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This extract is taken from Not Three but Half an Error in BALCO : Bhatia
International Rightly Overruled, (2013) 1 SCC J-81 at page J-81
This response to the article entitled Bhatia International Rightly Overruled: The
Consequences of Three Errors in BALCO [ V. Niranjan and Shantanu Naravane, Bhatia
International Rightly Overruled: The Consequences of Three Errors inBALCO (2012) 9
SCC J-26.] , argues that the errors identified by the authors inBALCO [Bharat Aluminium
Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ)
810.] are not errors at all. Although we agree that the Court should not have
overruled Bhatia International [Bhatia International v.Bulk Trading S.A., (2002) 4 SCC
105.] prospectively in the manner it did, it is not an error in the judgment but an error in
the application of the judgment.
The authors in their article (hereinafter referred to as the authors) accept that the
decision in BALCO [(2012) 9 SCC 552.] is ultimately correct, inasmuch as the Court
overruled Bhatia [(2002) 4 SCC 105.] as followed in Venture Global [Venture Global
Engg. v. Satyam Computer Services Ltd., (2008) 4 SCC 190.] to establish the
territoriality principle or seat theory, and held that Part 1 of the Arbitration and
Conciliation Act, 1996 (the Act or the 1996 Act) would have no application to foreignseated arbitrations. We agree.
However, we do not agree with the authors that the Court in BALCO [(2012) 9 SCC
552.] reached certain erroneous conclusions.
A brief discussion on what Bhatia [(2002) 4 SCC 105.] held is pertinent. The effect of
the ruling in Bhatia [(2002) 4 SCC 105.] was that Part 1 would apply to all arbitrations,
regardless of whether they are held within or outside India. The Court recognised only
one exception: that Part 1 would not apply to arbitrations held outside India if the parties
either expressly or impliedly excluded its application.
The context in which the Court so held in Bhatia [(2002) 4 SCC 105.] is important: a
foreign party to an arbitration seated outside India sought interim measures under
Section 9 of the Act, which falls within Part 1, on the basis that Indian courts were
empowered to grant such a measure in respect of assets located within India.
The Bhatia [(2002) 4 SCC 105.] Court construed Section 2(2) of the Act to allow Section
9 to apply to the foreign-seated arbitration, despite the express wording in Section 2(2)
that states that Part 1 would apply when the arbitration is in India. [ Section 2(2) of the
Act reads: This Part shall apply where the place of arbitration is in India.]
The detailed reasoning in Bhatia [(2002) 4 SCC 105.] was analysed in an article
written by one of us. [See, S.K. Dholakia, Bhatia International v. Bulk Trading S.A. A
Critical Review, (2003) 5 SCC J-22.] For the purpose of the present article, it suffices to
state that the Bhatia [(2002) 4 SCC 105.] Court had based its decision on the finding,
amongst others, that the omission of the word only in Section 2(2) allowed for the
extra-territorial applicability of Part 1 of the Act to foreign-seated arbitrations.
The Court in BALCO [(2012) 9 SCC 552.] overruled the decisions in Bhatia[(2002) 4
SCC 105.] , and Venture Global [(2008) 4 SCC 190.] that followed Bhatia[(2002) 4 SCC
105.] , by affirming that the 1996 Act is based on the overarching territoriality principle or
the seat theory by which the seat of the arbitration establishes jurisdiction.
The judgment in Bhatia [(2002) 4 SCC 105.] was widely regarded as problematic
and discordant with the internationally recognised principle of territoriality.
At the heart of the decision in BALCO [(2012) 9 SCC 552.] lies the Court's ruling that
the omission of the word only in Section 2(2) did not undermine the clear legislative
intent to adopt the territoriality principle. [ The Court's findings in BALCO, (2012) 9 SCC
552 on the significance of the omission of the word only in relation to the seat-based
test for jurisdiction are at paras 62 to 76. In particular, the Court observed at para 71
that the discussions of the UNCITRAL Committee at the 330th Meeting held on 19-6-1985
demonstrate that the word only in Article 1(2) of theUNCITRAL Model Law was
introduced in view of the exceptions relating to Articles 8, 9, 35 and 36 which could have
extra-territorial effect, if so legislated by the State, while the other provisions would be
applicable on a strict territorial basis. The findings of the Court with respect to a
complete segregation of Part 1 and Part 2 are at paras 125 to 129, BALCO, (2012) 9
SCC 552.] The Court specifically rejected the contention [See, paras 159 and
160, BALCO, (2012) 9 SCC 552.] that Section 9 should be purposively construed as a sui
generis or stand alone provision as it concerned interim protection of assets located
within India without which parties would be left remediless. It held that upon a
schematic interpretation of the 1996 Act, construing Section 9 in this manner would do
violence to the policy of territoriality declared in Section 2(2) of the Act. [See, para 163.
Also see paras 164 to 170, BALCO, (2012) 9 SCC 552.] It further held that adopting such
an approach to remove perceived hardship to the parties would not be permissible.
[See, para 171,BALCO, (2012) 9 SCC 552. The Model Law allowed certain provisions to
be excepted from the strict territoriality principle so as to have extra-territorial effect, if
the State so legislated. For instance, the law in England, while endorsing territoriality
[under Section 2(1) of the English Arbitration Act, 1996] makes an exception under
Section 2(2) to allow domestic courts to order interim relief in respect of foreign-seated
arbitrations. The Court held that if the Indian Parliament while legislating on the basis of
the Model Law, did not in its wisdom include these exceptions, it was not for the court
then to judicially create a remedy upon the perceived hardship caused to parties.]
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BALCO [(2012) 9 SCC 552.] held:

(a) Part 1 applies only when the arbitration is held in India; and, the court in
Section 2(1)(e) would be the one in whose jurisdiction the arbitration is held [See,
paras 95 to 100 of BALCO, (2012) 9 SCC 552.] ;
(b) The Indian courts cannot apply Part 1 to arbitrations held outside India [See,
paras 176 to 178 and 194-96 of BALCO, (2012) 9 SCC 552.] ;
(c) The ruling would apply only to arbitration agreements entered into from the
date of the judgment, that is, 6-9-2012. [See, para 197 of BALCO, (2012) 9 SCC 552.]
According to the authors, the three errors in the Court's reasoning in BALCO[(2012) 9
SCC 552.] are:
(1) The Court's interpretation of Section 2(1)(e) changes the law on jurisdiction of
the relevant court in purely domestic arbitrations [ The term purely domestic
arbitration is to distinguish arbitrations that involve only Indian parties and Indian
law. A domestic arbitration could mean even an international arbitration held in India.
In both cases, the arbitral award would lead to a domestic award, as stated in
Section 2(7) of the Act. The distinction is important because in respect of an
international arbitration held in India, the argument of the authors will not arise, as
discussed further.] ;
(2) The Court, while drawing on English jurisprudence, misinterpreted the
decisions in Siskina [Siskina (Owners of Cargo Lately Laden on Board) v. Distos
Compania Naviera S.A., 1979 AC 210 : (1977) 3 WLR 818 : (1977) 3 All ER 803
(HL).] and Channel Tunnel [Channel Tunnel Group Ltd. v. Balfour Beatty
Construction Ltd., 1993 AC 334 : (1993) 2 WLR 262 : (1993) 1 All ER 664 (HL).] and
thereby, introduced a common rule as to the nature of interim relief that may not
exist. [ V. Niranjan and Shantanu Naravane, Bhatia InternationalRightly Overruled:
The Consequences of Three Errors in BALCO (2012) 9 SCC J-26.] The authors
argue that the Court omitted to extend the scope of Section 151 of the Code of Civil
Procedure, 1908 to foreign-seated arbitrations due to a mistaken analysis of the
common law position on the grant of interim relief; and,
(3) The Court incorrectly invoked the doctrine of prospective overruling to confine
its ruling to arbitration agreements entered into from the date of the decision
in BALCO [(2012) 9 SCC 552.] i.e. 6-9-2012.
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In our analysis, we will deal with the arguments made by the authors in Points (1)
and (2) to establish that the Court's reasoning in BALCO [(2012) 9 SCC 552.] on both
these aspects is not erroneous as the authors suggest, but logically sound and
consonant with prevailing law and international arbitration practice.
We agree with the authors' conclusion in Point (3) that the Court in BALCO[(2012) 9
SCC 552.] should not have restricted the effect of its ruling only to arbitration
agreements entered into after the date of the judgment. We differ from the authors in
that we think this is an erroneous application of the prospective overruling whereas this
was clearly a fit case to apply prospective effect to pending cases as well.
Point (1): Interpretation of Section 2(1)(e)

Section 2(1)(e) defines court with reference to subject-matter. [ Section 2(1)(e)
reads:2. Definitions.(1) In this Part, unless the context otherwise requires***(e)
Court means the Principal Civil Court of Original Jurisdiction in a district, and includes
the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to
decide the questions forming the subject-matter of the arbitration if the same had been
the subject-matter of a suit, but does not include any civil court of a grade inferior to
such Principal Civil Court, or any Court of Small Causes;] But, Section 2 itself prefaces
the definition of court with the caveat unless the context otherwise requires. If the
context so requires, the court must construe the provision accordingly. [Also generally,
the importance of context in interpretation has been previously affirmed by the Supreme
Court in Indira Nehru Gandhi v. Raj Narain, 1975 Supp SCC 1, 97:The connotation of
the above words [unless the context otherwise requires] is that normally it is the
definition given in the section which should be applied and given effect to. This normal
rule may, however, be departed from, if there be something in the context to show that
the definition should not be applied.]
(i) The context: seat theory or territoriality

