Citation : 2016 Latest Caselaw 1591 Bom
Judgement Date : 18 April, 2016
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
Misc. Civil Application No.1319 of 2015
Integrated Sales Services Limited,
A Company registered under the
Laws of Hong Kong, having its
registered Office at 16/F,
Jonsim Place, 228, Queens Road,
East, Wanchal, Hong Kong,
through its power of attorney
holder Mr. M. Bharath s/o
Muralidhara,
Aged about 29 years,
residing at 428, 3rd cross,
AGS Layout, Bangalore-560 061. ... Applicant/
Decree-Holder
Versus
1. DMC Management Consultants Ltd.,
A Company duly registered under
the Companies Act, 1956, having
its Registered Office at C/o M.L. Gupta,
C-2/2098, Vasantkunj, New Delhi-110 007,
through its Directors :
(i) Shri Vinod Vinayak Muley,
Flat 6, Shreekrishna Appt.,
Plot No.22, Abhyankar Nagar,
Nagpur-440 010.
(ii) Shailesh Sudhakar Chauthaiwale,
P.No.75, Karve Nagar,
Wardha Road,
Nagpur-440 025.
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2. Shri Arun Dev s/o Govindvishnu
Uppadhyaya,
Aged about 65 years,
Occupation - Business,
R/o Behind Saraf Chambers,
Mount Road, Sadar,
Nagpur.
3. Gemini Bay Transcription Pvt. Ltd.,
241/A, Opp. Fidvi Complex,
Near Residency School,
Residency Road,
Nagpur-440 001,
through its Directors :
(i) Ratan Ram Pathak,
101, Sai Krupa Towers,
Nelson Square,
Chhindwara Road,
Nagpur-440 030.
(ii) Naresh Kumar Kopisetti,
LIG 96, Sugar Nagar,
Post Uppalwadi,
Nagpur-440 026. ... Non-Applicants/
Judgment-Debtors
Shri Deven Chauhan, Advocate for Applicant.
Shri Willson Mathew, Advocate for Non-Applicant No.1.
Shri Sunil Manohar, Senior Advocate, assisted by Shri A.G. Gharote
and Ms Rohini Jaiswal, Advocates, for Non-Applicant No.2.
Shri Anand Jaiswal, Senior Advocate, assisted by Shri Shyam Dewani,
Advocate, for Non-Applicant No.3.
Coram : R.K. Deshpande, J.
Date of Reserving the Judgment : 7th April, 2016
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Date of Pronouncing the Judgment : 18th April, 2016
Judgment :
1. Admit.
2. The International Arbitration Tribunal has passed an award
on 28-3-2010 in favour of the applicant-Integrated Sales Services Ltd.,
a Company based in Hong Kong, holding the non-applicant No.1-DMC
Management Consultants Ltd., the applicant No.2-Arun Dev s/o
Govindvishnu Uppadhyaya, and the non-applicant No.3-Gemini Bay
Transcription Private Ltd. jointly and severally liable to pay the
applicant-Company the sum of 6,948,100 dollars within a period of
thirty days from the date of the award, failing which the
applicant-Company would become entitled to recovery of interest
computed from the date of termination of the Representation
Agreement (22-7-2008) on the total sum of the award at the highest
legal rate allowable under the Delaware law. The non-applicants are
also held jointly and severally liable to reimburse the administrative
fees and expenses of the Tribunal totaling 14,000 dollars, the
compensation and expenses of the Arbitrator totaling 49,903 dollars,
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and the fees and expenses incurred in the matter totaling
63,903 dollars.
3. This application is filed under Section 49 of the Arbitration
and Conciliation Act, 1996 read with Order XXI, Rule 1 of the Code of
Civil Procedure for execution of the arbitral award dated 28-3-2010.
Initially, such application was filed before the Principal District Judge
at Nagpur, who heard the matter and closed it for judgment on
5-10-2015. By virtue of subsequent amendment introduced to
Section 47 of the Arbitration and Conciliation Act, 1996 with effect
from 23-10-2015, the jurisdiction to entertain, try and decide such
application is conferred upon the High Court and the learned Principal
District Judge ceased to have any jurisdiction. However, the learned
Principal District Judge, by his final judgment dated 5-11-2015, has
rejected all the objections raised to the executability of the award and
made the said award as a decree of the Court to be executed.
4. The learned Advocates appearing for the parties agree that
the judgment delivered by the learned Principal District Judge in this
matter on 5-11-2015 is without jurisdiction and, therefore, this
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application is moved before this Court for making the arbitral award
as a decree of the Court. The non-applicants have raised several
objections, including those under Section 48 of the said Act, claiming
refusal to enforce the award passed by the International Arbitration
Tribunal, which are required to be decided now afresh. The parties
have agreed that the question of leading oral evidence in support of
their rival contentions does not at all arise and the pure questions of
law are raised, which can be decided on the basis of the documents
which are admitted and placed on record.
5. The facts in detail are as under :
On 28-9-2000, the first Representation Agreement between
the Hong Kong based applicant-Integrated Sales Services Ltd.
(described therein as "the representative") signed by the
Director-Terry L. Peteete, and the non-applicant No.1-India based
DMC Management Consultants Ltd. at Nagpur, registered under the
Companies Act, 1956 (described therein as "the Company") by one
Rattan Pathak as the Managing Director, was entered into for
providing assistance to the non-applicant No.1-Company to sell its
goods and services to prospective customers and to identify potential
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services of investment and investors, upon the terms and conditions
agreed therein. The said agreement was brought into force with effect
from 3-10-2000.
