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1. INTRODUCTION

If the language used is capable of bearing more than one construction, in selecting the
true meaning regard must be had to have the consequences, resulting from adopting the
alternative constructions. A construction that result in hardship, serious inconvenience,
injustice, absurdity or anomaly or which leads to inconsistency or uncertainty and friction in
the system which the statute purports to regulate has to be rejected and preference should be
given to that construction which avoids such results.

This was the approach that the Court took in the landmark case of Bhatia International v.
Bulk Trading SA1.

Though Bhatia International v. Bulk Trading SA 2 lays down propositions regarding the
applicability of Part I to arbitrations conducted outside India, that have far-reaching effects,
this decision has significant value when it comes to reiterating fundamental principles and
canons in the interpretation of statutes regarding consequences.

The case involved a contract between the parties which provided for arbitration in Paris,
following the rules of the International Chamber of Commerce. The Appellant entered into a
contract with the 1st Respondent on 9th May 1997. This contract contained an arbitration
clause which provided that arbitration was to be as per the rules of the International
Chamber of Commerce.

However, neither the proper law of the contract nor the proper law of arbitration agreement
was specified. Disputes arose between the parties and on 23rd October, 1997 the 1st
Respondent filed a request for arbitration with ICC. Parties had had agreed that the
arbitration be held in Paris, France. ICC had also appointed a sole arbitrator.

Pending arbitration, the 1st Respondent sought to file an application under section 9 before
the IIIrd Additional District Judge, Indore, M.P. against the Appellant and the 2 nd
Respondent. Courts at Madhya Pradesh seeking an injunction order restraining the
Petitioner from alienating/ transferring and/or creating third party right, disposing of,

1 [(2002) 4 SCC 105]

2 Ibid.
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dealing with and/or selling their business assets and properties. The issue thus was whether
a section 9 application would lie with respect to an arbitration conducted outside India. The
arguments were however directed towards whether or not Part I would apply to such
arbitrations. If it could be proved that Part I applies to arbitrations conducted outside India,
then it would follow that the section 93 application could be filed. If not, then the application
under section 9 is not maintainable.

The Supreme Court in Bhatia case had held that Part I of the Arbitration and Conciliation
Act would equally apply to international commercial arbitrations held outside India, unless
any or all of the provisions have been excluded by agreement between the parties.

A five Judge Constitutional Bench of the Supreme Court gave a remarkable judgment in
2012 in the case of Bharat Aluminium v. Kaiser Aluminium Technical Services4. It was held
by the Honble Court that Part I of Indian Arbitration Act, 1996 will have no applicability
over international commercial arbitrations held outside India with respect to arbitration
agreements entered into thereafter.

Therefore, it is the seat of arbitration that now governs the jurisdiction and once the parties
decide to have arbitration outside India, Indian courts can grant no interim relief to the
concerned parties. The apex Court also added that no foreign arbitral award can be
challenged under Part I of Indian Arbitration Act, 1996.

2. BACKGROUND

The Supreme Court, in the year 2002, decided in the case of Bhatia International v Bulk
Trading S.A. that Indian courts had exclusive jurisdiction to test the validity of an arbitral
award made in India even when the proper law of the contract is the law of another country.

The facts of the concerned case of Bhatia International are that the parties to an
international contract had recourse to arbitration according to the ICC rules of arbitration in
Paris, with a sole arbitrator. As the foreign party wanted to ensure the recovery of its claim

3 See Section 9 of Arbitration and Conciliation Act, 1996.

4 AIR 2005 Chh 21

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from the Indian party in the case of a favourable award, it moved an Indian court for interim
measures securing the property of the Indian party. The Indian party raised objection to the
submitted application on the ground that the arbitration

under consideration was taking place in Paris, and the New York Convention provides no
provision for interim measure being granted by a court other than one in which the
arbitration is taking place. However, the High Court rejected the argument. Thereafter, the
Indian party approached the Supreme Court, which upheld the judgment of the High Court.
In crux, it was held by a three judge bench of the Supreme Court unanimously that Part I of
the Arbitration and Conciliation Act, 1996, which gives effect to the UNCITRAL Model
Law and which moreover bestows power on the Court to grant interim measures apply even
to international commercial arbitrations being held outside India.

Another case, Venture Global Engineering Case v Satyam Computer Services Ltd5. further
contributed to the misery of international businesses and broadened the ambit of Courts
intervention in enforcing foreign arbitral awards. The Court, by way of this judgment,
explicitly stated, what was until now only implicit in nature, that despite there being no
provision in Part II of the Act which provides for challenge to a foreign award, it cannot be
interpreted that the Legislature did not intend to provide the same since there was no
necessity for the Legislature to repeat what had been already included in the general
provisions of Part I unless and until it wanted to include a procedure to the contrary. By
construing the Act in this manner, the Court actually made the Act extraterritorial in
operation.

3. ANALYSIS

It was held in Bhatia case that out of different in interpretations, the court will adopt that
which is just, reasonable and sensible rather than that which is none of those things 6 and
that the Legislature should have used the word in that interpretation which least offends the
sense of justice. If the grammatical construction leads to some absurdity or some

5 [(2008) 4 SCC 190]

6 Also in Holmes v. Bradfield Rural District Council (1949) 1 All ER 381

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repugnance or inconsistency with the rest of the instrument, it may be departed from so as to
avoid that absurdity, and inconsistency.

It is one of the well-settled rules of construction that if the words of the statute are in
themselves precise and unambiguous, no more is necessary than to expound those words in
their natural and ordinary sense, the words themselves in such case best declare the
intention of the legislature. It is also well-settled that where alternative constructions are
equally open that alternative is to be chosen which will be consistent with the smooth
working of the system which the statute purports to be regulating; and that alternative is to
be rejected which will introduce uncertainty, friction, or confusion in to the working of the
system.

