by Agrim Jain
The judgment given by the Supreme Court in the case of Bharat Aluminum Company Ltd (BALCO) Vs Kaiser Aluminum Technical Service, Inc. (Kaiser) is considered as to be the judgment which is responsible for changing the entire paradigm relating to seat of arbitration in matters of international Commercial Arbitration. The concept of seat of arbitration is of prominent value as it decides the law which will govern the arbitration proceedings including its procedural aspects as well. The applicable law will be determined as per the seat of arbitration only and only if the parties have not come to a consensus decision upon the issue of law which will govern the arbitration proceedings, but in case they have then that law would be applicable on the parties. In India this has been a matter of continuous controversy as even the judgments of the Supreme Court were being able to provide a definitive solution to the problem. In this sense it is the judgments of the Supreme Court in case of Bhatia International Vs Bulk Trading S.A and Anr and Venture Global Engineering Vs Satyam Computer Services Ltd and Anr, in which the Supreme Court had held that it is the Part I of Arbitration and Conciliation Act, 1996, which has dealt with all issues such as the setting out of procedures, award, interim relief and also appeal provisions will be applicable in respect of all the arbitration proceedings which would be held outside India, unless the parties in an earlier agreement either expressly or impliedly have excluded all or any of the provisions of the act.
It was in light of these judgments that the matter once again reached before Supreme Court in the case of BALCO vs Kaiser Aluminum Technical Services Inc. in which case the doctrine established in previous cases was abolished and also it was stated that the choice of another country as seat of arbitration inevitably imports an acceptance that the law of the country relating to conduct and supervision of arbitration will be applicable upon the proceedings. It was further pointed that in case the seat of arbitration is located outside India, then no application seeking interim relief will be maintainable in India, irrespective of applied either through arbitration proceedings or even through institution of a suit as well. Thus, it is through this judgment that there are certain amendments brought within the legal sphere which governs the arbitration proceedings in International Commercial Arbitration in India with respect to the agreement between the parties and also the agreement entered into between the parties if any entered into between the parties, if any entered into between the parties to the dispute.
One question which is most frequently asked in International Commercial Arbitration is that what law would govern the substance of dispute between the parties, i.e. the law which will govern the construction and validity of arbitration agreement and also regulate procedure of Arbitration as well.
Seat of Arbitration and its significance:
It is understood that it is the seat of arbitration which is the determining factor for the purpose of determining the law that will govern the arbitration including its procedural aspects in India as well. The determination of the system depends upon two main criterions:
- Either upon the agreement entered into between the parties of the dispute;
- Ifno agreement, then it would be determined as per the place of seat of arbitration between the parties.
Thus the responsibility falls upon the court situated at the place of seat of arbitration to regulate arbitration conduct and also decide if challenge to the award filed as well[i].
Law of Contract:
The domestic law of a country is supposed to deal with issue of rights and obligations of parties arising out of the contract between the parties to the contract. Thus, the local law elected is referred to as the governing or proper law of contract. The law of contract is determined in accordance with the general principles of law dealing in conflict of laws, which is chosen by the parties to contract and in the absence of contract the law which will govern is determined with the help of the law of country which is closest to provisions contained in the agreement.
Law governing Arbitration and Procedural Law:
The law which governs and regulates arbitration is considered as important as it is responsible for determining the validity, effect and interpretation of the arbitration agreement and also it is through this law only that the arbitrator derives its scope of powers and functions and also governs the procedure that needs to be followed by arbitral tribunal, except in the cases that the dispute is submitted to the International Organizations with the consent of the parties and their established procedure is followed[ii].
Position existent in India prior to judgment:
The position prior to the judgment in BALCO[iii]case, was owing to the judgments of the Supreme Court in the case of Bhatia International Vs Bulk Trading S.A and Anr[iv] and Venture Global Engineering Vs Satyam Computer Services Ltd and Anr[v], in which it was held by the supreme Court that it is the Part 1 of Arbitration and Conciliation Act, 1996 is applicable to all proceedings held outside India, unless the parties by agreement whether express or implied exclude all or any of its provisions.
It was in light of these judgments that the BALCO judgment is considered as the judgment which is responsible for changing paradigm of Arbitration Law in India in terms of International Commercial Arbitration.
Facts of Dispute:
The parties to this dispute had entered into an agreement dated 22nd April, 1993, under which Kaiser was to supply and install a computer based system at BALCOs premises. The arbitration agreement had stated that dispute if any must be settled through the English Arbitration Law and also that seat of arbitration would be in London. However, the agreement stated that the governing law would be Indian Law, though proceedings were to be conducted in accordance with the English Law. The dispute was referred for arbitration in England, which passed awards but they were challenged in India under Article 34, several petitions were rejected and thus the matter reached the Supreme Court[vi].
Another issue which arose in the case which was decided as well was the applicability of Section 9 of the Act, which talks about interim measures which can be passed under the act by the respective authorities.
