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Implied exclusion of Indian laws under an arbitration agreement

19 March, 2015

The agreement stipulated that the contract is to be governed and construed according to the English law in the arbitration clause. No other clause stating the applicable law was included in the agreement. Although there was no express exclusion of Indian laws or the Arbitration and Conciliation Act, 1996, there was ample indication of this through various phrases like ‘arbitration in London to apply’, arbitrators are to be the members of the ‘London Arbitration Association’ and that the contract ‘to be governed and construed according to English Law’. It was also postulated that if the dispute is for an amount less that US $ 50000 then, the arbitration should be conducted in accordance with small claims procedure of the London Maritime Arbitration Association.

The Supreme Court has on 10-3-2015 in the case of Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. held that in such a situation, the precedent in the landmark case Bhatia International shall be applicable. To come to this conclusion, the Apex Court relied on the commercial background, the context of the contract, the circumstances of the parties and the background in which the contract was entered into. The Supreme Court held that the applicable law could not be denied only because it would put one of the disputing parties in an advantageous position.
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