|September 18, 2012|
Previously published on September 2012
The long-awaited decision of the Indian Supreme Court in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc was delivered on Thursday 6 September 2012. This landmark judgment, delivered by a five-judge constitutional bench, restricts the ability of local courts to interfere in international arbitrations seated outside India and overrules the controversial decision of Bhatia International v Bulk Trading S.A1.
However, whilst the decision is likely to be largely welcomed by the international arbitration community, it is notable that the judgment only has prospective applicability and, as such, there is no doubt for the foreseeable future that Bhatia will continue to have an impact in commercial arbitrations where arbitration agreements have already been entered into.
A brief history
In Bhatia, the Supreme Court considered a request for interim relief under Part I of the Indian Arbitration and Conciliation Act 1996 (the “Act”). Part I confers significant powers on Indian courts, including the ability to order interim measures and set aside awards. Even though Part I seemingly only applied to domestic arbitrations, the Supreme Court interpreted the Act in a manner that allowed Part I to be applied to foreign seated arbitrations, unless the parties opted out of this arrangement.
Later decisions entrenched the precedent set by Bhatia. For example, in Venture Global v Satyam Computer Services2, the Supreme Court held that foreign awards could be set aside by Indian courts under section 34 of the Act (which falls under Part I) for violating Indian statutory provisions and being contrary to Indian public policy. It therefore set aside an LCIA award rendered by a tribunal seated in London. Furthermore, in Indtel Technical Services v W.S. Atkins Plc3, the Supreme Court held that Indian courts could appoint arbitrators in arbitrations seated outside India. Decisions such as these have since been heavily criticised. Each gave further weight to the possibility of increased interference from Indian courts in foreign seated arbitrations, and were dispiriting for the international arbitration community, including Indian and foreign investors alike.
It is perhaps in light of such public criticism that there has been a growing trend amongst the Indian judiciary to restrict the applicability of Part I of the Act. Cases such as Videocon Industries v Union of India and Yograj Infrastructure v Ssang Yong Engineering have demonstrated the courts’ willingness to find an implied exclusion of Part I where a foreign seat and foreign governing law have been chosen. As such, there has been a distinct move away from Bhatia and Indian court interference in recent years, paving the way for Bharat Aluminium and its final clarification on the issue.4
Key implications of the Judgment
Thursday’s Supreme Court ruling in the Bharat Aluminium case means that Indian courts will no longer be able to set aside awards or issue interim measures in respect of arbitrations seated abroad. This ends years of uncertainty for the international arbitration community and allows arbitration to be seen as a much more viable method for dispute resolution in India. The key favourable implications of the judgement are as follows:
The Supreme Court has confirmed that there can be no “overlapping or intermingling” of the provisions contained in Part I of the Act with the provisions contained in Part II (which relates to the enforcement of foreign awards).
Part I of the Act will have no application to international commercial arbitrations, seated outside India.
The seat or legal place of the arbitration is the “centre of gravity” in an international arbitration.
Awards rendered in commercial arbitrations seated outside India will only be subject to the jurisdiction of the Indian courts when they are sought to be enforced in India in accordance with the provisions contained in Part II of the Act.
The Indian courts cannot order interim relief under Section 9 or any other provision of the Act in support of foreign seated arbitrations. Parties will therefore need to rely on the relief afforded by the courts of the jurisdiction in which the arbitration is seated. As the choice of seat can have significant implications for the way an arbitration is conducted, parties should carefully consider their choice at the drafting stage.
However, rather disappointingly, the decision of Bharat Aluminium only applies to arbitration agreements entered into after 6 September 2012. It is not completely clear why this decision has been taken, as the judgment provides very little explanation, other than to say that it is to ensure “complete justice”.
The judgment is likely to be welcomed by the international arbitration community. It seems to restore the original intention of the Act and provides much needed certainty for those involved in Indian- related commercial contracts where arbitration is provided as the method of dispute resolution. It should also have a positive impact on the way in which India is viewed from an international arbitration perspective; providing parties with a greater incentive to arbitrate rather than being forced to resort to the protracted litigation in Indian courts.
However, the fact that the judgment has only prospective applicability is likely to cause some concern for those who have already entered into arbitration agreements involving business or transactions in India. Since the earlier decision, experienced practitioners have been drafting arbitration clauses to exclude Part I of the Act. Where this has not been dealt with in clauses drafted before 6 September 2012 some uncertainty will remain.
Overall this is a positive development which should strengthen the Indian arbitration regime and put India on the map of arbitration friendly nations.
Bhatia International v Bulk Trading S.A. & Anr (2002) 4 SCC 105.
- Venture Global Engineering v Satyam Computer Services Ltd., (2008) 4 SCC 190
- Indtel Technical Services Pvt Ltd v W. S. Atkins Plc, (2008) 10 SCC 308
- Further cases demonstrating a move away from the Bhatia decision include: Dozco India Pvt. Ltd. v Doosan Infracore Co. Ltd., (2011) 6 SCC 179; Penn Racquet Sports v Mayor International Ltd, (2011) 1 ARBLR 244 (Delhi) [decided on 11 January 2011] ; Phulchand Exports Ltd v OOO Patriot, (2011) 10 SCC 300 [decided on 12 October 2011] ; Indiabulls Financial Services Ltd v Amaprop Limited & Anr. [O.M.P 287 of 2011] [decided on 18 May 2012]