Chapter-5

International Commercial Arbitration Quo Indian

Municipal Law

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INTERNATIONAL COMMERCIAL ARBITRATION QUO

INDIAN MUNICIPAL LAW

When parties agree that a dispute shall be determined by arbitration, they cut

themselves off from recourse to the courts of law. They have agreed to a private

method of dispute resolution and they will be held to this agreement by the courts of

law, both nationally and internationally, in accordance with national legislation and

with international tre

decision of one or more persons, either with or without an umpire, of some matter or 1 Sarcastically, according to Mr. Bhupender

Shah,2

parties involved in the disputes refer them to a peer who is supposed to be a person of

nobility having capability to resolve the disputes.

The practice of international arbitration has developed so as to allow parties

from different legal and cultural backgrounds to resolve their disputes, generally

without the formalities of their underlying legal systems. The principal characteristic

of arbitration is that it is chosen by the parties. Party autonomy,3as the principle is

called, is the power given to the parties wherein they can determine the form,

structure, system and other details of the arbitration.

Arbitration can be either, voluntary, mandatory, binding or non-binding. Non-

binding arbitration is synonymous to mediation. However, under mediation, the

mediator helps the parties to find an amicable solution whereas under the non-binding

arbitration, the arbitrator remains aloof to the settlement process and only determines

rights and liabilities.

International commercial arbitration is not limited to national boundaries. To

the contrary, it surpasses them. For example, a corporate based in India might enter

into a contract with another corporate based in China, for the construction of a power

plant in Africa, with any disputes being resolved by arbitration in New York.

1 at 916. The definition could apply to other forms of dispute resolution. The problems of defining arbitration are discussed in Mustill and Boyd, Commercial Arbitraiton (2nd Edn.), pp. 38, 50. 2 He is a Member of ICAI and Indian Council of Arbitration besides being on panel of arbitrators of FICCI and Bombay Stock Exchange. 3 See The Concept of Party Autonomy.

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agreed by the parties are different from those at the suits, from those at the place of

principal or characteristic performance and in turn, from those at the place or places 1 Thus, in practicality, international commercial arbitration

might require as many as four distinct set of laws. First, there is the law that governs

recognition and enforcement of the agreement to arbitrate. Secondly, there is the law

that governs the procedure of arbitration proceedings. Thirdly, there is the law that the

arbitral tribunal has to apply in substance to the dispute. Fourthly, there is the law that

governs recognition and enforcement of the award given by the arbitral tribunal.

In international transactions, parties may face many different choices when it

comes to including a mechanism for resolving disputes arising under their contract. If

they are silent, they will be subject to the courts of wherever the aggrieved party

decides to initiate legal proceedings and believes it can obtain jurisdiction over the

other party. The alternative to such silence is to expressly mention a method of

binding dispute resolution, which can be arbitration, mediation, conciliation or

litigation. If the parties choose to resolve their disputes in the courts, however, they

may encounter numerous difficulties. The first is that they may be confined to

choosing on

invitation to devote their resources to decide a dispute that does not involve any of

more signific

difficult and sometimes impossible to enforce a court decision in a country other than

the one in which it was rendered.

The domestic laws may not necessarily expatiate the applicable or substantive

law of the contract. Such combination of applicable and substantive laws governing

the commercial arbitration may be derived from an assembly of International law,

combination of national law and international law, collection of rules of law known as

mercatoria) or by some other convenient title.2 Almost all the international

not that

1 2003, Vol. 4, No.2, p. 239. 2 The different systems or rules of law which may constitute the substantive law of an international commercial contract are discussed in Chapter 4.

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of the parties. It has also been observed that, the system of law which governs

recognition and enforcement of the award of the arbitral tribunal is usually different

from the law which governs the arbitral proceedings.

Initially, the need to dis

arbitration was not felt throughout the world. The need for such distinction arised only

when, the Domestic Courts of various States caught up with the practice of arbitration

and enforcement of arbitral aw

domestic and international arbitrations differently. The rationale for this is that these

countries consider that their national courts should have greater supervisory control

over domestic arbitrations, where there is an international element and then there is no

longer a necessity for such supervision. For example, Russian (Federal) Law on

International Commercial Arbitration, 1993 is based on the UNCITRAL Model Law

whereas its domestic law is considerably different.

whether the dispute is domestic or international in nature. Usually, States choose an

amalgamation of different criteria. A substantial number of countries, while so

determining, look solely at whether the arbitration is taking place outside of their

s territory,

it will be considered as being international or transnational. Therefore, it is concluded

that the seat of the arbitration may determines the status.

same may be a relevant consideration in determining whether a

1 the Supreme Court of

made in London was a domestic Indian award because

the parties had agreed under the contract that the arbitration proceedings were to be

governed by the Indian Arbitration Act read In conjunction with the relevant

Pakistan has followed suit in the case of

.2

1 AIR 1987 SC 674: (1987) 1 SCC 496: 1986 (1) SCJ 440: 1987 (1) Supreme 343. 2 See, Hitachi Ltd. and Mitsui & Co. Deutschland v. Rupali Polyester, (2000) XXV Ybk Comm Arbn 486.

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1.

The approach taken in article 1(3) of the UNCITRAL (Model Law) provides a

definition of when arbitration is considered international in nature. It states that,

of that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties

have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the

arbitration agreement:

(ii) any place where a substantial part of the obligations of the

commercial relationship is to be performed or the place with which the

subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject-matter of the arbitration

The enforceability or the challenge of an arbitral award also rests on the fact

that whether the arbitration is domestic or international. Many countries apply

different laws to domestic and international arbitration. The international or domestic

character of commercial arbitration is not to be confused with the domestic or foreign

character of awards for which different regimes for their enforcement exists.1

The for most distinction between Model Law and the 1996 is that the 1996 Act

focuses more on the status of the parties rather than the place of performance of the

contract, which is an emphasis on form rather than substance.2 For example, under the

1996 Act definition, any contract between an Indian national and a foreign national or

a non-resident Indian habitually resident abroad, automatically is considered

and subject to international arbitration standards regardless of whether

the transaction was local in nature. By the same token, a foreign company in India

would not be subject to international arbitration under the 1996 Act whose

is exercised within India. Therefore, by focusing on the

1 Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration, Kluwer Law International, 2003, at p. 58. 2

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international commercial transactions and the forum connected to that commercial

transaction. As a result, there emerge

arbitrations will be categorized inappropriately thereby gravely aggrieving parties

who wish to arbitrate under international arbitration rules. In this regard, the

UNCITRAL Model Law should be correctly followed by incorporating focus on the

1

Recently, in TDM Infrastructure Pvt. Ltd. v. U.E. Development India Pvt.

Ltd.2 the Supreme Court was called upon

of a Malaysian company brought arbitration against another wholly owned subsidiary

of a Malaysian company. The petitioner contented that all its shareholders and

directors are Malaysians. Also that all meetings of the Board of Directors take place

in Malaysia except for one meeting, which was statutorily required to take place at the

registered office in India. The petitioner claimed that though both the companies are

incorporated in India, the central management and control is exercised in a foreign

Justice S.B. Sinha, rejected this contention and held that if both companies are

incorporated in India then the arbitration between them would necessarily be a

domestic arbitration irrespective of the foreign control and management. The court

rested its d

companies, i.e., companies incorporated in India can only opt for Indian Law as the

governing law of the contract. If arbitration between them is held to be an

3

2.

A commercial contract can be defined as any kind of contract between

merchants or traders in the ordinary course of their business. Universally such

contracts are governed by a particular code of commercial law apart from the usual 1 Reality of the parties in terms of their business operations, assest, liabilities and the underlying dispute. 2 2008 (8) SCALE 576. 3 For detailed reference see: Chapter 9: Public Policy:- A Threat To International Commercial Arbitration In India.

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law of obligations. In many civil law countries arbitral institutions are related with a

Chamber of Commerce, such as the International Chamber of Commerce in Paris, the

Geneva and Zurich Chambers of Commerce and the Stockholm Chamber of

Commerce etc.

The Geneva Protocol of 1923 obliged each contracting State to recognize the

validity of an arbitration agreement concerning disputes that might arise from a

tracting State may limit its 1

the same also appears in the New York Convention.2 While gauging the true meaning

provided by the relevant domestic law.

2.1

Under the 1996 Act, International disputes that fall outside the definition of

definition would lead to hindrance in enforcement of foreign awards and very broad a

definition wrests from State control important State objectives.

Both the Model Law and 1996 Act take similar approaches but are slightly

commercial under t

to impart discretion to the j

whether subconscious or not. Thereby empowering the courts to narrow or broaden

the definition.

Until that time, the courts made a distinction between a contract for the

transfer of services and a contract for the sale of goods, of which only the latter was

1 Geneva Protocol of 1923, article 1. 2 New York Convention article 1.3.

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1 For instance, a contract for mechanical assistance

does not involve the direct chipping in of capital profits between the parties and is

3. -Meaning

The UNCITRAL model law is based on resolution of commercial disputes in

international trade or transactions; therefore it is only such disputes that can be taken

up in the ambit of statutory laws as enacted by States, so as to ratify the UNCITRAL

model law. Usually, the States under their domestic laws permit arbitration of

commercial disputes only. It is essential to mention here that existence of a

of an arbitral award under the

New York Convention, where a country has entered into a commercial reservation.2

overemphasized.

3.1

The Indian Arbitration and Conciliation Act, 1996 does not expressly define

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 an

individual who is a national of, or habitually resident in, any country other than India;

or a body corporate which is incorporated in any country other than India; or A

company or an association or a body of individuals whose central management and

control is exercised in any country other than India; or the Government of a foreign

and section 2(2), applies to both domestic and international commercial arbitration,

where the place of arbitration is in India, where at least one party is foreign national

1 See e.g. Societe de Traction et d v. Kamani Engineering Company Ltd., AIR 1964 (3) SCR 116: 1963 (2) SCJ 509, where the court stated that a contract for technical assistance, where there was no participation of profits between the parties was not

2 Of the 144 countries which have ratified the New York Convention; more than 42 have entered a commercial reservation (see http://www.uncitra.org/en-index.hun for a list of these counties.)

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or resident of foreign country body corporate incorporated in a country other than

India or a company association or a body of individuals whose central management

and control exercised in any country other than India or Government of a foreign

country.

4. Laws Governing Arbitration

The arbitration agreement is a contract and like all contracts, it is a piece of

private law which def 1

The law governing the arbitral procedure will not necessarily be that

governing the merits of the dispute2. The law governing the contract might be

different from the law governing the arbitration agreement or the law governing the

procedure. Even if the said contract is void ab initio, the arbitration agreement therein

would be valid.

An international commercial arbitration is usually conducted in a neutral

country, meaning thereby that all the parties to the arbitration do not have a place of

business, residence or registration in that particular country. This therefore is

indicative of the fact that in practice, the law of the country in whose territory the

arbitration takes place, will be most likely to differ from the law that governs the

substantive issues. For instance, an arbitral tribunal with its seat in New York, may be

required to decide the substantive issues in dispute between the parties in accordance

with the laws of India nor some other law, as the case may be. The difference between

the lex arbitri and the law governing the substance of the dispute was earlier part of

the juridical tradition of continental Europe, but it now firmly established in

international commercial arbitration.3

external to the arbitration agreement, and the wishes of the parties, for the conduct of

the arbitration. The law governing the arbitration comprises the rules governing

interim measures (e.g., court orders for the preservation or storage of goods). The

1 2 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillar & J. Savage (Edns.), Kluwer Law International, 1999), p. 634. 3 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (Edns.), Kluwer Law International, 1999), (1428); recognition of this principle in English law may be seen in Compagnie Tunisienne de Navigation SA v. Compagnied Armament Maritime SA, (1971) AC 572 (604).

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rules empowering the exercise by the court of supportive measures to assist an

arbitration which has run into difficulties (e.g., filling a vacancy in the composition of

the arbitral tribunal if there is no other mechanism) and the rules providing for the

exercise by the court of its supervisory jurisdiction over arbitrations (e.g., removing 1

or law will govern the conduct

of arbitration in their sovereign territory. One of the key principles of international

commercial arbitration is that of party autonomy,2 in which the parties can decide

themselves as to what set of laws or rules are applicable to the entire process of

arbitration, whether it is procedural or substantive. The general practice of the parties

is to decide beforehand, both the procedural and substantive laws, as applicable to the

3. This principle of party autonomy is not absolute.4 Agreements made by

the parties that conflict with any mandatory laws applicable at the seat of arbitration

would untenable.

