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Supreme court clarifies jurisdiction of domestic courts in international commercial arbitrations

Supreme court clarifies jurisdiction of domestic courts in international commercial arbitrations

On 10 January 2012, a five-judge constitution bench of the Hon’ble Supreme Court of India (Supreme Court) reconsidered its earlier controversial ruling in Bhatia International v Bulk Trading SA case (Bhatia Judgement) concerning applicability of Part I of the (Indian) Arbitration and Conciliation Act, 1996 (Act) to arbitrations which are held outside India.

In the Bhatia Judgement, the Supreme Court considered a request for interim relief under Part I of the Act by a party to International Chamber of Commerce arbitration in Paris. A three-judge bench of the Supreme Court held that the provisions of Part I of the Act would also apply to international commercial arbitrations held outside India, unless the parties had expressly or impliedly excluded application of the Part I of the Act. The reasoning underlying the judgement was that Section 2(2) of the Act did not limit the applicability of the Part I to arbitration proceedings in India.

The Supreme Court, vide its judgement today, has held the following:

– The ratio laid down in the Bhatia Judgement and Satyam v Venture Global (Venture Global Judgement) does not flow from the provisions of the Act and accordingly, the same has been overruled to the extent that Part I of the Act would apply to arbitrations held outside India unless application of Part I of the Act is expressly or impliedly excluded;

– It is crystal clear from the language of section 2(2) of the Act that Part I of the Act is applicable to only those arbitrations, which are held within India and that it is not applicable to arbitrations held outside India. Thus, the crucial point for determining whether or not Part I of the Act is applicable is whether the seat of arbitration is in India or not;

– Indian courts will have no supervisory jurisdiction to make provisions of Part I of the Act applicable to an award made outside India;

– The argument that the courts of the country of the seat of arbitration and also those of the country, whose law is chosen by the parties, have concurrent jurisdiction over any court proceedings in relation to such awards is incorrect. Only the courts of the country in which the seat of arbitration is located, has the jurisdiction to entertain any matter relating to the arbitration. It is only in the absence of choice of seat of arbitration that the country whose law is chosen by the parties has jurisdiction to entertain the matter;

– The argument that provisions of Part II of the Act are supplementary to the provisions of Part I is incorrect as there is complete segregation between the two. While Part I deals with the commencement, conduct, challenge and enforcement of arbitrations taking place in India, Part II only deals with the commencement and enforcement in relation to foreign awards;

– It has been also clarified that since none of the provisions of Part I of the Act are applicable to arbitrations held outside India, provisions such as those for interim relief under Section 9 (Part I), would also not be applicable to arbitrations held outside India. The argument that Section 9 happens to be a sui generis provision or standalone provision has also been rejected. It also follows that parties would not be free to institute a civil suit in India for obtaining interim relief if the seat of arbitration is located outside India. The argument that in such a scenario, parties would be left without a remedy was rejected as the parties are free to seek appropriate remedies in their chosen jurisdiction;

– When the courts are faced with challenges made to a foreign award under Part II of the Act, the courts cannot go into the merits of the same or annul the award on the ground that the Indian law was excluded by the parties;

– It has also been clarified that the law laid down by the Supreme Court today would only apply prospectively to arbitration agreements entered into hereafter.

KCO Comment: This salutary judgement will have far reaching effects on arbitration in commercial transactions. It restores the original intention of the Arbitration Act and sets aside the judicial aberration created on enforceability of international arbitral awards in India.

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