International Commercial Arbitration - An overview

1. Introduction

“I realized that the true function of a lawyer is to unite parties…A large part of time during practice for 20 years as a lawyer was occupied in bringing about private compromise of hundreds of cases. I lost nothing thereby – not even money, certainly not my soul.”

                                                                                                             - Mahatma Gandhi

When different traders undertake business transactions, they certainly have good intentions to carry out their trade deals faithfully and smoothly to earn a well- deserved profit. However, it is matter of common experience that inspite of best efforts, disputes do arise during performance of business contracts and they arise for various reasons. Unresolved disputes tend to upset the smooth performance and successful completion of business contracts and may, therefore, render an otherwise profitable transaction into a probable loss. Therefore it is necessary for carrying on business transactions smoothly and profitably that the area of disputes during performance of contracts is narrowed down and provision is made for amicable and quick settlement of disputes that may still arise.

Drafting of Commercial Contracts

To achieve the above purpose businessmen must devote proper attention at the time of drafting their business contracts, by including comprehensive and precise terms and conditions on all important aspects of the trade deal in the contract. Firstly, the contract should be drawn up in writing. In the absence of a written contract the nature and extent of the rights and duties of the parties to the trade deal will have to be gathered from circumstantial evidence or legal Implications, which may give rise to a number of uncertainties and differences of opinion or disputes between the parties, during the performance of the contract. Secondly, the contract should be comprehensive and precise. i.e. it should cover all important points and contingencies in clear and unambiguous terms. And last but not least, it must contain an arbitration clause.

Standard Contract Form

In drafting of business contracts, the parties can also get useful guidance from model or standard contract forms drawn up by experienced commercial/ arbitration organisations. Standard contract forms generally contain all important points relating to a particular line of trade or important conditions required in all commercial contracts generally as the case may be. Standard contract forms can provide useful help in drawing up of business contracts and make the job quite easy and simple.

Some traders do not execute any formal contract but carry on their business dealings by using order and acceptance forms. In such cases either the contract conditions including the arbitration clause may be printed on the order or acceptance form itself or they may be drawn up in a separate sheet and incorporated in the order or acceptance form. However, the contract conditions should be prominently printed, as far as possible, before the signatures of the other party on the order or acceptance form, to remove any doubt about their Incorporation In the contract.

India has a long tradition of resolving disputes through arbitration. Dispensation of justice through 'Panchas' in villages was a sort of arbitration, with the only difference that the decision of the 'Panchas' was generally accepted as binding by the contesting parties. Arbitration is thus a time tested method for out of court resolution of disputes.  

2. Commercial Arbitration

Commercial Arbitration is necessary for settlement of disputes in various fields. Its role and importance for resolving business disputes needs no emphasis. The settlement of commercial disputes to the mutual satisfaction of the parties ensures free and smooth flow of trade from country to country, region and indeed throughout the world. Such a free of trade is one of the important factors which maintains and strengthens trade relations and peace in the world.  

Some times improper interpretation of trade terms between contracting parties may give rise to disputes. And these disputes must be expeditiously resolved to avoid hindrance in the smooth performance of the Contract. The process of adjudication through court may sometimes be found to be unsuitable because of the delay and expenses involved. Therefore, there should be an opportunity of settling the disputes outside courts by an alternative dispute resolution mechanism. And that mechanism can take the form of conciliation, mediation or arbitration.

As part of the economic reforms initiated by India in 1991, major reforms have been made in the arbitration law in recent years. With a view to minimize the intervention of court in the arbitration process, the Govt. has brought about a number of judicial reforms by adopting the United Nations of International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration in its statute. These steps have been taken with a view not only to simplify the law but also to meet the requirements of a competitive economy. Government of India has also taken up the task of harmonization and globalization of the legal framework relating to international trade and arbitration laws. The present arbitration law in India is based on the UNCITRAL Model Law on International Commercial Arbitration. A good beginning has also been made by acceding to the UN Convention on Multi-Model Transport Goods Act 1980.

Therefore, confidence of the international business community on India as a suitable venue for international commercial arbitration can be raised if further developments are made in the area of institutional arbitration.

