With the rise of e-contracts and smart contracts in commercial transactions

globally, it becomes important to analyze developments in ADR such as

blockchain arbitration. The concept of blockchain arbitration is very recent and it
seeks to use the advantages of the technology in dispute resolution. However,
one important facet of understanding the feasibility of using blockchain
technology in arbitrations in India is understanding whether awards rendered
through such a process can be enforceable in the first place. While the 2015
Amendments to the Arbitration and Conciliation Act introduced some changes to
bring the Act on par with contemporary technology, there is still a lack of clarity in
determining whether the peculiar form of blockchain arbitration can be facilitated
through the Indian Act.
Validity of the Arbitration Agreement in Domestic Awards
One problem identified with the enforceability of blockchain
arbitration awards is the lack of enforceability of the agreement itself under the
New York Convention which requires such agreements to be in writing or through
the exchange of telegrams/telefaxes. Similarly, Section 7 of the Arbitration and
Conciliation Award also requires that a valid arbitration agreement should be in
“writing”. However, unlike Article II of the New York Convention, Section 7 further
clarifies that an agreement would be considered as having been in writing if it has
been communicated through “electronic means”. The allowance for “electronic
means” was introduced through Section 3 of the Arbitration and Conciliation
(Amendment) Act, 2015. Electronic means have not been defined under the Act or
the Amendment Act despite the recommendation of the 246th Law Commission
Report.
However, Section 10A of the Information Technology Act, 2000 gives validity to
contracts that are formed through electronic means. Electronic means is defined
in the section as means used for creation of an “electronic record”. Electronic
Record is further defined under Section 2(1)(t) of the Act as “data, record or data
generated, image or sound stored, received or sent in an electronic form or micro
film or computer generated micro fiche”. Smart contracts are made up of a series
of electronic records which are transmitted and stored by the parties, thereby
covering the same within the definition of an “electronic means”. Therefore it can
be concluded that blockchain arbitration agreements would be valid under the
amended Section 7 of the Arbitration and Conciliation Act. The question of
whether the Amendment Act would apply or not to particular proceedings would
depend on the date of the commencement of such proceedings.
Difficulty in Determining Territory of the Awarding Country
India has made the reciprocity reservation under Article I of the New York
Convention which means that foreign awards made in only certain Contracting
States of the Convention (gazetted by the Central Government) can be enforced
in India. As of now, India has gazetted less than 1/3rd of all of the Contracting
States to the Convention.
An exception was carved out in the case of Transocean Shipping Agency v. Black
Sea Shipping[1], where an award of Ukraine was enforced in India despite
“Ukraine” not being gazetted officially by the Central Government. However, the
reason for the same was that the USSR (which Ukraine was a part of originally)
was gazetted by India.
In blockchain arbitration, arbitrators are selected by the dispute resolution service
provider once a request for arbitration is made from a smart contract. These
arbitrators are usually individuals who have applied to the service providers with
their expertise. The arbitral award is then given on the blockchain ledger with the
copies of such a decision being made available to the parties on their respective
computers (in different countries). The arbitral award in itself, however, cannot be
said to have been given in any one country. This then results in the question of
whether such an award can be enforced in India in light of the reciprocity clause.
A strict interpretation of the Arbitration and Conciliation Act would mean that such
an award cannot be enforced in India since the physical space of the internet has
not been gazetted by the Central Government. Such an interpretation would,
however, be antithetical to the arbitration-friendly approach being increasingly
adopted by India. Conversely, allowing all awards given through blockchain
arbitration could result in the intentional misuse of such proceedings to prevent
the application of the reciprocity reservation of India.
This question is better answered in cases where the service provider approaches
an established arbitral institution to render an award. In such a case, the country,
where the arbitral institution is established in, can be considered to decide
whether the same would pass the test of reciprocity and enforceability in India.
Evidence of Arbitral Award
The provisions for enforceability of a domestic and a foreign arbitral award have
been laid down under Sections 36 and 48 of the Arbitration and Conciliation Act
respectively. An application made for enforceability of either of such awards
should include an “original copy” of the award. This becomes difficult in
blockchain arbitration since there is no one “original copy” of the award in these
arbitrations and the award is put on the network accessible to everyone. It can,
however, be argued that the Act also allows for “duly certified” copies of the
original award to be presented to the Court. The mechanism of blockchain
theoretically makes it impossible for anyone to merely alter their copy of the
arbitration award, which means that a copy of the award taken from the
blockchain would be duly certified in itself. To make it more secure, Courts can be
allowed access to the blockchain to procure a direct copy of the award.
However, unlike a foreign award in EPC Limited v. Rioglass Solar SA[2], a domestic
award is further required to be stamped in order to be enforced under Section 36
of the Arbitration Act. Section 3 of the Stamp Act read with Schedule I, Article 12
of the Act suggests an arbitral award made in “writing” should be stamped. The
question of a “written” arbitral award is similar to the question of a written
arbitration agreement discussed above. The Stamp Act currently does not include
“electronic means” in the definition of a written arbitral award. Pending a
legislative amendment to this effect, the Stamp Act could be read to allow for
“electronic” arbitral awards in keeping with the trend demonstrated in the
Arbitration and Conciliation Act and the Information Technology Act towards
facilitating technological advancements in commercial transactions.
Further, section 17 of the Registration Act requires domestic awards to be
registered when it affects rights related to an immovable property. Only such an
award which is then duly stamped and/or registered can be presented to the Court
for enforcement[3]. This means that giving direct access of the blockchain to the
enforcing Court would not be sufficient since such an award also needs to be duly
stamped and/or registered first. Direct access, in domestic awards, can be given
for the purposes of proving the original award while stamping and registering the
document.

