Written by - Sana Quayyum
Designation - Intern, MediateGuru
The BALCO judgement has been a watershed decision as far International Arbitral Proceedings are concerned. It highlights the question that whether the arbitration proceedings held outside India or international commercial arbitration (ICA) with seat of arbitration outside India where the intervention of the Indian Court is sought by Indian parties in setting aside of foreign awards and making them unenforceable in India and thereby making the entire arbitration proceeding futile is validated by the Arbitration and Conciliation Act, 1996 (the Act) or not. In simpler terms whether Indian Courts can intervene in the arbitral proceedings conducted outside the India at international level. On 6th September 2012, the Constitutional bench of the Supreme Court by overruling its prior decisions of Bhatia Trading v. Bulk trading[1] and Venture Global Engineering v. Satyam Computer Services Ltd.[2] held that Part I of the Act does not apply to arbitration proceeding are held outside India and Indian Court cannot pass interim orders or set aside the foreign awards by resorting to Part I of the Act.
In order to understand the position post BALCO judgement, one must understand the pre-BALCO judgement status. The major decisions include Bhatia and Venture Global case. The Supreme Court in Bhatia Trading v bulk trading held that Part I of the Act applies to foreign awards passed by ICA proceedings that were held outside India. The Court was of opinion that Section 2(2) has neither expressly nor impliedly excluded the application of Part I to ICAs held outside India and hence it shall be applicable to ICA held outside India. In Venture Global v. Satyam Engineering the Court passed interim orders under Section 34 of Part I of the Act against the award passed in ICA held outside India relying on Bhatia Trading judgment.
These decisions were overturned by the Apex Court in 2012. The brief facts of the BALCO case were that the Appellants entered into an agreement with the respondents who were required to supply and install computer based system at one of the appellant’s premises. It was governed by the prevailing law of India containing an arbitration clause stating that any dispute which may arise in future shall be governed by the English arbitration law venue being London. A dispute with respect to performance of agreement arose and was referred to arbitration. The arbitration proceeding were held in England and two awards were passed in the proceeding. An application was filed under S.34 of Act for setting aside awards. The District and the High Court of Chhattisgarh refused to set aside the awards and an appeal was filed against the said order in the Supreme Court of India.
The Apex Court observed Part I is applicable to all domestically rendered arbitration proceedings including arbitration proceeding with either no foreign party or arbitration with both foreign parties but held in India or ICA proceeding held in India. And Part II of the Act is concerned with enforcement of foreign awards in India. The territoriality principle of UNCITRAL Model law has been enshrined in the Indian Arbitration act. Section 2 (7) distinguishes a domestically rendered award covered by Part I from foreign award covered by Part II and excludes the possibility of the award passed in arbitration proceedings held in India involving two foreign parties being considered as non-domestic award by providing that such an award shall be domestic award.
Section 48 doesn’t confer jurisdiction on two courts to annul the award but provides alternative to parties to challenge the award in case law of the country where seat of arbitration is located has no provision for challenge of the award. Thus not specifically providing conferment of jurisdiction on Indian court to set aside awards made outside India.
The definition of foreign awards has been intentionally limited to New York and Geneva conventions, there being no provision in the Act in respect to enforcement of non-convention arbitral awards, remedy with respect to the same cannot be incorporated in Act and which requires necessary amendments to be introduced only by the Parliament.
The only critical point of the judgement was that it be applicable prospectively on all arbitration agreements executed post the date of 6th September 2012.
The 2015 Amendment Act, however, compensated for some of the shortcomings in BALCO by adding a proviso to S.2(2) of the Act lying down that the provision for interim relief by the court (S.9) shall be applicable to even foreign seated arbitrations.