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Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996. 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. 200. 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. The judgment in Bhatia International (supra) was rendered by this Court on 13th March, 2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engineering (supra) has been rendered on 10th January, 2008 in terms of the ratio of the decision in Bhatia International (supra). Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter.

REPORTABLE

Tamil Nadu Electricity Board

Tamil Nadu Electricity Board (Photo credit: Wikipedia)

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7019 OF 2005
Bharat Aluminium Co. …Appellant

 
VERSUS
Kaiser Aluminium Technical Service, Inc. …Respondent
WITH
CIVIL APPEAL NO.6284 OF 2004
M/s. White Industries Australia Ltd. …Appellant

VERSUS

Coal India Ltd.
…Respondent
WITH
CIVIL APPEAL NO.3678 OF 2007
Bharat Aluminium Co. Ltd. …Appellant
VERSUS
Kaiser Aluminium Technical Service, Inc. …Respondent
WITH
TRANSFERRED CASE (C) NO.35 OF 2007
Harkirat Singh
…Petitioner
VERSUS
Rabobank International Holding B.V. …Respondent
WITH
SPECIAL LEAVE PETITION (C) NOS. 3589-3590 of 2009
Tamil Nadu Electricity Board …Petitioner
VERSUS
M/s. Videocon Power Limited & Anr. …Respondents
WITH
SPECIAL LEAVE PETITON (C) NOS. 31526-31528 of 2009

 
Tamil Nadu Electricity Board …Petitioner
VERSUS
M/s. Videocon Power Ltd. & Anr. …Respondents
WITH
SPECIAL LEAVE PETITON (C) NO. 27824 of 2011
Bharati Shipyard Ltd.
…Petitioner
VERSUS
Ferrostaal AG & Anr. …Respondents
WITH
SPECIAL LEAVE PETITION (C) NO. 27841 of 2011

 
Bharati Shipyard Ltd.
…Petitioner
VERSUS
Ferrostaal AG & Anr. …Respondents
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. Whilst hearing C.A. No. 7019 of 2005, a two Judge Bench of this
Court, on 16th January, 2008, passed the following order:-
“In the midst of hearing of these appeals, learned counsel for
the appellant has referred to the three-Judges Bench decision of
this Court in Bhatia International Vs. Bulk Trading S.A. & Anr.,
(2002) 4 SCC 105. The said decision was followed in a recent
decision of two Judges Bench in Venture Global Engineering Vs.
Satyam Computer Services Ltd. & Anr. 2008 (1) Scale 214. My
learned brother Hon’ble Mr. Justice Markandey Katju has
reservation on the correctness of the said decisions in view of
the interpretation of Clause (2) of Section 2 of the Arbitration
and Conciliation Act, 1996. My view is otherwise.

Place these appeals before Hon’ble CJI for listing them before
any other Bench.”

 
2. Pursuant to the aforesaid order, the appeal was placed for hearing
before a three Judge Bench, which by its order dated 1st November,
2011 directed the matters to be placed before the Constitution Bench
on 10th January, 2012.
3. Since the issue raised in the reference is pristinely legal, it is
not necessary to make any detailed reference to the facts of the
appeal. We may, however, notice the very essential facts leading to
the filing of the appeal. An agreement dated 22nd April, 1993
was executed between the appellant and the respondent, under which the
respondent was to supply and install a computer based system for
Shelter Modernization at Balco’s Korba Shelter. The agreement
contained an arbitration clause for resolution of disputes arising out
of the contract. The arbitration clause contained in Articles 17 and
22 was as under :
“Article 17.1 – Any dispute or claim arising out of or relating
to this Agreement shall be in the first instance, endeavour to
be settled amicably by negotiation between the parties hereto
and failing which the same will be settled by arbitration
pursuant to the English Arbitration Law and subsequent
amendments thereto.
Article 17.2 – The arbitration proceedings shall be carried out
by two Arbitrators one appointed by BALCO and one by KATSI
chosen freely and without any bias. The court of Arbitration
shall be held wholly in London, England and shall use English
language in the proceeding. The findings and award of the Court
of Arbitration shall be final and binding upon the parties.
Article 22 – Governing Law – This agreement will be governed by
the prevailing law of India and in case of Arbitration, the
English law shall apply.”
4. The aforesaid clause itself indicates that by reason of the
agreement between the parties, the governing law of the agreement was
the prevailing law of India. However, the settlement procedure for
adjudication of rights or obligations under the agreement was by way
of arbitration in London and the English Arbitration Law was made
applicable to such proceedings. Therefore, the lex
fori for the arbitration is English Law but the substantive law will
be Indian Law.
5. Disputes arose between the parties with regard to the performance
of the agreement. Claim was made by the appellant for return of its
investment in the modernization programme, loss, profits and other
sums. The respondent made a claim for unclaimed instalments plus
interest and damages for breach of intellectual property rights.
Negotiations to reach a settlement of the disputes between the parties
were unsuccessful and a written notice of request for arbitration was
issued by the respondent to the appellant by a notice dated 13th
November, 1997. The disputes were duly referred to arbitration which
was held in England. The arbitral tribunal made two awards dated 10th
November, 2002 and 12th November, 2002 in England. The appellant
thereafter filed applications under Section 34 of the Arbitration Act,
1996 for setting aside the aforesaid two awards in the Court of the
learned District Judge, Bilaspur which were numbered as MJC Nos. 92 of
2003 and 14 of 2003, respectively. By an order dated 20th July, 2004,
the learned District Judge, Bilaspur held that the applications filed
by the appellant under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the ‘Arbitration
Act, 1996’) for setting aside the foreign awards are not tenable and
accordingly dismissed the same.
6. Aggrieved by the aforesaid judgment, the appellant filed two
miscellaneous appeals being Misc. Appeal Nos. 889 of 2004 and
Misc. Appeal No.890 of 2004 in the High Court of Judicature at
Chattisgarh, Bilaspur. By an order dated 10th August, 2005, a Division
Bench of the High Court dismissed the appeal. It was held as follows:
“For the aforesaid reasons, we hold that the applications filed
by the appellant under Section 34 of the Indian Act are not
maintainable against the two foreign awards dated 10.11.2002 and
12.11.2002 and accordingly dismiss Misc. Appeal No.889 of 2004
and Misc. Appeal No.890 of 2004, but order that the parties
shall bear their own costs.”
The aforesaid decision has been challenged in this appeal.
7. We may also notice that number of other appeals and special
leave petitions as well as transferred case were listed
alongwith this appeal. It is not necessary to take note of the
facts in all matters.
8. We may, however, briefly notice the facts in Bharati Shipyard Ltd.
Vs. Ferrostaal AG & Anr. in SLP (C) No.27824 of 2011 as it pertains to
the applicability of Section 9 of the Arbitration Act, 1996. In this
case, the appellant, an Indian Company, entered into two Shipbuilding
Contracts with respondent No.1 on 16th February, 2007. The appellant
was to construct vessels having Builders Hull No.379 which was to be
completed and delivered by the appellant to the respondent No.1 within
the time prescribed under the two Shipbuilding Contracts. The
agreement contained an arbitration clause. The parties initially
agreed to get their disputes settled through arbitral process under
the Rules of Arbitration of the International Chamber of Commerce
(ICC) at Paris, subsequently, mutually agreed on 29th November, 2010
to arbitration under the Rules of London Maritime Arbitrators
Association (LMAA) in London. This agreement is said to have been
reached between the parties in the interest of saving costs and time.
Prior to agreement dated 29th November, 2010 relating to arbitration
under LMAA Rules, respondent No.1 had filed two requests for
arbitration in relation to both the contracts under Article 4 of ICC
Rules on 12th November, 2010 recognizing that the seat of arbitration
is in Paris and the substantive law applicable is English Law. In its
requests for arbitration, respondent No.1 had pleaded in paragraphs 25
and 26 as under:
“Applicable Law:
25. The Contract Clause “Governing Law, Dispute and Arbitration
Miscellaneous” provides that the Contract shall be governed by
the Laws of England.” The rights and obligations of the parties
are therefore to be interpreted in light of English Law (the
applicable law).
26. In summary:
a) disputes arising out of the Contract between the parties are
to be resolved by arbitration under the ICC Rules;
b) the seat of arbitration is Paris; and
c) the substantive law to be applied in the arbitration shall
be English Law.”
9. Subsequently, in view of the agreement dated 29th November, 2010,
the first respondent submitted two requests for arbitration under LMAA
Rules in London on 4th February, 2011. During the pendency of the
aforesaid two requests, on 10th November, 2010, the first respondent
filed two applications under Section 9 of the Arbitration Act, 1996
which are numbered as AA.No.6/2010 and AA.No.7/2010 seeking orders of
injunction against the encashment of refund bank guarantees issued
under the contracts.
10. Learned District Judge, Dakshina Kannada, Mangalore granted an ex
parte ad interim injunction in both the applications restraining the
appellant from encashing the bank guarantee on 16th November, 2010.
The appellant appeared and filed its statement of objections. After
hearing, the learned District Judge passed the judgments and orders on
14th January, 2011 allowing the applications filed by respondent No.1
under Section 9 of the Arbitration Act, 1996.
11. Both the orders were challenged in the appeals by the appellant
before the High Court of Karnataka at Bangalore. By judgment and order
dated 9th September, 2011, the High Court allowed the appeal and set
aside the orders passed by the District Judge dated 14th January,
2011. In allowing the appeal, the High Court held as follows:
“From the above, it is clear that respondent No.1 is not
remedyless (sic). It is already before the Arbitral Tribunal at
London. Thus, it is open for it to seek interim order of
injunction for the purpose of preserving the assets as per
Section 44 of the Arbitration Act, 1996 in Courts at London.
Since the parties have agreed that substantive law governing the
contract is English Law and as the law governing arbitration
agreement is English Law, it is open for respondent No.1 to
approach the Courts at England to seek the interim relief.”
12. This special leave petition was filed against the aforesaid
judgment of the High Court.
13. We have heard very lengthy submissions on all aspects of the
matter. All the learned counsel on both sides have made elaborate
references to the commentaries of various experts in the field of
International Commercial Arbitration. Reference has also been made to
numerous decisions of this Court as well as the Courts in other
jurisdictions.
14. Mr. C.A. Sundaram, appearing for the appellants in C.A. No.
7019 of 2005 submits that primarily the following five questions would
arise in these cases:- (a) What is meant by the place of arbitration
as found in Sections 2(2) and 20 of the Arbitration Act, 1996?; (b)
What is the meaning of the words “under the law of which the award is
passed” under Section 48 of the Arbitration Act, 1996 and Article
V(1)(e) of the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (hereinafter referred to as “the New York
Convention”)?; (c) Does Section 2(2) bar the application of Part I of
the Arbitration Act, 1996 (Part I for brevity) to arbitrations where
the place is outside India?; (d) Does Part I apply at all stages of an
arbitration, i.e., pre, during and post stages of the arbitral
proceedings, in respect of all arbitrations, except for the areas
specifically falling under Parts II and III of the Arbitration Act,
1996 (Part II and Part III hereinafter)?; and (e) Whether a suit
for preservation of assets pending an arbitration proceeding is
maintainable?
15. Mr. Soli Sorabjee, Mr. Sundaram, Mr. Gopal Subramanium and Dr.
A.M. Singhvi, learned Senior Advocates for the appellants have in
unison emphasised that Part I and Part II are not mutually exclusive.
They have submitted that the Arbitration Act, 1996 has not “adopted or
incorporated the provisions of Model Law”. It has merely “taken into
account” the Model Law. They have made a reference to the judgments of
this Court in the case of Konkan Railway Corporation Ltd. & Anr. Vs.
Rani Construction Pvt. Ltd.[1] and SBP & Co. Vs. Patel Engineering
Ltd. & Anr.[2] It is emphasised that in fact the Arbitration Act,
1996 differs from the UNCITRAL Model Law on certain vital aspects. It
is pointed out that one of the strongest examples is the omission of
the word “only” in Section 2(2), which occurs in corresponding Article
1(2) of the Model Law. The absence of the word “only” in Section 2(2)
clearly signifies that Part I shall compulsorily apply if the place of
arbitration is in India. It does not mean that Part I will not apply
if place of arbitration is not in India.
16. Mr. Sorabjee has emphasised that the omission of word “only” in
Section 2(2) is not an instance of “CASUS OMISSUS”. The omission of
the word clearly indicates that Model Law has not been bodily adopted
by the Arbitration Act, 1996. All the learned senior counsel seem to
be agreed that the Arbitration Act, 1996 has to be construed by
discerning the intention of the Parliament from the words and language
used, i.e., the provisions of the said Act have to be construed
literally without the addition of any word to any provision.
Therefore, the missing word “only” can not be supplied by judicial
interpretation. In support of the submission, reliance is placed on
Nalinakhya Bysack Vs. Shyam Sunder Haldar & Ors.[3], Magor & St.
Mellons RDC Vs. Newport Corporation[4], Punjab Land Devl. &
Reclamation Corporation Ltd. Vs. Presiding Officer, Labour Court[5]
and Duport Steels Ltd. Vs. Sirs[6]. It is pointed out by Mr. Sorabjee
that the doctrine of ironing out the creases does not justify the
substitution of a new jacket in place of the old, whose creases were
to be ironed out.
17. All the learned counsel for the appellants have emphasised that
the Arbitration Act, 1996 has not adopted the territorial
criterion/principle completely, party autonomy has been duly
recognized. This, according to the learned counsel, is evident from
the provisions in Sections 2(1)(e), 2(5), 2(7), 20 and 28. It is
submitted that restricting the operation of Part I only to arbitration
which takes place in India would lead to reading words into or adding
words to various provisions contained in the Arbitration Act, 1996.
It is emphasised that restricting the applicability of Part I to
arbitrations which take place only in India would render the
provisions in Sections 2(5), 2(7) and 20 redundant. Mr.
Sundaram has reiterated that expression “place” in Sections 2(2) and
Section 20 has to be given the same meaning. Section 20 of the
Arbitration Act, 1996 stipulates that parties are free to agree on the
place of arbitration outside India. Therefore, arbitrations conducted
under Part I, may have geographical location outside India.
Similarly, if Part I was to apply only where the place of arbitration
is in India then the words “Where the place of arbitration is situated
in India” in Section 28(1) were wholly unnecessary. Further, the
above words qualify only Sub-section (1) of Section 28 and do not
qualify Sub-section (3). The necessary implication is that Sub-
section (3) was intended to apply even to foreign-seated arbitration
so long as parties have chosen Arbitration Act, 1996 as law of the
arbitration, which could only be if Part I is to apply to such
arbitration. Therefore, it is submitted by the learned counsel that
the ‘seat’ is not the “centre of gravity” as far as the Arbitration
Act, 1996 is concerned. The Arbitration Act, 1996 is “subject matter
centric” and not “seat-centric”. In support of this, the learned
counsel placed strong reliance on the provision contained in Section
2(1) (e), which provides that “jurisdiction to decide the questions
forming the subject-matter of the arbitration if the same had been the
subject matter of a suit”. This, according to the learned counsel, is
an essential precondition for a Court to assume jurisdiction under
Part I. The definition of Court in Section 2(1)(e) would necessarily
mean that two foreign parties, in order to resolve a dispute arising
outside India and governed by foreign law cannot invoke jurisdiction
of an Indian Court by simply choosing India as the seat of
arbitration. It is further submitted that in the absence of Section 9
of the Arbitration Act, 1996, no interim relief can be granted unless
it is in aid of final/ substantive relief that must be claimed in the
suit. On the other hand, a suit claiming any permanent relief on the
substance of the dispute would tantamount to a waiver of the
arbitration clause by the plaintiff. It is, therefore, submitted by
the learned counsel that supplying word “only” in Section 2(2) will in
many cases leave a party remediless. It is further submitted that
Section 2(7) clearly shows that part I would apply even to
arbitrations which take place outside India. If Section 2(7) was to be
restricted only to arbitrations which take place in India, there would
be no need for such a provision. It is emphasised that the provision
clearly states that it applies to an award made “under this part”. The
aforesaid term is a clear indication to an arbitration which takes
place outside India, where the parties have chosen the Arbitration
Act, 1996 as the governing law of the arbitration. Mr. Sorabjee relied
on National Thermal Power Corporation Vs. Singer Company & Ors.[7],
and submitted that Section 2(7) is a positive re-enactment of Section
9(b) of the Foreign Awards (Recognition and Enforcement) Act, 1961
(hereinafter referred to as the ‘1961 Act’). It is emphasised that
Section 2(7) has been placed in Part I only to bring it in conformity
with Article V(1)(e) of the New York Convention, which has been
incorporated and enacted as Section 48(1)(e). The aforesaid section
even though it is dealing with enforcement of awards, necessarily
recognizes the jurisdiction of courts in two countries to set aside
the award, namely, the courts of the country in which arbitration
takes place and the country under the law of which the award was made.
It is submitted that both the expressions must necessarily be given
effect to and no part of the act or the section can be disregarded by
describing them as fossil.
18. Mr. Sorabjee has emphasised that not giving effect to the words
“under the law of which the award was made”, will allow many awards to
go untested in Court. He has relied upon certain observations made by
the U.K. Court in the case of Reliance Industries Ltd. Vs. Enron Oil &
Gas India Ltd.[8]
19. Mr. Sundaram points out that the Arbitration Act, 1996 departs
from the strict territorial criterion/principle as not only it retains
the features of New York Convention but significantly departs from
Model Law. The Model Law has sought to bring in an era of
localized/territorial arbitration (Article 1(2)). On the other hand,
the Arbitration Act, 1996 recognizes and provides for de-localized
arbitration. He emphasised that under Model Law, all provisions
referred to localized arbitration except the exceptions in Article
1(2). Under the Arbitration Act, 1996, all provisions are de-
localized, except where “place” qualification has been provided for.
20. He further submitted that in all commentaries of International
Commercial Arbitration, the expression “place” is used interchangeably
with “seat”. In many cases, the terms used are “place of arbitration”;
“the arbitral situs”; the “locus arbitri” or “the arbitral forum”.
Relying on the judgment in Braes of Doune Wind Farm (Scotland) Limited
Vs. Alfred McAlpine Business Services Limited[9] which has been
affirmed in Shashoua & Ors. Vs. Sharma[10], he submitted that
internationally “seat” is interpreted as being the “juridical seat”.
Therefore, when the parties opt for a given law to govern the
arbitration, it is considered to supplant the law of the geographical
location of the arbitration. Therefore, the mere geographical location
is not the deciding factor of the seat. He relies on the observations
made by Gary B. Born in his book ‘International Commercial
Arbitration’, which are as follows :
“A concept of central importance to the international arbitral
process is that of the arbitral seat (alternatively referred to
as the “place of arbitration”, the “siege” “ort”, the arbitral
“situs” the “locus arbitri” or the arbitral “forum”). The
arbitral seat is the nation where an international arbitration
has its legal domicile, the laws of which generally govern the
arbitration proceedings in significant respects, with regard to
both “internal” and “external” procedural matters.”
As discussed elsewhere, the arbitral seat is the location
selected by the parties (or, sometimes, by the arbitrators, an
arbitral institution, or a court) as the legal or juridical home
or place of the arbitration. In one commentator’s words, the
“seat” is in the vast majority of cases the country chosen as
the place of the arbitration. The choice of the arbitral seat
can be (and usually is) made by the parties in their arbitration
agreement or selected on the parties’ behalf by either the
arbitral tribunal or an arbitral institution.”
21. He submits that whist interpreting the word “place” in Section
2(2), the provisions contained in Section 20 would have relevance as
Section 20 stipulates that the parties are free to agree on the place
of arbitration. The interpretation on the word “place” in Section 2(2)
would also have to be in conformity with the provisions contained in
Section 2(1) (e). Further more, Section 2(2) has to be construed by
keeping in view the provisions contained in Section 2(7) which would
clearly indicate that the provisions of Part I of the Arbitration Act,
1996 are not confined to arbitrations which take place within India.
Whilst arbitration which takes place in India by virtue of Section
2(2) would give rise to a “domestic award”; the arbitration which is
held abroad by virtue of Section 2(7) would give rise to a “deemed
domestic award”; provided the parties to arbitration have chosen the
Arbitration Act, 1996 as the governing law of arbitration.
22. Mr. Sundaram emphasised that if Section 2(2) had not been on the
Statute book there would be no doubt that if an arbitration was
governed by the Arbitration Act, 1996, Part I would ipso facto become
applicable to such arbitration, and under Section 2(7), irrespective
of where the arbitral proceedings took place, it would become a deemed
domestic award, giving rise to the incidence arising therefrom. By the
inclusion of Section 2(2), the legislature has also made the
Arbitration Act, 1996 and Part I applicable when the seat or place of
arbitration is in India even if not conducted in accordance with
Indian Arbitral laws thereby domestic what would otherwise have been a
non-domestic award having been conducted in accordance with a Foreign
Arbitration Act. By making such provisions, the Indian Parliament has
honoured the commitment under the New York Convention. He submits that
New York Convention in Articles V(1)(a) and V(1)(e) has recognized
that the courts in both the countries i.e. country in which the
arbitration is held and the country “under the law of which the award
is made” as a court of competent jurisdiction to question the validity
of the arbitral proceedings/award. He, however, points out that the
jurisdiction of the domestic court is neither conferred by the New
York Convention nor under Part II of the Arbitration Act, 1996, since
Part II merely deals with circumstances under which an award may be
enforced/may be refused to be enforced. These circumstances include
annulment proceedings in one of the two competent courts, whether or
not any of the two courts have jurisdiction to annul the
proceedings/award, would depend on the domestic law of the country
concerned. The Geneva Convention had brought with it the predominance
of the seat, particularly with reference to the setting aside of the
award. The two jurisdictions were inserted in the New York Convention
to dilute the predominance of the “seat” over the party autonomy. He
further submitted that the apprehension that the two courts of
competent jurisdiction could give conflicting verdicts on the same
award is unfounded. Even if there were parallel proceedings, it would
merely be a question of case management by the relevant courts in
deciding which proceedings should be continued and which stayed.
23. Learned counsel have submitted that the findings in the case of
Bhatia International Vs. Bulk Trading S.A. & Anr.[11] (hereinafter
referred to as “Bhatia International”) that if Part I was not made
applicable to arbitrations conducted outside India would render “party
remediless” is wholly correct. It is not open to a party to file a
suit touching on the merits of the arbitration, since such suit would
necessarily have to be stayed in view of Section 8 or Section 45 of
the Arbitration Act, 1996. He submits that the only way a suit can be
framed is a suit “to inter alia restrict the defendant from parting
with properties”. He submits that if the right to such property
itself is subject matter of an arbitration agreement, a suit for the
declaration of such right can not be filed. All that could then be
filed, therefore, would be a bare suit for injunction restraining
another party from parting with property. The interlocutory relief
would also be identical till such time as the injunction is made
permanent. Such a suit would not be maintainable because :- (a) an
interlocutory injunction can only be granted depending on the
institutional progress of some proceeding for substantial relief, the
injunction itself must be part of the substantive relief to which the
plaintiff’s cause of action entitles him. In support of this
proposition, he relies on Siskina (Cargo Owners) Vs. Distos Compania
Navieria SA[12], Fourie Vs. Le Roux[13] and Adhunik Steels Ltd. Vs.
Orissa Manganese and Minerals Pvt. Ltd.[14]; (b) the cause of action
for any suit must entitle a party for a substantive relief. Since the
substantive relief can not be asked for as the dispute is to be
decided by the arbitrator, the only relief that could be asked for
would be to safeguard a property which the plaintiff may or may not be
entitled to proceed against, depending entirely on the outcome of
another proceeding, in another jurisdiction, or which the country has
no seisin; (c) in such a suit, there would be no pre-existing right to
give rise to a cause of action but the right is only contingent /
speculative and in the absence of an existing / subsisting cause of
action, a suit can not be filed; (d) the absence of an existing /
subsisting cause of action would entail the plaint in such a suit to
be rejected under Order VII Rule 11a. Further, no interlocutory
injunction can be granted unless it is in aid of a substantive relief
and therefore a suit simply praying for an injunction would also be
liable to be rejected under Order VII Rule 11; (e) no interim relief
can be granted unless it is in aid of and ancillary to the main relief
that may be available to the party on final determination of rights in
a suit. Learned counsel refers to State of Orissa Vs. Madan Gopal
Rungta[15] in support of the submission; (f) such a suit would be
really in the nature of a suit for interim relief pending an entirely
different proceeding. It is settled law that by an interim order, the
Court would not grant final relief. The nature of such a suit would
be to grant a final order that would in fact be in the nature of an
interim order. Here the learned counsel refers to U.P. Junior
Doctors’ Action Committee Vs. Dr. B. Sheetal Nandwani[16], State of
Uttar Pradesh Vs. Ram Sukhi Devi[17], Deoraj Vs. State of Maharashtra
& Ors.[18] and Raja Khan Vs. Uttar Pradesh Sunni Central Wakf Board &
Ors.[19] He submits that the intention of the Indian Parliament in
enacting the Arbitration Act, 1996 was not to leave a party
remediless.
24. Mr. Gopal Subramanium submits that the issue in the present case
is that in addition to the challenge to the validity of an award being
made in courts where the seat is located, are domestic courts excluded
from exercising supervisory control by way of entertaining a challenge
to an award? He submits that the issue arises when it is not possible,
in a given case, to draw an assumption that the validity of the award
is to be judged according to the law of the “place” of arbitration.
The Arbitration Act, 1996 has removed such vagueness. The Arbitration
Act, 1996 clearly states that in respect of all subject matters over
which Courts of Judicature have jurisdiction, the National Courts will
have residual jurisdiction in matters of challenge to the validity of
an award or enforcement of an award. He reiterates the submissions
made by other learned senior counsel and points out that the
Arbitration Act, 1996 is not seat centric. This, according to learned
senior counsel, is evident from numerous provisions contained in Part
I and Part II. He points out all the sections which have been noticed
earlier. According to learned senior counsel, the definition of
International Commercial Arbitration in Section 2(1)(f) is party
centric. This definition is not indexed to the seat of arbitration.
Similarly, the definition in Section 2(1)(e) is subject matter
centric. According to him, there is a crucial distinction between the
definition of international arbitration in the Model Law and the
definition of international commercial arbitration under the 1961 Act.
From the above, he draws an inference that seat of arbitration being
in India is not a pre-requisite to confer jurisdiction on the Indian
Courts under the Arbitration Act, 1996. He points out that Section
2(1)(e) contemplates nexus with “the subject matter of the
arbitration”. The use of this expression in the definition gives a
clear indication of the manner in which jurisdiction is conferred. If
an international arbitration takes place, irrespective of the seat,
and the subject matter of that arbitration would otherwise be within
the jurisdiction of an Indian Court, such Indian Court would have
supervisory jurisdiction. Therefore, if “the closest connection” of
the arbitration is with India, and if the Indian Courts would normally
have jurisdiction over the dispute, the Indian Courts will play a
supervisory role in the arbitration. Restricting the applicability of
Part I of the Arbitration Act, 1996 to the arbitration where the seat
is in India cannot, according to Mr. Subramanium, provide a
coherent explanation of sub-section 2(1)(e) without doing violence to
its language. He also makes a reference to the opening words of
Section 28 “where the place of arbitration is situate in India”. He
then submits that if the legislature had already made it abundantly
clear that Section 2(2) of the Arbitration Act, 1996 operated as a
complete exclusion of Part I of the aforesaid Act to arbitrations
outside India, the same proposition need not subsequently be stated as
a qualifier in Section 28.
25. Mr. Gopal Subramanium emphasised that Part II cannot be a complete
code as it necessarily makes use of provisions in Part I. He points
out that Part I and Part II of the Arbitration Act, 1996 would have
been distinct codes in themselves if they had provisions of conducting
arbitration in each part. However, Part I of the Arbitration Act, 1996
prescribed the entire procedure for the conduct of an arbitration,
whereas Part II is only for recognition and enforcement of certain
foreign awards. Therefore, he submits that Part I and Part II cannot
be read separately but have to be read harmoniously in order to make
Arbitration Act, 1996 a complete code. He points out that even though
certain provisions of Part I are mirrored in Part II, at the same
time, certain provisions of Part I which are necessary for arbitration
are not covered by Part II. He points out that although Section 45,
which is in part II, enables a court to make a reference to
arbitration; there is no other provision like Section 11 to resolve a
situation when an arbitrator is not being appointed as per the agreed
arbitral procedure. Therefore, Section 11(9) specially provides for
reference in an international commercial arbitration. He further
points out that the use of phrase “notwithstanding anything contained
in Part I” clearly indicates that Section 45 is to apply, irrespective
of any simultaneous application of similar provision in Part I. This
section clearly contemplates that provisions of Part I would apply to
matters covered by Part II. Mr. Subramanium then points out that there
is no provision in Part II for taking the assistance of the court for
interim relief pending arbitration, like Section 9 in Part I. Section
27, according to Mr. Subramanium, is another indication where the
assistance of the Indian Court would be taken in aid of arbitration
both within and outside India. He reiterates that Sections 34 and 48
of the Arbitration Act, 1996 are to be read harmoniously. He submits
various provisions of Part I are facilitative in character, excepting
Section 34 which involves a challenge to an award. He points out that
Section 2(4) and Section 2(5) also indicate that the Arbitration Act,
1996 applies to all arbitration agreements irrespective of the seat of
arbitration. He submits that the harmonious way to read Section 34 as
well as Section 48 of the Arbitration Act, 1996 is that where a
challenge lies to an award, the legislature must have intended only
one challenge. Thus, if an attempt is made to execute an award as a
decree of the court under Section 36 of Part I, there can be no doubt
that if there is no adjudication under Section 34, there can still be
a resistance which can be offered under Section 48. Similarly, by
virtue of Section 48(3) if an award is challenged under Section 34
before a competent court, the enforcement proceeding would be
adjourned and the court may order suitable security. There will be
only one challenge to an award, either under Section 34 or Section 48.
Referring to Section 51, Mr. Gopal Subramanium submits that the rights
available under Part II are in addition to rights under Part I. This
section firstly postulates a hypothesis that the Chapter on New York
Convention awards had not been enacted. It further makes mention, in
such a scenario, of certain rights already occupying the field that is
intended to be covered by the chapter on New York conventions. It also
mentions that such rights are coextensive with the rights under the
chapter on the New York Convention. Therefore, the fact that certain
provisions in Part II of the Arbitration Act, 1996 appear to function
in the same field as provisions in Part I, does not mean that the
provisions of Part I cease to have effect, or that the provisions of
Part I are no longer available to a party. This, according to Mr.
Subramanium, is in consonance with the history of New York Convention
and the Model Law, which shows that the Model Law was intended to fill
the gaps left by the New York Convention as well as function as a
complete code. He, therefore, urges that the sections which have come
to be considered essential for the success of arbitration, such as
Sections 9, 11 and 34, must be considered also available to the
parties seeking recognition and enforcement of foreign awards
26. Finally, he submits that the decision in Bhatia International
(supra) is a harmonious construction of Part I and Part II of the
Arbitration Act, 1996. He further submits that the case of Venture
Global Engineering Vs. Satyam Computer Services Ltd. & Anr.[20]
(hereinafter referred to as “Venture Global Engineering”) has been
correctly decided by this Court. Mr. Subramanium further pointed out
that the judgments of this Court in the case of ONGC Vs. Western
Company of North America[21] and National Thermal Power Corporation
Vs. Singer Company & Ors. (supra) have appropriately set aside the
awards challenged therein even though the same were not made in India.
27. Mr. E.R. Kumar appearing in SLP (C) No. 31526-31528 of 2009 has
adopted the submissions made by Mr. Subramanium. In addition, he
submits that the National Arbitral Law, i.e., Part I of the
Arbitration Act, 1996 necessarily applies to all arbitrations arising
between domestic parties and pertaining to a domestic dispute. Thus,
even if the parties in such a case agree with the situs to be abroad,
the same will not ipso facto take such arbitrations outside the
applicability of Part I and operate to exclude the jurisdiction of
Indian Courts therein. In other words, two Indian parties involved in
a purely domestic dispute can not contractually agree to denude the
Courts of this country of their jurisdictions with respect to a legal
dispute arising between them in India. He submits that such a
contract would be void under Section 23 and Section 28 of the Indian
Contract Act.
28. He placed reliance on a judgment of this Court in the case of ABC
Laminart Pvt. Ltd. Vs. A.P. Agencies, Salem[22]. He relies on Para 10
and 16 of the above judgment. He also relied on the case of
Interglobe Aviation Ltd. Vs. N. Satchidanand[23], wherein this Court
has followed the decision in ABC Laminart Pvt. Ltd. (supra).
29. He submits that the UNCITRAL Model Law has defined the term
“international” in a broad and expansive manner allowing full sway to
“party autonomy”. Under the Model Law, it is open to the parties to
give international flavour to an otherwise purely domestic
relationship, merely by choosing a situs of arbitration abroad
[Article 1(3)(b)(i)] or even merely by labelling the arbitration an
international one. [Article 1(3)(c)].
30. The Indian law has consciously and correctly departed from the
same and chosen only the nationality test for defining an arbitration
as “international” as is apparent from Section 2(1)(f) of the
Arbitration Act, 1996. Relying on the provision of Sections 2(2), 20
and 28, he further submits that Arbitration Act, 1996 precludes Indian
parties to a purely domestic dispute from choosing a place of
arbitration outside India. Mr. Kumar goes even further to submit that
when both the parties are Indian, the substantive law governing the
dispute must necessarily be Indian irrespective of the situs of the
arbitration and irrespective of any provision in the contract between
the parties to the contrary. He submits that the same principle
applies with equal force to the arbitration law too, that is to say,
that if it is not open to two Indian parties with regard to an
entirely domestic dispute to derogate from the Indian laws of
contract, evidence etc., it is equally not open to them derogate from
the Indian arbitrational law either. He relies on judgment of this
Court in the case of TDM Infrastructure Pvt. Ltd. Vs. U.E. Development
India Pvt. Ltd.,[24] Paragraphs 19, 20 and 23. He, however, very
fairly points out that this was a case under Section 11 and the point
in issue here did not specifically arise for consideration in the said
case.
History of Arbitration in India –
31. Before we embark upon the task of interpreting the provisions of
the Arbitration Act, 1996, it would be apposite to narrate briefly the
history of Arbitration Law in India upto the passing of Arbitration
Act, 1996. This exercise is undertaken purely to consider: (i) what
was the law before the Arbitration Act, 1996 was passed; (ii) what was
the mischief or defect for which the law had not provided; (iii) what
remedy Parliament has appointed; (iv) the reasons of the remedy.
32. Resolution of disputes through arbitration was not unknown in
India even in ancient times. Simply stated, settlement of disputes
through arbitration is the alternate system of resolution of disputes
whereby the parties to a dispute get the same settled through the
intervention of a third party. The role of the court is limited to the
extent of regulating the process. During the ancient era of Hindu Law
in India, there were several machineries for settlement of disputes
between the parties. These were known as Kulani (village council),
Sreni (corporation) and Puga (assembly).[25] Likewise, commercial
matters were decided by Mahajans and Chambers. The resolution of
disputes through the panchayat was a different system of arbitration
subordinate to the courts of law. The arbitration tribunal in ancient
period would have the status of panchayat in modern India.[26] The
ancient system of panchayat has been given due statutory recognition
through the various Panchayat Acts subsequently followed by Panchayati
Raj Act, 1994. It has now been constitutionally recognized in Article
243 of the Constitution of India.
33. However, we are concerned here with modern arbitration law,
therefore, let us proceed to see the legislative history leading to
the enactment of Arbitration Act, 1996.
The Indian Scenario –
34. The first Indian Act on Arbitration law came to be passed in 1899
known as Arbitration Act, 1899. It was based on the English
Arbitration Act, 1899. Then came the Code of Civil Procedure, 1908.
Schedule II of the Code contained the provisions relating to the law
of Arbitration which were extended to the other parts of British
India. Thereafter the Arbitration Act, 1940 (Act No.10 of 1940)
(hereinafter referred to as the “1940 Act”) was enacted to consolidate
and amend the law relating to arbitration. This Act came into force on
1st July, 1940. It is an exhaustive Code in so far as law relating to
the domestic arbitration is concerned. Under this Act, Arbitration may
be without the intervention of a Court or with the intervention of a
Court where there is no suit pending or in a pending suit. This Act
empowered the Courts to modify the Award (Section 15), remit the Award
to the Arbitrators for reconsideration (Section 16) and to set aside
the Award on specific grounds (Section 30). The 1940 Act was based on
the English Arbitration Act, 1934. The 1934 Act was replaced by the
English Arbitration Act, 1950 which was subsequently replaced by the
Arbitration Act, 1975. Thereafter the 1975 Act was also replaced by
the Arbitration Act, 1979. There were, however, no corresponding
changes in the 1940 Act. The law of arbitration in India remained
static.
35. The disastrous results which ensued from the abuse of the 1940 Act
are noticed by this Court in the case of Guru Nanak Foundation Vs.
M/s. Rattan Singh & Sons.[27] Justice D.A. Desai speaking for the
court expressed the concern and anguish of the court about the way in
which the proceedings under the 1940 Act, are conducted and without an
exception challenged in courts. His Lordship observed :
“Interminable, time consuming, complex and expensive court
procedures impelled jurists to search for an alternative forum,
less formal, more effective and speedy for resolution of
disputes avoiding procedural claptrap and this led them to
Arbitration Act, 1940 (“Act” for short). However, the way in
which the proceedings under the Act are conducted and without an
exception challenged in Courts, has made lawyers laugh and legal
philosophers weep. (Emphasis supplied). Experience shows and law
reports bear ample testimony that the proceedings under the Act
have become highly technical accompanied by unending prolixity,
at every stage providing a legal trap to the unwary. Informal
forum chosen by the parties for expeditious disposal of their
disputes has by the decisions of the Courts been clothed with
‘legalese’ of unforeseeable complexity. This case amply
demonstrates the same.”
36. This was the arena of domestic arbitration and domestic award.
International Scenario –
37. Difficulties were also being faced in the International sphere of
Trade and Commerce. With the growth of International Trade and
Commerce, there was an increase in disputes arising out of such
transactions being adjudicated through Arbitration. One of the
problems faced in such Arbitration, related to recognition and
enforcement of an Arbitral Award made in one country by the Courts of
other countries. This difficulty was sought to be removed through
various International Conventions. The first such International
Convention was the Geneva Protocol on Arbitration Clauses, 1923,
popularly referred to as “the 1923 Protocol”. It was implemented
w.e.f. 28th July, 1924. This Protocol was the product of the
initiative taken by the International Chamber of Commerce (ICC) under
the auspices of the League of Nations. The 1923 Protocol sought to
make arbitration agreements and arbitration clauses in particular
enforceable internationally. It was also sought to ensure that Awards
made pursuant to such arbitration agreements would be enforced in the
territory other than the state in which they were made. The 1923
Protocol proved to be inadequate. It was followed by the Geneva
Convention on the execution of Foreign Arbitrated Awards, 1927 and is
popularly known as the “Geneva Convention of 1927”. This convention
was made effective on 25th July, 1929. India became a signatory to
both the 1923 Protocol and the 1927 Convention on 23rd October, 1937.
It was to give effect to both the 1923 Protocol and 1927 Convention
that the Arbitration (Protocol and Convention) Act, 1937 was enacted
in India. Again a number of problems were encountered in the operation
of the 1923 Protocol and the 1927 Geneva Convention. It was felt that
there were limitations in relation to their fields of application.
Under the 1927 Geneva Convention a party in order to enforce the Award
in the Country of an origin was obliged to seek a declaration in the
country where the arbitration took place to the effect that the Award
was enforceable. Only then could the successful party go ahead and
enforce the Award in the country of origin. This led to the problem of
“double exequatur”, making the enforcement of arbitral awards much
more complicated. In 1953 the International Chamber of Commerce
promoted a new treaty to govern International Commercial Arbitration.
The proposals of ICC were taken up by the United Nations Economic
Social Council. This in turn led to the adoption of the convention on
the Recognition and Enforcement of Foreign Arbitral Awards at New York
in 1958 (popularly known as “the New York Convention”). The New York
Convention is an improvement on the Geneva Convention of 1927. It
provides for a much more simple and effective method of recognition
and enforcement of foreign arbitral awards. It gives much wider effect
to the validity of arbitration agreement. This convention came into
force on 7th June, 1959. India became a State Signatory to this
convention on 13th July, 1960. The Foreign Awards (Recognition and
Enforcement) Act, 1961 was enacted to give effect to the New York
Convention. Thus prior to the enactment of the Arbitration Act, 1996,
the law of Arbitration in India was contained in the Protocol and
Convention Act, 1937, the Arbitration Act, 1940 and the Foreign Awards
(Recognition and Enforcement) Act, 1961. There were no further
amendments in the aforesaid three acts. Therefore, it was generally
felt that the arbitration laws in India had failed to keep pace with
the developments at the international level.

