India: Evolving Arbitration Law: Exclusion Or Inclusion Of Part I

Last Updated: 2 June 2016
Article by Ritesh Singh


On January 28, 2016, the Supreme Court of India gave its verdict in a case, which is actually a spin-off of the landmark case of Bharat Aluminium Company ("Balco") vs. Kaiser Aluminium Technical Services INC. ("Kaiser") ("Balco I")1, which overruled Bhatia International vs. Bulk Trading SA.2 Balco I laid down that Part I of the Arbitration and Conciliation Act, 1996 (the "Act") does not apply to international commercial arbitrations held outside India, whereas Bhatia International held that Part I of the Act is also applicable to arbitrations outside India unless it is excluded, impliedly or expressly, by agreement. As Balco I was made prospective, the law laid down in Bhatia International still holds good for all arbitration agreements executed prior to September 12, 2012. The 2016 judgment ("Balco II")3 becomes important for all foreign parties, who want to escape the rigors of Part I by ensuring the seat of arbitration is outside India and where governing law is foreign. Balco II applies to pre September 12, 2012 agreements as well.

This newsletter seeks to analyze the 2016 ruling and suggests the method by which foreign party can avail the benefit of Balco II and Part I.

1. Part I Controversy

The real question is why Part I is so important in arbitration. In this context, it is necessary to examine some important provisions, described in brief: (a) section 9 gives the option to the parties to approach the court for interim relief in order to secure the amount or property in dispute; (b) section 11 gives the parties the right to approach court for appointment of arbitrator in case one party fails to act in terms of the arbitration agreement pertaining to the appointment; and (c) section 27 gives power to the parties to apply to the court for taking its assistance during evidence. Another important provision of Part I is section 34, which has actually been the catalyst for the birth of Balco I and Balco II. Section 34 provides the conditions on the basis of which an award can be set aside. There are several conditions including, amongst others, incapacity of party to execute an arbitration agreement, absence of proper notice of arbitrator's appointment or of proceedings, award is on a subject which cannot be arbitrated and the award is contrary to public policy.

So, why does Part I have so much significance?

As observed from foregoing, despite an agreement to arbitrate, Part I enables parties to approach courts for interim remedies and more importantly, given the plethora of judgments, well reasoned awards have been subjected to challenge under section 34, thereby mocking the entire arbitration process. In contrast, a party can challenge a foreign award in Indian courts under sections 48 and 57 on only two grounds: (a) foreign award is contrary to public policy and/or (b) subject-matter of the dispute was not capable of settlement through arbitration.

In order to minimize challenges to an award under section 34, after Balco I, foreign parties preferred and negotiated to have the seat of arbitration outside India in international commercial transactions. The flip side, of course, was that when Part I was specially excluded, parties were unable to secure any kind of interim relief from Indian courts. By means of the Arbitration and Conciliation (Amendment) Act, 20154 (the "Amendment Act"), a new proviso has now been added to section 2 of the Act, whereby a narrow option has been provided for a foreign party for availing interim relief against an Indian party even in the foreign seated arbitration. This amendment ensures that contracting parties can carve out an exception to the blanket exclusion of Part I to the arbitral proceedings where the venue is outside India. In effect, this will provide an option to those parties who wish to apply to the Indian courts for interim relief where it is necessary to secure something rapidly.

2. Balco II Facts

Balco and Kaiser entered into an agreement on April 22, 1993 (the "Agreement"), whereby Kaiser was required to provide equipment to Balco and to upgrade and modernize its production facilities. As a dispute arose between both the companies, the matter went for arbitration. Dispute resolution clauses in the Agreement, Articles 17.1 and 22, provided as follows: (a) Article 17.1 required parties to try to settle matters amicably and, in case of failure, resolve through arbitration, which was governed by English law; and (b) according to Article 22, the governing law of the contract was Indian, while substantive law of arbitration was English. Thus, seemingly the parties intended to have two different governing laws, one for the contract and the second for arbitration. Pursuant to Articles 17.1 and 22 of the Agreement, the arbitration proceedings were held in London in accordance with English law.

