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The Toll Gate at the Threshold: Santosh Associate, Pre-Deposit Clauses and the Right to Arbitrate

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The Toll Gate at the Threshold: Santosh Associate, Pre-Deposit Clauses and the Right to Arbitrate

MKBAC Blog September 10, 2026

By Aditya Bhargava.

About the Author:

The author is a fifth-year student at the National Law School of India University, Bengaluru.

 

Abstract:

In M/s Santosh Associate Private Limited v Haryana State Industrial and Infrastructure Development Corporation Ltd, the Supreme Court doubted whether a clause compelling a contractor alone to deposit 10% of its claim before invoking arbitration can survive Article 14 of the Indian Constitution, yet referred the question rather than deciding it. This piece argues that the deference is misplaced. SK Jain applied a contractual standard and never engaged the constitutional one, so it cannot bind on a question it never addressed. It further argues that refundability answers only the forfeiture limb of ICOMM, leaving its rational-nexus reasoning wholly untouched by the distinction.

Keywords: Pre-Deposit Clauses; Article 14; Sub Silentio; Access to Arbitration

Introduction

In May 2017, the Haryana State Industrial and Infrastructure Development Corporation awarded a contract for storm water drainage works to a contractor. The scope of the work was later reduced, disputes arose over the final bill, and the contractor invoked arbitration. Clause 25-A(vii) of the contract barred any reference to arbitration by the contractor unless it first furnished a security deposit rising to 10% of the amount claimed. The contractor did not furnish that deposit. The sole arbitrator upheld the objection that followed, dismissed the claim in its entirety, and the Commercial Court affirmed. No forum has examined whether the claim had merit.

On these facts, the Supreme Court in M/s Santosh Associate Private Limited v Haryana State Industrial and Infrastructure Development Corporation Ltd, 2026 INSC 872 (‘Santosh Associate’), held at ¶ 29 that an arbitration clause cannot impose conditions so onerous as to render the right to sue “illusory or nugatory” at the very threshold. It nevertheless declined to decide the matter, referring six questions to the Chief Justice of India for a larger Bench. One of those questions is whether SK Jain v State of Haryana, (2009) 4 SCC 357 (‘SK Jain’), which upheld a pre-deposit clause, remains valid and binding. The question the reference actually poses is, however, broader, because it asks whether the stronger party to a public contract may fix the price of admission to the only forum in which the weaker party may sue. Until it is answered, the appellant’s claim stands dismissed, and the offending clause stands intact.

In this post, I argue that this deference is misplaced, because SK Jain is not an authority on the constitutional question at all. It was decided in the grammar of contract law, which asked about unequal bargaining power, party autonomy and the sanctity of express terms, and the Court has since abandoned that grammar for public-private contracts. I shall develop this argument in four steps. First, I set out the three features of the clause that the case law has conflated, and why the Bench felt constrained to refer rather than decide. Second, I explain why a condition on the arbitral reference differs from one on an ordinary civil suit. Third, I examine what SK Jain actually decided, and argue that refundability cannot save the clause. Finally, I turn to the comparative position.

The security deposit demanded by Clause 25-A(vii) was graded by claim value, rising to 10% for claims above ₹1,00,000, and was refundable after the award if no costs were awarded against the contractor. When disputes arose, a sole arbitrator was appointed under section 11(6) of the Arbitration and Conciliation Act, 1996 (‘the Act’), the respondent objected under section 16, and that objection succeeded. On appeal under section 37(2), the Commercial Court affirmed the resulting dismissal, relying on SK Jain.

Three features of this clause are analytically distinct, and conflating them is how the jurisprudence went wrong. First, the obligation is unilateral, because the State pays nothing whether it defends the claim or brings a counter-claim of its own. Second, the quantum bears no relation to cost, since it scales with the size of the claim rather than the expense the arbitration will actually incur. As the appellant pointed out at ¶9, on a claim of ₹1.77 crore the deposit came to ₹17.7 lakh, whereas the ad valorem court fee in Haryana would have been ₹7.16 lakh, so that on the contract’s own arithmetic the cheaper forum cost more than twice the price of the expensive one. Third, payment falls due before the tribunal has read a single pleading, and therefore before any assessment of frivolousness is possible. These features therefore attract three separate objections: to equal treatment, to proportionality and to rational nexus, each to be answered on its own terms.

The Bench was, however, unable to act upon that analysis, because of the relationship between the two governing decisions. In SK Jain, a three-Judge Bench upheld a clause requiring the contractor alone to deposit up to 7% of the amount claimed, holding that a graded deposit had “logic in it” and was “the balancing factor to prevent frivolous and inflated claims”. In ICOMM Tele Ltd v Punjab State Water Supply and Sewerage Board, (2019) 4 SCC 401 (‘ICOMM’), a two-Judge Bench struck down a 10% “deposit-at-call” as arbitrary, because a deposit exacted before any determination of frivolousness bore no direct nexus to that object. ICOMM distinguished SK Jain on two grounds, first that no plea under Article 14 had been advanced there, and second that the clause was materially different, the deposit in SK Jain being refunded after adjustment against costs, whereas the ICOMM clause refunded only in proportion to the amount awarded and forfeited the balance to the opposing party even if it had lost.

The Bench in Santosh Associate doubted both grounds. It observed at ¶21 that, because SK Jain had held the graded deposit to be non-arbitrary, reasonable and possessed of a nexus with its object, it was “prima facie difficult for a combination of two Judges to hold that the argument qua Article 14 was not advanced” there. It noted at ¶26 that Lombardi Engineering Ltd v Uttarakhand Jal Vidyut Nigam Ltd, (2024) 4 SCC 341 (‘Lombardi’), a three-Judge Bench, had held that no conflict exists between the two. Mindful of judicial discipline, it therefore held that ICOMM, being a two-Judge decision, could not override the principle laid down in SK Jain, even though it was prima facie in agreement with ICOMM’s reasoning. It then added at ¶27 a fresh argument from the right to sue.

Section 28 of the Indian Contract Act, 1872, voids any agreement that absolutely restrains a party from enforcing its rights by the usual proceedings in ordinary tribunals, and the only exception it saves is the reference of disputes to arbitration. Arbitration is therefore an exception carved out of the civil suit, not a parallel avenue. Once parties have contracted into arbitration, sections 5 and 8 of the Act close the courthouse door behind them, and the arbitral reference ceases to be one of two forums and becomes the only one. This matters because Ganga Bai v Vijay Kumar, (1974) 2 SCC 393, holds that the right to sue inheres in every person and requires no statutory sanction. A pre-deposit condition therefore does not divert that right elsewhere but extinguishes it, as the appellant’s dismissed claim demonstrates. Therefore, the order is right to invoke, at ¶28, Fali Nariman’s observation that alternative dispute resolution remains a new graft upon the Indian legal psyche.[i] A graft takes only if the host accepts it, and arbitration will not take root if entry must be purchased before the claim is read, because a remedy the claimant cannot afford to invoke is no remedy at all.

[i] Fali S Nariman, Foreword to Sriram Panchu, Mediation Practice and Law: The Path to Successful Dispute Resolution (LexisNexis Butterworths Wadhwa 2011), quoted in M/s Santosh Associate Private Limited v Haryana State Industrial and Infrastructure Development Corporation Ltd 2026 INSC 872 [28].

What SK Jain actually decided requires re-reading, because the judgment runs to only fifteen paragraphs. The Court rejected the plea of unequal bargaining power on the authority of Central Inland Water Transport Corporation Ltd v Brojo Nath Ganguly, (1986) 3 SCC 156, which had held that the concept has no application to commercial contracts. At ¶12, it held that sections 31(8) and 38 of the Act operate only where the parties have made no agreement as to costs, and it then invoked Excise Commissioner v Issac Peter, (1994) 4 SCC 104, for the proposition that no doctrine of fairness may alter the express terms of a contract with the State. Its entire reasoning on the pre-deposit appears at ¶14 and occupies four sentences.

It is to be noted that it is structured on the basis of the quantum involved. Higher the claim, the higher is the amount of fee chargeable. There is a logic in it. It is the balancing factor to prevent frivolous and inflated claims.

Nowhere does the judgment ask whether the measure bears a rational nexus to the object of curbing frivolous claims, and nowhere does it ask whether it is proportionate to that object. Whether or not the word “arbitrary” appeared in the pleadings, the standard the Court actually applied was contractual rather than constitutional. That is precisely what sub silentio means on the formulation adopted in Municipal Corporation of Delhi v Gurnam Kaur, (1989) 1 SCC 101, which at ¶11 quoted the twelfth edition of Salmond on Jurisprudence.[i]

A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind … although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B.

The treatment of section 38 in SK Jain was, moreover, inverted. Section 38 vests the power to fix deposits in the tribunal for the costs it expects will be incurred, while its second sub-section directs that any such deposit shall be payable in equal shares by the parties. The statutory regime is therefore symmetric, fixed by the adjudicator and tied to cost, whereas Clause 25-A(vii) is the opposite on each count, being asymmetric, fixed by one party and tied to the size of the claim. Therefore, to treat section 38 as a default that private agreement may displace is to turn a provision built upon equality into a bargaining chip. Nor does the contractor’s signature answer the point, since Lombardi held at ¶¶84 and 85 that party autonomy cannot be stretched to violate fundamental rights, and that such rights cannot be waived.

The refundability distinction fares no better, because the ratio of ICOMM is not confined to forfeiture. Its central holding appears at ¶23.

A “deposit-at-call” of 10 per cent of the amount claimed, which can amount to large sums of money, is obviously without any direct nexus to the filing of frivolous claims, as it applies to all claims (frivolous or otherwise) made at the very threshold. A 10 per cent deposit has to be made before any determination that a claim made by the party invoking arbitration is frivolous.

That reasoning says nothing about the wording of the clause before the Court, nor do the further holdings. At ¶24 the Court held that any deposit requirement is a clog upon a process that ought to be encouraged and will often exceed the court fee payable on a suit, and at ¶27 that a 10% pre-deposit renders the arbitral process “ineffective and expensive”. Only the illustration of proportionate forfeiture turns on the wording of that clause, and Lombardi therefore reconciled the two decisions upon the narrowest of ICOMM’s reasons. Lombardi is, however, more than an obstacle. At ¶68, the same three-Judge Bench struck down a 7% pre-deposit for violating Article 14, because the contract said nothing about how it would ultimately be adjusted. All three clauses were thus sorted by their refund mechanics alone, precisely the axis this post contends is the wrong one. Lakshya Gupta observed on the Kluwer Arbitration Blog, shortly after ICOMM, that pre-deposit clauses remained unbanned because SK Jain had been distinguished rather than overruled. The present reference vindicates that prediction.

Refundability answers the forfeiture point and nothing else. A refundable deposit is not a costless deposit, because it remains the price of capital immobilised for the life of the arbitration, borne by the party least able to bear it, a contractor whose receivables are still outstanding from the counterparty it seeks to sue. The deterrent lies in the outlay itself, not in where the money eventually goes.

The Constitution Bench in Central Organisation for Railway Electrification v ECI-SPIC-SMO-MCML (JV), (2025) 4 SCC 641 (‘CORE’) held in its concluding ¶169 that equal treatment applies at every stage of arbitration and that unilateral clauses in public-private contracts violate Article 14, and at ¶¶ 147 to 149 it summarised ICOMM and Lombardi with approval. The premises upon which SK Jain rested therefore no longer hold. One caveat is nevertheless warranted. The CORE majority held section 18 to be mandatory and non-derogable at every stage, including the appointment of the tribunal, but Justice Narasimha, concurring, doubted at ¶54.3 whether a provision placed in the chapter governing the conduct of proceedings can govern anything before the tribunal exists. Section 18 is therefore contestable in a way that Article 14 read with section 28 is not, and it is upon the latter that the reference stands most secure.

[i] PJ Fitzgerald (ed), Salmond on Jurisprudence (12th edn, Sweet & Maxwell 1966) 153, quoted in Municipal Corporation of Delhi v Gurnam Kaur (1989) 1 SCC 101 [11].

No mature arbitral system permits the stronger contracting party to set the entry fee in advance of the dispute. Section 38(3) of the English Arbitration Act 1996 confers the power to order security for costs on the tribunal rather than on the parties by contract. Article 18 of the UNCITRAL Model Law, from which section 18 derives, likewise addresses the tribunal. Rule 53(3) of the 2022 ICSID Arbitration Rules goes further, requiring a tribunal to weigh the effect an order for security may have on a party’s ability to pursue its claim. In the United States, Green Tree Financial Corp v Randolph, 531 US 79 (2000), accepted that prohibitive costs may render an arbitral forum inaccessible, though it placed the burden of showing them on the party resisting arbitration. The thread running through these regimes is that policing unmeritorious claims is an adjudicative discretion exercised on the material, and that equal treatment, as Ilias Bantekas puts it, means no party may be preferred however strong its bargaining power. Clause 25-A(vii) therefore inverts every premise, being contractual rather than adjudicative, automatic rather than discretionary, and blind to the claimant’s capacity to pay.

