Litigation Specialised

Statutory reform alone will not make domestic arbitration more efficient – A closer look at the Law Commission’s 246th Report

SindhuSivakumar_DraftingForArbitrationThat arbitration in India is a costly, time-consuming, and inefficient affair is well known. Excessive court applications, exorbitant arbitrator fees, and respondent recalcitrance are the norm and in many ways, arbitrations do not provide a better and more efficient alternative to the courts for the resolution of commercial disputes. Only if this important objective is achieved can arbitration promote trade, commerce, and investment.

The Law Commission of India, on August 7, 2014, released its 246th report (“Report”), suggesting amendments to the Arbitration and Conciliation Act, 1996 (“ACA”) to make arbitration in India more efficient. With the Union government indicating that it will implement statutory reforms to the ACA soon, let us first look at some aspects of arbitration practice in India that the Report has identified as being at the root of the inefficiency.

No ‘institutional’ arbitration

‘Institutional’ arbitration is carried out under the administration of a specialised institution, like the London Court of International Arbitration (“LCIA”) or the Singapore International Arbitration Centre (“SIAC”) and in accordance with their rules. In ‘ad hoc’ arbitrations, the parties determine all aspects of the arbitration themselves. Institutional arbitrations typically tend to be better regulated and therefore, less inefficient as they involve detailed procedural rules, tighter timelines, reasonable (arbitrator) fee schedules, and administrative oversight.

Exorbitant ‘per sitting’ fees

The fees that are typically charged by arbitrators in Indian ad hoc arbitrations not only drive up costs, but also disincentivises arbitrators from conducting arbitrations speedily (that is, with fewer sittings).

Adjournment culture

Parties seek and receive too many adjournments over the course of the arbitration and arbitrators do not use cost sanctions to check any wasteful or dilatory conduct.

Wide scope of judicial enquiry

The judiciary has unnecessarily widened the scope of judicial enquiry when hearing arbitration applications. For instance, Section 11 appointments have been characterised as a ‘judicial’ function. This has subjected them to the lengthy Special Leave Petition process. Similarly, when hearing set-aside applications under Section 34, awards are re-opened and reviewed on merits based on the ‘public policy’ ground.

Perverse statutory incentives that increase arbitration-related court applications

A party who challenges an award under Section 34 can obtain the statutorily created ‘stay’ of the enforcement of the award under Section 36. This has led to losing parties routinely filing set-aside proceedings to delay the enforcement of an award.

Let us delve deeper into the Report’s recommendations to disentangle arbitration from the courts, specifically its recommendations to reduce the scope of judicial enquiry in arbitration-related court applications.

The first problem is one of ‘judicial overreach’, that is, the trend of Indian courts expanding the scope of judicial review in arbitration-related court proceedings, undercutting the spirit of judicial minimalism in the ACA. The other is the volume of arbitration-related court proceedings in domestic arbitration in India. We will concentrate on the first problem.

Expansive judicial review in arbitration-related court proceedings

There has been a lot of academic and practitioner-led literature in this regard, particularly in the context of:

– Section 5 of the ACA, which has been read down to make it subject to the inherent powers of the civil courts under Sections 9 and 151 of the Code of Civil Procedure, 1908;

– Section 8 of the ACA, which has also been interpreted to allow the courts to get into issues relating to the validity, operability, and enforceability of the arbitration agreement notwithstanding its express exclusion by the drafters of the ACA, worsened by the fact that the courts often encroach upon the jurisdiction of the tribunals and decide substantive issues in dispute when hearing challenges to the arbitration agreement;

– Section 11 of the ACA, under which the arbitrator-appointment function of the courts has been converted from an ‘administrative’ function to a ‘judicial’ decision, which can be subject to lengthy appellate proceedings through the SLP route; and

– Section 34 of the ACA, under which the ‘public policy’ ground for challenging awards has been expanded to such an extent that it is now essentially the same as a regular appeal on law under the Code of Civil Procedure, 1908.

The Report echoes existing popular opinions and recommends on reducing the scope of judicial review in these proceedings. For example, it clarifies that Section 11 appointments should be regarded as administrative acts (not subject to review through the SLP process).

