Limiting Judicial Intervention (Another Pro International Arbitration Step)

by Arjit Oswal (National Law Institute University, Bhopal)

With the advent of globalisation and a complementary increase in international commercial activities, the requirement to deal with disputes that arise due to such growth has been met in part by arbitration. The mechanism of arbitration, based on principles of party autonomy such as choosing one’s own arbitrators and governing laws, has provided a valuable alternative to the traditional forums of justice which witness prolonged procedures and delayed judgements. However, international commercial arbitration has often been subjected to intervention and subjugation by national laws. In Reliance Industries Limited and Anr. v. Union of India[1], the Supreme Court of India aptly demarcated the applicability of national arbitration laws to an international commercial arbitration. The present paper, through an analysis of the above judgment, is an attempt to signify how the Indian judiciary has taken an appreciable step in furtherance of the spirit of international arbitration.

[1] Civil Appeal No. 5765 of 2014 (Arising out of S.L.P. (C) No. 20041 of 2013).

LIMITING JUDICIAL INTERVENTION ANOTHER PRO INTERNATIONAL ARBITRATION STEP

INTRODUCTION

International business entities have often preferred arbitration as a more efficient means of dispute resolution than traditional forums of justice. The principle of party autonomy makes arbitration flexible, cheaper and expeditious. However, the autonomous character of international arbitration has been overshadowed by the frequent intervention of national laws often creating confusion and obscurity.

THE INDIA CONTEXT

In the Indian context, although Section 2(2) of the Arbitration and Conciliation Act, 1996 (“the Act”) restricts the applicability of Indian national laws, as provided in Part-I of the Act, to arbitration seated in India[1], the courts have often interpreted it to be an inclusive definition, thereby not excluding international arbitration out of its ambit.

Though the legislative intent behind the enactment of the Act was to minimise judicial intervention as well as to consolidate and amend the law related to arbitration and enforcement of arbitral awards, the application of Part I of the Act to international commercial arbitration has always been a contentious issue for the Indian judicial system.

The Supreme Court of India, in the case of Bhatia International[2], inter alia held that Part I of the Act would be applicable to all international arbitration unless expressly or impliedly excluded by the parties. This position had been reaffirmed in Venture Global Engineering[3] with regards to an application for setting aside arbitral award. In the leading judgement of TDM Infrastructure[4], the Court held that the Indian parties should not be permitted to derogate from Indian laws when the place of arbitration is India or the parties are Indian. The 2012 landmark judgment by a Constitutional bench of Supreme Court in Bharat Aluminium Case[5] finally concluded that Part-I of the Act will only apply to arbitrations where the seat of arbitration is in India.

THE PRESENT CASE

In the instant matter of Reliance Industries Limited & Another. v. Union of India,[6] Reliance Industries Limited (“RIL”) and BG Exploration and Production India Limited (“BG”) assailed the Judgment passed by the Delhi High Court, which allowed the petition filed by the Union of India (“UoI”) challenging the Final Partial Award.

The case specifically dealt with dispute regarding the two Production Sharing Contracts (“PSCs”) between UoI and RIL as well as UoI and BG for the exploration and production of petroleum. As per the PSCs, while the matrix contract was to be governed by the laws of India, the arbitration was to be carried out in accordance with the rules of the UNCITRAL[7]. The venue for the arbitration was agreed to be London, England and the Arbitration agreement was to be specifically governed by the laws of England.

Pursuant to the Dispute Resolution Clause, the Arbitral Tribunal was duly constituted wherein, UoI raised an objection regarding the arbitrability of claims and argued that the Arbitral Tribunal ought not to adjudicate on the questions raised by the claimants and should leave the parties to seek the necessary relief before the specific forums created under the Oilfields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959. Moreover, it was contended that the enforcement of any award in India under Article V (2)(b) of the New York Convention[8] may be restricted by the defence of public policy of India. The Applicants responded that the issue of arbitrability was governed by English Law and that the claims were purely contractual in nature. Thereafter, the Arbitral Tribunal made the “Final Partial Consent Award” wherein, inter alia, the seat of the arbitration was held to be at London, England and claims were held to be arbitrable.

Union of India challenged the arbitral award before the High Court of Delhi arguing, inter alia, that the terms of the PSCs signified the intention to be governed by Indian laws, the contract was signed and executed in India, the subject matter of contract was situated in India and the companies and operations were subject to all fiscal legislations of India. The applicants raised a preliminary objection to the maintainability of the arbitration petition. The High Court considering the principles of law as per Bhatia International[9] and Venture Global[10] concluded that the jurisdiction of Indian courts could not be excluded. The question of the arbitrability of the dispute was held not to be a pure question of applicability of law but a larger one governing Public Policy of India.

In the Supreme Court the disputed area was narrowed down to as to whether Part I of the Act would be applicable to the arbitration agreement irrespective of the fact that the seat of arbitration was outside India. As the parties could have approached the Permanent Court of Arbitration at Hague for appointment of arbitrators, the omission to have recourse to the 1996 Act was considered to be a strong indication that applicability of the Act was excluded by the parties by consensus. On Public Policy, the Court denied such defence for ruling out English Court’s jurisdiction because: The parties had agreed that arbitration was to be governed by the laws of England, based on which the Arbitral Tribunal had made the ‘Award’ fixing the juridical seat in London. Also all the disputes raised were contractual in nature and the performance of any of the obligations did not lead to any infringement of any of the laws of India per se. [11]

CONCLUSION

The judgment passed in the instant case assumes relevance as it continues the hands-off trend of the Indian courts so far as international arbitrations are concerned. The judgement successfully upheld the principle of severability of separate choices of law governing the matrix contract and the arbitration agreement and also the principle of party autonomy by minimising judicial intervention. Interestingly, the Supreme Court has not dealt with the issue of public policy in detail, which might crop up when the award is sought to be enforced in India. It will be interesting to track how Indian courts now manoeuvre to keep up the pro arbitration trend.

[1] Section 2 (2), Arbitration and Conciliation Act, 1996.

“This Part shall apply where the place of arbitration is in India.”

[2] Bhatia International v. Bulk Trading S.A. and Anr. (2002) 4 SCC 105.

[3] Venture Global Engineering v. Satyam Computer Services Ltd., (2008) 4 SCC 190.

[4] TDM Infrastructure Private Limited v. UE Development India Pvt. Ltd. (2008) 14 SCC 271.

[5] Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc., Civil Appeal No. 7019 of 2005.

[6] Reliance Industries Limited & Anr. V. Union of India, Civil Appeal No. 5765 of 2014 (Arising out of S.L.P. (C) No. 20041 of 2013).

[7] United Nations Commission on International Trade Law, 1985

[8] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

[9] Supra note 3.

[10] Supra note 4.

[11] Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433.

“31. Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required to be given a wider meaning … award could be set aside if it is contrary to:

  1. fundamental policy of Indian law, or
  2. the interests of India, or
  3. justice or morality, or
  4. in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy.”

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