COMMERCIAL ARBITRATION

INTERNATIONAL
COMMERCIAL
ARBITRATION AND
ARBITRAL AWARDS

Submitted To: Submitted By:

Ms. Manika Jannat Banga
Roll No. 2229
ACKNOWLEDGEMENT:

I would like to commence my project presentation by extending a note of thanks to the backbone
of the subject Ms. Manika. Her welcoming attitude to all our queries, able guidance and mentorship
have made it possible to take this step ahead.

Through the project I have learnt a deal of new things that were unknown to me till date. I also
came to know about the depth and importance of international arbitration.

I would also like to thank my friends, my family as well as the Department for providing me help
in the form of suggestions, helping hands as well as books or material.

Thank you.
TABLE OF CONTENTS PAGE NO.

1. Introduction 1
2. Historical Recount 1-2
3. Meaning 2-4
4. Object 4
5. International Arbitration and Arbitration and Conciliation Act 4-5
6. Types of Arbitration 5-6
 Institutional Arbitration
 Ad-Hoc Arbitration
7. Procedure for International Commercial Arbitration 6-7
 Notice of Arbitration
 Referral to Arbitration
 Appointment of Arbitrators
 Interim Relief
 The mandate of the Arbitrator
 Challenge to Jurisdiction
 Settlement during arbitration
8. Award 8
9. Types of Award 8-9
 Final Award
 Partial, Interlocutory, Preliminary, Interim Award
 Consent and Agreed Award
 Default Award
 Additional Award
10. Exception to Finality 9
11. Contents of Award 10
12. Public Policy- A Threat to International Commercial Arbitration in India. 10-11
13. Suggestions 11
14. Conclusion 11
15. Bibliography 12
INTRODUCTION:
With business acquiring a global dimension, the world reducing to a global village and the
accelerated expansion of global market has brought forth many new concepts and many are
emerging to this day. Out of these many aspects and concepts of internationalization,
commercialization and globalization, one that is gaining momentum and is also the topic of
discussion in my project is Alternate Dispute Resolution. There are three main methods of ADR
that include mediation, arbitration and conciliation.

It has become a popular and effective method of dispute resolution in a cost and time effective
manner. In consideration of the large number of dealings between countries, disputes are inevitable
and in general it is observed that companies or parties are averse to being part of litigation in
national courts and this is the part where suitability of alternative dispute resolution comes into
play. To avoid the cumbersome and tedious process of being part of local courts where resolution
of disputes takes place in State regulated forums, governed by different legal systems and
structures it is seen that ADR is gaining popularity.

The cost and time effective, with amicable settlement of disputes has different types as well as
several laws related to the same. There are national legislations which comply with the
international ones to avoid any clash and my assignment is an attempt to highlight the history,
meaning, types of international commercial arbitration as well as the public policy in India.

HISTORICAL RECOUNT:
Dating back to 4300-3200 BC (Copper Age) the Indus Valley Civilization shows that there were
certain similarities in pottery, seals, figurines and document intensive caravan trade of the early
Harappan period with central Asia as well as Iranian Plateau. Also, a maritime trade network
operated between Harappan and Mesopotamian Civilizations.

With this background, Arbitration as an essential limb of the Indian system, is rooted back in the
ancient era where trade links were established with other parts of the then known world. It is but
natural that there existed some sort of resolution system in that era too. In ancient Greece and
Rome, Arbitration was the popular progression to disputes. An inference therefore can be drawn
that trade at any given period in the history could not have ever survived without a dispute

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resolution system. In this regard, Lord Musthill observed “Commercial Arbitration must have
existed since the dawn of commerce”.1

The inception of the modern system of International Commercial Arbitration can be traced back
to work of the Advisory, Conciliation and Arbitration Service formed in United Kingdom in 1974.
This system of informal nature was used in other countries like India, Africa, and Israel. In China
and Japan Mediation was the most preferred technique as the former were influenced by Confucius
and his concept of harmony and dispute resolution through morals rather than coercion.

In USA the same was begun by the Rosco Pound Conference of 1976 and the current day scenario
is that 90 percent of civil disputes in USA are solved outside the court of law. The federal
government has expressed support to this system as it reduces the burden out of courts considerably
and is resource effective.2

Overall, the International Commercial Arbitration is an established and well known method of
dispute resolution arising from international contracts. The decision to submit to the same is purely
based on the parties’ discretion.

