The Dynamics of International Commercial Arbitration: A Comprehensive Analysis

Abstract

Every state and the law wishes to reduce litigation to the minimum, but it is increasing day by day. The Growing backlog of unresolved cases has become an overwhelming burden for the Indian judiciary. The Indian judiciary will crumple under its weight and the public will lose faith in the legal system if immediate action is not taken to curb the deluge of lawsuits. Therefore, it is now essential to identify a different more effective justice administration system than the conventional one. For this reason, the law encourages and allows parties to the dispute to settle their dispute through different methods of alternative dispute resolution processes. Arbitration, Conciliation, Lok Adalat, and Mediation are now acknowledged as the most popular and successful alternatives to the traditional court-based justice administration system. An increase in the cross border transactions led to an increase in disputes which became necessary to bring these under one umbrella which gave rise to international arbitration.

Introduction

The increase in international trade is bound to give rise to international disputes that transcend national frontiers and geographical boundaries. As a result, there comes a need to resolve these issues through Arbitration rather than going through the long litigation process.
This article gives you a detailed analysis of International Commercial Arbitration, its practices, and challenges. In ^[1]Bharat Aluminum Co. v. Kaiser Aluminium Technical Service Inc.(2012) Following the Supreme Court’s ruling in the BALCO case, Indian courts were no longer able to arbitrate disputes involving arbitrations conducted outside of India. In this instance, the Supreme Court determined that the Indian Arbitration and Conciliation Act, 1996 should be construed to reflect the intentions of the Indian Parliament, following a review of its previous rulings on the Act.

The Supreme Court overturned its previous rulings in the Balco Judgement, Bhatia International v. Bulk Trading S.A. & Anr. (2002), Venture Global Engineering v. Satyam Computer Services Ltd, and Anr. (2010) cases, holding that the Indian legislature did not intend for Part I of the 1996 Act to apply only to arbitrations having their seats outside of India because the word “only” was omitted. Actually, portion I is applicable when the arbitration takes place in India, and any judgment made in accordance with this portion is regarded as domestic.

Need for International Commercial Arbitration

Informal dispute resolution has a long tradition in many of the world societies dating back to the 12^th century in China, England, and America. The business world has rightly recognized the advantages that the ADR in one form or another is the right solution. The Arbitration and Conciliation Act, 1996 provides certain aspects of international commercial arbitration. The term “International commercial arbitration” has been defined in section 2(1)(f) of the  Arbitration and Conciliation Act, 1996. In India international commercial arbitration as a mode of resolution of disputes came to be adopted from the medieval times when trade and commerce between traders in India and outside started growing. For the resolution of such disputes, the preference for international arbitration is given. As there is a foreign element in the disputes it becomes very difficult to find a solution for the same and there is no international court to deal with international commercial disputes. The rationale and purpose of international arbitration is to provide a convenient, neutral, fair, expeditious, and efficacious forum for resolving disputes relating to international commerce. Because of the informal nature of the arbitral procedure, rigorous rules of proof can be relaxed, and costs and delays—which are frequently inevitable in litigation—can be decreased. Nonetheless, it is imperative that fundamental concepts of natural justice be upheld. Sufficient mechanisms for the execution of awards are important in order to enhance the effectiveness of international arbitration.

The Geneva and New York Convention

At present the law applicable to arbitration is contained in the Arbitration and Conciliation Act, 1996 and amended by the Arbitration and Conciliation Act, 2015. Before these laws, there were no provisions to deal with foreign arbitral awards. India participated in and ratified the Geneva Convention on the Execution of Foreign Arbitral Award held in 1927. The Arbitration (Protocol and Convention) Act, 1937 was enacted to provide a law for the recognition and enforcement of foreign awards. This enactment was passed to give effect to the provisions of the Geneva Convention on the execution of Foreign Arbitral Awards.

After independence, India participated in the New York Convention, 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. To give effect to the provisions of the New York Convention, the Indian parliament enacted the Foreign Awards Recognition and Enforcement Act, 1961. Thus the Acts of 1937 and 1961 provided for the enforcement in India of foreign arbitral awards made in some notified countries.

UNCITRAL Model Law and Rules

The Arbitration and Conciliation Act, 1996 was enacted on the Model Law of Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. The law mainly deals with international commercial arbitration and conciliation and it also serves as model legislation on domestic arbitration and conciliation after appropriate modification.^[2] By introducing universally applicable principles into the realm of international commercial arbitration for the resolution of such conflicts, the UNCITRAL Model Law seeks to accomplish these goals. India has expressed the following reluctance to recognize and enforce foreign awards in India as a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention,” which governs the recognition and enforcement of foreign arbitral awards:

 (i) India will apply the New York Convention to the recognition and enforcement of awards made only in the territory of a State, party to the New York Convention;

(ii) India will only apply the New York Convention to disputes resulting from legal relationships that, in accordance with Indian law, are classified as commercial, whether or not they are contractual in nature.

Arbitration Agreement

In order to constitute arbitration there should be an arbitration agreement between the parties to the dispute to submit the dispute to the arbitrator for adjudication. Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement.

^[3]Arbitration Agreement as provided under Article 4 of the International Arbitration Act reads as follows: – “Arbitration agreement is the agreement of the parties to resolve all or some of the disputes that have arisen or may arise from an existing legal relationship between them, whether arising from the contract or not, by arbitration. The arbitration agreement can be concluded with an arbitration clause in the main contract or a separate contract.”

