The Corporate & Commercial Law Society Blog, HNLU

Category: Arbitration & Conciliation Act

  • In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award

    In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award

    BY ANMOL TYAGI, THIRD-YEAR STUDENT AT RGNUL, PATIALA.

    INTRODUCTION

    With a 4:1 majority decision in Gayatri Balasamy vs. M/S ISG Novasoft Technologies Ltd. (2025), (‘Balasamy’) the Supreme Court fundamentally altered India’s arbitration landscape by recognizing courts’ power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’) to modify an arbitral award. This watershed judgment resolves a decade-long jurisprudential conflict sparked by the Court’s 2021 M. Hakeem ruling, which categorically denied modification powers. By permitting limited judicial corrections from computational errors to compensation adjustments, the majority attempts to balance arbitration’s finality with the practical need for efficient justice. However, Justice K.V. Viswanathan’s dissent warns that this “judicial innovation” risks reviving the very interventionist culture the 1996 Act sought to eradicate. This article, firstly, delves into the controversy and analyses the ratio in its pragmatic context; secondly, it analyses its implications and advocates for how what should have been a unanimous verdict is penned down as a dissenting opinion; and lastly, it tries to explore a way forward.

    THE MAJORITY ON THE POWER TO MODIFY

    The Apex Court, through judicial precedents, proffered minimal judicial intervention in arbitral awards, not extending to correction of errors of fact, reconsideration of costs, or engagement in the review of the arbitral awards.

    For modification of awards, the court held that a modification does not necessarily entail the examination of the merits of the case, thereby allowing limited power of modification within the confines of Section 34 without a merit-based evaluation under certain circumstances including; where severing invalid from the valid, correcting clerical, computational and typographical error, certain post award interest and under Article 142 of the Constitution of India, where it is required and necessary to end litigation.  Progressively, such a decision was held to prevent the hardship of re-filing an arbitration and a manifestation of the objects of the Act.

    To that end, the majority in Balasamy invoked the maxim omne majus continet in se minus (“the greater includes the lesser”) to justify modification as incidental to the power to set aside awards. This reasoning hinges on Section 34(2)(a)(iv), which permits partial annulment if an award exceeds the scope of submission. By framing severability as statutory intent, the Court positioned modification as a natural extension of existing powers rather than a novel judicial innovation.

    For severability of awards, the court held that the greater power to set aside an award under Section 34 also includes the lesser power to sever the invalid portion of an award from the valid portion under Section 34(2)(a)(iv) of the Act, whenever they are legally and practically separable. The court differentiated the power conferred under section 34(4) from the limited power to modify on the ground of flexibility. The court upheld the idea of remittal under Section 34(4) as a remedial mechanism enabling the arbitral tribunal to correct curable defects in the award upon court adjournment. On the other hand, modification involves the court directly changing the award, which is limited and requires certainty.

    ANALYSIS OF THE MAJORITY OPINION

    While the court may have tried to weave the principle of equity and justice without offending the judicial fabric of Section 34 and the legislative intent of the Act, certain shortcomings are still exposed. Justice K.V. Vishwanathan’s dissent helps explore these shortcomings.

    i) Theoretical tensions: Party Autonomy vs. Judicial Paternalism

    Justice K.V. Vishwanathan’s dissent concurs with the idea that the power to modify subsumes the power to set aside under section 34 of the Act is fallacious, since the power to set aside an arbitral award does not inherently include the power to modify it because the two functions serve distinct purposes within the arbitration framework. Similar was the rationale of the court in M. Hakeem. Setting aside an award under Section 34 of the Arbitration and Conciliation Act, 1996, is a corrective measure that allows courts to annul an award if it violates fundamental legal principles, such as public policy or procedural fairness. In contrast, modification implies an active intervention where the court alters the substance of the award, which contradicts the principle of minimal judicial interference in arbitration, as in the Mcdermott International Case.

    The proposition of limited modification of an award in the interest of expeditious dispute resolution may seem attractive at first instance, especially for commercial arbitrations involving public law, where the courts may modify the award to enhance compensation for the land acquisition. However, it points to vital concerns regarding its applicability by the courts in general and arguably, the power of remand under section 34(4), though different from the modification powers, acts as a safety valve and serves a similar purpose as it arrays wide powers upon the arbitral tribunal to modify an arbitral award for an effective enforceability.

    Theoretically, arbitration is a voluntary act of dispute resolution through a third party, different from courts and its legal procedures.  While the judgment provides for modification powers to remove the ‘invalid’ from the ‘valid’ and enforce complete justice under Article 142 of the Constitution, it not only raises concerns as to its applicability and limitation in determining what constitutes ‘invalid’ or complete justice, but also strikes at the core of arbitration. It does so by contradicting the fundamental characteristic and statutory intent of arbitration, i.e., the finality of the award through minimal judicial intervention, as was held in Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act, 1899.

    Justice K.V. Viswanathan’s dissent highlights a critical tension: the 1996 Act deliberately omitted modification powers present in its predecessor, the 1940 Arbitration Act. The legislature’s conscious choice to limit courts to setting aside or remitting awards reflects a policy decision to prioritize finality over granular corrections. Noting that the Parliament intentionally omitted the ‘powers to modify’ from the repealed Arbitration Act, 1940, the majority’s interpretation risks judicial overreach by reading into the Act what the Parliament excluded, a point underscored by the dissent’s warning that using Article 142 to modify awards subverts legislative authority.

    To that end, arbitration’s legitimacy stems from its contractual nature. By allowing courts to “improve” awards, Balasamy subtly shifts arbitration from a party-driven process to one subject to judicial paternalism. This contravenes the kompetenz-kompetenz principle, which reserves jurisdictional decisions for tribunals. Notably, the UNCITRAL Model Law emphasizes tribunal autonomy in rectifying awards (Article 33), a responsibility now partially appropriated by Indian courts

    ii. Impact on Arbitral decision making

    The threat of post-hoc judicial adjustments may incentivize arbitrators to over-explain conclusions or avoid innovative remedies. For instance, tribunals awarding compensation in land acquisition cases might default to conservative valuations to pre-empt judicial reduction. Conversely, the power to correct clerical errors (e.g., miscalculated interest rates) could save parties from unnecessary remands.

    iii. Enforcement Challenges

    While the Court envisions modification as a time-saving measure, practical realities suggest otherwise. District courts lacking commercial arbitration expertise may struggle to apply the “severability” test, leading to inconsistent rulings and appeals. The Madras High Court’s conflicting orders in Balasamy (first increasing compensation, then slashing it) illustrate how modification powers can prolong litigation.

    Arguably, with the possibility of modification, the judgment practically creates uncertainty and opens Pandora’s box, thereby exposing every arbitration being challenged under some pretext or other. The effect of the judgment might extend to various PSUs, companies, and individuals opting out of arbitration, fearing the non-finality of the award.

    The majority’s reliance on Article 142 to justify modifications creates a constitutional paradox.

    While the provision gives the Supreme Court the power to do “complete justice,” applying it to an arbitral mechanism of private dispute settlement blurs the line between public law exceptionalism and the enforcement of private contracts, which arguably would render Article 142 a “universal fix” for disenchanted arbitral awards.

