India: International Commercial Arbitrations- A Critique Of Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc

Last Updated: 5 October 2012

By Vinay Vaish, Advocate, Supreme Court of India, and Partner Vaish Associates Advocates ( vinay@vaishlaw.com) and Sandhya Iyer, Partner Vaish Associates Advocates (sandhya@vaishlaw.com)

A critique of Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc1

The question of the applicability of the provisions of Part I of the (Indian) Arbitration & Conciliation Act, 19962 (hereinafter referred to as the "Act") to arbitration proceedings having their seat outside India was considered by the Constitution Bench of the Apex Court of India in the case of Bharat Aluminium Co v. Kaiser Aluminium Technical Services Inc, Civil Appeal No. 7019 of 2005, (hereinafter referred to as the "Balco Case") on 6th September, 2012, which has drastically changed the legal scenario of International Commercial Arbitrations having their seat outside India. In the Balco case, the Hon'ble Supreme Court has overruled the judgment of the same Court as pronounced in the case of Bhatia International v Bulk Trading SA, (2002) 4 SCC 105..

The current status of legal scenario of International Commercial Arbitrations having their seat outside India can be summarized as under:

I. No applicability of Part I of the Act in respect of the International Commercial Arbitrations having their seat outside India

Part I of the Act deals with (a) the commencement of arbitration; (b) the conduct of arbitration; (c) the challenge to the award; and (d) the recognition or enforcement of the award, in relation to arbitration proceedings having their seat in India.

The Apex Court in the Balco Case has stated that Part I of the Act would apply only when the seat of arbitration is in India and it would not be applicable to international commercial arbitrations having their seat outside India.

II. No Interim Reliefs available to the Parties of International Commercial Arbitrations having their seat outside India

Part I of the Act is applicable only to arbitrations having their seat in India. After the judgment of the Apex Court in Balco Case, the provisions of Part I of the Act, including the power of the Court to grant interim relief under section 9 of the Act, will not be applicable to the international commercial arbitrations having their seat outside India. Further, the Apex Court has also held that an inter-parte suit merely for an interim relief in an arbitration pending outside India would not be maintainable under the current position of law in India.

This principle takes away the much required benefit that was available under section 9 of the Act (application for interim relief). In respect of international commercial arbitrations having their seat outside India, where the subject matter of the dispute is situated in India, no party can now seek any interim relief under Part I of the Act. Further, there is no provision either under the Act or under the (Indian) Code of Civil Procedure, 1908 which enables enforcement of interim orders of foreign courts or interim orders of an arbitration tribunal having its seat outside India.

Therefore, in such an event, the entire purpose of the arbitration proceedings may get defeated even if a favorable award is passed, as a party (against whom, the award has been passed) having assets in India, can in the interim, dispose of or encumber such assets with a view to defeating any award that may be passed against them outside India. An amendment to this effect would be quintessential to ensure that the interest of a party is safeguarded.

III. Indian Courts can no longer set aside foreign arbitral awards

As a result of non-application of Part I of the Act on international commercial arbitrations having their seat outside India, such awards can no longer be set aside as per the provisions of section 34 of the Act. The Indian Court can refuse to enforce such foreign arbitral awards only on grounds as provided under Part II of the Act. Part II of the Act regulates arbitration only in respect of commencement and recognition or enforcement of foreign awards.

This is a welcome move as this ensures lower level of intrusion by the Indian Courts when dealing with international commercial arbitrations having their seat outside India

IV. Only the Courts, where the seat of arbitration is situated, have competence to annul Foreign Awards

Only the Courts of the country, where the seat of arbitration is situated, have the competence to annul a foreign award.

In short, the Act does not confer any jurisdiction on the Indian Courts to annul an award made in international commercial arbitration having its seat outside India.

V. "Seat" and "Venue" of arbitration

The regulation of conduct of arbitration and challenge to an award would have to be done by the Courts of the country in which the seat of arbitration is located as such Court would be the supervisory court possessed with the power to annul the award.

The distinction between "seat" and "venue" of the arbitration assumes significance when foreign location is fixed as place of arbitration with the Indian Act as the curial/procedural law governing the arbitration proceedings. In such a scenario, the Court will determine as to whether the place of arbitration was intended to be "seat" of arbitration or merely a "venue" for the arbitration. In case, where the foreign location was intended to be the "seat" of arbitration, Part I would be inapplicable to the extent it is inconsistent with arbitration law of the "seat".

VI. No Scope for Recognition and Enforcement of Non-Convention Awards:

The Apex Court in the Balco Case has held that Part I of the Act would have no application to international commercial arbitrations having their seat outside India. Therefore, awards passed in international commercial arbitrations seated in a country which is not a signatory to the New York Convention or the Geneva Convention ("Non-Convention Awards") are neither covered under Part I nor under Part II of the Act.

This aspect requires attention of the legislature, as this judgment provides no scope for enforcement of such awards in India under the Act. It is possible here that the intent of legislature was to award a superior status to convention awards vis-a -vis non convention awards. For the purpose of enforcement of such an arbitral award, a party has to file a civil suit in India.

VII. Prospective Application:

The application of the principles laid down in the Balco Case would be made applicable upon arbitration agreements executed on or after 7th September, 2012.

In light of the aforesaid, it is advisable for the parties who have executed arbitration agreement(s) on or prior to 6th September, 2012, providing for international commercial arbitrations having their seat outside India, to review the same in the context of the Balco Case and to amend the agreement(s), if necessary, to avoid any ambiguity in future.

Footnotes

1. http://www.sci.nic.in/outtoday/ac701905p.pdf

2. http://www.ficci-arbitration.com/htm/acts.pdf

© 2012. All rights reserved with Vaish Associates Advocates, 1st FLoor, Mohan Dev Building, 13 Tolstoy Marg, New Belhi-110001, India

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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