In BALCO [(2012) 9 SCC 552.] , the interpretation of Section 2(1)(e) arose in the
context of territoriality. [See, para 89, BALCO, (2012) 9 SCC 552.] The appellant had
argued for extra-territorial applicability of Part 1 submitting that Section 2(1)(e) (among
other provisions) indicated that the court seized of the subject-matter of the arbitration
should be accorded precedence over the court at the seat of arbitration. [See, para
95, BALCO, (2012) 9 SCC 552, 605, wherein party autonomy is discussed:95. The
learned counsel for the appellants have submitted that Section 2(1)(e), Section 20 and
Section 28 read with Section 45 and Section 48(1)(e) make it clear that Part 1 is not
limited only to arbitrations which take place in India. These provisions indicate that the
Arbitration Act, 1996 is subject-matter centric and not exclusively seat-centric.
Therefore, seat is not the centre of gravity so far as the Arbitration Act, 1996 is
concerned.(emphasis in original)]
The Court rejected this argument. It categorically affirmed territoriality by holding that
the expression in Section 2(2), this Part shall apply where the place of arbitration is in
India excluded the application of Part 1 to arbitrations seated outside India. [See, para
95, BALCO, (2012) 9 SCC 552. In view of the expression used in Section 2(2), the
maxim expressum facit cessare tacitum, would not permit by interpretation to hold that
Part 1 would also apply to arbitrations held outside the territory of India.]
On this basis, Section 2(1)(e) which is contained in Part 1 would necessarily apply
only to arbitrations held in India.
The Court further held that the purpose of Section 2(1)(e) is to identify the courts
having supervisory control over the arbitration proceedings thus:
it refers to a court which would essentially be a court of the seat of the
arbitration process. [See, para 96, BALCO, (2012) 9 SCC 552.]
As we shall demonstrate, the Court's interpretation of Section 2(1)(e) is consistent

with its internal logic in BALCO [(2012) 9 SCC 552.] premised on territoriality.
(ii) Section 2(1)(e) to apply to all arbitrations held in India
Part 1 of the 1996 Act, to borrow from Walt Whitman, contains multitudes. [ Do I
contradict myself?Very well then I contradict myself,(I am large, I contain multitudes.)
Walt Whitman, Song of Myself (1855).] The arbitrations it governs could take on an
international or purely domestic one, ranging from foreign parties having nothing to do
with India except for selecting India as a seat of arbitration, to two Indian parties having
Indian arbitrators based on Indian law. [ The 1996 Act was enacted as a consolidating
legislation that comprehensively lays down the law for arbitration, enforcement of
foreign arbitral awards, and conciliation. The Statement of Objects and Reasons of the
1996 Act states at Para 3:Though the said UNCITRAL Model Law and Rules are intended
to deal with international commercial arbitration and conciliation, they could, with
appropriate modifications, serve as a model for legislation on domestic arbitration and
conciliation.] For Part 1 to apply, the only relevant consideration is that the arbitration is
located in India.
It is, therefore, incorrect to confine analysis of the interpretation of Section 2(1)( e) to

purely domestic arbitrations, as the authors have done. This is clear from the Court's
observations which run as follows [See, paras 86, 87, 88 and 89, BALCO, (2012) 9 SCC
552.] :
88. In our opinion [Section 2(7)] does not, in any manner, relax the territorial
principle adopted by the Arbitration Act, 1996. It certainly does not introduce the
concept of a delocalised arbitration into the Arbitration Act, 1996. It must be
remembered that Part 1 of the Arbitration Act, 1996 applies not only to purely
domestic arbitrations i.e. where none of the parties are in any way foreign but also
to international commercial arbitrations covered within Section 2(1)(f) held in India.
The scheme of the Arbitration Act, 1996 provides that Part 1 shall apply to both
international arbitrations which take place in India as well as domestic arbitrations
which would normally take place in India. [See, para 88, BALCO, (2012) 9 SCC 552,
603.]
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(iii) Supervisory court at the seat of arbitration vested with exclusive jurisdiction
The effect of interpretation of Section 2(1)(e) in BALCO [(2012) 9 SCC 552.] is
twofold: first, it specifically confers jurisdiction on the court where the arbitration is held,
even if that court did not otherwise have jurisdiction to entertain a suit on the same
subject-matter. Second, the court so vested also assumes exclusivejurisdiction.
Para 96 of the judgment furnishes an illustration that is apposite: if the seat of

arbitration is designated as Delhi, would jurisdiction vest in the Delhi Court such that the
Bombay and Calcutta Courts are deprived of their jurisdiction?
We submit that the answer is in the affirmative.

The authors, however, have read the interpretation of Section 2(1)(e)

in BALCO[(2012) 9 SCC 552.] to mean that more than one court might potentially
exercise jurisdiction.
But, the Court further explains clearly that it is the court where the arbitration
isheld that would be required to exercise supervisory control over the arbitral process.
[See, para 96, BALCO, (2012) 9 SCC 552, 606:96. In our opinion, the provision in
Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which
give recognition to party autonomy. In our view, the legislature has intentionally given
jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of
action is located and the courts where the arbitration takes place. This was necessary
as on many occasions the agreement may provide for a seat of arbitration at a place
which would be neutral to both the parties.Therefore, the courts where the arbitration
takes place would be required to exercise supervisory control over the arbitral process .
(emphasis supplied)]
At first flush, the authors' understanding may appear to be justified because the
Court also states: both courts would have jurisdiction.
(iv) Logical interpretation of Section 2(1)(e) based on seat theory

As we saw, the Court's interpretation of the 1996 Act is founded on the principle of
territoriality according to which the seat of arbitration determines jurisdiction. The logical
corollary is that the court at the seat of arbitration would assume exclusive jurisdiction to
supervise the arbitration. Such a construction, as the Court in BALCO[(2012) 9 SCC
552.] explained, would give effect to the principle of party autonomy under Section 20 of
the 1996 Act. [ Section 20 reads:20. Place of arbitration.(1) The parties are free to
agree on the place of arbitration.(2) Failing any agreement referred to in sub-section (1),
the place of arbitration shall be determined by the Arbitral Tribunal having regard to the
circumstances of the case, including the convenience of the parties.(3) Notwithstanding
sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by
the parties, meet at any place it considers appropriate for consultation among its
members, for hearing witnesses, experts or the parties, or for inspection of documents,
goods or other property.]
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Party autonomy does not stop short at merely enabling the choice of a convenient
seat. The overarching seat theory specifically empowers the courts at the chosen seat
to exercise supervisory control of the arbitrations. Such supervisory control, by its very
nature, would not allow concurrent jurisdiction by different courts over the same
arbitration. It is only because exclusive jurisdiction vests in and remains with the
supervisory court at the chosen seat, that parties can freely conduct their arbitration
hearings in multiple places as they find convenient.
As the Court observed, parties are enabled under Section 20(3) to hold hearings in
places other than the designated seat of their arbitration. [ Specifically, para 96.Also
see, further paras 97, 98, 99 and 100 of BALCO, (2012) 9 SCC 552.] The Court
reasoned that:
100. in an international commercial arbitration, having a seat in India, hearings
may be necessitated outside India. In such circumstances, the hearing of the
arbitration will be conducted at the venue fixed by the parties, but it would not have
the effect of changing the seat of arbitration which would remain in India. [See, para
100, BALCO, (2012) 9 SCC 552, 607. The Court referred to Redfern & Hunter, The
Law and Practice of International Commercial Arbitration(1986) at p. 69100. it is
by no means unusual for an Arbitral Tribunal to hold meetingsor even hearingsin
a place other than the designated place of arbitration, either for its own convenience
or for the convenience of the parties or their witnesses. In such circumstances,
each move of the Arbitral Tribunal does not of itself mean that the seat of arbitration
changes. The seat of arbitration remains the place initially agreed by or on behalf of
the parties.]
Such an interpretation also gives full effect to Section 42 [ Section 42 of the Act
reads:42. Jurisdiction.Notwithstanding anything contained elsewhere in this Part or in
any other law for the time being in force, where with respect to an arbitration agreement
any application under this Part has been made in a court, that court alone shall have
jurisdiction over the arbitral proceedings and all subsequent applications arising out of
that agreement and the arbitral proceedings shall be made in that court and in no other
court.] of the Act, which confirms that the supervising court retains exclusive jurisdiction.
The argument that the authors proffer is that the concept of supervisory controlby
the court at the seat of arbitration is alien to purely domestic arbitrations. To support
this, the authors point to various judgments on fixing of jurisdiction of the relevant court.
[Food Corpn. of India v. Evdomen Corpn., (1999) 2 SCC 446; Jindal Vijayanagar Steel
(JSW Steel Ltd.) v. Jindal Praxair Oxygen Co. Ltd., (2006) 11 SCC 521; GE
Countrywide Consumer Financial Services Ltd. v. Surjit Singh Bhatia, (2006) 129 DLT
393; Jyothi Turbo Power Services (P) Ltd. v. Shenzhen Shandong Nuclear Power
Construction Co. Ltd., AIR 2011 AP 111. In GE Countrywide, (2006) 129 DLT 393 for
instance, the Court at Delhi had declined jurisdiction, although parties had agreed that
Delhi be the seat, on the basis that Section 2(1)(e) is not concerned with the seat but
with the court which would have had jurisdiction had a suit been instituted.] However, it
has to be noted that these judgments were delivered at a time when the seat theory was
not fully developed or accepted. The position in BALCO [(2012) 9 SCC 552.] as held by
the five-Judge Bench of the Supreme Court now settles the law.
If the authors' argument that Section 2(1)(e) pegs jurisdiction to cause of action, not
consent is accepted, the logic of the seat theory so emphatically endorsed
inBALCO [(2012) 9 SCC 552.] (and indeed by the authors) would break down and be
rendered nugatory. This becomes evident if one examines a case wherein both the
parties are foreigners (a common case in the UK and hopefully, in due course in India),
with the agreed venue to be say, Chennai. It is the Chennai court that would have the
jurisdiction over the arbitral process, although no part of the cause of action of the
dispute being referred to arbitration arose in Chennai, nor would the defendant be a
resident of Chennai. As it often happens in international arbitrations, these were
probably the reasons why a neutral venue was chosen in the first place.
However, by the authors' reasoning, notwithstanding that the arbitration is seated in

India to which Part 1 would wholly apply, there would be no Indian court to refer the
matter to because the subject-matter of the dispute under arbitration would not fall
within the jurisdiction of any Indian court as construed on ordinary legal principles
concerning suits.
Contrary to the authors' argument, the seat theory as adopted in BALCO [(2012) 9
SCC 552.] ensures that there are no natural fora of jurisdiction. In international
commercial arbitration, it is perfectly acceptable and common for parties to choose a
neutral venue whose court would then control their arbitral process, even though that
court may be unrelated to the cause of action, the parties, or their choice of law. More
so, the international arbitration law and practice has increasingly evolved to support and
encourage parties' choice of neutral venues for conducting arbitrations.
There is no basis, in principle as made out by the authors, for why the same
standards set by party autonomy and territoriality as adopted by the Court in respect of
international arbitrations, should not equally apply in the domestic context.
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(v) Seat theory should apply equally to arbitrations held in India