    For land acquisition cases and corporate disputes both, this poses a paradox: courts acquire efficiency tools at the risk of sacrificing arbitration’s fundamental promise of expert-driven finality. As Justice Viswanathan warns, the distinction between “severance” and appellate review remains precariously thin. With ₹1.3 trillion in ongoing arbitrations at stake, Balasamy’s real test lies in whether lower courts use this power with the “great caution” prescribed inadvertently to revive India’s reputation for boundless arbitration litigation

    COMPARITIVE INTERNATIONAL PERSPECTIVES

    Leading arbitration hubs strictly reserve judicial modification. Singapore’s International Arbitration Act only allows setting aside on grounds of procedure and not on a substantive basis. The UK Arbitration Act 1996 can correct only clerical errors or clarifications (Section 57), whereas Hong Kong’s 2024 rules authorize tribunals-not courts-to correct awards. India’s new “limited modification” system varies by allowing courts to modify compensation values and interest rates, which amounts to re-introducing appellate-style review.

    The UNCITRAL Model Law that influenced the Act limits courts to setting aside awards (Article 34). More than 30 Model Law jurisdictions, such as Germany and Canada, allow modifications by way of tailormade legislative provisions. The Balasamy judgment establishes a hybrid model where there is judicial modification without an express statutory authority, raising concerns in enforcement under the New York Convention. As Gary Born observes, effective jurisdictions identify procedural predictability as a core value threatened by unfettered judicial discretion.

    THE WAY FORWARD: ENSURING EQUILIBRIUM

    The decision permitting limited alteration of the arbitral award represents a paradigm shift in the jurisprudence. The decision demonstrates a genuine effort to balance efficiency with fairness. However, its success depends on responsible judicial application. In the absence of strict adherence to the “limited circumstances” paradigm, India stands the risk of undermining arbitration’s essential strengths: speed, finality, and autonomy. As Justice Viswanathan warned, the distinction between correction and appellate review remains hair-thin. What is relevant here is how the courts apply the new interpretation to amend arbitral awards. Objectively, the courts have to be careful not to exercise the powers of amendment in exceptional situations to that extent, refraining from any impact on the finality of the arbitral award as well as the faith of the citizenry and other institutions within it.

    To avoid abuse, parliament has to enact modification grounds by amending Section 34, in line with Section 57 of the UK Arbitration Act, specifically allowing for corrections confined to reasons specified, promoting clarity and accountability. The Supreme Court would need to direct guidelines to the lower courts for arbitral award modification only when the errors are patent and indisputable, refrain from re-assessing evidence or re-iterating legal principles, and give preference to remission to tribunals under Section 34(4) where possible.

  • Addressing the Silence: Security for Costs in India’s Arbitration Landscape (Part II)

    Addressing the Silence: Security for Costs in India’s Arbitration Landscape (Part II)

    BY Pranav Gupta and Aashi Sharma Year, RGNUL, Punjab

    Having discussed the concept of Security for Costs and International Precedents of Investment Arbitration, this part will delve into precedents of Commercial Arbitration and potential solution for the security for cost puzzle.

    B. Commercial Arbitration Procedure:

    The UNCITRAL Model Law on International Commercial Arbitration, being a foundational framework, empowers the tribunal to order SfC under Article 17(2)(c), after being amended in 2006. The ambiguous drafting of the provision fell prey to a much-anticipated debate,[i] with critics arguing it fails to clearly address the issue of SfC. It led to a proposal[ii] for amending Article 17(2)(c) by adding words “or securing” after “assets” to signify security of some sort. Despite this, the Model Law continues to influence the rules of major arbitral institutions like the London Court for International Arbitration Rules (“LCIA Rules”) and the Singapore International Arbitration Centre Rules (“SIAC Rules”).

    Article 25.2 under the LCIA rules grants the arbitral tribunal power to order for SfC as mirrored by Article 38(3) of the English Arbitration Act, 1996 which is the governing law of arbitrations seated in England and Wales. In the cases of Fernhill Mining Ltd. and Re Unisoft Group (No. 2), the judges devised a three-pronged test for granting SfC: Firstly, there must be “reasons to believe” that the claimant will be unable to pay the defendant’s costs if unsuccessful in the claim. Secondly, there must be a balancing of the interest[iii] of the defendant and the claimant by protecting the defendant against impecunious claims while not preventing the claimant from proceeding with a meritorious claim. Thirdly, the conduct of the party[iv] seeking a SfC must not suggest an attempt to stifle a meritorious claim.

    Rule 48 of the SIAC Rules 2025 empowers the arbitral tribunal to order for SfC. Notably, both the LCIA and SIAC Rules distinguishes between SfC and ‘security for the amount in dispute’, with LCIA Article 25.1(i) and Article 25.2 addressing each separately, in the similar way as SIAC Rule 48 and 49 do.

    A Possible Solution to the Security for Costs Puzzle

    As the authors earlier observed that The Arbitration Act doesn’t possess any express provision for awarding SfC, leading courts to resort to section 9 of The Act, an approach later debunked by the Delhi High Court. However, this contentious issue gained prominence again with the landmark judgement of Tomorrow Sales Agency. The case remains landmark, being the first Indian case to expressly deal with the issue of SfC, with the earlier cases touching the issue only in civil or implied contexts. The case led to the conclusion that SfC couldn’t be ordered against a third-party funder, who is not impleaded as a party to the present arbitration, though the Single Judge Bench upholding the court’s power to grant such a relief under Section 9. However, the judgment leaves ambiguity regarding the particular sub-clause under which SfC may be granted, which the author tries to address by providing a two-prong solution.

    As an ad-hoc solution, the authors prescribe the usage of sub-clause (e) of section 9(1)(ii) of The Arbitration Act, which provides the power to grant any ‘other interim measure of protection as may appear to the court to be just and convenient’. The above usage would be consistent with firstly with the Tomorrow Sales Agency case as it implies the power to order such measure under section 9 of The Act and secondly with the modern interpretation of section 9, where courts emphasised its exercise ex debito justitiae to uphold the efficiency of arbitration.

    As a permanent solution, the authors suggest the addition of an express provision to The Arbitration Act. The same can be added by drawing inspiration from the LCIA Rules and the SIAC Rules’ separate provisions for ‘SfC’ and ‘securing the amount in dispute’, further building on the specifics of the concept laid down in Rule 53 of ICSID Rules, with particular emphasis on the above mentioned Indian precedents. An illustrative draft for the provision adopting the above considerations is provided below:

    • “Section XZ: Award of Security for Costs
    • Upon the request of a party, the Arbitral Tribunal may order any other party to provide Security for Costs to the other party.
    • In determining the Security for Costs award, the tribunal shall consider all the relevant circumstances, including:
    • that party’s ability or willingness to comply with an adverse decision on costs;
    • the effect that such an order may have on that party’s ability to pursue its claims or counterclaim;
    • the conduct of the parties;
    • any other consideration which the tribunal considers just and necessary.

    Provided that the tribunal while considering an application for Security for Costs must not prejudge the dispute on the merits.

    • The Tribunal shall consider all evidence adduced in relation to the circumstances in paragraph (2), including the existence of third-party funding.

