BHARAT ALUMINIUM CO. [“BALCO”] V. KAISER TECHNICAL SERVICES (2005)

The Supreme Court of India’s decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service1, which appears to have modified India’s arbitration regime, has gotten a lot of attention. However, it should be noted that the verdict made no reference to the facts of the appeal, instead focusing on the legal issues that arose during the debates.

The Supreme Court of India had concluded in BALCO I that the ruling would only apply prospectively, and that the current dispute had to be addressed according to the law spelled down in the Bhatia International v. Bulk Trading decision. All of the provisions of Part I of the Indian Arbitration & Conciliation Act, 1996 were to apply to all arbitrations, whether domestic or foreign-seated, under the Bhatia system, unless the parties agreed, expressly or implicitly, to exclude the requirements of Part I of the Act totally or partly.

FACTS

The parties had agreed on the supply of equipment, as well as the refurbishment and upgrading of industrial facilities. Certain disagreements ensued, which were taken to arbitration in England, with awards in favour of the Respondent. The Appellant had applied to the Chhattisgarh High Court under Section 34 of the Act to have the award set aside (which falls under Part I).

RELEVANT CLAUSES OF THE AGREEMENT

ARTICLE 17 – ARBITRATION

17.1 Any dispute or claim arising out of or relating to this agreement shall be resolved amicably by dialogue between the parties hereto first, and if that fails, by arbitration in accordance with the English Arbitration Law and any future amendments thereto.

17.2 The arbitration will be conducted by two arbitrators, one designated by the Petitioner and the other chosen freely and without bias by the Respondent. The arbitration court will be based entirely in London, England, and the hearings will be conducted entirely in English. The Court of Arbitration’s decision and award are final and binding.

17.3 The two Arbitrators must appoint an Umpire before beginning the arbitration. If the two arbitrators cannot agree on an Umpire, the International Chamber of Paris will appoint one for them.

ARTICLE 22 – GOVERNING LAW

This agreement will be governed by Indian law, with English law being applied in the event of arbitration.

JUDGMENT

The court found that Article 22 is explicit in stating that Indian law is the proper law of the contract. They went on to say that because Article 17.1 stated that English law would apply to the arbitration agreement, it would be impractical and inconvenient to interpret Article 22 to mean that Indian law would be the substantive law governing the contract but English law would apply in the event of an arbitration. As a result, the court determined that English law applied to the arbitration agreement. As a result, the court confirmed the High Court’s ruling dismissing the Section 34 applications.

ANALYSIS

The court interpreted the arbitration clause in light of the “grundnorm” of international commercial arbitration, which is “party autonomy,” and stated that when interpreting such an agreement, it must be remembered that the parties intended to avoid impracticable and inconvenient processes and procedures. As a result, the court determined that the proper law of contract was plainly Indian law, with English law affecting solely the arbitration agreement.

This decision is also noteworthy in terms of interpreting arbitration clauses in contracts signed before September 6, 2012, that is, contracts regulated by the Bhatia regime. As a result, the question became whether Part I of the Act had been impliedly excluded. The court cited Union of India v. Reliance Industries, in which the Supreme Court of India declared that when the juridical seat is outside India or a foreign law is chosen as the law controlling the arbitration agreement, Part I of the Act is impliedly excluded. As a result, the court dismissed the High Court’s Section 34 motions to set aside the arbitral verdicts.

Aishwarya Says:

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