Apart from the fact that the decision in BALCO [(2012) 9 SCC 552.] now falls in line
with internationally recognised arbitration jurisprudence and practice, there are good,
practical reasons to support the Court's reasoning:
It is not inconceivable that parties may choose a seat such as Delhi (as in GE
Countrywide [(2006) 129 DLT 393.] ), precisely to attract the supervisory control of
the courts at Delhi over other places.
The 1996 Act allows the High Courts to make their own rules. [ Section 82, the
1996 Act.] Even otherwise, as lawyers will attest, court cultures vary significantly
between different High Courts in terms of speedy disposal of certain types of cases,
propensity to grant certain interlocutory measures, and familiarity and expertise of
the Bench and counsel in arbitration or commercial law, to state only a few.
The courts at the seat of arbitration are in the best position to control the
arbitration. In practice, this aspect is often played out for instance, in the
appointment of arbitrators/Arbitral Tribunal under Section 11 of the Act. Appointment
can and often does turn on the court's familiarity with the subject-matter of the
dispute and the particular arbitrator(s). If the position in GE Countrywide [(2006) 129
DLT 393.] were correct as the authors urge, the Chennai court would appoint the
Arbitral Tribunal for proceedings that would be held in New Delhi, which would likely
entail practical difficulties and also defeat party autonomy.
Supervisory control exercised by Indian courts in respect of arbitration
proceedings within their jurisdiction, far from being an alien concept, would foster
and forge a culture of arbitration in India. Parties would be able to freely hold
hearings in multiple places without being concerned about invoking the jurisdiction of
courts other than the supervisory court at the seat of arbitration.
On a final note, the prior conflicting jurisprudence on fixing of jurisdiction serves as a

reminder for the need to clearly circumscribe the court's supervisory role.
Lord Hacking in an essay noted that the earlier Arbitration Act of 1975 by which the
New York Convention was adopted into English law was amended by the Act of 1979
and [t]he principal reason for doing so was just to make London a more attractive seat
for arbitration. [See, Lord Hacking, The Story of the Arbitration Act, 1979 (2010) 76
Arbitration 125 (Sweet & Maxwell).The English Parliament found that the 1975 Act had
the case stated procedure and also procedures for setting aside the award for errors
of fact or law on the face of the award. The debate for the 1979 Act was held on 15-51978. Lord Hacking noted that Lord Cullen of Ashborn of the Conservative Party led the
debate for the Opposition in May 1978 when Labour Party was in power. This is how
Lord Hacking put the discussion:Thankfully, however, the Conservative peers remained
loyal to Lord Cullen. I so state because Lord Cullen proved a good choice. He was a
conscientious and well-researched speaker who did his homework. He therefore, set
out to make the commercial case for arbitration law reform. He calculated that 5000
large arbitrations were being annually deterred from coming to London at the loss of
earning power to England of 100,000 pounds for each arbitration. From this, the figure
of 500 million pounds emerged as the large annual loss as Lord Cullen (as they were
then called) power-invisible exports.]
As a comparison to illustrate the importance of applying the territoriality standard

consistently, the 1979 English Act was specifically enacted to ensure that the
supervisory jurisdiction of the English courts over arbitrations remained limited.
Today, as we are aware, London (along with Singapore, Paris and New York) is an
established arbitration hub only because the English courts have evolved to supervise
and support arbitrations held there.
India could well follow England's lead in this respect. The Indian Supreme Court's
seminal decision in BALCO [(2012) 9 SCC 552.] (aside from its restricted prospective
applicability as discussed below) certainly paves the way forward, and should be
properly recognised as such.
Point (2): Analysis of the law in respect of interim relief for foreign-seated
arbitrations
The Court held in BALCO [(2012) 9 SCC 552.] that Indian civil courts have no
jurisdiction and therefore, no power to grant interim relief in respect of foreign-seated
arbitrations.
The Court reasoned that the right to obtain interim relief is ancillary to and contingent
upon a pre-existing cause of action; and, no such cause of action is there where the
substantive proceedings would be finally determined outside India. Consequently, an
inter partes suit instituted seeking interim relief for arbitration held outside India would
be dismissed at the threshold as not maintainable under the present law. [See, paras
177, 178 and 179 of BALCO, (2012) 9 SCC 552.In particular, the Court held at 642, para
175:175. In our opinion, pendency of arbitration proceedings outside India would not
provide a cause of action for a suit where the main prayer is for injunction. If such a
suit [were] filed, it would in all probabilities be stayed in view of Sections 8 and 45 of the
Arbitration Act, 1996. such a suit would not be maintainable, because an interlocutory
injunction can only be granted during the pendency of a civil suit claiming a relief which
is likely to result in a final decision upon the subject in dispute. The suit would be
maintainable only on the existence of a cause of action, which would entitle the plaintiff
for the substantive relief claimed in the suit. The cause of action would clearly be
contingent/speculative. There would be no existing cause of action. In any event
no interim relief could be granted unless it is in aid of and ancillary to the main relief that
may be available to a party on final determination of rights in a suit.(emphasis in
original)]
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The authors think that the Court made its second error when it so held. They
argue, first, that the Court by proceeding on a mistaken analysis of the common law
position in respect of grant of interim relief, missed the opportunity to grant such relief
in aid of foreign-seated arbitrations. Secondly, that the Court misplaced its reliance on
the English decisions in Siskina [1979 AC 210 (HL).] and Channel Tunnel [1993 AC 334
(HL).] by incorrectly attributing the development of the law in this respect to specific
statutory intervention.
This is not correct.
(i) Section 151 CPC is exceptional in nature and unavailable where express
provisions apply
The authors' construction of the scope of Section 151 CPC is misconceived.
Section 151 CPC reads as follows:

151. Saving of inherent powers of court.Nothing in this Code shall be deemed
to limit or otherwise affect the inherent power of the court to make such orders as
may be necessary for the ends of justice or to prevent abuse of the process of the
court.
The law is settled that Section 151 would not be available where a specific statute
governs the case. [ The authors admit this in Bhatia International Rightly Overruled:
The Consequences of Three Errors in BALCO (2012) 9 SCC J-26, 35.] Orders 38, 39
and 40 CPC and similar other provisions would apply ordinarily (and to that extent,
exhaustively) to the grant of interim relief. Section 151 would be available to the courts
as an inherent exceptional power to be invoked only in extraordinary circumstances.
BALCO [(2012) 9 SCC 552.] correctly reflects this position. [ See, para 192 of BALCO,
(2012) 9 SCC 552.]
The two precedents in Manohar Lal Chopra [Manohar Lal Chopra v. Seth Hiralal,
AIR 1962 SC 527.] and Vareed Jacob [Vareed Jacob v. Sosamma Geevarghese, (2004)
6 SCC 378.] that the authors seek to rely upon, evince the position stated above.
In Manohar Lal Chopra [AIR 1962 SC 527.] , the Supreme Court observed that thus:
The inherent powers are to be exercised by the Court in very exceptional
circumstances, for which the Code lays down no procedure. [See, para 27,Manohar
Lal Chopra case, AIR 1962 SC 527.]
Similarly, the decision by a three-Judge Bench of the Supreme Court in Vareed

Jacob [(2004) 6 SCC 378.] reiterate the law as follows:
11. Therefore, when a matter comes before the court, the court has to
examine the facts of each case and ascertain whether the ingredients of Section 94
read with the rules in an order are satisfied and accordingly grant an appropriate
relief. It is only in cases where circumstances do not fall under any of the rules
prescribed that the court can invoke its inherent power under Section 151 CPC.
[Vareed Jacob, (2004) 6 SCC 378, 389, para 11.]
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The authors admit that Section 151 may not be relied upon to circumvent the
provisions, but argue nevertheless that Section 151 supplements these provisions.
[See, their argument in Bhatia International Rightly Overruled: The Consequences of
Three Errors in BALCO (2012) 9 SCC J-26, 36:In sum, although CPC does not
expressly provide the Indian civil courts the power to grant interim relief in aid of foreignseated arbitrations, there is no express prohibition either. To the contrary, there is a case
to be made for accommodating this power within Section 151, provided such a power is
consistent with the inherent nature of interim relief.]
We find this proposition vague, and contrary to the settled legal position.
The authors cite [ Bhatia International Rightly Overruled: The Consequences of

Three Errors in BALCO (2012) 9 SCC J-26, 35.] National Institute of Mental
Health[National Institute of Mental Health and Neuro Science v. C. Parameshwara,
(2005) 2 SCC 256.] to bolster their argument, even though the Court clearly held in para
12 of that judgment that:
12. In Manohar Lal Chopra v. Seth Hiralal [AIR 1962 SC 527.] it has been held
that inherent jurisdiction of the court to make orders ex debito justitiae is
undoubtedly affirmed by Section 151 CPC, but that jurisdiction cannot be exercised
so as to nullify the provisions of the Code. Where the Code deals expressly with a
particular matter, the provision should normally be regarded asexhaustive. [Ibid.,
260.]
(emphasis supplied)
In view of this position, in an ordinary civil matter that did not concern an arbitration,
a party seeking interim relief from the courts would have to apply under the provisions of
Order 38 or 39 CPC, which impose certain limitations. If the party did not satisfy these
limitations, it could not separately rely upon Section 151 CPC. Once its suit is not
maintainable under the ordinary provisions, Section 151 cannot be relied upon as an
alternative source of jurisdiction.
Applying this logic to suits instituted seeking interim measures for foreign-seated
arbitrations, the difference is not in the nature of relief sought; it is in the fact that the
substantive dispute is to be resolved through arbitration and not through a suit. The
mechanism to resolve a dispute cannot form the basis of jurisdiction when the nature of
relief asked for is essentially the same. [See, the Court's finding at para 179, BALCO,
(2012) 9 SCC 552, 643:179. In matters pertaining to arbitration, the suit would also be
barred under Section 14(2) of the Specific Relief Act. Although the provision exists in
Section 37 of the Specific Relief Act, 1963, for grant of temporary/perpetual injunction,
but the existence of cause of action would be essential under this provision also. Similar
would be the position under Section 38 of the Specific Relief Act.]
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On the authors' reasoning, however, Section 151 would be invoked to confer

jurisdiction to grant interim relief, as a matter of law, in every case in which the
arbitration is seated out of India. In other words, an exceptional power is sought to be
made exercisable in a routine manner. This is discordant with the prevalent law.
(ii) Interim relief founded on existence of cause of action

