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Reconsideration of Bhatia International by Indian Supreme Court Constitutional Bench.

8 March, 2012

 

 

The Indian Supreme Court is currently reconsidering the ratio of Bhatia International v. Bulk Trading S.A.[1], a seminal case in Indian arbitration jurisprudence, in Bharat Aluminium v Kaiser Aluminium Technical Services.[2] The court kick-started proceedings in January on a positive note. It was keen to help foreign investors avoid lengthy litigation in India-related commercial contracts where arbitration was chosen as a mode of dispute resolution. To this end, the court also noted that it was considering making a representation to Parliament for cases pertaining to the enforcement of foreign awards to be heard directly by the Supreme Court.
 
The case has since proceeded with seven weeks of submissions by various parties and interveners, including LCIA India and the SIAC.  Oral arguments concluded at the end of February.  A decision is expected no later than the Autumn, when the current Chief Justice is due to retire.
 
In recent years, the court system in India has shown a certain judicial activism in ruling on international arbitration disputes seated outside India that has provoked concern in the international business community. The ruling primarily responsible for this concern was the 2002 case of Bhatia International v. Bulk Trading S.A. (Bhatia).
 
The Supreme Court in Bhatia was faced with a lacuna whereby Indian arbitration law did not appear to provide Indian courts with the power to grant interim relief in support of arbitrations seated outside India. In order to avoid this, the court interpreted the Indian Arbitration and Conciliation Act 1996 in a creative way which unfortunately brought with it undesirable consequences. The court held that the provision enabling the courts to grant interim relief – contained in Part I of the Act, which seemingly dealt only with domestic arbitrations – could equally be applied to foreign seated arbitrations, unless the parties opted out of this arrangement.
 
A string of cases that followed Bhatia highlighted the implications of the decision. The case of Venture Global v Satyam Computer Services[3] where the Court was asked to set aside an award in a foreign-seated arbitration, and the case of M/S. Indtel Technical Services v W.S. Atkins Plc[4], where the Supreme Court held that Indian courts can appoint arbitrators in foreign-seated arbitrations – both pursuant to the enabling provisions contained in Part I of the Act, were illustrative of the judicial over-reach the decision in Bhatia made possible.
 
In April 2010, the Indian Law Ministry proposed a series of amendments to the 1996 Act including to reverse the effect of the Bhatia decision. However, the progress of these amendments has been delayed by pending elections and the discussion of other significant bills in Parliament.
 
Concern about the Bhatia decision was raised in the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. In December 2011, the Chief Justice referred the case to a five-member constitutional bench to enable the court to reconsider the ruling in Bhatia and overrule it, if necessary. The case has been before the Supreme Court since 10 January 2012. Upon invitation, LCIA India, the Singapore International Arbitration Centre and the Nani Palkhivala Arbitration Centre have all intervened in the proceedings as amicus curiae.
 
Even before this review, there have been some efforts by parts of the Indian judiciary to restrict the applicability of Part I of the 1996 Act to foreign seated arbitrations. Videocon Industries v Union of India[5] and Yograj Infrastructure v Ssang Yong Engineering[6] are two recent cases where the courts have been willing to find an implied exclusion of Part I where parties have chosen a foreign seat and foreign law to govern the arbitration. Nevertheless, further clarification from the Supreme Court would be welcome.
 
Herbert Smith is watching the progress of the Bharat Aluminium case with interest and will report once a decision is handed down. Any decision will have a significant impact on the way arbitration clauses in India-related contracts need to be drafted. If you would like to discuss any issues related to this, please contact the International Arbitration team.

 

 







For further information, please contact:

 

Alastair Henderson, Partner, Herbert Smith

Alastair.Henderson@herbertsmith.com

 

Dispute Resolution Law Firms in India

 

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