Arbitration was once treated as the backup plan when parties wanted to avoid courts but were not sure the arbitration would work. That framing has been wrong for some time and is now clearly outdated.

India is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. Indian arbitral awards are enforceable as decrees of civil courts under Section 36 of the Arbitration and Conciliation Act, 1996. The Supreme Court has spent the better part of a decade building a body of jurisprudence that treats arbitration as the preferred mechanism for commercial dispute resolution, not a secondary one.

Why Arbitration Is No Longer the Alternative

In 2025 alone, the Supreme Court delivered twenty-five significant judgments on arbitration law. The direction of every one of them was the same: reduce court intervention, enforce arbitration agreements, respect arbitral finality.

For businesses drafting contracts today and for parties already in a dispute, arbitration is not the alternative. In many cases, it is the primary option.

The Legislative Framework

The Arbitration and Conciliation Act, 1996

The Act is the governing statute for both domestic and international commercial arbitration in India. It is modelled on the UNCITRAL Model Law and has been amended three times: in 2015, 2019, and 2021, each amendment addressing specific failures in implementation.

The 2015 amendments removed the automatic stay on enforcement of arbitral awards upon filing a challenge, imposed time limits on proceedings, and strengthened interim measures. The 2019 amendments created the India International Arbitration Centre and pushed institutional arbitration over ad hoc proceedings. The 2021 amendment tightened the fraud and corruption exception used to obtain stays of enforcement.

A draft Arbitration and Conciliation Bill, 2024, has been proposed that would further limit court intervention and introduce emergency arbitration for India-seated proceedings. The direction of reform is consistent and unambiguous.

Section 5: The Principle of Minimal Intervention

Section 5 of the Act restricts judicial intervention in arbitration to the circumstances expressly provided in the Act. Courts cannot intervene at will simply because a party is dissatisfied with how the arbitration is proceeding.

The Supreme Court has applied this principle consistently. In 2025, the Court in several matters reiterated that once a valid arbitration agreement exists and the arbitral tribunal is constituted, the scope for court interference during the proceedings is extremely narrow. Challenges to the tribunal’s jurisdiction, the arbitrator’s independence, or the conduct of proceedings are preserved, but general supervision by courts of ongoing arbitration is not.

What Makes an Arbitration Agreement Valid

The Requirement of Finality

In 2025, the Supreme Court clarified an important point that had generated uncertainty in contract drafting. A clause that merely says arbitration “may be sought” does not constitute a binding arbitration agreement under Section 7 of the Act. The element of finality is essential. The parties must have agreed that disputes will be resolved through arbitration and that they will be bound by the result.

In BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Limited (2025 LiveLaw SC 731), a bench of Justices P.S. Narasimha and Manoj Misra held that permissive language does not satisfy the requirements of Section 7. The agreement must reflect a clear and mandatory intention to refer disputes to arbitration.

This matters in practice. A significant number of commercial contracts in India contain dispute resolution clauses that are ambiguous about whether arbitration is mandatory or optional. A party that has drafted such a clause as the stronger bargaining party may find it works against them when the counterparty files a suit in court and resists reference to arbitration.

Unsigned Agreements and the Conduct Doctrine

The Act allows arbitration agreements to be in writing but does not require signature in all cases. The Supreme Court has recognised that an arbitration agreement can be established through conduct where parties have proceeded on the basis that disputes will be arbitrated.

However, courts apply this carefully. The Group of Companies doctrine, clarified by a five-judge Constitution Bench in Cox and Kings Ltd. v. SAP India Pvt. Ltd., allows non-signatories to be bound by an arbitration agreement where there is a defined legal relationship between the non-signatory and the signatories, the non-signatory has consented expressly or impliedly, there is commonality of subject matter, and the transaction is composite in nature.

Appointing the Tribunal and Maintaining Its Independence

The Unilateral Appointment Problem

One of the most important developments in Indian arbitration law in recent years is the consistent judicial invalidation of unilateral appointment clauses, where one party has the contractual right to appoint the sole arbitrator or the majority of the tribunal.

The 2024 Constitution Bench judgment in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) emphasised impartiality and equality in arbitral proceedings, restricting unilateral appointments and requiring compliance with mandatory neutrality norms under Section 12(5) read with the Seventh Schedule of the Act.

In practice, this means that contracts which give one party, typically the larger commercial entity, the unilateral right to appoint the arbitrator are now vulnerable. A party on the receiving end of such a clause has a viable argument that the appointment is ineligible under Section 12(5) and can seek court-appointed arbitration under Section 11.

Section 11: Court-Appointed Arbitration

Where parties cannot agree on the appointment of an arbitrator, Section 11 allows a party to approach the High Court or the Supreme Court depending on the nature of the arbitration. The court’s role at this stage is limited to a prima facie examination of whether a valid arbitration agreement exists.

In domestic arbitrations, the appointment shall be made by the High Court of the seat of arbitration. In international commercial arbitrations, the appointment is made by the Supreme Court.

The 2019 amendment authorised High Courts and the Supreme Court to designate arbitral institutions as appointing authorities. DIAC has been designated in Delhi. MCIA has been designated in Maharashtra.

Institutional Arbitration in India

Why Institution Matters

Ad hoc arbitration, where parties manage the proceedings themselves without institutional support, continues to be used in India but carries significant risks. Timelines slip. Procedural disputes arise. The award may be challenged on grounds that would not have survived in a well-administered institutional proceeding.

