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Chapter-5

International Commercial
Arbitration Quo Indian
Municipal Law

Chapter-5

INTERNATIONAL COMMERCIAL ARBITRATION QUO


INDIAN MUNICIPAL LAW
When parties agree that a dispute shall be determined by arbitration, they cut
themselves off from recourse to the courts of law. They have agreed to a private
method of dispute resolution and they will be held to this agreement by the courts of
law, both nationally and internationally, in accordance with national legislation and
with international tre
decision of one or more persons, either with or without an umpire, of some matter or
1

Shah,

Sarcastically, according to Mr. Bhupender

parties involved in the disputes refer them to a peer who is supposed to be a person of
nobility having capability to resolve the disputes.
The practice of international arbitration has developed so as to allow parties
from different legal and cultural backgrounds to resolve their disputes, generally
without the formalities of their underlying legal systems. The principal characteristic
of arbitration is that it is chosen by the parties. Party autonomy,3as the principle is
called, is the power given to the parties wherein they can determine the form,
structure, system and other details of the arbitration.
Arbitration can be either, voluntary, mandatory, binding or non-binding. Nonbinding arbitration is synonymous to mediation. However, under mediation, the
mediator helps the parties to find an amicable solution whereas under the non-binding
arbitration, the arbitrator remains aloof to the settlement process and only determines
rights and liabilities.
International commercial arbitration is not limited to national boundaries. To
the contrary, it surpasses them. For example, a corporate based in India might enter
into a contract with another corporate based in China, for the construction of a power
plant in Africa, with any disputes being resolved by arbitration in New York.
1

at 916. The definition could apply to other forms of dispute resolution. The problems of defining arbitration are discussed in
Mustill and Boyd, Commercial Arbitraiton (2nd Edn.), pp. 38, 50.
2
He is a Member of ICAI and Indian Council of Arbitration besides being on panel of arbitrators of FICCI and Bombay Stock
Exchange.
3
See The Concept of Party Autonomy.

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agreed by the parties are different from those at the suits, from those at the place of
principal or characteristic performance and in turn, from those at the place or places
1

Thus, in practicality, international commercial arbitration

might require as many as four distinct set of laws. First, there is the law that governs
recognition and enforcement of the agreement to arbitrate. Secondly, there is the law
that governs the procedure of arbitration proceedings. Thirdly, there is the law that the
arbitral tribunal has to apply in substance to the dispute. Fourthly, there is the law that
governs recognition and enforcement of the award given by the arbitral tribunal.
In international transactions, parties may face many different choices when it
comes to including a mechanism for resolving disputes arising under their contract. If
they are silent, they will be subject to the courts of wherever the aggrieved party
decides to initiate legal proceedings and believes it can obtain jurisdiction over the
other party. The alternative to such silence is to expressly mention a method of
binding dispute resolution, which can be arbitration, mediation, conciliation or
litigation. If the parties choose to resolve their disputes in the courts, however, they
may encounter numerous difficulties. The first is that they may be confined to
choosing on
invitation to devote their resources to decide a dispute that does not involve any of

more signific
difficult and sometimes impossible to enforce a court decision in a country other than
the one in which it was rendered.
The domestic laws may not necessarily expatiate the applicable or substantive
law of the contract. Such combination of applicable and substantive laws governing
the commercial arbitration may be derived from an assembly of International law,
combination of national law and international law, collection of rules of law known as
mercatoria) or by some other convenient title. 2 Almost all the international
not that
1

2003, Vol. 4, No.2, p. 239.


2
The different systems or rules of law which may constitute the substantive law of an international commercial contract are
discussed in Chapter 4.

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of the parties. It has also been observed that, the system of law which governs
recognition and enforcement of the award of the arbitral tribunal is usually different
from the law which governs the arbitral proceedings.
Initially, the need to dis
arbitration was not felt throughout the world. The need for such distinction arised only
when, the Domestic Courts of various States caught up with the practice of arbitration
and enforcement of arbitral aw

domestic and international arbitrations differently. The rationale for this is that these
countries consider that their national courts should have greater supervisory control
over domestic arbitrations, where there is an international element and then there is no
longer a necessity for such supervision. For example, Russian (Federal) Law on
International Commercial Arbitration, 1993 is based on the UNCITRAL Model Law
whereas its domestic law is considerably different.

whether the dispute is domestic or international in nature. Usually, States choose an


amalgamation of different criteria. A substantial number of countries, while so
determining, look solely at whether the arbitration is taking place outside of their
s territory,
it will be considered as being international or transnational. Therefore, it is concluded
that the seat of the arbitration may determines the status.

same may be a relevant consideration in determining whether a


1

the Supreme Court of

made in London was a domestic Indian award because


the parties had agreed under the contract that the arbitration proceedings were to be
governed by the Indian Arbitration Act read In conjunction with the relevant
Pakistan has followed suit in the case of
.2

1
2

AIR 1987 SC 674: (1987) 1 SCC 496: 1986 (1) SCJ 440: 1987 (1) Supreme 343.
See, Hitachi Ltd. and Mitsui & Co. Deutschland v. Rupali Polyester, (2000) XXV Ybk Comm Arbn 486.

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1.
The approach taken in article 1(3) of the UNCITRAL (Model Law) provides a
definition of when arbitration is considered international in nature. It states that,

of that agreement, their places of business in different States; or


(b) one of the following places is situated outside the State in which the parties
have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the
arbitration agreement:
(ii) any place where a substantial part of the obligations of the
commercial relationship is to be performed or the place with which the
subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration

The enforceability or the challenge of an arbitral award also rests on the fact
that whether the arbitration is domestic or international. Many countries apply
different laws to domestic and international arbitration. The international or domestic
character of commercial arbitration is not to be confused with the domestic or foreign
character of awards for which different regimes for their enforcement exists. 1
The for most distinction between Model Law and the 1996 is that the 1996 Act
focuses more on the status of the parties rather than the place of performance of the
contract, which is an emphasis on form rather than substance. 2 For example, under the
1996 Act definition, any contract between an Indian national and a foreign national or
a non-resident Indian habitually resident abroad, automatically is considered
and subject to international arbitration standards regardless of whether
the transaction was local in nature. By the same token, a foreign company in India
would not be subject to international arbitration under the 1996 Act whose
is exercised within India. Therefore, by focusing on the

Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration, Kluwer Law
International, 2003, at p. 58.
2

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international commercial transactions and the forum connected to that commercial
transaction. As a result, there emerge
arbitrations will be categorized inappropriately thereby gravely aggrieving parties
who wish to arbitrate under international arbitration rules. In this regard, the
UNCITRAL Model Law should be correctly followed by incorporating focus on the
1

Recently, in TDM Infrastructure Pvt. Ltd. v. U.E. Development India Pvt.


Ltd.2 the Supreme Court was called upon

of a Malaysian company brought arbitration against another wholly owned subsidiary


of a Malaysian company. The petitioner contented that all its shareholders and
directors are Malaysians. Also that all meetings of the Board of Directors take place
in Malaysia except for one meeting, which was statutorily required to take place at the
registered office in India. The petitioner claimed that though both the companies are
incorporated in India, the central management and control is exercised in a foreign

Justice S.B. Sinha, rejected this contention and held that if both companies are
incorporated in India then the arbitration between them would necessarily be a
domestic arbitration irrespective of the foreign control and management. The court
rested its d
companies, i.e., companies incorporated in India can only opt for Indian Law as the
governing law of the contract. If arbitration between them is held to be an
3

2.
A commercial contract can be defined as any kind of contract between
merchants or traders in the ordinary course of their business. Universally such
contracts are governed by a particular code of commercial law apart from the usual
1

Reality of the parties in terms of their business operations, assest, liabilities and the underlying dispute.
2008 (8) SCALE 576.
3
For detailed reference see: Chapter 9: Public Policy:- A Threat To International Commercial Arbitration In India.
2

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law of obligations. In many civil law countries arbitral institutions are related with a
Chamber of Commerce, such as the International Chamber of Commerce in Paris, the
Geneva and Zurich Chambers of Commerce and the Stockholm Chamber of
Commerce etc.
The Geneva Protocol of 1923 obliged each contracting State to recognize the
validity of an arbitration agreement concerning disputes that might arise from a

tracting State may limit its


1

the same also appears in the New York Convention.2 While gauging the true meaning

provided by the relevant domestic law.


2.1
Under the 1996 Act, International disputes that fall outside the definition of

definition would lead to hindrance in enforcement of foreign awards and very broad a
definition wrests from State control important State objectives.
Both the Model Law and 1996 Act take similar approaches but are slightly

commercial under t

to impart discretion to the j


whether subconscious or not. Thereby empowering the courts to narrow or broaden
the definition.
Until that time, the courts made a distinction between a contract for the
transfer of services and a contract for the sale of goods, of which only the latter was
1
2

Geneva Protocol of 1923, article 1.


New York Convention article 1.3.

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1

For instance, a contract for mechanical assistance

does not involve the direct chipping in of capital profits between the parties and is

3.

-Meaning
The UNCITRAL model law is based on resolution of commercial disputes in

international trade or transactions; therefore it is only such disputes that can be taken
up in the ambit of statutory laws as enacted by States, so as to ratify the UNCITRAL
model law. Usually, the States under their domestic laws permit arbitration of
commercial disputes only. It is essential to mention here that existence of a
of an arbitral award under the
New York Convention, where a country has entered into a commercial reservation. 2

overemphasized.
3.1
The Indian Arbitration and Conciliation Act, 1996 does not expressly define

arising out of legal relationships, whether contractual or not, considered as


commercial under the law in force in India and where at least one of the parties is an
individual who is a national of, or habitually resident in, any country other than India;
or a body corporate which is incorporated in any country other than India; or A
company or an association or a body of individuals whose central management and
control is exercised in any country other than India; or the Government of a foreign

and section 2(2), applies to both domestic and international commercial arbitration,
where the place of arbitration is in India, where at least one party is foreign national

See e.g. Societe de Traction et d v. Kamani Engineering Company Ltd., AIR 1964 (3) SCR 116: 1963 (2) SCJ 509, where the
court stated that a contract for technical assistance, where there was no participation of profits between the parties was not
2

Of the 144 countries which have ratified the New York Convention; more than 42 have entered a commercial reservation (see
http://www.uncitra.org/en-index.hun for a list of these counties.)

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or resident of foreign country body corporate incorporated in a country other than
India or a company association or a body of individuals whose central management
and control exercised in any country other than India or Government of a foreign
country.
4. Laws Governing Arbitration
The arbitration agreement is a contract and like all contracts, it is a piece of

private law which def

The law governing the arbitral procedure will not necessarily be that
governing the merits of the dispute2. The law governing the contract might be
different from the law governing the arbitration agreement or the law governing the
procedure. Even if the said contract is void ab initio, the arbitration agreement therein
would be valid.
An international commercial arbitration is usually conducted in a neutral
country, meaning thereby that all the parties to the arbitration do not have a place of
business, residence or registration in that particular country. This therefore is
indicative of the fact that in practice, the law of the country in whose territory the
arbitration takes place, will be most likely to differ from the law that governs the
substantive issues. For instance, an arbitral tribunal with its seat in New York, may be
required to decide the substantive issues in dispute between the parties in accordance
with the laws of India nor some other law, as the case may be. The difference between
the lex arbitri and the law governing the substance of the dispute was earlier part of
the juridical tradition of continental Europe, but it now firmly established in
international commercial arbitration.3

external to the arbitration agreement, and the wishes of the parties, for the conduct of
the arbitration. The law governing the arbitration comprises the rules governing
interim measures (e.g., court orders for the preservation or storage of goods). The
1
2

Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillar & J. Savage (Edns.), Kluwer Law
International, 1999), p. 634.
3
Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (Edns.), Kluwer Law
International, 1999), (1428); recognition of this principle in English law may be seen in Compagnie Tunisienne de Navigation
SA v. Compagnied Armament Maritime SA, (1971) AC 572 (604).

