We continue our post on the decision of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. with a partial analysis of the decision.
Analysis
The Supreme Court in arriving at
its decision dealt with various arguments which had earlier found favour in the
Bhatia and the Satyam decisions. We will deal with each point of reasoning herein
below.
1. Submission
on S. 1(2) and its Proviso
S. 1(2) of the
A&C Act 1996 provides as under
It (The A&C Act, 1996) extends to the whole of India
Provided Parts I, III and IV shall extend to
the State of Jammu and Kashmir only in so far as they relate to international
commercial arbitration...
It had been
submitted that if Part I of the Act of 1996 were interpreted to apply to only
arbitrations taking place in India, the same would create an anomaly as S. 1(2)
proviso declares that Part I would be applicable to the State of Jammu and
Kashmir [1]
even in relation to arbitrations taking place outside India. This argument had
found favour in the Bhatia case.
The Supreme
Court dismissed the argument in the case under review and found that there was
no anomaly created as S. 2(2) which made Part I applicable to arbitrations
seated in India could not be read subject to the proviso to S. 1(2).
We find
ourselves in agreement with the same although the decision doesn’t carry the
entire reasoning and thought which culminated in this result. Thus we indulge
in delving into the same.
Firstly, the
scope and operation of S. 1(2) and S. 2(2) are entirely different. While
section 1(2) is the general clause stating the extent of applicability of the
Act, section 2(2) is the specific clause stating the condition of applicability
of Part I of the Act. Thus, if section 2(2) is not satisfied, section 1(2) and
its exception, though still operational, have no effect. Secondly the reason
behind the proviso to S. 1(2) is simplistic. The State of Jammu and Kashmir in
India has a special position on account of historical and political reasons.[2]
If one looks at the Arbitration Act, 1940 which dealt with arbitrations taking
place in India, the same was not applicable to Jammu and Kashmir. However both
the Protocol and Convention Act, 1937 and the Foreign Awards (Recognition and
Enforcement) Act, 1961 which dealt with enforcement of Convention awards were
applicable to Jammu and Kashmir. The proviso thus retains this position and
nothing more should be read into it. Thirdly the proviso states that Part I
will be applicable to Jammu and Kashmir in relation to international commercial arbitrations. The phrase refers to
arbitrations where at least one party is non-Indian. It does not refer to an
arbitration with its seat in an international location.
2. Omission
of the word only in S. 2(2)
As mentioned
earlier, the Model Law vide A. 1(2) states
The provisions of this Law, except articles
8, 9, 35 and 36, apply only if the place of arbitration is in the territory of
this State.
The territorial
criterion is set out therein.
S. 2(2) of the
A&C Act, 1996, provides the applicability of Part I of the said Act. It
states:
This
Part shall apply where the place of arbitration is in India.
The plank on
which the Bhatia decision revolved
was the omission of the word only from S. 2(2) of the A&C Act, 1996. It was
submitted that the Indian Legislature intentionally dropped the word only thereby indicating a departure from
the seat centric criterion.[3]
This submission
was accepted in Bhatia and partly
accepted in the case under review. The Supreme Court in the case under review
agreed that the omission of the word only
was intentional but disagreed that the same indicated a departure from the
seat centric approach. [4] The
Supreme Court agreed that it could not supply the word only as it was within the competence of the Legislature to do so. [5]
However the Supreme Court observed that the plain meaning [6]
of the words used in S. 2(2) indicated that the territorial approach was maintained
by the Indian Legislature. [7]
The Supreme
Court reasoned that [8] it was felt necessary to include the word
“only” in order to clarify that except for Articles 8, 9, 35 & 36 which
could have extra territorial effect if so legislated by the State, the other
provisions would be applicable on a strict territorial basis. Therefore, the
word “only” would have been necessary in case the provisions with regard to
interim relief etc. were to be retained in Section 2(2) which could have
extraterritorial application. The Indian legislature, while adopting the Model
Law, with some variations, did not include the exceptions mentioned in Article
1(2) in the corresponding provision Section 2(2). Therefore, the word “only”
would have been superfluous as none of the exceptions were included in Section
2(2). The Supreme Court went on to hold that “The absence of the word “only” which is found in Article 1(2) of the
Model Law, from Section 2(2) of the Arbitration Act, 1996 does not change the
content/import of Section 2(2) as limiting the application of Part I of the
Arbitration Act, 1996 to arbitrations where the place/seat is in India.”[9]
This approach of the Supreme Court is innovative. Furthermore the emphasis of
interpreting the A&C Act, 1996 along the lines of Model Law can only bode
well for Indian arbitration law.
