IMPLIED EXCLUSION OF PART I

Can parties to an arbitration agreement be bound by Indian law if they have neither specifically excluded nor included reference to the Act in their arbitration agreement? Five possibilities that have been put to the Supreme Court: (i) (ii) (iii) (iv) (v) the designation of a foreign proper law but no designation of a seat of arbitration; the designation of a foreign proper law and a foreign seat of arbitration, with or without the further designation of a foreign lex arbitri; the designation of a foreign seat of arbitration, Indian proper law and a foreign lex arbitri; the same as case (iii) but with a foreign law governing the arbitration agreement, as opposed to the arbitration itself; and the designation of foreign seat of arbitration and foreign lex arbitri.

The Supreme Court has held that Part I of the Indian Act is excluded in cases (ii) (Dozco vs. Doosan), (iii) (Yograj Infrastructure Ltd v. Ssang Yong Engineering & Construction Co. Ltd.) and (iv) (Videocon Industries vs. Union of India); and that it is not excluded in cases (i) (Citation Infowares vs. Equinox Corp) and (v) (Venture Global Engineering v Satyam Computer Services Ltd.) The contention that the lex arbitri is presumed to follow the designation of a foreign proper law was rejected in the decision cited for case (i). YEAR CASE & COU RT FOREIGN SEAT FOREIGN LEX ARBITRI GOVERNING LAW OF ARBITRATIO N PROCEEDIN GS INDIAN PROPER LAW IMPLIED EXCLUSION HELD

2001 (SC)

Bhatia International vs. Bulk Trading (Section 9 applicable)

The SC held that Part I of the Act would apply even when the parties have agreed to submit to international commercial arbitration held outside India, unless the parties had, by express or implied agreement, decided to exclude the applicability Part I of the Act in their contract.

2008 (SC)

Venture Global Engineering v Satyam Computer Services Ltd (Section 34 applicable)

2009 (SC)

Citation Infowares vs. Equinox Corp. [Sec. 11(5) applicable]

The interpretation of the SC went one step further and also allowed parties to seek interim relief in India, even though arbitral proceedings were held on a foreign territory. The SC held that a party could seek recourse under section 34 of the Act (which falls under Part I) to challenge an arbitral award passed against it in an international commercial arbitration proceedings held abroad, unless there was an express or implied agreement between the parties to exclude the applicability Part I of the Act. The governing law of the contract was American law, and the parties had not explicitly specified a seat of arbitration. It was argued that the mere designation of foreign law as the proper law of contract constitutes an implied exclusion for the purposes of Bhatia International, and reliance was placed on the decision in NTPC v Singer, where the Supreme

2010 (SC)

Dozco India Private Limited v Doosan Infracore Co. Ltd [Sec. 11(6) not applicable]

Court was said to have held that the proper law of arbitration is presumed to follow the proper law of contract. These contentions were rejected by Sirpurkar J. and it was explained that the presumption referred to in NTPC operates only when the parties designate a seat of arbitration, giving room for the inference that they intended all aspects of their relationship to be governed by the laws of that country. While adjudicating upon an application filed under Part I of the Act for appointment of arbitrators, the SC held that since the parties had already decided on Seoul as the seat of arbitration, the curial law determining the procedural aspect in question was to be determined by the laws of South Korea, and accordingly, the provisions of Part I of the Act stood impliedly excluded.

May 2011 (SC)

Videocon Industries vs. Union of India (Sec. 9 not applicable)

The SC held that the courts do not have power to entertain applications pertaining to international commercial arbitrations where the intent of the parties was never to provide recourse under the Act, even if such recourse was not contractually barred, as required under the Bhatia International v. Bulk Trading SA and Venture Global Engineering v Satyam Computer Services Ltd judgments. SC observed that the law governing the parties was Indian law, the law specifically governing the arbitration was English law and the seat of arbitration was outside India. Based on these contractual provisions, the SC concluded that even though the law governing the rights and obligations of the parties was Indian law, since the parties to the commercial contract had chosen English law as the law governing the

Sept. 2011 (SC)

Yograj Infrastructure Ltd v. Ssang Yong Engineering & Construction Co. Ltd. (Sec. 37 not applicable)

2011 (Ma dras HC)

Financial Softwares and Systems vs. ACI Worldwide Corp (Sec. 9 not applicable)

Default Seat

arbitration, Indian courts will not have any jurisdiction. The SC held that there was an implied exclusion of Part I of the Act even though it was not specifically excluded in the arbitration agreement. The SC held that where the seat of arbitration was Singapore, rules governing the arbitration were of SIAC and the substantive law of contract was Indian law, then Part I of the Act was impliedly excluded. Rule 32 of the SIAC rules provides that in case no governing law and seat of arbitration is provided in the agreement, the law of arbitration will be the International Arbitration Act, 2002, and the seat of arbitration will be in Singapore. The concerned arbitration agreement impliedly excluded Part I even though it did not specify the seat of arbitration. This was so because even though the agreement did not

specify the seat, the Rules of the Singapore International Arbitration Centre which were the applicable curial law provided that Singapore shall be the seat of arbitration if the parties do not agree on a seat. The rules of the London Court of International Arbitration also contain a similar provision. Specifying a seat of arbitration is not required only in such cases i.e. where the curial law provides for a default seat of arbitration. Otherwise it is mandatory.

CONCLUSION Thus, any implied exclusion of Part I can be done by a reference to foreign governing laws and an international seat of arbitration which will ensure that interim reliefs are not available from Indian courts. This will work in the interest of foreign contracting parties who do not want to get entangled in the long drawn litigation system of India, but at the same time want to ensure that the law governing the contract is Indian law so that sufficient contractual protection is offered in India and any enforcement proceedings can be decided by the Indian judicial system. In case the governing law of the contract and seat of arbitration is outside of India, and no specific reference to Indian law or the Act has been made, there shall be an implied exclusion of Part I of the Act. In the event the parties have agreed to an Indian law governing the contract (which is often recommended as the subject matter of the contract is located in India), a foreign law governing the arbitration and an international venue, Part I will again be impliedly excluded. Of course, if the arbitration agreement specifically excludes the jurisdiction of Part I of the Act, the same shall not apply.