Enforcing Foreign Arbitral Awards in India: What Did the Landmark Bharat Aluminum Case Change for International Businesses?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

India's rise as a global economic powerhouse has made it an increasingly important partner for international businesses, including those from the United States. With this growing engagement comes the inevitable prospect of commercial disputes. For decades, the landscape for international arbitration involving Indian parties or seeking enforcement in India was marked by a degree of uncertainty, largely due to the interpretation of India's Arbitration and Conciliation Act, 1996 (the "Act"). The Indian Supreme Court's landmark decision in Bharat Aluminium Co. (BALCO) v. Kaiser Aluminium Technical Services, Inc., delivered on September 6, 2012, represented a pivotal attempt to realign Indian arbitration law with global norms, particularly concerning the powers of Indian courts over arbitrations seated outside India. This article explores the journey from previous judicial interpretations, the transformative impact of BALCO, and subsequent legislative clarifications that shape the current environment for enforcing foreign arbitral awards in India.

I. The Pre-BALCO Landscape: The Expansive Reach of Bhatia International

Prior to the BALCO decision, the prevailing legal position was largely defined by the Supreme Court's 2002 ruling in Bhatia International v. Bulk Trading S.A. Bhatia International controversially held that Part I of the Indian Arbitration and Conciliation Act, 1996—which deals with domestic arbitrations, including provisions for court-ordered interim measures (Section 9) and applications to set aside arbitral awards (Section 34)—would apply to all arbitrations, even those seated outside India, unless the parties had expressly or impliedly excluded its application.

This interpretation had significant consequences:

  • Intervention by Indian Courts in Foreign Arbitrations: It meant that Indian courts could grant interim relief under Section 9 in support of arbitrations seated abroad. While sometimes beneficial, it also opened the door for Indian courts to entertain applications under Section 34 to set aside awards rendered in foreign-seated arbitrations.
  • The Venture Global Reinforcement: The Supreme Court's 2008 decision in Venture Global Engineering v. Satyam Computer Services Ltd. further entrenched this position, explicitly confirming that foreign awards could be challenged for annulment before Indian courts under Section 34 of Part I.
  • "Public Policy" Concerns: A particularly troubling aspect was the potential application of the broad interpretation of "public policy of India" to these challenges. In the context of setting aside domestic awards (under Section 34), the Supreme Court in ONGC Ltd. v. Saw Pipes Ltd. (2003) had interpreted "public policy" to include "patent illegality," which could involve an award being contrary to the substantive provisions of Indian law, the terms of the contract, or the interest of India. The fear was that this expansive (and often criticized) standard could be used to re-examine the merits of foreign awards when challenged in Indian courts, undermining the finality and efficiency of international arbitration.
  • Uncertainty and "Contracting Out": This state of affairs created considerable uncertainty for international businesses. It became common practice for parties in contracts involving an Indian counterparty but specifying a foreign seat of arbitration to include clauses explicitly excluding the application of Part I of the Indian Act to avoid the risk of Indian court intervention.

The Bhatia International doctrine was a significant deviation from the internationally accepted principle that the courts of the arbitral seat have primary jurisdiction over the arbitral proceedings and any applications to set aside the award, while courts in other jurisdictions primarily deal with recognition and enforcement under the New York Convention (to which India is a signatory).

II. The BALCO Decision: A Paradigm Shift Towards Territoriality

The BALCO case provided the Supreme Court with an opportunity to reconsider this contentious area of law. The dispute involved an arbitration seated in London, with English law governing the arbitration procedure and Indian law governing the underlying contract. After awards were rendered in London in favor of Kaiser Aluminium Technical Services, Inc. (KATSI), Bharat Aluminium Co. (BALCO) sought to have these foreign awards set aside by an Indian District Court under Section 34 of Part I of the Act. The District Court and the High Court dismissed BALCO's application, holding that Section 34 could not be used to challenge a foreign award.

On September 6, 2012, a Constitution Bench of the Indian Supreme Court delivered its judgment, fundamentally altering the landscape:

  1. Overruling Bhatia International and Venture Global: The Court explicitly held that the decisions in Bhatia International and Venture Global Engineering were "not good law" and were thereby overruled.
  2. Affirmation of Territoriality (Seat-Centric Approach): The Supreme Court decisively ruled that Part I of the Arbitration and Conciliation Act, 1996, applies only to arbitrations where the seat (or place) of arbitration is in India. This was a clear adoption of the principle of territoriality, which is central to the UNCITRAL Model Law and widely accepted in international arbitration practice. The Court emphasized that the seat of arbitration determines the lex arbitri (the law governing the arbitration procedure) and the jurisdiction of courts to supervise the arbitration and entertain annulment applications.
  3. No Jurisdiction for Indian Courts to Set Aside Foreign Awards: Consequently, as Section 34 (the provision for setting aside arbitral awards) is contained within Part I of the Act, Indian courts no longer have the jurisdiction to hear applications to set aside awards rendered in arbitrations seated outside India. Such challenges must be brought before the courts of the arbitral seat.
  4. Initial Consequence: No Interim Measures from Indian Courts for Foreign-Seated Arbitrations: A significant, and initially problematic, corollary of this strict territorial interpretation was that Section 9 of the Act, which empowers courts to grant interim measures of protection, also being part of Part I, would likewise not apply to arbitrations seated outside India. This meant parties to a foreign-seated arbitration could not approach Indian courts for urgent relief concerning assets or evidence located within India.
  5. Prospective Application Only: Crucially, the Supreme Court declared that its ruling in BALCO would apply prospectively, i.e., only to arbitration agreements executed after the date of the judgment (September 6, 2012). For arbitration agreements concluded before this date, the legal position as established by Bhatia International would continue to govern.

III. Immediate Impact and Unintended Consequences of BALCO

The BALCO decision was largely welcomed by the international arbitration community as a positive step towards aligning India with global best practices.

  • Positives:
    • Increased Certainty and Finality for Foreign Awards: By precluding Indian courts from setting aside foreign awards, BALCO significantly enhanced the finality of awards made in arbitrations seated outside India. Parties could have greater confidence that a foreign award would not be subjected to a second merits-based challenge in India under the guise of a setting-aside application.
    • Reduced Judicial Interference: The decision curtailed the potential for extensive intervention by Indian courts in arbitral proceedings conducted abroad.
    • Alignment with International Norms: The adoption of a seat-centric approach brought Indian law more closely in line with the UNCITRAL Model Law and the prevailing understanding of the New York Convention.
  • Negative (The Initial Unintended Consequence Regarding Interim Measures):
    • The most significant immediate drawback of the BALCO decision was the ruling that Indian courts could not grant interim measures under Section 9 in support of arbitrations seated outside India. This created a serious lacuna. Parties in a foreign arbitration might urgently need to secure assets in India, prevent the dissipation of evidence located in India, or obtain other forms of interim protection from Indian courts, which have territorial jurisdiction. The BALCO decision, in its original formulation, appeared to remove this vital tool, potentially leaving parties without effective recourse in India pending the outcome of a foreign arbitration. This was a major concern for international businesses.

IV. Legislative Response: The Arbitration and Conciliation (Amendment) Act, 2015

Recognizing the problematic implications of BALCO, particularly regarding interim measures, and seeking to further refine India's arbitration framework, the Indian Parliament enacted the Arbitration and Conciliation (Amendment) Act, 2015 (the "2015 Amendment"). This legislation introduced several crucial changes, directly addressing some of the fallout from BALCO:

  1. Restoration of Interim Measures for Foreign-Seated Arbitrations: The most significant change was the amendment to Section 2(2) of the Act. This amendment clarified that, subject to an agreement to the contrary by the parties, the provisions of Section 9 (interim measures by court), Section 27 (court assistance in taking evidence), and certain sub-sections of Section 37 (appealable orders related to interim measures) would apply to international commercial arbitrations, even if the place (seat) of arbitration is outside India. This was a vital course correction, restoring the ability of parties in foreign-seated arbitrations to seek necessary interim relief from Indian courts.
  2. Clarification of "Public Policy" for Enforcement of Foreign Awards: The 2015 Amendment also provided much-needed clarification on the scope of the "public policy of India" as a ground for refusing recognition and enforcement of foreign arbitral awards under Section 48(2)(b) (which mirrors Article V(2)(b) of the New York Convention). It added Explanations to Section 48, stating that an award would be in conflict with the public policy of India only if:Crucially, a new Explanation 2 clarified that the test of whether an award is in conflict with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. This legislative clarification effectively narrowed the scope of the public policy defense for foreign awards, steering it away from the broad "patent illegality" standard enunciated in ONGC v. Saw Pipes (which was problematic even for domestic awards and certainly inappropriate for foreign awards) and aligning it more closely with the internationally accepted, narrower interpretation (akin to the principles in the earlier Supreme Court case of Renusagar Power Co. Ltd. v. General Electric Co.).
    • (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 (confidentiality in conciliation) or section 81 (admissibility of evidence in other proceedings from conciliation); or
    • (ii) it is in contravention with the fundamental policy of Indian law; or
    • (iii) it is in conflict with the most basic notions of morality or justice.

V. Current Landscape and Considerations for U.S. Businesses

The BALCO decision, as significantly modified and clarified by the 2015 Amendment Act, has established a more stable and internationally aligned framework for international arbitration involving India. For U.S. businesses, the key takeaways include:

  • The Seat of Arbitration Remains Paramount: The choice of a seat of arbitration outside India now definitively means that the arbitral proceedings and the resulting award are insulated from substantive review or setting-aside applications by Indian courts under Part I of the Act (except for the now-applicable provisions like Section 9 for interim relief).
  • Enforcement of Foreign Awards in India: This is governed by Part II of the Act (implementing the New York Convention).
    • The grounds for refusal of recognition and enforcement under Section 48 are limited and mirror those in Article V of the New York Convention.
    • The 2015 Amendment's clarification of "public policy" significantly reduces the risk of Indian courts re-opening the merits of a foreign award at the enforcement stage.
    • The Reciprocity Requirement (Section 44(b)): A crucial practical point that remains is India's application of the reciprocity reservation under the New York Convention. For a foreign award to be enforceable under Part II, Chapter 1 (New York Convention Awards), it must have been made in a country that the Indian Central Government has, by notification in the Official Gazette, declared to be a territory to which the New York Convention applies. While many major arbitral seats (e.g., UK, USA, Singapore, France, Switzerland, Japan, Hong Kong, China) are "notified territories," parties must always verify the current status of the intended seat, as this list is not exhaustive of all New York Convention signatories.
  • Availability of Interim Measures from Indian Courts: Critically, thanks to the 2015 Amendment, parties to an international commercial arbitration seated outside India can now approach Indian courts under Section 9 for interim measures of protection, such as orders securing assets in India or preserving evidence. This is a vital tool.
  • Drafting Arbitration Clauses for India-Related Contracts:
    • For arbitration agreements entered into after September 6, 2012 (the BALCO judgment date), specifying a foreign seat will generally ensure that Part I of the Act (apart from specific sections like S.9 made applicable by the 2015 Amendment) does not apply to the conduct or supervision of the arbitration.
    • While it's no longer strictly necessary to include a clause expressly "excluding Part I" for foreign-seated arbitrations (as was common practice post-Bhatia but pre-BALCO), maintaining clarity in the arbitration agreement regarding the seat and the procedural law is always advisable.
    • Ensure the chosen foreign seat is a "notified territory" by India for New York Convention purposes if enforcement in India is anticipated.

Conclusion

The Indian Supreme Court's decision in BALCO, particularly when viewed in conjunction with the corrective and clarifying measures introduced by the Arbitration and Conciliation (Amendment) Act, 2015, marks a significant and largely positive evolution in India's approach to international arbitration. By firmly adopting the principle of territoriality for Part I of the Act and narrowing the public policy defense for the enforcement of foreign awards, India has moved closer to international best practices, enhancing its credibility as a jurisdiction that respects party autonomy and the finality of foreign arbitral awards.

While challenges inherent in any large and complex legal system persist, the legal framework in India for foreign-seated arbitrations and the subsequent enforcement of their awards is now considerably more predictable and aligned with global standards. U.S. businesses engaging with Indian parties or dealing with assets in India should remain cognizant of these legal developments and ensure their arbitration agreements are drafted with expert advice to navigate this refined landscape effectively.