Module 2

INTERNATIONAL
COMMERCIAL ARBITRATION

CERTIFICATE COURSE

DEVELOPED BY

SU Shah &
Associates

MODULE - 2

INTERNATIONAL COMMERCIAL
ARBITRATION WITH SEAT IN INDIA

2.1. INTRODUCTION the power of the Indian Judiciary to interfere with the
matters of arbitration seated outside of India.
“For an Arbitrator goes by equity of a case, a judge by
law, and arbitration was invented with the 2.2. INTERNATIONAL COMMERCIAL
express purpose of securing full power for equity.” ARBITRATION:

– Aristotle. In simple terms, Arbitration is a compromise between
the parties involved in dispute wherein the parties
Due to globalization, there has been growth in present their dispute before an impartial arbitrator
international trade and investment which is also for settlement of it and conclusion with their mutual
accompanied by cross border commercial disputes. consent and that decision is binding on the parties.
This brings the need for efficient dispute resolution in Thus Arbitration can also be called as out of court
order to resolve the issue which may arise from settlement of the disputes.
International Commercial Trade. If two individuals
are having any kind of dispute, then it can only be Domestic and international arbitration and the
resolved by the impartial interference of the third enforcement of arbitral awards is dealt under
party. Therefore it is mandatory to have an arbitrator.
In India, the Judiciary handles the international Arbitration and Conciliation Act, 1996 (amended in
arbitration and extra territorial applications of 2015). The Supreme Court in the case of TDM
domestic laws in foreign seated arbitration, but after Infrastructure Pvt. Ltd. V. UE Development India Pvt.
2012 various landmark judgments given by Supreme Ltd,isaidthat“in spite of a company having a foreign
Court and High Court have declared Indian control, a company which is incorporated in India can
Arbitration Law to be seat-centric and by removing

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only have Indian Nationality for the purpose of the arbitration and also the requirement of the other
act.” The scope of Section 2(1)(f) of the Arbitration party to do somethingin this regard.Section21 ofthe
and Conciliation Act, 1996, has also been explained Arbitration and Conciliation Act, 1996 defines this
which defines the term International Commercial term- “A notice of arbitration has to be served to the
Arbitration as “An arbitration relating to disputes other party, requesting that the dispute to be
arising out of legal relationships, which may be referred toarbitration”.
contractual or not, considered as commercial under
the law in force in India and where at least one of the 2.2.2. Referral to Arbitration:
parties is -
Before entering into any agreement generally, the
i. A person who is a national or a resident of any parties decide the manner in which they resolve their
other country than India; or disputes in order to avoid future conflicts and
confusions. If the subject matter of the dispute is
ii. A body situated in any country other than India; governed by the arbitration agreement then the
iii. A company in which management and control is courts can refer the parties to resolve their disputed
through arbitration primarily. As per Section 8 of the
exercised in a country other than Indian ; applicable act which provides that- if an action is
iv. The Government of a foreign country.” brought before a judicial authority which is a subject
matter of arbitration, upon an application by one
When the seat of International Commercial party, the judicial authority is bound to refer the
Arbitration is in India, before the applicability of the dispute forarbitration.
Amendment Act, 2015 the following are the laws
which areapplicable:- Here, the meaning of the words ‘upon an application
by a party’ means that it is essential that the
2.2.1. Notice of Arbitration: application must be made by the party either before
or at the time of making his first statement on the
The Notice of Arbitration is considered as the initial substance of the dispute and the application shall be
step towards the commencement of arbitration. This accompanied by a duly certified or a original copy of
notice has been given to the other party with the the arbitration agreement.
motive of seeking arbitration by communicating the
intention of first party to refer the dispute to

