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Published : October 10, 2010 | Author : abhilawyer
Category : Law - lawyers & legal Profession | Total Views : 7654 | Rating :

Abhijith Krishnan, law student of NUALS(National University of Advanced Legal Studies)

Commercial matter under the Arbitration and Conciliation Act of 1996

Arbitration and Conciliation Act, 1996 is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. The Indian Arbitration and Conciliation Act, 1996 is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.

The word “commercial” as such has not been defined anywhere in the Arbitration and Conciliation. References have been made to “international commercial arbitration” and has been dealt specifically under s.2(1)(f) of the Act.

s.2(1)(f) runs as follows:
“International commercial arbitration” means an 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-
(i) An individual who is a national of, or habitually resident in, any country other than India; or
(ii) A body corporate which is in corporate in any on n try other than India; or
(iii) A company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
(iv). The Government of a foreign country;

In Black’s Law Dictionary, ‘commercial is defined as: is occupied with business commerce. 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.

s.2(1)(f) of Indian Arbitration and Conciliation Act, 1996 deals with international commercial arbitration. The definition of international commercial arbitration in s.2(1)(f) has two elements, one physical and the other conceptual. The physical element is that one party should be foreigner, namely either a foreign national or resident, or a foreign body corporate, or a company, an association or body of individuals whose central management or control is in foreign hands or a government of some foreign country.

The conceptual element is that the legal relationship between parties, contractual or otherwise, must be such as is considered “commercial” under Indian laws.

Commercial arbitration
The position and duties of an arbitrator in commercial arbitration have undergone significant changes. Courts have gone very far in ignoring the technicalities and irregularities on the part of such arbitrators unless there is some substantial error behind them. Mere technical objections based on irregularities and defects in form and procedure are not encouraged.[1] But this does not mean that commercial men are entitled to ignore the fundamental principles of justice and fair play.

In commercial arbitrations the arbitrators are bound to decide the questions if raised under the arbitration clause as to frustration, limitation and other defences. The arbitrators are also competent to decide questions of law, existence of customs or usage in particular trade which is not contrary to public policy or contrary to the terms of the contract.

In commercial arbitrations which are conducted under the rules of the tribunal or arbitration framed by various trade associations-a two-tier system of arbitration is usually provided under which an appeal lies from the award of the arbitrator or the umpire to an Appeal Board constituted to the rules of the associations. In such cases the award of the Appeal Board is final award according to the agreement of the parties which incorporates the rules of the trade associations.

As far as our Indian practice is concerned, an appeal shall lie firstly before the same Arbitral Tribunal as per Code of Arbitral Practice and Procedures of the Disputes Settlement Trust and after that only an appeal shall lie before any court for (a) Granting or refusing to grant any interim measure under Sec 9 and Sec 17 (b) setting aside or refusing to set aside an arbitral award under Sec 34. No second appeal shall lie before any court except the Supreme Court, from an order passed in appeal under Sec 37.

Commercial under Indian Law:
There is no definition as such for the term “commercial” under the Arbitration and Conciliation Act, 1996. Moreover the Preamble itself shows that the entire Act 1996 is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.

s.28 of the Act deals with the rules applicable to substance of disputes and it reads as follows:
“(1) Where the place of arbitration is situate in India, -

(a) In an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

(b) In international commercial arbitration, -

(i) The arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substances of the dispute;

(ii) Any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;

(iii) Failing any designation of the law under clause (a) by the parties, the arbitrat tribunal shall apply the rules of law it considers to be appropriate, given all the circumstances surrounding the dispute.”

The expression ‘commercial’ should be construed broadly having regard to the manifold activities which are integral part of international trade to-day. As pointed out by the Supreme Court in Koch Navigation Inc. v. Hindustan Petroleum Co. Ltd(1989)., liberal construction is to be given to any expression or phrase used in the Act which, however, must be consistent with its literal and grammatical sense, since the Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration.

In Fatechand Himmatlal v. State of Maharashtra(1977), Supreme Court observed that any service or activity which in the modern complexities of business would be considered to be a lubricant for the wheels of commerce is ‘commercial’.

In Kamani Engg. Corp. Ltd v. Societe De Traction Et. D’Electricity Sociate Anonyme, it was observed: “it is difficult to find the exact meaning of the phrase “matters considered as commercial under the law in force in India”. Neither side has been able to point out any particular law wherein the phrases “commercial” or “matters commercial” have been defined. The intent of the Legislature while using the above phrase was that in matters of commercial contracts foreign arbitrations and awards should be recognised and enforced. Having regard to the purpose of the Act, widest meaning must be given to the word “commercial”.