4.1 The Law Applicable to the Arbitration Agreement

In international commercial arbitration process, it has been globally accepted,

that the arbitration clause in a contract is separate from the underlying contract and

therefore the law applicable therein would not necessarily govern the arbitration

agreement.5

In practice, most modern arbitration legislation allows the parties to choose the

law which would govern the arbitration agreement.6 If an arbitral tribunal fails to

comply with the express or implicit choice of procedural law made by the parties, it

commits a gross irregularity in the conduct the arbitration. In this regards, article V(I)

(d) of the New York Convention, 1958 provides that the court may refuse to enforce

an award where the arbitral procedure was not in accordance with the agreement of

the parties.

1 2 Bay Hotel & Resort Ltd. v. Cavalier Construction Co. Ltd., (2001) UKPC 34, 16 July, 2001. 3 Diagnostica Inc v. Centerchem Inch, (1998) New Sought Wales Law Review 312-42: (1999) XXIV a Ybk Comm Arbn 574-90; 26 March, 1998, Supreme Court, New South Wales. 4 See Chapter 4.3.3. 5 See Separability. Chapter 5.2. 6 See for example the English Arbitration Act, 1996, section 4 and the Rome Convention, article 1,3 and 7. Indian Arbitration Act however does not allow the parties to decide the procedural law governing the arbitration.

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If there is no express provision as to the law applicable to the arbitration

agreement, then the applicable law has to be implied. Now, if there is no express or

implied assertion of the choice of the parties regarding the applicable procedural law,

then there are different methods by which the applicable law could be established.

According to UNCITRAL Model Law, the applicable law is to be determined by the

law of the seat of the arbitration.1it could also determined by applying the conflict of

law rules so as to establish which law has the closest connection to the arbitration

agreement.2 In some cases, if the parties have not selected an applicable procedural

law, then one of the likely choices to be implied upon, might be the substantive law

agreed by the parties to govern their arbitration.3 The disputed agreement could also

be governed by the legal system with which it has the closest connection.4 The issue

can also be decided by applying autonomous legal principles.

requires choosing between two principal alternatives the substantive law of the

contract or the law of the place where the arbitration has its seat 5

Any country wishing to modernize its arbitration law should ratify the

UNCITRAL Model Law. The Model law expressly provides:

procedure to be followed by the arbitral tribunal in conducting the proceedings.

(2) Failing such agreement, the arbitral tribunal may, subject to the provisions

of this Law, conduct the arbitration in such manner as it considers appropriate. The

power conferred upon the arbitral tribunal includes the power to determine the

admissibility, relevance, materiality and weight of any evidence.6

4.2 According to some commentators the lex arbitri might extend to:- 1 Article 34 of the UNCITRAL Model Law states that a ground for setting aside an award is that the arbitration agreement is not

2 ICC Award No. 5717 (1988) ICC Ct. Bull 22. 3 Gary Born, International Commercial Arbitration: Commentary and Materials, Kluwer Law International, 2001, 2nd Edn., p. 430. 4 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (Edns.), Kluwer Law International, 1999), p. 222. 5 Gary Born, International Commercial Arbitration: Commentary and Materials, 2nd Edn. Transnational Publisher Inc and Kluwer Law International, 2001), p. 111. 6 Article 19 of the Model Law.

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The definition and form of an agreement to arbitrate:

whether a dispute is capable of being referred to arbitration (that is to say

The entitlement of the arbitral tribunal to rule on its own jurisdiction;

Equal treatment of the parties;

The constitution of the arbitral tribunal and any grounds for challenge of

that tribunal.

Statements of claim and defence;

Freedom to agree upon detailed rules of procedure;

Interim measures of protection;

Court assistance if required;

Hearings;

Default proceedings;

The form and validity of the arbitration award and the finality of the award

including any right to challenge it in the courts of the place of arbitration.1

4.3 Choice of Procedural Law made by the Arbitral Tribunal Arbitral Institution

A most modern arbitration rule provides that an arbitral institution arbitral

tribunal has a discretionary power to choose the procedural law in case there is no

indication of the same by the parties themselves.

agree on the procedure to be followed by the arbitral tribu

agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the

considerable amount of freedom so as to choose a specific procedural law which

would govern the arbitration in cases where the parties have not done so. 1 Allan Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration, 4th Edn., Sweet and Maxwell, 2004, p. 81.

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In ICC Award No. 1512 (1971)1, it was held that the arbitral tribunal has a

broad discretion in procedural matters. The tribunal also stated that there were some

obvious limits to this discretion which were related to the duty of the tribunal to

comply with the fundamental general principles of procedure and not due to a specific

national law. In the case of Texaco Overseas Petroleum Co. California Asiatic Oil Co.

v. Government of the Libyan Arab Republic,2 the arbitral tribunal had applied the

general rules of international law and not the law of the seat.

The arbitrators can choose a particular national law, add or combine several

arbitration rules and national laws, select a specific arbitration rules or a law of

reference so as to decide on a procedural law to govern arbitration.

However, this discretion of the arbitrators should be well-exercised.

Arbitrators should as far as possible should be able to ensure international

effectiveness of the award by complying with the principles, if breached would lead to

the refusal of enforcement of the award in all likely jurisdiction, with regard to a

particular case, where likely attempts would be made to enforce the award.3

5.

upon the validity of the arbitration agreement on the basis of some national law but

determine its validity on the basis of general principles applicable to international

arbitration and the intention of the parties. The preliminary award in the case of Dow

Chemical v. Isover Saint Gobain,4 is a case in question. The contract was to be

governed by the French law and arbitration agreement was to be governed under ICC

Rules. According to the Tribunal, the arbitrator should determine the scope and

effects of the arbitration agreement and then reach his decision regarding jurisdiction

with reference to the common intention of the parties, as it appears from the

circumstances that surrounded the conclusion and characterized the performance and,

later, the termination of the contracts in which they appeared. In doing so, the

1 Indian Cement Company v. Pakistani Bank, I.Y.B. COM. ARB. 128 (1976). 2 17 ILM (1978). 3 Arbitrators should be mindful of the procedural principles of public policy which would justify in refusal of enforcement of awards. See also ICC Award No. 2879 (1978). 4 Interim Award in ICC case no. 4131 of 1982, Dow Chemical France et al v. Isover Saint Gobain, IX YBCA 131 (1984)).

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arbitrator can take into account usages conforming to the needs of international

commerce, in particular, the presence of a group of companies.

In the final award in ICC Case no. of 8938 of 19961, it was held that the

account the mandatory rules of national law and international public policy with

regard to common intention of the parties without referring to the national law.

As arbitrators belong to a no national legal order, they have no institutional

reason to give precedence to the choice of law rules or substantive provisions of any

of the legal systems connected to the dispute. In absence of any indication in by the

parties on the point the approach most consistent with the role of the arbitrators is to

apply what they consider to be the fundamental requirements of justice. These can be

determined on the basis of comparative law and international arbitral case law,

leaving aside the idiosyncrasies of domestic laws.2

5.1 The Choice of Substantive Law

Law of the arbitration agreement can also be linked to the applicable law of

the contract. When there is no express choice of law to govern the arbitration

agreement, there will be a very strong presumption that the law applicable to the

arbitration agreement will be the law applicable to the substantive agreement.3 In ICC

Award in Case No. 26264

that the choice of law applicable to the principal contract also tacitly governs the 5

There is a strong reason for as to apply the same law to the arbitration

agreement as to the rest of the contract. For example, statutory time bars would apply

in the jurisdiction where the seat of the arbitration is located but there may be no such

thing according to the law to which the main contract is subjected to. If a claim was

1 XXIVa Y.B. Comm. Arb. 174, 176 (1999). 2 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (Edns.), Kluwer Law International, 1999 , p. 234. 3 Tonicstar Ltd. v American Home Assurance Co., (2004) EWHC 1234 (Comthe applicable law of the arbitration agreement is different from the applicable law of the reinsurance contract into which it has

4 S Jarvin and Y Derains, Collection of ICC Arbitral Awards 1974-1985 (1990) 316. 5 See Hitachi Ltd and Mitsui & Co. v. Rupali Polyester, (2000) XXV Ybk Comm Arbn 486.

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time barred when the arbitration commenced, but not according to the law applicable 1

Both ICC Case No. 50292 and ICC Case No. 55053 were illustrative of that

fact that the procedural law in an international commercial arbitration should be same

as to by the parties to govern their underlying contractual relationship.4

In the case of Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (India)5, the

issue of which law governs the arbitration agreement was considered. The case

involved a contract for the installation of an oil platform. Clause 17.1 of the contract

provided for ICC arbitration in London by two arbitrators and an umpire. The Indian

Supreme Court held that where the parties had made an express choice of Indian Law,

as the proper law of the contract then it would follow that the proper law of the

arbitration agreement is also Indian law, since the arbitration agreement is part of the

substance of the underlying contract and the terms of clause 17.1 are clear in that

respect.

5.2 The Law of Place of Performance of the Contract

The place of performance of the contract and its law is also a determining

factor for as to which law is to be applicable to the arbitration agreement. If the law of

the place of performance of the contract is also the law of the seat of the arbitration, or

the law to be applicable to the merits of the dispute, then this might add weight to that

law being the law governing the arbitration agreement.6

5.3 Delocalized Theory

The delocalized theory considers that the arbitration will be considered to be

delocalized from the seat of the arbitration. Most civil law jurisdiction agrees to the

1 -7. 2 ICC case no. 5029 (1986) (Interim Award), (1987) YBCA Vol. XII 113. 3 ICC case no. 5505 of 1987, XIII YBCA 110 (1988) 116. 4 Judgment No. 1996/627 of 1 February 1996 XXII Y.B. Arb Comm. Arb. 807 (Turkish court of Appeals, 15 th Legal Division 1996). See also Gary Born, International Commercial Arbitration: Commentary and Materials (2nd Edn., Transitional Publisher Inc and Kluwer Law International, 2001), p. 431. 5 (1998) 1 SCC 305: AIR 1998 SC 825: 1998 AIR SCW 556: 1998 (1) SCJ 233. 6 Andrew Tweeddale and Keren Tweeddale, Arbitration of Commercial Disputes International and English Law and Practice, Oxford University Press, 2007 Edn., p. 221.

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same.1 The rationale behind this is that an international commercial arbitration has no

forum.2 The arbitral procedure is, therefore, delocalized from the territory in which it

takes places.

Most modern arbitration legislations restrict the involvement of national courts

in arbitration. Article 5 of the UNCITRAL Model law states:

Commentators from both common law and civil law countries agree that there

process. One of the underlying principles of delocalized arbitrations is that the award

is detached from the seat of the arbitration. The detached nature of the arbitral

proceedings was considered in the Gotaverken case.3 The facts of the case were that

Gotaveken for three oil tankers. The arbitration clause provided expressly for

arbitration to take place in Pairs under the rules of conciliation and Arbitration of the

ICC in force at the time of the award. The arbitral tribunal awarded in favour of

Gotaverken. The Libyan GMT sought to set aside the award on a number of grounds

before the Cour

chosen only in order to assure their neutrality, is not significant; it may not be

subsidiary, to the loi procedureale francaise.4

However, common law and civil law commentators disagree on the success of

the delocalized theory. Redfern and Hunter describe the concept of delocalized 5. In

1 For example France, the Netherlands, Portugal, Switzerland, Egypt, and Algiers. 2 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (eds), Kluwer Law International, 1999 at para 1181. 3 Gotaverken Arendal AB v. Libyan General maritime Transport Co., (1980) JDI 660. 4 This decision must now be doubted. Article 1505 of the New Code of Civil Procedure (NCCP) 1981 makes every award rendered in France subject to setting aside proceedings there, thus partially reversing the Gotaverken case. The Gotaverken case has not, however, been overruled on the question of what constitutes an international award. 5 Allan Redfern and Martin hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration, 4th Edn., Sweet and Maxwell, 2004, p. 89.

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contrast, Fouchard, Gaillard and Goldman refer to the principle as on1

6. The Law Applicable to the Substance

After the questions regarding the procedure to be followed while conducting

the arbitration proceedings have been settled, it is the duty of the arbitral tribunal to

establish the material facts of the dispute and decide therein. For that, the arbitrators

should apply the law which relates to the substance of the dispute.

6.1 The Concept of Party Autonomy

In practice, the parties to an arbitration themselves decide on the law which

would be applicable to the substance of the dispute. The principle of Party Autonomy

in one of the major principles of International Commercial Arbitration and lies at the

very root of the benefit of choice of law in arbitration.

