The Role and Importance of Inernational Commercial Arbitration in India and the USA

1. BY: SHOBHIT SACHAN
LL.M. 2nd SEM.CORPORATE LAW
ROLL NO.:519

2. Introduction
 “International commercial arbitration is a way of solving disputes which the
parties choose themselves, it is private, it is effective and, in most parts of
the world, it is now the generally accepted method of solving international
business dispute”.
 The field of international commercial arbitration started in Europe in the
1920s.
 But later on various agreements such as the Geneva Protocol on arbitration
which was later adopted by the League of Nations came into force.
 In 1923 the International Chamber of Commerce also was adopted as the
first rules on institution on arbitration and establishes the institute of
arbitration.
 In 1950s new developments took place whereby the New York Convention
of 1958 also came into force and as well as other conventions concerning
arbitration.

3. Introduction
 Since then to date, the field of commercial arbitration has been developing
and expanding quickly almost all over the world. The most rapid changes
have been noticed since the globalization regime in the twentieth century
whereby greater integration of economies all the world has been taking
place.
 The hypothesis is that in India Arbitration proceedings can replace Court
proceedings and make the proceedings cost effective.
 Doctrinal method of research has been undertaken.

4. History of International Commercial Arbitration
 International commercial arbitration is a work in progress. The first events
took place some eighty years ago, in 1923. There are negotiations currently
going in the United Nations Commission on International Trade
Law(UNCITRAL) that may lead to new developments.
 International commercial arbitration began in Continental Europe in the
1920s.
 There were two major difficulties in the then current situation.
 The first difficulty was that in many countries an agreement to arbitrate
could be validly entered into only in regard to an existing dispute by a so-
called compromis.
 The second widely recognized difficulty was in regard to the recognition
and enforcement of foreign arbitral awards.
 Therefore, four years after the adoption of the Protocol on Arbitral Clauses
s, in 1927 the League of Nations adopted the Geneva Convention for the
Execution of Foreign Arbitral Awards.

5. Meaning of “International”
 New York Convention says International means ,”Award made in the territory
of the state other than the state where recognition and enforcement of such
awards are sought.”
 ICC established in Paris in 1983 says International means, “Contract between
two parties of the same nation for a work.”
 According to the French Code of Civil Procedure the arbitration is
International “when it involves the interest of international trade.”
 European Convention of 1961 says,” any dispute arising out of International
Trade between persons concluding the agreement at their habitual place of
residence or their seat in different contracting state.”
 English Law says,”Whatsoever is not domestic is International”.

6. History of International Commercial Arbitration
 By 1982 UNCITRAL found it desirable to issue its guidelines for
administering arbitrations under the UNCITRAL Arbitration Rules, which
included a description of the changes that might be made Rules when
adapting them for use as institutional rules.
 Because the UNCITRAL Arbitration Rules were written for ad hoc
arbitrations, they necessarily allowed the parties complete freedom as to
how to proceed with the arbitration.
 The Model Law is not complete. It must be supplemented by additional
provisions at the time of enactment and it has by most states that have
adopted it.
 That was anticipated at the time the Model Law was adopted by
UNCITRAL in 1985. The Commission is currently considering several
measures that are expected to enhance its effectiveness.

7. Reasons for choosing International Commercial
Arbitration
 The reasons for choosing International Commercial Arbitration can be
separated into two categories, i.e., Arbitration in General and those
applicable specifically to international arbitrations.
 Arbitration in General: The reasons are as follows
(i) Specific Dispute: Arbitrators are chosen for a specific dispute. Whether
the arbitral tribunal is composed of a sole arbitrator or a panel of three,
the tribunal remains with the arbitration from its commencement until its
conclusion.
(ii) No appeal: Arbitration is not subject to appeal on the merits. What the
parties lose in legal security, because errors made by the tribunal in the
application of the law cannot be corrected, they gain in the reduced
amount of time required to reach a final decision and reduced costs.
(iii) Faster and cheaper: Faster decisions and lower costs as compared to
litigation in the courts has been one of the traditional arguments in favour
of arbitration. Many arbitration rules provide for an expedited procedure
for smaller claims (which in the case of the Swiss Rules of International
Arbitration means claims for less than 1,000,000 Swiss francs).

8.  International Commercial Arbitration
(i) Litigation in Foreign Court: While that is good for one party to the
transaction, it is not so good for the other party who faces all the
difficulties in litigating in an unfamiliar procedure, in a language that may
be foreign and may not be the language of the contract, and not being able
to use its lawyers who are familiar with the company.
(ii) Arbitration reduces inequalities :While it is possible for the arbitration to
take place in an arbitration organization located in the home country of
one or the other party, it is also possible for the arbitration to be
administered by an arbitration organization located in the third country.
(iii) When State is a party: This factor is a major reason for the extraordinary
increase in the number of bilateral investment treaties in recent years in
which foreign investors have the option of instituting arbitration.
(iv) Ease of Enforcement: In absence of a treaty between the State of issuing
judgment and enforcement state Court’s not under obligation to enforce it.