    Provided that the mere existence of a third-party funding arrangement would not by itself lead to an order for Security for Costs.

    • The Tribunal may at any time modify or revoke its order on Security for Costs, on its own initiative or upon a party’s request.”

    Hence, in light of increasing reliance on mechanisms such as TPF, the absence of a dedicated provision for SfC remains a glaring procedural gap. While, the Indian courts have tried to bridge this void through the broad interpretations of section 9 of The Arbitration Act, a coherent solution requires both an ad interim interpretive approach, through the invocation of sub-clause (e) of Section 9(1)(ii) and a long-term legislative amendment explicitly incorporating SfC as a standalone provision. Such a provision must be drawn from international frameworks such as the ICSID, LCIA, and SIAC Rules, ensuring India’s credibility as an arbitration-friendly jurisdiction.

    [i] United Nations Commission on International Trade Law, Report of the Working Group on Arbitration and Conciliation on the work of its forty-seventh session (Vienna, 10-14 September, 2007).

    [ii] ibid.

    [iii] Wendy Miles and Duncan Speller, ‘Security for costs in international arbitration- emerging consensus or continuing difference?’ (The European Arbitration Review, 2007) <https://www.wilmerhale.com/-/media/e50de48e389d4f61b47e13f326e9c954.pdf > accessed 17 June 2025.

    [iv] Sumeet Kachwaha, ‘Interim Relief – Comments on the UNCITRAL Amendments and the Indian Perspective’ (2013) 3 YB on Int’l Arb 155 <https://heinonline-org.rgnul.remotexs.in/HOL/P?h=hein.journals/ybinar3&i=163> accessed 5 June 2025.  

  • Addressing the Silence: Security for Costs in India’s Arbitration Landscape (Part I)

    Addressing the Silence: Security for Costs in India’s Arbitration Landscape (Part I)

    BY PRANAV GUPTA AND AASHI SHARMA, SECOND- YEAR STUDENT AT RGNUL, PUNJAB

    Introduction

    The recent cases of Lava International Ltd. and Tomorrow Sales Agency have reignited the confusions regarding the concept of Security for Costs (‘SfC’) in India.Gary B. Born[i] defines SfC as “an interim measure designed to protect a respondent against the risk of non-payment of a future costs award, particularly where there is reason to doubt the claimant’s ability or willingness to comply with such an award.”

    The authors in this manuscript shall wade through the confusions raised in the above cases. For that, firstly, we try to conceptually understand the concept of SfC by distinguishing it from the other situated similar concepts, while also emphasizing on the legal provisions governing them. Secondly, we analyze the concept of SfC in light of the leading international investment and commercial arbitration practices. Lastly, the authors propose a two-tier solution to the problem of SfC in India building on the international practices with certain domestic modifications.

    Security for Costs: Concept and Law
    1. Understanding Security for Costs:

    The concept of SfC is fundamentally different from that of ‘securing the amount in dispute’, as the latter is a measure to ensure the enforceability of the arbitral award by securing the party with whole or some part of the amount claimed or granted. section 9(1)(ii)(b) and section 17(1)(ii)(b) of The Arbitration and Conciliation Act, 1996 (‘The Arbitration Act’) regulates the regime for ‘securing the amount in dispute’ as an interim measure. The Hon’ble Supreme Court in the cases of Arcelor Mittal and Nimbus Communications clarified that section 9 permits securing the ‘amount in dispute’ on a case by case basis. Further, SfC is also distinct from ‘Recovery of Costs’, as ‘costs’ are recovered post the declaration of award and is addressed by section 31A of The Arbitration Act. 

    B. Security for Costs and Section 9: A Legal Void:

    While, The Arbitration Act deals with the similarly situated aspects of SfC as shown above, it remains silent on a provision for SfC, a gap that remains unaddressed even by the 2015 Amendment and The Draft Arbitration and Conciliation (Amendment) Bill, 2024. A landmark ruling with respect to SfC was delivered in the J.S. Ocean Liner case, by ordering to deposit USD 47,952 as an amount for recovery of legal costs. The court relied on section 12(6) of the English Arbitration Act 1950, akin to section 9(1)(ii)(b) of The Arbitration Act, to award SfC as an interim measure in this case. However, this harmonious interpretation was later rejected in the cases of Intertoll Co. and Thar Camps, by observing that under sub-clause (b) of section 9(1)(ii), only ‘amount in dispute’ can be secured and not the SfC. Hence, The Arbitration Act needs a reform with respect to the provision concerning SfC.

    International Precedents concerning Security for Costs
    1. Investment Arbitration Insights:

    The International Centre for Settlement of Investment Disputes (‘ICSID’) Tribunal (‘The Tribunal’), being the world’s primary institution, administers the majority of all the international investment cases. Till the 2022 Amendment to The ICSID Arbitration Rules (‘ICSID Rules’), even ICSID Rules were silent on this concept of SfC, however now Rule 53 of the same Rules contains the express provision for awarding SfC by The Tribunal. As the newly introduced Rule 53 is in its nascent stage with no extensive judicial precedents[ii] on it yet, the authors analyze the cases prior to the 2022 Amendment to understand the mechanism for granting SfC.

    Prior to the 2022 Amendment, SfC was granted as a provisional measure[iii] under Article 47 of The ICSID Convention and Rule 39 of The ICSID Rules as observed in the cases of RSM v. Grenada[iv] and Riverside Coffee.[v] However, in the Ipek[vi] case, the Tribunal permitted the granting of SfC only in ‘exceptional circumstances’.[vii] The high threshold[viii] was reaffirmed in Eskosol v. Italy[ix], where even the bankruptcy didn’t sustain an order for SfC. Further, in EuroGas[x] case, financial difficulty and Third-Party Funding (’TPF’) arrangement were considered as common practices, unable to meet the threshold of ‘exceptional circumstances’.

    Finally, in the RSM v. Saint Lucia[xi] case, the high threshold[xii] was met as the Claimant was ordered to pay US$ 750,000 as SfC on account of its proven history of non-compliance along with the financial constraints, and TPF involvement. In the same case, The Tribunal established a three-prong test[xiii] for awarding SfC emphasizing on the principles of ‘Exceptional Circumstances, Necessity, and Urgency’,[xiv] with the same being followed in the further cases of Dirk Herzig[xv] and Garcia Armas.[xvi] Further, The Tribunal added a fourth criterion of ‘Proportionality’[xvii] to the above three-prong test in the landmark case of Kazmin v. Latvia.[xviii]

    The Permanent Court of Arbitration (“PCA”) is another prominent institution, with nearly half its cases involving Investment-State arbitrations. The PCA resorts to Article 26 of the UNCITRAL Arbitration Rules to award SfC as seen in the Nord Stream 2 case.[xix] In Tennant Energy v. Canada[xx] and South American Silver,[xxi] the PCA applied the same test, devised in the Armas case to grant SfC.[xxii] Similar approaches have been adopted by the local tribunals, including Swiss Federal Tribunal and Lebanese Arbitration Center.[xxiii]

    [i] Gary B. Born, International Commercial Arbitration (3rd edn, Kluwer Law International 2021); See also Maria Clara Ayres Hernandes, ‘Security for Costs in The ICSID System: The Schrödinger’s Cat of Investment Treaty Arbitration’ (Uppsala Universitet, 2019) <https://uu.diva-portal.org/smash/get/diva2:1321675/FULLTEXT01.pdf&gt; accessed 17 June 2025.