Institutional arbitration under the rules of a recognised institution offers procedural certainty, administrative support, a roster of qualified arbitrators, and built-in accountability mechanisms. The leading institutions operating in India are the Delhi International Arbitration Centre, established under the aegis of the Delhi High Court and administered under the DIAC Arbitration Rules 2018; the Mumbai Centre for International Arbitration, operating under MCIA Rules 2016; and the Indian Council of Arbitration, backed by the Federation of Indian Chambers of Commerce and Industry.

For international disputes, the Singapore International Arbitration Centre and the ICC International Court of Arbitration regularly administer India-related matters. India’s ratification of the New York Convention means that awards rendered in any of the 170 plus signatory states are enforceable in India, subject to the narrow grounds of refusal under Section 48 of the Act.

A Real Case: The Avitel-HSBC Dispute

The Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. matter, decided by the Supreme Court in 2024 (2024 INSC 242), illustrates several important dimensions of arbitration practice in India.

HSBC had invested US $60 million in Avitel pursuant to a Share Subscription Agreement and a Shareholders Agreement, relying on Avitel’s representation that it had contracted with the BBC. The representation was false. HSBC initiated arbitration in Singapore under the SIAC Rules. Avitel challenged enforcement in India on the grounds that the dispute involved fraud and was therefore not arbitrable and that enforcement would be contrary to public policy.

The Supreme Court rejected both arguments. It held that fraud of the kind alleged, misrepresentation inducing investment, is arbitrable. It reaffirmed India’s pro-enforcement policy for foreign awards and clarified the limited parameters in which enforcement can be denied. The Court emphasised that the public policy exception under Section 48 must be construed narrowly and is not a general review of the merits of the award.

For businesses entering contracts with international parties or with Indian parties who have overseas operations, this judgment confirms that a well-drafted arbitration clause with an appropriate institutional seat will produce an enforceable award in India without a second full hearing on the merits.

The Mediation Act, 2023 and Its Intersection With Arbitration

The Mediation Act, 2023, introduced pre-litigation mediation as a formal step and made mediated settlements enforceable as civil court decrees under Sections 27 and 28. For contracts that do not contain arbitration clauses, mediation under the Act now provides a faster and enforceable alternative to litigation.

The two frameworks are not mutually exclusive. A multi-tiered dispute resolution clause that requires mediation before arbitration is both permissible and, in many cases, preferable. It creates a genuine opportunity for resolution at lower cost and with less reputational exposure than arbitration, while preserving the arbitral mechanism if mediation fails.

 

What Businesses Get Wrong in Arbitration Clauses

The arbitration clause is drafted once, when the relationship is good, and forgotten until it matters. Three failures appear consistently.

Failing to Specify a Seat of Arbitration

The seat determines which court has supervisory jurisdiction over the arbitration and governs the procedural law. The Supreme Court in BGS SGS Soma JV v. NHPC (2020) 18 SCC 648 confirmed that the seat is the juridical anchor. Without a specified seat, parties litigate about where the arbitration is being conducted before they litigate about what it is about.

Permissive Rather Than Mandatory Language

As the Supreme Court held in Eastern Coalfields (2025), a clause saying arbitration “may be sought” is not a binding arbitration agreement. The language must be mandatory and must reflect an intention that the parties will be bound by the decision.

Unilateral Appointment Mechanisms

Post-Central Organisation for Railway Electrification, such clauses are vulnerable to challenge under Section 12(5). A neutral appointment mechanism, whether through a designated institution or by mutual agreement, protects the integrity of the tribunal and the enforceability of the award.

Core Legal Solutions advises businesses on arbitration clause drafting, represents parties in arbitrations before DIAC, MCIA, and other institutional forums, and handles Section 11 appointment applications, Section 9 interim relief proceedings, and enforcement of domestic and foreign arbitral awards in the Delhi courts.

 

FAQs

1.Is an arbitral award enforceable like a court decree in India? 

Yes. Under Section 36 of the Arbitration and Conciliation Act, 1996, a domestic arbitral award is enforceable as a decree of a civil court once the period for challenge under Section 34 has expired or a challenge has been dismissed.

2.What are the grounds for challenging an arbitral award under Section 34? 

The grounds are narrow: incapacity of a party, invalidity of the arbitration agreement, lack of proper notice, the award being beyond the scope of the submission, improper composition of the tribunal, the subject matter not being arbitrable under Indian law, or the award being in conflict with public policy. Courts do not review the merits of the award.

3.Can a non-signatory be bound by an arbitration agreement? 

Yes, in certain circumstances. The Supreme Court in Cox and Kings v. SAP India clarified the Group of Companies doctrine: a non-signatory can be bound where there is a defined legal relationship with the signatories, commonality of subject matter, composite transaction, and implied or express consent.

4.How long does institutional arbitration take in India? 

Institutional arbitrations at DIAC and MCIA typically conclude in 12 to 18 months. Ad hoc arbitrations take longer and are more susceptible to procedural delays.

5.What is the seat of arbitration and why does it matter? 

The seat is the legal home of the arbitration. It determines which court has supervisory jurisdiction and which procedural law applies. The Supreme Court in BGS SGS Soma JV v. NHPC (2020) confirmed the seat is the juridical anchor. Without a specified seat, parties end up litigating about jurisdiction before addressing the substance of the dispute.

6.Can fraud disputes be arbitrated? 

Yes. The Supreme Court in Avitel Post Studioz v. HSBC (2024) held that fraud and misrepresentation claims arising from commercial contracts are arbitrable. Only fraud of a nature that would vitiate the arbitration agreement itself or involve public law rights falls outside arbitral jurisdiction.