For international parties who have contracted with Indian counterparties and agreed to refer disputes to international arbitration, a critical issue is the degree to which the Indian courts have jurisdiction to review and set aside awards.
In the landmark decision of Reliance Industries Limited & Anr. v Union of India handed down on 28 May 2014, the Indian Supreme Court has confirmed that the Indian courts do not have jurisdiction to set aside an arbitral award in circumstances where the parties have (i) agreed to refer disputes to arbitration with a seat in London and (ii) provided for English law to govern their arbitration agreement. Rather, any application to set aside an award in this case should be made to the English courts.
International investors who have entered into an arbitration agreement with an Indian counterparty before 6 September 2012 which does not expressly exclude Part I of the Indian Arbitration and Conciliation Act 1996 Act (the 1996 Act), are likely to be interested in this judgment. We explain briefly why below. A more detailed analysis of the judgment can be accessed here.
WHY IS THE JUDGMENT SIGNIFICANT?
Part I of the 1996 Act contains provisions which enable the Indian courts to exercise supervisory jurisdiction in arbitration proceedings, including to review and set aside arbitral awards. Even though Part I states that it applies where the place of arbitration is in India, there has been a long line of cases to the effect that the Indian courts can exercise supervisory jurisdiction in foreign seated arbitrations. These cases were the subject of widespread commentary and criticism in the international arbitration community.
In Bharat Aluminium v Kaiser Aluminium (2012) 9 SCC 552 (Balco), the Supreme Court confirmed that Part I of the 1996 Act does not apply to arbitration agreements entered into after 6 September 2012 which provide for a foreign seat.
However, for arbitration agreements entered into before 6 September 2012, the question of whether Part I of the 1996 Act applies (and therefore whether foreign awards can be reviewed and set aside in India) falls to be determined by reference to the earlier decision in Bhatia International v Bulk Trading SA and Anr. (2002) 4 SCC 105. In particular, the court will examine whether the parties expressly or impliedly excluded Part I.
Following the decision in Bhatia, many parties included a provision expressly excluding Part I in their arbitration agreements when contracting with Indian counterparties. However, numerous contracts were entered into before the 1996 Act came into force, and the question is therefore how they should be interpreted.
In this case, the arbitration agreement was entered into in 1994, and the Supreme Court considered whether the parties had excluded Part I. The Supreme Court concluded that, by selecting (i) London as the seat and (ii) English law as the governing law of the arbitration agreement, the parties agreed to exclude Part I. As a result, the Indian courts do not have jurisdiction to review and set aside arbitral awards in the present case: any such application must be made before the English courts as the courts of the seat.
This is another instance in which the Supreme Court has rendered a pro international arbitration judgment which limits the degree to which Indian courts can interfere in international arbitration proceedings. The Hon’ble Mr. Justice Surinder Singh Nijjar sat on the bench in this case and in Balco, and it is hoped the trend in favour of such decisions will continue following his imminent retirement from the Supreme Court bench.
Nevertheless, it is worth reminding foreign investors that when contracting with Indian parties it is advisable to refer disputes to arbitration with a seat outside India in order to minimise the scope for judicial intervention by the Indian courts during the course of the arbitration proceedings.
Allen & Overy act for Reliance Industries Limited and BG Exploration and Production India Limited in the underlying arbitration proceedings and also advised on the related Indian court proceedings including this appeal before the Supreme Court.