Domestic and International Commercial Arbitration Compared

Section 2(1)(f) divides arbitrations by the identity of the parties and not by the place of the arbitration. An arbitration is international commercial where the relationship is commercial under Indian law and at least one party is foreign by nationality, habitual residence, incorporation or central management, or is a foreign government. Domestic arbitration is not defined; it is what remains. A good deal turns on the division: which court is approached, which court appoints, what substantive law applies, whether patent illegality is available, and whether the time limit for the award binds.

The consequences of the division, and the point that the test is the parties rather than the place

1. The Test

Section 2(1)(f), Arbitration and Conciliation Act, 1996

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 incorporated in any country other than India; or (iii) 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.

Two elements must both be present: a commercial relationship under Indian law, construed widely to cover the ordinary transactions of trade, and one party falling within one of the four sub-clauses.

⚠ An Indian-incorporated company stays Indian

The third sub-clause speaks of an association or body of individuals whose central management and control is exercised abroad. It does not apply to a company incorporated in India, because the second sub-clause deals separately with bodies corporate and makes incorporation the test. Two companies incorporated in India therefore arbitrate as a domestic arbitration however their shareholding or control is arranged, which matters because it determines the forum for appointment, the availability of patent illegality and the binding character of the time limit.

2. What Turns on the Division

Basis	Domestic arbitration	International commercial arbitration
Court under Section 2(1)(e)	The principal civil court of original jurisdiction in a district, including a High Court exercising ordinary original civil jurisdiction	The High Court alone
Appointment under Section 11	The High Court, or an arbitral institution designated by it	The Supreme Court, or an arbitral institution designated by it
Substantive law	Section 28(1)(a): the substantive law for the time being in force in India; the parties cannot choose a foreign law	Section 28(1)(b): the rules of law designated by the parties; failing designation, those the tribunal considers appropriate
Patent illegality	Available under Section 34(2A)	Expressly excluded by the proviso to Section 34(2A)
Time for the award	Section 29A(1): twelve months from completion of pleadings, extendable by six by consent	The tribunal is to endeavour to make the award within twelve months; the period is a direction, not a limit
Nationality of the tribunal	Not in issue	Section 11(9): a sole or third arbitrator of a nationality other than those of the parties may be appointed
Where the seat is abroad	Part I does not apply; the proviso to Section 2(2) preserves Sections 9, 27 and parts of Section 37	The same, and the award is enforced under Part II

3. The Division Is Not the Same as the Seat

Two divisions run through the Act and are easily confused. The first, made by Section 2(1)(f), turns on who the parties are. The second, made by Section 2(2), turns on where the arbitration is seated: Part I applies where the place of arbitration is in India, and an award made elsewhere is enforced under Part II. The two cut across each other, producing four combinations.

Two Indian parties, seat in India. A purely domestic arbitration; Part I applies in full, including patent illegality.
One foreign party, seat in India. An international commercial arbitration governed by Part I, with the differences in the table above; patent illegality is not available.
One foreign party, seat abroad. Part I does not apply save as the proviso to Section 2(2) preserves; the award is a foreign award enforced under Part II.
Two Indian parties, seat abroad. Permissible, following PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1; the award is a foreign award, and interim relief under Section 9 remains available because the expression international commercial arbitration in the proviso to Section 2(2) refers to an arbitration seated outside India and is not confined to Section 2(1)(f).

📖 PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1

Held: Two companies incorporated in India may designate a seat outside India. Party autonomy permits it, and Section 28(1)(a) governs the substantive law rather than the seat. The resulting award is a foreign award within Section 44, enforceable under Part II, and such parties may seek interim relief under Section 9.

Significance: The decision confirms that the two divisions are independent, and it is the authority to cite whenever a question mixes the identity of the parties with the place of the arbitration.

4. Why the Differences Exist

The differences are deliberate and follow a single policy: a foreign party choosing India should not face a wider scrutiny or a more rigid procedure than it would face at a competing seat. Patent illegality is denied in an international commercial arbitration because it is a ground with no counterpart in the UNCITRAL Model Law or in the New York Convention. The time limit is made a direction rather than a rule because a fixed period suits a domestic construction claim better than a complex cross-border reference. The forum is raised to the High Court and the Supreme Court because cross-border matters were thought to require that level. And the freedom to choose the substantive law is given because it is the ordinary expectation of international commerce, while a purely Indian transaction has no foreign element to justify it.

5. Related Topics and Provisions

Topic or provision	Connection
International Commercial Arbitration	The subject treated at length, with the institutions
Domestic ADR vs International ADR	Part I and Part II, and the enforcement of foreign awards
Seat and Venue Compared	The second division, made by Section 2(2) with Section 20
Rules Applicable to the Substance: Section 28	Choice of law and the exclusion of renvoi
Sections 2(1)(e), 11, 29A and 34(2A), A&C Act, 1996	The provisions in which the differences appear