The Legal Framework for Arbitration in India
Commercial arbitration in India is governed by the Arbitration and Conciliation Act 1996, which was modelled on the UNCITRAL Model Law on International Commercial Arbitration. The Act has been substantially amended twice — by the Arbitration and Conciliation (Amendment) Act 2015 and by the Arbitration and Conciliation (Amendment) Act 2019 — with both amendments aimed at reducing judicial intervention, accelerating proceedings, and aligning India's arbitration framework with international best practices. For Indian businesses entering commercial contracts, understanding the current shape of the Act is indispensable, whether the contract is with a domestic counterparty or a foreign party.
Part I of the Act governs domestic arbitration and international commercial arbitration seated in India. Part II governs the enforcement of foreign arbitral awards made in countries that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 or the Geneva Convention on the Execution of Foreign Arbitral Awards 1927. The distinction between Part I and Part II determines which courts in India have jurisdiction to support or supervise the arbitration, the grounds on which an award can be challenged, and the procedure for enforcement.
The 2015 and 2019 Amendments: Key Changes
The 2015 Amendment introduced several provisions of practical significance. Section 8 was amended to require courts to refer parties to arbitration unless the arbitration agreement is null and void, inoperative, or incapable of being performed — reducing the judicial tendency to resist reference. Section 9 was amended to limit the court's power to grant interim relief after the constitution of an arbitral tribunal, encouraging parties to seek interim relief from the tribunal itself under section 17. The time limit of twelve months for completing proceedings from the date of constitution of the tribunal was introduced, with a possible extension of six months by consent and further extensions only by court order. The 2019 Amendment introduced a grading system for arbitral institutions, amended section 34 to provide that the mere filing of a setting-aside application does not automatically stay enforcement of the award, and introduced section 42A requiring confidentiality of arbitral proceedings.
Drafting an Effective Arbitration Clause
The arbitration clause in a commercial contract is the foundation of the entire arbitration framework between the parties. A poorly drafted clause can result in the arbitration being challenged at the threshold stage, disputes about the number of arbitrators, uncertainty about the seat, or an award that is difficult to enforce. Several elements must be carefully considered when drafting or reviewing an arbitration clause.
Seat, Venue, and Governing Law
The distinction between the seat and venue of arbitration is one of the most litigated issues in Indian arbitration jurisprudence. The seat of arbitration is the legal domicile of the arbitration — it determines which court has supervisory jurisdiction, which procedural law applies, and in what circumstances an award will be treated as a domestic or foreign award. The venue is merely the physical location where hearings are conducted. In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services (2012), the Supreme Court definitively clarified that if the seat is outside India, Part I of the Act does not apply. Every arbitration clause must therefore expressly designate a seat — not just a venue — to avoid jurisdictional ambiguity.
The governing law of the contract — which governs the substantive rights and obligations of the parties — must be distinguished from the law governing the arbitration agreement and the procedural law of the arbitration, which is the law of the seat. In a domestic contract, all three will typically be Indian law. In an international commercial contract, the governing law of the contract may be a foreign law even when the seat is in India.
Institutional versus Ad Hoc Arbitration
An institutional arbitration clause names a specific arbitral institution whose rules will govern the arbitration. The institution administers the proceedings — providing secretarial support, maintaining time limits, appointing arbitrators where parties fail to agree, and fixing fees. The major institutions available to Indian parties for domestic arbitration include the Delhi International Arbitration Centre (DIAC), the Mumbai Centre for International Arbitration (MCIA), the Indian Council of Arbitration (ICA), and the International Centre for Alternative Dispute Resolution (ICADR). For international arbitrations involving Indian parties, the Singapore International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC), and the London Court of International Arbitration (LCIA) are most commonly selected.
Ad hoc arbitration is conducted without institutional administration. The parties themselves or the arbitrators determine procedural rules, often by adopting the UNCITRAL Arbitration Rules. Ad hoc arbitration is less expensive at the outset but is more prone to procedural disputes and delay, particularly where the parties' relationship has deteriorated by the time the dispute arises. For contracts of significant value — generally above one crore rupees — institutional arbitration is strongly preferable because it provides a ready framework for arbitrator appointment, challenge, and fee determination.