The Court had also reiterated that principles of statutory interpretation provide that in case a
strict interpretation leads to absurd consequences, the courts are duty bound to add or
modify the express terms of a provision to further the objectives of the legislation in
question and thus, held that section 2(2)7 of the 1996 Act must be interpreted to include
international commercial arbitrations held within as well as outside India. This was done by
reading the provision as it is, without supplying the word only into it. Such an
interpretation is supported by general principles of statutory construction and must,
therefore, be upheld.

Further, the Court sought to avoid the conflict that would have arisen between section 2(2)
on one hand and section 2(4) and 2(5) on the other, had section 2(2) been given a restrictive
interpretation. A restrictive understanding of section 2(2) which renders Part I of the 1996
Act applicable only to arbitrations held in India would bring the said section in direct
confrontation with sections 2(4)8 and 2(5)9 which expressly make the 1996 Act applicable to
all arbitrations without differentiating between arbitrations held in India and those held
outside. It was incumbent on the Court to avoid such conflict between the provisions of the
1996 Act, which could only be achieved through the interpretation it adopted.
7 See Section 2(2) of the Arbitration and Conciliation Act, 1996. This Part shall apply where the
place of arbitration is in India.

8 See Section 2(4) of the Arbitration and Conciliation Act, 1996. This Part except sub-section (1) of
section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time
being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other
enactment were an arbitration agreement, except in so far as the provisions of this Part are
inconsistent with that other enactment or with any rules made thereunder.
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It was also decided that if the Act does not assure parties to an arbitration governed by Part
II the right to apply for interim relief pursuant to section 9 (Part I), the parties will find
themselves without a remedy, as far as obtaining interim relief in India is concerned.

The ratio in Bhatia was subsequently extended in other decisions to permit Indian courts to
set aside foreign awards and to appoint arbitrators in arbitrations seated outside
India. Bhatia and the string of cases that follow it have been widely criticised for judicial
over-reach and for creating significant uncertainty and delay in arbitrations that are seated
outside India but involve Indian counter-parties or laws. It has thus become standard
practice in India-related commercial transactions and arbitration agreements to expressly
exclude the application of Part I to arbitrations seated outside India, with a view to escape
the consequences of Bhatia.

The landmark judgment of Bharat Aluminium v Kaiser Aluminium Technical Services had,
thus, put the controversy aside by overruling the doctrine laid down in Bhatia
International and Venture Global Engineering by, inter alia, holding the following:

Part I of the Act would have no applicability to International Commercial Arbitration

held outside India

Part I of the Act shall apply to all arbitrations which take place only within India

There can be no overlapping or intermingling of the provisions contained in Part I

with that in Part II of the Act

In a foreign seated international commercial arbitration, no application for interim

relief would be maintainable under any provision, as applicability of Part I is restricted to all
arbitrations which take place within India only

No suit for interim injunction would be maintainable in India, when the seat of
arbitration is outside India

9 See Section 2(5) of the Arbitration and Conciliation Act, 1996. Subject to the provisions of sub-
section (4), and save in so far as is otherwise provided by any law for the time being in force or in any
agreement in force between India and any other country or countries, this Part shall apply to all
arbitrations and to all proceedings relating thereto. Construction of references
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As Part I would have no applicability to international commercial arbitration held

outside India, the arbitral awards will be subject to the jurisdiction of Indian courts when the
same are sought to be enforced in accordance with Part II of the Act.

4. CONCLUSION

The Arbitration and Conciliation Act, 1996 was enacted to further the institution of
arbitration and help international trade and commerce. The interpretation adopted in Bhatia
International serves this very purpose of facilitating arbitration as a mode of alternate
dispute resolution.

Until the present judgment came into effect, the ratio of the Bhatia
International undermined the rationale that only the courts of the seat of the arbitration
should be able to grant interim measure to parties relating to that arbitration.

The Court, through its judgment in Bharat Aluminium, overruled its earlier judgments
in Bhatia International and Venture Global Engineering prospectively and made the law
declared in the present case applicable to all the arbitrations agreements executed thereafter.
In respect of arbitration agreements executed prior to the instant judgment, the instant
judgment will not apply and the law will be as it stood prior to the present judgment, i.e.
Part I will apply to international commercial arbitrations held outside India unless expressly
and / or impliedly excluded by the parties concerned.
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5. REFERENCES

Websites
Aishwarya Padmanabhan, Interpretation of Statutes, Manupatra
http://www.manupatra.com/roundup/325/Articles/Interpretation%20of%20Statutes.pdf

Vivek Verma, Bhatia International v. Bulk Trading S.A. and Anr, Wordpress
https://indiancaselaws.wordpress.com/2012/04/15/bhatia-international-vs-bulk-trading-
s-a-anr/

Deepti Narayanan, Bhatia International c. Bulk Trading SA, Prezi

https://prezi.com/vesaysqcznow/bhatia-international-v-bulk-trading-sa/

Aditya Mishra, The Case of Bhatia International and its Overruling, Lawmantra
http://lawmantra.co.in/the-case-of-bhatia-international-and-its-overruling/

Niyati Nath, India: Re-Visiting Bhatia International, Mondaq

http://www.mondaq.com/india/x/208590/Arbitration+Dispute+Resolution/ReVisiting+B
hatia+International

Cases Referred
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Bhatia International v. Bulk Trading S. A. & Anr [(2002) 4 SCC 105]

Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical [AIR 2005 Chh 21]
Venture Global Engineering v. Satyam Computer Services Ltd. [(2008) 4 SCC 190]