Indian Journal of Arbitration Law launch

The inaugural edition of the Indian Journal of Arbitration Law (IJAL) had been recently launched on Thursday, September 27, 2012.

The IJAL is proposed to be a biannual peer reviewed student run journal, under the aegis of the Centre for Advanced Research & Training in Arbitration Law (CARTAL) of National Law University, Jodhpur. The mission of IJAL is to provide timely information, both practical and academic, on developments in the field of arbitration.

The Editorial Team of IJAL works under the guidance of an Advisory Board, which includes distinguished scholars like Mr. Fali S. Nariman, Prof. Martin J. Hunter, Mr. S K Dholakia, Mr. Gary B Born, Prof. Loukas Mistelis, Prof. Lakshmi Jambholkar & Mr. Promod Nair.

The website of IJAL can be found at http://www.ijal.in

We at Arbitration India - Perspectives deeply appreciate this non-commercial endeavor and only hope for its continued success.

While several luminaries such as Gary B Born, J. Martin Hunter and S. Dholakia have contributed to this first edition, the article which impressed us the most was one authored by Mr. Badrinath Srinivasan (who contributes regularly on http://practicalacademic.blogspot.in/ ) titled APPEAL AGAINST THE ORDER OF THE CHIEF JUSTICE UNDER SECTION 11 OF THE ARBITRATION AND CONCILIATION ACT, 1996: AN EMPIRICAL ANALYSIS.

Happy reading!

Supreme Court overrules Bhatia judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. - Fourth Post

We conclude our analysis of the decision of the Supreme Court in the BALCO decision.
 
The Supreme Court in Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Inc. thus laid to rest the maladies which arose from the Bhatia and Satyam decisions. 

     13. The maintainability of an action for interim relief outside the A&C Act, 1996 
    
As the Supreme Court interpreted that Part I of the A&C Act 1996 would only apply if the seat of arbitration was in India, the same basically deprives parties to such arbitrations from obtaining interim relief in respect of assets located in India.[1] Therefore an additional issue was framed before the Supreme Court, viz, whether a suit for interim relief would be maintainable under any other law in India even if S. 9 of the A&C Act, 1996 was unavailable to the parties.
    
The Supreme Court examined the Code of Civil Procedure, 1908 which contains provisions relating to suits and applications for interim relief.

Order XXXIX and XL of Code of Civil Procedure, 1908 which relate to interim relief require the existence of a suit as a necessary condition. S. 9 of the Code of Civil Procedure provides that: 

The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.

The Supreme Court did not deal with the express bar which can be found in S. 5 of the A&C Act, 1996 which reads as under: 

Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part. 

Thus the Supreme Court could have held that there could be no suit brought before Indian Courts for interim relief in the case of an arbitration seated outside India as the same was barred by S. 5 of the A&C Act, 1996. The Supreme Court however did not express this view.

Instead the Supreme Court found that the pendency of an arbitration proceeding would bar the courts from taking cognizance of a suit based on the same disputes in view of S. 8 or S. 45 of the A&C Act, 1996. This in turn would mean that as no suit could be brought in this regard, no application for interim relief could be found to be maintainable.

The Supreme Court further held that for any suit to be maintainable (and thus any request for interim relief) there has to be a cause of action. Pendency of arbitral proceedings outside India was found not to constitute a sufficient cause of action. The Supreme Court further held that interim relief is to be sought as a part of the substantive relief.[2] Where the substantive relief is within the jurisdiction of the arbitral tribunal, no substantive relief concerning the merits of the arbitration can be claimed in court and therefore no interim relief can in turn be claimed. 

The Supreme Court also considered other laws in India such as the Specific Relief Act, 1963 and found that on similar grounds no interim relief could be sought in relation to an arbitration seated outside India.

The Supreme Court then examined the law in this regard in England. In Siskina (Cargo owners) v. Distos Compania Navieria SA[3] the House of Lords held
    
A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the Court. 

The above decision still holds good in India although in England the law was subsequently modified in this regard by amendments to the Supreme Court Act, 1981. This in turn permitted the English Courts in Channel Turner Group Ltd. v. Balfour Beatty Construction Ltd.[4] to grant interim relief in relation to proceedings that have or are likely to commence in a foreign state. The Supreme Court of India observed that no such power having been granted by the Indian Legislature, no such interim relief could be granted in relation to arbitration proceedings taking place outside India. 

