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Pre-BALCO foreign awards cannot be challenged under Section 34 of Arbitration & Conciliation Act, 1996
Introduction The Hon’ble Supreme Court of India in its recent judgment[1] delivered on 26.11.2020, has reaffirmed that even if a contract is entered to or an award is rendered, pre-BALCO, a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) cannot be resorted to, for challenging a foreign award.
Facts of the Case
Issue before the Apex Court The issue before the Hon’ble Apex Court was that whether a challenge under Section 34 of the Act, to a foreign award passed before the BALCO judgment, maintainable?
Appellant’s Submissions The Appellant submitted that a foreign award cannot be challenged under Section 34 of the Act. The reliance placed by the Division Bench of the Hon’ble Bombay High Court on Bhatia International v. Bulk Trading S. A. Anr[3] (“Bhatia International”) and Venture Global Engineering v. Satyam Computers Services Ltd. & Anr.[4] (“Venture Global”) in the impugned judgment is untenable in light of the fact that both Bhatia International and Venture Global have been overruled by the Constitutional Bench of this Hon’ble Court in the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc[5] (“BALCO”). Hence, the award under consideration being a foreign award, cannot be challenged under Part I of the Act.
The Appellant submitted that the conduct of arbitration and any challenge to an arbitral award shall be governed by the law of the country where the arbitration has been conducted. The Appellant further submitted that it is well settled that “pre-BALCO awards involving agreements which stipulate that the seat is in India and that the governing law is Indian law, would not be read by BALCO. However, cases where the seat is not in India or the law governing the arbitration is not Indian law, would be bound by BALCO”. Therefore, the impugned judgment of the Division Bench of the Hon’ble Bombay High Court is not maintainable and deserves to be set aside.
Respondent’s Submissions The Respondent relied on Bhatia International and Venture Global and submitted that since the arbitration agreements concerning the present case were made before the BALCO judgment, they would continue to be governed by pre-BALCO rules. Since, in this case, the arbitration agreements were entered into, and awards too were rendered during the prevalence of Bhatia International principle, the decision passed in BALCO or any subsequent judgment could not be applied.
The Respondent further submitted that though the arbitration agreement stipulated that the arbitration was to be in London, under ICC; however, the governing law was stipulated to be Indian law. Therefore, it is clear that the parties intended the governing law to be Indian.
Analysis and Findings of the Apex Court The Hon’ble Apex Court observed that the decision of Bhatia International and Venture Global has been revisited by the Hon’ble Apex Court in BALCO. The Hon’ble Apex Court further observed that it is now well settled law laid down in a catena of judgments[6] that the curial law i.e. the law governing the challenge to an arbitral award, shall be the law of the seat of the arbitration.
The Hon’ble Apex Court relied upon the decision rendered in IMAX Corporation v. E-City Entertainment (India) Pvt. Ltd.[7] (“IMAX”), wherein the award under consideration was also a pre-BALCO award and the parties had chosen to resolve the dispute through ICC. The Hon’ble Apex Court, in the IMAX case, held as under:
“29. We find that in the present case, the seat of arbitration has not been specified at all in the arbitration clause. There is however an agreement to have the arbitration conducted according to the ICC Rules and thus a willingness that the seat of arbitration may be outside India. In any case, the parties having agreed to have the seat decided by ICC and ICC having chosen London after consulting the parties and the parties having abided by the decision, it must be held that upon the decision of ICC to hold the arbitration in London, the parties agreed that the seat shall be in London for all practical purposes. Therefore, there is an agreement that the arbitration shall be held in London and thus Part I of the Act should be excluded.”
The Hon’ble Apex Court further relied on the latest decision passed in the case of Government of India v. Vedanta Ltd.[8] where again the award under consideration was pre-BALCO. The seat of arbitration was Kuala Lumpur and the governing law of the arbitration agreement, was English law. The Full Bench of the Hon’ble Apex Court categorically held that despite the governing law of the arbitration agreement being English law, the curial law, i.e. the law governing the challenge to the award, will be Malaysian law.
Having regard to the aforesaid precedents, regarding the applicability of BALCO in respect of agreements entered into and awards rendered earlier, with respect to the law of the seat of arbitration and exclusion of the applicability of Part I of the Act, considering the seat of arbitration in the present case being London, the Hon’ble Court held that the impugned judgment of the Hon’ble Bombay High Court could not be sustained.
Since the cross appeals to the final order passed by the Ld. Single Judge of the Hon’ble Bombay High Court in the execution petition filed by the Appellant were pending, the Hon’ble Apex Court, without giving any finding on the merits, further held that in light of the decision passed in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.[9] (“Fuerst Day Lawson”), the appeal filed by the Appellant was maintainable however, the appeal filed by the Respondent was not maintainable under Section 50 of the Act.
Another interesting observation by the Hon’ble Apex Court was that Fuerst Day Lawson decision having been rendered more than 10 years back is a settled law, and the Respondent could not have been ignorant of the same. Therefore, if the Respondent choses to avail any alternate remedy qua the enforcement proceedings, the question of limitation will be open to be adjudicated upon.
Conclusion
(The author would like to thank Lalit Sharma, Associate of the firm for the valuable assistance in researching for this article.)
1C.A. No.8607/ 2010, Noy Vallesina Engineering SpA v. Jindal Drugs Limited & Ors. 2Appeal No.519 of 2002. 3(2002) 4 SCC 105. 4(2008) 4 SCC 190. 5(2012) 9 SCC 552. 6Union of India v. Reliance Industries, (2015) 10 SCC 213 and Roger Shashoua v. Mukesh Sharma, (2017) 14 SCC 722. 7(2017) 5 SCC 331. 82020 SCC Online (SC) 749. 9(2011) 8 SCC 333.