Number of Arbitrators and Appointment Mechanism
An arbitration clause must specify whether disputes will be decided by a sole arbitrator or a panel of three arbitrators. A sole arbitrator is faster and less expensive; a panel of three is more appropriate for disputes of high value or technical complexity. The clause should specify a clear mechanism for appointment. For ad hoc arbitrations, section 11 of the Act provides a fallback: if parties fail to agree on appointment, either party may apply to the Supreme Court (for international commercial arbitrations) or the relevant High Court (for domestic arbitrations) to appoint the arbitrator.
Conducting the Arbitration: From Preliminary Conference to Award
Once the arbitral tribunal is constituted, the proceedings begin with a preliminary conference at which the tribunal and the parties agree on the procedural timetable — exchange of pleadings, document production, witness statements, expert reports, and hearing dates. The 2015 Amendment requires the tribunal to complete proceedings within twelve months of the date the tribunal enters upon the reference. Parties may agree to extend this by a further six months. Any further extension requires a court order under section 29A, which may reduce the arbitrators' fees as a sanction for delay.
Section 9: Interim Relief from the Court
Section 9 permits a party to apply to the court for interim measures — including injunctions, attachment of assets, appointment of a receiver, and preservation of evidence — before, during, or after arbitral proceedings. Since the 2015 Amendment, once the arbitral tribunal is constituted, a party may not apply to the court under section 9 unless the court finds that circumstances exist which may render the remedy under section 17 inefficacious. In practice, section 9 applications before NCLT Delhi or the Delhi High Court continue to be filed at the pre-constitution stage to protect assets pending the constitution of the tribunal.
The Arbitral Award: Requirements and Finality
Under section 31 of the Act, the award must be in writing and signed by all members of the tribunal (or by the majority, with a note of dissent if any arbitrator disagrees). The award must state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an agreed award on settled terms. Where the tribunal directs payment of money, it may also award interest at such rate as it deems appropriate. Since the 2015 Amendment, the default rate of interest on awards is two percent above the current rate of interest published by the Reserve Bank of India.
Challenging and Enforcing an Award
Section 34: Grounds for Challenge
An arbitral award may be set aside by the court under section 34 of the Act only on the grounds specified in the section. These grounds are exhaustive — the court has no general power of review over the merits of an award. The specified grounds include: incapacity of a party, invalidity of the arbitration agreement, absence of proper notice, the award deals with a dispute outside the scope of the submission, the composition of the tribunal or the arbitral procedure was not in accordance with the parties' agreement, the subject matter is not arbitrable under Indian law, and the award is in conflict with the public policy of India. The public policy ground has been narrowed by the 2015 Amendment: an award is in conflict with public policy only if it was induced by fraud or corruption, is in contravention of the fundamental policy of Indian law, or conflicts with the most basic notions of morality or justice. An application under section 34 must be filed within three months of receipt of the award, extendable by a further thirty days with cause shown.
Section 36: Enforcement and New York Convention Awards
An award becomes enforceable as a decree of the court under section 36 once the period for filing a section 34 application has elapsed without challenge, or — since the 2019 Amendment — upon the dismissal of any section 34 application, even if an appeal is pending. A section 34 applicant who wishes to stay enforcement pending challenge must make a separate application under section 36(2).
A foreign award made in a New York Convention country may be enforced in India under sections 48 to 58 of the Act. The grounds for refusing enforcement of a foreign award mirror the New York Convention: incapacity of a party, invalidity of the agreement, absence of proper notice, the award exceeds the scope of the submission, the composition of the tribunal was not in accordance with the agreement, the award has been set aside by a court in the country of origin, the subject matter is not arbitrable in India, and enforcement would be contrary to the public policy of India.
Arbitration Checklist for Indian Businesses
- Every commercial contract above a threshold value should include an arbitration clause — specify seat, number of arbitrators, institution or ad hoc rules, and language
- Distinguish expressly between seat and venue if hearings may take place in a different city from the legal seat
- For domestic contracts, consider DIAC or MCIA institutional rules — they provide ready-made timetables and arbitrator panels
- For contracts with foreign parties, SIAC or ICC rules are widely accepted internationally and reduce the risk of enforcement difficulties
- File a section 9 application promptly if assets are at risk of dissipation — do not wait for the tribunal to be constituted before seeking interim protection
- Ensure that all correspondence leading up to the dispute is in writing — emails, minutes of meetings, and letters form the evidentiary record in arbitration
- Challenge an award under section 34 only on the statutory grounds — a disagreement with the tribunal's assessment of evidence or law is not a ground for setting aside
- Since the 2019 Amendment, an award can be enforced even while a section 34 challenge is pending unless the court specifically stays enforcement — take this into account when deciding whether to challenge