INTERNATIONAL COMMERCIAL ARBITRATION & JUDICIAL INTERVENTION
– Aakriti Pandey Mishra & Shivangi Sharma
International commercial arbitration is the most effective way to resolve any transnational commercial disputes. The parties to the contract decides to enter into an arbitration agreement manifests a decision that the dispute shall be resolved by arbitration and not by court room litigation. Therefore, it becomes crucial how far the court be allowed to intervene in the process of arbitration. This paper examines role of National courts in facilitating the process of international commercial arbitration. Authors are of the opinion that role of domestic courts cannot be undermined. But, at the same time courts should avoid overzealous interventionist attitude, so that the benefits offered by the arbitration process is not rendered void. As with the growth of world economies and global integration the influx of foreign investments, overseas commercial transactions, international commercial disputes involving India are steadily rising, which has drawn tremendous focus from the international community on India’s international arbitration regime .In this paper attempt has been made to analyse various landmark decisions of Hon’ble Supreme Court & High Court delivered in recent past, which are primarily pro arbitration decisions. The authors have concluded the paper by stating that the court shall forward its assistance as much as has been permitted. Beyond this permissible limit, the involvement of court may result counter-productive in the arbitration process.
In the present era International commercial arbitration is proliferating as a viable method of resolving cross-border business disputes. The very nature of an arbitration agreement mandates the autonomy of parties with respect to choice of arbitrators or an arbitral institution, choice of law as to the law governing the arbitration agreement, the law governing the arbitration, the law governing the capacity of parties to enter into an arbitration agreement, the substantive law or proper law of the contract and the law governing, recognition and enforcement of the award.
International commercial arbitration is a private dispute resolution mechanism that relies heavily on the agreement of the parties, both as a means of demonstrating consent to arbitration and with respect to the structure of the proceedings. The UNCITRAL Model law on International Commercial Arbitration (Model Law) has incorporated a striking declaration of independence of commercial arbitration.
To ensure uniformity in national arbitration statutes worldwide, the Model Law was adopted by the United Nations Commission on International Trade Law (hereinafter UNCITRAL) in 1985 and legislations based on the same have been enacted in over eighty countries. Model Law provides for judicial intervention under certain circumstances, such as interim measures of protection, appointment of arbitrators and setting aside, recognition and enforcement of arbitral awards. Most modern arbitration legislations narrowly limit the power of national courts to interfere in the arbitration process, both when arbitral proceedings are pending and in reviewing ultimate arbitration awards.
The Arbitration and Conciliation Act, 1996 (hereinafter, the “Act”) is an attempt to implement the Model Law and to create a pro-arbitration legal regime in India. In the Indian legal system, under the Arbitration and Conciliation Act 1996 an International Commercial Arbitration is defined as an arbitration arising from a legal relationship which must be considered commercial, where either of the parties is a foreign national or resident or is a foreign body corporate or is a company, association or body of individuals whose central management or control is exercise in some other country, or a government of a foreign country.
This definition develops consonance with Model Law. An International Commercial Arbitration may either be seated in India, or be seated in a foreign country. For London-seated arbitrations, the provisions of Part I of the Indian Act are excluded for such arbitrations, barring certain exceptions. Also, enforcing arbitral awards in a foreign country is also much more practically convenient than enforcing a court judgment due because of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).
SCOPE OF JUDICIAL INTERFERENCE
Courts should be cautious of intervening during a foreign arbitration proceeding is that the benefits in efficiency, cost, confidentiality, and reduced complexity of the arbitration process diminish. In order, to protect the foreign investors the Arbitration and Conciliation Act, 1996 (herein after 1996 Act) provides for international perspective, based on UNCITRAL Model Law, 1985. Article 5 of the Model Law limits the occasions for Court intervention in arbitral matters. However, the mere adoption of the Model Law does not guarantee that judicial intervention will be limited.
The Indian courts are determined to keep a close watch on the practice of international arbitration in the country and perform its role of a guardian to promote and encourage speedy, neutral, effective arbitration proceedings and enforcement of award in the country.
The Indian Arbitration & Conciliation Act embodies the Model Law including Article 5 but in Oil & Natural Gas Limited v Saw Pipes the Supreme Court, enlarged the scope of challenge to awards to the point where the width of the challenges available were more than what had been available under the previous 1940 Act. Indian courts will doubtless be asked to provide assistance in many of arbitration proceedings, primarily through motions to enforce an arbitration agreement or award but also through requests for related types of judicial relief.
Due to certain controversial decisions by the Indian judiciary in the last two decades, particularly in cases involving a foreign party, the international community has kept a close watch on the development of arbitration laws in India. The Indian judiciary has often been criticized for its interference in international arbitrations and extra territorial application of domestic laws in foreign seated arbitrations.
