Delhi High Court
National Ability S.A. vs Tinna Oil & Chemicals Ltd. & Ors. on 4 June, 2008
Author: A.K.Sikri
Reportable
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ Ex.P. No. 74 of 2000
With
OMP No. 173 of 1998
% Pronounced on : June 04, 2008
National Ability S.A. . . . Petitioner
through : Mr. Arvind Nigam with
Ms. Purnima Maheswari,
Advocates
VERSUS
Tinna Oil & Chemicals Ltd. & Ors. . . . Respondents
through : Mr. Ajay Kr. Agrawal with
Ms. Alka Agrawal and
Ms. Anamika Agrawal, Advocates
for the respondent No.2.
CORAM :-
THE HON‟BLE MR. JUSTICE A.K. SIKRI
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. The petitioner had, by a Charter Party dated 29.4.1995, on a Gencon
form, chartered the vessel "AMAZON REEFER" to the respondent
No.1 herein for a voyage from Kandla to Novorossiysk. The said
charter party contained the terms and conditions on which the vessel
was chartered. It also contained an arbitration agreement in Clause
29 thereof which, inter alia, provided that in the event of disputes
between the parties, the same could be settled through arbitration in
London according to English Law. Disputes and differences arose
between the parties and, accordingly, the matter was referred to
arbitration in London. The said Arbitral Tribunal, which comprised of
three arbitrators, has given award dated 19.11.1998.
2. The petitioner herein had initially filed a suit for enforcement of this
award. However, realizing that no such suit is required to be filed
inasmuch as such an award, even when it is a foreign award, is
enforceable and executable under the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as the '1996 Act'), the petitioner
filed the present execution petition and withdrew the suit, being Suit
No. 740A/1999. The petitioner stated that the award in question is
passed by the Arbitral Tribunal in England, which is a country
notified under the New York Convention. The enforcement of the
award is, accordingly, sought under Sections 5, 6 and 8 of the
Foreign Awards (Recognition and Enforcement) Act, 1961. However,
this Act stood repealed by the 1996 Act inasmuch as Part II, Chapter I
of the same (Section 44 to 52) lays down the provisions for
enforcement of foreign arbitral award given in the country which is
signatory to the 1958 Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (hereinafter referred to as
the „New York Convention‟).
3. According to the petitioners, when the disputes arose and were
referred to the arbitration in London, both the parties sought
substantive relief and were represented by counsel before the Arbitral
Tribunal. The Tribunal, after an oral hearing in London from
21.9.1998 to 25.9.1998, passed the reasoned award in favour of the
petitioner ordering and directing the respondent to pay to the
petitioner a sum of US$ 819,983.16 together with interest @ 7% p.a.
from 1.10.1995 till the date of filing of the award. Costs have also
been awarded in favour of the petitioner amounting to Sterling £
26,762.17 being the cost of the award and Sterling Pounds £
129,929.79 being the petitioner's cost. No appeal was filed by the
respondent against this award and, therefore, the award has become
final and binding.
4. In addition to impleading respondent No.1, namely, M/s. Tinna Oils
& Chemicals Ltd., the petitioner has also arraigned M/s. Tinna Finex
Ltd. as the respondent No.2. Though the vessel was chartered by the
petitioner for the respondent No.1, namely, M/s. Tinna Oils &
Chemicals Ltd., in a Scheme of Arrangement sanctioned by this Court,
the said company was taken over by M/s. Tinna Finex Ltd. Because
of this reason, the respondent No.2 was also impleaded before the
Arbitral Tribunal and is arraigned in the execution petition as well.
5. In this execution petition, notice was issued on 19.7.2000, which was
accepted by counsel for both the respondents, who were appearing
at that time in Suit No. 740-A/1998.
6. The petitioner has also filed OMP No. 173/1998, which is an
application under Section 9 of the 1996 Act, with the prayer that the
respondents be directed to furnish security to the tune of US$
1,308,340.54 besides costs and they be also directed to disclose, on
oath, the details of movable and immovable assets of the respondent
No.1, which have been transferred to the respondent No.2. It is also
prayed that they be restrained from alienating and/or encumbering
their movable and/or immovable assets. In this OMP, vide order
dated 13.8.1998, a Local Commissioner was appointed to visit the
factory premises of the respondents and prepare an inventory of all
the movable assets and try to ascertain other immovable assets which
are in the names of the respondents. Interim injunction in terms of
prayer (c) of the petition was also granted which inter alia reads as
under:
"Respondents, its directors, agents, representatives be
restrained by ad interim injunction restraining them from
alienating, transferring parting with possession, encumbering
and/or dealing with any movables and/or immovable assets of
the company any manner anywise and operating from the
Bank Account with Syndicate Bank, mayapuri, New Delhi."
7. The respondents have filed their objections to this execution petition.
In the objections filed on behalf of the respondent No.1, it is stated
that the vessel in question was chartered for carrying a cargo of
potatoes. However, on account of improper storage by the
petitioner, the said goods got spoiled and ultimately had to be
dumped in the sea. On account of the loss suffered by the
respondent No.1, the financial worth of the said respondent suffered
heavily and it became a sick company. The situation was such that its
net worth was in the negative and the funds available with it were
not even sufficient for payment of the dues of the banks and financial
institutions. It could not even pay the costs for the counter claim for
which reason it was not proceeded with by the arbitrators. It is stated
that the respondent No.1 had to undertake the Scheme to
accommodate a foreign investor, otherwise the company was
financially unviable and would have gone bankrupt. It is also stated
that various options were considered for revival of the respondent
No.1. The detailed restructuring report was prepared. It dealt with
the need for restructuring, the strategy for revival and various
alternatives. It recommended the acceptance of an offer from
M/s.Archer Daniels Midland Singapore Pte. Ltd., which is a Fortune
500 company and a world leader in oilseeds processing. The entire
exercise has taken place during the years 1995-96, much prior to the
commencement of the arbitration proceedings. The Scheme of
Arrangement, as formulated, required that only the manufacturing
assets will remain in the respondent No.1 so that the new company
could start with a clean state. M/s. Archer Daniels Midland Singapore
Pte. Ltd. will bring in funds and all other assets and financial liabilities
will be transferred to another company M/s. Tinna Finex. This was
the only way for revival of the respondent No.1.