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rules empowering the exercise by the court of supportive measures to assist an
arbitration which has run into difficulties (e.g., filling a vacancy in the composition of
the arbitral tribunal if there is no other mechanism) and the rules providing for the
exercise by the court of its supervisory jurisdiction over arbitrations (e.g., removing
1

or law will govern the conduct


of arbitration in their sovereign territory. One of the key principles of international
commercial arbitration is that of party autonomy, 2 in which the parties can decide
themselves as to what set of laws or rules are applicable to the entire process of
arbitration, whether it is procedural or substantive. The general practice of the parties
is to decide beforehand, both the procedural and substantive laws, as applicable to the
3

. This principle of party autonomy is not absolute. 4 Agreements made by

the parties that conflict with any mandatory laws applicable at the seat of arbitration
would untenable.
4.1 The Law Applicable to the Arbitration Agreement
In international commercial arbitration process, it has been globally accepted,
that the arbitration clause in a contract is separate from the underlying contract and
therefore the law applicable therein would not necessarily govern the arbitration
agreement.5
In practice, most modern arbitration legislation allows the parties to choose the
law which would govern the arbitration agreement. 6 If an arbitral tribunal fails to
comply with the express or implicit choice of procedural law made by the parties, it
commits a gross irregularity in the conduct the arbitration. In this regards, article V(I)
(d) of the New York Convention, 1958 provides that the court may refuse to enforce
an award where the arbitral procedure was not in accordance with the agreement of
the parties.
1
2

Bay Hotel & Resort Ltd. v. Cavalier Construction Co. Ltd., (2001) UKPC 34, 16 July, 2001.
Diagnostica Inc v. Centerchem Inch, (1998) New Sought Wales Law Review 312-42: (1999) XXIV a Ybk Comm Arbn 574-90;
26 March, 1998, Supreme Court, New South Wales.
4
See Chapter 4.3.3.
5
See Separability. Chapter 5.2.
6
See for example the English Arbitration Act, 1996, section 4 and the Rome Convention, article 1,3 and 7. Indian Arbitration
Act however does not allow the parties to decide the procedural law governing the arbitration.
3

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If there is no express provision as to the law applicable to the arbitration
agreement, then the applicable law has to be implied. Now, if there is no express or
implied assertion of the choice of the parties regarding the applicable procedural law,
then there are different methods by which the applicable law could be established.
According to UNCITRAL Model Law, the applicable law is to be determined by the
law of the seat of the arbitration.1it could also determined by applying the conflict of
law rules so as to establish which law has the closest connection to the arbitration
agreement.2 In some cases, if the parties have not selected an applicable procedural
law, then one of the likely choices to be implied upon, might be the substantive law
agreed by the parties to govern their arbitration. 3 The disputed agreement could also
be governed by the legal system with which it has the closest connection. 4 The issue
can also be decided by applying autonomous legal principles.

requires choosing between two principal alternatives the substantive law of the
contract or the law of the place where the arbitration has its seat
5

Any country wishing to modernize its arbitration law should ratify the
UNCITRAL Model Law. The Model law expressly provides:

procedure to be followed by the arbitral tribunal in conducting the proceedings.


(2) Failing such agreement, the arbitral tribunal may, subject to the provisions
of this Law, conduct the arbitration in such manner as it considers appropriate. The
power conferred upon the arbitral tribunal includes the power to determine the
admissibility, relevance, materiality and weight of any evidence. 6
4.2 According to some commentators the lex arbitri might extend to:1

Article 34 of the UNCITRAL Model Law states that a ground for setting aside an award is that the arbitration agreement is not

ICC Award No. 5717 (1988) ICC Ct. Bull 22.


Gary Born, International Commercial Arbitration: Commentary and Materials, Kluwer Law International, 2001, 2 nd Edn., p.
430.
4
Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (Edns.), Kluwer Law
International, 1999), p. 222.
5
Gary Born, International Commercial Arbitration: Commentary and Materials, 2nd Edn. Transnational Publisher Inc and Kluwer
Law International, 2001), p. 111.
6
Article 19 of the Model Law.
3

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The definition and form of an agreement to arbitrate:
whether a dispute is capable of being referred to arbitration (that is to say

The entitlement of the arbitral tribunal to rule on its own jurisdiction;


Equal treatment of the parties;
The constitution of the arbitral tribunal and any grounds for challenge of
that tribunal.
Statements of claim and defence;
Freedom to agree upon detailed rules of procedure;
Interim measures of protection;
Court assistance if required;
Hearings;

Default proceedings;
The form and validity of the arbitration award and the finality of the award
including any right to challenge it in the courts of the place of arbitration. 1
4.3 Choice of Procedural Law made by the Arbitral Tribunal Arbitral Institution
A most modern arbitration rule provides that an arbitral institution arbitral
tribunal has a discretionary power to choose the procedural law in case there is no
indication of the same by the parties themselves.

agree on the procedure to be followed by the arbitral tribu


agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the

considerable amount of freedom so as to choose a specific procedural law which


would govern the arbitration in cases where the parties have not done so.
1

Allan Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International
Commercial Arbitration, 4th Edn., Sweet and Maxwell, 2004, p. 81.

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In ICC Award No. 1512 (1971) 1, it was held that the arbitral tribunal has a
broad discretion in procedural matters. The tribunal also stated that there were some
obvious limits to this discretion which were related to the duty of the tribunal to
comply with the fundamental general principles of procedure and not due to a specific
national law. In the case of Texaco Overseas Petroleum Co. California Asiatic Oil Co.
v. Government of the Libyan Arab Republic,2 the arbitral tribunal had applied the
general rules of international law and not the law of the seat.
The arbitrators can choose a particular national law, add or combine several
arbitration rules and national laws, select a specific arbitration rules or a law of
reference so as to decide on a procedural law to govern arbitration.
However, this discretion of the arbitrators should be well-exercised.
Arbitrators should as far as possible should be able to ensure international
effectiveness of the award by complying with the principles, if breached would lead to
the refusal of enforcement of the award in all likely jurisdiction, with regard to a
particular case, where likely attempts would be made to enforce the award.3
5.

upon the validity of the arbitration agreement on the basis of some national law but
determine its validity on the basis of general principles applicable to international
arbitration and the intention of the parties. The preliminary award in the case of Dow
Chemical v. Isover Saint Gobain,4 is a case in question. The contract was to be
governed by the French law and arbitration agreement was to be governed under ICC
Rules. According to the Tribunal, the arbitrator should determine the scope and
effects of the arbitration agreement and then reach his decision regarding jurisdiction
with reference to the common intention of the parties, as it appears from the
circumstances that surrounded the conclusion and characterized the performance and,
later, the termination of the contracts in which they appeared. In doing so, the

Indian Cement Company v. Pakistani Bank, I.Y.B. COM. ARB. 128 (1976).
17 ILM (1978).
3
Arbitrators should be mindful of the procedural principles of public policy which would justify in refusal of enforcement of
awards. See also ICC Award No. 2879 (1978).
4
Interim Award in ICC case no. 4131 of 1982, Dow Chemical France et al v. Isover Saint Gobain, IX YBCA 131 (1984)).
2

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arbitrator can take into account usages conforming to the needs of international
commerce, in particular, the presence of a group of companies.
In the final award in ICC Case no. of 8938 of 1996 1, it was held that the

account the mandatory rules of national law and international public policy with
regard to common intention of the parties without referring to the national law.
As arbitrators belong to a no national legal order, they have no institutional
reason to give precedence to the choice of law rules or substantive provisions of any
of the legal systems connected to the dispute. In absence of any indication in by the
parties on the point the approach most consistent with the role of the arbitrators is to
apply what they consider to be the fundamental requirements of justice. These can be
determined on the basis of comparative law and international arbitral case law,
leaving aside the idiosyncrasies of domestic laws.2
5.1 The Choice of Substantive Law
Law of the arbitration agreement can also be linked to the applicable law of
the contract. When there is no express choice of law to govern the arbitration
agreement, there will be a very strong presumption that the law applicable to the
arbitration agreement will be the law applicable to the substantive agreement. 3 In ICC
Award in Case No. 2626 4
that the choice of law applicable to the principal contract also tacitly governs the
5

There is a strong reason for as to apply the same law to the arbitration
agreement as to the rest of the contract. For example, statutory time bars would apply
in the jurisdiction where the seat of the arbitration is located but there may be no such
thing according to the law to which the main contract is subjected to. If a claim was

XXIVa Y.B. Comm. Arb. 174, 176 (1999).


Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (Edns.), Kluwer Law
International, 1999 , p. 234.
3
Tonicstar Ltd. v American Home Assurance Co., (2004) EWHC 1234 (Com
the applicable law of the arbitration agreement is different from the applicable law of the reinsurance contract into which it has
2

4
5

S Jarvin and Y Derains, Collection of ICC Arbitral Awards 1974-1985 (1990) 316.
See Hitachi Ltd and Mitsui & Co. v. Rupali Polyester, (2000) XXV Ybk Comm Arbn 486.

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time barred when the arbitration commenced, but not according to the law applicable
1

Both ICC Case No. 50292 and ICC Case No. 55053 were illustrative of that
fact that the procedural law in an international commercial arbitration should be same
as to by the parties to govern their underlying contractual relationship.4
In the case of Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (India) 5, the
issue of which law governs the arbitration agreement was considered. The case
involved a contract for the installation of an oil platform. Clause 17.1 of the contract

provided for ICC arbitration in London by two arbitrators and an umpire. The Indian
Supreme Court held that where the parties had made an express choice of Indian Law,
as the proper law of the contract then it would follow that the proper law of the
arbitration agreement is also Indian law, since the arbitration agreement is part of the
substance of the underlying contract and the terms of clause 17.1 are clear in that
respect.
5.2 The Law of Place of Performance of the Contract
The place of performance of the contract and its law is also a determining
factor for as to which law is to be applicable to the arbitration agreement. If the law of
the place of performance of the contract is also the law of the seat of the arbitration, or
the law to be applicable to the merits of the dispute, then this might add weight to that
law being the law governing the arbitration agreement. 6
5.3 Delocalized Theory
The delocalized theory considers that the arbitration will be considered to be
delocalized from the seat of the arbitration. Most civil law jurisdiction agrees to the

-7.

ICC case no. 5029 (1986) (Interim Award), (1987) YBCA Vol. XII 113.
3
ICC case no. 5505 of 1987, XIII YBCA 110 (1988) 116.
4

Judgment No. 1996/627 of 1 February 1996 XXII Y.B. Arb Comm. Arb. 807 (Turkish court of Appeals, 15 th Legal Division
1996). See also Gary Born, International Commercial Arbitration: Commentary and Materials (2nd Edn., Transitional Publisher
Inc and Kluwer Law International, 2001), p. 431.
5
(1998) 1 SCC 305: AIR 1998 SC 825: 1998 AIR SCW 556: 1998 (1) SCJ 233.
6
Andrew Tweeddale and Keren Tweeddale, Arbitration of Commercial Disputes International and English Law and Practice,
Oxford University Press, 2007 Edn., p. 221.

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same.1 The rationale behind this is that an international commercial arbitration has no
forum.2 The arbitral procedure is, therefore, delocalized from the territory in which it
takes places.
Most modern arbitration legislations restrict the involvement of national courts
in arbitration. Article 5 of the UNCITRAL Model law states:

Commentators from both common law and civil law countries agree that there

process. One of the underlying principles of delocalized arbitrations is that the award
is detached from the seat of the arbitration. The detached nature of the arbitral
proceedings was considered in the Gotaverken case. 3 The facts of the case were that

Gotaveken for three oil tankers. The arbitration clause provided expressly for
arbitration to take place in Pairs under the rules of conciliation and Arbitration of the
ICC in force at the time of the award. The arbitral tribunal awarded in favour of
Gotaverken. The Libyan GMT sought to set aside the award on a number of grounds
before the Cour

chosen only in order to assure their neutrality, is not significant; it may not be
subsidiary, to the loi procedureale francaise. 4
However, common law and civil law commentators disagree on the success of
the delocalized theory. Redfern and Hunter describe the concept of delocalized
5

. In

For example France, the Netherlands, Portugal, Switzerland, Egypt, and Algiers.
Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (eds), Kluwer Law
International, 1999 at para 1181.
3
Gotaverken Arendal AB v. Libyan General maritime Transport Co., (1980) JDI 660.
4
This decision must now be doubted. Article 1505 of the New Code of Civil Procedure (NCCP) 1981 makes every award
rendered in France subject to setting aside proceedings there, thus partially reversing the Gotaverken case. The Gotaverken case
has not, however, been overruled on the question of what constitutes an international award.
5
Allan Redfern and Martin hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International
Commercial Arbitration, 4th Edn., Sweet and Maxwell, 2004, p. 89.
2

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contrast, Fouchard, Gaillard and Goldman refer to the principle as on
1

6. The Law Applicable to the Substance


After the questions regarding the procedure to be followed while conducting
the arbitration proceedings have been settled, it is the duty of the arbitral tribunal to
establish the material facts of the dispute and decide therein. For that, the arbitrators
should apply the law which relates to the substance of the dispute.
6.1 The Concept of Party Autonomy
In practice, the parties to an arbitration themselves decide on the law which
would be applicable to the substance of the dispute. The principle of Party Autonomy
in one of the major principles of International Commercial Arbitration and lies at the
very root of the benefit of choice of law in arbitration.
The arbitration tribunal derives its powers from the agreement of the parties
and if the parties have chosen a specific substantial law, then the arbitral tribunal is
bound to apply them to the merits of disputes. International conventions and the
model rules on international commercial arbitrations also state herein that the parties
are free to choose for themselves the law applicable to their contract to adjudicate
disputes.
Article 33 of the UNCITRAL Rules state:

app
The ICC Rules provides:

LCIA Indian Arbitral Rules, 2010, provides:

Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (eds), Kluwer Law
International, 1999 at para 1178.
2
UNCITRAL Arbitration Rules, 1972, article 33.1.
3
ICC Arbitration Rules, article 17.1.

