India and its recent developments in International commercial arbitration

King Dungerwal*

Abstract

The role of the national courts in facilitating the whole process of international commercial
arbitration (ICA) cannot be ruled out. However, an overzealous interventionist attitude must
be shunned by the courts. Arbitration per se is purely a consensus-based private enforcement
proceeding to settle contractual rights1 , as defined in the comparative international
commercial arbitration by Kluwer Law International there are 4 fundamental features of
Arbitration

 An alternative to national court

 A private mechanism for dispute resolution
 Selected and controlled by the parties
 Final and binding determination of parties rights and obligations

In addition to the basic fundamental features stated above there are a few more aspects that
are to be taken care of in order to facilitate the whole process of international commercial
arbitration, starting from allowing the parties to freely choose Arbitration as an alternative
forum to resolve their disputes other than the national courts , respective domestic law not
being contrary to the internationally accepted set standards and procedures, the courts
proving to be very supportive in upholding various arbitration agreements, enforcing foreign
awards, equal amount of protection to the parties exercising ADR methods when compared
to the protection given to the parties going for the normal judicial process, minimizing the
supervisory role of the courts in the arbitral process i.e. The paradox of arbitration, as noted
by a leading academic on the subject, is that it seeks the co-operation of the very public
authorities from which it wants to free itself2 This article is going to discuss the various
measures a country can take to turn itself into a ICA hub by giving a brief analysis of the
India’s current position regarding the same and the transition period it is in, in becoming
one.

1
* III year Law student of the V year LL.B course from Government Law College, Mumbai
http://www.pulj.org/the-roundtable/arbitrating-competition-law-disputes-disregarding-the-fundamentals-for-
a-pro-arbitration-world
2
http://lawcommissionofindia.nic.in/reports/Report246.pdf p 19 pg. 13
 Introduction

The government of India has proposed a lot of changes for making arbitration as the preferred
mode of resolving commercial disputes by making it investor friendly, cost effective and
ensuring expeditious disposal of cases. The Government under the leadership of Mr.Narendra
Modi has shown its commitment towards making India as an arbitration friendly country by
bringing in various reforms to improve the already existing legal framework related to
arbitration. The Law commission of India in its 246th report has recommended various
changes to the Arbitration and Conciliation Act, 1996 (“Act”), in order to make India a pro-
arbitration country with reference to International commercial arbitration(“ICA”). The Law
commission in its report has tried to bring in front the various shortcomings of the existing
legal framework and how these shortcomings could be overcome in order to achieve growth
in all aspects of trade and commerce. The proposed changes have tried to bring in line the
existing framework on the lines of The United Commission on International Trade Law
(“UNCITRAL”)’s already enacted Model Law on International Arbitration (“Model law”).
India in its Act has already stated in its objects and reasons about “taking into account the
aforesaid Model Law and Rules”3.

The Law Commission has tried to bring in front the various drawbacks and loopholes of the
existing framework and bring in a new regime of Arbitration law to make India a hub for
International commercial arbitration. With the NDA government being quite positive in
bringing in the reforms suggested by the Law commission of India in monsoon session of the
Parliament, it is apparent that it is going to pass without much opposition.

With India opening its gates for the world to invest in it, there are various reforms that have
been initiated like the very recent Make in India initiative to attract investor by the newly
formed NDA government. By removing the sectorial caps in various sectors to attract more

3
THE ARBITRATION AND CONCILIATION ACT, 1996 No.26 of 1996 [16th August, 1996]
Foreign Direct Investment (FDI) and turning India into an Investor friendly country. There
are a lot of Bilateral Investment Treaties (BIT) referred as Bilateral Investment Promotion
and Protection Agreements (BIPAs) that are signed by India .With such great investment
reforms and initiatives it is imperative that the investors are going to have differences with the
state pertaining to the obligations under these BIPAs, it is very important for India to comply
to International standards of arbitration when the arbitration is invoked by the investor parties
and bring Indian Arbitration regime on the lines of internationally accepted standards and
procedures. Increasing international trade and investment is accompanied by growth in cross-
border commercial disputes. Given the need for an efficient dispute resolution mechanism,
international arbitration has emerged as the preferred option for resolving cross-border
commercial disputes and preserving business relationships. With an influx of overseas
commercial transactions and open ended economic policies acting as a catalyst, international
commercial disputes involving India are steadily rising. This has led to tremendous focus
from the international community in India’s international arbitration regime.4

What is International commercial arbitration?

