Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

Judicial Intervention in Arbitral Process Analysis Post Balco vs

Kaiser Aluminium Case
(Project Report)

SUBMITTED TO:

Dr. PARVESH SINGH RAJPUT

(FACULTY: ALTERNATE DISPUTE RESOLUTION)

SUBMITTED BY:
PRAVAS NAIK
B.A.LL.B. (HONS.), SEMESTER-VI
SECTION B, ROLL NO. – 119,

Hidayatullah National Law University

Raipur (C.G)
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

DECLARATION

I, Pravas Naik, hereby declare that, the thesis of the project work entitled, “Judicial
Intervention in Arbitral Process Analysis Post Balco vs Kaiser aluminium case” is of my own
& this project work is submitted to H.N.L.U. Raipur. It is record of an original work done by
me under the able guidance of Dr. Parvesh Singh Rajput, Faculty Member, H.N.L.U., Raipur.

Pravas Naik

Roll No. 119

Semester VI
Section A
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

ACKNOWLEDGEMENTS

I feel highly elated to work on the topic “Judicial Intervention in Arbitral Process Analysis
Post Balco vs Kaiser aluminium case”. The practical realization of this project has obligated
the assistance of many persons. I express my deepest regard and gratitude to my teacher, Dr.
Parvesh Singh Rajput, for his unstinted support. His consistent supervision, constant
inspiration and invaluable guidance have been of immense help in understanding and
carrying out the nuances of the project report.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and through Internet.

My gratitude also goes out to the staff and administration of HNLU for the infrastructure in
the form of our library and IT Lab that was a source of great help for the completion of this
project

Some printing errors might have crept in, which are deeply regretted. I would be grateful to
receive comments and suggestions to furthers improve this project report.

Pravas Naik

Roll No. 119

Semester VI
Section A
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

TABLE OF CONTENTS

DECLARATION..................................................................................................................... 2
ACKNOWLEDGEMENTS ................................................................................................... 3
INTRODUCTION................................................................................................................... 5
STATEMENT OF THE PROBLEM .................................................................................... 6
AIM & OBJECTIVES............................................................................................................ 6
CONCEPTUAL FRAMEWORK .......................................................................................... 6
REVIEW OF
LITERATURE……………………………………………………………………………..6-7
CHAPTERISATION .............................................................................................................. 7
RESEARCH QUESTIONS .................................................................................................... 8
RESEARCH METHODOLOGY .......................................................................................... 8
ARBITRATION…………………………………………………………………………..9-15
JUDICIAL INTERVENTION………………………………………………………….16-18

LIMITATION OF JUDICIAL INTERVENTION………………...………………….19-20

JUDICIAL INTERVENTION IN BALCO. CASE ……………..……………………21-25

CONCLUSION .....................................................................................................................26
REFERENCES ......................................................................................................................27
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

INTRODUCTION

Arbitration is a procedure consequential from the Roman law primarily. It was one of the
imperative modes of settling disputes in ancient times as well, but time has not tapered its
efficaciousness. Arbitration has become a common practice today and is augmenting. It is
one of the, most demanded method of settling a dispute peacefully and ephemerally. There
are also people, according to who extra-legal practices of Arbitration Tribunal are the peril of
emergence of the new legal system which stands in opposition to the fundamental legal
ideology having long governed communities. Although, such an observation should not pass
disregarded, it seems not in congeniality with the fact that Arbitration doesn’t take place
entirely on its own altogether like other adjudications of administrative agencies rather at a
certain juncture is subjected to judicial control.

Arbitration is a procedure of settling disputes in the commercial sphere and is well known to
the Indian system of justice. It is an old practice through which the Panchayat’s in villages
would settle disputes between the parties. The main intent of passing “The Arbitration and
Conciliation Act, 1996” was to achieve the main objective of Arbitration, to minimize the
supervisory role of the Courts in the arbitral process and to provide that each final arbitral
award is enforced in the similar manner as if it were a decree of the Court. The duty of the
Court to not intervene in the arbitral proceeding is the foundational premise of the Act.
Judicial review is the authority vested in the Courts to pass upon the measures or decisions of
other governing bodies, irrespective of them being a part of the executive department, the
legislature, an administrative agency, or some lower Court.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

STATEMENT OF THE PROBLEM

The project deals with not only the meaning of Arbitration but also its judicial
intervention in arbitral process in post Balco. Vs. Kaiser aluminium case. Advantages
and disadvantages of arbitration.

AIM & OBJECTIVES

To find out in real sense the requirement of judicial intervention in arbitral process.

CONCEPTUAL FRAMEWORK

Arbitration is a part of Alternate Dispute Mechanism which does not involve itself with
various complexities as an ordinary court of law. However, it can be seen in various forms
such as institutional Arbitration & Ad-Hoc Arbitration.

The only things which bares the ordinary courts of law are its procedural complexities and its
non-compliance with the people. This is the reason why in the present scenario it has been in
a need of ADR process more than ever. But why there is a need of judicial intervention in
arbitral process.

REVIEW OF LITERATURE

Elaborate review of literature has been made in the process of this research work. A passing
reference may be useful to summarize some of the useful literature which was a boon for to
have a deep study to pursue this research work.

1.P.C Rao & Williams Sheffield, ADR Universal Law Publishing (First Edition) 1997.
The Fundamental purpose of this book is to present an outline of ADR development process
and resources in India and in other selected jurisdictions. It Intended to contribute to a better
understanding to what ADR is and how it works. Though it is meant for Indian audience but
it will benefit all those who have an interest in ADR.
2. Sreeraj K.V, Concept of ADR in the present legal system of India ,2016, May 10.
an article on the topic Concept of ADR in the present legal system of India. The topic covers
the importance of ADR, major provisions under the Arbitration and conciliation Act,
advantages of arbitration as well as major cases which made the system much more
important.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

3. S. Chaitanya Shashank & Kaushalya T. Madhanon, ADR in India, Acadmike (2015)

Jan 7.
The two Co-Authors in the article states that, settlement of disputes through reference to a
third party is a part of the volkgiest of India since times immemorial. It has undergone a
phenomenal metamorphosis, growing from the stage of village elders sitting under a banyan
tree and resolving disputes to the stage of gaining a statutory recognition. India has put in
place a progressive piece of legislation which is essentially based on the Model Law and the
UNCITRAL Arbitration Rules. The Parliament enacted the Arbitration and Conciliation Act
of 1996 with a view to making arbitration less technical and more useful and effective, which
not only removes many serious defects of the earlier arbitration law, but also incorporates
modern concepts of arbitration. What it now needs is inculcation of the culture of arbitration
within the bar, the bench and the arbitral community.

CHAPTERISATION

Chapter One: The Meaning of Arbitration.

Chapter Two: The judicial intervention in arbitral process.

Chapter Three: referring to the facts of Balco. Vs. Kaiser aluminium case.
Chapter Four: conclusion and reference to the project.
Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

RESEARCH QUESTIONS

1. What is the meaning of Arbitration?

2. Why there is need of judicial intervention in arbitral process?

3. what finally happen in Balco. Vs. Kaiser aluminium case?

RESEARCH METHODOLOGY

Nature of research work: This project ― Judicial Intervention in Arbitral Process

Analysis Post Balco vs Kaiser Aluminium Case & its importance in current scenario
is a Doctrinal work. Doctrinal research includes studying books and established
literature and not actually going to the field and doing empirical research. Source of
research work: The sources of this project are both primary (bare acts, statutes, etc)
and secondary sources (books given by different authors, journals, internet, etc).
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

ARBITRATION

Arbitration is "a legal technique for the resolution of disputes outside the courts, wherein the
parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral
tribunal"), by whose decision (the "award") they agree to be bound." In other words,
arbitration is a form of dispute settlement, where parties can avoid resolving their dispute in
the public litigation. It is used mainly in solving disputes arising out of commercial matters.
Arbitration should not be confused with mediation. In the arbitration, the arbitrator obliged to
determine the dispute by reference to certain rules, rather than to seek compromise which is
mediator's task.

There are two types of arbitration: ad hoc arbitration and arbitration organized in permanent
institutions. Ad hoc arbitration is conducted independently from any influence of institutions
and according to the rules chosen by the parties. In this type of process, the arbitrators are
appointed by case-by-case basis, usually by parties. One option is that the parties select an
appointing authority who will appoint arbitrators for the proceeding. The composition of the
tribunal can vary from one to several arbitrators depending on procedural rules.

In the arbitration process organized by permanent institutions, the process is more bound to
the rules of the said institution. The institution provides arbitral services and normally
appoints the arbitrators. One example of this kind of institution is the International Chamber
of Commerce.

The arbitration process has some advantages and disadvantages, when compared to public
litigation. First of all, it is confidential process, which can be important in disputes involving
commercial secrets. On the other hand, because of the confidentiality, the disputes settled in
the arbitration do not gain such publicity that disputes resolved in the public litigation. The
arbitration process usually also gives the parties the freedom to select their arbitrators.
Thirdly, it is usually quicker and more flexible than public litigation. However, one
disadvantage is that arbitration is normally more expensive than public litigation because of
high salary of the arbitrators.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

Advantages and disadvantages

Parties often seek to resolve disputes through arbitration because of a number of perceived
potential advantages over judicial proceedings. Companies often require arbitration with their
customers, but prefer the advantages of courts in disputes with competitors:

• In contrast to litigation, where one cannot "choose the judge", arbitration allows the
parties to choose their own tribunal. This is especially useful when the subject matter of
the dispute is highly technical: arbitrators with an appropriate degree of expertise (for
example, quantity surveying expertise, in the case of a construction dispute, or expertise
in commercial property law, in the case of a real estate dispute) can be chosen.
• Arbitration is often faster than litigation in court.
• Arbitral proceedings and an arbitral award are generally non-public, and can be made
confidential
• In arbitral proceedings the language of arbitration may be chosen, whereas in judicial
proceedings the official language of the country of the competent court will be
automatically applied.
• Because of the provisions of the New York Convention 1958, arbitration awards are
generally easier to enforce in other nations than court verdicts.
• In most legal systems there are very limited avenues for appeal of an arbitral award,
which is sometimes an advantage because it limits the duration of the dispute and any
associated liability.

Some of the disadvantages include:

• Arbitration agreements are sometimes contained in ancillary agreements, or in small print

in other agreements, and consumers and employees often do not know in advance that
they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or
taking a job.
• If the arbitration is mandatory and binding, the parties waive their rights to access the
courts and to have a judge or jury decide the case.
• If the arbitrator or the arbitration forum depends on the corporation for repeat business,
there may be an inherent incentive to rule against the consumer or employee
• There are very limited avenues for appeal, which means that an erroneous decision
cannot be easily overturned.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

• Although usually thought to be speedier, when there are multiple arbitrators on the panel,
juggling their schedules for hearing dates in long cases can lead to delays.
• In some legal systems, arbitration awards have fewer enforcement options than
judgments; although in the United States arbitration awards are enforced in the same
manner as court judgments and have the same effect.
• Arbitrators are generally unable to enforce interlocutory measures against a party, making
it easier for a party to take steps to avoid enforcement of member or a small group of
members in arbitration due to increasing legal fees, without explaining to the members
the adverse consequences of an unfavourable ruling.
• Discovery may be more limited in arbitration or entirely non-existent.
• The potential to generate billings by attorneys may be less than pursuing the dispute
through trial.
• Unlike court judgments, arbitration awards themselves are not directly enforceable. A
party seeking to enforce an arbitration award must resort to judicial remedies, called an
action to "confirm" an award.

GROWTH OF ARBITRATION IN INDIA

Litigation in India is in general prolonged and expensive. Civil Courts in the country today
are, on average baffled with postponements. An anticipated surfeit of 40 million cases and
regular delays to set out each case has relentlessly destabilized public assurance in the “rule
of law”. This being, the primary ground Arbitrations are becoming tremendously accepted in
India and allow the party to eliminate the judicial system for giving the final decision of the
dispute.

The Arbitration and Conciliation Act, 1996 was brought into subsistence to, accomplish the
following purposes: -

1. Make provision for an arbitral procedure which is reasonable, resourceful and

proficient of meeting the necessities of specific Arbitration;
2. Provide that the arbitral Tribunal gives raison d'être for its award;
3. Ensure that the arbitral Tribunal remains within the limits if its jurisdiction;
4. Minimize the supervisory role of the Courts in the arbitral process;
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

5. Provide that every final arbitral award is enforced in the same manner as if it were a
decree of the Court1

The aim of the Act is expedition. This object would be overpowered if the cases are pending
in the Courts due to difference of opinion for years before even the commencing of
Arbitration. It is essential for speedy disposal of issues that Arbitration cases should be
decided on the appropriation of relevant documents and affidavits without any oral evidences.
However, few extraordinary cases where it may become obligatory to grant opportunity to the
parties to lead oral evidence. In either of the circumstances, the judicial authority is required
not to treat such matters like standard civil suits and to settle on those issues expeditiously
within a time frame.

1
Pursottam Das Chokhani v. Sarita Devi Nathani; 2006 (2) Srb LR 176 (Gau) (DB)
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

JUDICIAL INTERVENTION

Judicial review of Arbitration is not a usual phenomenon, rather it is, one that has given on
one hand, ascend to arraign of judicial intrusion and hostility, and on the other hand to
counter charges of arbitrariness and endeavours to sidestep judicial parameters. This basis for
dissatisfaction can best be discovered mainly in three ways: -

1. Probing the character of Arbitration;

2. Seeking to determine the scope of which the Arbitrator designated by the

participators to render a decision is acceptable to do so;

3. The scale to which the Arbitration process is permitted to manoeuvre in its own
way, liberated from judicial interposition.

Normally and Arbitration shall proceed as soon as the participators are prepared and have
decided on an Arbitrator. There is no need for them to wait for its turn on swarming dockets
as some ordinary litigated case. Undoubtedly it cannot be denied that the negation of Courts
to enforce an agreement they portray as invalid has originated perplexity and discontent to
those who assent to arbitrate their discrepancies. People who solemnly consent to an
arrangement which is supposed as absolutely legitimate, and then to find that there is no
acquiescence behind their agreement other than the good faith of either party. This raises
adroit doubts as to the astuteness of judicial adherence to the universal rule of law.

Individuals or a panel of persons known as Arbitrators also comes within the ambit of
“Judicial review”. It being one of the, most common practice by the judicial system is not
specifically defined in any of the leading law dictionaries, but elucidation would prove
accommodating as it is not at all times given an identical meaning by its users. Undeniably
the Act contemplates three circumstances where the judicial authority may intervene in
arbitral proceedings these are: -
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

1. Appointment of Arbitrators, where the parties’ envisaged method for the same
fails2.

2. Ruling on whether the mandate of the Arbitrator stands terminated due to inability
to perform his functions or failure to proceed without undue delay3.

3. Provide assistance in taking evidence4.

All the above three situations endow with the backdoor ingress to the judiciary (Courts) to
meddle into the Arbitration matters. The enactment of the 1996 Act at the outset met with
admiration by the Court in case of Konkan Railway Corporation vs. Mehul Construction Co 5
which declared evidently that

“The provisions of the Act indicate that the Act limits intervention of the Court with an
arbitral process to the minimum”.

Although consequent, actuality has been far from the principle. Other imperious cases like
ONGC vs. SAW Pipes6 and SBP & Co. Vs. Patel Engineering7 has stridently shown
legislative attempts to uphold Arbitration in India. The SAW PIPES case asserted the
challenge of an arbitral award on the ground that it was ‘in conflict with the public policy of
India’; instead of taking a tapered construal of the phrase ‘public policy’ as being something
in surplus of prima facie Indian law, the Court implemented a very extensive perceptive of
the same. The Courts equated ‘patent illegality’ with ‘error of law’ and held that ‘any
contravention of an Indian legislation would ipso facto make the award in violation of public
policy’. It, lead to admittance the judicial review that the Act was put in place to avoid. The
scope of judicial intervention was further extended in the case of SBP & Co., when the
Hon’ble Supreme Court held that the Chief Justice of India had the authority to deliver
judgment on the issues like legitimate Arbitration agreements and went on to state that the
Chief Justice could even annunciate for evidence to determine jurisdictional issues while
performing the role of appointing an Arbitrator when the parties failed to come to a mutual
consent for the same. The Supreme Court further stated that such decisions would be final
and binding upon the parties. This effectively contravened the ‘Principle of Kompetence’ and

2
Section 11 of The Arbitration and Conciliation Act, 1996.
3
Section 14(2) of The Arbitration and Conciliation Act, 1996.
4
Section 27 of The Arbitration and Conciliation Act, 1996.
5
2000 (7) SCC 201
6
2003 (5) SCC 705
7
2005 (8) SCC 618
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

thus amounted to a position where the Arbitration Tribunal’s authority to determine its
jurisdiction was undermined.

In actual fact, therefore, Courts endowed themselves with powers which would significantly
impediment arbitral proceedings (either by raising baseless objections to preliminary issues
or by sabotaging the rendezvous process) which goes against the elementary reason for
enacting Section 13 i.e. ‘Challenge Procedure’ of the Act. This brings us to what has been
called the dispute between high principles (stressing the need for justice) and low principles
(an equally insistent to end litigation). The growth of the Court’s intervention into the judicial
sphere has stimulated severe issues. The expansive interpretation of the term ‘public policy’
in the ONGC case has been further followed by many cases which permits the judiciary the
right to review arbitral awards. It is observed in the case of Hindustan Zinc Ltd. vs. Friends
Coal Carbonisation8 that, the Hon’ble Supreme Court has stated that awards could be set
aside on grounds like being contrary to the terms of contract. This further set a perilous
precedent since, as confirmed earlier; the encouragement of Alternative Dispute Resolution
was founded on an urge to circumvent the protracted Court practice. The Court has been
endowed with statutory clout to set aside an award when the Arbitrators transgress
themselves or the references. But it also has incompetent prudence to abate the award to the
chosen Tribunal.

Rationalization of Judicial Intervention

In the enormous preponderance of entirely domestic Arbitrations, foreign element being

absent in the same, the government or its agencies are parties. In the plethora of cases the
Arbitrators selected by the center are the government employees who are expected to be
predisposed for one or the other cause. Majority of Arbitration Tribunals, are ad-hoc and not
institutional, and there are rarely any qualified Arbitrators who can expedite prompt and
summary disposal while preserving the buoyancy of both parties. There are not many
institutions which can grant Arbitration conveniences under their rules. Frequently, retired
judges are appointed as Arbitrators who, by the high caliber of long tenures behind the
Bench, have habituated to dreary rules referring to procedure and evidence. In consequence
of the same, Arbitrations become a combat of pleadings and procedures, in which every party

8
2006 (4) SCC 445
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

tries to stall if it works to their errand. There might be an enticement for Arbitrators to
lengthen the Arbitration to receive more "sitting fees". Whispers also proliferate of
Arbitrators being susceptible to being procured and those with heavy pockets being proficient
to acquire justice. Many Arbitrators are not proverbial with the practice of Arbitration or how
to efficiently accomplish the arbitral process. They all have forgotten the purpose, the
endeavour, the operation behind bringing into force the Act.

Often, lawyers are not skilled in the law and practice of Arbitration and there is a penchant
among them to protract Arbitrations, seek unnecessary adjournments, squeeze in Arbitrations
between, their ordinary Court appearances, etc., all of which add up to a lack of ethics in
accomplishing Arbitration in India. Consequently, many Arbitrations end up being carried
out as if they are short trials, with pleadings, issues, admission and denial, oral and
documentary evidence, cross-examination, etc. Thus, where there is no correlation amid the
theory and the practice of Arbitration, Courts would not unnaturally wish to intervene when
they come across injustice and the people would beyond doubt approach the Court of Justice.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

Limitation of Judicial Intervention

By and large in any judicial system a first appeal against a Court Judgment is a right of the
party and hence the first appellate Court needs to once again look into the merits of the case
and pass a rational judgment. The reason being in the same is the parties, by no means have
the right to select their judge or their aptitude, knowledge or comprehending power in the
meticulous area of business. On the other hand, in the Arbitration cases the parties opt their
Arbitrators, knowledge and qualification and therefore there is no need for another
appreciation of the merits of the case. This is the primary reason why the UNICITRAL model
law as well as Indian Arbitration & Conciliation Act, 1996 confine the scope of the appeal
against an arbitral award. The motive of such a limitation is to avoid unreasonable
consumption of time by all over again observing the merits of the case and re-appreciate the
evidence and to make certain finality of an arbitral award.

The above-mentioned restraint incorporated into of Section 34 of the Arbitration and

Conciliation Act, 1996 was challenged by way of a Writ Petition filed under Article 22 (d) of
the Constitution of India in ‘TPI Ltd vs Union of India’. The major ground of challenge was
that parties should not be deprived of challenging an arbitral award on the merits as a matter
of right and in the nonexistence of such a provision, Section 34 of the Arbitration and
Conciliation Act, 1996 shall be unconstitutional. But the High Court dismissed the above said
Writ Petition with an examination that Arbitration is an alternate medium for Redressal of
disputes and is preferred by the parties own free will and their consent to the Arbitrators
verdict by means of mutual agreement or contract, which gives a go by to the standard
judicial forum otherwise accessible to the parties. It is because there is no pressure or
obligation by any statute persuading the parties to route to Arbitration if a dispute arises. It is
also because the legislature has the authority to denote the grounds on which the award can
be challenged. Hence it was held that restrictions incorporated into Section 34 of the
Arbitration and Conciliation Act, 1996 are constitutional and valid. Therefore, arbitral awards
cannot be interfered by the Courts on the merits and their jurisdiction is restricted to Section
34.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

What Finally Happened in Bharat Aluminium Co. ["BALCO"] v. Kaiser Technical

Services?

Much has been said about the Supreme Court of India ["SCI"] judgment in Bharat Aluminium
Co. v. Kaiser Aluminium Technical Service9 which has perceivably changed the arbitration
regime in India. However, one may recall that the judgment made no reference to the facts of
the appeal and sought only to resolve the legal questions that arose during arguments.
Recently in Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services10 ["JUDGMENT/BALCO II"], the SCI addressed the subject matter of the appeal.

The SCI in BALCO I had held that the judgment would apply only prospectively and
therefore the present dispute had to be resolved as per the law as laid down in the Bhatia
International v. Bulk Trading11 ["Bhatia"] judgment. Under the Bhatia regime, all the
provisions of Part I of the Indian Arbitration & Conciliation Act, 1996 ["Act"] were to be
applicable to all arbitration whether domestic or foreign-seated unless the parties by
agreement, express or implied, had excluded wholly or partly, the provisions of Part I of the
Act.

Facts

The parties had entered into an agreement in relation to the supply of equipment,
modernization and upgradation of production facilities. Certain disputes arose and were
referred to arbitration seated in England and awards were made in favour of the Respondent.
The Appellant had filed applications to set aside the award before the Chhattisgarh High
Court under Section 34 of the Act (which falls under Part I).

9 Bharat Aluminium v. Kaiser Technical Services, Civ App 3678 of 2007 (6 September 2012)
10 Bharat Aluminium v. Kaiser Technical Services, Civ App 3678 of 2007 (28 January 2016).

11 Bhatia International v. Bulk Trading, (2002) 4 SCC 105

 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

Relevant Clauses of the Agreement

Article 17 - Arbitration

17.1 Any dispute or claim arising out of relating to this agreement shall be in the first
instance endeavor to be settled amicably by negotiation between the parties hereto and failing
which the same will be settled by arbitration pursuant to the English Arbitration Law and
subsequent amendment thereto.

17.2 The arbitration proceedings shall be carried by two arbitrators, one appointed by the
Petitioner and one by the Respondent chosen freely and without any bias. The Court of
arbitration shall be wholly in London, England and shall use the English language in the
proceedings. The finding and award of the Court of Arbitration shall be final and binding.

17.3 Before entering upon the arbitration, the two Arbitrators shall appoint an Umpire. If the
two arbitrators are not able to reach an agreement on the selection of an Umpire, the Umpire
shall be nominated by the International Chamber of Paris.

Article 22 - Governing Law

This agreement will be governed by the prevailing law of India and in case of Arbitration, the
English Law shall apply.

Judgment [BALCO II]

The court held that Article 22 is clear in providing that the proper law of the contract is
Indian law. They further held that Article 17.1 provided for English law to be the law
applicable to the arbitration agreement and therefore it would be impracticable and
inconvenient to interpret Article 22 to mean that Indian law would be the substantive law
governing the contract but in case of an arbitration, English law would govern. Therefore, the
court found that English law was the law applicable to the arbitration agreement. In light of
the same, the court upheld the decision of the High Court dismissing the Section 34
applications.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

Analysis

The court read the arbitration clause in light of "party autonomy" being the "grundnorm" of
international commercial arbitration and stated that when interpreting such an agreement, it
must be kept in mind that parties would have intended to avoid impracticable and
inconvenient processes and procedures. The court therefore found that the proper law of
contract was clearly Indian law while English law was only the law governing the arbitration
agreement.

This judgment is also significant in light of interpreting arbitration clauses in contracts

entered into before 6thSeptember 2012 i.e., those governed by the Bhatia regime. The
question therefore was whether Part I of the Act had been impliedly excluded. The court
cited Union of India v. Reliance Industries12 where the Supreme Court of India held that Part
I of the Act would be considered impliedly excluded when the juridical seat is outside India
or where a foreign law is chosen as the law governing the arbitration agreement. So saying
the court dismissed the Section 34 applications filed at the High Court to set aside the arbitral
awards.

The decision in Bhatia International

In Bhatia International, the Supreme Court held that Indian courts could exercise the powers
conferred on them by Part I of the Act even in cases where the seat of the arbitration was
outside India. The court’s jurisdiction in this case was invoked by a party seeking interim
measures of protection in relation to an ICC-administered arbitration seated in Paris.
Although s 9 of the 1996 Act empowers the Indian courts to grant interim relief, this
provision is contained in Part I of the Act, which was designed to apply only to Indian-seated
arbitrations. The Supreme Court was thus faced with a situation where it apparently could not
order interim measures of protection, since the arbitration clause provided for a Paris seat.
Faced with this legal hurdle, the Court adopted a result-driven approach and held that the
general provisions of Part I of the 1996 Act would also apply to offshore arbitrations, unless
the parties impliedly or expressly excluded the applicability of the Act. The court ruled that s
9 (and Part I) of the 1996 Act would also apply to arbitrations seated outside India because to
hold otherwise would - “… leave a party remediless inasmuch as in international commercial

12 Union of India v Reliance Industries, 2015 (10) SCALE 149.

 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

arbitrations 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.”5

Practical and equitable considerations may often demand that Indian courts grant interim
measures of protection to support an arbitration seated offshore. A party could indeed often
be handicapped if Indian courts were not empowered to make interim orders, especially if
those courts were to have the closest jurisdictional link with the subject matter of the
controversy and would be best equipped to order urgent and effective interim measures. Yet,
there can be no denying that the judgment in Bhatia International represented a clear instance
of judicial legislation. It was also contrary to the intended legislative scheme of the 1996 Act,
in terms of which Part I would have no application to arbitrations seated outside India.

The negative fallout from Bhatia International

The well-intentioned solution devised by the Supreme Court in Bhatia International resulted
in the creation of more problems than it was able to resolve. It considerably extended the
scope for Indian courts to interfere in arbitrations seated outside India. The ruling also cast a
shadow of uncertainty over internationally-seated arbitrations involving Indian parties, due to
an overlap of supervisory jurisdiction between the Indian courts and the courts of the seat of
the arbitration. These issues came to the fore when the ratio in Bhatia International was
subsequently extended, in Venture Global Engineering LLC v Satyam Computer Services
Ltd7 (‘Venture Global’), to permit the Indian courts to reopen and set aside awards rendered
in arbitrations seated outside India. In yet another controversial extension of the Bhatia
International ruling, in Indtel Technical Services Pte Ltd v WS Atkins PLC8 , the Supreme
Court ruled that it was empowered to appoint arbitrators in the event of a deadlock between
the parties, even in cases where the seat of the arbitration was outside India. Bhatia
International and its “illegitimate progeny”9 , in particular the judgment in Venture Global,
have been subjected to intense criticism in India and beyond for authorising Indian courts to
exercise long-arm jurisdiction and for introducing substantial uncertainty in offshore
arbitrations involving Indian parties. Indeed, in a sign of judicial discomfort with the broad
scope of Bhatia International, the Supreme Court itself and various High Courts in the
country subsequently sought to narrow down its scope. They also displayed a greater
willingness to infer implied exclusions of the 1996 Act in relation to arbitrations seated
outside India.10 Nevertheless, in order to mitigate the risk of excessive judicial intervention,
it had become standard market practice in India-related international commercial transactions
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

to exclude the application of Part I of the Act to arbitrations seated outside India. Concerned
with the manner in which the Bhatia International decision had distorted the scheme of the
1996 Act, the Indian Ministry of Law and Justice published a consultation paper in 200911
which proposed amendments to the Act, primarily to undo the effects of Bhatia International.

The arbitral decision in White Industries

The far-reaching and adverse consequences of the Bhatia International and Venture Global
decisions most prominently came to the fore in the widely publicised decision of an
UNCITRAL arbitral tribunal in White Industries Australia Ltd v Republic of India. 12 White
Industries, the claimant in the arbitration, obtained an ICC award in its favour against state-
owned mining company, Coal India, in relation to a contract for the supply of equipment to
and development of a coal mine. The arbitration was seated in Paris; this should ordinarily
have precluded the Indian courts from considering a challenge to the award in India, such
powers being within the exclusive domain of the courts of the seat of the arbitration.
However, Coal India relied on the Venture Global decision to issue proceedings challenging
the award before the Indian courts. White Industries, in turn, brought enforcement
proceedings in India. The enforcement proceedings were eventually stayed by the Indian
courts pending a decision on the setting aside proceedings. Frustrated by the challenge to the
ICC award and the resultant delay in its enforcement, White Industries commenced and
ultimately succeeded in an arbitration against India under the Australia-India BIT. The
UNCITRAL tribunal held India liable for failure to provide investors with an ‘effective
means of asserting claims and enforcing rights’ owing to the undue delay in the enforcement
proceedings. These delays were largely attributable to the position created by Venture Global,
thus underlining the far-reaching and negative consequences of the Bhatia International
decision.

Reinstatement of the territoriality principle

It is in this context that the Supreme Court decided to review and overrule its previous
decision in Bhatia International. Based on an analysis of the history, legislative intent and
scheme of the 1996 Act, the Court concluded that the regulation of arbitration proceedings
(including review of the award) fell within the exclusive domain of the courts at the seat of
the arbitration. The Court also clearly delineated the respective jurisdiction of the courts in
cases where arbitrations are seated in India and offshore. In the former case, Indian courts
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

may exercise all the powers vested in them under Part I of the 1996 Act in order to supervise
and/or support the arbitral process and are also empowered to review arbitral awards. In the
latter case, however, the role of the Indian courts is effectively confined to enforcing the
arbitration agreement and also dealing with matters relating to the recognition and/or
enforcement of an award. The Supreme Court laid down the following key principles in its
decision.

(1) The principle of territoriality is the governing principle of the Arbitration Act.
Accordingly, the seat of arbitration determines the jurisdiction of the courts. The Indian
courts can only supervise the arbitration process when the seat of the arbitration is in India. It
cannot intervene in, or supervise, arbitrations seated offshore.

(2) Part I of the 1996 Act applies only to arbitrations seated in India. Therefore, an Indian
court can no longer hear challenges to awards made in arbitrations seated offshore. The only
powers that an Indian court can exercise in relation to foreign arbitration are those set out in
Part II of the Act. These are (i) to give effect in India to an agreement referring disputes to
arbitration in another country, pursuant to the New York Convention, and (ii) to enforce
foreign arbitral awards in India, in accordance with the provisions of the New York or
Geneva Conventions.

(3) The Indian courts are not empowered by the 1996 Act to order interim measures in
support of arbitrations seated outside India. Likewise, a suit cannot be filed for this purpose
under the general law, viz the Code of Civil Procedure.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

Consequences of the BALCO decision

In holding that the Indian courts cannot set aside arbitral awards made, or otherwise intervene
in arbitrations seated, outside India, the Supreme Court has firmly signalled that the Indian
courts will give effect to party autonomy and efficacy to the parties’ choice of a foreign seat.

