ARBITRATION

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Bhatia International v. Bulk Trading S.A.†
by S.K. Dholakia*

Cite as : (2003) 5 SCC (Jour) 22

The judgment in Bhatia International v. Bulk Trading S.A.+ is one of the important judgments of the Supreme Court of India that is bound to attract attention from those interested in commercial and legal dealings with India. The relevant facts can be summarised thus: the parties to an international contract had resorted to arbitration in accordance with the rules of ICC, Paris to be conducted in Paris. As the foreign party wanted to ensure that in the event of a favourable award it would be able to recover its claim from the Indian party, it applied to an Indian court for interim measures securing the property of the Indian party. The Indian party objected to the application on the ground that the arbitration in question was being held in Paris, and under the New York Convention there is no provision for interim measure being granted by a court other than one in which the arbitration is being held.

The High Court rejected the contention. The Indian party then approached the Supreme Court, which upheld the High Court's judgment. In brief, the Supreme Court of India held that Part I of the Arbitration and Conciliation Act, 1996, which gives effect to the UNCITRAL Model Law and which confers power on the court to grant interim measures applied even to arbitration being held outside India. This short paper expresses doubts about the correctness of this conclusion on the ground that the UNCITRAL Model Law is designed to cover arbitrations, domestic or international, held within India and not outside India.

The Supreme Court gave several reasons for its conclusion. Each of them is summarised and commented upon below:

(a) The words "this Act" in Section 1 of the Arbitration and Conciliation Act, 1996 meant the entire Act. The entire Act applies to the whole of India, except that by virtue of the proviso to Section 1, the Act applies to the State of Jammu and Kashmir only for "international commercial arbitration" held in that State.

(b) Because of the said proviso, Section 2(2) of the Act, which states that Part I applies when the place of arbitration is India, cannot be given literal meaning.

(c) Giving literal meaning would imply that where "international commercial arbitration" takes place outside India, Part I would continue to apply in the State of Jammu and Kashmir but not in the rest of India. That would be "anomaly".1

Comment

—The Act is made applicable to the State of Jammu and Kashmir only for "international commercial arbitration" due to the special position of that State under the Constitution of India. Article 370 of the Constitution requires consultation with the State Government before certain laws are made applicable to the State.

—Thus, the Indian Arbitration Act, 1940, which covered domestic arbitration, governed the whole of India, except the State of J&K.2 The J&K Arbitration Act of (Samvat) 2002 (1946 AD) covered domestic arbitration in the State of Jammu and Kashmir.

—The Foreign Awards (Recognition and Enforcement) Act, 1961, which gave effect to the New York Convention of 1958 was made applicable to the whole of India, including the State of J&K.3 Thus the law governing domestic arbitration in the State of J&K was the J&K Arbitration Act, 1946, while the law governing international commercial arbitration in that State was the 1961 Act.

—Parliament, by enacting the Arbitration and Conciliation Act, 1996, repealed the Indian Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961, but not the J&K Arbitration Act. It could not have done so, as Parliament had no legislative competence to do so. The 1996 Act, therefore, did not cover domestic arbitration for the State of J&K, but covered international commercial arbitration.4

—If the above analysis is correct, the Supreme Court, it is respectfully submitted, erroneously relied upon the Act's limited application to the State of Jammu and Kashmir for holding that Part I of the Arbitration and Conciliation Act, 1996 applied outside India.

(d) The Act does not state that courts in India will not have jurisdiction if an international commercial arbitration takes place outside India. "Courts in India would have jurisdiction even in respect of an international commercial arbitration."5 "By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the effect would be that Part I would also apply to international commercial arbitrations held out of India."6

Comment

—The Constitution of India provides that the jurisdiction of Indian courts is limited territorially to India.7 The omission to provide otherwise cannot extend the territorial jurisdiction of an Indian court.

—Even Part II of the 1996 Act, which deals with the enforcement of foreign awards, does not control foreign arbitrations. That Part is only concerned with the Indian court's jurisdiction to compel parties to resort to arbitration to resolve their disputes abroad, and when a foreign award is presented to an Indian court to enforce it within the territorial limits of India.

(e) Giving literal meaning to Section 2(2) would bring it in conflict with Section 2(4) and Section 2(5). The only way to make harmonious construction is to hold that Part I applies to arbitrations held outside India.8

Comment

—There is no conflict between Section 1 and Section 2(2). Section 1 is in that Part of the Act that bears the title: "Preliminary" and governs all the four Parts of the Act.

—Section 2(2), on the other hand, is in Part I.

—Again, there is no conflict between Section 2(2) on the one hand and Section 2(4) and Section 2(5) on the other.

—The reasons are: Section 2(4) uses the words "every arbitration under any other enactment". The "other enactments"9 would be those that cover territory, whole or in part, of India. Hence, the words "every arbitration" in Section 2(4) would necessarily mean "every arbitration in India". Thus, there is no conflict between Section 2(2) and Section 2(4).

—Section 2(5) makes that sub-section subject to Section 2(4). Here also, "all arbitrations" would necessarily mean "every arbitration in India". There is no conflict between Section 2(2) and Section 2(5).

(f) Part I applies to a "domestic award",10 which naturally includes an award made in India. Part II of the Act applies to a "foreign award" made in a country that has acceded to the New York Convention of 1958. As there is no express provision for the enforcement of awards made in a non-convention country, such an award can be enforced only if it is treated as "domestic award" to which Part I would apply. That could be the only object of defining the words "domestic award", since even without the definition, an award made in India would always be treated as "domestic award".11

Comment

—Historically, awards rendered in a foreign country were not enforceable and could be relied upon only as evidence in fresh legal proceedings commenced by the winning party.

