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JUDICIAL INTERVENTION IN ARBITRAL PROCESS; ANALYSIS OF BALCO V KAISER ALLUMINIUM JUDGEMENT

Author: Shivangi Sharma, III year of B.A.,LL.B.(Hons.) from Amity University Noida


ABSTRACT

One of the key purposes of the 1996 act was to provide the arbitrator more power while still allowing the parties more autonomy. Furthermore, the scope of legal action should be constrained. Although, in most cases, the Court of a different Judicial Authority does not intervene in any arbitration hearing or award. The non-intervention rule is based on the notion that once the parties to a commercial settlement have agreed to resolve their problems through mediation, conciliation, or arbitration, the legal system may no longer be justified in intervening with the arbitration proceeding. The courts, on the other hand, have the power to hear any dispute in which they feel the parties have failed to enter into a legitimate arbitration agreement. The question of whether Indian courts have the ability to overturn foreign arbitral decisions has the potential to have a major impact on the international arbitration community as well as international business in India.


The Indian Arbitration Act of 1996 covers the legal aspects of domestic arbitration, international commercial arbitration, and the enforcement of foreign arbitral judgments. Indian courts have used provisions of the Act to ignore contradictory contractual terms and establish their own authority in order to enact temporary measures and set aside arbitral judgments. . Foreign investors in India's construction, energy, and other industries have long been concerned about the Indian judiciary's proclivity to intervene in international arbitration processes. In Bharat Aluminium Co. v Kaiser Aluminium Technical Services, Inc., India's Supreme Court rejected previous judgments that authorized this interventionist policy, which is a positive move. The purpose of this article is to examine the jurisdiction of judicial intervention prior to and after the BALCO case.

Keywords- Judicial intervention, foreign award, BALCO, Relaince Industries and Bhatia International.


Introduction

People in India are becoming more reliant on alternative conflict resolution mechanisms as a result of the enormous number of cases standing before the Indian judiciary. Out-of-court settlement methods are the most practical means of ensuring rapid redress of disputes while avoiding unwarranted delays in the courts. As a result of arbitration's rapid growth, several roadblocks have emerged in its route to successfully delivering justice. Due to flaws in the legislative provisions, the judiciary is frequently seen as having to intervene during arbitration processes.[1]


Three key cases resulted in opposing views on the jurisdiction of Indian courts over international arbitrations. Bhatia International v. Bulk Trading S.A. and Anr.[2] was a high-profile case in which an Indian court was given the power to overturn the foreign awards. Bharat Aluminum Company v. Kaiser Aluminum Technical Services Inc. BALCO, concluded after ten years, overruled Bhatia Foreign and declared that Part I of the Act could not be invoked to grant Indian court’s jurisdiction over international arbitrations. The BALCO court's decision was designed to clarify the situation, but it only applied to arbitration agreements filed after September 6, 2012. In Union of India vs. Reliance Industries Ltd & Anr[3], the court revisited BALCO, reinvigorating the Bhatia International judgment with respect to arbitration agreements executed before September 6, 2012.


As a result, Reliance Industries and BALCO devised two contradictory rules that apply solely to the date on which the parties agreed to the applicable arbitral clauses:

  1. Broad application of Part I for arbitral agreements made before September 6, 2012; and

  2. More restricted application of Part I for agreements made after September 6, 2012.

The ultimate focus of this paper is to analyse the Indian courts' lack of clarity on the subject of whether Indian courts have jurisdiction over contracts that assign jurisdiction to another country, and how this impacts international arbitration. India has recently developed a pro-arbitration jurisprudence that favours arbitration agreements that delegate jurisdiction to another country. Bhatia International and Reliance Industries, on the other hand, challenge that reputation and put the international arbitration community in India at risk of having unenforceable arbitration agreements. Following the court's decision in BALCO, the international arbitration community was adamant that they would no longer have to fear Indian courts establishing jurisdiction over their disputes governed by foreign law. The law's applicability, however, is limited.


Judicial Intervention

One of the main purposes of the 1996 Act was to provide arbitrators additional power while limiting the function of the court as a supervisor in the arbitration process. In practise, the 1996 Act allows for court involvement on a regular basis. For example, the term ‘public policy’ appears twice in the 1996 Act. Section 34 of the 1996 Act allows an award to be set aside if it is in conflict with Indian public policy (Part I). Furthermore, under Section 48 of the 1996 Act, if a foreign award is harmful to India's public policy, it may be denied for enforcement (Part II). Renusagar Power Electric Co v. General Electric Co[4], a case involving the execution of an ICC Judgement, the issue of public policy was raised for the first time as an exception for the enforcement of a foreign arbitral award.


