Jurisdiction - India
News
India – International Arbitration, A Move Towards Less Judicial Intervention?

3 November, 2012

 

Legal News & Analysis – Asia Pacific – India  Dispute Resolution

 

 INTRODUCTION

 

Commonly cited benefits of international arbitration include the ability to resolve disputes in a neutral forum and the ease of enforcing awards.  

 
Unfortunately, these and other benefits have at times been lost to some parties engaged in the arbitration of disputes with connections to India. It is well known that the Indian courts have intervened in international arbitration proceedings and awards to a greater degree than other jurisdictions which have been perceived as being more “arbitration-friendly”. 
 
A much-anticipated recent decision of the Supreme Court of India (“SCI”) in Bharat Aluminium Co v Kaiser Aluminium Technical Service, Inc and other appeals (released on 6 September 2012), may mark a change in the judicial attitude in India towards international arbitration. However, as this article will explain, this decision is unlikely to result in an immediate change due to the prospective application of the 
decision. 
 
BACKGROUND
 
In 2002, the SCI held in Bhatia International v Bulk Trading SA and another (2002) 4 SCC 105 that the Indian courts had the power to grant interim relief in connection with arbitration proceedings before tribunals seated outside of India (“Foreign Arbitrations”). The SCI reached this decision by holding that Part I of the Indian Arbitration and Conciliation Act 1996 (“Indian Arbitration Act”) applied to Foreign Arbitrations unless the parties expressly or impliedly excluded the provisions of Part I. This was the SCI’s view even though section 2(2) of the Indian Arbitration Act provided that Part I “shall apply where the place of arbitration is in India” [emphasis added]. 
 
In a 2008 decision, the SCI held in Venture Global Engineering v Satyam Computer Services Ltd and another 2008 (1) Scale 214 that it followed from its decision in Bhatia International that the Indian courts had the power to set aside awards issued 
by arbitral tribunals seated outside of India (“Foreign Awards”). The power to set aside awards is found in section 34 of the Indian Arbitration Act, which is found in Part I of the Act.  
 
These decisions were controversial to say the least. They posed obvious obstacles to the conduct of international arbitration proceedings against Indian parties and the enforcement of the resulting awards against assets situated in India.  
 
The Bharat Aluminium appeals presented the SCI with an opportunity to reconsider Bhatia International and Venture Global Engineering. 
  
THE COURT’S DECISION 
 
The SCI unanimously decided that Part I of the Indian Arbitration Act applies only to arbitrations which take place in India.  
 
This aspect of the decision has two main implications. First, the Indian courts no longer have the power to grant interim relief in connection with Foreign Arbitrations. In this connection, the SCI also ruled that it is not possible to obtain interim relief for Foreign Arbitrations under the Indian Code of Civil Procedure. Secondly, the Indian courts no longer have the power to set aside a Foreign Arbitration Award.  
 
The SCI also unanimously decided that a Foreign Award cannot be set aside by an Indian court solely on the basis that the parties chose Indian law to govern the substance of the dispute. The practical implication of this aspect of the decision is that India now accepts that only the court at the seat of the arbitration can set aside a Foreign Award.  
 
COMMENT
 
The full implications of this ground-breaking decision are unlikely to be felt for some time to come because the SCI expressly stated that its decision was to apply prospectively to arbitration agreements executed after the decision was released. The judgment does not contain any analysis for why the decision should only have prospective effect and why the test for determining the application of the decision is the date of the arbitration agreement. The SCI simply stated that a prospective decision was required “in order to do complete justice”.  
 
Nevertheless, the importance of this decision should not be understated.  The tone of the 190-page decision suggests a significant shift in the judicial attitude in India towards international arbitration. This was no ordinary decision, as evidenced by the fact that the court sat as a fivejudge Constitution Bench, instead of the usual composition of two to three judges. The significance of this decision is also underscored by the fact that the SCI invited arbitral institutions such as the Singapore International Arbitration Centre and the London Court of International 
Arbitration, India, to intervene and make submissions at the hearing.  
 
This decision may well signal the beginning of a new era of less judicial intervention in international arbitration proceedings as well as greater judicial support for the enforcement of awards in India.  
  

 

For further information, please contact:

 
Cavinder Bull, Director, Drew & Napier
cavinder.bull@drewnapier.com
 

Dispute Resolution Law Firms in India

 

Leave a Reply

You must be logged in to post a comment.