Legal Enforcement of International Commercial Agreements in India | Corporate Law Attorney in Delhi NCR | Corporate Lawyer in Delhi NCR |
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Post the establishment of the World Trade Organisation (WTO), cross border transactions have become much easier globally. Enforcement of contracts and adjudication of disputes is crucial if markets are to function effectively. This requires the parties to have a clear understanding of the nature of the contract, legal measures which can be taken to protect themselves, and compliance with all global requirements
The expression “International Commercial Agreements” has not been expressly defined anywhere per se. However, a reference to Article 1(1) of the United Nations Convention on Contracts for the International Sale of Goods indicates that the term “international” is used when the parties originate from two different States. The term “commercial” as envisaged under Article 1(1) of The Hague Principles is used where “each party is acting in the exercise of its trade or profession.”
If your business entity is engaged is international business and trade and due to certain
Private International Laws being a complex area of law envisages two fundamental questions with respect to International Commercial Agreements,
a) Where will be the seat of adjudication of dispute? and;
b) What law or rules govern the contract?
If your business is engaged in cross-border transactions and there is a regular exchange of goods and/or services, there is a high chance of disputes happening due to various reasons such as non-payment, non-delivery/non-performance, or any other violation of the terms of agreement.
In India, the Civil Procedure Code, 1908 the Indian Contract Act, 1872 and the Indian Evidence Act, 1872 have a significant bearing on the enforceability of forum selection clauses. Section 28 of the Indian Contract Act, 1872 provides that a contract in restraint of legal proceedings is void, Section 57 and 58 of the Indian Evidence Act, 1872 provides that every fact, of which the court does not take judicial notice, has to be proved. The same includes foreign laws, which needs to be proved like any other fact through evidence. Under the Civil Procedure Code, 1908 suit arising out of a breach of contract is instituted in the local limits of whose jurisdiction the cause of action arises.
In Bhamboo v. Ram Narain 1928, 9 Lah. 455, (28) A.L. 297, it was held that suits or causes of actions, which arose outside the territory of India, are beyond the jurisdiction of Indian Courts. Further, in Hakam Singh v. M/s Gammon (India) Ltd. 2 1971 S.C. 740, it was held that when more than one Court has the jurisdiction to try a suit or proceeding, an agreement between two persons agreeing that dispute shall be heard in one of such Courts is valid. Similarly, parties to the agreement can confer jurisdiction on a foreign court, which will be a “neutral court” or a “court of choice.” Similarly, in the U.S., the doctrine of ‘forum non-conveniens’ provides that the Court can dismiss litigation on grounds that it can be adjudicated in a more convenient foreign forum, provided it exists. The same has to be taken in consonance to public and private interests. Thus, in the International context, parties can choose to negotiate on the forum selection clause, as per their convenience.
In International Commercial practice, it is usually common for the parties to resort to Alternate Dispute Resolution (ADR) Mechanisms for settling disputes, of which Arbitration is the most preferred. Unlike litigation, arbitration provides a single nearly comprehensive framework for the enforcement of foreign arbitral awards, governed by the New York convention. It also eliminates the chances of potential biases, which may arise in a foreign litigation procedure, or the exorbitant expenses. However, the New York Convention is not free from problems. There are certain grounds on which local courts may refuse to recognise and enforce the award under the New York Convention, such as – incapacity of parties, invalidity of agreement, failure to give proper notice appointment of the arbitrator, the composition of arbitration tribunal was ultra vires to the agreement, or if the is dispute not capable of being settled through arbitration. The problem shoots up because different national courts apply New York Convention differently. In England, the court declined to enforce award set aside in Russia, but in France, the court decided to enforce award previously set aside in Switzerland. India complies with the United Nations Commission on International Trade Law Model Law on which the Arbitration and Conciliation Act, 1996 was enacted to facilitate domestic arbitration, international arbitration and enforcement of foreign arbitral awards. The same was excluded from judicial intervention. However, in the landmark judgement of the Apex Court in BALCO v. Kaiser, Civ App 3678 of 2008, noted the difference between the seat and the venue of arbitration. The former is the location by law and the latter is the location by fact. On the other hand, parties are empowered to choose the law governing International commercial arbitration under Part I of the Act within the meaning of Section 2(1)(f) provided they are not inconsistent with foreign procedural law. If the parties fail to do so, the Model Law enables the arbitral tribunal to apply the law determined by the conflict of law rules, which it considers applicable.
There are notable differences between domestic and international arbitrations in India-
a) If parties fail to appoint the arbitral tribunal, the High Court is empowered to set up the same in case of domestic arbitration. Whereas, the Supreme Court sets it up in the case of international arbitration.
b) The law applicable in International Commercial Arbitration is the one agreed upon by the parties, failing which the tribunal decides the same. In domestic arbitration, only the substantive law applicable in India can be used.
c) “Patent illegality” is a ground for setting aside the award in domestic arbitration. No such ground is available in International arbitration.
As far as mediation is concerned, national courts are not obliged to enforce agreements to mediate and none guarantee the enforceability of mediation settlements. The issue of enforceability of such agreements largely depends on a case-by-case basis in the national courts. The approach of the national courts vary on this issue and in some jurisdictions, there is not much authority on point, thereby limiting the parties to an unacceptable degree of uncertainty and uniformity concerning enforcement of the agreements.
Unlike arbitrators, mediators exercise very limited power in mediation proceedings, and the only coercive power they can exercise is to threaten to withdraw from the proceedings. Thus, mediation cannot stand on its own at the International scale, unlike arbitration because the latter has the backing of New York Convention and the Model Law, which recognise and enforce arbitral awards and also lay the grounds upon which municipal courts may oversee the arbitration agreement, the proceedings of arbitration and the arbitral award.
By virtue of the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), member states of the World Trade Organisation have been freely trading and conducting business without the fear of Intellectual Property infringement since 2001. The dispute settlement process under the Trade-Related Aspects of Intellectual Property Rights Agreement, (TRIPS) has three main phases – i) consultation between parties, ii) adjudication by the panels and iii) adoption of panel/appellate body reports. India, like other member states, can only initiate and participate in the dispute resolution process in the World Trade Organisation (WTO) and such complaints can only be initiated against the other Member States only. Only the member states can decide which disputes it can bring before the World Trade Organisation (WTO), and the parties have the right to settle the case at any stage of the proceedings. For private parties whose rights are affected by the World Trade Organisation (WTO) agreements, have no say in the procedure as individuals but they can rely on their government to defend them, or to intervene as a third party.
To adjudge which dispute resolution mechanism is better has to be construed from which mechanism is fair, transparent, and speedy. The independence of transnational disputes from national law is an attempt to modernize the dispute resolution process, globalise it and at the same time encourage new developments in the field of Law, Economics and Business.
Authored By: Adv. Anant Sharma & Mayank Barman