Month: November 2025

Arbitration Update: Supreme Court Confirms That Indian Courts Have No Jurisdiction in Foreign-Seated Arbitrations

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Supreme Court Confirms that Indian Courts have No Jurisdiction in Foreign-Seated Arbitrations

MKBAC Blog November 30, 2025

By Mahika Roy, a Research Scholar at the Milon K. Banerji Arbitration Centre

The Supreme Court in Balaji Steel Trade v. Fludor Benin S.A. & Ors. has recently clarified the limits of Indian court jurisdiction in the context of foreign-seated international commercial arbitration. The Court considered two issues:

  1. Whether a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 is maintainable when the principal agreement provides for arbitration seated outside India.
  2. Whether arbitration clauses in subsequent ancillary contracts can override the seat and governing law chosen in the principal contract.

Background

The dispute arose from a Buyer and Seller Agreement (BSA) dated 06 June 2019 between Balaji Steel Trade and Fludor Benin S.A. The BSA contained an arbitration clause stating that arbitration would take place in Benin, and an Addendum confirmed that the agreement would be construed and governed in accordance with Benin law. The parties subsequently entered into Sales Contracts with Respondent No. 2 and High Seas Sale Agreements with Respondent No. 3, each containing arbitration clauses providing for India-seated arbitration. These later contracts were limited to individual consignments.

When a dispute arose, Respondent No. 1 invoked arbitration in Benin. The Benin Commercial Court appointed a sole arbitrator on 26 July 2023, and the arbitral proceedings culminated in a final award on 21 May 2024. Balaji Steel, however, attempted to initiate arbitration in India and also filed an anti-arbitration injunction suit before the Delhi High Court, which was dismissed. Despite this, the petitioner filed a Section 11(6) application before the Supreme Court seeking appointment of a sole arbitrator and a composite reference.

Foreign Seat and Applicability of Section 11

The Court held that the BSA and its Addendum form the principal agreement governing the parties’ commercial relationship. Article 11 specifies that arbitration will take place in Benin, and the Addendum confirms Benin law as the governing law. Together, these provisions establish Benin as the juridical seat of arbitration.

To determine the legal consequences of this choice, the Court relied on three leading precedents.

  1. First, the Supreme Court in BALCO held that Part I of the Act applies only to India-seated arbitrations and is excluded when the seat is abroad.
  2. Second, in BGS SGS SOMA JV, the Hon’ble Court held that an express designation of the place of arbitration ordinarily amounts to the choice of seat.
  3. Third, in PASL Wind Solutions, the Supreme Court reaffirmed that the nationality of the parties is irrelevant and Indian courts cannot appoint arbitrators for foreign-seated arbitrations.

Applying these principles, the Court held that the Section 11 petition was fundamentally misconceived because Indian courts lack jurisdiction to appoint an arbitrator for a Benin-seated arbitration.

Effect of Ancillary Contracts

On the second issue, the Court held that the Sales Contracts and HSSAs were limited-purpose agreements executed to facilitate individual consignments. They neither superseded nor novated the BSA. None of these contracts incorporated or altered the BSA, and there was no contrary indication that the parties intended to abandon the Benin-seated mechanism. The BSA continued as the operative agreement, and any disputes concerning supply obligations arose exclusively under it.

Accordingly, the presence of India-seated arbitration clauses in these ancillary instruments could not override the Benin-seated arbitration clause in the BSA.

Additional Findings

The Court also noted that the Benin arbitration had already been constituted by an order of the Benin Commercial Court in July 2023, which eventually culminated in a final award. Further, the Delhi High Court had dismissed Balaji Steel’s anti-arbitration injunction suit after holding that the BSA and Addendum were the operative agreements. These findings created an issue estoppel preventing the petitioner from reopening the same issues in the Section 11 proceedings.

Finally, reliance on the Group of Companies doctrine was rejected. Citing the Constitution Bench decision in Cox & Kings, the Court held that common ownership or corporate affiliation is insufficient to bind non-signatories absent a demonstrable mutual intention to arbitrate. No such intention was present on the facts.

Significance

This judgment provides clear guidance on the structure and operation of international commercial arbitration under Indian law. It reiterates that the choice of a foreign seat and foreign governing law is determinative of supervisory jurisdiction and excludes the applicability of Part I of the Arbitration and Conciliation Act. The decision brings clarity to multi-contract arrangements by confirming that later ancillary or shipment-specific contracts cannot dilute or override the dispute resolution mechanism contained in the principal agreement.

The ruling also strengthens procedural finality by recognising that once key jurisdictional questions have been adjudicated, parties cannot reopen the same issues through subsequent proceedings. By rejecting attempts to bind non-signatories without clear intention, the judgment preserves the central principle that arbitration is founded on consent. Overall, the decision reinforces party autonomy, respects the architecture of a foreign-seated arbitration and ensures that courts do not interfere with the arbitral process chosen by the parties.

 

 

Between Seat and State: Judicial Intervention in the Name of Neutrality

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Between Seat and State: Judicial Intervention in the Name of Neutrality

MKBAC Blog November 22, 2025

By Arav Tiwari & Siddhant Singh

About the Authors:

Siddhant Singh is a third-year student pursuing a B.A.LLB at National Law University, Jodhpur. He has a keen interest in intellectual property law, disputes and public international law. He is the managing editor and head of operations for the Centre for Youth Policy.
 
Arav Tiwari is a third-year student pursuing B.B.A.LLB at National Law University, Jodhpur. He has a keen interest in arbitration, commercial disputes and private international law.
Introduction

Neutrality is the cornerstone of international arbitration, ensuring that disputes are resolved by an impartial tribunal in a forum free from domestic influence. Parties rely on this neutrality when they choose a foreign seat, confident that only the presumably neutral courts of that jurisdiction will supervise the process. The Delhi High Court’s (DHC) decision in Engineering Projects (India) Ltd v MSA Global LLC has unsettled this understanding. By intervening in an ICC arbitration seated in Singapore, the court extended its reach beyond what international arbitration law intends or permits. While the ruling was presented as protecting fairness and public policy, it has raised concerns about India’s adherence to the seat rule that underpins arbitral autonomy. This post examines how the decision challenges established norms, its broader consequences for India’s arbitration landscape, and the steps needed to restore confidence in India as a credible arbitral jurisdiction in the form of actionable recommendations not yet explored by existing scholarship.

