Anirudh Krishnan, AK Law Chambers

1. THE ROADBLOCKS TO INDIA
RELATED INTERNATIONAL
ARBITRATION
(WITH A SPECIFIC REFERENCE TO
THE PROPOSED REFORMS)
BY
ANIRUDH KRISHNAN
PARTNER, AK LAW CHAMBERS,
CHIEF - EDITOR, JUSTICE R.S. BACHAWAT’S LAW
OF ARBITRATION AND CONCILIATION
CONSULTANT, 246TH AND 253RD REPORTS OF
THE LAW COMMISSION OF INDIA

2. THE ROADBLOCKS TO INDIA RELATED
INTERNATIONAL ARBITRATION
I. Judicial interventions in foreign seated arbitrations
II. Anti-arbitration injunctions and the Section 45 test
III. Enforcement of foreign awards
IV. Incentives to frivolous litigation

3. JUDICIAL INTERVENTION IN FOREIGN
SEATED ARBITRATIONS
▪Application of Sections 9 and 34 to foreign seated arbitrations
•Sections 9 and 34 are in Part I of the Act.
•Section 2(2) of the Act-"This Part shall apply where the place of
arbitration is in India“
•Contrast with Article 1(2) of the UNCITRAL Model Law-“The
provisions of this Law, except articles 8, 9, 35 and 36, apply only if
the place of arbitration is in the territory of this State.”

4. ▪ Supreme Court in Bhatia (Bhatia International v. Bulk Trading
S.A. (2002) 4 SCC 105 ) on Section 2(2):
• Part 1 mandatorily applies if the arbitration is held in India.
• Part 1 applies if the arbitration is held abroad unless it is expressly
or impliedly excluded.
• Merely specifying the seat of arbitration to be foreign does not
amount to implied exclusion.
• Entire jurisprudence has since developed on how to construe an
implied exclusion.
JUDICIAL INTERVENTION IN FOREIGN
SEATED ARBITRATIONS

5. JUDICIAL INTERVENTION IN FOREIGN
SEATED ARBITRATIONS
Foreign seat alone = no implied exclusion
(Bhatia International v. Bulk Trading S.A. and Anr.,
(2002) 4 SCC 105)
Foreign law governing contract, nothing else specified= no implied
exclusion
(Venture Global Engineering v. Satyam Computer
Services Ltd. and Anr., (2008) 4 SCC 190)
Foreign seat+ foreign law governing the contract= implied exclusion
can be presumed
(Dozco India P. Ltd. v. Doosan Infracore Co. Ltd.,
(2011) 6 SCC 179)

6. JUDICIAL INTERVENTION IN FOREIGN
SEATED ARBITRATIONS
Foreign law governing the arbitration+ Indian law governing contract=
express exclusion.
(Videocon Industries Limited v. Union of India (UOI) and Anr., (2011) 6 SCC
161)
Simple point- implied exclusion not based on conflict of laws principles.

7. ▪ Bhatia overruled by the Supreme Court in Bharat Aluminium
Company and Ors. v. Kaiser Aluminium Technical Service, Inc. and
Ors. (2012) 9 SCC 552 (“BALCO”)
• Only if the seat is determined to be India, would Part I be
applicable;
• If seat is outside India, even express inclusion of Part I cannot
confer jurisdiction on an Indian Court.
• The decision in BALCO would have prospective effect and apply
only to arbitration agreements executed after the date of
judgement.
JUDICIAL INTERVENTION IN FOREIGN
SEATED ARBITRATION

8. ▪ Consequence of BALCO
• If the seat of the arbitration is located abroad, a party cannot
resort to Sections 9, 27 of the Act;
• Courts to continue to apply Bhatia even though it is recognized
to be bad law.
JUDICIAL INTERVENTION IN FOREIGN
SEATED ARBITRATION

9. PROPOSED REFORMS
▪Law Commission changes
• Prospectivity of BALCO overturned;
• Section 9, 27, 37(1)(a) and 37(3) applicable to foreign
seated arbitrations unless expressly excluded.

10. PROPOSED REFORMS
(2) Scope.—This Part shall apply only where the seat of arbitration is in India.
Provided that, subject to an express agreement to the contrary, the
provisions of Sections 9, 27, 37 (1)(a) and 37 (3) shall also apply to
international commercial arbitration even if the seat of arbitration is outside
India, if an award made, or that which might be made, in such place would be
enforceable and recognized under Part II of this Act.
(2A) Notwithstanding any judgment/ decree to the contrary, the amendment
to this sub-section (2) shall not apply to applications which are pending before
any judicial authority on the date of such amendment, and which have arisen in
relation to arbitrations where the date of the arbitration agreement is prior to
06.09.2012.

