Arbitration has emerged as the preferred method of dispute resolution for commercial contracts in India, offering parties a faster, cost-effective, and confidential alternative to traditional court litigation. The Arbitration and Conciliation Act, 1996 (as amended in 2015, 2019, 2021, and 2025) provides the legal framework for domestic and international arbitration in India.
At Hashmi Law Associates (HLAPL), we regularly represent clients in domestic and international arbitrations seated in Delhi and other Indian cities. This comprehensive guide explains the arbitration process, key provisions, recent amendments, and practical considerations for businesses.
1. What is Arbitration?
Arbitration is a private dispute resolution mechanism where parties agree to refer their dispute to one or more arbitrators who render a binding decision (arbitral award). Unlike court litigation, arbitration offers flexibility in procedure, confidentiality, and the ability to choose arbitrators with expertise in the subject matter of the dispute.
Key advantages of arbitration:
- Speed: Arbitration typically concludes within 12-18 months, compared to 3-5 years for court litigation
- Cost-effectiveness: Lower legal costs and faster resolution reduces overall expenses
- Confidentiality: Arbitration proceedings and awards remain private
- Expert arbitrators: Parties can choose arbitrators with specific industry expertise
- Finality: Limited grounds for challenging arbitral awards
- International enforcement: Awards enforceable in 170+ countries under the New York Convention
Citation: Arbitration and Conciliation Act, 1996, Section 2(1)(a) – definition of arbitration; Section 7 – arbitration agreement.
2. Legal Framework for Arbitration in India
The Arbitration and Conciliation Act, 1996 (the "Arbitration Act") is the primary legislation governing arbitration in India. The Act has been amended multiple times:
- Arbitration and Conciliation (Amendment) Act, 2015: Introduced time limits for arbitral awards, fast-track procedure, and provisions for disclosure by arbitrators
- Arbitration and Conciliation (Amendment) Act, 2019: Established the Arbitration Council of India and introduced strict timelines
- Arbitration and Conciliation (Amendment) Act, 2021: Provided for automatic stay of awards in certain cases
- Arbitration and Conciliation (Amendment) Act, 2025: Introduced digital arbitration, virtual hearings, and reduced time limits
The Act is divided into four parts:
- Part I: Domestic arbitration (Sections 2-43)
- Part II: Enforcement of foreign awards (New York and Geneva Conventions) (Sections 44-60)
- Part III: Conciliation (Sections 61-81)
- Part IV: Supplementary provisions (Sections 82-86)
3. Essential Elements of an Arbitration Agreement
Under Section 7 of the Arbitration Act, an arbitration agreement must be in writing. The arbitration clause or separate agreement should contain the following essential elements:
| Element | Description |
|---|---|
| Arbitration clause | Clear statement that disputes shall be referred to arbitration |
| Seat of arbitration | Legal place where arbitration is seated (e.g., Delhi, Mumbai, Singapore) |
| Number of arbitrators | Typically 1 or 3 arbitrators |
| Appointment mechanism | Process for appointing arbitrators (institutional or ad hoc) |
| Governing law | Substantive law governing the contract (e.g., Indian law) |
| Arbitration rules | Institutional rules (LCIA, ICC, SIAC, MCA, Delhi International Arbitration Centre) or ad hoc |
Sample arbitration clause for commercial contracts:
4. Types of Arbitration in India
4.1 Domestic Arbitration
Domestic arbitration applies when both parties are Indian entities and the dispute is to be resolved within India. Part I of the Arbitration Act applies. The default seat is the place of arbitration agreed by parties; otherwise, the court may determine the seat.
4.2 International Commercial Arbitration
International commercial arbitration involves disputes where at least one party is a foreign entity (including foreign companies, NRIs, or foreign governments). Part I of the Arbitration Act applies with certain modifications. The New Delhi International Arbitration Centre (NDIAC) handles international arbitrations seated in India.
4.3 Institutional Arbitration vs Ad Hoc Arbitration
| Parameter | Institutional Arbitration | Ad Hoc Arbitration |
|---|---|---|
| Administration | Administered by arbitral institution (LCIA, ICC, MCA, DIAC) | Parties manage the process |
| Rules | Pre-defined institutional rules | Parties determine procedure (within Arbitration Act) |
| Cost | Higher (institutional fees) | Lower (no institutional fees) |
| Appointment of arbitrators | Institution appoints if parties fail | Court appoints under Section 11 |
5. Step-by-Step Arbitration Process in India
Step 1: Invocation of Arbitration
The party seeking arbitration sends a written notice to the other party invoking the arbitration clause, specifying the nature of the dispute and the relief sought. Under Section 21 of the Arbitration Act, arbitration commences on the date the notice is received.
Step 2: Appointment of Arbitrator
Within 30 days of invocation, parties must appoint arbitrator(s). If parties fail to agree, under Section 11, the Supreme Court (for international commercial arbitration) or High Court (for domestic arbitration) appoints the arbitrator. The 2025 amendment requires appointment within 60 days of application.
Step 3: Filing of Statement of Claim and Defence
The claimant files its Statement of Claim (pleadings) within 30 days of arbitrator appointment. The respondent files its Statement of Defence within 30 days of receiving the claim. Counterclaims and replies follow. Under Section 23(1), claims must include all facts, points of issue, and relief sought.
Step 4: Preliminary Hearing and Procedural Orders
The arbitrator holds a preliminary hearing to determine procedural matters including arbitration timetable, document production, witness statements, hearing dates, and any interim measures under Section 17.
