The Corporate & Commercial Law Society Blog, HNLU

Tag: UNCITRAL

  • COMI Confusion: Can India Align With The Global Insolvency Order?

    COMI Confusion: Can India Align With The Global Insolvency Order?

    Prakhar Dubey, First- Year LL.M student, NALSAR University, Hyderabad

    INTRODUCTION

    In the contemporary global economy, where firms often operate across various countries, the growing complexity of international financial systems has made cross-border insolvency processes more complicated than ever. International trade and business have proliferated, with companies frequently possessing assets, conducting operations, or having debtors dispersed across multiple nations. In a highly interconnected environment, a company’s financial hardship in one jurisdiction may have transnational repercussions, impacting stakeholders worldwide. Consequently, addressing insolvency with equity, efficacy, and certainty is essential.

    A fundamental challenge in cross-border insolvency is establishing jurisdiction—namely, which court will manage the insolvency and which laws will regulate the resolution process. The issue is exacerbated when several nations implement disparate legal norms or frameworks for cross-border recognition and collaboration. Two fundamental concepts, forum shopping and Centre of Main Interests (‘COMI’), profoundly influence this discourse.

    Forum shopping occurs when debtors take advantage of jurisdictional differences to file in nations with more lenient rules or advantageous outcomes, such as debtor-friendly restructuring regulations or diminished creditor rights. Although this may be strategically advantageous for the debtor, it frequently generates legal ambiguity and compromises the interests of creditors in alternative jurisdictions. To mitigate such exploitation, the United Nation Commission on International Trade Law Model Law on Cross-Border Insolvency (‘UNCITRAL Model Law’) has formalised the COMI test, a principle designed to guarantee openness and predictability in cross-border procedures. It offers an impartial method to determine the most suitable forum based on the locus of a debtor’s business operations.

    Although recognising the need for cross-border bankruptcy reform, India has not yet officially adopted the Model Law. Instead, it relies on antiquated processes such as the Gibbs Principle, which asserts that a contract covered by the law of a specific country can only be terminated under that legislation, along with ad hoc judicial discretion. These constraints have led to ambiguity, uneven treatment of creditors, and prolonged cross-border remedies.

    This blog critically assesses India’s present strategy, highlights the gap in the legislative and institutional framework, and offers analytical insights into the ramifications of forum shopping and COMI. This analysis utilises the Jet Airways case to examine comparable worldwide best practices and concludes with specific measures aimed at improving India’s cross-border insolvency framework.

    INDIA’S STANCE ON ADOPTING THE UNCITRAL MODEL LAW

    The existing cross-border insolvency structure in India, as delineated in Sections 234 and 235 of the Insolvency and Bankruptcy Code ( ‘IBC’ ), 2016, is predominantly inactive. Despite the longstanding recommendations for alignment with international standards from the Eradi Committee (2000) and the N.L. Mitra Committee (2001), India has not yet enacted the UNCITRAL Model Law.

    More than 60 nations have implemented the UNCITRAL Model Law to enhance coordination and collaboration across courts internationally. India’s hesitance arises from apprehensions of sovereignty, reciprocity, and the administrative difficulty of consistently ascertaining the COMI. Adoption would include not only legislative reform but also institutional preparedness training for judges, fortifying the National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’), and establishing bilateral frameworks.

    KEY PROVISIONS OF THE UNCITRAL MODEL LAW AND IMPLICATIONS FOR INDIA

    The four fundamental principles of the UNCITRAL Model Law, Access, Recognition, Relief, and Cooperation, are designed to facilitate the efficient and fair resolution of cross-border bankruptcy matters. They facilitate direct interaction between foreign representatives and domestic courts, expedite the recognition of foreign procedures, protect debtor assets, and enhance cooperation among jurisdictions to prevent delays and asset dissipation.

    The effectiveness of these principles is evident in global bankruptcy processes, as demonstrated by the rising number of nations implementing the UNCITRAL Model Law and the more efficient settlement of complex international cases. Nonetheless, its implementation has not achieved universal acceptance, with certain countries, such as India, opting for different approaches, which may pose issues in cross-border insolvency processes.

