1. Supreme Court rules on applicability of BALCO to an agreement varied after 6 September 2012

In Harmony Innovation Shipping Ltd v Gupta Coal India, the Supreme Court of India had to consider whether the Indian courts could exercise powers granted by Part I of the Indian Arbitration and Conciliation Act 1996 ("Arbitration Act") where the relevant agreement was entered into before 6 September 2012, but varied after that date.

Whilst previous jurisprudence had held that Part I of the Arbitration Act could apply to foreign-seated arbitrations (granting the Indian courts wide powers of intervention in such arbitrations) the Supreme Court's seminal decision in Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc., ("BALCO") reversed this principle and held that Part I of the Arbitration Act was not applicable to arbitrations seated outside India. However, the Court stated that the rule in BALCO would have prospective effect only, i.e. it would not apply to agreements executed before 6 September 2012. In the present case, the Court was faced with an agreement which had been executed prior to that date, but varied by an addendum after it. (See our discussion of the BALCO decision here.)

The Supreme Court held that because the addendum did not relate to the arbitration clause, BALCO did not apply. However, the Supreme Court then went on to apply the older authorities in a pro-arbitration manner, and found that despite the lack of a clear statement as to the seat of the arbitration or the law applicable to the arbitration agreement, it was clear that the parties' intention was to choose London as the seat of the arbitration. In that light (following last year's decision in Reliance v Union of India, discussed here), and taking into account that the contract was governed by English law, the Court held that there had been an implied agreement to exclude Part I of the Arbitration Act, and therefore the Indian courts did not have jurisdiction to grant interim measures.

It is encouraging that even where the Indian courts are unable to apply BALCO directly, they continue to follow (at least in most instances) the pro-arbitration stance adopted in BALCO and refrain from intervening in arbitrations seated outside India.

2. Supreme Court of India seeks "most reasonable construction" of a pathological arbitration clause and declines to intervene in foreign-seated arbitration

The Supreme Court of India has upheld the jurisdiction of a Singapore-based tribunal, notwithstanding the petitioner's submissions about defects in the arbitration clause.

In Pricol Ltd v Johnson Controls Enterprise Ltd, the relevant arbitration agreement provided for (i) appointment of an arbitrator in accordance with the rules of arbitration of the "Singapore Chamber of Commerce" in default of agreement as to a candidate; (ii) arbitration proceedings to be held in Singapore; with (iii) Indian governing law. When a dispute arose, Johnson Controls (no doubt conscious that the Singapore Chamber of Commerce is not in fact an arbitration body) turned to the Singapore International Arbitration Centre ("SIAC") to appoint an arbitrator. Pricol challenged the SIAC-appointed tribunal's jurisdiction. The tribunal issued a partial award holding that it did have jurisdiction.

Pricol then approached the Supreme Court of India seeking the appointment of an arbitrator (and alleging that SIAC was not empowered by the arbitration agreement to do so). Pricol argued that since the rights of the parties under the agreement were governed by Indian law, the arbitration agreement would also, in the absence of any contrary intention, be governed by Indian law, and that Singapore would only be the venue for the proceedings. In particular, Pricol submitted that because the arbitration agreement was executed prior to the Supreme Court's ruling in BALCO (see above post), Part I of the Arbitration Act would apply unless excluded expressly or impliedly, and that it was therefore for the Indian courts to appoint an arbitrator.

In a short judgment, the Supreme Court decided that the "most reasonable construction" of the arbitration clause would be to construe the reference to "the Singapore Chamber of Commerce" as a reference to SIAC. The Court also noted that even if a challenge were to be made to the partial award on jurisdiction, it would not be proper to do so on an application for a court-appointed arbitrator. The Court considered that it was effectively being asked to sit in appeal over SIAC's appointment decision and the partial award on jurisdiction, which would be "wholly inappropriate" in the circumstances.

This pragmatic approach to construction, and the short shrift given to the petition, further underlines the Indian Supreme Court's commitment to supporting arbitration, even where there are defects in the arbitration agreement. 

3. Supreme Court of India clarifies the scope of public policy ground for Challenging a Domestic Arbitration Award under Section 34 of the Arbitration and Conciliation Act

In Associate Builders v Delhi Development Authority, the Supreme Court of India found that a Division Bench of the Delhi High Court had overstepped its powers and wrongly set aside a domestic arbitration award. In the process, the Supreme Court has clarified the scope of the “public policy ground” to set aside awards under Section 34(b)(ii) of the Act.

The Division Bench had re-examined the factual findings in the award, and also took into consideration facts that had not been referred to in the arbitration. The Appellant appealed to the Supreme Court on the grounds that the Division Bench had incorrectly applied Section 34 of the Arbitration Act by re-examining the factual conclusions of the arbitrator.

