India: Enforceability Of Foreign Arbitration Awards In India: Diminishing The Gap Between Pre BALCO And Post BALCO Regime?

Last Updated: 26 April 2017
Article by Rajesh Begur and Priyesh Sharma

Supreme Court recently in the case of I-Max Vs E-City1 has removed the judicial anomaly in relation to enforcement of foreign arbitral awards in India. The Apex Court in this case, overruling the popular Bhatia Judgment in relation to the agreements entered prior to BALCO Regime, held that the choice of ICC Rules and the consequent choice of London as the seat by the ICC operated as an exclusion of Part I of the Indian Arbitration and Conciliation Act 1996, thereby ousting the jurisdiction of Indian courts to maintain and entertain a challenge to the foreign award.

The question of significance of arbitration as an alternate dispute resolution mechanism for disputes arising in M &A deals and other commercial arrangements is irrefutable and the same is fairly evident by the confidence which the market players across the globe have shown in this mechanism for resolving their commercial disputes. One of the major reasons behind the popularity of arbitration is the "institutionalization" of arbitral mechanism, which has contributed significantly towards ensuring the goal of providing fair, impartial and formalized system of resolution of disputes without causing unnecessary delay or expense and at the same time providing the flexibility to the parties to exercise their freedom to agree upon the manner in which their disputes should be resolved, subject only to safeguards imposed in public interest. There are several international institutions with well defined set of rules, which have succeeded in gaining the confidence of market players and are prominently preferred over the ad-hoc arbitrations.

One by-product of institutionalization of arbitration mechanism (which mainly involved foreign institutions and rules) is the issue of "enforceability of foreign awards in India". The said issue has been a subject matter of controversy and differential views since decades now. It is said that, under the Indian judicial system, a lot of times securing an arbitral award may only be half the battle won! Needless to say, such a proposition will certainly have the parasitic effect on the efficacy and reliability of the entire mechanism. The inconsistency in the judicial behavior on the subject has catalyzed this alarming concern. Even after the pro arbitration verdict by the Apex court in the BALCO case2, the prospective effect of the same somehow divided the entire issue into two uneven segments of pre-BALCO and post-BALCO regimes.

Pre-BALCO regime (prior to September, 2012): Position exiting Hitherto!

The BALCO judgment has been considered as a huge step till date by Indian judiciary towards ensuring the enforceability of foreign awards in India by overruling the prevailing verdict of Bhatia International v Bulk Trading3. The ratio of the BALCO case can be set out as:

"Part I of the Arbitration and Conciliation Act, 1996 ("Act") shall apply to all arbitrations which take place within India and the foreign awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Act. Similarly, no suit for interim injunction would be maintainable in India with a seat outside India. Bhatia International and Venture Global Engineering4 and judgments following the interpretation are therefore over-ruled."

Having said this, somehow the applicability and significance of this judgment got restricted in its scope due to prospective effect of the binding judgment. Set out below is the relevant extract from the judgment for ready reference:

"The judgment in Bhatia International was rendered by this Court on 13th March, 2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court (i.e. Supreme Court) on numerous occasions. In fact, the judgment in Venture Global Engineering has been rendered on 10th January, 2008 in terms of the ratio of the decision in Bhatia International. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter."

Accordingly, post BALCO (i.e. after September, 2012), there is no requirement of any specific exclusion of Part I of the Act and the Apex Court has unequivocally overruled Bhatia and Venture Global on the basis that Part I of the 1996 Act does not apply to foreign-seated arbitrations. However the same was not made applicable to the arbitrations agreement entered prior to September 2012.

I-Max v E-City: a pro arbitration move?

Finally, in the recent case of I-Max Corporation  v E-City Entertainment Private Limited5, the Apex Court considered whether to maintain a petition challenging a foreign award under Section 34 of the Act in India, under the pre-BALCO regime, which permits challenges to foreign awards in India unless the parties have expressly or impliedly excluded the operation of Part I of the Act and in its judgment while setting aside the position taken by the Bombay High Court, has significantly blurred this categorization and the position which stands out as on date can be summarized as:

"The choice of institutional arbitral rules (ICC Rules in this case) and the consequent choice of seat by the arbitral institution (London) operated as exclusion of Part I of the Arbitration and Conciliation Act, 1996, thereby ousting the jurisdiction of Indian Courts to maintain and entertain a challenge to the foreign award.."

Setting aside Bombay High Court's view:  The Bombay High Court recognized that there was no express exclusion of Part I of the Act in the arbitration agreement and it did not delve into the possibility of an implied exclusion by choice of the ICC Rules or the choice of London by the ICC Court of Arbitration as the seat of arbitration. Instead, it held that Part I of the Act was applicable to the Contract since there was no express exclusion.6

The Apex Court's verdict essentially brings out the following altered facets on table:

  1. An arbitral institution's choice of seat, made in consultation with parties, was upheld as a valid and binding choice of seat in the absence of an express choice of seat.
  2. This was recognized as exclusion of Part-I of the Act, for arbitration agreements entered into prior to the judgment of the Supreme Court in BALCO v. Kaiser Aluminum7.
  3. Absence of pre agreed foreign "Seat" from the arbitration agreement:   The Apex Court relied on specific procedures under the applicable ICC Rules[8]which permitted the ICC Court of Arbitration to fix the seat of arbitration unless agreed upon by the parties, after consultation with the parties. The court recognized the fairly unarguable presumption that the parties were aware that the ICC Rules contained provisions to fix a seat of arbitration. Thus, the choice of a foreign seat by the tribunal demonstrates the willingness of the parties to choose a seat outside India and thereby excluding Part I of the Act, consequently ousting the jurisdiction of Indian courts.
  4. The distinction between pre-BALCO and post-BALCO is no more relevant and the progressive view of the Apex Court in BALCO judgment will hold good even in a pre-BALCO regime wherein the choice of seat remained absent in the underlying arbitration agreement, while the chosen arbitral institution still provides for designating the seat of arbitration.  The disputing parties in such a case will be in a position to exclude the operation of Part I of the Act where foreign seat is chosen by the arbitral institution.

Way Forward..

The judgment is clearly a pro arbitration position by the Apex Court while removing all the inconsistencies and judicial anomaly in the views taken by the courts till date. For the agreements executed prior to the BALCO regime, the parties will not have to face the uncertainty of foreign awards getting amenable to challenge before the Indian courts in the light of Bhatia judgment which was applicable hitherto. It can be certainly said that with this judgment, the Indian judiciary has moved significantly towards the progressive arbitration regime from the existing regressive positions on the agreements entered in the pre BALCO era. However, only the time will tell whether the position can be maintained as the final position or given the history of overruling judicial precedents, this one will also get surpassed by some contrary ruling!

Footnotes

1. 2017 SCC Online SC 239

2. Bharat Aluminium Co. v. Kaiser Aluminium Technical Service (2012) 9 SCC 552

3. (2002) 4 SCC 105

4. Venture Global Engineering Case v. Satyam Computer Services Ltd, (2008) 4 SCC 190

5. Supra f.n. 1

6. Note that in addition to the question on choice of seat, Bombay High Court also held that Indian law will only be applicable law by "close nexus" principal irrespective of the contractually agreed "Singapore Law" as the governing law under the agreement. However Supreme Court on the other hand clearly upheld the express choice made by two parties in choosing an unconnected law, i.e. Singapore Law, to govern the contract. The said issue was not debated much in the judgment and has not been specifically elaborated for the purpose of this Case comment.

7. Supra f.n 2

8. Refer to Article 14 of the ICC Rules

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