DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE
COMMERCIAL ARBITRATION AGREEMENT
SUBJECT:
DRAFTING, PLEADING AND CONVEYANCE

NAME OF THE FACULTY

PROF. GANTA SATYANARAYANA, DSNLU

Name of the Candidate: Nikhila Katupalli

Roll No: 2018LLB057
Semester: 7th

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ACKNOWLEDGEMENT:

“I would sincerely like to put forward my heartfelt gratitude to our respected faculty of DPC,
Prof. Ganta Satyanarayana for giving me a golden opportunity to take up this project
regarding Commercial Arbitration Agreement. I have tried my best to collect information
about the project in various possible ways to depict a clear understanding and analysis of the
given project. I would also like extend my gratitude to the library resources of DSNLU for its
vital inputs in the completion of my project.”

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Table of contents
Introduction…………………………….4
Commercial arbitration…………………..4
Historical background………………………………..5
Development of commercial Arbitration…………………..6
Domestic Arbitration………………………………..8
International Commercial Arbitration………………………10
Case laws………………………….11
Profarma Draft…………………………..12
Conclusion……………………………………..14

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Introduction:
“With the advent of globalisation, the world has become a global village. Business
organisations have expanded themselves beyond borders and hence, there has been a real
time increase in cross-border transactions. Agreements and contracts executed between the
commercial organisations many times go ugly, thus, giving rise to disputes which are not
within the confines of municipal law of a particular country, because the transactions are
‘cross-border’ in nature. Adjudication of cross-border business disputes demand expertise of
a different sort, especially when the organisations in dispute hail from nations following
different legal systems, as for example common law system and civil law system. Usually, as
a matter of practise, all agreements executed between corporations inter-se, to bring to fore a
common purpose, have three covenants, worth stressing, in particular; one is that of the
‘governing law’, second is the ‘jurisdiction clause’, and third is the ‘arbitration clause’. The
‘governing law’ stipulation states, as to law of which country shall be taken recourse to, if
and when deals between the international corporations go sour. The ‘jurisdiction clause’
states, as to courts of which country shall have the ‘say’ in the matter in dispute, at hand.”
“The ‘arbitration clause’ states, how the disputes are to be resolved between the corporations
before they are formally brought before the court of law for adjudication; arbitration clause
speaks of mechanisms which are in the nature of ‘out-of-the-court-settlement-of-disputes’,
such as: mediation, conciliation and arbitration. Reasons, as to why, parties opt for arbitral
mechanism for settlement of disputes in crossborder sphere of transactions is three-fold.
Firstly, unfamiliarity with the ‘inter-se’ local laws of the countries of the transacting
organisations, makes it convenient for the organisations to get disputes resolved without
getting into the nuances of which legal regime is to govern the dispute settlement, that is
courts of which country will have precedence and laws (procedural and substantive) of which
country are to apply. Secondly, arbitral mechanism is time effective and cost effective; also,
keeping the basic legal principles in mind, it is the transacting parties who set the rules of the
game. Thirdly, dispute resolution mechanisms such as arbitration, mediation and conciliation
do not ‘side-track’ but rather ‘pull-centre’ the element of neutrality and non-arbitrariness in
the dispute settlement procedure, making it convenient for parties to arrive at unbiased
outcomes so that commercial relations between parties can be taken forward, healthily.”
Commercial arbitration
“The New York Convention is not by itself limited to arbitration in respect of commercial
disputes. The limitation applies only if a State makes the necessary declaration, and only 44
of the current 135 Contracting States have done so.1 However, in those 44 States the
application of the Convention is dependent on what is considered as commercial under the
national law. This is a potentially serious problem for anyone wishing to invoke the
Convention in one of those States. In some legal systems the word “commercial” is a
technical term of great legal significance. In other legal systems the word has no particular
legal connotation. In spite of those differences, reference to the national law does not seem to
have become the problem for application of the New York Convention that it might. The
1961 European Convention on International Commercial Arbitration was the first
international instrument to refer to international commercial arbitration by name. Although
“commercial” was not defined, the Convention was limited in application to arbitration
1
Sir Michael John, Transnational Arbitration in English Law, 133, CURRENT LEGAL PROBLEMS, 1984.

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agreements concluded for the purpose of settling disputes arising from international trade
between. No matter how broad the interpretation of “international trade”, many forms of
economic activity would seem not to have been included.”
“The term ‘commercial’ should be given a wide interpretation so as to cover matters arising
from all relationships of a commercial nature, whether contractual or not.2 Relationships of a
commercial nature include, but are not limited to, the following transactions: any trade
transaction for the supply or exchange of goods or services; distribution agreement;
commercial representation or agency; factoring; leasing; construction of works; consulting;
engineering; licensing; investment; financing; banking; insurance; exploitation agreement or
concession; joint venture and other forms of industrial or business co-operation; carriage of
goods or passengers by air, sea, rail or road.” As will be seen below, consideration of
investment as a commercial transaction has significant consequences in regard to investment
arbitrations that are conducted under the ICSID Additional Facility Rules, the UNCITRAL
Arbitration Rules or other rules of international commercial arbitration.”
Historical Background:
“Historically, commercial arbitration was used in resolving controversies between medieval
merchants in fairs and marketplaces in England and on the European continent and in the
Mediterranean and Baltic sea trade. The increased use of commercial arbitration became
possible after courts were empowered to enforce the parties’ agreement to arbitrate. The first
such statute was the English Arbitration Act of 1889, which was later consolidated into an act
of 1950 and adopted by arbitration statutes in most countries of the British Commonwealth. It
was followed in the United States by an arbitration statute of the state of New York in 1920
and the Federal Arbitration Act of 1925.”
“The latter dealt with the enforcement in federal courts of arbitration agreements and awards
in maritime transactions and those involving interstate and foreign commerce. Most U.S.
states adopted, sometimes with minor changes, the Uniform Arbitration Act of 1955, as
amended in 1956, which had been promoted by the Commissioners on Uniform State Laws
and recommended by the American Bar Association. This act provided for the judicial
enforcement of an agreement to arbitrate existing and future disputes and thereby made the
arbitration agreement no longer revocable, as it had been under common law. It also provided
for the substitution of arbitrators in the event of a party’s failing to select an arbitrator and for
a suspension of any court action instituted in contravention of a voluntary arbitration
agreement. The courts thereby play an important role in implementing arbitration agreements
and making judicial assistance available against a recalcitrant party. This concept of modern
arbitration law, which recognizes the irrevocability of arbitration agreements and the
enforceability of awards, also prevails in the arbitration statutes of nearly all countries.”
Domestic Arbitration
“Domestic Arbitration takes place in India when the arbitration proceedings, the subject
matter of the contract and the merits of the dispute are all governed by Indian Law, or when
the cause of action for the dispute arises wholly in India or where the parties are otherwise
subject to Indian jurisdiction. In the domestic arbitration, the cause of action for the dispute

2
Charles N. Brower and Abby Cohen Smutny, Recent Decisions Involving Arbitral Proceedings, 30 The
International Lawyer, 271, 279 (1996).

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should have arisen wholly in India or the parties are otherwise subject to Indian jurisdiction.
Domestic arbitration is an attractive option for the settlement of disputes. Where the place of
arbitration is in India and shall be deemed to include international arbitration and
international commercial arbitration where the place of arbitration is in India.”
International commercial arbitration:
“International commercial arbitration between traders of different countries has long been
recognized by the business community and the legal profession as a suitable means of settling
trade controversies out of court. The procedure in international commercial arbitration is
basically the same as in domestic arbitration.3 In the mid-1960s, in order to establish more
uniformity in procedure and to make access to arbitration facilities more easily available, the
United Nations economic commissions published new rules applying to international
arbitration for Europe and Asia.”
Development of Commercial Arbitration:
“Investment arbitration has a history of its own that intertwines with that of general
international commercial arbitration. Disputes in regard to foreign investment raise
particularly sensitive issues.4 On the one hand the foreign investor commits a significant
amount of money for a long period of time in a country in which it may not have complete
confidence in the system of government, including the courts, or in its political stability. It is
understandable that the investor may wish guarantees of one form or another that it would not
consider necessary in its home country. On the other hand the investment may have important
consequences for the host country of an economic, social or even political nature. The
investment will often be in the form of a company organized under the laws of the host
country. It is understandable that the host country may not wish the foreign investment to be
treated any differently than a domestic investment.”
“The World Bank introduced an alternative in 1965 when the Convention on the Settlement
of Investment Disputes between States and Nationals of Other States (hereinafter Washington
Convention) was adopted. From then on investment disputes could be submitted to arbitration
under the auspices of the International Centre for Settlement of Investment Disputes
(ICSID)5. The potential effects on sovereignty were still very high on the list of concerns of
many States, so there were very strict jurisdictional requirements, both in regard to which
non-State parties could initiate an arbitration and the consent of the State-party to such
arbitration. The possibility of ICSID arbitration was of great symbolic value, but of little
practical value for the first 30 years or so of its existence. Very few cases were brought to it.
Commencing in the 1950s a number of countries began programs of negotiating bilateral
investment treaties (BIT) with other countries. Both ICSID and UNCTAD have a large
number of such treaties on-line, over 1,800 in the case of UNCTAD, and neither list is
complete. Each of the several thousand conventions is unique, but most of them contain
provisions permitting an investor from one of the two contracting States who has invested in

3
Jose E. Alvarez, The New Dispute Settlers: (Half) Truths and Consequences, 38 TEX. INT'L L.J. 405, 430
(2003).
4
https://www.britannica.com/topic/arbitration/International-arbitration
5
https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/
International_Commercial_Arbitration.pdf

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the other contracting State to initiate arbitration in regard to a dispute that may have arisen
between it and the host State in regard to the investment.”
Dispute settlement on the edge of International commercial arbitration:
“The borderline between international commercial arbitration and a number of other dispute
settlement procedures is sometimes very hazy. By way of illustration there are set out below
several of the current dispute settlement procedures that are on the edge of international
commercial arbitration.6”
“International commercial arbitration is the most prominent of the procedures for resolving
commercial disputes in international commerce. Although it is a voluntary procedure that
depends on the agreement of the parties, once such agreement has been reached neither party
can withdraw from the agreement unilaterally. Arbitration performs much the same function
as does litigation in the State courts, i.e. it leads to a final and binding decision in the form of
an award. An arbitral award can in general be more easily enforced in a foreign country than
can the decision of a State court. The 135 States that have become party to the New York
Convention have committed themselves to enforcing foreign arbitral awards with limited
exceptions. There is no similar world-wide convention by which States have promised to
enforce the judgments of foreign State courts.7”
Cases laws:
“In the case of Fateh Chand v. State of Maharashtra,8 the Supreme Court of India held that,
any service or activity which in modern complexities of business would be considered to be
lubricant for the wheel of commerce to move is ‘commercial’. Thus, the word ‘commercial’
needs to be given wider connotation to encompass, not only the exchange of commodities but
also the exchange of services. The court further held that, with the international trade and
commerce growing and new avenues of trade and commerce coming into being; the term
‘commerce’ has to be given widest amplitude. The restrictive definition shall hinder the
progress in regards to trade and commerce. Commenting further, the court held that liberal
construction of the word ‘commerce’ shall facilitate the foreign trade qua India and will open
the doors for technological know-how in India.”
“In the case of Atiabari Tea Company Ltd. v. State of Assam,9 the Apex Court held as
follows: The trade and commerce do not mean merely traffic in goods, i.e. exchange of
commodities for money or other commodities. In the complexities of modern conditions, in
their sweep are included carriage of persons and goods by road, air and water ways, contract,
banking and insurance transactions. In stock exchanges and forward communications of
information, supply of energy, postal and telegraphic services and many more activities too
numerous to be exhaustively enumerated which may be called commercial intercourse.”
“In the case of Bhatia International v. Bulk Trading SA,10 arbitration proceedings were held
in Paris as per the Rules of International Chamber of Commerce. An application was moved
6
Report of the Secretary-General: possible features of a model law on international commercial arbitration
(2010).
7
John Harrison, International Adjudicators and Judicial Independence, 30 HARV. J.L. & PUB. POL'Y 127, 128
(2006).
8
AIR 1977 SC 1825
9
AIR 1961 SC 232
10
2012) 9 SCC 552.

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under Section 9 for an order of injunction restraining transfer, alienation or creation of third-
party rights on the property. The application was held to be maintainable. The court held that
Part I of the Act was applicable to arbitrations where even though the place of arbitration is
not in India. The court opined that remedies under Section 9 do not get excluded by the
application of the ICC Rules of Arbitration. The Supreme Court held as follows: “To
conclude, we hold that the provisions of Part I of the 1996 Act would apply to all arbitrations
and to all proceedings relating thereto. Where such arbitration is held in India, the provisions
of Part I would compulsorily apply and parties are free to deviate only to the extent permitted
by the derogatory provisions of Part I. In cases of International Commercial Arbitrations,
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. In that case the laws or rules chosen by the
parties would prevail. Provisions in Part I of the Act which are contrary to or excluded by that
law or rules shall not apply.”

A COMMERCIAL ARBITRATION AGREEMENT DRAFT

“This agreement is prepared as a sample agreement by taking possible circumstances

into considerations and the parties may form their arbitration agreement pursuant to
the Rules of the Act.”
1. “This arbitration agreement is made between Divya Goel residing at the address of Flat
NO.202, Arvee Residency, Banjara Hills, Road no.6, Hyderabad and Harinder Singh
residing at the address of Flat no. 406, Sri Krishna Residency, Yendada, Visakhapatnam, and
the parties who have enacted the Agreement, hereinafter shall be referred to as THE
PARTIES.

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(The address and titles of both parties shall be written in the blank spaces, if the contract is
signed by a real person (sole proprietorship), then the name and surname of that person shall
be written.)”

“2. The parties have agreed on the settlement of any dispute arising out of or in connection
with the agreement dated 15.07.2021 subjected Agreement by arbitration through the TOBB
Arbitration Council in accordance with the TOBB Arbitration Rules.”

“The parties, by reading the Rules, shall declare that they have accepted to comply with its
terms, obligations and consequences beforehand.”

“It is required for the parties to clearly state the subject and date of the agreement of which
the parties would like to seek the settlement of any dispute arose out through the TOBB
Arbitration process, within the blank spaces. If there are more than one commercial
agreement between the parties, then they should prepare and sign a separate arbitration
agreement for each of them.”

“3. The parties have decided to have the arbitration conducted at Visakhapatnam.

(The parties shall write the name of the city as the place of arbitration in this section, if they
wish. the Arbitration Council shall determine the place of arbitration, if there is no such
determination of the parties.)”

“4. The parties have agreed on the terms and conditions as the applicable law to this
arbitration.
(This article is important for the disputes arising out of international commercial agreements.
The parties shall state the name of the country, if they agree on whose law be applicable. If
there is no such agreement on this matter, then the arbitrator(s) shall, by himself, determine
the law to be applied. It is natural to apply the Turkish Law to the arbitration between the
Turkish companies.)”

“5. The parties each undertake to pay half of the arbitration expenses that shall be notified
subsequent to filing the suit before the TOBB Arbitration Council as an advance payment.
Each party also undertakes to pay his share of the total expenses determined within the
Arbitral Award approved by the Council.”

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In the case where the defendant does not pay half of the advance payment, then the claimant
shall be obliged to pay the total advance payment amount.

6. It is determined by the parties that disputes shall be settled by both the arbitrator(s).

(The above blank space, depending on the disputes settled by a sole arbitrator or more than
one arbitrator, shall be filled accordingly.)

OPTIONAL TERMS

“7. a) The parties have agreed on the appointment of a sole arbitrator by the TOBB
Arbitration Council.

(This article shall be included, if the parties agree on the disputes settled by a sole arbitrator
and who is appointed by the TOBB Arbitration Council.)

