The Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act” or “the Arbitration Act”) has undergone several changes in the recent past which lead to a “pro-arbitration” approach – such as reducing judicial interference, resolving ambiguities, avoiding delays and ensuring a time-bound process, etc. Notably, with the enactment of the Arbitration and Conciliation (Amendment) Act, 2015[1] (hereinafter referred to as “the 2015 Amendment Act”), the Arbitration Act was revamped to adopt several prominent recommendations made by the 246th Law Commission’s Report on amendments to the Arbitration and Conciliation Act, 1996[2].
Consequent to the judgment of BALCO v. Kaiser Aluminium Technical Services Inc.,[3] (“BALCO”), no application for interim relief under Section 9 or any other provision of the Act was maintainable in case of a foreign-seated international commercial arbitration owing to Section 2(2) of the Act, as it stood at the time. Similarly, no suit for interim injunction simpliciter would be maintainable in India, in case of foreign seated international commercial arbitration.
Although BALCO[4] judgment played a pivotal role in setting India’s trajectory towards “pro-arbitration” approach, the basis of BALCO[5] judgment had been altered by the 2015 Amendment, which interalia amended Section 2(2) of the Arbitration Act, which was the bone of contention in BALCO[6] as well as Bhatia International[7] and Venture Global Engg.[8] The amended provision of Section 2(2) of the Act, not only applies to cases where place of arbitration is in India, but further introduced a proviso which states that subject to an agreement to the contrary, Sections 9, 27 and 37(1)(b) and 37(3) (i.e. provisions pertaining to interim measures, taking assistance of the Court and appeals) shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II.
The provision for interim reliefs in foreign seated arbitration has come into limelight recently, in view of the dispute between Amazon and Future Group pertaining to acquisition of Future Group by Reliance Retail. Amazon invoked arbitration against one of the Future Group entities and obtained an order of injunction from the Emergency Arbitrator appointed as per the SIAC Rules. Future Group has announced that the order is not enforceable in India. The case has raked up the issue of enforceability of interim orders passed by foreign seated arbitrators and especially an emergency arbitrator who is appointed prior to the constitution of the arbitral tribunal, which is one of the predominant reliefs available in most of the leading institutional arbitral centres. Future Retail has preferred a suit before the Delhi High Court against Amazon for interfering in the transaction with Reliance by misusing the interim order passed the Emergency Arbitrator. The suit is presently sub judice.
Further, the proviso to Section 2(2) of the Act has also raised certain issues in the field of arbitration law, which came up for consideration before various Courts. Some of the key questions which arose are:
(a) whether Part I also applies in case of two Indian parties choosing a foreign seat of arbitration;
(b) whether the term “agreement to the contrary” under the new proviso includes within its ambit both implied and express stipulations in a contract; and (c) whether it is an essential condition for applicability of Part I that an award made or to be made in a place outside India is enforceable and recognised under the provisions of Part II.
Additionally, the authors shall also discuss the issue of enforceability of interim orders passed by foreign seated arbitral tribunals/emergency arbitrators.
- Whether Part I applies to Part II even in case of two Indian parties choosing a foreign seat of arbitration?
This question assumes importance because, while the amended provision is intended to extend certain sections of PartI of the Act to foreign seated arbitrations, the provision restricts such extension only to “International Commercial Arbitration” situated outside India. The definition of “International Commercial Arbitration” adopted in the Act, unlike the UNCITRAL Model Law[9], is limited to only commercial disputes where at least one of the parties is necessarily a foreign party[10], as against any arbitration seated outside India. Consequently, an arbitration between two or more Indian parties, seated outside India, is barred from application of Part-I due to Section 2(2) of the Act. In other words, two Indian parties choosing a foreign seat, cannot apply for interim measures in India, thereby rendering the amended proviso half-baked.
This, however, does not seem to be the intention behind the legislation. Firstly, the counter-part provision of Section 2(2) of the Act under the UNCITRAL Model Law provides that: “The provisions of this Law, except Articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.” Secondly, the intention which can be deciphered from the perusal of the Commission Report also suggests that the proviso was necessitated to protect the assets of a party located in India, against whom there is a likelihood or apprehension that the assets will be dissipated. Therefore, it is unlikely that the Legislature intended to exclude applicability of certain provisions of Part I in a scenario where two Indian parties choose a foreign seat.
