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UNCITRAL Model Law on International Commercial Arbitration

April 19, 2024

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This article is written by Ronika Tater and further updated by Sneha Saha. In this article, the author 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.

This article has been published by Shashwat Kaushik.

Table of Contents

Introduction

With the emergence of globalisation, the communication and partnerships worldwide have been increasing with leading successful business ventures among people from different parts of the world. As the world market is opening, there is a need for adopting a dispute resolution mechanism in order to solve any issue arising during the business tenure or for having a successful business venture.

With commercialisation, the number of disputes has also increased. So, in order to settle the dispute, the process of Alternative Dispute Resolution (“ADR”) plays a role to settle the dispute as it is an easier process to opt rather than the long litigation process. 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. This led to the formation of arbitration, as a form of ADR to resolve disparity amongst 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.

Brief on arbitration and International Commercial Arbitration

Arbitration is the process conducted in order to solve any dispute that may arise between parties to an arbitration agreement. It is needed when conflicts arise due to any breach of contract or agreement or non-fulfilment of any promise or any other matter. The parties have a right to choose a neutral third party who will try to settle the said dispute and give a fair outcome by hearing both the parties. Arbitration includes many other processes similar to it such as Conciliation, Negotiation, Arbitration and Lok Adalat whose main function is to solve the cases without the court’s intervention.

Similar to Arbitration which solves issues that arise at the domestic level, the term International Commercial Arbitration is known as a dispute resolution process followed at the international level whose main objective is to restore the competitiveness of business transactions with an alternative dispute resolution. It is the form of foreign arbitration that is needed in any commercial transaction occurring between different national and international boundaries. International commercial arbitration is followed by the arbitration agreement, which is made between two consenting parties with the help of an arbitration centre of the country.

Evolution of UNCITRAL Model law on International Commercial Arbitration

The Model Law was needed to bring changes in the arbitration procedure and modernise the rules on arbitral reforms so that the need for international commercial arbitration can be met. The Model law made all the States adopt a new procedure that was established and follow the rules and regulation in order to deal with any international arbitration dispute. On June 21, 1985, the UNCITRAL Model Law on International Commercial Arbitration was adopted. Dr. Gavan Griffiths, a commonwealth secretariat also known as Solicitor-General of Australia prepared an “Accession Kit” which is for providing information to all commonwealth countries regarding the UNCITRAL Model Law on International Commercial Arbitration. With the resolution of 40:72, a structure was provided by the UNCITRAL Model law on December 11, 1985 by the General Assembly, International Commercial Arbitration was upheld to show the necessity that has arisen to keep uniformity in the legal framework of arbitration and also to maintain the use of arbitral procedures in International Commercial Arbitration.

At first, when the Model Law was proposed, UNCITRAL had adopted various laws for the Arbitration in 1976 and for Conciliation in 1980. It was believed that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in New York, 1958 was adopted for the reason to ensure that the procedure followed in the international commercial arbitration has the same effectiveness on all the national laws which can remove the hurdle to the success of the international arbitral procedure. So, the role of the Model Law was believed to create balance in the whole system.

The Asian-African Legal Consultative Committee (AALCC) recommended reviewing and amending the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Based on the study the application and interpretation of the 1958 New York Convention UNCITRAL decided to embark on reviewing to clarify some issues and meet practical concerns by establishing uniform rules on arbitral procedure. Based on the report of the United Nations secretariat of Model Law on international commercial arbitration in 1981 UNCITRAL entrusted UNCITRAL entrusted its Working Group on International Contract Practices with preparation of a draft of such law with regard to the 1958 New York Convention and the UNCITRAL Arbitration Rules. By June 1985, many countries showed interest in this project. The final outcome was provided by the Model Law when all the states gave a final say and considered the same as it meets the uniformity of law. With a ratio of 61:33, in the year 2006, the General Assembly gave a favourable recommendation and agreed that the Model Law should be revised and enactment is needed. The UNCITRAL amended the Model Law on July 7, 2006. The reason is to create a better understanding and provide a guide for solving arbitration disputes that may arise between the parties in any international commercial transaction. It is needed to include the Model law in every individual legal guide and make the balance in modern reality and flexibility of accepting new arbitration laws so that it can be smooth enough to accumulate the dispute arising in foreign setup in commercial field or any other issues regarding arbitral proceedings.

