This article  has been written  by Ms.Pamishetti  Supriya, a student studying BBA LLB(Hons.) from ICFAI  Law School ,The  ICFAI University , Hyderabad. The author  is a 5th year Law student .

INTERNATIONAL COMMERCIAL ARBITRATION 

INTRODUCTION

With the increase in international commerce and overseas business, disputes and legal affairs have become a regular scenario, generally due to breach and sometimes even due to some misunderstandings. In a literal sense, arbitration means a form of dispute resolution where a neutral third party decides the case after hearing the dispute from both the parties. In reference to International commercial terms, it means resolving disputes between traders of different countries without the interference of the courts.

International Commercial Arbitration is the best way to resolve disputes in international commercial affairs because it is convenient, unbiased, and efficient, also and maintains the confidentiality, and credibility of the parties.

we can tell that the ADR is rapidly developing at national and international level, offering simpler methods of resolving disputes. The increasing trend of ADR services can easily be inferred from the growth of “arbitration clause” in majority of contracts. The effective utilization of ADR systems would go a long was in plugging the loophole which is obstructing the path of justice. This concept should be deeply ingrained in the minds of the litigants, lawyers and the judges so as to ensure that ADR methods in dispensation of justice are frequently adopted. The methods of alternative dispute resolutions are less time-consuming and are very cost-effective and thus, awareness needs to be created amongst the people about the utility of ADR and simultaneous steps need to be taken for developing personnel who would be able to use ADR methods effectively with integrity. By using these methods people can resolve their disputes informally without going through formal court trials.

To attract foreign investment, a fast-growing economy requires a trustworthy, stable dispute resolution procedure. Due to the massive backlog of cases pending in Indian courts, commercial players both in India and abroad have established a strong preference for resolving conflicts through arbitration.

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 the 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

SECTION 2(1)(f)

Section 2(1)(f) of the Act defines an ICA as an arbitration relating to disputes arising out of a legal relationship which 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, association or body of individuals whose central management or control is in foreign hands. Thus, under Indian law, an arbitration with its seat in India, involving a foreign party is regarded as an ICA. All arbitrations seated in India including ICAs are subject to Part I of the Act.

 However, where an arbitration is seated outside India, Part I of the Act would not apply, except Sections 9, 27 and 37, unless the parties have agreed to exclude the applicability of these sections. Prior to the 2015 Amendment Act, a literal interpretation of Section 2(1)(f)(iii) would yield that even if a company had its place of incorporation as India, an arbitration could still qualify as an ICA if the central management and control of the company was outside India. However, in the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.(“TDM Infrastructure”) despite TDM Infrastructure Pvt. Ltd. having foreign control, the Supreme Court concluded that “a company incorporated in India can only have Indian nationality for the purpose of the Act”. Thus, though the Act then recognized that arbitration involving companies with management and control outside India as an ICA, the Supreme Court still treated such arbitration involving foreign controlled but Indian incorporated company as domestic arbitration. The 2015 Amendment Act deleted the words ‘a company’ from the Section 2(1)(f)(iii) thereby restricting the scope therein to only body of individuals or an association. Therefore, the current position is that if a company has its place of incorporation as India, then the place of central management and control of the company is irrelevant for the determination of the status of the arbitration. In a recent case, where an Indian company was the lead partner in a Mumbai-based consortium (which also included foreign companies) and was the determining voice in appointing the chairman, the Supreme Court held that the central management and control was in India.

International commercial arbitration is an alternative method

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

Despite being one of the original members of the New York Convention, Indian arbitration has not always followed international best practices. However, in the last five years, there has been a substantial shift in attitude. Indian arbitration legislation has been brought in line with international best practices by courts and legislators. With the courts’ pro-arbitration approach and the 2015, 2019, and 2021 Amendment Acts in place, there is reason to believe that these International best practices will soon be incorporated into Indian arbitration law.

