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India’s arbitration rollercoaster: important updates for foreign parties involved in arbitrations seated in India

The Indian Supreme Court recently delivered two judgments of significance to arbitrations seated in India. While these judgments continue the trend of arbitration-friendly decisions from the Indian Supreme Court, they also highlight that uncertainty still prevails in Indian arbitration law and enforcement.

Indian arbitration, as we have previously discussed, has had its ups and downs. Foreign parties - and especially Hong Kong parties, who are increasingly involved in India related arbitrations - entering into contracts with an Indian party should continue to insist on a seat of arbitration outside India.

But this is not always possible. An Indian counterparty, especially a government owned corporation, may insist on an Indian seat; or, a foreign party may control an Indian joint venture company, which in entering into contracts with another Indian party is compelled—due to ambiguity in the law that prevents two Indian parties from choosing a foreign seat of arbitration—to choose an Indian seat.

BGS SGS Soma JV v NHPC: Supreme Court holds that only the courts at the seat of arbitration have supervisory jurisdiction

The first judgment—BGS SGS Soma JV v NHPC, delivered on 10 December 2019—held that the courts at the seat of arbitration have exclusive supervisory jurisdiction over the arbitration. Therefore, if the chosen seat is Delhi, only the Delhi courts will have jurisdiction to consider, for example: applications for interim relief; appeals against interim measures passed by arbitral tribunals; and challenges to an arbitral award.

As a result, foreign parties negotiating contracts with an Indian seat of arbitration must choose their seat carefully. Some courts in India are quicker, others more commercially minded. Ending up in the wrong court could result in significant delays in enforcement, or could even result in the arbitration award being set aside.

The facts in BGS SGS were that a Delhi-seated tribunal delivered an arbitral award, which was challenged in Faridabad—a city near Delhi. The Supreme Court held that the choice of a seat confers the courts in that jurisdiction with exclusive jurisdiction to decide issues arising out of the arbitral award. Therefore, only Delhi had jurisdiction to consider the challenge.

Before the judgment in BGS SGS, there were conflicting opinions on this issue. Some Indian High Courts had held that courts where the cause of action arose—for example, the courts where the contract was signed, or where the contract is to be partially performed—would have concurrent jurisdiction. The Supreme Court overruled these judgments.

According to the Supreme Court, “if concurrent jurisdiction were to be the order of the day, despite the seat having been located and specifically chosen by the parties, party autonomy would suffer” and there may arise a situation where an application is made to a court “in remote corners of the country”, which would be “contrary to the intention of the parties”.

Hindustan Construction Company v India: striking down an amendment to the Arbitration Act just three months after it was passed, Supreme Court holds no automatic stay of enforcement of Indian arbitral awards pending a set-aside application

The second judgment—Hindustan Construction Company v Union of India, delivered on 27 November 2019—clarifies that a party challenging an arbitral award is not entitled to an automatic stay of enforcement of the award.

To explain the complicated background:

  • Before 23 October 2015, Indian law provided that an arbitral award is not enforceable until after a challenge to the award is dismissed. Challenging an arbitral award therefore also resulted in an “automatic stay” of the arbitral award, meaning that an award debtor could buy time with a tactical application to set aside an award against it. 
  • 2015 amendment to the Indian Arbitration Act clarified that unless the court specifically stays an arbitral award, the award will continue to be enforceable. The 2015 amendment came into force on 23 October 2015.
  • Despite the 2015 amendment, there was confusion on whether the amendment applies to all court proceedings initiated after 23 October 2015, even where the arbitral award was delivered before 23 October 2015. The Indian Supreme Court last year (BCCI v Kochi Cricket Association) held that it does.
  • On 30 August 2019, the Indian government notified new amendments to the Indian Arbitration Act, which provided that the 2015 amendments would not apply to court proceedings initiated after 23 October 2015, even when an award was delivered before 23 October 2015. This meant that arbitral awards delivered before 23 October 2015 would be entitled to an automatic stay.

The Indian Supreme Court in Hindustan Construction struck down the 2019 amendment and held that all arbitral awards, irrespective of whether delivered before or after 23 October 2015, will be enforceable even when challenged, unless specifically stayed by a court.

Two aspects of this judgment warrant attention. First, the judgment continues the arbitration-friendly trend in Indian courts. Second, and in contrast, the judgment and its back story nonetheless highlight that India still has a long way to go in ensuring legal certainty—the position on “automatic stays” has been unclear since 2015; the Supreme Court’s 2018 clarification was reversed by the 2019 amendment to the law; and on 27 November 2019, the Supreme Court struck down the 2019 amendment, less than three months after it was made.