Katra Holdings Limited vs Corasair Investments Llc And 5 Ors

Katra Holdings Ltd. A Company organized ] under the Laws of the Republic of Mauri- ] tius, and having its Registered Office at ] 24, Cybercity, 5th Floor, Ebene Esplande ] Ebene, Mauritius ] ...Appellant.

Vs.

1) Corsair Investments Ltd. A Delaware ] Ltd. Liability Company organized ] under the Laws of the State of Delaware ] in the United States of America and ] having its Registered Office at 717 Fifth ] Avenue, 24th Floor, New York, NY 10022 ] USA ] ] 2) Standard Chartered Bank (Mauritius ] Ltd. A Company organized under the ] Laws of the Republic of Mauritius, and ] having its office / branch at 6th Floor, ] Raffles Tower, Cybercity, Edene, ] Mauritius ]

3) Corsair Capital LLC, a Delaware Ltd. ] Liability Company Organized under ] the Laws of the State of Delaware in ] United States of America, and having ] its Registered Office at 717, Fifth ] Avenue, 24th Floor, New York, NY ] 10022 USA, ]

4) Standard Chartered PLC, a publc ] Limited Company Organized under the ] Laws of England & Wales and having ] Its Registered Office at 1, Basinghall ]

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Avenue, London, EC2V 5 DD ]

5) Standard Chartered Bank, a Company ] organized under the Laws of England ] & Wales having its Registered Office at ] 1 Basinghall Avenue, London, EC2V ] 5DD ]

6) Subcontinental Equities Ltd. A ] Company organized under the Laws of ] the Republic of Mauritius, and having ] its Registered Office at 608, St. James ] Court, St. Denis Street, Port Louis, ] Mauritius ] ...Respondents.

.....

Mr Rafique Dada, Sr. Counsel a/w Mr. Ashish Kamat, Mr Prateek Pai, Mr Viraj Parikh, Amanjhol Anand I/b Keystone Partners for the Appellant.

Mr Aspi Chinoy, Sr. Counsel a/w Ms Ankita Singhania, Yuvraj Choksi I/b Shital Turukhia for Respondent No.1.

Mr Tushad Cooper, Sr. Counsel, a/w Mr Parikshit Desai I/b Vikramsinh Yadav for Respondent No.2.

Mr M.S. Krishnan, Sr. Advocate a/w Mr Krishna Prasad R, Mr Balasaheb Yewale, Yuvraj Choksi I/b Chandrakant Mhadeshwar for Respondent No.3.

Mr Janak Dwarkadas, Sr. Counsel a/w Ms Ankita Singhania and Mr Abjijeet Desai I/b Desai Legal for Respondent No.6

CORAM : S. C. DHARMADHIKARI & B.P.COLABAWALLA, JJ.

RESERVED ON : 14th September, 2018 PRONOUNCED ON : 31st October, 2018

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JUDGMENT [ PER B. P. COLABAWALLA J. ]:

1. Admit. The paper book is dispensed with. By consent of

parties, the appeal is made returnable forthwith and heard finally.

2. By this appeal, the appellant challenges the Judgment

and Order dated 15th September, 2017 (for short, the "impugned

order") passed by the learned Single Judge (Hon'ble Mr. Justice K.

R. Shriram) in an Arbitration Petition filed under Section 34 of the

Arbitration and Conciliation Act, 1996 (for short "the Act"). The

Petition came to be filed before the learned Single Judge, challenging

the award dated 11th September, 2015 by which the appellant's claim

against the respondents was dismissed by the Arbitral Tribunal. The

Arbitration Petition was dismissed by the learned Single Judge only

on a preliminary objection raised by the respondents challenging the

jurisdiction of this Court. To put it in a nutshell, the jurisdiction of

the Court was challenged on the ground that the award being a

foreign award and the juridical seat of arbitration being outside India

as well as the law governing the arbitration agreement being Foreign

Law, Part-I of the Act was impliedly excluded, and therefore, the

award could not be challenged under Section 34 of the Act. Since, the

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is no discussion to the challenge to the award on merits. Even before

us, the only challenge that has been raised is with reference to the

jurisdictional aspect, namely, whether the award passed by the

Arbitral Tribunal could be challenged in this Court under Section 34

of the Act. Before we set out and deal with the legal submissions of

the parties, it would be apposite to set out some bare and necessary

facts.

3. The appellant is a limited liability company organized

under the laws of the Republic of Mauritius and is inter alia engaged

in the business of making investments. The appellant was the

claimant before the Arbitral Tribunal and the Petitioner before the

learned Single Judge. Respondent Nos.1 and 3 are limited liability

companies constituted under the laws of the State of Delaware in the

United States of America. Respondent No.2, Standard Chartered

Bank (Mauritius) Ltd., is a company organized under the laws of the

Republic of Mauritius. It is wholly owned by a company registered

under the Laws of England and Wales - respondent No.5.

Respondent No.4 is a Standard Chartered PLC, a public limited

Company registered under the Laws of England & Wales and

respondent No.5 is the Standard Chartered Bank, an international

banking company registered under the Laws of England & Wales.

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Respondent No.6 - Sub-continental Equities Ltd., is a company

organized under the laws of Republic of Mauritius.

4. It is the case of the appellant that the appellant,

respondent No.1 and respondent No.2 had entered into an Escrow

and Transaction Settlement Agreement dated 12th May, 2007 (for

short the "Escrow Agreement") primarily for the purpose of placing

the equity shares of one Tamilnad Mercantile Bank Ltd. (for short

"TMB") with purchasers who were compliant with the provisions of

Indian Law, particularly the Banking Regulation Act, 1949 (for short

the "BR Act") and the Foreign Exchange Management Act, 1999 (for

short the "FEMA, 1999") and the rules, regulations, notifications,

circulars and guidelines issued thereunder. According to the

appellant, under the Escrow Agreement, respondent Nos.1 and 2,

acting in concert with respondent Nos.3 to 6, engaged in willful

suppression, gross misrepresentation and perpetrated an egregious

fraud on the appellant with the primary objective of defeating the

sanctity of the Indian Laws which, according to the appellant, govern

the Escrow Agreement. According to the appellant, the respondents

circumvented the provisions of the BR Act, FEMA, the RBI Act, the

Prevention of Money Laundering Act, 2002, (for short the "PML

Act") and the Securities Exchange Board of India Act, 1992 (for Pg 5 of 51

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short the "SEBI Act"). In light of these alleged violations by the

respondents, the appellant was constrained to commence arbitration

proceedings under the Escrow Agreement inter alia seeking to

unwind the ex-facie illegal transaction. As mentioned earlier, the

reliefs sought by the appellant were negated by the Arbitral Tribunal,

who then went on to dismiss the claim made by the appellant and

passed its final award dated 11th September, 2015.

