18 August, 2016
In decisions that are increasingly commonplace but no less welcome, the Indian Supreme Court and the Delhi High Court have handed down a series of judgements which uphold the spirit of the Supreme Court’s decision in Bharat Aluminium Co. v Kaiser Aluminium (“BALCO”) , even though that decision only applied to contracts entered into after 6 September 2012.
Eitzen Bulk v Ashapura
First, in Eitzen Bulk A/S and others v Ashapura Minechem Limited and others4, the Indian Supreme Court upheld the proposition that choosing a juridical seat of arbitration in a particular country has the effect of choosing that country’s law as the law applicable to the proceedings, such that an express choice would not be necessary. Eitzen Bulk A/S (“Eitzen”) entered into a contract with Ashapura Minechem Limited (“Ashapura”) as charterers for a shipment of bauxite. The charterparty contained an arbitration clause providing for arbitration in London and English law to apply. Arbitration took place in London and the tribunal decided in favour of Eitzen. Ashapura filed a petition to set-aside the award under section 34 of the Arbitration Act (which falls within Part I of that Act).
Relying on its past decision in Reliance Industries Limited v Union of India5, the Supreme Court concluded that it is a well-settled principle that where the parties choose a seat of arbitration outside India with the substantive dispute to be governed by the law of a foreign country, the provisions of Part I of the Arbitration Act would be excluded. In the Court’s view, by choosing London as the seat of arbitration and having English law govern the substantive contract, the parties had clearly intended that Indian law would not apply. The Court accordingly dismissed the petition to apply section 34 to set-aside the award.
BALCO II
Secondly, while the September 2012 BALCO judgment set out matters of principle, the Court has recently had to rule on the individual appeal in Bharat Aluminium v Kaiser Aluminium (“BALCO II”). In that case, the parties had chosen Indian law as the law governing the agreement, English law as the procedural law of the arbitration and English law as the law applicable “in case of Arbitration”. The appellant applied to set-aside the award of the tribunal under section 34 of the Arbitration Act (which is in Part I) while the respondent argued that the parties had implicitly agreed to exclude the applicability of Part I.
The Court observed that the intention of the parties, and not just the plain meaning of the words in an agreement, was relevant in interpreting the agreement. Noting that the parties intended to avoid an impracticable and inconvenient process, the Supreme Court held that English law was the procedural law applicable to the arbitration and also the law applicable to the arbitration agreement. Relying on pre-BALCO jurisprudence (including its decision in Union of India v Reliance Industries Limited, discussed in detail here) the Court noted that where the parties have chosen a foreign law to govern the arbitration agreement, notwithstanding the choice of Indian substantive law, Indian courts do not have jurisdiction to set-aside an arbitral award.
Videocon Industries v Union of India; Cairn India v Union of India
Finally, in Videocon Industries Limited v Union of India and Cairn India Limited & others v Union of India6, the Delhi High Court relied upon the principles laid down in BALCO to set-aside anti-arbitration injunctions granted in two long-running arbitrations with their seat in Kuala Lumpur, thereby refusing to exercise any jurisdiction over the two foreign-seated arbitrations.
The dispute had arisen from a production sharing contract (“PSC”) entered into between a consortium consisting of Videocon Industries Limited (“Videocon”), Cairn India Limited (“Cairn”) and two others with the Government of India (“GOI”). The PSC contained a clause that provided that the venue of arbitration was Kuala Lumpur, the governing law of the PSC was Indian law and the law of the arbitration agreement was English law. Two separate arbitrations had been commenced by the consortium members against the GOI. In 2015, a single judge of the Delhi High Court granted anti-arbitration injunctions in respect of the separate arbitrations.
The matter went to the division bench of the High Court, which held that the single judge had proceeded on the erroneous basis that courts in India had inherent jurisdiction to entertain the injunctions simply on the basis that the underlying law governing the contract was Indian law. The division bench held that this was against the principles laid down in BALCO and the principles laid down by the Supreme Court in a previous judgment in the dispute between the same parties to decide the seat of the arbitration7. Accordingly, the injunctions were set-aside.
Conclusions
The Indian courts have shown that, even where they cannot directly apply the BALCO decision as binding authority, they can construe the past case law in such a way as to achieve similar outcomes, at least in many cases. These decisions will no doubt offer further encouragement to parties with agreements for offshore arbitration which pre-date 6 September 2012, that Indian courts will not attempt to exercise supervisory jurisdiction over arbitral proceedings arising from such agreements.
4 Supreme Court of India (decided on 13 May 2016).
5 2014 (7) SCC 603.
6 FAO 450/2015 and FAO (OS) 519/2015.
7 Videocon Industries v UOI, (2011) 3 SCC 257.
For further information, please contact:
Nicholas Peacock, Partner, Herbert Smith Freehills
nicholas.peacock@hsf.com
