As businesses expand into international markets, they may encounter legal challenges arising from differences in laws, regulations, business practices, language, and culture, leading to potential conflicts. To navigate these issues, companies may seek assistance from legal professionals with expertise in managing disputes across borders.
What is International Commercial Arbitration?
International commercial arbitration is a dispute resolution mechanism employed for the resolution of conflicts between parties situated in different jurisdictions, facilitated by an arbitrator or a tribunal of arbitrators. This entails opting for arbitration as an alternative to pursuing litigation in a judicial forum, where the appointed arbitrator or tribunal renders a binding decision on the matter.
The scope of international commercial arbitration extends to diverse disputes, encompassing contractual, intellectual property, investment, and construction-related matters. It is particularly prevalent in scenarios where the disputing parties maintain a commercial relationship and seek to preserve their collaborative ties post-resolution.
The procedural framework governing international commercial arbitration emanates from a nexus of international conventions and domestic legislations, notably the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. This model law furnishes a comprehensive structure for the administration of international commercial arbitration proceedings.
Steps involved in International Commercial Arbitration are:
- Notice of arbitration: In order to initiate arbitration proceedings, a party is required to serve a notice of arbitration prompting the counterparty to submit the dispute to arbitration. Upon receipt of the notice of arbitration, the arbitration proceedings are initiated. This notice encompasses two fundamental elements: firstly, the expression of an intent to submit the dispute to arbitration, and secondly, an expectation that the recipient of the notice undertakes a consequential action in response.
- Referral to arbitration: The judicial entity possesses the authority to direct the matters under consideration to arbitration in the presence of an arbitration clause within the agreement for the resolution of disputes among the parties. As stipulated in Section 8 of the Arbitration and Conciliation Act, 1996 the judicial authority is empowered to mandate arbitration proceedings when an arbitration agreement is evident between the parties involved.
- Appointment of arbitrators: The parties possess the autonomy to designate an arbitrator for the adjudication of their case. In the event of an inability to jointly appoint arbitrators due to extenuating circumstances, the court grants permission for each party to nominate an arbitrator. Subsequently, these two arbitrators undertake the selection of a third party, serving in a neutral capacity. In the absence of a successful appointment by the parties, recourse may be sought from the Supreme Court or High Court to nominate arbitrators. The High Court or Supreme Court retains the authority to designate an individual or institution for the appointment of arbitrators.
- Interim relief: Section 9 of the legislation delineates provisions for interim protective measures, applicable not only at commencement of the arbitral proceedings and during such proceedings but also subsequent to the issuance of the arbitral award. Additionally, Section 17 addresses interim measures that may be decreed by the arbitral tribunal when it is determined during the course of proceedings that the subject matter in dispute poses a risk, thereby empowering the tribunal to compel the concerned party to furnish security.
- Challenge to jurisdiction: Pursuant to Section 16 of the Act, an arbitral tribunal is vested with the jurisdiction to adjudicate on matters concerning its own authority, provided a valid arbitration agreement is in place. In the event that a party harbours objections regarding the tribunal’s competence, such a party is entitled to submit a challenge prior to presenting its defence.
- Settlement during arbitration: Parties are afforded the opportunity to consensually resolve their dispute even while arbitration proceedings are underway. In the event of an amicable settlement, the arbitration process shall be concluded. Moreover, if both parties expressly agree to document the terms of the settlement, it is recognized as a consent award, constituting a valid arbitral award.
- Arbitral awards: The decisions issued by arbitrators in the course of arbitration proceedings is referred to as an arbitral award. These decisions are reached through consideration of the perspectives of both parties and are often decided by a majority. An arbitral award must be in a written format, duly signed by all members of the tribunal. The award should explicitly specify the date and location of its issuance. Every party involved is entitled to obtain a copy of the arbitral award.
Under the provisions of the Arbitration and Conciliation Act, foreign awards fall within the ambit of the Act’s segment incorporating both New York Convention Awards and Geneva Convention Awards. As per the New York Convention, foreign arbitral awards are characterized as disputes between parties arising from legal relationships. The specific definition of a foreign award is outlined in Section 44 of the Arbitration and Conciliation Act. Similarly, pursuant to the Geneva Convention, foreign awards, as elucidated in Section 53, pertain to disputes between parties arising from commercial matters.
Landmark Judgements on International Commercial Arbitration
- Enercon (India) Ltd. & Ors v. Enercon GmbH & Anr
It was determined that the “venue” of an arbitration refers to the chosen geographical location based on the parties’ convenience and is distinct from the “seat” of arbitration, which dictates the appropriate jurisdiction.
- Shri Lal Mahal Ltd. vs. Progetto Grano Spa
A landmark decision was rendered, delineating a clear demarcation between the grounds for objecting to the enforceability of a foreign award under Section 48 of the 1996 Act and the challenges for setting aside an award under Section 34 of the 1996 Act. The Supreme Court significantly narrowed down the scope of the term ‘public policy.’
- Bharat Aluminium Co. vs Kaiser Aluminium Ltd. (“BALCO”)
The Constitution Bench affirmed that Part I and Part II of the statute operate independently, emphasizing the Parliament’s explicit adherence to the principle of territoriality concerning the subject matter of arbitration during the enactment of the statute. Specifically, the Constitution Bench held, among other things, that for international commercial arbitrations with a foreign seat, the legal seat of arbitration serves as the focal point, as opposed to the location where the contract was intended to be executed.
- Bhatia International vs. Bulk Trading SA (“BHATIA”)
The Supreme Court affirmed that the stipulations of Part I of the 1996 Act are universally applicable to all arbitrations and related proceedings. In instances where such arbitration is conducted within India, the provisions of Part I are mandatory, allowing parties only limited deviation as permitted by the derogatory clauses of Part I. Concerning International Commercial Arbitrations conducted outside India, the provisions of Part I are applicable by default unless the parties, through express or implied agreement, exclude some or all of its provisions. In such instances, the laws or rules chosen by the parties take precedence, and any provisions in Part I contrary to or excluded by those laws or rules shall not be operative.
- TDM Infrastructure Pvt. Ltd. vs. UE Development India Pvt. Ltd.
The Supreme Court determined that in the scenario where a company holds dual nationality, being registered both abroad and in India, it shall be construed as an Indian corporation for the purposes of this Act, rather than being classified as a foreign corporation.
- S.B.P. and Co. v. Patel Engineering Ltd. and Anr.
The Supreme Court established that when an arbitral tribunal is constituted by the parties without requiring judicial intervention, the tribunal possesses the authority to adjudicate upon all jurisdictional matters through the exercise of its competence under Section 16 of the Act.
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