Limited v Fujifilm Waco Chemicals USA Corporation, the Supreme Court refused to appoint an arbitrator. Under a supply agreement, arbitration took place in the USA before the American Arbitration Association. The Indian party did not lodge its counterclaims in those proceedings. The award was in favour of the US party and a court refused an application to reconsider the decision. The case before the Supreme Court involved the attempt to invoke arbitration in purchase orders in the same commercial contract. The court found that no dispute had arisen under the purchase orders. It affirmed the award of the US arbitration under the supply agreement. The Supreme Court gave precedence to the international arbitration award in the other jurisdiction and Fujifilm Wako Chemicals succeeded in having the application for the appointment of an arbitrator dismissed.

In the case of Toyo Engineering Corporation and Anr v Indian Oil Corporation, a leading Indian public sector undertaking (PSU) had challenged the international arbitration award in favour of a Japanese corporation. The Supreme Court confirmed the stay of the award under section 36 of the amendment act, but ordered the PSU to deposit the entire amount awarded by the arbitration tribunal. The Supreme Court made the order to give full effect to the changes brought about by the amendment act and to ensure that the successful party in the arbitration could take advantage of the award. The court allowed the respondent to apply to the high court to withdraw the amount deposited by the PSU. The Supreme Court found that arbitral tribunals had ordered lesser amounts to be lodged on appeal, as in this case, because the amounts in dispute were large and government bodies were involved. The court ordered a halt to this practice.

Indian and Japanese arbitration law follow similar principles. The Japanese Arbitration Law was enacted in 2003. Article 44(1) provides that an arbitration award will be set aside if it is in breach of Japanese public policy. Japanese courts are clearly reluctant to interfere with arbitration awards. The amendment act also emphasises setting aside an arbitration award if it is against the public policy of India. Although the arbitration law was enacted in Japan after the amendment act in India, the underlying ideology of both sets of legislation are based on the same beliefs and ethos.

Japanese courts are known for their pro-arbitration approach. Following the amendment act and such decisions as analysed, courts in India have also earned a worldwide pro-arbitration reputation. The India Arbitration Act and the Japan Arbitration Law are based on similar principles. Both countries have dynamic and progressive arbitration laws. As a result of these similarities and the creation of arbitration-friendly environments, relations between them are bound to deepen.

Deepesh is a partner at the New Delhi office of Kochhar & Co


Kochhar & Co.

New Delhi (head office):
Kochhar & Co. Suite # 1120
-21, 11th Floor, Tower – A, DLF
Towers, Jasola District Center,
Jasola – 110 025, India
India offices: New Delhi,
Bengaluru, Mumbai, Chennai,
Hyderabad, Gurugram and
Overseas offices: Dubai,
Chicago and Singapore
Contact details:
T: +91 11 4111 5222,
+91 11 4312 9300