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SECTION 9 POST BALCO

1. INTRODUCTION

This paper deals with the applicability of Section 9 which deals with the power of Court to
pass interim measures. The applicability of Section 9 primarily depends on the applicability
of Part I of the Arbitration and Conciliation Act, 1996. The meat of the matter in Bharat
Aluminium Company and Ors. etc. etc. v. Kaiser Aluminium Technical Service, Inc. and
Ors.1(hereinforth BALCO) was whether Part I would apply to arbitrations which take place
outside India. The position prior to BALCO which was laid down in Bhatia International v.
Bulk Trading S.A. and Anr.2(hereinforth BHATIA) was that Part I would compulsorily apply
to all arbitrations held in the territory of India and in cases of international commercial
arbitrations held outside the territory of India it would be the discretion of the parties to
exclude the applicability of Part I or any provision through the arbitration agreement.
However, if the agreement remains silent on the applicability of a certain provision then such
provision shall apply to the arbitration.

2. APPLICABILITY OF PART I OF THE ARBITRATION AND CONCILIATION ACT,


1996

2.1 THE LAW

Section 2(2) of The Arbitration and Conciliation Act, 1996 says:-

This Part shall apply where the place of arbitration is in India

2.1.1 Position Pre BALCO

The Supreme Court in BHATIA found this to be an optional provision wherein Part I applied
to all arbitrations unless it was expressly or implicitly excluded.

2.1.2 Position Post BALCO

Overruling BHATIA the court held that Part I of the Arbitration Act, 1996 is applicable only
to all the arbitrations which take place within the territory of India.

1
Bharat Aluminium Company and Ors. etc. etc. v. Kaiser Aluminium Technical Service, Inc. and Ors.
(2012)9SCC552.
2
International v. Bulk Trading S.A. and Anr. (2002)4SCC105.
2.2 REASONING BEHIND THE INTERPRETATIONS

2.2.1 Exclusion of the word only

Section 2(2) of the Arbitration and Conciliation Act, 1996 which states that This Part [Part I]
shall apply where the place of arbitration is in India, did not include the world only akin to
Article 1(2) of the Model Law. The Court in BHATIA found this to be an optional provision
wherein Part I applied to all arbitrations unless it was expressly or implicitly excluded. The
court in BALCO held that this was not a case of casus omissus but the territoriality principle
of arbitration still applied.

Overruling BHATIA the Court held that the word only in the Model Law was meant to
limit extra-territoriality to Articles 8, 9, 35 and 36. Since the Indian Act did not make scope
for such extra territoriality, it was deemed redundant to include it in the legislation. Having
over-ruled BHATIA the Court finds that Part I and Part II are two independent pieces of
legislation and there is complete segregation between the two.

2.2.2 Territoriality principal

Recognising the territoriality principal The Court in BALCO held that:

Parliament by limiting the applicability of Part I to arbitrations


which take place in India has expressed a legislative declaration. It
has clearly given recognition to the territorial principle. Necessarily
therefore, it has enacted that Part I of the Arbitration Act, 1996
applies to arbitrations having their place/seat in India.

2.2.3 No law for non-convention countries

Considering Part I apply to international arbitrations located in India and Part II applies to
awards rendered under the New York Convention the Court was faced with a lacuna. In
BHATIA the Court held that Part I would apply to arbitral awards made in non-convention
countries or else a party would be left remediless. In BALCO the Court reverses this finding
and admits that the Act leaves a lacuna for enforcement of non-convention awards. The court
relying on the observation made by Lord Simonds in Magor and St. Mellons v. Newport
Corporation3 held:

If the gap or lacuna is disclosed, it would be for the Parliament to


rectify the same. Such a task cannot be undertaken by the Court.

Post BALCO Indian arbitration law makes no provision for enforcement of such awards.
Hence non New York Convention awards or non Geneva Convention awards will not be
enforceable in India.

3. POWERS OF THE COURT TO GRANT INTERIM MEASURES UNDER SECTION 9

3.1 THE LAW

Section 9 of the Arbitration and Conciliation Act, 1996 provides the Court with the power to
grant interim measures. The initial part of Section 9 says:

A party may, before or during arbitral proceedings or at any time


after the making of the arbitral award but before it is enforced in
accordance with section 36, apply to a court.