 
The Arbitration Act, 1996
The Objects and Reasons of the Act
38. The Statement of Objects and Reasons referred to the fact that the
existing legal framework was outdated and that the economic reforms in
India would not be fully effective as “the law dealing with settlement
of both domestic and international commercial disputes remained out of
tune with such reforms”. It then refers to the Model Law and the
recognition of the general assembly of the United Nations that all
countries give due consideration to the Model Laws in view of the
“desirability of uniformity of the law of arbitral procedures and the
specific needs of international commercial arbitration practice”.
Finally, the Statement of Objects and Reasons states as follows:-
“3. Though the said UNCITRAL Model Law and Rules are intended to
deal with international commercial arbitration and conciliation,
they could, with appropriate modifications, serve as a model for
legislation on domestic arbitration and conciliation. The
present bill seeks to consolidate and amend the law relating to
domestic arbitration, international commercial arbitration,
enforcement of foreign arbitral awards and to define the law
relating to conciliation, taking into account the said UNCITRAL
Model Law and Rules.”
The main objectives of the bill are as under:-

“(i) to comprehensively cover international and commercial
arbitration and conciliation as also domestic arbitration
and conciliation;
(ii) to make provision for an arbitral procedure which is
fair, efficient and capable of meeting the needs of the
specific arbitration;
(iii) to provide that the arbitral tribunal gives reasons for
its arbitral award;
(iv) to ensure that the arbitral tribunal remains within the
limits of its jurisdiction:
(v) to minimise the supervisory role of Courts in the
arbitral process;
(vi) to permit an arbitral tribunal to use mediation,
conciliation, or other procedures during the arbitral
proceedings to encourage settlement of disputes;
(vii) to provide that every final arbitral award is enforced in
the same manner as if it were a decree of the Court;
(viii) to provide that a settlement agreement reached by
the parties as a result of conciliation proceedings will
have the same status and effect as an arbitral award on
agreed terms on the substance of the dispute rendered by an
arbitral tribunal; and
(ix) to provide that, for purposes of enforcement of foreign
awards, every arbitral award made in a country to which one
of the two International Conventions relating to foreign
arbitral awards to which India is a party applies, will be
treated as a foreign award.”

The Act is one “to consolidate and amend the law relating to
domestic arbitration, international commercial arbitration and
enforcement of foreign arbitral awards as also to define the law
relating to conciliation and for matters connected therewith or
incidental thereto.”
39. The Preamble to the Arbitration Act, 1996 repeats to some extent
what the Statement of Objects provide, materially:-
“AND WHEREAS the said Model Law and Rules make significant
contribution to the establishment of a unified legal framework
for the fair and efficient settlement of disputes arising in
international commercial relations;
AND WHEREAS it is expedient to make law respecting arbitration
and conciliation, taking into account the aforesaid Model Law
and Rules;”

 

