Need For Arbitration Clause In The Transnational Commercial Agreements

When the parties from different countries enter into contract with each other it is known as transnational commercial agreement. In other words it is a contract made between the parties which involves laws of different countries.

The system of arbitration is an alternative to the traditional system of filing a suit in the court of law. It is mostly non-judicial and is commonly referred to as “out of courts settlement”. There is a very precise need for arbitration in a commercial international contract. Along with the other considerations, a pertinent consideration is the jurisdiction issues: how and at what location will it take place. Hence, a clause is inserted in the agreement itself to void these confusions. If the said clause has been inserted in the International Commercial Agreements it shall provide for an alternative method to resolve the disputes arising out of the commercial transactions which are conducted between the parties. It further allows the parties to dispute to prevent the litigation in national courts. As per the Section 2(1)(f) of the Arbitration and Conciliation Act, 1996, International Commercial Arbitration means the disputes which arise out of the legal relation in which one of the parties to the agreement is not a citizen of India.

WHAT IS AN ARBITRATION CLAUSE

Whenever parties enter into a contract, they need to lay down some set of rules so that in later stages no dispute arises. However, if a dispute arises there is a clause named as “arbitration clause” and it helps the parties to solve the dispute. It is an out of court settlement. In arbitration, a third party who is a neutral person known as arbitrator hears both sides and then makes a decision which is binding on both the parties.

NEED FOR ARBITRATION CLAUSE

Arbitration clause is the most efficient form to settle disputes between the parties to the contract. It is used whenever parties negotiate contracts, agreements or treaties. To settle the dispute there is no need for any long procedures of court to make decisions. However, arbitration is a cost-efficient and time saving method to solve the disputes.

The Parliament of India has enacted the Arbitration and Conciliation Act, 1996 to govern the process of arbitration. In TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd. [1] it was held that if the company has a dual nationality, then it would be treated as an Indian Corporation and not as the foreign corporation. International arbitration allows the parties to settle disputes with peace and less money. It is also known as hybrid international dispute resolution as it involves laws of two countries. In case of Sasan Power Ltd. v. North American Coal Corpn. [2] the matter was referred to the International Chamber of Commerce for settlement of disputes. The question was whether two Indian parties can refer the matter for arbitration outside India or not. The Hon’ble Supreme Court in light of common law, held in affirmative and stated that two Indian parties can refer to arbitration outside India.

ROLE OF UNITED NATIONS COMMISSION IN INTERNATIONAL TRADE LAW (UNCITRAL)

UNCITRAL Arbitration Rules provides a broad set of to conduct the arbitral proceedings which arise out of commercial agreements. The Model Law provides uniform rules in respect to arbitration procedure. The parties have to agree to these rules. These rules were adopted in the year 1976 and they have been used to settle a number of disputes arising from commercial agreements between parties.

These rules are followed by the parties to either enter into the contract or after a dispute has been arisen. These Arbitration rules provide framework for procedure but they are flexible as well. They even allow parties to override the rules by mutual agreement.

Some amendments were made in the year 2021, expedited rules were added. The Article 1 of the expedited rules will be applicable when the parties expressly agree for expedition in arbitration.

Apart from UNICITRAL, there are other institutions/rules also which deal with the arbitration across the countries such as the Singapore International Arbitration Centre, American Arbitration Association etc.

Few steps or procedure to conduct the proceedings through international commercial arbitration are as follow-

1. Provide Notice of Arbitration- To initiate the arbitration proceedings, either of the party needs to provide a notice to another party to refer the dispute for arbitration. So, communication of the intention to refer the matter to arbitration is the first and the foremost step.
2. Reference to Arbitration- As per Section 8 of the Arbitration and Conciliation Act, 1996 courts can also refer the case for arbitration if the contract deed/agreement contains such clause for arbitration.
3. Appointment of the arbitrator- The parties have the liberty to choose or appoint the arbitrator. In case the parties are not able appoint the arbitrator by themselves within 30 days or in case each of them appoints one arbitrator and then if those two arbitrators fails to appoint a third arbitrator then at the request of parties, either the High Court or the Supreme Court can appoint the arbitrator.
4. Appointment of arbitrator can be challenged on the grounds that there is a reasonable suspicion or if he does not fulfil the eligibility criteria that is required.
5. The Act under Section 9 and 17 provides interim relief measures before the start of the proceedings as well as during the proceedings.
6. The arbitral award can also be challenged under Section 34 of the Arbitration and Conciliation Act, 1996.

CONCLUSION

Thus, we can conclude by stating that referring the disputes to arbitration is a convenient way to peacefully resolve and maintain harmony. It helps parties to save both time and money. As in India specially, going to courts can be cumbersome. It may take months to years to secure a decision from the courts. Fortunately, there are institutions and rules and regulations that govern arbitration. Even when two parties are from different countries, they have the liberty to refer the dispute to arbitration. A third party becomes the arbitrator and parties need to adhere to the decision given by him. So, to conclude the need for arbitration in commercial agreements internationally is a need in today’s era.

Author: Abhinav Rana, University School of Law and Legal Studies, GGSIPU, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.