Bhatia International v. Bulk Trading
Jayash Agarwal
GLS Law College, Ahmedabad
This Case Commentary is written by Jayash Agarwal, a Third-Year law student of GLS Law College, Ahmedabad
Date of the judgement
13th March, 2002
Parties of the case
Petitioner: Bhatia International
Respondent: Bulk Trading S. A. & anr
INTRODUCTION:
The judgment of the Supreme Court of India in Bhatia International v Bulk Trading S.A.[1] case is a milestone of international arbitration law within the territory of the country. This seminal case examined the question on the arbitrability of cases where foreign parties are involved under the act titled the Indian Arbitration and Conciliation Act, 1996 (A&C Act).
The case under consideration is important for its approach to Section 2(2) of the A&C Act that addresses the definition of the scope of international commercial arbitration and its connection with arbitrations taking place in India. The realisation of these objectives would help to unpack the facts, issues, observations, and implications of the case and place this ruling at the centre of deliberations on the state and evolution of international arbitration in India.
FACTS OF THE CASE:
The Appellant and the 1st Respondent signed a contract on the 9th May, 1997. In this case the contract had an arbitration clause that stated that arbitration was to be as per the ICC rules for short ICC. The 1st Respondent filed a request for arbitration with ICC on October 23rd 1997. According to the parties’ consent, the arbitration had to take place in Paris, France. ICC has decided to appoint only one arbitrator.
The present appellant, therefore, in an application under Section 9 of the said Act no. 484/2010 filed before the Additional District Judge, Indore, M.P. against the Appellant and the 2nd Respondent. Among the interim reliefs sought was an order of injunction that would prevent these parties from further alienating, transferring and/or creating third party right, disposing of, dealing with and/or selling their business assets and properties. The Appellant also urged on the court that such an application is maintainable.
The Appellant argued that Part I of the said Act would not cover any arbitrations that did not take place in India. This application was dropped by the Additional District Judge on 1st February, 2000. Thus, it was not said that the application was not maintainable, on the authority of the Court at Indore. The Appellant therefore petitioned The High Court of Madhya Pradesh, Indore Bench through a Writ Petition. The said Writ Petition has been dismissed by the impugned Judgment dated 10th October, 2000.
ISSUES RAISED BEFORE THE COURT:
Applicability of Part I of the A&C Act: Whether provisions governing domestic arbitration (Part I) apply to international arbitrations seated in India.
Governance by Part II: Whether international arbitrations are solely governed by Part II of the A&C Act, which incorporates the UNCITRAL Model Law on international commercial arbitration
ARGUMENTS OF BOTH THE PARTIES
Learned counsel from the appellant's side, made the following key arguments:
Part I of the Arbitration and Conciliation Act, 1996 (the Act) applies only to arbitrations where the place of arbitration is in India
Section 2(2) of the Act clearly states that Part I shall apply where the place of arbitration is in India.
The Act is based on the UNCITRAL Model Law on International Commercial Arbitration, which in Article 1(2) provides that the law applies only if the arbitration takes place in the territory of the State, except for Articles 8, 9, 35, and 36.
The Legislature purposely did not adopt Article 1(2) of the UNCITRAL Model Law when drafting the Act, indicating their intention for Part I does not apply to arbitrations outside India.
An international commercial arbitration could take place either in India or outside India
Section 2(f) of the Act defines an "international commercial arbitration".
If international commercial arbitration takes place outside India, then Part I of the Act would not apply.
Part II of the Act applies to foreign awards.
Sections 9 and 17 (providing for interim measures) fall under Part I and would not apply to arbitrations outside India
The arbitration in this matter is being held in Paris, outside India.
Sections 9 and 17 cannot be used for arbitrations where the place is not in India.
The Legislature has purposely omitted provisions for interim measures by courts or tribunals for foreign arbitrations.
The reason is that foreign arbitrations would be governed by the rules of the country or body under whose jurisdiction they are being conducted.
Under the ICC Rules of Arbitration, Article 23 provides for interim measures.
The remedy, if any, is to apply for interim relief under Article 23 of the ICC Rules.
The underlying principle is minimum interference by courts, as per Section 5 of the Act.
· The Court in Indore and the High Court were wrong in rejecting the Appellant's application and holding that the Court had jurisdiction.
The Respondents, made the following key arguments:
Learned counsel, representing the respondents, argued and presented several arguments regarding the applicability of Part I of the Arbitration and Conciliation Act, 1996 (the Act) to international commercial arbitrations, including those held outside India. His main points are summarized as follows:
Applicability of Part I of the Act
Conjoint Reading of Provisions: Mr. Sundaram argued that a comprehensive interpretation of the Act indicates that Part I applies to all arbitrations unless explicitly excluded by the parties through their agreement. This includes international commercial arbitrations occurring outside India.
Distinction Between Interim Awards and Interim Orders
Interim Award vs. Interim Order: Mr. Sen had previously noted that the term "arbitral award" encompasses interim awards, which can be enforced in India under Part II of the Act. However, Mr. Sundaram emphasized that there is a significant distinction between an "interim award" and an "interim order."
An interim award is a decision made by the arbitral tribunal that resolves substantive issues and can be challenged under Section 34 of the Act.
An interim order, on the other hand, typically pertains to procedural matters and has a more limited scope for challenge, governed by Section 37(2) of the Act.
JUDGEMENT & ANALYSIS
The Supreme Court ruled that:
Part I Applicability: Part I of the A&C Act applies to international arbitrations conducted in India unless explicitly excluded by the parties involved. This interpretation allows for provisions related to interim relief and appeal procedures traditionally associated with domestic arbitration to be invoked in international arbitration contexts.
Role of Indian Courts: The ruling effectively permits parties involved in international arbitrations seated in India to seek interim relief from Indian courts, thus expanding the role of Indian judiciary in international arbitration proceedings.
Implications
The judgment marked a significant shift in how Indian courts interact with international arbitration:
It allowed for greater judicial intervention in international disputes, which was contrary to the traditional pro-arbitration stance typically adopted globally.
This decision led to a broader interpretation of jurisdiction that raised concerns about potential overreach by Indian courts into international arbitration matters.
Observations in Bhatia International v. Bulk Trading S.A.
This particular case pertains to the legal system of India and the decision in this regard has been made by the supreme court of India. The landmark case is Bulk Trading S.A. (2002) 4 SCC 105 where the Supreme Court of India supports the Act in dealing with International Arbitration Law. The Court’s decision however made some pertinent observations for the following concerns; whether international arbitration carried out in India is governed by the A&C Act
Utilizing Part One of the A&C Act.
The Supreme Court’s decision indicates that Section I of the A&C Act is relevant, to arbitrations held in India unless the parties specifically opt out of its provisions leading to consequences;
In cases of arbitration held in India as, per the court decision; parties can now utilize the interim relief and appeal processes outlined in Part I of the law book This enables Indian courts to grant temporary measures, like injunctions or evidence preservation orders to uphold the current state of affairs throughout the arbitration process.
Judicial Support: This approval which includes a provision that states that Part I of the Act applies to this case was another way that the Court recognized the Indian courts’ role in the field of international arbitration. This was a paradigm shift from what may be described as more of a classical approach to international commercial arbitrations which was characterized by limited judicial intervention to make way for judicial support in international arbitration.
Role of Indian Courts: The judgment marked a significant shift in how Indian courts engage with international arbitration
Active Participation: The decision made by the court thus means that Indian courts could be more involved in international arbitration claims. This was deemed necessary in a bid to enable efficient conducting of arbitration hearings particularly where there are applications for interim measures or matters that can only be determined on an urgent basis or where there are circumstances likely to frustrate the arbitration process.
Subsequent Developments: The implications of the Bhatia International judgment were further explored and clarified in subsequent cases:
Bharat Aluminium Company Limited[2] (2012): This landmark case partially overruled Bhatia International, clarifying that Indian courts could only intervene in international arbitrations held outside India if the parties had not expressly excluded Part I of the A&C Act from their agreement. This ruling effectively limited judicial intervention in foreign-seated arbitrations, aligning with a more restrictive approach toward court involvement.
Legislative Reforms: Following these judicial clarifications, significant amendments were made to the A&C Act in 2015. These reforms aimed to align Indian arbitration law with international standards by limiting Indian court intervention in foreign-seated arbitrations and reinforcing compliance with principles established by the New York Convention.
CONCLUSION
The Bhatia International v. Bulk Trading S.A. case stands alone in the literature of international arbitration in the context of Indian law. Though it augmented the role of the judiciary and defined the procedural parts under the A&C Act, it also touched the areas that led to the start of the discussions resulting in more judicial pronouncements and enactments for refining the Indian arbitration system. The case shows the relational balance between the power of the judiciary and the sovereignty of arbitration, thus exhibiting emerging trends in India’s perspective of international commercial conflict-solving.
References
· https://www.scconline.com/Members/Search.aspx
· https://www.manupatra.com/roundup/325/Articles/Interpretation%20of%20Statutes.pdf
[1] 2002) 4 SCC 105
[2] Bharat Aluminium Company Limited v. Kaiser Aluminium (2012) 9 SCC 552