There are, however, two important consequences of the decision of which contracting parties
should take note.

(1) In the light of the law laid down by the Supreme Court, it will be difficult to obtain
interim measures of protection from the Indian courts in the case of arbitrations seated
outside India. This could prove to be a significant handicap, especially if there is a need to
preserve assets or prevent the alteration of the status quo in India pending the making of an
arbitral award. The Court recognised that there exists a void in the arbitration regime in this
regard. It concluded, however, that the gap in the law was an issue for Parliament and not the
courts to address. It is, of course, possible for a party to obtain interim measures from the
arbitral tribunal or the courts of the arbitral seat, but it would likely encounter significant
challenges in enforcing any such orders in India in the absence of an international convention
or the application of the 2006 version of the UNCITRAL Model Law. It is hoped that
legislative amendment will rectify this anomaly, but until such time, contracting parties
should be conscious of this angle when selecting a seat of arbitration.

(2) The Supreme Court in BALCO decided that its judgment would have prospective effect
and thus apply only to arbitration agreements executed after 6 September 2012. By its terms,
therefore, the judgment will not affect arbitration agreements executed before 6 September
2012, in which case the law as stated in Bhatia International will continue to apply. The
cryptic reason given by the Court to justify this approach was that it was necessary “to do
complete justice”. However, given that the court took note of the adverse fallout of its
decision in Bhatia International and held that Indian courts had no jurisdiction under the
scheme of the 1996 Act to intervene in arbitrations seated outside India, it is rather curious
how it could justify continued judicial interventionism in the case of arbitration agreements
entered into before 6 September 2012. If Bhatia International were indeed wrongly decided, a
position which the Supreme Court has now accepted, the overruled judgment ought not to
have been allowed to continue to operate in relation to agreements which will undoubtedly
generate arbitrations for years to come.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

CONCLUSION

It is apparent that Arbitration has developed over the years as the ideal mechanism for
resolution of disputes that saves the Court's time and primarily influential in assisting the
parties to resort to quick corrective measures. Each, Arbitration is based on astute application
of the law and its advancement is proof of its importance in the actual proceedings. Thus,
Arbitration has evolved as the most chosen podium for rapid resolution of disputes. Just as
the proof of the pudding lies in the eating, the efficiency of any legislation must be judged by
its execution. Unfortunately, insofar as the 1996 Act is concerned, the actuality has been
detached from the principles perceived by the legislation. The existing practice is
unquestionably a far cry from that foreseen by the intention of the Act. Arbitration is a
demonstration of party self-sufficiency. It is a concordant process, being the theme of the
agreement. When two parties have met and mutually affirmed to determine the dispute
outside the Court system, then in such cases the Courts should positively not intervene in
such consensual bargains. Once two parties have decided to elect a third person by sanction,
an award by such an individual should be final and binding and should not be further
challenged apart from in extraordinary circumstances. Judicial intervention is justified in real
if the present Indian situation is taken into deliberation.

Therefore, conclusively it is pertinent to state that judicial intervention is justified in the

Arbitration proceedings. But the intrusion of judiciary reduces the basic aim & objective of
Arbitration and consequently it becomes obvious to espouse a middle approach for it which is
then achievable with sufficient accessibility of skilled, qualified and sincere Arbitrators as
well as well-operational arbitral institutions. These are vital & essential to the farther triumph
of Arbitration in India. If there is an embryonic belief that by opting Arbitration over
litigation, the parties have considerably diminished their probability of getting good quality
of justice, it will apparently augur ill for the future of Arbitration. The need of the hour is
adoption of a tradition of Arbitration among the key stakeholders — the bar, the Bench, the
Arbitrators, arbitral institutions and the consumers of Arbitration and for them to demonstrate
an earnest dedication to avoid the banning of Arbitration. The burden of the past need to
plunge so that India, indeed, offers a striking Arbitration mechanism.
 Judicial Intervention in Arbitral Process Analysis Post Balco vs Kaiser Aluminium Case

REFERENCES

BOOKS
1. Alternate Dispute Resolution -P.C Rao & William Sheffield 1st edition

2. Law of Arbitration and Conciliation ,10 Feb 2007, by Avtar Singh

3. Textbook on Arbitration & Conciliation with Alternative Dispute Resolution1 July

2017, by Madhusudan Saharay

WEBLIOGRAPHY

1. https://www.slideshare.net/RanadeepPoddar/arbitration-notes

2. https://www.lawctopus.com/academike/arbitration-adr-in-india

3. https://www.legallyindia.com/Blogs/seat-of-arbitration

4. https://blog.ipleaders.in/issues-indian-judicial-system/
5. http://jurip.org/wp-content/uploads/2017/05/Vidula-Mehrotra/