Should Indian parties be given interim protection by courts to arbitrations seated outside India?

Should Indian parties be given interim protection by courts to arbitrations seated outside India?

Section 2(2) of the Indian Arbitration and Conciliation Act, 1996 (the Act) states that provisions of Part I apply ‘where the place of arbitration is in India.’ This created confusion regarding the applicability of Part I of the Act to foreign seated arbitrations. Further, since section 9 of the Act belongs to Part I, the issue was whether Indian parties with a foreign seated arbitration could apply for interim protection by Indian courts. Along with the applicability of Part I, the applicability of section 9 of the Act to foreign seated arbitrations garnered a lot of erratic views from the judiciary eventually creating a lot of confusion. In the case of Bhatia International vs Bulk Trading (“Bhatia”),[1] the issue before the court was whether interim relief can be sought under Part I of the Act to arbitrations seated outside India. The court held that Part I would apply to all the arbitrations including international commercial arbitrations seated outside India unless the parties exclude its application expressly or impliedly. The court said that the provision analogous to section 2(2) in the Model Law contains the word ‘only’ which was missing from section 2(2) of the Act. This comparison was done since the Act is based on the Model Law. This omission of the term ‘only’ from section 2(2) of the Act was proof of the fact that the Indian legislature intended to apply Part I to the foreign seated arbitrations. Additionally, the court posited that section 1, section 2(4), and section 2(5) of the Act has to be read harmoniously with section 2(2) of the Act and thus, the intention was to make Part I applicable to all the arbitrations irrespective of the seat. Furthermore, the court purported that in case, Part I is made inapplicable to arbitrations outside India, then parties to whom Part II applies would remain without any interim relief under section 9. Hence, interim protection measures under section 9 could be extended to all the arbitrations seated in or outside India.

The applicability of Part I to foreign seated arbitrations was again contested before a larger bench in Bharat Aluminium Co vs Kaiser Aluminium Technical Services Inc. (BALCO).[2] The BALCO decision overruled the Bhatia judgment prospectively from 6^th September 2012. This meant that Bhatia’s decision will still be applicable to all the arbitration agreements entered prior to 6^th September 2012. The court upheld the territoriality principle and stated that Part I of the Act only applies to arbitrations seated in India and only Part II applies to arbitrations seated in the convention countries. The court stated that the omission of the word ‘only’ did not mean that the legislature intended to make Part I applicable to foreign seated arbitrations and the analogy of section 2(2) of the Act with the provision of Model Law was erroneous. Section 2(2) of the Act was a statutory recognition of the territoriality principle. The court discarded the applicability of section 9 of the Act to arbitrations seated outside India claiming that section 9 is not a standalone provision and is a part of Part I of the Act. Thus, interim protection under section 9 was not extended to foreign seated arbitrations under BALCO. Furthermore, the court also rejected the scenario where parties would be left without interim protection and said that the parties could seek interim protection remedies from their chosen jurisdiction. This decision would also result in a scenario where parties with assets in India could dispose of it and there will be no interim protection against such parties.

These two cases created a lot of mess and confusion and thus the Act was amended in 2015 to insert a proviso to section 2(2) of the Act. The proviso provides that section 9 of the Act would apply to international commercial arbitrations seated outside India as well. However, this would only apply to those foreign seated arbitrations whose awards are recognized and enforceable under Part II of the Act. Thus, interim protection under section 9 will be applicable to foreign seated arbitrations provided that there is no agreement to the contrary excluding the applicability of section 9 and that the award must be from a convention country.

[1] (2002) 2 Supreme 395 (SC)

[2] (2012) 9 SCC 552