International Commercial Arbitration

Apr. 01, 2022 • Nikita Saha

AUTHOR'S PROFILE: I am Rajshree Shekhar, a 4th-year student currently pursuing BBA LLB from Amity University, Kolkata. I am interested in Business and commercial laws.

"The litigious spirit is more often found with ignorance than with knowledge of the law" ~ Cicer

INTRODUCTION

The blistering development in the field of international trade has generated considerable revenue for all the parties who are involved in it, whether it is government or private parties. But as we know that every coin has two sides, so on the side of international trade has also given rise to the considerable cross-border dispute. In other words, to avoid being subjected to the jurisdiction of Indian courts parties tend to resort to the matter with the help of alternative dispute resolution mechanisms. Arbitration as the method of dispute resolution also has lots of loopholes. There are many recent judgments affirming the fact that now Indian courts have shifted towards a pro-enforcement stance which also includes strict compliance to the principle of non-interference with respect to arbitral awards. Through the recent court decision, the latest developments in the arbitration jurisprudence reflect the support of the judiciary in enabling India to adopt the best international practices to deal with foreign awards. With the aim to facilitate doing business in India, the government has taken various steps and after two attempts to amend the Arbitration and Conciliation Act in 2001 and 2010, On 23rd December 2015 and 17th December 2015 the Arbitration and Conciliation (Amendment) Bill, 2015 was passed by Rajya Sabha and Lok Sabha respectively. On 23rd October 2015 the Arbitration and Conciliation (Amendment) Act, 2015 came into effect. In 2019 the Act was again amended with the view to make India a hub of institutional arbitration for both domestic and international arbitration.

International Commercial Arbitration

Section 2(I)(f) of Arbitration Conciliation Act 1996 defines the International Commercial Arbitration (hereinafter referred to as ICA), as a commercial legal relationship, in which one of the parties is a foreign national, foreign resident, a foreign body corporate, a company which is managed and controlled by the foreign national. After the amendment, the word company was deleted, and thereby now it says that it is irrelevant whether the company is managed and controlled by foreign nations if it is incorporated in India. The arbitration involving foreign parties of the Act. In the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd 2008 (14) SCC 271, the issue was related to whether TDM Infrastructure Pvt. Ltd comes under the purview of section2(I)(f) of the Arbitration Conciliation Act. It was determined by the Supreme Court that for the purpose of the Act, a company that is incorporated in India can only have Indian nationality.

Enforcement of Foreign Award

Before the enactment of the Arbitration and Conciliation Act 1996, India being the signatory of the New York Convention and Geneva Convention, enforcement of foreign awards came under the jurisdiction of two different statutes which were:

The Arbitration (Protocol & Convention) Act, 1937: Under the auspices of the League of Nations this Act was enacted as a result of the Geneva Protocol (1923) & Geneva Convention, 1927 (the GC, 1927).
The Foreign Awards (Recognition and Enforcement) Act, 1961: Under the auspicious of the United Nations Organization, this Act was enacted as a result of the New York Convention (1958).

Arbitration and Conciliation (Amendment) Act, 2015

Enforcement of foreign awards under the Arbitration and Conciliation (Amendment) Act, 2015 can be done under two avenues :

1. Enforcement under the New York Convention

Foreign awards passed under the New York Convention are mentioned in Sections 44 to 52 of the Arbitration and Conciliation (Amendment) Act, 2015. New York Convention defines the foreign award as any arbitral award made on or after 11th October 1960, on differences between who have a legal relationship, whether it is contractual or not but considered as commercial under the law in force in India. The First Schedule of Convention applies in the execution of an agreement that is in writing for the purpose of the arbitration. As the Central Government after being satisfied that in one such territory the reciprocal provisions have been made it may by notification in the Official Gazette declares to be territories to which the said Convention applies. Hence the two essential conditions for the enforcement of a foreign award under the New York Convention are:

The country must be a member of the New York Convention
As notified by the central government the award shall be made in the territory of another contracting state which is a reciprocating territory.

Section 47 of Arbitration and Conciliation (Amendment) Act, 2015 states that under the New York Convention, if a party is seeking enforcement, along with application he/she must carry the following document:

Original award or a duly authenticated copy of the award
Original arbitration agreement or a duly certified copy and
Any evidence is required to establish that the award is a foreign award.

The new Act, restrict the ambit of the international commercial arbitration in respect of violation of public policy and now it includes only those awards which have been affected because of fraud or corruption, which contravene the fundamental policy of Indian Law and which have conflicting notion with respect to morality or justice. According to section 49 of the Act, if the court is satisfied that under parts II and III the foreign award is enforceable then the court can declare it as its decree. According to the new Act, Only in High Court, the application for enforcement of foreign awards will lie. After the application seeking enforcement is made, under section 48 of the Act the Indian Court can object and refuse to enforce foreign arbitral awards. If the award falls within the following statutory defence:

Incapacity of parties who have entered into an agreement with respect to section 44.
The agreement is void under the law which has been subjected by the parties.
The award contains the decision on the matter which is beyond the arbitration agreement's scope.
The composition and procedure of arbitration authority are not according to the arbitration agreement.
By the competent authority of the country, the award has been set aside or suspended.
Under Indian Law, the subject matter of the award cannot be settled by arbitration.
Indian Public Policy would be contrary to the enforcement of the award.

