Citation Infowares Ltd vs Equinox Corporation

1. This is an application under Section 11 (5) of the Arbitration and

Conciliation Act, 1996. The applicant M/s Citation Infowares Ltd. is a

company registered under the Companies Act carrying on business in

United States of America as also in Gurgaon, India through its

establishment/subsidiary. The respondent Equinox Corporation is also a

company registered within the appropriate laws of United States of

America, having its office at 10, Corporate Park, Suit No.130, Irvine, CA-

92606, USA. The Equinox Corporation has been carrying on business in

India through outsourcing. It is also carrying on business in India through

its own establishment in India, Equinox Global Services Private Limited

(hereinafter called `EGSPL'). The said EGSPL is a company registered 2

under the Companies Act and has its office in Gurgaon. It is pleaded in

the application that the respondent company Equinox Corporation

(hereinafter called `EC') had entered into an outsourcing agreement singed

in Kolkata, India with the applicant Citation Infowares Ltd (hereinafter

called `CIL') on 09.02.2004 wherein the applicant was engaged as a

service provider on terms and conditions contained in the agreement. It

was agreed in this agreement dated 09.02.2004 that CIL which had

bagged orders from its client and since it had sufficient funds, space and

existing infrastructure to execute the projects and since it required expert

manpower to provide service to its client and further since CIL had

approached EC for providing the required number of resources to CIL as

against the monthly charges at mutually agreed consideration, EC had

agreed to provide resources and, hence, both the parties had, in short,

mutually agreed to do the business on certain agreed terms. The terms

included that the duration of the agreement was to be for three years.

There was a confidentiality clause 10. Following was the clause 10:

"10. Any dispute between the parties hereto to arising from this Agreement, or from an individual agreement concluded on the basis thereof, shall be finally referred to a mutually agreed Arbitrator."

2. Two more agreements were entered into, they being agreements

dated 23.07.2004 and 25.01.2007 in between the parties. It is the claim of

the applicant that it created infrastructure for seating capacity of 200 3

customized seats at Gurgaon address of the respondents and same were

being utilized by the respondent. All the three agreements were signed at

Kolkata, India and the services were being provided and rendered under

the said agreement by the applicant at Gurgaon, India.

3. On this backdrop, by a notice dated 09.01.2008 sent through e-mail,

the respondent terminated the agreements dated 25.01.2007 w.e.f.

07.03.2008. According to the applicant, this termination of agreement was

illegal and wrongful, causing it huge loss. The applicant assessed the

damages to be compensated by the respondent tentatively at US $

23,49,182. The applicant also pleads that the respondent had also failed

to pay the outstanding amount of US $ 6,32,182 payable to the applicant

under the contract against the invoice raised by the applicant for the period

from July, 2007 to January, 2008. The applicant also claimed on this

amount the interest @ 18 % per annum.

4. What is important is the agreement dated 25.01.2007 which has

already been referred to. Under the said agreement clause 10.1 provided

as under:

"10.1 Governing law- This agreement shall be governed by and interpreted in accordance with the laws of California, USA and matters of dispute, if any, relating to this agreement or its subject matter shall be referred for arbitration to a mutually agreed Arbitrator"

5. Thus, in between, first agreement dated 09.02.2004 and the

subsequent agreement dated 25.01.2007 there was an essential difference 4

that under the last agreement the governing law was to be that of

California, USA. However, that clause did provide for arbitration in case of

disputes. On the disputes arisen, the applicant invoked arbitration clause

by its notice dated 08.02.2008 and further notice dated 09.02.2008

informing the respondent about appointment of Arbitrator and requested

the respondent to agree to the said appointment. The respondent did not

agree within the period of 30 days provided in Section 11(5) of the

Arbitration and Conciliation Act, 1996 (hereinafter called the `Arbitration

Act') and, thus, parties have failed to agree to the appointment of sole

Arbitrator within the time limit prescribed under that Section necessitating

the present application for appointment of an Arbitrator by this Court since

this happens to be an international arbitration.