The arbitration tribunal derives its powers from the agreement of the parties

and if the parties have chosen a specific substantial law, then the arbitral tribunal is

bound to apply them to the merits of disputes. International conventions and the

model rules on international commercial arbitrations also state herein that the parties

are free to choose for themselves the law applicable to their contract to adjudicate

disputes.

Article 33 of the UNCITRAL Rules state:

app 2

The ICC Rules provides:

3

LCIA Indian Arbitral Rules, 2010, provides:

1 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (eds), Kluwer Law International, 1999 at para 1178. 2 UNCITRAL Arbitration Rules, 1972, article 33.1. 3 ICC Arbitration Rules, article 17.1.

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law(s) or rules of law chosen by the parties as applicable to the merits of their 1

Most modern arbitration laws recognize the principle of party autonomy

wherein the parties are free to determine the substantive law which would help in the

adjudication of disputes.2 Party autonomy provides contracting parties with a

mechanism of avoiding the application of an unfavorable or inappropriate law to an

international dispute. This choice is binding on the arbitration tribunal. This is also

confirmed in most arbitration rules.3

The principle of autonomy of the parties to choose the law applicable to their

conduct of arbitration in case of a dispute between them is a cornerstone of modern

arbitral practice. In ICC Award No. 15124, it was held:

according to which the law governing the contract is that which has been chosen by

the parties, whether expressly or (with certain differences or variations according to

the various systems) tacitly. The differences which may be observed here between

different national systems relate only to the p

choose the applicable law or to certain special questions or to modalities, but not to 5.

The rule of party autonomy may be dependent upon the public policy of a

State. For example, the Rome Convention, states that the mandatory rules of a country

to which has the closes connection with the contract does not allow the choice of a

foreign law to override them. Thus, the national law can determine the conditions and

limits within the rule of party autonomy can be exercised.

In international commercial agreements, I is common for the parties to

themselves choose a substantive law which would govern their disputes, as it provides

1 Article 22.2. 2 See Model law article 28; section 28(b)(i), France NCPC, article 1496; Germany, ZPO section 1051(I); England, Arbitration Act section 46(i). 3 Jlian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law International, 2003 413 (415). See also AAA ICDR article 28(I); LCIA article 22(3); DIS section 23(I) CCI of the Russian Federation, section 13(I); NAI, article 46; Stockholm Institute article 24(I); Vienna article 16(I); WIPO article 59(I). 4 (1980) V Ybk Comm Arbn 171. 5 See S Jarvin and Y Derains, Collection of ICC Arbitral Award 1974-1985 (1990), 210.

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a degree of certainty and uniformity. The parties usually try to regulate or enunciate a

mechanism for regulation of all or most of the issues between so as to avoid

uncertainty in future. A clear cut choice of the applicable substantive law removes all

possible confusion regarding the adjudication of the dispute through arbitration and

thereby allowing the parties to decide and control themselves with regard to the scope

the contract and its interpretation. Another reason for deciding the substantial law

beforehand is to avoid the risk of unanticipated decisions by the arbitrators.

Now this choice of applicable law or rules could be express or implied. It

would be called as express either if it is written in the contract or mentioned in the

written or oral arguments in the arbitration proceedings. The choice of law would be

in words or acts leading to a particular law which would govern their relationship.

The choice of the parties, whether express or implied, must be established with

reasonable amount of certainty by the terms of the contract or by the circumstances of

the case.1

There was a presumption of a number of years that by choosing a particular

place of arbitration it was implied that the law of that place would govern the

substantive issues of that dispute. Though there are number of cases where national

courts2 and arbitration tribunals3 have held that the place of arbitration is an implied

choice of the law of that place, this presumption is no longer an absolute certainty. It

is considered now as, a mere connecting factor which may be of relevance in the

particular circumstances of the case. For instance in ICC Case No.2735, wherein an

award was made in Pairs, the arbitrators held that the applicable law could be implied

from the seat of arbitration4. However, in a 1988 ICC award, made in London, the

tribunal held that the choice of England as the place of arbitration and English as the

that English law

should apply to the contract.5

1 Award in ICC Case No. 5865, Panamanian company v. Finnish company, 125 Clunet 1008 (1998). In this case a general

2 15 November 1994, Slovenian Company v. Agent (Germany), RIW 681 (1995), XXII YBCA 707 (1997). 3 See Friendly Arbitration (Hamburg) award, 29 December 1998, XXIV a YBCA 13 (1999). 4 ICC Case No. 2735, 104 Clunet 947 (1977). 5 ICC Case No. 7177 (1993) 7(I) ICC Bulletin 89 (1996).

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There might be a case where the parties have not chosen a specific substantive

law but they are arguing their case on a specific law. In ICC Case No. 1434, it was

held that there was an implied choice of law, as both the parties arguing a case on a

specific system of law.1 Usually the choice of applicable law made by the parties in

the agreement or the arbitration clause is understood as the choice of substantial law.2

Any designation of the law of legal system of a given State shall be construed, unless

otherwise expressed, as directly referring to the substantive law of the State and not to

its conflict of laws rules.3

6.2 Choice of Different Systems for the Applicable Law

Now that the parties are already given a free choice, an important question

arises, as to what system of law should be chosen which would govern the substantive

matters of the dispute? The parties can expressly or by implication choose a national

law which would govern the dispute. Alternatively, the parties may agree that the

arbitral tribunal should apply other considerations. Modern arbitration legislation now

mostly allows the arbitral tribunal to act as amiable compositeurs or to apply

transnational laws. The question as to whether the parties can choose to have their

dispute decided other than by a municipal law is to be answered by keeping mind the

lex arbitri or the law which governs the arbitration agreement.

These choices include:

National law

Concurrent or Several laws (and combined laws-the tronc commun

doctrine);

Public International Law (including the general principles of law)

Transnational law (including international development law; the lex

mercatoria; codified terms and practices; and trade usage);

Equity and good conscience.4

1 Multinational Group A v. State B, 103 Clunet 978 (1976). 2 Partial award in ICC Case No. 5073 (1986), XIII YBCA 53 (1988). 3 Article 28, Model Law; Stockholm Chamber of Commerce Rules, article 24(2), England Arbitration Act, section 46(2). 4 Allann Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration, 4th Edition, Sweet and Maxwell, 2004, p .97.

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7. National Law

Generally in an international commercial arbitration, it is already mentioned in

the contract, as to what system of law is to be applicable to the contract. This is by

and large a national law. The advantage of a national law lies in the fact that it is not

mere set of general principles or an isolated system of laws but an autonomous,

independent and a complete legal system which could answer any question with

regard to the legal system, already being applied an interpreted by the Courts.1

This national system of law provides the parties with a known legal standard,

against which the rights and responsibilities could be considered. In this case, as and

when a dispute arises, it would be much easier and less complicated for the parties as

they would have greater confidence of their legal position and would have a fair

inkling with respect to the result of the dispute. For instance, parties to a dispute being

heard in France agree that the arbitral tribunal shall apply the law of England then all

concerned parties, advisers and arbitrators would know where they stand.

Almost all arbitral institutions, such as ICC and LCIA while recommending

the arbitral clause, point out that the parties should, in their arbitration clause, add a

could be due to the connection of the law with the parties or the parties prefer the said

freight contracts usually have a choice of English law and major reinsurance contracts

contain a choice of the law of New York.

It can be argued that every national system of law should be ideal for

arbitration. However, the world is not ideal and in reality, some national system of

law would have outdated laws which would not be suitable for arbitration. For

example, a national law which does not really allow a free reign with respect to goods

and services, across the borders or major restrictions on foreign trade is not a suitable

law to govern international commercial contracts and its disputes.

Thus, it is imperative that the parties to an international commercial contract,

choose a given system of law which would govern their contractual relationships,

1 This includes not only the law of a country that is for example India but also the law of a State in a federal system like U.S.A.

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with due consideration as the determination in itself would resolve many issues. Due

to this reason, the tribunal, usually, decides the applicable law as an interim issue.

It is important to note that the national law herein includes and encompasses

all rules of law, statues, case laws, scholarly writing and customs which are present.

considered as and when parties agree to arbitrate in that particular state.1 This can be

explained by the fact that when a party expressly chooses the law of a particular

country so as to determine the merits of the dispute, would frustrate the purpose if the

the law of another country.

8. Concurrent or Several Laws

Application of Several Laws of Standards

It has become a sort of practice where the arbitrators apply or choose different

laws as to govern different aspects of a commercial relationship between the parties

rather than apply one national law. The parties might choose one law which would

govern the overall content and another law dealing with certain aspects of

performance.

The application of several laws in international commercial arbitrations has

been upheld by a resolution of the International Law Institute, adopted in Athens in

1979, particularly for contracts between a State and a foreign private person.2 Various

arbitration rules also refer to the applicable laws in plural form3 as well as by the

Model law agree to the application of several laws.

In the Aramaco arbitration4 the selection of separate laws was allowed as the

tribunal held:

governed by a single law, the tribunal can justifiably split the contract into parts, to be

governed by several laws.

1 UNCITRAL Model Law, article 28.1 2 Institute de Droit International, Table of Adopted Resolutions (1957-1991). See also Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law International, 2003, p. 418 3 AAA ICDR article 28(I); LCIA, article 22(3); SCC Rules, article 24. 4 Model Law, article 28.

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9.

Now the parties can also select public international law, or alternatively the

general principles of law in their choice of law clause as the law which would govern

their contractual relationship. The applicable law clause may designate a national

country X and the relevant

similar formula. There is no inherent reason as to why the individual should not be

able directly to invoke international law and be the beneficiary of international law.1

General principles of law are seen in many choice of law clauses, whether they

are isolated or is in conjunction with any state law or forming a part of international

trade law. The Washington Convention of 1965 makes a reference to both the national

law (law of the contracting State which is party to the dispute) and the principles of

international law. Article 42 of the Convention states that in case of any express

choice of the parties, an ICSID tribunal shall apply the law of the contracting State

and such rules of international law as may be applicable.

There have been instances where the arbitral tribunals have decided to apply

general principles of law or as a body of norms potentially comprising various sources

of transnational law. In a case reported by a the noted author Derains, an ICC

Tribunal hearing a dispute between a Japanese manufacturer and a Middle Eastern

2

However, the problem of adopting international law,

relationship is not a problem of principle, but of practices. These general principles

are not codified. For example, concepts such as pacta sunt servanda (that contracts

should be obeyed), a good faith is important for commercial relationships, etc., are a

valuable concepts but are not able to answer the particular questions in an arbitration

dispute.

1 Dame Rosalyn Higgins, former ICJ judge, Problems and process: International Law and How we use it, (Clevedon Press, Oxford, 1994) p. 54. 2 Dearins, Transnational Law in ICC Arbitration, in The Practice of Transnational Law.

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International law, being concerned primarily with the relationship between

states, is not particularly well-equipped to deal with detailed contractual issues-such

as mistake, misrepresentation, time of performance, the effect of bankruptcy of

liquidation, force majeure or the measure of damages and so forth.

Conclusively, if general principles of law are to be chosen as the substantive

law, it should be used in conjunction with a system of national law because the

10. The Lex Mercatoria

The te 1 was coined by late Professor Goldman.2 The body

of trading principles to settle international trade disputes as used by merchants in the

ninth century when the Arabs dominated trade in the Mediterranean, general rules

followed througho

by agreement can authorize the arbitral tribunal under equity clauses to act as amiable

compositeur and to decide as aequo et bano3 instead of deciding in accordance with

the traditional s

gentium,4

economic relations (commercium) between citizens and foreigners ( 5

Then, Europe experienced a commercial renaissance which was associated in

part with opening of trade with the markets of the East (it was hidden, but prevalent

objective of the first crusade 1095) and in part with general political and economic

developments within Europe, including the rise of towns and cities as autonomous

political units.6 It is evident that at the beginning of the 19th Century a drive for 7 and so its international

character was almost lost.

1 2 oldman, La lex mercatoria

3 4 Goldman, op. cit. p.3 5 Goldman, op. cit. p.3 6 UNIVERSITY OF LIS, The scientific journal FACTA UNIVERSITATIES Series: Economics and Organization, Vol. 1, No 5, 1997, pp. 87, 91. 7 Code Commerce, 1807 and Handelgesetzbuch, 1897.

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The Renaissance of lex mercatoria and its arising influence in the 20th Century

is the outcome of the globalized trade and the new generation system of international

business transactions. Today the term lex mercatoria as the modern adaptation of a

business communes, general principles of law and rules of natural justice. It is

considered to be the most significant development in the field of international law.

