Status of Commercial Arbitration in India

Commercial Arbitration is a medium which provides an effective and expeditious dispute resolution framework unlike the Court proceedings which takes number of years in resolving disputes between the parties.

Introduction:

One of the most traditional ways to resolve a dispute that arises under any given situation is litigation. But are several other modes available for dispute resolution, commonly known as ‘Alternate Dispute Resolution’ (ADR). But of late, litigation has become a tiresome process to resolve dispute due to 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 keep 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, the concept ADR has significantly evolved. ADR has become popular in commercial sector and is mostly used in international trade. ADR, basically covers the settlement of disputes through arbitration, mediation, conciliation etc.

Arbitration:

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, unbound by court litigation, and adapted to their need of a time and cost efficient resolution of the dispute.

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

In domestic commercial arbitration, both the parties are national entities and in case of international commercial arbitration, atleast one entity is a foreign national or an entity incorporated outside India.

Arbitration Agreement:

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.

International Commercial Arbitration:

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 between the parties involved must be commercial in nature, where either of the parties must be a foreign national or resident or is a foreign body incorporated in a foreign land or a company whose central management or control is in foreign hands.

Commercial Arbitration in India:

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 decade, both the Indian Government and Judiciary have recognized arbitration. The Supreme Court of India in one of its decision in A. Ayyasamy v. A. Paramasivam had held 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”.

Arbitration and Conciliation Act, 1996:

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 (ICA) as proposed by 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 (FDI), 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 efficient, particularly in reference to the commercial dispute resolution.

Amendments to the Act:

The recent amendments (Amendment Act 2015, Amendment Act 2018 and Amendment Act 2019) brought to the Arbitration and Conciliation Act 1996 (The 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 to the Act was the 2015 amendment which introduced the applicability of Section 9 i.e. possibility of availing interim measures from Indian courts in a foreign seated international commercial arbitration. After this amendment came into force, a party in a foreign seated international commercial arbitration and governed by a foreign law had the power to 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 are heard by Commercial Division only.

Seat of Arbitration:

In commercial Arbitration, 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 such 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 for petition for interim reliefs. In case of foreign seated Arbitration, the Part I of the Act is not applicable.

In ‘Indus Mobile Distribution Private Ltd v. Datawind Innovations Private Limited’, the Supreme Court had held that “the moment the seat is designated, it is akin to an exclusive jurisdiction clause.”

Arbitration Award:

The Arbitrator after hearing the parties and after perusing the submissions including pleadings and evidence, has to pass 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 party, and requirements such as filing original/ authenticated copy of the award and the underlying agreement before the court.

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 to the 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.

But as per the Act, only those foreign awards are enforced in India, which have been passed by the country, notified by Central Government 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:
  • 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;
  • Notice of Appointment of Arbitrator/constitution of Arbitral Tribunal was given properly and well within reasonable time;
  • Award is a reasoned award;
  • Award has been passed on only those issues/matters which were submitted for adjudication;
  • 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;
  • Award has been passed on merits;
  • 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;
  • Arbitration agreement or any other Agreement containing the Arbitration clause, pursuant to which Award has been passed, has been properly executed between the parties.
  • 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.  
List of 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 arbitration, has played a significant role in the development of trade and commerce. They also encourage the growth of international trade and commerce. A remarkable growth of International Commercial Arbitration was seen in recent years in Asia.

The 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 play a significant role.