Finally, the Supreme Court handed down its long-awaited decision in Bharat Aluminium Co v. Kaiser Aluminium Technical Services (‘BALCO’).
The general thrust of the BALCO judgment is to shield the future against previous incorrect and anachronistic rulings and to encourage Indian courts to become more arbitration-friendly and thereby less likely to participate in the arbitral phase, in line with the fundamental theory and ethos of the New York Convention and UNCITRAL Model Rule. To that end, BALCO lives up to the excitement created in the international arbitration community when it was announced earlier this year that the Indian Supreme Court was hearing a case seeking reconsideration of its earlier judgments in Bhatia International v. Bulk Trading SA and Venture Global Engineering v. Satyam Computer Services Ltd.
The parties had agreed on the supply of equipment and the modernisation and upgrading of manufacturing facilities. Inevitable disagreements occurred and were sent to arbitration in England, with awards in favour of the Respondent. The Appellant had applied to the Chhattisgarh High Court under Section 34 of the Act to have the award set aside.
The arbitral tribunal
- Whether the two awards which were passed in England could be challenged in India u/s. 34 of the Act?
- Whether Section 9 of the act was applicable or not?
The court held that the aim of section 2(7) of the Act is to distinguish the domestic award (Part I of the Act) from the ‘foreign award’ (Part II of the Act), i.e. there is a clear distinction between Parts I and II, with clauses that apply to entirely separate fields with no overlap.
Further, the Court made a difference between a ‘seat’ and a ‘location’ which would be essential if the arbitration arrangement names a foreign nation as the ‘seat’ of the arbitration and chooses the Act as the curial law regulating the proceedings. The Court went on to say that selecting another nation as the seat of arbitration invariably implies that the proceedings would be governed by the laws of that country governing the behaviour and oversight of arbitrations.
As a result, even though the arrangement states that the Act governs the arbitration proceedings, Part I of the Act will not be valid or will not allow Indian courts to exercise supervisory authority over the arbitration or the award if the arbitration agreement is identified or kept to provide for a seat/position of arbitration outside India. It simply means that the parties have contractually imported from the Act specific clauses relating to the internal operation of their arbitration that is not in conflict with mandatory English procedural or curial legislation. As a result, it's safe to assume that Part I only extends to arbitrations that take place in India.
The Court disagreed with the findings in the Bhatia International case. It went on to say that, based on a fair reading of the Act, Indian courts do not have the authority to grant temporary steps where the arbitration is held outside of India. A cursory reading of Section 9 of the Act reveals that it pertains to transitional action taken before or after arbitral hearings, or at some period after the arbitral award is made but before it is applied in compliance with Section 36. (enforcement of domestic awards). As a result, the arbitral hearings before the judgment contemplated by Section 36 will only apply to arbitrations held in India.
The Court went on to say that in international commercial litigation involving foreign parties, no appeal for temporary relief may be filed in India, whether by arbitration or a lawsuit.
The BALCO judgment is not a solution for all the ills connected with the arbitration in India, but it is an excellent first step in the right direction by the Indian Supreme Court. Although there is no doubt a long and challenging road ahead, replete with complex legal and policy obstacles, before India can be called an arbitration-friendly jurisdiction, the BALCO decision gives reason to believe that a new and exciting age for arbitration in India has begun.
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