Judicial Intervention in International Arbitration

Final Draft –International Dispute Resolution

Submitted to:

Ms. Kirti Singh

Assistant Professor

Dr. Ram Manohar Lohiya National Law University, Lucknow

Submitted by:

Kautuk

Class of 2011-16

5th year Vth Semester

Roll No. 61

Enrollment No. 110101060

Dr. Ram Manohar Lohiya National University, Lucknow

ACKNOWLEDGMENT

This work at hand is not the work of the researcher alone. A debt of gratitude goes to my
International Dispute Resolution teacher Ms. Kirti Singh for guiding me whenever help was
required. Also, sincere thank goes to my colleagues for keeping the spirit of competition alive
in me. Lastly, I would also like to thank my seniors whose guidance helped me to complete
this research.
 Table of Contents

INTRODUCTION.................................................................................................................................4

INTERIM MEASURE IN OTHER JURISDICTIONS.........................................................................5

A. Domestic Law in other Jurisdictions..........................................................................................6

B. Rules pertaining to intervention in Arbitration Institutions:.......................................................8

INDIAN COURT’S STANCE VIS-A-VIS INTERIM MEASURES....................................................9

BALCO and the way ahead:................................................................................................................14

a. Silence and implication of licence...........................................................................................15

b. The Center of Gravity of Arbitral Process and the Seat Theory...............................................15
c. Enforcement and Annulment:..................................................................................................16

CONCLUSION...................................................................................................................................17
INTRODUCTION
Arbitration is increasingly becoming a more popular mode of dispute
resolution due to several factors – its consensual nature, dispute resolution by
non-governmental decision-makers, flexibility as compared to most court
proceedings and a binding award capable of enforcement. It is generally accepted
that arbitration is international if it consists of parties belonging to different
jurisdictions.1 It is therefore designed in such a way that disputes are resolved
neutrally applying internationally neutral procedural rules, often selecting a seat
of arbitration which is native to neither of the parties.

The United Nations Convention on Recognition and Enforcement of

Foreign Arbitral Awards2 (hereinafter New York Convention) which has been
ratified by 144 countries, makes it obligatory for Member Nations to enforce both agreements
to arbitrate as well as arbitration awards.3 To ensure uniformity in
national arbitration statutes, the Model Law was adopted by the United Nations
Commission on International Trade Law (hereinafter UNCITRAL) in 1985 and
legislations based on the same have been enacted in over sixty countries.

Model Law provides for judicial intervention under certain circumstances, such as interim
measures of protection, appointment of arbitrators and setting aside, recognition
and enforcement of arbitral awards. Most modern arbitration legislations narrowly
limit the power of national courts to interfere in the arbitration process, both when
arbitral proceedings are pending and in reviewing ultimate arbitration awards.
Thus, a degree of uncertainty enters into the international arbitral
process, due to the subjectivity of municipal court decisions. Parties seeking to
settle their disputes through arbitration, choose to do so only if there is an assurance
of non-governmental decision-makers of their choice and other advantages as
mentioned above. If there is a lack of uniformity and added uncertainty across the
world, it could have serious implications for international commerce.

1
UNCITRAL Model Law on International Commercial Arbitration, 1985 (hereinafter Model Law), Article 1.3.
2
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10,
1958, 330 U. N. T. S. 38.
3
United Nations Commission on International Trade Law, Status: Convention on Recognition
and Enforcement of Foreign Arbitral Awards, available at http://www.uncitral.org/uncitral/
en/uncitral texts/arbitration/NYConvention_status.html
This article seeks to address one aspect of this judicial intervention in
the Indian context – that in the case of interim injunctions as provided in Article
9 of the Model Law and § 9 of the Indian Arbitration and Conciliation Act, 1996 –
and compare the same with the position widely accepted in most Model Law
jurisdictions of the world. There are several other points on which Indian courts
differ in their stance on arbitration, such as their position on public policy;
however, the same is beyond the scope of this article.

INTERIM MEASURE IN OTHER JURISDICTIONS

The very nature of an arbitration agreement mandates that parties
have their own choice of arbitrators or an arbitral institution, their own choice of
law including choices – albeit with certain inevitable limitations – as to the law
governing the capacity of parties to enter into an arbitration agreement, the law
governing the arbitration agreement, the law governing the arbitration itself (the
lex arbitri), the substantive law or proper law of the contract and the law governing
recognition and enforcement of the award. In the absence of express choice of
any of these laws by the parties to the arbitration, the same may be decided by the
tribunal or the arbitral institute. Lex arbitri generally deals with issues such as
the appointment and qualifications of arbitrators, extent of judicial intervention in
the arbitral process, the procedural conduct of the arbitration and the form of any
award. Lex arbitri thus also governs the law governing interim measures.

A. Domestic Law in other Jurisdictions

Some countries recognise the distinction between domestic and

international arbitration based on an assumption that in case of the latter category
of arbitrations, the sums at issue are likely to be larger and the parties would be
better able to look after themselves. Therefore, they have introduced a code of
law specifically designed for international commercial arbitrations. Switzerland,
France, Singapore and Colombia are some such countries which have special
codes for international arbitrations alone.

1. English Law:
 English Courts4 have the statutory power to award anti-arbitration
injunctions but will only do so in exceptional circumstances and only where it is
clear that the arbitration proceedings have been wrongly brought. In Elektrim S.A. v.
Vivendi Universal S.A.5 the claimant sought an injunction to restrain the
respondent from pursuing an arbitration being conducted before the London
Court of International Arbitration (hereinafter LCIA). Refusing the injunction to
restrain the LCIA proceedings, the court held that under the Arbitration Act, “the
scope for the court to intervene by injunction before an award” had been “very
limited.”47The court also held that even if the claimant could establish that some
right had been infringed or was threatened by the continuation of the London
arbitration or that continuation of the arbitration was otherwise vexatious or
oppressive, the court would not grant an injunction under § 37 of the Supreme
Court Act because that would be contrary to the parties’ agreement to refer
disputes under the investment agreement to LCIA arbitration. Moreover, since
the arbitrators had previously refused to stay the LCIA arbitration and the court
had “no express power under the Arbitration Act to review or overrule those
procedural decisions in advance of an award by the LCIA arbitrators”, to do so
under § 37 of the Supreme Court Act “would undermine the principles of the 1996
Act.” This case again goes on to demonstrate the deference of English courts
towards arbitral tribunals and proceedings and respect for their autonomy.

2. Singapore Law:
In Singapore, which has adopted the Model Law, the judiciary has
outlined a marked difference between international and domestic arbitration. In
the Swift-Fortune case,6 the High Court of Singapore held that due to the territorial
effect of the legislation, it had no power to make orders to assist a foreign
international arbitration except in limited situations covered by § 6(3) and 7(1)
of the International Arbitration Act (hereinafter IAA). In the subsequent Front
Carriers case, the High Court disagreed with the ruling in the above case and
held that the Court had the power under the IAA to assist, by way of interim
measures, international arbitration both in Singapore as well as those held abroad.

4
United Kingdom has incorporated the Model Law in the Arbitration Act, 1996.
5
Elektrim S. A. v. Vivendi Universal S. A., [2007] EWHC 571 (Comm.).
6
Swift-Fortune Ltd v. Magnifica Marine SA, [2006] 2 SING. L. R. 323.
 Justice Belinda Ang explained that § 12(1) of the IAA spells out in detail the
interim measures of protection which an arbitral tribunal may make, which are
remedies aimed at assisting in the just and proper conduct of arbitration. Orders
from arbitral tribunals are given coercive effect with the High Court’s leave under
§ 12(6) of the Act. § 12(7) of the Act gives effect to Article 9 of the UNCITRAL
Model Law and it forms the basis upon which the High Court may order interim
measures by applying its own domestic law.
Under the first part of this Article, a
request for interim protection is not incompatible with an arbitration agreement
and the request can be made to a court in a country which is different from the seat
of arbitration. Interim measures are not contrary to the intentions of the parties to
an arbitration agreement since they support and promote the outcome of
arbitration.7 In the appeal from the former case, the Singapore Court of Appeal,
resolving the conflict between the earlier High Court decisions discussed above,
clarified the scope of § 12(7) of the IAA in relation to the question of whether a
Singapore court can grant a Mareva injunction as an interim relief in aid of a
foreign arbitration that was instituted based upon an international arbitration
agreement that did not stipulate Singapore as the seat of the arbitration. The
Court of Appeal dismissed the appeal and held that: (i) § 12(7) of the IAA does not
apply to foreign arbitrations, but it applies to an international arbitration where
Singapore is stipulated as the seat of arbitration; (ii) § 12(7) of the IAA does not
provide an independent source of statutory power for the court to grant relief
under § 12(1) of the IAA. The court further noted that the power is drawn from
§ 4(10) of the Civil Law Act, which was the source of its power to grant interim
injunctions in court proceedings, but that provision does not confer power
upon the court to grant a Mareva injunction against a defendant’s assets in
Singapore unless the plaintiff has a cause of action against the defendant that is
justiciable in a Singapore court, which was not the case on the facts in the
SwiftFortune case.

3. Switzerland:

7
Warren B. Chik, Recent Developments in Singapore on International Commercial Arbitration, 11 SING. Y.B.
INT’ L L. 337 (2007).
 The Swiss legal system, too, does not seem to favour anti-arbitration
injunctions. Most of the powers to grant interim relief are vested with the arbitration
tribunal. In Air (PTY) Ltd. v. International Air Transport Association8, the Court
of First Instance of the Canton of Geneva ruled that anti-suit injunctions, including
anti-arbitration injunctions, are contrary to the Swiss legal system, particularly
because they have been found to contradict the principle of ‘Competence
Competence’, a well-established principle in Swiss law.

B. Rules pertaining to intervention in Arbitration Institutions:

Most of the institutional rules have some form of provisions to support

the aid of courts for arbitration. 9 The major concern for parties to arbitration
agreement is that their approach to the Courts for interim relief might be seen as a
breach of the agreement itself. Rules of the International Chamber of Commerce,
American Arbitration Association and World Intellectual Property Organization
(hereinafter WIPO) make it abundantly clear that such an approach will not be
considered to be a violation of the agreement to arbitrate. LCIA and the
International Centre for Settlement of Investment Disputes (hereinafter ICSID)
rules only have a general provision that allows parties to approach judicial
authorities for interim relief.10 § 20.2 of the Arbitration Rules of the German Institute
of Arbitration (DIS Arbitration Rules, 1998) also duplicates Article 9 of the
UNCITRAL Model Law.

