New Delhi: The Supreme Court has highlighted a significant lacuna in India’s arbitration framework, calling on Parliament to address the ambiguity surrounding the termination of arbitral proceedings and to provide a clear statutory remedy against termination orders under the Arbitration and Conciliation Act, 1996, as well as the proposed Arbitration and Conciliation Bill, 2024. The observations, delivered by a bench comprising Justices JB Pardiwala and R Mahadevan on Tuesday, underscore the persistent uncertainty in Indian arbitration law that has hindered the efficiency and predictability of the dispute resolution process for nearly three decades.

Decades-Old Problem Persists

The court pointed out that the problem traces its roots to the UNCITRAL Model Law, a framework drafted nearly 40 years ago to harmonize international arbitration standards. The ambiguity over the tribunal’s power to terminate proceedings continues to plague India’s arbitration landscape despite the replacement of the 1940 legislation with the 1996 Act and the introduction of the new Arbitration Bill. “It is indeed very sad that the problem, which was born in the UNCITRAL Model Law, continues to persist not only under the 1996 Act but even in the proposed Arbitration and Conciliation Bill, 2024,” the bench observed.

The bench stressed that this uncertainty arises because the 1996 Act contains contradictory provisions on termination, leaving parties and courts to navigate a fragmented legal framework. It urged the legislature to consolidate all termination provisions into a single, coherent clause and to clarify the nature, effect, and remedies available in the event of a termination order.

Call for Clear Remedies

Highlighting the absence of remedies, the court described it as a “lacuna that must be addressed.” It emphasized that the Bill should explicitly define whether the arbitral tribunal retains the authority to entertain recall applications, and it should provide a statutory appeal against termination orders, akin to appeals available when a tribunal upholds jurisdictional objections. The bench noted that the current legislative silence has led to inconsistent judicial interpretations, causing confusion and undermining the credibility of arbitration in India.

Advocate Abhishek Gupta, an expert in arbitration law, lauded the court’s ruling, stating that premature or abrupt termination provisions have become “an unwieldy horse” in the system. He emphasized that a clear statutory redressal mechanism would resolve ambiguity and allow courts to effectively balance the rights and interests of all parties while maintaining the efficiency of the arbitration process.

Historical Context and Legislative Gap

The 1996 Act replaced the earlier 1940 arbitration law with the promise of speed, efficiency, and reduced judicial interference. However, almost 30 years later, procedural issues such as termination of proceedings continue to create uncertainty. While Section 15 of the Act provides for the appointment of a substitute arbitrator in cases of withdrawal or agreement of parties, no equivalent mechanism exists for terminations arising under other provisions of the Act.

This statutory gap has led to divergent judicial interpretations across high courts and even within Supreme Court rulings. The bench cited its 2025 judgment in the Gayatri Balasamy case, noting that such inconsistencies undermine the credibility of the arbitration regime and create uncertainty for business and commerce.

Proposed Legislative Reform

The bench suggested that Parliament should consolidate all provisions relating to termination into a single, simplified clause, akin to the SIAC Rules, which account for defaults, withdrawals, settlements, impossibility, and non-payment of deposits. The court emphasized that the law should define the consequences of a termination order, including whether the tribunal may recall it and whether a party barred from resuming proceedings may later initiate arbitration anew.

The Supreme Court also urged that future recourse after termination must be clarified to prevent tactical abuse by parties seeking to exploit the ambiguity to gain procedural advantage. The court warned that deliberate lapses by parties to restart arbitration could have a “chilling effect” on the system, exacerbating delays and undermining efficiency.

Three-Step Remedial Roadmap

Until legislative intervention is made, the court recommended a purposive interpretation of Section 14(2), which allows a court to determine if an arbitrator’s mandate has legally ended. The bench laid down a three-step interim remedial roadmap:

1. Recall Application Before Tribunal: The aggrieved party must first approach the arbitral tribunal to recall the termination order.
2. Court Intervention: If the tribunal rejects the recall, the party may approach a court, which can either set aside the termination order and revive proceedings or appoint a substitute arbitrator.
3. No Fresh Arbitration Application: The court emphasized that no fresh application can be filed to restart arbitration anew, preventing parties from gaining tactical advantage.

The bench cautioned that termination triggered by a party’s “obdurate stance” should generally prevent that party from recommencing proceedings, ensuring that arbitration remains finite and effective.

Impact on Arbitration Practice

The Supreme Court’s observations are expected to have a significant impact on the arbitration landscape in India. By clarifying the statutory position and urging Parliament to provide clear remedies, the ruling addresses a key source of uncertainty that has long troubled both domestic and international commercial arbitration.

The judgment reinforces that arbitration is intended to be a speedy, efficient, and binding dispute resolution mechanism, and unresolved ambiguities over termination undermine these objectives. It also highlights the importance of legislative clarity in balancing party autonomy with procedural safeguards.

Expert Reactions

Legal experts have welcomed the Supreme Court’s intervention, noting that the recommendations provide a framework for future legislative reform. They emphasized that a consolidated termination clause, along with statutory remedies, would bring India’s arbitration law in line with international best practices while reducing litigation and enhancing predictability for businesses.

Advocate Abhishek Gupta observed, “With a proper statutory redressal mechanism in place, the clouds of incertitude and ambiguity over the aftermath of termination would dissipate to a large extent. The courts are best equipped to adjudge the validity and tenability of a termination order, and balance the rights and interests of all parties in the process.”

Conclusion

The Supreme Court’s directive to Parliament underscores the urgency of addressing a decades-old deficiency in India’s arbitration law. By calling for consolidated provisions on termination, statutory remedies, and clarity on the effect of termination orders, the court aims to strengthen India’s arbitration framework and restore confidence among parties seeking dispute resolution.

As the Arbitration and Conciliation Bill, 2024, continues its legislative journey, the court’s observations provide a clear roadmap for reform, emphasizing that arbitration must remain efficient, predictable, and fair. Until Parliament enacts the necessary changes, the interim guidelines offered by the Supreme Court provide essential procedural clarity to tribunals, courts, and litigants navigating the complex terrain of arbitral terminations in India.