In Engineering Projects, EPI appealed an ICC arbitrator’s non-disclosure of previous involvement in a suit relating to its management. This omission was found to be insufficient by the ICC court and Singapore High Court alike, the latter being the supervisory court designated by the arbitral seat. In accordance with the seat rule, these findings ought to have been final.

The DHC intervened nonetheless, appreciating EPI’s arguments and issuing an anti-arbitration injunction relying on the reasoning that the nondisclosure “stuck at the root of the tribunal’s integrity” which rendered the process “vexatious and oppressive.” It also relied upon Section 9 of CPC invoking its “residual equitable jurisdiction” to prevent what it deemed to be a denial of natural justice to a public sector Indian company. By reassessing objections already considered by the court of the seat as matters of Indian public policy, the DHC displaced the authority of Singapore courts.

The DHC’s injunction has departed sharply from the decade old understanding of the Indian the SC held unequivocally that Part I of the act does not apply to foreign-seated arbitrations. In the present case, the DHC improperly invoked Section 9 of Part I of the act to grant an anti-arbitration injunction. In line with BALCO (2019), the judgement in Harmony Innovation Shipping (2015) the SC rejected a plea arguing inconvenience and unfairness, emphasising that Indian courts can not intervene in the composition, conduct or continuation of foreign seated arbitration. This doctrine is bolstered by the landmark judgement of Enercon(2014), where the apex court held that Indian courts can not second guess procedural rulings made by courts of a foreign seat. By revisiting procedural questions determined by Singapore court, the DHC has gone against the two aforementioned judgements of the SC and effectively intervened and second guessed the supervision of the courts of a foreign seat.

A. Neutrality of Cross-Border Arbitration

The DHC decision, while innocuous enough to pass off as being protective of domestic public interests, has far-reaching consequences when it comes to parties gauging neutrality and predictability in cross-border arbitration when their counterparty is based in India. Parties select a neutral seat, in this instance, Singapore, to ensure that neither side’s domestic courts can affect the tribunal’s composition or procedure. By issuing an injunction on the rationale it adopted, the DHC inadvertently blurred the very boundaries that sustain confidence in arbitral autonomy.

This departure from seat theory creates systematic uncertainty, as international participants are now faced with the conundrum of whether contracting with Indian parties is free from home-court interference. This may result in parties demanding seat-exclusion clauses, enhanced performance securities, or even declining arbitration altogether should it involve India, certainly not a favourable outcome for a nation attempting to become a global arbitration destination.

B. Indian Businesses- Where are they left Standing?

Indian entities may welcome this judgment in the short term; however, this will result in long-term reputational harm. Judicial protection from perceived bias may seem appealing, yet it signals to the world that Indian counterparties are prima facie unreliable since they would seek recourse to home courts despite having agreed to a foreign-seat arbitration.

We see foreign investors accordingly weighing the incentive to arbitrate with Indian parties by pricing in the inherent risk by way of higher costs, stringent payment terms, or even choice-of-law clauses excluding India altogether. Institutional actors and investment-treaty tribunals could treat such jurisprudence as evidence of systemic unreliability, thereby impeding enforcement and deterring capital inflow. Therefore, India’s credibility as an arbitration-friendly jurisdiction- and by extension, the ability of its businesses to compete abroad hinges entirely on Indian parties maintaining faith in the neutral forum selected.

The Court’s ruling reaffirms the need for calibrated judicial restraint in foreign-seated arbitrations. Judicial vigilance in preserving procedural fairness is defensible, but it must remain aligned with international comity under the UNCITRAL Model Law and the New York Convention. Unmoored intervention risks undermining the predictability essential to international commercial arbitration.

The first step involves the creation of specialised arbitration benches. Such benches may be created through a Supreme Court-mandated harmonised practice direction under Articles 141 and 142, with exclusive jurisdiction over Section 9 matters and other arbitration-sensitive interim measures to prevent forum-shopping and inconsistent rulings. Judicial selection should follow transparent criteria, including commercial experience, familiarity with the Model Law, and completion of a structured training programme covering international procedure, judicial restraint, anti-suit injunctions, and enforcement under Part II. Adequate resources, specialised clerks, and a fast-track appellate pathway are essential to avoid disruption to foreign-seated proceedings. As far as appellate review goes, we envision those being routed through a fast-track division bench with strict timelines so as to ensure minimal disruption to foreign-seated proceedings.  

Second, bespoke procedural rules must include tangible standards, including a presumption against interim relief that affects foreign-seated arbitrations, heightened pleading thresholds for anti-arbitration injunctions, and strict scrutiny of ex parte relief.

Third, self-regulation must be operationalised through bright-line limits that restrict intervention to narrow exceptions, such as fraud affecting enforceability, breaches of natural justice implicating public policy, or tribunal incapacity. This should be supported by a pre-filtering certification mechanism to deter tactical injunctions.

Fourth, reforms must align with the Model Law and the New York Convention, respect negative Kompetenz-Kompetenz, and maintain functional equivalence with jurisdictions such as Singapore and the United Kingdom.

Ultimately, India’s arbitral credibility will rest not on assertive intervention but on a durable institutional architecture that ensures judicial discipline.

Arbitral Institutions Cease to Exist: Lessons From L&T v. Bhoruka Power and its Jurisprudential Divergence

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Arbitral Institutions Cease to Exist: Lessons From L&T v. Bhoruka Power and its Jurisprudential Divergence

MKBAC Blog November 22, 2025

By Shubham Singh

About the Author:

Shubham Singh is a 5th year law student at National Law University, Odisha.

