Neha Vijayvargiya (Associate) and Priyanka Gandhi (Associate) , Juris Corp
In a recent judgment, the Delhi High Court refused to exercise jurisdiction in a dispute relating to international commercial arbitration on the ground that the provisions of the Arbitration and Conciliation Act 1996 were excluded (both expressly and impliedly) by the arbitration agreement.
Arbitration in India is governed by the Arbitration and Conciliation Act 1996 (Act). Part I of the Act deals with arbitration and section 2(2) of the Act provides that Part I of the Act shall apply where the place of arbitration is in India. In Bhatia International v Bulk Trading SA, the Indian Supreme Court held that Part I of the Act applied not just to arbitrations with their seat in India, but also to international commercial arbitrations taking place outside India, unless the parties expressly or impliedly excluded any or all of its provisions. This was confirmed by the Supreme Court in Venture Global Engineering v Satyam Computer Service Ltd (2008) 4 SCC 190. For these purposes, international commercial arbitration is an arbitration where any party to the arbitration is a foreign (that is, non-Indian) entity (irrespective of whether the venue of such arbitration is in India or outside).
Section 5 of the Act (contained in Part I) restricts judicial intervention in arbitration proceedings except where provided by the Act.
Order VII, Rule 11, Civil Procedure Code 1908 (CPC) provides that proceedings filed in a court (Proceedings) can be rejected on four grounds. One such ground is that the filing of Proceedings is barred by any law (Rule 11(d)).
Fourteen sales contracts were executed between Bhushan Steel Limited (the plaintiff) and a Danish corporation (the second defendant) for the purchase of goods from the plaintiff under the terms of the contracts. Subsequently, disputes arose between the plaintiff and the second defendant in relation to eight of the sales contracts. The second defendant initiated winding up proceedings against the plaintiff in the Delhi High Court for recovery of the amounts alleged to be due. Thereafter, they also issued a notice invoking arbitration under the eight contracts. The plaintiff filed Proceedings in the same court for a declaration, among other things, that the arbitration agreement be declared vague and indeterminate and hence void, and that the proper law of the contract be declared to be Indian law. Consequently, the second defendant filed an application under Order VII, Rule 11(d) of the CPC (the Application) for rejection of the Proceedings on the ground that they were barred by section 5 of the Act.
The plaintiff argued that the court had no jurisdiction to hear the Application under Order VII, Rule 11(d) of the CPC, and that section 5 of the Act did not apply to international arbitration.
The Delhi High Court, applying the Supreme Court decisions in T Aravindam v T.V. Satyapal and Saleem Bhai v State of Maharashtra, held that the Application was "maintainable", that is, that the court had jurisdiction to hear it.
Turning to the merits of the application, the court held that section 5 of the Act expressly ousted the jurisdiction of courts to intervene in arbitration except to the extent provided by the Act. The question was whether section 5 applied to international commercial arbitrations taking place outside India. Relying on the Supreme Court judgments in Bhatia International and Venture Global Engineering, the court found that it did so apply.
The court proceeded to decide on whether the arbitration agreement was vague and indeterminate as alleged by the plaintiff. The clause stated that "…The arbitration will take place in Singapore as per the international law." The court held that the arbitration agreement was not vague and indeterminate as it clearly provided for the place of arbitration to be Singapore. By virtue of section 3(1) of the Singapore International Arbitration Act, Chapter 143A, the UNCITRAL Model Law on International Commercial Arbitration had the force of law in Singapore. Therefore, the words "international law" in the arbitration clause should mean what they were intended to mean in the Model Law.
Applying the Model Law and the Supreme Court decision in Shreejee Traco (I) Pvt. Ltdt v Paperline International Inc and its own decision in Max India Limited v General Binding Corporation, the court found that the law applicable to the arbitration was Singapore law, which implemented the Model Law. Therefore, the parties had expressly and impliedly excluded the provisions of the Act. Accordingly, the Indian court did not have jurisdiction over the Proceedings and it rejected the plaintiff's Proceedings.
Parties must be mindful to provide for, in a clear manner, the basic elements of an arbitration agreement, being the:
Place of arbitration.
Proper law of the contract.
Proper law of the arbitration agreement.
Further, this decision also manifests the increasing pro-arbitration approach of the Indian courts, whereby the courts exclude their jurisdiction if the arbitration agreement clearly points towards international arbitration and the parties have agreed that the Act should not apply.