Alternative Dispute Resolution

Unit- III
By Suprabha Sheoran

International Commercial Arbitration

International commercial arbitration is a process of resolving disputes between parties in
different countries through an arbitrator or a panel of arbitrators. It involves submitting the
dispute to arbitration instead of pursuing litigation in a court of law. The arbitrator or panel of
arbitrators will make a binding decision on the dispute.

International commercial arbitration can be used to resolve various disputes, including those
related to contracts, intellectual property, investments, and construction. It is often used in
cases where the parties involved in the dispute have a commercial relationship and wish to
maintain a working relationship after the dispute is resolved.

How Does International Commercial Arbitration Work?

The process of international commercial arbitration typically begins with the parties involved
in the dispute signing an arbitration agreement. This agreement outlines the terms and
conditions of the arbitration process, including the rules of procedure, the choice of arbitrator
or arbitrators, and the place of arbitration.

Once the arbitration agreement is signed, the arbitration process can begin. The arbitrator or
panel of arbitrators will hear evidence and arguments from both sides and make a decision on
the dispute. This decision is final and binding, and can only be challenged in limited
circumstances, such as if there was a serious irregularity in the arbitration process or if the
decision is contrary to public policy.

International commercial arbitration is governed by various international conventions and

national laws, including the United Nations Commission on International Trade Law
(UNCITRAL) Model Law on International Commercial Arbitration. This model law provides
a comprehensive framework for the conduct of international commercial arbitration
proceedings.

Advantages of International Commercial Arbitration

There are several advantages to using international commercial arbitration to resolve cross-
border disputes.

 Arbitration is often faster and more efficient than traditional litigation. This is because
arbitration proceedings are usually less formal and more flexible than court proceedings,
which can be time-consuming and costly.
  Arbitration allows the parties involved in the dispute to choose their own arbitrator or panel
of arbitrators. This means that the parties can select an arbitrator or arbitrators who have
expertise in the subject matter of the dispute, leading to a more informed and fair decision.
 Arbitration is often more confidential than traditional litigation. Court proceedings are
usually public, which means that sensitive information about the parties involved in the
dispute can be made public. In contrast, arbitration proceedings are usually private, which
means that the parties can keep the details of the dispute confidential.
 Arbitration awards are easier to enforce across borders than court judgments. This is
because most countries have signed the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, which provides a framework for the recognition and
enforcement of arbitration awards in different countries.

The New York Convention

The New York convention also known as the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards was first adopted by the United Nations
diplomatic conference on 10 June 1958 and was enforced on 7 June 1959. It is often
considered as one of the most important treaties in the field of international trade law and has
a great significance. It is often described as a foundation stone in the field of international
arbitration. It requires courts of the contracting states to give effect to an agreement to
arbitrate when seized of an action in a matter covered by an arbitration agreement and also to
recognize and enforce awards made in other states, subject to specific limited exceptions. At
present, the convention is signed by 156 state parties.
It was adopted mainly for promoting healthy business relations between the countries and to
promote harmony and coordination among the states. Further it reduces the burden of the
states to decide which laws to be enforced or the procedures of which countries to be
followed during the process of the arbitration. Further it also establishes a minimum level of
control which the contracting states can exert over arbitral awards and arbitral agreements.
The two main actions which were taken by the New York convention are as follows:
Recognition and Enforcement of Foreign Arbitral Award
Sections 44 to 52 of the Arbitration and Conciliation (Amendment) Act, 2015 deals with
foreign awards passed under the New York Convention.
The New York Convention defines "foreign award" as an arbitral award on differences
between persons arising out of legal relationships, whether contractual or not, considered as
commercial under the law in force in India, made on or after the 11th day of October 1960-
a. In pursuance of an agreement in writing for arbitration to which the Convention set
forth in the First Schedule applies, and
b. In one of such territories as the Central Government, being satisfied that reciprocal
provisions have been made may, by notification in the Official Gazette, declare to be
territories to which the said Convention applies.
The first action is to recognize the awards made in the foreign territory and is defined under
the Article 1 of the convention. It is the obligation of the states to recognize such awards and
enforce them according to the Article 3 of the convention. The state who wants to seek the
foreign arbitral award needs to submit the following documents before the court and it lies
upon the interpretation of the court to decide that it falls under the scope of the convention or
not. A state which needs to seek the enforcement needs to submit the following documents.
 The arbitral award
 The arbitral document according to the article 4 of the convention
The state against whom the convention is enforced can object to the enforcement by
submitting the proof of even one grounds of refusal of the enforcement which are mentioned
in the Article 5 of the constitution. Now it lies on the discretion of the courts to enforce an
award or not based on the paragraph 2 of the article 5 of the enforcement.
Referral to the Court by the method of Arbitration
Article II, paragraph 3, provides that a court of a Contracting State, when seized of a matter
in respect of which the parties have made an arbitration agreement, must, at the request of
one of the parties, refer them to arbitration.
Key features of the New York Convention
 It creates a uniform international framework which enables various countries to
establish strong trade and commercial relations and solve disputes with the help of
arbitration. It achieves this by firstly requiring the signatory states to enforce the
awards rendered in the signatory state and secondly by limiting the grounds on which
the states may refuse recognition and enforcement.
 The states who are a party to this convention are required to bind to the foreign
awards and enforce them according to the rules and procedures established by the
New York Convention.
 The procedure is free from any complex procedures and charges. The states just need
to submit to a competent court in the contracting state where the enforcement is
sought.
 The main provisions of the convention are as follows

Geneva Convention of 1927

It is also called Convention on the execution of Foreign Arbitral Awards and was signed at
Geneva, Switzerland on 26 September 1927. It draws out the standard and policy for the
implementation of arbitral award given by a foreign tribunal by domestic courts. It comprises
of 11 articles. The convention is applicable only on the arbitral awards pronounced after
coming into force of GPAC, 1923. This convention was adopted and accepted by the League
of Nations. It came into force after 3 months from the date of its ratification by the 2 high
contracting parties. The important articles of this convention are:
Enforcement of Geneva Convention awards in India
Any arbitral award passed by any foreign tribunal is administered by the Arbitration and
Conciliation Act, 1996 which is the prime legislation in India for such awards. One of the
main objectives of this act is the enforcement of the arbitral award determined by any foreign
court in the same mode as a decree or award determined by any Indian court.
It has 2 parts; Part 1 deals with the administration of the arbitral awards not shielded by the
New York Convention or Geneva Convention while part 2 contains the provisions of the New
York Convention. But this part 2, under chapter 2 contains the provisions for the
administration of the awards under the Geneva Convention in the same manner as in the New
York Convention. Part 2 of the act is applicable only for the implementation of those arbitral
awards which are passed in the accordance with an arbitration agreement under the New York
or Geneva Convention.
Sections 53 to 60 of the act deals with the provisions regarding the foreign awards passed
under the Geneva Convention of 1927. According to the Convention, an arbitral award is
considered as a foreign award if it is made on the distinctions relating to the matters which
are considered as commercial under the law in force in India made after 28 July, 1924-
1. In pursuance of an agreement for arbitration to which the protocol set forth in the
second schedule applies, and
2. Between persons of whom one is subject to the jurisdiction of some one of such
powers as the central government, being satisfied that reciprocal provisions have been
made, may, by notification in the official gazette, declare to be the parties to the
convention set forth in the 3 rd schedule, and of whom the other is subject to the
jurisdiction of some other of the powers aforesaid, and
3. In one of such territories as the central government, being satisfied that reciprocal
provisions have been made May by like notification, declare to be territories to which
the said convention
And for the purpose of this chapter an award shall not be deemed to be final if any
proceedings for the purpose of contesting the viability of the award are pending in the
country in which it was made4.

UNCITRAL -Model Law, Treaties

As businesses increasingly engage in cross-border transactions, the need for a unified legal
framework to govern international trade becomes crucial. The United Nations Commission on
International Trade Law (UNCITRAL) plays a pivotal role in this regard. The UNCITRAL Model Law,
along with UNCITRAL treaties, offers a comprehensive legal framework that promotes uniformity and
simplifies international trade practices.

UNCITRAL, the United Nations Commission on International Trade Law, serves as the core legal body
responsible for promoting international trade and developing harmonized legal instruments.
UNCITRAL, established by the United Nations General Assembly in 1966, plays a key role in
developing and harmonizing international trade law[1]. The UNCITRAL Model Law is a legislative
framework that guides for countries to reform their domestic laws related to international trade. It
covers various aspects of commercial transactions, including contracts, arbitration, and insolvency.

Key Provisions of UNCITRAL Model Law

The UNCITRAL Model Law incorporates several essential provisions that foster clarity,
certainty, and fairness in international trade.

 Contract Formation: The Model Law offers standards for the offer and acceptance of
contracts, consideration, and the interpretation of their contents. It encourages party
autonomy and makes it easier for international business contracts to be upheld.
 Rights and Obligations: The rights and obligations of parties involved in international
trade are described in the Model Law. It covers topics like contract fulfillment, good
faith responsibilities, and the sale of property rights.
 Remedies: The Model Law creates a framework for remedies accessible to parties in
the event of contractual breaches or disputes, including financial compensation,
specific performance, and the right to dissolve the agreement.
 Dispute Resolution: The Model Law encourages the use of alternative conflict
resolution methods, particularly arbitration since it understands the value of effective
dispute resolution. The appointment of arbitrators, drafting of arbitration agreements,
and the acceptance and enforcement of arbitral verdicts are all governed by its rules.

Scope of UNCITRAL Model Law

The scope of the UNCITRAL Model Law is broad and covers various aspects of international
commercial arbitration. It provides a comprehensive framework that addresses key stages and
elements of the arbitration process.

 Arbitration Agreement: The Model Law governs the validity, interpretation, and
enforceability of arbitration agreements. It ensures that parties’ autonomy in choosing
arbitration as a means of dispute resolution is respected and upheld.
 Commencement of Arbitral Proceedings: The Model Law specifies the requirements
and procedures for initiating arbitral proceedings, including the submission of the
claim and the response to the claim.
 Court Assistance: The Model Law provides for limited court intervention in
arbitration proceedings. It allows parties to seek assistance from national courts in
certain matters, such as the appointment of arbitrators, interim measures, and the
enforcement of procedural orders.
 Interim Measures and Preliminary Orders: The Model Law allows parties to seek
interim measures from both arbitral tribunals and national courts to protect their rights
and interests during the arbitration process.
 Recognition and Enforcement of Awards: The Model Law facilitates the recognition
and enforcement of arbitral awards across different jurisdictions. It sets out the
conditions and procedures for the enforcement of awards, promoting their global
enforceability.
Benefits of the UNCITRAL Model Law

The UNCITRAL Model Law offers several benefits that contribute to the effectiveness and
efficiency of international commercial arbitration. Some key benefits include:

 Harmonization of International Trade Law:

The Model Law promotes harmonization by providing a standardized framework for

international commercial arbitration. It assists countries in aligning their arbitration
legislation with internationally recognized standards, thereby reducing discrepancies and
enhancing predictability in cross-border disputes.

 Facilitation of Cross-Border Transactions:

The UNCITRAL Model Law simplifies the legal complexities involved in cross-border
transactions. It provides a clear set of rules and procedures that businesses can follow,
ensuring smoother negotiations, contract formation, and dispute resolution.

 Minimal Court Intervention:

The Model Law encourages minimal court intervention in arbitration proceedings, thereby
reducing the potential for undue interference and delays. This principle promotes the
efficiency and expeditious resolution of disputes, allowing parties to avoid lengthy and costly
court proceedings.

 Party Autonomy:

It emphasizes party autonomy, enabling parties to have control over the arbitration process. It
allows them to determine the arbitration agreement, select arbitrators, and shape the
procedure according to their specific needs, thereby enhancing their trust and confidence in
the process.

 Global Acceptance:

The Model Law has gained widespread acceptance and recognition globally. Many countries
have adopted it as the basis for their national arbitration laws or used it as a reference for
developing their arbitration frameworks. Its widespread adoption promotes consistency and
facilitates the recognition of arbitration as a preferred method of dispute resolution in
international commercial transactions.

Challenges of UNCITRAL Model Law:

While the UNCITRAL Model Law offers significant benefits, there are also certain
challenges associated with its implementation and adoption. Some of the challenges include:

 Awareness and Capacity:

The effective implementation of the Model Law relies on the awareness and understanding of
its provisions by legal practitioners, arbitrators, and judges. Lack of awareness or limited
capacity in applying the Model Law may hinder its proper utilization and lead to inconsistent
interpretation and application of its provisions.

 Diverse Legal Systems:

The Model Law is designed to be adaptable to different legal systems. However, the
implementation of its provisions may pose challenges in jurisdictions with significantly
different legal traditions or cultural norms.

 National Adoption:

Although the Model Law serves as a valuable reference, its adoption and implementation by
individual countries are not mandatory. Some countries may be reluctant to adopt the Model
Law or may choose to incorporate only certain provisions.

 Evolving Practices:

International trade and commerce continue to evolve rapidly, introducing new challenges and
complexities. The Model Law may need periodic updates and amendments to keep pace with
emerging issues and practices in international commercial arbitration.

International Commercial Arbitration – An Indian

Perspective

The courts in India first considered the applicability of Part I of the act to
arbitration taking place outside India in Bhatia International v Bulk Trading.
[8]The Supreme Court held that Part I would apply to all arbitrations and to all
proceedings relating thereto, where such arbitration is held in India. For
international commercial arbitration, it was held that Part I would still apply
unless the parties by agreement, whether express or implied, had excluded all
or any of the provisions included therein.

The Supreme Court subsequently reiterated its decision in Bhatia International

in Venture Global Engineering v Satyam Computers Services.[9] This case dealt
with an arbitration award made in England through an arbitral process
conducted by the London Court of International Arbitration. The Supreme
Court held that Part I would apply to such an arbitral award. Consequently, the
courts in India would have jurisdiction under both Section 9 and Section 34 of
the act. Hence, an Indian court could entertain a challenge to the validity of
such an arbitral award.

Since the judgments in Bhatia International and Venture Global, the Indian
courts have had to apply the rationale detailed therein in various other cases.
However, it increasingly became accepted that the judgment in Bhatia
International was interventionist in nature and not aligned with the spirit of
party autonomy that is core to the arbitral process.

In September 2012 in Bharat Aluminium Company (BALCO) v Kaiser

Aluminium Technical Services Inc[10] the Supreme Court reconsidered its
earlier controversial ruling in Bhatia International concerning applicability of
Part I to arbitrations that are held outside India. The court held that the
rationale laid down in Bhatia International, and followed in Venture Global, was
not in line with the act. Accordingly, it overruled these earlier judgments and
held that Part I would not apply to arbitrations held outside India.

The Supreme Court stated that Part I applies to only those arbitrations that are
held within India – the crucial test for determining whether Part I is applicable
is whether the seat of arbitration is in India. Accordingly, it was held that Indian
courts will have no jurisdiction to make Part I of the act applicable to an arbitral
award made outside India. The Supreme Court rejected the argument that the
courts of the country that is the seat of arbitration and those of the country
whose law is chosen by the parties will have concurrent jurisdiction over any
court proceedings in relation to such arbitral process. It was held that the
courts of only the country in which the seat of arbitration is located have
jurisdiction to entertain any matter relating to the arbitration. Only in the
absence of a choice of seat of arbitration will the country whose law is chosen
by the parties have jurisdiction to entertain arbitration proceedings.

It was also clarified that since Part I of the act does not apply to arbitrations
held outside India, provisions such as those for interim relief under Section 9
would also not apply to arbitrations held outside India. Consequently, if the
seat of arbitration is located outside India, the parties would not be free to
institute civil suits in India for obtaining interim relief. The argument that in
such a scenario the parties would be left without a remedy for interim
measures was rejected by the Supreme Court, as the parties were free to seek
appropriate remedies in their chosen jurisdiction.

BALCO the Supreme Court clarified that the decision would apply only
prospectively to arbitration agreements – all proceedings arising from
arbitration agreements dated before 6 September 2012 would therefore be
subject to the law as it stood before the judgment. However, a recent judgment
of the Bombay High Court in Konkola Copper Mines v Stewarts & Lloyds of
India,[11] while discussing the prospective application of the rationale in
BALCO, observed that the Supreme Court had made observations on various
aspects of arbitration law in India. Accordingly, it would not be proper to hold
that the reasons contained in the Supreme Court judgment would only operate
prospectively.

International Arbitration in India

 Ad hoc arbitration in India: The parties may chose to refer the disputes
to arbitration under the 1996 Act, independent of any institutional rules.
Arbitrations arranged by parties themselves, without recourse to an
arbitral institution, are referred to as ad hoc arbitrations[17]. In India, ad
hoc arbitrations use retired judges of High Courts and The Supreme Court
of India to act as arbitrators, the efficiency of these arbitrations is low.
The retired judges who act as arbitrators are seventies and it difficult to
work at high levels. The judges are comfortable arbitrations in the courts
and take up to 3-5 years between the hearings, as arbitrators are booked,
difficult to get continuous dates for hearings, to long years of training and
service, the judges also influenced by procedural statutes like the Code of
Civil Procedure and the Evidence Act, Torts, no strict applicability to
arbitration proceedings.
 Institutional Arbitrations: Institutional arbitration has been defined as
arbitration conducted by an arbitral institution in accordance with
prescribed rules of the institution. The Indian Council of Arbitration is the
 sole Indian body providing facilities for institutional commercial dispute
resolution. The Rules of Arbitration of the Indian Council of Arbitration
are very comprehensive, setting out matters without conflict; use wide
supervisory powers and all communication between the parties and the
arbitrators through the Council’s Registrar[18]. The Council is
empowered to reject requests for arbitration without giving any reason,
and can also determine any challenge to an arbitrator’s eligibility.
Arbitration under the Council is low administrative costs and arbitrators’
fees payable, low costs and fees are limited in that the established and
reputed arbitrators avoid participating in Arbitrations under the Council.

 International Arbitration outside India InternationalArbitration

outside India can be held either under the auspices of institutions likes the
London Court of International Arbitration(LCIA)[19], the ICC
International Court of Arbitration (ICC)[20], the American Arbitration
Association(AAA)[21], the World Intellectual Property
Organisation (WIPO)[22], the Stockholm Chamber of Commerce and the
International Council for Settlement of Investment Disputes (ICSID)[23].
Arbitration outside of India can also be heard under an arbitral tribunal
constituted under stand-alone procedures like the UNCITRAL Rules. The
arbitration institutions provide procedural rules and fix arbitration costs
according to the scales, arrange for various support services required for
the arbitration, including video and teleconferencing, translations and
transcripts of proceedings.