‘It bids us remember…to settle a dispute by negotiation and not by force; to prefer arbitration to litigation- for an arbitrator goes by the equity of a case, a judge by the strict law, and arbitration was invented with the express purpose of securing full power for equity.’- Aristotle
With globalization magnifying at an uncontrolled rate, companies increasingly demand arbitration services for business related conﬂicts and agreements. It is because arbitration avoids costly and lengthy lawsuits. This demand can be well catered to with the form of arbitration that specifically concentrates on the commercial aspects of disputes and since commercial dispute resolution has been the talk of big corporate, this paper aims at differentiating the scope of commercial arbitration as a separate field of arbitration and not as a subset of Domestic arbitration as commercial transactions have acquired considerable importance.
The ministry of law and justice has introduced the term ‘commercial disputes’ in its recent consultation paper discussed over the proposed amendments in Arbitration and Conciliation Act, 1996 which indicates that the Government acknowledges the importance of Commercial disputes. And Commercial Arbitration is indeed a means to resolve such disputes.
The main object of the Bill was to provide for the establishment of dedicated divisions called the Commercial Division in each High Court of India to expertise the disposal of commercial disputes.
Today’s global economy makes channels of dispute resolution more important than ever and efforts of establishing such an effective system of commercial arbitration are finding success.
In comparison with various jurisdictions across the world like London, New York etc there are, undoubtedly, some of the most successful frameworks of Commercial Arbitration and they have been applauded and exploited by the business community. A step in the same direction by India will not only project its determination to fast track justice but also to meet the demanding world standards.
II] UNDERSTANDING COMMERCIAL ARBITRATION
Arbitration, as a layman understands is resolving disputes with the help of a third person. Quoting the words of eminent jurist Sir Edward Blackstone,
‘Arbitration is a bond entered into by two or more parties to abide by the decision of the arbitrator’.
A distinguished French lawyer wrote of arbitration as an “apparently rudimentary method of settling disputes, since it consists of submitting them to ordinary individuals whose only qualification is that of being chosen by the parties.
Also, read in one sound in arbitration these days is the word ‘commercial’, which according to the dictionary means any activity or transaction which turns out to be a source of any gain, profit, benefit, or advantage to the parties is commercial.
With changing times, the meaning of the word, commercial arbitration has undergone various considerations. A noteworthy increase in the role of domestic trade in the economic development of the nation over the last few decades has been accompanied by a considerable increase in the number of commercial disputes which must be looked into and a changing definition of dispute resolution mechanism needs appreciation. Ever since globalization, rapid development has meant increased caseloads of the already overburdened courts, further leading to notoriously slow adjudication of commercial disputes. As a result, alternative dispute resolution mechanisms, which now includes commercial arbitration has become more crucial and pivotal for operating businesses in India as well as for those doing businesses with Indian firms, as also reported by foreign authors.
In spite of best efforts, disputes do arise during performance of business contracts and they arise for various reasons. Unresolved disputes have a tendency to upset the smooth performance and successful completion of business contracts and may, therefore, render an otherwise profitable transaction into a probable loss. Therefore it is necessary for carrying on business transactions smoothly and profitably that the area of disputes during performance of contracts is narrowed down and provision is made for amicable and quick settlement of disputes that may arise. The facts discussed above do call for the concept of Commercial Arbitration in India.
Whereas commercial arbitration when put to practice, one will find that less has been written to understand the definition of the term in Indian context. The United Nations Commission on International Trade Law (UNCITRAL) Model Law on Commercial Arbitration 1985; defines the term commercial arbitration as; to cover matters arising from all relationships of a commercial nature, whether contractual or not.
“Relationships of a 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 cooperation; carriage of goods or passengers by air, sea, rail or road.”
This definition is a broad reflection of what is being practiced within the small scope of our Arbitration and Conciliation Act, 1996. It can be easily inferred, that the scope of the word commercial is different when compared to other transactions which are presently being resolved by the arbitration in India under the 1996 Act.
This does give rise to the need of a new definition of commercial arbitration under the existing laws so that the humongous need of this corporate India in resolving commercial disputes arising out of different transactions and relationship be countered, which can in some cases be contractual. The author would here like to point out that Commercial arbitration as such is not defined in any law, but the raw understanding of the term says that is it is one of the methods of resolving business disputes arising out of commercial transactions by arbitration.
