REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1647 OF 2021
[ARISING OUT OF SLP (CIVIL) NO.3936 OF 2021]
PASL WIND SOLUTIONS PRIVATE LIMITED ...APPELLANT
VERSUS
GE POWER CONVERSION INDIA
PRIVATE LIMITED ...RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. Leave granted.
2. The present appeal raises an interesting question – as to whether two
companies incorporated in India can choose a forum for arbitration outside
India – and whether an award made at such forum outside India, to which
the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, 1958 [“New York Convention”] applies, can be said to be a
“foreign award” under Part II of the Arbitration and Conciliation Act, 1996
[“Arbitration Act”] and be enforceable as such.
Factual Background
3.1. The appellant is a company incorporated under the Companies Act,
1956 with its registered office at Ahmedabad, Gujarat. The respondent is a
company incorporated under the Companies Act, 1956 with its registered
1
office at Chennai, Tamil Nadu, and is a 99% subsidiary of General Electric
Conversion International SAS, France, which in turn is a subsidiary of the
General Electric Company, United States.
3.2. In 2010, the appellant issued three purchase orders to the
respondent for supply of certain converters. Pursuant to these purchase
orders, the respondent supplied six converters to the appellant. Disputes
arose between the parties in relation to the expiry of the warranty of the
said converters. In order to resolve these disputes, the parties entered into
a settlement agreement dated 23.12.2014. Under clauses 5.1 and 5.2 of
the settlement agreement, the respondent agreed to provide certain delta
modules along with warranties on these modules for the working of the
converter panel. Clause 6 of the settlement agreement contained the
dispute resolution clause which reads as follows:
“6. Governing Law and Settlement of Dispute
6.1 Any dispute or difference arising out of or relating to this
agreement shall be resolved by the Parties in an amicable way.
(A minimum of 60 days shall be used for resolving the dispute
in amicable way before same can be referred to arbitration).
6.2 In case no settlement can be reached through negotiations,
all disputes, controversies or differences shall be referred to
and finally resolved by Arbitration in Zurich in the English
language, in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce, which
Rules are deemed to be incorporated by reference into this
clause. The Arbitration Award shall be final and binding on both
the parties.
6.3 The Agreement (together with any documents referred to
herein) constitutes the whole agreement between the Parties
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and it is hereby expressly declared that no variation and / or
amendments hereof be effective unless mutually agreed upon
and made in writing.”
3.3. Disputes arose between the parties pursuant to the settlement
agreement whereby the appellant claimed that warranties that were
supposed to be given for converters were not so given, whereas the
respondent argued that the warranties covered only the delta modules and
not the converters. Thus, on 03.07.2017, the appellant issued a request for
arbitration to the International Chamber of Commerce [“ICC”]. On
18.08.2017, the parties agreed to resolution of disputes by the sole
arbitrator appointed by the ICC. It was agreed between the parties, as was
reflected in the request for arbitration and in the terms of reference to
arbitration, that the substantive law applicable to the dispute would be
Indian law.
3.4. The respondent filed a preliminary application challenging the
jurisdiction of the arbitrator on the ground that two Indian parties could not
have chosen a foreign seat of arbitration. Importantly, the appellant
opposed the said application and asserted that there was no bar in law
from this being done. By Procedural Order No.3 dated 20.02.2018, the
learned sole arbitrator, Mr. Ian Leonard Meakin, dismissed the respondent’s
preliminary application, holding as follows:
“The Tribunal finds that two Indian parties can arbitrate
outside India. The Tribunal is persuaded that the Supreme
3
Court of India’s decision in Reliance Industries Ltd v. Union of
India (2014) 7 SCC 603 (Exhibit CLM-3) is a leading authority.
This has been confirmed by the Supreme Court of India in
Sasan Power Limited v. North American Coal Corporation India
Private Limited (2016) 10 SCC 813 (RL-6), which at an earlier
instance before the High Court of Madhya Pradesh 2016 (2)
ARBLR 179 (MP), rendered on 11.09.2015, held that two Indian
companies can arbitrate outside of India.
Furthermore, the earlier case of Atlas Export Industries v.
Kotak & Company (1999) 7 SCC 61, which was applied in
Sasan, found that a contract which is unlawful under section 23
of the Indian Contract Act 1872, because it breaches Indian
public policy, would be void but that “merely because the
arbitrators are situated in a foreign country cannot by itself be
enough to nullify the arbitration agreement when the parties
have with their eyes open willingly entered into the agreement”
(p.65, para f of judgment). Such is the case here where the
parties freely agreed on Zurich as the seat of the arbitration.
This position has been followed in a recent decision of the
Delhi High Court in GMR Energy Ltd. v. Doosan Power
Systems India Pvt. Ltd. on 14 November 2017 CS (Comm)
447/2017 (RL-7) applying Atlas in allowing two Indian parties to
arbitrate outside India. The Tribunal notes the Respondent’s
contention that this case is “expected to be appealed”
(Respondent’s Preliminary Application dated 9 December 2017,
para 23) but the Tribunal must deal with the law as it finds it at
present and no doubt the Final Award in the present case will
precede any exhaustive appeal in India in GMR.
Respondent’s pleadings in reliance, inter alia, on TDM
Infrastructure Private Limited v. UE Development India Private
Limited (2008) 14 SCC 271 are, in the Tribunal’s finding,
misplaced because although it is accepted that two Indian
nationals should, as a matter of Indian law, not be permitted to
derogate from Indian substantive law, this being part of the
public policy of the country, this fails to distinguish between the
lex arbitri and the lex causae. In the present case, the parties
have not chosen a foreign substantive law, only a foreign seat.
The Respondent also relied on M/s Addhar Mercantile
Private Limited v. Shree Jagadamba Agrico Exports Pvt. Ltd.
(2015) SCC Online Bom 7752, which the Respondent
submitted followed TDM (RL-4). However, although the Tribunal
is aware that this decision has been criticised because although
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the court did not expressly find that two parties could not opt for
arbitration outside India, the court’s finding that Indian parties
cannot derogate from Indian law because that would violate
Indian public policy has led to the judgment being interpreted
wrongly to imply that Indian parties cannot choose a foreign
seat. That said, Addhar is in any event a first instance decision
and the higher authorities of the Indian Supreme Court prevail.
Finally, the cases of Enercon (India) Limited v. Enercon
GMBH (2014) 5 SCC 1 and Bharat Aluminium Co. v. Kaiser
Aluminium Inc. (2012) 9 SCC 552 relied on by the Respondent
in relation to its submissions that the closest and most real
connection test under Indian law do not assist the Respondent
because that test is only relevant where the seat is unclear.
Moreover, Bharat clearly held that the applicability of section 28
of the Indian Act is restricted to the substantive law of the
contract and does not apply to the seat of the arbitration.
Conclusion
For the reasons set out above, the Tribunal therefore finds
that the arbitration clause in the Settlement Agreement is valid
and will proceed to apply the Swiss Act because the seat of the
arbitration is Zurich, Switzerland.”
3.5. This procedural order was not challenged by either of the parties.
Vide the said procedural order, the seat of the arbitration was stated to be
Zurich, Switzerland. The respondent suggested Mumbai, India as a
convenient venue in which to hold arbitration proceedings as costs would
be reduced thereby. The appellant objected to this suggestion. At the Case
Management Conference dated 28.06.2018, the learned arbitrator decided
that though the seat is in Zurich, all hearings will be held in Mumbai,
acceding to the application made by the respondent. Since the mountain
did not come to Muhammad, Muhammad, in the form of the learned
5
arbitrator, went to the mountain and held all sittings at the convenient
venue in Mumbai.
3.6 A final award dated 18.04.2019 was passed by the learned arbitrator
in which the appellant’s claim was rejected. The learned arbitrator held:
“Operative Part
227. Based on the foregoing, the Arbitral Tribunal hereby finds,
holds and orders:
Preliminary Issues
A. The seat of the arbitration is Zurich, Switzerland.
On the Merits
B. The Claimant’s claims for breach of contract, damages
and interest thereon are rejected.
C. The Claimant shall pay to the Respondent INR
25,976,330.00 and US$40,000.00 in legal costs and
expenses with accumulated interest, if any, in accordance
with the Indian Interest Act, 1978.
D. All other claims of either party, to the extent that they
exist, are dismissed.
Made in Zurich, this 18th day of April 2019”
3.7. After the passing of the final award, the respondent called upon the
appellant to pay the amounts granted vide the said award. As the appellant
failed to oblige, the respondent initiated enforcement proceedings under
sections 47 and 49 of the Arbitration Act before the High Court of Gujarat,
within whose jurisdiction the assets of the appellant were located. At this
stage, the appellant did a complete volte-face and asserted that the seat of
arbitration was really Mumbai, where all the hearings of the arbitral
proceedings took place. So asserting, the appellant filed proceedings
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challenging the said final award under section 34 of the Arbitration Act,
being CMA No.18 of 2019 before the Small Causes Court, Ahmedabad
which was then transferred to the Commercial Court, Ahmedabad and
renumbered as CMA No.76 of 2020. An application filed under Order 7
Rule 11 of the Code of Civil Procedure, 1908 [“CPC”] by the respondent
was rejected by the Commercial Court, Ahmedabad. At present, the
proceedings under section 34 of the Arbitration Act and the respondent’s
application under Order 21 of the CPC for execution of the final award are
at a standstill in view of the appeal before us.
The Appellant’s Case:
4.1. Mr. Tushar Himani, learned Senior Advocate appearing on behalf of
the appellant, argued that two Indian parties cannot designate a seat of
arbitration outside India as doing so would be contrary to section 23 of the
Indian Contract Act, 1872 [“Contract Act”] read with section 28(1)(a) and
section 34(2A) of the Arbitration Act. To buttress this submission, Mr.
Himani pointed out the provisions of the Prohibition of Benami Property
Transactions Act, 1988 [“Benami Transactions Act”] which cannot be
bypassed if two Indians are to apply only the substantive law of India.
However, by designating a seat outside India, it is open to two Indian
parties to opt out of the substantive law of India which itself would be
contrary to the public policy of India.
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4.2. He then argued that foreign awards contemplated under Part II of the
Arbitration Act arise only from international commercial arbitrations.
“International commercial arbitration”, as has been defined in section 2(1)(f)
of the Arbitration Act, would make it clear that there has to be a foreign
element when parties arbitrate outside India, the foreign element being that
at least one of the parties is, inter alia, a national of a country other than
India, or habitually resident in a country other than India, or a body
corporate incorporated outside India. For this reason, the award passed in
the present case cannot be designated as a foreign award under Part II of
the Arbitration Act. To buttress this submission, he relied heavily upon the
judgment of a learned Single Judge of this Court in TDM Infrastructure (P)
Ltd. v. UE Development India (P) Ltd., (2008) 14 SCC 271 [“TDM”] and
two judgments of the Bombay High Court.
4.3. He then sought to distinguish this Court’s judgment in Atlas Export
Industries v. Kotak & Co., (1999) 7 SCC 61 [“Atlas Export”], arguing that
the specific argument made under section 23 of the Contract Act was not
dealt with by the Court and that, in any case, ultimately, the Court did not
allow the appellant in that case to take up this plea as it had not been taken
up in the courts below.
4.4. Mr. Himani also argued that the judgment of the Madhya Pradesh
High Court in Sasan Power Limited v. North American Coal Corporation
8
(India) Pvt. Ltd., 2015 SCC OnLine MP 7417 [“Sasan I”], which decided
that two Indian parties can choose a foreign seat outside India for the
purpose of resolving their disputes, was based on an incorrect appreciation
of facts, as observed in the appeal to the Supreme Court in Sasan Power
Ltd. v. North American Coal Corporation (India) Pvt. Ltd., (2016) 10
SCC 813 [“Sasan II”].
4.5. Going to the language of section 44 of the Arbitration Act, Mr. Himani
stressed upon the expression “unless the context otherwise requires” and
cited several judgments to show that the context of section 44 is that of an
international commercial arbitration and cannot, therefore, apply to a
foreign award between two Indian parties without the involvement of a
foreign element. He also relied heavily upon the 246th Report of the Law
Commission of India of August 2014 which recommended amendments to
the Arbitration Act, and particularly, the substitution of section 2(1)(e) and
the explanation to section 47. He stressed the fact that both these
amendments were necessary to ensure that it is the High Court that
exercises jurisdiction in all cases of international commercial arbitration.
For this purpose, he relied upon the domestic arbitration law of the United
States [“U.S.”] to show that even under the said law, it is only when an
agreement or award between two U.S. citizens involves some foreign
element that such arbitration can take place abroad. He buttressed these
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submissions by referring to the proviso to section 2(2) of the Arbitration Act
which, according to him, furnished a bridge that joined Part II to Part I, as a
result of which it became clear that section 44 refers only to international
commercial arbitrations, as is stated in the proviso to section 2(2).
4.6. He then went on to argue that the Arbitration Act is a self-contained
code, as has been held by several judgments of this Court, and that when
there is no foreign element involved in an award made in Zurich between
two Indian companies, such award cannot be the subject matter of
challenge or enforcement either under Part I or Part II of the Arbitration Act.
4.7. Mr. Himani then relied heavily upon section 10 of the Commercial
Courts, Commercial Division and Commercial Appellate Division of High
Courts Act, 2015 [“Commercial Courts Act”] which also recognises only
two categories of arbitrations – international commercial arbitration and
other than international commercial arbitration. He argued that there is a
head-on conflict between section 10(3) of the Commercial Courts Act and
section 47 of the Arbitration Act, as a result of which the former must
prevail. For this purpose, he relied upon the non-obstante clause in section
21 of the Commercial Courts Act. This being the case, in any case, the
impugned judgment made by the Gujarat High Court has to be set aside as
it was made without jurisdiction because even as per the impugned
judgment, the present is not a case of an international commercial
10
arbitration but instead falls under the second category of “other than
international commercial arbitration”, as a result of which only the district
court would have jurisdiction.
4.8. He finally argued that going by the closest connection test, the seat of
arbitration can only be held to be Mumbai, and for this purpose, he relied
upon Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1
[“Enercon”]. According to him, since every factor connected the arbitration
in the present case to India, with no foreign element involved, applying this
test, the seat would necessarily be Mumbai. Consequently, he argued that
Zurich, at best, could be stated to be a “salutary seat”. This being so,
obviously Part II of the Arbitration Act would not apply and the judgment
has to be set aside on this score also. Despite the fact that in the written
submissions before us, Mr. Himani argued, without prejudice, that the
award would not be enforceable under section 48 of the Arbitration Act, he
very fairly did not press this issue.
The Respondent’s Case:
5.1. Mr. Nakul Dewan, learned Senior Advocate appearing on behalf of
the respondent, first pointed out that the appellant argued the exact
opposite of what it itself sought under Procedural Order No.3 dated
20.02.2018 before the arbitrator. Having argued that two Indian companies
can agree to have a seat of arbitration outside India, and that in the present
11
case, that seat was Zurich, and having opposed any hearings being held in
Mumbai, it would now not be open to the appellant to argue the exact
opposite before this Court only because the final award was made against
it.
5.2. Mr. Dewan then argued that Part I and Part II of the Arbitration Act
have been held to be mutually exclusive and pointed out the fundamental
fallacy contained in the argument of Mr. Himani to try and import the
definition of international commercial arbitration from Part I of the
Arbitration Act into section 44 via the expression “unless the context
otherwise requires” contained in section 44, and the so-called bridge
between Parts I and II contained in the proviso to section 2(2). According to
him, section 44 is modelled on the New York Convention which only
requires “persons”, both of whom can be Indian, having disputes arising out
of commercial legal relationships, which are to be decided in the territory of
a State outside India, which State is a signatory to the New York
Convention. He then argued that any attempt to breach the wall created
between Part I and Part II, which have been held to be mutually exclusive
in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,
(2012) 9 SCC 552 [“BALCO”], cannot be countenanced by this Court.
5.3. He further argued that unlike the definition of “international
commercial arbitration” contained in section 2(1)(f) in Part I, nationality,
12
domicile or residence of parties is irrelevant for the purpose of applicability
of section 44 of the Arbitration Act. As a matter of fact, according to the
learned Senior Advocate, this is no longer res integra as it has been
expressly decided under the pari materia provisions of the Foreign Awards
(Recognition and Enforcement) Act, 1961 [“Foreign Awards Act”] in Atlas
(supra) that two Indian parties can enter into an arbitration agreement with
a seat outside India, which would result in an award that would then have
to be enforced as a foreign award.
5.4. He also relied upon the judgment of the Madhya Pradesh High Court
in Sasan I (supra) and argued that, in appeal, the Supreme Court did not
dislodge any of the findings of the High Court but instead proceeded on the
basis that the arbitration was not between only two Indian companies. He
then argued, relying upon a commentary on International Commercial
Arbitration, authored by Prof. Eric E. Bergsten and published by the United
Nations Conference on Trade and Development in 2005 [“UNCTAD
Commentary on International Commercial Arbitration”], that parties
being from the same State can agree to have their disputes resolved in a
State other than the State to which they belong, as a result of which the
New York Convention will then apply to enforce the aforesaid foreign
award.
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5.5. He then went on to argue that neither section 23 nor section 28 of the
Contract Act proscribe the choice of a foreign seat in arbitration. As a
matter of fact, the exception to section 28 of the Contract Act expressly
excepts arbitration from the clutches of section 28, which is an express
approval to party autonomy which is the very basis of the Arbitration Act.
He also argued that section 23 of the Contract Act, when it speaks of
“public policy”, must be confined to clear and incontestable cases of harm
to the public and cited several cases to buttress this proposition.
5.6. In any case, he combated Mr. Himani’s argument by referring to
paragraph 118 of BALCO (supra) to argue that section 28(1) of the
Arbitration Act would apply only when the arbitration takes place in India
and not when the seat is outside India. Equally, grounds available for
challenge, which would no longer be available as a result of two parties
going abroad to resolve their differences, are waivable, and both parties
have, in this case, substituted the challenge to be made to an award under
section 34 of the Arbitration Act with two bites at the cherry – first, by a
challenge under Swiss law to the award in Zurich, and second, by resisting
enforcement under the grounds contained in section 48 of the Arbitration
Act.
5.7. He then refuted Mr. Himani’s contention that the expression “unless
the context otherwise requires” can be used to defeat the very basis of
14
section 44, arguing that section 44 only requires that the seat of arbitration
be in a territory which is outside India and cited case law for this
proposition.
5.8. He also refuted Mr. Himani’s argument that Mumbai should be the
seat, as the closest connection test applies only absent the determination
of seat. In the present case, the arbitration clause in the settlement
agreement, together with the procedural orders passed by the arbitrator,
designated Zurich as the seat and Mumbai only as a convenient venue,
which has been accepted by both parties, and must govern the arbitral
proceedings in this case.
5.9. He then proceeded to distinguish the three judgments relied upon by
Mr. Himani to demonstrate that two Indian parties can choose a foreign
seat. He then went on to argue that both in the proviso to section 2(2) and
section 10 of the Commercial Courts Act, the phrase “international
commercial arbitration” is not governed by the definition contained in
section 2(1)(f) but would only refer to arbitrations in which the seat is
outside India.
The Arbitration and Conciliation Act, 1996
6. Having heard learned counsel for both parties, it is first necessary to
set out the relevant provisions of Part I and Part II of the Arbitration Act.
15
“2. Definitions.—(1) In this Part, unless the context otherwise
requires,—
* * *
(e) “Court” means—
(i) in the case of an arbitration other than
international commercial arbitration, the
principal civil court of original jurisdiction in a
district, and includes the High Court in
exercise of its ordinary original civil
jurisdiction, having jurisdiction to decide the
questions forming the subject matter of the
arbitration if the same had been the subject
matter of a suit, but does not include any civil
court of a grade inferior to such principal civil
court, or any Court of Small Causes;
(ii) in the case of international commercial
arbitration, the High Court in exercise of its
ordinary original civil jurisdiction, having
jurisdiction to decide the questions forming the
subject matter of the arbitration if the same
had been the subject matter of a suit, and in
other cases, a High Court having jurisdiction
to hear appeals from decrees of courts
subordinate to that High Court;
(f) “international commercial arbitration” means an
arbitration relating to disputes arising out of legal
relationships, whether contractual or not, considered
as commercial under the law in force in India and
where at least one of the parties is—
(i) an individual who is a national of, or habitually
resident in, any country other than India; or
(ii) a body corporate which is incorporated in any
country other than India; or
(iii) an association or a body of individuals whose
central management and control is exercised
in any country other than India; or
(iv) the Government of a foreign country;
* * *
16
Scope
(2) This Part shall apply where the place of arbitration is in
India.
Provided that subject to an agreement to the contrary, the
provisions of Sections 9, 27 and clause (b) of sub-section (1)
and sub-section (3) of Section 37 shall also apply to
international commercial arbitration, even if the place of
arbitration is outside India, and an arbitral award made or to be
made in such place is enforceable and recognised under the
provisions of Part II of this Act.
* * *
Construction of references
(6) Where this Part, except Section 28, leaves the parties free
to determine a certain issue, that freedom shall include the right
of the parties to authorise any person including an institution, to
determine that issue.
(7) An arbitral award made under this Part shall be considered
as a domestic award.”
A party may choose to waive its right to object under section 4 of the
Arbitration Act, which reads as follows:
“4. Waiver of right to object.—A party who knows that—
(a) any provision of this Part from which the parties
may derogate, or
(b) any requirement under the arbitration agreement,
has not been complied with and yet proceeds with
the arbitration without stating his objection to such
non-compliance without undue delay or, if a timelimit is provided for stating that objection, within
that period of time, shall be deemed to have
waived his right to so object.”
The rules applicable to the substance of dispute are set out in section 28 as
follows:
“28. Rules applicable to substance of dispute.—(1) Where
the place of arbitration is situated in India,—
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(a) in an arbitration other than an international
commercial arbitration, the arbitral tribunal shall
decide the dispute submitted to arbitration in
accordance with the substantive law for the time
being in force in India;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in
accordance with the rules of law designated by
the parties as applicable to the substance of the
dispute;
(ii) any designation by the parties of the law or legal
system of a given country shall be construed,
unless otherwise expressed, as directly referring
to the substantive law of that country and not to
its conflict of laws rules;
(iii) failing any designation of the law under subclause (ii) by the parties, the arbitral tribunal shall
apply the rules of law it considers to be
appropriate given all the circumstances
surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or
as amiable compositeur only if the parties have expressly
authorised it to do so.
(3) While deciding and making an award, the arbitral tribunal
shall, in all cases, take into account the terms of the contract
and trade usages applicable to the transaction.”
Recourse to a court against an arbitral award may be made by an
application for setting aside such award, inter alia, under section 34(2A) of
the Arbitration Act, which is set out as follows:
“34. Application for setting aside arbitral award.—
* * *
(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
the court, if the court finds that the award is vitiated by patent
illegality appearing on the face of the award:
18
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by
reappreciation of evidence.”
Part II of the Arbitration Act deals with enforcement of foreign awards in
India, and contains two chapters, Chapter I of which deals with the
enforcements of awards to which the New York Convention applies.
Sections 44, 46, 47, and 49, contained in Chapter I of Part II of the
Arbitration Act, are extracted as follows:
“44. Definition.—In this Chapter, unless the context otherwise
requires, “foreign award” means an arbitral award on
differences between persons arising out of legal relationships,
whether contractual or not, considered as commercial under the
law in force in India, made on or after the 11th day of October,
1960—
(a) in pursuance of an agreement in writing for arbitration to
which the Convention set forth in the First Schedule
applies, and
(b) in one of such territories as the Central Government, being
satisfied that reciprocal provisions have been made may,
by notification in the Official Gazette, declare to be
territories to which the said Convention applies.”
“46. When foreign award binding.—Any foreign award which
would be enforceable under this Chapter shall be treated as
binding for all purposes on the persons as between whom it
was made, and may accordingly be relied on by any of those
persons by way of defence, set-off or otherwise in any legal
proceedings in India and any references in this Chapter to
enforcing a foreign award shall be construed as including
references to relying on an award.”
“47. Evidence.—(1) The party applying for the enforcement of a
foreign award shall, at the time of the application, produce
before the Court—
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(a) the original award or a copy thereof, duly authenticated in
the manner required by the law of the country in which it
was made;
(b) the original agreement for arbitration or a duly certified
copy thereof; and
(c) such evidence as may be necessary to prove that the
award is a foreign award.
(2) If the award or agreement to be produced under sub-section
(1) is in a foreign language, the party seeking to enforce the
award shall produce a translation into English certified as
correct by a diplomatic or consular agent of the country to
which that party belongs or certified as correct in such other
manner as may be sufficient according to the law in force in
India.
Explanation.—In this section and in the sections following in
this Chapter, “Court” means the High Court having original
jurisdiction to decide the questions forming the subject matter of
the arbitral award if the same had been the subject matter of a
suit on its original civil jurisdiction and in other cases, in the
High Court having jurisdiction to hear appeals from decrees of
courts subordinate to such High Court.”
“49. Enforcement of foreign awards.—Where the Court is
satisfied that the foreign award is enforceable under this
Chapter, the award shall be deemed to be a decree of that
Court.”
Seat of the arbitral proceedings in the present case
7. Clause 6 of the settlement agreement extracted above would show
that arbitration is to be resolved “in Zurich” in accordance with the Rules of
Conciliation and Arbitration of the ICC. In similar circumstances, in
Mankastu Impex (P) Ltd. v. Airvisual Ltd., (2020) 5 SCC 399, where
disputes were to be resolved by arbitration “administered in Hong Kong”,
the Court concluded:
20
“21. In the present case, the arbitration agreement entered into
between the parties provides Hong Kong as the place of
arbitration. The agreement between the parties choosing “Hong
Kong” as the place of arbitration by itself will not lead to the
conclusion that the parties have chosen Hong Kong as the seat
of arbitration. The words, “the place of arbitration” shall be
“Hong Kong”, have to be read along with Clause 17.2. Clause
17.2 provides that “… any dispute, controversy, difference
arising out of or relating to MoU shall be referred to and finally
resolved by arbitration administered in Hong Kong….”. On a
plain reading of the arbitration agreement, it is clear that the
reference to Hong Kong as “place of arbitration” is not a simple
reference as the “venue” for the arbitral proceedings; but a
reference to Hong Kong is for final resolution by arbitration
administered in Hong Kong. The agreement between the
parties that the dispute “shall be referred to and finally resolved
by arbitration administered in Hong Kong” clearly suggests that
the parties have agreed that the arbitration be seated at Hong
Kong and that laws of Hong Kong shall govern the arbitration
proceedings as well as have power of judicial review over the
arbitration award.”
(emphasis in original)
As per this clause, Zurich was therefore determined to be the juridical seat
of arbitration between the parties.
8. At the Case Management Conference held on 28.06.2018, the
learned arbitrator specifically decided:
“3. The venue of the hearing shall be Mumbai, India. The seat
of the arbitration of course remains Zurich, Switzerland. I am
grateful to the Respondent for offering to assist with the
organisation of the hearing in India. The consequence of
holding the hearing in Mumbai will of course be dealt with in the
Award on costs, depending on the outcome. The Tribunal is of
the view that it is cost efficient to hold the hearing in India where
the parties are based, the Respondent’s five witnesses are
based, where Respondent’s legal team are based and
Claimant’s co-counsel is based. This means that the Claimant’s
21
lead counsel, the Claimant’s sole witness and the sole arbitrator
must travel to India. …”
This arrangement has been accepted by both parties. Even in the final
award dated 18.04.2019, the learned arbitrator held:
“82. For the reasons set out above, the Tribunal therefore has
held in Procedural Order No.3 and hereby finds that the
arbitration clause in the Settlement Agreement is valid and
proceeds to apply the Swiss Act because the seat of the
Arbitration is Zurich, Switzerland.”
9. The closest connection test strongly relied upon by Mr. Himani would
only apply if it is unclear that a seat has been designated either by the
parties or by the tribunal. In this case, the seat has clearly been designated
both by the parties and by the tribunal, and has been accepted by both the
parties. The judgment in Enercon (supra), relied upon by Mr. Himani,
applied the aforesaid test only because the arbitration clause therein
provided that London was the “venue” and not the seat. It was, therefore,
pointed out by this Court that given the various factors connecting the
dispute to India and the absence of any factors connecting it to England, on
the facts of that case, there was no necessity to regard London as the seat
when it was, in fact, only the venue (see paragraphs 98-103, 114-116, and
128).
22
10. For this reason, it is not possible to accept Mr. Himani’s contention
that the seat of arbitration ought to be held to be Mumbai in the facts of the
present case.
Part I and Part II of the Arbitration Act are mutually exclusive
11. The Arbitration Act is in four parts. Part I deals with arbitrations where
the seat is in India and has no application to a foreign-seated arbitration. It
is, therefore, a complete code in dealing with appointment of arbitrators,
commencement of arbitration, making of an award and challenges to the
aforesaid award as well as execution of such awards. On the other hand,
Part II is not concerned with the arbitral proceedings at all. It is concerned
only with the enforcement of a foreign award, as defined, in India. Section
45 alone deals with referring the parties to arbitration in the circumstances
mentioned therein. Barring this exception, in any case, Part II does not
apply to arbitral proceedings once commenced in a country outside India.
12. Even before the Arbitration Act of 1996, India, being one of the
earliest signatories to the New York Convention, legislated in accordance
therewith and enacted the Foreign Awards Act in 1961. Under this Act,
section 2, which is pari materia to section 44 of the Arbitration Act, laid
down:
“2. Definition.—In this Act, unless the context otherwise
requires, “foreign award” means an award on differences
between persons arising out of legal relationships, whether
23
contractual or not, considered as commercial under the law in
force in India, made on or after the 11th day of October, 1960—
(a) in pursuance of an agreement in writing for arbitration to
which the Convention set forth in the Schedule applies; and
(b) in one of such territories as the Central Government being
satisfied that reciprocal provisions have been made, may,
by notification in the official Gazette, declare to be
territories to which the said Convention applies.”
Under section 6 of the Foreign Awards Act, where the court is satisfied that
the foreign award is enforceable, the court shall order the award to be filed
and shall proceed to pronounce judgment according to the award. This
provision has since been done away with by the Arbitration Act, 1996 as
section 49 of the Arbitration Act expressly provides that the award shall be
deemed to be a decree of the court. Thereafter, section 7 of the Foreign
Awards Act enumerates grounds on which such foreign award may be
refused to be enforced. Obviously, under the earlier regime, there was no
overlap between the Arbitration Act, 1940, which dealt only with domestic
awards, and the Foreign Awards Act. This situation continues in the current
Arbitration Act, Part I and Part II of which have been held to be mutually
exclusive. Thus, in BALCO (supra), this Court held:
“37. In 1953 the International Chamber of Commerce promoted
a new treaty to govern international commercial arbitration. The
proposals of ICC were taken up by the United Nations
Economic and Social Council. This in turn led to the adoption of
the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards at New York in 1958 (popularly known as “the
New York Convention”). The New York Convention is an
improvement on the Geneva Convention of 1927. It provides for
a much more simple and effective method of recognition and
24
enforcement of foreign arbitral awards. It gives much wider
effect to the validity of arbitration agreement. This Convention
came into force on 7-6-1959. India became a State signatory to
this Convention on 13-7-1960. The Foreign Awards
(Recognition and Enforcement) Act, 1961 was enacted to give
effect to the New York Convention.”
* * *
“44. In the 1961 Act, there is no provision for challenging the
foreign award on merits similar or identical to the provisions
contained in Sections 16 and 30 of the 1940 Act, which gave
power to remit the award to the arbitrators or umpire for
reconsideration under Section 30 which provided the grounds
for setting aside an award. In other words, the 1961 Act dealt
only with the enforcement of foreign awards. The Indian Law
has remained as such from 1961 onwards. There was no
intermingling of matters covered under the 1940 Act, with the
matters covered by the 1961 Act.”
* * *
“88. … Section 2(7) of the Arbitration Act, 1996 reads thus:
“2. (7) An arbitral award made under this Part shall be
considered as a domestic award.”
In our opinion, the aforesaid provision does not, in any manner,
relax the territorial principle adopted by the Arbitration Act,
1996. It certainly does not introduce the concept of a
delocalised arbitration into the Arbitration Act, 1996. It must be
remembered that Part I of the Arbitration Act, 1996 applies not
only to purely domestic arbitrations i.e. where none of the
parties are in any way “foreign” but also to “international
commercial arbitrations” covered within Section 2(1)(f) held in
India. The term “domestic award” can be used in two senses:
one to distinguish it from “international award”, and the other to
distinguish it from a “foreign award”. It must also be
remembered that “foreign award” may well be a domestic award
in the country in which it is rendered. As the whole of the
Arbitration Act, 1996 is designed to give different treatments to
the awards made in India and those made outside India, the
distinction is necessarily to be made between the terms
“domestic awards” and “foreign awards”. The scheme of the
Arbitration Act, 1996 provides that Part I shall apply to both
“international arbitrations” which take place in India as well as
“domestic arbitrations” which would normally take place in India.
25
This is clear from a number of provisions contained in the
Arbitration Act, 1996 viz. the Preamble of the said Act, proviso
and the explanation to Section 1(2), Sections 2(1)(f), 11(9),
11(12), 28(1)(a) and 28(1)(b). All the aforesaid provisions,
which incorporate the term “international”, deal with pre-award
situation. The term “international award” does not occur in Part I
at all. Therefore, it would appear that the term “domestic award”
means an award made in India whether in a purely domestic
context i.e. domestically rendered award in a domestic
arbitration or in the international context i.e. domestically
rendered award in an international arbitration. Both the types of
awards are liable to be challenged under Section 34 and are
enforceable under Section 36 of the Arbitration Act, 1996.
Therefore, it seems clear that the object of Section 2(7) is to
distinguish the domestic award covered under Part I of the
Arbitration Act, 1996 from the “foreign award” covered under
Part II of the aforesaid Act; and not to distinguish the “domestic
award” from an “international award” rendered in India. In other
words, the provision highlights, if anything, a clear distinction
between Part I and Part II as being applicable in completely
different fields and with no overlapping provisions.
89. That Part I and Part II are exclusive of each other is evident
also from the definitions section in Part I and Part II. The
definitions contained in Sections 2(1)(a) to (h) are limited to
Part I. The opening line which provides “In this Part, unless the
context otherwise requires….”, makes this perfectly clear.
Similarly, Section 44 gives the definition of a foreign award for
the purposes of Part II (Enforcement of Certain Foreign
Awards); Chapter I (New York Convention Awards). Further,
Section 53 gives the interpretation of a foreign award for the
purposes of Part II (Enforcement of Certain Foreign Awards);
Chapter II (Geneva Convention Awards). From the aforesaid,
the intention of Parliament is clear that there shall be no
overlapping between Part I and Part II of the Arbitration Act,
1996. The two parts are mutually exclusive of each other. To
accept the submissions made by the learned counsel for the
appellants would be to convert the “foreign award” which falls
within Section 44, into a domestic award by virtue of the
provisions contained under Section 2(7) even if the arbitration
takes place outside India or is a foreign seated arbitration, if the
law governing the arbitration agreement is by choice of the
parties stated to be the Arbitration Act, 1996. This, in our
opinion, was not the intention of Parliament. The territoriality
26
principle of the Arbitration Act, 1996, precludes Part I from
being applicable to a foreign seated arbitration, even if the
agreement purports to provide that the arbitration proceedings
will be governed by the Arbitration Act, 1996.”
* * *
“120. We are unable to agree with the submission of the
learned Senior Counsel that there is any overlapping of the
provisions in Part I and Part II; nor are the provisions in Part II
supplementary to Part I. Rather there is complete segregation
between the two parts.
121. Generally speaking, regulation of arbitration consists of
four steps:
(a) the commencement of arbitration;
(b) the conduct of arbitration;
(c) the challenge to the award; and
(d) the recognition or enforcement of the award.
In our opinion, the aforesaid delineation is self-evident in Part I
and Part II of the Arbitration Act, 1996. Part I of the Arbitration
Act, 1996 regulates arbitrations at all the four stages. Part II,
however, regulates arbitration only in respect of
commencement and recognition or enforcement of the award.”
* * *
“124. Having accepted the principle of territoriality, it is evident
that the intention of Parliament was to segregate Part I and Part
II. Therefore, any of the provisions contained in Part I cannot be
made applicable to foreign awards, as defined under Sections
44 and 53 i.e. the New York Convention and the Geneva
awards. This would be a distortion of the scheme of the Act. It
is, therefore, not possible to accept the submission of Mr
Subramanium that provisions contained in Part II are
supplementary to the provision contained in Part I. Parliament
has clearly segregated the two parts.”
13. This being the case, it is a little difficult to accede to any argument
that would breach the wall between Parts I and II. Mr. Himani’s argument
that the proviso to section 2(2) of the Arbitration Act is a bridge which
connects the two parts must, thus, be rejected. As a matter of fact, section
27
2(2) specifically states that Part I applies only where the place of arbitration
is in India. It is settled law that a proviso cannot travel beyond the main
enacting provision – see Union of India v. Dileep Kumar Singh, (2015) 4
SCC 421 (at paragraph 20), DMRC v. Tarun Pal Singh, (2018) 14 SCC
161 (at paragraph 21), Kandla Export Corpn. v. OCI Corpn., (2018) 14
SCC 715 (at paragraph 13), and Mavilayi Service Co-operative Bank
Ltd. v. Commissioner of Income Tax, Calicut, 2021 SCC OnLine SC 16
(at paragraph 41).
14. As a matter of fact, the reason for the insertion of the proviso to
section 2(2) by the Arbitration and Conciliation (Amendment) Act, 2015 was
because the judgment in Bhatia International v. Bulk Trading S.A.,
(2002) 4 SCC 105 [“Bhatia”] had muddied the waters by holding that
section 9 would apply to arbitrations which take place outside India without
any express provision to that effect. The judgment in Bhatia (supra) has
been expressly overruled a five-Judge Bench in BALCO (supra). Pursuant
thereto, a proviso has now been inserted to section 2(2) which only makes
it clear that where, in an arbitration which takes place outside India, assets
of one of the parties are situated in India and interim orders are required
qua such assets, including preservation thereof, the courts in India may
pass such orders. It is important to note that the expression “international
commercial arbitration” is specifically spoken of in the context of a place of
arbitration being outside India, the consequence of which is an arbitral
28
award to be made in such place, but which is enforced and recognised
under the provisions of Part II of the Arbitration Act. The context of this
expression is, therefore, different from the context of the definition of
“international commercial arbitration” contained in Section 2(1)(f), which is
in the context of such arbitration taking place in India, which only applies
“unless the context otherwise requires”. The four sub-clauses contained in
section 2(1)(f) would make it clear that the definition of the expression
“international commercial arbitration” contained therein is party-centric in
the sense that at least one of the parties to the arbitration agreement
should, inter alia, be a person who is a national of or habitually resident in
any country other than India. On the other hand, when “international
commercial arbitration” is spoken of in the context of taking place outside
India, it is place-centric as is provided by section 44 of the Arbitration Act.
This expression, therefore, only means that it is an arbitration which takes
place between two parties in a territory outside India, the New York
Convention applying to such territory, thus making it an “international”
commercial arbitration.
Ingredients of a Foreign Award sought to be enforced under Part II
15. Section 44 of the Arbitration Act is modelled on Articles I and II of the
New York Convention. The relevant provisions of the New York Convention
read as under:
29
“Article I
1. This Convention shall apply to the recognition and
enforcement of arbitral awards made in the territory of a State
other than the State where the recognition and enforcement of
such awards are sought, and arising out of differences between
persons, whether physical or legal. It shall also apply to arbitral
awards not considered as domestic awards in the State where
their recognition and enforcement are sought.”
* * *
“Article II
1. Each Contracting State shall recognise an agreement in
writing under which the parties undertake to submit to
arbitration all or any differences which have arisen or which
may arise between them in respect of defined legal relationship,
whether contractual or not, concerning a subject-matter capable
of settlement by arbitration.
2. The term “agreement in writing” shall include an arbitral
clause in a contract or an arbitration agreement, signed by the
parties or contained in an exchange of letters or telegrams.”
16. By way of contrast, section 53 of the Arbitration Act, which deals with
awards under the Geneva Convention on the Execution of Foreign Arbitral
Awards, 1927 [“Geneva Convention”], states:
“53. Interpretation.—In this Chapter “foreign award” means an
arbitral award on differences relating to matters considered as
commercial under the law in force in India made after the 28th
day of July, 1924,—
(a) in pursuance of an agreement for arbitration to which
the Protocol set forth in the Second Schedule applies,
and
(b) between persons of whom one is subject to the
jurisdiction of some one of such powers as the Central
Government, being satisfied that reciprocal provisions
have been made, may, by notification in the Official
Gazette, declare to be parties to the Convention set
forth in the Third Schedule, and of whom the other is
subject to the jurisdiction of some other of the powers
aforesaid, and
30
(c) in one of such territories as the Central Government,
being satisfied that reciprocal provisions have been
made, may, by like notification, declare to be territories
to which the said Convention applies,
and for the purposes of this Chapter an award shall not be
deemed to be final if any proceedings for the purpose of
contesting the validity of the award are pending in the country in
which it was made.”
It will be seen that the requirement of section 53(b) is conspicuous by its
absence in section 44 when it comes to an award to which the New York
Convention applies.
17. As a matter of fact, before the New York Convention was made final,
several countries wanted to insert the provisions of section 53(b), which
reflected Article I of the Geneva Convention, in the New York Convention
as well. Thus, China objected to the phrasing of Article I of the New York
Convention, stating:
“China
The first part of article I, paragraph 2, provides: ‘Any
Contracting State may, upon signing, ratifying or acceding to
this Convention, declare that it will apply the Convention only to
the recognition and enforcement of arbitral awards made in the
territory of another Contracting State.’ It follows from this
provision that any person receiving an arbitral award in a
Contracting State may request recognition and enforcement,
and this right is not limited to the nationals of a Contracting
State. The Chinese Government considers this provision as too
liberal, and is of the opinion that, on the basis of the principle of
international reciprocity, such a right should be restricted in
accordance with the spirit of article I of the 1927 Convention on
the Execution of Foreign Arbitral Awards, which provides: ‘An
arbitral award … shall be recognised as binding and shall be
enforced … provided that the said award has been made in a
31
territory of one of the High Contracting Parties to which the
present Convention applies, and between persons who are
subject to the jurisdiction of one of the High Contracting
Parties.’”
Likewise, Mexico also objected, stating:
“The Mexican Government further considers that it would be
advisable to include in the draft Convention the stipulation
contained in the Geneva Convention that the arbitral award
must have been made in a dispute between persons who are
subject to the jurisdiction of one of the Contracting States. The
Mexican Government takes this view because Mexican law
regards arbitral awards as acts which in themselves are private,
since they are made pursuant to compromise concluded
between private persons, and which become enforceable only
when the logic of the award is, in addition supported by the
authority of a judicial decision.”
Hungary followed suit, also stating:
“For this reason, and contrary to the statement contained in
point 23 of the Committee’s report, the point should be
reconsidered whether, in compliance with the provisions of the
Geneva Convention of 1927, the validity of the Convention
should be restricted to arbitral awards on differences between
persons coming under the jurisdiction of one or the other of the
Contracting States, or whether at least the Contracting States
should be accorded the right under the Convention to apply the
provisions of the same only to arbitral awards of such a nature.
If the present meaning of the word ‘jurisdiction’ – as stated in
the Committee’s report - is rather vague and ambiguous, there
is no reason why it should not be defined more precisely.”
As did Norway:
“As far as the definition of the scope of the convention is
concerned, the Norwegian Government agrees with the Special
Committee (see paragraph 23 of the Report) that the
requirement of the Geneva Convention of 1927 (article I, first
paragraph), to the effect that the arbitral award must have been
made “between persons who are subject to the jurisdiction of
one of the High Contracting Parties”, is too vague and
32
ambiguous. The scope of the present draft seems on the other
hand to be unreasonably comprehensive. As now formulated,
the convention would apply even if both the parties to the
arbitral award are nationals of the State where enforcement is
sought as well as in cases where none of them is a national of
a Contracting State.”
18. Professor Pieter Sanders, in an article “New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards” (Netherlands
International Law Review, Volume 6, Issue 1, March 1959), outlined what
he referred to as the strides made by the New York Convention when
compared with the Geneva Convention, thus:
“The international business world, for whom these conventions
are made, strongly hopes that Government will soon ratify the
New York Convention or accede to it, as in their opinion the
Convention constitutes an important step forward compared
with the Geneva Convention. Before briefly commenting upon
the separate articles of the Convention, I may try to give a
broad outline of the most important differences between the
Geneva Convention 1927 and the New York Convention 1958.”
* * *
“4. Article 1 has been the result of lengthy discussions in a
special working group as well as in the plenary sessions of the
New York arbitration conference. The first paragraph is the
result of a compromise reached within the working group. The
first sentence of this paragraph is based upon a territorial
criterion:
The Convention shall apply to the recognition and enforcement
of arbitral awards made in the territory of a state other than the
state where the recognition and enforcement of such awards
are sought, and arising out of differences between persons,
whether physical or legal.
The second sentence introduces the national principle:
It shall also apply to arbitral awards not considered as domestic
awards in the state where their recognition and enforcement is
sought.
33
Let me illustrate this by an example. Germany regards an
arbitral award rendered in France under German procedural law
as a German arbitral award and an arbitral award rendered in
Germany under French procedural law as a non-domestic,
French award. Germany applies the criterion of the applicable
procedural law and therefore will also apply the Convention
when enforcement is sought in Germany of an award rendered
in Germany under French procedural law.
The scope of the new Convention is wider than that of the
Geneva Convention which applies to awards that have been
“made in a territory of one of the High Contracting Parties to
which the Convention applies and between persons who are
subject to the jurisdiction of one of the High Contracting
Parties”. Here we only find the territorial principle and in
addition to this the restriction that the award must be made
between persons, subject to the jurisdiction of the High
Contracting Parties.”
19. Likewise, Gary B. Born, in his book “International Commercial
Arbitration” (Wolters Kluwer, 3rd Edn., 2021), has this to say:
“The Geneva Protocol was expressly limited to agreements to
arbitrate between parties that were nationals of different
Contracting States. This was the sole criterion for
“internationality”: other agreements to arbitrate, even if they
involved classic cross-border international trade or investment,
were not subject to the Protocol.
In contrast, as noted above, the text of Article II of the New York
Convention does not expressly address the categories of
arbitration agreements which are subject to the Convention.
Instead, the Convention’s text only addresses what arbitral
awards are entitled to the treaty’s protections. As a
consequence, the definition of those arbitration agreements that
are within the scope of the New York Convention must be
ascertained by implication, either by reference to the
Convention’s treatment of awards or otherwise. In these
circumstances, there are unfortunately several possible
interpretations that may be adopted. The analysis of these
permutations can be frustratingly complex, but, properly
understood, ultimately produces a simple, sensible result.”
34
20. Finally, the New York Convention, in Article I(3), referred to only two
conditions that can be made by a State when it signs, ratifies, or accedes to
the New York Convention, as follows:
“3. When signing, ratifying or acceding to this Convention, or
notifying extension under article X hereof, any State may on the
basis of reciprocity declare that it will apply the Convention to
the recognition and enforcement of awards made only in the
territory of another Contracting State. It may also declare that it
will apply the Convention only to differences arising out of legal
relationships, whether contractual or not, which are considered
as commercial under the national law of the State making such
declaration.”
It is in pursuance of Article I of the New York Convention that section 44 of
the Arbitration Act has been enacted.
21. Under section 44 of the Arbitration Act, a foreign award is defined as
meaning an arbitral award on differences between persons arising out of
legal relationships considered as commercial under the law in force in
India, in pursuance of an agreement in writing for arbitration to which the
New York Convention applies, and in one of such territories as the Central
Government, by notification, declares to be territories to which the said
Convention applies. Thus, what is necessary for an award to be designated
as a foreign award under section 44 are four ingredients:
(i) the dispute must be considered to be a commercial dispute under the
law in force in India,
35
(ii) it must be made in pursuance of an agreement in writing for
arbitration,
(iii) it must be disputes that arise between “persons” (without regard to
their nationality, residence, or domicile), and
(iv) the arbitration must be conducted in a country which is a signatory to
the New York Convention.
Ingredient (i) is undoubtedly satisfied on the facts of this case. Ingredient
(ii) is satisfied given clause 6 of the settlement agreement. Ingredients (iii)
and (iv) are also satisfied on the facts of this case as the disputes are
between two persons, i.e. two Indian companies, and the arbitration is
conducted at the seat designated by the parties, i.e. Zurich, being in
Switzerland, a signatory to the New York Convention.
22. At this juncture, it is important to cite the UNCTAD Commentary on
International Commercial Arbitration, which states:
“1.4.1 Foreign arbitration and international arbitration are not
the same
An arbitration that takes place in State A is a foreign arbitration
in State B. It does not matter whether the arbitration is
commercial or non-commercial or whether the parties are from
the same country, from different countries or that one or all are
from State A. Since even a domestic arbitration in State A is a
foreign arbitration in State B, the courts of State B would be
called upon to apply the New York Convention to enforcement
of a clause calling for arbitration in State A and to the
enforcement of any award that would result.
Aiding foreign arbitration
36
In some legal systems the courts will not come to the aid of a
“foreign” arbitration by way of aiding in the procurement of
evidence, granting interim orders of protection or the like.
However, many modern arbitration laws provide that the courts
will aid arbitrations taking place in a foreign State.
1.4.3 Definition of an international arbitration
* * *
Model Law
In the Model Law an arbitration is international if any one of four
different situations is present:
* * *
2) The place of arbitration, if determined in or pursuant to, the
arbitration agreement, is situated outside the State in which the
parties have their places of business.”
23. The ICCA’s Guide to the Interpretation of the 1958 New York
Convention: A Handbook for Judges, compiled by the International Council
for Commercial Arbitration with the assistance of the Permanent Court of
Arbitration, in its comment on Article I(1) of the New York Convention, and
particularly, the expression “awards made in the territory of a State other
than the State where the recognition and enforcement … are sought”,
states as follows:
“III.1.1. … Any award made in a State other than the State of
the recognition or enforcement court falls within the scope of
the Convention, i.e., is a foreign award. Hence, the nationality,
domicile or residence of the parties is without relevance to
determine whether an award is foreign. …
Where is an award made? The Convention does not answer
this question. The vast majority of Contracting States considers
that an award is made at the seat of the arbitration. The seat of
the arbitration is chosen by the parties or alternatively, by the
arbitral institution or the arbitral tribunal. It is a legal, not a
37
physical, geographical concept. Hearings, deliberations and
signature of the award and other parts of the arbitral process
may take place elsewhere.”
24. However, Mr. Himani strongly relied upon the following judgments to
buttress his submission that the expression “unless the context otherwise
requires” used in section 44 would necessarily import the definition of
“international commercial arbitration” contained in Part I when the context
requires this to be done, namely, when two Indian parties are resolving
their disputes against each other in a territory outside India:
(i) Vanguard Fire and General Insurance Co. Ltd. v. Fraser and
Ross, (1960) 3 SCR 857
“The main basis of this contention is the definition of the word
“insurer” in Section 2(9) of the Act. It is pointed out that that
definition begins with the words “insurer means” and is
therefore exhaustive. It may be accepted that generally the
word “insurer” has been defined for the purposes of the Act to
mean a person or body corporate etc. which is actually carrying
on the business of insurance i.e. the business of effecting
contracts of insurance of whatever kind they might be. But
Section 2 begins with the words “in this Act, unless there is
anything repugnant in the subject or context” and then come
the various definition clauses of which (9) is one. It is well
settled that all statutory definitions or abbreviations must be
read subject to the qualification variously expressed in the
definition clauses which created them and it may be that even
where the definition is exhaustive inasmuch as the word
defined is said to mean a certain thing, it is possible for the
word to have a somewhat different meaning in different sections
of the Act depending upon the subject or the context. That is
why all definitions in statutes generally begin with the qualifying
words similar to the words used in the present case, namely,
unless there is anything repugnant in the subject or context.
38
Therefore in finding out the meaning of the word “insurer” in
various sections of the Act, the meaning to be ordinarily given
to it is that given in the definition clause. But this is not inflexible
and there may be sections in the Act where the meaning may
have to be departed from on account of the subject or context
in which the word has been used and that will be giving effect to
the opening sentence in the definition section, namely, unless
there is anything repugnant in the subject or context. In view of
this qualification, the court has not only to look at the words but
also to look at the context, the collocation and the object of
such words relating to such matter and interpret the meaning
intended to be conveyed by the use of the words under the
circumstances. Therefore, though ordinarily the word “insurer”
as used in the Act would mean a person or body corporate
actually carrying on the business of insurance it may be that in
certain sections the word may have a somewhat different
meaning.”
(at pages 863-864)
(ii) Bennett Coleman & Co. (P) Ltd. v. Punya Priya Das Gupta, (1969)
2 SCC 1
“6. … But assuming that there is such a conflict as contended,
we do not have to resolve that conflict for the purposes of the
problem before us. The definition of Section 2 of the present Act
commences with the words “In this Act unless the context
otherwise requires” and provides that the definitions of the
various expressions will be those that are given there. Similar
qualifying expressions are also to be found in the Industrial
Disputes Act, 1947, the Minimum Wages Act, 1948, the C.P.
and Berar Industrial Disputes Settlement Act, 1947 and certain
other statutes dealing with industrial questions. It is, therefore,
clear that the definitions of ‘a newspaper employee’ and ‘a
working journalist’ have to be construed in the light of and
subject to the context requiring otherwise. Section 5 of the Act,
which confers the right to gratuity itself contemplates in clause
(d) of sub-section (1) a case of payment of gratuity to the
nominee or the family of a working journalist who dies while he
is in the service of a newspaper establishment. Section 17(1)
provides that where any amount is due under the Act to a
newspaper employee from an employer, such an employee
39
himself or a person authorised by him or, in case of his death,
any member of his family can apply to the State Government or
other specified authority for the recovery thereof. Similar
provisions are also to be found in Section 33-C(1) of the
Industrial Disputes Act. Claims under that section include those
for compensation in cases of retrenchment, transfer of an
undertaking and closure under Chapter V-A of that Act, all of
which would necessarily be claims arising after termination of
service and the claimant would obviously be one in all those
cases who would not be presently employed in the
establishment of the employer against whom such claims are
made. Likewise, the claim for gratuity under Section 17, read
with Section 5 of the Act, would itself be one which accrues
after the termination of employment. These provisions,
therefore, clearly indicate that it is not only a newspaper
employee presently employed in a particular newspaper
establishment who can maintain an application for gratuity. The
scheme of all these acts dealing with industrial questions is to
permit an ex-employee to avail of the benefits of their
provisions, the only requirement being that the claim in dispute
must be one which has arisen or accrued whilst the claimant
was in the employment of the person against whom it is made.
There can, therefore, be no doubt that the definitions of a
“newspaper employee” and “working journalist” being subject to
a context to the contrary, the benefit of Sections 5 and 17 is
available to an ex-employee though he has ceased to be in the
employment of that particular newspaper establishment at the
time of his application for gratuity. The contention that the
respondent was not entitled to maintain his application as he
was not in the service of the appellant company on the date of
his claim before the Labour Court cannot be sustained.”
(iii) Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472
“12. In the case of Goodyear India Ltd. v. State of Haryana
[(1990) 2 SCC 71 : 1990 SCC (Tax) 223 : (1991) 188 ITR 402]
this Court said that the rule of reasonable construction must be
applied while construing a statute. Literal construction should
be avoided if it defeats the manifest object and purpose of the
Act.
13. Therefore, in the well-known words of Judge Learned Hand,
one cannot make a fortress out of the dictionary; and should
40
remember that statutes have some purpose and object to
accomplish whose sympathetic and imaginative discovery is the
surest guide to their meaning. In the case of R.B. Jodha Mal
Kuthiala v. CIT [(1971) 3 SCC 369 : (1971) 82 ITR 570] , this
Court said that one should apply the rule of reasonable
interpretation. A proviso which is inserted to remedy unintended
consequences and to make the provision workable, a proviso
which supplies an obvious omission in the section and is
required to be read into the section to give the section a
reasonable interpretation, requires to be treated as
retrospective in operation so that a reasonable interpretation
can be given to the section as a whole.”
25. We have already seen that the context of section 44 is party-neutral,
having reference to the place at which the award is made. For this reason,
it is not possible to accede to the argument that the very basis of section 44
should be altered when two Indian nationals have their disputes resolved in
a country outside India. On the other hand, the judgment in S.K. Gupta v.
K.P. Jain, (1979) 3 SCC 54 is apposite, and states as follows:
“24. The noticeable feature of this definition is that it is an
inclusive definition and, where in a definition clause, the word
“include” is used, it is so done in order to enlarge the meaning
of the words or phrases occurring in the body of the statute and
when it is so used, these words or phrases must be construed
as comprehending not only such things which they signify
according to their natural import, but also those things which
the interpretation clause declares that they shall include (see
Dilworth v. Commissioner of Stamps [(1899) AC 99, 105 : 79 LT
473]). Where in a definition section of a statute a word is
defined to mean a certain thing, wherever that word is used in
that statute, it shall mean what is stated in the definitions unless
the context otherwise requires. But where the definition is an
inclusive definition, the word not only bears its ordinary, popular
and natural sense whenever that would be applicable but it also
bears its extended statutory meaning. At any rate, such
expansive definition should be so construed as not cutting
41
down the enacting provisions of an Act unless the phrase is
absolutely clear in having opposite effect (see Jobbins v.
Middlesex County Council [(1949) 1 KB 142 : (1948) 2 All ER
610] ). Where the definition of an expression in a definition
clause is preceded by the words “unless the context otherwise
requires”, normally the definition given in the section should be
applied and given effect to but this normal rule may, however,
be departed from if there be something in the context to show
that the definition should not be applied (see Khanna, J.,
in Indira Nehru Gandhi v. Raj Narain [(1975) Supp SCC 1, 97]).
It would thus appear that ordinarily one has to adhere to the
definition and if it is an expansive definition the same should be
adhered to. The frame of any definition more often than not is
capable of being made flexible but the precision and certainty in
law requires that it should not be made loose and kept tight as
far as possible (see Kalya Singh v. Genda Lal [(1976) 1 SCC
304, 309 : (1975) 3 SCR 783]).”
26. For this reason, it is not possible to accede to the argument that the
expression “unless the context otherwise requires” can be held to undo the
very basis of section 44 by converting it from a seat-oriented provision in
countries that are signatories to the New York Convention to a personoriented provision in which one of the parties to the arbitration agreement
has to be a foreign national or habitually resident outside India. In any
case, the context of section 44 is very far removed from the context of an
international commercial arbitration in Part I which is defined for the
purposes of section 11, section 28, section 29A(1), section 34(2A), and
section 43I, all of which occur in Part I and deal with arbitrations which take
place in India. Also, the argument of Mr. Himani would involve bodily
importing the expression “international commercial arbitration” into section
42
44, which cannot be done because of the opening words of section 44, “In
this Chapter” which is Chapter I of Part II, and then applying the definition
contained in section 2(1)(f) of the Arbitration Act which, being restricted to
Part I, must now be applied to Part II. No canon of interpretation would
permit acceptance of such an argument.
27. At this point, it is important to refer to the judgment of this Court in
Atlas (supra). In this case, even though the appellant, an Indian company,
had entered into a contract dated 03.06.1980 with a company incorporated
in Hong Kong, the goods were to be supplied through an Indian company,
namely, Kotak & Co., in Mumbai. Disputes arose between the two Indian
companies – Atlas Exports Pvt. Ltd. and Kotak & Co. The contract dated
03.06.1980 incorporated an arbitration clause as follows:
“2. The contract dated 3-6-1980 incorporated an arbitration
clause which is extracted and reproduced hereunder:
“This contract is made under the terms and conditions
effective at date of Grain and Food Trade Association
Ltd., London, Contract 15 which is hereby made a part
of this contract … both buyers and sellers hereby
acknowledge familiarity with the text of the GAFTA
contract and agree to be bound by its terms and
conditions.”
3. “GAFTA” stands for Grain and Food Trade Association Ltd.,
London. Clause 27 of Standard Contract 15 of GAFTA provides
as under:
“27. Arbitration.—(a) Any dispute arising out of or
under this contract shall be settled by arbitration in
London in accordance with the arbitration rules of
Grain and Food Trade Association Limited, No. 125
43
such rules forming part of this contract and of which
both parties hereto shall be deemed to be cognisant.
(b) Neither party hereto, nor any persons claiming
under either of them, shall bring any such dispute until
such dispute shall first have been heard and
determined by the arbitrators, umpire or Board of
Appeal, as the case may be, in accordance with the
arbitration rules and it is expressly agreed and
declared that the obtaining of the award from the
arbitration, umpire or Board of Appeal, as the case
may be, shall be a condition precedent to the right of
either party hereto or of any person claiming under
either of them to bring any action or other legal
proceedings against the other of them in respect of any
such dispute.”
A foreign award was delivered on 22.06.1987 as per the Rules of GAFTA,
London. Kotak & Co. moved an application under sections 5 and 6 of the
Foreign Awards Act before the High Court, seeking enforcement of the
award by filing the same and praying for pronouncement of judgment
according to the award. The award was made a rule of the court, followed
by a decree, by a learned Single Judge of the Bombay High Court. A
Letters Patent Appeal preferred by Atlas Exports Pvt. Ltd. was dismissed. A
specific contention was raised that since both Atlas Exports Pvt. Ltd. and
Kotak & Co. were Indian parties, the award could not be enforced, being
contrary to sections 23 and 28 of the Contract Act. This was repelled by this
Court as follows:
“10. It was however contended by the learned counsel for the
appellant that the award should have been held to be
unenforceable inasmuch as the very contract between the
parties relating to arbitration was opposed to public policy under
44
Section 23 read with Section 28 of the Contract Act. It was
submitted that Atlas and Kotak, the parties between whom the
dispute arose, are both Indian parties and the contract which
had the effect of compelling them to resort to arbitration by
foreign arbitrators and thereby impliedly excluding the remedy
available to them under the ordinary law of India should be held
to be opposed to public policy. Under Section 23 of the Indian
Contract Act the consideration or object of an agreement is
unlawful if it is opposed to public policy. Section 28 and
Exception 1 to it, (which only is relevant for the purpose of this
case) are extracted and reproduced hereunder:
“28. Every agreement, by which any party thereto is
restricted absolutely from enforcing his rights under or
in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits
the time within which he may thus enforce his rights, is
void to that extent.
Exception 1.—This section shall not render illegal a
contract, by which two or more persons agree that any
dispute which may arise between them in respect of
any subject or class of subjects shall be referred to
arbitration, and that only the amount awarded in such
arbitration shall be recoverable in respect of the
dispute so referred.”
11. The case at hand is clearly covered by Exception 1 to
Section 28. Right of the parties to have recourse to legal action
is not excluded by the agreement. The parties are only required
to have their dispute/s adjudicated by having the same referred
to arbitration. Merely because the arbitrators are situated in a
foreign country cannot by itself be enough to nullify the
arbitration agreement when the parties have with their eyes
open willingly entered into the agreement. Moreover, in the
case at hand the parties have willingly initiated the arbitration
proceedings on the disputes having arisen between them. They
have appointed arbitrators, participated in arbitration
proceedings and suffered an award. The plea raised before us
was not raised either before or during the arbitration
proceedings, nor before the learned Single Judge of the High
Court in the objections filed before him, nor in the letters patent
appeal filed before the Division Bench. Such a plea is not
available to be raised by the appellant Atlas before this Court
for the first time.”
45
28. It is clear that this Court categorically held that a foreign award
cannot be refused to be enforced merely because it was made between
two Indian parties, under pari materia provisions of the Foreign Awards Act.
The Court also held that since this plea had never been taken in any of the
courts below, it was not available to the appellant to raise the said plea
before this Court for the first time.
29. It is clear that there can be more than one ratio decidendi to a
judgment. Thus, In Jacobs v. London County Council, (1950) 1 All ER
737, the House of Lords, after referring to some earlier decisions, held, as
follows:
“… However, this may be, there is, in my opinion, no
justification for regarding as obiter dictum a reason given by a
Judge for his decision, because he has given another reason
also. If it were a proper test to ask whether the decision would
have been the same apart from the proposition alleged to be
obiter, then a case which ex facie decided two things would
decide nothing. A good illustration will be found in London
Jewellers Ltd. v. Attenborough, (1934) 2 KB 206 (CA). In that
case the determination of one of the issues depended on how
far the Court of Appeal was bound by its previous decision
in Folkes v. R., (1923) 1 KB 282 (CA), [in which] the court had
given two grounds for its decision, the second of which [as
stated by Greer, L.J., in Attenborough case, (1934) 2 KB 206]
was that: (KB p. 222):
‘… where a man obtains possession with authority
to sell, or to become the owner himself, and then
sells, he cannot be treated as having obtained the
goods by larceny by a trick.’”
In Attenborough case, (1934) 2 KB 206 it was contended that,
since there was another reason given for the decision in Folkes
46
case, (1923) 1 KB 282, the second reason was obiter, but
Greer, L.J., said in reference to the argument of counsel:
(Attenborough case, KB p. 222)
“I cannot help feeling that if we were unhampered
by authority there is much to be said for this
proposition which commended itself to Swift, J., and
which commended itself to me in Folkes v. R.,
(1923) 1 KB 282, but that view is not open to us in
view of the decision of the Court of Appeal
in Folkes v. R., (1923) 1 KB 282. In that case two
reasons were given by all the members of the Court
of Appeal for their decision and we are not entitled
to pick out the first reason as the ratio decidendi
and neglect the second, or to pick out the second
reason as the ratio decidendi and neglect the first;
we must take both as forming the ground of the
judgment.”
So, also, in Cheater v. Cater, (1918) 1 KB 247 (CA) Pickford,
L.J., after citing a passage from the judgment of Mellish, L.J.,
in Erskine v. Adeane, (1873) LR 8 Ch App 756, said: (Cheater
case, KB p. 252)
“… That is a distinct statement of the law and not a
dictum. It is the second ground given by the Lord
Justice for his judgment. If a Judge states two
grounds for his judgment and bases his decision
upon both, neither of those grounds is a dictum.”
(at page 741)
The said judgment has been followed in State of Gujarat v.
Manoharsinhji Pradyumansinhji Jadeja, (2013) 2 SCC 300 (at
paragraphs 78 and 79) and in Shayara Bano v. Union of India, (2017) 9
SCC 1 (at footnote 65).
30. Obviously, there were two reasons for discarding the appellant’s
argument in Atlas (supra) – the first reason was clearly on merits. The
47
second reason undoubtedly refused to entertain this plea as it had not been
raised earlier. However, this was coupled with the fact that the parties
participated in the arbitral proceedings and suffered an award, after which
such plea was then taken. We are, therefore, unable to accede to the
contention of Mr. Himani that this case cannot be regarded as an authority
for the proposition that sections 23 and 28 of the Contract Act are out of
harm’s way when it comes to enforcing a foreign award under the Foreign
Awards Act, 1961, where both parties are Indian companies.
31. It is interesting to note that under U.S. law, an arbitration agreement
or award made between two U.S. citizens shall not fall under the New York
Convention unless such relationship involves properties located abroad,
envisages performance of a contract, entered in the U.S., to take place
abroad, or has some reasonable connection with one or more foreign
states. Thus, section 202 of the Federal Arbitration Act [Title 9, U.S. Code]
states as follows:
“Section 202. Agreement or award falling under the
Convention—An arbitration agreement or arbitral award arising
out of a legal relationship, whether contractual or not, which is
considered as commercial, including a transaction, contract, or
agreement described in section 2 of this title, falls under the
Convention. An agreement or award arising out of such a
relationship which is entirely between citizens of the United
States shall be deemed not to fall under the Convention unless
that relationship involves property located abroad, envisages
performance or enforcement abroad, or has some other
reasonable relation with one or more foreign states. For the
purpose of this section a corporation is a citizen of the United
48
States if it is incorporated or has its principal place of business
in the United States.”
32. It is important to note that no such caveat is entered when India
acceded to the New York Convention and enacted the Foreign Awards Act
and the Arbitration Act, 1996. On the contrary, we have seen as to how
“persons” mentioned in section 44 has no reference to nationality,
residence or domicile. This is another important pointer to the fact that,
unlike the U.S. Code, section 44 of the Arbitration Act does not enter any
such caveat.
33. In Sasan I (supra), the dispute resolution clause contained in the
contract between two Indian companies was set out in paragraph 33 of the
judgment as follows:
“33. However, Article 12 deals with the governing law and a
dispute resolution mechanism. Section 12.1 and 12.2(a), which
are relevant, read as under:
“Section 12.1-Governing Law – This Agreement shall
be governed by, and construed and interpreted in
accordance with, the laws of the United Kingdom
without regard to its conflicts of law principles.
Section 12.2-Dispute Resolution
Arbitration
(a) Any and all claims, disputes, questions or
controversies involving Reliance on the one hand and
NAC on the other hand arising out of or in connection
with this Agreement (collectively, ‘Disputes’) which
cannot be finally resolved by such parties within
60(sixty) days of arising by amicable negotiation shall
be resolved by final and binding arbitration to be
administered by the International Chamber of
49
Commerce (the ‘ICC’) in accordance with its
commercial arbitration rules then in effect (the ‘Rules’).
The place of arbitration shall be London, England.
Each party shall appoint one (1) arbitrator and the two
(2) arbitrators so appointed shall together select and
appoint a third arbitrator. If either Reliance, on the one
hand, or NAC, on the other hand, fail to appoint their
respective arbitrator within 30(thirty) days after receipt
by respondent(s) of the demand for arbitration or if the
two (2) party-appointed arbitrators are unable to
appoint the chairperson of the arbitral tribunal within
thirty (30) days of the appointment of the second
arbitrator, then the ICC shall appoint such arbitrator or
the chairperson, as the case may be, in accordance
with the listing, ranking and striking provisions of the
Rules. Save and except the provision under Section 9,
the provisions of the Part 1 of (Indian) Arbitration and
Conciliation Act, 1996, as amended (the ‘Arbitration
Act’) shall not apply to the arbitration. The arbitrators
shall not award punitive, exemplary, multiple or
consequential damages. In connection with the
arbitration proceedings, the parties hereby agree to
cooperate in good faith with each other and the arbitral
tribunal and to use their respective best efforts to
respond promptly to any reasonable discovery demand
made by such party and the arbitral tribunal.’
Sub-clause (d) of this Article deals with payments to be made
by the parties for the purpose of Arbitration.
‘(d) Each party shall bear its own arbitration expenses,
and Reliance on the one hand, and NAC, on the other
hand, shall pay one-half of the ICC's and the
chairperson's fees and expenses, unless the
arbitrators determine that it would be equitable if all or
a portion of the prevailing party's expenses should be
borne by the other party. Unless the Award provides for
non-monetary remedies, any such Award shall be
made and shall be promptly payable in (i) US Dollars if
payable to NAC or (ii) Rupees if paid to Reliance net of
any tax or other deduction. The Award shall include
interest from the date of any breach or other violation
of this Agreement and the rate of interest shall be
specified by the arbitral tribunal and shall be calculated
50
from the date of any such breach or other violation to
the date when the Award is paid in full.’”
The Court then referred to BALCO (supra) and held:
“46. Finally, in paragraph 118 [Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc., (2012) 9 SCC 552], the
crucial part heavily relied upon by Shri. V.K. Tankha, learned
Senior Advocate, reference is made to section 28, and it is held
as under:
‘118. It was submitted by the learned counsel for the
appellants that Section 28 is another indication of the
intention of Parliament that Part I of the Arbitration Act,
1996 was not confined to arbitrations which take place
in India. We are unable to accept the submissions
made by the learned counsel for the parties. As the
heading of Section 28 indicates, its only purpose is to
identify the rules that would be applicable to
‘substance of dispute’. In other words, it deals with the
applicable conflict of law rules. This section makes a
distinction between purely domestic arbitrations and
international commercial arbitrations, with a seat in
India. Section 28(1)(a) makes it clear that in an
arbitration under Part I to which section 2(1)(f) does
not apply, there is no choice but for the Tribunal to
decide ‘the dispute’ by applying the Indian ‘substantive
law applicable to the contract’. This is clearly to ensure
that two or more Indian parties do not circumvent the
substantive Indian law, by resorting to arbitrations. The
provision would have an overriding effect over any
other contrary provision in such contract. On the other
hand, where an arbitration under Part I is an
international commercial arbitration within Section 2(1)
(f), the parties would be free to agree to any other
‘substantive law’ and if not so agreed, the ‘substantive
law’ applicable would be as determined by the
Tribunal. The section merely shows that the legislature
has segregated the domestic and international
arbitration. Therefore, to suit India, conflict of law rules
have been suitably modified, where the arbitration is in
India. This will not apply where the seat is outside
India. In that event, the conflict of law rules of the
51
country in which the arbitration takes place would have
to be applied. Therefore, in our opinion, the emphasis
placed on the express ‘where the place of arbitration is
situated in India’, by the learned Senior Counsel for the
appellants, is not indicative of the fact that the intention
of Parliament was to give an extra-territorial operation
to Part I of the Arbitration Act, 1996.’
(emphasis in original)
47. Hon’ble Supreme Court holds that section 28 makes a clear
distinction between purely domestic arbitration and international
arbitration with a seat in India, and it is indicated that section
28(1)(a) makes it clear that in an arbitration under Part I to
which section 2(1)(f) does not apply, there is no choice but for
the Tribunal to decide the dispute by applying the Indian
substantive law applicable to the Contract. It is this part of the
judgment which was heavily relied upon by Shri. V.K. Tankha,
learned Senior Advocate further refers to the next sentence
which says that two or more Indian parties cannot circumvent
the substantive Indian Law by resorting to arbitration. By
placing much emphasis on this part, learned Senior Advocate
tried to indicate that the order of the learned District Judge is
unsustainable.
48. However, if we further read the findings recorded by the
Supreme Court in the same paragraph 118, as reproduced
hereinabove, it is held by the Supreme Court that when the seat
is outside India, the conflict of law rule of the country in which
the arbitration takes place would have to be applied, and
thereafter it is held that the expression ‘whether the place of
arbitration is situated in India’ does not indicate the intention of
the Parliament to give extra territorial operation to Part I, of the
Arbitration Act of 1996. In paragraph 123 also, the matter has
been considered in the backdrop of the provisions
contemplated under section 28, this also makes us to come to
the inevitable conclusion that the provisions of Part I will not
apply where the seat of arbitration is outside India.
49. On consideration of the law laid down in the case of TDM
Infrastructure (supra), we find, that the proceeding before the
Hon'ble Supreme Court was with regard to appointing an
arbitrator under section 11(6) and after taking note of the
definition of International Commercial Arbitration as provided in
section 2(1)(f), the procedure for appointment of arbitrator and
the provision of section 28, it was held that Part I of the Act of
52
1996 deals with domestic arbitration and Part II deals with
‘foreign award’, and by specifically taking note of the provisions
of section 28, has held that companies incorporated in India
and when both the parties have Indian nationality, then such
arbitration cannot be said to be an international commercial
arbitration. However, after having said so, in paragraph 23
reference is made to section 28, the intention of the legislature,
to hold that two Indian nationals should not be permitted to
derogate Indian Law.
50. Finally, in para 23 the following observations are made by
the Supreme Court in the aforesaid case:
‘23. Section 28 of the 1996 Act is imperative in
character in view of Section 2(6) thereof, which
excluded the same from those provisions which parties
derogate from (if so provided by the Act). The intention
of the legislature appears to be clear that Indian
nationals should not be permitted to derogate from
Indian Law. This is part of the public policy of the
country.
36. It is, however, made clear that any
findings/observations made hereinbefore were only for
the purpose of determining the jurisdiction of this Court
as envisaged under Section 11 of the 1996 Act and not
for any other purpose.’
(emphasis in original)
51. If we analyse this judgment, we find, that apart from being
one rendered in a proceeding held under section 11(6), is
based on the consideration made with reference to section
28(1), as is evident from paragraph 23 relied upon by Shri. V.K.
Tankha and thereafter in paragraph 36, a caution is indicated
with regard to applicability of this judgment. Whereas in the
case of Atlas Exports (supra), we find that in Atlas Exports, in
paragraphs 10 and 11, the following principles have been laid
down:-
‘10. It was however contended by the learned counsel
for the appellant that the award should have been held
to be unenforceable in as much as the very contract
between the parties relating to arbitration was opposed
to public policy under Section 23 read with Section 28
of the Contract Act. It was submitted that Atlas and
Kotak, the parties between whom the dispute arose,
are both Indian parties and the contract which had the
53
effect of compelling them to resort to arbitration by
foreign arbitrators and thereby impliedly excluding the
remedy available to them under the ordinary law of
India should be held to be opposed to public
policy. Under section 23 of the Indian Contract Act the
consideration or object or an agreement is unlawful if it
is opposed to public policy. Section 28 and Exception 1
to it, (which only is relevant for the purpose of this
case) are extracted and reproduced hereunder:
‘28. Every agreement, by which any party thereto is
restricted absolutely from enforcing his rights under or
in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits
the time within which he may thus enforce his rights, is
void to that extent.
Exception 1 - This section shall not render illegal a
contract, by which two or more persons agree that any
dispute which may arise between them in respect of
any subject or class of subjects shall be referred to
arbitration, and that only the amount awarded in such
arbitration shall be recoverable in respect of the
dispute so referred.’
11. The case at hand is clearly covered by Exception 1
to Section 28. Right of the parties to have recourse to
legal action is not excluded by the agreement. The
parties are only required to have their dispute/s
adjudicated by having the same referred to
arbitration. Merely because the arbitrators are situated
in a foreign country cannot by itself be enough to
nullify the arbitration agreement when the parties have
with their eyes open willingly entered into the
agreement. Moreover, in the case at hand the parties
have willing initiated the arbitration proceedings on the
disputes having arisen between them. They have
appointed arbitrators, participated in arbitration
proceedings and suffered an award. The plea raised
before us was not raised either before or during the
arbitration proceedings, nor before the learned Single
Judge of the High Court in the objections filed before
him, nor in the letters patent appeal filed before the
Division Bench. Such a plea is not available to be
54
raised by the appellant Atlas before this Court for the
first time.’
(emphasis in original)
52. In this case i.e. Atlas Exports (supra), Sections 23 and 28 of
the Contract Act are considered and it is held that when a
dispute arises where both the parties are Indian, and if the
contract has the effect of compelling them to resort to arbitration
by foreign arbitrators and thereby impliedly excluding the
remedy available to them under the ordinary law of India, the
same is not opposed to public policy. Section 28 exception (1)
of the Contract Act is taken note of and it is held that merely
because the arbitrators are situated in a foreign country that by
itself cannot be enough to nullify the arbitration agreement,
when the parties have with their eyes open, willingly entered
into an agreement. If this observation made by the Supreme
Court is taken note of, we find that merely because two Indian
companies have entered into an arbitration agreement to be
held in a foreign country by agreed arbitrators, that by itself is
not enough to nullify the arbitration agreement.
53. Shri. V.K. Tankha, learned Senior Advocate, tried to indicate
that Atlas Exports (supra) case was rendered in a proceeding
held under the Arbitration Act, 1940 which is entirely different
from the Act of 1996 and, therefore, the said judgment will not
apply in the present case. Instead, the judgment in the case
of TDM Infrastructure (supra) would be applicable.
54. We cannot accept the aforesaid proposition. Shri Anirudh
Krishnan, learned counsel, had taken us through the provisions
of both the Act of 1940 and the Act of 1996, and thereafter he
had referred to the judgment of the Supreme Court in the case
of Fuerst Day Lawson Limited (supra), where after a detailed
comparison of various sections of both the Acts, from
paragraphs 65 onwards, Hon'ble Supreme Court discussed the
provisions of both Acts, and finally has observed that there is
not much of a difference between them. If the aforesaid
judgment in the case of Fuerst Day Lawson Limited (supra) is
considered, the same holds that both, the Act of 1980 [sic 1940]
and 1996 are identical and the Hon'ble Court has also indicated
the similarity in both the Acts. That being so, we see no reason
as to why the principle laid down of Atlas Exports (supra), which
is by a Larger Bench i.e.. Division Bench, should not be applied
particularly in the light of the law of precedent as laid down in
the case of A.R. Antulay (supra). The contention of Shri. V.K.
55
Tankha, learned Senior Advocate, that the learned District
Judge relied upon the judgment in the case of Atlas
Exports (supra) and refused to rely upon the case of TDM
Infrastructure (supra) only because it is by a Single Bench is
not convincing or acceptable, as the Division Bench Judgment
in the case of Atlas Exports (supra) is a binding precedent and
once it is held in the aforesaid case that two Indian companies
can agree to arbitrate in a foreign country and the same is not
hit by public policy, we see no error in the order passed by the
learned District Judge.
55. That apart, we also find that in the case of TDM
Infrastructure (supra), a note of caution is indicated in
paragraph 36, which was added by a corrigendum subsequent
to pronouncement of judgment, this clearly indicates the
principle laid down by the Supreme Court was only for
determining the jurisdiction under section 11 and nothing more.
We need not go into the questions any further now, as we find
that the judgment in the case of Atlas Exports (supra) is a
binding precedent.
56. Various other contentions were also advanced by Shri.
Anirudh Krishnan, learned counsel, to say that the judgment in
the case of TDM Infrastructure (supra) is not by a Court and,
therefore, the provision of Article 141 of the Constitution will not
apply. Once we have held that the principle of law laid down by
the Supreme Court in the case of Atlas Exports (supra) is
binding on us and is applicable to the present dispute, we need
not go into all these questions.
57. On going through the scheme of the Arbitration and
Conciliation Act, 1996, we find that based on the seat of
arbitration so also the nationality of parties, an arbitration is
classified to be an ‘International Arbitration’, and the governing
law is also determined on the basis of the seat of arbitration.
Therefore, it is clear that based on the seat of arbitration, the
question of permitting two Indian companies/parties to arbitrate
out of India is permissible. In the case of Atlas Exports (supra)
itself, the principle has been settled that two Indians can agree
to have a seat of arbitration outside India. Now, if two Indian
Companies agree to have their seat of arbitration in a foreign
country, the question would be as to whether the provisions of
Part I or Part II would apply. Section 44, of the Act of 1996,
contemplates a foreign award to be one pertaining to difference
between persons arising out of legal relationship, whether
56
contractual or not, which is in pursuance to an agreement in
writing for arbitration, to which the convention set forth in the
first schedule applies.
58. In the First Schedule to the Act of 1996, convention on the
recognition and enforcement of foreign award popularly known
as New York Convention has been laid down and admittedly in
this case the parties have agreed to have an arbitration with its
seat outside India i.e.. London. If that be the position then the
provisions of section 45 would be attracted until and unless it is
established that the agreement is null and void, inoperative or
incapable of being performed. If we analyse the scheme of the
Arbitration and Conciliation Act, 1996, we find that there is a
distinction between ‘International Commercial Arbitration’ and a
‘Foreign Award’. It is the case of the appellant that in a dispute
between two Indian Parties, which is a domestic arbitration,
Part II and Section 45 of the Act of 1996 will not apply.
However, when we consider the distinction between
‘International Commercial Arbitration’ and ‘Foreign Award’, we
find that there is a difference between an International
Commercial Arbitration and an Arbitration which is not an
International Commercial Arbitration. The same is based on the
nationality of the parties and this distinction is only relevant for
the purpose of following the appointment procedure as
contemplated under section 11. As far as nationality of the
parties are concerned, the same has no applicability for
considering the applicability of Part II, of the Act of 1996.
Applicability of Part II is determined solely based on what is the
seat of arbitration, whether it is in a country which is signatory
to the New York Convention. If this requirement is fulfilled, Part
II will apply and in the present case as this requirement is
fulfilled, we have no hesitation in holding that the dispute in
question is covered by Part II of the Act of 1996.”
* * *
“72. Finally, we may observe that once it is found by us that
parties by mutual agreement have decided to resolve their
dispute by arbitration and when they, on their own, chose to
have the seat of arbitration in a foreign country, then in view of
the provisions of Section 2(2) of the Act of 1996, Part I of the
Act, will not apply in a case where the place of arbitration is not
India and if Part I does not apply and if the agreement in
question fulfils the requirement of Section 44 then Part II will
apply and when Part II applies and it is found that agreement is
57
not null or void or inoperative, the bar created under Section 45
would come into play and if bar created under Section 45
comes into play then it is a case where the Court below had no
option but to refer the parties for arbitration as the bar under
Section 45 would also apply and the suit itself was not
maintainable.”
This statement of the law has our approval. It may only be mentioned that
the judgment in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8
SCC 333 [“Fuerst Day Lawson”], referred to the provisions of the Foreign
Awards Act, 1961 and Part II of the Arbitration Act of 1996 and not the
Arbitration Act, 1940, as has been incorrectly held in paragraphs 53 and 54
of the aforesaid judgment. In addition, it may only be mentioned that the
judgment of this Court by a learned Single Judge, under section 11 of the
Arbitration Act, in TDM (supra) cannot, in any case, be regarded as a
binding precedent, having been delivered by a Single Judge appointing an
arbitrator under section 11 – see State of West Bengal v. Associated
Contractors, (2015) 1 SCC 32 (at paragraph 17).
34. The Bombay High Court has referred to and relied upon TDM (supra)
to arrive at the opposite conclusion of Sasan I (supra). Thus, in Seven
Islands Shipping Ltd. v. Sah Petroleums Ltd., (2012) 5 Mah LJ 822, one
of us (Gavai, J.) sitting as Single Judge of the Bombay High Court, after
placing reliance on TDM (supra), held:
“13. Mandate of section 45 to refer a dispute to the Arbitrator is
also on a condition that the said agreement has to be a legal
agreement. When the Apex Court, in unequivocal terms has
58
held that when both the Companies are incorporated in India an
agreement cannot be termed as an “International Arbitration
Agreement”, I am of the view that since both the plaintiff and the
defendants are companies incorporated in India even for the
sake of argument, there is an arbitration agreement, it cannot
be an “International Arbitration Agreement” and as such not
valid in law. However, I may clarify that I have not gone through
the question whether in fact there is an arbitration agreement
between the parties or not.”
35. Likewise, another learned Single Judge of the Bombay High Court, in
M/s. Addhar Mercantile Pvt. Ltd. v. Shree Jagadamba Agrico Exports
Pvt. Ltd., Arbitration Application No. 197 of 2014 (decided on 12.06.2015),
after referring to TDM (supra), then held:
“8. It is not in dispute that both parties are from India. A perusal
of clause 23 clearly indicates that intention of both parties is
clear that the arbitration shall be either in India or in Singapore.
If the seat of the arbitration would have be at Singapore,
certainly English law will have to be applied. Supreme Court in
case of TDM Infrastructure Private Limited (supra) has held that
the intention of the legislature would be clear that Indian
nationals should not be permitted to derogate from Indian law.
This is part of the public policy of the country.
9. Insofar as submission of the learned counsel for the
respondent that if such provision is interpreted in the manner in
which it is canvassed by the learned counsel for the applicant, it
would be in violation of section 28(1)(a) is concerned, since I
am of the view that the arbitration has to be conducted in India,
under section 28(1)(a), the arbitral tribunal will have to decide
the disputes in accordance with the substantive law for the time
being in force in India. In my view the said agreement which
provides for arbitration in India thus does not violate section
28(1)(a) as canvassed by the learned counsel for the
respondent.”
59
36. Both these decisions rely on the judgment of this Court in TDM
(supra) and have not appreciated the law in its correct perspective and,
therefore, stand overruled. On the other hand, a learned Single Judge of
the Delhi High Court in GMR Energy Limited v. Doosan Power Systems
India, CS (COMM) 447/2017 (decided on 14.11.2017), considered the
same question and followed the judgment of the Madhya Pradesh High
Court in Sasan I (supra) – see paragraphs 29, 30 and 31. It distinguished
the judgment in TDM (supra) correctly, as follows:
“33. However, in para-36 of TDM Infrastructure (supra)
Supreme Court clarified that any findings/observations made
hereinabove were only for the purpose of determining the
jurisdiction of the Court as envisaged under Section 11 of the
1996 Act and not for any other purpose and is also evident from
the conclusions noted in para 20 and 22 of the report. Thus
GMR Energy cannot rely upon the decision in TDM
Infrastructure (supra) to contend that in the present case Part-I
of the Arbitration Act would apply and not Part-II.”
The learned Single Judge of the Delhi High Court then relied upon this
Court’s judgment in Atlas (supra) in paragraph 41. In paragraph 43, the
learned Single Judge then referred to the table that is set out in Fuerst Day
Lawson (supra) as follows:
“43. Contention of learned counsel for GMR Energy that the
judgment in Atlas (supra) was given prior to Arbitration and
Conciliation Act, 1996, and therefore not applicable to the
present case, also deserves to be rejected in view of the
decision of the Supreme Court reported as (2011) 8 SCC 333
Fuerst Day Lawson v. Jindal Exports Ltd. wherein comparing
60
the pre amendment and post amendment Arbitration Act it was
observed that the new Act is more favourable to international
arbitration than its previous incarnation. The report comparing
the provisions of the two Acts noted:
64. The provisions of Chapter I of Part II of the 1996 Act
along with the provisions of the Foreign Awards (Recognition
and Enforcement) Act, 1961, insofar as relevant for the present
are placed below in a tabular form:
Foreign Awards (Recognition
and Enforcement) Act, 1961
Arbitration and Conciliation Act,
1996
Part II: Enforcement of Certain
Foreign Awards
Chapter I: New York Convention
Awards
2. Definition.—In this Act,
unless the context otherwise
requires, ‘foreign award’
means an award on
differences between persons
arising out of legal
relationships, whether
contractual or not, considered
as commercial under the law
in force in India, made on or
after the 11th day of October,
1960—
(a) in pursuance of an
agreement in writing for
arbitration to which the
Convention set forth in the
Schedule applies, and
44. Definition.—In this
Chapter, unless the context
otherwise requires, ‘foreign
award’ means an arbitral
award on differences between
persons arising out of legal
relationships, whether
contractual or not, considered
as commercial under the law
in force in India, made on or
after the 11th day of October,
1960—
(a) in pursuance of an
agreement in writing for
arbitration to which the
Convention set forth in the First
Schedule applies, and
61
(b) in one of such territories as
the Central Government being
satisfied that reciprocal
provisions have been made,
may, by notification in the
Official Gazette, declare to be
territories to which the said
Convention applies.
(b) in one of such territories as
the Central Government, being
satisfied that reciprocal
provisions have been made
may, by notification in the
Official Gazette, declare to be
territories to which the said
Convention applies.
3. Stay of proceedings in
respect of matters to be
referred to arbitration.—
Notwithstanding anything
contained in the Arbitration
Act, 1940 (10 of 1940), or in
the Code of Civil Procedure,
1908 (5 of 1908), if any party
to an agreement to which
Article II of the Convention set
forth in the Schedule applies,
or any person claiming
through or under him
commences any legal
proceedings in any court
against any other party to the
agreement or any person
claiming through or under him
in respect of any matter
agreed to be referred to
arbitration in such agreement,
any party to such legal
proceedings may, at any time
after appearance and before
filing a written statement or
taking any other step in the
proceedings, apply to the
court to stay the proceedings
and the court, unless satisfied
that the agreement is null and
void, inoperative or incapable
of being performed or that
there is not, in fact, any
dispute between the parties
45. Power of judicial authority
to refer parties to arbitration.
— Notwithstanding anything
contained in Part I or in the
Code of Civil Procedure, 1908
(5 of 1908), a judicial authority,
when seized of an action in a
matter in respect of which the
parties have made an
agreement referred to in Section
44, shall, at the request of one
of the parties or any person
claiming through or under him,
refer the parties to arbitration,
unless it finds that the said
agreement is null and void,
inoperative or incapable of
being performed.
62
with regard to the matter
agreed to be referred, shall
make an order staying the
proceedings.
4. Effect of foreign awards.
—(1) A foreign award shall,
subject to the provisions of
this Act, be enforceable in
India as if it were an award
made on a matter referred to
arbitration in India.
(2) Any foreign award which
would be enforceable under
this Act shall be treated as
binding for all purposes on the
persons as between whom it
was made, and may
accordingly be relied on by
any of those persons by way
of defence, set off or
otherwise in any legal
proceedings in India and any
references in this Act to
enforcing a foreign award shall
be construed as including
references to relying on an
award.
46. When foreign award
binding.—Any foreign award
which would be enforceable
under this Chapter shall be
treated as binding for all
purposes on the persons as
between whom it was made,
and may accordingly be relied
on by any of those persons by
way of defence, set-off or
otherwise in any legal
proceedings in India and any
references in this Chapter to
enforcing a foreign award shall
be construed as including
references to relying on an
award.
5. Filing of foreign awards in
court.—(1) Any person
interested in a foreign award
may apply to any court having
jurisdiction over the subjectmatter of the award that the
award be filed in court.
(2) The application shall be in
writing and shall be numbered
and registered as a suit
between the applicant as
plaintiff and the other parties
as defendants.
63
(3) The court shall direct
notice to be given to the
parties to the arbitration, other
than the applicant, requiring
them to show cause, within a
time specified why the award
should not be filed.
6. Enforcement of foreign
award.—
(1) Where the court is satisfied
that the foreign award is
enforceable under this Act, the
court shall order the award to
be filed and shall proceed to
pronounce judgment
according to the award.
(2) Upon the judgment so
pronounced a decree shall
follow, and no appeal shall lie
from such decree except
insofar as the decree is in
excess of or not in accordance
with the award.
49. Enforcement of foreign
awards.—Where the court is
satisfied that the foreign award
is enforceable under this
Chapter, the award shall be
deemed to be a decree of that
court.
Appealable orders.—(1) An
appeal shall lie from the order
refusing to—
refer the parties to arbitration
under Section 45;
enforce a foreign award under
Section 48,
to the court authorised by law to
hear appeals from such order.
(2) No second appeal shall lie
from an order passed in appeal
under this section, but nothing
in this section shall affect or
take away any right to appeal to
the Supreme Court.
7. Conditions for
enforcement of foreign
awards.—(1) A foreign award
may not be enforced under
this Act—
if the party against whom it is
sought to enforce the award
proves to the court dealing
with the case that— the
parties to the agreement were
under the law applicable to
48. Conditions for
enforcement of foreign
awards.—(1) Enforcement of a
foreign award may be refused,
at the request of the party
against whom it is invoked, only
if that party furnishes to the
court proof that— the parties to
the agreement referred to in
Section 44 were, under the law
applicable to them, under some
64
them, under some incapacity,
or the said agreement is not
valid under the law to which
the parties have subjected it,
or failing any indication
thereon, under the law of the
country where the award was
made; or the party was not
given proper notice of the
appointment of the arbitrator
or of the arbitration
proceedings or was otherwise
unable to present his case; or
(iii) the award deals with
questions not referred or
contains decisions on matters
beyond the scope of the
agreement:
Provided that if the decisions
on matters submitted to
arbitration can be separated
from those not submitted, that
part of the award which
contains decisions on matters
submitted to arbitration may
be enforced; or
(iv) the composition of the
arbitral authority or the arbitral
procedure was not in
accordance with the
agreement of the parties or
failing such agreement, was
not in accordance with the law
of the country where the
arbitration took place; or
(v) the award has not yet
become binding on the parties
or has been set aside or
suspended by a competent
authority of the country in
which, or under the law of
incapacity, or the said
agreement is not valid under the
law to which the parties have
subjected it or, failing any
indication thereon, under the
law of the country where the
award was made; or the party
against whom the award is
invoked was not given proper
notice of the appointment of the
arbitrator or of the arbitral
proceedings or was otherwise
unable to present his case; or
(c) the award deals with a
difference not contemplated by
or not falling within the terms of
the submission to arbitration, or
it contains decisions on matters
beyond the scope of the
submission to arbitration:
Provided that, if the decisions
on matters submitted to
arbitration can be separated
from those not so submitted,
that part of the award which
contains decisions on matters
submitted to arbitration may be
enforced; or
(d) the composition of the
arbitral authority or the arbitral
procedure was not in
accordance with the agreement
of the parties, or, failing such
agreement, was not in
accordance with the law of the
country where the arbitration
took place; or
(e) the award has not yet
become binding on the parties,
or has been set aside or
suspended by a competent
65
which, that award was made;
or
(b) if the court dealing with the
case is satisfied that—
(i) the subject-matter of the
difference is not capable of
settlement by arbitration under
the law of India; or
(ii) the enforcement of the
award will be contrary to
public policy.
authority of the country in which,
or under the law of which, that
award was made.
(2) Enforcement of an arbitral
award may also be refused if
the court finds that—
(a) the subject-matter of the
difference is not capable of
settlement by arbitration under
the law of India; or
(b) the enforcement of the
award would be contrary to the
public policy of India.
(2) If the court before which a
foreign award is sought to be
relied upon is satisfied that an
application for the setting
aside or suspension of the
award has been made to a
competent authority referred
to in sub-clause (v) of clause
(a) of subsection (1), the court
may, if it deems proper,
adjourn the decision on the
enforcement of the award and
may also, on the application of
the party claiming
enforcement of the award,
order the other party to furnish
suitable security.
Explanation.—Without prejudice
to the generality of clause (b) of
this section, it is hereby
declared, for the avoidance of
any doubt, that an award is in
conflict with the public policy of
India if the making of the award
was induced or affected by
fraud or corruption.
(3) If an application for the
setting aside or suspension of
the award has been made to a
competent authority referred to
in clause (e) of sub-section (1)
the court may, if it considers it
proper, adjourn the decision on
the enforcement of the award
and may also, on the application
of the party claiming
enforcement of the award, order
the other party to give suitable
security.
8. Evidence.—(1) The party
applying for the enforcement
of a foreign award shall, at the
time of the application,
produce—
47. Evidence.—(1) The party
applying for the enforcement of
a foreign award shall, at the
time of the application, produce
before the court—
66
the original award or a copy
thereof, duly authenticated in
the manner required by the
law of the country in which it
was made;
the original agreement for
arbitration or a duly certified
copy thereof; and
such evidence as may be
necessary to prove that the
award is a foreign award.
(2) If the award or agreement
requiring to be produced
under subsection (1) is in a
foreign language, the party
seeking to enforce the award
shall produce a translation into
English certified as correct by
a diplomatic or consular agent
of the country to which that
party belongs or certified as
correct in such other manner
as may be sufficient according
to the law in force in India.
the original award or a copy
thereof, duly authenticated in
the manner required by the law
of the country in which it was
made;
the original agreement for
arbitration or a duly certified
copy thereof; and such
evidence as may be necessary
to prove that the award is a
foreign award.
(2) If the award or agreement to
be produced under sub-section
(1) is in a foreign language, the
party seeking to enforce the
award shall produce a
translation into English certified
as correct by a diplomatic or
consular agent of the country to
which that party belongs or
certified as correct in such other
manner as may be sufficient
according to the law in force in
India.
Explanation.—In this section
and all the following sections of
this Chapter, ‘court’ means the
Principal Civil Court of Original
Jurisdiction in a district, and
includes the High Court in
exercise of its ordinary original
civil jurisdiction, having
jurisdiction over the subjectmatter of the award if the same
had been the subject-matter of
a suit, but does not include any
civil court of a grade inferior to
such Principal Civil Court, or
any Court of Small Causes.
9. Saving.—Nothing in this
Act shall—
51. Saving.—Nothing in this
Chapter shall prejudice any
67
prejudice any rights which any
person would have had of
enforcing in India of any award
or of availing himself in India
of any award if this Act had not
been passed; or
(b) apply to any award made
on an arbitration agreement
governed by the law of India.
rights which any person would
have had of enforcing in India of
any award or of availing himself
in India of any award if this
Chapter had not been enacted.
10. Repeal.—The Arbitration
(Protocol and Convention) Act,
1937 (6 of 1937), shall cease
to have effect in relation to
foreign awards to which this
Act applies.
52. Chapter II not to apply.—
Chapter II of this Part shall not
apply in relation to foreign
awards to which this Chapter
applies.
11. Rule-making power of
the High Court.—The High
Court may make rules
consistent with this Act as to—
the filing of foreign awards and
all proceedings consequent
thereon or incidental thereto;
the evidence which must be
furnished by a party seeking to
enforce a foreign award under
this Act; and
(c) generally, all proceedings
in court under this Act.
65. A comparison of the two sets of provisions would show
that Section 44, the definition clause in the 1996 Act is a
verbatim reproduction of Section 2 of the previous Act (but for
the words “chapter” in place of “Act”, “First Schedule” in place
of “Schedule” and the addition of the word “arbitral” before the
word “award” in Section 44). Section 45 corresponds to Section
3 of the previous Act.
66. Section 46 is a verbatim reproduction of Section 4(2)
except for the substitution of the word “chapter” for “Act”.
Section 47 is almost a reproduction of Section 8 except for the
addition of the words “before the court” in sub-section (1) and
an Explanation as to what is meant by “court” in that section.
68
67. Section 48 corresponds to Section 7; Section 49 to
Section 6(1) and Section 50 to Section 6(2).
68. Apart from the fact that the provisions are arranged in a
far more orderly manner, it is to be noticed that the provisions
of the 1996 Act are clearly aimed at facilitating and expediting
the enforcement of the New York Convention Awards.
69. Section 3 of the 1961 Act dealing with a stay of
proceedings in respect of matters to be referred to arbitration
was confined in its application to “legal proceedings in any
court” and the court had a wider discretion not to stay the
proceedings before it. The corresponding provision in Section
45 of the present Act has a wider application and it covers an
action before any judicial authority. Further, under Section 45
the judicial authority has a narrower discretion to refuse to refer
the parties to arbitration.”
The learned Single Judge thereafter arrived at the conclusion, on the facts
of that case, that the arbitral award delivered in Singapore between the two
Indian parties would be enforceable under Part II, and not Part I, of the
Arbitration Act.
37. Likewise, a learned Single Judge of the Delhi High Court, in Dholi
Spintex v. Louis Dreyfus, CS (COMM) 286/2020 (decided on
24.11.2020), had occasion to consider the same point of law, and after
referring to Sasan I (supra), correctly held:
“43. Learned counsel for the plaintiff has heavily relied upon
Section 23 of the Contract Act which provides for
considerations and object which are lawful and which are not,
thus emphasizing that two Indian parties contracting out of
Indian law would defeat the provisions of the law and would be
opposed to public policy. Learned counsel for the plaintiff seeks
either declaration of Clause 6 of the agreement between the
parties as null and void or by applying the Blue Pencil Test give
meaningful interpretation to clause-6 whereby the parties can
69
then subject themselves to the jurisdiction of Indian Cotton
Association. Three Judge Bench of the Hon’ble Supreme Court
in (2017) 2 SCC 228 Centrotrade Minerals and Metal Inc. v.
Hindustan Copper Ltd. emphasized the principle of party
autonomy in arbitration and held that the same is virtually the
backbone which permit parties to adopt the foreign law as the
proper law of arbitration. In (2005) 5 SCC 465 Technip SA v.
SMS Holding Pvt. Limited, a three Judge Bench of the Hon'ble
Supreme Court dealing with the conflicts of law held that
disregard of applicability of foreign law must relate to basic
principles of morality and justice and only when the foreign law
amounts to a flagrant or gross breach of such principle that
power should be exercised to hold inapplicability of foreign law
that too, exceptionally and with great circumspection. It was
held that in a sense all statutes enacted by Parliament or the
States can be said to be part of Indian public policy, but to
discard a foreign law only because it is contrary to an Indian
statute would defeat the basis of private international law to
which India undisputedly subscribes.
* * *
47. Therefore, an arbitration agreement between the parties
being an agreement independent of the substantive contract
and the parties can choose a different governing law for the
arbitration, two Indian parties can choose a foreign law as the
law governing arbitration. Further there being clearly a foreign
element to the agreement between the parties, the two Indian
parties, that is the plaintiff and defendant could have agreed to
an international commercial arbitration governed by the laws of
England. Hence Clause 6 of the contract dated 30th May, 2019
between the parties is not null or void.”
The argument of the appellant based on sections 23 and 28 of the
Contract Act
38. Mr. Himani has argued that even if Atlas (supra) is to be taken to be
a binding precedent, it contains no discussion on how section 23 of the
Contract Act is not infracted and does not, in any case, deal with his
70
argument based on section 28(1)(a) and section 34(2A) of the Arbitration
Act. Sections 23 and 28 of the Contract Act read as follows:
“23. What considerations and objects are lawful, and what
not.—The consideration or object of an agreement is lawful,
unless—
it is forbidden by law; or
is of such a nature that, if permitted, it would defeat the
provisions of any law; or
is fraudulent; or
involves or implies injury to the person or property of
another; or the Court regards it as immoral, or opposed
to public policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of which the
object or consideration is unlawful, is void.”
“28. Agreements in restraint of legal proceedings void.—
Every agreement,—
(a) by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by
the usual legal proceedings in the ordinary tribunals, or
which limits the time within which he may thus enforce his
rights, or
(b) which extinguishes the rights of any party thereto, or
discharges any party thereto from any liability, under or in
respect of any contract on the expiry of a specified period
so as to restrict any party from enforcing his rights,
is void to that extent.
Exception 1.—Saving of contract to refer to arbitration
dispute that may arise.—This section shall not render illegal a
contract, by which two or more persons agree that any dispute
which may arise between them in respect of any subject or
class of subjects shall be referred to arbitration, and that only
the amount awarded in such arbitration shall be recoverable in
respect of the dispute so referred.”
* * *
71
39. The elusive expression “public policy” appearing in section 23 of the
Contract Act is a relative concept capable of modification in tune with the
strides made by mankind in science and law. An important early judgment
of the Court of Appeal, namely, Maxim Nordenfelt Guns and Ammunition
Company v. Nordenfelt, [1893] 1 Ch. 630 [“Nordenfelt”], puts it thus:
“Rules which rest upon the foundation of public policy, not being
rules which belong to the fixed or customary law, are capable,
on proper occasion, of expansion or modification.
Circumstances may change and make a commercial practice
expedient which formerly was mischievous to commerce. But it
is one thing to say that an occasion has arisen upon which to
adhere to the letter of the rule would be to neglect its spirit, and
another to deny that the rule still exists. The dicta which Lord
Justice Fry cites from Hitchcock v. Coker [142. 6 A. & E. 348],
from Tallis v. Tallis [1 E. & B. 391], and from Mallan v. May [11
M. & W. 653], are all dicta in cases of partial restraint, where
the reasonableness of the particular contract necessarily came
under consideration. The necessary protection of the individual
may in such cases be the proper measure of the
reasonableness of the bargain. When Lord Justice Fry passes
on [14 Ch. D. 366] to examine the question of the existence of
the common law rule, he assumes, as it appears to me, without
sufficient justification, that complete protection of the individual
is the only reason which ought to lie at the root of the doctrine.
But the reasonableness of the legal principle which forbids
general restraint altogether is not the same thing as the
reasonableness (as between the parties) of the bargain in any
particular case. With regard to the argument that the rule, if it
existed, would be an artificial one, and would therefore admit of
no exceptions, the judgments of the Judges and of the House
of Lords in the case of Egerton v. Earl Brownlow [4 H. L. C. 1],
illustrate, I submit, the distinction between a fixed rule of
customary law and a rule based on reason and policy. The
latter may admit of exceptions, although the former may not.”
(at pages 661-662)
* * *
72
“The result seems to me to be as follows: General restraints, or,
in other words, restraints wholly unlimited in area, are not, as a
rule, permitted by the law, although the rule admits of
exceptions. Partial restraints, or, in other words, restraints which
involve only a limit of places at which, of persons with whom, or
of modes in which, the trade is to be carried on, are valid when
made for a good consideration, and where they do not extend
further than is necessary for the reasonable protection of the
covenantee. A limit in time does not, by itself, convert a general
restraint into a partial one. “That which the law does not allow is
not to be tolerated because it is to last for a short time only.” In
considering, however, the reasonableness of a partial restraint,
the time for which it is to be imposed may be a material element
to consider.”
(at pages 662-663)
40. The classic judgment of this Court in Gherulal Parakh v.
Mahadeodas Maiya, 1959 Supp (2) SCR 406 [“Gherulal”] states as
follows:
“… Cheshire and Fifoot in their book on Law of Contract 3
rd
Edn., observe at p. 280 thus:
“The public interests which it is designed to protect are
so comprehensive and heterogeneous, and opinions
as to what is injurious must of necessity vary so greatly
with the social and moral convictions, and at times
even with the political views, of different judges, that it
forms a treacherous and unstable ground for legal
decision. … These questions have agitated the Courts
in the past, but the present state of the law would
appear to be reasonably clear. Two observations may
be made with some degree of assurance.
First, although the rules already established by precedent must
be moulded to fit the new conditions of a changing world, it is
no longer legitimate for the Courts to invent a new head of
public policy. A judge is not free to speculate upon what, in his
opinion, is for the good of the community. He must be content to
apply, either directly or by way of analogy, the principles laid
73
down in previous decisions. He must expound, not expand, this
particular branch of the law.
Secondly, even though the contract is one which prima
facie falls under one of the recognized heads of public policy, it
will not be held illegal unless its harmful qualities are
indisputable. The doctrine, as Lord ATKIN remarked in a
leading case, “should only be invoked in clear cases in which
the harm to the public is substantially incontestable, and does
not depend upon the idiosyncratic inferences of a few judicial
minds … In popular language … the contract should be given
the benefit of the doubt.”
Anson in his Law of Contract states the same rule thus, at p.
216:
“Jessel, M.R., in 1875, stated a principle which is still
valid for the Courts, when he said: ‘You have this
paramount public policy to consider, that you are not
lightly to interfere with the freedom of contract ‘; and it
is in reconciling freedom of contract with other public
interests which are regarded as of not less importance
that the difficulty in these cases arises ….
We may say, however, that the policy of the law has,
on certain subjects, been worked into a set of tolerably
definite rules. The application of these to particular
instances necessarily varies with the conditions of the
times and the progressive development of public
opinion and morality, but, as Lord Wright has said,
‘public policy, like any other branch of the Common
Law, ought to be, and I think is, governed by the
judicial use of precedents. If it is said that rules of
public policy have to be moulded to suit new conditions
of a changing world, that is true; but the same is true of
the principles of the Common Law generally.”
In Halsbury’s Laws of England, 3rd Edn., Vol. 8, the doctrine is
stated at p. 130 thus:
“Any agreement which tends to be injurious to the
public or against the public good is void as being
contrary to public policy…. It seems, however, that this
branch of the law will not be extended. The
determination of what is contrary to the so-called policy
of the law necessarily varies from time to time. Many
74
transactions are upheld now which in a former
generation would have been avoided as contrary to the
supposed policy of the law. The rule remains, but its
application varies with the principles which for the time
being guide public opinion.” …”
(at pages 432-434)
* * *
“… The doctrine of public policy may be summarized thus:
Public policy or the policy of the law is an illusive (sic elusive)
concept; it has been described as “untrustworthy guide”,
“variable quality”, “uncertain one”, “unruly horse”, etc; the
primary duty of a Court of Law is to enforce a promise which the
parties have made and to uphold the sanctity of contracts which
form the basis of society, but in certain cases, the Court may
relieve them of their duty on a rule founded on what is called
the public policy; for want of better words Lord Atkin describes
that something done contrary to public policy is a harmful thing,
but the doctrine is extended not only to harmful cases but also
to harmful tendencies; this doctrine of public policy is only a
branch of common law, and, just like any other branch of
common law, it is governed by precedents; the principles have
been crystallized under different heads and though it is
permissible for Courts to expound and apply them to different
situations, it should only be invoked in clear and incontestable
cases of harm to the public; though the heads are not closed
and though theoretically it may be permissible to evolve a new
head under exceptional circumstances of a changing world, it is
advisable in the interest of stability of society not to make any
attempt to discover new heads in these days.”
(at pages 439-440)
41. This judgment has been referred to with approval in several
subsequent decisions. Thus, in Murlidhar Aggarwal v. State of U.P.,
(1974) 2 SCC 472, this Court held:
“30. “Public Policy” has been defined by Winfield as “a principle
of judicial legislation or interpretation founded on the current
needs of the community” [Percy H. Winfield, Public Policy in
English Common Law, 42 Harvard Law Rev. 76]. Now, this
75
would show that the interests of the whole public must be taken
into account; but it leads in practice to the paradox that in many
cases what seems to be in contemplation is the interest of one
section only of the public, and a small section at that. The
explanation of the paradox is that the courts must certainly
weigh the interests of the whole community as well as the
interests of a considerable section of it, such as tenants, for
instance, as a class as in this case. If the decision is in their
favour, it means no more than that there is nothing in their
conduct which is prejudicial to the nation as a whole. Nor is the
benefit of the whole community always a mere tacit
consideration. The courts may have to strike a balance in
express terms between community interests and sectional
interests. So, here we are concerned with the general freedom
of contract which everyone possesses as against the principle
that this freedom shall not be used to subject a class, to the
harassment of suits without valid or reasonable grounds.
Though there is considerable support in judicial dicta for the
view that courts cannot create no (sic) new heads of public
policy [Gherulal Parekh v. Mahadeodas Maiya, 1959 Supp (2)
SCR 406, 440] , there is also no lack of judicial authority for the
view that the categories of heads of public policy are not closed
and that there remains a broad field within which courts can
apply a variable notion of policy as a principle of judicial
legislation or interpretation founded on the current needs of the
community [Dennis Lloyd, Public Policy (1953) pp. 112 & 113.].”
42. In Union of India v. Gopal Chandra Misra, (1978) 2 SCC 301, this
Court held:
“38. It must be remembered that the doctrine of public policy is
only a branch of the common law, and its principles have been
crystallised and its scope well delineated by judicial precedents.
It is sometimes described as “a very unruly horse”. Public
policy, as Burroughs, J. put it in Fauntleroy case [Amicable
Society v. Boeland, (1830) 4 Bligh, (NS) 194 : 2 Dow & C11] ,
“is a restive horse and when you get astride of it, there is no
knowing where it will carry you”. Public policy can, therefore, be
a very unsafe, questionable and unreliable ground for judicial
decision and courts cannot, but be very cautious to mount this
treacherous horse even if they must. This doctrine, as pointed
76
out by this Court in Gherulal Parakh case [AIR 1959 SC 781 :
1959 Supp 2 SCR 406] (ibid.), can be applied only in a case
where clear and undeniable harm to the public is made out. To
quote the words of Subba Rao, J. (as he then was):
Though theoretically it may be permissible to evolve a
new head (of public policy) under exceptional
circumstances of a changing world, it is advisable in
the interest of stability of society not to make any
attempt to discover new heads in these days.
There are no circumstances, whatever, which would
show that the withdrawal of the resignation by the
appellant would cause harm to the public or even to an
individual. The contention, therefore, is repelled.”
43. This Court’s judgment in Central Inland Water Transport Corpn. v.
Brojo Nath Ganguly, (1986) 3 SCC 156, after referring to the case law on
the subject, then held:
“92. The Indian Contract Act does not define the expression
“public policy” or “opposed to public policy”. From the very
nature of things, the expressions “public policy”, “opposed to
public policy”, or “contrary to public policy” are incapable of
precise definition. Public policy, however, is not the policy of a
particular government. It connotes some matter which concerns
the public good and the public interest. The concept of what is
for the public good or in the public interest or what would be
injurious or harmful to the public good or the public interest has
varied from time to time. As new concepts take the place of old,
transactions which were once considered against public policy
are now being upheld by the courts and similarly where there
has been a well-recognized head of public policy, the courts
have not shirked from extending it to new transactions and
changed circumstances and have at times not even flinched
from inventing a new head of public policy. There are two
schools of thought— “the narrow view” school and “the broad
view” school. According to the former, courts cannot create new
heads of public policy whereas the latter countenances judicial
law-making in this area. The adherents of “the narrow view”
school would not invalidate a contract on the ground of public
77
policy unless that particular ground had been well-established
by authorities. Hardly ever has the voice of the timorous spoken
more clearly and loudly than in these words of Lord Davey
in Janson v. Driefontein Consolidated Gold Mines Ltd. [(1902)
AC 484, 500]: “Public policy is always an unsafe and
treacherous ground for legal decision”. That was in the year
1902. Seventy-eight years earlier, Burrough, J., in Richardson v.
Mellish [(1824) 2 Bing 229, 252 : 130 ER 294, 303 and (1824-
34) All ER 258, 266] described public policy as “a very unruly
horse, and when once you get astride it you never know where
it will carry you”. The Master of the Rolls, Lord Denning,
however, was not a man to shy away from unmanageable
horses and in words which conjure up before our eyes the
picture of the young Alexander the Great taming Bucephalus,
he said in Enderby Town Football Club Ltd. v. Football Assn.
Ltd. [(1971) Ch 591, 606]: “With a good man in the saddle, the
unruly horse can be kept in control. It can jump over obstacles.”
Had the timorous always held the field, not only the doctrine of
public policy but even the common law or the principles of
Equity would never have evolved. Sir William Holdsworth in
his History of English Law Vol. III, p. 55, has said:
“In fact, a body of law like the common law, which has
grown up gradually with the growth of the nation,
necessarily acquires some fixed principles, and if it is
to maintain these principles it must be able, on the
ground of public policy or some other like ground, to
suppress practices which, under ever new disguises,
seek to weaken or negative them.”
It is thus clear that the principles governing public policy must
be and are capable, on proper occasion, of expansion or
modification. Practices which were considered perfectly normal
at one time have today become obnoxious and oppressive to
public conscience. If there is no head of public policy which
covers a case, then the court must in consonance with public
conscience and in keeping with public good and public interest
declare such practice to be opposed to public policy. Above all,
in deciding any case which may not be covered by authority our
courts have before them the beacon light of the Preamble to the
Constitution. Lacking precedent, the court can always be
guided by that light and the principles underlying the
Fundamental Rights and the Directive Principles enshrined in
our Constitution.”
78
44. Likewise, in Rattan Chand Hira Chand v. Askar Nawaz Jung,
(1991) 3 SCC 67, this Court took the view that:
“17. I am in respectful agreement with the conclusion arrived at
by the High Court. It cannot be disputed that a contract which
has a tendency to injure public interests or public welfare is one
against public policy. What constitutes an injury to public
interests or welfare would depend upon the times and climes.
The social milieu in which the contract is sought to be enforced
would decide the factum, the nature and the degree of the
injury. It is contrary to the concept of public policy to contend
that it is immutable, since it must vary with the varying needs of
the society. What those needs are would depend upon the
consensus value judgments of the enlightened section of the
society. These values may sometimes get incorporated in the
legislation, but sometimes they may not. The legislature often
fails to keep pace with the changing needs and values nor is it
realistic to expect that it will have provided for all contingencies
and eventualities. It is, therefore, not only necessary but
obligatory on the courts to step in to fill the lacuna. When courts
perform this function undoubtedly they legislate judicially. But
that is a kind of legislation which stands implicitly delegated to
them to further the object of the legislation and to promote the
goals of the society. Or to put it negatively, to prevent the
frustration of the legislation or perversion of the goals and
values of the society. So long as the courts keep themselves
tethered to the ethos of the society and do not travel off its
course, so long as they attempt to furnish the felt necessities of
the time and do not refurbish them, their role in this respect has
to be welcomed.”
45. In Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp
(1) SCC 644, this Court held:
“48. Since the doctrine of public policy is somewhat opentextured and flexible, Judges in England have shown certain
degree of reluctance to invoke it in domestic law. There are two
conflicting positions which are referred as the ‘narrow view’ and
79
the ‘broad view’. According to the narrow view courts cannot
create new heads of public policy whereas the broad view
countenances judicial law making in this areas. (See : Chitty on
Contracts, 26th Edn., Vol. I, para 1133, pp. 685-686). Similar is
the trend of the decision in India. In Gherulal Parakh v.
Mahadeodas Maiya [1959 Supp 2 SCR 406 : AIR 1959 SC 781]
this Court favoured the narrow view when it said:
“… though the heads are not closed and though
theoretically it may be permissible to evolve a new
head under exceptional circumstances of a changing
world, it is admissible in the interest of stability of
society not to make any attempt to discover new heads
in these days” (p. 440)
49. In later decisions this Court has, however, leaned towards
the broad view. [See : Murlidhar Agarwal v. State of U.P. [(1974)
2 SCC 472, 482 : (1975) 1 SCR 575, 584]; Central Inland
Water Transport Corpn. v. Brojo Nath Ganguly [(1986) 3 SCC
156, 217]; Rattan Chand Hira Chand v. Askar Nawaz
Jung [(1991) 3 SCC 67, 76-77].]”
46. In Zoroastrian Coop. Housing Society Ltd. v. District Registrar,
Coop. Societies (Urban), (2005) 5 SCC 632, this Court held:
“38. It is true that our Constitution has set goals for ourselves
and one such goal is the doing away with discrimination based
on religion or sex. But that goal has to be achieved by
legislative intervention and not by the court coining a theory that
whatever is not consistent with the scheme or a provision of the
Constitution, be it under Part III or Part IV thereof, could be
declared to be opposed to public policy by the court. Normally,
as stated by this Court in Gherulal Parakh v. Mahadeodas
Maiya [1959 Supp (2) SCR 406 : AIR 1959 SC 781] the doctrine
of public policy is governed by precedents, its principles have
been crystallised under the different heads and though it was
permissible to expound and apply them to different situations it
could be applied only to clear and undeniable cases of harm to
the public. Although, theoretically it was permissible to evolve a
new head of public policy in exceptional circumstances, such a
course would be inadvisable in the interest of stability of
society.”
80
47. In State of Rajasthan v. Basant Nahata, (2005) 12 SCC 77, this
Court held:
“39. The principles have been crystallised under different heads
and though it may be possible for the courts to expound and
apply them to different situations but it is trite that the said
doctrine should not be taken recourse to in “clear and
incontestable cases of harm to the public though the heads are
not closed and though theoretically it may be permissible to
evolve a new head under exceptional circumstances of a
changing world”. (See Gherulal Parakh v. Mahadeodas Maiya
[1959 Supp (2) SCR 406 : AIR 1959 SC 781].)”
48. In Vodafone International Holdings BV v. Union of India, (2012) 6
SCC 613, this Court held:
“263. This Court in Gherulal Parakh v. Mahadeodas Maiya [AIR
1959 SC 781 : 1959 Supp (2) SCR 406] held that freedom of
contract can be restricted by law only in cases where it is for
some good of the community. The Companies Act, 1956 or the
FERA, 1973, RBI Regulation or the IT Act do not explicitly or
impliedly forbid shareholders of a company to enter into
agreements as to how they should exercise voting rights
attached to their shares.”
49. A reading of the aforesaid judgments leads to the conclusion that
freedom of contract needs to be balanced with clear and undeniable harm
to the public, even if the facts of a particular case do not fall within the
crystallised principles enumerated in well-established ‘heads’ of public
policy. The question that then arises is whether there is anything in the
public policy of India, as so understood, which interdicts the party
81
autonomy of two Indian persons referring their disputes to arbitration at a
neutral forum outside India.
50. It can be seen that exception 1 to section 28 of the Contract Act
specifically saves the arbitration of disputes between two persons without
reference to the nationality of persons who may resort to arbitration. It is for
this reason that this Court in Atlas (supra) referred to the said exception to
section 28 and found that there is nothing in either section 23 or section 28
which interdicts two Indian parties from getting their disputes arbitrated at a
neutral forum outside India.
51. However, it was argued by Shri Himani, with specific reference to
section 28(1)(a) and section 34(2A) of the Arbitration Act, that since two
Indian parties cannot opt out of the substantive law of India and therefore,
ought to be confined to arbitrations in India, Indian public policy, as
reflected in these two sections, ought to prevail. We are unable to agree
with this argument. It will be seen that section 28(1)(a) of the Arbitration
Act, when read with section 2(2), section 2(6) and section 4, only makes it
clear that where the place of arbitration is situated in India, in an arbitration
other than an international commercial arbitration (i.e. an arbitration where
none of the parties, inter alia, happens to be a national of a foreign country
or habitually resident in a foreign country), the arbitral tribunal shall decide
82
the dispute in accordance with the substantive law for the time being in
force in India.
52. It can be seen that section 28(1)(a) of the Arbitration Act makes no
reference to an arbitration being conducted between two Indian parties in a
country other than India, and cannot be held, by some tortuous process of
reasoning, to interdict two Indian parties from resolving their disputes at a
neutral forum in a country other than India.
53. Take the case of an Indian national who is habitually resident in a
country outside India. Any dispute between such Indian national and an
Indian national who is habitually resident in India would attract the
provisions of section 2(1)(f)(i) and, consequently, section 28(1)(b) of the
Arbitration Act, in which case two Indian nationals would be entitled to have
their dispute decided in India in accordance with the rules of law
designated by the parties as applicable to the substance of the dispute,
which need not be Indian law. This, by itself, is a strong indicator that
section 28 of the Arbitration Act cannot be read in the manner suggested by
Mr. Himani.
54. Even otherwise, BALCO (supra), which has been referred to by the
Madhya Pradesh High Court in Sasan I (supra), in paragraph 118 thereof
specifically indicated that section 28(1)(a) of the Arbitration Act will not
apply where the seat is outside India as, in that event, the conflict of law
83
rules of the country in which the arbitration takes place would have to be
applied.
55. Coming to the example given by Shri Himani, namely, that the
application of the Benami Transactions Act cannot be sought to be
circumvented by two Indian nationals by resorting to an arbitration in a seat
outside India, it is more than likely that, as in the present case, two Indian
nationals will apply the substantive law of India to disputes between them
which arise from a breach of contract which takes place in India. Even in
the absence of any designation of which rules will apply to the substance of
the dispute, which dispute pertains to transactions concluded in India and
breach thereof, the substantive law of India will be applied by the arbitrator
in accordance with the conflict of law rules of the country in which the
arbitration takes place. Dicey, Morris and Collins on the Conflict of Laws
(Sweet & Maxwell, 15th Edn.) states as follows:
“Rule 224 – (1)(a) Where all other elements relevant to the
situation at the time of the choice are located in a country other
than the country whose law has been chosen, the choice of the
parties shall not be prejudice the application of provisions of the
law of that other country which cannot be derogated from by
agreement.”
* * *
“The principle in Ralli Bros.: It has already been seen that at
common law there was thought to be a principle that a contract
(whether lawful by its governing law or not) was, in general,
invlaid in so far as the performance of it was unlawful by the law
of the country where the contract was to be performed (lex loci
solutionis). This principle as formulated in the second edition of
84
this work, was adopted by the Court of Appeal in the Ralli Bros
case. There remains a question, however, whether it is a rule
of the conflict of laws (as its formulation would suggest) or is,
on the contrary, a principle of the domestic law of contract
relating to supervening illegality. The answer affects the
question whether the principle has any application since the
incorporation of the Rome Convention and the enactment of the
Rome I Regulation. It is clear that if an English contract was to
be performed abroad, the English court would refuse to enforce
it if its performance would directly or indirectly violate the law of
the place of performance. Hence an agreement governed by
English law for the payment in Spain of chartered freight
beyond the maximum permitted by Spanish law did not support
an action in England. Where such a contract was illegal ab initio
according to the foreign law and was made by the parties with
the object of defying the foreign law, its invalidity would often
follow from a general principle of public policy stated below in
connection with Rule 229. We are here mainly concerned with
contracts which are not against the public policy of this country
by reason of their interference with the friendly relations
towards a foreign government, but which nevertheless involve
the doing of something unlawful according to the law of the
country in which the contractual obligation is to be performed,
e.g. because performance was rendered illegal by the lex loci
solutionis after the making of the contract. If English law is the
governing law of the contract, the consequences of illegality,
whether initial or supervening, according to the law of the place
of performance will be identical with those which arise from the
initial or supervening illegality according to English domestic
law of a contract to be performed in England.
For the principle in Ralli Bros, as so understood, to be
applicable it is necessary that “performance includes the doing
in a foreign country of something which the laws of that country
make it illegal to do. What this means is not that performance
is excused whenever it includes an act in a country whose law
makes this act illegal. It is not enough that performance is
excused, or that the act is unlawful by the law of the country in
which it happens to be done, or that the contract is contrary to
public policy according to the law of the place of performance.
It must be “unlawful by the law of the country in which the act
has to be done,” i.e. by the law of the country in which,
according to its express or implied terms, the contract is to be
performed. It would not matter whether the person liable to
85
perform would, by doing so, infringe the laws of the foreign
country in which he is resident or carries on business, or of
which he is a national, if the law of that country is neither the
governing law of the contract nor the lex loci solutionis.
Up to this point the question of the consequences of illegality
according to the lex loci solutionis is covered by authority. It
was, however, doubtful and highly controversial whether,
according to the English rules of the conflict of laws, illegality
according to the lex loci solutionis as such had any effect on the
validity or operation of a contract governed by foreign law and
to be performed in a third country, i.e. in a foreign country other
than that of the governing law. Would an English court enforce
a French contract for the payment in Spain of chartered freight
beyond the maximum permitted by Spanish law? Would it hold
that the consequences of such illegality were governed by
Spanish law, the lex loci solutionis, or would it leave it to French
law, the governing law of the contract, to determine whether
illegality according to the lex loci solutionis had any, and if so
what, effect upon the validity and operation of the contract?
The prevailing academic view was that supervening illegality
according to the law of the place of performance did not as
such prevent an English court from enforcing the contract,
unless it were governed by English law. The principle in Ralli
Bros, on this view, was not a principle of the conflict of laws at
all, but merely an application of the English domestic rules with
regard to the discharge or suspension of contractual obligations
by supervening illegality, and the illegality of performance under
the lex loci solutionis was no more than a fact to be taken into
account by an English court in judging whether performance
had become impossible. Whether an English court would
enforce a French contract for the doing in Spain of something
which Spanish law had forbidden after the making of the
contract would depend on French law, and, in particular, on the
French law of suspension or discharge of contracts. There was
no direct authority on the point. In Kahler v. Midland Bank Ltd.
Lord Reid said that “the law of England will not require an act to
be done in performance of an English contract if such
act….would be unlawful by the law of the country in which the
act has to be done.” In Zivnostenska Banka v. Frankman,
however, he regarded it as “settled law that, whatever be the
proper law of the contract, an English court will not require a
party to do an act in performance of a contract which would be
86
an offence under the law in force at the place where the act is
to be done.”
56. The case of Ralli Brothers was followed in Foster v. Driscoll 1929 1
Kings Bench 470. Both these judgments were then referred to in
Regazzoni v. KC Sethia [1958] A.C. 301. In this case, the House of Lords
decided a case in which the respondents agreed to sell and deliver to the
appellant, jute bags. Both parties contemplated that they should be shipped
from India to Genoa for resale in South Africa. The parties were also aware
that the export of jute from India to South Africa was prohibited by Indian
law. Despite the fact that English law was the proper law of the contract,
the House of Lords held that the contract was unenforceable since an
English court will not enforce a contract which violates the law of a foreign
and friendly state. Vicount Simonds put it thus:
“The question then arises — and it is, as I say, the only
question for your Lordships' consideration — whether the
respondents were justified in repudiating the contract. They
claim to be justified on the ground that I have already stated.
Their broad proposition is that whether or not the proper law of
the contract is English law, an English court will not enforce a
contract, or award damages for its breach, if its performance
will involve the doing of an act in a foreign and friendly State
which violates the law of that State. For this they cite the
authority of the well-known case of Foster v. Driscoll, [1929] 1
K.B. 470 and much of the debate in this House has been
whether that case was rightly decided, and if so, whether it is
distinguishable from the present case. The appellant contends
that it was not rightly decided, and further invokes a familiar
principle which he states in these wide but questionable terms,
“An English court will not have regard to a foreign law of a
87
penal, revenue, or political character,” and claims that the
Indian law here in question is of such a character.”
(at pages 317-318)
* * *
“Here, my Lords, was a formidable line of authority when in
1920 Ralli Brothers v. Compañia Naviera Sota y Aznar, [1920] 2
K.B. 287 came before the Court of Appeal. In that case the
contract in suit was governed by English law but it required the
performance in Spain of an act illegal by Spanish law, and it
was held that for that reason it could not be enforced. I will cite
one passage only from the judgment of Scrutton L.J. “Where,”
he said, [1920] 2 K.B. 287, 304: “a contract requires an act to
be done in a foreign country, it is, in the absence of very special
circumstances, an implied term of the continuing validity of such
a provision that the act to be done in the foreign country shall
not be illegal by the law of that country. This country should not
in my opinion assist or sanction the breach of the laws of other
independent States.” In the Ralli Brothers case, [1920] 2 K.B.
287, the relevant law was not a revenue law, and I am content
to assume that Scrutton L.J. might have qualified his statement
if he had had such a law in mind. But I venture to return to what
I said earlier in this opinion. It does not follow from the fact that
today the court will not enforce a revenue law at the suit of a
foreign State that today it will enforce a contract which requires
the doing of an act in a foreign country which violates the
revenue law of that country. The two things are not
complementary or co-extensive. This may be seen if for
revenue law penal law is substituted. For an English court will
not enforce a penal law at the suit of a foreign State, yet it
would be surprising if it would enforce a contract which required
the commission of a crime in that State. It is sufficient, however,
for the purposes of the present appeal to say that, whether or
not an exception must still be made in regard to the breach of a
revenue law in deference to old authority, there is no ground for
making an exception in regard to any other law. I should myself
have said — and this is, I think, the only point upon which I do
not agree with the Court of Appeal — that the present case was
precisely covered by the decision in Ralli Brothers, [1920] 2
K.B. 287. For when the fact is found that the very thing which
the parties intended to do was to export the jute bags from India
in order that they might go via Genoa to the Union of South
Africa, it appears to me irrelevant that upon the face of the
88
documents that wrongful intention was not disclosed. But,
whether this is so or not, it is clearly covered by Foster v.
Driscoll, [1929] 1 K.B. 470, a decision the correctness of which
is not to be doubted. The distinctive feature of the case was that
Scrutton L.J. thought that the contract there in question could
be carried out legally, and for that reason, differing from
Lawrence and Sankey L.JJ., held that it was not invalid. The
principle of the decision in Ralli Brothers, [1920] 2 K.B. 287 was
emphatically reasserted and the apparent innocence of the
documents was disregarded, the guilty intention being proved
ab extra. So, here, it has been conclusively found that the
common intention of the parties was to violate the law of India,
and it is of no consequence that the documents did not disclose
their intention. I ought not to part from the case without noting
that Sankey L.J. observed that the cases relating to the breach
of a revenue law were not germane to the issue. Nor are they
germane to this appeal. Whether they are still to be regarded as
a binding authority is a question that must await determination.”
(at pages 321-323)
Lord Reid, concurring, held:
“The only recent authority which is directly in point is Foster
v. Driscoll, [1929] 1 K.B. 470. There Scrutton L.J. dissented
because he took a different view of the facts: if he had held that
performance of the contract necessarily involved a breach of
American law, I think that he would have agreed with the
majority. He said, [1929] 1 K.B. 470, 496: “I have no doubt that
if seller and buyer agreed to ship the whisky into the United
States contrary to the laws of that country the contract would
not be enforced here: Ralli's case, [1920] 2 K.B. 287, not
because it was illegal here but as a matter of public policy
based on international comity.” He then cited with approval,
[1929] 1 K.B. 470, 497, Dicey's Conflict of Laws, 4th ed., p. 620:
“‘It must, however, be noted that if a contract is an English
contract, it will only be held invalid on account of illegality if it
actually necessitates the performance in a foreign and friendly
country of some act which is illegal by the law of such country.’”
And he also quoted with approval a passage from the judgment
of Blackburn J. in Waugh v. Morris, (1873) L.R. 8 Q.B. 202, 208:
“We quite agree, that, where a contract is to do a thing which
cannot be performed without a violation of the law it is void,
whether the parties knew the law or not. But we think, that to
89
avoid a contract which can be legally performed, on the ground
that there was an intention to perform it in an illegal manner, it
is necessary to show that there was the wicked intention to
break the law; and, if this be so, the knowledge of what the law
is becomes of great importance.” By “a thing which cannot be
performed without a violation of the law,” I think that Blackburn
J. meant a thing which the contract expressly or by clear
implication requires to be done. This contract does not require
the seller to obtain the goods from India: it is only after
investigation of the facts that it appears that he could not have
got them anywhere else. And this contract does not disclose the
buyer's intention to send the goods to South Africa. On the face
of it this contract could be performed without a breach of the
laws of any country. I shall also quote from what Lawrence L.J.
said in Foster's case, [1929] 1 K.B. 470, 510:“On principle,
however, I am clearly of opinion that a partnership formed for
the main purpose of deriving profit from the commission of a
criminal offence in a foreign and friendly country is illegal, even
although the parties have not succeeded in carrying out their
enterprise, and no such criminal offence has in fact been
committed; and none the less so because the parties may have
contemplated that if they could not successfully arrange to
commit the offence themselves they would instigate or aid and
abet some other person to commit it.” These passages cover
the present case, and I agree with them.
Finally, it was argued that, even if there be a general rule
that our courts will take notice of foreign laws so that
agreements to break them are unenforceable, that rule must be
subject to exceptions and this Indian law is one of which we
ought not to take notice. It may be that there are exceptions. I
can imagine a foreign law involving persecution of such a
character that we would regard an agreement to break it as
meritorious. But this Indian law is very far removed from
anything of that kind. It was argued that this prohibition of
exports to South Africa was a hostile act against a
Commonwealth country with which we have close relations, that
such a prohibition is contrary to inter national usage, and that
we cannot recognize it without taking sides in the dispute
between India and South Africa.
My Lords, it is quite impossible for a court in this country to
set itself up as a judge of the rights and wrongs of a
controversy between two friendly countries, we cannot judge
90
the motives or the justifications of governments of other
countries in these matters and, if we tried to do so, the
consequences might seriously prejudice international relations.
By recognizing this Indian law so that an agreement which
involves a breach of that law within Indian territory is
unenforceable we express no opinion whatever, either
favourable or adverse, as to the policy which caused its
enactment. In my judgment this appeal should be dismissed.”
(at pages 324-326)
57. It will thus be seen that where the law of India prohibits a certain act,
the conflict of law rules as set down in Dicey’s authoritative treatise will take
care of this situation in most cases as the arbitrators would then apply
these rules on the ground of international comity between nations in cases
which arise between two Indian nationals in an award made outside India,
which would fall within the definition of “foreign award” under Section 44 of
the 1996 Act.
58. Even otherwise, a ground may be made out under section 48 against
enforcement of a foreign award where enforcement of such award would
be contrary to the public policy of India. If, on the facts of a given case, it is
found that two Indian nationals have circumvented a law which pertains to
the fundamental policy of India, such foreign award may then not be
enforced under section 48(2)(b) of the Arbitration Act. On the assumption
that Mr. Himani’s example of the Benami Transactions Act pertains to the
fundamental policy of Indian law, if the foreign award is contrary to such
fundamental policy, such award will then not be enforced in India.
91
59. When it comes to the ground raised under section 34(2A) of the
Arbitration Act, it is clear that in an international commercial arbitration, say,
between an Indian national habitually resident outside India and an Indian
national resident in India, even when the arbitration takes place in India
resulting in an award being made in India, the ground available under
section 34(2A) would not be available, as it would not apply to an
international commercial arbitration held in India. In agreeing to a neutral
forum outside India, parties agree that instead of one bite at the cherry
under section 34 of the Arbitration Act, where an arbitration between two
Indian nationals is conducted in India [with the grounds for setting aside the
award being available under section 34(2A)], what is instead put in place by
the parties is two bites at the cherry, namely, the recourse to a court or
tribunal in a country outside India for setting aside the arbitral award
passed in that country on grounds available in that country (which may be
wider than the grounds available under section 34 of the Arbitration Act),
and then resisting enforcement under the grounds mentioned in section 48
of the Arbitration Act. The balancing act between freedom of contract and
clear and undeniable harm to the public must be resolved in favour of
freedom of contract as there is no clear and undeniable harm caused to the
public in permitting two Indian nationals to avail of a challenge procedure of
a foreign county when, after a foreign award passes muster under that
procedure, its enforcement can be resisted in India on the grounds
92
contained in section 48 of the Arbitration Act, which includes the foreign
award being contrary to the public policy of India.
Party Autonomy
60. The decks have now been cleared to give effect to party autonomy in
arbitration. Party autonomy has been held to be the brooding and guiding
spirit of arbitration. Thus, in Bharat Aluminium Co. v. Kaiser Aluminium
Technical Services Inc., (2016) 4 SCC 126, this Court held:
“5. Party autonomy being the brooding and guiding spirit in
arbitration, the parties are free to agree on application of three
different laws governing their entire contract — (1) proper law of
contract, (2) proper law of arbitration agreement, and (3) proper
law of the conduct of arbitration, which is popularly and in legal
parlance known as “curial law”. The interplay and application of
these different laws to an arbitration has been succinctly
explained by this Court in Sumitomo Heavy Industries Ltd. v.
ONGC Ltd. [Sumitomo Heavy Industries Ltd. v. ONGC Ltd.,
(1998) 1 SCC 305], which is one of the earliest decisions in that
direction and which has been consistently followed in all the
subsequent decisions including the recent Reliance Industries
Ltd. v. Union of India [Reliance Industries Ltd. v. Union of India,
(2014) 7 SCC 603 : (2014) 3 SCC (Civ) 737] .”
* * *
“10. In the matter of interpretation, the court has to make
different approaches depending upon the instrument falling for
interpretation. Legislative drafting is made by experts and is
subjected to scrutiny at different stages before it takes final
shape of an Act, Rule or Regulation. There is another category
of drafting by lawmen or document writers who are
professionally qualified and experienced in the field like drafting
deeds, treaties, settlements in court, etc. And then there is the
third category of documents made by laymen who have no
knowledge of law or expertise in the field. The legal quality or
perfection of the document is comparatively low in the third
category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do
93
make an attempt to gather the purpose of the legislation, its
context and text. In the second category also, the text as well
as the purpose is certainly important, and in the third category
of documents like wills, it is simply intention alone of the
executor that is relevant. In the case before us, being a contract
executed between the two parties, the court cannot adopt an
approach for interpreting a statute. The terms of the contract
will have to be understood in the way the parties wanted and
intended them to be. In that context, particularly in agreements
of arbitration, where party autonomy is the grund norm, how the
parties worked out the agreement, is one of the indicators to
decipher the intention, apart from the plain or grammatical
meaning of the expressions and the use of the expressions at
the proper places in the agreement.”
61. Likewise, in Centrotrade Minerals & Metal Inc. v. Hindustan
Copper Ltd., (2017) 2 SCC 228, this Court held that a two-tier arbitration,
namely, an arbitration at an original forum followed by an appeal at an
appellate forum, would not be interdicted by the Arbitration Act, given the
free party autonomy for parties to enter into an agreement as to choice of
fora and procedure at such fora. Thereafter, this Court, under the head
“party autonomy”, put it thus:
“Party autonomy
38. Party autonomy is virtually the backbone of arbitrations.
This Court has expressed this view in quite a few decisions. In
two significant passages in Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc. [Bharat Aluminium Co. v.
Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126 :
(2016) 2 SCC (Civ) 580, Hon'ble Judges/Coram: Anil R. Dave,
Kurian Joseph and Amitava Roy, JJ.] this Court dealt with party
autonomy from the point of view of the contracting parties and
its importance in commercial contracts. In para 5 of the Report,
it was observed: (SCC p. 130)
94
“5. Party autonomy being the brooding and guiding
spirit in arbitration, the parties are free to agree on
application of three different laws governing their entire
contract— (1) proper law of contract, (2) proper law of
arbitration agreement, and (3) proper law of the
conduct of arbitration, which is popularly and in legal
parlance known as “curial law”. The interplay and
application of these different laws to an arbitration has
been succinctly explained by this Court in Sumitomo
Heavy Industries Ltd. v. ONGC Ltd., [Sumitomo Heavy
Industries Ltd. v. ONGC Ltd., (1998) 1 SCC 305] which
is one of the earliest decisions in that direction and
which has been consistently followed in all the
subsequent decisions including the recent Reliance
Industries Ltd. v. Union of India [Reliance Industries
Ltd. v. Union of India, (2014) 7 SCC 603 : (2014) 3
SCC (Civ) 737] .”
(emphasis in original)
Later in para 10 of the Report, it was held: (SCC pp. 131-32)
“10. In the matter of interpretation, the court has to
make different approaches depending upon the
instrument falling for interpretation. Legislative drafting
is made by experts and is subjected to scrutiny at
different stages before it takes final shape of an Act,
Rule or Regulation. There is another category of
drafting by lawmen or document writers who are
professionally qualified and experienced in the field like
drafting deeds, treaties, settlements in court, etc. And
then there is the third category of documents made by
laymen who have no knowledge of law or expertise in
the field. The legal quality or perfection of the
document is comparatively low in the third category,
high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts
do make an attempt to gather the purpose of the
legislation, its context and text. In the second category
also, the text as well as the purpose is certainly
important, and in the third category of documents like
wills, it is simply intention alone of the executor that is
relevant. In the case before us, being a contract
executed between the two parties, the court cannot
adopt an approach for interpreting a statute. The terms
95
of the contract will have to be understood in the way
the parties wanted and intended them to be. In that
context, particularly in agreements of arbitration,
where party autonomy is the grund norm, how the
parties worked out the agreement, is one of the
indicators to decipher the intention, apart from the plain
or grammatical meaning of the expressions and the
use of the expressions at the proper places in the
agreement.”
(emphasis in original)
39. In Union of India v. U.P. State Bridge Corpn. Ltd. [Union of
India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 : (2015)
1 SCC (Civ) 732] this Court accepted the view [ O.P. Malhotra
on the Law and Practice of Arbitration and Conciliation (3rd
Edn. revised by Ms Indu Malhotra, Senior Advocate)] that the
A&C Act has four foundational pillars and then observed in para
16 of the Report that: (SCC p. 64)
“16. First and paramount principle of the first pillar is
‘fair, speedy and inexpensive trial by an Arbitral
Tribunal’. Unnecessary delay or expense would
frustrate the very purpose of arbitration. Interestingly,
the second principle which is recognised in the Act is
the party autonomy in the choice of procedure. This
means that if a particular procedure is prescribed in the
arbitration agreement which the parties have agreed
to, that has to be generally resorted to.”
(emphasis in original)
40. This is also the view taken in Law and Practice of
International Commercial Arbitration [Chapter 6. Conduct of the
Proceedings in Nigel Blackaby, Constantine Partasides, et
al., Redfern and Hunter on International Arbitration [Sixth Edn.,
© Kluwer Law International, Oxford University Press 2015] pp.
353-414, Para 6.07] wherein it is said:
“Party autonomy is the guiding principle in determining
the procedure to be followed in an international
arbitration. It is a principle that is endorsed not only in
national laws, but also by international arbitral
institutions worldwide, as well as by international
instruments such as the New York Convention and the
Model Law.”
96
41. However, the authors in Comparative International
Commercial Arbitration [Chapter 17: Determination of
Applicable Law in Julian D.M. Lew, Loukas A. Mistelis, et
al., Comparative International Commercial Arbitration (Kluwer
Law International 2003) pp. 411-437, Para 17-8] go a step
further in that, apart from procedure, they say that party
autonomy permits parties to have their choice of substantive
law as well. It is said:
“All modern arbitration laws recognise party autonomy,
that is, parties are free to determine the substantive
law or rules applicable to the merits of the dispute to
be resolved by arbitration. Party autonomy provides
contracting parties with a mechanism of avoiding the
application of an unfavourable or inappropriate law to
an international dispute. This choice is and should be
binding on the Arbitration Tribunal. This is also
confirmed in most arbitration rules.”
(emphasis in original)
42. Be that as it may, the legal position as we understand it is
that the parties to an arbitration agreement have the autonomy
to decide not only on the procedural law to be followed but also
the substantive law. The choice of jurisdiction is left to the
contracting parties. In the present case, the parties have
agreed on a two-tier arbitration system through Clause 14 of
the agreement and Clause 16 of the agreement provides for the
construction of the contract as a contract made in accordance
with the laws of India. We see nothing wrong in either of the two
clauses mutually agreed upon by the parties.”
In a very important passage, where it was sought to be argued that a twotier arbitration would be contrary to the public policy of India, this Court
held:
“Public policy and two-tier arbitrations
43. The question that now arises is the interplay between public
policy and party autonomy and therefore whether embracing
the two-tier arbitration system is contrary to public policy.
97
44. Years ago, it was said per Burroughs, J. in Amicable
Society v. Bolland [Amicable Society v. Bolland, (1830) 4 Bligh
(NS) 194 : 5 ER 70 : 2 Dow & Cl 1 : 6 ER 630. [Ed.: See also
per Burroughs, J. in Richardson v. Mellish, 1824 Bing 229 at
252 : 130 ER 293 at 303, wherein also he observed: “Public
Policy — it is a very unruly horse, and when once you get
astride it you never know where it will carry you.”]] (Fauntleroy
case):
“Public policy is a restive horse and when you get
astride of it, there is no knowing where it will carry
you.”
Perhaps to assist in getting over this uncertainty, Mustill and
Boyd [The Law and Practice of Commercial Arbitration in
England, London, Butterworths 1982 pp. 245-246] identify four
classes of provision regarded by the courts as contrary to public
policy. They are: (i) Terms which affect the substantive content
of the award; (ii) Terms which purport to exclude or restrict the
supervisory jurisdiction of the Court; (iii) Terms which require
the arbitrator to conduct the reference in an unacceptable
manner; and (iv) Terms which purport to empower the arbitrator
to carry put procedures or exercise powers which lie exclusively
within the jurisdiction of the courts. Clause 14 of the agreement
between the parties does not fall under any of these situations.”
* * *
“46. For the present we are concerned only with the
fundamental or public policy of India. Even assuming the broad
delineation of the fundamental policy of India as stated in
Associate Builders [Associate Builders v. DDA, (2015) 3 SCC
49 : (2015) 2 SCC (Civ) 204] we do not find anything
fundamentally objectionable in the parties preferring and
accepting the two-tier arbitration system. The parties to the
contract have not by-passed any mandatory provision of the
A&C Act and were aware, or at least ought to have been aware
that they could have agreed upon the finality of an award given
by the arbitration panel of the Indian Council of Arbitration in
accordance with the Rules of Arbitration of the Indian Council of
Arbitration. Yet they voluntarily and deliberately chose to agree
upon a second or appellate arbitration in London, UK in
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce. There is nothing in the
A&C Act that prohibits the contracting parties from agreeing
upon a second instance or appellate arbitration — either
98
explicitly or implicitly. No such prohibition or mandate can be
read into the A&C Act except by an unreasonable and awkward
misconstruction and by straining its language to a vanishing
point. We are not concerned with the reason why the parties
(including HCL) agreed to a second instance arbitration — the
fact is that they did and are bound by the agreement entered
into by them. HCL cannot wriggle out of a solemn commitment
made by it voluntarily, deliberately and with eyes wide open.”
Nothing stands in the way of party autonomy in designating a seat of
arbitration outside India even when both parties happen to be Indian
nationals, as has been held hereinabove.
Section 10 of the Commercial Courts Act.
62. Shri Himani relied upon section 10 read with section 21 of the
Commercial Courts Act to argue that in all cases between Indian nationals
which result in awards delivered in a country outside India, section 10(3)
would apply, as a result of which the impugned judgment having been
made by a High Court, is made without jurisdiction. In order to appreciate
this submission, sections 10 and 21 of the Commercial Courts Act are set
out hereinbelow:
“10. Jurisdiction in respect of arbitration matters.—Where
the subject-matter of an arbitration is a commercial dispute of a
specified value and—
(1) If such arbitration is an international commercial arbitration,
all applications or appeals arising out of such arbitration
under the provisions of the Arbitration and Conciliation Act,
1996 (26 of 1996) that have been filed in a High Court,
shall be heard and disposed of by the Commercial Division
99
where such Commercial Division has been constituted in
such High Court.
(2) If such arbitration is other than an international commercial
arbitration, all applications or appeals arising out of such
arbitration under the provisions of the Arbitration and
Conciliation Act, 1996 (26 of 1996) that have been filed on
the original side of the High Court, shall be heard and
disposed of by the Commercial Division where such
Commercial Division has been constituted in such High
Court.
(3) If such arbitration is other than an international commercial
arbitration, all applications or appeals arising out of such
arbitration under the provisions of the Arbitration and
Conciliation Act, 1996 (26 of 1996) that would ordinarily lie
before any principal civil court of original jurisdiction in a
district (not being a High Court) shall be filed in, and heard
and disposed of by the Commercial Court exercising
territorial jurisdiction over such arbitration where such
Commercial Court has been constituted.”
“21. Act to have overriding effect.—Save as otherwise
provided, the provisions of this Act shall have effect,
notwithstanding anything inconsistent therewith contained in
any other law for the time being in force or in any instrument
having effect by virtue of any law for the time being in force
other than this Act.”
63. It must be remembered that when a foreign award is sought to be
enforced under Part II of the Arbitration Act, the explanation to section 47
makes it clear that it is the High Court alone which is the court on whose
doors the applicant must knock. This is sought to be answered by Shri
Himani by stating that since the explanation to section 47 is in direct
collision with section 10(3) of the Commercial Courts Act, vide section 21 of
100
the Commercial Courts Act, section 10(3) would prevail over the
explanation to section 47.
64. Before entering into a discussion as to whether there is any direct
collision between the aforesaid provisions, one is first to appreciate the
purport of the expression “international commercial arbitration” contained in
section 10(1) of the Commercial Courts Act. We have already seen how
section 2(1)(f) of the Arbitration Act which defines the expression
“international commercial arbitration” is only for a limited purpose, namely,
for the purpose of Part I of the Arbitration Act. Under section 2(2) of the
Commercial Courts Act, words and expressions used and not defined in the
Commercial Courts Act but defined in the CPC and the Indian Evidence
Act, 1872 shall have the same meanings respectively assigned to them in
that Code and the Act. Conspicuous by its absence are definitions
contained in the Arbitration Act.
65. We have therefore to see what is the purport of the expression
“international commercial arbitration” when used in section 10(1) of the
Commercial Courts Act.
66. We have already seen how “international commercial arbitration”,
when used in the proviso to section 2(2) of the Arbitration Act, does not
refer to the definition contained in section 2(1)(f) but would have reference
to arbitrations which take place outside India, awards made in such
101
arbitrations being enforceable under Part II of the Arbitration Act. It will be
noted that section 10(1) applies to international commercial arbitrations,
and applications or appeals arising therefrom, under both Parts I and II of
the Arbitration Act. When applications or appeals arise out of such
arbitrations under Part I, where the place of arbitration is in India,
undoubtedly, the definition of “international commercial arbitration” in
section 2(1)(f) will govern. However, when applied to Part II, “international
commercial arbitration” has reference to a place of arbitration which is
international in the sense of the arbitration taking place outside India. Thus
construed, there is no clash at all between section 10 of the Commercial
Courts Act and the explanation to section 47 of the Arbitration Act, as an
arbitration resulting in a foreign award, as defined under section 44 of the
Arbitration Act, will be enforceable only in a High Court under section 10(1)
of the Commercial Courts Act, and not in a district court under section 10(2)
or section 10(3).
67. Even otherwise, this Court has made it clear in BGS SGS SOMA JV
v. NHPC, (2020) 4 SCC 234 (at paragraphs 12 and 13) that the substantive
law as to appeals and applications is laid down in the Arbitration Act
whereas the procedure governing the same is laid down in the Commercial
Courts Act. In this context, it has also been held that the Arbitration Act is a
special Act vis-à-vis the Commercial Courts Act which is general, and which
102
applies to the procedure governing appeals and applications in cases other
than arbitrations as well. In Kandla Export Corpn. v. OCI Corpn., (2018)
14 SCC 715, this Court held:
“20. Given the judgment of this Court in Fuerst Day Lawson
[Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC
333 : (2011) 4 SCC (Civ) 178] , which Parliament is presumed
to know when it enacted the Arbitration Amendment Act, 2015,
and given the fact that no change was made in Section 50 of
the Arbitration Act when the Commercial Courts Act was
brought into force, it is clear that Section 50 is a provision
contained in a self-contained code on matters pertaining to
arbitration, and which is exhaustive in nature. It carries the
negative import mentioned in para 89 of Fuerst Day Lawson
[Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC
333 : (2011) 4 SCC (Civ) 178] that appeals which are not
mentioned therein, are not permissible. This being the case, it is
clear that Section 13(1) of the Commercial Courts Act, being a
general provision vis-à-vis arbitration relating to appeals arising
out of commercial disputes, would obviously not apply to cases
covered by Section 50 of the Arbitration Act.”
* * *
“27. The matter can be looked at from a slightly different angle.
Given the objects of both the statutes, it is clear that arbitration
itself is meant to be a speedy resolution of disputes between
parties. Equally, enforcement of foreign awards should take
place as soon as possible if India is to remain as an equal
partner, commercially speaking, in the international community.
In point of fact, the raison d'être for the enactment of the
Commercial Courts Act is that commercial disputes involving
high amounts of money should be speedily decided. Given the
objects of both the enactments, if we were to provide an
additional appeal, when Section 50 does away with an appeal
so as to speedily enforce foreign awards, we would be turning
the Arbitration Act and the Commercial Courts Act on their
heads. Admittedly, if the amount contained in a foreign award to
be enforced in India were less than Rs 1 crore, and a Single
Judge of a High Court were to enforce such award, no appeal
would lie, in keeping with the object of speedy enforcement of
foreign awards. However, if, in the same fact circumstance, a
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foreign award were to be for Rs 1 crore or more, if the
appellants are correct, enforcement of such award would be
further delayed by providing an appeal under Section 13(1) of
the Commercial Courts Act. Any such interpretation would lead
to absurdity, and would be directly contrary to the object sought
to be achieved by the Commercial Courts Act viz. speedy
resolution of disputes of a commercial nature involving a sum of
Rs 1 crore and over. For this reason also, we feel that Section
13(1) of the Commercial Courts Act must be construed in
accordance with the object sought to be achieved by the Act.
Any construction of Section 13 of the Commercial Courts Act,
which would lead to further delay, instead of an expeditious
enforcement of a foreign award must, therefore, be eschewed.
Even on applying the doctrine of harmonious construction of
both statutes, it is clear that they are best harmonised by giving
effect to the special statute i.e. the Arbitration Act, vis-à-vis the
more general statute, namely, the Commercial Courts Act,
being left to operate in spheres other than arbitration.”
68. It is interesting to note that the Arbitration and Conciliation
(Amendment) Act, 2015 and the Commercial Courts Act, 2015, both came
into effect from 23.10.2015. In R.S. Raghunath v. State of Karnataka,
(1992) 1 SCC 335, this Court held that even a later general law which
contains a non-obstante clause does not override a special law as both
must be held to operate as follows:
“13. As already noted, there should be a clear inconsistency
between the two enactments before giving an overriding effect
to the non-obstante clause but when the scope of the
provisions of an earlier enactment is clear the same cannot be
cut down by resort to non-obstante clause. In the instant case
we have noticed that even the General Rules of which Rule
3(2) forms a part provide for promotion by selection. As a matter
of fact Rules 1(3)(a) and 3(1) and 4 also provide for the
enforceability of the Special Rules. The very Rule 3 of the
General Rules which provides for recruitment also provides for
promotion by selection and further lays down that the methods
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of recruitment shall be as specified in the Special Rules, if any.
In this background if we examine the General Rules it becomes
clear that the object of these Rules only is to provide broadly for
recruitment to services of all the departments and they are
framed generally to cover situations that are not covered by the
Special Rules of any particular department. In such a situation
both the Rules including Rules 1(3)(a), 3(1) and 4 of General
Rules should be read together. If so read it becomes plain that
there is no inconsistency and that amendment by inserting Rule
3(2) is only an amendment to the General Rules and it cannot
be interpreted as to supersede the Special Rules. The
amendment also must be read as being subject to Rules 1(3)
(a), 3(1) and 4(2) of the General Rules themselves. The
amendment cannot be read as abrogating all other Special
Rules in respect of all departments. In a given case where there
are no Special Rules then naturally the General Rules would be
applicable. Just because there is a non-obstante clause, in
Rule 3(2) it cannot be interpreted that the said amendment to
the General Rules though later in point of time would abrogate
the special rule the scope of which is very clear and which coexists particularly when no patent conflict or inconsistency can
be spelt out. As already noted Rules 1(3)(a), 3(1) and 4 of the
General Rules themselves provide for promotion by selection
and for enforceability of the Special Rules in that regard.
Therefore there is no patent conflict or inconsistency at all
between the General and the Special Rules.”
69. Consequently, this argument of the appellant also fails.
Whether an application under section 9 of the Arbitration Act would lie
70. Mr. Dewan, by way of cross objection, has challenged the finding of
the Gujarat High Court by the impugned judgment that the section 9
application that was made by the respondent was not maintainable by
reason of the expression “international commercial arbitration” appearing in
the proviso to section 2(2) having the meaning to be ascribed by section
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2(1)(f) of the Arbitration Act. We have already held in paragraph 14 above
that this view of the law is incorrect. Consequently, this part of the judgment
is set aside, it being held that the application made by the respondent
under section 9 would be maintainable.
71. In light of the findings arrived at by us, we uphold the impugned
judgment of the Gujarat High Court, except for the finding on the section 9
application of the respondent being held to be non-maintainable. The
appeal is disposed of accordingly.
………………….......................J.
[ ROHINTON FALI NARIMAN ]
………………….......................J.
[ B.R. GAVAI ]
………………….......................J.
[ HRISHIKESH ROY ]
New Delhi;
April 20, 2021.
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