India: Scope Of ‘Agreement To The Contrary' Under Proviso To Section 2(2) Of Arbitration And Conciliation Act, 1996

INTRODUCTION

The recommendation of the Law Commission of India in its 246th Report¹, culminated into the insertion of a proviso to section 2(2) of the Arbitration and Conciliation Act, 1996 ('Act'), according to which the provisions of section 9, 27, 37(1) (a) and 37 (3) are applicable to International Commercial Arbitrations; even where the seat of arbitration is outside India except those cases where there is an 'agreement to the contrary' between the parties. This proviso is, however, silent on whether such an agreement should be express or implied.

This conundrum, albeit, not a new one, is one which has not attained finality by way of judicial prescription, or clarified upon by the legislature. In light of the above uncertainty that surrounds the interpretation of the proviso to section 2(2), this contribution elaborates upon the scope of the expression 'agreement to the contrary' in the said proviso.

INTERPRETING THE INTENTION OF THE LEGISLATURE

The application of section 9 of the Act to an arbitration agreement and an award made under Part II is a fallout of the Apex Court's decision in Bhatia² which was overruled in BALCO³ only to be reinstated via the Recommendations of the Law Commission in August 2014. The Law Commission recommended the addition of the words: "Provided that, subject to an express agreement to the contrary, the provisions of section 9, 27, 37(1) (b) and 37(3) shall also apply to international commercial arbitrations...", as proviso to section 2(2) of the Act.⁴ However, the 2015 amendment did not include the word 'express' to the said proviso.

It is submitted that the exclusion of the word 'express' from the amendment of 2015 by the legislature, goes on to show that the draftsmen intended the proviso to mean both implied and express exclusion.

However, contrary to this, the 1996 Act prescribes party autonomy at all levels, which is apparent from the expressions- parties are "free to determine" or "agree"⁵ "Unless otherwise agreed by the parties"⁶, used in various provisions of the Act. Ergo, notwithstanding the fact that these provisions do not contain words like 'express' or 'only', their application is attracted only upon a clear expression of the parties' intention. Therefore, when harmonised with the provisions of the statute, it appears that it is redundant that the proviso to section 2(2) does not expressly state in clear terms if the 'agreement to the contrary' should be 'express' or can be 'implied'.

JUDICIAL DICTA: AN ANALYSIS OF JUDICIAL TRENDS

The apex court is yet to address the issue 'whether or not parties to a foreign seated arbitration agreement, have implicitly or explicitly excluded the applicability of sections 9, 27, 37 (1) (b) and 37 (3)', in the circumstances of the case. There is at the moment no determinative test to resolve this incertitude. There are however, conflicting decisions of different High Courts. The hon'ble Madras High Court in Archer Power Systems v. Kohli Ventures⁷ opined that an arbitration agreement with a foreign juridical seat and curial law is tantamount to an implied exclusion of not only Part I of the Act but also the operation of section 9. It is pertinent to note that a contributing factor to this ratio was that the arbitration agreement had expressly excluded the applicability of the Act to the proceedings. However, it is noted that the agreement was silent on the applicability of proviso to section 2(2) of the 1996 Act.

The hon'ble Bombay High Court on the other hand, in Heligo Charters v. Aircon Feibars⁸ and the hon'ble Himachal Pradesh High Court in Actis v. Tigaksha Metallics⁹ have held the inverse, for very similar arbitration agreements. The said decisions are in consonance with the decision of the hon'ble Delhi High Court in Raffles design¹⁰, in which, it was held that the designation of a foreign seat or choice of foreign curial law is not an implied exclusion of section 9 of the Act, in the context of proviso to section 2(2) of the 1996 Act.

Turning to recent judicial dicta, the hon'ble Madras High Court in Aapico Investment Pte. Limited and Ors. v. Manickam Mahalingam¹¹, while considering an arbitration agreement, in which the contract was governed by the laws of England and Wales and the parties had agreed that the SIAC Rules would apply (the venue and curial law was also of Singapore), held that under the terms of proviso to section 2(2); an agreement to the contrary must be specific and general terms regarding the laws governing the contract/ arbitration agreement cannot be construed as an 'agreement to the contrary'.

Also, the hon'ble Calcutta High Court, in the case of Medima LLC v. Balasore Alloys Limited¹² rendered a judgment dated 01.08.2021 in which a bench comprising of Justice Moshumi Bhattacharya was dealing with an arbitration agreement that provided for the substantive, curial as well as the law governing the arbitration agreement as British Law. The question before the bench was whether such an arbitration agreement can be seen as an 'agreement to the contrary' under the proviso to section 2(2) of the Act. The court, based upon the lack of an 'express' agreement to the contrary, allowed an application under section 9 of the Act.

AUTHOR'S ANALYSIS: A CRITICAL ENUNCIATION

The authors note that there is no litmus test to determine whether parties are required to exclude the application of sections 9, 27, 37(1) (a) and 37(3) in international commercial arbitrations expressly, or if the same can be inferred. The High Courts have, however, provided guidance towards the same.

It is submitted by the authors that most institutional arbitral rules, provide avenues for interim relief via emergency arbitrators, so the real question is whether it is still worth turning to courts for interim relief, especially in construction arbitrations. When it comes to cross-border construction disputes, enforcement is, more often than not, the single most important driver of the claimant's strategy. In certain jurisdictions, courts have the power to grant a world-wide freezing order. While such courts possess enviable powers with bite, the jurisdiction of certain courts, like that in India remains uncertain.

The authors note, in conclusion, that this controversy, is similar to the one that surrounded the application of Part I of the 1996 Act to international commercial arbitrations, which was brought to rest by the 2015 amendment. In the prevailing conundrum, should we again expect a similar intervention by the Apex Court, as was granted by the BALCO¹³, nudging the legislature to act upon and put to rest the controversy surrounding the proviso to Section 2(2) of the Act, regarding application of section 9, 27 and 37 to international commercial arbitrations?

Footnotes

1. Law Commission of India, Report No. 246, August 2014, 39.

2. Bhatia International v. Bulk Trading S. A. & Anr, Appeal (civil) 6527 of 2001 (Supreme Court of India).

3. Bharat Aluminium Co v. Kaiser Aluminium Technical Services, Civil Appeal No.7019 of 2005 (Supreme Court of India).

4. Law Commission of India, Report No. 246 (n.1).

5. Sections 10, 11,13,20,22.

6. Sections 21, 24, 25, 26, 29, 31, 33.

7. Archer Power Systems Pvt. Ltd. v. Kohli Ventures Ltd. & Ors., 2017 (4) CTC 449 (Madras High Court, 2017).

8. Heligo Charters Private Limited vs. Aircon Feibars FZE, 2018 (5) ArbLR 317 (Bombay High Court, 2018).

9. Actis Consumer Grooming Products Ltd. v. Tigaksha Metallics Pvt. Ltd. & Ors., Arb. Case No. 8 of 2018 (Himachal Pradesh High Court, 2020).

10. Raffles Design International India Pvt. Ltd.& Anr. v. Educomp Professional Education Ltd.& Ors. MANU/DE/2754/2016.

11. Aapico Investment Pte. Limited and Ors. vs. Manickam Mahalingam, MANU/TN/3922/2021 (Madras High Court).

13. BALCO (n. 3).

12. Medima LLC v. Balasore Alloys Limited, AP/267/2021 (Calcutta High Court).

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