9. Types of arbitration
 The arbitration can be broadly classified into the following categories:
(i) Institutional Arbitration
(ii) Ad Hoc Arbitration
(iii) International and Domestic
 Institutional arbitration: The one in which a specialised institution
intervenes and takes on the role of administering the arbitration process. e.g.
ICC, LCIA, DIAC, DIFC, ICA, FICCI, ICADR etc.
 Ad hoc Arbitration: In this the parties have to determine all aspects of
arbitration themselves such as the number of arbitrators, appointing those
arbitrators, the applicable law and the procedure for conducting the
arbitration.

10. Types of Arbitration
 International and Domestic
According to Article 1 (3) of the UNCITRAL Model Law, an arbitration is
international if
a) the parties to an arbitration agreement have, at the time of the conclusion
of that agreement, their places of business in different states; or
b) One of the following places is situated outside the state in which the
parties have their place of business:
i) the place of arbitration if determined in pursuant to the agreement
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.
c) the parties have expressly agreed that the subject matter of the arbitration
agreement relates to more than one country.

11. Cases
 In Bhatia International v Bulk Trading SA [2002] INSC 132, the Supreme
Court of India held that Part I of the Indian Act applied to arbitrations which
took place outside India, including to foreign awards, unless the parties
expressly or impliedly excluded all or any of its provisions (see also Venture
Global Engineering v Satyam Computer Services Ltd [2008] INSC 40).
 There was a judgment in 2005 by seven bench judges of the Supreme Court,
called the Patel Engineering case 2005 8 SCC 618, where it held that the
Chief Justice or any of his designated judge could not entitle any institution
to appoint arbitrator, but they could seek the opinion of an institution in the
matter of nominating an arbitrator.
 The general tendency among retired judges is to take up arbitration as
vocation. Normally, if the appointments are done by the Chief Justices or
their designated judges, such appointments are generally made in favour of
retired judges.

12. Laws governing the arbitration
 A complex interaction of Laws
International Commercial Arbitration usually involves more than one
system of law. These are:
i) the law governing the parties’ capacity to enter into arbitration agreement;
ii) the law governing the arbitration agreement and its performance;
iii) the law governing the existence and the proceedings of the arbitral
tribunal- the lex arbitri;
iv) the law, or the relevant legal rules, governing the substantive issues in
dispute- generally described as the “applicable law”, the “governing law”,
“the proper law of the contract” or “the substantive law”;
v) the law governing recognition and enforcement is sought in more than
one country in which the losing party has, or is thought to have assets.

13. Laws governing the arbitration
 Procedural Laws and the Lex Arbitri
The Lex arbitri indicates that most national laws governing arbitration deal
with general propositions, such as the need to treat each party equally, rather
than with detailed rules of procedure, such as the time for exchange of
witness statements or the submission of pre-hearing briefs.
 It is plainly necessary for the parties and the arbitral tribunal to know what
procedural rules they are to follow, particularly in an international
arbitration where the parties will usually come from different backgrounds,
with a different approach to such questions as the interviewing of witnesses,
the disclosure of documents and so forth.
 Under the Union of India v. McDonnell Douglas [1993] 2 Lloyd’s Rep 48
arbitration clause provided for the seat to be in London but the procedural
law was the Indian Arbitration Act, 1940.

14. Laws governing the arbitration
 The Seat Theory
The concept that an arbitration is governed by the law of the place in which
it is held is the seat Theory.”The Arbitral procedure, including the
constitution of the arbitral tribunal, shall be governed by the will of the
parties and by the law of the country in whose territory the arbitration takes
place.
 The Delocalization theory
It states that the arbitration is detached from the procedural rules of the
place of arbitration, procedural rules of any specific national law and the
substantive law of the place of arbitration.
 The Seat Theory and the lex Arbitri
The Seat theory gives an established legal framework to an international
commercial arbitration so that arbitration is firmly anchored in a given legal
system. The Lex Arbitri will help to ensure that the arbitral process works as
it should.

15. International Commercial Arbitration
 In India
Arbitration in India slowly appears to have turned a full circle. Recent
judgments from the courts have provided some clarity, certainty and
possibly, even the much-needed impetus to ensure that arbitration remains
the preferred dispute resolution mechanism.
 The law on arbitration in India can be found in the Arbitration and
Conciliation Act,1996. The Act was based on the UNCITRAL Model Law.
 Under the Act, the manner in which a party could approach court was
limited and significant power was given to the arbitral tribunal including the
power to rule on its own competence (Doctrine of Kompetenz-Kompetenz).