Abstract

This article examines the Karnataka High Court’s decision in L&T Infra Investment Partners v. Bhoruka Power Corporation Ltd., which examined the effect of LCIA India’s closure on arbitration agreements referring to its rules. Situated within the framework of Indian procedural law under the Arbitration and Conciliation Act, 1996, the decision represents an important contribution to an evolving and inconsistent High Court jurisprudence on the consequences of institutional cessation. The Karnataka High Court’s reasoning, permitting the continuation of proceedings under the LCIA London Rules 2020, is considered alongside other rulings from different high courts, illustrating broader judicial divergence and the absence of definitive guidance from the Supreme Court.

Keywords – Institutional Arbitration, LCIA India, Arbitration Agreement Validity

Introduction

Arbitral institutions play a vital role in arbitration, administering proceedings and managing operational aspects to ensure a smooth and efficient process. They also set their own rules governing both the proceedings and the institution’s functioning. However, they are also businesses that earn revenue mainly through the arbitration proceedings they administer. As business entities, they aim to expand their market but may shut down if their operations become unsustainable. For example, the London Court of International Arbitration (“LCIA”) ceased its operations in India because not enough people were using LCIA India clauses to make it worthwhile to maintain an office in the country.

When an arbitral institution ceases to exist, it can create significant uncertainty. A similar situation arose in the recent case of L&T Infra Investment Partners v. Bhoruka Power Corporation Limited (“L&T”). While the case involved multiple issues, this article will focus on the question addressed by the Karnataka High Court: whether the arbitration agreement stood frustrated due to the closure of the arbitral institution, namely LCIA India, and whether the arbitration could validly proceed under LCIA London or the LCIA Rules 2020, instead of the LCIA India Rules originally agreed upon.

In this article, we examine the reasoning adopted by the Karnataka High Court in the L&T case and situate it within the broader judicial landscape, addressing the cessation of arbitral institutions. The discussion extends to the divergent approaches taken by various High Courts that have addressed similar questions of institutional cessation. This article will also examine the underlying policy and procedural considerations that arise when an arbitral institution ceases to exist or undergoes structural transformation.

The dispute arose under a Compulsory Convertible Debenture (CCD) Subscription and Securities Holders Agreement dated 21.06.2013, which contained an arbitration clause. The clause required disputes to be resolved first through good-faith consultations and, if unresolved, finally settled under the LCIA India Rules then in effect. On 11.12.2024, L&T Infra (the appellant) invoked arbitration under Section 21 of the A&C Act, followed by a formal request to the LCIA on 10.01.2025. The respondents, Bhoruka Power Corporation Ltd. and its promoter shareholders, filed a petition before the Bengaluru Commercial Court, arguing that the arbitration clause had become void because LCIA India had ceased operations in 2016 and could not be extended to LCIA London. The Commercial Court accepted this argument and, by order dated 28.04.2025, restrained L&T from proceeding with arbitration. L&T appealed to the Karnataka High Court.

The High Court considered two main issues:

  • Whether the arbitration clause in the CCD Agreement remained valid and operable after LCIA India’s closure, and
  • If LCIA India was unavailable, whether arbitration could continue under LCIA London or by some alternative or ad hoc process.

Furthermore, the CCD Agreement also specified the seat of arbitration as either Mumbai or Bengaluru, at the investor’s discretion (Clause 16.2), a fact that placed the arbitration within the framework of the Indian A&C Act, 1996 and materially influenced the curial law and forum considerations.

The Court upheld the validity of the arbitration clause despite the change in arbitral institution from LCIA India to LCIA London. It reasoned that arbitration rules are procedural in character and do not affect the parties’ substantive consent to arbitrate. Referring to the phrase “LCIA Rules then in effect” in Article 16 of the CCD Agreement, the Court held that the parties had agreed to be governed by whichever version of the LCIA Rules was operative at the time of invocation. Consequently, the shift from LCIA India to LCIA London and the application of the LCIA Arbitration Rules 2020 did not frustrate the agreement. The Court emphasised that these amendments were introduced by LCIA London itself, the parent institution, and not by the parties, and therefore did not alter the essence of their consent.

This reasoning aligns with the LCIA’s own transitional provisions, which stipulate that agreements made before 1 June 2016 referring to LCIA India shall now be administered by LCIA London under the LCIA Arbitration Rules 2020.

However, the limits of this logic are noteworthy. A change in institutional identity could frustrate an arbitration agreement if the institution ceases to exist without a successor body, if its rules become inoperative or inaccessible, or if the clause expressly ties the arbitral process to a local institution or enforcement mechanism. In such cases, the institutional designation might form part of the substantive consent, and the underlying agreement to arbitrate could be considered extinguished.

Parties must have chosen the LCIA India Rules and LCIA India as the arbitral institution not only for their reliability in handling arbitration proceedings but also for their monetary advantages.

For example, the LCIA India arbitration rates were very low. According to the latest price schedule, the price is more than 50 to 60 per cent higher under the standard LCIA rules 2020 compared to the previous LCIA India rules. For example, the hourly rate of compensation for arbitrators is capped at INR 20,000 per hour under the LCIA India rules, but in the LCIA rules 2020, it is capped at £450. The registration fee/case filing fee is £1,950 under the LCIA rules 2020, but it is INR 30,000 under the LCIA India rules.

This ruling will impose heavy financial pressure on parties, as arbitration clauses referring to the LCIA India Rules will now attract the higher costs under the LCIA Arbitration Rules 2020 and the 2023 Schedule of Arbitration Costs.

Although the seat was specified in this case, issues may arise where the seat is not expressly determined, and the parties have opted for the LCIA India Rules. Under Articles 16.1 and 16.2 of those Rules, if the parties disagree on the seat, the LCIA Court is empowered to determine it after considering all relevant circumstances and the parties’ written submissions. The arbitral tribunal, however, retains the discretion to hold hearings, meetings, and deliberations at any convenient location.

Following the discontinuation of the LCIA India Rules, the LCIA Rules 2020 now apply. Articles 16.1 and 16.2 of these Rules designate London as the default seat, unless the arbitral tribunal subsequently determines otherwise. Consequently, if parties choose the LCIA India Rules without specifying the seat, London will be treated as the default seat until the tribunal decides otherwise. Any party dissatisfied with interim relief, whether granted by an emergency arbitrator or the arbitral tribunal, must seek recourse to the English courts, which creates inconvenience due to both costs and a judicial disconnect arising from cross-border complexities.

