Sunday, July 19, 2009

Greater Role for Judicial Intervention in Foreign Arbitration

The decision of the Supreme Court in Bhatia International and its implications are well known, and have been discussed on this blog on several occasions. In a recent judgment, the Supreme Court has further entrenched the decision. The decision, Citation Infowares Ltd. v. Equinox Corporation, (2009) 5 UJ 2066 (SC), raised the question as to whether a court can appoint an arbitrator under an agreement to arbitrate that has its seat of arbitration outside India.


In Bhatia International, the Court had held that there is a presumption that Part I of the Act applies to international commercial arbitrations outside India as well, which may be rebutted through an express or implied agreement to the contrary. One of the factors that weighed heavily with the Court in Bhatia was that a party would be left without a remedy if Part I did not apply, and the property of the other party was situate in India, for he then would be unable to obtain an interim injunction and enforce it. However, since Bhatia did not confine its decision to s. 9 of the Act (interim measures), subsequent decisions have extended its application to other provisions in Part I, where it may not be appropriate to interfere with foreign arbitral proceedings. Citation v. Equinox is an example of this phenomenon.


Equinox Corporation was incorporated in the USA and entered into an outsourcing agreement with Citation Softwares, a company incorporated in India, and the contract provided that any disputes would be referred to a mutually acceptable arbitrator, and that the contract was governed by Californian law. The parties did not specify a seat of arbitration. Equinox Corporation terminated the contract prematurely, and resisted Citation’s application to invoke the arbitration clause in India. Citation then filed an application under s. 11, seeking the appointment of an arbitrator, and the question that arose was whether this application was barred by virtue of the fact that the parties had subjected the contract to Californian law.


In Indtel Technical Services, the Court had found that a similar provision in a contract was sufficient to indicate that the parties intended to hold the arbitration outside India, but followed Bhatia International and found that Part I applied nonetheless. That decision has been analysed here. In this case, it was argued that there is a presumption that the proper law of contract is also the proper law of arbitration, and that consequently the Indian Act was inapplicable. The Court held that this presumption is limited, and applies only when parties have failed to designate any substantive law, but have indicated a seat of arbitration, so that then the court may infer that the designation of the seat of arbitration is an indicator that its laws are to govern both substantive and procedural questions. From this point, it was not difficult for the Court to conclude that the Indian Act applied, and that an arbitrator could consequently be appointed by the court under s. 11.


This strengthens the rule in arbitration law that the only way for parties to oust Indian courts of jurisdiction is to designate a seat of arbitration outside India and specify that their relations are governed by that seat’s Arbitration Act. It will not be sufficient to merely designate a foreign law as the substantive law of the contract. Nor will it be sufficient to indicate a seat of arbitration outside India. It will be interesting to observe whether the Supreme Court in the future attempts to distinguish between the driving force behind Bhatia International – interim injunctions – and other provisions of Part I of the Act.


7 comments:

Nawab said...

Part I's exclusive exclusion I believe is the best manner of addressing the huge holes that exist in the 1996 Arbitration Act. One needs to give Bhatia Indtel and even Equinox the due of the fact that if Part I's application was not interpreted in this manner we would have entered into a realm of commercial void.
Equinox has merely reestablished the already existing point of law vis-a-vis the application of Part I. Though one more point though needs to be clarified after Bhatia is should 'all arbitration proceedings held in India would be Domestic Arbitration." This essentially means that even a ICA with its seat as London(hypothetically) but venue as India, would be considered as a domestic arbitration.

Anonymous said...

Would it be possible for the authour to post the weblinks to the cases of the following (in abbreviated form)?

Bhatia International, Renusagar, ONGC, Satyam Computer Services, INDTEL Technical Services, Equinox and Tamil Nadu Electricity Board v. Videocon Power Ltd.

So all in all 7 cases. Thanks.

Anonymous said...

i dont believe that the case says what you say it does. on my reading of the case, they refused to apply the presumption of NTPC only because the place of arbitration was not mentioned. therefore, if the place of arbitration was mentioned and the law governing the matrix contract was to be foreign law, then i think the presumption from the NTPC case would apply.