The copy of the award which is then duly stamped and/or registered can be
considered as “original” for the purpose of making an application under Section
36 of the Arbitration and Conciliation Act. For foreign awards, direct access can
simply be given to the Court in which an application for enforcement of the
foreign award is made.

Amendment of Arbitration Act for inclusion of Electronic Contracts

In order to do away with this issue, Section 7(4) (b) was amended in 2016 by way of the
Arbitration and Conciliation (Amendment) Act, 2015 (“2016 amendment”) and inserted
the expression “including communication through electronic means”. The implication of
this amendment was that an agreement containing arbitral clause shall be valid even if
it is executed through an electronic mode. However, issues like execution of contracts
through exchange of emails containing reference to arbitration, and enforceability of
arbitral clause in electronic standard form of contracts requires a revisit by the Supreme
Court in a much comprehensive manner.
An arbitral clause or arbitration agreement is sine qua non to initiate arbitration
proceedings. According to Section 7(4) of the Arbitration and Conciliation Act, 1996
(“A&C Act”), the agreement must be in writing and it must be signed by the parties.
While electronic contracts are made in writing, they are not signed physically by the
parties. The most commonly used e-contracts are Shrink-wrap contracts, Click-wrap
contracts, Browse-wrap contracts and Individually negotiated contracts through
electronic mode. Such contracts also include arbitral clause and often become the point
of debate whenever a dispute arise between parties.

