APPLICABILITY OF PART I TO INT’L COMMERCIAL ARBITRATION: PROLEGOMENON TO

DECIDING THE ISSUE IN

BHARAT ALUMINIUM

1.0 INTRODUCTION Arbitration, as a method of dispute resolution, has been around since the olden days. Earlier, traders were the main beneficiaries of this mode of dispute settlement. 1 Yet, the process and the categories of beneficiaries themselves have undergone a lot of change,2 without changing the basic and intrinsic characteristics of this fast growing mode of dispute resolution. Arbitration is the mode of dispute resolution that depends on the contractual agreement between the parties to resolve their dispute whether present of futuristic, and the decision of the arbitrator in this regard is considered as final and binding. This is the intrinsic difference between arbitration and other “alternative” modes such as mediation and conciliation, and is the most significant similarity of arbitration to the Court mechanism. In India, all arbitration matters are governed under the Arbitration and Conciliation Act, 1996 [hereinafter referred to as the “Act” or the “said Act”]. In matters of International Commercial Arbitration [hereinafter referred to as “ICA”], where either an individual is a national of or habitually resident in another country, or where a body corporate, or the central management are in another country, the enforcement becomes harder. Thus, it the light of the review of Bhatia International by the Constitution Bench deciding similar issues in Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical,3 it becomes
1

ALAN REDFERN & MARTIN HUNTER, INTERNATIONAL COMMERCIAL ARBITRATION (Sweet and

Maxwell, Cambridge University Press London, 2nd Ed. 1996); Bret Fulkerson, A Comparison of Commercial Arbitration: United States & Latin America, 23 Hous. J. Int'l L. 537, 539 (2001);
2

J. Schaefer, New Solutions for Interim Measures of Protection in International Commercial Arbitration:

English, German and Hong Kong Law Compared, Vol 2.2 Electronic Journal of Comparative Law, (August 1998).
3

From the High Court decision in Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical, AIR 2005 Chh

21.

1

imperative to consider S. 2(2) of the Act on which the controversy hinges on, its applicability to ICA and the history of possibly the biggest controversy of the past decade. 2.0 PRE-BHATIA AND PRE-VENTURE SCENARIO 2.1 LEGAL SCENARIO BEFORE BHATIA INTERNATIONAL V. BULK TRADING According to the Act, Part I applies where the place of arbitration is in India. 4 In Dominant Offset Pvt. Ltd. v. Adamovske Strojirny AS,5 the Delhi High Court categorically stated that Part I also applies to ICA held outside India as well. The Court stated the interpretation of S.2 6 clearly says that the definition is inclusive and does not exclude the applicability of Part I to those arbitration not held in India. In Marriot International Inc. v. Ansal Hotels Ltd,7 though the judge did not answer specifically to the said question, however in Olex Focas (P) Ltd. v. Skodaexport Co. Ltd,8 the Court declared itself competent to grant interim relief even if arbitration is held outside India. Yet, in Marriot International Inc. v. Ansal Hotels Ltd9, the above two stood impliedly overruled supporting the decisions of the Calcutta High Court10 that S. 2(2) of the Arbitration and Conciliation Act does not apply to arbitration held outside India. All these decisions related to application of S. 9 to ICA when clearly there was no such provision available in Part II and the Court was led to harmoniously construe the said provision with the objective of the act itself. Yet there was nothing concrete that could arise from the same as the judiciary of different states was divided between literally or harmoniously construing the said provisions.
4 5 6

Arbitration and Conciliation Act (Act no. 26 of 1996) Section 2(2) (1996). Dominant Offset Pvt. Ltd. V. Adamovske Strojirny AS, 1997 (2) Arb LR 335 (Del HC). S. 2(2) of the Arbitration and Conciliation Act, 1996 (Act no. 26 of 1996) states that, “(2) This Part shall apply where the place of arbitration is in India.” Marriot International Inc. v. Ansal Hotels Ltd, 2000 (1) Arb LR 45 (Del HC). Olex Focas (P) Ltd. v. Skodaexport Co. Ltd, AIR 2000 Delhi 161. Marriot International Inc. v. Ansal Hotels Ltd, AIR 2000 Del 377; East Coast Shipping v. MJ Scrap, (1997) 1

7 8 9

Cal. HN 444; Kitechnology N.V. v. Union Gmbh Plastmaschinen (1998) 47 Del. RJ 397; White Industries Australia Ltd v. Coal India Ltd, 2004 (2) Cal LJ (Cal) 197.
10

East Coast Shipping Ltd. V. M.J. Scrap Pvt. Ltd, 1997 (1) Chn. 444 (Calcutta).

2

2.2 BHATIA INTERNATIONAL CASE AND ITS IMMEDIATE IMPLICATIONS: Whether Part I of the Arbitration and Conciliation Act of 1996 could be said to apply to ICA was first looked at the Supreme Court in the landmark decision of Bhatia International. In this case an Indian Party contracted with an American Party for dispute resolution by the International Chamber of Commerce in Paris, thus presenting a myriad of difficulties before the Court that had never before handled such a complex matter in relation to International Arbitration. The Supreme Court in Bhatia International stated that Jurisdiction of Courts in matter of ICA cannot be implied but express. The provisions of Part I of the Arbitration and Conciliation Act apply to ICA as well. Therefore an application could be made under S. 9 of the said Act. The Court while overruling Marriott International Inc. v. Ansal Hotels Ltd.11 and Keventor Agro Ltd. v. Seagram Company Ltd.,12 stated that S.9 could be made applicable to ICA as well. The very object of the Arbitration and Conciliation Act, 1996 was to establish a uniform legal framework for the fair and efficient settlement of disputes arising in ICA. The Court while admitting to the fact that it should adjudicate, not legislate and notwithstanding by the same stated that Courts are “finishers, refiners, and polishers of legislatures which gives them in a state requiring varying degrees of further processing”.13 Therefore, if the language of the statute is capable of bearing more than one meaning, then the Court must have regard to the consequences that the said decision would have on matters having similar point of law. A reasonable and sensible interpretation should be selected.14 Uncertainty, friction or confusion should be avoided from creeping into the system.15
11 12

