International commercial arbitration has become the preferred method of resolving cross-border disputes due to its neutrality, efficiency and global enforceability. In India, Section 45 of Arbitration and Conciliation Act, 1996 plays a crucial role in this process. This section ensures that disputes governed by valid foreign arbitration agreements are referred to arbitration instead of being litigated in Indian courts.
By aligning with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, Section 45 of Arbitration Act reinforces India’s commitment to being an arbitration-friendly jurisdiction. It acts as a legal safeguard for international contracts and strengthens investor confidence in India’s dispute resolution system.
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Key Elements of Section 45 of Arbitration and Conciliation Act
The essence of Section 45 arbitration and conciliation act is to restrict unnecessary court interference when parties have already agreed to settle disputes through foreign arbitration.
Judicial Authority: Courts in India have the power and duty, to refer parties to arbitration if the dispute is covered by a valid foreign arbitration agreement under Section 44.
Mandatory Referral: Once an arbitration clause is established, courts cannot adjudicate the matter on merits but must refer the dispute to arbitration.
Scope: Applies only to foreign awards covered under the New York Convention countries (as per Section 44 of the Act).
Overriding Effect of Section 45 of Arbitration Act
Section 45 begins with a non-obstante clause, which gives it an overriding effect
It supersedes inconsistent provisions in Part I of the Arbitration Act.
It prevails over provisions of the Code of Civil Procedure, 1908.
Ensures that Indian courts prioritize arbitration over litigation in cross-border disputes.
Thus, Section 45 of Arbitration and Conciliation Act reflects a pro-arbitration policy and prevents parallel litigation in India when the parties have chosen international arbitration.
Applicability of Section 45 of Arbitration and Conciliation Act
The applicability of Section 45 of Arbitration Act can be understood as follows
It applies when parties to a dispute have agreed to a foreign-seated arbitration (i.e., outside India).
Any party to the agreement or even a person claiming through or under such a party (such as legal heirs, successors or assignees), may request the court to refer the dispute to arbitration.
Example: If an Indian and a UK company enter into a contract with an ICC arbitration clause stating London as the seat and the Indian company files a case in an Indian court, the UK company can invoke Section 45 arbitration act to compel referral to arbitration.
Exceptions: When Courts Can Refuse Referral Under Section 45
Although referral to arbitration is mandatory, courts may refuse if the arbitration agreement is:
Null and Void – For example, agreements obtained by fraud, coercion or illegality.
Inoperative – If the agreement has been abandoned, terminated or is no longer valid.
Incapable of Being Performed – If, for instance, the designated arbitral institution has ceased to exist or arbitration has become practically impossible.
This ensures that only valid arbitration agreements are enforced under Section 45 arbitration and conciliation act.
Impact of the 2019 Amendment on Section 45
Originally, Section 45 required courts to determine validity by conducting a detailed examination of the arbitration agreement (“unless it finds”).
Pre-2019: Courts often engaged in lengthy hearings to decide arbitrability, delaying referral.
Post-2019 Amendment: The wording was changed to “unless it prima facie finds”.
Effect: Courts are now required to conduct only a preliminary review, not a full trial. This ensures speedy referral to arbitration, in line with global arbitration standards.
Thus, the 2019 amendment to Section 45 arbitration and conciliation act 1996 reinforced India’s arbitration-friendly stance.
Judicial Interpretation of Section 45 of Arbitration and Conciliation Act
Indian courts have consistently upheld the importance of Section 45 of Arbitration and Conciliation Act in promoting arbitration over litigation in cross-border disputes.
1. Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005) 7 SCC 234
Facts: A Japanese company (Shin-Etsu) and an Indian company (Aksh Optifibre) had an agreement with an international arbitration clause. Aksh Optifibre challenged the arbitration agreement in an Indian court.
Issue: Should the Indian court conduct a detailed review or only a prima facie examination to decide if arbitration should proceed?
Judgment: The Supreme Court ruled that courts should only conduct a prima facie review (later reinforced by the 2019 amendment).
Significance: Courts cannot engage in extensive hearings before referring a case to arbitration.
2. World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd. (2014) 11 SCC 639
Facts: The parties had an arbitration agreement under SIAC (Singapore International Arbitration Centre), but one party filed a suit in India, claiming the agreement was inoperative.
Issue: Should the dispute be referred to arbitration or litigated in Indian courts?
Judgment: The Supreme Court remitted the conflict to arbitration, holding that a foreign arbitration clause is binding unless there is evident evidence of fraud or nullity.
Significance: Strengthened India's pro-arbitration stance by preventing frivolous court proceedings.
3. Vijay Karia v. Prysmian Cavi e Sistemi SRL (2020 SCC OnLine SC 177)
Facts: Prysmian Cavi initiated arbitration in London under the LCIA rules but Vijay Karia challenged it in India under Section 45.
Issue: Whether the Indian courts could refuse arbitration based on allegations of hardship.
Judgment: The Supreme Court ruled that mere hardship is not a ground to refuse arbitration under Section 45.
Significance: Reinforced that courts cannot refuse arbitration unless the agreement is truly null and void, inoperative or incapable of being performed.
Significance of Section 45 of Arbitration and Conciliation Act
Section 45 of Arbitration Act holds immense importance in strengthening India’s arbitration regime. It ensures that Indian courts respect party autonomy and honour valid foreign arbitration agreements in line with global standards. The key significance of Section 45 arbitration and conciliation act 1996 can be seen in the following points
Promotes India as an arbitration-friendly jurisdiction.
Aligns Indian law with New York Convention obligations.
Restricts unnecessary judicial interference in foreign arbitral matters.
Provides certainty and reliability for international commercial contracts.
Enhances investor confidence by ensuring enforceability of arbitration clauses.
Ensures speedy referral to arbitration, reducing delays in dispute resolution.
Strengthens India’s reputation in global trade and commerce.
Summing Up
Section 45 of Arbitration and Conciliation Act, 1996 ensures that valid foreign arbitration agreements are respected and enforced by Indian courts. By mandating referral to arbitration and limiting grounds of refusal, Section 45 of Arbitration Act strengthens India’s pro-arbitration policy. Judicial decisions and the 2019 amendment have further reduced court intervention, aligning Indian law with global arbitration practices.
In essence, section 45 arbitration and conciliation act 1996 is a cornerstone provision that upholds party autonomy, ensures compliance with international treaties and positions India as a reliable hub for cross-border dispute resolution.
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Section 45 of Arbitration and Conciliation Act: FAQs
Q1. What is Section 45 of Arbitration Act?
It mandates courts in India to refer disputes to arbitration if a valid foreign arbitration agreement exists, unless the agreement is null, void, inoperative or incapable of performance.
Q2. What are the exceptions under Section 45 of Arbitration and Conciliation Act?
Referral can be refused if the arbitration agreement is legally invalid, abandoned, expired or practically unenforceable.
Q3. Does Section 45 apply to domestic arbitration?
No. Domestic arbitration is governed by Section 8, while Section 45 applies only to foreign arbitration agreements under the New York Convention.
Q4. How did the 2019 amendment change Section 45 arbitration act?
It introduced the term “prima facie finds,” ensuring that courts only conduct a preliminary review instead of lengthy judicial scrutiny before referral.
Q5. Why is Section 45 important for international companies?
It assures global investors that India honours foreign arbitration agreements, reduces court delays and supports efficient international dispute resolution.