3.1.1 Position Pre BALCO

Application for interim measure can be made to Courts in India, whether or not the arbitration
takes place in India, before or during arbitral proceedings.

3.1.2 Position Post BALCO

The Indian courts are not empowered by the 1996 Act to order interim measures in support of
arbitrations seated outside India. Likewise, a suit cannot be filed for this purpose under the
general law, viz the Code of Civil Procedure.

3.2 REASONING BEHIND THE INTERPRETATIONS

3.2.1 Section 9 Is Not Sui Generis

As observed in BALCO:

3
Magor and St. Mellons v. Newport Corporation 1951 (2) All ER 839
It would be wholly undesirable for this Court to declare by process of
interpretation that Section 9 is a provision which falls neither in Part I
or Part II. We also do not agree that Section 9 is a sui generis
provision.

3.1.2 Words of Section 36 Do Not Create an Anomaly

In BHATIA the Supreme Court held that:

The words in accordance with Section 36 can only go with the words
after the making of the arbitral award. It is clear that the words in
accordance with Section 36 can have no reference to an application
made before or during the arbitral proceedings.

However, the above reasoning was reversed by the Supreme Court in BALCO. The Supreme
Court in BALCO, holding that the text of Section 9 does not support such an interpretation,
said:

Section 36 necessarily refers to enforcement of domestic awards


only. Therefore, the arbitral proceedings prior to the award
contemplated Under Section 36 can only relate to arbitrations which
take place in India.

3.1.3 Territoriality Principle

The decision in BALCO finally restores the territoriality principle of the Model Law. It
recognizes that the forum where the arbitration is seated shall have sole jurisdiction over the
arbitration. This raises an interesting problem. Since Section 2(2) of the Indian Arbitration
Act, 1996 does not carve out exceptions similar to Art. 1(2) of the Model Law, parties that
have their seat of arbitration outside India may not be able to get interim relief from Indian
Courts. Hence Section 9 injunctions (akin to Art. 9 of the Model Law) will be unavailable to
parties seeking to enforce the arbitral tribunals interim relief orders. It is interesting to note
the dicta of the Court that applying Section 9 in foreign arbitrations would be destructive of
the territorial principles upon which the UNCITRAL Model Laws are premised.
3.1.4 Parties Left Remediless

We, therefore, do not find any substance in the submissions made by the Learned Counsel for
the Appellants, that if applicability of Part I is limited to arbitrations which take place in
India, it would leave many parties remediless. If that be so, it is a matter to be redressed by
the legislature.

3.1.5 Removal of perceived hardship not allowed

The Supreme Court in BALCO held that removal of perceived hardship is not allowed. The
Court observed:

We are further of the opinion that the approach adopted by this


Court in Bhatia International to remove the perceived hardship is not
permissible under law. If the gap or lacuna is disclosed, it would be
for the Parliament to rectify the same. Such a task cannot be
undertaken by the Court.

4. CONCLUSION

The BALCO judgment, undoubtedly, is a restatement of international commercial arbitration


law as envisaged under the Arbitration and Conciliation Act of 1996. This well reasoned
decision brought in conceptual clarity and straightened out certain contentious issues that
existed for a long time, by declaring that Part I and Part II of the Act are mutually exclusive.
However, there are still certain issues that need to be clarified because the Indian Supreme
Court took hands off approach by declining to fill up the void that existed in the arbitration
regime. The Supreme Court categorically declared that Part I of the Act cannot be applied in
an arbitration seated abroad. Thus, no party can make an application to a court in India for
interim measures of protection under Section 9 of the Act (which comes under Part I). This
decision puts the parties in a more dangerous situation than the BHATIA regime, where they
had the freedom of opting out of all or some of the provisions of Part I. In the context of
interim measures, the BHATIA rationale retained the freedom of the parties to approach the
Indian courts under Section 9, unless it is excluded. Hence, the parties are now left
remediless, as far as the interim relief is concerned, if the choice of seat is in a foreign
country. Nevertheless, this verdict may prove to be a positive step as far as Indias dream to
become a hub of international arbitration, because it is now mandatory to select an Indian seat
of arbitration to obtain an interim remedy from the court.