    [ii] International Centre for Settlement of Investment Disputes, The First Year of Practice Under the ICSID 2022 Rules (30 June 2023).

    [iii] Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Democratic Republic of Timor-Leste, ICSID Case No. ARB/15/2, Procedural Order No. 2 (Decision on Respondent’s Application for Provisional Measures) (13 February 2016) para 53.

    [iv] Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6, Tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010) para 5.16.

    [v] Riverside Coffee, LLC v. Republic of Nicaragua, ICSID Case No. ARB/21/16, Procedural Order No. 7 (Decision on the Respondent’s Application for Security for Costs) (20 December 2023) para 63.

    [vi] Ipek Investment Limited v. Republic of Turkey, ICSID Case No. ARB/18/18, Procedural Order No. 7 (Respondent’s Application for Security for Costs) (14 October 2019) para 8.

    [vii] BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea (I),ICSID Case No. ARB/14/22, Procedural Order No. 3 (Respondent’s Request for Provisional Measures) (25 November 2015) para 46.

    [viii] Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/12/6, Award (6 August 2019) para 78.

    [ix] Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Procedural Order No. 3 Decision on Respondent’s Request for Provisional Measures (12 April 2017) para 23.

    [x] EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order No. 3 (Decision on the Parties’ Request for Provisional Measures) (23 June 2015) para 123.

    [xi] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs (13 August 2014) para 75.

    [xii] Transglobal Green Energy, LLC and Transglobal Green Panama, S.A. v. Republic of Panama, ICSID Case No. ARB/13/28, Decision on the Respondent’s Request for Provisional Measures Relating to Security for Costs (21 January 2016) para 7.

    [xiii] Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Decision on Applicant’s Request for Provisional Measures (7 May 2012) para 13.

    [xiv] BSG Resources Limited (n vii) para 21.

    [xv] Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan, ICSID Case No. ARB/18/35, Decision on the Respondent’s Request for Security for Costs and the Claimant’s Request for Security for Claim (27 January 2020) para 20.

    [xvi] Domingo García Armas, Manuel García Armas, Pedro García Armas and others v. Bolivarian Republic of Venezuela, PCA Case No. 2016-08, Procedural Order No. 9 Decision on the Respondent’s Request for Provisional Measures (20 June 2018) para 27.

    [xvii] Transglobal Green Energy (n xii) para 29.

    [xviii] Eugene Kazmin v. Republic of Latvia, ICSID Case No. ARB/17/5, Procedural Order No. 6 (Decision on the Respondent’s Application for Security for Costs) (13 August 2020) para 24.

    [xix] Nord Stream 2 AG v. European Union, PCA Case No. 2020-07, Procedural Order No. 11 (14 July 2023) para 91.

    [xx] Tennant Energy, LLC v. Government of Canada, PCA Case No. 2018-54, Procedural Order No. 4 (Interim Measures) (27 February 2020) para 58.

    [xxi] South American Silver Limited v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (Security for Costs) (11 January 2016) para 59.

    [xxii] Domingo García Armas (n xvi).

    [xxiii] Claimant(s) v. Respondent(s) ICC Case No. 15218 of 2008.

  • Section 12A of Commercial Courts Act : Resolving Territorial Ambiguity in Pre-litigation Mediation

    Section 12A of Commercial Courts Act : Resolving Territorial Ambiguity in Pre-litigation Mediation

    BY ARNAV ROY, THIRD YEAR STUDENT AT Nlu, DELHI
    INTRODUCTION

    The Commercial Courts Act, 2015 was enacted to expedite the resolution of commercial disputes and establish India as an investor-friendly jurisdiction. Among its significant provisions is section 12A, which mandates compulsory pre-institution mediation for commercial disputes unless urgent interim relief is sought. However, section 12A presents an ambiguity regarding territorial jurisdiction, specifically whether mediation must occur within the territorial limits where the subsequent suit is filed. This paper aims firstly to explore the statutory interpretation of section 12A, secondly to discuss judicial clarifications on territorial jurisdiction with specific reference to Ganga Taro Vazirani v. Deepak Rahej, and finally to critically analyse whether substantial compliance suffices to resolve territorial ambiguities.

    UNDERSTANDING SECTION 12A OF THE COMMERCIAL COURTS ACT

    Section 12A requires plaintiffs to exhaust pre-institution mediation, except in urgent interim relief cases. The legislative intent is to promote amicable settlement, reducing judicial burden and enhancing procedural efficiency.

    However, the absence of explicit territorial jurisdiction provisions under section 12A creates ambiguity. Unlike the Civil Procedure Code, 1908, which clearly defines territorial jurisdiction[i], section 12A of the Commercial Courts Act remains silent on this aspect, raising procedural uncertainties.

    MANDATORY NATURE OF PRE-LITIGATION MEDIATION

    Indian courts have reaffirmed the mandatory nature of pre-institution mediation. In Patil Automation (P) Ltd v. Rakheja Engineers, the Supreme Court categorically established the procedural mandatory character of section 12A. Likewise, in Ganga Taro Vazirani v. Deepak Raheja, the Bombay High Court emphasized the necessity for efficient dispute resolution and judicial backlog reduction, underlining the importance of pre-litigation mediation.

    CLARIFYING TERRITORIAL AMBIGUITY: GANGA TARO VAZIRANI JUDGMENT

    The Bombay High Court’s decision in Ganga Taro Vazirani v Deepak Raheja provides crucial guidance on the territorial scope of section 12A’s pre-litigation mediation requirement. In that case, a commercial suit was filed without any urgent relief, raising the question of whether mediation had to occur within the same jurisdiction as the suit. A single judge of the High Court treated section 12A as a procedural provision subject to the doctrine of substantial compliance, rather than an inflexible jurisdictional mandate.

    The court noted that when parties had already made genuine attempts to resolve their dispute, it would be “futile to compel the parties to engage in pre-institution mediation again, merely to satisfy territorial compliance. Such an interpretation would defeat the very purpose for which the Commercial Courts Act, 2015 was brought into force.”  This purposive reading underscored that the objective of section 12A – expeditious settlement of disputes – should not be thwarted by rigid insistence on where the mediation is conducted.

    Substantial compliance over technicality: The High Court emphasized that conducting pre-suit mediation in good faith, even if outside the territorial limits of the court where the suit is later filed, could constitute substantial compliance with section 12A’s mandate. In other words, a bona fide mediation attempt (for example, in a different city or through a private mediator) satisfies the law’s intent, so long as the effort to settle was genuine. This approach prioritizes substantive justice over procedural form – minor deviations in the location or forum of mediation should not invalidate the proceedings, provided the core requirement (attempting amicable resolution) is met.

    Avoidance of redundancy and waiver: By privileging substantial compliance, the High Court avoided redundant procedural cycles. It would serve no purpose to force parties to re-mediate in the court’s locale if they had already mediated elsewhere with no success. Indeed, the judgment warned that insisting on a second mediation solely for territorial alignment would simply cause delay – an outcome contrary to the Act’s intent of swift dispute resolution2. In Ganga Taro, the plaintiff’s initiation of mediation (albeit not in the suit forum) combined with the defendant’s stance meant the court was satisfied that the spirit of section 12A had been honored. This pragmatic stance ensured that procedural rules serve as a means to justice rather than a trap.