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law(s) or rules of law chosen by the parties as applicable to the merits of their
1

Most modern arbitration laws recognize the principle of party autonomy


wherein the parties are free to determine the substantive law which would help in the
adjudication of disputes.2 Party autonomy provides contracting parties with a
mechanism of avoiding the application of an unfavorable or inappropriate law to an
international dispute. This choice is binding on the arbitration tribunal. This is also
confirmed in most arbitration rules.3
The principle of autonomy of the parties to choose the law applicable to their
conduct of arbitration in case of a dispute between them is a cornerstone of modern
arbitral practice. In ICC Award No. 15124, it was held:

according to which the law governing the contract is that which has been chosen by
the parties, whether expressly or (with certain differences or variations according to
the various systems) tacitly. The differences which may be observed here between
different national systems relate only to the p
choose the applicable law or to certain special questions or to modalities, but not to
5

The rule of party autonomy may be dependent upon the public policy of a
State. For example, the Rome Convention, states that the mandatory rules of a country
to which has the closes connection with the contract does not allow the choice of a
foreign law to override them. Thus, the national law can determine the conditions and
limits within the rule of party autonomy can be exercised.
In international commercial agreements, I is common for the parties to
themselves choose a substantive law which would govern their disputes, as it provides
1

Article 22.2.
See Model law article 28; section 28(b)(i), France NCPC, article 1496; Germany, ZPO section 1051(I); England, Arbitration
Act section 46(i).
3
Jlian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law
International, 2003 413 (415). See also AAA ICDR article 28(I); LCIA article 22(3); DIS section 23(I) CCI of the Russian
Federation, section 13(I); NAI, article 46; Stockholm Institute article 24(I); Vienna article 16(I); WIPO article 59(I).
4
(1980) V Ybk Comm Arbn 171.
5
See S Jarvin and Y Derains, Collection of ICC Arbitral Award 1974-1985 (1990), 210.
2

197

Chapter-5
a degree of certainty and uniformity. The parties usually try to regulate or enunciate a
mechanism for regulation of all or most of the issues between so as to avoid
uncertainty in future. A clear cut choice of the applicable substantive law removes all
possible confusion regarding the adjudication of the dispute through arbitration and
thereby allowing the parties to decide and control themselves with regard to the scope
the contract and its interpretation. Another reason for deciding the substantial law
beforehand is to avoid the risk of unanticipated decisions by the arbitrators.
Now this choice of applicable law or rules could be express or implied. It
would be called as express either if it is written in the contract or mentioned in the
written or oral arguments in the arbitration proceedings. The choice of law would be

in words or acts leading to a particular law which would govern their relationship.
The choice of the parties, whether express or implied, must be established with
reasonable amount of certainty by the terms of the contract or by the circumstances of
the case.1
There was a presumption of a number of years that by choosing a particular
place of arbitration it was implied that the law of that place would govern the
substantive issues of that dispute. Though there are number of cases where national
courts2 and arbitration tribunals3 have held that the place of arbitration is an implied
choice of the law of that place, this presumption is no longer an absolute certainty. It
is considered now as, a mere connecting factor which may be of relevance in the
particular circumstances of the case. For instance in ICC Case No.2735, wherein an
award was made in Pairs, the arbitrators held that the applicable law could be implied
from the seat of arbitration4. However, in a 1988 ICC award, made in London, the
tribunal held that the choice of England as the place of arbitration and English as the
that English law
should apply to the contract.5

Award in ICC Case No. 5865, Panamanian company v. Finnish company, 125 Clunet 1008 (1998). In this case a general

15 November 1994, Slovenian Company v. Agent (Germany), RIW 681 (1995), XXII YBCA 707 (1997).
See Friendly Arbitration (Hamburg) award, 29 December 1998, XXIV a YBCA 13 (1999).
4
ICC Case No. 2735, 104 Clunet 947 (1977).
5
ICC Case No. 7177 (1993) 7(I) ICC Bulletin 89 (1996).
3

198

Chapter-5
There might be a case where the parties have not chosen a specific substantive
law but they are arguing their case on a specific law. In ICC Case No. 1434, it was
held that there was an implied choice of law, as both the parties arguing a case on a
specific system of law. 1 Usually the choice of applicable law made by the parties in
the agreement or the arbitration clause is understood as the choice of substantial law. 2
Any designation of the law of legal system of a given State shall be construed, unless
otherwise expressed, as directly referring to the substantive law of the State and not to
its conflict of laws rules.3
6.2 Choice of Different Systems for the Applicable Law
Now that the parties are already given a free choice, an important question
arises, as to what system of law should be chosen which would govern the substantive
matters of the dispute? The parties can expressly or by implication choose a national
law which would govern the dispute. Alternatively, the parties may agree that the
arbitral tribunal should apply other considerations. Modern arbitration legislation now
mostly allows the arbitral tribunal to act as amiable compositeurs or to apply
transnational laws. The question as to whether the parties can choose to have their
dispute decided other than by a municipal law is to be answered by keeping mind the
lex arbitri or the law which governs the arbitration agreement.
These choices include:
National law
Concurrent or Several laws (and combined laws-the tronc commun
doctrine);
Public International Law (including the general principles of law)
Transnational law (including international development law; the lex
mercatoria; codified terms and practices; and trade usage);
Equity and good conscience.4

Multinational Group A v. State B, 103 Clunet 978 (1976).


Partial award in ICC Case No. 5073 (1986), XIII YBCA 53 (1988).
3
Article 28, Model Law; Stockholm Chamber of Commerce Rules, article 24(2), England Arbitration Act, section 46(2).
4
Allann Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International
Commercial Arbitration, 4th Edition, Sweet and Maxwell, 2004, p .97.
2

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Chapter-5
7. National Law
Generally in an international commercial arbitration, it is already mentioned in
the contract, as to what system of law is to be applicable to the contract. This is by
and large a national law. The advantage of a national law lies in the fact that it is not
mere set of general principles or an isolated system of laws but an autonomous,
independent and a complete legal system which could answer any question with
regard to the legal system, already being applied an interpreted by the Courts.1
This national system of law provides the parties with a known legal standard,
against which the rights and responsibilities could be considered. In this case, as and
when a dispute arises, it would be much easier and less complicated for the parties as
they would have greater confidence of their legal position and would have a fair
inkling with respect to the result of the dispute. For instance, parties to a dispute being
heard in France agree that the arbitral tribunal shall apply the law of England then all
concerned parties, advisers and arbitrators would know where they stand.
Almost all arbitral institutions, such as ICC and LCIA while recommending
the arbitral clause, point out that the parties should, in their arbitration clause, add a

could be due to the connection of the law with the parties or the parties prefer the said

freight contracts usually have a choice of English law and major reinsurance contracts
contain a choice of the law of New York.
It can be argued that every national system of law should be ideal for
arbitration. However, the world is not ideal and in reality, some national system of
law would have outdated laws which would not be suitable for arbitration. For
example, a national law which does not really allow a free reign with respect to goods
and services, across the borders or major restrictions on foreign trade is not a suitable
law to govern international commercial contracts and its disputes.
Thus, it is imperative that the parties to an international commercial contract,
choose a given system of law which would govern their contractual relationships,

This includes not only the law of a country that is for example India but also the law of a State in a federal system like U.S.A.

200

Chapter-5
with due consideration as the determination in itself would resolve many issues. Due
to this reason, the tribunal, usually, decides the applicable law as an interim issue.
It is important to note that the national law herein includes and encompasses
all rules of law, statues, case laws, scholarly writing and customs which are present.

considered as and when parties agree to arbitrate in that particular state. 1 This can be
explained by the fact that when a party expressly chooses the law of a particular
country so as to determine the merits of the dispute, would frustrate the purpose if the

the law of another country.


8. Concurrent or Several Laws
Application of Several Laws of Standards
It has become a sort of practice where the arbitrators apply or choose different
laws as to govern different aspects of a commercial relationship between the parties
rather than apply one national law. The parties might choose one law which would
govern the overall content and another law dealing with certain aspects of
performance.
The application of several laws in international commercial arbitrations has
been upheld by a resolution of the International Law Institute, adopted in Athens in
1979, particularly for contracts between a State and a foreign private person. 2 Various
arbitration rules also refer to the applicable laws in plural form 3 as well as by the
Model law agree to the application of several laws.
In the Aramaco arbitration4 the selection of separate laws was allowed as the
tribunal held:

governed by a single law, the tribunal can justifiably split the contract into parts, to be
governed by several laws.

UNCITRAL Model Law, article 28.1


Institute de Droit International, Table of Adopted Resolutions (1957-1991). See also Julian D.M. Lew, Loukas A. Mistelis,
Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law International, 2003, p. 418
3
AAA ICDR article 28(I); LCIA, article 22(3); SCC Rules, article 24.
4
Model Law, article 28.
2

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Chapter-5
9.
Now the parties can also select public international law, or alternatively the
general principles of law in their choice of law clause as the law which would govern
their contractual relationship. The applicable law clause may designate a national

country X and the relevant


similar formula. There is no inherent reason as to why the individual should not be
able directly to invoke international law and be the beneficiary of international law. 1
General principles of law are seen in many choice of law clauses, whether they
are isolated or is in conjunction with any state law or forming a part of international
trade law. The Washington Convention of 1965 makes a reference to both the national
law (law of the contracting State which is party to the dispute) and the principles of
international law. Article 42 of the Convention states that in case of any express
choice of the parties, an ICSID tribunal shall apply the law of the contracting State
and such rules of international law as may be applicable.
There have been instances where the arbitral tribunals have decided to apply
general principles of law or as a body of norms potentially comprising various sources
of transnational law. In a case reported by a the noted author Derains, an ICC
Tribunal hearing a dispute between a Japanese manufacturer and a Middle Eastern
2

However, the problem of adopting international law,

relationship is not a problem of principle, but of practices. These general principles


are not codified. For example, concepts such as pacta sunt servanda (that contracts
should be obeyed), a good faith is important for commercial relationships, etc., are a
valuable concepts but are not able to answer the particular questions in an arbitration
dispute.

Dame Rosalyn Higgins, former ICJ judge, Problems and process: International Law and How we use it, (Clevedon Press,
Oxford, 1994) p. 54.
2
Dearins, Transnational Law in ICC Arbitration, in The Practice of Transnational Law.

202

Chapter-5
International law, being concerned primarily with the relationship between
states, is not particularly well-equipped to deal with detailed contractual issues-such
as mistake, misrepresentation, time of performance, the effect of bankruptcy of
liquidation, force majeure or the measure of damages and so forth.
Conclusively, if general principles of law are to be chosen as the substantive
law, it should be used in conjunction with a system of national law because the

10. The Lex Mercatoria


The te

was coined by late Professor Goldman. 2 The body

of trading principles to settle international trade disputes as used by merchants in the


ninth century when the Arabs dominated trade in the Mediterranean, general rules
followed througho
by agreement can authorize the arbitral tribunal under equity clauses to act as amiable
compositeur and to decide as aequo et bano3 instead of deciding in accordance with
the traditional s
gentium,4
economic relations (commercium) between citizens and foreigners (

Then, Europe experienced a commercial renaissance which was associated in


part with opening of trade with the markets of the East (it was hidden, but prevalent
objective of the first crusade 1095) and in part with general political and economic
developments within Europe, including the rise of towns and cities as autonomous
political units.6 It is evident that at the beginning of the 19th Century a drive for
7

and so its international

character was almost lost.

