Renusagar Power Company Ltd. Vs. General Electric Company & ANR [1984] INSC 143 (16 August 1984)

TULZAPURKAR, V.D.

PATHAK, R.S.

CITATION: 1985 AIR 1156 1985 SCR (1) 432 1984 SCC (4) 679 1984 SCALE (2)321

CITATOR INFO :

F 1989 SC 839 (16) R 1989 SC2198 (8) R 1992 SC 232 (29)

ACT:

Foreign Awards (Recognition and Enforcement) Act, 1961 Section 3, scope of-Whether an earlier suit in the nature of a petition under section 33 of the Indian Arbitration Act, 1940 could be stayed on a petition under section 3 of the Foreign Awards Act, (a petition the nature of a petition under section 34 of the Indian Arbitration Act).

Interpretation of Statutes-Foreign Awards (Recognition and Enforcement) Act, 1961-Interpretation of Act calculated and designed to sub-serve the cause of facilitating international trade and promotion and providing speedy settlement of disputes arising in such trade-Any expression or phrase in the Act must receive an liberal construction consistent with its liberal and grammatical sense.

Scope purview of the Arbitral Clause in Article XVIII in the contract-Jurisdiction of an Arbitrator to decide the limits of his own jurisdiction-Whether a dispute inclusive of the arbitrators' jurisdiction comes within the scope of purview of Arbitration clause, primarily depends on the terms of the Arbitration clause.

Issuance of promissory notes further supported by Bank guarantee by the buyer towards the purchase price under the contract itself and not by way of separate contract, whether discharges the obligation to pay the purchase price-Whether, the claims for the "Unpaid Regular Interest, Delinquent Interest and Compensatory Damages" be said to be "not arising out of the contract" and, therefore, not referable to Arbitration.

Words and phrases-"Arising out of", in relation to", "in consequence of", "concerning", "relating to", are expressions of widest amplitude and content and include even questions as to existence, validity scope and effect of Arbitration agreement.

Negotiable instruments-Negotiable instruments taken on account of debt whether operates as absolute discharge or not is a question of intention of parties-Bill or Promissory notes can never go in discharge of debt unless it is specified as a part of contract that it shall be so.

HEADNOTE:

The first respondents General Electric Company, a company incorporated under the laws of the State of New York, USA, on a contract in writing dated August 24, 1964 agreed to sell to the appellant Renusagar Power Company Ltd., equipment for a thermal electric generating plant to be erected at Renukoot on the terms and conditions set out therein. Work to be performed under the contract included supply of equipment spare parts and services for which a sum of $ 13, 195,000 being the total purchase price and otherwise called the "Contract Base Price" was payable by Renusagar in lawful currency of the USA in the manner stipulated in the contract. Under the contract, the parties intended completion of (a) the delivery of the equipment and spare parts etc. within 15 months of the Contract Effective Date (December 31, 1964) i.e. upto March 30, 1966; (b) the erection of the plant within 16th to 30th month (i.e. from April 1, 1966 to June 30, 1967); so that (c) the plant would be fully operational by the end of 30th month from the Contract Effective Date i.e. by July 1, 1977.

The parties, therefore, agreed (a) that substantial payment of the purchase price by Renusagar should commence when the plant became operational i.e. June 30, 1967; (b) that no interest would be payable during the delivery period; (c) that interest shall be paid during the erection period and thereafter till payment but the interest during the erection period would be capitalised and added on to the principal; (d) that initially ten per cent of the total Contract Base Price ($ 1, 319, 500) should be paid either in cash or by means of a Letter of Credit within 30 days of the Contract Effective Date and that the balance of 90% of the purchase price plus interest at 6 1/2% per annum from 16th to 30th month aggregating to US $ 12, 776,058,75 ($ 11, 875, 500 for principal plus $ 900, 558, 75 being the capitalised interest at the aforesaid rate for the aforesaid period) should be paid in accordance with the schedule of payments set out in the contract. The schedule for the payment of the said balance of 90% of the purchase price provided for payment to be made in sixteen six monthly installments of U.S. $ 798,503.68 each, the first of such installments being payable on 30.6.1967 and the last installment falling due on 31.12.1974. The obligation to make such payment was to be evidenced by four series (A-B-C-D) of 16 unconditional negotiable promissory notes to be executed by Renusagar (Vide Article III); (e) that in case of first respondent receiving an exemption from the Government of India from payment of income tax on interests received by it from Renusagar then the interest for that portion of the period shall be computed at 6% instead of 61/2% per annum and that the concerned promissory notes would be replaced or substituted by fresh one reflecting the adjustment in payment of interest necessitated by the grant of tax exemption; (f) that should GEC's application for exemption be denied the appellants may withhold the Indian Income Tax applicable to any payments of interest but shall furnish the first respondents with tax receipts of all withheld amounts paid to the Government of India so as to enable first respondents to obtain corresponding credit for the sum in their US tax assessment (Vide Article XIV-B); (g) that the appellants shall furnish guarantee of the United Commercial Bank for payment of the full amount of promissory notes; (h) that the rights and obligation of the parties would be governed in all respects by the laws of the State of New York, U. S. A. (Vide Article XIX-A) and that (j) "Any disagreement arising out of or related to this contract which the parties are unable to resolve by sincere negotiation shall be finally settled in 434 accordance with the Arbitration Rules of the International Chamber of Commerce. As provided in the said Rules, each party shall appoint one Arbitrator, and the Court of Arbitration of the International Chamber of Commerce shall appoint the third Arbitrator. Arbitration proceedings shall be conducted at such time and place as the Court of Arbitration shall decide. Judgment upon an award may be entered; in any court of competent jurisdiction." (Vide Arbitration Clause in Article XVII).

Pursuant to the said Contract the appellants fulfilled all preliminary conditions of the contract, including the furnishing of a guarantee executed by the UCO Bank irrevocably guaranteeing to the first respondents and to any subsequent holder in due course of the notes the full and prompt payment of the principal and interest on the notes.

Subsequently on an agreement recorded in the first respondents letter dated June 11, 1965 and as approved by the Central Government, the 1964 Contract (IGE-9584) was extended to include the supply of un-fabricated structural steel to Renusagar for approximately U.S. $ 300,000 on the same conditions including the Arbitration Clause as contained in the original 1964 (IGE-9584) Contract, except that the appellants agreed and issued a fifth series, (E series) of sixteen promissory notes bearing interest at 61/2% per annum evidencing 90% of the price of the structural steel; and the payments dates thereof being the same dates as the corresponding promissory notes of the earlier four series.

During the implementation of the contract two events occurred giving rise to the GEC's three claims against the appellants that are sought to be referred to arbitration of International Chamber of Commerce, namely, (i) grant of exemption by the Government of India to G. E. C. in respect of interests on purchase price receivable by it from the appellants and the revocation thereof, leading the appellants to file a civil writ petition No. 179 of 1970 in the Delhi High Court and getting the revocation orders quashed and (ii) re-scheduling dates of payment of purchase price agreed to by the parties but not approved by the Reserve Bank of India and the Government of India.

The three claims of G. E. C. were (i) the Unpaid Regular interest to the tune of 2.1 million dollars (U. S.) wrongly deducted and wrongly with-held and kept with themselves by the appellants from 1970 onwards denying G. E. C. of the benefit of getting the corresponding credit in their U.S. tax assessment from 1970 onwards. The amount represented the difference between U. S. $ 24,12,680.20 (73% of the interest payable calculated on the basis of 61/2% subject to tax) and U. S. $ 21, 30, 785.52 (calculated on 6% tax free basis); (ii) Liability for Delinquent Interest on account of the delays in payment of four installments of purchase price together with interest, due to the failure to have re-scheduling of payments approved by Reserve Bank and Government of India, to the tune of U. S. $ 7,84,151.84 (calculated on the basis of 6% tax free basis); and (iii) The Compensatory Damages arising out of non-payment of the aforesaid two claims of Unpaid Regular Interest and Delinquent Interest for over twelve years, the quantum being calculated by way of interest on those amounts at the market rate of 435 18% per annum amounting to U.S. $ 41, 610, 534.88 up to 31.3.1982 (to be extended till the date of actual payment).

According to G.E.C. the appellants for a long period of 12 years had illegally and wrongfully retained on one pretext or the other these two funds with itself and had enjoyed the use thereof for its own private advantage and had correspondingly totally deprived G.E.C. of their use for which the appellants must compensate by way of damages in as much as they must be regarded as a stake holder or constructive trustee of those funds from the various dates on which the payments became due and payable and under the common law jurisdiction restitution was payable by a stake holder to the party ultimately determined to be a rightful beneficiary owner of the funds.

By a notice of intention to arbitrate dated March 1, 1982 G.E.C. called upon the appellants to remit the aforesaid sums and also addressed a letter dated March 2, 1982 to the Secretariat court of Arbitration of ICC containing a request for arbitration being undertaken by it seeking reliefs as set out in the notice to the appellants.

After ICC took cognizance of the request for arbitration by G.E.C. it called upon the appellants to nominate its Arbitrator, file its reply and remit certain sums towards the administrative expense and arbitration fees.

Thereupon, the appellants on June 11, 1982 filed suit No. 832/82 in the Bombay High Court on its original side against G.E.C. and ICC seeking a declaration that the claims referred to the arbitration of ICC by G.E.C. were beyond the scope/purview of the arbitration agreement contained in Article XVII of contract IGE-9584 dated August 24, 1964 and that G.E.C. was not entitled to refer the same to the arbitration with consequential prayers for injunctions restraining G.E.C. and ICC from proceeding further with the reference and restraining I.C.C. from requiring the appellants to make the appellants to make any deposit towards administrative expenses and Arbitration fees and obtained an ex-parte ad-interim relief. On August 11, 1982 G.E.C. filed Arbitration Petition No. 96 of 1982 under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 seeking stay of suit No. 832 of 1982 and all proceedings therein with a prayer for vacating the ad-interim ex-parte reliefs obtained by the appellants in the said Suit.

Both the matters, G.E.C.'s stay petition under section 3 and the appellants' Notice of Motion for confirmation of ad-interim reliefs were heard together and by a common judgment and order dated April 19,20, 1983 the learned Single Judge allowed the Arbitration Petition 96 of 1982, granted the stay of Suit No. 832 of 1982 and all the proceedings therein since all the ingredients of section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 had been satisfied and vacated all the interim reliefs granted earlier. The learned Judge held: (a) that the Arbitration Clause in the original 1964 Contract could be availed of by G.E.C. in as much as not only had the October 1968 Amendment kept alive all other terms and conditions of the 1964 Contract including Arbitration Clause but it had fallen through for lack of Government's approval; (b) though 436 the first two claims sought to be referred to arbitration by G.E.C. were based on the promissory notes towards the purchase price was provided under the Contracts itself and these were not by way of any independent or separate Contracts in discharge of the obligation to pay the purchase price under the contract and since the Arbitration Clause covered all the disputes arising out of the contract those claims fall within the Arbitration Clause and; (c) that the liability to pay the compensatory damages arose out of failure to carry out the terms and conditions of the contract in regard to payment of purchase price and that even assuming that the said claim was one in tort it was directly and inextricably connected with the terms and conditions of the contract and certainly "arose out of" the contract of was "in relation to" the contract and therefore, could be entertained by the Arbitrators.

Renusagar preferred two appeals being civil Appeal Nos.

404-405 of 1983 and contended: (a) An Arbitrator had no jurisdiction to decide the limits of his own jurisdiction and since in the case of International Arbitration the jurisdiction of the Arbitrator had to be decided according to the Law of the Forum where the question is raised (in the instant case being the Indian Law) the jurisdiction of the Arbitrator, according to that Law, had to be decided by the Court and not by the Arbitral Tribunal; (b) the dispute sought to be referred related substantially to the claim for interest and that claim was (and it was so stated in the notice of intention to arbitrate) founded on the promissory notes which were independent contracts by themselves and therefore, the claim did not arise out of the suit contract and hence could not be the subject matter of Arbitration;

(c) that claim for compensatory interest was really a claim for damages arising out of tort and such a claim was in any case not case by the suit contract and fell outside the scope of the Arbitration Clause; and (d) in any event Renusagar had made out a prima facie against by raising serious triable issues in the suit which should enable it to claim an injunction restraining the arbitration proceedings.

The Court of appeal negatived all the contentions and ultimately confirmed the trial Judge's order whereby Renusagar's suit was stayed and the interim reliefs granted to it were vacated and hence the appeal by certificate by Renusagar.

Arguments for the appellants:- (1) The Arbitration Petition under section 3 (which is really in the nature of a Petition under section 34 of the Indian Arbitration Act, 1940, is totally misconceived and liable to be dismissed because the Suit No. 832/1982 filed by the appellants is merely for a declaration that the three claims sought to be referred to arbitration are beyond the scope/purview of arbitration clause and no other relief on the merits of those claims is sought, and the Suit, being really in the nature of a petition under section 33 of the Indian Arbitration Act, 1940, in as much as it seeks to have the effect (scope) of the arbitration agreement determined, can never by stayed under section 3 of the Foreign Awards Act.

437 (2) The suit filed by the appellants is not "in respect of any matter agreed to be referred to arbitration" as required by section 3, and therefore, the stay sought for by G.E.C. should be refused;

(3) The Court acting under section 3 (like the Court acting under section 33 of the Indian Arbitration Act) being a court of limited Jurisdiction cannot determine the question of the existence, validity or effect of the arbitration agreement (which is the only issue to be tried in the appellants' suit) and it is for the court trying the suit to decide the question raised in the suit, and therefore, a stay, if granted under section 3 application would finally determine the suit or render it almost dead for all practical purposes and therefore, no relief on the said petition can be granted which will have such effect;

(4) The question raised in the suit relating to the effect (scope of the Arbitration Agreement, which is the same as the question relating to the existence thereof, is such as is incapable of being finally determined by the Arbitrators and hence such a suit cannot be stayed under section 3 of the Foreign Awards Act;

(5) The underlying commercial contract (IGE-9584) for sale of goods and services contains no obligation to pay any interest after June 30, 1967 (i.e. after the 30th month from the contract effective date) (whether six and a half per cent or six per cent) but that such obligation to pay interest after June 30, 1967 is only to be found in the promissory notes and the two claims of G.E.C., namely, first claim of 2.1 million U.S. dollars and the second claim for U.S. $ 78,151.84 towards approximately 80% for Unpaid Regular Interest and Delinquent Interest respectively, being dues after June 30, 1967, preferred before the arbitrators do not "arise out of" the contract nor are they "in relation to" thereto but arise under the promissory notes and hence fall outside the scope of arbitration agreement;

(6) The promissory notes executed by the appellants were in complete discharge of the obligation to pay purchase price and interest thereon under the contract and these notes constitute independent and separate contracts by themselves, and therefore, the liability arising out thereunder cannot be regarded as "any arising of the contract" or "in relation thereto" and what is more these claims have been described by the G.E.C. in their notice of intention to arbitrate as "arising under the promissory notes";

(7) The claim for compensatory damages being a liability arising in tort, for wrongful detention of the first two funds and since it was being enforced on the basis of appellants' status as a stake holder or constructive trustee the same is clearly outside the scope of the arbitration agreement; and (8) Since the issue of arbitrarily of these claims is raised in the appellants' suit it is but proper that till the issue raised in the suit is finally decided by the Court, the arbitration proceedings should be injuncted.

438 Arguments for respondent company:

(1) The schemes of the Foreign Awards Act and the Indian Arbitration Act, 1940 being not identical, there are various material differences which have a bearing on the issue whether a suit seeking determination of the effect (scope) of an arbitration agreement can or cannot be stayed in a petition under section 3 of the Foreign Awards Act and that answer to it depends upon proper construction to be placed on the section in the light of the scheme of that Act;

(2) Since all the ingredients of section 3 have been satisfied the stay of Renusagar's suit will be obligatory;

(3) Alternatively, the legal position is that both under English Law and Indian Law, it is open to the parties to have an arbitration agreement incorporating words of the widest amplitude so as to embrace even the questions of its existence, validity or effect (scope) but an enquiry into the scope and effect of an arbitration agreement and a challenge to the existence or validity thereof are not the same but fundamentally different in as much as the first pre-supposes that the arbitration agreement exists in fact and in law and the enquiry then is limited to the scope and effect thereof;

(4) Whenever it is said that an arbitrator cannot decide the question of his own jurisdiction all that is intended is that he cannot determine- that too finally, the question of the existence (factual) or validity (i.e. legal existence) of the arbitration agreement, if contained in the underlying commercial contract and this must be so, for, if the existence or validity of the underlying commercial contract is successfully challenged the arbitration clause which is the part and parcel thereof must perish with it and therefore, the Arbitrator will have no jurisdiction to decide the issue of the existence or validity of the agreement but even here if the arbitration agreement so widely worded if separate and independent from the commercial contract the arbitrator will have jurisdiction to decide the questions about existence or validity of the commercial contract; but these principles have no application whatsoever to a case where the issue relates to the scope and effect of the arbitration agreement contained in the underlying commercial contract and the arbitration agreement is wide enough to include such an issue, for, in such a case the Arbitrator will have Jurisdiction to decide that issue. Therefore, since in the instant case the Arbitration Clause contained in the underlying commercial contract IGE-9584 is of the widest amplitude it is the Court of Arbitration of I.C.C. which will have jurisdiction to adjudicate not merely three claims of G.E.C. on merits but also the issue whether those claims fall within the Arbitration Clause or not;

(5) The issue pertaining to the scope and effect of the arbitration agreement, if raised in an application under section 34 of the Indian Arbitration Act, the Court has to decide it and the Courts' decision thereof 439 will naturally be binding on the Arbitrators even though the issue was within the competence of the Arbitrators because of the wide wording of the Arbitration Clause. Here, since the Court has decided the issue whether the three claims "arise out of" or are "related to" the contract affirmatively it will be binding on the Court of Arbitration of I.C.C. and it will be futile for that court of Arbitration to go into that question again;

(6) The commercial contract (IGE-9584) does contain an obligation on the part of Renusagar to pay interest on unpaid purchase price after June 30, 1967 (and not merely in the promissory notes), which could be readily inferred from Art. III (a) 3(c) read with Article XIV-B and therefore the first two claims for Unpaid Regular Interest and Delinquent Interest due after June 30, 1967 preferred before the Arbitrators not merely "arise out of" but really arise "under" the contact;

(7) The third claim for Compensatory Damages which flows by way of corollary from wrongful detention of the first two funds which ought to have been paid under the Contract is so closely connected with the contract that it is clearly "in relation to it";

(8) The promissory notes executed by Renusagar were not and are not in discharge of the obligation to pay the price and interest thereon under the contract; nor do these notes constitute independents and separate contract by themselves.

These are a part of the contract and the two are so inseverably and inextricably bound together that the obligation under the contract can never be deemed nor intended to have been completely discharged by the mere execution of the notes. The real nature of the claims preferred before the arbitrators and not the nomenclature or description thereof by any party would be relevant and decisive Alternatively, even assuming (a) that the promissory notes are not an inseverable and inextricable part of the Contract, (b) that the obligation arising under the Notes is totally different from the one arising under the contract and (c) that the Notes re in discharge of the obligation to make payment under the Contract (all of which are strongly denied), the three claims would still be covered by the Arbitration Clause which is of the widest amplitude, for it would be erroneous to determine whether a claim arises out of or in relation to the Contract by looking at the cause of action on which the claim is based.