8. It is further stated that prior to the Scheme of Arrangement, the
respondent No.1 had three divisions, Head Office/Merchant Export
Division, Oil Processing Division at Latur and Cargo Handling
Division at Vizag. Export sales are a part of merchant export division
as proved from the balance sheet. All legal and other proceedings of
the 'Spin Off Division' or any matter arising before the date of
arrangement and relating to any property, right, power, liability,
obligation or duty of the respondent No.1 were to be continued and
enforced by or against the respondent No.2 only. A petition under
Section 391 of the Companies Act was also filed in the Delhi High
Court being C.P. No. 303/1997 for seeking the mandatory approval
of this Court to the Scheme of Arrangement. With effect from the
date of arrangement, i.e. 1.4.1997, all assets and liabilities of 'Spin Off
Division' were to vest in the respondent No.2, without any further
act, deed or thing, by operation of law. The Scheme was approved
by this Court on 7.11.1997. Before approving the Scheme, the Court
had ordered for convening the meeting of the creditors, which
meeting was held on 2.8.1997 and the Scheme of Arrangement was
approved by the creditors. The petitioner never participated in the
meeting and never objected to the Scheme of Arrangement. This
Scheme was also duly registered with the Registrar of Companies on
15.1.1998. The arbitration took place only thereafter, i.e., in
September 1998.
9. It is, thus, the case of the respondent No.1 that the liability of the
petitioner was taken over by the respondent No.2 and, therefore, it
is only the respondent No.2 which is liable to make payments, if any.
This stand is also sought to be buttressed by pleading that after the
sanction of the Scheme by this Court, the claim of the petitioner
regarding present arbitration were reflected in the accounts of the
respondent No.2 from the financial year 1997-98 onwards. The
respondent No.2 even paid off other secured creditors, bankers and
financial institutions and the payments made in this regard was more
than Rs. 20 crores, which proves the genuineness of the Scheme.
M/s.Archer Daniels Midland Singapore Pte. Ltd. acquired 60%
shareholding of the respondent No.1 (now increased to 75%) by
infusion of funds, and used to pay off debts. Not only this, the
respondent No.2 even took over the litigation and contested the
matter before the Arbitral Tribunal. It is stated that when the hearing
took place before the Arbitral Tribunal from 21st to 25th September
1998, it was agreed to pass the award in the name of the respondent
No.2. However, no formal order was passed. The cost of arbitration
was also to be borne by the respondent No.2. This plea is sought to
be supported from the fact that a letter was issued from the solicitors
on 30.9.1998 for recording the agreement that award was passed in
the name of the respondent No.2. The petitioner's solicitors, by their
letter dated 2.10.1998, accepted the above. Their only plea was that
the order of Scheme of Arrangement was not registered and,
therefore, proof of registration be given. But they never denied that
the respondent No.2 only was liable. Since they demanded the proof
of registration, it was also furnished to them vide letter dated
12.10.1998. It is also pointed out that in the final award, which was
passed on 19.11.1998, the name of the respondent appears as 'Tinnal
Oils & Chemicals Ltd. in a Scheme of Arrangement by order of the
High Court of Delhi with Tinna Finex Ltd', which would show that
even the Arbitral Tribunal had accepted the position regarding the
Scheme of Arrangement as per which only the respondent No.2 is
liable for all consequences arising out of the litigation. Not only this,
even the proceedings for taxation for costs commenced by the
petitioner thereafter were only against the respondent No.2. It is
further stated that filing of the execution petition against the
respondent No.2 would also indicate that the petitioner admits the
legal consequences arising out of the Scheme of Arrangement, which
is a statutory transfer of assets and liabilities and is binding on all
concerned. The petitioner has not challenged the Scheme of
Arrangement even after coming to know of the same and, therefore,
in these proceedings it is estopped from challenging the Scheme or
denying the legal consequences.
10. The maintainability of the execution petition is also challenged on
the ground that Ms. Priya D. Nair, who has filed this petition on
behalf of the petitioner as its constituted attorney, is not authorised
to file such a petition inasmuch there is no resolution of the
petitioner giving her such authorisation.
The maintainability is also questioned on the ground that it is
contrary to public policy and as it will have the effect of nullifying
the Scheme of Arrangement sanctioned by this Court.
11. The respondent No.2 has also challenged the maintainability of the
execution petition. In addition to questioning the competence of Ms.
Priya D. Nair to file the petition, the respondent No.2 has submitted
that it has been impleaded only because of the Scheme of
Arrangement approved by this Court vide order dated 7.11.1997
under which the Spin Off Division of the respondents No.1 stands
transferred to the respondent No.2. Therefore, liability of the
respondent No. 2 is limited to what is provided in the Scheme of
Arrangement. The respondent No.2 has already acted upon the
Scheme of Arrangement and discharged its obligations. It has paid off
the secured creditors, bankers and financial institutions an amount of
over Rs. 20 crores from the funds given to it under the Scheme of
Arrangement. It is additionally contended that the award dated
19.11.1998 is not a 'Foreign Award'. The petitioner company is
registered in Panama and is carrying on its business from there.
