International Commercial Arbitration

1.Introduction

“I realized that the true fiction of a lawyer was to unite parties… A large part of my time during the 20 years of my practice as a lawyer was occupied in bringing out a private compromise of hundreds of cases. I lost nothing thereby- not even money, certainly not my soul.”

– M.K Gandhi

Increase in international trade and investment is led to growth in cross-border commercial disputes. Arbitration has become exceptionally powerful and widely accepted as a way of resolving disputes. Arbitration is a method of settlement of disputes as an alternative to the ordinary judicial method. Among all the forms of ADR like conciliation, mediation, negotiations, etc., arbitration has become the regnant form. It is more firmly established and settled in its utility. The reason for this phenomenal acclaim and value is that it is the only real alternative to judicial adjudication.

ICR is an alternative method of resolving disputes arising out of commercial transactions conducted across national boundaries that allows the parties to avoid litigation in national courts.

2. Historical Aspect

The eminent reason for the development of ADR was the slow and tedious process of litigation, costs and dearth of the court system. In the last quarter of the previous century, there was the prodigious growth in science and technology. It made a great impact on commercial life by expanding competition throughout the world. The legal system did not give any response to the new atmosphere and obstacle of the commercial world. Thus, ADR emerged as a powerful weapon for the resolution of disputes at domestic and international level. It is flourishing as a separate and independent branch of legal discipline.

In the USA, the story about arbitration significantly began in 1987 when the Chambers of Commerce, New York State established the first private administered tribunal of businessmen. New York adopted its first modern arbitration law in 1920 which was followed by the federal government in 1925 and subsequently by jillion of states. The areas covered were, however, different. A uniform arbitration law was adopted by the National Conference of Commissioners on Uniform State Laws in 1955 and it had been amended thereafter.

In India, the law and practice of private and transactional commercial disputes without court intervention are often dated back to the ancient period. Arbitration or mediation as an alternative to dispute resolution by municipal courts has been prevalent in India from the Vedic period. The earliest known treatise is the Bhradarnayaka Upanishad, in which various types of arbitral bodies i.e.,

(i) the Puga or boards of a person belonging to different sects and tribes, but residents of the same locality;

(ii) the Sreni or belonging to different sects and tribes or assemblies and meeting of tradesman and artisans belonging to different tribes but having some kind of connection with one another through the profession practised by them;

(iii) the Kula or meetings of kinsmen or assemblages of relations referred to. These arbitral bodies, referred to as Panchayat, dealt with a variety of disputes, for instance, disputes of contractual, matrimonial and criminal nature. The disputants would generally acknowledge the Panchayat’s decision and hence for a settlement that arises before the Panchayat’s conciliation would be as conclusive and requisite for both the parties because the judgement was on clear legal obligations.

The Muslim rule in India witnessed the incorporation of the principles of Muslim law in the Indian culture. Those laws were systematically compiled in the form of a commentary and came to be acknowledged as Hedaya. During Muslim rule, all Muslims in India were governed by Islamic laws- the Shari’ah as incorporated in the Hedaya. The Hedaya has provisions for arbitration as well. The Arabic word for arbitration is Tahkeem, and the word for an arbitrator is Hakam. An arbitrator was required to possess the qualities important for a Kazee – an official Judge presiding over a court of law, whose decision was binding on the parties subject to legality and validity of the award. The court has the jurisdiction to implement such awards given under Shari’ah though it is not entitled to review the merits of the dispute or the reasoning of the arbitrator.

ADR picked up pace in the country, with the emergence of the East India Company. The British government gave legislative form to the law of arbitration by promulgating regulations in the three presidency towns: (i) Calcutta, (ii) Bombay, (iii) Madras. Bengal Resolution Act, 1772 and Bengal Regulation Act, 1781, both ensured that the involved parties should bring the dispute before an arbitrator which was appointed bilaterally after an agreement and the judgement of which shall be conclusive and requisite for both the parties. These remained in force till the Civil Procedure Code 1859 and were prolonged in 1862 to the Presidency towns.