Judicial review of issues related to the validity of arbitration agreements and the arbitrability of disputes

Further, the questions that a court can get into when hearing Section 11 and Section 8 (stay) matters should be limited to issues regarding the existence or validity of the arbitration agreement as well as issues of arbitrability, but not questions regarding the scope of the arbitration agreement or the merits of the dispute (which includes issues relating to the validity of the underlying contract). Essentially, the Report echoes the position taken by the Supreme Court in National Insurance Co. Ltd. v. M/s. Boghara Polyfab Pvt. Ltd. (September 18, 2008) and other such cases.

The Report also clarifies what matters the court can and cannot determine when hearing challenges to the arbitrability or the arbitration agreement under Sections 8 and 11. Again, it echoes what was said in Boghara Polyfab Pvt. Ltd., that is, that the court can decide questions of (i) whether it (the relevant court) has jurisdiction to hear the application; (ii) whether there is a valid and enforceable arbitration agreement; (iii) whether the party who has applied is a party to such an agreement; (iv) whether the claim that is subject to arbitration is a dead claim (barred by limitation) or a live claim; and (v) whether the disputes subject to arbitration have been settled.

Tightening the ‘public policy’ ground used to set aside awards

In relation to Section 34, the Report seeks to tighten the ‘public policy’ ground for setting aside arbitral awards to discourage the courts from interpreting this ground widely and reviewing awards on merits. The Report refers to Renusagar Power Co. Ltd. v. General Electric Co. (1994), where the Supreme Court, in relation to a challenge to the enforcement of a foreign award, interpreted the meaning of the ground, “in conflict with the public policy of India”. The Court held that the term ‘public policy’ meant: (i) fundamental policy of Indian law; (ii) the interests of India; or (iii) justice or morality. The Court categorically held that contravention of law alone will not attract the bar of public policy.

The Report suggests that ‘public policy’ be confined to (i) and (iii) above in the context of international arbitrations seated in India, that is, that challenges based on the award being against the interests of India be disallowed. For domestic awards however, courts should be permitted to check the award for “patent illegality” when there is a challenge under Section 34.

These suggestions are commendable and mostly in line with what practitioners and commentators suggest. However, it is not clear whether they will make a difference in practice, as their application and interpretation remains at the hands of the judiciary, which has traditionally expanded the scope of its role in arbitration-related court hearings.

For example, in relation to challenges to the arbitration agreement, it is not difficult to envisage a situation where a court decides to delve into the substantive issues in dispute, such as the validity of the underlying contract, when it is framed as part of a challenge to the validity of the arbitration agreement (as the lower courts did in Enercon), or declare an agreement “inoperable” when there are pending proceedings before the courts relating to matters subject to the arbitration agreement (as the Delhi High Court did in Vikram Bakshi and Another v. Mc Donalds India Pvt. Ltd. and Others, I.A. No.6207/2014). Likewise, the public policy criteria in Section 34 – “justice or morality” and “fundamental policy of Indian law” can easily be interpreted by the courts in a wide manner. The point is simple. Statutory reforms by themselves do not protect against an interfering judiciary; much of the effectiveness of these reforms depends upon the judicial approach to arbitration-related court proceedings.

The large volume of arbitration-related court applications is another, and perhaps even more important aspect, of the problem of arbitration-court entanglement in India. This not only slows down arbitration, but also adds to the arrears before our already overburdened civil courts. The suggestions in the Report in this regard are quite far reaching and deserve closer attention.

(Sindhu Sivakumar is a solicitor on the rolls of England and Wales and qualified as an advocate in India.)

Corporate Litigation

How the proposed commercial courts will speedily resolve disputes in high-value commercial transactions

PraptiPatelIn 2014, the World Bank ranked India 142nd out of the 189 countries investigated for the Ease of Doing Business Report, slipping further from the 2013 rank of 134. One of the biggest factors behind India’s reputation as a bad place to invest is the length and cost of litigation in the country and the proposal to introduce “commercial courts” has therefore been amongst the most important. These commerical courts or commercial divisions in high courts would be fast-track courts with hi-tech infrastructure for compulsory e-filing, digitising of documents, and case-management conferences. They would resolve disputes in high-value commercial transactions in a speedy and efficient manner.

History of the commercial courts proposal

In 2003, the Law Commission of India’s Proposals for Constitution of Hi-Tech Fast Track Commercial Divisions in High Courts were accepted by the Union Cabinet and introduced in the Parliament as the Commercial Divisions of High Courts Bill, 2009. It was approved by the Lok Sabha and the Rajya Sabha’s Select Committee made changes, but the then Union Law Minister felt the need for further changes and referred it back to the Law Commission. Later, the 20th Law Commission prepared two discussion papers and after circulation in the Expert Committee, in January this year, prepared the Commercial Divisions and Commercial Appellate Divisions in High Courts and Commercial Courts Bill, 2015 (“the Bill”) and released it in the form of its 253rd Recommendation.