Marriot International Inc. v. Ansal Hotels Ltd, AIR 2000 Del 377 (2000). Keventor Agro Ltd. v.Seagram Company Ltd., 1998 APO Nos. 490, 499 of 1997 and CS No. 592 of 1997 Corrocraft Ltd. vs. Pan American Airways [1969] 1 All E.R. 82. Johnson vs. Moreton (1978) 3 All. ER 37; Stock vs. Frank Jones (Tipton) Ltd. 1978) 1 All. ER 948. Shanon Realites Ltd. vs. Sant Michael 1983 ECR 2163 (SC)

dated 27.01.1998 (Cal).
13 14 15

3

The Court can accept that Part I does not apply to ICA held outside India, but that would mean that if the said ICA appears in a non convention country i.e. a country not signatory to either the New York or the Geneva Convention, then there would be no remedy provided to the parties in any dispute arising out of it. This would mean that there is a lacuna in the Act, in so far as the application of the Part I to non-convention countries can be brought into question. It could also lead to an anomalous situation inasmuch Part I would apply to Jammu and Kashmir in all ICA but Part I would not apply if the place of arbitration is not in India. This would further be in conflict with Section 1 itself stating that the Act extends to the whole of India. Further, the Courts reiterated that such a situation should not arise where a party is left remediless when it comes to interim relief. This could not have been held to be the intention of the Act in any way. Further, any contention that such a decision would in all probability lead to unnecessary intervention by the Courts can easily be rebutted by the fact that the Courts, under S. 516 can only intervene except where it is so provided. Thus, this would only arrive at application for interim measures mentioned in clauses 9(i) and (ii). Therefore there can be no challenges to the existence or validity of arbitration agreements and jurisdiction of the tribunal; as such challenges must be introduced in front of the Arbitral Tribunal itself. Therefore Part I of the Arbitration and Conciliation Act would apply to all proceedings and arbitrations thereto. Further, where any arbitration is held in India the provisions of Part I would compulsorily apply. In ICAs held outside India, Part I would apply unless there is an express or implied exclusion of the same. In that case, the law chosen by the parties would

16

S. 5 of the Arbitration and Conciliation Act (Act no. 26 of 1996) reads as follows:

Extent of judicial intervention: 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.

4

prevail and govern the Arbitration agreement. Any provision of Part I contrary to or excluded by that law would in those circumstances not apply. Further, the Court criticised the legislation stating that it was not well drafted. Therefore, the Court had to resort to an interpretation that would not expose this. Hence a proper and conjoint reading of the provisions is thus necessary. This interpretation also did not leave a party remediless. The Supreme Court has further accepted this interpretation in Aurohill Global Commodities Ltd. v. M.S.T.C. Ltd17 that Part I shall be applicable to ICA as well and even if the parties follow the ICC rules to the extent permissible. Further the Court in another matter,18 the Court took into consideration the fact that In Bhatia International the Court was considering a pre-award situation. Further the Courts have on several occasions agreed to the fact that while examining a particular statute the jurisdiction of a Court can only be ousted if the very statutory provision explicitly indicates or by inferential conclusion the Court arrives at the same when such a conclusion is the only conclusion.19 Further, the Supreme Court has stated in INDTEL Technical Services Pvt. Ltd. v. W.S. Atkins PLC20 that unless Part I of the Arbitration and Conciliation Act, 1996 cannot be excluded unless there is an express provision to the contrary mentioned in the agreement when a matter comes under ICA. The Court accepted that Part I would not be excluded in matters of ICA even when it was held outside India unless there was an express exclusion. Therefore the Court has on multiple occasions stated that Part I is applicable to ICA in India as well unless there is express exclusion to the contrary. Thus, Bhatia International laid down the rule relating to applicability of Part I and the implied or express exclusion rule.
17 18 19 20

AIR 2007 SC 2706 : (2007) 3 CompLJ 403 (SC). Centorade Minerals and Metal Inc v. Hindustan Copper Limited, 2006 (3) ArbLR 201 (SC). I.T.I Ltd v. Siemens Public Communications Network Ltd, AIR 2002 SC 2308. AIR 2009 SC 1132; Shri Kailash Chand and Anr. v. Shri Dharam Dass, (2004) 8 SCC 482; Sumitomo

Corporation v. CDC Financial Services (Mauritius) Ltd and Ors. [2008] 4 SCC 91.