The Arbitration and Conciliation Act 1996 consist of international commercial arbitration in India. Part I of the Arbitration Act provides a structure of rules for domestic arbitrations, which are any arbitrations held in India, including those involving a foreign party; and Part II provides rules for the recognition and enforcement of foreign arbitral awards, which are those issued by arbitrations held outside India, whether or not an Indian party is involved. The Arbitration Act closely resembles the UNCITRAL Model Law on International Commercial Arbitration, which proposes a legal framework for international arbitration that respects party autonomy and limits the extent to which local courts may intervene in the arbitral process, particularly in relation to international commercial arbitration.


However, the Indian courts have significantly weakened this principle of non-intervention in a series of cases. In Bhatia International v Bulk Trading S.A, the Supreme Court found that Part I of the Arbitration Act applied equally to arbitrations performed outside India, requiring higher degrees of court participation. In another case, the Court ruled that any foreign arbitral award that violated Indian law was invalid and liable to be overturned on public policy grounds.


The total result of these decisions was that Indian courts had the authority to reopen and examine any foreign arbitral award, whether seated in India or not, and whether or not a party wantt to enforce that foreign award in India. Because of this method, parties who had agreed to resolve their problems through arbitration, for example, Singapore could be dragged into legal proceedings in India before any attempt at local enforcement was undertaken. This strategy had caused considerable concern among foreign parties involved in economic transactions in India, as well as major criticism from Indian and international lawyers and academics.


Expansion of Jurisdiction over Foreign Awards

The case law underpinning the Indian courts' enlargement of jurisdiction over foreign arbitral panels is based on Bhatia International. Despite appearing to pertain primarily to domestic arbitrations, the Bhatia International court determined that Part I applied to international arbitrations. Eventually, the Bhatia International court found that Part I extended to international arbitrations unless the parties specifically or implicitly rejected it.


According to Bhatia International, Indian courts have the option of intervening in a foreign award as if it were an Indian award. When a dispute involving an Indian party arose, Bhatia International gave courts the authority to assert jurisdiction over international arbitration agreements and to set aside arbitral decisions rendered by foreign-seated panels. The court also stated that the agreement's non obstante clause trumps ‘the totality of the agreement,’ including the arbitration provision that provided that foreign law would rule. The non-obstante clause, which states that the parties will not violate Indian law, was proof of the parties purpose to have Indian law control their agreement, according to the court. As a result, the court gave the non obstante clause more weight than the contract terms that specified which law the parties agreed to apply to their deal.


Later instances, such as Venture Global Engineering v. Satyam Computer Systems Ltd. , demonstrated this strength. Venture Global and Satyam Computer had a Shareholder Agreement that included an arbitration clause. Satyam Computer filed a claim in the London Court of International Arbitration, stating that it was entitled to shares in a corporation controlled jointly by the parties as a result of Venture Global's claimed default. Satyam Computer sought enforcement in the United States District Court for the Eastern District of Michigan after the arbitrator found in its favour. Meanwhile, Venture Global filed a request in Indian court for an injunction and for the award to be set aside. The court in Venture Global used Part I to determine whether it had jurisdiction over the disputed contract. The Venture Global court was granted jurisdiction because the parties' agreement violated various Indian statutes and was contrary to Indian public policy.


The Venture Global case has far-reaching implications since it establishes a new mechanism and foundation for challenging a foreign award that the Act does not address. A person seeking to enforce a foreign award must now file both an application for enforcement under Section 48 of the Act and an application to set aside the award under Section 34 of the Act. The award must now pass not only the New York Convention grounds contained in Section 48 but also the extended 'public policy' basis introduced under Section 34 of the Act.


Analysis of BALCO Judgement

This decision has resolved a conflicting position that existed in relation to arbitration proceedings held outside India or international commercial arbitration with a seat of arbitration outside India, in which Indian parties sought the intervention of an Indian court to set aside foreign awards and render them unenforceable in India, thereby rendering the entire arbitration process futile.On September 6, 2012, the Supreme Court of India's Constitutional bench overruled its earlier decisions in Bhatia Trading v. Bulk Trading and Venture Global Engineering v. Satyam Computer Services Ltd, holding that Indian courts lack jurisdiction to interfere with foreign awards made in International Commercial Arbitration. The Supreme Court concluded that Part I of the Indian Arbitration and Conciliation Act, 1996 does not apply to arbitration proceedings occurring outside India and that an Indian court cannot use Part I of the Act to issue interim orders or set aside foreign decisions.


