Full Judgment Text
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
CIVIL APPEAL NO. 4628 OF 2018
Union of India …Appellant(s)
VERSUS
Hardy Exploration and Production …Respondent(s)
(India) INC
J U D G M E N T
Dipak Misra, CJI
The present appeal arose from the final judgment and order dated
th
27 July, 2016 passed by the High Court of Delhi at New Delhi in FAO
No. 59 of 2016 whereby the Division Bench of the High Court had
dismissed the appeal preferred by the Union of India, the appellant
th
herein, assailing the order dated 9 July, 2015 passed by the learned
th
Single Judge in OMP No. 693 of 2013 and the order dated 20 January,
Signature Not Verified
2016 passed in Review Petition No. 400 of 2015 in OMP No. 693 of
Digitally signed by
CHETAN KUMAR
Date: 2018.09.25
11:31:19 IST
Reason:
2013. The Division Bench took note of the fact that the appellant had
2
challenged the legal propriety and correctness of the award made by the
Arbitrators in favour of the respondents under Section 34 of the
Arbitration and Conciliation Act, 1996 (for brevity „the Act‟). The said
application was contested by the respondent raising many a ground, but
the thrust of the objection related to the maintainability of the application
under Section 34 of the Act. It was contended before the High Court that
the courts in India do not have the jurisdiction to entertain an application
under Section 34 of the Act to challenge the legality of the award in
th
question. The learned Single Judge, vide order dated 9 July, 2015,
accepted the preliminary objection and came to hold that in view of the
terms of the agreement and the precedents holding the field, the Indian
courts have no jurisdiction to entertain the application. Being of this
view, the learned Single Judge did not advert to the other grounds urged
in the petition.
2. Being grieved by the aforesaid order, the Union of India preferred
an appeal under Section 37(2) of the Act before the Division Bench
which concurred with the opinion expressed by the learned Single
Judge.
3. In appeal by special leave, the two-Judge Bench in Union of India
1
v. Hardy Exploration and Production (India) INC referred to certain
1 (2018) 7 SCC 374
3
decisions from foreign jurisdictions, namely, Naviera Amazonica
2
Peruana S.A. v. Compania Internacional De Seguros Del Peru ,
3 4
Hiscox v. Outhwaite , Union of India v. McDonnell Douglas Corpn. ,
5 6
C v. D , C v. D , Braes of Doune Wind Farm (Scotland) Limited v.
7
Alfred McAlpine Business Services Limited , Shashoua and Ors. v.
8
Sharma , Sulamerica Cia Nacional De Seguros S.A. and Ors. v.
9
Enesa Engenharia SA & Ors. , (1) Enercon GMBH (2) Wobben
10
Properties GMBH v. Enercon (India) Ltd. and Govt. Of India v.
11
Petrocon India Ltd. Apart from the above, the decisions rendered in
12
Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others , Bhatia
13
International v. Bulk Trading S.A. and Another , Venture Global
14
Engineering v. Satyam Computer Services Ltd. & another ,
15
Videocon Industries Limited v. Union of India and another , Dozco
16
India Private Ltd. v. Doosan Infracore Co. Limited , Bharat
2 (1988) (1) Lloyd’s Law Reports 116
3 (1992) 1 AC 562
4 (1993) 2 Lloyd’s Law Reports 48
5 (2007) EWCA Civ 1282 (CA)
6 (2008) 1 Lloyd’s Law Reports 239
7 (2008) EWHC 426 (TCC)
8 (2009) EWHC 957 (Comm.)
9 (2012) EWCA Civ 638
10 (2012) EWHC 3711 (Comm.)
11 (2016) SCC Online MYFC 35
12 (1998) 1 SCC 305
13 (2002) 4 SCC 105
14 (2008) 4 SCC 190
15 (2011) 6 SCC 161
16 (2011) 6 SCC 179
4
17
Aluminium Company v. Kaiser Aluminium Technical Services INC ,
18
Enercon (India) Ltd. & Others v. Enercon GMBH & Another ,
19
Reliance Industries Limited and another v. Union of India ,
Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and
20
another , Union of India v. Reliance Industries Limited and
21
Others , Eitzen Bulk A/s & others v. Ashapura Minechem Limited
22
and another , Imax Corporation v. E-City Entertainment (India) Pvt.
23
Lid. and Roger Shashoua and others v. Mukesh Sharma and
24
others were also referred to.
4. The two-Judge Bench noted:-
“17. The argument of both the learned senior
counsel mainly centered around to one question
which, in our opinion, does arise in the appeal,
namely, when the arbitration agreement specify the
“venue” for holding the arbitration sittings by the
arbitrators but does not specify the “seat”, then on
what basis and by which principle, the parties have
to decide the place of “seat” which has a material
bearing for determining the applicability of laws of a
particular country for deciding the post award
arbitration proceedings.
xxx xxx xxx
17 (2012) 9 SCC 552
18 (2014) 5 SCC 1
19 (2014) 7 SCC 603
20 (2015) 9 SCC 172
21 (2015) 10 SCC 213
22 (2016) 11 SCC 508
23 (2017) 5 SCC 331
24 (2017) 14 SCC 722
5
20. One of the arguments of Dr. Singhvi, learned
senior counsel was that the decision rendered by
Three Judge Bench in the case of Sumitomo Heavy
Industries Ltd. vs. ONGC Ltd. & Others (supra) on
which great reliance was placed by Mr. Tushar
Mehta, learned ASG has lost its efficacy, though
approved by another recent decision of Three
Judge Bench in Bharat Aluminum Company vs.