The arbitral tribunal passed two awards dated November 10, 2002 and November 12, 2002, (the "Awards") which were in favour of Kaiser. Aggrieved by the Awards, Balco filed applications under section 34 of the Act before the district court of Bilaspur, which dismissed them. This dismissal led Balco to file appeals under section 37 of the Act before the High Court of Chhattisgarh, which were also dismissed. Challenging the High Court's dismissals, Balco preferred a special leave petition5 before the Supreme Court under Article 136 of the Constitution of India.

The main issue to be determined before the Supreme Court was whether parties agreed to exclude application of Part I, wholly or partly, to the Agreement. In effect, the challenge to the award was under section 34 which came within Part I. In order to determine this, the Supreme Court discussed Articles 17.1 and 22 of the Agreement so as to determine applicable governing law for arbitration. It stressed upon the phrase "pursuant to" in Article 17.1 and observed that arbitration is required to be conducted in accordance with English law as the phrase "pursuant to" means "in accordance with" or "in conformity with". Thereafter, it took the position that parties intended to have arbitration governed by English law, which fact was stated both in the arbitral clause and even in the second limb of the governing law clause of the Agreement. It expressly stated:

"The terms of the contract will have to be understood in the way the parties wanted and intended them to be. In that context, particularly in agreements of arbitration, where party autonomy is the grundnorm, how the parties worked out the agreement, is one of the indicators to decipher the intention, apart from the plain or grammatical meaning of the expressions and the use of the expressions at the proper places in the agreement. Contextually, it may be noted that in the present case, the respondent had invoked the provisions of English law for the purpose of the initiation of the unsettled disputes"

3. Part I: Inclusion or Exclusion

While examining the application of exclusion of Part I, the Supreme Court considered earlier jurisprudence as well. In Videocon Industries Limited v. Union of India ("UoI")6, the Supreme Court was required to decide whether application of section 9 filed by UoI before the High Court of Delhi was maintainable in view of the fact that governing law for arbitration was English law. This issue was decided against UoI because the court took the view that Part I is excluded as arbitration was governed by foreign law in that case. Similarly, in Yograj Infrastructure Limited v. Ssang Yong Engineering and Construction Co. Limited7, the Supreme Court took the view that where SIAC rules apply contractually to the arbitration proceedings, parties cannot apply to court for appointment of arbitrator and, therefore, rejected an application under section 11.

In 2014, in Reliance Industries Limited v. Union of India8, the Supreme Court yet again had to determine the issue of Part I where governing law was foreign law and it observed as under:

"The provisions of the Part I of the Arbitration Act 1996 (India) are necessarily excluded; being wholly inconsistent with the arbitration agreement which provides "that arbitration agreement shall be governed by English law." Thus the remedy of the Respondent to challenge any award rendered in the arbitration proceedings would lie under the relevant provisions contained in Arbitration Act, 1996 of England and Wales"

The above precedents were also followed in Union of India v. Reliance Industries Limited9. The Supreme Court observed that when venue of arbitration is outside India and governing law is non-Indian, Part I is excluded. As a consequence, it decided the main issue in favour of Kaiser and held that Balco cannot challenge the award under section 34 before Indian courts for the reason that Part I is impliedly excluded as law governing the arbitration in London was English law.


Flowing from the above it seems that the intent of the highest court is that where the governing law of arbitration is non-Indian and proceedings take place outside India, an award in such cases cannot be challenged under Part I. Where the governing law is Indian and arbitration is conducted outside India, Part I will apply. It is important for contracting parties to take dispute resolution and governing law clauses very seriously and not treat them as boiler plate.

At the end, what matters is not to have an award, but to have an enforceable award so that the winning party gets the necessary relief. In a rush to exclude Part I, contracting parties should not disregard where and how enforcement will be speedy. Balco I, Balco II and other judgments discussed above assert the need of specific attention to dispute resolution clauses, which should be drafted with utmost care and after taking various factors into consideration, such as location of movable and immovable properties, including bank accounts.


1 (2012) 9 SCC 552

2 (2002) 4 SCC 105

3 (2016) 4 SCC 126

4 The Amendment Act introduced some much needed changes to the Act, which came in force from October 23, 2015.

5 The Indian constitution provides that Supreme Court may permit any person to appeal and challenge any order of the High Court even if the appeal against such order of the High Court is not provided for in any act or law.

6 (2011) 6 SCC 161

7 (2011) 9 SCC 735

8 (2014) 7 SCC 603

9 2015 (10) SCALE 149

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions