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.

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. 

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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 a signatory to this convention, then they can use any procedure that is valid in the country where they want to enforce the arbitral award even if that is not enforceable in India because of ad-hoc proceedings. They can choose their own procedures and enforce the resultant arbitral award. 
  • In India, minimum judicial interference is followed in cases of arbitration. The judiciary allows sufficient autonomy to the parties to decide the terms of their process. Courts now avoid unnecessary intervention. The policy of minimum curial intervention is appreciated by the courts now. 
  • The Arbitration and Conciliation Act 1996 followed in India is based on UNCITRAL Model which is easily understood by foreign counsels. 

International Commercial Arbitration seated in reciprocating country

Enforcement of a foreign award in India is contingent on the reciprocal arrangement between India and the country where the award is rendered. The country shall be a reciprocating country. A ‘Reciprocating Country’ is any other country or territory outside of India which the central government may notify in the official gazette for execution of foreign awards. Even if there is a bilateral agreement between India and the foreign country for enforcement of awards, it would not be a reciprocating territory if the notification of such correspondence has not been published in India. This position has been confirmed by the Ministry of Law and Justice. Currently, around 50 countries have been notified as ‘reciprocating territories’ for the purpose of execution of foreign awards in India under Section 44A of the Civil Procedure Code, 1908.  

Several other countries, irrespective of having strong connections with India have not been notified as reciprocal territories by the Central Government. In some situations, a country might be a reciprocating country for the purposes of enforcement of awards but not for the execution of judgements from such jurisdiction and vice versa. The absence of reciprocity dilutes the possibility of an award or decree passed in such jurisdictions, considering the party seeking execution would not be able to avail the procedures for direct enforcement available under India Law.

Steps involved in International commercial arbitration system

There are various steps involved while conducting the proceedings of International Commercial Arbitration. The steps are explained below.

Notice of Arbitration

To commence the proceedings of arbitration one party has to provide the notice of arbitration to the other party requesting to refer the dispute to arbitration. When the respondent receives the notice of arbitration, the proceedings of arbitration begin. In this notice, there are two essentials: one is the communication of an intention to refer the dispute to arbitration and the other is that the other party to whom the notice has been served should take a step towards it.

Referral to Arbitration

The judicial authority can refer the subject matters of the case to the arbitration if that agreement contains the clause of arbitration to settle the disputes among the parties if there are any. According to Section 8 of the Arbitration and Conciliation Act, the judicial authority can refer the parties to arbitration if there is an arbitration agreement.

Appointment of Arbitrators

The parties are at their discretion to appoint the arbitrator to decide their case. If the parties are not able to appoint the arbitrators mutually due to some issues then the court allows the parties to appoint each arbitrator and then these two arbitrators will appoint the third party who will be neutral. If the parties fail to appoint the arbitrators within thirty days or the two arbitrators fail to appoint the third arbitrator then the parties can request the Supreme Court and High Court to appoint the arbitrators. The High Court or the Supreme Court can appoint any person or institution to appoint arbitrators. In the cases of International Commercial Arbitration, the Supreme Court can appoint the arbitrators for the parties, and in the cases of domestic arbitrations, the High Court appoints the arbitrators.

The Challenge to the Appointment of Arbitrators

 The appointment of arbitrators can be challenged only on these two criteria:

  1. When there are circumstances that raise reasonable suspicions about his or her independence, impartiality; or
  2. The arbitrator does not possess the qualities the parties require.

Interim relief

The Arbitration and Conciliation Act, in Section 9 provides for interim measures of protection not just before the commencement of arbitral proceedings and during the arbitral proceedings but also after the arbitral award has been delivered. Section 17 provides for interim measures ordered by the arbitral tribunal if it is found at the time of proceedings that the disputed matter is dangerous then it can ask the party to provide security. 

The mandate of the Arbitrator

If arbitrators do not deliver the arbitral award on time then the mandate of the arbitrators expires. This was held in the case of NBCC Ltd. v. J.G. Engineering Pvt. Ltd (2010) by the Supreme Court. The mandate of the arbitrators expires according to the period agreed by the parties.

Challenge to Jurisdiction

The Supreme Court in the case of S.B.P. and Co. v. Patel Engineering Ltd. and Anr, (2005) held that if without judicial intervention the arbitral tribunal was constituted by the parties, the arbitral tribunal can determine all jurisdictional issues by exercising its powers of competence under Section 16 of the Act. According to this Section, an arbitral tribunal has the authority to rule on its jurisdiction if there exists a valid arbitration agreement. If any party has an objection regarding the invention of the tribunal then that party can file a plea before the submission of defence. 

