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International Commercial Arbitration- India1

Introduction: With the advent of globalisation, the world has become a global village.
Business organisations have expanded themselves beyond borders and hence, there has been
a real time increase in cross-border transactions. Agreements and contracts executed between
the commercial organisations many times go ugly, thus, giving rise to disputes which are not
within the confines of municipal law of a particular country, because the transactions are
‘cross-border’ in nature. Adjudication of cross-border business disputes demand expertise of
a different sort, especially when the organisations in dispute hail from nations following
different legal systems, as for example common law system and civil law system. Usually, as
a matter of practise, all agreements executed between corporations inter-se, to bring to fore a
common purpose, have three covenants, worth stressing, in particular; one is that of the
‘governing law’, second is the ‘jurisdiction clause’, and third is the ‘arbitration clause’. The
‘governing law’ stipulation states, as to law of which country shall be taken recourse to, if
and when deals between the international corporations go sour. The ‘jurisdiction clause’
states, as to courts of which country shall have the ‘say’ in the matter in dispute, at hand. The
‘arbitration clause’ states, how the disputes are to be resolved between the corporations
before they are formally brought before the court of law for adjudication; arbitration clause
speaks of mechanisms which are in the nature of ‘out-of-the-court-settlement-of-disputes’,
such as: mediation, conciliation and arbitration.

Reasons, as to why, parties opt for arbitral mechanism for settlement of disputes in cross-
border sphere of transactions is three-fold. Firstly, unfamiliarity with the ‘inter-se’ local laws
of the countries of the transacting organisations, makes it convenient for the organisations to
get disputes resolved without getting into the nuances of which legal regime is to govern the
dispute settlement, that is courts of which country will have precedence and laws (procedural
and substantive) of which country are to apply. Secondly, arbitral mechanism is time
effective and cost effective; also, keeping the basic legal principles in mind, it is the
transacting parties who set the rules of the game. Thirdly, dispute resolution mechanisms
such as arbitration, mediation and conciliation do not ‘side-track’ but rather ‘pull-centre’ the
element of neutrality and non-arbitrariness in the dispute settlement procedure, making it

1
Shivam Goel; B.Com (H), LL.B., LL.M.; Legal Researcher- High Court of Delhi;
advocate.shivamgoel@gmail.com; Author- International Arbitration With Special Focus on Bahrain, Lambert
Academic Publishing, 2014, ISBN: 978-3-659-60665-6

1
convenient for parties to arrive at unbiased outcomes so that commercial relations between
parties can be taken forward, healthily.

To ensure absence of ‘actual’ and ‘anticipatory’ biasness, parties involved in international


commercial transactions, more often than not, choose the “seat” of arbitration in a country
which has nothing to do with the commercial transactions of the entities involved.
Commercial contracts executed between the parties inter-se, usually provide for applicability
of institutional rules of conduct for arbitration. Most often, parties indicate and assertively
determine the substantive law which is to govern the dispute relating to the transaction in
issue.

Sir Michael John in his famous work, Transnational Arbitration in English Law, stated- “The
essence of the theory of ‘transnational arbitration’ is that the institution of international
commercial arbitration is an autonomous juristic entity which is independent of all national
courts and all national systems of law. One of the primary purposes of trans-nationalist
movement is to break the links between the arbitral process and the courts of the country in
which the arbitration takes place.”2

International Commercial Arbitration vis-à-vis India: Arbitration law in India is governed


by the Arbitration and Conciliation Act of 1996.3 The 1996 Act is based on the UNCITRAL4
Model Law. The 1996 Act, broadly speaking, is divided into two parts- ‘Part I’ and ‘Part II’.5
Part I of the 1996 Act relates to domestic arbitrations while Part II relates to International
Commercial Arbitrations. Section 2(1)(f) of the 1996 Act defines ‘international commercial
arbitration’ as an arbitration relating to disputes arising out of legal relationship, whether
contractual or not, which are considered as commercial under the law in force in India; where

