Foreign Seated Arbitrations: Section 9 Reliefs Post Amendment, 2015

[The following post is contributed by Gunjan Chhabra who a practising advocate currently with Singhania
and Partners. She can be reached at gunjanchhabra89@gmail.com]
The Arbitration
and Conciliation (Amendment) Act, 2016 has brought about various new shifts and
changes from the previous law. Amongst the various changes made is a very
interesting modification which makes certain provisions regarding interim
reliefs under Part I of the Arbitration and Conciliation Act, 1996 (hereinafter
called the Act) applicable to foreign seated arbitrations. To be specific, section
9, section 27(1)(a) and section 37(3) have been made applicable[1] to
foreign seated arbitrations. The conditions for application of these provisions
are as follows:-
(i)        The arbitration has
to be an International Commercial Arbitration.
(ii)       The place of
arbitration has to be outside India.
(iii)      The arbitral award
made in such a place should be enforceable and recognized in India.
(iv)      There should be no
agreement to the contrary.
This post aims
to discuss two contentious issues in the above mentioned conditions laid down
by the provision, the first being an “agreement to the contrary” and the second
being the restriction of its application to “International Commercial
Arbitration”.
“Agreement to the Contrary”: Express or Implied
Exclusion
The amendment
recently introduced has become a cause for elation to all parties who have
opted for a foreign seat in their arbitration agreements. Despite having agreed
to a foreign seat, a party can now approach Indian courts for an injunction in
respect of assets in India, apprehended to be dissipated.
Before the
amendment of 2015, the law with regard to the applicability of Part I was
governed by the judgment of BALCO.[2] BALCO laid down prospectively (from
06.09.2012), that in a foreign seated arbitration neither Section 9 nor any
other provision of Part I would be applicable. Prior to BALCO, the law laid was as laid down in Bhatia International.[3] Bhatia International laid down, that the
provisions of Part I would apply even to arbitrations held outside India,
unless it was expressly or impliedly excluded by parties. It is pertinent to
note, that Bhatia International still
continues to govern the law as far as arbitration agreements pre-dating BALCO are concerned.
The Amendment of
2015, in effect, nullifies the law laid down in BALCO to some extent and holds that even in an International
Commercial Arbitration having a foreign seat, a party can approach Indian
courts under Section 9 and get appropriate relief, thus reviving the law of Bhatia International to a limited extent.[4]
However in all
the euphoria of the amendment, the implied exclusion jurisprudence of Bhatia International, which is now
revived, is being conveniently overlooked.
The
jurisprudence of implied exclusion has been developing Bhatia International onwards,
where various factors such as:-
(i)        Foreign law being
the Proper law of the contract (Substantive law);
(ii)       Foreign law being
law governing the arbitration agreement;
(iii)      A Foreign seat;
(iv)      Absence of mention of
other laws
could lead to an
implication of exclusion of Part I.[5]
Section 2(2) of
the Act, simply makes the proviso subject to “an agreement to the contrary”. It
nowhere mentions that such a contrary agreement necessarily has to be an
express agreement. In effect, even if a foreign seated arbitration clause does
not expressly exclude the Application of Sections 9, 27(1)(a) and 37(3) in so
many words, an implied exclusion, being essentially an agreement to the
contrary would still prohibit it.
As of present,
as far as applicability of Part I is concerned, three possible scenarios
arise:-
(i)           Arbitration agreements entered into before
06.09.2012
[6]
– For these agreements, the implied exclusions criteria would definitely apply
in as much as the Bhatia International
jurisprudence would hold good.
(ii)          Arbitration agreements entered into after
06.09.2012 but in respect of which Arbitration proceedings have commenced prior
to 23.10.2015
.[7]  – For these agreements also, there would be
no doubt that the amended portion of Section 2(2) would not apply in as much as
the Act would be inapplicable.
(iii)         Arbitration agreements entered into after
06.09.2012 but in respect of which Arbitration proceedings have commenced after
23.10.2015
. – This would be the class of agreements in respect of which the
whole confusion would arise. The effect of the amendment on the law laid down
in BALCO is yet to develop. In the
personal opinion of the author, the implied exclusion principles of Bhatia International would apply to this
class as well, in as much as the reasoning for non application of Part I was
the language of Section 2(2) which has now been amended.
In the present
scenario an implied exclusion of Part I as a whole could very well be
interpreted as an implied exclusion of the particular provisions of Sections 9,
27(1)(a) and 37(3), being “an agreement to the contrary”.
Interestingly
enough, Bhatia International did not
talk only of implied exclusion of Part I as a whole but also talked of
impliedly excluding certain provisions of Part I (Para 32). It was observed
that Part I would apply to Foreign Seated International Commercial Arbitrations
unless some or all of the provisions are impliedly excluded. It was in
this light and owing to the rules of ICC expressly allowing parties approaching
any competent judicial authority to obtain relief, that implied exclusion of
section 9 was not read into the contract.
However, in the
author’s opinion an exclusion of section 9 specifically might not be necessary
for inapplicability if there is an implied/express exclusion of Part I as a
whole. This is because the law laid down in Bhatia
International
provided that all provisions of Part I would apply even to
Foreign Seated Arbitrations unless expressly or impliedly excluded. The
