The cases we have discussed on implied exclusion of Part I of the Indian Arbitration Act are composed of three variants – first, the contract designates a foreign proper law but no seat of arbitration (for example Indtel Technical Services v WS Atkins and Citation Infowares v Equinox Corporation), secondly, the contract designates a foreign seat of arbitration but no proper law, and thirdly the contract designates a foreign proper law and a foreign seat of arbitration (Dozco v Doosan). The courts had found that the first type falls short of an “implied exclusion” of Part I, but Dozco affirmed that the third suffices. The Supreme Court’s decision today in Videocon Industries v Union of India involves a fourth variant – Indian proper law, foreign seat of arbitration and foreign arbitration law*, and a Division Bench has held that the Indian courts have no jurisdiction under Part I in those circumstances.
A subsequent post will set out in more detail the impact this decision has on the state of the law. This post briefly highlights the conclusions the Supreme Court reached in Videocon. The case arose out of a Production Sharing Contract executed between a consortium of four companies of the one part and the Ministry of Petroleum and Natural Gas of the other. The contract designated Indian law as the governing of the contract, Kuala Lumpur, Malaysia as the “venue” of arbitration, unless otherwise agreed, and English law as the law governing the arbitration agreement*. It so happened that the dispute between the contractors and the Ministry coincided with the outbreak of the SARS epidemic in Kuala Lumpur, and the Tribunal duly shifted hearings initially to Amsterdam and then to London. The Tribunal passed an order which recorded that the parties consented to shifting the seat of arbitration to London. An action was brought in the Delhi High Court for a declaration that the seat of arbitration was in fact Kuala Lumpur and for a direction to the Tribunal to continue hearings there. A single judge of that Court rejected an objection to the maintainability of the application, finding that India has the “closest and most real connection” to the dispute.
The Supreme Court’s first conclusion was that the seat of arbitration remains Kuala Lumpur although hearings were conducted in Amsterdam and London because the consent of all the parties to the PSC was necessary to change the seat of arbitration. The Court also followed its decision in Dozco v Doosan to the effect that it is common in international arbitration to conduct the hearing at the place most convenient to all parties, without disturbing the juridical seat of arbitration. Notably, the Court referred to provisions of the English Arbitration Act to decide this question, because of its conclusion* that this was the designated arbitration law.
However, the Court held that the Delhi High Court had no jurisdiction to adjudicate, because it was the clear intention of the parties was to (impliedly) exclude the jurisdiction of the Indian Courts. The Court approved a judgment of a single judge of the Gujarat High Court in Hardy Oil and Gas v Hindustan Oil Exploration (Indian governing law, English arbitration law) that held that the designation of a foreign arbitration law constitutes, for the purposes of Bhatia International, “implied exclusion” of Part I of the Indian Arbitration Act.
This is an important judgment on two issues that are fundamental to Indian arbitration law – the seat of arbitration and the proper scope of implied exclusion. A more detailed post will follow.
* I had previously stated, erroneously, that the arbitration clause between the parties designated English law as the law governing the arbitration. I am grateful to Mr Sumit Rai, one of our readers, for pointing out that the clause designated English law only as the law governing the arbitration agreement. The Supreme Court appears to have assumed nevertheless that it is the law governing the arbitration itself, and counsel for both parties are reported to have argued the case on that basis. If the Court had come to the conclusion that English law merely governs the arbitration agreement, it would have been a less significant factor in ascertaining whether the parties had impliedly excluded Part I of the Indian Act. It would also have made that question considerably more difficult, because none of Hardy Oil (foreign arbitration law), Dozco v Doosan and Citation Infowares would have been on all fours with this case – although Dozco also involved a foreign seat of arbitration, the parties there had also designated a foreign law to govern the contract, whereas in Videocon Indian law was chosen as the substantive law. What is clear from the Videocon judgment, however, is that (as a matter of law) Part I is impliedly excluded when parties designate a foreign arbitration law and a foreign seat of arbitration.