Indian courts can`t judge arbitral proceedings held outside: SC

The Supreme Court on Thursday held that arbitral proceedings conducted offshore would not be open to judicial scrutiny of Indian courts which can only deal with enforcement of foreign awards.

Updated: Sep 06, 2012, 20:06 PM IST

New Delhi: In a landmark verdict, the Supreme Court on Thursday held that arbitral proceedings conducted offshore would not be open to judicial scrutiny of Indian courts which can only deal with enforcement of foreign awards.

The judgement, with prospective effect, is expected to come to the aid of firms which obtain arbitral awards in their favour abroad but face hurdles as these come under the judcial scrutiny in Indian courts.

Overturning earlier verdicts by the apex court, a five-judge Constitution bench headed by Chief Justice SH Kapadia held that international commericial arbitration proceedings, conducted outside the country, cannot be heard and decided by the courts here.

The verdict comes as big blow to petitioners including PSUs like Bharat Aluminium Company Ltd, Bharati Shipyard Ltd, Tamil Nadu Electricity Board and some others, who, in a batch of eight petitions, made a strong pitch for legal sanction to bringing arbitration proceedings abroad under the judicial scrutiny of Indian courts.

The apex court outlined the scope and powers that can be exercised by a court here under the Arbitration and Conciliation Act to deal with arbitral proceedings held outside India.

"We are of the considered opinion that Part I of the Arbitration Act, 1996 (which deals with the arbitration held in India) would have no application to International Commercial Arbitration held outside India.

"Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II (which deals with enforcement of foreign awards) of the Act," the bench, in its 190-page verdict, said.

The Constitution bench had heard the issue at length after a three-judge bench had referred the batch of petitions to it.

The court scrapped its earlier decisions which had held that the Part I of the Act would be applicable to "all arbitrations held out of India, unless the parties by agreement, express or implied, exclude all or any of its provisions."

"Here again, with utmost respect and humility, we are unable to agree with the aforesaid conclusions ..," the bench, also comprising Justices Surinder Singh Nijjar, D K Jain, Ranjana Prakash Desai and Jagdish Singh Khehar, said in the judgement.

Justice Nijjar, writing the judgement, said, "...In order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter."

"We are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the United Nations Commission on International Trade Law (UNCITRAL) Model Law," the court said.

It did not concur with the findings arrived at in earlier verdicts in Bhatia International and Venture Global Engineering cases that Part I of the Act, dealing with arbitral proceedings and awards in India, can be extended to such proceedings held outside unless parties, in agreement, bars the applicability of the Act on them.

Drawing a distinction between two portions of the Act, it said the legislation makes it clear that there can be no overlapping or intermingling of the provisions.

The bench also said that Indian courts should not entertain any plea seeking an "interim relief" against an arbitral proceedings being held outside.

"In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act is limited to all arbitrations which take place in India.

"Similarly, no suit for interim injunction simplicitor would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India. We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India," it said.