In a landmark judgment passed by a constitutional bench of the Supreme Court of India on 6th September 2012, in the case, inter alia, of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (hereinafter “the Judgment” for sake of brevity), it has been held that (i) Part I of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act” for brevity sake) does not apply where the seat (place) of arbitration is outside India; (ii) Part I of the Act will not apply to international commercial arbitrations, where the seat of arbitration is outside India; (iii) Part I of the Act applies only to arbitrations where the seat of arbitration is in India; (iv) Awards in international commercial arbitrations where the seat of arbitration is outside India would only be subject to the jurisdiction of Indian Courts when they are sought to be enforced in India in accordance with Part II of the Act; (v) in a foreign seated international commercial arbitration no application for interim relief will be maintainable under Section 9 of the Act or any other provision, as Part I of the Act is limited to arbitrations which take place in India; (vi) no suit for injunction simplicitor is maintainable in India on the basis of an international commercial arbitration where the seat of arbitration is outside India.

Until now, the law on the applicability of Part I of the Act was laid down in Bhatia International Ltd. v. Bulk Trading S.A. and Anr. [Reported in (2002)4SCC 105].

The Supreme Court, in the case of Bhatia International, had held that (i) the provisions of Part I of the Act apply to all arbitrations and to all proceedings relating thereto; (ii) where such arbitration is held in India, Part I of the Act will compulsorily apply and the parties are free to deviate only to the extent permitted by the derogable provisions of Part I; (iii) in cases of international commercial arbitrations held outside India, provisions of Part I of the Act apply unless the parties have by agreement, expressly or impliedly, excluded the applicability of all or any of the provisions, in which case the law/rules chosen by the parties will apply.

Accordingly, as per the Judgment in the case of Bhatia International (unless the parties had excluded the applicability of Part I of the Act) even in international commercial arbitrations taking place outside India, the parties could apply to an Indian Court for interim reliefs under section 9 of the Act. Further (unless the parties have excluded the applicability of Part I of the Act) a party to such arbitration could also challenge an Award passed therein under Section 34 of the Act. Non-Indian parties were not comfortable with this position. Intervention by Indian Courts in the arbitration process was viewed by many such parties as an impediment to a speedy resolution of the dispute, which is the very purpose for which law relating to arbitration was enacted.

The Judgment overrules the decision of Bhatia International and reverses the interpretation of section 2 (2) of the Act, making Part I of the Act applicable only to arbitrations which take place within India.

Now, by virtue of the Judgment, irrespective of specific exclusion, Part I of the Act will have no applicability in international commercial arbitrations that take place outside India. Intervention by an Indian Court under Section 9 of the Act or a challenge of an Award under Section 34 of the Act, in such cases, is no longer possible. An Indian Court can now only come into the picture in case a party to such arbitration chooses to enforce the Award in India in accordance with Part II of the Act. In such event, the other party can prevent enforcement of the Award in India, only if such party proves the existence of certain specific conditions specified in Section 48 of the Act (which falls under Part II of the Act).

The law now declared by the Supreme Court in the Judgment shall be applicable prospectively to all the arbitration agreements executed after the date of the Judgment (i.e. 6th September 2012). For arbitration agreements entered into before the said date, the law laid down in the case of Bhatia International will continue to apply.