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Bharat Aluminium Company vs Kaiser Aluminium Technical Services

Judgement delivered on 6th September 2012

The Constitutional bench of the Supreme Court of India overruled its earlier decisions of Bhatia Trading v. Bulk trading (2002) 4 SCC 105 and Venture Global Engineering v. Satyam Computer Services ltd (2010) 8 SCC 660 on 6th September 2012 and held that Indian courts do not have jurisdiction to interfere with foreign awards passed in International Commercial Arbitration. The Apex Court observed that the Part I of the Indian Arbitration and Conciliation act, 1996 does not apply to arbitration proceeding that are held outside India and Indian Court cannot pass interim orders or set aside the foreign awards by resorting to Part I of the Act.

This judgment has settled the conflicting position that was prevalent in respect to arbitration proceedings that were held outside India or international Commercial arbitration with seat of arbitration outside India where Indian parties sought the intervention of the Indian Court in setting aside of foreign awards and making the foreign awards unenforceable in India and thereby making the entire arbitration proceeding futile. The present articles aims to briefly describe the judgment of BALCO V.KAISER.

Facts Leading to the Dispute

The Appellants had entered into an agreement with the respondents whereby the respondents were required to supply and install computer based system at one of the appellant premises. The agreement was governed by the prevailing law of India but it contained an arbitration clause that stated that any dispute that may arise in future shall be governed by the English arbitration law and the venue shall be London. Thus the clause in the agreement stated that settlement or adjudication of any dispute in relation to rights or obligations under the said agreement shall be governed by English arbitration law and the venue for the arbitration proceedings shall be London.

A dispute arose between the appellants and the respondents with respect to performance of agreement and the matter was referred to arbitration. The arbitration proceeding were held in England and two awards were passed in the proceeding. The Appellants thereafter filed application under section 34 of Arbitration Act 1996 for setting aside awards. The district court and the High Court of Chhattisgarh refused the setting aside of the awards and appellants filed an appeal against the said order in the Supreme court of India.

The counsel of the appellants relied on previously held judgments of Bulk trading and Venture Global and submitted that Part I of the Act is applicable to the arbitration proceeding that were held in London and the awards by virtue of S. 34 of part 1 could be set aside. The Appellants Counsels through their submissions tried to showcase a relation between the various provisions of the Act to conclude that Part I is applicable to International Commercial Arbitration that were not held in India.

BALCO V.KAISER Dispute

The dispute was with respect to the award passed in international Commercial Arbitration held outside India with the subject matter that is assets situated in India and the most importantly the agreement governed by Indian law but arbitration proceeding governed by English Arbitration Law.

These awards by virtue of Bulk trading and Venture Global judgments could not be enforced in India and Indian party sought interim relief of injunctions against such awards by making applications under section 9 and 34 of part I of the Act to the court. BALCO appealed to Supreme Court of India.

Earlier decisions of Supreme Court

The Supreme Court in Bhatia Trading bulk trading held that Part I of the Arbitration Act 1996 applies to foreign awards passed by international commercial arbitration proceedings that were held outside India. The Court observed that the section 2 (2) has not been expressly or impliedly excluded the application of Part I to international Commercial Arbitrations held outside India and hence Part I shall be applicable to international commercial arbitration held outside India.

The Apex Court in Venture Global v. Satyam Engineering passed interim orders under Section 34 of Part I of the Act against the award passed in International Commercial Arbitration held outside India relying on Bhatia Trading judgment.

Decision of the Apex court in BALCO V.KAISER Case

The Apex Court observed:

  • Part I and Part II are applicable to different fields. Part I is applicable to all domestically rendered arbitration proceedings that include arbitration proceeding with no foreign party or arbitration proceedings with both foreign parties but held in India or international commercial arbitration proceeding that are held in India.
  • Part II of the Act applies only to enforcement of foreign awards in India.
  • The territoriality principle of Model law upon which the Indian arbitration act 1996 has been enacted has been enshrined in the Indian Arbitration act.
  • All provisions of Part I [Section 1, 2 (4), (5), (7)] reinforce that Part I shall be applicable to all arbitration proceedings held in India and cannot by purpose of interpretation be extended to International commercial Arbitrations held outside India.
  • Part I applies to all arbitration proceedings that are held in India and this extends also to those arbitration proceedings that are held under any statutory legislation that is in force in India.
  • Section 2 (7) reinforce that Part I shall be applicable to all arbitration proceedings that are held in India and distinguishes a domestically rendered award covered by Part I from foreign award covered by Part II. Section 2 (7) excludes the possibility of the award passed in arbitration proceedings held in India involving two foreign parties being considered as non-domestic award by providing that such  an award shall be domestic award.
  • The choice of the country as the seat of arbitration inevitably imports an acceptance that the law of that country shall be applicable to the arbitration proceedings. “Seat” of arbitration and “place” of arbitration are used interchanging but the seat shall remain the place mentioned in the arbitration agreement. Parties of different nations are involved in international commercial arbitration and hence the venue for arbitration might change but the seat shall remain the same.
  • Section 48 of Part II does not confer jurisdiction on two courts to annul the award and is provided only to provide alternative to parties to challenge the award in case law of the country where seat of arbitration is located has no provision for challenge of the award.
  • The words “set aside or suspend” in the section 48 does not mean that the foreign award that is sought to enforced can be challenged on the merits by the Indian Courts and the said provision merely recognizes courts of two nations who are competent to suspend or annul the award and does not ipso facto confer any jurisdiction on the two courts to annul the award that is made outside India. The Indian arbitration act 1996 does not specifically provide conferment of jurisdiction on Indian court to set aside awards made outside India.
  • Interim relief under Section 9 can be awarded in case seat of arbitration in international commercial arbitration is India and thus intervention under Section 9 can be sought only with respect to domestic awards. Part II has no provision that grants interim relief leading to the logical inference that Indian court cannot pass interim orders against award rendered outside India.
  • The arbitral awards awarded in international commercial arbitration with seat of arbitration outside India shall be subject to the jurisdiction of Indian courts only when they are sought to be enforced in India in accordance to Part II of the Act.
  • Part I of the Act shall not be applicable to non –convention arbitral awards. The definition of foreign awards has been intentionally limited to New York convention and Geneva convention and hence, there is no provision in the Act in respect to enforcement of non-convention arbitral awards and hence remedy with respect to the same cannot be incorporated in Act and this can only be done on by necessary amendments that can be introduced only by the Parliament.
  • Many judgements have been delivered by relying on Bhatia trading case and hence the said judgement shall be applicable prospectively on all arbitration agreements executed post the date of 6-September 2012.