Pro-arbitration Judicial Trend in India – but what should you know?

There seems to be a pro-arbitration judicial trend in India, but it is imperative to take proper and timely legal steps with a strategy to take matters towards resolution. Obviously, this continues during entire life cycle of dispute resolution starting from invocation of arbitration and appointment of arbitrators till award attains finality and its execution as a decree.

In a remarkable judgement, the Supreme Court held that arbitration clauses in unstamped or inadequately stamped agreements are enforceable. While holding that, the Court said that insufficiency in stamping does not make agreements void, void ab initio or unenforceable, but makes them inadmissible in evidence. Further, non-stamping or inadequate stamping is a curable defect, which can be rectified as per the procedure laid down in law. It also said that the concerned court must examine whether arbitration agreement prima facie exists, and any objections in relation to stamping of agreement fall within the ambit of an arbitral tribunal. 

In another crucial judgement, the Supreme Court held that an arbitration agreement can bind non-signatories applying ‘group of companies’ doctrine. For this purpose, the conduct of non-signatory parties could be an indicator of their consent to be bound by an arbitration agreement. The judgement also highlighted that the underlying basis for application of group of companies doctrine rests on maintaining corporate separateness of group companies while determining common intention of parties to bind non-signatory parties to the arbitration agreement.

With these judgements, a clear distinction has been made out between admissibility of an agreement and its enforceability under law. Further, the intention and conduct of the parties in arrangements involving multiple parties and multiple agreements has been given paramount importance in binding them to arbitration. 

LexFulcrum Comments: Only when there exists an arbitration agreement between parties, can they refer their disputes to arbitration. In such cases, the courts in India are bound to refer disputes to arbitration. This is marred by practical and inherent challenges in the process when other sides buy time and complicate the matter by its acts and omissions requiring assistance of courts. 

The assistance of courts is required in appointment of arbitrators when parties do not make appointments as per agreement. In some cases, the other side deliberately files suit before courts for which an application is required to be made for referring the matter to arbitration. A petition seeking appointment of arbitrators is often considered premature in such cases. Timely action is the essence here as the matter may not even commence till arbitrators are appointed. Further, the Parties may have to move to courts for interim reliefs before commencement or during arbitration proceedings or before enforcement of award. 

The arbitration clause requires proper negotiation considering how the parties are positioned in the proposed transaction or arrangement and where they are stationed. Such a clause should be legally valid and enforceable considering the continuously evolving law and judicial trend around it. It should be kept in mind that everything is not arbitrable. Having an arbitration clause or making any step towards it in such matters would be a waste of time only to realize that going to courts was the only way out.

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