V. Niranjan said...

@Nawab,

That is true. The strongest case for Bhatia International, or for that matter any so-called "anti-arbitration" judgment is that the alternative is a party without a remedy, which a court cannot easily countenance. However, it remains to be seen whether a distinction ought to have been made between interim measures and other proceedings.

Yes, it will be considered a domestic arbitration - now, of course, Part I will apply even if it is not so considered.

V. Niranjan said...

@Anonymous,

The links are as follows:

1. http://indiankanoon.org/doc/110552/ (Bhatia International)
2. http://indiankanoon.org/doc/86594/ (Renusagar)
3.http://indiankanoon.org/doc/919241/ (ONGC v. Saw Pipes)
4. http://indiankanoon.org/doc/1679578/ (Indtel Technical Services)
5. http://indiankanoon.org/doc/121147/ (Videocon Power)
6.http://indiankanoon.org/doc/1194084/ (Equinox)
7. http://indiankanoon.org/doc/75785/ (Satyam Computer, also well known as Venture Global)

Badri said...

@ Niranjan ji

As pointed out by one in one of the comments, the arbitral clause in the Citation Infowares case did not provide the seat of arbitration. It merely stated that "10.1 Governing law- This agreement shall be governed by and interpreted in accordance with the laws of California, USA and matters of dispute, if any, relating to this agreement or its subject matter shall be referred for arbitration to a mutually agreed Arbitrator "

Generally international commercial arbitration, in the absence of choice of a specific law, the choice of forum would be presumed to be the choice of law (Qui indicem forum elegit jus). But there is no presumption which provides that the choice of law would be presumed as choice of forum too.

Further, in case where the parties have not chosen the seat of arbitration, it is the arbitral tribunal or the institution which chooses the forum (institutional rules provide for the forum unless parties agree otherwise). In Citation Infowares, Equinox Corporation failed to appoint the arbitrator of its choice even when Citation Infowares did.

Now, since the parties had not chosen a forum, the Court dealt with the matter through a counterfactual- Would the court have jurisdiction to appoint an arbitrator if the arbitration was held outside India? The court used Bhatia International and held that it had the jurisdiction.


@ Nawab ji's point "...even a ICA with its seat as London(hypothetically) but venue as India, would be considered as a domestic arbitration."

and Niranjan ji's response
"...it will be considered a domestic arbitration - now, of course, Part I will apply even if it is not so considered."

As I understand, as per Nawab ji, if the parties choose London (say LCIA) as the seat of arbitration but hold a few hearings/ proceedings in India, would that mean that the arbitration is domestic?

I reproduce Section 20 of the Arbitration and Conciliation Act, 1996:

"20. Place of arbitration. –
(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of
arbitration shall be determined by the arbitral tribunal having regard to the
circumstances of the case, including the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal
may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses,
experts or the parties, or for inspection of documents, goods or other property."

Now, 20(3) clearly recognises the accepted practice in international commercial arbitration [20(3)is based on the UNCITRAL MODEL Law for ICA, 1985) that the arbitral tribunal may hold meetings in places other than the seat. For example, if the seat is London, merely because some proceedings are held in Mumbai, it wouldn't mean that the arbitration is a domestic arbitration. If that was so, Section 28 would have become redundant.

shubhang said...

In Indtel, it was specifically mentioned that a particular country's arbitration act has to be designated for that country's law to be applicable as a presumption. The substantive law cannot be equated to the applicable arbitration law has now been reiterated in Equinox. But, a point to be noted here is that the forum where the proceedings are carried out do not necessarily indicate the laws applicable as pointed out by Badri since the place of arbitration can be consensual or decided by the arbitral tribunal. As a matter of fact, Indtel according to me gives a certain degree of excessive protection to Indian parties since it sets the tone for finding out various means to forcefully make Part 1 of the Arbitration Act applicable. This would probably hamper parties to use India as a base for International Commercial Arbitration.