5. It was the appellant's case that the Arbitral Tribunal

failed to appreciate the respondents' conspiracy and design to defeat

the provisions of Indian Law and other regulatory / statutory

provisions which govern the Escrow Agreement. This being the case,

the appellant approached this Court under Section 34 of the Act to

set aside the award passed by the Arbitral Tribunal by filing the

above Petition. The main ground on which the award was challenged

was that it was in violation of the fundamental policy of Indian Law.

6. When this Arbitration Petition came up for hearing before

the learned Single Judge, a preliminary objection was raised by the

respondents that this Court had no jurisdiction to entertain the

Arbitration Petition under Section 34 of the Act considering that the

juridical seat of arbitration was outside India and also the law

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governing the arbitration agreement was Foreign Law, and hence,

Part-I of the Arbitration and Conciliation Act, 1996 was impliedly

excluded. This being the case, no challenge could be brought to the

award under Section 34 of the Act, was the submission of the

respondents.

7. After considering the submissions of the parties as well as

the law on the subject, the learned Single Judge upheld this

contention and proceeded to dismiss the Arbitration Petition with

costs in the sum of Rs.5 Lacs. The learned Judge directed that the

costs be paid within four weeks from the date of the impugned order

by a cheque drawn in favour of the Advocate on record for

respondent No.1. It is being aggrieved by this order of the learned

Single Judge that the appellant is before us under Section 37 of the

Act.

8. In this factual backdrop, Mr Rafique Dada, learned Senior

Counsel appearing on behalf of the appellant, submitted that the

learned Single Judge erred in holding that the juridical seat of the

arbitration was New York, New York and the law governing the

arbitration agreement was also subject to the Laws of New York. He

therefore submitted that the learned Judge could not have come to

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the conclusion that the Arbitration Petition filed under Section 34 of

the Act was not maintainable. He submitted that for the purpose of

determination of jurisdiction, clauses 15 and 16 of the Escrow

Agreement are relevant. On a complete and meaningful reading of

these two clauses, it was apparent that it is Indian Law which applied

not only to the substantive provisions of the contract (save and

except the excluded provisions) but also to the arbitration

agreement. In other words, according to Mr. Dada, even the

arbitration agreement was governed by Indian Law. This being the

case, Mr Dada submitted that New York could never have been the

juridical seat of arbitration and reference to the same in clause 15

was at best, the venue of arbitration.

9. Mr. Dada further submitted that on a holistic reading of

the Escrow Agreement, the arbitration agreement contained therein

was not subjected to the laws of New York. He submitted that this

becomes clear on a perusal of clause 16 of the Escrow Agreement

which clearly stipulates that the Escrow Agreement shall be

governed and construed in accordance with the Laws of India (save

and except the clauses mentioned therein). He submitted that the

arbitration agreement as set out in clause 15, is not a clause that falls

within the exclusion as set out in clause 16. To put it simply, Mr

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Dada's argument was that clause 16 specifically provided which

clauses of the Escrow Agreement were not to be governed by Indian

Law and clause 15 (which is the arbitration agreement) was not one

of them. Mr Dada submitted that clause 16 of the Escrow Agreement

clearly indicates that there was an express inclusion of Part-I of the

Arbitration and Conciliation Act, 1996. In this regard he submitted

that clause 16, and which according to Mr Dada would include clause

15, clearly states that Escrow Agreement shall be governed in

accordance with the Laws of India. Mr Dada was at pains to point out

that clause 16 clarifies that only six clauses of the Agreement

(namely, clauses 4.5, 12.3, 14.1.7, 14.1.8, 18.6 and 18.7) were

excluded from the application of Indian Law and were subject to New

York Law. This language of clause 16 unequivocally demonstrates

the intention of the parties to apply Indian Law not only to the

substantive provisions of the Escrow Agreement but also to the

arbitration agreement, was the submission of Mr Dada. This being

the case, it was the submission of Mr Dada that the parties also

intended to subject the arbitration to the jurisdiction of Indian

Courts. In light of this express inclusion of Part-I of the Act, Mr Dada

submitted that this Court under Section 34 of the Act had jurisdiction

to entertain and try the Petition filed under Section 34 of the Act to

challenge the Arbitral Award.

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10. Mr Dada then submitted that the Supreme Court in the

case of Sumitomo Heavy Industries Ltd Vs ONGC & Ors. [(1998)

1 SCC 305] (for short "Sumitomo") held that upon conclusion of the

arbitration, the Arbitral Tribunal is functus officio and the

corresponding authority of the courts administering the curial law

ceases. The aspects of enforcement and setting aside are governed

entirely by the law governing the arbitration agreement only.

According to Mr Dada, since the law governing the arbitration

agreement was Indian Law, the Petition for setting aside the

arbitration award could lie before this Court under Section 34 of the

Act. This being the case, he submitted that the learned Single Judge

had gone completely wrong in coming to the conclusion that the law

governing the arbitration agreement was Foreign Law, and therefore,

Part-I of the Act was impliedly excluded.

11. Mr Dada submitted that in the facts of the present case,

the arbitration between the parties was an International Commercial

Arbitration as per Section 2(1)(f) of the Act. According to Mr Dada,

the Supreme Court in the case of Bhatia International Vs Bulk

Trading S.A. [(2002) 4 SCC 105] (for short "Bhatia") held that

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unless it is expressly or impliedly excluded. He further submitted

that the Supreme Court in the case of Bharat Aluminium Company

Vs Kaiser Aluminium Technical Service Inc. [(2012) 9 SCC 552]

(for short "BALCO") overruled the decision in Bhatia. However, in

order to do complete justice, the Supreme Court in the case of BALCO

held that the law laid down in Bhatia will continue to apply to

arbitration agreements executed prior to 6th September, 2012 (being

the date on which the Judgment in BALCO was pronounced).

