"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, October 8, 2012

Bharat Aluminium v. Kaiser Aluminium: Interim Measures in Foreign Arbitration

September 6, 2012 would be remembered as a day when India, through its Supreme Court, shook off its image as an anti-arbitration nation. The world, including stalwarts of international arbitration hailed the judgement of the Supreme Court of India in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service ("Kaiser Aluminium") as the new beginning in international arbitration. For example, Gary Born & Suzanne Spears make the following observations on Kaiser Aluminium:

"Its decision will have substantial and continuing importance, not just in India but more widely; it can be expected to mark a genuine new beginning for international arbitration in the region." (International Arbitration & India: "A Truly Excellent Judgement", Indian Journal of Arbitration Law, 2012)
Primarily, there are two aspects of the judgement: (1) the judgement holds that Part I is not applicable to International Commercial Arbitrations held outside India; (2) the judgement states that interim measures by arbitral tribunals in foreign arbitrations cannot be enforced in India and Indian courts do not have the power to order interim measures in foreign arbitrations. It is the second aspect of the judgement which is the subject matter of this post.

Kaiser Aluminium is a vindication of the stance made on previous occasions in this blog and elsewhere that the text of the Arbitration and Conciliation Act, 1996 (notwithstanding Bhatia International) does not grant the power to Indian courts under Section 9 to grant interim measures. See this post and this paper (p. 641). Our stance has been that the 1996 Act was drafted with an intent to create negative incentives for the parties to agree on a foreign arbitration clause. The mere fact that no interim measures would be available in Indian courts for obtaining or for enforcement of interim orders was deemed by the drafters to be sufficient incentive to make the parties agree to arbitration in India as the seat. This is precisely the conclusion in Kaiser Aluminium.

The non-availability of interim measures in foreign arbitration was canvassed as an argument in favour of applying Part I of the Act to foreign arbitrations. It was argued by Dr. AM Singhvi that Section 9 was a "stand alone" provision which was not affected by the limit of territoriality contained in Section 2(2) and that since interim orders of foreign courts were not enforceable in India, parties would be remediless if there was no right conferred to approach Indian courts for interim measures. Therefore, the counsel argued that Section 9 should be given purposive interpretation.  It was argued that if no interim measures is granted in foreign arbitration a party would be left without remedy. Further, it was contended that since Section 9 was asset specific, that is, territorial, it could be applicable even in foreign arbitration, unlike Section 34, by which a foreign arbitral award could be annulled and thus have an extra territorial application. Therefore, it was argued that Bhatia International was correct on the core issue- Section 9 was available even in foreign arbitrations since it is asset specific. Another argument put forth was that if Part I was applicable only to Domestic arbitrations, it would leave the parties remediless. For example, in Reliance Industries Ltd. v. Enron Oil and Gas, the question before the Commercial Court was whether an appeal under Section 69 of the English Arbitration Act, 1996 was available from the award. The court held in the negative as the proper law of the contract was Indian law and Section 69 allowed appeals only when there was a question of English law. This meant that there was no way in which the award could be challenged.

The court's judgement on the availability of interim measures to foreign arbitration is summarized below:
  • Section 9 has been placed in Part I of the Act. Since Part I does not apply to foreign arbitrations, Section 9 does not apply to such arbitrations. Further, since Part II does not contain a provision for interim measures, Indian courts do not have the power to grant interim measures in foreign arbitrations.
  • Bhatia International was wrong to interpret the words "in accordance with Section 36" to go only with "after making the arbitral award". As per Bhatia International, as regards foreign arbitration interim measures under Section 9 was available before or during the arbitration but not after the award was passed. this interpretation is erroneous as the text of Section 9 does not support such an interpretation ("A bare look at the aforesaid provision would indicate that there is no break up of the sentence in between the two comas at the beginning and end of the sentence. Therefore, the sentence cannot be broken into three parts as it is done in paragraph 28 of Bhatia International...")
  • If Section 9 is extended to foreign arbitrations, it would do violence to the territoriality principle enshrined in Section 2(2).
  • Merely because the remedies against the award in a foreign seat are more onerous does not mean that Part I should be applicable to such arbitrations. The parties have chosen their seat of arbitration by consensus and the the remedies available against the award is a consequence of the such a choice. A choice of foreign seat, likewise, implicitly means that parties would not have the right to seek interim measures from courts. If, by interpretation, the court makes Part I applicable to foreign arbitrations, it would amount to "naked usurpation of the legislative function under the thin guise of interpretation..."
  • The intention of the authors of the 1996 Act is available in the text of the statute and the context of the provisions. Hence, Bhatia International was wrong to assume the role of "finishers, refiners and polishers" of the Act.
  • Even a suit for inteirm relief pending arbitrations is not permitted under the Indian law. Existence of a cause of action is essential to file a civil suit. In suits seeking interim relief pending arbitrations, there is no cause of action (Order VII Rules 1 & 11(e), Order II Rules 1 & 2, Code of Civil Procedure, 1908, Sections 14(2), 37 & 38 Specific Relief Act, 1963) . An interlocutory injunction as per Indian law is available only in a civil suit claiming some final relief and such an injunction must be a part of some substantive relief claimed. An application for interim relief cannot stand on its own but is dependent on a pre-existing cause of action.
  • This position of law has been affirmed in various judicial pronouncements such as Cotton Corporation of India v. United Industrial Bank, Ashok Kumar Lingala v. State of Karnataka, etc.
Thus, the court concluded that there was no provision under the Code of Civil Procedure or under the 1996 Act for interim measures in foreign arbitrations even if the 1996 Act was made the governing law of arbitration.

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