Post BALCO Developments - Litigation, Mediation & Arbitration - India

Embed Size (px)

DESCRIPTION

Post BALCO Developments - Litigation, Mediation & Arbitration - India

Text of Post BALCO Developments - Litigation, Mediation & Arbitration - India

  • 4/19/2016 PostBALCODevelopmentsLitigation,Mediation&ArbitrationIndia

    http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 1/9

    Weusecookiestogiveyouthebestonlineexperience.Byusingourwebsiteyouagreetoouruseofcookiesinaccordancewithourcookiepolicy. Learnmorehere . CloseMe

    Home>India>Litigation,Mediation&Arbitration

    LastUpdated:14October2015

    PSALegalCounsellors

    India: Post BALCO Developments

    0

    INTRODUCTION

    TheArbitrationandConciliationAct,1996("Act")isdividedintofourparts.1FirstpartoftheAct("PartI")dealswiththearbitrationsconductedinIndiaandenforcementofsuchawardssecondpart("PartII")dealswiththeenforcementofforeignarbitralawards.ThequestionofapplicabilityoftheprovisionsofPartIoftheActtotheinternationalarbitrationsheldoutsideIndiahasbeenponderedoverbytheSupremeCourtofIndia("SupremeCourt")andvariousHighCourtstimeandagain.

    ThequestionwassettledbytheSupremeCourtinthecaseofBhatiaInternationalVsBulkTradingSA2("BhatiaInternational")byholdingthattheprovisionsofPartIoftheActapplytoallarbitrations,includinginternationalcommercialarbitrationsseatedoutsideIndia,unlessthepartieshaveexpresslyorimpliedlyexcludeditsapplication.However,theconstitutionbenchoftheSupremeCourtoverruledBhatiaInternationalinthecaseofBharatAluminiumco.v.KaiserAluminiumTechnicalServicesInc3("BALCO")andheldthattheprovisionsofPartIoftheActwouldonlyapplytoarbitrationsseatedinIndia.

    ThisbulletindealswiththepositionoflawontheapplicabilityofprovisionsofPartItoforeignarbitrationssinceBhatia

  • 4/19/2016 PostBALCODevelopmentsLitigation,Mediation&ArbitrationIndia

    http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 2/9

    Internationaltilldate.

    1.ApproachofIndianJudiciaryPreBALCO

    InBhatiaInternational,athreejudgebenchoftheSupremeCourtheldthattheprovisionsofPartIoftheActwillbeapplicabletothearbitrationsheldoutsideIndia,unlessexcludedbyanexpressorimpliedagreementbytheparties.Therelevantparagraphofthejudgementisculledoutbelow:

    "32.ToconcludeweholdthattheprovisionsofPartIwouldapplytoallarbitrationsandtoallproceedingsrelatingthereto.WheresucharbitrationisheldinIndiatheprovisionsofPartIwouldcompulsoryapplyandpartiesarefreetodeviateonlytotheextentpermittedbythederogableprovisionsofPartI.IncasesofinternationalcommercialarbitrationsheldoutofIndiaprovisionsofPartIwouldapplyunlessthepartiesbyagreement,expressorimplied,excludealloranyofitsprovisions.Inthatcasethelawsorruleschosenbythepartieswouldprevail.Anyprovision,inPartI,whichiscontrarytoorexcludedbythatlaworruleswillnotapply."

    TheSupremeCourtreaffirmedtheratioofBhatiaInternationalinVentureGlobalEngineeringvs.SatyamComputerServicesLtd.&Anr.4("VentureGlobal").TheratioofBhatiaInternationalwasfollowedbyvariousHighCourts5untilthepronouncementofjudgementinBALCOcase.