Constitution and jurisdiction of commercial courts

The constitution and jurisdiction of the proposed commercial courts in India is slightly complicated. Since the aim is to ensure that commercial disputes are quickly resolved, the commercial division of each high court in the country would need to be the court of first instance for such disputes and must necessarily enjoy ordinary original civil jurisdiction. However, only 5 of the 24 high courts, that is, the High Courts of Bombay, Madras, Calcutta, Delhi, and Himachal Pradesh, possess ordinary original civil jurisdiction. When the High Court of Judicature at Hyderabad is not invested with ordinary original civil jurisdiction therefore, the commercial division of the High Court will be able to exercise such jurisdiction.

Justice (Retd.) A.P. Shah is the Chairman of the Law Commission of India.

Justice (Retd.) A.P. Shah is the Chairman of the Law Commission of India.

Due to such differences in jurisdiction, the Bill proposes to constitute a commercial division for those high courts which possess ordinary original civil jurisdiction and for those without the requisite jurisdiction, to constitute commercial courts in that state or union territory.

The other issue is that pecuniary jurisdictions differ among the high courts. The proposal is for all commercial disputes with a value of over Rs. 1 crore to be heard by the commercial divisions of high courts or the commercial courts. The pecuniary jurisdiction of the Bombay and Calcutta High Courts is 1 crore. In the Madras High Court, it is Rs. 25 lakhs, in Delhi, it is Rs. 20 lakhs, and it is Rs.10 lakhs in Himachal Pradesh. In order to maintain uniformity and more importantly, to pass the constitutional test of non-discrimination, the Bill proposes to raise the pecuniary jurisdiction of the Himachal Pradesh, Madras, and Delhi High Courts to Rs. 1 crore and only then constitute a commercial division within them. In other states and union territories, commercial courts will be constituted with the requisite pecuniary jurisdiction.

Appointment and training of judges

Judges in the commercial divisions of high courts and in commercial courts are proposed to be nominated by the chief justice of the respective high court, having regard to their expertise and experience in commercial litigation. Since commercial disputes, for instance, those relating to intellectual property laws, are highly technical in nature and require specialist knowledge on the subject, the Law Commission also recommended that such judges be regularly trained to impart knowledge on the latest trends and global good practices in commercial transactions.

Role of judges

While the introduction of commercial courts in India is a positive step for reducing the backlog of cases and ensuring the speedy redressal of disputes, there is a need for a more fundamental modification to the litigation culture in India. At present, adjournments are granted without any consequences, litigants regularly indulge in delaying tactics, and judges take far too long to deliver judgments after arguments have ended. The pace and intensity of litigation is decided by the litigants, which is a dangerous practice because it means that the country’s dispute resolution is litigant-controlled, instead of judge-controlled.

With the institution of the commercial divisions and commercial courts, judges must take a more active role in the resolution of the dispute; they can no longer be playing the role of a supervisor, rather they must be the manager or moderator. In this regard, an important provision in the Bill is that of “case-management hearings”.

Recommended by the Law Commission after examining the practice of holding “pre-trial conferences” in Singapore, case management hearings are held within four weeks of the institution of the suit to examine the possibility of a settlement and to ensure smooth conduct by litigants. For this purpose, the judge may frame the issues for and between the parties, fix dates for evidence to be recorded, and set time limits on the oral arguments of the parties.

Another provision is to award judges with the power to order an increase in court fees as a result of an increase in the number of hearings taken up, or the number of adjournments asked for, by the parties. This also widens the control that the judge has over the proceedings, besides ensuring the quick redressal of the dispute.

Definition and monetary value of “commercial dispute”

The definition of a “commercial dispute” in the Bill is very wide with enough scope for future additions. It covers more or less every kind of commercial transaction of interest to foreign and Indian investors.

As discussed before, the value of a dispute must be not less than Rs. 1 crore to qualify as a commercial dispute for the purposes of the Bill and in order to be tried in the commercial divisions and commercial courts.


