The Case of Bhatia International and Its Overruling

A five Judge Constitutional Bench of the Supreme Court gave a remarkable judgment in 2012 in the case of Bharat Aluminium v Kaiser Aluminium Technical Services [Civil Appeal No. 7019 of 2005]. It was held by the Hon’ble Court that Part I of Indian Arbitration Act, 1996 will have no applicability over international commercial arbitrations held outside India with respect to arbitration agreements entered into thereafter.

Therefore, it is the seat of arbitration that now governs the jurisdiction and once the parties decide to have arbitration outside India, Indian courts can grant no interim relief to the concerned parties. The apex Court also added that no foreign arbitral award can be challenged under Part I of Indian Arbitration Act, 1996.

1.1. Background

The Supreme Court, in the year 2002, decided in the case of Bhatia International v Bulk Trading S.A. [(2002) 4 SCC 105] that Indian courts had exclusive jurisdiction to test the validity of an arbitral award made in India even when the proper law of the contract is the law of another country.

The facts of the concerned case of Bhatia International are that the parties to an international contract had recoursed to arbitration according to the ICC rules of arbitration in Paris, with a sole arbitrator. As the foreign party wanted to ensure the recovery of its claim from the Indian party in the case of a favourable award, it moved an Indian court for interim measures securing the property of the Indian party. The Indian party raised objection to the submitted application on the ground that the arbitration under consideration was taking place in Paris, and the New York Convention provides no provision for interim measure being granted by a court other than one in which the arbitration is taking place. However, the High Court rejected the argument. Thereafter, the Indian party approached the Supreme Court, which upheld the judgment of the High Court. In crux, it was held by a three judge bench of the Supreme Court unanimously that Part I of the Arbitration and Conciliation Act, 1996, which gives effect to the UNCITRAL Model Law and which moreover bestows power on the Court to grant interim measures apply even to international commercial arbitrations being held outside India.

Another case, Venture Global Engineering Case v Satyam Computer Services Ltd. [(2008) 4 SCC 190] further contributed to the misery of International businesses and broadened the ambit of Court’s intervention in enforcing foreign arbitral awards. The Court, by way of this judgment, explicitly stated, what was until now only implicit in nature, that despite there being no provision in Part II of the Act which provides for challenge to a foreign award, it cannot be interpreted that the Legislature did not intend to provide the same since there was no necessity for the Legislature to repeat what had been already included in the general provisions of Part I unless and until it wanted to include a procedure to the contrary. By construing the Act in this manner, the Court actually made the Act extraterritorial in operation.

1.2. Judgment

The landmark judgment of Bharat Aluminium v Kaiser Aluminium Technical Services had, thus, put the controversy aside by overruling the doctrine laid down in Bhatia International and Venture Global Engineering by, inter alia, holding the following:

  • Part I of the Act would have no applicability to International Commercial Arbitration held outside India
  • Part I of the Act shall apply to all arbitrations which take place only within India
  • There can be no overlapping or intermingling of the provisions contained in Part I with that in Part II of the Act
  • In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under any provision, as applicability of Part I is restricted to all arbitrations which take place within India only
  • No suit for interim injunction would be maintainable in India, when the seat of arbitration is outside India
  • As Part I would have no applicability to international commercial arbitration held outside India, the arbitral awards will be subject to the jurisdiction of Indian courts when the same are sought to be enforced in accordance with Part II of the Act.

1.3. Implications

Until the present judgment came into effect, the ratio of the Bhatia International undermined the rationale that only the courts of the seat of the arbitration should be able to grant interim measure to parties relating to that arbitration.

The Court, through its judgment in Bharat Aluminium, overruled its earlier judgments in Bhatia International and Venture Global Engineering prospectively and made the law declared in the present case applicable to all the arbitrations agreements executed thereafter. In respect of arbitration agreements executed prior to the instant judgment, the instant judgment will not apply and the law will be as it stood prior to the present judgment, i.e. Part I will apply to international commercial arbitrations held outside India unless expressly and / or impliedly excluded by the parties concerned.

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