e@ INTERNATIONAL COMMERCIAL ARBITRATION AND LEGAL ISSUES IN INDIA Vijay Srivastava* Abstract The Arbitration is a method, useful for the settlement of disputes between parties, contractual or otherwise. Nevertheless, arbitration proceedings are also rule based. The arbitrators are governed by the substantive laws that are applicable to the disputes and procedural laws that regulate the proceedings these may be those of an arbitration institution, national laws or international lows. Further in the event that a party refuses to heed to an award of the tribunal, the courts may be approached for enforcement. It follows therefore that arbitration has strong jurisdictional elements. According to Le Ray Bennet “Arbitration as the application of the legal principles to a controversy within limits previously agreed upon the disputing parties”* Likewise “Arbitrotion has both a contractual and jurisdictional elements.”” In the same way arbitration performs judicial like’ functions, ike national courts they conduct hearing issue subpoenas, take evidences form witnesses and sometimes award costs. They are also expected to observe the rules of natural justice. In the same way arbitrators perform their functions within a legal framework of laid down rules embodied in national legal systems. Key words: + The Jurisdictional Theory: According to this theory, Arbitration is based on state sovereignty and their authority to prescribe laws regulating arbitration. + The Contractual Theory: According to this theory parties approach for arbitration have freedom to enter into contracts and this theory emphasis that arbitrator derive their authorities by virtue of the agreement of the parties, under the auspicious of the national legal systems +The Hybrid Theory: This theory is the combination of jurisdictional and contractual theory + The Autonomy Theory: This theory is relatively new and according to this theory that arbitration is based on norms created by merchants and is therefore an independent legal system. Traditionally, the arbitration clause is one of the most neglected clauses, and. while drafting and agreement, is often referred as the "mid night” or “last minute clause.” ‘The approach usually followed is plain drafting, standard wording irrespective of the type of contract or parties involved. This poor dragging leaves loopholes and scope for Assistant Professor in Law, Law College Dehradun, Uttaranchal University, (Persuing Phd from Uttaranchal University, Dehradun, Uttarakhand) Le Ray Bennet, ; International Organization : Principles and issues 3 ed (1991) 99 Fox International Commercial Arbitration 3rd edition (1998) 201 s71 DLR (2013) 58 a dispute over the clause itself and jeopardizes the ability of parties to enforce their rights and resolves disputes amicably. Regularly overlooked parameters of the arbitrations clause include the governing law, selection of atbitrator, seat of arbitration, fees and jurisdiction. The past experiences with Indian courts, growing ‘awareness and the benefits of the alternate means of dispute resolution have been key drivers for companies to focus on drafting a comprehensive arbitration clause. In international trade and commerce, every commercial activity is generally preceded ‘by contract fixing the obligations of the parties to avoid legal disputes. But in this ever changing world of trade and commerce, disputes between parties are investable. No matter how carefully a contract is drafted, one party to the contract may understand his right and obligations in a different way. Often international trade involves traders belonging to different countries whose legal systems may differ in many ways to that of the other, presenting complicated and even conflicting features, ‘The law courts of each country have jurisdiction only within the territorial limits of the concerned country, HISTORICAL JOURNEY OF ARBITATION AS AN ALTERNATIVE DISPUTE RESOLUTION MECANISIMS IN INDIA ‘The first arbitration law in India was the Arbitration Act, 1899 which was based on the English Arbitration Act, thereafter, through schedule IInd of the Code of Civil Procedure" the provisions relating to the law of arbitration were extended to the other parts of British India later based on the English arbitration system , The Arbitration Act’ was enacted in India to consolidate and amend the law relating to arbitration effective from 1 July 1940 which is known as Indian Arbitration Act, 1940. In the line of its progress, the another event has been concluded in its development that when. India became a signatory country to the New York Convention, which was enforced on 7th June 1959. Accordingly The Foreign Awards (Recognition and Enforcement) Act" was enacted by Indian government to give effects the New York Convention. In this Act, there was no provision for challenging the foreign awards on merits similat or identical to the provisions contained in the Indian Atbitration Act, 1940. Thus prior to the enactment of the Indian Arbitration