1
2

oldman, La lex mercatoria

3
4

Goldman, op. cit. p.3


Goldman, op. cit. p.3
6
UNIVERSITY OF LIS, The scientific journal FACTA UNIVERSITATIES Series: Economics and Organization, Vol. 1, No 5,
1997, pp. 87, 91.
7
Code Commerce, 1807 and Handelgesetzbuch, 1897.
5

203

Chapter-5
The Renaissance of lex mercatoria and its arising influence in the 20 th Century
is the outcome of the globalized trade and the new generation system of international
business transactions. Today the term lex mercatoria as the modern adaptation of a

business communes, general principles of law and rules of natural justice. It is


considered to be the most significant development in the field of international law.
Although in recent time it has been regenerated as a sort of transnational commercial
law which displaces the use of national law in international transactions.
The new lex mercatoria has adopted national legal principles and rules of trade
usage and customs. Principles of lex mercatoria are also found within the writings of
jurists and legal commentators. Lord Mansfield1
commercial law of the Great Britain. According to Justice Buller 2, Lord Mansfield
had created a body of substantive commercial law, logical, just, modern in character
and at the same time in harmony with the principles of the common law. It was due to
the
common law was carried out with an almost complete understanding of the
requirements of the commercial community, and the fundamental principles of the old
law and that marriage of idea proved acceptable to both merchants and lawyers. 3 In
1987, Lord Mustill while considering the development of the Lex mercatoria stated
that,4

n exists for one purpose only: to serve the commercial man. If

irrespective of its origin and the nature of these sources, be the law proper to
international economic (Commercial) relations. One would encompass not only
transnational customary law, whether it is codified or not (and in the latter case
revealed and clarified by arbitral awards) but also law of an interstate, or indeed State,
which relates to international trade. Thus, for example the successive Hague, (1954)
1
2

Chief Justice of Englan and Wales from 1756 to 1788.


Lickbarrow v. Mason, (1787)2 Term Rep 63, 73, Buller J.

Trade Law, Edited by Chia-Jung, Martinus Nijhoff Publishers/Graham & Trotman Ltd., 1988, p. 24 (1961) 137.
4
-five Years, in Liber Amicorum for Lord Wilberforce, 1987).

204

Chapter-5
and Vienna, (1980) Conventions Establishing Uniform Laws for the International Sale
of Goods would be part of lex mercatoria. This would also be the case with respect to

same applied to rule specific to international trade established by national case law,
such as for example, the French notion of the autonomy of parties, the general validity
of international arbitration agreements, and the capacity of State and of public entitles
1

The primary advantages of lex mercatoria are that they can be useful to suit
real business needs and application and are uniform in application thus avoiding the
vagaries of different national laws. By choosing lex mercatoria the parties or the
arbitrators may avoid the technicalities of national legal systems.
Some commentators have also pointed out that, in international commercial
Arbitration there is no need to localize the applicable law. The constraint on the usage
of applicable law being limited to national law is not consistent with the nature and
the advantages of international commercial arbitration, therefore, the use of lex
mercatoria should be encouraged over the use of national laws in suitable case.
Therefore, parties usually include clauses which make express reference to general or
common principles of law.2
In India, Justice Rajiv Sahai Endlaw ha

whether it has any meaning. Those who do assign it a meaning differ as to whether it
is a separate body of international commercial law or equivalent to freedom from
3

has two facets. First, the rules governing an international commercial contract are not,
at least in the absence of an express choice of law, directly derived from any one
national body of substantive law. Second, the rules of the lex mercatoria have a
normative value which is independent of any one legal system.

International arbitration, 1987, Martinus Nijhoff Publishers, p. 113.


2
3

Jai Singh v. D.D.A, Delhi High Court, OMP No. 152/2002, 4-9-2008.

205

Chapter-5
The main characteristic of lex mercatoria in the medieval times were that; it
was the transnational law, it was to be the principal source was mercantile custom,
judgment were suo motu governed by the merchants themselves and not by
professional judges and the procedure followed was speedy and informal and to add
herein good fait was the basis of the whole procedure in totality.
At present there is an extensive ongoing debate about the meaning,
subsistence, contents and the application of the lex mercatoria. In attempts to define
lex mercatoria and transnational rules, several expressions have been used, such as
1

In 1992, the International Law Association adopted a Resolution in Cairo.


According to this resolution, in cases where the parties agree that the arbitrator may
apply transnational rules or where the parties have remained silent concerning the
applicable law, arbitration awards based on general principles of law (which are
common to several jurisdictions), principles of international law, general law o the
merchants rather than any particular national law, are enforceable. 2
International conventions, such as the CISG3 and international arbitration case
law are also instrumental in determining the contents of the lex mercatoria. Some
tribunals have also used the CISG4 in order to support the application of national law.5
Besides these there are arbitration case laws which acknowledge or apply lex
mercatoria.6
It is pertinent to mention here that, Professor Ole Lando 7 and Lord Mustill1
have compiled lists of principles and sources that may comprise the modern lex

various clauses.
2

th
Rules in In
Conference, Queensland, Australia (1991).
3
Many Arbitral Tribunals consider the CISG as a means of determining lex mercatoria, see Korean Seller v. Jordanian Buyer,
XX YBCA 41 (1995); award in ICC Case No. 7331 (1994) Yugoslav Seller v. Italian Buyer, 122 Clunet 1001(1995).
4
United Nations Convention on Contracts for the International Sale of Goods, 1980.
5
Award in ICC Case No. 8324 (1995), 123 Clunet 1019 (1996); award in ICC Case No. 8128 (1995), 123 Clunet 1024 (1996);
Egyptian Buyer v. Yugoslav Seller, XV YBCA 96 (1990); Zurich Chamber of Commerce award in case no. 273/95 of 31 May
1996, Raw material processor (Hungary) and Processing Group (Argentina) v. Raw Material Seller (Russian Federation), XXIII
YBCA 128 (1998).
6
See Comparative international commercial arbitration-2003 Edn., By Julian D.M. Lew, Loukas A. Misteils, Stefan Kroll at
455; Lew, Applicable Law, paras 366-3772, 465ace A21st

206

Chapter-5
mercatoria. These lists have been taken into account globally and put on record by
arbitral tribunals so as to support and construe the lex mercatoria.2
Both these lists included some Jus Cogens 3 principles like pacta sunt servanda
(Contracts should be enforced according to their terms unless there is a significant
change of circumstances or in other words promises must be kept),4 rebus sic
stantibus (Treaties to become inapplicable because of a fundamental change of
general rule of pacta sunt servanda), 5 unfair and unconscionable contracts and clause
should not be enforced, 6 the doctrine of eulpa in contrahendo (according to which
liability may be assumed for contractual negotiations), 7
8

achieve an illegal object9or


10

. Even

in cases where the contract is not inclusive of a revision clause, the parties should
negotiate in good faith to overcome unanticipated difficulties in the performance of a
contract.11

12

agreements are valid and enforceable. 13

-The First TwentyWilberforce (Oxfor 1987), 149-183 and 2 Arb Int 86(1988).
2
These principles have been mentioned in Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International
Commercial Arbitration Kluwer Law International, 2003, p. 457-9. Also there same principles are mentioned in the article of
-the First TwentyWilberforce (Oxford 1987), 149-183 and 2 Arb Int 86 (1988).
3

international law which is accepted by the international community of states as a norm from which no derogation is ever
permitted.
4
See e.g., award in ICC Case No. 5485 (1987), Bermudan Company v. Spanish Company, XIV YBCA 156 (199); award in ICC
Case No. 3540 (1980) French Contractor v. Yugolav Sub-Contractor, VII YBCA 124 (1982); award in ICC Case No. 2321
(1974), Two Israeli Companies v. The Government of an African State, I YBA 133 (1976).
5
See interim awards and final award of 1983, 1984 and 1986 in ICC Case No. 4145, Establishment of Middle East Country v.
South Asian Construction Company, 112 Clunet 985 (1985), XII YBCA 97 (1987); Iran US Claims Tribunal award in Case No.
59 (191-59-1, 25 See; Qestech, Inc. v. Ministry of National Defence of the Islamic Republic of Iran, XI YBCA 283 (1986).
6
This principle can be found in many civil law systems but are of limited use in common law. See, however, UCC section 2-302,
In most cases public policy would bar the enforceability of unfair and unconscionable clause.
7
See Iran US claims Tribunal, award in Case No. 149 (53-149-1), 10 June 1983, Mark Dallal v. Islamic Republic of Iran and
Bank Mellat, IX YBCA 264(1984); Berger, International Economic Arbitration, note 336-545.
8
See. E.g., award in ICC Case No. 3131 (1979), Pabalk Ticaret Sirketi SA (TURKEY) V. Norsolor SA, Rev Arb 1983, 525,
531; IX YBCA 109 (1984).
9
See award in ICC Case No. 2730 (1982), Two Yugoslav Companies v. Dutch and Swiss Group Companies, III Clunet 914
(1984) 920.
10
See e.g., award in ICC Case No. 110 (1963), Mr. X, Bue nos Aires v. Company A, 10 Arb Int 282 (1994); XXI YBCA
47(1996).
11
See award in ICC Case No. 2291 (1975) 103 Clunet 989 (1976), ICC Case No. 6219 117 Clunet 1047 (1190); award in ICC
Case No. 8365 (1996); Spanish Bank v. German bank, 124 Clunet 1078 (1997).
12
Gold clauses refer to, imparting creditor the option to receive payment in gold or gold equivalent.
13
Award in ICC Case No. 1512 (1971), I YBCA 128 (1976); award in ICC Case No. 1990, 11 Clunet 897 (1974); award in ICC
Case no. 2748, 102 Clunet 925 (1975); award in ICC Case No. 2291, 103 Clunet 989 (1976).

207

Chapter-5
In some c
implied,1 one party is entitled to treat itself as discharged from its obligations if the
other has committed a substantial breach, 2 no party can be allowed by its own act to
bring about a non-performance of a conditions precedent to its own obligation, 3 a
tribunal is not bound by the characterization on the contract ascribed to it by the
parties,4 damages for breach of contract are limited to the foreseeable consequences of
of the breach and include loss actually suffered and loss of profit,5 a party which has
suffered a breach of contract must take reasonable steps to mitigate its loss, 6 damages
for non delivery are calculated by reference to the market price of the goods and the
price at which the buyer purchase equivalent in replacement goods, 7 a party must act
in a diligent and practical manner to safeguard its own interests, 8 and to avoid being
considered as having waived its rights, 9 and the contract terms should be construed on
on the presumption that they are effective. 10

11

As off now the principles of lex mercatoria have not been formally codified in
one single convention whereas the advantages of such an accustomed and uniform
code are evident. But it can be said that International conventions like the
UNCITRAL Model Law somewhat represent a process of unification and codification
of the law of international trade and commercial transactions, i.e., the modern lex
mercatoria. Other international convention activities such as the Hague Convention
1964, the United Nations Convention on Contract for the International Sale of Goods,
1980 also known as the Vienna Sales Convention, the Uniform Customs and Practice

Klaus Peter Berger, International Economic Arbitration, Kluwer Law and Taxation Publishers, 1993, note 340, 546.
Award in ICC Case No. 3540 (1980), French Enterprise v. Yugoslav Sub-contractor, VII YBCA 124 (1982); award in ICC
Case no. 2583, 103 Clunet 950 (1976).
3
Award in ICC Case no. 2521, 103 Clunet 997 (1976); Final award in ICC Case No. 4629 (1989) Contractor (European
Country) and contractor (Middle Easter Country) v. Owner (Middle Eastern Country), XVIII YBCA II (1993).
4
See Fouchard, Gaillard and Goldman on International Commercial Arbitration, para 1477, 827-8.
5
See e.g., award in ICC Case no. 1526 (1968), Belgian Party v. African State, 101 Clunet 915 (1974); Amco arbitration 24 ILM
1036 (1985); 114 Clunet 155 (1987).
6
See e.g., award in ICC Case No. 2478, 102 Clunet 925 (1974); award in ICC Case No. 4761, Italian Consortium v. Libyan
Company, 114 Clunet 1012 (1987); award in ICC Case No. 5514(1990).
7
See CISG articles 75-76.
8
See award in ICC Case No. 2520, Two Czechoslovak Companies v. Italian Company, 103 Clunet 992 (1976).
2

See award in ICC Case no. 334, 108 Clunet 978 (1982); award in ICC Case No. 3243, 108 Clunet 968 (982); award in ICC
Case No. 2250, 102 Clunet 992 (1976).
10
See e.g., award in ICC Case No. 1434 (1975), 102 Clunet 982 (1976); award in ICC Case No. 3380 (1980), Italian Company
v. Syrian Company, VII YBCA 116 (1982); award in ICC Case no. 8331 1996 125 Clunet 1041 (1998).
11
See Julian D.M. Lew, Loukas A. Mistelis, Stefan Kroll, Comparative International Commercial Arbitration Kluwer Law
International, 2003 at 458, 459.

