Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4269 ___ OF 2011
(Arising out of SLP(C) No.16371 of 2008)
Videocon Industries Limited ……..Appellant
Versus
Union of India and another ……..Respondents
J U D G M E N T
G.S. Singhvi, J.
1. Leave granted.
2. Whether the Delhi High Court could entertain the petition filed by the
respondents under Section 9 of the Arbitration and Conciliation Act, 1996
(for short, “the Act”) for grant of a declaration that Kuala Lumpur
(Malaysia) is contractual and juridical seat of arbitration and for issue of a
direction to the arbitral tribunal to continue the hearing at Kuala Lumpur in
2
terms of clause 34 of Production Sharing Contract (PSC) is the question
which arises for consideration in this appeal.
3. Respondent No.1 – Government of India owns petroleum resources
within the area of India’s territorial waters and exclusive economic zones.
Respondent No.2 is an arm of the Ministry of Petroleum and Natural Gas.
On 28.10.1994, a PSC was executed between respondent No.1 on the one
hand and a consortium of four companies consisting of Oil and Natural Gas
Corporation Limited, Videocon Petroleum Limited, Command Petroleum
(India) Private Limited and Ravva Oil (Singapore) Private Limited
(hereinafter referred to as “the Contractor”) in terms of which the latter was
granted an exploration licence and mining lease to explore and produce the
hydro carbon resources owned by respondent No.1. Subsequently, Cairn
Energy U.K. was substituted in place of Command Petroleum (India) Private
Limited and the name of the Videocon Petroleum Limited was changed to
Petrocon India Limited, which merged the appellant – Videocon Industries
Limited. For the sake of convenience, the relevant clauses of Articles 33, 34
and 35 of the PSC are extracted below:
“33.1 Indian Law to Govern
Subject to the provisions of Article 34.12, this Contract shall
be governed and interpreted in accordance with the laws of
India.
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33.2 Laws of India Not to be Contravened
Subject to Article 17.1 nothing in this Contract shall entitle
the Contractor to exercise the rights, privileges and powers
conferred upon it by this Contract in a manner which will
contravene the laws of India.
34.3 Unresolved Disputes
Subject to the provisions of this Contract, the Parties agree
that any matter, unresolved dispute, difference or claim
which cannot be agreed or settled amicably within twenty
one (21) days may be submitted to a sole expert (where
Article 34.2 applies) or otherwise to an arbitral tribunal for
final decision as hereinafter provided.
34.12.Venue and Law of Arbitration Agreement
The venue of sole expert, conciliation or arbitration
proceedings pursuant to this Article, unless the Parties
otherwise agree, shall be Kuala Lumpur, Malaysia, and shall
be conducted in the English language. Insofar as
practicable, the Parties shall continue to implement the
terms of this Contract notwithstanding the initiation of
arbitral proceedings and any pending claim or dispute.
Notwithstanding the provisions of Article 33.1, the
arbitration agreement contained in this Article 34 shall be
governed by the laws of England.
35.2 Amendment
This Contract shall not be amended, modified, varied or
supplemented in any respect except by an instrument in
writing signed by all the Parties, which shall state the date
upon which the amendment or modification shall become
effective.”
4. In 2000, disputes arose between the respondents and the contractor
with respect to correctness of certain cost recoveries and profit. Since the
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parties could not resolve their disputes amicably, the same were referred to
the arbitral tribunal under clause 34.3 of the PSC. The arbitral tribunal fixed
28.3.2003 as the date of hearing at Kuala Lumpur (Malaysia), but due to
outbreak of epidemic SARS, the arbitral tribunal shifted the venue of its
sittings to Amsterdam in the first instance and, thereafter, to London. In its
meeting held on 29.6.2003 at Amsterdam, the arbitral tribunal issued various
directions in Arbitration Case No.1 of 2003. On the next day, the arbitral
tribunal issued similar directions in Arbitration Case Nos.2 and 3 of 2003.
On 19.8.2003, the arbitral tribunal issued revised time schedule for filing of
the statement of claim, reply and counter claim, reply to counter claim,
documents, affidavit of admission and denial of documents in Arbitration
Case No.3 of 2003 and fixed the case for further proceedings to be held at
London on 12.12.2003. By another order dated 30.10.2003, the arbitral
tribunal directed that the hearing of the application filed by the claimants for
taking on record the supplementary claim will take place at London on
15.11.2003, on which date, the following order was passed in Arbitration
Case No.3 of 2003:
“By consent of parties, seat of the Arbitration is shifted to
London.
Parties will deposit Rs.25,000 each as administrative cost
with the Presiding Arbitrator.”
5
5. Thereafter, the following proceedings were held by the arbitral
tribunal at London:
(i) 6.2.2004 – Interim Award pronounced in Case No.1 of
2003 pronounced.