Kaiser Aluminum Technical Services INC (supra),
for the reason that it was rendered under the
Arbitration Act, 1940, which now stands repealed by
Arbitration Act, 1996 and secondly, it was rendered
in relation to Section 9 of the Foreign Awards
(Recognition and Enforcement) Act, 1961, which
also now stands repealed by 1996 Act.
21. It was his submission that while approving the
ratio of Sumitomo Heavy Industries Ltd. (supra)
these two factors which have some relevance on its
efficacy do not seem to have been examined in the
case of Bharat Aluminum Company (supra) .
22. Dr. Singhvi also urged that what is the effect of
UNCITRAL Model Law, when they are made part of
the arbitration agreement for deciding the question
of “seat” has also not been so far decided in any of
the earlier decisions.”
5. Appreciating the same, the learned Judges opined thus:-
“23. In our opinion, though, the question regarding
the “seat” and “venue” for holding arbitration
proceedings by the arbitrators arising under the
Arbitration Agreement/ International Commercial
Arbitration Agreement is primarily required to be
decided keeping in view the terms of the arbitration
agreement itself, but having regard to the law laid
down by this Court in several decisions by the
Benches of variable strength as detailed above, and
further taking into consideration the aforementioned
submissions urged by the learned counsel for the
parties and also keeping in view the issues involved
6
in the appeal, which frequently arise in International
Commercial Arbitration matters, we are of the
considered view that this is a fit case to exercise our
power under Order VI Rule 2 of the Supreme Court
Rules, 2013 and refer this case (appeal ) to be dealt
with by the larger Bench of this Court for its
hearing.”
That is how the matter has been placed before us.
6. At the very beginning, we may note with profit that Mr. Tushar
Mehta, learned Additional Solicitor General appearing for the Union of
India and Dr. Abhishek Manu Singhvi, learned senior counsel appearing
for the respondent very fairly stated that no reference was called for and
there is no justification to answer the reference, but to deal with the case
on its own merits. In spite of the said submission advanced at the Bar,
we think it appropriate to put the controversy to rest as the two-Judge
Bench thought it appropriate to refer the matter to a larger Bench.
7. It may be usefully noted that the two-Judge Bench has also taken
note of some of the decisions rendered by the Constitution Bench and
some by a strength of three Judges and two Judges. One of the
submissions that was advanced before the two-Judge Bench was that in
Bharat Aluminium Company (supra), the decision in Sumitomo Heavy
Industries Ltd. (supra) had not been examined. To appreciate the
controversy, first we have to analyse what has been said in Sumitomo
Heavy Industries Ltd. (supra). The controversy in the said case related
7
to laws governing arbitration under the Arbitration Act, 1940 (hereinafter
referred to as „the 1940 Act‟). The learned Judges referred to some
passages from paragraph 10 which contains a chapter on „The
Applicable Law and the Jurisdiction of the Court‟. The three-Judge
Bench reproduced some passages from sub-title „Laws Governing the
Arbitration‟ which read thus:-
"An agreed reference to arbitration involves two
groups of obligations. The first concerns the mutual
obligations of the parties to submit future disputes,
or an existing dispute to arbitration, and to abide by
the award of a tribunal constituted in accordance
with the agreement. It is now firmly established that
the arbitration agreement which creates these
obligations is a separate contract, distinct from the
substantive agreement in which it si usually
embedded, capable of surviving the termination of
the substantive agreement and susceptible of
premature termination by express or implied
consent, or by repudiation or frustration, in much the
same manner as in more ordinary forms of contract.
Since this agreement has a distinct life of its own, it
may in principle be governed by a proper law of its
own, which need not be the same as the law
governing the substantive contact.
The second group of obligations,
consisting of what is generally referred to as the
`curial law' of the arbitration, concerns the manner
in which the parties and the arbitrator are required
to conduct the reference of a particular dispute.
According to the English theory of arbitration, these
rules are to be ascertained by reference to the
express or implied terms of the agreement to
arbitrate. The being so, it will be found in the great
majority of cases that the curial law, i.e. the law
governing the conduct of the reference, is the same
8
as the law governing the obligation to arbitrate. It is,
however, open to the parties to submit, expressly or
by implication, the conduct of the reference to
different law from the one governing the underlying
arbitration agreement. In such a case, the court
looks first at the arbitration agreement to see
whether the dispute is one which should be
arbitrated, and which has validly been made the
subject of the reference; it then looks to the curial
law to see how that reference should be conducted;
and then returns to the first law in order to give
effect to the resulting award.
xxx xxx xxx
It may therefore be seen that problems arising out
of an arbitration may, at least in theory, call for the
application of any one or more of the following laws-
1. The proper law of the contract, i.e. the law
governing the contract which creates the
substantive rights of the parties, in respect of which
the dispute has arisen.
2. The proper law of the arbitration agreement, i.e.
the law governing the obligation of the parties to
submit the disputes to arbitration, and to honour an
award.
3. The curial law, i.e. the law governing the conduct
of the individual reference.
xxx xxx xxx
1. The proper law of the arbitration agreement
governs the validity of the arbitration agreement, the
question whether a dispute lies within the scope of
the arbitration agreement; the validity of the notice
of arbitration; the constitution of the tribunal; the
question whether an award lies within the
jurisdiction of the arbitrator; the formal validity of the
award; the question whether the parties have been
9
discharged from any obligation to arbitrate future
disputes.
2. The curial law governs' the manner in which the
reference is to be conducted; the procedural powers
and duties of the arbitrator; questions of evidence;
the determination of the proper law of the contract.
3. The proper law of the reference governs; the
question whether the parties have been discharged
from their obligation to continue with the reference
of the individual dispute.
xxx xxx xxx
In the absence of express agreement, there is
a strong prima facie presumption tha the parties
intend the curial law to be the law of the „seat‟ of the
arbitration, i.e., the place at which the arbitration is
to be conducted, on the ground that that is the
country most closely connected with the
proceedings. So in order to determine the curial law
in the absence of an express choice by the parties it
is first necessary to determine the seat of the
arbitration, by construing the agreement to arbitrate”
After reproducing the same, the Court opined:-
“We think that our conclusion that the curial law
does not apply to the filing of an award in court
must, accordingly, hold good. We find support for
the conclusion in the extracts from Mustill and Boyd
which we have quoted earlier. Where the law
governing the conduct of the reference is different
from the law governing the underlying arbitration
agreement, the court looks to the arbitration
agreement to see if the dispute is arbitrable, then to
the curial law to see how the reference should be
conducted, "and then returns to the first law in order
to give effect to the resulting award.
The law which would apply to the filing of the award,
to its enforcement and to its setting aside would be
the law governing the agreement to arbitrate and
10
the performance of that agreement. Having regard
to the clear terms of Clause 17 of the contract
between the appellant and the first respondent, we
are in no doubt that the law governing the contract
and the law governing the rights and obligations of
the parties arising from their agreement to arbitrate,
and, in particular, their obligations to submit
disputes to arbitration and to honour the award, are
governed by the law of India; nor is there any
dispute in this behalf. Section 47 of the Indian
Arbitration Act, 1940, reads thus:
"47. Act to apply to all arbitrations. - Subject to the
provisions of Section 46, and save in so far as is
otherwise provided by any law for the time being in
force, the provisions of this Act shall apply to all
arbitrations and to all proceedings thereunder
Provided that an arbitration award otherwise
obtained may with the consent of all the parties
interested be taken into consideration as a
compromise or adjustment of a suit by any Court
before which the suit is pending."
Eventually, the Court concluded:-
“By reason of Section 9(b), the 1961 Act does not
apply to any award made on an arbitration
agreement governed by the law of India. The 1961
Act, therefore, does not apply to the arbitration
agreement between the appellant and the first
respondent. The 1940 Act, applies to it and, by
reason of Section 14(2) thereof, the courts in India
are entitled to receive the award made by the
second respondent. We must add in the interests of
completeness that is not the case of the appellant
that the High Court at Bombay lacked the territorial
jurisdiction to do so.”
8. On a careful reading of the aforesaid decision, it is quite vivid that
the controversy related to the 1940 Act and the discussion pertained to
11
foreign award under the Foreign Awards (Recognition and Enforcement)
Act, 1961 (for brevity, „the 1961 Act‟). Thus, the principle laid down
therein is in no way applicable to the concept of determination of
jurisdiction as has been dealt with in BALCO case and also the
conception of implied exclusion as Bhatia International (supra) states.
Quite apart from that, we shall also advert to the later authorities how
they have understood the said decision.
9. In Bhatia International (supra), a Bench of this Court was dealing
with the applicability of Section 9 of the Act and the jurisdiction of the
courts in India. Referring to various aspects, the Court held:-
“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 compulsory
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.”
10. A contention was raised before the Court that when the parties had
agreed that the arbitration shall be as per the ICC Rules, by necessary
implication, Section 9 would not apply. The learned Judges referred to
Article 23 of the ICC Rules and, thereafter, came to hold that:-
12
“Thus Article 23 of the ICC rules permits parties to
apply to a competent judicial authority for interim
and conservatory measures. Therefore, in such
cases an application can be made under Sectionof
the said Act.
Lastly it must be stated that the said Act does
not appear to be a well drafted legislation. Therefore
the High Courts of Orissa, Bombay, Madras, Delhi
and Calcutta cannot be faulted for interpreting it in
the manner indicated above. However, in our view a
proper and conjoint reading of all the provisions
indicates that Part I is to apply also to international
commercial arbitrations which take place out of
India, unless the parties by agreement, express or
implied exclude it or any of its provisions. Such an
interpretation does not lead to any conflict between
any of the provisions of the said Act. On this
interpretation there is no lacunae in the said Act.
