Enforceability of Foreign Awards in India By Priya Nagpal

The Arbitration and Conciliation Act, 1996 is the law that governs arbitrations in India. With international trade and commerce growing rapidly across continents and borders, international commercial arbitration flows naturally. This is the need of the hour as lengthy litigation would inevitably prove as a barrier in maintaining business efficiency. The enforceability of foreign awards can be traced through various case Laws.In the case of Bhatia International vs Bulk Trading S. A. & Anr on 13 March, 2002The Hon'ble Supreme Court of India in "Bhatia International v Bulk Trading1", interpreted the scope of Part I of the Act to apply to arbitrations held outside India and in turn applied Sec. 9 (interim relief) in support of arbitrations seated outside India. The court held that where such arbitration is held in India the provisions of Part I would compulsorily apply. In cases of international commercial arbitrations held outside India, the provisions of Part I would apply unless the Parties by agreement, express or implied, excluded all or any of its provisions. In that case, the laws or rules chosen by the Parties would prevail. Any provision of Part I specifically excluded will not apply. It is noteworthy that this judgment was delivered to fill the lacunae that existed in the Act. Parties aggrieved in foreign arbitrations can now apply for interim relief in India.In the BHARTI INTERNATIONAL case the main issue relates to filing a petition under Section 9 of the Act for interim orders.In the above case (supra), it was submitted on behalf of appellants that Part I of the Arbitration Act, 1996 only applies to arbitrations where the place of arbitration is in India. It was also submitted that if the place of arbitration is not in India then Part II of the Arbitration Act, 1996 would apply. Reliance was also placed on Section 2(1)(f). With regard to Section 2(4) and (5), it was submitted that the aforesaid provisions would only apply to arbitrations which take place in India. It was submitted that if it is held that Part I applies to all arbitrations, i.e., even to arbitrations whose place of arbitration is not in India, then sub-section (2) of Section 2 would become redundant and/or otiose. It was also pointed out that since Section 9 and Section 17 fall in Part I, the same would not have any application in cases where the place of arbitration is not in India. It was emphasized that the legislature had deliberately not provided any provision similar to Section 9 and Section 17 in Part II. It was also submitted that a plain reading of Section 9 makes it clear that it would not apply to arbitrations which take place outside India.The Supreme Court rejected the contentions of the appellant and was of the view that if the contentions of appellant were admitted it would lead to an anomalous situation, inasmuch as Part I would apply to Jammu and Kashmir in all international commercial arbitrations but Part I would not apply to the rest of India if the arbitration takes place out of India and would lead to a conflict between sub-section (2) of Section 2 on one hand and sub-sections (4) and (5) of Section 2 on the other. Therefore,it was held that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I.After Bhatia International's case, the Supreme Court went a step further in Venture Global Engineering vs. Satyam Computer Services,and held :"The provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and where such arbitrations are held in India, the provisions of Part I would be compulsorily applied to the extent permitted by the provisions of Part I. It is also clear that even in the case of international commercial arbitration held out of India provisions of Part I would apply unless the Parties by Agreement, express or implied, exclude all or any of its provisions.It was further held in this case that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such."
The main issue which arose in this case is whether the aggrieved party is entitled to challenge  the foreign award which was passed outside India in terms of Sections 9/34 of the Actor not. It is urged by the appellants that Section 2(4) makes Part I applicable to “every arbitration” under any other enactment, thereby makes it applicable to arbitrations wherever held, whether in India or outside India and thus there is a conflict between sections2(4),2(5) But court concluded that Section 2(4) makes Part I applicable to “every arbitration under any other enactment for the time being in force” and The phrase “all arbitrations” has to be read as limited to all arbitrations that take place in India.Section 2(5) takes this a step further and holds that this Part shall apply to all arbitrations and proceedings relating thereto, where the seat is in India.There is no indication in Section 2(5) that it would apply to arbitrations which are not held in India.Therefore, it was held that there is no inconsistency between Sections 2(2), 2(4) and 2(5) and there is no lacuna as such.Basically it was held that foreign awards could be set aside by Indian courts under section 34 of the Act (which falls under Part I) for violating Indian statutory provisions and being contrary to Indian public policy.Then in the case of Bharat Aluminium Co. versus Kaiser Aluminium Technical Services INC “The Supreme Court ruling in the Bharat Aluminium case limits the ability of the Indian courts to set aside awards in respect of arbitrations seated abroad. This ends years of uncertainty for the international arbitration community”.A five judge bench of the Supreme Court in its decision in Bharat Aluminium Co. versus Kaiser Aluminium Technical Services INC. Civil Appeal 7019 of 2005, overruled its earlier judgments in Bhatia International versus Bulk Trading SA & Anr, AIR 2002 SC 1432 and Venture Global Engineering Vs. Satyam Computer Services Ltd. & Anr. 2008 (1) Scale 214, which had held that Part I of the Indian Arbitration and Conciliation Act, 1996 (the “Act”) shall apply to international commercial arbitrations, even in cases where the seat of arbitration was situated outside India unless the parties expressly or impliedly excluded the applicability of Part I of the Act in the arbitration agreement. The reason for overruling the judgment of previous cases was that each gave further weight to the possibility of increased interference from Indian courts in foreign seated arbitrations.Now the larger bench has held that Part I of the Act would not apply to international commercial arbitrations having the seat of arbitration outside India. In effect this would mean that in an international commercial arbitration having the seat of arbitration outside India, neither of the parties would be able to move Indian courts for any reliefs including applying to Indian courts for interim measures of protection, challenge to the award, appeal against interim orders, appeal against an order of the arbitral tribunal holding that it has no jurisdiction, etc. In such cases the parties may have to only look at courts having jurisdiction over the seat of arbitration. Till now Indian parties to international commercial arbitration agreements were comfortable agreeing to have the seat of arbitration outside India knowing that they could still have the option of moving Indian Courts, but the larger bench decision of the Supreme Court will now impact decisions on whether to have the seat of arbitration outside India. The Parties in an international commercial arbitration having the seat of arbitration outside India cannot even agree to have such powers or jurisdiction to be exercised by Indian Courts.To avoid uncertainty and confusion the Court has also ruled that its decision will only apply to arbitration agreements entered into after this judgment. Therefore in respect of agreements pertaining to international commercial arbitration already entered into prior to this judgment, if they do not expressly or by necessary implication exclude application of Part I of the Act, even if the seat of arbitration is outside India, the parties would be entitled to avail of provisions of Part I of the Act and approach Indian Courts for reliefs and remedies.
The apex court has while overruling its earlier judgments held as under:
 The omission of the word “only” in section 2(2) of the Act which provides that Part I shall apply to domestic arbitrations does not mean that Parliament intended to make Part I applicable to foreign-seated arbitrations.
 Parts I and II of the Act are mutually exclusive and that Indian Courts can interfere with the award rendered in arbitration proceedings having the seat of arbitration outside India, only when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Act.
 In international arbitration, jurisdiction is generally determined by the “seat” of arbitration.
The Supreme Court’s judgment in BALCO v Kaiser reinforces the objective of international commercial arbitration by ensuring minimal legal intervention in arbitral proceedings conducted outside of India. It clarifies the much debated position of law on the applicability of Part I of the Act to an arbitration held outside India. Till the judgment in BALCO v Kaiser was rendered, determining whether an arbitration clause had impliedly or expressly excluded Part I of the Act, in accordance with the ruling in Bhatia International, remained a highly subjective test, often resulting in prolonged proceedings.
INTERNATIONAL COMMERCIAL ARBITRATION 
International commercial arbitration is the process of resolving business disputes between or among transnational parties through the use of one or more arbitrators rather than through the courts.  It requires the agreement of the parties, which is usually given via an arbitration clause that is inserted into the contract or business agreement.Many international agreements, treaties, and conventions facilitate the use of arbitration as a method for resolving disputes.  Other agreements address the enforcement of awards. Modern international commercial contracts usually tend to have arbitration as their preferred mode of dispute resolution. One can attribute this largely to the fact that it is relatively faster. The recent change was the result of a judgment, dated September 6, 2012, of a Constitution Bench of the Supreme Court of India in the case of Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (BALCO v Kaiser), which clarified the scope of jurisdiction of Indian Courts in international commercial arbitration.Interim measures etc. by the Indian Courts where the seat of arbitration is outside India.(AS REGARDS INTERNATIONAL COMMERCIAL ARBITRATION)Section 9 of the Arbitration and Conciliation Act,1996 has a provision regarding interim reliefs. In Bhatia, the Supreme Court considered a request for interim relief under Part I of the Indian Arbitration and Conciliation Act 1996 (the "Act"). Part I confers significant powers on Indian courts, including the ability to order interim measures and set aside awards. Even though Part I seemingly only applied to domestic arbitrations, the Supreme Court interpreted the Act in a manner that allowed Part I to be applied to foreign seated arbitrations, unless the parties opted out of this arrangement.The provision contained in Section 9 is limited in its application to arbitrations which take place in India. Extending the applicability of Section 9 to arbitrations which take place outside India would be to do violence to the policy of the territoriality declared in Section 2(2) of the Arbitration Act, 1996.. It appears to us that as a matter of law, an inter-parte suit simply for interim relief pending arbitrations would not be maintainable.In order to claim an injunction the existence of a pending suit is a pre requisite. Since the dispute is to be decided by the Arbitrator, no substantive relief concerning the merits of the arbitration could be claimed in the suit. The only relief that could be asked for would be to safeguard the property which the plaintiff may or may not be entitled to proceed against.Therefore in foreign seat arbitration, an inter-parte suit in India for interim relief pending arbitration would not be maintainable even if it is limited to the purpose of protecting the subject matter of the arbitration. In order to obtain an injunction, the existence of a suit seeking final relief, based on a recognized cause of action, is a prerequisite.
Present position of granting of interim orders by Indian courts in respect of foreign seat arbitration can be ascertained in the light of kesar Aluminium case where it was held that The Indian courts cannot order interim relief in support of foreign seated arbitrations. Parties will therefore need to rely on the relief afforded by the courts of the jurisdiction in which the arbitration is seated. As the choice of seat can have significant implications for the way arbitration is conducted, parties should carefully consider their choice at the drafting stage. It is also significant to note that with respect to non-applicability of Section 9 of the Act to foreign seat arbitrations, the Supreme Court has stated that the responsibility of removing any “perceived lacuna” would be with the Parliament and not with it.


Priya Nagpal

Post a Comment

0 Comments