Kathmandu School of Law Review

P-ISSN : 2091-2110, E-ISSN : 2773-8159, DOI : 10.46985, Publisher : Kathmandu School of Law, Nepal
Annual flagship journal of Kathmandu School of Law, Nepal

Volume 2, Issue 1, April 2013
Case Comment

Setting Aside Foreign Seated Arbitral Awards: Indian Supreme Court Introspects

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  • Badrinath Srinivasan
    ,
  • Roshni Rajiv
Badrinath Srinivasan
B.A. (Law) LL.B. (S.D.M. Law College, Mangalore, India), LL.M. (West Bengal National University of Juridical Sciences Kolkata, India)
Bio
Roshni Rajiv
B.S.L. LLB (ILS Law College, Pune, India), Licentiate Company Secretary, Public Sector Undertakings
Bio

Published 2013-04-30

Keywords

  • No Keywords.

How to Cite

Srinivasan, B. ., & Rajiv, R. . (2013). Setting Aside Foreign Seated Arbitral Awards: Indian Supreme Court Introspects. Kathmandu School of Law Review, 2(1), 191–206. Retrieved from https://kslreview.org/index.php/kslr/article/view/1023

Abstract

This paper primarily provides a descriptive comment on the developments leading to the decision in BALCO from the passing of the 1996 Act and briefly analyses the effect of BALCO on arbitration in India. It provides a contextual background to the Indian Supreme Court’s decision in BALCO which has received wide acclamation in the international arbitration community. It discusses on the historical background of the 1996 (Indian) Arbitration and Reconciliation Act, the case regarding Bhatia International and developments subsequent to Bhatia International and proceeds towards a descriptive comment on BALCO and its effects on Indian arbitration.

