The Indian Supreme Court has just delivered its long awaited decision in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc, Civil Appeal No. 7019 of 2005. This case is significant in overruling its earlier decision of Bhatia International v Bulk Trading SA (2002) 4 SCC 105 (see our previous post here) which extended the scope of Part I of the Indian Arbitration and Conciliation Act 1996 to foreign arbitrations.

The Bhatia International case raised eyebrows within the arbitration community because it gave the Indian courts an opportunity to intervene in a foreign award as if it were an Indian award. This was particularly so in respect of the concept of “patent illegality” under Indian law, allowing arbitration awards to be set aside on the basis of an error of law.

The concept of “patent illegality” is derived from the Indian Supreme Court decision of ONCG v Saw Pipes, 2003 (2) Arb.LR 5 (SC), and is part of the ambit of public policy of India, violation of which entitles the Indian courts to set aside an arbitral award. This is in addition to the usual grounds for setting aside an arbitration under Article 34 of the Model Law or Article V of the New York Convention. However, the concept of “patent illegality” only applies to arbitrations under Part I of the Indian Arbitration Act i.e. domestic arbitrations and international arbitrations with their seat in India.

There was mounting concern within the arbitration community when the Indian Supreme Court then set aside a foreign international arbitration award on the basis that Part I applied and that the award was “patently illegal” – in Venture Global Engineering v Satyam Computer Services Ltd, (2008) 4 SCC 190 the Indian Supreme Court applied section 34 of Part I of the Indian Arbitration Act and set aside a London LCIA award on that basis.

The Bharat Aluminuium decision reverses that by holding that Part I of the Indian Arbitration Act does not apply to arbitrations held outside of India. However, as a result, the Indian Supreme Court also held that the Indian courts were not able to render interim or interlocutory relief in assistance of foreign arbitral proceedings.

Readers should look forward to our next post which comments on the Bharat Aluminium decision.