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2.3 THE INFAMOUS VENTURE GLOBAL ENGINEERING LTD CASE: A Foreign Award must fulfil two requirements – • First it must deal with differences arising out of a legal relationship (whether contractual or not) considered as commercial under the laws in force in India. • The second requirement is that is that the country where the award has been issued must be a country notified by the Indian government to be a country to which the New York Convention applies. The Supreme Court of India in its Landmark Judgment in Venture Global Engineering Ltd. clearly stated that Part I of the Arbitration and Conciliation Act can not only be used to challenge interim orders but also Foreign Arbitral Awards. The Court while laying emphasis on the Saw Pipes Judgment also stated that the award can be struck down in India if its against our Public policy. Unless the parties expressly exclude all or any of the provisions, Part I would apply. The Supreme Court while reciprocating the Saw Pipes Judgment21 stated that the application of S. 34 to Foreign Arbitration Awards would not be inconsistent with any if the provisions of the Act. Further, if such awards could not be challenged or enforced in India by these means then the Judgment-debtor cannot be deprived of his right under S. 34 of the Arbitration and Conciliation Act to invoke the public policy of India to set aside the award. Therefore, this application is not opposed to S. 48 of the Arbitration and Conciliation Act. Therefore, where an award is opposed to public policy in India, merely because the Judgment debtor resides abroad, the award should be enforced against properties situated in India. The location of the Judgment debtor should hence be immaterial and the subject matter should be the properties. The Supreme Court also enumerated that Public Policy of India includes:
21

Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., [2003] 3 SCR 691 (hereinafter “Saw Pipes”)

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(a) The fundamental policy of India; or (b) The interests of India; or (c) Justice or morality; or (d) in addition, if it is patently illegal. It was also contended, that if an award is taken for enforcement to a Foreign Country for enforcement then, the Public policy of India could be bypassed in that regard. 22 The Court categorically stated that the general provisions of Part I including S. 5 apply to all chapters and hence parts of the Act. Further, neither S. 45, nor S. 52 expressly or explicitly exclude the applicability of Part I to foreign arbitral awards. Part II of the Act speaks about the enforcement of certain foreign awards. Section 48 speaks about conditions for enforcement of foreign awards. Section 48(1) (e) read with Section 48(3) of the Act specify that an action to set aside the Award would lie to the competent authority. The competent authority should be the country of the curial law of arbitration, but in the extremely rare situation where the curial law differs from the law of the country, then such a challenge should only lie to the country where the foreign award was made. This principle has been recognized by Courts in United States, United Kingdom23 as well as by several Indian High Court judgments.24 By omitting to provide that Part I will not apply to ICAs which take place outside India the effect would be that Part I would also apply to ICAs held out of India. But by not specifically providing that the provisions of Part I apply to ICAs held out of India, the intention of the
22 23

Pratabmull Rameshwar v. K.C. Sethia Ltd., AIR 1960 Cal 702. C v. D (2007) EWHC 1541 (England and Wales). Nirma Ltd. v. Lurgi Energie Und Entsorgung GMBH, Germany AIR 2003 Guj 145; Bombay Gas Company

24

Limited v. Mark Victor Mascarenhas and Ors. 1998 1 LJ 977 (Bombay HC); Inventa Fischer Gmbh & Co., K.G. v. Polygenta Technologies Ltd. 2005 (2) BomCR 364; Trusuns Chemical Industry Ltd. v. Tata International Ltd. AIR 2004 Guj 274; Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical Services AIR 2005 Chh 21(Chennai); Bulk Trading SA v. Dalmia Cement (Bharat) Limited (2006) 1 Arb.LR 38(Delhi).

7

legislature appears to be to allow parties to provide by agreement that Part I or any provision therein will not apply. Thus in respect of arbitrations which take place outside India even the non-derogable provisions of Part I can be excluded. Such an agreement may be express or implied. To avoid enforcement of the award under S. 48 of the Arbitration and Conciliation Act, 1996, and to avoid the jurisdiction of the Courts in India, even if the award had a close and intimate nexus in India, the Courts could not thus deprive the appellants of their right to challenge the same stating that it was against the Public Policy of India. Further, even if the applicant has approached the Court under incorrect provision, then in the interest of Justice, the suit/proceeding can be converted into one under appropriate jurisdiction.25 Further, under the Comity of Courts, the American District Courts out of respect towards Indian Courts decisions would not have heard the matter even if it had jurisdiction. Since the Indian Courts had already granted interim order, therefore, in light of that, the US Courts could not have been approached in this regard. Obtaining the order in US would be considered as a contempt of the High Court in India and would render all proceedings before the US Court brutum fulmen and liable to be ignored. Further, since the award also included a non-obstante clause that declared that the “Shareholders” shall at all times act in accordance with the relevant laws in India at that present time. Therefore, enforcement for the said award had to be in India. Therefore, there is no real point in approaching a Court in United States when the award has to be in conformity with the laws if India, this can only be done effectively if enforcement is in India. Further, by this judgment the Court has even placed in question the well-established principle of competence-competence, which is recognized in a vast majority of countries and even in
25

Sameer Barar and Ors. v. Ratan Bhushan Jain and Ors. (2006) 1 SCC 419); Ajay Bansal v. Anup Mehta and

Ors. AIR 2007 SC 909.

8

institutional rules such as LCIA Article 23, ICC Article 6, and UNCITRAL, Article 21. Hence it becomes imperative to see how foreign arbitral awards can be enforced in India and whether the same can be challenged in India. Further there can be serious ramifications for the same as unless there is an express provision to the contrary, these awards under ICA can be easily challenged in India. 3.0 IMPACT OF THE DECISIONS AND THE ACTIONS TO COUNTERBALANCE IT: Firstly, the Court completely overlooked another Supreme Court decision after Bhatia International that was inconsistent with it. In Shreejee Traco(I) Pvt. Ltd. Vs. Paper Line International Inc,26 the Supreme Court held that Part I and in particular S. 2(2) would not apply where place of arbitration is not in India. The Court stated: “On a plane reading of this provision it is clear that Parliament intended the provisions of Part I to be applicable where the place of arbitration is in India.” The Supreme Court also held as follows: “So far as the language employed by Parliament in drafting sub-section (2) of Section 2 of the Act is concerned, suffice it to say that the language is clear and unambiguous. Saying that this Part would apply where the place of arbitration is in India tantamount to saying that it will not apply where the place of arbitration is not in India.” The Supreme Court in Saw Pipes27 Judgment had restricted the public policy challenges to domestic arbitration but in Venture Global decision,28 these challenged were extended to ICA as well. Therefore, now unless there was express exclusion of the Indian Law in the agreement
26 27 28

(2003) 9 SCC 79 Oil and Natural Gas Corporation Ltd (ONGC) v. Saw Pipes Ltd., (2003) 5 SCC 705 (2003) 2008 (4) SCC 190

9

itself, it could not be excluded in matters of ICAs. Earlier, the same was restricted to only domestic awards, where both the parties were from India. But in ICA, where one of the parties is not in India, unless there is express exclusion, the Court will try to look at the intention of the parties, which is doubly hard when looked at the terms of the agreement, which are finite being contractual terms. This public policy was said to include fundamental policy of India, interests of India, justice or morality and if it is patently illegal.29 These decisions have serious ramifications on ICA and foreign arbitral awards made outside India as they can be easily challenged in India unless express provision to the contrary in agreement. Though internationally the challenge only lay to the competent Court of the country where the award had been made and United States in International Standard Electric Corporation v. Bridas Sociedad Anonima Petrolera, Industrial Y Comercial30 and United Kingdom in C v. D also followed the said rule. This has also effectively overruled Bombay,31 Gujarat32 and Delhi High Court33 decisions conforming to the international standard. Therefore, hypothetically if in a purely foreign arbitration, if one of the parties approaches the Court, then the Court would have no reason to decline the jurisdiction.34 Therefore the
29

Supra at 199. International Standard Electric Corporation v. Bridas Sociedad Anonima Petrolera, Industrial Y Commercial,

30

745 F.supp.172(S.D.N.Y. 1990). See M & C Corporation v. ERWIN BEHR GmbH & Co., KG, a foreign corporation 87 F.3d 844(6TH Circuit,1996); Yusuf Ahmed Alghanim & Sons v. Toys "R" US. INC. Thr. (HK) Ltd. 126 F.3d 15(2nd Cir. 1997); Karaha Bodas Co. L.L.C. v. Perusahaan Pertambangan Minyakdan Gas Bumi Negara 364 F.3d 274(1966).
31

Bombay Gas Company Limited v. Mark Victor Mascarenhas and Ors. 1998 1 LJ 977 (1998); Inventa Fischer Trusuns Chemical Industry Ltd. v. Tata International Ltd., AIR 2004 Guj 274 (2004) Bulk Trading SA v. Dalmia Cement (Bharat) Limited (2006) 1 Arb.LR 38(2006) (Delhi). See Bharat Amit M Sachdeva, Unlimited Jurisdiction of the Indian Courts (To Intervene) in International Arbitrations: An

Gmbh & Co., K.G. v. Polygenta Technologies Ltd. 2005 (2) BomCR 364 (2005)
32 33

Aluminium Co. Ltd. v. Kaiser Aluminium Technical Services, AIR 2005 Chh 21(2005).
34

Analysis of the Bhatia Case, Int. A.L.R. 2010, 13(2), 73-79 (2010). See Christopher Lau, Christin Horlach, Commentary: Arbitration in Asia? Yes—But Where?, 23-SPG Int'l L. Practicum 43 (2010); Tony Khindria,

10

sweeping language used in Bhatia International has thus led the Courts to have a much further reach than what was practically intended. While other jurisdictions have also allowed interim relief to be granted, yet their language is circumscribed and well-guarded.35 An apt example of this is the Renusagar case where an award was passed in 1986, but the proceedings for enforcement were only brought to close in 1993 with the Supreme Court finally deciding to refuse enforcement on grounds of public policy! This decision and others of its ilk, have shook the faith of many and have also negated the incentives to arbitrate.36 4.0 JUDICIAL PRONOUNCEMENTS AFTER VENTURE GLOBAL ENGINEERING AND THE STANCE OF THE JUDICIARY: The Court has continuously accepted and reiterated that Part I is applicable to ICA as well.37 The Courts have also stated when Part I of the Arbitration and Conciliation Act would apply. These instances are: (a) There must be no agreement as to what would be the governing law of the contract, governing law being presumed to be the law of arbitration also; (b) There must be no agreement as to place of arbitration; and/or,
(c) It must be shown that if no interim action is taken, a party will be left remediless. 38
Enforcement of Arbitration Award in India, I.B.L. 1995, 23(1), 11-12 (1995)
35

See Tampimex Oil Ltd v Latina Trading Corp 558 F.Supp. 1201 (SDNY 1983); Atlas Chartering Services v

World Trade Group 453 F. Supp 861 (SDNY 1978); Andras Compania v Andre and Cie 430 F. Supp. 88 (SDNY 1977); Paramount Carriers Corp v Cook Industries 456 F. Supp. 598 (SDNY 1979); Carolina Power & Light Co v Uranex 451 F. Supp. 1044 (ND Calif. 1977). See also, Restatement (Second) on the Conflict of Laws 1977 s.130 and Gary Born, International Commercial Arbitration: Commentary and Materials, p.970, INTALR 2010, 13(2), 73-79 (2010)
36

Vinay Tyagi, Aishwarya Singh, Enforceability of Foreign Arbitral Awards in India, Vindobana Journal of

International Commercial Law and Arbitration, 12 VJ 91(2008). See Anil Malhotra, Ranjit Malhotra, Enforcement of foreign judgments and foreign arbitral awards in the Indian civil jurisdiction., Commonwealth Law Bulletin, C.L.B. 2006, 32(3), 431-442 (2006); Sandeep B. Dave, Enforcing foreign Judgments and arbitration awards in India: the prevailing law, I.C.C.L.R. 1996, 7(9), 335-337 (1996)
37
38

Bhushan Steel Limited v. Singapore International Arbitration Centre and Anr., MANU/DE/1270/2010 (Delhi) Spentex Industries Ltd. v. Dunvant S.A. and Anr. 2009 (113) DRJ 397 (DB) (Delhi HC).

