Guest lecture on International Arbitration

The Constitution of India, Article 51, clauses (c) and (d) provide that the state shall endeavour to (c)
foster respect for international law and treaty obligations in the dealings of organised peoples with
one country and (d) encourage settlement of international disputes by arbitration. In the spirit of the
Constitutional mandate the President of India promulgated the Indian Arbitration and Conciliation
Act 1996. The Indian Ordinance gives freedom to the parties – subject to minimal restrictions in
carrying out the arbitration agreement.

Under the law there is no clear definition of terms such as Domestic Arbitration or foreign
Arbitration either in the statutes or in the decided cases. However, the term international
commercial Arbitration has been defined in the 1996 Act. The 1996 Act covers domestic arbitration
(where both parties are Indian national) as well as international commercial arbitration where at
least one party is not an Indian national.

The Act of 1996 has been divided in three Parts.

 Part I entitled, “ARBITRATION” and there are 10 Chapters containing Sections 2 to 43.
 Part II entitled, “Enforcement of certain Foreign Awards” and contains Chapter I & II
containing Sections 44 to 60. Chapter I of part II deals with “New York Convention Awards”
and Chapter II deals with ‘Geneva Convention Awards”.
 Part III (Sections 61 to 81) deals with ‘Conciliation’. Part IV (Sections 82 to 86) provides for
Supplementary Provisions.

Under the Arbitration and Conciliation (Amendment) Act, 2015. There are two avenues available for
the enforcement of foreign awards in India, viz., the New York Convention and the Geneva
Convention, as the case may be.

A. Enforcement under the New York Convention

 Sections 44 to 52 of the Arbitration and Conciliation (Amendment) Act, 2015 deals with
foreign awards passed under the New York Convention.
 The New York Convention 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, 1960
 In pursuance of an agreement in writing for arbitration to which the Convention set forth in
the First Schedule 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.[1]

From the abovementioned conditions, it is clear that there are two pre-requisites for enforcement of
foreign awards under the New York Convention. These are:

 The country must be a signatory to the New York Convention.

 The award shall be made in the territory of another contracting state which is a reciprocating
territory and notified as such by the Central Government.
Section 47 provides that the party applying for the enforcement of a foreign award shall, at the time
of the application, produce before the court

a. original award or a duly authenticated copy thereof;

b. original arbitration agreement or a duly certified copy thereof; and
c. any evidence required to establish that the award is a foreign award. As per the new Act, the
application for enforcement of a foreign award will now only lie to High Court.

Once an application for enforcement of a foreign award is made, the other party has the opportunity
to file an objection against enforcement on the grounds recognized under Section 48 of the Act.
These grounds include:

1. 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
2. the party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to
present his case; or
3. 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 matters submitted to arbitration may be enforced; or
4. 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
5. 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.
6. the subject-matter of the difference is not capable of settlement by arbitration under the
law of India; or
7. the enforcement of the award would be contrary to the public policy of India.

The Amendment Act has restricted the ambit of violation of public policy for international
commercial arbitration to only include those awards that are:

a. affected by fraud or corruption,

b. in contravention with the fundamental policy of Indian law, or
c. conflict with the notions of morality or justice.

It is further provided that if an application for the setting aside or suspension of the award has been
made to a competent authority, the Court may, if it considers it proper, adjourn the decision on the
enforcement of the award and may also, on the application of the party claiming enforcement of the
award, order the other party to give suitable security.
Section 49 provides that where the Court is satisfied that the foreign award is enforceable under this
Chapter, the award shall be deemed to be a decree of that Court.

B. Enforcement under the Geneva Convention

Sections 53-60 of the Arbitration and Conciliation (Amendment) Act, 2015 contains provisions
relating to foreign awards passed under the Geneva Convention.