2
See: Sir Michael John, Transnational Arbitration in English Law, 133, CURRENT LEGAL PROBLEMS,
1984
3
The Preamble to the 1996 Act proceeds as follows: “An Act to consolidate and amend the law relating to
domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also
to define the law relating to conciliation and for matters connected therewith or incidental thereto.”
4
UNCITRAL- United Nations Commission on International Trade Law
5
International Commercial Arbitration taking place beyond the territory of India was initially governed by the
provisions of the Foreign Awards (Recognition and Enforcement) Act of 1961 and the Arbitration (Protocol and
Convention) Act of 1937, with respect to the enforcement and recognition of the awards. Both the existing Acts
were replaced and their respective provisions were retained in Part II of the 1996 Act.

2
one or more of the parties are entities (personal or impersonal) which reside outside India. 6
‘Commercial’: The term ‘commercial’ finds no definition in the 1996 Act7; however, this
term finds explanation in a footnote of the UNCITRAL Model Law on International
Commercial Arbitration and since, the Model Law finds mention in the Preamble annexed to
the 1996 Act, the same can very well be used for guidance. 8 The Supreme Court of India in
the case of R.M. Investment & Trading Co. (P) Ltd. v. Boeing Co., (1999) 5 SCC 108, held
that the word ‘commercial’ should be interpreted in the widest terms possible, so far as the
law in regards to arbitration is concerned.

‘Seat of Arbitration’: Comprehensive study of Part II of the 1996 Act, speaks in volumes, that
even where the seat of arbitration is in India, international commercial arbitration shall
subsist. Putting all legal speculations to rest, the Supreme Court of India held in the case of

6
The definition qua ‘International Commercial Arbitration’ given in Article 1 (Chapter I: General Provisions) of
the UNCITRAL Model Law is different from that which is adopted in the Arbitration and Conciliation Act of
1996. Article 1 (3) (a) - lays emphasis on the movement of goods across the national boundaries rather than on
the character of parties. Article 1 (3) (b) & Article 1 (3) (c) refer to the occasion when the contract between two
local parties can become international. Article 1 (3) (b) (i) and Article 1 (3) (c) contemplate situation wherein
two local parties choose a foreign venue of arbitration in respect of a local contract. There is no implication that
parties can resort to this, in order to circumvent the municipal law of the country to which they are the subjects.
The courts can always refuse the enforcement. See: http://www.uncitral.org/pdf/english/texts/arbitration/ml-
arb/06-54671_Ebook.pdf, Visited on: 24-03-2015
7
In the case of Atiabari Tea Company Ltd. v. State of Assam, AIR 1961 SC 232, the Apex Court held as
follows: “The trade and commerce do not mean merely traffic in goods, i.e. exchange of commodities for money
or other commodities. In the complexities of modern conditions, in their sweep are included carriage of persons
and goods by road, air and water ways, contract, banking and insurance transactions. In stock exchanges and
forward communications of information, supply of energy, postal and telegraphic services and many more
activities too numerous to be exhaustively enumerated which may be called commercial intercourse.”

In the case of Fateh Chand v. State of Maharashtra, AIR 1977 SC 1825, the Supreme Court of India held that,
any service or activity which in modern complexities of business would be considered to be lubricant for the
wheel of commerce to move is ‘commercial’. Thus, the word ‘commercial’ needs to be given wider connotation
to encompass, not only the exchange of commodities but also the exchange of services. The court further held
that, with the international trade and commerce growing and new avenues of trade and commerce coming into
being; the term ‘commerce’ has to be given widest amplitude. The restrictive definition shall hinder the progress
in regards to trade and commerce. Commenting further, the court held that liberal construction of the word
‘commerce’ shall facilitate the foreign trade qua India and will open the doors for technological know-how in
India.
8
The explanation to the UNCITRAL Model Law says: “The term ‘commercial’ should be given a wide
interpretation as to cover matters arising from all relationships of a commercial nature, whether contractual or
not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade
transaction for the supply or exchange of goods or services; distribution agreement; commercial representation
or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing;
banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or
business co-operation; carriage of goods or passengers by air, sea, rail or road.”

3
BALCO9 that, if the seat of arbitration in an international commercial arbitration is outside
India, then Part I of the 1996 Act shall have no applicability.

In the BALCO case, the Supreme Court of India affirmatively held as follows10:

1. The Arbitration and Conciliation Act, 1996 has accepted the territoriality principle
which has been adopted in the UNCITRAL Model Law.
2. Section 2(2) of the 1996 Act makes a declaration that Part I of the Act shall apply to
all arbitrations which take place within India. Part I of the 1996 Act, therefore, has no
application to International Commercial Arbitrations held outside India. Provisions
contained in Section 2(2) of the 1996 Act are not in conflict with any of the
provisions, neither of Part I, nor of Part II of the Act.
3. In a foreign seated international commercial arbitration no application for interim
relief is maintainable; neither under Section 9 of the Act, nor under any other
provision of Part I of the 1996 Act. Applicability of Part I of the 1996 Act is limited
to all arbitrations which take place in India.
4. No suit for interim injunction simpliciter would be maintainable in India, on the basis
of an international commercial arbitration with a seat outside India.
5. Part I of the 1996 Act is applicable only to such arbitrations which take place within
the territory of India.

‘Bhatia- BALCO Critique’: In the case of Bhatia International v. Bulk Trading SA11, the
Supreme Court of India had ruled that Part I of the 1996 Act was applicable even to the
International Commercial Arbitrations with their ‘seat’ located outside the territory of India.12

9
See: Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552
10
See: Para- 198, 199 and 200 of the BALCO Judgment, (2012) 9 SCC 552
11
2002 (4) SCC 105
12
In the case of Bhatia International v. Bulk Trading SA, (2012) 9 SCC 552, arbitration proceedings were
held in Paris as per the Rules of International Chamber of Commerce. An application was moved under Section
9 for an order of injunction restraining transfer, alienation or creation of third-party rights on the property. The
application was held to be maintainable. The court held that Part I of the Act was applicable to arbitrations
where even though the place of arbitration is not in India. The court opined that remedies under Section 9 do not
get excluded by the application of the ICC Rules of Arbitration. The Supreme Court held as follows: “To
conclude, we hold that the provisions of Part I of the 1996 Act 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 derogatory 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. Provisions in Part I of the Act which are contrary to or excluded by
that law or rules shall not apply.”

4
Thus, the BALCO case in substantiality over-ruled the Bhatia case. Law laid down by the
Bhatia case, in regards to the applicability of Part I of the 1996 Act to International
Commercial Arbitrations, was repealed by the BALCO case, prospectively. Thus, the Bhatia
case still holds the ground and applies prospectively with respect to agreements entered into
between the parties prior to 06.09.2012, that is, the date when judgment in the BALCO case
was rendered. Therefore, the effect is that, the ratio of BALCO case is inapplicable to a large
number of cases, where the parties had entered into an international commercial transaction
prior to 06.09.2012, but disputes qua the transaction arose post 06.09.2012 (the date of
judgement in the BALCO case). The efficiency, Supreme Court of India sought to infuse into
the arbitral mechanism qua the International Commercial Arbitration through its judgement
in the BALCO case, remains a topic of contentious criticism.

‘Implied Exclusion of Indian Laws’: Recently, in a critiquing case, Harmony Innovation


Shipping Ltd. v. Gupta Coal India Ltd.13, the Supreme Court of India dealt with the anomaly
of implied exclusion of Indian laws under an arbitration agreement. In this case the
agreement in subject stated that, the contract executed shall be governed by (and will be
construed as per) the English law qua the arbitration clause. Though there wasn’t express
exclusion of Indian laws (the Arbitration and Conciliation Act, 1996), there seemed ample
indication as to this through the express inclusion of various phrases such as: ‘arbitration in
London to apply’, ‘arbitrators are to be the members of the London Arbitration Association’
and ‘contract is to be governed and is to be construed in accordance with English law’. The
agreement provided that, in case a dispute arose with amount involving less than US $50,000,
then arbitration is to be conducted in accordance with small claims procedure of the London
Maritime Arbitration Association. The Supreme Court critiquing on the fact analogy stated
that, in this case the ratio of Bhatia International was applicable (Para 48 of the ‘Harmony
Innovation’ Judgment). To derive this conclusion, the court gave emphasis upon: the
commercial background; the context of the contract; the circumstances of the parties qua
which the parties acted; and the background qua which the contact was entered into. The
Apex Court thus held that, the applicable law could not be denied only because it would put
one of the disputing parties in a position advantageous.

13
Civil Appeal No. 610/2015 [Arising Out of SLP (C) No. 36643 of 2014]; See:
http://judis.nic.in/supremecourt/imgs1.aspx?filename=42453, Visited on: 24-03-2015

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Seat of Arbitration qua Venue of Arbitration- Anomaly: The Supreme Court of India in
the case of Enercon (India) Ltd. & Ors v. Enercon GmbH & Anr, (2014) 5 SCC 1, held that
the “venue” of an arbitration, which is geographical location chosen based on the
convenience of the parties is not the same as the “seat” of arbitration, which decides the
appropriate jurisdiction.14 The Apex Court in this case held that, it is an accepted proposition
of law that the ‘juridical seat’ or ‘seat of arbitration’ normally carries with it the choice of the
respective country’s arbitration or curial law. But this would arise only if the curial law is not
specifically selected by the parties. The court further opined that: (a) It is necessary not to
confuse the legal seat of arbitration with the geographically convenient place or places for
holding hearings; (b) If the “seat” of arbitration is in India; the 1996 Act being the curial law,
recourse to Indian Courts as per Part I of the 1996 Act, including Section 9 thereof is
available to the parties. The “seat” of arbitration thus, would be the country whose law is
chosen as the curial law by the parties; (c) Sections 8, 10, 11 and 45 of the Arbitration and
Conciliation Act, 1996 are mere machinery provisions for the court to support and aid
arbitration; (d) An arbitration agreement is valid so far as the intention of the parties to
resolve the dispute by arbitration is clear; any allegation of non-conclusiveness of the main
contract is immaterial; (e) If the intention to arbitrate is clear, the court can make good an
omission to make the arbitration agreement workable.

Thus it is suffice to conclude that, the courts of the “seat” of arbitration have the exclusive
jurisdiction to exercise supervisory powers over the arbitration process. The courts of the
“venue” of arbitration cannot have concurrent jurisdiction in this regard.

Public Policy Conundrum: There is no conclusive definition of the term “public policy” qua
the Arbitration and Conciliation Act, 1996. However, reference in regards to the same can be
found in Section 34(2) (b) (ii); Section 48(2) (b) and Section 57(1) (e) of the 1996 Act.15 It is
worth noting that, enforcement of foreign awards qua the meaning of ‘public policy’

14
See: Sanjay Vijayakumar, Enercon Saga: Only Indian Courts have final say in Arbitration Proceedings, rules
Supreme Court, The Economic Times, 26th February 2014, http://articles.economictimes.indiatimes.com/2014-
02-26/news/47705419_1_arbitration-proceedings-foreign-partner-indian-law, Visited on: 25-03-2015
15
The language and content of Section 34(2) (b) (ii) and Section 48(2) (b) of the 1996 Act is different from the
language used in Section 57(1) (e) of the 1996 Act. Section 57(1) (e) of the 1996 Act is in the same terms as that
of Section 7(1) (e) of the Arbitration (Protocol and Convention) Act, 1937, which pre-existed the 1996 Act.
Also, Section 48(2) (b) of the 1996 Act is identical to Section 7(1) (b) (ii) of the Foreign Awards (Recognition
& Enforcement) Act, 1961. It is worth noting, Section 48(2) (b) of the 1996 Act does not provide that the
foreign award can be challenged on the ground that the award is contrary to the law in force in India, as is
provided by Section 57 of the 1996 Act.