7.b) The parties have nominated, as the sole arbitrator, Mr. Rishab Gaikwad residing at the
address of Flat no. 304, Gyatri Towers, Doctors colony, Visakhapatnam.”

“However, in the case where the sole arbitrator is not approved by the TOBB Arbitration
Council, then the parties accept that the arbitrator shall be appointed by the Council.”

(This article shall be included in the case of an agreement between the parties for the sole
arbitrator beforehand.)

“7.c) The parties accept to nominate the sole arbitrator by themselves within 30 days from the
notification of the arbitration request to the defendant and the appointment of the sole
arbitrator by the Council if the parties cannot agree on the nomination of the sole arbitrator or
in the case where the nomination of the sole arbitrator by the parties is not approved by the
Council.”

(The provision within this article may be included in the agreement when the parties leave the
appointment of the sole arbitrator until after the dispute occurs.)

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“8.a)The parties accept to have one of the 3 arbitrators to be nominated by the claimant in its
petition of arbitration request and the second arbitrator to be nominated by the defendant in
its response and the third arbitrator to be selected by these two arbitrators within 15 days;

The appointment of the arbitrators by the Council if the claimant or the defendant does not
state the name of its arbitrator or if they leave the nomination of the arbitrators to the
Council;”

The appointment of the third arbitrator by the Council, when the parties’ arbitrators do not
nominate the third arbitrator within 15 days.

“This article may be included in the agreement in the cases where it is envisaged that the
disputes be settled by three arbitrators and the appointment of the two arbitrators by the
claimant and the defendant, and the third arbitrator by the parties’ arbitrators.”

“8. b) The parties accept to have one of the 3 arbitrators to be nominated by the claimant in
its petition of arbitration request and the second arbitrator to be nominated by the defendant
in its response and the third arbitrator to be nominated by the Council;

The arbitrators appointed by the Council in the cases where the plaintiff or the defendant does
not nominate an arbitrator or if they leave the appointment of the arbitrators to the Council.”

(This article may be included in the agreement in the cases where the appointment of the third
arbitrator is left to the TOBB Arbitration Council).

“8.c) The parties agree upon the appointment of all three arbitrators by the TOBB Arbitration
Council.

(This article shall be included if the appointment of three arbitrators is completely left to the
TOBB Arbitration Council.)”

“9. The parties accept to sign the Terms of Reference to be drawn up in the presence of the
arbitrator(s) upon the invitation of the arbitrator (or the Chairman of the Arbitral Tribunal),
that the arbitration procedures shall still continue without interruption and be effectual even if
they abstain from signing it, and the abstention of either one or both parties from signing the
Terms of Reference shall not affect the validity of the Arbitral Award.”

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“10. The parties undertake to pay the arbitration expenses in accordance with the TOBB
Arbitration Rules in the case of the reconciliation of the parties or the claimant waiving his
claim after the dispute is submitted to the TOBB Arbitration.”

“11. We hereby undertake to accept and to comply with the provisions of this arbitration
agreement comprising 10 articles as above.”

On behalf of On behalf of

Miss. Divya Goel Mr. Harinder Singh

(signature) (signature)

(It is necessary for the parties to include the list of the authorized signatures showing the
authority for representation and to sign.)

Conclusion:
“A fast-growing economy requires a reliable stable dispute resolution process in order to be
able to attract foreign investment. With the extreme backlog before Indian courts, commercial
players in India and abroad have developed a strong preference to resolve disputes via
arbitration. Despite India being one of the original signatories to the New York Convention,
arbitration in India has not always kept up with the international best practices. However, the
last five years have seen a significant positive change in approach. Courts and legislators
have acted with a view to bringing Indian arbitration law in line with the international best

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practices. With the pro-arbitration approach of the courts, the 2015, 2019 and the 2021
Amendment Acts, in place, there is reason to look forward to these best practices being
adopted in the Indian arbitration law in the near future. Exciting times are ahead for the
Indian arbitration jurisprudence and our courts are ready to take on several matters dealing
with the interpretation of the multiple amendments to the Act.”

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