FACULTY OF LAW, JAMIA MILLIA ISLAMIA

REPORT

ON

“Law Applicable to Setting Aside of Arbitral Award”

SUBMITTED BY: -

ADNAN YOUSUF

4th Year, B.A LLB (Hons.)

UNDER THE GUIDANCE OF ADVOCATE SUKESH MISHRA

1
DECLARATION

I hereby declare that the work reported in this project report entitled 'Law applicable

to setting aside of Arbitral award’ submitted at Faculty of Law, Jamia Millia

Islamia is an outcome of our work carried out under the supervision of Advocate

Sukesh Mishra. I have duly acknowledged all the sources from which the ideas and

extracts have been taken. To the best of my understanding, the project is free from any

plagiarism issue.

2
ACKNOWLEDGEMENT

I would like to express my sincere gratitude and indebtedness to Advocate Sukesh

Mishra for his enlightening lectures on Alternative Dispute Resolution. I would also

like to express our sincere gratitude to our teaching staff for guiding us the path towards

gaining knowledge. I would also like to thank our law school’s library for the wealth of

information therein. I would like to thank Library Staff as well for their co-operation.

I would also like to thank my batch mates and seniors who inspired, helped and guided

us in making this project.

ADNAN YOUSUF

3
TABLE OF CONTENTS

S.NO. PARTICULARS PAGE NO.

1. INTRODUCTION 5

2. RESEARCH METHODOLOGY

1. RESEARCH OBJECTIVES 7,8,9 & 10

2. RESEARCH QUESTIONS

3. RESEARCH METHODOLOGY

4. LITERATURE REVIEW

3. MEANING OF ARBITRATION AND SETTING ASIDE 32

OF AWARD

4. CONTRACT LAW AND ARBITRATION 16

AGREEMENT

5. LAW GOVERNING ARBITRATION AGREEMENT 26

THAT IS TO BE SET ASIDE

6. THE LAW OR THE SEAT VERSUS THE LAW OF THE 30

ARBITRATION AGREEMENT

7. PRE-1996 POSITION 34

8. CONTEXTUALIZING THE NTPC AND SUMITOMO 37

4
9. CONTINUING INFLUENCE OF NTPC AND 45

SUMITOMO

10. CONCLUSION 49

5
 Abstract

Choice of law in international commercial arbitration is a topic that has garnered the

attention of Indian courts and the academia in the recent past. Despite the manifold case law

on the subject, certain courts still get their choice of law analyses wrong. The complex

theoretical underpinnings of this important topic and the possibility of different laws

operating in international commercial arbitration only complicate the subject. For

instance, it is possible that four different laws could apply to an international

arbitration: the governing law of arbitration, the substantive law of contract, the law of

the arbitration agreement, and the law governing recognition and enforcement of the arbitral

award. The complexities are amplified by the lack of clarity on the domain of these

laws, the substance-procedure distinction, and various other aspects. One important debate

under this intricate subject is the law applicable to setting aside arbitral awards. The issue

is whether the law applicable to setting aside the arbitral awards is the law of the arbitration

agreement or the law of the seat, where both these laws are different. This paper attempts

to provide answers to the issue.

6
Research Methodology:

1. Research Objectives

The research objective of this project is whether arbitration is a suitable form of

resolving disputes which are relation to maritime laws. In this research project

we attempt to make a clarity that the question of jurisdiction is a major question

when it relates to disputes with regard to maritime arbitration and due to which

we highlight the origins of maritime law and how maritime law is interpreted in

various countries in today’s day and age including India. Though the law in India

with regard to maritime arbitration is still in its growing stage but India has

shown progressive growth regarding the same. Moreover, this research project

further highlights the current and future issues which are present with regard to

maritime arbitration and how it can be resolved.

7
2. Research Questions:

I. What law is applicable to setting aside of arbitral awards?

II. Whether the current framework of laws is sufficient to cover

exigencies and development in arbitration law?

III. How the Supreme Court interpreted the law in set aside

proceedings?

8
 3. Research Methodology:

The research project uses secondary resources to reach a conclusion. It uses statistics in

the form of how maritime arbitration is interpreted in various countries and how

India is is developing provisions and rules with regard to maritime arbitration.

This research project highlights the status of maritime arbitration in India and

further highlights the current and future issues in relation to maritime arbitration

and the ways to resolve the same.

9
LITERATURE REVIEW

Marco Gregori “Setting aside proceeding in Arbitration Among Past, Present and

Future” published in double blind peer review.

This research article explains the historical origins of arbitration and mentions that

Arbitration has been an extra-judicial method of dispute resolution since its origin. It is

probable that in the beginning some form of sacredness was attached to it, hence the

arbitrator (initially the sovereign) acted as representative of the gods on earth.

Furthermore, this article highlights of how maritime arbitration is interpreted in today’s

day and age and mentions that arising of commercial disputes is something inherent to

international trade, thus it is a circumstance per se unavoidable.

10
For that reason, contracting parties usually provide to choose ex ante the methods for

the resolution of any future difference in a way considered the most suitable to their

interests. Moreover, this article mentions that of whether arbitration is the right method

of resolving disputes which are relating to maritime law. This article explains that since

arbitration protects the rights of the private parties due to its confidentiality therefore, it

is apt form of dispute resolution with regard to maritime law. Moreover, the article

elaborates the future issues of opting arbitration as a mode of dispute mechanism and

the ways to resolve the same.

1. Fabrizio Marrella, “Unity and Diversity in International Arbitration: The

Case for waiver in set aside of awards in Arbitration”, American University

International Law Review Volume 20, Issue 5.

The Author through this article explains the diversification of arbitration in matters and

the risk of conflicts of jurisdiction as arbitration has grown interstate and a transnational

relations level, the diffusion of maritime arbitration in model contracts and resulting

business operators' perception, Arbitration clauses in model contracts. the operators'

perception of Arbitration. The author focussed majorly on transnational aspect such as

ancient origins, and furthermore, just as maritime law preceded "terrestrial" commercial

law, maritime arbitration precededinternational commercial arbitration, with its roots

dating back to thetimes of the ancient lex mercatori.

11
The author reaches the conclusion that competition between arbitration institutions is

more intensive on the transnational level where, in terms of law and economics, the

fight in the market of maritime arbitration is particularly scarce due to its concentration-

more or less a duopoly.

INTRODUCTION

Choice of law in international commercial arbitration is a topic that has continuously

engaged the attention of Indian courts and the Indian academia in the recent past.

