BHARATI VIDYAPEETH INSTITUTE OF MANAGEMENT & RESEARCH

TOPIC

Arbitration Judgement On:-

Bharat Aluminum Company Limited (“BALCO”)

V/s.
Kaiser Aluminum Technical Service, Inc. (“Kaiser”)

Submitted By:-

Harshit

Chawla

0191BBL016

X-B

Subject Name: - Practical Paper IV

 Arbitration Judgement

Bharat Aluminum Company Limited (“BALCO”)

APPELLANT
Vs
Kaiser Aluminum Technical Service, Inc. (“Kaiser”)
INTRODUCTION

Existing position:

In Bhatia International v Bulk Trading S.A & Anr. (“Bhatia International”) and Venture Global
Engineering v Satyam Computer Services Ltd & Anr (“Venture Global”), the Supreme Court had
held that Part I of the Arbitration and Conciliation Act, 1996 (“Act”) setting out the procedures,
award, interim relief and appeal provisions with respect to an arbitration award, would apply to all
arbitrations held out of India, unless the parties by agreement, express or implied, exclude all or
any of its provisions. The Supreme Court set aside the doctrine in Balco V. Kaiser.

Brief Facts

1. An agreement dated 22 April, 1993 (“Agreement”) was executed between BALCO and
Kaiser, under which Kaiser was to supply and install a computer based system at BALCO’s
premises.

2. As per the arbitration clause in the Agreement, any dispute under the Agreement would be
settled in accordance with the English Arbitration Law and the venue of the proceedings would
be London. The Agreement further stated that the governing law with respect to the Agreement
was Indian law; however, arbitration proceedings were to be governed and conducted in
accordance with English Law.

3. . Disputes arose and were duly referred to arbitration in England. The arbitral tribunal
passed two awards in England which were sought to be challenged in India u/s. 34 of the Act
in the district court at Bilaspur. Successive orders of the district court and the High Court of
Chhattisgarh rejected the appeals. Therefore, BALCO appealed to the Supreme Court
(“Court”).

4. Another significant issue to be adjudged, in the case of Bharti Shipyard Ltd. v/s Ferrostaal
AG & Anr. (clubbed together with the above petition for hearing), was applicability of section
9 (interim measures) of the Act. The parties had initially agreed to get their disputes settled
through arbitral process under the Rules of Arbitration of the International Chamber of
Commerce, at Paris, subsequently, mutually agreed on 29 November, 2010 to arbitration under
the Rules of London Maritime Arbitrators Association, in London.

5. . During the pendency of arbitration proceedings in London, an injunction application was

made by appellants, Bharti Shipyard Ltd., before the District Judge at Mangalore, against the
encashment of refund bank guarantees issued under the contract (u/s 9 of the Act). The
applications were allowed and were consequently challenged in High Court of Bangalore. The
Bangalore High Court set aside the application so allowed on the grounds that the appellants
had an alternative remedy (u/s 44 of the Act, being interim reliefs for international arbitration)
in the courts of London and further since the substantive law governing the contract, as well as
the arbitration agreement, is English law, the English courts should be approached. This was
also challenged in this petition to the Supreme Court.

6. . The appeal filed by Bharat Aluminum Co. before the Division Bench of the Supreme
Court was placed for hearing before a three Judge Bench, as one of the judges in the Division
Bench found that judgment in Bhatia International and Venture Global was unsound and the
other judge disagreed with that observation.

Held

The judgment in detail analyses, the provisions of various sections in the Act and applicability
of Part I of the Act to international commercial arbitrations. Some significant issues dealt with
in the judgment are as follows:

1. It was observed that the object of section 2(7) of the Act is to distinguish the domestic
award (Part I of the Act) from the ‘foreign award’ (Part II of the Act); and not to distinguish
the ‘domestic award’ from an ‘international award’ rendered in India. The term ‘domestic
award’ means an award made in India whether in a purely domestic context, (i.e., domestically
rendered award in a domestic arbitration or in the international arbitration which awards are
liable to be challenged u/s 34 and are enforceable u/s 36 of the Act).

2. It was held that there is a clear distinction between Part I and Part II as being applicable in
completely different fields and with no overlapping provisions.

3. . The Court has also drawn a distinction between a ‘seat’ and ‘venue’ which would be quite
crucial in the event, the arbitration agreement designates a foreign country as the ‘seat’/
‘place’ of the arbitration and also select the Act as the curial law/ law governing the arbitration
proceedings. The Court further clarified that the choice of another country as the seat of
arbitration inevitably imports an acceptance that the law of that country relating to the conduct
and supervision of arbitrations will apply to the proceedings. It would, therefore, follow that if
the arbitration agreement is found or held to provide for a seat / place of arbitration outside
India, then even if the contract specifies that the Act shall govern the arbitration proceedings,
Part I of the Act would not be applicable or shall not enable Indian courts to exercise
supervisory jurisdiction over the arbitration or the award. It would only mean that the parties
have contractually imported from the Act, those provisions which are concerned with the
internal conduct of their arbitration and which are not inconsistent with the mandatory
provisions of the English procedural law or curial law. Therefore, it can be inferred that Part I
applies only to arbitrations having their seat / place in India.

4. The Court dissented with the observations made in Bhatia International case and further
observed on a logical construction of the Act, that the Indian Courts do not have the power to
grant interim measures when the seat of arbitration is outside India. A bare perusal of Section
9 of the Act would clearly show that it relates to interim measures before or during arbitral
proceedings or at any time after the making of the arbitral award, but before it is enforced in
accordance with Section 36 (enforcement of domestic awards). Therefore, the arbitral
proceedings prior to the award contemplated u/s 36 can only relate to arbitrations which take
place in India.

5. . The Court further held that in foreign related international commercial arbitration, no
application for interim relief will be maintainable in India, either by arbitration or by filing a
suit.
Implications

1. This judgment shall be applicable prospectively (i.e. to all the arbitration agreements
executed after September 6, 2012).

2. . As a result of this judgment, the seat of arbitration has now gained paramount importance
for determining the applicability of Part I of the Act.

3. The judgment also draws a distinction between the seat of arbitration and the place of
arbitration. It therefore contemplates a situation where even though the parties have provided
for a particular place for arbitration, that some of the proceedings themselves may be
conducted in other territories as may be convenient to all.

4. 4. This judgment also ensures that foreign award (i.e. an award passed outside India) can
no longer be challenged by an Indian entity u/s 34 of the Act and that the party which seeks to
resist the enforcement of the award has to prove one or more grounds set out in section 48 of
the Act.

5. 5. No interim relief u/s 9 of the Act or order 39 of the CPC (both pertaining to injunction)
would be available where the seat of arbitration is outside India. As interim orders from
foreign courts and arbitration tribunals are not enforceable in India such a situation would
leave foreign parties remediless