The legislative route has stalled. The Viswanathan Expert Committee reported in February 2024, and the resulting Draft Arbitration and Conciliation (Amendment) Bill, 2024 went out for consultation that October, but has still not reached Parliament. The reference is therefore the only live route to an answer, and in framing its six questions at ¶32 the Bench has signalled the answer it expects. The larger Bench should accordingly hold that SK Jain does not bind, and that refundability is a distinction without a difference. It should also go further, because, as Ria Bansal and Raaghavi Tandon note, an Article 14 holding protects only those who contract with the State, leaving MSMEs and start-ups exposed to private clauses that deliver formal equality without equity. The more durable answer lies where the Act had already placed it, in sections 31A and 38, which leave costs and security to the tribunal once the claim is known. Until then, the cost of deferral will fall upon the appellant, whose claim stands dismissed without adjudication on its merits, and upon every contractor whose arbitrator will go on applying a 2009 precedent that three later Benches have in substance already left behind.

Confidentiality Without Clarity: A Critique of Kamal Gupta v. L.R. Builders

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Confidentiality Without Clarity: A Critique of Kamal Gupta v. L.R. Builders

MKBAC Blog August 11, 2026

By Viraj Thakur and Nida Adeel.

About the Author:

Viraj Thakur is a 4th Year student at NLSIU, Bangalore. His interests lie broadly in international commercial arbitration and commercial law.

Nida Adeel is a 4th Year B.A. LL.B (Hons.) student at the National Academy of Legal Studies and Research, Hyderabad.

 

Abstract

The question of whether arbitral proceedings are inherently confidential remains unsettled across jurisdictions, dependent on the particular legal framework applicable. India, however, mandates a statutory duty of confidentiality through §42A of the Arbitration and Conciliation Act (“A&C Act”), inserted by the 2019 Amendment. The provision has been criticised since its inception (see here and here). Against this backdrop of a troubled provision along with a lack of judicial engagement, Kamal Gupta v. L.R. Builders (“Kamal Gupta”) was a rare opportunity to clarify the scope of §42A, since this provision was directly impugned. The Supreme Court of India (“SC’) was presented with a factual matrix that directly implicated the meaning of §42A, and with it, the chance to clarify the scope and underpinnings of the provision. However, holding that a ‘non-signatory’ is a ‘non-party’ and consequently, cannot be present in an arbitral proceeding which is confidential.

Thus, we advance a critique that the issue was one of ‘privacy’, and not ‘confidentiality’. Using the privacy-confidentiality distinction would have provided the Court with a coherent basis to decide on the exclusion of ‘strangers’ from arbitral proceedings, while avoiding an overbroad assertion that all ‘non-signatories’ lack participatory rights. In its approach, the court further conflated ‘non-signatories’ with ‘non-parties’, making its ratio legally unsound and against precedents.

Keywords:non-signatories, consent, confidentiality, privacy, section 42A

I. Introduction

The question of whether arbitral proceedings are inherently confidential      remains unsettled across jurisdictions, dependent on the particular legal framework applicable. India, however, mandates a statutory duty of confidentiality through §42A of the Arbitration and Conciliation Act (“A&C Act”), inserted by the 2019 Amendment. The provision has been criticised since its inception (see here and here). Against this backdrop of a troubled provision along with a lack of judicial engagement, Kamal Gupta v. L.R. Builders (“Kamal Gupta”) was a rare opportunity to clarify the scope of §42A, since this provision was directly impugned. The Supreme Court of India (“SC’) was presented with a factual matrix that directly implicated the meaning of §42A, and with it, the chance to clarify the scope and underpinnings of the provision. However, holding that a ‘non-signatory’ is a ‘non-party’ and consequently, cannot be present in an arbitral proceeding which is confidential.

Thus, we advance a critique that the issue was one of ‘privacy’, and not ‘confidentiality’. Using the privacy-confidentiality distinction would have provided the Court with a coherent basis to decide on the exclusion of ‘strangers’ from arbitral proceedings, while avoiding an overbroad assertion that all ‘non-signatories’ lack participatory rights. In its approach, the court further conflated ‘non-signatories’ with ‘non-parties’, making its ratio legally unsound and against precedents.    

In 2019, members of the Gupta family executed a Memorandum of Understanding and Family Settlement Deed to resolve disputes over family properties. Rahul Gupta (“RG”), son of one of the principal parties, was not a signatory. When disputes arose, proceedings under §11(6) were initiated, and a sole arbitrator was appointed in March 2024. After disposal of the §11(6) proceedings, RG filed an application seeking permission to be present in the arbitral proceedings and, separately, to recall the order appointing the arbitrator. The High Court (“HC”) permitted their presence, either personally or through counsel. The SC reversed. Inter alia, it held that a non-signatory has no legal right under the Act to be present in arbitral proceedings, noting that §35 does not bind non-signatories to an award and that no provision confers on them a right of attendance. It held that permitting such presence would breach the confidentiality obligations imposed by §42A.

42A reads as follows:

“Notwithstanding anything contained by any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.” (emphasis supplied)

Critics of the provision have argued that first, it eliminates party autonomy by imposing confidentiality as an inflexible statutory mandate (by the non obstante clause). It does not allow for situations in which parties may consent to the publication of awards or the disclosure of materials related to the arbitration, with necessary redactions (as with the ICC). 

Second, its scope is undefined. The provision offers no guidance on what “confidentiality of all arbitral proceedings” encompasses. Moreover, its duty-bearers are underinclusive as the obligation binds the arbitrator, the institution, and the parties, but says nothing of witnesses, experts, or other such parties, all of whom may have access to the same sensitive information.

The provision is also silent on consequences for breach. The High Level Committee had proposed a more calibrated framework, with exceptions for legal duty, protection of legal rights, and challenges to awards. The legislature discarded this in favour of something that is simultaneously overbroad in its obligations and underspecified in its content.

In the absence of legislative reform and clarification, including in the proposed amendments under the draft A&C (Amendment) Bill, 2024, courts remain the primary mechanism through which the contours of §42A can be defined. This makes judicial engagement with the provision especially consequential, rendering Kamal Gupta particularly disappointing.

Arbitration is a creature of consent, and only the “parties” to an arbitration agreement are bound by it. §2(1)(h) defines a party as being a party to an arbitration agreement. §35 confirms that awards bind only parties and those claiming under them. However, does one need to sign an arbitration agreement to be a party to one?

The SC has not been blind to this tension. In Cox & Kings v. SAP India (2023), it held that non-signatories could in fact be “parties” in some circumstances. They would not be classified as parties claiming under or through a party. Instead, the circumstances surrounding a case must reflect the implicit consent of a non-signatory to be bound by an arbitration agreement. Implied consent theories attempt to identify entities that objectively manifest consent to arbitrate despite not signing the agreement. Thus, an entity need not sign an arbitration agreement to be a party to the same.

In contrast to this now well-settled jurisprudence, it is worth reproducing the specific operative paragraph from Kamal Gupta, as against the relevant statutory provisions:

Kamal Gupta (¶13, emphasis supplied)

A&C Act Analysis

“By virtue of the order passed under Section 11(6) of the Act, the sole arbitrator is empowered to adjudicate the disputes between the signatories to the MoU/FSD.”

(6) “…a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.” (emphasis supplied)

 

§11(6) clearly only refers to parties. As shown above, being a ‘party’ is not mutually exclusive with being a ‘non-signatory’. To imply that the sole arbitrator is empowered to only adjudicate disputes between signatories is incorrect.

“Once it is clear that the arbitral award would not bind non-parties to the said MoU/FSD as such parties were not signatories to the said documents, there would be no legal basis whatsoever to permit a non-signatory to the MoU/FSD to remain present in the proceedings before the sole arbitrator…

…arbitration proceedings can take place only between parties to an arbitration agreement and Section 35 of the Act does not make the arbitral award to be passed binding on non-signatories to such agreement…”

35. “Finality of arbitral awards.—Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.” (emphasis supplied)

 

There is nothing in the text of §35 to suggest that it does not apply to non-signatories that are parties.

“…we do not find any legal right conferred by the Act that would enable a non-party to the agreement to remain present in arbitration proceedings between signatories to the agreement.”

Drawing from a reading of §§11(6) and 35, there is nothing to suggest the conclusion the SC draws, since proceedings do not necessarily have to be between signatories to the [arbitration] agreement.

 

The SC in Kamal Gupta thus laid down an imprecise ratio that conflates the concepts of ‘non-signatory’ and ‘non-party’. To be clear, this does not necessarily mean that the applicants in Kamal Gupta ought to have been treated as parties to the arbitration agreement. The difficulty lies instead in the SC’s broader reasoning, which appears to treat non-signatory status itself as sufficient to deny participation, despite Indian arbitration jurisprudence recognising that a non-signatory may sometimes qualify as a party.

The central question in Kamal Gupta was whether a non-party could be present in arbitral proceedings. This is, at its core, a question of privacy: who may attend the hearing room. The Court, however, anchored its analysis in confidentiality: what information may be shared outside the proceeding.[1]

Privacy and confidentiality are distinct concepts. This is reflected in how institutional rules and national laws often treat them as separate concepts, providing for them differently. For instance, the 2013 UNCITRAL Rules provide that “[h]earings shall be held in camera unless the parties agree otherwise.” This provision addresses the “privacy” of hearings but does not expressly address their confidentiality. Conversely, the Indian framework now provides for confidentiality through §42A but not for privacy.

The SC missed the opportunity to distinguish between these two concepts. The distinction matters because the issue was fundamentally one of privacy. Treating the two as interchangeable obscures the analytical basis of the restriction being imposed. More importantly, a clearer separation between privacy and confidentiality could have supplied a more coherent doctrinal framework for future cases under §42A, a provision whose scope remains uncertain. If privacy had been recognised as the underlying interest at stake, courts may have been better placed to identify which kinds of information or procedural access genuinely warrant protection, rather than treating confidentiality as an undefined, catch-all restraint.

Had the SC engaged with this distinction, it could have reasoned as follows: arbitral proceedings are private, and this privacy interest (independent of any duty of confidentiality) justifies excluding strangers with no claim to be present. Common law jurisprudence along with international instruments/scholarly work could have been referenced. English law treats privacy as an implied term of the arbitration agreement itself: in Oxford Shipping v Nippon Yusen Kaisha, the privacy interest was treated as so fundamental that arbitrators could not even consolidate related hearings without the parties’ consent. The privacy-confidentiality distinction was explicitly drawn in Emmott v Michael Wilson & Partners , treating confidentiality as analytically distinct from privacy. Scholarship has pushed further still arguing that English law’s reliance on case-by-case development of this distinction is overdue for codification, because leaving privacy and confidentiality conflated invites the kind of doctrinal confusion the SC repeated here. Even where English law has kept the line judge-made rather than statutory, as the Law Commission’s 2023 review confirmed, courts have still been expected to draw it. The SC in Kamal Gupta had that same opportunity and did not take it.

[1] See David D Caron & Lee M Caplan, The UNCITRAL Arbitration Rules: A Commentary (2nd edn, OUP 2013), 36 (“Privacy is a long-established hallmark of international commercial arbitration”; “[h]owever, privacy, even if deeply established in custom, does not equate to confidentiality, which implicates a legal obligation to avoid public disclosure of sensitive information”); James H Carter & John Fellas, International Commercial Arbitration in New York (2nd edn, OUP 2016) 109. (“Arbitration ensures privacy in the sense that arbitral proceedings, unlike court proceedings, are and remain private. Confidentiality refers to restrictions on the disclosure that the parties or counsel can make regarding the arbitration”).

Kamal Gupta gave the SC an important chance to clarify §42A and the legal basis of confidentiality in Indian arbitration law. However, instead of providing clarity, the judgment blurred distinctions that Indian arbitration jurisprudence had already recognised. These distinctions matter because §42A remains broad and unclear, and courts currently play a major role in defining its scope. While the judgment resolves the dispute before the SC, it leaves the larger uncertainty around §42A unresolved.

India’s Arbitration Contradiction: Building a Hub With One Hand, Dismantling It With the Other – An Analysis of the MoF OM, PWD Notification and MoRTH Circular

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India’s Arbitration Contradiction: Building a Hub With One Hand, Dismantling It With the Other - An Analysis of the MoF OM, PWD Notification and MoRTH Circular

MKBAC Blog July 13, 2026

By Aryan Sood.

About the Author:

Aryan Sood is a 5th Year Law Student pursuing BBA LLB (Hons.) from CHRIST (Deemed to be University), Bangalore.

 

Abstract

This blog examines the growing divergence between India’s stated ambition to become a leading arbitration jurisdiction and recent governmental measures restricting the use of arbitration in public contracts. It analyses the Ministry of Finance’s 2024 Office Memorandum, the Delhi PWD’s 2025 notification and the Ministry of Road Transport and Highways’ 2026 circular, all of which limit or exclude arbitration in public procurement and infrastructure disputes. The blog argues that these measures misdiagnose the causes of arbitral dissatisfaction and overlook the potential of institutional arbitration which risks increasing judicial burdens.

Keywords: Infrastructure Disputes, Institutional arbitration, Government Contracts

I. Introduction

There is a peculiar kind of contradiction at work in India’s approach to arbitration. The Government speaks of building India into the next global arbitration hub and pushes through legislative reforms, while simultaneously issuing circulars that strip arbitration out of some of the most commercially significant contracts in the country. The Ministry of Finance’s Office Memorandumof June 2024 (‘OM’) when read together with the Public Works Department (‘PWD’) notification of April 2025 and the Ministry of Road Transport and Highways (‘MoRTH’) circular of January 2026 reveals a contradiction in how the Indian state approaches arbitration.

The operative parts of the OM are worth stating precisely. It states that arbitration should not be “routinely or automatically” included in procurement contracts, particularly large ones. As a norm, arbitration should be restricted to disputes valued below INR 10 crore (this refers to the value of the dispute and not the value of the contract). Inclusion of arbitration for higher-value disputes requires the approval of a Secretary-level officer (or Joint Secretary with delegated authority) for ministries and the Managing Director for Central Public Sector Enterprises and public sector banks. Where arbitration is implemented, institutional arbitration should be preferred. For high-value disputes where arbitration is excluded, the OM recommends High Level Committees composed of retired judges and retired officers, which can either mediate, receive a negotiated proposal, or act as the mediator themselves.

The OM offers reasons as to why arbitration has, in its experience, failed to deliver. Each deserves individual scrutiny:

First, the OM acknowledges that “acceptance of an adverse award when judicial avenues are not exhausted is often perceived to be improper by various authorities.” This includes accountability of the Government to the Parliament (which in turn makes them answerable as to why certain actions available under the law were not taken after an arbitral award was rendered against the Government entity). Read carefully, this is an acknowledgment that the Government tends to challenge arbitral awards as a matter of institutional culture rather than on merit, and that it considers not challenging an award to be the default improper course. This is highly problematic as the OM then treats this as a failing of the arbitration mechanism itself. This is facilitated by the Indian arbitration regime which provides for multiple manners in which a Court can intervene after the arbitral award is rendered. The finality of arbitration is not undermined by arbitration as an institution but by the policy that litigates adverse awards. The best example for the same is Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd. where a single arbitral award was subjected to proceedings under Section 34, Section 37, SLP and a curative petition, all filed by the Delhi Metro Rail Corporation, before ultimately being set aside. The recent decision in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. further expands the scope for post-award judicial intervention by recognising a limited power in courts to modify arbitral awards, which adds yet another route through which the finality of awards may be contested. The culture of the Government to challenge arbitral awards through every available procedural avenue, coupled with the Indian arbitration framework providing multiple layers of challenge undermines the finality of arbitral awards. The OM appears to proceed from the premise that adverse arbitral awards are themselves evidence of a malfunctioning arbitral process.

Second, the OM states that arbitration has become too lengthy and too costly, as much as “rivalling and often exceeding litigation.” This is a legitimate grievance in the Indian context. For example, the Law Commission, as early as August 2014, in its Report No. 46 titled Amendments to the Arbitration and Conciliation Act 1996 states that “although arbitration has fast emerged as a frequently chosen alternative to litigation, it has come to be afflicted with various problems including those of high costs and delays, making it no better than either the earlier regime which it was intended to replace; or to litigation, to which it intends to provide an alternative.” However, the OM itself, in paragraph 7(iv), recommends preferring institutional arbitration where appropriate. Institutional arbitration with expedited timelines, vetted arbitrators and structured fee schedules is the recognized global response to the cost-and-delay problem of arbitration. If institutional arbitration is the stated preference, then the policy response should be mandating institutional arbitration for large disputes rather than restricting arbitration for larger disputes. The OM holds both positions simultaneously without acknowledging the contradiction.

Third, the OM states that the “reduced formality, combined with the binding nature of decisions, has often led to wrong decisions on facts and improper application of the law.” Arbitration is flexible by design and this characteristic cannot be portrayed as a defect. The ability to depart from the rigid evidentiary and procedural rules of a court and to appoint technically qualified decisionmakers for complex matters, is precisely why arbitration is the preferred mechanism globally for complex commercial and infrastructure disputes. An increasingly difficult position to sustain is equating procedural formality with substantive correctness, which overlooks the possibility that a formally proper process may still produce an unjust outcome.

Fourth, the OM states the concern of “little accountability for such wrong decisions, if taken by arbitrators.” Notably absent from the OM’s diagnosis is any acknowledgment of the Government’s own contribution to the perceived accountability deficit. For example, the Hon’ble Supreme Court has identified structural concerns in the manner public sector entities appointed arbitrators. In Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), the Constitution Bench observed that while PSUs may maintain a panel of potential arbitrators, they cannot compel the opposing party to select an arbitrator from that panel. If the Government believed that arbitral outcomes were being distorted by deficiencies in the arbitral process, reforming appointment mechanisms would have been a logical response. Yet the OM does not engage with this issue at all and instead treats the problem as one inherent to arbitration itself.

Fifth, the OM contends that transferable officers place the Government at an informational disadvantage in arbitration. However, this is not unique to arbitration and applies equally to litigation. Government entities possess institutional records, legal departments and external counsel precisely to address such transfers. This concern is not addressed by suggesting for an exemption of arbitration. The OM therefore treats an administrative challenge as a justification for curtailing an otherwise neutral dispute resolution mechanism.

Sixth, the OM’s preference for mediation rests on an assumption that Government officials will be willing and able to settle disputes through mediation. This assumption uncomfortably exists along with the OM’s own acknowledgement that accepting adverse outcomes is often viewed as improper when there are legal avenues to challenge the award. The incentives that discourage Government officials from accepting arbitral awards are equally capable of discouraging them from approving mediated settlements. This affects the viability of mediation.

Further, the INR 10 crore threshold warrants specific attention. The threshold reflects a misunderstanding arbitration’s comparative advantage to litigation. When compared to court litigation, arbitration often provides a better platform in large, technically complex disputes involving specialized subject matter. The OM inverts this entirely by preserving arbitration for the disputes where it is least necessary and removes it from the disputes where it is most needed.

The OM is the source from which both the PWD notification and the MoRTH circular derive their justificatory logic.

On April 21, 2025, the Public Works Department of Delhi issued a notification that amended Clause 25 of the General Conditions of Contract to eliminate arbitration as a dispute resolution mechanism from all future PWD contracts. All disputes are now to be resolved exclusively through courts in Delhi. The PWD notification departs from the OM and goes on to impose a blanket exclusion. The notification does not offer any rationale for this and does not provide for any alternative ADR mechanism.

First, the notification raises significant concerns regarding its potential impact on investor confidence in India. The notification appears difficult to reconcile with India’s stated objectives to further India as an arbitration hub. The notification signals a reduced institutional commitment to arbitration in a major sector of public contracting which may weaken the predictability and trust that domestic and foreign investors regard as essential for long-term commercial engagement.

Second, the notification appears inconsistent with India’s sustained efforts to improve the ease of doing business and strengthen its dispute resolution framework. Over the past decade, legislative reforms through the Arbitration and Conciliation (Amendment) Acts of 2015, 2019 and 2021 have progressively reduced judicial intervention in arbitral proceedings enhanced procedural efficiency. Hence, a policy that exempts arbitration in public works disputes risks reintroducing uncertainty and may dilute the gains achieved through years of arbitration-friendly reform.

The Ministry of Road Transport and Highways issued a circular on January 12, 2026, providing that arbitration would not be available for disputes exceeding INR 10 crore under BOT, HAM and EPC contracts. Notably, it goes further to it state that existing dispute resolution clauses in all BOT (Build-Operate-Transfer), HAM (Hybrid Annuity Model) and EPC (Engineering, Procurement and Construction) contracts stand replaced with the revised clause with immediate effect. The only exception carved out is for ongoing arbitrations, which continue under the old regime.

First, the INR 10 crore threshold deserves specific scrutiny in the context of highway infrastructure. INR 10 crore is not a large sum. A single disputed variation order on a highway project can comfortably exceed this. The effect of the threshold is not to reserve courts for small disputes and arbitration for large one, but the reverse. Courts, in this regime, handle the most commercially significant disputes, while arbitration is preserved only for minor disagreements, in the context of such contracts, despite arbitration being in a position to offer more specialised arbitrators for such complex disputes.

Second, the MoRTH circular arrives at a particularly uncomfortable moment in India’s arbitration narrative. At the very time India is promoting itself as an arbitration-friendly jurisdiction through initiatives such as GIFT City’s arbitration ecosystem, legislative reforms and efforts to attract investment into its massive infrastructure pipeline, the Government has removed arbitration from the very disputes most likely to arise. Given MoRTH’s central role in administering one of the world’s largest infrastructure programmes, this acts as a signal to domestic and foreign investors about the state’s approach to contractual dispute resolution. If the Government’s repeated claims regarding the maturity of India’s arbitration ecosystem, the success of institutional arbitration and the effectiveness of recent reforms were genuinely reflected in practice, there would be little reason to exclude arbitration from high-value highway contracts.

Reading the aforementioned developments together against the backdrop of India’s stated arbitration policy produces a picture that is difficult to reconcile. Over the past decade, as per the aforesaid Lok Sabha response, the Government of India has sought to position India as a global arbitration hub. And yet, the PWD has exempted arbitration entirely and the MoRTH removes it from high-value highway contracts.

Ironically, many of the characteristics that make arbitration attractive in commercial disputes are even more valuable in Government contract disputes. Public procurement and infrastructure projects frequently involve complex technical questions relating to engineering specifications, variation orders, delay analysis, cost escalation and project execution, issues that generalist Courts may not be best placed to resolve efficiently. Arbitration allows parties to appoint decision-makers with relevant technical and commercial expertise.

What distinguishes the Government from an ordinary commercial party in an arbitration is that it does not participate in disputes solely as a market actor. Every decision to settle, pay, or accept an adverse outcome is filtered through layers of public accountability (as stated in the OM, such entities are accountable before the Parliament). A private party only bears the financial and reputational consequences of losing an arbitration and therefore has incentives to accept a binding outcome and move on. However, Government officers operate differently. Accepting an adverse award may attract scrutiny from audit, vigilance and parliamentary bodies as public funds may be on the line, whereas challenging the award signals institutional vigilance and carries little personal risk. The rational response is therefore to litigate further rather than settle. The OM itself acknowledges this problem and the MoF OM, PWD notification and the MoRTH circular are manifestations of the same problem. They are possible only because the Government is simultaneously the contracting party, policymaker and rule-setter, creating a structural temptation to redesign dispute resolution rules when the existing system begins producing unfavourable outcomes.

Another possible explanation for this stark divergence in the Government’s stance towards arbitration is the reality of the Indian arbitration regime. Despite Section 5 of the Arbitration and Conciliation Act, 1996 restricting judicial intervention, recent judicial developments like Gayatri Balasamy have arguably weakened the finality that arbitration is intended to provide. This has the effect of increasing judicial intervention in the arbitral process and creating yet another avenue for post-award challenges. The culture of the Government challenging arbitral awards in any manner possible, coupled with an arbitration regime that already provides multiple avenues of challenge, substantially vitiates the finality of arbitral awards. Seen in this light, the notification may be understood as a manifestation of the Government’s own scepticism towards arbitration in practice.

Ultimately, such policies end up increasing the burden on courts. Given the volume and nature of PWD contracts, such a policy would transfer a substantial category of disputes directly to the judiciary without addressing the underlying causes of delay. Where mediation or High-Level Committee processes fail to produce a settlement, disputes will ultimately proceed to litigation. Given the volume of Government procurement disputes and the existing backlog before Indian courts, diverting high-value commercial disputes, which arbitrators are better equipped to deal with, away from arbitration risks transferring an entire category of complex disputes into an already overburdened judicial system.

The solution to the problems identified by the OM is not the exclusion of arbitration. If concerns genuinely exist regarding delays, costs, accountability and the quality of arbitral decision-making, the logical response is to strengthen institutional arbitration rather than divert disputes into ordinary civil litigation. A more coherent policy response would focus on improving arbitration rather than excluding it. Instead of imposing an arbitrary monetary threshold on arbitration, the Government could mandate institutional arbitration for all high-value procurement and infrastructure disputes, ensuring access to established procedural rules and vetted arbitrators.

Equally important is addressing the incentive structure that encourages routine challenges to arbitral awards. The OM itself acknowledges that accepting an adverse award is often perceived as improper within the Governmental framework. Any meaningful reform must therefore focus on reducing unnecessary challenges rather than reducing arbitration.  For a country that has spent the past decade promoting itself as a credible arbitration jurisdiction, the divergence between its stated objectives and recent policy measures is difficult to ignore. Such inconsistencies risk weakening confidence in the stability and predictability of its dispute resolution framework.

Functus Officio by Design: Mandatory Substitution, Judicial Discretion, and the Unintended Costs of Section 29A after Mohan Lal Fatehpuria

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Functus Officio by Design: Mandatory Substitution, Judicial Discretion, and the Unintended Costs of Section 29A after Mohan Lal Fatehpuria

MKBAC Blog June 23, 2026

By Shourya Singh Sindhiya.

About the Author:

Shourya Singh Sindhiya is a 2nd year B.Sc. LL.B. (Cyber Security) student at National Law Institute University, Bhopal.

