2012 (9) TMI 912 - SC - Indian Laws

Indian courts cannot grant interim relief in foreign-seated arbitrations under Arbitration Act 1996 Part I, ruling applies prospectively

Bharat Aluminium Co Versus Kaiser Aluminium Technical Service, Inc And Others

The SC held that Indian courts lack jurisdiction to grant interim relief or entertain suits related to foreign-seated international commercial ... Arbitration clause - territorial criterion / principle - Scope of Arbitration Act, 1996 - Performance of the agreement - English Arbitration Law was made applicable - Maintainability of appeal against the Foreign Awards - Decision of constitutional bench of Supreme Court - Whether an inter-parte suit for interim relief during the pendency of arbitration proceedings outside India would be maintainable - Held that:- Civil Courts in India, by virtue of Section 9 of the Code of Civil Procedure, 1908 (for short the ‘CPC’), have the jurisdiction to try all suits of a civil nature, excepting suits which are either expressly or impliedly barred. Fundamental to the maintainability of a civil suit is the existence of a cause of action in favour of the plaintiff. This is evident from the various provisions contained in the CPC. The suit of the plaintiff has to be framed in accordance with Order II. Order II Rule 1 provides that every suit shall as far as practicable be framed so as to afford ground for final decision upon the subjects in dispute and to prevent further litigation concerning them. The aforesaid rule is required to be read along with Rule 2 which provides that every suit shall include the whole of the claim which the plaintiff is entitled to make in respect of the cause of action; but a plaintiff may relinquish any portion of his claim in order to bring the suit within the jurisdiction of any court. The aforesaid provisions read together would lead to the firm conclusion that the existence of cause of action is a sine qua non for the maintainability of a civil suit. The provisions with regard to the temporary injunction and interlocutory orders are contained in Order 39 and Order 40. In order to claim an injunction the existence of a pending suit is a pre requisite. In our opinion, pendency of the arbitration proceedings outside India would not provide a cause of action for a suit where the main prayer is for injunction. Mr.Sundaram has rightly pointed out that the entire suit would be based on the pendency of arbitration proceedings in a foreign country. Therefore, it would not be open to a party to file a suit touching on the merits of the arbitration. If such a suit was to be filed, it would in all probabilities be stayed in view of Sections 8 and 45 of the Arbitration Act, 1996. It must also be noticed that such a suit, if at all, can only be framed as a suit to “inter alia restrain the defendant from parting with property.” Now, if the right to such property could possibly arise, only if the future arbitration award could possibly be in favour of the plaintiff, no suit for a declaration could obviously be filed, based purely only on such a contingency. All that could then be filed would, therefore, be a bare suit for injunction restraining the other party from parting with property. The interlocutory relief would also be identical. In our view, such a suit would not be maintainable, because an interlocutory injunction can only be granted during the pendency of a civil suit claiming a relief which is likely to result in a final decision upon the subject in dispute. The suit would be maintainable only on the existence of a cause of action, which would entitle the plaintiff for the substantive relief claimed in the suit. The interim injunction itself must be a part of the substantive relief to which the plaintiff’s cause of action entitled him. In our opinion, most of the aforesaid ingredients are missing in a suit claiming injunction restraining a party from dealing with the assets during the pendency of arbitration proceedings outside India. Since the dispute is to be decided by the Arbitrator, no substantive relief concerning the merits of the arbitration could be claimed in the suit. The only relief that could be asked for would be to safeguard the property which the plaintiff may or may not be entitled to proceed against. In fact the plaintiff’s only claim would depend on the outcome of the arbitration proceeding in a foreign country over which the courts in India would have no jurisdiction. The cause of action would clearly be contingent/speculative. There would be no existing cause of action. The plaint itself would be liable to be rejected under Order VII Rule 11(a). In any event, as noticed above, no interim relief could be granted unless it is in aid of and ancillary to the main relief that may be available to a party on final determination of rights in a suit. Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996. With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this Court in Bhatia International [2002 (3) TMI 824 - SUPREME COURT] and Venture Global Engineering [2008 (1) TMI 829 - SUPREME COURT]. In our opinion, the provision contained in Section 2(2) of the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India. Similarly, no suit for interim injunction simplicitor would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India. Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India. The judgment in Bhatia International was rendered by this Court on 13th March, 2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engineering has been rendered on 10th January, 2008 in terms of the ratio of the decision in Bhatia International. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter. Issues Involved:1. Applicability of Part I of the Arbitration and Conciliation Act, 1996 to arbitrations seated outside India.2. Interpretation of Section 2(2) of the Arbitration and Conciliation Act, 1996.3. Jurisdiction of Indian courts to grant interim measures under Section 9 for arbitrations seated outside India.4. Jurisdiction of Indian courts to annul foreign awards under Section 34.5. Applicability of Part II of the Arbitration and Conciliation Act, 1996 to foreign awards.6. Interpretation of Section 48(1)(e) of the Arbitration and Conciliation Act, 1996.7. Maintainability of suits for interim relief in India for arbitrations seated outside India.Detailed Analysis:1. Applicability of Part I to Arbitrations Seated Outside India:The court concluded that Part I of the Arbitration Act, 1996, applies only to arbitrations that take place within India. This is based on the territorial principle adopted by the UNCITRAL Model Law. Section 2(2) of the Act clearly limits the applicability of Part I to arbitrations held in India, thus excluding arbitrations seated outside India from its purview.2. Interpretation of Section 2(2):The court held that Section 2(2) of the Arbitration Act, 1996, does not include the word 'only' to signify that Part I applies exclusively to arbitrations seated in India. However, the absence of the word 'only' does not imply that Part I applies to arbitrations outside India. The provision is interpreted to mean that Part I is limited to arbitrations with their seat in India, reinforcing the territorial principle.3. Jurisdiction of Indian Courts to Grant Interim Measures Under Section 9:The court clarified that Section 9 is part of Part I of the Arbitration Act, 1996, which applies only to arbitrations seated in India. Therefore, Indian courts do not have the jurisdiction to grant interim measures under Section 9 for arbitrations that take place outside India. Extending Section 9 to foreign-seated arbitrations would violate the territorial principle established in Section 2(2).4. Jurisdiction of Indian Courts to Annul Foreign Awards Under Section 34:The court rejected the interpretation that Indian courts have jurisdiction to annul foreign awards under Section 34. Such jurisdiction is not conferred by the New York Convention or Part II of the Arbitration Act, 1996. The power to annul awards is limited to the courts of the country where the arbitration takes place or under the procedural law governing the arbitration.5. Applicability of Part II to Foreign Awards:Part II of the Arbitration Act, 1996, deals exclusively with the enforcement of foreign awards and does not regulate the conduct of arbitration or the challenge to the award. The court emphasized that there is no overlap between Part I and Part II, and Part II does not incorporate provisions from Part I.6. Interpretation of Section 48(1)(e):Section 48(1)(e) corresponds to Article V(1)(e) of the New York Convention, which allows for the refusal of enforcement of a foreign award if it has been set aside by a competent authority in the country where the award was made or under the law of which the award was made. The court clarified that this provision does not confer concurrent jurisdiction on Indian courts to annul foreign awards. The reference to 'under the law of which' is limited to the procedural law of arbitration and not the substantive law governing the contract.7. Maintainability of Suits for Interim Relief:The court held that an inter-parte suit for interim relief pending arbitration outside India is not maintainable. Such a suit would lack a cause of action, as the main relief sought is contingent on the outcome of the arbitration. Interim relief can only be granted in aid of a substantive relief in a suit, which is not possible in the context of foreign-seated arbitrations.Conclusion:The court concluded that Part I of the Arbitration Act, 1996, applies only to arbitrations seated in India. The judgments in Bhatia International and Venture Global Engineering, which extended the applicability of Part I to foreign-seated arbitrations, were overruled. The new interpretation will apply prospectively to arbitration agreements executed after the judgment.