SC gamechanger on foreign verdicts

In a landmark judgement, the Supreme Court (SC) on Thursday ruled that Indian courts cannot provide interim relief in foreign-seated arbitration awards, paving the way for reduced court intervention in commercial disputes between Indian and foreign companies.

A five-member Constitution Bench, headed by Chief Justice S H Kapadia, overruled an earlier judgement, which had interpreted Section 2 of the Indian Arbitration and Conciliation Act, 1996, in a manner that allowed Part I of the Act to be applied in the context of arbitration seated outside India.

Part I of the Act provides for remedies such as awarding interim relief and setting aside of arbitral awards.

In the verdict delivered in the  Bharat Aluminium versus Kaiser Aluminium case, the court also said the awards rendered in foreign-seated arbitrations are only subject to the jurisdiction of Indian courts when they are sought to be enforced in India under Part II of the Act.

However, a native court can intervene on the issue of enforcement of the award.

This verdict may resolve disputes between various companies on the interpretation of the Arbitration Act in the light of their contract for certain projects in India.

Notable among such disputes are White Industries Australia and Coal India; Harkirat Singh and Rabobank International Holding; Tamil Nadu Electricity Board and Videocon Power; and Bharati Shipyard and Ferrostaal.

Several authors and commentators had raised concern over the impact and desirability of such a wide interpretation in the Bhatia Trading ruling in 2002 which was overruled on Friday.

In the light of conflicting opinions, the decision in Bhatia Trading was referred to the five-judge bench of the SC for reconsideration in the Bharat Aluminium versus Kaiser Aluminium case.

A key issue the court had to consider was whether Part I of the Act applied to arbitrations conducted outside of India.
In the 190-page judgement, the bench has ruled that Part I of the Act only applies to arbitrations seated within India.

The decision of the court in Bharat Aluminium would only apply to arbitration agreements entered into after September 6, 2012.
Experts said the SC decision appears promising and would lead the way for reducing intervention of Indian courts in arbitrations seated outside India.

However, given that the application of the decision is restricted to arbitration agreements entered into after September 6, the legacy of the decision in Bhatia Trading will be relevant for sometime, they said.

Besides the Chief Justice, Justices D K Jain, S S Nijjar, Ranjana Desai and Jagdish Singh Khehar pronounced the much-awaited verdict.

Referring to some of the judgments saying a court in India had the power to intervene in arbitral award, the apex court said in taking such a view the Court had also acted as ‘finishers’, ‘refiners’ and ‘polishers’ of the Arbitration Act, assuming that the Act required further “processing’’.

Refraining from entering into the legislative domain, the bench said if this law has some ‘lacuna’ or ‘gap’ it can be cured by Parliament alone.

“Such a task cannot be undertaken by the court,’’ the bench said.
A noted lawyer and global arbitration expert C S Vaidyanathan said this “judgment is indeed a welcome pronouncement as its explanation to the Arbitration Act would lessen litigation over the arbitration awards.’’

Vaidyanathan did not rule out that “billions of dollars of investments which have been locked due to the litigations and never ending proceedings involving arbitration awards could be eased.’’