International Commercial Arbitration Author By: Sanket Khandelwal | Volume II Issue II |

1. Abstract

Globalization and Industrialisation have led to the expansion of the cross border trade. As the International trade expanded, the disputes related to trade also started to arise in front of the national as well as international bodies. In order to resolve the international disputes among the parties arising out of commercial transactions, an efficient redressal mechanism was required. After taking into consideration all the possible mechanisms to prevent and protect the international trade market from frequent disputes, the concept of International Commercial Arbitration appeared to be the most preferable dispute redressal mechanism.

The new and easy ongoing foreign investment policies by the Government of India have acted as a catalyst in the increase of commercial transactions in the international market. As India built its name in the international market, international bodies focused on the Indian dispute redressal mechanism in light of the International Commercial Arbitration Regime.

The years 2012-2018, were crucial years for India in developing efficient rules and regulations in accordance with the international standards related to the international arbitration regime. The Supreme Court of India established a pro-arbitration approach in any of its rulings delivered between the years 2012-2018. The rulings of the Apex Court were focused on removing the Indian Judiciary power to interfere with arbitrations seated outside the territory of India, determining and defining the scope of public policy in international seated arbitration.

The Article thus focuses on the International Commercial Arbitration in context with Indian laws and views of various Courts supported by various landmark case laws. The article also throws some light on how the Indian Judiciary and Legislature have worked in the direction of the promotion of this new dispute redressal mechanism.

1. The Arbitration and Conciliation (Amendment) Act

The Arbitration and Conciliation (Amendment) Act, 2015 came into force from October 2015 with the objective to reduce the burden on the judiciary system by providing alternative measures of dispute redressal in the form of arbitration, mediation, and negotiation.  It also aimed towards providing a speedy and timely redressal of disputes with an effort to cut down on the expenses that could arise if going for dispute redressal through litigation.

The Act was amended in 2018, by making the mechanism for the dispute redressal and the international commercial arbitration more efficient and simple. Section 2(1)(f) of The Arbitration and Conciliation (Amendment) Act, 2018 defines International Commercial Arbitration. It is clear from the definition that International Commercial Arbitration is an alternative dispute redressal mechanism between two or more parties where a dispute arises, must be of commercial transaction and in which one of the parties (an individual/ association/ company/ government) must be from outside of India. It is an alternative method for resolving disputes that arise due to commercial transactions across national boundaries. This mechanism allows the parties to avoid litigation and to save themselves from the high costs of litigation. It is controlled by the terms previously agreed between the parties entering the contract, rather than by national legislation or procedural rules. To make this process more efficient, many contracts are embodied with a clause stipulating that in case any dispute arises between the contracting parties under the clauses of the contract will be sorted through arbitration rather than litigation.

• Arbitrability in Indian Law

Arbitrability is one of the important aspects of the arbitration. It defines what issues can be included and what cannot be included acquiesced to the arbitration. In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd[1], the Apex Court of India discussed the concept of arbitrability in detail and held that the term ‘arbitrability’ has different meanings in different contexts:

• Disputes capable of being adjudicated through arbitration,
• Disputes covered by the arbitration agreement, and
• Disputes that parties have referred to arbitration.

The principle states that if any dispute arises and can be decided by the Civil Court then that dispute can also be resolved through the arbitration mechanism. However, a certain category of disputes is kept outside of this redressal mechanism. Such nonarbitrable disputes include:

• Disputes relating to rights and liabilities which give rise to or arise out of criminal offenses; 
• Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, or child custody; 
• Guardianship matters; 
• Insolvency and winding up matters; 
• Testamentary matters (grant of probate, letters of administration and succession certificate); and
• Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

1. International Commercial Arbitration where seat is outside India.

Section 44 of the Act, talks about the foreign award. It is an award passed in any such territory which the Central Government of India by notification may declare to be a territory to which the New York Convention applies. In Bhatia International v. Bulk Trading [2](“Bhatia International”) the Supreme Court of Indiaspecifically clarified that an arbitration award not made in a convention country will not be considered a foreign award. For an award to be a foreign award, the following conditions must be fulfilled[3]–

• The award passed should be an arbitral award;
• It should be arising out of differences between the parties;
• The difference should be arising out of a legal relationship;
• The legal relationship should be considered as commercial;
• It should be in pursuance of a written agreement to which the New York Convention applies;

In 2012, Bhatia International Judgment was overturned by a five-judge bench in the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services (BALCO)[4] and held that Part 1 is only applicable to the arbitrations seated in India. In the Supreme Court’s words:-“The choice of another country as the seat of arbitration inevitably imports an acceptancethat the law of that country relating to the conduct and supervision of arbitrations will apply to the proceedings.”