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Chapter-5
for Documentary Credits,1 the Incoterms,2 and the New York Convention 1958 aid the
the same. However, in our opinion the system of resolving international commercial
disputes is a multifaceted process and cannot be abridged to a single treatise.
11. UNIDROIT Principles as Substantive Law
The Uniform Custom and Practice for Documentary Credits, formulated as
long ago as 1933 3 has hugely contributed towards a single, uniform international
standard for the interpretation of documentary credit, which are essentially those
valuable pieces of paper upon which much of international trade depends.
The UNIDROIT Principles of International Commercial Contracts were
elaborated in 1994 (and currently an expansion of the Principles is due for adoption).
They represent a modern approach to international trade law 4 and are increasingly
used in international contracts and dispute resolution.
The UNIDROIT principles are in nature, a sort of a restatement of the general
principles of contract law.5 These are very comprehensive6 in nature as they not only
cover the interpretation and performance of contractual obligations but also cover the
conduct of the negotiations thereby leading to the formation of a contract. Evidently it
places strong emphasis on good faith and fair dealing.7 These principles aim is to
establish a neutral set of rules that could be used throughout the world, without any
particular bias to one system of law over another.
It is pertinent to note herein that these principles apply only when the parties
themselves choose to apply them to their contract. 8 So, it essentially supplements the

e
commercial parties, particularly banks, had developed the techniques and methods for handling letters of credit in international
trade finance. This practice has been standardized by the ICC (International Chamber of Commerce) by publishing the UCP in
1933 (which is updated after material intervals of time).
2
Incoterms (international commercial terms) are a series of international sales terms, published by International Chamber of
Commerce (ICC ) and widely used in international commercial transactions. They are used to divide transaction cost and
responsibilities between buyer and seller and reflect state-of-the-art transportation practice. They closely correspond to the CISG.
550. ICC publication No. 35. Both INCOTERMS and documentary credits are discussed with trade usages.
3
ICC Publication No. 400.
4
IDROIT Principles of International Commercial Contracts and the harmonization of International Sales
Law, 2002 36 RJT 335 (341), http://www.editionsthemis.com/uploaded/revue/article/rjtvol36num2/bonell.pdf.
5
6

The UNIDROIT Principles were revised in April 2004. They may be accessed on the UNIDROIT website www.unidorit.org.
y not
exclude or limit this duty.
7
8

when the parties have agreed that their contract be governed by them. They may be applied when the parties have agreed that
their

209

Chapter-5
substantive law of the contract and not replaces it. However, in practice, arbitral
tribunals could themselves decide to refer to the UNIDROIT Principles as an aid.
12. Trade Usages
Most institutional rule and international arbitration rules require an arbitral
tribunal to keep in mind the relevant trade usage. 1 This is even found in the Model
Law.2 They are even found out in a national arbitration laws. The Netherland
Arbitration Act, 1986 provide that in all cases the arbitral tribunal shall take into
account the relevant applicable trade usages.
The ICC has been particularly prominent in trying to establish a common
understandable meaning for expressions that are in frequent use in international trade

which are in common use and which are intended to set out, in an abbreviated form,
the rights and obligations of the parties. It is obviously important that they should
have the same meaning worldwide. To this end, the precise extent of these rights and
3

In much the same way, the Uniform Customs and Practice for Documentary
Credits (formulated as long ago as 1933) 4 have proved valuable in moving towards a
single international standard for the interpretation of these important instruments of
world trade.
13. Equitable Principles
Arbitral tribuna

a debate as to whether there is a difference between an equity clause, a clause


requiring the arbitral tribunal to decide the dispute ex aequo et bono, and a clause that
permits the arbitral tribunal act as amiable compositeurs. The only difference which
comes to mind is that an equity clause would free the arbitral tribunal from the

ICC Arbitration Rules, article 172; UNCITRAL Arbitration Rules, article 33.3
Article 28(4).
3
Allan Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International
Commercial Arbitration , 4 th Edn., Sweet and Maxwell, 2004 (117), See also Jan Paulsson, The Freshfields Guide to Arbitration
and ADR: clauses in International Contracts, Kluwer Law International 1999, Edn.,p.22.
4
ICC Publication No. 400.
2

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Chapter-5
constraints of national law while a clause requiring the arbitral tribunal to act ex
aequo et bono only permits the arbitral tribunal to lessen the effects of a harsh law. 1

For instance that the arbitral tribunal:


Should apply relevant rules of law to the dispute, but may ignore any rules
which are purely formalistic (for example, a requirement that the contract
should have been made in some particular Form); or
Should apply relevant rules of law to the dispute, but may ignore any rules
which appear to operate harshly or unfairly in the particular case before it;
or
Should decide according to general principles of law; or
May ignore completely any rules of law and decide the case on its merits
as this strike the arbitral tribunal.
Commentators generally reject this fourth alternative.2
Equity clauses usually fall into two distinct categories. The first category
permits the arbitral tribunal to act without applying all the principles of the relevant
law. The second category permits the arbitral tribunal to decide in accordance with
some principles (not related to national law). These clauses usually refer to principles
3

14. Amiable Composition and ex aequo et bono


Unless a relevant criterion is expressly stated by the parties, a tribunal
determines the issues between the parties by taking into account the contract terms,
trade usages and the applicable law. One such exception is to this is when the parties
agree the tribunal should decide the issue in context of what is right and fair in the
circumstances.

Fouchard Gaillard Goldman, On International Commercial Arbitration (E. Gaillard & J. Savage (eds), Kluwer Law
International, 1999, para 1502.
2
Allan Redfern and martin Hunter with Nigel Blackaby and Constantine Partasides, Law and Practice of International
Commercial aRbitration, 4th Edition, Sweet and Maxwell, 2004, p. 118.
3
Andrew Tweeddale and Keren Tweedale, Arbitration of Commercial Disputes International and English Law and Practice,
Oxford University Press, 2007, Edn., p. 190.

211

Chapter-5
Arbitrators may sometimes be required to settle a dispute by determining it on

rather than a strictly legal


amiable compositeurs.
These laws or rules which are generally referred to as amiable composition or
arbitrators deciding ex aequo et bono and are essentially a non legal and flexible in
nature. However for this rule to be applicable, it is important to note that the parties
must have expressly authorizes the tribunal to act in this particular manner. Most of
the laws and rules containing such authority are similar in nature. For example,
according to article 28(3), Model Law, the arbitral tribunal shall decide ex aequo et
bono or as amiable compositeur only if the parties have themselves expressly
authorized it to do so. 1
Amiable composition is a concept which originated in France and then to other
civil countries.2 The power to decide ex aequo et bono was first adopted by the
Permanent Court of International Justice3 as an exception to the sources of law
normally relied upon by the court. Thereafter it was included in the statue of the
International Court of Justice as well. 4 The genesis of the said expression can be
5

Generally, the parties authorize the arbitrators to depart from any constraints from a
national legal system, when the parties agree that the arbitrators can act as amiables
compositeurs or ex aequo et bono.
The ICC Rules6 goes a step further than the Model Law. They allow the
arbitral t
absence of any agreement between the parties. Therefore by confirming that the both
1

The arbitral tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have expressly authorized that

Gary Born, International Commercial arbitration: Commentary and Materials (2d Edn. Transnational Publisher Inc an Kluwer
Law International, 2001), p. 557
3
Article 38(4) Statute of the PCIJ, as amended by the Protocol of 14 September 1929.
4
Article 38(2) Sta
5
6

th

Edn., Wes 1990) 557.


ICC Arbitration Rules, article 17(1).

212

Chapter-5
parties and arbitrators have the ability to choose rule of law other than those of a
single state, the rules therein provides greater flexibility.
15. The Applicable Law and the Indian Perspective
The Arbitration and Conciliation Act, 1996 consists of two parts, Part I and
Part II. Part I of the Act applies to all arbitrations whose venue is India. Part II of the
Act applies to the enforcement of foreign awards. It is clear that if the place of
arbitration is India, the procedural law of the arbitration is the Arbitration and
Conciliation Act of 1996.
Section 28 talks about the substantive law applicable to the dispute:
28. Rules applicable to substance of dispute-(1) where the place of
arbitration is situate in India,(a) in an arbitration other than an international commercial arbitration, the
arbitral tribunal shall decide the dispute submitted to arbitration in
accordance with the substantive law for the time being in force in India;
(b) in international commercial arbitration,(i)

the arbitral tribunal shall decide the dispute in accordance with the
rules of law designated by the parties as applicable to the substance of
the dispute;

(ii)

any designation by the parties of the law or legal system of a given


country shall be construed, unless otherwise expressed, as directly
referring to the substantive law of that country and not to its conflict of
laws rules;

(iii)

failing any designation of the law under clause 9a) by the parties, the
arbitral tribunal shall apply the rules of law it considers to be
appropriate given all the circumstance surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequo et bono or as amiable


compositeur only if the parties have expressly authorized it to do so.
(3) In all cases, the arbitral tribunal shall decide in accordance with the terms
of the contract and shall take into account the usages of the trade applicable to
the transaction.
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Chapter-5
Now with regard to international commercial arbitration, as mentioned about,
the applicable law would be the law decided by the parties therein. It has been held in
the case of National Thermal Power Corporation v. Singer Company1 that in
international commercial arbitrations, parties are at liberty to choose, expressly or by
necessary implication, the law and the procedure to be made applicable. The
procedure or the rules governing such arbitration may be of the country where the
arbitration is being held or the body under whose aegis the arbitration is being held.
All bodies which conduct arbitrations and all countries have rules and laws governing
arbitrations.
In Citation Infowares v. Equinox Corporation,2 the Supreme Court of India
has held that the parties were free to choose the law relating to a contract and also to
an arbitration agreement but where Part I of the Arbitration and Conciliation Act,
1996 is not excluded by the parties, it would continue to apply despite the foreign
governing law and therefore the corresponding power of the Indian courts to appoint
an arbitrator is retained.
In international commercial arbitration the arbitral tribunal shall decide the
dispute in accordance with the rules of law designated by the parties as applicable o
the substance of the dispute and, failing any such designation, the rules of law the
tribunal considers appropriate given all the circumstances. Indian courts have long
since accepted that in the absence of express or implied choice, the arbitrators would
3

16. Judicial Interpretation of International Commercial Arbitration


However, the situation is little different when an Indian Party is involved in an
international commercial arbitration proceeding in another country. According to
recent Supreme Court decisions, Part I would be applicable to every arbitration
proceeding having an Indian party.
Section 2(f) of the said Act defines an international commercial arbitration. It
reads as follows:

(1992) 3 SCR 106: AIR 1993 SC 998: 1993 AIR SCW 131: 1992 (2) SCJ 430.
(2009) 9 SCC 220.
3
British India Steam Navigation Co. v. S. Cashew Industires, (1990) 3 SCC 481 (496).
2

214

Chapter-5

relating to disputes arising out of legal relationships, whether contractual or


not, considered as commercial under the law in force in India and where at
least one of the parties is(i)

an individual who is a national of, or habitually resident in, any


country other than India;

(ii)

a body corporate which is incorporated in any country other than India;


or

(iii)

a company or an association or a body of individuals whose central


management and control is exercised in any country other than India;
or

(iv)
In Bhatia International v. Bulk Trading S.A.,1 It was held by the Supreme
no
distinction between international commercial arbitrations which take place in India or
international commercial arbitrations which take place in India or international
commercial arbitrations which take place outside India. In Bhatia international the
whole issue of the applicable law and whether the Part I of the Arbitration and
Conciliation Act, 1996 applies to every international commercial arbitration involving
an Indian party were discussed. The relevant excepts are:
ws that the said Act applies to arbitrations
which are held in India between Indian nationals and to international commercial
arbitrations whether held in India or out of India. Section 2(f) defines an international
commercial arbitration. The definition makes no distinction between international
commercial arbitrations held in India or outside India. An international commercial
arbitration may be held in a country which is a signatory to either the New York
Convention or the Geneva Convention (hereinafter called the convention country). An
international commercial arbitration may be held in a non-convention country. The
said Act nowhere provides that its provisions are not to apply to international
commercial arbitrations which take place in a non-convention country. Admittedly
1

(2002) 4 SCC 105: AIR 2002 SC 1432: 2002 AIR SCW 1285: 2002 (2) SCJ 420.