Scheme of the Arbitration Act, 1996 –
40. The Arbitration Act, 1996 is divided into four parts. Part I
which is headed “Arbitration”; Part II which is headed “Enforcement of
Certain Foreign Awards”; Part III which is headed “Conciliation” and
Part IV being “Supplementary Provisions”. We may notice here that it
is only Parts I and II which have relevance in the present
proceedings.
41. We may further notice here that the 1961 Foreign Awards Act was
enacted specifically to give effect to the New York Convention. The
preamble of the 1961 Act is as follows :
“An Act to enable effect to be given to the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, done at
New York on the 10th day of June, 1958, to which India is a
party and for purposes connected therewith.”
42. In the 1961 Act, there is no provision for challenging the Foreign
Award on merits similar or identical to the provisions contained in
Sections 16 and 30 of the 1940 Act, which gave power to remit the
award to the arbitrators or umpire for reconsideration under Section
30 which provided the grounds for setting aside an award. In other
words, the 1961 Act dealt only with the enforcement of foreign awards.
The Indian Law has remained as such from 1961 onwards. There was no
intermingling of matters covered under the 1940 Act, with the matters
covered by the 1961 Act.
43. Internationally, the Arbitration Law developed in different
countries to cater for the felt needs of a particular country. This
necessarily led to considerable disparity in the National Laws on
arbitration. Therefore, a need was felt for improvement and
harmonization as National Laws which were, often, particularly
inappropriate for resolving international commercial arbitration
disputes. The explanatory note by the UNCITRAL Secretariat refers to
the recurring inadequacies to be found in outdated National Laws,
which included provisions that equate the arbitral process with Court
litigation and fragmentary provisions that failed to address all
relevant substantive law issues. It was also noticed that “even most
of those laws that appear to be up-to-date and comprehensive were
drafted with domestic arbitration primarily, if not exclusively, in
mind”. It further mentions that “while this approach is
understandable in view of the fact that even today the bulk of cases
governed by arbitration law would be of purely domestic nature, the
unfortunate consequence is that traditional local concepts are imposed
on international cases and the needs of modern practice are often not
met.” There was also unexpected and undesired restrictions found in
National Laws, which would prevent the parties, for example, from
submitting future disputes to arbitration. The Model Law was intended
to reduce the risk of such possible frustration, difficulties or
surprise. Problems also stemmed from inadequate arbitration laws or
from the absence of specific legislation governing arbitration which
were aggravated by the fact that National Laws differ widely. These
differences were frequent source of concern in international
arbitration, where at-least one of the parties is, and often both
parties are, confronted with foreign and unfamiliar provisions and
procedures. It was found that obtaining a full and precise account of
the law applicable to the arbitration is, in such circumstances, often
expensive, impractical or impossible.
44. With these objects in view, the UNCITRAL Model Law on
International Arbitration (“the Model Law”) was adopted by the United
Nations Commission on International Trade Law (UNCITRAL) on 21st June,
1985 at the end of the 18th Session of the Commission. The General
Assembly in its Resolution 40 of 1972 on 11th December, 1985
recommended that “all States give due consideration to the Model Law
on international commercial arbitration, in view of the desirability
of uniformity of the law of arbitral procedures and the specific needs
of international commercial arbitration practice”.
45. The aim and the objective of the Arbitration Act, 1996 is to give
effect to the UNCITRAL Model Laws.
46. Keeping in view the aforesaid historical background; the objects
and reasons of the Act and the elaborate submissions made by the
learned counsel for the parties, it would now be necessary to consider
the true scope of the provisions of Part I and Part II of the
Arbitration Act, 1996.
47. Since the reference relates to the ratio in Bhatia International
(supra) and Venture Global Engineering (supra), it would be
appropriate to make a brief note about the reasons given by this Court
in support of the conclusions reached therein.
48. In Bhatia International, the appellant entered into a contract
with the 1st respondent on 9th May, 1997. This contract contained an
arbitration clause, which provided that arbitration was to be as per
the rules of the International Chamber of Commerce (for short “ICC”).
On 23rd October, 1997, the 1st respondent filed a request for
arbitration with ICC. Parties agreed that the arbitration be held in
Paris, France. ICC appointed a sole arbitrator. The 1st respondent
filed an application under Section 9 of the Arbitration Act, 1996
before the IIIrd Additional District Judge, Indore, M.P. against the
appellant and the 2nd respondent. One of the interim reliefs sought
was an order of injunction restraining these parties from alienating,
transferring and/or creating third-party rights, disposing of, dealing
with and/or selling their business assets and properties. The
appellant raised the plea of maintainability of such an application.
The appellant contended that Part I of the Arbitration Act, 1996 would
not apply to arbitrations where the place of arbitration is not in
India. This application was dismissed by the IIIrd Additional District
Judge on 1st February, 2000. It was held that the Court at Indore had
jurisdiction and the application was maintainable. The appellant filed
a writ petition before the High Court of Madhya Pradesh, Indore Bench.
The said writ petition was dismissed by the judgment dated 10th
October, 2000, which was impugned in the appeal before this Court. On
behalf of the appellants, it was submitted that Part I of the
Arbitration Act, 1996 only applies to arbitrations where the place of
arbitration is in India. It was also submitted that if the place of
arbitration is not in India then Part II of the Arbitration Act, 1996
would apply. Reliance was also placed on Section 2(1)(f). With regard
to Section 2(4) and (5), it was submitted that the aforesaid
provisions would only apply to arbitrations which take place in India.
It was submitted that if it is held that Part I applies to all
arbitrations, i.e., even to arbitrations whose place of arbitration is
not in India, then sub-section (2) of Section 2 would become redundant
and/or otiose. It was also pointed out that since Section 9 and
Section 17 fall in Part I, the same would not have any application in
cases where the place of arbitration is not in India. It was
emphasised that the legislature had deliberately not provided any
provision similar to Section 9 and Section 17 in Part II. It was also
submitted that a plain reading of Section 9 makes it clear that it
would not apply to arbitrations which take place outside India. It was
further submitted that Section 9 provides that an application for
interim measures must be made before the award is enforced in
accordance with Section 36, which deals with enforcement of domestic
awards only. On the other hand, provisions for enforcement of foreign
awards are contained in Part II. It was submitted that Section 9 does
not talk of enforcement of the award in accordance with Part II. It
was further submitted that there should be minimum intervention by the
Courts in view of the underlying principle in Section 5 of the
Arbitration Act, 1996. On the other hand, the respondents therein had
made the submissions, which are reiterated before us. In Paragraph 14
of the Judgment, it is held as follows:-
“14. At first blush the arguments of Mr Sen appear very
attractive. Undoubtedly sub-section (2) of Section 2 states that
Part I is to apply where the place of arbitration is in India.
Undoubtedly, Part II applies to foreign awards. Whilst the
submissions of Mr Sen are attractive, one has to keep in mind
the consequence which would follow if they are accepted. The
result would:
(a) Amount to holding that the legislature has left a
lacuna in the said Act. There would be a lacuna as
neither Part I or II would apply to arbitrations held
in a country which is not a signatory to the New York
Convention or the Geneva Convention (hereinafter
called “a non-convention country”). It would mean that
there is no law, in India, governing such
arbitrations.
(b) Lead to an anomalous situation, inasmuch as Part
I would apply to Jammu and Kashmir in all
international commercial arbitrations but Part I would
not apply to the rest of India if the arbitration
takes place out of India.
(c) Lead to a conflict between sub-section (2) of
Section 2 on one hand and sub-sections (4) and (5) of
Section 2 on the other. Further, sub-section (2) of
Section 2 would also be in conflict with Section 1
which provides that the Act extends to the whole of
India.
(d) Leave a party remediless inasmuch as in
international commercial arbitrations which take place
out of India the party would not be able to apply for
interim relief in India even though the properties and
assets are in India. Thus a party may not be able to
get any interim relief at all.”

 
49. It is held that the definition of international commercial
arbitration under Section 2(1)(f) makes no distinction between
international commercial arbitrations held in India or outside India.
Further it is also held that the Arbitration Act, 1996 no where
provides that its provisions are not to apply to international
commercial arbitrations which take place in a non-convention country.
Hence, the conclusion at Paragraph 14(a). On the basis of the
discussion in Paragraph 17, this Court reached the conclusion recorded
at Paragraph 14(b). The conclusions at Paragraph 14(c) is recorded on
the basis of the reasons stated in Paragraphs 19, 20, 21, 22 and 23.
Upon consideration of the provision contained in Sections 2(7), 28, 45
and 54, it is held that Section 2(2) is only an inclusive and
clarificatory provision. The provision contained in Section 9 is
considered in Paragraphs 28, 29, 30 and 31. It is concluded in
Paragraph 32 as follows:-

“32. To conclude, I 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.”
50. In Venture Global Engineering (supra), this Court relied on
Paragraphs 14, 17, 21, 26, 32 and 35. It is concluded in Paragraph 37
as follows:-
“37. In view of the legal position derived from Bhatia
International we are unable to accept Mr. Nariman’s argument. It
is relevant to point out that in this proceeding we are not
deciding the merits of the claim of both parties, particularly,
the stand taken in the suit filed by the appellant herein for
setting aside the award. It is for the court concerned to decide
the issue on merits and we are not expressing anything on the
same. The present conclusion is only with regard to the main
issue whether the aggrieved party is entitled to challenge the
foreign award which was passed outside India in terms of
Sections 9/34 of the Act. Inasmuch as the three-Judge Bench
decision is an answer to the main issue raised, we are unable to
accept the contra view taken in various decisions relied on by
Mr. Nariman. Though in Bhatia International the issue relates to
filing a petition under Section 9 of the Act for interim orders
the ultimate conclusion that Part I would apply even for foreign
awards is an answer to the main issue raised in this case.”

 
51. As noticed above, the learned senior counsel for the appellants
have supported the ratio of law laid down in Bhatia International
(supra) and Venture Global Engineering (supra). They have also
supported the decisions in ONGC Vs. Western Company of North America
(supra) and National Thermal Power Corporation Vs. Singer Company &
Ors. (supra).
52. In order to consider the issues raised and to construe the
provisions of the Arbitration Act, 1996 in its proper perspective, it
would be necessary to analyse the text of the Arbitration Act, 1996
with reference to its legislative history and international
conventions. We shall take due notice of the stated objects and
reasons for the enactment of the Arbitration Act, 1996.
53. Further, for a comprehensive and clear understanding of the
connotations of the terms used in the Arbitration Act, 1996, a brief
background of various laws applicable to an International Commercial
Arbitration and distinct approaches followed by countries across the
world will also be useful.
54. With utmost respect, upon consideration of the entire matter, we
are unable to support the conclusions recorded by this Court in both
the judgments i.e. Bhatia International (supra) and Venture Global
Engineering (Supra).
55. In our opinion, the conclusion recorded at Paragraph 14B can not
be supported by either the text or context of the provisions in
Section 1(2) and proviso thereto. Let us consider the provision step-
by–step, to avoid any confusion. A plain reading of Section 1 shows
that the Arbitration Act, 1996 extends to whole of India, but the
provisions relating to domestic arbitrations, contained in Part I, are
not extended to the State of Jammu and Kashmir. This is not a new
addition. Even the 1940 Act states:
“Section 1 – Short title, extend and commencement –
(1) ……………………………….,
(2) It extends to the whole of India (except the State of Jammu
and Kashmir).”

 
56. Thus, the Arbitration Act, 1996 maintains the earlier position so
far as the domestic arbitrations are concerned. Thereafter, comes the
new addition in the proviso to Section 1(2), which reads as
under:
“Provided that Parts I, III and IV shall extend to the State of
Jammu and Kashmir only in so far as they relate to international
commercial arbitration or, as the case may be, international
commercial conciliation.”

 
57. The proviso is necessary firstly due to the special status of the
State of Jammu & Kashmir, secondly to update the Jammu and Kashmir
Act, 1945. In our opinion, the proviso does not create an anomaly. The
aforesaid Act is almost a carbon copy of the 1940 Act. Both the Acts
do not make any provision relating to International Commercial
Arbitration. Such a provision was made under the Arbitration Act, 1996
by repealing the existing three Acts, i.e., 1937 Protocol Act, 1940
Act and the Foreign Awards Act, 1961. Therefore, the proviso has been
added to incorporate the provisions relating to International
Commercial Arbitration. The Arbitration Act, 1996 would not apply to
purely domestic arbitrations which were earlier covered by the Jammu
and Kashmir Act, 1945 and now by the Jammu & Kashmir Arbitration and
Conciliation Act, 1997. We are also unable to agree with the
conclusion that in Jammu & Kashmir, Part I would apply even to
arbitration which are held outside India as the proviso does not state
that Part I would apply to Jammu & Kashmir only if the place of
Arbitration is in Jammu & Kashmir. Since Section 2(2) of Part I
applies to all arbitrations, the declaration of territoriality
contained therein would be equally applicable in Jammu & Kashmir. The
provision contained in Section 2(2) is not affected by the proviso
which is restricted to Section 1(2). By the process of interpretation,
it can not be read as a proviso to Section 2(2) also. It can further
be seen that the provisions relating to “Enforcement of Certain
Foreign Awards” in Part II would apply without any restriction, as
Part II has no relation to the enforcement of any purely domestic
awards or domestically rendered international commercial awards. These
would be covered by the Jammu & Kashmir Act, 1997.
58. In view of the above, we are unable to discern any anomaly as
held in Bhatia International (supra). We also do not discern any
inconsistency between Section 1 and Section 2(2) of the Arbitration
Act, 1996.
Does Section 2(2) bar the Application of Part I to Arbitrations which
take place outside India?
59. The crucial difference between the views expressed by the
appellants on the one hand and the respondents on the other hand is as
to whether the absence of the word “only” in Section 2(2) clearly
signifies that Part I of the Arbitration Act, 1996 would compulsorily
apply in the case of arbitrations held in India, or would it signify
that the Arbitration Act, 1996 would be applicable only in cases where
the arbitration takes place in India. In Bhatia International and
Venture Global Engineering (supra), this Court has concluded that Part
I would also apply to all arbitrations held out of India, unless the
parties by agreement, express or implied, exclude all or any of its
provisions. Here again, with utmost respect and humility, we are
unable to agree with the aforesaid conclusions for the reasons stated
hereafter.
60. It is evident from the observation made by this Court in Konkan
Railway Corporation Ltd. & Anr. (supra) that the Model Law was taken
into account in drafting of the Arbitration Act, 1996. In Paragraph
9, this Court observed “that the Model Law was only taken into account
in the drafting of the said Act is, therefore, patent. The
Arbitration Act, 1996 and the Model Law are not identically drafted”.
Thereafter, this Court has given further instances of provisions of
the Arbitration Act, 1996, not being in conformity with the Model Law
and concluded that “The Model Law and judgments and literature thereon
are, therefore, not a guide to the interpretation of the Act and,
especially of Section 12 thereof”. The aforesaid position, according
to Mr. Sorabjee has not been disagreed with by this Court in SBP & Co.
(supra). We agree with the submission of Mr. Sorabjee that the
omission of the word “only” in Section 2(2) is not an instance of
“CASUS OMISSUS”. It clearly indicates that the Model Law has not been
bodily adopted by the Arbitration Act, 1996. But that can not mean
that the territorial principle has not been accepted. We would also
agree with Mr. Sorabjee that it is not the function of the Court to
supply the supposed omission, which can only be done by Parliament.
In our opinion, legislative surgery is not a judicial option, nor a
compulsion, whilst interpreting an Act or a provision in the Act. The
observations made by this Court in the case of Nalinakhya Bysack
(supra) would tend to support the aforesaid views, wherein it has been
observed as follows:-
“It must always be borne in mind, as said by Lord Halsbury in
Commissioner for Special Purpose of Income Tax Vs. Premsel[28],
that it is not competent to any Court to proceed upon the
assumption that the legislature has made a mistake. The Court
must proceed on the footing that the legislature intended what
it has said. Even if there is some defect in the phraseology
used by the legislature the Court cannot, as pointed out in
Crawford Vs. Spooner[29], aid the legislature’s defective
phrasing of an Act or add and amend or, by construction, make up
deficiencies which are left in the Act. Even where there is a
casus omissus, it is, as said by Lord Russell of Killowen in
Hansraj Gupta Vs. Official Liquidator of Dehra Dun-Mussoorie
Electric Tramway Co., Ltd.[30], for others than the Courts to
remedy the defect.”
61. Mr. Sorabjee has also rightly pointed out the observations made by
Lord Diplock in the case of Duport Steels Ltd. (supra). In the
aforesaid judgment, the House of Lords disapproved the approach
adopted by the Court of Appeal in discerning the intention of the
legislature, it is observed that:-
“…the role of the judiciary is confined to ascertaining from the
words that Parliament has approved as expressing its intention
what that intention was, and to giving effect to it. Where the
meaning of the statutory words is plain and unambiguous it is
not for the judges to invent fancied ambiguities as an excuse
for failing to give effect to its plain meaning because they
themselves consider that the consequences of doing so would be
inexpedient, or even unjust or immoral. In controversial matters
such as are involved in industrial relations there is room for
differences of opinion as to what is expedient, what is just and
what is morally justifiable. Under our Constitution it is
Parliament’s opinion on these matters that is paramount.”
(emphasis supplied)
In the same judgment, it is further observed:-
“But if this be the case it is for Parliament, not for the
judiciary, to decide whether any changes should be made to the
law as stated in the Act.”
62. The above are well accepted principles for discerning the
intention of the legislature. In view of the aforesaid, we shall
construe the provision contained in Section 2(2) without adding the
word “only” to the provision.
63. We are unable to accept the submission of the learned counsel for
the appellants that the omission of the word “only” from Section 2(2)
indicates that applicability of Part I of the Arbitration Act, 1996 is
not limited to the arbitrations that take place in India. We are also
unable to accept that Section 2(2) would make Part I applicable even
to arbitrations which take place outside India. In our opinion, a
plain reading of Section 2(2) makes it clear that Part I is limited in
its application to arbitrations which take place in India. We are in
agreement with the submissions made by the learned counsel for the
respondents, and the interveners in support of the respondents, that
Parliament by limiting the applicability of Part I to arbitrations
which take place in India has expressed a legislative declaration. It
has clearly given recognition to the territorial principle.
Necessarily therefore, it has enacted that Part I of the Arbitration
Act, 1996 applies to arbitrations having their place/seat in India.

 
Does the missing ‘only’ indicate a deviation from Article 1(2) of the
Model Law?

 

64. As noticed earlier the objects and reasons for the enactment of
the Arbitration Act, 1996 clearly indicate that the Parliament had
taken into account the UNCITRAL Model Laws. The statement of the
objects and reasons of the Arbitration Act, 1996 clearly indicates
that law of arbitration in India at the time of enactment of the
Arbitration Act, 1996, was substantially contained in three
enactments, namely, The Arbitration Act, 1940; The Arbitration
(Protocol and Convention) Act, 1937 and The Foreign Awards
(Recognition and Enforcement) Act, 1961. It is specifically observed
that it is widely felt that the Arbitration Act, 1940, which contains
the general law of arbitration, has become outdated. It also mentions
that the Law Commission of India, several representative bodies of
trade and industry and experts in the fields of arbitration have
proposed amendments to the Arbitration Act, 1940, to make it more
responsive to contemporary requirements. It was also recognized that
the economic reforms initiated by India at that time may not become
fully effective, if the law dealing with settlement of both domestic
and international commercial dispute remained out of tune with such
reforms. The objects and reasons further make it clear that the
general assembly has recommended that all countries give due
consideration to the Model Law adopted in 1985, by the UNCITRAL, in
view of the desirability of uniformity of the law of arbitral
procedures and the specific needs of international commercial
arbitration practice. Paragraph 3 of the statement of objects and
reasons makes it clear that although the UNCITRAL Model Laws are
intended to deal with international commercial arbitration and
conciliation, they could, with appropriate modifications, serve as a
Model Law for legislation of domestic arbitration and conciliation.
Therefore, the bill was introduced seeking to consolidate and amend
the law relating to domestic arbitration, international commercial
arbitration, enforcement of foreign arbitral award and to define the
law relating to conciliation, taking into account the UNCITRAL Model
Law and Rules. We have set out the main objects of the bill a little
earlier, Paragraph 3(5) of which clearly states that one of the
objects is “to minimize the supervisory role of Courts in arbitral
process”.

