International Scenario: Overview
Arbitration is an alternate means of resolving conflicts wherein an impartial Arbitrator is appointed to settle the dispute without the need to proceed with formal court proceedings. Nowadays, Arbitration is often used to resolve disputes related to commercial transactions, particularly international commercial transactions owing to ever so evolving international trade and commerce across the borders. Arbitration is perceived as a dominant method of resolving International trade disputes as it is expeditious in nature as compared to formal court proceedings and can be enforced in other countries. In recent past, upsurge in globalization and international trade has paved way for commercial contracts between Indian & Foreign Companies. These commercial contracts are becoming more international in character owing to a global integration.
Increasing competitiveness often leads to conflicts between entrepreneurs resulting in commercial disputes between the parties obliged by commercial contracts. Foreign investors have acknowledged Arbitration as an effective dispute resolution mechanism as it can achieve equitable solutions more swiftly as compared to formal court procedures, it is cost effective, it is confidential and allows the parties to decide seat of Arbitration proceedings. Hence, it is the need of the hour to ensure restricted judicial intervention in the Arbitration seated outside India.
In India, Arbitration is governed by the Arbitration & Conciliation Act, 1996 which is based on United Nations Commission on International Trade law (UNICATRAL) model law on International Commercial Arbitration. India is also a signatory to New York Convention (1960) and Geneva Convention (1924).
International & Domestic Enforcement Regime : Comparison
Part I of the Arbitration and Conciliation Act, 1996 deals with provisions for domestic Arbitral procedures whereas Part II of the Act deals with the enforcement of international awards governed by the New York Convention or the Geneva Convention. A domestic award passed within the territory of India can be challenged under Section 34 of the Act. A domestic Award is enforceable as a decree passed by a Civil Court after the period provided for challenge is over or if challenged, the challenge fails (Section 36). However, provision for enforcement of foreign award is provided under Section 49 of Arbitration & Conciliation Act, 1996. The procedure set out in this section ensures legality, validity and existence of an award so that it can be executed as a decree of the court. In case of a foreign Award, the party seeking enforcement has to satisfy the court that the award is enforceable under Section 49 of the Act. The award becomes enforceable as a decree passed by the Civil Court if the party succeeds in satisfying the court about the enforceability of the award. Similarly, an International Arbitral Award can also be challenged under Section 48 (2) of the Arbitration & Conciliation Act, 1996 which provides:
“Enforcement of an arbitral award may also be refused if the court finds that –
- The subject matter of the difference is not capable of settlement by arbitration under the law of India
- Or if the enforcement of award would be contrary to the public policy of India.”1
Thus, an international award whether under New York Convention or Geneva Convention cannot be enforced if the award relates to a matter which cannot be settled under Indian Law or if the award is contrary to the Public Policy of India.
Case Law Study : History
Arbitration & Conciliation Act, 1996 provides for provisions for enforcement of International awards under Part II of the Act. However, in the past there was an ambiguity if Part I of the Act is also applicable to
international awards. Indian courts have applied Part I of the Arbitration Act, 1996 to an award passed in International Commercial Arbitration seated outside India. In Bhatia International Vs Bulk Trading S.A. and Anr.2 it was held that “in cases of international commercial arbitration held out of India the provisions of Part I would apply unless the parties to agreement whether express or implied exclude all or any of the provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply”. Same view was upheld in another judgment passed by Supreme Court of India, in Venture Global Engineering Vs Satyam Computer Services Ltd.3 it was held that a foreign award can be set aside by an Indian court under Section 34 of the Act. This view taken by the Supreme Court of India received a lot of criticism as it was not at par with the observations made in foreign judgments such as Empresa Colombiana de Vias Ferreas Vs Drummond Ltd.4 wherein a challenge to a French ICC arbitral award was turned down by the Columbian Courts. Same view was upheld by the Courts of United States of America and other foreign Courts.
Latest Supreme Court Ruling: Key Implications
The Supreme Court of India has recently dealt with the issue of applicability of Part I of the Act to the International Awards and overruled the judgments passed in Bhatia International and Venture Global Engineering. Recently, Bharat Aluminum Co. Vs Kaiser Aluminum Technical Service [C.A 7019 of 2005]5 and other matters were placed before Constitutional Bench to decide the confusion whether Part I of Arbitration & Conciliation Act, 1996 would apply to International Arbitral Awards or not. In a detailed judgment passed in Bharat Aluminum Co, the Constitutional Bench was of the view that there is no provision under Code of Civil Procedure or Arbitration & Conciliation Act for a Court to grant interim measures in an Arbitration seated outside India even if the parties by Agreement have made Arbitration Act, 1996 as the governing law of Arbitration. Further, the applicability of Section 34 of the Act to the International Arbitral awards has also been clarified in the judgment. It was held that Section 34 of the Act would have no application to International Commercial Arbitration seated outside India. The court further held that no application for interim relief will be maintainable in Indian Court either by Arbitration or by filing a suit. However, the judgment has a prospective applicability and is only applicable to Arbitration Agreements drafted subsequent to 6th September, 2012. Therefore, this will create ambiguity amongst the Arbitration Agreements executed before 6th September, 2012 and a certain amount of uncertainty will still prevail.
Following the decision in Bharat Aluminum Co. a foreign award cannot be set aside under Section 34 of Arbitration Act, 1996. This judgment has settled the confusion of applicability of Part I of the Arbitration Act, 1996 to an International Arbitral Award which is seated outside India. In past, the view taken in Bhatia International and Venture Global Engineering by the Apex Court received massive criticism as it allowed the International Awards to be challenged under Section 34 of the Arbitration Act, 1996. In guise of this settled law, not only were the International Awards challenged under Section 34 of the Act but the parties used to approach the Courts of India for an interim relief under Section 9 of the Arbitration Act and even under Order 39 of Code of Civil Procedure. This approach jeopardized the whole object of the Act as the parties seeking to delay Arbitration proceedings were entertained by the Indian Courts which caused immense prejudice to the opposite parties. Now as a result of this judgment, the foreign awards (passed outside India) cannot be challenged under Section 34 of Arbitration & Conciliation Act, 1996 and the parties seeking to resist the enforcement of the award has to take recourse to one of the grounds provided under Section 48 of the Act. Further, interim remedies under Section 9 of the Act have also been restricted where the Arbitration is seated outside India.
Thus, the intervention of Indian Courts has been minimized to provide a platform for an effective and efficient dispute resolution mechanism. This proactive approach taken by Indian judiciary will be appreciated by jurists all over the world.