ARBITRATION IN CHINA for Bangladeshi companies

by Barrister Tahmidur Rahman | Oct 9, 2023 | Uncategorized

How to approach ARBITRATION IN CHINA for Bangladeshi companies

In an increasingly interconnected global economy, Bangladeshi companies are expanding their horizons, engaging in international trade, and forming partnerships with entities from around the world. While these opportunities offer immense growth potential, they also bring about the possibility of disputes and disagreements. To address these challenges, Bangladeshi companies are turning to international arbitration, and one notable institution is gaining prominence – the China International Economic and Trade Arbitration Commission (CEITAC).

The Chinese legal framework has historically distinguished between local and international arbitration. However, the roles of domestic arbitration institutions in foreign-related disputes and foreign-related arbitration institutions in domestic conflicts have lately expanded.

Legal foundation

The People’s Republic of China (PRC) 1 Arbitration Law was issued on August 31, 1994, by the Standing Committee of the National People’s Congress of the PRC, and entered into force on September 1, 1995 (1994 PRC Arbitration Law). It was updated on September 1, 2017, and the new version went into effect on January 1, 2018 (PRC Arbitration Law).

In the People’s Republic of China, civil legal problems that are not resolved by pre-action consultations between the parties can be handled through litigation or arbitration. If the parties do not otherwise agree, the PRC People’s Courts will have jurisdiction over civil cases, according to article 6 of the PRC Civil Procedure Law of 1 July 2017 (PRC Civil Procedure Law).

For foreign parties and foreign-invested businesses (FIE) 2 in the PRC, arbitration is the preferred method of dispute settlement for the following reasons:

Proceedings in ordinary PRC People’s Courts can be dangerous, especially for foreign parties and FIEs. Judges may be inclined to follow the orders of PRC administrative organizations, which may or may not safeguard the interests of the local party;

While it is theoretically possible under PRC law to agree to submit a dispute to the jurisdiction of a foreign court, judgments from the PRC’s major western trading partner countries are still not recognised and not enforceable in the PRC due to a lack of reciprocity between the PRC and these countries;

The major arbitration institutions in the PRC provide online arbitration, which allows the parties to conduct their arbitrations online (the parties must expressly agree to use online arbitration procedures).

Unlike most PRC People’s Court processes, 4 arbitration is usually held in private unless the parties agree otherwise; and

Arbitration also provides parties with greater flexibility in terms of procedures and formalities, such as the adoption of proceedings in a foreign language, 5, whereas litigation in the PRC must be performed in Chinese.

Distinctions between domestic, foreign-related, foreign arbitration, and arbitration administered by foreign arbitration institutions based in the People’s Republic of China

There are important distinctions to be made between domestic arbitration, foreign-related arbitration, foreign arbitration, and arbitration administered by foreign arbitration institutions headquartered in the PRC. These notions evolved independently throughout time, and the PRC Arbitration Law, as mentioned in paragraph 3.1.1 below, maintains a distinction between how domestic arbitration and foreign-related arbitration are treated under PRC law.

Domestic conciliation

Domestic arbitration rules apply in all cases when there are no foreign interests 6 engaged in the dispute.

Arbitration involving foreign parties

Foreign-related arbitration rules apply in cases where there is a “foreign interest” in the dispute.

Although there is no definition of “foreign-related arbitration” in the PRC Arbitration legislation, the word “foreign interest” can be found in other sources of PRC legislation.

According to article 522 of the Supreme People’s Court (SPC) Interpretation on the Application of the Civil Procedure Law in effect since 4 February 2015 (CPL Interpretation) and article 1 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the People’s Republic of China Law on Foreign-Related Civil Relations:

(I) SPC Interpretation
(ii) in effect since 7 January 2013, a dispute involving a “foreign interest” with Foreigners, foreign entities, or foreign organisations make up one or both of the parties.
iii) One or both parties have their normal abode outside of the PRC’s borders;
iv) The legal conditions surrounding the establishment, modification, or termination of a contractual connection occurred in a foreign country;
v) the dispute’s subject matter is located in another country; or
vi) Other situations may lead to a case being classified as a foreign-related dispute.

FIEs are firms that are incorporated under PRC regulations and are completely or partially funded by foreign investors, including wholly foreign-owned enterprises (WFOEs) and Sino-foreign joint venture enterprises (JVs) that are PRC domestic entities. 8 Unless any of the circumstances listed in paragraph 1.2.4 apply, any arbitration between a FIE and a PRC company or two FIEs is considered domestic and governed by the provisions of the PRC Arbitration Law that apply to domestic arbitration rather than foreign-related arbitration. The fact that a FIE is backed by a foreign investor does not automatically turn the issue into one involving “foreign interest.”

Foreign Arbitration in China

Foreign arbitration rules apply where there is a dispute with a foreign interest that is administered by a foreign arbitration organization 9 or when an ad hoc arbitration takes place outside of the PRC.

According to Article 271 of the PRC Civil Procedure Law, foreign-related issues may be referred to a foreign arbitration organization for resolution. Arbitration clauses without a foreign interest in which a foreign arbitration was agreed by the parties have nearly always been treated as illegal by the court, including conflicts between a FIE and a domestic party, or between two FIEs, according to judicial experience. Traditionally, the fact that a FIE is sponsored by a foreign investor was insufficient to change the issue into one involving “foreign interest.”

The case Siemens International Trading (Shanghai) Co. v Shanghai Golden Landmark Co., Ltd, (2013) Hu Yi Zhong Min Ren (Wai Zhong) Zi No.2 established the first exception to this doctrine. In this instance, the parties, two WFOEs registered in the PRC, submitted their contractual disputes for arbitration to the Singapore International Arbitration Centre (SIAC), and the arbitral ruling was rendered in Singapore.

However, the contract’s delivery location and subject matter were both in the PRC. The contract lacked any of the openly specified foreign interests mentioned in paragraph 1.2.4.

Nonetheless, the foreign arbitral award was recognized and enforced by Shanghai Municipality’s No. 1 Intermediate People’s Court. The court stated that there was a “foreign interest” involved because both parties were WFOEs incorporated in a Shanghai free trade zone (FTZ). The court went on to say that because the FTZ’s goal was to facilitate foreign investment, this should be taken into account when determining whether a “foreign interest” existed.

With effect on December 30, 2016, the Supreme People’s Court’s Opinions on Providing Judicial Safeguard to the Construction of FTZs (SPC FTZ Opinions) confirmed the special handling of WFOEs in FTZs.

According to article 9 of the SPC FTZ Opinions, if WFOEs registered in the FTZs agree to refer commercial disputes between them to a foreign arbitration institution for arbitration, the arbitration clause will not be deemed invalid if the sole reason asserted is that the dispute does not involve a foreign interest. This means that as long as the dispute is between WFOEs located in one or more FTZs, it can be referred to international arbitration without requiring any extra foreign interest.

This principle, however, does not apply to JVs registered in FTZs, nor to WFOEs or JVs registered outside of FTZs.

Article 9 of the SPC FTZ Opinions further states that where one or both parties are FIEs (including WFOEs and JVs) registered in the FTZs and agree to submit commercial disputes to a foreign arbitration institution for arbitration, the arbitration clause shall not be invalidated and enforcement of the arbitral award shall not be denied after the relevant foreign arbitral award is made.

Alternatively, if the other party did not object to the validity of the arbitration clause during the arbitration proceedings, it is not permissible to claim that the arbitration clause is invalid after the relevant foreign arbitral award is made on the grounds that the dispute does not involve a foreign interest. It is important to note, however, that the arbitration clause can be disputed during the arbitration proceeding, i.e. before the foreign arbitral judgement is issued.

Arbitration administered by international arbitral institutes with a presence in the PRC

As mentioned in a paragraph above, foreign arbitration refers to arbitration conducted outside of the PRC by foreign arbitration institutions or ad hoc arbitration. Recently, there has been a tendency toward allowing foreign arbitration institutes to handle disputes on PRC territory.

Previously, an arbitration clause providing for foreign arbitration before a foreign arbitration institution to be held in the PRC was unlikely to be considered valid under PRC law. Recent case law, on the other hand, suggests that the PRC courts may be pro-arbitration.

Longlide Packaging Co. is an example of this. In Longlide Ltd v BP Agnati SRL SPC 2013 Min Ta Zi No.13 (Longlide Case), a dispute arose over the validity of an arbitration clause that provided for any contractual dispute to be arbitrated before the International Chamber of Commerce (ICC), with the seat of arbitration in Shanghai, PRC.

The validity of the arbitration clause was challenged on the grounds that the ICC was a foreign arbitration institution that was not recognized as an arbitration commission The SPC, on the other hand, ruled that the arbitration clause was lawful since all of the requirements of Article 16 of the PRC Arbitration Law were met. This approach was replicated in the case of BNB v BNA (2020) Shanghai 01 Civil Special 83 (BNB Case), in which the arbitration provision required any contractual disagreement to be brought to the SIAC for arbitration in Shanghai.

The arbitration clause’s legitimacy was contested on the basis that PRC legislation precluded a foreign arbitration institution from administering a PRC-seated arbitration. However, the No. 1 Intermediate People’s Court of Shanghai Municipality upheld the arbitration clause since there was no specific PRC statute prohibiting international arbitration organizations from running PRC-seated arbitrations. 15

ARBITRATION INSTITUTIONS’ ROLE

Ad hoc arbitration inside the People’s Republic of China:

Article 16 of the PRC Arbitration Law requires an arbitration agreement to include a designated arbitration institution that will administer the arbitration in order for it to be legitimate and enforceable. In any case, this obligation applies to PRC domestic arbitration.

This condition also applies to foreign-related PRC arbitration unless the arbitration clause is effectively governed by a foreign law. According to article 16 of the Supreme People’s Court Interpretation on Certain Issues Concerning the Applicability of the People’s Republic of China Arbitration Law of 23 August 2006, effective as of 8 September 2006 (Interpretation), which was revised on 16 December 2008 and took effect on the same day, the laws agreed upon by the parties shall apply to a court’s examination of the validity of an arbitration agreement involving a foreign interest.

As a result, for foreign-related arbitration in which the parties have either chosen PRC law as the governing law of the arbitration agreement or are silent on the governing law of the arbitration clause, the PRC Arbitration Law applies, including article 16 which bars ad hoc arbitration.

Article 16 of the PRC Arbitration Law applies only if the parties chose PRC law as the governing law for the arbitration clause in foreign arbitration, including ad hoc foreign arbitration performed outside of the PRC.

For arbitration administered by foreign arbitration institutions seated in the PRC, if the parties chose PRC law as the governing law for the arbitration clause or are silent on the governing law for the arbitration clause, 17 article 16 of the PRC Arbitration Law also applies, according to recent relevant case precedents. 18

In general, an arbitration agreement providing for ad hoc arbitration within the PRC will be considered invalid (for failing to meet the requirements of PRC Arbitration Law article 16) but will not prevent a PRC People’s Court from accepting jurisdiction to hear a dispute between the parties to it. As a result, ad hoc arbitration in the PRC is uncommon.

For firms incorporated in FTZs, the limitation on ad hoc arbitration within the PRC was lifted some years ago. According to Article 9 of the SPC FTZ Opinions, if enterprises in the FTZs agree to settle their disputes at a specified location within the PRC, according to certain arbitration rules, and by specified arbitrators (as is typical of ad hoc arbitration), the arbitration agreement can only be ruled invalid with the SPC’s approval.

Domestic arbitral tribunals (arbitration commissions)

It is widely accepted that the term “arbitration commission” in the PRC Arbitration Law refers to the more regularly used term “arbitration institution.” Commentators have concluded that the reference to a “arbitration commission” in article 10 of the PRC arbitral Law refers to an arbitration institution formed in the PRC.

Prior to the implementation of the PRC Arbitration Law in 1994, domestic arbitration organizations were not independent of government authorities.

The PRC Arbitration Law of 1994 sought to reform arbitration in the PRC, transforming it into a more commercial form of conflict settlement free of judicial and administrative intervention. As a result, the structure of domestic arbitration institutions was changed, and any domestic arbitration institutions that did not comply with the stipulations of the PRC Arbitration Law of 1994 were closed down.