These institutional rules do not differ much in their recognition of courts’ power to grant
interim measures pending arbitration, except
for a few instances. LCIA Rules require ‘exceptional circumstances’ for court
8
Tribunal de Première Instance [TPI] [Court of First Instance] May 2, 2005, Case No. C/ 1043/2005-15SP
(Switz.), translated in 23 A.S.A. BULL. 739 (2005).
9
Gregoire Marchac, Interim Measures in International Commercial Arbitration under the ICC, AAA, LCIA and
UNCITRAL Rules, 10 AM. REV. INT’ L ARB. 123, 134 (1999)
10
LCIA Arbitration Rules, January 1, 1998, Article 25.3: “The power of the Arbitral Tribunal under Article 25.1
shall not prejudice howsoever any party’s right to apply to any state court or other judicial authority for interim
or conservatory measures before the formation of the Arbitral Tribunal and, in exceptional cases, thereafter. Any
application and any order for such measures after the formation of the Arbitral Tribunal shall be promptly
communicated by the applicant to the Arbitral Tribunal and all other parties. However, by
agreeing to arbitration under these Rules, the parties shall be taken to have agreed not to apply to any state court
or other judicial authority for any order for security for its legal or other costs available from the Arbitral
Tribunal under Article 25.2.”
intervention after the constitution of the tribunal, whereas the ICC rules just
require ‘appropriate circumstances’. LCIA Rules also prohibit parties from
approaching national courts for provisional measures on security for costs, which
have been made available from the tribunal itself.
It is clear from the way the rules of the institutions have been setup
that all of them recognize the parties’ right to approach the courts for interim relief,
albeit with some reservations. The problem with all these provisions is that the
role of the competent judicial authority is not well-defined and thus one can see
the disparity in the standards of judicial interference in different jurisdictions.

INDIAN COURT’S STANCE VIS-A-VIS INTERIM MEASURES

The Arbitration and Conciliation Act, 1996 (hereinafter, the “Act”) is
an attempt to implement the Model Law and to create a pro-arbitration legal
regime in India, something which was a mere illusion under the Arbitration Act,
1940. The Act seeks to minimise judicial interference in arbitration. 84
However, a closer analysis of various judicial interpretations, especially in the
realm of International Commercial Arbitration reveals that such purpose has not
been fulfilled.

It is through an astute examination of the interpretation of § 2(2) of

the Act that the extent of judicial intervention can be observed. § 2(2) of this Act
is in consonance with the principle that arbitral procedure is governed by the lex
arbitri. This section clearly states that Part I of the Act is applicable where the
place of arbitration is in India. A prominent Delhi High Court decision first declared the
scope of § 2(2) as being wide enough to include arbitrations even taking place outside
India.11 However, this was far from what could be taken as a settled point of law
in this regard. The Calcutta High Court 12 departed from this exposition and
stated that § 2(2) of the Act restricts the applicability of Part I of the Act to
arbitrations in India.

In an effort to settle the somewhat confused position of law, a three judge Bench in Bhatia
International v. Bulk Trading S. A.13 gave its verdict.

11
Dominant Offset Pvt. Ltd. v. Adamovske Strojitrny A.S., AIR 2000 Del 254.
12
East Coast Shipping Limited v. M.J. Scrap Pvt. Ltd, 1997 (1) HN 444.
13
Bhatia International v. Bulk Trading S.A., AIR 2002 SC 1432.
In this case, the contract entered into had an arbitration clause
providing for arbitration as per the ICC Rules. A sole arbitrator was appointed by
the ICC on request of the respondent and the parties agreed for arbitration to be
held in Paris. Thereafter, the respondent filed an application under § 9 of the Act
in the District Court of Indore, for obtaining an order of injunction restraining the
appellant from transferring its business assets and properties located in India.
The appellant opposed the application by contending that Part I of the Act, which
contains § 9, applies only to arbitrations conducted in India. Dismissing this
objection, the lower court admitted the application of Part I of the Act. The appellant
then filed a writ petition before the Madhya Pradesh High Court which was
dismissed on October 10, 2000. Hence, an appeal was made to the Supreme Court
against this judgment of the High Court to decide whether an Indian court can
provide interim relief under § 9 of the Act in cases where an international commercial
arbitration is held outside India. The Supreme Court, in essence, ruled that Part I of the Act
which gives effect to the UNCITRAL Model Law and confers power on the court to grant
interim measures, applied even to arbitration held outside India. Its decision spelt
out that arbitrations held in India would necessitate the application of the
provisions of Part I with deviation permitted only to the extent of the derogable
provisions of Part I. In cases of international commercial arbitrations held outside
India provisions of Part I would apply unless the parties by agreement, express or
implied, excluded all or any of its provisions. The Supreme Court reasoned that
if the Act provides that Part I is applicable to India, it is not tantamount to being
applicable either ‘only’ in India or being inapplicable if it is out of India.

An analysis of the principles of statutory construction and

interpretation will reveal flaws in the Court’s reasoning. According to the rule of
literal construction of a statute, the words of a statute are first understood in their
literal and natural sense unless it results in an absurd interpretation. Furthermore
it is presumed that the statutes are not intended, in the absence of contrary
language, to operate on events taking place outside the territories. In the ruling
of J.K. Cotton Mills Spinning and Weaving Mill Co. Ltd v. State of U.P.14, it was
observed: “In the interpretation of statutes, the courts always presume that the
legislature inserted every part thereof for a purpose and the legislative intention

14
J.K. Cotton Mills Spinning and Weaving Mill Co. Ltd v. State of U. P., AIR 1961 SC 1170
is that every part of the statute should have effect.” This principle has been
acknowledged in numerous decisions.15 Thus, § 2(2) of the Act, in its plain and
unambiguous meaning excludes the application of Part I of the Act to international
arbitrations when the place of arbitration is outside India. Justice R. C. Lahoti,
speaking for the Supreme Court, held in Shreejee Traco (I) Pvt. Ltd. v. Paperline
International Inc.16 that it is implicit in the language of the Act that Part I “will not
apply where place of arbitration is not in India”.
There are four main reasons that the Apex court listed to justify their
opinion in the Bhatia case. In their view, the judgment would have to support
wider applicability of Part I of the Act to avoid the following irregularities in law:

a) A lacuna would be created in the law of arbitration as neither Part I

or II would apply to arbitrations held in a country which is not a signatory to the
New York Convention or the Geneva Convention. It would mean that there is no
law in India, governing such arbitrations.
b) There would be a conflict between sub-section (2) of § 2, on one
hand and sub-sections (4) and (5) on the other. Further sub-section (2) would also
be in conflict with § 1 which provides that the Act extends to the whole of India.
c) It would leave a party remediless in international commercial
arbitrations which take place out of India as the party would not be able to apply
for interim relief in India even though the properties and assets are in India.

This decision can be proven as unsatisfactory if each of these

irregularities is examined with reasonable prudence and rationality. 17
With regard to the first problem of the creation of a legal lacuna, the
law relating to awards in such non-convention countries has been laid down by
the Apex Court, before the enactment of this Act, in the case of Badat and
Company, Bombay v. East India Trading Company.18 It has been held that an
award given in a non-convention country is enforceable in India on the same
grounds and in the same circumstances in which it is enforceable in England

15
See Aswini Kumar v. Arabinda Bose, AIR 1952 SC 369
16
Shreejee Traco (I) Pvt. Ltd. v. Paperline International Inc., (2003) 9 SCC 79
17
JUSTICE R.S. BACHAWAT, LAW OF ARBITRATION & CONCILIATION 1436 (K.K. Venugopal ed.,
2005)
18
Badat and Company, Bombay v. East India Trading Company, AIR 1964 SC 538.
 under the common law on grounds of justice, equity and good conscience. This
can be done by bringing a suit, provided the agreement to arbitrate was made
within the limits of the jurisdiction of Indian Court and the award is final and
binding. Since the present Act of 1996 has not altered that position of law, the
argument that there would be no law existing in India governing awards in non
convention countries does not hold ground.

In the third presumable anomaly, the Supreme Court finds a conflict

between § 2(2) on the one hand and sub-sections (4) and (5) of § 2 on the other. It resolves
the conflict by saying that:

“[T]he words “every arbitration” in sub-section (4) of § 2 and

the words “all arbitrations and all proceedings relating thereto”
in sub-section (5) of § 2 are wide. Sub-sections (4) and (5) of
§ 2 are not made subject to sub- section (2) of § 2. It is significant that sub-section (5) is
made subject to sub-section (4) but not
to sub-section (2). . . . the Legislature has purposely omitted to
add viz. “Subject to provision of sub-section (2). However read
in the manner set out hereinabove there would also be no conflict
between sub-section (2) of § 2 and sub-sections (4) and/or (5)
of § 2.”19

However, the court overlooked the fact that the phrase “every
arbitration” mentioned in § 2(4) cannot and should not be interpreted in isolation.
When we read the entire sub-section, we realise its true object. The sub-section
mentions “every arbitration under any other enactment”. It thus explicitly refers
to all statutory arbitrations and not every arbitration, whether taking place within
India or outside. As stated earlier, § 2(5) cannot be read as that which gives Part I
ample scope to even govern arbitrations outside India. This interpretation of the
court actually renders § 2(2) as a mere surplus or that which is of no relevance,
which of course is not true. With regard to the fourth incongruity of the party being left
remediless, the principle of party autonomy as stated under § 20(1) of the Act gives them
freedom of choice with regard to the place of arbitration. Where the parties are

19
Ibid.
fully aware of the provisions to choose the place of arbitration outside India,
agreeing to go outside jurisdiction of Indian courts, after due deliberation and
knowledge, they cannot complain against the award.
A possible solution to this conflict in international commercial
arbitrations held outside India lies in the interpretation of § 28of the Act. It lays
down rules and regulations governing domestic arbitrations and international
commercial arbitrations, limiting it to only those where the place is India. § 28 is within Part I
of the Act and does not attempt to frame any rule for any arbitration
held outside India. It can be thus concluded that this is evidence of the fact that
Part I of the Act is itself limited to arbitrations within India.

Relying on its own judgment in the Bhatia case, the Apex Court in a
recent ruling, Venture Global Engineering v. Satyam Computer Services Ltd.
and Another,20 ruled that a foreign award was amenable to challenge under § 34
on a construction that Part I of the Act applies to foreign awards. It was only in a
case where the parties specifically chose to exclude the application of Part I of the
Act that such challenge would not be available.
The Bhatia decision has attracted denigration even from the
international experts in this field. Rt. Hon. Lady Justice Mary Howarth Arden
DBE, Lord Justice of Appeal, UK at the second Conference on Dispute Resolution
on 13 th September, 2003 on Arbitration and the Courts organised by the
International Centre for ADR observed as follows:

“This ruling calls for a number of observations. First it goes

much further than the Law Commission’s recommendation, which
was not that the whole of Part I should apply to international
commercial arbitration, but only the power to grant interim
measures. This much is permitted by UNCITRAL Model Law.
Second, the application of Part I to arbitrations outside India is
not consonant with party autonomy. If the parties choose to
arbitrate under ICC Rules in Paris, they have chosen that the
arbitration shall be conducted under ICC Rules and subject to

20
Venture Global Engineering v. Satyam Computer Services Ltd. and Another, AIR 2008 SC
1061.
the supervisory jurisdiction of the French Courts. Third, taken
literally, the Bhatia decision seems to undermine India’s
adherence to the New York Convention.”21

AMENDMENT ACT of 2015:

The Arbitration and Conciliation (Amendment) Act, 2015 ('Amendment Act') was passed by
both houses of parliament in the winter session, pursuant to which it has received Presidential
assent on 31 December 2015. The Act was notified in the Gazette of India on 1 January 2016
and has now come in to force.

On 23 October 2015, the Government of India through an executive action had promulgated
the Arbitration and Conciliation Ordinance 2015 ('the Ordinance') bringing about large scale
changes to the Arbitration and Conciliation Act, 1996 with the intention expediting the
process and reducing court interference.

The Ordinance was welcomed but one of the contentious issue was whether it applied to fresh
arbitrations or pending arbitration proceedings also. The Madras High Court in Delphi TVS
Diesel Systems v Union of India22 issued a notice to the Central Government seeking a
clarification on whether the provisions of the Ordinance had a prospective or a retrospective
application.

The Bombay High Court too in Kochi Cricket v BCCI issued notice to examine whether § 34
of the ordinance dealing with setting aside of domestic awards would be applicable to
pending cases.

The Ordinance in the form of a bill was introduced in the Lok Sabha on 3 December 2015.
The Lok Sabha while passing the bill has clarified that it will not apply to pending cases
unless parties agree otherwise. A statement to this effect was made by the law minister Mr.
Sadanand Gowda on 17 December 2015 while replying to a debate on the bill in the Lok
Sabha, which passed the bill on the same day. Subsequently a clarification in the form of § 26
was introduced in the Amendment Act which settles the issue that unless the parties agree
otherwise, the Amendment Act will not apply to arbitrations that were initiated prior to the
commencement of this Amendment Act. § 1(2) of the Amendment Act states that it shall be
21
Pawan Agarwal, Interim Measures of Protection in Arbitration- An Analysis, THE CHARTERED
ACCOUNTANT, December 2004, available at http://icai.org/resource_file/10962dec04p715-
722.pdf (Last visited on March 20, 2016).
22
W.P. No. 37355 of 2015
deemed to be applicable from 23 October 2015. The bill was passed by the Rajya Sabha on
23 December 2015 without any debate.

Apart from this single change, the Ordinance in its transformation in to an Act, does not see
any other changes. The Ordinance has now been effectively repealed, however § 27 of the
Amendment Act, saves all actions undertaken by parties pursuant to the Ordinance. Therefore
orders passed by the courts/tribunal, arbitrations commenced by parties and any other actions
undertaken by parties under the Ordinance will be valid in law, despite its repeal.

The Amendment Act does not address other issues that were associated with the ordinance,
for instance the ordinance does not expressly clarify whether disputes involving fraud and
criminality are arbitrable.

The issue of parties approaching the court to seek an extension of time for completion of
arbitration proceedings has not been addressed. § 29A of the Amendment Act provides the
tribunal a total period of 12 months after completion of proceedings. The parties can agree to
extend this period by 6 months. After this period the mandate of the tribunal is deemed to be
terminated and court permission is required for extending this period.

Given the delays associated with domestic arbitration which is usually conducted in an ad hoc
manner, the provision may lead to arbitration being blocked by unscrupulous parties on
grounds that the period of 18 months has expired. It will also lead to court intervention
pending arbitration proceedings a result which the Amendment Act seeks to avoid.

These issues will attract the attention of the courts in coming days and the rulings of the
Indian Courts on these aspects are likely to be of particular interest. The passage of the bill
though is an extremely important development and crystallises a number of important
changes that were introduced by the Ordinance. The Amendment Act is likely to have a
positive impact on the arbitration landscape, including improving India's image as an
arbitration destination.

KEY AMENDMENTS:

KEY AMENDMENTS:

The Amendment Act has introduced some major changes in the principal Act. We have
prepared a brief summary of the following key amendments for your quick reference:
  Amendment to definition of the term ‘Court’ in Section 2(e) 23: Definition of the
term ‘Court’ is amended to provide that certain provisions of Part I of the Act such as
interim relief (section 9), court assistance in taking evidence (section 27) and appeal
to interim relief order under section 9 (section 37) shall also apply to International
Commercial Arbitration, even if the place of arbitration is outside India, subject to an
agreement to the contrary between the parties to the dispute. In case of International
Commercial Arbitration, the High Court shall be the ‘court’ for reliefs under the Act.  

