Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.
Supreme Court of India · 6 September 2012 · 5 judges
The Constitution Bench held that Part I of the Arbitration and Conciliation Act, 1996 applies only to arbitrations seated in India, overruled Bhatia International and Venture Global, and applied this law prospectively to arbitration agreements executed after the judgment.
Facts
Under a 1993 agreement, Kaiser Aluminium was to supply and install a computer based system for shelter modernisation at BALCO's Korba Shelter. The contract was governed by Indian law, but disputes were to be arbitrated in London under English arbitration law. Two awards were made in England in November 2002. BALCO applied under Section 34 of the Arbitration Act, 1996 at Bilaspur to set them aside; the District Judge and the Chhattisgarh High Court held the applications not maintainable against foreign awards. In BALCO's appeal a two-Judge Bench differed on the correctness of Bhatia International and Venture Global, which had applied Part I to arbitrations held outside India, and the matter reached a Constitution Bench. Connected matters included Bharati Shipyard v. Ferrostaal, where a District Judge had granted interim injunctions under Section 9 in aid of a London arbitration and the Karnataka High Court had set them aside.
Questions before the Court
- Does Part I of the Arbitration and Conciliation Act, 1996 apply to international commercial arbitrations seated outside India, given Section 2(2)?
- Can an award made in a foreign-seated arbitration be challenged under Section 34, and what does 'under the law of which that award was made' in Section 48(1)(e) mean?
- Can Indian courts grant interim relief under Section 9, or entertain a suit for interim injunction, in aid of an arbitration seated outside India?
What the Court held
- The 1996 Act adopts the territoriality principle of the UNCITRAL Model Law. Section 2(2) limits Part I to arbitrations which take place in India, and Part I has no application to international commercial arbitrations held outside India, even if the parties choose the 1996 Act to govern the proceedings. There is no overlap between Part I and Part II.
- The seat of arbitration is the centre of the arbitral process and is distinct from the venue of hearings. Under Section 2(1)(e), courts both where the cause of action arises and at the seat have jurisdiction, the courts of the seat exercising supervisory control.
- Foreign awards are subject to Indian courts only at the stage of enforcement under Part II, and cannot be set aside under Section 34. The words in Section 48(1)(e) refer to the procedural law of the arbitration, and the second alternative is available only if the first is not.
- Section 9 is limited to arbitrations in India, so no interim relief can be sought under it for a foreign-seated arbitration. A suit simply for interim injunction pending a foreign arbitration is not maintainable, as there is no existing cause of action. Non-convention awards are outside the Act, and any gap is for Parliament.
- Bhatia International and Venture Global Engineering were not followed. Since Bhatia had been applied for a decade, the law declared applies prospectively to arbitration agreements executed after the judgment, and the reference was answered accordingly.
Why it matters
The judgment holds that Part I of the 1996 Act is confined to arbitrations seated in India, overrules Bhatia International and Venture Global Engineering, and so ends challenges under Section 34 to foreign-seated awards and Section 9 applications in aid of foreign arbitrations. It explains the difference between seat and venue and the supervisory role of the courts of the seat, and it applies the new law prospectively to agreements made after 6 September 2012.
In the Court's words
Copied from the official judgment; each passage links to its page.
“In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. 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.”
“With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this Court in Bhatia International (supra) and Venture Global Engineering (supra). In our opinion, the provision contained in Section 2(2) of the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. 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.”
“In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process.”
“The judgment in Bhatia International (supra) was rendered by this Court on 13th March, 2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engineering (supra) has been rendered on 10th January, 2008 in terms of the ratio of the decision in Bhatia International (supra). 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.”
Provisions interpreted
Related judgments
- Overrules Bhatia International v. Bulk Trading S.A. (2002)“With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this Court in Bhatia International (supra) and Venture Global Engineering (supra).” (page 176)
- Overrules Venture Global Engineering v. Satyam Computer Services Ltd. (2008)“With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this Court in Bhatia International (supra) and Venture Global Engineering (supra).” (page 176)
- Explained in BGS SGS Soma JV v. NHPC Ltd. (2019)
Case and bench
- Parties
- Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc.
- Case
- Civil Appeal No. 7019 of 2005, with connected civil appeals, a transferred case and special leave petitions
- Decided
- 6 September 2012
- Bench
- S.H. Kapadia, D.K. Jain, Surinder Singh Nijjar, Ranjana Prakash Desai, Jagdish Singh Khehar
- Opinions
- Unanimous. Judgment of the Constitution Bench delivered by Surinder Singh Nijjar, J. and signed by all five Judges. The reference arose because Markandey Katju, J., on a two-Judge Bench, doubted Bhatia International and Venture Global while the other Judge did not.
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