The Supreme
Court also observed that the omission of the word only could be found in other legislations such as the Swiss Private
International Law Act, 1987 and the Arbitration and Conciliation Act, 1996, UK.
Despite the omission the Supreme Court pointed out that the territorial
principle was not cast out in these countries.
An interesting
submission was made that S. 2(2) would not be necessary if it were stating the
obvious, i.e. Part I shall apply to arbitrations taking place in India. The
Supreme Court dealt with the same stating that the necessity of S. 2(2) was to
ensure that the applicability of the Part I was limited to arbitration taking
place in India, especially given that the A&C Act, 1996 consolidates three
older legislations dealing with domestic arbitrations and relating to
arbitrations taking place abroad. The Supreme Court held that if it were
interpreted that Part I shall apply to all arbitrations irrespective of situs,
then it would amount to adding words to S. 2(2).[10]
3. Submission
on S. 2(2) and its relation to S. 2(4) and 2(5)
S. 2(2) reads as
under:
This Part shall apply where the place of
arbitration is in India.
S. 2(4) reads as
under:
This Part... shall apply to every
arbitration under any other enactment...except in so far as the provisions of
this Part are inconsistent with that other enactment or with any rules made
thereunder.
S. 2(5) reads as
under:
Subject to the provisions of subsection (4)
and save in so far as is otherwise provided by any law...or in any agreement in
force between India and any other country...this Part shall apply to all arbitrations
and to all proceedings relating thereto.
It was submitted
that S. 2(2) could not be interpreted to limit Part I to arbitrations taking
place in India as the words every
arbitration in S. 2(4) and all
arbitrations in S. 2(5) indicated the applicability of the A&C Act 1996
to all arbitrations irrespective of the situs. The Supreme Court rejected this
submission on the ground that S. 2(4) and S. 2(5) were subject to S. 2(2) and
would apply to every arbitration and all arbitrations taking place in India.
This reasoning seems in line with the principle of interpretation that a
statute must be read as a whole.
4. The
need (or lack thereof) for defining a domestic award
S. 2(7) defines
a domestic award as an award made under Part I. It was submitted successfully
in the Bhatia case that the need for
defining the domestic award existed as the A&C Act could be applied to
arbitrations taking place outside India, the resulting award from which would then
be deemed to be a domestic award. It was thus submitted that the A&C Act,
1996 was not seat centric in its approach. The Supreme Court was not swayed by
the attractive argument in the case under review. The Supreme Court held that
the position under S. 9B the Foreign Awards (Recognition and Enforcement) Act, 1961
wherein the Legislature recognized the possibility of extra-territorial
operation of Indian arbitration laws [11],
was deliberately omitted. Thus S. 2(7) could not be interpreted in the manner
suggested in the Bhatia decision.
The Supreme
Court observed that the need for defining domestic award arose to distinguish
it from a foreign award. A foreign award as defined in S. 44 and 53 is defined
with respect to the country where it is made. Thus a domestic award in contrast
would mean an award made in India irrespective of whether one of or both the
parties involved are non-Indian.[12]
5. The
definition of Court
S.2(1)(e)
defines Court to mean the court...having
jurisdiction to decide the questions forming subject matter of the arbitration
if the same had been subject matter of a suit..
It was canvassed
before the Supreme Court that words subject
matter indicated that the A&C Act, 1996 was oriented towards subject
matter rather than seat of arbitration. The Supreme Court held that the
definition could not be interpreted in support of the submission so made. The
Supreme Court observed that the provision was only to identify which courts in
India would have supervisory control over the arbitration [13]
The Supreme Court clarified that the Legislature by using such wording had
intended to clarify that in determination of which court would have
jurisdiction over arbitral proceedings, the similar principles would be used as
applied in a civil matter. This seems to be a correct point of view in our
opinion.
6. Party
Autonomy as to Seat
It was submitted
that under S. 20 of the A&C Act, 1996 the parties are free to agree on the
place of arbitration and hence the A&C Act, 1996 places no importance on
the seat and would thus apply even if the seat were outside India. The Supreme
Court rejected the submission stating that S. 20 was subject to S. 2(2) and
hence parties were free to agree on the seat provided it was limited to within
India.[14]
Notably the
Supreme Court went on to distinguish between a seat and venue of arbitration. In
the process the Supreme Court remarked upon arbitration clauses which specify a
location outside India as either venue
or seat and also make the A&C
Act, 1996 applicable to the proceedings. The Supreme Court held that depending
upon the construction of the words, either of the results would ensue:
-
The location would be deemed to be a seat and
hence the A&C Act, 1996 would not ordinarily be applicable. In such case
the A&C Act, 1996 would only be applicable if the lex fori of the country
where the seat is situated permitted the same. The Supreme Court remarked after
considering several judicial decisions [15]
of various jurisdictions that in such event it would only mean that the parties
have contractually imported from the A&C Act, 1996, those provisions which
are concerned with the internal conduct of their arbitration and which are not
inconsistent with the mandatory provisions of the law of the country of the
seat.[16]
This in our opinion seems to resolve quite well the theoretical possibility of
two parties agreeing to arbitration with its seat in X country and subjected to
the procedural laws of Y country, in which case a conflict of laws would ensue
in a similar result.
-
The location would be deemed to be a venue. In
such case the seat would be found to be within India and hence the A&C Act,
1996 would be applicable.
In our next post we shall continue with our analysis of the above decision.
[1]
India is a quasi federal
country which is divided into several states which include Jammu and Kashmir
[2]
Article 370 of the
Constitution of India requires the Union Government to consult with the
Government of the State of Jammu and Kashmir before promulgating certain laws
for Jammu and Kashmir. However in certain cases the Union Government can
legislate for the State of Jammu and Kashmir without such prior consultation.
[3]
Interestingly the Law
Commission of India indicated that the omission was unintended. ‘This aspect
somehow escaped attention, when s. 2(2) was drafted in the 1996 Act’, 176th Report of the Law Commission of India on the Arbitration and Conciliation (Amendment)Bill 2001, p. 26.
[4]
Paragraph 60 of the decision
[5]
Paragraph 62 of the decision
[6]
Paragraph 63 of the decision
[7]
Paragraph 95 of the decision: “In view of the expression used in Section 2(2),
the maxim expressum facit cessare tacitum, would not permit by
interpretation to hold that Part I would also apply to arbitrations held
outside the territory of India. The expression “this Part shall apply where
the place of arbitration is in India” necessarily excludes application of
Part I to arbitration seated or held outside India.”; Similar view can be found
in Shreejee Traco (I) P Ltd v. Paperline
International Inc. (2003) 9 SCC 79 which was decided by the Supreme Court.
Interestingly this decision was passed by the Supreme Court oblivious of the Bhatia decision as the two were
contemporaneous.
[8]
Paragraph 68 of the decision
[9]
Paragraph 75 of the decision
[10]
Paragraph 80 of the decision
[11]
S. 9B stated that the Foreign
Awards (Recognition and Enforcement) Act, 1961 would not apply to awards made
on an arbitration agreement governed by the law of India.
[12]
Paragraph 88 of the decision: Therefore,
it seems clear that the object of Section 2(7) is to distinguish the domestic
award covered under Part I of the Arbitration Act, 1996 from the “foreign award” covered under Part II of the aforesaid Act; and not to distinguish the “domestic award” from an “international award” rendered in
India.; Paragraph 94 of the decision: It
appears to us that provision in Section 2(7) was also necessary to foreclose a
rare but possible scenario (as canvassed by Mr. Gopal Subramanium) where two
foreigners who arbitrate in India, but under a Foreign Arbitration Act, could
claim that the resulting award would be a “nondomestic” award.
[13]
Paragraph 96 of the decision
[14]
Paragraph 99 of the decision
[15]
Naviera Amazonica Peruana S.A. Vs.
Compania Internacionale De Seguros Del Peru,
1988 (1) Lloyd’s Law Reports 116; James Miller and Partners v. Whitworth Street
Estates (Manchester) Ltd., [1970] 1 Lloyd’s Rep 269; Black Clawson
International Ltd. v. PapierIrke Waldhof Aschaf Fenburg AG, [1981] 2 Lloyd’s
Rep 446; Braes of Soune Wind Farm (Scotland) Ltd. v. Alfred McAlpine Business
Services Ltd., [2008] EWHC 426; Shashoua and Ors. V. Sharma, [2009] EWHC 957; C
v. D, [2007] ECWA Civ 1282; Union of India v. McDonnell Douglas Corp, Sulamerica
CIA Nacional de Seguros SA v. Enesa Engenharia SA – Enesa, 2012 WL 14764;
[16]
Paragraph 122 of the decision
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