In this article, Nakul Sharma pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses Jurisdiction of Indian Courts on International Commercial Arbitration.

ARBITRATION

• Arbitration is the settlement of disputes between the parties, in which the parties by mutual consent agree to submit the dispute to the one or more number of arbitrators who tries to settle the dispute between the parties by making a binding decision on the dispute. Arbitration is a way of settling the dispute outside the courts.
• According to section 2 (1)(a) of The Arbitration and Conciliation Act, 1996 “arbitration” means any arbitration whether or not administered by permanent arbitral institution.[i] The arbitrator is the neutral third party and the arbitration proceedings are conducted privately unlike courts.
• Arbitration and Conciliation Act, 1996 (amended in 2015) is an act that deals with domestic arbitration, international commercial arbitration and with the enforcement of foreign arbitral awards.

INTERNATIONAL COMMERCIAL ARBITRATION

• As per section 2 (1)(f) of The Arbitration and Conciliation Act, 1996 (amended in 2015), “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is,
  • An individual who is a national of, or habitually resident in, any country other than India; or
  • A body corporate which is incorporated in any country other than India; or
  • An association or body of individuals whose central management and control is exercised in any country other than India; or
  • The Government of a foreign country.[ii]
• International Commercial Arbitration is an arbitration where the matter involved is a cross-border dispute and the parties do not want to get into filing of case in national courts. International Commercial Arbitration, in this manner helps the parties get rid of the long and technical procedure of the courts.
• International Commercial Arbitration, unlike the pre-established rules and procedure of the law, works on the terms and the manner previously decided by the parties in the arbitration agreement. The whole procedure of arbitration revolves around the arbitration agreement previously signed between the parties and revolves around the same.

ARBITRATION AGREEMENT

• As per section 7 (1) of The Arbitration and Conciliation Act, 1996 (amended in 2015) “arbitration agreement” is an agreement that is submitted by the parties for the purpose of arbitration of all or some of the specific, which have arisen or which might arise between the parties. The relation between the parties has to be a legal relationship, which may or may not be a contractual relation. [iii]
• As per section 7 (2) of the aforementioned act, here can be a whole separate agreement for the arbitration agreement or it can be in the form of an arbitration clause in an arbitration agreement.[iv]
• As per section 7 (3) of the act, the arbitration agreement has to be in writing.[v]
• As per section 7 (4) an arbitration agreement is considered to be in writing if it is contained in-
  • A document signed by both the parties
  • An exchange of letters, telegrams, information through electricity, which also includes telecommunication.[vi]
  • If in a contract, a reference has been made to the document to make the arbitration clause part of the agreement, then the part that consists of arbitration clause is considered to be arbitration agreement, as a whole, provided that the contract is in writing and the intention is to make the arbitration clause part of the agreement.

International Commercial Arbitration – The Indian Perspective

• As mentioned above, international commercial arbitration is an arbitration that deals with commercial matters, wherein the parties may be of a foreign nation or a resident there or an association or a company incorporated there.
• The same analogy is followed by Indian law. When the seat of arbitration is in India but at least one of the parties is a foreign national, then such matters would be dealt under the provisions of ICA, i.e., International Commercial Arbitration and are dealt under part 1 of “The Arbitration and Conciliation Act”. However, if the seat of arbitration is outside India, then part 1 would not be applicable and such matters would come under the ambit of part 2 of the act.

WHEN THE SEAT OF INTERNATIONAL COMMERCIAL ARBITRATION IS IN INDIA

The following laws would apply to ICA (International Commercial Arbitration), when the case falls under part 1 of the act, i.e., when the seat of the arbitration is in India.

Notice of the Arbitration

It is the first step in any arbitration proceeding. One party sends notice to the other party, asking for the settlement of the dispute through arbitration. Therefore, it implies the requirement of the following elements:

• There should be an intention of the party submitting the notice to refer the matter to arbitration.
• The party notifying should ask the other party to settle the dispute through arbitration

Court’s reference for arbitration

As per section 8 of “The Arbitration and Conciliation Act, 1996”, if the party before the judicial authority, applies for referring the case to arbitration by submitting an application along with the original copy of the arbitration agreement on the date of submitting its first statement itself, then the judicial authority is bound to accept such application and refer the parties to arbitration. If these requirements are complied with then such judicial authority would not give any negative judgment, i.e., it cannot deny the parties to refer to arbitration in spite of any judgment, decree or order of the Supreme Court or any Court, unless the court feels that prima facie there is no arbitration agreement. However, if the party fails to submit the original arbitration agreement or a duly certified copy thereof, then such application can be dismissed.

