October 18 2011
In its recent decision in Yograj Infrastructure Ltd v Ssang Yong Engineering and Construction Co Ltd(1) the Supreme Court ruled that in an international seated arbitration governed by an international arbitral institution (eg, the International Chamber of Commerce or the London Court of International Arbitration), Section 42 of the Indian Arbitration and Conciliation Act 1996 was applicable only at the pre-arbitral stage, when an arbitrator had not been appointed. The court further held that once the arbitrator had been appointed and arbitral proceedings had commenced, the institutional rules become applicable, thus shutting out the applicability of both Section 42 in particular and Part I of the act as a whole.
On April 12 2006 the National Highways Authority of India awarded a contract to Ssang Yong Engineering and Construction Co Ltd, a Korean company, for a project in the state of Madhya Pradesh. Thereafter Ssang Yong engaged Yograj Infrastructure Ltd, an Indian subcontractor, to carry out the work in question.
Clauses 27 and 28 of the agreement between the parties provided for arbitration, stating that while the agreement was subject to the laws of India (ie, the Arbitration Act), any arbitration proceedings arising from the agreements would be conducted in Singapore, in accordance with the Singapore International Arbitration Centre (SIAC) Rules.
A dispute arose on September 22 2009 when Ssang Yong issued a notice terminating the agreement on the grounds of delays in performing the necessary work.
On receiving the notice of termination, Yograj filed an application under Section 9 of the act before the district and sessions judge, Narsinghpur, Madhya Pradesh, requesting interim relief. Yograj filed a second application on the same grounds before the same court on December 30 2009. On May 20 2010 the dispute between the parties was referred to arbitration (under the terms of the agreement) and a sole arbitrator was appointed by the SIAC.
On June 4 2010 Yograj filed an application before the sole arbitrator for interim protection under Section 17 of the act. On June 5 2010 Ssang Yong filed a similar application before the sole arbitrator for interim relief under Section 17 of the act. After considering both applications, the arbitrator passed an interim order on June 29 2010.
Aggrieved by the order passed by the arbitrator, Yograj filed an appeal before the Narsinghpur district judge under Section 37(2)(b) of the act, requesting that the said order be set aside. In response, Ssang Yong contended that an appeal before an Indian court was not maintainable since the seat of the arbitration was Singapore and the said proceedings were governed by the laws of Singapore. Accepting Ssang Yong's submissions, the district judge dismissed the appeal as not maintainable. Yograj appealed before the High Court. When this appeal was also rejected, Yograj filed a Special Leave Petition before the Supreme Court.
Yograj argued that the Indian act was the applicable law of the arbitration - Clause 28 of the agreement provided that the agreement would be subject to the laws of India and that, during the period of arbitration, the performance of the agreement would be carried out without interruption and in accordance with its terms and provisions. Therefore, having explicitly agreed that the agreement would be subject to the laws of India, the law applicable to the arbitration would be Indian law and all interim measures sought to be enforced would necessarily have to be in accordance with Sections 9 and 37(2)(b) of the act. Yograj further contended that the provisions of the SIAC Rules would apply only to the arbitration proceedings and not to appeals related to such proceedings. Furthermore, it argued that the right to appeal an interim order under Section 37(2)(b) was a substantive right provided under the act and not governed by the SIAC Rules.
Yograj further submitted that under Section 42 of the act, the Narsinghpur District Court (before which the application under Section 9 of the act was filed) had jurisdiction over the arbitral proceedings at all stages. In reply, Ssang Yong submitted that the parties had agreed that the seat of arbitration would be Singapore and that the arbitration proceedings would be continued in accordance with the SIAC Rules, as under Clause 27.1 of the agreement. It had also been agreed that the proper law of the agreement would be Indian law, but the proper law of the arbitration would be Singapore law. Ssang Yong therefore submitted that as the application under Section 9 of the act was filed before the district court before the date of invocation of the arbitration proceedings and before the curial law (ie, the Singapore law) became operative, the Indian act would not apply to the arbitration proceedings, which would instead be governed by Singapore law.
The Supreme Court held that there was no ambiguity that the SIAC Rules would be the curial law of the arbitration proceedings. Furthermore, as the parties had specifically agreed that the arbitration proceedings would be conducted in accordance with the SIAC Rules, the precedent set by the decision in Bhatia International v Bulk Trading SA(2) and similar subsequent decisions would not apply in the case under consideration, as the parties had willingly agreed to be governed by the SIAC Rules.
The court further held that Section 42 of the act was applicable only at the pre-arbitral stage, when an arbitrator had not yet been appointed. However, once the arbitrator had been appointed and the arbitral proceedings had commenced, the SIAC Rules became applicable, thus shutting out the applicability of Section 42, and for that matter the whole of Part I of the act, including the right of appeal under Section 37.
The Supreme Court adopted a positive approach by distinguishing its ruling from decisions in Bhatia International and Venture Global v Satyam Computer,(3) holding that since the seat was outside India, Part I would not apply in view of Section 2(2) of the act. This makes international arbitration friendlier for parties who, despite having chosen a foreign seat of arbitration and foreign institutional rules to govern their proceedings, have in the past been subjected to prolonged court litigations in India. The decision also upholds the powers and autonomy of arbitrators to decide on interim reliefs pending the final award, thereby limiting the scope of judicial intervention by recourse to appeals in Indian courts against interim orders passed by foreign seated arbitral tribunals.
For further information on this topic please contact Ciccu Mukhopadhaya or Omar Ahmad at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500), fax (+ 91 11 2692 4900) or email (firstname.lastname@example.org or email@example.com).
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