Advantages

1. It offers a more flexible alternative for a wide variety of disputes, small as well as large.
2. It is cost-effective and produces quicker resolution of disputes.
3. Supplementary in nature.

4. It prevents parties from using the legal system as a last resort.
5. Existence of bureaucratic shackles.

Enforcement of Foreign Awards

A foreign award is an arbitral award rendered on the territory of a state other than the state where the award is sought to be recognized and enforced. An arbitral made under Part I of the Arbitration and Conciliation Act, 1996 is considered a ‘domestic award’. Any arbitral award which is not a domestic award is considered a ‘foreign award’. Thus an arbitral award made in Australia, the UK, the US, or any other foreign country can be treated as a foreign award in India.

Part II of the Arbitration and Conciliation Act, 1996 deals with two types of foreign awards. They are:
1. New York Convention Awards, and
2. Geneva Convention Awards
Chapter I of Part II of the Arbitration and Conciliation Act, 1996 talks about the enforcement of the New York Convention Awards, and Chapter II of Part II of the Act talks about the Geneva Convention Awards.

Non-Convention Foreign Awards cannot be enforced in India under the provisions of this Act. A foreign arbitral award which is neither the New York Convention Award nor the Geneva Convention Award is a Non-Convention Foreign Award. A Non-Convention Foreign Award can be recognized and enforced by applying common law principles. In ^[4]Jindal Exports Ltd v Fuerst Day Lawson Ltd the Delhi High Court held “Under Sub-section (1) of Section 48 of the Act, the court has been empowered to refuse enforcement of a foreign award sought to be enforced is able to prove and establish that any of the grounds mentioned therein is satisfied. Such steps could be taken by the party concerned only when it receives a notice from the court to the effect that the said award is sought against him in that particular court. Otherwise, there could be the possibility of the institution of proceedings in different courts for the cause of action for the proceedings could also arise in parts in two different courts having territorial jurisdiction”.

^[5]The following things are required for the enforcement of Foreign Awards: 

• Original award or duly authenticated copy in the manner as required by the country wherein it is made. 
• Original agreement or duly certified copy.
• Evidence to prove that it is a foreign award. 

The aforementioned records must be presented to the court at the time of the application for the enforcement of the award, in accordance with Section 47 of the Act. It has been confirmed by the Supreme Court in the PEC Limited v. Austbulk Shipping SDN BHD (2018) decision that this section is optional and that the document can be supplied even after the original filing.

Case laws

^[6]The doctrine of separability in arbitration refers to the principle that an arbitration clause is considered independent of the main contract in which it is embedded. Through a number of significant Indian court rulings, this theory has developed, establishing the arbitration clause’s independence even in situations when the underlying contract is declared void. Lord Macmillan backed the House of Lords’ establishment of the separability theory, which was developed in the seminal case of Heyman v. Darwins. He underlined that an arbitration clause’s characteristics and purposes are different from those of other contract terms.  The arbitration clause does not impose any obligations on one party over the other, even though other clauses describe the parties’ obligations to one another. Rather, it signifies the common understanding between the parties that an impartial tribunal will settle any disagreements resulting from the contract’s duties.

One of the landmark cases that evolved this doctrine in India was the National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd, wherein, the court recognized that an arbitration clause embedded in a contract is a separate agreement and would survive even if the performance of the main contract is terminated. This position is now statutorily recognized under Section 16 of the Arbitration and Conciliation Act 1996 (A&C Act).

Conclusion

From all the attention that it has received recently, particularly from time of the inauguration of the International Centre for Alternative Dispute Resolution (ICADR), one may get the impression that it is a recent concept. Arbitration, Conciliation, and Mediation have a long tradition in India and several parts of the world. There is a long and old tradition in India of the encouragement of dispute resolution outside the formal legal system. New laws and policies have to be adopted to adapt the system to new technological advancements.

Reference(s):

1. Dr. U Pattabhi Ramaih and Hon’ble Sri Justice P.S Narayana, Arbitration and ADR
   ( 2^nd edition 2018)
2. Avtar Singh, Law of Arbitration and Conciliation and Alternative Dispute Resolution Systems, ( 10^th edition)
3. P.C. Rao and William Shelffield, Alternative Dispute Resolution, (Universal Books,1997) (2002)
4. Notes on Arbitration, Conciliation, and Mediation, Anil k Nair

^[1] ‘Evolution of Arbitration in India and the Lack of Professionalism – iPleaders’ <https://blog.ipleaders.in/evolution-arbitration-india-lack-of-professionalism/#UNCITRAL_The_United_Nations_Commission_on_International_Trade_Law> accessed 29 June 2024.

^[2] Diva Rai, ‘International Commercial Arbitration System’ (iPleaders, 29 April 2024) <https://blog.ipleaders.in/international-commercial-arbitration-system-critical-analysis/> accessed 30 June 2024.

^[3] ibid.

^[4] 1999 (51) DRJ 170

^[5] Rai (n 2).

^[6] Iram Majid And Mohd Suboor, ‘Doctrine Of Separability And Its Multi-Faceted Approach’ (16 August 2023) <https://www.livelaw.in/law-firms/law-firm-articles-/arbitrator-doctrine-of-separability-arbitration-and-conciliation-act-1996-uncitral-apcam-dubai-international-arbitration-centre-235304> accessed 30 June 2024.