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International Commercial Arbitration in India

 (Article)

• Arbitration Law in India

• International Conventions on Arbitration

• Types of Arbitrations

• Requirements of an Arbitration Agreement

• Validity of an Arbitration Agreement

• The Indian Arbitration and Conciliation Act, 1996: Preamble

• Indian Supreme Court ruling on arbitration

• HOW TO DRAFT ARBITRATION AGREEMENTS

• MODEL ARBITRATION AGREEMENT

• INTERNATIONAL ARBITRATORS AND LAWYERS

The Applicable Arbitration Law

The Indian Arbitration and Conciliation Act, 1996 the governing arbitration statute in India. It is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.

Previous statutory provisions on arbitration were contained in three different enactments, namely, the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration and Conciliation Act, 1996 has repealed the Arbitration Act, 1940 and also the Acts of 1937 and 1961.

International Conventions on Arbitration

India is a party to the following conventions:

• the Geneva Protocol on Arbitration Clauses of 1923

• the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927; and

• the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and ratified it on 13th July, 1961. 

There are no bilateral Conventions between India and any other country concerning arbitration.

The Types of Arbitrations

The Indian Arbitration and Conciliation Act, 1996 applies to both domestic arbitration in India and to international arbitration. Section 2(1)(f) of the Act defines "International Commercial Arbitration" as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India where at least one of the parties is: 

1. an individual who is a national of, or habitually resident in any country other than India; or 

2. a body corporate which is incorporated in any country other than India; or 

3. a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or 

4. the Government of a foreign country.

Requirements of an Arbitration Agreement

• Section 7(3) of the Act requires that the arbitration agreement must be in writing.

• Section 7(2) provides that it may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement.

• Under Section 7(4), an arbitration agreement is in writing, if it is contained in : (a) a document signed by the parties, (b) an exchange of letters, telex, telegrams or other means of telecommunication, providing a record of agreement, (c) or an exchange of claims and defense in which the existence of the agreement is alleged by one party and not denied by the other.

•  In section 7(5), it is provided that a document containing an arbitration clause may be adopted by "reference", by a contract in writing. 

Validity of an Arbitration Agreement

Section 16 of the Act empowers the arbitral tribunal to rule on its jurisdiction:

Under the Act, the arbitration tribunal can rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for this purpose:

• an arbitration clause which forms part of a contract will be treated as an agreement independent of the other terms of the contract; and

• a decision by the arbitral tribunal that the contract is null and void will not entail, ipso jure, the invalidity of the arbitration clause.

A plea that the arbitral tribunal does not have jurisdiction will, however, have to be raised not later than the submission of the statement of defense. However, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of an arbitrator.

A plea that the arbitral tribunal is exceeding the scope of its authority has to be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

The arbitral tribunal may, in either of the cases referred to above, admit later a plea if it considers the delay justified.

The arbitral tribunal has to decide on a plea about lack of jurisdiction or about the tribunal exceeding the scope of its authority and where the arbitral tribunal takes a decision rejecting the plea, it shall continue with the arbitral proceedings and make the arbitral award.

A party aggrieved by such an arbitral award is free to make an application for setting aside the award under section 34 of the Act. Section 34(2)(a) inter alia permits a challenge to an award on the above grounds.

The Indian Arbitration and Conciliation Act, 1996 (No.26 of 1996): Preamble

[16th August, 1996]

An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

PREAMBLE

WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985;

AND WHEREAS the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice;

AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980;

AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation;

AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations;

AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;

Be it enacted by Parliament in the forty seventh year of the Republic as follows:—

PRELIMINARY

Short title, extent and commencement.—(1) This Act may be called the Arbitration and Conciliation Act, 1996.

It extends to the whole of India:

Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation.

Explanation— In this sub-section, the expression “international commercial conciliation” shall have the same meaning as the expression “international commercial arbitration” in clause (f) of sub-section (1) of section 2, subject to the modification that for the word “arbitration” occurring therein, the word “conciliation” shall be substituted.

It shall be deemed to have come into force on the 25th day of January, 1996.

Chapter 1 : General Provisions

Definitions-

In this Part, unless the context otherwise requires,—

“arbitration” means any arbitration whether or not administered by permanent arbitral institution;

“arbitration agreement” means an agreement referred to in section 7;

“arbitral award” includes an interim award;

“arbitral tribunal” means a sole arbitrator or a panel of arbitrators;

“Court” means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

“international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is—

an individual who is a national of, or habitually resident in, any country other than India; or

a body corporate which is incorporated in any country other than India; or

a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or

the Government of a foreign country;

“legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;

“party” means a party to an arbitration agreement.

Scope

This Part shall apply where the place of arbitration is in India.

This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.

This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.

Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto.

Construction and References

Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue.

An arbitral award made under this Part shall be considered as a domestic award.

Where this Part—

refers to the fact that the parties have agreed or that they may agree, or

in any other way refers to an agreement of the parties,

that agreement shall include any arbitration rules referred to in that agreement.

Where this Part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it shall also apply to a counter-claim, and where it refers to a defence, it shall also apply to a defence to that counter-claim.

Receipt of written communications—

Unless otherwise agreed by the parties,—

any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and

if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.

The communication is deemed to have been received on the day it is so delivered.

This section does not apply to written communications in respect of proceedings of any judicial authority.

Waiver of right to object—A party who knows that—

any provision of this Part from which the parties may derogate, or

any requirement under the arbitration agreement,

has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object. Extent of judicial intervention—

Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.

Administrative assistance—

In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

How to Draft an Arbitration Agreement?

A good arbitration agreement is one which minimizes complications when a dispute arise. However, many a times people neglect to pay attention while drafting an arbitration agreement.

Before finalizing an arbitration agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Arbitration lawyers from all applicable jurisdictions must be consulted before finalizing any arbitration agreement..

Before signing an Arbitration Agreement the following must be properly addressed:

• Applicable law to arbitration

• Location of Arbitration

• Number of Arbitrators

• Language of Arbitration

• Discovery procedure

• Limitation to arbitration powers

• Interim measures/Provisional Remedies

• Privacy

• Rules Applicable

• Appeal & Enforcement

• Be aware of local peculiarities

• Survival after Termination of the main agreement.

The arbitration agreement should be modified as applicable under different circumstances. One brush should not paint all the painting.

Model Arbitration Agreement

"All and any disputes arising out of or in connection with the present agreement shall be finally settled under the UNCITRAL Model Rules of Arbitration (or another arbitration rules of your choice) by sole (or three) arbitrator (s) appointed by _________ (an arbitration institute of your choice) in accordance with the said Rules. The place of arbitration shall be _____. The arbitration shall be conducted in ______ language. The arbitration award shall be final and binding. The arbitration shall be governed under the laws of ______. "