Holding that the “territoriality principle of the Arbitration Act, 1996, precludes Part I [of the act] from being applicable to a foreign seated arbitration”, the Supreme Court recently overturned a 2002 judgment – Bhatia International v Bulk Trading SA & Anr – that had allowed Indian courts to consider challenges to international arbitral awards and pass interim injunctions in international arbitrations. The ruling applies to arbitration agreements executed after 6 September.
Ruling in Bharat Aluminium Co v Kaiser Aluminium Technical Service Inc, a five-judge constitutional bench said: “the choice of another country as the seat of arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to the proceedings”.
The court held that the UNCITRAL Model Law on International Commercial Arbitration, which in article 1(2) states that the law applies “only if the place of arbitration is in the territory of this State”, had not been “bodily adopted” in India’s arbitration laws. Consequently, the absence of the word “only” from the corresponding section in the Arbitration and Conciliation Act, section 2(2), did not imply that Part I applied to arbitrations seated outside India.
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Dismissing arguments that Part I and Part II are not mutually exclusive, the court held that the act makes it “crystal clear” that the two parts do not overlap. While Part I “deals with all stages of the arbitrations which take place in India”, Part II contains “no provisions regulating the conduct of arbitration nor the challenge to the award”, as this would be done by the courts of the country in which the arbitration is being conducted.
The constitutional bench reconsidered Bhatia International after a two-judge bench of the court expressed reservations about it during an appeal in Bharat Aluminium.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
