In India, presently, there is more than one way of resolving a dispute such as Litigation, Arbitration, Mediation or Conciliation. Lately, Arbitration is one of the trending modes of alternative dispute resolution being an expeditious and inexpensive process. It is also one of the oldest modes of Dispute Resolution and has been favoured as an alternative to litigation before traditional courts as the current court system is significantly overburdened by the sheer volume of cases being filed. The parties involved always have an option to choose between the types of Arbitration that are Institutional Arbitration, Domestic Arbitration, Statutory Arbitration, International Arbitration and Fast Track Arbitration.
When choosing between domestic and international arbitration, consider the parties’ locations, nature of the dispute, and legal framework to decide whether the dispute would fall under the scope of International or domestic arbitration as provided in the Arbitration and Conciliation Act, 1996.
Section 2 1(f) of the Arbitration and Conciliation Act, 1996 provided that when one of the parties is a foreign entity, it shall be considered as an International Commercial Arbitration.
When both the parties are Indian, they shall be governed by Part 1 of the Act which shall be “Domestic Arbitration”.
Overview of Arbitration in India
- Arbitration is a creature of an agreement in writing between two parties wherein the parties voluntarily agree to submit their disputes to be resolved by an independent and neutral third party of their choice whose decision on the dispute is binding on them. There is no internationally recognised definition of arbitration. However, two core features of arbitration are a dispute and an arbitration agreement.
- Arbitration under The Arbitration and Conciliation Act, 1996 adopted the UNCITRAL Model of United Nations is the present law in force guiding arbitrations with seat in India. The Act also provides for enforcement of foreign awards under Part II of the Act.
- One of the key features of the Act is expedited disposal of disputes. The business owners want speedier adjudication of disputes and Arbitration serves as the alternative remedy to achieve it as the Act provides for a period of one year to pass awards.
Understanding Domestic Arbitration
Domestic Arbitration process 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 should have arisen wholly in India or the parties are otherwise subject to Indian jurisdiction.
Applicable legal framework
The legal framework governing domestic arbitration in India is primarily guided by the Arbitration and Conciliation Act of 1996, which was enacted to provide a comprehensive and efficient mechanism for the resolution of disputes through arbitration. The Act is based on the UNCITRAL model law and has undergone amendments over the years to address various lacunae and streamline the arbitration process. The Act provides for the appointment of arbitrators, the conduct of arbitral proceedings, recognition, and enforcement of arbitral awards, and sets out the grounds for challenging arbitral awards.
Typical scenarios and industries where domestic arbitration is prevalent
Domestic arbitration process is a widely used form of dispute resolution in various scenarios and industries, especially in commercial. In commercial settings, domestic arbitration is often employed in contract disputes, construction conflicts. Industries such as finance, construction, technology, and healthcare frequently utilize domestic arbitration to resolve conflicts efficiently and confidentially. The flexibility, speed, and expertise offered by domestic arbitration make it a preferred choice for parties seeking a fair and impartial resolution to their disputes without resorting to time-consuming litigation in the court system.
Understanding International Arbitration
International Arbitration can take place either within India or outside India in cases where there are ingredients of foreign origin relating to the parties or the subject matter of the dispute. The law applicable to the conduct of the arbitration and the merits of the dispute may be Indian Law or foreign law, depending on the contract in this regard, and the rules of conflict of laws.
The most significant contribution of 1996 Act is the categorical definition of international commercial arbitration. Clause(f) of sub-section (1) of section 2 of the 1996 Act defines international commercial arbitration as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is:
- An individual who is a national of, or habitually resident in or any country other than India
- A corporate body which is incorporated in any country other than India
- A company or an association or a body of individuals whose central management and control is exercised in any country other than India
- The government of the foreign country.
The legal framework for enforcement of foreign awards
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provide a uniform mechanism for the enforcement of arbitral awards across multiple jurisdictions. Additionally, arbitration rules promulgated by institutions such as the International Chamber of Commerce and the United Nations Commission on International Trade Law offer standardized procedures for conducting arbitrations and resolving disputes. National laws governing arbitration play a crucial role in determining the validity and enforceability of arbitration agreements, as well as the procedural requirements for conducting arbitration proceedings.
India is one of the signatories to the New York Convention and its rules. Accordingly, the Act of 1996 in terms of the New York Convention adopted the rules in Part 2 of the Act on the aspects of recognition and enforcement of foreign Awards.
Key Differences Between Domestic and International Arbitration in India
| S. No. | Basis of difference | International arbitration | Domestic Arbitration |
| 1. | Meaning | International arbitration is a method of resolving disputes between parties from different countries outside of court which may be governed by Indian Law or foreign law. | Domestic arbitration is the process of resolving disputes between parties from the same country through arbitration rather than traditional court litigation or governed by national arbitration laws. |
| 2. | Jurisdiction | Disputes involve parties from different countries and transcending national boundaries | Disputes are within the boundaries of a single country |
| 3. | Applicable law | Complex issues related to choice of law, often from different jurisdictions. In case Indian Law is applicable Part 1 of the Act shall govern the arbitration. | Arbitration and Conciliation Act, 1996 |
| 4. | Enforcement of awards | Can be challenging due to sovereign immunity, differing legal system, and international treaties If the International Arbitration had its seat in India and governed as per Part 1 of the Act it can be enforced as per section 36 of the Act. | Easier with jurisdiction where arbitration is held. Section 36 of the Arbitration and Conciliation Act, 1996 deals with Enforcement of Arbitral Awards in India. |
| 5. | Language | Parties from diverse cultural background may require translation | Parties generally have common language |
| 6. | Procedures | Follows institutional rules or ad hoc procedures | Institutional rules or ad hoc procedures, depending on preference and laws |
| 7. | Arbitrator selection | Chosen for expertise in international law, familiarity with multiple legal systems | Selected based on knowledge of specific area of law relevant to disputes |
| 8. | Cost/time | More expensive and time-consuming due to travel, language barriers, specialised expertise | Domestic Arbitration process can be more cost-effective and efficient, especially if parties and arbitrators are in proximity |
Analysis of landmark cases highlighting the differences
In the case of Dominant offset Pvt. Ltd. Vs Adamouske Strojerny AS, the parties entered into two agreements. The Agreements contained an Arbitration clause stating that the place of Arbitration shall be London. The parties on having dispute referred to this Arbitration clause and the petitioners sought for the enforcement of the arbitral awards in the Delhi High Court. The Hon’ble Court properly studied the provisions of Part I, to see whether this matter falls under Part I or not.
It was held by the Court that the statement in section 2(2) which states that the “Part I shall apply where the place of arbitration is in India” is an inclusive statement and it does not exclude the applicability of Part I to those matters where the Arbitration is not held in India. So, the following matter was held to be within the limits of the Court. But the Court said that there is a requirement to be cautious in grant of reliefs where both the parties are foreigners and the place of Arbitration is outside India.
Bhatia International v/s. Bulk Trading in which it was held that Indian courts have the right to use their jurisdiction to test the significance of an arbitral award made in India, even if the actual law of the contract is foreign. The court recognized that Part 1 of the Arbitration and Conciliation Act, 1996 gives effect to UNCITRAL Model Law allowing courts to grant interim relief even when the seat of international commercial arbitration is outside India.
Practical implications for businesses and legal practitioners
Arbitration has a profound impact on both businesses and legal advocates in today’s complex legal landscape. For businesses, arbitration offers a more efficient and cost-effective alternative to traditional litigation, with disputes being resolved in a shorter timeframe and at a fraction of the cost. Furthermore, the confidentiality of arbitration proceedings allows companies to protect sensitive information and maintain their business reputation. On the other hand, legal advocates also benefit from arbitration as it provides them with the opportunity to showcase their expertise in a specialized area of law. By representing clients in arbitration proceedings, legal advocates can demonstrate their skill and knowledge in resolving disputes outside of the courtroom, ultimately enhancing their professional reputation and attracting more clients. Overall, the implications of arbitration on businesses and legal advocates highlight the significance of this alternative dispute resolution mechanism in today’s legal and business environment.
Conclusion
As businesses encounter conflicts and disputes, arbitration serves as a critical tool for resolving these issues efficiently and effectively.
It can be safely concluded that there are vital difference between International and Domestic Arbitrations and business houses in high stake international/ domestic commercial transaction, must add Arbitration Clause in their Agreement/ Contract as way of Dispute Resolution considering the where the other party is situated.
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FAQs
1. What is the main difference between domestic and international arbitration?
Domestic arbitration and international arbitration are two distinct forms of dispute resolution mechanisms utilized in the legal realm. Domestic arbitration process pertains to resolving disputes within the boundaries of a specific country, typically governed by the laws and regulations of that jurisdiction. On the other hand, international arbitration involves the resolution of disputes between parties from different countries, often transcending national borders and necessitating the application of international laws and conventions.
2. Can a domestic arbitration award be enforced internationally?
Yes, Domestic arbitration awards refer to decisions made by an arbitration tribunal in a specified jurisdiction concerning disputes between parties within that jurisdiction. The enforcement of these awards internationally can be complex and subject to various legal considerations. While the New York Convention provides a framework for the recognition and enforcement of arbitration awards across different countries, certain jurisdictions may have specific requirements or limitations that could impact the enforceability of a domestic arbitration award in an international context. Factors such as the presence of reciprocal agreements between countries, the jurisdiction of the arbitration agreement, and the public policy considerations of the enforcing state can all play a role in determining the enforceability of a domestic arbitration award internationally. Thus, while the general principle is that domestic arbitration awards can be enforced internationally, it is essential for parties to carefully consider the specific legal and practical implications of doing so in their case.
3. What are the advantages of choosing international arbitration for cross-border disputes?
When dealing with cross border disputes, it is crucial to carefully consider the benefits of choosing international arbitration as a means of resolving conflicts. international arbitration offers a cost-effective and efficient alternative to traditional litigation in resolving cross border disputes, making it a wise choice for parties seeking a swift and effective resolution.
4. How does the choice of arbitrators differ in domestic and international arbitration?
The choice of arbitrators can differ in domestic and international arbitration in a few key ways. In domestic arbitration, the parties may have more flexibility in selecting arbitrators, and they may choose arbitrators who are familiar with the industry or subject matter involved in the dispute. On the other hand, in international arbitration, the parties often come from different countries and may have different legal and cultural backgrounds. As a result, there is often a greater emphasis on selecting arbitrators who have expertise in international law and who are familiar with the legal traditions of the parties involved. Additionally, international arbitration often involves arbitration institutions that maintain lists of qualified arbitrators, and the parties may select arbitrators from these lists, adding another layer of complexity to the selection process.
5. What role do international treaties play in international arbitration involving Indian parties?
International treaties have a significant impact on international arbitration involving Indian parties. These treaties often include provisions that govern the enforcement of arbitral awards between countries, thereby affecting the outcome of arbitration with Indian parties. Additionally, international treaties can also influence the choice of law and procedural rules that apply to the arbitration process. Therefore, it is essential to carefully consider the relevant international treaties when engaging in international arbitration involving Indian parties.
Author – Tarun Biswas, Partner
Co-Author – Neha Buttan, Senior Associate