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 realisation 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 modernise 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 which different states follow in order to preserve the legal status and maintain the economic status globally. The Model Law comprises 8 chapters, 36 Articles and is to be adopted by different nations into their national laws or to reshape the national laws of arbitration based on the principles of this model law.

Salient features of UNCITRAL Model Law on International Commercial Arbitration

The Model Law lays down some features which are as follows:

To create uniformity in laws related to international commercial arbitration, it lays down certain rules and regulations which are required to be followed by the countries.
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.

The composition of an arbitral tribunal and the enforceability provision of an arbitral award is included in the Model Law. If the seat of arbitration is within the territory of the particular State, and it is enacted in the state, then the arbitral award would have global enforcement. But, 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) includes a 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. There was a requirement for these Rules in order to enable the parties by giving them control of governing the arbitration process and resolve the issue by themselves.
The UNCITRAL Model Law provides a set of structures to the legal body of a nation to shape the law by making it a part of their domestic legislation on arbitration.

Reasons for adopting UNCITRAL Model Law on International Commercial Arbitration

The UNCITRAL Model Law on International Commercial Arbitration was adopted in 1985 and amended in 2005. Its main aspect is to create a harmonisation and improvement of national laws including all stages of the arbitral process. Article 2A of the Model Law which was adopted by the United Nations Commission on International Trade Law by 39th session in 2006, states that with regard to the interpretation of this law it has to be of international origin and promote uniformity in its application, and has to be in good faith. Also, any matters governed by this law which are not expressly settled shall be settled in conformity with the general principles on which this law is based. Also, the other reason which are in need to address are as follows:

To remove the inadequacy of national laws

The Model Law aims to maintain balance in all legal aspects at national level and international level. In order to remove the inadequacy, the national laws are required to adopt the Model law in any trade-related and commercial transaction. If any dispute arises be it at national level or international level it can be solved by using proper rules and regulations established by that country based upon Model law on international Commercial Arbitration so that no difficulties are faced by any party.

To tackle the disparity between national and international laws relating to arbitration

Under international commercial arbitration, the parties belong to different nationalities and thus the agreement between them is more complex. To resolve the dispute, simple national laws will not be helpful. To resolve the disputes arising from various transactions involving different states, uniformity in law on arbitration is necessary. So the aim behind the Model Law is to tackle international disputes which arise between parties from different locations.

As the law differs widely and is often cited from different sources, the law varies from country to country. So, to tackle any dispute arising at the national level with any business transaction in commercial or industrial matters or any other transaction of goods and services, a Model law was made to give better clarity in the cases of international arbitration on how one can solve them easily. The Model law objective is to govern international commercial arbitration and satisfy the needs of the parties involved in arbitration. The aim is to have a solution for the parties and provide the makers of law with a guide at the national level and not only at the international level. All the practical profits of the arbitration can be served and parties will be confident enough in order to arbitrate whenever needed and a harmonisation is maintained to resolve any dispute that may arise.

To provide modification in the arbitral process by improving national laws

The Model law helped to improve the national laws and create a promising arbitration process by providing for rules regarding arbitration agreements, the language used in the arbitration, the place of arbitration and the enforcement of the arbitral award which will be applied in the arbitration process. Any dispute arising at the national level with regard to international commercial arbitration can follow the established Model law. It became a medium in creating a uniform process for all the states to prepare new laws relating to the new international arbitration laws. It is an initiative to make procedures easy.

Provisions of UNCITRAL Model Law on International Commercial Arbitration

The Model Law was adopted and made in order to establish the provisions for international arbitration. It is to provide a fair chance to all parties, providing arbitrators and making decisions based on the facts of the case and providing an award without any bias or intervention of the Courts.

The Model Law is made to help all the states to take necessary steps in order to implement laws on arbitral procedure and also keep the importance and various features of international commercial arbitration intact. The Model law shows all the aspects of international arbitral procedure that are to be accepted by all the states from various parts of the world. The model law is applied so that it can provide a better solution and reasons for conducting the arbitration proceeding without any further issues or disputes. It specifies various provisions of the UNCITRAL Model Law on International Commercial Arbitrations.

Application of model law

Article 1(1) of the law states that the law applies only to international commercial arbitrations, any national disputes between the parties residing in that nation only are not to be included.

Article 1(3) talks about the arbitration that will be an international arbitration. It states that an arbitration is international if the parties have a place of business in different states during the conclusion of that arbitration agreement. The parties have agreed jointly that the subject matter of the agreement relates to more than one country, and also the matter of the dispute is closely connected.

Article 1(4) states that the arbitration will be based on the place of business which has the closest relation to the arbitration agreement when the parties have more than one place of business. Also, if a party does not have a place of business, a reference is to be made to his habitual residence.

Article 1(5) states that this law will not affect any other law of this state, on account of which certain disputes may not be submitted to arbitration or may be submitted to arbitration based on provisions other than those of this law.

Important terms and definitions

Article 2 of UNCITRAL Model Law on International Commercial Arbitration provides for definitions and rules of interpretation. Apart from those definitions, there are certain terms which need to be understood before we delve into other provisions of this model law.

Realm of application

Article 1(1) states that law will be applied only to international commercial arbitration. It will apply to any agreement which is in force between this state and any other state or states.

International

The term “international” used in the arbitration is with regard to the subject matter and also for the place of arbitration stated under Article 1(3). The arbitration will be international if the place of business is situated in a different State.

Commercial

The term commercial is not defined in the UNCITRAL Model Law on International Commercial Arbitration. However, the Model law states that all kinds of relations arising out of any matters which are of commercial nature such as any transaction of trade and supply of goods or services, distribution agreement, licensing, banking, a joint venture in the business of industrial or business cooperation will be considered in the matter of the arbitration.

Arbitration

Arbitration can be institutional arbitration or administrative arbitration and parties have the right to select the place of arbitration and if not selected by them, then the same will be decided by a higher authority.

Arbitral tribunal

An arbitral tribunal is a panel where one or more arbitrators sit to resolve the dispute through arbitration. Under Article 2(b), it is stated that the arbitral tribunal consists of the sole arbitrator or the panel of arbitrators.

Court

As per Article 2(c), it means an organ or a body of the judicial structure of a nation.

Written communication

Article 3 defines the receipt of written communication, which says that any kind of written communication must be deemed to be received if it is delivered to the addressee personally, at his business place or his habitual address or mailing address. If none of these can be found, then the last-known address of his business place or his habitual address or mailing address by registered letter needs to be delivered.

Court’s intervention in the arbitration process

Articles 5 and 6 deal with the court intervention in the arbitration process. In Article 5 it is stated that a court cannot intervene if it is not required by the law. In Article 6 it is stated that a court can intervene in a few cases such as-

Under Article 11(3) it is stated that if a party fails to appoint an arbitrator or if the two arbitrators appointed by the party fail to agree on a third arbitrator within thirty days of their appointment by request from the party can request the court to appoint the arbitrator. Also if the party cannot agree with the terms of the arbitrator then also the court can help in this regard for the appointment of the arbitrators.
Article 11(4) states that during the appointment of arbitrators the party failed to act as required, if the two arbitrators cannot reach a proper agreement to the dispute or the third party or any institution fails to perform any function then the party can request the court to solve this matter.
Article 13(3) provides that if any parties challenge the arbitrator’s decision, then the party can request the court in order to take a decision. If the appeal remains pending then the challenged arbitrator can make the decision and give the award.
The court can intervene in the arbitration process under Article 14 in cases where the arbitrator fails to perform his functions and is unable to do the proceeding and makes any undue delay, his mandates terminate or withdraw from the office or if the parties agree on the termination in such case the court can decide on the termination.
Article 16 states that if an arbitral tribunal is exceeding its jurisdiction or not have any jurisdiction shall be raised in the arbitral proceedings and also the court shall intervene and decide the matter regarding the jurisdiction and continue the proceedings.
Article 34(2) states that a court can intervene in a situation while setting aside the award given by the court in cases like the arbitration agreement made under some incapacity, the party made an application without informing the opposite party and also the award goes beyond the scope of the submission. And the composition of the tribunal is not based on proper law.

Arbitration agreement

Arbitration is the process where a neutral party is appointed in order to solve a dispute between two parties, and the process is initiated with the help of a prior arbitration agreement. Article 7 states the meaning of the arbitration agreement. An arbitration agreement is an agreement made by the parties in order to submit to arbitration all or the specific disputes which have arisen or may arise between them in a legal relationship, which can be contractual or not.

The arbitration agreement has to be in writing form that can be made by adding a clause in the agreement or by making a separate agreement. An arbitration agreement is in writing which has to be agreed to by both parties which may be done by document signed by both parties or in an exchange by letters, telegrams and any kind of telecommunications. The contract needs to include the clause of initiation of arbitration if any dispute arises between the parties that is agreed upon and not denied by any party involved. Article 8 mandates that a court can refer a matter to arbitration which is the subject of an arbitration agreement unless it finds that the agreement is null and void or inoperative or incapable of being performed. And under this issue the arbitration shall not commence or an award shall be made if the issue is still pending before the court.

Composition of the arbitral tribunal

The composition of the arbitral tribunal is explained under Chapter III of the Model law which contains Article 10, 11, 12,13, 14, and 15. These provisions are explained below-

Number of arbitrators- Article 10 specifies the total number of arbitrators that have to be there. The parties are free to decide upon the number of arbitrators. In case, parties failed to provide, it has to be three in number.
Appointment of arbitrators- Article 11 mentions the appointment of arbitrators which includes certain requirements such as a person of any nationality can be the arbitrator, unless otherwise provided by any party. The parties are free to agree upon the procedure of appointing the arbitrator or arbitrators. Each party shall appoint one arbitrator and the two other arbitrators shall appoint the third arbitrator. The parties need to appoint the arbitrator within 30 days of commencement of the arbitration proceeding. In case of the lapse of 30 days, the court may appoint such an arbitrator. The court while appointing an arbitrator shall request a disclosure from such arbitrator that he possesses all the qualifications mentioned by the parties and that he is independent and impartial in nature. In case of sole arbitrator, the court may appoint an arbitrator who is of different nationality other than those of the parties.
Challenging an appointed arbitrator- Article 12 states the grounds for challenging an arbitrator. When an arbitrator can be challenged where he disclose any situations likely to give rise to justifiable doubts pertaining to his independence or impartiality. Also, he shall inform without any delay that if he doesn’t possess the required qualifications agreed to by the parties.

Further, Article 13 sets that if a party is dissatisfied with the procedure, it can challenge it within 30 days of notice of rejection of challenge by an arbitral tribunal, and can appeal to the Court. At the discretion of the Court, the arbitration may continue in the court until the court gives the final award.

Replacement of arbitrator- Article 14 talks about the situation when an arbitrator can be replaced. Firstly, if the arbitrator is unable to perform his duties for any reason and fails to act without undue delay. Secondly, if he withdraws from office or if the parties agree to the termination of his mandate.
Re-appointment of arbitrator– Article 15 deals with the appointment of substitute arbitrator, where if an arbitrator is terminated under Article 13 and 14 because of revocation of his mandate or because of his withdrawal from office, a new arbitrator will be appointed through the same procedure that was applied for the appointment of arbitrator.

Jurisdiction of arbitral tribunal

The arbitral tribunal can decide upon its own jurisdiction, including deciding on any objections with respect to the existence of the validity of the arbitration agreement specified as per Article 16 of the Model Law. With this regard, the arbitration clause will be treated as a separate agreement to the original contract. So, if the contract is held to be null and void, it would not lead to the invalidity of the arbitration clause, which was also settled in the case of Sushma Shivkumar Daga & Anr. Vs. Madhurkumar Ramkrishnaji Bajaj & Ors. (2023) where the Supreme Court upheld the judiciary’s role in maintaining the arbitration procedure and the tribunal should have the competence in making decisions on its own keeping in mind the validity and existence of the arbitration agreement.

Challenging the jurisdiction

Article 16 further states that a plea that an arbitration tribunal does not have jurisdiction shall not be raised at a date later than the submission of a statement of defence. However, a party cannot be stopped from raising such a plea simply on the ground that they participated in the appointment of the arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond its scope is raised during the arbitral proceedings. The arbitral tribunal can decide upon the plea relating to its jurisdiction and, if the plea is rejected, continue to make an arbitral award. If any of the parties is discontented by the decision of the arbitral tribunal, that party can raise an issue to the court after the arbitral award is given.

Waiver of right to object

The concept of waiver of the right to object states the effect of the situation where a party proceeds with the arbitration without raising an objection even knowing the requirement under the agreement which has not been followed. Article 4 of the Model Law provides the circumstances where a party knowingly fails to comply with the stated requirement or any obligation given under the contract. If any party fails to give an objection against the non-complying parties within a specified time and without any undue delay even knowing that the party has failed to comply with stated requirements, such a party is said to have waived its right to object.