However, the latest developments in the arbitration jurisprudence through recent court decisions clearly reflect the support of the judiciary in enabling India to adopt the best international practices. Courts have adopted a pro-arbitration approach and recent pro arbitration rulings by the Supreme Court and High Courts have attempted to change the arbitration landscape completely for India.
The Supreme Court of India has delivered various landmark rulings taking a much needed pro arbitration approach such as declaring the Indian arbitration law as seat-centric; removing the Indian judiciary’s power to interfere with arbitrations foreign seated. In Sasan Power Ltd v North American Coal Corporation India Private Ltd, the Hon’ble Apex Court of India refused to intervene in a London seated ICC arbitration governed by English law taking place between two Indian parties.
Rather, the Supreme Court directed the party seeking the Court’s assistance to honour its arbitration commitments, decisively rejecting any attempt to derail the ICC arbitration and awarding costs against the party seeking the Court’s assistance.
ANALYSIS OF ARBITRATION & CONCILIATION (AMENDMENT) ACT, 2015
The arbitration regime of India is reformed by the recent Arbitration and Conciliation (Amendment) Act, 2015. Because of the increased challenges to arbitral awards before domestic courts led to the judicial intervention led to uncertainty due to lengthy court proceedings arising from arbitrations and further ambiguity regarding the means by which final awards could be executed. The position was similar when awards in foreign-seated arbitrations were either challenged before Indian courts or were sought to be executed in India.
These drawbacks hindered arbitration as an effective means of dispute resolution. Keeping in view these situations 246th Law Commission Report of India, had recommended certain amendments, for making arbitration the preferred method for the settlement of commercial disputes in India. To achieve that aim, arbitration had to be more user-friendly, cost-effective and expeditious. In order to rectify these issues, Parliament passed the Arbitration and Conciliation (Amendment) Act on 17th December ,2015. With this, substantial changes are brought to the Arbitration and Conciliation Act 1996.
The Amendment Act, 2015 is in consonance with prevalent global best practice, and thereby curtailing the scope for intervention by the national courts. The Amendment Act made numerous important changes to Indian arbitration law in these areas. The major aspects of the new law that are anticipated to be particularly welcome by international parties are highlighted below.
First, the Amendment Act 2015 confirms the availability of interim relief to support during arbitral proceedings. As, in the landmark verdict of Bharat Aluminum Co. v Kaiser Aluminium Technical Services Inc. Hon’ble Supreme Court adopted the territorial principle as being recognized by the UNCITRAL Model law and limited the application of part I of the Act only within the territory of India.
It was held that under the territoriality principle, part I of the Arbitration Act shall not be made applicable in a foreign seated arbitration even if the proceedings are governed by the Act. The Blaco judgment hails as heralding a new dawn for international commercial arbitration in India, as the decision purported to put an end in the growing interference of the Indian courts in a foreign seated arbitration. But, at the same time it puts a complete bar on Indian courts to exercise jurisdiction over foreign seated arbitrations.
Post BALCO era, parties were facing practical problems in seeking interim measures from the Indian Courts. There was a possibility that a foreign party while obtained a decree in its favour could face a situation that before the foreign party could enforce the awards against the entity in India, the entity has stripped of its assets and converted into a shell company. The 2015 Amendment Act has sought to address the issue by amending the provision of section 2(2) of the Act.
As a result of this amendment, parties can have an access to the Indian court for seeking interim measures as well as assistance in collecting evidence in a foreign seated arbitration or making appeal for court orders even in cases where the parties have designated a foreign seat of arbitration. This makes the interim relief to support arbitral proceedings. However, this provision applies only if the parties express an agreement to use it.
Furthermore, a party to a foreign-seated international commercial arbitration can apply to a court under Section 27, seeking its assistance in taking evidence. This would be particularly useful for foreign parties that want to summon witnesses or have documents produced that are located in India. This section also enumerates the consequence for not complying with an order made there under.
Second, Amendment Act, 2015 seeks to clarify the meaning of public policy under Section 34 regarding the scope of review that courts should enter in, which remained a matter of concern for the last few years.
As, the phrase “Public Policy of India” occurring in Section 34 was not earlier defined in the Act. Particularly, after the decision in ONGC v. Saw Pipes Ltd. and ONGC v. Western Geco the “Public Policy of India” which has been the most common ground for challenges to arbitral awards in India as the concept ‘public policy’ was considered to be vague. Therefore, Indian courts were approached by the parties to the arbitration agreement for interpretation of the concept of “Public Policy of India”. This led to more judicial intervention by the National Courts because almost all awards are challenged based on a violation of the public policy of India. The amendment has introduced two identical explanations to Section 48(2) and Section 57(1) of the Act.