3. Need For International arbitration

The growth of international trade is bound to give rise to international disputes which transcend national frontiers and geographical boundaries. For the resolution of such disputes which transcend national frontiers and geographical boundaries. For the resolution of such disputes the preference to international arbitration vis-à-vis litigation in national courts is natural because of arbitration being preferred to litigation in courts and the foreign element being preferred in the international arbitration to the domestic element in the national courts. This is also because there is no international court to deal with international commercial disputes.[1]

In a situation of this kind, recourse to international arbitration in a convenient and neutral forum is generally seen as more acceptable than recourse to the courts as a way of solving any dispute which cannot be settled by negotiation.[2] The rationale and purpose of international arbitration should be to provide a convenient, neutral, fair, expeditious and efficacious forum for resolving disputes relating to international commerce. Basic features which are uniform in the legal framework for resolution of international commercial disputes “can be broken down into three stages: (i) jurisdiction, (ii) choice of aw and (iii) the recognition and enforcement of judgments and awards.”[3]

4. Need for the New Arbitration Law

Several factors indicated the need for a comprehensive new legislation to remove the deficiencies and to make arbitration an effective ADR mechanism. The trend towards growing judicial intervention which tends to interfere with arbitral autonomy as also finality is a significant factor to be kept in view. The need is to reconcile and harmonise arbitral autnomy and finality with judicial review of the arbitral process. National laws differ on this issue. UNCITRAL Model Law attempts to promote harmony and uniformity in this sphere. The aim is to ensure arbitral autonomy coupled with neutrality or impartiality in the arbitral process by the composition of the arbitral tribunal by competent and impartial members which ensures equality between the parties and full opportunity to them to present their case. Total exclusion of judicial intervention does not match with the current trend but the scope of judicial supervision needs to be reduced to the minimum.

In M/s. Guru Nanak Foundation v. M/s. Rattam Singh & Sons[4], the Hon’ble Supreme Court observed, thus:

“Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940. However, the way in which the proceedings under the Act are conducted and without an exception challenged in courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by decisions of the Courts been clothed with ‘legalese’ of unforeseeable complexity.”

The Government of India realized that for effective implementation of its economic reforms it was necessary to recognize the demand of the business community in India and investors and abroad for reforms in the law of arbitration in India. In Food Corp. of India v. Joginderpal Mohinderpal,[5] the Apex Court observed:

“We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situations but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence not only by doing the justice between the parties, but creating sense that justice appears to have been done.”

The Government of India recognizing the need for reform in the law relating to arbitration decided to act on the basis of the UNCITRAL Model Law on International Commercial Arbitration and the ICC Rules for Conciliation and Arbitration by enacting a new law based on the model law which was designed for universal application.[6]

 

5. Background of the Indian Arbitration and Conciliation Act, 1996.

The General Assembly of the United Nations in its Resolution No.40/72 dated December 11, 1985, recommended:

All States give due consideration to the Model Law on International Arbitration, in view of the desirability of uniformity of law of arbitral procedures and the specific needs of international commercial practice.

A number of countries enacted laws to give legal force to the United Nations Commission on International Trade Law, 1996 (UNCITRAL Model Law) within their jurisdictions.

The Constitution of India, Article 51, clauses (c) and (d), provide that the State shall endeavour to (c) foster respect for international law and treaty obligations in the dealings of organized peoples with one another; and (d) encourage settlement of international law and treaty obligations in the dealings of organized peoples with one another; and (d) encourage settlement of international disputes by arbitration. In spirit of the Constitutional mandate and the aforementioned U.N. Resolution, the parliament has enacted Indian Arbitration and Conciliation Act, 1996 (the Act). Te preamble of the Act expressly mentions that it is promulgated as “it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules”.

The Act[7] replaced three existing statutes, namely, the Indian Arbitration Act, 1940, based on the English Arbitration Act, 1934, the Arbitration (Protocol and Convention) Act, 1937, based on the General Protocol, 1923; and the Foreign Awards (Recognition and Enforcement) Act, 1961, based on the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958. The Indian legislation is based on the UNCITRAL Model Law is broadly compatible with the “Rules of Arbitration of International Chamber of Commerce” (the ‘ICC Rules’). The Act is comprehensive, in that, it also contains provisions in regard to domestic arbitration with some modifications.

6. Arbitration Agreement

As explained above, it is very necessary and useful to make use of arbitration In commercial dealings. It is very simple and can be arranged in the following ways:

Ø  An arbitration clause may be Inserted in the contract itself, clearly providing for settlement of any disputes arising under the contract In future, by arbitration, or

Ø  If no arbitration clause could be Included in the contract for any reason, an arbitration agreement may be entered into later at any stage before or after a dispute has arisen under the contract.

