International commentators and parties to international arbitration involving India have largely welcomed the Indian Supreme Court’s decision, in Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc ("Bharat") (2012). The Court considered a number of consolidated appeals concerning the extent to which domestic Indian arbitration legislation has a role to play in international arbitrations conducted outside India. It has comprehensively overhauled and restated the law in this area, so as to make it more pro-arbitration and more consistent with the approach of other well-developed national systems of law in this area.

The Bharat appeals are of special significance, following the Supreme Court's decision, some 10 years ago, in Bhatia International v Bulk Trading SA (2002) ("Bhatia"), which held that the Indian courts could supervise arbitrations and grant interim relief in arbitrations conducted outside India. This, in itself, exposed parties to the risk of unwelcome court interference in arbitrations which they were conducting elsewhere in the world. However, in Venture Global Engineering v Satyam Computer Services Ltd (2008), the Indian courts went further still. Following Bhatia, they held that the Indian courts' supervisory role extended to allowing it to entertain appeals of international arbitral awards rendered outside India. The practical consequence of these two decisions was that a party seeking to enforce an award in India, would face a double hurdle; first in overcoming an appeal against the award in the Indian courts, and then again, in fighting off a challenge to the enforcement proceedings under the New York Convention.

In particular, the Supreme Court confirmed that the Arbitration and Conciliation Act 1996 adopted the territorial principle of UNCITRAL Model Law. Therefore the effects of Part 1 of the Act – which contains the provisions relating to interim orders and appeals at issue in Bhatia and Venture – are restricted to arbitrations taking place in India. Arbitrations outside India are not covered by Part I of the Act because they lack the necessary territorial link. This is consistent with the approach of other countries who have adopted the UNCITRAL Model Law as well as other countries with a markedly pro-arbitration culture, such as England and Switzerland. It is in stark contrast, however, to the previous rule of the Indian courts (ie following Bhatia) that – somewhat artificially, in the case of any dispute which does not have a direct connection with India – the effects of Part 1 of the Act could only be excluded if the parties had expressly agreed it.

The Supreme Court then went on to discuss and confirm various further points, including:

  1. that Indian law does not recognised de-localized arbitration;
  2. that by choosing a seat of arbitration outside India the parties have chosen the laws of the seat to govern their arbitration; and
  3. that annulment action under the New York Convention can only be brought (except in very unusual circumstances) in the courts of the seat of arbitration.

In summary the decision in Bharat means that foreign awards will now only be subject to the jurisdiction of Indian courts when they are sought to be enforced there. However, due to the very extensive nature of the changes, they will only take effect in respect of arbitration agreements concluded after 6 September 2012.