International arbitration uptake rising rapidly in India

The growing recognition of arbitration as a form of dispute resolution to be widely used in commercial contracts in India and the increasing sophistication of business users of arbitration, especially for cross-border activities, is one of the drivers behind the soaring number of international arbitration cases seated in and outside of India.

Indian parties, for example, have been the top users of arbitration seated in Singapore, according to statistics published by the Singapore International Arbitration Centre (SIAC). Inside India, among all the new cases received by the Mumbai Centre for International Arbitration (MCIA) in 2023 (32-page / 20MB PDF), 13% were from matters where either or both parties were international. The proportion of international cases administered by the MCIA is expected to go up, as it has been actively promoting its services globally. In 2023, it organised road shows in five jurisdictions: London, Paris, Singapore, Germany and Japan.

The demand for resolving disputes through arbitration seated in India has spurred on the institutionalisation of arbitration institutions across India. For example, the International Arbitration and Mediation Centre in Hyderabad (IAMC) was established in 2019, while the India International Maritime Arbitration Centre is soon to be opened in Mumbai this year.

Significant judgments

The Supreme Court of India has delivered many significant judgments on arbitration cases in recent years, which have contributed to the developments of arbitration in Indian and created an ecosystem that encourages parties to take advantage of arbitration in order to resolve their dispute in a speedier manner.

The ‘group of companies’ doctrine

Most recently, the Supreme Court has validated the ‘group of companies’ doctrine in the context of Indian arbitration law. According to the doctrine, an arbitration agreement entered into by a company within a group of companies may bind its non-signatory affiliates, provided the parties’ mutual intention was to bind both signatories and non-signatories. The doctrine was challenged on grounds that it interferes with party autonomy, and the convention that only a party to a contract can sue under it, known as privity of contract, and separate legal personality.

In the case between Cox and Kings Limited and SAP India, the court ruled that companies can be bound by arbitration agreements they haven’t signed if they are part of a ‘group of companies’ that has signed the agreement and several factors indicate their ‘implied consent’ to be bound by the agreement.

According to the court, the doctrine “is a means of identifying the common intention of the parties to bind a non-signatory to [an] arbitration agreement by emphasising and analysing the corporate affiliation of the distinct legal entities".

An arbitration agreement must be in writing to be valid, but there is no compulsory requirement that it should be signed by the parties.

Non-signatories could be bound where “factual, circumstantial and legal aspects of the matter” point to their inclusion as parties. Those aspects include the surrounding circumstances of the “formation, performance and discharge of the contract”, as well as additional factors such as “direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction and performance of the contract”.

Stamping of arbitration agreements

In a judgment handed down in December 2023 (155-page / 1MB PDF) the Indian Supreme Court declared that arbitration clauses in unstamped or inadequately stamped agreements are enforceable, overturning an earlier decision of the Supreme Court.

According to the court, an unstamped or inadequately stamped agreement is inadmissible in evidence under the Stamp Act, but the lack of valid stamp is a curable defect in the law. Therefore, non-stamping or improper stamping does not mean the arbitration clauses in the agreement are invalid. The concerned court must, however, examine whether the arbitration agreement prima facie exists when deciding on this matter.

Validity of third-party funding

In May 2023, in a dispute between Tomorrow Sales Agency Private Limited v SBS Holdings Inc & Ors, the Delhi High Court ruled that a third party funder could not be liable for adverse costs in an arbitration in circumstances where the funding agreement did not provide for any obligation on the third-party funder to fund an award of adverse costs. This important judgment brings greater certainty to funders of arbitrations in India, which is likely to promote investment.

The High Court of Delhi overturned a previous ruling from 2019 that ordered a funder to pay the costs of an unsuccessful arbitration claim, stating that funders are not bound by the arbitration agreement or the award unless they consent to it. In coming to its decision, the court noted that "third-party funding is essential to ensure access to justice", highlighting that India is beginning to embrace the concept.

This ruling also reinforces the strong commitment India's executive and judiciary have shown in recent years to promoting arbitration as a means of resolving disputes. The third-party funding sector should watch closely the applicability and reliance on this judgment by stakeholders in future cases.