Post-Bhatia Developments in Indian Arbitration Law: Part II

In an earlier post, I had looked into the Supreme Court’s application of the decision in Bhatia International in light of the law laid down in NTPC. In this post, I argue that recent decisions of the Delhi High Court have sought to limit the scope of applicability of Part I of the Arbitration Act in instances of international commercial arbitration [“ICA’] where the seat is outside India, and have attempted to revive the NTPC rule.

While applying the principle of Bhatia, the primary question that the High Courts have had to ponder over is the instances in which Part I of the Act is impliedly excluded by parties. In Max India Ltd. v. General Binding Corporation : MANU/DE/1212/2009: the parties had chosen the proper law of contract as the law of Singapore and the venue of arbitration was Singapore. The arbitration was to take place in accordance with the Singapore International Arbitration Centre Rules and Courts of Singapore had the jurisdiction to decide any dispute that arose out of the agreement. The Court relied on the NTPC rule and said that the proper law of arbitration is presumed from the proper law of contract. Thus, Part I of the Act was held to be impliedly excluded. Significantly, the Court said that the overriding factor was that it was the Courts in Singapore who had the jurisdiction to decide any dispute arising between the parties with respect to the agreement.

In DGS Realtors Pvt. Ltd. v. Realogy Corporation : MANU/DE/2115/2009: the Delhi High Court was required to decide upon the maintainability of an application under section 9 of the Act. The parties there had chosen the laws of New Jersey as the proper law of contract and New York as the seat of arbitration. The Court followed the decision in Max India and reiterated the NTPC rule. It held that the presumption was that the proper law of arbitration would be the law of New Jersey as the seat was also provided for by the parties. Thus, Part I of the Act was held to be impliedly excluded. In this regard, it squarely relied on the obiter in Citation Infowares Ltd. v. Equinox Corporation : (2009) 7 SCC 220 : wherein the Supreme Court had held that if the parties have chosen the proper law of contract and the seat of arbitration, it would follow that the proper law of arbitration would be the same as that of the seat. Notably, the Court in DGS Realtors sought to narrow down the scope of Bhatia and Venture Global by restricting their applicability to specific instances in which those cases were decided. The Court held that in Bhatia, parties did not have any alternate remedy and that in Venture Global, there was a non-obstante clause which required the parties to act in accordance with the laws of India.

The test for implied exclusion of Part I had not been framed by Courts until 4^th June, 2010. In Bhushan Steel v. Singapore International Arbitration Centre : 2010 INDLAW DEL 1621: the Delhi High Court, based on a reading of all the judicial pronouncements on the applicability of Part I to ICA outside India, laid down the following three requirements which ought to be fulfilled if Part I was to apply:

“(a) There must be no agreement as to what would be the governing law of the contract, governing law being presumed to be the law of arbitration also;

(b) There must be no agreement as to the place of arbitration; and/or,

(c) It must be shown that if no interim action is taken, a party will be left remediless.”

While the third requirement considerably restricts the possibilities in which Part I may be applicable to ICA outside India, the first one is evidently based on the NTPC rule. Although this test was not brought to the notice of the Supreme Court in Dozco India, it would be interesting to see whether in subsequent decisions, it affirms this test or lays down a similar one.