India: Decoding The Jurisdiction Of Indian Courts In Foreign Seated Arbitrations

In the recent case of IMAX Corporation vs. E-City Entertainment (I) Pvt. Ltd., the Supreme Court of India has emphasized that Indian courts cannot exercise jurisdiction over foreign seated international commercial arbitrations.

In this case, the Court considered a petition challenging a foreign award under section 34 (application for setting aside arbitral award) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The Court held that the choice of institutional arbitral rules, i.e., ICC Rules of Arbitration, by the parties and the consequent choice of seat by the arbitral institution as London operated as an exclusion of Part I of the Arbitration Act thereby ousting the jurisdiction of Indian courts to entertain a challenge to the foreign award.

Brief Background

IMAX Corporation (IMAX) entered into an agreement with E-City Entertainment (I) Pvt. Ltd. (E-City) for supply of large format projection systems for cinema theatres to be installed in theatres all across India. A clause in the agreement read as follows:

Thus, the governing law of the agreement was chosen to be Singapore law and ICC Rules of Arbitration were chosen to govern the arbitration proceedings. However, the seat was not chosen nor was a law chosen to govern the arbitration proceedings.

The parties had a dispute in June 2014 and IMAX filed a request for arbitration with the ICC and claimed damages. In October 2004, the ICC fixed London as the juridical seat of arbitration after consulting the parties. In February 2006, the arbitral tribunal passed the first partial final award in favour of IMAX holding E-City to be in breach of the agreement and therefore liable for damages. Thereafter, in August 2007, a second partial award and in March 2008 a final award was made in favour of IMAX (collectively, 'the awards').

In July 2008, E-City filed a petition challenging the awards before the Bombay High Court after a period of more than two years from the first partial award. The High Court condoned the delay and held that in the absence of an express exclusion of Part I of the Arbitration Act by the parties and due to the close nexus of the agreement with India, Indian courts would have jurisdiction for entertaining the challenge to the awards in India.

Supreme Court overturns the decision of the High Court

An appeal was filed by IMAX against the decision of the Bombay High Court in the Supreme Court. The Supreme Court had to deal with the issue as to whether the challenge to the award under the provisions of Part I of the Arbitration Act is maintainable before a court in India.

The Supreme Court held that it is important to analyse the intent of the parties as to the place of arbitration and where in fact the arbitration took place. It further observed that if in pursuance of the arbitration agreement the arbitration took place outside India, there is a clear exclusion of Part I of the Arbitration Act.

In this case, parties expressly agreed that arbitration will be conducted according to the ICC Rules of Arbitration and left the place of arbitration to be chosen by ICC. The ICC chose London as the seat of arbitration after consulting the parties and the arbitration was held in London without any objections from either party. All the awards were made in London and communicated to the parties. In view of the above, the Supreme Court held that the conduct of the parties clearly indicated the exclusion of Part I of the Arbitration Act.

The Supreme Court emphasized that the parties had merely chosen institutional arbitration rules, while not choosing the seat of arbitration in the agreement. The ICC Rules of Arbitration contain the provisions to fix the seat of arbitration. The seat of arbitration as London was chosen under the ICC Rules after due consultation and agreement of the parties and therefore it could be presumed to be the intention of the parties to choose the seat of arbitration outside India. This was recognized as an exclusion of Part I of the Arbitration Act, consequently ousting the jurisdiction of Indian courts.

Accordingly, the Supreme Court held that no challenge to the awards can be made before the Indian courts.

AL View: The Supreme Court has rightly confirmed that in the absence of any agreement to the contrary, law governing an arbitration agreement shall be deemed to be the law of the seat of arbitration.

The judgment is noteworthy as it upholds the close relationship between the seat of arbitration and the law governing the arbitration agreement with the aim of preventing unnecessary interference from Indian courts in foreign seated arbitrations.

The judgment also brings out the fundamental difference between the 'law of agreement' and the 'law of arbitration'. The law of agreement refers to the law governing the parties' rights and obligations under the agreement (i.e., the substantive law) whereas the law of arbitration is the procedural law governing the arbitration proceedings between the parties to the dispute. Procedural law deals with the technical aspects and prescribes the method for enforcing the substantive law. In the agreement, while Singaporean law was prescribed as the law governing the agreement, the parties failed to specify the law of arbitration.

Originally published July 12, 2017

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