Anita Garg vs M/S. Glencore Grain Rotterdam B.V
2011 Latest Caselaw 3887 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     FAO(OS) No.316/2011 & CM No.11823/2011

Anita Garg                          ...Appellant through
                                    Mr. C.A. Sundaram, Sr. Adv.
                                    with Mr. Narendra M.
                                    Sharma, Ms. Malik Gahlot,
                                    Mr. Sachin Mittal,
                                    Mr. Abhishek Sharma,
                                    Ms. Rohini Musa &
                                    Mr. Zafar Hayat, Advs.

                      versus

M/s. Glencore Grain Rotterdam B.V.......Respondent through
                                 Mr. Rajiv Nayyar, Sr. Adv.
                                 with Ms. Niti Dixit,
                                 Mr. Darpan Wadhwa,
                                 Mr. Vidur Bhatia &
                                 Ms. Raunaq B. Mathur,
                                 Advs. for Respondent No.1

                               Date of Hearing : July 28, 2011

%                              Date of Decision: August 11, 2011

      CORAM:
*     HON'BLE MR. JUSTICE VIKRAMAJIT SEN
      HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

      1. Whether reporters of local papers may be
         allowed to see the Judgment?                 Yes
      2. To be referred to the Reporter or not?       Yes
      3. Whether the Judgment should be reported
         in the Digest?                               Yes

VIKRAMAJIT SEN, J.

1. This Appeal assails the Order of the learned Single Judge

dismissing the Appellant's Objections under Section 34 of the

Arbitration & Conciliation Act, 1996 (A&C Act for short)

challenging both the Interim Award dated 20.6.1997 as well as

the Final Award dated 29.7.1997 passed by The London Rice

Brokers' Association (LRBA). These Awards have not been

challenged for the first time. In the first instance, M/s Shivnath

Rai Harnarain (India), a partnership firm, of which the

Appellant before us and her husband, Mr. Prem Chand Garg

are partners along with others, filed CS(OS) No.1103/1997; it

was prayed that the subject contracts containing an Arbitration

Clause are void and not binding on the firm. The Respondents

had filed CS(OS) No.541/1998 seeking the enforcement of

these Awards which was allowed; and by an Order of even date,

the said Suit filed by the Firm was dismissed by Reva

Khetrapal, J. Our learned Sister, in her Judgment dated

27.11.2008, had ordered that the Final Award shall be deemed

to be a decree of this Court. The Partnership Firm carried the

matter in Appeal to the Division Bench which held that an

appeal was not available from such Orders. This view has found

favour with the Apex Court as is evident from a study of Fuerst

Day Lawson Ltd. -vs- Jindal Exports Ltd. decided on

8.7.2011 which also dismissed Civil Appeal No.5156/2011

arising out of SLP(Civil) 31068/2009.

2. In the interregnum, the Respondents had filed Execution

Petition No.72/2009 for execution of the Award in which the

partners were impleaded in their individual names, for the first

time. By Order dated 19.4.2010, the learned Single Judge had

directed the sale of the shares of Shri Lal Mahal Limited

held by Mr. Prem Garg and Mrs. Anita Garg, partners of the

said partnership firm Shivnath Rai Harnarian (India). That

Order was assailed before the Division Bench in EFA(OS)

Nos.15-16/2010 which also came to be dismissed. Taking note

of the fact that the Partnership Firm had failed to deposit fifty

per cent of the principal amount under the Foreign Awards, in

availment of the interim Orders passed by the Hon'ble Supreme

Court in the next Special Leave Petition filed by the said Firm,

the sale of the shares of the Judgment Debtors in Shri Lal

Mahal Limited have been ordered. Although the Partnership

Firm, as well as one of its partners, Shri Prem Chand Garg, had

resisted Execution Petition No. 72/2009 initiated by the

Respondents under Section 49 of the A&C Act, neither of them

had taken out proceedings under Section 34 thereof, as has

now been attempted by the Appellant before us, namely, Mrs.

Anita Garg, wife of Mr. Prem Chand Garg. In the impugned

Order, the learned Single Judge has, inter alia, held that the

action before him was barred from consideration on the

principles of res judicata. The experience of this High Court is

that the partnership firm and each of its partners is an

inveterate and chronic litigant.

3. One of the Objections raised by the Respondents before

us is that the Appeal is not maintainable on the strength of the

decision of the Supreme Court in Videocon -vs- Union of India,

2011(5) Scale 678, as the parties have specified that ―the

contract shall be deemed to have been made in England and

the construction, validity and performance thereof shall be

governed in all respects by English law.‖ We should forthwith

mention that the common agent, Jackson Son & Company

(London) Ltd., is located in England and hence it is not possible

to contend that England has no causal connection with the

cause of action. But to this question, we shall revert in a while.

4. We must forthwith analyze Bhatia International -vs- Bulk

Trading S.A., (2002) 4 SCC 105 wherein, as per the agreement

between the parties, the arbitral proceedings were to be

conducted as per the Rules of the International Chamber of

Commerce (ICC); the Seat of Arbitration was stipulated to be in

Paris, France. Article 23 of the ICC Rules was under scrutiny.

We have perused it. It first reserves the right of the Arbitral

Tribunal to pass interim or conservatory measures and

secondly preserves, it seems to us, the powers of a judicial

authority to do likewise. The argument before Their Lordships

was that since the Seat of Arbitration was in Paris, any interim

or conservatory measures could be prayed for only before a

competent judicial authority located in France. This was

negatived by the Hon'ble Supreme Court on the postulation

that Part I of the A&C Act applies to both Domestic as well as

International Commercial Arbitration unless, in the case of the

latter, Part I had been explicitly or implicitly excluded by the

parties. Their Lordships had further clarified that a foreign

award is enforceable in India by invoking the provisions of the

A&C Act or, significantly, even the CPC. The contract in that

case did not so specify.

