Commercial Arbitrations

There are several modes available, to resolve the disputes. One of the most traditional ways to resolve the disputes that arise under any given situation is litigation. But of late, litigation as one of the mode to resolve dispute is losing its importance

There are several modes available, to resolve the disputes. One of the most traditional ways to resolve the disputes that arise under any given situation is litigation.  But of late, litigation as one of the mode to resolve dispute is losing its importance for the reason of the huge backlog of  cases, pending all over the world. In litigation there is no certainty as to when the dispute would finally be resolved. The matters are getting delayed to a considerable extent and it is true  when they say that justice delayed is justice denied. In some cases, it takes years to settle the dispute. Thus, slowly and gradually, the concept known as Alternate Dispute Resolution has evolved, which in short is called as ADR. The ADR has become popular in the last two decades, in particular the Arbitration and that too in commercial sector and mostly used in international trade. The Alternate Dispute Resolution, basically covers the settlement of disputes through Arbitration, Mediation, conciliation etc.

Arbitration is effective  in  resolving disputes  both of commercial as well as non - commercial nature . Commercial Arbitrations could again be classified into two broad categories such as Domestic Commercial Arbitrations and International Commercial Arbitration.

Heading : In domestic commercial Arbitrations, both the parties are national entities and in case of International Commercial Arbitration, one entity is a foreign national. or an entity incorporated outside India.

Arbitration is a preferred process of dispute resolution chosen by parties, wherein parties intentionally agree to submit their case to a neutral third party/institution and agree to be bound by the decision. Arbitration is an important tool for the success of international commerce, because parties to international contracts need a neutral forum to resolve their differences, they need a forum that is flexible, freed from court litigation, and adapted to their need of a time and cost efficient resolution of the dispute.

International Commercial Arbitration is an arbitration where the matter involved is a cross-border dispute and the parties do not want to get into filing of case in national courts. Section 2(1)(f) of The Arbitration and conciliation Act, 1996, defines an International Commercial Arbitration, as ‘an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India’. The legal relationship must be considered commercial, where either of the parties is a foreign national or resident or is a foreign body corporate or is a company whose central management or control is in foreign hands.

With the rapid increase in international trade and investment, the cross – border commercial disputes are also increasing at a rapid rate. One of the advantages of Arbitration in commercial disputes is that it preserves business relationships to some extent and the parties to the dispute could be benefitted by the expertise of the Arbitrator in commercial issues.

Since the last one decade, both the Indian Govt as well as the Judiciary has recognized arbitration. Hon’ble Supreme Court of India in one of its decision in A. Ayyasamy vs A. Paramasivam & Ors has held that “The basic principle which must guide judicial decision making is that Arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal” and that “The duty of the court is to impart to that commercial understanding a sense of business efficacy”.

The Arbitration proceedings are governed by the Arbitration Agreement entered into between the parties, by mutual understanding. The Arbitration clause could either be in the main contract or there could be a separate Arbitration Agreement governing the proceedings of Arbitration.

Arbitration can be either “institutional” Arbitration or “ad hoc Arbitration .” If the parties have agreed to have an arbitral institution administer the dispute, it is an institutional arbitration.  If the parties have set up their own rules for arbitration, it is an ad hoc arbitration.  

In India, the arbitration proceedings are governed primarily by the Arbitration and Conciliation Act, 1996. The Act has primarily followed the Model Law on International Commercial Arbitration as proposed by the The United Nations Commission on International Trade Law. The Part I of the Act deals with domestic arbitrations and ICA when the arbitration is seated in India. Thus, an arbitration seated in India between one foreign party and an Indian party, though defined as ICA is treated akin to a domestic arbitration. Part II of the Act deals only with foreign awards and their enforcement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”) and Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”).

With the introduction of concept of Make in India and ease of doing business in India and more particularly to attract foreign direct investment, amendments have been carried out in the existing Arbitration law and separate Courts have been constituted to adjudicate the Commercial Disputes, to make the justice delivery system more vibrant, particularly in reference to the commercial dispute resolution.

The recent amendments (Amendment Act 2015, Amendment Act 2018 and Amendment Act 2019 ) brought to the Arbitration and Conciliation Act 1996 (1996 Act) have brought about significant changes to the arbitration law in India with an objective to achieve speedy, efficient and effective dispute redressal mechanism, ultimately achieving the purpose for which the Act was enacted in the first place.

One of the significant amendments that the Arbitration and Conciliation (Amendment) Act 2015 hereinafter referred as ‘Amendment Act 2015’ has introduced is the applicability of Section 9 i.e. possibility of availing interim measures from Indian courts in a foreign seated international commercial arbitration. After the Amendment Act 2015 came into force, a party in a foreign seated international commercial arbitration and governed by a foreign law can approach the Indian courts for interim relief provided the parties have not expressly or impliedly excluded the applicability of Section 9 of the 1996 Act.

As per the amended law, the arbitrator is supposed to give the final award in 12 months which could be extended to 6 months with the consent of the parties. In case of International Commercial Arbitration, only the High Court is competent to adjudicate on all disputes and differences. Further all applications or appeals which are filed in a High Court is heard by Commercial Division only.

In commercial Arbitrations, the seat and the venue play an important role. The venue mentioned in the Arbitration proceedings decide the place, where the Arbitration proceedings have to take place. The seat decides the governing law which is made applicable to the Arbitration proceedings.

Similarly in case of International Commercial Arbitration as per Indian law, with respect to foreign seated Arbitration, the Indian Courts have no role to play, except the taking of petition for interim reliefs. In case of foreign seated Arbitration, the Part I of Arbitration and conciliation act 1996 is not applicable.

