India's Supreme Court recently gave the country's
standing as a jurisdiction hospitable to international commercial
arbitration a major boost. On 6 September 2012, the Court handed
down a landmark judgment in Bharat Aluminium v. Kaiser Aluminium,
C.A. No. 7019/2005 ("Bharat Aluminium") (available here), holding that Indian courts would no
longer exercise authority to annul awards, or remove and appoint
arbitrators in arbitrations seated outside India. In doing so, the
Court relied on international authority, including Gary Born's
International Commercial Arbitration, to overrule three decades of
domestic decisions in which Indian courts had claimed the right to
set aside awards made outside
Indiaâ€"notwithstanding the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards ("New
York Convention") and essentially uniform international
authority to the contrary.
In Bharat Aluminium, the appellant had filed applications under
Part I, Section 34 of the Indian Arbitration and Conciliation
Ordinance of 1996 ("Indian Act") to set aside two ad hoc
arbitral awards rendered by a tribunal seated in London. The
Supreme Court held that Part I of the Indian Act, which confers
significant powers on Indian courts to grant provisional measures
(Section 9), to make arbitral appointments in the absence of
agreement by the parties (Section 11), to obtain evidence (Section
27) and to set aside arbitration awards (Section 34), does not
apply to arbitrations seated outside of India and that Indian
courts therefore may not annul awards made outside of India under
Section 34 of the Act. It further held that arbitrations seated
outside India are dealt with only in Part II of the Act, which
addresses the recognition and enforcement in India of foreign
arbitral awards under the New York Convention and which provides
for no judicial supervisory or annulment authority for
foreign-seated arbitrations.
In holding that Part I of the Act does not grant Indian courts
supervisory authority with respect to arbitrations seated outside
India, the Court in Bharat Aluminium expressly overruled two of its
own highly controversial earlier decisions. In its 2002 decision,
Bhatia International v. Bulk Trading SA, AIR 2002 SC 1432
("Bhatia"), the Supreme Court had held that Part I of the
Act applied to all arbitrations, including foreign arbitrations,
unless expressly or impliedly excluded by agreement of the
parties. That holding paved the way for the Court's 2008
holding in Venture Global Engineering v. Satyam Computer Services
Ltd., AIR 2008 SC 1061 ("Venture Global") that Indian
courts were authorized to annul awards made outside India under
Part I, Section 34 of the Act. In that regard, the Bhatia and
Venture Global decisions had led to substantial criticism of India
for adopting an outlier position that was incompatible with the New
York Convention.
In addition to overruling Bhatia and Venture Global, the Supreme
Court in Bharat Aluminium clarified a number of other issues
regarding the meaning of the Act. In particular, it affirmed that
Part I of the Act adopted the territorial principle embraced by the
UNCITRAL Model Law; that the law of the seat of the arbitration
governs the conduct of the arbitration; and that an annulment
action may be brought outside of the arbitral seat only in the very
rare circumstance of the parties having agreed upon a procedural
law other than that of the arbitral seat.
At the same time, Bharat Aluminium re-exposed some of the lacunas
in Indian arbitration law that Bhatia had intended to cover
over. These include the inability of parties to foreign
arbitrations to obtain any form of effective interim relief with
respect to assets located in India, and the unenforceability in
India of foreign arbitral awards rendered in states that are not
parties to the New York Convention and recognized as such in the
official Indian Gazette. The Court also indicated that its
holding would only "apply prospectively, to all arbitration
agreements executed hereafter," leaving parties with
arbitration agreements executed before 6 September 2012 subject to
the Court's Bhatia decision and its progeny.
Despite its effective date and the challenges that remain in its
aftermath, Bharat Aluminium is of momentous significance. The
decision represents an affirmation by the Indian Supreme Court of
India's commitment to the New York Convention, and marks a new
beginning for international arbitration in India and the region. On
a practical level, knowing that arbitrations with Indian parties
seated outside of India will not be subject to interference by
local courts will encourage parties to do business on more
favorable terms with Indian parties, while consistent application
of this approach should contribute to increased willingness to
select India as an arbitral seat.
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