Back
Says Supreme Court Rulings on Arbitral Award Modification Hurt India's Reputation Abroad
In a pointed critique that has sent ripples through the legal community, senior counsel and former Attorney-General has warned that the ’s approach to the is creating significant uncertainty for international parties and damaging the country’s reputation as a credible arbitration destination. Speaking at a recent legal forum, Rajah did not mince words, stating that while the system may work in some cases, its failures have inflicted enormous harm on the arbitration process. His comments come at a time when India is actively positioning itself as a global arbitration hub, raising questions about the coherence of the government’s strategy.
A Reputational Crisis for Indian Arbitration?
Rajah’s remarks strike at the heart of India’s ambition to become a leading arbitration centre. The Supreme Court’s rulings on the —a mechanism allowing courts to alter awards rather than simply enforce or set them aside—have been a persistent source of friction. According to Rajah, the unpredictability generated by these decisions is a major deterrent for foreign investors and businesses. “It probably works some of the time,” he observed, “but in the instances where it is not working, it has caused enormous damage to the reputation of the process.” This candid assessment highlights a fundamental tension: India wants to attract international arbitration, but its domestic judicial approach risks undermining the and reliability that parties seek when choosing arbitration over litigation.
The Supreme Court’s jurisprudence on award modification has been inconsistent, with some benches permitting adjustments under , while others have taken a narrower view. This lack of clarity, Rajah argued, creates a “” on foreign parties who might otherwise consider India as a neutral seat for their disputes. For legal professionals, this means that any arbitration agreement involving Indian parties or assets carries an added layer of risk, as the possibility of a court rewriting an award remains a real, if uncertain, threat.
The Government’s Conflicting Signals
Beyond the judiciary, Rajah turned his attention to the Union government’s approach, particularly the ’s directive concerning disputes involving public sector entities. He described a disconnect between the government’s stated goal of promoting arbitration hubs—such as the and the —and its own behaviour as a litigant. “You can’t say at one time you want to create arbitration centres, you want certain cities to be arbitration hubs, and also say at the same time, ‘Our local companies are not comfortable with arbitration; arbitration doesn’t work for them,’” Rajah said.
This mixed messaging, he suggested, is not lost on the international community. The ’s directive often encourages public sector undertakings to resist arbitration and pursue litigation, even when are present. Such a stance, Rajah argued, signals a lack of faith in the very system India is trying to promote. For legal practitioners, this creates a paradoxical environment: on one hand, the government funds arbitration centres and signs international treaties promoting ADR; on the other, it instructs its own entities to avoid arbitration whenever possible. The result is a credibility gap that undermines India’s efforts to establish itself as a trustworthy seat for international disputes.
Building Confidence from Within
Rajah emphasised that India cannot expect foreigners to embrace its arbitration ecosystem unless domestic stakeholders first believe in it. “If your own lawyers, if your own business community, your own users do not believe in arbitration, you cannot expect foreigners to accept arbitration in India or arbitration centres in India to be credible,” he stated. This observation underscores a critical challenge: the legal profession and corporate sector in India have long been accustomed to litigation, and the shift towards arbitration requires a cultural change as much as a legislative one.
For law firms and in-house counsel, this means that advising clients on must now involve a careful assessment of the judicial and governmental landscape. The risk of award modification, coupled with the government’s ambivalent stance, may push sophisticated parties to choose foreign seats like Singapore or London over Indian ones. Indeed, Rajah’s comments may serve as a wake-up call for the Indian legal community to advocate for more consistent judicial interpretation and government policy.
Legal Implications for Practice
From a legal perspective, the uncertainty surrounding award modification touches on core principles of arbitration: , , and . The Supreme Court’s power to modify awards—derived from a broad reading of Section 34—blurs the line between review and appeal, potentially encouraging litigants to challenge awards on the merits. This undermines the very efficiency that arbitration promises. Legal professionals advising clients must now draft with explicit waivers of modification rights, or include “no-appeal” provisions where permissible, to mitigate this risk.
Moreover, the ’s directive raises questions about the of arbitration agreements against public sector entities. Lawyers representing private parties in disputes with state-owned enterprises should anticipate resistance to arbitration and prepare strategies to compel compliance, including seeking protections. The inconsistency also creates an uneven playing field, where private parties are bound by while public entities may seek to avoid them.
The Road Ahead
Rajah’s critique is not merely an academic observation; it reflects a growing frustration among international arbitration practitioners who see India’s potential being squandered by internal contradictions. The government has taken steps to reform the Arbitration Act, including the and amendments, but these have not fully addressed the issue of award modification. A clear legislative statement restricting the grounds for modification, along with judicial restraint in applying the current provisions, could restore confidence. Additionally, the would need to align its directive with the broader policy of promoting arbitration.
For the legal profession, this is a moment for advocacy and education. Bar associations and law firms can push for consistent interpretation through amicus briefs and policy papers. At the same time, they must manage client expectations by being transparent about the risks of choosing India as a seat. The long-term goal should be to create an arbitration ecosystem that inspires trust not only among Indians but also among foreign users. As Rajah aptly put it, credibility must be built from the ground up—starting with the country’s own lawyers, businesses, and government.
Conclusion
’s candid assessment serves as a critical reminder that India’s journey to becoming an arbitration hub is far from complete. The Supreme Court’s rulings on award modification and the government’s inconsistent approach are not just procedural issues; they are existential threats to the country’s arbitration ambitions. For legal professionals, staying abreast of these developments and advising clients accordingly is paramount. If India fails to address these concerns, it risks losing the opportunity to capitalise on its growing economic clout and becoming a preferred destination for global dispute resolution. The message from Rajah is clear: repair the system from within, or watch the world look elsewhere.