65. Much of the debate before us was concentrated on the comparison
between Article 1(2) of UNCITRAL and Section 2(2). Learned counsel
for the appellants had canvassed that the Parliament had deliberately
deviated from Article 1(2) of UNCITRAL to express its intention that
Part I shall apply to all arbitrations whether they take place in
India or in a foreign country. The word “only” is conspicuously
missing from Section 2(2) which is included in Article 1(2) of
UNCITRAL. This indicates that applicability of Part I would not be
limited to Arbitrations which take place within India. Learned
counsel for the appellants submitted that in case the applicability of
Section 2(2) is limited to arbitrations which take place within India,
it would give rise to conflict between Sections 2(2), 2(4), 2(5),
2(7), 20 and 28. With equal persistence, the learned counsel for the
respondents have submitted that Part I has accepted the territorial
principle adopted by UNCITRAL in letter and spirit.
66. Whilst interpreting the provisions of the Arbitration Act, 1996,
it is necessary to remember that we are dealing with the Act which
seeks to consolidate and amend the law relating to domestic
arbitration, international commercial arbitration and enforcement of
foreign arbitral awards. The aforesaid Act also seeks to define the
law relating to conciliation and for matters connected therewith or
incidental thereto. It is thus obvious that the Arbitration Act, 1996
seeks to repeal and replace the three pre-existing Acts, i.e., The
Arbitration Act, 1940; The Arbitration (Protocol and Convention) Act,
1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961.
Section 85 repeals all the three Acts. Earlier the 1937 Act catered to
the arbitrations under the Geneva Convention. After the 1958 New York
Convention was ratified by India, the 1961 Act was passed. The
domestic law of arbitration had remained static since 1940.
Therefore, the Arbitration Act, 1996 consolidates the law on domestic
arbitrations by incorporating the provisions to expressly deal with
the domestic as well as international commercial arbitration; by
taking into account the 1985 UNCITRAL Model Laws. It is not confined
to the New York Convention, which is concerned only with enforcement
of certain foreign awards. It is also necessary to appreciate that
the Arbitration Act, 1996 seeks to remove the anomalies that existed
in the Arbitration Act, 1940 by introducing provisions based on the
UNCITRAL Model Laws, which deals with international commercial
arbitrations and also extends it to commercial domestic arbitrations.
UNCITRAL Model Law has unequivocally accepted the territorial
principle. Similarly, the Arbitration Act, 1996 has also adopted the
territorial principle, thereby limiting the applicability of Part I to
arbitrations, which take place in India.
67. In our opinion, the interpretation placed on Article 1(2) by the
learned counsel for the appellants, though attractive, would not be
borne out by a close scrutiny of the Article. Article 1(2) reads as
under:-
“Article 1(2): The provisions of this law, except Articles 8, 9,
17(H), 17(I), 17(J), 35 and 36 apply “only” if the place of
arbitration is in the territories of this State”.
68. The aforesaid article is a model and a guide to all the States,
which have accepted the UNCITRAL Model Laws. The genesis of the word
“only” in Article 1(2) of the Model Law can be seen from the
discussions held on the scope of application of Article 1 in the 330th
meeting, Wednesday, 19 June, 1985 of UNCITRAL. This would in fact
demonstrate that the word “only” was introduced in view of the
exceptions referred to in Article 1(2) i.e. exceptions relating to
Articles 8, 9, 35 & 36 (Article 8 being for stay of judicial
proceedings covered by an arbitration agreement;
Article 9 being for interim reliefs; and Articles 35 & 36 being for
enforcement of Foreign Awards). It was felt necessary to include the
word “only” in order to clarify that except for Articles 8, 9, 35 & 36
which could have extra territorial effect if so legislated by the
State, the other provisions would be applicable on a strict
territorial basis. Therefore, the word “only” would have been
necessary in case the provisions with regard to interim relief etc.
were to be retained in Section 2(2) which could have extra-territorial
application. The Indian legislature, while adopting the Model Law,
with some variations, did not include the exceptions mentioned in
Article 1(2) in the corresponding provision Section 2(2). Therefore,
the word “only” would have been superfluous as none of the exceptions
were included in Section 2(2).
69. We are unable to accept the submission of the learned counsel for
the appellants that the omission of the word “only”, would show that
the Arbitration Act, 1996 has not accepted the territorial principle.
The Scheme of the Act makes it abundantly clear that the territorial
principle, accepted in the UNCITRAL Model Law, has been adopted by the
Arbitration Act, 1996.
70. That the UNCITRAL Rules adopted strict territorial principle is
evident from the Report of the UNCITRAL in paragraphs 72 to 80 on the
work of its 18th Session in Vienna between 3rd to 21st June, 1985. The
relevant extracts of these paragraphs are as under:
“72. Divergent views were expressed as to whether the Model
Law should expressly state its territorial scope of application
and, if so, which connecting factor should be the determining
criterion………………………………………………………………………………………………………………………..”
“73, As regards the connecting factor which should determine
the applicability of the (Model) Law in a given State, there was
wide support for the so-called strict territorial criterion,
according to which the Law would apply where the place of
arbitration was in that
State……………………………………………………………………………………………………………………….”
“74. Another view was that the place of arbitration should not
be exclusive in the sense that parties would be precluded from
choosing the law of another State as the law applicable to the
arbitration
procedure……………………………………………………………………………………………………………………..”
“78. The Commission requested the secretariat to prepare, on
the basis of the above discussion, draft provisions on the
territorial scope of application of the Model Law in general,
including suggestions as to possible exceptions of the general
scope………………………………………………………………………………………………………………………………”
“80. In discussing the above proposal, the Commission decided
that, for reasons stated in support of the strict territorial
criterion (see above, para 73), the applicability of the Model
Law should depend exclusively on the place of arbitration as
defined in the Model
Law…………………………………………………………………………………………………………………………….”
“81. The Commission agreed that a provision implementing that
decision, which had to be included in article 1, should be
formulated along the following lines: “The provisions of this
Law, except articles 8, 9, 35 and 36 apply only if the place of
arbitration is in the territory of this
State……………………………………………………………………………………………………………………………..”
71. Similarly, the acceptance of the territorial principle in UNCITRAL
has been duly recognized by most of the experts and commentators on
International Commercial Arbitration. The aforesaid position has been
duly noticed by Howard M. Holtzmann and Joseph E. Beuhaus in
“A guide to the UNCITRAL Model Law on International Commercial
Arbitration, Legislative History and Commentary”. Dealing with the
territorial scope of application of Article 1(2) at Pages 35 to 38, it
is stated:-
“…in early discussions of this issue, Article 27, dealing with
court assistance in taking evidence was included in the list of
exceptions. At that time, the draft of that Article provided
for such assistance to foreign arbitrations. The provision was
subsequently changed to its present format, and, by virtue of
Article 1(2), it applies only to arbitrations in the enacting
State. Assistance in taking evidence for use in foreign
arbitrations can be provided only under any rules on the
question in other laws of the State.
“The Commission adopted the principle that the Model Law would
only apply if the place of arbitration was in the enacting State
– known as the “territorial criterion” for applicability – only
after extensive debate. The primary alternative position was to
add a principle called the “autonomy criterion” which would have
applied the Law also to arbitrations taking place in another
country if the parties had chosen to be governed by the
procedural law of the Model Law State. Thus, if the autonomy
criterion had been adopted, the parties would have been free,
subject to restrictions such as fundamental justice, public
policy and rules of court competence, to choose the arbitration
law of a State other than that of the place of arbitration. The
courts of the Model Law State would then presumably have
provided any court assistance needed by this arbitration,
including setting aside, even though the place of arbitration
was elsewhere. Such a system of party autonomy is envisioned by
the New York Convention, which recognizes that a State may
consider as domestic an award made outside the State, and vice
versa.”
“The Commission decided not to adopt the autonomy criterion. It
was noted that the territorial criterion was widely accepted by
existing national laws, and that where the autonomy criterion
was available it was rarely used.”
72. We are also unable to accept the submission of the learned counsel
for the appellants that the Arbitration Act, 1996 does not make seat
of the arbitration as the centre of gravity of the arbitration. On the
contrary, it is accepted by most of the experts that in most of the
National Laws, arbitrations are anchored to the seat/place/situs of
arbitration. Redfern in Paragraph 3.54 concludes states that “the seat
of the arbitration is thus intended to be its centre of gravity.”
This, however, does not mean that all the proceedings of the
arbitration have to take place at the seat of the arbitration. The
arbitrators at times hold meetings at more convenient locations. This
is necessary as arbitrators often come from different countries. It
may, therefore, on occasions be convenient to hold some of the
meetings in a location which may be convenient to all. Such a
situation was examined by the court of appeal in England in Naviera
Amazonica Peruana S.A. Vs. Compania Internacionale De Seguros Del
Peru[31] therein at p.121 it is observed as follows :
“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
fact circumstances each move of the arbitral tribunal does not
of itself mean that the seat of arbitration changes. The seat of
arbitration remains the place initially agreed by or on behalf
of the parties.”
73. These observations were subsequently followed in Union of India
Vs. McDonnell Douglas Corp.[32]
74. 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, 5th Edn. (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 1923 Geneva
Protocol states: ‘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 arbitration took place “(Article V(1)(d))” and,
synonymously to ‘the law of the country where the award is made’
[Article V(1)(a) and (e)]. The aforesaid observations clearly show
that 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 “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. Swiss Law states: “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.[33]
75. 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 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.
76. For the reasons stated above, we are unable to support the
conclusion reached in Bhatia International and Venture Global
Engineering (supra), that Part I would also apply to arbitrations that
do not take place in India.
77. India is not the only country which has dropped the word “only”
from its National Arbitration Law. The word “only” is missing from the
Swiss Private International Law Act, 1987 Chapter 12, Article 176
(1)(I). It is also missing in Section 2(1) of the 1996 Act (U.K.). The
provision in Section 2(1) of the U.K. Act reads as follows :- “2(1) –
The provisions of this Part apply where the seat of the arbitration is
in England, Wales, or Northern Ireland.” The aforesaid sections
clearly do not provide for any exception which, in fact, are
separately provided for in Section 2(2) and 2(3) of the Arbitration
Act, 1996. Therefore, we are in agreement with the submission made by
Mr.Aspi Chenoy that Section 2(2) is an express parliamentary
declaration/ recognition that Part I of the Arbitration Act, 1996
applies to arbitration having their place/seat in India and does not
apply to arbitrations seated in foreign territories.
78. We do not agree with the learned counsel for the appellants that
there would be no need for the provision contained in Section 2(2) as
it would merely be stating the obvious, i.e., the Arbitration Act,
1996 applies to arbitrations having their place/seat in India. In our
opinion, the provisions have to be read as limiting the applicability
of Part I to arbitrations which take place in India. If Section 2(2)
is construed as merely providing that Part I of the Arbitration Act,
1996 applies to India, it would be ex facie superfluous/redundant. No
statutory provision is necessary to state/clarify that a law made by
Parliament shall apply in India/to arbitrations in India. As submitted
by Mr. Sorabjee, another fundamental principle of statutory
construction is that courts will never impute redundancy or tautology
to Parliament. See observations of Bhagwati, J. in Umed Vs. Raj
Singh,[34] wherein it is observed as follows: “It is well settled rule
of interpretation that the courts should, as far as possible, construe
a statute so as to avoid tautology or superfluity.” The same principle
was expressed by Viscount Simon in Hill Vs. William Hill (Park Lane)
Ltd.[35] in the following words:-
“It is to be observed that though a Parliamentary enactment
(like Parliamentary eloquence) is capable of saying the same
thing twice over without adding anything to what has already
been said once, this repetition in an Act of Parliament is not
to be assumed. When the legislature enacts a particular phrase
in a statute the presumption is that it is saying something
which has not been said immediately before. The Rule that a
meaning should, if possible, be given to every word in the
statute implies that, unless there is good reason to the
contrary, the words add something which has not been said
immediately before.”
79. We quote the above in extenso only to demonstrate that Section
2(2) is not merely stating the obvious. It would not be a repetition
of what is already stated in Section 1(2) of the Arbitration Act, 1996
which provides that “it extends to the whole of India”. Since the
consolidated Arbitration Act, 1996 deals with domestic, commercial and
international commercial arbitrators, it was necessary to remove the
uncertainty that the Arbitration Act, 1996 could also apply to
arbitrations which do not take place in India. Therefore, Section 2(2)
merely reinforces the limits of operation of the Arbitration Act, 1996
to India.
80. Another strong reason for rejecting the submission made by the
learned counsel for the appellants is that if Part I were to be
applicable to arbitrations seated in foreign countries, certain words
would have to be added to Section 2(2). The section would have to
provide that “this part shall apply where the place of arbitration is
in India and to arbitrations having its place out of India.” Apart
from being contrary to the contextual intent and object of Section
2(2), such an interpretation would amount to a drastic and unwarranted
rewriting/alteration of the language of Section 2(2). As very strongly
advocated by Mr. Sorabjee, the provisions in the Arbitration Act, 1996
must be construed by their plain language/terms. It is not permissible
for the court while construing a provision to reconstruct the
provision. In other words, the Court cannot produce a new jacket,
whilst ironing out the creases of the old one. In view of the
aforesaid, we are unable to support the conclusions recorded by this
Court as noticed earlier.
Is Section 2(2) in conflict with Sections 2(4) and 2(5) –
81. We may now take up the submission of the learned counsel that
Sections 2(4) and 2(5) specifically make Part I applicable to all
arbitrations irrespective of where they are held. This submission is
again a reiteration of the conclusions recorded in Bhatia
International at Paragraph 14C and reiterated in Paragraphs 21 and 22.
We have earlier held that Section 2(2) would not be applicable to
arbitrations held outside India. We are unable to accept that there is
any conflict at all between Section 2(2) on the one hand and Sections
2(4) and 2(5) on the other hand. Section 2(4) provides as under :
“This Part except sub-section (1) of Section 40, Sections 41 and
43 shall apply to every arbitration under any other enactment
for the time being in force, as if the arbitration were pursuant
to an arbitration agreement and as if that other enactment were
an arbitration agreement except in so far as the provisions of
this Part are inconsistent with that other enactment or with any
rules made thereunder.”
82. It is urged by the appellants that Section 2(4) makes Part I
applicable to “every arbitration” under any other enactment, thereby
makes it applicable to arbitrations wherever held, whether in India or
outside India. In our opinion, the submission is devoid of merit.
Section 2(4) makes Part I applicable to “every arbitration under any
other enactment for the time being in force”. Hence, there must be an
enactment “for the time being in force” under which arbitration takes
place. In our opinion, “any other enactment” would in its ordinary
meaning contemplate only an Act made by the Indian Parliament. By
virtue of Article 245, “Parliament may make laws for the whole or any
part of India”. Thus it is not possible to accept that “every
arbitration” would include arbitrations which take place outside
India. The phrase “all arbitrations” has to be read as limited to all
arbitrations that take place in India. The two sub-sections merely
recognize that apart from the arbitrations which are consensual
between the parties, there may be other types of arbitrations, namely,
arbitrations under certain statutes like Section 7 of the Indian
Telegraph Act, 1886; or bye-laws of certain Associations such as
Association of Merchants, Stock Exchanges and different Chamber of
Commerce. Such arbitrations would have to be regarded as covered by
Part I of the Arbitration Act, 1996, except in so far as the
provisions of Part I are inconsistent with the other enactment or any
rules made thereunder. There seems to be no indication at all in
Section 2(4) that can make Part I applicable to statutory or
compulsory arbitrations, which take place outside India.
83. Similarly, the position under Section 2(5) would remain the same.
In our opinion, the provision does not admit of an interpretation that
any of the provisions of Part I would have any application to
arbitration which takes place outside India. Section 2(5) reads as
under:-
“Subject to the provisions of sub-section (4), and save insofar
as is otherwise provided by any law for the time being in force
or in any agreement in force between India and any other country
or countries, this Part shall apply to all arbitrations and to
all proceedings relating thereto.”
84. This sub-clause has been made subject to sub-clause (4) and must
be read in the backdrop of Section 2(2) of the Arbitration Act, 1996.
Section 2(2) of the aforesaid Act provides that this part shall apply
where the place of arbitration is in India. Section 2(5) takes this a
step further and holds that this Part shall apply to all arbitrations
and proceedings relating thereto, where the seat is in India [a
corollary of Section 2(2)] and if it is not a statutory arbitration or
subject of an agreement between India and any other country. The
exception of statutory enactments was necessary in terms of the last
part of sub-clause (4), which provides for non application of this
Part to statutory arbitrations in case of inconsistency. Thus, barring
the statutory enactments as provided for under Section 2(4) of the
Arbitration Act, 1996 and arbitrations pursuant to international
agreement, all other arbitration proceedings held in India shall be
subject to Part I of the said Act. Accordingly, the phrase ‘all
arbitrations’ in Section 2(5) means that Part I applies to all where
Part I is otherwise applicable. Thus, the provision has to be read as
a part of the whole chapter for its correct interpretation and not as
a stand alone provision. There is no indication in Section 2(5)
that it would apply to arbitrations which are not held in India.
85. In view of the aforesaid observations, we have no doubt that the
provisions of Section 2(4) and Section 2(5) would not be applicable to
arbitrations which are covered by Part II of the Arbitration Act,
1996, i.e. the arbitrations which take place outside India. We,
therefore, see no inconsistency between Sections 2(2), 2(4) and 2(5).
For the aforesaid reasons, we are unable to agree with the conclusion
in Bhatia International that limiting the applicability of part I to
arbitrations that take place in India, would make Section 2(2) in
conflict with Sections 2(4) and 2(5).

Does Section 2(7) indicate that Part I applies to arbitrations held
outside India?
86. We have earlier noticed the very elaborate submissions made by the
learned senior counsel on the rationale, scope, and application of
Section 2(7), to arbitrations having a seat outside India.
87. Having considered the aforesaid submissions, we are of the opinion
that the views expressed by the learned counsel for the appellants are
not supported by the provisions of the Arbitration Act, 1996. Section
2(7) of the Arbitration Act, 1996 reads thus:
“An arbitral award made under this Part shall be considered as a
domestic award.”

 
88. In our opinion, the aforesaid provision does not, in any manner,
relax the territorial principal adopted by Arbitration Act, 1996. It
certainly does not introduce the concept of a delocalized arbitration
into the Arbitration Act, 1996. It must be remembered that Part I of
the Arbitration Act, 1996 applies not only to purely domestic
arbitrations, i.e., where none of the parties are in any way “foreign”
but also to “international commercial arbitrations” covered within
Section 2(1)(f) held in India. The term “domestic award” can be used
in two senses: one to distinguish it from “international award”, and
the other to distinguish it from a “foreign award”. It must also be
remembered that “foreign award” may well be a domestic award in the
country in which it is rendered. As the whole of the Arbitration Act,
1996 is designed to give different treatments to the awards made in
India and those made outside India, the distinction is necessarily to
be made between the terms “domestic awards” and “foreign awards”. The
Scheme of the Arbitration Act, 1996 provides that Part I shall apply
to both “international arbitrations” which take place in India as well
as “domestic arbitrations” which would normally take place in India.
This is clear from a number of provisions contained in the Arbitration
Act, 1996 viz. the Preamble of the said Act; proviso and the
explanation to Section 1(2); Sections 2(1)(f); 11(9), 11(12);
28(1)(a) and 28(1)(b). All the aforesaid provisions, which
incorporate the term “international”, deal with pre-award situation.
The term “international award” does not occur in Part I at all.
Therefore, it would appear that the term “domestic award” means an
award made in India whether in a purely domestic context, i.e.,
domestically rendered award in a domestic arbitration or in the
international context, i.e., domestically rendered award in an
international arbitration. Both the types of awards are liable to be
challenged under Section 34 and are enforceable under Section 36 of
the Arbitration Act, 1996. Therefore, it seems clear that the object
of Section 2(7) is to distinguish the domestic award covered under
Part I of the Arbitration Act, 1996 from the “foreign award” covered
under Part II of the aforesaid Act; and not to distinguish the
“domestic award” from an “international award” rendered in India. In
other words, the provision highlights, if any thing, a clear
distinction between Part I and Part II as being applicable in
completely different fields and with no overlapping provisions.
89. That Part I and Part II are exclusive of each other is evident
also from the definitions section in Part I and Part II. Definitions
contained in Section 2(i)(a) to (h) are limited to Part I. The
opening line which provides “In this part, unless the context
otherwise requires……”, makes this perfectly clear. Similarly, Section
44 gives the definition of a foreign award for the purposes of Part II
(Enforcement of Certain Foreign Awards); Chapter I (New York
Convention Awards). Further, Section 53 gives the interpretation of a
foreign award for the purposes of Part II (Enforcement of Certain
Foreign Awards); Chapter II (Geneva Convention Awards). From the
aforesaid, the intention of the Parliament is clear that there shall
be no overlapping between Part I and Part II of the Arbitration Act,
1996. The two parts are mutually exclusive of each other. To accept
the submissions made by the learned counsel for the appellants would
be to convert the “foreign award” which falls within Section 44, into
a domestic award by virtue of the provisions contained under Section
2(7) even if the arbitration takes place outside India or is a foreign
seated arbitration, if the law governing the arbitration agreement is
by choice of the parties stated to be the Arbitration Act, 1996.
This, in our opinion, was not the intention of the Parliament. The
territoriality principle of the Arbitration Act, 1996, precludes Part
I from being applicable to a foreign seated arbitration, even if the
agreement purports to provide that the Arbitration proceedings will be
governed by the Arbitration Act, 1996.
90. The additional submission of Mr. Sorabjee is that Section 9-B of
the 1961 Act, which was in negative terms, has been re-enacted as
Section 2(7) of the Arbitration Act, 1996 in positive terms. Section 9-
B of the 1961 Act, was as under:
“9. Saving – Nothing in this Act shall –
……………………………………………….
(b) apply to any award made on an arbitration agreement governed
by the law of India.”
91. We are of the opinion that the Section has been intentionally
deleted, whereas many other provisions of the 1961 Act have been
retained in the Arbitration Act, 1996. If the provision were to be
retained, it would have been placed in Part II of the Arbitration Act,
1996. In our opinion, there is no link between Section 2(7) of the
Arbitration Act, 1996, with the deleted Section 9-B of the 1961 Act.
It was by virtue of the aforesaid provision that the judgments in
Singer Company & Ors. (supra) and ONGC v. Western Company of North
America (supra) were rendered. In both the cases the foreign awards
made outside India were set aside, under the 1940 Act. By deletion of
Section 9-B of the 1961 Act, the judgments have been rendered
irrelevant under the Arbitration Act, 1996. Having removed the
mischief created by the aforesaid provision, it cannot be the
intention of the Parliament to reintroduce it, in a positive form as
Section 2(7) of the Arbitration Act, 1996. We, therefore, see no
substance in the additional submission of Mr. Sorabjee.
92. We agree with Mr. Salve that Part I only applies when the seat of
arbitration is in India, irrespective of the kind of arbitration.
Section 2(7) does not indicate that Part I is applicable to
arbitrations held outside India.
93. We are, therefore, of the opinion that Section 2(7) does not alter
the proposition that Part I applies only where the “seat” or “place”
of the arbitration is in India.
94. It appears to us that provision in Section 2(7) was also necessary
to foreclose a rare but possible scenario (as canvassed by Mr. Gopal
Subramanium) where two foreigners who arbitrate in India, but under a
Foreign Arbitration Act, could claim that the resulting award would be
a “non-domestic” award. In such a case, a claim could be made to
enforce the award in India, even though the seat of arbitration is
also in India. This curious result has occurred in some cases in
other jurisdictions, e.g., U.S.A. In the case of Bergesen Vs. Joseph
Muller Corporation[36], the Court held an award made in the State of
New York between two foreign parties is to be considered as a non-
domestic award within the meaning of the New York Convention and its
implementing legislation. Section 2(7), in our opinion, is enacted to
reinforce the territorial criterion by providing that, when two
foreigners arbitrate in India, under a Foreign Arbitration Act, the
provisions of Part I will apply. Indian Courts being the supervisory
Courts, will exercise control and regulate the arbitration
proceedings, which will produce a “domestically rendered international
commercial award”. It would be a “foreign award” for the purposes of
enforcement in a country other than India. We, therefore, have no
hesitation in rejecting the submissions made by the learned senior
counsel for the appellants, being devoid of merit.
Party Autonomy
95. Learned counsel for the appellants have submitted that Section
2(1)(e), Section 20 and Section 28 read with Section 45 and Section
48(1)(e) make it clear that Part I is not limited only to arbitrations
which take place in India. These provisions indicate that Arbitration
Act, 1996 is subject matter centric and not exclusively seat centric.
Therefore, “seat” is not the “centre of gravity” so far as the
Arbitration Act, 1996 is concerned. We are of the considered opinion
that the aforesaid provisions have to be interpreted by keeping the
principle of territoriality at the forefront. We have earlier observed
that Section 2(2) does not make Part I applicable to arbitrations
seated or held outside India. In view of the expression used in
Section 2(2), the maxim expressum facit cessare tacitum, would not
permit by interpretation to hold that Part I would also apply to
arbitrations held outside the territory of India. The expression
“this Part shall apply where the place of arbitration is in India”
necessarily excludes application of Part I to arbitration seated or
held outside India. It appears to us that neither of the provisions
relied upon by the learned counsel for the appellants would make any
section of Part I applicable to arbitration seated outside India. It
will be apposite now to consider each of the aforesaid provisions in
turn. Section 2(1)(e) of the Arbitration Act, 1996 reads as under:
“2. Definitions
(1) In this Part, unless the context otherwise requires –
…………………….
(e) “Court” means the principal Civil Court of original
jurisdiction in a district, and includes the High Court in
exercise of its ordinary original civil jurisdiction, having
jurisdiction to decide the questions forming the subject matter
of the arbitration if the same had been the subject matter of a
suit, but does not include any civil court of a grade inferior
to such principal Civil Court, or any Court of Small Causes.”
96. We are of the opinion, the term “subject matter of the
arbitration” cannot be confused with “subject matter of the suit”. The
term “subject matter” in Section 2(1)(e) is confined to Part I. It has
a reference and connection with the process of dispute resolution. Its
purpose is to identify the courts having supervisory control over the
arbitration proceedings. Hence, it refers to a court which would
essentially be a court of the seat of the arbitration process. In our
opinion, the provision in Section 2(1)(e) has to be construed keeping
in view the provisions in Section 20 which give recognition to party
autonomy. Accepting the narrow construction as projected by the
learned counsel for the appellants would, in fact, render Section 20
nugatory. In our view, the legislature has intentionally given
jurisdiction to two courts i.e. the court which would have
jurisdiction where the cause of action is located and the courts where
the arbitration takes place. This was necessary as on many occasions
the agreement may provide for a seat of arbitration at a place which
would be neutral to both the parties. Therefore, the courts where the
arbitration takes place would be required to exercise supervisory
control over the arbitral process. For example, if the arbitration is
held in Delhi, where neither of the parties are from Delhi, (Delhi
having been chosen as a neutral place as between a party from Mumbai
and the other from Kolkata) and the tribunal sitting in Delhi passes
an interim order under Section 17 of the Arbitration Act, 1996, the
appeal against such an interim order under Section 37 must lie to the
Courts of Delhi being the Courts having supervisory jurisdiction over
the arbitration proceedings and the tribunal. This would be
irrespective of the fact that the obligations to be performed under
the contract were to be performed either at Mumbai or at Kolkata, and
only arbitration is to take place in Delhi. In such circumstances,
both the Courts would have jurisdiction, i.e., the Court within whose
jurisdiction the subject matter of the suit is situated and the courts
within the jurisdiction of which the dispute resolution, i.e.,
arbitration is located.
97. The definition of Section 2(1)(e) includes “subject matter of the
arbitration” to give jurisdiction to the courts where the arbitration
takes place, which otherwise would not exist. On the other hand,
Section 47 which is in Part II of the Arbitration Act, 1996 dealing
with enforcement of certain foreign awards has defined the term
“court” as a court having jurisdiction over the subject-matter of the
award. This has a clear reference to a court within whose jurisdiction
the asset/person is located, against which/whom the enforcement of the
international arbitral award is sought. The provisions contained in
Section 2(1)(e) being purely jurisdictional in nature can have no
relevance to the question whether Part I applies to arbitrations which
take place outside India.
98. We now come to Section 20, which is as under:-
“20. Place of arbitration –
(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), 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.
(3) Notwithstanding sub-section (1) or sub-section (2), 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 documents, good
or other property.”