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References

  1. Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Co. 9 SCC 552. (India 2012)
  2. Bhatia International v. Bulk Trading SA AIR 2002 SC 1432(India) (BALCO)
  3. Hereinafter ‘Act’ or ‘1996 Act’.
  4. Gary Born & Suzanne Spears, ‘International Arbitration & India: “A Truly Excellent Judgement”’ (2012) 1 Indian Journal of Arbitration Law 6, 10.
  5. Hereinafter ‘1937 Act’.
  6. Protocol on Arbitration Clauses, Geneva (entered into force 23 July 1924) 27 LNTS 157.
  7. Geneva Convention on the Execution of Foreign Arbitrated Awards (adopted 26 September 1927) 2 LNTS 301 (Geneva Convention).
  8. Hereinafter ‘1961 Act’.
  9. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted 10 June 1958) 330 UNTS 38 (New York Convention).
  10. Guru Nanak Foundation v. Rattan Singh and Sons 4 SCC 634 (India 1981).
  11. Hereinafter ‘UNCITRAL’.
  12. UNCITRAL Model Law on International Commercial Arbitration (adopted 21 June 1985) UN Doc A/40/17 (Model Law).
  13. Sandeep S. Sood, ‘Finding Harmony with UNCITRAL Model Law: Contemporary Issues in International Commercial Arbitration in India after the Arbitration and Conciliation Act of 1996’ (2007) <http://works.bepress.com/sandeep_sood/1/> accessed 4 March 2013.
  14. See Statement of Objects and Reasons to the Arbitration and Conciliation Bill 1995 which, inter alia provides: ‘The present bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules.’ (emphasis added)
  15. Notification No. GSR. 375(E) (22 August 1996); See generally (for a detailed discussion of the historical background to the 1996 Act ) Anirudh Wadhwa et al (eds.), Justice RS Bachawat’s Law of Arbitration and Conciliation (5th edn, LexisNexis Butterworths 2010) 1-11.
  16. Section 2(1)(f) of the 1996 Act defines International Commercial Arbitration as ‘an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is- (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country.’
  17. Section 9 of the 1996 Act provides: ‘Interim measures etc.by Court.- A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court-(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure or protection in respect of any of the following matters, namely:- (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.’
  18. See Suzuki Motor Corporation v. Union of India & Anr. 1997(2) Arb.L.R 477 (Delhi); See also Dominant Offset Pvt. Ltd. v Adamovske Strojirny A.S. 1997(2) Arb. LR 335 (Del.); See also L.M.L. Ltd. v. Union of India MANU/UP/0744/1998 (DB); See also OlexFocas Pty. Ltd. v. Skodaexport Co. Ltd. 1999 (Suppl.) Arb. LR 533 (Delhi); See also Naval Gent Maritime Ltd. v. Shivnath Raj Harnarain (I) Ltd. MANU/DE/1354/2000; Khanji Exports Pvt. Ltd. v . Shiptrade Inc. MANU/DE/1353/2000; See also Cultor Food Science Inc. v. Nicholas Piramal India Ltd. and Ors. MANU/AP/0072/2002.
  19. See East Coast Shipping v M.J. Scrap 1 Cal HN 444 (1997); See also Kitechnology NV v. Unicor GmBH Rahn Plastmaschinen 1999(1) Arb. LR 452(Delhi); See also Marriott International Inc. &Ors. v. Ansal Hotels Limited &Anr. 2000(3) Arb. LR 369 (Delhi) (DB); See also Bharti Televentures Limited v.DSS Enterprises Private Limited MANU/DE/0600/2001, para 28.
  20. Hereinafter ‘Bhatia’.
  21. Hereinafter ‘ICC’.
  22. Section 2(4) reads: ‘(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provision of this Part are inconsistent with that other enactment or with any rules made thereunder;’
  23. Section 2(5) states: ‘Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto.’ 26 Section 2(2) reads: ‘This Part shall apply where the place of arbitration is in India.’ 27 Bhatia International (n 4) para 32.
  24. Venture Global Engineering v Satyam Computer Services Ltd. 4 SCC 190 (2008); AIR 2008 SC 1061.
  25. See National Aluminium Co. Ltd. v. Gerald Metals 2004(2) Arb LR 382 (AP); See also J.K. Industries Limited v. D.S. Strategem Trade A.G. MANU/DE/8771/2007; Venture Global Engineering v. Satyam Computer Services Ltd. 4 SCC 190(2008), AIR 2008 SC 1061; Citation Infowares Ltd. v. Equinox Corporation 7 SCC 220(2009); Abbas Cashew Company v. Bond Commodities cited in <http://www.indiankanoon.org/doc/1593428/> accessed April 20, 2011.
  26. Liverpool and London Steamship Protection and Indemnity Association Ltd. v. Arabian Tankers Co.
  27. (3) Arb LR 537 (Bom); Max India v. General Binding Corporation 112 DRJ 611 (2009); DGS Realtors Pvt. Ltd. v. Realogy Corporation MANU/DE/2115/2009; Dozco India P .Ltd. v. Doosan Infracore Co. Ltd. 6 SCC 179(2011).
