Calcutta High Court rules on provisions to foreign-seated arbitration under A&C Act

Calcutta High Court rules on provisions to foreign-seated arbitration under A&C Act

Maintains that in the proviso, the terms 'seat' and 'venue' were interchangeable

The Calcutta High Court has held that Section 9 of the Arbitration and Conciliation (A&C) Act which provides for interim relief by the court, also applies to foreign-seated arbitration.

The bench of Justice Shekhar B Saraf held that Section 9 was a provision in aid of the arbitration proceedings in contrast to other provisions that relate to the conduct of the arbitration proceedings. It said that merely because the parties chose a foreign seat of arbitration, it does not translate into an agreement to exclude the applicability of Part-I of the A&C Act. In the proviso to Section 2(2) of the Act, the terms 'seat' and 'venue' were interchangeable.

In May 2022, the parties entered into an agreement for the sale and purchase of crude glycerine of certain specifications for a total price of US$190,000.

Accordingly, the petitioner was to open a Letter of Credit (LC) with respondent No.2 (bank) in favor of respondent No.1. The LC could be redeemed/honored after the expiry of the date of issuance of the Bill of Lading.

As per the terms, respondent No.1 was to give a Certificate of Analysis of the shipped glycerine. It was to ensure that the specifications were met. Accordingly, respondent No.1 shared the certificate via email.

However, after the glycerine was shipped, respondent No.1 informed the petitioner that the glycerine did not match the specifications. But the petitioner expressed its unwillingness to accept the cargo and requested the forwarder to return it to the respondent.

Meanwhile, the petitioner was informed by respondent No.2 that respondent no. 1 presented the forms and documents for the invocation of the LC. The petitioner approached the court for injunctive relief under the A&C Act.

While the seat of arbitration was Singapore, the petitioner sought relief on the following grounds:

1. Post the 2015 Amendment to the Act, the relief under Section 9 is also available to the parties in a foreign-seated arbitration unless the parties, by an express agreement, exclude the applicability of Part-I of the Act.

2. The provisions of Part-I that are in aid of arbitration proceedings, such as Sections 9 (interim relief), 27 (court assistance in taking evidence), 37(1)(b) (appeal against an order under Section 9) apply to the foreign seated arbitration. However, other provisions of Part-I that govern the conduct of the arbitration, do not apply to a foreign-seated arbitration.

The respondent objected to the maintainability of the petition on the grounds:

1. Section 9 of the Act forms part of Part-I, while a foreign-seated arbitration is governed by Part-II. Thus, Section 9 does not apply to arbitration with a seat outside India.

2. The agreement of the parties to have a foreign seat of arbitration is sufficient to exclude the applicability of Section 9 as provided proviso to Section 2(2). There is no requirement of an express agreement.

The court cited the judgment of the Supreme Court in the Bhatia International [(2002) 4 SCC 105] case, wherein it extended the application of Part-I of the Act, including Section 9, to the foreign-seated arbitrations. It was done on the ground that otherwise, the parties in an arbitration with a seat outside India would be rendered remediless. However, in the BALCO [(2012) 9 SCC 552] case, the apex court overruled the judgment in the Bhatia International case. It excluded the applicability of the entire Part-I to the foreign-seated arbitrations.

Thereafter, on the recommendations of the 246th Law Commission Report, by the 2015 Amendment Act, the Parliament made applicable certain provisions of Part-I, including Section 9, to the foreign-seated arbitrations.

The bench held that the present position was clear that Section 9 of the Act also applied to foreign-seated arbitration. The court had the power to grant interim relief in arbitrations with a foreign seat. It added that Section 9 was a provision in aid of the arbitration proceedings as against the other provisions of Part-I that dealt with the conduct of the arbitration proceedings.

Justice Saraf rejected the argument that merely because the parties agreed to have a foreign seat of arbitration, it was an agreement under the proviso to Section 2(2). He maintained that if required, the parties could, by an express agreement, exclude the applicability of Part-I. But it could not be presumed from the mere agreement to have a foreign seat of arbitration.

The bench also held that the use of the word 'place' under the proviso was synonymous with 'seat' of arbitration.

It observed that respondent No.1 admitted that the shipped glycerine did not match the specifications. Hence, prima facie the case was in favor of the petitioner. Also, the balance of convenience was in its favor because if the injunction was not granted, respondent No.1 would invoke the LC, which would result in an irreparable loss to the petitioner.

Thus, the court allowed the petition and directed respondent No.2 not to encash the LC for a specific period.