Under the PRC Arbitration Law, domestic arbitration institutions may be established directly under the provincial governments of provinces and autonomous regions 20 and are organized at the provincial level by the local Chamber of Commerce. They may be developed in other municipalities with districts as well. 22 However, in contrast to prior laws that governed the construction of arbitration institutions, the PRC Arbitration Law clearly states that domestic arbitral institutions must be autonomous of administrative agencies. Domestic arbitral institutions and administrative authorities shall not have submissive relationships. 23

Since the 1994 PRC Arbitration Law went into effect, the PRC has established over 200 domestic arbitration institutions, including the Beijing Arbitration Commission, Shanghai Arbitration Commission, Guangzhou Arbitration Commission, Shenzhen Arbitration Commission, and Wuhan Arbitration Commission.

According to article 3 of the Notice of the General Office of the State Council on Several Issues That Need to Be Clarified in Order to Implement the People’s Republic of China Arbitration Law (issued in 1996), domestic arbitration institutions may also administer foreign-related disputes if the parties agree.

While the statute demands a rigorous legal separation between administrative authorities and domestic arbitration institutions, it should be highlighted that these legal safeguards are not always successful in practice. Domestic arbitration organizations are not all immune from court and administrative intervention. Local protectionism and political clout are typical issues. Parties that are concerned about these issues frequently choose to use a foreign arbitration institution (if available) or a respectable, foreign-related arbitration commission (such as CIETAC, which is mentioned more below at paragraph 2.3.4).

Foreign-affiliated arbitral institutions

Foreign-related arbitration organizations were established in the PRC to handle foreign-related disputes.

In contrast to the organizational structure of domestic arbitration institutions, the China International Chamber of Commerce is required under the PRC Arbitration Law to organize and develop foreign-related arbitration institutions.

There is a distinction between the ways in which domestic and foreign-related arbitration organizations run arbitral procedures in terms of who can be appointed as arbitrator by such institutions. Arbitrators may be appointed by foreign-related arbitration institutions from “among foreigners with special knowledge in the fields of law, economy and trade, science and technology, and so on.” Domestic arbitration institutions, on the other hand, must designate arbitrators who are “fair and honest” and meet at least one of the qualifications mentioned in article 13 of the PRC Arbitration Law. This indicates how a domestic arbitration organization has less flexibility and autonomy in some circumstances than a foreign-related arbitration institution.

The China International Economic and Trade Arbitration Commission (CIETAC), created in 1956 to resolve economic and trade disputes between a foreign entity and a PRC firm, is the most well-known foreign-related arbitration institution. CIETAC is also one of the world’s largest arbitration centers.

It is headquartered in Beijing, with Sub-Commissions in Shenzhen (also known as the South China Sub-Commission and founded in 1989), Shanghai (founded in 1990), Tianjin (founded in 2008), Chongqing (founded in 2008), Zhejiang (founded in 2015), Hubei (founded in 2015), Fujian (founded in 2017), Sichuan (founded in 2018), and Shandong (founded in 2018). CIETAC has founded the Hong Kong Arbitration Centre (in 2012), the Jiangsu Arbitration Centre in Nanjing (in 2017), the Silk Road Arbitration Centre in Xi’an (in 2018), and the Hainan Arbitration Centre (in 2020).

2.3.5 On August 4, 2012, the CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission announced their intention to become autonomous arbitration organizations.

On 22 October 2012, the CIETAC South China Sub-Commission was renamed the South China International Economic and Trade Arbitration Commission (SCIETAC) or the Shenzhen Court of International Arbitration (SCIA), which then merged with the Shenzhen Arbitration Commission (SAC) on 25 December 2017 to form the Shenzhen Court of International Arbitration (Shenzhen Arbitration Commission) (SCIA-SAC).

The Shanghai International Economic and Trade Arbitration Commission (SIETAC), formerly known as the Shanghai International Arbitration Centre (SHIAC), was renamed the Shanghai International Economic and Trade Arbitration Commission (SIETAC) on April 11, 2013. The withdrawal from CIETAC and name change by both sub-commissions, known as the “CIETAC Split,” generated uncertainty in arbitration agreements that referred to both sub-commissions as the administering institutions.

To address this, on 15 July 2015, the Supreme People’s Court issued the Official Reply of the Supreme People’s Court on the Request of the Shanghai High People’s Court and Others for Instructions on Cases Involving the Judicial Review of Arbitral Awards Made by China International Economic and Trade Arbitration Commission, Its Former Sub-Commissions, and Other Arbitration Institutions, a binding judicial interpretation that took effect on 17 July 2015 (SPC Reply).

The SPC Reply clarified that if the arbitration agreement naming CIETAC Shanghai Sub-Commission or CIETAC South China Sub-Commission as the arbitration institution was signed before the former CIETAC Shanghai Sub-Commission was renamed SHIAC, i.e. 11 April 2013, or before the former CIETAC South China Sub-Commission was renamed SCIA, i.e. 22 October 2012, SHIAC or SCIA should have jurisdiction.

If an arbitration agreement naming CIETAC Shanghai Sub-Commission or CIETAC South China Sub-Commission as the arbitral institution was signed after the former CIETAC Shanghai Sub-Commission was renamed SHIAC or the former CIETAC South China Sub-Commission was renamed SCIA, CIETAC should have jurisdiction.

Prior to the introduction of the PRC Arbitration Law in 1994, the only arbitration institutions in the PRC eligible to conduct foreign-related arbitration procedures were CIETAC and the China Maritime Arbitration Commission (CMAC). 28 These two arbitration organizations survived the modifications enacted by the PRC Arbitration Law in 1994 and continue to exist apart from domestic arbitration institutions.

Despite the fact that local arbitration institutions can now hear international cases, CIETAC maintains its leadership position in international arbitration by hearing a large number of cases. Furthermore, CIETAC and CMAC have expanded its range of competence to include both internal and international issues, if the parties so agree. 29 CIETAC arbitration is governed by the CIETAC Arbitration Rules. These guidelines have been changed multiple times over the years.

The most recent modification, which took effect on January 1, 2015, included additional amendments to modernize the CIETAC Arbitration Rules. The new guidelines apply to CIETAC Beijing arbitrations as well as those overseen by its various sub-commissions. The revised regulations also include unique provisions for CIETAC Hong Kong Arbitration Centre-administered arbitration hearings.

On September 19, 2017, CIETAC issued the China International Economic and Trade Arbitration Commission’s Arbitration Rules for International Investment Disputes (for Trial Implementation), which went into effect on October 1, 2017. This is the first set of arbitration rules developed by CIETAC for international investor-state investment disputes.

Due to the recent expansion of the roles of both domestic arbitration institutions (into foreign-related disputes) and foreign-related arbitration institutions (into domestic disputes), the traditional distinction between these two types of arbitration institutions has become significantly blurred. The increased competition between foreign-related and certain domestic arbitration institutions, which can be expected to result in an improvement in the quality of arbitration in the PRC, is a positive feature of this trend.

As a result of this development, the primary distinction between domestic and foreign-related arbitrations under the PRC Arbitration Law is now the nature of the underlying dispute, rather than the arbitration institution that is managing the arbitral procedures. This disparity is especially noticeable in the enforcement of awards.

Foreign arbitral tribunals

There is no legislative definition of “foreign arbitration institutions” in the People’s Republic of China. The term “foreign arbitration institution” is thus understood to refer to arbitration institutions based outside of the PRC, such as the ICC, Hong Kong International Arbitration Centre (HKIAC), SIAC, Stockholm Chamber of Commerce (SCC), Zurich Chamber of Commerce (ZHK), German Institution of Arbitration (DIS), London Court of International Arbitration (LCIA), and World Intellectual Property Organization (WIPO) Arbitration and Mediation Centre, among others.

Foreign arbitration organizations based in the PRC

Foreign arbitration institutions have traditionally been prohibited from operating in the PRC because article 10 of the PRC Arbitration Law requires the prior approval of the administrative department of justice of the relevant province, autonomous region, or municipality directly under the central government.

However, things have just begun to alter. The State Council of the People’s Republic of China issued the Framework Plan for the New Lingang Area of China (Shanghai) Pilot FTZ on July 27, 2019, allowing well-known overseas arbitration and dispute resolution institutions to establish business divisions in the Lingang FTZ in Shanghai to conduct arbitration in civil and commercial disputes arising in international commerce, maritime, investment, and other fields. The Measures for the Administration of the Establishment of Business Offices by Overseas Arbitration Institutions in Lingang New Area of China (Shanghai) Pilot FTZ, which went into effect on 1 January 2020, were announced on 19 October 2019.

They govern the establishment of overseas arbitration institutions in the Lingang New Area of China (Shanghai) Pilot FTZ, which refers to non-profit arbitration institutions legally established in foreign countries, the Hong Kong and Macao Special Administrative Regions, and the Taiwan Region of China, as well as arbitration institutions established by international organizations that the PRC has authorized to conduct arbitration business.

The Supreme People’s Court Opinions on Providing Judicial Services and Safeguards for the Construction of the Lingang Special Area of the China (Shanghai) Pilot FTZ by People’s Courts were published and became effective on December 13, 2019. They assist registered overseas arbitration organizations in handling civil and commercial disputes in international commercial, maritime, investment, and other domains in the Lingang Special Area. 33 Regulations on the Shanghai Court Services to Ensure the Implementation of the Lingang Special Area of China (Shanghai) Pilot FTZ were issued on December 30, 2019, and went into effect on the same day.

They provide assistance to international arbitration and conflict resolution institutes that have been legally registered and filed for business. 34 Several Policies for the Promotion and Development of the Legal Services Industry in the Lingang New Area of China (Shanghai) FTZ were published on May 19, 2020. They were amended on September 29, 2020, and became effective on October 1, 2020, valid through December 31, 2022. These policies apply to domestic or international legal service institutions with their registered office, actual place of business, and fiscal and tax account administration in Lingang New Area.

Aside from Shanghai, Beijing is also welcoming foreign arbitration institutes. The Work Plan for A Deepening Comprehensive Pilot and New Round of Opening-Up of Services Sectors in Beijing and Building a Comprehensive Demonstrative Area of Opening-Up of State Services Sectors was published by the State Council of China on September 7, 2020. According to this policy paper, foreign arbitration institutions will be permitted to establish business organizations in specific districts of Beijing to provide arbitration services in civil and commercial disputes originating in international commerce and investment.

On 20 October 2019, the Ministry of Justice formally approved WIPO’s Shanghai Centre for Arbitration and Mediation, which will be established and operational on 20 October 2020. This is China’s first overseas arbitration organization, and it will hear its first foreign-related intellectual property dispute in July 2020.

THE PRC ARBITRATION LAW’S SCOPE OF APPLICATION AND GENERAL PROVISIONS

Application Scope

3.1.1 The PRC Arbitration Law retains a “dual track system,” 37 which distinguishes between domestic and foreign-related arbitration, while in practice the distinction is blurring. 38 Special provisions for foreign-related arbitration are found in Chapter VII of the PRC Arbitration Law. Where topics arising from an arbitration are not expressly covered by Chapter VII, the remaining provisions of the PRC Arbitration Law apply to all arbitral procedures held in the PRC. 39 In practice, the arbitration rules of the relevant arbitration institution are more detailed and supplement the provisions on the arbitration procedure described in the PRC Arbitration Law (for example, the CIETAC Arbitration Rules, which are the most commonly used institutional arbitration rules for foreign-related disputes).

3.1.2 Foreign arbitrations and arbitrations administered within the PRC by foreign arbitration institutions are rule-based, with the controlling law chosen or the laws applicable at the seat of the arbitration and the arbitration institution’s rules as the foundation. 40
3.2 Overarching Principles
3.2.1 Although several sections reflect key concepts of modern international arbitration, such as procedural fairness and arbitrator independence, the PRC Arbitration Law is not based on the UNCITRAL Model Law (1985). 41 In contrast to the UNCITRAL Model Law (1985), the PRC Arbitration Law seeks to protect the “legitimate rights and interests of the parties and to ensure the healthy development of the socialist market economy.”

THE ARBITRATION CONTRACT

Formal prerequisites

Only if the parties to the dispute have agreed into a binding agreement to submit their dispute to arbitration can FIEs or domestic PRC parties avoid litigation before a PRC People’s Court. A legitimate arbitration clause in a contract or a separate, stand-alone arbitration agreement can be entered into before or after the dispute has arisen. If the parties have concluded a legitimate arbitration agreement in relation to the case in question, a PRC People’s Court must deny jurisdiction.

An arbitration clause in a contract, or a stand-alone arbitration agreement, must be in writing. 44 According to PRC legislation, “in writing” encompasses communication via letter, telegram, telex, fax, electronic data interchange, and email. 45 A reference to an arbitration clause in standard terms and conditions is adequate if the general terms and conditions have been properly incorporated into the contract.

When an arbitration clause in a contract differs from a supplemental agreement, the question of which clause will take precedence is determined by the facts of the case. The SPC held in the case of Hunan Huaxia Construction Co., Ltd. v. Changde School of Arts and Crafts [2015] Zhi Shen Zi No.33 that where a supplemental agreement is inseparable from the original agreement and lacks an arbitration clause or contains an arbitration clause that differs from that in the original agreement, the arbitration clause in the original agreement would prevail. However, if a supplemental agreement is independent of and distinct from the original agreement, even if it lacks an arbitration clause, the original agreement’s arbitration clause will not apply.

Article 16 of the PRC Arbitration Law Requirements

A valid arbitration agreement must include the following information:

• a declaration of desire to seek arbitration;
• the issues that have been assigned to arbitration; and
• an arbitral institution.

If the matters to be addressed in arbitration are not clearly stated in the arbitration agreement, and the parties do not clarify the position through a supplemental agreement, the arbitration agreement is deemed unlawful.

As stated in a paragraph above, ad hoc arbitrations are generally prohibited by the PRC Arbitration Law. In the PRC, there has long been debate about whether an arbitration agreement that only refers to the arbitration rules of a specific arbitration institution but does not expressly provide for administration by that institution constitutes a valid arbitration agreement.

The Interpretation provides guidance in situations where an arbitration agreement only contains arbitration rules without designating the administering arbitration institution, which could potentially invalidate the arbitration agreement under PRC Arbitration Law article 16

. The Interpretation specifically provides that where the name of an arbitration institution as stipulated in the arbitration agreement is not true but the specific arbitration institution can still be recognized, the arbitration institution is presumed to have been selected. 49 According to the Interpretation, an arbitration agreement is not void if the arbitral institution is explicitly identified by the arbitration rules contained in the arbitration agreement.

The Interpretation and its impact on possibly inadequate arbitration agreements suggest that the requirement that the parties specifically name an arbitration institution in their arbitration agreement may be relaxed under the PRC Arbitration Law. The Provisions of the Supreme People’s Court on Several Issues Concerning the Hearing of Cases Involving the Judicial Review of Arbitration of 26 December 2017, effective as of 1 January 2018 (SPC Provisions), also provide that where the arbitration institution or place of arbitration, though not explicitly specified in the arbitration agreement, could be determined under the applicable arbitration rules as specified in the arbitration agreement, the arbitration institution or place of arbitration shall be determined under the applicable arbitration rules as specified in the arbitration agreement. 51 Nonetheless, in order to establish the legitimacy of the arbitration agreement, parties should clearly select a competent arbitration institution to oversee the case in their arbitration agreement.

Despite the Interpretation, there is still a possibility that an arbitration clause that does not specifically name the arbitration institution may be invalidated in practice. The Shijiazhuang Intermediate People’s Court found the arbitration clause to be invalid in the case Automotive Gate FZCO v. Hebei Zhongxing Automobile Manufacturing Co., Ltd. (2011) Shi Min Li Cai Zi No. 00002 (FZCO Case) because the parties agreed in the arbitration agreement to apply the ICC arbitration rules and that the arbitration would be held in China, but did not agree on a specific arbitration institution, which did not satisfy the requirement.

Contractual Dispute Resolution

Contractual disputes and disagreements over property rights between citizens, legal persons, and other organizations are arbitrable under the PRC Arbitration Law. 52 FIEs can thus be parties to arbitral proceedings under the PRC Arbitration Law if they are lawfully incorporated as legal bodies. 53 In practice, most FIEs, such as Sino-foreign equity joint venture enterprises and WFOEs, are legally incorporated under PRC law.

According to the PRC Arbitration Law, the following conflicts are not arbitrable:

Disputes over marriage, adoption, guardianship, support, and succession; and
Administrative conflicts must be resolved by administrative organs under statutory laws. 54

Separation:

The validity of an arbitration clause contained in a contract is assessed separately from the validity of the contract itself. An arbitration agreement exists independently of the underlying contract and is unaffected by its change, revocation, termination, or invalidity.

In international arbitration practice, the arbitral tribunal normally determines the legitimacy of an arbitration agreement. However, the PRC Arbitration Law reserves this question for resolution by either the arbitration institution or the PRC People’s Court.

ARBITRAL TRIBUNAL COMPOSITION

Arbitral tribunal composition:

As agreed by the parties, an arbitral panel may consist of one or three arbitrators. 57 The PRC Arbitration Law makes no mention of what occurs if the parties cannot agree on the number of arbitrators. Depending on whether institutional arbitration rules apply, this question is treated differently.

If an arbitral tribunal consists of three arbitrators, both parties must choose one arbitrator or authorize the chair of the arbitration institution managing the arbitral proceedings to do so on their behalf. A third arbitrator will thereafter be chosen jointly by the parties or appointed by the chair of the arbitration institution in accordance with the parties’ joint mandate. The presiding arbitrator shall be the third arbitrator.

If the parties agree to a single arbitrator, that arbitrator shall be chosen jointly by the parties or nominated by the chair of the arbitration institution in line with the parties’ joint mandate. 59

If the parties are unable to reach an agreement on the method of formation of the arbitral tribunal or fail to select the arbitrators within the time limit specified in the applicable arbitration rules, the arbitrators will be appointed by the chair of the arbitration institution that is administering the arbitral proceedings. 60

Arbitral tribunal composition under the CIETAC Arbitration Rules

The arbitral panel shall be composed of one or three arbitrators under the CIETAC Arbitration Rules. Unless the parties agree otherwise, the arbitral tribunal will be composed of three arbitrators under the CIETAC Arbitration Rules.

The arbitral tribunal’s members are normally chosen by the parties from a panel of CIETAC arbitrators. As of 1 May 2017, the CIETAC panel of arbitrators included 1,449 arbitrators, including 434 non-PRC nationals from more than 40 countries. Non-PRC nationals can be appointed as arbitrators in foreign-related issues. 62 Parties may also appoint arbitrators who are not on CIETAC’s roster of arbitrators, but any such appointment must be confirmed by CIETAC’s chair.

In practice, the majority of arbitrators, including the arbitral tribunal’s chair, are normally PRC nationals. This is because CIETAC tends to designate PRC nationals as arbitrators when called upon to do so (for example, if CIETAC is serving as the appointing authority or if the parties cannot agree on an arbitrator).

Procedural Rules for Contesting and Replacing Arbitrators:

The parties may challenge an arbitrator in one of the following circumstances:

• The arbitrator is a party in the case, a close family of a party, or a representative of a party in the case;
• The arbitrator is involved in the case;
• The arbitrator has another contact with a party or a party’s agent in the case that may compromise the arbitrator’s impartiality; or
• The arbitrator has secretly met with a party or a representative of a party, or accepted an invitation to entertainment or a gift from a party or a representative of a party.
• A party shall submit its grounds for challenging the arbitration before the first hearing, or as soon as practicable if it becomes aware of a reason for challenging the arbitrator after the first hearing. If the reasons for the challenge became known after the start of the first hearing, an arbitrator’s challenge may be made before the conclusion of the arbitral tribunal’s final hearing.
• The chair of the arbitration institution will make the decision to remove an arbitrator, or if the head of the arbitration institution is also an arbitrator, the arbitration institution will make the decision jointly.

Following the removal of an arbitrator, a replacement arbitrator is appointed.

Following the appointment of a replacement arbitrator, a party may request that the arbitral tribunal hear the matter again. The arbitral panel will decide whether the arbitral proceedings should be continued or restarted. 68

Arbitration Request

Article 23 of the PRC Arbitration Law specifies the requirements for filing an arbitration request. The following information must be included in the arbitration request:

• the parties involved;
• the legal representatives of the parties;
• the registered addresses of the parties;
• the claimant’s arbitration claim, as well as the facts and reasoning supporting that claim; and
• Any evidence, the sources of evidence, and the names and addresses of any witnesses, if any.

The request for arbitration must include a copy of the arbitration agreement.

Fees for Arbitration

On July 28, 1995, the State Council promulgated the Arbitration Fee Collection Measures of the Arbitration Commission as part of the 1994 PRC Arbitration Law. As a general rule, the losing side must bear the arbitration fees under the Measures. 70 The arbitration expenses, according to the Measures, include case acceptance and case processing fees. The case management fees are used to cover the costs of paying the arbitrators’ fees and keeping the arbitration institution running.

The case handling fees include: (i) accommodation, transportation, and other reasonable expenses incurred by the arbitrators in handling the arbitration case due to business trips and hearing sessions; (ii) accommodation, transportation, and overtime subsidies for witnesses, expert witnesses, interpreters, and other personnel paid for appearing; (iii) expenses for consultation, appraisal, inspection, and translation; and (iv) expenses for consultation, appraisal, inspection, and translation. However, the arbitration rules of relevant foreign-related arbitration institutions have distinct fee schedules, which will apply if the parties choose such arbitration procedures. Section 8.4 discusses who is responsible for legal bills and other expenses.

ARBITRALTRIBUNAL JURISDICTION

6.1 Competence to make a decision on jurisdiction
6.1.1 The arbitration institution 71 is not the exclusive authority to determine the legitimacy of an arbitration agreement. 72 Either the arbitration institution or a PRC People’s Court can hear a request for a judgement on the legitimacy of an arbitration agreement. If one party requests a decision from the arbitration institution and the other party appeals to the PRC People’s Court for a judgement, the PRC People’s Court’s decision will take precedence. However, if a party fails to object to the validity of an arbitration agreement prior to the first oral hearing before the arbitral tribunal, or if an arbitration institution has made a decision on the validity of an arbitration agreement, the PRC People’s Court will not accept an application for a ruling on the same arbitration agreement’s validity. 73
The law that governs the arbitration agreement
6.2.1 The parties may pick the applicable legislation to the arbitration agreement and should do so explicitly, as this law may not be the same as that regulating the contract. According to the SPC Provisions, if the contract only specifies the law applicable to the contract and not the law applicable to determining the validity of a foreign-related arbitration agreement, the PRC People’s Court will not consider the law applicable to the contract when determining the validity of the arbitration provision. 74 In addition, the SPC Provisions take an arbitration-friendly approach: if the law of the place where the arbitration institution is located and the law of the place of arbitration have different laws and regulations on the validity of an arbitration agreement, the laws and regulations that find the arbitration agreement effective shall apply. 75

6.3 Authority to impose temporary measures

6.3.1 Either party may seek interim protective measures from a PRC arbitral tribunal. 76 However, neither the arbitral tribunal nor the arbitration institution in charge of the proceedings has the authority to mandate interim measures. Instead, it will refer the case to the PRC People’s Court, which has only competence to provide interim measures. Orders safeguarding property and evidence are among the interim protective measures available. 78 Since January 1, 2013, parties in civil litigation have been authorized to seek prohibitory and mandatory injunctions.

However, the PRC Arbitration Law is mute on the subject. As a result, it is unclear whether parties may seek an injunction in an arbitration proceeding. Since January 1, 2013, parties in civil litigation have been authorized to seek prohibitory and mandatory injunctions. The PRC Arbitration Law, on the other hand, is quiet on the subject. As a result, it is unclear whether parties may seek an injunction in an arbitral proceeding. 80

PROCEDURES CONDUCT

Arbitration commencement

Articles 24 and 25 of the PRC Arbitration Law contain certain procedural provisions on the initiation of arbitral proceedings, notably those requirements relating to the arbitration institution’s acceptance or refusal of the application for arbitration. After accepting an application for arbitration, an arbitration institution must notify the claimant within five days.

