- Introduction to ICA

- Legal Framework in India

- Procedure for International Arbitration in India
- Place, venue & seat of arbitration – the conundrum & anomaly
- Involvement of national courts in International Arbitration
- Comparative Analysis of ICA Regime
- Critical Reflections – ICA and Indian Regime

I. INTRODUCTION

International commercial disputes require a significant and expeditious determination as

enormous sums are approximately involved. Customarily, such disputes are settled through
litigation, which was the only door. However, in modern times, with the growth of other
dispute resolution methods, parties to an international commercial agreement have at their
fingertips a different range of choices for the settlement of their dispute. One such method is
arbitration, which is frequently utilised in modern-day international commerce because of its
attractions and popularity.

The Arbitration and Conciliation Act, 1996 primarily recognizes two types of International
Commercial Arbitration, which are as follows:

 International Commercial Arbitration with a seat in India.

 International Commercial Arbitration with a seat in a reciprocating country.

A reciprocating Country is a country which is party to the New York Convention and which
recognizes an International Commercial Arbitral Award made in India. An International
Commercial Arbitration may also be held in a non-reciprocating country, that is, a country
which does not recognize International Commercial arbitral awards made in India, however,
the recognition and execution of such Awards is not guaranteed in India.

II. LEGAL FRAMEWORK IN INDIA

II.A. Framework within the Arbitration Act

Section 2(1)(f) of the Act defines an ICA as an arbitration relating to disputes arising out of a
legal relationship which must be considered commercial, where either of the parties is a
foreign national or resident, or is a foreign body corporate or is a company, association or
body of individuals whose central management or control is in foreign hands.

Thus, under Indian law, an arbitration with a seat in India, but involving a foreign party will
also be regarded as an ICA, and will be subject to Part I of the Act. However, where an ICA
is held outside India, Part I of the Act would have no applicability on the parties (save the
stand-alone provisions introduced by the 2015 Amendment Act, unless excluded by the
parties, as discussed later) but the parties would be subject to Part II of the Act.

The 2015 Amendment Act also deleted the words ‘a company’ from the purview of the
definition thereby restricting the definition of ICA only to the body of individuals or
association. Therefore, by inference, it has been made clear that if a company has its place of
incorporation as India, then central management and control would be irrelevant as far as its
determination of being an “international commercial arbitration” is concerned.

II.B. Judicial Precedents defining the scope of ICA

Notably, the scope of Section 2 (1) (f) (iii) was determined by the Supreme Court in the case
of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd. (2008) 14 SCC 271,
(“TDM Infrastructure”) wherein, despite TDM Infrastructure Pvt. Ltd. having foreign control,
it was concluded that “a company incorporated in India can only have Indian nationality for
the purpose of the Act”. Thus, though the Act recognizes companies controlled by foreign
hands as a foreign body corporate, the Supreme Court has excluded its application to
companies registered in India and having Indian nationality.

Hence, in case a corporation has dual nationality, one based on foreign control and the other
based on registration in India, for the purpose of the Act, such corporation would not be
regarded as a foreign corporation. In a recent case, where the Indian company was the lead
partner in a consortium (which also included foreign companies) and was the determining
voice in appointing the chairman and the consortium was in Mumbai, the Supreme Court held
that the central management and control was in India (M/s. Larsen and Toubro Ltd. SCOMI
Engineering BHD v. Mumbai Metropolitan Region Development Authority, 2018 SCC
OnLine SC 1910)
 III. PROCEDURE FOR INTERNATIONAL COMMERCIAL ARBITRATION

III.A. International Commercial Arbitration with a seat in India

When the seat of arbitration of the International Commercial Arbitration is in India, the
procedure, as laid down below, is followed:

 Notice of Arbitration.