5. Venture Global Engineering -vs- Satyam Computer

Services Ltd. twice engaged the attention of the Hon'ble

Supreme Court; in 2008 (AIR 2008 SC 1061) and thereafter in

2010 (2010) 8 SCC 660. The facts of the dispute can be gleaned

from the second Report. The Seat of Arbitration was in the

United States of America and consequent on the passing of an

Award in favour of Satyam, execution proceedings were

commenced by it in the State of Michigan, United States of

America. Thereupon, Venture Global filed Objections under

Section 34 of the A&C Act in Secundrabad, India, predicated on

the illegality of the directions relating to the transfer of

shareholding. Succinctly stated, the Supreme Court ruled that

since the operation of Part I of the A&C Act had not been

excluded by any of the terms in the Arbitration Clause, the

proceedings were well-founded. We may mention that Section

11.05(C) of the Shareholders' Agreement provided that -

―notwithstanding anything to the contrary in this agreement,

the shareholders shall at all times act in accordance with the

Companies Act and other applicable Acts/Rules being in force,

in India at any time‖. According to Their Lordships, therefore,

Part I of the A&C Act was ―applicable to the award in question

even though it is a foreign award‖. It is evident to us that the

Apex Court had recognized the distinction between substantive

law or the law of contract, and the curial law governing the

arbitration which is determined by the ‗seat of arbitration',

which was Paris.

6. Both these Judgments were discussed by the Supreme

Court recently in Videocon. Their Lordships have extracted

Articles 33 and 34 of the Production Sharing Contract, which

we shall also do for facility of reference:-

33.1 Indian Law to govern Subject to the provisions of Article 34.12, this Contract shall be governed and interpreted in accordance with the laws of India.

33.2 Laws of India not to be contravened Subject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges

and powers conferred upon it by this Contract in a manner which will contravene the laws of India. .....

34.12. Venue and Law of Arbitration Agreement The venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia, and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England.

7. Before we venture further, we must also note that the

Arbitration Act, 1996 which is in force in England and Wales

and in Northern Ireland, particularly postulates in Section 3

that the seat of arbitration means the juridical seat of

arbitration, the significance being, on a perusal of Section 2,

that the matters pertaining to the conduct of arbitration shall

be regulated by that statute. We mention this for the reason

that the provisions pointed to therein prominently pertain to

the functioning of the Arbitral Tribunal, the distinction being

the passing by the Court of orders under Section 9, or the

enforcement of the Award under Section 34. So far as the A&C

Act is concerned, Section 20 corresponds to Section 2, albeit in

a drastically condensed or compressed form. At first blush,

therefore, the Arbitration Clauses have the effect of preserving

the laws of India so far as contractual or substantive disputes

are concerned and then go on to provide that procedural law

pertaining to the conduct of the arbitration shall be English

Law. The dichotomy within the law is manifest. We rest our

view on the ratio of National Thermal Power Corporation -vs-

Singer Company, (1992) 3 SCC 551 in which the Arbitration

Clause, as a precursor to that in Videocon, specified - ―the

laws applicable to this contract shall be laws in force in India.

The Courts of Delhi shall have exclusive jurisdiction in all

matters arising under this contract.‖ The ratio of the Judgment

is available in the following passages:-

25. The parties have the freedom to choose the law governing an international commercial arbitration agreement. They may choose the substantive law governing the arbitration agreement as well as the procedural law governing the conduct of the arbitration. Such choice is exercised either expressly or by implication. Where there is no express choice of the law governing the contract as a whole, or the arbitration agreement in particular, there is, in the absence of any contrary indication, a presumption that the parties have intended that the proper law of the contract as well as the law governing the arbitration agreement are the same as the law of the country in

which the arbitration is agreed to be held. On the other hand, where the proper law of the contract is expressly chosen by the parties, as in the present case, such law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement which, though collateral or ancillary to the main contract, is nevertheless a part of such contract. .....

53. All substantive rights arising under the agreement including that which is contained in the arbitration clause are, in our view, governed by the laws of India. In respect of the actual conduct of arbitration, the procedural law of England may be applicable to the extent that the ICC Rules are insufficient or repugnant to the public policy or other mandatory provisions of the laws in force in England. Nevertheless, the jurisdiction exercisable by the English courts and the applicability of the laws of that country in procedural matters must be viewed as concurrent and consistent with the jurisdiction of the competent Indian courts and the operation of Indian laws in all matters concerning arbitration in so far as the main contract as well as that which is contained in the arbitration clause are governed by the laws of India.

8. There can be no cavil that the A&C Act is an amalgam of

(i) our domestic jurisprudence on the facet of arbitration as

well as (ii) the Convention on The Recognition and Enforcement

of Foreign Arbitral Awards (New York Convention, which can

be found in the First Schedule to the A&C Act) and the (iii)

Protocol on Arbitral Clauses (Geneva Protocol 1923 viz. the

Second Schedule to the A&C Act) and the Convention of the

Execution of Foreign Arbitral Awards (Geneva Convention

1927, namely, the Third Schedule to the A&C Act) and finally

to (v) UNCITRAL Model Law on International Commercial

Arbitration, 1985. By Article VII of the New York Convention,

which is adverted to in Section 44 of the A&C Act, the Geneva

Protocol 1923 and the Geneva Convention 1927 ceased to have

effect between those contracting States which had acceded

thereto. It may be mentioned that less than five sovereign

contracting states, privy to the Geneva Convention, have yet

not become signatories to the New York Convention which 146

countries have presently acceded to. It is palpable that the

Geneva Convention is not relevant any more. The A&C Act also

consumes the provisions of the Arbitration (Protocol and

Convention) Act, 1937 and the Foreign Awards (Recognition

and Enforcement) Act, 1961, both of which have been repealed

by it. The Foreign Awards (Recognition and Enforcement) Act,

1961 was a separate statute bringing the New York Convention

into force in India. Its provisions have been incorporated into

the A&C Act and, therefore, the need to repeal the former by

the latter was necessitated. The Arbitration (Protocol and

Enforcement) Act, 1937 was enacted for the purpose of giving

effect to the Geneva Protocol, 1923 and Geneva Convention,

1927.