Interim measures and preliminary order

Interim measures and preliminary order serve the purpose of maintaining fairness, prevent injustice and ensure that the legal process works in a smooth way until a final decision is reached. Interim measures are the temporary measure or actions taken by the court during the pendency of a case. This measure is given in order to prevent irreparable harm until a final decision is given. Preliminary orders are the initial order issued by the court at the outset of a case before the start of full trial or hearing. These orders are subject to change or modification as case progress.

Interim measures

Article 17 of Chapter 4A states that the interim measures are the relief given by the arbitral tribunal which are basically provisional remedies provided to the parties to the arbitration with temporary or immediate protection rights or the property that are pending in a decision on the standard of the arbitral tribunal. The interim measures are basically attachments, injunctions or orders safeguarding and preserving property and requesting payment of part of a claim that may be granted by an arbitrator.

Preliminary order

Article 17B of Chapter IVA states that a preliminary order is basically an order which is directed to the parties for not to frustrate the purpose of the requested interim measures while the arbitral tribunal decides whether to give the measures or not. And a party can apply for interim measures in ex- parte form, i.e without any notice given to other parties.

The tribunal may grant the preliminary order while considering that prior disclosure of the request for the interim measures may create an issue for the party against whom the requested measure is directed to take action that could frustrate the purpose of the measure.

Conduct of arbitral proceedings

The arbitral proceedings are based on the institutional rules that are chosen by the parties involved. The parties are free to agree on the procedure for conducting the arbitration. The agreement made by the parties constitutes a contract which refers to a dispute which may arise in future between them, which will lead to arbitration. The freedom of parties to consensually execute the arbitration agreement is known as the principle of party autonomy. UNCITRAL Model law uplift the concept of party autonomy in order to overpass the two dispute parties with a common law and give the right to choose the procedure to be followed by the Arbitral Tribunal.

Articles 18 and 19 of the Model Law deal with the basic arbitral procedure. Article 18 states that all the parties involved shall be treated equally and will be given all the opportunities to present their case. Article 19 states that the parties have the right to decide the procedure of an arbitral tribunal, the process to be followed by the tribunal to conduct the arbitration. The parties are suggested to follow the appropriate rules and regulations with regard to case related concerns. If the parties fail to follow the procedure given in the agreement, the arbitral tribunal shall conduct the arbitration in such a manner as it thinks appropriate. The tribunal has the power to determine the admissibility, relevance, materiality and weight of the evidence.

Place of arbitration- Article 20 suggests the place of arbitration that needs to be decided by the parties. Also, the arbitral tribunal may decide the place in accordance with the convenience of the parties, unless otherwise agreed by the parties. Further, parties must decide the place where hearing, consultation among members, experts and witnesses, or inspection of goods and properties can be easily done.
Commencement of arbitral proceedings- Article 21 decides the commencement of arbitral proceedings after the notice has been sent and received by the other party.
Language of the proceeding- The language needs to be decided by the parties as per Article 22. The parties are free to choose the language in which they are comfortable and an arbitral tribunal can decide if the party fails to decide. The statement should be in writing where any communication, hearing or award shall be included in the agreement. The arbitral tribunal shall request to submit the documentary evidence to be translated in a language decided by the parties.
Appointment of expert- The appointment of experts by the tribunal is done for consulting on specific issues and the court’s assistance in taking the evidence. Also, the court can give assistance in taking evidence if it is requested by the parties and the arbitral tribunal in certain cases.
Statement of claim and defence- Articles 23 to 27 deal with the statements of claims and defence. The parties need to submit their claims and defences which is need to be written with facts and the relief claimed. Oral hearings shall be conduct on the basis of documents and materials submitted by the parties and also parties should be informed about the hearing by advance notice. For transparency and fairness it is required that all the documents submitted by one party must be notified to other party and it must be accessible to them as well. If the claimant fails to give the statement of the claim the arbitral tribunal can terminate the claim and also if the respondent fails to give the statement of defence then the tribunal shall proceed with the claims given by the claimant.
Failure of the parties to appear- If the parties fail to appear for the hearing and fail to give the evidence, the tribunal will proceed with the award as per the present evidence.