    BhatiaInternationalallowedtheinterferenceofIndiancourtsinforeignarbitrationsbygivingthempower,interalia,tograntinjunctionsandotherinterimmeasuresandeventosetasideawardsmadepursuanttoforeignseatedarbitrations.VentureGlobal,pavedthewayformuchincreasedjudicialinterferencebyIndiancourts.InVentureGlobal,theSupremeCourtreliedonitsreasoninginBhatiaInternationaltoholdthatthe"publicpolicy"provisioninPartIoftheAct,appliesalsotoforeignawards.6Inotherwords,theSupremeCourtheldthatIndiancourtswillhavejurisdictiontosetasideanawardrenderedoutsideIndia,forviolatingIndianstatutoryprovisionsandbeingcontrarytoIndianpublicpolicy.Thesedecisionshavestrangledthegrowthofarbitrationintoasuccessfulalternativedisputeresolutionmechanism,andhavebeendisastrousforforeigninvestors,andtheirIndiancounterparts.

    2.BALCOcase

    BhatiaInternationalreceivedseverecriticismsforjudicialoverreachandforcreatingsignificantuncertaintyanddelayinarbitrationsthatareseatedoutsideIndia.Therefore,whenBALCOcameupbeforeatwojudgebenchoftheSupremeCourttheyreferredthemattertotheConstitutionbenchtoundothedamagecausedbyBhatiaInternational.ThefivejudgebenchsettledthelawonapplicabilityoftheprovisionsofPartIoftheActtothearbitrationsheldoutsideIndiabymakingPartI

  • 4/19/2016 PostBALCODevelopmentsLitigation,Mediation&ArbitrationIndia

    http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 3/9

    inapplicabletotheforeignarbitrations.TherelevantfindingsoftheSupremeCourtinBALCOare:

    Thelegislaturehasgivenrecognitiontotheterritorialprincipleandtherefore,ithasenactedthatPartIoftheActappliestoarbitrationshavingtheirplace/seatinIndia.7

    Theabsenceoftheword"only"fromSection2(2)oftheAct8doesnotchangethecontentofthesectionaslimitingtheapplicationofPartIoftheActtoarbitrationswheretheplace/seatisinIndia.ItwouldnotbeapplicabletothearbitrationsheldoutsideIndia.9

    InterpretationofSection2(1)(e)10makesitaxiomaticthattwocourtshavejurisdictiontoadjudicateadispute,i.e.,thecourtwithinwhosejurisdictionthecauseofactionislocatedandthecourtswherethearbitrationtakesplace.11

    IndianCourtsdonothavethepowertograntinterimreliefwhentheseatofarbitrationisoutsideIndia.12

    ForeignarbitralawardswouldonlybesubjecttothejurisdictionoftheIndiancourtswhenthesamearesoughttobeenforcedinIndiainaccordancewiththeprovisionscontainedinPartIIoftheAct.13

    ThecourtfurtherclarifiedthatagreeingtomaketheIndianLawsasthegoverninglawsofarbitration,willnotmakePartIapplicabletothecase.EvenifthesubstantivelawofthearbitrationisIndianLawbuttheseatofarbitrationisoutsideIndia,thejurisdictionofIndiancourtswillstillbebarred.14

    Therefore,itoverruledBhatiaInternationalandVentureGlobalprospectivelyandheldthatthelawlaiddowninBhatiaInternationalandVentureGlobalwillonlybeapplicabletotheagreementsenteredintopriortoSeptember6,2012.15

    3.ApproachofIndianJudiciaryPostBALCO

    ThelawwithregardtotheapplicationofprovisionsofPartIoftheActtotheinternationalcommercialarbitrationsheldoutsideIndiahaschangedwithBALCOandconsequently,theapproachofthejudiciaryhasalsoshiftedfromBhatiaInternationaltoBALCO.

    3.1ApplicabilityoftheprincipleslaiddowninBALCO

    InRelianceIndustriesLimitedandAnr.v.UnionofIndia,16theSupremeCourtheldthatsincetheagreementwasexecutedpreBALCO,hencethecourtwouldbeboundbyBhatiaInternational.However,thecourtexpandedthescopeof"impliedexclusion"asheldtobeoneofthegroundstoexcludethejurisdictionofIndiancourtsinBhatiaInternational.

    Inthiscase,itwasprovidedintheagreementthatthejuridicalseatofarbitrationshallbeLondonandthearbitrationagreementshallbegovernedbytheEnglishLaw.Therefore,itwasheldthatthepartieshaveimpliedlyexcludedtheapplicabilityofPartI

  • 4/19/2016 PostBALCODevelopmentsLitigation,Mediation&ArbitrationIndia

    http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 4/9

    oftheAct.