6
obtaining in India, by virtue of the judgment rendered by the Supreme Court of India in the
case of Shri Lal Mahal Ltd. v. Progeto Grano Spa16, in regards to the meaning of the term
“patent illegality” culling out of the term “public policy” has been severely narrowed down.
While a domestic award can be assailed on the ground that it is patently illegal, in so much
so, it violates a statutory provision of an enacted statute (under the laws in force in India), this
ground remains unavailable to assail foreign awards. Also, where an arbitration agreement is
in place for the resolution of disputes, the fact that fraud (or cheating) is alleged is no longer a
tensile ground available to impede the court’s power to refer the parties to arbitration. This
was made much clear by the Apex Court in the case of World Sports Group (Mauritius) Ltd.
v. MSN Satellite (Singapore) Pte Ltd.17 It is necessary to keep in mind that, unlike Section 8
of the 1996 Act, the power of the court under Section 45 is brought to fore only if the
following matters obtain, that the agreement is, null and void; inoperative and incapable of
being performed.18 It is important to note that, if a court were to refer parties to arbitration
under Section 45 of the 1996 Act, the party-aggrieved by this, can only file a petition under
Article 136 of the Constitution of India, 1950, as the remedy of an intra-court appeal under
Section 50 of the 1996 Act is available only where the court refuses to make reference to
arbitration under Section 45 of the Act.19 This too is important to note that, if the court
refuses to enforce a foreign award under Section 48, an intra-court appeal under Section 50 of
the Act would lie.

Concept of “public policy” illustrated- (a) When there is question of public interest qua
private interest, private interest must yield to public interest20; (b) Award not based on the
true construction of the terms and conditions of the contract between the parties, and correct
appreciation of the materials in as much as certain important clauses of the agreement were

16
2014 (2) SCC 433
17
Civil Appeal No. 895 of 2014
18
Section 45 of the 1996 Act holds that, when any matter is covered by Section 44, and comes before the court
in respect of which the parties have made an arbitration agreement, and if a party to the agreement makes a
request, the court shall require the parties to refer the matter to arbitration within the terms of their agreement.
Such request can be made by one of the parties or any person claiming through or under a party. The court may
not order such reference if it finds the agreement to be null and void, inoperative or incapable of being enforced.
See: Societe Commercial De Coreales and Financiers v. State Trading Corporation, AIR 1998 Guj 94; Also
see: Avtar Singh, Law of Arbitration and Conciliation, Part II: Enforcement of Certain Foreign Awards, Eighth
Edition, Eastern Book Company, p.414-415
19
See: Jindal Exports Ltd. v. Fuerest Day Lawson Ltd., (2011) 8 SCC 333
20
See: Navyuga Engineering Corporation Ltd. v. Vishakhapatnam Port Trust, 1998 (1) Arb. L.R. 314 (A.P.)

7
ignored in arriving at the stated findings; it was held that, there is clear contravention of the
public policy of India21; (c) Where an Arbitrator or an Arbitral Tribunal ignores a well-
recognised principle of interpretation, such an award would be against the public policy of
India22; (d) Arbitral Tribunal disregarded the SEBI Regulations; Arbitral Tribunal considered
a case which was not even pleaded by the respondent- Award was held to be contrary to
public policy of India23; (e) Public policy is a concept relating to public good and public
interest. Something which is unconscionable or contrary to the fundamental notions of justice
and morality can be regarded as breach of public policy. Court is not supposed to interfere
merely because the view taken by the Arbitrator is either in law or on facts, not in accord
with the judge before whom it is challenged24; (f) Mere error of law is not necessary a breach
of public policy within the meaning of Section 34(2) (b) (ii)25.

