This article is written by Ronika Tater, from the University of Petroleum and Energy Studies, School of Law. In this article, she talks about the features of UNCITRAL Model law and the impact of its Amendment, 2006 on the Arbitration and the Conciliation Act, 1996 with the support of case laws.
With the advent of globalization and industrialization, the world has been interacting with each other more than anything and this has led to great and successful partnerships amongst people and businesses from different parts of the globe. The opening of the world market has created the need to adopt an alternate mechanism for dispute resolution among the participating partners. The domestic courts were unable to stabilise the increasing number of conflicts and disputes that had to be resolved on the international platform speedily and effectively as quickly as possible. This led to the formation of arbitration, as a form of Alternative Dispute Resolution (hereinafter referred to as the ADR) to resolve disparity among the states and countries concerning the rules and procedures regulating the process and the standards expected by the disputing parties. Concerning this, the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on International Commercial Arbitration on 21st June, 1985.
What is UNCITRAL Model Law on International Commercial Arbitration
The UNCITRAL is the essential legal body of the United Nations in the area of international trade law. It was established by the United Nations General Assembly after the realization that differences in national laws governing international trade are creating hurdles to the free flow of trade. Hence, this commission was established with the view to play an active role in reducing or removing these hurdles. The UNCITRAL Model law has been designated to assist the states to establish their domestic law and modernize their laws on arbitral procedure with due consideration of the specific features and the needs of international commercial arbitration. It highlights worldwide consensus on the key aspects of international arbitration practices adopted by states, of different parts of the states and different legal or economic systems of the world. The Model Law comprises 8 chapters, 36 Articles and is to be adopted by different nations into their national laws or to adapt their national laws of arbitration based on the principles of this model law.
Some features of the Model Law are as follows:
- It lays down certain rules and provisions intending to create uniformity in international commercial arbitration.
- Article 1 of the Model Law states the substantive part of international commercial arbitration which defines arbitration as international if while concluding the arbitration agreement, the parties’ place of business were in different States or one of the places is located outside the state in which the party of the agreement have their place of business:
- Or the place where the commercial relationship has been performed.
- Or where the subject matter of the dispute has occurred.
- Or the parties to the arbitration agreement have jointly agreed to include more than one place for the subject matter of the agreement.
- It reflects the composition of an arbitral tribunal and the enforceability provision of an arbitral award. It would be enacted in a State if the seat of arbitration is within the territory of the particular State and the arbitral award would have global enforcement. However, the principle of ‘party autonomy’ proclaims the parties in a dispute to independently choose laws to conduct the arbitration process.
- It limits the interference of the court in the process of arbitration, thereby only allowing judicial intervention for the appointment of arbitrators, challenge and termination of an arbitrator, jurisdiction of an arbitral tribunal, and the setting aside of an arbitral award. Moreover, it allows court assistance in recording evidence, recognition of the arbitration agreements and enforcement of the arbitration awards.
- It highlights the essence of the arbitration clause or agreement that must be present if parties to a dispute choose arbitration as a means to solve their dispute. The Model Law also states the matter of the clause and gives recognition to these clauses even through the judiciary.
- Concerning the arbitral tribunals, it states the number, appointment, procedure of the arbitration, thereby safeguarding the freedom of the tribunal and the will of the parties.
- It sets out the rules to be followed for the pronouncement of the award, the enforcement of the award, and the grounds for challenging the award.
Hence, these essential features are provided in the Model Law to reduce difficulties in the process of international arbitration by providing uniformity in procedural and substantive practices of arbitration.
Difference between UNCITRAL law and UNCITRAL rules
- The UNCITRAL Arbitration Rules (Rules) states a comprehensive set of procedural rules which entails the parties to agree for the conduct of arbitral proceedings arising out of their commercial relationships. It also provides provisions dealing with multiple-party arbitration, joinder, liability, arbitral proceedings and procedures to appoint experts by the arbitral tribunals. It aims to provide efficiency in the procedures of arbitration by providing provisions for the requirement of the reasonableness of costs and a review mechanism. One of the most essential parts of the Rules is that it is selected by parties on how to govern the conduct of arbitration and resolve the dispute by themselves.
- The UNCITRAL Model Law, on the other hand, provides a set of patterns that law-makers in national governments can adapt by being a part of their domestic legislation on arbitration.
History of the Arbitration and Conciliation Act, 1996
The Indian Government, with the motive of addressing the increasing number of disputes and encouraging arbitration as a flexible, cost-effective and speedy mechanism for the settlement of commercial disputes, introduced the Arbitration and Conciliation Act, 1996 (‘Act’). The Act is based on UNCITRAL Model Law on International Commercial Arbitration, 1985 and secures both domestic and international commercial arbitration. The principal motive behind the Act is to control delayed indiscretion and provide parties finality in their disputes. The Act also consists of three significant parts as below-mentioned:
- Part I of the Arbitration and Conciliation Act, 1996 is concerned with domestic arbitrations and international commercial arbitration when the arbitration is in India.
- Part II of the Arbitration and Conciliation Act, 1996 is concerned with foreign awards and their enforcement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (also known as New York Convention) and Convention on the Execution of Foreign Arbitral Awards, 1927 (also known as Geneva Convention).
