Friday, January 20, 2012

Second Week of Arguments: Constitution Bench on Bhatia International

Arguments continued this week before the Constitution Bench comprising the Chief Justice, and Justices Jain, Nijjar, Khehar and Desai. As we noted, counsel for the appellants in the first week concentrated principally on whether the courts of the seat of arbitration have exclusive jurisdiction to test the validity of an arbitral award even when the proper law of the contract is the law of another country.
This week, Mr Gopal Subramanium developed the submissions he had outlined last week. It is easiest to describe counsel’s contentions by dividing his case into two parts: a negative case, which sought to establish that the “seat of arbitration” is not the basis on which the jurisdiction of the courts has been defined under the Indian Arbitration Act; and a “positive” case, which consisted of certain propositions on the correct approach to jurisdiction under the Indian Act, drawing from the principle of party autonomy, the significance of choice of law, English law and from the travaux prĂ©paratoires to the UNCITRAL Model Law on International Commercial Arbitration. In his negative case, counsel submitted that the primacy accorded to the “seat of arbitration” in England is in fact judge-made law; that the drafters of the Model Law in 1985 were fully aware of the contesting views, and yet defined “international commercial arbitration” in article 1(3) not only with reference to the seat of arbitration but also the places of business of the parties;  and that the Indian legislature went even further because it omitted all references to the seat in section 2(1)(f) of the 1996 Act. Counsel further submitted that it is possible that parties to an arbitration with a foreign seat expressly designate the 1996 Act as applicable, in which event the 1996 Act must ex hypothesi apply even though the seat of arbitration is outside India. Counsel also relied extensively on the judgment of the UK Supreme Court (particularly Lords Mance and Collins) in Dallah Real Estate v Government of Pakistan, which we have discussed here, to suggest that a court must always have jurisdiction to examine matters which are “fundamental” to an arbitration, such as arbitrability of the dispute, whether there was a valid arbitration agreement etc. Counsel then relied on section 48(1)(e) of the Act, which corresponds to art. 5(2)(e) of the New York Convention, to suggest that Parliament clearly contemplates that not only the court of the seat of the arbitration (captured by the words “country in which the award was made”) but also the court of the country whose law governs the arbitration agreement has jurisdiction to set aside the award.
Counsel then argued that the test of jurisdiction under the 1996 Act is therefore not seat, but “subject matter”, for section 2(1)(f) defines an “international commercial arbitration” without reference to its seat, and section 2(1)(e) the jurisdiction of a “court” by reference to the subject matter of the arbitration.  Counsel reiterated that section 2(2) only indicates when the Indian court has jurisdiction, and not when it does not, and submitted as a consequence that a Convention award under Part II may be enforced either under Part II or under Part I because the provisions of Part II are “additional” to those in Part I. As an example, counsel pointed out that although sections 8 and 45 deal with similar issues, the right of the defendant to have the parties referred to arbitration is lost under section 8 if he takes the objection after the written statement is filed, but is never lost under section 45. There are of course other differences. The Chief Justice put to counsel that this results in duplication and that it may not have been necessary for Parliament to enact Parts I and II separately, to which counsel said that these provisions are additional for those awards that fall within Part II. Counsel therefore submitted that it is open to an Indian court to exercise the power to appoint an arbitrator under section 11 in respect of a Convention arbitration agreement. Justices Nijjar and Khehar put to counsel the possibility that this is wholly unnecessary since the court under section 45 also has the power to appoint an arbitrator, to which counsel said that this would have the effect of rendering section 11 otiose, for such a power must ipso facto also exist under section 8 as well.
On Thursday, Dr Abhishek Singhvi briefly outlined his submissions, which will be developed next week. In contrast to the submissions of counsel before him, he stated that his case is confined to section 9, and argued that the court is entitled to take an independent view of section 9 – that is, it is possible that section 9 may be invoked in respect of a foreign arbitration even if section 34 or any other provision of Part I cannot be. He started by suggesting that a party may be left entirely remediless if a section 9 power is not available, and gave the example of an arbitration with its seat in Brussels involving a party whose major asset is a castle in the State of Rajasthan. Counsel submitted that the claimant in the Brussels arbitration has only three remedies: (i) obtaining interim relief from a court in Brussels (under its arbitration legislation); (ii) obtaining interim relief from the Tribunal and (iii) obtaining interim relief in respect of property situated elsewhere (for example in America). Counsel submitted that as far as the castle in Rajasthan is concerned, none of these remedies is “worth the paper” it is written on. The Bench put to counsel the possibility that a party may not be entirely remediless, for a civil suit may be maintainable, to which counsel said that it may not be correct to hold that a suit is maintainable despite the existence of an arbitration agreement. In short, counsel’s submission was that “the core of Bhatia” is correct, and the fact that it has engendered other decisions on other sections of Part I should not lead one to conclude that Bhatia is itself incorrect as far as section 9 is concerned.
Arguments continue on Tuesday.


Renu Gupta said...

Even is the [test of jurisdiction under the 1996 Act is therefore not seat, but “subject matter”], the relevant question is still :

Which is the applicable law, according to which we have to decide whether a particular dispute is arbitrable or not (in terms of its subject matter)?

If the arbitration agreement, specifies the law applicable to the arbitration agreement, it is that law.

Failing to specify such law in the agreement, but specifying the "seat", is an indication of the applicable law to the arbitration agreement.

Therefore, in no situation, does the substantive law of the main agreement becomes the law applicable to the arbitration agreement, in order to test the arbitrability of the subject matter.

Salve's Macbook said...


Congrats on a succint recital of proceedings. I disagree slightly with certain parts, and my reasons for the same are as below:
1. I don't think it's right to state that Mr. Subramaniam's submissions could be classified into "negative" and "positive" submissions. His only endeavour was to point out that jurisdiction would/could lie concurrently with different courts. The crux of Mr. Subramaniam's felicitous and elaborate submission was that courts at the "seat" could not be said to be the only courts with the jurisdiction to deal with disputes. His submissions were on the premise that the governing law courts (i.e. the legal system relating to the underlying law of the contract) shall also have jurisdiction to deal with the dispute.
2. Counsel primarily relied on 48(1)(e), taking a cue from Mr. Sundaram's submissions, to state that Section 48(1)(e) itself contemplates a challenge to the award (thereby implying the applicability of Section 34 of the Act), on account of the term "suspended by a competent autority...under the law of which that award was made". He buttressed this argument on the basis of the fact that the award is made on the basis of the law of the underlying contract, and in view of the same, courts of the underlying contract shall also have the jurisdiction to set aside the award.

My only worry is that in the event a suit instead of a Section 9 (if Part I and Part II are held to be separate codes and mutually exclusive)is held to be the only remedy available to parties seeking interim measures, then it would open a pandora's box of dilatory litigation.