‘This is in keeping with the scheme of the international instruments’

In a judgment which is expected to boost foreign investment, the Supreme Court, on Thursday, held that Indian courts have no jurisdiction to pass interim orders in foreign arbitration awards between an Indian company and a foreign company under the provisions of the Indian Arbitration and Conciliation Act, 1996.

Disposing of a batch of appeals, a five-judge Constitution Bench, comprising Chief Justice S. H. Kapadia and Justices D. K. Jain, S. S. Nijjar, Ms. Ranjana Desai and J. S. Khehar, said, “if the arbitration agreement is found or held to provide for a seat/place of arbitration outside India, then the provision that the Arbitration Act, 1996, would govern the arbitration proceedings would not make Part I (relating to domestic arbitration) of the Arbitration Act, 1996, applicable or enable Indian courts to exercise supervisory jurisdiction over the arbitration or the award.”

In the Bhatia International case, the Supreme Court, in 2002, had held that Part I of the Arbitration Act, dealing with the power of a court to grant interim relief, could be applied to arbitration disputes with a foreign seat unless the parties specifically opted out of such an arrangement. As a result, various High Courts had entertained appeals and were passing interim orders against such awards. The present Constitution Bench judgment overrules the 2002 ruling.

Writing the judgment for the Bench, Mr. Justice Nijjar said, “We are of the considered opinion that Part I of the Arbitration Act, 1996, would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996.”

The Bench said “It would only mean that the parties have contractually imported from the Arbitration 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 English Procedural Law/Curial Law. This necessarily follows from the fact that Part I applies only to arbitrations having their seat/place in India.”

The Bench said “the regulation of conduct of arbitration and challenge to an award would have to be done by the courts of the country in which the arbitration is being conducted. Such a court is then the supervisory court possessed of the power to annul the award. This is in keeping with the scheme of the international instruments such as the Geneva Convention and the New York Convention as well as the United Nations Commission on International Trade Law (UNCITRAL). It also recognises the territorial principle which gives effect to the sovereign right of a country to regulate, through its national courts, an adjudicatory duty being performed in its own country.”

The Bench said “Difficulties were also being faced in the International Sphere of Trade and Commerce. With the growth of International Trade and Commerce, there was an increase in disputes arising out of such transactions being adjudicated through Arbitration. One of the problems faced in such Arbitration related to recognition and enforcement of an arbitral award made in one country by the courts of other countries. This difficulty was sought to be removed through various international conventions. The aim and objective of the Arbitration Act, 1996, is to give effect to the United Nations Commission on International Trade Law.”

The bench observed that “In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996, is limited to all arbitrations which take place in India. Similarly, no suit for interim injunction would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India. Part I of the Arbitration Act, 1996, is applicable only to all the arbitrations which take place within the territory of India. Thus, in order to do complete justice, we hereby order that the law now declared by this Court shall apply prospectively to all the arbitration agreements executed hereafter.”

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