Bg Strategic Advisors vs Level 3
2012 Latest Caselaw 340 Bom

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                                                                                   ARBP740.12


               IN THE HIGH COURT OF JUDICATURE AT BOMBAY




                                                                                  
                     ORDINARY ORIGINAL CIVIL JURISDICTION




                                                          
                      ARBITRATION PETITION NO. 740 OF 2012

      BG Strategic Advisors, LLC             )
      a Florida corporation having its place )




                                                         
      of business at 525 South Flagler Drive)
      Suite 200, West Palm Beach FL 33401)              ..... Petitioner

            Versus




                                                  
      Arshiya International Ltd.           )
      a company registered under the
                                 ig        )
      Companies Act, 1956 having its       )
      registered office at Arshiya House, )
      3rd Floor, Plot No. 61, Road No.13, )
                               
      M.I.D.C., Andheri (East),            )
      Mumbai - 400 093                     )
      And
      Corporate Office at 301 Ceejay House)
            


      Level 3, Shiv Sagar Estate, F-Block, )
      Dr.Annie Besant Road, Worli,         )
         



      Mumbai - 400 018                     )            ..... Respondent





      Mr.Atul Chitale, Senior Advocate, a/w. Ms.Leena Desai, Mr.Avinash Shah
      Gautama, i/b. MDP & Partners for the Petitioner.

      Mr.V.R.Dhond, Senior Advocate, a/w. Mr.Gaurav Shah, Mr.Rohan Kelkar,
      Ms.Shreevardhini Parchure, i/b. Negandhi, Shah and Himayatullah for the





      Respondent.

                                  CORAM : R.D. DHANUKA, J.

RESERVED ON :20th OCTOBER, 2012

PRONOUNCED ON : 6th NOVEMBER, 2012

ORAL JUDGMENT :

By this petition filed under Section 9 of the Arbitration and Conciliation

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Act, 1996 (for short `Arbitration Act, 1996'), the petitioner seeks an order and

direction against the respondent to deposit in this court an amount of US $

442,666.84 and for various interim measures. The learned counsel appearing

for the respondent has raised a preliminary objection about maintainability of

this petition in this court. In view of such preliminary objection, though both

the learned counsel have addressed on several other issues raised in the

petition, I will decide the preliminary issue raised by the respondent. Some of

the relevant facts which are relevant for the purpose of deciding the said issues

are as under :-

2. It is the case of the petitioner that in or about May, 2008, the respondent

approached the petitioner to provide their expertise in advising them in

financial aspects of identifying potential companies as targets for making

investments, acquisitions, mergers or other transactions. On 8th May, 2009, the

petitioner and the respondent entered into an Engagement Letter i.e. 'Financial

Advisor Agreement'. It is the case of the petitioner that respondent failed to

satisfy its obligation to pay US $ 403,032.34 towards retainer fees and

expenses.

3. On 16th January, 2009, the petitioner issued a notice of dispute to the

respondent calling upon the respondent to pay US $ 303,060.53 towards

outstanding fees and expenses. It was stated that if a good faith resolution

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could not be reached within 30 days of the said notice, the petitioner would

submit the matter to the arbitration in West Palm Beach, Florida as stipulated

in the said agreement. It is the case of the petitioner that a dispute could not be

resolved amicably. On 3rd March, 2009, the representative of the respondent

informed the petitioner that it was seeking to terminate the contract early. The

petitioner thereafter forwarded monthly invoice and account statement to the

respondent with a request to clear the same at the earliest.

4.

On 27th March, 2009, the petitioner submitted their initial claim against

the respondent under the said agreement, amounting to a sum of $ 357,892.84

plus future retainers fee before the National Arbitration Forum. The petitioner

has not taken any further steps to proceed with the said arbitration before the

National Arbitration Forum. It is the case of the petitioner that the respondent

failed to record appearance and/or file its reply in the arbitration proceedings.

It is the case of the petitioner that substantial money is due and payable by the

respondent to the petitioner and rights of the petitioner and interest deserves

immediate protection which necessitated filing of the present petition under

Section 9 of the Arbitration Act, 1996.

5. Clause (M) of the terms and conditions of the Agreement reads thus :-

This letter agreement shall be governed by, and construed in accordance with, the laws of Florida without giving effect to that state's principles of conflict of law. The parties agree and consent to personal jurisdiction, service of process and venue in any Federal or State court within Florida for

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purposes of any action, suit, or proceeding arising out of or relating to this letter agreement, and

waive any and all rights to trial by jury.

6. Annexture 'B' of the said agreement refers to the dispute resolution

which reads thus :-

In the event of a dispute between the Parties that is in any way related to their business relationship, including, but not limited, to disputes related to this Engagement, the Parties agree that such

dispute (collectively, "Disputes", or each, individually, a 'Dispute') will be submitted to

binding arbitration. Prior to submitting any Dispute to arbitration, however, the initiating Party will submit a notice regarding the nature of the

Dispute to the other party. Thereafter, the Parties will meet and confer in good faith to resolve the Dispute or Disputes. If after at least 30 calender days following the date one Party has sent such

Dispute notice, the Dispute is not resolved, and if any Party or Parties wishes to pursue the Dispute,

the Party or Parties will submit it to arbitration as described herein.

Any Dispute involving the Parties not resolved pursuant to the informal dispute resolution processes described in the paragraph above, irrespective of the facts or circumstances or the legal theories advanced, will be resolved by

binding arbitration at the request of either party. The arbitration will be administered by the National Arbitration Forum (the "Forum") and initiated and conducted in accordance with the Forum's Code of Procedure. Such arbitration will occur in West Palm Beach, Florida. The parties agree that there will be a panel of three arbitrators to hear the arbitration; each party will select one arbitrator, and the two selected will select the third arbitrator. If the third arbitrator cannot be agreed upon, the Forum will select the third arbitrator.

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The arbitrators may interpret the terms of this Agreement, but may not vary or ignore the terms

of this Agreement. The arbitrators will apply Florida substantive law and where state law is

preempted. The Federal Arbitration Act, 9 U.S.C. 1-16, will also apply.

The arbitrators will prepare in writing and provide

to the Parties an award including factual findings and the legal rationale upon which the award is based. The arbitrators will have the power to grant all legal and equitable remedies provided by Florida law and this Agreement. Each party will

bear its own arbitration costs, unless the arbitrators determine that the non-prevailing party should pay

all or part of the prevailing party's costs. The Parties will divide equally the cost of the neutral arbitrator's fee and any related administrative fees

and charges. The Parties will each bear their respective attorney's fees and costs incurred in the arbitration. Each party knowingly acknowledges and agrees that the foregoing constitutes a waiver

of their constitutional right to a jury trial. The arbitration and any information obtained in

connection with the Agreement or through discovery as set forth below will be confidential and neither the Parties nor the arbitrator may

disclose such information to third Parties without the written consent of the Parties, except that the Parties may disclose such information as necessary to seek confirmation of the arbitration award, to enforce any judgment entered on account of the

award or as otherwise is required by law; however, the Parties may make such disclosure as is necessary to their respective auditors, accountants, attorneys and insurers Civil Discovery may be taken in such arbitration as provided by the Forum's Code of Procedure. The arbitrators selected will have the power to control the timing, scope and manner of the taking of discovery and will further have the same powers to enforce the Parties' respective duties concerning discovery as would a District Court of Florida including, but not

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limited to, the imposition of sanctions.

7. Mr.Chitale, the learned senior counsel appearing on behalf of the

petitioner submits that the petitioner and the respondent resides and carries on

business for gain within the jurisdiction of this court. He submitted that the

arbitration relating to the dispute between the petitioner and the respondent is

an "International Commercial Arbitration" as defined under Section 2(f) of the

Arbitration Act, 1996 to which Part I of the said Act applies. It is submitted

that the parties to the said agreement have neither expressly nor impliedly

excluded all or any provisions contained in Part I of the said Act and thus this

court has jurisdiction to try and entertain this petition.

8. Mr.Dhond, the learned senior counsel appearing on behalf of the

respondent on the other hand submits that both parties by agreement have

agreed that letter agreement shall be governed by and construed in accordance

with the laws of Florida without giving effect to that State's principles of

conflict of law. Both parties had agreed and consented to personal jurisdiction,

service of process and venue in any Federal or State court within Florida for

purposes of any action, suit, or proceeding arising out of or relating to this

letter agreement, and waive any and all rights to trial by jury.

9. The learned counsel submits that as per Annexture 'B', it has been

agreed that the arbitrators will apply Florida substantive law and federal

substantive law where state law is preempted. It is agreed that Federal

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Arbitration Act will also apply. Annexture 'B' also provides that arbitrators

will have the power to grant all legal and equitable remedies provided by

Florida law and that agreement. The learned counsel submits that it is not in

dispute that under the said agreement, the petitioner has already invoked

arbitration clause and has already filed claim before National Arbitration

Forum. It is submitted that thus Part I of the Arbitration Act, 1996 would not

apply to the parties and thus the present petition filed under Section 9 of the

Arbitration Act, 1996 is not maintainable.

10. Mr.Dhond, the learned senior counsel place reliance on the judgment of

the Supreme Court in case of Bhatia International vs. Bulk Trading S.A. and

another1 and more particularly paragraphs 21, 32 and 35 which reads thus :-

21. Now let us look at sub-sections (2), (3), (4) and (5) of Section 2. Sub-section (2) of Section (2) provides that Part I would apply where the place of arbitration is in India. To be immediately noted that

it is not providing that Part I shall not apply where the place of arbitration is not in India. It is also not providing that Part I will "only" apply where the place of arbitration is in India (emphasis supplied).

Thus the Legislature has not provided that Part I is

not to apply to arbitrations which take place outside India. The use of the language is significant and important. The Legislature is emphasising that the provisions of Part I would apply to arbitrations which take place in India, but not providing that the provisions of Part I will not apply to arbitrations which take place out of India. The wording of sub-section (2) of Section 2 suggests that the intention of the Legislature was to make provisions of Part I compulsorily applicable to an 1 (2002) 4 Supreme Court Cases 105

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arbitration, including an international commercial arbitration, which takes place in India. Parties

cannot, by agreement, override or exclude the non- derivable provisions of Part I in such arbitrations.

By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the affect would be that Part I would also apply to international commercial

arbitrations held out of India. But by not specifically providing that the provisions of Part I apply to international commercial arbitrations held out of India, the intention of the Legislature appears to be to ally parties to provide by

agreement that Part I or any provision therein will not apply. Thus in respect of arbitrations which

take place outside India even the non-derivable provisions of Part I can be excluded. Such an agreement may be express or implied.

32. 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 is contrary to or

excluded by that law or rules will not apply.

35. Lastly it must be stated that the said Act does not appear to be a well drafted legislation. Therefore the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it in the manner indicated above. However, in our view a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial arbitrations which take place out of India, unless

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the parties 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 to 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. Mr.Dhond, the learned senior counsel placed reliance upon the judgment

of the Supreme Court in case of Venture Global Engineering vs. Satyam

Computer Services Ltd. and another2 and more particularly paragraphs 31 and

37 which reads thus :-

31. On close scrutiny of the materials and the dictum

laid down in three-Judge Bench decision in Bhatia International, we agree with the contention of Mr.

K.K.Venugopal and hold that paragraphs 32 and 35 of the Bhatia International make it clear that the provisions of Part I of the Act would apply to all arbitrations including

international commercial arbitrations and to all proceedings relating thereto. We further hold that where such arbitration is held in India, the provisions of Part-I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part I. It is

also clear that even in the case of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such. The matter, therefore, is concluded by the three-Judge Bench decision in Bhatia International.

2 (2008) 4 Supreme Court Cases 190

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37. In view of the legal position derived from Bhatia International, we are unable to accept Mr. Nariman's

argument. It is relevant to point out that in this proceeding, we are not deciding the merits of the claim

of both parties, particularly, the stand taken in the suit filed by the appellant- herein for setting aside the award. It is for the concerned court to decide the issue on merits and we are not expressing anything on the same. The

present conclusion is only with regard to the main issue whether the aggrieved party is entitled to challenge the foreign award which was passed outside India in terms of Section 9/34 of the Act. Inasmuch as the three-Judge Bench decision is an answer to the main issue raised, we

are unable to accept the contra view taken in various decisions relied on by Mr. Nariman. Though in Bhatia

International the issue relates to filing a petition under Section 9 of the Act for interim orders the ultimate conclusion that Part I would apply even for foreign

awards is an answer to the main issue raised in this case.

12. Mr.Dhond, the learned senior counsel also placed reliance upon the

judgment of the Supreme Court in case of Dozco India Private Limited vs.

Doosan Infracore Company Limited3 and more particularly paragraphs 15 and

20 which reads thus :-

15. If we see the language of Article 23.1 in the light of the Article 22.1, it is clear that the parties had agreed that the disputes arising out of the Agreement between them would be finally settled by the arbitration in Seoul, Korea. Not only that,

but the rules of arbitration to be made applicable were the Rules of International Chamber of Commerce. This gives the prima facie impression that the seat of arbitration was only in Seoul, South Korea. However, Ms. Mohana, learned Counsel appearing on behalf of the petitioner drew our attention to the bracketed portion and contended that because of the bracketed portion which is to the effect "or such other place as the parties may

3 (2011) 6 Supreme Court Cases 179

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agree in writing", the seat could be elsewhere also.

It is based on this that Ms. Mohana contended that,

therefore, there is no express exclusion of Part I of the Act. It is not possible to accept this contention

for the simple reason that a bracket could not be allowed to control the main clause. Bracketed portion is only for the purposes of further explanation. In my opinion, Shri Gurukrishna

Kumar, learned Counsel appearing on behalf of the respondent, is right in contending that the bracketed portion is meant only for the convenience of the arbitral Tribunal and/or the parties for conducting the proceedings of the

arbitration, but the bracketed portion does not, in any manner, change the seat of arbitration, which

is only Seoul, Korea. The language is clearly indicative of the express exclusion of Part I of the Act. If there is such exclusion, then the law laid

down in Bhatia International v. Bulk Trading S.A. and Anr. must apply holding: (SCC p. 123, para

32)

" 32 ..... In cases of international commercial arbitrations held out of India

provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that

case, the laws or rules chosen by the parties would prevail. Any provision in Part I, which is contrary to or excluded by that law or rules will not apply."

20. In that view, my inferences are that:

(i) The clear language of Articles 22 and 23 of the Distributorship Agreement between the parties in this case spell out a clear agreement between the parties excluding Part I of the Act.

(ii) The law laid down in Bhatia International v. Bulk Trading S.A. and Anr. and Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd., as also in Citation Infowares Ltd. v. Equinox Corporation is not applicable to the present case.

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(iii) Since the interpretation of Article 23.1 suggests that the law governing the arbitration will

be Korean law and the seat of arbitration will be Seoul in Korea, there will be no question of

applicability of Section 11(6) of the Act and the appointment of Arbitrator in terms of that provision.

13. Mr.Dhond, the learned senior counsel also placed reliance upon the

judgment of the Supreme Court in case of Bharat Aluminium Co. vs. Kaiser

Aluminium Technical Services, Inc. delivered on 6th September, 2012 in Civil

Appeal No.7019 of 2005.

ig The learned counsel placed reliance upon the

concluding part of the said judgment at paragraphs 198 to 201 which reads

thus:-

198. In view of the above discussion, we are of the considered opinion that the Arbitration Act,

1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all

arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be

subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.

199. With utmost respect, we are unable to agree

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with the conclusions recorded in the judgments of this Court in Bhatia International (supra) and

Venture Global Engineering (supra). In our opinion, the provision contained in Section 2(2) of

the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. In a foreign seated international commercial arbitration, no

application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India. Similarly, no suit for

interim injunction simplicitor would be maintainable in India, on the basis of an

international commercial arbitration with a seat outside India.

200. We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India.

201. The judgment in Bhatia International (supra) was rendered by this Court on 13th March,

2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the

judgment in Venture Global Engineering (supra) has been rendered on 10th January, 2008 in terms of the ratio of the decision in Bhatia International (supra). Thus, in order to do complete justice, we hereby order, that the law now declared by this

Court shall apply prospectively, to all the arbitration agreements executed hereafter.

14. Mr.Dhond, the learned senior counsel submits that in view of the

agreement between the parties rights and obligation of the parties would be

governed by and construed in accordance with the laws of Florida and both

parties having agreed that arbitrators will apply Florida substantial law and

Federal substantial law. The learned counsel invited my attention to annexture

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"B" which provides that the arbitration will be administered by the National

Arbitration Forum and initiated and conducted in accordance with the Forum's

Code of Procedure. It has been provided that such arbitration will occur in

West Palm Beach, Florida.

15. Mr.Dhond, the learned senior counsel submits that in view of the

agreement between the parties that law of Florida would apply, Part I of the

Arbitration Act, 1996 would not apply. The learned counsel submits that a per

law laid down by the Supreme Court in case of Bhatia International (supra)

Part I of the Arbitration Act, 1996 would apply also to international

commercial arbitrations which take place out of India, unless the parties by

agreement express or implied exclude it or any of its provisions. It is

submitted that agreement arrived at between the parties in this case falls under

the exception carved by the Supreme Court in case of Bhatia International

(supra). The learned counsel submitted that the judgment of the Supreme

Court in case of Bhatia International (supra) has been also approved in the

subsequent judgments in case of Videocon Industries Limited vs. Union of

India and another4 and Dozco India Private Limited (supra). The learned

counsel submitted that in case of Bharat Aluminium Co.(supra) the Supreme

Court has clarified that the law declared by the Supreme court in case of

Bharat Aluminium shall apply prospectively to all the agreements executed

hereafter and thus the fact of this case will be governed by the law laid down

4 (2011) 6 Supreme Court Cases 161

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by the Supreme Court in case of Bhatia International (supra).

16. The Learned Senior Counsel Mr.Chitale, appearing on behalf of the

petitioner made an attempt to distinguish the judgment relied upon by the

learned senior counsel Mr.Dhond. The learned senior counsel submits that

the law laid down by the Supreme Court in the case of Bhatia International

(supra) would not apply to the facts of this case on the ground that in the

agreement entered into between the parties, there is no express provision to

exclude all or any provisions contained in Part I of the Arbitration Act, 1996.

The learned counsel submits that thus in case of International Commercial

Arbitration held out of India, Part I would be applicable as per ratio laid down

by the Supreme Court in case of Bhatia International (supra).

17. I have heard the learned counsel for the parties and have given my

anxious consideration to the rival submissions made by the learned counsel.

18. It is not in dispute that the parties by agreement have agreed that the

agreement shall be governed by and construed in accordance with the laws of

Florida without giving effect to that State's principles of conflict of law. The

parties have also agreed that the dispute will be submitted to binding

arbitration which shall be administered by the National Arbitration Forum and

initiated and conducted in accordance with the Forum's Code of Procedure. It

has also been agreed that the arbitration will occur in West Palm Beach,

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Florida and arbitrator shall apply Florida substantive law and Federal

substantive law where state law is preempted, the Federal Arbitration Act will

also apply. It is also not in dispute that the petitioner has already invoked

arbitration clause and filed statement of claim before National Forum of

Arbitration at Florida in accordance with the agreement arrived at between the

parties. In my view, there is no merit in the submission of learned senior

counsel Mr.Chitale appearing on behalf of the petitioner that there is no

express agreement between the parties excluding any of the provision of Part I

of the Arbitration Act, 1996 or that the said agreement does not contain any

such provision excluding provision of Part I. On perusal of the judgment in

case of Bhatia International (supra), which has been followed by the

Supreme Court in several other judgments, it is clear that exclusion of all or

any provisions contained in Part I of the Arbitration Act, 1996 can be express

or implied. In view of the law declared in the judgment of Supreme Court in

case of Bharat Alluminium Co. (supra) made applicable prospectively to all

arbitration agreements executed after pronouncement of the said judgment, this

case would be governed by the law laid down by the Supreme Court in case of

Bhatia International (supra). In my view, considering the agreement entered

into between the parties, it is clear that both the parties have agreed to follow

the laws of Florida. The perusal of the agreement makes it clear that both

parties had intended to exclude the provisions of Part I of the Arbitration Act,

1996. In my view, it is not necessary for parties to refer specific provisions of

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the Arbitration Act in the agreement which they want to exclude and make it

inapplicable. Such exclusion can be implied from the provisions of the

agreement between the parties. In my view, the parties having agreed that laws

of Florida would apply, it is implied that the provisions of Part I will not apply.

In my view, the proceeding filed under Section 9 of the Arbitration Act, 1996 is

thus not maintainable.

19. I, therefore, pass the following order :-

(a)

Arbitration petition is not maintainable and

is dismissed.

(b) It is made clear that this Court has not

expressed any view on the merits of the claim

filed by the petitioner.

(c) There shall be no order as to costs.

(R.D. DHANUKA, J.)