    In the case of In re Stanford International Bank Ltd., the English Court of Appeal faced challenges in establishing the COMI due to inconsistencies between the company’s formal registration in Antigua and Barbuda and the true location of its business operations. This case underscores the imperative for a well-defined COMI standard that evaluates significant commercial operations rather than merely the jurisdiction of incorporation. The Court of Appeal finally determined that the Antiguans’ liquidation represented a foreign primary procedure, underscoring that the presumption of registered office for COMI may only be refuted by objective and verifiable elements to other parties, including creditors. This case highlights the complexity that emerges when a company’s official legal domicile diverges from its practical reality, resulting in difficulties in implementing cross-border insolvency principles.

    Moreover, India’s exclusion of a reciprocity clause hindered the global implementation of Indian rulings and vice versa. In the absence of a defined statutory mandate, ad hoc judicial collaboration often demonstrates inconsistency and unpredictability, hence compromising the global enforceability of Indian insolvency resolutions. This reflects the challenges encountered by other jurisdictions historically, as demonstrated in the European Court of Justice’s ruling in Re Eurofood IFSC Ltd. This pivotal judgment elucidated that the presumption of the registered office for the COMI can only be contested by circumstances that are both objective and verifiable by third parties, including the company’s creditors. These cases highlight the pressing necessity for a comprehensive and globally harmonised legal framework for insolvency in India, with explicitly delineated criteria to prevent extended and expensive jurisdictional conflicts.

    FORUM SHOPPING AND INSOLVENCY LAW: A DELICATE BALANCE

    Forum shopping may serve as a mechanism for procedural efficiency while simultaneously functioning as a strategy for exploitation. Although it may assist debtors in obtaining more favourable restructuring terms, it also poses a danger of compromising creditor rights and creating legal ambiguity.

    In India, reliance on the Gibbs Principle, which posits that a contract can only be discharged by the governing law, has hindered flexibility. This was seen in the Arvind Mills case, where the disparate treatment of international creditors was scrutinised, and in the Dabhol Power issue, where political and legal stagnation hindered effective settlement.

    While a certain level of jurisdictional discretion enables corporations to seek optimal restructuring, India must reconcile debtor flexibility with creditor safeguarding. An ethical framework grounded in transparency and good faith is crucial to avert forum shopping from serving as a mechanism for evasion.

    COMI IN INDIA: NEED FOR LEGAL CLARITY

    India’s judicial involvement in COMI was prominently highlighted in the Jet Airways insolvency case, which entailed concurrent processes in India and the Netherlands. The NCLT initially rejected the acknowledgement of the Dutch proceedings owing to the absence of an explicit provision in the IBC. The NCLAT characterised the Dutch process as a “foreign non-main” proceeding and confirmed India as the COMI. In a recent judgment dated November 12th, 2024, the Supreme Court ultimately ordered the liquidation of Jet Airways, establishing a precedent for the interpretation of COMI. This decision solidifies India’s position as the primary jurisdiction for insolvency proceedings involving Indian companies, even when concurrent foreign proceedings exist. It underscores the Indian judiciary’s assertive stance in determining the COMI and signals a stronger emphasis on domestic insolvency resolution, potentially influencing how future cross-border insolvency cases are handled in India.

    This case illustrates the judiciary’s readiness to adapt and the urgent requirement for legislative clarity. In the absence of a defined COMI framework, results are mostly contingent upon court discretion, leading to potential inconsistency and forum manipulation. Moreover, it demonstrates that India’s fragmented strategy for cross-border cooperation lacks the necessary robustness in an era of global corporate insolvencies.

    To address these difficulties, India must execute a set of coordinated and systemic reforms:

    Implement the “Nerve Centre” Test (U.S. Model)

    India should shift from a rigid procedure to a substantive assessment of the site of significant corporate decision-making. This showcases the genuine locus of control and decision-making, thereby more accurately representing the commercial landscape of contemporary organisations.

