IMAX v. E-City: A reminder of the enduring effects of the BALCO Case | Shivansh Jolly

Shivansh Jolly

On 10 March 2017, the Supreme Court of India delivered a judgment in the case of IMAX Corporation v. E-City Entertainment (I) Pvt. Ltd. (‘IMAX’) which dealt with concerns arising out of the much criticized Bhatia International v. Bulk Trading SA, (2002) 4 SCC 105 (‘Bhatia’) and the Venture Global Engineering v. Satyam Computer Services Ltd, (2008) 4 SCC 190 (‘Venture Global’) cases. As readers may know, the Bhatia and the Venture Global cases held that the Indian courts may exercise jurisdiction over foreign seated arbitrations as Part-I of the Arbitration and Conciliation Act, 1996 (‘1996 Act’) shall apply to such foreign seated arbitrations unless expressly or impliedly excluded by parties. These cases created much furore amongst the Indian arbitrating parties and raised eyebrows amongst the practitioners of international arbitration around the world. The reasons for the same were obvious: the Indian Supreme Court had regressively chosen to defy the established principles of international arbitration while disregarding the connection between the juridical seat and the law governing the arbitration agreement. The said connection determines the legal framework within which an arbitration agreement, and the proceedings arising out of it, shall operate. Concerns such as appointment of arbitrators, grounds of disqualification of arbitrators, interim measures, setting aside proceedings, enforcement proceedings inter alia are determined by the law governing the arbitration agreement, which in practice, must be the law of the seat of arbitration.

However, almost about a decade later, the Supreme Court attempted to correct the errors it had committed in the Bhatia and the Venture Global cases while overruling its prior regressive approach in the case of Bharat Aluminium Co v. Kaiser Aluminium Technical Services, (2012) 9 SCC 552 (‘BALCO’) by holding that Part-I of the 1996 Act would not apply to international commercial arbitrations seated outside India (detailed analysis here). But a chink in the armour of the BALCO ruling remained: the BALCO case would only prospectively overrule the Bhatia and the Venture Global cases and would not apply to arbitration agreements concluded before 6 September 2012 (date of BALCO’s ruling). Therefore, all arbitration agreements concluded prior to 6 September 2012, and proceedings arising therefrom, would continue to be subject to the Bhatia and Venture Global rulings (‘pre-BALCO regime’) and be challengeable before the Indian courts.

The prospective application of the BALCO case left several arbitration agreements and parties stranded and subjected to the pre-BALCO regime. A judicial system clogged up with several pending cases contributed majorly to the unfortunate situation of such parties. However, the Supreme Court in its subsequent decisions strived to mitigate the damage done by the prospective application of the BALCO case by exploiting the undefined scope of impliedly excluding Part-I of the 1996 Act, or by giving a purposive interpretation to express exclusion of Part-I of the 1996 Act. Cases such as Sakuma Exports Ltd. v. Louis Dreyfus Commodities Suisse SA, (2015) 5 SCC 656 (‘Sakuma Exports’) and Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603 (‘Reliance Industries’), amongst others, saw rulings by the Supreme Court which held that an express choice of a foreign seat by the parties would amount to an implied exclusion of the application of Part-I of the 1996 Act. These cases upheld and recognized the intimate relation between the juridical seat of arbitration and the law governing the arbitration agreement; thus relieving the parties from an unwarranted interference from Indian courts in foreign seated arbitrations.

However, the IMAX case had presented the Supreme Court with a situation significantly different from what was seen in the cases such as Sakuma Exports and Reliance Industries. The arbitration agreements in the latter cases had expressly specified the seat of arbitration, whereas the arbitration agreement in the IMAX case only provided for arbitration to be conducted in accordance with the ICC Rules of Arbitration without specifying the juridical seat. The arbitration agreement in the IMAX case stated as follows:

This Agreement shall be governed by and construed according to the laws of Singapore, and the parties attorn to the jurisdiction of the courts of Singapore. Any dispute arising out of this master agreement or concerning the rights, duties or liabilities of E-City or Imax hereunder shall be finally settled by arbitration pursuant to the ICC Rules of Arbitration.”

Since the arbitration agreement did not specify a seat of arbitration, the ICC fixed London as the seat of arbitration between the parties, in accordance with Article 14(1) of the ICC Rules of Arbitration. The tribunal appointed therein passed its final award on 27 March 2008 in favour of IMAX Corporation, which was challenged by E-City before the Bombay High Court through a petition under Section 34 of the 1996 Act. E-City contended that the arbitration agreement was formed in the pre-BALCO era, and therefore was subject to the pre-BALCO regime to be challengeable under Part-I of the 1996 Act. It was also contended that parties had neither specified a foreign seat nor had expressly or impliedly excluded the applicability of Part-I of the 1996 Act. While strangely applying the doctrine of ‘close nexus’, the Bombay High Court held that the petition to set aside the foreign award was maintainable. The matter was thus appealed to the Supreme Court. The ‘close nexus’ doctrine is ideally resorted to in situations where parties have failed to expressly opt for the governing law, and where determination of the governing law is impossible by looking for an implied choice of parties reflected from various factors. As will be seen further, the application of the said doctrine was misplaced in the present case.

The Supreme Court, in a short but rational judgment, observed that in absence of any agreement to the contrary, law governing an arbitration agreement shall be deemed to be the law prevailing at the seat of arbitration. The court noted that though no seat had been chosen by the parties in the arbitration agreement, the parties agreed that London would be the juridical seat of arbitration in accordance with the ICC Rules of Arbitration. Therefore, it held that by agreeing to the same, the parties had expressly excluded the application of Part-I of the 1996 Act in favour of the English law to govern the arbitration agreement. The Supreme Court relied upon its prior decision in Dozco India (P) Ltd. v. Doosan Infracore Co. Ltd., (2011) 6 SCC 161 wherein it had held that:

In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the ‘seat’ of the arbitration i.e. the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings. So in order to determine the curial law in the absence of an express choice by the parties it is first necessary to determine the seat of the arbitration, by construing the agreement to arbitrate.

Therefore, the Supreme Court upheld the fundamental connection between the seat of arbitration and the law governing the arbitration agreement in line with the prevailing jurisprudence of international arbitration.

Taking account of the observations of the Supreme Court in the IMAX case, one may note that the spill over effects of the prospective ruling in the BALCO case are still surfacing after about half a decade since the said case. It is also pertinent to note that although the Arbitration and Conciliation (Amendment) Act, 2015 brought back the Bhatia regime of allowing Indian courts to exercise jurisdiction over foreign seated arbitrations for interim remedies, it excluded the reach of Indian courts over setting aside proceedings for arbitrations seated outside India. A cumulative appreciation of the current situation thus tells us that though cases arising out of arbitration agreements from the pre-BALCO regime may continue to appear, the Supreme Court is determined to plug the holes left open in the prospective ruling of the BALCO case. Therefore, it would be apt to suggest that the ghosts of the pre-BALCO regime are bound to disappear soon enough, courtesy the efforts of the Supreme Court of India.

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