“CARZONRENT INDIA PRIVATE LIMITED V.

HERTZ INTERNATIONAL LIMITED”

CASE ANALYSIS
(Term Paper towards partial fulfillment of the assessment in the subject of Alternate Dispute
Resolution)

SUBMITTED TO: -

Ms. Aakanksha Kumar

(Faculty of Law)

SUBMITTED BY: -

Vinay Kumar Solanki (953)

IXth Semester

B.P.Sc., LL.B. (Hons.)

NATIONAL LAW UNIVERSITY, JODHPUR

(JULY 2015 – NOVEMBER 2015)

 ACKNOWLEDGEMENTS

A major project work like this is never the work of anyone alone. The contributions of many
different people, in their different ways, have made this possible. It gives us great satisfaction to
prepare this Project. I would like to take this opportunity to express my gratitude and personal
regards to Ms. Aakanksha Kumar for inspiring and guiding me during the course of this project
work without his valuable guidance and support the completion of the project would not have
been possible.

I would like to thank the library staff for working long hours to facilitate us with required
material going a long way in quenching our thirst for education. Efforts have been made to avoid
errors but in spite of it some errors might have crept in inadvertently.

Vinay Kumar Solanki

 CARZONRENT INDIA PRIVATE LIMITED V. HERTZ INTERNATIONAL LIMITED

Introduction

The realignment of the Indian courts as far as the applicability of the Arbitration Laws are
concerned can be well observed in the recent judgment of Delhi High Court, dated 30 th June
2015, whereby the Court has ruled that two arbitration awards passed in a ICC arbitration held in
Singapore between the American multinational car rental company Hertz International against its
erstwhile partner Carzonrent India, can be challenged by Carzonrent under Section 34 of the
Arbitration Act 1996. The decision is based on the Court having accepted Carzonrent’s
submission that the use of words “arbitration shall be held in Singapore”, coupled with the
arbitration clause being a part of an Indian law governed substantive contract, was sufficient to
hold that the proper law of the arbitration agreement would be Indian law and allow the Court to
entertain a section 34 application.

The Delhi High Court, in its judgment, while noting the above decisions, observed that there
have been decisions subsequent to Balco where the Supreme Court had to apply the law as
explained in Bhatia. However, the Court missed the significant shift in the law governing such
awards, as recorded in Reliance. Contrasting to the ratio of the Reliance case, the Delhi High
Court upheld the maintainability of the petition on the basis of "closest and most real connection
test" and even after applying the same the Delhi High Court observed that there was no implied
exclusion of Part 1 of the Act, and accordingly held that petition under Section 34 of the Act was
maintainable.
Research Methedology

Aim and Objective

The aim and objective of this project is to study and to know about the debate regarding the
concepts of “Venue” and “Seat” and the Indian Court’s continuous changing view on the same in
different case laws in the light of International Arbitration Law. This paper has analyzed this
controversy in the light of a very recent Delhi High Court Judgment which have dealt with the
same issue.

Sources of Data

The sources of data for this project are secondary in nature, including books, articles and online
resources including various case laws and Articles.

Mode of writing

The mode of writing in this project is descriptive and analytical. The methodology employed in
this paper is essentially doctrinal in nature. The primary sources used are case law established
through the years. It also involves study of the evolution of such principles and doctrines by in
depth research on the case law on the subject.
Position of law

The law, as it exists today, in relation to foreign seated arbitrations, arising out of agreements
entered into after 6th September 2012, has been settled by the constitutional bench of the
Supreme Court in Bharat Aluminium Company v Kaiser Aluminium Services Inc.1 In the said
case, the Supreme Court has held that Part 1 of the Arbitration and Conciliation Act, 1996 (Act)
shall not be applicable to foreign seated arbitral proceedings.

Balco, therefore, overruled the earlier decision in Bhatia International v Bulk Trading S.A.2
which held that even in case of arbitrations held outside India, Part 1 of the Act shall be
applicable, unless the same is excluded either expressly or impliedly by the parties. The same
position was followed in the case of Venture Global Engineering v Satyam Computer Services
Limited as well.3 The decision in Bhatia, needless to mention, led to an anomalous situation
wherein the under-equipped courts in India were forced to entertain petitions under Part 1 of the
Act even in foreign seated arbitrations. Further, it is also not difficult to imagine the continual
hardship caused to a party who has to defend a favourable award passed in a foreign institutional
arbitration before courts in India and witness the sluggish (often endless) judicial vagaries. The
approach of the apex court in the Bhatia case, wherein the court assumed within its jurisdiction
those arbitrations which had their seat outside India, led to the reference of the decision
in Bhatia to the constitutional bench in the Balco case.

As the applicability of the decision in the Balco case was made prospective i.e., only to
agreements which were entered after 6th September 2012, the agreements entered before the said
date still continue to be governed under the Bhatia case regime; a regime which has been
evolving constantly. The fate of such agreements, and the subsequent arbitral proceedings in
view of the constantly evolving judicial approach, forms the subject of discussion in this Article.

1
(2012) 9 SCC 552.
2
(2002) 4 SCC 105.
3
(2008) 4 SCC 190.
Facts and Contentions of the Parties

In this particular case the court was dealing with the preliminary objections raised by the
Respondent Hertz International Ltd., with regard to the maintainability of the petitions raised by
Carzonrent India Private Limited under Section 34 of the Arbitration and Conciliation Act of
1996, challenging the Partial Awards dated 7 th March 2011 and 29th November 2012 and the
Final Award dated 11th April 2013 passed by the sole Arbitrator at the ICC International Court,
Singapore.

1. Petitioner’s Submissions:

As the agreement was entered into between the parties prior to the decision of the Supreme Court
in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.4, Petitioner
submitted that the principles laid down in Bhatia International v. Bulk Trading5 will have upper
hand, thus the Indian Courts will have the jurisdiction over Arbitration Awards whether the
arbitration was held in India or Outside, and Part I of the Act would apply to such proceedings.
Case of Venture Global Engg. v. Satyam Computer Services Ltd6., was also referred which,
following Bhatia International, also held that the Part I of the Act would apply even to a foreign
Award. According to them the real test was to examine whether there was either an express or
implied exclusion of the Indian law in the agreement between the parties and that in the instant
case there is no such exclusion, express or implied, of Indian law. They emphasized that merely
because Clause 14 of the agreement envisages that the place of arbitration would be Singapore
did not mean that the "seat of arbitration" was also Singapore, but India due to the closest nexus
to the subject matter of the arbitration. The contract was performed in India and the Petitioner, an
Indian company was party to the agreement which had to perform its obligations under the
contract in India. Barring the fact that the arbitration took place at Singapore, that place had no
connection whatsoever with the contract itself. In other words, naming Singapore as the venue or
making the ICC Rules applicable were not decisive factors so as to exclude the applicability of
Part I of the Act.

4
Supra 1.
5
Supra 2.
6
Supra 3.
 2. Respondent’s Submissions:

The main submission on which the Respondent case lies is that decision in BALCO was made
prospective, the declaration of law cannot be said to be prospective. They submitted that the
place of arbitration as designated in the present case is Singapore and arbitration proceedings had
been held there. In order to substantiate their position they relied on the decision of the English
Court of Appeal in Naviera Amazonica Peruana SA v. Compania International De Seguros Del
Peru7, once the place of arbitration was specified and the arbitration proceedings took place
there, for all practical purposes that would be the seat of arbitration. The law governing the
arbitration would be the law applicable to the seat of arbitration. Reliance was placed on the
decision in Reliance Industries v .Union of India8 , Enercon (India) Ltd. v Enercon Gmbh9
and other such cases.

Decision of the Delhi High Court

The Delhi High Court affirmed in its judgment that since the ruling in BALCO applied
prospectively and the arbitration agreement in the present case was concluded pre-BALCO, it is
the decision in Bhatia International that would apply to the present dispute. According to the
decision in Bhatia, Part I of Indian Arbitration Act would not apply to a foreign seated
arbitration only if it could be proven that the parties had expressly or impliedly agreed that it
would not apply. Therefore, in order to ascertain the real intention of the parties to the arbitration
agreement, the Court analyzed the relevant articles of the agreement. Under the agreement, the
parties had agreed that the proper law of the contract would be the law of India. However, the
arbitration clause clearly provided that the venue of the arbitration would be Singapore and the
arbitration agreement would be governed by the rules of International Chambers of Commerce.

At the very outset, the Court referred to Clause 14 of the agreement in the present case which
provides for resolution of the disputes between the parties by "compulsory arbitration in
accordance with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce". It can be concluded now that in the present case the parties chose “Singapore” as a
venue of arbitration. However, there is nothing in Clause 14 which indicates that there is any

7
(1988) 1 Lloyds Law Reports 116 CA.
8
(2014) 7 SCC 603.
9
(2014) 5 SCC 1.
implied exclusion of the applicability of Indian law. On the other hand, the clause begins by
stating that the agreement is being negotiated by the parties with a view towards its interpretation
under the law of the jurisdiction in which the licensed business shall be conducted in India. This
reflects the close connection of Indian law to the arbitration agreement as well since it forms part
of the contract.

In Venture Global Engg. which followed Bhatia, the Supreme Court emphasised the aspect of
'closest and most real connection'. Likewise in National Thermal Power Corporation v. Singer
Company10 one of the tests that were applied was to examine whether the contract "has in every
respect the closest and most real connection with the Indian system of law". 

The Court accepted Carzonrent’s submissions and looked into the English decision in Naviera
Amazonica Peruana SA v. Compania International De Seguros Del Peru11, which has relied
upon by the Supreme Court in Sumitomo Heavy Industries Ltd. v. ONGC Ltd.12, a decision under
the“in the present case, there is absolutely no connection between Singapore and the present
contract except that the arbitration took place there. The Petitioner is an Indian party and the
Respondent company is incorporated in the U.S.A. The contract was to be performed entirely in
India. As already noted the governing law of contract is Indian law. Applying the “closest and
most real connection” test, it can safely be concluded that there is no implied exclusion of the
applicability of Indian law to the arbitration proceedings.”

The court looked into a very recent judgment of the Court of Appeals in England and Wales in
Sul América Cia Nacional De Seguros SA v. Enesa Engenharia SA13 which held that the proper
law of the arbitration agreement is to be determined by undertaking "a three stage enquiry into:
(i) express choice, (ii) implied choice, and (iii) closest and most real connection". It was further
held that in practice, "stage (ii) often merges with stage (iii), because identification of the system
of law with which the agreement has its closest and most real connection is likely to be an
important factor in deciding whether the parties have made an implied choice of proper law".

While looking into the ratio of the abovementioned case the court went on to give its concluding
remarks by saying that in the present set of facts, there is absolutely no connection between
10
(1992) 3 SCC 551.
11
(1988) 1 Lloyds Law Reports 116 CA.
12
(1998) 1 SCC 305.
13
(2012) 1 Lloyd's Rep. 671.
Singapore and the present contract except that the arbitration took place there. The Petitioner is
an Indian party and the Respondent Company is incorporated in the U.S.A. The contract was to
be performed entirely in India. As already noted the governing law of contract is Indian law.
Applying the "closest and most real connection" test, it can safely be concluded that there is no
implied exclusion of the applicability of Indian law to the arbitration proceedings. And with this
the Court overruled the preliminary objection of the Respondent as regards the maintainability of
the present petitions.

Critical Comment
The Delhi High Court’s judgment in the present case is welcome though but there are certain
issues which could have been avoided if judicial activism have been shown while delivering the
same.

Firstly, it can be observed that the rendered decision is basically based on the very celebrated
English judgment, which prescribes Sul America test. This test sets out that the process to
determine the law of an arbitration agreement is a 3 staged process: the first is to ascertain
whether the parties have set out an express choice, the second whether in the absence of an
express choice if there is an implied choice, and the third where parties have not made either an
express or implied choice, to consider the proper law with which the arbitration agreement has its
closest and most real connection. This third stage seems to be the driving force behind the High
Court’s judgment other than the implied exclusion doctrine set out under Bhatia International.

The issue here is that the Court lost an opportunity to introduce the issue of Severability of an
arbitration agreement as provided under Section 16(a) and then considered the actual
applicability of the Sul America Test as that would have perhaps allowed the High Court to
distinguish between how, in practice, Sul America’s implied choice test and the closest
connection test would have worked out. Even Naviera Amazonica14, a decision which preceded
the 1996 English Arbitration Act that had legislatively incorporated the doctrine of severability
under English law, set out the closest and real connection test as the basis of an enquiry into the
place where the arbitration was held and not on the law of the substantive contract.

Secondly, I feel that the court should have looked into the approach of the Supreme Court while
rendering the Reliance case judgment as the court therein realized that the decision in Balco case
is prospective and that the matter at hand fell under Bhatia regime, therefore Court concluded
that the seat of the arbitration would tantamount to an exclusive jurisdiction clause. In doing so,
the Supreme Court heavily relied upon its earlier decision in Videocon Industries Limited vs.
Union of India15 to hold that court below erred in not applying the ratio of Videocon to the case at
hand. Just to recapitulate, in the Videocon case, the Supreme Court had held that where the
parties agree to a foreign law as governing law of the arbitration agreement, the Indian courts did
not have the jurisdiction to entertain a petition under Section 9 of the Act.

14
Supra 11.
15
(2011) 6 SCC 161.
It is very interesting to note here that the Supreme Court, while dealing with the Reliance case
which was falling under the Bhatia regime,conveniently extended the ratio of the Balco case by
taking recourse to the reasoning of the Videocon case and certain English judgments to conclude
that, seat of the arbitration would tantamount to an exclusive jurisdiction clause. The Supreme
Court, accordingly excluded the applicability of Part 1 of the Act. The relevant observation of
Supreme Court in the Reliance case is as follows:

"45. In our opinion, it is too late in the day to contend that the seat of arbitration is not
analogous to an exclusive jurisdiction clause....."

By doing so, the Supreme Court in the Reliance case has endeavoured to negate the prospective
applicability of the Balco case, decided by the constitutional bench. The Reliance case marks a
major shift in law for agreements entered into under the Bhatia regime, as under the said regime,
the Parties had to go a step further and prove an express or implied exclusion of Part 1 of the Act
even where the seat was situated outside India. The decision in Reliance, therefore, leads to the
inescapable conclusion that even under the pre-Balco regime, the seat of the arbitration, if
located outside India, would confer exclusive jurisdiction on the courts of that place and Indian
courts cannot assume jurisdiction over such matters.

Finally, in order to conclude, I would like to say that if the present case would have addressed
the above mentioned issues than such a judgment will be rendered in the spirit of law and than it
could have realigned the whole practical aspect of the Indian Arbitration law with the
International Jurisprudence.

Bibliography
Cases

1. Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC
552.
2. Bhatia International v. Bulk Trading SA (2002) 4 SCC 105.
3. Venture Global Engg. v. Satyam Computer Services Ltd. (2008) 4 SCC 190.
4. Reliance Industries v.Union of India (2014) 7 SCC 603.
5. Enercon (India) Ltd. v Enercon Gmbh (2014) 5 SCC 1.
6. Dozco India (P) Ltd. v. Doosan Infracore Co. Ltd., (2011) 6 SCC 179.
7.   Harmony Innovation Shipping Lt. v. Gupta Coal India Ltd. 2015 SCC Online 190.
8. Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (1998) 1 SCC 305.
9. In National Thermal Power Corporation v. Singer Company & Ors. (1992) 3 SCC 551.
10. Sul América Cia Nacional De Seguros SA v. Enesa Engenharia SA (2012) 1 Lloyd's Rep.
671.