The Supreme Court thus effectively shut the door on any request for interim relief in relation to assets located in India in the case of an arbitration with its situs outside India. While several commentators may criticize the consequences of such a decision, one cannot lose sight of the fact that a purposive interpretation cannot put the Court in the shoes of the Legislature. It would be best to leave the task of remedying this defect to the Legislature. The simplest way to achieve the same would be to provide the same exceptions to S. 2(2) of the A&C Act, 1996 as provided to A. 1(2) of the Model Law.

Conclusion

Effectively the Supreme Court in the decision under review has removed all the evils created by over enthusiastic interpretations of the law in Bhatia and Satyam decisions. It has reiterated the strict territorial criterion of the A&C Act, 1996 calling the law as seat centric and thereby completely restricting the applicability of Part I of the Act to arbitrations taking place in India only. Effectively it means that in an arbitration with its seat outside India, no provision under Part I of the Act of 1996 is available to either of the parties to the arbitration. This bars any court in India to entertain and try requests for interim relief or for setting aside awards pursuant to arbitrations with seat outside India.

Interestingly the Supreme Court has made its decision prospective in nature[5], i.e. applicable to arbitration agreements entered into post the date of its decision. The Supreme Court felt that the decisions in Bhatia and Satyam cases having been followed over the years, several arbitration agreements would have been entered with the position of law laid down therein having been accepted as the correct one. To safeguard parties to such arbitration agreements the Supreme Court made its decision prospective.

This creates two parallel regimes of law, one prior to 6^th September 2012 and one thereafter which is likely to cause a headache or two for lower courts. Further this permits the problems of Bhatia and Satyam to continue unabated with respect to arbitration agreements entered into prior to the decision under review. (This despite a dispute not having arisen in relation to the arbitration agreement.)[6] However one must remember parties are free to novate or substitute their arbitration agreements which would be advisable considering the prospective nature of this decision.

With that we conclude our analysis of the decision. In the coming few weeks we will deal with an interesting scenario wherein the parties have chosen a location outside India as the seat/venue of arbitration and have made the A&C Act, 1996 or more specifically Part I thereof as the procedural law applicable. Will this create a difficulty or two? Until then...

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[1] As S. 9 which falls in Part I is not available to them

[2] The Supreme Court relied upon precedents such as State of Orissa v. Madan Gopal Rungta, AIR 1952 SC 12,  Cotton Corporation Ltd. v. United Industrial Bank, (1983) 4 SCC 625, Ashok Kumar Lingala v. State of Karnataka, (2012) 1 SCC 321

[3] 1979 AC 210

[4] 1993 AC 334

[5] Paragraph 201 of the decision

[6] Take the case of an arbitration agreement entered into prior to the decision under review. No dispute arises in relation thereto until ten years later. The decision under review will not be applicable but the position of law as laid down in Bhatia decision would apply. This seems farcical. It would have been better to make the ratio applicable to arbitration agreements entered into even prior to the date of the decision but in respect of which no arbitration proceedings or legal proceedings have commenced.

Supreme Court overrules Bhatia judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. - Third Post

We continue our analysis from our last post.

 

        7. The opening words of S. 28

S. 28 of the A&C Act, 1996 which deals with the applicable substantive law in an arbitration under Part I of the A&C Act, 1996 reads as under:

Rules applicable to substance of dispute

Where the place of arbitration is situate in India...

It was submitted that S. 28 which falls in Part I of the A&C Act, 1996 opens with the words where the place of arbitration is situate in India. It was submitted that there would be no requirement of reiterating this fact if S. 2(2) were interpreted to mean that Part I applied to arbitrations taking place in India only. It was thus submitted that the presence of these words in S. 28, and conversely the absence of the same in other provisions in Part I, indicated that Part I in fact applied to all arbitrations irrespective of the situs. 

The argument though attractive fails to see the reason behind the necessity of reiterating the words where the place of arbitration is situate in India in S. 28. The said provision deals with substantive law applicable to a dispute in an arbitration. Where both parties to an arbitration agreement are Indian, the substantive law applicable would necessarily have to be India. However where one or more parties are non-Indian, the parties would be free to decide the law applicable to the substance of the dispute. The presence of the words where the place of arbitration is situate in India is necessary to give effect to the latter scenario, i.e. possibility of an international commercial arbitration (where at least one party is non-Indian) taking place in India. The Supreme Court thus held that the provision could not be interpreted to be indicative of the intent of the Legislature to give an extra-territorial effect to Part I of the A&C Act, 1996.[1]

      8. Operation and scope of Part I and Part II

It was suggested before the Supreme Court that Part I and Part II are overlapping in nature and this reinforces the extra territorial applicability of the A&C Act, 1996.