MEANING:
As discussed in the historic recount, international industrial activities did prevail even in pre-
industrialized times, though the number of participators and frequency of transactions was limited.
However, the current scenario is much more intense with industrial revolution, technical and
mechanical utilization and information technology explosion have shrunk the world, thereby
raising the count of transactions. Rising number of transactions is obvious to cause rise in the count
of disputes too. To solve these in a speedy yet satisfactory manner it is imperative to follow ADR.

1
Lord Musthill, “Arbitration: History and Background” (1989) 6 Journal of International Arbitration, p. 43.
2
Harsh Sethi and Arpan Kr Gupta, International Commercial Arbitration & Its Indian Perspective at Page No.3
(Universal Law Publishing Co. Pvt. Ltd., New Delhi, 2011)

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 Arbitration:

It refers to a method for the resolution of disputes outside the courts of law, wherein parties to the
dispute submit it before a third party called adjudicator who in turn reviews the case and gives a
decision (Arbitral Award) that is binding for the parties and enforceable by a Court of Law. When
parties agree to be governed by arbitration they cut themselves from recourse to the lengthy court
procedures.

 International:

This refers to the demarcation of the concepts of domestic or national arbitration and arbitrations
that go beyond such national and domestic boundaries. The differentiation is based on the nature
of the dispute, the nationality of the parties as well as other relevant criteria.

 International Arbitration:

It is the alternate method of solving disputes between the private parties arising out of commercial
transactions conducted across national boundaries that allows the parties to avoid litigation in
national courts.3

Model Law Definition of International:4

The approach taken in article 1 (3) of the UNCITRAL MODEL LAW, provides a definition of
when an arbitration is considered international in nature. It states that:

(a) The parties to an arbitration agreement have, at the time of the conclusion 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:

3
https://guides.ll.georgetown.edu/InternationalCommercialArbitration#:~:text=International%20commercial%20arbi
tration%20is%20an,avoid%20litigation%20in%20national%20courts
4
Harsh Sethi and Arpan Kr Gupta, International Commercial Arbitration & Its Indian Perspective at Page No.15
(Universal Law Publishing Co. Pvt. Ltd., New Delhi, 2011)

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 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 agreement relates
to more than one country."

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 exist.

OBJECT:
As a means of resolving disputes, arbitration has been globally used for centuries and is now all
the more preferred method of determining international commercial disputes. People file petitions
in the courts in the hope to get justice, spends a lot of money and time in the legal procedure, but
because of overburdened the courts are not able to render the decisions on time and when the
judgment finally comes it not worth the cost of what was already spent that is a lot of time and
money. This methods helps to reduce the time, effort as well as costs of the parties and deliver
speedy decisions. This helps them to maintain their relationship. Alternative dispute resolution
provides effective methods of resolving a dispute thereby helping by reducing the burdens of the
courts as they are already overburdened especially in populous countries like ours.

INTERNATIONAL ARBITRATION AND ARBITRATION AND

CONCILIATION ACT, 1996:

The Indian law on Arbitration and Conciliation came to being in 1996. It is in Section 2(1) (f) that
defines “international commercial arbitration as disputes arising out of the legal relationship where
one of the parties is a citizen, resident, or habitually residing out of India. International commercial
arbitration is used by the traders of different countries as a way of settling their business conflicts”

The procedure is much like that of domestic arbitration, wherein an Arbitration Agreement must
exist to carry out the process of arbitration. The agreement is a document in which the parties enter

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by free will and agree that in case of a dispute, out of that certain contract, it will have to be solved
without going to the court.

In the process of arbitration, there is a hearing conducted to determine the cause of conflict between
the parties by the person who is appointed as an arbitrator by the parties or by the statutory body.
The main purpose of arbitration is adjudication and there is no place to compromise. After
determining the cause of conflict and hearing both sides of the parties, the arbitrator enforces their
point of view that is neutral and fair.