Step 5: Document Production and Evidence
Parties exchange relevant documents. Witness statements may be filed. Under Section 19, the arbitrator determines admissibility of evidence. The Civil Procedure Code does not strictly apply unless parties agree.
Step 6: Final Hearing
Oral hearings are conducted for final arguments, witness examination (if any), and legal submissions. Virtual hearings are now permitted under the 2025 amendment. Under Section 24, hearings are held if requested by a party or deemed necessary by the tribunal.
Step 7: Arbitral Award
Under Section 29(1), the arbitral award must be made within 12 months of the arbitrator's appointment (extendable by party consent or court order). The award must be in writing, signed by the arbitrators, state reasons, and include the date and place of arbitration.
Step 8: Challenge to Award (Setting Aside)
Under Section 34, a party may apply to set aside the award within 3 months (extendable by 30 days) on limited grounds including incapacity of party, invalid arbitration agreement, lack of proper notice, award beyond scope of submission, composition of tribunal improper, or award conflicting with Indian public policy.
Step 9: Enforcement of Award
Under Section 36, after the 3-month challenge period expires, the award is enforced as a decree of the court. For foreign awards, Part II of the Arbitration Act governs enforcement under the New York Convention (1958).
6. Time Limits for Arbitration (2026 Amendments)
| Stage | Time Limit |
|---|---|
| Appointment of arbitrator under Section 11 | 60 days from application |
| Statement of Claim | 30 days from arbitrator appointment |
| Statement of Defence | 30 days from receipt of claim |
| Arbitral award | 12 months from arbitrator appointment (extendable by 6 months with consent) |
| Challenge to award (Section 34) | 3 months + 30 days grace |
| Appeal against Section 34 order | 60 days |
7. Grounds for Setting Aside Arbitral Award (Section 34)
Under Section 34 of the Arbitration Act, an arbitral award may be set aside only on the following limited grounds:
- Party incapacity: A party to the arbitration agreement was under some incapacity under Indian law
- Invalid arbitration agreement: The arbitration agreement is not valid under Indian law
- Lack of proper notice: A party was not given proper notice of arbitrator appointment or proceedings
- Award beyond scope: The award deals with a dispute not contemplated by or falling within the terms of submission
- Improper composition: The composition of the arbitral tribunal was not in accordance with the arbitration agreement
- Subject matter not arbitrable: The dispute is not capable of settlement by arbitration under Indian law
- Public policy of India: The award is in conflict with the public policy of India (fraud, corruption, breach of natural justice)
Citation: Arbitration and Conciliation Act, 1996, Section 34; Supreme Court in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 (public policy grounds).
8. Enforcement of Foreign Arbitral Awards in India
Under Part II of the Arbitration Act, foreign arbitral awards from New York Convention countries (170+ countries) are enforceable in India. The process under Sections 47-49 involves:
- Filing application for enforcement with the High Court having jurisdiction
- Submitting original award or certified copy, arbitration agreement, and evidence of New York Convention country
- Court enforces the award as a decree of the court unless grounds for refusal under Section 48 are established
Grounds for refusal of enforcement under Section 48:
- Party incapacity under applicable law
- Invalid arbitration agreement under governing law
- Lack of proper notice of arbitrator appointment or proceedings
- Award deals with dispute not contemplated by submission
- Composition of tribunal not in accordance with agreement
- Award not yet binding or set aside in the country where made
- Subject matter not arbitrable under Indian law
- Enforcement would be contrary to Indian public policy
9. Institutional Arbitration Centers in India
- Delhi International Arbitration Centre (DIAC): Established under the Delhi International Arbitration Centre Act, 2023 – handles domestic and international arbitrations seated in Delhi
- Mumbai Centre for International Arbitration (MCIA): Leading institutional arbitration center with modern rules and panel of arbitrators
- New Delhi International Arbitration Centre (NDIAC): Statutory body under the NDIAC Act, 2024 – handles international commercial arbitrations
- Indian Council of Arbitration (ICA): Established by FIEO and Government of India – handles both domestic and international arbitrations
10. How HLAPL Can Help with Arbitration Matters
At Hashmi Law Associates (HLAPL), we have extensive experience in domestic and international arbitration matters:
- Arbitration Agreement Drafting: Customized arbitration clauses for commercial contracts, shareholder agreements, and partnership deeds
- Arbitration Proceedings: Representation in ad hoc and institutional arbitrations (DIAC, MCIA, NDIAC, ICA)
- Interim Measures: Applications under Section 9 (pre-arbitration interim relief) and Section 17 (during arbitration) before courts and tribunals
- Arbitrator Appointment: Assistance in appointment of arbitrators and challenge to arbitrators under Section 12 and 13
- Challenging Awards: Section 34 applications before High Court to set aside arbitral awards
- Enforcement of Awards: Execution of domestic awards under Section 36 and foreign awards under Part II of the Arbitration Act
- International Arbitration: Representation in LCIA, ICC, SIAC, and UNCITRAL arbitrations involving Indian parties
Contact our arbitration experts in New Delhi for assistance with domestic or international arbitration matters.
Citation: Arbitration and Conciliation Act, 1996 (Act No. 26 of 1996) as amended up to 2025; Delhi International Arbitration Centre Act, 2023; New Delhi International Arbitration Centre Act, 2024; Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 (seat of arbitration); Supreme Court in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd., (2022) 1 SCC 209 (enforcement of interim awards).