11. THE ANTI-ARBITRATION INJUNCTION
▪ Source of power – Section 151 of the Civil Procedure Code, 1908
• Modi Entertainment Network and Anr. v. W.S.G. Cricket PTE. Ltd.,
(2003) 4 SCC 341
• PPN Power Generating Company Ltd. v. PPN (Mauritius) Company
and Ors., 2005 (3) Arb. LR 354 (Madras)

12. ▪ Test for grant of anti-arbitration injunction (Modi Entertainment test)
▪ in personam jurisdiction against Defendant;
▪ if the injunction is declined the ends of justice will be defeated and
injustice will be perpetuated;
▪ the principle of comity.
▪ the principle of forum non-conveniens.
THE ANTI-ARBITRATION INJUNCTION

13. THE USUAL RECOURSE – AN
APPLICATION UNDER SECTION 45 OF
THE ACT
Section 45 :-
“Power of judicial authority to refer parties to arbitration.-
Notwithstanding anything contained in Part I or in the Code of Civil
Procedure, 1908 (5 of 1908), a judicial authority, when seized of an
action in a matter in respect of which the parties have made an
agreement referred to in section 44, shall, at the request of one of
the parties or any person claiming through or under him, refer the
parties to arbitration, unless it finds that the said agreement is null
and void, inoperative or incapable of being performed.”

14. THE LEVEL OF SCRUTINY
▪ What is the level of scrutiny to decide if the arbitration agreement is
“null and void, inoperative or incapable of being performed”?
• Minority judgement in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre
Ltd. and Anr., (2005) 7 SCC 234 (delivered by Justice Y.K.
Sabharwal):
– Test under Section 45 to be a “prima facie” test
– In-depth analysis only if prima facie finding against arbitration
• Majority judgement :
– Took the same view as Justice Y.K. Sabharwal on facts
– Did not reiterate finding on “prima facie” test

15. ▪ The test in Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water
Purification Inc. and Ors., (2012) 4 Arb LR 1 (SC)
• Incorporates test in National Insurance Co. Ltd. v. Boghara
Polyfab (P) Ltd., (2009) 1 SCC 267
• The Part I test held to be applicable to Section 45
THE LEVEL OF SCRUTINY

16. PROPOSED REFORMS
• The test under Section 45 to be “prima facie”.
Prima facie is there a valid
arbitration clause?
If yes, final determination
to be made by the tribunal;
no appeal except to the
Supreme Court.
If no, court to make an in-
depth final finding and an
appeal is provided.

17. Proposed Amendment
Test under Part I modified-
“Explanation 1: If the judicial authority is prima
facie satisfied about the existence of an arbitration
agreement, it shall refer the parties to arbitration
and leave the final determination of the existence
of the arbitration agreement to the arbitral tribunal
in accordance with section 16, which shall decide
the same as a preliminary issue; “

18. PUBLIC POLICY – THE UNRULY HORSE
Renusagar Power Co. Ltd. v. General Electric Co., AIR
1994 SC 860
▪ Public policy includes:
• Fundamental policy of Indian law
• The interests of India
• Justice or Morality

19. PUBLIC POLICY – THE UNRULY HORSE
Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd.,
(2003) 5 SCC 705. (Domestic Award) (“ONGC I”)
▪ Additional grounds:
• Patent illegality
• So unfair and unreasonable that it shocks the
conscience of the Court

20. Phulchand Exports Ltd. v. OOO Patriot, (2011) 10 SCC 300
(“Phulchand”)
▪ ONGC 1 applied
Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433
(“Shri Lal Mahal”)
▪ Phulchand overruled
▪ Back to Renusagar
PUBLIC POLICY – THE UNRULY HORSE

21. MAKING THE HORSE MORE UNRULY –
ONGC II
Oil & Natural Gas Corporation Ltd. v. Western Geco International
Ltd., (2014) 9 SCC 263 (“ONGC II”)
▪ Fundamental policy of Indian law construed very widely
• Includes Wednesbury reasonableness principle.

22. LAW COMMISSION RECOMMENDATIONS
▪ Shri Lal Mahal reiterated;
▪ Timeframe set for filing objections (90 days) and disposing off
the same (1 year);
▪ Supplementary Report – ONGC II nullified.

23. PROPOSED AMENDMENT
S. 48. Conditions for enforcement of foreign awards.—…
2) Enforcement of an arbitral award may also be refused if the Court finds that—
(a) the subject-matter of the difference is not capable of settlement by arbitration under the
law of India; or
(b) the enforcement of the award would be contrary to the public policy of India.

