New Delhi, Sept. 6: The Supreme Court today said Indian courts have no jurisdiction over foreign arbitration where the seat of arbitration is outside India, even if one of the parties is an Indian company.
The ruling has cleared the air about whether Indian courts can thwart foreign arbitration. Indian companies often apply to Indian courts for interim relief from an adverse judgment passed in a foreign court.
The top court today said Indian courts can only pass orders against international arbitration if the arbitration was done on Indian soil — whether it involved Indian companies, Indian and foreign companies, or only foreign companies.
In saying so, a five-judge Constitution bench headed by outgoing Chief Justice S.H. Kapadia overruled an earlier 2002 judgment that had allowed Indian courts to intervene and stay foreign arbitration awards. That two-judge ruling had last been used in a case involving Satyam Computer Services Limited.
“Parliament, by limiting the applicability of Part I (of the Arbitration Act, 1996) to arbitrations which take place in India, has expressed a legislative declaration. It has clearly given recognition to the territorial principle. Necessarily, therefore, it has enacted that Part I... applies to arbitrations having their place/seat in India,” Justice Nijjar said in the judgment.
“We are also unable to accept the submission… that the act does not make seat of the arbitration as the centre of gravity of the arbitration. On the contrary, it is accepted by most of experts that in most of national laws, arbitrations are anchored to the seat/place/situs of arbitration.”
This, however, does not mean that all proceedings of the arbitration have to take place at the seat of the arbitration. The arbitrators at times hold meetings at more convenient locations.
“Each move of the arbitral tribunal does not of itself mean that the seat of arbitration changes. The seat of arbitration remains the place initially agreed by or on behalf of the parties,” the court said.
The law of the seat or place where the arbitration is held is normally the law that governs that arbitration, the top court held. The territorial link between the place of arbitration and the law governing it is well established in international instruments, it said.
Therefore, “once (the) parties have chosen voluntarily that the seat of the arbitration shall be outside India, they are impliedly also understood to have chosen the necessary incidents and consequences of such choice”, the Supreme Court said.
Part I shall apply to both “international arbitrations” which take place in India as well as “domestic arbitrations” that would normally take place in India, the court said.
Therefore, it would appear that the term “domestic award” means an award made in India whether in a purely domestic context, i.e. a domestically rendered award in a domestic arbitration, or in the international context, i.e. a domestically rendered award in an international arbitration. Both types of awards can be challenged in an Indian court under the Arbitration Act, 1996.