Introduction.On June 3, 2013, Bar & Bench published an article entitled “Enforcement of investment treaty arbitration awards against the Indian State” (the “Article”). The Article sought to highlight the “crucial differences between India and most of the western countries which might render international investment arbitration less efficacious a remedy for investors in India“. This response piece seeks to examine the underlying premise of the Article that it would “be possible for the Indian Government to challenge … before Indian courts” an investment treaty award rendered against India pursuant to section 34 in Part I of the Indian Arbitration and Conciliation Act 1996 (the “1996 Act”)..By pursuing the Article’s endeavour for “bringing to light these issues for the purpose of future discussions“, the response will further the debate on the issues raised in the Article by focusing particularly on the powers, if any, of the Indian courts post-BALCO to set aside a treaty award against India pursuant to section 34 of the 1996 Act (referred to as “The Section 34 challenge” issue in the Article). This response does not deal with issues that may arise in relation to the enforcement of any such award in India (which is a separate matter governed by Part II of the 1996 Act), or outside India (where issues of sovereign immunity may become relevant)..Jurisdiction of the Indian Courts.The legal position relating to the jurisdiction of the Indian courts in the context of foreign-seated arbitrations has been explored in detail in previous articles on this website, and is only summarised briefly below..The Indian Arbitration and Conciliation Act 1996 (the “Act”) has two distinct parts. Part I applies where the place of arbitration is in India (section 2(2)). This Part confers significant powers on the Indian courts to grant interim measures, to appoint and replace arbitrators and to review and set aside arbitral awards. Part II is concerned with the recognition and enforcement in India of foreign arbitral awards that fall within the scope of the 1958 New York Convention and the 1927 Geneva Convention. In line with those Conventions, Part II considerably restricts the scope for judicial intervention by the Indian courts..However, in Bhatia (2002), the Indian Supreme Court held that the provisions of Part I of the Act would also apply to international commercial arbitrations seated outside India, unless the parties had expressly or impliedly excluded its application. Following Bhatia and subsequent extensions of the ruling in cases such as Venture Global (2008), the Indian courts had claimed wide jurisdiction to review and set aside arbitral awards under the expanded “public policy” grounds set out in section 34 of Part I of the 1996 Act, even in circumstances where the arbitration was seated outside India, unless Part I had been expressly or impliedly excluded by the parties in their arbitration agreement. These cases also led to a long line of Supreme Court and High Court decisions on factors (such as choice of foreign seat and/or foreign law to govern the contract/arbitration agreement) that would give rise to an “implied exclusion” of the applicability of Part I of the Act..However, in BALCO (2012), a five-judge Constitution Bench of the Supreme Court overturned the previous case law and held that Part I of the 1996 Act only applies to arbitrations seated in India, and not to foreign-seated arbitrations. However, the Supreme Court added that this clarified position applied only prospectively, with respect to arbitration agreements executed after the judgment was handed down on 6 September 2012..Section 34 challenge to an investment treaty award against India.On this issue, the relevant part of the Article states,.It is apposite to note that all of India’s BIT’s have been entered into prior to the decision in BALCO. Further a majority of these treaties, while applying to a scenario of a foreign investment in India, would be governed by Indian law. While the seat of investment arbitration would be foreign, on the basis of the decisions in Venture Global and Bhatia, Part I of the Arbitration and Conciliation Act, 1996 and consequently Section 34 would apply. It would therefore be possible for the Indian Government to challenge the award before Indian courts..In summary, the kernel of the Article’s reasoning is that: (1) the BALCO decision would not apply to an arbitration commenced pursuant to a BIT entered into by India prior to 6 September 2012; (2) the position in such a case would be governed by the decisions of the Indian Supreme Court in Bhatia and Venture Global; (3) a foreign investor would not be able to establish an implied exclusion of the applicability of Part I of the 1996 Act based merely on a foreign seat because the Indian BITs “would be governed by Indian law“; and (4) section 34 would apply and “it would therefore be possible for the Indian Government to challenge the award before Indian courts“, even where the arbitration is seated outside India..It is submitted that this reasoning needs to be revisited in light of the principles of public international law and investment treaty jurisprudence..First, one must re-examine an argument to the effect that the BALCO decision, which is applicable only to arbitration agreements executed after the date of the judgment (i.e. 6 September 2012), would not apply in this context. Although the BIT pursuant to which the arbitration claim is brought may have entered into force prior to the BALCO decision, it is arguable that the arbitration agreement between the host State and the investor is entered into after 6 September 2012. This is because the reference to the possibility of arbitrating disputes between the investor and the host State contained in most BITs is only an offer to arbitrate by the host State, not an agreement to arbitrate. An agreement to arbitrate is perfected only when a qualifying investor accepts the host State’s standing offer to arbitrate (which is done in practice by filing a request for arbitration pursuant to the arbitration rules envisaged in the relevant BIT) (There is a vast amount of literature on this topic but, for example, see Zachary Douglas, The Hybrid Foundations of Investment Treaty Arbitration, British Yearbook of International Law (2003) 74 (1): 151-289).Thus, BITs provide a mechanism by which foreign investors can arbitrate their claims against a host State without a traditional bilateral arbitration agreement contained in an underlying commercial contract. One must, therefore, be careful in applying the principles of commercial, contractual arbitrations to investment treaty arbitrations without proper analysis..Secondly, even assuming for the sake of argument that the BALCO decision is not applicable, the proposition that an investor would not be able to establish that Part I of the 1996 Act has been impliedly excluded, even in the case of foreign-seated investment arbitrations, because the “majority” of India’s BITs “while applying to a scenario of a foreign investment in India, would be governed by Indian law“, is questionable. It would be difficult to argue that the BITs entered into by India, which are international agreements concluded between two States, should be considered to be governed by Indian law and not public international law (see Vienna Convention on the Law of Treaties, Article 2(1)(a)) which states, in relevant part, that “‘treaty’ means an international agreement concluded between States in written form and governed by international law“)..Thus, it is important to appreciate that the conventional approach to applicable law in commercial arbitration is displaced in the context of a claim founded upon a BIT. In this case, the BIT itself forms the basis for the primary obligations (the substantive rights provided by the treaty) that the investor is seeking to enforce, and which must be interpreted according to public international law (and not Indian law)..Furthermore, while the agreement to arbitrate between the investor and the host State is not contained in the BIT itself (as discussed above), it should also be seen as governed by public international law (This was the conclusion reached by the English Court of Appeal in Ecuador v Occidental Exploration & Production Co 2005] EWCA Civ 1116; [2006] Q.B. 432 at 458-459. See also Campbell Mclachlan QC, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles (Oxford University Press, 2010), p.60)..Thus, while the approach of the Indian courts to the circumstances in which Part I has been excluded is not uniform, in this case it is reasonably arguable that Part I of the 1996 Act would be impliedly excluded by virtue of the parties’ choice of a foreign seat of arbitration and the fact that the law applicable to the substance of the parties’ dispute, and parties’ agreement to arbitrate, is public international law (and not Indian law)..Conclusion.In conclusion, while the risk of a challenge in the Indian courts to an investment treaty award rendered against India in a foreign-seated arbitration cannot be ruled out completely, it is hoped that, if and when this issue comes up before the Indian courts, they will adopt a position consistent with best practices in public international law and investment treaty arbitration, and resist the invitation to assume jurisdiction under Part I of the 1996 Act to set aside or annul such an award..Manish Aggarwal, is an Associate in the International Arbitration Group at Allen & Overy’s London office. The views expressed in this article represent the personal views of the author. The author can be contacted at manish.aggarwal@allenovery.com
Introduction.On June 3, 2013, Bar & Bench published an article entitled “Enforcement of investment treaty arbitration awards against the Indian State” (the “Article”). The Article sought to highlight the “crucial differences between India and most of the western countries which might render international investment arbitration less efficacious a remedy for investors in India“. This response piece seeks to examine the underlying premise of the Article that it would “be possible for the Indian Government to challenge … before Indian courts” an investment treaty award rendered against India pursuant to section 34 in Part I of the Indian Arbitration and Conciliation Act 1996 (the “1996 Act”)..By pursuing the Article’s endeavour for “bringing to light these issues for the purpose of future discussions“, the response will further the debate on the issues raised in the Article by focusing particularly on the powers, if any, of the Indian courts post-BALCO to set aside a treaty award against India pursuant to section 34 of the 1996 Act (referred to as “The Section 34 challenge” issue in the Article). This response does not deal with issues that may arise in relation to the enforcement of any such award in India (which is a separate matter governed by Part II of the 1996 Act), or outside India (where issues of sovereign immunity may become relevant)..Jurisdiction of the Indian Courts.The legal position relating to the jurisdiction of the Indian courts in the context of foreign-seated arbitrations has been explored in detail in previous articles on this website, and is only summarised briefly below..The Indian Arbitration and Conciliation Act 1996 (the “Act”) has two distinct parts. Part I applies where the place of arbitration is in India (section 2(2)). This Part confers significant powers on the Indian courts to grant interim measures, to appoint and replace arbitrators and to review and set aside arbitral awards. Part II is concerned with the recognition and enforcement in India of foreign arbitral awards that fall within the scope of the 1958 New York Convention and the 1927 Geneva Convention. In line with those Conventions, Part II considerably restricts the scope for judicial intervention by the Indian courts..However, in Bhatia (2002), the Indian Supreme Court held that the provisions of Part I of the Act would also apply to international commercial arbitrations seated outside India, unless the parties had expressly or impliedly excluded its application. Following Bhatia and subsequent extensions of the ruling in cases such as Venture Global (2008), the Indian courts had claimed wide jurisdiction to review and set aside arbitral awards under the expanded “public policy” grounds set out in section 34 of Part I of the 1996 Act, even in circumstances where the arbitration was seated outside India, unless Part I had been expressly or impliedly excluded by the parties in their arbitration agreement. These cases also led to a long line of Supreme Court and High Court decisions on factors (such as choice of foreign seat and/or foreign law to govern the contract/arbitration agreement) that would give rise to an “implied exclusion” of the applicability of Part I of the Act..However, in BALCO (2012), a five-judge Constitution Bench of the Supreme Court overturned the previous case law and held that Part I of the 1996 Act only applies to arbitrations seated in India, and not to foreign-seated arbitrations. However, the Supreme Court added that this clarified position applied only prospectively, with respect to arbitration agreements executed after the judgment was handed down on 6 September 2012..Section 34 challenge to an investment treaty award against India.On this issue, the relevant part of the Article states,.It is apposite to note that all of India’s BIT’s have been entered into prior to the decision in BALCO. Further a majority of these treaties, while applying to a scenario of a foreign investment in India, would be governed by Indian law. While the seat of investment arbitration would be foreign, on the basis of the decisions in Venture Global and Bhatia, Part I of the Arbitration and Conciliation Act, 1996 and consequently Section 34 would apply. It would therefore be possible for the Indian Government to challenge the award before Indian courts..In summary, the kernel of the Article’s reasoning is that: (1) the BALCO decision would not apply to an arbitration commenced pursuant to a BIT entered into by India prior to 6 September 2012; (2) the position in such a case would be governed by the decisions of the Indian Supreme Court in Bhatia and Venture Global; (3) a foreign investor would not be able to establish an implied exclusion of the applicability of Part I of the 1996 Act based merely on a foreign seat because the Indian BITs “would be governed by Indian law“; and (4) section 34 would apply and “it would therefore be possible for the Indian Government to challenge the award before Indian courts“, even where the arbitration is seated outside India..It is submitted that this reasoning needs to be revisited in light of the principles of public international law and investment treaty jurisprudence..First, one must re-examine an argument to the effect that the BALCO decision, which is applicable only to arbitration agreements executed after the date of the judgment (i.e. 6 September 2012), would not apply in this context. Although the BIT pursuant to which the arbitration claim is brought may have entered into force prior to the BALCO decision, it is arguable that the arbitration agreement between the host State and the investor is entered into after 6 September 2012. This is because the reference to the possibility of arbitrating disputes between the investor and the host State contained in most BITs is only an offer to arbitrate by the host State, not an agreement to arbitrate. An agreement to arbitrate is perfected only when a qualifying investor accepts the host State’s standing offer to arbitrate (which is done in practice by filing a request for arbitration pursuant to the arbitration rules envisaged in the relevant BIT) (There is a vast amount of literature on this topic but, for example, see Zachary Douglas, The Hybrid Foundations of Investment Treaty Arbitration, British Yearbook of International Law (2003) 74 (1): 151-289).Thus, BITs provide a mechanism by which foreign investors can arbitrate their claims against a host State without a traditional bilateral arbitration agreement contained in an underlying commercial contract. One must, therefore, be careful in applying the principles of commercial, contractual arbitrations to investment treaty arbitrations without proper analysis..Secondly, even assuming for the sake of argument that the BALCO decision is not applicable, the proposition that an investor would not be able to establish that Part I of the 1996 Act has been impliedly excluded, even in the case of foreign-seated investment arbitrations, because the “majority” of India’s BITs “while applying to a scenario of a foreign investment in India, would be governed by Indian law“, is questionable. It would be difficult to argue that the BITs entered into by India, which are international agreements concluded between two States, should be considered to be governed by Indian law and not public international law (see Vienna Convention on the Law of Treaties, Article 2(1)(a)) which states, in relevant part, that “‘treaty’ means an international agreement concluded between States in written form and governed by international law“)..Thus, it is important to appreciate that the conventional approach to applicable law in commercial arbitration is displaced in the context of a claim founded upon a BIT. In this case, the BIT itself forms the basis for the primary obligations (the substantive rights provided by the treaty) that the investor is seeking to enforce, and which must be interpreted according to public international law (and not Indian law)..Furthermore, while the agreement to arbitrate between the investor and the host State is not contained in the BIT itself (as discussed above), it should also be seen as governed by public international law (This was the conclusion reached by the English Court of Appeal in Ecuador v Occidental Exploration & Production Co 2005] EWCA Civ 1116; [2006] Q.B. 432 at 458-459. See also Campbell Mclachlan QC, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles (Oxford University Press, 2010), p.60)..Thus, while the approach of the Indian courts to the circumstances in which Part I has been excluded is not uniform, in this case it is reasonably arguable that Part I of the 1996 Act would be impliedly excluded by virtue of the parties’ choice of a foreign seat of arbitration and the fact that the law applicable to the substance of the parties’ dispute, and parties’ agreement to arbitrate, is public international law (and not Indian law)..Conclusion.In conclusion, while the risk of a challenge in the Indian courts to an investment treaty award rendered against India in a foreign-seated arbitration cannot be ruled out completely, it is hoped that, if and when this issue comes up before the Indian courts, they will adopt a position consistent with best practices in public international law and investment treaty arbitration, and resist the invitation to assume jurisdiction under Part I of the 1996 Act to set aside or annul such an award..Manish Aggarwal, is an Associate in the International Arbitration Group at Allen & Overy’s London office. The views expressed in this article represent the personal views of the author. The author can be contacted at manish.aggarwal@allenovery.com
