Supreme Court Tells Law Ministry To Take Serious Look At Arbitration Regime
The Supreme Court has on May 2, 2025 directed the Department of Legal Affairs, Ministry of Law and Justice to take a serious look at the arbitration regime that is prevailing in India and bring about necessary changes while the Arbitration and Conciliation Bill, 2024 is still being considered.
The Bench of Justice J B Pardiwala and Justice R Mahadevan pointed out the Arbitration Act was the first legislative enactment that dealt with arbitration that came into force in 1940.
Court noted that fifty years, later, this legislation was replaced by the Arbitration and Conciliation Act, 1996. It has been almost, thirty-years, since the Act, 1996 has remained in force. Various amendments to the Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously.
"It is indeed very sad to note that even after these many years, procedural issues such as the one involved in the case at hand, have continued to plague the arbitration regime of India," the Bench said, dismissing a Civil Appeal by ASF Buildtech Private Limited against the Delhi High Court's judgment that rejected an appeal by the appellant under Section 37 of the Act.
The High Court had affirmed the order passed by the Arbitral Tribunal rejecting the challenge made by the appellant herein to its jurisdiction on the ground that the appellant being a non-signatory to the arbitration agreement could not have been impleaded in the array of parties and join the arbitration proceedings.
The Apex Court noted the Department of Legal Affairs has now, once again proposed to replace the existing legislation on arbitration with the Arbitration and Conciliation Bill, 2024.
"Unfortunately, even the new Bill has taken no steps whatsoever, for ameliorating the position of law as regards the power of impleadment or joinder of an arbitral tribunal. What is expressly missing in the Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this court as-well as the various High Courts, highlighting the need for statutory recognition of such power in order to obviate all possibilities of confusion," the Bench said.
The Court referred to Gayatri Balasamy v. M/s ISG Novasoft Technologies Ltd, 2025 which stated any uncertainty in the law of arbitration would be an anathema to business and commerce.
The Court upheld the High Court's order, saying it was convinced that no error, not to speak of any error of law, could be said to have been committed in the judgment.
In the judgement, the Bench said, "We are of the considered opinion, that recognition of the power of joinder or impleadment of a non-signatory by an arbitral tribunal is a necessary intendment of the express provisions of Section(s) 2(1)(h) and 7 and the overall scheme and object of the Act, 1996 as well as the fundamental cannons of the law of arbitration of providing an effective alternative dispute resolution mechanism".
The Court said even in the absence of an express provisions in the Act, 1996 empowering the arbitral tribunal to implead or join a party who is otherwise bound by the arbitration agreement, the arbitral tribunal does possess such power by virtue of the doctrine of implied powers, as long as the same is in tandem with the scheme of Act, 1996 i.e., as long as the parties had either expressly or impliedly consented to the arbitration agreement.
The Bench emphasised, for arbitration to remain a viable and effectively alternative mechanism for dispute resolution, it is imperative to ensure that commercial reality does not outgrow this mechanism.
"The mechanisms of arbitration must be sufficiently elastic to accommodate the complexities of multi-party and multi-contract arrangements without compromising foundational principles such as consent and party autonomy. The approach of courts and arbitral tribunal in particular must be responsive to the emerging commercial practices and expectations of the parties who submit themselves to it," the Bench said.
The Bench pointed out, it is often loosely said that an arbitral tribunal does not have any jurisdiction except what has been conferred by the parties. "While the same may on the surface be correct, however much significance of an arbitral tribunal's jurisdiction often finds itself lost and obscured due to the semantics of the above statement. The misconception arises when the acts of party is conflated with the source of legal authority," it added.
"The present case is a classic textbook example of this misconception. What has been argued by the appellants herein in so many words, is that since it was never a party to the proceedings under Section 11 of the Act, 1996 before the referral court, and the arbitral tribunal was constituted by the referral court without arraying the appellant herein, the arbitral tribunal had no jurisdiction later to implead it," the Bench said.
The Court stated that the present case is a classic textbook example of this misconception.
The Appellants argued that the jurisdiction of the arbitral tribunal is only confined to the act of the parties and the manner in which the referral court, had constituted the arbitral tribunal.
"It stems from a failure to appreciate that while the parties' conduct may set in motion the arbitral process, it is not the determinant of the arbitral tribunal’s jurisdiction in a legal sense. Rather, it is the arbitration agreement itself—once validly concluded—that creates the jurisdictional foundation upon which the arbitral edifice rests", the Bench noted.
The Court further said, it erroneously presumes that jurisdiction is derived solely from the act of appointment rather than from the arbitration agreement that preceded and necessitated such appointment.
"The arbitration agreement, not the referral court’s order nor the procedural formalities attendant to the tribunal’s constitution, is the true source of jurisdiction. The act of the referral court in constituting the arbitral tribunal is but an enabling mechanism to activate a tribunal whose jurisdiction was already latent in the arbitration agreement itself," the Court said.
"We urge, the Department of Legal Affairs, Ministry of Law and Justice to take a serious look at the arbitration regime that is prevailing in India and bring about necessary changes while the Arbitration and Conciliation Bill, 2024 is still being considered," the Bench said.
The Bench directed its Registry to forward one copy each of this judgment to all the High Courts across the country and the Principal Secretary, Ministry of Law and Justice. "The Registry shall forward one copy each of this judgment to all the High Courts across the country and the Principal Secretary, Ministry of Law & Justice," it said.
Conclusively, the Court held, "We are convinced that no error, not to speak of any error of law, could be said to have been committed by the High Court in passing the impugned judgment and order."
Accordingly, the Court dismissed the Appeal.
Case Title: ASF Buildtech Private Limited v. Shapoorji Pallonji And Company Private Limited