- Article by Marko Kraljevic, Devika Khanna, Alec Emmerson, Nassif BouMalhab, Sumeet Hall, Harsh Pratap, Steven Lim, Sapna Jhangiani, Ian Cocking and Ik Wei Chong
Summary
The Indian Supreme Court has recently reversed a judgment it
made in 2002, and has held that the power to set aside awards in
Section 34 of Part I of the Indian Arbitration Act ("the
Act") applies only to arbitrations seated in India. The
Supreme Court confirmed that "on a plain reading, Part I is
limited in its application to arbitrations which take place in
India". Part II of the Act deals with the recognition
and enforcement for foreign awards under the New York Convention
and limits judicial intervention in line with the Convention.
Whilst this is good news for foreign parties, the Supreme Court
also held (rather unfortunately) that its decision would only apply
to arbitration agreements executed after the date of the judgment
(6 September 2012). The previous difficulties and challenges
therefore remain for current arbitrations and future arbitrations
arising from contracts made before 6 September this year.
In a similarly unfortunate vein, the Supreme Court also held on
a strict construction of the Act, that the Indian courts do not
have the power to grant interim relief in support of arbitration
proceedings seated outside India, nor is there any inherent
jurisdiction to do so outside the Act. The Indian courts
therefore will not in the future make, for example, injunctions
freezing assets nor order the arrest of ships, where the principal
dispute is subject to a foreign arbitration clause.
Background
Bhatia International -v- Bulk Trading S.A.1 decided
by the Supreme Court in 2002, unleashed the excessive
interventionist role of the judiciary in international commercial
arbitrations, thereby negating the intent and purpose of the
Arbitration Act, 1996.
While deciding a Section 9 petition (for interim measures) in an
ICC arbitration, a three judge bench of the Supreme Court
unanimously held that all provisions of Part I, including Section
9, are applicable to international commercial arbitrations held
outside India. The Court further held that while in the case
of "domestic arbitrations", the provisions of Part I
compulsorily apply, in "foreign arbitrations" Part I
applies unless the parties have expressly or impliedly excluded its
provisions. The Supreme Court then decided in 2003 in
ONGC -v- Saw Pipes2 that a foreign
award that conflicted with Indian law would be contrary to public
policy and unenforceable.
Venture Global Engineering Case -v- Satyam Computer
Services Ltd.3 (which relied upon the
Bhatia International case) added to the misery of
international businesses and expounded the scope of Court's
intervention in enforcement of foreign arbitral awards. The
Court effectively made explicit what was otherwise implicit by
holding in relation to an LCIA award rendered in London that even
though there was no provision in Part II of the Act providing for
challenge to a foreign award, it could not be construed that the
Legislature did not intend to provide the same since there was no
need for the Legislature to repeat what was already included in the
general provisions of Part I unless and until it wanted to include
a contrary procedure.
By giving such an interpretation the Court effectively made the
Act extraterritorial in its operation. Part I was made
applicable to international commercial arbitration held outside
India unless expressly or impliedly excluded by the parties.
Fortunately (from the point of view of foreign companies who
might have claims in arbitration against Indian companies) during
the course of the last year or so prior to Bharat several judgments
in Calcutta and the Supreme Court put in doubt the earlier
judgments and eventually a five judge Constitutional Bench
reconsidered Bhatia and Venture Global in the Bharat case, which
was consolidated with other appeals raising similar issues and
heard together with "amicus" briefs on behalf of
international arbitral institutions with an interest in the
outcome. The course of the hearing was monitored globally by
interested arbitration practitioners and companies involved in
arbitration with Indian parties.
Judgment
In the judgment delivered on 6 September the principles laid
down in Bhatia and Venture Global was over-ruled and the Court
held:
- Part I of the Act has no applicability to International Commercial Arbitration held outside India;
- Part I of the Act shall apply to all arbitrations which take place within India;
- There can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Act;
- In a foreign seated international commercial arbitration, no application for interim relief is maintainable under Section 9 or any other provision, as applicability of Part I is restricted to all arbitrations which take place in India;
- No suit for interim injunction is maintainable in India, when the seat of arbitration is outside India;
- As Part I has no applicability to international commercial arbitration held outside India, arbitral awards in foreign seated arbitrations will be subject to the jurisdiction of Indian courts when they are sought to be enforced in accordance with Part II of the Act.
Comment
Although the judgment may have restored some faith in the
international community in relation to arbitrating disputes with
Indian parties, the Supreme Court does seem to have thrown the baby
out with the bath water by making the judgment apply only to
arbitration agreements entered into after 6 September 2012 and by
ousting the jurisdiction of the Indian Courts to grant interim
relief in support of any foreign arbitration whatsoever.
As a result, it seems that for quite some years practitioners
and parties will have to bear in mind that there are two possible
regimes which will apply (pre and post 6 September 2012 arbitration
agreements).
As this is a judgment of the highest court in India, it is
likely only to be possible to remedy the unfortunate aspects by
legislation to make the operation of the Act more effective in the
context of international arbitration. Even if there is a
political will to do this, it will likely not be a speedy
process.
Footnotes
1 (2002) 4 SCC 105
2 (2003) 5 SCC 705
3 (2008) 4 SCC 190
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