    COMPARATIVE ANALYSIS: INTERNATIONAL APPROACHES TO MANDATORY PRE-LITIGATION ADR AND TERRITORIAL SCOPE

    Jurisdictions worldwide have adopted varied stances on mandatory pre-filing alternative dispute resolution (ADR), with differing implications for territorial jurisdiction. A brief survey of select jurisdictions illustrates how the balance between procedural mandate and territorial constraints is struck elsewhere:

    United Kingdom: In England and Wales, there is no equivalent statutory mandate requiring mediation before a civil commercial suit. Instead, the Civil Procedure Rules (CPR) and court practice encourage ADR through pre-action protocols and cost sanctions. The leading case of Halsey v Milton Keynes General NHS Trust established that courts cannot compel unwilling parties to mediate. Still, unreasonable refusal to even attempt mediation can result in adverse cost consequences. This policy has effectively made ADR a de facto expected step in the litigation process. Notably, because mediation in the UK remains voluntary rather than jurisdictionally required, there is no rigid territorial prescription for where it must occur. Parties are free to choose mediation forums anywhere, or even mediate online, as long as it is reasonable and accessible. Recent developments signal a cautious shift toward targeted mandatory mediation , but these initiatives define the process in a way integrated with the court’s system. In all cases, the emphasis is on the fact of engaging in settlement efforts rather than the physical location. Thus, English practice sidesteps territorial disputes by focusing on compliance in substance – if the parties have reasonably engaged with mediation or other ADR, the courts are satisfied, regardless of where or how the mediation took place. This flexible approach aligns with a broader common-law trend of encouraging mediation through incentives and case management, rather than imposing hard territorial rules.

    United States: In the U.S., the approach to pre-litigation mediation varies widely depending on the jurisdiction and subject matter. There’s no blanket federal rule requiring commercial litigants to mediate before filing a lawsuit. However, many states have their own rules mandating ADR in specific contexts. For example, Florida requires pre-suit mediation for certain disputes involving homeowners’ associations. Under Chapter 720 of the Florida Statutes, an aggrieved party must serve a “Statutory Offer to Participate in Pre-suit Mediation” and go through the process as per court rules. Skipping this step can lead to dismissal or a stay of the case.

    Because these requirements are grounded in state law, the mediation is typically localized—it must happen within the state, often with court-approved mediators. A party can’t simply mediate elsewhere or ignore the process; compliance with state-specific procedures is mandatory, much like India’s section 12A requirement for commercial suits. That said, U.S. courts sometimes show flexibility. If the parties have genuinely attempted an ADR process outlined in their contract, courts may still allow the case to proceed, even if the exact statutory steps weren’t followed.

    At the federal level, while there’s no pre-filing mediation rule, many district courts require mediation or settlement conferences after the suit is filed, usually through local rules tied to Federal Rule of Civil Procedure 16. Overall, the U.S. model is decentralized: mandatory pre-litigation mediation exists in certain pockets, usually tied to state jurisdiction or specific areas of law, and when it does apply, parties must follow the local process to move forward in that state’s courts.

    Singapore: Singapore encourages mediation but does not mandate it before filing commercial suits. Instead, court rules like the Rules of Court 2021 require parties to consider ADR and report efforts to the court. Unreasonable refusal to mediate may lead to cost penalties.

    Being a single-jurisdiction city-state, mediation typically takes place locally, often through the Singapore Mediation Centre or court-linked programs. For cross-border disputes, the Singapore International Commercial Court allows cases to pause for mediation under the Litigation Mediation Litigation protocol, though this is voluntary.

    Mandatory pre-litigation mediation exists in community disputes. Under the 2015 Community Dispute Resolution Act, neighbors must mediate before filing claims, or risk dismissal and penalties. While not compulsory for commercial matters, Singapore’s legal framework supports mediation, reinforced by its adoption of the 2019 Singapore Convention on Mediation.

    Comparative Insight: Internationally, the handling of territorial jurisdiction in mandatory pre-filing mediation regimes tends to follow the underlying nature of the mandate. In jurisdictions like the UK, where mediation is encouraged but not explicitly compelled, territorial jurisdiction questions scarcely arise since parties have the freedom to mediate wherever it makes sense. By contrast, in jurisdictions with formal mandatory mediation requirements, the law usually designates or implies a forum or procedure tied to the court’s territory. The Ganga Taro principle of substantial compliance finds echoes in these systems as well, as courts internationally are inclined to excuse technical lapses if the claimant can demonstrate a sincere attempt at pre-litigation ADR. Ultimately, the comparative lesson is that mandatory pre-litigation mediation, as a growing global trend, must be implemented with an eye on practicality. This may be through flexible interpretation, as seen in India, cost-shifting incentives in the UK, or clear but reasonable procedural preconditions in the US and Singapore. Each model seeks to balance the promotion of settlement with the parties’ right of access to courts, navigating territorial concerns by either formalizing the required forum or, conversely, remaining silent on the forum to allow flexibility.

    CONCLUSION: BALANCING EFFICIENCY AND PROCEDURAL COMPLIANCE

    The judgment in Ganga Taro Vazirani clarifies section 12A’s territorial ambiguity effectively. While promoting efficiency, the ruling balances procedural compliance with practical objectives.

    While section 12A requires pre-litigation mediation, judicial interpretation, notably in Ganga Taro Vazirani v. Deepak Raheja, affirms that mediation conducted outside territorial jurisdiction constitutes substantial compliance. Nevertheless, substantial compliance does not supersede explicit jurisdictional requirements under procedural laws such as the CPC. Mediation outside territorial limits is sufficient for compliance provided it does not conflict with jurisdictional rules. A purposive interpretation balancing procedural adherence with practical efficiency ensures that the legislative intent of expedient dispute resolution is maintained without undermining jurisdictional integrity.

    Requiring repeated mediation merely for territorial compliance would defeat the very purpose of the Commercial Courts Act, which aims to ensure the swift resolution of commercial disputes. As the Bombay High Court rightly observed, procedural provisions should facilitate justice rather than obstruct it.

    Therefore, if mediation has already taken place outside the jurisdiction where the action is pending, it should be deemed proper compliance with section 12A. Insisting on strict territorial compliance would only cause unnecessary delays and frustrate the objectives of the Act.

    Thus, the law must balance procedural compliance with practical efficiency. A purposive interpretation of section 12A aligns with legislative intent, ensuring that commercial disputes are resolved swiftly without being entangled in unnecessary technicalities.

    [i] Civil Procedure Code 1908, ss 15-20.