The first step, like in any other arbitration in India, is to send the Notice of Arbitration. The
primary reason for this is the applicability of Part I of the Arbitration Act to International
Commercial Arbitrations with a seat in India. The Arbitration can only be said to have
commenced when either party sends a Notice of Arbitration to the other party, whereby, the
other party is required to take certain steps in connection with the arbitration. The Notice of
Arbitration is a requirement of S. 21 of the Indian Arbitration Act.

 Referral to Arbitration.

The other method to commence arbitration, is the power of the Courts under Part I of the
Arbitration Act to refer the Parties to Arbitration. Either party to the Arbitration Agreement
can approach the appropriate Judicial Authority with an Application to refer the parties to
arbitration either at or before the time of making the first statement, and the Court is bound to
refer the parties to arbitration. The Hon’ble Supreme Court, in the case of Zheinjang Bonly
Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator, opined that the party making an
application for reference to arbitration may make such application even if the dispute
resolution clause between the parties provides a choice to the parties to either refer the
dispute(s) to arbitration or have them adjudicated by the appropriate Court.

The Court also clarified in the case of M/s Caravel Shipping Services Pvt. Ltd. v. M/s
Premier Sea Foods Exim Pvt. Ltd. that the duly certified or original copy of the Arbitration
Agreement which is to be attached with the Application for Reference, need not be signed or
stamped.

 Challenge to Jurisdiction of the Arbitral Tribunal

The Indian Arbitration Act, in S. 16, imbibes the principle of Kompetenz-Kompetenz.

According to this jurisprudential doctrine, an Arbitral Tribunal has the power to rule upon its
own jurisdiction. This principle was first recognized in Germany, and now has gained
widespread recognition in International Arbitrations. Under Section 16, the tribunal has the
power to rule upon challenges to its own jurisdiction as well as objections to the existence or
validity of the Arbitration Agreement. The Supreme Court of India in the case of S.B.P. and
Co. v. Patel Engineering Ltd. and Anr. affirmed that where the Arbitral Tribunal was
appointed by the Parties themselves, without any judicial intervention, the Arbitral Tribunal
will have the power to determine all jurisdictional issues by exercising its powers of
Kompetenz-Kompetenz.

III.B. International Commercial Arbitration with a seat in a Reciprocating Country

The Law in India with regards to International Commercial Arbitration which has a seat in a
reciprocating country is governed by Part II of the Indian Arbitration Act. Post the
amendment of 2015 and the decision of the Hon’ble Supreme Court of India in the case of
Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc. the law has seen major
changes, with the law becoming more focused on the seat of arbitration.

The Amendment Act makes it clear that Part I of the Arbitration Act does not apply to
foreign seated arbitrations, with the exception of Sections 9, 27 and 37, unless there is an
agreement to the contrary between the parties. The choice of a foreign seat of arbitration
is an implication that the application of Part I of the Arbitration Act is excluded. Part II of the
Act is divided into two chapters and is applicable to all foreign awards sought to be enforced
in India and to refer parties to arbitration when the seat is outside India. Chapter I deals with
foreign awards delivered by the signatory territories to the New York Convention which have
reciprocity with India, while Chapter II deals with the Geneva Convention. Since now most
countries which are a signatory to the Geneva Convention are a signatory to the New York
Convention, Chapter II of Part I of the Act has almost been rendered infructuous.

The implication of having a foreign seat is that there are three different sets of law which
need to be taken into consideration. They are:

(a) The law governing the substantive law of the contract – this is the law which governs the
substantive issues in dispute in the contract. Also referred to as “applicable law”, “governing
law”, “proper law of the contract” or “substantive law”.

(b) The law governing the existence and proceedings of the arbitral tribunal – This is the law
in which the arbitration proceedings have to be conducted and is also referred to as the “curial
law”. This is the law which is derived from the seat of arbitration.
(c) The law governing the recognition and enforcement of the award – This is the law which
governs the enforcement, as well as filing or setting aside of the award and is also the law
which governs the Arbitrability of the dispute.

