In Noy Vallesina, the Supreme Court has ruled that even under the pre-BALCO regime, if parties have agreed that the seat of arbitration will be outside India, then Part – I of the Arbitration & Conciliation Act 1996 will not be applicable.
The Defendant/Respondent contracted with Engineering Chur AG to set up an ascorbic acid plant in India. The contracts were subsequently assigned to the Plaintiff/Appellant.
Disputes arose and an arbitration was conducted under the auspices of the International Court of Arbitration in Paris. A partial award was given and challenged by the Defendant under §34 of the Arbitration & Conciliation Act 1996 before the Bombay High Court, which held that a foreign award could not be challenged under §34 of the Arbitration & Conciliation Act 1996.
The Defendant appealed to a larger bench of the Bombay High Court, which held that the Defendant's challenge could proceed because the award was passed pre-BALCO.
This decision was appealed to the Supreme Court.
The Supreme Court
The Defendant said that the larger bench ruling was valid because:
- The contract stated that Indian law would apply, which meant that the parties intended the seat of the arbitration to be in India.
- BALCO specifically stated that it was to have only prospective effect.
The Plaintiff said the contract stated that London was to be the seat of the arbitration, so the exception in BALCO which allows a party to challenge an award under §34 of the Arbitration & Conciliation Act 1996 if India is the seat of the arbitration does not apply. Consequently, an Indian court could not entertain challenges against an award passed in a foreign seated arbitration.
The Supreme Court held that seat of the arbitration proceedings is crucial to determining whether the Indian courts had jurisdiction to hear a challenge to an award. Since the seat in this case was London, the Indian courts did not have jurisdiction.
Citing its recent rulings 1 , the Supreme Court set aside the larger bench ruling of the Bombay High Court.
During the appeal to the Supreme Court, the Plaintiff had tried to enforce the partial award. The Defendant challenged the enforcement attempt, but it had been permitted by the Bombay High Court. This decision too was appealed by the Defendant to a larger bench of the Bombay High Court. The Supreme Court held that the Defendant's appeal could not be sustained in light of §50 of the Arbitration & Conciliation Act 1996, which specifically excludes any such appeal.
The judgment in Noy Vallesina continues the recent pro-arbitration judgments of the Supreme Court and re-affirms the position that a substantive challenge to a foreign award can only be adjudicated upon by the foreign court at the seat of the arbitration, regardless of when the contract was executed.
1 IMAX Corporation v E-City Entertainment (India) (P.) Ltd 2017 (5) SCC 331; Government of India v Vedanta Ltd 2020 SCC
Online (SC) 749
Originally Published by Tuli & Co, January 2021
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