9. The UNCITRAL Model Law on International Commercial

Arbitration, as its name explicitly suggests, concerns itself only

with International Commercial Arbitration. This is also evident

from the Resolution 40/72 adopted by the United Nations

General Assembly which states, inter alia, that ―the General

Assembly, ..... Convinced that the Model Law, together with the

convention on the Recognition and Enforcement of Foreign

Arbitral Awards and the Arbitration Rules of the United Nations

Commission on International Trade Law recommended by the

General Assembly in its resolution 31/98 of 15 December, 1976,

significantly contributes to the establishment of a unified legal

framework for the fair and efficient settlement of disputes

arising in international commercial relations‖. As on date,

there are around 80 countries who have adopted the Model

Law. We must immediately underscore that all these

Instruments do not deal with domestic arbitration at all. The

A&C Act, however, borrows heavily, almost verbatim, from the

UNCITRAL Model Law, but as has become evident in the last

fifteen years, fails to clearly and unambiguously distinctively

deal with domestic and foreign arbitrations.

10. Article 253 of the Constitution of India lays down that

Parliament has power to make any law for the whole or any

part of territory of India for implementing any treaty,

agreement or convention with any other country or countries or

any decision made at any international conference, association

or other body. Article 253 starts with a non obstante clause and

it is for this reason that the Supreme Court has clarified in S.

Jagannath -vs- Union of India, (1997) 2 SCC 87 that the Union

is competent to legislate with respect to State subjects insofar

as may be necessary for implementing its obligations. However,

in order to metamorphose treaty obligation into binding law,

domestic legislation is required to be enacted. It is this process

that gives effect to treaties and international agreements which

have been consented to by the Executive. Article 51 of the

Constitution of India however, enjoins the State to (a) promote

international peace and security; (b) maintain just and

honourable relations between nations; (c) foster respect for

international law and treaty obligations in the dealings of

organised peoples with one another; and (d) encourage

settlement of international disputes of arbitration. Drawing on

these Directive Principles, Courts can give weightage to

treaties and international agreements wherever it encounters

play in the joints. This is not possible as soon as domestic law

comes into force in respect of treaties and international

agreements. We say this because it appears to us that with the

enactment of the A&C Act, it may no longer be possible to

advert to or be guided by the UNCITRAL Model Law or the

New York Convention or the Geneva Convention. It appears to

us that Parliament was not fully alive to need to clearly provide

for domestic as well as international commercial arbitration.

Hence, manifold and myriad conundrums have manifested

themselves over the years on the question whether the A&C

Act fully and comprehensively covers every aspect of domestic

as well as international commercial arbitration. In the absence

of separate legislations clearly differentiating between these

two distinct aspects of arbitration law, the A&C Act has

perforce to be pressed into service for regulating both regimes.

The A&C Act commences with a clarification that it

consolidates and amends the law relating to domestic

arbitration, international commercial arbitration and

enforcement of foreign arbitral awards. Part-I, therefore, with

no possible alternative, must cover all hues of hues of

international commercial arbitration. On this simple premise,

one need not look into various Sections to come to the same

conclusion.

11. It is apparent that whilst Chapter-I and II deal with

arbitration agreements and clauses, Chapter-III - composition

of arbitral tribunal, Chapter-IV - jurisdiction of arbitral

tribunals, Chapter-V - conduct of arbitral proceedings and

Chapter-VI - making of arbitral awards and termination of

proceedings relate to the conduct of arbitral proceedings. The

succeeding Chapters VII to X do not directly concern

themselves with the conduct of arbitration. It is salutary to

keep in perspective this distinction in order to fully appreciate

the difference in the so-called ‗law of contract' in

contradistinction to the ‗law of arbitration'. It is our

understanding that the law of arbitration or lex arbitri should

invariably correspond with the seat of Arbitration unless the

contract otherwise specifies. We find the following paragraphs

of the treatise - Russell on Arbitration, Gearing. M, Gill. J,

Sutton. D; Twenty Third Edition; Thomson Sweet & Maxwell; at

pg.213, para 5-072), germane and worthy of reproduction:-

―Determining the ―seat‖ of an arbitration is extremely important for a number of reasons. First, it will usually (but not necessarily) be where meetings or hearings will take place. What happens if the tribunal holds hearings elsewhere contrary to the express agreement of the parties? To hold the hearings in another country would render any award subject to challenge for serious irregularity, provided substantial injustice could be

demonstrated. To hold the arbitration in a location different from, but within the same country as, that expressly agreed between the parties will not necessarily do so. In many cases, however, the parties will either be willing to vary their agreement so as to allow the hearing to be held elsewhere or, if the arbitration is subject to institutional rules, they may empower the tribunal to do so. Second, the seat of arbitration is important because it establishes the curial law of the arbitration and may determine each of the procedural law applicable to the arbitration, the law of the arbitration agreement, and the proper law of the substantive contract‖.

12. The divisions of this dichotomy, that is between

substantive law and procedural law, must be determined in the

context of the A&C Act. Does Part I embrace both genre of law?

It is arguable that Chapters - III to VI, that is, Sections 10 to

33, deal with the functioning of the Arbitral Tribunal and hence

corresponds to procedural law pertaining to the Arbitral

Tribunal; the term curial law is rampantly used to indicate

procedural law. This term, in other legal parlance, alludes also

to courts or judicial tribunals, hence causing some confusion.

We think curial law or procedural law or lex arbitri to be

interchangeable especially in view of these observations to this

effect in commercial Arbitration, Mustill & Boyd Second

Edition:-

The second group of obligations, consisting of what is generally referred to as the ‗curial law' of the arbitration, concerns the manner in which the parties and the arbitrator are required to conduct the reference of a particular dispute. According to the English theory of arbitration, these rules are to be ascertained by reference to the express or implied terms of the agreement to arbitrate. This being so, it will be found in the great majority of cases that the curial law, i.e. the law governing the conduct of the reference, is the same as the law governing the obligation to arbitrate. It is, however, open to the parties to submit, expressly or by implication, the conduct of the reference to a different law from the one governing the underlying arbitration agreement. In such a case, the court looks first at the arbitration agreement to see whether the dispute is one which should be arbitrated, and which has validly been made the subject of the reference; it then looks to the curial law to see how that reference should be conducted; and then returns to the first law in order to give effect to the resulting award.

The possibility that the different aspects of the arbitral relationship may be governed by different laws will also exist where the arbitration is conducted in a country other than the one whose laws govern the agreement to arbitrate. Here, the lex fori may be relevant not only because the choice of country A as the location of the reference may justify the inference that the parties wish the law of country A to govern the conduct of the dispute, but also because the law of that country may have imperative provisions which the

courts will apply to the reference, irrespective of any choice by the parties as to the law governing the contract or the rules which are to be followed.

It may therefore be seen that problems arising out of an arbitration may, at least in theory, call for the application of any one or more of the following laws--

1. The proper law of the contract, i.e. the law governing the contract, which creates the substantive rights of the parties, in respect of which the dispute has arisen.

2. The proper law of the arbitration agreement, i.e. the law governing the obligation of the parties to submit the disputes to arbitration, and to honour an award.

3. The curial law, i.e. the law governing the conduct of the individual reference.

13. After the Award is pronounced by an arbitral tribunal, it

becomes functus officio. Provisions assailing the legal

proprietary of the Award must, therefore, partake of the nature

of the substantive law or the proper law of the contract. If this

distinction and dichotomy is not always kept in mind,

difficulties will invariably be encountered, as has also been

observed in Law and Practice of International Commercial

Arbitration Alan Redfern and Martin Hunter Third Edition:

First, as a glance at the list will show, there is an obvious prospect of conflict between the lex arbitri and a different system of law that may be equally relevant. Consider, for example, the question of arbitrability, that is to say, whether or not the subject-matter of the dispute is capable of being resolved by arbitration. The

concept of arbitrability is basic to the arbitral process. The New York Convention and the Model Law refer explicitly to disputes that are ―capable of being resolved by arbitration‖, which impliedly recognizes that, as a matter of law, some disputes may not be capable of being so resolved. Whether or not a particular dispute is legally ―capable of being resolved by arbitration‖ is in effect a matter of public policy; but it is a matter on which states may well differ, with some taking a more restrictive attitude than others. Thus, a claim may be arbitrable under the law governing the arbitration agreement and under the lex arbitri but not under the law of the place of enforcement. An award on such a dispute, although validly made under the lex arbitri, might prove to be unenforceable under the New York Convention.

Secondly, the effective conduct of an international commercial arbitration may depend upon the provisions of the law of the place of arbitration. This dependence may be illustrated by considering provisions of the local law for judicial assistance in the conduct of the arbitration. Even if the arbitrators have the power to order interim measures of protection, such as orders for the preservation and inspection of property, they are unlikely to have the power to enforce such orders - particularly if the property in question is in the possession of a third party. For this, it will be necessary to turn to national courts for assistance.

The third and final point to be made is that the choice of a particular place of arbitration may have

important and unintended consequences. This is because the law of that place may confer powers on the courts or on the arbitrators that were not expected by the parties. An example of this is the power to consolidate arbitrations. Whether or not a court or arbitral tribunal has the power to consolidate two or more arbitrations that involve the same basic issues of fact or law is a controversial question discussed further in Chapter 3. In the present context, it is only necessary to note that such power may exist under the lex arbitri; and this may come as a disagreeable surprise to a party who does not wish to have other parties joined in its arbitration.

14. It seems to us, premised on this analysis, that in any

international commercial arbitration, the parties can indicate

that the curial law or procedure to be followed by the Arbitral

Tribunal should conform to laws in a particular country and the

substantive law or law of the contract should adhere to the law

prevailing in different country. Pragmatism would prompt that

curial law should invariably correspond to where the ‗seat of

arbitration' is located.

15. It may be difficult to reconcile the penultimate paragraph

of Videocon, extracted below, with Singer, which has held the

filed for over a quarter century-

19. In the present case also, the parties had agreed that notwithstanding Article 33.1, the arbitration agreement contained in Article 34 shall be governed

by laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. As a corollary to the above conclusion, we hold that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the Respondents under Section 9 of the Act and the mere fact that the Appellant had earlier filed similar petitions was not sufficient to clothe that High Court with the jurisdiction to entertain the petition filed by the Respondents.

16. We are not unmindful that in International Commercial

Arbitration it is commonplace that the hearings may change

from place to place within a country. This has also been

provided in Article 16(2) of the United Nations Commission on

International Trade Law Arbitration Rules (Resolution 31/98

adopted by the General Assembly on December 15, 1976).

Article 16(2) states that - ―The arbitral tribunal may determine

the locale of the arbitration within the country agreed upon by

the parties. It may hear witnesses and hold meetings for

consultation among its members at any place it deems

appropriate, having regard to the circumstances of the

arbitration‖. Russell on Arbitration (2-107) also accepts that

―meeting or hearings may take place in several countries,

without changing the seat‖. Arbitration Clauses mentioning

venue, place or seat of arbitration to be in country A, whilst

simultaneously stipulating the applicability of the laws of

country B, must logically be construed only as clarifying that

hearings can also be conducted in that particular situs. In such

cases, only Courts of country A will have jurisdiction over

disputes pertaining to the function of the Arbitral Tribunal.