11

The Supreme Court has reiterated in another concurring judgment that Unless Part I is excluded by agreement between the parties either expressly or by implication, Part I of the Act including Section 11 would be applicable even where the international commercial agreements are governed by the clause of another country.39 Though there could be said to be judgments that came before Venture that did not concur completely with it like National Thermal Power Corporation v. Singer Company and Anr.40 and Sumitomo Heavy Industries Limited v. ONGC Limited41. Further there are other Foreign decisions like the House of Lords decision in the matter of James Miller & Partners Ltd. v. Whitworth Street Estates Ltd.42 which stated that where the parties have already agreed that Foreign law would be governing law, then the questions relating to the Arbitral Tribunal would also be governed by such foreign law. These questions would also include challenge against Arbitral Tribunals which being governed by Foreign Law should be enforced in Foreign Courts. Further other decisions as by the Privy Council in Bay Hotel and Resort ltd. v. Cavalier Construction Co. Ltd.43 and the decision of Queen's Bench (Commercial Court) in case of ABB Lummus Global Ltd. v. Keppel Fels Ltd44 which basically reiterated the same. Further even the provisions of California Code of Civil Procedure and more particularly, in Chapter II and III thereof also support that if a foreign law governs the arbitration agreement then even the questions relating to arbitral tribunal must be governed by that foreign law. The Indian Courts have also extensively discussed the scenario in Venture Global Engineering and its correctness in the eye of law in subsequent judgments such as DSG Realtors Pvt Ltd v.

39 40 41 42 43 44

Citation Infowares Ltd v. Equinox Corporation, (2009) 7 SCC 220 [1992] 3 SCR 106 AIR 1998 SC 825 [1970] A.C. 583 2001 UKPC 34 (Privy Council) 1999 (2) LLR 24 (Q.B.)

12

Realogy Corporation45 and Tebma Shipyards Limited v. Trico Subsea As.46 Further even in matter such as ECC Leasing Company Limited rep. by its Power of Attorney Ajith C.R. Vs. Paramount Airways Pvt. Ltd., rep. by its Managing Director,47 it was stated that Interim relief could be granted to the party under S. 9 unless the agreement expressly excluded the same. Further, in a Bombay High Court decision in J.S. Ocean Liners Inc., a company registered in U.S.A. Vs. S.K. Shipping (Singapore) Pte Limited, a company registered in Singapore48, the Court has against reiterated that even in matters such as these where the two parties are even registered in different countries, the provisions of the Arbitration Act would be applicable to such ICA, unless any or all such provisions are excluded between the parties, expressly or by implication. In a recent Supreme Court judgment in North Delhi Power Limited Vs. Govt. of National Capital Territory of Delhi and Ors.49 the Court has analysed the non-obstante clause and whether when their meaning or unambiguous and clear should they be followed. The Court agreed with the conclusion in Venture Global and said that if the language is natural, it should be followed. Further the Courts have reiterated several times50 that they have the power to pass interim orders under S. 9 even in matters of ICA thus concurring both with Bhatia International and Venture Global Engineering. In Sara International Ltd. vs. Golden Agri International PTE Ltd.

45
46

MANU/DE/2115/2009 (Delhi HC) 2009 (4) CTC 728 MANU/TN/0499/2010 (Tamil Nadu HC) 2010 (2) BomCR 52, 2010 (112) BomLR 1091 2010 (4) SCALE 546, 2010 (4) UJ 2352 (SC) Perma Container (UK) Line Ltd. vs. Perma Container Line (India) Pvt. Ltd. and Ors., 2010 (2) Bom CR 419,

47
48 49 50

Sara International Ltd. v. Arab Shipping Co. (P) Ltd., 160 (2009) DLT 439(Delhi HC) holding that Part I would compulsorily apply in Arbitrations held in India.

13

and Anr.51 the earlier decisions regarding Part I applicability have been reiterated. In a recent case52 whose facts very well match the Venture Global case, the Court while agreeing that the facts of the two cases are very similar and the law laid down in Venture Global squarely applies in this case. Further it is a settled law now that not only injunctions can be set up against foreign awards53 but the award itself can be challenged and set aside. Therefore the Courts have very well agreed upon the fact that Part I of the Arbitration and conciliation Act is applicable even to foreign awards or awards under ICA. 54 Further the Courts have also stated that challenges under Part I of the Arbitration and Conciliation Act need one very important ingredient: The terms of the agreement.55 5.0 PUBLIC POLICY: Public Policy is a highly controversial ground for challenge of an arbitral award. 56 Further allowing such intervention widens judicial discretion in arbitration.57 In the landmark judgment of Renu Sagar Power Co v General Electrical Corp.58 the Supreme Court construed the expression ‘public policy’ in relation to foreign awards as follows: This would mean that ‘public policy’ in s. (1)(b)(ii) has been used in narrower sense and in order to attract to bar of public policy the enforcement of
51 52

MANU/DE/1269/2010(Delhi HC) Shree Krishna Vanaspati Industries (P) Ltd. v. Virgoz Oils and Fats Pte Ltd. and Anr., MANU/DE/1681/2009 Spentex Industries Ltd. vs. Dunvant S.A. and Anr. MANU/DE/2736/2009 (Delhi HC) Tamil Nadu Electricity Board rep. by its Secretary vs. Videocon Power Limited rep. by its Authorised Supra at 66. Also see T.T. Arvind, Zia J. Mody, India: Public Policy challenge to enforcement, Int. A.L.R. Harpreet Kaur, The 1996 Arbitration and Conciliation Act: A Step Toward Improving Arbitration In India, 6 Promod Nair, Surveying a Decade of the 'New' Law of Arbitration in India, 23 Arb. Int'l., 699, 701(2007). 1994 Supp (1) SCC 644 (hereinafter Renu Sagar Case).

