Chapter-1: Towards Understanding the Framework

CHAPTER-1
TOWARDS UNDERSTANDING THE FRAMEWORK
The entire legal profession has become so mesmerized with the stimulation of
the courtroom that we tend to forget that we ought to be the healers of
conflicts. As healers of human conflicts, the obligation of the legal profession
is to provide mechanism that can produce an acceptable result in the shortest
possible time, with the shortest possible expense and the minimum of stress on
the participants. That is what justice is all about. However, the increasing
growth of international trade and the delay in disposal of cases in the normal
court system made it imperative to have the perception of alternative dispute
resolution especially in relation to the commercial disputes. When the entire
world was busy in the speedy resolution of the commercial disputes, the
United Nation Commission on International Trade Law (UNCITRAL), far
back, enacted the UNCITRAL Model Law on International Commercial
Arbitration 1985. Upon adoption of its Model Law on International
Commercial Arbitration, UNCITRAL finalized its work on the law and
handed it to the governments willing to enact it; this introduced the next stage
of the Model Law‟s development. Although UNCITRAL has never officially
stated what exactly constitutes “full adoption” of the Model law, it is apparent
from the arbitration laws of different states found on http://www.uncitral.org
that the fundamental provisions and the principles (the so called “pillars”)of
the Model law( i.e. arts 16,18,34-36,to mention but a few) must in one way or
another be included. Further any modification should not go against the
general philosophy of the law. However the different adoptions of the same
model text obviously has produced a multitude of different approaches, each
state trying to combine the structure of the Model law with its individual
domestic legislative requirements. This is also necessary to reveal that the
enactment of an arbitration statute in a jurisdiction which conforms to the
Model law is only half the story; the true test for the successful functioning of
a legal statute is its application by the users and the national courts.

In order to consolidate and amend the law relating to domestic arbitration,

international commercial arbitration, enforcement of foreign arbitral awards
and to define the law relating to conciliation, the Indian legislature enacted the

1
 Chapter-1: Towards Understanding the Framework

Arbitration and Conciliation Act, 1996 on the basis of the UNCITRAL Model
Law. It cannot be said that each and every provision of the said Model law
forms part of the Act, even though the preamble of the Act says that it is
expedient to make laws respecting arbitration and conciliation taking into
account the UNCITRAL Model law and Rules. Those Model laws and rules
were taken into account while drafting and enacting the Act but whatever has
been enacted is the law on arbitration enforceable in India. It is to be noted
that in order to provide an effective and expeditious dispute resolution
mechanism in India, to attract foreign investment and also to reassure the
international investors in the reliability of the Indian legal system, the
legislator enacted the 1996 Act repealing the earlier three legislations, i.e. the
Arbitration Act, 1940, The Foreign Awards (Recognition and Enforcement)
Act, 1961 and the Arbitration Protocol Act, 1937. The Apex Court in the case
of Konkan railway Corporation v. Mehul Construcion Company rightly
observed that the 1996 Act aims -“ to attract the confidence of international
Mercantile Community and the growing volume of India’s trade and
commercial relationship with the rest of the world after the new liberalization
policy of the Government…….” 1

However what is evident from the past couple of years experience of the
working of the Act that the 1996 Act fails to achieve its objectives. With the
passage of time, it is felt that the 1996 Act suffers from different lacunas and
different stakeholders of the arbitration remain unsatisfied with the way the
arbitration is being observed and conducted in India. Though the Act rests on
least judicial intervention which is evident from the corresponding provision
of the Act,2 but in reality the excessive judicial intervention has plagued the
whole Indian arbitration law and thereby destroyed the sanctity and the
3
benefits of the arbitration law in India. AS the law stands, enforcing an
arbitral award would take at least a decade. The reason being, that challenging
an arbitral award under section 34 of the Act is a ritual which starts at the
District court followed by the High Court and ultimately reaching the domain

1
Konkan railway Corporation v Mehul Construction Company AIR 2000 SC 2821
2
See section 5 of the Arbitration and Conciliation Act 1996 which states that the judicial authority shall not intervene
until and unless it is permitted to do so.
3
Reference can be had to the decision of the Apex Court in the cases of Bhatia International v Bulk Tradings (2002)
4 SCC 105

2
 Chapter-1: Towards Understanding the Framework

of the Apex court of India. India is facing criticism from the global investors
for the excessive delay in the disposal of cases and parties to International
arbitration have shunned India as arbitration destination.