The Supreme Court held that the two parts are mutually exclusive. The Supreme Court observed that regulation of arbitration consists of four steps (a) the commencement of arbitration; (b) the conduct of arbitration; (c) the challenge to the award; and (d) the recognition or enforcement of the award. Part I of the Arbitration Act, 1996 regulates arbitrations at all the four stages. Part II, however, regulates arbitration only in respect of commencement and recognition or enforcement of foreign awards. ^[2] The Supreme Court further held that the regulation of conduct of arbitration and challenge to an award is to be done by the courts of the country in which the arbitration is being conducted.[3] This in turn means that Part I of the A&C Act, 1996 which regulates the conduct of arbitration would only be applicable to arbitrations with situs in India.

It was also submitted that the use of the non-obstante clause “Notwithstanding anything contained in Part I or the Code of Civil Procedure, 1908...” in S. 45 (which falls in Part II) indicated that provisions of Part II were designed to apply to arbitrations to which Part I applied unless expressly barred. The Supreme Court observed that the non-obstante clause was a legislative tool used in the Foreign Awards (Recognition and Enforcement) Act, 1961 which had been repeated. Further the Supreme Court held that the non-obstante clause was added out of abundant caution [4] and as such reinforced the stark division of the two Parts.

      9. The use of the words judicial authority

It was submitted that the words judicial authority in S. 45 (which falls in Part II) referred to a term wider than courts as the Part II related to foreign awards. The submission was extended to state that the use of the same words judicial authority in various provisions in Part I as opposed to the use of the word court indicated that Part I was also applicable extra-territorially.

The Supreme Court found that no such interpretation could be drawn. Rather it opined that the words judicial authority had been used in various provisions to cover any form of adjudicating body so as to minimize intervention [5] in the arbitral process. It further found that the term could be a legislative hangover from the Arbitration Act, 1940.

      10. Courts having jurisdiction to set aside awards

S. 48(1)(e), which falls in Part II of the A&C Act, 1996 deals with grounds for refusal of enforcement of a foreign award made in a Convention country. The same is identical to A. V(1)(e) of the New York Convention and reads as under:

(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that----

...

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

It was submitted that the said provision recognized that two courts had concurrent jurisdiction to set aside an award, i.e. the courts of the country where the award was made and courts of the country under the law of which the award was made. It was thus submitted that Indian Courts could set aside awards made outside India but subject to Indian Law. As a result it was submitted that S. 34 which falls in Part I and relates to grounds for setting aside of an award would apply to awards resulting from all arbitrations, including which were seated outside India. It was thus submitted that the Satyam decision was correct and that S. 34 and also other provisions of Part I were applicable extra-territorially.

The Supreme Court recognized that the New York Convention was indeed suggestive of two courts which could be competent to set aside the award. However the same could not be extended to mean that therefore under S. 34 of the A&C Act, 1996 foreign awards could be set aside. To interpret so would amount to legislation by the Court. Jurisdiction if any had to be given expressly by the Legislature.[6] In the absence of the same S. 34 could not be applied to set aside foreign awards. In expressing so the Supreme Court overruled the Satyam decision.

The Supreme Court then digressed from the main contention and clarified that in any event A. V(1)(e) could not be read to mean that the two courts would have concurrent jurisdiction to set aside the award. Rather the primary court would be the court of the country where the award was made. The secondary court would be the court of the country under the law of which the award was made.[7] The Supreme Court held that to give concurrent jurisdiction would lead to complex situations as arose in the Satyam decision.[8] The Supreme Court also opined on the term under the law of which and held that the same referred to procedural law.[9] The Court examined various international authorities and case law on these aspects[10] and went on to warn that to understand the term to mean substantive law would be to ignore the spirit underlying the New York Convention which embodies a consensus evolved to encourage consensual resolution of complicated, intricate and in many cases very sensitive International Commercial Disputes.[11]

      11. Lacuna in respect of arbitrations in Non-Convention countries

It was canvassed that if Part I was found applicable only to arbitrations seated in India and Part II was found applicable only to arbitrations in Convention countries, the same would create a lacuna in the law as arbitrations in Non-Convention countries would not be regulated by the A&C Act, 1996.

