In Brief
In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.[1]
the Constitution Bench (5 judges) of the Indian Supreme Court overruled its
earlier decision in Bhatia International v. Bulk Trading SA, 2002 (4) SCC 105 and held that the Arbitration and Conciliation Act, 1996
was territorial and seat centric in nature thereby setting straight the
contorted position of law in this regard in India.
Prelude
Before we launch into a narrative
of the case we shall synopsize the legal position prior to the decision under
review.
The law of arbitration in India
prior to 1996 encompassed different statutes, viz
- The Arbitration Act, 1940 which dealt with domestic arbitrations,
- The Protocol and Convention Act, 1937 which governed arbitrations which were covered by the Geneva Convention, 1927
- The Foreign Awards (Recognition and Enforcement) Act, 1961 which governed arbitrations which were covered by the New York Convention, 1958
The various statutes above
contemplated extensive court intervention in the arbitral process and also
ignored modern international best practices. The Indian legislature seeing the
dire need to modernize and internationalize the law of arbitration consolidated
the above three statutes into one condensed Arbitration and Conciliation Act,
1996. The A&C Act, 1996 draws heavily from the UNCITRAL Model Law and
several of the provisions and section numbers are identical.
The A&C Act, 1996 is divided
into several parts of which we are primarily concerned with Part I and II.
Part I of the A&C Act, 1996
is titled General Provisions but ostensibly deals with domestic arbitrations.
Seemingly this has replaced the Arbitration Act of 1940. It contains provisions
relating to mandatory reference of disputes to arbitration by courts where such
disputes are covered by an arbitration clause[2],
courts’ powers to grant interim relief pending the arbitration[3],
appointment of, substitution of, termination of, challenges to arbitrators[4],
powers of the arbitral tribunal[5],
procedural aspects of the arbitration proceedings[6],
the award and grounds of challenges thereto[7],
the enforcement of awards[8]
and several other provisions.
Part II of the A&C Act, 1996
is entitled Enforcement of Certain Foreign Awards and thus contains provisions
which deal with recognition, enforcement and challenges to enforcement of
awards subject to the Geneva or New York Convention. Seemingly this has
replaced the Protocol and Convention Act, 1937 and the Foreign Awards
(Recognition and Enforcement) Act, 1961. Noticeably provisions such as power of
courts to grant interim relief, challenges to the award, are missing from Part
II. This is reasonably so as a local court’s jurisdiction over arbitrations
seated outside its national jurisdiction is supposed to be limited in nature.
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.
It is noticeably different from
A. 1(2) of the Model law which provides
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 Model Law thus follows the
territorial criterion while extending to arbitrations seated abroad provisions
relating to
- mandatory reference to arbitration of disputes covered by an arbitration agreement,
- courts’ powers in granting interim measures
- enforcement of awards
The Indian legislature chose not
to re-enact these exceptions in S. 2(2) and dropped the phrase only thereby creating the impression
that the Part I applied to arbitrations not only
seated in India but also abroad.
The Indian Supreme Court in Bhatia International v. Bulk Trading SA was faced with a peculiar situation where in
an arbitration with its seat in Paris one of the parties sought measures for
interim relief from the Indian Courts. The provision relating to interim relief
not being found in relation to foreign awards under Part II, the Supreme Court
took on an enthusiastic approach and interpreted the provision This Part shall apply where the place of
arbitration is in India to mean the opposite of the phrase This Part shall apply only where the place of arbitration is in India. The
absence/omission of the word only was
held to mean that arbitrations seated outside India can be subject to the
jurisdiction of Indian courts unless the parties had expressly or impliedly
excluded the applicability of Part I of the A&C Act, 1996. The Supreme
Court found that there being no implied/express exclusion in the facts of the
case, S. 9, i.e. an Indian court’s powers to grant interim relief, was
applicable despite the arbitration being seated outside India. The exact ratio
of the Bhatia decision was as
follows:
Where such arbitration is held in India the provisions of Part I would
compulsory apply and parties are free to deviate only to the extent permitted
by the derogable provisions of Part I. In cases of international commercial
arbitrations held out of India provisions of Part I would apply unless the
parties by agreement, express or implied, exclude all or any of its provisions.
