Judicial rigour

The ruling of a constitution bench of the Supreme Court that Indian courts cannot provide interim relief in foreign arbitration awards has made a welcome clarification of the scope and intent of the country’s arbitration law.

It also reinforces the need for judicial rigour in the interpretation of laws and might help to strengthen investor confidence in the country.

With increasing collaboration between Indian and foreign companies, commercial disputes have also increased. The provisions for international arbitration in agreements between companies had often been made to avoid delays that characterise the Indian judicial process.

But losing companies have sought to sidestep the arbitration awards by securing a stay from Indian courts. It is this practice that the Supreme Court has put an end to with its ruling. A high court ruling in 2002 and similar subsequent rulings had interpreted the country’s arbitration law liberally and allowed Indian courts’ jurisdiction over awards made abroad. The apex court has rejected them and made a reading of the Indian law in line with international practices and conventions.

The judgment of the bench headed by chief justice S H Kapadia reiterated that courts cannot enter into the legislative domain. If the scope of the Indian Arbitration Act had to be widened, only Parliament could do it. The judgment has upheld the sanctity of legal contracts entered into between companies and might help to increase the faith of investors in the Indian legal system. The strength of the rule of law and predictability of its enforcement are important factors that influence investment decisions. No company would like an arbitration decision, provided for in a contract, being stayed or rejected later by a court.

The Supreme Court’s judgment is prospective and there is some uncertainty about how arbitration agreements executed before the verdict and are under dispute now may be handled. There is a case for strengthening of the legal framework, procedures and machinery of adjudication and arbitration within the country. The laws may need strengthening and delays will need to be minimised. If a congenial environment is created, India can itself become an attractive venue for arbitration, given its economic strength and the large number of companies that do business in the country.