Resolving The Conflict Between Law Of The Seat And The Institutional Rules
INTRODUCTION
The resolution of dispute through arbitration gives autonomy to parties, to circumvent procedural formalities and determine the substantive and procedural law that shall be applicable to the parties. The parties have the power to determine the arbitration seat, the number of arbitrators, the law governing the contract, the arbitral institution amongst other aspects.
The resolution of dispute through arbitration can be classified into three broad categories, namely, Institutional Arbitration, Ad-hoc arbitration and Fast-track arbitration. Parties have the power to determine which method of arbitration would be used in the event a dispute arises. In this article we are concerned with Institutional Arbitration.
An Institutional arbitration is one that is administered by an institution agreed upon by the parties and conducted in accordance with that institution’s Arbitration rules1. The sanctity of Rules of the Arbitral Institution has been duly recognized by the Supreme Court of India in the landmark BALCO Judgment2 and thereafter the Amazon.com Judgment3, moving away from the erstwhile Bhatia International decision4.
The Supreme Court of India has given due recognition to the Institutional Rules dating back to 1964, in the decision of Badat and Co. v. East India Trading Co.5 The challenge to the Institutional Rules being in contravention of the Law of the Seat, can be assessed in two scenarios, firstly, challenge when arbitration is governed by Part I of the Arbitration and Conciliation Act 1996 (hereafter the Arbitration Act 1996), secondly, in a foreign seated international arbitration wherein Part II of the Arbitration Act 1996 would be applicable.
FOREIGN SEATED INTERNATIONAL ARBITRATION
When the juridical seat of arbitration is outside India, the arbitral award is not tenable to challenge under Section 34 of Part I. The five judges’ bench of the Supreme Court in Bharat Aluminium Company & Ors. v. Kaiser Aluminium Technical Services Inc.6 (the BALCO Case) had noted that the Part I of the Arbitration Act 1996 would be applicable only when the seat/place of arbitration is India. This position was reiterated by the Supreme Court in Reliance Industries vs Union of India7 (Reliance Industries Case) wherein the Supreme Court of India reiterated that when the seat of arbitration is outside India, the courts of that jurisdiction would have exclusive jurisdiction and would not be open to challenge under the provision of Part I of the Arbitration Act 1996.
AMAZON CASE
In the recent dispute between Amazon and Future group, which was adjudicated upon by the Supreme Court in the judgment of Amazon.Com NV Investment Holdings LLC v. Future Retail Ltd.8, the Supreme Court upheld the Emergency Arbitration (EA) proceedings carried under the Singapore International Arbitration Rules (hereafter SIAC Rules). The Apex Court opined that once a party has agreed on the institutional rules, they would be bound by the decision of the Emergency Arbitration. The Apex Court noted that “under Section 2(8), party autonomy goes to the extent of an agreement which includes being governed by arbitration rules”
DEROGABLE AND NON-DEROGABLE PROVISIONS
The parties entering into an agreement to arbitrate under Part I of the A&C Act, have the power and are free to deviate, to the extent permitted by the derogable provisions of Part I. This position has been recognized by the Supreme Court in numerous judgments, including but not limited to, Bhatia International vs. Bulk Trading S.A. and Ors.9, Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors.10 amongst others.
The Supreme Court in TDM Infrastructure Pvt. Ltd. Vs. U.E. Development India Pvt. Ltd.11, has held that it is not open to two Indian parties with regard to an entirely domestic dispute to derogate from the Indian laws of contract, evidence etc.
The Supreme Court of India in Batliboi Environmental Engineers Limited vs. Hindustan Petroleum Corporation Limited and Ors.12 while deciding when the Court can set aside an Arbitral award under Section 34 of the A&C Act, has noted a pre-condition that the agreement should not conflict with the mandatory and binding non-derogable provision of Part I of the A&C Act.
CENTRO-TRADE MINERALS CASE
The Supreme Court of India in the M/s. Centrotrade Minerals and Metals Inc. vs. Hindustan Copper Ltd.13, while upholding the validity of a two-tier Arbitration clause noted that there is nothing fundamentally objectionable in the parties preferring and accepting the two-tier arbitration system, given they have not by-passed any mandatory provision of the A & C Act.
LIMITATION OF MANDATORY RULES
The London Court of Internation Arbitration Rules 202014, the Singapore International Arbitration Centre Rules 201615, the ICC Arbitration Rules 202116 amongst others Institutional Rules specifically create certain exclusion in the power and discretion vested in the parties and the Arbitral Tribunal to not derogate the mandatory provision of the applicable law.
CONCLUSION
We can conclude by saying that the issue of precedence in case of clash between the Law of the Seat and the Institutional Rules can be resolved by determination of the party’s intent of vesting jurisdiction. The principle of party autonomy which is the genesis of Arbitration would take precedence as recognized by the Supreme Court in Amazon.com (Supra), amongst other judgments. The only bar on the exercise of exercising party autonomy to determine which law will take precedence is abiding by the mandatory and non-derogable provision of the Law of the Seat, which in a domestic arbitration would be Part I of the A&C Act.
Alternatively, in the event the parties are unable to determine which law will take precedence, the tribunal should follow the principle of conflict rules (the voie directe) as enshrined in Private International Law. The principle of conflict rules moves away from the prevalent practice of the Tribunal applying the law chosen by the Parties and determines which law would be applicable.
Disclaimer: This article was first published in the S&A Law Offices - 'Indian Legal Impetus' newsletter in August 2024.