III] PRESENT STATUS OF COMMERCIAL ARBITRATION IN INDIA
In the present Arbitration and Conciliation Act 1996, the term commercial arbitration is not used, but it is evident that the commercial arbitration although different in nature still it is being dealt under the head of the present arbitration laws. It is necessary to acknowledge that commercial arbitration is important and is worthy of special attention from the Government and the Judiciary, looking at the quantum of the increasing amount of commercial disputes.
Although the UNCITRAL model of 1985, contains the definition of the term commercial. The question arises why the legislators at the time of drafting 1996 Act, did not adopt the meaning of term commercial in spite of UNCITRAL model already defining it?
The reason inferred could be that there was no need felt for the commercial arbitration at that particular point of time as it is felt today.
Understanding the term commercial in judicial sense, Kerala High Court quotes in case S.G of Assissi Sisters v. K.S.E.B with the approval of the Webster’s Third International Dictionary, the meaning of the word ‘commercial’ as engaged in ‘commerce’ and ‘commercialize’ means ‘to engage in, conduct, practice, or make use of for profit-seeking purposes as distinguished from participation, practice, or use for spiritual or recreational purposes or for other non-pecuniary satisfactions.
Looking from the constitution perspective, in the context of Article 301 which assures freedom of trade, commerce and intercourse, it has been held:
‘Trade and commerce do not mean merely traffic in goods, i.e. exchange of commodities for money or other commodities. In the complexities of modern conditions , in their sweep are included carriage of persons and goods by road, rail, air, and waterways , contracts, banking , insurance , transactions in the stock exchanges and forward markets, communication of information , supply of energy , postal and telegraphic services and many more activities-too numerous to be exhaustively enumerated which may be called commercial intercourse’.
The word ‘commercial’ has a restrictive meaning and excludes disputes in regard to boundaries, political matters, employment and family disputes and the like. The aspect can be better understood by referring to the jurisdiction of the English Commercial Court which deals with disputes arising out of trading and other Commercial relationships.
Though, the expression ‘commercial’ is not definite but it is construed broadly having regard to the manifold activities which are an integral part of the domestic trade.
IV] COMPARATIVE ANALYSIS OF COMMERCIAL ARBITRATION AT A GLOBAL LEVEL
To understand the need of Commercial Arbitration in India, it is important to acknowledge and compare the laws relating to commercial arbitration in different jurisdictions across the world like that of New York, London etc.
(i) In London
As London is a major business city, there exists a separate commercial court which is meant to be a popular forum for resolving commercial disputes.
It deals with complex cases arising out of business disputes, both national and international. There is particular emphasis on:
• international trade
• arbitration disputes
The work of the Commercial Court is governed by Part 58 of the Civil Procedure Rules.
Direction 58.1 defines ‘commercial claim’ as any claim arising out of the transaction of trade and commerce and includes any claim relating to arbitration also.
ii) In New York
The New York Supreme Court Commercial Division is part of the Supreme Court of New York State and “handles complicated commercial cases.” The Supreme Court of New York State, including the Commercial Division, is one of the lower courts of the state court system referred to as a “court of original instance.” The Supreme Court is a trial court where a case is first filed and decided. The Commercial Division is bound by the Uniform Rules for New York State Trial Courts, including Section 202.70 which contains rules specific to the Commercial Division only and the definition of Commercial cases include:
“Applications to stay or compel arbitration and affirm or disaffirm arbitration awards and related injunctive relief pursuant to Civil Procedure Law and Rules, Article 75 involving any of the foregoing enumerated commercial issues — without consideration of the monetary threshold.”
Working on the similar lines, it is high time that India adopts the concept of commercial arbitration and reflects the same in form of an amendment in the present act of 1996. It is to further the intention of the bill passed by Lok Sabha.
V] PROSOPED AMENDMENTS DISCUSSED UNDER THE CONSULTATION PAPER
In the year 2001, the Law Commission of India recommended many amendments to the Arbitration and Conciliation Act in its 176th Report submitted to the Government which was later accepted by the Government. Later on, the Arbitration and Conciliation (Amendment) Bill 2003 was introduced in Rajya Sabha, and for the in depth study of its proposed amendments, a Committee under the Chairmanship of Justice Dr. B. P. Saraf was constituted in 2004 .