This Judgment limited the scope of Indian Courts to interfere with the foreign seated arbitrations. It was further noticed that the power to set aside the arbitration awards issued under Section 34 of Part 1 of the Act is only applicable to the arbitrations seated in India and not to arbitrations seated outside India. Awards resulting from the international commercial arbitration are imposed according to the International Treaties and Conventions.

In the year 2018, a High-Level Committee was set up with the view “to speed up the resolution of the commercial disputes and to facilitate the effective conduct of international and domestic arbitrations”. Various Judges of the Supreme Court of India and the High Court of India were members of the committee. The recommendations were part of the Amendment Act of the year 2018. The recommendations were in the direction to promote and encourage institutional arbitration for settlement of disputes and to make India a robust center of the Alternative Disputes Resolution (ADR) mechanism.

Two Indian parties choosing a Foreign Seat of Arbitration

In the recent case of GMR Energy Limited v. Doosan Power Systems India Private Limited & Others[5], Delhi High Court ruled out that two Indian parties can choose a Foreign Seat of Arbitration and such arrangement will attract Part II of the Act of 1996 and will not be in contravention of the Indian Laws. The Delhi High Court observed:-

• That the GMR Chhattisgarh Energy Limited(GCEL) was a joint venture of GMR Group, and the group company did not observe separate corporate formalities and comingled corporate funds;
• That the GMR Energy relied on the Memorandum of Understanding signed and discharged liability by making part payment; and
• That at the time of entering into the Memorandum of Understanding, GMR Energy had acquired GCEL;

The Delhi High Court referred to the judgment passed by the Supreme Court in the Chloro Controls India Pvt Ltd v. Severn Trent Water Purification Inc& Others[6] (Chloro Control) that the legal bases to bind alter ego to an arbitration agreement are implied consent, third party beneficiary, guarantors, assignment or other transfer mechanisms of control rights, apparent authority, piercing of corporate veil, agent principle relationship, etc.

1. Conclusion and Suggestions

The Countries where courts are overburdened with the cases, the commercial players of the market have developed a strong preference to resolve disputes vide Arbitration. In addition to it, the Indian Judiciary has also refrained from intervening with the arbitration process. The establishment of the Indian Council of Arbitration (ICA) shows that the Government and the Judiciary are ready to face the challenges and to settle the disputes arising in the international commercial trade market as early as possible. The main objective behind the establishment of the ICA is to encourage amicable, speedy and inexpensive settlement of commercial disputes through arbitration, conciliation, regardless of the location.

Suggestions

• Law Universities and Bar Council of India should organize open-ended seminars and conferences for people, for providing a better and a deep understanding of the arbitration laws in India.
• Legal Aid Cells should work in the direction for the promotion of Arbitration, Mediation, and Negotiation mechanism in rural areas.
• The culture of Institutional arbitration should be encouraged and established in India. Institutional Arbitration is one in which a specialized institution having a permanent character intervenes and opts for the functions of aiding and administering the arbitral process. The structured processes and proper administrative support by the arbitral institutions provide the parties with the key advantage.
• The fees of arbitrators must be standard and reasonable. The International Commercial Arbitration involves foreign parties who may have different fees for the arbitrators and on the other hand institutional rules might have their own standard of fees. Thus, it is necessary to lay down the clear set of rules regarding the fees of arbitrators and to protect the interest of the parties.
• The arbitral proceedings must not become the replica of the court proceedings. A system of balance and checks should exist so that the main objective of arbitration of speedy justice with minimal costs is not looked upon.

[1]Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.(2011) 5 SCC 532 (India)

[2]Bhatia International v. Bulk Trading (2002) 4 SCC 105 (India)

[3] National Ability S.A. v. Tinna Oil Chemicals Ltd. (2008) 3 Arb LR 37 (India)

[4]Bharat Aluminium Company v. Kaiser Aluminium Technical Services (2012) 8 SCALE 333 (India)

[5]GMR Energy Limited v. Doosan Power Systems India Private Limited & Others(2017) SCC Online Del 11625

[6]Chloro Controls India Pvt Ltd v.Severn Trent Water Purification Inc& Others(2013) 1 SCC 641 (India)