According to Mr Dada, in the present matter, the Escrow Agreement

which contains the arbitration clause between the parties was

executed on 12th May, 2007. Therefore, in the facts of the present

case, the law laid down in Bhatia would continue to apply, was the

submission.

12. In the alternative, Mr Dada submitted that even

assuming for the sake of argument that there is no express inclusion

of Part-I of the Act and the principles as laid down in Sumitomo's

case are not applicable, even in that event the tests as laid down by

the Supreme Court in the case of Union of India Vs Reliance

Industries & Ors. [(2015) 10 SCC 213] (for short "Reliance II")

would be applicable to determine the express or implied inclusion.

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According to Mr Dada, the Supreme Court in Reliance II held that

Part-I of the Act would apply to the International Commercial

Arbitrations where:-

(a) The Law governing the arbitration agreement is Indian Law; and

(b) The juridical seat of arbitration is in India or in the facts of the case, the Court cannot arrive at a determination of the juridical seat.

13. The Supreme Court in the case of Reliance II required

that both the above conditions need to be satisfied for applicability of

Part-I of the Act. He submitted that in the facts of the present case,

both these tests were squarely satisfied. He submitted that in the

facts of the present case, the law governing the arbitration

agreement was Indian Law and which was clear from a plain reading

of clause 16 of the arbitration agreement as mentioned above. Mr

Dada then submitted that even assuming for the sake of argument

that the Escrow Agreement was silent on the law governing the

arbitration agreement, the law governing the contract must be

deemed to also apply to the arbitration agreement as stipulated by

the Supreme Court in the case of Sumitomo. Mr Dada submitted that

even the nature of the transaction and its close links by its subject

matter and structure to India, parties consciously and intentionally

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agreed on a shift of governing law from New York Law to Indian Law.

Looking to all these submissions, in any event the first test as laid

down in the judgment of Reliance II was squarely satisfied in the

facts and circumstances of the present case.

14. As far as the second test as set out in the judgment of

Reliance II is concerned (whether juridical seat of arbitration is in

India or in the facts of the case, the Court cannot arrive at a

determination of the juridical seat), Mr Dada submitted that even

this test was satisfied in the present case. According to Mr Dada,

clause 15 was not included as one of the six clauses which were

subject to the jurisdiction of the Courts of New York under clause 16.

This intentional omission unequivocally demonstrates the intention

of parties to subject the arbitration proceedings to the jurisdiction of

Indian Courts. He submitted that merely because clause 15 stated

that the place of arbitration shall be New York or such other place as

may be agreed upon by the parties, does not mean that the juridical

seat of arbitration was New York. That was merely a venue of

arbitration and not the seat of arbitration as required by the test laid

down by the Supreme Court in the Judgment of Reliance II. He

submitted that this is also clear from the facts that the closest and

most real connection to arbitration was with Indian Law and Indian

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Courts, which was the test that was to be applied as laid down by the

Supreme Court in Enercon India Vs Enercon Gmbh [(2014) 5 SCC

1]. He submitted that in the facts of the present case, the following

factors were relevant to show the closest and most real connection of

the arbitration is with Indian Law and Indian Courts:

(a) the entire transaction relates to the sale and purchase of equity shares in an Indian private sector bank, Tamilnad Mercantile Bank (for short "TMB");

(b) the Escrow account where the shares were deposited were maintained with Standard Chartered Bank in Mumbai, India;

(c) the transaction arose as a result of and was structured in light of Indian laws, specifically the rules and regulations of the Reserve Bank of India ("RBI") under the Banking Regulation Act, 1949 and the Foreign Exchange Management Act, 1999;

(d) One of the primary claims in the arbitration proceedings was that the respondents had colluded to circumvent Indian laws in order to acquire ownership and control over TMB, as was unequivocally demonstrated by their own internal correspondence.

15. All these factors clearly show that the closest and the

most real connection of the arbitration was with Indian Law and

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Indian Courts, was the submission of Mr. Dada. Mr Dada submitted

that the place of arbitration being stipulated as New York or any

other place agreed to by the parties in clause 15 of the Escrow

Agreement, only refers to the venue or physical location of the

arbitration and not the juridical seat. According to Mr Dada this was

further made clear considering that clause 15 stated that the place of

arbitration shall be New York "or any other place as may be agreed

upon by the Arbitrating Parties." This clearly indicates that New

York was only the venue of the arbitration and was not the juridical

seat. Since New York was not the juridical seat and the law applicable

to the arbitration agreement was Indian Law, according to Mr Dada,

both tests as laid down by the Supreme Court in the case of Reliance

II were clearly satisfied and hence the learned Single Judge could not

have come to the conclusion that Part-I of the Act was impliedly

excluded. For all these reasons, Mr Dada submitted that there was a

serious legal infirmity in the order of the learned Single Judge, which

required our interference in appeal under Section 37 of the Act.

16. On the other hand, Mr Chinoy, learned Senior Counsel

appearing on behalf of respondent No.1 submitted that there is no

merit in the arguments canvassed by Mr Dada. He submitted that

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whereas clause 16 deals with the Governing Law. Mr Chinoy

submitted that clause 15.1 clearly stipulates that the arbitration

shall be conducted according to the Commercial Arbitration Rules of

the American Arbitration Association. The place of arbitration shall

be New York, New York or such other place as may be agreed upon by

the Arbitrating Parties. In the facts of the present case, Mr Chinoy

submitted that the appellant, in view of this clause, initiated the

arbitration in New York and which was also held in New York, USA.

This arbitration was initiated and conducted under the Commercial

Arbitration Rules of the American Arbitration Association. Mr.