 Amendment to Section 7: An Arbitration agreement contained in the form of

communication through electronic means shall also be treated as an arbitration
agreement in writing

 Amendment to Section 8: Unless the judicial authority finds that prima facie no valid
arbitration agreement exists, said judicial authority shall refer to the parties to the
Arbitration on the action brought by party to arbitration agreement or person claiming
through or under him. If the party applying for reference to arbitration has not having
original or certified copy of arbitration agreement between them but the said copy is
retained by other party then such party can make application to the Court to call upon
other party to produce original or certified true of the arbitration agreement before
that court.

 Amendment to Section 9: Where the Court passes an order for any interim measure
under sub-section (1) of Section 9 before the commencement of arbitral proceedings,
the arbitral proceedings shall be commenced within a period of ninety days from the
date of such order. It further provides that once the arbitral tribunal is constituted, the
Court shall not entertain an application for interim measure unless it finds
circumstances that may render the remedy provided under section 17 inefficacious

 Amendment to Section 1124: Appointment of arbitrator shall now be made by the

Supreme Court or the High Court, as the case may be, instead of the Chief Justice of
India or the Chief Justice of the High Court. An application for appointment of
arbitrator(s) shall be disposed of as expeditiously as possible and an endeavor shall be
made to dispose of the matter within a period of sixty days from the date of service of
notice on the opposite party. The High Court is empowered to frame rules for the
23
Arbitration law (amendment) Act, 2015
24
Supra note 23
 purpose of determination of fees of the arbitral tribunal and the manner of such
payment. The High Court while framing rules shall take into account the rates of fee
specified in the Fourth Schedule to the Act.

 Amendment to Section 12: Ensuring neutrality of arbitrators, when a person is

approached in connection with the possible appointment as arbitrator, he is required to
disclose in the writing the existence of any relationship or interest of any kind which
is likely to give rise to justifiable doubts as to his neutrality. He is also required to
disclose any circumstances which are likely to affect his ability to devote sufficient
time to the arbitration and complete the arbitration within the specified period. A
person having relationships as specified in the Seventh Schedule shall be ineligible to
be appointed as an arbitrator; For example: The arbitrator is an employee, consultant,
advisor or has any other past or present business relationship with a party to the
dispute; or the arbitrator is a manager, director or part of the management, or has a
similar controlling influence over the parties to the dispute.

 Amendment to Section 14: On termination of mandate of an arbitrator, he is to be

substituted by another arbitrator.

 Amendment to Section 17: The arbitral tribunal shall have power to grant all kinds
of interim measures which the Court is empowered to grant under section 9 of the
Act. Such interim measures can be granted by the arbitral tribunal during the arbitral
proceedings or at any time after making the arbitral award, but before it is enforced
under section 36 of the Act. Any order issued by the arbitral tribunal for grant of
interim measures shall be deemed to be an order of the Court for all purposes and
shall be enforceable under the Code of Civil Procedure, 1908 in the same manner as if
it were an order of the Court.

 Amendment to Section 23: The respondent, in support of his case, may also submit a
counterclaim or a set-off, if such counterclaim or set-off falls within the scope of the
arbitration agreement.

 Amendment to Section 24: The Arbitral tribunal shall hold oral hearing for the
presentation of evidence or oral arguments on the day-to-day basis and shall not grant
any adjournments without any sufficient cause.
  Amendment to Section 2525: The right of the respondent to file the statement of
defence has been forfeited, if the respondent fails to communicate such statement in
accordance with the time line agreed by the parties or Arbitral Tribunal (section 23(1)
of the Act) without reasonable cause.

 Amendment to Section 28: The Arbitral tribunal while deciding and making an

award, shall take into account the terms of the contract and trade usages applicable to
the transaction.

 Insertion of a new provision- Section 29A: The Tribunal shall ensure speedy

completion of Arbitration proceedings and pass the award within a period of twelve
months from the date when the arbitral tribunal enters upon the reference. However,
the parties may extend such period for a further period not exceeding six months. If
the award is made within a period of six months, the arbitral tribunal shall be entitled
to receive additional fees as the parties agree. If the award is not made within
specified period or extended period, the mandate of the arbitrator shall terminate
unless the time is extended by the court.

 Insertion of a new provision- Section 29B26: This Section provides for a fast track
procedure for conducting arbitral proceedings, in cases where the parties mutually
agree for such procedure. In such cases, the arbitral tribunal consisting of a sole
arbitrator shall decide the dispute on the basis of written pleadings, documents and
written submission and shall not hold oral hearing. The award is to be made within a
period of six months from the date the arbitral tribunal enters upon the reference.

 Amendments to Section 31: A sum directed to be paid by an arbitral award shall,

unless the award otherwise directs, carry interest at the rate of two per cent higher
than the current rate of interest prevalent on the date of award, and shall be payable
from the date of award to the date of payment.

 Explanation 1 to the term ‘public policy of India’ substituted in Section 34(2)
(b): Arbitral award shall be treated as an award in conflict with the public policy of
India only where making of the award was induced or affected by fraud or corruption
25
Ibid.
26
Supra note 23
 or was in violation of provisions of confidentiality (section 75) or admissibility of
evidence of conciliation proceedings in other proceedings (section 81); or is in
contravention with the fundamental policy of Indian law; or it is in conflict with the
most basic notions of morality or justice.

 Explanation 2 inserted in Section 34(2)(b): The test as to whether the award is in

contravention with the fundamental policy of Indian law shall not entail a review on
the merits of the dispute.

 Insertion of new sub section (2A) in Section 34: This provision gives an additional
ground of patent illegality to challenge an arbitral award arising out of arbitrations
other than international commercial arbitrations.

 Insertion of new sub section (5) in Section 34: An application for setting aside of
award under this section is to be filed after issuing prior notice to the other party.

 Insertion of new sub section (6) in Section 34: A period of one year has been
prescribed for disposal of an application for setting aside an arbitral award.

 Amendments to Section 36: Mere filing of application for setting aside an arbitral

award would not render that award unenforceable unless the court grants an order of
stay on the operation of the said award on a separate application made for that
purpose.

BALCO and the way ahead:

On January 10, 2012, a five judge constitution bench ofthe Supreme Court started its
proceedings in the case of BharatAluminium Co. v. Kaiser Aluminium Technical Service Inc.
(hereinafterBALCO).27 The Court reconsidered the controversial rulings in Bhatia and
Venture Global pertaining to the scope of extra territorial application of Part I of the Act. The
Court affirmed that the Act adopted the territoriality principle of the Model Law and accepted
existing theories in international arbitration on Article V(1)(e) of the New York Convention
("the NY Convention")." The case involved several appeals dealing with the same, broader
legal issue: whether the Indian courts can perform supervisory jurisdiction in arbitrations
seated outside the country. The Supreme Court of India gave the answer in the negative.
Essentially, the decision meant that the Indian courts could no longer make interim orders,

27
Bharat Aluminium Co. v Kaiser Aluminium Technical Serv. Inc., Civil Appeal No.7019 of 2005
remove or appoint arbitrators in arbitrations with seats outside or entertain annulment
challenges to foreign arbitration awards."

a. Silence and implication of licence

The Court in BALCO deliberated in detail upon the significance of the missing word
"only" in section 2(2). The word "only" would not have been significant had it not
been used in Article 1(2) of the Model Law. The senior counsel for appellants
contended that, since "only" is absent from the provision, the applicability of the Act
is automatically extended to foreign arbitrations as well. The relevant question was
whether the omission expresses the intention of the Indian Parliament to widen the
applicability of Part I of the Act to arbitrations outside India. Rejecting this
proposition, the Court held the omission of "only" in Section 2(2) of the Act does not
indicate that Indian courts could supervise arbitration proceedings taking place
outside India. Rather, the Court determined that the Act adopted a scheme different
from the Model Law in this respect. In Article 1(2) of the Model Law, it was
necessary to include the word "only" to clarify that, except for certain provisions, the
Model Law would be applicable on strictly territorial basis. The exceptions stipulated
in Article 1(2) ofthe Model Law were not enumerated in Section 2(2) of the Act, and
therefore, the word "only" would have been superfluous there.28

b. The Center of Gravity of Arbitral Process and the Seat Theory

A critical issue in any international arbitration is the location of the arbitral seat and
the territoriality thesis. A major part of the judgment deals with the territoriality
principle that forms the conceptual basis for Article 1(2) ofthe Model Law.
Accordingly, the territoriality principle holds that the Model Law would only apply
where the place of arbitration was in the contracting State. In most legal systems, the
arbitration law of a state is territorial in scope, regulating arbitration proceedings that
have their seat within the territory of that state and not the foreign arbitrations. In the
Court's decision in BALCO, the Court affirmed that the Act adopted the territoriality
principle of the Model Law, which is abundantly clear from the scheme of the Act.
The application of Part I is, therefore, restricted to arbitrations taking place in India.
To quote from the Preamble of the Act itself, "[t]he seat of arbitration is intended to

28
Karan S.Tyagi, A Second Look at International Arbitration, The Hindu (Dec. 11, 2011),
http://www.thehindu.com/opinion/lead/article2735659.ece?homepage-true (last visited on March 21, 2016).
 be the central point or its center ofgravity."29 Recognizing this principle to be
applicable in the Indian context as well, the Court in BALCO endorsed one ofthe most
fundamental concepts of international arbitration law. On the other hand, the
delocalization debate has certainly influenced and fuelled a movement away from the
control ofthe domestic courts at the place of arbitration. 30 This form of delocalized
arbitration can be practiced only if the state and its laws permit it. Here, the Court
clearly identified the fact that Indian law does not recognize delocalized arbitration
proceedings. If the parties have not selected the law governing the conduct of
arbitration, the law of the seat of arbitration governs the arbitration proceedings as it
is "most closely connected with the proceedings." Therefore, by agreeing to a seat or
place of arbitration outside of India, the parties choose the laws of the seat of
arbitration to govern the conduct of arbitrations. This is an issue of party autonomy
and the Act allows parties to opt out of it by choosing the seat of arbitration in another
country.
c. Enforcement and Annulment:
The delocalized view separates the existence of award from the law ofthe country
oforigin or place of arbitration, by challenging the premise that any legal activity
occuring within the territory is governed
by the law ofthat country. However, the NY Convention tries to strike a balance
between these two views by putting Article V(1)(e) in the text. 31 The Indian
Parliament has adopted this provision in the form of Section 48(1)(e). The Supreme
Court in BALCO correctly identified the ambiguity existing in this provision and held
that the correct interpretation ofArticle V(1)(e) ofthe NY Convention is that an award
can be challenged in "the country, under the law of which the award was made" only
if the annulment action in "the country in which the award was made" is not available.
The Court further specified that the terms "under the law" in Article V(1)(e) refer to
the procedural law of arbitration proceedings rather than the substantive law of
arbitration. Therefore, an annulment action could only be brought in the country

29
Alan Redfern &Martin Hunter, Law and Practice ofInternational Commercial Arbitration (Sweet & Maxwell
eds., 4th ed. 2004).
30
Otto Sandrock, To Continue Nationalizingor to De-Nationalize?That is Now the Question in International
Arbitration, 12 AM. REV. INT'LARB. 301 (2001).
31
Article V 1(e) says that enforcement of a New York Convention award can be refused where it "has been set
aside or suspended by a competent authority of the country in which, or under the law of which, that award was
made."
 "under the law of which the award was made" in the rare situation where parties have
agreed upon a procedural law other than that of the arbitral seat.32

CONCLUSION
The ruling by the Supreme Court of India in the Bhatia case could
have disastrous consequences for commercial agreements and foreign awards
passed thereon by opening up the floodgates for challenge. The object of the Act
is to facilitate international commerce and business, to ensure finality of foreign
awards and to minimise judicial interference, particularly when awards have been
passed by international commercial experts. This judgment however has the
contrary effect as it makes even internal arbitrations subject to domestic law.
It is our understanding that to overcome the grave apprehension of
the obstacle of court interference, this Act came into force. It is lamentable that
with these judicial interpretations, the very object of this Act has been reduced to
a deplorable nullity. Unless the Indian courts resist the appeal to intervene in
arbitrations, it will always portray a picture of distrust amongst the potential
foreign investors having any kind of trade relations with India while incorporating
an arbitration clause.

There exists an urgent need to repair the situation. Apart from the
obvious need to restrict applicability of Part I of the Act to any sort of international
arbitration, certain changes need to be brought about even within § 9 of the Act
to minimize delays and unnecessary interventions. Provisions contained in § 9
regarding availability of interim relief even before the arbitration proceedings
commence may be misused by a party, especially if made applicable even to
international arbitrations. It may so happen that after obtaining an interim order
from the court it may not take initiative to have an arbitral tribunal constituted.

A solution to this as proposed by the Amendment Bill of 2003 seeks

to introduce sub-sections (4) to (6) in the existing § 9 as follows: As per subsection (4), where
a party makes an application under sub-section (1) for the grant
of interim measures before the commencement of arbitration, the Court shall direct
the party in whose favour the interim measure is granted, to take effective steps
32
Gary Born, International Commercial Arbitration, Chapter 21, (Kluwer Law International eds. 3d ed. 2009).
for the appointment of the arbitral tribunal in accordance with the procedure
specified in § 11, within a period of thirty days from the date of such direction. As
per sub-section (5), the Court may direct that if the steps referred to in subsection (1) are not
taken within the period specified in sub-section (4), the interim
measure granted under sub-section (2) shall stand vacated on the expiry of the
said period; provided that the court may, on sufficient cause being shown for the
delay in taking such steps, extend the said period. In sub-section (6), where an
interim measure granted stands vacated under sub-section (5), the Court may
pass such further direction as to restitution as it may deem fit against the party in
whose favour the interim measure was granted under this section.

Thus, if the Amendment Bill is passed, it will be then mandatory on the

part of the party who has obtained interim relief from a court to constitute the
arbitral tribunal expeditiously. Failure to do so, a party may run the risk of automatic
vacation of the interim measure.

Furthermore, the system of dual agency for providing relief needs to

be abolished or some enforcement mechanism must be provided for enforcement
of the interim measures of protections ordered by the Arbitral Tribunal. It would
be better that application of interim measures is put to the arbitral tribunals as
they are seized of the subject matter under disputes. Only when a party is not able
to get relief from the arbitral tribunal, it should be allowed to approach the domestic
Courts. This will be in line with the objectives of the Act to minimise the intervention
of the Court in arbitral proceedings. The dilemma of the Indian situation, evidently, has its
roots in the failure to adopt different standards for foreign and domestic awards. It is because
of this lack of clarity that the judiciary has been unable to demarcate standards for
domestic and foreign awards. In our opinion, a useful solution to this problem can be sought
in international practice.

As noted earlier, some countries do follow separate standards for

domestic and international arbitrations. There are conflicting policy interests that
underlie the question of whether to extend court assistance in granting interim
relief and the concomitant supervision and enforcement of such orders. Not
extending it to arbitrations held overseas may encourage arbitrations to be held in
countries such as Singapore and arbitration agreements would provide as such.
This may also result in forum-shopping, which is not to be encouraged. A seat of
arbitration is selected for its neutrality, which has no relation with the commercial
relationship between the parties. To promote international commerce and amicable
resolution of disputes, the authors suggest that domestic court interference should
be limited and not extend to arbitrations held overseas. This would also encourage
and facilitate holding of arbitrations in India. For this very reason, places like
Singapore are fast growing as centres of arbitration. If one is to follow the example
of Singapore, courts in India should not cross the fine line between assistance
and interference and should endeavour to have a pro-arbitration stance. This
would, eventually, attract more parties to India and select it as a venue of arbitration.
Arbitral institutions in India along with arbitrators and other associated persons
would also benefit, encouraging the growth of commerce and business in India.

BIBLIOGRAPHY
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