Validity and enforceability of arbitral clause where agreement is executed

through exchange of emails
Any contract is said to be valid if it satisfies the rigours of Section 10[1] of the Indian
Contract Act of 1872. Section 7(4)[2] of the Arbitration and Conciliation Act, 1996 states
that exchange of letters would constitute a valid arbitration agreement. However, in
cases of exchange of emails, the requirement of physical signatures is not met with and
accordingly such agreements are challenged for the want of proper signature.
Electronic Signatures under the Information Technology Act
Electronic signatures are recognized under Section 3A of Information and Technology
Act, 2000[3] (“IT Act”) and a presumption in favour of electronic signatures also exist
under Section 85B of the Indian Evidence Act, 1872 (“IEA”)[4]. Further, Section 10A of
the IT Act states that an electronic contract shall not be deemed to be unenforceable
merely because an electronic mode was used for the execution of the contract.[5]
A contract executed through exchange of e-mails was recognized by the Hon’ble Apex
Court in Trimex International Fze Limited, Dubai v Vedanta Aluminum Ltd.[6] (“Trimex
case”), wherein the Hon’ble Court opined that for a contract (whether electronic or
otherwise) to be valid, it must fulfil the essentials of Section 10 of Indian Contract Act,
1872. The same applies to an arbitration agreement as well. In Vidya Drolia v. Durga
Trading Corpn.,[7] (“Vidya Drolia”) the Hon’ble Supreme Court held that the validity of
an arbitration agreement depends upon the fulfillment of statutory requirements under
the Indian Contract Act and Arbitration and Conciliation Act. In Trimex case, the Apex
Court further recognized the validity of arbitral clause if the agreement was executed
through exchange of e-mails. The court held that even in the absence of a signed
agreement between the parties, it would be possible to infer a concluded contract from
various documents duly approved and signed by the parties in the form of exchange of
e-mails, letter, telex, telegrams and other means of telecommunication.
In Shakti Bhog Foods Limited v Kola Shipping Limited,[8] (“Shakti Bhog”) the Apex Court
gave a purposive interpretation to Section 7 of Arbitration Act, and held that an
inference has to be drawn from exchange of e-mails, letters or fax even if the
agreement was not signed by the parties. In view of the ratios laid down in Trimex and
Shakti Bhog cases, it can be inferred that if an electronic arbitration agreement fulfils
the rigours of Arbitration Act, then the same can be considered valid and will be
enforceable.
Validity and enforceability of Arbitral Clause in electronic standard form of
contracts
Standard form of contracts are “take it or leave it contracts”, which leave the other
party with almost no bargaining power. Such contracts are also known as adhesion
contracts. Parties belonging to various sectors such as non-banking financial companies
(NBFCs), software companies, banks, etc. require their customers to sign the standard
form of contracts. These contracts are even made through electronic mode and give
more power to one party over the other. Recently, in M/S Texco Marketing Pvt. Ltd. v.
TATA AIG General Insurance Company Ltd. & Ors.[9] (“Texco”), the Apex Court has taken
a critical view of the standard form of contracts and has observed that “freedom to
contract” is lost in such cases. This problem aggravates when such contracts are
executed in electronic form and contains an arbitral clause. In such cases, the validity
of arbitral clause is also questioned when it stipulates for a unilateral appointment of
sole arbitrator or for the want of proper consent or signature by the party. When a
challenge is based on the ground of unilateral appointment of arbitrator, the courts
have mostly set aside the arbitral awards in such cases. In Envirad Projects Pvt. Ltd. v.
NTPC Ltd.[10] the Hon’ble Delhi High Court held that unilateral appointment of arbitrator
is non-est. The Apex Court has also reprimanded the practice of unilateral appointment
of arbitrator in Perkins Eastman Architects DPC v. HSCC (India) Ltd.[11] and Voestalpine
Schienen GmBH v. Delhi Metro Rail Corporation Ltd.[12] Such clauses exists in electronic
adhesion contracts. Enforceability becomes difficult where electronic adhesion
contracts give more power to one party to appoint arbitrators because it fails to fulfil
the equitable and legal principles of a valid contract as enshrined under the Arbitration
and Conciliation Act, 1996 and Indian Contract Act, 1872.
Conclusion
In view of Trimex and Shakti Bhog judgments, it is apposite to say that electronic
arbitration agreements find their validity and enforceability in the Indian legislative
framework. The Apex Court has given purposive interpretation to the provisions of
Arbitration and Conciliation Act while ensuring that interference of courts are
minimized. Where an arbitration agreement is executed through exchange of emails
and it fulfills the requirements of Arbitration and Conciliation Act and Indian Contract
Act, then enforceability of such electronic arbitration agreement becomes easy.
Enforceability of electronic arbitration agreement is the need of hour. The recent trail of
judgments are progressive and are in consonance with the objectives of Arbitration and
Conciliation Act, 1996, that is, expeditious disposal of cases in a cost-effective manner.
This will instill confidence in new startups and businesses relying heavily on e-
commerce.