Indian SC delivers judgment in Kaiser, overrules Bhatia

Readers interested in international arbitration would be aware of what have been called the “misgivings”of the Indian courts on international arbitration. The Supreme Court has rendered several controversial judgments on the Indian Arbitration Act of 1996 in the past, none being more infamous than the Bhatia International judgment. In Bhatia, the Court held that Part I of the Indian Arbitration Act is also applicable in proceedings for the enforcement of foreign arbitral awards, even though Part II of the law deals with the “enforcement of certain foreign awards”, unless the applicability of Part I has been excluded by the parties. A result of this was that Indian courts could set-aside foreign arbitral awards under Section 34 of the Act contained in Part I. This was considered anomalous by many in the international arbitration community in so far it allowed Indian courts seized with the enforcement of foreign awards (“secondary jurisdication”) to not just deny enforcement, but even set-aside the foreign arbitral (a task usually reserved for the courts of the “primary jurisdiction” — the seat).

Now, in Kaiser Aluminium, the Court has overruled Bhatia, holding that there is complete “segregation” between Parts I and II of the Indian Act. With this, the Court moves towards an understanding of the proper functions of the courts of the primary and secondary jurisdiction:

Thus, it is clear that the regulation of conduct of arbitration and challenge to an award would have to be done by the courts of the country in which the arbitration is being
conducted. Such a court is then the supervisory court possessed of the power to annul the award. (para. 128)

The Court concludes:

198. In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that 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. In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.

No doubt, the judgment would be welcomed by the international arbitration community to the extent it brings Indian law and practice in conformity with internatioanal practice and standards.

Moreover, having read the Court’s decision once, in my opinion the Court’s engagement with international arbitration at a conceptual level would go a long way in promoting consistency and sound practice in the enforcement of foreign arbitral awards in India. I have long believed that the problems relating to the enforcement of foreign arbitration awards in India have resulted from a failure of the Indian courts to conceptually engage with international arbitration. Thus, for example, Indian courts have, in my opinion, relied overly upon textual and contextual tools of interpretation, without promoting a conceptual understanding of international arbitration first. Kaiser seems to mark a welcome departure from this trend. The counsels and the Court have for the first time engaged in a thorough analysis of fundamental issues such as the territoriality and delocalization of international arbitration. Whereas these terms may be very familiar to international arbitration lawyers, the discussion in India hitherto has almost always avoided this framework. So, apart from the welcome commercial implications of the decision, I hope that the judgment would also help promote a better understanding of international arbitration in India, both amongst the courts and the scholars. Indeed, now that the Bhatia saga is over, and with the attempt in Kaiser to conceptually analyze arbitration, hopefully we can move on to further fine tuning Indian arbitration law to the demands of the transnational economic order.

The full-text of the judgment (.pdf) is available here.

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