International trade is rapidly increasing among countries due to the increasing need for various resources and their dependency on each other. With the increase in international trade, the threat of commercial disputes also increasing rapidly affecting the economy and businesses. In order to resolve these commercial disputes, the mechanism of arbitration has been assumed as the great mechanism for resolving commercial disputes in this recent era. In other words, it is known as the method of International Commercial Arbitration.

Arbitration is defined in the Indian Arbitration and Conciliation Act, 1996 under S.2(a) as “any arbitration whether or not administered by a permanent arbitral institute.”[1] However, this definition does not clarify what is Arbitration. Many known jurists or academicians give the meaning of “Arbitration” but Rene David is the one whose definition of arbitration is most preferable and accurate. He defines, “arbitration as the settlement of a question of dispute between two or more parties by a third party or parties”.[2] The third party here is appointed by the consent of both the parties in dispute known as the ‘Sole Arbitrator’ or the ‘Arbitral Tribunal’ when there is more than one Arbitrator.

The Arbitration proceedings take place outside of the courtrooms to settle disputes. The place for the commencement of proceedings of International Commercial Arbitration has to be decided by the parties according to an arbitration clause in their contract. The law that will be applied can be the law of either party’s countries as decided by the parties in their agreement in this regard. One of the most intriguing features of the process of Arbitration is that the parties have complete control over the process and it is a speedy trial rather than litigation, which leads to a great amount of satisfaction for both parties in regard to the final award which may not be achieved by the process of litigation.

The present process of resolving the dispute of international commercial arbitration is based upon the UNICITRAL Model law of 1985.[3] The General Assembly recommended that all states follow this model due to the reason of unification of the arbitral awards, processes and practices worldwide. It significantly considers the greater impact of enforcement of foreign awards on parties in dispute.

What is International Commercial Arbitration

“International Commercial Arbitration is a necessary adjunct of international commerce, an indispensable catalyst for promoting world trade. and means different things in different parts of the world”[4] It is also referred to as ‘foreign arbitration’, and is a process by which the dispute between private parties is resolved due to the ambiguity in international commercial transactions. This process involves at least two parties and is conducted outside of the national courts to avoid litigation. The parties take part in dispute resolution after confirming each other’s consent to initiate the proceedings of arbitration for resolving commercial disputes.[5]

Under S.2(1)(f) International Commercial Arbitration has been defined as “an arbitration relating to disputes arising out of legal relationships, whether contractual or not, which must be considered commercial, and where either of the parties is a foreign national or resident or is a foreign body corporate, or is a company, association or body of individuals whose central management or control is in foreign hands”[6]

The arbitration will be considered as the “International Commercial Arbitration” when there are parties of foreign national, foreign corporate body or body of individuals whose management control is in the hands of the foreign-based company.  Therefore, with one party being foreign and having its arbitration seat in India, is considered to be an International Commercial Arbitration. In simpler terms, International Commercial Arbitration is the process of resolving a dispute that arises due to any incompliance of parties of their International Commercial Contracts.[7] Such arbitration could be “ad-hoc” or “institutional”, depending upon the terms of the agreement between the parties. When parties appoint the arbitrator at their own discretion with the consent of each other known as “institutional arbitration”. Similarly, when parties decide to administer their disputes by appointing an arbitral institution is known as “institutional arbitration”.

The practice and procedure of international arbitration in India

1. Practice of International Commercial Arbitration commencement

The practice of arbitration was introduced in India at the end of the 19^th century. The practice of arbitration got recognition in India with the enactment of the Indian Arbitration Act of 1899. In a later period, due to rapid change in commercial industries new statute of The Arbitration and Conciliation Act, 1996 was introduced which is based upon the UNICITRAL model law of 1985 and covered both international and domestic arbitration. In India, The Arbitration and Conciliation Act, 1996 laws are applicable for the proceedings of the International Commercial Arbitration. Part I of the Act talks about the arbitration seats in India and Part II talks about the Arbitration seats present outside of India.[8] International Commercial Arbitration in India plays a vital role in deciding a ‘place’ and ‘seat’ of Arbitration. When, where and how the proceedings of arbitration will take place?The Hon’ble SC in the case of BALCO has distinguished between the ‘seat’ and ‘venue’ of arbitration. Therefore, the ‘seat’ in the arbitration is considered the ‘Juridical seat’ and the ‘place’ of Arbitration will be merely the venue. When parties cannot decide the difference between the ‘seat’ and ‘venue’ for Arbitration proceedings, the seat will be considered the venue itself.[9]

• The procedure of the commencement of proceeding of International Commercial Arbitration

The International Arbitration Act, of 1996 recognises the two types of proceedings of Arbitration in India, (i) the seat within India, (ii) the seat outside of India (reciprocating country). The Arbitration Act, in India, recognised 2 ways to commence the proceedings for International Commercial Arbitration according to Arbitration Act[10]. They are as follows:

(1) International Commercial Arbitration with a seat in India.