Although in recent time it has been regenerated as a sort of transnational commercial

law which displaces the use of national law in international transactions.

The new lex mercatoria has adopted national legal principles and rules of trade

usage and customs. Principles of lex mercatoria are also found within the writings of

jurists and legal commentators. Lord Mansfield1

commercial law of the Great Britain. According to Justice Buller2, Lord Mansfield

had created a body of substantive commercial law, logical, just, modern in character

and at the same time in harmony with the principles of the common law. It was due to

the

common law was carried out with an almost complete understanding of the

requirements of the commercial community, and the fundamental principles of the old

law and that marriage of idea proved acceptable to both merchants and lawyers.3 In

1987, Lord Mustill while considering the development of the Lex mercatoria stated

that,4

n exists for one purpose only: to serve the commercial man. If

irrespective of its origin and the nature of these sources, be the law proper to

international economic (Commercial) relations. One would encompass not only

transnational customary law, whether it is codified or not (and in the latter case

revealed and clarified by arbitral awards) but also law of an interstate, or indeed State,

which relates to international trade. Thus, for example the successive Hague, (1954)

1 Chief Justice of Englan and Wales from 1756 to 1788. 2 Lickbarrow v. Mason, (1787)2 Term Rep 63, 73, Buller J. 3 Trade Law, Edited by Chia-Jung, Martinus Nijhoff Publishers/Graham & Trotman Ltd., 1988, p. 24 (1961) 137. 4 -five Years, in Liber Amicorum for Lord Wilberforce, 1987).

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and Vienna, (1980) Conventions Establishing Uniform Laws for the International Sale

of Goods would be part of lex mercatoria. This would also be the case with respect to

same applied to rule specific to international trade established by national case law,

such as for example, the French notion of the autonomy of parties, the general validity

of international arbitration agreements, and the capacity of State and of public entitles 1

The primary advantages of lex mercatoria are that they can be useful to suit

real business needs and application and are uniform in application thus avoiding the

vagaries of different national laws. By choosing lex mercatoria the parties or the

arbitrators may avoid the technicalities of national legal systems.

Some commentators have also pointed out that, in international commercial

Arbitration there is no need to localize the applicable law. The constraint on the usage

of applicable law being limited to national law is not consistent with the nature and

the advantages of international commercial arbitration, therefore, the use of lex

mercatoria should be encouraged over the use of national laws in suitable case.

Therefore, parties usually include clauses which make express reference to general or

common principles of law.2

In India, Justice Rajiv Sahai Endlaw ha

whether it has any meaning. Those who do assign it a meaning differ as to whether it

is a separate body of international commercial law or equivalent to freedom from 3

-

has two facets. First, the rules governing an international commercial contract are not,

at least in the absence of an express choice of law, directly derived from any one

national body of substantive law. Second, the rules of the lex mercatoria have a

normative value which is independent of any one legal system.

1 International arbitration, 1987, Martinus Nijhoff Publishers, p. 113. 2 3 Jai Singh v. D.D.A, Delhi High Court, OMP No. 152/2002, 4-9-2008.

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The main characteristic of lex mercatoria in the medieval times were that; it

was the transnational law, it was to be the principal source was mercantile custom,

judgment were suo motu governed by the merchants themselves and not by

professional judges and the procedure followed was speedy and informal and to add

herein good fait was the basis of the whole procedure in totality.

At present there is an extensive ongoing debate about the meaning,

subsistence, contents and the application of the lex mercatoria. In attempts to define

lex mercatoria and transnational rules, several expressions have been used, such as

1

In 1992, the International Law Association adopted a Resolution in Cairo.

According to this resolution, in cases where the parties agree that the arbitrator may

apply transnational rules or where the parties have remained silent concerning the

applicable law, arbitration awards based on general principles of law (which are

common to several jurisdictions), principles of international law, general law o the

merchants rather than any particular national law, are enforceable.2

International conventions, such as the CISG3 and international arbitration case

law are also instrumental in determining the contents of the lex mercatoria. Some

tribunals have also used the CISG4 in order to support the application of national law.5

Besides these there are arbitration case laws which acknowledge or apply lex

mercatoria.6

It is pertinent to mention here that, Professor Ole Lando7 and Lord Mustill1

have compiled lists of principles and sources that may comprise the modern lex

1 various clauses. 2 Rules in In th Conference, Queensland, Australia (1991). 3 Many Arbitral Tribunals consider the CISG as a means of determining lex mercatoria, see Korean Seller v. Jordanian Buyer, XX YBCA 41 (1995); award in ICC Case No. 7331 (1994) Yugoslav Seller v. Italian Buyer, 122 Clunet 1001(1995). 4 United Nations Convention on Contracts for the International Sale of Goods, 1980. 5 Award in ICC Case No. 8324 (1995), 123 Clunet 1019 (1996); award in ICC Case No. 8128 (1995), 123 Clunet 1024 (1996); Egyptian Buyer v. Yugoslav Seller, XV YBCA 96 (1990); Zurich Chamber of Commerce award in case no. 273/95 of 31 May 1996, Raw material processor (Hungary) and Processing Group (Argentina) v. Raw Material Seller (Russian Federation), XXIII YBCA 128 (1998). 6 See Comparative international commercial arbitration-2003 Edn., By Julian D.M. Lew, Loukas A. Misteils, Stefan Kroll at 455; Lew, Applicable Law, paras 366-3772, 465- ace A21st

7

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mercatoria. These lists have been taken into account globally and put on record by

arbitral tribunals so as to support and construe the lex mercatoria.2

Both these lists included some Jus Cogens3 principles like pacta sunt servanda

(Contracts should be enforced according to their terms unless there is a significant

change of circumstances or in other words promises must be kept),4 rebus sic

stantibus (Treaties to become inapplicable because of a fundamental change of

general rule of pacta sunt servanda),5 unfair and unconscionable contracts and clause

should not be enforced,6 the doctrine of eulpa in contrahendo (according to which

liability may be assumed for contractual negotiations),7 8 achieve an illegal object9or

10. Even

in cases where the contract is not inclusive of a revision clause, the parties should

negotiate in good faith to overcome unanticipated difficulties in the performance of a

contract.11 12 agreements are valid and enforceable.13

1 -The First Twenty-Wilberforce (Oxfor 1987), 149-183 and 2 Arb Int 86(1988). 2 These principles have been mentioned in Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law International, 2003, p. 457-9. Also there same principles are mentioned in the article of

-the First Twenty-Wilberforce (Oxford 1987), 149-183 and 2 Arb Int 86 (1988). 3 international law which is accepted by the international community of states as a norm from which no derogation is ever permitted. 4 See e.g., award in ICC Case No. 5485 (1987), Bermudan Company v. Spanish Company, XIV YBCA 156 (199); award in ICC Case No. 3540 (1980) French Contractor v. Yugolav Sub-Contractor, VII YBCA 124 (1982); award in ICC Case No. 2321 (1974), Two Israeli Companies v. The Government of an African State, I YBA 133 (1976). 5 See interim awards and final award of 1983, 1984 and 1986 in ICC Case No. 4145, Establishment of Middle East Country v. South Asian Construction Company, 112 Clunet 985 (1985), XII YBCA 97 (1987); Iran US Claims Tribunal award in Case No. 59 (191-59-1, 25 See; Qestech, Inc. v. Ministry of National Defence of the Islamic Republic of Iran, XI YBCA 283 (1986). 6 This principle can be found in many civil law systems but are of limited use in common law. See, however, UCC section 2-302, In most cases public policy would bar the enforceability of unfair and unconscionable clause. 7 See Iran US claims Tribunal, award in Case No. 149 (53-149-1), 10 June 1983, Mark Dallal v. Islamic Republic of Iran and Bank Mellat, IX YBCA 264(1984); Berger, International Economic Arbitration, note 336-545. 8 See. E.g., award in ICC Case No. 3131 (1979), Pabalk Ticaret Sirketi SA (TURKEY) V. Norsolor SA, Rev Arb 1983, 525, 531; IX YBCA 109 (1984). 9 See award in ICC Case No. 2730 (1982), Two Yugoslav Companies v. Dutch and Swiss Group Companies, III Clunet 914 (1984) 920. 10 See e.g., award in ICC Case No. 110 (1963), Mr. X, Bue nos Aires v. Company A, 10 Arb Int 282 (1994); XXI YBCA 47(1996). 11 See award in ICC Case No. 2291 (1975) 103 Clunet 989 (1976), ICC Case No. 6219 117 Clunet 1047 (1190); award in ICC Case No. 8365 (1996); Spanish Bank v. German bank, 124 Clunet 1078 (1997). 12 Gold clauses refer to, imparting creditor the option to receive payment in gold or gold equivalent. 13 Award in ICC Case No. 1512 (1971), I YBCA 128 (1976); award in ICC Case No. 1990, 11 Clunet 897 (1974); award in ICC Case no. 2748, 102 Clunet 925 (1975); award in ICC Case No. 2291, 103 Clunet 989 (1976).

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In some c

implied,1 one party is entitled to treat itself as discharged from its obligations if the

other has committed a substantial breach,2 no party can be allowed by its own act to

bring about a non-performance of a conditions precedent to its own obligation,3 a

tribunal is not bound by the characterization on the contract ascribed to it by the

parties,4 damages for breach of contract are limited to the foreseeable consequences of

of the breach and include loss actually suffered and loss of profit,5 a party which has

suffered a breach of contract must take reasonable steps to mitigate its loss,6 damages

for non delivery are calculated by reference to the market price of the goods and the

price at which the buyer purchase equivalent in replacement goods,7 a party must act

in a diligent and practical manner to safeguard its own interests,8 and to avoid being

considered as having waived its rights,9 and the contract terms should be construed on

on the presumption that they are effective.10 11

As off now the principles of lex mercatoria have not been formally codified in

one single convention whereas the advantages of such an accustomed and uniform

code are evident. But it can be said that International conventions like the

UNCITRAL Model Law somewhat represent a process of unification and codification

of the law of international trade and commercial transactions, i.e., the modern lex

mercatoria. Other international convention activities such as the Hague Convention

1964, the United Nations Convention on Contract for the International Sale of Goods,

1980 also known as the Vienna Sales Convention, the Uniform Customs and Practice

1 Klaus Peter Berger, International Economic Arbitration, Kluwer Law and Taxation Publishers, 1993, note 340, 546. 2 Award in ICC Case No. 3540 (1980), French Enterprise v. Yugoslav Sub-contractor, VII YBCA 124 (1982); award in ICC Case no. 2583, 103 Clunet 950 (1976). 3 Award in ICC Case no. 2521, 103 Clunet 997 (1976); Final award in ICC Case No. 4629 (1989) Contractor (European Country) and contractor (Middle Easter Country) v. Owner (Middle Eastern Country), XVIII YBCA II (1993). 4 See Fouchard, Gaillard and Goldman on International Commercial Arbitration, para 1477, 827-8. 5 See e.g., award in ICC Case no. 1526 (1968), Belgian Party v. African State, 101 Clunet 915 (1974); Amco arbitration 24 ILM 1036 (1985); 114 Clunet 155 (1987). 6 See e.g., award in ICC Case No. 2478, 102 Clunet 925 (1974); award in ICC Case No. 4761, Italian Consortium v. Libyan Company, 114 Clunet 1012 (1987); award in ICC Case No. 5514(1990). 7 See CISG articles 75-76. 8 See award in ICC Case No. 2520, Two Czechoslovak Companies v. Italian Company, 103 Clunet 992 (1976). 9 See award in ICC Case no. 334, 108 Clunet 978 (1982); award in ICC Case No. 3243, 108 Clunet 968 (982); award in ICC Case No. 2250, 102 Clunet 992 (1976). 10 See e.g., award in ICC Case No. 1434 (1975), 102 Clunet 982 (1976); award in ICC Case No. 3380 (1980), Italian Company v. Syrian Company, VII YBCA 116 (1982); award in ICC Case no. 8331 1996 125 Clunet 1041 (1998). 11 See Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law International, 2003 at 458, 459.

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for Documentary Credits,1 the Incoterms,2 and the New York Convention 1958 aid the

the same. However, in our opinion the system of resolving international commercial

disputes is a multifaceted process and cannot be abridged to a single treatise.

11. UNIDROIT Principles as Substantive Law

The Uniform Custom and Practice for Documentary Credits, formulated as

long ago as 19333 has hugely contributed towards a single, uniform international

standard for the interpretation of documentary credit, which are essentially those

valuable pieces of paper upon which much of international trade depends.

