Bharat Aluminium Company v. Kaiser Aluminium Technical Services (BALCO Case)
By Sanjivan Chakraborty
Date of Judgment: 6th September, 2012.
Equivalent Citation: (2012) 9 SCC 552.
Bench (5) : Chief Justice S H Kapadia, Justice D.K. Jain, Justice Surinder Singh Nijjar, Justice Ranjana Prakash Desai, Justice Jagdish Singh Khehar.
Fact of the Case:
- The Appellants (i.e. Bharat Aluminium Company) had entered into an agreement with the respondents (i.e. Kaiser Aluminium Technical Services) whereby the respondents were required to supply and install computer based system at one of the appellant premises.
- The agreement was governed by the prevailing law of India but it contained an arbitration clause.
- The clause in the agreement stated that settlement or adjudication of any dispute in relation to rights or obligations under the said agreement shall be governed by English arbitration law and the venue for the arbitration proceedings shall be London.
- A dispute arose between the appellants and the respondents with respect to performance of agreement and the matter was referred to arbitration. The arbitration proceeding were held in England and two awards were passed.
- Displeased, the Appellants thereafter filed application under section 34 of Arbitration Act 1996 for setting aside the awards. Both the District Court and the High Court of Chhattisgarh refused to set aside the awards and appellants filed an appeal against the said order in the Supreme Court of India.
The dispute was with respect to the award passed in International Commercial Arbitration held outside India with the subject matter, that is assets, situated in India.
Most importantly, the agreement is governed by Indian law but the arbitration proceedings are governed by English Arbitration Law.
The counsel of the appellants relied on previously held judgments of Bulk trading and Venture Global and submitted that Part I of the Act is applicable to the arbitration proceeding that were held in London and by virtue of S. 34 of part 1, the awards could be set aside.
The Appellants Counsels through their submissions tried to showcase a relation between the various provisions of the Act to conclude that Part I is applicable to International Commercial Arbitration that were not held in India.
Judgment by the Supreme Court:
The Supreme Court on 6th September, 2012 overruled its earlier judgment passed in Bhatia International v. Bulk trading and Venture Global Engineering v. Satyam Computer Services ltd and held that Indian Courts do not have the Jurisdiction to interfere with awards passed in International Commercial Arbitration.
Detailed view of the Supreme Court:
- Part I and Part II are applicable to different fields. Part I is applicable to all domestically rendered arbitration proceedings that include arbitration proceeding with no foreign party or arbitration proceedings with both foreign parties but held in India or international commercial arbitration proceeding that are held in India.
- Part II of the Act applies only to enforcement of foreign awards in India. The territoriality principle of Model law upon which the Indian arbitration act 1996 has been enacted has been enshrined in the Indian Arbitration act.
- All provisions of Part I [Section 1, 2 (4), (5), (7)] reinforce that Part I shall be applicable to all arbitration proceedings held in India and cannot by purpose of interpretation be extended to International commercial Arbitrations held outside India.
- Part I applies to all arbitration proceedings that are held in India and this extends also to those arbitration proceedings that are held under any statutory legislation that is in force in India.
- Section 2 (7) reinforce that Part I shall be applicable to all arbitration proceedings that are held in India and distinguishes a domestically rendered award covered by Part I from foreign award covered by Part II.
- Section 2 (7) excludes the possibility of the award passed in arbitration proceedings held in India involving two foreign parties being considered as non-domestic award by providing that such an award shall be domestic award.
- The choice of the country as the seat of arbitration inevitably imports an acceptance that the law of that country shall be applicable to the arbitration proceedings. “Seat” of arbitration and “place” of arbitration are used interchangeably but the seat shall remain the place mentioned in the arbitration agreement.
- Parties of different nations are involved in international commercial arbitration and hence the venue or place for arbitration might change but the seat shall remain the same.
- Section 48 of Part II does not confer jurisdiction on two courts to annul the award. It is provided only to provide an alternative to parties to challenge the award in a case where the law of the country where seat of arbitration is located has no provision for challenging the award.
- The words “set aside or suspend” in the section 48 does not mean that the foreign award that is sought to enforced can be challenged on the merits by the Indian Courts and the said provision merely recognizes courts of two nations who are competent to suspend or annul the award and does not ipso facto confer any jurisdiction on the two courts to annul the award that is made outside India.
- The Indian arbitration act 1996 does not specifically provide conferment of jurisdiction on Indian court to set aside awards made outside India.
- Interim relief under Section 9 can be awarded in case seat of arbitration in international commercial arbitration is India and thus intervention under Section 9 can be sought only with respect to domestic awards.
- Part II has no provision that grants interim relief leading to the logical inference that Indian court cannot pass interim orders against award rendered outside India.
- Many judgments have been delivered by relying on Bulk trading case and hence the said judgment shall be applicable prospectively on all arbitration agreements executed post the date of 6-September 2012.