Indian Courts Can’t Appoint Arbitrator For Foreign-Seated Arbitration Irrespective Of Nationality Or Domicile Of Parties: Supreme Court

The Arbitration Petition under Section 11 of the Arbitration and Conciliation Act, was filed by the petitioner to anchor an international commercial arbitration, arising out of Buyer and Seller Agreement (BSA), and its Addendum, governed by the laws of Republic of Benin, into the domestic framework of the 1996 Act by placing reliance on dispute resolution clauses contained in subsequent contractual arrangements.

The Division Bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar held, “ As this Court explained in BALCO, reaffirmed in Mankastu, BGS SGS SOMA JV, and emphatically reiterated in PASL Wind Solutions, Indian Courts have no jurisdiction to appoint an arbitrator for a foreign-seated arbitration, irrespective of the nationality or domicile of the parties. On the facts as well, the BSA and its Addendum constitute the mother agreement, containing a clear and deliberate choice of Benin as the juridical seat of arbitration and Benin law as the governing and curial law. The subsequent Sales Contracts and HSSAs are merely ancillary, facilitating performance of isolated shipments, and cannot override the dispute resolution framework of the BSA. Thus, both in principle and in the factual circumstances of the case, the arbitration agreement in the BSA prevails.”

AOR S. S. Shroff represented the Appellant while AOR Abhijnan Jha represented the Respondent.

Factual Background

The petitioner, Balaji Steel Trade, approached the Court under Section 11(6) read with Section 11(12)(a) of the Act 1996 praying for appointment of sole arbitrator to adjudicate and decide upon dispute that has arisen between the parties owing to the alleged breach of Buyer and Seller Agreement (BSA) executed between the petitioner and the first respondent, Fludor Benin S.A, a private limited company incorporated under the laws of Republic of Benin. According to the petitioner, both parties entered into negotiations with a view to explore a business arrangement for the manufacture and sale of cottonseed cakes. The parties executed a Collaboration and Buy Back Agreement (Collaboration Agreement). Subsequently, the petitioner and first respondent entered into a BSA for a term of five years, governing the supply and sale of the product.

The terms of BSA were modified by signing an Addendum, the terms of which eliminated the petitioner’s exclusive rights of purchase of the product, thereby allowing the respondent Company to sell the product to third parties. The petitioner contended that, following the execution of the Addendum, there was a shortfall in the quantity of the product supplied to it. In order to address the said shortfall, the third respondent, Tropical Industries International Pvt. Ltd., was introduced to the petitioner. Disputes arose between the parties with respect to the quantity of supply and payments inter-se, which led to the petitioner serving a notice on all party respondents.

The petitioner then issued a termination notice under which BSA and the Addendum were terminated. The first respondent sent notice invoking arbitration under the laws of Benin to the petitioner. A Benin Court appointed a sole arbitrator for the determination of disputes. The petitioner proceeded to institute an Anti-Arbitration Injunction Suit before the Delhi High Court, praying for a decree of permanent injunction restraining the first respondent from proceeding/continuing with the Benin Arbitration. Pending disposal of the anti-arbitration injunction suit, the application under Section 11(6) of the 1996 Act for the constitution of an arbitral tribunal was filed. The ad hoc arbitration in Benin was concluded, and the sole arbitrator rendered its award. The anti-arbitration injunction suit also came to be dismissed by the High Court.

Reasoning

On a perusal of the facts of the case, the Bench noted that Article 11 of BSA read with Article 5 of the Addendum showed that the parties not only indicated the geographical location of arbitration but also selected the governing law. The dual indications together left little scope for doubt that Benin was intended to be the juridical seat with laws of Benin as the curial law.

The Bench was of the view that the arbitration agreements in the Sales Contracts or HSSAs cannot displace or override the arbitration clause in the BSA, and disputes rooted in the BSA must be resolved exclusively through the arbitration agreed therein, namely, arbitration seated in Benin and governed by Benin law. As per the Bench, owing to the separateness of the three contractual instruments, it couldnot be said that there were any contrary indica in BSA in respect of any other law.

Reaffirming that Indian courts lack jurisdiction to appoint an arbitrator for a foreign-seated arbitration, the Bench held that the invocation of Part I and the request under Section 11(6) of the 1996 Act were fundamentally misconceived, legally untenable, and contrary to the statutory scheme as well as the autonomy of the parties’ contractual design. The Bench also took note of the High Court’s categorical finding that the BSA and its Addendum formed the principal and operative contractual matrix between the petitioner and respondent, and the arbitration clause contained therein represented the parties’ deliberate and binding choice of dispute resolution.

The Bench made it clear that the BSA constituted the mother agreement, the juridical seat of arbitration was Benin, and the governing and curial law was the law of Benin. It was further noted that Part I of the Act stood excluded by operation of law. After the commencement and during the subsistence of international commercial arbitration in Benin, the petitioner filed the anti-arbitration injunction suit, but failed to obtain any order or direction. In the meantime, international commercial arbitral proceedings culminated in the final award, and finally, the Delhi High Court dismissed the anti-arbitration injunction suit, considering the very same issues raised herein. Thus, according to the Bench, the petitioner was estopped from raising the same issues.

“The group of companies doctrine, as recognised in Indian law, is not an automatic talisman for impleading every corporate entity of a group into arbitral proceedings”, the Bench stated while clarifying that there was a misplaced reliance on the Group of Companies Doctrine. Thus, the Bench dismissed the Arbitration Petition filed under Section 11(6) read with Section 11(12)(a).

Cause Title: Balaji Steel Trade v. Fludor Benin S.A. (Neutral Citation: 2025 INSC 1342)

Appearance

Appellant: AOR S. S. Shroff

Respondent: AOR Abhijnan Jha, AOR Pallav Mongia

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