Videocon Industries Limited v. Union of India was one of the first cases to shift towards a more arbitration-friendly judiciary. According to the Videocon court, the lower court lacks jurisdiction because the parties agreed that any arbitration procedures would be controlled by English law. When the parties consented to have their conflicts governed by a non-Indian country's law, the court in Videocon's ruling indicated that the court was inclined to allow implied exclusions of Part I. In essence, Videocon demonstrated that Indian courts were willing to recognize the conflicting provisions that barred them from exercising jurisdiction over foreign arbitration agreements that did not follow Indian law. As a result, Videocon differed from Bhatia International and Venture Global's anti-arbitration determinations. Furthermore, Videocon paved the way for the future BALCO decision to clarify and expand on the acceptance of implied Part I exclusions.


In BALCO, the court considered whether the parties directly or implicitly excluded Part I from the court's jurisdiction over the matter. We are of the considered judgment that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India,' the court said. As a result, such awards will be subject to the jurisdiction of Indian courts only if they are sought to be implemented in India in conformity with the requirements of Part II of the Arbitration Act, 1996.The provisions of the Arbitration Act, 1996, in Court opinion, make it crystal plain that there can be no overlapping or intermingling of the provisions of Part I with the provisions of Part II of the Act. With all due respect, we cannot concur with the decisions reached by this Court in the Bhatia International and Venture Global Engineering cases.


The recognition that the law of the nation chosen as the seat of arbitration would apply to the arbitral proceedings is inextricably linked to the choice of that country as the seat of arbitration. The terms ‘seat’ and ‘place’ of arbitration are interchangeable, although the seat must remain the location specified in the arbitration agreement. International business arbitration involves parties from many countries, therefore the location of the arbitration may change, but the seat will remain the same. Section 48 of Part II does not give two courts the authority to annul the judgment; it is only included to give parties an opportunity to contest the award if the legislation of the nation where the arbitration is held lacks such a provision.The words ‘set aside or suspend’ in section 48 do not imply that the foreign award sought to be enforced can be challenged on the merits by Indian courts; rather, the provision merely recognizes two nations courts as competent to suspend or annul the award and does not imply that the two courts have any jurisdiction to annul the award made outside India. The Indian Arbitration Act of 1996 does not expressly grant an Indian court the authority to set aside awards made outside of India.


Non-convention arbitral awards are not covered by Part I of the Act. Because the definition of foreign awards has been purposefully limited to the New York and Geneva conventions, there is no provision in the Act for the enforcement of non-convention arbitral awards, and thus no remedy can be incorporated in the Act; this can only be done by necessary amendments that can be introduced only by Parliament.The territoriality element of the Model Law has been incorporated in the Indian Arbitration Act of 1996. All sections of Part I [Section 1, 2 (4), (5), (7)] reaffirm that Part I applies to all arbitration procedures held in India and cannot be extended to international commercial arbitrations undertaken outside India on the basis of interpretation.


The BALCO court limited its judgement to just agreements entered into after September 6, 2012, when it was issued. As a result, the restriction on agreements taken into after BALCO left the door open to what the position would be on pre-BALCO agreements.The principles established in the stated judgment would be applied to arbitration agreements entered into on or after September 7, 2012. Although it may not appear to be a major issue at first glance, parties who signed arbitration agreements on or before September 6, 2012, providing for foreign seated international commercial arbitrations, would be required to repeat the time-consuming process of reviewing all such arguments in light of the BALCO Case rulings and amending the agreements, if necessary, to avoid any ambiguity.

Some Problems Related to BALCO Judgement-


Despite the fact that there are other challenges that need to be addressed by Indian courts in the wake of the BALCO decision, the BALCO ruling offers the essential motivation for Indian courts to get off to a solid start. This absence of interim remedies under the Act could be particularly harmful to the arbitral process in such foreign seated arbitrations where the subject matter of the dispute is located in India. Even if a favourable award is made, the purpose of the arbitration proceedings may be defeated because the party against whom the award is made, if it has assets in India, can dispose of those assets during the pendency of the arbitration in order to defeat any award made against such party outside India.


Despite the fact that Bhatia and Venture Global have been expressly overruled, the BALCO decision essentially indicates that these precedents are unlikely to continue to be a precedent for any judgement by an Indian court relating to arbitration agreements made before September 6, 2012. Given the preceding decisions, it is clear that the BALCO decision is not the panacea for all of India's arbitration woes, but it has clearly demonstrated that the Supreme Court has taken a step in the right way.


Post BALCO Judgement

It was unclear after the BALCO judgment what rule would apply to arbitration agreements signed before September 6, 2012. Union of India v. Reliance Industries addressed this issue.