(Delhi HC)
53
54

Signatory, Mr. Kuldeep Drabhu and Canara Bank, (2009) 4 MLJ 633
55

2000, 3(4), N51-52 (2000).
56

Hastings Bus. L.J. 261(2010).
57 58

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the award must invoke something more than the violation of the law of India … Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality. Therefore, the Court adopted a narrower viewpoint of what can be construed as the public policy of India. Nearly a decade later, in the matter of ONGC v. Saw Pipes Ltd,59 the Court while deciding on what can be construed as Public Policy on India, looked into the object and purposes of the Act and followed the broader school of thought and did not confine themselves to specific broad heads while defining public policy. The Court accepted that the Scheme of setting aside an award under S. 34 for domestic award and under S. 48 for a foreign award were not same.60 Thus the Court limited the Public Policy challenges to only domestic awards. This was followed in The Security Printing and Minting Corporation of India Limited and Anr. Vs. Gandhi Industrial Corporation.61 This situation was agreed to by the Courts in Venture Global case, where this particular interpretation was followed though the Court took the liberty of enforcing the same for even foreign arbitral awards as opposed to Saw Pipes judgment that had only decided on Domestic Awards. Further this decision was per incuriam the earlier decision in Renu Sagar’s case which was a decision by a larger bench. The Supreme Court in Delhi Development Authority v. R.S.
59

AIR 2003 SC 2629. See Central Inland Water Transport Corporation Limited and Anr. v. Brojo Nath Ganguly

and Anr. (1986) IILLJ 171 SC; Enderby Town Football Club Ltd. v. Football Assn. Ltd. (1971) Ch. 591(Chancery England).
60

Sumeet Kachwaha and Dharmendra Rautray, Arbitration in India: An Overview, (August 17, 2010),

www.ipba.org/media/fck/files/Arbitration%20in%20India.pdf
61

2007 (4) ARBLR 65 (SC). See McDermott International Inc. v. Burn Standard Co. Ltd. and Ors. 2006 (5)

ALD 84 (SC); Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited 2006 (3) ARBLR 201 (SC); Hindustan Zinc Ltd. v. Friends Coal Carbonisation 2006 (2) ARBLR 20 (SC); State of Rajasthan and Ors. v. Basant Nahata AIR 2005 SC 3401;

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Sharma and Co. New Delhi62 after referring to a catena of judgments has held that an arbitration award is open to interference by a court under Section 34(2) of the Act, 1996 if it is: (i) Contrary to substantive provisions of law; or (ii) Contrary to the provisions of the Arbitration and Conciliation Act, 1996; or (iii) Against the terms of the respective contract; or (iv) Patently illegal; or (v) Prejudicial to the rights of the parties. In Japan Travel Services Vs. All Nippon Airways Co. Ltd. and Ors.63 The Court has analysed and concurred with the definition of Public Policy as mentioned in the Venture Global Engineering Case, which had further stated the same in the Saw Pipes judgment. The High Court of Delhi in the matter of Max India Limited Vs. General Binding Corporation64 has again reiterated that the parties can choose to exclude even the non-derogable provisions of Part I by an agreement among them. Thus Public Policy has been given an extended meaning and this has been followed by Court in several other instances. Further, the court has paid no heed to the decision of the Courts in Renu Sagar and to some extent in Saw Pipes by extending the meaning to International Arbitration also. Further, even the U.S. Courts in the matter of Parsons and Whittermore Overseas Company Ltd v. Societe Generale De L’Industrie Du Papier (RAKTA)65 while interpreting the New York Convention in a matter stated that: “An expansive construction of this defence would vitiate the Convention’s basic effort to remove pre-existing obstacle to enforcement....We

62

(2008) 13 SCC 80 MANU/DE/2953/2009 (Delhi HC) MANU/DE/0626/2009 (Delhi HC) 508 F.2d. 969 U.S. Court of Appeals, 2d Cir., Dec. 23, 1974.

63 64
65

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conclude, therefore, that the convention’s Public policy defence should be construed narrowly. Enforcement of Foreign Arbitral Awards may be denied on this basis only where the enforcement would violate the forum state’s most basic notions of morality and justice” Further, unlike Indian Courts, US courts have been consistent in recognition and enforcement of foreign awards.66 Thus the general rule that Parties cannot make a binding contract in violation of law or of public policy prevails.67 This has basically rendered Section 48 of the Arbitration and Conciliation Act redundant by exposing foreign awards to a broader public policy challenge under S. 34, a provision meant only to apply to domestic award in India. 68 Further this public policy decision is contrary to the Saw Pipes decision which made “patent illegality” only to domestic awards. Further a mistaken fact or law is not a ground for refuse enforcement under Art. V of the New York Convention.69 It would further lead to delays in enforcement of foreign awards in India due to these challenges. Further this is not in conformity to the goal of Model Law which is to achieve uniformity. Further, Indian Court ought not to have decided on the matter as both the parties had acceded to the Jurisdiction of US Court. 6.0 LEGISLATIVE STANCE REGARDING ENFORCEMENT: A GREAT DIVIDE?

