A Country that is well known for its culture, natural beauty, and tasty cuisine land whose people have experienced repressive, authoritarian, and totalitarian leaders. Place full of vast potentials but living with low development and a struggling economy. Government fighting with corruption and well knew to a party to it. Then, an international community

 Decide to provide foreign assistance in many forms including rule of law development assistance, despite all these steps country struggles with overcrowding cases both civil and criminal, and the question was raised why don’t we pass a law to allow us to negotiate and settles our cases? Soon, a new law is passed and various cases waiting for the dates of the court now enter guilty pleas, which for many include paying a fine and getting released. The court system acknowledged that case backlogs reduce, the human rights situation improves as fewer defendants spend time in poor pre-trial detention facilities, and defendants no longer spend months waiting for trials that they have no hope of winning.

It sounds like win-win situation and something that should be encouraged and a great example to show the importance of alternative dispute resolution like arbitration, so what is the problem? Let’s discuss the challenges being faced in arbitration as a means of dispute resolution.

International Commercial Arbitration & Its challenges

Noticeably, the key factor for an arbitration to be classified as “international commercial arbitration” is that at least one of the parties should be a foreign national / resident or foreign company or foreign controlled association of persons or foreign government. Commercial disputes involving anyone or more of the following person(s) will lead to international commercial arbitration: 

  1. Indian citizen (passport-holder) living outside India 
  2. Citizen of any country other than India 
  3. Company incorporated outside India (even when the company is owned wholly by Indian resident citizens) 
  4. A NGO whose central management and control is exercised from outside India (even when the controlling office located outside India is operated wholly by Indian citizens) 
  5. A foreign government 

The dispute must be of commercial nature though it need not arise out of a contract. 

Seat of arbitration may be in India or outside depending on the agreement between the parties. 

Indian arbitration law has now developed to the extent to allow disputes between two non-Indian persons / entities in India. This opens the possibilities of India emerging as the centre of third country arbitration. The day may not be far when a dispute between a company of, say, Mozambique and another company of, say, Singapore will be resolved by arbitration in India. Of course, the arbitration institutions and professionals of India will need to grow to cater to emerge as a seat of global arbitration.

In the recent past, there has been a lot of enthusiasm around the evolving laws of arbitration in India and their challenges as in-

Conundrum surrounding two Indian parties having a foreign seat of arbitration

Though this issue has been heard often in High Courts in pat but there is still no clarity on the ability to choose a foreign seat of arbitration for two Indian parties. In Addhar Mercantile Private limited v. Shree Jangdamba Agrico Exports Pvt. Ltd., the Bombay High Court expressed a view that two Indian parties choosing a foreign seat and a foreign law could be considered to be opposed to the public policy of the country. Recently, the Delhi HC in GMR Energy Limited & Ors., rules that there is no prohibition in two Indian parties opting for a foreign seat of arbitration. This judgment of Delhi HC re-affirms that two Indian parties can be sent their arbitration outside India is yet another treatment to pro-arbitration approach to Indian courts.

Arbitrability of oppression and mismanagement cases

A landmark judgement was given on the same by Bombay High Court in Rakesh Malhotra v. Rajinder Kumar Malhotra, the court held that disputes regarding oppression and mismanagement cannot be arbitrated, and must be adulated upon by the judicial authority. In contrast, the judicial authority finds that the petition is mala fide or vexatious and is an attempt to avoid an arbitration clause; the dispute must be referred to arbitration.

Challenges in Domestic Arbitration Law

Domestic arbitration refers to arbitration of disputes where both parties are Indian nationals or Indian entities. “International commercial arbitration”, has been defined under sub-section 2(f) of the Act. Domestic arbitration is not defined under the Act. We presume that an arbitration that is not international is domestic. Hence, the understanding that both parties in domestic arbitration ought to be Indian. Domestic arbitration may be held within India or may also be held outside India. When it is held in India (or in legal terms when the place / seat of arbitration is in India), Part I of the Act applies. So, two Indian companies may agree to settle their disputes by arbitration seat in Singapore. In such a case, Part I of the Act will not apply to the arbitration proceedings. This will remain the case even if all the meetings of the arbitration proceedings are held in India and all arbitrators are Indian.

Some of the other challenges are:

  1. Lack of specialist Arbitration bar

The reluctance of the parties, counsel, and the courts to appoint arbitrators from outside the group of retired judges has resulted in  an extension to the court system  with arbitrators willing to apply the procedural law of court which forces the parties to choose from a very limited pool of reliable arbitrators who turns out busy and expensive.

  1. The intervention of Courts in Arbitration Proceedings

Due to such intervention those opting for arbitration even land up in court and end up choosing courts over arbitration his means there must be limited intervention. In White Industries v. Republic of India two issues were held first was the intervention of the judiciary and the second was a delay in arbitration so, it was discussed well and came to the conclusion that the judiciary should be minimized to an extent.


Arbitration is not cheap and international commercial arbitration is certainly not so. Even after arbitration, there is the big issue of getting the arbitration order executed. Often the process of execution of arbitration order is a long-drawn legal process. It makes sense to avoid arbitration as far as possible. Even if one feels that the opposite party is being less than fair, it is better to swallow one’s ego and arrive at an amicable settlement in the long-term interests of business. The underlying philosophy is that time and money are too precious to be wasted in arbitration or litigation. If one believes in the above philosophy of trying for amicable settlement and avoiding wasteful unproductive expenditure on legal processes, it is necessary to incorporate this philosophy in the agreement well before any dispute has raised its ugly head. It has been our experience that in an interaction between two business organizations, there are many persons involved from both sides. Some bad behaviour from a couple of guys from one or both sides leads to spoiling of organizational relations. These guys do not have the big macro picture or overall organizational interests in their mind. Generally, they are career driven petty-minded individuals who are more interested in saving their own backs instead of caring for organizational interests. At times like these, a meeting between the owners / Chairmen of the two organizations can be very useful. The owners /Chairmen have the ability to rise above all the petty politicking that might have gone on in the past. They are mostly entrepreneurs who are willing to swallow some pride for protecting business interests.

India a fast-growing economy and its legal system need a stable and reliable dispute resolution process that covers all thes or e challenges as well as attracts foreign investments. Well, arbitration has proved to be a blessing but now we need some strong laws as well various amendments in it to make a better one. If the above reasons are somehow overcome, the growth of arbitration would become certain.

While we encourage ADR mechanisms, we must create a culture for settlements dispute through these mechanisms, unless the members of the Bar encourage their clients to settle their disputes through negotiations, such mechanisms cannot succeed.

Authored By: Vandana Sharma, 3rd Year, Balaji Law College, Pune

Related posts