—Even judgments of foreign countries were not enforceable, except where the judgment was rendered by a court of a country that reciprocally enforced judgments of Indian courts.12

—The judgments of the courts of other countries were conclusive evidence in the fresh legal proceedings commenced by the winning party, subject to certain objections that may be raised in respect of the same.13

—It was to overcome this situation prevailing in almost every country in the world that the New York Convention of 1958 was made so that the countries could multilaterally agree to enforce the awards rendered in the countries that adhere to it.

—The benefit of direct enforcement of an award rendered in a country that has not acceded to the New York Convention of 1958 would make the reciprocity reservation made by India ineffective.

—The Court, therefore, was in error when it held that the Act intended to apply Part I to the awards rendered and arbitrations conducted in a non-convention country.

(g) The use of the expression "judicial authority", instead of the usual "court", used in Part I indicates that the intention of the legislature was to make Part I applicable to arbitrations outside India.14

Comment

—The phrase "judicial authority" is lifted bodily from the UNCITRAL Model Law.

—In India, it must mean court, as other bodies that discharge judicial functions, like statutory tribunals, are not contemplated by the 1996 Act.

(h) Part I, which includes Section 9, is of general application and, but for Sections 45 and 54 of the Act, would apply to arbitrations in Part II which deals with arbitrations covered by the New York Convention of 1958.15

Comment

—Sections 45 and 54, which fall in Part II that gives effect to the New York Convention of 1958, contain overriding16 provisions, having been bodily lifted from the previous law.17

—As the 1996 Act expressly provides that Part I shall apply to arbitrations held in India,18 the overriding clauses do not make any essential change.

(i) Article 1(2) of the UNCITRAL Model Law states that "the provisions of this law, except Articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State". (emphasis in original) The use of the word "only" is missing in Section 2(2) of the (1996) Act. Hence, the Act applies to arbitrations outside India.19

Comment

—The absence of the word "only" in Section 2(2) would not imply that the Act would apply outside India.

(j) "Under Section 9 a party could apply to the court (a) before, (b) during arbitral proceedings, or (c) after the making of the arbitral award but before it is enforced in accordance with Section 36." The words "in accordance with Section 36" has reference only with (c) above. Therefore, an Indian court can make an order under Section 9 "before" and "during" the arbitral proceedings in respect of arbitration held anywhere in the world, but can make such order "after" the arbitral proceedings only when the arbitration is held in India. Absent such interpretation, the arbitral proceedings themselves may be frustrated.20

Comment

—The above reasoning perhaps ought to have led to the opposite conclusion. That an Indian court cannot make an order "after" the award unless the seat of arbitration is India, ought to mean that an Indian court would not have jurisdiction on arbitration "before" and "during" arbitral proceedings.

(k) "Undoubtedly, the Arbitral Tribunal could pass an interim award. But an interim order or directions passed by the Arbitral Tribunal would not be enforceable in India. Thus even in respect of arbitrations covered by Part II a party would be precluded from getting any interim relief." However, as the ICC Rules themselves provide that parties may apply to a competent judicial authority for interim measures,21 the application of Section 9 was valid.22

Comment

—Article 23 of the ICC Rules empowers the Arbitral Tribunal to direct "interim measures" either in the form of an order or an "interim award".

—The argument was that the foreign party could have approached the Tribunal and obtained interim measure in the form of "interim award" and sought its execution in accordance with the New York Convention.

—Instead of dealing with this argument, the Court refers to that part of Article 23, which enables a party to approach a court, and assumes that the Indian court is that proper court.

—It remains unclear whether the Indian court would enforce an interim measure granted in the form of an "interim award" in an ICC arbitration.

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† (2002) 4 SCC 105 Return to Text

*    Senior Advocate, Supreme Court of India. Return to Text

1. SCC p. 118, para 17. Return to Text
2. The Indian Arbitration Act, 1940, Section 1(2). Return to Text
3. Section 1(2). Return to Text
4. The Foreign Awards (Recognition and Enforcement) Act, 1961, Section 1(2). Return to Text
5. SCC p. 119, para 20. Return to Text
6. SCC p. 119, para 21. Return to Text
7. See Articles 1(3), 133 and 136 of the Constitution of India, Section 20 of the Code of Civil Procedure, 1908 and Section 1(2) of the 1996 Act. Return to Text
8. Paras 21 and 22. Return to Text
9. See Section 3(19) of the General Clauses Act, 1897. Return to Text
10. Section 2(7) reads as follows: "2. (7) An arbitral award made under this Part shall be considered as a domestic award." Return to Text
11. Para 23. Return to Text
12. Section 44-A of the Code of Civil Procedure, 1908. Return to Text
13. Section 13 of the Code of Civil Procedure, 1908. Return to Text
14. Para 24. Return to Text
15. Para 26. Return to Text
16. "Notwithstanding anything contained in Part I or in the Code of Civil Procedure." Return to Text
17. The Foreign Awards (Recognition and Enforcement) Act, 1961. Return to Text
18. The Arbitration and Conciliation Act, 1996, Section 2(2). Return to Text
19. SCC p. 121, para 27. Return to Text
20. Paras 28 and 31. Return to Text
21. Rule 23. Return to Text
22. Paras 30, 33 and 34. Return to Text