Section 2 (1)(f) of the ACT defines "international commercial arbitration" as 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-

(i) an individual who is a national of, or habitually resident in, any country other than India;
or (ii) a body corporate which is incorporated in any country other than India; or (iii) a
company or an association or a body of individuals whose central management and control is
exercised in any country other than India; or (iv) the Government of a foreign country;5

Post BALCO judgment regime

In Bharat Aluminium Co. vs. Kaiser Aluminium Technical Service 6, (“BALCO”) has set
aside the previous judgment of Bhatia international7.

In Bhatia International v Bulk Trading S.A & Anr. (“Bhatia International”) and Venture
Global Engineering v Satyam Computer Services Ltd & Anr 8 (“Venture Global”), the

4
International Commercial Arbitration February 2015 Law and Recent Developments in India Nishith Desai
Associates www.nishithdesai.com http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research
%20Papers/International_Commercial_Arbitration.pdf
5
THE ARBITRATION AND CONCILIATION ACT, 1996 No.26 of 1996 [16th August, 1996]
6
2012) 9 SCC 652
7
(2004) 2 SCC 10
8
2008) 4 SCC 190
Supreme Court had held that Part I of the Arbitration and Conciliation Act, 1996 (“Act”) in
setting out the procedures, award, interim relief and appeal provisions with respect to an
arbitration award, would apply to all arbitrations held out of India, unless the parties by
agreement, express or implied, exclude all or any of its provisions.

The Supreme Court set aside the doctrine in the BALCO case. Some significant issues dealt
with in BALCO case are as follows:

It was observed that the object of section 2(7) of the Act is to distinguish the domestic award
(Part I of the Act) from the “foreign award‟ (Part II of the Act); and not to distinguish the
“domestic award‟ from an “international award‟ rendered in India. The term “domestic
award‟ means an award made in India whether in a purely domestic context, (i.e.,
domestically rendered award in a domestic arbitration or in the international arbitration which
awards are liable to be challenged u/s 34 and are enforceable u/s 36 of the Act).

It was held that there is a clear distinction between Part I and Part II as being applicable in
completely different fields and with no overlapping provisions.

The Court has also drawn a distinction between a “seat” and “venue‟ which would be quite
crucial in the event, the arbitration agreement designates a foreign country as the “seat”/
“place “of the arbitration and also select the Act as the curial law/ law governing the
arbitration proceedings.

The Court further clarified that the choice of another country as the seat of arbitration
inevitably imports an acceptance that the law of that country relating to the conduct and
supervision of arbitrations will apply to the proceedings. It would, therefore, follow that if the
arbitration agreement is found or held to provide for a seat / place of arbitration outside India,
then even if the contract specifies that the Act shall govern the arbitration proceedings, Part I
of the Act would not be applicable or shall not enable Indian courts to exercise supervisory
jurisdiction over the arbitration or the award. It would only mean that the parties have
contractually imported from the Act, those provisions which are concerned with the internal
conduct of their arbitration and which are not inconsistent with the mandatory provisions of
the English procedural law or curial law. Therefore, it can be inferred that Part I applies only
to arbitrations having their seat / place in India.

The Court dissented with the observations made in Bhatia International case and further
observed on a logical construction of the Act, that the Indian Courts do not have the power to
grant interim measures when the seat of arbitration is outside India. A bare perusal of Section
9 of the Act would clearly show that it relates to interim measures 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 (enforcement of domestic awards). Therefore, the arbitral
proceedings prior to the award contemplated u/s 36 can only relate to arbitrations which take
place in India.

The Court further held that in foreign related international commercial arbitration, no
application for interim relief will be maintainable in India, either by arbitration or by filing a
suit.

In Konkan Railway Corporation Ltd. & Anr9. The obiter dicta has discussed about the issue
of model law and Indian arbitration law, and the difference of the word “only” in Indian law
from model law is mainly to limit the law to territorial application. Model Law was taken into
account in drafting of the Arbitration Act, 1996. In Paragraph 9, this Court observed

“That the Model Law was only taken into account in the drafting of the said Act is, The
Arbitration Act, 1996 and the Model Law are not identically drafted”.

We submit that the omission of the word “only” in Section 2(2) is not an instance of “CASUS
OMISSUS”. It clearly indicates that the Model Law has not been bodily adopted by the
Arbitration Act, 1996. But that cannot mean that the territorial principle has not been
accepted.

