In today’s highly competitive market, businesses are bound to have certain conflicts and disputes. However, it is imperative for these businesses to comply to certain resolution processes laid down by authorities to avoid any legal issues. One of these resolution methods is the International Commercial Arbitration.
International Commercial Arbitration
International Commercial Arbitration is a dispute resolution procedure where the disputing parties agree to appear for private arbitration to resolve their conflicts in lieu of appearing before a National Court.
It is the generally used dispute resolution method for cross-border transactions as it establishes a neutral forum and allows parties to resolve their dispute without worrying about any partiality towards the other party.Companies while entering into contract prefer to opt for arbitration, as approaching National Courts in case a dispute between two foreign companies becomes challenging due to different governing laws. Internal Commercial Arbitration is the most viable way of resolving the disputes as the procedure is laid down by the disputing parties themselves.
Neutrality
International commercial arbitration provides a neutral platform to resolve cross-border conflicts. This plays a vital role when parties want to ensure that a local court does not offer any advantage or when the local jurisdiction of one of the involved parties may be unfamiliar and difficult to navigate.
Benefits of the International Commercial Arbitration
The fact that unlike litigations (Court Cases) between companies in different countries, International Commercial Arbitration is enforceable and is considered one of the key benefits of opting for such arbitration proceedings. The procedure is determined by the parties themselves while the results remain private as well.
In addition, it is faster and relatively inexpensive compared to litigation procedures. Convincing someone to come to another country to settle a dispute with arbitration under that country’s laws and not via international commercial arbitration is not really possible, as it is not really a viable choice.
Types of Arbitration
Ad hoc arbitration is arbitration where the disputing parties and appointed arbitrators independently choose the process they wish to go through, without having to consult or involve any arbitral institution.
- Institutional Arbitration
When it comes to institutional arbitration, the guidelines for the arbitration procedure are determined by the institution where the arbitration is being conducted.
In the case of fast-track arbitration, it is mandatory to wrap up the entire arbitration process within a six-month period. The provisions therein only help address written pleadings and do not cover any oral proceedings.
Stages in International Commercial Arbitration
- Letter requesting appointment of Arbitrator
- Filing of Claims/Counter Claims
- Completion of Pleadings
- Filing Applications (if any)
- Addressing Final Arguments
- Obtaining Award
- Challenging the Award in terms of the Act in force
- Award Execution
Initiating International Commercial Arbitration
- Initiate by submitting a Notice or Request for Arbitration to a competent body of the institution. Thereafter, a copy will be sent to the Respondent either by the party or the institution, whichever may be required to do so under the institution’s rules.
- Once the request is sent, the Claimant is required to submit hard copies to the institution depending on the number of Respondents and the Arbitrators.
- Pay the requisite filing fees.
- The date on which the institution received the notice or request is referred to as the ‘date of commencement’.
Appointment of Arbitrator
The first party appoints an arbitrator for the proceedings and also puts forward a name for an individual who shall serve as the President of the Tribunal. Thereafter, the other disputing party shall appoint an arbitrator and choose whether they agree with the first party’s recommendation for the President of the Tribunal or want to suggest another name. If they choose the latter, they shall declare the name of the individual they propose to be the President of the Tribunal.
The proceeding shall be heard either by a sole arbitrator or a three-arbitrator panel.Under Section 11(9) of the Arbitration and Conciliation Act, 1996, a party involved in international commercial arbitration can approach the Supreme Court to appoint an arbitrator.
Place & Seat of Arbitration
The place of arbitration is of particular importance for the enforcement of a United Nations Commission on International Trade Law (UNCITRAL) award. The laws of the place of arbitration shall outline the process for an arbitration and establish the extent to which local courts may interfere during the arbitration.
The seat of arbitration refers to the ‘situs’ of arbitration, which basically speaks of the place where the arbitration shall be conducted. The seat of arbitration lays down the law that shall govern the arbitration proceedings while also defining which Court (or Courts) may practice their authority over the proceedings.
An arbitral tribunal does not have any pre-determined jurisdiction but rather derives the same from the agreement or contract signed between the disputing parties. As such, an arbitral tribunal’s jurisdiction is not derived from any specific legislation and parties have a high level of autonomy.
The Seat of arbitration is an essential aspect of international commercial arbitration as it is the Courts of the Seat that shall have jurisdiction over the arbitration proceedings.
Availability of International Arbitral Institutions
Unlike China, all international arbitration institutions are permitted to govern arbitrations in India.
As such, all leading arbitral institutions can be found to be overseeing a significant number of arbitrations in India. Such arbitral institutions include:
- Singapore International Arbitration Centre
- International Chamber of Commerce
- Hong Kong International Arbitration Centre
- London Court of International Arbitration
The Singapore International Arbitration Center has an office in Gujarat International Finance Tec-City (GIFT City) and Mumbai.
International Arbitration Principles
- Binding Arbitration Award
International disputes resolved through arbitration are enforceable as the said Awards are binding on the parties.
Legal dispute settlements are legally binding agreements.
On the other hand, diplomatic dispute settlement speaks of agreements that do not bind you legally, such as mediation, conciliation, etc. As such, the arbitral award is legally binding on the parties. To put it simply, disputing parties looking for resolution through arbitration consent to being bound by the arbitral award in advance.