In granting the appeal, the Supreme Court also considered, in detail, the scope of each of the “public policy” grounds for setting aside awards as provided in Section 34 of the Arbitration Act. The court considered the rulings in its earlier decisions and held that an award would violate “public policy” where it was:

  • Contrary to the fundamental policy of Indian law;
  • Contrary to the interests of India;
  • Contrary to justice and morality; or
  • Patently illegal.

Please see here for a detailed discussion of the case.

4. Delhi High Court issues anti-arbitration injunction against London arbitration

In a striking decision which bucks the trend of pro-arbitration decisions from the Indian judiciary in recent years, a single judge of the Delhi High Court has restrained McDonald's from invoking an LCIA arbitration clause in its joint venture agreement with its local partner. The court's order was issued on the basis that the arbitration agreement was inoperative or incapable of being performed, and on the basis that, in an arbitration involving predominantly Indian parties and Indian law, London was a forum non conveniens and the arbitration proceedings were "vexatious" and "oppressive".

The JVA contained an Indian governing law clause, and provided that on demand of either party, disputes would be submitted for arbitration administered by the LCIA and conducted in London before a panel of three arbitrators.

On the issue of forum non conveniens, the court's reasoning is particularly concerning, since the judge stated that “in such a situation where the venue agreed has absolutely no special reason to be selected like carrying out the business, or applicability of the laws, [the Court] will not permit one of the parties to use its dominant partner [sic] to the detriment of the opposite side“. As noted above, the judge went on to describe the arbitration proceedings as “vexatious” and “oppressive” and said that the Court “cannot be a mute spectator to this“.

The decision is subject to appeal, but in the meantime will raise concerns for any parties facing opposition in India to attempts to invoke offshore arbitration in Indian law agreements.

Read more here

News

5. Indian Government publishes model BIT; approves Commercial Courts Bill

The Indian Government has recently published and sought public comments on a new draft model bilateral investment treaty ("Model BIT"). If approved by the Cabinet, the Model BIT is expected to form the basis for all bilateral investment treaties negotiated by India in the future, and would also serve as a framework to renegotiate existing BITs.

In an apparent reaction to a number of claims that India has faced over the last few years, many parts of the Model BIT appear to be framed as an attempt to limit protections afforded to inbound investors into India, despite the resultant reduction in protections that would then be afforded to outbound Indian investment. For example, there is no "most favoured nation" provision in the Model BIT, and claims based on taxation or provision of non-commercial services by the host state are excluded (perhaps a direct response to Vodafone's BIT claim and the decision in the White Industries award of 2012 – see here and here).

For a detailed discussion of the changes suggested by the Model BIT, please see here. See also the Head of Herbert Smith Freehills' India Arbitration Practice, Nick Peacock, interviewed about the draft Model BIT on CNBC TV18'a corporate law television programme "the Firm"here.

Whilst potentially seeking to limit the scope of investment arbitration claims, the Indian government is taking measures to develop the domestic legal system as it applies to commercial disputes, following a report from the Law Commission of India. Admittedly, this is not the first time the introduction of Commercial Courts has been recommended by the Law Commission, approved by the Cabinet and even presented in Parliament. However, the Government does appear to be interested in reforming the landscape of commercial and investor dispute resolution in India. 

6. Update on proposed amendments to the Indian Arbitration Act

The proposed amendments to India's Arbitration Act (previously reported here) appear to have run into some rough weather. The amendments were formulated to effect reforms to Indian arbitration law in order to curb judicial interventionism and promote India as a venue for international arbitration.

The amendment bill was drafted following the publication of the 246th report (August 2014) of the Law Commission of India which recommended key changes to the Act. In early 2015 it was reported that the government would seek to effect amendments to the Act by ordinance rather than primary legislation. It later emerged that the government had decided against the ordinance route, and it was announced that the amendment bill would be tabled in Parliament in the Budget session (which runs from February to May). However, this has not materialised on account of certain developments in the interim.

First, following a recent Supreme Court judgment that expansively interpreted the scope for the review of arbitral awards under section 34 of the Act on 'public policy' grounds, the Law Commission published a supplementary report to the 246th report in February 2015, recommending an amendment to section 34 in order to counter the impact of the judgment, which was felt to be irreconcilable with the government's professed pro-arbitration stance.

Further, some of the proposed amendments to the Act have attracted sharp criticism from eminent commentators and in particular, Justice AP Shah, under whose chairmanship the Law Commission's 246th report was formulated. Criticism has particularly been directed at a provision which seeks to impose a strict limit of 9 months for the arbitrators to arrive at a decision in commercial matters and another that seeks to cap the maximum fees that arbitrators may charge. The government has reportedly indicated that it will hold wider consultations in order to address the concerns that have been expressed. Therefore it remains unclear when the much awaited reforms to Indian arbitration law will be effected.