In the past, different rulings have addressed situations involving arbitral institutions that have ceased to exist. Too mention few, in M/s Tata International Limited v. M/s Pragati Shoes (“Tata”), the Madhya Pradesh High Court, on 19 May 2025, while hearing an application under Section 11 of A&C Act, held that since the LCIA was no longer operating in India, the provisions of the A&C Act would apply and accordingly appointed an arbitrator, however, the respondent was not present during the hearing.

Similarly, in Danieli India Limited v. Mishra Dhatu Nigam Limited (“DIL”), although the case was not related to LCIA India, it involved a similar issue of an arbitral institution ceasing to exist. The India International Arbitration Centre took over the functions of the defunct ICADR, whose rules governed the parties’ agreement. The Telangana High Court held that even if an arbitration clause becomes unworkable due to drafting errors, the death of an arbitrator, or the closure of the designated institution, the parties’ intent to arbitrate must still be upheld under Section 11 of the A&C Act.

In Tata, before the court, the 2016 LCIA amendments were never argued, as the opposing party neither appeared nor argued, unlike in the L&T case. Given that LCIA India had ceased operations, the court inferred that the institutional mechanism was inoperable and converted the arbitration into an ad hoc process to preserve the intent to arbitrate and maintain neutrality, since allowing one party to choose an alternative institution could have affected fairness. The same reasoning appeared in DIL, where the court prioritised the preservation of arbitral intent over institutional rigidity. Thus, Tata and DIL serve as pragmatic contrasts to L&T, which treated institutional designation as integral to the parties’ agreement, while the former cases focused on preserving arbitration through judicial facilitation under Section 11(6)(c).

Now, mainly comparing the L&T case with Tata and DIL, it is evident that while these cases correctly identified the intent to arbitrate and allowed the parties to arbitrate, however, Tata and DIL removed the institutional aspect of arbitration, opting for ad hoc Arbitration.

Jurisprudence on the cessation of arbitral institutions varies across High Courts. Since neither the statute nor the Supreme Court has addressed this issue, it can create uncertainty in arbitration proceedings. To suggest a way forward, if parties approach the court after discovering that their chosen arbitral institution has ceased to exist, whether due to a change in its identity or permanent closure, the court should first inquire whether the parties can agree on an alternative arbitral institution within 15 days. This timeline should be strictly enforced to ensure procedural efficiency. If the parties fail to reach a consensus within the prescribed period, or if their conduct becomes hostile and begins to frustrate the arbitration process, the court should direct that the proceedings continue on an ad hoc basis, with the court making the necessary appointment under Section 11 to prevent further delay or deadlock. Furthermore, a special amendment could be introduced to Section 8 of the A&C Act, incorporating this 15-day timeline and a proviso expressly empowering the court to refer the parties to ad hoc arbitration if the prescribed time limit is not met.

The same approach applies to cases like L&T, where an arbitral institution ceases its services in a country but expects the parties to follow rules designed for another jurisdiction. This should be avoided because arbitration rules are tailored to the market and conditions of each location. Parties initially agreed to regulations because the rules were tailored for their jurisdiction; however, the use of regulations of a different geography may lead to sudden changes in currency, which increase the operational costs, and procedures for obtaining interim relief from tribunals or courts can create significant practical difficulties if the seat is not properly designated.

This approach keeps the parties in touch with their intention of institutional arbitration, encouraging them to reach an agreement. If the parties do not agree, the ad hoc system comes into play, as seen in the DIL and Tata.

No Agreement, No Signature, No Problem? SARFAESI’s Fiction of Consent in Arbitration Post-Nangli Mills Era

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NO AGREEMENT, NO SIGNATURE, NO PROBLEM?
SARFAESI’S FICTION OF CONSENT INARBITRATION POST-NANGLI MILLS ERA

MKBAC Blog November 12, 2025

By Yash Pathak & Anusrea Goswami

ABSTRACT

When law trades consent for convenience, even justice rendered swiftly may ring hollow. The recent judgement of Bank of India v. Nangli Rice Mills ruled by Supreme Court, interpreted Section 11 of the SARFAESI Act as a legal mandate for arbitration for financial institutions—irrespective of party consent. The judgment disrupts two core cornerstones of arbitration, which are – party autonomy and consensually. This blogpost explores statutory contradiction, enforcement uncertainties, and jurisdictional overlaps with DRTs, advocating for legislative reform and procedural safeguards. Without structural clarity, SARFAESI’s legal fiction of “deemed consent” risks undermining India’s arbitration framework.

Keywords: SARFAESI Act, statutory arbitration, party autonomy, legal fiction, DRT jurisdiction, arbitration consent.

I. Introduction

“Arbitration has moved beyond just being an ‘Alternative’ — it has become the primary for resolving commercial disputes.“

– Former CJI Justice D.Y. Chandrachud

In the recent ruling of Bank of India v. Nangli Rice and General Mills & Ors [“Nangli Case”], the Supreme Court [“SC”] interpreted Section 11 of the SARFAESI Act, 2002 as creating a statutory mandate for arbitration in disputes between financial entities such as banks, Asset Reconstruction Company [“ARC”], and qualified buyers. At the outset, this judgment can be seen as a significant step toward strengthening India’s aspiration to become a pro-arbitration hub. However, on closer analysis, the decision raises important questions about the nature of consent in arbitration, the jurisdictional reach of statutory forums like DRTs, and the interpretive boundaries of mandatory dispute resolution clauses under Indian law.

The decision effectively transforms a statutory directive into a form of implied arbitral agreement, despite the absence of consensual contract. This blog deconstructs the Court’s ruling, juxtaposes it with comparative and domestic jurisprudence, and argues that while the intention behind mandating arbitration may be laudable, its execution invites both doctrinal and structural complications. The blog is structured into four sections: first, analysing the Court’s interpretation of Section 11; second, examining the tension between statutory mandates and party autonomy; third, exploring the ruling’s systemic impacts; and finally, proposing reforms for a balanced approach.