The former method of including an arbitration clause in the contract itself is more expedient than entering into an arbitration agreement after a dispute arises.

Advantages of Arbitration

Ø  Court proceedings do not offer a satisfactory method for settlement of commercial disputes as it involves inevitable delays, costs and technicalities. On the other hand arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes.

Ø  Proceedings in Courts also involve notoriety and expose the Internal and private affairs of the parties to public.

Ø  Arbitration proceedings are conducted in privacy and the awards are kept confidential. The arbitrator is usually an expert in the subject matters of the dispute.

Ø  The dates for arbitration meetings are fixed with the convenience of all concerned.

Therefore, arbitration is the most suitable way for settlement of commercial disputes and it must invariably be used by businessmen in their commercial dealings. Under S.7 of the Act[8], once the existence of arbitration agreement is proved between the parties, the parties are bound by that arbitration clause. [9]

Essentials of a Well Drafted Arbitration Agreement:

Ø  Scope of Arbitration

Ø  Choice of Arbitrator(s)

Ø  Choice of Law

Ø  Choice of Location

Ø  Choice of Language

Ø  Choice of Rules

Ø  Rules of Evidence

Ø  Discovery

Ø  Costs

Ø  Award of Tribunal

Ø  Confidentiality

It is quite pertinent to note that the Act gave maximum liberty to parties with respect to all aspects of Arbitration agreement. But, it is to be kept in view that a party cannot be given unfettered discretionary powers to invoke the arbitration clause. Furthermore, provisos stating that the matter has to be referred to arbitration clause shall be included to the clauses which provides for termination of rights and obligations of parties for non-performance or breach. It is because of the reason that a party cannot unilaterally terminate the agreement without giving the other party an opportunity to present its reasons/grounds for non-performance. Certain basic principles of law of equity and law of contract have to be given due regard while drafting arbitration clauses/agreement and shall not give any kind of undue advantage to a party.

7. Courts and Arbitration

Under the UNCITRAL Model Law and the Indian Act, opportunities for intervention by courts are minimal until the making of the award or the decision of the arbitral tribunal regarding the challenge to the procedure and jurisdiction of the tribunal. Section 13(3) of the Act provides that unless the arbitrator, whose authority is challenged under section 13(2), withdraws from his office or the other party agrees to the challenge, the tribunal shall decide on the challenge. If the challenge is not successful, the tribunal shall continue with the proceedings and after the award is made, the party challenging the arbitrator may apply to set aside the consequential award. The English law and the Indian Law of 1940 (now repealed) provides several provisions which permit intervention by the court and stay of the proceedings – before the award is passed. In this area, the Indian Arbitration and Conciliation Act, 1996 is and improvement upon even the Model Law.

Interim Measures (S.9)[10]

In Bhatia International v Bulk Trading[11] the Supreme Court ruled that domestic courts have jurisdiction in respect of international commercial arbitration matters that take place abroad. The court was required to interpret the applicability of Part 1 of the Indian Arbitration and Conciliation Act 1996 to international commercial arbitration in view of the fact that Part 2 makes no provision for interim measures. The court held that the legislature did not intend for Part 1 not to apply to arbitration that takes place outside India. Accordingly, Part 1, Section 9 of the act applies to arbitration proceedings held outside India. Parties to such proceedings may now approach the Indian courts for interim measures. In the case of Sundaram Finance Ltd. V. NEPC[12], the Hon’ble Supreme Court observed that the Court has jurisdiction under S.9 of the Act to pass interim orders even before the commencement of arbitration proceedings and appointment of arbitrator. All that is necessary is that there must be satisfaction on the part of the court that the applicant will take effective steps for commencing arbitral proceedings.

Also, if petitioner has no prima facie case for interim injunction, and there is no irreparable injury to the petitioner, which cannot be compensated by damages at a later stage if the petitioner's stand is vindicated, the court is likely to hold the petitioner not entitled to interim injunction.[13] Furthermore, where in arbitration proceedings initiated by one party by filing an application under section 9, the question is raised as to validity or existence of arbitration agreement, the question is to be adjudicated by the arbitrator himself and not by the civil court, since the jurisdiction of the civil court stands ousted by virtue of section 42.[14] 

Appointment of Arbitrator (S.11):