(9) The Court of Appeal was justified in coming to the conclusion that no prima facie case for injunction restraining arbitration proceedings had been made out by Renusagar and it had, therefore, rightly vacated the ad- interim injunction and stayed Renusagar's suit.

Dismissing the appeals, the Court,

HELD: 1.1 The question, whether under section 3 of the Foreign Award (Recognition and Enforcement) Act, 1961 having regard to its scope, a suit in the nature of a petition under section 33 of the Arbitration Act, 1940 could be stayed must necessarily depend upon a correct construction 440 of the said section 3, by keeping in mind the objective sought to be achieved by that Act and its scheme and not on the basis of similar or analogous provisions that are to be found in the Arbitration Act, 1940 or the manner in which such similar or analogous provisions have been construed by Indian Courts. [491F-G; 492A-B]

1.2 The Statement of Objects and reasons shows that the Foreign Awards (Recognition and Enforcement) Act, 1961 seeks to achieve speedy settlement of disputes arising from international trade through arbitration. The Act, a successor to the Arbitration (Protocol and Convention) Act, 1937 was enacted to give effect to the New York International Convention on the Recognition and Enforcement of Arbitral Awards adopted on 10th June, 1958 and to which India is a party. Section 2 of the Act defines the expression "Foreign Awards", and closely follows the language of Article II of the convention which provides for recognition by contracting States of agreements, including arbitral clauses in writing by which the parties to the agreement undertake to submit to arbitration all or any difference which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. [492B; D;G]

1.3 Since the Act is calculated and designed to sub-serve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration, any expression or phrase occurring therein should, therefore, receive consistent with its literal and grammatical sense, a liberal construction. An examination of the relevant provisions of the Foreign Awards Act and the Arbitration Act of 1940 show that the schemes of the two Acts are not identical and there are various differences which have a material bearing on the question under consideration and as such decisions on similar or analogous provisions contained in the Arbitration Act cannot help in deciding the issue arising under the Foreign Awards Act because just as the Arbitration Act, 1940 is a consolidating enactment governing all domestic awards the Foreign Awards Act constitutes a complete code by itself providing for all possible contingencies in relation to Foreign Awards made pursuant to agreements to which Article II of the Convention Applies.

[492G; 493A-B]

1.4 On a plain reading of Section 3 of the Foreign Awards Act two things become very clear, namely, (i) the section opens with a non obstante clause giving over riding effect to the provisions contained therein and making it prevail over anything to the contrary contained in the Arbitration Act, 1940 or the Code of Civil Procedure , 1908;

and (ii) unlike section 34 of the Arbitration Act which confers a discretion upon the Court, the section uses the mandatory expression "shall" and makes it obligatory upon the Court to pass the order staying the legal proceedings commenced by a party to the agreement if the conditions specified therein are fulfilled. [494A-B] The conditions required to be fulfilled for invoking section 3 of the Foreign Awards act are:

441 (1) there must be an agreement to which Article II of the Convention set forth in the Schedule applies. (It is not disputed that this is so in the instant case); [494C] (2) a party to that agreement must commence legal proceedings against another party thereto; (it is again not disputed that Renusagar and G.E.C. are the two parties to the arbitration agreement and that Renusagar has commenced legal proceedings against G.E.C. by filing Suit No. 832 of 1982); [494D] (3) the legal proceedings must be "in respect of any matter agreed to be referred to arbitration" "in such agreement; (the question whether this condition is fulfilled here needs to be decided), [494E] (4) the application for stay must be made before filing the written statement or taking any other step in the legal proceedings; (admittedly this condition is fulfilled);

[494F] (5) The Court has to be satisfied that the agreement is valid, operative and capable of being performed; this relates to the satisfaction about 'existence and validity' of the arbitration agreement; (in the instant case these questions do not arise); and [494G] (6) the Court has to be satisfied that there are disputes between the parties with regard to the matters agreed to be referred; this relates to effect (scope) of the arbitration agreement touching the issue of the arbitrability of the claims (it will have to be dealt with while considering the satisfaction of condition (3). [494H] (In the instant case, the parties were thus at issue as to the fulfilment of conditions (3) and (6) only and it is on the fulfillment of these that the obligation of the court to stay the suit of Renusagar will arise.) [495A]

1.5 The scheme of the two Acts (Foreign Awards Act and Arbitration Act) materially differ on several aspects having a bearing on the points at issue I as seen by an examination of section 3, 4, 7, of the Foreign Awards Act, in juxtaposition with sections 32, 33 and 34 of the Arbitration Act. Under section 32 of the Arbitration Act suits no challenge the existence or validity of an arbitration agreement or award as also suits to have the effect (scope) of an arbitration agreement determined are barred and such questions can be raised only by an application under section 33 of the Act whereas under the Foreign Awards Act there is no provision similar or akin to sections 32 and 33 (and that is why a suit of the nature filed by Renusagar qua the arbitration agreement covered by the Convention is maintainable) but by virtue of sections 3 and 7 the same purpose is served though by different procedure. Sections 3 and 7 read together disclose a scheme that so far as questions of existence, validity and effect (scope) of the arbitration agreement are concerned, the determination thereof by the arbitrators is also subject to the decision of the Court and this 442 decision of the court can be had either before the arbitration proceedings commence or during their pendency, if the matter is decided by the Court in a section 3 petition, as in the present case, or can be had under section 7 after the award is filed in the court and is sought to be enforced under section 6. True section 4(2) declares that a foreign award shall be filled treated as binding 'for all purposes' on persons as between when it is made but that is subject to section 7 where under enforceability thereof is made dependent upon satisfaction of certain conditions specified therein; for example, under section 7(1) (a) (iii) one of such conditions for enforceability is that the award should not deal with questions not referred nor should it contain decisions on matters beyond the scope of the agreement. In effect, section 3 of the Foreign Awards Act so to say combines in its own ambit both sections 33 and 34 of the Arbitration Act; in other words, questions regarding the existence, validity or effect (scope) of the arbitration agreement which can be decided under section 33 of the Arbitration Act are required to be decided under section 3 of the Foreign Awards Act before a stay of legal proceedings contemplated therein could be granted and the right to have legal proceedings stayed contained in section 34 of the Arbitration Act is also to be found in the same section 3.

