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Intervention Of Judiciary In International Commercial Arbitration In India

The alternative dispute resolution system (ADRS) has become the need of the hour in today's world of globalization and liberalization because of unnecessary delays in court hearings. The ADRs are most effective and used in commercial disputes. The types of ADRs are arbitration, mediation, conciliation, negotiation, etc., the decision of arbitration is binding and for the rest it is non-binding. In the year 1985, the model law on international commercial arbitration was adopted by the United Nations Commission on International Trade Law (UNCITRAL) and it was handed over to the enact it in their own ways.

India also introduced a new law in consonance with the New Model adopted by UNCITRAL and introduced Arbitration & Conciliation Act, 1996 [Arbitration Act] and repealed the Arbitration Protocol act, 1937, The Foreign Awards (Recognition and Enforcement) Act, 1961, and the Arbitration Act 1940. The new law was established to provide an effective and efficient dispute resolution system in India that will overcome all the shortcomings of the previous laws. The law aimed at attracting new foreign investors and also to show that the Indian system of arbitration is also reliable.

The Arbitration law in India is governed by the Arbitration and Conciliation Act, 1996. The act is divided into two parts. Part I lays down provisions with respect to domestic arbitration and Part II is in relation to International Commercial Arbitration. Section 2(1) (f) of the Arbitration Act defines "international commercial arbitration".

Today India is facing challenges like the involvement of the judiciary in arbitration, a lack of awareness among people about a speedy way of resolving disputes through ADRs, and a need for a more stringent law to look after the ADRs in the country. In this, research report the author explores the main challenge faced which is the involvement of the judiciary in foreign commercial disputes and the future of the Alternative dispute system in India with the help of cases and examples.

Involvement of Judiciary in evolving the position of Arbitration in India

Arbitration is the best method to be used to resolve a commercial dispute between parties. When two parties from two different nations are involved, international commercial arbitration is seen as an effective and efficient method of resolving disputes because of its wide applicability. Thus, for times like these, it becomes important to restrict the scope of jurisdiction of Indian courts so that they don't get involved in an international commercial dispute which already governed by international conventions.

The Supreme Court first engaged itself in the foreign seated arbitration in the case of Bhatia International v. Bulk Trading SA[1] [Bhatia case]. In this case, the court held that Part I of the Arbitration Act shall be applicable to all foreign seated arbitration unless its applicability has been expressly excluded. For example, if there are two parties one is from India and the other one from Japan and the seat of arbitration is in Singapore then the Indian Courts will have the jurisdiction to deal with the issues which are given in Part I of the Arbitration Act.

This led to a major problem among foreign investors and this decision faced a lot of criticism from the International Arbitration community. Further in the cases of Citation Infowares Ltd. v Equinox Corpn.[2] and Venture Global Engg. v. Satyam Computer Services Ltd.[3], the jurisdiction of Indian courts extended to the appointment of the arbitrator and overruling a foreign award respectively.

The need for a change was realized in the case of Industries Australia Ltd. v Republic of India[4], in this case as per the agreement the seat of the arbitration was Paris, Indian courts had no jurisdiction in the case. The Indian courts got involved in relation to award and decided the case based on previously decided judgments. This led to thought to change and limit the scope of Indian courts in foreign commercial disputes.

In the landmark case of Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc.[5] [BALCO case], the Supreme Court decided on the issues of applicability of law, seat, jurisdiction, and venue in a foreign arbitration. The BALCO case came as a rescue and a savior to International Commercial Arbitration in India and set aside the Bhatia case and limited the powers and jurisdiction of Indian courts in the case of foreign seated arbitrations.

Article 5 of the UNCITRAL Model Law on International Commercial Arbitration gives the principle of "Least Court Intervention".[6] The Supreme Court abided by this principle in the BALCO case. The case analyzed the provisions of the Arbitration Act and the applicability of Part I of the Arbitration Act in relation to international commercial arbitration.