 
A plain reading of Section 20 leaves no room for doubt that where
the place of arbitration is in India, the parties are free to agree to
any “place” or “seat” within India, be it Delhi, Mumbai etc. In the
absence of the parties’ agreement thereto, Section 20(2) authorizes
the tribunal to determine the place/seat of such arbitration. Section
20(3) enables the tribunal to meet at any place for conducting
hearings at a place of convenience in matters such as consultations
among its members for hearing witnesses, experts or the parties.
99. The fixation of the most convenient “venue” is taken care of by
Section 20(3). Section 20, has to be read in the context of Section
2(2), which places a threshold limitation on the applicability of Part
I, where the place of arbitration is in India. Therefore, Section 20
would also not support the submission of the extra-territorial
applicability of Part I, as canvassed by the learned counsel for the
appellants, so far as purely domestic arbitration is concerned.
100. True, that in an international commercial arbitration,
having a seat in India, hearings may be necessitated outside India.
In such circumstances, the hearing of the arbitration will be
conducted at the venue fixed by the parties, but it would not have the
effect of changing the seat of arbitration which would remain in
India. The legal position in this regard is summed up by Redfern and
Hunter, The Law and Practice of International Commercial Arbitration
(1986) at Page 69 in the following passage under the heading “The
Place of Arbitration”:-
“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 the 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 arbitration changes. The seat of the arbitration remains the
place initially agreed by or on behalf of the parties.”
This, in our view, is the correct depiction of the practical
considerations and the distinction between “seat” (Section 20(1) and
20(2)) and “venue” (Section 20(3)). We may point out here that the
distinction between “seat” and “venue” would be quite crucial in the
event, the arbitration agreement designates a foreign country as the
“seat”/”place” of the arbitration and also select the Arbitration Act,
1996 as the curial law/law governing the arbitration proceedings. It
would be a matter of construction of the individual agreement to
decide whether:
i) The designated foreign “seat” would be
read as in fact only providing for a
“venue” / “place” where the hearings would
be held, in view of the choice of
Arbitration Act, 1996 as being the curial
law – OR
ii) Whether the specific designation of a foreign seat,
necessarily carrying with it the choice of that
country’s Arbitration / curial law, would prevail
over and subsume the conflicting selection choice by
the parties of the Arbitration Act, 1996.
ONLY if the agreement of the parties is construed to provide for
the “seat” / “place” of Arbitration being in India – would Part
I of the Arbitration Act, 1996 be applicable. If the agreement
is held to provide for a “seat” / “place” outside India, Part I
would be inapplicable to the extent inconsistent with the
arbitration law of the seat, even if the agreement purports to
provide that the Arbitration Act, 1996 shall govern the
arbitration proceedings.
101. How complex the situation can become can be best
demonstrated by looking at some of the prominent decisions on the
factors to be taken into consideration in construing the relevant
provisions of the contract/arbitration clause.
102. In Naviera Amazonica Peruana S.A. (supra), the Court of
Appeal, in England considered the agreement which contained a clause
providing for the jurisdiction of Courts in Lima Peru in the event of
judicial dispute and at the same time contained a clause providing
that the arbitration would be governed by English Law and the
procedural law of Arbitration shall be English Law.
103. The Court of Appeal summarized the State of the
jurisprudence on this topic. Thereafter, the conclusions which arose
from the material were summarized as follows:-
“All contracts which provide for arbitration and contain a
foreign element may involve three potentially relevant systems
of law. (1) The law governing the substantive contract. (2)
The law governing the agreement to arbitrate and the performance
of that agreement. (3) The law governing the conduct of the
arbitration. In the majority of cases all three will be the
same. But (1) will often be different from (2) and (3). And
occasionally, but rarely, (2) may also differ from (3).”
104. It is observed that the problem about all these
formulations, including the third, is that they elide the distinction
between the legal localization of an arbitration on the one hand and
the appropriate or convenient geographical locality for hearings of
the arbitration on the other hand.
105. On the facts of the case, it was observed that since
there was no contest on Law 1 and Law 2, the entire issue turned on
Law 3, “The law governing the conduct of the arbitration. This is
usually referred to as the curial or procedural law, or the lex fori.”
Thereafter, the Court approvingly quoted the following observation
from Dicey & Morris on the Conflict of Laws (11th Edition): “English
Law does not recognize the concept of a de-localised” arbitration or
of “arbitral procedures floating in the transnational firmament,
unconnected with any municipal system of law”. It is further held
that “accordingly every arbitration must have a “seat” or “locus
arbitri” or “forum” which subjects its procedural rules to the
municipal law which is there in force”. The Court thereafter culls
out the following principle “Where the parties have failed to choose
the law governing the arbitration proceedings, those proceedings must
be considered, at any rate prima facie, as being governed by the law
of the country in which the arbitration is held, on the ground that it
is the country most closely connected with the proceedings”. The
aforesaid classic statement of the Conflict of Law Rules as quoted in
Dicey & Morris on the Conflict of Laws (11th Edition) Volume 1, was
approved by the House of Lords in James Miller & Partners Vs.
Whitworth Street Estates (Manchester) Ltd.[37]. Mr. Justice Mustill
in the case of Black Clawson International Ltd. Vs. PapierIrke Waldhof-
Aschaf-fenburg A.G.[38], a little later characterized the same
proposition as “the law of the place where the reference is conducted,
the lex fori”. The Court also recognized the proposition that “there
is equally no reason in theory which precludes parties to agree that
an arbitration shall be held at a place or in country X but subject to
the procedural laws of Y”. But it points out that in reality parties
would hardly make such a decision as it would create enormous
unnecessary complexities. Finally it is pointed out that it is
necessary not to confuse the legal “seat” of an arbitration with the
geographically convenient place or places for holding hearings.
106. On examination of the facts in that case, the Court of
Appeal observed that there is nothing surprising in concluding that
these parties intended that any dispute under this policy, should be
arbitrated in London. But it would always be open to the Arbitral
Tribunal to hold hearings in Lima if this were thought to be
convenient, even though the seat or forum of the arbitration would
remain in London.
107. A similar situation was considered by the High Court of
Justice Queen’s Bench Division Technology and Construction Court in
Braes of Doune Wind Farm (Scotland) Limited v Alfred McAlpine Business
Services Limited (supra). In this case the Court considered two
applications relating to the First Award of an arbitrator. The award
related to an EPC (Engineering, Procurement and Construction) Contract
dated 4th November, 2005 (“the EPC Contract”) between the Claimant
(“the Employer”) and the Defendant (“the Contractor”) whereby the
Contractor undertook to carry out works in connection with the
provision of 36 wind turbine generators (the “WTGs”) at a site some 18
kilometres from Stirling in Scotland. This award dealt with
enforceability of the clauses of the EPC Contract which provided for
liquidated damages for delay. The claimant applied for leave to
appeal against this award upon a question of law whilst the Defendant
sought, in effect, a declaration that the Court had no jurisdiction to
entertain such an application and for leave to enforce the award. The
Court considered the issue of jurisdiction which arose out of
application of Section 2 of the (English) Arbitration Act, 1996 which
provides that – “(1) The provisions of this Part apply where the seat
of the arbitration is in England and Wales or Northern Ireland.” The
Court notices the singular importance of determining the location of
“juridical seat” in terms of Section 3, for the purposes of Section 2,
in the following words:-
“I must determine what the parties agreed was the “seat” of
the arbitration for the purposes of Section 2 of the Arbitration
Act 1996. This means by Section 3 what the parties agreed was
the “juridical” seat. The word “juridical” is not an irrelevant
word or a word to be ignored in ascertaining what the “seat” is.
It means and connotes the administration of justice so far as
the arbitration is concerned. It implies that there must be a
country whose job it is to administer, control or decide what
control there is to be over an arbitration.”
108. Thus, it would be evident that if the “juridical seat” of
the arbitration was in Scotland, the English Courts would have no
jurisdiction to entertain an application for leave to appeal. The
Contractor argued that the seat of the arbitration was Scotland whilst
the Employer argued that it was England. There were to be two
contractors involved with the project.
109. The material Clauses of the EPC Contract were:
1.4.1. The Contract shall be governed by and construed in
accordance with the laws of England and Wales and, subject to Clause
20.2 (Dispute Resolution), the Parties agree that the courts of
England and Wales have exclusive jurisdiction to settle any dispute
arising out of or in connection with the contract.
a) … any dispute or difference between the Parties to
this Agreement arising out of or in connection with
this Agreement shall be referred to arbitration.
b) Any reference to arbitration shall be to a single
arbitrator… and conducted in accordance with the
Construction Industry Model Arbitration Rules
February 1998 Edition, subject to this Clause
(Arbitration Procedure)…
c) This arbitration agreement is subject to English Law and the
seat of the arbitration shall be Glasgow, Scotland. Any such
reference to arbitration shall be deemed to be a reference to
arbitration within the meaning of the Arbitration Act, 1996
or any statutory re-enactment.”
110. The Arbitration was to be conducted under the Arbitration
Rules known colloquially as the “CIMAR Rules”. Rule 1.1 of the Rules
provided that:
“These Rules are to be read consistently with the Arbitration
Act 1996 (the Act), with common expressions having the same
meaning.”
Rule 1.6 applied:
a) a single arbitrator is to be appointed, and
b) the seat of the arbitration is in England and Wales or Northern
Ireland.
111. The court was informed by the parties in arguments that Scottish
Court’s powers of control or intervention would be, at the very least,
seriously circumscribed by the parties’ agreement in terms as set out
in paragraph 6 of the judgment. It was further indicated by the
counsel that the Scottish Court’s powers of intervention might well be
limited to cases involving such extreme circumstances as the dishonest
procurement of an award.
112. In construing the EPC, the court relied upon the principles
stated by the Court of Appeal in Naviera Amazonica Peruana SA (supra).
113. Upon consideration of the entire material, the Court
formed the view that it does have jurisdiction to entertain an
application by either party to the contract in question under Section
69 of the (English) Arbitration Act, 1996. The court gave the
following reasons for the decision:–
(a) One needs to consider what, in substance, the parties agreed
was the law of the country which would juridically control the
arbitration.
(b) I attach particular importance to Clause 1.4.1. The parties
agreed that essentially the English (and Welsh) Courts have
“exclusive jurisdiction” to settle disputes. Although this is
“subject to” arbitration, it must and does mean something other
than being mere verbiage. It is a jurisdiction over disputes and
not simply a court in which a foreign award may be enforced. If
it is in arbitration alone that disputes are to be settled and
the English Courts have no residual involvement in that process,
this part of Clause 1.4.1 is meaningless in practice. The use of
the word “jurisdiction” suggests some form of control.
(c) The second part of Clause 1.4.1 has some real meaning if the
parties were agreeing by it that, although the agreed disputes
resolution process is arbitration, the parties agree that the
English Court retains such jurisdiction to address those
disputes as the law of England and Wales permits. The
Arbitration Act, 1996 permits and requires the Court to
entertain applications under Section 69 for leave to appeal
against awards which address disputes which have been referred
to arbitration. By allowing such applications and then
addressing the relevant questions of law, the Court will settle
such disputes; even if the application is refused, the court
will be applying its jurisdiction under the Arbitration Act,
1996 and providing resolution in relation to such disputes.
(d) This reading of Clause 1.4.1 is consistent with Clause
20.2.2 (c) which confirms that the arbitration agreement is
subject to English Law and that the “reference” is “deemed to be
a reference to arbitration within the meaning of the Arbitration
Act, 1996.” This latter expression is extremely odd unless the
parties were agreeing that any reference to arbitration was to
be treated as a reference to which the Arbitration Act, 1996 was
to apply. There is no definition in the Arbitration Act, 1996 of
a “reference to arbitration”, which is not a statutory term of
art. The parties presumably meant something in using the
expression and the most obvious meaning is that the parties were
agreeing that the Arbitration Act, 1996 should apply to the
reference without qualification.
(e) Looked at in this light, the parties’ express agreement
that the “seat” of arbitration was to be Glasgow, Scotland must
relate to the place in which the parties agreed that the
hearings should take place. However, by all the other references
the parties were agreeing that the curial law or law which
governed the arbitral proceedings establish that, prima facie
and in the absence of agreement otherwise, the selection of a
place or seat for an arbitration will determine what the curial
law or “lex fori” or “lex arbitri” will be, we consider that,
where in substance the parties agree that the laws of one
country will govern and control a given arbitration, the place
where the arbitration is to be heard will not dictate what the
governing or controlling law will be.
(f) In the context of this particular case, the fact that, as
both parties seemed to accept in front of me, the Scottish
Courts would have no real control or interest in the arbitral
proceedings other than in a criminal context, suggests that they
can not have intended that the arbitral proceedings were to be
conducted as an effectively “delocalized” arbitration or in a
“transnational firmament”, to borrow Lord Justice Kerr’s words
in the Naviera Amazonica case.
(g) The CIMAR Rules are not inconsistent with my view. Their
constant references to the Arbitration Act, 1996 suggest that
the parties at least envisaged the possibility that the Courts
of England and Wales might play some part in policing any
arbitration. For instance, Rule 11.5 envisages something called
“the Court” becoming involved in securing compliance with a
peremptory order of the arbitrator. That would have to be the
English Court, in practice.”
114. These observations clearly demonstrate the detailed
examination which is required to be undertaken by the court to discern
from the agreement and the surrounding circumstances the intention of
the parties as to whether a particular place mentioned refers to the
“venue” or “seat” of the arbitration. In that case, the Court, upon
consideration of the entire material, concluded that Glasgow was a
reference to the “venue” and the “seat” of the arbitration was held to
be in England. Therefore, there was no supplanting of the Scottish Law
by the English Law, as both the seat under Section 2 and the
“juridical seat” under Section 3, were held to be in England. Glasgow
being only the venue for holding the hearings of the arbitration
proceedings. The Court rather reiterated the principle that the
selection of a place or seat for an arbitration will determine what
the “curial law” or “lex fori” or “lex arbitri” will be. It was
further concluded that where in substance the parties agreed that the
laws of one country will govern and control a given arbitration, the
place where the arbitration is to be heard will not dictate what the
governing law or controlling law will be. In view of the above, we are
of the opinion that the reliance placed upon this judgment by
Mr.Sundaram is wholly misplaced.
115. The aforesaid ratio has been followed in Shashoua & Ors.
(supra). In this case, the Court was concerned with the construction
of the shareholders’ agreement between the parties, which provided
that “the venue of the arbitration shall be London, United Kingdom”.
Whilst providing that the arbitration proceedings should be conducted
in English in accordance with ICC Rules and that the governing law of
the shareholders’ agreement itself would be the law of India. The
claimants made an application to the High Court in New Delhi seeking
interim measures of protection under Section 9 of the Arbitration Act,
1996, prior to the institution of arbitration proceedings. Following
the commencement of the arbitration, the defendant and the joint
venture company raised a challenge to the jurisdiction of the arbitral
tribunal, which the panel heard as a preliminary issue. The tribunal
rejected the jurisdictional objection. The tribunal then made a cost
award ordering the defendant to pay $140,000 and £172,373.47. The
English Court gave leave to the claimant to enforce the costs award as
a judgment. The defendant applied to the High Court of Delhi under
Section 34(2)(iv) of the Arbitration Act, 1996 to set aside the costs
award. The claimant had obtained a charging order, which had been
made final, over the defendant’s property in the UK. The defendant
applied to the Delhi High Court for an order directing the claimants
not to take any action to execute the charging order, pending the
final disposal of the Section 34 petition in Delhi seeking to set
aside the costs award. The defendant had sought unsuccessfully to
challenge the costs award in the Commercial Court under Section 68 and
Section 69 of the 1996 Act (U.K.) and to set aside the order giving
leave to enforce the award. Examining the fact situation in the case,
the Court observed as follows:-
“The basis for the court’s grant of an anti-suit injunction of
the kind sought depended upon the seat of the arbitration. An
agreement as to the seat of an arbitration brought in the law of
that country as the curial law and was analogous to an exclusive
jurisdiction clause. Not only was there agreement to the curial
law of the seat, but also to the Courts of the seat having
supervisory jurisdiction over the arbitration, so that, by
agreeing to the seat, the parties agreed that any challenge to
an interim or final award was to be made only in the courts of
the place designated as the seat of the arbitration.
Although, ‘venue’ was not synonymous with ‘seat’, in an
arbitration clause which provided for arbitration to be
conducted in accordance with the Rules of the ICC in Paris (a
supranational body of rules), a provision that ‘the venue of
arbitration shall be London, United Kingdom’ did amount to the
designation of a juridical seat…….”
In Paragraph 54, it is further observed as follows:-
“There was a little debate about the possibility of the issues
relating to the alleged submission by the claimants to the
jurisdiction of the High Court of Delhi being heard by that
court, because it was best fitted to determine such issues under
Indian Law. Whilst I found this idea attractive initially, we
are persuaded that it would be wrong in principle to allow this
and that it would create undue practical problems in any event.
On the basis of what I have already decided, England is the seat
of the arbitration and since this carries with it something akin
to an exclusive jurisdiction clause, as a matter of principle
the foreign court should not decide matters which are for this
court to decide in the context of an anti-suit
injunction.”[emphasis supplied]
116. In making the aforesaid observations, the Court relied
on judgments of the Court of Appeal in C Vs. D[39]. Here the Court of
Appeal in England was examining an appeal by the defendant insurer
from the judgment of Cooke, J. granting an anti-suit injunction
preventing it from challenging an arbitration award in the U.S.
Courts. The insurance policy provided “any dispute arising under this
policy shall be finally and fully determined in London, England under
the provisions of the English Arbitration Act, 1950 as amended”.
However, it was further provided that “this policy shall be governed
by and construed in accordance with the internal laws of the State of
New York….”. A partial award was made in favour of the claimants. It
was agreed that this partial award is, in English Law terms, final as
to what it decides. The defendant sought the tribunal’s withdrawal
of its findings. The defendant also intimated its intention to apply
to a Federal Court applying US Federal Arbitration Law governing the
enforcement of arbitral award, which was said to permit “vacatur” of
an award where arbitrators have manifestly disregarded the law. It
was in consequence of such intimation that the claimant sought and
obtained an interim anti-suit injunction. The Judge held that parties
had agreed that any proceedings seeking to attack or set aside the
partial award would only be those permitted by English Law. It was
not, therefore, permissible for the defendant to bring any proceedings
in New York or elsewhere to attack the partial award. The Judge
rejected the arguments to the effect that the choice of the law of New
York as the proper law of the contract amounted to an agreement that
the law of England should not apply to proceedings post award. The
Judge also rejected a further argument that the separate agreement to
arbitrate contained in the Condition V(o) of the policy was itself
governed by New York Law so that proceedings could be instituted in
New York. The Judge granted the claimant a final injunction. The
Court of Appeal noticed the submission on behalf of the defendant as
follows:-

“14. The main submission of Mr Hirst QC for the defendant
insurer was that the judge had been wrong to hold that the
arbitration agreement itself was governed by English law merely
because the seat of the arbitration was London. He argued that
the arbitration agreement itself was silent as to its proper law
but that its proper law should follow the proper law of the
contract as a whole, namely New York law, rather than follow
from the law of the seat of the arbitration namely England. The
fact that the arbitration itself was governed by English
procedural law did not mean that it followed that the
arbitration agreement itself had to be governed by English law.
The proper law of the arbitration agreement was that law with
which the agreement had the most close and real connection; if
the insurance policy was governed by New York law, the law with
which the arbitration agreement had its closest and most real
connection was the law of New York. It would then follow that,
if New York law permitted a challenge for manifest disregard of
the law, the court in England should not enjoin such a
challenge.”

The Court of Appeal held:-

“16. I shall deal with Mr Hirst’s arguments in due course but,
in my judgment, they fail to grapple with the central point at
issue which is whether or not, by choosing London as the seat of
the arbitration, the parties must be taken to have agreed that
proceedings on the award should be only those permitted by
English law. In my view they must be taken to have so agreed for
the reasons given by the judge. The whole purpose of the balance
achieved by the Bermuda Form (English arbitration but applying
New York law to issues arising under the policy) is that
judicial remedies in respect of the award should be those
permitted by English law and only those so permitted. Mr Hirst
could not say (and did not say) that English judicial remedies
for lack of jurisdiction on procedural irregularities under
sections 67 and 68 of the Arbitration Act, 1996 Were not
permitted; he was reduced to saying that New York judicial
remedies were also permitted. That, however, would be a recipe
for litigation and (what is worse) confusion which cannot have
been intended by the parties. No doubt New York law has its own
judicial remedies for want of jurisdiction and serious
irregularity but it could scarcely be supposed that a party
aggrieved by one part of an award could proceed in one
jurisdiction and a party aggrieved by another part of an award
could proceed in another jurisdiction. Similarly, in the case of
a single complaint about an award, it could not be supposed that
the aggrieved party could complain in one jurisdiction and the
satisfied party be entitled to ask the other jurisdiction to
declare its satisfaction with the award. There would be a
serious risk of parties rushing to get the first judgment or of
conflicting decisions which the parties cannot have
contemplated.
17. It follows from this that a choice of seat for the
arbitration must be a choice of forum for remedies seeking to
attack the award”……….

 

117. On the facts of the case, the Court held that the seat of
the arbitration was in England and accordingly entertained the
challenge to the award. Again in Union of India Vs. McDonnell Douglas
Corp. (supra), the proposition laid down in Naviera Amazonica Peruana
S.A. (supra) was reiterated. In this case, the agreement provided
that:-
“The arbitration shall be conducted in accordance with the
procedure provided in the Indian Arbitration Act of 1940 or any
reenactment or modification thereof. The arbitration shall be
conducted in the English language. The award of the Arbitrators
shall be made by majority decision
and shall be final and binding on the Parties hereto. The seat
of the arbitration proceedings shall be London, United Kingdom.”
118. Construing the aforesaid clause, the Court held as
follows:-
“On the contrary, for the reasons given, it seems to me that by
their agreement the parties have chosen English law as the law
to govern their arbitration proceedings, while contractually
importing from the Indian Act those provisions of that Act which
are concerned with the internal conduct of their arbitration and
which are not inconsistent with the choice of English arbitral
procedural law.”
119. The same question was again considered by the High Court
of Justice, Queen’s Bench Division, Commercial Court (England) in
Sulamerica CIA Nacional de Seguros SA v. Enesa Engenharia SA –
Enesa.[40] The Court noticed that the issue in this case depends upon
the weight to be given to the provision in Condition 12 of the
Insurance policy that “the seat of the arbitration shall be London,
England.” It was observed that this necessarily carried with it the
English Court’s supervisory jurisdiction over the arbitration process.
It was observed that “this follows from the express terms of the
Arbitration Act, 1996 and, in particular, the provisions of Section 2
which provide that Part I of the Arbitration Act, 1996 applies where
the seat of the arbitration is in England and Wales or Northern
Ireland. This immediately establishes a strong connection between the
arbitration agreement itself and the law of England. It is for this
reason that recent authorities have laid stress upon the locations of
the seat of the arbitration as an important factor in determining the
proper law of the arbitration agreement.” The court thereafter makes a
reference to the observations made in the case of C. vs. D by the High
Court as well as the Court of Appeal. In Paragraph 12, the
observations made have particular relevance which are as under:
“In the Court of Appeal, Longmore LJ, with whom the other two
Lord Justices agreed, decided (again obiter) that, where there
was no express choice of law for the arbitration agreement, the
law with which that agreement had its closest and most real
connection was more likely to be the law of the seat of
arbitration than the law of the underlying contract. He referred
to Mustill J. (as he then was) in Black Clawsen International
Limited v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 LLR 446
as saying that it would be a rare case in which the law of the
arbitration agreement was not the same as the law of the place
or seat of the arbitration. Longmore LJ also referred to the
speech of Lord Mustill (as he had then become) in Chanel Tunnel
Group Limited vs. Balfour Beatty Construction Limited [1993] 1
LLR 291 and concluded that the Law Lord was saying that,
although it was exceptional for the proper law of the underlying
contract to be different from the proper law of the arbitration
agreement, it was less exceptional (or more common) for the
proper law of that underlying contract to be different from the
curial law, the law of the seat of the arbitration. He was not
expressing any view on the frequency or otherwise of the law of
the arbitration agreement differing from the law of the seat of
the arbitration. Longmore LJ agreed with Mustill J’s earlier
dictum that it would be rare for the law of the separable
arbitration agreement to be different from the law of the seat
of the arbitration. The reason was “that an agreement to
arbitrate will normally have a closer and more real connection
with the place where the parties have chose to arbitrate, than
with the place of the law of the underlying contract, in cases
where the parties have deliberately chosen to arbitrate, in one
place, disputes which have arisen under a contract governed by
the law of another place”.
120. Upon consideration of the entire matter, it was observed
that – “In these circumstances it is clear to me that the law with
which the agreement to arbitrate has its closest and most real
connection is the law of the seat of arbitration, namely, the law of
England”. (Para 14). It was thereafter concluded by the High Court
that English Law is the proper law of the agreement to arbitrate.
(Para 15)
121. The legal position that emerges from a conspectus of all the
decisions, seems to be, that the choice of another country as the seat
of arbitration inevitably imports an acceptance that the law of that
country relating to the conduct and supervision of arbitrations will
apply to the proceedings.
122. It would, therefore, follow that if the arbitration
agreement is found or held to provide for a seat / place of
arbitration outside India, then the provision that the Arbitration
Act, 1996 would govern the arbitration proceedings, would not make
Part I of the Arbitration Act, 1996 applicable or enable Indian Courts
to exercise supervisory jurisdiction over the arbitration or the
award. It would only mean that the parties have contractually imported
from the Arbitration Act, 1996, those provisions which are concerned
with the internal conduct of their arbitration and which are not
inconsistent with the mandatory provisions of the English Procedural
Law/Curial Law. This necessarily follows from the fact that Part I
applies only to arbitrations having their seat / place in India.