 

Abstract

In Mohan Lal Fatehpuria v. Bharat Textiles & Ors. (2025), the Supreme Court of India held that expiry of an arbitrator’s mandate under Section 29A of the Arbitration and Conciliation Act, 1996 renders the arbitrator functus officio, making substitution the sole post-expiry remedy and precluding judicial extension. This article argues that while the ruling is sound on principles, its categorical exclusion of any residual extension discretion is overbroad and may have more detrimental consequences to the objective of arbitration, i.e., speedy resolution of the dispute. By treating substitution as the mandatory and exclusive remedy regardless of the cause of delay, the Court incentivises strategic conduct to delay the arbitration by the losing party, and creates disproportionate prejudice in complex, long-running arbitrations. A contextual reading of Section 29A(4)-(6) supports a narrow fault-based exception preserving residual judicial discretion.

Keywords: Section 29A, functus officio, arbitral mandate, judicial discretion, substitution

I. Introduction

The twin objectives of the Arbitration and Conciliation Act, 1996: minimal judicial intervention and expeditious resolution of disputes may produce tension occasionally. Section 29A, introduced by the Arbitration and Conciliation (Amendment) Act, 2015 and substantially revised in 2019, was Parliament’s most direct attempt to resolve that tension in favour of speed: awards must ordinarily be rendered within twelve months of completion of pleadings, extendable by consent to eighteen months, and beyond that only by court order for “sufficient cause.”

In Mohan Lal Fatehpuria v. Bharat Textiles & Ors. (2025), the Supreme Court confronted what happens when that timeline runs out without an award. Setting aside the Delhi High Court’s order extending the mandate of a sole arbitrator after expiry, the Court held that an arbitrator whose mandate has expired under Section 29A is functus officio, that extension is impermissible post-expiry, and that substitution under Section 29A(6) is the mandatory and exclusive remedy. The ruling is significant: it resolves a circuit split between High Courts where the Delhi High Court had permitted post-expiry extension while other High Courts had refused it and sends a clear signal that temporal discipline in arbitration is non-negotiable.

Yet clarity purchased at the cost of nuance is not costless. This article argues that the Supreme Court’s categorical rule, however texturally defensible, creates three problems: it misapplies the common-law functus officio doctrine to a purely statutory context; it equates substitution with extension treating them as functionally interchangeable remedies; and it creates a strategic weapon for the dilatory party. A contextual reading of Section 29A(4)–(6), read alongside the Act’s objects, reveals that a narrow residual judicial discretion to extend post-expiry in fault-free circumstances is not only permissible but necessary.

Section 29A operates in three distinct temporal phases. First, the primary award-making window of twelve months from the completion of pleadings (Section 29A(1)). Second, a consensual extension of up to six months (Section 29A(3)). Third, a court-supervised extension for sufficient cause, available either before or after expiry, with the power to reduce the arbitrator’s fee by up to five percent per month of delay (Section 29A(4) and (5)).

Section 29A(6) then introduces a separate power: where the mandate expires and the court considers it necessary, it may “substitute” one or more arbitrators. This power, the Court held in Mohan Lal Fatehpuria, is “distinct and wide,” independent of Sections 14 and 15 which govern termination and replacement on grounds of inability or failure to act.

Two features of this architecture are critical to the instant debate. First, the text of Section 29A(4) is permissive in the direction that courts may extend “either prior to or after the expiry of the period.” The phrase “after the expiry” plainly contemplates post-expiry judicial intervention. The Supreme Court reads this as authorising only substitution but that reading imports a restriction the text does not express. Nothing in subsection (4) limits post-expiry intervention to substitution alone. Second, the phrase “if it deems fit” in Section 29A(6) makes substitution discretionary, not mandatory. A court that deems extension more appropriate than substitution in a given case is therefore, evidently not wrong in law.

The Law Commission of India’s 246th Report (2014), which preceded the 2015 Amendment, identifies the objective of Section 29A as curbing “unnecessary adjournments” and preventing arbitrators from “prolonging proceedings indefinitely.” Significantly, the Report does not contemplate the scenario of a party engineering delay to trigger expiry, a lacuna that the Court’s absolutist rule also ignores.

The Supreme Court’s holding rests on two pillars. First, that upon expiry of the mandate, the arbitrator is rendered functus officio and has no jurisdiction to continue. Second, that Section 29A(6) is the sole post-expiry remedy, operating independently of Sections 14 and 15. Both pillars deserve scrutiny.

On the first pillar, the functus officio doctrine originating in common law holds that once a tribunal has made its final determination, it is spent and cannot revisit its decision (Gary Born, International Commercial Arbitration, 3rd edn, Kluwer Law International 2021, p 3085). The doctrine is designed to protect the finality of awards, not to automatically strip a tribunal of jurisdiction the moment a procedural deadline expires. Its transposition into the Section 29A context is therefore inapt. When a mandate expires under Section 29A, the arbitrator has not rendered an award; there is no “final determination” to protect. The arbitrator is not spent in the doctrinal sense she is interrupted. The Court’s invocation of functus officio in this context conflates procedural deadline with jurisdictional exhaustion.

On the second pillar, the Court’s reasoning that substitution is the exclusive post-expiry remedy is premised on the view that Section 29A(6) is a self-contained code. But this ignores that Section 29A(4) expressly preserves judicial extension power post-expiry. If Parliament intended substitution to be the only post-expiry option, it would not have simultaneously empowered courts to extend after expiry. The two subsections must be read harmoniously. A court may choose between them depending on the facts.

The Court’s anxiety is understandable: permitting routine post-expiry extensions would render the twelve-month timeline illusory. But the appropriate check is the “sufficient cause” standard in Section 29A(4), not a blanket prohibition on extension. The standard already gives courts adequate filtering power. Strict application of “sufficient cause” refusing extension where delay is attributable to the arbitrator or a non-cooperating party achieves the Court’s objective without the collateral damage of mandatory substitution in every case.

The most consequential gap in the Mohan Lal Fatehpuria ruling is its blindness to the strategic conduct problem. Under the Court’s scheme, once the mandate expires, substitution is mandatory. This creates an asymmetric incentive structure: a party who prefers to start the arbitration afresh because the record has developed unfavourably, or because a new arbitrator may be more receptive can achieve this outcome by simply obstructing proceedings until the mandate expires. No adverse inference is prescribed; no cost consequence is imposed on the dilatory party; the slate is wiped clean.

This is not a remote possibility. Indian arbitral practice routinely involves parties taking repeated adjournments, raising fresh interlocutory challenges, and disputing procedural directions, all of which consume time against the Section 29A clock. Where one party is the principal architect of delay, compelling substitution under Section 29A(6) rewards that conduct.

This concern is not novel to the present ruling. The Supreme Court itself, in Harshbir Singh Pannu v. Jaswinder Singh acknowledged that the remedial framework under the Act must be alert to tactical abuse, cautioning against initiating a second round of arbitration through fresh Section 11 applications. Mohan Lal Fatehpuria is in tension with this caution: mandatory substitution effectively opens a back-door to a fresh start, with a new arbitrator unfamiliar with a potentially complex evidentiary record.

The Act’s own scheme does apportion blame in analogous contexts. Section 25 allows the tribunal to proceed ex parte where a respondent defaults without sufficient cause. Section 32(2)(c) permits termination where continuation has become unnecessary or impossible. These provisions are sensitive to fault attribution, and yet the Act does not impose the same consequence irrespective of who caused the problem. Section 29A, as now interpreted, stands as an outlier: it mandates the same remedy (substitution) regardless of whether the delay was caused by the respondent gaming the timeline, the claimant’s procedural inertia, or a force majeure event.

The problem is compounded in multi-party, multi-contract, and institutional arbitrations where the arbitral record witness statements, expert reports, hundreds of hearing days is substantial. Substitution in such cases imposes a cost, in time and money, that may itself constitute a denial of justice. The Court’s ruling does not engage with this scenario at all.

The foregoing critique does not invite a wholesale dismantling of the time-bound framework. The Court is right that the twelve-month limit must have real consequences. The argument here is that a court should retain a residual discretion to extend post-expiry, exercised sparingly, where three conditions are jointly satisfied.

First, the delay must be attributable to neither party nor the arbitrator arising from institutional failure, force majeure, or extraneous judicial intervention (such as a stay order). In such cases, the policy rationale for mandatory substitution deterring dilatory arbitrators and uncooperative parties is entirely absent.

Second, substitution must cause disproportionate prejudice relative to extension typically because the arbitration is at an advanced stage, near conclusion, where a new arbitrator would need to begin de novo, at significant cost and delay that ironically exceeds the delay the rule seeks to prevent. The near-concluded nature of the proceedings makes extension the more proportionate remedy: the marginal time saved by substitution is outweighed by the systemic cost of resetting the evidentiary record.

Third, extension must be consented to by both parties, or where consent is withheld the opposing party must itself have materially contributed to the delay. This condition resolves an apparent tension: it is not that party autonomy permits a unilateral veto, but rather that a party cannot simultaneously engineer delay and then rely on the absence of consent to force substitution. Where a party’s own conduct has frustrated the timeline, that party’s objection to extension carries diminished weight. This preserves party autonomy for genuinely non-culpable parties while preventing tactical weaponisation of the consent requirement.

A residual discretion of this kind is consistent with the “sufficient cause” standard in Section 29A(4), which is capacious enough to accommodate it. The phrase has no statutory definition and must be read contextually. A combination of fault-free delay, substantial record, and bilateral consent constitutes sufficient cause in any ordinary sense of the phrase. The Court’s error in Mohan Lal Fatehpuria is not in adopting a strict standard it is in treating the standard as satisfied by expiry alone, irrespective of surrounding circumstances.

Comparative reference is instructive here. The UNCITRAL Model Law (Article 14) and the English Arbitration Act 1996 (Section 24) both permit courts to remove or replace arbitrators who fail to act without undue delay, but neither mandates automatic termination or substitution upon deadline expiry. The English approach which requires the court to consider whether substantial injustice has been caused is precisely the kind of contextual, fault-sensitive analysis that the Indian framework is missing. This contrast underscores that India’s absolutist position is an outlier, and not because greater strictness was the Legislature’s explicit choice: the Act’s own text, as shown above, supports a more nuanced reading.

It is also worth noting that the Court’s reading potentially undermines institutional arbitration. Major institutions including the Mumbai Centre for International Arbitration and the Delhi International Arbitration Centre have procedural frameworks for managing delays, including provisions for extension and tribunal reconstitution. A blanket rule of mandatory substitution overrides these institutional mechanisms and may reduce the predictability that institutional arbitration is meant to provide.

The Supreme Court’s ruling in Mohan Lal Fatehpuria reflects a genuine and legitimate concern: Section 29A’s time limits must carry real consequences. An arbitral culture in which deadlines are routinely waived renders the twelve-month clock purely nominal, and the 2015 Amendment’s legislative purpose is undermined.

But a rule designed to deter dilatory arbitrators and uncooperative parties should not simultaneously create a mechanism for strategic mandate-termination by those very parties. The Court’s categorical holding that expiry renders the arbitrator functus officio in all cases and that substitution is the only post-expiry remedy goes further than the text requires and further than the policy justifies.

A contextual reading of Section 29A(4)–(6), attentive to the distinction between extension and substitution as qualitatively different remedies, and sensitive to the fault-attribution principles that run through the rest of the Act, supports a narrow residual judicial discretion to extend in fault-free circumstances where substitution would cause disproportionate harm. The instrument of statutory reform or at minimum a Constitution Bench reading of “sufficient cause” broadly remains available to correct the over-reach, and should be pursued before the consequences of mandatory substitution in complex arbitrations become fully apparent.

Blurred Lines – Mylandla on Estoppel and Sovereign Public Policy

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Blurred Lines – Mylandla on Estoppel and Sovereign Public Policy

MKBAC Blog June 9, 2026

By Shailraj Jhalnia.

About the Author:

Shailraj Jhalnia is a 3rd year student at National Law School of India University, Bangalore.

I. Introduction

The New York Convention provides two channels of objection in international arbtration. The losing party may either seek to set aside the award at the arbitral seat, or they may seek to resist its enforcement in other jurisdictions (van den Berg).

The Indian Supreme Court discussed this conflict in Nagaraj V. Mylandla v PI Opportunities Fund-I, in which the court adopted a pro-enforcement position (para. 1).

The Court formally appliedthe doctrine of transnational issue estoppel, which barred the award debtors from relitigating factual determinations that had already been settled in the Singapore seat court (paras. 57, 76).

While the judgment was correct, the reasoning is unclear on the application of issue estoppel to factual determinations, and the independent review of domestic law through a public policy analysis (Koh Swee Yen et al., p. 38). Such imprecision creates an unsound doctrinal gap to be filled by future cases, failing to demarcate the proper deference to a seat court or the proper protection of its own sovereign statutes (paras. 73-74).

Nagaraj V Mylandla v PI Opportunities Fund-I was a dispute where the promoters of Financial Software and Systems Private Ltd (FSSPL) did not pay the investors a mutually agreed exit (4-9). The SIAC tribunal thus granted the investors about 1,100 crores in damages, directing a share surrender on payment to avoid recovering twice (paras. 14-15). The case was dismissed by the Singapore High Court, which indicated beyond doubt that this forcing surrender was not an illegal buy-back (paras. 18-24).

In its Indian enforcement action, the promoters raised three grounds of public policy objection under Section 48 of the Arbitration and Concilitation Act, 1996: (i) the award granted an unlawful buy-back under the Companies Act, (ii) specific performance in addition to damages violated the SRA, and (iii) the promoters improperly invoked various remedies (paras. 28, 31, 33, 40-42). The Singapore seat court rejected the buy-back and multiple remedies objection (paras. 22-24, 86).