66

Vikramaditya Khanna, The Current State of the Enforceability of Foreign Judgments & Arbitral Awards,

Indian Law Newsletter, Volume I, Issue I, Fall (2009). See Indian Council of Arbitration Journal, Vol XLJII/No. 2, (July-Sept 2008).
67

O.P. Malhotra, The scope of public policy under the Indian Arbitration and Conciliation Act, 1996, Arbitration Dharmendra Rautray, India’s Supreme Court places new hurdle on enforcement of Foreign Awards: Venture

2005, 71(1), 36-45 (2005)
68

Global and the cases leading up to it, 64-APR Disp. Resol. J. 80 (2009); Also see Nadia Darwazeh, Set aside and enforcement proceedings: The 1996 Indian Arbitration Act under threat, Int. A.L.R. 2004, 7(3), 81-87 (2004)
69

Ibid. Also see, Sarita Woolhouse, India: Appeal from a domestic arbitration award to an International

Arbitration Tribunal – Two Conflicting Awards, Int. A.L.R. 2007, 10(1), N8-10 (2007)

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The executive and even the judiciary after the said judgment criticised the same heavily. Only a few days after the decision in Venture Global, a case in the form of BALCO Industries v. Kaiser-I-Hind came before the Supreme Court, which though was sent to a higher bench after disagreement between the Hon’ble judges regarding the decision of Bhatia and eventually Venture, yet the indifference enough was a start against the decision.70 It has been stated to be well beyond the limits of judicial law making. The said decision seems to have overlooked the decision of the Supreme Court itself in Shreejee Traco(I) Pvt. Ltd. Vs. Paper Line International Inc,71 which stated that no provisions of Part I would apply to cases where the place of arbitration was not in India, and also contorted the decisions of the Court regarding Public policy by not considering the Renu Sagar’s definition which was restricted in conformity with the objects of the Act and the decision in Saw Pipes, which was extended only to the extent of domestic awards. Further the decision is also per incuriam the decision of a larger bench in Renu Sagar case. Thus the decision is incorrect on a number of counts. The basic rules of interpretation regarded so highly by the Court have been perverted in the name of justice, when there could not be said to be a real need for the same. Convenience of the parties should not be real consideration when the letter of the law is clear as regarding certain aspects. The English Arbitration is clear as to what is a foreign award, and in its S. 2(1)72 enumerates the basic applicability of Part I and 2(2)73
70

Fali S. Nariman, Arbitration: Not Litigation, Scholasticus: Journal of National Law University, Volume 7, (2003) 9 SCC 79 Section 2 of English Arbitration Act reads as follows:

February 2010, Number 1 (2010)
71

72

2 (1)Scope of application of provisions.- (1) The provisions of this Part apply where the seat of arbitration is in England and Wales or Northern Ireland.
73

Section 2(2) of the English Arbitration Act reads as follows:

The following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined(a) Section 9 to 11 (Stay of legal proceedings, & c), and (b) Section 66 (enforcement of arbitral award.”

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clarifies the same with certainty. The deletion of the word “only” in S. 2(2) of the Indian Arbitration Act has only led to the assumption that the same was made for with a reason. The reason seemed to be applicability of sections such as S. 9 and other provisions not available in Part II to fulfil and embellish the objectives of the Act successfully. Yet, it has turned as nightmare for Companies and other establishments doing business with India, as they now would have to go through the rigours of litigation in India, which at best can be defined as cumbersome and time consuming. Parliament, in order to remove difficulties, has come up with a Consultation Paper regarding the changes in the Act, titled as “Proposed Amendments to the Arbitration and Conciliation Act, 1996: A Consultation Paper”,74 which proposed to amend S 2(2) and include the word “only”, that was deleted when UNCITRAL Model Law was incorporated into the new Act. Further a proviso stating that provision of Section 9 and 27, shall also apply to ICA, hence providing definitiveness to the Act. This has been done in accordance with Justice Saraf Committee report in 2003 on the implications of the recommendations of Law Commission in its 176th Report and amendments proposed by the Arbitration and Conciliation(Amendment) Bill, 2003. Further it has also recommended an explanation to S. 34 which provides conditions when the award is in conflict with public policy of India, thus intending to nullify the decision in Venture Global to an extent. Even the decision of Pakistan Supreme Court in Hitachi Ltd. v. Rupali Polyester75 is in correspondence with the view of the Supreme Court in Venture Global. 7.0 THE CONSTITUTION BENCH IN KAISER: IS THE TIDE FINALLY TURNING?

74

‘Proposed amendments to the Arbitration and Conciliation Act, A Consultation Paper, Law Ministry of 1998 S.C.M.R. 1618 (Pakistan).

