India’s position on Commercial Arbitration

Abstract:

The article is to analyse and understand the Indian law pertaining to international arbitrations. To understand Why, How and what is the Commercial Arbitration in India. Arbitration was introduced in India by the parliament by the enactment called ‘The Arbitration and Conciliation Act,1996’. To understand why arbitration is preferred in commercial matter with the help of a few case laws. The international treaties have effect for the arbitration matter in India if party to dispute is from other country. The current situation has made arbitration favourable due to pending cases in the court of law and limited judges to handle the stress of the courts.

With the government motive of making India “Atmanirbhir Bharat”, it gives an opportunity for more investment from foreign companies. Thus, commercial arbitration has more scope and need in India.

Key words: Commercial Arbitration, International Arbitration, Dispute and Parties.

Introduction:

Arbitration is the form or branch of alternative dispute resolution which attempts to resolve disputes outside the courts. The decision of arbitration is known as ‘Arbitration Award’. It is legally binding on all parties to dispute and enforceable in court. Arbitration is the dispute settlement for two parties who have dispute among themselves. It is a process when parties to dispute agree mutually to settle the matter outside the court in order to save time and resources attached to it.

Indian Perspective:

There are three statutes on arbitration in India:

  1. The Arbitration (Protocol and Convention) Act,1937;
  2. The Indian Arbitration Act,1940;
  3. The Foreign Awards (Recognition and Enforcement) Act,1961;
  4. The Arbitration and Conciliation Act,1996.

The Arbitration Act 1937 and 1940, dealt only arbitration that took place in India. The need toamend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. Thus, came into place.

The Arbitration and Conciliation Act of 1996 has divided itself into two parts. The first part deals with conduct of arbitration in India and its enforcement. The second part provides for arbitration conducted in a foreign country and their enforcement of awards.

Section 2(1)(f) of the Arbitration and Conciliation Act[1], defines ‘international commercial arbitration’ meaning as an arbitration related to disputes arising out of legal relationship, whether contractual or not, considered under the law in force in India. Wherein parties are a foreign national/resident or a foreign body corporate, company, association or body of individuals whose central management is in foreign hands1.  

Arbitration is a procedure wherein a dispute is submitted, by agreement of the parties to one or more arbitrator who make a decision by mutual consent of parties. The process is favourable as private dispute resolution instead of going to court of law.

The feature of the arbitration:

  1. Arbitration is a process by consent by parties.
  2. Parties chose the arbitrator.
  3. Arbitral is neutral process.
  4. It is confidential procedure.
  5. The arbitral award is decision is binding and enforceable in law.[2]

Commercial arbitration is a means of settling disputes by neutral arbitrator selected by parties to dispute and makes decision based on the evidence and arguments presented to the arbitration tribunal.

Certain disputes are not covered under arbitrable. The below disputes are held by Apex Court in the matter Booz Allen & Hamilton Inc v SBI Home Finance Limited & Ors[3] (2011) as below:

  1. Criminal offences;
  2. Guardianship matters;
  3. Insolvency and winding up proceedings;
  4. Matter of probate, letters of administration, succession certificate etc.
  5. Eviction proceedings;
  6. Patent, Trademark, Copyright;
  7. Anti-trust/Competition Laws;
  8. Bribery/Corruption Laws,
  9. Fraud.

The Article 1(3) United Nation Commission on International Trade Law (UNCITRAL) arbitration is international when:

“(3) An Arbitration is international if:

  • The parties to an arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different States; or
  • one of the following places is situated outside the State in which the parties have their places of business:
  • the place of arbitration if determined in, or pursuant to, the arbitration agreement;
  •  any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
  • the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country”[4].

Need for commercial arbitration:

The Company, business and trader have increased their scope to develop and grow after the World War II idea for LPG standing for liberalization, privatization and globalization. It created more disputes between the parties while carrying out business and in order to save time and cost, they chose for arbitration.

Advantage of Arbitration:

  1. Minimization of court law.
  2. Saves time and Cost.
  3. Enforcement of arbitrator awards.
  4. Right to privacy is provided due to arbitration agreement.
  5. It is flexible legal remedy available.

Disadvantage of Arbitration:

  1. Lack of technical knowledge.
  2. Need to expert person to aid the process.
  3. General Cost is attached to processes which are unavoidable.
  4. The decision suffers from evidentiary video.
  5. The remedy has limited scope as the arbitrator awards can be challenged in the court of law.

Reference Case Law:

  1. Cruz City 1 Mauritius Holdings vs. Unitech Limited[5]

The case contains to one party who was challenging the enforcement of the foreign arbitral award for which the foreign exchange laws of India were violated. The Delhi High Court held that the court of law cannot intervene in the awards. Reason being if Cruz City were induced to make investment by offering assured returns, Unitech cannot escape their liability. If the intentions were false and fraud when Agreement was legal and binding to both parties, Unitech had to bear the consequences of violating the provision of law. Thus, the award must be performed.

  • NTT Docomo Inc vs. Tata Sons Limited OMP. (EFA) (COM.M) 7/2016

The similar objects were raised by the Reserve Bank of India with respect to breach of foreign exchange laws in India. The Delhi High Court held that the RBI has not locus standi to object the enforcement of award and even not available to the parties to the arbitration. The Delhi High court based on the merits of the case held the agreement was valid and legal binding to perform under the laws applicable in India. The court enforced the terms of the settlement agreement under section 49 as per its jurisdiction for the enforcement of foreign awards.

  • Union of India Vs. Popular Construction Co.[6]

It was held by the apex court that the Award is enforceable immediately after the expiry of the period of Limitation under Section. Under the old Act of 1940, for the enforcement, the court was authorized to pass a decree in terms of an Award. An award in terms of settlement has an affect of a decree. Where the Arbitral Award can be bifurcated into two parts and one of the parts of an Award was invalid, the other part of the Award which is valid can be enforced as a decree of the Court. Hence, a final Award can be enforceable as a decree of the Court.

Conclusion:

Commercial arbitration in India has extended its scope and functions after the amendment in the Arbitration and Conciliation (Amendment) Act, 2015 where in it held to only  quash the award if based on baseness and personal interest of arbitrator. The Court cannot rectify error by the arbitrator but only quash the award and parties are free to apply for fresh arbitration or court of law. There has been exponential growth in international investment and contracts byusing arbitration if any dispute raised.

Indian judiciary had made simplified procedure in the case of International Commercial Arbitration with amendment in Section 36 for the enforcement of awards. This has reduced the unnecessarily challenges to arbitration award.

Reference:

  1. https://www.mondaq.com/india/arbitration-dispute-resolution/604912/india-and-international-commercial-arbitration#_edn17
  2. https://www.thestatesman.com/india/arbitration-law-in-india-everything-you-want-to-know1502757528.html#:~:text=Arbitration%20is%20the%20dispute%20settlement,resources%20at%20the%20same%20time.

[1]Arbitration and Conciliation Act,No.26 of 1996, India Code SS 2(1)(f)

[2]WIPO, What is Arbitration, https://www.wipo.int/amc/en/arbitration/what-is-arb.html

[3]Booz Allen & Hamilton Inc v SBI Home Finance Limited & Ors.,(2011) 5 SCC 532 (India)

[4]United Nations,UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006, page 1-2, published 2008, United Nations Publication, ISBN 978-92-1-133773-0,

[5]Cruz City 1 Mauritius Holdings vs. Unitech Limited., (1988)1 SSC 30

[6] Union of India Vs. Popular Construction Co. (2001) 8 SSC 470.

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