JUDICIAL INTERVENTION IN INTERNATIONAL ARBITRATION

-AYASKANTA PARIDA (2017012)

Domestic provisions of various countries have adopted distinct measures on the amount of power
of adjudication that can be vested in arbitral tribunals which function outside the States’ monopoly
in administering justice. This is reflected in many positions adopted in different jurisdictions on
the scope of intervention by domestic judiciary in international commercial arbitrations. Indian
judiciary had previously taken an expansionary stance in respect of its power of intervention but
reversed it later. This article analyses this turn in the stance and how this would benefit to the
growth of the institution of international commercial arbitration in India.

INTRODUCTION

Arbitration is seen as highly efficient mode of dispute resolution because of many benefits
that it provides, like its consensual nature, decision-makers being not part of the
government, flexibility provided in comparison to court proceedings and an award capable
of being binding and enforced. It is international in nature when trans national parties
belonging to separate jurisdictions are parties.1
The United Nations Convention on Recognition and Enforcement of
Foreign Arbitral Awards2 (hereinafter New York Convention) makes it obligatory for
Member Nations to enforce both agreements to arbitrate as well as arbitration awards.3
The Model Law provides for judicial intervention only under certain circumstances, like
interim measures of protection, appointment or setting aside of arbitrators, recognition and
enforcement of arbitral awards. Most of the countries have legislations in arbitration which

1
UNCITRAL Model Law on International Commercial Arbitration, 1985 (hereinafter Model Law), Article 1.3
2
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10,
1958, 330 U. N. T. S. 38.
3
United Nations Commission on International Trade Law, Status: Convention on Recognition
and Enforcement of Foreign Arbitral Awards, available at http://www.uncitral.org/uncitral/
en/uncitral texts/arbitration/NYConvention_status.html
 barely limit the power of courts’ interference in different stages of arbitration proceedings.
Therefore, a notch of uncertainty is attached to international arbitral proceedings, due to
the subjectivity of domestic court decisions. Parties chose to settle their cases though
arbitration only if there is an assurance of private dispute resolution providers of their
choice and other aforementioned advantage. Not having such benefits could have drastic
implications for global business and commerce.
This paper seeks to understand the scope of intercession of Indian judiciary in arbitration
proceedings keeping in mind relevant provisions of Arbitration and Conciliation Act,1996.
The very nature of an arbitration agreement mandates that parties have their own choice of
arbitrators or an arbitral institution, their choice of seat and venue, the laws governing the
arbitration agreement and arbitration itself (Lex Arbitri), the substantive law in place and
the law governing the recognition and enforcement of the award. In the absence of express
choice of any one of these laws, the task of selecting the relevant law goes to the arbitral
institution in place. Lex Arbitri generally deals with qualification and appointment of
arbitrators, procedural conduct, level of judicial intervention, interim measures and the
specifics of the award.
Domestic Law in other Jurisdictions
Some Countries recognise the distinction between domestic and international arbitration
based on the presumption that the financial amount at hand in the latter would be pretty
heavy and the parties are able to look after themselves. Therefore, they a separate
legislation in place, just for international commercial arbitration. Countries like France,
Switzerland, Colombia and Singapore are credible examples.
1. England:
English Courts4 have the statutory power to award anti-arbitration
injunctions but will only do so in exceptional circumstances and only where it is
clear that the arbitration proceedings have been wrongly brought. In Elektrim S.A. v.
Vivendi Universal S.A.5 the claimant sought an injunction to restrain the respondent from
pursuing an arbitration being conducted before the London Court of International
Arbitration hereinafter LCIA). Refusing the injunction to restrain the LCIA proceedings,

4
United Kingdom has incorporated the Model Law in their Arbitration Act, 1996.
5
[2007] EWHC 571 (Comm.).
 the court held that under the Arbitration Act, “the scope for the court to intervene by
injunction before an award” had been “very limited.” Moreover, since the arbitrators had
previously refused to stay the LCIA arbitration and the court had “no express power under
the Arbitration Act to review or overrule those procedural decisions in advance of an
award by the LCIA arbitrators”, to do so under Section 37 of the Supreme Court Act
“would undermine the principles of the 1996 Act.” This case portrays the deference of
English courts from interfering towards arbitral tribunals and proceedings and respect for
their autonomy.