  • The Boundaries of Judicial Intervention In Arbitration: Navigating Section 34

    The Boundaries of Judicial Intervention In Arbitration: Navigating Section 34

    BY MANAV PAMNANI, THIRD-YEAR STUDENT AT NALSAR UNIVERSITY OF LAW, HYDERABAD

    Introduction

    Recently, a three-judge bench of the Supreme Court (‘SC’) in the case Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (‘Gayatri Case’) decided to refer the matter regarding court modification of arbitral awards to a Constitution Bench. This comes in light of the relatively unsettled legal position regarding the power of a court to amend or modify an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’). Against the backdrop of multiple conflicting decisions over the course of several years, the judgement in the Gayatri case, which is yet to be pronounced, is expected to settle the position. However, there is a discernible trend that can be observed lately with the majority of court decisions holding that the court does not have this power.

    The epitome of this is the landmark judgement delivered in National Highways Authority of India v. M. Hakeem (‘Hakeem Case’), wherein the SC declared that the court under section 34 has no jurisdiction to modify the arbitral award as doing so, will amount to crossing the line (Lakshman Rekha) under the guise of judicial interpretation of statutes. 

    One of the most recent SC decisions that upheld the several precedents mentioned was delivered on 4th January 2024 in the case of S.V. Samudram v. State of Karnataka. The SC, in this case, held that any attempt to modify or amend an arbitral award while adjudicating section 34 and section 37 petitions is not permissible. A modification can be effected only by the SC in the interests of justice under Article 142 of the Indian Constitution, provided such a modification is in tandem with relevant statutory laws.

    The power under section 34 of the Act extends only to the setting aside of an award under the grounds specified in sub-section (2), which include incapacity of the parties, invalid arbitration agreement, lack of proper notice, decisions beyond the scope of arbitration, improper tribunal composition or procedure, or if the Court finds the subject matter non-arbitrable or the award in conflict with India’s public policy. With the intention of analysing the intricacies of section 34, this article explores the rationale behind the restriction on court modification, its implications, and potential solutions to address the inherent challenges.

    The Rationale Behind the Restriction on Court Modification

    The most plausible rationale is the express exclusion of such a power from the purview of section 34 of the Act. This power was explicitly included under section 15 and section 16 of the erstwhile Arbitration Act of 1940 but has been omitted under the current statute. As explained in  Larsen Air Conditioning and Refrigeration Company v. Union of India, this reflects the intention of the Legislature to amend the law pertaining to modification. Adopting a contrary approach would undermine the very purpose of excluding this power, making such an interpretation unsound. An analysis of the law in other jurisdictions like England, Singapore, Australia, and the United States reveals that such power has expressly been conferred under the respective statutes, which is not the case in India. Moreover, the purpose of Section 34 is to set aside awards on the basis of procedural or jurisdictional issues, whereas modification involves re-evaluating the substantive merits of the tribunal’s decisions, which deviates from the provision’s principal intention. This reasoning was given in the Hakeem Case mentioned previously, wherein the SC held that section 34 is not like an appellate provision. Considering it to be so is fallacious since it will violate section 115 of the Civil Procedure Code 1908, which deals with revisional jurisdiction. Moreover, the Court stated that since the right to get the award set aside is itself very truncated, the enforcement of such a right should also be very limited in nature. The SC further observed that section 34 of the Act aligns with the UNCITRAL Model Law,  which confers no modification power to a court hearing a challenge to an award, as well as the legislative policy of minimal judicial interference in arbitral awards.

    A deeper substantive analysis of arbitration’s fundamental tenets also results in the same conclusion. Firstly, arbitration aims to provide a speedy and cost-efficient resolution to disputes, and allowing courts to modify awards would undermine this objective by leading to protracted litigation involving high costs akin to traditional court proceedings. The grant of such a power would also vitiate the core principle of party autonomy,  by allowing external interference in the parties’ agreed-upon process of resolving disputes through chosen arbitrators, thus potentially undermining their autonomy to determine the terms and conditions of the resolution process.

    Additionally, it would be against the interests of efficiency and specialisation to give this power to courts since arbitrators are often chosen for their specific subject matter expertise, and judicial modification could devalue this specialised knowledge, as judges may lack the same expertise level in the given subject matter. Lastly, on a practical level, limiting court intervention to setting aside awards rather than modifying them, helps conserve judicial resources and reduces the burden on the court system. 

    Implications

    The restriction on this power ensures the finality and certainty of arbitral awards, promoting confidence in arbitration as a preferred dispute resolution method. Parties can rely on the arbitral process knowing that awards, once issued, are less susceptible to judicial interference beyond specified grounds for setting aside, which can also be cured by the Tribunal itself under section 34(4) of the Act, thus reinforcing the pro-arbitration approach. This stability enhances the enforceability of arbitral awards, both domestically and internationally, which is crucial for businesses operating in a globalised economy. 

    However, the restriction also presents challenges, particularly in cases where an award contains minor errors or miscalculations that do not warrant setting aside the entire award but still require correction for fairness. Parties may feel aggrieved if they cannot seek judicial correction of such errors, potentially leading to dissatisfaction and increased challenges to awards. Although they have the right to approach the SC for modification under Article 142, this is not feasible if the modification required is not substantial. Moreover, the power under Article 142 is also restricted.

    Thus, the binary approach of either upholding or setting aside the entire award limits available remedies, potentially leaving parties with incorrect or unfair outcomes. This may compel them to initiate fresh arbitration proceedings to rectify errors, increasing costs and delays, and undermining arbitration’s efficiency goals. Furthermore, dissatisfaction with limited recourse may lead to more appeals and litigation, increasing judicial workload and contradicting arbitration’s purpose as a swift and efficient dispute resolution method. Balancing finality with the need for fairness and efficiency remains a critical challenge in the arbitration landscape, necessitating thoughtful reforms and procedural enhancements to address these concerns effectively.

    Potential Solutions

    Legislative clarity through well-drafted guidelines should be achieved through amendments that grant courts limited powers to correct errors in awards. This would align with international practices, allowing selective corrections without compromising award finality. This is the practice in the United Kingdom wherein the power of courts to modify awards is largely restricted to limit judicial intervention and uphold fundamental principles of arbitration. Additionally, emphasising enhanced arbitration agreements can empower parties to include internal review mechanisms, such as appellate arbitration panels or expedited procedures, to address errors or ambiguities. This approach would minimise judicial intervention.

    Opting for a three-member tribunal instead of a sole arbitrator can also improve decision quality and reduce the need for modifications. Moreover, ensuring that arbitrators have relevant expertise is crucial for sound decisions. Judicial guidance should also clearly differentiate between grounds for setting aside an award and situations needing corrections, thus ensuring consistency and transparency in judicial decisions.

    An increased use of section 34(4), allowing the tribunal to make necessary modifications, can also be beneficial since it limits judicial intervention, alongside effectuating the required changes. This balancing act, along with other solutions, if effectively implemented, will contribute towards a robust arbitration framework.

    Conclusion

    The evolving jurisprudence surrounding section 34 underscores clear judicial intent to preserve the finality and autonomy of arbitral awards by restricting courts from modifying the same. The accepted position is largely clear, with numerous precedents establishing that courts do not have this power. The Gayatri Case, as mentioned in the beginning, is likely to follow this established norm.  While this approach bolsters the integrity and efficiency of arbitration, it also presents challenges that necessitate thoughtful reforms, particularly in addressing minor errors that do not justify setting aside an award. A more balanced and effective arbitration framework can be established by implementing legislative amendments, enhancing arbitration agreements, providing judicial guidance, and leveraging the tribunal’s powers under section 34(4). Such measures will ensure that arbitration remains a preferred method for dispute resolution, combining finality with fairness and efficiency, thus bringing about a balanced framework. 