The progress of International Commercial Arbitration initiated in 1923. At the beginning of the development of international trade most association at early centuries, settled the dispute by arbitration unless the dispute was of family nature and labour relations between two commercial enterprises. The state-trading system was the first user of the arbitration mechanism for a solution. State-trading system did not pay attention to the matter that the dispute happened to include a foreigner as one of the parties. It was clear that in England until 1979 arbitration act considered in London include international trade, shipping and insurance.

3. Meaning

Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 defines an ICA as a legal relationship which must be considered commercial under the law in force in India, where either of the parties is a foreign national or habitual resident, or is a foreign body corporate, or is a company, association or body of individuals whose central management or control is in foreign hands. Thus, under Indian law, arbitration with a seat in India, but involving a foreign party will also be considered as an International Commercial Arbitration, and will be subject to Part I of the Act. However, where an International Commercial Arbitration is held outside India, Part I of the Act would have no applicability on the parties but the parties would be subject to Part II of the Act.

The Amendment Act has omitted the words ‘a company’ from the purview of the definition thereby restricting the definition of International Commercial Arbitration only to the body of individuals or association. Therefore, by interpretation, it has been made clear that if a company has its place of incorporation as India then central management and control would be irrelevant as far as its determination of being an “international commercial arbitration” is regarded.

The scope of Section 2 (1)(f)(iii) was determined by the Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.,[1] wherein, despite TDM Infrastructure Pvt. Ltd. having foreign control, it was deduced that “a company incorporated in India can only have Indian nationality for the Act”. 

Thus, the Act noted the companies controlled by foreign hands as a foreign body corporate, the SC has excluded its application to companies certified in India and having Indian nationality. Hence, if a corporation holds bifold nationality the former based on foreign control and the latter based on registration in India, such corporation would be declined to be considered as a foreign corporation, as for the Act.

In a recent case, where the Indian company was the lead partner in a consortium (which also included foreign companies) and was the determining voice in appointing the chairperson and the consortium was in Mumbai, the SC held that the central management and control was in India.[2]

4. International Commercial Arbitration with Seat in India

The laws applicable to International Commercial Arbitration when the seat of arbitration is in India have been discussed below.

4.1 Notice of Arbitration

Arbitration is said to have commenced when the notice of arbitration requires another party to take steps in connection with the arbitration or to do something on his part in the matter of the arbitration. Under Section 21 of the Act, a notice of arbitration has to be served to another party, requesting that the dispute be referred to arbitration. The day on which the respondent receives the notice, arbitral proceedings commenced. In a Notice of Arbitration, a party communicates: i) an intention to refer the dispute to arbitration, and ii) the requirement that another party should do something on his part in that regard. This will generally suffice to define the commencement of arbitration under the Act.

Applicability of Amendment Act – The date of commencement of the arbitration following Section 21 of the Act is crucial with regards the applicability of the Amendment Act, 2015. In the event, the date of commencement is after October 23, 2015, the provisions of the Amendment Act, 2015 will be applicable, as against the Act, concerning arbitral proceedings.

4.2 Referral to Arbitration

Under Part I, the courts can refer the parties to arbitration if the subject matter of the dispute is governed by the arbitration agreement. Section 8 of the Act provides that if an action is brought before a judicial authority, which is the subject matter of an arbitration agreement, upon an application by a party, the judicial authority is bound to refer the dispute to arbitration, Recently, the Supreme Court has opined that the invoking party may invoke an arbitration even when the dispute settlement clause in the contract grants an option of getting the dispute adjudicated by arbitration or by the court[3]. It is important to note that the above application must be made by the party either before or at the time of making his first statement on the substance of the dispute, and be accompanied by a duly certified or original copy of the arbitration agreement, and such an agreement need not be signed[4] for it to be considered valid. However, it has been recently held that there is no requirement of filing a formal application seeking a specific prayer for reference, as long as the party objected to the maintainability of the suit in light of the arbitration clause.[5]