This interpretation also does not leave a party
remedyless. Thus such an interpretation has to be
preferred to the one adopted by the High Courts of
Orissa, Bombay, Madras, Delhi and Calcutta. It will
therefore have to be held that the contrary view
taken by these High Courts is not good law.”
11. In Indtel Technical Services Private Ltd. v. W.S. Atkins Rail
25
Limited , the designated Judge was called upon to decide the issue of
appointment of sole arbitrator. Analysing the arbitration clause and the
authority in Lesotho Highlands Development Authority v. Impregilo
26
SpA , the Court came to hold as follows:-
"It is no doubt true that it is fairly well settled that
when an arbitration agreement is silent as to the law
and procedure to be followed in implementing the
25 (2008) 10 SCC 308
26 (2005) 3 WLR 129
13
arbitration agreement, the law governing the said
agreement would ordinarily be the same as the law
governing the contract itself. The decisions cited by
Mr Tripathi and the views of the jurists referred to in
NTPC v. Singer Co. case support such a
proposition. What, however, distinguishes the
various decisions and views of the authorities in this
case is the fact that in Bhatia International this Court
laid down the proposition that notwithstanding the
provisions of Section 2(2) of the Arbitration and
Conciliation Act, 1996, indicating that Part I of the
said Act would apply where the place of arbitration
is in India, even in respect of international
commercial agreements, which are to be governed
by the laws of another country, the parties would be
entitled to invoke the provisions of Part I of the
aforesaid Act and consequently the application
made under Section 11 thereof would be
maintainable."
12. In Reliance Industries Ltd. (I) , (supra) , the appellant had
challenged the decision of the High Court of Delhi whereby it had
entertained the petition preferred under Section 34 of the Act. The Court
scanned the clause relating to “Sole expert, conciliation and arbitration”
and the clause that pertained to “applicable law and arbitration” and
further other clauses and came to hold that once the parties had
consciously agreed that the juridical seat of the arbitration would be at
London and that the agreement would be governed by the laws of
London, the provisions of Part I of the Act would not be applicable.
13. In Videocon Industries Limited (supra), the Court referred to
Section 3 of the English Arbitration Act, 1996 which deals with the seat
14
of arbitration and Section 53 that stipulates the place where the award is
treated as made. It referred to the authority in Dozco India P. Ltd.
(supra) and, eventually, came to hold that:-
"In the present case also, the parties had agreed
that notwithstanding Article 33.1, the arbitration
agreement contained in Article 34 shall be 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."
14. The Constitution Bench in Bharat Aluminium Company (supra)
overruled the judgments of this Court in Bhatia International (supra)
and Venture Global Engineering (supra) and opined:-
“In our opinion, the provision contained in Section
2(2) of the Arbitration Act, 1996 is not in conflict with
any of the provisions either in Part I or in Part II of
the Arbitration Act, 1996. In a foreign seated
international commercial arbitration, no application
for interim relief would be maintainable under
Section 9 or any other provision, as applicability of
Part I of the Arbitration Act, 1996 is limited to all
arbitrations which take place in India. Similarly, no
suit for interim injunction simplicitor would be
maintainable in India, on the basis of an
international commercial arbitration with a seat
outside India.
15
We conclude that Part I of the Arbitration Act,
1996 is applicable only to all the arbitrations which
take place within the territory of India.”
15. Be it noted, the larger Bench ruled that in order to do complete
justice, the law declared by this Court shall apply prospectively to all the
arbitration agreements executed after the date of delivery of the
judgment. In the said case, the Constitution Bench, while dealing with
the concept of seat/place/situs of arbitration, referred to the decisions in
Naviera Amazonica Peuana S.A. v. Compania International de
27
Seguros del Peru and Union of India v. McDonnell Douglas
28
Corporation and came to hold thus :-
“ 76. It must be pointed out that the law of the seat
or place where the arbitration is held, is normally
the law to govern that arbitration. The territorial link
between the place of arbitration and the law
governing that arbitration is well established in the
international instruments, namely, the New York
Convention of 1958 and the UNCITRAL Model Law
of 1985. It is true that the terms “seat” and “place”
are often used interchangeably. In Redfern and
Hunter on International Arbitration (Para 3.51), the
seat theory is defined thus: “The concept that an
arbitration is governed by the law of the place in
which it is held, which is the „seat‟ (or „forum‟ or
locus arbitri ) of the arbitration, is well established in
both the theory and practice of international
arbitration. In fact, the Geneva Protocol, 1923
states:
27
(1998) 1 Lloyd’s Rep 116 (CA)
28
(1993) 2 Lloyd’s Rep 48
16
“ 2. The arbitral procedure, including the
constitution of the Arbitral Tribunal, shall be
governed by the will of the parties and by the law
of the country in whose territory the arbitration
takes place.”
The New York Convention maintains the
reference to “the law of the country where the
d
arbitration took place” [Article V(1)( )] and,
synonymously to “the law of the country where the
award is made” [Articles V(1)( a ) and ( e )]. The
aforesaid observations clearly show that the New
York Convention continues the clear territorial link
between the place of arbitration and the law
governing that arbitration. The author further
points out that this territorial link is again
maintained in the Model Law which provides in
Article 1(2) that:
“ 1. (2) the provision of this Law, except Articles 8,
9, 35 and 36, apply only if the place of arbitration
is in the territory of the State.”
Just as the Arbitration Act, 1996 maintains the
territorial link between the place of arbitration and
its law of arbitration, the law in Switzerland and
England also maintain a clear link between the
seat of arbitration and the lex arbitri . The Swiss
Law states:
“ 176(I). (1) The provision of this chapter shall
apply to any arbitration if the seat of the Arbitral
Tribunal is in Switzerland and if, at the time when
the arbitration agreement was concluded, at least
one of the parties had neither its domicile nor its
habitual residence in Switzerland.”
(Emphasis supplied)
77. We are of the opinion that the omission of the
word “only” in Section 2(2) of the Arbitration Act,
1996 does not detract from the territorial scope of
17
its application as embodied in Article 1(2) of the
Model Law. The article merely states that the
arbitration law as enacted in a given State shall
apply if the arbitration is in the territory of that
State. The absence of the word “only” which is
found in Article 1(2) of the Model Law, from
Section 2(2) of the Arbitration Act, 1996 does not
change the content/import of Section 2(2) as
limiting the application of Part I of the Arbitration
Act, 1996 to arbitrations where the place/seat is in
India.
16. In this context, we may carefully analyse what has been stated in
Harmony Innovation Shipping Limited (supra). In the said case, the
Court relied on Reliance Industries Ltd. (I) (supra) and other decisions,
analysed the arbitration clause and held:-
“45. Coming to the stipulations in the present
arbitration clause, it is clear as day that if any
dispute or difference would arise under the charter,
arbitration in London to apply; that the arbitrators
are to be commercial men who are members of the
London Arbitration Association; the contract is to be
construed and governed by the English law; and
that the arbitration should be conducted, if the claim
is for a lesser sum, in accordance with small claims
procedure of the London Maritime Arbitration
Association. There is no other provision in the
agreement that any other law would govern the
arbitration clause.
xxx xxx xxx
48. In the present case, the agreement stipulates
that the contract is to be governed and construed
according to the English law. This occurs in the
arbitration clause. Mr Viswanathan, learned Senior
Counsel, would submit that this part has to be
18
interpreted as a part of “curial law” and not as a
“proper law” or “substantive law”. It is his
submission that it cannot be equated with the seat
of arbitration. As we perceive, it forms as a part of
the arbitration clause. There is ample indication
through various phrases like “arbitration in London
to apply”, arbitrators are to be the members of the
“London Arbitration Association” and the contract “to
be governed and construed according to the English
law”. It is worth noting that there is no other
stipulation relating to the applicability of any law to
the agreement. There is no other clause anywhere
in the contract. That apart, it is also postulated that
if the dispute is for an amount less than US $50,000
then, the arbitration should be conducted in
accordance with small claims procedure of the
London Maritime Arbitration Association. When the
aforesaid stipulations are read and appreciated in
the contextual perspective, “the presumed intention”
of the parties is clear as crystal that the juridical
seat of arbitration would be London. In this context,
a passage from Mitsubishi Heavy Industries Ltd. v.
Gulf Bank K.S.C. is worth reproducing:
“It is of course both useful and frequently
necessary when construing a clause in a
contract to have regard to the overall
commercial purpose of the contract in the
broad sense of the type and general content,
the relationship of the parties and such
common commercial purpose as may clearly
emerge from such an exercise. However, it
does not seem to me to be a proper approach
to the construction of a default clause in a
commercial contract to seek or purport to elicit
some self-contained „commercial purpose‟
underlying the clause which is or may be wider
than the ordinary or usual construction of the
words of each sub-clause will yield.”
xxx xxx xxx
19
50. Thus, interpreting the clause in question on the
bedrock of the aforesaid principles it is vivid that the
intended effect is to have the seat of arbitration at
London. The commercial background, the context of
the contract and the circumstances of the parties
and in the background in which the contract was
entered into, irresistibly lead in that direction. We
are not impressed by the submission that by such
interpretation it will put the respondent in an
advantageous position. Therefore, we think it would
be appropriate to interpret the clause that it is a
proper clause or substantial clause and not a curial
or a procedural one by which the arbitration
proceedings are to be conducted and hence, we are
disposed to think that the seat of arbitration will be
at London.
51. Having said that the implied exclusion principle
stated in Bhatia International would be applicable,
regard being had to the clause in the agreement,
there is no need to dwell upon the contention raised
pertaining to the addendum, for any interpretation
placed on the said document would not make any
difference to the ultimate conclusion that we have
already arrived at.”