  • Imposing a ‘Duty of Curiosity’ on Parties: Keeping The Parties on Their Feet

    Imposing a ‘Duty of Curiosity’ on Parties: Keeping The Parties on Their Feet

    BY SPARSH SRIVASTAVA, A FOURTH-YEAR STUDENT AT NATIONAL LAW UNIVERSITY, ODISHA

    Introduction

    Party Autonomy is the cornerstone of the arbitration process. It allows parties in a matter to choose inter alia the judge of their own case. Arbitration, being a quasi-judicial process, must be in accordance with the rules of natural justice. There is a settled principle – Nemo judex in causa sua or no one can adjudicate their cause. Deriving from the principle it is, therefore, necessary to ensure the neutrality of the arbitrators before their appointment. Any apprehension of bias may hamper the procedure’s fairness and dilute the essence of the arbitration.

    The neutrality of the Arbitrator cannot be compromised at any stage of the proceedings, particularly at the initial stages during the constitution of the Tribunal. In other words, the party autonomy cannot be exercised limitlessly disregarding these basic tenets of law– irrespective of whether there is a consensus between the parties in respect of the appointment. 

    The International Bar Association recently released a revised version of the IBA Guidelines on Conflict of Interest In International Arbitration (‘Revised Guidelines’), which is expected to be adopted by the Council soon. Chapter 7 of the Guidelines deals with the Duties of Arbitrators and the Parties. Arbitrator’s Duty of Disclosure is well-known under the Guidelines, the Revised Guidelines require the concerned parties to undertake ‘reasonable inquiries’, explicitly imposing a ‘duty of curiosity’ on them. Duty of curiosity, as the phrase suggests, may be defined as a parallel obligation of parties to conduct a due-diligence investigation regarding any potential conflict of interests or issues of impartiality or neutrality with the prospective arbitrators.  

    Indian Arbitration Act, 1996 (‘1996 Act’ or ‘Arbitration Act’) provides for the appointment of an ‘independent and impartial arbitrator’. It creates an obligation on the arbitrator(s) to disclose any relationship with the parties that may create a bias or prejudice against or in favour jeopardizing the sanctity of the proceedings. This Arbitrator’s ‘duty of disclosure’ is continuous, and therefore, applies both at the time of the arbitrator’s acceptance of their appointment and also during the proceedings.          

    Notably, there is no such duty on the parties to look into any past or prospective relations before the constitution of the Arbitral Tribunal. The author, through this article, proposes the inclusion of a ‘duty of curiosity’ on the parties under the Indian Arbitration law. 

    The International Backdrop

    In the international arbitration landscape, inaction in a case of constructive knowledge of the parties creates a form of estoppel, as introduced in the Revised Guidelines, and can be considered as a waiver of the right to challenge the appointment of the arbitrator. Thus, the parties need to be on their feet throughout the arbitration proceedings particularly at the time of appointment of arbitrators. Moreover, the parties challenge their own appointed arbitrator only for reasons known after the appointment.

    Recently, in a dispute between the Croatian football club and the Austrian coach, the Swiss Federal Tribunal (‘SFT’) highlighted the significance of the active participation of the parties to ensure the neutrality of the arbitrators in order to avoid potential conflicts of interest. SFT, while setting aside the award by Cout of Arbitration for Sports (‘CAS’), held that the International Federation of Association Football (‘FIFA’) should challenge the arbitrator’s appointment immediately, as his affiliation with the HNS (Hrvatski Nogometni Savez) Court of Arbitration was easily accessible. 

    Thus, in other words, the arbitrators have no obligation to disclose well-known facts or published information. The burden of proof lies on the parties that challenge the neutrality of the arbitrator to show they fulfilled their duty of curiosity and had no reasons to believe otherwise at the time of the constitution of the arbitral tribunal. 

    Lately, the International Chamber of the Paris Court of Appeal rendered its decision in the Vitadel case on an application to set aside an international arbitral award holding parties’ inaction or failure to look at easily available information could not be a reason to set aside the award. Under French law, an arbitrator must disclose any circumstances that could, in the eyes of the parties, give rise to a reasonable doubt regarding their independence or impartiality. However, the duty of arbitrators is not absolute and is shared by the parties’ duty of curiosity.

    In WADA v. Sun Yanf, CAS clarified that the duty of Curiosity is limited as it would otherwise convert to be a liability for the parties. This duty shall not be unlimited; as parties are not expected to conduct exhaustive investigations but are required to exercise a reasonable level of diligence.

    Analysing the Status Quo in India

    Both Arbitrators and Parties have a duty of disclosure under the Arbitration Act. This duty is not restricted to the appointment but extends till the entire proceedings conclude. The Fifth Schedule of the 1996 Act categorically provides for the grounds that might raise doubts as to the impartiality or independence of the arbitrators. The contents therein incorporate the Red and Orange Lists of the IBA Guidelines, which can be grounds to set aside the arbitral award as well. The Law Commission has also suggested incorporating the IBA Guidelines to ensure the neutrality of the arbitrators.

    Notably, the benchmark under the Indian law is not ‘existence of bias’ but rather ‘justifiable apprehension of bias’. The Supreme Court has not set the bar too high, which means that the parties need not assess or prove the existence of clear bias. Rather, it ought to determine whether the circumstances in question give rise to any justifiable apprehensions of bias that may affect the neutrality of the arbitrator. 

    Section 12(1) of the 1996 Act allows the parties to challenge the appointment ‘only for reasons of which he becomes aware after the appointment has been made.’ It provides the knowledge of the parties at the time of the appointment.  There is a duty of disclosure. However, a duty of curiosity is not imbibed in the provision, or in other words, there is no parallel duty of caution on the parties.  

    The duty of curiosity can be seen as an extension of the principles imbibed in the 1996 Act, requiring parties to actively engage in the arbitration process and fulfill their obligations to ensure a fair and effective outcome.

    It prevents any obstruction to the arbitral proceeding and enforcement of the arbitral award. As once the party did not actively participate and fulfill its obligation it may be considered as an acceptance of the same. Such implied acceptance may create an estoppel on the parties.

    Conclusion

    The duty of curiosity of parties in arbitration can be seen as the obligation of parties to actively seek out relevant information that could possibly impact the arbitration proceedings. Neutrality, i.e. independence and impartiality of the arbitrations is a crucial aspect of arbitration. With the adoption of the Revised Guidelines, international arbitrations would witness a paradigm shift, and the challenge of arbitration would be more difficult.

    Arbitrators’ duty of disclosure is well recognised under the Arbitration Act. There should be a parallel duty on the parties. It would ensure transparency, fairness, and integrity in the arbitration proceedings. It is well established equitable principle: “One who comes to seek justice must come with clean hands”. Thus, it is never one sided and the parties also must have certain obligations to comply with.

    Duty of curiosity is not to be unlimited but can be said to be a minimal level of due diligence that can be expected from the parties. It may be detrimental to the interest of parties to have blind belief and trust as in cases of Courts of Law, where the Judges decide. With rights come responsibilities: arbitration allows autonomy but also requires active participation.

