The decision of the Supreme Court in Bhatia International and its implications are well known, and have been discussed on this blog on several occasions. In a recent judgment, the Supreme Court has further entrenched the decision. The decision, Citation Infowares Ltd. v. Equinox Corporation, (2009) 5 UJ 2066 (SC), raised the question as to whether a court can appoint an arbitrator under an agreement to arbitrate that has its seat of arbitration outside India.
In Bhatia International, the Court had held that there is a presumption that Part I of the Act applies to international commercial arbitrations outside India as well, which may be rebutted through an express or implied agreement to the contrary. One of the factors that weighed heavily with the Court in Bhatia was that a party would be left without a remedy if Part I did not apply, and the property of the other party was situate in India, for he then would be unable to obtain an interim injunction and enforce it. However, since Bhatia did not confine its decision to s. 9 of the Act (interim measures), subsequent decisions have extended its application to other provisions in Part I, where it may not be appropriate to interfere with foreign arbitral proceedings. Citation v. Equinox is an example of this phenomenon.
Equinox Corporation was incorporated in the USA and entered into an outsourcing agreement with Citation Softwares, a company incorporated in India, and the contract provided that any disputes would be referred to a mutually acceptable arbitrator, and that the contract was governed by Californian law. The parties did not specify a seat of arbitration. Equinox Corporation terminated the contract prematurely, and resisted Citation’s application to invoke the arbitration clause in India. Citation then filed an application under s. 11, seeking the appointment of an arbitrator, and the question that arose was whether this application was barred by virtue of the fact that the parties had subjected the contract to Californian law.
In Indtel Technical Services, the Court had found that a similar provision in a contract was sufficient to indicate that the parties intended to hold the arbitration outside India, but followed Bhatia International and found that Part I applied nonetheless. That decision has been analysed here. In this case, it was argued that there is a presumption that the proper law of contract is also the proper law of arbitration, and that consequently the Indian Act was inapplicable. The Court held that this presumption is limited, and applies only when parties have failed to designate any substantive law, but have indicated a seat of arbitration, so that then the court may infer that the designation of the seat of arbitration is an indicator that its laws are to govern both substantive and procedural questions. From this point, it was not difficult for the Court to conclude that the Indian Act applied, and that an arbitrator could consequently be appointed by the court under s. 11.
This strengthens the rule in arbitration law that the only way for parties to oust Indian courts of jurisdiction is to designate a seat of arbitration outside India and specify that their relations are governed by that seat’s Arbitration Act. It will not be sufficient to merely designate a foreign law as the substantive law of the contract. Nor will it be sufficient to indicate a seat of arbitration outside India. It will be interesting to observe whether the Supreme Court in the future attempts to distinguish between the driving force behind Bhatia International – interim injunctions – and other provisions of Part I of the Act.