Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc 2012) 9 SCC 552.

Introduction

Bharat Aluminium co. V. Kaiser Aluminium technical services inc[1]. case is a famous case which is also known as the Balco case. This case overruled the judgement of Bhatia international v. Bulk Trading[2] case. And gave the clear interpretation of part 1 of the arbitration act. And also it discussed the UNCITRAL Model law which provides a more clearance in arbitration law. This case witness the shifting of intervention in territorial seated arbitration model.

Facts of the Case

An agreement was executed between Bharat Aluminium Co. and Kaiser Aluminium Technical Services Inc., where Bharat Aluminium Co. was the appellant and Kaiser Aluminium Technical Services Inc. was the respondent, in respect of the supply of equipment, modernization, and upgradation of the production facilities of the appellant at Korba in the State of Chhattisgarh[3].

The disputes arising out of the contract were governed by Articles 17 and 22, which provided as follows:

Article 17.1 – “Any dispute or claim arising out of or relating to this Agreement shall, in the first instance, endeavour to be settled amicably by negotiation between the parties hereto, and failing which, the same will be settled by arbitration pursuant to the English Arbitration Law and subsequent amendments thereto.

Article 17.2 – The arbitration proceedings shall be carried out by two Arbitrators, one appointed by BALCO and one by KATSI, chosen freely and without any bias. The Court of Arbitration shall be held wholly in London, England, and shall use the English language in the proceedings. The findings and award of the Court of Arbitration shall be final and binding upon the parties.

Article 22 – Governing Law – This Agreement will be governed by the prevailing law of India, and in case of arbitration, the English law shall apply.”

The contract stated that London, England, would be the seat of arbitration, while the governing law was Indian law. Hence, the arbitration was governed by English law, and the English courts had supervisory jurisdiction over the arbitration.

It was decided in the contract that any dispute arising between the parties would be referred to the arbitral tribunal in London. A dispute arose regarding the non-performance of the contractual obligations. The arbitration proceedings were held in England in accordance with the contract, and the arbitral tribunal made two awards on 10 November 2002 and 12 November 2002 in favour of the respondent.

The appellant, being dissatisfied, filed an application under Section 34 of the Arbitration and Conciliation Act, 1996[4] before the District Court, Bilaspur, seeking to set aside the arbitral awards, which was dismissed. The appellant then filed an appeal before the Chhattisgarh High Court, which upheld the decision of the District Court. Thereafter, a Special Leave Petition was filed before the Hon’ble Supreme Court. Subsequently, the matter was referred to a Constitution Bench[5] to decide the issue relating to the applicability of Part I of the Arbitration and Conciliation Act, 1996.

Issues

1. Whether Part I of the Arbitration and Conciliation Act, 1996 applies only to arbitrations seated in India or also to arbitrations seated outside India?
2. Whether Indian courts can exercise supervisory jurisdiction over arbitral awards arising from international commercial arbitrations seated outside India?
3. Whether Indian courts have jurisdiction to grant temporary protection under Section 9 of the Arbitration and Conciliation Act, 1996 in respect of foreign-seated arbitrations?

Arguments Presented

The contention of the respondent and the appellant was whether the absence of the word “only” in Section 2(2)[6] clearly indicates that Part I of the Arbitration and Conciliation Act, 1996 would apply only to arbitrations held in India or also to arbitrations held outside India.

Appellant’s Arguments

The appellant challenged the award passed in England by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996[7], requesting the Indian court to set aside the arbitral award passed in England on the legal grounds provided under the Act.

The appellant also argued that, under Section 9[8], the Indian court should grant interim relief in relation to the arbitral award, which provides temporary protection.

In addition, the appellant relied on the decision in Bhatia International, which allowed the application of Part I of the Act to foreign-seated arbitrations. The appellant argued that Indian courts had jurisdiction unless the parties had expressly excluded the application of Part I.

Respondent’s Arguments

The respondent argued that the Arbitration and Conciliation Act is based on the territorial principle, under which the courts of the territory where the arbitration is seated have supervisory jurisdiction over the arbitral proceedings. Therefore, the supervisory jurisdiction belonged to the English courts and not the Indian courts.

The respondent also argued that Part I deals with arbitrations seated in India, whereas Part II deals with the recognition and enforcement of foreign arbitral awards in India. Since the seat of arbitration was London, Sections 9 and 34 of the Arbitration and Conciliation Act, 1996[9] were not applicable.

Court’s Reasoning and Analysis

In Bhatia International v. Bulk Trading S.A. (2002), the Supreme Court held that the Arbitration and Conciliation Act, 1996 would apply even to arbitrations seated outside India unless the parties expressly or impliedly excluded its application by agreement.

Paragraph 32 of the Supreme Court judgment states:

“To conclude, I hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India, the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the provisions of Part I. In cases of international commercial arbitrations held out of India, provisions of Part I would apply unless the parties, by agreement, express or implied, exclude all or any of its provisions. In that case, the laws or rules chosen by the parties would prevail. Any provision in Part I which is contrary to or excluded by that law or rules will not apply.”

In this case, the Hon’ble Supreme Court concluded that Part I would also apply to arbitrations held outside India.

Later, in the BALCO case, the Hon’ble Supreme Court relied on the territorial principle under the Arbitration and Conciliation Act, 1996. It held that if the parties choose a foreign seat, they implicitly accept the procedural law of that jurisdiction. The Indian courts cannot interfere merely because the governing law is Indian law or one of the parties is Indian.

The Court also stated that if Indian courts interfere in foreign-seated arbitrations, it would create unnecessary judicial interference. Such matters should be left to the arbitral tribunal itself.

The Hon’ble Supreme Court held that arbitration is more seat-centric than contract-centric. Hence, Indian courts cannot interfere with foreign-seated arbitrations under Part I of the Arbitration and Conciliation Act, 1996.

Judgment and Ratio Decidendi

The Hon’ble Supreme Court held that Part I of the Arbitration and Conciliation Act, 1996[10] does not apply to foreign-seated arbitrations. Therefore, Section 9[11], which deals with interim relief, and Section 34[12], which deals with setting aside arbitral awards, do not apply to such arbitrations.

The Hon’ble Supreme Court overruled the judgment in Bhatia International[13], where Part I was held to apply to foreign-seated arbitrations.

The judgment was given prospective effect, which means that it would apply to arbitration agreements that came into force after 6 September 2012[14].

The Court relied on the doctrine of territoriality under the UNCITRAL Model Law[15]. Indian arbitration law is largely seat-centric, and if the seat of arbitration is outside India, Sections 9 and 34 of the Arbitration and Conciliation Act, 1996 do not apply because foreign-seated arbitrations do not fall within Part I of the Act

Critical Analysis

The BALCO case resolved the long-standing uncertainty under Part I of the Arbitration and Conciliation Act, 1996 regarding whether Indian courts can interfere in foreign-seated arbitrations. The Supreme Court answered this question by overruling the decision in Bhatia International. The judgment also accepted and recognized the UNCITRAL Model Law to a greater extent.

In the BALCO case, there was a shift in the approach of Indian courts from intervening in foreign-seated arbitrations to not interfering where the parties had expressly agreed to a foreign seat. It gives greater preference to the autonomy of the parties. It also clarifies the distinction between the place governing the contract and the place (seat) of arbitration. The judgment has made the drafting of arbitration clauses more precise, thereby strengthening Indian arbitration law and the Indian legal system.

Conclusion

The judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc[16]. concluded that Part I of the Arbitration and Conciliation Act, 1996 does not apply if the arbitration is seated outside India. Hence, Section 9[17] and Section 34[18] also do not apply because they form part of Part I of the Act. The judgment overruled the decision in Bhatia International, where Indian courts could interfere in foreign-seated arbitrations if the application of Part I had not been expressly excluded by the parties.

BIBLIOGRAPHY

Arbitration and Conciliation Act 1996.

Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

UNCITRAL, UNCITRAL Model Law on International Commercial Arbitration (1985).

Bhatia International v Bulk Trading SA (2002) 4 SCC 105.

[1] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[2] Bhatia International v Bulk Trading SA (2002) 4 SCC 105.

[3] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[4] Arbitration and Conciliation Act 1996, s 34.

[5] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[6] Arbitration and Conciliation Act 1996, s 2(2).

[7] Arbitration and Conciliation Act 1996, s 34.

[8] Arbitration and Conciliation Act 1996, s 9.

[9] Arbitration and Conciliation Act 1996.

[10] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[11] Arbitration and Conciliation Act 1996, s 9.

[12] Arbitration and Conciliation Act 1996, s 34.

[13] Bhatia International v Bulk Trading SA (2002) 4 SCC 105.

[14] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[15] UNCITRAL, UNCITRAL Model Law on International Commercial Arbitration (1985).

[16] Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[17] Arbitration and Conciliation Act 1996, s 9.

[18] Arbitration and Conciliation Act 1996, s 34.