In regards to the matter of “public policy” following conclusions can be drawn:

 The doctrine of ‘public policy’ is open-textured and is flexible. The element of


flexibility opens the room for judicial diktat, which sometimes is appreciable and
many times is worth criticising.
 ‘Public policy’ connotes matters which are of general public interest and which are
concerned with ‘public good’, ‘public safety’ and ‘State security’. Concept of public
policy is not even tangentially concerned with the policy of a particular government.
 Neither the Arbitration and Conciliation Act of 1996, nor the Contract Act of 1872,
defines, what is meant by the expression “public policy”. An arbitration award in
India is regarded as ‘against the public policy’, if it is patently illegal or if it is
contrary to- the fundamental policy of Indian law; interest of India; justice and
morality.

21
See: Shri Hans Enterprises v. Airport Authority of India, 2003 (2) Arb. L.R. 336 (Delhi)
22
See: Oil and Natural Gas Corporation Ltd. v. Schlumberger Asia Services Ltd., 2006 (3) Arb. L.R. 610
(Delhi)
23
See: Bharat M. Nagori v. Satish Ashok Sabnis & Anr, 2003 (3) Arb. L.R. 427 (Bombay)
24
See: Municipal Corporation of Greater Mumbai & Ors v. Jyoti Construction Co., 2003 (3) Arb. L.R. 489
(Bombay)
25
See: Vijaya Bank v. Maker Development Services Pvt. Ltd., 2001 (3) Bombay CR 652 (DB)

8
 Enforcement of foreign award, if results in variation of the provisions of the Foreign
Exchange Regulation Act, 1973, then such an award shall be considered as against the
public policy of India.
 Principles which dictate, what is in consonance with public policy and what is against
it, are to be construed based on ‘facts and circumstances’ of each case.

Foreign Awards- Constitution, Enforcement & Refusal: To see, what constitutes a foreign
award analysis of Section 44 of the 1996 Act is of paramount importance. The necessary
ingredients are as follows: the decision should be an arbitral award; it should arise out of a
legal relationship obtaining between parties which may or may not emanate from a contract;
the legal relationship must have commercial considerations (or connotations); the award
should be made in pursuance of an agreement in writing, for arbitration, to which the
convention set forth in Schedule I of the 1996 Act applies; and, the foreign award should be
made in one of the 47 countries duly notified by the Government of India, officially.

The primary purpose of Section 48 is to ensure that at some stage- whether, pre-award, post-
award or both, the judicial authority can be called upon to decide upon the validity, operation,
capability of performance of the arbitration agreement.26 Section 48(1) and (2) of the 1996
Act, hold that a foreign award can be refused, at the behest of the party against whom it is
invoked if- (a) proof is furnished by the party in respect of any of the grounds specified in
clauses (a) to (e) of Sub-section (1); or, (b) the court finds either that the subject-matter of
dispute cannot be arbitrated or that enforcement of award would end up being against the
public policy of India.

Enforcement of a foreign award can be refused only on the basis of the grounds mentioned in
Sub-section (1) and (2) of Section 48, these grounds are as follows:

1. Parties to the agreement, under the law applicable to them, were under some
incapacity.27
2. The agreement was not valid under the law applicable to which the parties have
subjected themselves to.

26
See: Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234
27
If the parties to the agreement referred to in Section 44 of the 1996 Act were under some incapacity under the
law applicable to them, the enforcement of the foreign award may be refused.

9
3. Failing any indication of the law applicable to the agreement, the agreement was not
valid under the law of the country where the award was made.
4. The party against whom the award is enforced, had no notice of the appointment of
the arbitrator or arbitral proceedings, or was otherwise unable to present its case.
5. The award deals with differences not contemplated by or falling within the terms of
submission, or contains decisions on matters beyond the scope of arbitration.28
6. The composition of the arbitral tribunal or the arbitral procedure followed was not in
accordance with the agreement obtaining between the parties.
7. If there is no agreement in regards to the above, the composition or the procedure
followed was not in accordance with the law of the country, in which the arbitration
took place.
8. The award has not yet become binding or was set aside or suspended in the country or
under the law in which the award was made.29
9. The subject matter of dispute is incapable of settlement by arbitration under the laws
of India.
10. The award is contrary to public policy obtaining in India, and one such ground which
would attract public policy is an award which is induced or affected by fraud or
corruption.30

