The Supreme
Court has overruled Bhatia
International, and has once and for all held that the supposed omission of
the word “only” from section 2(2) has no significance (see below). Importantly,
it has also held that a party cannot file a civil suit in relation to the
subject matter of the arbitration agreement in order to obtain interim relief.
The Court has overruled these decisions prospectively, that is, the law declared today will apply only to arbitration agreements made (not suits/petitions
filed) after 06.09.2012. This means that any application for relief under
sections 9 or 34 in respect of foreign-seated arbitrations will continue to be
governed by the old law (including the law on implied exclusion) if existing
arbitration agreements are not amended.
Court has overruled Bhatia
International, and has once and for all held that the supposed omission of
the word “only” from section 2(2) has no significance (see below). Importantly,
it has also held that a party cannot file a civil suit in relation to the
subject matter of the arbitration agreement in order to obtain interim relief.
The Court has overruled these decisions prospectively, that is, the law declared today will apply only to arbitration agreements made (not suits/petitions
filed) after 06.09.2012. This means that any application for relief under
sections 9 or 34 in respect of foreign-seated arbitrations will continue to be
governed by the old law (including the law on implied exclusion) if existing
arbitration agreements are not amended.
For
a summary of the issues before the Court, readers may wish to refer to our account
of the judgments of the High Courts under appeal.
In today’s judgment, delivered by Nijjar, J. on behalf of the Constitution
Bench, the Court has made several important observations on these and other
issues of Indian arbitration law. The following summary briefly describes these
observations, with a reference to the paragraph number. We will have an
opportunity to comment in more detail in the days to come.
a summary of the issues before the Court, readers may wish to refer to our account
of the judgments of the High Courts under appeal.
In today’s judgment, delivered by Nijjar, J. on behalf of the Constitution
Bench, the Court has made several important observations on these and other
issues of Indian arbitration law. The following summary briefly describes these
observations, with a reference to the paragraph number. We will have an
opportunity to comment in more detail in the days to come.
- Section 2(2) and
the reasoning in Bhatia
International - The
omission of the word “only” does not mean that Parliament intended to make
Part I applicable to foreign-seated arbitrations. The reason for the
omission is explained by the 330th Meeting of the drafters of
the Model Law on 19 June 1985. The reason is that article 1(2) of the
Model Law had the words “except
articles 8, 9, 35 and 36”, and therefore had to insert the word “only”
to clarify that these provisions would apply also to domestic
arbitrations (Para 63, 68). - Section
2(2) does not conflict with section 2(4) or with section 2(5). Section 2(5)
only means that the Act applies to all arbitrations where it would be otherwise applicable (Para 85). - The
proviso to s 1(2), in relation to Jammu & Kashmir, does not mean that
the Act has extra-territorial application. It simply provides for the
application of the J&K law (Para
55) - There
is no “lacuna” in the Act therefore not applying to non-Convention
awards. Such awards cannot be enforced under Part I (Para 175) - Section
2(7), which uses the words “domestic
award”, contrasts domestic award with foreign award, not international
award; that is, an international commercial arbitration in India is not a foreign award. This in fact
indicates that Bhatia International was
wrongly decided (paras 88 and 94). - In
international arbitration, jurisdiction is generally determined by the “seat”
of arbitration. The “seat” is a juridical concept, which is not affected
by where hearings are conducted (Paras
72 and 100). In the rare case where the parties choose a seat of
arbitration and a lex arbitri which
do not coincide, it is a matter of construction whether the designation of
the foreign seat was in fact a reference to the place of arbitration. - The
two “alternatives” in section 48(1)(e), ie the court of the country in which the award was made (the
country of the seat) and the court of the country under the law of which the award was made do not confer
concurrent jurisdiction. The legislative history of art V(1)(e) of the NY
Convention shows that the objective was to provide for the second
alternative where the first
alternative is unavailable (ie, where the country of the seat does not
entertain a challenge to the award). Further, section 48 does not confer jurisdiction to set aside an
award: such jurisdiction must be found in the applicable national law.
Section 48 merely provides that a domestic court may decline to enforce an award if the conditions
in the provision are satisfied. In any event, the words “under the law of which” are a
reference to the lex arbitri,
not the law governing the substance of the agreement (Paras 137, 148). - Parts
I and II are mutually exclusive. The Indian Act, like the UNCITRAL Model
Law, is founded on the “territoriality principle”. Therefore, Sections 9
and 34 of the Act apply only if
the seat of arbitration is in India. This does not render a party seeking
interim relief remediless. Even if it does, that is a matter for the
legislature, not the courts (Para
167). - No
civil suit can be instituted purely for interim relief, because interim
relief is granted on the strength of the final relief sought on a
recognised cause of action. The prayer
for interim relief cannot itself constitute the cause of action for a suit
(Paras 187, 197)
In light of the above ruling, do you think that in an international commercial arbitration, parties will be able to approach Indian courts to seek interim relief if the arbitration clause provides for:
i) foreign seat of arbitration;
ii) Indian law as proper law of contract; and
iii) excludes Part I except sections 9 and 37.