    Hence,itcanbesaidthatthisrulinglaiddowntwofoldtestofimpliedexclusion,viz,(i)foreignseatand,(ii)arbitrationagreementgovernedbyforeignlaw.

    Onthesimilarlines,MadhyaPradeshHighCourt,inthecaseofYograjInfrastructureLtd.vs.SsangyongEngg.AndConstruction,17upheldthatthelawdeclaredbythejudgementinBALCOisprospective.Inthiscase,thegoverninglawforinterpretationoftheagreementwasthelawofIndiabutthearbitrationwastobegovernedinaccordancewithSingaporeInternationalArbitrationCentreRulesatSingapore.ThecourtheldthatthecuriallawofarbitrationisthelawofSingaporeandhencethepartieshaveimpliedlyexcludedtheapplicationoftheprovisionsofPartIoftheAct.

    InEnercon(India)Ltd.andOrs.v.EnerconGMBHandAnr.18,theSupremeCourtdealtwiththeissueofdeterminationofseatofarbitration.ThefactsofthecaserevealthatthepartieshadagreedtoresolveanydisputewithrespecttothecontractbywayofarbitrationinaccordancewiththeIndianLaws.Theissuebeforethecourtwaswithregardtothephrase"venueshallbeinLondon"usedinthecontract.Thecourtreliedonvariousjudgements19toconcludethat"venue"ofarbitrationcannotbereadas"seat"ofarbitration.Thecourt,whileholdingseatofarbitrationtobeIndia,observedthatthelegalseatofarbitrationshouldnotbeconfusedwiththegeographicallyconvenientplaceforholdinghearingsofthearbitration.Therelevantfindingsofthecourtarereproducedbelow:

    "Inthepresentcase,eventhoughthevenueofarbitrationproceedingshasbeenfixedinLondon,itcannotbepresumedthatthepartieshaveintendedtheseattobealsoinLondon.InanInternationalCommercialArbitration,venuecanoftenbedifferentfromtheseatofarbitration.Insuchcircumstances,thehearingofthearbitrationwillbeconductedatthevenuefixedbytheparties,butthiswouldnotbringaboutachangeintheseatofthearbitration"20

    BALCOalsomadethedistinctionbetweenseatandvenue.ItwasheldinBALCOthatifthearbitrationagreementdesignatesaforeigncountryasthe"seat"/"place"ofthearbitrationandalsoselecttheArbitrationAct,1996asthecuriallaw/lawgoverningthearbitrationproceedingsthenitwouldbeamatterofconstructionoftheindividualagreementtodecidewhethertheplacesuchchosenwouldbethe"seat"or"venue"forthepurposesofdecidingtheapplicabilityofprovisionsofPartIoftheAct.21

    Interestingly,inKonkolaCopperMinesvs.StewartsandLloydsofIndia22,theBombayHighCourtobservedthatBALCOconsideredvariousaspectsoflawotherthantheapplicabilityofPartIoftheAct.Therefore,itheldthatthatthedeclarationoflawtotheeffectthatPartIshallapplyonlytothosearbitrationswheretheplaceofarbitrationisinIndiashalltakeprospectiveeffectbuttheinterpretationwhichhasbeenplacedbytheSupremeCourtontheprovisionsofSection2(1)(e)wouldapplyretrospectively.Hence,entireBALCOisnotapplicableprospectively.

  • 4/19/2016 PostBALCODevelopmentsLitigation,Mediation&ArbitrationIndia

    http://www.mondaq.com/india/x/434322/trials+appeals+compensation/Post+BALCO+Developments 5/9

    SamepositionoflawwasupheldbytheDelhiHighCourtintheveryrecentcaseofNHPCLimitedv.HindustanConstructionCompanyLtd.23ItwasobservedbythecourtthatonlythatpartwherebyBhatiaInternationalandVentureGlobalwereoverruledbyBALCOhasbeenmadeprospectiveinoperation.TheotherobservationsandinterpretationsinBALCOwhichdonotimpingeonthespecificissuesconcerninginternationala