 

Section 28 –
123. It was submitted by the learned counsel for the appellants
that Section 28 is another indication of the intention of the
Parliament that Part I of the Arbitration Act, 1996 was not confined
to arbitrations which take place in India. We are unable to accept
the submissions made by the learned counsel for the parties. As the
heading of the Section 28 indicates, its only purpose is to identify
the rules that would be applicable to “substance of dispute”. In
other words, it deals with the applicable conflict of law rules. This
section makes a distinction between purely domestic arbitrations and
international commercial arbitrations, with a seat in India. Section
28(1)(a) makes it clear that in an arbitration under Part I to which
Section 2(1)(f) does not apply, there is no choice but for the
Tribunal to decide “the dispute” by applying the Indian “substantive
law applicable to the contract”. This is clearly to ensure that two
or more Indian parties do not circumvent the substantive Indian law,
by resorting to arbitrations. The provision would have an overriding
effect over any other contrary provision in such contract. On the
other hand, where an arbitration under Part I is an international
commercial arbitration within Section 2(1)(f), the parties would be
free to agree to any other “substantive law” and if not so agreed, the
“substantive law” applicable would be as determined by the Tribunal.
The section merely shows that the legislature has segregated the
domestic and international arbitration. Therefore, to suit India,
conflict of law rules have been suitably modified, where the
arbitration is in India. This will not apply where the seat is
outside India. In that event, the conflict of laws rules of the
country in which the arbitration takes place would have to be applied.
Therefore, in our opinion, the emphasis placed on the expression
“where the place of arbitration is situated in India”, by the learned
senior counsel for the appellants, is not indicative of the fact that
the intention of Parliament was to give an extra-territorial operation
to Part I of the Arbitration Act, 1996.

 

 

Part II

124. It was next submitted by the counsel for the appellants
that even some of the provisions contained in Part II would indicate
that Part I of the Arbitration Act, 1996 would not be limited to the
arbitrations which take place in India. It was pointed out that even
though Part II deals specifically with recognition and enforcement of
certain foreign awards yet provision is made for annulment of the
award by two Courts, i.e., Courts of the country in which the award
was made or the Courts of the country under the law of which the award
was made. This, according to the learned counsel, recognizes the
concurrent jurisdictions of Courts in two countries to set aside the
award. They rely on Section 48(1)(e) of the Arbitration Act, 1996,
which corresponds to Article V(1)(e) of the New York Convention. Mr.
Sorabjee has emphasised that both these expressions must necessarily
be given effect to and no part of the Act or section can be
disregarded by describing the same as a “fossil”. This is in reply to
the submission made by Mr. Salve on the basis of the history of the
inclusion of the term “under the law of which” in Article V(1)(e).
Mr. Sorabjee has emphasised that the word “under the law of which”
were specifically inserted in view of the Geneva Convention, which
limited the jurisdiction to only one Court to set aside the award
namely “the country in which the award was made.” He, therefore,
submits that this specific intention must be given effect to. Not
giving effect to the words “under the law of which the award was
made”, will allow many awards to go untested. At this stage, Mr.
Sorabjee had relied on Reliance Industries Ltd. (supra). We must
notice here that Mr. Sundaram in his submissions has not gone so far
as Mr. Sorabjee. According to Mr. Sundaram, the jurisdiction of a
domestic Court over an arbitration is neither conferred by the New
York Convention, nor under Part II, since Part II merely deals with
circumstances under which the enforcing court may or may not refuse to
enforce the award. That circumstance includes annulment of
proceedings in a competent court, i.e., the Court in the country where
the arbitration is held or the Court having jurisdiction in the
country under the laws of which the arbitral disputes have been
conducted. According to Mr. Sundaram, providing two such situs for
the purposes of annulment does not ipso facto amount to conferring of
jurisdiction to annul, on any domestic Court. The provision only
provides that if the annulment proceedings are before such Courts, the
award may not be enforced. Therefore, to see if an arbitral award can
be annulled by the Court of the country, one has to look at the
jurisdiction of such Courts under the domestic law. The relevance of
New York Convention and Article V(1)(e) ends there, with merely
recognizing possibility of two Courts having jurisdiction to annul an
award. Mr. Subramanium emphasised that provisions contained in Part
II can not be said to be a complete code as it necessarily makes use
of the provisions of Part I. Since Part I prescribes the entire
procedure for the conduct of an arbitration and Part II is only to
give recognition to certain foreign awards, the two parts have to be
read harmoniously in order to make the Indian Arbitration Law a
complete code. He submits that Part I can not be read separately from
Part II as certain provisions of Part I, which are necessary for
arbitrations are not covered by Part II. He gives an example of the
provision contained in Section 45, which empowers the term “judicial
authority” to refer parties to arbitration when seized of an action in
a matter, in respect of which parties have made an agreement as
referred to in Section 44. The aforesaid provision contains a non-
obstante clause. This clearly indicates that it is contemplated by
the legislature that provisions of Part I would apply to matters
covered by Part II. He, therefore, points out that if Part I were to
apply only to arbitrations that take place in India, then Indian
Courts would not be able to grant any interim relief under Section 9
to arbitrations which take place outside India. He also points out
that there are a number of other provisions where Indian Courts would
render assistance in arbitrations taking place outside India. Learned
senior counsel has also pointed out the necessity to read Sections 34
and 48 of the Arbitration Act, 1996 harmoniously. He points out that
barring Section 34, which involves the challenge to an award, the
other provisions in Part I and Part II are facilitative in character.
125. We are unable to agree with the submission of the learned
senior counsel that there is any overlapping of the provisions in Part
I and Part II; nor are the provisions in Part II supplementary to Part
I. Rather there is complete segregation between the two parts.
126. Generally speaking, regulation of arbitration consists of
four steps (a) the commencement of arbitration; (b) the conduct of
arbitration; (c) the challenge to the award; and (d) the recognition
or enforcement of the award. In our opinion, the aforesaid delineation
is self evident in Part I and Part II of the Arbitration Act, 1996.
Part I of the Arbitration Act, 1996 regulates arbitrations at all the
four stages. Part II, however, regulates arbitration only in respect
of commencement and recognition or enforcement of the award.
127. In Part I, Section 8 regulates the commencement of
arbitration in India, Sections 3, 4, 5, 6, 10 to 26, 28 to 33 regulate
the conduct of arbitration, Section 34 regulates the challenge to the
award, Sections 35 and 36 regulate the recognition and enforcement of
the award. Sections 1, 2, 7, 9, 27, 37, 38 to 43 are ancillary
provisions that either support the arbitral process or are
structurally necessary. Thus, it can be seen that Part I deals with
all stages of the arbitrations which take place in India. In Part II,
on the other hand, there are no provisions regulating the conduct of
arbitration nor the challenge to the award. Section 45 only empowers
the judicial authority to refer the parties to arbitration outside
India in pending civil action. Sections 46 to 49 regulate the
recognition and enforcement of the award. Sections 44, 50 to 52 are
structurally necessary.
128. Thus, it is clear that the regulation of conduct of arbitration
and challenge to an award would have to be done by the courts of the
country in which the arbitration is being conducted. Such a court is
then the supervisory court possessed of the power to annul the award.
This is in keeping with the scheme of the international instruments,
such as the Geneva Convention and the New York Convention as well as
the UNCITRAL Model Law. It also recognizes the territorial principle
which gives effect to the sovereign right of a country to regulate,
through its national courts, an adjudicatory duty being performed in
its own country. By way of a comparative example, we may reiterate the
observations made by the Court of Appeal, England in C Vs. D (supra)
wherein it is observed that “it follows from this that a choice of
seat for the arbitration must be a choice of forum for remedies
seeking to attack the award.” In the aforesaid case, the Court of
Appeal had approved the observations made in A Vs. B,[41] wherein it
is observed that:-
“…..an agreement as to the seat of an arbitration is analogous
to an exclusive jurisdiction clause. Any claim for a remedy……as
to the validity of an existing interim or final award is agreed
to be made only in the courts of the place designated as the
seat of arbitration.”

 

 
129. Having accepted the principle of territoriality, it is
evident that the intention of the parliament was to segregate Part I
and Part II. Therefore, any of the provisions contained in Part I can
not be made applicable to Foreign Awards, as defined under Sections 44
and 53, i.e., the New York Convention and the Geneva Awards. This
would be a distortion of the scheme of the Act. It is, therefore, not
possible to accept the submission of Mr. Subramanium that provisions
contained in Part II are supplementary to the provision contained in
Part I. The Parliament has clearly segregated the two parts.

 

 
Section 45
130. We are unable to accept the submission that the use of
expression “notwithstanding anything contained in Part I, or in the
Code of Civil Procedure, 1908”, in Section 45 of the Arbitration Act,
1996 necessarily indicates that provisions of Part I would apply to
foreign seated arbitration proceedings. Section 45 falls within Part
II which deals with enforcement proceedings in India and does not deal
with the challenge to the validity of the arbitral awards rendered
outside India. Section 45 empowers a judicial authority to refer the
parties to arbitration, on the request made by a party, when seized of
an action in a matter in respect of which the parties have made an
agreement referred to in Section 44. It appears that inclusion of the
term “judicial authority” in Sections 5 and 8 of the Arbitration Act,
1996, has caused much confusion in the minds of the learned counsel
for the appellants. In our opinion, there is no justification for such
confusion. Such use of the term “judicial authority”, in Section 5
and Section 8 of the Arbitration Act, 1996, is not a recognition by
the Parliament that Part I will apply to international commercial
arbitrations held outside India. The term “judicial authority” is a
legacy from the 1940 Act. The corresponding provision of Section 34 of
the 1940 Act, which covered purely domestic arbitrations, between two
or more Indian parties, within the territory of India, also refers to
“judicial authority”. It is nobody’s contention that by using the
term “judicial authority”, the Parliament had intended the 1940 Act to
apply outside India. In our opinion, the term “judicial authority”
has been retained especially in view of policy of least intervention,
which can not be limited only to the Courts. This is clearly in
recognition of the phenomenon that the judicial control of commercial
disputes is no longer in the exclusive jurisdiction of Courts. There
are many statutory bodies, tribunals which would have adjudicatory
jurisdiction in very complex commercial matters. Section 5 would be
equally applicable to such bodies. The use of the term “judicial
authority” in no manner has any reference to arbitrations not held in
India It is in conformity with Clause (V) of the objects and
reasons for the Arbitration Act, 1996, which has been given statutory
recognition in Section 5.
131. The learned senior counsel had also pointed out that
since Section 19 of the Arbitration Act, 1996 clearly provides that
the arbitral tribunal shall not be bound by the Code of Civil
Procedure, 1908, there was no need for the non-obstante clause. But
the reason, in our view, is discernable from Section 3 of the 1961
Act, which also contains a non-obstante clause with reference to the
Arbitration Act, 1940. Section 45 in the Arbitration Act, 1996 is a
repetition of the non-obstante clause in Section 3 in the 1961 Act. It
is not unusual for a consolidating act to retain the expressions used
in the previous Acts, which have been consolidated into a form of
Principal Act. A consolidating Act is described in Halsbury’s law of
England, Fourth Edition Reissue, Para 1225 as under:-
“A consolidation Act is a form of principal Act which presents
the whole body of the statute law on a subject in complete form,
repealing the former Acts. When drafting a consolidation Act
the practice is not to change the existing wording, except so
far as may be required for purposes of verbal ‘carpentry’, and
not to incorporate court rulings. This is known as ‘straight’
consolidation, the product being a form of declaratory
enactment. The difference between a consolidating Act and a
codifying Act is that the latter, unlike the former,
incorporates common law rules not previously codified. It can
be determined from the long title whether or not an Act is a
consolidation Act.” (emphasis supplied)

 

 
132. Similarly, a certain amount of ‘carpentry’ has been done
in the Arbitration Act, 1996 whilst consolidating the earlier three
Acts. Therefore, in section 45 of the Arbitration Act, 1996, the
reference to 1940 Act has been replaced by reference to Part I, which
now covers the purely domestic arbitrations, earlier covered by the
1940 and the new additions, i.e. the international commercial
arbitrations, which take place in India. It appears that the
Parliament in order to avoid any confusion has used the expression
“notwithstanding anything contained in Part I” out of abundant
caution, i.e., “ex abundanti cautela”. A three judge bench of this
Court in R.S. Raghnath Vs. State of Karnataka & Anr.[42], considering
the nature of the non-obstante clause observed that:-

“11. ………………
But the non-obstante clause need not necessarily and always be
co-extensive with the operative part so as to have the effect of
cutting down the clear terms of an enactment and if the words of
the enactment are clear and are capable of a clear
interpretation on a plain and grammatical construction of the
words the non-obstante clause cannot cut down the construction
and restrict the scope of its operation. In such cases the non-
obstante clause has to be read as clarifying the whole position
and must be understood to have been incorporated in the
enactment by the legislature by way of abundant caution and not
by way of limiting the ambit and scope of the Special Rules.”

 

 

133. We are, therefore, of the opinion that existence of the
non-obstante clause does not alter the scope and ambit of the field of
applicability of Part I to include international commercial
arbitrations, which take place out of India. We may further point out
that a similar provision existed in the English Arbitration Act, 1950
and the English Arbitration Act, 1975. Section 4(1) of the English
Arbitration Act, 1950 was similar to Section 34 of the Arbitration
Act, 1940 in India. Section 1(2) of the English Arbitration Act, 1975
was similar to Section 3 of the Foreign Awards Act, 1961.
134. In view of the above, it would not be possible to accept
the submission of the learned counsel for the appellants that the
aforesaid non-obstante clause in Section 45 would indicate that
provisions of Part I would also be applicable to arbitrations that
take place outside India.
Does Section 48(1)(e) recognize the jurisdiction of Indian Courts to
annul a foreign award, falling within Part II?
135. Much emphasis has been laid by the learned counsel for
the appellants on the expression that enforcement of a foreign award
may be refused when the award “has been set aside or suspended …..”
“under the law of which” that award was made. The aforesaid words and
expressions appear in Section 48, which is contained in Part II of the
Arbitration Act, 1996 under the title “enforcement of certain foreign
awards”. The Courts in India under Chapter I of Part II of the
aforesaid Act have limited powers to refuse the enforcement of foreign
awards given under the New York Convention. It would be apposite to
notice the provisions of Section 48 at this stage, which are as under:-

 

“48.Conditions for enforcement of foreign awards.-
(1) Enforcement of a foreign award may be refused, at the
request of the party against whom it is invoked, only if that
party furnishes to the court proof that—-
(a) the parties to the agreement referred to in section 44
were, under the law applicable to them, under some
incapacity, or the said agreement is not valid under the
law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the
award was made; or
(b) the party against whom the award is invoked was not
given proper notice of the appointment of the arbitrator or
of the arbitral
proceedings or was otherwise unable to present his case; or
(c) the award deals with a difference not contemplated by
or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration.
Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so
submitted, that part of the award which contains decisions
on matters submitted to arbitration may be enforced; or
(d) the composition of the arbitral authority or the
arbitral procedure was not in accordance with the agreement
of the parties, or, failing such agreement, was not in
accordance with the law of the country where the
arbitration took place ; or
(e) the award has not yet become binding on the parties, or
has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award
was made.
(2) Enforcement of an arbitral award may also be refused if the
court finds that-
(a) the subject -matter of the difference is not capable of
settlement by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the
public policy of India.
Explanation.—-Without prejudice to the generality of
clause (b), it is hereby declared, for the avoidance of any
doubt, that an award is in conflict with the public policy of
India if the making of the award was induced or affected by
fraud or corruption.
(3) If an application for the setting aside or suspension of the
award has been made to a competent authority referred to in
clause (e) of sub-section (1) the Court may, if it considers it
proper, adjourn the decision on the enforcement of the award and
may also , on the application of the party claiming enforcement
of the award, order the other party to give suitable security.”

 

 

136. The party which seeks to resist the enforcement of the
award has to prove one or more of the grounds set out in Section 48(1)
and (2) and/or the explanation of sub-section (2). In these
proceedings, we are, however, concerned only with the interpretation
of the terms “country where the award was made” and “under the law of
which the award was made”. The provisions correspond to Article
V(1)(e) of the New York Convention, which reads as under:-

“1. Recognition and enforcement of the award may be refused, at
the request of the party against whom it is invoked, only if
that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:
…………………………….
(e) the award has not yet become binding on the parties, or
has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award
was made.
2. Recognition and enforcement of an arbitral award may also be
refused if the competent authority in the country where
recognition and enforcement is sought finds that:
(a) the subject matter of the difference is not capable of
settlement by arbitration under the law of that country; or
(b) the recognition or enforcement of the award would be
contrary to the public policy of that country.

 

 

137. The aforesaid Article of the New York Convention has been
bodily lifted and incorporated in the Arbitration Act, 1996 as Section
48.
138. Thus, the intention of the legislature is clear that the
Court may refuse to enforce the foreign award on satisfactory proof of
any of the grounds mentioned in Section 48(1), by the party resisting
the enforcement of the award. The provision sets out the defences
open to the party to resist enforcement of a foreign award. The words
“suspended or set aside”, in Clause (e) of Section 48(1) can not be
interpreted to mean that, by necessary implication, the foreign award
sought to be enforced in India can also be challenged on merits in
Indian Courts. The provision merely recognizes that courts of the two
nations which are competent to annul or suspend an award. It does not
ipso facto confer jurisdiction on such Courts for annulment of an
award made outside the country. Such jurisdiction has to be
specifically provided, in the relevant national legislation of the
country in which the Court concerned is located. So far as India is
concerned, the Arbitration Act, 1996 does not confer any such
jurisdiction on the Indian Courts to annul an international commercial
award made outside India. Such provision exists in Section 34, which
is placed in Part I. Therefore, the applicability of that provision
is limited to the awards made in India. If the arguments of the
learned counsel for the appellants are accepted, it would entail
incorporating the provision contained in Section 34 of the Arbitration
Act, 1996, which is placed in Part I of the Arbitration Act, 1996 into
Part II of the said Act. This is not permissible as the intention of
the Parliament was clearly to confine the powers of the Indian Courts
to set aside an award relating to international commercial
arbitrations, which take place in India.
139. As noticed above, this section corresponds to Article
V(1)(e) of the New York Convention. A reading of the Article V(1)(e)
[Section 48(1)(e)] makes it clear that only the courts in the country
“in which the award was made” and the courts “under the law of which
the award was made” (hereinafter referred to as the “first
alternative” and the “second alternative” respectively) would be
competent to suspend/annul the New York Convention awards. It is
clarified that Section 48(1)(e) is only one of the defences on the
basis of which recognition and enforcement of the award may be
refused. It has no relevance to the determination of the issue as to
whether the national law of a country confers upon its courts, the
jurisdiction to annul the awards made outside the country. Therefore,
the word “suspended/set aside” in Section 48(1)(e) cannot be
interpreted to mean that, by necessary implication, the foreign awards
sought to be enforced in India can also be challenged on merits in
Indian Courts. The provision only means that Indian Courts would
recognize as a valid defence in the enforcement proceedings relating
to a foreign award, if the Court is satisfied that the award has been
set aside in one of the two countries, i.e., the “first alternative”
or the “second alternative”.
140. Mr. Sundaram had submitted that the two countries identified in
“alternative one” and “alternative two”, would have concurrent
jurisdiction to annul the award. In our opinion, interpreting the
provision in the manner suggested by Mr. Sundaram would lead to very
serious practical problems.
141. In this context, it would be relevant to take note of
some of the observations made by Hans Smit, Professor of Law, Columbia
University in the Article titled “Annulment and Enforcement of
International Arbitral Awards”. The author points out the reasons for
incorporating the second forum for annulment. He states that –
“While, therefore, there appears to be no justification, based
in reason and principle, for providing for an exception to the
general rule of recognition and enforcement for the forum at the
place of arbitration, the drafters of the Convention compounded
their error by providing for two fora for an annulment action.
For Article V(1)(e) envisages that an annulment action may be
brought “in the country in which….the award was made” or “in the
country….under the law of which the award was made.” The
disjunctive used in the Convention’s text naturally raises the
question of whether the second forum is available only if the
first is not or whether the party seeking annulment has the
option of selecting either or even to try its luck in both. The
legislative history of the Convention sheds illuminating light
on the issue.
The text of Article V(1)(e) originally proposed acknowledge only
the bringing of an annulment action in the place in which the
award was made. One of the delegates at the Conference devoted
to the drafting of the Convention raised the question of what
would happen if the forum at the place of arbitration would
refuse to entertain an annulment action. The obviously correct
answer to that question would have been that, in that case, no
annulment action could be brought and that the happy consequence
would be that only denial of recognition and enforcement on
grounds specified in the Convention would be possible. Instead,
the drafters of the Convention provided for an alternative forum
in the country the arbitration laws of which governed the
arbitration. That choice was both most fateful and most
regrettable.”

