HARMONY INNOVATION SHIPPING LTD. Vs. GUPTA COAL INDIA LTD. AND ANR
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 610 of 2015, Judgment Date: Mar 10, 2015
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 610 2015
[Arising out of SLP(C) NO. 36643 OF 2014]
Harmony Innovation Shipping Ltd. ... Appellant
Versus
Gupta Coal India Ltd. & Anr. ...Respondents
J U D G M E N T
Dipak Misra, J.
The issue that has emanated for consideration in this appeal is
whether in the obtaining factual matrix, especially regard being had
to the nature of the arbitration clause, the High Court is justified
in setting aside the order passed by the learned Additional District
Judge, Ernakulam on 25.9.2014 in I.A. No. 4345 of 2014 in O.P. (ARB)
No. 802/2014 directing the first respondent therein to furnish
security for US$ 11,15,400 or its equivalent (approximate) Indian
Rupees 6,60,00,000/- or to show cause on or before 01.10.2014, and as
an interim measure conditionally attaching the cargo belonging to the
first respondent herein, while dealing with an application moved under
Section 9 of the Arbitration and Conciliation Act, 1996 (for brevity,
"the Act"), on the foundation that Section 9 of the Act is limited to
the applications to arbitration that takes place in India and has no
applicability to arbitration which takes place outside India in view
of the pronouncement in Bharat Aluminium Co. v. Kaiser Aluminium
Technical Services Inc.[1] inasmuch as clause 5 of the contract which
is the arbitration clause clearly spells out that the contract is to
be governed and construed according to English law and if the dispute
of the claim does not exceed USD 50,000, the arbitration should be
conducted in accordance with small claims procedure of the London
Maritime Arbitration Association.
2. Regard being had to the lis in question, suffice it to state
that an agreement was entered into between the parties on 20.10.2010
in respect of 24 voyages of coal shipment belonging to the appellant,
the first respondent before the High Court, from Indonesia to India.
The respondent no. 1 herein, Gupta Coal India Ltd., undertook only 15
voyages and that resulted in disputes which ultimately stood referred
to arbitration. Be it noted, an addendum to contract was executed as
regards the remaining voyages on 3.4.2013 when disputes arose in
respect of the principal/main agreement. As the facts would undrape
arbitration proceedings were initiated and eventually an award was
passed.
3. After the award came into existence, the present appellant filed
an application under Section 9 before the District Court, Ernakulam
for its enforcement under Sections 9/47 and 49 of the Act. As the
factual narration would further uncurtain in respect of the addendum
to contract, when disputes arose relating to the same, arbitration
proceedings were initiated and at that juncture, the appellant moved
the learned 2nd Additional District Court, Ernakulam under Section 9
of the Act seeking attachment of the cargos as an interim relief and
the learned Additional District Judge, as has been stated earlier,
issued conditional order of attachment.
4. The order passed by the learned Additional District Judge, was
assailed before the High Court in a Writ Petition, O.P.(C) No. 2612 of
2014 raising a singular contention that the impugned order therein was
absolutely without jurisdiction and hence, unsustainable in law.
5. A counter affidavit was filed contending, inter alia, that the
application before the learned Additional District Judge was
maintainable inasmuch as the contract between the parties was entered
into prior to the decision in Bharat Aluminium Co. (supra) and,
therefore, the principle laid down in the said decision was not
attracted to the facts of the case, and in fact, it was governed by
the principles stated in Bhatia International v. Bulk Trading S.A[2].
6. The High Court, after hearing the learned counsel for the
parties, referred to main agreement, Exhibit P-1, the addendum,
Exhibit P-2, and the arbitration clause in the main agreement and
considered the decisions in Bhatia International (supra) and Venture
Global Engg. v. Satyam Computer Services Ltd.[3], some decisions of
the High Court, reproduced a passage from Russell on Arbitration and
eventually came to hold as follows:
"The contention that since Ext.P1 was entered into before the
judgment in Bharat Aluminium Co.'s case and therefore the
principles laid down in the said decision is not applicable to
the facts of the case cannot be countenanced. The law laid down
by the Supreme Court in Bharat Aluminium Co.'s case is
declaratory in nature and, therefore, the first respondent
cannot be heard to say that he is not bound by the same and that
the said principle cannot be applied to the case on hand. In
the case of a declaration, it is supposed to have been the law
always and one cannot be heard to say that it has only
prospective effect. It is deemed to have been the law at all
times. If that be so, the petition before the court below is
not maintainable and is only to be dismissed."
7. At the very outset, it is necessary to clear the maze as regards
the understanding of the ratio in Bharat Aluminium Co. (supra) by the
High Court. In the said case, the Constitution Bench has clearly
ruled thus:
"197. The judgment in Bhatia International was rendered by this
Court on 13-3-2002. 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
Engg. has been rendered on 10-1-2008 in terms of the ratio of
the decision in Bhatia International. 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."
The aforesaid judgment by the Constitution Bench was decided on
September 6, 2012. In the instant case, the arbitration agreement was
executed prior to that date and the addendum, as mentioned earlier,
came into existence afterwards. Therefore, there can be no scintilla
of doubt that the authority in Bharat Aluminium Co. case would not be
applicable for determination of the controversy in hand. In fact, the
pronouncement in Bhatia International (supra) would be applicable to
the facts of the present case inasmuch as there is nothing in the
addendum to suggest any arbitration and, in fact, it is controlled and
governed by the conditions postulated in the principal contract. We
shall advert to this aspect slightly more specifically at a later
stage.
8. Keeping the aforesaid in view, it is necessary to keenly
understand the decision in Bhatia International (supra). In the said
case, the agreement entered into between the parties, contained an
arbitration clause which provided that arbitration was to be as per
Rules of International Chambers of Commerce (for short, "the ICC).
The parties had agreed that the arbitration was to be held in Paris,
France. The first respondent filed an application under Section 9 of
the Act before the learned Additional District Judge, Indore, M.P.
with an interim prayer. A plea was raised by the appellant that the
Indore Court had no jurisdiction and application was not maintainable.
The said stand was repelled by the learned Additional District Judge,
which found favour with the High Court. Before this Court, it was
urged on behalf of the appellant that Part I of the Act only applies
to arbitration where the place of arbitration is in India, but if the
place of arbitration is not in India, then Part II of the Act would
apply. On behalf of the respondent therein, it was urged that unless
the parties, by their agreement either expressly or impliedly exclude
its provisions, Part I would also apply to all international
commercial arbitrations including those that take place in India. The
three-Judge Bench came to hold thus:-
"To conclude, we hold that the provisions of Part I would apply
to all arbitrations and to all proceedings relating thereto.
