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International commercial arbitration system
April 29, 2024 14222 0
This article was written by Shikha Pokhriyal and is further
updated by Tisha Agrawal. This article talks about International
Commercial Arbitration (ICA), the evolution of ICA, the legal
regime governing ICA, the validity of an arbitration agreement,
arbitration seated in India and foreign countries, enforcement
of arbitral awards, etc.
Table of Contents
1. Introduction
2. Arbitration system – meaning and requirements
3. International Commercial Arbitration system
3.1. What is the International Commercial Arbitration system
3.2. Evolution of international commercial arbitration
4. Legal regime governing International commercial arbitration
system
4.1. Advantages of the International commercial arbitration
system
5. Arbitration agreement
5.1. Validity of arbitration agreement
6. International commercial arbitration seated in India
7. International Commercial Arbitration seated in reciprocating
country
8. Steps involved in International commercial arbitration
system
8.1. Notice of Arbitration
8.2. Referral to Arbitration
8.3. Appointment of Arbitrators
8.4. The Challenge to the Appointment of Arbitrators
8.5. Interim relief
8.6. The mandate of the Arbitrator
8.7. Challenge to Jurisdiction
8.8. Settlement during Arbitration
8.9. Arbitral Awards
8.10. The challenge to an Arbitral Award
9. Foreign Arbitral Award
9.1. Enforcement of Arbitral Awards in India
9.1.1. Enforcement of Foreign Awards
9.1.2. Enforcement of Domestic Awards
9.1.3. Conditions for Enforcement of Arbitral Awards
10. Landmark judgments
10.1. Enercon (India) Ltd. & Ors v. Enercon GmbH & Anr,
(2014)
10.1.1. Facts
10.1.2. Issues
10.1.3. Judgment
10.2. Bharat Aluminium Co. v. Kaiser Aluminium Ltd. (2007)
10.2.1. Facts
10.2.2. Issues
10.2.3. Judgment
11. Conclusion
12. Frequently Asked Questions(FAQs)
12.1. What is fast-track international arbitration?
12.2. What is the difference between venue and seat of
arbitration?
12.3. What is foreign seated arbitration?
12.4. What is domestic seated arbitration?
13. References
Introduction
International Commercial Arbitration is a process of resolving
disputes between parties in different countries through an
arbitrator or a panel of arbitrators. It involves submitting the
dispute to arbitration instead of approaching the courts. It is an
easier and more cost-effective method of resolving cross-
border disputes arising out of commercial transactions. The
commercial arbitration system is designed to cater to all the
problems persisting in this area including those of contracts,
Intellectual Property, investments, constructions, etc.
There are several International Conventions and Rules that
pave the way for countries to adopt proper procedures for
conducting commercial arbitrations. In India, we have the
Arbitration and Conciliation Act, 1996 (hereinafter referred to
as the ‘1996 Act’) which further talks about foreign awards and
enforcement in Part II. The process of International
Commercial Arbitration generally begins when the parties sign
an arbitration agreement in their contract. Arbitration also
allows the parties to choose their arbitrators who have
expertise in the subject matter. Arbitration is often more
confidential than traditional litigation.
This article sheds light on the importance of the International
Commercial Arbitration system and the legal frameworks that
govern this system. Let us study about the International
Commercial Arbitration in detail.
Arbitration system – meaning and
requirements
Ancient India has been using techniques of arbitrations and
conciliations to resolve disputes. The industrial revolution has
led to a rapid increase in global trade and commerce. To stay
with the economic growth and avoid long court trials, the
parties often resort to arbitration as the preferred mechanism
to solve the disputes among them. In the era of monarchy,
arbitration was the form preferred by the rulers for resolving
territorial and commercial disputes.
Cross-border transactions and bilateral trade relations have
fostered affiliations thereby accelerating the demand for legal
provisions. The system of alternative dispute resolution
emerged to help domestic as well as international trade and
businesses by offering modern solutions for resolving disputes.
The use of alternative dispute resolution allows the parties of
the dispute to decide the issue and solve it with the help of a
third party.
In India, the Arbitration and Conciliation Act was introduced in
the year 1996 and came into force on 22nd August 1996. The
main objective of introducing the Arbitration and Conciliation
Act was to maintain hostile relationships while conducting
international and domestic business. It was also enacted to
minimise the role of the courts and help the courts to reduce
their burden. Arbitration is the process of resolving disputes
among the parties by bringing that dispute in front of the third
party, who is neutral. This third party is known as the
arbitrator. To reduce the burden of litigation, the method of
arbitration is used in the hope of settling a dispute without
spending the cost and time to approach the court. At the end of
the arbitration proceedings, the decision rendered by the
arbitrator is binding on both parties.