Settlement during Arbitration

The parties are allowed to settle the dispute mutually even if the arbitration proceedings are going on. If the parties arrive at the settlement amicably, the arbitration proceeding will be terminated. Also if both parties give their consent to record the settlement then this would be known as a consent award that would work as an arbitral award.

Arbitral Awards

The decision rendered by the arbitrators in an arbitration proceeding is known as an arbitral award. The decisions are taken by taking the view of both the parties and by the majority. An arbitral award should be in written form signed by all the members of tribunals. In the arbitral award, the date and place where it is made should be mentioned. Each party is entitled to acquire a copy of the arbitral award.

The challenge to an Arbitral Award

Section 34 of the Arbitration and Conciliation Act provides an application for setting aside an arbitral award. The party can challenge the arbitral award within three months from the date of receipt of an arbitral award and additional 30 days can be given if any good reason is given. A party can challenge the arbitral award on the following grounds by furnishing the proof:

  1. A party was under some incapacity.
  2. Under the law, the arbitration agreement is not valid.
  3. The party was not provided sufficient time to appoint arbitrators, was not given proper notice, and was unable to present the case properly.
  4. The arbitral award does not contain the solution of the dispute but it deals with matters beyond the dispute.
  5. The composition of arbitral trials and the arbitral proceedings were not according to the agreement of the parties.
  6. If the court finds out that the arbitral award conflicts with public policy or the subject matter of the disputes is not capable enough to be settled by arbitration. 

Foreign Arbitral Award 

In the Arbitration and Conciliation Act, foreign awards are covered under part II of the 1996 Act that contains New York Convention Awards and Geneva Convention Awards. The New York Convention defines foreign arbitral awards as differences between the parties arising out of the legal relationships. The definition of the foreign award is given in Section 44 of the Arbitration and Conciliation Act. The Geneva Convention defines foreign awards in Section 53 as differences between the parties arising out of commercial matters.

Enforcement of Arbitral Awards in India 

Domestic and Foreign awards in India are enforced in the same manner as a decree of Indian Courts. Even the consent awards obtained after the settlement between parties are executed in the same way. However, there is a distinction in the process of enforcing an award based on 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, 1996 whereas the enforcement of foreign-seated awards (foreign awards) is governed by provisions of Part II of the Act. 

Enforcement of Foreign Awards 

India is a signatory to the New York Convention and the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927. As per the mechanism, if any party which is a signatory to these conventions receives a binding award from a country that has been notified as a convention country by India, such an award would be enforceable in India. Enforcement of such awards is a two-stage process. Firstly, an execution petition needs to be filed. Initially, a court determines if the award is adhering to the provisions of the Act. Once, it is found that the award is enforceable then it would be enforced like a decree of a court. At this stage, parties may object and challenge the award. 

The following things are required for the enforcement of Foreign Awards: 

  • Original award or duly authenticated copy in the manner as required by the country wherein it is made. 
  • Original agreement or duly certified copy.
  • Evidence to prove that it is a foreign award. 

As per Section 47 of the Act, the above documents shall be produced before the court at the time of the application for enforcement of the award. However, the Supreme Court has recently clarified in the case of PEC Limited v. Austbulk Shipping SDN BHD (2018) that this is not a mandatory provision, and the document can be presented after initial filing as well. 

Enforcement of Domestic Awards

For applying for enforcement and execution of an award, the award holder will have to wait for a period of three months after the receipt of such award. During this period, the award may be challenged as per Section 34 of the Act. After the expiry of this period, if a court finds that the award is enforceable, then there can be no further challenge to the validity of such arbitral award. If a party needs to seek a stay on the execution award then the party would have to move a separate application for that. 

Conditions for Enforcement of Arbitral Awards 

There are certain situations in which enforcement of a foreign or domestic award can be refused by the court. This can be done if the award debtor furnishes proof to the court and proves that:

  • The parties to the agreement were under some incapacity. 
  • The agreement in the subject matter is not in accordance with the law that the parties were subject to. 
  • There has been a failure in giving proper notice of the appointment of the arbitrator or arbitral proceedings or the party against whom the was rendered was unable to present his case due to other reasons. 
  • The award is ultra vires to the agreement or submission to arbitration.
  • Awards contain certain decisions on matters beyond the scope of arbitration.
  • The composition of the arbitral authority or arbitral procedure is ultra vires the agreement.
  • Composition was not done in accordance with the law of the country where the arbitration took place.
  • The award (especially a foreign award) has not become binding on the parties yet or has been set aside by a competent authority of the country in which or under which law the award was made. 