    It though difficult to bring such changes in the 1996 Act, it is upon the court to recognize this principle of ‘duty of curiosity’ to solidify their pro-arbitration stance. The Courts’ approach should be pragmatic if the party with simple due diligence, especially in the present digital world, could have known the alleged fact, the benefit of the doubt should be in favor of the arbitrators.

  • From Bias to Balance: Informed Consent in AI Arbitration

    From Bias to Balance: Informed Consent in AI Arbitration

    BY A.S. VAMSI KRISHNA AND SWAGAT AHUJA, THIRD-YEAR STUDENTS AT RGNUL, PUNJAB

    Introduction

    Recently, there has been a surge of interest in the notion of artificial intelligence (‘AI’) based platforms taking over the role of an arbitrator. This interest stems from their potential to provide a swift and cost-effective alternative to the traditional arbitration process, particularly in light of the fact that over 31 million disputes are currently pending before Indian courts. However, legal and ethical concerns have been raised regarding the use of AI-arbitrators due to their susceptibility to incorporating biases stemming from racial, cultural, religious, and geographic stereotypes into their assessments. For instance, COMPAS, an AI-based risk assessment tool implemented in American judicial systems to predict the likelihood of a defendant becoming a repeat offender, was found to exhibit significant bias. The program inaccurately categorised African American offenders as high risk nearly half of the time, raising serious concerns about its fairness and reliability. These concerns are firmly supported by both the UNCITRAL and  the Indian Arbitration & Conciliation Act, which recognise challenges against a biased arbitrator. Consequently, the question arises as to whether the inherent biases of an AI-arbitrator render it an unusable proposition, even if the parties involved consent to their usage. The answer is not so straightforward, since a blanket ban on the use of AI-arbitration would infringe upon the freedom of the parties to opt for their preferred arbitration process, even if it involves a fully-AI based arbitrator at its helm. 

    The authors argue that a balance must be found between preserving the parties’ freedom to submit their dispute to the arbitrator of their choice against the consideration of potential costs incurred should there be mass-unenforceability of AI-generated awards in courts. To achieve this balance, the authors suggest that AI-arbitration agreements should only be allowed where the parties involved fully understand the biases inherent in the AI-arbitration and provide informed consent accordingly. Further, this article delves into potential measures that could be implemented within a regulatory framework to ensure that parties are capable of providing informed consent to an AI arbitration agreement.

    The Need for Informed Consent

    In the context of AI-arbitration, informed consent must be understood to be fulfilled when the concerned parties have access to sufficient and accurate information regarding the AI’s inherent biases and predisposition prior to entering into the agreement. The need for informed consent is countered by some, who argue that the higher threshold of consent in selecting an AI-arbitrator imposes an unnecessary burden, especially when compared to their human counterparts who, despite sharing susceptibility to inherent biases, are exempt from such requirements. In response, the authors contend that equating AI-arbitrators with their human counterparts would be misguided, since the manner of the manifestation of their biases and the scale of their operations are not comparable. AI in general is in its nascent phase and as such, the methods of investigating inherent biases it may possess are complicated and time-taking. Expecting both parties to be sufficiently knowledgeable on the basis of their own investigations is a big ask and would often lead to challenges at the time of enforcement. This is certainly true in the cases of consumer facing contracts where an AI-arbitrator is employed by banks, large constructors and other large-scale operators, where the opposing party often consists of individuals who lack sufficient resources to investigate the AI-arbitrator thoroughly. Additionally, an AI-arbitrator differs from humans in that the multitude of cases it can resolve is much greater than a single human. This means that any bias challenged by a party in one case would lead to a domino effect, toppling every case it has previously dealt with on the basis of a single challenge. In light of these factors, the element of informed consent is a vital consideration with respect to AI-based arbitration.

    Integrating Informed Consent into AI-Arbitration Platforms

    To ensure that the parties involved are capable of providing informed consent, the regulatory framework must be such that the potential AI-arbitration platforms are examined thoroughly and any inherent predispositions undertaken by the AI is disclosed. However, as previously discussed, the complexity of investigating such AIs means that the regulation in place cannot evolve an independent statutory body which evaluates each AI and certifies it as this would increase the cost and resources of the state. Thus, the authors propose that the potential AI arbitrator should be made open-source, meaning the model whether a language learning model or otherwise on which the AI operates should be publicly accessible to ensure transparency. An open-source AI offers significant benefits, as complete access to its inner workings allows experts worldwide to examine it and identify potential loopholes, emulating a peer-review process of the code. This approach has proven effective, evidenced by the case of ChatGPT, an open-source AI. It was discovered to have inherent biases in favour of a more liberal stance, revealed only by the efforts of a group of experts who carefully examined the code. An open-source AI is preferable to a confidential program since it would reduce arbitration costs for the parties by mitigating the need for private investigations of the code in each case. Additionally, it would be more efficient for the arbitration platform, which would otherwise need to protect the secrecy of its code through rigorous Non-Disclosure Agreements and other tedious privacy measures before permitting parties access for investigation. Therefore, an open-source approach is a win-win situation for the parties involved and the arbitration platform. It ensures transparency regarding any inherent biases or errors within the AI and eliminates the need for parties to conduct an ex-ante investigation for each case.

    Furthermore, an additional element to informed consent is to ensure that the variant of the AI which both parties have tested and agreed is the AI which actually acts as the arbitrator. This factor is relevant in light of the capability of AI to be altered post-agreement due to new updates. For example, if both parties provide consent to appoint an AI variant developed in 2024 as their arbitrator, any subsequent updates to this variant could potentially alter the AI’s assessment of the case. This would create the possibility of challenges during enforcement. Thus, to prevent enforcement errors, AI-arbitration agreements must specify the variant which they choose to act as arbitrator and the AI-arbitration platform must possess the capability to assess disputes as per their previous variants as well. Alternatively, the parties can reach an agreement to consent to the use of the specific AI along with the updates therein to ensure that no claim regarding lack of informed consent leads to challenges during enforcement.

    Conclusion

    AI-based arbitration promises low-cost, expedited dispute resolution, a prospect that is so enticing that it has drawn investments to bring the idea to reality. While parties have the right to opt for AI arbitration as their preferred process, ensuring fairness and equitability is necessary to ensure that the awards so produced are not vulnerable to challenge in courts. It is in the interest of future AI-arbitration platforms to provide parties with the ability to give informed consent to ensure successful enforcement of awards. 

    Further, regulators face a daunting task since they always have to catch-up with the lightning-fast development of AI. Falling behind is not an option, since a defect in the AI-program could impact not just one, but potentially all the awards it has produced. The authors suggest a pre-authorisation process for AI-arbitration platforms, mandating open and peer-reviewed programs to uncover potential biases. This is since AI’s complex nature means that understanding and revealing its potential biases can only be done by a small group of experts and so cannot be expected to be understood by all potential users. Peer review allows for a breakdown of complex information into simple intelligible data that can be understood by the parties before agreeing. Should there be no regulation, the state risks having its people consent to arrangements for which it is not moral to hold them accountable since they are unable to give informed consent. Hence, it is a justified regulatory filter to require AIs to pass certain tests before being released into the market.