Excluding Part I of the Indian Arbitration and Conciliation Act 1996: is it necessary?
Ms. Priyanka Gandhi (Associate) and Mr. Ankur Kashyap (Associate), Juris Corp.
In a recent decision, the Indian Supreme Court refused to appoint an arbitrator in an international arbitration on the ground that the arbitration agreement excluded the application of Part I of the Indian Arbitration and Conciliation Act 1996 (Act) (which contained the provision for appointment of arbitrators). The Supreme Court reached this decision despite the fact that the arbitration agreement did not contain an express exclusion of Part I of the Act but rather provided for the arbitration to be conducted outside India and governed by a foreign law.
Part I of the Act deals with domestic arbitration and section 2(2) provides that Part I shall apply where the place of arbitration is India.
In Bhatia International v Bulk Trading SA(2002) 4 SCC 105, the Indian Supreme Court held that Part I of the Act applied not just to arbitrations with their seat in India, but also to arbitrations taking place outside India involving an Indian party, 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 Ltd (2008) 4 SC 190.
Section 11(6) of the Act provides the procedure for appointment of arbitrators.
In this case, M/s Dozco India P. Ltd. (the petitioner) entered into a distributorship agreement with M/s Doosan Infracore Co. Ltd. (the respondent) under which the petitioner was appointed as the respondent's exclusive distributor in India and Bhutan. The distribution agreement contained an arbitration agreement providing for arbitration under the ICC Arbitration Rules. The seat of arbitration was to be "Seoul, Korea (or such other place as the parties may agree in writing)", and the governing law was the law of the Republic of Korea.
Subsequently, disputes arose between the parties. The petitioner sent a notice to the respondent calling on it to appoint an arbitrator in accordance with the arbitration agreement contained in the distribution agreement. On the respondent's failure to appoint an arbitrator, the petitioner filed an application in the Supreme Court of India for the appointment of an arbitrator under section 11(6) of the Act.
The issue that fell for interpretation by the court was whether the arbitration agreement specifically ousted the jurisdiction of the court by "expressly" excluding Part I of the Act.
The petitioner, relying on the Supreme Court's judgment in Bhatia International v Bulk Trading SA, Citation Infowares Ltd. v Equinox Corporation and Intdel Technical Private Services Ltd. v W.S. Atkins Rail Ltd., contended that since Part I of the Act was not "expressly" or "impliedly" excluded by the parties, it continued to apply even if it was an arbitration to be conducted outside India and governed by foreign law. It further contended that since the bracketed portion of the arbitration agreement gave the parties an option to designate another place of arbitration, it was not the intention of the parties to designate Seoul, Korea, as the legal seat of arbitration.
Rejecting the petitioner's contention, the Indian Supreme Court held that the language of the arbitration agreement was clearly indicative of an "express" exclusion of Part I of the Act.
In reaching this conclusion, the Court distinguished its decisions in Citation Infowares and Intdel. The Court held that Part I was not excluded in those cases, as the impugned arbitration agreements in both cases, even though providing for the governing law to be a foreign law, did not provide for the place of arbitration to be outside India.
Further, the Court, relying on Naviera Amozonica Peruna S.A. v Compania Internationacional De Seguros Del Peru, drew a distinction between the legal "seat" of arbitration and a geographically convenient "place" of arbitration and held that it was never the intention of the parties to have the legal seat of arbitration as any place other than Seoul, Korea.
Having concluded that Part I and therefore section 11(6) were "expressly" excluded, the Court rejected the application for the appointment of arbitrators.
If the Bhatia judgment was the thin end of the wedge, then the Satyam judgment flung the door open, especially with regard to applying Part I to arbitrations conducted outside India - even though section 5 of the Act expressly embodies the principle of minimum judicial intervention in arbitration.
Since Bhatia, "express" exclusion of Part I of the Act was always understood to mean the specific inclusion of a clause in an arbitration agreement to that effect (that is, a sub-clause that Part I will not apply). However, the Supreme Court in this judgment appears to hold that an express exclusion is not required; it will be sufficient if the applicable law is a foreign law and the seat of arbitration is outside India.