The arbitration institution must provide the claimant with a copy of the arbitration rules and the panel of arbitrators registered with the institution. It must also provide the respondent with a copy of the request for arbitration as well as information on the arbitration rules and the panel of arbitrators registered with the institution.

The respondent must submit a statement of defence and/or a counterclaim to the arbitration institution after receiving a copy of the application for arbitration. The claimant will then be served with a copy of the statement of defence and/or a counterclaim by the arbitration institution. The respondent’s failure to file a defense will have no effect on the progress of the arbitral proceedings.

A party may appoint either a PRC or a non-PRC national to act as its representative in the arbitral proceedings under the CIETAC Arbitration Rules. 84

Arbitration Language

The arbitral procedures shall be conducted in Chinese as a matter of principle under the CIETAC Arbitration Rules. The parties can, however, agree to have the arbitration proceedings in a foreign language. 85

Issues involving multiple parties

Under PRC law, for an arbitration agreement or arbitration clause to be effective, the parties must agree to it, and so only those parties who have expressly consented to send their dispute to arbitration will be bound by it. There are a few exceptions to this, which are detailed in the Interpretation, and they are as follows:

• In the event that two or more legal entities merge, the merged entity is bound by the arbitration agreements agreed into by its predecessor(s);
• If claims or obligations are transferred or assigned in whole or in part, the corresponding arbitration agreement will be binding on the transferee or assignee, unless the parties agree otherwise or the party is uninformed of the existence of a separate arbitration agreement; and
• If a party to an arbitration agreement dies, the arbitration agreement binds the beneficiary who succeeds to the deceased’s rights and obligations in arbitral cases.

Because there are no particular requirements in PRC law for a valid multi-party arbitration agreement, parties should adhere to the norms of the applicable arbitration institution selected to oversee their arbitral proceedings. To deal with many parties or contracts, article 19 of the most recent CIETAC Arbitration Rules, which became effective on January 1, 2015, gives CIETAC the authority to combine two or more arbitrations into a single arbitration if:

The arbitration claims are all made under the same arbitration agreement.

The claims in the arbitrations are brought under several identical or compatible arbitration agreements, and the arbitrations involve the same parties as well as legal relationships of the same type.
The claims in the arbitrations are brought under several similar or compatible arbitration agreements, and the multiple contracts involved include a principal contract and its ancillary contracts; or

All of the parties to the arbitrations have agreed to merge their proceedings. Furthermore, article 29 of the CIETAC Arbitration Rules includes a clause on multi-party tribunals, which states that when there are two or more claimants and/or respondents in an arbitration case, the claimant and/or respondent sides shall each jointly nominate or jointly entrust the chair of CIETAC to appoint one arbitrator following discussion.

Oral and written hearings and procedures

The PRC Arbitration Law also includes various procedural regulations pertaining to oral hearings and the awarding process. 89 In most cases, the arbitral tribunal will have an oral hearing to hear the arbitration; however, if the parties agree, the arbitral tribunal may conduct the arbitration solely on the basis of written submissions.

The arbitral panel conducts the oral proceedings, which are governed by the arbitration rules of the appointed arbitration institution. There is no guidance on whether the procedures should be conducted in a civil or common law format. Either is feasible, including the arbitration tribunal requesting evidence from both parties or gathering evidence itself. Expert witnesses may be requested by the arbitral tribunal or requested by the parties.

There will almost always be no common law discovery process. Both parties’ representatives may be permitted to make arguments and cross-examine the other party’s witnesses and experts. In the absence of an oral hearing, the arbitral ruling is based on the written submission, which includes the arbitration application, the defense statement, and other documents.

One of the parties defaults

If a claimant fails to appear before the arbitral tribunal for any reason, the arbitral tribunal may rule that the claimant has withdrawn the arbitration application. If a respondent fails to appear without reasonable cause, the tribunal may make a default award. If any party exits a hearing before it concludes, the same powers apply. 91

Maintaining Confidentiality

The arbitral tribunal shall not hold any public oral hearings. Except in cases involving state secrets, the arbitration may take place in public if the parties agree to it.

THE AWARDING AND THE END OF THE PROCEEDINGS:

Legal System Selection

Because the PRC Arbitration legislation is only a procedural legislation, it does not specify which substantive law should be applied to the dispute. This question is governed by the substantive law’s applicable rules and regulations

Contractual disagreements

Contractual disputes are governed by the law chosen by the parties, unless such a decision is prohibited. If the contract involves a foreign interest, the parties are free to agree on the controlling law, unless mandatory PRC law applies, according to the Law of the People’s Republic of China on the Application of Law in Foreign-related Civil Relations (Application Law). 94 There is no definition of a contract involving foreign interest in the PRC Civil Code.

The notion of a “dispute involving foreign interests” in article 1 of SPC Interpretation (I) 95 is typically applied in this context. In practice, this means that in most circumstances, a foreigner or foreign business must be a party to the contract in order for a foreign law to be permitted as the controlling law. In this sense, FIEs are not considered foreign parties 96, which means that a contract between a FIE and a PRC domestic company, or a contract between two FIEs, is normally subject to PRC law.

Mandatory PRC law states that some contractual transactions (and any disputes arising from such transactions) must be governed by PRC law, even if the contract involves a foreign interest, such as a foreigner or foreign entity. Contracts of this type include:

• agreements for Sino-foreign equity joint ventures;
• contracts for Sino-foreign joint ventures; and
• Contracts for Sino-foreign cooperation exploration and development of natural resources to be carried out on PRC territory.

In the absence of an agreed choice of law, the arbitral tribunal will adopt PRC law’s conflict of laws principles. In the absence of an agreed-upon ruling law, the legislation most closely associated with the foreign-related civil relationship shall rule. According to Articles 2 and 41 of the Application Law, if the parties did not choose the applicable law, the law of the habitual residence of the party who had the obligations to perform the part of the contract that most closely reflects the characteristics of the contract, or another law most closely associated with the contract, shall apply.

Non-contractual disagreements

In addition to contractual conflicts, some non-contractual issues, such as intellectual property infringement claims, can be arbitrated if both parties enter into a valid stand-alone arbitration agreement after the disagreement has arisen. The Application legislation specifies the legislation that applies to non-contractual issues. In a foreign-related civil relationship, the Application Law also confirms the parties’ ability to pick the applicable law. 99 However, the Application Law contains provisions requiring the application of a specific law, such as in the case of real estate property rights, negotiable instruments, and pledges.

Award timing, form, substance, and notification:

An award must state:

• the claim for arbitration;
• the realities of the conflict;
• the decision’s justifications;
• the award’s outcomes;
• the distribution of arbitral fees; and
• The date of the award.

If the parties agree that the facts of the dispute and the grounds for the decision should not be included in the award, such elements may be excluded. 104

Instead of requiring a unanimous vote of the arbitral tribunal, awards are decided by majority judgment of the arbitral tribunal. Dissenting arbitrators are permissible, but they are not required to sign the award. 106

During the arbitration, arbitral tribunals may make interim awards based on specific facts of the dispute that have become obvious. 107

According to the CIETAC Arbitration Rules, in foreign-related disputes, the award must be issued within six months of the day the arbitral panel was formed. The President of the Arbitration Court may extend this time limit at the request of the arbitral panel if he or she believes it is truly required and the reasons for the extension are justified.

Agreement:

• The arbitral tribunal may recognize settlement agreements reached between the parties by issuing an award containing the parameters of the settlement or issuing a written conciliation statement. 109
• The authority to award interest and fees
• In arbitral procedures, the losing party is normally responsible for the winning party’s reasonable legal fees. This is in contrast to litigation in the PRC, where, with the exception of some conflicts affecting the protection of intellectual property rights, the winning party is normally responsible for its own legal bills. In extraordinary circumstances, the arbitral tribunal may award the winning party additional and other reasonable expenses.

There may be interest awarded. The interest rate will be determined by the applicable law to the case. The arbitral tribunal has the authority to grant or deny interest on claims awarded to the winning party.

Closure of the proceedings:

• Arbitral procedures can be terminated by default or settlement, in addition to a final award.
• The Award’s Impact
• The award takes effect and becomes legally binding on the day it is made. 111
• Correcting, clarifying, and issuing an additional award
• If the award contains typographical or mathematical mistakes, or omits certain elements to be decided by the arbitral tribunal, the parties may request a rectification within 30 days of receiving the award. 112 If the award omits whole claims, the parties may request a supplementary award.

THE COURTS’ ROLE

Court of Appeal Jurisdiction:

The PRC People’s Court’s role in arbitration is to challenge and enforce awards, as described in section 10 below, and to issue interim measures, as described in section 9.3 below.

Stay of procedures and jurisdictional rulings:

If a party files a case in the PRC People’s Court after concluding an arbitration agreement, the PRC People’s Court will not accept the case unless the arbitration agreement is invalid. 113 In the event of a dispute over the validity of an arbitration agreement, either the PRC People’s Court or the arbitration institution shall rule; if one party requests the PRC People’s Court to rule and the other the arbitration institution, the PRC People’s Court shall rule.

Protective measures in the interim:

If a party requests temporary property preservation measures in an arbitration, the relevant arbitration institution is required to submit the application to the competent People’s Court in the location of the property. If a party seeks temporary measures of evidence preservation in a domestic arbitration, the relevant arbitration institution shall submit the application to the competent Basic People’s Court in the location of the property. 116 If a party seeks temporary measures of evidence preservation in a foreign-related arbitration, the appropriate arbitration institution shall submit the application to the competent Intermediate People’s Court in the location of the property.

According to Article 77 of the CIETAC Arbitration Rules, an arbitral tribunal may order its own interim measures at the request of a party. The arbitral tribunal may additionally request that security be provided in connection with the temporary measure.

Although article 77 of the CIETAC Arbitration Rules appears to allow parties to seek interim relief outside the PRC courts, there is a problem with enforcement. Because there is no legislation providing the legal basis for PRC courts to enforce interim remedies ordered by a CIETAC arbitral panel, such interim measures have limited practical utility.

Article 77 of the CIETAC Arbitration Rules is expected to apply limited to matters administered in Hong Kong within Greater China (i.e. the PRC and the Hong Kong Special Administrative Region). Article 45 of the Hong Kong Arbitration Ordinance (which has been in effect since 1 June 2011) provides that Hong Kong courts have both legal competence and jurisdiction to award interim measures to aid the course of an arbitral procedure.

CHALLENGING AND APPEALING AN AWARD IN COURT

Representations

It is not possible to appeal an award before an arbitral tribunal or the People’s Court of the People’s Republic of China.

Requests to Reserve an Award:

Domestic arbitration award.

While there is no right of appeal, awards given by an arbitral tribunal in the PRC relating to domestic disputes can be set aside by a competent Intermediate People’s Court under certain situations.

The appropriate Intermediate People’s Court will be the court in the location of the arbitration institution that oversaw the arbitral proceedings. 120 If one party seeks to enforce an award and the other seeks to have the award set aside, the competent People’s Court shall determine to delay the enforcement procedures until the application for setting aside the award is resolved.

A party may petition to the Intermediate People’s Court within six months after receiving a domestic award to have it set aside. When filing a motion to vacate a domestic award, a party must provide evidence that one of the following events has occurred:

• There is no arbitration agreement in place;
• the award’s decisions go beyond the limits of the arbitration agreement or the power of the arbitral institution;
• The creation of the arbitral tribunal or the arbitration proceedings violated statutory procedure;
• The evidence used to make the award was falsified;
• the other party has suppressed sufficient evidence to jeopardize the arbitrator’s impartiality; or
• The arbitrators committed embezzlement, accepted bribes, or issued an award that violated the law while arbitrating the case.
• Unlike foreign-related awards, a domestic award can be set aside after a thorough evaluation of the case’s merits. This could happen if critical evidence is discovered to be insufficient or if the application of the law is determined to be incorrect.

Foreign-related arbitration awards

For foreign-related awards, either party may file an application with the PRC People’s Court within six months of receiving the award. Article 274 of the PRC Civil Procedure Law specifies the grounds for setting aside.

