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Legal Update

A New Era for Enforcement of Foreign Arbitration Awards in India

12 October 2012
Mayer Brown Legal Update

The Indian Supreme Court has issued an important decision that affects the enforceability of foreign international arbitration awards in India.

The decision in Bharat Aluminium Co. v Kaiser Aluminium Technical Services overrules previous controversial decisions from the Indian Supreme Court in the cases of Bhatia International v Bulk Trading S.A. in 2002 and Venture Global Engineering v Satyam Computer Services Limited in 2008. In those cases, the Court held that, unless the parties to an arbitration agreement expressly or impliedly agreed to the contrary, the Indian courts had similar jurisdiction in foreign-seated arbitrations as they had in domestic arbitrations seated in India, under Part I of the Arbitration and Conciliation Act 1996 (the Arbitration Act). 

As a result of these earlier decisions, Indian courts, in a number of instances, have granted interim measures in respect of foreign-seated arbitrations. In the case of Venture Global, the Supreme Court was prepared to set aside an award made in a foreign seated arbitration, in contradiction to the underlying philosophy and objectives of the New York Convention on the enforcement and foreign arbitral awards and the UNCITRAL Model Law.

In Bharat, the Supreme Court overruled the Bhatia and Venture Global decisions on the basis that Part I of the Arbitration Act does not apply to foreign seated arbitrations. The Court therefore refused to set aside two arbitration awards made by a tribunal seated in London.

It was held that arbitrations seated outside of India are dealt with by Part II of the Arbitration Act, alone, and that the Indian courts had no authority to annul arbitration awards made outside of India. It was further held that the law of the seat of the arbitration will govern the conduct of the arbitration.

The Effect of the Decision

The decision in Bharat means that it will no longer be necessary for the parties to an arbitration agreement to expressly exclude the application of Part I of the Arbitration Act to arbitration proceedings held outside of India.

The decision, in this respect, is to be welcomed and is consistent with the intention behind the provisions of the New York Convention and the UNCITRAL Model Law.

However, one disappointing aspect of the decision in Bharat is that it will only apply prospectively: i.e., only to arbitration agreements that are concluded on or after September 6, 2012, when the decision was handed down. Accordingly, the previous decisions of the Supreme Court that Part I of the Arbitration Act applied to both Indian and foreign-seated arbitrations will continue to apply in respect of arbitration agreements concluded before that date, unless the parties have expressly or impliedly agreed that Part I should not apply.

This means that the Indian courts could continue to apply the principles enunciated in the decisions of Bhatia and Venture Global for many years to come, and seek to assert jurisdiction in foreign-seated arbitrations and at worst, annul arbitration awards made in foreign jurisdictions.

Conclusion

The decision in Bharat is of great significance and does much to allay the concerns previously held that India was not an arbitration-friendly jurisdiction. The decision is consistent with the ethos of the New York Convention and UNCITRAL Model Law, which was not necessarily the case with previous decisions of the Indian Supreme Court. However, as a result of the prospective application of the decision to arbitration agreements made on or after September 6, 2012, uncertainties will remain as to the extent to which the Indian courts will seek to interfere in foreign seated arbitrations conducted under arbitration agreements concluded before that date.

For more information about the topics raised in this Legal Update, please contact in our Singapore office at +65 6327 0230.

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