It is not the function of the Court to supply the supposed omission, which can only be done
by Parliament. In our opinion, legislative surgery is not a judicial option, nor a compulsion,
whilst interpreting an Act or a provision in the Act. We also submit the territorial
application of the act to domestic awards only.
“The Commission adopted the principle that the Model Law would only apply if the place of
arbitration was in the enacting State – known as the “territorial criterion” for applicability –
only after extensive debate, It was noted that the territorial criterion was widely accepted by
existing national laws, and that where the autonomy criterion was available it was rarely used
India is not the only country which has dropped the word “only” from its National
Arbitration Law. The word “only” is missing from the Swiss Private International Law Act,

1987 Chapter 12, Article 176 (1) (I). It is also missing in Section 2(1) of the 1996 Act (U.K).

9
2002) 2 SCC 388
Therefore, we submit that Section 2(2) is an express parliamentary declaration/ recognition
that Part I of the Arbitration Act, 1996 applies to arbitration having their place/seat in India
and does not apply to arbitrations seated in foreign territories
If Section 2(2) is construed as merely providing that Part I of the Arbitration Act, 1996 applies to
India, it would be ex facie superfluous/redundant. No statutory provision is necessary to
state/clarify that a law made by Parliament shall apply in India/to arbitrations in India.

Following the pro arbitration stance taken by the supreme court of India the decision in the case
of Lal Mahal, the Supreme Court while dealing with objections to enforceability of certain
foreign awards on the grounds that such awards are opposed to the public policy of India and
while overruling Phulchand, has significantly curtailed the scope of the expression 'public
policy' as found under Section 48(2)(b) of the Act, thereby limiting the scope of challenge to
enforcement of awards passed in foreign seated arbitrations.10

Changing environment of ICA in India

With the welcoming decision of BALCO by the Supreme Court, India’s position in the
international arbitration community has improved manifolds. The survey conducted by PWC
shows that parties are increasingly choosing to resolve disputes away from the courts through
arbitration. This survey is a pioneer effort at exploring the level of knowledge, current practices
and perceptions regarding arbitration among companies in India.
This study presents qualitative and quantitative feedback on the use and future of arbitration in
India, gathered from 70 respondents comprising of Legal Counsels, Legal Heads and other legal
personnel of various companies in India. The survey was conducted over ten months, through
detailed in-person interviews by PWC.
The results of this survey broadly emphasize the attitudes and practices adopted by in-house
counsels in India towards effective resolution of domestic as well as cross border disputes.
Key findings from the study are as follows:

 Majority of the companies in India have a dispute resolution policy

 91% of the companies surveyed in India, who have a dispute resolution policy, include
arbitration (not litigation) for resolution of future disputes.
 Arbitration remains a preferred dispute resolution mechanism, despite certain loopholes and
10
International Commercial Arbitration February 2015 Law and Recent Developments in India Nishith Desai
Associates www.nishithdesai.com
 shortcomings in the arbitration environment in India
 Companies in India are yet to fully appreciate the tactical significance of the seat of
arbitration
 The choice of seat of arbitration was primarily driven by factors such as regional advantage,
cost effectiveness and advice of solicitors / counsel. 11

These were the few findings of the survey conducted by the Company to answer some
trending issues related to arbitration

Are you satisfied with arbitration (seat

Are you satisfied with arbitration(seat in India) outside
As mechanism to resolve disputes? India) as mechanism to resolve disputes?

Satisfied Satisfied

Dissatisfied Dissatisfied
Mixed
Mixed experience experience

In the same report there are various others studies were done, which included the general
mood of the corporates towards arbitration and it was found that 43% of the companies were
quite optimistic about the scenario of arbitration in India and 82% consented that they would
continue to use arbitration as a mode of dispute resolution

11
Pwc- Corporate Attitudes & Practices towards Arbitration in India
https://www.pwc.in/en_IN/in/assets/pdfs/publications/2013/corporate-attributes-and-practices-towards-arbitration-
in-india.pdf
Indicate which of the following dispute resolution mechanisms were used by your
company?

246th law commission reports’ recommendations

There are major changes suggested by the 246th report of the Law commission with regards to
ICA which would have an overhaul effect on the Act and in turn if amended would have a major
impact on the ICA regime as a whole. A few major recommendations made by the law
commission are as follows:

A. Institutional Arbitration

The Law Commission Report (a)has in his report tried to bring in the culture of institutional
arbitration which in turn will attract more investors to go for foreign seated ICA ; (b) seeks to
include and give legal recognition to an ‘emergency arbitrator’, the new norm in most
institutional rules; (c) suggests that the Government consider the formation of a specialized
body which has representation from all stakeholders of arbitration, which body could be
entrusted to encourage the spread of institutional arbitration.

