In Bhatia International v Bulk Trading S.A. (2002) 4 SCC 105 (Bhatia International), the Indian Supreme Court ruled that Part I of the Arbitration and Conciliation Act 1996 (ACA 1996) applied to all international arbitrations relating to India unless the parties expressly or impliedly excluded any or all of its provisions. Part I of the ACA 1996 includes section 34, a provision permitting a party to challenge an arbitration award in the Indian courts.

The principle in Bhatia International has since been clarified in cases such as Bharat Aluminium Co v Kaiser Aluminium Technical Services, Inc, Civil Appeal No. 7019 of 2005 (see Legal update, Uprooting Bhatia International: Part I of Indian Arbitration and Conciliation Act does not apply to arbitration outside India) to confirm that Part I of the ACA 1996 is impliedly excluded in situations where the arbitration is seated outside India.

The dispute arose from a Production Sharing Contract (PSC) between India and Hardy Exploration & Petroleum (Hardy) in respect of the CY-OS/2 exploration block, in which Hardy held a 75% stake. The governing law and dispute resolution clauses of the PSC provided, among other things, that:

The governing law of the PSC was Indian law (Article 32.1).

The venue for arbitrations relating to the PSC would be Kuala Lumpur, unless otherwise agreed between the parties (Article 33.12).

A dispute between the government of India and Hardy arose over an extension of Hardy's licence for appraisal operations in respect of the CY-OS/2 exploration block. The dispute was referred to arbitration in accordance with the PSC, with the tribunal consisting of three former Indian judges.

The arbitration was conducted in Kuala Lumpur and resulted in an award made on 2 February 2013, which ruled in Hardy's favour. The tribunal awarded Hardy an extension to its licence to undertake appraisal activities on the CY-OS/2 block, as well as compensation and costs. The award was signed by the arbitrators in Kuala Lumpur, but did not expressly state the seat of the arbitration.

The government of India filed a petition in India to challenge the award under section 34 of the ACA 1996. Hardy objected to the petition on the grounds that the award was a "foreign award" under the ACA 1996, and that Part I of the ACA 1996 (which includes section 34) was not applicable to foreign awards. Hardy further argued that in any event the Indian court did not have jurisdiction to hear such a challenge.

The petition was withdrawn by the government of India during a first instance hearing, with advocates for the government of India apparently accepting that the Indian court lacked jurisdiction. The court ordered the petition dismissed as withdrawn. A subsequent petition for review of that order was dismissed as being outside the jurisdiction of the review court. In the meantime, Hardy sought to enforce the award in the US.

The government of India appealed those decisions to the New Delhi High Court, arguing that specifying the "venue" of the arbitration in the PSC did not amount to specifying the seat of the arbitration, and that in the absence of agreement between the parties; Indian law was the governing law of the arbitration. In response, Hardy argued that even if the seat had not been specified in the PSC, the arbitrators had clearly determined the seat to be Kuala Lumpur.

The New Delhi High Court dismissed the government of India's appeal.

It was decided that the key question for the court to determine, in order to rule on whether Part I of the ACA 1996 applied, was whether the place (or venue) of the arbitration was the seat. The court ruled that whilst neither the PSC nor the tribunal had expressly stated the seat of the arbitration, the fact that the arbitration had been conducted and the award made in Kuala Lumpur meant it could "safely be presumed that the award having been made in Kuala Lumpur, the place of the arbitration as distinct from the venue of the arbitration, would also be Kuala Lumpur". In other words, Kuala Lumpur was ruled to be the seat of the arbitration.

The court went on to consider whether, despite this finding on the seat of the arbitration, Part I of the ACA 1996 was still applicable to the arbitration. In making its decision, the court considered the principle in Bhatia International, that Part I applies unless expressly or impliedly excluded by the parties. In interpreting Bhatia International, the court observed that since that ruling, there was a long line of authority which settled that Part I is excluded by implication in circumstances where the seat of the arbitration is outside India.

Having found that the seat of the arbitration was outside India, the court ruled that it had no jurisdiction to entertain the government of India's challenge under section 34 of the ACA 1996, and accordingly the appeal was dismissed.

The decision of the New Delhi High Court is a welcome addition to the precedent that the Indian courts will not interfere with arbitrations which are not seated in India, and particularly because it demonstrates Indian courts' willingness to defend the integrity of international arbitration awards. The court also helpfully accepted that under the UNCITRAL Model Law, it is for the tribunal to determine the seat of the arbitration. This approach of non-interference by the Indian courts to international arbitration awards is encouraging, particularly in respect of challenges to those awards. However, Hardy may yet face a challenge in enforcing the judgment.

Case: Union of India vs Hardy Exploration & Production (India) Inc. FAO (OS) 59/2016.