Chinoy submitted that Rule 52(c) of the American Arbitration Rules

stipulates that the parties to an arbitration under these rules shall be

deemed to have consented that judgment upon the arbitration award

may be entered in any federal or state court having jurisdiction

thereof. According to Mr Chinoy, the arbitration being situated in

New York, USA, Federal Arbitration Act was ipso jure the law

applicable to the arbitration/ arbitration proceedings. This apart, it

was also not in dispute that the award was made in New York and the

Federal Arbitration Act contains provisions for challenging an award

made in USA, was the submission. He submitted that by looking to all

this, it was clear that considering that the arbitration was conducted

in New York and was initiated and conducted under the Commercial

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Arbitration Rules of the American Arbitration Association, the

applicability of Part-I of the Act was necessarily/impliedly excluded.

17. Mr Chinoy, then submitted that this was also the

understanding of the contract by the appellant. He submitted that

respondent Nos. 3 to 6 were not parties to the arbitration agreement

contained in clause 15 of the Escrow Agreement. Despite this, the

appellant purported to join respondent Nos.3 to 6 as parties to the

arbitration proceedings. Respondent Nos.3 to 6, therefore, moved an

application before the Arbitral Tribunal objecting to the Arbitral

Tribunal's jurisdiction. In response to the said application, the

appellant filed its response on 28th November, 2012 and in

paragraphs 118 and 119 thereof specifically relied on the Federal

Arbitration Act, USA and stated that although these respondents

were not express signatories to the amended arbitration agreement,

the Tribunal nonetheless was bound to arbitrate the dispute under

the Federal Arbitration Act and the prevailing New York Law.

Further it was the appellant's own case in its post-hearing brief dated

15th May, 2015 that the joinder of parties to arbitration is a

procedural matter to be considered under US Law. Looking to all

this, Mr Chinoy submitted that even the appellant correctly

understood that the arbitration agreement and the arbitration

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proceedings before the Arbitral Tribunal were to be governed by US

Law. This being the case, it was futile for the appellant to now submit

that the arbitration agreement was governed by Indian Law. Whether

the arbitration agreement was to be governed by Indian Law or US

Law was a matter of choice of the parties. This choice was clearly

spelt out not only from what was stated in clause 15 of the Escrow

Agreement but also from the understanding of the appellant and as

set out earlier. This being the case, the appellant cannot be allowed

to approbate and reprobate in this fashion by once stating before the

Arbitral Tribunal that US Law was applicable and then by stating

before this Court that Indian Law would govern even the aribtration

agreement, was the submission of Mr. Chinoy.

18. Mr Chinoy, also placed reliance on the decision of the

Supreme Court in the case of Reliance II and submitted that when

the Court comes to the conclusion that the juridical seat of

arbitration is outside India, or law other than Indian Law governs the

arbitration agreement, Part-I of the Act would be excluded by

necessary implication. Mr Chinoy submitted that on a reading of the

decision of the Supreme Court in the case of Reliance II, only those

cases in which the arbitration agreements stipulate that the seat of

the arbitration is in India or on facts a judgment cannot be reached

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on the seat of arbitration as being outside India, would continue to be

governed by the principles laid down in Bhatia. Mr. Chinoy brought

to our attention that in the matter of Reliance II, the Supreme Court

also rejected the reliance placed on an earlier Supreme Court

decision in the case of National Thermal Power Corporation Vs.

Singer Company & Ors. [(1992) 3 SCC 551] (for short "NTPC Vs

Singer") by pointing out that the decision of the Supreme Court in

NTPC Vs Singer was in the context of Section 9(b) of the Foreign

Awards Act, 1961 which stipulated that the award made in respect of

the contract governed by Indian Law would not be considered as a

Foreign Award. In this regard, Mr. Chinoy brought to our attention

paragraph 13 of the judgement in the case of Reliance II.

19. As far as the seat of arbitration is concerned, Mr Chinoy

submitted that in the present case, the arbitration clause provides

that the place of arbitration shall be New York, New York. He

submitted that Mr Dada's argument that the arbitration clause did

not stipulate New York, New York as a seat of arbitration was

completely answered by a decision of the Supreme Court in the case

of Roger Shashoua & Ors. Vs Mukesh Sharma [(2017) 14 SCC

722] (for short "Roger Shashoua"). In fact in that case, the clause

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stipulated that the venue of the arbitration will be London U.K. and

the governing law was to be Indian Law. In the case of Roger

Shashoua the Supreme Court came to a finding that since there was

an express designation of the arbitration venue and there was no

designation of any alternative place of seat, and since the arbitration

agreement provided that a supranational body of Rules would govern

the arbitration, the necessary conclusion would be that the "venue"

of the Arbitration was the juridical seat. In conclusion, the Supreme

Court in Roger Shgahsoua's case held that London UK would be the

juridical seat of the arbitration and consequently the award could not

be challenged under Section 34 of the Act. For all these reasons, Mr

Chinoy submitted the learned Single Judge has correctly applied the

legal principles settled by the Supreme Court in various decisions and

thereafter came to the conclusion that this Court had no jurisdiction

to entertain the challenge to the arbitral award under Section 34 of

the Act, as Part-I of the Act was impliedly excluded. This being the

case, he submitted that no interference was called for by us in an

appeal under Section 37 of the Act.

20. Mr Dwarkadas, learned Senior Counsel appearing on

behalf of respondent No.6, basically adopted the arguments of Mr

Chinoy. Mr Dwarkadas submitted that in the present case the

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Dispute Resolution was contained in clause 15 of the Escrow

Agreement. Clause 15.1 provides that:-

(a) the arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association; and

(b) the place of arbitration shall be New York. Clause 16 of the Escrow Agreement provides that the substantive law governing the contract would be Indian Law.

21. Mr Dwarkadas submitted that assuming for the sake of

argument that by reason of clause 16 and the proviso thereto, the law

governing the arbitration agreement is Indian Law, even then it did

not mean that the curial law applicable to the arbitration proceedings

would be Indian Law. He submitted that firstly there is no ambiguity

in clause 15 that the parties have agreed on the place of arbitration

to be New York. In the present case, the place of arbitration was

nothing but the seat of arbitration. He submitted that in the case of

Reliance II, the Supreme Court while interpreting BALCO, as well as

paragraph 32 of Bhatia, categorically held that even in cases

governed by the Bhatia principle, it is only where the Court (a) on

the facts of the case comes to a determination that the juridical seat

is outside India; or (b) where the law other than Indian Law governs

the arbitration agreement, then Part-I of the Act would be excluded

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by necessary implication. Mr Dwarkadas, therefore, submitted that

even in cases where the agreement may be governed by the principle

laid down in Bhatia's case, once it is determined that the seat of

arbitration was outside India, provisions of Part-I of the Act would be

excluded and a challenge to an award rendered in such arbitration

would not be capable of being entertained in Indian Courts. He

submitted that on a plain reading of clauses 15 and 16 of the Escrow

Agreement, it was clear that the seat of arbitration was outside India

and hence Part-I of the Act was excluded by necessary implication.

22. Mr Dwarkadas then submitted that this was also clear

from the fact that the appellant themselves had considered New

York, New York to be the seat of arbitration as well as US Law being

the law governing the arbitration agreement. He submitted that it is

settled law that the conduct of the parties is a good guide to interpret

an agreement and in this regard reliance was placed on a decision of

the Supreme Court in the case of Godhra Electricity Co. Vs. The

State of Gujarat [(1975) 1 SCC 199]. He submitted that the

question with regard to the determination of the seat and the law

governing the arbitration agreement was a matter of contract rather

than law, which has to be gathered from interpretation of the

agreement and the conduct of parties. He, therefore, submitted that

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there was no question of the appellant then arguing that there cannot

be any estoppel against Law / Statute. He submitted that the

appellant itself had invoked arbitration in New York and applied the

provisions of the Federal Arbitration Act, USA and the prevailing

New York law. This was clear when the appellant opposed the

application filed by respondent Nos.3 to 6. In response to that

application, the appellant clearly stated that the Federal Arbitration

Act and the prevailing New York Law applied, and therefore, opposed

the application filed by respondent Nos.3 to 6. According to Mr

Dwarkadas such conduct of the appellant clearly demonstrated its

intention and understanding of the agreement that the juridical seat

was New York and the arbitration agreement was governed by U.S.

Law. In fact, the final termination notice issued by the appellant on

16th March, 2012 invoking arbitral proceedings in terms of clause 15

of the agreement, according to Mr Dwarkadas, clearly mentions that

the appellant shall seek relief in aid of arbitration from the Courts of

the State of New York. He submitted that even in the statement of

claim filed by the appellant in the arbitration proceedings, the

appellant clearly stated that it intended to commence separate court

proceedings in New York. He submitted that all this material was in

fact placed before the learned Single Judge in the affidavit-in-reply

dated 30th August, 2016 filed by respondent No.1 to which no

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rejoinder was filed by the appellant. These facts have not been

controverted by the appellant at all. Looking to all this material, Mr

Dwarkadas submitted that it was quite clear that even the appellant

interpreted and understood clause 15 of the Escrow Agreement

(dealing with Dispute Resolution) to be governed by U.S. Law and the

juridical seat of arbitration being New York. For all these reasons,

Mr Dwarkadas also submitted before us that the learned Single Judge

correctly came to the conclusion that Part-I of the Act was impliedly

excluded and hence he had no jurisdiction to entertain the above

Arbitration Petition. In consequence thereto, he submitted that there

was no merit in the appeal and the same ought to be dismissed.

23. We have heard the learned counsel for parties at length

and have perused the papers and proceedings in the appeal including

the impugned order passed by the learned Single Judge. The issue

that we are called upon to decide are basically twofold. Firstly, we

have to determine whether the juridical seat was outside India, and

secondly, whether the law governing the arbitration agreement was

Foreign Law or Indian Law. To understand this controversy, it would

be apposite to set out clauses 15 and 16 of the Escrow Agreement as

it is on the interpretation of these two clauses that the outcome of the

appeal will be determined. Clauses 15 and 16 reads thus:

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"15. DISPUTE RESOLUTION.

15.1 Each of Corsair, Katra and the Escrow and Transaction Settlement Agent (the "Arbitrating Parties") agree to negotiate in good faith to resolve any dispute, difference or claim among the Arbitrating Parties arising out of or in connection, with this Agreement, including the construction, validity, execution, performance, termination or breach hereof. If negotiations do not resolve such dispute, difference or claim to the reasonable satisfaction of the Arbitrating Parties within 15 (fifteen) Business days of their initiation, then the Arbitrating Parties shall submit to binding arbitration. The arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association. The place of arbitration shall be New York, New York or such other place as may be agreed upon by the Arbitrating Parties. The Arbitrating Parties shall attempt to agree upon one arbitrator, but if they are unable to agree, each of Arranger, Corsair and the Escrow and Transaction Settlement Agent shall appoint an arbitrator and the total number of arbitrators shall be three.

Expenses of the arbitrator(s) shall be divided equally between the Arbitrating Parties to such arbitration.

Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, and shall be enforceable against the Arbitrating Parties in accordance with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as amended.

15.2 The arbitrators shall issue a written statement of their award detailing the facts and reasons upon which their decision was based.

15.3 Any reference of any dispute, difference or claim to arbitration under this Agreement shall not affect the performance by the Arbitrating Parties of their respective obligations under this Agreement other than the obligations relating to the dispute, difference or claim referred to arbitration.

16. GOVERNING LAW.

This Agreement shall be governed by and construed in accordance with the laws of India; provided, however, that, in the case of Clauses 4.7, 12.3, 14.1.7, 14.1.8, 18.6 and 18.7

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hereof and this proviso, New York law shall apply notwithstanding any conflicts of law principles thereof, and each of Corsair, Arranger, BroadStreet and Gupta irrevocably and unconditionally (severally) agree to the application of New York law and submission to New York jurisdiction with respect to such Clauses (in accordance with, without limitation, Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York)."

24. Clause 15 of the Agreement clearly stipulates that the

arbitration shall be conducted according to the Commercial

Arbitration Rules of the American Arbitration Association. It further

stipulates that the place of arbitration shall be New York, New York

or such other place as may be agreed upon by the Arbitrating Parties.