Further the Foreign Awards Act has also taken cognizance of the possibility that there may not be a Section 3 petition at all the matter being directly proceeded before the arbitrators and the possibility of the arbitrators giving a decision on an issue not within their competence or jurisdiction and in such cases section 7 contains a safeguard which prevents any such award from being made enforceable. Such being the scheme under the Foreign Awards Act the decisions of the Indian Courts on similar or analogous provisions contained in the Arbitration Act would not be of any help to decide questions arising under the Foreign Awards Act. [495B-H; 496A-C] Balabux Agarwalla v. Shree Luchminarain Manufacturing Co. ILR 1948 Calcutta page 265; Gaya Electric Supply Co. v. State of Bihar, [1953] SCR 572 at 579-580 held in applicable.

1.6 Conditions (3) and (6) which are inter related and in substance bear upon the same aspects and also satisfied since, firstly, the language of the Arbitration Clause is wide enough to embrace the issue of arbitrability of the claims and secondly, the phrase in section 3 of the Foreign Awards Act, namely. in respect of any matter agreed to be referred to the arbitration" cannot be given a narrow construction, because (a) there is nothing in the section warranting the same. What matters are agreed to be referred to arbitration will depend upon what language is employed by the parties to the arbitration agreement and there is nothing in law or equity which prevents the parties from referring even the questions of existence, validity or effect (scope) of the arbitration agreement itself to the arbitrators (in fact; Lord Porters' observations in Heymen v. Darwins Ltd. and DAs J's view in Balabux Aggarwala's case show that the parties can do it), and (b) the scheme of sections 3 and 7 of the Foreign Awards Act, clearly suggests that the relevant phrase would include even questions of existence, validity and effect (scope) of the arbitration agreement.

[496H;497A-F] Shiva Jute Bailing Ltd. v. Hindley Co, [1960] 1 SCR 509, Khardah Company Ltd. v. Raymon and Co. (India) Private Ltd., [1963] 3 SCR 183 443 Waverly Jute Mills Co. v. Raymonand Co., [1963] 3 SCR 209;

M/s. R.N. Ganekar and Co. v. Hindustan Wires Ltd. AIR 1974 SC 203=[1974]1 SCC 309 at 313-314 distinguished and held in applicable.

2.1 Apart from the fact that the relevant rules of I.C.C. (particularly Rules 8.3 and 8.4) in terms confer jurisdiction upon the Arbitrations to decide questions as to the existence or validity of the Arbitration agreement contained in the commercial contract, in the instant case, since the parties to the underlying commercial contract have used the expressions "arising out of" or "related to this contract" in the Arbitration Clause XVII contained in the contract, the parties clearly intended to refer the issue pertaining to the effect (scope) of the Arbitration Agreement to the Court of Arbitration of International Chamber of Commerce, in other words the issue about the arbitrability of the three claims under reference has been referred. [465E-F; 471G-H; 472A]

2.2 Four propositions emerge very clearly from the authorities decided by the Indian Courts; [470F] (a) Whether a given dispute inclusive of the arbitrator's jurisdiction comes within the scope or purview of an arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ;

[470G-H] (b) Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "inconsequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence, validity and effect (scope) of the arbitration agreement; [471A-B] (c) Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own jurisdiction (and it will be for the Court to decide those questions) but there is nothing to prevent the parties from investing him with power to decide those questions, as for instance, by a collateral or separate agreement which will be effective and operative; [471C] (d) If, however, the arbitration clause, so widely worded as to include within its scope questions of its existence, validity and effect (scope). is contained in the underlying commercial contract then decided cases have made a distinction between questions as to the existence and or validity of the agreement on the one hand and its effect (scope) on the other and have held that in the case of former those questions cannot be decided by the arbitrator, as by sheer logic the arbitration clause must fall along with underlying commercial contract which is either non- existent or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement, i.e. to decide the issue of arbitrability of the claim preferred before him. [471D-F] 444 Government of Gibralter v. Kenney and Anr. [1956] 3 All E. R. 22; Heyman v. Darwins Ltd, [1942] AC 356; Wilesford v. Watson, [1873] L R. 8 Ch. Appeals 473 quoted with approval.

Dhanrajmal Gobindram v. Shamji Kalidas and Co., [1961] 3 SCR 1020; Khardah Company Ltd. v. Raymon and Co. (India) Private Limited, [1963] 3 SCR 183; Jawahar Lal Burman v. Union of India, [1962] 3 SCR 769; Waverly Jute Mills Co. v. Raymon and Co. [1963] 3 SCR 209; Balabux Agarwalla v. Sree Luchminarain Manufacturing Co., ILR [1948] 1 Cal. 265 referred to.

2.3 All the three claims referred by G.E.C. to the Court of Arbitration of I.C.C. do "arise out of" and are "related to" the commercial contract (in fact the first two claims arise "under the contract") and squarely fall within the widely worded arbitration clause being Art. XVII contained in the commercial contract. The third claim for compensatory damages is directly, closely and inextricably connected with the terms and conditions of the contract the payments to be made thereunder and the breaches thereof and since for adjudication thereof recourse to the contract would be necessary it is a claim "arising out of" and in any event "related to the contract". The Arbitration Clause embraces even the question of its effect (scope) that is to say it embraces the issue of the arbitrability of the three issues.

[488D-E, 489A-B]

2.4 The contract does contain the obligation to pay future interests on the unpaid purchase price from June 30, 1967 onwards till payment and the two claims of GEC for Unpaid Regular Interest and Delinquent Interest have been correctly preferred before the Court of Arbitration of ICC as arising not merely "out of" but "under the contract".

[478D-E] A combined reading of the provisions in sub-clause a, b,c, of clause 3 of Article-III and XIV-B of the contract (IGE-9584) clearly shows that the promissory notes are not the sole and exclusive repository of GEC's right to claim and receive further interest on unpaid price after June 30, 1967 but that the contract itself provides for the obligation to pay such interest after that date till payment. [476C-D, E-G] Admittedly, interest on the purchase price at the agreed rate upto June 30, 1967 was capitalised and included in the principal amount of each of the installments represented by the concerned promissory note as mentioned in the schedule of payments given in Article III-A, 3(b) of the Contract. The form of the promissory note attached as Exhibit 'B' to the contract as also the promissory notes that were actually executed clearly contain a recital that Renusagar "promises to pay to GEC interest thereon (i.e. on the capitalised principal) from June 30,1967 semi-annually at the rate of 6.5 per annum on the last date of June & December in each year until paid. The recital in each of the Promissory Note bas to be in terms of the provision in Article III-A 3 (c) of the commercial contract itself.