Taking note of the excessive judicial interventionism and the lack of effective
provisions to curtail the cost and delay in an arbitration proceeding under the
1996 Act, the Law Commission of India submits 246th Report on 5th August,
2014 to the Ministry of Law. The Commission has expressed concerns
regarding undue delay owing to the judicial intervention and accordingly
recommended number of changes to be incorporated in the 1996 Act in view
of the inadequacies observed in the functioning of the 1996 Act. An overhaul
of the several areas of the Act was recommended. The changes sought were
overdue, especially in circumstances when the country was witnessing the
second wave of economic reforms. 4 Subsequently the Government of India
promulgated the Ordinance and finally the Arbitration and Conciliation
(Amendment) Act, 2015 came into force on 23 day of October, 2015. The
Amendment Act is certainly a highly welcoming step in view of the
overwhelming criticism of prolonged arbitral procedure under the 1996 Act
which in turn incurs enormous cost and with no second thought in mind, this
can be said that the Amendment Act has definitely brought about various
positive shifts and changes from the previous law.5 This will certainly bring a
positive change to India‟s reputation as a seat for international commercial
arbitration. Despite these positive changes, there still exist certain areas of
concern which require further elucidation and clarifications by the House of
Legislature.

4
The first economic reform was initiated in 1991 when the initiatives were taken to make the economy more market
oriented and expanding the role of private and foreign investment. Deregulation of the market, greater foreign
investments, reduction in import tariffs etc were some of the changes being initiated. The second wave of the
economic reforms is witnessing privatization of the loss making Public Sector Undertakings, land and Labour
Reforms, initiatives for Goods Service tax (GST) etc.
5
Some of the welcoming major changes include: time bound arbitral award to the effect that the award shall be made
within twelve months from the date the arbitral tribunal enters upon the reference; if the award is made within six
months only, the tribunal shall be awarded such amount of additional fees as the parties may agree. Fast track
arbitration has been introduced. Further, if the court passes any interim order under section 9, the arbitral proceedings
must commence within a period of 90 days. No application for interim measure shall be entertained by the court if the
arbitral tribunal is constituted unless the remedy under section 17 proves to be inefficacious. The interim measures of
the arbitral tribunal have been made enforceable. The High Courts have been empowered to frame rules for the
determination of the fees of the arbitral tribunal. Along with this the Fourth Schedule of the Act has been added which
prescribes a model fee for different specified amount in dispute. The Amendment Act has also taken initiatives to
ensure the independence and impartiality of the arbitrators. The newly added Fifth Schedule elaborates the
circumstances which would give rise to justifiable doubts as to the independence and impartiality of the arbitrators. In
case of the international commercial arbitration, application under section11 and 34 shall be made directly to the High
court, which should aid faster disposal.

3
 Chapter-1: Towards Understanding the Framework

The Indian arbitration law has seen a sea change in the last couple of years. In
fact, even before the 2015 Amendment to the Arbitration and Conciliation Act
1996, the decision of the Apex court in the case of Bharat Aluminium
Technical Services, Inc. v. Kaiser Aluminium Technical Services Inc (2012),6
popularly known as BALCO marked the beginning of the pro arbitration
regime in India. The issues of applicable law, seat, venue and the jurisdiction
of the Indian court in a foreign seated arbitration have been set at rest by the
aforesaid decision of the Apex Court. The potential intervention of the Indian
courts over the foreign seated arbitration especially after the decision of the
Hon‟ble Supreme Court in Bhatia International v Bulk Tradings (2002)
became a major concern for the foreign investors. In Bhatia International the
Court held that Part I of the Indian arbitration Act shall be applicable even to a
foreign seated arbitration until and unless the application of part I have been
excluded either in express terms or by necessary implication. The extension of
the application of the Act vis a vis the extension of the jurisdiction of the
Indian court in a foreign seated arbitration faced widespread criticism from the
international arbitral community. The jurisdiction of the Indian courts in a
foreign destined arbitration were extended not only in the matter of granting
interim measures but also in the matter of the appointment of arbitrator7 and
setting aside a foreign arbitral award 8 . This overreaching approach of the
Indian judiciary has been remedied to a large extent by BALCO where the
Constitutional Bench of the Hon‟ble Supreme Court overruled its much
criticized decision in Bhatia International and made it abundantly clear that
part I of the Arbitration and Conciliation Act, 1996 would not be applicable to
arbitrations with a foreign seat. This was a highly welcoming decision of the
Hon‟ble Supreme Court as the decision affirmed the golden principle of
commercial arbitration- i.e., „Least Judicial Intervention‟. This principle of
territoriality is carry forwarded and subsequently gets its legislative
recognition in the 2015 Arbitration Amendment Act.9 In fact during last few
years a series of court decisions in India have strengthened the pro arbitration