According to article 274 of the PRC Civil Procedure Law, a foreign-related award will be set aside only if and only if the following conditions are met:

• The parties did not include an arbitration clause in their contract and did not afterwards enter into a written arbitration agreement.
• The party seeking to vacate the award was not required to appoint an arbitrator or participate in the arbitral processes, or the party was unable to express its opinions for reasons beyond its control.
• The formation of the arbitral tribunal or the arbitration proceedings did not follow the applicable arbitration rules; or
• The award’s decisions go beyond the limits of the arbitration agreement or the power of the arbitration institution.
• The award may also be set aside if the PRC People’s Court deems that carrying it out would be against public policy.

In an application to set aside a foreign-related award, the Intermediate People’s Court will only consider whether the necessary procedural criteria were met and will not re-examine the dispute’s merits.

AWARDS RECOGNITION AND ENFORCEMENT:

Domestic and foreign-related prizes given in the PRC:
Procedural difficulties that apply to both domestic and international awards

The PRC Arbitration Law expressly requires the parties to carry out the award. 127 If one party fails to do so, the other party may seek enforcement from the PRC People’s Court in accordance with the PRC Civil Procedure Law.

An application for the enforcement of domestic or foreign-related awards must be filed with the Intermediate People’s Courts within two years of the date on which the losing party was ordered to comply with the provisions of the award. 128 In addition to filing the enforcement application, the party requesting enforcement must produce the original award, arbitration agreement, and supporting documents. 129

To avoid contradictory decisions concerning the setting aside and non-enforcement of an award in the same case, where an application to set aside an award has been rejected by the competent court, 130 the enforcing court cannot refuse to enforce such award on the same ground(s) on which the earlier court rejected the application to set aside the award. 131

As discussed in paragraphs 2.3.7 and 2.3.8 above, domestic and foreign-related arbitration organizations may both render domestic and foreign-related awards if the parties agree. With the removal of the distinction between the jurisdiction of domestic and foreign-related arbitration institutions, the underlying nature of the dispute, rather than the identity of the arbitration institution administering the arbitral proceedings, is now the key consideration for the enforcement of an award in the PRC.

Domestic award enforcement

Domestic awards can only be rejected enforcement by the enforcing court if the provisions of article 63 of the PRC Arbitration Law (in conjunction with article 237 of the PRC Civil Procedure Law) are followed. The following are the grounds for withholding domestic awards:

• the parties failed to include an arbitration clause in their contract or failed to achieve a written agreement on arbitration;
• the issues decided in the award are beyond the boundaries of the arbitration agreement or the limits of authority of the arbitration institution;
• The creation of the arbitral tribunal or the arbitration procedure does not follow the statutory arbitration procedure;
• The evidence on which an award is based is contrived;
• The opposite party to the dispute hides critical evidence significant enough to undermine the impartiality of the arbitral institution’s finding; or
• One or more arbitrators acts corruptly, receives bribes or participates in malpractice for personal gain, or renders a law-breaking award.

In addition, a PRC People’s Court may refuse to enforce a domestic award if it considers that doing so would be detrimental to the PRC’s social and public interests. If the competent Intermediate People’s Court refuses to enforce the award, the matter must be submitted to the Higher People’s Court.

The final decision is made by the Higher People’s Court. However, if the parties are from different provinces, the Higher People’s Court must transmit its rejection to the Supreme People’s Court and issue a judgement based on the Supreme People’s Court’s opinions. 135 This means that from 2018, a reporting method similar to that for foreign-related and foreign awards 136 has been established for domestic awards, which shows the recent pro-arbitration tendency in the PRC legal system.

Enforcement of foreign-related awards

The grounds for rejecting execution of a foreign-related dispute award rendered by a PRC arbitral tribunal are the same as those for setting aside such an award (as set out in paragraph 10.2.5 above).

If a party seeks to enforce a legally binding foreign-related award and the party seeking enforcement or that party’s property is not located within the territory of the PRC, the party seeking enforcement must apply directly to a competent foreign court for recognition and enforcement of the award.

If the foreign-connected arbitral award is related to a case heard by a People’s Court, the People’s Court has jurisdiction. If the foreign-connected arbitration decision is related to a case resolved by a domestic arbitration institution, the Intermediate People’s Court at the location of the arbitration institution has jurisdiction.

If the competent Intermediate People’s Court declines to enforce the award, this must be reported to the Higher People’s Court, which must obtain approval from the PRC Supreme People’s Court if the award is to be declared unenforceable.

Foreign awards rendered outside the PRC

Where an award has been rendered outside the PRC either by a foreign arbitration institution or an arbitral tribunal that was established on an ad hoc basis outside the PRC and not voluntarily complied with, the party seeking to enforce that award in the PRC will need to apply to the competent PRC People’s Court for enforcement. The competent court for the enforcement of a foreign award is the Intermediate People’s Court at the place of the respondent’s domicile or where its property is located.

The Intermediate People’s Court shall handle the matter pursuant to the terms of any international treaties concluded or acceded to by the PRC, or in accordance with the principle of reciprocity.

An application for the enforcement of a foreign award must be accompanied by a certified copy of the award and arbitration agreement, with Chinese translations thereof that have been verified by a PRC embassy or consulate, or a notary in the PRC.

When a PRC People’s Court reviews a case on recognising and enforcing a foreign arbitral award by referring to the New York Convention, if the defending party to the application claims that the arbitration agreement is not valid, the court shall decide the validity in accordance with the relevant provisions of the New York Convention.

With effect from 22 April 1987, the PRC became a contracting state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards June 10, 1958 (New York Convention). However, in its Declaration of Accession, the PRC made a reciprocity reservation.

As a result, the PRC is only obligated to recognise and enforce awards made in the territory of another contracting state of the New York Convention. Foreign awards rendered by foreign arbitration instutitions within the territory of the PRC – for example, an arbitral award rendered by ICC in Shanghai – are not eligible for enforcement in the PRC pursuant to the New York Convention.

According to another reservation made by the PRC to the New York Convention, the PRC will only apply the New York Convention to disputes arising out of legal relationships, whether contractual or not, that are considered commercial under national PRC law. To date, this reservation has never been invoked in practice due to the broad interpretation of the term “commercial disputes” contained in the 1987 Circular of the Supreme People’s Court on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Entered by China.

Refusing enforcement of a foreign award

Apart from the above limitations on reciprocity and commerciality, the competent Intermediate People’s Court can only refuse the enforcement of a foreign award for the reasons provided in article V of the New York Convention (eg for serious procedural deficiencies or violations of public policy (ordre public) in the PRC). According to the Circular of the Supreme People’s Court on Issues in the People’s Courts’ Handling of Foreign-related Arbitrations and Foreign Arbitrations promulgated on 28 August 1995 (Circular), if the competent Intermediate People’s Court refuses to enforce a foreign award, this fact shall be reported to the Higher People’s Court. If the Higher People’s Court intends to also declare the award to be unenforceable, it must first seek the approval of the SPC.

The Circular was issued to prevent local courts from refusing the enforcement of foreign awards in order to protect the local party. Before 1995, some PRC People’s Courts had refused to acknowledge and enforce foreign awards. The probability of enforcing a foreign award against a PRC individual or a PRC entity was estimated to be approximately 50% during the 1990s, 147 but has since increased significantly. From 1994 to 2015, 67 out of 98 applications to enforce foreign arbitral awards were granted, resulting in a success rate of 68%. From 2005 to 2015, 78 applications were filed. 46 out of the 78 applications were filed between 2011 and 2015. 148

In 2018, a total of 25 cases were filed with the People’s Courts in relation to recognition and enforcement of foreign arbitral awards. Among these, 14 arbitral awards were recognised and enforced; one arbitral award was refused to be recognised and enforced; one application for recognition and enforcement of arbitral award was dismissed; eight applicants withdrew the application for recognition and enforcement of a foreign arbitral award; one application for recognition and enforcement of the arbitral award was transferred to another competent Court by the Court concerned.

As discussed in section 2.1 above, apart from the exceptions for FTZs, the PRC Arbitration Law does not recognise agreements to ad hoc arbitration. 149 However, the PRC Arbitration Law is silent on whether or not an award made in international ad hoc arbitral proceedings (seated outside of the PRC) is enforceable in the PRC

On 3 December 1999, the Beijing Higher Court issued an opinion stating that an ad hoc award is enforceable in the PRC under the New York Convention if the award has been issued in another contracting state to the New York Convention and the law of that state recognises ad hoc arbitration.

Article 16 of the Interpretation provides that the laws agreed upon between the parties shall apply when considering the validity of an arbitration agreement involving foreign interests. In the same vein, article 18 of the Application Law provides that parties may select, by agreement, the law applicable to their arbitration agreements. Accordingly, if the validity of the arbitration agreement is governed by foreign law, the PRC Arbitration Law will not apply when considering the validity of the arbitration agreement. The implication of this is that the restriction concerning ad hoc arbitration will also not apply.

Awards rendered by foreign arbitration institutions within the PRC

An arbitral award rendered by a foreign arbitration institution within the PRC was, in the past, very unlikely to be acknowledged and enforced in the PRC. However, on 22 April 2009, the Ningbo Intermediate People’s Court in Zhejiang Province upheld an ICC award by labelling it as non-domestic, despite the fact that the award was made in Beijing (Ningbo Case). In the Ningbo Case, the court rejected the respondent’s challenge to the validity of an award that had been rendered in favour of a Swiss claimant by an ICC arbitral tribunal seated in Beijing.

The main reason for the court reaching this decision was that the respondent had failed to object to the jurisdiction of the ICC arbitral tribunal prior to the first oral hearing in the arbitration. In effect, the PRC People’s Court upheld and enforced the award, despite the fact that it was issued by an ICC-administered arbitral tribunal seated within the PRC. Together with the Longlide Case and the BNB Case as discussed above in paragraph 1.2.12, it appears that the judiciary is becoming more liberal towards arbitral proceeding administered by a foreign arbitration institution in the PRC.

The court in the Ningbo Case reached its conclusion from a procedural point of view, ie due to the respondent’s failure to challenge jurisdiction at the appropriate stage of the arbitral proceedings, rather than providing substantive reasoning to confirm that an award rendered by a foreign arbitral tribunal within the PRC should be upheld and enforced by a competent PRC People’s Court.

It is still too early to conclude whether the decisions of the Ningbo Case, the Longlide Case and the BNB Case signal a change that an award that has been made by a foreign arbitration institution within the PRC will be recognised and enforced in the PRC. It is important to note that although the Longlide Case confirmed the validity of a foreign arbitration institution administering an arbitration that has its seat in the PRC, it was silent on the question of whether a resulting award can be validly enforced.

Further laws and regulations on the enforcement of awards rendered in China by foreign arbitration institutions have to be awaited. Until then, it is still advisable to stipulate in an arbitration agreement that arbitral proceedings that are to be administered by a foreign arbitration institution shall be held outside the PRC.

Enforcement of an award made by the International Centre for Settlement of Investment Disputes

The PRC has been a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention) since 1993. 150 The Washington Convention created the International Centre for Settlement of Investment Disputes (ICSID). According to

Artcile 54 (1) of the ICSID Convention, Regulations And Rules (ICSID Convention), “each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.”

Article 54 (3) of the ICSID Convention further provides that enforcement of the ICSID award “shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought”. However, the PRC law does not provide specified rules of implementation on how to enforce an ICSID award. Therefore, it is currently unclear whether the PRC People’s Courts will enforce such awards in practice.

A Case for Bangladeshi Companies

Let’s consider a hypothetical scenario to illustrate the relevance of CEITAC arbitration for Bangladeshi companies:

Imagine a Bangladeshi textile manufacturer entering into a significant international supply contract with a Chinese textile machinery supplier. Despite careful negotiations and a detailed contract, a dispute arises over the quality and performance of the machinery. Both parties are at an impasse, and litigation in their respective countries seems time-consuming and uncertain.

In this scenario, the Bangladeshi textile manufacturer could initiate CEITAC arbitration. The case would be resolved efficiently, with proceedings conducted in English for clarity. The arbitral award would provide a final and enforceable resolution to the dispute, allowing both parties to move forward with their business activities.