Despite a large body of case law on the subject, certain courts still get their choice of

law analyses wrong at times.1 The complex theoretical underpinnings of this

important topic and the possibility of different laws applying to an international

commercial arbitration only exacerbate the subject further. To illustrate, it is possible that four

different laws could apply to an international arbitration: the governing law of arbitration, the

substantive law of contract, the law of the arbitration agreement, and the law governing

recognition and enforcement of the arbitral award.2

12
There are several issues relating to choice of law for which different solutions have been

proposed to the same problem. One such issue is the law applicable to remedies against an

arbitral award. Some state that the governing law of the arbitration agreement determines

the law, and consequently, the forum, for remedies against an arbitral award, while others are

of the view that it is the lex arbitri, which is usually the law of the seat that provides for

remedies against an arbitral award. Under Indian law, some of the judgements support the first

approach3 while some support the latter approach.4 The complexities on the subject are

aggravated by synonymous usages of various terms, the lack of clarity on the domain of these

laws, the substance-procedure distinction, and various other aspects. Unfortunately,

neither the international arbitration instruments nor soft law provide any guidance as

to the domain of the governing law of arbitration and the law of the arbitration agreement.5

This paper analyses the debate and argues that the debate has been recently settled in

the Indian context in line with the internationally accepted position. The paper is

structured in the following manner: Part II provides a general overview of the law

applicable to the contract and that of the arbitration agreement. Part III discusses the

law governing the arbitration and its relationship with the law of the seat. Part IV

notes the various approaches in international commercial arbitration on the question as to the

law applicable to the remedies against an arbitral award. It then proceeds to analyse Indian

cases on the point. Part V concludes.

13
MEANING OF ARBITRATION AND SETTING ASIDE OF ARBITRAL AWARDS

Arbitration is a process of dispute resolution between the parties through arbitral tribunal

appointed by parties to the dispute or by the Court at the request by a party. In other words, it

is an alternative to litigation as a method of dispute resolution. The law relating to arbitration

n India is based on the English Arbitration Law. In 1940 the Indian Law on arbitration was

drafted in the form of Arbitration Act, 1940 and remained in force until it was replaced by the

new Arbitration and Conciliation Act, 1996.

The Indian arbitration law is based on the United Nations Commission on International Trade

Law (UNCITRAL Model Law). The law of arbitration is based on the principle of withdrawing

the dispute from the ordinary court and enabling the parties to substitute a domestic tribunal

consisting persons of their own choice called as arbitrators1. The Parliament enacted the

1
Raj TV v Thaicom (OSA No. 113/2017 & CMP 7665/2017)MANU/TN/2117/2017.

14
Arbitration and Conciliation Act, 1996 which not only removed many serious defects of the

earlier arbitration law but also incorporated modern concepts of arbitration which are

internationally accepted. The arbitral award has been treated at par with the decree of the Court.

The arbitral award is enforceable in the same manner as a decree of a law court. This change

has enabled the reduction of litigation in some areas of arbitration. Earlier an award could not

be executed in its own right unless the court ordered that award is filed and a decree issued in

terms thereof. There is no provision for appeal against an arbitral award and it is final and

binding between the parties. However, an aggrieved party may take recourse to law court for

setting aside the arbitration award on certain grounds specified in Section 34 of the Arbitration

and Conciliation Act, 1996.2

Setting Aside Arbitral Award

The parties cannot appeal against an arbitral award as to its merits and the court cannot interfere

on its merits. The Supreme Court has observed “an arbitrator is a judge appointed by the parties

and as such an award passed by him is not to be lightly interfered with.” But this does not mean

that there is no check on the arbitrator’s conduct. In order to assure proper conduct of the

proceeding, the law allows certain remedies against an award.3

Under the repealed 1940 Act three remedies were available against an award- modification,

remission and setting aside. These remedies have been put under the 1996 Act into two groups.

To the extent to which the remedy was for rectification of errors, it has been handed over to

2
Sumitomo Heavy Industries Ltd. v. ONGC Ltd MANU/SC/0834/1998.
3
Gary B. Born, International Commercial Arbitration Vol. II 1311 (2009).

15
the parties and the Tribunal. The remedy for setting aside has been moulded with returning

back the award to the Tribunal for removal of defects.

Section 34 provides that an arbitral award may be set aside by a court on certain grounds

specified therein. These grounds are:

1. Incapacity of a party

2. Arbitration agreement not being valid

3. Party not given proper notice of arbitral proceedings

4. Nature of dispute not falling within the terms of submission to arbitration

5. Arbitral procedure not being in accordance with the agreement

6. Section 34(2)(b) mentions two more grounds which are left with the Court itself to decide

whether to set aside the arbitral award:

7. Dispute is not capable of settlement by arbitral process

8. The award is in conflict with the public policy of India

If the decision on matters submitted to arbitration can be separated from those not submitted;

only that part of the arbitral award which contains decisions on matters not submitted to

arbitration may be set aside.

Section 34 of the Act is based on Article 34 of the UNCITRAL Model Law and the scope of

the provisions for setting aside the award is far less than it was under the Sections 30 or 33 of

the 1940 Act. In Municipal Corp. of Greater Mumbai v. Prestress Products (India)4, the court

held that the new Act was brought into being with the express Parliamentary objective of

curtailing judicial intervention.5 Section 34 significantly reduces the extent of possible

4
(2003) 4 RAJ 363 (Bom)

5
Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc. (2016) 4 SCC
126 (“BALCO II”)

16
challenge to an award. It is necessary for the aggrieved party to make an application under

Section 34 stating the grounds of challenge. An application for setting aside the award has to

be made by a party to the arbitration agreement. But a legal representative can apply for it

because he is a person claiming under them. There is no special form prescribed for making an

application under Section 34 of the act except it has to be a written statement filed within the

period of limitation.

In Sanshin Chemical Industry v. Oriental Carbons & Chemical Ltd. 6 there arose a dispute

between the parties regarding the decision of the Joint Arbitration Committee relating to venue

of arbitration. The Apex Court held that a decision on the question of venue will not be either

an award or an interim award so as to be appealable under Section 34 of the act.

In Brijendra Nath v. Mayank7, the court held that where the parties have acted upon the arbitral

award during the pendency of the application challenging its validity, it would amount to

estoppel against attacking the award.

An award which is set aside is no longer remains enforceable by law. The parties are restored

to their former position as to their claims in the dispute. Setting aside an award means that it is

rejected as invalid. The award is avoided and the matter becomes open for decision again. The

parties become free to go back to arbitration or to have the matter decided through court.

Meaning of Incapacity of Parties

6
AIR 2001 SC 1219

7
AIR 1994 SC 2562

17
If a party to the arbitration is not capable of looking after his own interests, and he is not

represented by a person who can protect his interests, the award will not be binding on him and

may be set aside on his application. If a minor or a person of unsound mind is a party he must

be properly represented by a proper guardian otherwise the award would be liable to be set

aside. Such a person is not capable of binding himself by a contract and therefore, an award

under a contract does not bind him.8 SectionSection 9 of the 1996 Act enables him to apply to

the court for appointment of a guardian for a minor or a person of unsound mind for the purpose

of arbitral proceedings. The ground of incapacity would cease to be available when the

incompetent person is represented by a guardian.9

Invalidity of an agreement

The validity of an agreement can be challenged on any of the grounds on which the validity of

a contract may be challenged. In cases where the arbitration clause is contained in a contract,

the arbitration clause will be invalid if the contract is invalid. InIn State of U.P. v. Allied

Constructions, the court held that the validity of an agreement has to be tested on the basis of

law to which the parties have subjected it. Where there is no such indication, the validity would

be examined according to the law which is in force.

