In the recent case of Yograj Infrastructure Limited v Ssang Yong Engineering and Construction Co Ltd(1) the Supreme Court held that there is an implied exclusion of Part I of the Arbitration and Conciliation Act 1996 if the parties have expressly chosen foreign law as the curial law to govern the arbitration procedure.
Before delving further into the rationale laid down by the court in the case, it is relevant to outline the scheme of the act. It covers both domestic arbitrations and international commercial arbitrations. 'Domestic arbitrations' are defined as those in which both parties are Indian nationals; 'international arbitrations' are defined as those in which at least one of the parties to the dispute is not an Indian national. Accordingly, the act has been divided into four parts:
- Part I deals with arbitration;
- Part II deals with the enforcement of certain foreign awards;
- Part III deals with conciliation; and
- Part IV provides for certain supplementary provisions.
In a previous decision in Bhatia International v Bulk Trading SA,(2) the Supreme Court held that Part I of the act is also applicable to international commercial arbitrations, unless the parties either expressly or impliedly exclude all or any of its provisions. The applicability of Part I of the act allows Indian courts to pass orders under Part I of the act even for international commercial arbitrations.
The issue in Yograj Infrastructure was whether a conscious choice by the parties that the curial law of the arbitral procedure would be the law of the seat of arbitration could be construed as an intent to exclude Part I of the act. The court held that by choosing a foreign curial law as the law of the seat of arbitration, it would be deemed that it was the intent of parties to exclude Part I of the act.
The contract in Yograj Infrastructure provided that all disputes between the parties were to be referred to arbitration, in accordance with the Singapore International Arbitration Centre (SIAC) Rules, with the seat of arbitration being Singapore. Although the law governing the agreement was Indian law, Rule 32 of the SIAC Rules provided that if the seat of arbitration was Singapore, then the applicable law of arbitration under the rules would be the Singapore International Arbitration Act 2002.
In the proceedings initiated before the SIAC, applications were moved by both parties under Section 17 of the act seeking interim measures. The application for interim measures filed by the respondent, Ssang Yong Engineering, was granted by the arbitral tribunal. Aggrieved by this decision, the appellant, Yograj Infrastructure, appealed under Section 37(2)(b) of the Indian act, before an Indian court.
The jurisdiction of the Indian court was challenged on the ground that, having chosen to be governed by the SIAC Rules, it was no longer open for the appellant to invoke Section 37, which is included in Part I of the act, and therefore the Indian courts had no jurisdiction to entertain the appeal. Reliance was placed in support of this argument on Rule 32 of the SIAC Rules, and it was contended that in view of this, arbitration proceedings would be governed by the laws of Singapore. Accepting the submissions advanced on behalf of the respondent, the district judge before whom the first appeal under Section 37(2)(b) was filed dismissed the appeal as being non-maintainable. Again aggrieved by this dismissal, the appellant moved before the High Court by filing a civil revision, which was also dismissed by the High Court. Then appellant then approached the Supreme Court.
The Supreme Court had to decide on the law under which the arbitral proceedings should be decided by the arbitral tribunal. After detailed analysis, the court held that under Clause 28 of the agreement, the governing law of the agreement would be the law of India and therefore, the 'proper law' of the agreement. However, 'curial law' (ie, the law governing the conduct of the arbitral procedure) was held to be Singapore law in view of Clause 27(1) of the agreement, which stated that all disputes were to be conducted in Singapore in accordance with the SIAC Rules, read with Rule 32 of the SIAC Rules, which provided that where the seat of arbitration was Singapore, the law of arbitration would be the Singapore act.
The court therefore held that it was not open to the appellant to contend that the proper law of agreement would apply to arbitration proceedings. Hence, the decision rendered in Bhatia International would have no application once the parties had agreed to a foreign law for the conduct of arbitration proceedings. It was held that in view of Rule 32 of the SIAC Rules, it could be inferred that there was a clear exclusion of Part I of the Indian act, since the parties had willingly agreed to be governed by these rules. The court therefore dismissed the appeal filed by the appellant, affirming that Indian courts had no jurisdiction as Part I of the act was excluded by express agreement between the parties.
The question is whether, in the absence of a rule such as Rule 32 of the SIAC Rules, the Supreme Court decision would have been any different, and whether in such a scenario the proper law of the contract (ie, Indian law) would govern the arbitration agreement as well. This question is important, as most institutional arbitrational rules do not provide a corresponding rule to Rule 32 (and that rule has now been deleted in the new SIAC Rules as issued in 2010). The new SIAC Rules and, for example, the International Chamber of Commerce rules leave it to the discretion of the arbitration tribunal to decide the law that governs the arbitration agreement. On the other hand, the London Court of International Arbitration Rules provide that the law governing the arbitration agreement will be the law that governs the seat of the arbitration, and the Hong Kong International Arbitration Centre Rules provide that the law governing the agreement will be determined by applying the rules of law with which the dispute has the closest connection.
Reference may be drawn to Indtel Technical Services Ltd v WS Atkins Rail Ltd(3) and Citation Infowares Ltd v Equinox Corporation,(4) in which the Supreme Court held that in cases of international commercial arbitrations, even when the governing law of the contract is foreign law, Part I of the Indian act will still apply. Furthermore, a mere choice of foreign law as the governing law of the agreement cannot be construed as an express or implied exclusion of Part I of the act.
It may therefore be possible to argue that where, in an international commercial arbitration, the governing law of the agreement is Indian, simply choosing institutional rules will not be enough to exclude the applicability of Part I of the Indian act, unless the rules themselves provide for an alternative law to govern the arbitration agreement. Therefore, as a cautionary approach, where parties intend not to be governed by the act's provisions, it is best specifically to provide for the law governing the arbitration agreement separately and specifically to exclude the applicability of Part I of the act.
For further information on this topic please contact Sanjeev Kapoor at Khaitan & Co by telephone (+91 11 4151 5454), fax (+91 11 4151 5318) or email ([email protected]).