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(2003) 5 SCC J-22

Bhatia International v. Bulk Trading S.A. — A Critical Review

BHATIA INTERNATIONAL V. BULK TRADING S.A.† — A CRITICAL REVIEW

by
S.K. Dholakia*
— Judgment of the Supreme Court in Bhatia International v. Bulk Trading S.A.,
(2002) 4 SCC 105 — One of the important judgement of the Supreme Court —
Relevant facts of the case summarised — Arbitration proceedings outside India —
Foreign party's application for securing the property of Indian party as interim
measure — Indian party's contention — No provision for grant of interim measure
being granted by a court other than one in which the arbitration is being held —
Rejection of the contention by the High Court which was upheld by the Supreme Court
— Correctness of the conclusion doubted-Submission made — UNCITRAL Model Law is
designed to cover arbitrations, domestic or International held within India and not
outside India — Supreme Court's reasons for its conclusions summarised and
commented
The judgment in Bhatia International v. Bulk Trading S.A.† is one of the important
judgments of the Supreme Court of India that is bound to attract attention from those
interested in commercial and legal dealings with India. The relevant facts can be
summarised thus: the parties to an international contract had resorted to arbitration in
accordance with the rules of ICC, Paris to be conducted in Paris. As the foreign party
wanted to ensure that in the event of a favourable award it would be able to recover
its claim from the Indian party, it applied to an Indian court for interim measures
securing the property of the Indian party. The Indian party objected to the application
on the ground that the arbitration in question was being held in Paris, and under the
New York Convention there is no provision for interim measure being granted by a
court other than one in which the arbitration is being held.
The High Court rejected the contention. The Indian party then approached the
Supreme Court, which upheld the High Court's judgment. In brief, the Supreme Court
of India held that Part I of the Arbitration and Conciliation Act, 1996, which gives
effect to the UNCITRAL Model Law and which confers power on the court to grant
interim measures applied even to arbitration being held outside India. This short paper
expresses doubts about the correctness of this conclusion on the ground that the
UNCITRAL Model Law is designed to cover arbitrations, domestic or international, held
within India and not outside India.
The Supreme Court gave several reasons for its conclusion. Each of them is
summarised and commented upon below:
(a) The words “this Act” in Section 1 of the Arbitration and Conciliation Act, 1996
meant the entire Act. The entire Act applies to the whole of India, except that by
virtue of the proviso to Section 1, the Act applies to the State of Jammu and
Kashmir only for “international commercial arbitration” held in that State.
(b) Because of the said proviso, Section 2(2) of the Act, which states that Part I
applies when the place of arbitration is India, cannot be given literal meaning.
(c) Giving literal meaning would imply that where “international commercial
arbitration” takes place outside India, Part I would continue to apply in the State
of Jammu and Kashmir but not in the rest of India. That would be “anomaly”.1
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Comment

— The Act is made applicable to the State of Jammu and Kashmir only for
“international commercial arbitration” due to the special position of that State
under the Constitution of India. Article 370 of the Constitution requires
consultation with the State Government before certain laws are made applicable
to the State.
— Thus, the Indian Arbitration Act, 1940, which covered domestic arbitration,
governed the whole of India, except the State of J&K.2 The J&K Arbitration Act of
(Samvat) 2002 (1946 AD) covered domestic arbitration in the State of Jammu
and Kashmir.
— The Foreign Awards (Recognition and Enforcement) Act, 1961, which gave effect
to the New York Convention of 1958 was made applicable to the whole of India,
including the State of J&K.3 Thus the law governing domestic arbitration in the
State of J&K was the J&K Arbitration Act, 1946, while the law governing
international commercial arbitration in that State was the 1961 Act.
— Parliament, by enacting the Arbitration and Conciliation Act, 1996, repealed the
Indian Arbitration Act, 1940 and the Foreign Awards (Recognition and
Enforcement) Act, 1961, but not the J&K Arbitration Act. It could not have done
so, as Parliament had no legislative competence to do so. The 1996 Act,
therefore, did not cover domestic arbitration for the State of J&K, but covered
international commercial arbitration.4
— If the above analysis is correct, the Supreme Court, it is respectfully submitted,
erroneously relied upon the Act's limited application to the State of Jammu and
Kashmir for holding that Part I of the Arbitration and Conciliation Act, 1996
applied outside India.
(d) The Act does not state that courts in India will not have jurisdiction if an
international commercial arbitration takes place outside India. “Courts in India
would have jurisdiction even in respect of an international commercial
arbitration.”5 “By omitting to provide that Part I will not apply to international
commercial arbitrations which take place outside India the effect would be that
Part I would also apply to international commercial arbitrations held out of
India.”6
Comment
— The Constitution of India provides that the jurisdiction of Indian courts is limited
territorially to India.7 The omission to provide otherwise cannot extend the
territorial jurisdiction of an Indian court.

