The Arbitration and Conciliation Act, 1996 (the "Act"), was enacted with the intent of remedying the weaknesses and flaws of the then existing law of arbitration in India. The primary object of the Act was "to minimize the supervisory role of courts in the arbitral process". In keeping with this primary object, the Act contains only certain provisions enabling intervention of the ...
The Arbitration and Conciliation Act, 1996 (the "Act"), was enacted with the intent of remedying the weaknesses and flaws of the then existing law of arbitration in India. The primary object of the Act was "to minimize the supervisory role of courts in the arbitral process".
In keeping with this primary object, the Act contains only certain provisions enabling intervention of the Indian courts, for instance, enabling the courts to refer parties to arbitration, appointing arbitrators, appealing provisions from certain orders only. However, over the years, Indian courts have been overzealous as regards their jurisdiction vis-a vis that of the arbitral tribunal.
Initially, the behavior of the Judiciary was nowhere nearing the primary objective of the Act and this can be noted through the decisions of the Supreme Court in judgements like Bhatia International v. Bulk Trading S.A.1,(Bhatia International), ONGC v. Saw Pipes2, (Saw Pipes), SBP & Co. v. Patel Engineering Ltd.3, (Patel Engineering) and many more which have experienced excessive judicial intervention.
While Bhatia International extended Part I (which deals with the provisions of domestic arbitration) of the Act to international commercial arbitration held outside India; Venture Global Engineering v. Satyam Engineering4, relying on Bhatia International, further broadened the application of domestic arbitration law to foreign awards, and consequently set aside the foreign award (under Part I of the Act as against merely refusing to enforce the foreign award under Part II of the Act).
As far as intervention in domestic arbitration is concerned, in the year 2003, the Supreme Court, vide the Saw Pipes judgement, widened the scope of 'public policy', by including 'patent illegality' within the ambit of 'public policy', which is one of the grounds available for setting aside an arbitral award. Till then, the concept of 'public policy' was interpreted in a narrower sense, in line with the court's previous decisions which insisted that no new heads of 'public policy' should be easily created.
A further blow came by way of the Supreme Court's decision in Patel Engineering, wherein the power of the Chief Justice in appointing an arbitrator was held to a judicial power and not an administrative power. This meant that Indian courts had to actually look into the validity of the arbitration agreement before proceeding to appoint arbitrators. Subsequently, there have been a number of instances where the Supreme Court and also various High Courts have assumed jurisdiction in arbitration matters onshore and offshore.
Then there was a shift in trend. In the recent past, India has taken significant steps in adopting a pro-arbitration approach. Not only have the Indian courts been less zealous to interfere in arbitration matters but have even refused to assume jurisdiction where parties agreed to resolve disputes by arbitration. One of the leading examples of limiting judicial intervention in an arbitration dispute was demonstrated by the Delhi High Court vide its decision of Max India Limited v. General Binding Corporation5 (Max India).
Here, the court refused to apply Part I of the Act on the basis that the parties had clearly decided that the place of arbitration was to be outside India and that the governing law of arbitration would be foreign law. Again, in Bhushan Steel Limited v. Singapore International Arbitration Centre and Another6, the Delhi High Court, relying on its own decision in Max India, refused to exercise its jurisdiction in a dispute relating to arbitration held outside India on the grounds that its jurisdiction was unambiguously excluded by the arbitration agreement and positively concluded that the dispute has to be referred to arbitration whenever the arbitration clause is found to be valid and binding.
The Bombay High Court then further strengthened the principles of the Max India decision by concluding in its decision of J.S. Ocean Liners Inc. vs. S.K. Shipping (Singapore) Pte. Ltd.7 that since parties have agreed to apply English law to the dispute arising out the contract and the place of arbitration being London, the parties have expressly and with necessary implication agreed to exclude Part I and hence the Bombay High Court refused to entertain any challenge to a foreign award.