28
Section 48(1) (c) of the 1996 Act holds that, the enforcement of a foreign award may be refused if it deals
with a difference: not contemplated by the reference; not falling within the terms of the reference; or, it contains
a decision on matters beyond the scope of reference. However, none the less, if the decision on matters
submitted to arbitration can be separated from those not so submitted, that part of the award which contains
decision on matters submitted to arbitration may be enforced. This can materialise only if such separation is
possible. If such separation is not possible, then enforcement of the decision can be refused in entirety.
29
The phrase “country... under the law of which, that award was made” in Section 48(1) (e), refers to the law of
the country in which the arbitration has its seat rather than the country whose law governs the substantive
contract. See: Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd., (2006) 11 SCC 245.

So far as seat of arbitration is concerned, in the case of Enercon (India) Ltd. v. Enercon GMBH, 2014 (1)
Apex Court Judgments 690 (SC): 2014 (1) Supreme 653, the Apex Court held that, it would be rare for law of
arbitration agreement to be different from law of seat of arbitration. Once the seat of arbitration has been fixed
in India, it would be in the nature of exclusive jurisdiction for India to exercise supervisory powers over
arbitration.
30
The Apex Court in Renusagar Power Company Ltd. v. General Electric Company, AIR 1994 SC 860,
clarified that the words “public policy” are used to mean public policy of India and not public policy of the
place where the award has been made. The scope of ‘public policy’ is narrower while looking at it for the
enforcement of foreign award than in domestic arbitration.

In the case of, Force Shipping Ltd. v. Ashapura Minechem Ltd., (2003) 3 RAJ 418 (Bom): (2003) 3 Bom LR
948, it was held that, the expression “public policy” must necessarily be construed in the sense that this concept
of public policy is applied in the field of private international law. The award in this case contained reasons, but

10
No comprehensive study on Sections 44, 45 and 48 of the 1996 Act can be termed as
complete without due emphasis and discussion on the case, Chloro Controls (I) P. Ltd. v.
Severn Trent Water Purification Inc., 2012 (4) RCR (Civil) 638: 2012 (5) RAJ 226. In this
case there were multiple agreements entered between the parties; qua these agreements, there
arose several composite transactions; for redressal of disputes qua the transactions, several
forums were available, one of them being ‘arbitration’. Of the several agreements executed,
two agreements did not contain any arbitration clause. However, these two agreements were
executed in furtherance of the main agreement (the mother agreement), which contained an
arbitration clause. These two agreements having being intrinsically inter-connected with the
mother agreement, it was held that ‘arbitration’ as a dispute resolution mechanism, was
available for these two agreements as well. In this case the Apex Court held as follows: (a)
Section 48 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-
contained code; (b) The expression ‘person claiming through or under’ would mean and take
within its ambit multiple and multi-party agreements, though in exceptional case; (c) Even
non-signatory parties to some of the agreements can pray and be referred to arbitration
provided they satisfy the pre-requisites of Sections 44 and 45 of the 1996 Act, read with,
Schedule I of the said Act; (d) Reference of non-signatory parties is neither unknown to
arbitration jurisprudence, nor is it impermissible; (e) In regards to the facts of a given case,
the court is always vested with the power to delete the name of the parties who are neither
necessary, nor proper to the proceedings before the court; (f) In case of group companies, or
where various agreements constitute a composite transaction like mother agreement and all
other agreements being ancillary to the mother agreement; the court can make reference to
arbitration even of the disputes existing between signatory or even non-signatory parties; (g)
The provisions of Section 45 of the 1996 Act prevail upon the provisions of Code of Civil
Procedure, 1908, in specific reference to Section 151 of the Code; When the court is satisfied
that an agreement is enforceable, operative and is not null or void, it is imperative upon the
court to make a reference to ‘arbitration’ and pass appropriate orders in relation to the legal
proceedings before the court, in exercise of its inherent powers; (h) Discretion of the court in
all cases needs to be exercised in manner reasonable and pragmatic.

they were not considered by the court for the purpose of determining its enforceability. The court said that this
would not by itself make the enforcement of the award to be in conflict with the public policy of India.

