[Guest post by RV Prabhat, who is a practising advocate before the Delhi High Court. He can be contacted at email@example.com]
The question of applicability of the provisions of Part I of the Arbitration and Conciliation Act 1996 (hereinafter referred as 1996 Act) to the Foreign Seated Arbitrations has time and again come up before the Supreme Court of India (“Supreme Court”) and various High Courts. Bhatia International had initially held that the 1996 Act shall be applicable to all arbitrations, including arbitrations held outside India, unless the applicability of all or any of its provisions was excluded by parties, expressly or impliedly. Bhatia International was later overruled by a constitution bench judgment in Balco v. Kaiser, but only prospectively i.e. applicable only for disputes arising out of agreements which were entered after 6th September 2012. This meant that the Bhatia International judgment was still applicable to all arbitrations agreements entered prior to 6th September 2012.
Thereafter, the legislature enacted the Arbitration and Conciliation (Amendment) Act, 2015 which amended the controversial Section 2(2) of the Act. The said section introduced a proviso that expressly provides that provisions of Section 9, 27, 37 (1)(a) and 37(3) of the Act would also apply to international commercial arbitrations even if the place of arbitration is outside India and the arbitral award is enforceable under the provisions of Part II of Act.
Prior to the amendment of Section 2(2), the Supreme Court and the various courts have more or less held one thing that is “once you choose a particular foreign law as the governing law of the arbitration agreement along with a foreign seat, Part I and its corollary Section 9 are excluded altogether impliedly/by necessary implication”. However, this position of law had to be tested again in light of amendment of Section 2(2) by Arbitration (Amendment) Act 2015.
This came to be tested recently by Delhi High Court, which held that the very purpose of amendment of Section 2(2) was to provide the parties in a foreign seated international commercial arbitration a remedy in case properties related to subject matter of arbitration are situated in India. However, with respect to particular facts of the case, where the rules governing the arbitration chosen by the parties contained a provision providing parties the choice to approach any judicial authority/court for interim measures. On a combined reading of amended Section 2(2) and chosen rules, the Delhi High Court concluded that Section 9 of the Act was not excluded impliedly and it had the jurisdiction to pass interim measures in the case.
When there is a legal presumption in favour of applicability of a particular provision, particularly when it has been enacted to cure a particular mischief (Balco- no remedy for a party in a foreign seated-foreign law governed arbitration to protect the dissipation of properties in dispute in India), whether there is a need to reaffirm the presumption of applicability of Section 9 by expressly including it in the agreement, to demonstrate the true intention of the parties or there is a need to rebut the presumption of applicability of Section 9 by way of an express exclusion in the agreement?
This judgment along with a few judgments of Madras High Court and Delhi High Court seems to provide an answer to the questions posed above. A judgment of Delhi High Court in Aitreya Ltd. V. Dans Energy Pvt. Ltd., in a similar case where the parties had agreed for a foreign law (laws of England) to govern their arbitration agreement with a foreign seat, but in the agreement had provided that the parties shall have right to approach any court or competent jurisdiction for suitable interim relief. After analyzing the various Supreme Court judgments of Bhatia, Yograj Infrastructure, Videocon Industries the Delhi High Court came to the conclusion that there is no implied exclusion as in this case there is right provided to the parties to approach the courts for interim relief in the Agreement itself.
In another recent unreported judgment of the Madras High Court the High Court has held that in a Pre-Balco Arbitration Agreement, even though the parties have expressly chosen foreign law to be applicable to the main contract, foreign law governing the arbitration agreement and seat of arbitration in a foreign country, if the parties had expressly agreed by inserting a provision that for interim measures they can approach the Indian Courts, the provision of providing Indian courts with supervisory jurisdiction over the arbitration proceedings empowering it to pass interim measures for the same is valid and would prevail for the limited purposes of providing interim measures (a case of partial implied exclusion i.e. excluding all provisions of Part I except Section 9). Thus, as the parties have expressly included and made applicable Section 9 of the Act to the said arbitration, implied exclusion principle shall not apply in such a scenario. In that case, similar like the Bhatia case, the chosen law/rules contained a provision that parties are free to approach a court of competent jurisdiction for interim measures.
According to the Delhi High Court in Raffells case, the sole purpose for amendment of Section 2(2) was to remedy the mischief of ‘leaving the parties remediless in an international commercial arbitration without providing them the remedy of interim measures/protection during arbitral proceedings’. Once, this is established, it can be seen that there is a legal presumption in favour of applicability of Section 9 in even international commercial arbitrations with a foreign seat. However, the choice of excluding it impliedly or expressly (following the Bhatia ratio) is intact and has been left with the parties. Now, once there is a legal presumption in applicability of Section 9 to international commercial arbitrations with a foreign seat, there is no necessity to mention the applicability of same expressly in the agreement by the parties. If the parties want to exclude the applicability of Section 9 to international commercial arbitration with a foreign seat, either they would have to expressly exclude it in the agreement, to rebut the presumption of applicability of Section 9 or a choice of foreign governing law of arbitration agreement along with foreign seat along with certain conditions discussed below, impliedly rebuts the presumption).
The following scenarios emerge from the various judgments:-
i) Where the chosen foreign law/rules do not contain provision for interim measure- In this scenario, there will be implied exclusion of applicability of Section 9 and express inclusion of applicability of Section 9 in the agreementbecomes necessary to demonstrate the intention of the parties (if the parties intend to make Section 9 applicable to their foreign seated arbitration)( Aitreya, Finnfund, Raffells). This is for the reason that the proviso of Section 2(2) in new Act still states that the provisions shall be applicable ‘unless excluded by parties’. As this exclusion can be ‘express’ or ‘implied’, no indication or provision of interim measures in chosen foreign law/rules indicates ‘implied exclusion’ of Section 9.
ii) Where the chosen foreign law/rules contain provision for application to competent jurisdiction for interim measures(like Bhatia, Raffells, Finnfund, Aitreya)- implied exclusion cannot be inferred as one, there is a provision in the foreign rules for interim measure; two, there is a presumption in the Act which provides for applicability of Section 9 unless excluded. In such a case, express exclusion is required to be made to demonstrate the intention of non-applicability of Section 9.
The applicability of Section 9 in international commercial arbitrations with a foreign seat largely depends on the facts and circumstances of the case, however the following formulae would generally illustrate the current settled position after taking into consideration the Arbitration Amendment Act 2015, Bhatia judgment and the various Supreme Court and High Court judgments as to in which scenario Section 9 of 1996 Act shall stand impliedly excluded :-
i) Foreign Seat + Foreign law – (Minus) interim measure(in chosen law/rules) – Section 9 (No mention of applicability in Agreement) = Implied Exclusion
ii) Foreign Seat + Foreign law + interim measure (in chosen law/rules) – Section 9 (No mention of applicability in Agreement) ≠ (Not equals to) Implied Exclusion (Bhatia, Aitreya, Raffells Design and Section 2(2) post amendment i.e. Presumption of applicability)
iii) Foreign Seat + Foreign law – interim measure (chosen law/rules) + Section 9 (Specific mention for applicability in Agreement) ( Aitreya Judgment)
iv) Foreign Seat + Foreign law + interim measure(in chosen law/rules) + Section 9 (Specifically mentioned for applicability in Agreement) ≠ Implied Exclusion (Finnfund Judgment)
v) Foreign Seat + Foreign law + interim measure(in chosen law/rules) + Section 9( Specific mention for non-applicability in Agreement) = Express Exclusion
+ means ‘Plus’ (Together mentioned in the Agreement)
– Means ‘Minus’
= Equals to or Amounts to
≠ Not equals to or Does not Amounts to