17. Indian jurisprudence does not permit parties to prescribe

the court which has to decide their disputes even though the

nominated forum has no jurisdiction otherwise. We need not go

further than ABC Laminart -vs- A.P. Agencies, AIR 1989 SC

1239 which clarifies that parties may select one of many courts

provided the selected court has jurisdiction to entertain

disputes - that the cause of action must arise within the

territorial jurisdiction of that court, or the defendant must

reside in the territorial jurisdiction of that court or immovable

property must be so located. When this procedural

jurisprudence is kept in perspective, it becomes difficult for any

court to acquiesce in the vesting of jurisdiction in a court which

does not conform to ABC Laminart. How would an Indian

Court rule in a set of circumstances where a court lacking all

vestiges of jurisdiction moderates the functioning of an Arbitral

Tribunal. It would also tantamount to giving an imprimatur to

an attempt to exclude the attracted or enforceable law of one

country and in its stead to make laws of a third unrelated and

unconnected country applicable. Under Sections 34 or 48, it is

arguable that the Award would be held to fall foul of the public

policy of India. In Videocon, the Arbitration Clause recorded

that the venue of arbitration would be in Kuala Lumpur, unless

otherwise agreed to by the parties. The Clause also mentions

that ―the arbitration agreement contained in this Article 34

shall be governed by the laws of England‖. Section 20 of the

A&C Act, which simply speaks of ―place of arbitration‖ is not as

legally precise as Section 3 of the English Arbitration Act which

defines the seat of arbitration to mean the ―juridical seat‖ of

arbitration. Accordingly, since the parties in Videocon had

agreed that the laws of England would be applicable, they had,

in actuality, nominated London as the Seat of Arbitration. In

the event, arbitral proceedings had been conducted in London

and the jurisdictional constraints and rigours were, therefore,

met so far as invocation of English law was concerned. It is not

possible for the Videocon Arbitration Clause to be interpreted

differently, that is, that whilst the Seat of Arbitration was Kuala

Lumpur, English Law would nevertheless apply between the

parties. If all arbitral proceedings were to be conducted only in

Kuala Lumpur, it would be absurd and impractical for the

parties to reach London for orders adjunctory to the

arbitration, like summoning of witnesses etc. However, if

parties have agreed that proceedings are to be held in London

as well as Kuala Lumpur amongst other venues, it would be

sensible to restrict the parties to only one Court. We, once

again, emphasize that the English Law would only apply to any

disputes or clarifications emanating from all the proceedings of

the Arbitral Tribunal held within its territorial sway. We hasten

to clarify this point since in Videocon it was specifically

recorded that the contract was regulated by the Indian law.

Section 34 of the A&C Act comes into relevance only after the

Arbitral Tribunal has pronounced its Award and thereupon

renders itself functus officio. Ergo, the Arbitration Clauses

mentioning the ‗Seat of Arbitration' or the ‗Juridical Seat of

Arbitration' would automatically result in the laws of that

country to be applicable between the parties, so far as the

conduct of the Arbitral Tribunal is concerned.

18. A reading of the subject Arbitration Clause before us in

this Appeal leaves us in no manner of doubt that so far as lex

arbitri or the curial law is concerned, the parties have agreed

that only the laws of England are attracted. We say this

because the disputes are subject to arbitration of the London

Rice Brokers' Association (LRBA). We shall now reproduce

Clauses 11 and 14 of the present Contract to fully appreciate

the rival contentions, especially as regards the exclusion of

Indian law, that is, Part I of the A&C Act:-

11. Any dispute arising on this Contract shall be referred for settlement to the Arbitration by two Members of this Association's Panel of Arbitrators or their Umpire, being also a Member of this Panel. Each party to appoint one Arbitrator and having the right to reject one nominee. In the event of any party omitting to nominate an Arbitrator within ten days of receipt of notice of appointment of an Arbitrator by the other party, or of the Arbitrators failing to agree on the appointment of an Umpire, the Committee of the London Rice Brokers Association, in either case, shall have power to appoint one forthwith, who shall act on behalf of and as if nominated by the party or parties in default. Claims for arbitration other than Arbitration on quality shall be made and the Claimant's Arbitrator shall be nominated not later than 90 days after the expiry of the contract period of shipment or not later than 90 days from the date of final discharge of the ship at port of destination whichever period may last expire. The parties to the Arbitration shall have the right of appealing against any Award (except on questions of law) within thirty days from the date of Award to the London Rice Brokers Association, whose decision shall be final. Any payments arising out of the Award are to be made within 30 days of the date hereof.

.....

14. Domicile- The Contract shall be deemed to have been made in England and the construction, validity and performance thereof shall be governed in all respects by English Law. Any dispute arising out of or in connection therewith shall be submitted to arbitration in accordance with the Rules of the London Rice Brokers' Association. The serving of proceedings upon any party by sending same to their last known address together with leaving a copy of such proceedings at the office of the London Rice Brokers' Association shall be deemed good service, rule of law or equity to the contrary notwithstanding.

19. Clause 14 completely answers any argument of lack of

jurisdiction because it states that the Contract shall be deemed

to have been made in England.

20. The importance, vis-à-vis the general applicability and

interpretation of the A&C Act raised by Mr. Sundaram, have

convinced us on analyzing the law in some detail. This,

however, is not in disregard of the gravamen of the impugned

Order as well as the Preliminary Objection raised on behalf of

the Respondent, namely, that the principle of res judicata bars

consideration of Objections under Section 34 of the A&C Act.

21. In the impugned Order, the learned Single Judge has

noted that a partnership firm is a compendium of its partners

liable even to the extent of the personal assets of the partners.

The Firm had filed CS(OS) No.1103/1997 for seeking

Declaration that the Arbitration Clause is null and void and had

also defended CS(OS) No.541/1998 for deeming the Award to

be a decree of the Court or making the Award Rule of Court as

under Arbitration Act, 1940 by means of which the

Respondents had set the Execution of the Award in motion.

Both these Suits were decided against the Appellant.

Thereupon, the Respondents filed Execution Petition

No.72/2009 which was allowed and the Appeal assailing the

Order was also dismissed by the Division Bench by an Order

dated 6.11.2010. The learned Single Judge has predicated his

views on Krishna Pillai Raghavan Pillai -vs- Karthiayani Amma

Sarasamma, AIR 1969 Kerala 26 (DB) and Her Highness

Maharani Mandalsa Devi -vs- M. Ramnarain (P) Ltd., (1965) 3

SCR 421 : AIR 1965 SC 1718. The learned Single Judge has

also noted that the Objections under Section 34 of the A&C Act

had not been filed by the Partnership Firm. Relying on

Explanation-IV to Section 11 of the CPC, which states that -

―any matter which might and ought to have been made ground

of defence or attack in such former suit shall be deemed to

have been a matter directly and substantially in issue in such

suit‖, the learned Single Judge held that the recourse by one of

its partners to Section 34 of the A&C Act was not available. We

agree with the reasoning contained in the impugned Order,

even though it is our persuasion that the A&C Act has been

derogated from by the parties.

22. The Appellant has sought to overcome the objection of

res judicata by contending that the learned Single Judge has

equated the exercise of jurisdiction under Section 48 with that

under Section 34 of the A&C Act also. While appreciating that

there may be a slight difference in the ambit and scope of the

two Sections, we cannot ignore the fact that the Firm had not

availed of its right to file Objections under Section 34 of the

A&C Act, assuming that this provision had not been derogated

from. We entirely agree with the conclusion of the learned

Single Judge that these Objections filed by the Appellant, a

partner of the Firm, are patently time barred. Viewed from

either standpoint, therefore, the Objections could not be

entertained.

23. Mr. Sundaram has also submitted that the decision of the

Division Bench in Bharat Sanchar Nigam Limited -vs- Haryana

Telecom, 2010(172) DLT 280 is of assistance to the Appellant

for the reason that it has mandated that the Award should be

personally served on the party concerned. The learned Single

Judge, however, has held that a signed copy of the Award was

served on the Partnership Firm and constituted adequate

notice to each of its partners, as envisaged in Section 24 of the

Partnership Act, 1932 [see Ashutosh -vs- State of Rajasthan,

(2005) 7 SCC 308]. Hence, the learned Single Judge, inter alia,

concluded that the Objections under Section 34 of the A&C Act,

having been preferred after the statutory period, were time

barred. The SLP filed against Bharat Sanchar Nigam

Limited has been dismissed obviously because of the decision

in State of Maharashtra -vs- Ark Builders Private Limited,

(2011) 4 SCC 616.

24. We now come to the second argument raised by

Mr. Sundaram, learned Senior Counsel for the Appellant, viz.

that inasmuch as the Arbitral Tribunal consisted of two

Arbitrators, the Award is illegal and non est. Section 10 of the

A&C Act ordains that the parties are free to determine the

number of arbitrators, provided that such number shall not be

an even number. Section 15 of the English Act 1996 reads as

under:-

15 The arbitral tribunal (1) The parties are free to agree on the number of arbitrators to form the tribunal and whether there is to be a chairman or umpire.

(2) Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment of an additional arbitrator as chairman of the tribunal.

(3) If there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator.

25. We have read Clause 11 of the LRBA Contract which is

equivalent to the Arbitration Clause between the parties. It

merely states that disputes shall be referred for settlement to

the arbitration of two members. There is nothing in this Clause

which precisely or concisely indicates that arbitration by only

two arbitrators was in contemplation. The annals of arbitration

laws in England are quite possibly the reason for the failure to

consciously prohibit a two person Arbitral Tribunal or to insist

upon an odd number of persons, because prior to 1996 this was

statutorily permissible. Section 15 of the English Act, 1996

makes the appointment of a Chairman or Umpire optional

except where the Arbitral Tribunal comprises two or any other

even number. In substance, therefore, there is similitude in the

provisions of Indian as well as English Law. Schedule I of the

English Act clarifies that Section 15 is not mandatory. There is

a recommendation of the Law Ministry that Section 10 of the

A&C Act should be made mandatory by the device of the

introduction of an Explanation.

26. In Videocon, the prayer under Section 9 of the A&C Act

was for stay of arbitral proceedings which were underway in

London. Two questions immediately arose - firstly whether the

Delhi High Court had jurisdiction to pass such an order under

Section 9 of the A&C Act, and secondly whether the stay of

arbitral proceedings was contemplated under that provision. It

is beyond cavil that the powers of the Court under Section 9 of

the A&C Act and that of the Arbitral Tribunal under Section 17

of the A&C Act are the same so far as interim measures of

protection are concerned. A holistic reading of the A&C Act

leads to the conclusion that once arbitral proceedings have

commenced, courts should abjure interference with their

progress. Section 5 boldly states that notwithstanding anything

contained in any other law in matters governed by Part I, no

judicial authority shall intervene except where so provided in

this Part. Section 13(5) similarly rules out assailing a challenge

to the procedure of the Arbitral Tribunal till the award is

published and can thereupon be challenged under Section 34 of

the A&C Act. Section 16(6) is also of like nature and provides

remedy for a ruling of the Administrative Tribunal on its own

jurisdiction only by way of Objections under Section 34 of the

A&C Act. Section 9 makes no mention of stay of proceedings of

the Arbitral Tribunal. Therefore, clearly this prayer was not

available, even assuming that the Delhi High Court enjoyed

territorial jurisdiction over the lis.

27. The decision in Narayan Prasad Lohia -vs- Nikunj Kumar

Lohia, (2002) 3 SCC 572 must now be analyzed threadbare. In

that case, an Award was pronounced by an Arbitral Tribunal

comprising two Arbitrators which was assailed on the ground

that it was contrary to Section 10 of the A&C Act which

stipulates that while the parties are free to determine the

number of Arbitrators, such number shall not be an even

number. The rationale behind this provision is immediately

obvious - it strives to eradicate the possibility of a ‗hung'

Arbitral Tribunal. Lohia was rendered during the regime of

Konkan Railway Corporation Limited -vs- Rani Construction (P)

Ltd., (2002) 2 SCC 388 which stands overruled by the Seven-

Judge decision in SBP & Co. -vs- Patel Engineering Ltd., (2005)

8 SCC 618, which enunciates that the exercise under

Section 11 of the A&C Act is not purely administrative or

ministerial in character. Accordingly, the Court which is called

upon to appoint an Arbitral Tribunal is enjoined to return at

least a prima facie opinion on whether - (i) it possesses

jurisdiction in the sense that the party making the motion has

approached the right High Court; (ii) that there is a valid

arbitration agreement in terms of Section 7 of the A&C Act; (iii)

that the applicant before the Court is a party to the arbitration

agreement and (iv) that there is a dispute/live claim subsisting

which is capable of being arbitrated upon. If these four

concomitants are present, the Court has to be satisfied that

conditions have been disclosed for the exercise of powers under

Section 11(6) of the A&C Act. Mr. Sundaram, learned Senior

Counsel for the Appellant, has endeavoured to persuade us that

in view of SBP, Lohia is no longer a good law. This is palpably

for the reason that the ratio of Lohia is practically fatal to the

Appellant's cause which is to the effect that the Award

rendered by an arbitral tribunal comprising of an even number

of arbitrators is illegal and, therefore, liable to be set aside

under Section 34 of the A&C Act. Secondly, Mr. Sundaram has

also sought to dilute the conclusion that Section 10 of the A&C

Act is a derogable provision. We are unable to agree with him

on both points. As we have already mentioned, SBP is

concerned only with the important question as to whether the

exercise under Section 11 of the A&C Act is administrative or

judicial in nature. It does not even touch upon Section 10 of the

A&C Act. For this simple reason, the opinion in Lohia that

Section 10 is a derogable provision continues to hold the field.

If Section 10 is not derogable, the necessity of having to

consider whether a contract can prescribe an Arbitral Tribunal

of even number could not arise, because jurisprudentially

parties cannot contract contrary to a statute. The dialectic for

the holding that Section 10 is not ‗mandatory' [the word used in

Schedule-I of the English statute, viz. Arbitration Act, 1996] is

to be found in paragraph 16 of the Judgment. Their Lordships

observed that ―it is no longer open to contend that, under

Section 16, a party cannot challenge the composition of the

Arbitral Tribunal before the Arbitral Tribunal itself. Such a

challenge must be taken, under Section 16(2), not later than

the submission of the statement of defence. Section 16(2)

makes it clear that such a challenge can be taken even though

the party may have participated in the appointment of the

arbitrator and/or may have himself appointed the arbitrator.

Needless to state a party would be free, if it so chooses, not to

raise such a challenge. Thus, a conjoint reading of Sections 10

and 16 shows that an objection to the composition of the

Arbitral Tribunal is a matter which is derogable. It is derogable

because a party is free not to object within the time prescribed

in Section 16(2). If a party chooses not to so object there will be

a deemed waiver under Section 4.‖ Proceeding on the

understanding that it is not mandatory that the Arbitral

Tribunal must comprise odd numbers, Their Lordships went on

to hold that the contract must be given effect to. However,

since Section 10 of the A&C Act, at the very least, recommends

that the Arbitral Tribunal should not consist of an even number,

the Apex Court opined that the parties were, notwithstanding

their agreement, empowered to raise this objection at the very

threshold under Section 16(2) of the A&C Act, but are barred

from doing so once an Award is pronounced. It was on this

legal progression, since no objection had been raised on the

score of the Arbitral Tribunal consisting of even number of

persons, that the Supreme Court upheld the Award even

though it was pronounced by an Arbitral Tribunal comprising

only two persons.

28. Mr. Sundaram has contended that the provisions of law

that are in force in England, germane to the controversy before

us, have not undergone any change. He has referred to the

English Arbitration Act, 1950, of which Section 8(1) reads as

follows:-

Unless a contrary intention is expressed therein, every arbitration agreement shall, where the reference is to two arbitrators, be deemed to include a provision that the two arbitrators may appoint an umpire at any time after they are themselves appointed and shall do so forthwith if they cannot agree.

Subsequent amendments did not incorporate any change to

these provisions, as has been impressed upon us by

Mr. Sundaram. His submission is the same in respect of English

Arbitration Act, 1979. However, Mr. Nayyar, learned Senior

Counsel for Respondent No.1, is quick to point out that the

submission of Mr. Sundaram is clearly wrong on a reading of

Section 6 of the English Arbitration Act, 1979 which read as

follows:-

S.6. Minor amendments relating to awards and appointment of arbitrators and umpires.--(1)In sub- section (1) of Section 8 of the principal Act (agreement where reference is to two arbitrators deemed to include provision that the arbitrators shall appoint an umpire immediately after their own appointment)--

(a) for the words ―shall appoint an umpire immediately‖ there shall be substituted the words ―may appoint an umpire at any time‖; and

(b) at the end there shall be added the words ―and shall do so forthwith if they cannot agree‖.

29. The law that was prevailing in England upto 1996 had,

therefore, been amended by the 1979 Act in one extremely

important significance, namely, that the Arbitrators had the

option to postpone the appointment of an umpire till such time

that it became evident that unanimity of opinion on the Arbitral

Tribunal had become illusory. A bare reading of Section 10 of

the A&C Act could possibly convey a contrary impression until

the import of the conclusions in Lohia is appreciated, namely,

that Section 10 is derogable and not mandatory. The position,

therefore, in England, as well as in India, is that whilst the

expectation of Parliament is that the Arbitral Tribunal should

logically comprise an odd number of persons, the contrary may

still obtain. We must now unravel the agreement between the

parties on this nodus.

30. Videocon copiously refers to Bhatia to predicate that

parties can, expressly or impliedly, exclude the whole of Part I

of the A&C Act regardless of whether the provisions are non-

derogable or otherwise. Bhatia, however, dealt with the

question of whether interim measures under Section 9 of the

A&C Act could be granted by Indian Courts even in respect of

international commercial arbitrations, the venue of which was

outside India. The answer was that this was so possible. That is

the ratio of Bhatia. Their Lordships were not called upon to

definitively or comprehensively indicate which of the provisions

of Part I are non-derogable. Since the composition of the

Arbitral Tribunal predates its creation and functioning,

determination of its legality remains with the Court, as has

been laid down authoritatively in SBP. Their Lordships have

prescribed that the Court is duty-bound to return at least a

prima facie finding on this point. Of course, if the Court is of

the opinion that the Arbitral Tribunal is prima facie properly

constituted, it can refer the parties to the Arbitral Tribunal

which will finally rule on that question. In this analysis, Section

9 as well as Section 34 of the A&C Act fall in the domain of

Courts of law, although restricted powers, similar to

Section 9, are also reposed on the Arbitral Tribunal by virtue of

Section 17.

31. On the basis of our study of precedents and of treatise on

this subject, some of the conclusions that we have arrived at

are as follows:-

(a) Law of arbitration, as it has developed globally, recognizes that there is a difference between the law of contract and the law governing the conduct of the Arbitral Tribunal.

(b) Parties are empowered to nominate which national laws will govern either or both these divisions.

(c) For pragmatic reasons, the seat of arbitration or the juridical seat of arbitration or the place of arbitration or the venue of arbitration, if specified in a contract, will also indicate the parties' choice of the curial law pertaining to the conduct of the Arbitral Tribunal's proceedings. In the case of any inconsistency, courts must read out the stipulations as to the venue or seat of arbitration as being one among several places where the Arbitral Tribunal conducts its workings.

(d) At least, so far as India is concerned, the selection of the law that will be applied to the resolution of disputes must be one amongst many other forums which would possess jurisdiction, because of the ratio of ABC Laminart.

(e) We reiterate that the A&C Act has not been properly worded or conceived of. Part I thereof contains provisions which relate to the law of the contract as

well as to the curial law moderating workings of the Arbitral Tribunal. Sections 9 and 34 do not pertain to curial law. So far as Section 9 is concerned, it predates the form of the Arbitral Tribunal; Section 34 is attracted to events post the publication of the award where the Arbitral Tribunal has already been rendered functus officio. If a contract stipulates that the functioning of the Arbitral Tribunal shall be governed by laws in a foreign country, whereas the substantive or contract law will be governed by Indian laws, Section 9 as well as Section 34 will be maintainable.

(f) Broadly speaking, the curial law is contained in Chapters III to VI, whereas proper law of the contract is covered in large measure in the other Chapters of Part I.

(g) Section 10 is a derogable provision. Even so, it may be open to a party to object the first instance since the contract for an even number of arbitrators would be contrary to the statute.

32. We have carefully considered the correspondence

exchanged between the adversaries before us which witnesses

the formation or emergence of a contract; as also whether the

parties had, at all, considered the application of the laws of

only one particular country for a total adjudication of their

disputes. The correspondence does not throw any light on this

subject. Assuming that Clauses 11 and 14 apply to the parties

concerned, they have unequivocally agreed that English law

will apply, unlike in Videocon where there was a reservation to

the effect that Indian law govern that transaction. Therefore, in

the case before us our conclusion is that Part I of the A&C Act

has been specifically excluded by the parties.

33. Clause 14, in terms, refers to the Arbitration and Appeal

Rules of the LRBA. Rule 9 lays down that in the event of the

arbitrators failing to agree, an umpire shall be appointed by

them, such umpire to be a member of LRBA's Panel of

Arbitrators. There is substance in the argument of Mr. Nayyar,

learned Senior Counsel for the Respondent, that if the English

Arbitration Act, 1996 were to be applied, Section 15(2) thereof

enables the parties to derogate from the general prescription of

having an odd number of persons comprising the Arbitral

Tribunal. The effect of Rule 9 would be that the parties have

agreed that an additional arbitrator would have to be

appointed, as Chairman of the Tribunal, only in the event that

the two arbitrators or the even number of arbitrators do not

arrive at a unanimous decision. We are not persuaded by

Mr. Sundaram that the composition of the Arbitral Tribunal

falls foul of Section 10 of the A&C Act and, therefore, deserves

to be set aside under Section 34 of the A&C Act (which

provision is not available) or be declared null and void,

inoperative or incapable of being performed, by virtue of

Section 48 of Part II of the A&C Act. It must be noted that the

Arbitration was initiated/invoked on 25.9.1995 when the extant

law was to the effect that the parties were bestowed with

discretion as to the number of persons who could form the

Arbitral Tribunal. As already mentioned, the [English]

Arbitration Act, 1979 removed the words ―shall appoint an

arbitrator immediately‖ and substituted it with the words ―may

appoint an umpire at any time‖ and this was the reason why

Mr. Nayyar had vehemently submitted that the correct

sequence of the amendments to the English Law had not been

disclosed by learned Senior Counsel for the Appellant.

34. Finally, we need not to consider the argument that a

fraud had been perpetrated by the Agent of the Partnership

Firm, namely, Jackson Son & Company (London) Ltd.. The

contention articulated by Mr. Sundaram is that the

correspondence exchanged by the parties, from which a

contract had emerged, does not contain any arbitration clause.

Once again, the principles of constructive res judicata would

apply inasmuch as this ground ought to have been raised in the

previous proceedings under Section 48 of the A&C Act. We are

unable to agree with the contention raised on behalf of the

Appellant. Parties in the rice business are well aware that the

resolution of disputes is always through the arbitration under

the aegis of LRBA. In any event, Reva Khetrapal, J., in the

impugned Order dated 27.11.2008, has recorded the finding

that the Plaintiff before her, which is the Respondent Company,

had ―discharged the burden placed upon him of proving that

the award sought to be enforced is a genuine foreign award

based on a foreign agreement for arbitration ....‖. A partner of

a firm, such as the Appellant, cannot re-agitate an issue which

has already been raised or could have been raised and decided

by the Firm. This argument is also devoid of merit and is

rejected.

35. In this analysis, we find no merit in the Appeal which is

dismissed. CM No.11823/2011 is also dismissed. Keeping in

view the multitudinous litigation filed by the Partnership Firm

and separately by each of its partners, which has

exhausted several days of this High Court, we quantify costs at

` 2,00,000/- payable by the Appellant to the Respondents.

( VIKRAMAJIT SEN ) JUDGE

( SIDDHARTH MRIDUL ) JUDGE August 11, 2011 tp