Supreme Court faces big decision on future of arbitration
Arbitration is the popular way forward for international disputes. No getting caught in queues in local courts that may lack the necessary expertise, no judicial interference and the reassurance (in the majority of countries) of enforceability under the New York Convention. Look at the enthusiasm for arbitration centres – Dubai, Ghana, Nigeria, enthusiasm that you might expect to see in the BRIC countries, the stars of the future, if not today. But all is not well with arbitration in India (see issue 61). The Indian Supreme Court has a big decision to make in the coming months (or even years) which could have a seriously big impact on the future of international arbitration in India. And India, as they say, has history on this topic.
The story so far...
In 1994, in Renusagar Power Co. v General Electric Ltd under the old, 1940, law, before the arrival of the 1996 Arbitration & Conciliation Act, the Supreme Court ruled that a foreign award would, as a matter of public policy, not be enforced if it was contrary to the fundamental policy of Indian law, the interests of India, or justice or morality. And that confirmed the years of case law from Indian courts that were not shy to refuse to enforce arbitration awards that had achieved finality, even though India had signed up to the New York Convention in 1960.
Fast forward eight years and soon after the 1996 Arbitration & Conciliation Act came into force, in Narayan Prasad Lohia v Nikunj Kumar Lohia, the Supreme Court said that, if an award had been made in accordance with the agreement of the parties, it could not be set aside by the court. Arbitration awards in India were back on track.
But not for long. Barely a year later the Supreme Court set off in the opposite direction in ONGC v Saw Pipes, giving a wide interpretation to the public policy ground for setting aside an award under the 1996 Act. An award that conflicted with Indian law would be contrary to public policy and therefore unenforceable. And its decisions in Bhatia International v Bulk Trading SA and Venture Global Engineering v. Satyam Computer Services Ltd, opened the door to parties to challenge “ foreign awards” (i.e., awards in arbitrations outside India) in Indian courts if they were in conflict with Indian statutory provisions and so contrary to Indian public policy, unless the parties had, by their contract, excluded or limited judicial intervention.
Arbitration & Conciliation (Amendment) Bill
The Indian Parliament did attempt to restore arbitration’s finality and commercial attractions. The Arbitration & Conciliation (Amendment) Bill offered a number of solutions, including provisions to stay court proceedings where a matter had been referred to arbitration, to end the automatic stay of enforcement of an arbitration award when a challenge had been filed and to provide for fast track and time-limited arbitrations. But that was in 2003 and the Bill was eventually withdrawn from Parliament with a view to reintroducing it with certain changes. The Ministry of Law & Justice did subsequently initiate a consultation on amendments to the 1996 Act, but that was in April 2010.
And now, the Bharat Aluminium appeal
Which brings us to Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. In hearing an appeal by Bharat Aluminium, a two-judge Supreme Court expressed its reservations about the decisions in Bhatia and Venture Global and referred the matter to a three-judge Supreme Court that included the Chief Justice of India.
The three-judge Supreme Court agreed that Bhatia and Venture Global should be reconsidered, for which a five-judge Supreme Court was arranged. A number of other appeals, raising similar issues, are to be heard by the same judges, with respondents including Australian metal producer White Industries, Dutch bank Rabobank, Coal India and Ferrostaal. The Court has also invited amici curiae briefs from leading arbitral institutions operating in India, notably LCIA India and SIAC.
There may even be omens. Only a few weeks ago, the Indian Ministry of Law and Justice declared the People’s Republic of China to be a state to which the New York Convention applies, thereby enabling PRC awards to be enforced in India. And now the Delhi High Court has refused to set aside an award in favour of a German engineering company against the Steel Authority of India Ltd., despite the latter’s claim that it was deprived of an opportunity to defend itself.
Whether or not the omens are propitious, the Supreme Court has a massive opportunity to influence the future of arbitration and its enforcement, in India, for better or worse. Will it follow the lead of Dubai, Ghana and Nigeria – or not? The business community will be watching.