The Bill also provides for amendments to the Code of Civil Procedure, 1908 to apply to the commercial divisions and commercial courts in India and make the resolution of commercial disputes faster and more efficient. These include directions for filing written statements and documents within a specified time period, a stricter court fees and costs regime, time bound oral arguments and delivery of judgments, and a new procedure of “summary judgment”.


The 2009 Bill provided for appeals from the commercial divisions and the commercial courts to be heard by the Supreme Court of India, but the Law Commission found this provision to be ill-advised. Turning the Supreme Court into the court of first appeal for every commercial dispute will only add to the already existing backlog of cases as every party involved in a transaction valuing 1 crore or more will necessarily have the means to appeal. As such, the overall time taken to resolve the dispute will increase, defeating the very purpose of the Bill.

Instead, the Law Commission has recommended the constitution of commercial appellate divisions within the high courts, which will be empowered to hear appeals from orders of the commercial divisions and the commercial courts.


iLaw_InternationalCoursesThe Law Commission has also recommended that when constituting the commercial divisions of high courts, they should be situated, wherever possible, in the same building as the high court itself. The states and union territories which will establish commercial courts may do so in buildings different from that of the high court of the state.

Once established, the courts must be equipped with facilities supporting video-conferencing, e-filing, computerisation of evidence and audio-visual recording of proceedings, among other global best practices. This will ensure that the evidence is well-managed and the general conduct of proceedings is regulated.

Commercial courts in other countries

England and Wales: There are two established commercial courts in England and Wales – the Commercial Court and the Technology and Construction Court, both of which are divisions of the Queen’s Bench Division of the high courts in the country.

In order to dispose cases expeditiously and efficiently, the procedural law in the country includes the provision of “overriding objective.” This gives the courts the power to initiate settlements, issue directions regarding the timely production of evidence and completion of arguments, and order either party to pay costs to the other, if it has breached procedural rules or taken undue advantage of the court’s time and resources.

France: In France, commercial disputes are heard in the Tribunal de Commerce or TDC; a court specialised in commercial litigation. Judges of the TDC are normally lay judges, but have extensive training in the law relating to their respective fields.

In order to maintain efficiency, if a dispute is one of great urgency, or there is danger of irreparable harm, or the issues of facts and law are clearly in favour of the moving party, an expedited proceeding or référé may take place in the TDC. In such a proceeding, a judgment may be obtained in a matter of days or a couple of weeks. The French judicial system also does not award large-scale punitive damages or allow class-action suits, both of which limit the exposure to liability of companies doing business in the country.

However, the lack of strict case-management practices means that despite hearing only commercial disputes, the TDC takes on an average 1-2 years to dispose off a case.

Germany: The citizens of Germany repose great confidence in their judicial system, mainly because of the Advisory Council’s many efforts to make the system quick, efficient, and modern. The country does not have specialised commercial courts; the judicial system constitutes three separate court systems: the ordinary courts, the specialised courts, and the constitutional courts and within the ordinary court system, the Landgericht courts serve as the court of first instance for commercial cases above DM 10,000. The judges in the Langericht courts usually comprise of a professional judge and two lay judges nominated from the private sector.

These courts have been successful in contributing to the swift clearance of cases, mostly because of the strict enforcement of procedural time limits.

Singapore: With the advent of new institutions and judicial procedures over the last few decades, Singapore has quickly emerged as a dispute resolution hub. A unique legal culture exists in Singapore which the Law Commission’s 253rd Recommendation has very rightly taken inspiration from: the right to bring a legal action in court carries with it the strict duty of respecting court procedure and time.

In 2002, specialist commercial courts were set up in Singapore: the Admiralty Court and the Intellectual Property Court, which are presided over by judges with expertise in maritime law and intellectual property law respectively. Singapore also established the Singapore International Commercial Court in 2015 to cater to high-stakes, cross-border commercial transactions in the region and the rest of the world. These courts, combined with a practice of strict case management, make Singapore a haven for international and domestic dispute resolution.

The new government of India has promised to make India an attractive place to invest and one of the ways to do so is to set up robust infrastructure for the disposal of commercial disputes. While it is clear that the Indian judicial system can only benefit from instituting separate commercial divisions and commercial courts, they must be backed by a more fundamental change to the litigation culture, strong case-management practices, and a commitment by the litigants and judges alike, to deliver disputes in an efficient and time-bound manner.

(Prapti Patel is a student of the Indian Law Society’s Law College in Pune.)