Hence, there comes a decision to nullify the draconian
effects of Bhatia International v. Bulk Trading S.A. Though many would have already understood
what I am referring to, many foreign readers and new learners of the subject
would be bewildered as to what is so special about the judgement delivered by
the Constitutional Bench of the Supreme Court of India consisting of five
judges including the Chief Justice in Bharat Aluminium Co. v Kaiser Aluminium Technical Service.
This post shall put
before the readers the context of the case and also address to some concerns
which has left the lawyers, investors and academicians craving for a little
more.
What led to this landmark case was the confusion on
Applicability of Part I to Part II of the Arbitration and Conciliation
Act. While Part I deals with arbitration
happening within India, Part II deals with enforcement of foreign awards.
In 2002, a three judge bench in Bhatia International set the
precedent that Part I shall apply to Part II of the Act. As a result, all the
later decisions in various cases followed the suit. This created a lot of ruckus as almost all the
foreign awards were tried and tested in the national courts as if they were
domestic awards. In many situations, foreign awards were not only refused
enforcement according to Part II of the Act but were also set aside, something
which is only possible to the domestic awards under Part I. This kind of treatment made the foreign
awards susceptible to death by long drawn legal battles in Indian courts.
Seeing the situation getting worse with many matters reaching
the Supreme Court, this Constitutional Bench was set up (Reported here). Better late than never, though it took a massive decade, the
judgment is nevertheless a welcome decision. The Supreme Court has clearly
decided that Part I and part II are mutually exclusive and no portion of Part I
shall be applicable to Part II. Rejecting the argument of the appellant that
the 1996 Act provides for delocalised arbitration, the court found that India has
adopted the territorial principle, thereby limiting the applicability of Part I
to arbitrations which take place in India.
“We are of the considered opinion that Part I of the
Arbitration Act, 1996 would have no application to International Commercial Arbitration
held outside India. Therefore, such 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 Arbitration
Act, 1996.”
This, of course means that foreign awards will not be
subject to provisions of Part I. This eventually means that the court
intervention would significantly reduce and foreign awards would no longer be
at the mercy of Section 34 of Part I which carries enormous power of setting
aside an award. Further, the Supreme
Court has also stated that a foreign award could only be set aside where the
award was made and only in a rare circumstance where this is not possible, it
could be set aside under the law of the country governing arbitration agreement
which the award was made.
In arriving at this decision, the Supreme Court has done a
commendable job by minutely going into the 1996 Act and clarifying the relevant
provisions keeping in view the international standards and most importantly the
objects and reasons of the Act itself. While arriving at its decision, the court has discussed
the founding concepts of international arbitration putting them in sync with
the 1996 Act in a very skillful manner, as if there never was any sort of confusion
in the Act.
Though, all may seem hunky-dory, the judgment comes with its
own unique concerns. The Supreme Court while strictly demarcating the divide
between Part I and Part II has afforded to leave the parties remediless in
international arbitration taking outside India in terms of approaching the court
for interim measures which falls under Part I under Section 9, allowing the option only for domestic arbitration. According
to the Supreme Court it is better to leave it to the legislature to do the
needful; the court cannot enter in its shoes.
Similarly, the fate of awards from non-convention (non signatories to
New York Convention) countries has been left in lurch as Act will not apply at
all to such awards unlike the earlier position where Part I applied to such
awards. The next cause of concern being that in the very last sentence of the judgment
where the court specifies that law declared by it through this judgment shall
only apply to prospective arbitration agreements. Does that mean all the cases coming to courts
till then would be decided as per the old precedent as laid down in Bhatia and
Venture? Well, only time will tell how the courts across the nation treat the
numerous cases where the arbitration agreements have been entered into and
which may come before the court anytime in future.
As for now, the judgement has given many reasons to
celebrate. How about declaring 6th September, the Indian Arbitration Day?
