Bhatia International vs. Bulk Trading S.A. & Anr.

“This case comment is written by Miss. Anushka Hanotiya, a 3rd-year student at United World School of Law, Karnavati University”.

 

Bench-   This is a three-judge bench case consisting of-

Justice G.B. Pattanaik

Justice S.N. Phukan

Justice S.N. Variava

Petitioner – Bhatia International

Respondent – Bulk Trading S. A. & Anr

Stages of proceedings-

1. District Court
2. High Court
3. Supreme Court

Facts of the case-

1. The Appellant entered into a contract with the Respondent no. 1. The said contract contained an arbitration clause which provided that arbitration was to be as per the rules of the International Chamber of Commerce (hereinafter ICC). On 23rd October, 1997 the Respondent no. 1 filed a request for arbitration with ICC after which agreed that the arbitration be held in Paris, France. A sole arbitrator was appointed by ICC
2. Respondent 1 filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the III^rd Additional District Judge, Indore, M.P. against the Appellant and the 2nd Respondent. One of the interim reliefs sought was an order of injunction restraining these parties from alienating, transferring and/or creating third party right, disposing of, dealing with and/or selling their business assets and properties. The appellant questioned the maintainability of the application contending that Part I of the said Act would not be applicable to the arbitrations where the place of arbitration is not in India.
3. The plea of appellant was dismissed by the Additional District Judge and it was held that the court had the jurisdiction thus holding the application maintainable. The appellant filed a writ petition in the High Court and the same was dismissed.

Contentions by the parties-

1. The main contention of the appellant was that the Part I of the said Act was only applicable to arbitrations where the place of arbitration is in India. They submitted that if the place of arbitration is not in India, then Part II of the said Act would apply.
2. The appellant submitted that sub-section (2) Section 2 of the said Act which provides that Part I shall apply where the place of arbitration is in India.
3. It was also contended that the said Act is based on UNCITRAL Model Law on International Commercial Arbitration of which Article 1(2) of which the section provides that the law, except Articles 8, 9, 35 and 36 of the Model Law, would apply only if the Arbitration takes place in the territory of the State. It was submitted that whilst framing the said Act the Legislature has purposely not adopted Article 1(2) of the UNCITRAL Model Law which clearly shows the intention of the Legislature that they did not want Part I to apply to arbitrations which take place outside India.
4. When arbitration is being held in Paris i.e. out of India. To such arbitrations part I does not apply. Sec 9 and 17 fall in part I. Therefore Sec 9 and 17 would not apply and cannot be used in cases where the place of arbitration is not in India.

Legal provisions-

Section 2 in THE ARBITRATION AND CONCILIATION ACT, 1996

(2) Scope-

This Part shall apply where the place of arbitration is in India.

Section 28 in THE ARBITRATION AND CONCILIATION ACT, 1996

28. Rules applicable to substance of dispute. —

(1) Where the place of arbitration is situated in India, —

1. in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;
2. in international commercial arbitration, —

1. the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;
2. any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;

• failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.

Courts Observations (SUPREME COURT) 

1. Points of law discussed 

The Court observed that by accepting the arguments of the appellant it would mean that the court is holding that the legislature has left a void in the said Act. There would be a lacuna as neither part I or II would apply to arbitrations held in a country which is not a signatory to the New York Convention or the Geneva Convention (non-convention country). It would indicate that there is no law, in India, governing such arbitration. It also leads to an anomalous situation, inasmuch Part I would apply to Jammu and Kashmir in all international commercial arbitrations but Part I would not apply to the rest of India if the arbitration takes place out of India. Furthermore, there can also be an apparent conflict between sub section (2) of Section 2 on one hand and sub section (4) and (5) of Section 2 on the other. In addition to this sub section (2) of section 2 would also be in conflict with Section 1 which provides that the Act extends to the whole of India. A party would be left remediless inasmuch as in international commercial arbitration which take place out of India the party would not be able to apply for interim relief in India even though the properties and assets are in India. Thus, a party may not be able to get any interim relief at all 

     2. Judgment 

The supreme court after hearing all the contentions and arguments held that-

1. A construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly or which leads to inconsistency or uncertainty and friction in the system which the statute purports to regulate has to be rejected and preference should be given to that construction which avoids such results.
2. The definition makes no distinction between international commercial arbitrations held in India or outside India…The said Act nowhere provides that its provisions are not to apply to international commercial arbitrations which take place in a non-convention country.
3. There would also be an anomaly inasmuch as even if an international commercial arbitration takes place outside India, part I would continue to apply in Jammu and Kashmir, but it would not apply to the rest of India.
4. The wording of sub section (2) of Section 2 suggests that the intention of the legislature was to make provisions of part I compulsorily applicable to an arbitration, including an international commercial arbitration, which takes place in India. Parties cannot, by agreement, override or exclude the non-derogable provisions of part I in such arbitrations. By omitting to provide that part I will not apply to international commercial arbitrations which take place outside India the affect would be that part I would also apply to international commercial arbitrations held out of India. But by not specifically providing that the provisions of part I apply to international commercial arbitrations held out of India, the intention of the legislature appears to be to ally parties to provide by agreement that part I or any provision therein will not apply.
5. The opening words of Sections 45 and 54, which are in part II, read ‘notwithstanding anything contained in part I’. Such a non-obstante clause had to be put in because the provisions of part I apply to part II.
6. The definition indicates that an award made in an international commercial arbitration held in a non-convention country is also considered to be a domestic award’.
7. Thus Section 28 does not provide for rules where the place of arbitration is out of India.

 

1. Critical appraisal 

The words “this Act” in Section 1 of the Arbitration and Conciliation Act, 1996 meant the entire Act. The entire Act applies to the whole of India, except that by virtue of the proviso to Section 1, the Act applies to the State of Jammu and Kashmir only for “international commercial arbitration” held in that State. Because of the said proviso, Section 2(2) of the Act, which states that Part I applies when the place of arbitration is India, cannot be given literal meaning. Giving literal meaning would imply that where “international commercial arbitration” takes place outside India, Part I would continue to apply in the State of Jammu and Kashmir but not in the rest of India. That would be “anomaly”.

The court used the Construction ut res magis valeat quam pereat wchich means where alternative constructions are possible the court must give effect that which will be responsible for the smooth working of the system for which the statute has been enacted rather than the one which would put hindrances in its way. The narrower of the two interpretations which would fail to achieve the objective of the law must give way to a bolder construction paving way for an effective outcome. Interpreting any part of a provision without effect is not permissible.