 

 
142. These observations militate against the concurrent jurisdiction
submission of Mr.Sundaram. The observations made by the learned
author, as noticed above, make it clear that the “second alternative”
is an exception to the general rule. It was only introduced to make it
possible for the award to be challenged in the court of the “second
alternative”, if the court of the “first alternative” had no power to
annul the award, under its national legislation. In our opinion, the
disjunction would also tend to show that the “second alternative”
would be available only if the first is not. Accepting the submission
made by Mr.Sundaram, would lead to unnecessary confusion. There can
be only one Court with jurisdiction to set aside the award. There is
a public policy consideration apparent, favouring the interpretation
that, only one Court would have jurisdiction to set aside the arbitral
award. This public policy aspect was considered by the Court of
Appeal in England in the case of C Vs. D (supra). The observation of
the Court of Appeal in Paragraph 16 of the judgment has already been
reproduced earlier in this judgment.
143. It was pointed out by the Court of Appeal that accepting more
than one jurisdiction for judicial remedies in respect of an award
would be a recipe for litigation and confusion. “Similarly, in the
case of a single complaint about an award, it could not be supposed
that the aggrieved party could complain in one jurisdiction and the
satisfied party be entitled to ask the other jurisdiction to declare
its satisfaction with the award”.
144. The creation of such a situation is apparent from the judgment
of this Court in Venture Global Engineering (supra). In the aforesaid
judgment, the award was made by the London Court of International
Arbitration on 3rd April, 2006. Respondent No.1, on 14th April, 2006,
filed a petition to recognize and enforce the award before the United
States District Court, Eastern District Court of Michigan, in the
United States of America (for short the ‘US Court’). The appellant
entered appearance to defend this proceeding before the US Court by
filing a cross petition. In the said petition, it took objection to
the enforcement of the award, which had directed transfer of shares.
The objection was that the direction was in violation of Indian laws
and regulations, specifically the Foreign Exchange Management Act (in
short the ‘FEMA’) and its notifications. Two weeks later on
28th April, 2006, the appellant filed a suit in the City Civil Court,
Secunderabad seeking declaration to set aside the award and permanent
injunction on the transfer of shares. On 15th June, 2006,
the District Court passed an ad interim ex parte order of injunction,
inter alia, restraining respondent No.1 for seeking or effecting the
transfer of shares either under the terms of the award or otherwise.
Respondent No.1 filed an appeal challenging the said order before the
High Court of Andhra Pradesh. The High Court admitted the appeal and
directed interim suspension of the order of the District Judge, but
made it clear that “respondent No.1 would not affect the transfer of
shares till further orders”.
145. On 13th July, 2006, in response to the summons, respondent No.1
appeared in the court and filed a petition under Order VII, Rule 11
for rejection of the plaint. The trial court by its order dated 28th
December, 2006, allowed the said application and rejected the plaint
of the appellant. On 27th February, 2007, the High Court dismissed the
appeal holding that the award cannot be challenged even if it is
against public policy and in contravention of statutory provisions.
The judgment of the High Court was challenged in appeal before this
Court. The appeal was allowed. It was held as follows:

 

 

“31. 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 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
33. 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.
37. In view of the legal position derived from Bhatia
International we are unable to accept Mr. Nariman’s argument. It
is relevant to point out that in this proceeding, we are not
deciding the merits of the claim of both parties, particularly,
the stand taken in the suit filed by the appellant herein for
setting aside the award. It is for the court concerned to decide
the issue on merits and we are not expressing anything on the
same. The present conclusion is only with regard to the main
issue whether the aggrieved party is entitled to challenge the
foreign award which was passed outside India in terms of
Sections 9/34 of the Act. Inasmuch as the three-Judge Bench
decision is an answer to the main issue raised, we are unable to
accept the contra view taken in various decisions relied on by
Mr. Nariman. Though in Bhatia International1 the issue relates
to filing a petition under Section 9 of the Act for interim
orders the ultimate conclusion that Part I would apply even for
foreign awards is an answer to the main issue raised in this
case.
42. The learned Senior Counsel for the appellant submitted that
the first respondent Satyam Computer Services Ltd. could not
have pursued the enforcement proceedings in the District Court
in Michigan, USA in the teeth of the injunction granted by the
courts in India which also, on the basis of the comity of
courts, should have been respected by the District Courts in
Michigan, USA. Elaborating the same, he further submitted that
the injunction of the trial court restraining the respondents
from seeking or effecting the transfer of shares either under
the terms of the award or otherwise was in force between 15-6-
2006 and 27-6-2006. The injunction of the High Court in the
following terms –
“the appellant (i.e. Respondent 1) shall not effect the transfer
of shares of the respondents pending further orders” was in
effect from 27-6-2006 till 28-12-2006. The judgment of the US
District Court was on 13-7-2006 and 31-7-2006 when the award was
directed to be enforced as sought by Respondent 1,
notwithstanding the injunction to the effect that the appellant
(Respondent 1 herein) “shall not effect the transfer of shares
of the respondents pending further orders”. The first respondent
pursued his enforcement suit in Michigan District Courts to have
a decree passed directing — “… VGE shall deliver to Satyam or
its designee, share certificates in a form suitable for
immediate transfer to Satyam evidencing all of the appellant’s
ownership interest in Satyam Venture Engineering Services
(SVES), the party’s joint venture company”. Further, “VGE (the
appellant herein) shall do all that may otherwise be necessary
to effect the transfer of its ownership interest in SVES to
Satyam (or its designee)”. It is pointed out that obtaining this
order by pursuing the case in the US District Courts, in the
teeth of the prohibition contained in the order of the High
Court, would not only be a contempt of the High Court but would
render all proceedings before the US courts a brutum fulmen, and
liable to be ignored. Though Mr. R.F. Nariman has pointed out
that the High Court only restrained the respondent from
effecting transfer of the shares pending further orders by the
City Civil Court, Secunderabad, after the orders of the trial
court as well as limited order of the High Court, the first
respondent ought not to have proceeded with the issue before the
District Court, Michigan without getting the interim
orders/directions vacated.
47. In terms of the decision in Bhatia International we hold
that Part I of the Act is applicable to the award in question
even though it is a foreign award. We have not expressed
anything on the merits of claim of both the parties. It is
further made clear that if it is found that the court in which
the appellant has filed a petition challenging the award is not
competent and having jurisdiction, the same shall be transferred
to the appropriate court. Since from the inception of ordering
notice in the special leave petition both parties were directed
to maintain status quo with regard to transfer of shares in
issue, the same shall be maintained till the disposal of the
suit. Considering the nature of dispute which relates to an
arbitration award, we request the court concerned to dispose of
the suit on merits one way or the other within a period of six
months from the date of receipt of copy of this judgment. Civil
appeal is allowed to this extent. No costs.”

 

146. With these observations, the matter was remanded back to the
trial court to dispose of the suit on merits. The submissions made by
Mr. K.K.Venugopal, as noticed in paragraph 42, epitomize the kind of
chaos which would be created by two court systems, in two different
countries, exercising concurrent jurisdiction over the same dispute.
There would be a clear risk of conflicting decisions. This would add
to the problems relating to the enforcement of such decisions. Such a
situation would undermine the policy underlying the New York
Convention or the UNCITRAL Model Law. Therefore, we are of the opinion
that appropriate manner to interpret the aforesaid provision is that
“alternative two” will become available only if “alternative one” is
not available.
147. The expression “under the law” has also generated a great deal
of controversy as to whether it applies to “the law governing the
substantive contract” or “the law governing the arbitration agreement”
or limited only to the procedural laws of the country in which the
award is made.

148. The consistent view of the international commentators seems to
be that the “second alternative” refers to the procedural law of the
arbitration rather than “law governing the arbitration agreement” or
“underlying contract”. This is even otherwise evident from the phrase
“under the law, that award was made”, which refers to the process of
making the award (i.e., the arbitration proceeding), rather than to
the formation or validity of the arbitration agreement.

149. Gary B. Born in his treatise titled International Commercial
Arbitration takes the view in Chapter 21 that the correct
interpretation of Article V(1)(e)’s “second alternative” is that it
relates exclusively to procedural law of the arbitration which
produced an award and not to other possible laws (such as the
substantive law governing the parties underlying dispute or governing
the parties’ arbitration agreement). He further notices that courts
have generally been extremely reluctant to conclude that the parties
have agreed upon a procedural law other than that of the arbitral
seat. Consequently, according to Born, although it is theoretically
possible for an award to be subject to annulment outside the arbitral
seat, by virtue of Article V(1)(e)’s “second alternative”, in reality
this is a highly unusual “once-in-a-blue-moon” occurrence. He further
notices that a number of national courts have considered the meaning
of Article V(1)(e)’s “second alternative”. Many, but not all, courts
have concluded that the alternative refers to “the procedural law of
arbitration”, rather than the “substantive law applicable to the
merits of the parties’ dispute or to the parties’ arbitration
agreement.” In our opinion, the views expressed by the learned author
are in consonance with the scheme and the spirit in which the New York
Convention was formulated. The underlying motivation of the New York
Convention was to reduce the hurdles and produce a uniform, simple and
speedy system for enforcement of foreign arbitral award. Therefore, it
seems to be accepted by the commentators and the courts in different
jurisdictions that the language of Article V(1)(e) referring to the
“second alternative” is to the country applying the procedural law of
arbitration if different from the arbitral forum and not the
substantive law governing the underlying contract between the parties.

 
Case Law –
150. At this stage, it would be appropriate to consider the manner in
which the expression “under the law” has been interpreted judicially
in different jurisdictions.
151. The aforesaid expression came up for consideration in the case of
Karaha Bodas Co. LLC Vs. Perusahaan Pertambangan Minyak Dan Gas Bumi
Negara,[43] the Federal Court in the U.S. considered the provisions
contained in Article V(1)(e) and observed as follows:-
“Article V(1)(e) of the Convention provides that a court of
secondary jurisdiction may refuse to enforce an arbitral award
if it “has been set aside or suspended by a competent authority
of the country in which, or under the law of which, that award
was made.” Courts have held that the language, “the competent
authority of the country …… under the law of which, that award
was made” refers exclusively to procedural and not substantive
law, and more precisely, to the regimen or scheme of arbitral
procedural law under which the arbitration was conducted, and
not the substantive law….. applied in the case.”……………..
“Under the New York Convention, an agreement specifying the
place of the arbitration creates a presumption that the
procedural law of that place applies to the arbitration.
Authorities on international arbitration describe an agreement
providing that one country will be the site of the arbitration
but the proceedings will be held under the arbitration law of
another country by terms such as “exceptional”; “almost
unknown”; a “purely academic invention”; “almost never use in
practice”; a possibility “more theoretical than real”; and a
“once–in-a-blue-moon set of circumstances.” Commentators note
that such an agreement would be complex, inconvenient, and
inconsistent with the selection of a neutral forum as the
arbitral forum……..”

 

 
152. Similarly, in the case of Karaha Bodas Co. LLC (Cayman Islands)
Vs. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara – Pertamina
(Indonesia),[44] the aforesaid legal proposition is reiterated. In
this case, again the Hong Kong Court considered Article V(1)(e) of the
Convention at length. This was a case where the substantive law
applicable to the contract was Indonesian law and the country of the
arbitration i.e. seat of arbitration as per the arbitration agreement
was Switzerland. It was contended relying on the second leg of
Article V(1)(e) that the law under which the award had been made was
Indonesian law and therefore Pertamina’s challenge in Indonesia was
valid. This was rejected. It was held that Article V(1)(e) referred
to the procedural or curial law and that because the seat of the
arbitration was in Switzerland, the lex arbitri or the curial or
procedural law applicable to the arbitration was Swiss law.
Therefore, only the Swiss Courts had jurisdiction to set aside the
award.
153. In International Electric Corporation Vs. Bridas Sociedad Anonima
Petroleva, Industrial Y Commercial,[45] the New York Court held that
the italicised words referred to the procedural law governing the
arbitration, and not to the substantive law governing the agreement
between the parties, since the situs of arbitration is Mexico, the
governing procedural law that of Mexico, only Mexico Courts have
jurisdiction under the Convention to vacate the award.
154. Redfern and Hunter (supra) at paragraph 11.96 state that the
court which is competent to sustain or set aside an award is the court
of the country in “alternative one” or “alternative two”. The authors,
however, further state that “this Court will almost invariably be the
national court at the seat of the arbitration”. They point out that
the prospect of an award being set aside under the procedural law of a
State other than that at the seat of arbitration is unlikely. They
point out that an ingenious (but unsuccessful) attempt was made to
persuade the US District Court to set aside an award made in Mexico,
on the basis that the reference to the law under which that award was
made was a reference to the law governing the dispute and not to the
procedural law (Paragraph 11.96). The Learned Authors had made a
reference to the case International Standard Electric Corp. (US) Vs.
Bridas Sociedad Anonima Petrolera (Argentina).[46] The Court rejected
the aforesaid argument with the following observations:-
“Decisions of foreign courts under the Convention uniformly
support the view that the clause in question means procedural
and not substantive (that is, in most cases, contract law)….
Accordingly, we hold that the contested language in Article
V(1)(e) of the Convention……refers exclusively to procedural and
not substantive law, and more precisely to the regimen or scheme
of arbitral procedural law under which the arbitration was
conducted.”
155. The Court went on to hold that since the quorum of arbitration
was Mexico, only the Mexican court had jurisdiction to set aside the
award.
156. The correct position under the New York Convention is described
very clearly and concisely by Gary B. Born in his book International
Commercial Arbitration (Kluwer Law International, Vol. I), Chapter X
Page 1260 as follows :
“This provision is vitally important for the international
arbitral process, because it significantly restricts the extent
of national court review of international arbitral awards in
annulment actions, limiting such review only to the courts of
the arbitral seat (that is, the state where the award is made or
the state whose procedural law is selected by the parties to
govern the arbitration). In so doing, the Convention ensures
that courts outside the arbitral seat may not purport to annul
an international award, thereby materially limiting the role of
such courts in supervising or overseeing the procedures utilized
in international arbitrations.
At the same time, the New York Convention also allows the courts
of the arbitral seat wide powers with regard to the annulment of
arbitral awards made locally. The Convention generally permits
the courts of the arbitral seat to annul an arbitral award on
any grounds available under local law, while limiting the
grounds for non-recognition of Convention awards in courts
outside the arbitral seat to those specified in Article V of the
Convention. This has the effect of permitting the courts of the
arbitral seat substantially greater scope than courts of other
states to affect the conduct or outcome of an international
arbitration through the vehicle of annulment actions. Together
with the other provisions of Articles II and V, this allocation
of annulment authority confirms the (continued) special
importance of the arbitral seat in the international arbitral
process under the New York Convention.”

 
( emphasis supplied)
157. In our opinion, the aforesaid is the correct way to interpret the
expressions “country where the award was made” and the “country under
the law of which the award was made”. We are unable to accept the
submission of Mr. Sundaram that the provision confers concurrent
jurisdiction in both the fora. “Second alternative” is available only
on the failure of the “first alternative”. The expression under the
law is the reference only to the procedural law/curial law of the
country in which the award was made and under the law of which the
award was made. It has no reference to the substantive law of the
contract between the parties. In such view of the matter, we have no
hesitation in rejecting the submission of the learned counsel for the
appellants.
158. At this stage, we may notice that in spite of the aforesaid
international understanding of the second limb of Article V(1)(e),
this Court has proceeded on a number of occasions to annul an award on
the basis that parties had chosen Indian Law to govern the substance
of their dispute. The aforesaid view has been expressed in Bhatia
International (supra) and Venture Global Engineering (supra). In our
opinion, accepting such an interpretation would be to ignore the
spirit underlying the New York Convention which embodies a consensus
evolved to encourage consensual resolution of complicated, intricate
and in many cases very sensitive International Commercial Disputes.
Therefore, the interpretation which hinders such a process ought not
to be accepted. This also seems to be the view of the national courts
in different jurisdictions across the world. For the reasons stated
above, we are also unable to agree with the conclusions recorded by
this Court in Venture Global Engineering (supra) that the foreign
award could be annulled on the exclusive grounds that the Indian law
governed the substance of the dispute. Such an opinion is not borne
out by the huge body of judicial precedents in different jurisdictions
of the world.

Interim measures etc. by the Indian Courts where the seat of
arbitration is outside India.
159. We have earlier noticed the submissions made by the learned
counsel for the parties wherein they had emphasised that in case the
applicability of Part I is limited to arbitration which take place in
India, no application for interim relief would be available under
Section 9 of the Arbitration Act, 1996, in an arbitration seated
outside India. It was further emphasised that in such circumstances,
the parties would be left remediless. Dr. Singhvi, in order to get
out of such a situation, had submitted that remedy under Section 9
would still be available. According to Dr. Singhvi, Section 9 is a
stand alone provision which cannot be effected by the limit contained
in Section 2(2). He submits that the provisions contained in Section 9
do not impede the arbitral process. Its only purpose is to provide an
efficacious, preservatory, interim, conservatory, emergent relief
necessary for protecting the subject matter of arbitration, pending
the conclusions of the proceedings. He also emphasised that interim
orders of foreign courts are not, ipso facto or ipso jure, enforceable
in India and, absent Section 9, a party will be remediless in several
real life situations. He, therefore, urged that this Court could give
a purposive interpretation of Section 9 to ensure that the Courts in
India have the jurisdiction to take necessary measures for
preservation of assets and/or to prevent dissipation of assets. Dr.
Singhvi submitted that the decision in Bhatia International (supra) is
correct, in so far as it relates to the grant of interim injunction
under Section 9 of the Arbitration Act, 1996. He did not say before us
that the courts in India would have any power to annul the award under
Section 34 of the Arbitration Act, 1996, in matters where arbitrations
have taken place at abroad. But at the same time, he canvassed that
the provisions contained in Section 9 cannot be equated with the
provisions contained in Section 34. The remedy under Section 9 is
interim and subservient to the main arbitration proceedings, whereas
remedy under Section 34 would interfere with the final award. Further
more, annulment of the award under Section 34 would have extra-
territorial operation whereas Section 9 being entirely asset focused,
would be intrinsically territory focused and intra-territorial in its
operation. He submitted that the ratio in Bhatia International on the
core issue, i.e., grant of interim measures under Section 9, is
correct. Although, he was not much concerned about the other issues,
of annulment or enforcement of the award, he has reiterated the
submissions made by the other learned counsel, on Sections 2(2),
2(1)(f) and 2(5).
160. We are unable to accept the submissions made by the learned
counsel. It would be wholly undesirable for this Court to declare by
process of interpretation that Section 9 is a provision which falls
neither in Part I or Part II. We also do not agree that Section 9 is
a sui generis provision.
161. Schematically, Section 9 is placed in Part I of the Arbitration
Act, 1996. Therefore, it can not be granted a special status. We have
already held earlier that Part I of the Arbitration Act, 1996 does not
apply to arbitrations held outside India. We may also notice that Part
II of the Arbitration Act, 1996, on the other hand, does not contain a
provision similar to Section 9. Thus, on a logical and schematic
construction of the Arbitration Act, 1996, the Indian Courts do not
have the power to grant interim measures when the seat of arbitration
is outside India. A bare perusal of Section 9 would clearly show that
it relates to interim measures before or during arbitral proceedings
or at any time after the making of the arbitral award, but before it
is enforced in accordance with Section 36. Section 36 necessarily
refers to enforcement of domestic awards only. Therefore, the
arbitral proceedings prior to the award contemplated under Section 36
can only relate to arbitrations which take place in India. We,
therefore, do not agree with the observations made in Bhatia
International (supra) in paragraph 28 that “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”. The text of Section 9 does not
support such an interpretation. The relevant part of the provisions is
as under:
“9. Interim measures, etc. by Court – A party may, before or
during arbitral proceedings or at any time after the making of
the arbitral award but before it is enforced in accordance with
Section 36, apply to a court………..”
162. A bare look at the aforesaid provision would indicate that there
is no break up of the sentence in between the two comas at the
beginning and end of the sentence. Therefore, the sentence cannot be
broken into three parts as it is done in paragraph 28 of Bhatia
International (supra). The arbitral proceedings mentioned in the
aforesaid provision cannot relate to arbitration which takes place
outside India.
163. Therefore, we have no hesitation in declaring that the provision
contained in Section 9 is limited in its application to arbitrations
which take place in India. Extending the applicability of Section 9
to arbitrations which take place outside India would be to do violence
to the policy of the territoriality declared in Section 2(2) of the
Arbitration Act, 1996.
164. It was next submitted that if the applicability of Part I is
limited to arbitrations which take place in India, it would leave many
parties remediless in a number of practical situations.
165. In this connection, Mr. Sorabjee has relied upon the judgment of
the English High Court in Reliance Industries Limited (supra). In the
aforesaid case, the contracts were governed by the Indian law as their
proper law. The disputes were to be determined by the arbitration in
London. The procedural law applicable was English Law. The distinction
between the proper law of the JOA’s and the procedural law was known
to the parties. At the arbitration hearing, the parties agreed that
the principles of construction of contracts in Indian Law were the
same as in English Law. The parties further agreed that the English
Law principles on the construction of contracts were those set out by
Lord Hoffmann in Investors Compensation Scheme Ltd. vs. West Bromwich
Building Society,[47] as explained and expanded by Lord Hoffmann in
Bank of Credit & Commerce International SA vs. Ali & Ors. [48] In
their awards, the three arbitrators stated (at paragraph 73) that they
would apply those principles to construe the contracts under
consideration in making their Partial Arbitral Awards. The question
raised at the threshold was whether the applicant-Reliance can apply
for permission to appeal to the Commercial Court in England and Wales
“on a question of law arising out of an award made in the proceedings”
under Section 69 (1) of the Arbitration Act, 1996 (English). So the
“threshold” issue was whether any point of construction of the
contracts, assuming that would be a question of law at all, is a
“question of law of England and Wales” within Section 82(1) of the
Arbitration Act, 1996. It was accepted by the applicant that unless
the question of law concerned “the law of England and Wales, then
leave to appeal cannot be granted.” The issue before the Court was as
to whether the questions of construction of JOA’s are questions of
Indian Law because the contracts are governed by Indian Law. The
parties did not, as a matter of fact, vary the proper law of the
contracts for the purposes of arbitration hearing in London. As the
parties agreed that the Indian Law applied to the contracts, the
arbitrators had to apply Indian Law when construing the contracts.
Although the parties agreed that Indian Law and English Law principles
of construction were the same, ultimately the arbitrators were
applying Indian Law rather than English Law to construe the contract.
The Court rejected the submission of the applicant that the
arbitrators had applied the English Law. The Court observed that:-
“27. I am unable to accept the submissions of Mr.Akenhead. The
parties agreed that the contracts were to be governed by Indian
Law as their proper law. The parties also agreed that disputes
should be determined by arbitration in London. The parties were
carful to ensure that English Law would be the procedural law
applicable to arbitration proceedings that arose as a result of
disputes arising out of the JOAs. The distinction between the
proper law of the JOAs and the procedural law was also well in
the minds of the arbitrators as they drew particular attention
to it in paragraph 26 of their Partial Awards. The effect of
those contractual provisions is, as the arbitrators also
recognized, that all procedural matters were to be governed by
English law as laid down in Part 1 of the 1996 Act. The parties
must be taken to have appreciated that fact also.
28. The consequence is that if and when disputes under the
contracts were referred to arbitration, as a matter of the
procedural law of the arbitrations (English Law), the tribunal
had to decide those disputes in accordance with the proper law
of the contracts as chosen by the parties – unless the parties
agreed to vary the contracts’ terms, which they did not.
Therefore, if as in this case, the arbitrators had to decide
issues of construction of the JOAs, then they were bound to do
so using principles of construction established under the proper
law of the contracts, i.e. Indian law.
29. As it happens the parties agreed that the principles of
construction under the proper law of the contract equated with
those principles under English law, as declared by the House of
Lords in two recent cases. What the arbitrators did was to take
those principles of construction and apply them as principles of
Indian law in order to construe the contracts according to
Indian law. The arbitrators had to do that, as a matter of the
procedural law of the arbitration. That is because under the
English law of arbitration procedure, the arbitrators were bound
to construe the contracts and determine the disputes between the
parties according to the proper law of the contracts concerned.
30. Therefore, I think that it is wrong to say that the
arbitrators “applied English Law” when construing the contracts.
They applied Indian law, which happened to be the same as
English law on this topic.”
166. On the basis of that, it was concluded that no question of law of
England and Wales arises out of the two partial awards of the
arbitrators. It was accordingly held that the English Court does not
have any power to grant leave to appeal under Section 69 of the
Arbitration Act, 1996.
167. In our opinion, the aforesaid judgment does not lead to the
conclusion that the parties were left without any remedy. Rather the
remedy was pursued in England to its logical conclusion. Merely,
because the remedy in such circumstances may be more onerous from the
view point of one party is not the same as a party being left without
a remedy. Similar would be the position in cases where parties seek
interim relief with regard to the protection of the assets. Once the
parties have chosen voluntarily that the seat of the arbitration shall
be outside India, they are impliedly also understood to have chosen
the necessary incidents and consequences of such choice. We,
therefore, do not find any substance in the submissions made by the
learned counsel for the appellants, that if applicability of Part I is
limited to arbitrations which take place in India, it would leave many
parties remediless.
168. If that be so, it is a matter to be redressed by the legislature.
We may also usefully refer here to the observations made in Nalinakhya
Bysack (supra), Duport Steels Ltd. (supra) and Magor & St. Mellons,
RDC Vs. Newport Corporation (supra), in which the attempt made by Lord
Denning to construe legislation contrary to Parliament’s intention
just to avoid hardship was disapproved by the House of Lords. It was
observed by Lord Simonds as follows:-
“The second part of the passage that I have cited from the
judgment of the learned Lord Justice is no doubt the logical
sequel of the first. The court, having discovered the intention
of Parliament and of Ministers too, must proceed to fill in the
gaps. What the legislature has not written, the court must
write. This proposition, which restates in a new form the view
expressed by the Lord Justice in the earlier case of Seaford
Court Estates Ld. V. Asher (to which the Lord Justice himself
refers), cannot be supported. It appears to me to be a naked
usurpation of the legislative function under the thin disguise
of interpretation and it is the less justifiable when it is
guesswork with what material the legislature would, if it had
discovered the gap, have filled it in. If a gap is disclosed,
the remedy lies in an amending Act.”
[emphasis supplied]
169. The aforesaid words in italics have been quoted with approval by
a Constitution Bench of this Court in Punjab Land Development and
Reclamation Corporation Ltd., Chandigarh Vs. Presiding Officer, Labour
Court, Chandigarh & Others.[49]

170. In view of the aforesaid, we are unable to agree with the
submission made by Dr. Singhvi that provision contained in Section 9
can be made applicable even to arbitrations which take place outside
India by giving the same a purposive interpretation. In our opinion,
giving such an interpretation would be destructive of the territorial
principles upon which the UNCITRAL Model Laws are premised, which have
been adopted by the Arbitration Act, 1996.
171. We are further of the opinion that the approach adopted by this
Court in Bhatia International to remove the perceived hardship is not
permissible under law. A perusal of paragraph 15 would show that in
interpreting the provisions of the Arbitration Act, 1996, the court
applied the following tests:

“Notwithstanding the conventional principle that the duty of
Judges is to expound and not to legislate, the courts have
taken the view that the judicial art interpretation and
appraisal is imbued with creativity and realism and since
interpretation always implied a degree of discretion and
choice, the courts would adopt, particularly in areas such
as, constitutional adjudication dealing with social and
defuse (sic) rights. Courts are therefore, held as
“finishers, refiners and polishers of legislation which comes
to them in a state requiring varying degrees of further
processing” (see Corocraft Ltd. v. Pan American Airways, All
ER at p. 1071 D, WLR at p. 732, State of Haryana v. Sampuran
Singh, AIR at p. 1957). If a language used is capable of
bearing more than one construction, in selecting the true
meaning, regard must be had to the consequences, resulting
from adopting the alternative constructions. A construction
that results in hardship, serious inconvenience, injustice,
absurdity or anomaly or which leads to inconsistency or
uncertainty and friction in the system which the statute
purports to regulate has to be rejected and preference should
be given to that construction which avoids such results.”
172. From the above, it is evident that the provisions of the
Arbitration Act, 1996 were interpreted keeping in mind the
consequences in limiting the applicability of Part I to arbitrations
which take place in India. The Court also acted as “finishers”,
“refiners” and “polishers” of the Arbitration Act, 1996 assuming that
the Arbitration Act, 1996 required varied degrees of further
“processing”. In our opinion, as demonstrated whilst discussing the
various provisions of the Arbitration Act, 1996 in earlier part of
judgment, the intention of the Parliament is available within the text
and the context of the provisions. As observed by Lord Simonds in
Magor & St.Mellons Vs. Newport Corporation (supra), if the gap or
lacuna is disclosed, it would be for the Parliament to rectify the
same. Such a task cannot be undertaken by the Court.
173. It was also submitted that Non-Convention Awards would not be
covered either by Part I or Part II. This would amount to holding that
the legislature has left a lacuna in the Arbitration Act, 1996. This
would mean that there is no law in India governing such arbitrations.
174. We are of the opinion that merely because the Arbitration Act,
1996 does not cover the non convention awards would not create a
lacuna in the Arbitration Act, 1996. If there was no lacuna during the
period in which the same law was contained in three different
instruments, i.e. the Arbitration Act, 1940 read with 1961 Act, and
the Arbitration (Protocol and Convention) Act, 1937, it cannot be
construed as a lacuna when the same law is consolidated into one
legislation, i.e. the Arbitration Act, 1996.
175. It must further be emphasised that the definition of
“foreign awards” in Sections 44 and 53 of the Arbitration Act, 1996
intentionally limits it to awards made in pursuance of an agreement to
which the New York Convention, 1958 or the Geneva Protocol, 1923
applies. It is obvious, therefore, that no remedy was provided for the
enforcement of the ‘non convention awards’ under the 1961 Act.
Therefore, the non convention award cannot be incorporated into the
Arbitration Act, 1996 by process of interpretation. The task of
removing any perceived lacuna or curing any defect in the Arbitration
Act, 1996 is with the Parliament. The submission of the learned
counsel is, therefore, rejected. The intention of the legislature is
primarily to be discovered from the language used, which means that
the attention should be paid to what has been said and also to what
has not been said. [See: Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. vs.
Custodian of Vested Forests, [AIR 1990 SCC 1747 at page 1752]. Here
the clear intention of the legislature is not to include the Non-
convention Awards within the Arbitration Act, 1996.
Is An Inter-Parte Suit For Interim Relief Maintainable –
176. It appears to us that as a matter of law, an inter-parte suit
simply for interim relief pending arbitrations, even if it be limited
for the purpose of restraining dissipation of assets would not be
maintainable. There would be number of hurdles which the plaintiff
would have to cross, which may well prove to be insurmountable.
177. Civil Courts in India, by virtue of Section 9 of the Code of
Civil Procedure, 1908 (for short the ‘CPC’), have the jurisdiction to
try all suits of a civil nature, excepting suits which are either
expressly or impliedly barred. Fundamental to the maintainability of a
civil suit is the existence of a cause of action in favour of the
plaintiff. This is evident from the various provisions contained in
the CPC. However, it would be appropriate to notice that Order VII
Rule 1 gives the list of the particulars which have to be mandatorily
included in the plaint. Order VII Rule 1(e) mandates the plaintiff to
state the facts constituting the cause of action and when it arose.
Order VII Rule 11(a) provides the plaint shall be rejected where it
does not disclose a cause of action. A cause of action is the bundle
of facts which are required to be proved for obtaining relief prayed
for in the suit. The suit of the plaintiff has to be framed in
accordance with Order II. Order II Rule 1 provides that every suit
shall as far as practicable be framed so as to afford ground for final
decision upon the subjects in dispute and to prevent further
litigation concerning them. The aforesaid rule is required to be read
along with Rule 2 which provides that every suit shall include the
whole of the claim which the plaintiff is entitled to make in respect
of the cause of action; but a plaintiff may relinquish any portion of
his claim in order to bring the suit within the jurisdiction of any
court. The aforesaid provisions read together would lead to the firm
conclusion that the existence of cause of action is a sine qua non for
the maintainability of a civil suit.
178. The provisions with regard to the temporary injunction and
interlocutory orders are contained in Order 39 and Order 40. In order
to claim an injunction the existence of a pending suit is a pre
requisite. It is in this background that one has to examine as to
whether an inter-parte suit for interim relief during the pendency of
arbitration proceedings outside India would be maintainable.
179. In our opinion, pendency of the arbitration proceedings outside
India would not provide a cause of action for a suit where the main
prayer is for injunction. Mr.Sundaram has rightly pointed out that the
entire suit would be based on the pendency of arbitration proceedings
in a foreign country. Therefore, it would not be open to a party to
file a suit touching on the merits of the arbitration. If such a suit
was to be filed, it would in all probabilities be stayed in view of
Sections 8 and 45 of the Arbitration Act, 1996. It must also be
noticed that such a suit, if at all, can only be framed as a suit to
“inter alia restrain the defendant from parting with property.” Now,
if the right to such property could possibly arise, only if the future
arbitration award could possibly be in favour of the plaintiff, no
suit for a declaration could obviously be filed, based purely only on
such a contingency. All that could then be filed would, therefore, be
a bare suit for injunction restraining the other party from parting
with property. The interlocutory relief would also be identical. In
our view, such a suit would not be maintainable, because an
interlocutory injunction can only be granted during the pendency of a
civil suit claiming a relief which is likely to result in a final
decision upon the subject in dispute. The suit would be maintainable
only on the existence of a cause of action, which would entitle the
plaintiff for the substantive relief claimed in the suit. The interim
injunction itself must be a part of the substantive relief to which
the plaintiff’s cause of action entitled him. In our opinion, most of
the aforesaid ingredients are missing in a suit claiming injunction
restraining a party from dealing with the assets during the pendency
of arbitration proceedings outside India. Since the dispute is to be
decided by the Arbitrator, no substantive relief concerning the merits
of the arbitration could be claimed in the suit. The only relief that
could be asked for would be to safeguard the property which the
plaintiff may or may not be entitled to proceed against. In fact the
plaintiff’s only claim would depend on the outcome of the arbitration
proceeding in a foreign country over which the courts in India would
have no jurisdiction. The cause of action would clearly be
contingent/speculative. There would be no existing cause of action.
The plaint itself would be liable to be rejected under Order VII Rule
11(a). In any event, as noticed above, no interim relief could be
granted unless it is in aid of and ancillary to the main relief that
may be available to a party on final determination of rights in a
suit. This view will find support from a number of judgments of this
Court.
180. In the State of Orissa vs. Madan Gopal Rungta,[50] at page 35
this Court held:
“….An interim relief can be granted only in aid or, and as
ancillary to, the main relief which may be available to the
party on final determination of his rights in a suit or
proceeding……”
181. Following the above Constitution Bench, this Court in Cotton
Corporation Limited vs. United Industrial Bank[51] held:
“10……But power to grant temporary injunction was conferred in
aid or as auxiliary to the final relief that may be granted. If
the final relief cannot be granted in terms as prayed for,
temporary relief in the same terms can hardly if ever be
granted. In State of Orissa v. Madan Gopal Rungta a Constitution
Bench of this Court clearly spelt out the contours within which
interim relief can be granted. The Court said that ‘an interim
relief can be granted only in aid of, and as ancillary to, the
main relief which may be available to the party on final
determination of his rights in a suit or proceeding’. If this be
the purpose to achieve which power to grant temporary relief is
conferred, it is inconceivable that where the final relief
cannot be granted in the terms sought for because the statute
bars granting such a relief ipso facto the temporary relief of
the same nature cannot be granted…..”
182. The legal position is reiterated in Ashok Kumar Lingala vs. State
of Karnataka.[52]
183. In matters pertaining to arbitration, the suit would also
be barred under Section 14(2) of the Specific Relief Act. Although
the provision exists in Section 37 of the Specific Relief Act, 1963,
for grant of temporary/perpetual injunction, but the existence of
cause of action would be essential under this provision also. Similar
would be the position under Section 38 of the Specific Relief Act.
184. Claim for a Mareva Injunction in somewhat similar
circumstances came up for consideration in England before the House of
Lords in Siskina (Cargo Owners) Vs. Distos Compania Navieria SA
(supra). In this case, cargo owners had a claim against a Panamanian
company. The dispute had no connection with England. The defendant’s
only ship had sunk and there were insurance proceeds in England to
which the defendant was entitled. The cargo owners sought leave to
serve the writ on the defendant under what was then RSC Order 11, Rule
1(1)(i). Mocatta, J. gave leave and at the same time granted an
injunction in the terms asked for in Paragraph 2 of the writ petition.
Subsequently, Kerr, J. set aside the notice of the writ but
maintained the injunction pending in appeal. On the cargo-owners
appeal, the Court of Appeal by a majority reversed the judgment of
Kerr, J. and restored the Mareva injunction as originally granted by
Mocatta, J. The matter reached the House of Lords by way of an appeal
against the majority judgment of the Court of Appeal. The House of
Lords on appeal held that there was no jurisdiction to commence
substantive proceedings in England. Therefore, the writ and all
subsequent proceedings in the action had to be set aside. Consequently
there could be no Mareva injunction. It was held that a Mareva
injunction was merely an interlocutory injunction and such an
injunction could only be granted as “.… ancillary and incidental to
the pre-existing cause of action”.
185. Lord Diplock observed that “it is conceded that the cargo owners’
claim for damages for breach of contract does not of itself fall
within any of the sub-rules of Order 11, Rule 1(1); nor does their
claim for damages for tort.” It is further observed that “what is
contended by the counsel for the cargo-owners is that if the action
is nevertheless allowed to proceed, it will support a claim for Mareva
injunction restraining the ship owners from disposing of their assets
within the jurisdiction until judgment and payment of the damages
awarded thereby; and that this of itself is sufficient to bring the
case within sub-rule (i) which empowers the High Court to give leave
for service of its process on persons outside the jurisdictions”.
Interpreting Order 11 Rule 1(i), it was held that the word used in sub-
rule (i) are terms of legal art. The sub-rule speaks of “the action”
in which a particular kind of relief, “an injunction” is sought. This
pre-supposes the existence of a cause of action on which to found “the
action”. A right to obtain an interlocutory injunction is not a cause
of action. It cannot stand on its own. It is dependent upon there
being a pre-existing cause of action against the defendant arising out
of an invasion, actual or threatened by him, of a legal or equitable
right of the plaintiff for the enforcement of which the defendant is
amenable to the jurisdiction of the Court. The right to obtain an
interlocutory injunction is merely ancillary and incidental to the pre-
existing cause of action. It is granted to preserve the status quo
pending the ascertainment by the Court of the rights of the parties
and the grant to the plaintiff of the relief to which his cause of
action entitles him, which may or may not include a final injunction.
186. As noticed earlier, the position is no different in
India. Therefore it appears that under the law, as it stands today,
an inter-parte suit simply for interim relief pending arbitration
outside India would not be maintainable.
187. It appears after the aforesaid observations were made in
Siskina (Cargo Owners) (supra), necessary amendments were made in the
English Law viz. Section 37(1) of the Supreme Court Act, 1981. The
provision was specifically made for grant of Mareva injunction by
Section 25 of the Civil Jurisdiction and Judgments Act, 1982.
189. The after effects of Siskina (Cargo Owners) (supra) were duly
noticed by Steven Gee QC MA (Oxon) in his book titled Mareva
Injunctions and Anton Piller Relief, Fourth Edition, as under:-
i) The English Court would not assert a
substantive jurisdiction over a defendant
just because he had assets within the
jurisdiction. The contrary proposition
would have had the unsatisfactory
consequence as observed by Lord Diplock in
Siskina that the Court would find itself
asserting jurisdiction over a foreigner to
decide the merits of substantive
proceedings which had nothing to do with
England.
ii) There was no jurisdiction to grant Mareva
relief unless and until the plaintiff had
an accrued right of action.
iii) There was no jurisdiction to preserve assets within
the jurisdiction of the Court which would be needed
to satisfy a claim against the defendant if it
eventually succeeded regardless of where the merits
of the substantive claim were to be decided.
According to the other, the position in relation to
the free-standing interlocutory injunction relief has
been eroded by a succession of developments.
190. Thereafter, in a subsequent judgment in Channel Tunnel Group Ltd.
& Anr. Vs. Balfour Beatty Construction Ltd. & Ors.,[53] Lord Mustill
summed up the principle for grant of interim relief as follows:-
“For present purposes it is sufficient to say that the doctrine
of Siskina, put at its highest, is that the right to an
interlocutory injunction cannot exist in isolation, but is
always incidental to and dependent on the enforcement of a
substantive right, which usually although not invariably takes
the shape of a cause of action. If the underlying right itself
is not subject to the jurisdiction of the English Court, then
that Court should never exercise its power under Section 37(1)
by way of interim relief.”
191. However, on facts in the Channel Tunnel case (supra), it was
found that “if this is a correct appreciation of the doctrine, it does
not apply to the present case.”
192. From the above, it is apparent that the injunctive relief was
granted in Channel Tunnel case in view of the statutory provisions
contained in Section 37(1) of the Supreme Court Act, 1981. This is
made further clear by the following observations:-
“We are concerned here with powers which the Court already
possesses under Section 37 of the Act of 1981. The only
question is whether the court ought permanently and
unconditionally to renounce the possibility of exercising such
powers in a case like the present. I am unable to see why the
fact that Parliament is contemplating the specific grant of
interim powers, not limited to interlocutory injunctions, in
support of arbitrations but has not yet chosen to do so should
shed any light on the powers of the court under existing law.
It may be that if and when section 25 is made applicable to
arbitrations, the court will have to be very cautious in the
exercise of its general powers under section 37 so as not to
conflict with any restraint which the legislature may have
imposed on the exercise of the new and specialized powers.”
193. The decision in Channel Tunnel would not support the proposition
that injunctive relief could be granted under Section 9 of the
Arbitration Act, 1996, as no corresponding provision to Section 37(1)
of the English Supreme Court Act, 1981 exists under the Indian
legislation.
194. Mr. Sorabjee has also referred to the principle that no suit
allows for grant of interim injunction simplicitor and that an interim
injunction had to be granted only in aid of a final
injunction/principle relief claimed in the suit. He made a reference
to the Constitution Bench decision of this Court in State of Orissa
Vs. Madan Gopal Rungta (supra). He also referred to the judgment of
the House of Lords in Fourie Vs. Le Roux (supra). The House of Lords
after referring to the decision in Siskina and Channel Tunnel observed
as follows:-
“On the other hand, if the leave had been upheld, or if the
defendant had submitted to the jurisdiction, it would still have
been open to the defendant to argue that the grant of a Mareva
injunction in aid of the foreign proceedings in Cyprus was
impermissible, not on strict jurisdictional grounds but because
such injunctions should not be granted otherwise than as
ancillary to substantive proceedings in England.”
[emphasis supplied]
195. However, the House of Lords pointed out in Paragraph 31 of the
judgment that the relief can now be granted under English Law by
virtue of express provision contained in Section 25 of the Civil
Jurisdiction and Judgment Act, 1982, as extended to the Civil
Jurisdiction and Judgments Act (Interim Relief) Order, 1997. This
order enables the High Court “to grant interim relief” in relation to
“proceedings that have been or are about to be commenced in a foreign
state”.
196. So far as the Indian Law is concerned, it is settled that the
source “of a Court’s power to grant interim relief is traceable to
Section 94 and in exceptional cases Section 151 CPC. CPC pre-supposes
the existence of a substantive suit for final relief wherein the power
to grant an interim relief may be exercised only till disposal
thereof.
197. In this view of the matter, it is patent that there is no
existing provision under the CPC or under the Arbitration Act, 1996
for a Court to grant interim measures in terms of Section 9, in
arbitrations which take place outside India, even though the parties
by agreement may have made the Arbitration Act, 1996 as the governing
law of arbitration.
CONCLUSION :-
198. In view of the above discussion, we are of the considered opinion
that the Arbitration Act, 1996 has accepted the territoriality
principle which has been adopted in the UNCITRAL Model Law. Section
2(2) makes a declaration that Part I of the Arbitration Act, 1996
shall apply to all arbitrations which take place within India. We are
of the considered opinion that Part I of the Arbitration Act, 1996
would have no application to International Commercial Arbitration held
outside India. Therefore, such awards would only be subject to the
jurisdiction of the Indian courts when the same are sought to be
enforced in India in accordance with the provisions contained in Part
II of the Arbitration Act, 1996. In our opinion, the provisions
contained in Arbitration Act, 1996 make it crystal clear that there
can be no overlapping or intermingling of the provisions contained in
Part I with the provisions contained in Part II of the Arbitration
Act, 1996.
199. With utmost respect, we are unable to agree with the
conclusions recorded in the judgments of this Court in Bhatia
International (supra) and Venture Global Engineering (supra). 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.
200. 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.
201. The judgment in Bhatia International (supra) was rendered
by this Court on 13th March, 2002. Since then, the aforesaid judgment
has been followed by all the High Courts as well as by this Court on
numerous occasions. In fact, the judgment in Venture Global
Engineering (supra) has been rendered on 10th January, 2008 in terms
of the ratio of the decision in Bhatia International (supra). Thus,
in order to do complete justice, we hereby order, that the law now
declared by this Court shall apply prospectively, to all the
arbitration agreements executed hereafter.
202. The reference is answered accordingly.

………………………………..CJI.
[S.H.KAPADIA]
…….…………………………..J.
[D.K.JAIN]
.………………………………….j
[SURINDER SINGH NIJJAR]
………………………………….J.
[RANJANA PRAKASH DESAI]
..………………………………..J.
[JAGDISH SINGH KHEHAR]

NEW DELHI;
SEPTEMBER 06, 2012.
———————–
[1] (2002) 2 SCC 388

[2] (2005) 8 SCC 618

[3] 1953 SCR 533

[4] 1951 (2) All ER 839

[5] (1990) 3 SCC 682

[6] (1980) 1 All ER 529

[7] (1992) 3 SCC 551

[8] 2002 (1) Lloyd Law Reports 645

[9] [2008]EWHC 426 (TCC)

[10] [2009] EWHC 957 (Comm.).

[11] (2004) 2 SCC 105

[12] 1979 AC 210

[13] 2007 (1) WLR 320; 2007 (1) All ER 1087

[14] 2007 (7) SCC 125 at 136

[15] 1952(1) SCR 28

[16] 1997 Suppl (1) SCC 680

[17] (2005) (9) SCC 733

[18] (2004) 4 SCC 697

[19] (2011) 2 SCC 741

[20] [2008 (4) SCC 190]

[21] 1987 (1) SCC 496

[22] 1989 (2) SCC 163

[23] 2011 (7) SCC 463

[24] 2008 (14) SCC 271

[25] See P.V Kane History of Dharmasastra, Vol.III P.242

[26] See Justice S.Varadachariar Hindu Judicial System P.98

[27] 1981 (4) SCC 634

[28] LR (1891) AC 531 at Page 549

[29] 6 Moo PC 1 : 4 MIA 179

[30] (1933) LR 60 IA 13; AIR (1933) PC 63

[31] 1988 (1) Lloyd’s Law Reports 116

[32] 1993 (3) Lloyd’s Law Reports 48

[33] See Swiss Private International Law Act, 1987, Chapter 12 Article
176 (1)

[34] 1975 (1) SCC 76 Para 37 at P.103

[35] 1949 AC 530 at P 546

[36] 710 F.2d 928

[37] [1970] 1 Lloyd’s Rep. 269; [1970] A.C.583

[38] [1981] 2 Lloyd’s Rep. 446 at P. 453

[39] [2007] EWCA Civ 1282 (CA)

[40] [2012 WL 14764].

[41] [2007] 1 Lloyds Report 237

[42] (1992) 1 SCC 335

[43] 335 F.3d 357

[44] Yearbook Comm. Arb’n Vol. XXVIII )2003) Page 752

[45] 745 F Supp 172, 178 (SDNY 1990)

[46] (1992) VII Ybk Comm Arb 639

[47] [1998] WLR 1896 at 913

[48] [2001] 2 WLR 735 at 749

[49] (1990) 3 SCC 682

[50] AIR 1952 SC 12

[51] (1983) 4 SCC 625

[52] (2012) 1 SCC 321

[53] (1993) AC 334
———————–
184

 

 

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