Monday, May 31, 2010

An Interesting Link on Arbitration of Indus River Water Dispute

Practical Academic Blog has come up with a comprehensive analysis of the India Pakistan dispute over Indus river water. As the matter is on the path to arbitration, the readers may find the post interesting.

Sunday, May 30, 2010

Bhatia will survive the amendments: Anyone in mood for a bet?

Rukmini had discussed in a previous post how the proposed amendments to the Arbitration and Conciliation Act would negate the basis of the decision in Bhatia. It just dawned on me what a bench of the Honourable Supreme Court of India is likely to say if confronted with the S. 2(2) as proposed to be amended. Well, as Justice Holmes puts it, study of law concerns nothing but “prophecies of what the courts will do”. So here goes my prediction.

Some background to the prediction:
The text of S. 2(2) [unamended] reads: "This Part shall apply where the place of arbitration is in India". The Supreme Court in Bhatia held that this is not equivalent to "This Part shall apply only where the place of arbitration is in India". 

The Section, after the proposed amendment will read, “2.(2) (a) Save as otherwise provided in clause (b), this Part shall apply where the place of arbitration is in India. (b) Sections 8, 9 and 27 of this Part shall apply to international arbitration (whether commercial or not) where the place of arbitration is outside India or where such place is not specified in the arbitration agreement.” It is pertinent to note that though the consultation paper proposes the addition of the word "only", the Bill as it stands now reads the way I have quoted.

What a reasonable reader would infer:
In this context the word "reasonable" has been used as we use it in the context of "reasonable man". This is not to attribute unreasonability to honourable courts for adopting a different reading from what I call the "reasonable reader" would adopt.

To a reasonable reader it would appear from the insertion of the words "Save as otherwise provided in clause (b)" and from the fact that S.2(2)(b) makes Sections 8, 9 and 27 applicable specifically to arbitrations held outside India as well, that provisions of Part I other than those named in S.2(2)(b) will not apply to arbitrations held outside India.

But, the reasonable reader is not much of an assistance when it comes to predicting judicial behaviour in context of arbitration in India. I would say that a reasonable reader would, while reading unamended Section 2(2), have supplied the word "only" and confined the application of Part I to arbitrations held in India alone.
What those exercising exclusionary reasons will say - the prediction:
I remember studying in jurisprudence that a court of law exercises exclusionary reason. That is, once a matter is decided by it, the reasons agitated before it become irrelevant and the only reason for the validity of a legal proposition becomes the fact that it has been upheld by the authority. So, our reasonable reader and her reasoning will no more be relevant except for academic purposes the day a court exercises its exclusionary reason. Here is my prediction on what the courts will say and based on what reasons:

"Even while amending Section 2(2), the legislature has not included the word "only". If the legislature, which was fully aware of the decision in Bhatia and the fact that the decision hinged on the absence of the word "only" in S.2(2) did not insert the word "only" even during its amending exercise, no legislative intent can be inferred that the statute depart from the position laid down in Bhatia. This takes us to the question of what the effect of the amendment is. It is our considered view that while adhering to the position in Bhatia, the legislature additionally provided for mandatory application of Sections 8, 9 and 27. Therefore, the current position of law in this regard is - (i) Whole of part I applies mandatorily where the place of arbitration is in India; (ii) All provisions of Part I except Sections 8, 9 and 27 apply to arbitrations held outside India if not specifically excluded by the contract between the parties; (iii) Sections 8, 9 and 27 apply mandatorily to all arbitrations whether held in India or abroad."

Any one in mood for a bet? I will enter into the bet only if the agreement to bet is NOT governed by the laws of India (or any other country where wagers are unenforceable) AND any disputes arising out of or in connection with the bet are subject to arbitration with its seat outside India AND lex arbitri not being Indian law.

Friday, May 28, 2010

Binding non-signatories to arbitration

Binding non-signatories to an arbitration agreement to arbitral proceedings has always been an unsettled issue in several countries of the world. Here, we take a look at the Indian law on third parties to arbitration agreement.

Leaving aside the fundamental principle of privity of contract, an arbitration agreement is bound by the consent of the parties and must fulfill the requirements of an arbitration agreement defined in Article 7 of the UNCITRAL Model Law on International Commercial Arbitration, embodied in section 7 of the Indian Arbitration and Conciliation Act, 1996. This provision has been incorporated into legislation of most major jurisdictions of the world.

There are several theories for binding a non-signatory to an arbitration agreement in international arbitral practice. These include the ‘group of companies’ doctrine, lifting the corporate veil, equitable estoppel, agency and the alter ego doctrine. The tests for these often overlap, thus, in fact, more than one justification can be found for binding a non-signatory to an arbitration agreement.

Not all theories are accepted in all jurisdictions. The usual justification for looking beyond the signatories to the agreement is that consent is implied in those circumstances. Moreover, Article 7 of the Model Law although requiring an arbitration agreement to be in writing, does not mandate signature of the parties. Moreover, the standard for binding non-signatories is higher in common law countries than the civil law ones. This is because privity is an essentially common law concept and civil law jurisdictions stress on the principles of good faith and equity.

Under English law, thus, we can see that the ‘group of companies’ doctrine has been rejected [Peterson Farms v. C & M Farming]; the corporate veil is pierced only in exceptional circumstances such as when the company in question is a façade or sham [see Adams v Cape Industries Plc.] and, together with control over the signatory company, there existed a degree of impropriety [see Hashem v. Shayif].

The corporate veil has been lifted on several occasions by the Indian judiciary, however, those have been in context of taxation, contract or company law [see New Horizons Ltd. v Union of India, Delhi Development Authority v Skipper Construction Co., State of U.P. & Ors. v Renusagar Power Co. & Ors., Life Insurance Corporation of India v Escorts Ltd.]. Arguably, if rights or liabilities under a contract can be extended to non-signatories, the same may be extended to arbitration clauses as well. Moreover, Indian courts have been known to follow English common law decisions, especially where (as in this case) statutory provisions are almost identical.

In the recent Supreme Court decision Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr. [discussed at the Indian Corporate Law Blog], the analysis of the Court centred around the textual interpretation of section 7 of the Arbitration and Conciliation Act, 1996. The Court undertook a “plain, simple and normal reading of section 7 of the Act”. Further, it held that­ if the signatories to the arbitration agreement had intended that a third party would be bound by the agreement, they would have so specified while signing the agreement.

None of the documents exchanged between the appellant and first respondent referred to the arbitration agreement entered into between the two respondents. U.S. decisions relied on by first respondent were rejected since the statutory provision in India was substantially different from that in the United States. Admittedly, the cases cited by first respondent were only from the United States and no decisions upholding a similar point of law from England were cited by respondent. However, this should not have stopped the Court from relying on English decisions on this point, especially since statutory provisions in England and India are both lifted from the UNCITRAL Model Law.

Until this decision on April 27, 2010, one could have safely assumed that non-signatories could be bound to an arbitration agreement in India by lifting the corporate veil, albeit, in extraordinary circumstances. This decision goes against the general international trend and yet again proves that arbitrating in India is becoming less and less predictable.

Ireland, Scotland pass new arbitration laws

President Mary McAleese of Ireland signed the Arbitration Act  2010 on 8th March 2010.  The Act is to come into force on 8th June 2010. The final version of the Bill can be found here.

Another recent legislation on arbitration, Arbitration (Scotland) Act, 2010 can be found here.

Wednesday, May 26, 2010

NLS arbitration moot : results

As we have been refraining from putting up detailed posts on account of being busy with the NLS arbitration moot, I thought I would post the results of what is arguably the most reputes arbitration moot in the country. NUJS won the moot for the third consecutive time in a row. In addition, we won the best memorial award and the second best speaker award. The best speaker award was won by Shruti Chandrashekharan from NALSAR. NALSAR also bagged the second best memo and second best team awards. The NUJS team consisted of, in addition to the two contributors of this blog, Mr. Sankarshana Meeyala and Ms. Pankhuri Agarwal. We congratulate the NALSAR team for the fight they put up in the finals and NLS for the wonderful event, especially in terms of the well drafted problem and the commendable judging standards.

Our performance was great news to us especially because of the circumstances that prevailed. To begin with, this was Rukmini's first moot as a speaker though she has done several before as a researcher. It was the first ever moot for Sankarshana and Pankhuri. Also, the moot problem released when our exam schedule had already been out and we were in the middle of our preparations. The exams got over on the 13th of May and the memorial submission (after an extension) was on the 18th. I was scheduled to start interning with a reputed law firm in Mumbai on the 17th. So, I left Kolkata (and my team) on the 14th and wrote most of my part of the memorial in my train to Mumbai based mostly on whatever I could recall of sale of goods and arbitration from earlier moots and classes rather than the luxury of fresh research. Rukmini had a tough time collating the drafts of the memorial all alone and barely managing to complete the submission on time. To add to all this, I went to office on Friday till lunch break (on account of my own being a bit crazy; the firm did not want me to), took the night flight to Bangalore, read the completed memorial and the ancillary documents for the first time in the plane and started speaking on Saturday. Considering all these factors, I am really excited about our performance. However, we did not get much opportunity to express the excitement, given that the results were announced at 5:30 and I had to leave for the airport at 6:00.

[In the course of a session]

There was one argument in this moot I really cherish. This idea hit me while packing our bags for the semi final round against GNLU. The other side was required to argue that the transaction in question was licensing of software and not sale and hence Sections 15 and 16 of the Sale of Goods Act does not apply. This argument was based on the premise that for a sale, title in the good must have passed and in this case there was no passing of title given the extensive restrictions and limitations placed on the use of the software by the alleged buyer under the contract. I picked up our copy of Mulla on Sale of Goods opened to the front cover and read out the copy right warning. I asked, "if the title in this copy of this book passed to me for consideration despite the restrictions and limitations imposed by the copyright warning, what is your basis to say that the title in the software did not pass to the claimant due to the restrictions and limitations imposed by the contract?" This seemed to work fine and I repeated it with success in the finals as well. I think the best part about this line of argument was that it appealed to common sense rather than to the technicalities of law.

[With the NALSAR team]

We thank all those who helped out in the process - George Varghese, Iram Huq and Vivek Menon for helping Rukmini pick up the basics of public speaking; Amrita Biswas for helping with the memorial; some associates of the firm I am interning with for being extremely supportive, Indian Railways for the place where the memo was written, publishers of Mulla on Sale of Goods for the stringent copyright warning, etc.

We will resume regular posts soon. Now that the technical issues with Blogspot have been resolved, Lex Arbitri will soon bring you fresh updates on arbitration in India and abroad.

Thursday, May 20, 2010

Draft Restatement on International Commercial Arbitration accepted by the ALI annual meeting

I had stated in a previous post that ALI would debate Restatement (Third) of the United States Law of International Commercial Arbitration on Tuesday. The annual meeting has approved Draft 1 which contains Chapter 1 (definitions) and Chapter 5 (recognition and enforcement of arbitral awards). A report can be found on the ALI blog

Wednesday, May 19, 2010

Some Interesting Links

1. Readers of Lex Arbitri do not need an introduction to Mr. Badrinath Srinivasan, thanks to his regular comments on our posts and the recent guest post he contributed. Here is an interesting piece from him on a recent Supreme Court judgment regarding the practice of PSUs appointing their own employees as arbitrators.

2. This link has nothing to do with arbitration, well almost nothing. Recently when Prof. Shamnad Basheer wrote  a post on SpicyIP about the bar examination, he drew a link between the topic and IP saying IP lawyers form a part of the larger fraternity of lawyers. I will do the same here, as arbitration lawyers too form a part of that larger fraternity. Recently Prof. Basheer launched a revolutionary project to make legal education more accessible to the less privileged (You may call him a dreamer, but he is not the only one - Already about 100 students and lawyers have come forward to support the initiative). It goes by the name IDIA - Increasing Diversity through Increasing Acccess to legal education. Today, IDIA launched a blog, imaginatively titled IDIALLY . All are requested to take a look and extend support to this noble venture.

Monday, May 17, 2010

Guest Post: Permissibility of amendments to applications under S. 34 of the Arbitration and Conciliation Act - Supreme Court disagrees with the AP High Court's position in Satyam v Venture

I had discussed in an earlier post the decision of the Andhra Pradesh High Court in the Satyam Venture dispute that no application under Section 34 can be amended after the limitation period for filing such application has passed. I had argued that this amounted to judicial law making and had no statutory basis. Badri Srinivasan, a reader of our blog brought to our attention a recent judgment of the Honourable Supreme Court on the same point that takes a stand diametrically opposite to the position advocated by the AP High Court. In the following paragraphs, Badri provides a summary of the decision and highlights the portions relevant to the question of whether an application under Section 34 can be amended after the limitation period to file the application has passed. This decision is of interest especially given that the Satyam venture dispute is soon making its second trip to the Apex Court.

Badri is an alumnus of NUJS and currently works for a corporation. He writes on a wide range of topics on the Practical Academic blog.

Here goes Badri's post:

RV Raveendran & RM Lodha, JJ.
Civil Appeal No. 2928/ 2010 (Out of SLP (C) No. 3937/ 2009)

The State of Maharashtra (SOM) and Hindustan Construction Company (HCC) entered into an agreement in 1992 for construction by HCC of some civil works. Certain disputes arose between the parties, which were referred to an arbitral tribunal. The arbitral tribunal rendered the award in 2003. SOM applied to the court to set aside the award. The District Court rejected SOM’s application. An appeal was filed before the High Court of Bombay on 6th February 2007. More than a year after the filing of the appeal, on 23rd June 2008, SOM applied to the said court for allowing amendment of the memorandum appeal.

The court had to decide whether such an appeal adding additional grounds challenging the award is allowable notwithstanding the fact that S 34(3) allows a party to file an application for setting aside the arbitral award within a maximum period of three months plus 30 days.

A brief summary of the decision of the Supreme Court is given below|:

1.         Amendment of pleadings is a matter of procedure. Granting leave for amendment             is a matter of discretion of the court, to be exercised based on settled principles.
2.         Amendments which evade the laws of limitation shall not, as a rule, be allowed.    However, even such amendments may be allowed in the interests of justice
4.         The above stated principles would apply even in case of memoranda of appeal.
5.         The period allowed for filing petition under S 34 is prescribed by S 34(3) and is     not extendable.

6.         However, amendments to file additional grounds may not always amount to filing             fresh application. If that is so, no material or relevant ground for setting aside             award may be added.
7.         Under S 34(2)(b), if the court finds that the award deals with a dispute that           is not arbitrable or if the award is against public policy. The wordings of S     34(2)(b) allow the court to grant leave for such amendments even after the period   prescribed in S 34(3).
8.         Every amendment in an application for setting aside an arbitral award cannot be    taken as a fresh application.

The court, unlike the AP HC in Satyam v. Venture Engineering seems to allow amendments adding additional grounds to an application for setting aside an arbitral award:
(a)        where justice demands it or
(b)        where such amendments do not amount to filing a fresh application.

[In Satyam v. Venture Engineering, the AP HC had made a blanket prohibition against amendments to S 34 petitions beyond period specified in S 34(3).]

Considering the structure of the Arbitration and Conciliation Act, 1996 and the liberal attitude of the courts in allowing amendments to pleadings, the court should sparingly and only when the situation absolutely demands it allow such amendments. It must also be noted that an award cannot be enforced if an application is filed for setting aside an award (S 36). Hence, a court should ideally decide a S 34 petition as soon as possible and should ensure there is no delay in finally deciding on the matter. The Court should have strictly gone by the well-established legal principle: What cannot be done directly cannot be indirectly. However, Instead the court seeks to employ a test that, I believe, is nebulous, and would result in courts allowing amendments akin to what was done with Order VI Rule 17. I would only quote the following portion of the Supreme Court’s decision in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors.:

31. In a recently published unique, unusual and extremely informative book "Justice, Courts and Delays", the author Arun Mohan, a Senior Advocate of the High Court of Delhi and of this Court, from his vast experience as a Civil Lawyer observed that 80% applications under Rule VI Order 17 are filed with the sole objective of delaying the proceedings, whereas 15% application are filed because of lackadaisical approach in the first instance, and 5% applications are those where there is actual need of amendment. His experience further revealed that out of these 100 applications, 95 applications are allowed and only 5 (even may be less) are rejected. According to him, a need for amendment of pleading should arise in a few cases, and if proper rules with regard to pleadings are put into place, it would be only in rare cases. Therefore, for allowing amendment, it is not just costs, but the delays caused thereby, benefit of such delays, the additional costs which had to be incurred by the victim of the amendment. The Court must scientifically evaluate the reasons, purpose and effect of the amendment and all these factors must be taken into consideration while awarding the costs.
According to the view of the learned author Arun Mohan as observed in his book, although the proviso has improved the position, the fact remains that amendments should be permissible, but only if a sufficient ground therefore is made out, and further, only on stringent terms. To that end, the rule needs to be further tightened”.

In fact, as the said judgement notes, in 1999 Order VI Rule 17 was proposed to be deleted in on recommendations by the Justice Malimath Committee. However, due to protests from the Bar, the said provision was left unamended except for a proviso, which read:

Provided that no application for amendment shall be allowed after the trial has commenced, unless the Court comes to the conclusion that is spite of due diligence, the party could not have raised the matter before the commencement of trial.”

On the other hand, taking an absolute view that no amendments should be permitted (as the AP HC did) may also lead to unwarranted results. For example, additional grounds that have been discovered post-expiry of limitation under S 34(3) have to be allowed. Hence, proper balancing needs to be done. It would have been better if the court had more clearly defined the circumstances that might warrant allowing such amendments. The point is that when the court allows new grounds to be added "in the interests of justice".

As a general rule in case of adding additional grounds beyond the period specified in S 34(3) should be strictly dealt with. I only cite certain provisions to state that the Act does not give a second chance to do what one had not done in the first instance. For example, in case you contend in your S 34 petition that the arbitration agreement suffered some incapacity, you'll have to make objection to the tribunal first. If the tribunal rejects such contention, you may make it subsequently before the setting aside court. S 4 is another example. What these provisions tend to do is that it negates all "afterthought"-contentions and reduce the time for settlement of the dispute finally.

As far as amendments which are not in the nature of additional grounds, they may be less strictly viewed and the directions given in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors may strictly be followed, relevant portions of which are quoted herebelow:

65. The Courts have consistently laid down that for unnecessary delay and inconvenience, the opposite party must be compensated with costs… The costs cannot and should not be imposed arbitrarily. In our view, the following parameters must be taken into consideration while imposing the costs. These factors are illustrative in nature and not exhaustive.
(i) At what stage the amendment was sought?
(ii) While imposing the costs, it should be taken into consideration whether the amendment has been sought at a pre-trial or post-trial stage;
(iii)The financial benefit derived by one par- ty at the cost of other party should be properly calculated in terms of money and the costs be awarded accordingly.
(iv) The imposition of costs should not be symbolic but realistic;
(v) The delay and inconvenience caused to the opposite side must be clearly evaluated in terms of additional and extra court hearings compelling the opposite party to bear the extra costs.
(vi) In case of appeal to higher courts, the victim of amendment is compelled to bear considerable additional costs.
All these aspects must be carefully taken into consideration while awarding the costs.

66. The purpose of imposing costs is to:
a) Discourage malafide amendments designed to delay the legal proceedings;
b) Compensate the other party for the delay and the inconvenience caused;
c) Compensate the other party for avoid- able expenses on the litigation which had to be incurred by opposite party for opposing the amendment; and
d) To send a clear message that the par- ties have to be careful while drafting the original pleadings.
[S]ome basic principles emerge [] ought to be taken into consideration while allowing or rejecting the application for amendment.
(1) Whether the amendment sought is imperative for proper and effective adjudication of the case?
(2) Whether the application for amendment is bona fide or mala fide?
(3) The amendment should not cause such prejudice to the other side which cannot be compensated adequately in terms of money;
(4) Refusing amendment would in fact lead to injustice or lead to multi- ple litigation;
(5) Whether the proposed amendment constitutionally or fundamentally changes the nature and character of the case? and
(6) As a general rule, the court should decline amendments if a fresh suit on the amended claims would be barred by limitation on the date of application.

To paraphrase the caution which the Supreme Court in Revajeetu Builders and Developers v. Narayanaswamy and Sons and Ors gave, the decision on an application made for amending a S 34 petition is a very serious judicial exercise and the said exercise should never be undertaken in a casual manner.

Sunday, May 16, 2010

American Law Institute to debate Draft Restatement (Third) of International Commercial Arbitration on Tuesday

The draft of Third Restatement of US Law on International Commercial Arbitration is to be presented before ALI for approval at its 2010 annual conference. The work on the topic commenced in 2007. The agenda of the annual conference lists the item for discussion at 3:00 pm, Tuesday, 18th May 2009. Mr. Kirk Jenkins, a member of ALI promises here that there will be live blogging of the discussions here and on the ALI blog. It may be of interest to the readers to watch these spaces.

Saturday, May 15, 2010

Everybody hates Bolivia: At least every arbitrator does according to Bolivia

In an interesting development, Bolivia has challenged all three members of an ICSID tribunal hearing an investment dispute against it on the ground of bias. The Tribunal had asked Bolivia to suspend criminal investigation against one of the claimants. Though a preliminary report appears here, no further details are available. As per Article 58 of the ICSID Convention, the decision on the Challenge will have to be taken by the President of the World Bank acting as ex-officio Chairman of ICSID as the challenge concerns a majority of arbitrators. 

Bolivia, after a period of strained relationship with ICSID, served a notice under Article 71 of the Convention on May 2, 2007 denouncing the Convention. The same came to effect on November 3, 2007. However, this does not exclude the jurisdiction of ICSID tribunals in matters filed before the date of withdrawal. Moreover, there are several Bilateral Investment Treaties currently in force in which Bolivia accepts the jurisdiction of ICSID. As these BITs have not been revoked, ICSID tribunals will continue to enjoy jurisdiction in disputes arising out of them.

On a different note, Prof. Gary Born recently argued on the Kluwer Arbitration Blog that institutions must publish their decisions on challenges to arbitrators so that other parties, while deciding on the choice of arbitrators, may be guided by these decisions. ICSID regularly publishes most of its decisions, including decisions on challenges to arbitrators. It will be interesting to read the decision on Bolivia's challenge when published.

The Generic Memorandum for Respondent on Procedural Issues

Since my co-blogger and I are participating in an arbitration moot next weekend and are hard at work on the memorials at present, I would like to share something I learnt at the Willem C. Vis Moot on International Commercial Arbitration last year.

It is called "The Generic Memorandum for Respondent on Procedural Issues Waltz (Including argument headings)" and was written and performed by Prof. Harry Flechtner of the University of Pittsburgh School of Law, during the announcement of elimination round participants.

It sounds better than it reads, nevertheless, its an interesting take on objections to jurisdiction of an arbitral tribunal.

This is how it goes:

(Argument I: No offer to arbitrate)
Oh Mr. or Ms. Arbitrator, don’t hear this case against me,
‘Cause I swear I’ve never seen that arbitration clause before.

(Alternative argument IA: assuming arguendo an offer to arbitrate, non-consent)
Well, maybe I did – but I didn’t agree.

(Argument II: Non-compliance with formal requirements)
Plus the New York Convention – it ain’t satisfied:
That signature wasn’t authorised by me.

(Alternative argument IIA: invalid compliance with formal requirements)
Well maybe it was – but it happened in the
Middle of my episode (since cured) of insanity.

(Argument III: unenforceability of award)
Any award that you issue will not be enforced
So proceeding just does not make sense;
You see I’m urging your exclusion because you’re inept
And the panel has no Kompetenz on your incompetence.

(Argument IV: improper arbitrator)
Oh, Mr. or Ms. Arbitrator, this case you simply can’t hear:
Your qualifications, I'm afraid, have been called into doubt,
You think an interim measure is five litres of beer.

(Argument V: Claimant’s arguments are unpersuasive)
My opponents make arguments lengthy and grand,
With fine phrases their memo’s stuffed full.
It’s full of something – out of decorum I will simply observe
That their arguments are arbitra-bull!

(Argument VI: Final irrefutable argument)
So Mr. or Ms. Arbitrator, don’t hear this case against me,
One argument I’m certain will convince you of that:
I don’t have the cash to cover your fee!

Wednesday, May 12, 2010

Some proposed amendments to the Arbitration and Conciliation Act (Part II)

I had discussed in a previous post some of the proposed amendments to the Arbitration and Conciliation Act. Interesting posts on the same topic have appeared on the Law and Legal Developments Blog and the Practical Academic Blog. In this post, I discuss some more of the proposed amendments.

An important provision in the Arbitration Amendment Bill is the widened scope of “domestic arbitration”. The definition of “domestic arbitration” proposes to include, as section 2(1)(ea), “international arbitration” and “international commercial arbitration” where the place of arbitration is in India.

This departs from the present position which did not include within the scope of domestic arbitration, an arbitration taking place in India between two foreign parties, or two parties, both of which have place of business outside India. This present position is similar to the law in Switzerland. The amendment, however, marks a clear departure from the UNCITRAL Model Law which, in Article 1(3), defines international arbitration.

Thus electing to arbitrate in India would mean that all the provisions of Part I of the Arbitration and Conciliation Act, 1996 would apply to international arbitrations seated in India, as was envisaged by the Supreme Court in Bhatia International v. Bulk Trading S. A.

This amendment could have implications for the lex arbitri, or the law governing arbitration which applies to the arbitration proceedings and arbitral procedure. Often, parties may agree to a separate seat of arbitration (locus arbitri) and separate law governing the arbitration (lex arbitri). That is, the law governing arbitration (lex arbitri) need not be the law of the seat of arbitration (lex loci arbitri). If parties do not make a choice of lex arbitri, though there is a presumption in favour of lex loci arbitri, the same is not cast in stone. However, for an arbitration seated in India, it appears that it would be mandatory to follow Indian law of arbitration.

Though the autonomy of parties in respect of lex arbitri has been curtailed, this freedom appears to have been preserved in respect of substantive law under which the dispute is to be adjudicated. Usually in domestic arbitrations, the parties are bound by the substantive laws of the country. However, despite bringing international arbitrations held in India under the definition of “domestic arbitration”, Indian substantive law is not made mandatorily applicable to these disputes. Section 28(1A), as proposed, which discusses the substantive law of the dispute, gives paramountcy to the will of the parties as expressed in their contract. Failing agreement by the parties, the power lies with the arbitral tribunal to make a choice of law. Moreover, as mentioned in an earlier post, the public policy standards for setting aside awards from international arbitrations held in India remains different from that for setting aside other domestic awards.

Moreover, as the applicability of Part I (except Sections 8, 9and 27) to arbitrations held outside India stands excluded as discussed in a previous post, it appears that it is no more tenable to consider awards rendered outside India, even in non-convention countries as domestic awards. So, it may be argued that the “lacuna in law” that the judgment in Bhatia feared in this regard is set to come true. However, I have strong reservations to the “lacuna in law” argument of Bhatia. Judgments in Renusagar Power Co. v. General Electric Co. and ONGC v SAW Pipes make express references to principles of Common Law regarding enforcement of foreign judgments and awards. In the face of “lacuna” in Indian statutory law, these principles can provide useful guidance. Moreover, the intention of the Parliament to base recognition and enforcement of awards on a system of reciprocity is evident in the text of Section 45 itself.
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