Post BALCO Developments - Litigation, Mediation & Arbitration - India

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Post BALCO Developments - Litigation, Mediation & Arbitration - India

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<ul><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 1/9</p><p>Weusecookiestogiveyouthebestonlineexperience.Byusingourwebsiteyouagreetoouruseofcookiesinaccordancewithourcookiepolicy. Learnmorehere . CloseMe</p><p>Home&gt;India&gt;Litigation,Mediation&amp;Arbitration</p><p>LastUpdated:14October2015</p><p>PSALegalCounsellors</p><p>India: Post BALCO Developments</p><p>0</p><p>INTRODUCTION</p><p>TheArbitrationandConciliationAct,1996("Act")isdividedintofourparts.1FirstpartoftheAct("PartI")dealswiththearbitrationsconductedinIndiaandenforcementofsuchawardssecondpart("PartII")dealswiththeenforcementofforeignarbitralawards.ThequestionofapplicabilityoftheprovisionsofPartIoftheActtotheinternationalarbitrationsheldoutsideIndiahasbeenponderedoverbytheSupremeCourtofIndia("SupremeCourt")andvariousHighCourtstimeandagain.</p><p>ThequestionwassettledbytheSupremeCourtinthecaseofBhatiaInternationalVsBulkTradingSA2("BhatiaInternational")byholdingthattheprovisionsofPartIoftheActapplytoallarbitrations,includinginternationalcommercialarbitrationsseatedoutsideIndia,unlessthepartieshaveexpresslyorimpliedlyexcludeditsapplication.However,theconstitutionbenchoftheSupremeCourtoverruledBhatiaInternationalinthecaseofBharatAluminiumco.v.KaiserAluminiumTechnicalServicesInc3("BALCO")andheldthattheprovisionsofPartIoftheActwouldonlyapplytoarbitrationsseatedinIndia.</p><p>ThisbulletindealswiththepositionoflawontheapplicabilityofprovisionsofPartItoforeignarbitrationssinceBhatia</p></li><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 2/9</p><p>Internationaltilldate.</p><p>1.ApproachofIndianJudiciaryPreBALCO</p><p>InBhatiaInternational,athreejudgebenchoftheSupremeCourtheldthattheprovisionsofPartIoftheActwillbeapplicabletothearbitrationsheldoutsideIndia,unlessexcludedbyanexpressorimpliedagreementbytheparties.Therelevantparagraphofthejudgementisculledoutbelow:</p><p>"32.ToconcludeweholdthattheprovisionsofPartIwouldapplytoallarbitrationsandtoallproceedingsrelatingthereto.WheresucharbitrationisheldinIndiatheprovisionsofPartIwouldcompulsoryapplyandpartiesarefreetodeviateonlytotheextentpermittedbythederogableprovisionsofPartI.IncasesofinternationalcommercialarbitrationsheldoutofIndiaprovisionsofPartIwouldapplyunlessthepartiesbyagreement,expressorimplied,excludealloranyofitsprovisions.Inthatcasethelawsorruleschosenbythepartieswouldprevail.Anyprovision,inPartI,whichiscontrarytoorexcludedbythatlaworruleswillnotapply."</p><p>TheSupremeCourtreaffirmedtheratioofBhatiaInternationalinVentureGlobalEngineeringvs.SatyamComputerServicesLtd.&amp;Anr.4("VentureGlobal").TheratioofBhatiaInternationalwasfollowedbyvariousHighCourts5untilthepronouncementofjudgementinBALCOcase.</p><p>BhatiaInternationalallowedtheinterferenceofIndiancourtsinforeignarbitrationsbygivingthempower,interalia,tograntinjunctionsandotherinterimmeasuresandeventosetasideawardsmadepursuanttoforeignseatedarbitrations.VentureGlobal,pavedthewayformuchincreasedjudicialinterferencebyIndiancourts.InVentureGlobal,theSupremeCourtreliedonitsreasoninginBhatiaInternationaltoholdthatthe"publicpolicy"provisioninPartIoftheAct,appliesalsotoforeignawards.6Inotherwords,theSupremeCourtheldthatIndiancourtswillhavejurisdictiontosetasideanawardrenderedoutsideIndia,forviolatingIndianstatutoryprovisionsandbeingcontrarytoIndianpublicpolicy.Thesedecisionshavestrangledthegrowthofarbitrationintoasuccessfulalternativedisputeresolutionmechanism,andhavebeendisastrousforforeigninvestors,andtheirIndiancounterparts.</p><p>2.BALCOcase</p><p>BhatiaInternationalreceivedseverecriticismsforjudicialoverreachandforcreatingsignificantuncertaintyanddelayinarbitrationsthatareseatedoutsideIndia.Therefore,whenBALCOcameupbeforeatwojudgebenchoftheSupremeCourttheyreferredthemattertotheConstitutionbenchtoundothedamagecausedbyBhatiaInternational.ThefivejudgebenchsettledthelawonapplicabilityoftheprovisionsofPartIoftheActtothearbitrationsheldoutsideIndiabymakingPartI</p></li><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 3/9</p><p>inapplicabletotheforeignarbitrations.TherelevantfindingsoftheSupremeCourtinBALCOare:</p><p>Thelegislaturehasgivenrecognitiontotheterritorialprincipleandtherefore,ithasenactedthatPartIoftheActappliestoarbitrationshavingtheirplace/seatinIndia.7</p><p>Theabsenceoftheword"only"fromSection2(2)oftheAct8doesnotchangethecontentofthesectionaslimitingtheapplicationofPartIoftheActtoarbitrationswheretheplace/seatisinIndia.ItwouldnotbeapplicabletothearbitrationsheldoutsideIndia.9</p><p>InterpretationofSection2(1)(e)10makesitaxiomaticthattwocourtshavejurisdictiontoadjudicateadispute,i.e.,thecourtwithinwhosejurisdictionthecauseofactionislocatedandthecourtswherethearbitrationtakesplace.11</p><p>IndianCourtsdonothavethepowertograntinterimreliefwhentheseatofarbitrationisoutsideIndia.12</p><p>ForeignarbitralawardswouldonlybesubjecttothejurisdictionoftheIndiancourtswhenthesamearesoughttobeenforcedinIndiainaccordancewiththeprovisionscontainedinPartIIoftheAct.13</p><p>ThecourtfurtherclarifiedthatagreeingtomaketheIndianLawsasthegoverninglawsofarbitration,willnotmakePartIapplicabletothecase.EvenifthesubstantivelawofthearbitrationisIndianLawbuttheseatofarbitrationisoutsideIndia,thejurisdictionofIndiancourtswillstillbebarred.14</p><p>Therefore,itoverruledBhatiaInternationalandVentureGlobalprospectivelyandheldthatthelawlaiddowninBhatiaInternationalandVentureGlobalwillonlybeapplicabletotheagreementsenteredintopriortoSeptember6,2012.15</p><p>3.ApproachofIndianJudiciaryPostBALCO</p><p>ThelawwithregardtotheapplicationofprovisionsofPartIoftheActtotheinternationalcommercialarbitrationsheldoutsideIndiahaschangedwithBALCOandconsequently,theapproachofthejudiciaryhasalsoshiftedfromBhatiaInternationaltoBALCO.</p><p>3.1ApplicabilityoftheprincipleslaiddowninBALCO</p><p>InRelianceIndustriesLimitedandAnr.v.UnionofIndia,16theSupremeCourtheldthatsincetheagreementwasexecutedpreBALCO,hencethecourtwouldbeboundbyBhatiaInternational.However,thecourtexpandedthescopeof"impliedexclusion"asheldtobeoneofthegroundstoexcludethejurisdictionofIndiancourtsinBhatiaInternational.</p><p>Inthiscase,itwasprovidedintheagreementthatthejuridicalseatofarbitrationshallbeLondonandthearbitrationagreementshallbegovernedbytheEnglishLaw.Therefore,itwasheldthatthepartieshaveimpliedlyexcludedtheapplicabilityofPartI</p></li><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 4/9</p><p>oftheAct.</p><p>Hence,itcanbesaidthatthisrulinglaiddowntwofoldtestofimpliedexclusion,viz,(i)foreignseatand,(ii)arbitrationagreementgovernedbyforeignlaw.</p><p>Onthesimilarlines,MadhyaPradeshHighCourt,inthecaseofYograjInfrastructureLtd.vs.SsangyongEngg.AndConstruction,17upheldthatthelawdeclaredbythejudgementinBALCOisprospective.Inthiscase,thegoverninglawforinterpretationoftheagreementwasthelawofIndiabutthearbitrationwastobegovernedinaccordancewithSingaporeInternationalArbitrationCentreRulesatSingapore.ThecourtheldthatthecuriallawofarbitrationisthelawofSingaporeandhencethepartieshaveimpliedlyexcludedtheapplicationoftheprovisionsofPartIoftheAct.