24. PROPOSED AMENDMENT
Explanation.— For Without prejudice to the generality of clause (b), it is hereby declared,
for the avoidance of any doubt, it is clarified that an award is in conflict with the public
policy of India only if:
(a) the making of the award was induced or affected by fraud or corruption; corruption.
(b) it is in contravention with the fundamental policy of Indian law;
(c) it is in conflict with India’s most basic notions of morality or justice.
(3) An objection under the above sub-sections shall not be made after three months have
elapsed from the date on which the party making such objections has received notice of the
application under Section 47 of the Act:
Provided that if the Court is satisfied that the party raising the objection was prevented by
sufficient cause from making the application within the said period of three months it may
entertain the application within a further period of thirty days, but not thereafter.

25. PROPOSED AMENDMENT
(4) An objection under this Section shall be disposed off expeditiously and in any event within a
period of one year from the date on which the notice issued pursuant to an application under
Section 47 is served.
(5)(3) If an application for the setting aside or suspension of the award has been made to a
competent authority referred to in clause (e) of sub-section (l) the Court may, if it considers it
proper, adjourn the decision on the enforcement of the award and may also, on the application of
the party claiming enforcement of the award, order the other party to give suitable security.
(6) The costs regime set out in Section 6A of the Act shall apply to a proceeding in relation to
Sections 47 and 48 of the Act.

26. PROPOSED AMENDMENT
Section 34(2)(b)(ii)
“For the avoidance of doubt the test as to whether
there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of
the dispute.”
(Supplementary Report)

27. THE PRESENT REGIME- INCENTIVIZES
LITIGATION
▪ Costs rarely imposed
▪ “Costs follow the event” – applicable in theory (Salem Advocate
Bar Association, Tamil Nadu v. Union of India, (2005) 6 SCC
344)
▪ No timeframes for judicial decisions
▪ Vagueness on what constitutes International Commercial
Arbitration – potential source of litigation
• Gap filled by Supreme Court in TDM Infrastructure Pvt. Ltd.
v. UE Development India Pvt. Ltd., (2008) 14 SCC 271.

28. LAW COMMISSION AMENDMENT
▪ “Costs follow the event” – made mandatory;
▪ Timeframes fixed;
▪ TDM Infrastructure ruling incorporated into law as a policy
decision.

29. Proposed Amendment
Section 2 (f) “international commercial arbitration” means an arbitration relating
to disputes arising out of legal relationships, whether contractual or not,
considered as commercial under the law in force in India and where at least
one of the parties is—
(i) an individual who is a national of, or habitually resident in, any country other
than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central
management and control is exercised in any country other than India; or
(iv) the Government of a foreign country;

30. Proposed Amendment
S. 6A- Regime for costs- (1) In relation to any arbitration proceeding or any proceeding under
any of the provisions of this Act pertaining to such an arbitration, the court or arbitral tribunal,
notwithstanding anything contained in the Code of Civil Procedure,1908, has the discretion as to
determine:
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
Explanation.—For the purpose of clause (a), “costs” means reasonable costs relating to—
(i) the fees and expenses of the arbitrators, courts and witnesses,;
(ii) legal fees and expenses,;
(iii) any administration fees of the institution supervising the arbitration,; and
(iv) any other expenses incurred in connection with the arbitral or court proceedings and the
arbitral award.

31. Proposed Amendment
(2) If the court or arbitral tribunal decides to make an order about in payment of costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the
successful party; but
(b) the court or arbitral tribunal may make a different order for reasons to be recorded in writing.
(3) In deciding what order, (if any), to make about costs, the court or arbitral tribunal will have
regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly
successful; and
(c) whether the party had made a frivolous counter claim leading to delay in the disposal of the
arbitral proceedings; and
(cd) whether any reasonable offer to settle is made by a party and unreasonably refused by the
other party.

32. Proposed Amendment
(4) The orders which the court or arbitral tribunal may make under this provision include an order
that a party must pay:
(a) a proportion of another party’s costs;
(b) a stated amount in respect of another party’s costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date.
(5) An agreement which has the effect that a party is to pay the whole or part of the costs of the
arbitration in any event is only valid if made after the dispute in question has arisen.

33. CONCLUSION
▪ Allied amendments in the form of “Commercial Division and
Commercial Appellate Division of High Courts and Commercial
Courts Bill, 2015” (253rd Report of Law Commission)
• Creation of fast track dispute resolution processes
▪ Need for change in culture
▪ If not, risk of more awards such as White Industries v. Government
of India.

34. THANK YOU
Contact:
anirudh@aklawchambers.com
+91-7299088824