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Bhatia v. Balco Debate Resolved?

Published on Wed, Dec 30,2015 | 21:48, Updated at Wed, Dec 30 at 21:59Source : 

By: Gerald Manoharan, Partner, JSA

On 23 October 2015, with the approval of the Union Cabinet and the assent of President Pranab Mukherjee, the Arbitration and Conciliation (Amendment) Ordinance 2015 (hereinafter, the “Ordinance”) was promulgated. The Ordinance could very well be described as an upshot of the 246th Report of the Law Commission of India (hereinafter, the “Report”) headed by Justice Ajit Prakash Shah. To this effect, a Union Cabinet-approved Bill is all set to be placed for debate before the Parliament during the winter session of 2015.

In the Report, the 20th Law Commission of India had recommended a series of changes to the Act directed at giving it a complete facelift especially as far as foreign investors were concerned. The Ordinance reflects the concerns of the Commission, and its promulgation, at this juncture, is hardly a surprise considering the continuous efforts of the current government at the Centre to assign the image of an “ideal investment destination” to India in its bid to foster economic growth. The scope of this article, however, is limited to the contributions made by the Ordinance in resolving the incongruencies put forth by the conflicting judgments of Bhatia International v. Bulk Trading S.A. (2002) and Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012).

The conflict in the precedents had been at the epicenter of a raging debate ever since the BALCO ruling effectively overruled the verdict in Bhatia that had attained the status of a landmark judgment in the decade that followed its pronunciation. The brief summaries of these judgments have been presented here –

Bhatia International v. Bulk Trading S.A. (2002)
The parties to the arbitration agreement, in this case, had agreed that the proceedings would be held in Paris as per the rules of ICC, Paris. Bulk Trading S.A., sought an interim order from the Indian courts to ensure that the award would be enforced in India as the appellant was an Indian entity. Bhatia International – the appellants – objected citing that since the proceedings were conducted in Paris, the Indian courts could not intervene as per the New York Convention. The High Court decided in favor of the respondents, and the Supreme Court followed suit stating that Part I of the Act, basically, gives effect to the UNCITRAL Model Law thereby empowering the Indian courts to enforce arbitral awards pronounced outside its territorial borders, especially since Section 2(2) of the Act (that defines the scope of Part I, and in doing so, says – “This Part shall apply where the place of arbitration is in India.”) does not use the term “only”.

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012)
The BALCO judgment, as opposed to its predecessor, stated that the absence of the word “only” in Section 2(2) of the Act was not intended to imply that it would also apply to proceedings that were not seated within India. The Supreme Court explained the reason for the omission of the term by making a comparison to the UNCITRAL Model Rules, and stated that it does not demonstrate a departure from the elementary principle of territoriality of the statute.

The ambiguity, however, was created because the BALCO judgment stated that its interpretation of Section 2(2) of the Act will apply only to the disputes that arise after September 6, 2012. The apex court sought to avoid any retrospective application of the reading since that carried the possibility of opening the floodgates of appeals to cases that had already been decided as per the Bhatia judgment. In doing so, however, the court had ended up creating a dual regime that had left no scope for the redressal of any issues pertaining to interim orders, which was also acknowledged by the Report of the Commission. The jurisdiction of the Indian courts did not extend to foreign arbitrations – hence, the parties were proscribed, firstly, from enforcing any awards passed by arbitral seats outside India, and secondly, from approaching the national courts seeking interim relief in any matter.

The Stand adopted by the 2015 Ordinance
In a bid to avoid this situation of massive obscurity, the Ordinance has added a proviso to Section 2(2) stating that the courts in India would have jurisdiction over the enforcement and grant of interim orders for international arbitrations held outside India (in a territory which is a reciprocating territory whose awards are recognizable and enforceable in India) if one of the parties is an Indian entity unless the contract of arbitration specifically excludes these rights. The amended Act, in essence, says that the parties have a right to approach the Indian courts interim measures, or to seek its assistances in gathering evidence even if the seat of arbitration is not located in India. This, basically, resolves the inconsistencies created in the domain of arbitration on account of the conflicting judgments.

Nonetheless, it has given birth to a new set of ambiguities. Relying on the BALCO judgment, a number of arbitration agreements had been entered into without expressly excluding the applicability of Part I, since its jurisdiction was assumed to be limited to domestic arbitrations. At present, therefore, Indian courts will have jurisdiction over a number of agreements, where the parties had probably intended to exclude such intervention at the time of signing the contract. In addition, since it was the conspicuous exclusion of the word “only” that was at the bottom of this debate, a mere inclusion of the same could have made matters easier.

However, it still remains to be seen whether the spirit of this Ordinance is successfully reflected upon implementation. Also, at this stage, the fate of the Ordinance itself is unknown considering that the corresponding Bill is yet to be enacted.

The views reflected in this article are personal to the author and do not reflect the position of the firm.

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