The marginal heading of Section 11 is 'Appointment of arbitrators'. Sub-Section (1) indicates that a person of any nationality may be an arbitrator, unless otherwise agreed to by the parties. Under sub-Section (2), subject to sub-Section (6),the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Under sub- Section (3), failing any agreement in terms of sub-Section (2), in an arbitration with three arbitrators, each party could appoint one arbitrator, and the two arbitrators so appointed, could appoint the third arbitrator, who would act as the presiding arbitrator. Under sub- Section (4), the Chief Justice or any person or institution designated by him could make the appointment, in a case where sub-Section (3) has application and where either the party or parties had failed to nominate their arbitrator or arbitrators or the two nominated arbitrators had failed to agree on the presiding arbitrator. In the case of a sole arbitrator, sub- Section (5) provides for the Chief Justice or any person or institution designated by him, appointing an arbitrator on a request being made by one of the parties, on fulfilment of the conditions laid down therein. Then comes sub-Section (6), which may be quoted hereunder with advantage:

(6) Where, under an appointment procedure agreed upon by the parties,-

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."

Sub-Section (7) gives a finality to the decision rendered by the Chief Justice or the person or institution designated by him when moved under sub-Section (4), or sub-Section (5), or sub-Section (6) of Section 11. Sub-Section (8) enjoins the Chief Justice or the person or institution designated by Page 1801 him to keep in mind the qualifications required for an arbitrator by the agreement of the parties, and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. Sub-Section (9) deals with the power of the Chief Justice of India or a person or institution designated by him to appoint the sole or the third arbitrator in an international commercial arbitration. Sub-Section (10) deals with Chief Justice's power to make a scheme for dealing with matters entrusted to him by sub-Section (4) or sub-Section (5) or sub-Section (6) of Section 11. Sub-Section (11) deals with the respective jurisdiction of Chief Justices of different High Courts who are approached with requests regarding the same dispute and specifies as to who should entertain such a request. Sub-Section 12 clause (a) clarifies that in relation to international arbitration, the reference in the relevant sub-sections to the 'Chief Justice' would mean the 'Chief Justice of India'. Clause (b) indicates that otherwise the expression 'Chief Justice' shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Court is situated. 'Court' is defined under Section 2(e) as the principal Civil Court of original jurisdiction in a district.

The main question before the Hon’ble Supreme Court in a recent case of S.B.P. & Co. v. Patel Engineering Ltd. & Anr.[15], was What is the nature of the function of the Chief Justice or his designate under Section 11 of the Arbitration and Conciliation Act, 1996? The three judges bench decision in Konkan Rly. Corporation Ltd. v. Mehul Construction Co. as approved by the Constitution Bench in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. has taken the view that it is purely an administrative function, that it is neither judicial nor quasi-judicial and the Chief Justice or his nominee performing the function under Section 11(6) of the Act, cannot decide any contentious issue between the parties. The correctness of the said view was questioned in the matter of S.S.B.Ltd. Overruling the earlier decisions the Supreme Court observed that:[16]

“Normally, any tribunal or authority conferred with a power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power existed and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction which could be called a decision on jurisdictional facts, is not generally final, unless it is made so by the Act constituting the tribunal. Here, sub-Section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him in respect of matters falling under sub-Sections (4), (5) and (6) of Section 11. Once a statute creates an authority, confers on it power to adjudicate and makes its decision final on matters to be decided by it, normally, that decision cannot be said to be a purely administrative decision. It is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to perform the duties imposed by the statute. Unless, the authority satisfies itself that the conditions for exercise of its power exist, it could not accede to a request made to it for the exercise of the conferred power. While exercising the power or performing the duty under Section 11(6) of the Act, the Chief Justice has to consider whether the conditions laid down by the section for the exercise of that power or the performance of that duty, exist. Therefore, unaided by authorities and going by general principals, it appears to us that while functioning under Section 11(6) of the Act, a Chief Justice or the person or institution designated by him, is bound to decide whether he has jurisdiction, whether there is an arbitration agreement, whether the applicant before him, is a party, whether the conditions for exercise of the power have been fulfilled and if an arbitrator is to be appointed, who is the fit person, in terms of the provision. Section 11(7) makes his decision on the matters entrusted to him, final.”

