Arbitration Act — Frequently Asked Questions
Can a bank go to the DRT even if the loan agreement has an arbitration clause?
Yes. DRT proceedings under the Recovery of Debts and Bankruptcy Act (RDDBFI Act) are statutory enforcement proceedings — not ordinary civil suits — and are therefore not subject to Section 8 of the Arbitration Act. Courts have consistently held that a bank's right to approach the DRT cannot be ousted by an arbitration clause. However, disputes between the bank and guarantors about contribution, or disputes between co-lenders, may be arbitrable. Borrowers sometimes invoke arbitration clauses strategically to delay DRT proceedings — courts are now quick to reject such attempts.
On what grounds can an arbitral award be challenged under the Arbitration Act?
Under Section 34, an arbitral award can be set aside only on narrow grounds: a party was under incapacity; the arbitration agreement is invalid; a party was not given proper notice or was unable to present their case; the award deals with matters outside the scope of the submission; the tribunal was not properly composed; the subject-matter is non-arbitrable; or the award is in conflict with public policy of India. Courts cannot re-examine the merits or substitute their view for that of the tribunal. The 2015 Amendment tightened the public policy ground significantly.
What is the time limit for challenging an arbitral award?
A Section 34 application to set aside an award must be filed within 3 months from the date the party received the award. The court may condone a further delay of up to 30 days if sufficient cause is shown — but not beyond 30 days. This strict timeline (unlike civil court appeals) means parties must act quickly on receiving an unfavourable award. The limitation period runs from actual receipt of the award, not from any deemed knowledge date.
Does filing a Section 34 challenge automatically stay enforcement of the award?
No — this was the key change introduced by the 2015 Amendment. Previously, filing a Section 34 application automatically stayed enforcement. Now, a losing party must separately apply for a stay and satisfy the court that a prima facie case for setting aside the award exists, that balance of convenience favours the stay, and that enforcement would cause irreparable harm. Courts typically require the applicant to deposit a portion of the award amount as security before granting a stay. This reform made arbitral awards far more enforceable in practice.
What is the difference between Part I and Part II of the Arbitration Act?
Part I governs domestic arbitrations and international commercial arbitrations with a seat in India — Indian courts have supervisory jurisdiction over challenge (Section 34) and enforcement (Section 36) of such awards. Part II governs enforcement of foreign arbitral awards from New York Convention and Geneva Convention countries — here, Indian courts can only refuse enforcement on the narrow Section 48 grounds. The landmark case of Bharat Aluminium Co. v. Kaiser Aluminium (BALCO, 2012) SC confirmed that Part I does not apply to international arbitrations with a foreign seat.
What interim relief can be obtained during arbitration proceedings?
Parties can obtain interim relief from two sources: the court under Section 9 (before or during arbitration) or the arbitral tribunal itself under Section 17 (once constituted). Post the 2015 Amendment, Section 17 orders have the same enforceability as court orders. Section 9 relief is available for asset preservation, injunctions, appointment of receivers, and securing the amount in dispute. Once the tribunal is constituted, courts generally direct interim relief applications to the tribunal under Section 17 unless the tribunal cannot provide equally effective relief.
What is an arbitration agreement and what form must it take?
An arbitration agreement is any written agreement between parties to submit disputes to arbitration. Under Section 7, it can be an arbitration clause within a larger contract (such as a loan agreement) or a standalone agreement. It must be in writing — oral arbitration agreements are not recognised. Written form includes signed documents, exchange of letters, emails, or any electronic communication providing a record. In banking practice, arbitration clauses are standard in facility agreements, guarantee deeds, and inter-creditor arrangements.
What is fast-track arbitration and when is it suitable?
Fast-track arbitration under Section 29B is conducted entirely on documents — no oral hearings — and the tribunal must issue its award within 6 months. It is ideal for disputes where liability is largely document-based (loan agreements, dishonoured cheques, confirmed account statements) and where speed is the priority. Both parties must agree in writing to use the fast-track procedure. While the 6-month timeline is aspirational rather than strictly enforced, it has significantly shortened resolution timelines for straightforward commercial disputes.
How is a foreign arbitral award enforced in India?
A foreign arbitral award from a New York Convention country is enforced under Part II of the Arbitration Act by filing an application before the relevant High Court. The court will enforce it unless the opposing party proves one of the Section 48 grounds: incapacity, invalid agreement, denial of notice, award beyond scope, improper tribunal, award not binding or set aside in its country, non-arbitrable subject-matter, or violation of Indian public policy. The public policy ground is interpreted narrowly — mere legal error is not sufficient to refuse enforcement.
Can an OTS (one-time settlement) agreement be enforced like an arbitral award?
Yes, if the OTS is reached through conciliation proceedings under Part III of the Arbitration and Conciliation Act, the resulting settlement agreement has the same status as an arbitral award on agreed terms (Section 69) and can be enforced as a court decree under Section 36. This is more powerful than a regular OTS letter — if the borrower defaults on settlement installments, the bank can immediately execute it as a decree without fresh litigation. Banks and borrowers settling NPA accounts should consider formalising the OTS under Part III to gain this enforcement advantage.
Arbitration Proceedings and Award Enforcement
Advocate Subodh Bajpai advises on Section 34 award challenges, Section 36 enforcement strategy, and the intersection of arbitration with DRT proceedings in banking disputes.