Four decisions by Justice D.Y. Chandrachud that advanced party autonomy in arbitration (and one that didn’t)

D.Y. Chandrachud, India’s 50th Chief Justice, retired on 10 November 2024. During his two-year term, he was instrumental in revamping Indian arbitration jurisprudence. But the work is not without criticism. Earlier this year, a bench led by him exercised curative powers to set aside an award imposing a fine of approximately ₹3000 crores plus interest on the Delhi Metro Rail Corporation (DMRC) on grounds of patent illegality. The decision blurred the line between the state’s public functions and its commercial interests. 

But, for the most part, Justice Chandrachud’s decisions encouraged a level playing field and advanced India as an arbitration-friendly jurisdiction. His judgments in Cox and Kings (five judges) and NN Global (seven judges), for instance, are treatises in their own right and will be remembered as significant milestones in the evolution of arbitration law in India. 

His inclination to encourage arbitration as a viable alternative dispute resolution mechanism is visible in judgements even when was a puisne judge. He was responsible for significant decisions like Ayyasamy v Paramasivam (2016) which recognised fraud in arbitration and ONGC v Discovery Enterprises (2022) which sowed the seeds for the recognition of the Group of Companies Doctrine in India. In this article, we review CJI Chandrachud’s contribution through four judgements which took a pro-arbitration approach and one that may have spooked investors due to its protectionist stance. 

Binding non-signatories to arbitration agreements 

In December 2023, in Cox & Kings v SAP India Pvt. Ltd, a five-judge Constitution Bench led by CJI Chandrachud ruled that non-signatories can be bound to an arbitration agreement. Authoring the majority opinion, CJI Chandrachud wrote that the ‘Group of Companies’ doctrine has independent existence under the Arbitration and Conciliation Act, 1996 (Arbitration Act). The Court held that ‘party’ under Section 2(1)(h) read with Section 7 of the Act can include signatories and non-signatories. A non-signatory company within a group of companies can be bound by an arbitration agreement if certain factors exist. 

The factors include: 

1. parties’ mutual intent to be bound by arbitration, 
2. relationship of the non-signatory to the signatory,
3. the commonality of the subject matter, or the composite transaction between the parties, and
4. performance of the contract.

In reaching these conclusions, CJI Chandrachud endorsed the ‘Group of Companies’ principle as a consent-based doctrine within Indian jurisprudence. The decision reiterated party autonomy as a cornerstone of arbitration as it permits parties to dispense with technical formalities and determine the substantive and procedural rules that will apply to their dispute.

With Cox and Kings, India joined a group of countries that recognise the Group of Companies doctrine. England and Singapore, favoured seats for arbitration, do not recognise this principle. 

Validating unstamped arbitration agreements

Another case that made a splash in arbitration circles last year was a five-judge bench decision in NN Global v Indo Unique Flame. In April 2023, the bench led by Justice K.M. Joseph held that an arbitration agreement which is not stamped or is insufficiently stamped is void until it is validated by the appropriate authority. 

This decision led to a situation where referral proceedings under Sections 8 or 11 of the Arbitration Act were indefinitely delayed as the party contesting the arbitration agreement would allege that the agreement is not stamped or is insufficiently stamped. Therefore, parties were prevented from actioning what would have otherwise been a valid and enforceable agreement. 

Fortunately, later that year, a seven-judge bench set aside the decision. Authoring the judgement, CJI Chandrachud in NN Global (7J) held that non-stamping or insufficient stamping was a “curable defect” and therefore did not make the agreement void ab initio. Significantly, the Court held that any objections concerning stamping fall within the ambit of the arbitral tribunal, reinforcing the view that the tribunal has the competence to decide issues relating to the existence and validity of an arbitration agreement. In doing so, the Court upheld that principle of kompetenz–kompetenz (also known as the competence – competence doctrine). 

The principle is, in many ways, a logical extension of the principle of party autonomy. It follows that the institution selected to enforce party autonomy should have the ability to determine its own jurisdiction. The Court held that there are two aspects to this principle—the positive and the negative. The positive aspect legitimises an arbitral tribunal’s ability to decide challenges to its authority instead of courts. The negative aspect is a directive to courts to restrict their interference at the referral stage by deferring to the tribunal, especially on issues concerning the existence and validity of an arbitration agreement. 

NN Global (7J), therefore, ensured a holistic understanding of the principle and reinforced the idea that courts ought to adopt a hands-off approach at the referral stage. 

Simplifying judicial intervention in arbitral appointments

The question before the Court in NTPC v SPML was this: If a contract with an arbitration clause is discharged through accord and satisfaction, can the arbitration clause exist? In 2023, a two-judge bench including Justice Chandrachud held that as a general rule, determining the arbitrability of an issue falls under the scope of the tribunal. However, in exceptional circumstances, a referral court can reject a “manifestly and ex facie non-arbitrable” clause. 

