Validity of Asymmetrical Arbitration Clauses in India

Incontrovertibly, autonomy and mutuality form the bedrock of arbitration as a quicker and relatively more convenient method of dispute resolution. However, the contractual nature of arbitration agreements often perturbs the equilibrium between such notions of autonomy and mutuality. One such practice that potentially impedes a party’s autonomy and mutuality in the arbitration process is the inclusion of asymmetrical or unilateral arbitration clauses in arbitral agreements.

• An ‘asymmetric arbitration clause’, as opposed to a ‘conventional’ arbitral agreement only offers one party the option of invoking arbitration, thereby denuding another party’s right to go to arbitration or refer the said dispute to litigation or other alternative redressal mediums.
• Despite its common occurrence in the Indian context, the jurisprudence encompassing the legality and normative standard of such arbitration clauses remains nebulous and highly varied.

Over the last few years, the Indian judiciary has taken an innately contradictory stance in determining the validity of such clauses owing to the equivocality as well as the importance imputed to different tenets of arbitration as a legal mechanism for redressal itself.

The dichotomization between the apparent validity and invalidity of such asymmetrical clauses has been closely tied to both the legislative intent behind the Arbitration and Conciliation Act, 1996 (‘Act’) as well its subservience to the broader theme of contract law in India. However, before we attempt to divulge into the convoluted nature of such unilateral clauses, it is imperative to get an overview of such arbitral clauses in the Indian context.

Overview of Asymmetrical Arbitration Clauses in India

What essentially renders the inclusion of such a clause subject to ambiguity is the ‘optional’ invocation of arbitration by one party.

• Conventionally, most arbitration clauses employ the prefix ‘must’ or ‘shall’ in determining the mutual arbitrability of a potential dispute by either party to the agreement; thereby presupposing mutuality in resolving or initiating the dispute resolution process.
• However, in the case of asymmetrical arbitration clauses, drafters of the arbitration agreement often employ the usage of the prefix ‘at the option of the party’ or ‘as per the party’s discretion’ or ‘may’ to presuppose the consent of one party and nullify the consent of the other in terms of invoking the arbitral clause of the agreement.

The Bombay Hight Court, in its recent judgment, also commented on the usage of the prefix ‘may’ in arbitral clauses. As per the court’s dictum, an arbitral clause, which employs the usage of the prefix ‘may’, requires the party seeking to initiate arbitration to seek consent of the other party.

The Court simultaneously also juxtaposed the usage of ‘may’ with ‘shall’ in holding that the latter doesn't require either party to establish consent before the initiation of arbitral proceedings as the usage of the prefix ‘shall’ is indicative of all parties to the agreement presupposing consent; thereby ensuring parity between the two. However, ever since, the notion of asymmetrical or unilateral arbitration clauses has been widely debated in the Indian context and still awaits redressal at the level of the apex court.

For instance, in the case of Emmsons International Ltd. vs. Metal Distributors (UK) and Anr., the Delhi High Court, while dealing with an arbitral clause that denuded the other party’s right to go to arbitration or refer the said dispute to litigation inter alia opined that such clauses are invalid in law. The decision passed by the Delhi HC was predicated on such clauses contravening the basic tenet of Section 28 of the Indian Contracts Act, 1872 (‘ICA’) as it was in restraint of legal proceedings and impeded a party’s right to seek redressal before the court.

Furthermore, in the case of Bhartia Cutler Hammer Limited vs. AVN Tubes Limited, the Delhi High Court, while dealing with the arbitrability of an asymmetrical clause declared the same to be invalid on grounds of lack of mutuality and bilateral opportunity between both parties to a fair and equitable arbitral process.

More recently, in the case of Lucent Technology vs. ICICI Bank, the Court drew reliance on the reasoning adopted by the Courts in Emmsons International and Bhartia Cutler in underscoring the invalidity of asymmetrical/unilateral clauses.
Interestingly, the jurisprudence encompassing the validity of such asymmetrical arbitration clauses took a legal pivot with the enunciation of Castrol India Ltd. vs. Apex Tooling Solutions by the Madras High Court. The High Court, in the said case, drew reliance on various international accounts in holding the validity of such unilateral arbitral clauses and announcing the irrelevancy of mutuality in determining the legality of an arbitral clause.

Determining the Potential of Asymmetrical Arbitration Clauses in India

How does the given legal conundrum resolve itself in the Indian context? A cursory reading of the aforementioned cases reveals three key factors that impact the arbitrability or validity of a given asymmetrical arbitral clause:

• The notion of party autonomy in determining the procedural contours of a given arbitral proceeding,
• The notion of parity between the parties, and
• The doctrine of unconscionability.

While myriad judgments passed by different High Courts seem to have decreed such asymmetry repugnant to the domestic law regime, the apex court of the country (albeit not addressing the issue of asymmetrical arbitration clauses directly) have also opined that contracts that fail to maintain the sanctum of parity between parties are against public policy and are, therefore, deemed unconscionable contracts under the purview of Section 23 of the ICA (Central Inland Water Transport Corpn. Ltd. vs. Brojo Nath Ganguly). However, in doing so, the Indian judiciary may have inadvertently digressed from perhaps one of the most important facets of arbitration in India i.e., party autonomy.

Given the preamble of the Act itself calls for consolidation of laws and regulations related to arbitration while accounting for United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985 and the UNCITRAL Conciliation Rules, 1980, the courts have conveniently overlooked the principal enshrined in Article 19.1 of the UNCITRAL Model Law that calls for procedural autonomy between the parties. Thus, further obscuring the autonomy given to parties while determining the modality of such an arbitral proceeding as per their own terms and conditions.

Although not directly in relation to such asymmetric clauses, the Supreme Court of India in the case of TRF Ltd vs. Energy Engineering Projects Ltd. has taken a relatively lax approach towards asymmetry in other aspects of arbitration – thereby not only fortifying the position of party autonomy at a higher judicial level, but also drawing inference towards a potential judicial pivot that conflates with the non-requirement of mutuality and symmetry in arbitral clauses of instituting proceedings.

Conclusion

The trajectory so far indicates that a blanket validation or invalidation of asymmetry clauses has not been possible.  A close perusal of the jurisprudence on the matter clearly stipulates that Indian courts, over the last few years, have attributed a great degree of salience to both contractual law as well as public policy in determining the outcome of such asymmetrical clauses.


Bharat Khurana
Advocate, Associate
India Law Offices, LLP