If the original arbitration agreement or the certified copy is not available with the party or is retained by the other party, then in such a situation the party applying will submit the application along with the copy of the agreement and shall file a petition, praying to the court to order the other party to submit the original arbitration agreement or its duly certified copy, to the court. If the application that has been submitted under sub-section (1) is pending before the judicial authority, the parties may commence or continue the arbitration and an arbitral award can also be made.[vii]

Interim reliefs in Arbitration

Interim relief is available to the parties under section 9 and section 17 of The Arbitration and Conciliation Act, 1996. Under section 9, interim relief is granted to the parties by the court and under section 17, interim relief is granted by the arbitral tribunal. The objective of this provision is to provide security to the party seeking relief until the final decision is given.

Appointment of arbitrators

Section 11 of the act provides for the appointment of arbitrators. The arbitrator can be of any nationality unless otherwise agreed by the parties. The parties have to appoint one arbitrator each and both the arbitrators have to further appoint a third arbitrator, within thirty days, since the arbitrators are required to be an odd number. However, if there are even number of arbitrators, for example there are two arbitrators and both the arbitrators give the same decision, then, in that case, there is no boundation of having a third arbitrator.[viii]

Grounds for challenging the appointment of an arbitrator

An arbitrator is required to act in an independent and impartial manner. These are the basic two requirements that have to be there in an arbitrator. If he is found to be partial and dependent, then his appointment can be challenged. Moreover, if he does not possess the qualifications that are agreed to by the parties then in that case also his appointment as an arbitrator can be challenged. The arbitrator is also required to solve the dispute in a time bound period.

Basics of the proceedings

The parties are needed to be flexible in terms of the procedure, place and language of the arbitration. The arbitral tribunal has the power to decide that in what sequence the evidence are to be examined. The parties can also settle the dispute through a mutual consent or it can be settled by the arbitral tribunal a well. After the decision is given it is recorded as an arbitral with the consent of both the parties and the arbitral tribunal as per section 30 of “The Arbitration and Conciliation Act, 1996”.

Cost of the arbitration

The arbitral tribunal decides the cost of the arbitration and that how much amount each party has to pay. If a party refuses or fails to pay the legal and administration fees, then the tribunal in such a case refuse to give the award. After refusing to pay, the parties can approach the court and the court can further give its decision on the cost.

Application for setting aside arbitral award

If a party is not satisfied with the decision of the tribunal then it can make an application to the court under section 34 of the act to set aside the arbitral award. For example, if the party making the application was not given proper notice of the appointment of the arbitrator, or if a party was under some incapacity, or if the arbitration agreement is not valid, or if the arbitral award is not related to the dispute, or is against the terms of submission to arbitration, or the matters that are not appropriate to submit to the arbitration.

As per section 34 (2-A), an arbitral award arising out of arbitrations other than international commercial arbitration may also be set aside, if the award made is illegal in nature.

The application to set aside the award has to be made within three months from the date of receiving of the award, unless there is a sufficient reason due to which the party could not apply within the required time. In such a case the court can entertain the application to set aside the arbitral award within a further period of thirty days.[ix]

Appeals

An appeal can be filed for the following situations:

• Refusal to provide interim relief under section 9 and section 17
• To set aside the arbitral award under section 34[x]

Finality and Enforcement of arbitral award

The arbitral award becomes binding on both the parties under section 35 of the act and is considered to be the same as an order passed by a court of law based on the provisions of the Code of Civil Procedure, 1908.

WHEN THE SEAT OF INTERNATIONAL COMMERCIAL ARBITRATION IS OUTSIDE INDIA

Bhatia International v/s. Bulk Trading ((2002) 4 SCC 105)

• In the case of Bhatia International v/s. Bulk Trading, it was held that Indian courts can exclusively use their jurisdiction in order to test the significance of an arbitral award made in India, even if the actual law of the contract/agreement is the law of another country.