Act, the law of arbitration in India was contained in the Protocol and convention Act 1937, The Indian Arbitration Act, 1940 and the Foreign Awards Act of 1961. Over the period of time, it was generally felt that the arbitration laws in india had failed to keep pace with the developments at the international level. Therefore Arbitration and Conciliation Act, 1996 was enacted with the aim and the objective to give effect to the United Nations Commission on International Trade Law on 21st June 1985 (UNCITRAL)' Model in four parts, which is first part for Arbitration, second is for Enforcement of Foreign Awards, third is for conciliation and for the is for Supplementary provisions. International commercial Arbitration and legal issues When the determination of disputes which is of a commercial nature involving an international element falls within the scope of private law, it gets termed as International Commercial Arbitration. International commercial arbitration is ‘The English Arbitration Act 1899 The Civil Procedure Code. 1908 ‘The Arbitration Act,1940 1961 United Nations Commission on International Trade Law on 21st June 1985INTERNATIONAL COMMERCIAL ARETRATION ‘AND LEGAL ISSUES IN INDIA styled as international, not because sovereign nations participate, but because the parties, the facts, or the legal effects of the dispute extend beyond a single jurisdiction. The expenses, delay and complexity of a court action are normally avoided in the case of arbitration procedure. These problems arises when the parties fails to agree upon a choice of Law and disagreement in procedural aspects of substantive law. Since the opening up of India’s economy, membership of the World Trade Organization (WTO) coupled with near double digit of gross domestic product growth and consequent rapid integration of its economy with the global order, Indian judiciary has increasingly come to deal with diverse commercial issues transnational dimension. India being a signatory of General Agreement on Tariff and Trade, Trade Related aspects of Intellectual Property rights, United Nation Commission on International Trade laws, New York Conventions, Paris Conventions etc.., appropriate amendments have been made in India’s domestic Laws to harmonize them with such International standards, keeping, of course, domestic interest as a prime concern. In the midst of such rapid changes, Indian judiciary, more often than not, finds itself at the crossroad of diverse interests, Faced with the daunting task of interpreting India’s domestic laws in the light of the fast evolving International Legal Standards. International Commercial Law per se does not automatically become a law in India on its own force without any domestic law legislated by the Indian Parliament. Disputed legal issues in International commercial arbitration, these are the major issues which are normally found; International commercial Litigation, International ‘Commercial Arbitrations and Enforcement of foreign Awards and conflict of laws ete. INTERNATIONAL COMMERCIAL ARBITRATION UNDER, THE ARBITRATION AND CONCILIATION ACT, 1996 Following are the specific provisions under The Arbitration and Conciliation, Act, 1996 for International commercial Arbitration relating issues. + Part | of the Act has no application to arbitrations seated outside India intespective of whether parties chose to apply the Arbitration and Conciliation Act, 1996 or not (foreign awards). The grounds to challenge of awards given in Part I (section 34) of the Act are thus applicable only to. domestic awards and not to foreign awards. + The law of the seat or place where law to govern the arbitration is held is normally the arbitration. If the agreement provides for a seat/place outside India, Part I of the Arbitration and Conciliation Act, would be inapplicable to the extent inconsistent with the arbitration law of the seat/place, even if the agreement purports to provide that the Act, shall govern the arbitral proceedings. + Incase domestic awards, Indian laws shall prevail if substantive law conflicts within the laws of India. In case of foreign awards, the conflict of 591 DLR (2013) laws of the country in which the arbitration takes place would have to be applied. + There is no provision under the Civil Procedure Code 1908 or under the Arbitration Conciliation Act, 1996 in arbitrations which take place outside India, even though the Parties by agreement may have made the Act, as the governing law of arbitration. An inter-parte suit simply for interim relief pending arbitration outside India would not be maintainable in India. + The said Act, intentionally limits it to awards made in pursuance of an agreement to which the New York Convention or the Geneva Protocol applies. Thetefore, remedy is provided for the enforcement of the ‘non convention awards’ under the said Act. + Last but most important, these findings of the Apex Court are applicable only to arbitration agreements executed after 6 September 2012, in which the five