(2) International Commercial Arbitration with a seat in a reciprocating country.

Until and unless the parties to the disputes have some other plans, the proceedings for the settlement of the dispute will commence on the date which is suggested by the respondent.[11]

Step-by-step action was taken for the proper procedure of proceedings-

1. Firstly, Issuance of notice of Arbitration proceedings by either of the parties in accordance with Part I of the Arbitration Act.[12]  The other way is to approach the appropriate Judicial Authority by either of the parties to refer the parties to arbitration. (Referral to Arbitration). 
2. Secondly, there’s an appointment of Arbitrators (3 Arbitrators) by the consent of both parties. Both parties will appoint each of their own arbitrators and these two appointed arbitrators will appoint the third arbitrator for the proceedings of Arbitration.
3. Thirdly, the commencement of the proceedings according to the procedures laid down under sections 18 to 27.
4. Fourthly, the submission of the written statement of claim and defence by both parties.[13]
5. Fifthly, the Arbitral award is rendered in the form of a decision by the Arbitral Tribunal to the parties. The Arbitral award is in written form and signed by the majority of members of the Tribunal.[14]
6. Sixthly, if any party is aggrieved in any way by the decision of the Arbitral Tribunal, then they can challenge the Arbitral award. And till that time the previously decided Arbitral Award will be on hold from execution.[15]
7. And lastly, the execution and enforcement of the Arbitral award.[16]After the enforcement of the award, the party cannot question its validity or raise any objection.[17]

The recognition and enforcement of foreign arbitral awards.

India has two statutes which govern the Arbitral Award i.e., the Arbitration (Protocol and Convention) Act, 1937[18] and the Foreign Awards (Recognition and Enforcement) Act, 1961.[19] The Protocol on Arbitration Clause dealt with the procedure of arbitration and execution of Arbitral award. This Protocol has been ratified by 30 countries. Art. 1 of the Protocol makes sure that any dispute or differences shall be resolved by way of Arbitration.[20] After many changes in the international market, a new convention was introduced to recognise and enforce the arbitral awards, i.e., the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention, 1958). India adopted this UN Convention of 1958 of Arbitration with the objective of putting forward a suitable mechanism for resolving the commercial dispute that arises between the contracting parties from different countries and they can seek arbitration. The purpose is to provide speedy and effective disposal and proper enforcement of arbitral awards.[21]

The Act of 1996[22] defines the term “foreign award” as “foreign award means 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 11th day of October 1960— in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette.” The term “arbitral award” is defined under the New York Convention, 1958 as “The term ‘arbitral award’ shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which parties have submitted.”

The terms recognition and enforcement play a very crucial role in securing an arbitral award. The ‘recognition’ of an arbitral award makes it more binding and absolute for the party to execute it when the same party to an agreement goes for the subsequent arbitration. But if new issues arise at the time of the arbitration proceedings that got missed earlier than those issues will be looked into and the arbitral award will come to a halt even after recognition. On the other hand, the party seeking ‘enforcement’ of an arbitral award does not only want to get the award recognised but also wants to enforce it by using appropriate measures.

The recognition and enforcement procedure of Arbitral award under the Arbitration and Conciliation Act, 1996.

The Code of Civil Procedure, 1908[23] (CPC) provides for the enforcement and execution of decrees in India on the other hand, the arbitral awards are governed primarily by the Indian Arbitration Act. 1996 in India. S.44 and 49 specifically dealt with the “recognition” and “enforcement” of the arbitral awards. India is a signatory to the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (Geneva Convention, 1927) and the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention, 1958). Any country that is a party to the above-mentioned UN conventions, their arbitral awards which were awarded to them be recognised and enforced according to that particular Convention.

There is a three-stage process for the enforcement of the arbitral award.

1. Firstly, the application under section 44 shall be made by the party who is seeking the enforcement of an arbitral award under the Act of 1996 in the court of appropriate jurisdiction. The judgment-debtor can challenge the enforcement on the grounds of not having a valid arbitration, failure in the appointment of an appropriate arbitrator or mistake of law or fact has been committed by the Arbitral Tribunal. As held by the courts in a plethora of judgements the Arbitration Act of 1996, Part I doesn’t entertain foreign-seated arbitrations, therefore, the aggrieved party cannot challenge the foreign award under section 34 of the Arbitration Act, 1996.[24]
2. Secondly, there are some essential conditions laid down under section 47 of the Act[25] for the enforcement of the Act. When these essential conditions are fulfilled, the arbitral award executes as similar to the decree of the court. To prove the award is a “foreign award” the certified and original copy with the evidence is necessary to present in court.
3. Thirdly, as the stamping and registration of the arbitral award is concerned the Supreme Court held that “the stamping and registration of the award is not necessary and the award can be enforced as a court decree”[26]

Landmark Judgements

1. Bharat Aluminium Co. vs Kaiser Aluminium Ltd. (Civil Appeal No. 3678 of 2007)

The court held that Part I and Part II of the Arbitration Act of 1996 are exclusively mutual and Parliament unequivocally adopted the principle of “territoriality” over the “subject matter of arbitration” while enacting the legislation. The court inter-alia held that the judicial seat would be the main point for international commercial arbitration having a foreign seat and not where the contract has to be performed.