The Court in BALCO [(2012) 9 SCC 552.] confirmed that in India, interim relief per
se cannot be granted without a cause of action. Such a cause of action is furnished by
the enforcement of a substantive right. A claim for interim relief, being ancillary to the
substantive relief, cannot exist if the main proceedings lie outside the court's jurisdiction.
[See, paras 177, 178 and 179, BALCO, (2012) 9 SCC 552.]
The principle of cause of action is, therefore, fundamental to the grant of interim
relief. [ See, State of Orissa v. Madan Gopal Rungta, AIR 1952 SC 12; Cotton Corpn. of
India Ltd. v. United Industrial Bank Ltd., (1983) 4 SCC 625; Ashok Kumar
Lingala v. State of Karnataka, (2012) 1 SCC 321; all relied upon by the Court inBALCO,
(2012) 9 SCC 552 see paras 180-182. Also see, Section 9 CPC read with Order 7
Rule 11 CPC, which stipulates assertion of a right to maintain a suit.]
The authors dispute this position. They contend that in English law there is no such
inherent requirement for the grant of interim relief. To support this, the authors refer to
the judgments in South Carolina [South Carolina Insurance Co. v.Assurantie
Maatschappij De Zeven Provincien N.V., 1987 AC 24 : (1986) 3 WLR 398 : (1986) 3 All
ER 487 (HL).] , Castanho [Brown & Root (U.K.) Ltd. v. Castanho, 1981 AC 557 : (1980)
3 WLR 991 : (1981) 1 All ER 143 (HL).] and Laker Airways[Laker Airways Ltd. v. British
Airways Board, 1985 AC 58 : (1984) 3 WLR 413 : (1984) 3 All ER 39 (HL).] . Their
argument is: although these decisions accepted that an English court does require
jurisdiction over the defendant or the subject-matter of the dispute, they doubted the
validity of the principle laid down in Siskina. [ Bhatia International Rightly Overruled:
The Consequences of Three Errors inBALCO (2012) 9 SCC J-26, 39.]
The principle in Siskina [1979 AC 210 (HL).] was laid down by Lord Diplock (and
relied upon by the Court in BALCO [(2012) 9 SCC 552.] ):
[The relevant statutory provision], speaking as it does of interlocutory orders,
presupposes the existence of an action, actual or potential, claiming substantive
relief which the High Court has jurisdiction to grant and to which the interlocutory
orders referred to are but ancillary. This factor has been present in all previous cases
in which Mareva injunctions have been granted. A right to obtain an interlocutory
injunction is not a cause of action. It cannot stand on its own. It is dependent upon
there being a pre-existing cause of action against the defendant arising out of an
invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for
the enforcement of which the defendant is amenable to the jurisdiction of the court.
To come within [sub-rule (i)] the injunction sought in the action must be part of the
substantive relief to which the plaintiff's cause of action entitles him; and the thing
that it is sought to restrain the foreign defendant from doing in England must amount
to an invasion of some legal or equitable right belonging to the plaintiff in this country
and enforceable here by a final judgment for an injunction. [Siskina, 1979 AC 210,
254E & 256 D&H.]
Lord Brandon's observations in the subsequent South Carolina case [1987 AC 24.] ,
relied upon by the authors (and which they quote) as laying down a revised principle
differing from the strict position in Siskina [1979 AC 210.] , are pertinent:
the power of the High Court to grant injunctions is, subject to two exceptions
to which I shall refer shortly, limited to two situations. Situation (1) is when one party
to an action can show that the other party has either invaded, or threatens to invade,
a legal or equitable right of the former for which the enforcement of the latter is
amenable to the jurisdiction of the court. [South Carolina, 1987 AC 24, 40-D : (1986)
3 All ER 487 (HL), 495g and 496a.]
(emphasis supplied)
In the case of foreign-seated arbitrations, neither of the two conditions specified in

Situation 1 [ Situation 2 referred to by Lord Brandon does not arise, nor is it the
contention of the authors that it arises from the present analysis.] is met. There is no
legal or equitable right, which the party seeks to enforce that arises at the time of
seeking interim measures, as the substantive right would crystallise only when the final
award is rendered.
The English position clearly holds that there must exist a legal or equitable right
without which the court has no power to grant the injunction sought for. [South Carolina,
1987 AC 24, 41A-B.Lord Brandon speaking for the majority stated as follows:[Have the
plaintiffs shown that the defendants], by beginning and intending to prosecute their
application to the United States District Court, have invaded, or threatened to invade, a
legal or equitable right of South Carolina for the enforcement of which the [defendants]
are amenable to the jurisdiction of the court? It was contended by [the counsel for the
plaintiffs that the plaintiffs] did indeed have such a legal or equitable right, but it
appeared to me that he had great difficulty in formulating the legal or equitable right on
which he relied. Neither of the courts below decided as they did on the basis that the
[defendants] had by their conduct invaded a legal or equitable right of [the plaintiffs],
and I cannot see how such a case can be made out. I would therefore hold that [the
plaintiffs] have not shown that Situation (1) exists.(emphasis supplied)]
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A decision by the English High Court (Chancery Division) in Royal Westminster

Investments [Royal Westminster Investments S.A. v. Varma, 2012 EWHC 3439 (Ch)
(30-11-2012).] delivered as recently as in November 2012 confirms this. The English
court there specifically dealt with the doubts [See, para 40 of Royal Westminster, 2012
EWHC 3439 (Ch).40. In South Carolina, 1987 AC 24, Lord Goff of Chieveley (with
whom Lord Mackay of Clashfern agreed) said (at 44-45) that he was reluctant to accept
the proposition that the power of the court to grant injunctions is restricted to certain
exclusive categories. Lord Browne-Wilkinson (with whom Lord Keith of the Kinkel and
Lord Goff of Chieveley agreed) shared the same doubts in Channel Tunnel Group
Ltd. v. Balfour Beatty Construction Ltd., 1993 AC 334 (see 343).] expressed in Channel
Tunnel [1993 AC 334.] and South Carolina [1987 AC 24.] (as relied upon by the
authors), only to uphold the principle in Siskina [1979 AC 210.] on the basis that the
weight of authority is to the effect that an interim injunction should normally be granted
only in aid of an enforceable right. [ The relevant findings of the Court in Royal
Westminster, 2012 EWHC 3439 are at paras 42 to 44. The reasoning of the Court is at
paras 38 to 42 of which the relevant portions are extracted hereunder:38. Section 37(1)
of the Senior Courts Act, 1981 confers a power to grant injunctions in wide terms. It
states:The High Court may by order (whether interlocutory or final) grant an injunction or
appoint a receiver in all cases in which it appears to the court to be just and convenient
to do so.However, the power is not unfettered. Collins, L.J. explained the position as
follows in Masri v. Consolidated Contractors International (UK) Ltd. (No. 2), 2008 EWCA
Civ 303 : 2009 QB 450, 496-97 (at para 175):175. As Lord Brandon of Oakbrook said
in South Carolina Insurance Co., 1987 AC 24, 40: although the terms of Section 37(1)
of the Act of 1981 and its predecessors are very wide, the power conferred by them has
been circumscribed by judicial authority dating back many years.This point has often
been reaffirmed by the House of Lords (and by the Privy Council) in relation to
injunctions [see Gouriet v. Union of Post Office Workers, 1978 AC 435, 500-01,
516; Siskina (Owners of Cargo Lately Laden on Board) v. Distos Compania Naviera
S.A., 1979 AC 210, 256; Bremer Vulkan v.South India Shipping Corpn. Ltd., 1981 AC
909, 979; British Airways Board v. Laker Airways Ltd., 1985 AC 58, 8081; P. v. Liverpool Daily Post and Echo Newspapers plc, (1991) 2 AC 370, 42021; Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd., 1993 AC 334, 341,
360-61 and Mercedes Benz A.G. v. Leiduck, 1996 AC 284, 298 (PC).The point was
recently repeated by the Privy Council inTasarruf Mevduati Sigorta Fonu v. Merrill Lynch
Bank and Trust Co. (Cayman) Ltd., (2012) 1 WLR 1721 (at para 57).39. In South
Carolina Insurance Co., 1987 AC 24. Lord Brandon of Oakbrook, delivering the
leading speech in the House of Lords, said (at 40) that the authorities showed that the
power of the High Court to grant injunction is: subject to two
exceptions.40. [see footnote 103 above].41. Nonetheless, the weight of authority is to
the effect that an interim injunction should normally be granted only in aid of an
enforceable right.]
In so holding, the Court relied on the majority decision by the House of Lords
inFourie v. Le Roux [2007 UKHL 1 : (2007) 1 WLR 320. See para 32 of the judgment as
held by Lord Scott of Foscote (with whom the other Members of the House of Lords
expressed agreement).] , which held:
32. without the issue of substantive proceedings or an undertaking to do so,
the propriety of the grant of an interlocutory injunction would be difficult to defend. An
interlocutory injunction, like any other interim order, is intended to be of temporary
duration, dependent on the institution and progress of some proceedings for

substantive relief. [Ibid., 333.]
The principle in Siskina [1979 AC 210.] thus continues to be good law, doubts
notwithstanding.
It also appears to us that there is no substantial difference between the Indian and
English law in this respect.
(iii) BALCO correctly relied upon Channel Tunnel and Siskina

We think that BALCO [(2012) 9 SCC 552.] rightly construed the English decisions
in Siskina [1979 AC 210.] and Channel Tunnel [1993 AC 334.] . [See, paras 184-86 and
190 of BALCO, (2012) 9 SCC 552.]
The authors are not right in suggesting that the common law position in England
would likely support the existence of a power to grant interim relief in the sort of cases
being considered by the Supreme Court in BALCO [(2012) 9 SCC 552.] . [Bhatia
International Rightly Overruled: The Consequences of Three Errors inBALCO (2012) 9
SCC J-26, 36.]
Channel Tunnel [1993 AC 334.] and subsequent decisions (as cited above) establish
that English law does not appear to have departed from the requirement of a legal or
equitable right to found the power to grant any relief.
The Court in BALCO [(2012) 9 SCC 552.] also correctly identified the legislative
intervention in England that enabled those courts to grant free-standing interlocutory
relief in instances where the only factor was the presence of assets within the
jurisdiction of the country. [See, para 189, BALCO, (2012) 9 SCC 552.The important
statutory amendments in England in this respect are listed below:(1) Section 25 of the
Civil Jurisdiction and Judgments Act, 1982(2) Section 44 of the Arbitration Act, 1996(3)
Civil Jurisdiction and Judgments Act, 1982 (Interim Relief), Order 1997 read with (1)
above.]
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The limited scope of Section 151 as a residual, exceptional power cannot be

qualified or extended by Indian courts to cases where the substantive proceedings lie
outside India. Any change to allow the courts here to exercise such long-arm
jurisdiction would necessitate statutory support.
(iv) Courts cannot grant interim relief if no legal or equitable right arises
The issue of what constitutes a legal or equitable right has long been contentious
[ Generally, for a theoretical analysis see, for instance, Hohfield's analysis of rights
in Fundamental Legal Conception As Applied in Judicial Reasoning (1919); M.A.
Stewart, Law, Morality and Rights (1983); A.R. White,Rights (1984). More specifically,
this issue is pertinent for it is implicit in Lord Browne-Wilkinson's observations
in Channel Tunnel, 1993 AC 334 expressing doubt on the rule in Siskina, 1979 AC
210. In doing so, he himself postulated (at 342): the relevant question is whether the
[] court has power to grant the substantive relief, not whether it will in fact do so.] and
merits a brief discussion.
In Mareva [Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., (1980)

1 All ER 213 : (1975) 2 Lloyd's Rep 509 (CA).] , Lord Denning allowed interim relief to
be granted, stating that whatever the powers of the court, the court will not grant relief
to protect a person who has no legal or equitable right whatever. [ See, Mareva, (1980)
1 All ER 213, 214h (CA).]
The significance of this observations would be apparent when one reads Roskill,
L.J.'s separate concurring judgment in Mareva [(1980) 1 All ER 213.] . He wrote:
There is or may be a legal or perhaps equitable right which the shipowners may
be entitled to have protected by the court. The full extent and [the] nature of that
right has long been a controversial matter which may have to be resolved hereafter
and I therefore say no more about it. [ See, Mareva, (1980) 1 All ER 213, 216c.]
(emphasis supplied)
The third learned Judge, Omrod, L.J. did not acknowledge the issue at all.
Assuming arguendo that a legal or equitable right does exist, it must be in relation to
the property in dispute in the foreign-seated arbitration. The other requirement under the
law is that the defendant should be amenable to the jurisdiction of the court. This can be
made clear by considering a case of two foreign parties having arbitration outside India,
one of whom has property situated in India. The defendant would not be amenable to
the jurisdiction of the Indian court by applying either the principles of cause of action or
of residence. Further, no jurisdiction would be established by the mere fortuitous
presence of property within India. This view is expressed by the Supreme Court
in World Tanker [World Tanker Carrier Corpn. v. SNP Shipping Services (P) Ltd., (1998)
5 SCC 310.] wherein it observed.
41. The fortuitous presence of the ship in the Bombay harbour will not entitle
the owner to file a limitation action in the Bombay High Court in the absence of any
claim being made or apprehended against him or the vessel in that court. [Ibid.,
326.]
(emphasis supplied)
Having regard to the scope of Section 151 explained above, there is no inherent
power in an Indian court to grant interim relief when arbitration is seated outside India.
Point (3): Incorrect application of the doctrine of prospective overruling

We agree with the authors that the Court in BALCO [(2012) 9 SCC 552.] erroneously
applied the doctrine of prospective overruling. However, we disagree that this was not
a fit case to invoke the doctrine of prospective overruling. [ Bhatia International Rightly
Overruled: The Consequences of Three Errors inBALCO (2012) 9 SCC J-26, 41.]
The Court applied the prospective overruling principle by restricting its ruling only to
arbitration agreements entered into after the date of the decision i.e. 6-9-2012 [BALCO,
(2012) 9 SCC 552.] .
It is apposite to add here that the doctrine of prospective overruling was applied
in SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618. The seven-Judge Bench was
construing the provisions of the 1996 Act and not any constitutional matters. The
constitutionality restriction stated in Golak Nath v. State of Punjab, AIR 1967 SC 1643
has been derogated from in subsequent decisions, albeit impliedly.The Court in Golak
Nath, AIR 1967 SC 1643, had first applied the doctrine of prospective overruling
attributing its origin to American jurisprudence wherein it is also referred to as the
Sunburst doctrine after the decision of Cardozo, J., in 1932 in Great Northern Railway
Co. v. Sunburst Oil and Refining Co., 77 L Ed 360 : 287 US 358 (1932):51. As this Court
for the first time has been called upon to apply the doctrine evolved in a different
country under different circumstances, we would like to move warily in the beginning.
We would lay down the following propositions:(1) The doctrine of prospective overruling
can be invoked only in matters arising under our Constitution.(2) It can be applied only
by the highest court of the country i.e. the Supreme Court as it has the constitutional
jurisdiction to declare law binding on all the courts in India;(3) The scope of the
retroactive operation of the law declared by the Supreme Court superseding its earlier
decision is left to its discretion to be moulded in accordance with the justice of the
cause or matter before it.] , where a Bench of seven Judges (by a 6:1 majority)
overruled an earlier five-Judge Bench decision in Konkan Railway Corpn. Ltd. v. Rani
Construction (P) Ltd. [(2002) 2 SCC 388 wherein the Court had affirmed the threeJudge Bench decision in Konkan Railway Corpn. Ltd. v. Mehul Construction Co., (2000)
7 SCC 201.]
The Court explained its position thus:

47. (x) Since all were guided by the decision of this Court in Konkan Railway
Corpn. Ltd. v. Rani Construction (P) Ltd. [(2002) 2 SCC 388.] and orders under
Section 11(6) of the Act have been made based on the position adopted in that
decision, we clarify that appointments of arbitrators or Arbitral Tribunals thus far
made, are to be treated as valid, all objections being left to be decided under Section
16 of the Act. As and from this date, the position as adopted in this judgment will
govern even pending applications under Section 11(6) of the Act. [SBP &
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, 664.]
(emphasis supplied)
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Thus, in Patel Engg. [(2005) 8 SCC 618.] , the Court was conscious that
appointments of arbitrators that would have been made relying on the previous legal
position would entail significant practical difficulties. It accordingly held that even
pending applications would be governed by the new ruling.
Patel Engg. case [(2005) 8 SCC 618.] provided a clear precedent for applying
prospective overruling to pending arbitration petitions or applications.
However, by restricting prospective effect to arbitration agreements executed after 69-2012, the Court in BALCO [(2012) 9 SCC 552.] has set up an anomalous situation.
This is because, as the authors validly point out, those claimants who concluded their
arbitration agreements prior to the decision in Bhatia [(2002) 4 SCC 105.] by relying on
the correct position as now affirmed in BALCO [(2012) 9 SCC 552.] , are unjustifiably in a
worse position than those who relied on the wrong position stated in Bhatia [(2002) 4
SCC 105.] .
Therefore, in this limited respect alone, the ruling in BALCO [(2012) 9 SCC 552.]
should be reviewed.
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herefore, in this limited respect alone, the ruling in BALCO 140 should be reviewed.
Senior Advocate, Supreme Court.

Advocate, Supreme Court.
V. Niranjan and Shantanu Naravane, Bhatia International Rightly

Consequences of Three Errors in BALCO (2012) 9 SCC J-26.
1
Overruled:
The
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 : (2012)
4 SCC (Civ) 810.
2
Bhatia International v. Bulk Trading S.A, (2002) 4 SCC 105.
(2012) 9 SCC 552.
(2002) 4 SCC 105.
Venture Global Engg. v. Satyam Computer Services Ltd., (2008) 4 SCC 190.
(2012) 9 SCC 552.
(2002) 4 SCC 105.
(2002) 4 SCC 105.
10
(2002) 4 SCC 105.
11
(2002) 4 SCC 105.
12
Section 2(2) of the Act reads: This Part shall apply where the place of arbitration is in India.
13
(2002) 4 SCC 105.
14
See, S.K Dholakia, Bhatia International v. Bulk Trading S.A A Critical Review, (2003) 5
SCC J-22.
15
(2002) 4 SCC 105.
16
(2002) 4 SCC 105.
17
(2012) 9 SCC 552.
18
(2002) 4 SCC 105.
19
(2008) 4 SCC 190.
20
(2002) 4 SCC 105.
21
(2012) 9 SCC 552.
22
The Court's findings in BALCO , (2012) 9 SCC 552 on the significance of the omission of the
word only in relation to the seat-based test for jurisdiction are at paras 62 to 76. In particular,
the Court observed at para 71 that the discussions of the UNCITRAL Committee at the 330th
Meeting held on 19-6-1985 demonstrate that the word only in Article 1(2) of
the UNCITRAL Model Law was introduced in view of the exceptions relating to Articles 8, 9, 35
and 36 which could have extra-territorial effect, if so legislated by the State, while the other
provisions would be applicable on a strict territorial basis. The findings of the Court with respect
to a complete segregation of Part 1 and Part 2 are at paras 125 to 129, BALCO , (2012) 9 SCC
552.
23
See, paras 159 and 160, BALCO , (2012) 9 SCC 552.
24
See, para 163. Also see paras 164 to 170, BALCO , (2012) 9 SCC 552.
25
See, para 171, BALCO , (2012) 9 SCC 552. The Model Law allowed certain provisions to be
excepted from the strict territoriality principle so as to have extra-territorial effect, if the State so
legislated. For instance, the law in England, while endorsing territoriality [under Section 2(1) of
the English Arbitration Act, 1996] makes an exception under Section 2(2) to allow domestic
courts to order interim relief in respect of foreign-seated arbitrations. The Court held that if the
Indian Parliament while legislating on the basis of the Model Law, did not in its wisdom include
these exceptions, it was not for the court then to judicially create a remedy upon the perceived
hardship caused to parties.
26
(2012) 9 SCC 552.
27
See, paras 95 to 100 of BALCO , (2012) 9 SCC 552.
28
See, paras 176 to 178 and 194-96 of BALCO , (2012) 9 SCC 552.
29
See, para 197 of BALCO , (2012) 9 SCC 552.
30
(2012) 9 SCC 552.
The term purely domestic arbitration is to distinguish arbitrations that involve only Indian
parties and Indian law. A domestic arbitration could mean even an international arbitration held
31
in India. In both cases, the arbitral award would lead to a domestic award, as stated in Section
2(7) of the Act. The distinction is important because in respect of an international arbitration held
in India, the argument of the authors will not arise, as discussed further.
32
Siskina (Owners of Cargo Lately Laden on Board) v. Distos Compania Naviera S.A, 1979 AC
210 : (1977) 3 WLR 818 : (1977) 3 All ER 803 (HL).

33
Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd., 1993 AC 334 : (1993) 2 WLR
262 : (1993) 1 All ER 664 (HL).

V. Niranjan and Shantanu Naravane, Bhatia International Rightly
Consequences of Three Errors in BALCO (2012) 9 SCC J-26.
34
35
(2012) 9 SCC 552.
36
(2012) 9 SCC 552.
37
(2012) 9 SCC 552.
38
Section 2(1)(e) reads:
Overruled:
The
2. Definitions.(1) In this Part, unless the context otherwise requires

***
(e) Court means the Principal Civil Court of Original Jurisdiction in a district, and
includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction
to decide the questions forming the subject-matter of the arbitration if the same had been
the subject-matter of a suit, but does not include any civil court of a grade inferior to such
Principal Civil Court, or any Court of Small Causes;
Also generally, the importance of context in interpretation has been previously affirmed by the
Supreme Court in Indira Nehru Gandhi v. Raj Narain, 1975 Supp SCC 1, 97:
39
The connotation of the above words [unless the context otherwise requires] is that
normally it is the definition given in the section which should be applied and given effect to.
This normal rule may, however, be departed from, if there be something in the context to
show that the definition should not be applied.
40
(2012) 9 SCC 552.
41
See, para 89, BALCO , (2012) 9 SCC 552.
42
See, para 95, BALCO , (2012) 9 SCC 552, 605, wherein party autonomy is discussed:
95. The learned counsel for the appellants have submitted that Section 2(1)(e), Section
20 and Section 28 read with Section 45 and Section 48(1)(e) make it clear that Part 1 is not
limited only to arbitrations which take place in India. These provisions indicate that the
Arbitration Act, 1996 is subject-matter centric and not exclusively seat-centric. Therefore,
seat is not the centre of gravity so far as the Arbitration Act, 1996 is concerned.
(emphasis in original)
43
See, para 95, BALCO , (2012) 9 SCC 552. In view of the expression used in Section 2(2), the
maxim expressum facit cessare tacitum, would not permit by interpretation to hold that Part 1
would also apply to arbitrations held outside the territory of India.
44
45
(2012) 9 SCC 552.
46
Do I contradict myself?
Very well then I contradict myself,
(I am large, I contain multitudes.)
Walt Whitman, Song of Myself (1855).
47
The 1996 Act was enacted as a consolidating legislation that comprehensively lays down the
law for arbitration, enforcement of foreign arbitral awards, and conciliation. The Statement of
Objects and Reasons of the 1996 Act states at Para 3:
Though the said UNCITRAL Model Law and Rules are intended to deal with international
commercial arbitration and conciliation, they could, with appropriate modifications, serve as
a model for legislation on domestic arbitration and conciliation.
48
See, paras 86, 87, 88 and 89, BALCO , (2012) 9 SCC 552.
49
See, para 88, BALCO , (2012) 9 SCC 552, 603.
50
(2012) 9 SCC 552.
51
(2012) 9 SCC 552.
52
See, para 96, BALCO , (2012) 9 SCC 552, 606:

96. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in
view the provisions in Section 20 which give recognition to party autonomy. In our view,
the legislature has intentionally given jurisdiction to two courts i.e the court which would
have jurisdiction where the cause of action is located and the courts where the arbitration
takes place. This was necessary as on many occasions the agreement may provide for a
seat of arbitration at a place which would be neutral to both the parties. Therefore, the
courts where the arbitration takes place would be required to exercise supervisory control
over the arbitral process.
(emphasis supplied)
53
(2012) 9 SCC 552.
54
Section 20 reads:
20. Place of arbitration.(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be
determined by the Arbitral Tribunal having regard to the circumstances of the case, including
the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless
otherwise agreed by the parties, meet at any place it considers appropriate for consultation
among its members, for hearing witnesses, experts or the parties, or for inspection of
documents, goods or other property.
55
Specifically, para 96. Also see, further paras 97, 98, 99 and 100 of BALCO , (2012) 9 SCC 552.
56
See, para 100, BALCO , (2012) 9 SCC 552, 607. The Court referred to Redfern & Hunter, The
Law and Practice of International Commercial Arbitration (1986) at p. 69

100. it is by no means unusual for an Arbitral Tribunal to hold meetingsor even
hearingsin a place other than the designated place of arbitration, either for its own
convenience or for the convenience of the parties or their witnesses. In such
circumstances, each move of the Arbitral Tribunal does not of itself mean that the seat of
arbitration changes. The seat of arbitration remains the place initially agreed by or on behalf
of the parties.
57
Section 42 of the Act reads:

42. Jurisdiction.Notwithstanding anything contained elsewhere in this Part or in any
other law for the time being in force, where with respect to an arbitration agreement any
application under this Part has been made in a court, that court alone shall have jurisdiction
over the arbitral proceedings and all subsequent applications arising out of that agreement
and the arbitral proceedings shall be made in that court and in no other court.
58
Food Corpn. of India v. Evdomen Corpn., (1999) 2 SCC 446; Jindal Vijayanagar Steel (JSW
Steel Ltd.) v. Jindal Praxair Oxygen Co. Ltd., (2006) 11 SCC 521; GE Countrywide Consumer
Financial Services Ltd. v. Surjit Singh Bhatia, (2006) 129 DLT 393; Jyothi Turbo Power Services
(P) Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd., AIR 2011 AP 111. In GE
Countrywide, (2006) 129 DLT 393 for instance, the Court at Delhi had declined jurisdiction,
although parties had agreed that Delhi be the seat, on the basis that Section 2(1)(e) is not
concerned with the seat but with the court which would have had jurisdiction had a suit been
instituted.
59
(2012) 9 SCC 552.
60
(2012) 9 SCC 552.
61
(2012) 9 SCC 552.
62
(2012) 9 SCC 552.
63
(2006) 129 DLT 393.
64
Section 82, the 1996 Act.
65
(2006) 129 DLT 393.
66
See, Lord Hacking, The Story of the Arbitration Act, 1979 (2010) 76 Arbitration 125 (Sweet &
Maxwell).
The English Parliament found that the 1975 Act had the case stated procedure and
also procedures for setting aside the award for errors of fact or law on the face of the
award. The debate for the 1979 Act was held on 15-5-1978. Lord Hacking noted that Lord
Cullen of Ashborn of the Conservative Party led the debate for the Opposition in May 1978
when Labour Party was in power. This is how Lord Hacking put the discussion:
Thankfully, however, the Conservative peers remained loyal to Lord Cullen. I so state
because Lord Cullen proved a good choice. He was a conscientious and well-researched
speaker who did his homework. He therefore, set out to make the commercial case for
arbitration law reform. He calculated that 5000 large arbitrations were being annually
deterred from coming to London at the loss of earning power to England of 100,000 pounds
for each arbitration. From this, the figure of 500 million pounds emerged as the large annual
loss as Lord Cullen (as they were then called) power-invisible exports.
67
(2012) 9 SCC 552.
68
(2012) 9 SCC 552.
69
See, paras 177, 178 and 179 of BALCO , (2012) 9 SCC 552.
In particular, the Court held at 642, para 175:
175. In our opinion, pendency of arbitration proceedings outside India would not provide
a cause of action for a suit where the main prayer is for injunction. If such a suit [were]
filed, it would in all probabilities be stayed in view of Sections 8 and 45 of the Arbitration Act,
1996. such a suit would not be maintainable, because an interlocutory injunction can only
be granted during the pendency of a civil suit claiming a relief which is likely to result in a
final decision upon the subject in dispute. The suit would be maintainable only on the
existence of a cause of action, which would entitle the plaintiff for the substantive relief
claimed in the suit. The cause of action would clearly be contingent/speculative. There
would be no existing cause of action. In any event no interim relief could be granted
unless it is in aid of and ancillary to the main relief that may be available to a party on final
determination of rights in a suit.
(emphasis in original)
70
1979 AC 210 (HL).
71
1993 AC 334 (HL).
The authors admit this in Bhatia International Rightly Overruled: The Consequences of
Three Errors in BALCO (2012) 9 SCC J-26, 35.
72
73
(2012) 9 SCC 552.
74
See, para 192 of BALCO , (2012) 9 SCC 552.
75
Manohar Lal Chopra v. Seth Hiralal, AIR 1962 SC 527.
76
Vareed Jacob v. Sosamma Geevarghese, (2004) 6 SCC 378.
77
AIR 1962 SC 527.
78
See, para 27, Manohar Lal Chopra case, AIR 1962 SC 527.
79
(2004) 6 SCC 378.
80
Vareed Jacob, (2004) 6 SCC 378, 389, para 11.
See, their argument in Bhatia International Rightly Overruled: The Consequences of

Three Errors in BALCO (2012) 9 SCC J-26, 36:
81
In sum, although CPC does not expressly provide the Indian civil courts the power to
grant interim relief in aid of foreign-seated arbitrations, there is no express prohibition either.
To the contrary, there is a case to be made for accommodating this power within Section
151, provided such a power is consistent with the inherent nature of interim relief.
82
Bhatia International Rightly Overruled: The Consequences of Three Errors in BALCO (2012)
9 SCC J-26, 35.
83
National Institute of Mental Health and Neuro Science v. C. Parameshwara, (2005) 2 SCC
256.
84
AIR 1962 SC 527.
85
Ibid., 260.
86
See, the Court's finding at para 179, BALCO , (2012) 9 SCC 552, 643:
179. In matters pertaining to arbitration, the suit would also be barred under Section
14(2) of the Specific Relief Act. Although the provision exists in Section 37 of the Specific
Relief Act, 1963, for grant of temporary/perpetual injunction, but the existence of cause of
action would be essential under this provision also. Similar would be the position under
Section 38 of the Specific Relief Act.
87
(2012) 9 SCC 552.
88
See, paras 177, 178 and 179, BALCO , (2012) 9 SCC 552.
89
See, State of Orissa v. Madan Gopal Rungta, AIR 1952 SC 12; Cotton Corpn. of India
Ltd. v. United Industrial Bank Ltd., (1983) 4 SCC 625; Ashok Kumar Lingala v. State of
Karnataka, (2012) 1 SCC 321; all relied upon by the Court in BALCO , (2012) 9 SCC
552 see paras 180-182. Also see, Section 9 CPC read with Order 7 Rule 11 CPC, which
stipulates assertion of a right to maintain a suit.
South Carolina Insurance Co. v. Assurantie Maatschappij De Zeven Provincien N.V, 1987
AC 24 : (1986) 3 WLR 398 : (1986) 3 All ER 487 (HL).
90
Brown & Root (U.K) Ltd. v. Castanho, 1981 AC 557 : (1980) 3 WLR 991 : (1981) 1 All ER 143
(HL).
91
Laker Airways Ltd. v. British Airways Board, 1985 AC 58 : (1984) 3 WLR 413 : (1984) 3 All ER
39 (HL).
92
93
9 SCC J-26, 39.

94
1979 AC 210 (HL).
95
(2012) 9 SCC 552.
96
Siskina, 1979 AC 210, 254E & 256 D&H.
97
1987 AC 24.
98
1979 AC 210.
99
South Carolina, 1987 AC 24, 40-D : (1986) 3 All ER 487 (HL), 495g and 496a.
100
Situation 2 referred to by Lord Brandon does not arise, nor is it the contention of the authors
that it arises from the present analysis.

101
South Carolina, 1987 AC 24, 41A-B.

Lord Brandon speaking for the majority stated as follows:
[Have the plaintiffs shown that the defendants], by beginning and intending to prosecute
their application to the United States District Court, have invaded, or threatened to invade, a
legal or equitable right of South Carolina for the enforcement of which the [defendants] are
amenable to the jurisdiction of the court? It was contended by [the counsel for the plaintiffs
that the plaintiffs] did indeed have such a legal or equitable right, but it appeared to me that
he had great difficulty in formulating the legal or equitable right on which he relied. Neither of
the courts below decided as they did on the basis that the [defendants] had by their conduct
invaded a legal or equitable right of [the plaintiffs], and I cannot see how such a case can be
made out. I would therefore hold that [the plaintiffs] have not shown that Situation (1) exists.
(emphasis supplied)
102
Royal Westminster Investments S.A v. Varma, 2012 EWHC 3439 (Ch) (30-11-2012).
103
See, para 40 of Royal Westminster, 2012 EWHC 3439 (Ch).

40. In South Carolina, 1987 AC 24, Lord Goff of Chieveley (with whom Lord Mackay of
Clashfern agreed) said (at 44-45) that he was reluctant to accept the proposition that the
power of the court to grant injunctions is restricted to certain exclusive categories. Lord
Browne-Wilkinson (with whom Lord Keith of the Kinkel and Lord Goff of Chieveley agreed)
shared the same doubts in Channel Tunnel Group Ltd. v. Balfour Beatty Construction
Ltd., 1993 AC 334 (see 343).
104
1993 AC 334.
105
1987 AC 24.
106
1979 AC 210.
The relevant findings of the Court in Royal Westminster, 2012 EWHC 3439 are at paras 42 to
44. The reasoning of the Court is at paras 38 to 42 of which the relevant portions are extracted
107
hereunder:
38. Section 37(1) of the Senior Courts Act, 1981 confers a power to grant injunctions in
wide terms. It states:
The High Court may by order (whether interlocutory or final) grant an injunction or
appoint a receiver in all cases in which it appears to the court to be just and convenient to
do so.
However, the power is not unfettered. Collins, L.J explained the position as follows
in Masri v. Consolidated Contractors International (UK) Ltd. (No. 2), 2008 EWCA Civ
303 : 2009 QB 450, 496-97 (at para 175):
175. As Lord Brandon of Oakbrook said in South Carolina Insurance Co., 1987 AC
24, 40: although the terms of Section 37(1) of the Act of 1981 and its predecessors are very
wide, the power conferred by them has been circumscribed by judicial authority dating back
many years.
This point has often been reaffirmed by the House of Lords (and by the Privy Council) in
relation to injunctions [see Gouriet v. Union of Post Office Workers, 1978 AC 435, 500-01,
516;Siskina (Owners of Cargo Lately Laden on Board) v. Distos Compania Naviera
S.A, 1979 AC 210, 256; Bremer Vulkan v. South India Shipping Corpn. Ltd., 1981 AC 909,
979; British Airways Boardv. Laker Airways Ltd., 1985 AC 58, 80-81; P. v. Liverpool Daily
Post and Echo Newspapers plc, (1991) 2 AC 370, 420-21; Channel Tunnel Group
Ltd. v. Balfour Beatty Construction Ltd., 1993 AC 334, 341, 360-61 and Mercedes Benz
A.G v. Leiduck, 1996 AC 284, 298 (PC).
The point was recently repeated by the Privy Council in Tasarruf Mevduati Sigorta
Fonu v. Merrill Lynch Bank and Trust Co. (Cayman) Ltd., (2012) 1 WLR 1721 (at para 57).
39. In South Carolina Insurance Co., 1987 AC 24. Lord Brandon of Oakbrook,
delivering the leading speech in the House of Lords, said (at 40) that the authorities showed
that the power of the High Court to grant injunction is: subject to two exceptions.
40. [see footnote 103 above].
41. Nonetheless, the weight of authority is to the effect that an interim injunction should
normally be granted only in aid of an enforceable right.
2007 UKHL 1 : (2007) 1 WLR 320. See para 32 of the judgment as held by Lord Scott of
Foscote (with whom the other Members of the House of Lords expressed agreement).
108
109
Ibid., 333.
110
1979 AC 210.
111
(2012) 9 SCC 552.
112
1979 AC 210.
113
1993 AC 334.
114
See, paras 184-86 and 190 of BALCO , (2012) 9 SCC 552.
115
(2012) 9 SCC 552.
116
9 SCC J-26, 36.

117
1993 AC 334.
118
(2012) 9 SCC 552.
119

The important statutory amendments in England in this respect are listed below:
(1) Section 25 of the Civil Jurisdiction and Judgments Act, 1982
(2) Section 44 of the Arbitration Act, 1996
(3) Civil Jurisdiction and Judgments Act, 1982 (Interim Relief), Order 1997 read with (1)
above.
120
Generally, for a theoretical analysis see, for instance, Hohfield's analysis of rights
in Fundamental Legal Conception As Applied in Judicial Reasoning (1919); M.A Stewart, Law,
Morality and Rights (1983); A.R White, Rights (1984). More specifically, this issue is pertinent for
it is implicit in Lord Browne-Wilkinson's observations in Channel Tunnel, 1993 AC
334 expressing doubt on the rule in Siskina, 1979 AC 210. In doing so, he himself postulated
(at 342):
the relevant question is whether the [] court has power to grant the substantive
relief, not whether it will in fact do so.
121
Mareva Compania Naviera S.A v. International Bulkcarriers S.A, (1980) 1 All ER 213 : (1975)
2 Lloyd's Rep 509 (CA).

122
See, Mareva, (1980) 1 All ER 213, 214h (CA).
123
(1980) 1 All ER 213.
124
See, Mareva, (1980) 1 All ER 213, 216c.
125
World Tanker Carrier Corpn. v. SNP Shipping Services (P) Ltd., (1998) 5 SCC 310.
126
Ibid., 326.
127
(2012) 9 SCC 552.
128
9 SCC J-26, 41.

129
BALCO , (2012) 9 SCC 552.
130
(2005) 8 SCC 618. The seven-Judge Bench was construing the provisions of the 1996 Act
and not any constitutional matters. The constitutionality restriction stated in Golak Nath v. State
of Punjab, AIR 1967 SC 1643 has been derogated from in subsequent decisions, albeit
impliedly.
The Court in Golak Nath, AIR 1967 SC 1643, had first applied the doctrine of
prospective overruling attributing its origin to American jurisprudence wherein it is also
referred to as the Sunburst doctrine after the decision of Cardozo, J., in 1932 in Great
Northern Railway Co. v. Sunburst Oil and Refining Co., 77 L Ed 360 : 287 US 358 (1932):
51. As this Court for the first time has been called upon to apply the doctrine evolved in a
different country under different circumstances, we would like to move warily in the
beginning. We would lay down the following propositions:
(1) The doctrine of prospective overruling can be invoked only in matters arising under
our Constitution.
(2) It can be applied only by the highest court of the country i.e the Supreme Court as it
has the constitutional jurisdiction to declare law binding on all the courts in India;
(3) The scope of the retroactive operation of the law declared by the Supreme Court
superseding its earlier decision is left to its discretion to be moulded in accordance
with the justice of the cause or matter before it.
131
(2002) 2 SCC 388 wherein the Court had affirmed the three-Judge Bench decision in Konkan
Railway Corpn. Ltd. v. Mehul Construction Co., (2000) 7 SCC 201.