The scope of Section 2(1) (f) of the Arbitration and Conciliation Act was determined by the
Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt.
Ltd5. In this case it was held that if the company has dual nationality, that means it is registered in
foreign and in India then that company for this Act would be regarded as Indian corporation and
not the foreign corporation. International arbitration just like domestic arbitration takes place
involving a third party known as an arbitrator. International commercial arbitration allows the
parties to resolve their disputes amicably by maintaining their relationship and with less money by
respecting each other’s cultural and linguistic background. International arbitration is also known
as a ‘hybrid form of international dispute resolution’ because international arbitration allows
mixing two legal provisions the Code Civil Law Procedure, 1908, and the Common Law
Procedure. Parties coming together to work often in their legal contract mentions the clause of the
arbitration agreement to resolve the disputes without going to court.6

TYPES OF ARBITRATION:7

1. Institutional Arbitration: In this kind of arbitration an institution of fixed character,

intervenes to aid and assisting the arbitration process in accordance with the rules of the
institution. Often such institution is designated by a contract between the parties. It is often
expensive as the institutes charge for the administration fee and often dispute amounts are
smaller than those.
5
Arbitration Petition No.20 of 2011, decided on November 16, 2011.
6
https://blog.ipleaders.in/international-commercial-arbitration-system-critical-analysis/
7
https://www.legalserviceindia.com/article/l64AdHocandInstitutionalArbitration.html#:~:text=In%20ad%20hoc%20
arbitration%2C%20parties,negotiating%20a%20reduction%20in%20fees.

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2. Ad-Hoc Arbitration: In this kind of arbitration the parties are required to make their own
arrangements like that of selection of arbitrators, applicable law, procedures and administrative
support. It is not administered by an institution and therefore parties are to determine the
various aspects. This can be faster, cheaper and more flexible than an administered proceeding.
Also, the parties can at any time agree to opt for the services of an institutional provider to
administer the arbitration.

PROCEDURE FOR INTERNATIONAL COMMERCIAL

ARBITRATION:8

 Notice of arbitration

To commence the proceedings of arbitration one party has to provide the notice of arbitration to
the other party requesting to refer the dispute to arbitration. When the respondent receives the
notice of arbitration, the proceedings of arbitrations begin. In this notice, there are two essentials:
one is the communication of an intention to refer the dispute to arbitration and the other is that the
other party to whom the notice has been served should take a step towards it.

 Referral to arbitration

The judicial authority can refer the subject matters of the case to the arbitration if that agreement
contains the clause of arbitration to settle the disputes among the party if there are any. According
to Section 8 of the Arbitration and Conciliation Act, the judicial authority can refer the parties to
arbitration if there is an arbitration agreement.

 Appointment of arbitrators

The parties are at their discretion to appoint the arbitrator to decide their case. If the parties are not
able to appoint the arbitrators mutually due to some issues then the court allows the parties to
appoint each arbitrator and then these two arbitrators will appoint the third party who will be
neutral. If the parties fail to appoint the arbitrators within thirty days or the two arbitrators fail to
appoint the third arbitrator then the parties can request the Supreme Court and High Court to

8
https://blog.ipleaders.in/international-commercial-arbitration-system-critical-analysis/

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appoint the arbitrators. The High Court or the Supreme Court can appoint any person or institution
to appoint arbitrators. In the cases of International Commercial Arbitration, the Supreme Court can
appoint the arbitrators for the parties and in the cases of domestic arbitrations, the High Court
appoints the arbitrators.

 Interim relief

The Arbitration and Conciliation Act, in Section 9 provides for interim measures of protection not
just before the commencement of arbitral proceedings and during the arbitral proceedings but also
after the arbitral award has been delivered. Section 17 provides for interim measures ordered by
the arbitral tribunal if it is found at the time of proceedings that the disputed matter is dangerous
then it can ask the party to provide security.

 The mandate of the arbitrator

If arbitrators do not deliver the arbitral award on time then the mandate of the arbitrators expires
this was held in the case of NBCC Ltd. v. J.G. Engineering Pvt. Ltd by the Supreme Court. The
mandate of the arbitrators expires according to the period agreed by the parties.

 Challenge to jurisdiction

The Supreme Court in the case of S.B.P. and Co. v. Patel Engineering Ltd. and Anr held that if
without judicial intervention the arbitral tribunal was constituted by the parties the arbitral tribunal
can determine all jurisdictional issues by exercising its powers of competence under Section 16 of
the Act. According to this Section, an arbitral tribunal has the authority to rule on its jurisdiction
if there exists a valid arbitration agreement. If any party has an objection regarding the invention
of the tribunal then that party can file a plea before the submission of defence.