The UNIDROIT Principles of International Commercial Contracts were

elaborated in 1994 (and currently an expansion of the Principles is due for adoption).

They represent a modern approach to international trade law4 and are increasingly

used in international contracts and dispute resolution.

The UNIDROIT principles are in nature, a sort of a restatement of the general

principles of contract law.5 These are very comprehensive6 in nature as they not only

cover the interpretation and performance of contractual obligations but also cover the

conduct of the negotiations thereby leading to the formation of a contract. Evidently it

places strong emphasis on good faith and fair dealing.7 These principles aim is to

establish a neutral set of rules that could be used throughout the world, without any

particular bias to one system of law over another.

It is pertinent to note herein that these principles apply only when the parties

themselves choose to apply them to their contract.8 So, it essentially supplements the

1 e commercial parties, particularly banks, had developed the techniques and methods for handling letters of credit in international trade finance. This practice has been standardized by the ICC (International Chamber of Commerce) by publishing the UCP in 1933 (which is updated after material intervals of time). 2 Incoterms (international commercial terms) are a series of international sales terms, published by International Chamber of Commerce (ICC ) and widely used in international commercial transactions. They are used to divide transaction cost and responsibilities between buyer and seller and reflect state-of-the-art transportation practice. They closely correspond to the CISG. 550. ICC publication No. 35. Both INCOTERMS and documentary credits are discussed with trade usages. 3 ICC Publication No. 400. 4 IDROIT Principles of International Commercial Contracts and the harmonization of International Sales Law, 2002 36 RJT 335 (341), http://www.editionsthemis.com/uploaded/revue/article/rjtvol36num2/bonell.pdf. 5

6 The UNIDROIT Principles were revised in April 2004. They may be accessed on the UNIDROIT website www.unidorit.org. 7 y not exclude or limit this duty. 8 when the parties have agreed that their contract be governed by them. They may be applied when the parties have agreed that their

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substantive law of the contract and not replaces it. However, in practice, arbitral

tribunals could themselves decide to refer to the UNIDROIT Principles as an aid.

12. Trade Usages

Most institutional rule and international arbitration rules require an arbitral

tribunal to keep in mind the relevant trade usage.1 This is even found in the Model

Law.2 They are even found out in a national arbitration laws. The Netherland

Arbitration Act, 1986 provide that in all cases the arbitral tribunal shall take into

account the relevant applicable trade usages.

The ICC has been particularly prominent in trying to establish a common

understandable meaning for expressions that are in frequent use in international trade

which are in common use and which are intended to set out, in an abbreviated form,

the rights and obligations of the parties. It is obviously important that they should

have the same meaning worldwide. To this end, the precise extent of these rights and

3

In much the same way, the Uniform Customs and Practice for Documentary

Credits (formulated as long ago as 1933)4 have proved valuable in moving towards a

single international standard for the interpretation of these important instruments of

world trade.

13. Equitable Principles

Arbitral tribuna

a debate as to whether there is a difference between an equity clause, a clause

requiring the arbitral tribunal to decide the dispute ex aequo et bono, and a clause that

permits the arbitral tribunal act as amiable compositeurs. The only difference which

comes to mind is that an equity clause would free the arbitral tribunal from the

1 ICC Arbitration Rules, article 172; UNCITRAL Arbitration Rules, article 33.3 2 Article 28(4). 3 Allan Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration , 4th Edn., Sweet and Maxwell, 2004 (117), See also Jan Paulsson, The Freshfields Guide to Arbitration and ADR: clauses in International Contracts, Kluwer Law International 1999, Edn.,p.22. 4 ICC Publication No. 400.

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constraints of national law while a clause requiring the arbitral tribunal to act ex

aequo et bono only permits the arbitral tribunal to lessen the effects of a harsh law.1

For instance that the arbitral tribunal:

Should apply relevant rules of law to the dispute, but may ignore any rules

which are purely formalistic (for example, a requirement that the contract

should have been made in some particular Form); or

Should apply relevant rules of law to the dispute, but may ignore any rules

which appear to operate harshly or unfairly in the particular case before it;

or

Should decide according to general principles of law; or

May ignore completely any rules of law and decide the case on its merits

as this strike the arbitral tribunal.

Commentators generally reject this fourth alternative.2

Equity clauses usually fall into two distinct categories. The first category

permits the arbitral tribunal to act without applying all the principles of the relevant

law. The second category permits the arbitral tribunal to decide in accordance with

some principles (not related to national law). These clauses usually refer to principles

3

14. Amiable Composition and ex aequo et bono

Unless a relevant criterion is expressly stated by the parties, a tribunal

determines the issues between the parties by taking into account the contract terms,

trade usages and the applicable law. One such exception is to this is when the parties

agree the tribunal should decide the issue in context of what is right and fair in the

circumstances.

1 Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (eds), Kluwer Law International, 1999, para 1502. 2 Allan Redfern and martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial aRbitration, 4th Edition, Sweet and Maxwell, 2004, p. 118. 3 Andrew Tweeddale and Keren Tweedale, Arbitration of Commercial Disputes International and English Law and Practice, Oxford University Press, 2007, Edn., p. 190.

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Arbitrators may sometimes be required to settle a dispute by determining it on

rather than a strictly legal

amiable compositeurs.

These laws or rules which are generally referred to as amiable composition or

arbitrators deciding ex aequo et bono and are essentially a non legal and flexible in

nature. However for this rule to be applicable, it is important to note that the parties

must have expressly authorizes the tribunal to act in this particular manner. Most of

the laws and rules containing such authority are similar in nature. For example,

according to article 28(3), Model Law, the arbitral tribunal shall decide ex aequo et

bono or as amiable compositeur only if the parties have themselves expressly

authorized it to do so. 1

Amiable composition is a concept which originated in France and then to other

civil countries.2 The power to decide ex aequo et bono was first adopted by the

Permanent Court of International Justice3 as an exception to the sources of law

normally relied upon by the court. Thereafter it was included in the statue of the

International Court of Justice as well.4 The genesis of the said expression can be

5

Generally, the parties authorize the arbitrators to depart from any constraints from a

national legal system, when the parties agree that the arbitrators can act as amiables

compositeurs or ex aequo et bono.

The ICC Rules6 goes a step further than the Model Law. They allow the

arbitral t

absence of any agreement between the parties. Therefore by confirming that the both 1 The arbitral tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have expressly authorized that

2 Gary Born, International Commercial arbitration: Commentary and Materials (2d Edn. Transnational Publisher Inc an Kluwer Law International, 2001), p. 557 3 Article 38(4) Statute of the PCIJ, as amended by the Protocol of 14 September 1929. 4 Article 38(2) Sta

5 th Edn., Wes 1990) 557. 6 ICC Arbitration Rules, article 17(1).

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parties and arbitrators have the ability to choose rule of law other than those of a

single state, the rules therein provides greater flexibility.

15. The Applicable Law and the Indian Perspective

The Arbitration and Conciliation Act, 1996 consists of two parts, Part I and

Part II. Part I of the Act applies to all arbitrations whose venue is India. Part II of the

Act applies to the enforcement of foreign awards. It is clear that if the place of

arbitration is India, the procedural law of the arbitration is the Arbitration and

Conciliation Act of 1996.

Section 28 talks about the substantive law applicable to the dispute:

28. Rules applicable to substance of dispute-(1) where the place of

arbitration is situate in India,-

(a) in an arbitration other than an international commercial arbitration, the

arbitral tribunal shall decide the dispute submitted to arbitration in

accordance with the substantive law for the time being in force in India;

(b) in international commercial arbitration,-

(i) the arbitral tribunal shall decide the dispute in accordance with the

rules of law designated by the parties as applicable to the substance of

the dispute;

(ii) any designation by the parties of the law or legal system of a given

country shall be construed, unless otherwise expressed, as directly

referring to the substantive law of that country and not to its conflict of

laws rules;

(iii) failing any designation of the law under clause 9a) by the parties, the

arbitral tribunal shall apply the rules of law it considers to be

appropriate given all the circumstance surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequo et bono or as amiable

compositeur only if the parties have expressly authorized it to do so.

(3) In all cases, the arbitral tribunal shall decide in accordance with the terms

of the contract and shall take into account the usages of the trade applicable to

the transaction.

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Now with regard to international commercial arbitration, as mentioned about,

the applicable law would be the law decided by the parties therein. It has been held in

the case of National Thermal Power Corporation v. Singer Company1 that in

international commercial arbitrations, parties are at liberty to choose, expressly or by

necessary implication, the law and the procedure to be made applicable. The

procedure or the rules governing such arbitration may be of the country where the

arbitration is being held or the body under whose aegis the arbitration is being held.

All bodies which conduct arbitrations and all countries have rules and laws governing

arbitrations.

In Citation Infowares v. Equinox Corporation,2 the Supreme Court of India

has held that the parties were free to choose the law relating to a contract and also to

an arbitration agreement but where Part I of the Arbitration and Conciliation Act,

1996 is not excluded by the parties, it would continue to apply despite the foreign

governing law and therefore the corresponding power of the Indian courts to appoint

an arbitrator is retained.

In international commercial arbitration the arbitral tribunal shall decide the

dispute in accordance with the rules of law designated by the parties as applicable o

the substance of the dispute and, failing any such designation, the rules of law the

tribunal considers appropriate given all the circumstances. Indian courts have long

since accepted that in the absence of express or implied choice, the arbitrators would 3

16. Judicial Interpretation of International Commercial Arbitration

However, the situation is little different when an Indian Party is involved in an

international commercial arbitration proceeding in another country. According to

recent Supreme Court decisions, Part I would be applicable to every arbitration

proceeding having an Indian party.

Section 2(f) of the said Act defines an international commercial arbitration. It

reads as follows:

1 (1992) 3 SCR 106: AIR 1993 SC 998: 1993 AIR SCW 131: 1992 (2) SCJ 430. 2 (2009) 9 SCC 220. 3 British India Steam Navigation Co. v. S. Cashew Industires, (1990) 3 SCC 481 (496).

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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;

(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)

In Bhatia International v. Bulk Trading S.A.,1 It was held by the Supreme

no

distinction between international commercial arbitrations which take place in India or

international commercial arbitrations which take place in India or international

commercial arbitrations which take place outside India. In Bhatia international the

whole issue of the applicable law and whether the Part I of the Arbitration and

Conciliation Act, 1996 applies to every international commercial arbitration involving

an Indian party were discussed. The relevant excepts are:

ws that the said Act applies to arbitrations

which are held in India between Indian nationals and to international commercial

arbitrations whether held in India or out of India. Section 2(f) defines an international

commercial arbitration. The definition makes no distinction between international

commercial arbitrations held in India or outside India. An international commercial

arbitration may be held in a country which is a signatory to either the New York

Convention or the Geneva Convention (hereinafter called the convention country). An

international commercial arbitration may be held in a non-convention country. The

said Act nowhere provides that its provisions are not to apply to international

commercial arbitrations which take place in a non-convention country. Admittedly

1 (2002) 4 SCC 105: AIR 2002 SC 1432: 2002 AIR SCW 1285: 2002 (2) SCJ 420.

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Part II only applies to arbitrations which take place in a convention country. Mr. Sen

fairly admitted that part II would not apply to an international commercial arbitration

which takes place in a non-convention country. He also fairly admitted that there

would be countries which are not signatories either to the New York Convention or

the Geneva Convention. It is not possible to accept submission that the said Act

makes no provision for international commercial arbitrations which take place in a

non-convention county.

Now let us look at sub-section (2), (3), (4) and (5) of section 2. Sub-section (2)

of section (2) provides that Part I would apply where the place of arbitration is in

India. To be immediately noted that it is not providing that Part I shall not apply

where the place of arbitration is not in India. It is also not providing that Part I will

Legislature has not provided that part I is not to apply to arbitrations which take place

outside India. The use of the language is significant and important. The Legislature is

emphasizing that the provisions of part I would apply to arbitration which take place

in India, but not providing that the provisions of Part I will not apply to arbitrations

which take place out of India. The wording of sub-section (2) of section 2 suggests

that the intention of the Legislature was to make provisions of Part I compulsorily

applicable to an arbitration, including an international commercial arbitration, which

takes place in India. Parties cannot, by agreement, override or exclude the non-

derivable provisions of Part I compulsorily applicable to arbitration, including an

international commercial arbitration, which takes place in India. Parties cannot, by

agreement, override or exclude the non-derivable provisions of Part I in such

arbitrations. By omitting to provide that Part I will not apply to international

commercial arbitrations apply to international commercial arbitrations held out of

India. But by not specifically providing that the provision of Part I apply to

international commercial arbitrations held out o India, the intention of the Legislature

appears to be to allow parties to provide by agreement that Part I or any provision

therein will not apply. Thus in respect of arbitrations which take place outside India

even the non-derivable provisions of Part I can be excluded. Such an agreement may

be express or implied.