Award and termination of proceedings

Articles 28 to 33 of the Model Law state about the award that is given by the tribunal and the termination of any proceedings during the arbitration process. These Articles include the decision that needs to be made by the arbitrators, the settlement of the dispute, termination of the proceedings, the making of awards or any changes required in interpreting the awards and also any making of any additional awards. Many issues arise while deciding the whole process relating to the arbitration and relating to the concept of international commercial dispute as the whole process of arbitration starts from rules that are applicable, place of arbitration, the place of business of one or other party, the place of jurisdiction.

All this is dealt with under Article 28 which gives a proper solution regarding which rules and laws to be followed, and the conflict of laws which needs to be considered by the arbitral tribunal. The arbitral tribunal shall follow the laws given by the parties as per the substance of the case. Any designation of the law or the legal system given by the state shall be interpreted unless directly stated by the substantive law of that state or if the designated law or legal system is not in conflict with the laws of the state in question it will be interpreted accordingly. The tribunal is responsible to apply the legal rules to resolve the dispute and the choice of law is regulated by identifying the conflicts between different laws or rules and the tribunal is responsible to decide which law is applicable on the case based on the conflict of law. The tribunal’s role is to ensure that the decision given by them shall be fair and based on the present situations rather than strictly following the rule of the law. The arbitral tribunal shall decide the matter in accordance with the terms of the contract and the circumstances of the disputed transaction.

Setting aside of an award and recognition and enforcement of award

The Model Law mention about the application for setting aside the arbitral award and the various grounds under Article 34 which specifies that in setting aside of award, the parties need to show proof such as

the arbitration agreement made under some incapacity, i.e. the person who made the agreement was not in the right state of mind or was incapable at that time; or
The party made the application without giving proper notice to the opposite party; or
If the award given to the party goes beyond the scope of the submission the arbitration procedure does not comply with the dispute; or
The arbitral tribunal’s composition which has to be followed by procedure was not in accordance with the proper law.

Article 26 states that an arbitral tribunal may appoint one or more experts in dealing with specific issues. And also ask the party to give the expert any relevant document or provide access to any goods or property for inspection. Also, the arbitral tribunal upon request by parties after the delivery of the oral or written report by the expert can participate in the proceeding where he can put to question and present an expert witness to testify on the points at issue.

Article 35 talks about the awards, which are binding and enforceable irrespective of the country wherein the tribunal is giving the award. The party relying on the award should supply the original award or copy thereof.

Application of UNCITRAL Model Law on International Commercial Arbitration in India

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 disputes, introduced the Arbitration and Conciliation Act, 1996. The Act is based on UNCITRAL Model Law on International Commercial Arbitration, 1985 and is applicable on both national and international commercial arbitration. The principal motive behind the Act is to control delayed adjudication of disputes 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).

Model Law and Arbitration and Conciliation Act

There are multiple provisions of Arbitration and Conciliation Act which is directly adopted from the Model Law, but there are also provisions which differs from the Model law or not adopted from the Model law. Such an adoption or non-adoption is discussed below-

Section 9 of the Arbitration and Conciliation Act, 1996 (‘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 about the 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.

Certain provisions of the Arbitration and Conciliation Act differs from the provisions of Model law such as Article 1(2) states that Model law will be applicable in the territory of the state in the place where the dispute has raised except for Article 8, 9, 17H, 17I, 17J, 35, 36 has been adopted by the commission which is not there is Arbitration and Conciliation Act. Section 1(2) of the Act states that laws will be applicable to the whole India.

Further, Article 35(2) has been added stating that the party applying for the award shall supply the original award or copy and give it in the official language of the state if not given a request will be made for translating the award. It has been inserted in Model law which is not expressly stated in the Arbitration and Conciliation Act, as the Act only states how the award is binding based on the writing to the competent court.

Article 17A to 17J of Chapter 4A talks about the provisions of interim measures and also the preliminary order in the conduct of arbitration. Also, the power of the arbitral tribunal granting interim measures, modifications, disclosure, security, cost and damages, palace of arbitration, recognition and enforcement, grounds for refusing recognition and enforcement, security and also the court granting the interim measures. Similar provisions have been made in the Arbitration and Conciliation Act. Section 17 provides the interim measures that has been ordered by the arbitral tribunal.

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, to take the major role in the process of arbitration. Vidya Drolia vs Durga Trading Corporation on 28 February, 2019 in this case Supreme Court held that it would be irrational and also wrong to treat and not trust arbitrators and make them as flawed and inferior adjudication system. Thus, the powers of the arbitral tribunal was highlighted, and it was stated trust in the process of arbitration should be increased. This principle is also applicable to foreign-seated arbitration.

