In this blog post, Sanjna Vijh, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, describes arbitration agreements preceding BALCO.

Introduction

The Arbitration and Conciliation Act, 1996 (Act) of India regulates three effective private dispute resolution mechanisms outside the court of law via Arbitration, Mediation and Conciliation. Scheme of the Act includes three parts; Part 1 provides for domestic arbitration and International Commercial Arbitration (ICA) seated in India, Part 2 deals with foreign awards in ICA and Part 3 contains provisions for Conciliation.

An ICA[1] means an arbitration in which either party is a foreign resident, foreign body corporate or an association of people from a foreign country. In ICA, parties can choose their seat of arbitration to be either in India or a foreign seat. When the seat of an international arbitration is in India, Part 1 of the Act shall be applicable. Part 1 will not be applicable to any foreign seated arbitration. However, there has been a tale of misunderstandings on that status.

In 2002, Supreme Court had held in Bhatia International v. Bulk Trading (AIR 2002 SC 1432) that Part 1 of the Act will be applicable to foreign seated arbitrations as well, unless it was excluded by Parties in an agreement.

Post BALCO

In 2012, the Apex Court decided a dispute in case of Bharat Aluminum Co. v. Kaiser Aluminum Technical Service, Inc., (2012 (9) SCC 552) (BALCO) holding that no section of Part 1 will be applicable to foreign seated arbitrations. The dispute in BALCO was that parties had agreed expressly that any dispute under the Agreement would be settled in accordance with the English Law and venue of the proceedings would be London. However, the applicability of Part 1 was contended to raise a dispute. The Apex Court analyzed the “Territoriality principle” of United Nations Commission on International Trade Law (UNCITRAL) Model Law in this case – (UNCITRAL is an agency of UN to promote international trade). The principle states that the law of the seat or place where the arbitration is held is normally the law to govern the arbitration. It was expressly said in this decision that Part 1 will not be applicable to foreign seated arbitrations and courts of jurisdiction where arbitration is seated will have supervisory jurisdiction as well. However, this was effected prospectively and was applicable to only agreements entered into after 6th September 2012. Pre – Balco agreements were suggested to be amended to expressly exclude Part 1.

Later, in Harmony Innovation Shipping Ltd v. Gupta Coal India Ltd. & Anr, (2015 (3) SCC 295) it was clarified express and implied exclusion of Part 1 from pre-BALCO agreements. It was held that application of Part 1 will be decided based on principles of Bhatia International’s case. Unless the arbitration clause is clearly amended in pre-BALCO agreements, the arbitration would continue to be governed by Bhatia International’s judgment.

Final Word

Recently, it has been expressly clarified by the Arbitration and Conciliation (Amendment) Act, 2015[2] that Part 1 will not apply to any foreign seated arbitration except Sections 9, 27 and 37 unless an agreement exists to the contrary. But this is with effect from October 23, 2015 (i.e. the commencement of the arbitral proceedings should be on or after October 23, 2015). The dubiety of foreign seated arbitration being governed by the provisions of Part 1 still exists. The types of arbitration agreements have been divided into Pre-BALCO, Post BALCO and Post Amendment 2015.

The final word for Pre-BALCO agreements i.e. agreements entered into before 6th September 2012 is that Part 1 of the Act will be applicable to foreign seated arbitration unless their arbitration clauses have been amended to exclude the same.

[1] 2(I) (f) “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is— (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) 2 *** an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country;

[2] http://www.indiacode.nic.in/acts-in-pdf/2016/201603.pdf