In Indus Mobile Distribution Private Ltd vs Datawind Innovations Private Limited and Ors the Hon’ble Supreme Court has held that “the moment the seat is designated, it is akin to an exclusive jurisdiction clause.”

The Arbitrator after hearing the parties and after perusing the submissions including pleadings and evidence, passed an Award. The Award passed by the Arbitrator is enforceable. The next question which arises is regarding how the foreign awards are enforced in India.

The enforcement of a foreign award in India is a two-stage process which is initiated by filing an execution petition.

Initially, a court would determine whether the award has adhered to the requirements of the Act. Once an award is found to be enforceable it may be enforced like a decree of that court. However at this stage parties would have to be mindful of the various challenges that may arise such as frivolous objections taken by the opposite part, and requirements such as filing original/ authenticated copy of the award and the underlying agreement before the court.

  1. a. Process for Challenge & Enforcement Foreign Award Enforcement of Award as a decree - Recognition Application for Setting aside in the foreign curial court. Appeal b. Requirements for enforcement of foreign awards –
  • Original award or a duly authenticated copy in the manner required by the country where it is made. § Original agreement or duly certified copy.
  • Evidence necessary to prove the award is a foreign award, wherever applicable.

III. Conditions for enforcement of arbitral awards – domestic and foreign  parties may resort to the following grounds for challenging an award. Such an award would be rendered unenforceable when:

  • The parties to the agreement were under some incapacity.
  • The agreement in question is not in accordance with the law to which the parties have subjected it, or under the law of the country where the award was made (especially in case of foreign awards).
  • There is a failure to give proper notice of appointment of arbitrator or arbitral proceedings.
  • Award is ultra vires the agreement or submission to arbitration.
  • Award contains decisions on matters beyond the scope of submission to arbitration. § Composition of the arbitral authority or the arbitral procedure is ultra vires agreement.

India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”) as well as the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”). If a party receives a binding award from a country which is a signatory to the New York Convention or the Geneva Convention and the award is made in a territory which has been notified as a convention country by India, the award would then be enforceable in India. When a party seeking enforcement of an award passed by a country signatory to New York Convention, then the award is enforceable in India.

"In accordance with Article I of the Convention, the Government of India has declared that they will apply the Convention to the recognition and enforcement of awards made only in the territory of a State, party to this Convention. They further declare that they will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the law of India."

But as per Arbitration and Conciliation Act 1996 (Indian Statue governing domestic and foreign awards) only those foreign awards are enforced in India, which have been passed by the country, notified by Central Govt under the convention. The Act defines a “foreign award” as an award made in one of the Convention country which has been notified by the Central Government of India in the Official Gazette. Although a country may have ratified the New York Convention but if it has not been notified by the Indian Central Government, an award made in that country will not be enforceable as a “foreign award” under the Act.

Further following conditions need to be satisfied for enforcement of Foreign Arbitration award

  1. The award could be enforced anywhere, wherever the properties of the Respondent is situated;
  2. The principle of natural justice has been followed throughout the Arbitral proceedings including appointment/constitution of arbitral Tribunal. Proper notice of hearing, submissions, etc have been given. The Respondents have been given proper chance to present their case;
  3. Notice of Appointment of Arbitrator/constitution of Arbitral Tribunal was given properly and well within reasonable time;
  4. Award is a reasoned award;
  5. Award has been passed on only those issues/matters which were submitted for adjudication;
  6. Composition of Arbitral Tribunal/Appointment of Arbitrator was not against the law of the land Further the Arbitral procedure and composition of Arbitral Authority was in accordance with the agreement of the parties;
  7. Award has been passed on merits;
  8. Award is not against fundamental policy (fundamental principles of law on which Indian law is founded, including basic values and rationale) of India or against any other country; After the amendment the award is in conflict with the policy of India only if the making of Award was induced or altered by fraud or corruption or was in conflict of confidentiality clause or it is in contravention with the fundamental policy of Indian law or it is in conflict with the most basic notions of morality or injustice.Award is not contrary to justice and morality;
  9. Arbitration agreement  or any other Agreement containing the  Arbitration clause, pursuant to which Award has been passed, has been properly executed between the parties. None of the parties to the Agreement was forbidden by any law, as applicable to them, to enter into agreement or having any incapacity to enter into the agreement. Further the Agreement in question is perfectly valid and binding on the parties in all aspects.
  10. Award has been passed as per the applicable law of Country, where award was passed or as per the agreed law decided between the parties to the agreement.  
  11. Award in case enforced outside the territory of Country, such as India, then in that case it would not affect the interest of that country;
  12. The subject matter of the award is capable of settlement by Arbitration under the law of India and therein is nothing, which is not covered by the international standards of Arbitration.

International Institutions assisting in Arbitration proceedings:-

 ICC (International Chamber of Commerce Court of International Arbitration.

 LCIA (London Court of International Arbitration)

Singapore International Arbitration Centre

Hong Kong International Arbitration Centre.

Sockholm Chamber of Commerce Arbitration Institute

Kuala Lumpur Regional Arbitration Centre

Conclusion

In recent time, Arbitration and in particular commercial Arbitrations paly a significant role in the development of trade and commerce. Further the Commercial Arbitrations are also encouraging the significant growth of international trade and commerce.

As we all know, much of the remarkable growth of International Commercial Arbitration in recent years has taken place here in Asia. There is a global shift of the world’s economic pendulum towards Asia.

Arbitration will follow the trend of global economy.

Indian economy is no more a closed economy. The economy has opened its doors to outside world and more particularly with the introduction of make in India concept. Now due to recent crisis of Covid 19, the disputes before Courts would delay further and in that scenario, Commercial Arbitrations would paly a significant role.