6
Bharat Aluminium Technical Services, Inc v. Kaiser Aluminium Technical Services Inc ( 2012) 9 SCC 552
7
Citation Infowares Ltd. v. Equinox Corporation (2009) 5 UJ 2066 ( SC)
8
Venture Global Engineering v. Satyam Computer Services Ltd. (2008) 4 SCC 190
9
Section 2(2) of the Act is amended and the amended provision states that section 9, 27, 37(1) (a) and 37(3) shall
apply to international commercial arbitration even if the international commercial arbitration is taking place outside
India.

4
 Chapter-1: Towards Understanding the Framework

stance in the Indian judiciary. While the issue of the jurisdiction of the Indian
courts in a foreign seated arbitration has been set at rest, there are certain areas
where we observe the regressive attitude of the Indian court still continues.
There are certain areas like application of law, choosing foreign applicable law
by Indian parties, enforceability of the decision of the emergency arbitrator etc.
which still need to be addressed and the international arbitration community is
looking ahead of some authoritative rulings by the Apex court of India in
relation to all these issues.

In the last forty years or so, Alternative Dispute Resolution has matured and
developed. It is now part of mainstream thinking and perhaps more
significantly than might have been anticipated. The success of trade and
business of a country solely depends on various avenues of commercial
dispute resolution which are unfolded in that country!! India being one of the
largest markets of international trade and foreign investment must have a lucid
mechanism of commercial dispute resolution system which is free from all
types of domestic encumbrances. It is important to note that under the aegis of
Globalization & Economic liberalization, India heavily leans in favour of
arbitration which is considered to be the most efficacious & preferred mode of
dispute resolution system. In fact, India has been dreaming to make this
subcontinent as a hub of international commercial arbitration. This dream can
turn into reality only when the country will witness a multifold growth in the
following three areas:

1. A committed judiciary to ensure least intervention in the arbitration,

2. growth of world class institutions committed to conduct as well as

encourage arbitration as the best alternative to litigation for the
amicable settlement of commercial disputes and of course

3. An efficiently drafted legal framework within which the arbitration

shall be conducted.

This is what this treatise aspires to deal with. This work aims to provide a
comprehensive description and analysis of law, practice and policies of
international commercial arbitration and endeavors to identify the solutions for
the conceptual and practical challenges that confront the international arbitral

5
 Chapter-1: Towards Understanding the Framework

process in India. In doing so, the work focuses on the law and practice of
international commercial arbitration in Model Law jurisdictions. The present
study although intends to make a comparison of Indian scenario with Model
law jurisdictions, this work necessarily confines to a limited Model law
jurisdictions. Basically, the jurisdictions namely France, United Kingdom,
Switzerland and Singapore have been identified to which the study is
narrowed down. Each of these jurisdictions is widely accepted to be
exemplary hubs of commercial arbitration. Since each jurisdiction adopts its
own system and approaches to fit into the existing legal framework of that
country, important lessons and insights may be gained on how diverse and
seemingly varying laws and practices nevertheless culminate into highly
effective, successful practices forming a supportive framework for arbitration.
It is expected that the analysis and study of the aforesaid jurisdictions and the
precise identification of the approaches, practices and strategies of the
respective jurisdictions shall be of relevance to the study of law and practice
of commercial arbitration in India.

The underlying aim of the proposed study is to gain and present new
knowledge and ideas and to suggest change and reform. The study shall be
essentially a library based study; thereby the materials needed have been
availed from libraries, archives and other data bases. So the approach of the
study is Doctrinal which can also be referred as a pure legal research.

