Bharat Aluminium Company

Vs.
Kaiser Aluminium Technical
Service, Inc.
Pragya and Ananya
Facts
There existed an agreement between BALCO(P) and Kaiser(D) dated 22
April 1993.
The arbitration clause was contained in Articles 17 and 22 of the said
Agreement, which is reproduced for reference purposes (emphasis
supplied):
"Article 17.1 - Any dispute or claim arising out of or relating to this
Agreement shall be in the first instance, endeavor to be settled
amicably by negotiation between the parties hereto and failing which
the same will be settled by arbitration pursuant to the English
Arbitration Law and subsequent amendments thereto.
Article 17.2 - The arbitration proceedings shall be carried out by two
Arbitrators one appointed by BALCO and one KATSI chosen freely and
without any bias. The court of Arbitration shall be held wholly in
London, England and shall use English language in the proceeding. The
findings and award of the Court of arbitration shall be final and binding
upon the parties.
Article 22 - Governing Law - This agreement will be governed by the
prevailing law of India and in case of Arbitration, the English law shall
apply."
Facts
The arbitration clause of the agreement stated:
Proper Law of Contract: Indian Law
Proper Law of Arbitration agreement: English Arbitration Law
Lex Arbitri/ Governing/ Procedural law of Arbitration: English
Arbitration Law Seat of Arbitration: London, England
Disputes arose between BALCO and Kaiser with regard to the
performance of the said Agreement. The disputes were referred to
arbitration held in England. 2 awards were given in England by the
arbitrators
BALCO challenged the above mentioned Awards under Section 34
(Part I) of the Arbitration and Conciliation Act, 1996 before the
Court of Learned District Judge, Bilaspur, India.
This case was clubbed with various other appeals as they too
were appealing on a similar point of law
During the pendency of the above proceedings, an application
was made before a district court under
Sec 9 of the Arbitration and Conciliation Act
Issue I
Does Section 2(2) bar the Application of Part
I to Arbitrations which take place outside
India?
Earlier Position in Bhatia International and Venture
Global Engineering-
It was concluded that Part I would also apply to all
arbitrations held out of India, unless the parties by
agreement, express or implied, exclude all or any of its
provisions.
Balco-
Omission of the word only in Section 2(2) is not an
instance of CASUS OMISUS. It clearly indicates that
Model Law has not been bodily adopted by the
Arbitration Act, 1996. It is not the function of the Court
to supply the supposed omission, which can only be
done by the Parliament. Legislative surgery is not a
judicial option, nor a compulsion, while interpreting an
 In the courts opinion, a plain reading of Section 2(2)
makes it clear that Part I is limited in its application to
arbitrations which take place in India.
Parliament by limiting the applicability of Part I to
arbitrations which take in India has expressed a
legislative declaration.
The legislature has clearly given recognition to the
territorial principle.
Thus Part I of the Arbitration Act, 1996 applies to
arbitrations having their place/seat in India.
Issue II
Does the missing word 'only' indicate a
deviation from Article 1(2) of the Model
Law?
Article 1(2) of Model Law- The provisions of this law,
except Articles 8, 9, 17(H), 17(I), 17 (J), 35 and 36
apply "only" if the place of arbitration is in the
territories of this State.
The genesis of the word only in Article 1(2) of the
Model Law can be seen from the discussions held on
the scope of application of Article 1 in the 330th
meeting, Wednesday, 19 June 1985 of UNCITRAL.
This would demonstrate that the word only was
introduced in view of the exceptions referred to in
Article 1(2).
Necessary to include the word only in order to clarify
that except for Articles 8, 9, 35 and 36 which could
have extra territorial effect if so legislated by the State,
 The word only would have necessary in case the provisions
relating to interim reliefs etc. were to be retained in Section
2(2) which may have extra territorial application.
However, the Indian Law while adopting Model Law, did not
include the exceptions mentioned in Article 1(2) in the
corresponding Indian provision i.e. Section 2(2).
Thus, the word only would have been superfluous.
The scheme of the Act makes it abundantly clear that the
territorial principle accepted in the UNCITRAL Model Law has
been adopted by the Arbitration Act, 1996.
That the UNCITRAL Rules adopted strict territorial principle is
evident from the Report of the UNCITRAL in paragraphs 72 to 80
on the work of its 18th Session in Vienna between 3rd to 21st
June, 1985.
Para 73: as regards the connecting factor which should determine
the applicability of the (Model) Law in a given State, there was wide
support for the so-called strict territorial criterion, according to which
the Law would apply where the place of arbitration was in that
State....
 The court rejected the submission made by the Learned Counsel
for the Appellants that the Arbitration Act, 1996 does not make
seat of the arbitration as the Centre of gravity of the arbitration.
The court was of the opinion that most national laws are
anchored to the seat/place/situs of arbitration. However, this
does not mean that all the proceedings of the arbitration have to
take place at the seat of the arbitration.
No statutory provision is necessary to state/clarify that a law
made by Parliament shall apply in India/to arbitrations in India.
Another strong reason for rejecting the submission made by the
Learned Counsel for the Appellants is that if Part I were to be
applicable to arbitrations seated in foreign countries, certain
words would have to be added to Section 2(2).
The provisions in the Arbitration Act, 1996 must be construed by
their plain language/terms. It is not permissible for the court
while construing a provision to reconstruct the provision. In other
words, the Court cannot produce a new jacket, whilst ironing out
the creases of the old one.
Issue III
Is Section 2(2) in conflict with Sections 2(4) and 2(5)?

There is no inconsistency between Sections 2(2), 2(4) and 2(5). Section

2(4) and Section 2(5) would not be applicable to arbitrations which are
covered by Part II of the Arbitration Act, 1996, i.e. the arbitrations which
take place outside India. The conclusion in Bhatia International that
limiting the applicability of Part I to arbitrations that take place in India,
would make Section 2(2) in conflict with Sections 2(4) and 2(5), is not
correct.
It cannot be accepted that every arbitration in Section 2(4) would
include arbitrations which take place outside India. The phrase all
arbitrations in Section 2(5) has to be read as limited to all arbitrations
that take place in India.
The two sub-sections merely recognize that apart from the arbitrations
which are consensual between the parties, there may be other types of
arbitrations, namely, arbitrations under certain statutes like Section 7 of
the Indian Telegraph Act, 1886, etc., and arbitrations pursuant to
international agreement, that would have to be regarded as covered by
Part I, except in so far as the provisions of Part I are inconsistent with
the other enactment or any rules made thereunder.
 Issue IV
Does Section 2(7) indicate that Part I applies to arbitrations held
outside India?

Section 2 (7) reinforce that Part I shall be applicable to all arbitration

proceedings that are held in India and distinguishes a domestically rendered
award covered by Part I from foreign award covered by Part II.
Section 2 (7) excludes the possibility of the award passed in arbitration
proceedings held in India involving two foreign parties being considered as
non-domestic award by providing that such an award shall be domestic award
The object of section 2(7) of the Act is to distinguish the domestic award (Part
I of the Act) from the foreign award (Part II of the Act); and not to distinguish
the domestic award from an international award rendered in India.
The term domestic award means an award made in India whether in a purely
domestic context, (i.e., domestically rendered award in a domestic arbitration
or in the international arbitration which awards are liable to be challenged
under section 34 and are enforceable under section 36 of the Act).
Therefore, Indian courts being the supervisory courts, will exercise control and
regulate the arbitration proceedings, which will produce a "domestically
rendered international commercial award". Meaning thereby, it would be a
"foreign award" for the purposes of enforcement in a country other than India.
Issue V
Does Section 48(1)(e) recognize the
jurisdiction of Indian Courts to annul a
foreign award, falling within Part II?

Section 48 of Part II does not confer jurisdiction on

two courts to annul the award and is provided
only to provide alternative to parties to challenge
the award in case law of the country where seat of
arbitration is located has no provision for
challenge of the award.
 Difference Between Seat and
Venue
The Court drew a distinction between a seat and venue which would
be quite crucial in the event, the arbitration agreement designates a
foreign country as the seat/ place of the arbitration and also select
the Act as the law governing the arbitration proceedings.
The Court further clarified that the choice of another country as the
seat of arbitration inevitably imports an acceptance that the law of
that country relating to the conduct and supervision of arbitrations will
apply to the proceedings.
Therefore, if the arbitration agreement is found or held to provide for a
seat/ place of arbitration outside India, then even if the contract
specifies that the Act shall govern the arbitration proceedings, Part I of
the Act would not be applicable or shall not enable Indian courts to
exercise supervisory jurisdiction over the arbitration or the award.
It would only mean that the parties have contractually imported from
the Act, those provisions which are concerned with the internal
conduct of their arbitration and which are not inconsistent with the
mandatory provisions of the English procedural law or curial law.
Therefore, it can be inferred that Part I applies only to arbitrations
having their seat / place in India.
 Implications
This judgment will be prospectively applied (i.e. to all the arbitration
agreements executed after September 6, 2012).
As a result of this judgment, the seat of arbitration has now gained
paramount importance for determining the applicability of Part I of the
Act.
The judgment also draws a distinction between the seat of arbitration
and the place of arbitration. It contemplates a situation where even
though the parties have provided for a particular place for arbitration,
that some of the proceedings themselves may be conducted in other
territories as may be convenient to all.
This judgment also ensures that foreign award (i.e. an award passed
outside India) can no longer be challenged by an Indian entity u/s 34 of
the Act and that the party which seeks to resist the enforcement of the
award has to prove one or more grounds set out in section 48 of the Act.
No interim relief u/s 9 of the Act or order 39 of the CPC (both pertaining
to injunction) would be available where the seat of arbitration is outside
India. As interim orders from foreign courts and arbitration tribunals are
not enforceable in India such a situation would leave foreign parties
remediless.