  28. See (for a discussion on the conflicting views of various Indian courts on the implied exclusion of Part I of the 1996) Badrinath Srinivasan, ‘Arbitration and the Supreme Court: A Tale of Discordance between the text and Judicial Determination’ (2011) 4 NUJS L Rev 639, 641-643.
  29. See, F. S. Nariman, ‘Ten Steps to Salvage Arbitration in India: The First LCIA-India Arbitration Lecture’ (2011) 27 Arb. Int 115; See also Ministry of Law and Justice, Government of India, ‘Proposed Amendments to the Arbitration & Conciliation Act, 1996: A Consultation Paper’ (April 2010) (Consultation Paper).
  30. Hereinafter “Bharat Aluminium”.
  31. The arbitration and choice of law clause in the said agreement reads: ‘Article 17.1 – Any dispute or claim arising out of or relating to this Agreement shall be in the first instance, endeavour to be settled amicably by negotiation between the parties hereto and failing which the same will be settled by arbitration pursuant to the English Arbitration Law and subsequent amendments thereto. Article 17.2 – The arbitration proceedings shall be carried out by two Arbitrators one appointed by BALCO and one by KATSI chosen freely and without any bias. The court of Arbitration shall be held wholly in London, England and shall use English language in the proceeding. The findings and award of the Court of Arbitration shall be final and binding upon the parties.
  32. Article 22 – Governing Law – This agreement will be governed by the prevailing law of India and in case of Arbitration, the English law shall apply.’
  33. The Order of two Judge Bench reads ‘In the midst of hearing of these appeals, learned counsel for the appellant has referred to the three- Judges Bench decision of this Court in Bhatia International Vs. Bulk Trading S.A. &Anr., (2002) 4 SCC 105. The said decision was followed in a recent decision of two Judges Bench in Venture Global Engineering Vs. Satyam Computer Services Ltd. &Anr. 2008 (1) Scale 214. My learned brother Hon'ble Mr. Justice Markandey Katju has reservation on the correctness of the said decisions in view of the interpretation of Clause (2) of Section 2 of the Arbitration and Conciliation Act, 1996. My view is otherwise. Place these appeals before Hon'ble CJI for listing them before any other Bench.” BALCO (n 4) para 1.
  34. Several other cases were decided along with the case by the constitutional bench since common questions arose.
  35. Proviso to Section 1(2) of the 1996 Act reads ‘Provided that 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 or, as the case may be, international commercial conciliation.’
  36. BALCO(n 4) paras 54-58; See also (for a detailed critique of BALCO on this aspect) Badrinath Srinivasan, ‘Review of the Consultation Paper on Proposed Amendments to the Arbitration and Conciliation Act, 1996- Part I’ (2010) < http://practicalacademic.blogspot.in/2010/05/review-ofconsultationpaper-on.html> accessed 8 March 2013.
  37. Ibid paras 60-63.
  38. ‘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.’ (emphasis added). Model Law (n 14) art 1(2).
  39. BALCO (n 4) paras 68, 77.
  40. Ibid para 80.
  41. BALCO (n 4) paras 81-85.
  42. Section 2(7) of the 1996 Act reads ‘An arbitral award made under this Part shall be considered as a domestic award.’
  43. BALCO (n 4) para 88.
  44. Section 44 of the 1996 Act reads ‘In this Chapter, unless the context otherwise requires," foreign award"
  45. means an arbitral award on differences between persons arising out of legal relationships.’ 47 Section 53 of the 1996 Act reads ‘In this Chapter" foreign award" means an arbitral award on differences relating to matters considered as commercial under the law in force in India.” 48 BALCO (n 4) para 89.
  46. Section 9(b) of the 1961 Act reads ‘Saving: Nothing in this act shall…(b) Apply to any award made on an arbitration agreement governed by the law of India.’
  47. BALCO (n 4) paras 91-94.
  48. Section 20(3) reads ‘Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.’
  49. BALCO (n 4) paras 96-99.
  50. BALCO (n 4) para 122.
  51. Section 28(1) (b) of 1996 Act reads as ‘Rules applicable to substance of dispute :In international commercial arbitration- i. the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute; ii. any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to die substantive law of that country and not to its conflict of laws rules; iii. failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.’ 55 BALCO (n 4) paras 124-129.
  52. BALCO (n 4) paras 130-131.
  53. BALCO (n 4) paras 135, 157.