Followed by the decision of the Supreme Court in Dozco India P. Ltd v. Doosan Infracore Co. Ltd8, (Dozco India) settled this position by holding that even if the parties to a foreign arbitration have not expressly excluded application of Part I, it would be deemed to have been excluded, if the parties have agreed to
(i) a foreign governing law, and
(ii) a foreign seat of arbitration.
Then followed Videocon Industries v. Union of India9, (Videocon Industries) wherein the Supreme Court went a step ahead in strengthening this position by holding that even if the law governing the contract is Indian law; Part I would be impliedly excluded if the parties have agreed to
(i) a foreign law governing arbitration, and
(ii) a foreign seat of arbitration.
Interestingly all the parties in this judgement were Indian parties.
Recently in Yograj Infrastructure Limited v. Ssang Yong Engineering and Construction Company Limited10, (Yograj Infrastructure) the Supreme Court reinforced India's position as an arbitration friendly jurisdiction by refusing to entertain an appeal against an interim order passed by an arbitral tribunal seated outside India.
In this judgement, the Supreme Court concluded that the seat of arbitration being outside India and the law governing the arbitration proceedings being foreign law, Part I of the Act is impliedly excluded. Thus it can be gauged that the requirement of 'express exclusion' of Part I of the Act initiated by the Bhatia judgement seems to have blurred, owing to the Supreme Court's own decisions in Dozco India, Videocon Industries and Yograj Infrastructure.
Not only as regards applicability of Part I issue that the Indian courts have taken a pro-arbitration stance; but also in matters dealing with applications to set aside domestic awards, matters challenging enforcement of foreign awards as also matters regarding referring parties to arbitration; the Indian courts have refrained themselves from unnecessarily intervening in arbitration matters. One of the best examples of non-interference can be seen in Sumitomo Heavy Industires v. ONGC11, wherein the Supreme Court demonstrated that if the award by the arbitrator is a well reasoned award, courts should not interfere.
Thereafter, in State of Maharashtra v. Hindustan Company Corporation Limited12, the Supreme Court refused to set aside the order of the Bombay High Court rejecting an application for amendment to the memorandum of arbitration which sought to add new grounds to challenge the arbitral award.
As far as directing the parties to arbitration is concerned, the Bombay High Court in Parcel Carriers Ltd v. Union of India13, while dealing with severability of arbitration clause, made it amply clear that if the dispute is covered by prerequisites contained in section 8 of the Act (power of the court to refer the parties to arbitration), the judicial authority has no option but to refer the dispute to arbitration.
The Bombay High Court, in this judgement, also observed that merely because the contract has come to an end, the arbitration clause does not become inoperative to resolve the dispute. Similarly, very recently, in Reva Electric Car Company Ltd. v. Green Mobil14, the Supreme Court, consolidating on the issue of severability of arbitration clause, concluded that the arbitration clause survives even after the termination of the agreement containing the arbitration clause and therefore the parties have to be referred to arbitration.
As regards favouring enforcement of foreign awards, the Delhi High Court in Penn Racquet Sports v. Mayor International Ltd.15, refused the challenge to the enforcement of a foreign award by holding that the ground of 'public policy' must be narrowly interpreted for refusing enforcement of awards. Subsequently in Pacific Basin Ihx (UK) Ltd. v. Ashapura Minechem Ltd.16, the Bombay High Court was faced with the dilemma of being technically forced to stay the proceedings seeking enforcement of a foreign award.
This was because proceedings seeking the setting aside of the foreign award on the ground that Part I applies to the proceedings was pending in another court not sub-ordinate to the Bombay High Court and therefore it was not competent to interfere with those proceedings. At the same time, it felt that by staying the enforcement proceedings, it would encourage vexatious proceedings which intend to delay their enforcement. The Bombay High Court therefore, ordered a stay on the condition that the claim amount awarded be deposited in full by the party seeking the stay.
These recent judgements of the Supreme Court as well as of the various High Courts do give an indication that the judicial intervention in arbitration has begun to recede and if this trend continues, it will most definitely result in reinforcing India's image as a pro-arbitration nation.
Disclaimer - The views expressed in this article are the personal views of the author.