Arbitration has slowly gained ground as the most preferred mode of dispute resolution with a high focus on speedy dispute resolution, preference to party autonomy and minimal intervention of Courts. Although the law related to domestic arbitration is clear as to which courts would have jurisdiction to supervise these arbitrations, there is still some amount of ambiguity as far as International Commercial Arbitrations1 are concerned.

As far as the procedural law of Arbitration is concerned, it is often said that Parties to the agreement make their own law owing to the preference to party autonomy given in these circumstances. However, this does not mean that International Commercial Arbitrations take place in a vacuum. Even rules decided by Parties need the sanction of law if they are to be enforceable. In this context it is important to understand that the relevant law which governs the procedural and curial aspects of Arbitrations is known as the law of the seat or place of arbitration and is called the "lex arbitri".

Foreign Seated Arbitration

To understand what a Foreign Seat is and what the implication of a foreign seat is, it is important to understand the different systems of law which govern an agreement. In any arbitration containing a foreign element, there are three different systems of law which govern the arbitration2:

  1. The law governing the substantive law of the contract3 – this is the law which governs the substantive issues in dispute in the contract. Also referred to as "applicable law", "governing law", "proper law of the contract" or "substantive law".
  2. The law governing the existence and proceedings of the arbitral tribunal4 – This is the law in which the arbitration proceedings have to be conducted and is also referred to as the "curial law". This is the law which is derived from the seat of arbitration.
  3. The law governing the recognition and enforcement of the award5 – This is the law which governs the enforcement, as well as filing or setting aside of the award and is also the law which governs the arbitrability of the dispute.

Furthermore, in absence of any other stipulation in the contract, proper law is the law applicable to the arbitral tribunal itself6. Furthermore, the lex arbitri and the law governing the recognition and enforcement of the award are also one and the same in absence of an intention/stipulation to the contrary7. Thus the place of the arbitration generally specified in a contract determines the seat of arbitration unless contrary intention is apparent from the contract. In other words the seat of arbitration is dependent on several factors and is that which has the closest and most real connection with the agreement to arbitrate8.

Therefore, any arbitration where the seat of arbitration is outside India is a foreign seated arbitration. From the above discussion, it is evident that it is important to gather the seat of arbitration from the agreement between the parties, as it has an implication of determining the curial law and the lex arbitri of the arbitration. This in turn has an impact on determining which courts can be approached for which remedy in case of a Foreign Seated Arbitration.

The Applicability of Part I to a Foreign Seated Arbitration

As far as Indian law is concerned, it is now well settled, that the seat of arbitration is governed by the following factors:

  1. The place of arbitration is usually determinative of the seat of arbitration, i.e. the courts having supervisory jurisdiction empowered to give interim reliefs.
  2. The place of arbitration can be different from the seat of arbitration, if a different intention appears from the intention of the parties. In such a case, the seat of arbitration would be the jurisdiction which would have the closest and most real connection with the arbitration agreement9.
  3. Part I of the Arbitration and Conciliation Act, 1996 (hereinafter called "the Act"), which is the curial law in India, is excluded for Foreign Seated Arbitrations barring the exception provided in Section 2(2) of the Act which would be discussed in the latter part of this Article.

Interim Relief from Court

In India, the Section which governs interim relief in cases containing an arbitration clause is Section 9 of the Act. Article 9 of the UNCITRAL Model Law10 on which the Act is based, deals with the power of courts to grant interim measures of protection. where a party is permitted to apply to Court for certain interim measures, before, during or after making of the award by the Tribunal. A recent amendment has taken place in the Act11, which has substantially changed this position regarding seeking of interim relief from Court.

Before the amendment of 2015, the law with regard to the applicability of Part I was governed by the judgment of BALCO12. BALCO laid down prospectively (from 06.09.2012), that in a foreign seated arbitration neither Section 9 nor any other provision of Part I would be applicable. Prior to BALCO, the law laid was as laid down in Bhatia International13. Bhatia International laid down, that the provisions of Part I would apply even to arbitrations held outside India, unless it was expressly or impliedly excluded by parties. It is pertinent to note, that Bhatia International still continues to govern the law as far as arbitration agreements pre-dating BALCO are concerned.

