In two recent decisions, the High Courts of Calcutta and Delhi have declined to set aside arbitral awards rendered in foreign seated international commercial arbitrations. The intention of the courts was clear and laudable – to show appropriate deference to the parties' choice to have their dispute resolved elsewhere. However, the decisions appear to be slightly at odds with the existing jurisprudence of the Supreme Court.
Under the Indian Arbitration and Conciliation Act 1996 (the "Act"), the power of the courts to set aside an arbitral award stems from Section 34 of Part I of the Act. Pursuant to the pronouncement of the Supreme Court in Bhatia International (as reaffirmed in Venture Global), courts in India can hear applications to set aside a foreign arbitral award under Part I of the Act unless the parties expressly or impliedly exclude the applicability of Part I of the Act. Thus, parties choosing to have their disputes resolved outside India might nonetheless be drawn into the Indian court process, unless they can demonstrate that they have effectively contracted out of Part I of the Act. The Supreme Court held that selection of a foreign seat on its own was insufficient to demonstrate such a contracting-out.
In Coal India Ltd v Canadian Commercial Corporation, Coal India applied to the Calcutta High Court seeking to set aside an arbitral award rendered by an arbitral tribunal constituted under the rules of the International Chamber of Commerce seated in Geneva, Switzerland. The proper law of the contract was Indian law.
In considering the question of whether the court had jurisdiction to annul the award, the court adopted a 'conflict of laws' approach and distinguished the law applicable to the arbitration from the proper law of the contract and the law applicable to the arbitration agreement. It held that despite the proper law of the contract being Indian law, the law applicable to the arbitration must be the law of the seat of arbitration.
The court went further and noted that since an award is most closely connected with the law of the arbitration, it can only be annulled in accordance with that law by the courts located at the seat of arbitration. The court accordingly declined to annul the award.
The decision in Indiabulls Financial Services Ltd v Amaprop Ltd also proceeded on similar lines. In that case, an arbitral award was rendered by an arbitral tribunal constituted under the rules of the International Centre for Dispute Resolution seated in New York. Amaprop applied to the New York courts for confirmation of the award. Subsequently, Indiabulls applied to the Delhi High Court seeking to set aside the arbitral award. The proper law of the contract was New York law. The contract also provided for the New York courts to have non-exclusive jurisdiction over the contract (in addition to provision for arbitration).
A single judge of the Delhi High Court refused to set aside the award. He found that the parties intended for New York courts to hear any challenge to an arbitral award based on the fact that:
- the parties had vested New York courts with non-exclusive jurisdiction in relation to the contract and therefore must have intended to vest that court with jurisdiction to hear any challenge to the arbitral award; and
- since the seat of the arbitration was New York, the parties must have intended the New York courts to have jurisdiction in respect of any such challenge.
The court held that the parties must have intended to avoid parallel proceedings and therefore had impliedly excluded the jurisdiction of the Delhi High Court to hear challenge proceedings.
Whilst the outcome in Indiabulls is perhaps unsurprising (since the governing law as well as the chosen seat were unconnected with India), the Coal India judgment is perhaps more controversial. It appears to be at odds with the Bhatia line of authority, in deciding that the choice of a foreign seat implies the choice of a foreign law of the arbitration. This would suggest that the choice of a foreign seat is sufficient to exclude the applicability of Part I of the Act, which represents something of a departure from past cases.
The long-anticipated decision of the Supreme Court in Bharat Aluminium, which is expected to re-visit the ratio in Bhatia, may provide the resolution to this issue.