The most crucial question that arose before the Supreme Court was whether a disagreement between a secured creditor and an ARC over the sale of a security interest might be resolved through arbitration during the absence of a formal agreement of arbitration. Section 11 of SARFAESI states:

Any dispute about securitization, reconstruction, or unpaid dues between financial institutions, ARC, or qualified buyer shall be resolved through the process of conciliation or arbitration under the Arbitration and Conciliation Act [“ACA”], as if all parties had agreed in writing to it.

SC observed that such disputes should be resolved via means of arbitration, interpreting the word “shall” as required. Notably, the Court avoided the necessity under section 7 of ACA, which defines an arbitration agreement as a clause in a broader contract, which, outlines the consent of contracting parties to arbitrate. Instead, the Court invoked the idea of a statutory fiction—as if an arbitration agreement existed by operation of law.

The Court, per Justices JB Pardiwala and Pankaj Mithal, held that:

  1. Section 11 of the SARFAESI Act creates mandatory statutory arbitration between financial institutions, banks, asset reconstruction companies, and qualified buyers in disputes over security enforcement;
  2. No requirement of fulfilling section 7 of ACA is required between the parties; the statute itself serves as deemed consent.
  3. DRTs have no jurisdiction under section 17 to adjudicate such claims.

The logic of legal fiction, however, warrants caution. A fiction is acceptable where necessary to fulfil legislative intent or avoid absurdity, but not where it overrides fundamental legal principles without clear legislative sanction. By assuming a “deemed” agreement, the Court has expanded the remit of statutory arbitration beyond the language of the provision. The interpretation blurs the distinction between arbitration that is consensual and arbitration that is compulsorily imposed—a line that the Court has historically sought to preserve.

In effect, the Court establishes SARFAESI’s Section 11 as a self-contained arbitration agreement, eliminating the necessity for any prior contractual accord. This is a radical move, and while it appears to help financial institutions resolve disputes more quickly, it comes at a conceptual cost: party sovereignty is marginalised.

At the heart of arbitration jurisprudence lies party autonomy—the idea that parties voluntarily choose arbitration over litigation. This autonomy is safeguarded by Section 7 of the ACA and strengthened in judgements such as K.K. Modi v. K.N. Modi, which concluded that arbitration is a consensual process that cannot be imposed on unwilling parties absent statutory compulsion.

The concept of consent is not just a technicality; it is inherent and essential to arbitration.[i] Article II (1) of the New York Convention states that arbitration agreements should be in writing. Likewise, Article 7, option 2 of the UNCITRAL Model Law requires a recorded agreement between the parties evidencing their mutual consent in order to submit disputes between them to arbitration. Stavros Brekoulakis suggested that “Though using a functional view of consent might strengthen arbitration clauses in complex deals, it often clashes with the core foundational principle of consent.”[ii]

It is here that the Supreme Court’s interpretation appears problematic. SARFAESI is a civil enforcement statute, not a dispute resolution code. It lacks the procedural framework seen in statutory adjudication mechanisms such as the Industrial Disputes Act of 1947 & the Electricity Act of 2003,  both of which provide self-contained procedures for arbitration or tribunal adjudication. In those statutes, arbitration is frequently used as a supervisory or appellate mechanism rather than as a replacement for business agreements. In contrast, the SARFAESI Act has no institutional structure for arbitration, including no appointment method, specified dates, or express overriding of the ACA’s consensual requirement.

The ruling also risks undermining precedent. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., the SC established that arbitrability depends on both the nature of the rights involved (whether private or public) and the consent of the parties. In Vidya Drolia v. Durga Trading Corporation, while reaffirming the arbitrability of tenancy disputes, the Court nevertheless required the presence of an arbitration clause. Thus, the trend has been to protect the consensual core of arbitration, even when the subject matter is otherwise arbitrable.

Comparative jurisdictions underscore this approach. English courts in Pittalis v. Sherefettin recognised statutory arbitration only when the parties retained procedural protections and the statutory scheme was exhaustive. Similarly, in Tjong Very Sumito v. Antig Investments, the appeal court of Singapore observed that arbitration must be rooted in an express or implied contractual arrangement unless the statute clearly substitutes it.

Against this backdrop, the ruling in Nangli Rice Mills effectively prioritises efficiency over contractual will, doctrinal consistency, and procedural fairness.

[i] Jan Paulsson, ‘Arbitration Unbound: Award Detached from the Law of the Seat’ (1981) 30(2) ICLQ 358.

[ii] Stavros Brekoulakis, ‘Parties in International Arbitration: Consent v Commercial Reality’ (Presentation, 30th Anniversary of the School of International Arbitration, Queen Mary University of London, 2015).

One of the most immediate consequences of the judgment is its impact on the jurisdiction of DRTs. SARFAESI and RDDBFI Acts were enacted to consolidate and accelerate the enforcement of financial claims. The DRTs were intended as a specialised, expert, quasi-judicial forum with exclusive jurisdiction over creditor-debtor and inter-creditor disputes.

The Supreme Court’s reading effectively removes DRT jurisdiction over inter-creditor disputes arising under SARFAESI. This creates a jurisdictional vacuum. While arbitration offers flexibility, it lacks the uniformity and consistency of a statutory tribunal. Arbitrators vary in their approaches, costs, and procedural rules. Without statutory guidelines for appointment, fee structures, or appellate review, arbitration could become not just inconsistent but inaccessible for smaller financial entities.

Further, the ruling introduces confusion regarding multiplicity of proceedings. For instance, if a borrower challenges the sale of an asset under SARFAESI, that action goes to the DRT. But if the ARC and bank dispute the proceeds of that same sale, they must arbitrate. This leads to bifurcation of causes of action, procedural overlap, and possible inconsistent findings. Even worse, there is no guidance on coordination between parallel DRT and arbitral proceedings.

The lack of procedural clarity also raises enforcement risks. Can the aggrieved party approach the commercial court for interim relief under Section 9 of the ACA when SARFAESI already contains enforcement mechanisms? Who appoints the arbitrator when parties cannot agree? Can proceedings be consolidated with other arbitrations or with insolvency claims under IBC? These questions expose the infrastructural unpreparedness of our system to handle such statutory arbitrations.

The solution to the growing tension between arbitration and statutory enforcement under the SARFAESI Act is not wholesale repudiation, but a more refined model of “mandatory but modular” arbitration. The current discourse treats arbitration as either inherently incompatible with SARFAESI’s public function or as a speed-enhancing silver bullet. Neither extreme serves the interests of doctrinal coherence or procedural integrity. A better balance lies in recalibrating arbitration to fit within SARFAESI’s statutory framework, rather than force-fitting it from the outside.

In fact, marginalizing consent[i] or any cornerstone of arbitration should enlighten these growing demands which are very important for the growth of arbitration because it completely defers from the cornerstones which fabricated arbitration popular to commercial parties in the first place. Instead, a more nuanced adaptation of consent is very important to host various legal, factual, or equitable factors that might show whether the parties agreed to arbitration — or they didn’t.

To resolve this dichotomy, India must pursue a hybrid regime that aligns arbitration’s procedural flexibility with SARFAESI’s public purpose. Such a framework must rest on four legs:

  1. Presumptive Arbitration with Opt-Out Mechanism

Drawing inspiration from UNCITRAL Model Law Art. 7(2) and the UK Arbitration Act (1996), arbitration could be made presumptive for disputes arising under Section 11 (i.e., pre-enforcement loan disputes), but with a clause permitting opt-out by mutual agreement of the borrower and lender. This preserves voluntariness, a hallmark of arbitration, without sacrificing procedural clarity. In Brazil also, financial consumer disputes are presumptively arbitrable under Law No. 13.129/2015, but only upon mutual written consent recorded in a separate document—a structure balancing autonomy and public interest.

  1. Statutory Regulation of Arbitrator Appointments, Timelines & Cost Ceilings

A new Section 11A could be introduced in the SARFAESI Act, providing a mini code for:

This will ensure parity with Section 17 of the ACA (as amended in 2015), which allows interim measures akin to court orders but remains underused in SARFAESI arbitrations. The Singapore International Commercial Court (SICC) uses time-bound case management even in statutory references—showing that structured arbitration can coexist with statutory enforcement.

  1. Integration with DRT Benches or SARFAESI-Specific Roster

Instead of isolating arbitration from the SARFAESI ecosystem, the government could create a SARFAESI Arbitration Panel housed within DRT benches, with arbitrators having domain expertise. This mirrors the China International Economic and Trade Arbitration Commission (CIETAC) approach for state-sector financial arbitrations, ensuring sectoral competence and institutional proximity to enforcement regimes.

  1. Model Clause and Procedural Rules for SARFAESI Arbitration

Clarity in procedural architecture is critical. A model arbitration clause should be notified under the SARFAESI Rules, 2002, with clear demarcations:

  • Which disputes are arbitrable (e.g., valuation disagreements),
  • What remedies are available (e.g., restructuring, damages, interest recalibration),
  • What procedure is to be followed (e.g., fast-track under Section 29B of the ACA).

Model procedural rules can mirror the UNCITRAL Expedited Arbitration Rules (2021), which limit hearings and mandate award within 6 months—an ideal match for SARFAESI’s time-sensitive logic.

[i] Karim Youssef, ‘The Death of Arbitrability’ in Loukas Mistelis and Stavros Brekoulakis (eds), Arbitrability: International and Comparative Perspectives (Kluwer Law International 2009) 47–68.

As Justice V.R. Krishna Iyer rightfully stated, “The rule of law must run close to the rule of life.” In the landmark case of Bank of India v. Nangli Rice Mills, the SC’s intention was to streamline the resolution of disputes involving financial institutions & to accelerate economic recovery. But in doing so, it risks unravelling the very fabric of arbitration jurisprudence—its consensual soul. Deeming consent where none exists may appear efficient, but it unsettles the carefully woven principles of autonomy, procedural parity, and legal predictability.[i] Arbitration, unlike litigation, is not merely a forum—it is a philosophy built on mutual volition. Substituting it with statutory compulsion without procedural scaffolding leaves us with a well-intended tool, misused.

Instead of forging ahead on the fumes of judicial zeal, what is needed is a structured, “modular” framework that reflects India’s hybrid legal reality—where speed and sanctity must cohabit, not collide. The suggestion of presumptive arbitration, sectoral rosters, and SARFAESI-specific rules is not a detour from reform but the very road toward a more durable and nuanced dispute resolution regime. In the words of Lord Bingham, “The rule of law requires that the law must be intelligible, clear and predictable.” A system based on deemed arbitration without clarity defeats that very test.

India’s aspiration to become a pro-arbitration hub cannot be built on such ever changing & shaken statutory interpretation. To achieve that, we must eliminate the gaps between domestic laws. By anchoring arbitration not in legal fictions but in legal foresight, India could turn a fragile fix into a future-proof formula. SARFAESI can indeed host arbitration—but only when the house has been furnished with fair rules, functional doors, and mutual keys.

[i] Gabrielle Kaufmann-Kohler and Philippe H. Peter, ‘Formula 1 Racing and Arbitration: The FIA Tailor-Made System for Fast Track Dispute Resolution’ (2001) 17(2) Arbitration International 173, 186.

Revisiting Statutory Arbitration: Party Autonomy Increasingly Diluted by Legislative Intent

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Revisiting Statutory Arbitration: Party Autonomy Increasingly Diluted by Legislative Intent

MKBAC Blog November 10, 2025

Aryan Alampalli is a 3rd year law student at National Law Institute University, Bhopal

Abstract: This article critically analyses the dilution of party autonomy in arbitration due to mandatory statutory provisions. Recent judicial interpretations have upheld compulsory arbitration even in the absence of a written agreement, creating a legal fiction of deemed consent. Such an approach prioritizes legislative intent over the foundational principle of party consent. While expediting dispute resolution aligns with policy objectives, it risks undermining arbitration’s consensual nature. The article explores the broader implications of this trend, comparing it with other mandatory dispute resolution mechanisms. It argues for a balanced framework that ensures efficiency without sacrificing party autonomy, proposing stricter timelines and specialized tribunals to harmonize statutory mandates with equitable dispute resolution.