It was also observed that the very scheme, if it involves an adjudicatory process, restricts the power of the Chief Justice to designate, by excluding the designation of a non-judicial institution or a non-judicial authority to perform the functions. For, under our dispensation, no judicial or quasi-judicial decision can be rendered by an institution if it is not a judicial authority, court or a quasi-judicial tribunal. This aspect is dealt with later while dealing with the right to designate under Section 11(6) and the scope of that designation.[17]

The appointment of an arbitrator against the opposition of one of the parties on the ground that the Chief Justice had no jurisdiction or on the ground that there was no arbitration agreement, or on the ground that there was no dispute subsisting which was capable of being arbitrated upon or that the conditions for exercise of power under Section 11(6) of the Act do not exist or that the qualification contemplated for the arbitrator by the parties cannot be ignored and has to be borne in mind, are all adjudications which affect the rights of parties. It cannot be said that when the Chief Justice decides that he has jurisdiction to proceed with the matter, that there is an arbitration agreement and that one of the parties to it has failed to act according to the procedure agreed upon, he is not adjudicating on the rights of the party who is raising these objections. The duty to decide the preliminary facts enabling the exercise of jurisdiction or power, gets all the more emphasized, when sub-Section (7) designates the order under sub-sections (4), (5) or (6) a 'decision' and makes the decision of the Chief Justice final on the matters referred to in that sub-Section. Thus, going by the general principles of law and the scheme of Section 11, it is difficult to call the order of the Chief Justice merely an administrative order and to say that the opposite side need not even be heard before the Chief Justice exercises his power of appointing an arbitrator. Even otherwise, when a statute confers a power or imposes a duty on the highest judicial authority in the State or in the country, that authority, unless shown otherwise, has to act judicially and has necessarily to consider whether his power has been rightly invoked or the conditions for the performance of his duty are shown to exist.[18]

Challenge Procedure (S.13)[19]

Under the UNCITRAL Model Law and the Indian Act, opportunities for intervention by courts are minimal until the making of the award or the decision of the arbitral tribunal regarding the challenge to the procedure and jurisdiction of the tribunal. Section 13(3) of the Act provides that unless the arbitrator, whose authority is challenged under section 13(2), withdraws from his office or the other party agrees to the challenge, the tribunal shall decide on the challenge. If the challenge is not successful, the tribunal shall continue with the proceedings and after the award is made, the party challenging the arbitrator may apply to set aside the consequential award. The English law and the Indian Law of 1940 (now repealed) provides several provisions which permit intervention by the court and stay of the proceedings – before the award is passed. In this area, the Indian Arbitration and Conciliation Act, 1996 is and improvement upon even the Model Law.

Jurisdictional Aspect (S.16)[20]

Section 16 provides for challenge to the jurisdiction and the authority of the arbitral tribunal. Sub-Section (2) provides that a plea that the arbitral tribunal does not have jurisdiction should be rqaised not later than the submission of the defence. If the excess of jurisdiction crops up during the proceedings, the objection should be made at that very time. The objection has to be made to the tribunal itself and not to the court. The tribunal may permit a delayed objection also. If the objection is accepted, the other party can appeal to the Court under S.37 (2) (a). If the objection is over-ruled, the the tribunal can continue its proceedings and make the award. The only remedy to the aggrieved party is to apply for setting aside of the award under section 34 if it is in excess of jurisdiction

Under this, an application lies for lies for a decision as to the effect of an arbitration agreement for a declaration that a dispute is not within the jurisdiction of the arbitrator.[21] An arbitrator cannot by mistake assume jurisdiction over a matter on which he has no jurisdiction. If it is shown by the terms of the submission or by extrinsic evidence that the arbitrator has adjudicated upon matters outside the scope of authority the award cannot stand, however well meaning and honest the mistake might have been.[22]

Whenever a question arises whether or not there is a submission to arbitration, the arbitrator cannot decide the issue. The only tribunal to decide it is the court. By the law of England as well as by the law of India the decision of the arbitrator on the question of jurisdiction is not final.[23] If the arbitration rules of the institution gave the arbitrator such powers, the court will ignore the rules and decide the question itself.[24] In the case of Renusagar Power Co. Ltd. v. General Electric Co.[25], the Apex Court held that expressions such as “arising out of”, or “in respect of”, or “in connection with”, or “in relation to” the contract are expressions of wide amplitude and content and would include even questions as to existence, validity and effect of the arbitration agreement.

Rules Applicable in Arbitral Proceedings (S.28)[26]

S.28 lays down the rules applicable to substance of dispute. It deals with the substantive aspects of arbitration for both domestic arbitration and international commercial arbitration. In both domestic and international commercial arbitration the general rule is that the dispute has to be decided in accordance with the terms of the contract taking into account also to the usage of trade applicable to the transaction.

Where the parties expressly authorize the arbitral tribunal to decide ex aequo et bono or as amiable compositeur then it can decide in accordance with the above legal principles. The term ex aequo et bono means in justice and in good faith and amiable composeteur means as a friendly compromiser. A dispute is also decided on the basis of the nature of the subject-matter by applying the law to which such subject matter is closely connected.

Recourse against Arbitral Award (S.34)[27]:

S.34 provides the recourse to the court by the party aggrieved by the arbitral tribunal to make an application for setting aside the award. Such application has to be filed within three months from the date of receipt of award.

An arbitral award may be set aside by the Court only if  the party making the application furnishes proof that—

1)      a party was under some incapacity, or

2)      the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

3)      the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral  proceedings or was otherwise unable to present his case; or

4)      the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matter beyond the scope of the submission to arbitration:

5)      the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or

6)      the Court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

7)      the Court the arbitral award is in conflict with the public policy of India.[28]

Courts on Public Policy [S.34(2)]

Courts can set aside the arbitral award on the ground of public policy in India under section 34 of the Arbitration and Conciliation Act, 1996. A foreign award may not be enforced if the court dealing with the case is satisfied that the enforcement of the award would be contrary to public policy.

The Supreme Court of India in Gherulal Parakh Vs. Mahadeodas Maiya has held that public policy of India is nothing but the policy of law in India. The court observed that "public policy of law is an elusive concept; it has been described as 'untrustworthy guide', 'variable quality', 'uncertain one', 'unruly horse', etc. The primary duty of a court of law is to enforce a promise which the parties have made and to uphold the sanctity of contracts, which form the basis of society...”. The court held that the doctrine of public policy should only be invoked in clear and incontestable cases of harm to the public. Though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of the ever changing world, it is convenient in the interest of stability of society not to make any attempt to discover new heads of public policy.

In Renusagar & Co v. G.E.C. Ltd[29]., the apex Court held that the term “public policy of India” should be given wider interpretation. The award could be set-aside on the ground of public policy if the award is made in contravention to:

• Fundamental policy of India
• Interest of India
• Justice or morality;
• Or, if it is patently illegal.

The Court also held that the term “Public Policy” is not defined under the Act. It has to be constructed in the context it has been used and its definition may vary from generation to generation. In Arbitration Act this term has to be given meaning in the light and principal underlying Arbitration and Conciliation Act, 1996, Contract Act and Constitution of India

Indian Courts on Foreign Awards:

India Continues to be a party to three important conventions, namely the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958, the Geneva protocol on Arbitration clauses, 1923, and the Geneva conventions on the Execution of Foreign Arbitral Awards, 1927. These are set out in three schedules of the Act. Here, the 1940 law is continued but certain irritants in that law have been removed by enacting the new law in 1996.

The Hon’ble Supreme Court’s interpretation of Section 9B of the 1940 Act in NTPC v. Singer[30], led to serious criticism which say that the foreign award could not be enforced in India if the parties had agreed that the substantive law governing the contract was the Indian law. Now under the new law of 1996, this provision has been deleted. Henceforth, the award if given outside India would, regardless of whether the substantive law of India was to be applied or not, be enforced in India as a foreign award. This is a welcome change in the law.

‘Foreign Awards’ are only those where arbitration takes place in a convention country Awards in arbitration proceedings which take place in a non-convention country[31] are not considered to be foreign awards under the Act. Similarly, award passed in an arbitration taking place in a non-convention country would not be a domestic award.[32]. For enforcement of foreign award, there is no need to take separate proceedings one for deciding the enforceability of the award to make rule of the Court or decree and the other to take up execution thereafter.[33]

Conditions for Enforcement of Foreign Arbitral Award (S,57):

1)      the award has been made in pursuance of a submission to arbitration which is valid under the law applicable thereto;

2)      the subject-matter of the award is capable of settlement by arbitration under the law of India

3)       the award has been made by the arbitral tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure;

4)      the award has become final in the country in which it has been made, in the sense that it will not be considered as such if it is open to opposition or appeal or if it is proved that any proceedings for the purpose of contesting the validity of the award the pending;

5)      the enforcement of the award is not contrary to the public policy or the law of India.