215

Chapter-5
Part II only applies to arbitrations which take place in a convention country. Mr. Sen
fairly admitted that part II would not apply to an international commercial arbitration
which takes place in a non-convention country. He also fairly admitted that there
would be countries which are not signatories either to the New York Convention or
the Geneva Convention. It is not possible to accept submission that the said Act
makes no provision for international commercial arbitrations which take place in a
non-convention county.
Now let us look at sub-section (2), (3), (4) and (5) of section 2. Sub-section (2)
of section (2) provides that Part I would apply where the place of arbitration is in
India. To be immediately noted that it is not providing that Part I shall not apply
where the place of arbitration is not in India. It is also not providing that Part I will

Legislature has not provided that part I is not to apply to arbitrations which take place
outside India. The use of the language is significant and important. The Legislature is
emphasizing that the provisions of part I would apply to arbitration which take place
in India, but not providing that the provisions of Part I will not apply to arbitrations
which take place out of India. The wording of sub-section (2) of section 2 suggests
that the intention of the Legislature was to make provisions of Part I compulsorily
applicable to an arbitration, including an international commercial arbitration, which
takes place in India. Parties cannot, by agreement, override or exclude the nonderivable provisions of Part I compulsorily applicable to arbitration, including an
international commercial arbitration, which takes place in India. Parties cannot, by
agreement, override or exclude the non-derivable provisions of Part I in such
arbitrations. By omitting to provide that Part I will not apply to international
commercial arbitrations apply to international commercial arbitrations held out of
India. But by not specifically providing that the provision of Part I apply to
international commercial arbitrations held out o India, the intention of the Legislature
appears to be to allow parties to provide by agreement that Part I or any provision
therein will not apply. Thus in respect of arbitrations which take place outside India
even the non-derivable provisions of Part I can be excluded. Such an agreement may
be express or implied.
On conclude we hold that the provisions of Part I would apply to all
arbitrations and to all proceedings relating thereto. Where such arbitration is held in
216

Chapter-5
India the provisions of Part I would compulsory apply and parties are free to deviate
only to the extent permitted by the derogable provisions of Part I. In case of
international commercial arbitrations held out of India of Part I would apply unless
the parties by agreement, express or implied, exclude all or any of its provisions. In
that case the laws or rules chosen by the parties would prevail. Any provision, in Part

Thus, it is clear from the judgment that the Court had categorically erased the
distinction between Part I and Part II of the Arbitration Ac, stating that provisions
under Part I would apply to all arbitrations and to all related proceedings. For
arbitrations held in India, the provisions would be compulsorily applicable and only
the derogable provisions of Part I could be deviated from. In international commercial
arbitrations, held outside India, the provisions of Part I would apply by default unless
the parties expressly or impliedly, excluded all or any of its provisions through
agreement.1
This judgment was then questioned by Justice Vikramjit Sen in Bharti
Televentures Ltd. v. DSS Enterprises Private Ltd.,2 and stated that the ratio decidendi
in the Bhatia International case was that, section 9 of the Arbitration and Conciliation
Act can be resorted to even in respect of international commercial arbitrations whose

also held that the widest legal principle or the ratio decidendi extractable form Bhatia
International case (supra) is that provisions of Part I of the Act apply to all arbitrations
that possess statutory connectivity with India, except where Part I has been explicitly
excluded. It also criticized the logic of the judgment on various grounds. The relevant
extract being:
f the parties is not of Indian nationality
and is also not a citizen of a county which is not a signatory either of the New York
Convention r the Geneva Conventions. In actuality the drafters have overlooked the
possibility of an international arbitration between an Indian party and another from a
nondeduce that Parliament wanted part I alone to apply to such arbitrations. The relative
1

See Venture Global v. Satyam Computer, AIR 2008 SC 1061: 2008 AIR SCW 667: (2008) 4 SCC 190: (2008) 1 SCALE 214:
Threat to International Commercial Arbitration in India, Global Law Limited, 29 September, 2009, Abacus Legal Group; article,
Arpan Kumar Gupta.
2
2005 (2) ARBLR 561 (Del)

217

Chapter-5
likelihood of arbitrations between an Indian party and one from a non-convention
country (or for that matter from a Geneva Convention country) is minuscule incidence
of Chapter II of Part II of the Arbitration and Conciliation Act of 1996 being attracted
or invoked is likely to be less than ten percent. The existence of this void or lacuna
leads to two possibilities where the arbitration is in respect of a non-convention party
viz., (a) either to apply part I or (b) to decide on a priori principles. It should also be
kept in view that there may not be any justification to equate a situation obtaining
from the failure to cater to a contract in which one party comes from a nonconvention county to every arbitration including Geneva or New York Convention
parties. It may be logically impermissible to ap
either to a domestic arbitration or to a New York/Geneva arbitration, which are
explicitly covered by Part I and Part II of the Arbitration and Conciliation Act. If the
arbitral sessions are located outside India then

Conciliation Act until such time as any part of an Award passed in those proceedings
is sought to be executed in India, in which event Order XXI of the Code of Civil
Procedure, 1908 would have to be resorted to. The careless drafting which pervades
most of the statute is poignantly present in section 2(f) which, whilst defining the term

party must be Indian. This ha perforce to be read into the definition which regretfully

Further, Justice Vikramjit Sen stated that India should have incorporated the
UNCITRAL Model law in toto and not altered the language of the whole treaty. He
commented that the Arbitration and Conciliation act, 1996 has led to a conclusion,
different from the UNICITRAL Model law, which India had ratified. He stated that:
he Recognition and Enforcement of
in common legal parlance, has been ratified by India of 13 th July, 1960. By virtue of
its article VII the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva
Convention on the execution of Foreign Arbitral Awards of 1927 ceases to have effect
between the contracting States. Considering that the New York Convention has been
ratified by 108 nations and less than five sovereign contracting States of the Geneva
Convention have not become signatories to the New York Convention, Chapter II of
218

Chapter-5
Part II of the Arbitration & Conciliation Act, 1996 already has minimal applicability
and may soon have none at all, reducing that Chapter to a surplusage. Article 51 of the
Constitution of India, which is a Directive principle of State Policy, expects the
promotion of international peace and security and once a Treaty is ratified by India it
becomes its duty to ensure that appropriate legislation is passed so that the Treaty has
municipal/domestic applicability and efficacy. For example the Warsaw and Hague
Conventions regulating International Carriage by Air has been infused with local
applicability upon the passing of the Carriage by Air Act. Unlike in the Arbitration
and Conciliation Act, the language of those Conventions has not been tampered with
or altered whilst enacting the Carriage by Air Act. It is certainly arguable that the
language employed in any Treaty should similarly be employed verbatim in the
municipal statute, since every nation is obliged to give complete effect to its
international obligations. It is not expected of any sovereign country to lead the
international community to believe that it has agreed to fail within a particular legal
regime, whilst chartering a different path in reality. If the same language as is found

However, the Bhatia International judgment was upheld in the case of Venture
Global Engineering v. Satyam Computer Services1 and held that:
-Judge
Bench decision in Bhatia International (supra), I agree with the contention of Mr.
K.K. Venugopal and hold that paragraphs 32 and 35 of the Bhatia International
(supra) make it clear that the provisions of Part I of the Act would apply to all
arbitration including international commercial arbitrations and to all proceedings
relating thereto. I further hold that where such arbitration is held in India, the
provisions of Part-I would compulsorily apply and parties are free to deviate to the
extent permitted by the provisions of Part-I. it is also clear that even in the case of
international commercial arbitration held out of India provisions of Part-I would apply
unless the parties by agreement, express or implied, exclude all or any of its
provisions. We are also of the view that such an interpretation does not lead to any
conflict between any of the provisions of the Act and there is no lacuna as such. The

AIR 2008 SC 1061: 2008 AIR SCW 667: (2008) 4 SCC 190: (2008) 1 SCALE 214.

219

Chapter-5
matter, therefore, is concluded by the three-Judge Bench decision in Bhatia

Even Justice Vikramjit Sen in Spentex Industries Ltd. v. Dunvant S.A., 1 agreed
that the Satyam case (supra) had firmly settled the issue and the fact was the Part I of
the Arbitration and Conciliation Act of 1996 would be applicable to international
commercial arbitrations as well.
India
The Indian Arbitration and Conciliation Act, 1996 does not explicitly
ssly, the Indian courts have recognized the principle.
As in NIIT Institute of Information and Technology v. West Star constructions Pvt.
Ltd.,2 a Division bench of the Delhi High Court has held that, arbitration agreement
contained in an unregistered lease deed or improperly stamped lease is severable and
is a separate contract and even if the unregistered lease deed cannot be read in
evidence or has to be impounded, the arbitration agreement would still be effective.
The court observed that after coming into force of Arbitration and Conciliation Act,
1996, the arbitration agreement has to be considered a separate and independent
contact between the parties, even if it is a part of the lease deed, in view of section
16(1) (b) of the Arbitration and Conciliation Ac, 1996.
The Supreme Court of India, in National Agricultural co-op. Marketing
Federation India Ltd. v. Gains Trading Ltd.,3 observed that section 16 of the Indian
Arbitration & Conciliation Act, 1996 makes it clear that while considering any
objection with respect to existence or the validity of the arbitration agreement, an
arbitration Clause which forms part of the contract has to be treated independent of
the other terms of the contract and a decision that the contract was null and void shall
not entail ipso jure the invalidity of the arbitration clause. Also, in ARC Overseas Pvt.
Ltd. v. Bougainvillea Multiples and Entertainment Centre Pvt. Ltd.,4 the Supreme
Court observed that arbitration clause constituted an agreement by itself and it was
separable from other clauses of the deeds. The plaintiff cannot take a plea that the

RFA (OS) No. 69/2009 and CM No. 11710-11/2009, Delhi High Court, 29-10-2009.
Arb. P. NO. 244/2008, Delhi High Court, p. 14
3
(2007) 5 SCC 692: AIR 2007 SC 2327: 2007 AIR SCW 4030: 2007 (4) Supreme 31.
4
2008 (2) ALJ 633.
2

220

Chapter-5
arbitration agreement would become non-est in the eyes of law since it was contained
in an unregistered lease deed.
Recently, in the branch Manager, magma Leasing and Finance Limited v.
Potluri Madhavilata,1 the contract was terminated by one party on account of a breach
committed by the other. The Supreme Court of India upholding the principle of
severability held that termination of the contract due to breach will render the
arbitration clause inoperative. Rather, it would survive to resolve disputes that might
arise under the contract.
Other Jurisdictions
Other countries have also made their position clear by making the separability
of the arbitration clause as part of their laws on arbitration. 2 The Swiss law, for
example, provides that:

that the main contract may not be valid.


The principles underlying the concept of separability of the arbitration
agreement were recently considered by the Court of Appeal of Bermuda in
Sojuznefteexport (SNE) v. JOC Oil Ltd.,3 It was held that the invalidity of the main
contract does not make the arbitral clause invalid. An effect of this doctrine is that an
arbitr
a dispute as to the consequences of such invalidity provided that the arbitration clause
is valid as a separate entity. 4
Exceptions to the Doctrine of Separability
Some authorities exclude the application of the doctrine of separability in case
in which the principal contract is void ab initio. 5 The arbitration agreement constitutes
a contract independent from the commercial contract pursuant to the doctrine of

1
2

AIR 2010 SC 488.


Allen Redfern and Martin Hunter, Law and Practice of International Commercail Arbitration, Sweet & Maxwell, 2004, 4 th Edn.

Arbitration and Dispute Resolution law Journal, p. 25.


3
(1990) XV YBCA 384-435.
4
(1990) XV YBCA 406.
5
Tibor Varady, John J. Barcelo and Arthur T. Von Mehren, Vara
Arbitration, A Transnational Perspective, 4th Edn., 2001.

221

Chapter-5
separability, the arbitration clause can only be recognized as invalid if it itself suffers
from any defects in will (e.g., mistake, fraud). 1
In this day and age while one wonders at the atrociousness of business
dealings and globalization taking place all together around the world, one really
wonders that how is it taking place with such swiftness and what problems the
business Communities and countries would be facing to ensure the smooth
functioning of their policies and economies. These problems faced by economies
today have many solutions like there may be various forums for settlement; however
one of the most acceptable modern techniques used by them is Arbitration. This
tradition of settlement of disputes through a neutral third party appointed by the
parties has strong origin in India. There are arbitration tribunals recognized even in
the ancient legal texts and digests. International Commercial Arbitration has
established itself as the best method of determining complex commercial disputes all
over the world due to which states have modernized their laws of arbitration to
facilitate this new need, International Commercial Arbitration is a private method of
dispute resolution, which is chosen by the parties themselves as an effective way of
putting an end to disputes between them, without recourse to the courts of law. It is
conducted in different countries and against different legal and cultural backgrounds,
with a striking lack of formality in which there are no national flags or other symbols
of State authority.2
The economy of India is the eleventh largest economy in the world by nominal
GDP and the fourth largest by Purchasing Power Parity (PPP). India has been one of
the fastest growing economic powers in recent times with an expected growth of 8.5%
in its GDP for the year 2010-11.3 From the year 180, India has seen many changes in
its economic policies owing to many foreign companies and a corporation investing in

also giving its international commercial arbitration system an overhaul for changing
times.

See All-Union Export-Import Assoc. Sojuznefteexport (Moscow) v. JOC Oil, (1993) XVIII YBCA 92; Euro-Mec Import, Inc.
v. Pantrem m& C., S.P.A. 1992 WL 350211; Tennessee Imports, Inc. v. Pier Paulo Filippi and Prix Italia 745 F. Supp (1990),
1314-1331.
2
Alan Redfern and Martin Hunter, International Commercial Arbitration, Sweet & Maxwell, 4 th Edn., 20004, p.1.
3
http://timesofindia.indiatimes.com/business/india-business/GDP-to-grow-at-85-in-2010-11-says-Pranab/articleshow/5714174.

