A recent landmark ruling by the division bench of the High Court of Delhi (High Court) in Max India Ltd v General Binding Corporation [2009] discusses the jurisdiction of Indian courts for granting interim relief in international commercial arbitrations. Max India distinguishes the ruling of the Supreme Court of India (Supreme Court) in Bhatia International Ltd v Bulk Trading SA [2002] as in Max India, the agreement between the parties provided for the law governing the contract, the rules governing the arbitral procedure, the jurisdiction of the Court and the place of arbitration outside India.
In the appeal, the High Court upheld the decision of the single judge bench of High Court of Delhi (SIngle Bench) in refusing to exercise the jurisdiction for granting interim relief in an international commercial arbitration, where the contract between the parties stipulated that:
- the agreement be construed in accordance with laws of Singapore;
- the courts of Singapore have jurisdiction to settle any dispute;
- the arbitration procedure be governed by the Singapore International Arbitration Centre Rules (SIAC Rules); and
- the place of Arbitration shall be at Singapore.
Facts
Max India Ltd (Max) filed a petition under s9 of the Arbitration and Conciliation Act 1996 (the 1996 Act), before Single Bench restrained General Binding Corporation (GBC) from implementing the terms of agreement entered into by GBC directly or through its holding company with Cosmo Films regarding the sale of its commercial prints finishing business.
The governing law and dispute resolution clause in the agreement between the parties read as under:
‘19. GOVERNING LAW AND DISPUTE RESOLUTION
19.1 This Agreement shall be governed and construed in accordance with the laws of Singapore and subject to Article 19.2, the courts of Singapore shall have jurisdiction to settle any disputes that may arise out of or in connection with this Agreement.
19.2 Any dispute between the Parties arising out of or in connection with this Agreement shall be referred to and finally resolved by arbitration under the Singapore International Arbitration Centre Rules (SIAC Rules) as in force at the time of the dispute, which SIAC Rules shall be deemed to be a part of this Agreement by reference. The arbitration shall be conducted before one arbitrator mutually appointed by the Parties, failing which Max India shall be entitled to appoint one arbitrator and GBC shall be entitled to appoint one arbitrator and the two arbitrators so appointed shall jointly appoint a third arbitrator who shall preside as the chairman. Such arbitrations shall be conducted in the English language. The venue of the arbitration shall be Singapore.’
In view of the above clause, GBC filed an application challenging the jurisdiction of the Indian court to entertain the petition under s9 of the 1996 Act.
The Single Bench, while accepting the plea of GBC, distinguished the judgments of the Supreme Court relied upon by Max in Laxman Prasad v Prodigy Electronics Ltd & anor [2008] and Venture Global Engineering v Satyam Computer Services Ltd & anor [2008] for invoking jurisdiction of courts in India. The judge also considered and clarified the decision of the Supreme Court in Bhatia International, holding that the provisions of Part 1 of the 1996 Act would apply to all arbitrations. This included international commercial arbitrations held outside India, unless the parties by express or implied agreement exclude all or any of its provisions.
The Single Bench relied upon ABC Laminart Pvt Ltd v AP Agencies [1989], in which it was decided by the Supreme Court that where parties to contracts agreed to submit the dispute arising from the contract to a particular jurisdiction it was not necessary to use words such as ‘alone’, ‘only’ and ‘exclusive’ when the parties had agreed to mention the jurisdiction of one court as it may imply the exclusion of another.
Since parties had specifically agreed that in the event of disputes, the courts in Singapore should have jurisdiction and the contract would be governed by the laws of Singapore and the place of arbitration is Singapore, the Single Bench came to the conclusion that the parties had specifically excluded the jurisdiction of the Indian court and had also excluded the application of Part 1 of the 1996 Act.
In view of the same, the Single Bench dismissed the petition under s9 of the 1996 Act filed by Max being not maintainable.
Being aggrieved, Max challenged the decision of the Single Bench before the Division Bench of the High Court. While passing a detailed judgment upholding the decision of the Single Bench, the Division Bench of the High Court dismissed the appeal of Max.
Decision
The decision of the Division Bench of the High Court touches upon various important concepts of the arbitration process, such as:
- The purpose of arbitral process is to ensure a fair resolution of disputes by an impartial tribunal with unnecessary delay or expense, with liberty to the parties to agree how their disputes are resolved subject only to such safeguards as are necessary in the public interest and intervention of the courts should be restricted.
