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International Commercial Arbitration - Landmark ruling

25th September, 2012

The Constitution Bench of the Supreme Court has held that Part I of the Arbitration and Conciliation Act, 1996 will not apply to International Commercial Arbitrations seated outside India.  In an unanimous verdict dated 6-9-2012 in the case of BALCO v. Kaiser Aluminium Ltd., the Supreme Court has prospectively overruled the decisions given by it in the case of Bhatia International Ltd. v. Bulk Trading S.A. [(2002) 4 SCC 105] and Venture Global Engineering v. Satyam Computer Services Ltd. [(2008) 1 SCALE 214]. 

The Constitution Bench has held that Part I and Part II are mutually exclusive and that the Parliament while enacting the statute had unequivocally adopted the principle of territoriality over subject matter of arbitration. In other words, the Constitution Bench has inter-alia, held that the centre of gravity for international commercial arbitrations having a foreign seat was the juridical seat of arbitration and not where the contract had to be performed.

The decision synchronises the Indian position on international commercial arbitration with the long accepted position across the world. But, uncertainty may continue for the past period as the Bench has declared the judgment as applicable prospectively to arbitration agreements, executed after 6-9-2012. 

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