Bharat Aluminium Company v Kaiser Aluminium Technical Services - Case Analysis

Introduction of Bharat Aluminium Company v Kaiser Aluminium Technical Services

The Bharat Aluminium Company v Kaiser Aluminium Technical Services case is a landmark decision of the Supreme Court. The decision reshaped the legal landscape of international arbitration in India. The case revolved around a dispute between Bharat Aluminium Company (BALCO) an Indian company and Kaiser Aluminium Technical Services (a U.S.-based company) which involved an arbitration clause specifying English law and arbitration in London. The Supreme Court in its decision on 6th September, 2012 overruled earlier precedents and altered the interpretation of the Arbitration and Conciliation Act, 1996.

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Historical Context and Facts of Bharat Aluminium Company v Kaiser Aluminium Technical Services

The case at hand centres around a dispute between an Indian Company Bharat Aluminium Company popularly known as ‘BALCO’ and Kaiser Aluminium Technical Service, Inc., a company registered in the United States. The dispute arose from an agreement between the parties that included a clause for arbitration. The following are the brief facts of the case -

Background and Facts of BALCO v Kaiser

On 22nd April, 1993 an agreement was signed between Bharat Aluminum Company (BALCO) and Kaiser Aluminium Technical Services for the supply and installation of a computer system at the premises of BALCO. The agreement contained an arbitration clause specifying that disputes would be resolved under English Arbitration Law with London as the place for arbitration. The arbitration proceedings were to be conducted according to English law but the governing law of the agreement was Indian law.

Arbitration Proceedings and Challenge to Awards

Disputes arose between the parties and accordingly the matter was referred to arbitration in England where the arbitral tribunal issued two awards. BALCO sought to challenge these awards in India under Section 34 of the Arbitration and Conciliation Act, 1996, at the district court in Bilaspur. 

Rejection of the Appeals filed by BALCO

The District Court, Bilaspur and the High Court of Chhattisgarh rejected the appeals filed by the BALCO. Aggrieved by the decisions of the lower courts, BALCO filed an appeal in the Supreme Court of India.

Bharati Shipyard Ltd. v. Ferrostaal AG & Anr.

The matter was clubbed along with the petition of Bharat Aluminium Company. In this case, the issue was regarding the applicability of Section 9 (interim measures) of the Arbitration and Conciliation Act. Initially, Bharti Shipyard Ltd. and Ferrostaal AG had agreed to resolve their disputes through arbitration under the International Chamber of Commerce (ICC) rules in Paris. However, on 29th November, 2010 they mutually agreed to conduct the arbitration under the London Maritime Arbitrators Association (LMAA) rules in London.

Interim Relief Application in Mangalore

Bharti Shipyard Ltd., during the ongoing arbitration in London filed an injunction application in the District Court at Mangalore. It sought to prevent the encashment of bank guarantees under the contract and relied on Section 9 of the Arbitration Act. 

Decisions of the District Court, Mangalore and High Court of Karnataka

The District Court granted the injunction but this decision was challenged in the High Court of Karnataka. However, the Karnataka High Court set aside the order. The High Court held that Bharti Shipyard had an alternative remedy under Section 44 of the Arbitration and Conciliation Act which provides for interim relief in international arbitration in London. The English courts were deemed to be the appropriate forum for such relief since both the contract and arbitration were governed by English law.

Referral to the Supreme Court

Initially the appeal filed by Bharat Aluminum Co. was heard by a Division Bench of the Supreme Court. One judge found the judgments in Bhatia International and Venture Global to be unsound while the other judge disagreed with this opinion. This led to the case being referred to a 3-Judge Bench for a final determination.

Issue addressed in Bharat Aluminium Company v Kaiser Aluminium Technical Services

The main question which was addressed in this case was whether Section 2(2) bars the application of Part I of A&C Act to arbitrations where the place is outside India, does Part I apply at all stages of arbitration and whether a suit for preservation of assets pending an arbitration proceeding is maintainable?

In the case of BALCO v Kaiser Section 2(2) of the Arbitration and Conciliation Act, 1996 played a significant role. The following is the analysis of this provisions -

Section 2(2) of the Arbitration and Conciliation Act, 1996

Section 2(2) of the Act deals with ‘International Commercial Arbitration’. It states that this Part shall apply where the place of arbitration is in India: Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.

Judgment and Impact of Bharat Aluminium Company v Kaiser Aluminium Technical Services

The Supreme Court in BALCO v Kaiser held that the terms ‘place’ or ‘venue’ of arbitration should be considered synonymous with the ‘seat’ of arbitration. The Court highlighted the significance of party autonomy in the selection of the seat of arbitration.

The Supreme Court clarified that if the parties selects a seat outside of India then in such a case Courts at that location will have exclusive jurisdiction over the arbitration proceedings and Indian courts would not have automatic authority to intervene. 

The Court also stated that ‘Part I of the Arbitration and Conciliation Act (A&C Act) will not be applicable to international commercial arbitrations conducted outside India.’ Thus, such arbitral awards would only be subject to the jurisdiction of the Courts in India when they are being enforced in India under the provisions of Part II of the A&C Act.

Lastly, the Supreme Court held that in foreign-seated international commercial arbitration no application for interim relief could be filed under Section 9 or any other provision of the A&C Act as Part I of the Act is only applicable to arbitrations conducted in India. It also ruled that no suit for interim injunction could be filed in India in relation to international commercial arbitration with a seat outside India. 

The Supreme Court judgment in BALCO v Kaiser overruled the earlier precedent Bhatia International v. Bulk Trading S.A. (2002).

Conclusion

In Bharat Aluminium Company (BALCO) v Kaiser Aluminium Technical Services the Supreme Court ruled that the terms ‘place’ or ‘venue’ of arbitration are synonymous with the ‘seat’ of arbitration. The Court ruled that Indian courts would not have jurisdiction over arbitration proceedings if the seat was outside India. The judgment overturned the previous decision in Bhatia International v. Bulk Trading S.A. (2002).