 Settlement during arbitration

The parties are allowed to settle the dispute mutually even if the arbitration proceedings are going
on. If the parties arrive at the settlement amicably, the arbitration proceeding will be terminated.
Also if both the parties give their consent to record the settlement then this would be known as a
consent award that would work as an arbitral award.

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AWARD:
Once the parties refer the dispute to arbitration, they generally accept what is termed as ‘award’.
This puts an end to arbitral proceedings. The parties naturally desire that this resulting award is
executed and hence it is appealable and subject to any other recourse.
It becomes imperative to mention the UNICTRAL law on award which states that ‘the award shall
be made in writing and shall be binding on the parties. The parties undertake to carry out the award
without delay’.9
An award may concern legal of factual differences between the parties, may involve interpretation
of contract terms or determining the respective rights and obligations of the parties. It may also
deal with preliminary and substantive issues like jurisdiction, applicable law and the like.
Under the Indian Law, award is a termination on merits whereas order is a termination of
proceedings without deciding the merits of the matter.

TYPES OF AWARD:10

1. Final Award: This settles all claims between the parties. It denotes completion of arbitration
proceedings for the particular dispute. Article 32(1) says that the same, the authority of the
Tribunal ends and the arbitrators become ‘functus officio’. It is final only if it produces the ‘res
judicata’ effect and can be challenged or enforced without terminating the arbitration
proceedings.

2. Partial, Interlocutory, Preliminary, Interim Award: The power to issue these kinds of
awards is a sharp weapon in the armory of the Arbitral Tribunal. It is an effective way to
determine those matters which are susceptible to determination and once determined save a lot
of money and time. This kind of award is prevalent in most legal systems of the world in the
current day. Article 32.1 of the old UNICITRAL Arbitration Rules, “in addition to making
final award, the arbitral tribunal shall be entitled to make interim, interlocutory or partial
awards.” These rules are also found in the ICC Arbitration Rules, which refer to Interim or

9
UNICITRAL Arbitration Rules, Article 32(2).
10
Harsh Sethi and Arpan Kr Gupta, International Commercial Arbitration & Its Indian Perspective at Page No. 229-
234 (Universal Law Publishing Co. Pvt. Ltd., New Delhi, 2011)

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 partial or final awards. In some cases, such award can also be a pre-condition as to whether
the arbitration proceedings must continue or not. It does not resolve all the issues like final
award, the power to make this award is either from an arbitration agreement or the applicable
law concerning the same. Interim awards signify a process in motion whereas partial awards
denote a sense of finality in proceedings. They are however final with respect to the issues
that they settle.

3. Consent and Agreed Award: As in usual litigation, the parties can arrive at a decision of
their choice in commercial arbitration too. They may formulate a compromise agreement or
request the tribunal to do so. All the powers given to arbitral tribunal get terminated thereafter.
It is better for the parties to make this kind of award as it can be enforced under the New York
Convention. Article 30 of the UNCITRAL law provides for such award.

4. Default Award: Such award comes into picture when one of the parties fails to take part in
the arbitration process either from the beginning or after the proceedings begin. This part is in
usual cases the respondent. An arbitral award passed by the tribunal in this scenario is known
as Default Award. The tribunal however, must make all efforts to determine the real cause of
for not attending the proceedings rather than assuming default.

5. Additional Award: The award of this nature comes into existence in the form of a correction,
interpretation or also sometimes to address and issue that was missed or failed to be
determined. The same is provided by UNCITRAL Law under Article 33 wherein it is
mentioned that the parties may within 30 days or as agreed, with notice to other party, ask for
corrections in errors made whether of computation, clerical nature or any other. If such request
is justified it can be make the correction or interpretation within 30 days of such request.