The Amendment of 2015, in effect, nullifies the law laid down in BALCO to some extent and holds that even in an International Commercial Arbitration having a foreign seat, a party can approach Indian courts under Section 9 and get appropriate relief, provided there is no agreement to the contrary, thus reviving the law of Bhatia International to a limited extent.

Therefore as far as Interim Measures from Court are concerned, the parties are allowed to approach Indian Courts, even in Foreign Seated arbitrations. This is particularly helpful in cases where assets of Indian Parties are located in India and there is a fear of disposal. Similarly, the Appeal against an Order passed in a Petition filed under Section 9 would also lie to Indian Courts only as per the amendment14.

Application for Appointment of Arbitrators

Section 11 of the Act governs the provisions for appointment of Arbitrators in India, Article 11 being the concomitant provision of the UNCITRAL Model Law. As regards the appointment of Arbitrators, in a Foreign Seated Arbitration, Part I of the Arbitration Act has no application and there is no exception carved out in the act itself. However, in certain cases, where even though the place of Arbitration has been named to be outside India, the closest and most real connection of the agreement lies in India. For instance in the case of Enercon15.

Apart from this exception, the application for Appointment of Arbitrators, failing the agreement of parties would inevitably lie in the Country where the seat of Arbitration is located.

Application for challenging/enforcement of the Award

Parties can approach India for enforcement of an Award in two scenarios which are described as under:

  1. Scenario 1 – Where the seat/place of Arbitration and award is outside India and where the real most close connection of the agreement also lies in the same place.
  2. Scenario 2 – Where the seat/place of Arbitration and award is outside India but where the real and closest connection of the agreement lies in India.

Scenario 1

In Scenario 1, despite the seat being outside India, the parties could want to come to India for enforcement owing to the fact that the assets of the Indian party might be located in India etc. For this purpose if the award is passed in a territory which is signatory to the New York Convention, and with which a reciprocal arrangement has been made by the Indian Central Government, then such an award is enforceable in accordance with Part II of the Act16. Any challenge to the award would lie under Section 48, Part II of the Act. Out of the 196 countries in the world only 48 countries have been notified by the Central Government as reciprocating countries, with the most recent addition being Mauritius17.

However, if the award is made in a territory which is either not a party to the New York Convention, or India does not have a reciprocal arrangement with that territory, or if both conditions are not fulfilled then the following would have to be considered:

  1. Where the award passed in the territory concerned, is considered to be the decree of that Court, then parties can come to India directly. In case the award is not automatically a decree in the concerned territory, then the parties would need to first make the award a rule of Court in the concerned territory, and then only can they approach India for execution of the award as a Foreign Decree.
  2. Once the award is considered to be a Foreign Decree then Section 44 of the Code of Civil Procedure, 1906 (Hereinafter called the CPC) would become applicable. Section 2(2) of the CPC defines foreign judgment as "the judgment of a foreign Court". Parties can approach Indian Courts for enforcement under Section 44.
  3. Next it needs to be checked whether the award to be enforced has been passed in a reciprocating territory18. In case the territory is a reciprocating territory then directly an Execution Petition can be filed in India and the award can be executed as a decree of a foreign Court.
  4. However, if the country in which the foreign decree/award has been passed is not a reciprocating country, then a further complication arises, wherein a fresh suit would have to be filed in India to get the foreign decree/award enforced. This is basically a fresh adjudication and time consuming process.

Scenario 2

Where the seat/place of Arbitration and award is outside India but where the real and closest connection of the agreement lies in India, then in such a case, Part I of the Act would become applicable and an application for execution can be directly filed in India. Any party intending to object to the award would also have to approach Court under Part I, Section 34 of the Act and not under Part II, Section 48 of the Act.

Appeals arising from orders of Interim Reliefs or orders of enforcement of foreign awards

In accordance with the discussion above, in case an interim relief is given under Section 9 or enforcement of foreign award is made as per Part I, then automatically an appeal against such Orders would lie to Indian Courts under Part I, Section 37 of the Act. Similarly, in case an order of an Indian Court in respect of a challenge to a foreign award under Part II, needs to be appealed, Section 50 of Act would become applicable and again the Appeal would lie in India.

