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

Before delving into the process of how international commercial arbitration works and what technical details and procedures are required while a party intends to initiate arbitration, we need to understand what exactly international commercial arbitration is.

In general, the resolution of disputes arising from the international trade agreement through arbitration is referred to as international trade arbitration. That being said, the Arbitration and Conciliation Act of 1996 expressly defines ICA (short for ‘International Commercial Arbitration’) under Section 2 (1) (f) as arbitration in relation to disputes arising from a legal relationship that is to be regarded as commercial if one of the Parties is a foreigner 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 whole process is mostly controlled by the parties themselves rather than following national laws or established procedural rules. Most international trade contracts contain a dispute settlement clause, which states that any disputes arising from the contract will be resolved through arbitration, not legal proceedings.

Going forward, Indian law provides for the settlement of international trade disputes through the Arbitration and Conciliation Act of 1996. Arbitration proceedings involving a foreign party based in India are considered ICA. In such a situation, Part I of the Arbitration and Conciliation Act 1996 applies. However, if the registered office is outside India, Part-II of the Act would apply instead of Part-I. The aim of this mechanism is to resolve trade disputes between foreign and Indian companies under Indian arbitration laws.

Well, be it international or national arbitration, there are two types of arbitration:

Number 1: Institutional Arbitration

Number 2: Ad Hoc Arbitration

In the case of institutional arbitration, the parties agree to have the dispute administered by an arbitration institution. These institutions establish their own arbitration rules that would apply to the arbitration they conduct. These regulations supplement the existing regulation of the Arbitration Act in procedural questions and other details, insofar as this is legally permissible. The disputes they handle can also be general and specific in nature. The arbitration institutes have set the arbitration fees. Administrative costs, qualified arbitration tribunals, rules for the arbitration procedure, etc., which contribute to a smooth and orderly course of the arbitration procedure.

In India, the Indian Council of Arbitration is the supreme body in arbitration and therefore handles most of the international cases in India. Some of the other prominent institutions that conduct international trade arbitration in India are:

  • International Arbitration Center in Delhi
  • Indian Arbitration Council
  • ICDAR-New Delhi
  • LCIA India and many more.

In the case of ad hoc arbitration, the parties now set their own rules and conduct the entire arbitration independently. You are responsible for determining the place of jurisdiction, the number of arbitrators, the procedure to be followed and all other aspects of the conduct of the arbitration.

So this is the introduction of International Commercial Arbitration and the institutions that deal with related disputes.

Question of the week:

What happens if a party has decided not to participate in the arbitration if the other party invokes the arbitration clause?

So if the parties agree to arbitrate, they are ideally bound by the arbitration agreement. Therefore, if one party initiates arbitration, the other party will avail itself of the opportunity to present its case and participate in the proceedings. However, if for any reason the other party is unwilling to participate in the arbitration and therefore does not participate in the proceedings, the arbitral tribunal will proceed without the participation of that party, it must be ensured that the reluctant party is aware of the existence of the arbitration proceedings initiated against it and it is given full opportunity to express itself through defense. Otherwise, if it is later found that the party has not been properly notified, the party may not be able to enforce the award made by the arbitral tribunal in this proceeding.

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