A commentary on a recent landmark decision of the Supreme Court of India by Jocelyn Lim.
INTRODUCTION
The decision of the Supreme Court of India in
Bharat Aluminium Co. v Kaiser Aluminium Technical Service Inc. [2012] 6 Madras Law Journal 630, was much awaited by the international arbitration community. It changed the landscape of arbitration law in India, and further aligned and harmonised the Indian Arbitration and Conciliation Act 1996 of India (“the Act”) with the UNCITRAL Model Law of International Arbitration (“Model Law”).
In this case, the Indian Supreme Court overruled its earlier judgments, such as
Bhatia International v Bulk Trading [2004] 2 SCC 105 which held that Part I of the Act (which contains provisions relating to interim relief, appointment of arbitrators, setting aside of arbitral awards, etc.) applied to international arbitrations which are seated outside India.
Briefly, the pertinent points of the decision in
Bharat Aluminium are as follows:
(1) The seat of arbitration as provided by the arbitration agreement will determine the applicable law of arbitration;
(2) Part I of the Act does not apply to an arbitration which is seated outside India;
(3) Where arbitration is seated outside India, a party cannot file a civil suit in an Indian court in relation to the subject matter of the arbitration agreement to obtain interim relief;
(4) In relation to an arbitral award made in an arbitration seated outside India, the jurisdiction of the Indian courts is limited only to the enforcement of the award under the Act.
The Supreme Court, however, clarified that its decision in
Bharat Aluminium would only apply to arbitration agreements executed on or after 6 September 2012.
BRIEF FACTS
Bharat Aluminium Co. (“Balco”) and Kaiser Aluminium Technical Services, Inc. (“Kaiser”) entered into an agreement on 22 April 1993 whereby Kaiser agreed to supply and install a computer based system for Shelter Modernization at Balco’s Korba Shelter (“Agreement”).
Clauses 17 and 22 of the Agreement essentially provide that:
(a) A dispute arising out of the Agreement shall, at first instance, be settled amicably by negotiation between the parties, failing which the dispute shall be settled by arbitration in accordance with English Arbitration Law;
(b) The arbitration shall be held in London, England and be conducted in the English language;
(c) The Agreement shall be governed by Indian Law and the arbitration proceedings shall be governed by English Law.
Disputes arose between the parties with regards to the performance of the Agreement. Balco claimed for the return of its investment in the modernization programme, loss, profits and other sums. Kaiser claimed for the unclaimed instalments plus interest and damages for breach of intellectual property rights. Negotiations between parties were unfruitful, resulting in Kaiser issuing a request for arbitration to Balco on 13 November 1997.
The disputes were referred to arbitration which was held in England. The arbitral tribunal made two awards dated 10 November 2002 and 12 November 2002 (“Arbitral Awards”) in favour of Kaiser. Dissatisfied with the Arbitral Awards, Balco applied to the Court of the District Judge of Bilaspur for both the Arbitral Awards to be set aside pursuant to Part I, Section 34 of the Act.
On 27 July 2004, the District Judge of Bilaspur held that the setting aside applications filed by Balco were untenable and dismissed the applications. Dissatisfied with the decision of the District Judge, Balco appealed to the High Court of Judicature of Chattisgarh, Bilaspur (“High Court Appeals”).
On 10 August 2005, the Division Bench of the High Court dismissed the High Court Appeals. It held that the applications by Balco to set aside the Arbitral Awards pursuant to Part I, Section 34 of the Act were not maintainable. Balco appealed to the Supreme Court.
THE APPELLANT’S ARGUMENTS
Balco advanced,
inter alia, the following arguments in support of its contention that Part I of the Act applies to arbitration which takes place outside India:
(a) The omission of the word “only” which is found in Article 1(2) of the Model Law, from Section 2(2) of the Act was an indication of deviation from the territorial principle under Article 1(2) of the Model Law and clearly signifies that Part I of the Act applies to a foreign-seated arbitration. Balco further argued that such omission clearly indicates that the Act “has not adopted or incorporated the provisions of Model Law” but has merely “taken into account” the Model Law. Therefore, the territorial principle under the Model Law should not be applicable within the context of the Act.
(b) It is evident from the provisions of the Act, in particular Section 2(1)(e), Section 2(5), Section 2(7), Section 20 and Section 28, that the Act is not ‘seat centric’. It was further argued that, if the application of Part I of the Act is limited to arbitration which takes place in India, not only will it lead to reading words into various provisions of the Act but also render those provisions redundant.
(c) Further, such limitation will restrict parties to a foreign-seated arbitration from approaching the Indian courts to seek interim relief under Part I, Section 9 of the Act, thus leaving parties to a foreign-seated arbitration without a remedy.