In a boost to foreign investors, the Supreme Court Thursday held that if an Indian investor chooses to go for arbitration with a foreign company abroad, the Indian courts will then have no jurisdiction to interfere with such an arbitration award.
By its ruling, a five-judge constitution bench headed by Chief Justice S.H. Kapadia reversed an earlier three-judge bench ruling holding that Indian courts have jurisdiction to entertain appeals against arbitration orders passed in foreign countries.
Besides Chief Justice Kapadia, the other judges on the bench were Justice D.K. Jain, Justice S.S. Nijjar, Justice Ranjana Prakash Desai and Justice Jagdish Singh Khehar.
The court said the 1996 Arbitration Act will apply to arbitration which takes place within India and no suit for interim injunction will be maintainable in India on the basis of international commercial arbitration which took place outside the country.
Pronouncing the order, Justice Nijjar said: “In a foreign-seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India.”
Similarly, the court said that “no suit for interim injunction simplicitor would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India”.
“We are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) (of the act) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India,” the court said.
Part I of the act would have no application to international commercial arbitration held outside India, it added.
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, the court said.
“In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996,” the court said, disagreeing with the conclusion recorded by the three judge bench in the Bhatia International and Venture Global Engineering case.
“In our opinion, the provision contained in Section 2 (2) of the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996”, the court said.
“Thus,” the court said, “in order to do complete justice, we hereby order, that the law now declared by this court shall apply prospectively, to all the arbitration agreements executed hereafter”.