</p><p>InEnercon(India)Ltd.andOrs.v.EnerconGMBHandAnr.18,theSupremeCourtdealtwiththeissueofdeterminationofseatofarbitration.ThefactsofthecaserevealthatthepartieshadagreedtoresolveanydisputewithrespecttothecontractbywayofarbitrationinaccordancewiththeIndianLaws.Theissuebeforethecourtwaswithregardtothephrase"venueshallbeinLondon"usedinthecontract.Thecourtreliedonvariousjudgements19toconcludethat"venue"ofarbitrationcannotbereadas"seat"ofarbitration.Thecourt,whileholdingseatofarbitrationtobeIndia,observedthatthelegalseatofarbitrationshouldnotbeconfusedwiththegeographicallyconvenientplaceforholdinghearingsofthearbitration.Therelevantfindingsofthecourtarereproducedbelow:</p><p>"Inthepresentcase,eventhoughthevenueofarbitrationproceedingshasbeenfixedinLondon,itcannotbepresumedthatthepartieshaveintendedtheseattobealsoinLondon.InanInternationalCommercialArbitration,venuecanoftenbedifferentfromtheseatofarbitration.Insuchcircumstances,thehearingofthearbitrationwillbeconductedatthevenuefixedbytheparties,butthiswouldnotbringaboutachangeintheseatofthearbitration"20</p><p>BALCOalsomadethedistinctionbetweenseatandvenue.ItwasheldinBALCOthatifthearbitrationagreementdesignatesaforeigncountryasthe"seat"/"place"ofthearbitrationandalsoselecttheArbitrationAct,1996asthecuriallaw/lawgoverningthearbitrationproceedingsthenitwouldbeamatterofconstructionoftheindividualagreementtodecidewhethertheplacesuchchosenwouldbethe"seat"or"venue"forthepurposesofdecidingtheapplicabilityofprovisionsofPartIoftheAct.21</p><p>Interestingly,inKonkolaCopperMinesvs.StewartsandLloydsofIndia22,theBombayHighCourtobservedthatBALCOconsideredvariousaspectsoflawotherthantheapplicabilityofPartIoftheAct.Therefore,itheldthatthatthedeclarationoflawtotheeffectthatPartIshallapplyonlytothosearbitrationswheretheplaceofarbitrationisinIndiashalltakeprospectiveeffectbuttheinterpretationwhichhasbeenplacedbytheSupremeCourtontheprovisionsofSection2(1)(e)wouldapplyretrospectively.Hence,entireBALCOisnotapplicableprospectively.</p></li><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 5/9</p><p>SamepositionoflawwasupheldbytheDelhiHighCourtintheveryrecentcaseofNHPCLimitedv.HindustanConstructionCompanyLtd.23ItwasobservedbythecourtthatonlythatpartwherebyBhatiaInternationalandVentureGlobalwereoverruledbyBALCOhasbeenmadeprospectiveinoperation.TheotherobservationsandinterpretationsinBALCOwhichdonotimpingeonthespecificissuesconcerninginternationalarbitrationwhichwerethesubjectmatterofBhatiaInternationalandVentureGlobalarenotsubjecttotheprospectivedeclarationoflaw.</p><p>3.2EffectofanaddendumtotheagreementpostBALCO</p><p>TheabovecitedjudicialpronouncementsmakeitclearthatBALCOwouldonlybeapplicableiftheagreementisexecutedafterBALCOi.e.September6,2012.IfanagreementwasenteredintopriortoBALCObutanamendmenttotheagreementismadepostBALCO,whichlawwouldbeapplicabletosuchcase?ThisquestionwasdealtwithbytheSupremeCourtinthecaseofHarmonyInnovationShippingLtdvs.GuptaCoalIndiaLtd.24</p><p>InthiscaseanagreementwasenteredintobetweenthepartiesonOctober20,2010inrespectof24voyagesofcoalshipmentbelongingtotheappellantfromIndonesiatoIndia.Therespondentundertookonly15voyagesandthatresultedindisputes.AnaddendumtocontractwasexecutedasregardstheremainingvoyagesonApril3,2013.EventuallyarbitrationproceedingswereinitiatedinLondonandatthatjuncture,theappellantmovedanapplicationtothecourtunderSection9oftheActseekingattachmentofthecargosasaninterimreliefandthecourtissuedconditionalorderofattachment.</p><p>TheorderpassedbythelearnedAdditionalDistrictJudge,wasassailedbeforetheHighCourtraisingacontentionthattheimpugnedorderwasabsolutelywithoutjurisdictionandhence,unsustainableinlaw.TheKeralaHighCourtsetasidetheimpugnedorderbyapplyingtheprincipleslaiddowninBALCOandhence,anappealwaspreferredbeforetheSupremeCourtagainsttheimpugnedorderofHighCourt.</p><p>Itispertinenttomentionherethatthecontractprovidedforarbitration,incaseofanydispute,inLondonandthepartieshadagreedtobegovernedbyEnglishLaw.TheSupremeCourtanalysedplethoraofcases25beforearrivingattheconclusion.ThecourtheldthatsincethecontractwasexecutedpriortoBALCO,onlyanaddendumtothecontractwasexcitedpostBALCOandtherewasnothingintheaddendumtosuggestanyarbitration,hencethiscasewillbegovernedaccordingtothelawlaiddowninBhatiaInternational.