Pallavi Shroff and Siddhartha Datta of Shardul Amarchand Mangaldas examine the issue of jurisdiction in light of the rise of international commercial arbitration in India
With the introduction of the Indian Arbitration and Conciliation Act 1996 (Indian Arbitration Act) and the growth of international commercial arbitration involving Indian parties over the last decade, several issues have been thrown up. Complex questions of jurisdiction, the competency of Indian courts and the governing law of arbitration are but a few. In negotiating and framing arbitration clauses in international contracts involving Indian parties, it is necessary to keep in mind the developments in Indian arbitration jurisprudence in the context of international commercial arbitration and jurisdiction of domestic courts.
One of the first questions to arise before the Supreme Court of India in the case of Bhatia International v Bulk Trading 2002 was whether a party could invoke the Indian Arbitration Act for interim relief for an arbitration conducted outside India. The Supreme Court gave considerable traction to the jurisdiction of Indian courts under the Indian Arbitration Act, unless it is 'expressly or impliedly excluded' under the arbitration clause. Thereafter, the Supreme Court extended the principle to the setting aside of foreign arbitral awards by domestic courts under the Indian Arbitration Act in Venture Global v Satyam 2008. The Supreme Court held that even in the case of a foreign award, Part I of the Indian Arbitration Act (containing mandatory provisions for arbitrations seated in India) would apply, when the award has an 'intimate and close nexus to India'.
Such decisions, which expand the competency of Indian courts when the arbitration clause is silent on the governing law of arbitration, led to lengthy proceedings on the jurisdiction and competency of Indian courts in relation to foreign seated arbitrations. They also led to parties resorting to concurrent jurisdictions, creating substantial interference in international arbitrations.
The ambiguity created by Bhatia International and Venture Global caused the Supreme Court of India to re-examine the competency of domestic courts for foreign-seated arbitrations.
In 2012, the Constitutional Bench of the Supreme Court in Bharat Aluminium v Kaiser (BALCO) clearly laid down that Part I of the Indian Arbitration Act, which provides for interim relief as well as setting aside of an arbitral award, applies only where the seat, or place, of arbitration is in India, irrespective of the kind of arbitration (ie purely domestic arbitration or an international commercial arbitration held in India). However, the said judgment, rendered on September 6 2012, has only prospective operation, as directed by the Supreme Court.
The prospective operation of the judgment in BALCO makes it imperative for international arbitration lawyers to be aware that there are two arbitration law regimes operating in India at the moment: (i) Pre-BALCO, for arbitration agreements prior to September 6 2012, the competency of Indian courts is determined by the principles laid down in Bhatia International and Venture Global; (ii) post-BALCO, for arbitration agreements entered into after September 6 2012, the competency of Indian courts under Part I would be restricted to arbitrations seated in India.
Determining implied exclusion
In 2011, in the case of Videocon Industries v Union of India, the issue before the Supreme Court was whether it had the jurisdiction to award interim relief under the Indian Arbitration Act, for a foreign seated arbitration, governed by the laws of England. The venue of arbitration was to be Kuala Lumpur, Malaysia, which was later shifted to Amsterdam and then to London. The Supreme Court held that Indian courts have no jurisdiction to grant interim relief, since the arbitration agreement provided that it should be governed by the laws of England. The Supreme Court observed: 'that necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act'. The Supreme Court held that under section 3 of the English Arbitration Act of 1996, the arbitral tribunal was entitled to change the juridical seat of arbitration, but a change in venue of the arbitration did not amount to a change in the juridical seat of arbitration.
In Reliance Industries v Union of India 2014, the Supreme Court held that since the parties had by implication excluded the application of Part I of the Indian Arbitration Act by agreeing that the seat of the arbitration was London, English law applied to the arbitration clause. Further, it maintained that English courts, and not Indian courts, had jurisdiction to supervise the arbitration, even though the proper law of the main contract was Indian law.
The Supreme Court went on to uphold the reasoning of its previous decisions in Sumitomo Heavy Industries v ONGC 1998 and Dozco India P v Doosan Infracore 2011, that arbitrability of a dispute is to be determined in terms of the law governing an arbitration agreement and the arbitration proceedings must be conducted in accordance with the curial law (the law governing the conduct of the arbitration).
After the above analysis, the Supreme Court in Reliance Industries observed that:
in the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the 'seat' of the arbitration, ie, the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings. So in order to determine the curial law in the absence of an express choice by the parties it is first necessary to determine the seat of the arbitration, by construing the agreement to arbitrate.
In March 2015, the Supreme Court in Harmony Innovation v Gupta Coal India continued to restrict the competency of the Indian courts in relation to pre-BALCO arbitration agreements, by justifying the implied exclusion of the Indian Arbitration Act. Though the seat of arbitration was not specified in the arbitration agreement, the Supreme Court held that where the 'intended effect' of the parties by the stipulation in the arbitration agreement was to have London as the seat of arbitration, section 9 of the Indian Arbitration Act would have no applicability.
The agreement in this particular case was entered into on October 20 2010, that is, pre-BALCO. The arbitration clause provided for the contract to be governed and construed according to English law. It further provided that if the dispute did not exceed $50,000, the arbitration would be conducted in accordance with the London Maritime Arbitration Association's small claims procedure. The Supreme Court considered the 'commercial background, the context of the contract and the circumstances of the parties' to arrive at the conclusion that the seat of arbitration was London and concluded that the Indian Arbitration Act was by implication excluded.
Harmony Innovation is therefore also reflective of the factors the courts in India would look into to determine the juridical seat of the arbitration, and whether the arbitration clause was to be interpreted as a proper or substantial clause, or as a curial or procedural one. As to the wording of the arbitration clause, it was held by the Supreme Court to be a substantial one.
Restricting concurrent jurisdiction
The Supreme Court in the case of Reliance Industries followed its previous decision in Videocon Industries. It held that if the Indian Arbitration Act were to be made applicable to the present dispute, Indian and English courts would have concurrent jurisdiction, the parties would be left rushing between India and England for redressal of their grievances.
In the later judgment of Enercon (India) v Enercon GMBH 2014, the Supreme Court examined an arbitration clause which provided for the venue of arbitration to be London and for the law governing the arbitration agreement to be the Indian Arbitration Act. In such a situation, the question that arose was whether the courts of India and England would have concurrent jurisdiction over the arbitration.
On examining various English judgments, the Supreme Court concluded that the choice of governing law being the Indian Arbitration Act implied that the juridical seat of arbitration is India. Therefore, the courts of India would have jurisdiction and not the courts of England. In other words, the Supreme Court struck down the argument that the Indian and English courts would have concurrent jurisdiction under the principle that the courts of England would have jurisdiction because the venue is London and that the courts of India would have jurisdiction since the arbitration agreement is governed by the Indian Arbitration Act.
The fact that the Supreme Court has held that there is no concurrent jurisdiction and that the Indian courts would have exclusive jurisdiction may only be respected by the courts of England on the basis of comity of courts in the domain of public international law. The point may be re-litigated in the courts of England because the English Arbitration Act would mandatorily apply in certain matters if the place of arbitration is in England and therefore, a clear conflict of the procedural law governing arbitration would arise if there is a conflict between the English and Indian Arbitration Acts.
The Indian Arbitration Act mentions that the applicability of Part I is compulsory if the place of arbitration is in India. Therefore, if any arbitration clause is governed by the Indian Arbitration Act, with the place of arbitration or the venue of arbitration outside India, then complex questions would always arise as to which parts of the Indian Arbitration Act would mandatorily apply and which parts may be derogable, if the place or venue of arbitration is outside India. Similar issues may arise if the seat of arbitration is in India and the governing law of arbitration is English law.
An analysis of the observations by the Supreme Court in the recent judgments of BALCO, Reliance Industries, Enercon and Harmony Innovation during the past three years makes it imperative that in drafting an arbitration agreement in the context of an Indian party or a transaction connected to India, regard must be had to the applicability or exclusion of laws. While drafting an arbitration agreement, the following primary aspects must be borne in mind to avoid jurisdictional complications in India: (i) the distinction between proper law of the contract, proper law of the arbitration agreement and the curial law needs to be carefully stated in the arbitration agreement; (ii) parties to the contract need to be aware of the legal repercussions of choosing different systems of law governing the arbitration agreement and the contract; and (iii) the jurisdiction clause, for competent courts, in such contracts should be mentioned in the arbitration clause itself in order to avoid exposure to concurrent or multiple jurisdictions.
It is now quite clear after the judicial pronouncements in BALCO, Reliance Industries, Enercon and Harmony Innovation that matters of complexity concerning international arbitrations are now pressing issues before the highest courts in India. Indian courts are considering global arbitration jurisprudence before deciding a matter under the Indian Arbitration Act. Ultimately, as with any trans-national legal issue, international arbitrations decided under the Indian Arbitration Act by Indian courts would also form a body of jurisprudence in global arbitration jurisprudence. However, if certain matters have not yet been decided in India in the courts, regard must be had to international arbitration jurisprudence when drafting an international arbitration clause.
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Shardul Amarchand Mangaldas
About the author
Pallavi Shroff is the managing partner of Shardul Amarchand Mangaldas. She has 34 years' experience, and her broad and varied representation of public and private corporations and other entities before legal institutions has earned her national and international acclaim. She is also the lead litigation partner at the firm, with extensive knowledge of dispute resolution and arbitration matters. She also heads the competition law practice at the firm.
Shroff is a member of the Supreme Court Bar Association, the Delhi High Court Association, and the International Bar Association IPBA. She has a BA (Eco Hons) from the University of Delhi, an MBA from Jamnalal Bajaj Institute of Management Studies, and an LLB from the Government Law College, Mumbai. According to Chambers and Partners 2015, her work on behavioural matters is particularly praiseworthy, where she is considered to be 'a master in her subject and very much acquainted with the procedure of the law'.
Shardul Amarchand Mangaldas
About the author
Siddhartha Datta is the partner-in-charge of the Kolkata office of Shardul Amarchand Mangaldas and looks after client relations for Amarchand Kolkata. He heads a team of 12 lawyers and supervises legal services in all practice areas such as commercial litigation, arbitration, real-estate, banking and finance, and general corporate advisory and transaction practice (construction and trade contracts, EPC, joint ventures, international trade), and international legal requirements.
Siddhartha finished his law degree from ILS Law College, Pune in 2000 and then completed his Masters of Laws in international business law from London School of Economics in 2008. He has been with the firm for the last 13 years.