The Supreme Court has overruled Bhatia International, and has once and for all held that the supposed omission of the word “only” from section 2(2) has no significance (see below). Importantly, it has also held that a party cannot file a civil suit in relation to the subject matter of the arbitration agreement in order to obtain interim relief. The Court has overruled these decisions prospectively, that is, the law declared today will apply only to arbitration agreements made (not suits/petitions filed) after 06.09.2012. This means that any application for relief under sections 9 or 34 in respect of foreign-seated arbitrations will continue to be governed by the old law (including the law on implied exclusion) if existing arbitration agreements are not amended.
For a summary of the issues before the Court, readers may wish to refer to our account of the judgments of the High Courts under appeal. In today’s judgment, delivered by Nijjar, J. on behalf of the Constitution Bench, the Court has made several important observations on these and other issues of Indian arbitration law. The following summary briefly describes these observations, with a reference to the paragraph number. We will have an opportunity to comment in more detail in the days to come.
- Section 2(2) and the reasoning in Bhatia International
- The omission of the word “only” does not mean that Parliament intended to make Part I applicable to foreign-seated arbitrations. The reason for the omission is explained by the 330th Meeting of the drafters of the Model Law on 19 June 1985. The reason is that article 1(2) of the Model Law had the words “except articles 8, 9, 35 and 36”, and therefore had to insert the word “only” to clarify that these provisions would apply also to domestic arbitrations (Para 63, 68).
- Section 2(2) does not conflict with section 2(4) or with section 2(5). Section 2(5) only means that the Act applies to all arbitrations where it would be otherwise applicable (Para 85).
- The proviso to s 1(2), in relation to Jammu & Kashmir, does not mean that the Act has extra-territorial application. It simply provides for the application of the J&K law (Para 55)
- There is no “lacuna” in the Act therefore not applying to non-Convention awards. Such awards cannot be enforced under Part I (Para 175)
- Section 2(7), which uses the words “domestic award”, contrasts domestic award with foreign award, not international award; that is, an international commercial arbitration in India is not a foreign award. This in fact indicates that Bhatia International was wrongly decided (paras 88 and 94).
- In international arbitration, jurisdiction is generally determined by the “seat” of arbitration. The “seat” is a juridical concept, which is not affected by where hearings are conducted (Paras 72 and 100). In the rare case where the parties choose a seat of arbitration and a lex arbitri which do not coincide, it is a matter of construction whether the designation of the foreign seat was in fact a reference to the place of arbitration.
- The two “alternatives” in section 48(1)(e), ie the court of the country in which the award was made (the country of the seat) and the court of the country under the law of which the award was made do not confer concurrent jurisdiction. The legislative history of art V(1)(e) of the NY Convention shows that the objective was to provide for the second alternative where the first alternative is unavailable (ie, where the country of the seat does not entertain a challenge to the award). Further, section 48 does not confer jurisdiction to set aside an award: such jurisdiction must be found in the applicable national law. Section 48 merely provides that a domestic court may decline to enforce an award if the conditions in the provision are satisfied. In any event, the words “under the law of which” are a reference to the lex arbitri, not the law governing the substance of the agreement (Paras 137, 148).
- Parts I and II are mutually exclusive. The Indian Act, like the UNCITRAL Model Law, is founded on the “territoriality principle”. Therefore, Sections 9 and 34 of the Act apply only if the seat of arbitration is in India. This does not render a party seeking interim relief remediless. Even if it does, that is a matter for the legislature, not the courts (Para 167).
- No civil suit can be instituted purely for interim relief, because interim relief is granted on the strength of the final relief sought on a recognised cause of action. The prayer for interim relief cannot itself constitute the cause of action for a suit (Paras 187, 197)