In essence, can parties cherry pick sections of Part I even if the arbitration is outside India?
The Supreme Court enounces the correct interpretation of law (as it always stood), yet applies it only to arbitration agreements executed after the date of the judgment.
No, they cannot. If the seat of arbitration is outside India, section 2(2) of the Act (as construed by the Court in Balco) will make Part I inapplicable. Now, there is one possibility, to which the Court refers at paragraph 100: that the parties choose a foreign seat, but also the Indian Arbitration Act 1996. The Court holds that it is a matter of construction whether the "seat" would be construed as "venue" (see Naviera Amazonica) or the presumptive application of the foreign lex arbitri would override the designation of the Indian Act.
From a practical perspective, will it lead to parties signing separate arbitration agreements from today restating the dispute resolution clauses in their original agreement in a separate agreement to take advantage of the ruling. Separately, will the practice of explicitly excluding Part I in an agreement continue ?
Step in the right direction for India Inc.
The judgment premises its interpretation of the Act on the territoriality doctrine under the UNCITRAL Model law, which Indian law has imported. Section 9's applicability is also rejected on this basis (Para 170). However, isn't this whole premise flawed in light of Article 17J of the UNCITRAL Model Law? It clearly laws down that the territoriality requirement no longer exists for the purposes of providing interim relief.
By the way, awesome summary.
Subhang, interesting point. I think there are two answers to it. The first is that the Supreme Court is, in the ultimate analysis, ascertaining what Indian Parliament intended in 1996. The Model Law – choosing as it did a seat-based approach in preference to delocalisation – was therefore relevant not of itself, but as an index of Parliament's intent. Secondly, there is no doubt that many countries that adopt the territorial approach make an exception for interim measures – the English Act is an example. But Indian Parliament has not. Whether it ought to have done so, or ought to do so now, is not a matter for the courts. And as to legislative history, I think the Court's conclusion on s 2(2) is clearly correct, in view of the deliberations at the 330th Meeting on 19 June 1985 (para 68).
But the 330th Meeting's deliberations only act as a defence to the casus omissus argument. They do not, by themselves, affirm that s.2(2) means Part I applies only to domestic arbitrations. That apart, I don't object to the Court's interpretation of s.2(2). The issue lies with the Court's observations that applying Section 9 to foreign arbitrations "would be destructive of the territorial principles upon which the UNCITRAL Model Laws are premised, which have been adopted by the Arbitration Act, 1996." Here, the Court has gone beyond looking at the Model Law as an index of parliamentary intent. Rather, they seem to hold that the Act itself must be interpreted in a manner which is harmonious with the Model Law's principles. If that is the case, then their interpretation of Section 9 is flawed.
Also, given this fact and Dr.Singhvi's other arguments, an interpretation applying Section 9 to foreign arbitrations could be validly made by the Court, as a refinement of the Act. Deferring it to the legislature's domain was not necessary. Though a hardline positivist may disagree with me on this.
That's right. To the extent the Court relies on the Model Law as a source of prevailing international practice, it could perhaps have considered the effect of exceptions in favour of interim relief. But I'm not sure your second point is right: positivism apart, the (in my view) insurmountable objection to the arguments on s 9 is that s 9 is housed in Part I. The Court found (I think correctly) that s 2(2) not only does not "expand" Part I to foreign arbitrations, it "limits" it to India-seated arbitrations (see paragraphs 78 and 79). In other words, section 2(2) impliedly provides that Part I applies "only" to arbitrations with an Indian seat (which, of course, sits uncomfortably with the Court's disclaimer at para 62 that it is not adding the word "only" to s 2(2), but that is another question altogether). Now, if this is right, no provision in Part I, including s 9, can apply unless the seat is in India. The Court could not have carved out an exception for s 9 consistently with its primary finding on s 2(2). No doubt this may cause hardship to some parties who need interim relief – but I do not see how the court can provide a remedy as a matter of construction, unless it holds that s 2(2) is not an exclusionary provision (in which event we are back to Bhatia).
Fair enough. Thanks. One more doubt though. The Court, in the last part of Para 100 and Para 122, makes observations that, where an agreement contemplates a seat outside India and also application of the Arbitration Act, Part I would be inapplicable "to the extent inconsistent with the arbitration law of the seat". Does this imply that parties may contractually import provisions of Part I and they would apply unless they are in conflict with the law of the seat?
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