International Arbitration : Need for International Arbitration – By Kratika Kushwah

International Arbitration : Need for International Arbitration

– By Kratika Kushwah, 3rd year law student at Amity University Lucknow

ABSTRACT

Ancient Wisdom notes “a season for all things”. ADR’s time has come- even overdue some would argue. Litigation in courts, whether in India, the United States or most any other country, has become so time consuming, so expensive and so stressful, that some other way to resolve disputes among people had to be found. Arbitration, conciliation and other ADR forms offer an alternative to the traditional court system.

Resolutions or disputes is an essential elements of social peace and harmony. From prehistoric times, the task of resolving disputes has fallen upon the shoulders of the powerful ones like the tribal chiefs or the kings or on the wise ones like the village tribunals of Panchayats. With the evolution of modern states and sophisticated legal systems, courts run on very formal lines and presided over by trained judges, came to be almost exclusively entrusted with the responsibility of resolution of disputes.

Arbitration and domestic or in-house tribunals are alternatives to formal courts. However, experience has shown that Arbitration and in-house tribunals often end up as added cycles to litigation in court, thereby lengthening the process of dispute resolution. While we encourage ADR mechanism, we must also create a culture for settlement of disputes through those mechanism. Unless the members of the Bar encourage their clients to settle their disputes through negotiations, such mechanisms cannot succeed.

INTRODUCTION

In India, international commercial arbitration as a mode of resolution of disputes came to be adopted from the medieval times when trade and commerce between traders in India and outside started growing. In the earlier part of this century, certain laws were enacted to govern resolution of international commercial disputes and the recognition and enforcement of foreign awards. The “Historical Background and Development of the Arbitration Law”.

The law of arbitration in India relating to domestic arbitration was governed by the Indian Arbitration Act, 1940 and relating to international arbitration, was governed by the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 till the commencement of the Arbitration and Conciliation Ordinance, 1996. The current law of arbitration covers the entire field of domestic and international arbitration. It has been brought into force from January 25, 1996. It has not yet been formally replaced by an Act.[1]

Experience shows that in spite of provision of forum for resolution of disputes in another country and the applicability of a foreign law as the substantive law frequent litigation in Indian Courts gave rise to doubts about the efficacy of the arbitration clause incorporated in the agreement. This tendency was visualized as a disincentive to foreign investors and was likely to affect full implementation of the nation’s economic policies. Care has been taken to enact measure in the 1996 law to eliminate these grey areas and to provide effective measures to circumvent laws delays limiting judicial intervention while retaining fairness in the process of adjudication.

NEED FOR AN INTERNATIONAL ARBITRATION

The growth of international trade is bound to give rise to international disputes which transcend national frontiers and geographical boundaries. For the resolution of such disputes the preference to international arbitration vis-à-vis litigation in national courts is natural because of arbitration being preferred in the international arbitration to the domestic elements in the national courts. This is also because there is no international court to deal with international commercial disputes.

In situation of this kind, recourse to international arbitration in a convenient and neutral forum is generally seen as more acceptable than recourse to the courts as a way of solving any dispute which cannot be settled by negotiation.[2]

The rationale and purpose of international arbitration should be to provide a convenient, neutral, fair, expeditious and efficacious forum for resolving disputes relating to international commerce.

Basic features which are uniform in the legal framework for resolution of international commercial disputes “can be broken down into three stages: (i) jurisdiction, (ii) choice of law and (iii) the recognition and enforcement of judgements and awards.”[3]

The trend towards growing judicial intervention which tends to interfere with arbitral autonomy as also finality is a significant factor to be kept in view. The need is to be reconcile and harmonize arbitral autonomy and finality with judicial review of the arbitral process. National law differs on this issue. UNCITRAL Model Law attempts to promote harmony and uniformity in this sphere. The aim is to ensure arbitral autonomy coupled with neutrality or impartiality in the arbitral process by the composition of the arbitral tribunal by competent and impartial members which ensures equality between the parties and full opportunity to them to present their case. Total exclusion of judicial intervention does not match with the current trend but the scope of judicial supervision needs to be reduced to the minimum. The source of authority of the international arbitral tribunal is the agreement of the parties and not the mandate of the state. The choice of the law applicable is also determined by the provision in the arbitration agreement. With the increased arbitral autonomy the requirement of reasons for the award is greater. Apart from transparency in the arbitral process, it also acts as an inherent check on the arbitrators and discloses to the party the basis of the award and the logical process by which the conclusion was reached by the arbitrators. The presence of reasons also regulates the scope of judicial supervision.

Informality of the arbitral process permits relaxation from strict rules of evidence and it reduces costs and delay which are often unavoidable in litigation. However, observance of basic principles of natural justice cannot be dispensed with

Appropriate provisions for enforcement of award are essential to impart efficacy to international arbitration.

These are some of the significant and basic features of international arbitration and the UNCITRAL Model Law aims at achieving these objectives by incorporating principles of universal application in the field of international commercial arbitration for resolution of such disputes.

NEED FOR THE NEW ARBITRATION LAW

Several factors indicated the need for a comprehensive new legislation to remove the deficiencies and to make arbitration an effective ADR mechanism. In M/s. Guru Nanak Foundation v. M/s. Rattan Singh & Sons[4] the Supreme Court observed thus:-

Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940. However, the way in which the proceedings under the Act are conducted and without an exception challenged in courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expenditious disposal of their disputes by the decisions of the courts been clothed with ‘legalese’ of unforeseeable complexity.

