Union of India v. Hardy Exploration and Production (india) Inc
DIPAK MISRA, CJI 1. The present appeal arose from the final
judgment and order dated 27 th July, 2016 passed by the High Court of
Delhi at New Delhi in FAO No. 59 of 2016 whereby the Division Bench
of the High Court had dismissed the appeal preferred by the Union of
India, the appellant herein, assailing the order dated 9 th July, 2015 passed
by the learned Single Judge in OMP No. 693 of 2013 and the order
dated 20 th January, 2016 passed in Review Petition No. 400 of 2015 in
OMP No. 693 of 2013. The Division Bench took note of the fact t hat
the appellant had challenged the legal propriety and correctness of the
award made by the Arbitrators in favour of the respondents under Section
34 of the Arbitration and Conciliation Act, 1996 (for brevity ‘the Act’).
The said application was contested by the respondent raising ma ny a
ground, but the thrust of the objection related to the maintainability of the
application under Section 34 of the Act. It was contended bef ore the
High Court that the courts in India do not have the jurisdiction to entertain
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC
an application under Section 34 of the Act to challenge the legality of the
award in question. The learned Single Judge, vide order dated 9 th July,
2015, accepted the preliminary objection and came to hold that in view
of the terms of the agreement and the precedents holding the field, the
Indian courts have no jurisdiction to entertain the application. Being of
this view, the learned Single Judge did not advert to the other grounds
urged in the petition.
2. Being grieved by the aforesaid order, the Union of India preferred
an appeal under Section 37(2) of the Act before the Division Bench
which concurred with the opinion expressed by the learned Single Judge.
3. In appeal by special leave, the two-Judge Bench in Union of
India v. Hardy Exploration and Production (India) INC 1 referred to
certain decisions from foreign jurisdictions, namely, Naviera Amazonica
Peruana S.A. v. Compania Internacional De Seguros D el Peru 2,
Hiscox v. Outhwaite 3, Union of India v. McDonnell Douglas Corpn.4,
C v. D 5, C v. D 6, Braes of Doune Wind Farm (Scotland) Limited v.
Alfred McAlpine Business Services Limited 7, Shashoua and Ors. v.
Sharma 8, Sulamerica Cia Nacional De Seguros S.A. and Ors. v.
Enesa Engenharia SA & Ors. 9, (1) Enercon GMBH (2) Wobben
Properties GMBH v. Enercon (India) Ltd. 10 and Govt. Of India v.
Petrocon India Ltd.11 Apart from the above, the decisions rendered in
Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others 12 , Bhatia
International v. Bulk Trading S.A. and Another 13 , Venture Global
Engineering v. Satyam Computer Services Ltd. & anot her 14 ,
Videocon Industries Limited v. Union of India and another 15 , Dozco
India Private Ltd. v. Doosan Infracore Co. Limited 16 , Bharat
1 (2018) 7 SCC 374
2 (1988) (1) Lloyd’s Law Reports 116
3 (1992) 1 AC 562
4 (1993) 2 Lloyd’s Law Reports 48
5 (2007) EWCA Civ 1282 (CA)
6 (2008) 1 Lloyd’s Law Reports 239
7 (2008) EWHC 426 (TCC)
8 (2009) EWHC 957 (Comm.)
9 (2012) EWCA Civ 638
10 (2012) EWHC 3711 (Comm.)
11 (2016) SCC Online MYFC 35
12 (1998) 1 SCC 305
13 (2002) 4 SCC 105
14 (2008) 4 SCC 190
15 (2011) 6 SCC 161
16 (2011) 6 SCC 179
385
Aluminium Company v. Kaiser Aluminium Technical Ser vices
INC 17 , Enercon (India) Ltd. & Others v. Enercon GMBH &
Another 18 , Reliance Industries Limited and another v. Union of
India 19 , Harmony Innovation Shipping Ltd. v. Gupta Coal In dia
Limited and another 20 , Union of India v. Reliance Industries Limited
and Others 21 , Eitzen Bulk A/s & others v. Ashapura Minechem
Limited and another 22 , Imax Corporation v. E-City Entertainment
(India) Pvt. Lid. 23 and Roger Shashoua and others v. Mukesh
Sharma and others 24 were also referred to.
4. The two-Judge Bench noted:-
“17. The argument of both the learned senior counsel mainly
centered around to one question which, in our opinion, does arise
in the appeal, namely, when the arbitration agreement specify the
“venue” for holding the arbitration sittings by the arbitrators but
does not specify the “seat”, then on what basis and by which
principle, the parties have to decide the place of “seat” which has
a material bearing for determining the applicability of laws of a
particular country for deciding the post award arbi tration
proceedings.
xxx xxx xxx
20. One of the arguments of Dr. Singhvi, learned senior counsel
was that the decision rendered by Three Judge Bench in the case
of Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. & Others
(supra) on which great reliance was placed by Mr. Tushar Mehta,
learned ASG has lost its efficacy, though approved by another
recent decision of Three Judge Bench in Bharat Alumi num
Company vs. Kaiser Aluminum Technical Services INC (supra),
for the reason that it was rendered under the Arbitration Act ,
1940, which now stands repealed by Arbitration Act, 1996 and
secondly, it was rendered in relation to Section 9 of the Foreign
Awards (Recognition and Enforcement) Act, 1961, which also
now stands repealed by 1996 Act.
17 (2012) 9 SCC 552
18 (2014) 5 SCC 1
19 (2014) 7 SCC 603
20 (2015) 9 SCC 172
21 (2015) 10 SCC 213
22 (2016) 11 SCC 508
23 (2017) 5 SCC 331
24 (2017) 14 SCC 722
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
21. It was his submission that while approving the ratio of
Sumitomo Heavy Industries Ltd. (supra) these two factors which
have some relevance on its efficacy do not seem to have bee n
examined in the case of Bharat Aluminum Company (supra) .
22. Dr. Singhvi also urged that what is the effect of UNCITRAL
Model Law, when they are made part of the arbitration agr ee-
ment for deciding the question of “seat” has also not been so far
decided in any of the earlier decisions.”
5. Appreciating the same, the learned Judges opined thus:-
“23. In our opinion, though, the question regarding the “seat” and
“venue” for holding arbitration proceedings by the arbitrators
arising under the Arbitration Agreement/ International Commercial
Arbitration Agreement is primarily required to be decided keeping
in view the terms of the arbitration agreement itself, but having
regard to the law laid down by this Court in several decisions by
the Benches of variable strength as detailed above, and fu rther
taking into consideration the aforementioned submissions urged
by the learned counsel for the parties and also keeping in view the
issues involved in the appeal, which frequently arise in International
Commercial Arbitration matters, we are of the consider ed view
that this is a fit case to exercise our power under Order VI Ru le
2 of the Supreme Court Rules, 2013 and refer this case (appeal )
to be dealt with by the larger Bench of this Court for its hearing.”
That is how the matter has been placed before us.
6. At the very beginning, we may note with profit that Mr. Tushar
Mehta, learned Additional Solicitor General appearing for the Union of
India and Dr. Abhishek Manu Singhvi, learned senior counsel appearing
for the respondent very fairly stated that no reference wa s called for
and there is no justification to answer the reference, but to deal with the
case on its own merits. In spite of the said submission advanced at the
Bar, we think it appropriate to put the controversy to rest as the two-
Judge Bench thought it appropriate to refer the matter to a larger Bench.
7. It may be usefully noted that the two-Judge Bench has also
taken note of some of the decisions rendered by the Constitution Bench
and some by a strength of three Judges and two Judges. One of the
submissions that was advanced before the two-Judge Bench was that in
387
Bharat Aluminium Company (supra), the decision in Sumitomo Heavy
Industries Ltd. (supra) had not been examined. To appreciate the
controversy, first we have to analyse what has been said in Sumitomo
Heavy Industries Ltd. (supra). The controversy in the said case related
to laws governing arbitration under the Arbitration Act, 1940 (hereinafter
referred to as ‘the 1940 Act’). The learned Judges referred to some
passages from paragraph 10 which contains a chapter on ‘The Applicable
Law and the Jurisdiction of the Court’. The three-J udge Bench
reproduced some passages from sub-title ‘Laws Gover ning the
Arbitration’ which read thus:-
“An agreed reference to arbitration involves two grou ps of
obligations. The first concerns the mutual obligations of the
parties to submit future disputes, or an existing d ispute to
arbitration, and to abide by the award of a tribunal constituted in
accordance with the agreement. It is now firmly established that
the arbitration agreement which creates these obligations is a sepa-
rate contract, distinct from the substantive agreement in which it
si usually embedded, capable of surviving the termination of the
substantive agreement and susceptible of premature termination
by express or implied consent, or by repudiation or frustration, in
much the same manner as in more ordinary forms of contract.
Since this agreement has a distinct life of its own, it may in
principle be governed by a proper law of its own, which need not
be the same as the law governing the substantive contact.
The second group of obligations, consisting of what is
generally referred to as the ‘curial law’ of the ar bitration,
concerns the manner in which the parties and the arbitrator are
required to conduct the reference of a particular d ispute.
According to the English theory of arbitration, these rules are to
be ascertained by reference to the express or implied term s of
the agreement to arbitrate. The being so, it will be fou nd in the
great majority of cases that the curial law, i.e. the law governing
the conduct of the reference, is the same as the law governing
the obligation to arbitrate. It is, however, open to the parties to
submit, expressly or by implication, the conduct of the reference
to different law from the one governing the underlying arbitration
agreement. In such a case, the court looks first at the arbitration
agreement to see whether the dispute is one which should be
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
arbitrated, and which has validly been made the subject of the
reference; it then looks to the curial law to see h ow that
reference should be conducted; and then returns to the first law
in order to give effect to the resulting award.
xxx xxx xxx
It may therefore be seen that problems arising out of an
arbitration may, at least in theory, call for the application of any
one or more of the following laws-
1. The proper law of the contract, i.e. the law governing th e
contract which creates the substantive rights of the parties, in
respect of which the dispute has arisen.
2. The proper law of the arbitration agreement, i.e. the law
governing the obligation of the parties to submit the disp utes to
arbitration, and to honour an award.
3. The curial law, i.e. the law governing the conduct o f the
individual reference.
xxx xxx xxx
1. The proper law of the arbitration agreement govern s the
validity of the arbitration agreement, the question whethe r a
dispute lies within the scope of the arbitration agreemen t; the
validity of the notice of arbitration; the constitution of the tribunal;
the question whether an award lies within the jurisdiction of the
arbitrator; the formal validity of the award; the question whether
the parties have been discharged from any obligation to arbitrate
future disputes.
2. The curial law governs’ the manner in which the reference is
to be conducted; the procedural powers and duties o f the
arbitrator; questions of evidence; the determination of the proper
law of the contract.
3. The proper law of the reference governs; the question whether
the parties have been discharged from their obligation to continue
with the reference of the individual dispute.
xxx xxx xxx
389
In the absence of express agreement, there is a strong pr ima
facie presumption tha the parties intend the curial law to be the
law of the ‘seat’ of the arbitration, i.e., the place at which the
arbitration is to be conducted, on the ground that that is the
country most closely connected with the proceedings. S o in
order to determine the curial law in the absence of an expre ss
choice by the parties it is first necessary to determine the seat of
the arbitration, by construing the agreement to arbitrate”
After reproducing the same, the Court opined:-
“We think that our conclusion that the curial law does not apply to
the filing of an award in court must, accordingly, hold good. We
find support for the conclusion in the extracts from Mustill and
Boyd which we have quoted earlier. Where the law governing
the conduct of the reference is different from the law governing
the underlying arbitration agreement, the court loo ks to the
arbitration agreement to see if the dispute is arbitrable, then to the
curial law to see how the reference should be conducted, “and
then returns to the first law in order to give effect to the resulting
award.
The law which would apply to the filing of the award, to i ts
enforcement and to its setting aside would be the law governing
the agreement to arbitrate and the performance of t hat
agreement. Having regard to the clear terms of Clause 17 of the
contract between the appellant and the first respondent, we are in
no doubt that the law governing the contract and th e law
governing the rights and obligations of the parties arising f rom
their agreement to arbitrate, and, in particular, their obligations to
submit disputes to arbitration and to honour the aw ard, are
governed by the law of India; nor is there any dispute in this
behalf. Section 47 of the Indian Arbitration Act, 1940, reads thus:
“47. Act to apply to all arbitrations. - Subject to the provisions of
Section 46, and save in so far as is otherwise provided by any law
for the time being in force, the provisions of this Act shall apply to
all arbitrations and to all proceedings thereunder
Provided that an arbitration award otherwise obtained may with
the consent of all the parties interested be taken into
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
consideration as a compromise or adjustment of a suit by a ny
Court before which the suit is pending.”
Eventually, the Court concluded:-
“By reason of Section 9(b), the 1961 Act does not apply to any
award made on an arbitration agreement governed by the law of
India. The 1961 Act, therefore, does not apply to the arbitration
agreement between the appellant and the first respondent. The
1940 Act, applies to it and, by reason of Section 14(2) thereof, the
courts in India are entitled to receive the award made by the
second respondent. We must add in the interests of completeness
that is not the case of the appellant that the High Court at Bombay
lacked the territorial jurisdiction to do so.”
8. On a careful reading of the aforesaid decision, it is quite vivid
that the controversy related to the 1940 Act and the discussion pertained
to foreign award under the Foreign Awards (Recognit ion and
Enforcement) Act, 1961 (for brevity, ‘the 1961 Act’). Thus, the principle
laid down therein is in no way applicable to the concept of determination
of jurisdiction as has been dealt with in BALCO case and also the
conception of implied exclusion as Bhatia International (supra) states.
Quite apart from that, we shall also advert to the later a uthorities how
they have understood the said decision.
9. In Bhatia International (supra), a Bench of this Court was
dealing with the applicability of Section 9 of the Act and the jurisdiction
of the courts in India. Referring to various aspects, the Court held:-
“To conclude we hold that the provisions of Part I would apply to
all arbitrations and to all proceedings relating thereto. Where such
arbitration is held in India the provisions of Part I would compulsory
apply and parties are free to deviate only to the extent permitted
by the derogable provisions of Part I. In cases of international
commercial arbitrations held out of India provisions of Part I would
apply unless the parties by agreement, express or implied, exclude
all or any of its provisions. In that case the laws or rules chosen
by the parties would prevail. Any provision, in Part I, which i s
contrary to or excluded by that law or rules will not apply.”
10. A contention was raised before the Court that when the parties
had agreed that the arbitration shall be as per the ICC Rules, by necessary
391
implication, Section 9 would not apply. The learned Judges referred to
Article 23 of the ICC Rules and, thereafter, came to hold that:-
“Thus Article 23 of the ICC rules permits parties to apply to a
competent judicial authority for interim and conservatory mea-
sures. Therefore, in such cases an application can be made under
Sectionof the said Act.
Lastly it must be stated that the said Act does not appear to be a
well drafted legislation. Therefore the High Courts of Oris sa,
Bombay, Madras, Delhi and Calcutta cannot be faulte d for
interpreting it in the manner indicated above. However, in o ur
view a proper and conjoint reading of all the provisions indicates
that Part I is to apply also to international com mercial
arbitrations which take place out of India, unless the parti es by
agreement, express or implied exclude it or any of its provisions.
Such an interpretation does not lead to any conflict between any
of the provisions of the said Act. On this interpretation there is no
lacunae in the said Act. This interpretation also does not leave a
party remedyless. Thus such an interpretation has t o be
preferred to the one adopted by the High Courts of Orissa, Bombay,
Madras, Delhi and Calcutta. It will therefore have to be held that
the contrary view taken by these High Courts is not good law.”
11. In Indtel Technical Services Private Ltd. v. W.S. Atkin s
Rail Limited 25 , the designated Judge was called upon to decide the
issue of appointment of sole arbitrator. Analysing the arbitration clause
and the authority in Lesotho Highlands Development Authority v.
Impregilo SpA 26 , the Court came to hold as follows:-
“It is no doubt true that it is fairly well settled that when an arbitration
agreement is silent as to the law and procedure to be followed in
implementing the arbitration agreement, the law governing the
said agreement would ordinarily be the same as the law governing
the contract itself. The decisions cited by Mr Tripathi a nd the
views of the jurists referred to in NTPC v. Singer Co. case support
such a proposition. What, however, distinguishes the var ious
decisions and views of the authorities in this case is the fact that
in Bhatia International this Court laid down the proposition that
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
25 (2008) 10 SCC 308
26 (2005) 3 WLR 129
notwithstanding the provisions of Section 2(2) of the Arbitration
and Conciliation Act, 1996, indicating that Part I of the said Act
would apply where the place of arbitration is in India, eve n in
respect of international commercial agreements, which are to be
governed by the laws of another country, the parties would be
entitled to invoke the provisions of Part I of the aforesaid Act and
consequently the application made under Section 11 thereof would
be maintainable.”
12. In Reliance Industries Ltd. (I) , (supra) , the appellant had
challenged the decision of the High Court of Delhi whereby it had
entertained the petition preferred under Section 34 of the Act . The
Court scanned the clause relating to “Sole expert, conc iliation and
arbitration” and the clause that pertained to “appl icable law and
arbitration” and further other clauses and came to hold that on ce the
parties had consciously agreed that the juridical seat of th e arbitration
would be at London and that the agreement would be governed by the
laws of London, the provisions of Part I of the Act would not be applicable.
13. In Videocon Industries Limited (supra), the Court referred
to Section 3 of the English Arbitration Act, 1996 which deals with the
seat of arbitration and Section 53 that stipulates the place where the
award is treated as made. It referred to the authority in Dozco India P.
Ltd.(supra) and, eventually, came to hold that:-
“In the present case also, the parties had agreed t hat
notwithstanding Article 33.1, the arbitration agreement contained
in Article 34 shall be governed by laws of England. This necessarily
implies that the parties had agreed to exclude the provisions of
Part I of the Act. As a corollary to the above conclusion, we hold
that the Delhi High Court did not have the jurisdiction to entertain
the petition filed by the respondents under Section 9 of the Act
and the mere fact that the appellant had earlier filed similar
petitions was not sufficient to clothe that High Court with the
jurisdiction to entertain the petition filed by the respondents.”
14. The Constitution Bench in Bharat Aluminium Company
(supra) overruled the judgments of this Court in Bhatia International
(supra) and Venture Global Engineering (supra) and opined:-
“In our opinion, the provision contained in Section 2(2) of the
Arbitration Act, 1996 is not in conflict with any of the provisions
393
either in Part I or in Part II of the Arbitration Act, 1 996. In a
foreign seated international commercial arbitration, no application
for interim relief would be maintainable under Section 9 or a ny
other provision, as applicability of Part I of the Arbitratio n Act,
1996 is limited to all arbitrations which take place in India.
Similarly, no suit for interim injunction simplicitor would be
maintainable in India, on the basis of an international commercial
arbitration with a seat outside India.
We conclude that Part I of the Arbitration Act, 1996 is applicable
only to all the arbitrations which take place within the territory of
India.”
15. Be it noted, the larger Bench ruled that in order to do complete
justice, the law declared by this Court shall apply prospectively to all the
arbitration agreements executed after the date of delivery of the judgment.
In the said case, the Constitution Bench, while dealing with the concept
of seat/place/situs of arbitration, referred to the deci sions in Naviera
Amazonica Peuana S.A. v. Compania International de Seguros del
Peru 27 and Union of India v. McDonnell Douglas Corporation 28 and
came to hold thus :-
“76. It must be pointed out that the law of the seat or place where
the arbitration is held, is normally the law to govern that arbitration.
The territorial link between the place of arbitration an d the law
governing that arbitration is well established in the international
instruments, namely, the New York Convention of 1958 and the
UNCITRAL Model Law of 1985. It is true that the terms “seat”
and “place” are often used interchangeably. In Redfern and
Hunter on International Arbitration (Para 3.51), the seat theory
is defined thus: “The concept that an arbitration is governed b y
the law of the place in which it is held, which is the ‘se at’ (or
‘forum’ or locus arbitri ) of the arbitration, is well established in
both the theory and practice of international arbitration. In fact,
the Geneva Protocol, 1923 states:
“2. The arbitral procedure, including the constitution of the Arbitral
Tribunal, shall be governed by the will of the parties and by the
law of the country in whose territory the arbitration takes place.”
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
27 (1998) 1 Lloyd’s Rep 116 (CA)
28 (1993) 2 Lloyd’s Rep 48
The New York Convention maintains the reference to “the law of
the country whe re the arbitra tion took pla ce ” [Article V(1)( d)]
and, synonymously to “the law of the country where the award is
made” [Articles V(1)( a) and ( e)]. The aforesaid observations
clearly show that the New York Convention continues the clear
territorial link between the place of arbitration a nd the law
governing that arbitration. The author further points out that this
territorial link is again maintained in the Model Law which provides
in Article 1(2) that:
“1. (2) the provision of this Law, except Articles 8, 9, 35 and 36,
apply only if the place of arbitration is in the territory of the State.”
Just as the Arbitration Act, 1996 maintains the territorial link
between the place of arbitration and its law of arbitration, the law
in Switzerland and England also maintain a clear link between the
seat of arbitration and the lex arbitri . The Swiss Law states:
“176(I). (1) The provision of this chapter shall apply to any
arbitration if the seat of the Arbitral Tribunal is in Switzerland
and if, at the time when the arbitration agreement was concluded,
at least one of the parties had neither its domicile nor its habitual
residence in Switzerland.”
(Emphasis supplied)
77. We are of the opinion that the omission of the word “only” in
Section 2(2) of the Arbitration Act, 1996 does not detract from
the territorial scope of its application as embodied in Article 1(2)
of the Model Law. The article merely states that the ar bitration
law as enacted in a given State shall apply if the arbitration is in
the territory of that State. The absence of the word “only” which
is found in Article 1(2) of the Model Law, from Section 2(2) of
the Arbitration Act, 1996 does not change the content/import of
Section 2(2) as limiting the application of Part I of the Arbitration
Act, 1996 to arbitrations where the place/seat is in India.
16. In this context, we may carefully analyse what has been stated
in Harmony Innovation Shipping Limited (supra). In the said case,
the Court relied on Reliance Industries Ltd. (I) (supra) and other
decisions, analysed the arbitration clause and held:-
395
“45. Coming to the stipulations in the present arbitration clause, it
is clear as day that if any dispute or difference would arise under
the charter, arbitration in London to apply; that the arbitrators are
to be commercial men who are members of the London Arbitration
Association; the contract is to be construed and governed by the
English law; and that the arbitration should be conducted, if the
claim is for a lesser sum, in accordance with small claims procedure
of the London Maritime Arbitration Association. There is no other
provision in the agreement that any other law would govern the
arbitration clause.
xxx xxx xxx
48. In the present case, the agreement stipulates that the contract
is to be governed and construed according to the English law.
This occurs in the arbitration clause. Mr Viswanathan, lea rned
Senior Counsel, would submit that this part has to be interpreted
as a part of “curial law” and not as a “proper law” or “substantive
law”. It is his submission that it cannot be equated with the seat
of arbitration. As we perceive, it forms as a part of the arbitration
clause. There is ample indication through various phrases like
“arbitration in London to apply”, arbitrators are to be the members
of the “London Arbitration Association” and the contract “to be
governed and construed according to the English law”. It is worth
noting that there is no other stipulation relating to the applicability
of any law to the agreement. There is no other clause anywhere
in the contract. That apart, it is also postulated that if the dispute
is for an amount less than US $50,000 then, the arbitration should
be conducted in accordance with small claims procedure of the
London Maritime Arbitration Association. When the aforesaid
stipulations are read and appreciated in the contextual perspective,
“the presumed intention” of the parties is clear as crystal that the
juridical seat of arbitration would be London. In this context, a
passage from Mitsubishi Heavy Industries Ltd. v. Gulf Bank
K.S.C. is worth reproducing:
“It is of course both useful and frequently necessa ry when
construing a clause in a contract to have regard to the overa ll
commercial purpose of the contract in the broad sense of the type
and general content, the relationship of the parties a nd such
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
common commercial purpose as may clearly emerge from such
an exercise. However, it does not seem to me to be a prop er
approach to the construction of a default clause in a commercial
contract to seek or purport to elicit some self-con tained
‘commercial purpose’ underlying the clause which is or may be
wider than the ordinary or usual construction of the words of
each sub-clause will yield.”
xxx xxx xxx
50. Thus, interpreting the clause in question on the bedrock of the
aforesaid principles it is vivid that the intended effect is to hav e
the seat of arbitration at London. The commercial backgroun d,
the context of the contract and the circumstances of the part ies
and in the background in which the contract was entered into,
irresistibly lead in that direction. We are not impressed b y the
submission that by such interpretation it will put the respondent in
an advantageous position. Therefore, we think it wo uld be
appropriate to interpret the clause that it is a prope r clause or
substantial clause and not a curial or a procedural one by which
the arbitration proceedings are to be conducted and hence, we
are disposed to think that the seat of arbitration will be at London.
51. Having said that the implied exclusion principle stated in Bhatia
International would be applicable, regard being had to the clause
in the agreement, there is no need to dwell upon the contention
raised pertaining to the addendum, for any interpretation placed
on the said document would not make any difference to the ultimate
conclusion that we have already arrived at.”
17. The aforesaid passages clearly show that the arbitration clause
has to be appositely read to understand its intention so as to arrive at a
conclusion on whether it determines the seat or not.
18. In Reliance Industries Limited(II), the Court, after referring
to various decisions, came to hold that the applicability of Part I of the
Act can be excluded by necessary implication if it is found that o n the
facts of the case, either the juridical seat of the ar bitration is outside
India or the law governing the arbitration agreement is a law other than
Indian law. Referring to the decision in Harmony Innovation Shipping
Limited (supra), the Court said:-
397
“20. It is interesting to note that even though the law governing
the arbitration agreement was not specified, yet this Court hel d,
having regard to various circumstances, that the seat of arbitration
would be London and therefore, by necessary implication, the
ratio of Bhatia International would not apply.”
19. In Eitzen Bulk A/S (supra), the Court analysed the arbitration
clause that stipulated that the disputes under the COA were to be settled
and referred to arbitration in London and the English Law would apply.
Interpreting the said clause, the Court held:-
“33. We are thus of the view that by Clause 28, the parties chose
to exclude the application of Part I to the arbitration proceedings
between them by choosing London as the venue for arbitration
and by making English law applicable to arbitration, as observed
earlier. It is too well settled by now that where the parties choose
a juridical seat of arbitration outside India and provide tha t the
law which governs arbitration will be a law other than Indian law,
Part I of the Act would not have any application and, therefore ,
the award debtor would not be entitled to challenge the award by
raising objections under Section 34 before a court in India. A court
in India could not have jurisdiction to entertain such objecti ons
under Section 34 in such a case.
34. As a matter of fact the mere choosing of the juridical seat of
arbitration attracts the law applicable to such location . In other
words, it would not be necessary to specify which law would
apply to the arbitration proceedings, since the law of the particular
country would apply ipso jure. The following passage fr om
Redfern and Hunter on International Arbitration contains the
following explication of the issue:
“It is also sometimes said that parties have select ed the
procedural law that will govern their arbitration, by providing
for arbitration in a particular country. This is too elliptical and,
as an English court itself held more recently in Breas of Doune
Wind Farm it does not always hold true. What the parties have
done is to choose a place of arbitration in a particular country.
That choice brings with it submission to the laws of that country,
including any mandatory provisions of its law on arbitration.
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
To say that the parties have “chosen” that particular law to
govern the arbitration is rather like saying that an Engli sh
woman who takes her car to France has “chosen” French
traffic law, which will oblige her to drive on the right-hand side
of the road, to give priority to vehicles approaching from the
right, and generally to obey traffic laws to which she may not
be accustomed. But it would be an odd use of language to say
this notional motorist had opted for “French traffic law”. What
she has done is to choose to go to France. The applicability of
French law then follows automatically. It is not a matter of
choice.
Parties may well choose a particular place of arbitration precisely
because its lex arbitri is one which they find attractive. Ne vertheless,
once a place of arbitration has been chosen, it brings with it its own law.
If that law contains provisions that are mandatory so far as arbitration
are concerned, those provisions must be obeyed. It is not a m atter of
choice any more than the notional motorist is free to choose which local
traffic laws to obey and which to disregard”.”
20. In IMAX Corporation (supra), interpreting the arbitration
clause and the ICC Rules and referring to earlier precedents, the Court
ruled:-
“39. If in pursuance of the arbitration agreement, the arbitration
took place outside India, there is a clear exclusion of Part I of the
Arbitration Act. In the present case, the parties expressly agreed
that the arbitration will be conducted according to the ICC Rules
of Arbitration and left the place of arbitration to be cho sen by
ICC. ICC in fact, chose London as the seat of arbitration af ter
consulting the parties. The arbitration was held in London without
demur from any of the parties. All the awards i.e. the two partial
final awards, and the third final award, were made in London and
communicated to the parties. We find that this is a clear cas e of
the exclusion of Part I vide Eitzen Bulk A/S , and the decisions
referred to and followed therein.”
21. In Roger Shashoua (supra), apart from dealing with the
concept of precedents, the two-Judge Bench also scanned the anatomy
of the arbitration clause and held:-
399
“…the distinction between the venue and the seat remains. But
when a court finds that there is prescription for v enue and
something else, it has to be adjudged on the facts of each case to
determine the juridical seat. As in the instant case, the agreement
in question has been interpreted and it has been held that London
is not mentioned as the mere location but the courts in London
will have the jurisdiction, another interpretative percepti on as
projected by the learned Senior Counsel is unacceptable.”
22. We may now focus on the discussion and the ulti mate
conclusion in Sumitomo Heavy Industries Ltd . (supra) and how the
later decisions under the 1996 Act perceived the same. In Bharat
Aluminium Corporation (supra) (BALCO-II), the three-Judge Bench
dealt with the decisions in Sumitomo Heavy Industries Ltd (supra)
and Reliance Industries Limited (supra) and noted thus:-
“13. Sumitomo is of no avail to the appellant. In Sumitomo, there
was no specific choice on the law of arbitration agreement and
this Court held that in absence of such choice, the law of arbitration
agreement would be determined by the substantive law of t he
contract. That is not the case in this agreement.”
It laid emphasis on Reliance Industries Limited (II) (supra) and
opined that an application under Section 34 of the 1940 Act was not
maintainable.
23. In view of the aforesaid development of law, ther e is no
confusion with regard to what the seat of arbitration a nd venue of
arbitration mean. There is no shadow of doubt that the arbitration clause
has to be read in a holistic manner so as to determine the jurisdiction of
the Court. That apart, if there is mention of venue and something else is
appended thereto, depending on the nature of the prescription, the Court
can come to a conclusion that there is implied exclusion of Part I of the
Act. The principle laid down in Sumitomo Heavy Industries Ltd. (supra)
has been referred to in Reliance Industries Limited (II) and
distinguished. In any case, it has no applicability to a controversy under
the Act. The said controversy has to be governed by the BALCO principle
or by the agreement or by the principle of implied exclusion as has been
held in Bhatia International.
24. Thus, we answer the reference accordingly.
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
25. Having addressed the reference, we shall advert to the
arbitration clause to delineate on whether it ousts the jurisdiction of the
courts in India. Article 32 of the arbitration agreement reads as follows:-
“32.1 This Contract shall be governed and interpret ed in
accordance with the laws of India.
32.2 Nothing in this Contract shall entitle the Contractor to exercise
the rights, privileges and powers conferred upon it by this Contract
in a manner which will contravene the laws of India.”
26. Article 33 deals with “Sole expert, conciliation and arbitrator”.
Article 33.9 and 33.12 read thus:-
“33.9 Arbitration proceedings shall be conducted in accordance
with the UNICITRAL Model Law on International Commercial
Arbitration of 1985 except that in the event of any conflict between
the rules and the provisions of this Article 33, the provisions of
this Article 33 shall govern.
xxx xxx xxx
33.12 The venue of conciliation or arbitration proceedings pursuant
to this Article unless the parties otherwise agree, shall be Kuala
Lumpur and shall be conducted in English language. Insofar as
practicable the parties shall continue to implement the terms of
this contract notwithstanding the initiation of arbitration proceedings
and any pending claim or dispute.”
[Emphasis supplied]
27. It is submitted by Mr. Tushar Mehta, learned Additional Solicitor
General appearing for the Union of India that there is no specific mention
of juridical seat but reference is to the venue. He has also drawn our
attention to the UNCITRAL Model Law which is referred to in Article
33.9 of the agreement. Article 20 of the UNCITRAL Model Law reads
as follows:-
“Article 20. Place of arbitration.—(1)The parties are free to agree
on the place of arbitration. Failing such agreement, the p lace of
arbitration shall be determined by the arbitral tribunal having regard
to the circumstances of the case, including the convenience of
the parties .
401
(2) Notwithstanding the provisions of paragraph (1) of this article,
the arbitral tribunal may, unless otherwise agreed by the parties,
meet at any place it considers appropriate for consultation among
its members, for hearing witnesses, experts or the parties, or for
inspection of goods, other property or documents.”
[Emphasis added]
Thus, Article 20(1) mandates “determination” of “juridical seat”
while Article 20(2) leaves it open to the Arbitral Tribunal to select
“venue”.
28. Article 31(3) of the UNCITRAL Model Law is as follows :-
“Article 31. Form and contents of award.—
(3) The award shall state its date and the place of ar bitration as
determined in accordance with article 20(1). The award shall be deemed
to have been made at that place.”
29. On a perusal of Articles 20 and 31(3) of the UNCITRAL
Model Laws, we find that the parties are free to agree on the place of
arbitration. Once the said consent is given in the arbitration clause or it
is interpretably deduced from the clause and the other concomitant factors
like the case of Harmony Innovation Shipping Ltd. which states about
the venue and something in addition by which the seat of arbitration is
determinable. The other mode, as Article 20 of the UNCITRAL Model
Law provides, is that where the parties do not agree on the pl ace of
arbitration, the same shall be determined by the Arbitral Tribunal. Such a
power of adjudication has been conferred on the Arbitral Tribunal. Article
31(3) clearly stipulates that the Award shall state the date and the place
of arbitration as determined in accordance with Article 20(1).
30. In IMAX Corporation (supra), there is reference to the ICC
Rules and the Rules provide that the place of arbitration shall be fixed by
the Court unless agreed upon by the parties. In the said case, the appellant
had proposed the venue of Arbitration as Paris in F rance. The
International Court of Arbitration decided that London, United Kingdom
would be the juridical seat of arbitration in view of Article 14(1) of the
ICC Rules and, therefore, provided on the basis of Part I of the English
Arbitration Act, 1996. The three-Judge Bench ruled:-
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
“24. In the present case, the arbitration clause contemplate s an
award made in pursuance of the ICC Rules without specifying
the applicable law for the arbitration agreement. It would therefore
be appropriate to hold that the question of validity of the award
should be determined in accordance with the law of the State in
which the arbitration proceedings have taken place i.e. the English
Law. Though for the purposes of this decision we would only hold
that the conduct of the parties exclude the applicability of Part I.
In other words, where the parties have not expressly chosen t he
law governing the contract as a whole or the arbitration agreement
in particular, the law of the country where the arbitration is agreed
to be held has primacy.
25. Here, an express choice has been made by the parties regarding
the conduct of arbitration i.e. that a dispute shall be finally settled
by arbitration according to the ICC Rules of Arbitration. T he
parties have not chosen the place of arbitration. They have simply
chosen the rules that will govern the arbitration, presumably aware
of the provision in the rules that the place of arbitration will be
decided by ICC vide Article 14(1) of the ICC Rules. ICC having
chosen London, leaves no doubt that the place of arbitration will
attract the law of UK in all matters concerning arbitration.”
The Court further noticed that in the said case, th e seat of
arbitration had not been specified at all in the arbitration clause. There
was a stipulation that the arbitration shall be conducted according to the
ICC Rules and opining on the same, it was observed:-
“29. We find that in the present case, the seat of arbitration has
not been specified at all in the arbitration clause. There is however
an agreement to have the arbitration conducted according to the
ICC Rules and thus a willingness that the seat of arbitration may
be outside India. In any case, the parties having agreed to have
the seat decided by ICC and ICC having chosen London after
consulting the parties and the parties having abided by the decision,
it must be held that upon the decision of ICC to hold the arbitration
in London, the parties agreed that the seat shall be in London for
all practical purposes. Therefore, there is an agreement t hat the
arbitration shall be held in London and thus Part I of the Act
should be excluded.”
403
31. In the present case, the place of arbitration was to be agreed
upon between the parties. It had not been agreed upon ; and in case of
failure of agreement, the Arbitral Tribunal is required to determine the
same taking into consideration the convenience of the parties. It is also
incumbent on the Arbitral Tribunal that the determination shall be clearly
stated in the ‘form and contents of award’ that is postulat ed in Article
31. There has been no determination.
32. Be it noted, the word ‘determination’ requires a positive act to
be done. In the case at hand, the only aspect that has been highlighted
by Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the
meeting at Kuala Lumpur and signed the award. That, in our considered
opinion, does not amount to determination. The clause is cate gorical.
The sittings at various places are relatable to venue. It cannot be equated
with the seat of arbitration or place of arbitration which has a different
connotation as has been held in Reliance Industries Ltd. (I), (II) (supra),
Harmony Innovation Shipping Limited (supra) and in Roger
Shashoua (supra).
33. The word ‘determination’ has to be contextually determined.
When a ‘place’ is agreed upon, it gets the status of seat which means
the juridical seat. We have already noted that the terms ‘place’ and
‘seat’ are used interchangeably. When only the term ‘place’ is stated or
mentioned and no other condition is postulated, it is equivalent to ‘seat’
and that finalises the facet of jurisdiction. But if a condition precedent is
attached to the term ‘place’, the said condition has to be satisfied so that
the place can become equivalent to seat. In the instant cas e, as there
are two distinct and disjunct riders, either of them have to be satisfied to
become a place. As is evident, there is no agreeme nt. As far as
determination is concerned, there has been no determination. In Ashok
Leyland Limited and State of T.N. and another 29 , the Court has
reproduced the definition of ‘determination’ from Law Lexicon, 2 nd Edition
by Aiyar, P. Ramanatha and Black’s Law Dictionary, 6 th Edition. The
relevant paragraphs read thus:-
“Determination or order.—The expression ‘determination’ signifies
an effective expression of opinion which ends a controversy or a
dispute by some authority to whom it is submitted under a valid
law for disposal. The expression ‘order’ must have also a similar
meaning, except that it need not operate to end the disp ute.
UNION OF INDIA v. HARDY EXPLORATION AND
PRODUCTION (INDIA) INC [DIPAK MISRA, CJI]
9(2004) 3 SCC 1
Determination or order must be judicial or quasi-judicial. Jaswant
Sugar Mills Ltd. v. Lakshmi Chand 30 (Constitution of India, Article
136).”
“A ‘determination’ is a ‘final judgment’ for purposes of appeal
when the trial court has completed its adjudication of the rights of
the parties in the action. Thomas Van Dyken Joint Venture v. Van
Dyken 31 .”
The said test clearly means that the expression of determination
signifies an expressive opinion. In the instant case, there has been no
adjudication and expression of an opinion. Thus, the word ‘place’ cannot
be used as seat. To elaborate, a venue can become a seat if something
else is added to it as a concomitant. But a place unlike seat, at least as is
seen in the contract, can become a seat if one of the conditions precedent
is satisfied. It does not ipso facto assume the stat us of seat. Thus
understood, Kuala Lumpur is not the seat or place of arbitration and the
interchangeable use will not apply in stricto sensu .
34. In view of the aforesaid analysis, the irresistible conclusion is
that the Courts in India have jurisdiction and, therefore, the order passed
by the Delhi High Court is set aside. Resultantly, the ap peal stands
allowed and the High Court is requested to deal with the appli cation
preferred under Section 34 of the Act as expeditiously as possible. There
shall be no order as to costs.
Ankit Gyan Appeal allowed.
30 AIR 1963 SC 677, 680
31 90 Wis 236, 27 NW 2d 459,463