India.’ (July 06, 2010) lawmin.nic.in/la/consultationpaper.pdf. Accessed on 24th July 2010.
75

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The matter before the Supreme Court at present has arisen from a bunch of appeals from HC, some of which have held that an application under S. 34 would not be maintainable in case where the parties have provided that the lex arbitri be foreign law, even though the proper law may be Indian Law. Thus the questions before the Supreme Court are in relation to S. 2(2) and correctness of Bhatia International, and whether there exists a distinction between provisions of the Act applicable during and after conduct of arbitral proceedings, where the lex arbitri is foreign but the proper law is Indian. The appellants have submitted that Bhatia International was correctly decided in its entirety and that the right to challenge an award is governed by the lex arbitri but instead by the proper law. Further, the familiar argument of the party remaining remediless in case of inapplicability of S. 34 of the Act was touted along with the situation where the foreign policy of the foreign country deemed the award valid even if it was contrary to the public policy of India. They further stated that Videocon Industries Ltd. v. Union of India was decided incorrectly and should not be held as the correct position of law. Further, the test of jurisdiction under the 1996 Act should not be seat, but the subject matter of arbitration. Further, there should be reconciliation between Ss. 2(4) and 2(5) of the Act along with S. 2(2) in respect of “all arbitrations” and “arbitrations in India.” The respondents emphasised that the seat of arbitration is the fundamental premise of jurisdiction in international arbitration and that the existence of “concurrent jurisdiction” is alien to arbitration law. The Counsel also stated that in cases where the seat is foreign but the governing law is Indian, the Indian courts would have jurisdiction only if there is a specific provision to that effect and the courts do not have a “freestanding” to consider the validity of the agreement only because the law governing the substance of the dispute is Indian. Further, the absence of the word “only” under S. 2(2) was completely irrelevant as even the Model law did not originally contain the same.
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The proceedings before the Court are still continuing with relation to applicability of S. 2(2) et al. 8.0 CONCLUSION India has in place a modern, dynamic and efficient act. These decisions that subject every arbitration award not expressly excluded only interfere with the arbitration mechanism that is held outside India and are not in tune with the object of the act and must either be judicially reviewed or subject to an amendment by the parliament. The Courts are now placed with the ultimate balancing Act of trying to construe the provisions of the maze that is the Indian Arbitration Act while not leaving a party remediless. While Bhatia may have extended judicial law making with good intentions, it has not resulted in an outcome that matches the intention. The fundamental distinction between a foreign and a domestic award has been obliterated by the Supreme Court in the recent case of Venture Global. Now, a Foreign Award and a domestic award can be enforced in nearly the same way, with only slight difference in procedural technicalities in India. Further, now a challenge to a foreign award in India would have to meet the expanded scope of public policy as laid down in Saw Pipes i.e. meet a challenge on merits contending that the award is ‘patently illegal’. The Venture Global case has had far reaching consequences as it tries to create a new procedure and ground for challenging a foreign award which was not envisaged under the act. The Venture Global case thus largely renders superfluous the statutorily envisaged mechanism for enforcement of foreign awards and substitutes it with a judge made law. Further, Venture Global has only built on what Bhatia laid down i.e. extended applicability of S. 2(2). The scattered attempts at limiting the scope of S 2(2) à la Shreejee Traco, have only ended up being an exception to the general rule.

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The new ground is that not only must the award pass the New York Convention grounds incorporated in s 48; it must also pass the expanded ‘public policy’ ground created under s 34 of the 1996 Act. Thus this makes the enforcements inherently trickier in India, especially as Public Policy can be an unruly horse, and can include possibly anything and everything. Thus, it largely renders superfluous the statutorily envisaged mechanism for enforcement of foreign awards and replaces it with judge made law. The Court in the Bhatia case has taken extreme liberties with the text of the statute in order to avoid disastrous consequences, which ironically have ensued otherwise. The provisions that were never there before in the act for enforcement of Foreign Awards have thus been introduced by judges for sake of convenience and justice. Moreover, in so far as the Venture judgment permits a challenge to a foreign award on the expanded interpretation of public policy it is per incuriam, as a larger, three Bench decision, in the case of Renu Sagar holds to the contrary. Further Saw Pipes had clearly confined its expanded interpretation of public policy to domestic awards alone lest it fall foul of the Renu Sagar case, but Venture Global has allowed it to now be implemented for Foreign awards as well thus making it harder for this “unruly horse” to be controlled. The Supreme Court in Venture Global did not notice this self-created limitation in Saw Pipes, nor did it notice the narrow interpretation of public policy in Renu Sagar. Therefore, the judgement even with all its criticism is landmark in the fact that the Indian Judiciary for the first time applied Part I of the Arbitration and Conciliation Act for setting aside a foreign award. Further, on the basis of the recent trend of cases, it seems as if this decision has been accepted by the judiciary. Further the 176th Law Commission Report has stated that S. 2(2) shall apply to only domestic arbitrations, with a sub clause (b) stating that Ss. 8, 9,27,35,36 shall apply to ICAs held outside India as well. Even Justice Saraf Committee Report agreed to the same.
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The international business community is becoming very conscious of the delays and costs involved in India’s dispute resolution process, and the Indian Legislators and Courts must pay heed to the genuine concerns of foreign companies doing business with Indian parties. 76 It must be noted, that the Bench in Bhatia was only forced to decide the way that it did only because of the grave lacuna that existed in the Act. However, while doing the same went a tad bit overboard. In a consultation paper by the Law Ministry it is being proposed to nullify this decision proposing an amendment to S. 2 to include the work “only” so that ICAs are not challenged under S. 34 and has also proposed to give a narrow meaning to the term “Public Policy”.77 This is to portray India as an arbitration friendly destination. Party autonomy with regard to choosing venue and governing law and their intention should be given preference over enforcing judicial review on them, even if in larger interest of justice. With the review of the Bhatia Decision, the dark age of Arbitration in India is hopefully finally coming to a close.

76

Shikhil Suri, Enforcement of Foreign Awards and Judgments in India: Analysis and Implications, Indian Law Ibid 82 at 134.

Newsletter, Volume I, Issue I, (Fall 2009)
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