The Supreme Court rejected the submission on the ground that arbitrations in Non-Convention countries were never governed by Indian laws whether under the older regime of law or under the A&C Act, 1996. Therefore there was no lacuna.

In our opinion the submission is fundamentally flawed as the A&C Act, 1996 does not even apply to arbitrations in Convention countries which have no reciprocity provisions towards arbitrations in India.[12] This indicates a far narrower scope of Indian law over foreign awards and cannot be termed as a lacuna but rather a legislative intent. The Supreme Court’s decision in rejecting the submission thus stands good.

      12. Hardship due to non-availability of S. 9 interim relief in arbitrations seated abroad

As the Supreme Court had dismissed all submissions which had earlier found favour in the Bhatia and Satyam decision, a last gasp submission was made. It was contended that if Part I were found to be applicable only to arbitrations with seat in India, then in an arbitration with its seat outside India, a party would be left remediless in respect of assets located in India as S. 9, which falls in Part I, would no longer be available. To prevent such lack of remedy it was submitted that S. 9 should be permitted to be applied irrespective of where the arbitration is held. It was submitted that such an interpretation would actually result in an intra-territorial operation of S. 9 as the assets would be located within India and not an extra-territorial operation in terms of an arbitration situated abroad.

The Supreme Court disagreed and held that S. 9 could not be construed as a stand-alone provision. It held that schematically the provision was placed in Part I and referred to the courts’ powers in granting relief before or during arbitral proceedings or at any time after making of the arbitral award but before it is enforced in accordance with S. 36. [13] The Supreme Court held that S. 36 also was found in Part I and hence S. 9 had to be construed as part and parcel of Part I. The Supreme Court held that extending the applicability of S. 9 to arbitrations which take place outside India would be to do violence to the policy of territoriality declared in S. 2(2) of the A&C Act, 1996.[14]

The Supreme Court then held

Once the parties have chosen voluntarily that the seat of the arbitration shall be outside India, they are impliedly also understood to have chosen the necessary incidents and consequences of such choice. We, therefore, do not find any substance in the submissions made by the learned counsel for the appellants, that if applicability of Part I is limited to arbitrations which take place in India, it would leave many parties remediless. If that be so, it is a matter to be redressed by the legislature.[15]

The Supreme Court went on to explain that in the Bhatia decision it had erroneously attempted to act as “finishers”, “refiners” and “polishers” of the Arbitration Act, 1996 assuming that the Arbitration Act, 1996 required varied degrees of further “processing”[16] as the task of filling up lacuna if any was that of the Legislature.

The Supreme Court thus rejected all submissions made towards upholding the position of law as decided in the Bhatia and Satyam decisions. It held in its conclusion:

We are unable to accept the submission of the learned counsel for the appellants that the Arbitration Act 1996 does not make seat of the arbitration as the centre of gravity of the arbitration.[17]

The A&C Act 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996. [18]

With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this Court in Bhatia International (supra) and Venture Global Engineering (supra).... In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India.[19] 

We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India.[20]

In our next post we shall conclude our analysis of the decision.

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[1] Paragraph 124 of the decision

[2] Paragraph 125 of the decision

[3] Paragraph 128 of the decision

[4] Paragraph 132 of the decision

[5] Paragraph 130 of the decision

[6] Paragraph 138 of the decision

[7] Paragraph 139 of the decision

[8] Paragraph 146 of the decision

[9] Paragraph 147 of the decision

[10] Annulment and Enforcement of International Awards, Hans Smit, (cit.); International Commercial Arbitration, Gary B. Born, Vol. 1, Kluwer Law International; Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F 3d 357; Karaha Bodas Co. LLC (Cayman Islands) v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara -Pertamina, Yearbook of Commercial Arbitration, Vol. XXVIII, 2003, p. 752; International Electric Corporation v. Bridas Sociedad Anonima Petroleva Industrial Y Commercial, 745  F Supp 172, 178 (SDNY 1990);

[11] Paragraph 158 of the decision

[12] S. 44(b) emphasizes India’s reciprocity reservation under the New York Convention

[13] Paragraph 161 of the decision

[14] Paragraph 163 of the decision

[15] Paragraph 167 and 168 of the decision

[16] Paragraph 172 of the decision

[17] Paragraph 72 of the decision

[18] Paragraph 198 of the decision

[19] Paragraph 199 of the decision

[20] Paragraph 200 of the decision

Supreme Court overrules Bhatia judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. - Second Post

We continue our post on the decision of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. with a partial analysis of the decision.
 