In the process of arbitration, there is a hearing conducted to
determine the cause of conflict between the parties by the
person who is appointed as an arbitrator by the parties or by
the statutory body. The main purpose of arbitration is
adjudication and there is no place to compromise. After
determining the cause of conflict and hearing both sides of the
parties, the arbitrator enforces their point of view that is
neutral and fair.
The process of arbitration cannot exist without the arbitration
agreement. An arbitration agreement is a document where two
parties enter willingly, which states that if any dispute arises
between them out of that certain contract it will have to be
solved without going to the courts and would be resolved by
appointing a neutral person as a third party. The definition of
the arbitration agreement is given in Section 2(1)(b) and
Section 7 of the Arbitration and Conciliation Act. The Arbitration
and the Conciliation Act was recently amended in the year
2020, by introducing the Arbitration and Conciliation
(Amendment) Ordinance, 2020. This ordinance focussed upon
the unconditional stay of enforcement of arbitral awards if the
court finds fraud or corruption and accreditation of arbitrators.
Arbitration is a progressive step towards filling the gap that
persists in conventional court proceedings. There are multiple
advantages of an Arbitration system. It provides a forum to the
parties for neutral dispute resolution by extending commercial
expertise to adjudicate the tribunal, unlike the courts. Parties
can select arbitrators with specific expertise in the subject
matter of their dispute. The law in India also provides a
mechanism for the enforcement of awards as opposed to
jurisdictional uncertainties in litigation. Besides this, the parties
enjoy full confidentiality of the subject matter and the
proceedings of an arbitration, unlike the public courtroom
experience. Arbitration proceedings are faster and much more
cost-effective than court proceedings.
Overall, the objective of the international arbitration system is
to provide a platform for companies to sit and talk things out
rather than wasting time in courts. It is a more reliable
alternative and promotes fairness, efficiency, and enforceability
in resolving cross-border commercial disputes.
International Commercial
Arbitration system
What is the International Commercial
Arbitration system
As companies all over the world venture into foreign markets,
legal conflicts are bound to arise. To address such disputes
effectively and speedily, companies need experts who are
equipped with dispute resolution mechanisms and can help
them navigate mid-way. This system of International
Arbitration helps parties to enter into an arbitration agreement
and resolve their disputes effectively.
International Commercial Arbitration helps to resolve disputes
among the international parties arising out of the internal
commercial agreements. Section 2(1)(f) of the Arbitration and
Conciliation Act defines International Commercial Arbitration as
disputes arising out of a legal relationship where one of the
parties is a citizen, resident, or habitually residing out of India.
International Commercial Arbitration is used by the traders of
different countries as a way of settling their business conflicts.
The procedure to apply for International Commercial Arbitration
is the same as domestic arbitration. The scope of Section 2(1)
(f) of the Arbitration and Conciliation Act was determined by
the Supreme Court in the case of TDM Infrastructure Pvt. Ltd.
v. UE Development India Pvt. Ltd. (2008). In this case, it was
held that if the company has dual nationality, which means it is
registered in foreign and in India, then that company for this
1996 Act would be regarded as an Indian corporation and not a
foreign corporation.
International arbitration just like domestic arbitration takes
place involving a third party known as an arbitrator.
International Commercial Arbitration allows the parties to
resolve their disputes amicably by maintaining their
relationship and with less money by respecting each other’s
cultural and linguistic backgrounds. International arbitration is
also known as a ‘hybrid form of international dispute resolution’
because international arbitration allows the mixing of two legal
provisions, i.e., the Code Civil Law Procedure, 1908, and the
Common Law Procedure. Parties coming together to work often
in their legal contract mention the arbitration clause to resolve
disputes without going to court.
The Model arbitration clause of the International Chamber of
Commerce (ICC), for instance, merely reads that all the
disputes which arise out of or in connection with the existing
contract shall be settled under the rules of arbitration of the
International Chamber of Commerce by one or more arbitrators
as appointed under the said rules.
Evolution of international commercial
arbitration
International Commercial Arbitration has been prevalent for a
long time in the business community. The traders and
businessmen used this process as a suitable means of setting
trade controversies out of court. The procedure in International
Arbitration is almost similar to the one in Domestic Arbitration.
In the mid-1960s, the United Nations Economic Commissions
published rules applying to international arbitration for Europe
and Asia to make the procedure more uniform and accessible.
The modern development of international arbitration can be
traced back to the Jay Treaty (1794) between Great Britain and
the United States which established three arbitral commissions
to settle questions and disputes arising out of the American
Revolution.
