INTERNATIONAL COMMERCIAL ARBITRATION

by Lipika Sharma


INTRODUCTION

The growth and globalization of cross-border investment and commerce have resulted in growing and increasingly dynamic relationships between businesses, investors, and governments. These relationships may eventually fall apart, therefore, parties ought to find the appropriate approach to settle any conflicts that might occur (preferably at the beginning of the relationship). It would in many situations be arbitration.


INTERNATIONAL COMMERCIAL ARBITRATION

International Commercial Arbitration (ICA) is an alternate method of settling conflicts between private parties arising from trade agreements across national boundaries and helps the parties to avoid litigation in national courts. The contract shall be governed primarily by the conditions negotiated in advance by the contracting partners, rather than by national laws or procedural regulations. Most contracts include a dispute resolution clause that states that all conflicts occurring in the contract must be resolved by arbitration rather than litigation. The parties thus, at the time of making of the contract, define the forum, procedural rules and the guiding legislation.[1]


Section 2(1)(f) of the Act defines an ICA as a legal relationship which must be considered commercial, where either of the parties is a foreign national or resident, or is a foreign body corporate or is a company, association or body of individuals whose central management or control is in foreign hands. Therefore, an arbitration between two Indian parties does not fall within the definition of ICA.[2]

The word ‘commercial’ in the definition has a restrictive meaning and excludes disputes concerning, for example, boundaries, political issues of employment and family disputes and the likes.[3]

International commercial arbitration may occur in India, or may take place outside India. The terms of Part I of the Arbitration and Conciliation Act, 1996, will extend to international commercial arbitration taking place in India. The award resulting from such arbitration in India would be domestic award.[4] If international commercial arbitration happens outside the world, the award arising from such an arbitration will be a foreign award, regardless of whether or not the arbitration arrangement in that situation was controlled by Indian law.


In the United Nation Commission on International Trade Law (UNCITRAL) Model Law, arbitration is deemed to be international if the following situations exist: Article 1 (3)

a) The parties to the arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different States.

b) One of the following places is situated outside the State in which the parties have their places of business:

i. The place of arbitration, if determined in or pursuant to, the arbitration agreement, is situated outside the State in which the parties have their places of business,

ii. 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,

iii. The parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.[5]


CHARACTERISTICS OF INTERNATIONAL COMMERCIAL ARBITRATION


1) Neutrality

International commercial contracts deals comprise of parties who are from different countries. This feature of international commercial contracts makes arbitration advantageous as a mode of dispute resolution, instead of submitting the dispute to the national court of other parties. Parties can either appoint an arbitrator from another country, or seek an appointment from a foreign arbitral institution. They thus acquire neutrality in the choice of law, venue, trial and tribunal. On the other hand, the National courts may be biased or lack the competence, resources or experience to provide a satisfactory resolution to many international trade disputes.

2) An Enforceable Award

The final award by an arbitral tribunal, is not a suggestion but a binding decision and is a legally enforceable decision both domestically and globally.[6] The decision by an arbitral tribunal in this way varies from the judgment of a national court of law. The international treaties relating to the enforcement of arbitral awards such as the New York Convention are more acceptable than reciprocal enforcement of judgments.


3) Flexibility

There are no uniform rules of an arbitration procedure which it is compulsory to follow. International commercial arbitration allows the parties considerable flexibility to decide to procedural rules and timetables, and to choose a technically expert decision-maker who is ideally suited to the specific circumstances of their unique dispute.


4) Confidentiality

International commercial arbitration is basically a private process in which, unlike the hearings of national courts, the press and the public are not allowed to be involved, and the confidentiality of the arbitral proceedings is also considered one of the main benefits in arbitration.


CASE STUDY

In the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services, Inc.[7], the apex court overruled the judgment in Bhatia International v. Bulk Trading SA[8], where it was held that Part I of the Arbitration and Conciliation Act, 1996, would equally apply to International Commercial Arbitration having seat outside India, unless any or all the provisions have been expressly excluded. The apex court while overruling this judgment held that arbitration decision by an Arbitration panel situated in a foreign jurisdiction cannot be challenged in Indian courts and no petition seeking to set aside foreign arbitration award or questioning procedural lapses in arbitration taking place outside India would be entertained by domestic courts. Further, in this case the Supreme Court outlined the scope and powers that can be exercised by a court in India under the Arbitration and Conciliation Act to deal with arbitral proceedings held outside India.


CONCLUSION

There has been a significant growth in foreign businesses working outside of India in recent years. It has led in an increase in foreign arbitration finding its arbitration place in India. Both arbitration and litigation serve the same role, i.e. efficient administration of justice, but the truth is that arbitration has few characteristics that render it a more attractive alternative than its equivalent. The degree of protection it provides is so far ranging.


[1] Susan Gualtier, International Commercial Arbitration, Globalex, https://www.nyulawglobal.org/globalex/International_Commercial_Arbitration.html. [2] The Arbitration and Conciliation Act, 1996, Sec. 2(1)(f). [3] R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136. [4] Section 2(7) of the Act.

[5] UNCITRAL Model on Internal Commercial Arbitration, Art. 1(3). [6] The Arbitration and Conciliation Act, 1996, Sec. 46. [7] (2012) 9 SCC 522. [8] AIR 2002 SC 1432.

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