Analysis

The Supreme Court in arriving at its decision dealt with various arguments which had earlier found favour in the Bhatia and the Satyam decisions. We will deal with each point of reasoning herein below.

     

     1. Submission on S. 1(2) and its Proviso

S. 1(2) of the A&C Act 1996 provides as under

It (The A&C Act, 1996) extends to the whole of India

Provided Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration...

It had been submitted that if Part I of the Act of 1996 were interpreted to apply to only arbitrations taking place in India, the same would create an anomaly as S. 1(2) proviso declares that Part I would be applicable to the State of Jammu and Kashmir [1] even in relation to arbitrations taking place outside India. This argument had found favour in the Bhatia case.

The Supreme Court dismissed the argument in the case under review and found that there was no anomaly created as S. 2(2) which made Part I applicable to arbitrations seated in India could not be read subject to the proviso to S. 1(2).

We find ourselves in agreement with the same although the decision doesn’t carry the entire reasoning and thought which culminated in this result. Thus we indulge in delving into the same.

Firstly, the scope and operation of S. 1(2) and S. 2(2) are entirely different. While section 1(2) is the general clause stating the extent of applicability of the Act, section 2(2) is the specific clause stating the condition of applicability of Part I of the Act. Thus, if section 2(2) is not satisfied, section 1(2) and its exception, though still operational, have no effect. Secondly the reason behind the proviso to S. 1(2) is simplistic. The State of Jammu and Kashmir in India has a special position on account of historical and political reasons.[2] If one looks at the Arbitration Act, 1940 which dealt with arbitrations taking place in India, the same was not applicable to Jammu and Kashmir. However both the Protocol and Convention Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 which dealt with enforcement of Convention awards were applicable to Jammu and Kashmir. The proviso thus retains this position and nothing more should be read into it. Thirdly the proviso states that Part I will be applicable to Jammu and Kashmir in relation to international commercial arbitrations. The phrase refers to arbitrations where at least one party is non-Indian. It does not refer to an arbitration with its seat in an international location.

             2. Omission of the word only in S. 2(2)

As mentioned earlier, the Model Law vide A. 1(2) states

The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.

The territorial criterion is set out therein.

S. 2(2) of the A&C Act, 1996, provides the applicability of Part I of the said Act. It states:

This Part shall apply where the place of arbitration is in India.

The plank on which the Bhatia decision revolved was the omission of the word only from S. 2(2) of the A&C Act, 1996. It was submitted that the Indian Legislature intentionally dropped the word only thereby indicating a departure from the seat centric criterion.[3]

This submission was accepted in Bhatia and partly accepted in the case under review. The Supreme Court in the case under review agreed that the omission of the word only was intentional but disagreed that the same indicated a departure from the seat centric approach. [4] The Supreme Court agreed that it could not supply the word only as it was within the competence of the Legislature to do so. [5] However the Supreme Court observed that the plain meaning [6] of the words used in S. 2(2) indicated that the territorial approach was maintained by the Indian Legislature. [7]

The Supreme Court reasoned that [8] it was felt necessary to include the word “only” in order to clarify that except for Articles 8, 9, 35 & 36 which could have extra territorial effect if so legislated by the State, the other provisions would be applicable on a strict territorial basis. Therefore, the word “only” would have been necessary in case the provisions with regard to interim relief etc. were to be retained in Section 2(2) which could have extraterritorial application. The Indian legislature, while adopting the Model Law, with some variations, did not include the exceptions mentioned in Article 1(2) in the corresponding provision Section 2(2). Therefore, the word “only” would have been superfluous as none of the exceptions were included in Section 2(2). The Supreme Court went on to hold that “The absence of the word “only” which is found in Article 1(2) of the Model Law, from Section 2(2) of the Arbitration Act, 1996 does not change the content/import of Section 2(2) as limiting the application of Part I of the Arbitration Act, 1996 to arbitrations where the place/seat is in India.”[9] This approach of the Supreme Court is innovative. Furthermore the emphasis of interpreting the A&C Act, 1996 along the lines of Model Law can only bode well for Indian arbitration law.