On conclude we hold that the provisions of Part I would apply to all

arbitrations and to all proceedings relating thereto. Where such arbitration is held in

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India the provisions of Part I would compulsory apply and parties are free to deviate

only to the extent permitted by the derogable provisions of Part I. In case of

international commercial arbitrations held out of India of Part I would apply unless

the parties by agreement, express or implied, exclude all or any of its provisions. In

that case the laws or rules chosen by the parties would prevail. Any provision, in Part

Thus, it is clear from the judgment that the Court had categorically erased the

distinction between Part I and Part II of the Arbitration Ac, stating that provisions

under Part I would apply to all arbitrations and to all related proceedings. For

arbitrations held in India, the provisions would be compulsorily applicable and only

the derogable provisions of Part I could be deviated from. In international commercial

arbitrations, held outside India, the provisions of Part I would apply by default unless

the parties expressly or impliedly, excluded all or any of its provisions through

agreement.1

This judgment was then questioned by Justice Vikramjit Sen in Bharti

Televentures Ltd. v. DSS Enterprises Private Ltd.,2 and stated that the ratio decidendi

in the Bhatia International case was that, section 9 of the Arbitration and Conciliation

Act can be resorted to even in respect of international commercial arbitrations whose

also held that the widest legal principle or the ratio decidendi extractable form Bhatia

International case (supra) is that provisions of Part I of the Act apply to all arbitrations

that possess statutory connectivity with India, except where Part I has been explicitly

excluded. It also criticized the logic of the judgment on various grounds. The relevant

extract being:

f the parties is not of Indian nationality

and is also not a citizen of a county which is not a signatory either of the New York

Convention r the Geneva Conventions. In actuality the drafters have overlooked the

possibility of an international arbitration between an Indian party and another from a

non-

deduce that Parliament wanted part I alone to apply to such arbitrations. The relative 1 See Venture Global v. Satyam Computer, AIR 2008 SC 1061: 2008 AIR SCW 667: (2008) 4 SCC 190: (2008) 1 SCALE 214: Threat to International Commercial Arbitration in India, Global Law Limited, 29 September, 2009, Abacus Legal Group; article, Arpan Kumar Gupta. 2 2005 (2) ARBLR 561 (Del)

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likelihood of arbitrations between an Indian party and one from a non-convention

country (or for that matter from a Geneva Convention country) is minuscule incidence

of Chapter II of Part II of the Arbitration and Conciliation Act of 1996 being attracted

or invoked is likely to be less than ten percent. The existence of this void or lacuna

leads to two possibilities where the arbitration is in respect of a non-convention party

viz., (a) either to apply part I or (b) to decide on a priori principles. It should also be

kept in view that there may not be any justification to equate a situation obtaining

from the failure to cater to a contract in which one party comes from a non-

convention county to every arbitration including Geneva or New York Convention

parties. It may be logically impermissible to ap

either to a domestic arbitration or to a New York/Geneva arbitration, which are

explicitly covered by Part I and Part II of the Arbitration and Conciliation Act. If the

arbitral sessions are located outside India then -

Conciliation Act until such time as any part of an Award passed in those proceedings

is sought to be executed in India, in which event Order XXI of the Code of Civil

Procedure, 1908 would have to be resorted to. The careless drafting which pervades

most of the statute is poignantly present in section 2(f) which, whilst defining the term

party must be Indian. This ha perforce to be read into the definition which regretfully

Further, Justice Vikramjit Sen stated that India should have incorporated the

UNCITRAL Model law in toto and not altered the language of the whole treaty. He

commented that the Arbitration and Conciliation act, 1996 has led to a conclusion,

different from the UNICITRAL Model law, which India had ratified. He stated that:

he Recognition and Enforcement of

in common legal parlance, has been ratified by India of 13th July, 1960. By virtue of

its article VII the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva

Convention on the execution of Foreign Arbitral Awards of 1927 ceases to have effect

between the contracting States. Considering that the New York Convention has been

ratified by 108 nations and less than five sovereign contracting States of the Geneva

Convention have not become signatories to the New York Convention, Chapter II of

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Part II of the Arbitration & Conciliation Act, 1996 already has minimal applicability

and may soon have none at all, reducing that Chapter to a surplusage. Article 51 of the

Constitution of India, which is a Directive principle of State Policy, expects the

promotion of international peace and security and once a Treaty is ratified by India it

becomes its duty to ensure that appropriate legislation is passed so that the Treaty has

municipal/domestic applicability and efficacy. For example the Warsaw and Hague

Conventions regulating International Carriage by Air has been infused with local

applicability upon the passing of the Carriage by Air Act. Unlike in the Arbitration

and Conciliation Act, the language of those Conventions has not been tampered with

or altered whilst enacting the Carriage by Air Act. It is certainly arguable that the

language employed in any Treaty should similarly be employed verbatim in the

municipal statute, since every nation is obliged to give complete effect to its

international obligations. It is not expected of any sovereign country to lead the

international community to believe that it has agreed to fail within a particular legal

regime, whilst chartering a different path in reality. If the same language as is found

However, the Bhatia International judgment was upheld in the case of Venture

Global Engineering v. Satyam Computer Services1 and held that:

-Judge

Bench decision in Bhatia International (supra), I agree with the contention of Mr.

K.K. Venugopal and hold that paragraphs 32 and 35 of the Bhatia International

(supra) make it clear that the provisions of Part I of the Act would apply to all

arbitration including international commercial arbitrations and to all proceedings

relating thereto. I further hold that where such arbitration is held in India, the

provisions of Part-I would compulsorily apply and parties are free to deviate to the

extent permitted by the provisions of Part-I. it is also clear that even in the case of

international commercial arbitration held out of India provisions of Part-I would apply

unless the parties by agreement, express or implied, exclude all or any of its

provisions. We are also of the view that such an interpretation does not lead to any

conflict between any of the provisions of the Act and there is no lacuna as such. The

1 AIR 2008 SC 1061: 2008 AIR SCW 667: (2008) 4 SCC 190: (2008) 1 SCALE 214.

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matter, therefore, is concluded by the three-Judge Bench decision in Bhatia

Even Justice Vikramjit Sen in Spentex Industries Ltd. v. Dunvant S.A.,1 agreed

that the Satyam case (supra) had firmly settled the issue and the fact was the Part I of

the Arbitration and Conciliation Act of 1996 would be applicable to international

commercial arbitrations as well.

India

The Indian Arbitration and Conciliation Act, 1996 does not explicitly

ssly, the Indian courts have recognized the principle.

As in NIIT Institute of Information and Technology v. West Star constructions Pvt.

Ltd.,2 a Division bench of the Delhi High Court has held that, arbitration agreement

contained in an unregistered lease deed or improperly stamped lease is severable and

is a separate contract and even if the unregistered lease deed cannot be read in

evidence or has to be impounded, the arbitration agreement would still be effective.

The court observed that after coming into force of Arbitration and Conciliation Act,

1996, the arbitration agreement has to be considered a separate and independent

contact between the parties, even if it is a part of the lease deed, in view of section

16(1) (b) of the Arbitration and Conciliation Ac, 1996.

The Supreme Court of India, in National Agricultural co-op. Marketing

Federation India Ltd. v. Gains Trading Ltd.,3 observed that section 16 of the Indian

Arbitration & Conciliation Act, 1996 makes it clear that while considering any

objection with respect to existence or the validity of the arbitration agreement, an

arbitration Clause which forms part of the contract has to be treated independent of

the other terms of the contract and a decision that the contract was null and void shall

not entail ipso jure the invalidity of the arbitration clause. Also, in ARC Overseas Pvt.

Ltd. v. Bougainvillea Multiples and Entertainment Centre Pvt. Ltd.,4 the Supreme

Court observed that arbitration clause constituted an agreement by itself and it was

separable from other clauses of the deeds. The plaintiff cannot take a plea that the

1 RFA (OS) No. 69/2009 and CM No. 11710-11/2009, Delhi High Court, 29-10-2009. 2 Arb. P. NO. 244/2008, Delhi High Court, p. 14 3 (2007) 5 SCC 692: AIR 2007 SC 2327: 2007 AIR SCW 4030: 2007 (4) Supreme 31. 4 2008 (2) ALJ 633.

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arbitration agreement would become non-est in the eyes of law since it was contained

in an unregistered lease deed.

Recently, in the branch Manager, magma Leasing and Finance Limited v.

Potluri Madhavilata,1 the contract was terminated by one party on account of a breach

committed by the other. The Supreme Court of India upholding the principle of

severability held that termination of the contract due to breach will render the

arbitration clause inoperative. Rather, it would survive to resolve disputes that might

arise under the contract.

Other Jurisdictions

Other countries have also made their position clear by making the separability

of the arbitration clause as part of their laws on arbitration.2 The Swiss law, for

example, provides that:

that the main contract may not be valid.

The principles underlying the concept of separability of the arbitration

agreement were recently considered by the Court of Appeal of Bermuda in

Sojuznefteexport (SNE) v. JOC Oil Ltd.,3 It was held that the invalidity of the main

contract does not make the arbitral clause invalid. An effect of this doctrine is that an

arbitr

a dispute as to the consequences of such invalidity provided that the arbitration clause

is valid as a separate entity.4

Exceptions to the Doctrine of Separability

Some authorities exclude the application of the doctrine of separability in case

in which the principal contract is void ab initio.5 The arbitration agreement constitutes

a contract independent from the commercial contract pursuant to the doctrine of

1 AIR 2010 SC 488. 2 Allen Redfern and Martin Hunter, Law and Practice of International Commercail Arbitration, Sweet & Maxwell, 2004, 4 th Edn.

Arbitration and Dispute Resolution law Journal, p. 25. 3 (1990) XV YBCA 384-435. 4 (1990) XV YBCA 406. 5 Tibor Varady, John J. Barcelo and Arthur T. Von Mehren, VaraArbitration, A Transnational Perspective, 4th Edn., 2001.

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separability, the arbitration clause can only be recognized as invalid if it itself suffers

from any defects in will (e.g., mistake, fraud).1

In this day and age while one wonders at the atrociousness of business

dealings and globalization taking place all together around the world, one really

wonders that how is it taking place with such swiftness and what problems the

business Communities and countries would be facing to ensure the smooth

functioning of their policies and economies. These problems faced by economies

today have many solutions like there may be various forums for settlement; however

one of the most acceptable modern techniques used by them is Arbitration. This

tradition of settlement of disputes through a neutral third party appointed by the

parties has strong origin in India. There are arbitration tribunals recognized even in

the ancient legal texts and digests. International Commercial Arbitration has

established itself as the best method of determining complex commercial disputes all

over the world due to which states have modernized their laws of arbitration to

facilitate this new need, International Commercial Arbitration is a private method of

dispute resolution, which is chosen by the parties themselves as an effective way of

putting an end to disputes between them, without recourse to the courts of law. It is

conducted in different countries and against different legal and cultural backgrounds,

with a striking lack of formality in which there are no national flags or other symbols

of State authority.2

The economy of India is the eleventh largest economy in the world by nominal

GDP and the fourth largest by Purchasing Power Parity (PPP). India has been one of

the fastest growing economic powers in recent times with an expected growth of 8.5%

in its GDP for the year 2010-11.3 From the year 180, India has seen many changes in

its economic policies owing to many foreign companies and a corporation investing in

also giving its international commercial arbitration system an overhaul for changing

times.

1 See All-Union Export-Import Assoc. Sojuznefteexport (Moscow) v. JOC Oil, (1993) XVIII YBCA 92; Euro-Mec Import, Inc. v. Pantrem m& C., S.P.A. 1992 WL 350211; Tennessee Imports, Inc. v. Pier Paulo Filippi and Prix Italia 745 F. Supp (1990), 1314-1331. 2 Alan Redfern and Martin Hunter, International Commercial Arbitration, Sweet & Maxwell, 4th Edn., 20004, p.1. 3 http://timesofindia.indiatimes.com/business/india-business/GDP-to-grow-at-85-in-2010-11-says-Pranab/articleshow/5714174.

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The Indian Government enacted the Arbitration and Conciliation Act, in 1996

to attract foreign direct investment and also to establish it as a center for International

Commercial Arbitration in the global sphere. However even though the new Act has

provided impetus and relief, there are still a few potholes in the system, which need to

be filled and looked at including enforcement and challenging of foreign awards,

interim measures, etc.