Corporate legal service in Bangladesh

by Barrister Tahmidur Rahman | Oct 8, 2023 | Uncategorized

Corporate legal service in Bangladesh and Commercial Contracts:

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Recognizing the diverse needs of clients, TRW’s legal experts specialize in 12 sectors, spanning from financial services to energy and resources and healthcare. This specialization ensures that clients receive tailored advice and solutions that align with the intricacies of their industry.

Comprehensive Legal Support

In addition to their corporate and commercial expertise, TRW Law Firm is supported by partners in finance, capital markets, litigation, tax, pensions, employment, and real estate practices. This broad spectrum of legal services enables TRW to provide holistic support for clients’ diverse needs.

In the intricate world of corporate and commercial law, TRW Law Firm stands as a beacon of expertise and integrity. Their ability to combine global reach with local insight, coupled with their unwavering commitment to client success, has earned them a place of distinction in the legal landscape of Bangladesh. Whether you are a multinational corporation or a local business, TRW Law Firm’s corporate advice and commercial contract expertise can help you navigate the legal complexities of commerce and achieve your strategic goals with confidence.

GLOBAL OFFICES:
DHAKA: House 410, ROAD 29, Mohakhali DOHS
DUBAI: Rolex Building, L-12 Sheikh Zayed Road
LONDON: 1156, St Giles Avenue, Dagenham

 Email Addresses:
[email protected]
[email protected]
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24/7 Contact Numbers, Even During Holidays:
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Process of Share Certificate Cancellation

by Barrister Tahmidur Rahman | Oct 4, 2023 | Uncategorized

The Process of Share Certificate Cancellation in a Private Limited Company in Bangladesh

In Bangladesh, private limited companies are governed by the Companies Act of 1994, which outlines the legal procedures and requirements for various corporate activities, including share transfers and cancellations. A share certificate is a vital document issued by a company to its shareholders, serving as proof of ownership in the company. However, there may be instances when a share certificate needs to be canceled. This article will guide you through the process of share certificate cancellation in a private limited company in Bangladesh.

I. Understanding Share Certificates

Before delving into the process of cancellation, let’s clarify what a share certificate is and its significance in a private limited company.

Share Certificate Overview:

As per Section 39 of the Companies Act 1994, a share certificate is a document issued by a company to its shareholders. It certifies the ownership of shares in the company. When a shareholder holds a share certificate, it signifies their legal entitlement to the shares mentioned on the certificate.

Key Points About Share Certificates:

1. Representation: When a company certifies an instrument of transfer of shares or debentures, it implies to any concerned party that the presented documents are genuine and accurate.
2. Presumption: If the words “certificate lodged” or similar phrases appear on a transfer document, it is presumed that the shares have been certificated.
3. Certification Authority: The certification of an instrument of transfer is considered valid when issued and signed by an authorized individual with proper authenticity.

II. Reasons for Share Certificate Cancellation

There are various reasons why a private limited company in Bangladesh may need to cancel a share certificate. Some common scenarios include:

1. Transfer of Ownership: When a shareholder transfers their shares to another party, the existing share certificate must be canceled to issue a new one in the new shareholder’s name.
2. Lost or Stolen Certificate: If a share certificate is lost, stolen, or destroyed, the company may need to cancel it and issue a duplicate certificate to the shareholder.
3. Changes in Shareholding: Corporate actions such as mergers, acquisitions, or buybacks can lead to changes in shareholding structure, necessitating the cancellation of old certificates and issuance of new ones.

III. Steps for Share Certificate Cancellation

The process of share certificate cancellation in a private limited company in Bangladesh involves several key steps:

1. Verify the Request:

• Ensure that the request for share certificate cancellation is legitimate and complies with the company’s policies and applicable laws.

1. Board Resolution:

• The company’s board of directors must pass a resolution authorizing the cancellation of the share certificate(s). This resolution should clearly state the reason for cancellation.

1. Notification to Shareholder:

• Notify the shareholder(s) in writing about the impending cancellation, specifying the reasons and the timeline for the cancellation process.

1. Return of Original Certificate:

• Request the shareholder to return the original share certificate to the company.

1. Cancellation of Certificate:

• Once the original certificate is returned, cancel it by marking it as “canceled” or “void” and duly signing it. The canceled certificate should be retained by the company for record-keeping.

1. Issue a New Certificate:

• If applicable, issue a new share certificate in the name of the new shareholder or to replace the lost or stolen certificate. Ensure that this new certificate complies with legal requirements.

1. Update Register of Members:

• Update the company’s register of members with the changes in share ownership, including the issuance of a new certificate or cancellation of the old one.

IV. Maintaining Shareholder Records

Private limited companies in Bangladesh must maintain accurate records of their shareholders. The share certificate serves as an important part of this record-keeping process. The company’s register of members should include:

a. The name and addresses of each member.
b. A statement of the shares owned by each member, specifying each share by its number and the amount paid or agreed to be considered paid on each share.
c. The date when a person was entered in the register as a member.
d. The date when any person ceased to be a member.
e. The folio number of the register book.

The cancellation of a share certificate in a private limited company in Bangladesh is a structured process that involves legal compliance, clear communication with shareholders, and meticulous record-keeping. Share certificates play a crucial role in establishing ownership in the company, and their cancellation should be carried out in accordance with the Companies Act 1994 and the company’s internal policies. By following the outlined steps, companies can ensure the accuracy and transparency of their shareholder records while complying with legal requirements.

Do you need help with issuing, transferring, and cancelling shares of a private limited company in Bangladesh?

Company formation and registration at Tahmidur Rahman Remura Wahid TRW:

The legal team of Tahmidur Rahman, The Law Firm in Bangladesh TRW are highly experienced in providing all kinds of services related to forming and registering a Private Limited Company, Branch office Registration, Share Transfer Process in Bangladesh . For queries or legal assistance, please reach us at:

E-mail: [email protected]
Phone: +8801847220062 or +8801779127165

Address: House 410, Road 29, Mohakhali DOHS, Dhaka 1212

Provident fund laws and Difference Between a Provident Fund and a Pension Fund in Bangladesh

by Barrister Tahmidur Rahman | Sep 30, 2023 | Uncategorized

Provident Fund Laws: What Is the Difference Between a Provident Fund and a Pension Fund?

Key Differences between Pension and Provident Fund in Bangladesh:

1. Eligibility: Pension funds are typically available to government employees, whereas provident funds are accessible to both government and private sector employees.
2. Contributions: Pension funds involve mandatory contributions from both employees and employers, while provident funds are funded primarily by employees.
3. Purpose: Pension funds aim to provide a regular income stream post-retirement, while provident funds are designed for lump sum withdrawals or specific financial goals upon retirement.
4. Withdrawal: Pension funds generally allow withdrawals only after retirement, with exceptions for financial emergencies. Provident funds permit partial withdrawals for specific purposes.
5. Tax Benefits: Both types of funds offer tax benefits, but the specific tax treatment depends on the fund type and Bangladesh’s tax regulations.
6. Investment: Pension funds often invest in fixed income securities like bonds, while provident funds may have a broader range of investment options, including equities.
7. Management: Pension funds are typically managed by professional fund managers, whereas provident funds in Bangladesh might be overseen by organizations like the Employees’ Provident Fund (EPF).

Bangladesh Provident Fund Laws and Audit

To comprehend the provident fund, Laws and audit procedures in Bangladesh require us to first define “Provident Fund.” A provident fund is a fund through which a corporation pays employees when they leave their place of employment.

To put it another way, all employment lawyers in Bangladesh work under the definition that a provident fund is a type of fund in which employees of a company contribute a certain percentage of their basic salary every month in order to receive retirement benefits when they leave their employment.

We have produced this guide based on our experience accumulated over numerous years of providing employment legal services in Bangladesh.

It will provide an understanding of the provident fund legislation in Bangladesh and then outline the procedure of the provident fund audit in Bangladesh in brief.

According to Bangladesh’s provident fund laws, which can be understood by reading the Labour Act 2006 in conjunction with the Labour Rules 2015, employers are required to contribute a matching amount to the fund in addition to what employees contribute. The provident fund, on the other hand, should not be confused with the pension fund.

Employees of private enterprises profit greatly from provident funds in the absence of a pension fund program. It serves as a safeguard for their future. The Labour Act of 2006 governs Bangladesh’s provident fund legislation and procedures for setting them. The formation of a provident fund in the private sector is outlined in Section 264 of the Labour Act of 2006.

According to Bangladeshi provident fund laws, a Board of Trustees must be constituted by a corporation that will administer the provident fund. A Board of Trustees must include an equal number of employer and employee representatives, according to the law (section 264(5) of the Labour Act).

Step 1: Ensure Legal Compliance

An employee’s work must be permanent at his company in order to contribute to the provident fund and profit from it. This is due to the fact that a temporary employee is not covered by this program.

According to section 264 (9) of the Labour Act 2006, every permanent employee who has completed one year of service in the establishment must contribute to the fund every month in an amount that is not less than 7% and not more than 8% of his monthly basic income.

Employers are also required by law to pay an equal amount. Although companies may establish their own standards for keeping such a fund, they must not be more detrimental to employees than the legislative parameters that are supplied.

Furthermore, the Labour Act of 2006 requires the establishment of a provident fund for tea plantation workers as well as newspaper staff.

Step 2: Comply with the Provident Funds Act.

According to section 17 of the Labour Act 2006, a provident fund established under the Labour Act 2006 is assumed to be a government established for the purposes of the Provident Funds Act, 1925 (Act No. XIX of 1925).

Step 3: Annual Audit of Bangladesh’s Provident Fund

Every year, an audit of the provident fund is required. Auditing provident funds benefits both employers and employees. The accounts of revenue and expenditure of the provident fund must be audited every year, according to section 14 of the Labour Act 2006.

Step 4: Staying Current Company Financial Audit Every Year

A financial audit is a crucial feature for a firm for a variety of reasons. For example, it assists a firm in achieving its goals, preventing and detecting fraud, increasing the value and goodwill of the business, maintaining consistency, and so on. An audit of a provident fund extensively examines various critical aspects, including contributions made to the fund and the requirements, income generated by the fund, any payment or reimbursement from the fund, and so on.

Step 5: Keep your tax documents up to date.

If a company’s provident fund is recognized by the NBR (National Board of Revenue), both the employee and the employer are excluded from income tax on the fund amount.

What makes us the finest Provident Fund Audit and Legal Services provider in Bangladesh?

TAHMIDUR RAHMAN REMURA WAHID Associates offers an excellent financial legal service wing comprising of Certified Chartered Accountants of Bangladesh and an experienced audit team.

We have a lengthy history of delivering audit and assurance services (including Fund Audit) to our clients. We have built a solid name among our clients over the years by providing audit services carefully and professionally. Our team quickly distinguishes itself from others in terms of audit, documentation, reporting, objectivity, and other talents.

Our audit & assurance team provides internal audit, external audit in collaboration with our audit partners, performance audit, fund audit, and other services. During the audit, our team ensures that all numbers in the statement are correctly computed and transparent, as requested by the Client. Furthermore, our professionals assure compliance with existing internal control processes as well as Accounting Standards around the world by reviewing records and company practices.

A pension plan is a type of retirement plan in which a company and/or employees contribute to a pool of assets set aside for the workers’ future benefit. The funds are invested on behalf of the employees, and the proceeds from the investments assist pay the workers’ retirement lives. A pension fund, unlike a provident fund, is often managed by an employer rather than the government.

Individual participants in some pension funds may be able to choose their investments and contribution amounts, although most provident funds have mandatory contributions and centrally managed investments. Some provident fund accounts, unlike Social Security, are held in individual names rather than being pooled into a single trust fund account.

Members of a pension fund can collect as much of their benefits as they like in a lump sum when they retire, though monthly installments are more typical.

In some ways, the benefits of a pension fund are similar to an annuity, whereas the benefits of a provident fund provide significantly more payment flexibility. The other significant distinction is that all provident fund contributions are mandatory.

How to pass a law in Bangladesh – Process of Drafting and Enacting laws in Bangladesh

by Barrister Tahmidur Rahman | Sep 30, 2023 | Uncategorized

How to pass a law in Bangladesh:

Article 65 of the Bangladesh Constitution grants the Parliament of the Republic the authority to establish both primary and secondary laws.