Enforcement of foreign awards may be set aside if the court finds that: 

  • The subject matter of the dispute is not capable of settlement by arbitration under Indian law. 
  • Enforcement of the award would be contrary to the public policy of India.

A foreign award is in conflict with the public policy of India: 

  • If the making of the award was affected by fraud or corruption or violated Section 75 (Confidentiality) and Section 81 (Admissibility of evidence in other proceedings) of the Arbitration Act. 
  • If it is in contravention of the fundamental policy of India Law, 
  • It conflicts with the most basic notions of morality or justice. 

The test as to whether there is a contravention of the fundamental policy of Indian Law shall not affect the merits of the dispute. 

Landmark judgments 

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

In this case, the Hon’ble Apex Court applied the principles of severability of the arbitration clause from the underlying contract and referred a dispute to arbitration despite some flaws in the drafting of the arbitration clause. The court also maintained the Indian Judiciary’s supervisory jurisdiction over the dispute by holding that the seat of arbitration was in India, despite London being chosen as the venue of the arbitration. This decision was based on the fact that the laws chosen by the parties were Indian. 

Facts

The dispute between the parties is a long-standing one and began in 2008. Enercon India Ltd. is a joint venture company that was set up pursuant to an agreement between the members of the Mehra Family, who are the appellants in this case, and Enercon Gmbh (Enercon Germany). The dispute that arose was regarding the non-delivery of supplies which was allegedly governed by an Intellectual Property Licence Agreement (IPLA). It was contended by Enercon India that the contract was not concluded and hence it was not binding. It was also contended that there was no binding arbitration agreement. 

The governing law of the IPLA was Indian Law. The arbitration clause in that agreement covered all matters, disputes, performance, enforcement, etc. The venue of the arbitration was decided as London and the provisions of the Indian Arbitration Act were to apply. 

There was a series of parallel proceedings initiated both in India and in England seeking the validity of the agreement. Enercon India commenced proceedings before the Bombay High Court and the Daman Trial Court. The matter subsequently reached the Hon’ble Supreme Court. 

Issues 

  • Whether the parties can refuse to arbitrate on the grounds that there was no validity in the IPLA agreement? 
  • Whether this is an issue under the jurisdiction of the courts or the Arbitral Tribunal?
  • If the arbitration agreement is valid, whether the arbitration clause is vague and unworkable?
  • If the arbitration clause is workable, whether the seat is in London or India?
  • If the seat is in India, whether the English Court have concurrent jurisdiction?

Judgment

It was decided by the Apex Court that the legislative mandate under Section 45 of the Arbitration and Conciliation Act, 1996 only allowed the court to decline referring a dispute to arbitration if the agreement was found to be null and void, inoperative, or incapable of being performed. In the given case, the signing of the IPLA was proof that parties have subjected themselves to arbitration together. It is enough for the courts to prima facie decide that parties intended to arbitrate. In order to avoid arbitration, the parties will have to satisfy the court that it would be just and in the interest of the parties to do so. 

Further, the court held that the clause was not unworkable. There was a drafting error in the clause but it did not make the clause unworkable. Courts are required to adopt a pragmatic approach and not a pedantic approach while interpreting or construing arbitration clauses. 

While determining the seat of arbitration, the court relied heavily on the case of Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru (1987) and applied the closest and intimate connection test. This test states that when it is unclear as to which law is applicable to the arbitration agreement, the intention of the parties becomes essential in determining the seat. Here, Indian law was chosen as the law applicable to all aspects of the agreement and the arbitration, therefore if the parties chose the Indian Laws, they must not have intended the seat to be London. There was no other connecting factor in favour of London besides the venue of arbitration. 

The court also relied on the Bharat Aluminium & co. v. Kaiser Aluminium Technical (2012) (BALCO) decision in support of its conclusion. It held that since the parties have specifically applied portions from Part I of the Indian Arbitration Act – which, in the post-BALCO context was only effective where the seat of arbitration was India – the parties must have intended for the seat to be in India.