Panama is not a reciprocating territory either under the New York
Convention or under the Geneva Convention. Panama has also not
been recognized as a reciprocating territory by the Government of
India, therefore, provisions of Part II, Chapter I of the 1996 Act are
not applicable. The validity of the award is also challenged on the
ground that the very constitution of the Arbitral Tribunal was
contrary to the Charter Party Agreement between the petitioner and
the respondent No.1 as per which the Arbitral Tribunal was to consist
of two arbitrators, one each to be nominated by each party. The said
arbitrators were to appoint an Umpire. No power is vested on the
two arbitrators to appoint a third arbitrator.
12. On merits, the validity of the award is challenged on the ground that
the counter claims preferred by the respondent No.1, in whose shoes
the respondent No.2 has stepped in, have not even been considered
by the Arbitral Tribunal, whereas the entire claim filed by the
petitioner has been considered in detail. It is also submitted that the
respondent No.2 has been denied the opportunity to prosecute its
claim, only because it could not give security as demanded. It is
submitted that a party cannot be deprived of its legal rights due to
financial inability of the party to give security and, therefore, the
same amounts to violation of principles of natural justice thereby
rendering the award unenforceable. It is also stated that the award
has been based on certain documents in respect of which no sufficient
notice was given to the respondents and no opportunity was
provided to them to lead evidence to disprove the said documents.
In this respect it is submitted that on 22.7.1998, the Arbitral Tribunal
passed the order stipulating the schedule which was to be followed
by the parties, as under :-
"(i) Tinna Oils and Chemicals Limited to instruct new solicitors
and appoint replacement for Mr. Ferryman by no later
than close of business in London on Friday, 24th July 1998.
(ii) Witness statements to be exchanged by close of business in
London on Friday 14th August, 1998.
(iii) Experts reports to be exchanged by no later than close of
business in London on Friday, 28th August, 1998, together
with the service of any civil evidence act notices.
(iv) Bundles for the hearing to be agreed by 11th September
1998.
(v) Actual dates of hearing were fixed from 21st September to
25th September 1998."
It is further submitted that the hearing of the matter by the
Arbitral Tribunal commenced on 21.9.1998. The petitioner on
22.9.1998, at the close of the hearing for the day, produced a report
by the Cambridge Research Technology Institute, which had not been
filed by the petitioner at the time of the filing of the documents and
submissions of the report of the experts, and sought to rely on the
same. The respondent No.2 was directed to cross-examine a person
on the said report even though he was not the author of the same.
The request of the respondent No.2 to produce the author of the
report for cross-examination on the basis of the same was also not
accepted by the Arbitral Tribunal. The said report was a highly
technical report and the same required a detailed study before any
effective cross-examination could be conducted on the same and
before evidence and arguments could be led to disprove the said
report. Further, the aforesaid report could be proved by its author
alone. However, the author of the said report was not produced in
evidence by the petitioner. Thus, the said report was not proved in
accordance with law. Despite that, the Arbitral Tribunal has relied
upon the said report and it is only on the basis of the same that the
finding against the respondent No.2 has been returned by the
Arbitral Tribunal. It is submitted that the petitioner had produced
evidence by way of affidavits of the Master and Chief Officer of the
ship. Their testimony has been heavily relied upon by the Arbitral
Tribunal. However, the said persons were not produced for cross-
examination by the petitioner. It is a settled principle of law and
public policy in India that any testimony which has not been tested
on the touchstone of a cross-examination cannot be relied upon
under any circumstances.
13. In addition, it is also submitted that it was the petitioner's negligence
in not storing the cargo properly, as the petitioner was unable to
maintain the stipulated temperature of 5-7oC in the holds during the
currency of the voyage, which resulted in sprouting in the potatoes
and the entire cargo had to be discarded due to the negligence of the
petitioner because of which the respondent No.2 suffered heavy
losses. The Arbitral Tribunal has not even considered these
contentions raised by the respondents before it. It is also submitted
that even if the evidence were to be considered entirely in favour of
the petitioner, at best a finding to the effect that the potatoes of
poor quality can be returned against the respondent No.2, though
the same is denied. There is no evidence whatsoever to prove that
the goods, as loaded in the ship, were of a quality which was
unacceptable to the importer.
14. The award is also challenged on the ground that though proof of the
actual damage suffered by the petitioner is given, still the entire claim
of the petitioner has been accepted, which is against the law of India
as well as England inasmuch as the parties can be compensated for
the actual damage and no notional damages can be granted. Even
otherwise, nothing was suggested before the Arbitral Tribunal by the
petitioner to mitigate the alleged loss and, therefore, the quantum of
damages, as granted, is clearly unreasonable.
15. The petitioner has filed response to the aforesaid objections of the
respondent No.1 & 2, note whereof shall be taken while considering
these objections.
16. Before coming to other objections, the three fundamental issues
raised by the respondents, which go to the root of the matter and
challenge the maintainability of the petition itself, need to be
addressed. These are :-
(i) Authority of Ms. Priya D. Nair to file the present
petition?
(ii) Whether the award in question is a „Foreign Award‟?
(iii) What is the effect of the Scheme of Arrangement
between the respondent No.1 and the respondent
No.2, as sanctioned by this Court vide order dated
7.11.1997?
The answer to these questions would determine as to which
respondent is liable, if at all, and to what extent.
17. RE. - Regarding competency of Ms. Priya D. Nair to file the petition
This issue proceeds on the premise that there is no resolution of
the petitioner company authorizing Ms. Priya D. Nair to file the
petition on its behalf, which has been produced and submitted to the
Court and further that Ms. Juliet Sarah Blanch has no authority to
swear the affidavit.