(ii) 7.2.2004 – proceedings held in Arbitration Case No.2 of
2003.
(iii) 17.3.2004 – Case No.2 of 2003 fixed for 13-19.5.2004 for
final arguments.
(iv) 17.3.2004 – Case No.3 of 2003 fixed for recording of
evidence from 3.6.2004 to 9.6.2004.
(v) 17.3.2004 – Case No.3 of 2003 fixed for arguments from
20-26.7.2004.
(vi) 27.3.2004 – final arguments rescheduled to 16-20.5.2004 in
Case No.2 of 2003.
(vii) 25.11.2004 – Arbitral Tribunal declared that it will pass
award in Case No.2 of 2003 and further partial award in
Case No.1 of 2003.
(viii) 3.2.2005 – Case No.2 of 2003 fixed for 25-26.2.2005 for
hearing on the application for clarification filed on behalf of
the Government of India.
(ix) 12.3.2005 – The Tribunal declared that it will finalise the
award in Case No.3 of 2003 and cross-objections in Case
No.1 of 2003.
(x) 31.3.2005 – Partial award passed in Case No.3 of 2003.
6. Respondent No.1 challenged partial award dated 31.3.2005 by filing a
petition in the High Court of Malaysia at Kuala Lumpur. On being noticed,
the appellant questioned the maintainability of the case before the High
6
Court of Malaysia by contending that in view of clause 34.12 of the PSC
only the English Courts have the jurisdiction to entertain any challenge to
the award.
7. After filing the petition before the High Court of Malaysia, the
respondents made a request to the tribunal to conduct the remaining arbitral
proceedings at Kuala Lumpur, but their request was rejected vide order
dated 20.4.2006 and it was declared that the remaining arbitral proceedings
will be held in London.
8. At that stage, the respondents filed OMP No.255 of 2006 under
Section 9 of the Act in Delhi High Court for stay of the arbitral proceedings.
They filed another OMP No.329 of 2006 questioning award dated 31.3.2005
on the issue of exchange rate. The appellant objected to the maintainability
of OMP No.255 of 2006 and pleaded that the Courts in India do not have the
jurisdiction to entertain challenge to the arbitral award. The learned Single
Judge of the Delhi High Court overruled the objection of the appellant and
held that the said High Court has the jurisdiction to entertain the petition
filed under Section 9 of the Act. The learned Single Judge extensively
referred to the judgment of this Court in Bhatia International v. Bulk
Trading S.A. (2002) 4 SCC 105 and observed:
“The ratio of Bhatia International, in my understanding, is
that the provisions of Part-I of the Indian Arbitration Act
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would apply to international commercial arbitrations held
outside India, unless the parties by agreement express or
implied, exclude all or any of its provisions.
It is noteworthy that the respondent, while challenging the
jurisdiction of this Court to entertain the present petition, has
not disputed the applicability of Part I of the Indian
Arbitration Act to international commercial arbitrations held
outside India. It is not the case of the respondent that
section 9 of the Indian Arbitrations Act does not apply to
international commercial arbitrations held outside India.
What, in fact, learned senior counsel for the respondent has
sought to contend before this Court is that the parties herein,
by adopting the English Law as the proper law governing
the arbitration agreement, have expressly excluded the
applicability of the Indian Arbitration Act, and
consequently, this Court has no jurisdiction to entertain the
present petition. This contention of the respondent has been
resisted by learned senior counsel for the petitioner on the
ground that English law governs the substantive aspects of
the arbitration agreement, whilst the procedural aspect
thereof is governed by the curial law, that is, the procedural
law of the country where the seat of arbitration is. It is thus
contended by learned senior counsel for the petitioner that
the juridical seat of arbitration being in Kuala Lumpur, it is
the Malaysian laws that would govern the conduct of the
arbitral proceedings. Learned senior counsel for the
respondent has countervailed the said averment of the
petitioner by submitting that London, and not, Kuala
Lumpur is the ‘designated seat’ of arbitration in view of the
order dated 15.11.2003 passed by the Arbitral Tribunal
whereby the Arbitral Tribunal recorded the consent of the
parties and shifted the seat of arbitration to London. In view
of the petitioner having already conceded to London as the
juridical seat of arbitration, it is thus contended by learned
counsel for the respondent that the petitioner cannot know
insist on Kuala Lumpur being the seat of arbitration.
The averments made by the respondent, without prejudice to
the veracity thereof, entail an examination on merit and thus
cannot be accepted at this preliminary stage. Whether the
Courts at Kuala Lumpur or London have the jurisdiction to
decide upon the seat of arbitration squarely hinges on the
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procedural law governing the arbitration agreement.
However, in a peculiar situation such as the present one
where the governing procedural law is yet to be determined,
I am of the view that a question regarding the seat of
arbitration can be best decided by the Court to which the
parties or to which the dispute is most closely connected. It
is important to recall that in the instant case the parties have
expressly stated in Article 33.1 of the PSC that the laws
applicable to the contract would be the laws in force in India
and that the “Contract shall be governed and interpreted in
accordance with the laws of India”. These words are wide
enough to engulf every question arising under the contract
including the disputes between the parties and the mode of
settlement. It was in India that the PSC was executed. The
form of the PSC is closely related to the system of law in
India. It is also apparent that the PSC is to be performed in
India with the aid of Indian workmen whose conditions of
service are regulated by Indian laws. Moreover, whilst the
petitioner is an important portfolio of the Government of
India, the respondent is also a company incorporated under
the Indian laws. The contract has in every respect the
closest and most real connection with the Indian system of
law and it is by that law that the parties have expressly
evinced their intention to be bound in all respects. The
arbitration agreement is contained in one of the clauses of
the contract, and not in a separate agreement. In the absence
of any indication to the contrary, the governing law of the
contract or the “proper law” (in the words of Dicey) of the
contract being Indian law, it is that system of law which
must necessarily govern matters concerning arbitration,
although in certain respects the law of the place of
arbitration may have its relevance in regard to procedural
matters.
There is no gainsay that the Courts observe extreme
circumspection whilst affording relief under section 9 of the
Indian Arbitration Act, lest the annals of party autonomy
and sanctity of the arbitral tribunal – the hallmarks of any
arbitration – are jeopardized. It is to be appreciated that the
object underlying the grant of interim measures under
section 9 of the Indian Arbitration Act is to facilitate and sub
serve any ongoing arbitral proceedings.
9
It is much apparent that the disparate stands taken by both
parties qua the seat of arbitration has resulted in a veritable
impasse in the arbitral proceedings in the present case. The
petitioner has brought to our notice that the proceedings
initiated by it at the High Court Kuala Lumpur challenging
the Partial award have been virtually brought to a standstill
owing the objections raised by the respondent on grounds of
jurisdiction. The petitioner has already expressed its
dissidence about the English Court deciding the question of
seat of arbitration for the reason that for the English Court to
assume jurisdiction, it is the place of arbitration which is the
relevant factor. In such a situation, of the Indian Court does
not adjudicate upon the present petition, the arbitral
proceedings between the parties will invariably end in a
stalemate. This, I am afraid, would not only be inimical to
the interests of the parties but also affront to section 9 of the
Indian Arbitration, the underlying object whereof is to sub
serve and facilitate arbitral proceedings.”
9. Shri R.F. Nariman, learned senior counsel appearing for the appellant
argued that the impugned order is liable to be set aside because the learned
Single Judge misconstrued and misapplied the judgment of this Court in
Bhatia International v. Bulk Trading S.A. (supra) and erroneously held
that the Delhi High Court has jurisdiction to decide O.M.P. No.255 of 2006.
Learned counsel further argued that the learned Single Judge failed to
appreciate that the reliefs prayed for in O.M.P. No.255 of 2006 could not
have been granted on an application filed under Section 9 of the Act because
stay of arbitral proceedings is beyond the scope of that section. Learned
senior counsel emphasized that Section 5 of the Act expressly bars
intervention of the Courts except in matters expressly provided for in the Act
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and, therefore, even if the petition filed by the respondents under Section 9
could be treated as maintainable, the High Court did not have jurisdiction
over the arbitration proceedings because the same are governed by the laws
of England. Shri Nariman then argued that after having expressly consented
to the shifting of the seat of arbitration from Kuala Lumpur to Amsterdam in
the first instance and effectively taken part in the proceedings held at
London till 31.3.2005, respondent No.1 is estopped from claiming that the
seat of arbitration continues to be at Kuala Lumpur. Learned senior counsel
submitted that the learned Single Judge was not justified in rejecting
objection to the maintainability of the petitions filed by respondent No.1 in
the Delhi High Court merely because the appellant had earlier filed O.M.P.
No.179 of 2003 before the High Court. He submitted that the doctrine of
waiver and acquiescence cannot be pressed into service for deciding the
issue relating to jurisdiction of the Delhi High Court to entertain the petition
filed under Section 9 of the Act. Shri Nariman further submitted that if
respondent No.1 felt aggrieved against partial award it could have filed
petition under Sections 67 and 68 of the English Arbitration Act, 1996.
10. Shri Gopal Subramaniam, learned Solicitor General submitted that as
per the arbitration agreement which is binding on all the parties to the
contract, a conscious decision was taken by them that Kuala Lumpur will be
the seat of any intended arbitration, Indian law as the law of contract and
11
English law as the law of arbitration and the mere fact that the arbitration
was held outside Kuala Lumpur due to the outbreak of epidemic SARS, the
venue of arbitration cannot be said to have been changed from Kuala
Lumpur to London. Learned Solicitor General emphasised that once Kuala
Lumpur was decided as the venue of arbitration by written agreement, the
same could not have been changed except by amending the written
agreement as provided in clause 35.2 of the PSC. He then argued that the
arbitral tribunal was not entitled to determine the seat of arbitration and the
record of proceedings held on 15.11.2003 at London cannot be construed as
an agreement between the parties for change in the juridical seat of
arbitration. He further argued that the PSC was between the Government of
India and ONGC Ltd., Videocon Petroleum Ltd., Command Petroleum
(India) Pvt. Ltd. and Ravva Oil (Singapore) Pvt. Ltd. and, therefore, the
venue of arbitration cannot be treated to have been changed merely on the
basis of the so called agreement between the appellant and the respondents.
Learned Solicitor General submitted that any change in the PSC requires the
concurrence by all the parties to the contract and the consent, if any, given
by two of the parties cannot have the effect of changing the same. He then
argued that every written agreement on behalf of respondent No.1 is
required to be expressed in the name of the President and in the absence of
any written agreement having been reached between the parties to the PSC
to amend the same, the consent given for shifting the physical seat of
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arbitration to London did not result in change of juridical seat of the
arbitration which continues to be Kuala Lumpur. In support of this
argument, the learned Solicitor General relied upon the judgments of this
Court in Mulamchand v. State of Madhya Pradesh ( 1968) 3 SCR 214 and
State of Haryana v. Lal Chand (1984) 3 SCR 715. In the end, he argued
that the provisions of the English Arbitration Act, 1996 would have applied
only if the seat of arbitration was in England and Wales. He submitted that
London cannot be treated as juridical seat of arbitration merely because the
parties had decided that the arbitration agreement contained in Article 34
will be governed by the laws of England.
11. We have considered the respective submissions and perused the
record.
12. We shall first consider the question whether Kuala Lumpur was the
designated seat or juridical seat of arbitration and the same had been shifted
to London. In terms of clause 34.12 of the PSC entered into by 5 parties, the
seat of arbitration was Kuala Lumpur, Malaysia. However, due to outbreak
of epidemic SARS, the arbitral tribunal decided to hold its sittings first at
Amsterdam and then at London and the parties did not object to this. In the
th th
proceedings held on 14 and 15 October, 2003 at London, the arbitral
13
tribunal recorded the consent of the parties for shifting the juridical seat of
arbitration to London. Whether this amounted to shifting of the physical or
juridical seat of arbitration from Kuala Lumpur to London? The decision of
this would depend on a holistic consideration of the relevant clauses of the
PSC. Though, it may appear repetitive, we deem it necessary to mention
that as per the terms of agreement, the seat of arbitration was Kuala Lumpur.
If the parties wanted to amend clause 34.12, they could have done so only by
written instrument which was required to be signed by all of them.
Admittedly, neither there was any agreement between the parties to the PSC
to shift the juridical seat of arbitration from Kuala Lumpur to London nor
any written instrument was signed by them for amending clause 34.12.
Therefore, the mere fact that the parties to the particular arbitration had
agreed for shifting of the seat of arbitration to London cannot be interpreted
as anything except physical change of the venue of arbitration from Kuala
Lumpur to London. In this connection, reference can usefully be made to
Section 3 of the English Arbitration Act, 1996, which reads as follows:
“ 3.The seat of the arbitration.
In this Part “the seat of the arbitration” means the juridical seat
of the arbitration designated—
(a) by the parties to the arbitration agreement, or
(b) by any arbitral or other institution or person vested by the
parties with powers in that regard, or
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(c) by the arbitral tribunal if so authorised by the parties, or
determined, in the absence of any such designation, having
regard to the parties’ agreement and all the relevant
circumstances.”
13. A reading of the above reproduced provision shows that under the
English law the seat of arbitration means juridical seat of arbitration, which
can be designated by the parties to the arbitration agreement or by any
arbitral or other institution or person empowered by the parties to do so or
by the arbitral tribunal, if so authorised by the parties. In contrast, there is
no provision in the Act under which the arbitral tribunal could change the
juridical seat of arbitration which, as per the agreement of the parties, was
Kuala Lumpur. Therefore, mere change in the physical venue of the hearing
from Kuala Lumpur to Amsterdam and London did not amount to change in
the juridical seat of arbitration. This is expressly indicated in Section 53 of
the English Arbitration Act, 1996, which reads as under:
“53. Place where award treated as made.
Unless otherwise agreed by the parties, where the seat of the
arbitration is in England and Wales or Northern Ireland, any
award in the proceedings shall be treated as made there,
regardless of where it was signed, despatched or delivered to
any of the parties.”
14. In Dozco India P. Ltd. v. Doosan Infracore Co. Ltd . 2010 (9) UJ
4521 (SC), the learned designated Judge while exercising power under
15
Section 11(6) of the Act, referred to the following passage from Redfern v.
Hunter :
“The preceding discussion has been on the basis that there is
only one "place" of arbitration. This will be the place chosen by
or on behalf of the parties; and it will be designated in the
arbitration agreement or the terms of reference or the minutes
of proceedings or in some other way as the place or "seat" of
the arbitration. This does not mean, however, that the arbitral
tribunal must hold all its meetings or hearings at the place of
arbitration. International commercial arbitration often involves
people of many different nationalities, from many different
countries. In these circumstances, it is by no means unusual for
an arbitral tribunal to hold meetings - or even hearings - in a
place other than the designated place of arbitration, either for its
own convenience or for the convenience of the parties or their
witnesses....
It may be more convenient for an arbitral tribunal sitting in one
country to conduct a hearing in another country - for instance,
for the purpose of taking evidence..... In such circumstances,
each move of the arbitral tribunal does not of itself mean that
the seat of the arbitration changes. The seat of the arbitration
remains the place initially agreed by or on behalf of the
parties.”
15. The next issue, which merits consideration is whether the Delhi High
Court could entertain the petition filed by the respondents under Section 9 of
the Act. In Bhatia International v. Bulk Trading S.A. (supra), the three-
Judge Bench considered the important question whether Part I of the Act is
applicable to the international arbitration taking place outside India. After
noticing the scheme of the Act and argument of the appellant that Part I of
the Act would apply only to the cases in which the venue of arbitration is in
India, the Court observed:
16
“A reading of the provisions shows that the said Act applies
to arbitrations which are held in India between Indian
nationals and to international commercial arbitrations
whether held in India or out of India. Section 2(1)( f ) defines
an international commercial arbitration. The definition
makes no distinction between international commercial
arbitrations held in India or outside India. An international
commercial arbitration may be held in a country which is a
signatory to either the New York Convention or the Geneva
Convention (hereinafter called “the convention country”).
An international commercial arbitration may be held in a
non-convention country. The said Act nowhere provides that
its provisions are not to apply to international commercial
arbitrations which take place in a non-convention country.
Admittedly, Part II only applies to arbitrations which take
place in a convention country. Mr. Sen fairly admitted that
Part II would not apply to an international commercial
arbitration which takes place in a non-convention country.
He also fairly admitted that there would be countries which
are not signatories either to the New York Convention or to
the Geneva Convention. It is not possible to accept the
submission that the said Act makes no provision for
international commercial arbitrations which take place in a
non-convention country.
Now let us look at sub-sections (2), (3), (4) and (5) of
Section 2. Sub-section (2) of Section 2 provides that Part I
would apply where the place of arbitration is in India. To be
immediately noted, that it is not providing that Part I shall
not apply where the place of arbitration is not in India. It is
also not providing that Part I will “only” apply where the
place of arbitration is in India (emphasis supplied). Thus the
legislature has not provided that Part I is not to apply to
arbitrations which take place outside India. The use of the
language is significant and important. The legislature is
emphasising that the provisions of Part I would apply to
arbitrations which take place in India, but not providing that
the provisions of Part I will not apply to arbitrations which
take place out of India. The wording of sub-section (2) of
Section 2 suggests that the intention of the legislature was to
make provisions of Part I compulsorily applicable to an
arbitration, including an international commercial
17
arbitration, which takes place in India. Parties cannot, by
agreement, override or exclude the non-derogable provisions
of Part I in such arbitrations. By omitting to provide that Part
I will not apply to international commercial arbitrations
which take place outside India the effect would be that Part I
would also apply to international commercial arbitrations
held out of India. But by not specifically providing that the
provisions of Part I apply to international commercial
arbitrations held out of India, the intention of the legislature
appears to be to ally (sic allow) parties to provide by
agreement that Part I or any provision therein will not apply.
Thus in respect of arbitrations which take place outside India
even the non-derogable provisions of Part I can be excluded.
Such an agreement may be express or implied.
If read in this manner there would be no conflict between
Section 1 and Section 2(2). The words “every arbitration” in
sub-section (4) of Section 2 and the words “all arbitrations
and to all proceedings relating thereto” in sub-section (5) of
Section 2 are wide. Sub-sections (4) and (5) of Section 2 are
not made subject to sub-section (2) of Section 2. It is
significant that sub-section (5) is made subject to sub-section
(4) but not to sub-section (2). To accept Mr. Sen’s
submission would necessitate adding words in sub-sections
(4) and (5) of Section 2, which the legislature has purposely
omitted to add viz. “subject to provision of sub-section (2)”.