The Lok Sabha passed the Commercial Division of High Courts Bill, 2009 in the recent consultation paper issued under Ministry of Law and Justice by the Government of India which bring in scope for commercial arbitration and would eventually help in better resolution of commercial disputes in India.
The Bill is undoubtedly a step forward to enable fast and efficient delivery of justice in India and has manifold advantages. This Bill seeks to bring in uniformity across the country with regard to Commercial Disputes of a Specified Value as such disputes would be dealt with by the Commercial Divisions of High Courts.
It highlights some developments in relation to the commercial arbitration and they are:
a) Defining commercial dispute
Commercial dispute under S.2(a) of the Commercial Division of High Courts Bill, 2009 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.
Explanation I — A dispute, which is commercial, shall not cease to be a commercial dispute merely because it also involves action for recovery of immovable property or for realization of monies out of immovable property given as security or for taking any other action against immovable property.
Explanation II —A dispute which is not a commercial dispute shall be deemed to be a commercial dispute if the immovable property involved in the dispute is used in trade or put to commercial use.
Explanation III — An application under section 34 or section 36 or an appeal under section 37 of the Arbitration and Conciliation Act, 1996 shall be deemed to be a commercial dispute if the amount in dispute or claim relates to a specified value.
Therefore, 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.
The proposed amended version of Sec 11 of the Arbitration and Conciliation Act, 1996 is as follows:
After sub-section (12), following sub-sections shall be inserted, namely:-
“(13) Notwithstanding anything contained in foregoing provisions in this Sections, where an application under this Section is made to the Supreme Court or High Court as the case may be for appointment of arbitrator in respect of ‘Commercial Dispute of specified value’, the Supreme Court or the High Court or their designate, as the case may be shall authorize any arbitration institution to make appointment for the arbitrator.
Explanation:- For the purpose of this sub-section, expression ‘Commercial Dispute” and “specified value” shall have same meaning assigned to them in the Commercial Division of High Court Act, 2009.” In a way, not directly the definition of Commercial Dispute has been adopted in the Arbitration and Conciliation Act, 1996 Act which highlights the fact that even the legislators feel that Commercial disputes have to be given special preference.
b) Constitution of a separate Commercial division in the High Court to specially resolve Commercial disputes
The consultation paper favours setting up of a separate commercial division in the High Court to look into commercial disputes. The Indian law relating to commercial arbitration has to be made responsive to these changes in the Indian economic scene.
Now, by a separate law it is proposed to constitute ‘Commercial Division’ in the High Court. In the said law it is also proposed that the said Commercial Division will also entertain applications under Section 34 and Section 36 and appeals under Section 37 of the Arbitration and Conciliation Act, 1996 where the arbitration relates to “Commercial Disputes” of specified value.
c) Existence of a valid Arbitration Agreement
In order to avoid raising of an issue of existence of a valid arbitration agreement and also to promote institutional arbitration, it has been suggested by certain persons that in respect of commercial contract of high threshold value, there should be a deemed arbitration clause in every such contract, unless the parties expressly and in writing agree otherwise. To achieve this object, insertion of following clause in the Arbitration and Conciliation Act, 1996 has been suggested:
Unless parties expressly and in writing agree otherwise, every commercial contract with a consideration of specified value( Rs. 5 crore or more) shall deemed to have in writing specified arbitration agreement. Also, in this Section “Commercial Contract” shall mean every contract involving exchange of goods or services for money or money’s worth and includes carriage of goods by road, rail, air, waterways, banking, insurance, transactions in stock exchanges and similar exchanges, forward markets, supply of energy, communication of information, postal, telegraphic, fax and Internet services, and the like.”
The amendment bill can prove to be advantageous regarding induction of the concept of commercial arbitration in India as it for the first time has defined the term commercial disputes in relation of Arbitration. This bill would make way for initiating the idea of commercial arbitration in India .
It is lucid from the above discussion that the model of Commercial Arbitration has great scope.
Taking a look at the laws relating to the resolution of commercial disputes across different jurisdiction and appreciating the proposed changes in the consultation paper by the ministry of law, most importantly looking at the need of this developing economy where commercial transactions are increasing both in quantum and quality, commercial arbitration needs the required attention and this is a hand down solution. Hence it is felt that commercial arbitration which to some extent has been accepted as a separate field under the broad head of domestic arbitration is considered as a commendable step towards making Commercial Dispute Resolution an easier task.