The main principles to be followed are laid out in Articles 80 and 82 of the Constitution. Article 26 of the Constitution adds that all existing legislation that are inconsistent with fundamental rights protected by the Constitution are void to the extent of such contradiction. Furthermore, Bangladesh is banned from enacting laws that are inconsistent with any of the sections of the Constitution protecting basic rights, and any such law shall be declared void to the degree of the inconsistency.

Article 7 of the Constitution declares the Constitution to be the ultimate law of the Republic, saying unequivocally that if any other legislation is inconsistent with the Constitution, that other law shall be void to the extent of the inconsistency.

Parliament is the exclusive source of statutory law. The executive proposes, prepares, and processes the majority of the law. The Cabinet is the true executive power, but in a parliamentary system of government, such as that found in Bangladesh, the Cabinet is also an integral element of the Parliament.

Except in a rare cases, all Cabinet ministers are members of Parliament and must answer to Parliament. Cabinet recommends a legislative initiative and arranges for a bill to be drafted by the Ministry of Law, Justice, and Parliamentary Affairs’ professional drafters. Cabinet then endorses the bill as a government bill ready for enactment.

The draft bill is presented to Parliament in order to establish new basic law. Parliament votes on the formal acceptance of a measure after deliberation and possible modifications. When a majority of the members present vote in favor of it, it is passed by Parliament. The bill is subsequently presented to the president for his signature.

Ordinary bills, money bills, and spending bills are the three types of legislative bills. Ordinary bills do not require the president’s prior approval before being introduced in Parliament. Money bills and measures involving public expenditure require the president’s prior approval before being tabled in Parliament. However, the president has no authority or discretion to refuse to approve the introduction of such laws into Parliament if recommended to do so by the prime minister. In actuality, it is the government’s recommendation, and the president’s involvement is essentially a mechanical formality.

Bangladesh’s legislative system is governed by the Rules of system of Parliament. They were first adopted on July 22, 1974. On February 5, 1992, a revised version of the Rules was published after various revisions. The Rules were revised further, and the alterations were approved by Parliament on June 10, 1997. The current Rules include all revisions made since October 1, 1997. The Rules’ Chapter XIII provides additional direction on the legislative process.

Policy formulation, drafting, and approval by the Cabinet:

Although Bangla is Bangladesh’s official state language, English was the primary language of legislative drafting until 1987.8 Legislation amending pre-1987 legislation is drafted in both English and Bangla, but modifications to the English text are made in English. Other modifying legislation and new laws are being drafted in Bangla. Bills and other government documents are frequently made available in both Bangla and English.

There are English language translations of laws produced in Bangla, and a bilingual system is recognized as a means of creating and structuring laws. As with the Constitution, if there is a discrepancy between the two language versions, the official Bangla version takes precedence.

Many laws that were created and passed in English must yet be translated into Bangla. The Ministry of Law, Justice, and Parliamentary Affairs is responsible for interpreting these legislation, and translation officers are stationed at the Ministry. However, extra personnel are needed to accomplish the work of fully translating all legislation into Bangla.

Unlike in Canada and the United Kingdom, where the government’s legislative agenda is planned far in advance of the opening session of Parliament where legislative proposals are to be tabled, there is no central preparation for legislative ideas in Bangladesh. There is no legislative calendar, and there is no coordination among the many ministries that want to introduce new measures. Bills are only authorized individually by Cabinet, and there is no procedure in place to decide general priorities. Bills are introduced on an as-needed basis, with the administrative/sponsoring ministry in charge commencing the process.

According to Article 55(6) of the Constitution, the president determines rules for the allocation and transaction of government business. Several guiding documents are used in this regard. The Rules of Business, 1996 (updated up to August 2000), and the Allocation of Business Among the Different Ministries and Divisions (Schedule I to the Rules of Business, 1996) are two examples. Specific topic areas are allocated to the relevant ministries and divisions based on relevance under the Allocation of Business Among the Different Ministries and Divisions. Civil law and criminal process, for example, are assigned to the Ministry of Law, Justice, and Parliamentary Affairs, which is designated as the administrative ministry for these (and many other) matters.

Secretariat Instructions

Another document is the Secretariat Instructions, 1976 (Secretariat Instructions). This paper dates back to 1899, when Lord Curzon was the governor general of British India. Following the establishment of an independent Bangladesh in 1971, efforts were made to create new Secretariat Instructions. The Secretariat Instructions were completed in 1976, and a Bangla version was issued two years later.13 The Secretariat Instructions are made in accordance with Rule 4(10) of the Rules of Business, 1975.

The major goal of the Secretariat Instructions is to promote consistency and efficiency in the implementation of administrative policies and procedures. The secretary, who is the senior civil servant within each ministry or division, is in charge of ensuring that the Instructions are followed. The Cabinet Division is in charge of preparing and maintaining the Secretariat Instructions.

Both the Rules of Business, 1996, and the Allocation of Business Among the Different Ministries and Divisions are supplemented by Secretariat Instructions. All government business must be performed in conformity with the Rules of Business, 1996, as well as the Secretariat Instructions.

In Bangladesh, the same ministry prepares both the policy behind a legislative proposal and the basic draft bill outline. According to the Secretariat Instructions, a ministry or division is responsible for the creation of government policies within its authority, as well as their execution and review.

The Rules of Business of 1996, as well as the Secretariat Instructions, require that every legislative proposal be begun at the administrative ministry to which the law or subject matter is allocated. Policy papers are typically prepared by senior government officials such as joint secretaries.

A preliminary bill is normally drafted by ministry experts or, in some cases, outside lawyers. After the law is prepared, inter-ministerial consultations are usually held, and legislative drafters from the Ministries of Law, Justice, and Parliamentary Affairs are invited to attend these sessions to make comments and ideas on the draft bill.

Thus, drafters play an important role in policy formulation early in the process. Nonetheless, widespread public consultation is not the norm.

Cases involving legislation

Cases involving legislation, including the promulgation of ordinances, are to be brought before Cabinet for consideration under Rule 16(i) of the Rules of Business, 1996.16 Furthermore, under Rule 4(ii) of the Rules of Business, 1996, no important policy decision shall be taken without Cabinet approval. As a result, the administrative ministry will begin the legislative process by drafting a summary for the Cabinet. The format of the report is prescribed in Rule 19 of the Rules of Business, 1996.

The secretary of the appropriate ministry sends to the Cabinet secretary a succinct and unambiguous memorandum outlining the background and important data, the topics for debate, and the sponsoring minister’s suggestions. The summary should be as self-contained as practicable, with appendices containing any essential papers required for appropriate identification of the case.

The Cabinet Division will specify the quantity of copies of the summary to be sent for Cabinet consideration. In the case of proposals involving expenditure or revenue reduction, the Finance Division’s opinion must also be solicited and reported in the summary. When a matter affects more than one ministry or division, the summary must include all ministries’ recommendations. For a summary to be placed on the agenda of a Cabinet meeting, at least four clear days are generally required. In general, no issue will be discussed unless a summary of it has been distributed.

The summary

The summary, which typically runs one to three pages, is absolutely confidential. The summary is usually accompanied by the preliminary draft bill. The draft bill makes the Cabinet summary easier to understand.
In both Canada and the United Kingdom, the proposal is first considered by a Cabinet committee. This committee is not a permanent entity and usually consists of four ministers.

Depending on the nature of the topic under consideration, various committees are formed. If the committee approves the plan, it will submit a report for full Cabinet consideration. If the idea is approved by the entire Cabinet, this stage is deemed Cabinet policy approval. All Cabinet meetings where proposed legislation is discussed require the law secretary to attend.

Approval of the proposal

Following proposal approval, the Cabinet secretary prepares a brief record of the discussions and records the decision made. This file is subsequently sent to the prime minister for final approval, and once approved, it is distributed to Cabinet ministers. Relevant decision extracts are provided to the sponsoring minister and ministerial secretary for action. At this point, the administrative/sponsoring ministry, also known as the ministry-in-charge, is authorized to proceed with the preparation of a final draft bill for Cabinet consideration.

The Ministry of Law, Justice, and Parliamentary Affairs must be consulted on all legislative initiatives, according to Rule 14(1)(i) of the Rules of Business, 1996. Furthermore, the Ministry of Law, Justice, and Parliamentary Affairs’ business includes the drafting, scrutiny, and examination of bills, ordinances, and other statutory orders, rules, regulations, by-laws, resolutions, and notifications, according to section 30, paragraph 2 of the Allocation of Business Among the Different Ministries and Divisions.

After the Cabinet approves an initial legislative proposal, the administrative/sponsoring ministry will forward the file to the Ministry of Law, Justice, and Parliamentary Affairs for drafting a draft bill or vetting a preliminary draft bill that has already been prepared and approved in principle by the Cabinet. For this reason, the Ministry of Law, Justice, and Parliamentary Affairs has a Legislative Drafting Wing (the Drafting Wing).

It was estimated in 2004 that the Drafting Wing develops roughly. 50 new legislation and 20-30 amending bills each year. It also drafts around 1000 subordinate legislative instruments per year, in addition to 3000 notices and other orders. Nonetheless, it is anticipated that the Ministry drafts bills with no preliminary version of the text already created by the ministry-in-charge in just around 10% of all situations.

Referring to the Drafting Wing

No legislative bill will ordinarily be referred to the Drafting Wing, nor will the Drafting Wing undertake the preparation of a bill, unless Cabinet has approved the proposal.

Every file remitted to the Drafting Wing for the preparation of a legislative proposal will be accompanied by all background papers associated with the proposal, particularly the summary to the Cabinet. A separate memorandum of instructions should indicate with sufficient precision the contours of the proposal as approved by Cabinet and set out clearly in the form of a series of propositions all matters of substance that are to be included in the draft legislation.

Because the ministry-in-charge develops the preliminary draft of the bill in the majority of cases, it does not prepare drafting instructions for the Drafting Wing.

Employing Jurists

Administrative/sponsoring ministries do not often have legal services sections, however some may employ one or two jurists. As a result, the drafters are frequently the first jurists to read the measure, and they are expected to raise all legal difficulties raised by it. When the Drafting Wing receives a legislative proposal, it examines the file to ensure that it does not contain any measures that are in violation of the Constitution or inconsistent with fundamental principles of state policy.

If no problems are identified, the Drafting Wing will notify the administrative/sponsoring ministry. If any issues need to be reconsidered, the Drafting Wing will return the plan to the ministry or division in question and provide advice and recommendations for suitable changes. Once the proposal has been revised, it is returned to the Drafting Wing for redrafting.

The Drafting Wing, a self-contained subdivision of the Ministry of Law, Justice, and Parliamentary Affairs, is a centralized and specialized drafting service comprised of civil service legislative drafting officials known as assistant secretaries, senior assistant secretaries, deputy secretaries, and joint secretaries. The Drafting Wing is led by an additional secretary. Drafters must be able to draft in both Bangla and English, and they are accountable for the overall quality of their final writings, both legally and linguistically.

The drafting officials of the Ministry of Law, Justice, and Parliamentary Affairs are responsible for translating the legislative proposal into an appropriate draft bill using legislative terminology. Ministry officials work in groups to achieve this goal. A team typically consists of three or four drafters, with each group including both senior and junior drafters. Senior drafters supervise junior drafters’ work, and file assignments are not based on competence or specialization.

Skills of Drafting officials

Drafters must have legislative drafting skills but are rarely specialists in any particular area of the law. In order to complete their work, drafters from the Drafting Wing frequently consult with officials from the administrative/sponsoring ministry or with outside experts and consultants who are knowledgeable about the subject matter of the bill. If there is any doubt about a constitutional or legal issue, the attorney general’s office may be asked to provide expert legal advice.

The Drafting Wing can also—and frequently does—request assistance from the Law Commission of Bangladesh in drafting specific bills, such as those relating to admiralty law.

After the Drafting Wing has finalized the text, it is forwarded to the secretary of the Ministry of Law, Justice, and Parliamentary Affairs for approval. Once the draft bill has been approved, it is sent to both the law minister and the state minister of law for preliminary political support.

The draft bill is then returned to the administrative/sponsoring ministry, the bill’s ministry-in-charge.

