Daniel Albuquerque juxtaposes two cases where the earlier ruling by the Supreme Court of India on commercial arbitration in 2002 became highly contentious across the business world. A decade later, the very same Court overruled itself by pronouncing an incredibly positive landmark judgment that won accolades
The Complementary Clauses
An arbitration is international if: (a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or (b) one of the following places is situated outside the State in which the parties have their places of business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or (c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country,” reads the UNCITRAL Model Law on International Commercial Arbitration, Article 1, Scope of application, Section 3.
Whereas the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985; and whereas the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. It is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid [UNCITRAL]Model Law and Rules, as per the Preamble of Arbitration and Conciliation Act, 1996.
The above clauses, complement each other in a way that the parent clause from the UNCITRAL finds its fulfilment in the Indian Arbitration and Conciliation Act, 1996.
Context: In the 1960s the international trade and commerce grew briskly and along with that the crop of disputes multiplied too. In order to remedy the problem, the United Nations General Assembly resolved to promote reforms. It advocated for a model law on arbitration for quick and amicable dispute settlement. Accordingly, United Nations Commission on International Trade Law (UNCITRAL) came into existence in 1966. However,
after almost a decade of the setting up of the Commission, the UNCITRAL Model Law and the Arbitration Rules were established in 1985, the former directed at the Member States and the latter to the parties to a dispute, respectively. Along with the scores of other countries India not only became a signatory to UNCITRAL but also enacted the Arbitration and Conciliation Act in 1996. It expressly mentioned it in the preamble of the Act. However, Indian courts have been wary and guarded when addressing the question of jurisdiction and territoriality. The following inquiry addresses the Indian legal conundrum: on the one hand the acceptance of the Model Law would compromise Indian Court’s jurisdiction, but on the other, the rejection would result in the repudiation by the international commerce and trade community.
Twin Cases that Made Commercial Arbitration History:
“Good judgement comes from experience. Experience comes from bad judgment.” This is the celebrated saying by Jim Horning (1942-2013), renowned US computer scientist whose PhD thesis was titled as A study of Grammatical Inference. Both in jurisprudence as well as in computer science the aim is to draw logical inferences as precisely as possible. In 2012, the Supreme Court of India, in a rarest of the rare cases, overturned its own ruling of 2002 concerning certain interpretation of the part of Indian Arbitration and Conciliation Act, 1996.
The Contentious Issue and its Settlement:
A) Bhatia International versus Bulk Trading S. A. & Others on 13 March, 2002, (popularly known as Bhatia Case). The main issue: The Supreme Court held that the Arbitration and Conciliation Act 1996 has interim as well as curative jurisdiction over the interim relief and remedy over foreign seated award.
B) Bharat Aluminium Co. versus Kaiser Aluminium Technical, on 6 September, 2012 (popularly known as BALCO Case). The main issue: The Supreme Court held that the Arbitration and Conciliation Act 1996 does not clash with the UNCITRAL Model Law concerning interim as well as curative jurisdiction over the interim relief and remedy over foreign seated award.
The Bhatia Case resulted in chaos. How to find legal remedy internationally if the arbitration relief and award are uncertain? Further, its outcome will be of impossibility to settle any dispute in such jurisdictional bewilderment and perplexity. However, to their defence the courts demonstrated that if the parties to the arbitration agreement expressly decide the seat of arbitration then the Indian courts would not interfere. Problems continued to pester with express and presumed situations.
With the advent of the BALCO Case the problem of the interpretation of the Act, 1996 was laid to rest. The Supreme Court of India reviewed its own stand that was settled in law and set a new precedent by accepting the UNCITRAL in its jurisprudence. Many expected the Court to make it retrospectively applicable post Bhatia Case. However, the Apex Court found it wiser to make it applicable prospectively, as is the norm.
Analysis
The analysis of the entire drama of arbitration failure followed by filing a suit in the courts and ending it in the apex court of the land may be surmised in the oft used wise saying, ‘penny wise and pound foolish’. Going in for arbitration to save time and money but actually ending up spending a fortune in courts of justice and ruining the business.
In the long journey of running businesses, disputes are unavoidable. Among the available means of conciliation and mending corporate relationships are negotiation, mediation, arbitration or whatever other form of dialogue to iron out differences and disputes should be adopted. Companies must use their own management expertise to solve the problems of dispute settlement.
The simple, yet most powerful problem solving management tool or formula is known as 5Ws+H whereby the following must be clearly and precisely laid out by the contracting parties:
1. WHO: Parties to the arbitration contract, arbitrators, agencies, courts.
2. WHAT: Clear statement of business, leaving no doubt for any odd direct or indirect interpretation.
3. WHEN: Concerning conditions such as time, situations, environment of dispute, disorders, breakdowns, Acts of God etc.
4. WHERE: Concerning determination of disputes settlement place, country, territory, arbitration authority – local or foreign.
5. WHY: Express intention, detailed agreement.
6. HOW: Concerning detailed method and procedures of settlement of disputes, manner in which concerned parties could find common ground through determination of language, measures to be taken to avoid litigation, agencies and consultants to contract.
A foolproof arbitration agreement proves the validity of the saying, ‘A stich in time saves nine.’ In the first instance the above tool will exclude the litigation in courts. Secondly, the parties to the dispute would not only maintain their reputation but also save time and money. Thirdly, the stakeholders at large would benefit not only the goods and services of the companies without additional costs that the companies intend to absorb which otherwise the customers would have to bear but also their taxes which would have to support the maintenance of the government’s legal machinery.
Conclusion
The Bhatia–BALCO cases have made a very controversial history and the opinions supporting and opposing are equally prevalent in the legal circles even to this day. The literature on both these cases has multiplied by leaps and bounds. Reputed judges and highly erudite lawyers have spent time and energy poring over the legal problems for several years. If it were to be turned into a movie it will involve huge number of people, the parties to the case, their lawyers, their various agencies both in India as well as other countries such as UK, France, the US etc., and the United Nations itself