In the case of Garware Wall Ropes v. Coastal Marine Constructions & Engineering Ltd.[6], the Supreme Court has recently held that unless the agreement which prescribes the arbitration clause is sufficiently stamped, the court cannot appoint an arbitrator. Following this judgment, the Bombay High Court, in the case of S. Satyanarayana v. West Quay Multiport Pvt. Ltd.[7] held that the agreement containing the arbitration clause must be stamped in the local State where the arbitration takes place.

4.3 Interim reliefs

Under the Act, the parties can seek interim relief from courts and arbitral tribunals under Sections 9 and 17 respectively. A party may apply to the court, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced, for seeking interim measures and protections, including interim injunctions, under Section 9 of the Act. Following Section 17, the Arbitral Tribunal can also provide interim measures of protection or ask a party to provide appropriate security in connection with the matter of the dispute, as in found appropriate, during the arbitral proceedings. However, the powers of the Arbitral Tribunal were narrow in scope, as compared to the powers of the court under Section 9 of the Act.

Applicability of Amendment Acts – The Amendment Act, 2015 has made significant changes which will affect the grant of interim reliefs in arbitration proceedings commenced after October 23, 2015.

4.4 Appointment of Arbitrators

The parties are free to agree on a procedure or method for appointing the arbitrator(s). Failing any agreement, in arbitration with three arbitrators and each party will appoint one arbitrator and the two appointed arbitrators will appoint the third arbitrator who will act as a presiding arbitrator. If neither of the two parties appoints an arbitrator within the said time i.e., 30 days or if the third arbitrator is not appointed by both the pre-appointed arbitrator within 30 days, the party can request the SC or relevant High Court (as applicable) to appoint an arbitrator[8].

The Supreme Court or High Court can authorize any person or institution to appoint an arbitrator.[9] In case of an International Commercial Arbitration, the application for appointment of the arbitrator has to be made to the Supreme Court and in case of domestic arbitration, the arbitrator will be appointed by the respective High Court having territorial jurisdiction.

To examine the existence of an arbitration agreement the Amendment Act, 2015 provides the Supreme Court and High Court, power in an India-seated International Commercial Arbitration and the latter in domestic arbitration, at the time of making such appointment.[10]

The Supreme Court of India in National Highways Authority of India v Sayedabad Tea Company[11] dealt with arbitral appointments under section 11 of the Act, vis-a-vis Section 3G(5) of the National Highways Act 1956 (the Highways Act), in special situations the National Highway Act, 1956 empowers the Central Government for the appointment of an arbitrator. The SC held that the Highways Act, being a special law, would have an overriding effect on a general law such as Act.

5. Some International ADR Institutions and Organizations

5.1 American Arbitration Association was founded in 1926 by the merger of the Arbitration Society of America and the Arbitration Foundation. It’s main aim to provide dispute resolution and avoid Civil Court proceedings. It also administers mediation and other forms of alternative dispute resolution. It’s headquartered is in New York City.

5.2 The Association for Conflict Resolution (ACR) is a professional institution dedicated to enhancing the practice and public understanding of peaceful and efficacious conflict resolution.

5.3 Arbitration Chambers, Singapore is a commercial company whose main aim is to provide an independent source of expertise to parties in dispute. It is a firm of professional arbitrators who are available to undertake the resolution of commercial disputes through arbitration.

5.4 Singapore International Arbitration Centre (SIAC), Singapore was established in 1991. SIAC is a not-for-profit international arbitration organisation. It provides a fair-minded, efficient and reliable dispute resolution service in the regional hub that is the Centre of Asia’s legal and business activity.

