EXLUSIVE: Copy of the First Petition on The Indian Arbitration Act.

India had enacted its Arbitration and Conciliation Act, 1996 after repealing and merging the earlier Acts which governed domestic arbitrations and enforcement of foreign awards separately  At the very introduction of the 1996 Act, few  problem areas were recognised by Indian Legal and Economic Forum which was led by eminent Indian Senior Counsel, Shishir Dholakia. A writ petition was filed in the Supreme Court of India with regard to that. We have secured a copy of the petition. The petition is academically very stimulating and gives a lot of food for thought to everyone involved in domestic as well as international arbitration community.  It is below:

Petition questioning validity of certain provisions of Part I of the India Arbitration and Conciliation...

Indian Supreme Court's Landmark Judgement on Arbitration: An Insight

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?

Supreme Court to reconsider Bhatia

The Hindu reports that the Supreme Court has constituted a five judge bench to reconsider the decision in Bhatia International v. Bulk Trading S.A. (Bhatia International). As we have discussed in several posts in the past, the Supreme Court's interpretation of Section 2(2) of the Arbitration and Conciliation Act, 1996 has been at the root of a chain of cases that have had severe adverse impact on the institution of arbitration in India.  This decision, by making Part I of the Act (and the powers under it, like the power to set aside an award under Section 34) applicable to arbitrations held outside India, rendered the Indian approach to arbitration extremely parochial. Some problems arising out of the decision, especially in the context of investment treaty arbitration was discussed here. Also, we had reported here how a Calcutta High Court decision following Bhatia had resulted in India being dragged into its first ever investment arbitration by an Australian investor.

The decision to reconsider Bhatia is a welcome one. Recently, the Government proposed overcoming the effects of Bhatia through legislative action. However, now the judiciary appears to be willing to clean up the mess that is its own creation.

The decision of the constitutional bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., which will finally decide the fate of Bhatia (and with it, the fate of arbitration in India) is eagerly awaited.

On the Applicability of Part I- A Guest Post

Anupama Kumar, a 4th year at NLS and member of the NLS Vis team that made it to the Round of 16 at this year's competition examines the question of implied exclusion of Part I of the Arbitration and Conciliation Act, 1996.

S. 2(2) of the Act provides that “this Part shall apply where the place of arbitration is in India.” In Bhatia International, this was read to mean that the application of Part I to international commercial arbitration had not been excluded. Nevertheless, parties to an international commercial arbitration would be free to derogate from even the non-derogable provisions of Part I, provided that such exclusion was express or implied in the agreement.

The question that follows here is, what exactly is an implied exclusion? According to Indtel Technical Services v. W.S. Atkins, merely designating a foreign law would not amount to an implied exclusion of Part I, notwithstanding the presumption that the proper law of arbitration follows the proper law of contract in NTPC v. Singer. A similar view was taken in Citation Infowares v. Equinox Corporation. Read together, it would appear that the only way by which parties could exclude the application of Part I would be to expressly specify the proper law of arbitration in the agreement.

Indeed, this appears to be the view of the Supreme Court in Dozco India v. Doosan Infracore, where it observed the specification of a seat of arbitration in the arbitration agreement would amount to an express exclusion of Part I. While Mr. V. Niranjan has noted – and I agree with this – that the treatment of this as an express exclusion may not be correct, it is nevertheless a positive step in clarifying the law on Part I.

Furthermore, the Court distinguished Citation and Indtel on the grounds that the seat of arbitration was not specified here, but appears to make a distinction between the seat of arbitration and the law governing the arbitration agreement itself. The Court analysed the interpretation of the seat of arbitration in some depth, referring to the discussion of this by Redfern and Hunter in considerable detail. Yet, the judgment appears to turn on the latter – that the law governing the arbitration agreement was stipulated in the arbitration agreement. Does specifying the seat of arbitration therefore amount to an implied exclusion of Part I? It is submitted that Dozco leaves this question unanswered.

It next remains to be asked whether the decision in Videocon served to shed some light on the matter. The question before the Supreme Court in Videocon related to the applicability of s. 9 of the Arbitration and Conciliation Act. The relevant provisions of the arbitration agreement read as follows:

33.1 Indian Law to Govern

Subject to the provisions of Article 34.12, this Contract shall be governed and interpreted in accordance with the laws of India.

33.2 Laws of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India

34.12. Venue and Law of Arbitration Agreement

The venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia, and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England. (Emphasis mine)

Would this amount to an implied exclusion of Part I of the Act?

The Supreme Court answered this in the affirmative, approving the view of the Gujarat High Court in Hardy Oil and Gas Limited v. Hindustan Oil Exploration Company Ltd., (2006) 1 GLR 658 that

...in cases of international commercial arbitrations 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. In that case laws or rules chosen by the parties would prevail. Any provision, in Part-I, which is contrary to or excluded by that law or rules would not apply. Thus ... if the parties have agreed to be governed by any law other than Indian law in cases of international commercial arbitration, same would prevail. In the case on hand, it is very clear... that the parties' intention was to be governed by English law in respect of arbitration. ... It can be interpreted only to mean that in case of any dispute regarding arbitration, English law would apply. When the clause deals with the place and language of arbitration with a specific provision that the law governing arbitration will be the English law, such a narrow meaning cannot be given. (Emphasis mine)

It is my submission, that Hardy Oil does not apply in the circumstances. The curial law in Hardy Oil was English law.

But in Videocon, English law was the law governing the arbitration agreement, and not the arbitration itself, as pointed out here. The implication of this is that, where a foreign law governing the arbitration agreement is provided for, Part I of the Act is excluded. It is submitted, with respect, that this conclusion would be incorrect – the law governing the arbitration agreement is distinct from the curial law.

Where does that leave us? One may argue that, as per Dozco, the curial law is presumed to be that of the seat of arbitration chosen by the parties, and that in facts such as those in Videocon, the specification of a seat of arbitration would in turn amount to an implied exclusion of Part I. However, this would not be a correct reading of Dozco, nor indeed, is it the implication of Videocon. One may also argue that the law in Videocon is clear enough – that the parties must specify a foreign law of arbitration for Part I to be excluded, and the judgment simply overlooked the wording of the arbitration clause. This conclusion isn’t a particularly comfortable one, however, it leads to a far less absurd result.

So when is Part I excluded, and what amounts to implied exclusion? The answer remains as hazy as ever. It is submitted that a close reading of Videocon leads us to the same result, and that the decision itself is the result of incorrect reading of facts. We are therefore left where we started- if Part I of the Act is to be excluded, a foreign law of arbitration mus be specified n the arbitration agreement.

Proposed amendments to Section 2(2) - The need for further revision: Guest Post by Adithya Reddy

Following is a guest post by Adithya Reddy. Mr. Reddy is an alumnus of NUJS and a practising advocate at Madras High Court. He argues that the proposed extension of Section 27 of the Arbitration and Conciliation Act to arbitrations seated outside India is unnecessary and erroneous.


The Ministry of Law and Justice in its Consultation Paper on the proposed amendments to Arbitration Act, expectedly, criticized the decision of the Supreme Court in Bhatia International vs. Bulk Trading, (2002) 4 SCC 105 and recommended statutory change to overcome its dictum that “in absence of the word ‘only’ in Section 2(2), Part I of the Act would apply to arbitration held outside India, so long as the law of India governed the contract”. The paper suggests that Section 2(2) of the Act be amended as follows:


“(2) This part shall apply only where the place of arbitration is in India.

Provided that provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.”

Dozco India P. Ltd. v. Doosan Infracore Co. Ltd. - Guest Post by Mr. Anirudh Krishnan

The following is a guest post by Mr. Anirudh Krishnan. Mr. Krishnan is an Advocate at Madras and a Solicitor, England & Wales. He is currently pursuing his masters at Oxford University. He is also one of the Chief Editors of Justice Bachawat's Laws of Arbitration and Conciliation. His writings can also be found at Crtical Twenties. 

A FEW POSITIVES, A FEW NEGATIVES, A FEW JUDICIAL TRANSPLANTATIONS: THE SUPREME COURT’S DECISION IN DOZCO INDIA P. LTD. V.  DOOSAN INFRACORE CO. LTD.

The Supreme Court’s decision in Dozco India P. Ltd. v. Doosan Infracore Co. Ltd.:  MANU/SC/0812/2010 (“Dozco”), neither throws up any surprising results nor acts as the landmark decision that was needed to clarify the Supreme Court’s stand with respect to a host of key issues concerning the applicability of Part I of the Arbitration and Conciliation Act to arbitrations conducted outside India. It is however a decision of significance, as it transplants a few internationally accepted principles into Indian law, and controversy, as it places reliance on arguably overruled propositions of law. 

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.

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

This post is a short comment on some of the proposed amendments to the Arbitration and Conciliation Act, 1996 discussed here in which the Law Ministry has attempted to nullify the effect of some Supreme Court judgments and reinforce some others. LegallyIndia has discussed the ramifications of some of these amendments. Some further issues are discussed here.

The Venture case discussed in the earlier post based its decision on the landmark, yet controversial judgment of the Supreme Court in Bhatia International v. Bulk Trading S. A., (2002) 4 SCC 105. The Court held, inter alia, on an interpretation of section 2(2) of the Act that Part I of the Act applies to arbitration taking place outside India as well. The reasoning of the Court was based on the omission of the word "only" from clause (2) of section 2, which was present in the corresponding provision in the UNCITRAL Model Law on International Commercial Arbitration on which this Act was based. The proposed amendment to section 2(2), although not inserting the word "only", brings it more into line with the UNCITRAL Model Law, thus negating the reasoning in Bhatia, to that extent. This being the argument on which the Court based its decision, undermines the decision itself, thus leaving the Venture decision, too, without legal basis.

An important aspect of the Venture decision, other than applying Part I of the Act to arbitration held outside India was applying the ratio in ONGC v. SAW Pipes, (2003) 5 SCC 705. The Court in Venture held that to test if a foreign award is contrary to public policy, the criteria laid down in SAW Pipes would be applicable. The SAW Pipes judgment, rendered in context of a domestic award, expressly excluded applicability of this "broad view" of public policy from foreign awards. The test for the same was laid down in Renusagar Power Corporation v. General Electric Co., AIR 1994 SC 860, which adhered to the "narrow view" of public policy. The new amendments to the Act clearly define public policy in the context of domestic as well as foreign awards in Explanation 2 to section 34. This gives statutory backing to what was held in Renusagar and relied on in SAW Pipes. Further, a proposed new section 34A inserts the new ground for domestic awards introduced in SAW Pipes as "patent illegality". The words used in the amendment are "error which is apparent on the face of the arbitral award giving rise to a substantial question of law". This section is applicable only in case of arbitrations other than international arbitrations. However, a reading the newly inserted definitions of "domestic arbitration" and "international arbitration" indicates that all arbitrations held in India, even if one of the parties is not Indian. Therefore a broad meaning of the term "public policy" is attracted whenever an arbitration is held in India. Here, too, the decision in Venture stands to lose effect if the aforementioned amendments are enacted into law.

Another important amendment, this time reinforcing a Supreme Court judgment, S. B. P. & Co. v. Patel Engineering Ltd., AIR 2006 SC 450, replaced the term "Chief Justice" with "High Court" and "Chief Justice of India" with "Supreme Court". This decision, too was controversial, overruling a 3 judge bench decision in Konkan Railway Corporation v. Mehul Construction Co., (2000) 7 SCC 201 and a Constitutional Bench decision in Konkan Railway Corporation v. Rani Construction Co., AIR 2002 SC 778 and with a strong dissent by Justice Thakker.

The question in all these cases was the nature of authority of the Chief Justice under section 11 of the Act in appointing arbitrators. The Konkan Railway cases held that it was an administrative function whereas Patel Engineering overturned them, holding it to be a judicial function. This matter would not be in controversy any longer, after substitution of the Chief Justice with the High Court and Supreme Court in the Act. However, the distinction between the office of the Chief Justice and the Court he presides over, which was stressed on in Patel Engineering, becomes irrelevant as the function is no more vested in the Chief Justice.

The amendments proposed are several in number, and many of them might have far reaching consequences for arbitration in India. These will be discussed in further posts.