  54. Ibid para 163.
  55. Ibid para 174.
  56. Ibid 161, 163.
  57. BALCO (n 4) para 170.
  58. Ibid para 167.
  59. Ibid para 168.
  60. See Code of Civil Procedure 1908 (Indian) Order VII, rules 1, 11(e); See also Specific Relief Act, 1963 (Indian), ss. 14(2), 37, 38.
  61. Cotton Corporation of India v. United Industrial Bank AIR 1983 SC 1272.
  62. Ashok Kumar Lingala v. State of Karnataka 1 SCC 321(2012).
  63. See (for a critique of BALCO) V. Niranjan & Shantanu Narvane, ‘Bhatia International Rightly Overruled: The Consequences of Three Errors in BALCO’ (2012) 9 SCC J-26 (where the authors point out three ‘not prominent’, ‘subsidiary’ errors in BALCO which do not ‘apply to foreign arbitration’).
  64. There is also another aspect of BALCO that has been criticized. As regards arbitration held in India, the appropriate court which would have jurisdiction in respect of the arbitral proceedings is the court, but for the arbitration, would have jurisdiction under the Code of Civil Procedure 1908(Indian). It has been suggested that BALCO holds that in addition to such a court, the appropriate court in the seat of arbitration would also have jurisdiction. For detailed analysis of this issue. Ibid 33; Chakrapani Misra & Arijeet Mukherjee, ‘The ViewpointTerritorial Jurisdiction of Civil Courts for Recourse against Arbitral Award’ (5 March 2013).
  65. <http://barandbench.com/brief/1/3265/the-viewpoint-territorial-jurisdiction-of-civil-courts-forrecourseagainst-arbitral-award> accessed 6 March 2013.
  66. BALCO (n 4) para 197.
  67. BALCO (n 4) para 159.
  68. Ibid para 161.
  69. Ibid para 66.
  70. Ibid para 197.
  71. The authors argue that the court was wrong to hold that the Code of Civil Procedure 1908 does not support interim measures in foreign seated arbitration. Niranjan & Narvane (n 67) 75 BALCO (n 4) para 200.
  72. Sumit Rai, ‘Indian Supreme Court Overrules Bhatia International – Or Does It?’ (2012) <http://blogarbitration.com/2012/09/06/indian-supreme-court-overrules-bhatia-international-or-does-it/> accessed 6 March 2013.
  73. Niranjan & Narvane (n 67); SK Dholakia& Aarthi Rajan, ‘Not Three but Half an Error in BALCO: Bhatia International Rightly Overruled’ (2013) 1 SCC J-81.
  74. Ashish Chugh, ‘The Bharat Aluminium Case: The Indian Supreme Court Ushers In a New Era’ (2012) <http://kluwerarbitrationblog.com/blog/2012/09/26/the-bharat-aluminium-case-the-indian-supremecourtushers-in-a-new-era/> accessed 6 March 2013.
  75. The authors argue that the court’s prospective application was ‘understandable’. See Born & Spears (n 6) 9.
  76. Sumit Rai, ‘Indian Supreme Court Overrules Bhatia International – Or Does It?’ (2012) <http://blogarbitration.com/2012/09/06/indian-supreme-court-overrules-bhatia-international-or-does-it/> accessed 6 March 2013.
  77. Yograj Infrastructure Ltd. v. Ssang Yong Engineering and Construction Co. Ltd. (I)AIR 2011 SC 3517,9 SCC 735(2011).
  78. MANU/SC/1495/2011.
  79. Whether parties would be willing to renegotiate their arbitration clauses is a critical question. Assume that parties had agreed to a hypothetical clause mentioned above. The right to approach the Indian court under Section 9 for interim measures would be available to the American party. However, if the parties amend their arbitration clause after 06.09.2012, BALCO would not permit the American party to approach the Indian courts. Therefore, renegotiation of arbitration clauses may not happen.
  80. Niranjan & Shantanu Narvane (n 67); Contradicts with Dholakia & Aarthi Rajan, ‘Not Three but Half an Error in BALCO: Bhatia International Rightly Overruled’ (2013) 1 SCC J-81, 98-99.
  81. V. Niranjan & Shantanu Narvane, ‘Bhatia International Rightly Overruled: The Consequences of Three Errors in BALCO’ (2012) 9 SCC J-26,43-44; Contradicts with SK Dholakia & Aarthi Rajan, ‘Not Three but Half an Error in BALCO: Bhatia International Rightly Overruled’(2013) 1 SCC J-81, 99 (affirming the said criticism).
  82. See Suzuki Motor Corporation v. Union of India Anr. 1997(2) Arb.L.R 477 (Delhi); See also Dominant Offset Pvt. Ltd. v. Adamovske Strojirny A.S 1997(2) Arb. LR 335 (Delhi); See also Olex Focas Pty. Ltd. v. Skoda export Co. Ltd. 1999(Suppl.) Arb. LR 533 (Delhi); See also Naval Gent Maritime Ltd. v. Shivnath Raj Harnarain (I) Ltd. MANU/DE/1354/2000; See also Khanji Exports Pvt. Ltd. v. Shiptrade Inc. MANU/DE/1353/2000; See also Cultor Food Science Inc. v. Nicholas Piramal India Ltd. and Ors. MANU/AP/0072/2002.
  83. See Venture Global Engineering (n 28).
  84. Niranjan & Narvane (n 83) 44.