6. The first amendment to the said Representation Agreement
was signed on behalf of the applicant-Company by Terry L. Peteete;
and on behalf of the non-applicant No.1-Company, by Arun Dev
Upadhyaya, the non-applicant No.2. By the second amendment signed
by Terry L. Peteete on behalf of the applicant-Company, and by one
Rattan Pathak on behalf of the non-applicant No.1-Company, the first
amendment was declared as null and void. Thus, the relationship
between the parties to the Representation Agreement was governed by
the agreement which came into force on 3-10-2000 and the second
amendment to it.
7. Clause 8(d) of the Representation Agreement brought into
force on 3-10-2000 deals with the interpretation, amendment, law,
arbitration and assignments. It makes the agreement subject to the
laws of State of Missouri, U.S.A., and provides that in the event that a
dispute arises in connection with this agreement, such dispute shall be
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referred to a single arbitrator in Kansas City, Missouri, U.S.A. The
applicant-Company invoked the aforesaid clause of the arbitration and
lodged its monetary claim before the International Arbitration
Tribunal, which was registered as ICDR Case No.50-181-T-00327-09,
making DMC Management Consultants Ltd, DMC Global Inc., Arun
Dev Upadhyaya, Gemini Bay Consultants Ltd., and Gemini Bay
Transcription Pvt. Ltd. as the respondents. The parties appeared
before the International Arbitration Tribunal and filed their replies and
objections. Although, the Arbitral Tribunal looked at the objections
raised to its jurisdiction to entertain, try and decide the dispute raised
before it, the Tribunal deferred the decision on it, stating that it shall
be decided along with the dispute on merits.
8. The Arbitral Tribunal framed the following issues :
"1. Does the "alter ego" doctrine warrant piercing the corporate veil?
2. Was there a breach of the Representation Agreement and
by whom?
3. Should damages be awarded, and if the answer is yes, how much?
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On the first issue, the Tribunal has held that DMC Global Inc.
is a wholly owned subsidiary of DMC Management Consultants Ltd.,
and both are jointly referred to as "DMC". Shri Arun Dev Upadhyaya
is an individual entrepreneur, shareholder and former Director of
DMC. Gemini Bay Consultants Ltd. and its wholly owned subsidiary
Gemini Bay Transcription Pvt. Ltd. (jointly referred to as "Gemini
Bay") are unrelated Corporations. The Tribunal holds that Shri
Upadhyaya and Gemini Bay have challenged the jurisdiction of the
Tribunal on the ground that, as non signatory parties to the
Representation Agreement, they are not subject to the arbitration
clause it contains, but neither did participate directly in the arbitration
process. The Tribunal finds that the law applicable was Delaware law
and hence the precedents of the Delaware Court of Chancery must be
followed. It holds that the control of DMC by Shri Upadhyaya and the
collusion with Shri Pathak and the use of the corporate forms of DMC
and Gemini Bay were simply a "facade" used to shield or cover-up the
unjust result of eliminating ISS. It further holds that "alter ego"
doctrine is, therefore, an appropriate justification for lifting the
corporate veil. On the second issue, the Tribunal has observed that
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there was a breach of Representation Agreement by Shri Upadhyaya,
DMC, and Gemini Bay colluded together and, therefore, held them
jointly and severally liable to breaching the Representation Agreement
by terminating it abruptly in violation of the indefinite term of that
contract and by refusing to pay commissions as obligated under the
Representation Agreement.
9.
The operative portion of the final award passed by the
Arbitral Tribunal on 28-3-2010 is reproduced below :
"1. Within thirty (30) days from the date of transmittal of this Award to the Parties, DMC Management Consultants, Ltd, DMC Global, Inc., Arun Dev Upadhyaya, Gemini Bay Consulting Limited and Gemini Bay Transcription Private
limited, hereinfter referred to as Respondents, shall jointly and severally pay to Integrated Sales Services Ltd, hereinafter
referred to as Claimant, the sum of six Million, nine hundred and forty-eight thousand, one hundred dollars ($6,948,100.00).
2. In the event that the award is not fully paid within thirty days from the date of this Award, Claimant shall be entitled to also seek recovery of interest computed from the date of termination of the Representation Agreement (July 22, 2008) on the total sum of the Award at the highest legal rate allowable under Delaware law.
3. The administrative fees and expenses of the International Centre for Dispute Resolution ("ICDR") totaling fourteen thousand dollars ($14,000.00), and the compensation and expenses of the arbitrator totaling forty-nine thousand, nine
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hundred and three dollars ($49,903.00), shall be borne entirely, jointly and severally by Respondents. Therefore, Respondents shall jointly and severally reimburse Claimant the
sum of sixty-three thousand, nine hundred and three dollars ($63,903.00), representing that portion of said fees and expenses (including the Arbitrator's fees and expenses)
previously incurred by Claimant.
4. Since the arbitration clause did not provide for the award of the attorneys' fees, Claimant and Respondents shall be responsible for their own attorneys' fees, costs and expenses.
5. As ordered by this tribunal, all the costs and expenses of
the video conference call held on Friday, March 5, 2010 shall be borne exclusively by Respondents but Claimant shall be responsible for the costs and expenses of its attorneys present
during that call.
6. This award is in full settlement of all claims and counterclaims submitted to this Arbitration. Any claim or counterclaim not specifically awarded is hereby denied."
10. Heard Shri Deven Chauhan, the learned Advocate for the
applicant-Company; Shri Willson Mathew, the learned Advocate for
Non-Applicant No.1-Company; Shri Sunil Manohar, the learned Senior
Advocate, assisted by Advocates Shri A.G. Gharote and Ms Rohini
Jaiswal, for the non-applicant No.2; and Shri Anand Jaiswal, the
learned Senior Advocate, assisted by Advocate Shri Shyam Dewani,
for the non-applicant No.3.
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11. Shri Sunil Manohar and Shri Anand Jaiswal, the learned
Senior Advocates, have urged that the Arbitral Tribunal has no power
to lift the corporate veil and it is only a Court which can lift the
corporate veil, and hence the finding by the Arbitral Tribunal on this
aspect was without jurisdiction. The reliance is placed upon the
judgment rendered by the Division Bench of this Court
on 5-9-2006 in Appeal No.658 of 2006 in Arbitration Petition No.295
of 2006 (Hemant D. Shah and others v. Chittaranjan D. Shah and
others) and the common judgment delivered by the learned Single
Judge of this Court (Shri R.D. Dhanuka, J.) on 28-4-2015 in
Arbitration Petition No.587 of 2014 and other connected matters in
Oil and Natural Gas Corporation Ltd. v. M/s. Jindal Drilling and
Industries Limited. Inviting my attention to Section 44 of the
Arbitration and Conciliation Act, 1996, it is urged that so far as the
non-applicant Nos.2 and 3 are concerned, the arbitral award cannot be
treated as "foreign award" for the two reasons, viz. (i) that the non-
applicant Nos.2 and 3 are not signatories to the Representation
Agreement for arbitration to which the Convention set-forth in the
First Schedule under the said Act applies; and (ii) that there exists no
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legal relationship between them and the applicant, out of which, the
differences or the disputes before the Arbitral Tribunal arose. Further
inviting my attention to Sections 46 and 48 of the said Act, it is urged
that even if the arbitral award is described as "foreign award" covered
by Section 44 of the said Act, the enforcement of such award needs to
be refused on the grounds mentioned in clauses (b), (c) and (d) of
sub-section (1) of Section 48 of the said Act, and, therefore, the award
does not bind the parties and cannot be made a decree of this Court.
Shri Mathew, the learned Advocate for the non-applicant
No.1/Company, has invited my attention to clause (b) of sub-section
(2) of Section 48 of the said Act to urge that the enforcement of the
award against the non-applicant No.1 would be contrary to the public
policy of India.
12. Shri Deven Chauhan, the learned Advocate for the
applicant-Company, has invited my attention to paras 99, 102, 103,
103.1, 103.2, 104 and 105 of the decision of the Apex Court in the
case of Chloro Controls India Private Limited v. Severn Trent Water
Purification Inc. and another, reported in (2013) 1 SCC 614, to urge
that joinder of a non-signatory party to arbitration is not unknown to
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the arbitration jurisprudence and various legal bases may be applied to
bind a non-signatory to an arbitration agreement. The doctrines of
agent-principal relations, apparent authority, piercing of veil (also
called "alter ego"), joint venture relations, succession and estoppel are
the issues, which can be dealt with by the Arbitral Tribunal. Relying
upon the decision of the learned Single Judge of this Court
(Shri R.D. Dhanuka, J.) delivered on 8-4-2015 in Arbitration Petition
No.75 of 2012 (POL India Projects Limited v. Aurelia Reederei Eugn
Friederich GmbH Schiffahrtsgesellschaft & Company KG), it is urged that
once the issues are raised by the non-applicants in the objections filed
before the Arbitral Tribunal, which have been negatived, resulting in
passing an arbitral award, it could only be challenged by adopting
remedy provided under the law applicable. He has relied upon paras
81, 82, 87, 88, 91, 97, 101, 102, 104, 105, 106, 111, 119 and 120 of
the aforesaid decision of this Court. It is further urged that the
non-applicants were parties to the proceedings before the Arbitral
Tribunal and the only remedy was to challenge the arbitral award
before the Court of competent jurisdiction in terms of the law agreed
to be applicable under clause 8(d) of the Representation Agreement,
which was in the present case, the United States District Court,
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Missouri. He has invited my attention to the certificate produced from
the United States District Court at Missouri, stating that no appeal has
been filed against the arbitral award in question, which is on page 114
of this application.
13. From the rival submissions, the questions, which fall for
determination by this Court, are as under :
Sr.No. Questions Answers
1. Whether the arbitral award dated 28-3-2010 Yes
passed by the International Arbitration Tribunal can be considered as the "foreign award" within
the meaning of Section 44 of the Arbitration and
Conciliation Act, 1996?
2. Whether the International Arbitration Tribunal No has jurisdiction to pass an award against the non-applicant Nos.2 and 3, who are non-
signatories to the arbitration agreement,
recording a finding that they are the "alter ego" of the non-applicant No.1-Company?
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3. Once the International Arbitration Tribunal Yes decides the question of its own jurisdiction,
which can be challenged in the forum provided in the law applicable (in the present case, the law of the State of Missouri, U.S.A.) whether this
Court, acting under Section 49 of the said Act, can go behind such award to record the findings contrary to the contents of such award and
thereby refuse to make it a decree of a Court?
Chapter I in Part II of the said Act containing
Sections 44 to 52 is a complete code in respect of the enforcement of
certain foreign awards. In order to answer the aforesaid questions, the
scheme for enforcement of award and the extent and manner of
judicial interference in setting aside the award permissible under the
said Act, need to be seen.
As to Question No.1 :
14. Section 44 under the said Act contains the definition of
"foreign award", and it runs as under :
"44. Definition.--In this Chapter, unless the context otherwise
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requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationships,
whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960--
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First
Schedule applies, and
(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made
may, by notification in the Official Gazette, declare to be territories to which the said Convention applies."
The aforesaid provision states that 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, in pursuance of
an agreement in writing for arbitration to which the Convention set
forth in the First Schedule applies. The foreign award, therefore,
contains an adjudication over the differences between the persons
arising out of the legal relationships, considered as commercial under
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the law in force in India. The "legal relationships" contemplated must
contain in the agreement in writing for arbitration in accordance with
the Convention set forth in the First Schedule.
15. Clause 1 under Article II of the First Schedule states that each
Contracting State shall recognise an agreement in writing under which
the parties undertake to submit to arbitration all or any differences
which have arisen or which may arise between them in respect of
defined legal relationship, whether contractual or not, concerning a
subject-matter capable of settlement by arbitration. Clause 2 therein
states that the term "agreement in writing" shall include an arbitral
clause in a contract or an arbitration agreement, signed by the parties
or contained in an exchange of letters or telegrams. Thus, the
existence of the defined legal relationship in writing, undertaking to
submit to arbitration all or any differences concerning a subject-matter
capable of settlement by arbitration, is the sine qua non to constitute a
"foreign award", as defined under Section 44 of the said Act, as has
been rightly urged by the learned Senior Advocate
Shri Sunil Manohar.
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16. It is not in dispute that the Representation Agreements in
force containing clause 8(d) of arbitration brought into force from
3-10-2000 undertaking to submit to arbitration all or any differences
concerning the subject-matter capable of settlement by arbitration, are
signed by the Director Terry L. Peteete of the applicant-Company, and
by the non-applicant No.3(i)-Rattan Ram Pathak in his capacity as the
Managing Director of the non-applicant No.1-Company. There exists a
defined legal relationship in writing in the form of the Representation
Agreements. The arbitral award passed on 28-3-2010 by the
International Arbitration Tribunal is on the differences between the
parties to the arbitration agreement. The said award, therefore,
satisfies the test of "foreign award", as defined under Section 44 of the
said Act. The question No.(1) is answered accordingly.
As to Question No.2 :
17. Section 45 of the said Act confers a power upon a judicial
authority to refer the parties to arbitration, and it is reproduced
below :
"45. Power of judicial authority to refer parties to arbitration.-- Notwithstanding anything contained in Part I or
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in the Code of Civil Procedure, 1908 (V 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."
Perusal of the aforesaid provision shows that the jurisdiction
of a judicial authority under the aforesaid provision is two-fold -
(i) to refer the parties to arbitration, if it finds that the matter pending
before it is such that in respect of it the parties have made an
agreement referred to in Section 44 of the said Act, and (ii) to decide
the question as to whether the arbitration agreement produced before
it is null and void, inoperative or incapable of being performed.
18. In the decision of the Apex Court in the case of Chloro
Controls India Private Limited, cited supra, relied upon by
Shri Deven Chauhan, the learned Advocate for the applicant, the Apex
Court was considering the question of invocation of jurisdiction of the
Court under Section 45 of the said Act, and in para 59, it holds that
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the applicant should satisfy the prerequisites stated in Section 44 of
the said Act. In para 63, the Apex Court holds that for proper
interpretation and application of Chapter I of Part II, it is necessary
that those provisions are read in conjunction with Schedule I of the
Act. To examine the provisions of Section 45 without the aid of
Schedule I would not be appropriate as that is the very foundation of
Section 45 of the said Act. Para 83 of the said decision being relevant,
is reproduced below :
"83. Where the court which, on its judicial side, is seized of an action in a matter in respect of which the parties have made an arbitration agreement, once the required ingredients are
satisfied, it would refer the parties to arbitration but for the
situation where it comes to the conclusion that the agreement is null and void, inoperative or incapable of being performed. These expressions have to be construed somewhat strictly so as
to ensure that the court returns a finding with certainty and on the correct premise of law and fact as it has the effect of depriving the party of its right of reference to arbitration. But once the court finds that the agreement is valid then it must
make the reference, without any further exercise of discretion (refer General Electric Co. v. Renusagar Power Co. - (1987) 4 SCC 137). These are the issues which go to the root of the
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matter and their determination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise
of proceedings before the Arbitral Tribunal."
It is thus a mandate of Section 45 of the said Act to refer the
parties to arbitration if the judicial authority finds that the matter
pending before it is in respect of the subject covered by an agreement
referred to in Section 44 of the said Act. However, the right to
reference cannot be construed strictly as an indefeasible right. One
can claim the reference only upon satisfaction of the prerequisites
stated under Sections 44 and 45 read with Schedule I of the said Act.
Thus, it is a legal right, which has its own contours and is not an
absolute right, free of any obligations/limitations, as has been held in
para 69 of the said decision. If the judicial authority decides that the
arbitration agreement produced before it is null and void, or
inoperative, or incapable of being performed, it has to refuse to refer
the parties to arbitration. This provision covers or deals with the stage
before the parties are referred to arbitration.
19. In a situation where the parties go before the Arbitral
Tribunal without involvement of the judicial authority, as
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contemplated by Section 45 of the said Act, a dispute may be raised
before the Arbitral Tribunal that the arbitration agreement in question
is non-existent, or is null and void, inoperative, or incapable of being
performed. A dispute may also be raised about the jurisdiction of the
Arbitral Tribunal to pass an award against the persons or parties, who
are not signatories to the arbitration agreement. The Arbitral Tribunal
may record its finding either one way or the other. If the objections
raised are rejected, then the Arbitral Tribunal may proceed further to
arbitrate the disputes or the differences referred to it on merits and
pass an award against the parties, or non-parties, or signatories, or
non-signatories to the arbitration agreement. In case of the foreign
award passed by the International Arbitration Tribunal, unless it is
made a decree of Court in India, as contemplated by Section 49 of the
said Act, it does not become enforceable. Section 49 of the said Act
deals with the enforcement of the foreign awards, and it states that
where the Court is satisfied that the foreign award is enforceable
under Chapter I of Part II under the said Act, the foreign award shall
be made as a decree of the Court, which becomes binding upon the
parties and enforceable.
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20. In the application filed under Section 49 of the said Act to
make the foreign award as a decree of the Court in India, Section 48
of the said Act provides an opportunity to the party against whom
such an award is made to raise objections touching the jurisdiction of
the International Arbitration Tribunal to pass such an award and upon
production of the proof, to claim the order of refusal to enforce the
award. Section 48 of the said Act deals with the conditions for the
enforcement of the foreign awards, and it reads as under :
"48. Conditions for enforcement of foreign awards.-- (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that
party furnishes to the Court proof that--
(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity,
or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made, or
(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his
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case; or
(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on merits submitted to arbitration can be separated from those not so submitted, that
part of the award which contains decisions on matters
submitted to arbitration may be enforced; or
(d) the composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award
was made.
(2) Enforcement of an arbitral award may also be refused if the Court finds that--
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
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(b) the enforcement of the award would be contrary to the
public policy of India.
[Explanation 1.--For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of
India, only if,--
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75 or
section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of the dispute.
(3) If an application for the setting aside or suspension of
the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award
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and may also, on the application of the party claiming enforcement of the award, order the other party to give
suitable security."
If the objections, as contemplated by the aforesaid provisions,
are raised before the Court in India, those are required to be
adjudicated on their own merits. If the Court is satisfied about the
proof in support of such objections, then it may hold that the foreign
award is not binding upon such objectors and refuse to make such
award enforceable by making it a decree of the Court. It is thus
apparent that before enforcing the foreign award, the Court has to
record its satisfaction under Section 49 of the said Act that such
foreign award is binding upon the parties before it and is, therefore,
enforceable in India.
21. In the decision of the Apex Court in the case of Renusagar
Power Co. Ltd. v. General Electric Company, reported in
1984(4) SCC 679, the question considered was whether on merits, the
claims referred to the Court of arbitration were beyond the
scope/purview of the arbitration clause contained in the commercial
contract. The Court holds that amongst other factors, the answer
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would depend upon the question as to whether it embraces even
questions of the existence, validity and effect of the arbitration
agreement, as stated in para 15 of the said decision. After considering
various judgments, four propositions are laid down by the Apex Court
in para 25 of the said decision, which is reproduced below :
"1. Whether a given dispute inclusive of the arbitrators jurisdiction comes within the scope of purview of an arbitration
clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and
what language they employ.
2. Expressions such as "arising out of" or "in respect of"
or "in connection with" or "in relation to" or "in consequence
of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence, validity and effect (scope) of the arbitration
agreement.
3. Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own
jurisdiction (and it will be for the Court to decide those questions) but there is nothing to prevent the parties from investing him with power to decide those questions, as for
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instance, by a collateral or separate agreement which will be effective and operative.
4. If, however, the arbitration clause, so widely worded as to include within its scope questions of its existence, validity and effect (scope), is contained in the underlying commercial
contract then decided cases have made a distinction between questions as to the existence and/or validity of the agreement on the one hand and its effect (scope) on the other and have
held that in the case of former those questions cannot be
decided by the arbitrator, as by sheer logic the arbitration clause must fall along with underlying, commercial contract which is either nonexistent or illegal while in the case of the
latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement, i.e. to decide the issue of arbitrability of the claims preferred before him."
The Apex Court holds as a general principle of law that
ordinarily as a rule, an arbitrator cannot clothe himself with power to
decide the questions of his own jurisdiction (and it will be for the
Court to decide those questions), but there is nothing to prevent the
parties from investing him with power to decide those questions, as
for instance, by a collateral or separate agreement which will be
effective and operative. It is further held that a distinction has to be
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made in respect of commercial contract between the questions as to
the existence and/or validity of the agreement on the one hand and
its effect (scope) on the other and have held that in the case of
former, those questions cannot be decided by the arbitrator, as the
arbitration clause must fall along with the underlying commercial
contract, which is either non-existent or illegal, while in the latter
case, it will ordinarily be for the arbitrator to decide the effect of
scope of the arbitration agreement, i.e. to decide the issue of
arbitrability of the claim preferred before him.
22. Thus, the scheme of the Act clearly postulates the filtration
of the disputes or the differences on the touchstone of various
expressions used under the arbitration agreements, like "arising out
of" or "in respect of" or "in connection with" or "in relation to" or
"in consequence of" or "concerning" or "relating to the contract
between the parties" containing the clause of arbitration at two stages,
viz. - (i) at the initial stage under Section 45 of the said Act before the
matter is referred to the International Arbitration Tribunal, and (ii) at
the stage of enforceability of the foreign award under Section 49 of
the said Act by the Court in India. The questions of existence and
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validity of commercial contract cannot be decided by the Arbitration
Tribunal, as the arbitration clause must fall along with the underlying
commercial contract, which becomes non-existent and invalid.
However, it will be the exclusive jurisdiction of the Arbitral Tribunal
to decide the effect and scope of the arbitration agreement, including
that of arbitrability of the dispute. This case is not concerned with the
filtration of the arbitration agreement under Section 45 of the said
Act, but it is essentially concerned with the enforceability of the
foreign award under Section 49 of the said Act.
23. In the decision of the Apex Court in the case of Khardah
Company Ltd. v. Raymon & Co. (India) Private Ltd., delivered by the
Constitution Bench of the Apex Court, and reported in
AIR 1962 SC 1810, it is held in para 4 as under :
"(4) It cannot be disputed that the expression "arising out of" or "concerning" or "in connection with" or "in consequence of" or "relating to this contract" occurring in Cl. 14 are of
sufficient amplitude to take in a dispute as to the validity of the agreement dated September 7, 1955. Vide Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar, 1952-3 SCR 501 :
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(AIR 1952 SC 119). But the question is not whether Cl. 14 is all comprehensive but whether it could be enforced when the
agreement of which it forms an integral part is held to be illegal. Logically speaking, it is difficult to conceive how when an agreement is found to be bad, any portion of it can be held
to be good. When the whole perishes, its parts also must perish. 'Ex nihilo nil fit'. On principle therefore it must be held that when an agreement is invalid every part of it including
the clause as to arbitration contained therein must also be invalid."
The Apex Court considered all sorts of expressions normally
used under the agreement containing the clause of arbitration. The
Court has held that the question is not whether such clause is
comprehensive, but whether it could be enforced when the agreement
of which it forms an integral part is held to be illegal. The Court
holds that logically speaking, it is difficult to conceive how when an
agreement is found to be bad, any portion of it can be held to be
good. When the whole perishes, it parts also must perish. It,
therefore, holds that when an agreement is invalid, every part of it,
including the clause of arbitration therein must also be invalid.
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24. In respect of domestic arbitration, Section 16 contained in
Chapter IV of the said Act deals with the competence of the Arbitral
Tribunal to rule on its jurisdiction, and sub-sections (1), (2) and (3)
of Section 16 of the said Act being relevant, are reproduced below :
"16. Competence of arbitral tribunal to rule on its
jurisdiction.--(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 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.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the
statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
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(3) A plea that the arbitral tribunal is exceeding the scope of
its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings."
In view of the aforesaid statutory provisions, the domestic
Arbitral Tribunal is made competent to rule on its own jurisdiction,
including ruling on any objections with respect to the existence or
validity of the arbitration agreement. Such a plea has to be raised not
later than the submission of the statement of defence. However, a
party is not precluded from raising such a plea merely because he has
appointed or participated in the appointment of an Arbitrator. There
is no provision in Chapter I of Part II under the said Act making the
International Arbitration Tribunal competent to rule on its own
jurisdiction, as is contained in sub-section (1) of Section 16 in respect
of the domestic arbitration. The presumption would be that the
Legislature has consciously excluded the jurisdiction of the
International Arbitration Tribunal to decide the question of its own
jurisdiction, including the question of existence and validity of an
arbitration agreement.
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25. It is now well-settled that the exclusion of the ordinary
jurisdiction of the Civil Courts in India to adjudicate all the civil
disputes cannot be readily inferred unless it is barred by the express
provision of law or by necessary implication. The Arbitral Tribunals,
whether domestic or international, are the forums of limited
jurisdiction. It exercises the jurisdiction only to the extent it is
conferred and only over the persons or the parties, who have agreed
to surrender themselves to such jurisdiction. The source of jurisdiction
of the Arbitral Tribunals to adjudicate the disputes or the differences
between the parties to the arbitration agreement flows from the
consent of parties - implied or express, the agreement to that effect in
writing, or waiver or surrender to the jurisdiction of such Tribunal by
conduct of parties. In the absence of these things, it is not possible for
the Arbitral Tribunals, whether domestic or international, to assume
the jurisdiction in respect of the subject-matter, which is to be
arbitrated and/or to pass an award against the person/s or party/ies,
who are non-signatories to the arbitration agreement.
26. Even if the Arbitral Tribunal decides the disputes or
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differences under the arbitration agreement which is non-existent or
illegal or decides the disputes or differences not covered by the
arbitration agreement or exercises jurisdiction over non-signatories to
it and passes an award against them or against the persons or parties
who are not joined in such proceedings, the jurisdiction of the Civil
Courts in India under Section 34 in respect of domestic awards and
under Section 49 of the said Act in respect of an award by the
International Arbitration Tribunal, to review such decision is saved.
Not only that, but such decision of the Court in India is made
appealable under Sections 37 and 50 of the said Act, as the case may
be. Though the second appeal thereafter is barred under the said
provisions, the jurisdiction of the Supreme Court of India is kept
unaffected with an addition under Sections 37(3) and 50(2) that it
shall not take away right of appeal to the Supreme Court. In view of
this, the jurisdiction of the Arbitral Tribunal to decide the questions
and pass an award, as contemplated earlier, stands excluded by
necessary implication.
27. There is a decision of the learned Single Judge of this Court
(Shri R.D. Dhanuka, J.) delivered on 28-4-2015 in Arbitration Petition
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No.587 of 2015 and other connected matters in Oil and Natural Gas
Corporation Ltd. v. M/s. Jindal Drilling and Industries Limited, holding
in para 37 of the said decision that the Arbitral Tribunal has no power
to lift the corporate veil and such power can be exercised only by a
Court if the strongest case is made out. The Court rejected the
argument advanced by the petitioner therein that the Arbitral
Tribunal should have lifted the corporate veil to find out that the
other respondents in the said petition were forming part of the
respondent No.1 and were one and the same entity - bound to
discharge the liabilities of the respondent No.1. The Court found that
the decision of the Arbitral Tribunal refusing to lift the corporate veil
cannot, therefore, be interfered with under Section 34 of the said Act.
28. Shri Deven Chauhan, the learned Advocate for the
applicant-Company, has invited my attention to clause 8(d) contained
in the Representation Agreement in force, which is reproduced
below :
"8(d) Interpretation, Amendment, Law, Arbitration and Assignments.
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(i) This Agreement is subject to the laws of the State of Missouri, U.S.A.
(ii) In the event that a dispute arises in connection with this Agreement such dispute shall be referred to a single
arbitrator in Kanas City, Missouri, U.S.A. to be appointed by agreement between the parties hereto, or failing agreement to be appointed according to the rules of the
American Arbitration Association, the same rules under
which any dispute shall be decided.
(iii) In the event a dispute is committed to arbitration, the
party deemed at fault shall reimburse the full cost of the arbitration and legal process to the aggrieved party.
(iv) This Agreement shall not be amended in any way
other than by agreement in writing, signed by both parties."
It is urged by him, relying upon the observations made in
paras 97, 99, 100, 102, 103, 103.1, 103.2 and 143 of the decision of
the Apex Court in the case of Chloro Controls India Private Limited,
cited supra, that the expression "a dispute arises in connection with
this Agreement" is of the widest amplitude and confers a jurisdiction
upon the International Arbitration Tribunal not only to decide the
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questions of existence, validity and effect (scope) of the arbitration
agreement, but also the rights and liabilities of the persons, who are
non-signatories to the agreement, if it finds that the cause of action is
directly relatable to the contract and that the non-signatories are the
"alter ego" of the non-applicant No.1-Company liable to pay the
compensation/damages for breach of contract or payment of amount
arising out of the contract.
29. The Apex Court in the case of Chloro Controls India Private
Limited, cited supra, was dealing with a case under Section 45 of the
said Act, which concerns the power of the judicial authority to refer
the parties to arbitration, as has been rightly pointed out by
Shri Sunil Manohar, the learned Senior Advocate for the non-applicant
No.2. The decision can be used as an authority for the proposition
advanced by Shri Manohar that it is the jurisdiction of the Court in
India to decide the question of existence, validity, binding nature and
enforceability of the agreement against non-signatories by invoking
the doctrine of "lifting of corporate veil" or "alter ego". The factual
background in which the principles are laid down and the object and
purpose of laying down such principles will have to be kept in mind.
mca1319.15.odt
A decision is an authority for what it actually decides and not for what
logically follows from it, is a well-settled principle of judicial
precedents. It was not the question raised and decided in the said
decision as to whether the jurisdiction to decide all such issues lies
with the Arbitral Tribunal. The decision in Chloro Controls India
Private Limited is not an authority for the proposition that the Arbitral
Tribunal is competent or empowered either to rule on its own
jurisdiction or to make non-signatories to the arbitration agreement
bound by the award passed by it. The decision is, therefore, no avail
to the applicant.
30. In view of above, the argument that the International
Arbitration Tribunal has jurisdiction to pass an award against the
non-signatories to the arbitration agreement on the basis of finding
that they are the "alter ego" of the party to the agreement, is rejected
and it is held that such jurisdiction does not vest in the International
Arbitration Tribunal. The question No.2 is answered accordingly.
As to Question No.3 :
31. Now coming to the question as to whether the
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non-applicants, who had appeared in the proceedings before the
International Arbitration Tribunal and filed their reply raising all such
objections, are estopped from raising such objections in the
proceedings under Section 49 of the said Act, asking the Court to go
behind the findings recorded by the International Arbitration Tribunal.
No doubt, that in terms of clause 8(d)(i) of the Representation
Agreement in question, there may be a forum available under the
laws of the State of Missouri, U.S.A., which is the agreed law, to
challenge the award passed in question. In the decision of the Apex
Court, delivered by the Constitution Bench in the case of Khardah
Company Ltd., cited supra, such objection was raised and considered in
para 14 of the said decision. The Court has held that when the
agreement itself is void, then there was no submission which was alive
on which the Arbitrators could act and the proceedings before them
would be wholly without jurisdiction. It holds that what confers the
jurisdiction on the Arbitrators to hear and decide a dispute is an
arbitration agreement, as defined in Section 2(a) of the Arbitration
Act, and where there is no such agreement, there is an initial want of
jurisdiction which cannot be cured by acquiescence. The Court
rejected the contention that the respondents therein were estopped by
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their conduct from questioning the validity of the award.
32. In the decision of the Apex Court in the case of Renusagar
Power Co. Ltd., cited supra, it is held in para 57 as under :
"57. In view of the position which arises from the aforesaid discussion it is really unnecessary for us to go into
and decide the question whether, in cases where the arbitration
clause contained in the underlying Commercial Contract is so widely worded as to include within its scope the question of its
existence, validity or effect (scope). The decided cases have made a distinction between questions as to the existence or validity of the agreement on the one hand and its effect (scope)
on the other and have held that in the case of the former those questions cannot be decided by the arbitrators, as by sheer logic
the arbitration clause must fall along with the underlying Commercial Contract which is either non-existent or illegal, while the case of the latter it will ordinarily be for the
arbitrators to decide the effect (scope) of the arbitration agreement as is contended for by Counsel for G.E.C. because both under the scheme of the Foreign Awards Act as well as
under the general law of arbitration obtaining in England and in India, the decision of the arbitrator on the question of his own jurisdiction will have to be regarded as provisional or tentative, subject to final determination of that question by the
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Court. ..."
As a general law, the Court has made a distinction between
the questions as to the existence of validity of the agreement on one
hand and its effect (scope) on the other, and has held that in the case
of the former, those questions cannot be decided by the Arbitrators, as,
by sheer logic, the arbitration clause must fall along with the
underlying commercial contract, which is either non-existent or illegal,
while the case of the latter, it will ordinarily be for the Arbitrators to
decide the effect (scope) of the arbitration agreement. It is held under
the scheme of the Foreign Awards Act as well as under the general law
of arbitration obtaining in England and in India, the decision of the
Arbitrator on the question of his own jurisdiction will be regarded as
provisional or tentative, subject to final determination of that question
by the Court.
33. In view of above, the argument that once the International
Arbitration Tribunal rightly or wrongly decides the question of its own
jurisdiction, it can be challenged only in the forum provided in the law
applicable under the arbitration agreement and the Court in India,
acting under Section 49 of the said Act, cannot go behind such award
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to record the findings contrary to the contents of such award and
refuse to make a decree of the Court, is rejected. It is held that the
decision of the International Arbitration Tribunal on such question will
be treated as tentative, subject to the decision of Court in India under
Section 49 of the said Act and there would be no question of estoppel,
waiver, surrender or acquiescence, merely because there is
participation in the proceedings of arbitration. The question No.3 is
answered accordingly.
34. Having dealt with the questions of law, I turn to the facts of
the present case. The Representation Agreements in force are signed
by the Director-Terry L. Peteete for and on behalf of the
applicant-Integrated Sales Services Limited, and by Rattan Ram
Pathak, the non-applicant No.3(i), in his capacity as the Managing
Director of the non-applicant No.1-DMC Management Consultants
Ltd., containing the clause of arbitration, making it subject to the laws
of State of Missouri, U.S.A. Neither the non-applicant No.2-Arun Dev
s/o Govindvishnu Upadhyaya, nor the applicant No.3-Gemini Bay
Transcription Pvt. Ltd., through its Directors-(i) Rattan Ram Pathak,
and (ii) Naresh Kumar Kopisetti, have signed the Representation
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Agreements in force in their individual capacity. Except the
non-applicant No.2-Arun Dev s/o Govindvishnu Upadhyaya, none of
the other individual non-applicants in this application were joined as
the party-respondents in the dispute before the International
Arbitration Tribunal. The respondents before the said Tribunal were
DMC Management Consultants Ltd., Arun Dev s/o Govindvishnu
Upadhyaya, Gemini Bay Consultants Ltd., and Gemini Bay
Transcription Pvt. Ltd.
35. The non-applicant Nos.2 and 3 have neither submitted
themselves to the arbitration nor to the composition of the
International Arbitration Tribunal. There did not exist or subsist any
arbitration agreement between the applicant and the non-applicant
Nos.2 and 3. There is nothing in the Representation Agreements in
force, which permit the said Tribunal to exercise jurisdiction over the
non-signatories to it. The invocation of the principle of lifting of
corporate veil and holding the non-applicant Nos.2 and 3 as
"alter ego" of the non-applicant No.1-Company and on the basis of it,
to hold them jointly and severally liable to pay the amount under the
award, is totally without jurisdiction and cannot be sustained. Merely
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because the non-applicant Nos.2 and 3 have participated in the
proceedings before the International Arbitration Tribunal, they cannot
be estopped from raising the question of jurisdiction of the said
Tribunal in response to the application under Section 49 of the said
Act. The question of operating estoppel, acquiescence, surrender, etc.,
to the jurisdiction of the said Tribunal, does not at all arise. The
award passed by the International Arbitration Tribunal, in the present
case, is, therefore, hit by the conditions in clauses (c), (d) and (e) of
sub-section (1) of Section 48 of the said Act. The said award cannot,
therefore, be enforced in India against the non-applicant Nos.2 and 3
by making a decree of the Court.
36. Though the International Arbitration Tribunal had no
jurisdiction to invoke the principle of lifting of corporate veil and
holding the non-applicant Nos.2 and 3 as "alter ego" of the
non-applicant No.1-Company, this Court is competent under
Section 49 of the said Act to go into all these aspects of the matter and
hold that the non-applicant Nos.1, 2 and 3 are jointly liable to pay the
amount covered by the award passed by the said Tribunal. However,
the applicant has to make out such a case in the proceedings under
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Section 49 of the said Act. After going through the contents of the
application, I do not find that any such case is made out by the
applicant. In spite of repeated queries, Shri Deven Chauhan, the
learned Advocate for the applicant, makes a statement that this is not
the case with which the applicant has come forward before this Court
while invoking the jurisdiction under Section 49 of the said Act. Had
such a case been made out, then the extent of liability of the
non-applicant No.2, being the Director of the non-applicant
No.1-Company, was required to be judged on the basis of the
provisions of the Companies Act, 1956. In view of this, the
non-applicant Nos.2 and 3 cannot be held in this proceeding jointly
liable to pay the amount covered by the arbitration award, along with
the non-applicant No.1-Company.
37. Shri Deven Chauhan for the applicant submits that the
non-applicant Nos.2 and 3 were made parties in the proceedings
before the International Arbitration Tribunal in their individual
capacity and they are also made parties in the same capacity before
this Court. The award passed against them is required to be executed
against them individually by attaching their properties if such occasion
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arises. In order to make the non-applicant Nos.2 and 3(i) and (ii)
individually or severally liable to pay the sum covered by the arbitral
award in question, it must be shown that they have signed the
arbitration agreement as guarantors or sureties for the debts due or
recoverable arising out of or in connection with the contract in
question against the non-applicant No.1, of which they are the
Directors. In such an event, the liability of the guarantor or surety will
be co-extensive with that of the principal debtor, and consequently
their personal assets may be attached in execution of the decree. This
is not the case with which the applicant has approached this Court
under Section 49 of the said Act. Hence, the award passed in question
cannot be enforced against them by passing a decree.
38. Shri Mathews, the learned Advocate for the non-applicant
No.1-Company, the judgment-debtor, has urged that the confirmation
of award has to be by the Court of Chancery at Delaware and the
confirmation of award by the District Court at Missouri is without
jurisdiction, and hence it is liable to be set aside. The
non-applicant No.1 is party to the Representation Agreements
containing the arbitration clause, and such question at their instance
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cannot be entertained under Section 49 of the said Act, particularly
when there is a remedy available to challenge it in the forum provided
in the laws of State of Missouri, U.S.A. It cannot be a question of the
said award being contrary to the public policy of India, as has been
urged by Shri Mathews. The award passed by the International
Arbitration Tribunal against the non-applicant No.1 will have to be
enforced by making it as a decree of this Court.
39. In view of above, the following order is passed :
(1) The award dated 28-3-2010 passed by the International Arbitration Tribunal in ICDR Case
No.50-181-T-00327-09 becomes unenforceable in India to
the extent it operates against the non-applicant No.2-Arun Dev s/o Govindvishnu Upadhyaya and No.3-Gemini Bay Transcription Pvt. Ltd., and the claim for passing a decree
against them in terms of the said award is refused.
(2) The award passed by the International Arbitration
Tribunal in ICDR Case No.50-181-T-00327-09 to the extent it operates against the non-applicant No.1-DMC Management Consultants Ltd. is made enforceable in India and the decree
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is passed in terms of the said award against the non-applicant No.1.
(3) Decree be drawn accordingly.
(4) The matter shall remain pending.
JUDGE.
Lanjewar
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