I may note that Ms. Blanch, who had filed the affidavit, is a
Solicitor and Partner of Norton Rose, a firm from which solicitor was
engaged by the petitioner. I may also note that affidavit dated
27.4.2006 of Mr. Christopher Hobbs is also filed. He is a solicitor of
Supreme Court of England and Wales. In the affidavit he has stated
that he has been a partner of Norton Rose within the Dispute
Resolution Department for a period of 11 years and was swearing the
said affidavit in connection with a claim by the petitioner herein. In
that affidavit, it is inter alia stated that after the award was published
and in the absence of payment of the award by the respondents, the
petitioner instructed his firm Norton Rose to enforce the award
against the respondents. He further stated that as per well
recognized and established practice in England, the solicitors who are
instructed by clients to enforce an arbitration award to take all such
procedural steps as are necessary in order to implement such
instructions. It is further mentioned in para 5 of the said affidavit as
under :-
"5. As part of the procedure for enforcement of an
arbitration award under the New York Convention for
reciprocal recognition and enforcement of arbitral awards, it is
necessary to file an affidavit confirming that the award is one
to which the New York Convention applies and that it remains
binding on the parties. This is simply a procedural
requirement, and following the instructions given to Ms. Juliet
Sarah Blanch, Solicitor & Partner with Norton Rose, by
National Ability SA to enforce the Award, I affirm that Ms.
Juliet Sarah Blanch had the necessary authority from, and was
thus fully authorized by, National Ability S.A. to swear the
Affidavit dated 2 February 1999 in respect of enforcement of
the Award."
From the aforesaid, it can be stated that Ms. Blanch has the
necessary instructions and also requisite knowledge of the facts of the
case on the basis of which she could swear the affidavit.
18. Insofar as power in favour of Ms. Priya D. Nair is concerned, the
petitioner has also placed on record original power of attorney dated
5.4.2006 in her favour, duly certified by the officials in the Ministry
of Affairs in the Republic of Panama. By this power of attorney, act
of filing the present petition is duly ratified and confirmed. This act
indicates the objection of the respondents. At this stage, I may quote
from the judgment of this Court in Delhi Lotteries v. Rajesh Aggarwal
& Ors., 69 (1997) DLT 543, wherein such a contention was brushed
aside by observing as under :-
"11. Learned Counsel for the respondent in support of his
contention has led me through quite a good number of
authorities which lay down in unequivocal terms that if the suit
is filed by a Manager of a proprietorship concern who is
authorized to do so and the intention to do so can be gathered
from the averments in the plaint, in that eventuality the frame
of the suit cannot be said to be defective. The power of
attorney can be placed on record, if has already not been
done, even at a subsequent stage to ratify the acts of the
Manager, including the institution of the suit. It was so held by
a Division Bench of the Madras High Court as reported in AIR
1976 Madras 151, M.C.S. Rajan & Co. v. National Nail
Industries, Tiruchirapalli and Others. The facts of the said
authority are in pari material with the facts of the present case.
Hence observations in the said case pari passu can be made
applicable to the facts of the present case without any
difficulty. I am tempted here to cite a few lines from para 4 of
the said judgment "...But in a case where a Manager of a
proprietorship concern signs the pleadings and verifies them as
a person who has been duly authorized to sign the same and as
one who has been acquainted with the facts of the case, then it
is reasonable to say that, if at any material point of time and
particularly when the defendants raise a specific plea that the
pleading has not been properly signed or verified, he produces
the requisite authority from the sole proprietor or satisfies the
Court that he is fully acquainted with the facts of the case, the
principle and substance of Rules 14 and 15 are satisfied. The
case has to be decided on the elementary principle of
ratification of an act by a principal. That the person who
signed the pleadings and verified it is the Manager of the
concern is not in dispute.... Ex.A-20 is the power of attorney
produced during the trial of the case which establishes that
Padmanabhan has appointed and constituted Mr. Narayana to
file a suit against the defendants and take all such steps
necessary in the said matter."
12. To the same effects are the observations of a Division
Bench of the Rajasthan High Court as reported in AIR 1955
Rajasthan 57, Machosingh v. Union of India, and (1948) 2
All.E.R. 482, Alexander Mountain & Co. v. Rumere Ltd.
13. It is now well settled principle of law that a suit is not to
be dismissed for technical reasons such as the plaint was not
signed and verified by a competent person because such type
of objections do not go to the root of the matter if a party has
otherwise substantiated his claim. It was opined by their
Lordships of the Supreme Court in AIR 1997 Supreme Court 3,
United Bank of India v. Naresh Kumar and Others . "Where the
Courts came to a conclusion that money had been taken by
certain parties from Bank and certain persons had stood as
guarantors and that the claim of the Bank was justified, it will
be a travesty of justice if the Bank is to be non suited for a
technical reason which does not go to the root of the matter
and the only defect which was alleged on behalf of the parties
was on which was curable."
19. RE. - Foreign Award
The contention of the respondent No.2 that the award dated
19.11.1998 is not a foreign award predicates on the plea that the
petitioner company is registered in Panama and is carrying on its
business from there and Panama is not a reciprocating territory either
under the New York Convention or under the Geneva Convention.
It is also submitted that Panama has not been recognized as a
reciprocating territory by the Government of India and, therefore,
provisions of Part II, Chapter I of the 1996 Act are not applicable.
This submission of the objector is factually incorrect inasmuch
as requisite documents were produced by the petitioner, which show
that Panama is recognized as a reciprocating territory. That apart,
Section 44(b) of the 1996 Act states that the country where the
award has been issued must be a country notified by the Indian
Government to be a country to which the New York Convention
applies. Thus, it is to be borne in mind that award in question is
rendered by the Arbitral Tribunal in England, which is admittedly a
country notified under the New York Convention.
20. Section 44 of the Arbitration and Conciliation Act, 1996 defines
„Foreign Award‟ as under :-
"44. Definition. - In this Chapter, unless the context otherwise
requires, "foreign award" means an arbitral award on
differences between persons arising out of legal relationships,
whether contractual or not, considered as commercial under
the law in force in India, made on or after the 11th day of
October, 1960 -
(a) in pursuance of an agreement 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."
21. The ingredients which are to be satisfied, as per the said section, to
term an award as a „foreign award‟ are the following :-
1. It must have been made on or after the 11th day of
October, 1960.
2. It must be on differences between persons arising out of
legal relationships, whether contractual or not,
considered as commercial under the law in force in India
3. It must have been made pursuant to an agreement for
arbitration to which the Convention set forth in the First
Schedule applies.
4. It must have been made in one of the territories of the
reciprocating contracting States for which the Union
Government may issue notification declaring the
territories to which the New York Convention would
apply.
The aforesaid ingredients stand satisfied in this case and,
therefore, the award in question is to be treated as „foreign award‟.
This issue, therefore, stands answered in favour of the petitioner.
22. RE. - Scheme of Arrangement
The factual position, on this issue, which is not in dispute is that
there is a Scheme of Arrangement arrived at between the respondent
No.1 and respondent No.2 under the Companies Act, 1956, which
has been approved by the court as well in a petition filed under
Section 391 of the Companies Act. Date of arrangement fixed as per
the said Scheme is 1.4.1997. From this date, all assets and liabilities of
„Spin Off Division‟ vested in the respondent No.2 without any
further act, deed or thing or by operation of law.
23. Before I come to the legal effect of the Scheme, I may deal with the
objection of learned counsel for the petitioner to the Scheme. It was
argued that notice of the Scheme was never given to the petitioner
though the petitioner was a creditor and, therefore, the petitioner
could not participate in the meeting and object to the Scheme of
Arrangement. The plea, thus, was that such a Scheme was not
binding upon the petitioner. I am not inclined to accept this plea. It
is not in dispute that the court had ordered convening of the meeting
of creditors before approving the Scheme. Meeting was held on
2.8.1997 and the Scheme of Arrangement was approved by the
creditors. Thereafter, the court put its seal of approval to the said
Scheme on 7.11.1997. If the petitioner did not receive any notice of
the said Scheme, it was for the petitioner to move appropriate
application before the said Company Judge, which it could do so
even after the approval of the Scheme. No such step was taken even
when the petitioner came to know about the said Scheme during the
pendency of the arbitration proceedings. Having failed to take any
such step, it does not now lie in the mouth of the petitioner to
contend that the Scheme is not binding upon it for want of notice. I
may record that whether the petitioner received notice of the
meeting or not is a disputed question of fact which the petitioner was
to establish and it could be done by moving appropriate application
before the Company Judge. On this basis, even the plea of learned
counsel for the petitioner that fraud was played upon the petitioner
by not serving notice would not be available to it.
24. Insofar as effect of the Scheme is concerned, the law on the point is
abundantly clear when such a scheme is approved by the court under
Section 391 of the Companies Act binding on all the parties, including
all the creditors. Therefore, the petitioner shall also be bound by the
same. The alleged liability qua the petitioner, as per the award,
relates to „Spin Off Division‟. All the assets and liabilities of this
Division have been taken over by the respondent No.2 by operation
of law and no further act, deed or things were required to be done
for this purpose. Thus, from the appointed date, i.e. 1.4.1997, it is
the respondent No.2 which assumed all the liabilities, including the
liability of the petitioner, if any. Therefore, the Scheme of
Arrangement would be binding on the petitioner as well as the
respondent No.2.
25. The effect of decision on this issue would be to hold that the
respondent No.1 was no more liable towards the petitioner after
1.4.1997. This fact was disclosed by the respondent No.1 before the
Arbitral Tribunal and taken note of by the Arbitral Tribunal as well,
which is reflected from the Cause Title of the Award itself. As a
consequence, objections of the respondent No.1 succeed and it is
held that the respondent No.1 is not liable for any payment under
the said award.
26. In view of the aforesaid decision on the three fundamental issues, the
objections of the respondent No.2 to the said award remain to be
discussed.
27. RE. - Objections of the Respondent No.2
The objections of the respondent No.2, which remain to be
dealt with, can be paraphrased as under :-
(a) The Arbitral Tribunal was not constituted properly as it was
contrary to the Charter Party Agreement between the
petitioner and the respondent No.1 as per which the Arbitral
Tribunal was to consist of two arbitrators, one each to be
nominated by each party. The said arbitrators were to appoint
an Umpire. No power is vested on the two arbitrators to
appoint a third arbitrator.
This objection hardly has any merit. The two arbitrators
had to appoint a third person. Whether he is treated as an
Umpire or a third arbitrator would not be of much
consequence. The petitioner also explained that it was agreed
by a letter dated 12.12.1995 from the attorneys of the
respondent No.1 that both parties, namely, the petitioner and
the first respondent would appoint their own arbitrator, with
the arbitrators so appointed being at liberty to choose an
umpire. It was in view of this letter of the respondent No.1
itself that each party nominated its arbitrator and the two
arbitrators chose Mr. Michael Baskerville to act as umpire. This
course was, thus, adopted by the parties willingly. Moreover,
no objection was taken by the respondent before the Arbitral
Tribunal questioning its constitution. Therefore, it is too late in
the day to take such an objection.
(b) Other objection is that the award is contrary to public policy of
India. It is premised on the ground that the counter claim filed
by the respondent No.2 had not been considered by the
arbitrators and he was denied an opportunity to prosecute its
claims. The basis of this plea is that the respondent No.2 was
asked to give security, which it could not furnish due to
financial inability, and that was the reason that it was deprived
of its legal right, which amounts to violation of principles of
natural justice.
The question would be as to whether demand by the
Arbitral Tribunal to furnish such a security is illegal? It cannot
be disputed by the respondents that they agreed for settlement
of disputes by a specific forum which was to adjudicate the
disputes as per its rules. When the rules provide for furnishing
of security, the respondents knew the rigors of such a
mechanism. Therefore, they cannot now turn around and say
that they could disobey such directions to furnish security as
ordered by the Arbitral Tribunal and complain that even if
there was default on their part in refusing to furnish the
security, their claims/counter claims should have been
considered. That apart, in the present case, it does not even lie
in the mouth of the respondents to take such an objection
inasmuch as the direction to furnish security was at their
instance. In this behalf, I may note that on 26.4.1996 the
respondent No.1, through its counsel, addressed a fax dated
26.4.1996 to the Arbitral Tribunal seeking directions from the
tribunal to direct the petitioner to furnish security for cause in
the sum of US$150,000 for prosecuting its claim in the
arbitration. On this the Arbitral Tribunal passed orders dated
1.5.1996 whereby the petitioner as well as the first respondent
were directed to furnish security in the sum of US$ 150,000 to
secure the cost of the claims and counter claims brought by the
petitioner and the respondent No.1, respectively. Thus, it is on
the insistence and at the instance of the respondents that such
an order was passed. Thereafter, if the respondents failed
and/or neglected to comply with the said order dated 1.5.1996
and refuse to furnish the security, the Arbitral Tribunal was
justified in staying the counter claims of the respondents.
Learned counsel for the petitioner explained that directions to
give such security and disregard the claim for failure to furnish
the security is in consonance with the English law.
I, therefore, do not find any merit in this objection either.
(c) The next objection is that the award is based on certain
documents in respect of which sufficient notice was not given
to the respondents and no opportunity was given to them to
lead evidence to disprove the said documents. The precise
grievance in this behalf was that as per the schedule fixed by
the Arbitral Tribunal vide its orders dated 22.7.1998, the actual
dates of hearing were fixed from 21.9.1998 to 25.9.1998.
Before the hearings on the aforesaid dates, as per the schedule,
the statement of witnesses were to be exchanged by 14.8.1998
and expert reports were also to be exchanged by 24.8.1998.
However, the petitioner did not adhere to this schedule and
gave any documents in advance, but produced the same only
at the time of hearing. It is further stated that on 22.9.1998,
report by Cambridge Research Technology Institute (CRTI) was
produced which was not filed earlier. The respondent had
objected to production of this report at a belated stage, but this
objection was ignored by the Arbitral Tribunal and the report
was taken on record. In these circumstances, the respondent
made request for postponing of the hearing to enable it to
study the said report, which request was also rejected. So
much so, the respondent was directed to cross-examine a
person on the said report even though he was not the author
of the same. Not only this, request of the respondent to
produce the author of the report for cross-examination was
also rejected. It is argued that the said report was highly
technical in nature and required detailed study, but no time
was given to the respondents to study the same for effective
cross-examination of the witness. It was also argued that in
any case the report was not proved in accordance with the law
as author of the report was not produced. Despite this, the
Arbitral Tribunal relied upon this report, which is the sole basis
of its findings against the respondents.
It is further contended that the petitioner had produced
the evidence by way of affidavits of the Master and Chief
Officer of the ship and though their testimony has been heavily
relied upon by the Arbitral Tribunal, the said persons were not
produced for cross-examination by the petitioner. According
to the objector, this is against the public policy of India that
any testimony which has not been tested on the touchstone of
the cross-examination is relied upon.
I may note that in reply to these objections the petitioner
has denied that it failed to adhere to the schedule fixed by the
Arbitral Tribunal vide its order dated 22.7.1998. The
allegation that CRTI report was filed only on 22.9.1998 is also
denied. Other allegations made by the respondent No.2
regarding refusal of request to adjourn the proceedings or
giving it chance to produce evidence in rebuttal to the CRTI
report were rejected by the Tribunal. In view of this denial,
onus was upon the respondent No.2 to show that the report
was filed on 22.9.1998. I also find that even the respondent
No.2 had filed report of the technical expert. Therefore, it is
not a case where the respondent No.2 was not given a chance.
The proceedings recorded by the Arbitral Tribunal are
not produced before me. In these circumstances, the
respondent No.2 has failed to show that any request was made
for adjournment of the proceedings on the purported ground
that the report was filed only on 22.9.1998 and the request
was rejected. Even if it is presumed that nothing in this behalf
was recorded by the Arbitral Tribunal in the day-to-day
proceedings, minimum which was expected from the
respondent No.2 was to put it on record that such a request
was made and the Tribunal did not accede to that request.
One cannot be oblivious of the nature of such international
arbitration proceedings. The schedule fixed by the arbitral
tribunals is strictly adhered to and only in exceptional
circumstances adjournments are given. There is a rational and
justification for the same. In respect of disputes relating to
international commercial dealings, such arbitral tribunals ensure
that they are decided with utmost alacrity and promptness.
Such proceedings are not allowed to be dragged on
unnecessarily causing delays. In fact, this is the culture which
needs to be set-in in all kinds of arbitration proceedings,
whether international or domestic.
It is stated by the petitioner that proceedings were
conducted in accordance with the established practice in
England and procedure followed there. This is an important
fact which cannot be lost sight off. If such procedure is
followed as prevalent in the country where the arbitration
took place, it cannot be said that the same would be in
violation of principles of natural justice when considered on
the touchstone of law prevailing in India. Way back in the
year 1963, the Supreme Court in the case of R. Vishwanathan &
Ors. v. R. Gajambal Ammal & Ors., AIR 1963 SC 1, made
following pertinent observations relating to enforcement of
foreign judgments in India :-
"40. Before we deal with the contentions it may be necessary
to dispose of the contention advanced by the executors that it
is not open in this suit to the plaintiffs to raise a contention
about bias, prejudice, vindictiveness or interest of the Judges
constituting the Bench. They submitted that according to recent
trends in the development of Private International law a plea
that a foreign judgment is contrary to natural justice is
admissible only if the party setting up the plea is not duly
served, or has not been given an opportunity of being heard.
In support of that contention counsel for the executors relied
upon the statement made by the Editors of Dicey‟s "Conflict of
Laws", 7th Edition Rule 186 at pp. 1010-1011 and submitted that
a foreign judgment is open to challenge only on the ground of
want of competence and not on the ground that it is vitiated
because the proceeding culminating in the judgment was
conducted in a manner opposed to natural justice. The
following statement made in "Private International Law" by
Cheshire, 6th Edition pp. 675 to 677 was relied upon:
"The expression „contrary to natural justice‟ has,
however, figured so prominently in judicial statements that it is
essential to fix, if possible, its exact scope. The only statement
that can be made with any approach to accuracy is that in the
present context the expression is confined to something
glaringly defective in the procedural rules of the foreign law. As
Denman, C.J. said in an early case :
"That injustice has been done is never presumed, unless
we see in the clearest light that the foreign law, or at least
some part of the proceedings of the foreign court, are
repugnant to natural justice : and this has often been made the
subject of inquiry in our Courts"
In other words, what the Courts are vigilant to watch is
that the defendant has not been deprived of an opportunity to
present his side of the case. The wholesome maxim audi
alteram partem is deemed to be of universal, not merely of
domestic application. The problem, in fact, has been narrowed
down to two cases.
The first is that of assumed jurisdiction over absent
defendants.... Secondly, it is a violation of natural justice if a
litigant, though present at the proceedings, was unfairly
prejudiced in the presentation of his case to the Court."
It is unnecessary to consider whether the passages relied upon
are susceptible of the interpretation suggested, for private
international law is but a branch of the Municipal law of the
State in which the Court which is called upon to give effect to a
foreign judgment functions and by S. 13 of the Civil Procedure
Code (Act V of 1908) a foreign judgment is not regarded as
conclusive if the proceeding in which the judgment was
obtained is opposed to natural justice. Whatever may be the
content of the rule of private international law relating to
"natural justice" in England or elsewhere (and we will for the
purpose of this argument assume that the plea that a foreign
judgment is opposed to natural justice is now restricted in
other jurisdictions only to two grounds - want of due notice
and denial of opportunity to a party to present case) the plea
has to be considered in the light of the Statute law of India,
and there is nothing in S.13 of the Code of Civil Procedure,
1908 which warrants the restriction of the nature suggested.
41. By S.13 of the Civil Procedure Code a foreign judgment
is made conclusive as to any matter thereby directly
adjudicated upon between the same parties. But it is the
essence of a judgment of a Court that it must be obtained after
due observance of the judicial process, i.e. the Court rendering
the judgment must observe the minimum requirements of
natural justice - it must be composed of impartial persons,
acting fairly, without bias, and in good faith, it must give
reasonable notice to the parties to the dispute and afford each
party adequate opportunity of presenting his case. A foreign
judgment of a competent Court is conclusive even if it
proceeds on an erroneous view of the evidence or the law, if
the minimum requirements of the judicial process are assured:
correctness of the judgment in law or on evidence is not
predicated as a condition for recognition of its conclusiveness
by the Municipal Court. Neither the foreign substantive law,
nor even the procedural law of the trial be the same or similar
as in the Municipal Court. As observed by Charwell, J., in
Robinson v. Fenner, (1913) 3 K B 835 at p. 842, "In any view
of it, the judgment appears, according to our law, to be clearly
wrong, but that of course is not enough: Godard v. Gray,
(1870) 6 QB 139 and whatever the expression "contrary to
natural justice", which is used in so many cases, means (and
there really is very little authority indeed as to what it does
mean), I think that it is not enough to say that a decision is
very wrong, any more than it is merely to say that it is wrong.
It is not enough, therefore, to say that the result works injustice
in the particular case, because a wrong decision always does."
A judgment will not be conclusive, however, if the proceeding
in which it was obtained is opposed to natural justice. The
words of the statute make it clear that to exclude a judgment
under cl. (d) from the rule of conclusiveness the procedure
must be opposed to natural justice. A judgment which is the
result of bias or want of impartiality on the part of a Judge will
be regarded as a nullity and the "trial coram non judice"
(Vassiliades v. Vassiliades, AIR 1945 PC 38 and Manak Lal v.
Dr. Prem Chand, 1957 SCR 575 : (S) AIR 1957 SC 425."
I do not find the objection of the respondent No.2
getting covered by any of the principles on which such an
award could be challenged, namely, the respondent No.2
could not establish that the Tribunal did not consist of impartial
persons or it did not act fairly, without bias, or in good faith.
Reasonable notice was given to the parties to the dispute by
fixing the schedule much in advance and if that schedule was
followed rigorously and even if adjournment was refused, that
would not amount to denial of principles of natural justice. The
Apex Court in Hariom Maheshwari v. Vinit Kumar Parikh, JT
2004 (10) SC 360, clearly laid down that where a party is
refused an adjournment and where it is not prevented from
presenting its case, it cannot, normally, claim violation of
natural justice and denial of a fair hearing.
The observations made in R. Vishwanathan & Ors. v. R.
Gajambal Ammal & Ors. (supra) (para 41), answers the other
objection of the respondent No.2 as well, i.e. foreign award
(which is not enforceable as decree) is conclusive even if it
proceeds on an erroneous view of the evidence or law.
Therefore, it is not permissible to go into the other issues raised
regarding non-production of the author of the CRTI report and
instead the petitioner producing its own experts, etc.
(d) Some other objections to the award are also taken, as
noted in the earlier paragraphs of this judgment, namely,
negligence on the part of the petitioner in not storing the cargo
properly; not going into the question of mitigation of losses;
quantum of damages granted being unreasonable, etc.
However, these are the issues on the merits of the award which
are not within the permissible scope of objections. Therefore, I
do not find merit in any of the other objections.
The aforesaid objections clearly remind us that the same
are simply hyper-technical in nature.
28. For international arbitration to have credibility, the arbitral award
arising from it must be a meaningful remedy. In other words, success
in arbitration is ultimately determined by the successful enforcement
of the arbitral award. Once the arbitral tribunal's decision has been
made in the form of an award, it is an implied term of every
arbitration agreement that the parties will carry it out. Although, one
may acknowledge that to be performed the award should be
recognized and enforced in a national court otherwise it does not
have much practical value [Source: Tibor Várady, et al., International
Commercial Arbitration, Thompson West (2003), p. 733]. Gunther
Horvath in its article 'The Duty of the Tribunal to Render an
Enforceable Award‟ (2001) 18 Journal of International Arbitration
135 remarked:
"Faith in this system of international arbitration largely explains
the higher rate of voluntary compliance with arbitral awards
and the extremely low rate of vacatur and non-enforcement in
situations where awards are not automatically observed.
Nonetheless, the risk of non-enforcement remains looming like
a „Sword of Damocles‟ over the entire system, and the costs of
non-enforcement, even when rare, are enormous for the
parties, the arbitrators, the institutions, the States and the
system as a whole."
29. It is therefore essential that such an award when properly rendered
be legally binding and enforceable both at the place where it is
rendered and at the place where the judgment debtor has assets. As
Alan Redfern & Martin Hunter [Law & Practice of International
Commercial Arbitration, Sweet & Maxwell Ltd. (3rd Ed. 1999), p.
449] aptly puts it:
"... the purpose of recognition on its own is generally to act as
a shield. Recognition is used to block any attempt to raise in
fresh proceedings issues that have already been decided in the
arbitration that gave rise to the award whose recognition is
sought. By contrast, the purpose of enforcement is to act as a
sword. Enforcement is a positive step taken to compel the
losing party to carry out an award that he is unable or
unwilling to carry out voluntarily. Enforcement of an award
means applying legal sanctions to compel the party against
whom the award was made to carry it out."
30. Thus, one should favour a pro-arbitration approach with respect to
the enforcement of foreign arbitral award. The said approach is
apparent from the observation of the Singapore High Court (per
Judith Prakash, J.) whereby an argument was rejected on the ground
of public policy in the course of resisting the enforcement of a foreign
arbitral award In Re An Arbitration between Hainan Machinery
Import and Export Corporation and Donald & McArthy Pte Ltd.,
[1996] 1 SLR 34 which reads as under:
"... the principle of comity of nations requires that the awards
of foreign arbitration tribunals be given due deference and be
enforced unless exceptional circumstances exist. As a nation
which itself aspires to be an international arbitration centre,
Singapore must recognize foreign awards if it expects its own
awards to be recognized abroad."
It is not suggested that the courts in India would not refuse to
enforce an international award even if a case is made out for
interference within the four corners of Section 48 of the 1996 Act
read with section 13 of the Code of Civil Procedure. However, once
it is found that the award is properly rendered, it is the duty of the
courts in India to enforce the same.
31. In view of the aforesaid discussion, prayer made in OMP No.
173/1998 is allowed and interim order dated 13.8.1998 is made
absolute till the time the decretal amount as per the award is paid by
the respondent No.2 and decree satisfied. OMP is disposed of with
these directions.
32. Insofar as Execution Petition is concerned, the respondent No.2 is
directed to make the payment within eight weeks from today. If no
payment is made, the petitioner would be entitled to get the orders
of attachment of the properties of the respondent No.2 and take
further course of action to realize its amounts under the award from
the respondent No.2. Matter shall be listed before the Regular Bench
on 18th August 2008.
(A.K. SIKRI)
JUDGE
June 04, 2008
nsk
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP No. 173 of 1998
% Pronounced on : June 04, 2008
National Ability S.A. . . . Petitioner
through : Mr. Arvind Nigam with
Ms. Purnima Maheswari,
Advocates
VERSUS
Tinna Oil & Chemicals Ltd. & Ors. . . . Respondents
through : Mr. Ajay Kr. Agrawal with
Ms. Alka Agrawal and
Ms. Anamika Agrawal, Advocates
for the respondent No.2.
CORAM :-
THE HON‟BLE MR. JUSTICE A.K. SIKRI
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
For orders, see Ex.P. No. 74/2000.
(A.K. SIKRI)
JUDGE
June 04, 2008
nsk
