A few positives, a few negatives, a few judicial transplantations: The Supreme Court’s decision in Dozco India P. Ltd. v. Doosan Infracore Co. Ltd.

The Supreme Court’s decision in Dozco India P. Ltd. v. Doosan Infracore Co. Ltd.:  MANU/SC/0812/2010 (“Dozco”), neither throws up any surprising results nor acts as the landmark decision that was needed to clarify the Supreme Court’s stand with respect to a host of key issues concerning the applicability of Part I of the Arbitration and Conciliation Act to arbitrations conducted outside India. It is however a decision of significance, as it transplants a few internationally accepted principles into Indian law, and controversy, as it places reliance on arguably overruled propositions of law.

I will divide this post into two broad heads: A) Analysis of the case, B) A Few Observations

A)    ANALYSIS OF THE CASE

The short issue before the Supreme Court was whether an application under Section 11(6) (which is contained in Part I of the Act) for the appointment of an arbitrator, is maintainable in a fact situation where:

1. The proper law governing the underlying contract is governed by Korean law (Article 22 of the Agreement between the parties), and
2. The arbitration clause provided that all disputes shall be settled “by arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of agreement then in force of the International Chamber of Commerce” (Article 23).

Brief background of the law on the subject

Section 11, under which the application was filed in Dozco, is contained in Part I of the Act. Hence, the application would be maintainable only if Part I applied to the arbitration. Section 2(2) of the Act outlines the scope of applicability of Part I. Section 2(2) provides:

“This Part (i.e. Part I) shall apply where the place of arbitration is in India.”

 The Supreme Court, in Bhatia International v. Bulk Trading S.A.: 2002 (4) SCC 105 (“Bhatia”), declared that this provision does not mean that Part I applies only where the place of arbitration is in India. The Court held that Part I of the Act applies mandatorily to all arbitrations “held in India” and applies to arbitrations conducted outside India unless it is expressly or impliedly excluded. On what constitutes an implied exclusion, the following propositions have been enunciated in Bhatia and subsequently:

1)      Merely specifying the seat of the arbitration to be foreign without specifying the proper law of contract does not amount to an implied exclusion of Part I. (Bhatia International v. Bulk Trading S.A.: 2002 (4) SCC 105)

2)      Merely specifying the proper law of contract to be foreign without specifying the seat of arbitration or proper law of arbitration does not amount to an implied exclusion of Part I. (Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd.: 2008 (10) SCC 308 (“Indtel”) and Citation Infowares Ltd. v. Equinox Corporation: 2009 (7) SCC 220 (“Citation”))

3)      Where both the seat of arbitration is abroad and the law governing the contract is foreign, an implied exclusion of Part I can be presumed according to the dicta of the Delhi and Bombay High Court (Max India Ltd. v. General Binding Corporation (2009) 3 Arb LR 162 (DEL) (DB) (“Max India”), DGS Realtors Pvt. Ltd. v. Realogy Corporation MANU/DE/2115/2009 (“DGS”) and Frontier Drilling A.S. v. Jagson Internatural Ltd  (2003) 3 Arb. LR 548). The Delhi and Bombay High Courts’ views work on the presumption that where the proper law of contract is foreign and seat is abroad, the proper law of arbitration agreement can reasonably be presumed to be foreign.[1]

Issues before the Supreme Court

The Supreme Court had to rule on whether or not Articles 22 and 23 of the Agreement between the parties impliedly/ expressly excluded Part I of the Act. The issue can be broken down into the following two issues:  

1)      Does the underlined phrase of Article 23 imply that the seat of arbitration is Seoul, Korea and hence are the facts of this case analogous to Max India and DGS (where the seat was located abroad and the law governing the underlying contract was foreign) and different from Indtel and Citation (where the law governing the underlying contract was foreign but the seat was not specified)?

2)      If so, were Max India and DGS decided correctly, i.e. is there an implied exclusion of Part I of the Act in such a fact scenario?

 Issue 1

The petitioner argued that because of the bracketed portion, it was possible for the seat to be located anywhere else in the world as well (possibly including India) and in such a situation, where the seat is unclear and the underlying contract is governed by foreign law, following the ratio of Indtel and Citation, an implied/ express exclusion of Part I could not be presumed. 

However, Justice Sirpurkar rejected this argument on the grounds that the bracketed portion does not control the scope of the main clause. The bracketed portion was only meant to provide the tribunal and the parties the flexibility of conducting arbitral hearings in other locations (including possibly in India though this was not expressed in so many words). Conducting hearings in a different location would not alter the seat of the arbitration. Hence the seat of the arbitration would be Seoul.

Issue 2

The Supreme Court differentiated Indtel and Citation on facts and followed the logic applied by the Delhi and Bombay High Courts (without referring to any of their decisions) and held that Articles 22 and 23 read together “expressly” excluded Part I of the Act. There was indeed no reason for the Supreme Court to depart from the sound reasoning of the Delhi and Bombay High Courts.   

B)    A FEW OBSERVATIONS

1. The Supreme Court recognized the fact that the seat of arbitration may be different from the place/ places where the arbitral hearings are conducted- a fact well established in England and many other countries.
2. The Supreme Court has implicitly made an important clarification on the import of the term “where the place of arbitration is in India”. The Supreme Court has indirectly equated the term “place of arbitration” with the concept of seat of arbitration.

 I reach this conclusion by 5 step analysis. Before I go onto this process I will first explain the crux of the issue:

 The Supreme Court in Bhatia had held that if the arbitration was “held in India”, Part I would mandatorily apply and it could not be excluded either expressly or impliedly. The term “held in India” can be understood to be analogous to the phrase “place of arbitration is in India” used in Section 2(2). What was not clear post-Bhatia was whether these two phrases referred to the seat of arbitration or not. It was therefore not clear whether an arbitration would be “held in India” even if the seat was located abroad but a few hearings were conducted in India.

 My 5 step analysis is as follows:

Step 1-An exclusion of Part I is permissible only when the arbitration is not held in India (pursuant to Bhatia).

Step 2- Therefore if there is an exclusion of Part 1(as in Dozco), the arbitration is necessarily not “held in India”.

Step 3- Pursuant to Dozco, Part I stands excluded even when a few hearings may be conducted in India and the seat of arbitration is located abroad.

Step 4- Where the seat of arbitration is abroad and arbitral hearings are conducted in India, the arbitration is not “held in India”.

Step 5- “Held in India” is therefore dependent on the location of the seat and not where individual hearings are conducted.

3. As has been pointed out in other articles, the Supreme Court has controversially held that in the given fact situation Part I is “expressly” excluded. While such a finding does seem to be a bit extreme, it is not likely to have a widespread impact.

4. The Supreme Court approvingly quoted one proposition of law that has been impliedly overruled by a larger bench in Bhatia. The Supreme Court, relied on the following paragraph from Mustill and Boyd, “The Law and Practice of Commercial Arbitration in England”, 2^nd ed.:

“In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the ‘seat’ of the arbitration, i.e. the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings.”

This proposition (the “Singer Proposition”) was adopted in NTPC v. Singer: 1992 (3) SCC 551. However, in light of Bhatia, this may no longer be good law. Applying this proposition to the facts of Bhatia, where Paris was the seat of arbitration, the curial law would have had to be French law. However, the Indian Arbitration Act was held to apply. This amounts to an overruling of the Singer Proposition.[2]

 While the Singer Proposition merely forms obiter dicta of Dozco, it does not impact the ultimate decision of the Supreme Court. However the Supreme Court should have analyzed the applicability of the Singer Proposition post-Bhatia, before quoting it with approval.

 CONCLUSION

Dozco provided the Supreme Court with a wonderful opportunity to unambiguously clarify a number of controversial issues pertaining to Bhatia and allied cases. The Supreme Court has not made best use of this opportunity.

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[1] The Andhra Pradesh High Court took a contrary view in National Aluminium Company Limited v. GERALD Metals 2004(2)ARB LR 382 (AP).

[2] For a more detailed analysis of this issue, refer to the heading titled “Position of Law in India: Singer and thereafter” in the chapter titled “PRINCIPLES OF PRIVATE INTERNATIONAL LAW THAT ARE APPLI-CABLE IN INTERNATIONAL COMMERCIAL ARBITRATION” of Anirudh Wadhwa and Anirudh Krishnan (ed.), “Justice Bachawat’s Law of Arbitration and Conciliation”, 5^th ed. 2010)