The development was further extended by uniform arbitration
legislation prepared by the UN Conference on International
Commercial Arbitration in 1958. One difficulty that was
recognised is the enforcement of such awards given in another
country which was further resolved by the New York
Convention. During the 19th century, several arbitral
agreements were concluded. Ad-hoc tribunals were formed to
deal with a great number of claims. International arbitration
was given a more permanent structure by the Hague
Conference of 1899, during which the Hague Convention was
adopted on the pacific settlement of International disputes. It
was further revised in 1907. The convention stated that: –
“International arbitration has for its object the settlement of
disputes between States by judges of their own choice and on
the basis of respect for law. Recourse to arbitration implies an
engagement to submit in good faith to the award.”
A Permanent Court of Arbitration was then established in the
Hague. It comprised a panel of jurists appointed by the
government. Twenty cases were dealt with between 1902-1932
but after that till 1972 only five cases were dealt with. This was
because the importance of this court was diminished by the
establishment of the Permanent Court of Justice and its
successor the International Court of Justice.
Multiple treaties provide for the settlement of disputes by
arbitration. It includes the Geneva General Act for the
Settlement of Disputes, 1928 adopted by the League of Nations
and reactivated by the UN General Assembly in 1949. Other
such treaties include the General Treaty of Inter-American
Arbitration, 1929, and the American Treaty on Pacific
Settlement of Disputes, 1948. Arbitration is also given under
the Charter of the United Nations.
Legal regime governing
International commercial arbitration
system
International Commercial Arbitration is governed by various
international conventions and national laws, including the
United Nations Commission on International Trade Law
(UNCITRAL). It was adopted in 1985 and amended in 2006. It
assists the countries in updating their laws on arbitral
procedure to account for International Commercial Arbitration.
The Model Law covers all stages of the arbitral process,
including the Arbitration Agreement, composition and
jurisdiction of the arbitral tribunal, and the extent of court
intervention.
In India, the Arbitration and Conciliation Act, 1996 governs the
enforcement of arbitral proceedings regarding the domestic and
International Commercial Arbitration conducted in India as well
as the execution of foreign awards. The 1996 Act has two main
parts, Part I deals with any arbitration as far as the seat of
arbitration is in India. Part II deals with the enforcement of
foreign awards mostly. The 1996 Act is mostly based on the
UNCITRAL Model Law and the UNCITRAL Rules 1976.
For the enforcement of arbitral awards, there is the United
Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, 1958. It is the most successful treaty
in private international law. This Convention shall apply to the
recognition and enforcement of arbitral awards made in the
territory of a State other than the State where the recognition
and enforcement of such awards are sought.
UNCITRAL Model Law works with the New York Convention so
that the provisions on making an enforceable award or asking a
court to set it aside or not enforce it, are the same under the
Model Law and the New York Convention. The Model Law does
not replace the Convention; it works with it. An award made in
a country that is not a signatory to the Convention cannot take
advantage of the Convention to enforce that award in the 169
contracting states unless there is bilateral recognition, whether
or not the arbitration was held under the provisions of the
UNCITRAL Model Law.
As a signatory to the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, also as the “New York
Convention” which applies to the recognition and enforcement
of foreign arbitral awards – India has declared the following
reservations about recognizing and enforcing foreign awards in
India:
(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 apply the New York Convention only to differences
arising out of legal relationships, whether contractual or not,
which are considered commercial under the law of India.
Advantages of the International
commercial arbitration system
There are several advantages of using International
Commercial Arbitration to resolve cross-border disputes. Some
of the advantages are mentioned below: –
Arbitration is a much faster and easier option than going for
traditional litigation. Arbitration proceedings are less formal
and time-consuming than court hearings. Court proceedings
are costly and sometimes go on for decades before a
decision comes out.
Arbitration is very accessible to everyone. It allows parties to
choose their arbitrator and place of arbitration. Parties can
select their arbitrator who is an expert in resolving disputes
and one who can help parties in making an informed
decision.
Arbitration is more confidential than court proceedings.
Court proceedings are generally open for the public to
attend. Recently, online webcasting has also been allowed in
the courts. In such a scenario, arbitration is preferred by
parties wherein information can be kept confidential. An
arbitration proceeding is not published anywhere.
Arbitration awards are easier to enforce across borders than
court judgements. Most countries have signed the New York
Convention on the Recognition and Enforcement of Arbitral
Awards. It provides the framework for the enforcement of
arbitration awards in different countries including India.
Arbitration agreement
Arbitration Agreement, as provided under Section 7 of the
Arbitration and Conciliation Act, 1996 “refers to an agreement
between the consenting parties which lays down the rules,
procedure and method of adjudication of disputes arising out of
the relation between parties.”
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.”