B. Challenges to Arbitral Awards

The Law Commission Report has recommended to dispose of the applications within a year for
speedy disposal of arbitration cases, from service of notice. Moreover, in case of foreign awards,
the Law Commission Report also has considered applications resisting the enforcement of a
foreign award (under Section 48 of the Act) and incorporated similar timelines for (a) institution
of an application resisting enforcement; and (b) disposal of such an application; under Section 48
of the Act. In a well-calculated move designed to give comfort to foreign investors and also to
mitigate risks under bilateral investment treatises, any court-related proceedings emanating out
of an international commercial arbitration (where one party to the matter is a foreign party) is
proposed to be dealt with by the courts which have Ordinary Original Civil Jurisdiction i.e. High
Court. The Law Commission Report also recommends that specialized and dedicated arbitration
benches be constituted by referring Delhi High Court as an Example.

C. Judicial Intervention in Foreign Seated Arbitration

The Law Commission Report acknowledges the lack of efficacious redress available to a party
seeking protection of assets located in India, where an arbitration is seated abroad. It lays down
stress on the two precedents set by the apex court, Bhatia International case and BALCO which
proposed that Indian courts will exercise jurisdiction under Part 1 of the Act only when the seat
of arbitration is within India; There are provisions which in Part 1 of the Act, such as Section 9
(interim relief), Section 27 (court assistance for taking evidence), Section 37(1) (a) and 37(3)
(Appealable orders), will remain available to parties in a foreign seated arbitration;
The proposed changes will not affect applications pending before any judicial authority, relying
upon the law set out by Bhatia international.
Legal recognition be accorded to the terms ‘seat’ and ‘venue’, consistent with international
usage;
It remains to be see how these proposed amendments will affect the rights of parties to foreign
seated arbitrations, who have, relying on the law set out in Bhatia, explicitly agreed to exclude
the application of Part 1 from their agreements.

The pro-Arbitrations judgments in the past 3 years

(i) World Sport Group (Mauritius) Ltd v MSM Satellite (Singapore) Pte. Ltd12
Comment: The Supreme Court held that allegations of fraud aren’t a bar to foreign
seated arbitration .The Indian parties used to challenge arbitrability of
disputes where allegations of fraud were made against them

(ii) Enercon (India) Ltd. & Ors. v. Enercon GmBH & Anr13
Comment: Supreme Court Brings Indian Arbitration on the lines of International
Standards by meeting the demands of the ever-dynamic arbitration jurisprudence

(iii) Reliance Industries Ltd. & Ors. v. Union of India14

Comment: The SC considered impartiality and independence in appointment of the
arbitrators

(iv) Swiss Timing Limited v. Organizing Committee, Commonwealth Games 2010,

Delhi15 Comment: Supreme Court held that fraud and other malpractices can be
arbitrable under Indian law

(v) Shri Lal Mahal Ltd. v. Progetto Grano Spa16

12
Judgment in Civil Appeal No. 895 of 2014 dated January 24, 2014
13
(2014) 5 SCC 1
14
AIR 2014 SC 2342
15
AIR 2014 SC 3723
16
(2014) 2 SCC 433
 Comment: Supreme Court made enforcement of foreign awards easier, by removing a
ground used for challenging the foreign award i.e. 'patent illegality', from the scope of
public policy

(vi) Konkola Copper Mines (PLC) v. Stewarts and Lloyds of India Ltd17
Comment: Bombay High Court clarified the prospective application of BALCO, The
Court explained that while the ratio of the BALCO judgment i.e. Part I of the Act
would apply only to arbitrations seated in India, would operate with a prospective
effect, the interpretation of Section 2(1) (e) of the Act as provided by the Supreme
Court would not be limited to a prospective application.

Conclusion

As per the recent trend and changing environment of arbitration practice in India there is
positivity in the country for choosing arbitration as the preferred mode of resolving disputes.
With various recommendations of the Law commission of India, to various Supreme Court
judgments coming out to be Pro-Arbitration, India is set to become the International hub of
Arbitration. As per the recent survey conducted by the Ernst & Young Global Limited18  the
survey highlighted the importance given by the Government of India to the improvement of the
arbitration mechanism. More than 50% of the respondents said that the ministry's recent steps to
develop dispute resolution mechanism are in the right direction and they are quite positive about
Arbitration in India.
The Partner & National Director - FIDS, EY India Arpinder Singh, quoted that

“Key factors such as entry of global Institutions & law firms, strengthening of regulatory
environment and building up of expertise in technical aspects would be essential for the future of
arbitration. In spite of several challenges, consolidated efforts by all stakeholders in this
17
2013 (5) BomCR 29
18
Changing face of Arbitration in India by - Ernst & Young Global Limited
http://www.ey.com/IN/en/Services/Assurance/Fraud-Investigation---Dispute-Services/FIDS---Changing-face-of-
arbitration-in-India
direction can result in a robust arbitration mechanism in India that will attract faith of global
companies as well."