When notice not given to the parties

8
Sulamerica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors [2012] EWCA Civ
638, Para 26.

9
Article 3(1) of the Rome I Convention states that “[a] contract shall be governed by the law chosen
by the parties…” A similar provision is found in Article 2(1) of the Hague Principles which reads “For instance,
Article 2(1) of the Hague Principles provide that “[a] contract is governed by the law chosen by the parties.”

18
Section 34(2)(a)(iii) permits challenge to an award if the party was not given proper notice of

the appointment of an arbitrator, or the party was not given proper notice of the arbitral

proceedings, or the party was for some reasons unable to present his case. UnderUnder Section

23(1) the Arbitral Tribunal has to determine the time within which the statements must be filed.

This determination must be communicated to the parties by a proper notice. Section 24(2)

mandates that the parties shall be given sufficient advance notice of any hearing or meeting of

the Tribunal for the purpose of inspection of documents, goods or other property.10

If for any good reason a party is prevented from appearing and presenting his case before the

Tribunal, the award will be liable to be set aside as the party will be deemed to have been

deprived of an opportunity of being heard the principle of natural justice. In Dulal Podda v.

Executive Engineer, Dona Canal Division, the court held that appointment of an arbitrator at

the behest of the appellant without sending notice to the respondent, ex parte award given by

the arbitrator was illegal and liable to be set aside.11

In Vijay Kumar v. Bathinda Central Co-operative Bank and ors.12 the court observed “it is a

typical case where the arbitrator misconducted the proceedings and also misconducted himself.

Arbitrator held the first and only hearing on May 17, 2010. No points for settlement or issues

were framed. The bank filed affidavits of four employees. Appellant was not given the

opportunity to cross-examine them. He was denied the opportunity to produce evidence. A

complete go bye was given to the provisions of law, procedure and rules of justice. It would

thus be seen that appellant was unable to present his case.

10
The Hague Principles provide at Clause 2(2)(b): “The parties may choose-… (b) different laws for
different parts of the contract.”

11
Ibid

12
(2003) 7 SCC 396

19
When Award is beyond scope of reference

The reference of a dispute under an agreement defines the limits of the authority and

jurisdiction of the arbitrator. If the arbitrator had assumed jurisdiction not possessed by him,

the award to the extent to which it is beyond the arbitrator’s jurisdiction would be invalid and

liable to be set aside. Section 34(2)(a)(iv) of the Act provides that an arbitral award is liable to

be set aside if it deals with a dispute not contemplated by the reference, or not falling within

the terms of the reference, or it contains a decision in matters beyond the reference.

In Gautam Construction & Fisherie Ltd v. National Bank for Agriculture and Rural

Development,13 the Supreme Court modified the award to the extent that the rate of construction

meant for ground floor could not be applied to the construction of the basement area.

In Rajinder Kishan Kumar v. Union of India, a matter under a writ petition was referred to

arbitration. The writ petition contained no claim of compensation for damage to potentiality of

the land because of the opposing party discharging effluents and slurry on the land. The award

of such compensation was held to be outside the scope of reference hence liable to be set aside.

Section 16 of the Arbitration and Conciliation Act, 1996 provides that the initial decision as to

jurisdiction lies with the Tribunal. The party should immediately object as to excess of

jurisdiction. If the Tribunal rejects the objection, the aggrieved party may apply under Section

34(2)(a)(iv) for setting aside on the ground of excess of jurisdiction.

An arbitrator cannot go contrary to the terms of the contract. Where the terms of the contract

are not clear or unambiguous, the arbitrator gets the power to interpret them. In State of

13
(2004) 1 SCC 73

20
Rajasthan v. Nav Bharat Construction Co14. a majority of claims allowed were against the

terms of the contract.

Illegality in arbitral proceedings

Section 34(2)(a)(v) provide that an award can be challenged if the composition of the Tribunal

was not in accordance with the agreement, or the procedure agreed to by the parties was not

followed in the conduct of proceedings, or in the absence of agreement as to procedure, the

procedure prescribed by the Act was not followed. Failure to follow the agreed procedure or

the procedure prescribed by the Act is procedural misconduct. If the arbitral tribunal takes the

matter which is clearly beyond the scope of its authority, it would tantamount to misconduct

of arbitrator. An award in which the arbitrator has deliberately deviated from the terms of

reference and arbitration agreement will amount to misconduct of the arbitrator.15

Section 12(3)(a) provides that an arbitrator may be challenged if there justifiable doubt as to

his independence or impartiality. Section 13 says that if the challenge is not successful and the

award is made, the party challenging the arbitrator may apply to the court under Section 34 for

setting aside the award.

In State Trading Corp. v. Molasses Co., the Bengal Chamber of Commerce 16, a permanent

arbitral institution, did not allow a company to be represented by its Law Officer, who was full

time employee of the company. The Court held that it was not only misconduct of the arbitrator

but also misconduct of the arbitration proceedings.

14
AIR 2000 SC 3018

15
National Thermal Power Corporation v. The Singer Co. AIR 1993 SC 998: MANU/SC/0146/1993
16
AIR 2000 SC 3018

21
As discussed earlier in Bathinda Central Co-operative Bank’s Case17 the court observed “it is

a typical case where the arbitrator misconducted the proceedings and also misconducted

himself. A complete go bye was given to the provisions of law, procedure and rules of justice.

In ONGC Ltd v. Saw Pipe Ltd,18the Supreme Court held that in exercising jurisdiction, the

Arbitral Tribunal cannot act in breach of some provisions of substantive law or the provision

of the Act. In Section 34(2)(a)(v) of the Act, the composition of the Arbitral Tribunal should

be in accordance with the agreement. The procedure which is required to be followed by the

arbitrator should also be accordance with the agreement. If there is no such agreement then it

should be in accordance with the procedure prescribed in Part 1 of the Act.

In the above case, the losses caused by delay were deducted from the supplier’s bill. The

direction of the Arbitral Tribunal that such deduction should be refunded with interest was held

to be neither in accordance with law, nor contract. The award was set aside to that extent.

In Union of India v. Om Prakash Baldev Krishna19 it was held that a non-reasoned award is

liable to be set aside by the court as contemplated by Section 31(3) which requires that arbitral

award shall State reasons upon which it is based unless the parties have mutually agreed that

no reasons are to be given. Someome other examples of misconduct of proceedings are

proceeding ex parte without sufficient cause; denial of opportunity to parties; acting against

the mandate given to the arbitrator under the agreement; failure or refusal to consider counter-

claim of the respondent etc.

When dispute is not arbitrable

17
AIR 1981 Cal. 440

18
AIR 2003 SC 2629

19
AIR 1991 Del 13

22
The existence of an arbitral dispute is a condition precedent for exercise of power by an

arbitrator. Only matters of indifference between the parties to litigation which affect their

private rights can be referred to arbitration. ThereforeTherefore, matters of criminal nature,

insolvency proceedings, and matters of public rights cannot be decided by arbitration.

The Delhi High Court, held in PNB Finance ltd v. Shital Prasad Jain20 that specific

performance of an act cannot be granted in an arbitration proceeding. The Supreme Court did

not approve the view point of the Delhi High Court. The Court held that the right to specific

performance of an agreement of sale deals with contractual rights and it is certainly open to the

parties to agree to refer the issue relating to specific performance to arbitration.

When Award is against public policy

Section 34(2)(b)(ii) provides that an application for setting aside an arbitral award can be made

if the arbitral award is in conflict with the public policy of India.

The explanation to clause (b) clarifies that an award obtained by fraud or corruption would also

be an award against the public policy of India. An award obtained by suppressing facts, by

misleading or deceiving the arbitrator, by bribing the arbitrator, by exerting pressure on the

arbitrator, etc. would be liable to be set aside. The concept of public policy connotes some

matter which concerns public good and public interest.

In Venture Global Engg v. Satyam Computer Service Ltd, it was held that an award could be

set aside if it is contrary to fundamental policy of Indian law, or the interest of India, or justice

or morality, or it is patently illegal.

20
2004 (2) SCC 105

23
If the award is contrary to the substantive provisions of law or the provisions of the Act or

against the terms of the contract, it would be patently illegal, which could be interfered under

Section 34. Award could also be set aside if it is as unfair and unreasonable as to shock the

conscience of the court as it is against public policy.

Limitation For Filing Application

Section 34(3) provides that an application for setting aside an arbitral award must be made

within 3 months of receiving the award or disposition of application by the arbitral tribunal.

The importance of this is emphasized by Section 36 which provides that the award becomes

enforceable as soon as the limitation period under Section 34 expires.

The proviso to Section 34(3) allows the party a further period of 30 days after the expiry of

three months if the court is satisfied that the party was prevented by a sufficient cause from

making the application. No application for setting aside the award can be entertained by the

court after the expiry of these additional thirty days.

In National Aluminum Co Ltd v. Presteel Fabrication (P) Ltd 21, proceedings were instituted

before the Supreme Court under the wrong belief that it had jurisdiction in the matter of setting

aside. Time spent on a bona fide prosecution of an application in a wrong forum was held by

the Supreme Court to be a sufficient cause for condonation of delay.

In Union of India v. Shring Construction Co (P) Ltd22, sometime was lost in challenging the

award in a writ court which was declared to be not maintainable because the petitioner had his

remedy under Section 34 by the proceeding before the District Judge. The District Judge was

then approached along with an application for condonation of delay. He rejected it as time

21
2004 (2) SCC 105

22
AIR 2000 J&K 79

24
barred. The Supreme Court held that the District Judge should have decided whether the

application was within time after excluding the period lost in a wrong court.

In Union of India v. Microwave Communication Ltd23,the Delhi High Court noted that, in

contradiction with Section 5, Section 4 “does not enlarge the period of limitation but it only

enables the party to file any suit, application, etc. on the reopening day of the Court if the Court

is closed on a day when limitation expires.” As there was no overlap of any sort between

Section 4 and Section 34(3) the Court held that Section 4 would apply in cases where there was

not any lack of due diligence on the part of the applicant. Interestingly, the Court also held that

S. 4 was applicable even to situations where the proviso to Section 34(3) was attracted – i.e.,

the thirty day condonation period.24

A bare reading of Section 34(3) read with the proviso makes it abundantly clear that the

application for setting aside the award will have to be made within three months. The period

can further be extended, on sufficient cause being shown, by another period of thirty days but

not thereafter. Section 29 (2) of the Limitation Act, provides that when any special statute

prescribes certain period of limitation as well as provision for extension upto specified time

limit, on sufficient cause being shown, then the period of limitation prescribed under the special

law shall prevail and to that extent the provisions of the Limitation Act shall stand excluded.

23
AIR 2005 SC 4430

24
Bernard Hanotiau & G. Bock, The Law of 19 May 1998 Amending Belgian Arbitration Legislation, 15
ARB.INT’L97, 98 (1999); Albert Jan van den Berg, Should the Setting Aside of the Arbitral Award be Abolished?,
ICSID REV. 263, 276 (2014).

25
The provisions of Section 5 of the Limitation Act would not be applicable because of the

provisions of Section 29 (2) of the Limitation Act.25

Remission by Tribunal: Meaning

When an application for setting aside an arbitral award has been made, the court may, instead

of adjudicating upon the grounds raised, adjourn the proceedings for a determined period of

time to enable the tribunal to deal with the grounds on which objection have been raised and to

eliminate them.

In T.N. Electricity Board v. Bridge Tunnel Constructions, the court held that where an award

is vitiated by an error of jurisdiction, the court can send it back to the arbitrator for rectification

of the error.

Upon such adjournment the Arbitral Tribunal shall resume the arbitral proceedings and take

such action as will eliminate the grounds. The resumed proceedings can only be relating to the

grounds raised in the application under Section 34. It may become necessary to record fresh

findings and to amend the award. Thereafter the court would consider whether the grounds

raised have been eliminated and whether the award is liable to be set aside.26

The question of Foreign Awards

25
ILIAS BANTEKAS, AN INTRODUCTION TO INTERNATIONAL ARBITRATION 215-16 (2015) (such as Article 192 of
the Swiss Private International Law Act, 1987, and Section 51 of the Swedish Arbitration Act, 1999).

26
8 U.N. COMM’N ON INT’L TRADE LAW, MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION, U.N.
Sales No. E.08.V.4 (2006).

26
The grounds to challenge of awards given in Part I (section 34) of the Indian Arbitration Act

are applicable only to Domestic Awards and not to Foreign Awards. On September 6, 2012,

Supreme Court in Bharat Aluminum Co. v. Kaiser Aluminium Technical Service

Inc,]reconsidering its previous decisions concluded that the Indian Arbitration Act should be

interpreted in a manner to give effect to the intent of Indian Parliament. In this case the Court

reversed its earlier rulings in cases of Bhatia International v. Bulk Trading S.A. & Anr. and

Venture Global Engg v Satyam Computer Services Ltd & Anr. Stating that findings in these

judgments were incorrect. Part I of the Indian Arbitration Act has no application to arbitrations

seated outside India irrespective of whether parties chose to apply the Indian Arbitration Act

or not. Most importantly, these findings of the Supreme Court are applicable only to arbitration

agreements executed after 6 September 2012.27Thus all disputes pursuant to arbitration

agreement entered into upto 6 September 2012 shall be decided by old precedents irrespective

of fact that according to the Supreme Court such rulings were incorrect and have been reversed.

Conclusively, we see that the law relating to setting aside of arbitral award in India is

consonance with the UNCITRAL model law as the national law is based on the same only.

However, the interpretation of the Supreme Court in several decisions like Bhatia International

have raised serious issues which to some extent have been resolved in the BAL Co case. The

judicial intervention should be minimal and this practice has to be promoted in India so that

arbitration may be successful

How Contract law governs Arbitration

27
Daniella Strik, Growing number of countries allowing exclusion agreements with respect to annulment
warrants greater scrutiny of arbitration clauses, KLUWER ARBITRATION BLOG (January 11, 2012),
http://arbitrationblog.kluwerarbitration.com/2012/01/11/growing-number-of-countries-allowing-exclusion-
agreements-with-respect-to-annulment-warrants-greater-scrutiny-of-arbitration-clauses. See also, Catherine
Bratic, “The parties hereby waive all recourse … but not that one” Why parties adopt exclusion agreements
and why courts hesitate to enforce them, 12(2) DISP. RES. INT’L 105, 108 (2018)

27
The Governing law of the contract is known by various names such as the proper law of

contract, the applicable law of the contract, or the substantive law of the contract. All these

designations refer to the law governing the contractual relationship between the parties on the

formation, validity, performance, remedies, and other aspects which primarily relate to the

substantive aspects of the parties’ contractual relationship.28

Generally, the parties’ choice of the law governing the contract is recognized on the basis of

the party autonomy principle.The fundamental basis of the party autonomy doctrine is that the

parties to a contract are best suited to choose the law which is most appropriate to their

international transaction. The doctrine is of central importance to contractual relationship

in international commerce and is near universally recognized, subject only to public

policy restrictions. Party autonomy is recognised in India and so is the choice of law in an

international transaction.11 The recognition of the choice in India seems to be a matter of

common law than of any specific statute empowering a person to do so. Nevertheless, an

indirect statutory recognition has been granted to the rule in the limited context of an

international commercial arbitration in the form of Section 28(1)(b) of the Arbitration

and Conciliation Act, 1996 which makes it mandatory for the tribunal to decide a dispute in

accordance with the substantive law of contract designated by the parties.29

28
Article 9(1) of the Hague Principles on Choice of Law in International Commercial Contracts, 2015,
(hereinafter “Hague Principles”)

29
Section 2(1)(f) of the 1996 Act defines international commercial arbitration to mean “an arbitration relating
to disputes arising out of legal relationships, whether contractual or not, considered as commercial
under the law in force in India and where at least one of the parties is- (i) an individual
who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate
which is incorporated in any country other than India; or (iii) an association or a body of individuals whose
central management and control is exercised in any country other than India; or (iv) the Government
of a foreign country;”

28
As regards the content of the substantive law of contract, India still follows the traditional

distinction between substantive law and procedural law which prevails in most common law

countries. There might be certain aspects which could come within the domain of procedural

law in the Indian context, although they might be recognised as a part of substantive law

in certain international instruments or for that matter certain jurisdictions. For instance,

in India, limitation is a matter of procedural law and not substantive law. The law

applicable, therefore, is that of the forum or the lex fori.16 Contrarily, under Article 9(1)(d) of

the Hague Principles, limitation is a matter of substantive law.30

The law of the Arbitration Agreement

The party autonomy doctrine forms the basis for another closely related concept of dépeçage.

The French notion of dépeçage contemplates the possibility of different laws being

applicable to different parts of the agreement or different questions in relation to the

agreement. Dépeçage is recognised in various countries and also

international instruments including the Rome I Convention18 and the Hague

Principles.31

30
23 National Thermal Power Corporation v. The Singer Co. AIR 1993 SC 998: MANU/SC/0146/1993

31
The Hague Principles provide at Clause 2(2)(b): “The parties may choose-… (b) different laws for
different parts of the contract.”

29
The doctrinal twin of dépeçage is the notion of severability. The severability doctrine

provides that the choice of law and the arbitration clauses are independent and

autonomous to the main contract of which they form a part, and the mere invalidity, non-

existence, or the non-effectiveness of the main contract does not affect the choice of law and

the arbitration clauses, unless those clauses themselves suffer from invalidity, non-

existence, or the non-effectiveness. The severability doctrine in the context of arbitration

clauses found in an underlying contract is known as separability.32

An important consequence of the aforesaid doctrines of dépeçage and separability is that

parties could choose a law applicable to the arbitration agreement distinct from the law

governing contract even though the arbitration agreement may form a part of the

contract.The Law of the arbitration agreement determines capacity, validity, effect and

interpretation of the arbitration agreement. Owing to the party autonomy doctrine, where

the parties have expressly chosen the law governing the arbitration agreement, such a choice

would be given effect to.20 The situation gets complicated when there is no express choice of

law. In such cases, it is usually presumed that the law chosen by the parties as governing the

contract will also govern the arbitration agreement contained in it.33

This is a presumption that could be rebuttable in certain circumstances, such as

where the law governing contract negates the choice by the parties to arbitrate in a seat

other than a place to which the law governing the contract is applicable.22 Where the

parties have neither not chosen the law governing the contract nor that of the arbitration

agreement, the law having the closest connection will be the law governing these aspects. If

32
, Alan Redfern , J. & Martin Hunter , et al., Redfern and Hunter on International
Arbitration 163-164 (2009)
33
29 See, for instance, Sumitomo Heavy Industries Ltd. v. ONGC Ltd MANU/SC/0834/1998.

30
 the parties have chosen a place or seat of arbitration, the arbitration agreement will have the

closest connection to the law of the seat of arbitration, and therefore the law applicable to the

arbitration agreement would be the law of the seat. The closest connection test involves a host

of factors such as the place of performance, domicile of the parties, the place of arbitration,

the language of the contract, the format of the documents, the currency of payment, and so

on.34

The Indian position on this can be summed up in three propositions23:

• In the absence of express choice of the law of arbitration agreement, the choice

of the proper law of the contract will also govern the arbitration clause.

• However, in exceptional circumstances24, even if the proper law of the contract is

chosen, such may not be the law of the arbitration agreement where the agreement is

silent.

• Where the parties have not selected the law of the contract, such a

determination has to be made from the perspective of a “reasonable man” and identify

the law to which the contract has the closest and real connection. For this purpose the

place where the contract was made, the form and object of the contract, the place of

performance, the place of residence or business of the parties, reference to the courts

having jurisdiction and such other links are relevant.

34
, Alan Redfern , J. & Martin Hunter , et al., Redfern and Hunter on International
Arbitration 184 (2009)

31
 • Where neither the proper law of contract nor the proper law of arbitration

agreement is chosen, it would be presumed that the law of the arbitration agreement

would be the seat of arbitration.

The law governing Arbitration

The law governing the arbitration is also known be various other names such as lex arbitri,

curial law, procedural law of arbitration, governing law of arbitration, law of the seat, and

others. Although these terms might seem synonymous, some of these terms do have

special significance attached and are therefore explained for better clarity:

Lex Arbitri: Translated literally from Latin, the expression refers to the law of the

arbitration. In the modern context, the expression has acquired the meaning of the law that

governs the arbitration or the arbitral proceedings. The law that guides how the arbitration is

to be conducted is the lex arbitri.

Lex Loci Arbitri or the Law of the Seat: The Latin expression “Lex Loci” refers to the law

of the place.25 “Lex Loci Arbitri” can be translated to mean the law of the place of

arbitration.

Curial Law: The term “curial” of the expression curial law is derived from the Latin

word “curia”. Curia originally referred to the division of an ancient Roman tribe.26

Subsequently, the term denoted a feudal or a Roman Catholic court of justice.27 The modern

meaning of the term is “court”. Therefore, curial law refers to the law of the court.

32
The expression “Curial law” is a misnomer in its denotation to the law of the

arbitration since “curia” refers to a court, and an arbitral tribunal is not a court,

although for certain purposes it could be treated as such. Even so, the term has been applied

to refer to the law governing the arbitration35. The expression “curial law” is also inconvenient

because it seems to connote the idea, albeit an incorrect one, that the said law is applicable

only till the arbitration proceedings are completed.

The expression “law of the seat of arbitration” corresponds to the Latin expression “lex

loci arbitri” and the law of arbitration or the governing law of the arbitration is synonymous

to “lex arbitri”.36

Lex arbitri is commonly used by lawyers to refer to the law governing the arbitration

proceedings. As the term suggests, it refers to the law which shall apply to the

arbitration. Lex arbitri provides how the arbitral proceedings are to be conducted. Such

aspects include, among other things, the manner of invoking arbitration, the mode of

constituting the arbitral tribunal, qualifications of the arbitrators, the procedure in

which arbitration has to be conducted, and so on. Crucially, lex arbitri grants legal validity to

the arbitration proceedings and the arbitral award. Cognate to this role is the supervisory role

of the arbitral proceedings.

How does lex arbitri operate in practice? In many cases, parties do not specifically choose the

lex arbitri. Reasons could be many but an important cause is that negotiating parties

35
Naviera Amazonica Peruana S.A. Vs. Compania Internacional De Seguros Del Peru 1988 (1) Lloyd’s Rep
116; Enercon India v. Enercon GmbH (2014) 5 SCC 1.

36
Albert Jan van den Berg, The New York Arbitration Convention of 1958 350 (1981

33
 simply choose the place of arbitration instead. By choosing the place of arbitration, lex

arbitri is deemed to have been automatically chosen by the parties. A popular commentary on

international commercial arbitration explains this aptly:

“To say that the parties have ‘chosen’ that particular law to govern the arbitration is rather

like saying that an English woman who takes her car to France has ‘chosen’ French traffic

law, which will oblige her to drive on the right-hand side of the road, to give priority to

vehicles approaching from the right, and generally to obey traffic laws to which she may not

be accustomed. But it would be an odd use of language to say that this notional motorist had

opted for ‘French traffic law’. What she has done is to choose to go to France. The

applicability of French law then follows automatically. It is not a matter of choice.”

This begs the question: can the lex arbitri be different from that of the law of the seat? It is

possible and such a question has been dealt with by courts in the past. Where parties

have chosen the lex arbitri to be a law different from that of the seat, courts have not been

averse in recognising such a choice. Even so, such a choice presents

numerous uncertainties and questions: What if a rule in the lex arbitri chosen is

contrary to the law of the seat? In case a party wants to challenge the award, under which law

should the challenge be made?

The seat or the place of arbitration is the jurisdiction where an international arbitration has its

legal domicile and the laws of which generally govern the arbitration proceedings. In the

current international commercial arbitration regime, the law of the seat has a central role to

play as it has been endowed with the task of affording legality to the arbitral proceedings.

34
IndianIndian law also is in line with the international position on the centrality of the law of the

seat of arbitration. Under Indian law, a choice of the seat of arbitration implies that the law

of the seat will govern the conduct and the supervision of the arbitration.37

The law of the Seat versus the law of the Arbitration agreement

The law of the arbitration agreement and the law of the seat coincide on many aspects. Take the

Arbitration and Conciliation Act, 1996, for instance. Section 2(2) of the

1996 Act provides that Part I of the said Act shall apply where the place of arbitration is India.

Section 7(2) of the 1996 Act, which is contained in Part I, provides a formal requirement for

a valid arbitration agreement under Indian laws. One would notice that Section 7 denotes

the law as prevailing in the place or the seat of arbitration, and at the same time, deals with

formal requirements of an arbitration agreement, which would fall within the domain of the

law governing the arbitration agreement if made applicable to an international arbitration, as

was seen in Part II of this paper.

In the context of this paper, the question is the law that would govern the proceedings regarding

setting aside an arbitral award.

The New York Convention provides some guideline on the issue. Article V(1)(e) of the

Convention states that recognition and enforcement of an arbitral award could be refused if

the award “has been set aside or suspended by a competent authority of the country in which,

37
MANU/SC/0834/1998

35
 or under the law of which, that award was made.” Commentaries have suggested that the

phrase “country in which that award was made” and the “under the law of which that

award was made” connotes the seat and the law governing the

arbitration respectively34 and that Article V(1)(e) is somewhat out of tune with the New

York Convention because the Convention accords primacy to parties’ agreement while

Article V(1)(e) accords primacy to the law of the seat over the parties’ agreement regarding

the law governing the arbitration.35 Usually the law governing the arbitration will be the law

of the seat, save in extremely rare situations.38

Singer Company and Sumitomo Heavy Industries Ltd. v. ONGC Ltd. Considering the

importance of these judgements to the current debate, a detailed analysis of the same is

necessary.39

Pre-1996 Position

Prior to 1996, the Indian arbitration landscape was governed by two legislations: the

Arbitration Act, 1940 (“1940 Act”) and the Foreign Awards (Recognition and

Enforcement) Act, 1961 (“1961 Act”). The 1940 Act was regarded as applying to

domestic arbitrations. Later, in order to give effect to India’s stance as a signatory to the New

York Convention, India had enacted the 1961 Act. Section 9 of the 1961 Act provided:

"Saving. Nothing in this Act shall-(a) prejudice any rights which any person would have had

of enforcing in India of any award or of availing himself in India of any award if this

38
Gary Born, International Commercial Arbitration, 2nd edn. 2016

39
Ibid

36
Act had not been passed; or (b) apply to any award made on an arbitration agreement

governed by the law of India." (emphasis supplied).

Section 9 was at the centre of controversy in the two decisions discussed below:

National Thermal Power Corporation v. The Singer Company40: In National

Thermal Power Corporation v. The Singer Company38, the relevant agreement provided

for arbitration by a tribunal to be constituted under the ICC Rules and the law applicable to

the agreement was Indian law. The seat was not agreed upon. Disputes arose between the

parties and the ICC Court chose London as the seat of arbitration. An interim award was

passed by the tribunal, which was challenged in the Delhi High Court by National Thermal

Power Corporation (“NTPC”) under the Arbitration Act, 1940. The Singer Company

(“Singer”) contested the challenge on the ground that Delhi High Court did not have

jurisdiction to hear the challenge as the law of the arbitration agreement was not Indian law

but English law owing to the fact that the seat of arbitration was London. The Delhi High

Court held in favour of Singer. NTPC appealed against the decision.

A two-judge Bench of the Supreme Court held that Indian courts did have jurisdiction to hear

the matter since the substantive law of the arbitration agreement was Indian law. The court

reached such an inference owing to the fact that the parties had expressly chosen Indian

laws to govern their contractual relationship

40
MANU/SC/0722/2012

37
The court concluded on the basis of Section 9(b) of the 1961 Act that the award was not a

foreign award and was therefore subject to the Arbitration Act, 1940. Further, the court

construed the choice of law clause and held that all questions under the contract,

including under the arbitration agreement contained in it, were to be governed by Indian

laws. While the court recognised the possibility of English courts having concurrent

jurisdictions, the Supreme Court was of the view that on facts London was merely a

convenient venue since parties did not make the said choice and that the Indian law had the

closest and the real connection to the agreement.

Sumitomo Heavy Industries Ltd. v. ONGC Ltd41: In Sumitomo Heavy Industries

Ltd. v. ONGC Ltd.39, the dispute arose out of an agreement which provided that the law

governing the agreement would be Indian laws, that the place of arbitration would be London,

and that the arbitration would be conducted in accordance with the rules of the International

Chamber of Commerce. Disputes arose and the arbitral tribunal passed an award in favour of

Sumitomo Heavy Industries Ltd. (“Sumitomo”). ONGC approached the Bombay High Court

to have the award set aside and the Bombay High Court allowed the petition. Sumitomo

appealed to the Supreme Court.42

In the Supreme Court, ONGC cited an authoritative commentary on commercial

arbitration in England40, which stated that “[t]he proper law of the arbitration agreement

governs… the question whether an award lies within the jurisdiction of the arbitrator; the

formal validity of the award”, that the curial law governed the manner in which the

41
MANU/SC/0834/1998
42
2002) 4 SCC 105

38
 arbitration is to be conducted, and that once an award is made, the arbitrator becomes

functus officio. The court agreed with the contentions of ONGC and based its judgements

on two aspects. The first was that the Foreign Awards (Recognition and

Enforcement) Act, 1961, especially Section 9(b), did not apply where the arbitral award

was made under an arbitration agreement governed by Indian law.

43

Construing the said statutory provision, the court was of the view that once it was held that the

law of the arbitration agreement was Indian law, the 1961 Act was not applicable to

the said arbitration and, instead, the Arbitration Act, 1940, was applicable to

the proceedings. This meant that Indian courts could set aside such arbitral awards under

the relevant provisions of the 1940 Act. The court stated:

“By reason of Section 9(b), the 1961 Act does not apply to any award made on an arbitration

agreement governed by the law of India. The 1961 Act, therefore, does not apply to the

arbitration agreement between the appellant and the first respondent. The 1940 Act,

applies to it and, by reason of Section 14(2) thereof, the courts in India are entitled to receive

the award made by the second respondent."

The second rationale for the court to hold in favour of ONGC was that the curial law

stopped operating once the arbitral tribunal passed its award and became functus officio.

Relying on a commentary on the English arbitration law41, the Supreme Court held:

43
BALCO II. See, for instance, Carzonrent India Pvt. Ltd. vs. Hertz International Ltd.
MANU/DE/1893/2015; Some of the judgements of the Supreme Court that cite Sumitomo pre-BALCO
are Dozco India Pvt. Ltd. v. Doosan Infracore Co. Ltd. (2011) 6 SCC 179 and Videocon Industries Ltd.
v. Union of India AIR 2011 SC 2040.

39
“The proceedings before the arbitrator commence when he enters upon the reference

and conclude with the making of the award. As the work by Mustill and Boyd

aforementioned puts, it with the making of a valid award the arbitrator's authority, powers

and duties in the reference come to an end and he is "functus officio" (page

404). The arbitrator is not obliged by law to file his award in court but he may be asked by the

party seeking to enforce the award to do so. The need to file an award in court arises only if

it is required to be enforced, and the need to challenge it arises if it being enforced. The

enforcement process is subsequent to and independent of the proceedings before the

arbitrator. It is not governed by the curial or procedural law that governed the

procedure that the arbitrator followed in the conduct of the arbitrator.

The law which would apply to the filing of the award, to its enforcement and to its setting aside

would be the law governing the agreement to arbitrate and the performance of that

agreement.”

Contextualising NTPC and Sumitomo

NTPC and Sumitomo was judgements passed in the context of the 1940 and the 1961 Acts.

These legislations have been repealed by the 1996 Act.42 It is important to note that the

analogous provisions in the 1996 Act do not contain a provision similar to Section 9(b) of

the 1961 Act. Section 51 of the 1996 Act states:

40
"Saving.—Nothing in this Chapter shall prejudice any rights which any person would

have had of enforcing in India of any award or of availing himself in India of any

award if this Chapter had not been enacted."

There is no clause in the aforesaid provision similar to Section 9(b) of the 1961 Act.

Further, Section 44 makes Chapter I (New York Convention Awards) of Part II

(Enforcement of Certain Foreign Awards) applicable on the basis of territoriality, as provided

in Section 44(b), which reads:

"Definition.—In this Chapter, unless the context otherwise requires, “foreign award”

means an arbitral award on differences between persons arising out of legal

relationships, whether contractual or not, considered as commercial under the law in force in

India, made on or after the 11th day of October, 1960—(a) in pursuance of an agreement in

writing for arbitration to which the Convention set forth in the First Schedule applies, and (b)

in one of such territories as the Central Government, being satisfied that

reciprocal provisions have been made may, by notification in the Official Gazette,

declare to be territories to which the said Convention applies." (emphasis supplied)

Similar provisions are contained in Sections 53 and 60, which deal with Geneva

Convention Awards. Both Section 7(1)(a)(v) of the 1961 Act and Section 48(1)(e) of the 1996

Act provide that an award could be refused recognition and enforcement if the award has been

set aside in the country in which the award was made or the law under which the award was

made. Both these provisions are in consonance with Article V(1)(e) of the New York

Convention in this regard. But the differentiating factor between the 1961 Act and the

41
 1996 Act is the absence in the 1996 Act of a provision akin to Section 9(b) of the 1961

Act.