It is not in dispute before us that the place agreed between parties

was in New York, New York and the appellant initiated the

arbitration proceedings in New York. What is also important to note

is that clause 15 provides that the judgment upon the Award

rendered by the Arbitrator may be entered in any Court having

jurisdiction thereof and shall be enforceable against the Arbitrating

Parties in accordance with the 1958 Convention on the Recognition

and Enforcement of Foreign Arbitral Awards as amended.

25. Thereafter, clause 16 deals with the Governing Law and

states that this agreement shall be governed by and construed in

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accordance with the laws of India; provided further, that, in case of

clauses 4.7, 12.3, 14.1.7, 14.1.8, 18.6 and 18.7 and the proviso

thereof, New York Law shall apply notwithstanding any conflicts of

law principles thereof, and each of Corsair, Arranger, BroadStreet

and Gupta irrevocably and unconditionally agree to the application of

New York Law and submission to New York jurisdiction with respect

to such clauses.

26. Having said this, we shall now examine as to whether the

arbitration agreement as contained in clause 15.1 was governed by

the Laws of India or whether it was governed by Foreign Law. Clause

15 of the Escrow Agreement which deals with Dispute Resolution,

clearly stipulates that firstly negotiations have to be carried out

between the arbitrating parties to resolve any dispute or differences

or claim arising out of or in connection with the Escrow Agreement

including the construction, validity, execution, performance,

termination or breach thereof. If the negotiations do not resolve such

dispute then the Arbitrating Parties shall submit to a binding

arbitration. Thereafter, clause 15.1 clearly stipulates that the

arbitration shall be conducted according to the Commercial

Arbitration Rules of the American Arbitration Association. It further

states that the place of arbitration shall be New York, New York or

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such other place as may be agreed upon by the Arbitrating Parties.

Clause 15.1 thereafter goes on to stipulate that the judgment upon

the award rendered by the arbitrator may be entered in any Court

having jurisdiction thereof and shall be enforceable against the

Arbitrating Parties in accordance with the 1958 Convention on the

Recognition and Enforcement of Foreign Arbitral Awards. Since, the

arbitration was initiated and conducted under the Commercial

Arbitration Rules of the American Arbitration Association, it would

be relevant to refer to these rules. Rule 52 deals with "Applications

to Court and Exclusion of Liability". It reads thus:

"R.52. Applications to Court and Exclusion of Liability.

(a) No judicial proceedings by a party relating to the subject matter of the arbitration shall be deemed a waiver of the party's right to arbitrate.

(b) Neither the AAA nor any arbitrator in a proceeding under these rules is a necessary or proper party in judicial proceedings relating to the arbitration.

(c) Parties to an arbitration under these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.

(d) Parties to an arbitration under these rules shall be deemed to have consented that neither the AAA nor any arbitrator shall be liable to any party in any action for damages or injunctive relief for any act or omission in connection with any arbitration under these rules.

(e) Parties to an arbitration under these rules may not call the arbitrator, the AAA, or AAA employees as a witness in litigation or any other proceeding relating to the

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arbitration. The arbitrator, the AAA and AAA employees are not competent to testify as witnesses in any such proceeding."

27. What can be seen from Rule 52(c) is that, the parties to

an arbitration governed by these rules shall be deemed to have

consented that judgment upon the arbitration award may be entered

in any federal or state court having jurisdiction thereof. Another rule

which to our mind would be important to take note of, would be Rule

46 which deals with form of award and reads thus:

"R.46. Form of Award.

(a) Any award shall be in writing and signed by a majority of the arbitrators. It shall be executed in the form and manner required by law.

(b) The arbitrator need not render a reasoned award unless the parties request such an award in writing prior to appointment of the arbitrator or unless the arbitrator determines that a reasoned award is appropriate."

28. What Rule 46 stipulates is that the award shall be signed

by the majority of the arbitrators. The arbitrator need not render a

reasoned award unless the parties request such an award in writing

prior to appointment of the arbitrator or unless the arbitrator

determines that a reasoned award is appropriate. To put it in a

nutshell this rule contemplates that an award under the Commercial

Arbitration Rules of the American Arbitration Association need not

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be a reasoned award. We must make note that this is in stark

contrast to section 31(3) of the Arbitration and Conciliation Act,

1996 which mandates that the arbitral award shall state the reasons

upon which it is based unless (a) the parties have agreed that no

reasons are to be given, or (b) the award is an arbitral award on

agreed terms under Section 30. To put it in a nutshell, the

arbitration award under Section 31(3) of the Act is required to be a

reasoned award unless the parties agree otherwise or is an award

that is passed on agreed terms as contemplated under Section 30. It

is not in dispute that the impugned award was passed by the Arbitral

Tribunal by applying the provisions of the Commercial Arbitration

Rules of the American Arbitration Association. This being the case,

we find that Mr Chinoy is correct in submitting that the Federal

Arbitration Act was ipso jure the law applicable to the arbitration /

arbitration proceedings. As mentioned earlier, Rule 52(c) clearly

stipulates that the parties to an arbitration shall be deemed to have

consented that the judgment upon the arbitration award may be

entered in any federal or state court having jurisdiction thereof.

Having consented and submitted to the jurisdiction of U.S. Law, we do

not think that Mr Dada is correct in submitting that the arbitration

award is governed by the Laws of India.

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29. One must not lose sight of the fact that the parties are

free to choose which law would apply to the arbitration agreement.

This is a matter of contract. Taking this into consideration, we think

that it would be also very relevant to see how the parties themselves

understood and interpreted clauses 15 and 16 of the Escrow

Agreement. It is not in dispute that respondent Nos.3 to 6 were not

parties to the arbitration agreement contained in clause 15. Despite

this, the appellant purported to join respondent Nos.3 to 6 as parties

to the arbitration proceedings. Thereafter, respondent Nos.3 to 6

moved an application before the Arbitral Tribunal objecting to the

Arbitral Tribunal's jurisdiction over them. In response to the said

application, the appellant filed its reply dated 28th November, 2012

wherein the appellant took a categorical stand that respondent Nos.3

to 6, though not expressly being signatories to the amended Escrow

Agreement, the Tribunal was nonetheless bound to arbitrate this

dispute under the Federal Arbitration Act and the prevailing New

York Law. Further, in its post-hearing brief dated 15th May, 2015,

the appellant clearly stated that "the joinder of parties to

arbitration is a procedural matter, to be considered under U.S.