    Apply the “Present Tense” Test (Singapore Model)

    The COMI should be evaluated based on the circumstances at the time of insolvency filing, rather than historical or retrospective factors. This would deter opportunistic actions by debtors attempting to exploit more lenient jurisdictions.

    Presumption Based on Registered Office

    Utilising the registered office as a basis for ascertaining COMI provides predictability; nonetheless, it must be regarded as a rebuttable presumption. Judicial bodies ought to maintain the discretion to consider factors outside registration when evidence suggests an alternative operational reality.

    Institutional Strengthening

    India’s insolvency tribunals must be endowed with the necessary instruments and experience to manage cross-border issues. This encompasses specialist benches within NCLT/NCLAT, training initiatives for judges and resolution experts, and frameworks for judicial collaboration. The adoption of the UNCITRAL Model Law must incorporate a reciprocity clause to enable mutual enforcement of judgments. India should pursue bilateral and multilateral insolvency cooperation agreements to augment worldwide credibility and enforcement.

    By rectifying these legal and procedural deficiencies, India may establish a resilient insolvency framework that is internationally aligned and capable of producing equitable results in a progressively interconnected financial landscape.

    CONCLUSION

    The existing cross-border bankruptcy structure in India is inadequate to tackle the intricacies of global corporate distress. As multinational businesses and assets expand, legal clarity and institutional capacity become imperative. The absence of formal acceptance of the UNCITRAL Model Law, dependence on antiquated principles such as the Gibbs Rule, and lack of a clearly defined COMI norm have resulted in fragmented and uneven conclusions, as shown by the Jet Airways case. To promote equity, transparency, and predictability, India must undertake systemic changes, including the introduction of comprehensive COMI assessments, a reciprocity provision, and institutional enhancement. Adhering to international best practices will bolster creditor trust and guarantee that India’s bankruptcy framework stays resilient in a globalised economic landscape.

  • Fixing What’s Final? The Gayatri Balasamy Dilemma

    Fixing What’s Final? The Gayatri Balasamy Dilemma

    BY Arnav Kaushik and Saloni Kaushik, THIRD and FIFTH- YEAR studentS AT Dr. Ram Manohar Lohiya National Law University, Lucknow And MahArashtra NaTIONAL LAW UNIVERSITY, NagPUR

    INTRODUCTION

    On 30 April 2025, in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (‘Gayatri Balasamy’), a Constitution Bench of the Hon’ble Supreme Court by a 4:1 majority, held that courts possess a limited power to modify arbitral awards. This power was interpreted as falling within courts’ express powers under Section 34 of the Arbitration and Conciliation Act, 1996 (‘1996 Act’). The judgment departs from Project Director, National Highway v. M. Hakeem (‘M. Hakeem’), where such powers were expressly denied. The Court identified three limited circumstances permitting modification: (1) severance of invalid portions of award, (2) alteration of post-award interest, and (3) correction of inadvertent errors or manifest errors. Justice Vishwanathan dissented, arguing that modification cannot be read into Section 34, except to rectify inadvertent errors. While the majority sought to resolve a legal impasse, it arguably introduced new interpretative ambiguities.

    PARTY AUTONOMY AND JUDICIAL NON-INTERVENTION

    To discern the implications of this ruling, one must consider the foundational principles of arbitration law—party autonomy and minimal judicial intervention. The 1996 Act, modelled on the UNCITRAL Model Law (‘Model Law’), enshrines these core principles. Party autonomy, the grundnorm of arbitration, allows parties procedural freedom, as contemplated in Article 19(1) of the Model Law and Section 19(2) of the 1996 Act.  Complementing party autonomy, the Model Law’s non-interventionist approach is adopted by the 1996 Act, emphasizing minimal judicial interference and finality of awards. The Statement of Objects and Reasons of the 1996 Act clearly reveals the legislative intent to limit courts’ intervention, with sub-point (v) of Point 4 expressly aiming to minimize courts’ supervisory role. Section 5’s non obstante clause confines the scope of judicial intervention to matters governed by Part I of the 1996 Act, while Section 35 ensures finality of awards, highlighting the legislative intent of minimal judicial interference.