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2.2.3. Interim Reliefs: It is important to be noted that the powers of the
arbitral tribunal are narrow as compared to the
This relief is been granted by the courts, in the cases powers of the court.
where there is an urgent need to provide
rehabilitation to the affected parties. This can be 2.2.4. Appointment of Arbitrators:
given before the decision is made by the court. In
International Arbitration the parties can seek for The appointment of an Arbitrator is very important
interim reliefs from the courts under Section 9 and 17 task because he is the one who has the duty to give
of the above mentioned act respectively. decision without any kind of biasness. It is the
responsibility of an Arbitrator to ensure that both the
a. Section 9 - A party may, before, or during arbitral parties get fair trial, and he should also refer to the
proceedings or at any time after the making of principles of Natural Justice. There is need for the
the arbitral award but before it is enforced, apply appointment of an arbitrator in the cases where the
to a court for seeking interim measures and appointed arbitrator denies continuing in the same
protections including interim injunctions. position, in this situation the court having jurisdiction
However, after the 2015 amendment act, the to intervene to arbitration proceedings and the
court is barred from entertaining any power is given to Chief Justice of India (CJI) to
application under section 9 after the arbitral appoint anarbitrator.
tribunal is set up, unless the remedy
becomes inefficacious. Also, the parties are The appointment of arbitrator can be done in two
required to commence the arbitral different ways: -
proceedings within 90 days from the date of
passing of interim relief by the court. a. Ad hoc arbitration- In an ad hoc arbitration the
parties are at their own liberty and are free to
b. Section 17 - The arbitral tribunal can also appoint an arbitrator and they can appoint whom
provide interim measures of protection or ask a so ever they want subject to only condition that
party to provide appropriate security in they should not be in even number as mention in
connection with the matters of dispute, as is section 10 of the said act.
found appropriate during the course of arbitral
proceedings. b. Institutional Arbitration- In this the contract
between the parties will contain a clause which
will state the appointment of an institution and

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that the arbitration will be conducted as per biasness. An arbitrator can be of any
the party designated rules. The nature of the
dispute determines the appointment of the nationality. In case of International
institution E.g., matters relates to banking
sector will get directed towards ABC institute Commercial Arbitration, the appointed
due to their previous record of arbitration in
this particular sector. arbitrator must be of some other nationality

ü Section 11(4) of the Arbitration and as compare to the nationality of the
Conciliation Act, 1996 provides the role of
the CJI by the i.e., on the request of the parties contracted parties.
the chief justice or the designated institution
shall appoint the arbitrator. c. Qualification of an Arbitrator: The Indian law

ü Section 11 (5) on the failure of the does not lay down any specific qualification
appointment of the arbitrator by the parties
then on the request of the parties the for arbitrators. Any person who is of sound
arbitrator shall be appointed by the CJI or the
designated institution. mind, attained the age of majority, holds a

ü Section 11(7) the judicial powers of the chief degree who is a person of knowledge,
justice or the designated institution as the
decision given by them in the situations integrity, and ability can be an arbitrator. An
mentioned by them in sub clause (4) and (5) is
finaNumber of Arbitrator: The number arbitration panel includes a wide range of
of arbitrator is depend on the agreement
formed by the parties, if the agreement is experts belonging to various trades,
silent about the number of arbitrator then it is
supposed to appoint one arbitrator as per law. profession, business. Some arbitral

ü Nationality of Arbitrator: This provision has institutions conducting international
been made in order to remove any kind of
arbitration include foreign arbitrators also.

This enables the foreign parties to choose

arbitrator who belong to some other

nationality. It depends on the agreement as

well if the parties to an arbitration agreement

mention in the contract specifically in the

arbitration clause that the arbitrator should

belong to such specific institution and must

be holder of such specific office

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unenforceable in arbitration.
2.3. CHALLENGE TO APPOINTMENT OF ARBITRATOR:

The impartiality is an essential condition for In Volestalpine Schienen GmBH v. Delhi Metro
an arbitrator in arbitration proceedings. Rail Corporation Ltd.,iiithe Supreme Court held
Absence of impartiality is a ground to challenge that “the fact that the proposed arbitrators being
government employees / ex-government

his appointment. Section 12(1) of the act states employees was not sufficient in itself to make

that when an arbitrator is appointed for them ineligible to act as arbitrators, especially

resolving the dispute and if there are any since they were ex-employees of public bodies

grounds which can create doubts regarding not related to the respondent.”
his impartiality or independence, then such

arbitrator must disclose it in writing. In the very recent case Corporation (Marcus Oil

and Chemical Division) v GAIL (India),iv

Also Section 12(3) states that an arbitrator Supreme Court set out the legal position

may be challenged if: regarding challenges to a person's possible

a. The Situation in which he is placed appointment as an arbitrator. The position under
poses questions regarding his independence the act is that a disclosure must be made by a
and impartiality; or; person approached as a possible arbitrator. If he
b. He does not hold the necessary or she discloses circumstances which fall under
qualifications agreed upon by the parties. any of the categories specified in the Seventh
Schedule, then that person cannot be appointed