The disastrous consequences of
the Bhatia decision unfolded in a
subsequent decision of the Supreme Court in Venture Global Engineering v. Satyam Computer Services Ltd., 2010 (8) SCALE 159 As the Bhatia decision made Part I applicable
to arbitrations seated outside India unless the same was excluded by the
parties, provisions of Part I including challenges to awards were also found to
be applicable in such cases. Thus in the Satyam
decision the Supreme Court found that where parties had not excluded the
applicability of Part I of the A&C Act, 1996, the Indian Courts would have
power to set aside an award not made in India. This decision has been
criticized by several commentators including this author[9].
As can be seen over time the
Indian Courts through judicial interpretation departed from the apparent
territorial and seat centric approach of the A&C Act, 1996. This subjected
arbitrations with situs outside India, to intervention of the Indian Courts,
making Indian arbitration law anti-thetical to speedy resolution of disputes. Seeing
the malady, a small but strong voice from within the Indian legal fraternity
and the Indian judiciary began to grow, supported by luminaries and
stakeholders outside India, in an effort to realign the Indian law to be more
arbitration friendly. Several cases similar on facts to the Bhatia and Satyam cases snaked their way through the judicial hierarchy. Most
met premature deaths upon application of the precedent which they were opposed
to. However some managed to reach the Supreme Court at a time when the apex
judicial body itself began to doubt the tenability of its earlier decisions.
This resulted in the matters
being referred to the Constitution Bench of the Supreme Court for reconsidering
the Bhatia and Satyam decision.
Facts
In brief the factual situation
which arose in the batches of cases under review was similar to the factual
scenario in the Bhatia and Satyam decisions.
In one of the cases under review[10]
the parties had entered into an arbitration agreement where the lex fori agreed
to was the English Law but the substantive law agreed to was the Indian law.
The seat of arbitration agreed to was London. The arbitral tribunal issued its
award, which award was challenged before the Indian Courts under S. 34 of the
A&C Act 1996. The Supreme Court was thus called upon to decide whether S.
34, which relates to challenges to awards and which falls in Part I of the
A&C Act 1996, can apply to arbitrations with situs outside India.
In another of the cases under
review[11]
one of the parties, who admitted that the arbitration was seated in Paris and
the lex fori was French Law and the substantive law was English Law, approached
the Indian courts under S. 9 for measures of interim relief pending the
arbitration. The Supreme Court was thus called upon to decide whether S. 9,
which relates to courts’ powers to grant interim relief and which falls in Part
I of the A&C Act 1996, can apply to arbitrations with situs outside India.
Decision
The Supreme Court held that it
was unable to support the conclusions recorded in the Bhatia and Satyam decisions[12] that Part I of the A&C Act, 1996
would apply to arbitrations not taking place in India.[13]
The Court held that the A&C Act 1996 accepts the territorial criterion as
laid down by the Model Law and that Part I of the A&C Act, 1996 would thus
not be applicable to arbitrations taking place outside India. Thus no party can
approach Indian courts for interim relief or for challenging an award resulting
from an arbitration seated outside India. The Supreme Court however made its
decision prospective in applicability.[14]
In the next post we shall commence our analysis of the decision.
[1]
Civil Appeal No. 7109 of 2005
decided on 6th September 2012, along with Civil Appeal No. 6284 of
2004, White Industries Australia Ltd. v.
Coal India Ltd., along with Case No. 35 of 2007, Harkirat Singh v. Rabobank International Holding BV, along with SLP
Nos. 3589-90 of 2009, Tamil Nadu Electricity
Board v. Videocon Power Ltd., along with SLP Nos. 27824 and 27841 of 2011, Bharti Shipyard Ltd. v. Ferrostaal AG and
Anr.
[2]
S. 8
[3]
S. 9
[4]
S. 10 to 15
[5]
S. 16 and 17
[6]
S. 18 to 26
[7]
S. 29 to 35
[8]
S. 36
[9]
Alok N. Jain, Yet Another Misad-Venture by Indian Courts in the Satyam Judgment?, Arbitration International, Volume 26, Number 2, 2010, 251.
[10]
Bharat Aluminium Co. v. Kaiser Aluminium
Technical Services Inc., Civil
Appeal No. 7109 of 2005 decided on 6th September 2012
[11]
Bharti Shipyard Ltd. v. Ferrostaal AG and Anr, SLP Nos. 27824 and 27841 of 2011 decided
on 6th September 2012
[12]
Paragraph 54 and 199 of the
decision
[13]
Paragraph 76 of the decision
[14]
Paragraph 201 of the decision
No comments:
Post a Comment