This is an attempt to explain the meaning of ‘public policy of India’. The aim of the explanation is to narrow the scope of the definition of ‘public policy’ which had been interpreted so broadly by Indian Courts. The Amendment Act also clarifies that “patent illegality” as an element of public policy applies only to domestic and not international arbitration. The Amendment Act expressly prevents Indian courts from reviewing awards on their merits under the cover of the “Public Policy of India” umbrella.
Third, the mere filing of an application challenging an award will no longer automatically stay its execution. The Amendment Act now requires parties to file an additional application, and specifically seek a stay by demonstrating the need for such stay, to an Indian court, and the court can impose certain conditions on granting such stay in the exercise of its discretion. This should eliminate unnecessary court proceedings required to vacate automatic stays. It would assist in dissuading parties from challenging an award merely to delay its enforcement.
Fourth, 2015 Amendment Act introduces a fast-track arbitration procedure which provides time line for adjudication of an arbitration under Section 29A . It does not exclude international commercial arbitrations from the purview of the timeline. This would encourage foreign investors and other players from seating their arbitrations in India, as the assurance of a time bound arbitration is available.
Fifth, in order to reduce court interventions and to restrict the courts’ power to grant interim injunction after the constitution of arbitral tribunal, Section 9(3) was introduced providing that “once the arbitral tribunal has been constituted, the court shall not entertain an application under sub-section (1), unless the court finds that circumstances exist which may not render the remedy provided under Section 17efficacious.” Through this provision the opportunities for the courts to deal with such applications are not excluded during the arbitration proceedings.
However, the courts can grant injunctions only in exception circumstances. To give effect to this provision, the powers of arbitral tribunals has been equated with the powers of the court in giving interim injunction during the arbitration proceeding or at any time after making the arbitral award but before it is enforced, in accordance with Sec. 36 by insert in sub-clause 1 to Sec. 17 of the 2015 Amendment Act. Furthermore, the interim order passed by arbitral tribunals is enforced in the same manner as an order of the court, i.e., through insertion of sub-clause 3 to Sec. 17 of the Amendment Act. This change is a positive development as it reduces court interventions with regard to granting interim injunctions, particularly during arbitration proceedings and after the delivery of award but before it is enforced. Since arbitral tribunal is the best instance to deal with the matter and it would be most appropriate that this power is exercised solely by the tribunals.
Yet before the said amendments the arbitral tribunals did not have powers as courts to grant interim injunctions, the orders of tribunals were lacking legal force and the parties should have addressed the courts for interim injunctions. Since the amendments came into force the tribunals’ power in line with the powers of courts is no more dependent on the choice of the parties but is a non-derogable provision. It will, therefore, minimize judicial intervention in granting injunctions during the stages of arbitration process, provided under Sec. 17.
Sixth, the cost regime where “costs follow the event” which is practiced internationally has been introduced by adding Section 31A through Amendment Ac. As follows from the explanation to this Section 31A(1), the costs are not limited to legal fees but also include travel expenses, witness expenses, and so on.
The imposition of costs also extends to every litigation arising from arbitration which had been addressed to by virtue of this amendment. Furthermore, it provides that an amount awarded by an arbitral tribunal will, unless otherwise specified by the arbitral tribunal, carry interest which shall be 2 percent more than the current rate of interest per annum from the date of the award to the date of payment is intended to dissuade frivolous arbitration claims. This regime will be applicable both to the arbitration and related court processes.
It must be appreciated that transnational arbitration can never be totally divorced from court litigation .In order to promote amicable resolution of disputes and international commerce; the authors suggest that this courts interference should be limited, to an extent whereby arbitration is being facilitated. Because, for success of international commercial arbitration it is need of the hour that the fine balance between court assistance and court interference is maintained. Meaning thereby that Indian Courts should try to balance the competing interest of party autonomy to choose arbitration as a means of resolving disputes, and at the same time, exercising sufficient supervision and control to ensure the integrity of the process. Therefore, minimum judicial will help India to achieve a fast and expeditious resolution of business disputes outside the court room litigation. As cross-border business opportunities for and with Indian citizens and companies continue to expand, this trend will most likely continue. Also, with the combination of India’s pro-arbitration judiciary and pro-arbitration laws like Amendment Act, 2015 in place, there is a cause to look forward to the best practices being adopted in the Indian arbitration regime. Authors opine that this would significantly improve the arbitration landscape, thereby making India one of the major players in the international commercial arbitration sphere. International parties will feel encouraged that arbitration of Indian-related disputes will operate more effectively and efficiently.