ADR ASSIGNMENT

HARDY CASE
( Union of India v. Hardy Exploration and Production (India) Inc)
Facts : Hardy Exploration and Production (India) Inc. (Hardy Exploration) entered into a
production-sharing contract with the Indian Government for the extraction, development and
production of hydrocarbons in a geographic block in India. Disputes arose between the parties,
which were referred to arbitration. The arbitration clause specified Kuala Lumpur as the ‘venue’
of the arbitration. Arbitration was conducted in Kuala Lumpur and a final award was rendered in
favour of Hardy Exploration. The award was challenged by the Indian Government under Section
34 before the Delhi High Court (Section 34 Challenge). Hardy Exploration resisted the Section 34
Challenge on the basis that Indian courts could not have jurisdiction to entertain the Section 34
Challenge because the seat of the arbitration was Kuala Lumpur and Part I of the Arbitration Act
would not be applicable. The Delhi High Court ruled in favour of Hardy Exploration. The Indian
Government appealed the Delhi High Court decision before the Supreme Court.

Decision: The Court ruled that the ‘venue’ of an arbitration could not, ipso facto, be considered to
be its ‘seat’ and that the ‘place’ could be equated with ‘seat’ only if it had no conditions precedent
attached to it: “The term ’place’ does not ipso fact become equivalent to ’seat’, and only when one
of the conditions precedent is satisfied can the ’place’ take the position of ’seat’. On the other hand,
however, the term ’venue’ can become ’seat’ if something else is added to it as a concomitant.”

ENERON CASE

Facts: The arbitration agreement between the parties specifically stated that the law governing
the contract, law governing the agreement and crucial law are all Indian laws. It also specifically
stated that the venue of arbitration is London. The parties are from Germany and India. The
Germen party approached UK Courts and got some injunction orders restraining the opposite party
from approaching Indian Courts for any relief. Indian parties got orders from Indian local courts
in Daman in India. The Indian local Court Daman came to the conclusion that the free consent to
the contract was missing (even though signed by both the parties) hence contract itself was not
valid and consequentially dismissed the application seeking reference of the matter to the
arbitration filed under Section 45 of the Arbitration and conciliation Act, 1996 and granted an anti-
arbitration injunction. The Appellate Court in Daman vacated the anti-arbitration injunction and
reversed the order of the trial Court. The High Court of Bombay came to a conclusion that both
Indian and UK Courts have concurrent jurisdiction over the matter. English High Court also passed
an order in the form of anti-arbitration order which was later vacated on some undertakings (which
are not that relevant to the present topic) given by the parties.

Decision: The Supreme Court of India held that there are very strong indicators to suggest that the
parties always understood that the seat of arbitration would be in India and London would only be
the "venue" to hold the proceedings of arbitration.

Reliance case

Facts: It is important now to understand the factual background and the separate judgments of
this saga. Two Production Sharing Contracts (“PSCs”) were entered into between RIL, UOI, Enron
Oil and Gas India Ltd (“Enron“) and ONGC. The PSCs were subsequently amended to substitute
Enron with BG Exploration and Production India Limited (“BG“). The arbitration agreement
provided for the venue to be London (which was later consented to by parties as the seat) and was
governed by the laws of England, while the substantive law was Indian law. Sometime in 2010,
disputes arose between RIL and UOI whereby the arbitration clause was invoked.

The arbitral tribunal issued a partial award that became the subject matter of a setting aside petition
(under section 34 of Part I of the Act) filed in the Delhi High Court by the UOI. The Delhi High
Court decided that the setting aside petition was maintainable. The SCI by a judgment dated 28
May 2014 (“Reliance I“), reversed the ruling of Delhi High Court by holding that Part I of the Act
was inapplicable. The Supreme Court arrived at this conclusion by finding the presence of a foreign
seat and a foreign law governing the arbitration agreement as an express exclusion of Part I of the
Act.

Thereafter, a second round of litigation was started by UOI. This time, UOI approached the
Delhi High Court by an application for terminating the mandate of the arbitrator (under section
14 of the Act which is under Part I). This application was dismissed as being non-maintainable
due to inapplicability of Part I of the Act in light of Reliance I. The UOI appealed to the SCI on
the ground that arbitration agreement was pre-September 2012, making Part I applicable in light
of BALCO and Bhatia International.

The Court further went on to hold that, ‘it is only those cases in which agreements stipulate that
the seat of the arbitration is in India or on whose facts a judgment cannot be reached on the seat of
the arbitration as being outside India that would continue to be governed by the Bhatia principle.
Also, it is only those agreements which stipulate or can be read to stipulate that the law governing
the arbitration agreement is Indian law which would continue to be governed by the Bhatia rule’.

Analysis: Both Reliance I and Reliance II, have tried to clarify the applicability of Bhatia
International to agreements pre-dating 6 September 2012. Interestingly, Reliance I held that the
presence of both a foreign seat and a foreign law governing the arbitration agreement will lead to
the exclusion of Part I, meaning that the presence of both elements were thought to be crucial for
exclusion of Part I. This was in consonance with the earlier rulings of the SCI in Videocon and
Yograj, where it relied on a combination of foreign factors relating to seat, curial law and law
governing the arbitration agreement, to hold Part I of the Act as excluded.

Ancy Varghese (926)

X Semester