Chapter-II deals with the intransigent principles of the international

commercial arbitration which make commercial arbitration as one of the most
efficacious methods of dispute resolution mechanism. These principles have
now achieved near universal recognition. It starts with the separability
presumption which deems to be one of the most significant and practical
cornerstones of international arbitration. An attempt has been made to endorse
the fact that this presumption is of central significance in international
commercial arbitration and has been recognized in almost every legal
jurisdiction. The chapter further deals with the closely related consequences of
this presumption. Pertinent to note that amongst all these consequences, the
possible application of a different national law to the arbitration agreement
than to the underlying contract and the possible validity of the arbitration

6
 Chapter-1: Towards Understanding the Framework

agreement notwithstanding defects in the underlying contract play a crucial

role in ensuring the efficacy of international arbitral process. The chapter
further elaborates the power of the arbitral tribunal to rule its own jurisdiction
which is known as the principle of competence competence. An analysis of the
source of this power as well as the limits of the exercise of this power has been
dealt in this chapter. Further the recognition of this principle in different
national and international legal instruments and its observance in the national
court is displayed by highlighting different conventions, legislations and
judicial pronouncements. Finally this chapter addresses the choice of law issue
which is considered to be the central aspect of the international arbitral process.
The central theme of this choice of law issue discussion rests on the premise
that the international commercial arbitration is susceptible to different laws
which can be designated by the parties by virtue of the party autonomy.

Chapter-III deals with the role of the national court in the conduct of the
arbitration. As already stated that one important factor to bring success to
commercial arbitration is the existence of a committed judiciary which shall
ensure least judicial intervention. The relationship between national courts and
arbitral tribunal swings between forced co-habitation and true partnership. The
success of international commercial arbitration lies in achieving considerable
degree of independence from the national courts. But at the same time it is the
national court which alone does have the power to rescue the arbitration while
one of the parties seeks to sabotage it. As rightly stated by Dr. Peter Binder
that “without doubt, the success of international commercial arbitration would
not have been possible without the mechanism of judicial control as a safety
net in the back ground. ……………………arbitration remains ultimately
dependent on the municipal courts for assistance during the proceedings and,
especially, for the enforcement of the awards”. The involvement of the
national courts in the international arbitral process remains essential to its
effectiveness. The positive and helpful attitude of the national court will
definitely help arbitration achieve its desired results but an unwarranted
judicial involvement shall be counterproductive and will turn the assistance of
the court into intervention.

7
 Chapter-1: Towards Understanding the Framework

This chapter is devoted in analyzing the permissible limits of the national

courts in their respective jurisdictions and the national court‟s involvement in
the whole process of the arbitration. For the matter of convenience, the whole
arbitration process is divided into three phases, i.e.(i) at the beginning of the
arbitration (ii) during the arbitration and (iii) at the end of the arbitration. This
has been argued that the involvement of the national court at each phase may
be necessary if any such situation arises. Three such situations have been
identified at the beginning stage of the arbitration where the parties may seek
the necessary assistance of the national court. The identified situations
comprise of the enforcement of the arbitration agreement, the establishment of
the arbitral tribunal and the challenges to jurisdiction. Drawing this analogy,
this chapter aspires to describe the law, practice and policy of court‟s
involvement in the aforementioned areas as has been envisaged in different
jurisdictions. The work subsequently focus on the issue of the grant of interim
measure which is considered as one of the most important areas during the
arbitration where the assistance of the national court may be required
depending on the existing circumstances of each case. The discourse aims to
address the related issues in granting interim measure by the national court
especially its kind and the extent of such power. Further, the chapter deals
with the legal frame work applicable to the setting aside of an international
arbitral awards and the different practices and policies of setting aside of
arbitral award in different jurisdictions. Particular attention is devoted to the
Indian legal system and the policies adopted by the Indian courts in relation to
the setting aside of arbitral awards. At the end, an extensive discourse is made
in relation to the jurisdiction of the Indian courts in a foreign seated arbitration
as this issue had been much discussed and debated in the international
arbitration community and the over-reaching approach of the Indian courts had
been regarded as the greatest hindrance to India‟s development into arbitration
hub.

Chapter-IV deals with the growth of institutional arbitration in India. The

chapter gives an overview of the two kinds of arbitration, i.e. ad hoc
arbitration and institutional arbitration. It gives a detail analysis of the relative
advantages and disadvantages of this two kind of arbitrations and argues that

8
 Chapter-1: Towards Understanding the Framework

in relation to cross border commercial disputes, institutional arbitration is a

preferred one than an ad hoc arbitration. Subsequently, overview is given of
some of the world‟s leading institutions (ICC, LCIA, and SIAC) which are
committed to foster the adoption of international arbitration in the respective
commercial disputes and thereby helping lubricate the engine of global market.
Both the ad-hoc and institutional arbitration are prevalent in India. Though the
fact is that in the present scenario in our country, most of the arbitration
proceedings are being conducted through ad hoc arbitration only and despite
the fact that institutional arbitration is having its own advantages like
availability of pre-established rules and procedures which ensures the
arbitration proceedings begin in a timely manner, administrative assistance
from the institution which will provide secretariat or court of arbitration, a list
of qualified arbitrators to choose from, assistance in encouraging reluctant
parties to proceed with arbitration and an established format with a proven
record etc. the institutional arbitration is yet to gain its popularity in our
country. Surprisingly the ad hoc arbitration, in spite of its inherent flaws
continues to dominate in India. The Law Commission of India in its 246th
Report has clearly stated that institutional arbitration is minimal in India. The
second part of the chapter appraises the factors which are impeding the growth
of the institutional arbitrations in India vis a vis the lack of world class arbitral
institutions in our country. In this process, a study conducted by the Queen
Mary School of Arbitration, University of London and another one conducted
by the Price Water House Coopers, India has been considered for detail
elucidation on the issue.

Chapter-V deals with some of the emerging issues in international

commercial arbitration. International commercial arbitration is in progress and
is continuously evolving in response to changing conditions and needs.
Arbitration no longer remains classical in the sense that one claimant is against
one respondent. There has been an exceptional growth in multi party
arbitration over the last few years. A paradigm of this complex arrangement
can be highlighted by a modern construction project which usually
encompasses a service recipient, a client, a service provider, a contractor,
numerous subcontractors, suppliers of materials and financers etc. For such a

9
 Chapter-1: Towards Understanding the Framework

construction project several contracts are entered into between the parties
which upsurge the possibility of disputes between multiple parties. This
chapter aims to address the intrinsic issues in an arbitration of such multi-
party/ multi contract transactions. It takes into account the English and the US
position and also focuses on leading institutional arbitral rules in this regard.
The discourse ends up with a critical analysis of the position adopted by the
courts in India. Further this chapter seeks to address the issue of
confidentiality as this issue is of immense importance in order to preserve the
business secrets of the parties, although the scope of arbitral confidentiality is
far from a settled issue. Finally this chapter addresses the issue of two/multi
tier arbitration. In this discourse, the issue of party autonomy and waiver of
statutory provision have been debated. The central theme of the discussion is
whether under the Indian arbitration Act there was anything which restricts the
modus of appellate arbitration by way of appeal whereas section 34 of the Act
does envisage the finality of the arbitral award and the only way to challenge
the award remains to be the setting aside application before the court. The
discussion is focused on the Indian position only, though an overview of the
other jurisdictions would have been the most befitting case in this regard.

Chapter-VI deals with the mechanism of online dispute resolution. ODR

comes as the newest entrant to the family of ADR. The Online Dispute
resolution is definitely a techno centric mechanism. Out of many novel
methods of dispute resolution, ODR proceedings is one of the branches of
arbitration proceedings which aim at amicable settlement of disputes through
online proceedings and offer a more convenient, cheaper method over
litigation. However, there have been many challenges to establish ODR
proceedings as a regular norm for dispute resolution in India. This chapter
seeks to address the intricacies involved in the process and also focuses on
legal framework on ODR in India and its future prospects in India.

Chapter-VII

The work marks the end of its journey with its concluding remarks in
International commercial arbitration is in progress. During the period of
writing this thesis, there have been major and minor developments and every
effort has been made to address the continuous evolution of the subject.

10