11
It is noteworthy that, the grounds for challenge of an arbitral award as mentioned in Section
48 of the 1996 Act are almost the same as of grounds mentioned in Section 34 of the 1996
Act.

Conclusive Remarks: If India is to progress in the area of International Commercial


Arbitration, the law as laid down by the Parliament and the interpretation given to it by the
Apex Court, must coincide. If such a thing doesn’t happen, cross-border investments (FDI) in
India will continue to decline, with the countries world over doubting our international
integrity, finding India, not “fine-tuning” but rather “musical-chairing” with the
‘interpretative skills’ in regards to legislation enacted; to arbitrarily promote what suits best
to its national entities. That said, what else needs to be seen is that, there is no re-circulation
back to the days of the 1940 Act, in regards to which the Supreme Court once observed, ‘let
not arbitral proceedings be done in a way that will make the lawyers laugh and legal
philosophers weep’.31

31
See: Guru Nanak Foundation v. Rattan Singh & Sons, 1982 SCR (1) 842

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References:

Statutes-

1. The Arbitration (Protocol and Convention) Act of 1937


2. The Foreign Awards (Recognition & Enforcement) Act of 1961
3. The Arbitration and Conciliation Act of 1996
4. The Foreign Exchange Regulation Act, 1973
5. The Code of Civil Procedure, 1908
6. The Constitution of India, 1950
7. The UNCITRAL Model Law, 1985

Cases-

1. R.M. Investment & Trading Co. (P) Ltd. v. Boeing Co., (1999) 5 SCC 108
2. Atiabari Tea Company Ltd. v. State of Assam, AIR 1961 SC 232
3. Fateh Chand v. State of Maharashtra, AIR 1977 SC 1825
4. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC
552
5. Bhatia International v. Bulk Trading SA, (2012) 9 SCC 552
6. Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd., Civil Appeal No.
610/2015 [Arising Out of SLP (C) No. 36643 of 2014]
7. Shri Lal Mahal Ltd. v. Progeto Grano Spa, 2014 (2) SCC 433
8. World Sports Group (Mauritius) Ltd. v. MSN Satellite (Singapore) Pte Ltd., Civil
Appeal No. 895 of 2014
9. Societe Commercial De Coreales and Financiers v. State Trading Corporation, AIR
1998 Guj 94
10. Jindal Exports Ltd. v. Fuerest Day Lawson Ltd., (2011) 8 SCC 333
11. Navyuga Engineering Corporation Ltd. v. Vishakhapatnam Port Trust, 1998 (1) Arb.
L.R. 314 (A.P.)
12. Shri Hans Enterprises v. Airport Authority of India, 2003 (2) Arb. L.R. 336 (Delhi)
13. Oil and Natural Gas Corporation Ltd. v. Schlumberger Asia Services Ltd., 2006 (3)
Arb. L.R. 610 (Delhi)
14. Bharat M. Nagori v. Satish Ashok Sabnis & Anr, 2003 (3) Arb. L.R. 427 (Bombay)
15. Municipal Corporation of Greater Mumbai & Ors v. Jyoti Construction Co., 2003 (3)
Arb. L.R. 489 (Bombay)

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16. Vijaya Bank v. Maker Development Services Pvt. Ltd., 2001 (3) Bombay CR 652
(DB)
17. Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234
18. Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd., (2006) 11 SCC 245
19. Enercon (India) Ltd. v. Enercon GMBH, 2014 (1) Apex Court Judgments 690 (SC):
2014 (1) Supreme 653
20. Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc., 2012 (4) RCR
(Civil) 638: 2012 (5) RAJ 226
21. Renusagar Power Company Ltd. v. General Electric Company, AIR 1994 SC 860
22. Force Shipping Ltd. v. Ashapura Minechem Ltd., (2003) 3 RAJ 418 (Bom): (2003) 3
Bom LR 948
23. Guru Nanak Foundation v. Rattan Singh & Sons, 1982 SCR (1) 842

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