In the world of modern trade, the most significant problem faced was relating

to the recognition and enforcement of arbitral agreements and awards made in one

country by the courts of other countries. Over the years consistent effort has been

made by the trading world to overcome these problems. To understand the arbitration

scenario today, it is essential to have an overview of the efforts made on a global

scale.

After the end of the First World-War, a need was felt for providing proper

arbitral machinery for the resolution of disputes between contracting parties subject to

different jurisdictions of different States. In this context International Chamber of

Commerce promoted an international convention for removal of impediments to the

enforceability of the arbitral clause. As a result the Protocol on Arbitration Clauses

also known as the Geneva Protocol was concluded on September 24, 1923 and

subsequently the Convention on the Execution of Foreign Arbitral Awards was signed

at Geneva on September 26, 1927.

The two objectives of this Protocol and Convention were, first to make

arbitration agreements, in particular arbitration clauses enforceable internationally.

Secondly, these sought to ensure that awards made pursuant to such arbitration

agreements would be enforced in the territory of the State in which they were made.

However a glaring shortcoming of the Geneva protocol was that only domestic

awards could be enforced by the courts of the member states.

The Convention of Recognition and Enforcement of Foreign Awards also

known as the New York Convention was adopted by the United Nations Diplomatic

Conference on June 10, 1958 and entered into force on June 7, 1959. India became a

party to the New York convention on 10th June, 1958 and ratified it on July 13, 1961.

It is considered as the foundational instrument for international arbitrations which are

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not considered as domestic awards in the State where recognition is sough. The New

York Convention makes provisions for the recognition and enforcement of an arbitral

agreement subject to certain conditions being fulfilled. Besides it also provides for the

recognition and enforcement of an award resulting from an arbitration agreement to

which the convention applies.

17. Comparison of the UNCITRAL MODEL Arbitration Law with National Law

(Similarities, Deviations and Differences)

The United Nations Commission on International Trade Law (UNCITRAL)

adopted the Model Law on International Commercial Arbitration in 1985. The

General Assembly of the United Nations recommended that all the States should give

due consideration to the Model Law to bring uniformity to the law of arbitral

procedures and to meet the specific needs of international commercial arbitration.

The Government of India revised the Indian arbitration laws based on the

Model Law to bring it in line with the new liberalized and globalised economy of

India. The Preamble of the 1996 Act makes it amply clear that the Parliament has

enacted the 1996 Act, almost on the same lines as the Model Law.

In Sundaram Finance Ltd. v. M/S NTPC India Ltd.,1 it has been observed that

the provisions of the 1996 Act, should be interpreted keeping in mind the Model Law

as the concept under the 1996 Act has undergone a complete change. The 1996 Act,

has unified the three existing Acts-the 1940 Act, the 1996 Act and the 1937 Act, and

also introduced modes of conciliation for the settlement of disputes. Unlike many

States which adopt different laws for domestic and international commercial

arbitration, India chooses to apply the same laws to both, thus getting an advantage of

simplification and user-friendly commercial arbitration in India. The same set of rules

applies to all the arbitrations held in India, irrespective of its types.

The most striking feature of the Model Law is the stress it lays down to party

autonomy. Apart from a number of mandatory provisions almost all provisions of the

Model Law are subject to the agreement of the parties. Thus inter alia the parties may

determine the procedure of appointing the arbitrators, the procedure of challenging

1 AIR 1999 SC 565.

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arbitrators, the rules of procedure, the rules governing the substance of the dispute, the

place of arbitration and the language of arbitration.

The intervention of the court has also been kept to a bare minimum. Indeed it

has been specifically provided under section 5 that no court can intervene in matters

governed by the 1996 Act except where the 1996 Act so provides.

The 1996 Act contains two unusual features that differ from the Model Law.

Firstly, while the Model Law was designed only to apply to International Commercial

Arbitration, the 1996 Act applies both to International and Domestic Arbitration and

secondly, the 1996 Act goes beyond the Model Law in the area of minimizing judicial

intervention.

The UNICTRAL Model Law has been copied verbatim at many places in the

Act of 1996. However, some deviations have been made in line with requirements in

India.

Section 8 of the 1996 Act departs from the Model Law by not permitting the

court to entertain an objection to the effect that the arbitration is null and void,

inoperative and incapable of being performed.

Section 8of the 1996 Act gives freedom to the parties to determine the number

of arbitrators; however it expressly provides that such a number shall not be an even

number. In case parties fail to provide for the number of arbitrators, the arbitral

tribunal shall consist of a sole arbitrator. Thus, this provision differs from the model

law which gives freedom to the parties to appoint both even and uneven number of

arbitrators. In cases where parties fail to make an agreement as to the number of

arbitrators the default number fixed by the Model Law is three.

Appointment of arbitrators where the parties fail to reach an agreement as to

appointment of arbitrators, the Model Law permits the parties to approach the courts

or other authority specified in the national law for appointment of arbitrator or sole

arbitrator, as the case may be. However under the 1996 Act, the Chief Justice of the

High Court in case of domestic arbitration and Chief Justice of the Supreme Court in

case of International Commercial Arbitration is empowered to appoint the arbitrator.

If there is a challenge to the arbitrator, under the Model Law the arbitral

tribunal is empowered to decide on the challenge and if the challenge is not

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successful, the challenging party may request a court or other authority to decide on

the challenge. While such a request is pending, the arbitral may continue the arbitral

proceedings and make the award. Whereas, according to section 13 of the 1996 Act,

the challenging party is not permitted to approach the court at this state, it has to wait

till after the award is made, then the party could challenge the award on the ground

that the arbitrator has wrongly decided the challenge.

Similarly, if the arbitral tribunal turns down the plea that if has no jurisdiction;

under the Model Law provisions exist for the party concerned to approach a court to

decide the matter. Whereas the corresponding provision under section 16 of the 1996

Act does not make a provision for approaching the court at this stage.

Apart from the above deviations from the Model Law, the 1996 act makes

certain provisions which are not to be found in the Model Law. These provisions

relate to award of interest by the arbitral tribunal; costs of arbitration; and the award

being enforced in the same manner as if it were a decree of the court. In cases where

the award has not been challenged within the prescribed period or where an award has

been challenged but the challenge has been turned down; provisions in the 1996 Act

also enables the tribunal to fix the amount of deposit or supplementary deposit, as

case may be, as an advance cost of an arbitration.

Model Law requires arbitrator to be just, fair, impartial and independent.

Keeping in line with the Model Law, section 12 of the 1996 Act requires an honest

and willful disclosure from a prospective arbitrator. Thus an arbitrator is under a duty

to disclose all the circumstances which are likely to cause doubt as to his impartiality

or independence as an arbitrator. Such a duty should not be evaluated by him in

subjective terms rather the standard to be adopted by an arbitrator while making such

a disclosure is that of a reasonable man. This duty is to be discharged by the arbitrator

prior to his appointment as an arbitrator and should be maintained throughout the

arbitral proceedings, therefore as soon as the arbitrator becomes aware of any

circumstances affecting his partiality he shall make a disclosure of the some without

delay.

Arbitral Award

To be valid an award inter alia must satisfy two conditions (i) it must be

certain, and (ii) it must contain the decision. It must be clear as to what is required to

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be done and by whom. The award must be a complete decision in itself without

leaving matters to be dealt with subsequently and must be clear, unambiguous and

final in relation to the issues and claims with which it deals.1

According to the 1996 Act the award should state the reasons upon which it is

based. In other words, unless (a) the parties have agreed that no reasons are to be

given or (b) the award is an arbitral award on agreed terms under section 30 of the

new Act, the award should state the reasons is support of determination of the

liability/non-liability. Thereby, Legislature has not accepted the ratio of the decision

of the Supreme Court2 that the award, being in the private law field, need not be a

speaking award even where the award relates to the contract of private parties or

between persons and the government or public sector undertakings. The principle is

the same, namely the award is governed by section 31(3).

What is an award is not defined by the 1996 Act, but section 2(c) sets out that

sets out the requirements of an award as under.

-

1. An arbitral award shall be made in writing and shall be signed by the members

of the arbitral tribunal.

2. For the purpose of sub-section (1), in arbitral proceedings with more than one

arbitrator, the signature of the majority of all the members of the arbitral

tribunal shall be sufficient so long as the reason for any omitted signature is

stated.

3. The arbitral award shall state the reasons upon which it is based, unless-

a. The parties have agreed that no reasons are to be given, or

b. The award is an arbitral award on agreed terms under section 30.

4. The arbitral award shall state its date and the place of arbitration as determined

in accordance with section 20 and the award shall be deemed to have been

made at that place.

1 Union of India v. Punjab Communication Ltd., 2003 (2) Arb LR 604 (HP). 2

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5. After the arbitral award is made, a signed copy shall be delivered to each

party.

6. The arbitral tribunal may, at any time during the arbitral proceedings, make an

interim arbitral award on any matter with respect to which it may make a final

The 1996 Act, provides that an arbitral award shall be made in writing and

shall be signed by the members of the arbitral tribunal. In case of arbitral proceedings

with more than one arbitrators, the signature of the majority of all the members of the

arbitral tribunal shall be suffice so long as the reasons for not signing are provided.

The award shall also state the reasons upon which it is based. It must also state the

date and the place or arbitration. Considering section 2(c) of the 1996 Act, an award,

includes an interim award, therefore the interim award as such will also have to

satisfy the same requirements of section 31 to be treated as an award. Section 31(6)

confers jurisdiction on the arbitral tribunal at any time during the arbitral proceedings,

to make an interim arbitral award. Section 37 provides for an appeal against orders.

The UNCITRAL Model Law also does not define an award.1 In principle an award is

a final determination of a particular issues or claim in the arbitration. It may be

contrasted with orders and directions which address the procedural mechanisms to be

adopted in the reference. Thus questions concerning the jurisdiction of the tribunal or

the choice of the applicable substantive law are suitable for determination by the

issues of an award. Questions concerning the admissibility of evidence or the extent

of discovery are procedural I nature and are determined by the issue of an order or

direction and not by an award. The distinction is important because an award can be

the subject of a challenge or an appeal to the court, whereas an order or direction in

itself cannot be so challenged2.

Section 2(b) of the 1940 Act, had defined award to mean an arbitration award.

The section at least did not provide or speak of an interim award. There is, however,

judicial recognition that an award could include an interim award as long as it met the

requirements of an award.3 In this case while considering the effect of an interim

award it was held that whether an interim award is final award would depend on the

1 Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd. , 2003 (2) Arb LR 359 (Bom). 2 Russel on Arbitration, 21st Edn., para 6.001. 3 Satwant Singh Sodhi v. State of Punjab, (1999) 3 SCC 487: 1999 (2) Arb LR 1 (SC)

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form of the award. If an interim award is intended to finally determine the rights of

the parties, it will have the force of a complete award and will continue to have effect

even after the final award is delivered. When such an award is made, the arbitrator

becomes functus officio as regards the claims covered in such an award and such

claims cannot be re-determined. It is, therefore, clear that under the 1940 Act also it

was judicially recognized that an Award includes an interim award. Once the claim is

decided finally, the Arbitral Tribunal could not adjudicate further on that claim and

became functus officio. What, however, emerges is that a right or claim of the party is

finally decided, and the Arbitral Tribunal insofar as the matter decided became

functus officio. This must necessarily exclude procedural orders in the course of the

arbitral proceedings.1

As the 1996 Act, is concerned section 32 of the Act, as noted earlier provides

for termination of the arbitral proceedings either by an arbitral award or by the arbitral

tribunal under sub-section (2). Section 31 does not include within it for example

termination of arbitral proceedings by the Arbitral Tribunal under section 16(5) which

pertains to jurisdiction of the tribunal including ruling on objection with respect to the

existence or the validity of the arbitration agreement. Therefore, an order culminating

in termination of arbitral proceedings with respect to the existence or validity of the

arbitration agreement is not an award.

Court does not sit in Appeal over Award

The court normally disfavors interference with arbitration award, but the court

should have fresh look on the ambit of challenge to an award by the arbitrator so that

the award does not get undesirable immunity. This is the law in the case of State of

Rajasthan v. Puri Construction co. Ltd.,2 where the Supreme Court has held that the

arbitrator cannot perpetrate gross miscarriage of justice and the same cannot be

reduced to mockery of a fair decision of the dispute between the parties to arbitration.

