CASE COMMENTARY: Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO case)

AUTHOR :PRASHANSA DIWAN

Introduction

The BALCO case is a historic constitution Bench decision that has drastically changed the face of arbitration in India. The court conclusively adopted the territoriality principle in the Arbitration and Conciliation Act, 1996 and held that Part I of the 1996 Act is applicable only to arbitrations that take place in India. This decision overturned the controversial decision in Bhatia International v. Bulk Trading S.A. 2002 and restored alignment with the UNICITRAL Model Law framework.

Factual Background

1.     Parties

Appellant- Bharat Aluminium Co. Ltd. (BALCO)- Indian Company.

Respondent-Kaiser Aluminium Technical Services Inc. (KATS)- U.S. based.

2.     Contract and Arbitration Clause

·       The agreement provided for arbitration seated in London

·       Governing law of the contract-Indian Law

·       Arbitration conducted under English Procedural law.

3.     Dispute

·       Dispute arose regarding supply and services.

·       Arbitration proceedings were initiated in London.

4.     Issue Before Indian Courts

·       Whether Indian Courts could grant interim relief under section 9 of the 1996 Act in respect of a foreign seated Arbitration.

Issues

1.     Whether Part I of the 1996 Act applies to arbitrations seated outside India.

2.     Whether Indian Courts can exercise jurisdiction under sections 9,34, etc. for foreign seated arbitrations.

3.     Whether the decision in Bhatia International correctly interpreted in 1996 Act.

4.     Whether the Act adopts the territoriality principle consistent with the UNICITRAL Model Law.

Arguments

Appellant

1.     Relying on Bhatia International, which provided that Part I is applicable even in foreign-seated arbitrators unless otherwise excluded.

2.     Argued that since the substantive laws was Indian law, Indian Courts should continue to have supervisory control.

Respondent

1.     Argued that the 1996 Act is modelled on the UNCITRAL Model Law, which follows the territorial principle.

2.     Argued that supervisory control is vested exclusively in the courts of the country where the arbitration is to take place (London)

Judgment

The constitution Bench of the Supreme Court held that the arbitration and conciliation Act,1996 follows the territoriality principle, and therefore, Part I of the Act is applicable only to arbitrators with their seats in India. The Court construed section 2(2) of the Act to mean that the applicability of Part I is restricted to arbitrations where the place of arbitration is in India. It reserved that earlier judgment in Bhatia International v. Bilk Trading S.A., which had held that Part I of the Act is applicable to foreign-seated arbitrations unless specifically excluded. The court held that the seat of arbitration determines the supervisory jurisdiction of courts, and only the courts of the seat have jurisdiction of courts, and only the courts of the seat have jurisdiction over challenges to the arbitration and interim measures in relation to the arbitration. Since the seat of arbitration in this case was London, the Indian Courts did not have jurisdiction under Part I. This judgment is prospective, and it will apply to arbitration agreements entered into after 6 September 2012. The court also clarified the distinction between seat and venue holding that the seat determines supervisory jurisdiction and curial law. It also interpreted the scheme of the Act to show that Part I and Part II operate separately, reinforcing the territorial application of Part I.