The ministry evaluates the bill once more to ensure that it accurately reflects both the ministry’s aims and Cabinet directions. The measure is then approved as written by the minister in charge. In circumstances where the Drafting Wing and the administrative/sponsoring ministry disagreed on the substantive provisions of the bill, the latter’s views would normally prevail. The Drafting Wing, on the other hand, would have the final say on legislative, linguistic, and drafting issues.

When an acceptable version of the bill is reached, it is forwarded to Cabinet for consideration as an official bill of the government. Once Cabinet has given the bill its final approval, the administrative/sponsoring ministry arranges for the parliamentary phase to begin.

When it comes to creating laws linked to the administration of justice, the Ministry of Law, Justice, and Parliamentary Affairs also has a policy development function. Traditionally, policy was formed while the law was being prepared, and issues were discussed and addressed among drafters during the drafting process. If a specific topic needed more clarification, it was referred to the Minister. However, subsequent reforms have resulted in the establishment of a separate policy formulation body within the Ministry.

This unit, led by the Secretary of the Ministry, will create the policy foundation for a proposed bill. Once a sufficient policy framework is obtained, the secretary will transmit it to the Drafting Wing for use in preparing the bill.

There is no distinct provision in the Constitution or the Parliamentary Rules of Procedure for amending a statute. As a result, when altering or repealing existing laws, the same general approach is followed as when creating new legislation.

The function of Parliament

Parliamentary democracy is not new to Bangladesh, and the current Parliament (the Jatiya Sangsad) is based on the British parliamentary model, despite being a unicameral political system. The Legislative Council of Bengal, ancestor to the current Parliament, was established in 1861, at a time when only a few jurisdictions outside of Europe and North America had established equivalent institutions.32
One of Parliament’s primary tasks is to debate and pass legislation. In Bangladesh, the legislative process is divided into three stages: deliberative, parliamentary, and administrative. Although the Rules of Procedure of Parliament do not specifically relate to terminology such as readings, the parliamentary stages are commonly referred to as first, second, and third readings—meaning introduction, consideration, and passing, respectively33.
The House’s business is divided into two categories: government business and private member’s business. Government business, according to Rules 24(2) and (3) of the Parliamentary Rules of Procedure, comprises of legislation, the budget, resolutions, amendments, and other motions introduced or sponsored by a minister. Bills, resolutions, amendments, and other motions proposed or moved by private members constitute private member business.

Bills from the government

As in Canada and the United Kingdom, first reading is merely a formal procedure for introducing a bill into the House and announcing its title. Only a minister may present a government bill in Parliament. A motion for leave to introduce a bill generally requires seven days’ written notice to the secretary of Parliament.

If sufficient reasons are provided, the speaker of the House may suspend this rule and allow the motion to be made on shorter notice. The notice is accompanied by two copies of the draft bill, as well as a document referred to as a Statement of Objects and Reasons and Notes on Clauses for the proposed new statute.

The administrative/sponsoring ministry of the proposed law prepares this document in cooperation with the Ministry of Law, Justice, and Parliamentary Affairs as needed. The text includes any background information that may be required to clarify the bill’s substance and origin.

If the measure requires the president’s advice before being introduced in Parliament, the notice must also include a certificate from the minister verifying that the president has recommended the bill. The motion to introduce the measure shall be entered in the Orders of the Day for a government business day. Orders of the Day are a formal listing of the day’s business written by the secretary of Parliament and approved by the speaker. Every member is provided with a copy.

The minister then moves for leave to introduce the bill when the item is called. A member may object to a bill’s initial introduction, but this privilege is rarely used. After the bill is introduced into Parliament, it is published in the Official Gazette. The secretary of the Parliament usually arranges for the bill’s publication as soon as possible, along with the Statement of Objects and Reasons and, if applicable, a financial memorandum.

At the second reading stage, the member-in-charge of the bill may propose that it be taken up for consideration, referred to a standing committee or a select committee, or circulated for public opinion.40 When a motion for circulation of a bill for public opinion is carried, Instruction 248 of the Secretariat Instructions states that the administrative ministry or division will supply Parliament, on request, with a list of the individuals, associations, and organizations that have signed on to the bill.

This is when the lengthy and frequently emotionally charged debate might take place. The administrative ministry or division will devise a strategy for shepherding a government bill through Parliament, as well as create a brief for the minister-in-charge to aid in explaining the substance and origin of the bill’s sections during parliamentary debate. Only the bill’s principles or general provisions may be debated. Details of the measure are not addressed beyond what is required to explain its ideas. At this time, no modifications to the bill are permitted.

It is a constitutional requirement for Parliament to appoint standing committees comprised of its members to investigate and supervise government operations.

The political parties are responsible for assigning members to various Parliamentary committees. However, there is no mechanism for automatic referral of any action, including bill consideration, to a parliamentary committee. It is only recently that bills have been systematically referred to committees. In fact, it was not uncommon for bills to be read for the second and third time on the same day.

Committees Under Article 76(1) of the Constitution

According to Article 76(1) of the Constitution, there must be a public accounts committee, a privileges committee, and any other standing committees required by Parliament’s Rules of Procedure. In addition to these committees, Parliament may appoint other standing committees to analyze draft bills and legislative initiatives, as well as to review the enforcement of laws and suggest enforcement actions.

A committee may also study any topic of public interest brought to it by Parliament, as well as any ministry’s actions or administration. A committee may request pertinent information and require an authorized representative of a ministry to respond to written or oral questions in this regard. Nonetheless, the government may refuse to release a document on the grounds that its revelation would jeopardize the state’s safety or interests.

The creation of specific committees is also provided for under Chapter XXVII of the Rules of Procedure of Parliament.

These are the business advisory committee, the committee on private member’s bills and resolutions, the select committees on bills, the committee on petitions, the standing committee on public accounts, the standing committee on estimates, the standing committee on public undertakings, the standing committee on privileges, the standing committee on government assurances, the standing committees on certain other subjects, the house committee, the library committee, the standing committee on Rules of Procedure, and other unspecified special committees.

Members of a committee are nominated by Parliament on a motion made by it, but no member of a committee may have a personal, financial, or direct interest in any topic presented to that committee. Committees are now chaired by members of Parliament who are not ministers, and the chair is generally elected by the committee from among its members. A committee can have members from both the government and the opposition. Ex-officio, the member-in-charge of a bill is a member of the committee reviewing the measure.

A quorum of one-third of the committee’s total number of members is required to have a lawful meeting. A committee’s meetings are held behind closed doors.

Annual financial statements (commonly known as the budget) are brought before Parliament to emphasize the government’s expected receipts and expenditures. According to Rule 111(3) of the Rules of Procedure of Parliament, the budget is not submitted to any committee.

General budget debate takes place during a regular House session presided over by the speaker. The budget is prepared by the Ministry of Finance, and other ministries, divisions, or departments are required to provide the essential materials on which the estimates are to be based.

When a bill is introduced in Parliament and referred to a committee for further consideration, Drafting Wing officials might attend committee meetings to provide technical assistance as needed.

When a measure is referred to a standing or select committee for further consideration, the committee returns the bill to the House with a report that may or may not include proposed amendments. At this point, debate on the motion is confined to consideration of the committee report or any alternatives keeping with the principles of the bill. Additionally, any member may make revisions to the law. Members of the House are provided with copies of the committee report.

When a resolution to take the bill under consideration is carried, the speaker sends the bill to the House for a vote, either clause by clause or as a whole.

If no amendments are proposed, the member may move to pass the bill immediately. The debate on a motion to pass must be limited to the introduction of reasons in support of or against the measure.

Amendments are made with three days’ notice, and if this procedure is not followed, any other member may object. However, the speaker has the authority to overrule any opposition and allow the amendment to be presented with less notice.

A proposed modification must not be ambiguous, pointless, or frivolous. If an amendment is dependent on an amendment that has already been rejected by the House, it will not be considered. An amendment must be pertinent to and within the scope of the motion to which it is attached.

Furthermore, an amendment that solely has the effect of a negative vote cannot be proposed. Where any amendment submitted in a bill could influence the idea of the bill or the government’s expenditure, the minister-in-charge will not commit to acceptance until Cabinet has approved it.

If the government proposes changes to a law that is already before Parliament, the administrative ministry or division writes the changes in consultation with the Ministry of Law, Justice, and Parliamentary Affairs.

When a private member offers an amendment to an existing law in Parliament, copies of the proposed amendments are sent to the administrative ministry or division, as well as the Ministry of Law, Justice, and Parliamentary Affairs.

Following assessment, the administrative ministry or division will transmit its comments to the minister-in-charge, together with any received from the Ministry of Law, Justice, and Parliamentary Affairs. If a private member proposes an amendment on the House floor, the minister-in-charge will usually seek for a postponement of proceedings to a later date so that this procedure can be followed.

The third reading stage is usually brief. The member in charge makes a motion to pass the measure as presented, and the speaker normally brings the proposal to a vote without allowing more debate. A measure is carried by a majority of the members present and voting, subject to the session’s quorum. The person in charge of the measure may withdraw it with leave at any moment before it is passed. When the law is passed by the House, the speaker signs it three times and sends it to the president for his signature. Following the president’s assent, the secretary of Parliament publishes the measure in the Official Gazette as an Act of Parliament. One original signed copy of the measure is kept for verification and record purposes, and it is not allowed to leave the House’s custody without the speaker’s approval.

Bills introduced by individual members

Private member’s bills, similar to the Canadian and British parliamentary systems, are legislative measures introduced not by government ministers but by private members of Parliament who may sit on either the government or opposition benches.

The precedence assigned to private member’s legislation is determined by a ballot system held in accordance with the procedure outlined in the Parliamentary Rules of Procedure, subject to the speaker’s discretion to make minor alterations in the procedure from time to time.

Members may prepare their own private bills, but they may also obtain assistance from the Parliament Secretariat if necessary. When a private member seeks to propose a bill into Parliament, the member must provide the secretary of Parliament with 15 days’ written notice of his or her intention to move for leave to introduce the bill.

Details of the notice

The notice must include three copies of the bill, as well as an explanation of the measure’s aims and reasons. At this stage, no arguments are required. If the bill requires the president’s previous approval, this must be included. A financial memorandum must be appended to any measure that includes the expenditure of public funds.

The Parliament Secretariat forwards a copy of the bill and the Statement of Objects and Reasons to the administrative ministry or division responsible for the subject area of the bill. A duplicate is sent to the Ministry of Law, Justice, and Parliamentary Affairs.

The administrative ministry or division will analyze the bill in cooperation with the Ministry of Law, Justice, and Parliamentary Affairs, which will advise where the bill requires the president’s prior approval or violates any constitutional provisions.

The administrative ministry or division evaluates the bill and delivers its comments, along with any received from the Ministry of Law, Justice, and Parliamentary Affairs, to the minister-in-charge, according to Secretariat Instruction 246. Unless there are compelling reasons to bring the topic before Cabinet, the latter decides on the policy to be implemented.

Orders of the Day on a day set aside for private members’ business include motions requesting leave to present private member’s bills. When leave is granted, the member formally introduces the measure when called. The bill is introduced as a result of the motion being carried.

After a private member’s bill is introduced in the House, the procedure is the same as it is for government bills. Nonetheless, private member’s legislation are rarely considered by the House.

The President’s Function

Article 80 of the Constitution governs assent to an ordinary bill or a financial measure. The president must assent to a bill passed by Parliament within 15 days of its presentation, otherwise the bill is regarded to be automatically assented to after that period expires.

When a bill receives or is assumed to have received assent, it becomes law and is known as an Act of Parliament. Alternatively, the president may return the measure to Parliament with a message requesting reconsideration of revisions as indicated in the message. Parliament will then reconsider the bill and may pass it again with or without amendments.

However, in this instance, passing of the law will necessitate the backing of a majority of the entire number of members of Parliament. The reconsidered bill will then be offered to the president once more. However, assent must be provided within seven days or the measure is assumed to have obtained assent.

A money bill enacted by Parliament and given to the president for assent must be accompanied by a certificate under the speaker’s hand stating that it is a money bill. This method is likely to serve as a reminder to the president that, unlike a regular bill, a money bill cannot be returned to Parliament for reconsideration.

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