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Voila! Let’s Arbitrate! Blog Post-2: What is International Commercial Arbitration?

Now, Before going into the process of how any international commercial arbitration takes place and what are the technicalities involved and procedure followed while a party intends to go for arbitration, we need to understand what exactly is International Commercial Arbitration. 

In general words, resolution of the disputes arising under the international commercial contract through the process of arbitration is known as International Commercial Arbitration. Apart from this, the Arbitration and Conciliation Act, 1996 specifically defines ICA (short for ‘International Commercial Arbitration’) under Section 2(1)(f) as an arbitration relating to disputes arising out of a legal relationship which must be considered commercial, where either of the parties is a foreign national or resident, or is in foreign hands. 

As we discussed in the last blog, it is used as a better alternative to litigation and the complete process is controlled primarily by the parties themselves instead of following the national legislation or established procedural rules. Most of the International Commercial Contracts contain a dispute resolution clause which specifies that if any dispute arises under the contract, it would be resolved through arbitration rather than litigation. 

Going ahead, Indian Laws provide for dispute resolution of any International Commercial Dispute through Arbitration and Conciliation Act, 1996. Arbitration involving a foriegn party and with its seat in India will be considered as an ICA. In such a situation, the Part-I of the Arbitration and Conciliation Act, 1996 will be applicable. However, if the seat is outside India, Part-II of the Act would be applicable instead of Part-I. The aim of this mechanism is to resolve the commercial disputes between the foreign and Indian entities within the framework of the Indian Arbitration Laws.

Now, be it an International or a domestic arbitration, the arbitration is of two types:

Number 1: Institutional Arbitration

Number 2: Ad Hoc Arbitration

In case of Institutional Arbitration, the parties agree to have an arbitral institution administer the dispute. These institutions make their own rules of arbitration which would be applicable to the arbitration proceedings conducted by them. These rules supplement the existing provision of the Arbitration Act in matters of procedure and other details as the legislation permits. The disputes dealt by them may also be general and specific in nature. The Arbitration institutes have fixed the arbitrator’s fees. Administrative expenses, qualified arbitration panels, rules governing the arbitration proceedings etc which help in the smooth and orderly conduct of arbitration.

In India, the Indian Council of Arbitration is the apex body in the arbitration matters and therefore handles the largest number of international cases in India.  Some of the other prominent institutions which conduct International Commercial Arbitration in India are: 

  • Delhi International Arbitration Centre
  • Indian Council of Arbitration
  • ICDAR -New Delhi
  • LCIA India and many more. 

Now, In case of ad hoc arbitration, the parties set up their own rules and conduct the complete arbitration independently. They are responsible for deciding the forum, the number of arbitrators, the procedure that will be followed and every other aspect of administering the arbitration. 

So, this is the introduction of International Commercial Arbitration and of the institutions which deal with the disputes related to it.

Question of the Week:

What if a party decided not to participate in the Arbitration Proceedings when the arbitration clause is invoked by the opposite party?

So, Ideally, when the parties agree to arbitrate, they shall be bound by the arbitration agreement. Therefore, when a party initiates arbitration proceedings, the other party will avail itself of the opportunity to present its case and participate in the proceedings. However, if the other party is unwilling to participate in the arbitration proceedings due any reason and therefore, do not participate in the proceedings, the arbitral tribunal proceeds in default of the participation of that party, Also, it should be noted that while taking this step, it has to be made sure that the unwilling party  is aware of the existence of the arbitration proceedings filed against it and is given full opportunity to present its case by filing a defense. Otherwise, later when it is proven that the party is not properly notified, the party may not be able to enforce the award given by the tribunal in those proceedings.

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