In other words, by choosing to resolve a dispute through arbitration, the disputing parties consent to be bound by the result of the arbitration in advance. Furthermore, it is upheld under Article 34 para 2 of the UNCITRAL arbitration rules.
One of the most vital aspects of arbitration is that the disputing party has the authority to create the arbitration procedure. This basically means that the arbitrator, the procedural law, which governs how proceedings are carried out, and the applicable law, which governs the dispute resolution, are also chosen by the disputing parties.
The Arbitrator is the creature of the arbitration agreement. The Arbitrator cannot travel the beyond scope of Arbitration.
It also allows the parties to put forward the subject matter for the arbitral proceedings, which allows the arbitral tribunal to only focus on the matters put forward by the relevant parties.
Legislation Governing Enforcement of Arbitral Proceedings
The
Arbitration and Conciliation Act, 1996 (as amended by the 2015 Act) governs the enforcement of arbitration proceedings relating to domestic and international commercial arbitration conducted in India, as well as reference of foreign awards.
Challenging of Awards
Two requirements for an award to be deemed a foreign award are:
- It should resolve the dispute which arose from a relationship that would be considered commercial under the Indian laws.
- The country which issues the award must be specified as a country where the New York Convention is applicable.
Only awards that fulfill the above shall fall under and be implemented as ‘foreign arbitral awards.’
The arbitration law in India is quite similar to the UNCITRAL model of law and, therefore, the scope of challenging the arbitral awards is quite small. As such, there are very less chances of Indian Courts interfering with the arbitration proceedings.
The amendment made in 2015 further reduced the possibility of any intrusion by the Courts on the grounds of public policy.
Besides, as per the amendment, the party that wishes to challenge an award is required to deposit at least 75% of the award amount in the Court. If their challenge fails, the winning party may be permitted by the Court to withdraw this amount, allowing for quick recovery of arbitral awards.
Enforceability/Execution of International Commercial Arbitration
The three-step procedure that must be followed to execute an award is:
- An application along with all supporting documents must be moved under Section 47 of the Arbitration Act by the party that holds the award.
- The other party shall thereafter raise a defense under Section 48 of the Arbitration Act and provide all the relevant documents and facts.
- Finally, under Section 49, if the award is found to be enforceable in light of all the facts provided before the Court by the disputing parties, the Court shall execute the same.
The avenues for enforcing foreign awards in India are:
- The New York Convention
- The Geneva Convention
- Sections 44 to 52 of the Arbitration and Conciliation (Amendment) Act, 2015.
In India, a foreign award is enforced through a two-stage process that is started by the filing of an execution petition. Initially, a court shall decide if the Award adheres to the Act’s requirements. Once it is found to be enforceable, it may be enforced like a Court’s decree. The award may be executed as per Order XXI of the Code of Civil Procedure, 1908 similar to the way an Indian Court’s decree is executed.
In India, in case the foreign award is money, the Commercial Division of High Courts where assets of the other party lie shall have jurisdiction. In other cases where the foreign award is not money, the Commercial Division of High Courts that would have jurisdiction as if the subject matter of the award was a subject matter of a suit shall have the jurisdiction.
Execution of Award against Foreign Company
The Award can be enforced/executed in the country where the Assets of the losing party are situated. The laws of the executing country shall prevail for the execution of the said Award.
The most significant advantage of international arbitration is the international enforceability of arbitral awards under various international agreements, the most important of which is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”).
There are currently 156 countries that are Contracting States to the Convention, which requires courts of the Contracting States to give effect to private agreements to arbitrate and to recognize and enforce arbitral awards made in other States, although the Convention permits Contracting States to limit the latter obligations to awards made in the territory of other Contracting States.
Thus, a party having obtained an arbitral award in a Contracting State may have that award enforced by the national courts of any of the other 155 Contracting States. This is a significant advantage in circumstances where a defaulting party does not have assets in the place where the dispute arose but has assets in another Contracting State. By contrast, there are relatively few international conventions on the enforcement of foreign judgments in effect, so that cross-border enforcement of judgments is much less certain and subject to more defenses, where it is possible at all.
As per the New York Convention, 1958, of which India was one of the signatories, the enforcement of an Arbitral award would be denied if the enforcement disagrees with the public policy of the country where it is being enforced. It must be noted that ‘public policy’ has not been specifically defined in the New York convention. This allows each country to have their own interpretation of the public policy criteria.
Pro-Enforcement of Foreign Arbitral Awards in India
Indian Courts have been adhering to a positive and a more flexible approach when it comes to executing awards to ensure they conform with the international guidelines of arbitral award enforcement. The judgements passed by the Indian Courts show their willingness to move towards a ‘pro-enforcement mechanism’ while relying on the principle of non-interference when it comes to executing the arbitral awards.
Indian Courts have taken ample steps to encourage the efficient executing of arbitral awards, which has helped India build a reputation of being an arbitration-friendly jurisdiction.
Conclusion
Arbitration proves to be quite a viable resolution method for international commercial disputes or conflicts between two governments. Along with ensuring the enforceability of foreign awards, it also provides flexibility to maintain autonomy of both parties. It further provides a neutral platform that only addresses the issues put up for arbitration by both parties and does not interfere with any other aspect of their business, commercial agreement or dispute.
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