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— Even Part II of the 1996 Act, which deals with the enforcement of foreign
awards, does not control foreign arbitrations. That Part is only concerned with the
Indian court's jurisdiction to compel parties to resort to arbitration to resolve
their disputes abroad, and when a foreign award is presented to an Indian court
to enforce it within the territorial limits of India.
(e) Giving literal meaning to Section 2(2) would bring it in conflict with Section 2
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(4) and Section 2(5). The only way to make harmonious construction is to hold
that Part I applies to arbitrations held outside India.8
Comment
— There is no conflict between Section 1 and Section 2(2). Section 1 is in that Part
of the Act that bears the title: “Preliminary” and governs all the four Parts of the
Act.
— Section 2(2), on the other hand, is in Part I.
— Again, there is no conflict between Section 2(2) on the one hand and Section 2
(4) and Section 2(5) on the other.
— The reasons are: Section 2(4) uses the words “every arbitration under any other
enactment”. The “other enactments”9 would be those that cover territory, whole
or in part, of India. Hence, the words “every arbitration” in Section 2(4) would
necessarily mean “every arbitration in India”. Thus, there is no conflict between
Section 2(2) and Section 2(4).
— Section 2(5) makes that sub-section subject to Section 2(4). Here also, “all
arbitrations” would necessarily mean “every arbitration in India”. There is no
conflict between Section 2(2) and Section 2(5).
(f) Part I applies to a “domestic award”,10 which naturally includes an award made
in India. Part II of the Act applies to a “foreign award” made in a country that
has acceded to the New York Convention of 1958. As there is no express
provision for the enforcement of awards made in a non-convention country, such
an award can be enforced only if it is treated as “domestic award” to which Part I
would apply. That could be the only object of defining the words “domestic
award”, since even without the definition, an award made in India would always
be treated as “domestic award”.11
Comment
— Historically, awards rendered in a foreign country were not enforceable and could
be relied upon only as evidence in fresh legal proceedings commenced by the
winning party.
— Even judgments of foreign countries were not enforceable, except where the
judgment was rendered by a court of a country that reciprocally enforced
judgments of Indian courts.12

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— The judgments of the courts of other countries were conclusive evidence in the
fresh legal proceedings commenced by the winning party, subject to certain
objections that may be raised in respect of the same.13
— It was to overcome this situation prevailing in almost every country in the world
that the New York Convention of 1958 was made so that the countries could
multilaterally agree to enforce the awards rendered in the countries that adhere
to it.
— The benefit of direct enforcement of an award rendered in a country that has not
acceded to the New York Convention of 1958 would make the reciprocity
reservation made by India ineffective.
— The Court, therefore, was in error when it held that the Act intended to apply Part
I to the awards rendered and arbitrations conducted in a non-convention
country.
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(g) The use of the expression “judicial authority”, instead of the usual “court”, used
in Part I indicates that the intention of the legislature was to make Part I
applicable to arbitrations outside India.14
Comment
— The phrase “judicial authority” is lifted bodily from the UNCITRAL Model Law.
— In India, it must mean court, as other bodies that discharge judicial functions,
like statutory tribunals, are not contemplated by the 1996 Act.
(h) Part I, which includes Section 9, is of general application and, but for Sections
45 and 54 of the Act, would apply to arbitrations in Part II which deals with
arbitrations covered by the New York Convention of 1958.15
Comment
— Sections 45 and 54, which fall in Part II that gives effect to the New York
Convention of 1958, contain overriding16 provisions, having been bodily lifted
from the previous law.17
— As the 1996 Act expressly provides that Part I shall apply to arbitrations held in
India,18 the overriding clauses do not make any essential change.
(i) Article 1(2) of the UNCITRAL Model Law states that “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 in original) The use of the word “only” is
missing in Section 2(2) of the (1996) Act. Hence, the Act applies to arbitrations
outside India.19

