Meaning of “International”

• The term “International” demarcates the concept of domestic/national arbitration and

arbitration that go beyond such national and domestic boundaries.

• The concept of International Arbitration can be explained as “Transnational”.

Distinction between Domestic and International Arbitration

• Firstly an international arbitration will generally have no connection with the state in which the
arbitration takes place, other than that the fact that it is taking place within the territory of that
state.

• Secondly, the parties will by and large include corporations or state entities and not private
individuals

• Domestic arbitration generally involves petty claims by private individuals, but such are of
considerable importance to those concerned

Model Law Definition of “International

• In Article 1(3) of UNCITRAL(Model Law) provides a definition of when arbitration is considered

international in nature. It states-

1. The parties to an arbitration agreement have, at the time of the conclusion of that agreement,
their places of Business in different states

2. One of the following place 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 obligation of the commercial relationship is to
be performed or the place with which the subject-matter of the dispute is most closely
connected; or

3. The parties have expressly agreed that the subject matter of the arbitration agreement relates
to more than one country

Indian Law Definition of “International”

• The term “International” has not been expressly been defined under the Indian Arbitration and
Conciliation Act, 1996.

• How the Indian Law defines “International” dispute is importance for parties that seek to take
advantage of “International” commercial arbitration in India, as firstly, it is to be determined
 that whether a dispute is arbitrable under ‘international’ arbitration rules may not be so under
domestic rules.

• Secondly, what if the dispute was not considered ‘International’, then enforcement of foreign
awards found in Part II under the 1966 Act and select provisions of Part I would be inapplicable
to an arbitral proceedings

• The 1996 Act definition of “International” is at variance with the Model Law. Section 2(1)(f) of
the 1996 act provides that an arbitration is international where at least one of the parties is

1. An individual who is a national of, or habitually resident in, any country other than India

2. A body corporate which is incorporated in any country other than in India

3. A company or an association or a body of individuals whose central management and control is

exercised in any country other than India (POEM)

4. The government of a foreign Country

TDM Infrastructure Pvt Ltd. V. U.E. Development India Pvt Ltd

• The S.C. interpreted the term “International Commercial Arbitration”.

• Facts – A wholly Owned subsidiary of Malaysian company brought arbitration against another
wholly owned subsidiary of a Malaysian. The petitioner contended that all its shareholders and
directors are Malaysians. Also 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 state and therefore the arbitration qualifies as
an “International Commercial Arbitration” within the meaning of section 2(1)(f)(iii)

• Held – Justice SB 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.

• Court rested its decision on proposition that as a matter of public policy, Indian 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 “International Commercial Arbitration”
then they would be able to opt for a foreign law, which the court held would be contrary to
“public policy”.

Meaning of Commercial
 • 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 law of obligations.

• Geneva Protocol of 1923 obliged each contracting state to recognize the validity of an
arbitration agreement concerning disputes that might arise from a contract “relating to
commercial matters or to any other matter capable of settlement by arbitration”.

• The protocol also emphasizes the distinction between “commercial matters” and “any other
matter” by stating that the contracting state may limit its obligations “to contracts that are
considered as commercial under its national law” referred as “commercial reservation” - same
appears in New York Convention under term ‘commercial’, it is imperative to refer to the
statutory definition as provided by the relevant domestic law

Definition of Commercial in US courts

• In Societies General de Surveillance, S.A. v. Raytheon European Management Systems Co.,

where the dispute arose out of contract for field trusting, inspection and evaluation of missiles.

• Court Held – the contract to be a commercial contract even when the contract was strictly
about services and not about exchange of commodities.

• Court observed that “there is a strong judicial policy favoring the submission of contractual
disputes to arbitration particularly under the provisions of the Federal Arbitration Act, which
embodies the agreements reached in an international convention on arbitration”

Faberge Intern. Inc. v Di Pino

• It was observed that, “the fact that the employer-employee relationship may include a degree
of fiduciary obligation does not deprive it of its commercial character” and hence disputes
arising out of such an agreement can be referred to arbitration.

• Commentary to drafting Model Law indicates the legislative intent to exclude employment
contracts from the scope of the word ‘commercial’ the court went ahead and construed the
term broadly

Re, Carter and Mclaugblin

• Where two families were contesting the sale of a domestic property and enforcement of the
award was sought in Ontaria (which had implemented the UNCITRAL Model Law), wherein the
core issue before the High Court of Ontario was whether the dispute was a commercial one or
not.

• Court Held – the word commercial should be given a broad interpretation so as to embrace
matters arising from all relationships of a commercial nature and that the broad interpretation
 for the term “commercial” would mean inclusion of commercial relationships, irrespective of
whether the parties are commercial parties or merchants under any given national law.