The Reliance Industries dispute stemmed from two Production Sharing Contracts ("PSCs") involving the exploration and production of petroleum from India's Tapti and Panna Muleta areas. The contracts were signed in 1994 and were meant to last for 25 years unless the parties agreed otherwise. Reliance submitted a variety of claims, including royalties, cesses, and service taxes. The Union of India objected, claiming that the claims were unresolvable through arbitration. Despite this, the arbitral tribunal found Reliance's claims to be arbitrable.As a result, the Union of India filed a claim in the Delhi High Court to have the arbitral decision set aside under Part I, Section 34. Reliance objected, claiming that the arbitration agreement in the PSCs stipulated that English law would govern and that any disputes would be handled by a London-based arbitration panel.


The fundamental question before the Reliance Industries court was whether the parties specifically or implicitly excluded Part I. Rather than finding the parties had excluded Part I, Indian courts, such as the Venture Global court, had previously relied on public policy issues to justify their jurisdiction. The Indian court's authority was also linked to public policy considerations arising from Indian objects, taxes, and government involvement in the PSCs, according to the Reliance Industries court.


When there is a non obstante clause prohibiting the parties from breaching Indian laws, the Reliance Industries court concluded: No inference as to exclusion of the jurisdiction of Indian courts can be made by this court because it seems that the parties' intent is not to exclude Indian laws, and the court has the jurisdiction.


Because the holding in BALCO only applied to agreements made after the judgment was handed down in 2012, whereas the arrangement between Reliance Industries and the Union of India was signed in 1994, the Reliance Industries decision followed Venture Global rather than BALCO. When the Reliance Industries court applied Bhatia International and Venture Global to this case, the court found no evidence that the parties omitted Part I. As a result, Reliance's objection to the court's jurisdiction over the parties' agreement was overruled.

Following the 2015 amendment to the Arbitration and Conciliation Act, Indian courts have moved away from their usual methodological analysis of minor intervention in cases involving the requirement of foreign awards, and have taken significant steps to prevent enforcement solely on the basis of strained grounds.


The courts have gone about giving impetus in the enforcement of foreign awards in the manner in which the prevailing legislation on the enforcement of foreign awards has been dependent entirely on these modifications in the BALCO and the subsequent in the 2015 Amendment has made India an Arbitration centre. While there will still be a long and arduous road ahead, fraught with legal and policy obstacles in terms of applicability and jurisdiction.


Conclusion

Changes that occurred after the BALCO Decision: This was a significant advance in the field because it constituted a paradigm shift from past practise. The Supreme Court's readiness to do so sent a message to Indian courts that they will not be afraid to follow the terms of applicable international accords and align Indian legislation with an equivalent. This is significant because one of the major challenges that arbitration practitioners in India face is that the courts must adjust to arbitration processes controlled by a statute based on the UNCITRAL Model Law. Foreign investors, on the other hand, gained fresh confidence in dealing with Indian parties as a result of this.By adopting the rationale from Venture Global, Reliance Industries increased the power of Indian courts to exercise jurisdiction over foreign commercial arbitrations. Despite BALCO overruling both Bhatia Foreign and Venture Global by holding that Indian courts could no longer exercise jurisdiction over international arbitration agreements entered into after September 6, 2012, Reliance Industries has returned to this old line of thought. Because of the court's ruling in Reliance Industries, Indian courts are once again free to exercise jurisdiction over internal commercial arbitrations where the parties have chosen to have their issues governed by foreign law.


These two contradictory techniques are incompatible and should not coexist. Until the Court definitively overrules either BALCO or Bhatia Foreign and Reliance Industries, the issue of Indian courts having jurisdiction over international arbitrations would remain unsettled. When these hurdles are overcome, India may really be termed an arbitration-friendly nation, which the BALCO judgment has already imbued with a new light of optimism that a new and promising age for arbitral proceedings in India has begun.

[1]Anushka Rastogi, THE SCOPE OF JUDICIAL INTERVENTION DURING DIFFERENT STAGES OF ARBITRATION PROCEEDINGS: AN ANALYSIS IN THE LIGHT OF THE EMERGING REGIME OF JUDICIAL MINIMALISM available at https://thelawbrigade.com/wp-content/uploads/2021/06/Anushka-Rastogi-ALPPR.pdf last seen on 22/02/2022. [2]Bhatia Trading v. Bulk trading (2002) 4 SCC 105. [3] Union of India v. Reliance Industries, (2013) O.M.P. No. 46 (India). [4]Renusagar Power Electric Co v. General Electric Co 1994 AIR 860, 1994 SCC Supl. (1) 644