</p><p>Further,thecourtheldthattheprincipleofimpliedexclusion,asenunciatedinBhatiaInternational,willapplytothepresentcase.SincethepartieshadimpliedlyexcludedtheprovisionsofPartI,thereby,excludingthejurisdictionofIndiancourtsoversucharbitration.Therefore,theSupremeCourthasagainclarifiedtheapplicationoflawonthearbitrationagreementsentered</p></li><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 6/9</p><p>priortoBALCO.</p><p>Though,theSupremeCourtdidnotexpresslyruledthatifanaddendumtotheagreementisexecutedpostBALCOthenthecasewouldbegovernedbyBALCO,however,itcanbecomprehendedfromthereasoninggivenbythecourtthatiftheaddendumrelatestothearbitrationclauseinthecontract,thenthecontractwillbedeemedtohavebeenexecutedpostBALCOandtheprinciplesofBALCOwillapplytosuchcase.</p><p>3.3PublicPolicy</p><p>BALCOlimitedthelevelofjudicialinterferenceinforeignseatedarbitrationsbytakingaway,interalia,thepowertograntinterimreliefandtosetasidearbitralawards.However,itdidnotdealwiththeissuewhetheraforeignarbitralawardcanberefusedenforcementbytheIndianCourtsonthegroundof"publicpolicy"asenvisagedundersection48(2)(b)26oftheAct,whichisanalogoustosection34andcontainsobjectionswhichcanberaisedbyalosingparty.</p><p>ThecourtshavebeenentertainingtheapplicationspertainingtosetasideanawardonthegroundofawardbeingopposedtothepublicpolicyofIndiasincetheenforcementoftheAct.But,inthecaseofOil&amp;NaturalGasCorporationLtd.v.SAWPipesLtd.,27theSupremeCourtdelvedintotheexpression"publicpolicy"todecidethatanawardcanbesetasideundersection34ifitiscontrarytothepublicpolicy,whichincludes:</p><p>i.fundamentalpolicyofIndianlawii.theinterestofIndiaoriii.justiceormorality,oriv.patentillegality.</p><p>Sincetheexpression"publicpolicy"isusedunderbothsections34and48,theSupremeCourt,inPhulchandExportsLimitedv.O.OO.Patriot,28heldthat"publicpolicy"undersection48alsocarriesthesamemeaningasgiventoitinSAWPipes29case.Itwidenedthescopeofchallengingtheenforcementofforeignawards.</p><p>InthecaseofShriLalMahalLtd.v.ProgettoGranoSpa,30theSupremeCourtoverruledPhulchand31caseandgavenarrowermeaningtotheexpression"publicpolicy"byomittingPatentIllegalityasoneofthegroundsofpublicpolicy.Hence,enforcementofforeignawardwouldberefusedunderSection48(2)(b)onlyifsuchenforcementwouldbecontraryto(i)fundamentalpolicyofIndianlawor(ii)theinterestsofIndiaor(iii)justiceormorality.</p><p>Therefore,thecourthasmitigatedtheconsequencesofitspreviouslydecidedcasestoanextentbyexcluding"patentillegality"</p></li><li><p>4/19/2016 PostBALCODevelopmentsLitigation,Mediation&amp;ArbitrationIndia</p><p>http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 7/9</p><p>fromthescopeofpublicpolicy.Though,thisgroundwillstillbeavailableundersection34,butcourtscannotrefusetheenforcementofforeignarbitralawardsseatedoutsideinthegarbofpatentillegality.</p><p>CONCLUSION</p><p>BALCOexcludedthejurisdictionofIndianCourtswithregardtotheapplicabilityofPartIoftheActtoarbitrationsheldoutsideIndia.However,theprinciplewillonlyapplytoagreementsenteredintoaftertheBALCOcase.AgreementsexecutedpriortothatshallcontinuetobegovernedbythelawlaiddowninBhatiaInternational.</p><p>Further,BALCOhasmadeitpatentlyclearthatrecoursetotheIndiancourtisavailableonlyiftheseatofarbitrationisinIndia.However,seatisnottobeconfusedwiththevenueofarbitration.PartiescanagreetohavethevenueofarbitrationoutsideIndiabutiftheyintendtokeepIndiaastheseatofarbitration,PartIwillapply.</p><p>Keepingalltheaboveinmind,iftheintentionofthepartiesistohavetheirdisputeadjudicatedexclusivelythroughtheagreedarbitrationprocedureoutsideIndia,therelevantclauseshou...</p></li></ul>