I. Introduction

One of the foundational aspects of arbitration as a form of alternative dispute resolution is party autonomy[i]. Parties to a dispute generally have to form a written arbitration agreement as per Section 7 of the Arbitration and Conciliation Act, 1996 (“A&C Act”). This is a general requirement for parties to adhere to and is a mandatory pre-requisite for arbitration. However, the Supreme Court (“Court”) recently in the case of Bank of India v. M/s Sri Nangli Rice Mills Pvt. Ltd. & Ors[ii] (“Judgment”), by upholding the order passed by the High Court, has held that a Debt Recovery Tribunal (“DRT”) has no jurisdiction for disputes between banks, financial institutions, asset reconstruction companies, or qualified buyers and that the parties mandatorily need to resort to arbitration as directed by Section 11 of the SARFAESI Act, 2002 (“Act”).

The Judgment further goes on to hold that there is no requirement of a written agreement and that parties have implicitly consented to arbitration as if there were an agreement in place, thus creating a deemed fiction under Section 11 of the Act. This piece  breaks down the judgment and raises broad concerns, which arise from it and have significant implications for arbitration in India.

[i] (2025) 4 SCC 641 [22].

[ii] 2025 SCC OnLine 1229.

The phrase “as if” was read with the phrase “parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration” given under Section 11 conjunctively to create a legal fiction as though there existed a written arbitration agreement between the parties. The Court in Rajasthan State Industrial Development & Investment v. Diamond & Gem Development Ltd.[i] interpreted the phrase “as if” to create a legal fiction. The expression  means something that is not true in reality is treated as true for the specific purpose of the law. When someone is “deemed to be” something, they must be treated that way under the statute, even if they are not so in fact.

Applying the literal rule of interpretation in the present case, the Court read the word “shall” in Section 11 as “must” since that would give greater effect to the scheme of the Act. In the case of Delhi Airtech Services (P) Ltd. v. State of U.P., the Court read that the term “shall” be read as “may”, giving it a directory effect, only where doing so would achieve the ends of legislative intent behind the substantive provision as well as the scheme of the entire statute in question.

[i] (2013) 5 SCC 470.

From the plain language of Section 11, it is evident that its applicability is confined by two cumulative conditions: first, the dispute must arise only between a bank, financial institution, ARC, or qualified buyer; and second, the dispute must relate only to the securitization of financial assets, reconstruction of assets, or non-payment of any amount due, including interest.

Section 11 mandates arbitration as the sole mechanism for resolving disputes between banks. This is to prevent ancillary or collateral conflicts among secured creditors from obstructing the primary legislative scheme of the Act. It aims to ensure swift recovery of dues through enforcement of secured assets in a time-bound manner with minimal interference. The Court in M/s. Transcore v. Union of India interpreted that the scheme of the Act differs from the intent of Section 11 in terms of the dispute. Disputes arising under Section 11 deal with the rights of the secured creditors and disputes arising generally under the larger scheme of the Act is where rights and liabilities have been established and recovery is sought. Thereby in the present case, the jurisdiction of DRTs is excluded since liability is not crystallised and recovery proceedings cannot be initiated.

The Judgment also carves out an exception for banks who assume the role of a borrower in a dispute, being barred from seeking remedy under Section 11. The Delhi High Court in Bell Finvest India Ltd. v. AU Small Finance Bank Ltd. explained that, a bank’s liability will be crystallised when it is acting as a borrower as per Section 2(1)(f) of the Act. Hence, it cannot resort to arbitration under Section 11. The core purpose of DRT is to serve as specialized forums focused on enabling and expediting recovery from defaulting borrowers, rather than adjudicating disputes between secured creditors themselves.

The Court in the present dispute held that the priority of charge over the borrower’s stock falls within the scope of Section 11, as the first condition is fulfilled. The second condition-relating to ‘non-payment of any amount due,’ is deemed to be triggered by the actions of the borrower, rather than by the parties engaged in the dispute.

This leads us to explore whether party autonomy, a core tenet of arbitration, includes the freedom of choice to arbitrate for a party. The doctrine of election applies in a scenario where a party has the option between two inconsistent remedies, in which case the party has the freedom to opt for one. The Court in M.D. Frozen Foods Exports Ltd. v. Hero Fincorp Ltd.[i] upheld this doctrine by holding that a party can avail remedy under the A&C Act in the event that the secured assets are insufficient to satisfy the debts under proceedings under the Act. The same was reiterated in Indiabulls Housing Finance Ltd. v. Deccan Chronicle Holdings Ltd.[ii], where it was held that proceedings under the Act and the A&C Act go hand in hand.

The Court interpreted Vidya Drolia v. Durga Trading Corporation[iii] in the Judgment such that parties have the freedom to choose arbitration only where the law accepts the existence of arbitration as an alternative mechanism, and in the absence of any repugnancy between the provisions of the special law and arbitration as an alternative. The doctrine of election would not apply in the present case since statutory arbitration will not be construed as an alternative remedy but as the only remedy available under Section 11. To reiterate, the usage of the word “shall” in Section 11 negates the parties from approaching any other forums.

Statutory arbitration is recognised under Section 2(4) of the A&C Act as it is to be read with the special law, i.e. the Act that stipulates arbitration to be conducted. While Section 2(6) of the A&C Act provides parties the freedom to choose arbitration, the same is curtailed when other statutes mandate arbitration. In light of this, it is necessary to understand the problems arising from other statutes as well before exploring possible solutions under the Act.

[i] (2017) 16 SCC 741.

[ii] (2018) 14 SCC 783.

[iii] (2021) 2 SCC 1.

Statutory mediation is prescribed under Section 12A of the Commercial Courts Act, 2015 (“CCA”) and any fruitful settlement agreement arising from it is given the same effect as an arbitral award under Section 30 of the A&C Act. Recently, the Court in Dhanbad Fuels Private Limited v. Union of India held this provision to be mandatory for cases being instituted post 20th August 2022. The Court held this to be in line with the object of this provision, which is to primarily decongest the commercial courts and enhance the ease of doing business in the country. By allowing cases that sought urgent interim relief, priority was given to cases where time was of the essence and economic value.  

The Court by upholding the legislative intent has sidelined practicality by mandating mediation. A recent study, highlights its inefficiency and how ultimately a large majority of mediation applications result in non-starters, eventually leading the parties to litigation. This eventually dilutes the intent of the CCA as the burgeoning case load on commercial courts are not prevented but merely delayed. Similarly, if not implemented effectively, mandating arbitration could run counter-productive to the legislative intent of the Act which is to ensure swift recovery of dues.

The stance taken by the Court in the Judgment is certainly a welcome move since there is currently a massive backlog in the DRTs and such financial disputes under Section 11, are better diverted to the appropriate forum. While the time stipulated under Section 29A of the A&C Act for passing an arbitral award is 12 months with a possible extension of 6 months, this would lead to a depreciation in the value of the disputed assets. Thus, the author proposes a more streamlined process for arbitration under Section 11 of the Act for minimising the loss of asset value. This would involve taking insight from Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). Section 18 designates a specific council for conducting speedy arbitration, in the event conciliation fails, all within a period of 90 days for the distressed suppliers. Similarly, Section 12A of the CCA prescribes a time period of 3 months for conducting mediation. The Act being a special law like the MSMED Act, could have a designated council or tribunal to conduct arbitration for financial institutions/banks with a stricter timeline than stipulated in the general law, i.e. Section 29A of the A&C Act. Thus, by ensuring minimal asset value depreciation and speedier justice, goes hand-in-hand with the object of the Act. The Act like the MSMED Act, is a beneficial legislation and can be analogous to the stance taken by the Court in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited, wherein it was held that MSMED Act being special law, superseded the provisions of the A&C Act.

While party autonomy generally includes the freedom of choice to arbitrate, the same is curtailed due to the mandatory nature of statutory arbitration. The Judgment by interpreting the wordings of Section 11 of the Act strictly coupled with a deeming fiction, adds yet another statute to the list of statutes mandating alternative dispute resolution mechanisms provided in the law. The reason being for the same that these statutes are special law whose legislative intent goes hand-in-hand with the mandatory routes prescribed.  Hence, it is imperative for the legislature to carve out an efficient route having strict timelines under the Act since the prescribed mandatory mechanism could run counter-productive as it has shown to be in other laws.

Arbitration Update: Supreme Court Clarifies that a Section 37 Appeal does not Automatically stall Award Execution​​

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Arbitration Update: Supreme Court Clarifies that a Section 37 Appeal does not Automatically stall Award Execution​

MKBAC Blog November 10, 2025

On 15th September 2025, the Supreme Court (SC) in the Chakardhari Sureka v. Prem Lata Sureka case has addressed one important issue pertinent to the interrelation between enforcement and the arbitral appeal mechanism. The SC considered whether the court executing the arbitral award should defer enforcement only because an appeal has been filed under Section 37 of the Arbitration and Conciliation Act, 1996 (Act).


Background

The present dispute arose out of a family partnership firm composed primarily of family members and one external partner. The firm was engaged in trading, manufacturing and import business. However, in 2003, after the death of two partners who were pivotal to the firm’s operations, allegations of impropriety and mismanagement arose. It was alleged that a series of fabricated partnership deeds were entered into to exclude the Respondent from the partnership firm, and the sole asset was misappropriated. Further, there were attempts to create third party rights on the subject property. The Respondent issued a legal notice in 2015, invoking Clause 15 of the Original Partnership Deed, which contained an arbitration clause. However, the Petitioner denied all claims and contended that the partnership had been dissolved in 1981 itself.

The Tribunal rejected the Petitioner’s contention and held that the validity and continuity of the partnership deed was undisputed. Upon further rejecting the claim that the request for arbitration was barred by limitation, the Tribunal finally held that since the firm was no longer a going concern, the property of the firm should be divided equally between the Respondent and the Petitioner, who were the only remaining partners with actionable claims.

In response to the award, the Petitioner filed a Section 34 petition before the Delhi High Court, contending that the arbitrator had become functus officio on the date of passing the award because under Section 29A of the Act, the period within which arbitration was to be completed was one year from the date of entering into reference, a condition which was not fulfilled in the present case. The Petitioner further contended that an extension was taken but even then, no award was passed within the decided timeframe. Lastly, the merits of the award were also challenged by contending that the arbitrator had ignored vital material which had been produced and that the award is based on equity and good conscience which contradicts Section 28(3) of the Act. The Delhi High Court in its judgment delivered on 21st February 2025, refused to set aside the award, holding that the Court cannot go into factual contentions, and the petition does not fall within the established grounds of setting aside under Section 34. Regarding the Section 28 contention, the Court held that as long as parties have given power to the arbitrator, it is clear that the arbitrator has not resorted to Section 28 of the Act. In response to this decision, an appeal under Section 37 was filed before the SC.

Navigating the Intricate Interplay between Execution Proceedings and the Appellate Mechanism

The SC held that the execution of an award cannot be stayed merely because an appeal under Section 37 of the Act has been filed against rejection of the application under Section 34. The Court said that to deter enforcement, a specific stay order to that effect was required and no automatic stay would operate. In the present case, the lack of an interim order was undisputed. Therefore, the Court said that the question of executability of the award and the addressal of objections should be done by the Execution Court and no deference or delay can be accepted in the absence of a specific interim order, explicitly providing for the same.

The SC finally held that the Execution Court should be free to proceed with the execution of the Award in accordance with law and any objections regarding executability should be addressed after giving the opportunity of hearing to the parties concerned.

Significance

This decision respects the fundamental principle of party autonomy by ensuring that the will of parties to resort to arbitration is not hindered by the mere procedural filing of an appeal. It further upholds time efficiency, recognising that appeals, particularly in India, take long to resolve and unjustifiably staying enforcement till then vitiates the very objective of speedy dispute resolution. Importantly, it also prevents misuse of the appellate mechanism because in the absence of such a decision, parties would delay enforcement by filing appeals, consequently undermining the finality of arbitration.

 

 

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