members constitutional bench of the Indian Supreme court in Bharat Aluminum Co. v. Kaiser Aluminium Technical Service Inc’ after reconsidering its various previous decisions on Indian Arbitration & conciliation Act 1996 concluded that the Act should be interpreted in a manner to give effect to the intent of Indian Parliament. In this land mark judgment, the apex court also took note of the various foreign judgments, and the guidelines on United Nation Commission on International Trade Law (UNCITRAL) which is a Model Law in international trade law, including commentaries thereon of renowned authors, Geneva Convention and New York convention and thereafter reversed its earlier rulings in cases ‘Bhatia International v. Bulk Trading S.A, & Anr’ and Venture Global Engineering v. Satyam computers Services Ltd and Anr” stating that finding in these judgment were incorrect. ‘The regulation of conduct of arbitration and challenge would be done by the courts of the country in which arbitration is conducted, Accordingly, a foreign award can be annulled by the court of the country in which the award was made, ie., the country of the procedural law/curial law (first Alternative) and not before the courts of the country under the law of which the award was made, i.., the country of substantive law (second alternative). It can be challenged in the courts of the second alternative, only if the court of the first alternative had no power to annul the award under its national laws. Leading Indian cases relating to international commercial arbitration ‘The most contested issue on Foreign Judgment in India is the issue of jurisdiction’ ‘The Supreme Court of India and High Courts have taken a pragmatic stand on this issue. In many cases, the defense against enforcement of foreign judgments in India is to question the As in other Jurisdictions, International Commercial Arbitration ~ adhoc as well as institutional is gaining popularity in India as well. Just as most domestic arbitrations in India are adhoc, most International Commercial Arbitrations in India are Institutional thanks to such Arbitration Bodies in India like International Court of Arbitration (ICA), Indian Council for Alternate Dispute Resolution (ICADR) etc The present Indian Arbitration and Conciliation Act, 1996, based on the United. * Givil appeal no. 7019 OF 2005 * 20082) scc 205 * 2008 4) scc 140,INTERNATIONAL COMMERCIAL ARETTRATON ‘AND LEGAL SSUES IN INDIA Nations Commission on International Trade Law (UNCITRAL) model, has elaborate provisions on International Commercial Arbitration — adhoc as well as Institutional arbitration held in or outside India. Under the scheme of the Act, Arbitral Awards are enforceable as if such awards were the orders passed by the Courts in India, The almost '90% finality’ of such Arbitral Awards is reflected in Section 34, which provides very limited technical grounds for challenging Arbitral Awards. Though the Supreme Court of India in ONGC Ltd. v. Saw Pipes Ltd.” has enlarged the scope of Public Policy’ as a ground for challenging Arbitral Awards, the previous Judgment of a larger Bench in Renusagar Power Co. Ltd. v. General Electric Co." would have a prevailing effect and hence, the position of very limited grounds for challenging International Commercial Arbitration Awards remains more ot less unchanged. Apa:t from minimum interference with Arbitral Awards, courts in India have also been passing interim orders to protect the interest of o the parties. In Bhatia International Ltd. v. Bulk Trading, S.A, the Supreme Court of India held that Part I of the” Arbitration and Conciliation Act, 1996, which foreign parties in assets in India. gives effect to the UNCITRAL Model law and which confers power on the Court to grant, interim measures, applied even to Arbitrations held outside India. This case pertains to an Arbitration held as per International Chamber of Commerce (ICC) Rules in Paris and it was during the pendency of such Arbitration proceedings that the foreign party applied to a court in India for interim measure for securing its interest in a property in India. Though the contention of the Indian Party was that New York Convention does not Jeave any scope for grant of interim measure/relief by a Court other than a court of the country in which Arbitration is being held, the Hon'ble High Court as well as the Supreme Court took a contrary view. This is one occasion where the Indian Judiciary has been confronted with interpretation of an International Convention as important as UNCITRAL and it goes to the credit of the Hon'ble Supreme that interim reliefs have been held to be permissible under the said Convention for securing properties in India, even though the place of Arbitration is outside India. Even under the old Arbitration and Conciliation Act, 1940, the Supreme Court of India had an occasion to interpret "what is commercial?” in R.M. Investments V. Boeing Company.” In this Judgment, the Supreme Court took guidance from UNCITRAL in