The Court cannot reappraise the evidence. It is not possible for the court to take

alternative view of the law and if a different view is possible it is not permissible for

the Court to adopt the same if the one adopted by the arbitrator is also permissible

view. Error apparent on the face of record in the finding made by the arbitrator may

1 Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd., 2003 (2) Arb LR 359 (Bom). 2 State of Rajasthan v. Puri Construction Co. Ltd., (1994) 4 SCC 485; 1995 (1) Arb LR 2(SC)

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be held to be erroneous. An error of law of fact committed by an arbitrator by himself

does not constitute misconduct warranting interference with the award.1 If there is an

error apparent on the face of record committed by an arbitrator going to the root of the

matter it can be corrected by the court.2

List of Grounds on which an award may be set aside is essentially the same as

the one in article 34 of the Model Law, taken from article V of the 1958 New York

Convention. The grounds for setting aside award are identical to those for refusing

recognition or enforcement. However there are two practical differences. The grounds

relating to public policy, including non-arbitrability is different in substance. The

grounds for refusal of recognition or enforcement are valid and effective only in the

State (or States) where the winning party seeks recognition, and enforcement, while

the grounds for setting aside have a different impact, i.e., the setting aside of an award

at the place of origin prevents enforcement of that award in all other countries by

virtue of article V(1) (e) of the 1958 New York convention and article 36(1) (a)(v) of

the Model Law.

The scope of interference on an application contemplated under section 34 of

the Act for setting aside arbitral award is very limited. An arbitral award may be set

aside by the Court only on satisfying the requisite conditions contemplated under

ficant and it

excludes a ground of attack on the arbitral award other than those contemplated under

section 34 (2) (a) and (b) of the Act.3

Under the previous Act of 1940 an arbitral award could be set aside under

section 30, (i) where the arbitrator had misconducted himself; (ii) Where the award

has been made after the issuance of an order by the Court suspending the arbitration

or after arbitration proceedings have become invalid; and (iii) Where the award had

been improperly procured or was otherwise invalid. The positioning law that emerged

under the Act of 1940 was that an award could be set aside on the ground of an error

apparent on the face of the award. That would be so when the reasons given in the

award or in a document incorporated with it were based upon a legal proposition

which is on its face is erroneous. The grounds for challenge which were available in

1 Bengal Trading Syndicate v. Union of India, 2000 (Supp) Arb LR 179 (MP) (DB). 2 Associated Engineering Co. v. Govt. of Andhra Pradesh, AIR 1992 SC 232; 1991 (2) Arb LR 180 (SC) 3 Vipul Agarwal v. Atul Kanodia & Co., 2003 (3) Arb LR 242 (All) (DB).

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the 1940 Ac have been substantially curtailed and a challenge can now be preferred

only on one of those grounds available under section 12, 13, 16 and 34 of the 1996

Act.

18. International Commercial Arbitration in municipal laws

Indian Law favors arbitration (both domestic and international) as an

established method of resolving disputes. Under the Indian Contract Act, 1872

(section 28) every agreement which restricts any party thereto absolutely from

arbitration of questions and disputes that have already arisen, or may arise in the

future. Resolution of international commercial disputes by arbitration is a

constitutional imperative article 51 of the Constitution of India (1950) provides that

ourage settlements of international disputes by

International Commercial Arbitration has been defined under section 28 of the

1996 Act as an arbitration relating to disputes arising out of a legal relationship,

whether contractual or not, considered as commercial under the law in force in India

and where at least one of the parties is-

(a) An individual who is a national of, or habitually resident in any, country other

than India; or

(b) A body corporate which is incorporated in any country other than India; or

(c) A company or an association or a body of individuals whose central

management and control is exercised in any country other than India; or

(d) The government of a foreign country.

As one can infer from the definition above, under the Indian law the

nationality of the parties and not the subject-matter of arbitration determines what

constitutes an international commercial arbitration.

In the Indian context, international commercial arbitration can be discussed

under two heads:

(a) Awards passed within the country

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(b) Awards passed outside the country, i.e., foreign awards

The procedure for enforcement of a domestic award is laid out in section 36.

In order to invoke the provisions of this section the conditions precedent that must be

fulfilled are that either the time of 90 days for making an application to set aside the

award under section 34 of the 1996 Act, must have expired, or, such application

having been made has been refused. Once these conditions have been fulfilled the said

award can be enforced in the same manner as it was a decree of the court, under the

provisions of the Code of Civil Procedure.

Foreign Awards

In order to be enforceable in India, the foreign award must pertain to a matter

which is to be commercial in India and must be made in a territory where reciprocal

provisions exists and which the Central Government has notified in the official

gazette as a territory to which the New York Convention Applies.1

India is also a party to the Geneva Convention of 1927 and recognizes and

enforces the awards made in territories of countries that are party to the same and

where reciprocal provisions exist as in India.

The Courts in India have jurisdiction to enforce the foreign awards but the

same does not extend to foreign arbitration, i.e., thought the foreign awards can be

enforced in India but the Indian Courts does not have jurisdiction to control or

supervise the proceedings of arbitration being convened outside India.

There is no specific or express provision in the 1996 Act, for the enforcement

of awards made in a country which is not a member or party to the New York

Convention or Geneva Convention. As such, a foreign award to which Part II of the

Act does not apply may be enforced only if it could be treated as a domestic award.

Where the award was rendered after the enforcement of the 1996 Act, but as

the arbitral proceedings had commenced before the coming into force of the 1996 Act,

it was held by Delhi High Court that the proceedings before the Court in relation to

the said Arbitral proceedings were to be governed by the 1940 Act.2

1 Transocean Shipping Agency Pvt. Ltd. Company v. Black Sea Shipping, (1998) 2 SCC 281. 2 General Electric Canada Inc. v. National Hydroelectric Power Corporation Ltd., 2003 (Supp) Arb 520 (Del) (DB).

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Supreme Court had held that various agreements wherein India has recognized

the Russian Republic as a successor of the old State of USSR, make no difference to

the recognition granted under the notification of February 7th, 1972 to the entire

territory of USSR as then in existence as a reciprocating territory for the purposes of

section 2 of the 1961 Act [now section 44 of the 1996 Act]. It was further held that

there is no implied curtailment of the notification of February 7th, 1972 as now

applying only to that territory which forms a part of the Russian Republic.1

Section 44 of the 1996 Act 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, Convention 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, declare to be territories to which the said

Convention applies.

Procedure for enforcement of the foreign award under the New York

Convention is given in section 45-51 and for foreign awards under Geneva

Convention procedure is given in sections 54-59 of the 1996 Act.

Any foreign award which would be enforceable under part II of the Act is

treated as binding for all purposes on the persons as between whom it was made, and

may accordingly be relied on by any of those persons by way of defence, set off or

otherwise in any legal proceedings in India. Section 49 of the 1996 Act has been

incorporated on the basis of article III of the New York Convention; however

conditions for the enforcement of foreign award have been provided in section 47 and

section 48 of the 1996 Act. Section 49 provides that when the court is satisfied that

the foreign award can be enforced by the court, the award shall be deemed to be

decree of the court. Appeal shall lie from an order of the court refusing to enforce an

award. However, an order upholding a foreign award is not appealable. In such a case

the constitutional remedy by way of a discretionary special leave petition to the

Supreme court of India will be maintainable.

The party applying for the enforcement of a foreign award is required to, at the

time of the application, produce before the court following documents: 1 Transocean Shipping Agency (P) Ltd. v. Black Sea Shipping, AIR 1998 SC 707: 1998 (1) Arb LR 228: (1998) 2 SC 281.

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(a) The original award or a copy thereof, duly authenticated in the manner

required by the law of the country in which it was made;

(b) The original agreement for arbitration or a duly certified copy thereof; and

(c) Such evidence as may be necessary to prove that the award is a foreign award.

As per section 48 of the 1996 Act, enforcement of a foreign award may be

refused, at the request of the party against whom it is invoked, only if that party

furnishes to the court proof that-

(a) The parties to the agreement referred to in section 44 were, under the law

applicable to them, under some incapacity, or the said agreement is not valid

under the law to which the parties have subjected it or, failing any indication

thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of

the terms of the appointment of the arbitrator or of the arbitral proceedings or

was otherwise unable to present his cases; or

(c) The award deals with a difference not contemplated by or not falling within

the terms of the submission to arbitration, or it contains decisions on matters

beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be

separated from those not so submitted, that part of the award which contains

decisions on matter submitted to arbitration may be enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in

accordance with the agreement of the parties, or, failing such agreement, was

not in accordance with the law of the country where the arbitration took place;

or

(e) The award has not yet become binding on the parties, or has been set aside or

suspended by a competent authority of the country in which, or under the law

of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the court finds that-

(a) The subject-matter of the difference is not capable of settlement by arbitration

under the law of India; or

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(b) The enforcement of the award would be contrary to the public policy of India.

As per section 49 of the 1996 Act where the court is satisfied that the foreign

award is enforceable the award deemed to be a decree of that court.

There are two noteworthy differences between section 48 and 34, while

section 34 permits the court to set aside an award; section 48 only provides for refusal

to enforce a foreign award. Therefore refusal to enforce award would not by itself

prevent an applicant from seeking to enforce it in some other jurisdiction. Hence, as

such there is no provision in India law for setting aside a foreign award.

Another noteworthy difference between the two sections is that section 48

contains an additional ground under which the court could decline to enforce a foreign

award and that is if the award is not yet binding on the parties or has been set aside or

superseded by a competent authority of the country in which, or under the laws of

which, the award was made.

The Supreme Court has held that no separate application need be filed for

execution of the award as a single application for the enforcement of the award would

undergo to stage process. Firstly enforceability of the award would be determined.

This would be done having regard to the requirements of the 1996 Act under the New

York Convention grounds. Once the court decides that foreign award is enforceable it

shall proceed to take steps for the execution of the same.

In an international arbitration when there is a failure of the mechanism for the

constitution of the arbitral tribunal, the appointment shall be made, in case of

domestic arbitration by the Chief Justice of the relevant High Court and in case of

international commercial arbitration by the Chief Justice of the Supreme Court of

India. In context of commercial arbitration, the tribunal decides disputes in

accordance with the rules of the law designated by the parties as applicable to the

substance of the dispute and failing any such designation, the rule of law, the tribunal

consider appropriate given all the circumstances. However, in the context of domestic

arbitration, the tribunal is obliged to apply the substantive law for the time being in

force in India.

Application for enforcement of a foreign award can be field in the concerned

court (generally in the court of the District Judge of the concerned district where the

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property of the opposite party situated) under Order 21 of Civil Code read with

section 58 of the 1996 Act.

19. The Applicability of the 1996 Act to International Arbitration

and enforce the awards made outside India, i.e., foreign awards within territorial

jurisdiction of the concerned court in India subject to the fulfillment of the certain

conditions provided in the Act, for enforcement of the awards.

Recently the Indian Supreme Court in Venture Global Engineering v. Satyam

Computer Services Limited,1 has held that the provisions of Part I of the 1996 Act

would apply to all arbitrations including international commercial arbitrations and to

all related proceedings. If an international arbitration is held in India, the provisions of

Part-I compulsorily apply, however, parties are free to deviate to the extent permitted

by the provisions of Part-I. In international commercial arbitration held outside of

India, the provisions of Part-I of the Act would still apply unless the parties by

agreement expressly or impliedly exclude all or any of its provisions. In this ruling,

the Supreme Court of India relied on the law laid down in Bhatia International v. Bulk

Trading S.A. & Another2, whereby under the provisions of Part I of the 1996 Act,

interim relief was made available to parties under the general provisions with respect

to the enforcement of a foreign arbitration award in India, and that Part 1 of the Act

was held as applicable to international commercial arbitrations. Thus, the Supreme

Court affirmed the legal principles set forth in the Bhatia International case and made

it clear that the provisions of Part I of the Indian Arbitration Act would apply to all

arbitration including international commercial arbitration and all related proceedings.

Article V(1)(e) of the New York Convention provides that when a party seeks

to confirm an award, recognition and enforcement of the award may be refused when

the award has been set aside or suspended by a competent authority of the country in

which, or under the law of which, that award was made. These grounds are narrow

and generally do not include a disagreement with the application of the substantive

law used in the foreign arbitration. Local courts have little discretion to refuse

enforcement. The decision of the Supreme Court of India in the Venture Global case

1 (2008) 4 SCC 190. 2 AIR 2002 sc 1432.

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many foreign companies having relevant business interests in India have relied

heavily upon Indian law based on the 1996 Act itself and have opted for arbitration

procedures for resolving disputes.