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Comment

— The absence of the word “only” in Section 2(2) would not imply that the Act
would apply outside India.
(j) “[U]nder Section 9 a party could apply to the court (a) before, (b) during arbitral
proceedings, or (c) after the making of the arbitral award but before it is
enforced in accordance with Section 36.” The words “in accordance with Section
36” has reference only with (c) above. Therefore, an Indian court can make an
order under Section 9 “before” and “during” the arbitral proceedings in respect of
arbitration held anywhere in the world, but can make such order “after” the
arbitral proceedings only when the arbitration is held in India. Absent such
interpretation, the arbitral proceedings themselves may be frustrated.20
Comment
— The above reasoning perhaps ought to have led to the opposite conclusion. That
an Indian court cannot make an order “after” the award unless the seat of
arbitration is India, ought to mean that an Indian court would not have
jurisdiction on arbitration “before” and “during” arbitral proceedings.
(k) “Undoubtedly, the Arbitral Tribunal could pass an interim award. But an interim
order or directions passed by the Arbitral Tribunal would not be enforceable in
India. Thus even in respect of arbitrations covered by Part II a party would be
precluded from getting any interim relief.” However, as the ICC Rules themselves
provide that parties may apply to a competent judicial authority for interim
measures,21 the application of Section 9 was valid.22
Comment
— Article 23 of the ICC Rules empowers the Arbitral Tribunal to direct “interim
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measures” either in the form of an order or an “interim award”.
— The argument was that the foreign party could have approached the Tribunal and
obtained interim measure in the form of “interim award” and sought its
execution in accordance with the New York Convention.
— Instead of dealing with this argument, the Court refers to that part of Article 23,
which enables a party to approach a court, and assumes that the Indian court is
that proper court.
— It remains unclear whether the Indian court would enforce an interim measure
granted in the form of an “interim award” in an ICC arbitration.
———
1 (2002) 4 SCC 105
2
Senior Advocate, Supreme Court of India.
3
SCC p. 118, para 17.
4 The Indian Arbitration Act, 1940, Section 1(2).
5
Section 1(2).
6
The Foreign Awards (Recognition and Enforcement) Act, 1961, Section 1(2).
7 SCC p. 119, para 20.
8
SCC p. 119, para 21.
9
See Articles 1(3), 133 and 136 of the Constitution of India, Section 20 of the Code of Civil Procedure, 1908 and
Section 1(2) of the 1996 Act.
10 Paras 21 and 22.
11 See Section 3(19) of the General Clauses Act, 1897.
12
Section 2(7) reads as follows:

“2. (7) An arbitral award made under this Part shall be considered as a domestic award.”
13 Para 23.
14 Section 44-A of the Code of Civil Procedure, 1908.
15 Section 13 of the Code of Civil Procedure, 1908.
16
Para 24.
17 Para 26.

18 “Notwithstanding anything contained in Part I or in the Code of Civil Procedure.”

19 The Foreign Awards (Recognition and Enforcement) Act, 1961.
20 The Arbitration and Conciliation Act, 1996, Section 2(2).
21 SCC p. 121, para 27.
22
Paras 28 and 31.
23 Rule 23.
24 Paras 30, 33 and 34.
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