India’s Supreme Court recently revisited and, in our view, partly modified its earlier judgments on the ability of Indian courts to interfere with commercial arbitration awards that have been made outside India under foreign arbitration rules.
In its September 1, 2011 judgment, a two-judge bench of the Supreme Court considered this issue in Yograj Infrastructure Ltd. v. Ssang Yong Engineering and Construction Co. Ltd. (C.A. 7562 of 2011 arising out of SLP (C) No. 25624 of 2010).
In Yograj Infrastrutcure, an Indian company and a Korean company had entered into an agreement to construct portions of a national highway in India. The agreement was subject to the laws of India but provided for arbitration in Singapore in accordance with the rules of the Singapore International Arbitration Centre (SIAC). The agreement did not expressly exclude the application of any part of the Indian Arbitration and Conciliation Act, 1996 (Indian Act).
Before the matter went to arbitration, both the Indian and Korean parties filed applications before the local district judge in Madhya Pradesh seeking interim measures under section 9 of the Indian Act. The district judge directed the parties to submit the case to an arbitrator in Singapore. A sole arbitrator was then appointed in Singapore and the arbitrator issued an interim award in favour of the Korean company.
The Indian company challenged this award in an appeal before the district judge in India. The appeal was filed under section 37(2)(b) of the Indian Act, which is contained in Part I of the Indian Act. This provision of the Indian Act allows a party to appeal against interim measures awarded by an arbitral tribunal if the arbitation is subject to Part I of the Indian Act.
The Indian company argued that in Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105 and again in Venture Global Engg. v. Satyam Computer Services Ltd. (2008) 4 SCC 190), the Supreme Court had held that where operation of Part I of the Indian Act is not expressly excluded by the arbitration clause, the provisions of Part I of the Indian Act would apply. It therefore went on to contend that the Singapore award in this case was subject to an appeal under section 37(2)(b) contained in Part I of the Indian Act.
The Supreme Court noted that under the SIAC Rules, if the seat of arbitration is Singapore, the law of arbitration is Singapore’s International Arbitration Act, 2002.
The Supreme Court held that as a result of this mandatory application of the Singapore Act as the "law of arbitration," its earlier judgments in Bhatia International and Venture Global would have no application.
The Supreme Court went on to hold that even though an initial application had been filed by the Korean party under section 9 of the Indian Act (which is also contained in Part I), this was done before the arbitration commenced. The Court ruled that once the arbitrator was appointed and the arbitration proceedings commenced the SIAC Rules (and correspondingly the Singapore Act) became applicable, and this then shut out the right of appeal under section 37 of the Indian Act.
The Supreme Court's recent judgment should be welcomed—it limits challenges to international commercial arbitration awards and, in doing so, dilutes the Bhatia International and Venture Global decisions, which have previously regarded by many commentators as unduly interventionist in arbitration cases.