IV. PLACE, SEAT & VENUE OF ARBITRATION

IV.A. Understanding the conundrum

In Arbitration, more specifically so, in International Arbitrations, the phrases “Place of

Arbitration” and “Seat of Arbitration” gain extreme importance due to the fact that it is by
way of these phrases that the law applicable to the proceedings is decided.

The Law Commission of India, in its 246th Report laid out the distinction between the ‘Place’
and ‘Seat’ of Arbitration as follows:

“40. The Supreme Court in BALCO decided that Parts I and II of the Act are
mutually exclusive of each other. The intention of Parliament that the Act is
territorial in nature and sections 9 and 34 will apply only when the seat of
arbitration is in India. The seat is the “centre of gravity” of arbitration, and
even where two foreign parties arbitrate in India, Part I would apply and, by
virtue of section 2(7), the award would be a “domestic award”. The Supreme
Court recognized the “seat” of arbitration to be the juridical seat; however,
in line with international practice, it was observed that the arbitral hearings
may take place at a location other than the seat of arbitration. The
distinction between “seat” and “venue” was, therefore, recognized. In such a
scenario, only if the seat is determined to be India, Part I would be
applicable. If the seat was foreign, Part I would be inapplicable. Even if Part
I was expressly included “it would only mean that the parties have
contractually imported from the Arbitration Act, 1996, those provisions
which are concerned with the internal conduct of their arbitration and which
are not inconsistent with the mandatory provisions, of the [foreign]
Procedural Law/Curial Law.” The same cannot be used to confer
jurisdiction on an Indian Court. However, the decision in BALCO was
expressly given prospective effect and applied to arbitration agreements
executed after the date of the judgment.”
The Seat, therefore, is the ‘Juridical Seat’ of Arbitration, while the Venue merely is the
‘Place’ of Arbitration. Where the parties have failed to make a distinction between the ‘Seat’
and ‘Venue’ of Arbitration, the Seat of the Arbitration will be the Venue itself.

IV.B. Legal Framework pertinent to the place, seat & venue conundrum

Section 20, Arbitration and Conciliation Act, 1996 (“The Act”) provides that parties are free
to to agree on the place of arbitration, failing which the Arbitral Tribunal will determine the
place of arbitration, having regard to the circumstances of the case and the convenience of
parties. Irrespective of the aforesaid, parties are also free to meet at any place it considers
appropriate for consultation, hearing witnesses, inspecting documents, goods or other
property.

Section 20 does not distinguish between a seat and venue of arbitration. It merely mentions
the ‘place of arbitration’. This can be perplexing in cases of international commercial
arbitrations, wherein parties may agree to have a seat in India, but have hearings of the
arbitration outside India.

These venues need not be fixed by the parties. The question thus arises is that whether
such venues can beget a change in the seat of arbitration. In the landmark judgment of
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc a Constitution Bench
of the SC refused to accept this interpretation and held that the seat of the arbitration is the
anchor of the proceedings and does not change. The seat remains the place initially
agreed upon between the parties. As for the interpretation of Section 20, i.e. whether the
term ‘place’ refers to seat or venue? The court held that the word ‘place’ as appearing u/s
20(1) and 20(2) would refer to the ‘seat’ of arbitration while the reference of ‘place’ u/s
20(3) would refer to the venue of arbitration.

IV.C. When can venue be treated as seat?

The Supreme Court of India in the case of Enercon (India) Ltd. & Ors v. Enercon GmbH &
Anr, (2014) 5 SCC 1, held that the “venue” of an arbitration, which is geographical location
chosen based on the convenience of the parties is not the same as the “seat” of arbitration,
which decides the appropriate jurisdiction. The Apex Court in this case held that, it is an
accepted proposition of law that the ‘juridical seat’ or ‘seat of arbitration’ normally carries
with it the choice of the respective country’s arbitration or curial law. But this would arise
only if the curial law is not specifically selected by the parties.
The court further opined that:

 It is necessary not to confuse the legal seat of arbitration with the geographically
convenient place or places for holding hearings;
 If the “seat” of arbitration is in India; the 1996 Act being the curial law, recourse to
Indian Courts as per Part I of the 1996 Act, including Section 9 thereof is available to
the parties.
 The “seat” of arbitration thus, would be the country whose law is chosen as the curial
law by the parties;
 Sections 8, 10, 11 and 45 of the Arbitration and Conciliation Act, 1996 are mere
machinery provisions for the court to support and aid arbitration;
 An arbitration agreement is valid so far as the intention of the parties to resolve the
dispute by arbitration is clear; any allegation of non-conclusiveness of the main
contract is immaterial;
 If the intention to arbitrate is clear, the court can make good an omission to make the
arbitration agreement workable.

Thus, it is sufficed to conclude that, the courts of the “seat” of arbitration have the exclusive
jurisdiction to exercise supervisory powers over the arbitration process. The courts of the
“venue” of arbitration cannot have concurrent jurisdiction in this regard.

V. INVOLVEMENT OF NATIONAL COURTS IN INTERNATIONAL

ARBITRATION

It is safe to say that the relationship between national courts and arbitration is one of
dependence and complexity. Like a Parent-Child relationship, arbitration is always seeking
independence from national courts, while it cannot survive without its assistance. National
courts will always play a gap-filling role when arbitrators lack the coercive power to
implement their decisions.

V.A. Enforcement of Arbitration Agreements

Firstly, national courts might be bound to enforce the arbitration agreement. According to
Article II (3) of the New York Convention 1958 “the court of a contracting state, at the
request of one party, shall refer the parties to arbitration, unless it finds that the said
agreement is null and void, inoperative or incapable of being performed”. The fundamental
issue regarding the enforcement of international arbitration agreements is whether the courts
or the arbitral tribunal should decide on the interpretation, validity and enforceability of the
agreements. It is clear from the wording of Article II (3) that courts must review the validity
of the arbitration agreement before ordering its enforcement. However, the New York
Convention does not provide a methodology on how such a review should be conducted.
Therefore, the amount of review exercised by courts differ significantly from one jurisdiction
to another.

V.B. Jurisdiction-Related Injunctions

Comparatively, one form of court involvement in international arbitration is to grant

injunctive reliefs. Jurisdiction-related injunctions ordered by national courts are of two types.
The first and the most controversial is known as anti-arbitration injunction, by which a party
is prohibited from commencing arbitral proceedings. The second is ordered in support of the
arbitration agreement and its enforcement, known as an anti-suit injunction. Both types of
injunctions are granted by national courts, at the request of one party, at different stages of
the arbitration process.

V.C. Arbitral Tribunals & Challenge to Arbitrators

Thirdly, According to Article 11 (3)(a) of the Model Law “the appointment of arbitrators
shall be made by the court, at the request of one party, if a party fails to appoint the
arbitrator within thirty days of receipt of request to do so from the other party, or if the two
arbitrators fail to agree on the third arbitrator within thirty days of their appointment”.

Moreover, Article 11(5) adds that “the court when appointing an arbitrator, shall have due
regard to any qualifications required of the arbitrator by the agreement of the parties.” There
is no doubt that this form of court assistance is beneficial to the arbitration process. The
national court’s assistance at this stage accelerates the establishment of the arbitral tribunal;
in addition, it deprives parties from conducting obstructive tactics and hindering the
arbitration agreement.

V.D. Challenges and Enforcement of Arbitral awards

Finally, by issuing a final award, the arbitral tribunal marks the end of arbitral proceedings
and declares itself functus officio. A final award refers to the final and binding decision of the
tribunal on all matters concerning the dispute. At this stage, national courts will exercise their
most authentic role in international arbitration, which is enforcing the arbitral award.
However, by virtue of Articles V of the New York Convention and 36 0f the Model Law, the
losing party may invoke two courses of action to challenge the validity of the award and its
enforcement.