The constitutional bench of the Hon’ble Supreme Court of India consisting of five judges including the Chief Justice of India, has overruled the most prominent and highly contentious and prevailing precedent regarding the commercial laws settled in ‘Bhatia International Vs Bulk Trading’(Bhatia) since a decade back in 2002. The Honble apex court has nullified the draconian effects of the ‘Bhatia International’ and set up a new precedent in the case of “Bharat Aluminium company Vs Kaiser Aluminium Technical service”  (BALCO), on 06.09.2012 which is amicable, just and commendable. Before we see and analyse the commending laws of the BALCO, it is necessary to be aware of the earlier precedent of Bhatia.

In brief the most salient features of the laws settled by the Bhatia case were:

  1. Part-I of the Arbitration and Conciliation Act, 1996 (the Act) mandatorily applies to all arbitrations held in India, and
  2. Part-II of the Arbitration and Conciliation Act, 1996 applies to arbitrations conducted outside India unless expressly or impliedly excluded.

In the Bhatia’s era, there was a great confusion and chaos prevailing regarding the applicability of Part I to Part II of the Act. A great ruckus was created because of the Bhatia ruling which can be briefly and precisely understood as follows:

All the foreign awards were tried and tested in the national courts as if they were domestic awards. Foreign awards were refused enforcement as per the interpretation provided regarding Part II of the Act. Besides these, Foreign awards were also set aside. Furthermore, Foreign awards were made susceptible to death by long drawn legal battles in Indian courts.

ATTRACTIONS OF THE ‘BALCO ’ RULING

  1. Part-I of the Act is not applicable to international commercial arbitration held outside India. Part-I and Part-II of the Act are mutually exclusive of each other.
  2. No Interim Relief can be given under the concerned provisions of the Civil Procedure Code
  3. The Act is territorial in nature and section 9 and section 34 of the act will apply only when the ‘seat of Arbitration’ lies in India (it is pertinent to note that venue of the arbitration may be many and can be changed but that will be irrelevant because the seat of arbitration is that one which is declared in the agreement).
  4. Even when two foreign parties arbitrate in India, Part I would apply and in pursuance of Section 2 (7), that award would be a domestic award.
  5. If the seat of arbitration is in India Part I would be applicable. If the seat of arbitration is not in India but in abroad, part-I would not be applicable to the extent it is inconsistent with the arbitration law of the seat, even if it is mentioned in the agreement that the Indian statute would govern the arbitration proceedings.
  6. No setting aside of International awards in India under section 34 of the Act.
  7. The new precedent clarified that Parliament has intentionally not provided a mechanism for enforcement of a non-Convention award by not including such an award within the definition of a “foreign award” in Sections 44 and 53 of the Act. That being so, Courts cannot provide an enforcement mechanism for such awards by deeming them to be domestic awards. There is therefore no lacuna that needs to be filled
  8. The BALCO decision will be prospective in nature.

ANALYSIS OF THE JUDGEMENT

The BALCO has overruled the ratio of the prominent precedent prevailing for decades set up in Bhatia’s case which was always a subject of confusion and contention among the Bar, Bench, academicians and legal scholars as well. Bhatia has interpreted the provisions of the Act to give it an effect not intended and not envisaged by the Parliament. Bhatia declared that Part-I shall be applicable to Part II of the Act. BALCO has answered and replied very skillfully to all the issues raised and reasons given by Bhatia case and ultimately in a very reasonable and just manner overruled the Bhatia’s Judgment and set up a new precedent which is really adorable.

On one hand BALCO has nicely and minutely clarified the relevant provisions of the Act, which were highly used to be the concerns of the contentions among the legal scholars, practitioners and the judiciary; keeping in view the objects and the reasons of the Act. On the other hand, Hon’ble apex court has equally given credit and value to the standards of the International Arbitration. The Hon’ble court has made a remarkable synchronization of International Arbitration with the Indian Arbitration and Conciliation Act-1996. The new precedent has revealed out a pleasurable scenario that- Foreign awards will be subject to provisions of Part-I . It will make a better effect in prohibiting the unjustful intervention of the Judiciary and hence forth applicability of foreign awards would not be subject to section 34 of Part-I of the Act by virtue of which such an award could be easily set aside.

The situation created by ‘Bhatia’ faced routine challenges to International Arbitral Awards and substantial delays in the enforcement of a parties right under such an award. Due to this it has been widely criticized by the practitioners and the scholars as frustrating the purpose of the Act. The new set up precedent has diluted all these anomalies.

Certain lacunae and difficulties which appears to be arising from the BALCO are :

  1. Fate of Awards from non convention countries has been left in lurch as the Act will not apply at all to such Awards.
  2. The supreme court has made strict demarcation between Part I and Part-II of the Act and left the parties remediless in International Arbitration in abroad, in terms of approaching the court for interim measures which falls under Part-I under section 9, allowing the option for only domestic arbitration.
  3. The precedent will have prospective effect, so the question arises as to what will happen to those cases which came to courts till the date of the order of the BALCO. Will they be decided in accordance with the old precedent of the ‘Bhatia’.
  4. In such cases where the assets lies in India and it appears that the party is going to dissipate its assets, then the other party will be deprived of a proper remedy if the seat of arbitration lies outside India.

CONCLUSION

The Bhatia’s ruling appeared to be frustrating the purpose of the Arbitration and Conciliation Act, 1996 and being contrary to the ‘UNCITRAL- United Nations Commission on International Trade Law’ model law and also against the spirit of Newyork and Geneva Conventions. The new set up precedent has remedied these anomalies to a great commendable extent. This excellent new precedent set up by the Hon’ble apex court in BALCO will have an exhaustive and enormous impact on the arbitration and the jurisprudence of the commercial law in India as well as in abroad and consequently it will definitely boost up the foreign investment flowing into India.