India: Indian Arbitration Act: Is This The End Of The Applicability Debate? (Government Of West Bengal v. Chatterjee Petrochem And Katra Holdings v. Corsair Investments LLC & Ors)

Last Updated: 17 November 2017
Article by Mohammad Kamran, Payel Chatterjee and Sahil Kanuga

Arbitration analysis: On the fifth anniversary of the BALCO decision, Sahil Kanuga, co-head of international dispute resolution practice, Payel Chatterjee, a senior member and Mohammad Kamran, a member of the same team at Nishith Desai Associates, consider whether the dust is finally settling on the much-debated issue of the applicability of Part I of the Arbitration and Conciliation Act, 1996 (the Act) to foreign-seated awards. The issue has re-surfaced before various courts at different stages due to badly drafted arbitration clauses, prospective applicability of the Balco case and the newly enacted amendments to the Act in 2015.

Original news

Government of West Bengal v Chatterjee Petrochem AP No 1046 of 2016 and GA No 211 of 2017 (not reported by LexisNexis® UK)

Katra Holdings v Corsair Investments LLC & Ors Arbitration Petition No 436 of 2016 (not reported by LexisNexis® UK)

Pre-and-Post Balco Era

Bhatia International v Bulk Trading S.A. Bhatia International v Bulk Trading (2002) 4 SCC 105 (not reported by Lexis Nexis® UK), entailed that Part I of the Arbitration and Conciliation Act, 1996 will apply to all arbitrations (whether domestic or foreign-seated) unless the parties to a foreign-seated arbitration expressly or impliedly excluded the application of provisions of Part I of the Act.

The decision in Bharat Aluminium Co v Kaiser Aluminium Technical Service 2012 9 SCC 552 (Balco) (not reported by LexisNexis®), by a five-judge constitutional bench, laid down a blanket rule that Part I of the Act had no application to arbitrations that were seated outside India, irrespective of the fact whether parties chose to apply the Act or not.

However, it was to apply only prospectively ie to arbitration agreements entered into after 6 September 2012. The Supreme Court in Harmony Innovation Shipping Ltd v Gupta Coal India Ltd & Anr 2015 (3) SCALE 295 (not reported by LexisNexis®) clarified that pre-Balco arbitration agreements (executed prior to 6 September 2012) must be considered based on the principles laid down in Bhatia International. This effectively led to two parallel streams of law being developed insofar as arbitration was concerned.

Amendments to Part I of the Indian Arbitration and Conciliation Act

Pursuant to the Balco decision, the Indian courts had no jurisdiction to intervene in arbitrations which were seated outside India and part I of the Act was not applicable to such arbitrations. Therefore, parties to a foreign seated arbitration were blocked out of the Indian courts in seeking interim relief under section 9, Part I of the Act. This posed significant concerns for foreign parties. To iron out such issues, some welcome changes were made for international arbitrations seated outside India, in amendments to the Act effective 23 October 2015. After the amendments, inter alia, sections 9, 27, and 37(1) and (3) in Part 1 of the Act became applicable to foreign seated arbitrations, unless an agreement exists to the contrary.

In addition to above, the amendments made several other changes including guidelines to determine ineligibility, independence, and impartiality of arbitrators, expeditious disposal with timelines for arbitration proceedings etc. They were aimed at taking drastic and reform oriented steps to bring Indian arbitration law at par with global standards and provide an effective mechanism for resolving disputes with minimum court interference. The task now rested with the judiciary to eliminate the remnants of the past and set the ball rolling for the new regime.

Recently, the Bombay High Court and the Calcutta High Court have refused to entertain a challenge to foreign arbitral awards, applying the above principles. The Bombay High Court in Katra Holdings v Corsair Investments LLC & Ors Arbitration Petition No 436 of 2016 (not reported by LexisNexis® UK) held that Part I of the Act will not apply to arbitration proceedings where the parties have agreed to conduct the arbitration in New York in accordance with the Rules of American Arbitration Association (the AAA Rules).

Soon thereafter, the Calcutta High Court, in Government of West Bengal v Chatterjee Petrochem AP No 1046 of 2016 and G.A. No. 211 of 2017 held that Part I of the Act will not apply to arbitration, where the parties agreed to conduct arbitration in Paris in accordance with the Rules of Arbitration of International Chamber of Commerce (the ICC Rules). These orders demonstrate a continued pro-arbitration approach and a positive wave of arbitration in India.

Katra Holdings Case

The dispute in Katra Holdings arose in relation to several transactions under a Restated Escrow and Transaction Settlement Agreement dated 12 May 2007 (the RETS Agreement) between the parties. Clause 15 of the RETS Agreement entailed that the disputes, if not settled in good faith, shall be submitted to arbitration to be conducted in accordance with AAA Rules and 'the place of arbitration shall be New York, New York or such other place as may be agreed upon by the parties'. Clause 16 provided that the RETS Agreement shall be governed by the laws of India except in relation to certain specified provisions, which shall be governed by New York law.