2. Singapore:

In Singapore, which has adopted the Model Law, the judiciary has
outlined a distinct difference between international and domestic arbitration.
In the Front Carriers case6, the High Court held that the Court had the power under the
International Arbitration Act,1994 (hereinafter IAA) to assist, by way of interim measures,
international arbitration both in Singapore as well as those held abroad. As per the
judgement, Section 12(1) of the IAA spells out in detail the interim measures of protection
which an arbitral tribunal may make, which are remedies aimed at assisting in the just and
proper conduct of arbitration. Orders from arbitral tribunals are given coercive effect with
the High Court’s leave under Section 12(6) of the Act. Section 12(7) of the Act gives effect
to Article 9 of the UNCITRAL Model Law and it forms the basis upon which the High
Court may order interim measures by applying its own domestic law.

3. Switzerland:

The Swiss legal system, too, does not seem to favour anti-arbitration
injunctions. Most of the powers to grant interim relief are vested with the arbitration
tribunal. For example, in Air (PTY) Ltd. v. International Air Transport Association7, the
Court of First Instance of the Canton of Geneva ruled that anti-suit injunctions, including

6
[2006] SGH 127
7
Tribunal de Première Instance [TPI] [Court of First Instance] May 2, 2005, Case No. C/ 1043/2005-15SP (Switz.),
translated in 23 A.S.A. BULL. 739 (2005).
 anti-arbitration injunctions, are contrary to the Swiss legal system, particularly
because they have been found to contradict the principle of ‘Competence Competence’, a
well-established principle.

Rules pertaining to intervention in Arbitration Institutions:

Most of the institutional rules have some form of provisions to support
the aid of courts for arbitration.8 The major concern for parties to arbitration
agreement is that their approach to the Courts for interim relief might be seen as a
breach of the agreement itself. Rules of the International Chamber of Commerce,
American Arbitration Association and World Intellectual Property Organization
(hereinafter WIPO) make it abundantly clear that such an approach will not be
considered to be a violation of the agreement to arbitrate. LCIA and the
International Centre for Settlement of Investment Disputes (hereinafter ICSID)
rules only have a general provision that allows parties to approach judicial
authorities for interim relief.9 Section 20.2 of the Arbitration Rules of the German Institute
of Arbitration (DIS Arbitration Rules, 1998) also duplicates Article 9 of the
UNCITRAL Model Law.

STANCE OF INDIAN JUDICIARY

The Arbitration and Conciliation Act, 1996 (hereinafter, the “Act”) can be seen as
an attempt to implement the Model Law and to create a pro-arbitration legal
regime in India, something which was not the case under the erstwhile Arbitration Act, 1940.The
Act seeks to minimise judicial interference in arbitration. However, analysis of various judgements
of the Indian Judiciary, especially in the context of International Commercial Arbitration paints a
different picture.

It is through a precise examination of the interpretation of Section 2(2) of

the Act that the extent of judicial intervention can be observed. Section 2(2) of this Act
is in consonance with the principle that arbitral procedure is governed by the lex

8
Gregoire Marchac, Interim Measures in International Commercial Arbitration under the ICC, AAA, LCIA and
UNCITRAL Rules, 10 AM. REV. INT’ L ARB. 123, 134 (1999)
9
Article 25.3, LCIA Arbitration Rules, January 1, 1998.
arbitri. This section clearly states that Part I of the Act is applicable where the
place of arbitration is in India. A Delhi High Court decision was the one of the initial judgements
which declared that the scope of Section 2(2) was wide enough to include arbitrations even taking
place outside India.10 However, the Calcutta High Court11 departed from this stance and
stated that Section 2(2) of the Act restricts the applicability of Part I of the Act to
arbitrations in India.