 8. Institutional Arbitration In India

Indian Council of Arbitration (ICA)

Arbitration may be arranged by the parties themselves on ad-hoc basis or it may be conducted according to the rules of an arbitral institution. Arbitration under the Rules of procedure of an arbitral Institution provides several advantages and helps in quicker disposal of cases. The professional experience and expertise avail- able with an arbitral institution facilitates economic and expeditious conduct of arbitrations and adds to the certainly and finality of the proceedings. The Indian Council of Arbitration (ICA) being a specialized arbitration Institution provides arbitration facilities for all types of domestic and International commercial disputes. The parties are, therefore, advised to use the Institutional arbitration facilities under the auspices of ICA or some other organisation, chamber of commerce. Export Promotion Council, trade association, etc. providing arbitration facilities in the sphere of their commercial activity.

As explained above, it is highly desirable and necessary for profitable and smooth conduct of business transactions that precise and comprehensive contract conditions including an arbitration clause are incorporated in commercial contracts. Indian traders are advised In their own Interest to persuade their Indian and foreign counter-parts to agree for arbitration as far as possible, under the auspices of the ICA, being a specialised arbitration body In India, or otherwise In appropriate cases.

Important chambers of commerce, trade associations, export promotion councils, etc. have recommended the use of the ICA arbitration clause in all commercial contracts. The Expert Committee on Indian Council of Arbitration appointed by the Ministry of Commerce, Government of India has also recommended in their report (January 1983) that Increasing use of the Council's arbitration services should be made by the trade, particularly the Public Sector undertakings and exporters for profitable and smooth conduct of their business dealings. Similarly the Abid Hussain Committee on Trade Policies appointed by the Government of India has recommended in Its Report (December 1984) for compulsory inclusion of an arbitration clause in all export contracts.

International Centre for Alternative Dispute Resolution (ICADR)

Efficient machinery to implement the provisions made in the Indian Law of 1996 is equally important to achieve the objectives. With a view to achieve this purpose and to make the new law fully effective an independent non-profit making body has been setup in India in 1995 known as “International Centre for Alternative Dispute Resolution” (ICADR). The ICADR Arbitration Rules, 1996 are comprehensive to regulate the arbitration proceedings in the ICADR. Rule 38 provides for fast track arbitration[34] by agreement according to modified procedure.

The establishment of this International Centre is a significant event in the Alternative Dispute Resolution (ADR) movement in India which intended to provide the machinery needed for the implementing the provisions of the Arbitration and Conciliation Act, 1996.

Objectives of ICADR

• To propagate, promote and popularize the settlement of domestic and international disputes by different modes of ADR.
• To establish, facilitate and provide administrative and other support services for holding conciliation, mediation and arbitration proceedings.
• To promote reform in the system of settlement of disputes and its healthy development within the frame-work of the social and economic needs of the community.
• To appoint conciliators, Mediators, Arbitrators and other ADR neutrals when so requested by the parties from among a panel of qualified and experienced ADR neutrals.
• To undertake training/teaching in ADR and related matters and to award diplomas, certificates and other academic or professional distinctions.
• To develop infrastructure for higher education and research in the field of ADR.
• To arrange for fellowship, scholarships, stipends etc., with a view to developing professionalism in ADR.

Areas in which ICADR works

• Almost all disputes-Commercial, Civil, Labour and Family disputes in respect of which the parties are entitled to conclude a settlement, can be settled by ADR procedures.
• ADR techniques have been proven to work in the business environment, especially in respect of disputes involving joint ventures, construction projects, partnership differences, intellectual property rights, personal injury and product liabilities.
• ADR techniques also can work in professional liability, real estate, securities, contract interpretation and performance and insurance coverage.

Services rendered by ICADR

• Arbitration, Conciliation, Mini-trial, Con/Med-arb, Negotiation, etc.
• Better solution to business disputes.
• Expert fact-finding.
• Model contract clauses to build arbitration, Conciliation and Mediation into business relationships.
• Guidelines for ADR process.
• Training for arbitrators, Conciliators & Mediators and professional & industry advisors.
• Contact with other ADR organizations in India and Abroad.
• Fixed fee packages for small disputes.

9. Conclusion

Hence it could be very well concluded that public sectors units and government departments should use the arbitration services of Arbitral institutions to resolve commercial disputes. To minimise the intervention of courts in the arbitration process, it is welcoming that Government had brought about judicial reforms by adopting the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration in its statute. 

