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.

Last Minute Challenge Against Indian ICJ Nominee Dismissed by Sup. Ct.

The elections for a vacant judge’s position at the ICJ are scheduled for today (April 27). As previously noted, the two nominees are: Justice Dalveer Bhandari (India) and Justice (retd.) Florentino Feliciano (Philippines).

Some recent reports suggest that Justice Bhandari’s nomination was challenged (unsuccessfully) before the Supreme Court of India. An Indian LL.M. student filed a PIL challenging the nomination of Justice Bhandari on the ground that the nomination of a sitting judge of the Supreme Court compromised the independence of the national judiciary. According to one report, the petitioner stated:

 As a matter of principle, selection of a sitting judge of the highest court of the land by the government creates a grave situation of conflict of interest and compromises the independence of the judiciary. The independence of the judiciary is part of basic structure of the Constitution of India. Selection to post like that of a judge of the ICJ, by its very nature, involves heavy lobbying on part of the government,” thepetition said. “Many of the important cases dealt by a judge of this court involve the Union of India as either the petitioner/appellant or as a respondent.

According to another:

Advocate Prashant Bhushan appearing for the petitioner, a LLM student, meanwhile argued that if Justice Dalveer Bhandari fails to obtain the position at the ICJ, it would be difficult for him to maintain his judicial independence henceforth as he would have sought assistance of the government for the appointment. The position will see an election for the post on April 27.

Referring to the nine-judge constitutional bench verdict in ‘Advocate on Record Association case’ which had ruled that judicial appointments shall not be influenced by the executive, Bhushan said the present case was like a case in which a sitting judge of the Supreme Court is offering himself a position to the post of member of the Lok Sabha while allowing political parties to lobby for him.

The petitioner seems to have challenged not the suitability of Justice Bhandari per se, but the practice of nominating sitting Supreme Court judges at all. We have had a lengthy and detailed debate, albeit from a slightly different perspective, on whether Indian Supreme Court judges are ideal ICJ judges here. It is notable that even though the Supreme Court dismissed the challenge, it suggested that the vires of the rules made by the government for the nomination process could have been challenged instead.

More after the result of the election!

Sovereign Immunity Not Absolute: Supreme Court of India

Just a short post to note a judgment issued by the Supreme Court of India (reported in today’s Hindu here) on the issue of sovereign immunity in India.

The facts:

In the instant case, Ethiopian Airlines was aggrieved by a National Consumer Disputes Redressal Commission order holding that a dispute against it was maintainable and asking the Maharashtra State Commission to decide the issue afresh on its merits.

Complainant Ganesh Narain Saboo, who had booked a consignment with the airline, moved the State Commission, contending that gross delay in delivery at Dar es Salaam, Tanzania, led to deterioration of the goods.

The judgment:

Writing the judgment, Justice Bhandari rejected the contention that a foreign state or its instrumentality could not be proceeded against under the Consumer Protection Act for deficiency in service without obtaining prior permission from the Central government.

The Bench also did not accept the plea that a foreign state or its instrumentality could legitimately claim sovereign immunity from being proceeded against under the Act in a civil claim.

and

Countries which participate in trade, commerce and business with different countries ought to be subjected to normal rules of the market. If state-owned entities operate with impunity, “the rule of law would be degraded and international trade, commerce and business will come to a grinding halt,” said a Bench of Justices Dalveer Bhandari, Mukundakam Sharma and Anil R. Dave.

On international law:

“That Ethiopian Airlines was not entitled to sovereign immunity with respect to a commercial transaction is also consonant with the holdings of other countries’ courts and with the growing international law principle of restrictive immunity,” the Bench said.

“On a careful analysis of the American, English and Indian cases, it is abundantly clear that Ethiopian Airlines must be held accountable for the contractual and commercial activities and obligations that it undertakes in India”, the Bench said…

Readers may be interested in a related recent development in Hong Kong, where the Court of Final Appeal (CFA), in Democratic Republic of the Congo v FG Hemisphere Associates LLC, ruled that foreign states enjoy absolute immunity from jurisdiction of Hong Kong courts, and there is no exception even in cases the activity and assets are of a commercial nature. (A Fulbright and Jaworski publication on the case here.)

[Apologies for not providing a direct link to the judgment, I am currently traveling with minimal access to the Internet and hope to return to this once I get back to base.]