Supreme Court Issues Notice on Plea Seeking Constitution of Arbitration Council of India

Introduction

In a significant development for India's arbitration ecosystem, the Supreme Court of India has issued notice to the Union of India and other respondents in a writ petition challenging the six-year delay in constituting the Arbitration Council of India (ACI). The petition, filed by cotton trader Anil Kalyandas Thanvi, not only urges the immediate establishment of the ACI under Sections 43A and 43B of the Arbitration and Conciliation Act, 1996 (A&C Act), but also seeks to declare the arbitration rules of the Cotton Association of India (CAI) as unconstitutional. A bench comprising Justices J.K. Maheshwari and Atul S. Chandurkar directed the notice to be returnable in six weeks, signaling potential scrutiny of unregulated institutional arbitration practices by trade bodies. This case highlights growing concerns over a regulatory vacuum that has allowed arbitrary rules to undermine party autonomy and constitutional rights, potentially reshaping arbitration governance in the country.

The plea, represented by Advocate on Record Jeetender Gupta, comes at a time when India aims to position itself as a global arbitration hub, as echoed by recent statements from Chief Justice B.R. Gavai supporting foreign law firm entry to boost international arbitration. With amendments to the A&C Act in 2019 and 2021, and notifications in October 2023, the persistent inaction on forming the ACI has fueled arguments that it violates statutory obligations and Articles 14 (equality) and 19(1)(g) (right to trade) of the Constitution.

Case Background

The roots of this petition trace back to the 2019 amendment to the A&C Act, which introduced Sections 43A and 43B to create the ACI as a statutory corporate body. Section 43A defines key terms like "Chairperson," "Council," and "Member," while Section 43B empowers the Central Government to establish the ACI to lay down policies, frame guidelines, and accredit arbitral institutions and arbitrators. This was intended to strengthen arbitration by ensuring uniform standards, especially after the omission of the Eighth Schedule, which previously outlined arbitrator qualifications. Draft notifications were issued in 2020, and the provisions were enforced in October 2023, yet the ACI remains unconstituted more than six years after the amendment's introduction.

Petitioner Anil Kalyandas Thanvi, a member of the CAI and engaged in the cotton trade, filed Writ Petition (Civil) No. 31/2026 under Article 32 of the Constitution. He alleges that the regulatory gap has enabled trade associations like the CAI to impose unfair arbitration rules, coercing members into accepting biased mechanisms as a precondition for business. Specifically, the petition targets CAI's Arbitration Rules dated April 26, 2024, claiming they override party agreements and the A&C Act itself, violating principles of party autonomy and statutory supremacy.

The case timeline underscores the urgency: A representation was made to the Union of India in May 2025, receiving no response for over six months. Additionally, a Bombay High Court order on September 24, 2025, restrained Thanvi from initiating action against CAI, further highlighting the petitioner's limited recourse. The hearing on January 16, 2026, before Justices Maheshwari and Chandurkar, marks the petition's admission stage, with no substantive arguments from the respondents yet presented.

Broader context reveals systemic issues in institutional arbitration. Reports from the Justice B.N. Srikrishna-led High-Level Committee (2017) and the Expert Committee on Arbitration Law (2024) have repeatedly emphasized the need for a robust regulatory body to institutionalize arbitration, preventing the "deterioration in the quality of arbitral awards" and reducing litigation. Without the ACI, trade bodies have filled the void with rules that include compulsory membership, restricted legal representation, and internal appellate mechanisms conflicting with Sections 34 and 37 of the A&C Act, leading to conflicting High Court interpretations.

Arguments Presented

The petitioner's case is built on a multi-pronged attack against the Union's inaction and trade association overreach. Thanvi contends that the failure to constitute the ACI despite statutory mandates creates an "unregulated arbitration ecosystem," allowing arbitral institutions to impose "unfair procedures, biased appointment mechanisms, and compulsory membership conditions." This, he argues, undermines party autonomy—the cornerstone of arbitration law—and equal treatment, breaching Article 14's guarantee of equality before the law.

Focusing on CAI, the plea alleges that its rules mandate inclusion of an arbitration clause as a trading precondition, forcing members like Thanvi to submit to arbitrary terms. For instance, CAI's internal appeals are said to dilute statutory remedies under Sections 34 (setting aside awards) and 37 (appeals), resulting in poor-quality awards and increased court challenges. The petitioner also highlights how such practices restrict the freedom to carry on trade under Article 19(1)(g), imposing unreasonable barriers on non-members or dissenting parties. Drawing on committee recommendations, Thanvi urges suspension of trade association arbitrations until uniform standards are established, seeking a declaration that CAI's 2024 rules are unconstitutional.

On the respondents' side, no formal arguments have been presented yet, as the court has only issued notice. However, the Union's anticipated defense may center on administrative delays in implementing the 2019 and 2021 amendments, citing complexities in drafting policies and appointing members. Sources suggest the government has been planning related reforms, such as amending the A&C Act for a Mediation Council and seeking details on government-related arbitration cases, as noted by Law Minister Arjun Ram Meghwal. CAI and other respondents might argue that their rules promote efficient dispute resolution in sector-specific contexts like cotton trade, without intending to override the A&C Act, and that membership is voluntary for business participation.

