Interpretations by the Supreme Court in Arbitration and Conciliation Act, 1996
Interpretations by the Supreme Court under the Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 governs arbitration proceedings in India and is largely modeled on the UNCITRAL Model Law. Since its enactment, the Supreme Court of India has delivered several landmark judgments interpreting various provisions to streamline arbitration, uphold party autonomy, and ensure speedy resolution.
1. Party Autonomy and Minimal Court Intervention
Case: S.B.P. & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618
The Supreme Court emphasized party autonomy in arbitration, holding that the role of courts is limited to what is expressly provided under the Act.
Courts cannot interfere in the arbitration process except under the limited grounds specified in Section 34 (challenging an arbitral award) and Section 9 (interim relief).
This judgment curtailed unnecessary judicial interference and underscored the pro-arbitration policy.
2. Section 8 — Referral to Arbitration
Case: Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc. (BALCO), (2012) 9 SCC 552
The Supreme Court ruled that Section 8 applies even when arbitration agreement pertains to a foreign-seated arbitration.
Courts must refer the parties to arbitration unless the arbitration agreement is null and void, inoperative, or incapable of being performed.
This ruling shifted the balance in favor of arbitration, limiting judicial scrutiny at the initial stage.
3. Section 34 — Challenge to Arbitral Award
Case: ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705
This judgment set the foundation for interpreting Section 34 on the grounds for setting aside an arbitral award.
The Court held that only fundamental errors of jurisdiction or procedure or awards that are patently illegal or in conflict with the public policy of India can be set aside.
It emphasized finality of arbitral awards and discouraged courts from re-appreciating evidence.
4. Public Policy Exception
Case: Renusagar Power Co. Ltd. v. General Electric Co., (1994) 1 SCC 644
One of the earliest and significant judgments on public policy as a ground for setting aside arbitral awards.
The Court held that only awards which are in conflict with the fundamental policy of Indian law, interest of India, justice or morality could be set aside.
The scope of "public policy" was kept narrow, to prevent judicial overreach.
Later expanded in:
Bharat Aluminum Co. (BALCO) (2012) and
Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49
where the Court clarified and limited the scope of public policy grounds to serious procedural irregularities or arbitrator misconduct.
5. Arbitrability of Disputes
Case: Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479
The Supreme Court observed that not all disputes are arbitrable.
Certain disputes, particularly those involving non-arbitrable rights, like criminal matters, matrimonial disputes, or those requiring exclusive statutory adjudication, cannot be referred to arbitration.
6. Interim Reliefs by Courts
Case: McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181
The Court held that under Section 9, courts have the power to grant interim measures before or during arbitration.
These powers include attachment of property, appointing receivers, injunctions, and preservation of evidence.
7. Competence-Competence Principle
Case: Kvaerner Cementation India Ltd. v. Bajranglal Agarwal, AIR 2001 SC 619
The Supreme Court recognized the competence-competence principle embodied in Section 16.
This means the arbitrator has the jurisdiction to decide his own jurisdiction, including challenges to the validity of the arbitration agreement.
Courts should generally stay proceedings pending the arbitrator's decision on jurisdiction unless the arbitration agreement is clearly invalid.
8. Applicability of Part I and Part II of the Act
Case: Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105
The Supreme Court held that Part I of the Act (domestic arbitration) applies to foreign-seated arbitrations unless expressly excluded.
This means Indian courts have some supervisory jurisdiction over foreign-seated arbitrations.
This judgment was partially overruled by BALCO (2012), which restricted Part I applicability to domestic arbitrations only, thus limiting Indian courts’ intervention in foreign arbitrations.
9. Enforcement of Arbitral Awards
Case: Renusagar Power Co. Ltd. (1994) and SSP Pvt. Ltd. v. State of U.P., (1999) 5 SCC 532
The Supreme Court emphasized that enforcement of arbitral awards is a matter of right except where the award is contrary to public policy or otherwise liable to be set aside.
Courts should not refuse enforcement on technical or procedural grounds.
Summary Table
| Issue | Key Supreme Court Interpretation | Landmark Case |
|---|---|---|
| Party autonomy & limited court interference | Courts should interfere minimally, only as per Act | S.B.P. & Co. v. Patel Engineering Ltd. |
| Section 8 (Referral to arbitration) | Courts must refer unless arbitration agreement invalid | BALCO (2012) |
| Grounds for setting aside award | Limited to jurisdictional errors, public policy, illegality | ONGC Ltd. v. Saw Pipes Ltd. |
| Public policy scope | Narrow interpretation to prevent abuse of judicial power | Renusagar Power; Associate Builders |
| Arbitrability | Certain disputes are not arbitrable | Sundaram Finance Ltd. |
| Interim reliefs | Courts can grant interim relief under Section 9 | McDermott International |
| Competence-competence principle | Arbitrator can decide his jurisdiction | Kvaerner Cementation India Ltd. |
| Applicability of Part I to foreign arbitrations | Initially yes (Bhatia), later restricted (BALCO) | Bhatia International; BALCO |
| Enforcement of awards | Enforcement is a right barring exceptions | Renusagar Power; SSP Pvt. Ltd. |
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