Indian courts can’t hear foreign panel rulings: SC

In a verdict that is expected to boost the sentiment of global firms, a five-judge constitution bench of the Supreme Court Thursday overturned a 10-year-old ruling which had allowed Indian companies to approach Indian courts against unfavourable awards by foreign arbitration panels.

Thursday’s judgment held that if an Indian investor chooses to go for arbitration with a foreign company abroad, Indian courts would have no jurisdiction to interfere with the arbitration award unless provided under law. The judgment is a shot in the arm for foreign investors involved in litigation with Indian companies. It is also expected to create a more investor-friendly atmosphere for foreign companies intending to set up shop in India.

“With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this court in Bhatia International and Venture Global Engineering. 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 five-judge bench 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,” said the judgment authored by Justice S S Nijjar.

The other Judges who heard the case were Chief Justice of India S H Kapadia and Justices D K Jain, Ranjana Desai and Jagdish Singh Khehar.

Foreign companies have so far found it extremely difficult to get foreign arbitration awards against their Indian partners enforced through Indian courts because courts invariably stay the award saying they have the jurisdiction to do so.

Holding that Part I of the Arbitration Act is applicable only to arbitrations which take place within India, the bench ruled 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) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India,” 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.

Ruling that in its 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 bench said the law as declared by it through today’s judgment would apply prospectively “to all the arbitration agreements executed hereafter”.