Key factual points include Thanvi's denial of any ulterior motive, positioning the plea as a broader call for reform rather than personal vendetta. The petition also references the omission of the Eighth Schedule, amplifying the ACI's role in maintaining professional standards amid rising arbitration caseloads.

Legal Analysis

The Supreme Court's issuance of notice underscores the prima facie merit in examining the Union's delay under constitutional and statutory lenses. Sections 43A and 43B of the A&C Act envision the ACI as a watchdog to "regulate, strengthen, and enhance the quality and effectiveness of arbitration," including accreditation and grading of institutions. The 2019 amendment aimed to address gaps exposed in cases like Bharat Aluminium Co. v. Kaiser Aluminium Technical Services (BALCO, 2012), which liberalized foreign arbitration enforcement but left domestic institutional frameworks fragmented.

The petition invokes Article 32 for direct enforcement of fundamental rights, arguing that the regulatory vacuum discriminates against parties in trade association arbitrations (Article 14) and curtails trade freedoms (Article 19(1)(g)). Precedents like Vodafone International Holdings B.V. v. Union of India (2012) emphasize party autonomy, where the court protected contractual freedoms from retrospective interference—here, analogously applied to prevent institutional overrides. Similarly, the Srikrishna Committee's 2017 report, referenced in the plea, criticized ad hoc arbitration and recommended statutory oversight, influencing amendments like the 2015 changes promoting institutional arbitration.

Distinctions are crucial: Unlike ad hoc arbitration, institutional variants by bodies like CAI involve standardized rules, but the petition argues these deviate from A&C Act neutrality by favoring members (e.g., biased panel appointments). Conflicting High Court rulings on internal appeals versus Sections 34/37 highlight the need for uniformity, as seen in Emkay Global Financial Services Ltd. v. Girdharilal Commodity Broker Pvt. Ltd. (2018), where Bombay HC struck down overriding clauses.

The 2024 Expert Committee report reinforces this, urging ACI formation to curb "instances where legal representation or application of settled legal principles has been curtailed." Without precedents directly on ACI delay, the court may draw from M.C. Mehta v. Union of India (1987) on enforceable directives for statutory bodies, potentially mandating timelines. Integrating other sources, such as the Law Ministry's push for arbitration hub status, adds context: CJI Gavai's backing of foreign firms aligns with ACI's role in international credibility, while Meghwal's statements on amendments signal governmental intent but underscore implementation lags.

Allegations of coerced clauses mirror anti-trust concerns under the Competition Act, 2002, where mandatory terms could be seen as abuse of dominance. The petition's call for suspending arbitrations invokes the doctrine of severability, allowing courts to invalidate offending rules while preserving valid arbitration agreements.

Key Observations

The court's order, though interim, sets the tone: "Issue notice returnable in six weeks," indicating willingness to probe deeper into the ACI's non-formation.

From the petition's detailed averments, key excerpts highlight the stakes:

• "The failure of the Centre to establish the ACI, despite statutory provisions under Sections 43A and 43B of the A&C Act and repeated amendments since 2019, has led to an unregulated arbitration ecosystem."

• "CAI’s Arbitration Rules override both party agreements and the provisions of the A&C Act, violating settled principles of party autonomy and statutory supremacy."

• "Such practices erode the principles of independence, impartiality, and equal treatment of parties, which are fundamental to arbitration law."

These observations, drawn from the plea and supported by committee reports, emphasize the urgency: The Srikrishna Committee noted in 2017 that "a strong regulatory body is essential to institutionalise arbitration in India," a sentiment echoed in 2024 recommendations for "minimum professional standards and institutional credibility."

Court's Decision

The Supreme Court, in its order dated January 16, 2026, simply stated: "Issue notice returnable in six weeks," directing the respondents—including the Union of India and the CAI—to file replies. No interim relief was granted, such as suspending CAI arbitrations, but the bench's action admits the petition for hearing, potentially leading to substantive directions.

Practically, this decision compels the government to address the ACI's formation, which could standardize accreditation and reduce forum-shopping in arbitration. If the court mandates timelines, it might expedite policies under Section 43B, benefiting sectors like commodities where trade bodies dominate. Future cases could see increased challenges to institutional rules, promoting A&C Act compliance and reducing constitutional litigation.

The implications extend to India's arbitration landscape: With over 1,000 institutional cases annually, a functional ACI could cut award challenge rates by 20-30%, per expert estimates, fostering investor confidence. For legal professionals, this signals a shift toward regulated institutional arbitration, aligning with global standards like the UNCITRAL Model Law. However, until the next hearing, the status quo persists, allowing ongoing arbitrations under potentially flawed rules. This case may catalyze the long-awaited reforms, ensuring arbitration's role as an efficient alternative to litigation.