To preclude relitigation through issue estoppel, a foreign judgment must be final, conclusive, and rendered on the merits by a court of competent jurisdiction (Yukos, para. 147; Deutsche Telekom, paras. 63-64). The doctrine fundamentally requires a strict identification of subject matter between the prior and subsequent proceedings (Chong, p. 877).

Public policy, however, is inherently domestic. The English Court of Appeal in Yukos Capital SARL v OJSC Rosneft Oil Company emphasised that public policy standards vary considerably across countries. Consequently, one court’s ruling on public policy does not automatically answer the public policy questions of another (Yukos, para. 151).

The Indian Supreme Court acknowledged this reality in Nagaraj V Mylandla v PI Opportunities Fund-I (para. 69). The Singapore Court of Appeal has taken a similar stance, explicitly holding that transnational issue estoppel cannot arise in respect of a foreign judgment that conflicts with the public policy of the enforcement jurisdiction (Deutsche Telekom, paras. 86, 177(d)).

Issues engaging the enforcement forum’s international public policy or its overriding mandatory rules are therefore generally immune from issue estoppel (Chong, pp. 878-879; Hulley, paras. 72-74).

To overcome the hurdle of transnational issue estoppel, the award-debtors attempted to re-label a settled factual dispute as a violation of domestic public policy. A public policy challenge inherently contains both factual and legal components. In Nagaraj V Mylandla v PI Opportunities Fund-I, the promoters’ objection relied on the factual premise that the mandated share surrender was functionally a buy-back, coupled with the legal premise that such a buy-back violated the Indian Companies Act (paras. 22, 28-29).

However, the Singapore High Court had already evaluated the factual matrix and definitively concluded that no “buy-back” had occurred, characterising the transaction merely as a surrender of shares (paras. 23-24, 81). The Indian Supreme Court rightly held that an enforcement court cannot undertake a merits-based review to reopen factual issues already conclusively settled by the seat court (para. 76). The Court noted that a party cannot circumvent issue estoppel simply “by giving a different colour to a factual issue” to disguise it as a public policy violation under Section 48 of the Arbitration Act (para. 83).

This reasoning aligns seamlessly with international preclusion standards. Once arbitral awards receive judicial confirmation from the seat court, they definitively bind the parties to the established underlying factual predicates (Born, pp. 113, 120).

The analytical gap in Nagaraj V Mylandla v PI Opportunities Fund-I is most apparent in its handling of the SRA objection. The Supreme Court dismissed this statutory objection by loosely observing that the seat court “looked into it and concluded that there was no such violation,” thereby holding that no merits-based evaluation by the enforcement court was permissible (para. 86). The application of the SRA is fundamentally a question of Indian statutory interpretation, not a conclusively settled factual premise. A Singapore court’s view on an Indian legislative enactment cannot create a transnational issue estoppel that binds an Indian enforcement court’s independent public policy analysis.

The judgment’s primary failure lies in ignoring the vital taxonomy articulated by the Singapore High Court in Sacofa Sdn Bhd v Super Sea Cable Networks. That decision draws a bright line between “forum-connected issues”, which questions tied to the specific legal position in the forum court where the enforcement court retains exclusive competence, and “forum-neutral issues,” which encompass general arbitral procedures and factual predicates (para. 74).

While transnational issue estoppel rightly applies to decisions of a prior enforcement court when the specific issue concerns a forum-neutral issue, it should not automatically preclude an enforcement court’s review of forum-connected issues (Koh Swee Yen et al., pp. 76-77). By failing to cleanly apply this distinction, the Supreme Court blurred the line between factual preclusion and independent statutory interpretation.

The vagueness of the Court in not clearly distinguishing between unreviewable factual predicates and reviewable questions of domestic law poses a risk that bona fide public policy objections based on Indian statutes, like the Companies Act or FEMA, may be unjustly defeated through estoppel. The foreign seat court is not competent to consider Indian public policy. In case Indian courts blindly extend the transnational issue estoppel to such mixed questions, they are exposing themselves to abdication of their sovereign judicial responsibility (paras. 47, 55).

This ambiguity directly affects litigation strategy. Parties should pay close attention to the question of whether they should exercise their so-called active remedy of challenging the award at the seat or their so-called passive remedy of opposing the enforcement locally. In case the risk of challenging the award at the seat is that an issue estoppel will be applied too broadly, the parties may simply avoid seat court challenges altogether thus defeating the supervisory structure of the New York Convention (Koh Swee Yen et al., pp. 55-56).

Nagaraj V Mylandla v PI Opportunities Fund-I is a favorable move towards enforcing foreign arbitral decisions in India. The Court’s application of transnational issue estoppel serves the foundational purpose of finality in international commercial arbitration preventing award-debtors from converting enforcement proceedings into a second opportunity to relitigate the merits under the cover of a public policy objection (Section 48 of the Arbitration Act). By refusing to allow the award-debtor to paint a different colour over a factual issue to enable him to pass it off as a breach of a public policy, the judgment rightly circumscopes the limited ability of an enforcement court to review
(paras 57, 76, 83).

However, the analytical basis of the judgment does not lack its cracks. By over-ruling the objection about the SRA on the ground that the seat court had investigated it, the Court had confused an estoppable factual premise with a domestic statutory interpretation question. This imprecision leaves a gap in doctrine, not making clear where settled facts, which should not be relitigated, and questions of domestic legal policy, which should be left the prerogative of the court of enforcement, are the same.

Future Indian enforcement courts should adopt the stricter Sacofa taxonomy explicitly: where the public policy objection turns on the interpretation of a domestic Indian statute the Companies Act, FEMA, the SEBI Act, or any other mandatory regulatory enactment that question must be treated as a forum-connected issue immune from transnational issue estoppel, regardless of whether a seat court addressed the same facts.(Chong, pp. 878-879).

Finally, although the Mylandla judgment is right in protecting the enforcement proceedings by not subjecting them to a factual review of the merits, it is a warning to itself. The use of transnational issue estoppel is a very important mechanism in ensuring that international commercial arbitration is final and efficient. But it should not be applied to the detriment of the basic role of an enforcement court to rule upon its own public policy. Guarding the integrity of the arbitral process should not be at the expense of the sovereign right to interpret and apply domestic law (Koh Swee Yen et al., pp. 76-77).

The Fraud Threshold in Arbitrability: Reopening the Gates and Revisiting the Undefined Prima Facie Standard

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The Fraud Threshold in Arbitrability: Reopening the Gates and Revisiting the Undefined Prima Facie Standard

MKBAC Blog May 20, 2026

By Gurman Singh Narula.

About the Author:

The author is a fifth-year student at National Law Institute University (NLIU), Bhopal.

Introduction

In arbitration law, a recurring difficulty arises when fraud is alleged in the arbitration agreement itself: should such disputes be referred to a tribunal, or filtered out at the threshold? The Supreme Court has addressed this by distinguishing between fraud affecting the underlying contract and fraud directed at the arbitration clause, most recently reaffirmed in Rajia Begum v. Barnali Mukherjee. Yet, while the doctrinal position is settled, the method of its application remains unclear. Courts consistently invoke a “prima facie” standard as a signal of restraint, still its content is undefined, and there is no guidance on the evidentiary threshold, the degree of judicial satisfaction required, or how this inquiry is to remain distinct from a merits-based determination. This indeterminacy produces a structural flaw. A question that ordinarily demands rigorous evidentiary scrutiny is compressed into a summary threshold inquiry without principled limits, leaving outcomes to judicial discretion. In practice, this blurs the line between preliminary review and substantive adjudication, allowing courts to engage in deeper evidentiary assessment than the framework ostensibly permits. The result is a distortion of the arbitral process: the principle of kompetenz-kompetenz is weakened, and jurisdictional authority subtly shifts back to courts under the guise of a limited prima facie examination. To resolve this, this paper seeks to define the content of the prima facie standard by proposing a structured, constraint-based framework that preserves judicial restraint while ensuring principled and consistent adjudication of fraud at the referral stage. 

The decision in Rajia Begum v. Barnali Mukherjee exposes a structural gap in arbitration jurisprudence. While courts recognise that disputes involving fraud affecting the arbitration agreement may be non-arbitrable, they have not articulated a clear evidentiary threshold for determining this at the referral stage. The case arose from a disputed Admission Deed, through which one party claimed entry into a partnership and invoked an arbitration clause. At the same time, the other denied the document’s execution, alleging it was forged.  

The case is significant for the High Court’s contradictory procedural approach: it refused to appoint an arbitrator under Section 11 due to doubts about the agreement, yet referred the dispute to arbitration under Section 8 using Article 227. The Supreme Court resolved this by holding the dispute non-arbitrable, relying on doubts about the document, prior findings under Section 9, and concurrent lower court rulings, while also finding that the High Court exceeded its jurisdiction.

The judgment does more than resolve a factual dispute; it highlights a deeper systemic concern. By allowing courts to deny arbitration based on an open-ended prima facie assessment of fraud, the law risks inconsistency. Similar cases may yield different outcomes depending on how courts perceive the threshold, gradually weakening the standard over time. While the doctrine rightly recognises that arbitration depends on consent and cannot survive where the agreement is seriously impeached, it offers no clear method for determining when that threshold is met. The result is a framework that is conceptually sound but methodologically underdeveloped.

This article argues that the undefined and indeterminate prima-facie standard is not only a doctrinal gap but a fundamental defect resulting from the tension between the Arbitration Act’s mandate for summary judicial review and the inherently complex evidentiary requirements of adjudicating fraud in arbitral consent. 

To remedy this flaw while honouring the principle of kompetenz-kompetenz and minimal judicial intervention, it advances a rigorous three-stage analytical framework centred on a “manifest nullity” threshold. To address this, it advances a three-stage framework centred on a “manifest nullity” threshold, designed to maintain judicial restraint while ensuring that challenges to arbitral consent are evaluated in a structured, consistent, and principled manner.

The evolution of the Court’s approach to fraud and arbitrability reveals a persistent absence of a clear and coherent evidentiary standard governing how such claims should be assessed at the referral stage. While the courts have progressively clarified when fraud may render a dispute non-arbitrable, there is no fixed criterion for evaluating the evidentiary standard at the preliminary stage of a hearing. This article seeks to address this absence by proposing a structured threshold framework. 

In A. Ayyasamy v. A. Paramasivam, the Supreme Court drew a foundational distinction: mere allegations of fraud are insufficient to exclude arbitration, but “serious” allegations particularly those that go to the validity of the arbitration agreement itself, may render the dispute non-arbitrable. This marked a shift away from a blanket exclusion of fraud from arbitration toward a more nuanced, consent-based inquiry.

This approach was further refined in Rashid Raza v. Sadaf Akhtar, where the Court formulated a two-pronged test: first, whether the fraud allegation strikes at the arbitration clause itself, and second, whether it implicates broader public law concerns beyond the inter se dispute of the parties. This test sought to operationalise the distinction introduced in Ayyasamy, but still stopped short of specifying how courts should assess such claims at a preliminary stage.

Subsequent decisions, including Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. and Managing Director, Bihar State Food and Civil Supply Corporation Ltd. v. Sanjay Kumar, reaffirmed that allegations of fraud affecting the arbitration agreement raise jurisdictional issues. In such cases, courts are justified in declining reference to arbitration because the very foundation of arbitral authority party consent, is in doubt. 

Yet, despite this doctrinal continuity, a critical gap persists. These decisions, including Rajia Begum, identify when arbitration should be refused but do not clarify how courts should evaluate the sufficiency of material at the prima facie stage. The inquiry into consent remains conceptually central but procedurally indeterminate.

The doctrine, when examined closely, reveals a tension that the Court has acknowledged but never satisfactorily resolved. This conceptual tension underscores the need for a more precise threshold, one that can distinguish between mere suspicion and demonstrable invalidity without collapsing into a full merits-based inquiry. The non-arbitrability inquiry is cast as a preliminary jurisdictional exercise, one that must remain summary and avoid devolving into a mini-trial. Yet the question of whether an arbitration agreement is forged cannot be answered without the kind of detailed evidentiary scrutiny that a full trial entails: examination of original documents, expert testimony, and cross-examination. 

The “prima facie” standard thus operates as a judicially constructed compromise, but one whose contours remain undefined. This is evident in the Supreme Court’s articulation of the scope of intervention under Section 11. In Duro Felguera v. Gangavaram Port Ltd, the Court confined the inquiry to the existence of an arbitration agreement. 

At the same time, the Court’s acknowledgement of flexibility in A. Ayyasamy v. A. Paramasivam, which holds that no rigid rule can be laid down and that each case must turn on its facts, reveals that the prima facie test is not a fixed evidentiary threshold but a context-sensitive standard. This elasticity, while pragmatic, further underscores its lack of doctrinal precision. 

When read together, these decisions demonstrate that the jurisprudence on Section 11 does more than limit judicial intervention; it indirectly constructs the prima facie test as a procedural restraint rather than a substantive standard. The cases do not define what degree of satisfaction a court must reach; instead, they define what a court must not do, namely, conduct a detailed evidentiary inquiry. As a result, the prima facie standard derives its meaning negatively, through exclusion, rather than through any positive articulation of evidentiary sufficiency.

