Richard Smith, from Allen & Overy explains a case in which the Indian Supreme Court has reconsidered the state of arbitration law relating to offshore arbitrations.

 
Richard Smith, from Allen & Overy explains a case in which the Indian Supreme Court has reconsidered the state of arbitration law relating to offshore arbitrations.

On 10 January 2012, a five-judge constitutional bench of the Indian Supreme Court commenced hearings in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (Civil Appeal No 7019 of 2005) and other consolidated appeals.

The hearings have now concluded and we await the Court’s decision. The outcome of the appeal is likely to be of considerable significance to investors in India.

Background

The Indian Arbitration and Conciliation Act 1996 (the “Act”) has two distinct parts. Part I applies where the place of arbitration is in India (section 2(2)). This Part confers significant powers on the Indian courts to grant interim measures, to appoint and replace arbitrators and to review arbitral awards. Part II is concerned with the recognition and enforcement in India of foreign arbitral awards which fall within the scope of the 1958 New York Convention and the 1927 Geneva Convention. In line with those Conventions, Part II considerably restricts the scope for judicial intervention by the Indian courts.

In Bhatia International v Bulk Trading SA (“Bhatia”), the Indian Supreme Court considered a request for interim relief under Part I of the Act by a party to an ICC arbitration seated in Paris. A three-judge bench of the Court held that the provisions of Part I of the Act would also apply to international commercial arbitrations seated outside India, unless the parties had expressly or impliedly excluded its application. The reasoning underlying the Court’s judgment was that section 2(2) of the Act did not imply that Part I would “only” apply when the place of arbitration was in India.

The Bhatia ruling considerably expanded the scope for Indian courts to interfere in arbitrations seated outside India. For instance, in Venture Global Engineering v Satyam Computers Services (2008), a two-judge bench of the Supreme Court followed Bhatia and held that an LCIA award rendered in London could be challenged in India under the expanded “public policy” grounds for reviewing arbitral awards in Part I of the Act (section 34). Similarly, in Indtel Technical Services v Atkins (2008), the Supreme Court ruled that it had the power to appoint arbitrators in arbitrations seated outside India in the case of a deadlock between the parties concerning the appointment procedure. Later court decisions have also been inconsistent as to when Part I of the Act can be excluded by the parties to an arbitration with a seat outside India.