In an effort to settle the somewhat confused position of law, a three judge Bench in Bhatia
International v. Bulk Trading S. A.12 gave its verdict. In this case, the contract entered into between
the two opposite parties had an arbitration clause providing for arbitration as per the International
Chamber of Commerce (hereinafter ICC) Rules. A sole arbitrator was appointed by the ICC on
request of the respondent and the parties agreed for arbitration to be
held in Paris. After that, the respondent filed an application under Section 9 of the Act
in the District Court of Indore, for obtaining an order of injunction restraining the
appellant from transferring its business assets and properties located in India.
The appellant opposed the application by contending that Part I of the Act, which
contains Section 9, applies only to arbitrations conducted in India. Dismissing this
objection, the lower court admitted the application of Part I of the Act. The appellant
then filed a writ petition before the Madhya Pradesh High Court which was later
dismissed. Hence, an appeal was made to the Supreme Court against this judgment of the High
Court to decide whether an Indian court can provide interim relief under Section 9 of the Act in
cases where an international commercial arbitration is held outside India. The Supreme Court, in
essence, ruled that Part I of the Act which gives effect to the UNCITRAL Model Law and confers
power on the court to grant interim measures, applied even to arbitration held outside India. Its
decision spelt out that arbitrations held in India would necessitate the application of the
provisions of Part I with deviation permitted only to the extent of the derogable
provisions of Part I. In cases of international commercial arbitrations held outside
India provisions of Part I would apply unless the parties by agreement, express or
implied, excluded all or any of its provisions. The Supreme Court reasoned that

10
Dominant Offset Pvt. Ltd. v. Adamovske Strojitrny A.S., AIR 2000 Del 254.
11
East Coast Shipping Limited v. M.J. Scrap Pvt. Ltd, 1997 (1) HN 444.
12
Bhatia International v. Bulk Trading S.A., AIR 2002 SC 1432.
if the Act provides that Part I is applicable to India, it is not tantamount to being
applicable either ‘only’ in India or being inapplicable if it is out of India.

Section 2(2) of the Act, in its plain and unambiguous meaning excludes the application of Part I
of the Act to international arbitrations when the place of arbitration is outside India This
assumption can be supported by the judgement given in J.K. Cotton Mills case13 where the court
observed that the legislation puts every phrase or word in a provision only for it to be put into
effect.

Justice R. C. Lahoti, speaking for the Supreme Court, held in Shreejee Traco (I) Pvt. Ltd. v.
Paperline International Inc.14 that it is implicit in the language of the Act that Part I “will not
apply where place of arbitration is not in India”.

Relying on its own judgment in the Bhatia case, the Apex Court, in Venture Global Engineering
v. Satyam Computer Services Ltd. and Another,15 ruled that a foreign award was amenable to
challenge under Section 34 on a construction that Part I of the Act applies to foreign awards. It
was only in a case where the parties specifically chose to exclude the application of Part I of the
Act that such challenge would not be available.

These two judgements (Bhatia and Venture), jointly threatened to douse the glowing embers that
was then then the plight of International Commercial Arbitration as every such disgruntled party
in an international arbitration proceeding, if Indian could overturn the session’s ruling which
would then defeat the purpose of having arbitration in the first place. This did not just thwart
arbitration per se, but would rather dampen the prospects of international companies initiating
commercial operations in India.

BALCO V. KAISER ALUMINIUM- THE REVERSAL

In January 2012, a five-judge constitution bench of the Supreme Court began its proceedings in
the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc. (hereinafter
BALCO).16 The Court reconsidered the controversial rulings in Bhatia and Venture Global

13
J.K. Cotton Mills Spinning and Weaving Mill Co. Ltd v. State of U. P., AIR 1961 SC 1170
14
(2003) 9 SCC 79
15
Venture Global Engineering v. Satyam Computer Services Ltd. and Another, AIR 2008 SC1061.
16
Bharat Aluminium Co. v Kaiser Aluminium Technical Serv. Inc., Civil Appeal No.7019 of 2005
pertaining to the scope of extra territorial application of Part I of the Act. The Court affirmed that
the Act adopted the territoriality principle of the Model Law and accepted existing theories in
international arbitration on Article V(1)(e) of the New York Convention ("the NY Convention")."
The case involved several appeals dealing with the same, broader legal issue: whether the Indian
courts can perform supervisory jurisdiction in arbitrations seated outside the country. The Supreme
Court of India gave the answer in the negative, overruling Bhatia International v. Bulk Trading
S.A. Essentially, the decision meant that the Indian courts could no longer make interim orders,
remove or appoint arbitrators in arbitrations with seats outside or entertain annulment challenges
to foreign arbitration awards."

