Land Mark Supreme Court Of India Judgment Dated 6th September 2012 Overruling Bhatia International Case

The Supreme Court of India’s decision in Bharat Aluminium Co. versus Kaiser Aluminium Technical Services and other, Civil
Appeal No. 7019 of 2005, decided on 6th September 2012, is a landmark decision in the area of international arbitration law and will protect international commercial arbitrations seated outside India from being challenged in the Indian Courts.
The Supreme Court has held that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Part I of the Arbitration Act, 1996 would be applicable only to all the arbitrations which take place within the territory of India.

Legal Position prior to 6th September 2012:

The judgment in Bhatia International case was rendered by the Supreme Court of India on 13th March, 2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by the Supreme Court on numerous occasions. In fact, the judgment in Venture Global Engineering case was rendered on 10th January, 2008 in terms of the ratio of the decision in Bhatia International case. The Supreme Court in Bhatia International case in the year 2002 had held that the definition of international commercial arbitration under Section 2(1) (f) of the Arbitration Act 1996 makes no distinction between international commercial arbitrations held in India or outside India. Further the Arbitration Act, 1996 nowhere provides that its provisions are not to apply to international commercial arbitrations which take place in a non-convention country. The Supreme Court further held that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the dirigible provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement express or implied, exclude all or any of its provisions. In that case the laws or rules
chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules, will not apply.
In Venture Global Engineering case, the Supreme Court relied on the legal position derived from Bhatia International in deciding the main issue whether the aggrieved party is entitled to challenge the foreign award which was passed outside India in terms of Sections 9 and section 34 of the Arbitration Act. According to the Supreme Court then, Part I of the Arbitration Act 1996 would apply even for foreign awards.

Legal Position after 6th September 2012:

The Supreme Court of India by its judgment dated 6th September 2012has overruled its earlier decision in Bhatia International Case which was also followed by it in Venture Global Engineering Case and many other arbitration cases.

The important principles laid down by the Supreme Court of India vide its order dated 6th September 2012 in Bharat Aluminium Co. versus Kaiser Aluminium Technical Services and others, are as follows:

a. The Arbitration Act, 1996 has accepted the territoriality principle of the UNCITRAL Model Law due to which Section
2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within
India.
b. According to Section 1 of the Arbitration Act, 1996, the Act extends to whole of India, but the provisions relating to
domestic arbitrations, contained in Part I, are not extended to the State of Jammu and Kashmir.

c. Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside
India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996.
d. In a foreign seated international commercial arbitration, no application for interim relief would be maintainable
under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all
arbitrations which take place in India.

e. No suit for interim injunction simpliciter would be maintainable in India, on the basis of an international commercial

arbitration with a seat outside India.
f. There is no inconsistency between Sections 2(2), 2(4) and 2(5) of the Arbitration Act, 1996. Hence, the Supreme Court
is unable to agree with the conclusion in Bhatia International case, that limiting the applicability of part I to
arbitrations that take place in India would make Section 2(2) in conflict with Sections 2(4) and 2(5).
g. The object of Section 2(7) is to distinguish the domestic award covered under Part I of the Arbitration Act, 1996 from
the “foreign award” covered under Part II of the aforesaid Act; and not to distinguish the “domestic award” from an
“international award” rendered in India

h. The intention of the Parliament is clear that there shall be no overlapping between Part I and Part II of the Arbitration
Act. The two parts are mutually exclusive of each other.

i. The territoriality principle of the Arbitration Act, 1996, precludes Part I from being applicable to a foreign seated
arbitration, even if the agreement purports to provide that the Arbitration proceedings will be governed by the Arbitration Act, 1996.

j. Part I only applies when the seat of arbitration is in India, irrespective of the kind of arbitration.

k. Section 2(7), is enacted to reinforce the territorial criterion by providing that, when two foreigners arbitrate in India, under a Foreign Arbitration Act, the provisions of Part I will apply. Indian Courts being the supervisory Courts, will exercise control and regulate the arbitration proceedings, which will produce a “domestically rendered international commercial award”. It would be a “foreign award” for the purposes of enforcement in a country other than India.

l. The distinction between “seat” and “venue” would be quite crucial in the event, the arbitration agreement designates a foreign country as the “seat”/”place” of the arbitration and also select the Arbitration Act, 1996 as the curial
law/law governing the arbitration proceedings. It would be a matter of construction of the individual agreement to decide whether:
(i) The designated foreign “seat” would be read as in fact only providing for a “venue” / “place” where the hearings would be held, in view of the choice of Arbitration Act, 1996 as being the curial law – OR
(ii) Whether the specific designation of a foreign seat, necessarily carrying with it the choice of that country’s
Arbitration / curial law, would prevail over and subsume the conflicting selection choice by the parties of the
Arbitration Act, 1996.
ONLY if the agreement of the parties is construed to provide for the “seat” / “place” of Arbitration being in India – would Part I of the Arbitration Act, 1996 be applicable. If the agreement is held to provide for a “seat”/ “place” outside India, Part I would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Arbitration Act, 1996 shall govern the arbitration proceedings.

m. Section 28(1)(a) makes it clear that in an arbitration under Part I to which Section 2(1)(f) does not apply, there is no choice but for the Tribunal to decide “the dispute” by applying the Indian “substantive law applicable to the contract. The provision would have an overriding effect over any other contrary provision in such contract. n. where an arbitration under Part I is an international commercial arbitration within Section 2(1)(f), the parties would be free to agree to any other “substantive law” and if not so agreed, the “substantive law” applicable would be as determined by the Tribunal.

o. The Indian Courts do not have the power to grant interim measures when the seat of arbitration is outside India.

p. Pendency of the arbitration proceedings outside India would not provide a cause of action for a suit where the main
prayer is for injunction.

q. There is no existing provision under the CPC or under the Arbitration Act,
1996 for a Court to grant interim measures in terms of Section 9, in arbitrations which take place outside India, even
though the parties by agreement may have made the Arbitration Act, 1996 as the governing law of arbitration.

r. The law now declared by the Supreme Court shall apply prospectively, to all the arbitration agreements executed
hereafter

Conclusion:

The landmark judgment categorically states that the Indian Arbitration and Conciliation Act 1996 is governed by the principle of territoriality and therefore the seat of arbitration determines the jurisdiction of the Indian courts.
Further Part I of the Arbitration Act will only apply to arbitrations seated in India. An Indian court therefore will no longer be able to hear challenges to awards made in arbitrations seated in a foreign country. The Indian courts will not have jurisdiction to order interim measures in support of arbitration having its seat outside India.
The law laid down by this judgment however will apply prospectively i.e only to agreements which are concluded after the date of the judgment. In other words, arbitration awards seated outside India can still be challenged in India, for all arbitration agreements that have been entered into prior to 6th September 2012. 

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