Further, it was held that it is the Indian Court which has the exclusive jurisdiction over the matters in this case. When the seat is in India, the English Court cannot exercise supervisory jurisdiction over the arbitration. 

Bharat Aluminium Co. v. Kaiser Aluminium Ltd. (2007)

This case involves a dispute between BALCO, an Indian Company, and Kaiser Aluminium Technical Service Inc., a United States-based company. The disputes revolve around an agreement between the parties which contains an arbitration clause. 

Facts

Both the parties entered into a written agreement which included an arbitration clause. The agreement specified London as the Venue for Arbitration and the governing laws as English Law. When a dispute arose between the parties, BALCO initiated proceedings in London. However, they faced a disagreement on the appointment of the arbitrator which led BALCO to file an application before the Delhi High Court seeking the appointment of arbitrators. It was the argument from BALCO’s side, that one of the companies was Indian, so Indian Courts had jurisdiction to appoint an arbitrator even though the seat of arbitration was designated as London.  

Issues

  • What is meant by place of arbitration as found in Sections 2(2) and 20 of the Arbitration and Conciliation Act, 1996?
  • What is the meaning of the words: “under the law which the award is passed” under Section 48 of the Arbitration and Conciliation Act, 1996 and Article V(1)(e) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards? 
  • Does part I of the 1996 Act apply at all stages of arbitration?
  • Whether a suit for the preservation of assets pending an arbitration proceeding is maintainable? 

Judgment

In this decision, the Hon’ble Apex Court emphasised that the term Place or Venue of arbitration should be considered as the seat of arbitration. Determination of the seat is very important as it determines the applicable procedural law and the courts with supervisory jurisdiction over the arbitration proceedings. The court also mentioned that there should be party autonomy in choosing the seat of arbitration. When parties choose a seat outside India, the court of that place would have exclusive jurisdiction over the arbitration proceedings. Indian Courts cannot meddle in such cases inferring automatic jurisdiction. It would defeat the very purpose of deciding the seat of arbitration. The court also clarified that Part I of the 1996 Act does not have any jurisdiction over International Commercial Arbitration held outside India. Such awards are only subjected to the jurisdiction of Indian Courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Act. 

Therefore, in a foreign seated arbitration, parties cannot claim interim relief from the Indian Courts. Such application under Section 9 or any other provision, would not be maintainable. 

Conclusion

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.

The International Commercial Arbitration system presents a complex landscape shaped by various factors, including legal frameworks, institutional rules, and cultural differences. Through this research and analysis, there are several understandings which shall be noted. 

Firstly, while arbitration offers flexibility, confidentiality, and neutrality to the parties, its effectiveness is still disrupted by the integrity of the arbitral process and the enforceability of the awards across jurisdictions. Challenges such as procedural delays, the lack of transparency, and the limited resource mechanisms somehow undermine the system. The proliferation of International Commercial Arbitration and the development of specialised rules have also enhanced the procedural standards and provided parties with greater options for dispute resolution. It ensures, consistency and coherence. 

Further, the increasing complexity of commercial transactions and the emergence of new technologies raise novel issues for arbitration including cyber security concerns. At this juncture, collaborative efforts between the courts and the arbitral institutions are essential to uphold the integrity of the arbitration agreements. 

In light of these, policymakers and practitioners must engage in continuous dialogues and discourse. It is important to strengthen the International Commercial Arbitration system across the globe. 

Frequently Asked Questions(FAQs)

What is fast-track international arbitration?

Fast Track Arbitration aims to provide faster decisions in commercial matters. It was introduced in India in 2015 by the Arbitration and Conciliation Act, 1996. It is suitable for cases that can be decided based on the documents and in which oral hearings and witnesses are optional. This procedure mandates that the arbitration shall be finished within six months. 

What is the difference between venue and seat of arbitration?

The venue is merely a geographical location for the proceedings to be conducted, whereas the Seat is the legal jurisdiction that governs the complete arbitration proceeding. Venue does not confer any legal obligations, whereas the seat of the agreement determines which laws would apply to the proceedings. 

What is foreign seated arbitration?

Foreign seated arbitration takes place outside of India and the resulting award is enforced as a foreign award. Indian Parties can choose a seat outside India for an Arbitration to decide the dispute. There is no requirement for the parties to be foreign. 

What is domestic seated arbitration?

Domestic seated arbitration is simply a way to resolve disputes between two parties inside the country but outside the court. In such cases, the process is governed by the laws of the country where the arbitration takes place. 

References

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