222

Chapter-5
The Indian Government enacted the Arbitration and Conciliation Act, in 1996

to attract foreign direct investment and also to establish it as a center for International
Commercial Arbitration in the global sphere. However even though the new Act has
provided impetus and relief, there are still a few potholes in the system, which need to
be filled and looked at including enforcement and challenging of foreign awards,
interim measures, etc.
In the world of modern trade, the most significant problem faced was relating
to the recognition and enforcement of arbitral agreements and awards made in one
country by the courts of other countries. Over the years consistent effort has been
made by the trading world to overcome these problems. To understand the arbitration
scenario today, it is essential to have an overview of the efforts made on a global
scale.
After the end of the First World-War, a need was felt for providing proper
arbitral machinery for the resolution of disputes between contracting parties subject to
different jurisdictions of different States. In this context International Chamber of
Commerce promoted an international convention for removal of impediments to the
enforceability of the arbitral clause. As a result the Protocol on Arbitration Clauses
also known as the Geneva Protocol was concluded on September 24, 1923 and
subsequently the Convention on the Execution of Foreign Arbitral Awards was signed
at Geneva on September 26, 1927.
The two objectives of this Protocol and Convention were, first to make
arbitration agreements, in particular arbitration clauses enforceable internationally.
Secondly, these sought to ensure that awards made pursuant to such arbitration
agreements would be enforced in the territory of the State in which they were made.
However a glaring shortcoming of the Geneva protocol was that only domestic
awards could be enforced by the courts of the member states.
The Convention of Recognition and Enforcement of Foreign Awards also
known as the New York Convention was adopted by the United Nations Diplomatic
Conference on June 10, 1958 and entered into force on June 7, 1959. India became a
party to the New York convention on 10th June, 1958 and ratified it on July 13, 1961.
It is considered as the foundational instrument for international arbitrations which are
223

Chapter-5
not considered as domestic awards in the State where recognition is sough. The New
York Convention makes provisions for the recognition and enforcement of an arbitral
agreement subject to certain conditions being fulfilled. Besides it also provides for the
recognition and enforcement of an award resulting from an arbitration agreement to
which the convention applies.
17. Comparison of the UNCITRAL MODEL Arbitration Law with National Law
(Similarities, Deviations and Differences)
The United Nations Commission on International Trade Law (UNCITRAL)
adopted the Model Law on International Commercial Arbitration in 1985. The
General Assembly of the United Nations recommended that all the States should give
due consideration to the Model Law to bring uniformity to the law of arbitral
procedures and to meet the specific needs of international commercial arbitration.
The Government of India revised the Indian arbitration laws based on the
Model Law to bring it in line with the new liberalized and globalised economy of
India. The Preamble of the 1996 Act makes it amply clear that the Parliament has
enacted the 1996 Act, almost on the same lines as the Model Law.
In Sundaram Finance Ltd. v. M/S NTPC India Ltd.,1 it has been observed that
the provisions of the 1996 Act, should be interpreted keeping in mind the Model Law
as the concept under the 1996 Act has undergone a complete change. The 1996 Act,
has unified the three existing Acts-the 1940 Act, the 1996 Act and the 1937 Act, and
also introduced modes of conciliation for the settlement of disputes. Unlike many
States which adopt different laws for domestic and international commercial
arbitration, India chooses to apply the same laws to both, thus getting an advantage of
simplification and user-friendly commercial arbitration in India. The same set of rules
applies to all the arbitrations held in India, irrespective of its types.
The most striking feature of the Model Law is the stress it lays down to party
autonomy. Apart from a number of mandatory provisions almost all provisions of the
Model Law are subject to the agreement of the parties. Thus inter alia the parties may
determine the procedure of appointing the arbitrators, the procedure of challenging

AIR 1999 SC 565.

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Chapter-5
arbitrators, the rules of procedure, the rules governing the substance of the dispute, the
place of arbitration and the language of arbitration.
The intervention of the court has also been kept to a bare minimum. Indeed it
has been specifically provided under section 5 that no court can intervene in matters
governed by the 1996 Act except where the 1996 Act so provides.
The 1996 Act contains two unusual features that differ from the Model Law.
Firstly, while the Model Law was designed only to apply to International Commercial
Arbitration, the 1996 Act applies both to International and Domestic Arbitration and
secondly, the 1996 Act goes beyond the Model Law in the area of minimizing judicial
intervention.
The UNICTRAL Model Law has been copied verbatim at many places in the
Act of 1996. However, some deviations have been made in line with requirements in
India.
Section 8 of the 1996 Act departs from the Model Law by not permitting the
court to entertain an objection to the effect that the arbitration is null and void,
inoperative and incapable of being performed.
Section 8of the 1996 Act gives freedom to the parties to determine the number
of arbitrators; however it expressly provides that such a number shall not be an even
number. In case parties fail to provide for the number of arbitrators, the arbitral
tribunal shall consist of a sole arbitrator. Thus, this provision differs from the model
law which gives freedom to the parties to appoint both even and uneven number of
arbitrators. In cases where parties fail to make an agreement as to the number of
arbitrators the default number fixed by the Model Law is three.
Appointment of arbitrators

where the parties fail to reach an agreement as to

appointment of arbitrators, the Model Law permits the parties to approach the courts
or other authority specified in the national law for appointment of arbitrator or sole
arbitrator, as the case may be. However under the 1996 Act, the Chief Justice of the
High Court in case of domestic arbitration and Chief Justice of the Supreme Court in
case of International Commercial Arbitration is empowered to appoint the arbitrator.
If there is a challenge to the arbitrator, under the Model Law the arbitral
tribunal is empowered to decide on the challenge and if the challenge is not
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Chapter-5
successful, the challenging party may request a court or other authority to decide on
the challenge. While such a request is pending, the arbitral may continue the arbitral
proceedings and make the award. Whereas, according to section 13 of the 1996 Act,
the challenging party is not permitted to approach the court at this state, it has to wait
till after the award is made, then the party could challenge the award on the ground
that the arbitrator has wrongly decided the challenge.
Similarly, if the arbitral tribunal turns down the plea that if has no jurisdiction;
under the Model Law provisions exist for the party concerned to approach a court to
decide the matter. Whereas the corresponding provision under section 16 of the 1996
Act does not make a provision for approaching the court at this stage.
Apart from the above deviations from the Model Law, the 1996 act makes
certain provisions which are not to be found in the Model Law. These provisions
relate to award of interest by the arbitral tribunal; costs of arbitration; and the award
being enforced in the same manner as if it were a decree of the court. In cases where
the award has not been challenged within the prescribed period or where an award has
been challenged but the challenge has been turned down; provisions in the 1996 Act
also enables the tribunal to fix the amount of deposit or supplementary deposit, as
case may be, as an advance cost of an arbitration.
Model Law requires arbitrator to be just, fair, impartial and independent.
Keeping in line with the Model Law, section 12 of the 1996 Act requires an honest
and willful disclosure from a prospective arbitrator. Thus an arbitrator is under a duty
to disclose all the circumstances which are likely to cause doubt as to his impartiality
or independence as an arbitrator. Such a duty should not be evaluated by him in
subjective terms rather the standard to be adopted by an arbitrator while making such
a disclosure is that of a reasonable man. This duty is to be discharged by the arbitrator
prior to his appointment as an arbitrator and should be maintained throughout the
arbitral proceedings, therefore as soon as the arbitrator becomes aware of any
circumstances affecting his partiality he shall make a disclosure of the some without
delay.
Arbitral Award
To be valid an award inter alia must satisfy two conditions (i) it must be
certain, and (ii) it must contain the decision. It must be clear as to what is required to
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be done and by whom. The award must be a complete decision in itself without
leaving matters to be dealt with subsequently and must be clear, unambiguous and
final in relation to the issues and claims with which it deals.1
According to the 1996 Act the award should state the reasons upon which it is
based. In other words, unless (a) the parties have agreed that no reasons are to be
given or (b) the award is an arbitral award on agreed terms under section 30 of the
new Act, the award should state the reasons is support of determination of the
liability/non-liability. Thereby, Legislature has not accepted the ratio of the decision
of the Supreme Court2 that the award, being in the private law field, need not be a
speaking award even where the award relates to the contract of private parties or
between persons and the government or public sector undertakings. The principle is
the same, namely the award is governed by section 31(3).
What is an award is not defined by the 1996 Act, but section 2(c) sets out that

sets out the requirements of an award as under.


1. An arbitral award shall be made in writing and shall be signed by the members
of the arbitral tribunal.
2. For the purpose of sub-section (1), in arbitral proceedings with more than one
arbitrator, the signature of the majority of all the members of the arbitral
tribunal shall be sufficient so long as the reason for any omitted signature is
stated.
3. The arbitral award shall state the reasons upon which it is based, unlessa. The parties have agreed that no reasons are to be given, or
b. The award is an arbitral award on agreed terms under section 30.
4. The arbitral award shall state its date and the place of arbitration as determined
in accordance with section 20 and the award shall be deemed to have been
made at that place.

Union of India v. Punjab Communication Ltd., 2003 (2) Arb LR 604 (HP).

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5. After the arbitral award is made, a signed copy shall be delivered to each
party.
6. The arbitral tribunal may, at any time during the arbitral proceedings, make an
interim arbitral award on any matter with respect to which it may make a final

The 1996 Act, provides that an arbitral award shall be made in writing and
shall be signed by the members of the arbitral tribunal. In case of arbitral proceedings
with more than one arbitrators, the signature of the majority of all the members of the
arbitral tribunal shall be suffice so long as the reasons for not signing are provided.
The award shall also state the reasons upon which it is based. It must also state the
date and the place or arbitration. Considering section 2(c) of the 1996 Act, an award,
includes an interim award, therefore the interim award as such will also have to
satisfy the same requirements of section 31 to be treated as an award. Section 31(6)
confers jurisdiction on the arbitral tribunal at any time during the arbitral proceedings,
to make an interim arbitral award. Section 37 provides for an appeal against orders.
The UNCITRAL Model Law also does not define an award. 1 In principle an award is
a final determination of a particular issues or claim in the arbitration. It may be
contrasted with orders and directions which address the procedural mechanisms to be
adopted in the reference. Thus questions concerning the jurisdiction of the tribunal or
the choice of the applicable substantive law are suitable for determination by the
issues of an award. Questions concerning the admissibility of evidence or the extent
of discovery are procedural I nature and are determined by the issue of an order or
direction and not by an award. The distinction is important because an award can be
the subject of a challenge or an appeal to the court, whereas an order or direction in
itself cannot be so challenged 2.
Section 2(b) of the 1940 Act, had defined award to mean an arbitration award.
The section at least did not provide or speak of an interim award. There is, however,
judicial recognition that an award could include an interim award as long as it met the
requirements of an award.3 In this case while considering the effect of an interim
award it was held that whether an interim award is final award would depend on the
1

Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd. , 2003 (2) Arb LR 359 (Bom).
Russel on Arbitration, 21st Edn., para 6.001.
3
Satwant Singh Sodhi v. State of Punjab, (1999) 3 SCC 487: 1999 (2) Arb LR 1 (SC)
2

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form of the award. If an interim award is intended to finally determine the rights of
the parties, it will have the force of a complete award and will continue to have effect
even after the final award is delivered. When such an award is made, the arbitrator
becomes functus officio as regards the claims covered in such an award and such
claims cannot be re-determined. It is, therefore, clear that under the 1940 Act also it
was judicially recognized that an Award includes an interim award. Once the claim is
decided finally, the Arbitral Tribunal could not adjudicate further on that claim and
became functus officio. What, however, emerges is that a right or claim of the party is
finally decided, and the Arbitral Tribunal insofar as the matter decided became
functus officio. This must necessarily exclude procedural orders in the course of the
arbitral proceedings.1
As the 1996 Act, is concerned section 32 of the Act, as noted earlier provides
for termination of the arbitral proceedings either by an arbitral award or by the arbitral
tribunal under sub-section (2). Section 31 does not include within it for example
termination of arbitral proceedings by the Arbitral Tribunal under section 16(5) which
pertains to jurisdiction of the tribunal including ruling on objection with respect to the
existence or the validity of the arbitration agreement. Therefore, an order culminating
in termination of arbitral proceedings with respect to the existence or validity of the
arbitration agreement is not an award.
Court does not sit in Appeal over Award
The court normally disfavors interference with arbitration award, but the court
should have fresh look on the ambit of challenge to an award by the arbitrator so that
the award does not get undesirable immunity. This is the law in the case of State of
Rajasthan v. Puri Construction co. Ltd.,2 where the Supreme Court has held that the
arbitrator cannot perpetrate gross miscarriage of justice and the same cannot be
reduced to mockery of a fair decision of the dispute between the parties to arbitration.
The Court cannot reappraise the evidence. It is not possible for the court to take
alternative view of the law and if a different view is possible it is not permissible for
the Court to adopt the same if the one adopted by the arbitrator is also permissible
view. Error apparent on the face of record in the finding made by the arbitrator may