In contrast to the aforesaid view, it could also be said that the Legislature, by limiting the scope of the proviso to Section 2(2) of the Act only to “International Commercial Arbitration” situated outside India and not any foreign seated arbitration, perhaps intended to forbid two Indian parties from choosing a foreign seat. The question of whether two Indian parties can choose a foreign seat of arbitration has itself been subject-matter of dispute with conflicting views and decisions.
The conundrum surfaced when the Bombay High Court in Addhar Mercantile Pvt. Ltd. v. Shree Jagadamba Agrico Exports Pvt. Ltd.[11], decided on 12th June, 2015 (“Addhar Mercantile”) held that two Indian parties cannot derogate from Indian law by choosing a foreign seat for arbitration. The Bombay High Court, while coming to this conclusion, placed reliance on TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.[12] (“TDM Infrastructure”) wherein the Supreme Court, while discussing the scope of Section 28 of the Arbitration Act observed that “the intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.” It is pertinent to mention that similar view was also taken by the Bombay High Court in Seven Islands Shipping Ltd. v. Sah Petroleums Ltd.[13] (“Seven Islands”).
The Madhya Pradesh High Court in Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd.[14] (“Sasan Power”) decided on 11th September, 2015 was faced with the same issue, in which it gave a contrasting view to that of the Bombay High Court. The Court, placing reliance on the judgment of Atlas Export Industries v. Kotak & Co.[15] (“Atlas Export”) held that “it is clear that based on the seat of arbitration, the question of permitting two Indian companies/parties to arbitrate out of India is permissible”. In Atlas Export[16] itself, the principle has been settled that two Indian parties can agree to have their seat of arbitration in a foreign country […]” The Madhya Pradesh High Court also observed that the law laid down in TDM Infrastructure[17] cannot be a binding precedent as the Court itself made a express note that the findings/observations made in the judgment were only for the purpose of determining jurisdiction under Section 11 of the Act and not for any other purpose. While affirming the judgment passed by the Madhya Pradesh High Court, the Supreme Court[18] however, refrained from deciding the issue of whether two Indian parties can choose a foreign seat of arbitration, by observing that, in the tripartite agreement, one of the parties was in fact a foreign party and therefore, there was a ‘foreign’ element in the dispute, and was therefore, an “International Commercial Arbitration”. In Atlas Export[19] relied in the aforesaid judgment, the Supreme Court had rejected the contention that the award should have been held unenforceable inasmuch as the contract between the parties relating to arbitration was opposed to public policy under Section 23 read with Section 28 of the Contract Act, 1872 as they chose a foreign law/seat to govern the dispute. It was held by the Supreme Court in Atlas Export[20] that,
“[…]Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly entered into the agreement. Moreover, in the case at hand the parties have willingly initiated the arbitration proceedings on the disputes having arisen between them […]”
Thereafter, the Delhi High Court in GMR Energy Ltd.v. Doosan Power Systems India Pvt. Ltd.[21] (“GMR Energy”) decided on 14th November, 2017 took a holistic consideration of the issue. In GMR Energy case[22], the Delhi High Court observed that the judgment in TDM Infrastructure[23] cannot be treated as a binding precedent. Further it was observed that, the Bombay High Court while deciding Aadhar Mercantile[24] and Seven Islands Shipping[25], did not consider the law laid down by the Supreme Court in Atlas Export[26], and therefore, the said judgments were per incurium. The Delhi High Court relied upon Atlas Export[27] and held that two Indian parties can choose a foreign seat to arbitrate.
Recently, the Gujarat High Court in GE Power Conversion India (P) Ltd. v. PASL Wind Solutions (P) Ltd.[28] (“GE Power”) had the opportunity to address this issue. The Court reaffirmed that two Indian parties can choose a foreign seat of arbitration and the award decreed therefrom could be enforced as a foreign arbitral award in India. The Court held that nationality of the parties has no relevance for considering the applicability of Part II, of the Act of 1996. Applicability of Part II is determined solely based on what is the seat of arbitration, whether it is in a country which is signatory to the New York Convention. If this requirement is fulfilled, Part II will apply. Therefore, the question remains so far as the applicability of the proviso to Section 2(2) in such a scenario is concerned. In our view, whilst two Indian parties can choose a foreign seat to govern their arbitration, the language used by the Legislature in Section 2(2) of the Act may require more clarity and reconsideration to address this conundrum.
- Whether the term “agreement to the contrary” under the new proviso includes within its ambit both implied and express stipulations in a contract?
As stated above, the ‘territorial principle’ propounded in BALCO case[29] was substituted with a proviso to Section 2(2) expressly extending the applicability of Part I to international commercial arbitrations even if the place of arbitration is outside India, subject to two-fold conditions i.e. (1) there is no agreement to the contrary; and (2) an arbitral award made or to be made in such place (outside India) is enforceable and recognised under the provisions of Part II of this Act. As the proviso does not stipulate whether the “agreement to the contrary” must be an express or implied clause/agreement, the issue came up for consideration before various courts. The Bombay High Court, in Aircon Beibars Fze v. Heligo Charters Pvt. Ltd.[30] noted the intention behind extending the applicability of certain provisions of PartI to foreign seated arbitrations, and rejected the contention that, by choosing a foreign seat of arbitration, the parties had impliedly excluded the applicability of Part I of the Act. This decision was also upheld by the Division Bench in Heligo Charters Pvt. Ltd. v. Aircon Beibars Fze.[31] (“Heligo Charters”). The Court clearly held that “In view of the amended provisions and facts, we are of the view that operation of provisions of Section 9 cannot be excluded in absence of a specific agreement to the contrary.” By holding that specific agreement will be required, the Court attempted to bridge the gap by necessitating an express agreement so as to exclude applicability of Part I of the Act, in a foreign seated international commercial arbitration. Similarly, in Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd.[32], (“Raffles Design”), the Delhi High Court, while deciding an application under Section 9 of the Act, rejected the contention that merely by choosing foreign seat, institutional rules or governing law, it cannot be said that the parties have impliedly excluded the applicability of Section 9 of the Act, which defeats the entire purpose of introducing the proviso to Section 2(2) of the Act. It was observed that,
“the inescapable conclusion is that since the parties had agreed that the arbitration be conducted as per SIAC Rules, they had impliedly agreed that it would not be incompatible for them to approach the Courts for interim relief.”
(emphasis supplied)
The Delhi High Court, in a recent judgment in Goodwill Non–Woven (P) Ltd. v. Xcoal Energy & Resources LLC[33], held that the grant of interim measures in a foreign seated arbitration under Section 9 of the Arbitration Act does not contemplate the existence of assets in India. The Court, while placing reliance on the Raffles Design case[34] and the recommendations of the Report held that the application was maintainable however, refused to grant any reliefs in the absence of sufficient case made out. Therefore, the Courts have, till date, taken a unanimous view that, merely by choosing a foreign seat to govern arbitrations, parties cannot be said to have impliedly excluded the applicability of Part I altogether and the parties can approach the Courts in India seeking interim measures, as per the proviso to Section 2(2) of the Act which is applicable to foreign seated international commercial arbitrations.
- Whether it is an essential condition for applicability of Part I that an award made or to be made in a place outside India is enforceable and recognised under the provisions of Part II?
Part II of the Act pertains to “foreign awards” which, as per Section 44 of the Act, means arbitral awards that are made or to be made in pursuance of an agreement in writing for arbitration to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1985 (“the New York Convention”) or the Convention on the Execution of Foreign Arbitral Awards Convention, Geneva, 1927 (“the Geneva Convention”) applies, and having place of arbitration in a territory which is notified by the Central Government of India to be a reciprocating territory under such Convention.[35] Therefore, to extend applicability of Section 9 of the Act to international commercial arbitrations having place outside India, the award made in such place, should be recognised and enforceable under PartII of the Act. Therefore, if the seat of arbitration is in a country which is not a signatory to the New York Convention and is not a reciprocating territory notified by the Central Government of India, a party cannot approach Indian courts for interim measures.[36] This is further reinforced with the intention of the Legislature behind amending the said provision of Section 2(2) of the Act, which is to overcome a situation “where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The Report further states:
“That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.”[37]
(emphasis supplied)
It is in this context that the amended provision stipulates that the award shall be enforceable in India as per PartII. Therefore, the amendment would aid a party in enforcement of the award by inter alia granting interim measures. The pre-condition for applying Section 2(2) of the Act is that the award made or to be made in the foreign seat or place, should be enforceable and recognisable under Part II of the Act. This is important because the intent is to protect a party from disposing off assets and rendering the foreign award as a mere paper decree. Therefore, in other words, if the award is not enforceable and recognisable under Part II of the Act, there would be no occasion to grant interim measures. In this regard, it was contended before the Bombay High Court in Heligo Charters case[38] that no interim measures can be granted unless the foreign award is enforced in accordance with Section 48 of the Act. However, this contention was rightly rejected, as there is no embargo in granting interim reliefs under Section 9 of the Act, pending enforcement of foreign award under Section 48 of the Act. This view was further reinforced recently by the Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.[39] (“Avitel”).
On the other hand, Section 27 of the Act, is also a transitory provision to aid the arbitration proceedings, where the Court’s interference may be required in taking of evidence, when a party or witness is situated in India. In our view, this should be available irrespective of the conditions for enforcement, as the Court’s assistance would be required in taking of evidence in an international arbitration. This right should be universally available to all parties as the powers to compel document production, witness to testify, etc. are effectively available only with the domestic courts and not arbitral tribunals. As a “pro-arbitration” nation, irrespective of whether the award made in the international commercial arbitration seated outside India would be enforceable in India or not, the doors must always be kept open for potential litigants of international arbitration in need of assistance of Indian courts in taking of evidence if a party or witness is situated in India.
Enforceability of interim orders passed in foreign seated arbitrations or by emergency arbitrators
The Arbitration Act, despite several recommendations made by the Law Commission, does not specifically recognise interim orders passed by emergency arbitrators. Unlike an interim order passed in domestic arbitration under Section 17 of the Act, which has the same effect as that of a Court decree, there is no existing mechanism in place for enforcement of interim orders passed by foreign seated arbitral tribunals let alone emergency arbitrators. In international commercial arbitrations, enforcement mechanism is governed by the New York Convention. In India, the provisions pursuant to the New York Convention for enforcement are provided under Part II of the Act. “Foreign award” under Section 44 of the Act is defined as “an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India […]” However, just as the New York Convention is silent on the issue of whether interim orders elevate to the status of an “award”, the Act is also silent on the issue. From the perusal of the definition, it appears that the definition only includes partial/final awards passed by arbitral tribunals. It is also a contentious issue of whether an emergency arbitrator is covered within the definition of an “arbitral tribunal” which is defined under Section 2(1)(d) of the Act which only includes a sole arbitrator or a panel of arbitrators and does not envisage an arbitrator who is vested with powers to grant only interim reliefs. This is not in sync with the leading arbitral institutions such as ICC, SIAC, LCIA, etc. which specifically provide for appointment of emergency arbitrator to grant urgent interim reliefs before the constitution of the arbitral tribunals.
In India, particularly in the judgment of Raffles Design[40] referred hereinabove, the parties approached the Delhi High Court for grant of interim reliefs under Section 9 of the Act, in a foreign seated arbitration, although having secured interim orders from the emergency arbitrator. The Delhi High Court held that although the order passed by the emergency arbitrator is not enforceable, the Court was pleased to grant interim reliefs under Section 9 of the Act. Similarly, in HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd.[41], the Bombay High Court was pleased to grant interim reliefs under Section 9 of the Act, despite an emergency arbitrator already having passed interim reliefs.
In Ashwani Minda v. U-Shin Ltd.[42] decided by the Delhi High Court, the applicant had approached emergency arbitrator under the JCAA Rules in a foreign seated arbitration. The emergency arbitrator had declined to grant interim reliefs by passing a detailed order. The applicant then approached the Delhi High Court under Section 9 of the Act. However, the Delhi High Court declined to grant interim relief on the ground that the applicant cannot take a second bite at the cherry having already approached the emergency arbitrator for interim reliefs, especially when there was no change in circumstances. Therefore, the judicial trend with respect to interim reliefs passed by foreign arbitral tribunals and emergency arbitrators seems to be that the same hold persuasive value, although the same cannot be enforced in India.
Conclusion
The applicability of certain provisions of Part I to foreign seated arbitrations is a crucial requirement to protect the assets of a party from being stripped off, rendering a foreign arbitral award redundant. It is with this intention that the change was proposed and made in Section 2(2) of the Act by way of the 2015 Amendment Act. However, due to the ambiguity in the language used in the provision, various issues have afflicted the arbitration proceedings causing delays and increased judicial intervention. Most importantly, Section 2(2) of the Act is a clear case of casus omissus, as it does not appear to include a scenario where two Indian parties choose a foreign seat for arbitration, in which case, it is not regarded as “international commercial arbitration” and as a sequitur, cannot approach Indian courts for interim measures. This does not seem to in line with the intention behind extending Sections 9 and 27 of the Act to arbitrations falling under Part II of the Act.
To give effect to a “pro-arbitration” approach, it is necessary that the issue of two Indian parties choosing a foreign seat for arbitration should be settled once and for all by the Supreme Court, and likewise, the Legislature must cure the casus omisus in the proviso to Section 2(2) of the Arbitration Act. Similarly, the issue of enforcement of interim orders passed by emergency arbitrators and foreign seated arbitral tribunals needs to be addressed under the Indian Arbitration Act. Some of the advance legal systems such as Singapore and Hong Kong expressly recognise the enforcement of interim orders passed by emergency arbitrators and foreign seated arbitral tribunals. However, this issue exists not just in India but in most other countries, where the enforcement regime is left for the domestic laws to decide.
** Senior Associate, Induslaw
***Associate, Induslaw
[1] Arbitration and Conciliation (Amendment) Act, 2015.
[2] Law Commission of India, Report No. 246 on Amendments to the Arbitration and Conciliation Act, 1996 (August, 2014).
[4] Ibid.
[5] Id.
[6] Id.
[7] Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105.
[8] Venture Global Engg. v. Satyam Computer Services Ltd., (2008) 4 SCC 190.
[9]Article 1(3) of UNCITRAL Model Law: 1.(3) An arbitration is international if:
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or
(b) one of the following places is situated outside the State in which the parties have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.
[10]TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd., (2008) 14 SCC 271
[11] 2015 SCC OnLine Bom 7752.
[13] 2012 SCC OnLine Bom 910 : 2012 MhLJ 822.
[16] Ibid.
[18]Sasan Power Limited v. North America Coal Corp.(India) Pvt. Ltd., (2016) 10 SCC 813.
[20] Ibid.
[21] 2017 SCC OnLine Del 11625.
[22] Ibid.
[25] Ibid.
[27] Ibid.
[28] R/Petn. under Arbitration Act No. 131 of 2019, decided on 3-11-2020 (Guj.)
[31] 2018 SCC OnLine Bom 1388 : (2018) 5 AIR Bom R 317.
[32] 2016 SCC OnLine Del 5521 : (2016) 6 Arb LR 426 .
[34] 2016 SCC OnLine Del 5521 : (2016) 6 Arb LR 426.
[35] Section 44 of the Act – In this Chapter, unless the context otherwise requires, “foreign award” means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960—
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.
[36]https://library.iccwbo.org/content/dr/COUNTRY_ANSWERS/CA_SUPP_0029_31.htm?l1=Country+Answers&l2=India
[37] Law Commission’s 246th Report, on Amendments to the Arbitration and Conciliation Act, 1996 (August, 2014);
Consultation Paper placed by the Government of India in public domain referred in Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd., 2016 SCC OnLine Del 5521 : (2016) (6 Arb LR 426.
[38] 2018 SCC OnLine Bom 1388 : (2018) 5 AIR Bom R 317.
[40] 2016 SCC OnLine Del 5521 : (2016) 6 Arb LR 426.
[42] OMP (I) (COMM.) 90 of 2020, decided on 12-5-2020 (Del).