Further Article XIV-B clearly shows that the parties to the contract were contemplating to obtain from the Government of India Income Tax exemption on the interest income which GEC was going to receive from Renusagar under the contract and the provision is that the "interest income" on which tax exemption was being 445 sought, is said to include capitalised interest and interest thereon that is to say interest on the amounts of the promissory notes (which included capitalised interest), which obviously means further interest on outstanding principal balance under the notes from June 30, 1967 till payment.

[475F-H, 476A, 477A-F]

2.5 The contention that if Renusagar had failed to execute promissory notes as required under the contract, GEC would not have become entitled to receive or claim interest after June 30, 1967 but would have had only a right to call upon Renusagar to execute such pro-notes and to claim damages for failure to fulfil contractual obligations cannot be accepted. The question is not what rights GEC would have had on Renusagar's failure to execute that promissory notes as required but the question is what the contract provides for. Sub-clause (c) of clause 3 of Article III-A provides for not merely the execution of promissory notes but that the promissory notes would also bear interest after June 30, 1967. Further the very fact that the failure of Renusagar to execute promissory notes of course as required by the contract would have conferred a right of GEC to call upon Renusagar to execute such notes also shows that the obligation to pay interest after June 30, 1967 till payment has been provided for by the contract. [476D-H] Commissioner of Income Tax v. M/s. Ogale Glass Works Ltd, AIR (1954) SC 429=[1955] 1 SCR 185; H.P. Gupta v. Hira Lal, [1970] 3 SCR 788; Bihari-Diwan Singh v. Jaffe & Sons, AIR 1922 Lahore 353; Dhiraj Lal v. Sir Jacob Behrens & Sons, AIR 1933 Allahabad 74; M/s. Vasavani Navji v. KPC Spinners, AIR 1983 Madras 31; Ghewarchand v. Spinnerei, Baillng Ltd., AIR 1950 Calcutta 568; NOVA (Jersey) Knit Ltd., v. Spinnerei, [1977] 2 All England Report 463; Monro v. Bognor Urban District Council, [1914-15] Reprint All England Report 523 referred to.

2.6 Neither the fact that the bank guarantee endorsed on each promissory note is restricted only to the payment of principal and interest on the note as per its terms and does not extend to or cover any residuary payment obligation contained in the contract, dehorns the promissory note nor the fact that GEC has filed a Suit No. 786 of 1982 against UCO Bank in the Calcutta High Court to recover the million dollars for the interest as being due under the promissory notes read with guarantee, lead to an inference that the cause of action arose only out of pro-notes. Since the Bank guarantee is in connection with and endorsed on the promissory notes it would ordinarily refer to the obligation arising there under and not to any obligation arising under any other document and the question whether the contract contains such obligation to pay future interest must depend upon its contents and not upon what is not to be found in the bank guarantee. Again the suit against the UCO Bank is necessarily to be on the pro-notes read with the guarantee, the contract not being a document to which UCO Bank is a party. [477F-H, 478A-B] Similarly, it is the substance of GEC's pleading (notice of intention to arbitrate) that matters and not the description of the claims. Though at one place in the Notice of Intention to arbitrate the two claims are (in fact only the first claim of 2.1 million U.S. dollars is) said to be "on the promissory notes", yet at the commencement of that notice the subject matter thereof is 446 aptly stated as "Reg: Interest under the contract No. IGI- 9584 between GEC and Renusagar" and the substance of the entire pleading shows how the first two claims have arisen under the contract and how under the terms thereof and in the correspondence their amounts got adjusted and quantified at certain figures and that reference the contract is not by way of any antecedent or historical fact. Viewed from any angle the two claims cannot be said to arise under the Promissory Notes. [478B-E]

2.7 Whether a negotiable instrument taken on account of debt operates as absolute discharge of the debt or not is always a question of intention of the parties to the commercial contract. Here, the promissory notes, on the terms of the Contract cannot be regarded as amounting to payment in discharge of the obligation arising under the Contract on the ground that since it is one of the modes of payment indicated in the Contract the execution of the notes should be held to be payments by way of discharging the obligation under the contract, because there is yet one mode of payment indicated the contract namely the opening of a Letter of Credit and the mere fact of the Letter of Credit having been opened by Renusagar in a bank in New york valid for 18 months will have to be regarded as actual payment which is hardly arguable. Further, a Bill or a promissory note can never go in the discharge of a debt unless it is a part of a contract that it shall be so.[478F-H,481E-F] Commissioner of Income Tax v. Kameshwar Singh of Darbhanga, AIR [1933] P.C. 108; Keshav Mills Co. Ltd. v. Commissioner of Income Tax, AIR [1950] Bombay 166, quoted with approval.

Commissioner of Income Tax v. M/s. Ogale Glass Works Ltd., AIR [1954] SC 429=1955 (1) SCR 185; H.P. Gupta v. Hira Lal [1970] 3 SCR 788 discussed and distinguished.

2.8 The terms of the contract, far from showing that these were payments in discharge of the original obligation clearly indicate that the parties had intended that these were to operate as conditional payments. [481F-G] If Article III of the contract which deals with the topic of payment of price for the sale of goods and services is carefully analysed, the following factors emerge very clearly; (a) that the pro-notes area not expressed to be payments; in fact it is in terms stated that the "total contract purchase price shall be paid by the purchaser in lawful money of the USA" (Article III-A) and promissory notes are not "lawful money of USA"; (b) that because the Contract so provides even the pro-notes also recite that the principal and interest there-under are "payable in lawful money of the USA; (c) that Article III-A (3) which deals with pro-notes provides for payment of the remaining 90% of the price "in accordance with the following Schedule of Payments" and expressly states that "the obligation to make such payments is to be evidenced by four series of purchaser's unconditional negotiable promissory notes" which clearly shows that the pro-notes are not payments but are intended merely to be the evidence of the obligation to pay the price; (d) that though stated to be "unconditional and negotiable" (perhaps so between the drawer and subsequent assigness in case of negotiation), as between the seller and the purchaser these have been made 447 subject to several conditions such as-(i) the amounts thereof were payable only on the assumption that deliveries of items of equipment were completed within 15 months of Contract Effective Date and interest at the rate of 6.5% was to become 6% on receipt of income Tax exemption (Art. III-A (3) (b) (ii) these were to lie in Escrow Agreements to be released to the seller synchronizing with the stated progress of supply of goods according to certain formulate (Art. III-D), (iii) these were to be replaced by fresh Notes depending on receipt of income-tax exemption (Art. III-A (3) (f) or price modification (Art. III.D); (iv) each one contains a default clause saying "upon default in the prompt and full payment of the principal or of the interest on this Note when due, all of the notes in each and every series, together with interest to the date of payment, shall immediately become due and be payable at the option and demand of the holder thereof". [481G-H; 482A-H] These factors and circumstances and particularly the fact that these notes were as between the seller and the purchaser subject to several conditions leading to variation and adjustment and replacement and the default clause contained in each, clearly indicate that these were not intended to constitute independent or separate contracts by themselves but that they were a part and parcel of one integrated transaction embodied in the contract and that the promissory notes were and are meant to be governed at all times by various other terms of the Contract and could be modified and substituted under given conditions as set out in the Contract. Therefore, a dispute of non-payment of interest on the installments-whether regular of delinquent-is a dispute "relating to the Contract," In fact, both the claims-2.1 million U.S. dollars and U.S. $ 7,84,151.84-arise "under the contract" and have been preferred by GEC before the Court of Arbitration of I.C.C. expressly on that basis and not under the promissory notes. [483A.E] [The Court in view of the above, adopted "Non-liquet" on the submission for the appellant based on the so-called factors of unconditional nature and negotiability of the promissory notes as destroying the arbitrability of the claims thereunder and also the alternative submission for G.E.C. that the two claims would still fall within the wide expressions occurring in the contract even on the assumption that the promissory notes are severable from the Contract, that the obligation arising thereunder is different from the one under the Contract and that these promissory notes are in payment of the obligation to pay the price under the contract] [483E-G]