In the case of a contract discharged through accord and satisfaction (a situation where parties, such as debtors and creditors, agree to extinguish an old obligation by agreeing to a fresh one), the bench held that a referral court is bound to protect parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. Calling this approach the ‘eye of the needle’ test, the bench held that in such cases, courts may refuse to appoint the arbitral tribunal. 

The same issue came up before a three-judge bench, which included CJI Chandrachud, in SBI General Insurance v Krish Spinning (2024). In a decision authored by Justice J.B. Pardiwala, the bench unanimously ruled that the issue of accord and satisfaction does not attack the question of whether an arbitration agreement exists. The arbitration agreement has a separate existence, which continues to be the case even after the original contract is discharged through accord and satisfaction. 

In SBI General Insurance, the Supreme Court overturned its ruling in NTPC and reemphasised the point that arbitral autonomy and judicial non-interference ought to be placed on the highest pedestal. Therefore, at the appointment stage, a court may be involved to the limited extent of looking into whether an agreement exists, and if so, it may proceed to appoint the tribunal. 

The blip in DMRC

DMRC v DAMEPL represented a ‘blip’ in the road of welcome developments in arbitration jurisprudence. In DAMEPL, the Supreme Court set aside an award in Delhi Metro Rail Corporation’s favour on the ground that public money was used to provide DAMEPL, a private entity, with an unnecessary windfall. The Court held that the award in favour of DAMEPL was a miscarriage of justice which satisfied the conditions for the exercise of its limited curative powers. 

While the Court did caution that its curative powers ought to be used in extremely limited situations, it is undeniable that DAMEPL may have opened the floodgates to excessive litigation by expanding the scope of the Supreme Court’s curative powers. At the same time, DAMEPL serves as a useful reminder that if considered necessary, the Supreme Court can and will exercise its extraordinary power to achieve the ends of justice. One might remember the Court’s decision in Ssangyong v NHAI (2019), where Justice Rohinton Nariman set aside the majority award while upholding the minority award as being consistent with Indian public policy. Such instances are few and far between and one is hopeful that it remains that way. 

Equality and equal treatment of parties

Before his retirement, CJI Chandrachud delivered two more crucial decisions which emphasised a level playing field between parties to an arbitration, especially when the government is a party. On 24 October 2024, a three-judge bench in International Seaport Dredging v Kamarajar Port Limited ruled that a distinction must not be made between private and government entities while applying provisions of the Arbitration Act. Authoring the opinion, CJI Chandrachud described the Arbitration Act as a “self-contained code”. This characterisation, he said, was important to preserve and promote pro-arbitration positions taken by the Supreme Court.

Subsequently, on 8 November, a five-judge bench led by CJI Chandrachud held that arbitration clauses which mandate unilateral appointments of an arbitrator were against the principle of equality enshrined in Section 18 of the Arbitration Act. The majority opinion also held that such clauses violated Article 14 of the Constitution. Further, the bench clarified that parties must be treated equally at all stages of the arbitration, including at the time of appointment of arbitrators. 

The decision is especially relevant to public-private contracts where government-owned companies usually appoint members to the tribunal unilaterally. A situation where a party is asked to choose from a panel of arbitrators entirely chosen by the counterparty was also held to be invalid. This decision reaffirms the principle of party equality and will hopefully bring reform to government contracts. 

Conclusion 

Justice Chandrachud’s opinions in Cox and Kings and NN Global (7J) brought much-needed clarity and certainty to fundamental aspects of arbitration law. Many of us practitioners find that CJI Chandrachud heralded a much-needed refresh to the baseline understanding of arbitration law in the country. For the most part, his decisions have bolstered India’s reputation as an arbitration-friendly jurisdiction. 

The Government has recently suggested amendments to the Arbitration Act and circulated draft amendments for public comment. Some suggestions are forward-looking as they promote technological reforms, acknowledge the role of arbitral institutions and encourage parties to mediate disputes. Others, such as strengthening the role of the Arbitration Council in overseeing procedural aspects, appear to step on the toes of party and arbitral autonomy by introducing regulatory oversight. 

It may be too early to predict the final amendments to the Arbitration Act. However, we are hopeful that the progress made to cement the principles of party consent and arbitral competence during Justice Chandrachud’s time will be preserved. 

Abhijnan Jha is a Partner at AZB & Partners, a law firm in India. Durga Priya Manda is a Senior Associate at AZB & Partners. The views expressed in this article are of the authors and do not represent the view of AZB & Partners.