Model Law Definition of Commercial

• “The term commercial is to be interpreted so as to cover matters arising from all relationships of
a commercial nature, whether contractual or not.

• Relationships of a commercial nature includes, but are not limited to, the following transactions:
any trade transaction for the supply or exchange of goods or services; distribution agreements:
commercial representation or agency: factoring: leasing: construction of works: consulting:
engineering: licensing; investment; financing; banking; insurance; exploration agreement or
concession; joint venture; carriage of goods or passengers by air, sea, rail or road.” – A 1
footnote

NY Convention

• The New York convention purports that a distinction be made between “commercial” and “non-
commercial arbitration”. This is reflected in the Article 1(3) which states that, “When signing,
ratifying or acceding to the Convention…, any state may declare that it will apply the
convention only to differences arising out of legal relationships, whether contractual or not,
which are considered as commercial under the national law of the state making such
declaration” – New York convention lays down that the term ‘commercial’ should be
characterized on the basis of national law.

Indian Law Definition of Commercial

• Under 1996 Act, International disputes that fall outside the definition of “commercial” are not
be arbitrable. A very narrow definition would lead to hindrance in enforcement of foreign
awards and very broad definition wrests from state control important state objectives.

• The divergence from Model Law footnote is to empower the courts to narrow or broaden the
definition of Commercial

• In R.M. Investment and Trading Co. v. Boeing Co., -

• Issue- before SC was whether an agreement for consultancy services was a commercial
contract or not

• Held - the court held that “commercial” must be given a wide interpretation consistent with the
purpose of the New York Convention and to promote international trade and commercial
relations and therefore it was a ‘commercial contract’, Court referred to the foot note to A1 of
Model law stating that, “guidance could be taken from its wordings”

Broad Interpretation of term “Commercial”

 • In Union of India v. Leif Hoegh & Co. – Justice Mehta while deciding a matter concerning a
charter party wherein the claim was for short delivery, distinguished the term commercial as
given in the case of Indian Organic Chemicals Ltd v. Chemtex Fibres Inc. and stated that, “the
word ‘commercial’ is of the largest import and takes in its sweep all the business and trade
transactions in any of their forms including the transportation, purchase, sale and exchange of
commodities between citizens of different countries”. Thus by far Indian Courts have opted for
a broad interpretation for the term “Commercial”

BHATIA INTERNATIONAL Vs. BULK TRADING S. A. & ANR.

Contract contained an arbitration clause which provided that arbitration was to be as per the rules of the
International Chamber of Commerce (ICC).

ISSUE: Whether Indian Courts have power to grant interim relief U/S 9 of the A&C Act 1996?

CONTENTIONS:

Appellant
1. Part I of the Act only applies to arbitrations where the place of arbitration is in India.

2. Framing the said Act the legislature has purposely not adopted art 1(2) of the UNCITRAL Model Law.
He submits that this clearly shows the intention of the legislature that they did not want part I to apply to
arbitrations which take place outside India.

3. Sec 2(f) of the said Act defines an international commercial arbitration. International commercial
arbitration could take place either in India or outside India. If the international commercial arbitration
takes place out of India then part I of the said Act would not apply.

4. When arbitration is being held in Paris i.e. out of India. To such arbitrations part I does not apply. Sec 9
and 17 fall in part I. Therefore Sec 9 and 17 would not apply and cannot be used in cases where the place
of arbitration is not in India.

OPINION OF THE COURT:

HELD:

1. A construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly or

which leads to inconsistency or uncertainty and friction in the system which the statute purports to
regulate has to be rejected and preference should be given to that construction which avoids such
results.
2. The definition makes no distinction between international commercial arbitrations held in India or
outside India…The said Act nowhere provides that its provisions are not to apply to international
commercial arbitrations which take place in a nonconvention country.
3. There would also be an anomaly inasmuch as even if an international commercial arbitration takes
place outside India, part I would continue to apply in Jammu and Kashmir, but it would not apply to
the rest of India.
4. The wording of sub-s (2) of s 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 non-derogable
provisions of part I in such arbitrations. By omitting to provide that part I will not apply to
international commercial arbitrations which take place outside India the affect would be that part I
would also apply to international commercial arbitrations held out of India. But by not specifically
providing that the provisions of part I apply to international commercial arbitrations held out of
India, the intention of the legislature appears to be to ally parties to provide by agreement that part
I or any provision therein will not apply.
5. The opening words of ss 45 and 54, which are in part II, read ‘notwithstanding anything contained
in part I’. Such a non-obstante clause had to be put in because the provisions of part I apply to part
II.
6. The definition indicates that an award made in an international commercial arbitration held in a
non-convention country is also considered to be a domestic award’.
7. Thus s 28 does not provide for rules where the place of arbitration is out of India.