2.9 As regards the third claim of compensatory damages, the mere fact that Renusagar is being saddled with this liability as tort-feaser, a stake-holder and/or a constructive trustee, by itself will not justify a conclusion that the same is not covered by the arbitration clause because the question is not whether the claim lies in tort but the question is whether even though it has lain in tort it "arises out of" or is "related to" the Contract, that is to say, whether it arises out of the terms of the Contract or is consequential upon any breach thereof. [483G- H; 484A] The third claim is based on and is consequential upon and by way of corollary to the non-payment of the two detained amounts by Renusagar to GEC in breach of the terms of the contract. Therefore, before adjudicating upon this claim the adjudicating authority will have first to adjudicate 448 upon the first two claims preferred by G.E.C. and only if it is found that GEC is entitled to receive the first two amounts which ought to have been paid by the appellant under the terms of the contract but which Renusagar had failed to pay that this third claim could, if at all be allowed to GEC. In the real sense, therefore, this third claim is directly, closely and inextricably connected with the terms and conditions of the Contract, the payments to be made thereunder and the breaches thereof and as such will have to be regarded as a claim "arising out of" or "related to" the contract. [484A-C] Woolf v. Collis Removal Service, [1947] 2 All. E. R. 260; Astro Vencedor Compania Naviera SA of Panama v. Mabanaft G M b. h, [1971] 2 All. E. R. 130] Govt. of Gibralter v. Kenney & Anr. [1956] 3 All. E. R. 22 quoted with approval.

Alliance Jute Mills Co. Ltd. v. Lal Chand Dharanchand and Another, AIR 1978 Cal. 19, Union of India v. Salweeh Timber Construction (India, & Ors. [1969] 2 SCR 224. Ruby General Insurance Co. Ltd. v. Peary Lal Kumar [1952] SCR 501, referred to.

Monro v. Bognor Urban District Council [1914-15] Reprint All. R. 523; Ghewarchand v. Shiva Jute Bailing Ltd, AIR 1950 Cal. 568 distinguished.

The question as to whether a claim based on tort is a claim de hors the contract which contains the arbitration clause or is directly or inextricably connected with the contract has to be decided on the facts of each case and the language used in the arbitration clause. [488G-H]

3.1 The contention that even assuming that arbitrability of the three claims falls within the wide ambit of the arbitration clause and that therefore Renusagar's suit is in respect of a matter agreed to be referred to the arbitration within the meaning of section 3, in law, that is, under the law of Forum (being the Indian law, in the instant case) the issue of arbitrability of claim cannot be finally determined by the arbitrators but must rest with the court and, therefore Renusagar's suit cannot be stayed under section 3, cannot be accepted, in the face of the scheme envisaged in the Foreign Awards Act.

[498C-D]

3.2 The scheme that emerges on a combined reading of sections 3 and 7 of the Foreign Awards Act clearly contemplates that questions of existence, validity or effect (scope) of the arbitration agreement itself, in cases where such agreement itself, in cases where such agreement wide enough to include within its ambit such questions, may be decided by the arbitrators initially but their determination is subject to the decision of the court and such decision of the court can be had either before the arbitration proceedings commence or during their pendency, if the matter is decided in a section-3 petition or can be had under section 7 after the award is made and filed in the Court and is sought to be enforced by a party thereto. All that the condition (3) of section 3 requires is that the legal proceedings must be in respect of 449 a matter "agreed to be referred to the arbitration" and there is no warrant to add further words namely, "agreed to be referred to the arbitration for final determination." [500H; 501A;D]

3.3 There is nothing in the general law of arbitration either English or Indian which prevents the arbitrators or on umpire from deciding questions of their own jurisdiction provisionally or tentatively and to proceed to make their awards on that basis, though their own jurisdiction would be subject to the final determination by the court and if the court takes a contrary view their award will not be given effectto and this is exactly the scheme of the Foreign Awards Act. [502E-F] Attorney General for Manitoba v. Kelly and Ors., [1922] 1 AC 268 at 275; Dalmia Dairy Industries Ltd v. National Bank of Pakistan [1978] 2 Lioyed LR 223 at page 292-293;

Becker Auto Radio's case [1978] 585 Federal 2nd series page 39; R. Prince and Co. v. Governor-General-in Council, AIR 1955 p. 240 at page 242; Municipal Board v. Eastern U.P. Electricity Supply Co. Ltd. and Ors. AIR 1958 see 506 at page 510; M/s. Jagan Nath Phool Chand v. Union of India and Ors AIR 1982 Delhi 93 at page 97 and 98; Vallabh Pitti v. Narsinpdas, 65 Bombay L.R. 20 held in applicable.

3.4. Further, the statement that many national arbitration laws allow the arbitrator to give a provisional ruling on his competence in order not to delay the arbitration and to alleviate dilatory tactics by obstructing respondents is borne out in regard to the general law of arbitration both English and Indian-by several decisions.