The prospective effects of the judgment were that it will apply only prospectively, the seat of the arbitration will be given utmost importance, the difference between the seat of arbitration and place of arbitration was laid down, and foreign awards can no longer be challenged by Indian courts, no interim relief can be granted. The court also held that when the seat of arbitration is in India, the Indian courts can exercise the jurisdiction in a foreign arbitration. The case gave due respect to the Territorial principle given under Article 1(2) of the UNCITRAL Model Law.

Other than this there has been a case where the Indian courts have taken progressive steps to help the arbitration system in the country. For example, in the case of World Sport Group (Mauritius) Ltd. v MSM Satellite (Singapore) Pte. Ltd.[7], in cases of foreign seated arbitration, the process of arbitration can stay only when it is expressly void. In the case of Enercon (India) Ltd. v Enercon Gmbh[8], the court laid down that the arbitration agreement cannot be avoided just because there is no final contract between the two parties.

Recent development can be seen in the case of Jayesh Pandya v Subhtex[9] where the Delhi Court held that if a term in the contract specifies that an award must be issued within a particular time limit, it should happen accordingly otherwise the mandate will end. Another recent development is the Imax Corporation v. E-City Entertainment[10], where the Bombay High Court laid down that the limitation period for enforcement of foreign awards is 12 years.

Future of Arbitration in India

The ADRs aim to give respect to parties' independence, especially in relation to international commercial arbitrations. When the judiciary tries to get involved with this procedure it infringes the rights of the respective parties. The law which was laid down in the Bhatia case, Infowares Ltd., and Venture Global which was that courts can decide an arbitration matter was simply in contradiction to the Model law adopted by UNCITRAL which was that there should be minimum intervention.

It was only after the BALCO case progressive steps were taken to rectify the damage that has been done and finally limit the scope of judicial intervention. In order to become a develop national and to attract more foreign investment which can be done only if we get involved in more international commercial transactions. These commercial contracts are to be looked after and the Indian courts should not get involved in the commercial disputes.

This has to be done to stabilize the confidence of the international community to establish integrity in the arbitration system. In order to make the country, a hub of commercial arbitration focus and importance should be given to institutional arbitration. Institutional arbitration means that an established institution takes the role of resolving disputes between the parties. Another thing that is stopping the development of arbitration in India is the appointment of retired judges as arbitrators in an arbitration matter, this should be discouraged as the retired judges don't make this appointment seriously and this leads to unnecessary delays.

To solve this problem one unified body should be made which appoints the arbitrator and only those who are exclusively involved in the practice of arbitration. The government, lawyers involved in the practice of arbitration, and the corporate world should take initiative and spread awareness about arbitration more. The decision in the BALCO case is the most step in the arbitration sector in Indian history and has started a pro-arbitration movement in India.

We await more judgments like this which strengthen the structure of arbitration and expand its applicability to more types of disputes. There is a need for new foreign investment law also which will govern the incoming foreign investment in the country and will also provide a speedy, effective, and efficient way to conduct the arbitration.

  1. Bhatia International v. Bulk Trading SA, (2002) 4 SCC 105.
  2. Citation Infowares Ltd. v Equinox Corpn., (2009) 7 SCC 220.
  3. Venture Global Engg. v. Satyam Computer Services Ltd., (2008) 4 SCC 190.
  4. Industries Australia Ltd. v. Republic of India, IIC 529 (2011).
  5. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.
  6. Article 5, UNCITRAL Model Law on International Commercial Arbitration, 1985.
  7. World Sport Group (Mauritius) Ltd. v MSM Satellite (Singapore) Pte. Ltd., (2014) 11 SCC 639.
  8. Enercon (India) Ltd. v Enercon Gmbh, (2014) 5 SCC 1.
  9. Jayesh Pandya v Subhtex, (Civil Appeal No 6300 of 2009).
  10. Imax Corporation v. E-City Entertainment, (Commercial Arbitration Petition No. 414 of 2018).

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