5.5 International Centre for Dispute Resolution (ICDR) is the international branch of the American Arbitration Association, established in 1996 to administer international arbitration proceedings initiated under the institution’s rules. It’s headquartered is in New York City (U.S.A.). It also has offices in Mexico, Ireland, Bahrain and Dublin.

5.6 International Chamber of Commerce (ICC) is an international business organization established in 1919. It’s headquartered is in Paris, France. It administers dispute resolution services help solve difficulties in international business.

5.7 World Intellectual Property Arbitration and Mediation Centre based in Geneva, Switzerland, the WIPO Arbitration and Mediation Centre was established in 1994 to offer Alternative Dispute Resolution options for the resolution of international commercial disputes between private parties.

6. Conclusion

A fast-growing economy requires a reliable and efficacious dispute resolution process to be able to attract foreign investment. With the extreme backlog before Indian courts, commercial players in India and abroad have developed a strong predilection to resolve disputes via arbitration. Despite India being among one of the original signatories to the New York Convention, arbitration in India has not always maintained with the international best practices. However, the last five years have witnessed a significant positive change in approach. Courts and legislators have acted intending to bring Indian arbitration law in line with the international best practices. The Alternate Dispute Resolution movement needs to be carried forward with greater speed. This will considerably reduce the burden on the courts apart from providing instant justice at the door-step, without the substantial cost being involved. ADR is rapidly developing at the national and international level, offering simpler methods of resolving disputes.

Questions

Ques 1. Which section defines International Commercial Arbitration?

Answer. Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 defines International Commercial Arbitration.

Ques 2. Which section defines Appointment of Arbitrator?

Answer. Section 11 of the Arbitration and Conciliation Act, 1996 defines Appointment of Arbitrator.

Ques 3. How many Arbitrators can join tribunal?

Answer. The parties are free to agree on the number of arbitrator(s) and procedures for appointing such arbitrator(s). If the parties do not agree to the number of arbitrators, the tribunal will consist of three arbitrators.

Ques 4. What are the duties of an Arbitrator in Arbitration?

Answer. Section 12 and Section 18 of the Arbitration and Conciliation Act, 1996 imposed an important duty on the arbitrator that he must have to be independent and impartial in any arbitration proceeding. Section 20 of the Arbitration and Conciliation Act, 1996 imposed the duty on the arbitrator to appoint the time and place of the arbitration if the parties have failed to decide it amongst themselves. According to Section 12 of the Arbitration and Conciliation Act, 1996, there is an obligation on an arbitrator to disclose all the relevant facts which are required to be known by both the parties. According to Section 33 of the Act, the arbitrator must correct or interpret the award passed by him within 30 days from the date of receipt.

References

  1. https://www.lawctopus.com/academike/arbitration-adr-in-india/
  2. http://www.legalservicesindia.com/article/2196/International-Commercial-Arbitration.html
  3. https://en.wikipedia.org/wiki/International_arbitration
  4. http://www.nishithdesai.com/
  5. http://businessconflictmanagement.com/international-adr-organizations.php

[1] 2008 (14) SCC 271.

[2] M/s. Larsen and Toubro Ltd. SCOMI Engineering BHD v. Mumbai Metropolitan Region Development Authority, 2018 SCC Online SC 1910

[3] Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator, (2018) 9 SCC 774.

[4] M/s. Caravel Shipping Services Pvt. Ltd. v. M/s. Premier Sea Foods Exim Pvt. Ltd., 2018 SCC Online SC 2417.

[5] Parasramka  Holding  Pvt. Ltd.  & Ors. v. Ambience Pvt. Ltd. & Anr., 2018 SCC Online Del 6573

[6] Civil Appeal  No. 3631 of 2019 arising out of SLP(C) No. 9213 of 2018.

[7] Arb. Application No. 261 of 2018

[8] Section 11(6) of the Act

[9] Section 11(6)(b) of the Act

[10] Section 11 (6)(a) of the Act

[11] Civil Appeal No(s). 6958 6959 OF 2009

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