The cumulative effect of Sections 7(1)(a)(v) and Section 9(b) of the 1961 Act is to provide a

choice of law rule that the law regarding setting aside proceedings is governed by the

law of the arbitration agreement and that the courts whose law governs arbitration

agreement will have jurisdiction to entertain applications for setting aside arbitral

awards.43 The problem with this approach is that both the courts at the seat as well as the courts

applying the law of the arbitration agreement would have jurisdiction to set aside the award

thereby giving scope for multiplicity of challenge petitions and for inconsistent decisions

on the validity of the arbitral award.

Consequently, since Section 48(1)(e) of the 1996 Act is based on the Article V(1)(e) of

the New York Convention, the said provision has to be construed in accordance with the

well-accepted interpretation afforded to Article V(1)(e). Under the said Article, the law

under which the award is made will not be the law of the arbitration agreement but the lex

arbitri, which is usually the law of the seat. Referring to the phrase “the law under which

the award is made” as the second alternative, an authoritative commentary states:

“The correct interpretation of Article V(1)(e)’s second alternative is that it refers

exclusively to the procedural law which produced an award, and not to other possible

laws (such as the substantive law governing the parties’ underlying dispute or governing

the parties’ arbitration agreement)…”44

42
 The aforesaid position has been accepted under Indian law. In the landmark decision of Bharat

Aluminium Co. v. Kaiser Aluminium Technical Service, Inc.45a five judge Bench of the

Supreme Court analysed the existence of the first and the second alternatives noted

above and held:

Therefore, the word "suspended/set aside" in Section 48(1)(e) cannot be interpreted to

mean that, by necessary implication, the foreign awards sought to be enforced in India

can also be challenged on merits in Indian Courts. The provision only means that Indian

Courts would recognize as a valid defence in the enforcement proceedings relating to a

foreign award, if the Court is satisfied that the award has been set aside in one of the two

countries, i.e., the "first alternative" or the "second alternative.”

The Supreme Court in this case also clarified that it is the law under which the award was

made and the lex arbitri (if at all both are different) which will govern setting aside

proceedings:

148. The consistent view of the international commentators seems to be that the "second

alternative" refers to the procedural law of the arbitration rather than "law governing the

arbitration agreement" or "underlying contract". This is even otherwise evident from the

phrase "under the law, that award was made", which refers to the process of making the

award (i.e., the arbitration proceeding), rather than to the formation or validity of the

arbitration agreement."

43
In view of the prevailing international position, the Supreme Court held that where a

foreign seat is chosen, the laws of that country would govern the conduct of the

arbitration and its supervision.46 This would also mean, according to the court, that such an

arbitral award cannot be challenged in Indian courts. The court unequivocally held that it is

only when the place of arbitration is in India that challenge proceedings could be brought in

Indian courts.47 Therefore, the prevailing Indian position is that the law governing setting aside

proceedings will be the law of the seat and not the law of the arbitration agreement.

It is important to note that Sumitomo was decided not solely on the basis of Section 9(b) of the

1961 Act but also in view of the perceived, albeit erroneous, position in international

arbitration regarding the primacy of the law of the arbitration agreement over the law of the

seat as regards setting aside proceedings.48 As a result, mere enactment of the 1996 Act

and the absence of a provision on the lines of Section 9(b) of the 1961 Act was not sufficient,

especially in a scenario where Bhatia International v. Bulk Trading SA49 held the field. It

was the five judge Bench in BALCO that brought primacy back to the law of the seat

of arbitration over the law of the arbitration agreement on the law governing challenge

proceedings. Hence, it would not be wrong to suggest that Sumitomo was impliedly

overruled by BALCO. Even otherwise, NTPC and Sumitomo cannot be good law considering

the changes made in the 1996 Act vis-à-vis the law of the arbitration agreement.

The Continuing Influence of NTPC and Sumitomo

There are two crucial aspects to the judgement in NTPC. The first aspect pertains to the

discussion in the judgement regarding the law governing the contract and the law governing

44
 the arbitration agreement. The second part pertains to the applicability of the law of the

arbitration agreement to setting aside proceedings against an arbitral award whose seat

is outside India. It is submitted that BALCO has overruled the second part of the

judgement while the first part still holds the field.

The same cannot be said of Sumitomo. Except for brief references to the first part of NTPC,

Sumitomo was almost exclusively concerned with the question relating to the law governing

challenge proceedings. Despite its lack of precedential value, the judgement has been

cited by counsels and also in several judgements of the High Courts and the Supreme

Court post-BALCO.50 BALCO did not rely on or consider Sumitomo.

Curiously, BALCO II, a judgement passed by a three judge Bench of the Supreme Court

in 2016 in the second round of the BALCO litigation, did rely on Sumitomo:

"Party autonomy being the brooding and guiding spirit in arbitration, the parties are free to

agree on application of three different laws governing their entire contract-(1) proper law of

contract, (2) proper law of arbitration agreement and (3) proper law of the conduct of

arbitration, which is popularly and in legal parlance known as curial law. The interplay and

application of these different laws to an arbitration has been succinctly explained by this

Court in Sumitomo Heavy Industries Limited v. ONGC Limited and Ors. (1998) 1

SCC 305, which is one of the earliest decisions in that direction and which has been

consistently followed in all the subsequent decisions

including the recent Reliance Industries Limited and Anr. v. Union of India (2014) 7

SCC 603."51 (emphasis supplied)

45
BALCO II also acknowledged that Sumitomo was an authority for the proposition that in the

absence of a choice of the law of the arbitration agreement, the choice of law governing the

contract will also mean that the law of the arbitration agreement is chosen. To this

extent, reliance on Sumitomo was correct. It is submitted that this was a minor point in

Sumitomo as the position was already discussed extensively by the Supreme Court in NTPC.

But the reliance in BALCO II on Sumitomo for the interplay between the law of the contract,

of the arbitration agreement, and the lex arbitri (as quoted above) is wrong because such

reliance contradicts with the ratio of BALCO.

CONCLUSION

From the aforesaid analysis, it is clear that NTPC and Sumitomo is no more a good law for the

proposition regarding applicability of the law of arbitration agreement to setting aside arbitral

awards. The Indian law on the point is now clear: setting aside proceedings will be exclusively

governed by the law of the seat in line with the seat theory, notwithstanding that the law of the

46
arbitration agreement is different from the law of the seat. The precise effect of the enactment

of the 1996 Act and the judgement of the Supreme Court in BALCO are to effectively abrogate

or overrule Sumitomo. Consequently, Sumitomo’s ratio is no more good law.

Therefore, courts must be cautious in dealing with arguments citing Sumitomo as regards the

law applicable to proceedings for setting aside arbitral awards.

47