Now, it is time for the corporates to think how the institutional arbitration mechanism could be improved so that the country became an effective centre for resolving international commercial disputes. Stating that both the Government and Chambers of Commerce were attaching a lot of importance to dispute resolution through alternative methods such as mediation/conciliation and arbitration, and paradoxical to note that  we in India still cannot come out of this court-driven justice delivery system.

Further, enactment of the 1996 Act satisfies the need of a comprehensive and effective law responsive to both domestic and the international requirements. It also seeks to eliminate the laws delays by limiting the supervisory role of Courts and minimizing the scope by reducing on which an award can be challenged while ensuring fairness of process and transparency in the arbitral proceedings by enacting suitable measures. Care has been taken to ensure appointment of competent and honest persons as arbitrator.

The Arbitration and Conciliation Act, 1996 that deals with International arbitration, is made in conformity with global trend. If the outcome of the arbitration is the foreign awards then, if parties are signatories of New York convention then Section 44 – 51 will be applicable or if they are signatories of Geneva Convention then section 52- 60 will be applicable. The word commercial, which is of fundamental importance, is liberally constructed for increasing the scope of international arbitration.

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[1] J.S. Verma, International Arbitration, in Alternative Dispute Resolution, Universal Pub., 2^nd ed.p.14.

[2] Alan Redforn and Martin Hunter, Law and Practice of International Commercial Arbitration. 2^nd ed.p.26

[3] Jonathan Hill, in The Law Relating to International Commercial Disputes.

[4] AIR 1981 SC 2075, at 2076.

[5] AIR 1989 SC 1263, at 1267.

[6] Supra note. 1

[7] Arbitration and Conciliation Act, 1996.

[8] Supra note. S.7. Arbitration agreement.-  (1) In this Part, "arbitration agreement" means an …

[9] Bank bandhu co-operative group society v. Manasvi construction engineers & contractors  [2000] CLA - BL Supp. (Snr.) 48 (Punj. & Har.)

[10] Supra note. 7, S.9. Interim measures etc. by Court— A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court-  (i)  for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral pro……

[11] (2002) 4 SCC 105

[12] (1999) 1 SLT 179 (SC) “It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a Court an interim measure of protection and for a court to grant such measure. Under S.9 of the Act, subject to certain restrictions, a party can apply for a wide range of interim measures to preserve assets and to secure evidence. But this provision is different from S.44 of the Act which gives the Court express power (unless otherwise agreed by the parties) to make orders, about the matters listed in Section 44(2), but “only if and to the extent that” the arbitral tribunal or any institutons agreed by the parties “has no power or is unable for the time being to act effectively”.

[13] Alfa Laval (India) Ltd. v. J K Corpn. Ltd. And Antoher  [2000] cla - bl supp. (Snr.) 48 (Delhi)

[14] Nissho Iwai Corporation v. Veejay Inpex And Others  [2000] CLA-BL Supp. (Snr.) 137 (Cal.)

[15] 2005 (7) Supreme 610

[16] Ibid. (para 8)

[17] Supra note.16  (para 9)

[18] Supra note.16  (para 10)

[19] Supra note.7, Challenge procedure.- (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section ….

[20] Supra note. S.16. Competence of arbitral tribunal to rule on its jurisdiction.—(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,-- (a)   an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other ……

[21] Gibraltar v. Kenny, (1956) 3 WLR 466

[22] Rajnarain Misra v. Union of India, (1953) 91 CLJ 145 at p. 148

[23] Dalmia Dairy Industries v. National Bank of Pakistan, (1978) 2 Lloyd’s Rep 223

[24] Ibid

[25] (1984) 4 SCC 679

[26] Supra note.7, S.28.  Rules applicable to substance of dispute.—(1)  Where the place of arbitration is situate in India,— (a)  in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the….

[27] Supra note.7, S.34 Application for setting aside arbitral awrd.

[28] Supra note.7, S.34 (2) (b) (ii)

[29] AIR 1994 SC 860

[30] AIR 1993 SC 998.

[31] Countries which are parties to New York Convention on Foreign Arbitral Awards, 1958.

[32] Bhatia International v. Bulk trading, 2002 (1) RAJ 469 (SC).

[33] Furest day Lawson Ltd. v. Jindal Exports Ltd., AIR 2001 SC 2293.

[34] A form of arbitration in which the arbitration procedure is rendered in a particularly short time and at reduced cost.