Facts

• In this case the parties had referred the case to arbitration as per the rules of the ICC of arbitration in Paris, with a sole arbitrator.
• The foreign party wanted to ensure that they receive the recovery of their claim from the Indian party and for that purpose it moved to Indian court for interim relief so as to secure its property.
• The same was opposed by the Indian party on the ground that as per the New York Convention (Convention on Recognition and Enforcement of Foreign Arbitral Awards, concluded on 10^th June, 1958), there is no provision to claim interim measure through a court, other than the one where arbitration is taking place. Therefore, in this case the arbitration is taking place in Paris, thus the Indian court cannot be approached to claim the interim relief. [xi]

Held

• The High Court set aside the plea of the Indian party. The matter went to Supreme Court. The Supreme Court upheld the decision of the High Court.

Rationale

• In its reasoning, the court said that Part 1 of “The Arbitration and Conciliation Act, 1996” gives effect to UNCITRAL (United Nations Commission on International Trade Law) Model Law and gives power to the court to grant interim relief even when the seat of international commercial arbitration is outside India.

Bharat Aluminium v/s. Kaiser Aluminium Technical Services (BALCO) (Civil Appeal No. 7019 of 2005)

• The doctrine laid down in the case Bhatia International v/s. Bulk Trading was overruled by the judgment of Bharat Aluminium v/s. Kaiser Aluminium Technical Services.

Facts

• The parties signed an agreement with respect to the supply of equipment, modernization and up-gradation of production facilities.
• However, disputes started arising and the dispute was referred to arbitration. The seat of the arbitration was in England and therefore the proceedings took place in England and the award was made in favour of the Respondent.[xii]
• Dissatisfied with the decision, the appellant filed application against the award in India, before the Chhattisgarh High Court under Section 34 of the act, i.e., under Part 1 of the act.

Held

• The court held that Part 1 of the act would not apply to the cases where the seat of arbitration is outside India. It shall be applicable to only those arbitrations where the seat of the arbitration is India.
• No suit can be filed for interim relief in India under Part 1, when the seat of arbitration is not in India.
• This judgment will be applicable to the cases in which dispute took place after the decision of this case. The judgment will not have a retrospective effect.[xiii]

Rationale

• The rationale behind the judgment is that it is the sat of arbitration that administers the jurisdiction and if the parties decide to conduct the arbitral proceedings outside India, then Indian courts don’t have any jurisdiction to grant interim relief to the related parties.

CONCLUSION

With the changing time, there has been an increase in the international dealings and contracts. Thus it also increases the need of the international arbitrations, since with the increase in businesses on international level there is an increase in the disputes pertaining to international arbitration. It also provides a sense of protection to the parties and because of this parties can easily enter into agreements on international level. The judgment of the BALCO case holds importance with the view that parties while entering into arbitration do not want to face any inconvenient procedures. It is important that the judicial process is followed in the country where the arbitration is taking place in order to simplify the procedure for the parties in the cases of international commercial arbitration.

 

References

[i] The Arbitration and Conciliation Act, 1996, pg.3 (ed. 2016).

[ii] Supra note 1, pg.4

[iii] Supra note 1, pg.6

[iv] Supra note 1, pg.7

[v] Supra note 1, pg.7

[vi] Supra note 1, pg.7

[vii] Aparajita, International Commercial Arbitration- Indian Perspective, (August 31^st, 2017, 09:27 PM), http://ijldai.thelawbrigade.com/wp-content/uploads/2015/09/4.pdf

[viii] Ibid note 7

[ix] Supra note 7

[x] Supra note 1, pg.31

[xi] The case of Bhatia International and its Overruling, (August 30^th, 2017, 08:15 PM), http://lawmantra.co.in/the-case-of-bhatia-international-and-its-overruling/

[xii] Niyati Gandhi and Vyapak Desai, India: What Finally Happened in Bharat Aluminium Co. (BALCO) v/s. Kaiser Technical Services, (August 30^th, 2017, 09:30 PM), http://www.mondaq.com/india/x/467264/Arbitration+Dispute+Resolution/What+Finally+Happened+In+Bharat+Aluminium+Co+BALCO+v+Kaiser+Technical+Services

[xiii] International Commercial Arbitration, (August 30^th, 2017, 09:45 PM)