6. There is no dispute between the parties that this is an international

arbitration and, therefore, under the Arbitration Act, the Chief Justice or his

nominee alone would have the jurisdiction to appoint the Arbitrator. There

is also no dispute that there is a live dispute between the parties and there

is an Arbitration Clause in case of dispute between the parties.

7. So far so good. However, the question that has arisen is whether

this Court would have the jurisdiction, in the present factual scenario and

on the backdrop of the fact that the parties vide the aforementioned clause

10.1 had agreed that the governing law would be that of California, USA.

According to the applicant, it is only this Court which would have the 5

jurisdiction to appoint the Arbitrator, while according to the respondent this

Court does not have the jurisdiction to appoint the Arbitrator as the

provisions of the Arbitration Act would necessarily stand excluded in view

of the specific language of clause 10.1 of the agreement wherein the

governing law would be the law of California, USA.

8. Both the sides have extensively canvassed the rival contentions.

Shri S.K. Bagaria, Learned Senior Counsel appearing on behalf of the

applicant contended that this question is no more res integra and stands

concluded by the judgment of this Court in Indtel Technical Services

Private Ltd. Vs. W.S. Atkins Rail Limited reported in 2008(10) SCC 308. He further pointed out that the said judgment exclusively place reliance on

other judgment of this Court in Bhatia International Vs. Bulk Trading

S.A. reported in 2002 (4) SCC 105. The Learned Senior Counsel also

made a reference to another judgment in Venture Global Engineering

Vs. Satyam Computer Services Ltd. reported in 2008(4) SCC 190. It

was pointed out that in the first mentioned decision, the Learned Single

Judge (Hon'ble Altamas Kabir, J.) of this Court, while interpreting the

clause identically worded as Clause 10.1 (quoted supra), came to the

conclusion and recorded his findings in para 36 and 37 of that judgment

and ultimately held that the provisions of Part I of Arbitration and

Conciliation Act, 1996 would be equally applicable to international

commercial arbitrations held outside India unless any of the said provisions

are excluded by agreement between the parties expressly or by 6

implication. The Learned Judge also found that this question of the

applicability of the Part I of Arbitration and Conciliation Act, 1996 to the

international agreements, even where the governing law was to be a

foreign law, was concluded by the decision in Bhatia International Vs.

Bulk Trading S.A. reported in 2002 (4) SCC 105 (cited supra).

9. As against this, Shri Krishnan Venugopal, Learned Senior Counsel

appearing on behalf of the respondent urged from the language of the

clause that where the governing law is agreed between the parties, say

foreign law, then essentially, the question of appointment of arbitrator also

falls in the realm of the said foreign law and not within the realm of

Arbitration and Conciliation Act. The Learned Senior Counsel further

urged that in the wake of language of Clause 10.1, it was very clear that

the agreement was to be governed by and interpreted in accordance with

the Laws of California and further in continuation of the earlier words, it

was provided that the matters of dispute relating to the agreement or its

subject matter, would be referred to arbitration to a mutually agreed

arbitrator. The Learned Senior Counsel, therefore, urged that considering

the positive language of Clause 10.1, it was clear that the parties had

specifically agreed that the matter of appointment of arbitrator would also

be governed by the Laws of California. The Learned Senior Counsel

urged that, therefore, there was a clear cut agreement between the parties

to that effect and as such, as held in Bhatia International Vs. Bulk

Trading S.A. reported in 2002 (4) SCC 105 (cited supra), parties had 7

expressly excluded the provisions of Part I of the Arbitration and

Conciliation Act, 1996. The Learned Senior Counsel very heavily relied on

the last part of Para 32 of the judgment in case of Bhatia International

(cited supra). The learned Senior Counsel, therefore, urged that even if

judgment in case of Bhatia International (cited supra) was held applicable,

it was in fact, liable to be read in favour of the respondent and not the

applicant. The Learned Senior Counsel also invited our attention to

another judgment of this Court in National Thermal Power Corporation

Vs. Singer Company & Anr. reported in 1992 (3) SCC 551 and

Sumitomo Heavy Industries Limited Vs. ONGC Limited reported in

1998(1) SCC 305. Apart from these judgments, the Learned Senior

Counsel relied on a decision of the House of Lords in case of James

Miller & Partners Ltd. Vs. Whitworth Street Estates Ltd. reported in

1970 AC 583 in support of the proposition that where the parties have

agreed that the governing law would be a foreign law, normally the

question relating to Arbitral Tribunal would also be governed by such

foreign law. The other decision relied upon by the Learned Senior Counsel

is the decision of Privy Council in Bay Hotel and Resort ltd. Vs. Cavalier

Construction Co. Ltd. reported in 2001 UKPC 34/2001 WL 825663 and

the decision of Queen's Bench (Commercial Court) in case of ABB

Lummus Global Ltd. Vs. Keppel Fels Ltd. reported in 1999(2) Lloyds

Law Report 24. The Learned Senior Counsel also painstakingly took us

through the provision of California Code of Civil Procedure and more 8

particularly, in Chapter II and III thereof. Judgments of Bombay High Court

and Gujarat High Court were also relied upon.

10. On these conflicting claims, it is to be found as to whether it would

be for this Court to appoint the arbitrator under Section 11(5) of the

Arbitration and Conciliation Act, 1996.

11. There can be no dispute that such appointment can be made by this

Court only and only if Part I of the Arbitration and Conciliation Act is

applicable to the present arbitration proceedings.

12. Shri Bagaria, learned senior counsel appearing on behalf of the

petitioner heavily relied on the Bhatia International (cited supra) and

pointed out that the law on this subject is no more res integra as it was concluded

by the judgment of this Court in Indtel Technical Services' case (cited

supra) Learned counsel pointed out that in the said judgment of Indtel

Technical Services' case (cited supra), the earlier judgments in Bhatia

International (cited supra) and even National Thermal Power

Corporation' case (cited supra) have been considered. Learned counsel

pointed out that the clause of arbitration which fell for consideration was as

follows:

"Although the matter has been argued at great length and Mr. Tripathi has tried to establish that the decision of this Court in Bhatia International's Case is not relevant for a decision in this case, I am unable to accept such contention in the facts and circumstances of the present case. It is no doubt true that it is fairly well settled that when an arbitration agreement is silent as to the law and procedure to be followed in implementing the arbitration agreement, the law governing the said agreement would ordinarily be the same as the law 9

governing the contract itself. The decisions cited by Mr. Tripathi and the views of the jurists referred to in NTPC's case support such a proposition. What, however, distinguishes the various decisions and views of the authorities in this case is he fact that in Bhatia International this Court laid down the proposition that notwithstanding the provisions of Section 2(2) of the Arbitration and Conciliation Act, 1996 indicating that Part I of the said Act would apply where the place of arbitration is in India, even in respect of international commercial agreements, which are to be governed by the laws of another country, the parties would be entitled to invoke the provisions of Part I of the aforesaid Act and consequently the application made under Section 11 thereof would be maintainable.

(emphasis supplied)

13. Again in paragraph 37 the Court expressed that the decision in Bhatia

International's case has been rendered by a Bench of three Judges and governs

the scope of application under Section 11, thereby expressing the binding nature

of the judgment. It was specifically held that unless language of the provisions of

Part I are excluded by agreement between the parties either expressly or by

implication, Part I of the Act including Section 11 would be applicable even where

the international commercial agreements are governed by the clause of another

country. It is not, therefore, necessary to consider the argument of Shri K.K.

Venugopal, learned Senior counsel to the effect that the law laid down in National Thermal Power Corporation's case (cited supra) .would govern

the field. Even otherwise it is difficult to accept the contention that National

Thermal Power Corporation's case (cited supra) can clinch the issue.

14. In paragraph 23 thereof the Court undoubtedly expressed that the proper

law of arbitration is normally the same as the proper law of contract and it is only

in exceptional cases that it is not so, even where the proper law of contract is

expressly chosen by the parties. The Court further expressed about the 10

presumption arising that the law of the country where arbitration is agreed to be

held is the proper law of arbitration. This presumption was heavily relied on by

Shri K.K. Venugopal. In my opinion the scope of the expressions in paragraph

23 must be held to be limited. There may be presumption where the parties have

agreed to hold arbitration in a particular country. In that circumstance, the

presumption would arise that the law of the country where the arbitration is

agreed to be held would apply as a law of contract. Where there has been no

specific expression about the law of contract, the situation is otherwise. In this

way the law of contract is agreed upon as the Californian law.

15. However, there is no agreement in respect of the law governing the

procedure of arbitration. Again in paragraph 25 the Court expressed that the

party had the freedom to choose the law governing international agreement of

choosing substantive law of arbitration agreement as well as the procedural law

governing the conduct of the arbitration. It is then the choice to be exercised by

the parties or by implication, except to such situations where there is no express

choice of the law governing the contract as a whole or the arbitration agreement

in particular. There is, in absence of any contrary intention, a presumption that

the parties have intended that the proper law of contract as well as the law

governing arbitration agreement are the same as the law of the country in which

the arbitration is agreed to be held. Here again the stress is on the agreement

about the country where the arbitration is agreed to be held and precisely this

situation is absent in the present case. Here the substantive law of contract

governing the contract is specifically agreed upon. However, the place where

arbitration would be held is not to be found in the language of Clause 10.1. 11

Therefore, the situation in National Thermal Power Corporation's case

(cited supra) was not applicable to the present case.

16. The Court undoubtedly further goes on to say that where the proper law of

contract is expressly chosen by the parties such a law must, in the absence of

unmistakable intention to the contrary, govern the arbitration agreement which,

though collateral or ancillary to the contract, is nevertheless a part of the

contract. It is this expression which has been heavily relied upon by the learned

senior counsel for the respondent.

17. However, in Bhatia International (cited supra), duly considered in

Indtel Technical Services' case (cited supra) is apart from the fact that

the provisions of the Arbitration and Conciliation Act, 1996 were not applicable

either in Singer's case or even in Sumitomo Heavy Industries' case (cited

supra). The issue regarding the applicability of Part I of the 1996 Act to

international commercial arbitration also did not fall for consideration in these

cases. It may be that the Arbitrator might be required to take into account the

applicable laws which may be the foreign laws but that does not effect the

jurisdiction under Section 11 which falls for Part I which has been specifically

held applicable in Bhatia International (cited supra).

18. The learned Judge, deciding the Indtel Technical Services' case

(cited supra) also has taken into consideration this aspect and has expressed

in Paragraph 36 as follows:

"The decisions cited by Mr. Tripathi and the views of the jurists referred to in NTPC's case support such a proposition. What, however, distinguishes the various decisions and views of the authorities in this case is he fact 12

that in Bhatia International this Court laid down the proposition that notwithstanding the provisions of Section 2(2) of the Arbitration and Conciliation Act, 1996 indicating that Part I of the said Act would apply where the place of arbitration is in India, even in respect of international commercial agreements, which are to be governed by the laws of another country, the parties would be entitled to invoke the provisions of Part I of the aforesaid Act and consequently the application made under Section 11 thereof would be maintainable."

19. The situation therefore is identical in the present matter. Shri K.K.

Venugopal, however, contended that if the parties intended specifically in this

case that the law governing the contract was Californian law, as expressed in

Bhatia Internation as well as in Indtel Technical Services' case (cited

supra), an implied exclusion of Part I should be presumed. I am afraid it is not

possible to read such an implied exclusion.

20. Seen the striking similarity between Clause 10.1 and Clauses 13.1 and

13.2 which have been quoted above and further the view expressed by learned

Judge in Indtel Technical Services' case (cited supra) regarding the

exclusion, it is only possible to read even distantly such an implied exclusion of

Part I. It cannot be forgotten that one of the contracting parties is the Indian

party. The obligations under the contract were to be completed in India. Further

considering the nature of the contract, it is difficult to read any such implied

exclusion of Part I in the language of Clause 10.1. That argument of learned

senior counsel for the respondent therefore must be rejected.

21. Learned senior counsel for the respondent invited attention of this Court to

paragraphs 32 and 34 of Bhatia International (cited supra) and again

reiterated that the implied exclusion must be read in the language of Clause 10.1. 13

I have already however, held that considering the various factors, such exclusion

cannot be read and, therefore, Bhatia International (cited supra) will have

to be held applicable.

22. Identical view has been taken even in Venture Global Engineering's

case (cited supra) where the Court took the view that even the foreign award

could be challenged under Section 34 of the Act. This is a judgment by Two

Judges Bench. The observations made in paragraphs 31, 35 and 37 are

extremely apposite and binding. The comments against this judgment that it

does not consider the question of implied exclusion would be of no consequence

in view of the findings which have earlier been referred to. In the present matter

it cannot be said that there was any implied exclusion of the provisions of Part I.

The law laid down, therefore, is clearly binding.

23. Similarly the language of Clause 10.1, it is suggested was expressly

agreed between the parties that the procedural law would be that of California.

The suggestion given by the learned senior counsel for the respondent that since

the provision about the arbitration is included in the same sentence the intention

must be presumed that the parties intended only the Californian law even to

govern the procedure. As I have said, that by itself it cannot be the way to read

the said Cause as the decision in Bhatia International (cited supra) was

available on the date when the agreement was signed.

24. This means that the contentions raised based on the three foreign cases

by Shri K.K. Venugopal James Miller & Partners' case (cited supra), Bay

Hotel and Resort' case (cited supra) and ABB Lummus Global's case 14

(cited supra) need not be considered in view of the binding nature of the three

aforementioned decisions in Bhatia International (cited supra), Venture

Global Engineering's case (cited supra), and Indtel Technical

Services' case (cited supra). However, since those cases are actively relied

upon the same are considered as follows.

25. In the first mentioned case, the question was as to the applicable law of

contract and not the applicable law of arbitration where the parties had

specifically agreed on the law of contract. The factual situation was, therefore,

different. The relied on observations at page 616 of the decision are more in the

nature of obiter.

26. In so far as the Bay Hotel and Resort' case (cited supra) is concerned

the reliance is placed on paragraph 35 of the said decision to the following effect:

"Two points in the speech of Lord Wilberforce are notable here. First, he said that in the normal case where the contract itself is governed by English law, any arbitration would be held under English procedure. Secondly, he said that the mere fact that the arbitrator was to set either partly or exclusively in another part of the United Kingdom, or, for that matter, abroad, would not lead to a different result; the place might be chosen for many reasons of convenience or be purely accidental; a choice so made should not affect the parties' rights. The passage in his speech is at page 616 of the report."

These observations apply to the normal case which is not a case here.

27. As regards the third decision in ABB Lummus Global's case (cited

supra) the relied upon passage again does not clinch the issue. What is stated

there is that where the parties chose the curial law of arbitration they would be 15

taken to chose the place and sitting of arbitration. In my opinion the observations

are not apposite to the present controversy.

28. In the result the application must succeed. Accordingly, I appoint Hon'ble

Mr. Justice R.C.Lahoti (Ex.CJI) as the sole Arbitrator to arbitrate upon the

disputes which have arisen between the parties hereto as set out in the present

application. The sole Arbitrator would be entitled to decide upon the procedure

to be followed in the arbitration proceedings, sittings of the proceedings as also

to settle his fees in respect thereof. However, the law governing the contract

would be the Californian Law.

29. The application is accordingly allowed.

.........................J. ( V.S. Sirpurkar ) New Delhi April 20, 2009.

16

Digital Performa

Case No. : Arbitration Application No. 8 of 2008

Date of Decision : 20.04.2009

Cause Title : Citation Infowares Limited Vs. Equinox Corporation

Coram : Hon'ble Mr. Justice V.S. Sirpurkar

C.A.V. On : 20.03.2009

Judgment delivered by : Hon'ble Mr. Justice V.S. Sirpurkar

Nature of Order : Reportable