    NO POWER TO MODIFY ARBITRAL AWARD?

    There is no express provision in the 1996 Act, which recognizes the power to modify or vary arbitral award. The majority in Gayatri Balasamy invoked the maxim omne majus continet in se minus, arguing that the bigger power to set aside an arbitral award inherently subsumes the lesser power to modify. In contrast the minority, relying on Shamnsaheb M. Multtani v. State of Karnataka, argued that this maxim, rooted in criminal law, applies only when two offences are ‘cognate’— sharing common essential elements. Since modification and setting aside differ fundamentally in their legal consequence, the former results in alteration whereas the latter leads to annulment, therefore, the power to modify cannot be subsumed within power to set aside. Nonetheless, the application of this maxim violates the cardinal rule of statutory interpretation. According to this rule, where the language is unambiguous, it must be given plain and ordinary meaning. Notably, the majority held that Section 34 does not restrict the range of ‘reliefs’ the court can grant.  However, in our opinion, the plain text of Section 34 limits the recourse to ‘only’ setting aside an award. This deliberate restriction, supported by expressio unius est exclusio alterius, and upheld in M. Hakeem signifies the legislative intent to exclude other remedies such as modification.  Unlike foreign jurisdictions such as the U.K., U.S.A, and Singapore, and Section 15 of the erstwhile 1940 Act, the 1996 Act does not expressly provide for modification powers. Despite Vishwanathan Committee’s recommendation, the legislature has not evinced any intent to incorporate an express provision, as is evident from the Draft (Amendment) Bill 2024. Therefore, imputing a power of modification would amount to the courts engaging in a merit-based review of the arbitral award, a course of action unauthorized by law.

    MODIFICATION V. SEVERANCE

    As discussed in the preceding section of this blog, the powers to modify and to set aside an award are fundamentally distinct in their legal consequences. This raises the question: can the powers to partially set aside an award, that is to sever certain portions, be equated with the powers to modify? The minority view relies on the definition of “sever as to separate” to justify the power to set aside an arbitral award partly. Section 34(2)(a)(iv) contemplates severance, allowing partial setting aside of an award where the invalid portion is separable, in variability and quantum, to preserve the valid portion. Severance is possible where claims are structurally independent. As held in J.G Engineers Pvt. Ltd. v. Union of India , distinct claims—separate in subject-matter, facts, and obligations can be severed without altering award’s substance. A decision on a particular claim is an independent award in itself, capable of surviving despite invalidity of another claim, as endorsed in NHAI v. Trichy. While power to partial setting aside is recognised, this does not equate to a power to modify. Essentially, severance entails elimination of invalid portions without examining the merits, whereas modification entails a pro-active alteration which may or may not require a merit-based review. Furthermore, the majority view remained silent on a pertinent question: whether modification can fill the gap where severance fails due to structural dependence of claims, as with composite awards? With respect to invalid portions, Section 34 contemplates the initiation of fresh proceedings which re-affirms that severance is not an alternative to setting aside of an award but an ‘exception’ within it.

    BUILT-IN FIXES: SECTION 33 & 34(4) OF 1996 ACT

    Despite express provisions under Section 33, the Supreme Court held that courts may also rectify errors in arbitral awards by invoking inherent powers under Section 151 of the Code of Civil Procedure (‘CPC’). However, it is our considered view that inherent powers cannot override express statutory provisions, even under the pretext of serving justice. This is because it is presumed that procedure specifically laid down by the legislature, including under Section 34 of 1996 Act, is guided by the notions of justice.

