When drafting arbitration provisions in international
agreements, it is important to be aware of legal developments in
both the jurisdiction selected as the arbitral seat, and any
jurisdiction where an award may be enforced. Parties to
international arbitration agreements often assume that signatories
to the New York Convention and those countries adopting the
UNCITRAL Model Law will respect the principles set out therein;
however, some countries have applied those principles in ways that
can be surprising for the unsuspecting.
Until recently, contrary to the interpretation given in many
UNCITRAL Model Law signatory countries, Indian courts asserted
jurisdiction over arbitration proceedings seated outside of India,
provided Indian law was the substantive law of the contract. As
there are many trade and investment opportunities for Canadian
businesses in the Indian market, it is important to understand how
Indian courts approach foreign arbitration proceedings.
Applying the rationale in Bhatia International, Indian arbitral
jurisprudence had developed so as to grant Indian courts
supervision over foreign arbitration proceedings where parties
chose Indian law to govern their agreements. For example, there was
precedent giving Indian courts the power to appoint arbitrators to
conduct arbitration proceedings seated in foreign
jurisdictions.
Bharat Aluminium Co. rejected this approach and applied the
territoriality principle endorsed under the UNCITRAL Model Law,
which provides that the law relating to the conduct of arbitration
proceedings should be governed by the law of the forum. Using this
principle, the Supreme Court found that English law would govern
the arbitration procedure for the London seated arbitration in
question, but the substantive laws of India would be used to
construe the agreement that had been formed between the parties. In
effect, the decision restricts interference from the Indian
judiciary when proceedings applying the substantive laws of India
are conducted outside of India.
Part 1 of India's Arbitration and Conciliation Act,
1996
Part 1 of the Arbitration and Conciliation Act, 1996 (the Act)
regulates the commencement and conduct of arbitration proceedings
as well as the challenge, recognition and enforcement of awards.
Section 2(2) of the Act states that Part 1 applies when the
"place of arbitration is in India."
In the earlier case of Bhatia International, the Supreme Court
decided that because the Act did not specify whether Part 1 applied
only to proceedings in India, the application of Part 1 could
extend to arbitrations heard outside of India. The application of
Part 1 was held to be compulsory for arbitrations heard in India,
but also possible for those proceedings heard in other countries,
unless the parties had expressly or implicitly rejected this
reading. As a result, Indian courts began to take an
interventionist approach to arbitration proceedings pursuant to
Part 1, with the intention of making proceedings in foreign
jurisdictions subject to the law governing proceedings in
India.
The Supreme Court in Bharat Aluminium Co. refused to interpret
Part 1 in accordance with the principles set out in Bhatia
International. The court found that the scheme of the Act signalled
Parliament's intention to conform to the territorial principles
of the UNCITRAL Model Law and the standards set out in the New York
Convention. According to Bharat Aluminium Co., the "place of
arbitration" referenced in Part 1 means the place of the
arbitral seat. In other words, Part 1 applies only when the seat of
arbitration is in India.
Prospective Application
It is important to note that the law as set out in Bharat
Aluminium Co. only applies to arbitration agreements executed on or
after September 7, 2012; therefore, Indian courts will still have
the ability to interfere in arbitrations seated outside India for
agreements made before September 7, 2012. Accordingly, the impact
of the decision in Bhatia International may still be a
consideration for a dispute that arises under older contracts.
Conclusion
The decision in Bharat Aluminium Co. is a welcome change that
brings Indian arbitration law in line with the UNCITRAL Model Law
as well as jurisprudence in other major commercial centres.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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