Law". From what we have stated, it is quite clear that the appellant

itself understood clauses 15 & 16 in such a way that the arbitration

agreement would be governed by U.S. Law.

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30. We are unable to agree with Mr Dada that the appellant's

reliance on the Federal Arbitration Act is irrelevant and immaterial

for determination of the law applicable to the arbitration agreement.

We find no merit in the argument of the appellant that the reliance

placed by the respondents about the conduct of the appellant cannot

confer jurisdiction and which according to Mr Dada, is a well settled

proposition. As stated earlier, the appellant themselves had relied

upon the Federal Arbitration Act to substantiate the joinder of

respondent Nos.3 to 6 to the Arbitration Proceedings. Having done

so, it was clear that the appellant herein and all throughout, were

also of the view that the law governing the arbitration agreement was

U.S. Law. It is only now, and when the petition was filed under

Section 34 of the Act that the appellant takes a stand that Indian Law

governs the arbitration agreement. We are clearly of the view that

this is another factor and on the basis of the interpretation of the

appellant itself that the law governing the arbitration agreement was

U.S. Law and not the Indian Law. We, therefore, do not think that the

actions of the appellant to justify and substantiate the joinder of

respondent Nos.3 to 6 to the arbitration proceedings is irrelevant as

contended by Mr Dada. It is not in dispute that the parties by

contract can choose the law applicable to the arbitration agreement.

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This being the case, how the parties understood the contract is

certainly a very relevant factor that would be taken into

consideration before coming to the conclusion as to which law applies

to the arbitration agreement. This being the case, we are clearly of

the view that the arbitration agreement was not governed by Indian

Law as contended by Mr Dada but was governed by U.S. Law.

31. Before concluding this issue, we must mention that Mr

Dada has relied upon clause 16 of the Escrow Agreement to contend

that Indian Law was expressly made applicable to the arbitration

agreement. Mr Dada submitted that clause 16 deals with the

Governing Law and clearly stipulates that the Escrow Agreement is

governed by and to be construed in accordance with the laws of India.

He submitted that clause 16 only excluded clauses 4.7, 12.3, 14.1.7,

14.1.8, 18.6 and 18.7 from the applicability of Indian Law. He

submitted that clause 15 (which deals with Dispute Resolution) was

not excluded from the applicability of the Indian Law. This being the

case, he submitted that the learned Single Judge erred in coming to

the conclusion that U.S. Law applied to the arbitration agreement.

32. We are unable to agree with this submission for the

simple reason that it is now all well settled that even though the

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arbitration clause may be contained in the main agreement, it is to be

treated as a separate agreement altogether and in fact even survives

termination of the main agreement as provided in the Arbitration

and Conciliation Act, 1996. The Arbitation Agreement is a stand

alone agreement. Either it can be in a separate document providing

that the parties agree to submit the dispute that arise between them

under another agreement to arbitration, or in the main agreement

itself the arbitration clause can be incorporated. In either situation,

the arbitration agreement is an agreement by itself. This is well

settled, but if one needs to refer to any authority on this subject it

would be apposite to refer to the observations of the Supreme Court

in the case of SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P)

Ltd. [(2011) 14 SCC 66]. Paragraphs 12 & 13 of this decision read

thus:-

"12. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts--one in regard to the substantive terms of the main contract and the other relating to resolution of disputes--had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract.

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the transfer or transaction affecting the immovable property. It is as if two documents--one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registerable--are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer."

33. As noted earlier clause 15 and which is the arbitration

agreement between parties, clearly stipulates that the Aritrating

Parties shall submit to a binding arbitration and the arbitration shall

be conducted in accordance with the Commercial Arbitration Rules of

the American Arbitration Association and the place of arbitration

shall be New York, New York or such other place as may be agreed

upon by the Arbitrating Parties. This being the case, we are clearly of

the view that clause 16 of the Escrow Agreement which provides only

certain clauses that would be governed by New York Law, would not

take within its ambit the arbitration agreement contained in clause

15. This is for the simple reason that clause 15 is the arbitration

agreement and is an agreement by itself though contained in the

Escrow Agreement. To put it differently, clause 16 would apply to

the main agreement (the Escrow Agreement) and not clause 15

thereof which is the arbitration agreement and in law is a separate

and a stand alone agreement from the main agreement. This is why,

and correctly so, we find no reference to clause 15 as one of the

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clauses being excluded from the application of Indian Law. We,

therefore, find that this argument of Mr Dada also needs to be

rejected. We may hasten to add that it would be totally different if

the arbitration agreement was completely silent on which law would

apply to it. In such a situation, it could possibly be argued that the

law governing the main contract would also govern the arbitration

agreement. However, that is not the case before us.

34. We find that the facts of the present case clearly fall

within the ratio laid down by the Supreme Court in the case of Yograj

Infrastructure Ltd. Vs. Ssang Yong Engineering & Construction

Co. Ltd [2011(9) SCC 735] and thereafter as clarified in Yograj

Infrastructure Ltd. Vs. Ssang Yong Engineering & Construction

Co. Ltd. [2012(12) SCC 359]. In the case of Yograj, the Supreme

Court also held that once the parties had specifically agreed that the

arbitration proceedings would be continued in accordance with

Foreign Law, the decision in Bhatia would no longer apply. In fact

the decision in Yograj was followed by a Division Bench of this Court

to which one of us was a party (B. P. Colabawalla J.), in the case of

Harkirat Singh Vs. Rabobank International Holding [(2015) SCC

OnLine Bom 605 : (2015) 5 Bom. C.R. 9]. We must also mention

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that the SLP filed from this Division Bench judgment in the case of

Harkirat Singh was also dismissed by the Supreme Court on 12th

May, 2016.