    Both the opinions invoked Section 152 of the CPC, which allows correction of accidental slips in judgments to avoid undue hardship. The minority held that this may apply only where (a) errors were not raised under Section 33; or (b) despite being raised, were not rectified by the arbitral tribunal. The majority, however, broadened this to include “manifest errors” by combining Section 152, the power to recall, and the doctrine of implied powers. Yet, term “manifest errors”lack clear scope: does it refer only to inadvertent errors under Section 33(1)(a), or also to curable procedural defects? We draw a distinction here: inadvertent errors are unintentional and apparent, while curable defects involve procedural irregularities affecting the award’s integrity, such as lack of reasoning, or inadequate award interest. Addressing such defects require discretion, and rightly falls squarely within tribunal’s authority under Section 33. Interestingly, the majority itself conceded that remand, unlike modification, enables tribunal to take corrective measures such as recording additional evidence. This position was further reinforced by the majority’s holding that where any doubt arises as to the propriety of a correction, the appropriate course is to remand the award to the tribunal under Section 34(4). This aligns with judicial pronouncements in I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd. and Dyna Technologies Private Ltd. v. Crompton Greaves Ltd., which clarified that courts ought to provide the tribunal an opportunity to rectify curable defects.  Moreover, Sections 33(2) and (3) explicitly empower the tribunal to evaluate whether correction requests are justified, reaffirming its authority over its procedural irregularities. In our view, curable procedural defects, such as post-award interest, should mandatorily be remanded to the tribunal, while courts may independently rectify inadvertent, clerical errors, under Section 152, CPC.

    JUDICIAL OVERREACH AND ARTICLE 142

    The minority view, while referring to the Supreme Court Bar Association v. Union of India and Shilpa Sailesh v. Sreenivasan (‘Shilpa Sailesh’), emphasized that Article 142 should not be invoked to construct a new legal framework in the absence of express provisions, such as modification powers under Section 34 of 1996 Act. In the case of Union Carbide Corporation v. Union of India, the Supreme Court had enunciated that Article 142, while rooted in equity, must conform to statutory prohibitions, especially those grounded on some fundamental principles of general or specific public policy. Citing interpretation of “specific public policy” in the case of Shilpa Sailesh, the minority held that the powers under Article 142 cannot override non-derogable principles central to a statute— in this context party autonomy and minimal judicial interference. 

     While we agree with the minority, the majority opinion warrants a closer scrutiny. While stating that Article 142 powers should not be invoked to modify awards on merit, the majority simultaneously observed that it may be invoked to end litigation, thereby blurring the scope of intervention. The equitable principles under Article 142, such as patent illegality, notions of morality and justice, and principles of natural justice, are already embedded as grounds for setting aside arbitral awards. Interestingly, the Vishwanathan Committee had recommended insertion of an express proviso allowing courts to make consequential orders varying the award only in exceptional circumstances to meet the ends of justice. However, this recommendation  didn’t materialise, thereby indicating that the legislature intended the mechanism of setting aside an award to serve the purpose of ensuring complete justice.

    CONCLUSION

    The Supreme Court’s ruling in Gayatri Balasamy marks a significant shift in Indian arbitration law by permitting courts limited power to modify arbitral awards. Citing legal maxims like omne majus continet in se minus, and inherent powers, the majority blurred the distinction between setting aside and modifying awards, risking judicial overreach and merit-based review.  The issue of modifying arbitral awards is inherently complex and must be approached with restraint. While courts may justifiably correct inadvertent, clerical errors, given that such corrections do not amount to review on merits, any broader exercise of this power must be checked. The vague and undefined use of the term ‘manifest errors’ creates a troubling lacuna, allowing scope for subjective judicial interpretation. The Apex Court must clarify the contours of what constitutes a ‘manifest error’, otherwise the courts risk exceeding the boundaries of minimal intervention. In the pursuit of doing complete justice, the courts must not undermine the legislative intent of excluding modification as a remedy, particularly when such a change can only be brought through a legislative policy decision. To resolve the present ambiguity, the legislature should reconsider the Vishwanathan Committee’s recommendation and expressly delineate the limited circumstances under which courts may vary an award.  Despite being well-intentioned, the judgment introduces new complexities, necessitating legislative intervention to preserve the delicate balance between finality of awards and fairness of outcomes

  • 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.