However, in a scenario, where neither Part I of the Act is applicable, nor Indian Courts have been approached for execution/enforcement/challenge from the Foreign Award, then Indian Courts would not have any role to play in the appeal process either.

Denouement

To conclude it may be said, that different courts play different roles in Foreign Seated Arbitrations. Firstly, it needs to be determined which is the seat of arbitration, after which the closest and most real connection needs to be analysed. Thereafter for different remedies, different Courts can be approached. Moreover, the 2015 amendment has given more leeway to Indian Courts as far as Interim reliefs are concerned, thus providing additional protection to foreign investors vis-s-a-vis Indian players. In view of the above, India is fast becoming an arbitration and foreign investor friendly country.

Footnotes

1. Section 2(f) of the Arbitration and Conciliation Act, 1996 (the Act) defines "International commercial arbitration" as "an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is- (i) An individual who is a national of, or habitually resident in, any country other than India; or (ii) A body corporate which is in corporate in any country other than India; or (iii) An association or a body of individuals whose central management and control is exercised in any country other than India; or (iv). The Government of a foreign country;"

2. Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. & Anr. (2015) 9 SCC 172

3. Reliance Industries Ltd. v. Union of India (2014) 7 SCC 603.

4. Reliance Industries Ltd. v. Union of India (2014) 7 SCC 603.and Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (1998) 1 SCC 305

5. Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (1998) 1 SCC 305

6. Yograj Infrastructure Ltd. v. Ssangyong Engineering & Construction Co. Ltd. (2012) 12 SCC 359

7. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552; Enercon (India) Ltd. and Ors. v. Enercon Gmbh and Anr. (2014) 5 SCC 1

8; Roger Shashoua v. Mukesh Sharma, Supreme Court, decided on 4th July, 2017; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552; Enercon (India) Ltd. and Ors. v. Enercon Gmbh and Anr. (2014) 5 SCC 1

9. An example of such a scenario is the judgment of Enercon – where despite the venue being specifically provided as London, the seat was held to be India. This was because, after taking various factors into consideration including applicable law as the Indian Arbitration Act, 1996 and all three laws i.e., Law governing Contract, Law governing Arbitration Agreement, Law governing Curial Laws/ Lex Arbitri were Indian, the real and closest connection of the Agreement was held to be that with India.

10. United Nations Commission of International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985.

11. Arbitration and Conciliation (Amendment) Act, 2015

12. Bharat Aluminum and Co. vs. Kaiser Aluminium and Co. (2012) 9 SCC 552.

13. Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105.

14. Section 2(2) of the Act makes the appeal provision of Section 37 also applicable to International Commercial Arbitrations, even if the place of arbitration is outside India.

15. Refer Footnote 9

16. Section 49 of the Act.

17. Australia; Austria; Belgium; Botswana; Bulgaria; Central African Republic; Chile; China (including Hong Kong and Macau) Cuba; Czechoslovak Socialist Republic; Denmark; Ecuador; Federal Republic of Germany; Finland; France; German Democratic Republic; Ghana; Greece; Hungary; Italy; Japan; Kuwait; Mauritius, Malagasy Republic; Malaysia; Mexico; Morocco; Nigeria; Norway; Philippines; Poland; Republic of Korea; Romania; Russia; San Marino; Singapore; Spain; Sweden; Switzerland; Syrian Arab Republic; Thailand; The Arab Republic of Egypt; The Netherlands; Trinidad and Tobago; Tunisia; United Kingdom; United Republic of Tanzania and United States of America.

18. "Reciprocating territory" means any country or territory outside India which the Central Government may, by notification in the Official Gazette, declare to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code. Countries which have been officially recognized as "reciprocating countries" by the Central Government of India include:- Aden; Bangladesh; Federation of Malaya; Fiji Colony; Hong Kong; New Zealand; Cook Islands and Western Samoa; Papua New Guinea; Republic of Singapore; Trinidad and Tobago; United Kingdom of Great Britain and Northern Ireland; and Victoria.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.