The lawmakers in India, while enacting the Act, have taken due consideration of the UNCITRAL Model Law and this has been highlighted in the Preamble of the Act, which states that the provisions of the Act are in connection to and based on the UNCITRAL Model Law. Thus, most of the provisions in the Act are consistent with the Model Law. Some of the features of the Act are as follows:
- It applies to both national and international commercial arbitration and has a similar definition clause as that provided in the Model Law.
- It provides for the existence of an arbitration agreement between parties before the commencement of arbitration proceedings. It lays down the specific clause for the arbitration agreement and the intervention of the courts with the arbitration agreement whenever the tribunal is not working efficiently.
- It states the composition and jurisdiction of the arbitral tribunals similar to that of the Model Law. It empowers the tribunals to rule in their jurisdiction and allows the tribunal to issue final awards with limited intervention from the courts.
- It provides provisions on the conduct of arbitral proceedings considering the freedom of arbitrators and the will of the parties, as similar as that of the Model Law.
- It provides the rules for the pronouncement of the award, the enforcement of the award and setting aside or challenge of the award. It is essential as it allows for the intervention of the court only in certain circumstances as mentioned under Section 34(2) of the Act.
In addition, it has been noticed that the latest developments in arbitration through the recent judicial decisions reflect the support of the government to make India a hub of institutional arbitration for both domestic and international disputes. The courts have also adopted a pro-arbitration approach and this is evident from the rulings of the higher courts in India.
Relation of UNCITRAL Model Law in India
Section 9 of the Act has been updated from Article 9 of the Model Law which talks about arbitration agreement and interim measures by the court. The Model Law provides that a party can approach a court for an interim measure of protection during the arbitral proceedings. However, the Indian Act empowers the court beyond Article 9 and provides that a party can approach courts to go further even after the arbitral award is enforced. Section 9 of the Act states interim measures by the court and it cannot be invoked after the institution of an arbitral tribunal in foreign seated arbitrations when there is a speedy remedy available to the parties. This has been inserted under Section 9(3) of the Act through the Arbitration and Conciliation (Amendment) Act, 2015 and has been commendable. The 246th Law Commission Report stated in its report, “to reduce the intervention of the judiciary concerning the grant of interim measures once the Arbitral Tribunal has been constituted”. The objective of this 2015 amendment is that once the tribunal is given the matter, it is suitable for the tribunal to hear all interim applications. This amendment is in line with the spirit of the UNCITRAL Model Law as amended in 2006. Thus, the court has given the primary power to tribunals in India.
However, it is noted that the UNCITRAL Model Law on International Commercial Arbitration, 1985 (Model Law, 2006) has not clearly stated whether the court power should be a secondary option available where an arbitrator cannot act effectively. The proposal that the courts can only act in circumstances where the arbitral tribunal has not acted effectively was kept for consideration in the later stage. Thus, reliance on the Model Law for the adoption of this approach is not clearly expressed. Interestingly, the courts in India through its various judicial precedents have shifted the primary power to the arbitral tribunal, only if it is not efficacious is commendable as already stated above. This principle is also applicable to foreign-seated arbitration as well.
The Model Law does not state any fixed definition for the term ‘commercial’, hence it connotes a wide interpretation and changes with the judicial decision. The term should be broadly constructed as it forms the main part of international trade all around the world. In the case of R.M. Investments and Trading Co. v. Boeing Co. (1994), the Supreme Court of India interpreted the term ‘commercial’ to include all ‘commercial relationships’ in support of relationships consisting of family, cultural, social, economic or political nature. The court, in this case, stated that the contract for a consultancy service is included within the ambit of ‘commercial’ and therefore, the arbitration clause in the contract should be applied.
It is to be noted that in Article 7(1) of the Model Law, no changes have been made by the Amendment in 2006 and the original definition of arbitration prevails. One of the main features of an ‘arbitration agreement’ is its binding nature on the parties. In the case of Jagdish Chander v. Ramesh Chander & Ors. (2007), the Supreme Court observed that the words used in the agreement should state a determination and obligation to go for arbitration and not the possibility of the parties to arbitration in future. Any agreement made with the possibility rather than an obligation will not be a valid and binding arbitration agreement. Article 9 of the Model Law is not provided for the parties but to the courts of a given State and it states the principle of interim measures of protection that may be exercised from the courts. In the case of, Max India Ltd. v. General Binding Corporation (2009), the Delhi High Court observed that the parties by agreeing to take the arbitration in Singapore and follow the procedures as per the Singaporean Court for the subsidiary matter of the agreement. Consequently, they have excluded the power of the Indian courts which would have otherwise granted an interim measure of protection in respect of a foreign arbitration to the party.
Article 11 of the Model Law provides the provision for the appointment of the arbitrators and also states the principle of ‘party autonomy’ which provides the party to the agreement to choose their arbitrator freely. The term necessary measures have not been clearly stated, hence the Indian court, in the case of Ministry of Railway New Delhi v. Patel Engineering Company Ltd. (2008), stated that the word ‘necessary’ connotes things that are reasonably required to be completed to complete it. The word ‘necessary measures’ connotes reasonable steps that should be taken while accomplishing the intended act.
About the growing relevance of arbitration in resolving international disputes between the international and national parties, it is appropriate that arbitral tribunals must be empowered concerning grant interim measures of protection. However, the Model Law (2006) amended was not clear but the intent of the Indian legislation in this regard is laudable.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: