August 25 2009
In Max India Ltd v General Binding Corporation the Division Bench of the Delhi High Court(1) upheld the decision of the single bench of the high court regarding the jurisdiction of Indian courts to grant interim relief in international commercial arbitrations.
Max India Ltd filed a petition under Section 9 of the Arbitration and Conciliation Act 1996 which sought to restrain General Binding Corporation (GBC) from implementing the terms of an agreement that it had entered into 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 follows:
"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 Center 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 (1) arbitrator mutually appointed by the Parties, failing which Max India shall be entitled to appoint one (1) arbitrator and GBC shall be entitled to appoint one (1) arbitrator and the two (2) 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 this clause, GBC filed an application challenging the Indian courts' jurisdiction to entertain the petition under Section 9 of the Arbitration and Conciliation Act.
While accepting GBC's plea, the single bench distinguished between the Supreme Court judgments relied upon by Max India in Laxman Prasad(2) and Venture Global(3) to invoke the Indian courts' jurisdiction. The single judge considered and clarified the Supreme Court decision in Bhatia International,(4) wherein it had been held that Part 1 of the Arbitration and Conciliation Act would apply to all arbitrations, including international commercial arbitrations held outside India, unless the parties by express or implied agreement excluded all or any of its provisions.
The single bench relied on the Supreme Court decision in ABC Laminart(5) when ruling that where parties to a contract agree to submit any dispute arising from the contract to a particular jurisdiction, it is unnecessary to use words such as 'alone', 'only' and 'exclusive'. When parties agree to specify the jurisdiction of one court, this implies the exclusion of other courts.
Since the parties had specifically agreed that in the event of disputes between the parties the Singapore courts would have jurisdiction, the contract would be governed in terms of Singapore law and the arbitration would take place in Singapore, the single judge concluded that the parties had specifically excluded the Indian courts' jurisdiction and had also agreed to exclude the application of Part I of the Arbitration and Conciliation Act.
Thus, the single judge dismissed Max India's petition under Section 9 of the Arbitration and Conciliation Act as not maintainable.
Max India challenged the decision before the division bench of the high court, which passed a detailed judgment upholding the decision of the single bench and dismissing Max India's appeal.
The decision of the high court division bench touched on a number of important concepts of the arbitration process.
Firstly, the purpose of the arbitral process is to ensure the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense. The parties are at liberty to agree on how their disputes will be resolved, subject only to such safeguards as are necessary in the public interest. Intervention by the courts should be restricted.
Secondly, international commercial arbitration is a hybrid: 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:
The high court relied on the Supreme Court decision in National Thermal Power Corporation,(6) holding that in an international commercial arbitration agreement the parties are at liberty to choose, expressly or by necessary implication, the proper or substantive law, as well as the applicable procedural law. In the absence of express choice, it is presumed that the law of the country where the arbitration is to be held will be the proper law. However, the parties' true intentions might refute this presumption. The high court observed that in the case at hand the parties had made express and specific provisions manifesting their "unmistakable intention".
The high court also observed that the maxim 'expressio unius est exclusion alterius' ('the expression of one thing is the exclusion of another') may be applied with respect to the Indian courts' jurisdiction, as the specific mention of Singapore law would exclude the application of Indian law.
In the present case not only the substantive law, but also the procedural law was chosen to be that of Singapore, and furthermore the arbitration forum was in Singapore and the Singapore courts had jurisdiction to decide on the matter. Where the parties had consciously chosen the applicability of Singapore law, by implication Indian law was excluded.
In Paragraph 32 of Bhatia International the Supreme Court provided a categorical answer to the issue at hand. The court applied the provisions of Part I of the Arbitration and Conciliation Act to the international commercial arbitration held outside of India, but provided however, that if the parties by express or implied agreement had excluded Part I of the Arbitration and Conciliation Act or any of its provisions, in such cases the laws chosen by the parties would prevail.
The high court also observed that the parties were not remediless, as the Singapore International Arbitration Centre Rules provide for interim measures by the arbitral tribunal and even the Singapore Arbitration Act, which was the applicable law in this case, gives specific powers to the Singapore courts to grant such interim measures.
Since the parties had decided that the Singapore courts would have jurisdiction, they were conscious of the fact that if any interim measure were needed, adequate remedy was provided in the Singapore International Arbitration Centre Rules, as well as the Singapore Arbitration Act. Even if the award were passed, it would be challenged in the Singapore courts, as the Supreme Court decision in Venture Global permits the challenge of mixed foreign awards under Section 34 of the act before the Indian courts due to the applicability of Part I of the act to international commercial arbitration held outside of India "unless any or all such provisions have been excluded by agreement between the parties, expressly or by implication".
The high court also discussed the principles of comity of jurisdictions and forum non conveniens ('inconvenient forum'). The principle of comity of jurisdiction, as recognized 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 cooperation, but it can also be a tool for exclusion. Forum non conveniens 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 these principles, it was concluded that the Singapore courts were an appropriate forum, even for the purpose of seeking an interim measure.
Accordingly, the high court held that the conclusion arrived at by the single bench was justified and dismissed Max India's appeal.
This decision clarifies the law laid down by the Supreme Court in Bhatia International and Venture Global with regard to the Indian courts' jurisdiction to grant interim relief in international commercial arbitrations. Where all four elements (ie, the law governing the contract, the rules governing the arbitration, the court's jurisdiction and the place of arbitration) are outside India and the parties' intention is unequivocally clear, this amounts to specific exclusion of the Indian courts' jurisdiction and the applicability of Part I of the Arbitration and Conciliation Act. The decision also confirms that it would be more appropriate for the party seeking relief to approach the court chosen by the parties in the contract instead of the Indian courts.
This decision sets an important precedent as it clarifies the competence of Indian courts to exercise jurisdiction in international commercial arbitrations and restricts judicial intervention in the arbitral process.
For further information on this topic please contact Tejas Karia at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500), fax (+ 91 11 2692 4900) or email (email@example.com).
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