a. Silence and Its Implication

The Court in BALCO deliberated in detail upon the significance of the missing word "only"
in section 2(2). The word "only" would not have been significant had it not been used in
Article 1(2) of the Model Law. The counsel for appellants argued that, since "only" is
absent from the provision, the applicability of the Act is automatically extended to foreign
arbitrations as well. The relevant question was whether the omission expresses the intention
of the Indian Parliament to widen the applicability of Part I of the Act to arbitrations outside
India.
Rejecting this proposition, the Court held the omission of "only" in Section 2(2) of the Act
does not indicate that Indian courts could supervise arbitration proceedings taking place
outside India. Rather, the Court determined that the Act adopted a scheme different from
the Model Law in this respect. In Article 1(2) of the Model Law, it was necessary to include
the word "only" to clarify that, except for certain provisions, the Model Law would be
applicable on strictly territorial basis. The exceptions stipulated in Article 1(2) of the Model
Law were not enumerated in Section 2(2) of the Act, and therefore, the word "only" would
have been superfluous there.17

b. The Seat-Venue Dichotomy in Arbitration Proceedings

A critical issue in any international arbitration is the location of the arbitral seat and the
territoriality thesis. A major part of the judgment deals with the territoriality principle that

17
Karan S. Tyagi, A Second Look at International Arbitration, The Hindu (Dec.11,2011)
 forms the conceptual basis for Article 1(2) of the Model Law. Accordingly, the territoriality
principle holds that the Model Law would only apply where the place of arbitration was in
the contracting State. In most legal systems, the arbitration law of a state is territorial in
scope, regulating arbitration proceedings that have their seat within the territory of that
state and not the foreign arbitrations. In the Court's decision in BALCO, the Court affirmed
that the Act adopted the territoriality principle of the Model Law, which is abundantly clear
from the scheme of the Act. The application of Part I is, therefore, restricted to arbitrations
taking place in India. To quote from the Preamble of the Act itself, "[t]he seat of arbitration
is intended to be the central point or its centre of gravity."18
Recognizing this principle to be applicable in the Indian context as well, the Court in
BALCO endorsed one of the most fundamental concepts of international arbitration law.
On the other hand, the delocalization debate has certainly influenced and fuelled a
movement away from the control of the domestic courts at the place of arbitration.19 This
form of delocalized arbitration can be practiced only if the state and its laws permit it. Here,
the Court clearly identified the fact that Indian law does not recognize delocalized
arbitration proceedings. If there is ambiguity regarding the law governing the conduct of
arbitration, the law of the seat of arbitration governs the arbitration proceedings as it is
"most closely connected with the proceedings” as later observed by the apex court in
Enercon India v. Enercon GMBH20.
CONCLUSION
The primary objective of the Arbitration act is to facilitate international commerce and business,
to ensure finality of foreign awards and to minimize judicial interference, particularly when awards
have been passed by international commercial experts. The ruling by the Supreme Court of India
in the Bhatia case could have had disastrous consequences for commercial agreements and foreign
awards passed thereon by opening up the floodgates for challenge. This judgment made
international arbitrations subject to domestic law, something which was never intended to. Foreign
trade relations could have been gravely impacted as there would have been an element of distrust

18
Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration (Sweet & Maxwell eds.,
4th ed. 2004).
19
Otto Sandrock, To Continue Nationalizing or to De-Nationalize? That is Now the Question in International
Arbitration.
20
Civ. App. 2086/7 of 2014
while incorporating and applying an arbitration clause in a business agreement. Fortunately, this
was corrected in BALCO.