'Indeed very sad': Supreme Court flags procedural issues plaguing arbitration regime

New Delhi: The Supreme Court on Friday said it is indeed very sad to note that even after so many years, procedural issues with regard to the Arbitration and Conciliation Act, 1996, have continued to plague the arbitration regime of India.

A bench of Justices J B Pardiwala and R Mahadevan asked the Department of Legal Affairs, Ministry of Law and Justice to take a serious look at the arbitration regime that is prevailing in India and bring about necessary changes while the Arbitration and Conciliation Bill, 2024 is still being considered.

The court noted the Arbitration Act was the first legislative enactment that dealt with arbitration that came into force in 1940. 

Fifty years, later, this legislation was replaced by the Arbitration and Conciliation Act, 1996. It has been almost, thirty-years, since the Act, 1996 has remained in force. Various amendments to the Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously.

"It is indeed very sad to note that even after these many years, procedural issues such as the one involved in the case at hand, have continued to plague the arbitration regime of India," the bench said.

The court dismissed a plea by ASF Buildtech Private Limited, represented by senior advocate Devadatt Kamat against the Delhi High Court's judgment.

"For arbitration to remain a viable and effectively alternative mechanism for dispute resolution, it is imperative to ensure that commercial reality does not outgrow this mechanism. The mechanisms of arbitration must be sufficiently elastic to accommodate the complexities of multi-party and multi-contract arrangements without compromising foundational principles such as consent and party autonomy," the bench said.

The approach of courts and arbitral tribunal in particular must be responsive to the emerging commercial practices and expectations of the parties who submit themselves to it, the bench added.  

The HC had rejected an appeal by the appellant under Section 37 of the Act. It had affirmed the order passed by the Arbitral Tribunal rejecting the challenge made by the appellant herein to its jurisdiction on the ground that the appellant being a non-signatory to the arbitration agreement could not have been impleaded in the array of parties and join the arbitration proceedings.

Coming back to the legal regime, Justice Pardiwala, who wrote the 191-page judgment for the bench,  noted the Department of Legal Affairs has now, once again proposed to replace the existing legislation on arbitration with the Arbitration and Conciliation Bill, 2024. 

"Unfortunately, even the new Bill has taken no steps whatsoever, for ameliorating the position of law as regards the power of impleadment or joinder of an arbitral tribunal. What is expressly missing in the Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this court as-well as the various High Courts, highlighting the need for statutory recognition of such power in order to obviate all possibilities of confusion," the bench said.

The court relied upon to Constitution bench judgment in Gayatri Balasamy case of April 30, 2025 which emphasised any uncertainty in the law of arbitration would be an anathema to business and commerce. 

Urging the government to consider necessary changes in the proposed bill, the bench upheld the High Court's order. 

The court directed its Registry to forward one copy each of this judgment to all the High Courts across the country and the Principal Secretary, Ministry of Law & Justice.