An arbitration agreement provides a way for the parties to
leave all the disputes or a part of the dispute to the Arbitrator
or the Arbitral Tribunal to decide and adjudicate upon. An
arbitration agreement provides the parties an opportunity to
choose the arbitrator with mutual consent and also to bar the
jurisdiction of other states in the event of a dispute. It also
provides the freedom to the parties to decide and determine
several issues, including the place where the arbitration
proceedings will convene along with the procedural rules and
the manner of the arbitration. Arbitration is based on a
contract. The Arbitrator’s decision is called an Award. The
Arbitral Award may not be enforced if the arbitration agreement
is found to be invalid. So, the foremost and most important
step toward an arbitration proceeding is to form a valid
arbitration agreement between the parties.
Validity of arbitration agreement
For an Arbitral Award to be considered enforceable, there must
be a valid arbitration agreement. Certain criteria need to be
fulfilled. First of all, there must be a valid arbitration clause or
agreement in place between the parties. All the essential
ingredients of a valid contract are required in an arbitration
agreement. The agreement must not be collusive or have any
flaws regarding the will or consent of the parties. The
agreement shall be executed in writing and there shall be an
existence of a specific arbitrable matter. The validity is decided
by the laws to which it is subject. The Arbitration and
Conciliation Act, 1996 lays down several requirements for a
valid arbitration agreement which are as follows: –
Written Agreement – In India, according to Section 7(3)
of the Arbitration and Conciliation Act, 1996, every such
agreement regarding the resolution of the dispute between
the parties must be in written form. It shall outline the
arbitration clause or agreement and both parties shall sign
it. The agreement should not be unilateral and shall display
the mutual consensus of the parties.
Further, at the international level, the Singapore International
Arbitration Centre has passed an Act called the International
Arbitration Act, 1994. Article 4 of the aforementioned Act says
that the arbitration must be in writing. An arbitration clause in
the contract is also accepted as a valid arbitration agreement.
In Article 2 of the New York Convention, it is stated that the
arbitration agreement must be drawn up in written form and
the term written agreement means an arbitral clause or an
arbitration agreement. It shall be signed by the parties with
mutual consent.
At the International level, the validity of the arbitration
agreement will be determined by the law they agree to, as
stated in the New York Convention. Accordingly, the court will
consider the law that the parties have agreed to apply to the
validity of the Arbitration Agreement.
Will of Arbitration – It shall be clearly stated in the
agreement that both parties are willing to resolve any
arising dispute through Arbitration. The will to arbitrate must
be clearly expressed by the parties without creating any
ambiguity.
If the parties did not include an arbitration clause in the
contract they signed and did not make an arbitration
agreement then arbitration can only be accepted if they refer to
a contract that includes an arbitration clause.
Arbitrability – Arbitrability of a dispute is different than the
validity of an agreement. Arbitrability is concerned about the
subject matter of the dispute on whether that subject matter
can be brought before arbitration or not. Therefore, in such
cases, the nature of the matter of the dispute is analysed
first. Arbitrability is a legal limitation. Matters that are not
allowed to be arbitrated as per law are non-arbitrable
matters such as criminal cases. Only civil disputes can be
submitted for arbitration.
Legal Capacity of Parties – The parties signing the
agreement must be competent to do so. Even if one of the
parties is incapacitated, then enforcement of foreign awards
might be refused. There is no provision at the international
level talking about the capacity of parties. However, it is a
general position that, to decide the capacity, the state law
shall be taken into consideration where the enforcement is
demanded.
Existence of a specific matter – There must be a specific
matter to be taken for arbitration. Generally, the clause of
the Arbitration Agreement itself mentions that the disputes
that have arisen or may arise from an existing legal
relationship would be dealt with in arbitration proceedings.
The dispute constituting the subject matter of arbitration
must be clear and identifiable. If the subject of the dispute is
unclear, then such arbitration would not be valid. The parties
should have a clear indication of what dispute is being
referred to arbitration.
International commercial arbitration
seated in India
In International Commercial Arbitration, the most important
decision is to choose the seat of arbitration. The seat chosen by
the parties determines the way the arbitration would be
conducted. The procedural laws and the manner of proceedings
are decided by the seat of arbitration. Parties always look for
convenient procedures while choosing a seat. It is different
from the physical hearing which is known as the Venue. It may
happen at any place but the law would be used of the country
which is decided as the Seat of arbitration. The enforcement of
arbitral awards seated in India (Domestic Arbitration) is
governed by the provisions of Part I of the Arbitration and
Conciliation Act, whereas the enforcement of foreign-seated
awards (foreign awards) is governed by provisions of Part II of
the Act.
India is considered as a great Seat of Arbitration because of the
following reasons:
India is a party to the New York Convention which makes
foreign awards enforceable in India. If either of the parties is
: