Law

The Kaiser Redemption – Ameliorating the Indian Arbitration Law — Guest Post by Rhea Joshi*

Alternative Dispute Resolution (“ADR”) is a well established international practice. However, the advent of ADR in India is relatively recent a  nd is governed by the Indian Arbitration and Conciliation Act, 1996 (“the Act”). Due to the nascency of Indian jurisprudence on Arbitration and the susceptibility of the law to divergent interpretations, India could not capture the imagination of the world as a preferred destination for arbitration. The jurisdiction of the Indian courts with regard to arbitral awards granted outside India i.e. foreign awards, remained a point of contention and much debate until recently when the Supreme Court of India recently brought the prevailing law in conformity with international standards by passing, what is seen as a landmark judgment in the Bharat Aluminum Co. v. Kaiser Aluminum Technical Service (“Kaiser Aluminum”) case.

At the root of the issue was the position of law, as enunciated by this Court in its judgments in the Bhatia International [AIR 2002 SC 1432] and Venture Global Engineering [AIR 2008 SC 1061] cases, which has been prospectively overruled. According to these cases, the provisions of Part I of the Act which deals with arbitrations seated in India, would also apply to Part II of the Act which was related to the enforcement of foreign awards, unless otherwise expressed or implied by the parties. Thus, many provisions which were meant to facilitate the Court in dealing with domestic awards, such as the power to challenge and set aside the awards were extended to foreign awards. This led to the often prolonged trial of many foreign awards in the Indian courtsthereby diffusing the distinction between domestic and foreign awards.

The view taken by the Court in the Kaiser Aluminum case removed all those legal anomalies which eroded the confidence of parties in the Indian arbitration system and made it difficult for foreign parties to enforce an arbitral award against an Indian party in India. The Court held that both the Parts were mutually exclusive and Part I of the Act had no application to arbitrations held outside India, irrespective of whether the parties chose to apply the Act or not. It limited the jurisdiction of Indian courts vis-à-vis arbitrations seated abroad only insofar as the enforcement of these awards in India was concerned. While stating this, it distinguished between the ‘seat’ and the ‘venue’ of the arbitration. It further stated that a foreign award could be set aside only where it was made and where this was not possible, under the law of the country governing the arbitration agreement. The Court underlined the principle of territorial application while reconciling the Indian legal position with the UNCITRAL model law.

Although widely lauded, the judgment also faced criticism primarily, for its prospective application which will give rise to two parallel regimes. This essentially means that any arbitration agreement executed prior to the judgment would continue to be governed by the previous legal position even if the actual dispute arises many years from now. With regard to this issue, the Court’s stand was simple – Parties to an arbitration agreement had to be aware of the position of law while entering into the agreement, in order for it to be applicable to them. Many parties would have been rendered remediless had the Court not taken this stand.

Another consequence of this decision is the exclusion of Indian courts from granting interim measures in case of foreign awards. The Act has no provision for interim relief except under Part I, and therefore, the mutual exclusion of both the parts also excludes the Indian Courts’ jurisdiction from granting any interim relief. Under the Bhatia International regime, parties could agree to exclude all provisions of Part I with the exception of those providing for interim relief. However, in the Kaiser Aluminum case, the Court expressed that only the legislature, by amending the law, could include provisions for interim relief in case of foreign awards being enforced in India – the Court could not read it into the law.

Despite these inevitable negative consequences, this decision has changed the much criticized position of law which prevailed for almost a decade, making the Indian law more amenable to foreign parties. Though the tailor-made solution offered by the Court in the Bhatia International case tried to balance the interest of all the parties by allowing them to cherry pick provisions, but it was taken too far when a foreign award was set aside by the Indian Court in the Venture Global Engineering case. As a way out of the prospective ruling, the Parties are open to amend their arbitration agreement to better suit their needs. This decision has done away with the routine challenges and substantial delays in the enforcement of foreign arbitral awards that were prevalent under the previous position. Moreover, many small issues in the Arbitration Act that remained ambiguous before were clarified by the Court, thereby giving the Indian law a definitive shape. This judgment is most definitely a huge step towards making the Indian Arbitration laws more effective, mature and more at par with transnational standards.

*Rhea Joshi is a graduate from the National Law Institute University, Bhopal in the B.A. LL.B. (Hons.) course. She is registered as an advocate in the High Court of Andhra Pradesh and is currently pursuing a diploma course in Patent law and studies for the Indian Civil Services examination.