Features of International Commercial Arbitration

• An alternative to National Courts: Litigations in national courts usually takes a lot of time to resolve the disputes and sometimes it is cost-inefficient. International commercial arbitration is better than national courts in these aspects and gives non-biased decisions.
• Private Mechanism: Arbitration being a private dispute resolution mechanism guarantees the confidentiality of the information and parties. Commercial parties want their affairs to be kept private and away from the eyes of the general public, arbitration is a better way to keep information private.
•  Control by the Parties: In arbitration, parties are free to set the system and structure of the arbitration. Consent for such choice is mentioned in the arbitration agreement while making the agreement. In cases where there is no arbitration agreement, they can of course agree to arbitrate after the dispute has arisen.
• Final and Binding Decision: The parties agree in the arbitration agreement that they accept the decision of the arbitrator and are final and binding upon them.

PROCEDURE

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. In this case it was held that if the company has dual nationality, that means it is registered in foreign and in India then that company for this Act would be regarded as Indian corporation and not the 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 background. International arbitration is also known as a ‘hybrid form of international dispute resolution’ because international arbitration allows mixing two legal provisions the Code Civil Law Procedure, 1908, and the Common Law Procedure. Parties coming together to work often in their legal contract mentions the clause of the arbitration agreement to resolve the disputes without going to court.  

 UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006

 • An arbitration is international if: 

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States.

 (b) one of the following places is situated outside the State in which the parties have their places of business: 

• (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement. 

• (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected. 

 (c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

Cases 

Enercon (India) Ltd. & Ors v. Enercon GmbH & Anr, (2014) 5 SCC 1

It was held that the “venue” of an arbitration is the geographical location chosen based on the convenience of the parties and is different from the “seat” of arbitration, which decides the appropriate jurisdiction.

Shri Lal Mahal Ltd. vs. Progetto Grano Spa (Civil Appeal No. 5085 of 2013 arising from SLP(c) No. 13721 of 2012)

A seminal judgment was passed that established a distinction between the scope of objections of the enforceability of a foreign award under Section 48 of the 1996 Act, and challenges to set aside an award under Section 34 of the 1996 Act. The scope of the expression’ public policy’ was substantially curtailed by the Supreme Court. 

Bharat Aluminium Co. vs Kaiser Aluminium Ltd. (Civil Appeal No. 3678 of 2007)

The Constitution Bench has held that Part I and Part II are mutually exclusive and that the Parliament while enacting the statute had unequivocally adopted the principle of territoriality over subject matter of arbitration. In other words, the Constitution Bench has inter-alia, held that the centre of gravity for international commercial arbitrations having a foreign seat was the juridical seat of arbitration and not where the contract had to be performed.

Hero Electric Vehicles Private Limited and Ors. vs. Lectro E-mobility Private Limited and Ors 2021 SCC OnLine Del 1058

Additionally, the Delhi High Court in its recent ruling in Hero Electric Vehicles Pvt. Ltd v. Lectro E-Mobility Pvt. Ltd. coined the ‘chalk and cheese’ principle to state that courts should refer disputes to arbitration only except (a) when there is a ‘chalk and cheese’ case of non-arbitrability i.e. a very clear case of non-arbitrability, (b) where reference to arbitration would be opposed to public interest or public policy, and (c) a futility ex facie. It reasoned that the court exercises the very same jurisdiction which the arbitral tribunal would exercise under Section 16 of the Act while dealing with an issue of arbitrability, or any disputes qua the existence or validity of the arbitration agreement. Therefore, the court should not exercise this power in such a manner that would entirely erode or efface the authority of the arbitral tribunal to rule on these issues. 

National Highways Authority of India v. Sayedabad Tea Company 2019 SCC OnLine SC 1102

The Supreme Court in National Highways Authority of India v. Sayedabad Tea Company,dealt with arbitral appointments under Section 11 of the Act, vis-a-vis Section 3G(5) of the National Highways Act, 1956 (“Highways Act”), which provides for the appointment of an arbitrator by the central government in special situations. The Supreme Court held that the National Highways Act, being a special law, would have an overriding effect on a general law such as Act.

REFERENCE

http://www.legalservicesindia.com/article/2196/International-Commercial-Arbitration.html

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