The decision in Rajia Begum v. Abdul Rashid illustrates this contradiction in concrete terms. The Court relied on circumstantial indicators, internal inconsistencies in the respondent’s narrative, the prolonged absence of the disputed deed from the documentary record, and contemporaneous banking documents describing her merely as a guarantor to cast a ‘grave cloud of doubt’ over the Admission Deed. These factors are undeniably persuasive. Yet, arriving at a definitive conclusion on authenticity would ordinarily necessitate a full evidentiary process: scrutiny of primary documents, expert analysis (such as handwriting examination), and cross-examination of witnesses. Without these tools, the court’s determination risks resting on an incomplete evidentiary foundation.

This highlights the ambiguity of the ‘prima facie’ standard. Courts invoke it to indicate a limited inquiry, but do not define its content. It is unclear whether it reflects a balance of probabilities, a triable issue, reasonable suspicion, or some arbitration-specific threshold. This uncertainty is not merely semantic, it leads to inconsistent application. Similar cases may be decided differently depending on judicial discretion, with some courts applying the rule of minimal doubt and others requiring stronger proof. 

At a deeper level, this exposes a fundamental dilemma within the doctrine itself: a court cannot confidently conclude that an arbitration agreement is forged without undertaking a detailed evidentiary inquiry akin to a trial, yet the statutory framework mandates that the referral stage remain summary and preliminary. The result is a conceptual impasse as the level of scrutiny required for adjudicative accuracy is inherently incompatible with the procedural constraints imposed on the court.

A more serious concern arises from how the Court treats the Section 9 proceedings. The court in the present case held that the High Court’s prima facie finding, questioning the genuineness of the agreement, had attained finality after dismissal of the SLP, and could therefore be relied upon in later Section 8 and 11 proceedings. While this may seem efficient, it raises a doctrinal issue. Section 9 is designed to grant interim relief, with courts undertaking only a summary inquiry and recording tentative findings. In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., the Supreme Court recognised the interim and provisional nature of such proceedings. Observations made at this stage are not intended to bind subsequent adjudication on merits. Section 9 is meant only for interim relief. The inquiry is summary, the standard is low, and the findings are expressly tentative. Courts routinely clarify that such observations should not affect later proceedings. Allowing a Section 9, especially one made without a full hearing, to block reconsideration at the Section 8 or 11 stage wrongly treats a provisional view as final. It effectively creates a form of estoppel not recognised by the statute. As a result, a party denied relief under Section 9 may also be denied arbitration, leaving them without any effective forum until a civil suit is finally decided, which may take years.

SOLUTION ONE: THE SCHEDULED CATEGORIES APPROACH

The core idea. Rather than asking courts to assess whether a fraud allegation is serious enough on an undefined prima facie standard, which is precisely where the doctrine fails, the law should enumerate, in advance, the specific and closed categories of fraud allegation that are capable of rendering an arbitration agreement non-arbitrable. Outside those specified categories, reference is mandatory. The scheduled approach replaces judicial discretion with a rule: the court does not assess the quality of the fraud allegation; it asks only whether the allegation falls within the schedule. This eliminates the evidentiary standard problem because the court is not conducting an evidentiary inquiry at all; it is performing a classification exercise.

This approach is supported by Vidya Drolia & Ors. v. Durga Trading Corporation, (2021) 2 SCC 1, where the Supreme Court addressed concerns of judicial overreach by replacing open-ended discretion with a structured four-fold test for non-arbitrability. At paragraph 76, the Court held that referral courts must not pre-empt arbitral jurisdiction except where invalidity is manifest, warning that extensive inquiry would undermine kompetenz-kompetenz. The court’s act of classifying four categories of non-arbitrable disputes furthered the approach of minimising judicial discretion and securing the tribunal’s jurisdiction. 

Therefore, this approach will solve the problem directly and is rooted in principles established in section 5 and 16 of the act respectively but taking this approach can lead to overarching of domain by the judiciary and this approach will also fail to include new and contemporary fraud patterns making the definitional carving of fraud matters ineffective to solve the problem fully, rather this solution displaces the discretion problem rather than eliminating it.

SOLUTION TWO: THE CALIBRATED THRESHOLD STANDARD (CTS): A PROPOSED TEST

The paper to highlight a key problem: the prima facie standard doesn’t clearly define the kind or amount of evidence required to show fraud. Because of this, courts often apply it inconsistently, leading to the probability of unsupervised judicial discretion. The test of manifest nullity tries to fix this by setting a much higher threshold. However, in practice, it can end up looking very similar to the prima facie test, just with a different label, without truly solving the problem. The mixed approach offers a better solution. Instead of replacing prima facie, it clarifies what the standard actually requires by grounding it in established judicial principles. At the same time, it introduces an upper limit inspired by manifest nullity, ensuring that courts do not overstep. As a result, this approach establishes a standard that is clearer in its requirements, has defined limits, and is consistent with Sections 5 and 16 of the Act.

The Calibrated Threshold Standard (“CTS”) is a two-phase test for pre-reference judicial inquiry where fraud is alleged against an arbitration agreement. It defines the prima facie standard and provides jurisprudential content while imposing a structural ceiling to prevent the inquiry from turning into a trial.

  • Phase One: The Ceiling: What the Court May Not Do

The court must first ensure its inquiry stays within strict limits. It may only consider material placed on record by the parties. It cannot draw inferences from missing documents, assess credibility, identify patterns in circumstantial evidence, or examine authenticity where expert analysis is needed. If resolving the fraud allegation requires any of these steps, the inquiry stops. The matter must be referred to the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.

  • Phase Two: The Floor; What the Resisting Party Must Establish

If the inquiry remains within limits, the burden shifts to the party resisting reference. That party must show that the arbitration agreement fails the ‘arguable basis’ threshold, i.e., no reasonable reading of the material supports the existence of an agreement to arbitrate. Mere suspicion, inconsistencies, or late production of documents are insufficient, as they require inference (barred by Phase One). The burden is met only where the material, on its face, makes the agreement implausible, not merely disputed.

The Tie-Breaking Principle

CTS adopts a clear pro-reference rule from Vidya Drolia judgment but applies it in a structured way. It comes into play only after the court has applied both Phase One (the ceiling) and Phase Two (the arguable basis test). If, after the two tests, the court is still whether there is fraud because the material allows more than one reasonable reading but does not clearly show that the agreement is implausible, then the matter must go to arbitration. This kind of ‘doubt’ is specific: it exists where the court cannot decide the issue without drawing inferences or weighing evidence, which it is not allowed to do.

This paper examines the structural flaw at the heart of India’s arbitrability framework: the undefined prima facie standard applied when fraud is alleged against an arbitration agreement. Beginning with the Supreme Court’s decision in Rajia Begum v. Barnali Mukherjee, it traces the doctrinal evolution from Ayyasamy through Vidya Drolia to demonstrate that while courts have progressively refined when fraud may exclude arbitration, the how of that inquiry remains conspicuously unarticulated. The paper exposes the methodological gap between the summary review mandate of Sections 5 and 11 and the evidentiary depth that fraud allegations genuinely demand, and proposes the Calibrated Threshold Standard (CTS) as a principled, structured resolution that preserves kompetenz-kompetenz while ensuring consistency.

The manifest nullity standard, drawn from French arbitration law and Article 1448 of the French Code of Civil Procedure, is theoretically appealing: it counsels courts to intervene only where the invalidity of an arbitration agreement is obvious and indisputable on the face of the record, thereby robustly protecting kompetenz-kompetenz. In principle, it aligns well with the CTS’s ceiling in Phase One. However, transplanting the manifest nullity standard wholesale into Indian law would be constitutionally incongruent. France has not adopted the UNCITRAL Model Law on International Commercial Arbitration, and its arbitration regime reflects a distinct civil-law tradition that operates independently of the Model Law’s framework. India, by contrast, has adopted the Model Law as the structural backbone of the Arbitration and Conciliation Act, 1996. Importing a standard specifically designed for a non-Model Law jurisdiction would create normative dissonance with Sections 5, 11, and 16 of the Act, which reflect the Model Law’s own calibrated approach to judicial restraint and kompetenz-kompetenz.

A more suitable comparative source lies in the approaches of Singapore and the United Kingdom, both of which are Model Law jurisdictions with strongly pro-arbitration cultures that have developed principled, structured frameworks for fraud-related challenges. As demonstrated in Swiss Singapore Overseas Enterprises Pte Ltd v Exim Rajathi India Pvt Ltd and Dongwoo Mann + Hummel Co Ltd v Mann Hummel + GmbH, Singapore’s courts have evolved a three-limb test requiring deliberate concealment, a causative link between the fraud and the award, and an absence of good reason for non-disclosure, all applied against a high evidential threshold. The United Kingdom similarly demands cogent proof of dishonesty under Section 68(2)(g) of the Arbitration Act 1996. Under the Arbitration Act 1996, UK courts enforce arbitral awards via s.66 but robustly intervene where fraud is established. In Contax v KFH [2024], the Commercial Court set aside an enforcement order after finding the entire arbitration agreement, proceedings, and award was fabricated, with sections of the purported award copied verbatim from an unrelated English judgment. Similarly, in Nigeria v P&ID [2023], an $11 billion award was set aside as the arbitration was contaminated by bribery and corruption throughout. English public policy favours enforcement, but fraud must be distinctly pleaded, proved on cogent evidence, and shown to have materially influenced the outcome a deliberately high threshold under ss.67, 68, and 103. India can integrate these features directly into the CTS framework. The “arguable basis” floor in Phase Two mirrors the UK’s triable issue standard, while the pro-reference tie-breaking principle reflects both Singapore’s and the UK’s strong presumption toward arbitration. Adopting this integrated approach would allow India to achieve doctrinal precision without departing from the Model Law architecture that underpins its arbitration statute.

Enforcement of Foreign Awards Cannot Be Resisted on Public Policy Grounds After Final Determination by Seat Court: Transnational Issue Estoppel Applies

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Arbitration Update - Enforcement of Foreign Awards Cannot Be Resisted on Public Policy Grounds After Final Determination by Seat Court: Transnational Issue Estoppel Applies

MKBAC Blog April 29, 2026

By Mahika Roy.

About the Author:

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

Introduction

The Hon’ble Supreme Court in Nagaraj V. Mylandla v. PI Opportunities Fund-I & Ors. has reaffirmed India’s pro-enforcement stance towards foreign arbitral awards by holding that enforcement under Section 48 of the Arbitration and Conciliation Act, 1996 cannot be resisted on “public policy” grounds where the same issues have already been conclusively adjudicated by the seat court. The Court recognised and applied the doctrine of transnational issue estoppel, holding that Indian courts cannot re-examine issues decided by a competent foreign court under the guise of enforcement. This ruling significantly limits the scope of objections under Section 48 and reinforces finality in cross-border arbitration.

The dispute arose from a Share Subscription and Shareholders Agreement between investors and the promoters of Financial Software and Systems Pvt. Ltd. The agreement contained a detailed exit mechanism enabling investors to realise their investment through methods such as secondary sale, buy-back, or strategic sale.

Following the failure of the promoters to provide an exit, arbitration was initiated under the Singapore International Arbitration Centre (SIAC) Rules, with Singapore as the seat. The arbitral tribunal rendered an award in July 2024 granting damages to the investors equivalent to the exit price and providing for a strategic sale mechanism in case of non-payment.

The award was challenged before the Singapore High Court, which rejected the challenge and upheld the award. Notably, issues such as waiver, buy-back, and alleged violations of Indian law were considered and rejected. No appeal was filed against this decision.

Subsequently, enforcement proceedings were initiated before the Madras High Court under Sections 47 and Section 49 of the A&C Act. The appellants resisted enforcement under Section 48, primarily invoking the “public policy of India” exception. The High Court rejected these objections, applied transnational issue estoppel, and enforced the award. The matter then reached the Supreme Court.

The central issue before the Supreme Court was whether enforcement of a foreign arbitral award could be refused under Section 48 on public policy grounds when the same objections had already been raised and rejected by the seat court. A related issue concerned whether Indian courts could re-examine the merits of the award or revisit findings of the seat court during enforcement proceedings.

A bench comprising Justices Sanjay Kumar and K. Vinod Chandran dismissed the appeals and upheld enforcement of the foreign arbitral award. It was held that the objections raised were impermissible attempts to reopen issues already adjudicated and to undertake a merits review under the guise of Section 48.

It was reiterated that Section 48 provides only limited and narrowly construed grounds to refuse enforcement of a foreign award. Enforcement proceedings were characterised as non-appellate in nature, where re-evaluation of evidence or contractual interpretation is impermissible. Reliance was placed on Vijay Karia v. Prysmian Cavi E Sistemi SRL to emphasise that Indian courts must adopt a pro-enforcement bias and discourage attempts to delay enforcement through expansive interpretations of public policy.

A central aspect of the reasoning was the application of the doctrine of transnational issue estoppel. It was held that where a competent court at the seat of arbitration has conclusively decided issues relating to the validity of the award, the same issues cannot be reopened in enforcement proceedings in another jurisdiction.

The objections raised by the appellants, including those relating to waiver, buy-back, and alleged statutory violations, had already been considered and rejected by the Singapore High Court. In the absence of any appeal against that decision, those findings attained finality. It was therefore impermissible for the appellants to reagitate the same issues in India under the guise of public policy. The doctrine was applied as a facet of comity, judicial discipline, and prevention of abuse of process.

It was emphasised that enforcement proceedings cannot be converted into a forum for rehearing the dispute. The objections raised by the appellants were found to be attempts to revisit the arbitral tribunal’s interpretation of contractual provisions and findings of fact. Such attempts were held to fall outside the permissible scope of Section 48.

It was further observed that objections which could have been raised before the seat court, but were not, cannot be permitted to be introduced for the first time at the enforcement stage, consistent with the principle of Constructive Res Judicata. Allowing such challenges would undermine finality and encourage tactical litigation.

The Court clarified that the “public policy of India” exception under Section 48 must be construed narrowly and cannot be invoked to undertake a review on merits. It was held that the concept of public policy refers to violations of fundamental and non-negotiable legal principles forming the core of Indian law, and not to mere errors of law or alleged inconsistencies with statutory provisions.

The contention that the award violated provisions of the Companies Act or the Specific Relief Act was rejected on the ground that such arguments did not meet the high threshold required to establish a breach of fundamental policy. It was further noted that such issues had already been considered by the seat court and could not be revisited. The Court emphasised that enforcement proceedings are not intended to serve as a second round of challenge to the award.

It was further observed that, even independent of the application of transnational issue estoppel, the scope of interference under Section 48 remains narrowly circumscribed and does not permit a review on merits. The Supreme Court has consistently held that enforcement proceedings are not appellate in nature and cannot be used to re-evaluate findings of fact or law.

However, the present decision goes a step further by holding that where such issues have already been raised and conclusively decided by the seat court, they cannot be re-agitated at the enforcement stage in India. In this sense, the doctrine of transnational issue estoppel operates as an additional layer of restraint, beyond the already limited scope of Section 48.

Even in a situation where no challenge had been mounted before the seat court, the scope of interference would remain restricted to the narrow contours of public policy. The present case, therefore, underscores that where a party has already invoked the jurisdiction of the seat court and failed, it cannot seek a second review under the guise of enforcement proceedings.

This judgment marks a significant development in Indian arbitration jurisprudence by firmly embedding the doctrine of transnational issue estoppel within the framework of enforcement under Section 48. The ruling strengthens India’s position as a pro-enforcement jurisdiction by ensuring that foreign awards are not subjected to multiple layers of judicial scrutiny. It clarifies that enforcement proceedings are not an opportunity to relitigate disputes or raise belated objections after failing before the seat court. For arbitration practice in India, the decision enhances finality, certainty, and efficiency in cross-border dispute resolution. It aligns Indian law with international arbitration principles by recognising the primacy of the seat court and limiting judicial interference at the enforcement stage. Ultimately, the judgment curbs dilatory tactics and reinforces the integrity of the arbitral process.

Substantive Justice Over Statutory Deadline: Section 29A After C. Velusamy

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Substantive Justice Over Statutory Deadline: Section 29A After C. Velusamy

MKBAC Blog April 9, 2026

  By Swarnava Sengupta & Namrata Ghosh

About the Author:

Swarnava Sengupta & Namrata Ghosh are fourth year law students at National Law University, Odisha.

 

Abstract

Section 29A of the Arbitration and Conciliation Act, 1996 (‘Act’) envisages time limit for completion of Arbitral Proceedings. Earlier, in Rohan Builders, the Supreme Court had held that an application to extend the time for making an arbitral award beyond the statutory mandate is maintainable even if filed after the expiry of the mandate. The Supreme Court recently, in C. Veluswamy v. K. Indhera (‘Velusamy’) expanded the maintainability of the application for the extension of the Tribunal’s mandate to situations where the arbitral award has been passed. This case clarifies the scope of the section in the post-award scenario in the backdrop of a tussle between substantive justice and procedural technicalities.

This post examines the implications of this judgment in three stages. First, it traces the factual matrix of the case and the judgment pronounced by the SC. Second, it focuses on the conundrum it creates for S. 29A and the doctrinal concerns it leaves unresolved. Finally, it evaluates the clarity Velusamy brings and how the judgment has tried to uphold party autonomy and the integrity of the Tribunal. 

I. From Appointment To Expiry: The Dispute In Context

A sole arbitrator was appointed by the Madras High Court on 19 April 2022. After pleadings closed on 20 August 2022, the 12-month period under Section 29A began, later extended by six months till 20 February 2024. Although the matter was reserved for award in September 2023, it was reopened for negotiation. When negotiations failed, the arbitrator delivered the award on 11 May 2024, after the mandate had expired. 

The Respondent challenged the award on Section 34 grounds that it was time-barred, and the Appellant on Section 29A(5) grounds that the award should be extended retrospectively. The High Court annulled the award and denied the extension. The Supreme Court ruled that an application under Section 29A(5) for extension of the mandate of the arbitrator is maintainable even after the expiry of the time under Sections 29A(1) and (3) and even after rendering of an award during that time. The power of the court to consider extension is not impaired and while considering the application, the Court will examine if there is sufficient cause for extending the mandate, and in the process, it may impose such terms and conditions as the situation demands.

This judgment envisages to promote procedural flexibility in arbitration by according primacy to substantive justice over technical formalities. The Court has tried to ensure that the invested time, financial resources, and evidence-based efforts of the parties in the arbitration proceedings do not go to waste. The verdict opined that if a reasoned award is deemed to be unenforceable solely on the grounds of delay, it will undermine the faith in arbitration.  

However, this judgment also raises concerns about the purpose of Section 29A, post award remedies, award enforceability and interpretive conflict.

Firstly, the verdict enables a party to file for a Section 29A application to seek an extension of the arbitral tribunal’s mandate even after an award has been passed by the tribunal after the lapse of 18 months prescribed period. It is unclear whether there would be any outer limit or limitation period for the Court to entertain such applications.

Notably, Section 34 is the only appeal mechanism under the Act, which has a limitation period of three months from the date on which the parties received the signed copy of the arbitral award. This judgment introduces uncertainty as to whether such proceedings would suspend, overlap with, or run parallel to the limitation clock prescribed under Section 34 by permitting post-award applications under Section 29A for retrospective extension of the tribunal’s mandate. Further, awards that were previously rendered unenforceable due to the expiry of the Tribunal’s mandate may now be revived through such application, encouraging parties to approach courts and seek retrospective validation. 

Secondly, the ruling has placed the status of an arbitral award passed after the expiry of mandate in a grey zone by characterising such awards as not non-est but merely unenforceable pending judicial extension under Section 29A of the Act. 

Thirdly, a bare reading of Section 29A of the Act states that if a tribunal fails to pass an award within a stipulated timeline, the tribunal’s mandate ‘shall’ be terminated mandatorily. As per the recent stance adopted by the Hon’ble Apex Court, minimal judicial interference is warranted and efforts should be made to sustain the arbitral awards passed by a tribunal. However, such approach should not be undertaken to validate an award passed by a tribunal which had previously become functus officio. This is further reinforced by the fact that the 1940 Act, provided for extension of the tribunal’s mandate irrespective of whether an award has been passed. The present Act, in absence of such provision indicates the legislature’s intention to exclude post award extension of tribunal’s mandate. Thus, accepting the contrary interpretation in the name of pro-arbitration policy would undermine the statutory discipline consciously introduced by the legislature through Section 29A.

Fourthly, this decision raises a conundrum when viewed in the context of the legal provisions pertaining to the mandate of the arbitral tribunal. Section 29A(4) of the Act has a proviso, wherein the mandate of the arbitrator continues till the extension application is disposed of. While Section 32(3) of the Act, on the other hand, provides that the mandate of a tribunal terminates with the termination of the arbitral proceedings. This decision affirms the court’s power to extend the mandate of the tribunal after the award and the termination of the mandate, creating tension due to the unclear implications of how a mandate, which has ceased to exist, can be revived or considered to continue. This overlap results in conflation of finality in the termination of mandate, thus broadening the scope of judicial intervention. 

Lastly, in Fatehpuria, the Court took a strong stance by ordering substitution to prevent delay and ensure the time-bound requirement under Section 29A of the Act, thus emphasising efficiency in arbitration. But Veluswamy expands the discretionary scope of substitution, thereby redefining it as an extraordinary measure to be taken with circumspection. This judicial development may weaken the deterrent against delay and even encourage laxness in procedure, thus defeating the purpose of speedy dispute resolution as embodied in the statute. 

This decision is a pivot move in jurisprudence of Section 29A. It would require rapid introduction of legislative changes to bring coherence and consistency between the emerging jurisprudence and the statutory text. In view of this, the Parliament should amend Section 29A to explicitly delimit the admissibility of post-award extension applications. In case such applications are allowed, an amendment should provide a reasonable time period within which they should be considered. Further, the retrospective application of the extension should be clarified specifically in order to identify whether it, implicitly, constitutes an automatic validation of the arbitral award. It is also crucial to determine the date of commencement of the Section 34 limitation period in case the award is rendered enforceable.

Moreover, to prevent the possibility of the misuse of such retrospective extensions to put back into life strategically deferred challenges, the Supreme Court should set out strictly defined parameters of what can be termed as “sufficient cause” in insofar as the extension of a mandate is concerned. Accordingly, the judiciary should exercise restraint in adjudicating such extension petitions, granting them solely under the most exceptional circumstances only.

Thus, Velusamy’s judgement should be made to serve as a safety valve and not as an alternative to bypass procedural discipline. Only through calibrated intervention can arbitration remain both efficient and just, without eroding statutory timelines or party confidence in the process.

The Doctrinal Pendulum – From Mandatory Substitution to Structured Discretion under Section 29A

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The Doctrinal Pendulum - From Mandatory Substitution to Structured Discretion under Section 29A

MKBAC Blog March 31, 2026

  By Ripudaman Rawat, Agrata Chaturvedi

About the Author:

Agrata is currently a 3rd year law student at Lloyd Law College and Ripudaman is currently a 2nd year law student at NALSAR University of Law, Hyderabad.

 

Abstract

Section 29A of the Arbitration and Conciliation Act, 1996 was built as a multi-layered deterrence mechanism against arbitral delay. In Viva Highways Ltd v. Madhya Pradesh Road Development Corporation Ltd (2026), the Supreme Court held that termination of an arbitrator’s mandate under Section 29A does not automatically require substitution which essentially was a departure from the “empowering and obligating” language of Mohan Lal Fatehpuria v. Bharat Textiles (2025). This comment asks whether treating substitution as an exceptional remedy protects procedural efficiency or quietly guts the statutory timeline’s deterrent logic. Drawing on comparative institutional practice and the legislative history of the 2015 Amendment, it proposes a graduated-response framework to reconcile time discipline with tribunal continuity and party autonomy.

Keywords: Section 29A, Arbitrator Substitution, Tribunal Mandate, Party Autonomy

I. Introduction

Section 29A [“S.29A”] of the Arbitration and Conciliation Act, 1996 was born from a specific diagnosis: delay as the greatest evil undermining Indian arbitration. Inserted by the 2015 Amendment, it imposed a twelve-month timeline for rendering awards, backed by escalating consequences i.e. fee reduction, and ultimately, substitution of the arbitral tribunal. Within a decade, two Supreme Court [“SC”] decisions have pulled that substitution mechanism in opposite directions, and the tension between them is more instructive than either decision alone.

In Mohan Lal Fatehpuria v. M/S Bharat Textiles [“Fatehpuria”], the Court declared that S.29A(6) “empowers and obligates” courts to substitute an arbitrator on mandate expiry. Barely two months later, in Viva Highways Ltd v. Madhya Pradesh Road Development Corporation Ltd [“Viva Highways”], the Court reinterpreted that language, holding that substitution would follow only “if the situation so warranted.” The Court held that this was not an overruling, but merely a clarification. But the clarification reversed the operational outcome, and that deserves attention.

The current debate surrounding S.29A centers on two conflicting approaches to an expired arbitral mandate. In Fatehpuria, the court enforced the rule of automatic substitution of the arbitrator, prioritizing strict adherence to statutory timelines, ensuring speedy resolution. In contrast, Viva Highways rejected this absolute mandate in favour of judicial discretion and allowed courts to extend the mandate without changing the tribunal, if the context warrants it. By moving away from automatic substitution, Viva Highways recognized a practical reality i.e. replacing an arbitrator without examining the underlying causes could be counterproductive.

The automatic substitution’s rule fails to distinguish between delays that are caused by an arbitrator’s inefficiency, party’s deliberate tactics or unavoidable systemic bottlenecks. Furthermore, forcing a newly appointed tribunal to restart the proceedings wastes both time and resources, ultimately undermining the very efficiency that S.29A aims to protect. However, replacing a strict rule with an unstructured discretion is only half an answer. Discretion without clear guidelines gives way to unpredictability, and unpredictability has its own costs for a provision whose logic depends on credible and consistent consequences, thereby neutralizing the deterrent effect. Therefore, the answer isn’t either Fatehpuria’s rigidity, or Viva Highways’ open-ended standard, but a graduated framework which focuses on context without leveraging the deterrent effect that S.29A was designed to create.

The 246th Report of the Law Commission of India identified delay as inherent in the arbitration process. Proceedings routinely stretched beyond a decade, and expeditious resolution has become a fiction. S.29A was the legislature’s response: not just deadlines, but a tiered structure of consequences.

S.29A(1) requires an award within twelve months from the date the tribunal enters upon reference; S.29A(3) allows parties, by mutual consent, to extend this by a further six months; Section S.29A(4) allows the court, on application, to grant further extensions, but where delay is attributable to the tribunal, it may order fee reduction of up to five per cent per month; Section S.29A(6) empowers the court, while extending time, to substitute the arbitrator(s).

The logic of this provision is inherently escalatory. The statutory time cap provides a structural baseline, escalating to financial penalties and ultimately substituting the tribunal. Each tier is designed to reinforce the one below it, therefore, if the threat of substitution is diluted by unpredictability, the entire disciplinary framework loses its teeth.

In Fatehpuria, an arbitrator appointed by the Delhi High Court had failed to render an award within the statutory period. (¶ 11) Rather than substituting him, the High Court simply extended his mandate. (¶ 12) The SC reversed this. Once a mandate expires under S.29A(4), the arbitrator becomes functus officio. (¶ 11) S.29A(6), the Court held, “empowers and obligates” courts to appoint a substitute. (¶ 13)  A new arbitrator was directed, with proceedings to continue from the stage already reached. (¶ 14) The decision treated substitution not as a discretionary remedy but as a structural consequence of expiry, an interpretation that left little room for judicial hesitation.

Viva Highways quietly dismantled this. The Madhya Pradesh High Court had done exactly what Fatehpuria seemed to require: on mandate expiry, it terminated the appointment and directed substitution. The SC set this aside, holding that the High Court had misread the precedent. (¶ 4) The Court clarified that “obligates” does not imply a blanket mandate, it simply means substitution is an available remedy when the situation demands it. It would follow only “if the situation so warranted.” (¶ 4)

The tension sits in that single word. “Empowers” and “obligates” are not synonyms, one gives a court an option, the other removes it. When Fatehpuria used both in tandem, the jurisdiction to substitute an arbitrator not only existed but had to be exercised. Reading “obligates” as simply restating “empowers” makes the word pointless. The practical effect of this is that it transforms a strict rule of automatic substitution into a discretionary standard where substitution only happens if the specific facts warrant it.

S.29A works through credible commitment, wherein, the legislature deliberately imposes a deadline precisely so that both, the parties and arbitrators take it seriously. If the consequence of missing that deadline is uncertain, with extension possible and substitution merely discretionary, the deterrent loses force. An arbitrator who expects accommodation rather than replacement has weaker reason to conclude within time. The ICC Commission’s work on controlling time and costs has noted that the primary cause of high costs and long durations in international arbitration is the unnecessary complication of proceedings. S.29A represents India’s attempt to break this cycle of delay, using the substitution mechanism as its sharpest instrument.

What makes India’s approach worth pausing on is how unusual it is. Neither the UNCITRAL Model Law, nor the English Arbitration Act 1996, nor the Singapore International Arbitration Act prescribes a statutory time limit on making an award, let alone a substitution mechanism triggered by its breach. India went further than virtually every major arbitration jurisdiction, and deliberately so. The delay in domestic arbitration is a genuine, documented problem for which the parliament brought about strict statutory deadlines, Viva highways suggests that the judiciary is moving towards sensitivity to context rather than imposing rigid and automatic consequences.

There is a genuine paradox at the heart of substitution as the remedy for delay itself causes delay. In complex infrastructure disputes, like that of Viva Highways, a substitute arbitrator must re-read voluminous submissions, re-examine evidence, and reconstruct a procedural context they had no part in building. Practitioner experience in institutional arbitration puts tribunal reconstitution at three to six additional months, with significant added costs. S.29A(6) anticipates this partially, providing that the substitute “shall continue” from the stage already reached and may rely on evidence already recorded. But there is a real gap between continuing from a stage and actually understanding a complex dispute at that stage. A tribunal that has heard witnesses, absorbed the cadence of arguments, and formed tentative impressions carries institutional memory that a handover can hardly replicate.

The downstream litigation costs compound this. Every substitution risks generating fresh applications, potential challenges under Sections 12 and 13, and further time-extension proceedings. Viva Highways is itself a good example, wherein, the SC had to intervene to correct a High Court that was itself trying to apply Fatehpuria correctly. If mechanical substitution produces more ancillary litigation than it prevents, the efficiency rationale for the strict rule starts to look weaker than it first appeared.

Neither the Fatehpuria rule (automatic substitution) nor the Viva Highways standard (substitution if warranted) is adequate on its own. The former is over-inclusive and the latter, under-determinate. S.29A requires structured discretion ,a framework that calibrates the consequence to the context.

Courts adjudicating S.29A(4) applications could be guided by –

  • Where proceedings are post-evidentiary and near completion, extending the existing tribunal’s mandate is proportionate. At an early, pre-evidentiary stage, the disruption cost of substitution is low, and substitution is appropriate;
  • Where delay is attributable to party obstruction or case complexity, substitution punishes the wrong actor or penalises no fault. Extension is the proportionate response. Where delay is attributable to tribunal inaction, substitution serves its designed function;
  • Where both parties prefer the existing tribunal, this preference, rooted in party autonomy, should weigh heavily toward extension. Where one or both parties seek substitution, the court should give that preference due weight;
  • Where substitution would cause greater delay than the original default, it is disproportionate. Where it would impose minimal disruption, it is the right remedy.

This preserves the deterrent core of S.29A wherein, substitution remains a live and credible consequence for tribunal-attributable delay, while avoiding the perverse outcome of a remedy that compounds the problem it was designed to cure. Where both parties prefer the existing tribunal and delay stems from case complexity rather than tribunal default, extension is the proportionate response.

Critically, courts applying this framework should record reasons for choosing extension over substitution, or vice versa. Over time, that body of reasoning will provide the guideposts Viva Highways currently does not.

Viva Highways shifts towards a more pragmatic judicial reality. Statutory deadlines, as helpful as they are, shouldn’t be allowed to wreck the very process they were meant to serve. But pragmatism alone can be unpredictable if it doesn’t have a clear structure. This ruling leaves us with an unanswered question which is when is the substitution actually “warranted”?

The answer lies in a graduated framework linking the choice of remedy to the stage of proceedings, the cause of delay, party preferences, and proportionality. S.29A’s deterrence structure need not be dismantled to accommodate contextual judgment; it needs to be supplemented with standards that give judicial discretion shape and transparency.

The real reform S.29A awaits is not a choice between Fatehpuria’s rigidity and Viva Highways’ flexibility. It is a framework that treats time discipline and tribunal continuity not as adversaries, but as co-dependent values in service of one objective i.e. arbitral justice that is both timely and just.

Set-Off in the Shadow of Insolvency: Exploring the SC’s Nuanced Approach in Ujaas Energy v. WBPDCL

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Arbitration Update: Set-Off in the Shadow of Insolvency: Exploring the SC’s Nuanced Approach in Ujaas Energy v. WBPDCL

MKBAC Blog March 30, 2026

By Manav Pamnani.

About the Author:

Manav Pamnani is a Research Scholar at the Milon K. Banerji Arbitration Centre.

Introduction and Background

Recently, the Supreme Court (“SC”) in its decision dated March 20, 2026, in Ujaas Energy v. West Bengal Power Development Corporation Limited (“WBPDCL”) held that an extinguished counter claim can be raised as a plea of set-off by way of defence in arbitral proceedings even after a resolution plan has been approved. This case involved a public sector power company (WBPDCL) that had floated a tender in 2017 under which Ujaas Energy was granted the contract. Ujaas subsequently went into the Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code (“IBC”). Despite the applicable moratorium, WBPDCL continued proceedings and invoked arbitration in December 2021. When the parties filed their claims in 2023, WBPDCL’s counterclaim included certain unpaid amounts. In October 2023, the National Company Law Tribunal (“NCLT”) approved Ujaas Energy’s resolution plan. WBPDCL’s claims were not included in that plan. On April 30, 2024, the arbitral tribunal issued an interim award dismissing WBPDCL’s counterclaim on the ground that, by virtue of the approved resolution plan (“clean slate” principle which ensures that a successful resolution applicant takes over a company free from all prior liabilities, debts, and legal claims), any claims not included in the plan stood extinguished. WBPDCL challenged this interim award in the Calcutta High Court, wherein a Single Judge upheld the dismissal. However, on appeal, a Division Bench in September 2024 allowed WBPDCL to continue arbitration. Ujaas then appealed to the SC.

The main issue before the SC was whether, after a resolution plan is approved under the IBC, WBPDCL could still pursue or enforce its claim, not included in the resolution plan, against Ujaas in arbitration. In particular, the question was whether WBPDCL could press its counterclaim or otherwise assert it in some form, or if the “clean slate” rule completely barred any such claim.

The Court unanimously held that once a resolution plan is approved under Section 31 of the IBC, any claim not forming part of that plan cannot be enforced as a separate claim in arbitration. Therefore, WBPDCL was not entitled to an independent counterclaim or affirmative relief on its claim after the approval of the resolution plan. However, the SC drew a crucial distinction. It allowed WBPDCL to use its claim in defence by way of a set-off. The SC held that even though WBPDCL is not entitled to independently pursue its claim by way of a separate counterclaim post approval of the resolution plan, it ought to be permitted to raise the plea of set-off at least by way of defence. This implied that WBPDCL could not obtain any money from Ujaas, but it could use its claim to reduce or defeat Ujaas’s own claims in arbitration.

The SC based its conclusion on the terms of the approved resolution plan and the well-accepted underlying principles of the IBC. It noted that Section 31 of the IBC makes the terms of the resolution plan binding on all parties and that a plan ordinarily extinguishes claims not included in it, reflecting the “clean slate” principle. In discussing this point, the SC relied upon the Ghanashyam Mishra & Sons Limited v. Edelweiss Asset Reconstruction Company Limited case which upheld this position. In the present case, the resolution plan expressly barred WBPDCL from seeking payment of its claim, since it was omitted. Therefore, WBPDCL could not obtain affirmative relief through a separate claim.

However, the Court observed that nowhere in the plan or the IBC as a whole was a set-off expressly forbidden. The plan’s language barred claims for the purpose of payment or settlement but did not explicitly exclude set-off as a defence. The SC therefore applied the expressio unius est exclusio alterius principle which means that the express mention of one thing excludes all others. Consequently, the SC inferred that WBPDCL should be allowed to use the claim defensively. In practical terms, this means that WBPDCL can raise its claim as a defence to reduce or extinguish Ujaas’s recovery, but only to the extent necessary. The SC emphasised that WBPDCL should not derive any positive or affirmative relief on that basis. For example, if WBPDCL’s claim exceeds what Ujaas is awarded, WBPDCL cannot pocket the difference. It can only avoid having to pay that amount itself. Therefore, the SC was clear that the set-off defence is limited to balancing accounts and not creating any new entitlement. The SC also noted that these conclusions were fact-specific and based on the plan’s exact terms and in no way changed or altered the settled rule that the approval of a resolution plan extinguishes omitted claims.

This decision is a major development that surfaces at the intersection between the Indian insolvency regime and arbitration law. It confirms that the IBC’s “clean slate” doctrine generally prevents enforcing claims that arise post the approval of the resolution plan. However, it introduces an important caveat that honest creditors may still invoke set-off as a defence in arbitration even if their claim was omitted by the resolution plan. By allowing WBPDCL to raise its claim as a defence, the SC struck a balance between the IBC’s overarching objectives of fostering the finality of claims and facilitating a fresh start for the debtor, and the need for fairness and equity by admitting genuine set-off defences. The SC clearly stipulated that refusing even a defensive use of the claim by strictly upholding the “clean slate” principle would unfairly defeat the rights of genuine litigants.

In terms of benefits to the stakeholders, this ruling provides concrete guidance. It clearly establishes that after a resolution plan is approved, creditors whose claims were excluded may not secure awards for those claims, but they can defend themselves using those claims. Going forward, in future arbitrations involving insolvent companies, parties should ideally carefully draft or review resolution plans to see if set-off defences are preserved or barred.

The decision implies that courts and tribunals should interpret IBC plans strictly. This means that if the resolution plan does not expressly forbid set-off, it will be allowed. Therefore, alternatively, in this case, if the resolution plan had barred set-off as well, it most likely would not have been permitted by the SC. The decision also reinforces that arbitration tribunals should not automatically invalidate proceedings or awards solely on the basis of existence of a moratorium under IBC and the “clean slate” doctrine applies only to affirmative claims and not to set-off as a defence.

Through this decision, the SC has reaffirmed the primacy of the resolution plan’s terms while preserving an equitable remedy through accepting genuine set-off defences. The SC itself emphasised that a resolution plan under Section 31 is the culmination of the CIRP and ordinarily excludes new claims. However, in the present case, equity demanded that WBPDCL be allowed to offset its dues in defence. This nuanced ruling will largely shape how insolvent parties and arbitrators handle counterclaims and defences in the future and will likely ensure that arbitration remains a viable forum for resolving disputes even in the shadow of insolvency.

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