Bombay High Court
Krishna vs Dreekamp-5 D26605 on 5 October, 2012
Bench: R. M. Savant
wps-7804.09 & 7636.09
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.7804 OF 2009
WITH
WRIT PETITION NO.7636 OF 2009
1 Enercon (India) Ltd. ]
a company incorporated and ]
existing under the laws of ]
India and having its ]
registered office at Plot No. ]
33, Daman- Patalia, ]
Bhimpore, Daman-396 210
ig ]
India ]
]
2 Yogesh J. Mehra ]
being Indian Inhabitant ]
residing at 101, Hare ]
Krishna, Residency Society, ]
J.V.P.D. Scheme, North ]
South Road No.8, Vile Parle (W) ]
Mumbai 400 049 ]
]
3 Ajay J. Mehra ]
being Indian Inhabitant ]
residing at 101, Hare ]
Krishna, Residency Society, ]
J.V.P.D. Scheme, North ]
South Road No.8, Vile Parle (W) ]
Mumbai 400 049 ]..... Petitioners.
Versus
1 Enercon GmbH ]
a company duly ]
incorporated and existing ]
under the law of Germany ]
and having its registered ]
office at Dreekamp 5, ]
D26605, Aurich, Germany. ]
]
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2 Wobben Properties GmbH ]
a company duly ]
incorporated and existing ]
under the laws of Germany ]
and having its office at ]
Dreekamp-5 D26605, ]
Aurich, Germany. ]..... Respondents.
Dr.Veerendra Tulzapurkar, Senior Advocate, with Mr.Virag Tulzapurkar,
Senior Advocate, with Mr.Nikhil Sakhardande, Ms.Sonali Mathur & Ms.
Swagata Naik i/by M/s. AZB & Partners for the Petitioners in both the
Petitions.
Mr. S.U.Kamdar, Senior Advocate with Mr. Zubin Behramkamdin, Ms.Naira
Variava-Jejeebhoy, Mr.Rohan Cama, Mr. Vivek Vashi, Ms.Anusha Jegadeesh,
Ms.Devika Deshmukh, and Ms.Kanika Sharma i/by Bharucha & Partners
for the Respondents in Writ Petition No.7804 of 2009.
Mr. Navroze Seervai, Senior Advocate with Mr. Zubin Behramkamdin,
Ms.Naira Variava-Jejeebhoy, Mr.Rohan Cama, Mr. Vivek Vashi, Ms.Anusha
Jegadeesh, Ms.Devika Deshmukh, and Ms.Kanika Sharma i/by Bharucha &
Partners for the Respondents in Writ Petition No.7636 of 2009.
CORAM : R. M. SAVANT, J.
Judgment Reserved on :- 6th August 2012.
Judgment Pronounced on :- 5th October 2012.
JUDGMENT :-
1 The above Writ Petitions have been filed invoking the Writ
Jurisdiction of this Court under Article 227 of the Constitution of India
challenging the order dated 27th August 2009 passed by the learned District
Judge, Daman by which order the Appeals being Misc. Civil Appeal
Nos.1/2009, 2/2009, 3/2009 and 4/2009 came to be allowed and resultantly
the order passed by the Trial Court dated 9 th January 2009 came to be set
aside, resulting in the Application filed under Section 45 of the Arbitration and
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Conciliation Act, 1996 being allowed in terms of prayer clause 28(a) thereof,
and the Injunction Application of the Petitioners above-named, who are the
original Plaintiffs, came to be rejected.
2 The issue that arises in the above Petitions is therefore in two parts
viz. Whether the parties are to be referred to arbitration, and Whether the
Petitioners are entitled to an anti-suit injunction in the facts and circumstances
of the present case. The impugned order is therefore also in two parts; first
part deals with the aspect of whether the parties are to be referred to
arbitration, and second part is, whether the Petitioners are entitled to an anti-
suit injunction. Since both the Petitions involve common facts and are
interconnected, the same are, therefore, heard together.
For the sake of brevity the Arbitration and Conciliation Act, 1996
of India and, the Arbitration and Conciliation Act, 1996 of England would be
referred to as the "Indian Arbitration Act" and "English Arbitration Act".
FACTUAL MATRIX :-
3 The Petitioner No.1 herein carries on business of manufacturing
and marketing of the Wind Turbine Generators (WTG's) and components in
India, and is also in the business of setting up wind power projects on turnkey
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basis. The Petitioner Nos.2 and 3 herein are the Directors of the Petitioner
No.1 and are arrayed as the Plaintiff Nos.1 to 3 in the Suit in question. The
Respondent No.1-Enercon GmbH is a Company incorporated under the laws of
Germany and is having its registered office at Aurich, Germany. One Dr.Alloys
Wobben is a Director of the Respondent No.1. The Respondent No.2 - Wobben
Properties GmbH is a Company incorporated under the laws of Germany and is
also having its registered office at Aurich, Germany. The Respondent No.1 is
engaged in mechanical engineering and possesses technical knowledge and
equipment for manufacturing and marketing the Wind Turbine Generators and
components. The Respondent No.1 carries on the said business all over the
world. The Respondent Nos.1 and 2 are arrayed as the Defendant Nos.1 and 2
to the Suit in question. The Petitioners and the Respondents are running the
joint venture business through the Petitioner No.1-Company at Daman in India.
Accordingly the parties have entered into various Agreements in furtherance of
the said business. The Petitioner Nos.2 and 3, on 12/01/1994 entered into a
Shareholding Agreement. In terms of the said Agreement the Respondent No.1
was holding 51% shares of the Petitioner No.1-Company, and the Petitioner
Nos.2 and 3 were holding 49% shares. The said Shareholding Agreement was
subsequently amended by two Supplementary Shareholding Agreements dated
19/05/1998 and 19/05/2000. Pursuant to the said Supplementary
Shareholding Agreements, the Respondent No.1 became a 56% shareholder in
the Petitioner No.1-Company whilst the shareholding of the Petitioner Nos.2
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and 3 was reduced to 44%. On the same day i.e. on 12/01/1994, the
Petitioner No.1 and the Respondent No.1 entered into a Technical Know-How
Agreement by which the Respondent No.1 had agreed to transfer to the
Petitioner No.1 the right and the technology to use the technical know-how for
the manufacture of E-26 Wind Turbine Generators specified therein and their
components. A Supplementary Technical Know-How Agreement amending the
earlier Technical Know-How Agreement was executed on 19/05/2000 by
which a further licence to manufacture the E-30 and E-40 Wind Turbine
Generators was conferred by the Respondent No.1 to the Petitioners. Under the
terms of the Technical Know-How Agreement, the Respondent No.1 has to
continuously supply special components to the Petitioner No.1. In April 2004
the period of the Technical Know-How Agreement expired, however, the
Respondent No.1 continued to supply the Wind Turbine Generators and
components. The Respondent No.2 has the patent of the said windmill
technology; whereas the Respondent No.1 is a licensor to supply the said
windmill technology, and the Petitioners are the licensees to use the said
windmill technology. It appears that from the year 2000 onwards and till date
the Petitioners are manufacturing the said Wind Turbine Generators and
continue to use the patents that were licensed by these agreements. On
29/09/2006 the Petitioners and the Respondent No.1 entered into what is
known as the "Agreed Principles" for the use and supply of the windmill
technology. Under the said Agreed Principles the Petitioners and the
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Respondents agreed to enter into what is known as the Intellectual Property
License Agreement ("IPLA" for short), which is the subject matter of the Suit in
question. It is the case of the Petitioners that the Agreed Principles are the
binding principles agreed between the parties, and which records an
agreement that all definitive agreements between the parties that were to be
prepared and finally executed would be on the basis of the binding principles
agreed therein. One of the agreements contemplated by the said Agreed
Principles was the IPLA. The Petitioner Nos.2 and 3 are the parties to the IPLA.
It seems that the Petitioner No.2 has signed the IPLA on behalf of the Mehra
family. At the time of the signing of the IPLA the Petitioners were already
aware of the five models of the WTG's being E-26, E-30, E-40, E-48 and E-53.
It is the case of the Petitioners that the IPLA was merely a draft of the oral
terms and not a concluded contract between the parties. It was their case that
the said document was an unincorporated and inchoate document and was not
a concluded contract. It appears that one Mr.Ketwigg , the Managing Director
of Respondent No.1 in a letter dated 02/10/2006, addressed to Petitioner No.2
stated therein that all the necessary contracts between the parties should be
completed by 19/10/2006. Further in the e-mail dated 04/10/2006 Ms.Nicole
Fritsch of the Respondent No.1 stated that she would try her best to
prepare/adapt the agreements according to the Agreed Principles by
19/10/2006. It is the case of the Petitioners that to their utter shock and
surprise, on 18/10/2006 Ms. Nicole Fritsch of the Respondent No.1 totally
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turned around and addressed a letter to the Petitioner No.2 falsely alleging that
the draft IPLA which was signed on 29/09/2006 was a final document.
Thereafter correspondence ensued between the parties and a contentious issue
arose as to whether the IPLA can be called final or not. Thereafter spate of
litigation ensued between the parties. This was as a result of the Respondent
No.1 stopping supplies which resulted in the Petitioner Nos.2 and 3 filing a
derivative Suit on the Original Side of this Court being Short Cause Suit
No.2667 of 2007 seeking resumption of supplies. This Court has, by an interim
order dated 31/10/2007 without prejudice to the individual contentions of the
parties, directed resumption of supplies by the Respondent No.1 to the
Petitioner No.1 until further orders of this Court. In view of the fact that the
said order was not complied with by the Respondent No.1, there is a Contempt
Petition which has been filed by the Petitioners, which is pending.
4 The Respondent No.1 has also filed a Company Petition being
No.121 of 2007 against the Petitioners before the Company Law Board,
Principal Bench, New Delhi some time in August 2007. The said Petition has
been filed under Sections 397 and 398 of the Companies Act. The reliefs
sought in the said Company Petition inter alia included removal of the
Petitioner Nos.2 and 3 as Directors of Petitioner No.1, transfer of the Mehras
shareholding in the Petitioner No.1 as well as associate and subsidiary
companies of Petitioner No.1 to Respondent No.1, and investigation to
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ascertain the conduct of Mehras in dealing with properties, monies and
management of the Petitioner No.1. In view of the non-compliance of the
order passed by the Company Law Board, contempt proceedings have been
initiated by the Petitioners against Dr.Wobben and Mr.Ketwigg. The Mehras i.e.
the Petitioner Nos.2 and 3 filed Company Petition No.74 of 2008 against the
Respondent No.1, Dr.Wobben and Mr. H D Ketwigg alleging oppression and
mismanagement by the Respondents. The said Petition was also filed under
Sections 397 and 398 of the Companies Act.
5 The Respondent No.1 had filed a Petition against the Petitioner
No.1 and others alleging that Petitioner No.1 had been supplying Wind Turbine
Generators to third parties in Germany thereby infringing the trademarks
belonging to Respondent No.1. The same was filed in the Hamburg District
Court which Court had initially granted an ex-parte ad-interim order dated
17/09/2007 restraining the Petitioner No.1 from effecting supplies to such
third parties in Germany. The Hamburg District Court thereafter dismissed the
claim of the Respondent No.1 on the ground that there was no evidence to
suggest Petitioner No.1's involvement in the matter. The aforesaid facts
therefore disclose the diverse litigation in which the parties are involved.
6 The Respondent No.1 addressed a letter dated 13/03/2008 stating
therein that it was desirous of having all disputes relating to the IPLA settled,
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including whether there is a binding agreement between Petitioner No.1 and
Respondent Nos.1 and 2 in respect of the IPLA. The Respondents also
informed the Petitioners that it had appointed Mr. V. V. Veeder QC as its
nominee arbitrator and called upon the Petitioners including Petitioner Nos.2
and 3 to nominate their arbitrator in accordance with the IPLA, which
according to the Respondent Nos.1 and 2 was a concluded contract. The
Petitioner No.2, on behalf of the Petitioners, replied to the said letter by his
letter dated 31/03/2008 stating therein that since the IPLA was not a
concluded contract, there was no question of a valid Arbitration Agreement
between the parties and as such, there was no question of appointing any
arbitrator in the matter. It was further stated that in any event, the past
conduct and attitude of the Respondent No.1 established that it had waived the
Arbitration Agreement. The UK Solicitors of the Respondent Nos.1 and 2
addressed a letter to the Petitioners dated 02/04/2008 stating therein that in
the event the Petitioners did not nominate their arbitrator within seven days of
the receipt of the said letter, the Respondent Nos.1 and 2 shall proceed under
the English Arbitration Act, 1996 to appoint their nominee arbitrator Mr. V. V.
Veeder QC, as the sole arbitrator. The said letter was received by the Petitioner
No.1 in Daman on 03/04/2008, along with the said letter was annexed
`Arbitration Claim Form' dated 27/03/2008 issued by the Respondent Nos.1
and 2 seeking several declaratory reliefs from the English Court in relation to
the IPLA which according to the Respondent Nos.1 and 2 is a concluded
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contract. The said declaratory reliefs inter-alia include injunctive relief from
the English Court to restrain the Petitioner Nos.2 and 3 from continuing with
independent proceedings before this Court, i.e. the Suit which was already
filed by the Petitioner Nos.2 and 3 in a derivative capacity as shareholders of
the Petitioner No.1. The said 'Arbitration Claim Form', which had been filed
before the English Court, was also served upon the Petitioner No.1 in Daman
04/04/2008 and seems to have triggered off the filing of the Regular Civil Suit
No.9 of 2008 before the learned Civil Judge, Senior Division, Daman on
08/04/2008 inter-alia for the following reliefs viz. for a declaration that the
IPLA was not a concluded contract and correspondingly that there was no
Arbitration Agreement between the parties; for a declaration that the initiation
of proceedings before the English Court by the Respondents was void and
illegal; and for a permanent injunction restraining the Respondents from
continuing with the proceedings before the English Court. In the said Suit the
Petitioners moved an Application for temporary injunction and for other
interim reliefs. The Trial Court, it seems, passed a status quo order on
08/04/2008 directing the Respondents to maintain status quo as regards the
proceedings initiated before the English Court till their appearance in the Suit
and to show cause why an interim order should not be passed against them.
The Respondents appeared in the Suit and filed an Application under Section
45 of the Indian Arbitration Act contending therein that the Suit before the
Trial Court ought to be referred to arbitration pursuant to the arbitration clause
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contained in the IPLA. The Respondents also sought a vacation of the status
quo order. It appears that in the interregnum on 11/04/2008, the Petitioner
No.1 had appointed Mr. Justice B. P. Jeevan Reddy (Retd.) as its arbitrator.
This, according to it, was necessitated in view of the threats of the Respondents
that the arbitrator appointed by them could be nominated as a sole arbitrator
under the English Law, in the event the Petitioner No.1 failed to nominate its
arbitrator. It seems that the arbitrator appointed by the Petitioners by his letter
dated 24/04/2008 stated that there were inherent defects in the arbitration
clause contained in the IPLA and therefore the same was unworkable and
expressed the inability of the arbitrators to appoint a third arbitrator.
Thereafter a joint letter was addressed which is dated 05/08/2008 by both the
arbitrators i.e. Mr. V. V. Veeder QC and Mr. Justice B. P. Jeevan Reddy (Retd.)
asking the parties to take necessary steps as may be advised.
7 The Plaintiffs i.e. the Petitioners herein had moved an application
for temporary injunction ex-parte in the said suit, wherein the Trial Court
directed the parties to maintain status quo. The Trial Court had granted an
exparte injunction restraining the Defendants i.e. the Respondents herein from
proceeding with the proceedings they had filed in the English Court. The
Application for interim reliefs and the Application filed by the Respondents
under Section 45 of the said Act was heard by the Trial Court, and by the order
dated 09/01/2009, the learned Civil Judge, Senior Division, Daman, allowed
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the said Application for interim reliefs filed by the Petitioners, and rejected the
Application for referring the parties to arbitration filed under Section 45 of the
said Act by the Respondents, i.e. the Trial Court confirmed the ex-parte ad
interim order of status quo granted by it on 8/4/2008 till decision of the suit.
The Defendants i.e. the Respondents herein were restrained not to constrain
the Plaintiffs i.e. the Petitioners herein to go for arbitration till the final
decision of the suit by invoking the IPLA.
The gist of the reasoning of the Trial Court was to the effect that
the document in question i.e. the IPLA was not on a stamp paper and it does
not bear the signature and seal of the Public Office in authentication that the
document is enforceable in law; that the Plaintiff No.2 had signed the
document under the influence of Dr.Alloys Wobben. The Trial Court, on the
basis of the material on record, recorded a finding that the IPLA was not a
concluded contract for want of free consent, and was executed due to undue
influence, fraud, mis-representation and mistake, that the Plaintiffs would
suffer heavy economic loss if the arbitration is held at London. In so far as the
jurisdictional aspect is concerned, the Trial Court recorded a finding that the
Court at Daman would have jurisdiction as the Plaintiff No.1 was a joint
venture between the Plaintiff No.1 and the Defendants which had its factory at
Daman.
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9 Aggrieved by the order dated 09/01/2009 passed by the Trial
Court, the Defendants i.e. the Respondents herein filed four Appeals which
were Civil Misc. Appeal Nos.1/2009, 2/2009, 3/2009 and 4/2009. The said
Appeals were filed by the Respondents covering two aspects as to the grant of
the anti Suit injunction, and as to the rejection of the Application filed by them
under Section 45 of the said Act. The said Appeals were heard by the learned
Principal District Judge, Daman, who by the order dated 27/08/2009 allowed
the said four Appeals, and consequently set aside the orders passed by the Trial
Court granting the anti Suit injunction, and referred the parties to arbitration
by allowing the Application filed under Section 45 of the said Act. However,
the Lower Appellate Court has directed the Trial Court to first decide the
jurisdiction point before proceeding with the Suit. The Lower Appellate Court
has inter alia considered the enforceability of the Arbitration Agreement, the
case of the Plaintiffs that the IPLA was not a concluded contract, which the
Plaintiffs had sought to support by both intrinsic as well as extrinsic material,
and also the case of the Plaintiffs that the said Clause-18.3 was unworkable in
view of the methodology mentioned therein for the appointment of the
arbitrators. The Lower Appellate Court as can be seen from its order has on
the basis of the fact that the IPLA was signed by the Plaintiff No.2, reached a
conclusion that there was an agreement between the parties to refer the
disputes to arbitration which intention of the parties, according to the Lower
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Appellate Court, was required to be given effect to. The Lower Appellate Court
held that assuming that there was some defect in the methodology for
appointment of the arbitrators, that would not come in the way of enforcement
of the Arbitration Agreement. The Lower Appellate Court held that since the
parties had agreed to London being the seat of arbitration, the Plaintiffs could
not make a grievance as regards the jurisdiction of the English Courts. The
Lower Appellate Court has by its order dated 27/08/2009, as indicated above,
has allowed the said four Appeals.
10 It is the order passed by the Lower Appellate Court in the said four
Appeals which is the subject matter of the above two Petitions. In so far as
Writ Petition No.7804 of 2009 is concerned, the same challenges the order to
the extent of referring the parties to arbitration; whereas Writ Petition No.7636
of 2009 concerns the challenge to the setting aside of the anti Suit injunction.
11 SUBMISSIONS ON
BEHALF OF THE PETITIONERS BY THE
LEARNED SENIOR COUNSEL DR. VEERENDRA TULZAPURKAR
IN WRIT PETITION NO.7804 OF 2009:-
i] That the Lower Appellate Court failed to decide the important
issue, as to whether the IPLA was a concluded contract and that
there is a valid subsisting Arbitration Agreement.
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ii] Since the Lower Appellate Court has failed to decide the very
important jurisdictional fact, namely the existence of a concluded
contract before referring the parties to arbitration, the exercise of
the Writ Jurisdiction of this Court under Article 227 of the
Constitution of India is warranted. The learned Senior Counsel
relied upon the Judgments of the Apex Court reported in (2006)
3 SCC 312 in the matter of Kishore Kumar Khaitan and Anr.
V/s. Praveen Kumar Singh and; (2008) 14 SCC 58 in the matter
of Ramesh Chandra Sankala V/s. Vikram Cement.
iii] That the IPLA is not a concluded contract and is only a draft. The
learned Senior Counsel sought to buttress the said submission by
referring to the clauses mentioned in the IPLA, regarding the grant
of licences, finance, tenure of the IPLA;
iv] That the patents in respect of which the licences were to be given
to the Petitioners were not finalized, the tenure of the IPLA was
also indefinite, and since the royalty is to be paid on the patents,
and since the fixation of the royalty was also not finalized; the
IPLA could not be said to be a concluded contract.
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v] That assuming the IPLA is a concluded contract, the arbitration
clause 18.1 is vague and is unimplementable in view of the fact
that the arbitrator of the licensor is to don two hats, two roles, one
being the arbitrator of the licensor and second being the presiding
arbitrator;
vi] That the arbitration clause is unworkable is borne out by the fact
that both the arbitrators i.e. Mr V V Veeder, QC and Mr.Justice B P
Jeevan Reddy (Retd.) have expressed that the arbitration clause as
it stands is unworkable and would require clarification.
vii] That no steps were taken for registration of the patents as required
by Section 69 of the Patents Act, as both the parties treated it as
not a concluded contract.
viii] That the IPLA cannot be said to be a concluded contract in view of
the fact that as per the Agreed Principles all the four agreements
mentioned therein were to be executed at one time and the IPLA
therefore could be said to be finalized only after the said four
documents which were inclusive of the IPLA were executed.
ix] The extrinsic evidence which is in the nature of the
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correspondence exchanged between the parties shows that the
IPLA was not a concluded contract. The learned Senior Counsel
would rely upon the letters dated 11/3/2006, 10/4/2006, as also
the letters date 30/09/2006, 2/10/2006 and 24/11/2006 which
are post the signing of the IPLA on 29/09/2006 which according
to the learned Senior Counsel ex-facie point out that the IPLA was
not a concluded contract, and that it was only a draft;
x]
That since the main contract cannot be said to have come into
existence, therefore, the clause providing for arbitration has also
necessary to be held as not having come in existence. The learned
Senior Counsel would rely upon the judgment of the Apex Court
reported in (1960) 1 SCR 493 in the matter of Union of India
v/s. Kishorilal Gupta and Brothers and, two Division Bench
Judgments of this Court reported in 2010 (2) Company Law
Reporter 393 in the matter of Nasir Husain Films (P) Ltd. v/s
Saregama India Ltd and anr.; and 2008 (4) Arbitration Law
Reporter 179 in the matter of Oberoi Construction P. Ltd v/s
Worli Shivshahi Co-op Hsg. Society Ltd. ;
xi] That since the underlying contract has not come into existence, in
view thereof the arbitration clause in the contract is inoperative.
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The learned Senior Counsel would rely upon the judgment of the
Apex Court reported in (1996) 2 SCC 667 in the matter of U.P.
Rajkiya Nirman Nigam Ltd Vs. Indure Pvt. Ltd. & ors.
xii] That the IPLA is not a concluded contract, since the subject matter
being absent as the portfolio regarding the patents was not
finalized. The parties were also not ad-idem as regards
commencement of the IPLA and its duration. The IPLA is therefore
vague, ambiguous and uncertain, and is therefore, void under
Section 29 of the Indian Contract Act. The learned Senior Counsel
would place reliance on the judgment of a Division Bench of the
Karnataka High Court reported in AIR 1966 Mysore 118 in the
matter of Coffee Board, Bangalore v/s. Janab Dada Haji
Ibrahim Halari, the judgment of the Apex Court reported in
(1990) 3 SCC 1 in the matter of Mayawanti v/s. Kaushalya
Devi; reported in (2004) 1 SCC 252 in the matter of United Bank
of India v/s Ramdas Mahadeo Prashad & others; reported in
AIR 1949 Nagpur 286 in the matter of The Central Bank,
Yeotmal Ltd. V/s Vyankatesh Bapuji; and reported in (1976) 1
WLR 591 in the matter of Bushwall Properties Ltd v/s Vortex
Properties Ltd.
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Since there was uncertainty about the duration of the IPLA, the
said agreement was void on account of uncertainty. Since the
portfolio of the patents was not finalized, there was uncertainty as
regards the patents and their duration, and since the duration of
the IPLA was contingent upon, the expiry of the last patents the
duration of the IPLA was not certain. The learned Senior Counsel
in support of the said contention relied upon the judgment of the
Apex Court reported in (2008) 5 SCC 58 in the matter of Vimlesh
Kumari Kulshrestha v/s. Sambhajirao and anr.
xiii] That the extrinsic evidence which has been referred to in the
Application for temporary injunction proves that the said IPLA was
not a concluded contract. The reply filed by the Respondents to
the said Application for temporary injunction was contradictory to
their letter dated 24/11/2006 wherein they had agreed that there
was some uncertainty and that they would try to resolve it by
having a in-house meeting.
xiv] That there can be no arbitration if there is no concluded contract.
Since in the instant case the IPLA is not a concluded contract, the
parties therefore cannot be referred to arbitration. The learned
Senior Counsel, in support of the said submission, sought to rely
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upon the following judgments of the Apex Court reported in (1)
(2006) 1 SCC 751, Dresser Rand S.A. v/s. Bindal Agro Chem
Ltd and K. G. Khosla Compressors Ltd.; (2) (2010) 5 SCC 425,
Andhra Pradesh Tourism Development Corporation Ltd & Anr.
V/s. Pampa Hotels Ltd.; (3) AIR 1962 SC 378, Jawahar Lal
Burman Vs. Union of India and (4) (1999) 1 SCC 9 M/s.
Rickmers Verwaltung GmbH v/s. The Indian Oil Corporation
Ltd.
xv] That the judgment in Shin-Etsu Chemical Co. Ltd. v/s. Aksh
Optifibre Ltd and anr cannot be placed reliance upon as the
proposition laid down by Justice B.N.Srikrishna that the Court
under Section 45 of the Indian Arbitration Act has only to take a
prima facie view, cannot be said to be a majority view, in view of
the discordant note sounded by Justice D.M.Dharmadhikari in Para
112 of the said judgment.
xvi] That in the facts and circumstances of the case the exercise of writ
jurisdiction under Article 227 of the Constitution of India is
warranted.
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12 SUBMISSIONS ON BEHALF OF THE RESPONDENTS BY THE
LEARNED SENIOR COUNSEL SHRI S U KAMDAR IN WRIT
PETITION NO.7804 OF 2009 :-
[a] That exercise of the Writ Jurisdiction under Article 227 of the
Constitution of India is not warranted in the facts of the present
case; as the view taken by the Lower Appellate Court on the aspect
of the parties being referred to arbitration, cannot be said to be a
view which could not be taken in the facts and circumstances of
the case.
[b] That the Petitioners have not pointed out as to how there has been
a failure to exercise the jurisdiction or the Lower Appellate court
has exceeded its jurisdiction in passing the impugned order which
is a pre-requisite to warrant the exercise of the writ jurisdiction;
[c] That the Lower Appellate court has passed the impugned order
considering the relevant material on record, which the Trial Court
had failed to do, and therefore it cannot be said that the order
passed by the Lower Appellate Court directing the parties to
arbitration is perverse. In support of the said submission, the
learned Senior Counsel relied upon the judgments of the Apex
Court reported in (1) (2001) 8 SCC 97, Estralla Rubber v/s Dass
Estate (P) Ltd. (2) (2003) 6 SCC 641, State Through Special
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Cell, New Delhi v/s. Navjot Sandhu alias Afshan Guru and ors.
and (3) (2010) 9 SCC 385, Jai Singh and ors v/s. Municipal
Corporation of Delhi and ors.
In so far as aspect of perversity is concerned, the learned Senior
Counsel relied upon the judgment of the Apex Court reported in
(2009) 10 SCC 206 in the matter of Arulvelu and anr v/s. State
Represented by the Public Prosecutor and anr.
The said judgments inter alia lay down the scope of interference
under Article 227 of the Constitution of India. The said judgments
inter alia lay down that the power under Article 227 of the
Constitution of India is to be exercised to keep the inferior Courts
within their bounds. It is not in the nature of an appellate power
and cannot be exercised for correcting a mere error. The said
judgments lay down that if there is a failure to exercise
jurisdiction or jurisdiction is exercised in excess of the powers or
the findings recorded are so perverse that no reasonable man
could have arrived at such a finding that the exercise of the writ
jurisdiction under Article 227 of the Constitution of India is
warranted.
lgc 22 of 124
wps-7804.09 & 7636.09
[d] That the Court whilst considering the application under section 45
has only to arrive at a prima facie view as regards the existence of
the Arbitration Agreement and the arbitrability of the dispute and
is not concerned with any dispute as regards the underlying
contract. The learned Senior Counsel for the said purpose relied
upon the judgment of the Apex Court reported in (2005) 7 SCC
234 in the matter of Shin-Etsu Chemical Co. Ltd. v/s. Aksh
Optifibre Ltd and anr.
[e] For the proposition that the Court has to only arrive at a prima
facie view as regards Arbitration Agreement and the arbitrability of
the dispute. The learned Senior Counsel for the Respondents,
s case
apart from the judgment of the Apex Court in Shin-Etsu'
(supra) relied upon another judgment of the Apex Court reported
in (2009) 2 SCC 134 in the matter of Shakti Bhog Foods Limited
V/s Kola Shipping Limited and the Division Bench Judgment of
this Court reported in 2007(5) Bom.C.R. 227 in the matter of
Caribjet Inc v/s Air India Limited and the judgment of a learned
Single Judge of this Court reported in 2012(3) Bom. C.R. 36 in
the matter of Olive Healthcare v/s. Lannett Company Inc. & anr.
lgc 23 of 124
wps-7804.09 & 7636.09
[f] That the documents in question unmistakably lead to a conclusion
that the IPLA was a concluded contract. The learned Senior
Counsel sought to rely upon the correspondence between the
parties prior to the agreement being executed on 26/9/2006. The
said correspondence starts with the e-mail dated 25/6/2006 and
the e-mail and letters exchanged thereafter;
[g] That the fact that IPLA is a concluded contract is borne out by the
fact that the parties have signed the same, and therefore, in terms
of the requirements as mentioned in Section 44 of the said Act, the
Lower Appellate Court was right in referring the parties to
arbitration.
[h] That all along it has been the stand of the Respondents that the
Petitioners have executed the IPLA which was not disputed by the
Petitioners herein. The dispute started on account of the payment
in respect of the equity shares which were to be purchased by the
Respondents. The said fact is borne out by the letter dated 3 rd
November 2006 of the Petitioners and it is only thereafter that the
Petitioners started raising a dispute as regards certain aspects of
the IPLA;
lgc 24 of 124
wps-7804.09 & 7636.09
[i] That the aspect of the main/underlying contract and the
Arbitration Agreement are separable. In a given case, even if the
main contract can be said to be suffering from some infirmity but
that would not have any effect on the Arbitration Agreement. The
Court has only to prima facie see whether there is a valid
Arbitration Agreement.
[j] That the conclusivity that is required to be seen is only as regards
the Arbitration Agreement. The requirement for which finds a
place in Section 44 of the Indian Arbitration Act. The requirement
being that the Arbitration Agreement has to be in writing and
signed by the parties. In the instant case both the conditions are
satisfied. The learned Senior Counsel for the Respondents in
support of the said submission relied upon the judgment of the
Apex Court reported in (2012) 2 SCC 93 in the matter of Reva
Electric Car Company Private Limited v/s. Green Mobil and
(2008) 14 SCC 240 in the matter of Great Offshore Limited v/s.
Iranian Offshore Engineering and Construction Company.
[k] That the facts in Kishorilal Gupta's case are clearly distinguishable
from the facts of the present case, as in Kishorilal Gupta's case the
contract itself was superseded and therefore in the said fact
lgc 25 of 124
wps-7804.09 & 7636.09
situation the Court held that no reliance could be placed on the
arbitration clause in the superseded contract. For the said
purpose, the learned Senior Counsel relied upon the judgment of
the Apex Court reported in (2009) 10 SCC 103 in the matter of
Branch Manager, Magma Leasing and Finance Limited and Anr.
v/s. Potluri Madhavilata and anr. wherein the judgment in
Kishorilal Gupta has been distinguished by the Apex Court.
[l]
That whilst considering the application under Section 45 of the
said Act there can only be a prima facie examination of the
material on record so as to arrive at a conclusion whether there is
an Arbitration Agreement between the parties. In so far as other
aspects are concerned, the issue can be raised before the Arbitral
Tribunal. In support of the said submission, the learned Senior
Counsel for the Respondents relied upon the judgment of the Apex
Court reported in (2007) 7 SCC 120 in the matter of Aurohill
Global Commodities Ltd. v/s. Maharashtra STC Ltd. and (2009)
2 SCC 134 in the matter of Shakti Bhog Foods Limited v/s. Kola
Shipping Limited.
[m] That the infirmity if any in the main contract would not impinge
upon the Arbitration Agreement encompassed in the said contract.
lgc 26 of 124
wps-7804.09 & 7636.09
The position in law in that respect in India as well as in England is
the same. Hence the contention of the learned Senior Counsel for
the Petitioners that in view of the fact that the annexure to the
IPLA or other grounds on which the Petitioners contend that the
IPLA was not a concluded contract would have no bearing on the
Arbitration Agreement as it is well settled that the Arbitration
Agreement stands apart from the main contract. In support of the
said submission the learned Senior Counsel relied upon the
English judgment reported in (2007) UKHL 40 in the matter of
th
Premium Nafta Products Limited (20
Defendant) and others
th
v/s. Fili Shipping Company Limited (14 Claimant) and others
and also relied upon the judgment of a learned Single Judge of
this Court reported in 2003 CLC 601 in the matter of GTC
Limited v/s Royal Consulting RV and anr.
[n] That merely because there is a challenge to the main underlying
contract, the said fact would not impinge upon the validity of the
Arbitration Agreement. The learned Senior Counsel for the
Respondents relied upon the judgment of the US Federal Court
reported in 546 US 440 in the matter of Buckeye Check Cashing
Inc. v. Cardegna. The said view of the US Federal Court has been
affirmed by the Apex Court in the judgment reported in (2009) 2
lgc 27 of 124
wps-7804.09 & 7636.09
SCC 494 in the matter of P. Manohar Reddy & Bros. v/s.
Maharashtra Krishna Valley Development Corporation and
others and para 28 thereof.
[o] That it is only when the main underlying contract is vitiated on
account of fraud, coercion, etc, that the Arbitration Agreement can
be said to be affected, such is not the case in the instant matter.
(p)
That it is well settled even if there is any uncertainty or ambiguity
in the underlying contract, it can be looked into and if necessary
corrected by relying on extrinsic evidence. The learned Senior
Counsel in support of the said contention sought to place reliance
on Paras 11-123, 12-117, 12-118 and 13-008 from the learned
Author Chitty on Contract.
[q] That there is no uncertainty as regards the terms of the underlying
contract. The date of execution of the IPLA is certain and is
referable to page 46. The date 17/09/2006 appearing on IPLA is
referable to the letter dated 17/09/2006 of Yogesh Mehra by
which he has communicated his inability to remain present in
Aurich-Germany on the said day;
lgc 28 of 124
wps-7804.09 & 7636.09
[r] That the contention of the learned Senior Counsel for the
Petitioners that the agreement is not a concluded contract as it
does not contain the annexure in respect of the patents which have
been granted to the Petitioners is only a bogey raised on behalf of
the Petitioners, as the Petitioners are using the patents from 1994
to 2004 and two more patents were used since 2004, the Technical
Know-How Agreement and Supplemental Technical Know-How
Agreement spelt out which patents have been given to the
Petitioners.
[s] That all questions relating to the agreement in any event have to
be decided by the Arbitral Tribunal. That since the agreement has
been signed, the requirement under Section 7 of the Indian
Arbitration Act is satisfied. For the said purpose the learned
Senior Counsel relied upon the judgment of a learned Single Judge
of this Court reported in AIR 2000 Bombay 108 in the matter of
Keval Krishna Balakram Hitkari v/s Anil Keval Hitkari and
others and the judgment of the Apex court reported in (1995) 6
SCC 571 in the matter of J.K.Jain and others v/s. Delhi
Development Authority and others.
That in so far as the issue as to whether the contract is concluded
lgc 29 of 124
wps-7804.09 & 7636.09
or not, the signing of the contract is one of the defining aspects
which test is laid down by the Apex Court in the judgment
reported in (2010) 1 SCC 83 in the matter of Grasim Industries
Limited and Anr v/s. Agarwal Steel
[t] That the contention of the learned Senior Counsel for the
Petitioners that the judgment of the Lower Appellate Court is
bereft of any findings is not correct. Findings have been recorded
on the basis that the parties have signed the IPLA as also on the
basis of the correspondence entered into between the parties
which can be seen from the impugned order.
[u] That even if a part of the arbitration clause is unworkable, the
same is severable as in the instant case the grievance of the
Petitioners is only as regards the number of arbitrators who are to
be appointed. The said dispute can therefore be said to be a
dispute only as regards the machinery provision but not as regards
the agreement between the parties to go for arbitration.
[v] That even if part of the agreement is bad, the part which can be
sustained will have to be enforced. The learned Senior Counsel
relied upon the judgment of the Apex Court reported in AIR 1997
lgc 30 of 124
wps-7804.09 & 7636.09
SC 605 in the matter of M.M.T.C. Limited v/s. Sterlite Industries
(India) Ltd. which is followed in (2002) 3 SCC 572 in the matter
of Narayan Prasad Lohia v/s. Nikunj Kumar Lohia and others.
[w] That the letter of the arbitrator appointed by the Petitioners
cannot be conclusive of the fact that the Arbitration Agreement is
not workable. The correspondence preceding the said letter does
not indicate that the said Arbitration Agreement is unworkable.
[x] That the defining aspect as it were, is the intention of the parties
to go for arbitration which is clearly manifest. For the said purpose
the learned counsel relied upon the judgment of the Allahabad
High Court reported in AIR 1954 Allahabad 750 in the matter of
A H Bhiwindiwala and Co. v/s. R B Lakshman Dass Mohan Lal
and Sons Ltd and anr. , and the judgment of the Apex Court
reported in (2009) 4 SCC 495 in the matter of Nandan
Biomatrix Limited v/s. D 1 Oils limited.
(y) That there is no merit in the contention of the learned counsel for
the Petitioners that the second relief sought in the suit of
injunction cannot go to arbitration. That the said relief can only
said to be referable to the IPLA as it is the contention of the
lgc 31 of 124
wps-7804.09 & 7636.09
learned Senior Counsel that since the IPLA is not a concluded
contract, the Arbitration Agreement is not enforceable. The test
would therefore be whether the Arbitration Agreement as
contained in IPLA can be enforced. For the said purpose the
learned Senior Counsel relied upon the judgment of the Apex
Court reported in (2006) 7 SCC 275 in the matter of Rashtriya
Ispat Nigam Ltd v/s. Verma Transport Co as also the judgment
reported in (2008) 16 SCC 774 in the matter of Everest Holding
Limited v/s. Syam Kumar Shrivastava and others.
[z] The learned Senior Counsel sought to distinguish the judgments
cited by the learned Senior Counsel for the Petitioners in the
context of the facts of the present case. The learned Senior
Counsel for the Respondents would contend that in the context of
the facts of the cases in the judgments cited by the learned Senior
Counsel for the Petitioners that the Apex Court has held that the
parties were not ad-idem, and therefore, the contract was not
concluded, but the same is not the case in the instant matter.
CONSIDERATION - WRIT PETITION NO.7804 of 2009
13 Heard the learned counsel for the parties and also perused the
Written Submissions filed on behalf of the parties.
lgc 32 of 124
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14 Since clause (18) of the IPLA is at the fulcrum of the controversy
involved in both the Petitions, it would be apposite to reproduce sub-clauses
18.1 to 18.3 of clause 18 of the IPLA.
(18.1) All disputes, controversies or differences
which may arise between the parties in respect of
this Agreement including without limitation to the
validity, interpretation, construction, performance
and enforcement of alleged breach of this
Agreement, the parties shall, in the first instance
attempt to resolve such dispute, controversy or
difference through mutual consultation. If the
dispute, controversy or difference is not resolved
through mutual consultation within 30 days after
commencement of discussions or such longer
period as the parties may agree in writing, any
party may refer dispute(s) controversy(ies) or
difference(s) for resolution to an arbitral tribunal
to consist of three (3) arbitrators of whom one will
be appointed by each of the Licensor and the
licensee and the arbitrator appointed by Licensor
shall also act aas the presiding arbitrator.
18.2) The arbitrators shall have powers to award
and/or enforce specific performance. The award of
the arbitrators shall be final and binding on the
parties. In order to preserve its rights and remedies,
either party may seek preliminary injunctive relief
or other temporary relief from any court of
competent jurisdiction or from the arbitration
tribunal pending the final decision or award of the
arbitrator(s). Any such application to a court of
competent jurisdiction for the purposes of seeking
injunctive relief shall not be deemed incompatible
with this agreement to arbitrate or as a waiver of
this Agreement to arbitrate.
18.3) All proceedings in such arbitration shall be
conducted in English. The venue of the arbitration
proceedings shall be London. The arbitrators may
lgc 33 of 124
wps-7804.09 & 7636.09
(but shall not be obliged to ) award costs and
reasonable expenses (including reasonable fees of
counsel) to the party(ies) that substantially prevail
on merit. The provisions of the Indian Arbitration
and Conciliation Act, 1996 shall apply.
15 It would also be apposite to reproduce the relevant provisions of
the Indian Arbitration and Conciliation Act, 1996 namely Sections 7, 44 and 45
(7) Arbitration agreement - (1) in this part,
"arbitration agreement" means an agreement by
the parties to submit to arbitration all or certain
disputes which have arisen or which may arise
between them in respect of a defined legal
relationship, whether contractual or not.
(2)An arbitration agreement may be in the form of
an arbitration clause in a contract or in the form of
a separate agreement
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in -
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or
other means of telecommunication which provide a
record of the agreement; or
(c) an exchange of statements of claim and defence
in which the existence of the agreement is alleged
by one party and not denied by the other.
(5) The reference in a contract to a document
containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing
and the reference is such as to make that
arbitration clause part of the contract.
(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 -
lgc 34 of 124
wps-7804.09 & 7636.09
(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.
(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.
16 As can be seen, Section 45 provides that an application may be
made to a judicial authority to refer any proceeding before it to Arbitration,
where the parties have entered into an Arbitration Agreement as contemplated
under Section 44 of the said Act. It further provides that such reference must
be made by the Court unless it finds that the Agreement is null and void,
inoperative or incapable of being performed. The reference therefore in
Sections 44 and 45 is to an Arbitration Agreement. If the Arbitration
Agreement is in the form of a clause in the main contract, then reference in
Sections 44 and 45 would be to that clause which is an Arbitration Agreement
contained as and by way of a clause in the main contract.
lgc 35 of 124
wps-7804.09 & 7636.09
17 In so far as the scope of the inquiry under Section 45 of the Indian
Arbitration Act is concerned, the same is well settled by the authoritative
pronouncement of the Apex Court in the Judgment reported in 2005(7) SCC
234 in the matter of Shin-Etsu Chemical Co. Ltd. & Ors. vs Aksh Optifibre
Ltd. Paragraph 72 to 75 of the said Judgment are material and are reproduced
herein under:
"72. True, that there is nothing in Section 45
which suggests that the finding as to the nature of
the arbitral agreement has to be ex facie or prima
facie. In my view, however, this is an inescapable
inference from an ex visceribus interpretation of
the statute. Sub-section (3) of Section 8 in Part I
of the Act envisages that even in a situation
where an application to the court has been made
under sub-section (1), the arbitration may
commence, continue and even an arbitral award
be made. This was obviously meant to cut down
delay in the conclusion of the arbitral
proceedings. There is conspicuous absence of a
corresponding provision either in Section 45 or in
the rest of the provisions in Part II. This
legitimately gives rise to an inference that once
the arbitral agreement has been subjected to
scrutiny before the court under Section 45 of the
Act, conceivably, the arbitral proceedings could be
stayed till the decision of the court on the nature
of the arbitral agreement. If it were to be held
that the finding of the court under Section 45
should be a final, determinative conclusion, then
it is obvious that, until such a pronouncement is
made, the arbitral proceedings would have to be
in limbo. This evidently defeats the credo and
ethos of the Act, which is to enable expeditious
arbitration without avoidable intervention by
judicial authorities.
73. The absence in Part II of the Act of a
provision corresponding to Section 5 in Part I has
lgc 36 of 124
wps-7804.09 & 7636.09
been highlighted as supportive of the view that
greater judicial intervention is contemplated in
Part II of the Act. The question that has arisen
before the Court is not the presence or absence of
judicial intervention; it is one with regard to the
manner in which the said judicial intervention
should proceed whether on a final view or prima
facie view of the factors enumerated in Section 45
of the Act.
74. There are distinct advantages in veering to
the view that Section 45 does not require a final
determinative finding by the Court. First, under
the Rules of Arbitration of the International
Chamber of Commerce (as in force with effect
from 1.1.1998), as in the present case, invariably
the arbitral tribunal is vested with the power to
rule upon its own jurisdiction. Even if the court
takes the view that the arbitral agreement is not
vitiated or that it is not invalid, inoperative or
unenforceable, based upon purely a prima facie
view, nothing prevents the arbitrator from trying
the issue fully and rendering a final decision
thereupon. If the arbitrator finds the agreement
valid, there is no problem as the arbitration will
proceed and the award will be made. However, if
the arbitrator finds the agreement invalid,
inoperative or void, this means that the party who
wanted to proceed for arbitration was given an
opportunity of proceeding to arbitration, and the
arbitrator after fully trying the issue has found
that there no scope for arbitration. Since the
arbitrator's finding would not be an enforceable
award, there is no need to take recourse to the
judicial intercession available under Section
48(1)(a) of the Act.
75. The finding of the court that the arbitration
agreement is valid, operative and enforceable, if
in favour of the party setting up the arbitration
agreement, is not appealable under Section 50 as
a matter of legislative policy. Refusing to refer
parties to arbitration under Section 45, is
however, made appealable under Section 50(1)
lgc 37 of 124
wps-7804.09 & 7636.09
(a) of the Act. Even after the court takes a prima
facie view that the arbitration agreement is not
vitiated on account of factors enumerated in
Section 45, and the arbitrator upon a full trial
holds that there is no vitiating factor in the
arbitration agreement and makes an award, such
an award can be challenged under Section 48(1)
(a). The award will be set aside if the party
against whom it is invoked satisfies the court inter
alia that the agreement was not valid under the
law to which the parties had subjected it or under
the law of the country where the award was
made. The two basic requirements, namely,
expedition at the pre- reference stage, and a fair
opportunity to contest the award after full trial,
would be fully satisfied by interpreting Section 45
as enabling the court to act on a prima facie
view."
18 A useful reference could also be made to the judgment of a
Division Bench of this Court in Caribjet Inc v/s Air India Limited (supra).
Para 6 of the said judgment is material and is reproduced herein under :-
6. As rightly submitted by the learned Counsel
for the appellant, the issue which is sought to
be raised is no more res integra and has been
well-settled by the decision of the Apex Court
in Shin-Etsu Chemical Company's case (supra).
By a majority decision in the said case, the
Apex Court has held that:
if on a prima facie examination of the
documents and material on record including
the arbitration agreement on which request for
reference is made by one of the parties, the
judicial authority or the court decides to make
a reference, it may merely mention the
submissions and contentions of the parties and
summarily decide the objection if any raised on
the alleged nullity, voidness, inoperativeness or
incapability of the arbitration agreement. In
case, however, on a prima facie view of the
matter, which is required to be objectively
lgc 38 of 124
wps-7804.09 & 7636.09
taken on the basis of material and evidence
produced by the parties on the record of the
case, the judicial authority including a regular
civil court, is inclined to reject the request for
reference on the ground that the agreement is
"null and void" or "inoperative" or "incapable of
being performed" within the meaning of
Section 45 of the Act, the judicial authority or
the court must afford full opportunities to the
parties to lead whatever documentary or oral
evidence they want to lead and then decide the
question like trial of a preliminary issue on
jurisdiction or limitation in a regular civil suit
and pass an elaborate reasoned order. Where a
judicial authority or the court refuses to make a
reference on the grounds available under
Section 45 of the Act, it is necessary for the
judicial authority or the court which is seized
of the matter to pass a reasoned order as the
same is subject to appeal to the appellate court
under Section 50(1)(a) of the Act and further
appeal to this Court under Sub-section (2) of
the said section."
19 The inquiry contemplated under Section 45 is therefore of a prima
facie nature of the existence of an Arbitration Agreement. If the Court comes to
a prima facie conclusion that there is an Arbitration Agreement and the same is
legal and valid the matter must be referred to the Arbitral Tribunal for further
consideration which can thereafter conclusively decide either way. If the Court
comes to the prima facie conclusion that there is either no Arbitration
Agreement or that the same is not valid in law, the Court must then proceed to
determine the same finally and conclusively.
lgc 39 of 124
wps-7804.09 & 7636.09
20 The issue which requires to be addressed at the threshold is
whether the view expressed by Justice B.N.Shrikrishna in Shin-Etsu Chemical
Co. Ltd (supra) is the majority view. The said issue arises in view of the
submission of the Learned Senior Counsel for the Petitioners relying upon
paragraph 112 of the said Judgment of Shin Estu Chemical Co. Ltd. (Supra)
that Justice D.M.Dharmadhikari has not concurred with the view of Justice
B.N.Shrikrishna. In paragraph 111 of the said Judgment Justice
D.M.Dharmadhikari expressly concurs with the view of Justice Shrikrishna and
therefore there can be no dispute that the proposition laid down by Justice
Shrikrishna has been accepted by Justice D.M.Dharmadhikari, and is the
majority view in the said judgment. The said paragraph 111 is reproduced
herein under :-
"With utmost respect to both of them, I am inclined to
agree with the view expressed by learned Brother
Srikrishna J. but only with a rider and a partly different
reason which may I state below:-
The main issue is regarding the scope of power of any
judicial authority including a regular civil court under
section 45 of the Act in making or refusing a reference
of dispute arising from an international arbitration
agreement governed by the provisions contained in Part
III Chapter-I of the Act of 1996. I respectfully Agree
with learned Brother Srikrishna J only to the extent that
if on prima facie examination of the documents and
material on record, including the arbitration agreement
on which request for reference is made by one of the
parties, the judicial authority or the court decides to
make a reference, it may merely mention the
submissions and contentions of the parties and
summarily decide the objection if any raised on the
alleged nullity, voidness, inoperativeness or incapability
of the arbitration agreement. In case, however, on a
lgc 40 of 124
wps-7804.09 & 7636.09
prima facie view of the matter, which is required to be
objectively taken on the basis of material and evidence
produced by the parties on the record of the case, the
judicial authority including a regular civil court, is
inclined to reject the request for reference on the
ground that the agreement is 'null and void' or
'inoperative' or 'incapable of being performed' within
the meaning of section 45 of the Act, the judicial
authority or the court must afford full opportunities to
the parties to lead whatever documentary or oral
evidence they want to lead and then decide the
question like trial of a preliminary issue on jurisdiction
or limitation in regular civil suit and pass an elaborate
reasoned order. Where a judicial authority or the court
refuses to make a reference on the grounds available
under section 45 of the Act, it is necessary for the
judicial authority or the court which is seized of the
matter, to pass a reasoned order as the same is subject
to appeal to the appellate court under section 50(1)(a)
of the Act and further appeal to this Court under sub-
section (2) of the said section."
(emphasis supplied)
In so far as paragraph 112 which has been relied upon by the Learned Senior
Counsel, the same deals with a situation where the Award is passed in spite of/
and/or prior to the decision holding that such an Arbitration Agreement does
not exist. The Apex Court in the said case of Shin Estu Chemical Co. Ltd.
(supra) was not concerned with such a case, neither is this Court, in the
present Petition.
21 The Judgment in Shin Estu Chemical Co. Ltd (supra) has been
followed by the Apex Court in Shakti Bhog Foods Ltd, (supra) as also by a
Division Bench of this Court in Caribjet Inc. Vs. Air India Ltd. (supra), as also
lgc 41 of 124
wps-7804.09 & 7636.09
by a Learned Single Judge of this Court in Olive Healthcare Vs. Lannet
Company Inc. (supra). Hence, in the light of the aforesaid Judgments, the
Court for the purpose of determination of the existence or validity of an
agreement under Section 45 of the Indian Arbitration Act, has to restrict its
enquiry to the Arbitration Agreement and not the underlying contract. It is
required to be noted that there is a substantial change in law from the one that
existed under the Indian Arbitration Act 1940. In the 1940 Act under Section
33 thereof, the Court had the power and jurisdiction to determine the existence
or validity of Arbitration Agreement. However, under the provisions of the
Indian Arbitration Act, the said power of the Court has been taken away and is
now expressly vested with the Arbitral Tribunal under Section 16 of the Indian
Arbitration Act. Under Section 16, the Arbitral Tribunal can rule on its own
jurisdiction including ruling on any objection with respect to the existence or
validity of the Arbitration Agreement. Thus the power to determine finally and
conclusively the existence and validity of an Arbitration Agreement has been
conferred on the Arbitral Tribunal under Section 16 of the 1996 Act. It is the
Arbitral Tribunal therefore which will determine whether there is an
Arbitration Agreement or not for that purpose the Arbitration Agreement will
be a totally independent agreement dehors the other terms of the contract and
such an agreement would not ipso-jure become null and void or invalid even if
it has been held that the under lying contract is void. Another aspect which is
to be noted is that the severability and separability of the Arbitration
lgc 42 of 124
wps-7804.09 & 7636.09
Agreement though being a clause in the same contract, has now a recognition
not only under Section 16 of the 1996 Act but by a catena of the Judgments of
the Apex Court. A useful reference could be made to the Judgment reported in
2009(2)SCC 494 in the matter of P. Manohar Reddy & Bros. Vs.
Maharashtra Krishna Valley Dev. Corp. & ors., The Apex Court has
recognized that the Arbitration Agreement is separate and independent from
the main Agreement. It has been held that the Arbitration clause though being
a part of the contract is a collateral term which need not in all situations perish
with coming to an end of the underlying contract and it may survive the same.
Paragraphs 27 and 28 of the said Judgment are material and are reproduced
herein under :
"27. An arbitration clause, as is well known, is a
part of the contract. It being a collateral term need
not, in all situations, perish with coming to an end
of the contract. It may survive. This concept of
separability of the arbitration clause is now widely
accepted. In line with this thinking, the UNCITRAL
Model Law on International Commercial
Arbitration incorporates the doctrine of separability
in Article 16(1). The Indian law - The Arbitration
and Conciliation Act, 1996, which is based on the
UNCITRAL Model Law, also explicitly adopts this
approach in Article 16 (1)(b), which reads as
under:-
"16. Competence of arbitral tribunal to rule
on its jurisdictional. - (1) The arbitral tribunal may
rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity
of the arbitration agreement, and for that purpose,
(a) An arbitration clause which forms part of a
contract shall be treated as an agreement
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independent of the other terms of the contract; and
(b) A decision by the arbitral tribunal that the
contract is null and void shall not entail ipso jure
the invalidity of the arbitration clause.
(Emphasis supplied)
Modern laws on arbitration confirm the concept.
28. The United States Supreme Court in the
recent judgment in Buckeye Check Cashing, Inc. v.
Cardegna 546 US 460 acknowledged that the
separability rule permits a court "to enforce an
arbitration agreement in a contract that the
arbitrator later finds to be void." The Court,
referring to its earlier judgments in Prima Paint
Corporation v. Flood & Conklin Mfg. Co. 388 U. S.
395, and Southland Corporation v. Keating 465 U.
S. 1, inter alia, held:
Prima Paint and Southland answer the
question presented here by establishing three
propositions. First, as a matter of substantive
federal arbitration law, an arbitration provision is
severable from the remainder of the contract.
But this must be distinguished from the
situation where the claim itself was to be raised
during the subsistence of a contract so as to invoke
the arbitration agreement would not apply."
The said Judgment as can be seen approves the Judgments of
United States Supreme Court reported in 546 US 460 in the matter of
Buckeye Check Cashing Inc. Vs. Cardegana and, reported in 388 US 395 in
the matter of Prima Paint Corporation Vs. Floor and Conkling
Manufacturing Company
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22 A reference could also be made to the Judgment of the Apex Court
reported in 2009(10) SCC 103 in the matter of Branch Manager Magma
Leasing and Finance Ltd. & Anr. Vs. Potluri Madhavilata & Anr. The Apex
Court in the said Judgment has approved the proposition laid down in P.
Manohar Reddy's case (supra) and once again referred with approval the
judgment of the United States Supreme Court in Buckeye Check Cashing Inc.
The aforesaid Judgments of the Apex Court as well as the United States
Supreme Court, make it clear that the Arbitration Agreement would survive
even in case of invalidity of the main agreement or the underlying contract. It
is only in cases where the underlying contract is vitiated by fraud, coercion or
misrepresentation that the same would impact the Arbitration Agreement.
23 The principles of severability and separability of the Arbitration
Agreement is common both under the English Arbitration Act, 1996 and the
Indian Arbitration Act 1996, as evidenced by the following Judgments of the
Apex Court and the House of Lords reported in :-
1] 2003 CLC 601, GTC Ltd. Vs. Royal Consult R.V. & Anr.
2] 2009(2) SCC 134, Shakti Bhog Foods Ltd. Vs. Kola Shipping
Ltd.
3] Judgment of the House of Lords reported in 2007 UKHL 40,
Premium Nafta Products Ltd. & Ors. Vs. Fili Shipping Co. Ltd. &
Ors.
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24 It is in the context of the settled law as afore stated that the facts
of the present case would have to be seen. The Learned Senior Counsel for the
Petitioners laid much store on the correspondence post 29-9-2006 i.e. the date
when the IPLA was signed, to contend that the IPLA was not a concluded
contract. However, the correspondence prior thereto between the parties
indicates otherwise. If the said correspondence is seen, to which my attention
is drawn by the Learned Senior Counsel appearing for the Respondents, the
same discloses that it was on 27-6-2006 i.e. a good three months prior to its
execution, that the draft IPLA was sent to the Petitioners. The said IPLA had
already undergone changes on the basis of the suggestions of both the parties
and the final document was kept ready on 29-9-2006 as the Petitioner No.2
had shown his inability to come to Aurich on 17-9-2006 when it was to be
executed. The other three agreements namely the Successive Technological
Transfer Agreement, Name Use Licence Agreement and the Shareholders
Agreement were not executed on 29-9-2006 because they were not finalised as
certain issues were still required to be finalised. The most important letter if it
can be said so, is the letter dated 30-9-2006 which is addressed by the
Petitioner No.2 Yogesh Mehra in his own handwriting stating therein that he
has executed not one but more than one agreement on 29-9-2006. Pertinently
in paragraph 2 of the said letter, the Petitioner No.2 has in fact referred to the
patent of E-82 being the subject matter of the IPLA and not the Agreed
lgc 46 of 124
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Principles. The fact that the letter dated 30-9-2006 refers to the execution of
two agreements on 29-9-2006 and also refers to the E-82 patent, further
indicates that by the said letter dated 30-9-2006 the Petitioner No.2 admitted
to the execution of the IPLA. In so far as the email dated 4-10-2006 is
concerned, the said email refers to the preparation and adoption of the
agreements according to the "Agreed Principles". The said email refers to the
other three agreements. It seems that only after the claim for royalty was made
by the Respondents, that on 3-11-2006 the Petitioners purportedly
incorporated an indirect denial of the execution of the IPLA. In so far as the
email dated 24-11-2009 is concerned, the said email as can be seen from its
subject refers to the final IPLA the Shareholders Agreement and other
Successive Agreements. The email which dealt with the outstanding drafts of
the Agreements obviously did not refer to the final IPLA but refers to the other
Successive Agreements because as far as the IPLA was concerned, the same
itself stated that it was already a finalised agreement. The email therefore, did
not refer to any draft of the IPLA or the Shareholders Agreement and therefore
the said email does not in any manner aid the case of the Petitioners that the
IPLA was not a concluded contract. Further the email dated 15-12-2006 from
the Petitioners to the Respondents wherein also the Petitioners dealt with the
draft agreements but the subject of the said email as can be seen was the same
as that of the email dated 24-11-2006. Thereafter the email dated 10-1-2007
dealt with a further visit to Germany and revised "Drafts of Outstanding
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Contracts". Thereafter, the email dated 29-1-2007 sent by the Petitioners, in
fact mentions the amended version of the Shareholders Agreement which is
outstanding and not executed, Name Use Licence Agreement, and the
Successive Technological Transfer Agreement. The aforesaid material therefore
leaves no manner of doubt that the draft agreements referred to therein were
only the other three agreements and not the IPLA. Therefore, a perusal of the
documents on record discloses that not only is the Arbitration Agreement
contained in clause 18.1to the IPLA legally and validly executed, but it is in
writing and signed by the parties.
25 The contentions of the Learned Senior Counsel for the Petitioners
as regards the unenforceability of the Arbitration Agreement all revolve around
the alleged uncertainty and ambiguity in the underlying or the matrix contract.
It was contended that since the IPLA is vague, ambiguous and uncertain, the
same is void under Section 29 of the Indian Contract Act, 1872. Consequently
the Arbitration Agreement as contained in clause 18 of IPLA, is also void. The
contention therefore of ambiguity and uncertainty is as regards the underlying
contract and not in respect of the Arbitration Agreement. Assuming it to be so,
applying the principle of separability and severability of the Arbitration
Agreement from the main agreement, the submission of the learned Senior
Counsel for the Petitioners does not have merit and cannot impede the Court
from referring the parties to arbitration.
lgc 48 of 124
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26 Now coming to the contention of the Learned Senior Counsel for
the Petitioners that since on the IPLA three dates are appearing, the
commencement date and the duration of the IPLA is therefore uncertain and
therefore the IPLA is not a concluded contract on account of the said
uncertainty and ambiguity. In so far as the said three dates are concerned, the
first date i.e. 27-6-2006 is referable to the first email dated 27-6-2006 under
which the draft IPLA was forwarded to the Petitioner No.2. The Petitioner No.2
can therefore be said to be aware that 27-6-2006 is referable to the date on
which the draft was forwarded and therefore it could never be the date of
execution. The date 17-9-2006 appearing on the third page of the IPLA is the
date on which the IPLA was proposed to be executed. Since the Petitioner No.2
cancelled his visit to Aurich-Germany by its email dated 16-9-2006, the said
date 17-9-2006 remained to be cancelled /altered. The third date is 29-9-2006
which also appears on the first page of the IPLA. There is no dispute that the
signatures on the IPLA have been affixed by the parties on 29-9-2006. In the
light of the aforesaid and since it is not disputed by the Petitioners i.e. the IPLA
has been executed on 29-9-2006, the question of taking into consideration any
other date would not arise. In any event, the said dispute can only be relatable
to the underlying contract and can be raised before the Tribunal and if raised,
it is for the Arbitral Tribunal to adjudicate upon the same.
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27 Now coming to the judgments cited by the learned Senior Counsel
for the Petitioners in support of his contention that since the underlying
contract cannot be said to have come into existence, therefore, the clause
providing for arbitration has also necessary to be held as not having come into
existence. In so far as Kishorilal Gupta's case (supra) is concerned, in the said
case, the contention was that even after supersession of an earlier contract, the
Arbitration Agreement contained in the superseded contract continues in spite
of the admitted position that under the new contract, there was no arbitration
clause. It is in the said fact situation that the Apex Court held that with the
supersession of the whole contract, the Arbitration Agreement also stood
superseded and does not survive. The said judgment has been distinguished by
the Apex Court in the case of Branch Manager, Magma Leasing and Finance
Ltd, by holding that the new contract entered into was a novation under
Section 62 of the Indian Contract Act and thus no reliance can be placed on the
Arbitration Agreement contained in such a superseded contract.
In the case of U.P. Rajkiya Nirman Nigam Ltd., (supra) the facts
were that the counter proposal was not signed at all and thus, no concluded
contract was arrived at between the parties. It was in the said context that the
Apex Court held that there was no concluded contract. Para 19 of the said
judgment is material and is reproduced herein under :-
"In view of the fact that Section 2 [a] of the Act
envisages a written agreement for arbitration and
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that written agreement to submit the existing or
future differences to arbitration is a pre-condition and
further in view of the fact that the original contract
itself was not a concluded contract, there existed no
arbitration agreement for reference to the arbitrators.
The High Court, therefore, committed a gross error of
law in concluding that an agreement had emerged
between the parties, from the correspondence and
from submission of the tenders to the Board.
Accordingly it is declared that there existed no
arbitration agreement and that the reference to the
arbitration, therefore, is clearly illegal. Consequently
arbitrators cannot proceed further to arbiter the
dispute, if any. The conclusion of the High Court is set
aside."
In the case of Nasir Husain Films (P) Ltd. (supra) the facts were
that reliance was placed on a draft document. The Division Bench of this Court
held that the major issues on which negotiations were still in progress were not
settled. The contract could not be said to be concluded.
In the case of Oberoi Const. Pvt. Ltd (supra) the facts were that
the General Body Resolution passed by the society did not accept the
concluded agreement and stated that the same will be subject to circulation of
the draft and finalization thereof. It was in the said context that the Division
Bench held that since the document was not accepted or signed or executed by
the society, there was no conclusivity of the contract.
However in the instant case, the IPLA has admittedly been
executed on 29/09/2006 by the parties signing on each page and also in the
lgc 51 of 124
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execution clause, therefore, the said judgments (supra) cited by the learned
Senior Counsel for the Petitioners would have no application.
In the case of United Bank of India (supra) the issue before the
Apex Court was centered around as to whether the MOU entered into between
the parties on 18-5-1994 and forwarded by letter dated 20-5-1994 has been
acted upon and complied with by the parties . One of the conditions for the
MOU to come into force was withdrawal of the suit by the Respondents filed by
them against the United Bank of India. Since the suit was not withdrawn, the
Apex Court held that the MOU cannot be said to have come into existence.
Para 7 of the said judgment is material and is reproduced herein under :-
"Undisputedly, the respondents did not withdraw the
suit filed by them against the United Bank of India,
which is the condition precedent stipulated in clause (1)
of the MOU. The respondents also did not pay the
guarantee liability of Rs. 2.33 lacs. No compromise
petition was filed before an appropriate court.
Therefore, by no stretch of imagination it can be said
that the terms and conditions stipulated in the MOU
had been complied with and acted upon by the parties.
Apart from what has been said, subsequent to the MOU
there was also a lot of correspondence between the
parties by exchanging letters giving offers and counter-
offers, as would be revealed in the letters dated
16.6.94,23.12.94,12.6.95,15.6.95 and 19.6.95. All these
correspondence would go to show that the parties failed
to arrive at a consensus even on what were the terms of
the MOU. Thus, it is clear that there was no concluded
contract nor was there any novation."
In the case of Vimlesh Kumar Kulshrestha (supra) the agreement
in question was held to be void for uncertainty as there was no proper
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description of the property given in the agreement by annexing a map, though
map was referred to in the agreement, nor the description was satisfactorily
proved in a suit for specific performance. It is the said context that the Apex
Court held that the agreement if read was uncertain. Para 24 of the said report
is material and is reproduced herein under :-
"Reference to the said legal maxim, in our opinion, is
not apposite in the facts and circumstances of this case.
By reference to the boundaries of the premises alone,
the description of the properties agreed to be sold did
not become certain. For the purpose of finding out the
correct description of the property, the entire agreement
was required to be read as a whole. So read, the
agreement becomes uncertain."
In the case of Coffee Board, Bangalore (supra), the facts were
that the defendant had to specify the quantity of coffee which he intended to
purchase, those quantities were omitted to be specified and those portions
were left blank in the tender form. It is in the said context that the Division
Bench of the Karnataka High Court held that the offer was vague for
uncertainty and indefiniteness on the acceptance of which no contract is ever
born or comes into being. Paras 30 and 31 of the said report are material and
are reproduced herein under :-
"30 Now, in this case the defendant did only one of
those two things. He stated the prices, but he did not
state the quantities which he wanted. If a person is told
that goods of more than one description are available
for sale and he is asked to state what prices he would be
willing to offer for those goods and which of those
goods he would be willing to buy at those prices, and
that person states only his prices but never indicates the
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goods required by him, it is, I think, Impossible for any
one to suggest that there was any acceptable offer made
by him. I do not find it possible to accede to the
argument that in a case in which a tenderer who had to
submit his tender in the form Exhibit A-3 which was
sent in this case, does not fill in the blanks in the last
paragraph of that tender, the necessary and inevitable
inference is that he is willing to buy all the goods to
which the tender form referred."
31 The fact that paragraph 3(a) of Exhibit A-1
required the tenderer to state the quantities and the fact
that Exhibit A-3 contains separate columns for the price
and the quantity, makes the position abundantly clear
that unless a tender like Ex. A-3 not only states the
prices but also states the quantities, the tender is no
offer which in law can be accepted. In my opinion, the
specification of the quantity required by the tenderer
was an essential term of the offer, and if that term was
not to be found in the offer his offer was vague for
uncertainty and indefiniteness, on the acceptance of
which no contract is ever born or comes into being."
The aforesaid judgments were relied upon by the learned Senior
Counsel for the Petitioners to buttress his submission that the IPLA was void on
account of ambiguity and uncertainty.
Reading of the said judgments discloses that all the said judgments
are concerning the validity of the underlying contract and not the Arbitration
Agreement. In the said judgments the underlying contract has been held to be
void or has not come into existence on account of the reasons mentioned
therein. However, the instant case arises under Section 45 of the Indian
Arbitration Act, the infirmity, if any, in the underlying contract cannot therefore
lgc 54 of 124
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be looked into. It is well settled that even if there is any uncertainty or
ambiguity, it can be looked into and if necessary corrected by relying on
extrinsic evidence, as rightly contended by the learned Senior Counsel for the
Respondents, by placing reliance on the extracts from the learned Author
Chitty on Contract. Therefore the said judgments cannot aid the Petitioners to
further their case that the parties cannot be referred to arbitration.
28 In so far as the submission of the Learned Senior Counsel for the
Petitioners that all the agreements were to be executed simultaneously, the
same is not borne out by any document. The composite arrangement referred
to pertains only to the fact that the said arrangement will govern the
subsequent relationship of the parties in a composite manner and not that each
of the documents must be executed simultaneously.
The issue as to whether the IPLA is a concluded contract can also
be looked at from the angle of the same being signed by the parties. There is
no dispute that the Petitioner No.2 has signed the IPLA on 29-9-2006 by
affixing his signature on every page of the IPLA including the execution clause.
The presumption which arises on the execution of the documents is enunciated
by the Judgment of the Apex Court reported in 2010 (1) SCC 83 in the matter
of M/S. Grasim Industries Ltd. vs M/S. Agarwal Steel. Para 6 of the said
report is material and is reproduced herein under :
lgc 55 of 124
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"In our opinion, when a person signs a document, there
is a presumption, unless there is proof of force or fraud,
that he has read the document property and understood
it and only then has has affixed his signatures thereon,
otherwise no signature on a document can ever be
accepted. In particular, businessmen, being careful
people (since their money is involved) would have
ordinarily ready and understood a document before
signing it. Hence the presumption would be even
stronger in their case. There is no allegation of force or
fraud in this case. Hence it is difficult to accept the
contention of the respondent while admitting that the
document, Ext. D-8 bears his signatures that it was
signed under some mistake. We cannot agree with the
view of the High Court on this question. On this ground
alone, we allow this appeal, set aside the impugned
judgment of the High Court and remand the matter to
the High Court for expeditious disposal in accordance
with law."
In the said context the Judgment of a Learned Single Judge of this
Court is also relevant, which Judgment is reported in AIR 2000 BOM 108 in
the matter of Keval Krishna Balakram Hitkari v/s Anil Keval Hitkari. Para 8
of the said Judgment is relevant and is reproduced herein under :-
8. So far as the objections raised by respondent No. 1
that the agreement of arbitration was not signed on the
day on which it is shown to have been signed and it was
signed on the day on which the award was made is
concerned in my opinion even if it is assumed that the
arbitration agreement was not signed in November,
1994 as claimed and that it was signed on 3rd April,
1995 the conduct of the parties of signing that
agreement and accepting the award and executing
further documents pursuant to that award has to be
construed as existence of an arbitration agreement
between the parties. The observations of the Supreme
Court in para 6 of its judgment in the case of Vaidya
Harishankar Laxmiram Rajyaguru of Rajkot are
pertinent which reads as follows :
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"6. The main objection to the award is that there was no
written agreement signed by both the parties to refer
the disputes to arbitration. It is clear from the narration
of facts that the parties had agreed to refer the dispute
to arbitrator. The award signed by both the parties
about which there is no factual dispute reiterated the
fact that the parties had agreed to refer the dispute to
the arbitration of the said arbitrator and that he made
an award. All these are in writing and signed by all the
parties. This in our opinion in the light of the facts and
circumstances of the case can certainly be construed to
be a proper arbitration agreement in terms of section
2(a) of the Act. In this connection reference may be
made to the observations of this Court in Prasun Roy v.
Calcutta Metropolitan Development Authority, AIR 1988
SC 205 : (1987) 4 SCC 217 where all the relevant
authorities on this point have been discussed. See also
in this connection the decision of the Judicial
Committee in Chowdhri Murtaza Hossein v. Mst. Bibi
Bechunnissa, (1875-76) 3 IA 209, 220. The observations
in the said decision were made in different context. But
in the present context it is clear that the conduct of the
parties that there was an arbitration agreement and by
signing two award it could be said that the parties had
agreed to refer the disputes in writing to the arbitration
of the named arbitrator. This agreement was done twice
firstly by signing an endorsement below the award and
secondly by entering into an agreement in the form of a
letter dated August 14, 1978 (Ex. 40)."
Hence there can be no escape for the Petitioners from the consequences
flowing from the signing of the IPLA; and the signing of the IPLA by the parties
is therefore a strong circumstance in arriving at a prima facie conclusion as
enunciated in Shin Etsu Chemical Co. Ltd's case for referring the parties to
arbitration.
lgc 57 of 124
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29 Now coming to the submission of the Learned Senior Counsel
appearing for the Petitioners that clause 18.1 of the IPLA itself is uncertain,
ambiguous and unworkable as according to the Learned Senior Counsel, out of
the two Arbitrators, one Arbitrator is also to don the hat of the Presiding
Arbitrator. For the said purpose clause 18 of the IPLA would have to be
revisited. A reading of the said clause 18.1 discloses that each of the licensors
have to appoint an Arbitrator and the licensee is to appoint one Arbitrator. In
terms of the IPLA, the Respondent No.2 has licenced the patents to the
Respondent No.1 who has then licenced them to the Petitioners, hence two
Arbitrators have to be appointed by each of the licensors and one has to be
appointed by the licensee making it in all three Arbitrators. Since at the time of
invocation of the arbitration clause, the Respondents in fairness agreed to
appoint the third arbitrator independently, the said fact cannot make the
Arbitration Agreement invalid, ambiguous and uncertain as contended by the
Learned Senior Counsel. In any event, the provision regarding the number of
arbitrators is merely a machinery provision and does not form part of the
Arbitration Agreement. Even if the machinery part is invalid, there is still an
Arbitration Agreement by and between the parties which can be enforced. A
useful reference could be made to the Judgments of the Apex Court which have
been relied upon by the learned Senior Counsel for the Respondents. The
relevant paragraphs thereof are reproduced herein under :-
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AIR 1997 SC 605 in the matter of M.M.T.C. Limited vs Sterlite Industries
(India) Ltd. (supra) Paras 8, 9, 10 and 11 are relevant and are reproduced
herein under :-
"8. Sub-section (3) of Section 7 requires
an arbitration agreement to be in writing and
sub-section (4) describe the kind of that
writing. There is nothings in Section 7 to
indicate the requirement of the number of
arbitrators as a part of the arbitration
agreement. Thus the validity of an arbitration
agreement does not depend on the number of
arbitrators specified therein. The number of
arbitrators is dealt with separately in Section
10 which is a part of machinery provision for
the working of the arbitration agreement. It
is, therefore clear that an arbitration
agreement specifying an even number of
arbitrators cannot be a ground to render the
arbitration agreement invalid under the New
Act as contended by the learned Attorney
General.
9. Section 10 deals with the number of
arbitrators. Sub-section (1) says that the
parties are free to determine the number of
arbitrators, provided that such number shall
not be an even number. Sub-section (2) then
says that failing the determination referred
to in sub-section (1), the arbitral tribunal
shall consist of a sole arbitrator. Section 11
provides for appointment of arbitrators. This is
how arbitral tribunal is constituted.
10. The arbitration clause provides that
each party shall nominate one arbitrator and
the two arbitrators shall then appoint an
umpire before proceeding with the reference.
The arbitration agreement is valid as it
satisfies the requirement of Section 7 of the
New Act . Section 11 (3) requires the two
arbitrators to appoint the third arbitrator or
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the umpire. There can be no doubt that the
arbitration agreement in the present case
accords with the implied condition contained
in para 2 of the First Schedule to the
Arbitration Act, 1940 requiring the two
arbitrators, one each appointed by the two
sides, to appoint. an umpire not later than
one month from the latest date of their
respective appointments.
11. The question is: whether there is
anything in the New Act to make such an
agreement unenforceable? We do not find any
such indication in the New Act. There is no
dispute that the arbitral proceeding in the
present case commenced after the New Act
came into force and, therefore, the New Act
applies. In view of the term in the arbitration
agreement that the two arbitrators would
appoint the umpire or the third arbitrator
before proceeding with the reference, the
requirement of Sub-section (1) of Section 10 is
satisfied and sub-section (2) thereof hes no
application. As earlier stated the agreement
satisfies the requirement of Section 7 of the
Act and therefore, is a valid arbitration
agreement. The appointment of arbitrators
must, therefore, be governed by Section 11 of
the New Act.
(2002) 3 SCC 572 in the matter of Narayan Prasad Lohia v/s. Nikunj
Kumar Lohia and others . Para 17 is material and is reproduced herein
under:-
"We are also unable to accept Mr. Venugopal's
argument that, as a matter of public policy,
Section 10 should be held to be non-
derogable. Even though the said Act is now an
integrated law on the subject of Arbitration, it
cannot and does not provide for all
contingencies. An arbitration being a creature
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of agreement between the parties, it would be
impossible for the Legislature to cover all
aspects. Just by way of example Section 10
permits the parties to determine the number of
arbitrators, provided that such number is not
an even number. Section 11(2) permits parties
to agree on a procedure for appointing the
arbitrator or arbitrators. Section 11 then
provides how arbitrators are to be appointed if
the parties do not agree on a procedure or if
there is failure of the agreed procedure. A
reading of Section 11 would show that it only
provides for appointments in cases where there
is only one arbitrator or three arbitrators. By
agreement parties may provide for
appointment of 5 or 7 arbitrators. If they do
not provide for a procedure for their
appointment or there is failure of the agreed
procedure, then Section 11 does not contain
any provision for such a contingency. Can this
be taken to mean that the Agreement of the
parties is invalid. The answer obviously has to
be in the negative. Undoubtedly the procedure
provided in Section 11 will mutatis mutandis
apply for appointment of 5 or 7 or more
arbitrators. Similarly even if parties provide for
appointment of only two arbitrators, that does
not mean that the agreement becomes invalid.
Under Section 11(3) the two arbitrators should
then appoint a third arbitrator who shall act as
the presiding arbitrator. Such an appointment
should preferably be made at the beginning.
However, we see no reason, why the two
arbitrators cannot appoint a third arbitrator at
a later stage i.e. if and when they differ. This
would ensure that on a difference of opinion
the arbitration proceedings are not frustrated.
But if the two Arbitrators agree and give a
common award there is no frustration of the
proceedings. In such a case their common
opinion would have prevailed, even if the third
arbitrator, presuming there was one, had
differed. Thus we do not see how there would
be waste of time, money and expense if a party,
lgc 61 of 124
wps-7804.09 & 7636.09
with open eyes, agrees to go to Arbitration of
two persons and then participates in the
proceedings. On the contrary there would be
waste of time, money and energy if such a
party is allowed to resile because the Award is
not of his liking. Allowing such a party to resile
would not be in furtherance of any public
policy and would be most inequitable."
The next contention of the learned Senior Counsel for the
Petitioners that since the Annexures 1 to 4 to the IPLA do not form part of the
finally executed IPLA, there is an uncertainty and ambiguity as regards the
Patent portfolio and the Marks which are licensed under the IPLA to the
Petitioners. Though in terms of the scope of inquiry contemplated under
Section 45 of the Indian Arbitration Act, the same is not necessary to be gone
into by this Court. In so far as the said contention is concerned, it is required to
be noted that the business relationship between the parties existed from the
year 1994. The Petitioners were already using the Patents right from 1994 and
to which Patents there were additions. Even the Marks have been used by the
Petitioners right from the year 1994, and therefore, the parties were aware of
the Patents and the marks in respect of which they have entered into a
contract. Therefore, prima facie, there doesn't seem to be any merit in the said
contention of the Petitioners. However, as indicated above, the issue as regards
the alleged infirmity in the underlying contract i.e. the IPLA is required to be
urged before the Arbitral Tribunal, and it will be for the Arbitral Tribunal to
consider the same.
lgc 62 of 124
wps-7804.09 & 7636.09
The defining aspect is the intention of the parties to go for
arbitration which intention is clearly manifest in the IPLA. On the said aspect,
it would be gainful to refer to the judgment of the Apex Court reported in
Vs.
2009(4) SCC 495 in the matter of Nandan Biomatrix Limited D 1 Oils
Limited,. Paras 26, 27, 30, 32, 33 and 34 are material and are reproduced
herein under :-
"26 The disputed arbitration clause in the
present case is clause 15.1, mentioned in the Supply
Agreement, which is reproduced as under:
"15.1 . Any dispute that arises between the parties shall
be resolved by submitting the same to the institutional
arbitration in India under the provisions of arbitration
and conciliation act, 1996."
"27 Arbitration agreement is defined under
Section 7 of the 1996 Act. It does not prescribe any
particular form as such. In terms of the said provision,
arbitration agreement means:
"Section 7 - Arbitration agreement (1) In this Part,
"arbitration agreement" means an agreement by the
parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in
respect of a defined legal relationship, whether
contractual or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained 13 in- (a) a document signed by the parties"
"30 The Court is required, therefore, to decide
lgc 63 of 124
wps-7804.09 & 7636.09
whether the existence of an agreement to refer the
dispute to arbitration can be clearly ascertained in the
facts and circumstances of the case. This, in turn, may
depend upon the intention of the parties to be gathered
from the correspondence exchanged between the
parties, the agreement in question and the surrounding
circumstances. What is required is to gather the
intention of the parties as to whether they have agreed
for resolution of the disputes through arbitration. What
is required to be decided in an application on Section 11
of the 1996 Act is : whether there is an arbitration
agreement as defined in the said Act."
"32 I do not find any merit in the above
contentions raised on behalf of the non-applicant. The
question which needs to be asked is : what did the
parties intend at the time of execution of the Supply
Agreement dated 10.8.04? What did the parties intend
when clause 15.1 came to be incorporated in the said
Supply Agreement? The answer to the said questions
undoubtedly is that any dispute that may arise between
the parties shall be resolved by submitting the same to
the Institutional Arbitration in India under the
provisions of the 1996 Act. It may be mentioned that the
name of a specific institution is not indicated in clause
15.1."
"33 The 1996 Act does not prescribe any form
for an arbitration agreement. The arbitration agreement
is not required to be in any particular form.
[See : Bihar State Mineral Development Corporation &
Another v. Encon Builders (I) (P) Ltd. - (2003) 7 SCC
418]. What is required is to gather the intention of the
parties as to whether they have agreed for resolution of
the disputes through arbitration."
34 In my view, in the present case, the parties
unequivocally agreed for resolution of the disputes
through Institutional Arbitration and not through an ad
hoc arbitration. Therefore, in my view, there exists a
valid arbitration agreement between the parties vide
clause 15.1 in the Supply Agreement dated 10.8.04. The
lgc 64 of 124
wps-7804.09 & 7636.09
first issue is accordingly answered in favour of the
applicant and against the non-applicant.
30 Now coming to the contention of the Learned Senior Counsel for
the Petitioners that the prayer in the suit pertaining to the anti suit injunction
can never be referred to arbitration in support of which contention reliance is
placed by the Learned Senior Counsel on the Judgment of the Apex Court in
Sukanya Holdings Pvt. Ltd. (supra). In so far as the said contention is
concerned, it is required to be noted that the Judgment in Sukanya Holdings
Pvt. Ltd (supra) has been distinguished by the Apex Court in the case of
Rashtriya Ispat Nigam Limited v/s Verma Transport Co. reported in (2006)
7 SCC 275. Paras 23, 45 and 47 of the said report are material and reproduced
herein under :-
"23 In the instant case, the existence of a valid
agreement stands admitted. There cannot also be any
dispute that the matter relating to termination of the
contract would be a dispute arising out of a contract
and, thus, the arbitration agreement contained in clause
44 of the contract would be squarely attracted. Once
the conditions precedent contained in the said
proceedings are satisfied, the judicial authority is
statutorily mandated to refer the matter to arbitration.
What is necessary to be looked into therefor, inter alia,
would be as to whether the subject-matter of the dispute
is covered by the arbitration agreement or not."
"45 Reliance placed by the learned counsel on
Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and
Another [(2003) 5 SCC 531 is misplaced.Therein, not
only a suit for dissolution of the firm was filed, but a
different cause of action had arisen in relation whereto
apart from parties to the arbitration agreement, other
parties had also been impleaded. In the aforementioned
lgc 65 of 124
wps-7804.09 & 7636.09
fact situation, this Court held :
"Secondly, there is no provision in the Act that when the
subject-matter of the suit includes subject-matter of the
arbitration agreement as well as other disputes, the
matter is required to be referred to arbitration. There is
also no provision for splitting the cause or parties and
referring the subject-matter of the suit to the
arbitrators."
"47 Such a question does not arise herein as the
parties herein are parties to the arbitration agreement
and the question in regard to the jurisdiction of the
arbitrator, if any, can be determined by the arbitrator
himself in terms of Section 16 of the 1996 Act."
In my view, the Judgment in Sukanya Holdings Pvt. Ltd. (supra),
has no application even in the present case because the parties to the instant
proceedings are parties to the Arbitration Agreement and the cause of action
which is sought to be invoked is also covered by the Arbitration Agreement
between the parties and the said relief i.e. anti suit injunction is also claimed
on the basis of the dispute between the parties which are covered by the
Arbitration Agreement. It was held by the Apex Court in Everest Holding's case
(supra) that the Judgment in Sukanya Holdings Pvt.Ltd.'s case(supra) has
been distinguished in the case of Rashtriya Ispat Nigam Ltd. because in
Sukanya Holdings Pvt. Ltd.'s case two distinct and different causes of action
were merged in a suit and it required independent adjudication of the rights of
the flat purchasers who are not governed by the Arbitration Agreement and the
cause of action which is sought to be invoked is also covered by the Arbitration
Agreement between the parties.
lgc 66 of 124
wps-7804.09 & 7636.09
31 Now coming to the judgments relied upon by the learned Senior
Counsel for the Petitioners in support of his contention that there can be no
arbitration, if there is no concluded contract. The judgment in Dresser Rand
S.A. (supra) was a case where no contract had come into existence at all as
the contract was spelt out on the basis of a tender document and ultimately the
said tender document which was held to be merely an invitation to offer was
not accepted as a final contract. The terms and condition in the said case
contemplated for an agreement to come into existence only when the final
purchase order was placed, as there was no such purchase order placed, it was
held that there was no concluded contract. It is is well settled that the tender
or bid document is merely an invitation to offer, and therefore, the same by
itself cannot be treated as a contract between the parties.
In the case of Andhra Pradesh Tourism Development
Corporation Ltd & Anr. (supra), the facts were that even prior to the
incorporation and registration of a company, a contract was executed by its
purported Managing Director in the capacity of a Managing Director of the
company which was at the time not in existence. It was held that obviously
when the parties to an agreement do not exist, there could never be valid
parties to the agreement, and consequently, there can never be a valid
Arbitration Agreement between such parties.
lgc 67 of 124
wps-7804.09 & 7636.09
In the case of Jawahar Lal Burman (supra) the contention was
that there was only a conditional acceptance of the tender and therefore there
was no concluded valid contract. On the basis of the facts of the said case the
Apex Court has held in Para 15 of the said report that there was a concluded
contract and the condition of security deposit was a condition subsequent and
not a condition precedent.
In the case of Rickmers Verwaltung GmbH (supra) the
correspondence between the parties were sought to be relied upon to spell out
a concluded contract. It is in the said context that the Apex Court examined
the said case and came to a conclusion that the correspondence in that case
does not spell out a concluded contract between the parties.
In my view, the said judgments do not further the case of the
Petitioners in any manner. As indicated above, the inquiry that this Court is
required to make under Section 45 of the Indian Arbitration Act is limited to
determine prima facie whether there is in existence an Arbitration Agreement
and if yes, refer the parties to arbitration unless it finds that the Arbitration
Agreement is invalid, inoperative, null, void and incapable of being performed.
Invalidity of the agreement could only be on the ground if the same is
questioned on the grounds of coercion, fraud, misrepresentation or that the
lgc 68 of 124
wps-7804.09 & 7636.09
said agreement has not been duly executed. It is pertinent to note that in the
instant case, the parties are not relying upon any correspondence for the
purposes of establishing the existence of the contract, because in the instant
case the IPLA is duly executed in writing and signed by the parties. The
correspondence that is sought to be relied upon by the parties is in support of
their respective assertions that the IPLA is not a concluded contract or that the
IPLA is a concluded contract. So far as the Respondents are concerned, the
said correspondence is relied upon to demonstrate that the parties had applied
their mind to the drafts of the IPLA, that were prepared before finally
executing the same on 29/09/2006. In my view, the Lower Appellate Court
was right in interfering with the order passed by the Trial Court. The view
taken by the Lower Appellate Court on the aspect of referring the parties to
arbitration on a prima facie view that there is in existence an Arbitration
Agreement cannot be faulted with in the facts and circumstances of the case.
CONCLUSION - WRIT PETITION NO.7804 OF 2009
32 In the light of the well settled position in law that the Court whilst
considering an Application under Section 45 of the Indian Arbitration Act has
only to arrive at a prima facie conclusion that there exist an Arbitration
Agreement, the submission of the learned Senior Counsel for the Petitioners
that since the Lower Appellate Court has referred the parties to arbitration
lgc 69 of 124
wps-7804.09 & 7636.09
without recording a finding that the IPLA is a concluded contract, is therefore
without merit. The scope of the jurisdiction under Article 227 of the
Constitution of India has been succinctly elucidated in the judgments which
have been cited on either side. It is well settled that the powers under Article
227 of the Constitution of India cannot be exercised "as a cloak of an Appeal in
disguise" and that the writ court cannot substitute its own conclusion for the
conclusion reached by the courts below. Interference is called for only if the
impugned order results in a mis-carriage of justice or the findings are so
perverse that no reasonable person could have arrived at such findings. In my
view, in the facts and circumstances of the present case, the conclusion arrived
at by the Lower Appellate Court whilst referring the parties to arbitration
cannot be said to be a conclusion which could not be arrived at in the facts
and circumstances of the case
33 In any event, since the findings of the Lower Appellate Court can
only be said to be prima facie in nature, the Petitioners would have an
opportunity to agitate the issue which they seek to agitate before the Arbitral
Tribunal. Hence in so far as the part of the impugned order, which relates to
the application filed by the Respondents under Section 45, is concerned, no
interference is called for in the writ jurisdiction of this Court under Article 227
of the Constitution of India. The Writ Petition No.7804 of 2009 is accordingly
dismissed. Rule discharged, with no order as to costs.
lgc 70 of 124
wps-7804.09 & 7636.09
34 SUBMISSIONS ON BEHALF OF THE PETITIONERS BY THE
LEARNED SENIOR COUNSEL DR.VEERENDRA TULZAPURKAR
IN WRIT PETITION NO.7636 OF 2009
(i) That assuming that the IPLA is a concluded contract in view of
Clause 18.3 wherein it has been specifically stated that the
"Arbitration and Conciliation Act, 1996" i.e. the Indian Arbitration
Act would be applicable, the said Act would therefore govern the
procedure as also a conduct of the proceedings and therefore the
English Courts would not have jurisdiction.
(ii) That since the arbitration is governed by the Indian Arbitration
Act, it is only the Indian Courts which would have jurisdiction,
and the Petitioners are therefore entitled to an injunction
restraining the Respondents from proceeding further with the
proceedings in the English Court;
(iii) That in view of an express choice of law i.e. the Indian Arbitration
Act, having been made by the parties as the law governing the
arbitration and the curial law, there is no question of determining
the seat of arbitration. For the said purpose the learned Senior
Counsel would place reliance on the following judgments reported
in :-
lgc 71 of 124
wps-7804.09 & 7636.09
(1) (2007) 5 SCC 692, National Agricultural Co-op
Marketing Federation Indian Ltd v/s. Gains Trading Ltd.
(2) (2009) 7 SCC 220, Citation Infowares Ltd. v/s. Equinox
Corporation ;
(3) (2008) 10 SCC 308, Indtel Technical Services Pvt. Ltd v/s.
W.S. Atkins;
(4) (2002) 4 SCC 105, Bhatia International v/s. Bulk Trading
S.A. And Another;
(5) (1988) 1 Lloyds L.R. 116, Naviera Amazonica v/s
Compania International;
(6) 2011(3) ARBL 350, Prima Buildwell v/s. Lost City;
(7) (2008) E.W.H.C. 426, Breas of Doune v/s. Alfred Mc
Alpine,
(iv)
That in so far as arbitration proceedings are concerned, the
concept of venue is different from the concept of seat of
arbitration. The seat of arbitration would have the consequences
of fixing the jurisdiction. In the instant case, since the London is
only the "venue" and since the parties have chosen the application
of the Indian Arbitration Act, the parties would be governed by the
said Indian Law.
(v) That the determination of the seat of arbitration would come into
play only if the parties have not chosen the law which would be
applicable and it is only in the said context that the Court would
have to find out as to which curial law would apply to the
arbitration. Moreover, the curial law comes much later which is in
respect of the conduct of the proceedings. In the instant case, there
lgc 72 of 124
wps-7804.09 & 7636.09
is no need to find out the law applicable for which the seat of
arbitration can be an indicia, as the parties have by choice agreed
to the application of the Indian Arbitration Act. For the said
purpose the learned Senior Counsel relied upon two English
Judgments i.e. the judgment reported in (2008) EWHC 426 in the
matter of Braes of Doune Wind Farm (Scotland) Ltd. v. Alfred
Mcalpine Business Services Ltd. and (1988) Vol.1 Lloyd's Law
Reports 116 in the matter of Naviera Amazonica Peruana S.A.
v/s. Compania Internacional DE Seguros Del Peru.
(vi) That once the agreement contained a express term which in this
case is the Indian Arbitration Act, it is not open for the Court to
read into a contract a term on the basis of the venue which in the
instant case is the application of the English Law. The learned
Senior Counsel for the said purpose relied upon the judgments of
the Apex Court reported in (1968) 1 SCR 821 in the matter of
Nathati Jute Mills Ltd. v/s Khyaliram Jagannath.
(vii) That it is not permissible to interpret the said clause 18.3 in a
restricted manner so as to limit/confine the choice of law made by
the parties only to some parts of the Act. When the agreement in
clause 18.3 provides that the 'provisions of the Arbitration and
lgc 73 of 124
wps-7804.09 & 7636.09
Conciliation Act, 1996 shall apply', it is agreed between the parties
that the entire Act applies and not the select provisions. In
support of the said contention the learned Senior Counsel would
place reliance on the judgments of the Apex Court reported in
(1994) 4 SCC 104 in the matter of Assistant Excise
Commissioner v/s Isaac Peter, and 1968 (1) SCR 821 in the
matter of Naihiti Jute Mills Limited v/s. Khyalynam Jagannath.
(viii)
That once the parties have agreed that the Indian Arbitration Act
would apply, then any action contrary to the provisions of the
Indian Arbitration Act amounts to breach of contract, and if a
party commits breach of contract after expressly agreeing to the
application of the Indian Arbitration Act thereby to the exclusive
jurisdiction of the Indian Court, the Court ought to grant an
interim injunction preventing continuance of such breach.
(ix) That since the substantive prayer is as regards the injunction
sought by the Petitioners against the Respondents restraining them
from approaching the English Courts in view of the said
Arbitration Agreement, this Court would have to consider the
grant of the said relief as the said relief cannot be the subject
matter of arbitration. The learned Senior Counsel relied upon the
lgc 74 of 124
wps-7804.09 & 7636.09
judgment of the Apex Court in (2003) 5 SCC 531 in the matter of
Sukanya Holdings (P) Ltd. v/s. Jayesh H Pandya and anr.
(x) That it is well settled that where a party is put in an inextricable
situation by the proceedings filed in a foreign court, such a
situation would be oppressive to such a party. The Apex Court has
ruled that in such cases the Courts in India ought to exercise
jurisdiction and injunct parties from proceeding with the
proceedings in a foreign court. Reliance was placed on the
judgment of the Apex Court reported in (1987) 1 SCC 496 in the
matter of ONGC v/s. Western Company, North America.
(xi) That the learned Senior Counsel for the Petitioners in the
alternative submitted that even assuming the English Arbitration
Act, 1996 applies, since Section 18 which provides for
appointment of Arbitral Tribunal being non-mandatory, and in
view of the agreement between the parties that the Indian
Arbitration Act will apply, the application of the non-mandatory
provision of the English Arbitration Act is excluded by virtue of the
provisions of Section 4(2) of the English Arbitration Act, 1996.
The English Court therefore would have no jurisdiction to
entertain any application for appointment of Arbitral Tribunal.
lgc 75 of 124
wps-7804.09 & 7636.09
(xii) That the issue of seat of arbitration would not arise in the present
case in view of the settled position in law as enunciated by the
Apex Court in the case of Bhatia International v/s Bulk Trading
SA and Another reported in (2002) 4 SCC 105 wherein the Apex
Court has held that in cases of international commercial
arbitrations held out of India provisions of Part I would apply
unless the parties by agreement, express or implied, exclude all or
any of its provisions.
(xiii) That the matter of appointment of Arbitral Tribunal is covered by
the law of Arbitration Agreement, and not the curial law or lex
arbitri. In support of the said submission the learned Senior
Counsel would place reliance on the judgment of the Apex Court
reported in (1998) 1 SCC 305 in the matter of Sumitomo Heavy
Industries v/s. ONGC, and (2012) 1 BCR 547 in the matter of
Sakuma Exports v/s Louis .
(xiv) That the curial law that would be applicable to the arbitration
proceeding cannot be approached from the choice of seat if the
parties have expressly chosen the application of a particular law.
The approach should therefore be to find out what is the law
lgc 76 of 124
wps-7804.09 & 7636.09
chosen by the parties rather than first finding out the seat and
then determine the law; that once the parties have made a choice
of the law applicable to Arbitration Agreement and the curial law,
then there is no need for finding out what the seat is and what
would be the law if a seat is in a particular country.
(xv) That the reference to the seat becomes relevant only in the
absence of choice of the curial law and this is borne out from the
passages of the very text books and the judgments relied upon by
the Respondents.
(xvi) That the choice of the parties as regards the proper law of
arbitration or the curial law is the determinative factor for
ascertaining the seat of arbitration. Only absent such choice, the
question of finding the seat of arbitration arises.
(xvii) That the judgments cited on behalf of the Respondents on the
aspect of seat being the determinative factor are not applicable in
the facts of the present case when the parties have expressly
chosen the application of the Indian Arbitration Act. In the cases
cited by the Respondents there was no choice of the proper law of
the Arbitration Agreement and/or the curial law and it is in the
lgc 77 of 124
wps-7804.09 & 7636.09
said circumstances that the choice of the seat became a
determinative factor.
(xviii) That the parties have agreed to the application of the Indian
Arbitration Act, 1996 to be the proper law of arbitration as well as
curial law is also indicative from the fact that in clause 18.3 the
expression "Presiding Arbitrator" is used which appears in the
Indian Arbitration Act, 1996 whereas the English Arbitration Act,
1996 the word "Umpire" appears.
(xix) If a party acts against the terms of the contract, it has the effect of
causing harm and injury to the other side. In the instant case, the
Respondents have invoked jurisdiction of the English Courts and
thereby dragging the Petitioners to a Court which does not have
jurisdiction in terms of the agreement. Reliance was placed on the
judgment of the Apex court in ONGC v/s. Western Company,
North America.(supra)
(xx) That the Petitioners are entitled to an anti suit injunction by the
reason of choice of the Indian Arbitration Act, by the parties as the
applicable law relating to the entire arbitration. It is only the
Indian Courts which would have jurisdiction, and the English
lgc 78 of 124
wps-7804.09 & 7636.09
Courts would have none. The Respondents having approached the
English Court thereby breaching the agreement as they have
wrongly invoked the jurisdiction of the English Court, the
Petitioners are therefore approaching the Civil Court to prevent
continuance of the breach by seeking an anti suit injunction.
(xxi) That the assets of the Respondents in the form of shares of
Petitioner No.1 and the dividend income arising thereform are in
Daman making the Respondents personally amenable to the
jurisdiction of the Daman Court as any order passed by the Daman
Court can be enforced against the assets of the Respondents in
Daman.
(xxii) That the Petitioner No.1 being a joint venture between the
Respondent No.1 and Mehra family. A joint venture is in the
nature of a partnership. The Respondent No.1 as partner of the
joint venture is carrying on business in Daman, and as such are
within the personal jurisdiction of the Daman Court. The learned
Senior Counsel in support of the said contention has relied upon
the judgment of the Apex Court reported in 1995(1) SCC 478 in
the matter of New Horizons Limited and Anr v/s Union of India,
and the judgments of this Court reported in AIR 1932 Nag 114 in
lgc 79 of 124
wps-7804.09 & 7636.09
the matter of Tarabai v/s Chogmal and in AIR 1971 Bom 362 in
the matter of Ex-parte-Girdharlal Shankar Dave which was
approved in the judgment reported in 1986 MLJ 325 in the
matter of Harshad V/s Ishardas.
(xxiii) That allowing the Respondents to proceed in the English Court
will result in allowing them to commit breach of and continue to
commit breach of the express agreement between the parties.
35 SUBMISSIONS ON BEHALF OF THE RESPONDENTS BY THE
LEARNED SENIOR COUNSEL SHRI NAVROZE SEERVAI IN
WRIT PETITION NO.7636 OF 2009:-
[A] That the seat is a juristic concept and is not a linguistic concept,
as is sought to be contended by the learned counsel for the
Petitioners. The juristic concept of a seat is to be gathered from
the terms of the agreement, as it expresses the consensual intent
of the parties.
[B] That use of the expression "place", "venue" or directly referring to
the "city" where the arbitration is to take place, would mean that
all such words, phrases are used to indicate the seat of arbitration
and would not mean a geographical location.
lgc 80 of 124
wps-7804.09 & 7636.09
[C] That since none of the parties to the IPLA are even located in
London, it therefore clearly indicates that London was not
referred to for the sake of convenience but was designated as the
seat by the parties.
(D) That the parties having chosen the seat of arbitration as London
which is contained in Clause 18.3 of the agreement, it is not
proper for the Petitioners to resile from the said clause so as to
contend that London was chosen geographically as it was
convenient for the parties to meet in London.
(E) That the Petitioners approaching the Civil Court in Daman i.e. the
Indian Court are therefore acting in breach of the Arbitration
Agreement.
(F) The conjoint reading of Sections, 2, 4 and 5 of the English
Arbitration Act makes it clear that once the Arbitration Agreement
is in writing and the venue is London, the said agreement would
have to be given effect.
(G) That in terms of the English Arbitration Act both the mandatory
and non-mandatory provisions of the said Act would apply.
lgc 81 of 124
wps-7804.09 & 7636.09
(H) That in view of the fact that the seat of arbitration is London, the
applicability of the Arbitration and Conciliation Act, 1996 of India
would only govern the Arbitration Agreement but not the Lex
Arbitri.
(I) That the law of the country wherein the seat is situated would be
applicable in so far as the Lex Arbitri is concerned, the said
position is made clear from the commentaries of the learned
Authors Mustill & Boyd, Russell and Redfern & Hunter. The
learned Senior Counsel relied upon the following passages from
the commentaries of the three learned authors.
Mustill and Boyd - Chapter IV - The applicable law and the
jurisdiction of the court.
Russell - Paragraphs 2-087, 2-088, 2-090, 2-093, 2-094, 2-099, 2-
100 to 2-109.
Redfern and Hunter - Chapter 3 - Paragraphs 3.09 to 3.33 &
Paragraph 3.34 from the Chapter - The Law Governing the
Arbitration
[J] That the learned Authors have made it clear that in the absence of
an agreement as to the procedural law, the choice of seat
determines the procedural law of the arbitration. That where
lgc 82 of 124
wps-7804.09 & 7636.09
parties have failed to choose the law governing the arbitration
proceedings, those proceedings must be considered as being
governed by the law of the country in which the arbitration is
held on the ground that it is the country most closely connected
with the proceedings. In support of the said contention, the
learned Senior Counsel for the Respondents has relied upon the
following judgments. (1970) AC 583, James Miller & Partners
Ltd. v/s Whitworth Street Estate; (1984) 1 QB 291, Bank
Mellat v/s Helliniki Techniki SA; (1988) 1 Lloyd's Law Reports
116, Naviera v/s Compania; (2011) 6 SCC 179, Dozco India
Pvt. Ltd. v/s Doosan Infracore Company Ltd; (2011) 6 161,
Videocon Industries Ltd v/s. Union of India; (2011) 9 SCC 735
Yograj Infrastructure Ltd. v/s. Ssang Yong Engineering and
Construction Ltd; (2010) 3 Arb. L.R. 70, Bhushan Steel v/s
Singapore International Arbitration Centre; and (2011) 3 Arb.
L.R. 350, Prima Buildwell Private Ltd v/s. Lost City
Development LLC.
(K) That since the seat of arbitration being London, the English Law
would be applicable can be seen from Section 4 of the English
Arbitration and Conciliation Act, 1996. The said Act postulates
that unless there is clear and unequivocal intention to the contrary
lgc 83 of 124
wps-7804.09 & 7636.09
the law of the country wherein the seat of arbitration is situated
would govern the law of arbitration.
(L) That the seat of arbitration has got far reaching consequences in
the context of the application of the lex arbitri or the curial law,
the learned Senior Counsel in support of his contention that it
would be the English Arbitration Act that would be applicable
relied upon the following English judgments :-
[I]
of C v D.
(2008) Vol. 1 Lloyd's Law Reporter page 239 in the matter
[II] (2007) Vol. 1 Lloyd's Law Reporter page 237 in the matter
of A v B
[III] 2007 Vol. 1 Lloyd's Law Reporter page 358 in the matter of
A v B (Costs) (No.2)
[IV] (2009) Vol.2 Lloyd's Law Reporter page 376 in the matter
of Shashoua and others v Sharma
[V] (2006)1 AC page 221 in the matter of Lesotho Highlands
Development Authority v/s Impregilo Spa and others.
[VI] 1970 AC page 583 in the matter of James Miller & Partners
Ltd, and Whitworth Street Estates (Manchester) Ltd. (Lord
Hudson, J)
[VII] (1984) 1 QB page 291, in the matter of Bank Mellat v
Helliniki Techniki S.A (Lord Waller, Lord Kerr and Lord
Robert Goff L. JJ)
[VIII] (1988) Vol 1 page 116, in the mater of Naviera Amazonica
Peruana S.A. v. Compania Interacional De Serguros Del
Peru
[M] That the seat being London, the arbitration proceedings would be
governed by the English Arbitration Act, and therefore, there
would be exclusion of the Indian Arbitration Act, in so far as the
Lex Arbitri or the curial law is concerned, the natural corollary
lgc 84 of 124
wps-7804.09 & 7636.09
would be that the English Courts would have supervision over the
arbitration proceedings, therefore, the Respondents were entitled
to approach the English Court. In support of the said contention,
the learned Senior Counsel relied upon the following English
Judgments :-
[I] (2007) Vol.2 Lloyd's Law Reporter page 367 in the matter of
C v D
[II] (2008) Vol. 1 Lloyd's Law Reporter Appeal Court page 239
in the matter of C v D.
[III] (2007) Vol. 1 Lloyd's Law Reporter page 237 in the matter
of A v B
[IV] 2007 Vol. 1 Lloyd's Law Reporter page 358 in the matter of
A v B (No.2)
[IV] (2009) Vol.2 Lloyd's Law Reporter page 376 in the matter
of Shashoua and others v Sharma
[N] That in so far as international commercial arbitration is
concerned, there are three potential systems of law applicable to
the arbitration viz, (1) The law governing the substantive
contract; (2) The law governing the agreement to arbitrate and
the performance of that agreement; and (3) The law governing
the conduct of the arbitration. In majority of cases all three will
be the same, but (1) will often be different from (2) and (3), and
occasionally, but rarely, (2) may also differ from (3).
[O] That the enquiry of the Court to ascertain the choice of seat in a
case where a place/venue/city has been mentioned/nominated by
lgc 85 of 124
wps-7804.09 & 7636.09
the parties, does not commence with a consideration of the
proper law of the contract/ arbitration, whilst ignoring the chosen
place/venue, as contended by the Petitioners. If the said
contention of the Petitioners is accepted, it would mean that once
the parties have chosen the law governing the Arbitration
Agreement, that law is both the law of the Arbitration Agreement
and the curial law and the parties's express choice of a curial law
by reference to a seat is to be completely ignored and rendered
otiose
[P] That the choice of law has to be a specific choice of curial law i.e.
the agreement must state that the law of a particular country as
the curial law. In the absence of any such specific agreement as to
curial law, the law of the country in which the seat of arbitration
is situate will apply.
[Q] That the non-mandatory provisions of the English Arbitration Act
can be excluded if there is an express agreement to the contrary
and such agreement is the one contemplated by Section 4(2) of
the English Arbitration Act and that in the absence of any such
agreement, the non mandatory provisions become mandatory and
that in view thereof, the provisions of Section 18 of the English
lgc 86 of 124
wps-7804.09 & 7636.09
Arbitration Act, which provides for machinery for appointment of
Arbitral Tribunal, is applicable and the Respondents cannot be
prevented from approaching the English Court for constitution of
the Arbitral Tribunal.
[R] That the curial law and the substantive law relating to Arbitration
Agreement are different and separate; whereas the substantive
law of arbitration governs the existence or validity of the
arbitration, the curial law governs the reference including the
appointment of Tribunal, and that the terms 'Constitution of the
Tribunal' refers to the composition or qualification of the
arbitrators and not its appointment.
[S] That the Petitioners being in breach of the agreement whereby
they have agreed to the exclusive jurisdiction of the English Court
having agreed to London as the seat are not entitled to any anti-
suit injunction.
[T] That the Respondents are not amenable to the jurisdiction of the
Courts in Daman and the Respondents cannot therefore be
injuncted from proceeding in a Court which has exclusive
jurisdiction.
lgc 87 of 124
wps-7804.09 & 7636.09
[U] That the Petitioners are not entitled to anti-suit injunction in view
of the well settled principles laid down in the judgment of the
Apex Court reported in (2003) 4 SCC 341 in the case of Modi
Entertainment Ltd. V/s. W.S.G. Cricket Pvt. Ltd.
[V] The learned Senior Counsel in the alternative submitted that
assuming the Indian Arbitration and Conciliation Act 1996 applies
on account of the choice of London as the venue, the English
Courts, if not having an exclusive jurisdiction, have concurrent
jurisdiction on account of Section 2(4) of the English Arbitration
Act.
[W] That since the parties have not specifically provided for as to what
is to happen in the event of a failure of the procedure for
appointment of the Arbitral Tribunal, and since Section 18 of the
English Act has not been excluded by the parties, the English
Courts have concurrent jurisdiction.
CONSIDERATION - WRIT PETITION NO.7636 OF 2009
36 Heard the learned counsel for the parties and also perused the
Written Submissions filed on behalf of the parties.
lgc 88 of 124
wps-7804.09 & 7636.09
37 This Court in Writ Petition No.7804 of 2009 has taken a prima
facie view that there is in existence an Arbitration Agreement and therefore the
parties can be referred to arbitration. In so far as instant Petition i.e. Writ
Petition No.7636 of 2009 is concerned, the question is whether the Petitioners
are entitled to an anti suit injunction, and whether the English Courts have
jurisdiction.
The adjudication of the said aspect therefore revolves around the
interpretation of clause 18.3 of the IPLA. For the sake of convenience, the said
clause 18.3 is revisited herein under for the purposes of the present Petition.
"Clause 18.3---- All proceedings in such arbitration shall
be conducted in English. The venue of the arbitration
proceedings shall be London. The arbitrators may (but
shall not be obliged to) award costs and reasonable
expenses (including reasonable fees of counsel) to the
Party(ies) that substantially prevail on merit. The
provisions of the Indian Arbitration and Conciliation Act,
1996 shall apply"
39 The defining words therefore are that "The venue of the
arbitration proceedings shall be London", "The provisions of the Indian
Arbitration and Conciliation Act, 1996 shall apply". The learned Senior Counsel
for the Petitioners would contend, relying upon the said words that the parties
have made a choice of Lex Arbitri as well as curial law, and therefore, there is
no question of embarking upon an exercise of determining the seat so as to
lgc 89 of 124
wps-7804.09 & 7636.09
determine the curial law that would be applicable. In the said context, it would
be apposite to refer to the judgment in Bhatia International v/s Bulk Trading
S.A. & Another reported in (2002) 4 SCC 105; which covers the issue of the
application of Part-I of the Indian Arbitration Act. In the said case the
arbitration clause provided that the arbitration would as per the rule of the
International Chambers of Commerce. The arbitration was to be held in Paris.
Section 9 of the Arbitration Act, 1996 was invoked. The Additional District
Judge seating at Indore held that he had jurisdiction against the said order. A
writ was filed which was dismissed and the matter reached the Apex Court.
The Apex Court held that Part-I applies even when the arbitration was to be
held out of India unless parties agreed to exclude application of that part.
Para-32 of the said judgment is material and is reproduced herein under :-
"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."
40 In the said context, a reference could be made to the judgment
cited on behalf of the Petitioners viz. (2007) 5 SCC 692 in the matter of
National Agricultural Co-op Marketing Federation India Ltd. v/s Gains
lgc 90 of 124
wps-7804.09 & 7636.09
Trading Ltd. Paras 8 and 9 are material and are reproduced herein under :-
"8. Let me now examine whether the arbitration
procedure and appointment of arbitrator is governed by
the Act, or by the laws in Hong Kong. This depends on the
interpretation of the arbitration clause in particular the
following words : "the matter in dispute shall then be
referred to and finally resolved by arbitration in Hong
Kong in accordance with the provisions of the Arbitration
and Conciliation Act, 1996." The respondent wants to read
this provision thus :
(i) the matter in dispute shall be referred to
arbitration at Hong Kong;
(ii) the matter in dispute shall be finally resolved
by arbitration at Hong Kong; and
The respondent wants to ignore the words "in accordance
with the provisions of Arbitration and Conciliation Act,
1976 or any other statutory modification, enactment or
amendment thereof for the time being in force" in clause
17 as a meaningless addition. The use of the words
'referred to and finally resolved by arbitration in Hong
Kong', according to respondent, shows an intention that
the arbitration has to take place in Hong Kong in
accordance with Hong Kong Laws.
9. The rules of interpretation require the clause to be
read in the ordinary and natural sense, except where that
would lead to an absurdity. No part of a term or clause
should be considered as a meaningless surplusage, when it
is in consonance with the other parts of the clause and
expresses the specific intention of parties. When read
normally, the arbitration clause makes it clear that the
matter in dispute shall be referred to and finally resolved
by arbitration in accordance with the provisions of the
Arbitration and Conciliation Act, 1996 (or any statutory
modification, enactment or amendment thereof) and the
venue of arbitration shall be Hong Kong. This
interpretation does not render any part of the arbitration
clause, meaningless or redundant. Merely because the
parties have agreed that the venue of arbitration shall be
Hong Kong, it does not follow that Laws in force in Hong
lgc 91 of 124
wps-7804.09 & 7636.09
Kong will apply. The arbitration clause states that the
Arbitration and Conciliation Act, 1996 (an Indian Statute)
will apply. Therefore, the said Act will govern the
appointment of arbitrator, the reference of disputes and
the entire process and procedure of arbitration from the
stage of appointment of arbitrator till the award is made
and executed/given effect to."
(2009) 7 SCC 220 in the matter of Citation Infowares Limited v/s. Equinox
Corporation. Paras 9, 12, 16, 31 and 32 are material and are reproduced
herein under :-
"9. What is important is the agreement dated 25.01.2007
which has already been referred to. Under the said
agreement clause 10.1 provided as under:
"10.1 Governing law- This agreement shall be
governed by and interpreted in accordance with
the laws of California, USA and matters of
dispute, if any, relating to this agreement or its
subject matter shall be referred for arbitration to
a mutually agreed Arbitrator."
Thus, in between, first agreement dated 09.02.2004 and
the subsequent agreement dated 25.01.2007 there was an
essential difference that under the last agreement the
governing law was to be that of California, USA. However,
that clause did provide for arbitration in case of disputes."
"12 So far so good. However, the question that has
arisen is whether this Court would have the jurisdiction in
the present factual scenario and on the backdrop of the
fact that the parties vide the aforementioned clause 10.1
had agreed that the governing law would be that of
California, USA. According to the applicant, it is only this
Court which would have the jurisdiction to appoint the
Arbitrator, while according to the respondent this Court
does not have the jurisdiction to appoint the Arbitrator as
the provisions of the Arbitration Act would necessarily
stand excluded in view of the specific language of clause
10.1 of the agreement wherein the governing law would
be the law of California, USA."
lgc 92 of 124
wps-7804.09 & 7636.09
"16. As against this, Shri Krishnan Venugopal, Learned
Senior Counsel appearing on behalf of the respondent
urged from the language of the clause 10.1 that where the
governing law is agreed between the parties, say foreign
law, then essentially, the question of appointment of
arbitrator also falls in the realm of the said foreign law
and not within the realm of Arbitration and Conciliation
Act."
"31 It may be that the Arbitrator might be required to
take into account the applicable laws which may be the
foreign laws but that does not effect the jurisdiction under
Section 11 which falls in Part I which has been specifically
held applicable in Bhatia International case. The learned
Judge, deciding Indtel Technical Services' case also has
taken into consideration this aspect and has expressed in
Paragraph 36 as follows: (SCC p.317)
"36...... The decisions cited by Mr. Tripathi
and the views of the jurists referred to in NTPC
case support such a proposition. What, however,
distinguishes the various decisions and views of
the authorities in this case is the fact that in
Bhatia International this Court laid down the
proposition that notwithstanding the provisions of
Section 2(2) of the Arbitration and Conciliation
Act, 1996 indicating that Part I of the said Act
would apply where the place of arbitration is in
India, even in respect of international commercial
agreements, which are to be governed by the laws
of another country, the parties would be entitled
to invoke the provisions of Part I of the aforesaid
Act and consequently the application made under
Section 11 thereof would be maintainable.
The situation therefore is identical in the present matter."
"32 Shri Venugopal, however, contended that if
the parties intended specifically in this case that the law
governing the contract was Californian law, as expressed
lgc 93 of 124
wps-7804.09 & 7636.09
in Bhatia International as well as in Indtel Technical
Services' case, an implied exclusion of Part I should be
presumed. I am afraid it is not possible to read such an
implied exclusion. Seeing the striking similarity between
Clause 10.1 in the instant case and Clauses 13.1 and 13.2
in Indtel case which have been quoted above and further
the view expressed by learned Judge in Indtel Technical
Services' case regarding the exclusion, it is only possible to
read even distantly such an implied exclusion of Part I. It
cannot be forgotten that one of the contracting parties is
the Indian party. The obligations under the contract were
to be completed in India. Further considering the nature of
the contract, it is difficult to read any such implied
exclusion of Part I in the language of Clause 10.1. That
argument of learned senior counsel for the respondent
therefore must be rejected."
(2008) 10 SCC 308 in the matter of Indtel Technical Services Private
Limited v/s. W.S. Atkins Rail Limited; Para 36 is relevant and is reproduced
herein under :-
"36 Although, the matter has been argued at great
length and Mr. Tripathi has tried to establish that the
decision of this Court in Bhatia International case is not
relevant for a decision in this case, I am unable to accept
such contention in the facts and circumstances of the
present case. It is no doubt true that it is fairly well-
settled that when an arbitration agreement is silent as to
the law and procedure to be followed in implementing
the arbitration agreement, the law governing the said
agreement would ordinarily be the same as the law
governing the contract itself. The decisions cited by Mr.
Tripathi and the views of the jurists referred to in NTPC
case support such a proposition. What, however,
distinguishes the various decisions and views of the
authorities in this case is the fact that in Bhatia
International this Court laid down the proposition that
notwithstanding the provisions of Section 2(2) of the
Arbitration and Conciliation Act, 1996 indicating that
Part I of the said Act would apply where the place of
arbitration is in India, even in respect of international
lgc 94 of 124
wps-7804.09 & 7636.09
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."
(1988) 1 Lloyds L.R. 116 in the matter of Naviera Amazonica v/s Compania
International, In the said judgment the statement of law in Para (C) on page
119 is relevant and the same is reproduced herein under :-
"Where the parties have failed to choose the law
governing the arbitration proceedings, those
proceedings must be considered, at any rate prima
facie, as being governed by the law of country in which
the arbitration is held, on the ground that it is the
country most closely connected with the proceeding."
Similar view has been expressed in the judgments reported in 2011(3) ARBL
350, in the matter of Prima Builders v/s. Lost City, and (2008) E.W.H.C.
426, in the matter of Breas of Doune v/s. Alfred . The proposition which is
laid down is that once an express choice is made by the parties, the parties
would be bound by the said choice.
41 It is a well settled position based on the commentaries of the
learned authors as also the judicial pronouncements, that the problems arising
out of an arbitration may call for the application of any one or more of the
following laws :-
lgc 95 of 124
wps-7804.09 & 7636.09
[i] the proper law of the contract i.e. the law governing the
contract which creates the substantive rights of the
parties in respect of which dispute has arisen;
[ii] the proper law of arbitration agreement i.e. the law
governing the obligation of the parties to submit
disputes to arbitration and to honour any award; and
[iii] the curial law i.e. the law governing the conduct of the
individual reference.
The learned authors Mustill & Boyd have classified them as
follows :-
[i] The proper law of arbitration agreement governs the
validity of the arbitration agreement, the question
whether a dispute lies within the scope of the
arbitration agreement; 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 dispute.
[ii] The curial law governs : the manner in which the
reference is to be conducted; the procedural powers and
duties of the arbitrator; questions of evidence; the
determination of the proper law of the contract.
[iii] The proper law of the reference governs: the question
whether the parties have been discharged from the
obligation to continue with the reference of the
individual dispute.
The learned author Russell has classified in Chapter 5(c) as
follows:-
lgc 96 of 124
wps-7804.09 & 7636.09
"That with the arbitration agreement itself it is also
open to the parties to specify a procedural law for the
arbitration which is different from the law governing
the arbitration agreement. In Para 2-101 it is made
clear that in the absence of an agreement as to the
procedural law the choice of seat prescribes the
procedural law of arbitration."
The learned authors Mustill & Boyd with reference to determination of the
curial law have stated as follows :-
"The choice of curial law may be made expressly, and
such a choice is effective, even though the law chosen is
neither the proper law of the arbitration agreement nor
the law of the country where the arbitration is to take
place. An express choice of curial law different from that
of the proper law of the arbitration agreement is not
particularly unsual and does not give rise to any
particular problems. An express choice of curial law
different from the law of the country in which the
arbitration is to be held is however almost unknown.
This is no doubt because of the formidable conceptual
and practical problems which are likely to arise should
be necessary to invoke the powers of a court in relation
to the reference.... In the absence of express agreement,
there is a strong prima facie presumption that the parties
intended 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. So in order to
determine the curial law in the absence of an express
choice by the parties it is first necessary to determine the
seat of the arbitration, by construing the agreement to
arbitrate."
The learned Senior Counsel appearing for the Respondents
strenuously urged that in the instant case though London is the "venue" for the
arbitration meetings, it is in fact the seat of arbitration and not a convenient
lgc 97 of 124
wps-7804.09 & 7636.09
geographical location and therefore the English Arbitration Act would apply
and it would be the English Courts that would have jurisdiction. The learned
Senior Counsel for the Respondents in support of the said contention relied
upon a number of judgments which included well known English Judgments. It
would be apposite to consider them at this stage. 2007 2 Lloyd's Law Reports
367, C v D ; 2008 1 Lloyd's Law Reports 239, C v D; 2007 1 Lloyd's Law
Reports 237, A v B; 2007 1 Lloyd's Law Reports page 358, A v B; (2009) 2
Lloyds Law Reports 376, Shashoua v Sharma; 2006 1 AC 221, Lesotho
Highlands Development Authority Vs. Impergilo SpA; (2011) 6 SCC 179,
Dozco India Pvt.Ltd v Doosan Infracore Company Ltd; (2011) 6 161,
Videocon Industries Ltd v Union of India; 2011 9 SCC 735, Yograj
Infrastructure Vs Ssang Yong Engineering; 2010 (3) Arbitration Law
Reports 70, Bhushan Steel Ltd Vs Singapore International Arbitration
Centre; 2011 (3) Arbitration Law Reports 350, Prima Buildwell Pvt. Ltd
Vs. Lost City Development and the judgment of Justice EDER reported in
(2012) EWHC 689 (Comm) between Enercon GmbH and Anr. v/.s Enercon
(India) Ltd.
In C v. D, 2007 Lloyd's Law Reports 367 (supra) the relevant
clause was as follows :-
"Any dispute arising under this policy shall be finally
and fully determined in London, England under the
provisions of the English Arbitration Act of 1950 as
amended"
lgc 98 of 124
wps-7804.09 & 7636.09
It is in the said context the learned Judge has observed in Para 24 of the said
report as follows :-
"By agreeing to the 1996 Arbitration Act, the parties
thus, prima facie, accept the framework of the
mandatory provisions and, absent other agreement, to
the application of the non-mandatory provisions.
Section 4(4) provides that "it is immaterial whether or
not the law applicable to the parties' agreement is the
law of England and Wales. In the context this must
mean the law applicable to the parties agreement to
arbitrate."
Thereafter in Para 25 the learned Judge has observed as follows :-
"Thus, if the parties agree a curial law which is not the
law of England and Wales, provisions of that are
effective to replace any non-mandatory provision in the
1996 Act, insofar as they make provision for such a
matter."
The said judgment can therefore be said to be a judgment on the proposition
that the contract referred to in the provision of Section 2 of the English Act is
not the contract regarding proper law of the underlying contract but the
contract pertaining to the proper law of arbitration and, once such contract
exists, then, it is permissible for the parties to contract out of non-mandatory
provisions.
The second judgment in C v. D 2008 1 Lloyd's Law Reports 239
(supra) reiterates the said position. Para 19 of the said report is material
wherein it has been observed as follows :-
lgc 99 of 124
wps-7804.09 & 7636.09
"That is reinforced by the terms of section 4(5) of the
Act which refers not to a choice of law clause generally
but to a choice of law as "the applicable law in respect
of a matter provided for by a non-mandatory provision
of this part" of the Act. In other words there has to be a
choice of law with regard to the specific provision of the
Act which the parties agree is not to apply."
In the case of A v. B, (2007) 1 Lloyd's Law Reports 237 (supra),
the choice of law of arbitration was Swiss law and the seat was Geneva. In the
said circumstances it was held that the Swiss law was applicable and,
therefore, the English Court had no jurisdiction. In the said case also reference
was made to the decision in Naviera Amazonica and a passage was quoted
from the said judgment in Para 111 thereof which is reproduced herein
under :-
"English law does not recognise the concept of a "de-
localised" arbitration (see Dicey & Morris at pp 541,
542) or of "arbitral procedures floating in the
transitional firmament, unconnected with any municipal
system of law" (Blank Mellat v Helliniki Techniki SA
[1984] QB 291 at p 301 (Court of Appeal). Accordingly,
every arbitration must have "seat" or locus arbitri or
forum which subjects its procedural rules to the
municipal law there in force... Prima facie, ie in the
absence of some express and clear provision to the
contrary, it must follow that an agreement that the
curial or procedural law of an arbitration is to be the
law of X has the consequence that X is also the law of
the "seat" of the arbitration. The Lex fori is then the law
of X and, accordingly, X is the agreed forum of the
arbitration. A further consequence is then that the courts
which are competent to control or assist the arbitration
are the courts exercising jurisdiction at X."
lgc 100 of 124
wps-7804.09 & 7636.09
In the case of A v. B, 2007 1 Lloyd's Law Reports 358 (supra) in
view of the choice of law of arbitration being Swiss and the seat of arbitration
being Geneva, it was held that the part "A" had committed a breach of contract
to invoke the jurisdiction of the English courts.
In the case of Shashoua v. Sharma (supra) the relevant clause
was clause 14 which was the arbitration clause which provided for arbitration
to be in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, Paris. Clause 14.2 provided for
arbitration proceedings to be conducted in the English language and clause
14.4 provided that "the venue of arbitration shall be London, United Kingdom".
However, the matrix contract or the underlying contract was to be governed by
the laws of India, and therefore there was no choice of law of arbitration. It
was in the context of the said facts that it was stated that the English law was
applicable to arbitration. The contention of the Defendants that as the proper
law of the underlying contract was Indian law, the law relating to arbitration is
also Indian law, was negatived by the court on the ground that there was no
choice of the law of arbitration, and therefore, since the seat being in England,
the English law as applicable. It was held in the said judgment that the venue
was equivalent to the seat and the ICC Rules were not the law of arbitration as
the ICC Rules were not connected to any court. A reference was made to the
decision in the case of Braes and Doune. In the said fact situation it was held
lgc 101 of 124
wps-7804.09 & 7636.09
in the said case that English law was applicable as the seat was in England as
there was no choice of the law of arbitration.
In the case of Lesotho Highlands Development Authoritative v.
Impregilo SpA (supra) it has been expressly stated that the law of Lesotho
(that is the proper law of the underlying contract) is not an agreement to the
contrary in writing of the nature referred to in Section 4(2) and 4(5) of the
English Arbitration Act, 1996.
In the case of Dozco India Private Limited v. Doosan Infracore
Company Limited (supra), the seat was Seoul, Korea and it was held that the
same cannot be changed without a written agreement. In para 14 a passage
from Mustill and Boyd was referred to. However, what is required to be noted
is that in the said case also there was no choice of the law of arbitration. It is in
the said context, the seat assumes importance for determining the curial law or
lex arbitri. It is in the fact situation of the said case, it was held that Part-I of
the Indian Arbitration Act would not apply.
In the case of Videocon Industries Ltd. v. Union of India (Supra)
the question that arose in the said case can be found in paras 20 and 24 of the
said report viz. Kuala Lumpur was the designated seat or the seat of arbitration
and the same has been shifted to London, and the next issue was, whether the
lgc 102 of 124
wps-7804.09 & 7636.09
Delhi High Court could entertain a petition filed by the Respondents under
Section 9 of the Arbitration and Conciliation Act, 1996. There was no issue
before the Apex Court as to whether when there is a choice of proper law of
arbitration, the law of the country in which seat is situate will prevail over such
choice. In the said case there was no dispute that Kuala Lumpur was the seat
and the parties had initiated arbitration proceedings on the said basis. The
Apex Court in the said fact situation held that the Delhi High Court would have
no jurisdiction to entertain the Petition under Section 9 of the Indian
Arbitration Act. Notwithstanding the fact that the meetings of the arbitration
were held in London, though the seat of arbitration was in Kuala Lumpur.
In the case of Yograj Infrastructure v. Ssang Yong Engineering
(supra), as can be seen from reading of Para 54, the proper law of arbitration
was also the law of Singapore and the seat was also in Singapore. The law of
Singapore was incorporated in the rules and which rules were agreed to be
applicable by the parties in the contract.
In the case of Bhushan Steel Ltd v. Singapore International
Arbitration Centre (supra), it was held that Part-I of the Arbitration Act would
apply, if there is no agreement regarding the governing law of arbitration.
lgc 103 of 124
wps-7804.09 & 7636.09
In the case of Prima Buildwell Pvt. Ltd v. Lost City Development
(supra) it has been held that in the absence of any other agreement to the
contrary, the law governing the Arbitration Agreement where the arbitration is
agreed to be held is the law of England and Wales.
42 Relying upon the said judgments it was the submission of the
learned Senior counsel for the Respondents that in the face of the express
choice of seat i.e. the place/venue of the arbitration proceedings, the Courts
have very rarely (and for exceptional reasons) disregarded the choice of seat of
the parties.
43 The next limb of the submissions of the learned Senior Counsel for
the Respondents was that in the absence of an express agreement as to the
procedural law, the choice of seat prescribes the procedural law of arbitration.
In support of which submission, the learned Senior Counsel for the
Respondents relied upon the judgment of the House of Lords in James Miller
& Partners Ltd. V/s Whitworth Street Estate, (supra). In the said judgment
a passage from Dicey and Morris has been quoted with approval which is
reproduced herein under :-
"Where the parties have failed to choose the law
governing the arbitration proceedings, those
proceedings must be considered, at any rate prima facie,
as being governed by the law of the country in which
the arbitration is held on the ground that it is the
country most closely connected with the proceeding"
lgc 104 of 124
wps-7804.09 & 7636.09
The learned Senior Counsel in support of the aforesaid submission also relied
upon the judgment in the case of Bank Mellat V/s Helliniki Techniki SA,
(supra) wherein it is held that the curial law or the procedural law of the
forum of arbitration will apply in the absence of any contractual provision to
the contrary. The following excerpt on page 301 of the said judgment is
material and is reproduced herein under :-
"The fundamental principle in this connection is that
under our rules of private international law, in the
absence of any contractual provision to the contrary, the
procedural (or curial) law governing arbitrations is that
of the forum of the arbitration, whether this be England,
Scotland or some foreign country, since this is the
system of law with which the agreement to arbitrate in
the particular forum will have its closest connections :
see Whitworth Street Estates (Manchester) Ltd. v. James
Miller & Partners Ltd . [1970] A.C. 583"
In support of the aforesaid submission the learned Senior Counsel also relied
upon the judgment in the case of Naviera Amazonica V/s Compania
Internacional, (supra).
"Before considering the correct construction of this
particular contract on the question whether the "seat"
(or whatever term one uses) of any arbitration
thereunder was agreed to be London or Lima, or---- to
put it colloquially--- whether this contract provided for
arbitration in London or Lima, I must summarize the
state of the jurisprudence on this topic and deal with
the general submissions which were debated on this
appeal. In that connection we were referred to
Oppenheim & Co. v. Mahomed Haneef, [1922] 1 A.C.
482 at p.487; James Miller & Partners Ltd. v. Whitworth
lgc 105 of 124
wps-7804.09 & 7636.09
Street Estates (Manchester) Ltd, [1970] 1 Lloyd's Rep.
269; [1970] A.C. 583, in particular per Lord Wilberforce
at pp.281 and 616, 617; Black Clawson International
Ltd. v. Paperwerke Waldhof-Aschaffenburg A.G., [1981]
2 Lloyd's Rep. 446 per Mr. Justice Mustill (as he then
was) at p.453; Dicey & Morris on The Conflict of Laws
(11th ed.) vol.1, r. 58 at pp. 539 to 542; Mustill & Boyd
on Commercial Arbitration, passim; D. Rhidian Thomas
"The Curial Law of Arbitration Proceedings", Lloyd's
Maritime and Commercial Law Quarterly (1984) p.491;
and Redfern and Hunter "The Law and Practice of
International Commercial Arbitration" (1986) at pp. 52
to 70. In addition, among many other publications one
should mention the two important earliest and most
recent discussions of this topic; first Dr. F. A. Mann's
"Lex facit arbitrium" in 1967, reprinted in Arbitration
International, 1986, Vol. 2 p. 241 and now "The new lex
mercatoria" by Lord Justice Mustill in Bos and
Brownlies "Liber Amicorum for Lord Wilberforce"
(1987) at p. 149
Without analysing any of this material in detail,
the conclusions which emerge from it can be
summarized as follows :
A. All contracts which provide for arbitration and
contain a foreign element may involve three potentially
relevant systems of law. (1) The law governing the
substantive contract. (2) The law governing the
agreement to arbitrate and the performance of that
agreement. (3) The law governing the conduct of the
arbitration. In the majority of cases all three will be the
same. But (1) will often be different from (2) and (3).
And occasionally, but rarely, (2) may also differ from
(3).
In the present case there was no investigation of
(1), the substantive law, because nothing turns on it,
but I am content to assume that this was the law of Peru
on the ground that this was the system with which this
policy was most closely connected. On this appeal there
was also ultimately no contest about law (2) which may
be regarded as the substantive law of the agreement to
arbitrate. The Judge rightly held that on the wording
lgc 106 of 124
wps-7804.09 & 7636.09
of the arbitration clause the parties had agreed
expressly that their agreement to arbitrate should be
subject to English law and that the leave granted under
O.11 to serve the insurers out of the jurisdiction had
been correct on this ground. Accordingly, the entire
issued turned on law (3), the law governing the conduct
of the arbitration. This is usually referred to as the
curial or procedural law, or the lex fori.
B. English law does not recognize the concept of a
"de-localised" arbitration (see Dicey & Morris at pp.
541, 542) or of "arbitral procedures floating in the
transnational firmament, unconnected with any
municipal system of law" (Bank Mellat v. Helliniki
Techniki S.A., [1984] Q.B. 291 at p.301 (Court of
Appeal)). Accordingly, every arbitration must have a
"seat" or locus arbitri or forum which subjects its
procedural rules to the municipal law which is there in
force. This is what I have termed law (3).
C. ... Where the parties have failed to choose the
law governing the arbitration proceedings, those
proceedings must be considered, at any rate prima facie,
as being governed by the law of the country in which
the arbitration is held, on the ground that it is the
country most closely connected with the proceedings...
See Dicey & Morris Vol. 1 at p.539 and the references to
the approval of this classic statement by the House of
Lords in Whitworth Stree Estate v. James Miller (sup).
Or, to quote the words of Mr. Justice Mustill in the Black
Clawson case (sup.) at p.453 where he characterized
law (3) as "the law of the place where the reference is
conducted: the lext fori". Although Mr.Milligan
contested this, I cannot see any reason for doubting that
the converse is equally true. Prima facie, i.e. in the
absence of some express and clear provision to the
contrary, it must follow that an agreement that the
curial or procedural law of an arbitration is to be the
law of X has the consequence that X is also to be the
"seat" of the arbitration. The lex fori is then the law of
X, and accordingly X is the agreed forum of the
arbitration. A further consequence is then that the
lgc 107 of 124
wps-7804.09 & 7636.09
Courts which are competent to control or assist the
arbitration are the Courts exercising jurisdiction at X.
Prima facie, therefore, the forum of any
arbitration which might arise under this policy was
London, since the arbitration clause provided, in effect,
that the law in force in London was to be the curial or
procedural law of any such arbitration.
D. In the light of some of the matters debated before
us it may be helpful to add that in my view, none of
these principles is different in relation to "institutional"
arbitrations, such as those conducted under the rules of
the International Chamber of Commerce or the London
Court of International Arbitration. The relevant rules of
such bodies are incorporated by reference into the
contract between the parties, and their binding
contractual effect will be respected and enforced by the
Courts of the forum, except in so far as they may
conflict with the public policy or any mandatory
provisions of the lext fori."
A reading of the said judgments relied upon by the learned Senior Counsel for
the Respondents makes it clear that it is only in the absence of an agreement as
to the procedural law that the choice of seat assumes significance as in that
event the seat prescribes the procedural law.
In so far as the decision of Justice EDER rendered in the
proceedings between the Petitioners and the Respondents is concerned, it is
required to be noted that the learned Judge in Para 54 has himself observed as
follows :-
"Another reason why I have reached my conclusion
somewhat reluctantly is that I would have reached the
conclusion that the "seat" of the arbitration is London
lgc 108 of 124
wps-7804.09 & 7636.09
which is, of course, the conclusion which the claimants
say Judge Purohit reached. Given my conclusion that
these proceedings be stayed, my views on this issue are
obiter. However, this issue was addressed at some length
and in the event that this matter goes further or
otherwise comes back before the court, it may be
convenient to set out my brief reasons for such
conclusion. It may also be of assistance to the BHC if an
when it comes to hear the Writ Petitions although, as I
say, my views are strictly obiter."
Further in Para 55, after referring to the issue which arises in the contest of the
question of "seat", the learned judge has observed as follows :-
"These are difficult issues. However, for present
purposes I propose to address the question of "seat" on
assumption that it is to be determined on a balance of
probability as a matter of English law by the court
although I recognise that those assumptions are not
necessarily correct."
The said decision therefore can hardly be said to support the contention of the
Respondents as regards London being the "seat" of arbitration as the learned
Judge has himself observed that the views expressed by him were obiter.
44 The submission of the learned Senior Counsel for the Respondents
that the law governing the arbitration proceedings will be the English law and
that the parties have conferred exclusive jurisdiction on the English Court, and
thereby have excluded the jurisdiction of the Indian Court is made on the basis
that the seat being London, the English Arbitration and Conciliation Act, 1996
lgc 109 of 124
wps-7804.09 & 7636.09
applies, and therefore, the arbitration proceedings are to be governed by the
English Court, and therefore, the jurisdiction of the Indian Courts is ousted.
45 The issue which therefore arises is, as to whether in the instant
case enquiry as to determine the seat of arbitration is necessary so that the
same would result in determination of the curial law that would be applicable.
The legal position as can be seen that emerges from the judgments cited by the
learned Senior Counsel for the Petitioners is that the said enquiry is necessary
if the parties have failed to choose the curial law, as in the instant case it is not
disputed by the Respondents that the law relating to Arbitration Agreement is
the Indian Arbitration Act. In the context of the said issue it would be relevant
to revert to the excerpt of clause 18.3 of the IPLA which is as follows :-
"Clause 18.3---- All proceedings in such arbitration shall
be conducted in English. The venue of the arbitration
proceedings shall be London. The arbitrators may (but
shall not be obliged to) award costs and reasonable
expenses (including reasonable fees of counsel) to the
Party(ies) that substantially prevail on merit. The
provisions of the Indian Arbitration and Conciliation Act,
1996 shall apply"
As can be seen that after providing for award costs and reasonable expenses
(including reasonable fees of counsel) to the Party(ies) that substantially
prevail on merit. The said clause provides that the provisions of the Indian
Arbitration and Conciliation Act, 1996 shall apply. If the said clause is read in
the ordinary and natural sense, the placement of the words that "the Indian
lgc 110 of 124
wps-7804.09 & 7636.09
Arbitration and Conciliation Act shall apply" in the last clause 18.3 indicates
the specific intention of the parties to the application of the Indian Arbitration
Act, not only to the Arbitration Agreement but also that the curial law or the
Lex Arbitri would be the Indian Arbitration Act. The application of the Indian
Arbitration Act therefore can be said to permeate clause-18 so that in the
instant case laws (2) and (3) are same if the classification as made by the
learned authors is to be applied. The reference to the Indian Arbitration Act is
therefore not merely a clarification as to the proper law of the arbitration
agreement as is sought to be contended on behalf of the Respondents. It has to
be borne in mind that the parties are businessmen and would therefore not
include words without any intent or object behind them. It is in the said
context, probably that the parties have also used the word "venue" rather than
the word "seat" which is usually the phrase which is used in the clauses
encompassing an Arbitration Agreement. There is therefore a clear and
unequivocal indication that the parties have agreed to abide by the Indian
Arbitration Act at all the stages, and therefore, the logical consequence of the
same would be that in choosing London as the venue the parties have chosen it
only as a place of arbitration and not the seat of arbitration which is a juristic
concept.
46 The proposition that when a choice of a particular law is made,
the said choice cannot be restricted to only a part of the Act or the substantive
lgc 111 of 124
wps-7804.09 & 7636.09
provision of that Act only. The choice is in respect of all the substantive and
curial law provisions of the Act. The said proposition has been settled by
judicial pronouncements in the recent past. A useful reference could be made
to the judgment of a learned Single Judge of the Gujarat High Court reported
in XLVII Gujarat Law Reports 658 in the case of Hardy Oil and Gas Ltd. Vs
Hindustan Oil Exportation Co. Ltd.. Para 11.3 of the said judgment is relevant
is reproduced herein under :-
"However, their Lordships observed in Para 32 that in
cases of international commercial arbitrations held out
of India provisions of Part-I would apply unless the
parties by agreement, express or implied, exclude all or
any of its provisions. In that case 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
would not apply. Thus, even as per the decision relied
upon by learned Advocate for the appellant, if the
parties have agreed to be governed by any law other
than Indian law in cases of international commercial
arbitration, same would prevail. In the case on hand, it
is very clear even on plain reading of Clause 9.5.4 that
the parties' intention was to be governed by English law
in respect of arbitration. It is not possible to give a
narrow meaning to this clause as suggested by the Ld.
Sr. Advocate, Mr. Thakore, that it would apply only in
case of dispute of arbitration agreement. It can be
interpreted to only to mean that in case of any dispute
regarding arbitration, English law would apply. When
the clause deals with the place and language of
arbitration with a specific provision that the law
governing arbitration will be the English Law, such a
narrow meaning cannot be given. No other view is
possible in the light of exception carved out of clause
0.5.1 relating to arbitration. Term "Arbitration", in
clause 9.5.4 cannot be taken to mean arbitration
agreement. Entire arbitral proceedings have to be taken
to be governed by English law"."
lgc 112 of 124
wps-7804.09 & 7636.09
47 The argument which was advanced on behalf of the Petitioner
therein who had invoked the Indian Arbitration Act to say that whereas the
choice pertained only to the existence and validity of the Arbitration
Agreement other matters were not covered by that choice and therefore an
application under Section 9 the Indian Arbitration Act was maintainable was
negatived by the learned Judge. The said view in Hardy Oil and Gas Ltd
(supra) has been approved by the Apex Court in Videocon Industries Ltd
(supra) and followed by a learned Single Judge of this Court in Sakuma
Export Ltd. v/s Louis Drefus Commodities reported in 2012 (1) Bom CR 547,
(Paras 35-38) are relevant and are reproduced herein under :-
35. There is yet another ground on which the aforesaid
conclusion can be reached. It also arises out of the
express agreement between the parties. As noted above,
the express agreement between the parties stipulates
that Rules of the Refined Sugar Association, London
form part of the contract, if they are not inconsistent
with the other provisions of the contract. The first
clause relied upon by the Respondent from the
Introduction/Preamble to the Rules of Refined Sugar
Association relating to Arbitration reads as under :
"When the parties to a contract have incorporated a clause
to the effect that any dispute arising out of it shall be
referred to The Refined Sugar Association (sometimes
referred to as the RSA) such dispute may be referred to the
Association for settlement in accordance with the Rules
relating to Arbitration and the Arbitration Act, 1996."
36. From the above clause, it is clear that once the
parties to the contract incorporate a clause to the effect
that any dispute arising out of the contract shall be
referred to the Refined Sugar Association, such dispute
must be settled in accordance with the Rules relating to
Arbitration and English Arbitration Act, 1996. Therefore
even on this analysis it is clear that this Court does not
lgc 113 of 124
wps-7804.09 & 7636.09
have jurisdiction to entertain the present Petition under
Section 34 of the Arbitration and Conciliation Act, 1996.
37. Again, the second clause relied upon by the
Respondent from the Introduction/Preamble to the
Rules of Refined Sugar Association relating to
Arbitration reads as under :
"The Association's Rules and Arbitration procedures are
conducted in accordance with English Law. However,
where the parties have agreed a contract law other than
English, the Association may, with the parties' agreement,
decide the dispute."
38. The above Clause clearly stipulates that the
Association's Rules and Arbitration procedures are
conducted in accordance with English Law and it is only
where the parties have agreed to a contract law other
than English, the association may, with the parties
agreement decide the dispute. In the present case, the
parties have not agreed to any contract law other than
English. In view of categorical assertion in the clause set
out hereinabove that the Association Rules and
Arbitration procedures are conducted in accordance
with English law coupled with the fact that the parties
have expressly agreed to be governed by the
Association's Rules relating to arbitration, there remains
no doubt in concluding that the parties have expressly
agreed that the arbitration would be conducted in
accordance with the English law. Again in Rule 8 it is
clearly stated that "For the purpose of all proceedings in
arbitration, the contract shall be deemed to have been
made in England, ........England shall be regarded as the
place of performance, disputes shall be settled according
to the law of England............. The seat of the arbitration
shall be England and all proceedings shall take place in
England.........." In view thereof, nothing turns on the
issue raised by the Petitioner that the Respondents have
not exactly incorporated the recommended arbitration
clause which include a condition that "such arbitration
shall be conducted in accordance with English Law". As
set out hereinabove, the introduction to the
Association's Rules/Preambles provide that the
arbitration proceedings are generally conducted in
accordance with English Law except where the parties
have agreed to a contract law other than English. In
lgc 114 of 124
wps-7804.09 & 7636.09
view thereof, though it is beyond any doubt from the
aforestated decisions of the Hon'ble Supreme Court that
the curial law does not govern the question pertaining
to the maintainability of the present Petitions u/s.34 of
the Arbitration & Conciliation Act, 1996, it is established
that the parties herein have agreed to the Association's
Rules and arbitration procedures being conducted in
accordance with English law and Mr. Chinoy is not
correct in his submission that the agreement contains no
provision stipulating a choice of law governing the
arbitration procedure."
48 In the judgment reported in (2012) 2 BCR 168 in the matter of
Eitzen vs Ashapura what fell for consideration before a learned Single Judge
of this Court was the interpretation of the clause which stated that "English law
to apply". The said law was interpreted to mean that the same governed the
entire arbitration proceedings and the use of the expression "umpire" clearly
established that the parties chose the application of the English law as the said
expression "umpire" appears in the English law. The said judgment in Eitzen
(supra) has relevance to the present case as in the present case Clause 18.3 of
the IPLA uses the expression "Presiding Arbitrator" which expression finds
place in the Indian Arbitration Act and not in the English Arbitration Act. This
therefore is one more circumstance or indicia which shows that the choice of
law was the Indian Arbitration Act and such choice having been made by the
parties, the same governed the entire arbitration. The findings of the Lower
Appellate Court on the aspect of the law applicable which are drawn on the
basis of London being the "seat" of arbitration are therefore unsustainable.
lgc 115 of 124
wps-7804.09 & 7636.09
49 Though in terms of interpretation of Clause 18.3, this Court has
reached a conclusion that the lex arbitri would be the Indian Arbitration Act.
The question would be, whether the Indian Courts would have exclusive
jurisdiction. The nexus between the "seat" or the "place" of arbitration vis-a-
vis the procedural law i.e. the lex arbitri is well settled by the judicial
pronouncements which have been referred to in the earlier part of this
judgment. A useful reference could also be made to the learned authors
Redfern and Hunter who have stated thus :-
"the place or seat of the arbitration is not merely a
matter of geography. It is the territorial link between the
arbitration itself and the law of the place in which that
arbitration is legally situated..."
The choice of seat also has the effect of conferring exclusive
jurisdiction to the Courts wherein the seat is situated. In the instant case, as
can be seen, there is no agreement between the parties as regards the "seat" of
arbitration as the parties have chosen London as only the venue for the
arbitration meetings. In view of London being the venue for the arbitration
meetings, the question that is posed is, whether the English Courts can exercise
jurisdiction in support of arbitration between the parties.
50 It is required to be noted that the instant case is a uncommon case
where there is no agreement between the parties as regards the seat of
arbitration, and the agreement between the parties is only as regards London
lgc 116 of 124
wps-7804.09 & 7636.09
being the venue for arbitration. The Arbitration Agreement in the instant case
also does not provide what is to happen in the event of a failure of the
procedure for appointment of the Arbitral Tribunal. Therefore in so far as
Section 18 of the English Act is concerned, which is a non-mandatory
provision, the application of the said provision has not been expressly excluded
by the parties, and therefore, the said provision is available for invocation by
the parties. In the context of London being only the venue and not the seat of
arbitration. It would be apposite to refer to Section 2(4) of the English
Arbitration Act which reads thus:-
"The Court may exercise a power conferred by any
provision of this Part not mentioned in subsection (2) or
(3) for the purpose of supporting the arbitral process
where
(a) no seat of the arbitration has been designated or
determined, and
(b) by reason of a connection with England and
Wales or Northern Ireland the court is satisfied
that it is appropriate to do so."
Therefore in so far as Section 2(4) of the English Act is concerned,
the two requirements for exercising power under any of the provisions of the
English Arbitration Act, are that no seat of arbitration has been designated, and
that by reason of a connection with England and Wales or Northern Ireland the
court is satisfied that it is appropriate to do so. In the instant case, both the
conditions for the exercise of power under the said Part of the English Act are
satisfied, as no place other than London is mentioned in clause 18 of the IPLA,
lgc 117 of 124
wps-7804.09 & 7636.09
since London is not the seat, and therefore, no seat of arbitration has been
designated by the parties. Secondly since the meetings of the arbitration are to
take place in London, there is a strong connection between the arbitration and
the country wherein the arbitration meetings have to take place. As indicated
above Section 2(4) of the English Arbitration Act clamps itself in view of the
peculiar fact situation where the seat of arbitration has not been designated by
the parties.
Looked at from the said angle i.e. the territorial link between the
arbitration itself and the law of the place in which the arbitration meetings are
to be held, the conclusion that is is required to be drawn is that the English
Courts would have concurrent jurisdiction. The Lower Appellate Court has also
held that no exclusive jurisdiction has been given to the Indian Courts. Hence
the Respondents cannot be said to have committed a breach of the agreement
by invoking the jurisdiction of the English Court for constituting the Arbitral
Tribunal. The finding of the Lower Appellate Court to the said extent is
required to be sustained.
51 The contention of the learned Senior Counsel for the Respondents
that splitting up of the application of Indian Arbitration Act is permissible,
inasmuch as in respect of the Arbitration Agreement the Indian Arbitration Act
would apply but in so far as curial law is concerned, the provisions of the
lgc 118 of 124
wps-7804.09 & 7636.09
English Arbitration Act would have application. The said contention proceeds
on the basis that London is the seat of arbitration and therefore, the English
Arbitration Act would apply. The Indian Arbitration Act contains both the
procedural and the curial provisions, and therefore, when the parties have
agreed to the application of the Indian Arbitration Act, it has to apply as a
whole and not in parts. The submission of the learned Senior Counsel for the
Petitioners based on Sumitomo Heavy Industries (supra) that the appointment
of the Arbitral Tribunal precedes the reference and therefore the curial law is
not applicable is well founded. However for the reason that the parties have
chosen London as the place of arbitration, and since there is no agreement
between the parties as regards the seat of arbitration, Section 2(4) of the
English Act clamps itself as it were on the agreement; and therefore
notwithstanding the fact that in terms of the law laid down in Hardy Oil and
Gas Ltd (supra) and Sakuma Export Ltd (supra), the invocation of the
jurisdiction of the English Courts for taking such measures as are needed in
support of arbitration cannot be prevented as the English Courts can be said to
have concurrent jurisdiction.
52 As regards the submission of the learned Senior Counsel for the
Respondents based on Section 4(2) of the English Act is concerned, the same
has to be read with Section 4(5) of the English Act. The said Section provides
that if a choice of law other than the law of England and Wales or Northern
lgc 119 of 124
wps-7804.09 & 7636.09
Ireland as applicable law in respect of a matter provided for by a non-
mandatory provision of this part is equivalent to an agreement making
provision about that matter. Thus, as per the English Act, when a choice of law
other than law of England is made in respect of a non-mandatory matter
(appointment of Arbitral Tribunal governed by Section 18 of the Act) then such
a choice will constitute the agreement contemplated by Section 4 (2) of the
English Act so as to make the English Act in-applicable as regards non-
mandatory provision. In the present case, since there is no agreement between
the parties as regards the seat and, since the parties have agreed to hold the
arbitration meetings at London, the parties have expressly not excluded the
application of Section 18 of the English Arbitration Act, and is therefore
available for invocation by the parties. The parties would therefore be entitled
to approach the English Courts for constitution of the Arbitral Tribunal.
53 In so far as the relief of anti suit injunction is concerned, the
learned Senior Counsel for the Petitioners sought to rely upon the judgment of
the Apex Court reported in (1987) 1 SCC 496 in the matter of ONGC v/s.
Western Company, North America. The said anti suit injunction has been
sought by the Petitioners on the ground of breach of agreement by the
Respondents and on the ground of London being forum non-conveniens. The
learned Senior Counsel for the Petitioners contended that the Daman Court has
a personal jurisdiction over the Respondents. In support of the said contention
lgc 120 of 124
wps-7804.09 & 7636.09
he sought to rely upon the judgment of the Apex Court reported in (1995) 1
SCC 478 in the matter of New Horizons Ltd. v/s. Union of India, and the
judgments of this Court in Tarabai's case, Girdharlal Shankar Dave's case
and Ishardas's case (supra).
Per contra, in so far as the aspect of anti suit injunction is
concerned, the learned Senior Counsel for the Respondents relied upon the
judgment of the Apex Court reported in (2003) 4 SCC 341 in the matter of
Modi Entertainment v/s. W.S.G. Cricket Private Ltd. The principles spelt out
by the Apex Court in the said case whilst considering the application for anti
suit injunction can be seen from Para 24 of the said report which is reproduced
herein under :-
"From the above discussion the following principles
emerge :
(1) In exercising discretion to grant an anti-suit
injunction the court must be satisfied of the following
aspects : -
(a) the defendant, against whom injunction is sought, is
amenable to the personal jurisdiction of the court;
(b) if the injunction is declined the ends of justice will
be defeated and injustice will be perpetuated; and
(c) the principle of comity - respect for the court in
which the commencement or continuance of
action/proceeding is sought to be restrained - must be
borne in mind;
(2) in a case where more forums than one are
available, the Court in exercise of its discretion to grant
anti-suit injunction will examine as to which is the
appropriate forum (forum conveniens) having regard to
the convenience of the parties and may grant anti-suit
lgc 121 of 124
wps-7804.09 & 7636.09
injunction in regard to proceedings which are oppressive
or vexatious or in a forum non-conveniens;
(3) Where jurisdiction of a court is invoked on the basis
of jurisdiction clause in a contract, the recitals therein in
regard to exclusive or non-exclusive jurisdiction of the
court of choice of the parties are not determinative but
are relevant factors and when a question arises as to the
nature of jurisdiction agreed to between the parties the
court has to decide the same on a true interpretation of
the contract on the facts and in the circumstances of
each case;
(4) a court of natural jurisdiction will not normally
grant anti-suit injunction against a defendant before it
where parties have agreed to submit to the exclusive
jurisdiction of a court including a foreign court, a forum
of their choice in regard to the commencement or
continuance of proceedings in the court of choice, save
in an exceptional case for good and sufficient reasons,
with a view to prevent injustice in circumstances such as
which permit a contracting party to be relieved of the
burden of the contract; or since the date of the contract
the circumstances or subsequent events have made it
impossible for the party seeking injunction to prosecute
the case in the court of choice because the essence of the
jurisdiction of the court does not exist or because of a
vis major or force majeure and the like;
(5) where parties have agreed, under a non- exclusive
jurisdiction clause, to approach a neutral foreign forum
and be governed by the law applicable to it for the
resolution of their disputes arising under the contract,
ordinarily no anti-suit injunction will be granted in
regard to proceedings in such a forum conveniens and
favoured forum as it shall be presumed that the parties
have thought over their convenience and all other
relevant factors before submitting to non-exclusive
jurisdiction of the court of their choice which cannot be
treated just an alternative forum;
(6) a party to the contract containing jurisdiction
clause cannot normally be prevented from approaching
the court of choice of the parties as it would amount to
lgc 122 of 124
wps-7804.09 & 7636.09
aiding breach of the contract; yet when one of the
parties to the jurisdiction clause approaches the court of
choice in which exclusive or non-exclusive jurisdiction is
created, the proceedings in that court cannot per se be
treated as vexatious or oppressive nor can the court be
said to be forum non-conveniens; and
(7) the burden of establishing that the forum of
choice is a forum non-conveniens or the proceedings
therein are oppressive or vexatious would be on
the party so contending to aver and prove the same.
In view of the conclusion that this Court has reached, namely that the English
Courts would have concurrent jurisdiction to act in support of arbitration, the
case of the Petitioners for an anti suit injunction does not stand to scrutiny.
However, in so far as the aspect of forum non- conveniens is concerned, in my
view, since the Petitioners have agreed to London as the venue for arbitration,
they cannot be heard to complain that the Courts at London are forum non-
conveniens for them. The Petitioners have appeared before the said Courts,
and therefore, the case of forum non- conveniens is bereft of any merit.
54 For the reasons mentioned herein-above the finding (refer para 63
of the impugned judgment) of the Lower Appellate Court that London is the
seat of arbitration is required to be interfered with, the said finding is
accordingly set aside and it is held that London is only a geographically
convenient location which the parties have chosen as a venue to hold the
arbitration meetings.
lgc 123 of 124
wps-7804.09 & 7636.09
CONCLUSIONS - WRIT PETITION NO.7636 OF 2009
55 On an interpretation of clause 18.3 of the IPLA this Court has
reached a conclusion that the curial law or Lex Arbitri would be the Indian
Arbitration Act. Though the Indian Arbitration Act would apply, however, in
view of the fact that the parties have chosen London as the venue for the
arbitration meetings, the English Courts would have concurrent jurisdiction
and therefore the jurisdiction of the English Courts can also be invoked by the
parties for taking such measures as are required in support of arbitration. The
judgment and order of the Lower Appellate Court on the aspect of anti suit
injunction is, therefore, sustained but on a different ground which is
mentioned in the body of this Judgment. The above Writ Petition No.7636 of
2009 is accordingly dismissed. Rule discharged, with no order as to costs.
[R.M.SAVANT, J]
lgc 124 of 124
