Fourth Week of Arguments: Constitution Bench on Bhatia International

Arguments continued this week before the Constitution Bench comprising the Chief Justice, and Justices Jain, Nijjar, Khehar and Desai. Mr Salve began his arguments this week by pointing out that the choice of the seat of arbitration is of great importance in international arbitration because parties often wish to resolve their disputes in a neutral forum. It is partly for this reason that London, both as an arbitration centre and for its commercial court, is among the most popular dispute resolution venues in the world. Counsel submitted that accepting any theory of “concurrent” jurisdiction undermines this choice and the sanctity of the seat. To the question whether it is possible to challenge in court the validity of an arbitration agreement (especially when it is governed by Indian law) in an arbitration with a foreign seat, counsel’s submission was that the Indian court may consider the issue only if there is a specific provision to that effect (for example, if a suit is brought here and an application under section 45 is filed to refer the parties to arbitration), and that there is no “freestanding” jurisdiction to consider the validity of the agreement or the award simply because the law governing the substance of the dispute is Indian. Similarly, as far as the validity of the award is concerned, counsel’s submission was that if an award is passed by an arbitration with a foreign seat that is contrary to Indian public policy, it is likely that the award will in any event be set aside in the court of the seat, and in support of this submission, reference was made to the decision of the Court of Appeal in Regazzoni v Sethia [1958] AC 301. Counsel argued that there is in any event no remedy if the arbitrators abroad simply “misconstrue” an Indian statute but do not contravene Indian public policy.
Counsel then developed his submission that Indian Arbitration Act, by adopting the UNCITRAL Model Law, firmly committed himself to a territorial approach to jurisdiction. He pointed out that the contesting views before the Model Law, so far as jurisdiction is concerned, were either in favour of the seat of arbitration (the English view), or in favour of what is known as “delocalisation” (principally the French view), and there was never at any point support for the proposition that the court of the country whose law governs the substance of the dispute is entitled to set aside an award. Counsel’s submission was that the drafters of the Model Law, keenly aware of these opposing views, consciously chose the territorial approach based on the seat of arbitration, and that Parliament did likewise in enacting section 2(2). Counsel dealt at some length with the travaux préparatoires to the Model Law, and pointed out that the omission of the word “only”, on which Bhatia International and the Appellants had placed considerable reliance, was in reality irrelevant, because even the UNCITRAL Model Law originally did not contain that word. Counsel placed extracts from the travaux (particularly a statement by the Italian delegate and the Chairman’s response) demonstrating that word “only” was added to article 1(2) of the Model Law because of an apprehension that the exception clause (“except articles 8, 9, 35 and 36”) may otherwise be construed to not apply unless the seat of arbitration is abroad (which was never the intention), and that Parliament did not need to add the word because that exception was itself omitted from section 2(2).
As far as section 34 is concerned, counsel submitted that the words “under the law of which” in section 48(1)(e) do not confer any jurisdiction on the country whose law governs the substance of the dispute, because it is at best only a reference to the lex arbitri. Counsel argued that the judgment of the Supreme Court in NTPC v Singer, on which we have commented, may have been wrongly decided because it misconstrued section 9(b) of the Foreign Awards (Recognition and Enforcement) Act, 1961. As far as section 9 is concerned, counsel’s submission was that Bhatia International was wrongly decided insofar as it relied on the omission of the word “only” for the travaux demonstrated that the inference the Court drew in Bhatia as to this omission was unfounded; and that the only possible remedy a foreign claimant who wishes to preserve Indian assets before or during arbitration has is to obtain a Mareva injunction from an Indian court by way of a suit. Counsel argued that an application under section 45 in such a suit, even if allowed, does not prevent the Court from granting interim relief, and stressed that in any case the lack of such a remedy is in any event no reason to “rewrite” section 9. 

Arguments continue on Tuesday.

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V. Niranjan

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