EXCEPTION TO FINALITY:
In general, the awards are final. No changes are permitted unless permitted by the procedural law
or any other arbitration rules which govern the relationship of the parties. There are two rules:

1. The Fraud Rule

2. The Slip Rule

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CONTENTS OF AWARD:11
An award should take note and record the claims and defences of the parties, the conclusions of
the tribunal on the same and the main reasons for the determination so reached. A typical award
in international commercial arbitration will invariably contain:

 The procedural background detailing the substantive submissions of the parties, and the
evidence on which they have relied;

 The basis for the jurisdiction of tribunal;

 Factual background to the arbitration, including relationship between the parties, their
respective businesses and the essential terms of their agreement;

 Nature of the dispute and the respective positions of the parties;

 Issues for determination by the tribunal;

 Reliefs sought by the parties;

 Tribunal's analysis and conclusions on each of the issues listed;

 Award of the tribunal with declaration and order, decisions on damages, interest and costs.

PUBLIC POLICY- A THREAT TO INTERNATIONAL COMMERICAL

ARBITRATION IN INDIA.
In 1824, it was held in Richardson v Mellish12 that ‘Public Policy is an unruly horse, and once you
get astride it you never know where it will carry you.’
The model law does not specifically define ‘public policy’. However, it is under Article 34 that
‘public policy’ is mentioned as a ground for setting aside an award by the courts at the seat of the
arbitration and under Article 36 as a ground for refusing recognition and enforcement of a foreign
award.

11
Harsh Sethi and Arpan Kr Gupta, International Commercial Arbitration & Its Indian Perspective at Page No. 235
(Universal Law Publishing Co. Pvt. Ltd., New Delhi, 2011)

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In Renusagar Power Plant Co. v General Electrical Corporation(12) it was held by the SC that
the an award would be contrary to public policy if such enforcement would be contrary to
fundamental policies of Indian Law, or the national interests of India, or the basic principles of
justice or morality.
In Venture Global Engineering v Satyam Computer Services(13) it has been exposed that
enforcement of foreign awards is a challenge to public policy. It has deep ramifications for
international commerce as it poses a significant threat to achieving uniformity and consistency in
international arbitration.

SUGGESTION:
This view of the SC has been criticized from many ends and I also feel that there should be some
amendment in the act in accordance with provisions of model law to do away with this problem.
The real value of international commercial arbitration will be lost unless the parties can be sure
that the award will be effectively carried out by them.
However, after the Amendment in 2015, an Explanation was added to Section 34 (2) and the scope
of contravention of public policy was modified to the extent that it now means only the fraud or
slip rule.
This I think is a positive development, because the unruly horse of public policy would come a
long way in creating confusion and problem in the execution of awards of international commercial
arbitration by including them as being against Public Policy.

CONCLUSION:
The best way to solve disputes, in a cost and time effective manner, settle the conflicts of the
parties with ease and most importantly to maintain an amicable relationship between them
International Commercial Arbitration is the best dispute resolution mechanism. The over-
burdening of courts and pending cases makes it difficult to sort every matter through conventional
litigation practices. It has been in the last 5 to 7 years that the system of Arbitration in India has
become better and more aligned to the International Arbitration standards.

12
(1824) 2 Bing 228: [1824-34] All ER Rep 258

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BIBLIOGRAPHY:

ACTS AND LAWS

 The Arbitration And Conciliation Act, 1996
 UNICITRAL Model Law on Commercial Arbitration (1985) with amendments in 2006

BOOKS
 Harsh Sethi and Arpan Kr Gupta, International Commercial Arbitration & Its Indian
Perspective (Universal Law Publishing Co. Pvt. Ltd., New Delhi, 2011)
 Harman Shergill Sullar, Alternative Dispute Resolution (Shree Ram Law House,
Chandigarh, 3rd Edition, 2020)

WEB SOURCES
 https://guides.ll.georgetown.edu/InternationalCommercialArbitration#:~:text=Internation
al%20commercial%20arbitration%20is%20an,avoid%20litigation%20in%20national%20
courts
 https://blog.ipleaders.in/international-commercial-arbitration-system-critical-analysis/
 https://www.legalserviceindia.com/article/l64-Ad-Hoc-and-Institutional-
Arbitration.html#:~:text=In%20ad%20hoc%20arbitration%2C%20parties,negotiating%2
0a%20reduction%20in%20fees.
 https://blog.ipleaders.in/analysing-law-international-commercial-arbitration-india-w-r-t-
uncitral-model-law-amendment-2006/
 https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration
 http://www.tribunajuridica.eu/arhiva/An9v1/5.%20Artan%20Spahiu.pdf

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