Amendment of 2015 now provides, that Part I as a whole would not apply to
Foreign Seated Arbitrations except sections 9, 7(1)(a) and 37(3). These three
provisions can also be excluded by an agreement to the contrary. Thus there is
a marked shift in the Amendment of 2015, even from Bhatia International.
To conclude this
point, three conclusions appear to emerge in the author’s opinion with respect
to Foreign Seated Arbitrations:-
(i)        After the amendment
of 2015, implied exclusion of Part I can now be read into the contract to
exclude the applicability of Part I.
(ii)       In case there is an
implied exclusion of Part I, Sections 9, 27(1)(a) and 37(3) would be
automatically impliedly excluded.
(iii)      If there is an
implied exclusion of Part I, then separate implied/express exclusion of Section
9, 27(1)(a) and 37(3) might not be necessary for inapplicability.
The next
question, which emerges is, how can parties ensure, that where the Arbitration
is otherwise foreign seated, the provisions of Sections 9, 27(1)(a) and 37(3)
specifically apply to their arbitration without risking an implied exclusion.
“Agreement to the Contrary”: Express Inclusion
In view of the
preceding discussion, it appears that, in the cases of Foreign Seated
arbitrations which impliedly/expressly exclude Part I, Parties should expressly
include the application of sections 9, 27(1)(a) and 37(3). In the regime of BALCO this was not a legally tenable
proposition. But since, the law now permits it and yet, does not fall back
entirely on Bhatia International (which
raised a rebuttable presumption in favour of application of Part I to Foreign
Seated Arbitrations), express inclusion appears to be the only option
available. The effect of such an inclusion would be that Part I, even though
otherwise inapplicable, would be made applicable to the extent of these
specific provisions.
Surprisingly
enough, a judgment of the Madras High Court,[8] albeit
unreported, had recognized party autonomy in favour of express inclusion of
Section 9, even where Part I was otherwise inapplicable. The High Court of
Madras had pointed out that the clause pre-dated BALCO and the law of Bhatia
International
would apply. The terms of the agreement provided for the
substantive law of the contract to be Finnish Law, the Rules of Arbitration of
the Arbitration Institute of Helsinki Chamber of Commerce to apply and the seat
of Arbitration to be in Helsinki. The terms further provided express exclusion
of Part I of the Act, but reserved the right of one party to approach Indian
Courts under Section 9 of the Act.  
Today’s scenario
provides for an interpretation very similar to the eventuality that had
occurred before the Madras High Court on that date. The law, today, expressly
provides for certain provisions of Part I to be applicable to Foreign Seated
arbitrations and others not applicable (which the agreement provided in the
Madras High Court case). It is in light of this that the author opines that
when there is an implied exclusion of Part I as a whole express inclusion of
the provisions sections 9, 27(1)(a) and 37(3) would be incumbent to make these
provisions applicable as the law ensures non-application of the remaining
provisions of Part I in any case..
Applicability to International Commercial Arbitration:
a Class of Foreign Seated Arbitrations
With the growing
jurisprudence of party autonomy for arbitrations, in India, a new class of
Foreign Seated Arbitrations is likely to emerge, ie. Foreign Seated Arbitrations
which are not International Commercial Arbitrations, meaning that none of the
parties to the Arbitration are outside India.
The reason for
such likelihood is that a most recent judgement of a Division bench of the
Madhya Pradesh High Court[9], recognizes
the right of two Indian parties to elect for a foreign seat of Arbitration. The
judgment distinguishes TDM Infrastructure[10] as
being limited in its application to only issues relating to appointment of
arbitrator. TDM infrastructure, it
says, had only to see whether the arbitration in issue was an international
commercial arbitration or not and thus to see whether 11(6) would apply or not.
This court did not succinctly rule upon the issue of whether two Indian parties
could opt for a foreign seat or not and thus TDM Infrastructure was said to be inapplicable. The Court further
uses the interpretation of Atlas Exports[11] and BALCO to hold that as long as two Indian
parties do not exclude the substantive law of the contract by agreement, they
are very much free to opt for a foreign Seat.
The Sasan Power case is still pending
consideration before the Apex Court, but in most likelihood would be upheld. In
such a scenario two classes of Foreign Seated Arbitrations exist:-
(i)        Foreign Seated
Arbitrations which are International Commercial Arbitrations
(ii)       Foreign seated
Arbitrations other than International Commercial Arbitrations.
However, Section
2(2) of the Act applies only to the first class of Foreign Seated Arbitrations.
Why it does not apply to the second class is a question left unanswered by the
law makers, especially since both parties to the second class would be Indian.
The way forward
The light of the
above discussion, two conclusions are drawn by the author with respect to the
issues discussed:-
(i)        For those
arbitrations on which the Amendment Act of 2015 applies, any parties to a
foreign seated arbitration which seek to reap the benefit of Sections 9,
27(1)(a) and 37(3) of the Act, must expressly include a savings of these provisions
in the arbitration clause.
(ii)       As far as the second
issue is concerned, the Supreme Court is still to settle the issue of whether
there can be Foreign Seated Arbitrations in cases other than International
Commercial Arbitrations. In case the question is answered in the positive,
which in the personal opinion of the author it would, then the law would have
to be suitably amended to provide for the contingency of Foreign Seated
Arbitrations other than International Commercial Arbitrations.