A three member arbitral tribunal passed the final award in New York, USA. The award was challenged under section 34(2)(ii)(b) of the Act before the Bombay High Court on the grounds of public policy. However, a preliminary objection was raised on the maintainability of the application as Part I of the Act stood excluded as the juridical seat of arbitration was outside India. The issue before Bombay High Court was to determine whether the seat of arbitration was in India or outside India.

It is well settled that the mere choosing of the juridical seat of arbitration attracts the law applicable to such location. It would not be necessary to specify which law would apply to the arbitration proceedings, since the law of that particular country would apply ipso jure (Eitzen Bulk SAv Ashapura Minechem Limited CA No 5131-5133 of 2016; CA No. 5134-5135 of 2016; CA No 5136 of 2016)(not reported by LexisNexis® UK). The Bombay High Court relied on Union of India v Reliance Industries & Ors (2014) 7 SCC 603 which further expounded Bhatia International to clarify that where the juridical seat is outside India or where the law other than Indian law governs the arbitration agreement, Part I of the Act would be excluded by necessary implication. The Bombay High Court noted that since the parties had agreed that arbitration proceedings would be conducted in New York in accordance with the AAA Rules, it could not contend that the proper law of the agreement, ie, Indian Law, would apply to the arbitration proceedings.

Further, the Bombay High Court also relied on Yograj Infrastructure Limited v Ssang Yong Engineering and Construction Company Limited (2011) 9 SCC 735 (not reported by LexisNexis® UK), which dealt with a similar arbitration clause and concluded that if the seat of arbitration is clearly laid down in the arbitration clause, the parties cannot rely on the proper law of the agreement. Since the arbitration was seated in New York, USA and the Federal Arbitration Act (USA) was the law governing the arbitration proceedings, application of Part I was by necessary implication excluded.

Chatterjee Petrochem Case

The dispute in Chatterjee Petrochem case emanated out of an agreement dated 12 January 2002 (Sale Agreement) for the sale of majority shareholding of Haldia Petrochemicals Limited to Chatterjee Petrochem (Mauritius) Co by the government of West Bengal. The relevant dispute resolution clause in the Sale Agreement provided that 'disputes and differences between the parties will be settled in accordance with the ICC Rules. The venue of arbitration will be in Paris and the law applicable to the contract will be Indian law'.

The arbitral tribunal made the final award dated 9 September 2016 in Paris, which was challenged under section 34 of the Act. The issue before the Calcutta High Court was whether there was an express or implied agreement between the parties to exclude Part I of the Act.Shashoua and others v Sharma [2009] EWHC 957 (Comm)

The Calcutta High Court observed that there is no difference between seat, venue and place of arbitration unless there is agreement between the parties that seat would be in one place and hearings would take place in other places (Shashoua v Sharma). This is in line with the issue dealt in the recent Indian Supreme Court decision of Roger Shashoua v Sharma [2017] (Civ Appeal No.2841–2843) adopting international best practices and a hands-off approach in case of foreign awards giving effect to the intention of the parties.

The Calcutta High Court relied on the same series of judgments which were considered in Katra Holdings. The ruling held that although parties have chosen Indian law, the seat or venue of the arbitration was chosen as Paris. Therefore, the law governing the agreement to arbitrate and enforcement of challenge to the award is the law of the place where the seat of arbitration is located or in other words, Paris. Thus, it was held that parties had agreed to exclude Part I of the Act and the application was dismissed. The Calcutta High Court clarified that the law in Bhatia International would apply, as the agreement was entered prior to the Balco decision.

What are the practical implications?

These two judgments are excellent examples of a continued thrust towards a pro-arbitration environment in India. Party autonomy and a non-interference approach by the Indian courts have paved the way for international commercial arbitration. Interestingly, the Indian High Courts in both these cases have sought to adapt a rational interpretation and concluded that if the arbitration agreement provides for the venue of arbitration coupled with the curial law of the place, the term 'venue' would be construed to mean 'seat' of arbitration.

The Supreme Court in Balco and Enercon (Civil Appeal No.2086 of 2014 (Arising out of SLP (C) No. 10924 of 2013), decided on February 14, 2014 (not reported by LexisNexis® UK) had distinguished the concept of seat and venue and explained their significance in arbitration proceedings. The distinction between seat and venue of arbitration assumes significance when foreign seat is assigned. In such scenario, Part I would be inapplicable to the extent inconsistent with arbitration law of the seat.

Interestingly, both High Courts ignored the distinction created by the Supreme Court between seat and venue. The courts in both Katra Holdings and Chatterjee Petrochem relying on the principles of Reliance Industries and Bhatia International, have categorically held that once the parties choose to arbitrate in a foreign country in accordance with the rules of an international arbitration institution, they by necessary implication choose such foreign country as the seat and accordingly exclude the application of Part I of the Act.

The two rulings ensure that the picture of the arbitration regime in India, which over the years has suffered from judicial interference, has continued to evolve and change with courts continuing to adopt a more hands-off approach towards arbitration and specifically international commercial arbitrations seated outside India. It provides immense relief to the parties across the world and makes a point that the legislative mandate is for courts to aid, support and facilitate arbitration.

This article was originally published in the 31st October, 2017 edition of Lexis®PSL Arbitration

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cyril Amarchand Mangaldas
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cyril Amarchand Mangaldas
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions