lawweb.in http://www.lawweb.in/2015/11/landmark-judgment-on-interpretation-of.

html

Landmark judgment on interpretation of

commercial contract
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 and the circumstances of the parties, and
to consider whether, against that background and
that context, to give the words a particular or
restricted meaning would lead to an apparently
unreasonable and unfair result.”
Reportable
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
Citation;(2015) 9 SCC172

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 beforePage 2
2
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
1
(2012) 9 SCC 552Page 3
3
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 DistrictPage 4
4
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.A2
.
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
2
(2002) 4 SCC 105
3
(2008) 4 SCC 190Page 5
5
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 andPage 6
6
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 thatPage 7
7
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]Page 8
8
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 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.”Page 9
9
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)Page 10
10
“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 nonderogable
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 judgmentdebtor
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 bePage 11
11
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:-Page 12
12
“(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;
4
(2008) 10 SCC 308Page 13
13
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 SpA5
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
5
(2005) 3 WLR 129
6
(1992) 3 SCC 551Page 14
14
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
7
(2009) 7 SCC 220Page 15
15
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
India8
. 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
8
(2014) 7 SCC 603Page 16
16
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.”Page 17
17
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 thePage 18
18
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.Page 19
19
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 TribunalPage 20
20
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 legalPage 21
21
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 notPage 22
22
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
India9
. 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
9
(2011) 6 SCC 161Page 23
23
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 orPage 24
24
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 ofPage 25
25
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.
D13, which was approved in Bharat Aluminium Co. (supra)
10 (2011) 6 SCC 179
11 (1998) 1 SCC 305
12 (2011) 9 SCC 735
13 2008 Bus LR 843Page 26
26
and reiterated in Enercon (India) Ltd. v. Enercon
GmbH14 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
-- Enesa15 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 examine, it would
14 (2014) 5 SCC 1
15 (2013) 1 WLR 102Page 27
27
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 proceedings shall be
conducted in English language. The arbitration
agreement contained in Article 33 shall be
governed by the laws of England. A combinedPage 28
28
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 Peru16, 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 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
16 (1988) 1 Lloyd’s Rep 116 (CA)Page 29
29
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: Page 30
30
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.”Page 31
31
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 respondentsPage 32
32
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 thePage 33
33
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, Salem17 and Rajasthan
SEB v. Universal Petrol Chemicals Ltd.
18 It is also urged
17 (1989) 2 SCC 163
18 (2009) 3 SCC 107Page 34
34
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:Page 35
35
“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 necessarilyPage 36
36
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 (1992) 3 SCC 551Page 37
37
“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 seatPage 38
38
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.
(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 thePage 39
39
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 decisionPage 40
40
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. 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 proceedingsPage 41
41
would be conducted in accordance with the SIAC
Rules, which includes Rule 32, the decision in
Bhatia International 1 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 (twoJudge
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 inPage 42
42
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:
20 (2006) 1 Guj LR 658Page 43
43
“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 thePage 44
44
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 Bank21 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
21 [1997] 1 Lloyd’s Rep. 343Page 45
45
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 selfcontained
‘commercial purpose’ underlying the
clause which is or may be wider than the ordinary
or usual construction of the words of each subclause
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
22 [1998] 1 W.L.R. 461 CAPage 46
46
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,Page 47
47
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
Print Page