The division bench of the Bombay High Court in European Crain and Shipping Ltd. v. Bombay extractions(P) Ltd., where it was held that mere use of the word ‘under’ preceding the words ‘ the law in force in India’ would not necessarily mean that one has to find a statutory provision or a provision of law which specifically deals with the subject of particular legal relationship being commercial in nature. The division bench held that it was not necessary that there should be a statutory provision enumerating such legal relationship for determining whether the relationship is commercial or not.

The Supreme Court in R.M.Investments & trading Co.P.Ltd v. Boeing C(AIR 1994 SCN 1136) observed that while construing the expression of ‘commercial relationship’, guidance can also be taken from UNCITRAL Model law:

“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. Relationships of 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”.

The Supreme Court in Sudaram Finance Ltd. Vs. NEPC India Ltd., [(1999) 2 SCC 479] has observed that the provisions of the 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act and in order to get help in construing the provisions of the said Act, it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act.

Commercial in the UNCITRAL Model Law Countries:
The UN Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Arbitration Rules on April 28, 1976. Where the parties to contract have agreed in writing that disputes in relation to the contract shall be referred to arbitration under the UNCITRAL arbitration rules, then such disputes shall be settled in accordance with those rules subject to such modification as the parties may agree in writing. These rules are designed for world-wide use in commercial arbitration.

Despite its presence in a footnote, this definition is an integral part of the Model Law. The drafters of Model Law wanted to produce an inclusive and open-ended description of the term commercial. The intention was to have a definition which can be used, in particular, by states which do not have a distinctive body of commercial law so that the Model Law would be applicable to all aspects of international business. The footnote while not giving a clear cut definition, provides guidance for an autonomous interpretation of the term “commercial”. When there was a proposal was there to remove the footnote, the view taken was that the footnote should be retained, though possibly with certain modifications. It was realized that no generally acceptable definition had been found to date and that any definition would entail certain risks. It was felt that the footnote, despite its uncertain legal effect, could provide useful guidance in interpretation, at least to the drafters of any national enactment of the model law. India has adopted for an expressly Indian characterisation of commercial disputes while other countries have for various reasons not included the definition when adopting the Model Law.

A glimpse at the Commercial Division of High Courts Bill, 2009
The main object of the Bill is to provide for the establishment of dedicated divisions called the Commercial Division in each High Court of India, for the purpose of speedy disposal of commercial disputes valued at not less than INR 5,00,00,000 (Rupees Fifty millions) or such higher amount as the Central Government may notify in consultation with the concerned State Government.

One of the salient features of the Bill is that it defines “commercial dispute”. Under the Bill, a comprehensive definition of “Commercial Dispute” has been provided which means
“a dispute arising out of ordinary transactions of merchants, bankers and traders such as those relating to enforcement and interpretation of mercantile documents, export or import of merchandise, affreightment, carriage of goods, franchising, distribution and licensing agreements, maintenance and consultancy agreements, mercantile agency and mercantile usage, partnership, technology development in software, hardware, networks, internet, website and intellectual property such as trademark, copyright, patent, design, domain names and brands and such other commercial disputes which the Central Government may notify”.

The Bill proposes a wide, exhaustive and exclusive definition of Commercial Dispute which encompasses within its scope disputes not only between tradesmen but also relating to commercial property, both immovable and movable including intangible property like patents, copyrights, trademarks, etc. It also empowers the Central Government to add to the list of Commercial Disputes as and when necessary.

Regarding the jurisdiction of court, it includes applications under Sections 34 and 36 and appeals under Sections 37(1)(a) or (2) of the Arbitration and Conciliation Act, 1996, provided they are of Specified Value.
Further, the Bill also proposes to amend the Arbitration and Conciliation Act, 1996 appropriately to include Commercial Divisions within the definition of Court.
However, Commercial Disputes on which other Courts or Tribunals have exclusive jurisdiction will not go before the Commercial Division.

Finally with regard to the procedure, in case of an application arising under Section 34 or 36 and appeals under Section 37(1) (a) and (2) of the Arbitration and Conciliation Act, 1996, the Commercial Division would need to make efforts to dispose the matter within one year of serving notice on the opposite party. Appeals against the order and decree passed by the commercial division are to lie before the Supreme Court.

[1] Olympia Oil and Coke Co. v. MacAndrew Moreland Co.Ltd All ER Rep 1093

Authors contact info - articles The  author can be reached at: abhilawyer@legalserviceindia.com

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