GUEST-POST | Cross-border Agreements into India: The Arbitration Clause

by Rustam Dubash and Saionton Basu

Cross-border agreements into India – the arbitration clause International agreements in most cases will include an arbitration clause, setting out the governing law of the contract and the seat of arbitration. When dealing with an Indian party, this may not entirely prevent litigation before the Indian courts, since judicial intervention in Indian courts could still occur unless specific language excluding the operation of Part 1 of the Indian Arbitration and Conciliation Act 1996 (the Act), which contained the provision for appointment of arbitrators, is drafted into the agreement.

The Indian Supreme Court in Bhatia International v Bulk Trading SA(2002) 4 SCC 105 held that Part 1 of the Act applied not just to arbitrations with their seat in India, but also to arbitrations taking place outside India involving an Indian party, unless the parties expressly or impliedly excluded all or any of its provisions. This position was affirmed by the Indian Supreme Court in Venture Global Engineering v Satyam Computer Ltd (2008) 4 SCC 190.

Winds of Change?

In 2010 (Dozco India Private Limited v Doosan Infracore Company Limited Arbitration Petition No 5 of 2008), the Indian Supreme Court heard a petition where the Indian party sought its intervention in appointing an arbitrator in a cross-border agreement which had provided for arbitration under the ICC Arbitration Rules with the governing law of The Republic of Korea and the seat of arbitration in Seoul. The agreement had not specifically excluded the application of Part 1 of the Act.

The petitioner contended that since Part 1 of the Act was not ‘expressly’ or ‘impliedly’ excluded by the parties in the agreement, it continued to apply even if it was an arbitration to be conducted outside India and governed by foreign law. The Supreme Court therefore had to interpret the arbitration clause and decide whether it was clear from the language of that clause that it expressly excluded Part I of the Act.

The Indian Supreme Court held that the language in the arbitration clause was sufficiently clear to exclude Part 1 of the Act and therefore did not appoint an arbitrator. It further held that the law laid down in the above two cases did not apply to this case. It appears to us that as long as there is clear language which excludes Part 1 of the Act, the Indian courts are unlikely to intervene in relation to applications filed before it under Part 1 of the Act.

Conclusion

2000-2010 saw several interventions by Indian courts in international arbitrations contrary to the principle of minimum judicial intervention in arbitration embodied in the Act. Whilst the Dozco judgement is a welcome change, we would still advocate that when drafting an arbitration clause it should have clear language excluding Part 1 of the Act to avoid satellite litigation in the Indian courts. As Mr Fali Nariman, Senior Advocate, Supreme Court of India and President Emeritus, Bar Association of India, said in a speech earlier this year, ‘the Act must be brought back into conformity with the letter and spirit of the [UNCITRAL] model law which inspired it’.

Rustam Dubash is the head of Penningtons’ commercial dispute resolution team and also head of the India group. He has been a partner at Penningtons since 1998 and has over 25 years of commercial dispute resolution experience. He has been involved in high value UK and cross border litigation and international arbitration as well as mediations resulting in early resolution of disputes. He also advises clients on pre action strategy, again with the aim of resolving disputes early on. Rustam continues to represent several well known Indian corporates, banks, high net worth individuals and their families. Penningtons is a member of the UK India Business Council and its India group is ranked in the India/foreign firms category in the latest edition of The Asia Pacific Legal 500.

Saionton Basu is a partner in the corporate team and jointly heads the India group with Rustam Dubash. He is an experienced mergers, acquisitions and projects lawyer and advises on international corporate and commercial activities involving a wide range of industries and jurisdictions. His particular areas of specialisation are structuring and executing domestic and cross-border transactions as well as projects focusing on Public Private Partnerships. He advises international clients who are active in India, including banks, corporations, foreign governments and financial institutions as well as Indian companies doing business in the UK and Europe.

Saionton was previously the law clerk to the Chief Justice of India, V N Khare. He featured in the up and coming Indian lawyers under 35 list in the India Report 2010 of a leading industry publication. He was also invited to judge the UK Philip C Jessup International Law Moot Court National Finals 2011. Saionton has recently spoken on the legal and regulatory considerations of doing business in the UK/Europe-India corridor at the International Trade Forum and UKTI. He is also involved with the work of the charity CRY (Child Rights and You), which focuses on education sector projects for underprivileged children in India.