As per the Geneva Convention, "foreign award" means an arbitral award on differences relating to
matters considered as commercial under the law in force in India made after the 28th day of July,
1924,-

 in pursuance of an agreement for arbitration to which the Protocol set forth in the Second
Schedule applies, and
 between persons of whom one is subject to the jurisdiction of some one of such Powers as
the Central Government, being satisfied that reciprocal provisions have been made, may, by
notification in the Official Gazette, declare to be parties to the Convention set forth in the
Third Schedule, and of whom the other is subject to the jurisdiction of some other of the
Powers aforesaid, and
 in one of such territories as the Central Government, being satisfied that reciprocal
provisions have been made, by like notification, declare to be territories to which the said
Convention applies, and for the purposes of this Chapter, an award shall not be deemed to
be final if any
 proceedings for the purpose of contesting the validity of the award are pending in any
country in which it was made.[2]

Section 56 provides that the party applying for the enforcement of a foreign award shall, at the time
of the application, produce before the court (a) original award or a duly authenticated copy thereof;
(b) evidence proving that the award has become final and (c) evidence to prove that the award has
been made in pursuance of a submission to arbitration which is valid under the law applicable
thereto and that the award has been made by the arbitral tribunal provided for in the submission to
arbitration or constituted in the manner agreed upon by the parties and in conformity with the law
governing the arbitration procedure. As per the new Act, the application for enforcement of a
foreign award will now only lie to High Court.

The conditions for enforcement of foreign awards under the Geneva Convention are provided under
Section 57 of the Arbitration and Conciliation Act, 1996. These are as follows:

 the award has been made in pursuance of a submission to arbitration which is valid under
the law applicable thereto;
 the subject-matter of the award is capable of settlement by arbitration under the law of
India;
 the award has been made by the arbitral tribunal provided for in the submission to
arbitration or constituted in the manner agreed upon by the parties and in conformity with
the law governing the arbitration procedure;
  the award has become final in the country in which it has been made, in the sense that it will
not be considered as such if it is open to opposition or appeal or if it is proved that any
proceedings for the purpose of contesting the validity of the award are pending;
 the enforcement of the award is not contrary to the public policy or the law of India.

The Amendment Act has restricted the ambit of violation of public policy for international
commercial arbitration to only include those awards that are:

(i) affected by fraud or corruption

(ii) in contravention with the fundamental policy of Indian law, or
(iii) conflict with the notions of morality or justice.

However, the said section lays down that even if the aforesaid conditions are fulfilled, enforcement
of the award shall be refused if the Court is satisfied that-

 the award has been annulled in the country in which it was made.
 the party against whom it is sought to use the award was not given notice of the arbitration
proceedings in sufficient time to enable him to present his case; or that, being under a legal
incapacity, he was not properly represented.
 the award does not deal with the differences contemplated by or falling within the terms of
the submission to arbitration or that it contains decisions on matters beyond the scope of
the submission to arbitration: Provided that if the award has not covered all the differences
submitted to the arbitral tribunal, the Court may, if it thinks fit, postpone such enforcement
or grant it subject to such guarantee as the Court may decide.
 Furthermore, if the party against whom the award has been made proves that under the law
governing the arbitration procedure there is any other ground, entitling him to contest the
validity of the award, the Court may, if it thinks fit, either refuse enforcement of the award
or adjourn the consideration thereof, giving such party a reasonable time within which to
have the award annulled by the competent tribunal.

Section 58 provides that where the Court is satisfied that the foreign award is enforceable under this
Chapter, the award shall be deemed to be a decree of the Court.

Any arbitration matter between parties to the arbitration agreement shall be called an international
commercial arbitration if:

(1) The matter relates to dispute

(2) Such disputes have arisen out of legal relationship

(3) Such legal relationships may or may not be contractual

(4) The disputes should be those which are considered commercial under the law in force in India
and

5) Where at least one of the parties is;

(i) That which habitually resides abroad, whether a national of that country or not; or
(ii) A body corporate which is incorporated abroad

(iii) A company or an association or a body of person whose central management and control is
exercised abroad; or

(iv) The government of a foreign country.

It is for the arbitrators to determine whether an international commercial arbitration agreement

exists or not. Disputed question of fact cannot be agitated in a writ petition.

International arbitration can take place in India in accordance with the same procedure as domestic
arbitration. Arbitration becomes ‘international’ when at least one of the parties involved is resident
or domiciled outside India or the subject matter of the dispute is abroad. In International arbitration
the law applicable may be the Indian Law or a foreign law, depending on the terms of contract in this
regard and the rules of conflict of laws.

Differences Between International and Domestic Arbitration

A domestic arbitration is one where the following two ingredients are present:

1) Both the parties to the arbitration agreements are the nationals or residents of the same country.

2) The agreement provides for arbitration in the country of the parties to the arbitration agreement.

The arbitration agreement will be considered as international arbitration agreement where one of
the parties is a foreigner, notwithstanding the fact that the arbitration is to take place in a particular
country as highlighted in the case of Gas Authority of India Ltd. v. SPIF CAPAG. The New York
Convention will apply to an arbitration agreement if it has a foreign element or flavour involving
international trade and commerce, even though such an agreement does not lead to a foreign
award.

A contract was entered into between an Indian and a foreign party. On disputes arising between
them, arbitration proceedings were commenced in India and both the parties preferred claims and
counter claims before the arbitral tribunal. The parties also agreed that they will govern by the law
of India. An award passed under the said arbitral proceedings was held to be a domestic award
made under part 1 of the Act as emphasised in the case of Nirma Ltd v. Lurgi Energie Und
Entsorgung GMBH. The definition of the term international commercial arbitration is given in section
2 (1)(f) of the Act. The definition makes no distinction whatsoever between international commercial
arbitrations which take place in India and internal commercial arbitration which take place outside
India as mentioned in the case of Bhatia International v. Bulk Trading SA. In Bhatia International the
question was whether an application filed under Section 9 of the Act in the Court of the third
Additional District Judge, Indore by the foreign party against the appellant praying for interim
injunction restraining the appellant from alienating transferring and/or creating third party rights,
disposing of, dealing with and/or selling their business assets and properties, was maintainable. The
Additional District Judge held that the application was maintainable, which view was affirmed by the
High Court. The Supreme Court, reaffirming the decision of the High Court, held that an application
for interim measure could be made to the courts of India, whether or not the arbitration takes place
in India or abroad. The Court went on to hold that “the arbitration not having taken place in India, all
or some of the provisions of Part I may also get excluded by an express or implied agreement of
parties. But if not so excluded the provisions of Part I will also apply to ‘foreign awards’. The opening
words of Sections 45 and 54, which are in Part II, read ‘notwithstanding anything contained in Part I’.
Such a non obstante clause had to be put in because the provisions of Part I apply to Part II”.

Supreme Court referred to similar provision in UNCITRAL Model law. Article 1(2) of the UNCITRAL
Model Law reads as follows:

“(2) The provisions of this law, except Articles 8, 9, 35 and 36, apply only if the place of arbitration is
in the territory of this State.”

Supreme Court highlighted the word ‘only’ and observed as follows:

“Thus Article 1(2) of the UNCITRAL Model Law uses the word “only” to emphasize that the provisions
of that law are to apply if the place of arbitration is in the territory of that State. Significantly, in
Section 2(2) the word “only” has been omitted. The omission of this word changes the whole
complexion of the sentence. The omission of the word “only” in Section 2(2) indicates that this
subsection is only an inclusive and clarificatory provision. As stated above, it is not providing that
provisions of Part I do not apply to arbitrations which take place outside India

Applicability Of Part 1 Of The Act

Section 2(2) provides that Part 1 will apply where the place of arbitration is in India. It does not
provide where place of arbitration is not in India. It does not provide that Part 1 will ‘only’ apply
where the place of arbitration is in India. It is, therefore, clear that Part 1 would apply to arbitrations
which take place in India but does not provide that provisions of Part 1 will not apply to arbitrations
which take place out of India. By omitting to provide that Part 1 will not apply to international
commercial arbitration which take place outside India the effect would be that Part 1 would also
apply to international commercial arbitration held out of India. Thus in respect of arbitrations which
takes place outside India even the non derogable provisions of Part 1 can be excluded. Such an
agreement may be expressed or implied.

Where an international commercial arbitration is held in India the provisions of Part 1 will
compulsorily apply and parties are free to deviate only to the extent permitted by the derogable
provisions of Part 1. In case of International commercial arbitration held outside India, provisions of
Part 1 will apply unless the parties by agreement, expressed or implied, exclude all or any of its
provisions. In that case the laws or rules chosen by the parties would prevail. Any provisions in Part 1
which is contrary to or excluded by that law or rules will not apply in the latter case. The Supreme
Court observed that if the part I of the Act is not made applicable to arbitration held outside India it
would have serious consequences such as (a) amount to holding that the Legislature has left a
lacunae in the said Act. There would be lacunae as neither Part I or II would apply to arbitrations
held in a country which is not a signatory to the New York Convention or the Geneva Convention. It
would mean that there is no law, in India, governing such arbitrations; (b) leaves a party remediless
in as much as in international commercial arbitrations which take place out of India the party would
not be able to apply for interim relief in India even though the properties and assets are in India.

Thus a party may not be able to get any interim relief at all.

The Supreme Court made certain observations in respect of International commercial arbitration
which take place in a non-convention country. The Court observed that international commercial
arbitration may be held in a non-convention country. Part II only applies to arbitrations which take
place in a convention country. The Supreme Court referred to the definition of international
commercial arbitration which is defined in Section 2(f) of the Act and held that the definition makes
no distinction between international commercial arbitration which takes place in India or those take
place outside India. The Supreme Court also observed that Sections 44 and 53 define foreign award
as being award covered by arbitrations under the New York Convention and the Geneva Convention
respectively. Special provisions for enforcement of these foreign awards are made in Part II of the
Act. To the extent part II provides a separate definition of an arbitral award and separate provision
for enforcement of foreign awards, the provision in Part I dealing with these aspects will not apply to
such foreign awards.

The court finally concluded that “the provisions of Part I would apply to all arbitrations and to all
proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would
compulsorily apply and parties are free to deviate only to the extent permitted by the derogable
provisions of Part I. In cases of international commercial arbitrations 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. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I,
which is contrary to or excluded by that law or rules, will not apply”.

Merely because the parties have stated that venue of arbitration shall be Hong Kong, it does not
follow that laws in force in Hong Kong. Where the Arbitration clause states that ‘The 1996 Act’ will
apply and this act would govern the appointment of arbitrator, the reference of disputes and the
entire process and procedure of arbitration from the state of appointment of arbitrator till the
award is made and executed/given effect to.

On 20 April 2021, the Indian Supreme Court in PASL Wind Solutions v. GE Power
Conversion India,1 clarified that two Indian parties can choose a foreign arbitral seat and
that parties to such foreign seated arbitrations will be able to obtain interim relief from
the Indian courts.

The Supreme Court in Sasan Power Ltd. v. North American Coal Corporation India Private Limited did
not decide on whether two Indian parties could agree to a foreign seat, in opposition to the Supreme
Court's judgement in TDM Infrastructure. Supreme Court confined itself to deciding whether two
Indian companies could contract out Indian substantive law.
Conclusion

The Govt of India recognising the need for reform in the law relating to arbitration decided to act
based on the basis of the UNCITRAL Model Law on International Commercial Arbitration and the ICC
Rules for Conciliation and Arbitration by enacting a new law based on the Model Law which was
designed for universal application. The law enacted in India in1996 based on the UNCITRAL Model
Law provides for the resolution of domestic disputes also. A significant feature of the new Indian
Law is that the role of courts therein is even more limited than that envisaged under the Model law.
It is significant that the Model Law on which it is based was envisaged in the context of international
commercial arbitration, but the new Indian Law treats the Model as equally appropriate for
domestic arbitration. This scheme eliminates a dichotomy in the new Indian Law between the law
applicable to domestic arbitration and that applicable to international commercial arbitration.