17. The aforesaid passages clearly show that the arbitration clause
has to be appositely read to understand its intention so as to arrive at a
conclusion on whether it determines the seat or not.
18. In Reliance Industries Limited (II) , the Court, after referring to
various decisions, came to hold that the applicability of Part I of the Act
can be excluded by necessary implication if it is found that on the facts
of the case, either the juridical seat of the arbitration is outside India or
20
the law governing the arbitration agreement is a law other than Indian
law. Referring to the decision in Harmony Innovation Shipping
Limited (supra), the Court said:-
“ 20. It is interesting to note that even though the law
governing the arbitration agreement was not
specified, yet this Court held, having regard to
various circumstances, that the seat of arbitration
would be London and therefore, by necessary
implication, the ratio of Bhatia International would
not apply.”
19. In Eitzen Bulk A/S (supra), the Court analysed the arbitration
clause that stipulated that the disputes under the COA were to be settled
and referred to arbitration in London and the English Law would apply.
Interpreting the said clause, the Court held:-
“33. We are thus of the view that by Clause 28, the
parties chose to exclude the application of Part I to
the arbitration proceedings between them by
choosing London as the venue for arbitration and by
making English law applicable to arbitration, as
observed earlier. It is too well settled by now that
where the parties choose a juridical seat of
arbitration outside India and provide that the law
which governs arbitration will be a law other than
Indian law, Part I of the Act would not have any
application and, therefore, the award debtor would
not be entitled to challenge the award by raising
objections under Section 34 before a court in India.
A court in India could not have jurisdiction to
entertain such objections under Section 34 in such
a case.
34. As a matter of fact the mere choosing of the
juridical seat of arbitration attracts the law
applicable to such location. In other words, it would
21
not be necessary to specify which law would apply
to the arbitration proceedings, since the law of the
particular country would apply ipso jure. The
following passage from Redfern and Hunter on
International Arbitration contains the following
explication of the issue:
“It is also sometimes said that parties have
selected the procedural law that will govern their
arbitration, by providing for arbitration in a
particular country. This is too elliptical and, as an
English court itself held more recently in Breas of
Doune Wind Farm it does not always hold true.
What the parties have done is to choose a place
of arbitration in a particular country. That choice
brings with it submission to the laws of that
country, including any mandatory provisions of its
law on arbitration. To say that the parties have
“chosen” that particular law to govern the
arbitration is rather like saying that an English
woman who takes her car to France has
“chosen” French traffic law, which will oblige her
to drive on the right-hand side of the road, to give
priority to vehicles approaching from the right,
and generally to obey traffic laws to which she
may not be accustomed. But it would be an odd
use of language to say this notional motorist had
opted for “French traffic law”. What she has done
is to choose to go to France. The applicability of
French law then follows automatically. It is not a
matter of choice.
Parties may well choose a particular place of
arbitration precisely because its lex arbitri is one
which they find attractive. Nevertheless, once a
place of arbitration has been chosen, it brings with it
its own law. If that law contains provisions that are
mandatory so far as arbitration are concerned,
those provisions must be obeyed. It is not a matter
of choice any more than the notional motorist is free
to choose which local traffic laws to obey and which
to disregard”.”
22
20. In IMAX Corporation (supra), interpreting the arbitration clause
and the ICC Rules and referring to earlier precedents, the Court ruled:-
“39. If in pursuance of the arbitration agreement,
the arbitration took place outside India, there is a
clear exclusion of Part I of the Arbitration Act. In the
present case, the parties expressly agreed that the
arbitration will be conducted according to the ICC
Rules of Arbitration and left the place of arbitration
to be chosen by ICC. ICC in fact, chose London as
the seat of arbitration after consulting the parties.
The arbitration was held in London without demur
from any of the parties. All the awards i.e. the two
partial final awards, and the third final award, were
made in London and communicated to the parties.
We find that this is a clear case of the exclusion of
Part I vide Eitzen Bulk A/S , and the decisions
referred to and followed therein.”
21. In Roger Shashoua (supra), apart from dealing with the concept
of precedents, the two-Judge Bench also scanned the anatomy of the
arbitration clause and held:-
“…the distinction between the venue and the seat
remains. But when a court finds that there is
prescription for venue and something else, it has to
be adjudged on the facts of each case to determine
the juridical seat. As in the instant case, the
agreement in question has been interpreted and it
has been held that London is not mentioned as the
mere location but the courts in London will have the
jurisdiction, another interpretative perception as
projected by the learned Senior Counsel is
unacceptable.”
23
22. We may now focus on the discussion and the ultimate conclusion
in Sumitomo Heavy Industries Ltd . (supra) and how the later
decisions under the 1996 Act perceived the same. In Bharat Aluminium
Corporation (supra) (BALCO-II), the three-Judge Bench dealt with the
decisions in Sumitomo Heavy Industries Ltd (supra) and Reliance
Industries Limited (supra) and noted thus:-
“13. Sumitomo is of no avail to the appellant. In
Sumitomo, there was no specific choice on the law
of arbitration agreement and this Court held that in
absence of such choice, the law of arbitration
agreement would be determined by the substantive
law of the contract. That is not the case in this
agreement.”
It laid emphasis on Reliance Industries Limited (II) (supra) and
opined that an application under Section 34 of the 1940 Act was not
maintainable.
23. In view of the aforesaid development of law, there is no confusion
with regard to what the seat of arbitration and venue of arbitration mean.
There is no shadow of doubt that the arbitration clause has to be read in
a holistic manner so as to determine the jurisdiction of the Court. That
apart, if there is mention of venue and something else is appended
thereto, depending on the nature of the prescription, the Court can come
to a conclusion that there is implied exclusion of Part I of the Act. The
principle laid down in Sumitomo Heavy Industries Ltd. (supra) has
24
been referred to in Reliance Industries Limited (II) and distinguished.
In any case, it has no applicability to a controversy under the Act. The
said controversy has to be governed by the BALCO principle or by the
agreement or by the principle of implied exclusion as has been held in
Bhatia International .
24. Thus, we answer the reference accordingly.
25. Having addressed the reference, we shall advert to the arbitration
clause to delineate on whether it ousts the jurisdiction of the courts in
India. Article 32 of the arbitration agreement reads as follows:-
“32.1 This Contract shall be governed and
interpreted in accordance with the laws of India.
32.2 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.”
26. Article 33 deals with “Sole expert, conciliation and arbitrator”.
Article 33.9 and 33.12 read thus:-
“33.9 Arbitration proceedings shall be conducted in
accordance with the UNICITRAL Model Law on
International Commercial Arbitration of 1985 except
that in the event of any conflict between the rules
and the provisions of this Article 33, the provisions
of this Article 33 shall govern.
xxx xxx xxx
33.12 The venue of conciliation or arbitration
proceedings pursuant to this Article unless the
parties otherwise agree, shall be Kuala Lumpur and
25
shall be conducted in English language. Insofar as
practicable the parties shall continue to implement
the terms of this contract notwithstanding the
initiation of arbitration proceedings and any pending
claim or dispute.”
[Emphasis supplied]
27. It is submitted by Mr. Tushar Mehta, learned Additional Solicitor
General appearing for the Union of India that there is no specific mention
of juridical seat but reference is to the venue. He has also drawn our
attention to the UNCITRAL Model Law which is referred to in Article 33.9
of the agreement. Article 20 of the UNCITRAL Model Law reads as
follows:-
“Article 20. Place of arbitration.—(1)The parties are
free to agree on the place of arbitration. Failing such
agreement, the place of arbitration shall be
determined by the arbitral tribunal having regard to
the circumstances of the case, including the
convenience of the parties.
(2) Notwithstanding the provisions of paragraph
(1) of this article, the arbitral tribunal may, unless
otherwise agreed by the parties, meet at any place
it considers appropriate for consultation among its
members, for hearing witnesses, experts or the
parties, or for inspection of goods, other property or
documents.”
[Emphasis added]
Thus, Article 20(1) mandates “determination” of “juridical seat”
while Article 20(2) leaves it open to the Arbitral Tribunal to select
“venue”.
26
28. Article 31(3) of the UNCITRAL Model Law is as follows :-
“Article 31. Form and contents of award.—
(3)The award shall state its date and the place of
arbitration as determined in accordance with article
20(1). The award shall be deemed to have been
made at that place.”
29. On a perusal of Articles 20 and 31(3) of the UNCITRAL Model
Laws, we find that the parties are free to agree on the place of
arbitration. Once the said consent is given in the arbitration clause or it
is interpretably deduced from the clause and the other concomitant
factors like the case of Harmony Innovation Shipping Ltd. which
states about the venue and something in addition by which the seat of
arbitration is determinable. The other mode, as Article 20 of the
UNCITRAL Model Law provides, is that where the parties do not agree
on the place of arbitration, the same shall be determined by the Arbitral
Tribunal. Such a power of adjudication has been conferred on the
Arbitral Tribunal. Article 31(3) clearly stipulates that the Award shall state
the date and the place of arbitration as determined in accordance with
Article 20(1).
30. In IMAX Corporation (supra), there is reference to the ICC Rules
and the Rules provide that the place of arbitration shall be fixed by the
Court unless agreed upon by the parties. In the said case, the appellant
had proposed the venue of Arbitration as Paris in France. The
27
International Court of Arbitration decided that London, United Kingdom
would be the juridical seat of arbitration in view of Article 14(1) of the ICC
Rules and, therefore, provided on the basis of Part I of the English
Arbitration Act, 1996. The three-Judge Bench ruled:-
“24. In the present case, the arbitration clause
contemplates an award made in pursuance of the
ICC Rules without specifying the applicable law for
the arbitration agreement. It would therefore be
appropriate to hold that the question of validity of
the award should be determined in accordance with
the law of the State in which the arbitration
proceedings have taken place i.e. the English Law.
Though for the purposes of this decision we would
only hold that the conduct of the parties exclude the
applicability of Part I. In other words, where the
parties have not expressly chosen the law
governing the contract as a whole or the arbitration
agreement in particular, the law of the country
where the arbitration is agreed to be held has
primacy.
