International commercial arbitration is an internationally accepted tool for resolving international disputes in an effective manner. Section 45 of Arbitration and Conciliation Act, 1996 is instrumental in ensuring that disputes under a valid arbitration agreement are referred to arbitration rather than being adjudicated in Indian courts. The said provision is in line with the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958, upholding India's pro-arbitration approach to international trade and commerce.
Key Elements of Section 45 of Arbitration and Conciliation Act
Section 45 of Arbitration and Conciliation Act 1996 gives judicial authorities (courts) the power to refer parties to arbitration where there is a valid arbitration agreement under Section 44 (Foreign Awards under the New York Convention).
Section 45 provides that if a legal dispute is subject to a foreign arbitration agreement, the Indian court must refer the parties to arbitration unless the agreement is:
Section 45: Overriding Effect and Judicial Authority's Power
Explanation:
Overriding Clause ("Notwithstanding anything...")
Section 45 has overriding powers over Part I of the Arbitration Act and the Code of Civil Procedure, 1908.
This ensures that Indian courts must prioritise arbitration over litigation when a valid arbitration agreement exists.
When Does Section 45 Apply?
When a case is brought before an Indian court, the parties have already agreed to foreign arbitration under a contract governed by Section 44 (New York Convention Awards).
Any party to the agreement or even a person claiming through that party (e.g., legal heirs, successors) can request the court to refer the dispute to arbitration.
Example:
Scenario: An Indian and a UK company have a contract with an arbitration clause stating that disputes shall be resolved in London under ICC rules.
If the Indian company files a lawsuit in an Indian court, the UK company can invoke Section 45 and ask the court to refer the case to arbitration in London.
Also, Get to Know How to Draft an Arbitration Agreement?
Exception – When Can a Court Refuse Arbitration?
Explanation:
Judicial authorities must refer the matter to arbitration unless the arbitration agreement is:
Null and Void – The agreement is legally invalid due to fraud, coercion, or illegality.
Inoperative – The agreement has been abandoned or has expired.
Incapable of Being Performed – Practical reasons, such as the arbitration institution shutting down, may make the agreement unenforceable.
2019 Amendment
Originally, the phrase was "unless it finds" (which required a detailed examination).
After the 2019 amendment, the phrase was changed to "unless it prima facie finds," meaning that courts now need to conduct only a preliminary review without engaging in full-fledged judicial proceedings.
This ensures that courts quickly refer disputes to arbitration instead of delaying the process.
Example:
Valid Arbitration Clause: If an arbitration clause exists and is enforceable, the court must refer the case to arbitration.
Invalid Arbitration Clause: If the arbitration agreement was signed under coercion, the court can declare it null and void and refuse arbitration.
Also, Learn How to Become an Arbitrator in India
Judicial Interpretation of Section 45 of Arbitration and Conciliation Act
Indian courts have consistently upheld the importance of Section 45 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.
Summing Up
India supports arbitration through Section 45 of Arbitration and Conciliation Act, 1996, which maintains the validity of proper foreign arbitration agreements. The combination of judicial authority restriction alongside arbitration compulsion works together to establish India as an arbitration-friendly jurisdiction. With this law reform, Indian legislation has become in line with global arbitration standards, thereby establishing arbitration as an optimal mechanism for international business conflicts.
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Section 45 of Arbitration and Conciliation Act, 1996: FAQs
Q1. What is Section 45 of Arbitration Act?
Section 45 mandates Indian courts to refer a dispute to arbitration in case a valid foreign arbitration agreement exists unless the agreement is null, void, inoperative, or incapable of performance.
Q2. Under what circumstances can an Indian court decline to refer a dispute to arbitration under Section 45?
A court can deny arbitration if the contract is fraudulent, not valid, concluded, or effectively unenforceable.
Q3. How does Section 45 co-exist with the New York Convention?
It implements arbitration contracts for foreign-seated New York Convention countries and promotes uniformity in arbitration law across the world.
Q4. Does Section 45 extend to domestic arbitration?
No, Section 45 extends only to foreign-seated arbitration. Domestic arbitration is regulated under Section 8 of the Act.
Q5. How does Section 45 affect international companies?
It ensures foreign investors and companies that India honours arbitration agreements, minimising court intervention and facilitating the quicker resolution of disputes.
