With the advent of globalisation, the world has become a global village. With booming economies and economic inter-dependence amongst nations, cross-border transactions have increases manifold in last twenty-five years.
Contracts executed between commercial organizations many times give rise to disputes which are not within the confines of the municipal law of a particular country, because the transactions are ‘cross-border’ in nature.
Therefore, adjudication of disputes arising from cross-border commercial transactions required a uniform system of dispute resolution, especially when the organizations in dispute are from nations which follow different legal systems. Redressal of disputes qua ‘arbitration’ became the best available adjudicatory mechanism in such situations. The adjudicatory process through arbitral mechanism is both time-effective and cost-effective, making it convenient for parties to arrive at unbiased outcomes.
Even in situations, where disputes arise between parties of different nationalities, a widespread practice has been evolved in international commercial arbitration to ensure the absence of actual and anticipatory biasness by choosing a “seat” of arbitration in a country which has nothing to do with the commercial transactions of the entities involved.
In India, Arbitration law is governed by the Arbitration and Conciliation Act of 1996 (“1996 Act”) based on the UNCITRAL (United Nations Commission on International Trade Law) Model Law. The 1996 Act is divided into two parts-
- ‘Part I’ relating to domestic arbitrations; and
- ‘Part II’ relating to International Commercial Arbitrations.
After the enactment of the 1996 Act, the Supreme Court of India has played a major contributory role in developing the law relating to international commercial arbitration making it amenable with the changing times especially keeping the twin principles of party autonomy and judicial minimalism in mind.
Balco Case: In the landmark case of Bharat Aluminium Co vs Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552, (“Balco Case), the Supreme Court decided on the issues of applicability of law, seat, jurisdiction, and venue in an international commercial arbitration. The Supreme Court in Balco case adopted a pro-arbitration approach by limiting the powers and jurisdiction of Indian courts in the case of foreign seated arbitrations, and set aside its’ decision of Bhatia International v. Bulk Trading SA (2002) 4 SCC 105 and Venture Global Engg. v. Satyam Computer Services Ltd. (2008)4 SCC 190, wherein the Court rulings blurred the objective of the 1996 Act with respect to the differentiation of domestic and international arbitration, as to the extent of the applicability of Part I of the Act, which was held to be applicable even to the international arbitration, unless expressly or impliedly excluded by the parties.
Enercon Case: Another landmark judgment of Supreme Court has been pronounced in the case of Enercon (India) Ltd & Ors v Enercon GmbH & Anr (2014) 5 SCC 1 (“Enercon”). The Supreme Court held that the “venue” of an arbitration is the geographical location chosen based on the convenience of the parties and is different from the “seat” of arbitration, which decides the appropriate jurisdiction. It was held that the “seat” of arbitration thus, would be the country whose law is chosen as the curial law by the parties. It was concluded that the courts of the “seat” of arbitration have the exclusive jurisdiction to exercise supervisory powers over the arbitration process.
In addition to restricting the scope of judicial interference in arbitrations awards passed outside India, the Indian courts have also ensured that even at the enforcement stage of such foreign awards in India, the grounds for setting aside an award are fairly limited.
The Supreme Court in Lal Mahal passed a seminal judgment that established a distinction between the scope of objections of the enforceability of a foreign award under Section 48 of the 1996 Act, and challenges to set aside an award under Section 34 of the 1996 Act. The scope of the expression’ public policy’ was substantially curtailed by the Supreme Court.
Lal Mahal Case: A three-Judge Bench of the Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano SpA (2014) 2 SCC 433 overruled its earlier decision in Phulchand Exports Limited v OOO Patriot (2011) 10 SCC 300 and passed a landmark judgment, wherein the Court established a difference between the scope of Section 48 of the Arbitration and Conciliation Act, 1996 (the Act) concerning the enforceability of a foreign award in international commercial arbitration under the New York Convention Awards on the one hand and challenges to set aside an award under Section 34 of the Arbitration and Conciliation Act, 1996 on the other hand when the “seat” of arbitration is in India. The Supreme Court held that the expression “public policy” under Section 48(2)(b) would not include the ground of “patent illegality” and the judicial dictum of Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 must apply to the expression “public policy” of Section 48(2)(b). In Renusagar (Supra) the court narrowed “public policy” doctrine to a fundamental policy of Indian law, justice and morality, interests of India and thereby limiting the scope of judicial intervention in the foreign arbitral award. The Supreme Court added that the applicability of “public policy” of India doctrine for the purposes of Section 48(2)(b) is limited and narrow in cases involving conflict of laws and matters involving a foreign seated arbitration.
PASL Wind Solutions: The Supreme Court recently in PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India)(P) Ltd, 2021 SC Online SC 331 ( “PASL Wind Solutions”) has clarified that two Indian parties can choose a foreign arbitral seat.
The issue before the Supreme Court was “whether two companies incorporated in India can choose a forum for arbitration outside India and whether an award made at such forum outside India, to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention or NYC) applies, can be said to be a “foreign award” under Part II of the Arbitration and Conciliation Act, 19962 (the Arbitration Act) and be enforceable as such”.
The Supreme Court apart from reiterating the established position of law that Part I and Part II of the Arbitration Act are mutually exclusive and that the provisions of Part II are not supplementary to Part I, the Court clarified that ICA and foreign award are not the same. The court observed that for an award to be a ‘foreign award’ under Section 44 of the 1996 Act, there is no mandatory stipulation that one of the parties must be a foreign entity. An award made in a State other than the State where the enforcement is sought is a foreign award. The nationality, domicile, residence of parties is irrelevant to determine whether an award is a foreign award or not. However, nationality domicile, residence of parties would be relevant to determine whether an award is an ICA or not. The concept of foreign award is thus “seat-oriented” rather than “party-oriented”.
The Court observed that a bare perusal of Section 44 of the 1996 Act would make it clear that a foreign award has no correlation with the definition of international commercial arbitration as contained in Section 2(1)(f). In fact, the term “International commercial arbitration” is conspicuous by its absence. The Court while taking note of the aforesaid, observes that inserting the concept of “international commercial arbitration” in the definition of foreign award contained in Section 44, would alter the very basis of Section 44 of the 1996 Act.
Conclusion:
The recent judgments of the Supreme Court’s decision have been well received in the sphere of international commercial arbitration and are in harmony with the international developments in the arbitration paradigm. The authoritative pronouncements by the Supreme Court could be viewed as a robust step in fulfilling the dream of making India an international arbitration hub and to create an arbitration-friendly ecosystem in India.