1
2

Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd., 2003 (2) Arb LR 359 (Bom).
State of Rajasthan v. Puri Construction Co. Ltd., (1994) 4 SCC 485; 1995 (1) Arb LR 2(SC)

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be held to be erroneous. An error of law of fact committed by an arbitrator by himself
does not constitute misconduct warranting interference with the award. 1 If there is an
error apparent on the face of record committed by an arbitrator going to the root of the
matter it can be corrected by the court. 2
List of Grounds on which an award may be set aside is essentially the same as
the one in article 34 of the Model Law, taken from article V of the 1958 New York
Convention. The grounds for setting aside award are identical to those for refusing
recognition or enforcement. However there are two practical differences. The grounds
relating to public policy, including non-arbitrability is different in substance. The
grounds for refusal of recognition or enforcement are valid and effective only in the
State (or States) where the winning party seeks recognition, and enforcement, while
the grounds for setting aside have a different impact, i.e., the setting aside of an award
at the place of origin prevents enforcement of that award in all other countries by
virtue of article V(1) (e) of the 1958 New York convention and article 36(1) (a)(v) of
the Model Law.
The scope of interference on an application contemplated under section 34 of
the Act for setting aside arbitral award is very limited. An arbitral award may be set
aside by the Court only on satisfying the requisite conditions contemplated under
ficant and it
excludes a ground of attack on the arbitral award other than those contemplated under
section 34 (2) (a) and (b) of the Act.3
Under the previous Act of 1940 an arbitral award could be set aside under
section 30, (i) where the arbitrator had misconducted himself; (ii) Where the award
has been made after the issuance of an order by the Court suspending the arbitration
or after arbitration proceedings have become invalid; and (iii) Where the award had
been improperly procured or was otherwise invalid. The positioning law that emerged
under the Act of 1940 was that an award could be set aside on the ground of an error
apparent on the face of the award. That would be so when the reasons given in the
award or in a document incorporated with it were based upon a legal proposition
which is on its face is erroneous. The grounds for challenge which were available in
1

Bengal Trading Syndicate v. Union of India, 2000 (Supp) Arb LR 179 (MP) (DB).
Associated Engineering Co. v. Govt. of Andhra Pradesh, AIR 1992 SC 232; 1991 (2) Arb LR 180 (SC)
3
Vipul Agarwal v. Atul Kanodia & Co., 2003 (3) Arb LR 242 (All) (DB).
2

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the 1940 Ac have been substantially curtailed and a challenge can now be preferred
only on one of those grounds available under section 12, 13, 16 and 34 of the 1996
Act.
18. International Commercial Arbitration in municipal laws
Indian Law favors arbitration (both domestic and international) as an
established method of resolving disputes. Under the Indian Contract Act, 1872
(section 28) every agreement which restricts any party thereto absolutely from

arbitration of questions and disputes that have already arisen, or may arise in the
future. Resolution of international commercial disputes by arbitration is a
constitutional imperative

article 51 of the Constitution of India (1950) provides that


ourage settlements of international disputes by

International Commercial Arbitration has been defined under section 28 of the


1996 Act as an arbitration relating to disputes arising out of a legal relationship,
whether contractual or not, considered as commercial under the law in force in India
and where at least one of the parties is(a) An individual who is a national of, or habitually resident in any, country other
than India; or
(b) A body corporate which is incorporated in any country other than India; or
(c) A company or an association or a body of individuals whose central
management and control is exercised in any country other than India; or
(d) The government of a foreign country.
As one can infer from the definition above, under the Indian law the
nationality of the parties and not the subject-matter of arbitration determines what
constitutes an international commercial arbitration.
In the Indian context, international commercial arbitration can be discussed
under two heads:
(a) Awards passed within the country
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(b) Awards passed outside the country, i.e., foreign awards
The procedure for enforcement of a domestic award is laid out in section 36.
In order to invoke the provisions of this section the conditions precedent that must be
fulfilled are that either the time of 90 days for making an application to set aside the
award under section 34 of the 1996 Act, must have expired, or, such application
having been made has been refused. Once these conditions have been fulfilled the said
award can be enforced in the same manner as it was a decree of the court, under the
provisions of the Code of Civil Procedure.
Foreign Awards
In order to be enforceable in India, the foreign award must pertain to a matter
which is to be commercial in India and must be made in a territory where reciprocal
provisions exists and which the Central Government has notified in the official
gazette as a territory to which the New York Convention Applies. 1
India is also a party to the Geneva Convention of 1927 and recognizes and
enforces the awards made in territories of countries that are party to the same and
where reciprocal provisions exist as in India.
The Courts in India have jurisdiction to enforce the foreign awards but the
same does not extend to foreign arbitration, i.e., thought the foreign awards can be
enforced in India but the Indian Courts does not have jurisdiction to control or
supervise the proceedings of arbitration being convened outside India.
There is no specific or express provision in the 1996 Act, for the enforcement
of awards made in a country which is not a member or party to the New York
Convention or Geneva Convention. As such, a foreign award to which Part II of the
Act does not apply may be enforced only if it could be treated as a domestic award.
Where the award was rendered after the enforcement of the 1996 Act, but as
the arbitral proceedings had commenced before the coming into force of the 1996 Act,
it was held by Delhi High Court that the proceedings before the Court in relation to
the said Arbitral proceedings were to be governed by the 1940 Act. 2

1
2

Transocean Shipping Agency Pvt. Ltd. Company v. Black Sea Shipping, (1998) 2 SCC 281.
General Electric Canada Inc. v. National Hydroelectric Power Corporation Ltd., 2003 (Supp) Arb 520 (Del) (DB).

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Supreme Court had held that various agreements wherein India has recognized
the Russian Republic as a successor of the old State of USSR, make no difference to
the recognition granted under the notification of February 7th, 1972 to the entire
territory of USSR as then in existence as a reciprocating territory for the purposes of
section 2 of the 1961 Act [now section 44 of the 1996 Act]. It was further held that
there is no implied curtailment of the notification of February 7 th, 1972 as now
applying only to that territory which forms a part of the Russian Republic.1
Section 44 of the 1996 Act defines foreign award as an arbitral award on
differences between persons arising out of legal relationships, whether contractual or
not, considered as commercial under the law in force in India, made on or after the
11th day of October, Convention applies, and in one of such territories as the Central
Government, being satisfied that reciprocal provisions have been made may, by
notification in the Official Gazette, declare to be territories to which the said
Convention applies.
Procedure for enforcement of the foreign award under the New York
Convention is given in section 45-51 and for foreign awards under Geneva
Convention procedure is given in sections 54-59 of the 1996 Act.
Any foreign award which would be enforceable under part II of the Act is
treated as binding for all purposes on the persons as between whom it was made, and
may accordingly be relied on by any of those persons by way of defence, set off or
otherwise in any legal proceedings in India. Section 49 of the 1996 Act has been
incorporated on the basis of article III of the New York Convention; however
conditions for the enforcement of foreign award have been provided in section 47 and
section 48 of the 1996 Act. Section 49 provides that when the court is satisfied that
the foreign award can be enforced by the court, the award shall be deemed to be
decree of the court. Appeal shall lie from an order of the court refusing to enforce an
award. However, an order upholding a foreign award is not appealable. In such a case
the constitutional remedy by way of a discretionary special leave petition to the
Supreme court of India will be maintainable.
The party applying for the enforcement of a foreign award is required to, at the
time of the application, produce before the court following documents:
1

Transocean Shipping Agency (P) Ltd. v. Black Sea Shipping, AIR 1998 SC 707: 1998 (1) Arb LR 228: (1998) 2 SC 281.

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(a) The original award or a copy thereof, duly authenticated in the manner
required by the law of the country in which it was made;
(b) The original agreement for arbitration or a duly certified copy thereof; and
(c) Such evidence as may be necessary to prove that the award is a foreign award.
As per section 48 of the 1996 Act, enforcement of a foreign award may be
refused, at the request of the party against whom it is invoked, only if that party
furnishes to the court proof that(a) The parties to the agreement referred to in section 44 were, under the law
applicable to them, under some incapacity, or the said agreement is not valid
under the law to which the parties have subjected it or, failing any indication
thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of
the terms of the appointment of the arbitrator or of the arbitral proceedings or
was otherwise unable to present his cases; or
(c) The award deals with a difference not contemplated by or not falling within
the terms of the submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, that part of the award which contains
decisions on matter submitted to arbitration may be enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was
not in accordance with the law of the country where the arbitration took place;
or
(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law
of which, that award was made.
(2) Enforcement of an arbitral award may also be refused if the court finds that(a) The subject-matter of the difference is not capable of settlement by arbitration
under the law of India; or
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(b) The enforcement of the award would be contrary to the public policy of India.
As per section 49 of the 1996 Act where the court is satisfied that the foreign
award is enforceable the award deemed to be a decree of that court.
There are two noteworthy differences between section 48 and 34, while
section 34 permits the court to set aside an award; section 48 only provides for refusal
to enforce a foreign award. Therefore refusal to enforce award would not by itself
prevent an applicant from seeking to enforce it in some other jurisdiction. Hence, as
such there is no provision in India law for setting aside a foreign award.
Another noteworthy difference between the two sections is that section 48
contains an additional ground under which the court could decline to enforce a foreign
award and that is if the award is not yet binding on the parties or has been set aside or
superseded by a competent authority of the country in which, or under the laws of
which, the award was made.
The Supreme Court has held that no separate application need be filed for
execution of the award as a single application for the enforcement of the award would
undergo to stage process. Firstly enforceability of the award would be determined.
This would be done having regard to the requirements of the 1996 Act under the New
York Convention grounds. Once the court decides that foreign award is enforceable it
shall proceed to take steps for the execution of the same.
In an international arbitration when there is a failure of the mechanism for the
constitution of the arbitral tribunal, the appointment shall be made, in case of
domestic arbitration by the Chief Justice of the relevant High Court and in case of
international commercial arbitration by the Chief Justice of the Supreme Court of
India. In context of commercial arbitration, the tribunal decides disputes in
accordance with the rules of the law designated by the parties as applicable to the
substance of the dispute and failing any such designation, the rule of law, the tribunal
consider appropriate given all the circumstances. However, in the context of domestic
arbitration, the tribunal is obliged to apply the substantive law for the time being in
force in India.
Application for enforcement of a foreign award can be field in the concerned
court (generally in the court of the District Judge of the concerned district where the
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property of the opposite party situated) under Order 21 of Civil Code read with
section 58 of the 1996 Act.
19. The Applicability of the 1996 Act to International Arbitration

and enforce the awards made outside India, i.e., foreign awards within territorial
jurisdiction of the concerned court in India subject to the fulfillment of the certain
conditions provided in the Act, for enforcement of the awards.
Recently the Indian Supreme Court in Venture Global Engineering v. Satyam
Computer Services Limited,1 has held that the provisions of Part I of the 1996 Act
would apply to all arbitrations including international commercial arbitrations and to
all related proceedings. If an international arbitration is held in India, the provisions of
Part-I compulsorily apply, however, parties are free to deviate to the extent permitted
by the provisions of Part-I. In international commercial arbitration held outside of
India, the provisions of Part-I of the Act would still apply unless the parties by
agreement expressly or impliedly exclude all or any of its provisions. In this ruling,
the Supreme Court of India relied on the law laid down in Bhatia International v. Bulk
Trading S.A. & Another2, whereby under the provisions of Part I of the 1996 Act,
interim relief was made available to parties under the general provisions with respect
to the enforcement of a foreign arbitration award in India, and that Part 1 of the Act
was held as applicable to international commercial arbitrations. Thus, the Supreme
Court affirmed the legal principles set forth in the Bhatia International case and made
it clear that the provisions of Part I of the Indian Arbitration Act would apply to all
arbitration including international commercial arbitration and all related proceedings.
Article V(1)(e) of the New York Convention provides that when a party seeks
to confirm an award, recognition and enforcement of the award may be refused when
the award has been set aside or suspended by a competent authority of the country in
which, or under the law of which, that award was made. These grounds are narrow
and generally do not include a disagreement with the application of the substantive
law used in the foreign arbitration. Local courts have little discretion to refuse
enforcement. The decision of the Supreme Court of India in the Venture Global case
1
2

(2008) 4 SCC 190.


AIR 2002 sc 1432.

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many foreign companies having relevant business interests in India have relied
heavily upon Indian law based on the 1996 Act itself and have opted for arbitration
procedures for resolving disputes.

237