However read in the manner set out hereinabove there would
also be no conflict between sub-section (2) of Section 2 and
sub-sections (4) and/or (5) of Section 2.
That the legislature did not intend to exclude the
applicability of Part I to arbitrations, which take place
outside India, is further clear from certain other provisions of
the said Act. Sub-section (7) of Section 2 reads as follows:
“2. (7) An arbitral award made under this Part shall be
considered as a domestic award.”
As is set out hereinabove the said Act applies to ( a )
arbitrations held in India between Indians, and ( b )
international commercial arbitrations. As set out hereinabove
international commercial arbitrations may take place in India
or outside India. Outside India, an international commercial
18
arbitration may be held in a convention country or in a non-
convention country. The said Act however only classifies
awards as “domestic awards” or “foreign awards”. Mr. Sen
admits that provisions of Part II make it clear that “foreign
awards” are only those where the arbitration takes place in a
convention country. Awards in arbitration proceedings
which take place in a non-convention country are not
considered to be “foreign awards” under the said Act. They
would thus not be covered by Part II. An award passed in an
arbitration which takes place in India would be a “domestic
award”. There would thus be no need to define an award as a
“domestic award” unless the intention was to cover awards
which would otherwise not be covered by this definition.
Strictly speaking, an award passed in an arbitration which
takes place in a non-convention country would not be a
“domestic award”. Thus the necessity is to define a
“domestic award” as including all awards made under Part I.
The definition indicates that an award made in an
international commercial arbitration held in a non-
convention country is also considered to be a “domestic
award”.
(emphasis supplied)
The Court then referred to Section 9 of the Act which empowers the
Court to make interim orders and proceeded to observe:
“Thus under Section 9 a party could apply to the court ( a )
before, ( b ) during arbitral proceedings, or ( c ) after the
making of the arbitral award but before it is enforced in
accordance with Section 36. The words “in accordance with
Section 36” can only go with the words “after the making of
the arbitral award”. It is clear that the words “in accordance
with Section 36” can have no reference to an application
made “before” or “during the arbitral proceedings”. Thus it
is clear that an application for interim measure can be made
to the courts in India, whether or not the arbitration takes
place in India, before or during arbitral proceedings. Once an
award is passed, then that award itself can be executed.
Sections 49 and 58 provide that awards covered by Part II
are deemed to be a decree of the court. Thus “foreign
19
awards” which are enforceable in India are deemed to be
decrees. A domestic award has to be enforced under the
provisions of the Civil Procedure Code. All that Section 36
provides is that an enforcement of a domestic award is to
take place after the time to make an application to set aside
the award has expired or such an application has been
refused. Section 9 does suggest that once an award is made,
an application for interim measure can only be made if the
award is a “domestic award” as defined in Section 2(7) of
the said Act. Thus where the legislature wanted to restrict
the applicability of Section 9 it has done so specifically.
We see no substance in the submission that there would be
unnecessary interference by courts in arbitral proceedings.
Section 5 provides that no judicial authority shall intervene
except where so provided. Section 9 does not permit any or
all applications. It only permits applications for interim
measures mentioned in clauses ( i ) and ( ii ) thereof. Thus
there cannot be applications under Section 9 for stay of
arbitral proceedings or to challenge the existence or validity
of the arbitration agreements or the jurisdiction of the
Arbitral Tribunal. All such challenges would have to be
made before the Arbitral Tribunal under the said Act.”
The three-Judge Bench recorded its conclusion in the following
words:
“To conclude, we hold that the provisions of Part I would
apply to all arbitrations and to all proceedings relating
thereto. Where such arbitration is held in India the
provisions of Part I would compulsorily apply and parties
are free to deviate only to the extent permitted by the
derogable provisions of Part I. In cases of international
commercial arbitrations held out of India provisions of Part I
would apply unless the parties by agreement, express or
implied, exclude all or any of its provisions. In that case the
laws or rules chosen by the parties would prevail. Any
provision, in Part I, which is contrary to or excluded by that
law or rules will not apply.”
(emphasis supplied)
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16. In Venture Global Engineering v. Satyam Computer Services
Limited (2008) 4 SCC 190, a two-Judge Bench was called upon to consider
whether the Court of Additional Chief Judge, City Civil Court,
Secunderabad had the jurisdiction to entertain the suit for declaration filed
by the appellant to set aside the award passed by the sole arbitrator
appointed at the instance of respondent No.1 despite the fact that the
arbitrator had conducted the proceedings outside India. The trial Court had
entertained and allowed the application filed by respondent No.1 under
Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) and rejected
the plaint. The Andhra Pradesh High Court confirmed the order of the trial
Court. Before this Court, reliance was placed by the appellant on the ratio of
Bhatia International v. Bulk Trading S.A. (supra) and it was argued that
the trial Court had the jurisdiction to entertain the suit. On behalf of the
respondents, it was argued that the trial Court did not have the jurisdiction to
entertain the suit because the award was made outside India. The Division
Bench accepted the argument made on behalf of the appellant and observed:
“On close scrutiny of the materials and the dictum laid down
in the three-Judge Bench decision in Bhatia International we
agree with the contention of Mr. K.K. Venugopal and hold
that paras 32 and 35 of Bhatia International make it clear
that the provisions of Part I of the Act would apply to all
arbitrations including international commercial arbitrations
and to all proceedings relating thereto. We further hold that
where such arbitration is held in India, the provisions of Part
I would compulsorily apply and parties are free to deviate to
the extent permitted by the provisions of Part I. It is also
clear that even in the case of international commercial
21
arbitrations held out of India provisions of Part I would
apply unless the parties by agreement, express or implied,
exclude all or any of its provisions. We are also of the view
that such an interpretation does not lead to any conflict
between any of the provisions of the Act and there is no
lacuna as such. The matter, therefore, is concluded by the
three-Judge Bench decision in Bhatia International.
The learned Senior Counsel for the respondent based on para
26 submitted that in the case of foreign award which was
passed outside India is not enforceable in India by invoking
the provisions of the Act or CPC. However, after critical
analysis of para 26, we are unable to accept the argument of
the learned Senior Counsel for the respondent. Paras 26 and
27 start by dealing with the arguments of Mr Sen who
argued that Part I is not applicable to foreign awards. It is
only in the sentence starting at the bottom of para 26 that the
phrase “it must immediately be clarified” that the finding of
the Court is rendered. That finding is to the effect that an
express or implied agreement of parties can exclude the
applicability of Part I. The finding specifically states: “But if
not so excluded, the provisions of Part I will also apply to all
‘foreign awards’.” This exception which is carved out, based
on agreement of the parties, in para 21 (placita e to f) is
extracted below:
“21. … By omitting to provide that Part I will not
apply to international commercial arbitrations
which take place outside India the effect would be
that Part I would also apply to international
commercial arbitrations held out of India. But by
not specifically providing that the provisions of
Part I apply to international commercial
arbitrations held out of India, the intention of the
legislature appears to be to ally (sic allow) parties
to provide by agreement that Part I or any
provision therein will not apply. Thus in respect of
arbitrations which take place outside India even
the non-derogable provisions of Part I can be
excluded. Such an agreement may be express or
implied.”
22
The very fact that the judgment holds that it would be open
to the parties to exclude the application of the provisions of
Part I by express or implied agreement, would mean that
otherwise the whole of Part I would apply. In any event, to
apply Section 34 to foreign international awards would not
be inconsistent with Section 48 of the Act, or any other
provision of Part II as a situation may arise, where, even in
respect of properties situate in India and where an award
would be invalid if opposed to the public policy of India,
merely because the judgment-debtor resides abroad, the
award can be enforced against properties in India through
personal compliance of the judgment-debtor and by holding
out the threat of contempt as is being sought to be done in
the present case. In such an event, the judgment-debtor
cannot be deprived of his right under Section 34 to invoke
the public policy of India, to set aside the award. As
observed earlier, the public policy of India includes — (a)
the fundamental policy of India; or (b) the interests of India;
or (c) justice or morality; or (d) in addition, if it is patently
illegal. This extended definition of public policy can be
bypassed by taking the award to a foreign country for
enforcement.”
17. We may now advert to the judgment of the learned Single Judge of
the Gujarat High Court in Hardy Oil and Gas Limited v. Hindustan Oil
Exploration Company Limited and others (2006) 1 GLR 658. The facts
of that case were that an agreement was entered into between Unocal Bharat
Limited, Hardy Oil and Gas Limited, Netherland B.V. (Hardy),
Infrastructure Leasing and Financial Services Limited, Housing
Development Finance Corporation Limited and Hindustan Oil Exploration
Company Limited on 14.10.1998. The agreement had an arbitration clause.
A dispute having arisen between the parties, the matter was referred to the
arbitral tribunal. During the pendency of the arbitration proceedings, an
23
application was filed by the appellant in the District Court, Vadodara under
Section 9 of the Act. A preliminary objection was raised to the
maintainability of that petition. The learned District Judge accepted the
objection. The learned Single Judge of Gujarat High Court referred to
clause 9.5 of the agreement, which was as under:
“9.5 Governing Law and Arbitration
1. This Agreement (except for the provisions of Clause 9.5.4
relating to arbitration) shall be governed by and construed in
accordance with the substantive laws of India.
2. Any dispute or difference of whatever nature arising
under, out of, or in connection with this Agreement,
including any question regarding its existence, validity or
termination, which the parties are unable to resolve between
themselves within sixty (60) days of notification by one or
more Parties to the other(s) that a dispute exists for the
purpose of this Clause 9 shall at the instance of any Party be
referred to and finally resolved by Arbitration under the
rules of the London Court of International Arbitration
(SLCIA), which Rules (Rules) are deemed to be
incorporated by reference into this clause.
3. The Tribunal shall consist of two arbitrators who shall be
Queen's Counsel, practicing at the English Bar in the
Commercial Division of the High Court, one to be selected
by the Parties invoking the Arbitration clause acting
unanimously and one to be selected by the other
shareholders acting unanimously, and one umpire who shall
also be a Queen's Counsel, practicing at the English Bar in
the Commercial Division of this High Court. If the parties
are unable to agree on the identity of the umpire within 15
days from the day on which the matter is referred to
arbitration, the umpire shall be chosen and appointed by
LCIA. Notwithstanding Article 3.3 of the Rules, the Parties
agree that LICA may appoint a British umpire. No arbitrator
shall be a person or former employee or agent of, or
consultant or counsel to, any Party or any Associated
24
Company or any Party or in any way otherwise connected
with any of the Parties.
4. The place of arbitration shall be London and the language
of arbitration shall be English. The law governing arbitration
will be the English law.
5. Any decision or award of an arbitral tribunal shall be final
and binding on the Parties.”
The learned Single Judge referred to various judgments of this Court
including Bhatia International v. Bulk Trading S.A. (supra), Shreejee
Traco (I) Pvt. Ltd. v. Paperline International Inc. (2003) 9 SCC 79,
National Thermal Power Corporation v. Singer Company (1992) 3 SCC
551 and upheld the order of the learned District Judge by observing that in
terms of clause 9.5.4 of the agreement, the place of arbitration was London
and the law governing arbitration was the English law. The learned Single
Judge referred to paragraph 32 of the judgment in Bhatia International v.
Bulk Trading S.A. (supra) and observed that once the parties had agreed to
be governed by any law other than Indian law in cases of international
commercial arbitration, then that law would prevail and the provisions of the
Act cannot be invoked questioning the arbitration proceedings or the award.
This is evident from paragraph 11.3 of the judgment, which is extracted
below:
“However, their Lordships observed in Para.32 that in cases
of international commercial arbitrations held out of India
provisions of Part-I would apply unless the parties by
agreement, express or implied, exclude all or any of its
25
provisions. In that case laws or rules chosen by the parties
would prevail. Any provision, in Part-I, which is contrary to
or excluded by that law or rules would not apply. Thus, even
as per the decision relied upon by learned advocate for the
appellant, if the parties have agreed to be governed by any
law other than Indian law in cases of international
commercial arbitration, same would prevail. In the case on
hand, it is very clear even on plain reading of Clause 9.5.4
that the parties' intention was to be governed by English law
in respect of arbitration. It is not possible to give a narrow
meaning to this clause as suggested by learned Senior
Advocate Mr. Thakore that it would apply only in case of
dispute on Arbitration Agreement. It can be interpreted only
to mean that in case of any dispute regarding arbitration,
English law would apply. When the clause deals with the
place and language of arbitration with a specific provision
that the law governing arbitration will be the English law,
such a narrow meaning cannot be given. No other view is
possible in light of exception carved out of Clause 9.5.1
relating to arbitration. Term Arbitration, in Clause 9.5.4
cannot be taken to mean arbitration agreement. Entire
arbitral proceedings have to be taken to be agreed to be
governed by English law.”
18. In our opinion, the learned Single Judge of Gujarat High Court had
rightly followed the conclusion recorded by the three-Judge Bench in Bhatia
International v. Bulk Trading S.A. (supra) and held that the District Court,
Vadodara did not have the jurisdiction to entertain the petition filed under
Section 9 of the Act because the parties had agreed that the law governing
the arbitration will be English law.
19. In the present case also, the parties had agreed that notwithstanding
Article 33.1, the arbitration agreement contained in Article 34 shall be
26
governed by laws of England. This necessarily implies that the parties had
agreed to exclude the provisions of Part I of the Act. As a corollary to the
above conclusion, we hold that the Delhi High Court did not have the
jurisdiction to entertain the petition filed by the respondents under Section 9
of the Act and the mere fact that the appellant had earlier filed similar
petitions was not sufficient to clothe that High Court with the jurisdiction to
entertain the petition filed by the respondents.
20. In the result, the appeal is allowed. The impugned order is set aside
and the petition filed by the respondents under Section 9 of the Act is
dismissed.
………………………….…J.
[R.V. Raveendran]
……………………………..J.
[G.S. Singhvi]
New Delhi
May 11, 2011.