The Arbitration and Conciliation Act, 1996 (“Act”) initially caused some concern for Indian parties entering into commercial contracts with foreign collaborators. The primary reason of concern was that in cases where the Indian party has been bulldozed into agreeing to expensive arbitration proceedings abroad, it appeared as if they would also have to approach a foreign court of law to obtain any interim relief, pending the commencement of such arbitration or to challenge the award even though the subject-matter of such contracts would fall within the jurisdiction of Indian courts. There was an apprehension that merely by agreeing to have the dispute adjudicated in arbitration proceedings to be conducted abroad (at the instance of the foreign contracting partner), the Indian party would be altogether foreclosing any option of approaching Indian courts for interim measures of protection, under Section 9 of the Act or to challenge the award in India. Many commentators opined that in cases where the parties to an international commercial contract agreed to conduct arbitration proceedings abroad, any party seeking urgent relief would have to approach a court of law in that foreign jurisdiction for interim relief. Furthermore, the conclusion widely drawn was that the question of whether a petition seeking for interim relief would be maintainable at all in the foreign court would also be governed by the foreign jural system in question, and not with reference to Indian law.
These concerns stemmed largely from the wordings of Section 2(2) of the Act, which made it amply clear that “Part I” of the new enactment would apply in cases where the place of arbitration was in India. The apparent effect of the aforesaid Section was that it excluded the jurisdiction of the Indian Courts to grant interim relief under Section 9 of the Act in respect of international commercial arbitrations held outside India. Part I of the Act also contains other provisions which are important for a party seeking relief in courts in India like provisions for appointment of arbitrators in the event of failure of the parties to agree on the same (Section 11); and recourse against an arbitral award (Section 34). The effect of an interpretation of aforesaid nature would have led to a complete ouster of jurisdiction of Indian courts in respect of international commercial arbitrations held outside India, even though the subject matter of the dispute was located in India.
The Supreme Court stepped in to check the power imbalance that the Act had unwittingly introduced. The Apex Court for the first time in Bhatia International v Bulk Trading SA (2002) taking a bold and pragmatic view ruled that Part I of the Act would apply even to cases wherein the parties had agreed to submit to international commercial arbitration to be held outside India, unless the parties had, by express or implied agreement, decided to exclude the applicability of all or any of the provisions of Part I of the Act to their contract. However in this case the parties had not agreed that any foreign system of law would govern the rights and obligations of parties. Further this judgement opened up the possibility of awards in such arbitrations held outside India also being challenged in Indian Courts. This would however not be palatable to many foreign contracting parties who, always wary of the judicial system and its delays in India would look more towards excluding options of approaching Indian courts and would rather have such legal battles fought in their own backyards.
The ratio of Bhatia International was upheld by the Supreme Court in its subsequent judgements. In Venture Global Engineering v Satyam Computer Services Ltd. (2008), the Apex Court found occasion to express that a party could seek recourse under Section 34 of Part I of the Act to challenge an award passed against it in an international commercial arbitration proceedings held abroad, unless there was an express or implied agreement to exclude the applicability of either the challenge provision specifically (i.e., Section 34), or Part I altogether.
Another assumption of foreign contracting parties that by specifying the law governing the rights and obligations of the contracting parties to be a non-Indian one, it would lead to exclusion of approach to Indian courts was rendered erroneous by the Supreme Court. Subsequently, in Indtel Technical Services v. WS Atkins PLC (2009) and Citation Infowares Ltd. v Equinox Corporation (2009), where the contracts had specified laws of England and Wales and California, US, respectively, to be governing the rights and obligations of the contracting parties, the Supreme Court took the view that it had the jurisdiction to entertain a petition filed under Section 11 of the Act, seeking the intervention of the Court in the matter of appointment of an arbitrator, where the parties had not expressly or by necessary implication determined that they would exclude the applicability of Part I/or Section 11 of the Act to their contract.
It also held that by merely specifying a foreign law to be the one to govern the rights and obligations of the parties, it could not be said that applicability of part I of the Arbitration Act or approach to Indian Courts had been impliedly excluded. However what is to be noted that in these cases the contracts had remained silent about the seat of arbitration and had not specifically stated that it would be outside India.
However, in its two recent judgments, Dosco India Private Limited v Doosan Infracore Co. Ltd. (2010) and Videocon Industries v Union of India (2011) the Supreme Court’s different approach whilst dealing with questions involving jurisdiction of the courts in India to entertain petitions/ applications involving international commercial arbitration outside India, has highlighted the factors which distinguished the earlier decisions and has afforded a guideline to contracting parties wanting to exclude approach to Indian courts in arbitration matters as to how to structure their agreements to ensure the same
The Apex Court in Dosco and Videocon judgements propounded the following three key aspects which a court should keep in mind whilst interpreting an arbitration agreement:
- Proper law of commercial contract or the law in accordance with which the disputes between the parties should be settled. In case the commercial contract is silent on the law governing the contract, the legal system with which the transaction has its closet and most real connection would be the proper law of the contract.
- Proper law of arbitration or the substantive law governing the arbitration proceedings. Such law would ordinarily decide the validity, effect and interpretation of the arbitration agreement, the obligation of the parties to submit the dispute to arbitration, the jurisdiction of the arbitrator to decide on the dispute etc. In case the proper law of the arbitration agreement is not specified in the commercial contract there is a presumption that the proper law of the arbitration agreement is same as that of the proper law of the contract.
- The curial law or the procedural law governing the arbitration proceedings. The curial law would determine process of appointment of arbitrators in so far as they are not regulated by the commercial contract. The curial law would also determine the manner of recording evidence by the arbitrators. In absence of an express choice of curial law in the contract, the curial law that would be applicable to the arbitration proceedings would be the law of the place where the arbitration is conducted i.e. the seat of arbitration.
In Dosco, the governing law of the contract was the law of South Korea and the seat of arbitration was Seoul. The Apex Court was required to adjudicate a petition filed under Section 11(6) of the Act (appointment of arbitrator by the Court on failure of the parties to agree on a procedure for appointment). In light of the aforesaid principles, the Supreme Court held that the since the parties had already decided on Seoul as the seat of arbitration, the curial law determining the procedural aspect in question was to be determined by the laws of South Korea, the provisions of Part I of the Act stood impliedly excluded and hence such a petition in Indian courts would not be maintainable. Similarly, in Videocon the Supreme Court was called upon to adjudicate on a petition under Section 9 of the Act for interim measures of protection. In that case though the law governing the parties was Indian law, it was provided that the law governing the arbitration would be English law and the seat of arbitration was outside India. The Supreme Court held that even though the law governing the rights and obligations of the parties was Indian law, since the parties to the commercial contract have chosen English law as the law governing the arbitration agreement, therefore the Indian courts did not have any jurisdiction to hear the petition under Section 9 of the Act.
It should be noted that both in Indtel Technical and in Citation Infowares the place of arbitration was not specified in the commercial contract. Thus, applying the aforesaid principles, the Supreme Court could not be faulted in its findings thereto that Section 11 of the Act was applicable to the dispute.
A conjoint reading of Bhatia, Dosco and Videocon decisions would indicate that approach to Indian Courts with regard to arbitration can be excluded not merely by specifying the place of arbitration to be outside India or merely by specifying the law governing the parties to be a foreign law, but by having a combination of both, i.e., specifying the place of arbitration to be outside India and setting out that the law governing, either the substantive rights of the parties or the arbitration, to be a foreign law.
However, in light of the myriad of legal principles involved in the process of determining the jurisdiction of Indian courts to entertain an application/ petition involving international commercial arbitrations held outside India, the interests of the parties desiring inclusion or exclusion of jurisdiction of Indian Courts with regard to arbitration as the case may be, would be best served if an express inclusion or exclusion of Part I of the Act or any section thereto (Section 9, 11 or 34) as the case may be is incorporated in the commercial contract itself.
V Srinivasa Raghavan is a Partner and Romit Dey is an Associate at IndusLaw