Home » Arbitration » Bhatia Overruled- A first look at Bharat Aluminium v. Kaiser Aluminium

Bhatia Overruled- A first look at Bharat Aluminium v. Kaiser Aluminium

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Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc: Key Findings of the Supreme Court on Enforceability of International Arbitral Awards in India. 

Introduction:

The Constitution bench of the Supreme Court in Bharat Aluminium Co. vs. Kaiser Aluminimum Technical Services Inc[1] (Bharat Aluminium) has overruled the ratio of some of its judgments, the most prominent amongst them being Bhatia International vs. Bulk Trading S.A[2] (Bhatia) and Venture Global Engineering v. Satyam Computer Services Ltd[3] (Venture Global). The ruling is being welcomed as a positive development in Indian jurisprudence concerning international commercial arbitration.

Part I of the Indian Arbitration and Conciliation Act, 1996 (“Act“) applies to arbitrations in India while Part II of the Act applies when the place of arbitration is outside India. However, both Bhatia and Venture Global interpreted the provisions of the Act to give it an effect not envisaged by the legislature.  The effect of the judgment was that even in international commercial arbitrations held outside India, Indian courts could have the power to assume jurisdiction and grant injunctions against international arbitral awards as and when a party attempted to enforce the award in India under Part II. The only exception to the application of this principle was if the parties had excluded the application of Part I of the Act. Another impact was that Section 34 of the Act, which allows an Indian court to set aside an award rendered in a domestic arbitration, was found to be applicable to international commercial arbitration since Part I was applicable to international commercial arbitration held abroad. By virtue of this, certain expansive and doubtful interpretations of Part I of the Act, were also imported into an enforcement proceeding under Part II.

The aforesaid situation resulted in routine challenges to international arbitral awards and substantial delays in enforcement of a parties right under such an award. This was widely criticized by practitioners  and scholars as frustrating the purpose of the Act and being contrary to the UNCITRAL model law and also against the spirit of the New York and Geneva Conventions.

The Supreme Court’s decision in Bharat Aluminium has remedied these anomalies to a great extent.

Key Holdings of the Supreme Court of India:

Part I is not applicable to international commercial arbitration held outside India

The court has held that the provisions contained in the Act make it clear that there can be no overlapping between Part I and Part II of the Act. Part I of the Act would therefore have no application to international commercial arbitration held outside India. Part I of the Act applies to domestic arbitration, while Part II applies to international commercial arbitration. However, Part I would apply to international commercial arbitrations held in India.

No interim relief

The court further laid down that in international commercial arbitrations held outside India, interim relief cannot be granted by Indian courts under Section 9 (which falls under Part I) or any other provision of the Act as applicability of Part I of the Act is limited to arbitrations which take place in India. Therefore, no civil suit can be instituted purely for interim relief.

No setting aside of an international arbitral award under Section 34

The court has also held that Section 34 of the Act (which provides for setting aside of an arbitral award on the grounds available under the said section), would apply only if the seat of arbitration is in India. This comes as a welcome relief because earlier judgments of the Supreme Court could be interpreted to establish that foreign arbitral awards would also have to survive a broad and expansive “public policy” review under the provisions of Section 34.

Enforcement of an International Commercial Arbitration Award in India

The court has also held that enforcement of awards rendered in international commercial arbitration held outside India would only be subject to the jurisdiction of the Indian courts when such award are sought to be enforced in India in accordance with the provisions contained in Part II of the Act.

Non-convention award cannot be incorporated into the Act by process of interpretation

India is a signatory to the New York Convention, 1958 and the Geneva Protocol, 1923. Regarding non-convention arbitral awards, the court observed that no remedy was provided for the enforcement of such awards under the Act. Therefore, a non-convention award cannot be incorporated into the Act by a process of interpretation and could only be done by suitable amendments made to the Act by Parliament.

Seat of arbitration

The seat of arbitration will decide the applicable law of arbitration. According to the court, the seat of arbitration would be the seat provided for in the arbitration agreement. However, the venue of the arbitration may be elsewhere. The court specifically held that the venue of arbitration may change, but it will have no effect on the seat of arbitration. The seat of the arbitration remains the place initially agreed by or on behalf of the parties.

Prospective overruling

The Court has specifically overruled decisions in Bhatia International and Venture Global Engineering Vs. Satyam Computer Services Ltd[4] prospectively. The court has held that the law declared by it in the present case “shall apply prospectively, to all the arbitration agreements executed hereafter”. This suggests that the law declared in Bharat Aluminium will apply only to arbitration agreements made after September 6, 2012.


[1] Civil Appeal No.7019 of 2005

[2] (2002) 4 SCC 105

[3] (2008) 4 SCC 190

[4] 2008 (1) Scale 214

Mohit Abraham, mohit.abraham@pxvlaw.com

Abhishek Singh, abhishek.singh@pxvlaw.com

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