giving a wide meaning to the expression ‘commercial’ so as to include all relationships of a commercial nature, whether contractual or not, for the purpose of International Commercial Arbitration. As regards enforcement, the enforcement procedure applicable to Foreign Judgments is more or less applicable to International Commercial Arbitration Awards, which takes us to the next issue of enforcement of Foreign Judgments in India. Enforcement of Foreign Judgments and Arbitral Awards: Under Sections 13 and 444 of the Civil Procedure Code (“CPC”), Foreign Judgments can be enforced in two different ways, depending on whether the country in which the Foreign Judgment is paseed is located is a ‘Reciprocal Country’ or not. While an order passed by a coutt in a so called reciprocal country can be straightway enforced in India as if the same is a dectee passed by a court in India, an Order passed by a Court in a non reciprocating country can only be enforced by filing a fresh suit on the basis of such an Order. Government of India has notified some countries including ‘Singapore and Hong Kong as ‘Reciprocating Territories’. However, as per Section 13 of the Civil Procedure Code, 1908, all Foreign Judgments, to be enforceable, should * (2003)5 SCC 705 © 1994 Supp () SCC 644 (2002) 4 SCC 105 “AIR 1994 SC 1136 —— él1 DLR (2013) 2 have been pronounced by a court of competent jurisdiction on merit, should not be violative of natural justice, should net have been obtained by fraud, should not sustain a claim founded on a breach of a law in force in India and should not have been passed by refusing to recognize the law of India in cases such law is applicable. ‘More importantly, a Foreign Judgment which is founded on an incorrect view of International Law is not enforceable in India. ‘The most contested issue on Foreign Judgment in India is the issue of Jurisdiction’ The Supreme Court of India and High Courts have taken a pragmatic stand on this issue. In many cases, the defense against enforcement of Foreign Judgments in India is to question the Foreign Court's jurisdiction on the ground that the Party has not submitted itself to the jurisdiction of the Foreign Court. In Andhra Bank Itd. v. R. Srinivasan”, a Suit was filed against a guarantor in a foreign jurisdiction but during the pendency of the proceedings, the guarantor/defendant died and the legal representatives of the Guarantor were brought on record. After the decree was sought to be executed, the defence of the legal Representatives was that they had not submitted to the jurisdiction of the Foreign Court. However, the Supreme Court of India held that the material time when the test of the rule of Private International Law is to be epplied is the time at which the Suit was instituted. In Shaling Ram v. Firm Daulatram Kundenmal™, the Supreme Court held that filing of an Application for leave to defend a suit in a foreign court amounts to voluntary submission to the jurisdiction of the Foreign Court, In fact, way back in 1914, in Ramanathan Chettiar v. Kalimuthu Pillai”, the Madras High Court stipulated the circumstances in which a Party to a dispute can be said to have submitted himself to the jurisdiction of a Foreign Court Judgment:( a). Where the Party is a subject of the Foreign Country in which Judgments have been obtained against him on prior occasions. (b). Where the Party is a resident of the foreign country at the time of the commencement of Court action (c). Where the Party has selected the Foreign Court/Jurisdiction as the foram for taking logal action in the capacity of a Plaintiff, in which forum he is sued later (d).Where the Party on summons has voluntarily appeared before the Foreign Court. (e). Where by an Agreement a person has contracted to submit himself to the forum in which the Judgment is obtained, ‘The above principles are more ot less still followed for determining jurisdiction of Foreign Courts, Apart from the Jurisdiction’ aspect, it is also required that a Foreign Judgment, to be enforceable, should have been passed on merit and after appreciating all the relevant facts and circumstances. In Abdul Rahman v. Mohd. Ali Rowther", the full Bench of the Hon'ble Supreme Court observed as under: A decision on the merits involves the application of the mind of the Court to the truth or falsity of the plaintiff's case and therefore though a judgment passed after a judicial consideration of the matter by taking evidence may be a decision on the merits even though passed ex parte, decision passed without evidence of any kind but passed only on his pleadings cannot be held to be a decision on the merits.’ This full Judgment still holds the field, followed later in International Woollen Millsy v. Standard Wool (U. K.)" Limited in which the Supreme Court of India did not accept the view that a decree passed in the absence of the defendant is a decree on merits or * AIR, 1962 SC 232 AIR 1967 SC 739 » AIR 1914 Madras $56 1928 AIR(Rang) 319: ILR 6 Rang 552, 2001 (5) SCC 265, ®