Salient features of the Act in consonance with Model law

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 raised 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. In Vidya Drolia vs Durga Trading Corporation on 28 February, 2019, the Supreme Court shed light and gave clarity to the increasing debate surrounding the arbitrability of disputes based on the subject matter in the matter of Indian context and also the pro-arbitration stance taken by the judiciary by specifying various disputes which are arbitrable.

Relevant case laws

The Model Law does not mention any definition for the word ‘commercial’, hence it gives a wide interpretation and changes with the judicial decisions. 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), it was stated that the term ‘commercial’ includes all ‘commercial relationships’ in support of relationships consisting of family, cultural, social, economic or political nature. In this case, the contract was for consultancy service; it was included within the ambit of the term ‘commercial’.

It is to be noted that in Article 7 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 go for 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 by the courts. In the case of, Max India Ltd. v. General Binding Corporation (2009), the Delhi High Court observed that the parties agreed to take the arbitration in Singapore and follow the procedures as per the Singapore 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 term ‘necessary measures’ connotes reasonable steps that should be taken while accomplishing the intended act. Also, it was held in the case of Bhatia International vs Bulk Trading S. A. & Anr on 13 March (2002), that the international commercial arbitration held outside India will follow the Part I of the Arbitration and Conciliation Act unless parties have opted to choose any other system of procedures to be made applicable to them.

Recently, in the case of In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (2023), the bench consisted of Chief Justice D.Y. Chandrachud and other seven judges upheld the validity of an unstamped arbitration agreement unanimously. In this case, the issue arises regarding the validity of an unstamped arbitration agreement. With the reference to Stamp Act, 1899, it was stated that an unstamped arbitration agreement was inadmissible but not void ab initio. This judgement has overturned the earlier two judgments of NN Global Mercantile v. Indo Unique Flame (2021) and SMS Tea Estates v. Chandmari Tea Co. Pvt. Ltd (2011). In this case, the Chief Justice gave a judgement stating that the insufficient stamp duty renders an agreement to be as inadmissible evidence but the same does not make it void as it is a curable defect. Based on the principle of kompetenz- kompetenz stated under Section 16 of the Act, which denotes that an arbitral tribunal has the ability to decide on their own jurisdiction to proceed with a case. So, the tribunal has the competence in dealing with the validity of the arbitration agreement as per the Arbitration and Conciliation Act. The Bench had accepted the argument stating that the Courts can only determine if any arbitration agreement exists as per Section 11 of the Act and will not question the validity of the arbitration agreement based on stamping, which must be determined by the tribunal only.

Conclusion

With 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.

The establishment of Model Law, made it much easier for every country to adopt a new system where any transaction relating to any commercial dispute in which one party is a foreigner can be considered and resolved. The reason behind this is to harmonise laws at the national level. This was much needed to develop a better system in governing International Commercial Arbitration and to help the countries adopt the Model Law so that the commercial transactions becomes easy and even if any issue arises in their business transaction, it can be solved in a much easier way with the help of arbitration procedure.

Frequently Asked Questions (FAQs)

What is International commercial arbitration?

International commercial arbitration is a procedure followed in resolving disputes, which is favoured by the parties in any commercial activities arising in connection with commercial agreements and transactions when one of the parties belongs to a different nation. It gives a flexible process in resolving disputes to the parties outside the court.

Where is International commercial arbitration defined?

International commercial arbitration is explained under Section 2(1)(f) of the Arbitration and Conciliation Act, 1996.

How many arbitrators can be there in an arbitral tribunal?

There can be one or more than one arbitrator, but it should be odd in number.

What do you mean by arbitral tribunal?

An arbitral tribunal is a place where an arbitrator or arbitrators are appointed to settle disputes. In order to run the arbitration process, only an odd number of arbitrators are appointed.

What is an arbitration agreement?

It is an agreement where there is a clause of arbitration given specifically in an agreement, or it can be provided in the form of a separate agreement including the arbitration process in case of any dispute between the parties.

What does the principle of Kompetenz-Kompetenz mean?

It means that an arbitral tribunal has the right to decide its own jurisdiction whether it can hear the case or not with respect to the existence and validity of the arbitration agreement.

When can the arbitration be initiated?

The arbitration proceedings can be initiated on the date it is requested for the dispute which has arisen and for which arbitration needs to be started.