– Gunjan Chhabra



[1]
Section 2(2) of the Arbitration and Conciliation Act, 1996.

[2]
Bharat Aluminum and Co. vs. Kaiser
Aluminium and Co. (2012) 9 SCC 552.

[3]
Bhatia International v. Bulk Trading S.A.
(2002)4SCC105.

[4]
The effect of the amendment on BALCO is discussed succinctly, in “The Arbitration and Conciliation Amendment
Ordinance, 2015: Impact on Law Laid Down in BALCO”,
available at: http://www.mondaq.com/india/x/452032/trials+appeals+compensation/The+Arbitration+And+Conciliation+Amendment+Ordinance+2015+Impact+On+Law+Laid+Down+In+BALCO.

[5]
Videocon Industries Ltd. v. Union of
India, (2011)6 SCC 161
; Yograj
Infrastructure Ltd. vs. Ssangyong Engineering Construction Co. Ltd.(2012) 12
SCC 359
; The rule of implied exclusion has been upheld in arbitration
clauses pre-dating BALCO in Reliance Industries v. Union of India, 2014
(4)
and CTC 75 Harmony Innovation
Shipping Ltd. v. Gupta Coal India Ltd., (2015) 9 SCC 172
, which have been
decided post BALCO.

[6]
Date of judgment of BALCO, as it
applies prospectively.

[7]
Date of coming into force of the Arbitration and Conciliation (Amendment Act),
2015.

[8]
Finnish Fund for Industrial Corporation
Ltd.(FinnFund) v. VME Precast Pvt. Ltd. & Ors, Decided on 27.04.2015,
Madras High Court.

[9]
Sasan Power Ltd v. North America Coal
Corporation India Pvt Ltd., Decided on 11th September, 2015, Madhya Pradesh
High Court (Hereinafter called Sasan Power).

[10]
TDM Infrastructure (P) Ltd. vs. UE
Development India (P) Limited (2008) 14 SCC 271.

[11]
Atlas Exports Industries vs. Kotak &
Company (1999) 7 SCC 61.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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