25. Here, an express choice has been made by the
parties regarding the conduct of arbitration i.e. that
a dispute shall be finally settled by arbitration
according to the ICC Rules of Arbitration. The
parties have not chosen the place of arbitration.
They have simply chosen the rules that will govern
the arbitration, presumably aware of the provision in
the rules that the place of arbitration will be decided
by ICC vide Article 14(1) of the ICC Rules. ICC
having chosen London, leaves no doubt that the
place of arbitration will attract the law of UK in all
matters concerning arbitration.”
The Court further noticed that in the said case, the seat of
arbitration had not been specified at all in the arbitration clause. There
28
was a stipulation that the arbitration shall be conducted according to the
ICC Rules and opining on the same, it was observed:-
“ 29. We find that in the present case, the seat of
arbitration has not been specified at all in the
arbitration clause. There is however an agreement
to have the arbitration conducted according to the
ICC Rules and thus a willingness that the seat of
arbitration may be outside India. In any case, the
parties having agreed to have the seat decided by
ICC and ICC having chosen London after consulting
the parties and the parties having abided by the
decision, it must be held that upon the decision of
ICC to hold the arbitration in London, the parties
agreed that the seat shall be in London for all
practical purposes. Therefore, there is an
agreement that the arbitration shall be held in
London and thus Part I of the Act should be
excluded.”
31. In the present case, the place of arbitration was to be agreed upon
between the parties. It had not been agreed upon ; and in case of failure
of agreement, the Arbitral Tribunal is required to determine the same
taking into consideration the convenience of the parties. It is also
incumbent on the Arbitral Tribunal that the determination shall be clearly
stated in the „form and contents of award‟ that is postulated in Article 31.
There has been no determination.
32. Be it noted, the word „determination‟ requires a positive act to be
done. In the case at hand, the only aspect that has been highlighted by
Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the
meeting at Kuala Lumpur and signed the award. That, in our considered
29
opinion, does not amount to determination. The clause is categorical.
The sittings at various places are relatable to venue. It cannot be
equated with the seat of arbitration or place of arbitration which has a
different connotation as has been held in Reliance Industries Ltd. (I),
(II) (supra), Harmony Innovation Shipping Limited (supra) and in
Roger Shashoua (supra).
33. The word „determination‟ has to be contextually determined. When
a „place‟ is agreed upon, it gets the status of seat which means the
juridical seat. We have already noted that the terms „place‟ and „seat‟
are used interchangeably. When only the term „place‟ is stated or
mentioned and no other condition is postulated, it is equivalent to „seat‟
and that finalises the facet of jurisdiction. But if a condition precedent is
attached to the term „place‟, the said condition has to be satisfied so that
the place can become equivalent to seat. In the instant case, as there
are two distinct and disjunct riders, either of them have to be satisfied to
become a place. As is evident, there is no agreement. As far as
determination is concerned, there has been no determination. In Ashok
29
Leyland Limited and State of T.N. and another , the Court has
nd
reproduced the definition of „determination‟ from Law Lexicon, 2 Edition
th
by Aiyar, P. Ramanatha and Black‟s Law Dictionary, 6 Edition. The
relevant paragraphs read thus:-
29
(2004) 3 SCC 1
30
“Determination or order.—The expression „determination‟
signifies an effective expression of opinion which ends a
controversy or a dispute by some authority to whom it is
submitted under a valid law for disposal. The expression
„order‟ must have also a similar meaning, except that it
need not operate to end the dispute. Determination or
order must be judicial or quasi-judicial. Jaswant Sugar
30
Mills Ltd. v. Lakshmi Chand (Constitution of India, Article
136).”
“A „determination‟ is a „final judgment‟ for purposes of
appeal when the trial court has completed its adjudication
of the rights of the parties in the action. Thomas Van
31
Dyken Joint Venture v. Van Dyken .”
The said test clearly means that the expression of determination
signifies an expressive opinion. In the instant case, there has been no
adjudication and expression of an opinion. Thus, the word „place‟ cannot
be used as seat. To elaborate, a venue can become a seat if something
else is added to it as a concomitant. But a place unlike seat, at least as
is seen in the contract, can become a seat if one of the conditions
precedent is satisfied. It does not ipso facto assume the status of seat.
Thus understood, Kuala Lumpur is not the seat or place of arbitration
and the interchangeable use will not apply in stricto sensu .
34. In view of the aforesaid analysis, the irresistible conclusion is that
the Courts in India have jurisdiction and, therefore, the order passed by
the Delhi High Court is set aside. Resultantly, the appeal stands allowed
30
AIR 1963 SC 677, 680
31
90 Wis 236, 27 NW 2d 459,463
31
and the High Court is requested to deal with the application preferred
under Section 34 of the Act as expeditiously as possible. There shall be
no order as to costs.
…………………………….CJI.
(Dipak Misra)
……………………………….J.
(A.M. Khanwilkar)
…..………………….………..J.
(Dr. D.Y. Chandrachud)
New Delhi;
September 25, 2018