In Shri Lal Mahal Ltd. v. Progetto Grano Spa(1994) 2 Arb LR 405, it was held that under section 48(2)(b) the enforcement of the foreign award would be refused if it is contrary to the Fundamental Policy of Indian Law, the interest of India, and Justice or morality.

2. Enforcement under the Geneva Convention

Foreign awards passed under the Geneva Convention are mentioned in Sections 53 to 60 of the Arbitration and Conciliation (Amendment) Act, 2015. Under Geneva Convention "foreign award" means an arbitral award under the law in force in India made after the 28th July, 1924 on differences relating to matters considered commercial.

Protocol mentioned in the second schedule with respect to the pursuance of agreement related to arbitration.
Under the Third Schedule, after the central government is satisfied that reciprocal provisions have been made in respect between persons of whom one is subject to the jurisdiction of someone of such power, may by notification in the Official Gazette declare to be parties to the Convention subject to the jurisdiction of some other of the Powers aforesaid.
After the Central Government is satisfied in one of such territories may by notification in the Official Gazette declare to be territories to which the said Convention applies.
If any proceedings are pending in any country for the purpose of contesting the validity of the award in which it was made. Then the award shall not be deemed to be final.

Under the new Act, only in High Court, the application of foreign award will lie. Section 57 lays down the grounds under which the Geneva Convention will enforce the foreign award and under section 58 the award shall deem to be a decree if the court is satisfied under this chapter. Under section 56 of the Act the party who is seeking enforcement of award at the time of when the application is produced within the court must have the following documents:

The original/duly authenticated copy of the award.
The evidence shows, that the award is final.
Evidence claiming that the award is in pursuance to submission of arbitration under valid Indian law or according to the manner agreed by the parties.
The arbitration procedure must be according to the governing laws.

Case Study

Government of India v. Vedanta Limited, dated 16 September 2020, in Civil Appeal No. 3185 of 2020,

Facts: In 1994, the Government of India (GOI) and Vedanta Limited, Ravva Oil Singapore Pte. Ltd., and Videocon Industries Ltd. (Respondents) signed the Production Sharing Contract (“PSC”). The application was made by GOI against the respondent under article 15 of the Production Sharing Contract (“PSC”) for recovering the Base Development Costs (“BDC”) incurred by the Respondents for developing the Ravva Oil Field.

Judgment: Supreme Court upheld the enforcement of the foreign arbitral award within 3 years from the date when the right to apply accrued in the enforcement petition. While interpreting the Limitation Act, 1936 Supreme Court held that within the period of three years from the date when the right to apply accrues, an application of a foreign award can be filed. The Court held the role of the enforcing court is limited to only examining whether the Award violates the grounds mentioned in Section 48 of the Arbitration and Conciliation (Amendment) Act. The enforcing court doesn’t have any role in examining the merits of the dispute. On the ground of Public Policy, the Court restricted the scope of assailing the award which is indeed a great interpretation as the ground of Public Policy was being misused by the Indian Courts.

Conclusion

India being a country with the aim to attract foreign investment, it is pivotal that the Indian legal system must provide proficient and remarkable remedies to foreign investors and all those people who are seeking entry in international transactions in India. The main factor which a commercial party while entering into any transaction do is factor into bargain the potential legal costs of enforcing their rights. If the legal system of any country does not hold the promise of speed or certainty in relation to any transaction which is governed, a stigma of a certain “risk premium” is added to the cost of the transaction which, it is immoderate, may make the transaction commercially unviable. Generally, due to prolonged delays in the litigation system coupled with a backlog of cases foreign investors preferred arbitration to shied away from Indian courts. Till now it is said that India approached as a jurisdiction that carries prejudice anti-arbitration. The 1996 Act was enacted with the aim to achieve a dispute resolution that provides quick and cost-effective results. Arbitration is one of the institutions which is still evolving but has not yet become too effective to fulfill the need of an ever-changing world economy which is incidental to commercial growth. It can be said that arbitration is a duplication of the process which provides the option of appealing. The main aim of the new Act was to cover domestic arbitration and conciliation as well as international commercial arbitrations and conciliation comprehensively. In addition, it minimizes the supervisory role of courts in the arbitral process and also assures that every final arbitral award is enforced in the same manner as if it were a decree of the court. In India, the enforcement of foreign arbitral awards reinforces the premise that arbitration in India is not for the fainthearted. Therefore, it is imperative to remove the difficulties and lacunae in the Act.

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International Commercial Arbitration

INTRODUCTION

International Commercial Arbitration

Enforcement of Foreign Award

Arbitration and Conciliation (Amendment) Act, 2015

1. Enforcement under the New York Convention

2. Enforcement under the Geneva Convention

Case Study

Conclusion

ENDNOTES

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