Judgment of the Court:
The Supreme Court in the present case dealt with various provisions of the statute along with dealing with issue of applicability of Part 1 of the Act to International Commercial Arbitrations. The main points of judgment are as the following:
- The section 2(7) of act aims to demarcate clearly the boundaries of domestic awards (Part I) and foreign awards (Part II) and not to differentiate between domestic and international award passed in India;
- It was also held that there is clear demarcation between Part I and Part II, as they both are applicable in entirely different fields and have no overlapping provisions as such;
- The court in its judgment has also marked out a difference between the seat and venue of arbitration, which is especially more important in the situation that the parties have fixed foreign country as a seat of arbitration proceedings and furthermore have even selected the law or act which would govern the arbitration proceedings;
- Another important point made in judgment was that the Indian Courts do not have the required jurisdiction to pass interim relief when the seat of arbitration is situated outside of India, it is in contrast with the judgment in the cases of Bhatia International Case. It is section 9 of the Act which is responsible for granting of interim relief, that is before or during arbitral proceedings or even after making of arbitral award but before it is enforced under Article 36 of Act.
- It was also held that the in foreign related International Commercial Arbitrations, no application for foreign interim relief would be maintainable, be it either instituted through a suit or even by arbitration proceedings as well.
Post- BALCO Landscape:
The BALCO judgment which has overruled the earlier judgments such as the Bhatia International and Venture Global, is responsible for the following changes:
- This judgment has categorically ruled out the jurisdiction of the Indian Courts in the following matters:
- Granting of Interim remedies in case of foreign seated arbitrations purportedly pursuant to Section 9 of the Act;
- Appointment of Arbitrators in foreign seated arbitrations as purportedly pursuant to Section 11 of the Act;
- Also, no jurisdiction in case of application filed to set aside a foreign arbitral award passed in pursuance of Section 34 of the Act.
- This judgment is also responsible for making the jurisdiction of the Indian Courts free from the intention of parties (Express/ Implied), and as such it will not be necessary for the parties to include a clause excluding jurisdiction of courts in case of foreign seated arbitration, in an arbitration agreement signed on or after 6th September, 2012.
- Another thing to be noted is that this judgment has made the Indian Law similar to that of the law existing in England, in the sense that it makes clear that no ordinary civil court has no jurisdiction in respect of suits filed under Code of Civil Procedure, 1908, seeking interim relief in case of foreign seated arbitrations. The reason of it is that the relief is not a substantive cause of action so as to warrant the institution of suit under the Indian Law.
- Lastly it was also stated that the Part I of Arbitration and Conciliation Act, 1996 is applicable on all arbitrations (whether Domestic/ International), is seated in India. The Indian courts have been provided with wide enabling powers to act as supervisory courts at seat of arbitration and also support the arbitral process as well[vii].
Another thing to be noted from the above legal provisions is that this judgment is a symbol of paradigm shift away from the pre-1996 arbitral Jurisprudence, in the sense that the Supreme Court has embarked on a direct inquiry as to the intention and purpose behind the relevant provisions of UNCITRAL Model Law and also the New York Convention, as discernible from the travaux preparatoires in continuance to the appreciation towards the application of these statutory provisions in various jurisdictions.
The Challenges that lie ahead:
It is without a doubt that the judgment of the Supreme Court in BALCO Case has certainly opened opportunities for all the courts to make an entirely new fresh start but there are several issues which need to dealt with also in the aftermath of the judgment.
First and foremost, concern which arose was related to the issue of prospective application of the judgment, i.e. the judgment would be made applicable only on arbitration agreements which come into force on or after 6th September 2012, this in itself is a concern as it means that the Part I of Act would be applicable on all foreign seated arbitrations unless and until the parties have excluded it either by express or implied terms. The doctrine of Prospective ruling is not new in India as it has been applied by the Supreme Court in a number of past cases.
Secondly the issue also arises due to the fact that the Supreme Court has not invalidated a constitutional amendment or a statutory enactment, rather it has merely overruled its own judgments through this judgment, so the question that which particular past transactions need judicial immunity so that gravely unfair or disruptive consequences would not follow from the overruling of the previous judgments.
Another concern was that before the BALCO judgment the Indian Courts could interfere in matters of foreign seated arbitrations involving an Indian party, unless agreed to contrary either expressly or impliedly. These decisions do not affect the foreign seated arbitrations involving an Indian party, thus it was presumed that after these judgments that such foreign seated clauses would be susceptible to being invalidated as well, but the fact was that there was no effect on them rather on those past transactions that were instituted in courts.
Finally, last issue is that the apart from the previous decisions there are several other similar decisions as well of the Supreme Court which still are good law and can cause problems in future in International Commercial Arbitrations involving Indian party.
In the end it is understandable that either the agreement entered into by the parties to a dispute or the seat of arbitration plays a monumental role in the International Commercial Arbitration, but the same concept is not yet entirely clear in India. It is felt that the BALCO judgment which has overruled previous judgments such as the Bhatia International and Venture Global, still it is not the panacea for all the ills associated with International Commercial Arbitration in India, but it is no doubt a good starting point which has also allowed all the courts to start afresh. It is also without a doubt that the path ahead for India in this regard is going to be a long, arduous path which will be fraught with difficult legal and policy challenges before India can be truly considered as arbitration friendly jurisdiction in the world and it is the BALCO decision which has inspired hope that a new and promising era has begun for the arbitration law in India.
[iii]Bharat Aluminum v. Kaiser Technical Services, Civ App 3678 of 2007 (6 September 2012)
[iv](2002) 4 SCC 105
[v]Appeal (civil) 309 of 2008
[viii] Pictures: The Daily Guardian