Foreign investors often choose arbitration as their preferred method of dispute resolution in relation to transactions with Indian entities. Whether the arbitral proceedings will be held in India (domestic arbitration) or outside India (foreign arbitration) is often a commercial and strategic decision.
One factor that, in our experience, concerns foreign investors is the availability of protective interim orders to secure assets in India for the potential enforcement of arbitral awards. In view of recent decisions of the Supreme Court of India expanding the scope of intervention by Indian courts in foreign arbitrations, it is important to draft arbitration agreements carefully to identify the specific areas in which parties may have recourse to Indian courts, and no others.
Applying Part I
The provisions relating to orders for interim protection of assets pending arbitration are included in Part I of the Arbitration and Conciliation Act, 1996. Section 2(2) of the act states that Part I of the act shall apply where the place of arbitration is in India. However, in 2002 a three-judge bench of the Supreme Court in Bhatia International v Bulk Trading SA and Another stated that provisions of Part I would also apply to foreign arbitrations unless the parties by agreement, express or implied, exclude all or any of its provisions.
In Bhatia, the dispute before the court involved an application seeking interim orders under section 9 of the act. The court reasoned that if parties in a foreign arbitration could not seek interim security from Indian courts, they could be left without a remedy where all the relevant assets are located in India.
The principles stated in the Bhatia decision have since been expanded by the Supreme Court to include the jurisdiction of Indian courts over the appointment of arbitrators in foreign arbitrations (Indtel Technical Services Pvt Ltd v WS Atkins PLC, 2008) and to provide for appeals against foreign arbitral awards in Indian courts (Venture Global Engineering v Satyam Computer Services Ltd and Another, 2008).
This has led to an anomalous situation in which even where the arbitration is conducted outside India and the award is subject to challenge under the laws of the country where the arbitration was conducted, foreign parties may still be subject to the jurisdiction of Indian courts with respect to appeals against such arbitral awards.
Perhaps recognizing this anomaly, in more recent decisions concerning foreign arbitrations, Indian courts have read implied exclusions of Part I into arbitration agreements, based on the language used in the relevant arbitration clauses, and have refrained from exercising jurisdiction in foreign arbitrations.
For example, in Max India Limited v General Binding Corporation (2009), Delhi High Court found an implied exclusion of Part I where parties agreed on Singapore as the venue of the arbitration to be conducted in accordance with the Singapore International Arbitration Centre (SIAC) Rules, where Singapore law governed the contract and where the courts in Singapore were vested with the jurisdiction to adjudicate disputes.
In Dozco India P Ltd v Doosan Infracore Co Ltd (2010), where the agreement stated that the contract would be governed by Korean law and the seat of arbitration was in Seoul, the Supreme Court held that the parties had expressly agreed to exclude the application of Part I.
Further, in Videocon Industries Limited v Union of India and Another (2011), the Supreme Court held that Part I did not apply to foreign arbitrations if the parties had agreed that the arbitration agreement would be governed by the laws of another country.
Similarly in Yograj Infrastructure Ltd v Ssang Yong Engineering and Construction Co Ltd (2011), the Supreme Court held that, even though the governing law of the contract was Indian law, by agreeing to conduct arbitration in Singapore, in accordance with the SIAC Rules, the parties had impliedly agreed to exclude the application of Part I.
Foreign investors should draft arbitration agreements carefully to ensure that foreign arbitrations are not susceptible to the jurisdiction of the Indian courts beyond the parties’ intention. Further, they could consider expressly excluding the applicability of Part I of the act entirely, unless the assistance of the Indian courts is required either to secure assets in dispute or to obtain evidence, prior to or during the course of arbitration proceedings.
In such cases it may be helpful to expressly exclude the applicability of Part I with the exception of the relevant sections, that is, sections 9 and 27, respectively.
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