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Legal landmark in dispute resolution.

Courts can't set aside international arbitration awards

IN A judgment that could have ramifications on resolution of disputes in business contracts, the Supreme Court ( SC) on Thursday held that Indian courts do not have jurisdiction to set aside foreign arbitration awards even if the subject matter of the dispute concerns property or business in the country.

A five- Judge Bench presided over by Chief Justice of India S. H. Kapadia stressed that the

SC overrules all earlier judgments on the issue

jurisdiction of Indian courts vis- a- vis oversees arbitration is limited to enforcement of the award passed.

With the court overruling all earlier judgments on the issue, no petition seeking to set aside foreign arbitration awards or questioning procedural lapses in arbitrations taking place outside the country would be entertained by domestic courts.

Therefore, Indian courts will have no jurisdiction even if the dispute concerned two domestic companies and the arbitration is held abroad. However, courts will have jurisdiction to set aside an award or look into procedural lapses if two foreign companies arbitrate in India under a foreign arbitration act.

The ruling, however, will be

applicable prospectively to arbitration agreements executed hereafter. Disputes between two companies governed by arbitration agreements entered into prior to this judgment would be governed by the earlier rulings.

Justice S. S. Nijjar, who wrote the judgment on behalf of the Bench, said that applicability of Part I of the Arbitration Act, 1996-- which concerned supervisory jurisdiction over arbitration-- is limited to arbitrations taking place in the country. Part II, which concerned enforcement of arbitration decisions/ awards, is applicable even to awards passed in arbitration proceedings held outside the country.

The court said that no suit for interim injunction or matters concerning merits of the arbitration could be filed in India if arbitration is being held aboard. " The only relief that could be asked for would be to safeguard the property which the plaintiff may or may not be entitled to proceed against," the court said.

Disposing of a batch of appeals,

the court said that it does not agree with conclusions recorded in judgments delivered by the court in the 2002 Bhatia International and 2008 Venture Global Engineering cases.

Interpreting the Act, the court said it is of the opinion that Parliament had accepted the " territorial principle" adopted in the United Nations Commission on International Trade Law model law.

The court stressed that matters concerning the process of dispute resolution could only be decided by courts having supervisory control over arbitration proceedings. " Hence, it refers to a court which would essentially be a court of the seat ( country) of the arbitration process," it added.

Buttressing its argument, the SC pointed to the benefit of conferring jurisdiction on a court located at a place other than where the subject matter of dispute lies. " This was necessary as on many occasions, the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties," the court said.

Ruling will be applicable prospectively to arbitration agreements

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Publication:Mail Today (New Delhi, India)
Geographic Code:9INDI
Date:Sep 7, 2012
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