The much-awaited judgement in 

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.

(hereinafter referred to as “BALCO”) laid down clearly that part I of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as “the Act”) does not apply to foreign seated international
commercial arbitrations. It reduced intervention by Indian courts, respected party autonomy and
jurisdiction of the arbitral tribunals and also acted incoherence to the principle of territoriality. 

However, a negative implication also emanated from the judgement, that parties to any foreign seated
arbitration could not claim any remedy under Part I of the Act, via interim measures by a court
under Section 9, this would render parties remediless in times of need. Parties to foreign seated
arbitrations would also have a hard time remedying/modifying the agreements entered into prior to the
incoming of the BALCOjudgement. The journey to the BALCO judgement, its implications and
aftermath are discussed in the article below. 

Bhatia International V. Bulk Trading S.A

The precursor to BALCO in regard to the principal of territoriality was the Bhatia Intenational v. Bulk
Trading S.A, (hereinafter referred to as “BHATIA”) which ruled in favour of the applicability of Part 1 to
even those arbitration proceedings where the seat of arbitration was outside India. In the said case,
the Hon’ble Supreme Court held that in cases of arbitration, including International Commercial
Arbitration held in India, Part I of the Act would apply squarely, with the exception of certain derogable
provisions, (which Section 9 is not) which parties can mutually agree to derogate from. For an
arbitration having its seat outside India, Pt. II would apply (except the derogable provisions which the
parties mutually agree to derogate from) in addition to the provisions of Pt. I, which the parties do not
mutually agree in their arbitration agreement to derogate from. 

The Act had sought reference from the Model Law. The provision analogous to section 2(2)of the
Act contains the word ‘only’ in the Model Law in Article 1(2) of the latter. Sections 2(2) of the
Act provides that Part I will apply where the place of arbitration is in India. The said judgment held that
the omission of ‘only’ from section 2(2) of the Act was evidence of the intent of the Indian legislature to
permit Part I of the Act to apply to arbitrations seated even outside India. Sections 2(4) of the Act
provides that Part I shall apply to ‘every’ arbitration. Section 2(5) states that Part I shall apply to all
arbitrations and to all proceedings relating thereto. On a conjoint reading of the aforementioned
provisions, the court held that an interpretation consistent with all the said provisions is that Part I of
the Act applies to all arbitrations.

However, this judgement received criticism from world over for the municipal courts having exhibited
an interventionist approach to the arbitral process, and thereby having affected arbitral autonomy in
the negative.

The BALCO judgement

In BALCO, a two-judge bench of the Supreme Court expressed reservations about the decision in
BHATIA and referred the matter to a three-judge bench of the Supreme Court that included the Chief
Justice of India. The matter was ultimately referred to a 5 judge-bench. Considering the significance of
the subject matter in question, the court also invited amicus curiae briefs from leading arbitral
institutions operating in India.

Exclusion of the word ‘only’

The court held that S.2(2) of the Act is to be construed as a clarifying provision of application of the
law, and not as an enabling provision as was held in the BHATIA case. Further, it held that S.2(2) was
a legislative declaration of the doctrine of territoriality, and to apply Part 1 to foreign seated
arbitrations is to misconstrue S.2(2). The court opined that the absence of the word ‘only’ did not imply
that the Indian legislature intended to make Part I applicable to even foreign seated arbitrations. The
Hon’ble Supreme Court settled the law by ruling that Part I of the act applies to only arbitrations with
their seat in India. 
Reason to exclude the word ‘only’

The origin of the word “only” in  Article 1(2) of the Model Law can be traced from the deliberations
held on the scope of application of Article 1 in the 330th meeting, June, 1985 of UNCITRAL. The
cause for inclusion of the word “only” in Article 1(2) was discussed in the said meeting. Article
1(2) enumerates certain exceptions i.e. exceptions relating to Articles 8, 9, 35 & 36 

Article 8 being for stay of judicial proceedings covered by an arbitration agreement; Article 9 being for
interim reliefs; and Articles 35 & 36 being for enforcement of Foreign Awards. 

The word “only” was included in order to clarify that except for Articles 8, 9, 35 & 36 which could have
extra territorial effect if so legislated by the State, the other provisions would be applicable on a strict
territorial basis. The UNCITRAL Model Law is a guiding law for reference for all states to adapt from,
therefore, the word “only” is mandatory for all other provisions barring case the provisions with regard
to interim relief etc, in Section 2(2) of the Act, which could have extra-territorial application only if the
state legislature so intended. 

The court here opined that since no express exception was carved out for the provision of interim
relief by a municipal court in a foreign seated arbitration, like there is in the Model Law, no provision of
Part I, including the provision for interim measures by a domestic court, (S.9 of the Act) shall apply to
foreign seated arbitrations. 

Downsides of BALCO 
The much-glorified BALCO judgment; interestingly also has a number of downsides to it. The result of
the court’s finding is that the party against whom the arbitral ward is made, is rendered essentially
remediless if such party has its assets situated in India. In addition to it, the benefit of this judgement
can be availed only prospectively, i.e it excludes retrospective application.

No Interim Reliefs available to the Parties 

By the judgment of the Apex Court in BALCO, the provisions of Part I of the Act, including the power
of the Court to grant interim relief under section 9 of the Act, were made inapplicable to the
international commercial arbitrations having their seat outside India, in addition to which, the Court
has also held that a separate inter-parte suit solely for an interim relief in an arbitration pending
outside India would be unmaintainable as per the Code of Civil Procedure; in the dearth of a provision
which could cater to such a situation. Further, the court also rejected the contention that parties would
be rendered remediless in such a scenario, while opining that parties were free to seek appropriate
remedies in their chosen jurisdiction.

The exclusion of the interim relief provisions is far from acting in furtherance of the arbitral process
and au contraire, defeats it. In respect of foreign seated arbitrations, where the subject matter of the
dispute is situated in India, no party can now seek any interim relief under Part I of the Act. 

In such foreign seated arbitrations where the subject matter of the dispute is situated in India, this
exclusion of interim relief under the Act could specifically prove detrimental to the arbitral process. In
such an event, purpose of the arbitration proceedings may get defeated even if a favourable award is
passed, as the party against whom the award has been passed, if it has assets in India, can during
the pendency such arbitration, dispose of such assets with a view to defeat any award that may be
made against such party outside India. 

Prospective Application
The application of the principles laid down in the said judgement would be made applicable to the
arbitration agreements executed on or after 7th September, 2012. Prima facie, it might not appear to
be troublesome, but in exercise of prudence and basic farsightedness, the parties who have executed
arbitration agreement(s) on or prior to 6th September, 2012, providing for foreign seated international
commercial arbitrations, would be required to repeat the cumbersome process of reviewing  all such
arguments in the light of the rulings in the BALCO Case and amending the agreement(s), if required,
to avoid any ambiguity.

Conclusion
The BALCO judgement put forth a pro-arbitration stance by letting go of the interventionist approach
held by the Indian judiciary until then and opined in furtherance of arbitral autonomy. It also had
several downsides too; be it lack of any interim relief in foreign seated arbitrations or excluding
retrospective application of the judgment. These downsides could have the ill effects of unrighteous
disposal of the subject matter of arbitration and confusion as to execution of arbitration agreements,
as is explained above.

The 2015 Amendment Act, however, compensated for some of the shortcomings in BALCOby adding
a proviso to S.2(2) of the Act which laid down that the provision for interim relief by the court (S.9)
shall be applicable to even foreign seated arbitrations.

__
On 6 September 2012, the Indian Supreme Court delivered its much-awaited judgment in Bharat
Aluminium Co v. Kaiser Aluminium Technical Services (‘BALCO’). For the reasons discussed in detail
below, the 190-page long BALCO decision is likely to go down in the annals of arbitration reports as
the watershed decision that heralded a new dawn for Indian arbitration.
The broad thrust of the BALCO decision is to protect the future from the erroneous and anachronistic
decisions of the past and, consistent with underlying philosophy and ethos of the New York
Convention and UNCITRAL Model law, exhort Indian courts to become more arbitration-friendly and
thereby less prone to intervene in the arbitral process. To this end, BALCO certainly lives up to the
buzz and hype created in the international arbitration community after news broke out earlier this year
that the Indian Supreme Court was hearing a case that sought a reconsideration of its earlier
decisions in Bhatia International v. Bulk Trading SA1) (‘Bhatia’) and Venture Global Engineering v.
Satyam Computer Services Ltd2) (‘Venture Global’).
Overruling the Bhatia and Venture Global decisions
Readers are likely to be familiar with the problems caused by the much-criticised Bhatia and Venture
Global decisions. Although the Indian Arbitration and Conciliation Act, 1996 (‘the 1996 Act’) is based
on the UNCITRAL Model Law, on a clearly erroneous statutory construction of the 1996 Act, the
Indian Supreme Court in these decisions assumed that, unless the parties expressly or implied
agreed to the contrary, the Indian courts had jurisdiction with respect to foreign-seated arbitration akin
to their curial jurisdiction with respect to arbitrations seated within India under Part I of the 1996 Act.
Based on this flawed analysis of the 1996 Act, Indian courts had hitherto asserted their jurisdiction to
grant interim measures in aid of foreign-seated arbitrations (Bhatia) and even set-aside awards made
pursuant to foreign-seated arbitrations (Venture Global).
The Indian Supreme Court in BALCO has now unequivocally overruled Bhatia and Venture Globalon
the basis that Part I of the 1996 Act does not apply to foreign-seated arbitrations. This conclusion
principally stems from two fundamental propositions that the court underscored in its judgment viz. (i)
the application of the UNCITRAL Model Law was intended to be limited to the territorial jurisdiction of
the seat of arbitration i.e. the territoriality principle and (ii) the seat of the arbitration is the ‘centre of
gravity’ of the arbitration and therefore a choice of a foreign-seated arbitration by the parties ordinarily
meant that the parties also agreed to the application of the curial law of that foreign country.
The court considered that an acceptance of the statutory construction of the 1996 Act espoused in
the Bhatia and Venture Global decisions was tantamount to giving extra-territorial application to the
1996 Act, which was not the intention of the Indian Parliament when it enacted this law.
The legal consequences of overruling Bhatia and Venture Global
From a doctrinal perspective, there are several consequences that flow by dint of
the Bhatia and Venture Global decisions being discredited by the Indian Supreme Court in
the BALCO decision.
(1) First, it is now plain that Indian courts should not assert jurisdiction in matters concerned with, in
particular, (i) the grant of interim remedies in aid of foreign-seated arbitrations purportedly pursuant to
section 9 of the 1996 Act; (ii) the making of default appointment of arbitrators in foreign-seated
arbitrations purportedly pursuant to section 11 of the 1996 Act; and (iii) applications to set aside
foreign awards purportedly pursuant to section 34 of the 1996 Act.
(2) Secondly, insofar as the Indian court’s jurisdiction will no longer depend on its attempt to divine the
express or implied intentions of the parties, it will accordingly not be necessary for parties to expressly
exclude the application of Part I of the 1996 Act in arbitration agreements that provide for foreign-
seated arbitration on or after 6 September 2012. Following the Bhatia and Venture Global decisions,
this had become a standard drafting practice for parties who wanted minimal intervention from the
Indian courts with respect to their contracts that involved at least one Indian party and contained a
foreign-seated arbitration clause.
(3) Thirdly, it has been made abundantly clear in BALCO that the Indian courts will also not have
jurisdiction to entertain an ordinary civil suit filed under the Code of Civil Procedure for the purpose of
seeking interim relief in aid of foreign-seated arbitrations. This is because such interim relief is not a
substantive cause of action so as to warrant the institution of a civil suit under Indian law.
Interestingly, the position under Indian law now appears to the same as it was under English law
(see Siskina (Cargo Owners) v. Distos Compania Naviera SA[ [ [1979] ] AC 210.]) and Singapore law
(see Swift-Fortune Ltd v. Magnifica Marine SA[ [ [2007] ] 1 SLR 629.]) prior to supervening legislation
being enacted in those two countries to specifically redress this issue.
(4) Finally, Part I of the 1996 Act will continue to apply to all arbitrations (i.e. domestic and
international) seated in India. In arbitrations seated in India, the Indian courts, in their capacity as the
supervisory courts at the seat of arbitration, will have broad jurisdiction under Part I of the 1996 Act to
supervise and support the arbitral process (including the power to set aside an award made pursuant
to such arbitration).
BALCO represents a paradigm shift away from the pre-1996 arbitral jurisprudence
Quite apart from the legal consequences discussed above, there is another important aspect of
the BALCO decision that needs to be underscored. This is the refreshing manner by which the Indian
Supreme Court has embarked on a direct inquiry as to the intention and purpose behind the relevant
provisions of the UNCITRAL Model Law and the New York Convention, as discernible from
the travaux préparatoires, in addition to appreciating how those operative provisions are understood in
several other jurisdictions.
This is an important development because it represents a paradigm shift away from its previous case-
law and practice. The apex court’s willingness to do so, in fact, resoundingly conveys the message
that Indian courts will no longer hesitate to be directly guided by the terms of the relevant international
conventions, as they are understood internationally, and, if the need arises, construe Indian legislation
in conformity with the same. This is all the more significant in view of the fact that, even now, one of
the major hurdles that arbitration users face in India is the Indian courts’ difficulty in being able to
adapt and transition to arbitrations governed by a law based on the UNCITRAL Model Law, despite it
being enacted in 1996.
For over five decades prior to 1996, Indian arbitration was governed by the Arbitration Act of 1940
(‘the 1940 Act’) which was based on even older English statutes of Victorian vintage. The dilatory and
inefficient conduct of arbitrations under the 1940 Act laced together with the excessive intervention of
the courts made an Indian Supreme Court judge famously remark once that:
‘[The 1940 Act] has made lawyers laugh and legal philosophers weep. Experience shows and law
reports bear ample testimony that the proceedings under the [1940] Act have become highly technical
accompanied by unending prolixity, at every stage providing a legal trap to the unwary.’ 3) (emphasis
supplied)
That the arbitration culture and mindset prevalent under the pre-1996 arbitration regime has
permeated and coloured the working of the 1996 Act is itself evident from the flawed analysis set out
in the Bhatia and Venture Global decisions, as I explain below.
Prior to the enactment of the 1996 Act, the Indian Supreme Court decided in  National Thermal Power
v. Singer Company4) (‘Singer’) that a foreign award could be set aside by the Indian courts in the
event that the arbitration agreement between the parties was governed by Indian law. Although this
decision could have been narrowly based on a statutory carve-out under the pre-1996 arbitration
regime (which has been expressly omitted in the 1996 Act), the court in Singerwent much further.
It reasoned that though the contract, in that case, provided for ICC arbitration in London, the
governing law of the contract was Indian law and therefore, in the absence of an unmistakable
intention to the contrary, the law applicable to the arbitration agreement was Indian law as well.  Ex
hypothesi, the court considered that although the parties could in theory, either expressly or impliedly,
make a choice as to the curial law, the jurisdiction of the Indian courts was concurrent with the
jurisdiction of the English courts with respect to curial matters (including the determination of an
application to set aside the ICC award made in London). This was on the mistaken basis that since
the law applicable to the arbitration agreement was Indian law, it necessarily followed that Indian
courts had ‘jurisdiction over all matters concerning arbitration.’
Instead of clearly departing from the erroneous analysis set out in Singer after the commencement of
the 1996 Act, the Bhatia and Venture Global decisions took it to one step further by asserting that
Indian courts had jurisdiction with respect to foreign-seated arbitrations involving an Indian party
under Part I of the 1996 Act, regardless of the governing law of the contract. To the extent that these
decisions are now overruled, the BALCO decision has definitively broken the shackles of the
arbitration culture and mindset prevalent under the pre-1996 arbitration regime.
Post-BALCO landscape: The challenges that lie ahead
Whilst the BALCO decision provides the necessary impetus to enable the Indian courts to make a
fresh start, there are several serious issues that will need to be dealt with by the Indian courts in the
aftermath of that decision.
The foremost concern arises from the fact that the BALCO decision will apply prospectively i.e. only to
arbitration agreements which are concluded on or after 6 September 2012. This effectively means that
Part I of the 1996 Act will continue to apply to foreign-seated arbitrations with respect to arbitration
agreements concluded prior to that date, unless the parties have either expressly or impliedly agreed
otherwise.
The doctrine of prospective overruling is a tool that has been applied on several occasions in the past
by the Indian Supreme Court. The classic cases, which ordinarily warrant its application, are cases
where the court has decided to invalidate a constitutional amendment 5) or a statutory enactment6) but
considers that gravely unfair or disruptive consequences would follow from such invalidity if past
transactions were not immune from judicial scrutiny.
Even if one were to gloss over the fact that the Indian Supreme Court has not invalidated a
constitutional amendment or statutory enactment in the BALCO decision (but rather its own previous
rulings), the question still arises which particular past transactions need judicial immunity so that
gravely unfair or disruptive consequences would not follow from the overruling of
the Bhatia or Venture Global decisions.
As explained above, the Bhatia or Venture Global decisions enabled Indian courts to assert
jurisdiction with respect to foreign-seated arbitrations involving an Indian party, unless the parties had
expressly or impliedly agreed to the contrary. Seen in that light, it is important to note that these
decisions did not affect the validity of foreign-seated arbitration clauses involving an Indian party. With
respect, it is thus a non-sequitur to argue that by overruling these decisions, such foreign-seated
arbitration clauses would be somehow susceptible to being invalidated as well. On the contrary, the
only past transactions that were susceptible to being invalidated in the wake of the BALCO decision
were court proceedings (either pending or those having attained finality) commenced in India on the
basis of the Bhatia or Venture Global decisions. Accordingly, the BALCO decision should have been
applied prospectively to the commencement of any proceedings in India rather than the execution of
any new arbitration agreements.
This is, in fact, likely to become a contentious issue in the future. Given the significant delays in court
proceedings in India and the fact that it is not uncommon to obtain a final decision only after litigating
there for at least 7 to 10 years, the BALCO decision effectively means that despite Bhatiaand Venture
Global being expressly overruled, those precedents will ironically continue to guide the Indian courts
for another decade or so with respect to arbitration agreements entered into prior to 6 September
2012. Unless the Indian Supreme Court subsequently backpedals on this issue, to the extent I
discussed above, there is likely to be a lot of confusion created in any attempt made by the Indian
courts to maintain two parallel regimes for the next decade or so.
Another major issue arises from the fact that, besides the Bhatia and Venture Global decisions, there
are still several other previous decisions of the Indian Supreme Court that remain good law and which
can potentially create problems in international arbitrations involving Indian parties.
For example, the BALCO decision did not have occasion to consider the broad ‘public policy’ doctrine
enunciated in ONGC v. Saw Pipes7) and its applicability as a standard to challenge the enforcement of
foreign awards in India. Significantly, the Indian Supreme Court recently applied this standard whilst
deciding a case concerning the enforcement of a Russian Chamber of Commerce and Industry award
made in Moscow.8) Although the challenge did not succeed on the merits of the case, this ruling does
create a disconcerting precedent.
The BALCO decision also does not affect the judicial rule, endorsed by the Indian Supreme Court, to
refuse to refer a matter to arbitration where either a serious allegation of fraud has been made or
there are complicated questions of fact or law that require extensive oral or documentary
evidence.9) The Indian courts consider that, in such circumstances, it is inapposite to refer the
disputes to arbitration and will accordingly retain jurisdiction to decide such cases. Although, there are
no known reported cases where an Indian court has refused to refer matters to international
arbitration on the basis of such a rule, nothing prevents a court from refusing to do so in the future
unless this rule is overruled or deemed to be not applicable to international arbitration.
Finally, even after the BALCO decision, it remains arguable on the basis of the decision of the Indian
Supreme Court in TDM Infrastructure Private Limited v. UE Development India Private Limited 10) that
it is inconsistent with Indian public policy for an Indian incorporated entity to contract out of the
application of Indian substantive law in a contract that it enters into with another Indian incorporated
entity. This is despite the fact that such a contract may contain a foreign-seated arbitration clause.
Accordingly, in the event that two Indian incorporated entities wish to enter into a contract that
provides for a foreign-seated arbitration, it still remains prudent to stipulate Indian law as the
governing law of such a contract.
Conclusion
These aforesaid decisions make it plain that the BALCO decision is not the panacea for all the ills
associated with arbitration in India but certainly a good starting point by the Indian Supreme Court in
the right direction. Whilst there will be, no doubt, a long and arduous path ahead, fraught with difficult
legal and policy challenges, before India can truly be considered an arbitration friendly jurisdiction,
the BALCO decision inspires hope that a new and promising era has begun for arbitration in India.