Where such arbitration is held in India the provisions of Part I
would compulsorily apply and parties are free to deviate only to
the extent permitted by the derogable provisions of Part I. In
cases of international commercial arbitrations held out of India
provisions of Part I would apply unless the parties by
agreement, express or implied, exclude all or any of its
provisions. In that case the laws or rules chosen by the parties
would prevail. Any provision, in Part I, which is contrary to or
excluded by that law or rules will not apply."
[Emphasis supplied]
After the said conclusion was recorded, the stand of the learned
senior counsel for the appellant was put thus:-
"Faced with this situation Mr Sen submits that, in this case the
parties had agreed that the arbitration be as per the Rules of
ICC. He submits that thus by necessary implication Section 9
would not apply. In our view, in such cases the question would
be whether Section 9 gets excluded by the ICC Rules of
Arbitration. Article 23 of the ICC Rules reads as follows:-
Conservatory and interim measures
1. Unless the parties have otherwise agreed, as soon as
the file has been transmitted to it, the Arbitral Tribunal
may, at the request of a party, order any interim[pic] or
conservatory measure it deems appropriate. The Arbitral
Tribunal may make the granting of any such measure subject to
appropriate security being furnished by the requesting party.
Any such measure shall take the form of an order, giving
reasons, or of an award, as the Arbitral Tribunal considers
appropriate.
2. Before the file is transmitted to the Arbitral Tribunal,
and in appropriate circumstances even thereafter, the parties
may apply to any competent judicial authority for interim or
conservatory measures. The application of a party to a
judicial authority for such measures or for the
implementation of any such measures ordered by an Arbitral
Tribunal shall not be deemed to be an infringement or a
waiver of the arbitration agreement and shall not affect the
relevant powers reserved to the Arbitral Tribunal. Any such
application and any measures taken by the judicial authority
must be notified without delay to the Secretariat. The
Secretariat shall inform the Arbitral Tribunal thereof."
After so stating, the Court referred to Article 23 of the ICC
Rules and interpreted thus:-
"Thus Article 23 of the ICC Rules permits parties to apply to a
competent judicial authority for interim and conservatory
measures. Therefore, in such cases an application can be made
under Section 9 of the said Act."
9. The decision in Bhatia International (supra) was followed in
Venture Global Engg. (supra). The Court scanned the ultimate
conclusion recorded in Bhatia International (supra) and in that
context, referred to various paragraphs and came to hold as follows:-
"32. The learned Senior Counsel for the respondent based on para
26 submitted that in the case of foreign award which was passed
outside India is not enforceable in India by invoking the
provisions of the Act or CPC. However, after critical analysis
of para 26, we are unable to accept the argument of the learned
Senior Counsel for the respondent. Paras 26 and 27 start by
dealing with the arguments of Mr Sen who argued that Part I is
not applicable to foreign awards. It is only in the sentence
starting at the bottom of para 26 that the phrase "it must
immediately be clarified" that the finding of the Court is
rendered. That finding is to the effect that an express or
implied agreement of parties can exclude the applicability of
Part I. The finding specifically states: "But if not so
excluded, the provisions of Part I will also apply to all
'foreign awards'." This exception which is carved out, based on
agreement of the parties, in para 21 (placita e to f) is
extracted below: (Bhatia International case SCC p. 119e to f)
"21. ... By omitting to provide that Part I will not apply
to international commercial arbitrations which take place
outside India the effect would be that Part I would also
apply to international commercial arbitrations held out of
India. But by not specifically providing that the
provisions of Part I apply to international commercial
arbitrations held out of India, the intention of the
legislature appears to be to ally (sic allow) parties to
provide by agreement that Part I or any provision therein
will not apply. Thus in respect of arbitrations which take
place outside India even the non-derogable provisions of
Part I can be excluded. Such an agreement may be express or
implied."
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 [pic]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."
After so holding the Court dealt with the contentions of the
learned senior counsel who highlighted the concept of 'transfer' of
shares and the procedure involved therein under the Indian Companies
Act, 1956 and the impact of Foreign Exchange Management Act, 1999 and
adverted to the impact and effect of the legal and regulatory scrutiny
under both the Act and accepted the submission. The Court,
thereafter, scanned the shareholders agreement and eventually came to
hold that in terms of the decision in Bhatia International (supra) ,
Part I of the Act is applicable to the award that was called in
question in the said case, even though it was a foreign award.
10. The aforesaid decision clearly lays down that it would be open
to the parties to exclude the application of the provision of Part I
by express or implied agreement. Unless there is express or implied
exclusion, the whole of Part I would apply. The Court, as stated
earlier, was dealing with shareholders agreement between the parties.
Sections 11.05 (b) and (c) of the shareholders agreement between the
parties read as follows:-
"(b) This agreement shall be construed in accordance with and
governed by the laws of the State of Michigan, United States,
without regard to the conflicts of law rules of such
jurisdiction. Disputes between the parties that cannot be
resolved via negotiations shall be submitted for final, binding
arbitration to the London Court of Arbitration.
(c) Notwithstanding anything to the contrary in this agreement,
the shareholders shall at all times act in accordance with the
Companies Act and other applicable Acts/rules being in force, in
India at any time."
The said clauses were interpreted by the Court not to exclude
either expressly or impliedly the applicability of Part I of the Act.
11. In this context, it will be useful to refer to the decision in
Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd.[4] wherein
the designated Judge was called to decide the issue of appointment of
sole arbitrator. The arbitration clause read as follows:-
"13. Settlement of disputes
13.1. This agreement, its construction, validity and
performance shall be governed by and constructed in accordance
with the laws of England and Wales;
13.2. Subject to Clause 13.3 all disputes or differences
arising out of, or in connection with, this agreement which
cannot be settled amicably by the parties shall be referred to
adjudication;
13.3. If any dispute or difference under this agreement
touches or concerns any dispute or difference under either of
the sub-contract agreements, then the parties agree that such
dispute or difference hereunder will be referred to the
adjudicator or the courts as the case may be appointed to decide
the dispute or difference under the relevant sub-contract
agreement and the parties hereto agree to abide by such decision
as if it were a decision under this agreement."
The Court referred to the decision in Bhatia International
(supra) and Lesotho Highlands Development Authority v. Impregilo
SpA[5] and came to hold as follows:-
"It is no doubt true that it is fairly well settled that when an
arbitration agreement is silent as to the law and procedure to
be followed in implementing the arbitration agreement, the law
governing the said agreement would ordinarily be the same as the
law governing the contract itself. The decisions cited by Mr
Tripathi and the views of the jurists referred to in NTPC v.
Singer Co.[6] case support such a proposition. What, however,
distinguishes the various decisions and views of the authorities
in this case is the fact that in Bhatia International this Court
laid down the proposition that notwithstanding the provisions of
Section 2(2) of the Arbitration and Conciliation Act, 1996,
indicating that Part I of the said Act would apply where the
place of arbitration is in India, even in respect of
international commercial agreements, which are to be governed by
the laws of another country, the parties would be entitled to
invoke the provisions of Part I of the aforesaid Act and
consequently the application made under Section 11 thereof would
be maintainable."
12. Mr. Vishwanathan, learned senior counsel, apart from citing
aforesaid authorities, have also drawn inspiration from Citation
Infowares Ltd. v. Equinox Corp.[7] wherein the designated Judge held
that unless the provisions of Part I of the Act are excluded by
agreement between the parties either expressly or by implication, Part
I of the Act including Section 11 would be applicable even where the
international commercial agreements are governed by the laws of
another country. It may be that the arbitrator might be required to
take into account the applicable laws which may be the foreign laws
but that does not affect the jurisdiction under Section 11 which falls
in Part I which has been specifically held applicable in Bhatia
International case.
13. Referring to the arbitration clause, submits learned senior
counsel that there is no express or implied exclusion of the
applicability of Part I of the Act and, therefore, the Courts in India
have jurisdiction and the learned Additional District Judge had not
flawed in exercise of jurisdiction.
14. Mr. Giri, learned senior counsel appearing for the respondents
would submit that when the juridical seat is in London, Part I of the
Act would not be applicable. To bolster the aforesaid submission, he
has placed reliance on Reliance Industries Limited and Another v.
Union of India[8]. It is also urged by Mr. Giri, learned senior
counsel that after the principal agreement, an addendum was executed
between the parties after pronouncement of the decision in Bharat
Aluminium Co. case and, therefore, the principles laid down in Bhatia
International (supra) would not be applicable.
15. It is seemly to exposit the controversy and to appreciate what
has been laid down in the case of Reliance Industries Limited (supra).
The appellant in the said case has assailed the judgment of the High
Court of Delhi whereby the High Court had allowed the petition filed
by the respondent under Section 34 of the Act, challenging the final
partial award, whereby the objections raised by the Union of India
relating to the arbitrability of the claims made by the petitioner
therein in respect of royalties, cess, service tax and CAG audit were
rejected. The Court referred to various agreements entered into
between the parties. It reproduced Articles 32 and 33 which was
entered into between the parties. The relevant clause for the present
purpose is 33.12. We think it appropriate to reproduce the relevant
part of the said clause.
"33. Sole expert, conciliation and arbitration:
33.12. The venue of conciliation or arbitration proceedings
pursuant to this article, unless the parties otherwise agree,
shall be London, England and shall be conducted in the English
language. The arbitration agreement contained in this Article 33
shall be governed by the laws of England. Insofar as
practicable, the parties shall continue to implement the terms
of this contract notwithstanding the initiation of arbitral
proceedings and any pending claim or dispute."
16. As per Article 33.12, the arbitral proceedings were to be held
in London as the neutral venue. The venue of the arbitral proceeding
was shifted to Paris and again re-shifted to London. Consequently,
the parties agreed for amendment of the agreement, which is relevant
for the purpose of understanding the principle, ultimately stated in
the said authority:-
"4. Applicable law and arbitration - Except the change of
venue/seat of arbitration from London to Paris, Articles 32 and
33 of the contract shall be deemed to be set out in full n this
agreement mutatis mutandis and so that references therein to the
contract shall be references to this agreement."
17. As issues arose, the Arbitral Tribunal was constituted under
Article 33.12, the venue of arbitration was in London. A substantial
hearing was held in Singapore. Thereafter, by agreement of the
parties, the Arbitral Tribunal made a final partial consent award
which was as follows:-
"3. Final partial award as to seat
3.1. Upon the agreement of the parties, each represented by duly
authorised representatives and through counsel, the Tribunal
hereby finds, orders and awards:
(a) That without prejudice to the right of the parties to
subsequently agree otherwise in writing, the juridical seat
(or legal place) of arbitration for the purposes of the
arbitration initiated under the claimants' notice of
arbitration dated 16-12-2010 shall be London, England.
(b) That any hearings in this arbitration may take place in
Paris, France, Singapore or any other location the Tribunal
considers may be convenient.
(c) That, save as set out above, the terms and conditions of
the arbitration agreements in Article 33 of the PSCs shall
remain in full force and effect and be applicable in this
arbitration."
18. The respondent, Union of India, had invoked the jurisdiction of
the Delhi High Court by stating that the terms of the PSCs entered
would manifest an unmistakable intention of the parties to be governed
by the laws of India and more particularly the Arbitration Act, 1996;
that the contracts were signed and executed in India; that the subject-
matter of the contracts, namely, the Panna Mukta and the Tapti fields
are situated within India; that the obligations under the contracts
had been for the past more than 15 years performed within India; that
the contracts stipulate that they "shall be governed and interpreted
in accordance with the laws of India"; that they also provided that
"nothing in this contract" shall entitle either of the parties to
exercise the rights, privileges and powers conferred upon them by the
contract "in a manner which will contravene the laws of India"
(Article 32.2); and that the contracts further stipulate that "the
companies and the operations under this contract shall be subject to
all fiscal legislation of India" (Article 15.1)".
19. On behalf of the appellant, the issue of maintainability was
raised. The High Court answered the issue in the following manner:
"Upon consideration of the entire matter, the High Court has
held that undoubtedly the governing law of the contract i.e.
proper law of the contract is the law of India. Therefore, the
parties never intended to altogether exclude the laws of India,
so far as contractual rights are concerned. The laws of England
are limited in their applicability in relation to arbitration
agreement contained in Article 33. This would mean that the
English law would be applicable only with regard to the curial
law matters i.e. conduct of the arbitral proceedings. For all
other matters, proper law of the contract would be applicable.
Relying on Article 15(1), it has been held that the fiscal laws
of India cannot be derogated from. Therefore, the exclusion of
Indian public policy was not envisaged by the parties at the
time when they entered into the contract. The High Court further
held that to hold that the agreement contained in Article 33
would envisage the matters other than procedure of arbitration
proceedings would be to rewrite the contract. The High Court
also held that the question of arbitrability of the claim or
dispute cannot be examined solely on the touchstone of the
applicability of the law relating to arbitration of any country
but applying the public policy under the laws of the country to
which the parties have subjected the contract to be governed.
Therefore, according to the High Court, the question of
arbitrability of the dispute is not a pure question of
applicable law of arbitration or lex arbitri but a larger one
governing the public policy."
20. Addressing the issue of maintainability, this Court referred to
the decision in Bhatia International (supra) and took note of the fact
that parties have agreed and as is also perceivable from the final
partial consent award that the juridical seat or local place of
arbitration for the purpose of arbitration initiated under the
claimants' notice shall be London, England. The parties have also
agreed that the hearing of the notice for arbitration may take place
at Paris, France, Singapore or any other location the Tribunal
considers may be convenient. The Court posed the question whether in
the factual matrix, there has been express or implied exclusion of the
applicability of Part I of the Act. In that context, the Court
referred to paragraph 32 of Bhatia International case and, thereafter,
analysed the relevant articles of the PSC to discover the real
intention of the parties as to whether the provisions of the Act had
been excluded. The Court referred to Articles 32.1 and 32.2 that
dealt with the applicable law and language of the contract. Article
32.1 provided that the proper law of the contract would be law of
India and under Article 32.2 made a declaration none of the provisions
contained in the contract would entitle either the Government or the
contractor to exercise the rights, privileges and powers conferred
upon it by the contract in a manner which would contravene the laws of
India. The Court observed that the basis of controversy involved in
the case pertain to analysis of the anatomy of the Article 33.12 which
provided that venue of the arbitration shall be London and that the
arbitration agreement shall be governed by the laws of England. That
apart, the parties had agreed that juridical seat or legal place of
arbitration for the purpose initiated under the claimants' notice of
arbitration would be at London. The Court posed the question whether
such stipulations excluded the applicability of the Act or not. The
Court repelling the contention that clauses do not exclude the
applicability of the 1996 Act, observed thus:-
"In our opinion, the expression "laws of India" as used in
Articles 32.1 and 32.2 has a reference only to the contractual
obligations to be performed by the parties under the substantive
contract i.e. PSC. In other words, the provisions contained in
Article 33.12 are not governed by the provisions contained in
Article 32.1. It must be emphasised that Article 32.1 has been
made subject to the provision of Article 33.12. Article 33.12
specifically provides that the arbitration agreement shall be
governed by the laws of England. The two articles are particular
in laying down that the contractual obligations with regard to
the exploration of oil and gas under the PSC shall be governed
and interpreted in accordance with the laws of India. In
contradistinction, Article 33.12 specifically provides that the
arbitration agreement contained in Article 33.12 shall be
governed by the laws of England. Therefore, in our opinion, the
conclusion is inescapable that applicability of the Arbitration
Act, 1996 has been ruled out by a conscious decision and
agreement of the parties. Applying the ratio of law as laid down
in Bhatia International it would lead to the conclusion that the
Delhi High Court had no jurisdiction to entertain the petition
under Section 34 of the Arbitration Act, 1996."
21. After so stating, the Court opined that it is too late in the
day to contend that the seat of arbitration is not analogous to an
exclusive jurisdiction clause. Once the parties had consciously
agreed that juridical seat of the arbitration would be London and that
the agreement would be governed by the laws of London, it was no
longer open to contend that provisions of Part I of the Act would also
be applicable to the arbitration agreement. The Court referred to the
decision in Videocon Industries Ltd. v. Union of India[9]. Referring
to clause in the Videocon Industries Ltd. (supra), the Court proceeded
to state that:-
47. ....The first issue raised in Videocon Industries Ltd. was
as to whether the seat of arbitration was London or Kuala
Lumpur. The second issue was with regard to the courts that
would have supervisory jurisdiction over the arbitration
proceedings. Firstly, the plea of Videocon Industries Ltd. was
that the seat could not have been changed from Kuala Lumpur to
London only on agreement of the parties without there being a
corresponding amendment in the PSC. This plea was accepted. It
was held that seat of arbitration cannot be changed by mere
agreement of parties. In para 21 of the judgment, it was
observed as follows: (SCC p. 170)
"21. Though, it may appear repetitive, we deem it necessary
to mention that as per the terms of agreement, the seat of
arbitration was Kuala Lumpur. If the parties wanted to amend
Article 34.12, they could have done so only by a written
instrument which was required to be signed by all of them.
Admittedly, neither was there any agreement between the
parties to the PSC to shift the juridical seat of arbitration
from Kuala Lumpur to London nor was any written instrument
signed by them for amending Article 34.12. Therefore, the
mere fact that the parties to the particular arbitration had
agreed for shifting of the seat of arbitration to London
cannot be interpreted as anything except physical change of
the venue of arbitration from Kuala Lumpur to London."
48. The other issue considered by this Court in Videocon
Industries Ltd. was as to whether a petition under Section 9 of
the Arbitration Act, 1996 would be maintainable in the Delhi
High Court, the parties having specifically agreed that the
arbitration agreement would be governed by the English law. This
issue was decided against the Union of India and it was held
that the Delhi High Court did not have the jurisdiction to
entertain the petition filed by the Union of India under Section
9 of the Arbitration Act.
22. While discussing about the ratio laid down in Videocon
Industries Ltd. (supra), the Court analysed the agreement of the
earlier case, and mainly the relevant parts of Articles 33, 34 and 35.
Article 34.12 in Videocon Industries Ltd. case read as follows:
"34.12. Venue and law of arbitration agreement.-The venue of
sole expert, conciliation or arbitration proceedings pursuant to
this article, unless the parties otherwise agree, shall be Kuala
Lumpur, Malaysia, and shall be conducted in the English
language. Insofar as practicable, the parties shall continue to
implement the terms of this contract notwithstanding the
initiation of arbitral proceedings and any pending claim or
dispute. Notwithstanding the provisions of Article 33.1, the
arbitration agreement contained in this Article 34 shall be
governed by the laws of England."
Clause 35.2 of the agreement pertaining to amendment stipulated
that the said contract shall not be amended modified, varied or
supplemented in any respect except by an instrument in writing signed
by all the parties, which shall state the date upon which the
amendment or modification shall be effective. Thereafter, the Court
had proceeded to state what we have reproduced hereinbefore.
23. In Reliance Industries Ltd. (supra), the Court took note of the
fact that parties had made necessary amendment in the PSCs to provide
that the juridical seat of arbitration shall be London and the
arbitration agreement will be governed by the laws of England and in
that context observed that the ratio laid down in Videocon Industries
Ltd. (supra) would be relevant and binding. Proceeding further, the
Court stated thus:
"The arbitration agreement in this appeal is identical to the
arbitration agreement in Videocon Industries. In fact, the
factual situation in the present appeal is on a stronger footing
than in Videocon Industries Ltd. As noticed earlier, in Videocon
Industries, this Court concluded that the parties could not have
altered the seat of arbitration without making the necessary
amendment to the PSC. In the present appeal, necessary amendment
has been made in the PSC. Based on the aforesaid amendment, the
Arbitral Tribunal has rendered the final partial consent award
of 14-9-2011 recording that the juridical seat (or legal place)
of the arbitration for the purposes of arbitration initiated
under the claimants' notice of arbitration dated 16-12-2010
shall be London, England. Furthermore, the judgment in Videocon
Industries is subsequent to Venture Global. We are, therefore,
bound by the ratio laid down in Videocon Industries Ltd."
24. The Court also referred to Bharat Aluminium Co. (supra),
especially para 123, which is as follows:
"123. ... '... 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'."
[emphasis in original]
25. The two-Judge Bench referred to Dozco India Private Ltd. v.
Doosan Infracore Company Ltd.[10], Sumitomo Heavy Industries Ltd. v.
ONGC Ltd.[11], Yograj Infrastructure Ltd. v. Ssang Yong Engg. and
Construction Co. Ltd.[12] and quoted a paragraph from C v. D[13],
which was approved in Bharat Aluminium Co. (supra) and reiterated in
Enercon (India) Ltd. v. Enercon GmbH[14] and further quoted a
paragraph from the said authority which we think condign to be
reproduced:-
"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."
Thereafter, the two-Judge Bench held thus:-
"In our opinion, these observations in Sulamerica Cia Nacional
de Seguros SA v. Enesa Engelharia SA -- Enesa[15] are fully
applicable to the facts and circumstances of this case. The
conclusion reached by the High Court would lead to the chaotic
situation where the parties would be left rushing between India
and England for redressal of their grievances. The provisions of
Part I of the Arbitration Act, 1996 (Indian) are necessarily
excluded; being wholly inconsistent with the arbitration
agreement which provides "that arbitration agreement shall be
governed by English law". Thus the remedy for the respondent to
challenge any award rendered in the arbitration proceedings
would lie under the relevant provisions contained in the
Arbitration Act, 1996 of England and Wales. Whether or not such
an application would now be entertained by the courts in England
is not for us to [pic]examine, it would have to be examined by
the court of competent jurisdiction in England."
26. Elaborating the said facet, the Court discussed the principle
that has been stated in Bhatia International (supra) laying that in
cases of international commercial arbitrations held out of India,
provisions of Part I would apply unless the parties by agreement,
express or implied, exclude all or any of its 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. Elaborating further, it proceeded to lay down
thus:
"In this case, the parties have by agreement provided that the
juridical seat of arbitration will be in London. On the basis of
the aforesaid agreement, necessary amendment has been made in
the PSCs. On the basis of the agreement and the consent of the
parties, the Arbitral Tribunal has made the "final partial
consent award" on 14-9-2011 fixing the juridical seat (or legal
place) of arbitration for the purposes of arbitration initiated
under the claimants' notice of arbitration dated 16-12-2010 in
London, England. To make it even further clear that the award
also records that any hearing in the arbitration may take place
in Paris, France, Singapore or any other location the Tribunal
considers convenient. Article 33.12 stipulates that arbitration
[pic]proceedings shall be conducted in English language. The
arbitration agreement contained in Article 33 shall be governed
by the laws of England. A combined effect of all these factors
would clearly show that the parties have by express agreement
excluded the applicability of Part I of the Arbitration Act,
1996 (Indian) to the arbitration proceedings."
27. On a further analysis of the said decision, we notice that the
Court repelled the submission that irrespective of the provisions
contained in Article 33.12, the Act would be applicable to arbitration
proceeding and the English law would be applicable only in relation to
the conduct of the arbitration up to the passing of the partial final
award, as in the said case, it was the partial final award was in
question. In justification in repelling such a submission, the Court
opined thus:
"69. ...... As noticed earlier, Article 32.1 itself provides
that it shall be subject to the provision of Article 33.12.
Article 33.12 provides that the arbitration agreement contained
in this article shall be governed by the laws of England. The
term "laws of England" cannot be given a restricted meaning
confined to only curial law. It is permissible under law for the
parties to provide for different laws of the contract and the
arbitration agreement and the curial law. In Naviera Amazonica
Peruana SA v. Compania Internacional De Seguros Del Peru[16],
the Court of Appeal in England considered an agreement which
contained a clause providing for the jurisdiction of the courts
in Lima, Peru in the event [pic]of judicial dispute and at the
same time contained a clause providing that the arbitration
would be governed by the English law and the procedural law of
arbitration shall be the English law. The Court of Appeal
observed 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).
70. From the above, it is evident that it was open to the
parties to agree that the law governing the substantive contract
(PSC) would be different from the law governing the arbitration
agreement. This is precisely the situation in the present case.
Article 32.1 specifically provides that the performance of the
contractual obligations under the PSC would be governed and
interpreted under the laws of India. So far as the alternative
dispute redressal agreement i.e. the arbitration agreement is
concerned, it would be governed by the laws of England. There is
no basis on which the respondents can be heard to say that the
applicability of laws of England related only to the conduct of
arbitration reference. The law governing the conduct of the
arbitration is interchangeably referred to as the curial law or
procedural law or the lex fori. The delineation of the three
operative laws as given in Naviera Amazonica has been
specifically followed by this Court in Sumitomo. The Court also,
upon a survey, of a number of decisions rendered by the English
courts and after referring to the views expressed by learned
commentators on international commercial arbitration concluded
that:
16. The law which would apply to the filing of the award,
to its enforcement and to its setting aside would be the law
governing the agreement to arbitrate and the performance of
that agreement."
28. After so holding, the Court referred to the legal position
stated in Dozco's case wherein it has been ruled thus:
"In the backdrop of these conflicting claims, the question boils
down to as to what is the true interpretation of Article 23.
This Article 23 will have to be read in the backdrop of Article
22 and more particularly, Article 22.1. It is clear from the
language of Article 22.1 that the whole agreement would be
governed by and construed in accordance with the laws of The
Republic of Korea. It is for this reason that the respondent
heavily relied on the law laid down in Sumitomo Heavy Industries
Ltd. v. ONGC Ltd. This judgment is a complete authority on the
proposition that the arbitrability of the dispute is to be
determined in terms of the law governing arbitration agreement
and the arbitration proceedings have to be conducted in
accordance with the curial law. This Court, in that judgment,
relying on Mustill and Boyd: The Law and Practice of Commercial
Arbitration in England, 2nd Edn., observed in para 15 that where
the law governing the conduct of the reference is different from
the law governing the underlying arbitration agreement, the
court looks to the arbitration agreement to see if the dispute
is arbitrable, then to the curial law to see how the reference
should be conducted, "and then returns to the first law in order
to give effect to the resulting award". In para 16, this Court,
in no uncertain terms, declared that the law which would apply
to the filing of the award, to its enforcement and to its
setting aside would be the law governing the agreement to
arbitrate and the performance of that agreement."
The said view was accepted by the two-Judge Bench.
29. Eventually, the Court dislodged the decision of the High Court
of Delhi stating that:
"76.2. We further overrule and set aside the conclusion of the
High Court that, even though the arbitration agreement would be
governed by the laws of England and that the juridical seat of
arbitration would be in London, Part I of the Arbitration Act
would still be applicable as the laws governing the substantive
contract are Indian laws.
76.3. In the event a final award is made against the respondent,
the enforceability of the same in India can be resisted on the
ground of public policy.
76.4. The conclusion of the High Court that in the event, the
award is sought to be enforced outside India, it would leave the
Indian party remediless is without any basis as the parties have
consensually provided that the arbitration agreement will be
governed by the English law. Therefore, the remedy against the
award will have to be sought in England, where the juridical
seat is located. However, we accept the submission of the
appellant that since the substantive law governing the contract
is Indian law, even the courts in England, in case the
arbitrability is challenged, will have to decide the issue by
applying Indian law viz. the principle of public policy, etc. as
it prevails in Indian law."
30. We have dealt with the said decision as it has taken note of all
the pronouncements in the field and further, Mr. Giri, learned senior
counsel appearing for the respondents would heavily rely on it and Mr.
Viwanathan, learned senior counsel would leave no stone unturned to
distinguish the same on the factual foundation especially in reference
to the arbitration clause.
31. At this juncture, it is profitable to note that in Reliance
Industries Ltd. (supra), the authority in Venture Global Engg. (supra)
has been distinguished by taking note of the various clauses in the
agreement and opined that as there was a non obstante clause in the
agreement hence, the claim of the appellant therein can be enforced in
India.
32. In view of the aforesaid propositions laid down by this Court,
we are required to scan the tenor of the clauses in the agreement
specifically, the arbitration clause in appropriate perspective. The
said clause read as follows:
"5. If any dispute or difference should arise under this
charter, general average/arbitration in London to apply, one to
be appointed by each of the parties hereto, the third by the two
so chosen, and their decision or that of any two of them, shall
be final and binding, and this agreement may, for enforcing the
same, be made a rule of Court. Said three parties to be
commercial men who are the members of the London Arbitrators
Association. This contract is to be governed and construed
according to English Law. For disputes where total amount claim
by either party does not exceed USD 50,000 the arbitration
should be conducted in accordance with small claims procedure of
the London Maritime Arbitration Association."
33. Two aspects emerge for consideration: (i) Whether on the basis
of construction placed on the said clause in the agreement it can be
stated that the ratio laid down in Bhatia International (supra) would
not be attracted, but what has been laid down in Reliance Industries
Ltd. (supra) would be applicable and (ii) whether the execution of the
addendum would attract the principles laid down in Bharat Aluminium
Co. case and oust the jurisdiction of the Indian courts.
34. First, we shall advert to the first proposition. There is no
cavil over the principle stated in Bhatia International (supra) that
Part I of the Act is applicable to arbitrations held outside India
unless the parties have either expressly or impliedly excluded the
provisions of the Act. Mr. Vishwanathan, learned senior counsel has
submitted in the case at hand there is no express exclusion, for
clause remotely does not suggest so. For the said purpose, he has
commended us to the decisions in A.B.C. Laminart Pvt. Ltd. and Anr. v.
A.P. Agencies, Salem[17] and Rajasthan SEB v. Universal Petrol
Chemicals Ltd.[18] It is also urged by him that the stipulation in the
agreement does not even remotely impliedly exclude the jurisdiction of
the Indian courts. He would submit that to apply the principle of
implied exclusion, the Court has to test the "presumed intention" and
in such a situation, it is the duty of the Court to adopt an objective
approach, that is to say, what would have been the intention of
reasonable parties in the position of the actual parties to the
contract. Learned senior counsel would also contend that the concept
of fair result has to be kept in view while construing a contract. To
buttress the aforesaid submissions, he has drawn inspiration from Kim
Lewison's The Interpretation of Contracts, pages 26, 41, 110 and 217
wherein various judgments have been referred.
35. The issue has to be tested, as we perceive, on the parameters of
law laid down in the cases of Videocon Industries Ltd. (supra), Dozco
(supra) and Reliance Industries Ltd. (supra).
36. In Videocon Industries Ltd. (supra), the Court has referred to
Section 3 of the English Arbitration Act, 1996, which reads as
follows:
"3. The seat of the arbitration.-In this Part 'the seat of the
arbitration' means the juridical seat of the arbitration
designated-
(a) by the parties to the arbitration agreement, or
(b) by any arbitral or other institution or person vested by the
parties with powers in that regard, or
(c) by the Arbitral Tribunal if so authorised by the parties, or
determined, in the absence of any such designation, having
regard to the parties' agreement and all the relevant
circumstances."
Analysing the said provision, the Court proceeded to state as
follows:
"A reading of the above reproduced provision shows that under
the English law the seat of arbitration means juridical seat of
arbitration, which can be designated by the parties to the
arbitration agreement or by any arbitral or other institution or
person empowered by the parties to do so or by the Arbitral
Tribunal, if so authorised by the parties. In contrast, there is
no provision in the Act under which the Arbitral Tribunal could
change the juridical seat of arbitration which, as per the
agreement of the parties, was Kuala Lumpur. Therefore, mere
change in the physical venue of the hearing from Kuala Lumpur to
Amsterdam and London did not amount to change in the juridical
seat of arbitration."
Eventually, the Court in the said case has ruled thus:
"In the present case also, the parties had agreed that
notwithstanding Article 33.1, the arbitration agreement
contained in Article 34 shall be governed by laws of England.
This necessarily implies that the parties had agreed to exclude
the provisions of Part I of the Act. As a corollary to the above
conclusion, we hold that the Delhi High Court did not have the
jurisdiction to entertain the petition filed by the respondents
under Section 9 of the Act and the mere fact that the appellant
had earlier filed similar petitions was not sufficient to clothe
that High Court with the jurisdiction to entertain the petition
filed by the respondents."
37. In Dozco (supra), the Court referred to Article 22 and Article
23 of the agreement, which dealt with the governing laws and
arbitration. Article 22.1 in the said case provided that the
agreement shall be governed by and construed in accordance with the
laws of the Republic of Korea. Article 23.1, which dealt with
arbitration, stipulated that all disputes arising in connection with
the agreement, shall be finally settled by arbitration in Seoul, Korea
or such other place as the parties may agree in writing, pursuant to
the rules of agreement then in force of the I.C.C. The Court referred
to the decisions in Bhatia International (supra), Indtel Technical
Services (supra), Citation Infowares Ltd. (supra), NTPC v. Singer
Co.[19] and while analysing the import of Clause 23.1, the Court
placed heavy reliance on Naviera Amazonica Peruana SA (supra) and held
thus:
"19. In respect of the bracketed portion in Article 23.1,
however, it is to be seen that it was observed in Naviera case:
"... It seems clear that the submissions advanced below
confused the legal 'seat', etc. of an arbitration with the
geographically convenient place or places for holding
hearings. This distinction is nowadays a common feature of
international arbitrations and is helpfully explained in
Redfern and Hunter 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
reference or the minutes of proceedings or in some other
way as the place or "seat" of the arbitration. This does
not mean, however, that the Arbitral Tribunal must hold all
its meetings or hearings at the place of arbitration.
International commercial arbitration often involves people
of many different nationalities, from many different
countries. In these circumstances, it is by no means
unusual for an Arbitral Tribunal to hold meetings - or even
hearings - in a place other than the designated place of
arbitration, either for its own convenience or for the
convenience of the parties or their witnesses....
It may be more convenient for an Arbitral Tribunal sitting
in one country to conduct a hearing in another country -
for instance, for the purpose of taking evidence.... In
such circumstances, each move of the Arbitral Tribunal does
not of itself mean that the seat of the arbitration
changes. The seat of the arbitration remains the place
initially agreed by or on behalf of the parties.'
These aspects need to be borne in mind when one comes to the
Judge's construction of this policy."
It would be clear from this that the bracketed portion in the
article was not for deciding upon the seat of the arbitration,
but for the convenience of the parties in case they find to hold
the arbitration proceedings somewhere else than Seoul, Korea.
The part which has been quoted above from Naviera Amazonica
Peruana S.A. v. Compania International de Seguros del Peru
supports this inference.
20. In that view, my inferences are that:
(i) The clear language of Articles 22 and 23 of the
distributorship agreement between the parties in this case
spells out a clear agreement between the parties excluding Part
I of the Act.
[pic]
(ii) The law laid down in Bhatia International v. Bulk
Trading S.A. and Indtel Technical Services (P) Ltd. v. W.S.
Atkins Rail Ltd., as also in Citation Infowares Ltd. v. Equinox
Corpn. is not applicable to the present case.
(iii) Since the interpretation of Article 23.1 suggests that
the law governing the arbitration will be Korean Law and the
seat of arbitration will be Seoul in Korea, there will be no
question of applicability of Section 11(6) of the Act and the
appointment of arbitrator in terms of that provision."
38. In Yograj Infrastructure Ltd. (supra), two-Judge Bench dealt
with the concept of "procedural law" and "curial law". In that
context, it referred to the agreement in the contract, namely, Clauses
27 and 28. In that context the Court opined that:
"..... As indicated hereinabove, Clause 28 indicates that the
governing law of the agreement would be the law of India i.e.
the Arbitration and Conciliation Act, 1996. The learned counsel
for the parties have quite correctly spelt out the distinction
between the "proper law" of the contract and the "curial law" to
determine the law which is to govern the arbitration itself.
While the proper law is the law which governs the agreement
itself, in the absence of any other stipulation in the
arbitration clause as to which law would apply in respect of the
arbitral proceedings, it is now well settled that it is the law
governing the contract which would also be the law applicable to
the Arbitral Tribunal itself. Clause 27.1 makes it quite clear
that the curial law which regulates the procedure to be adopted
in conducting the arbitration would be the SIAC Rules. There is,
therefore, no ambiguity that the SIAC Rules would be the curial
law of the arbitration proceedings. It also happens that the
parties had agreed to make Singapore the seat of arbitration.
Clause 27.1 indicates that the arbitration proceedings are to be
conducted in accordance with the SIAC Rules."
[Emphasis supplied]
39. After so stating, the Court posed the question whether in such a
case, the provisions of Section 2(2), which indicates that Part I of
the Act would apply, where the place of arbitration is India, would be
a bar to the invocation of provisions of Sections 34 and 27 of the
Act, which have been conducted in Singapore. The Court referred to
the decision in Bhatia International (supra) wherein it was held that
there cannot be any automatic exclusion, but on express or implied
exclusion and opined regard being had to the Rule 32 of the SIAC
Rules, the law laid down in Bhatia International (supra) would not be
applicable. The said Rule, being pertinent to the issue in question,
is reproduced below:-
"32. Where the seat of arbitration is Singapore, the law of the
arbitration under these Rules shall be the International
Arbitration Act (Cap. 143-A, 2002 Edn., Statutes of the Republic
of Singapore) or its modification or re-enactment thereof."
And in that context, the Court ruled thus:
"Having agreed to the above, it was no longer available to the
appellant to contend that the "proper law" of the agreement
would apply to the arbitration proceedings. The decision in
Bhatia International v. Bulk Trading S.A., which was applied
subsequently in Venture Global Engg. [pic]v. Satyam Computer
Services Ltd. and Citation Infowares Ltd. v. Equinox Corpn.
would have no application once the parties agreed by virtue of
Clause 27.1 of the agreement that the arbitration proceedings
would be conducted in Singapore i.e. the seat of arbitration
would be in Singapore, in accordance with the Singapore
International Arbitration Centre Rules as in force at the time
of signing of the agreement.
xxxxx xxxxx xxxxx
In the instant case, once the parties had specifically agreed
that the arbitration proceedings would be conducted in
accordance with the SIAC Rules, which includes Rule 32, the
decision in Bhatia International1 and the subsequent decisions
on the same lines, would no longer apply in the instant case
where the parties had willingly agreed to be governed by the
SIAC Rules."
[Emphasis added]
40. In Reliance Industries Ltd. (supra), the two-Judge Bench, while
referring to the submissions of the learned counsel for the appellant
therein had also referred to the pronouncement in Yograj
Infrastructure Ltd. (supra) and dealt with it thus:
"Again this Court in Yograj Infrastructure (two-Judge Bench)
considered a similar arbitration agreement. It was provided that
the arbitration proceedings shall be conducted in English in
Singapore in accordance with the Singapore International
Arbitration Centre (SIAC) Rules (Clause 27.1). Clause 27.2
provided that the arbitration shall take place in Singapore and
be conducted in English language. This Court held that having
agreed that the seat of arbitration would be Singapore and that
the curial law of the arbitration proceedings would be the SIAC
Rules, it was no longer open to the appellant to contend that an
application under Section 11(6) of the Arbitration Act, 1996
would be maintainable. This judgment has specifically taken into
consideration the law laid down in Bhatia International and
Venture Global. The same view has been taken by the Delhi High
Court, the Bombay High Court and the Gujarat High Court, in fact
this Court in Videocon has specifically approved the
observations made by the Gujarat High Court in Hardy Oil and Gas
Ltd. v. Hindustan Oil Exploration Co. Ltd.[20]"
41. Coming to the stipulations in the present arbitration clause, it
is clear as day that if any dispute or difference would arise under
the charter, arbitration in London to apply; that the arbitrators are
to be commercial men who are members of London Arbitration
Association; the contract is to be construed and governed by English
Law; and that the arbitration should be conducted, if the claim is for
a lesser sum, in accordance with small claims procedure of the London
Maritime Arbitration Association. There is no other provision in the
agreement that any other law would govern the arbitration clause.
42. Mr. Giri, learned senior counsel would submit that from the
clause which is a comprehensive one, it is London, which is the seat
of arbitration. In Videocon Industries Ltd. (supra), as we have
analysed earlier, Article 33.1 of the agreement which stipulated that
subject to the provisions of Article 34.12, the contract would be
governed and interpreted in accordance with the laws of India. Clause
34.12 of the agreement read as follows:
"34.12. Venue and law of arbitration agreement.-The venue of
sole expert, conciliation or arbitration proceedings pursuant to
this article, unless the parties otherwise agree, shall be Kuala
Lumpur, Malaysia, and shall be conducted in the English
language. Insofar as practicable, the parties shall continue to
implement the terms of this contract notwithstanding the
initiation of arbitral proceedings and any pending claim or
dispute. Notwithstanding the provisions of Article 33.1, the
arbitration agreement contained in this Article 34 shall be
governed by the laws of England."
43. In that context, the Court referred to Section 3 of the English
Arbitration Act, 1996 and as has been stated earlier, opined that as
per the English law, the seat of arbitration as per the said provision
would mean "juridical seat of arbitration" and accordingly opined that
principles stated in Bhatia International (supra) would not be
applicable.
44. In the present case, the agreement stipulates that the contract
is to be governed and construed according to the English law. This
occurs in the arbitration clause. Mr. Vishwanathan, learned senior
counsel, would submit that this part has to be interpreted as a part
of "curial law" and not as a "proper law" or "substantive law". It is
his submission that it cannot be equated with the seat of arbitration.
As we perceive, it forms as a part of the arbitration clause. There
is ample indication through various phrases like "arbitration in
London to apply", arbitrators are to be the members of the "London
Arbitration Association" and the contract "to be governed and
construed according to English Law". It is worth noting that there is
no other stipulation relating to the applicability of any law to the
agreement. There is no other clause anywhere in the contract. That
apart, it is also postulated that if the dispute is for an amount less
that US $ 50000 then, the arbitration should be conducted in
accordance with small claims procedure of the London Maritime
Arbitration Association. When the aforesaid stipulations are read and
appreciated in the contextual perspective, "the presumed intention" of
the parties is clear as crystal that the juridical seat of arbitration
would be London. In this context, a passage from Mitsubishi Heavy
Industries Ltd. v. Gulf Bank[21] is worth reproducing:
"It is of course both useful and frequently necessary when
construing a clause in a contract to have regard to the overall
commercial purpose of the contract in the broad sense of the
type and general content, the relationship of the parties and
such common commercial purpose as may clearly emerge from such
an exercise. However, it does not seem to me to be a proper
approach to the construction of a default clause in a commercial
contract to seek or purport to elicit some self-contained
'commercial purpose' underlying the clause which is or may be
wider than the ordinary or usual construction of the words of
each sub-clause will yield."
45. In Cargill International S.A. v. Bangladesh Sugar & Food
Industries Corp.[22], Potter L.J. balanced the two approaches and
said:
"In this connection [counsel] has rightly made the point that,
when construing the effect of particular words in a commercial
contract, it is wrong to put a label on the contract in advance
and this to approach the question of construction on the basis
of a pre-conception as to the contact's intended effect, with
the result that a strained construction is placed on words,
clear in themselves, in order to fit them within such pre-
conception...
On the other hand, modern principles of construction
require the court to have regard to the commercial background,
the context of the contract ad the circumstances of the parties,
and to consider whether, against that background and I that
context, to give the words a particular or restricted meaning
would lead to an apparently unreasonable and unfair result."
46. Thus, interpreting the clause in question on the bedrock of the
aforesaid principles it is vivid that the intended effect is to have
the seat of arbitration at London. The commercial background, the
context of the contract and the circumstances of the parties and in
the background in which the contract was entered into, irresistibly
lead in that direction. We are not impressed by the submission that
by such interpretation it will put the respondent in an advantageous
position. Therefore, we think it would be appropriate to interpret
the clause that it is a proper clause or substantial clause and not a
curial or a procedural one by which the arbitration proceedings are to
be conducted and hence, we are disposed to think that the seat of
arbitration will be at London.
47. Having said that the implied exclusion principle stated in
Bhatia International (supra) would be applicable, regard being had to
the clause in the agreement, there is no need to dwell upon the
contention raised pertaining to the addendum, for any interpretation
placed on the said document would not make any difference to the
ultimate conclusion that we have already arrived at.
48. Before parting with the case, it is obligatory on our part to
state that the Division Bench of the High Court has allowed the
petition on the foundation that the Bharat Aluminium Co. case would
govern the field and, therefore, the court below had no jurisdiction
is not correct. But as has been analysed and discussed by us, even
applying the principles laid down in Bhatia International (supra) and
scanning the anatomy of the arbitration clause, we have arrived at the
conclusion that the courts in India will not have jurisdiction as
there is implied exclusion.
49. Consequently, for different reasons, we concur with the
conclusion arrived at by the High Court and accordingly, the appeal,
being sans merit, stands dismissed. However, in the facts and
circumstances of the case, there shall be no order as to costs.
.............................J.
[Dipak Misra]
..........................., J.
[Prafulla C. Pant]
New Delhi
March 10, 2015
-----------------------
[1] (2012) 9 SCC 552
[2] (2002) 4 SCC 105
[3] (2008) 4 SCC 190
[4] (2008) 10 SCC 308
[5] (2005) 3 WLR 129
[6] (1992) 3 SCC 551
[7] (2009) 7 SCC 220
[8] (2014) 7 SCC 603
[9] (2011) 6 SCC 161
[10] (2011) 6 SCC 179
[11] (1998) 1 SCC 305
[12] (2011) 9 SCC 735
[13] 2008 Bus LR 843
[14] (2014) 5 SCC 1
[15] (2013) 1 WLR 102
[16] (1988) 1 Lloyd's Rep 116 (CA)
[17] (1989) 2 SCC 163
[18] (2009) 3 SCC 107
[19] (1992) 3 SCC 551
[20] (2006) 1 Guj LR 658
[21] [1997] 1 Lloyd's Rep. 343
[22] [1998] 1 W.L.R. 461 CA