The Supreme Court also observed that the omission of the word only could be found in other legislations such as the Swiss Private International Law Act, 1987 and the Arbitration and Conciliation Act, 1996, UK. Despite the omission the Supreme Court pointed out that the territorial principle was not cast out in these countries.

An interesting submission was made that S. 2(2) would not be necessary if it were stating the obvious, i.e. Part I shall apply to arbitrations taking place in India. The Supreme Court dealt with the same stating that the necessity of S. 2(2) was to ensure that the applicability of the Part I was limited to arbitration taking place in India, especially given that the A&C Act, 1996 consolidates three older legislations dealing with domestic arbitrations and relating to arbitrations taking place abroad. The Supreme Court held that if it were interpreted that Part I shall apply to all arbitrations irrespective of situs, then it would amount to adding words to S. 2(2).[10]

      3. Submission on S. 2(2) and its relation to S. 2(4) and 2(5)

S. 2(2) reads as under:

This Part shall apply where the place of arbitration is in India.

S. 2(4) reads as under:

This Part... shall apply to every arbitration under any other enactment...except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.

S. 2(5) reads as under:

Subject to the provisions of subsection (4) and save in so far as is otherwise provided by any law...or in any agreement in force between India and any other country...this Part shall apply to all arbitrations and to all proceedings relating thereto.

It was submitted that S. 2(2) could not be interpreted to limit Part I to arbitrations taking place in India as the words every arbitration in S. 2(4) and all arbitrations in S. 2(5) indicated the applicability of the A&C Act 1996 to all arbitrations irrespective of the situs. The Supreme Court rejected this submission on the ground that S. 2(4) and S. 2(5) were subject to S. 2(2) and would apply to every arbitration and all arbitrations taking place in India. This reasoning seems in line with the principle of interpretation that a statute must be read as a whole.

      4.  The need (or lack thereof) for defining a domestic award

S. 2(7) defines a domestic award as an award made under Part I. It was submitted successfully in the Bhatia case that the need for defining the domestic award existed as the A&C Act could be applied to arbitrations taking place outside India, the resulting award from which would then be deemed to be a domestic award. It was thus submitted that the A&C Act, 1996 was not seat centric in its approach. The Supreme Court was not swayed by the attractive argument in the case under review. The Supreme Court held that the position under S. 9B the Foreign Awards (Recognition and Enforcement) Act, 1961 wherein the Legislature recognized the possibility of extra-territorial operation of Indian arbitration laws [11], was deliberately omitted. Thus S. 2(7) could not be interpreted in the manner suggested in the Bhatia decision.

The Supreme Court observed that the need for defining domestic award arose to distinguish it from a foreign award. A foreign award as defined in S. 44 and 53 is defined with respect to the country where it is made. Thus a domestic award in contrast would mean an award made in India irrespective of whether one of or both the parties involved are non-Indian.[12]

      5. The definition of Court

S.2(1)(e) defines Court to mean the court...having jurisdiction to decide the questions forming subject matter of the arbitration if the same had been subject matter of a suit..

It was canvassed before the Supreme Court that words subject matter indicated that the A&C Act, 1996 was oriented towards subject matter rather than seat of arbitration. The Supreme Court held that the definition could not be interpreted in support of the submission so made. The Supreme Court observed that the provision was only to identify which courts in India would have supervisory control over the arbitration [13] The Supreme Court clarified that the Legislature by using such wording had intended to clarify that in determination of which court would have jurisdiction over arbitral proceedings, the similar principles would be used as applied in a civil matter. This seems to be a correct point of view in our opinion.

      6. Party Autonomy as to Seat

It was submitted that under S. 20 of the A&C Act, 1996 the parties are free to agree on the place of arbitration and hence the A&C Act, 1996 places no importance on the seat and would thus apply even if the seat were outside India. The Supreme Court rejected the submission stating that S. 20 was subject to S. 2(2) and hence parties were free to agree on the seat provided it was limited to within India.[14]

Notably the Supreme Court went on to distinguish between a seat and venue of arbitration. In the process the Supreme Court remarked upon arbitration clauses which specify a location outside India as either venue or seat and also make the A&C Act, 1996 applicable to the proceedings. The Supreme Court held that depending upon the construction of the words, either of the results would ensue:

-          The location would be deemed to be a seat and hence the A&C Act, 1996 would not ordinarily be applicable. In such case the A&C Act, 1996 would only be applicable if the lex fori of the country where the seat is situated permitted the same. The Supreme Court remarked after considering several judicial decisions [15] of various jurisdictions that in such event it would only mean that the parties have contractually imported from the A&C Act, 1996, those provisions which are concerned with the internal conduct of their arbitration and which are not inconsistent with the mandatory provisions of the law of the country of the seat.[16] This in our opinion seems to resolve quite well the theoretical possibility of two parties agreeing to arbitration with its seat in X country and subjected to the procedural laws of Y country, in which case a conflict of laws would ensue in a similar result.

-          The location would be deemed to be a venue. In such case the seat would be found to be within India and hence the A&C Act, 1996 would be applicable.

  

In our next post we shall continue with our analysis of the above decision.

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[1] India is a quasi federal country which is divided into several states which include Jammu and Kashmir

[2] Article 370 of the Constitution of India requires the Union Government to consult with the Government of the State of Jammu and Kashmir before promulgating certain laws for Jammu and Kashmir. However in certain cases the Union Government can legislate for the State of Jammu and Kashmir without such prior consultation.

[3] Interestingly the Law Commission of India indicated that the omission was unintended. ‘This aspect somehow escaped attention, when s. 2(2) was drafted in the 1996 Act’, 176th Report of the Law Commission of India on the Arbitration and Conciliation (Amendment)Bill 2001, p. 26.

[4] Paragraph 60 of the decision

[5] Paragraph 62 of the decision

[6] Paragraph 63 of the decision

[7] Paragraph 95 of the decision: “In view of the expression used in Section 2(2), the maxim expressum facit cessare tacitum, would not permit by interpretation to hold that Part I would also apply to arbitrations held outside the territory of India. The expression “this Part shall apply where the place of arbitration is in India” necessarily excludes application of Part I to arbitration seated or held outside India.”; Similar view can be found in Shreejee Traco (I) P Ltd v. Paperline International Inc. (2003) 9 SCC 79 which was decided by the Supreme Court. Interestingly this decision was passed by the Supreme Court oblivious of the Bhatia decision as the two were contemporaneous.

[8] Paragraph 68 of the decision

[9] Paragraph 75 of the decision

[10] Paragraph 80 of the decision

[11] S. 9B stated that the Foreign Awards (Recognition and Enforcement) Act, 1961 would not apply to awards made on an arbitration agreement governed by the law of India.

[12] Paragraph 88 of the decision: Therefore, it seems clear that the object of Section 2(7) is to distinguish the domestic award covered under Part I of the Arbitration Act, 1996 from the “foreign award” covered under Part II of the aforesaid Act; and not to distinguish the “domestic award” from an “international award” rendered in India.; Paragraph 94 of the decision: It appears to us that provision in Section 2(7) was also necessary to foreclose a rare but possible scenario (as canvassed by Mr. Gopal Subramanium) where two foreigners who arbitrate in India, but under a Foreign Arbitration Act, could claim that the resulting award would be a “nondomestic” award.

[13] Paragraph 96 of the decision

[14] Paragraph 99 of the decision

[15] Naviera Amazonica Peruana S.A. Vs. Compania Internacionale De Seguros Del Peru, 1988 (1) Lloyd’s Law Reports 116; James Miller and Partners v. Whitworth Street Estates (Manchester) Ltd., [1970] 1 Lloyd’s Rep 269; Black Clawson International Ltd. v. PapierIrke Waldhof Aschaf Fenburg AG, [1981] 2 Lloyd’s Rep 446; Braes of Soune Wind Farm (Scotland) Ltd. v. Alfred McAlpine Business Services Ltd., [2008] EWHC 426; Shashoua and Ors. V. Sharma, [2009] EWHC 957; C v. D, [2007] ECWA Civ 1282; Union of India v. McDonnell Douglas Corp, Sulamerica CIA Nacional de Seguros SA v. Enesa Engenharia SA – Enesa, 2012 WL 14764;

[16] Paragraph 122 of the decision