- International commercial arbitration is a hybrid as it begins as a private agreement between the parties and continues by way of private proceedings, yet ends with an award that has binding legal force and effect. It usually involves five different legal systems, such as:
- law governing parties’ capacity to enter into an arbitration agreement;
- law governing the arbitration agreement and the performance of that agreement;
- law governing existence and proceedings of the arbitral tribunal – the ‘curial law’ of the arbitration (the lex arbitri);
- law or relevant legal rules, governing the substantive issues in dispute – the ‘proper law of the contract’; and
- law governing recognition and enforcement of the award.
The High Court relied upon the decision of the Supreme Court in National Thermal Power Corporation v Singer Company & ors [1992] holding that in an international commercial arbitration agreement, the parties have the liberty to make a choice, expressly or by necessary implication of the proper or substantive law, as well as for procedural law to be applicable. The Supreme Court also held that in the absence of express choice, a presumption arises that the laws of a country where the arbitration is to be held would be the proper law, which is rebuttable with regard to the true intention of the parties.
The High Court observed that in Max India, the parties have made express and specific provisions manifesting the intention that is loud and clear, and there is ‘unmistakable intention’ expressed by the parties.
The High Court also observed that the maxim ‘expression unius est exclusion alterius’ may be applied in Max India with respect to the jurisdiction of the Indian court as the specific mention of Singapore law would exclude the application of Indian law.
In Max India not only the substantive law but the procedural law is that of Singapore and furthermore, the arbitration forum is in Singapore. Moreover, the courts in Singapore are conferred with the jurisdiction to decide. When the parties have consciously chosen the applicability of Singapore law, by necessary implication, Indian law is excluded.
The High Court held that the Supreme Court in paragraph 32 of Bhatia International provides a categorical answer to the issue at hand. The Supreme Court applied provisions of Part 1 of the 1996 Act to the international commercial arbitration held out of India, subject to a rider that the parties by agreement, express or implied, can exclude Part 1 of the 1996 Act or any of its provisions. Therefore the laws chosen by the parties shall prevail.
The High Court also observed that the parties are not remediless as the SIAC Rules provide for interim measures by the Arbitral Tribunal and even the Singapore Arbitration Act 2001 (the 2001 Act), which is the law applicable in Max India, gives specific powers to the Court for passing such interim measures.
When the parties chose that the courts in Singapore shall have the jurisdiction, they were conscious of the fact that even if any interim measure was needed, adequate remedy was provided in the SIAC Rules, as well as in the 2001 Act. Even if the award is passed, the same would be challenged in a Singapore court as the decision of the Supreme Court in Venture Global permits the mixed foreign award challengeable under s34 of the 1996 Act before the Indian court due to applicability of Part 1 of the Act to international commercial arbitration held out of India ‘unless any or all such provisions have been excluded by agreement between the parties, expressly or by implication’.
The principles of comity of jurisdictions and forum non-conveniens are also discussed by the High Court. The principle of comity of jurisdiction, as recognised and accepted by the Indian courts in various judgments, is the courtesy given by one jurisdiction by enforcing the laws of another jurisdiction. Comity is granted out of respect, deference or friendship, rather than as an obligation. The concept of comity has also led to the modern doctrine of abstention. Comity is a tool for co-operation, but it can also be a tool for exclusion. Forum non-conveniens (Latin from ‘inconvenient forum’ or ‘inappropriate forum’) is a discretionary power of mostly common law courts to refuse to hear a case where a more appropriate forum is available to the parties.
Considering the said principles, the High Court concluded that the arbitration proceedings in Singapore or the courts in Singapore are an appropriate forum, even for the purpose of seeking an interim measure.
In light of these discussions, the High Court held that the conclusion arrived at by the Single Bench is justified and does not call for any interference.
Comments
This decision clearly explains the law laid down by the Supreme Court of India in Bhatia International and Venture Global with respect to the powers of the Indian courts to exercise jurisdiction with respect to international commercial arbitrations. Where all the four elements: (i) law governing contract; (ii) rules governing arbitration; (iii) jurisdiction of the court; and (iv) place of arbitration, are outside of India and the intention of parties is equivocally clear, it would amount to the specific exclusion of jurisdiction of Indian courts and the applicability of Part 1 of the 1996 Act. The decision also lays down that it is more appropriate for the party seeking relief to approach the court chosen by the parties in the contract instead of in the Indian court.
This decision will go a long way as it clarifies the competence of the Indian court to exercise jurisdiction in international commercial arbitrations and restricts judicial intervention in arbitral processes.
GBC was successfully represented in this matter by Amarchand Mangaldas. For further information on this topic please contact the author.
By Tejas Karia, principal associate, Amarchand Mangaldas.
E-mail: tejas.karia@amarchand.com.