The Government of India realized that for effective implementation of its economic reforms it was necessary to recognize the demand of the business community in India and investors abroad for reforms in the law of arbitration in India. In Food Corporation of India v. Joginderpal Mohinderpal [5], the Supreme Court also observed:

We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situations but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence not only by doing justice between the parties, but by creating sense that justice appears to have been done.

The Government of India recognizing the need for reform in the law relating to arbitration decided to act 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 in 1996 based on 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 eliminate a dichotomy in the New Indian law between the law applicable to domestic arbitration and that applicable to international commercial arbitration.

NEW LAW

The Arbitration and Conciliation Ordinance, 1996

The Arbitration and Conciliation Ordinance, 1996 is effective from 25^th of January, 1996.

The main objectives of the Bill as stated in the Statement of Objects and Reasons are as under:

1. To comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;
2. To make provisions for an arbitral procedure which is fair, efficient, and capable of meeting the needs of the specific arbitration;

• To provide that the arbitral tribunal gives reasons for its arbitral award;

1. To ensure that the arbitral tribunal remains within the limits of its jurisdictions;
2. To minimize the supervisory role of courts in the arbitral process;
3. To permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;

• To provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effects as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and
• To provide that for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.

The provisions enacted in the new law aim to achieve these objectives. The Ordinance is divided into four parts. Part I contains general provisions on the arbitration. Part II deals with enforcement of certain foreign awards. Part III deals with conciliation. Part IV contains supplementary provisions.

Salient Features of the Ordinance

Some of the significant provisions made in the Ordinance are as follows:

1. Clear provisions to indicate commencement of the arbitral proceedings [Section 21].
2. The requirement of giving reasons in the arbitral award provide for transparency in the decision making, unless parties have agreed that no reasons are to be given [Section 31(3)].
3. The departure from the 1940 Act which prescribed the time limit for making an arbitral award and for the extension of the time limit which led to considerable litigation. The Ordinance does not prescribe a specific time limit for making the arbitral award but undue delay on the part of an arbitrator is made s ground for termination of the mandate of the arbitrator [Section 14 (1) (a)].
4. The supervisory role of the Court is reduced to minimum under the Ordinance and intervention by the Court can be only after the award is made [Section 5 and 16 (6)]. The grounds for challenging the award are precise and specific [ Section 34 (2)].
5. The Ordinance enables the arbitrator to decide the objection to his continuance as the arbitrator as also on the extent of his jurisdiction and the existence and validity of the arbitration agreement. This prevents delay and litigation in courts on these issues.
6. The Ordinance enables the arbitral tribunal to order interim measures in respect of the subject matter of the dispute [Section 17]. This lends efficacy to the arbitral process.
7. Section 28 of the Ordinance deals with the applicable law. Under Section 28(1)(b), the arbitrator decides the dispute in an international commercial arbitration, in accordance with the rules of law designated by the parties as applicable to the substance of the dispute. In the absence of such designation, the arbitrator is to apply the rules of law which he considers to be appropriate, “given all the circumstances surrounding the dispute”. Section 28(3) requires the arbitrator to take into account the usages of the trade applicable to the transactions.
8. Section 36 provides that where an award is not challenged within the prescribed period, or the challenge has been rejected, the award shall be enforced as if it were a decree of the Court.
9. The Ordinance makes it clear that all awards given within India are domestic awards and all awards given in foreign countries are foreign awards [Section 2(7)]. This sets at rest the controversy as to what constitutes a foreign award within the meaning of Indian law and eliminates the potential of litigation on that ground.

MACHINERY

An efficient machinery to implement the provisions made in the new law is equally important to achieve the objectives. With a view to achieve this purpose and to make the new law fully effective an independent non-profit making body has been set up in India in 1995 known as the “International Centre for Alternative Dispute Resolution” (ICADR). The ICADR Arbitration Rules, 1996 are comprehensive to regulate the arbitration proceedings in the ICADR. Rule 38 provides for fast track arbitration by agreement according to modified procedure.

         The establishment of this International Centre is significant event in the ADR movement in India is intended to provide the machinery needed for implementing in the new law of arbitration enacted in 1996.

CONCLUSION

Enactment of the 1996 Ordinance satisfies the need of a comprehensive and effective law responsible to both domestic and international requirements. It also seeks to eliminate the laws delays by limiting the supervisory role of the Courts and minimizing its scope by reducing the grounds on which an award can be challenged while ensuring fairness of process and transparency in the arbitral proceedings by enacting suitable measures. Care has been taken to ensure appointment of competent and honest persons as arbitrator.

The new law has been brought in a sea change in the law of arbitration and appears to be an improvement on the UNCITRAL Model Law. Its object inter alia is to be provide “a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations”.

Reference

[1] Repromulgated as an ordinance w.e.f. 26^th March, 1996. [The Ordinance has become an Act of Parliament w.e.f. 22^nd August, 1996].

[2] Redforn and Martin Hunter, Law and Practice of International Commercial Arbitration.

[3] Jonathan Hill, The Law Relating to International Commercial Alan Disputes.

[4] AIR 1981 SC 2075, at 2076

[5] AIR 1989 SC 1263, at 1267