Karela Fry

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Arbitration, Business, Constitution

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A restriction placed by a constitution bench of the Supreme Court on the jurisdiction of Indian courts in matters of international arbitration is reported by the Hindu:

In a judgment which is expected to boost foreign investment, the Supreme Court, on Thursday, held that Indian courts have no jurisdiction to pass interim orders in foreign arbitration awards between an Indian company and a foreign company under the provisions of the Indian Arbitration and Conciliation Act, 1996.

Disposing of a batch of appeals, a five-judge Constitution Bench, comprising Chief Justice S. H. Kapadia and Justices D. K. Jain, S. S. Nijjar, Ms. Ranjana Desai and J. S. Khehar, said, “if the arbitration agreement is found or held to provide for a seat/place of arbitration outside India, then the provision that the Arbitration Act, 1996, would govern the arbitration proceedings would not make Part I (relating to domestic arbitration) of the Arbitration Act, 1996, applicable or enable Indian courts to exercise supervisory jurisdiction over the arbitration or the award.”

In the Bhatia International case, the Supreme Court, in 2002, had held that Part I of the Arbitration Act, dealing with the power of a court to grant interim relief, could be applied to arbitration disputes with a foreign seat unless the parties specifically opted out of such an arrangement. As a result, various High Courts had entertained appeals and were passing interim orders against such awards. The present Constitution Bench judgment overrules the 2002 ruling.

Writing the judgment for the Bench, Mr. Justice Nijjar said, “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.”

The notion of separation of powers was apparently important to this decision. An useful guide to the thinking of the bench was provided by this snippet from DNA:

Referring to some of the judgments saying a court in India had the power to intervene in arbitral award, the apex court said in taking such a view the Court had also acted as ‘finishers’, ‘refiners’ and ‘polishers’ of the Arbitration Act, assuming that the Act required further “processing’’.

Refraining from entering into the legislative domain, the bench said if this law has some ‘lacuna’ or ‘gap’ it can be cured by Parliament alone.

“Such a task cannot be undertaken by the court,’’ the bench said.

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