Presently, various Institutions have emerged as arbitration centres to support the proarbitration regime and make arbitration more transparent and proper. The parties can agree to be governed by the rules of an institution for a future dispute which may be required to be referred to arbitration. In India, the Arbitration and Conciliation Act, 1996 has witnessed significant developments with respect to the applicability of Institutional Rules of Arbitration between parties. The Bhatia International Regime1 was done away with by the Hon'ble Supreme Court in the landmark BALCO Case, and thereafter in the recent Amazon's case2, wherein the sanctity of Institutional rules has been recognised. In simple words, the parties cannot go back on their words if they have agreed to be governed by the rules of an institution. While upholding party autonomy in arbitration and rules of arbitration to which the parties agreed, the Supreme Court held the following in Amazon's Case:
"46. We, therefore, answer the first question by declaring that full party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include Emergency Arbitrators delivering interim orders, described as "awards". Such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. Such orders are referable to and are made under Section 17(1) of the Arbitration Act."
The Hon'ble Supreme Court has recognised the sanctity of Institutional Rules of Arbitration in as early as 1964 in Badat and Co. v. East India Trading Co.3 wherein Justice Subba Rao held the following:
"20. .....The said documents clearly establish that the
parties agreed that their disputes under the contracts should be
submitted to arbitration in the manner prescribed by the Rules of
the American Spices Trade Association. Those contracts were
concluded within the local limits of the original jurisdiction of
the Bombay High Court. It follows that a part of the cause of
action accrued within the said limits and that as the leave of the
High Court was obtained, the said High Court had jurisdiction to
entertain the claim. No other point is argued before us.
21.In the result, I agree with the conclusions arrived at by the High Court. The appeal is dismissed with costs."
Can Institutional Arbitration Rules be challenged before Tribunal?
An arbitral tribunal has the power to rule on its own jurisdiction. The same has been recognised under the principle called Kompetenz Kompetenz. Section 16 of the Arbitration and Conciliation Act, 1996 incorporates the same explicitly. However, this principle only gives the tribunal to delve into the validity of the contract. In State of U.P. v. Allied Constructions 4 the Supreme Court held that interpretation of a contract is the dominion of arbitral tribunal. It is pertinent to draw a distinction between the terms of the contract and the rules of an institution for arbitration as agreed between the parties. The terms of the contract and the rules of the institution clearly stand on a different footing. The latter can be challenged before the court of that place where the seat of arbitration exists. An arbitral tribunal is a creation of a contract and thus cannot exceed the terms of the contract.
While the rules of an institution cannot be challenged before an arbitral tribunal, however, this does not mean that if the rules are opposed to public policy, the same can be enforced in India. If the Rules of an Institution were opposed to the public policy of India, then the Courts in India will not enforce such arbitral awards passed on the basis of those rules. Part II of the Arbitration and Conciliation Act, 1996 applies to the enforcement of foreign arbitral awards in India. The same also includes those awards passed by a tribunal functioning under the aegis of the rules of an Institution. The enforcement of such an award is cannot be claimed as a matter of right in India, and the same has to be in consonance with the public policy and laws of India.
Can a foreign arbitral award be challenged in India if the Institutional Rules are opposed to public policy of India?
In India, an arbitral award can be challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (India). If the juridical seat is based outside India, then such an arbitral award cannot be challenged in India under Section 34. This is because Part I of Arbitration and Conciliation Act, 1996 (India) does not apply to international commercial arbitrations.
The same has also been held by a five-judges bench of the Hon'ble Supreme Court of India in Bharat Aluminium Company & Ors. v. Kaiser Aluminium Technical Services Inc , (hereinafter referred to as "BALCO"). The following is the extract of the relevant paragraph of the judgment:
"100. ... Only if the agreement of the parties is construed to provide for the "seat"/"place" of arbitration being in India - would Part I of the Arbitration Act, 1996 be applicable. If the agreement is held to provide for a "seat"/"place" outside India, Part I would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Arbitration Act, 1996 shall govern the arbitration proceedings."
Furthermore, in Reliance Industries Ltd. v. Union of India6 (hereinafter referred as "Reliance Industries case"), the Hon'ble Supreme Court reiterated the BALCO's ratio and held that if the parties have consciously agreed that the juridical seat of arbitration is London, then Part I of the Arbitration and Conciliation Act, 1996 (India) would not apply. The following is the extract of the relevant paragraph of the judgment:
"45. In our opinion, it is too late in the day to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause. This view of ours will find support from numerous judgments of this Court. Once the parties had consciously agreed that the juridical seat of the arbitration would be London and that the arbitration agreement will be governed by the laws of England, it was no longer open to them to contend that the provisions of Part I of the Arbitration Act would also be applicable to the arbitration agreement."
Furthermore, in the above-mentioned Reliance Industries case, the Court refused to accept the argument that a foreign arbitral award can be challenged on grounds of violation of public policy in India. The following is the extract of the relevant paragraph of the judgment:
"58. Mr Ganguli has vehemently argued that the issues involved here relate to violation of public policy of India. Therefore, the applicability of Part I of the Indian Arbitration Act cannot be excluded even if the seat of arbitration is London. It would also, according to Mr Ganguli, make no difference that the arbitration agreement specifically provides for the arbitration agreement to be governed by the laws of England. According to Mr Ganguli, proper law of the contract would be relevant to determine the question as to whether the interim final award would be amenable to challenge under Section 34 of the Arbitration Act, 1996. In our opinion, the aforesaid submission of the learned counsel runs counter to the well-settled law in India as well as in other jurisdictions."
If the parties have agreed to the institutional rules of arbitration, they cannot ignore the arbitration proceedings or the award passed by the arbitral tribunal so constituted under the institutional rules. Recently, in Amazon.Com NV Investment Holdings LLC v. Future Retail Ltd.7, the Hon'ble Supreme Court of India held that once a party has agreed to the institutional rules of arbitration, the party shall continue to be bound by it. In this case, Amazon and Future Group had agreed to the institutional rules of Singapore International Arbitration Centre (SIAC). Ultimately, it was held that both the parties would be bound by the SIAC Rules. The relevant extract of the above judgment is as follows:
"41. A party cannot be heard to say, after it participates in an emergency award proceeding, having agreed to institutional rules made in that regard, that thereafter it will not be bound by an Emergency Arbitrator's ruling. As we have seen hereinabove, having agreed to para 12 of Schedule 1 to the SIAC Rules, it cannot lie in the mouth of a party to ignore an Emergency Arbitrator's award by stating that it is a nullity when such party expressly agrees to the binding nature of such award from the date it is made and further undertakes to carry out the said interim order immediately and without delay."
In view of these judgments, the powers of arbitral tribunal are narrow and cannot delve into the validity of rules made by an institution. However, if it is found that the institutional rules were opposed to public policy of India, the least the courts in India can do is to refuse the enforcement of such foreign arbitral award.
It is settled that where an arbitration clause exists in an agreement, the parties cannot be allowed to go back on their terms. It is based on a logical principle that one cannot be allowed to approbate and reprobate at the same time. Thus, if the parties have agreed to be governed by a particular Institution and its rules, then the same principle would apply. A classic example is that of the Amazon's case where the Hon'ble Supreme Court upheld the decision of an Emergency Arbitrator. While the parties would be bound by the rules of institution, however, the rules can only be challenged before a competent court based on the seat of the arbitration.
1. Bhatia International v. Bulk Trading S.A. and Anr., (2002) 4 SCC 105
2. Amazon.Com NV Investment Holdings LLC v. Future Retail Ltd., (2022) 1 SCC 209
3. Badat and Co. v. East India Trading Co., (1964) 4 SCR 19
4. State of U.P. v. Allied Constructions, (2003) 7 SCC 396
5. Bharat Aluminium Company & Ors. v. Kaiser Aluminium Technical Services Inc., (2012) 9SCC 552
6. Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603
7. Amazon.Com NV Investment Holdings LLC v. Future Retail Ltd., (2022) 1 SCC 209
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.