In Aravali Power Company Ltd. V. Era as an arbitrator. Since such person would lack
Infra Engineering Ltd,ii the Supreme Court the inherent jurisdiction to proceed as an
held that “the employee named as the arbitrator arbitrator, the court of appropriate jurisdiction
in the arbitration clause should be given effect can terminate the mandate of such person under
to in the absence of any justifiable Section 14(2) of the act. The Supreme Court has
apprehension of Independence and held that since ineligibility goes to the root of the
Impartiality.” However, appointment of appointment, Section 12(5), read with the
employee as an arbitrator is not valid and Seventh Schedule, clarifies that if the arbitrator
falls under any of the categories specified in the

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Seventh Schedule, he or she becomes ineligible In NBCC Ltd. V. J.G. Engineering Pvt. Ltd.vi the
to act as an arbitrator. Supreme Court has laid down the mandate of the
arbitrator expires in case of award is not delivered
2.4. MANDATE OF THE ARBITRATOR: within the limit stipulated by the parties in the
arbitration agreement.
The term mandate of the arbitrator means the
termination of the arbitrator. The, mandate of an 2.5. CHALLENGE TO JURISDICTION:
arbitrator shall terminate if-
There is a need to understand that what could be the
He legally or factually is not capable to challenge faced by the Arbitral Tribunal related to its
discharge his functions or fails to act jurisdiction, it includes the questions like the decision
without undue delay due to some other made by the Arbitral Tribunal would be binding on
reasons; and the regular courts or not. Also, whether the decision
The parties agree to terminate him or he given by arbitral courts works as precedents for
himself withdraws from his office. future litigation or not, etc. As per the Section 16of
the Act- An Arbitral Tribunal has competence to rule
Kifayatullah Haji Gulam Rasool Vs Bilkish Ismail on its own Jurisdiction, which includes ruling on any
Mehsania,v there was a mandate given to the objections with respect to the existence or validity of
arbitrator that he should complete the arbitration
proceedings till 9.1.1999, in the consent order dated the arbitration agreement. As per the ‘Doctrine of
9.11.1998, subject to the agreement between the Competence’ which confers jurisdiction on
parties. The consent order contained an agreement Arbitrators to decide challenges to the arbitration
between the parties that the authority of the clause itself. In S.P.B. and Co. V. Patel Engineering Ltd.
and Another,vii the Supreme Court has held that
arbitrator shall come to an end on 9.1.1999. “where the Arbitral Tribunal was constituted by the
Subsequently, there was failure on the part of the parties without judicial intervention, the
arbitrator to act without undue delay and there was Arbitral Tribunal could determine all jurisdictional
expiry of the time period. It was held that the issues by exercising its powers of competence-
mandate of the arbitral tribunal had stood competence under the section 16 of the Act.”
terminated on 9.1.1999 by efflux of time.

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2.6. CONCLUSION

This module covers the detailed aspects of
International Commercial Arbitration. It simply is
a dispute resolving mechanism between two
parties from two different countries. The process
starts with the issue of notice by the party
seeking arbitration that is also dealt under
Section 21 of the Arbitration and Conciliation Act,
1996 followed by entering into an agreement
wherein the parties decide the manner in which the
process will continue to circumvent any conflict.
The parties can also seek interim relief under
section 9 and 17 of the act. The parties also have
the right to either opt for ad hoc arbitrator or
institutional arbitrator. Appointment of arbitrator
can also be challenged on the grounds of
independence and impartiality. Thus the act has
sufficiently incorporated all the provisions which
may
fulfill the requirements of the parties.

i (2008) 14 SCC 271. v AIR 2000 BOM 424.
ii 2017 (5) Arb. LR 226. vi (2010) 2 SCC 385.
iii 2017 4 SCC 665. vii 2005 (8) SCC 6
iv 2017 SCC Online SC 1024.

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