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.


  1. Deepak, bordering on humour, the post was a good read... Even if u bet on those conditions u mentioned, Supreme Court would some day say that though u chose a lex arbitri that was outside India, you did not use the word "only" so to exclude Indian law. Hence, the Indian courts would have jurisdiction!!!

    I agree with most of the critique on Bhatia and the preverse reasoning employed in the decision. But what must also be looked at is the choice which the Indian courts at that time faced. How could the courts in India not have the power to issue interim measures of protection in arbitrations held outside India when every other popular forum (London, Paris, New York) did give such power to courts? As a judge, what would you have done?

  2. Badri,

    Well, with Indian courts, no level of precaution can be too much.

    If there was one person I hated in my Interpretation of Statutes classes, it was Justice Scalia. I thought he was too rigid in his approach to law. When he says the judge should be like a punishing school teacher and read the text and let consequences flow so that the legislature would improve in its drafting, I used to wonder what wrong the parties to a particular litigation had done to be the direct takers of this punishment. But now I see his point. In the facts of Bhatia, the judges did what appeals to our sense of fairness. But in the larger picture, they set up a precedent which has subsequently been applied to defeat the same lofty goals preached by Bhatia, the worst of it all being Venture Global. And the worst part of Bhatia decision is that the rule laid down is regarding the applicability of the whole of Part I. So, judges in Satyam had no option but to hold that S.34 applies to arbitrations held outside India.


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