• Enercon (India) Ltd. & Ors v. Enercon GmbH & Anr, (2014) 5 SCC 1

It was held in this case, that the geographical location i.e., the “venue” for the arbitration would be decided as per the comfort of the parties and it would be different from the “seat” of arbitration which decides the jurisdiction.

• Shri Lal Mahal Ltd. vs. Progetto Grano Spa (Civil Appeal No. 5085 of 2013 arising from SLP(c) No. 13721 of 2012)

Here a pioneering judgment was passed by the court which provides for a well-established distinction between the s. 34 and s. 48 of the Arbitration Act of 1996 which talks about the scope of objections to the enforceability of a foreign and challenges to set aside an award. The Supreme Court substantially curtailed the scope of the expression’ public policy’.

Conclusion and Suggestions

ADR is developing rapidly at both national and international levels, providing alternate and simpler methods for dispute resolution. One of them is International Commercial Arbitration. This trend of ADR services increases out of the growth of the “arbitration clause” in the majority of agreements between the parties. Indeed, the sufficient services provided by the International Commercial Arbitration via the application of the UN Conventions and Arbitration and Conciliation Act, 1956 in India. But there are still some areas which needs improvement. If these applications become possible in the practice of International Commercial Arbitration it would be very beneficial, such as;

1. The Arbitral awards become final on the basis of the need for merits in order to reduce the grounds for claiming awards. This would be possible when there is the implication of transnational public policy and arbitrators have the authority to exercise this policy.
2. The powers of the Arbitrator should be extended and flexibility should be provided to an arbitrator to decide and deal with the dispute. By enhancing their power, they may ignore some rules that may appear too rigid or unfair in a particular case.
3. Arbitrators should have more authority to verify the grounds for challenging arbitral awards in order to consider the award as a final decree of the court.

If such suggestions are acknowledged and considered properly then the scope of the domestic policies will be widened. The “transnational public policy” becomes operative. The enforcement and recognition of foreign arbitral awards will become easier. There will be no problem in deciding the seat and venue for the proceedings. The burden of Arbitrators to decide a case without being restricted to any rigid laws will be reduced and the proceedings will become fairer and more flexible.

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[1] The Indian Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s. 2(a).

[2]  Rene David, Arbitration in International Trade 5 (Springer, USA, 1st ed. 1985)

[3] UNICITRAL Model Law on International Commercial Arbitration Law, 1985.

[4] P.C. Rao & William Sheffield (Eds.), Alternative Dispute Resolution- What it is and how it works 45 (Universal Law Publishing Co., Delhi, 1st ed., 1997).

[5] What is International Commercial Arbitration? Available at: https://www.curtis.com/glossary/commercial-arbitration/international-commercial-arbitration. (last visited on Aug 6, 2023).

[6] The Indian Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s.2(1)(f).

[7] Susan Gualtier, “International Commercial Arbitration”, available at: https://www.nyulawglobal.org/globalex/International_Commercial_Arbitration.html (last visited on Aug 12, 2023).

[8] The Arbitration and Conciliation Act, 1996 (Act 25 of 1996).

[9] Law Commission of India, “246th Report on Amendment to the Arbitration and Conciliation Act,  1996” (August, 2014).

[10] Supra note 8 at 3.

[11] Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s.21.

[12] Ibid.

[13] Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s.23

[14] Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s. 31(1)

[15] Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s.34

[16] Arbitration and Conciliation Act, 1996 (Act 25 of 1996), s.35 and S.36

[17] Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rahman, (1970) 1 SCC 670.

[18] Arbitration (Protocol and Convention) Act, 1937 (Act 6 of 1937).

[19] Foreign Awards (Recognition and Enforcement) Act, 1961(Act 45 of 1961).

[20] Chapter 6.– Enforcement of Arbitral Awards in India; available at https://shodhganga.inflibnet.ac.in/bitstream/10603/110130/16/16_chapter%206.pdf (last visited on Aug 14, 2023).

[21] By Fali Nariman and Marike Paulsson “Report and The India Resolutions for the 1958 Convention on The Recognition and Enforcement of Foreign Awards”, ICCA (2020).

[22] Arbitration & Conciliation Act, 1996 (Act 25 of 1996), s.44.

[23] Code of Civil Procedure, 1908.

[24] Arbitration & Conciliation Act, 1996 (Act 25 of 1996), s.34.

[25] Supra note 8 at 3.

[26] (2018) 18 SCC 313.

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Author: Shahela

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