The Supreme Court in its judgment dated May 11, 2011 given in the case of Videocon Industries Limited v. Union of India (Civil Appeal No.4269 of 2011) has clarified an important point of law relating to international arbitration proceedings initiated under an agreement which was entered into by Indian parties. The Court in this case has observed that despite the fact that the proper law of the agreement is Indian law, the courts in India would not have jurisdiction to pass interim orders under Section 9 of the Arbitration and Conciliation Act, 1996 (“Act“), if the arbitration clause is subject to a law other than Indian law.
In this case the Supreme Court was considering a Production Sharing Contract (“PSC“) entered into by the Government of India with a consortium of four companies for exploring, mining and producing hydrocarbons in India. The governing law of the PSC was Indian law. The PSC provided for arbitration in Kuala Lampur and the arbitration clause was to be governed by the laws of England.
Disputes arose between the parties to the Agreement and arbitration proceedings were initiated. However, due to the outbreak of an epidemic in Kuala Lampur, the arbitral tribunal shifted the venue of its sittings to Amsterdam and then subsequently to London. The parties consented to shifting the venue of arbitration and in March, 2005 a partial award was passed by the arbitral tribunal. The Government of India challenged the award in the Court of Malaysia and the consortium contended that only the courts in England have the jurisdiction to entertain any challenge against the said award.
Thereafter, the Government approached the Delhi High Court seeking a declaration under Section 9 of the Act to the effect that the Kuala Lampur is the contractual and juridical seat of arbitration. The question which was put forth before the Supreme Court was whether the Delhi High Court has the jurisdiction to entertain such a petition.
The Supreme Court answered this question in the negative and held that since the law of England is the law governing the arbitration agreement, there is an implied exclusion of Part 1 of the Act. This observation was made in light of the decision given in the case of Bhatia International v. Bulk Trading S.A [(2002) 4 SCC 105, wherein the Supreme Court had held that Part I of the Act would apply to all arbitration including international arbitrations unless it is expressly or impliedly excluded by the parties. Therefore, the Court in light of the above observation held that the Delhi High Court has no jurisdiction to entertain the relevant petition under Section 9 of the Act.
This decision marks a crucial step in the development of the Indian law on arbitration. This case is specifically relevant as it settles the difference between the law which governs an agreement (proper law) and the law which governs the arbitration clause contained in such an agreement. It is to be noted that although the Supreme Court in the present case has relied on its highly criticised decision given in the case of Bhatia International, it has in the present case, applied its ratio in spirit and in a manner which is in consonance with the internationally accepted practice. The conclusion which was arrived at in the case of Bhatia International has been criticized as being contrary to the very structure of the Act which provides that Part I of the Act would apply to arbitrations conducted in India. Further, the Court in the case of Bhatia International had failed to appreciate that the agreement in question had in fact excluded the application of Indian laws by providing the seat of arbitration as France.
This recent decision of the Supreme Court is definitely a step towards reinventing India’s image as an arbitration friendly jurisdiction.