16.  In USA
U.S. Courts may be asked to resolve a number of issues prior to or at the
initiation of an international commercial arbitration. Several of the more
common types of motions are discussed below.
 Arbitration clauses that establish the competence of the AICAC (American
International Commercial Arbitration Court) for the consideration of
disputes relating to the parties’ execution of contractual obligations arising
from civil legal and labour relations, may be recorded in contracts or in
separate arbitration agreements, formally concluded by the parties to
disputes.
 The AICAC encourages all interested parties in order to fix an indisputable
competence of the Arbitration Court for the consideration of possible
disputes between them, to formulate the arbitration clause or agreement in
the forms as close as possible to the proposed in the Regulations Model
Arbitration clauses.

17. Important issues in International Commercial
Arbitration
 Jurisdictional Issues
It is a fundamental concept in law that jurisdiction must exist if a valid
judgment or the award is to be rendered by an adjudicative body. Because
jurisdiction can be challenged at any stage of the proceedings, it is essential
that jurisdiction be determined as one of the first orders of business in any
dispute resolution forum. That is particularly important in arbitrations,
whether domestic or international.
 The position of law prior to BALCO v. Kaiser AIR 2005 Chh 21 has been
formulated by the Supreme Court in several of its judgments. The very first
judgment that laid down the principles governing international commercial
arbitration was that of Bhatia International (2003) 5 SCC 22. The issue for
consideration before the Supreme Court was whether an application under
Section 9 of the Act was maintainable in a Foreign seat arbitration.

18.  Issues of conflict-of-laws often intersect with issues of jurisdiction in
international arbitration. Unlikely purely U.S. Domestic arbitration where
certain substantive laws and conflict-of-laws may dictate the power of an
arbitral tribunal, international arbitration presents a different picture
altogether. As the United States Supreme Court pointed out in Scherk v.
Alberto-culver Co. 417 U.S. 506, “a contractual provision specifying in
advance the forum in which disputes shall be litigated and the law to be
applied is, therefore, an almost indispensable precondition to achievement
of the orderliness and predictability essential to any international business
transaction.
 Gateway issues
The parties should decide how to promote arbitration as an effective
alternative to litigation and ensure that any order issued by a court
compelling arbitration is supported by a valid and enforceable agreement to
arbitrate. The challenge consists of identifying those issues that courts
properly address at what is increasingly known, in common U.S. Parlance,
as the “gateway” of arbitration. For this purpose, an arbitral regime is
considered to be effective to the extent that it operates to promote the
procedural advantages that is speed, economy, informality, technical
expertise, and avoidance of national fora.

19. Conclusions and Suggestions
 It can be concluded by emphasizing on the fact that my hypothesis, i.e. In
India Arbitration can replace court proceedings, has been proved in positive.
 Arbitration can achieve equitable solutions more quickly than litigation,
and at less cost; it allows parties to adopt whatever procedure they choose
for the resolution of differences; it enables parties to decide where disputes
shall be heard.
 According to a recent study by the Federal Mediation and Conciliation
Services, the average time from filing to decision was about 475 days in an
arbitrated case, while a similar case took from 18 months to three years to
wend its way through the courts.
 The Hon'ble Supreme Court remarkably held in ONGC Vs Saw Pipes AIR
2003 SC 2629 that an award that conflicted with Indian law would be
contrary to public policy and therefore unenforceable.
 To avoid the Indian courts having jurisdiction to review and set aside
awards where the parties have chosen a seat of arbitration outside India, the
following should be included in the arbitration agreement:

20. i) Ideally, an express exclusion of the operation of Part I of the
Arbitration and Conciliation Act, 1996. We may, however, wish to
exclude all of Part I except for s 9, which allows a party to seek
interim measures of protection from a court.
ii) If an express exclusion is not possible, expressly provide for the law
of the arbitration to be that of a jurisdiction other than India (and
preferably the same as the seat of arbitration).
iii) For abundant caution, also provide for:
(a) the law governing the contract to be a law other than that of India (if
possible);
(b) the law governing the arbitration agreement to be a law other than
that of India;
(c)the seat of arbitration to be a place outside India; and
(d) (only if convenient) the exclusive jurisdiction of courts of a country
other than India with respect to all matters arising out of the
arbitration. Thus there is no doubt that in India Arbitration
proceedings can only replace Court proceedings. Hypothesis thus is
proved in positive.

21. THANK
YOU!!!