132
(2002) 2 SCC 388.
133
SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, 664.
134
(2005) 8 SCC 618.
135
(2005) 8 SCC 618.
136
(2012) 9 SCC 552.
137
(2002) 4 SCC 105.
138
(2012) 9 SCC 552.
139
(2002) 4 SCC 105.
140
(2012) 9 SCC 552.
5.2 Fringe Benefit Tax

Taxation is certain in todays world and it is most important instrument available to governments
for taking away resources from the private sector. Salary income, which is also known as income
from employment is generally the most important component of income of individuals in many
countries. In general, salary income includes wages, salaries, pensions, gratuity, leave salary,
perquisites, allowances and fringe benefits. Taxation of salary income is one source where tax
compliance is generally maximum as the tax is deducted at the source itself (called withholding
tax) in most countries. Still, ways and means have been devised to reduce the amount of taxable
salary. The payment of a part of the salary to employees in the form of noncash facilities,
allowances, fringe benefits and reimbursements is a common way of reducing tax liability.
Taxation of various kinds of employees' fringe benefits has always been a vexing issue for
taxation authorities/governments. In most cases, such fringe benefits are either not taxed or are
subjected to softer tax treatment. It is primarily due to the fact that such benefits are difficult to
identify and still more difficult to apportion among benefited individual employees. Further,
there are practical difficulties and administrative inefficiencies in bringing such benefits to tax.
However, over a period of time, tax authorities in many countries have come up with different
methods for identifying, valuing and taxing such fringe benefits. On the other hand, employers
also have come up with novel ways of providing fringe benefits to their employees to avoid
taxation. Thus, on many occasions, it has been claimed by tax authorities that the proliferation of
various fringe benefits plans is slowly eroding the tax revenue of governments. There is no
universally accepted definition of "fringe benefits". It is generally accepted that fringe benefits
provided by the employer to employees cover all advantages other than monetary salary and
wages, in consequence to services rendered. Thus, they are a part of employees' overall
remuneration packages but not in the form of cash payments. Some exceptions can also arise, for
example "entertainment allowances" or other cash expense allowances granted/reimbursed to an
employee, which exceeds his or her actual expenses incurred. Sometimes, an employer may also
have a statutory obligation to provide a benefit (for example, employees provident fund
contribution by employers in India). In some countries, including India, a distinction is made
between wages/salaries in kind (often called perquisites in those countries) and other fringe
benefits. Examples of the "in kind" components of salary maybe rent-free accommodation or a
free car provided by the employer. With the introduction of the fringe benefits tax (FBT), this
distinction has been made more prominent in India. The most important justification for taxation
of fringe benefits is fairness and equity of a tax system. Although the concept of equity in
taxation is generally accepted as a desirable objective, it often poses a difficult practical problem
in implementation. The notion of "horizontal equity", which suggests that "equals should be
treated equally", in turn implies that employees/taxpayers in receipt of an equal economic
remuneration should pay an equal amount of tax irrespective of the mix (cash, kind or facilities)
of the remuneration package. Due to this reason, softer/favorable taxation of fringe benefits may
be unfair for those who cannot take advantage of such benefits. Similarly, "vertical equity"
implies that "unequals should be treated unequally". Clubbing this concept with the idea of
progressive taxation requires that the taxpayers' amount of tax liability and average rate of tax
should increase as their income increases. It is generally accepted that highly paid executives are
more likely to receive a greater share of their remuneration in the form of fringe benefits. This
being the case, a soft fringe benefits tax regime also violates the principle of vertical equity and
reduces the progressivity of the tax system. Another justification for taxing fringe benefits is that
of erosion of the tax base. When fringe benefits are subjected to a soft and favorable tax
treatment, it erodes the tax base and tax revenues are lost. It has been apprehended that the loss
in tax revenue and erosion of tax base may be significant when this process of soft tax treatment
continues for a long time. The spread of fringe benefits can have some broader economic
implications also. It can affect resource allocation and market structure. Despite these economic
arguments favoring taxation of fringe benefits, tax authorities the world over have faced
numerous practical and administrative difficulties in their efforts to bring fringe benefits to tax.
The vexing issues of its identification, definition of its base, valuation rules, record keeping
requirements and administration have often thwarted numerous efforts towards an effective and
efficient taxation of fringe benefits. 1 Fringe Benefits Tax in India A brief outline of the fbt in
India:
5.2.1 Meaning and Application: Recently, Indian income tax authorities have come up
with a creative though highly controversial way of taxing fringe benefits. In the annual budget of
2005, the finance minister introduced a new tax called the "fringe benefits tax". It is a tax that the
employer (not the employees) pays on perquisites or benefits that his employees derive as a
result of employment. The taxation of fringe benefits has been justified by the government both
on grounds of equity and economic efficiency. However, this tax has been vehemently opposed
by the corporate sector, trade associations as well as by substantial sections of academia. It is

claimed that in the age of fiscal and taxation reforms, such a tax is a retrograde step. The tax is
payable by a certain class of employers on the value of fringe benefits provided or deemed to
have been provided by them to their employees. The deeming provisions are a presumptive
method of valuation of fringe benefits wherein the tax is applied to certain heads/categories of
expenditure as a measure/ indicator of fringe benefits. The Indian Income Tax Act already
contains provisions relating to the taxation of various kinds of perquisites and allowances, which
employees receive in addition to their salary or wages. These perquisites are taxed as a part of
salary income. Therefore, with the introduction of the FBT, the relevant provision relating to
taxation of various perquisites has been amended to make them coterminous with the new
provisions of the FBT.
5.2.3 Tax Base, Valuation and Rate: A mixed category of expenses, which are generally
incurred by employers for providing benefits/facilities to employees either at the workplace or
otherwise has been defined as the base for the FBT. A comprehensive and specific list of such
expense categories/heads have been enumerated in the Income Tax Act. Through the deeming
provisions, a particular percentage (which varies from 5 per cent to 100 per cent) of such
categories of expenses has been declared as "deemed to have been incurred for providing fringe
benefits to the employees" of the organization and this becomes the value of fringe benefits. The
FBT is applicable to this value at a flat rate of 30 per cent with an applicable surcharge and cess.
At present, there are 20 such heads of expense. The following table gives a snapshot view of the
base and valuation of FBT system. Further, in the case of some sectors of the economy, the
valuation base has been kept low for certain kinds of expenses, considering the special nature of
the business. For example, for employer, the FBT is administered with income tax and there is a
common tax return form. Other provisions of administration, assessment and tax payment, etc,
have also been made coterminous with the income tax system in India.
Expense Heads Specified as FBT Base

Valuation Rate (as a % of Expense
Contribution to superannuation fund (above 100
Rs 1,00,000 per employee per annum)
Free or concessional ticket
Value of employee stock ownership plans
100
100
Entertainment
20
Hospitality of any kind by an employer
20
Conference excluding fee for participation by 20
employees in any conference
Sales promotion including publicity but 20
excluding
specified
expenditure
on
advertisement
Employees' welfare
Conveyance
Use of hotel, boarding and lodging facilities
Repair, running (including fuel) and
20
20
20
20
maintenance of motorcar and the amount of

depreciation thereon
Repair, running (including
fuel)
and 20
maintenance of aircraft and the amount of

depreciation thereon
Use of telephone (including mobile phone)
20
Maintenance of any accommodation in the 20
nature of guest house
Festival celebration
Use of health club and similar facilities
Use of any other club facility
Gift
Scholarships
Tour and travel including foreign travel
50
50
50
50
50
5
The fbt was introduced in the financial year 2005-06. Since then, t there has been a strong
demand from various corporate lobbies for the removal of this tax on grounds of its perceived
inefficiency, weird logic and increased compliance cost for taxpayers, the government does not
appear to be in any mood to accept this demand. On the contrary, "value of employee stock
ownership plans (ESOP)" has been included as one of the fringe benefits in the last budget. 5.3
Dividend Distribution Tax
5.2.4

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BALCO [(2012) 9 SCC 552.] held:

Point (1): Interpretation of Section 2(1)(e)

(i) The context: seat theory or territoriality

As we shall demonstrate, the Court's interpretation of Section 2(1)(e) is consistent

(ii) Section 2(1)(e) to apply to all arbitrations held in India

It is, therefore, incorrect to confine analysis of the interpretation of Section 2(1)( e) to

Para 96 of the judgment furnishes an illustration that is apposite: if the seat of

We submit that the answer is in the affirmative.

The authors, however, have read the interpretation of Section 2(1)(e)

(iv) Logical interpretation of Section 2(1)(e) based on seat theory

However, by the authors' reasoning, notwithstanding that the arbitration is seated in

(v) Seat theory should apply equally to arbitrations held in India

On a final note, the prior conflicting jurisprudence on fixing of jurisdiction serves as a

As a comparison to illustrate the importance of applying the territoriality standard

This is not correct.

Section 151 CPC reads as follows:

Similarly, the decision by a three-Judge Bench of the Supreme Court in Vareed

The authors cite [ Bhatia International Rightly Overruled: The Consequences of

On the authors' reasoning, however, Section 151 would be invoked to confer

(ii) Interim relief founded on existence of cause of action

In the case of foreign-seated arbitrations, neither of the two conditions specified in

A decision by the English High Court (Chancery Division) in Royal Westminster

duration, dependent on the institution and progress of some proceedings for

(iii) BALCO correctly relied upon Channel Tunnel and Siskina

The limited scope of Section 151 as a residual, exceptional power cannot be

In Mareva [Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., (1980)

Point (3): Incorrect application of the doctrine of prospective overruling

The Court explained its position thus:

Senior Advocate, Supreme Court.

V. Niranjan and Shantanu Naravane, Bhatia International Rightly

Bhatia International v. Bulk Trading S.A, (2002) 4 SCC 105.

(2012) 9 SCC 552.

(2002) 4 SCC 105.

(2012) 9 SCC 552.

(2002) 4 SCC 105.

(2002) 4 SCC 105.

(2002) 4 SCC 105.

(2002) 4 SCC 105.

(2002) 4 SCC 105.

(2002) 4 SCC 105.

(2002) 4 SCC 105.

(2012) 9 SCC 552.

(2002) 4 SCC 105.

(2008) 4 SCC 190.

(2002) 4 SCC 105.

(2012) 9 SCC 552.

See, paras 159 and 160, BALCO , (2012) 9 SCC 552.

(2012) 9 SCC 552.

See, paras 95 to 100 of BALCO , (2012) 9 SCC 552.

See, para 197 of BALCO , (2012) 9 SCC 552.

(2012) 9 SCC 552.

210 : (1977) 3 WLR 818 : (1977) 3 All ER 803 (HL).

262 : (1993) 1 All ER 664 (HL).

(2012) 9 SCC 552.

(2012) 9 SCC 552.

(2012) 9 SCC 552.

Section 2(1)(e) reads:

2. Definitions.(1) In this Part, unless the context otherwise requires

(2012) 9 SCC 552.

See, para 89, BALCO , (2012) 9 SCC 552.

See, para 96, BALCO , (2012) 9 SCC 552.