Similarly, there is no difference between English law and Indian law on the point that an arbitration agreement which empowers an arbitrator to decide the question of its existence, validity or effect (scope) is neither invalid nor void. [502G-H; 504 A] Dalmia Dairy Industries Ltd. v. National Bank of Pakistan [1978] 2 Lloyed L.R. 223 at page 292, 293; Brown v. Oesterreichischer Walbesitzer R. Gmbh [1954] 1 QB P. 8;

Lunada Exportadora and Ors. v. Tamari and Sons and Ors. [1967] 2 Llyod's Rep. 353; 364; Vallabh Pitti v. Narsingdas, 65 Bombay. L.R. 20; Pannallal Sagoremull v. Fatey Chand Muralidhar, [1951] 88 CLJ 34; Fertilizer Corporation of India v. Chemical Construction Corporation 75 Bombay Law Reporter 335 referred to.

3.5. However, in cases where the arbitration clause contained in the underlying commercial Contract is so widely worded as to include within its scope the questions cases have made a distinction between questions as to the its existence or validity of the agreement on the one hand and its effect (scope) on the other and have held that in the case of the former those questions can not be decided by the arbitrators, as by sheer logic the arbitration clause must fall along with the underlying commercial contract which is either non-existent or illegal, while in the case of the latter it will ordinarily be for the arbitrators to decide the effect (scope) of the arbitration agreement, for the reasons that (a) conceptually challenge to the existence of validity of the arbitration agreement con- 450 tained in an underlaying commercial contract is fundamentally different from an inquiry into the scope and effect of such agreement in as much as the former goes to the root of the arbitration agreement whereas the latter presuppose that the arbitration agreement exists in fact and in law and the inquiry is then undertaken as to its true scope and effect; (b) whenever the question of arbitrators' jurisdiction depended upon the scope and effect of the agreement, courts have readily directed the parties to go before the arbitrators. [504H; 505A-B; D-F] Heyman v. Darwin Ltd.[1942] AC 356; Jawahar Lal Burman v. Union of India [1962] 3 SCR 769; Water Supply Service India (P) Ltd. v. The Union of India and Ors., AIR 1971 SC 2083 at 2085; Willesford v. Watson [1873] L.R. 8 Ch. App. 473; referred to.

3.6 A stay of the suit either under section 3 of the Foreign Awards Act or under section 34 of the Arbitration Act, 1940 may have the effect of finally disposing of the suit for all practical purpose. But that is no reason why the relief of stay should be refused by the Court if the concerned legal provision requires the Court to do so. Here, section 3 itself indicates that the proper stage at which the Court has to be fully satisfied about these conditions is before granting the relief of stay in a section 3 petition and there is no question of the court getting satisfied about these conditions on any prima facie view or a proton to finding thereon Parties have to put their entire material before the Court on these issues (which ever may be raised) and the Court has to record its finding thereon after considering such material. [507D-G] Though section 34 of the Arbitration Act, 1940 confers a discretion upon the Court in the matter of granting stay of legal proceedings where there is an arbitration agreement, before granting the stay the court has to satisfy itself that arbitration agreement exists factually and legally and that the disputes between the parties are in regard to the matters agreed to be referred to arbitration (these aspects fall within the phrase 'if satisfied that there is no reason why the matter should not be referred,' occurring therein). The Court under section 34 must finally decide these issues before granting stay. [507H; 508A-B] Where on an application made under section 34 of the Arbitration Act for stay of a suit, an issue is raised as to the formation, existence or validity of the contract containing the arbitration clause, the Court is not bound to refuse a stay but may in its discretion, on the application for stay, decide the issue as to the existence or validity of the arbitration agreement even though it may involve incidentally a decision as to the validity or existence of the parent contract. If this is the position under section 34 of the Arbitration Act which confers discretionary power upon the court, a fortiori the Court acting under section 3 of the Foreign Awards Act must decide such issues at that stage when the grant of stay is obligatory. [1975] 2 All.

E.R. 549; Anderson Wright Ltd. v. Moran and Co. [1955] 1 SCR 862; Khushiram v. Hantumal [1948] 53 CWN 505 at page 518 referred to. [510B-C] In the instant case, the issue pertained to the arbitrability of the three claims under the Arbitration clause in the contract and depended 451 upon the proper construction thereof in the light of the conduct of the parties an surrounding circumstances and no prejudice was caused to any of the parties as both Renusagar's application for injunction and GEC's stay petition under section 3 were heard together and parties did put before the court-Trial court, the Appeal court and even Supreme Court-the entire material such as each wanted to rely upon and sought a decision on the concerned issue and therefore, the prayer for injunction restraining arbitration sought by Renusagar was rightly refused. The triable issue raised in the suit having been found upon against Renusagar no question of balance of convenience survives. [510E-F] (The Court directed that the decision of issue of arbitrability of three claims will have to be regarded as final, conclusive and binding and that issue would not arise before the Court of arbitration of I.C.C. and even if it is raised it would be purely academic.) [510G-H]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2434-35 of 1984 Appeals by Special leave from the Judgment and Order dated the 19th to 21st day of October, 1983 of the Bombay High Court in Appeal Nos. 404 & 405 of 1983.

F.S. Nariman, S.S. Ray, I.M.Chagla, P.L. Dubey, A.P.Chinoy, E.B. Desai, N.P. Bharucha, N.R. Khaitan, Anil Kumar Sharma & Praveen Kumar for the appellants.

N.A. Palkhivala, K.S. Cooper, S.F. Dastur & Dr. Y.S. Chitale, S.S. Shroff, S.A. Shroff & Mrs. P.S. Shroff for Respondents in CA. No. 1488 of 1984.

K.S. Cooper, J.J. Bhatt, Amit Desai, S.A. Shroff and Mrs. P.S. Shroff for the Respondent in CA. No. 1489 of 1984.

The Judgment of the Court was delivered by TULZAPURKAR, J. These two appeals raise the following two questions for our determination:

1. Whether under sec. 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961, having regard 452 to its scope, a suit in the nature of a petition under sec. 33 of the Arbitration Act, 1940 could be stayed ? If, so whether the 1st Respondents have made out a case for staying the Appellants' suit No. 832 of 1982 ?

2. Whether the three claims referred by the 1st Respondents to the Court of Arbitration of the 2nd Respondents are beyond the scope of the Arbitration Clause being Article XVII contained in the Contract dated August 24, 1964 or they are "arising out of or related to" the said Contract ? The facts giving rise to the aforesaid two questions may be stated. The Appellants, Renusagar Power Company Limited (for short 'Renusagar') are a company incorporated under the Companies Act, 1956 having their Registered Office at Renukoot, District Mirz