35. We also find that the present case is covered by another

decision of the Supreme Court in the case of Reliance II. The

Supreme Court in this case was considering a case of a foreign seated

arbitration where the arbitration agreement was prior to the

judgment of the Supreme Court in the case BALCO. The Supreme

Court, after discussing the law on the subject, at paragraph 21 held

as under:

"21. The last paragraph of BALCO [BALCO v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ) 810] judgment has now to be read with two caveats, both emanating from para 32 of Bhatia International [Bhatia Internationalv. Bulk Trading S.A., (2002) 4 SCC 105] itself -- that where the Court comes to a determination that the juridical seat is outside India or where law other than Indian law governs the arbitration agreement, Part I of the Arbitration Act, 1996 would be excluded by necessary implication. Therefore, even in the cases governed by the Bhatia [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] principle, it is only those cases in which agreements stipulate that the seat of the arbitration is in India or on whose facts a judgment cannot be reached on the seat of the arbitration as being outside India that would continue to be governed by the Bhatia [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] principle. Also, it is only those agreements which stipulate or can be read to stipulate that the law governing the arbitration agreement is Indian law which would continue to be governed by the Bhatia [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] rule."

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36. As can be seen from this decision, the Supreme Court held

that where the Court comes to the determination that the juridical

seat is outside India OR where Foreign Law governs the arbitration

agreement, Part-I of the Arbitration and Conciliation Act, 1996 would

be excluded by necessary implication. The Supreme Court opined

that, therefore, even in the cases governed by the Bhatia principle it

was only those cases in which the seat of arbitration was in India or

on whose facts a judgment could not be reached on the seat of

arbitration being outside India, that would continue to govern by the

judgment of Bhatia. The Supreme Court also held that it is only those

agreements which stipulate or can be read to stipulate that the law

governing the arbitration agreement is Indian Law, it would continue

to be governed by the principles laid down in Bhatia's case.

37. Having said this, we shall now turn our attention to what

was the juridical seat of the arbitration. In this context, if one refers

to clause 15, it clearly stipulates that the place of the arbitration

shall be New York, New York or such other place as may be agreed

upon by the Arbitrating Parties. Mr Dada submitted that what the

agreement provides was only the venue of the arbitration and seat of

arbitration was not fixed under clause 15.

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38. We are unable to agree with this submission. On a plain

reading of clause 15, it is clear that the place of arbitration referred

to in clause 15 is the seat of arbitration. The parties expressly chose

to have the place of arbitration in New York. This being the case,

juridical seat of arbitration was New York. In fact, the appellant

themselves invoked arbitration and submitted themselves to the

jurisdiction of New York. This being the case, we do not think that

Mr Dada is correct in his submission that the place of arbitration

referred to in clause 15 was merely a venue and not a seat of

arbitration. In this regard it would be apposite to refer to Section

2(2) [and which falls in Part - I of the Arbitration and

Conciliation Act, 1996] which reads thus:

"(2) This Part shall apply where the place of arbitration is in India:

"Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of this Act."

39. Section 2(2) of the Act falls in Part - I of the Act and

stipulates that Part - I shall apply where the place of arbitration

is in India. The proviso to Section 2(2) [and which was inserted

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by Act 3 of 2016 w.r.e.f. 23rd October, 2015], clearly carves out

an exception as to which provisions of Part - I would apply even

though the place of arbitration was outside India. Those

provisions are Sections 9, 27, 37(1)(a) and 37(3) of the said

Act. From a plain reading of these provisions, two things

become clear. Firstly, even the Act clearly stipulates that Part -

I would apply only where the place of arbitration is in India.

Secondly, the proviso to Section 2(2) also clearly stipulates that

even though the place of arbitration may be outside India, the

provisions of Section 9, 27, 37(1)(a) and 37(3) would also apply

to International Commercial Arbitrations. This is subject to an

agreement to the contrary. What is important to note is that

Section 34 and which falls within Part - I and deals with

challenge to the arbitral award, does not find place in the

proviso. In other words, what the proviso makes explicit is that

even if the place of arbitration is outside India and it is an

International Commercial Arbitration, then also, only Sections

9, 27, 37(1)(a) and 37(3) of Part - I would continue to apply to

such an arbitration. No other provision of Part - I of the Act

would apply where the place of arbitration was outside India.

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40. If we were to apply section 2(2) alongwith its proviso

to the facts of the present case, we find that even in clause 15.1

[the clause regarding Dispute Resolution] clearly stipulates that

the place of arbitration shall be New York, New York or such

other place as agreed upon by the arbitrating parties. It is not in

dispute that the arbitration was in fact initiated by the appellant

in New York and was thereafter held in New York under the

Commercial Arbitration Rules of the American Arbitration

Association. This being the case and without anything more, we

find that the reference to place of arbitration in clause 15.1 of

the Escrow Agreement was clearly the seat of arbitration which

was outside India. This being our conclusion, and when one

reads this with the proviso to Section 2(2) of the Act, it becomes

abundantly clear that a challenge to such an award could not

have been brought before this Court under Section 34 of the Act

which falls within Part - I. Once we come to this conclusion, then

clearly, neither the seat of arbitration was in India and nor the law

governing the arbitration agreement was Indian Law. If this is the

case and as mentioned earlier, this is also how the parties understood

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impliedly excluded. Corollary to this is that the appellant could not

have approached the Courts in India under Section 34 of the Act to

challenge the award.

41. Whilst on this subject, we would also like to take note of

the decision of the Supreme Court in the case of EITZEN Bulk A/S

Vs. Ashapura Minechem Ltd. and Anr. [(2016) 11 SCC 508] (for

short "EITZEN Bulk") . The Supreme Court in paragraph 34 of this

decision has clearly held that as a matter of fact, mere choosing of a

juridical seat of arbitration attracts the law applicable to said

location. In other words, the Supreme Court held that it would not be

necessary to specify which law would apply to the arbitration

proceedings, since the law of that particular country would apply ipso

jure. To buttress this finding the Supreme Court relied upon a

passage from Redfern and Hunter on International Arbitration.

Paragraphs 34 & 35 of this decision reads thus:

"34. As a matter of fact the mere choosing of the juridical seat of arbitration attracts the law applicable to such location. In other words, it would not be necessary to specify which law would apply to the arbitration proceedings, since the law of the particular country would apply ipso jure. The following passage from Redfern and Hunter on International Arbitration contains the following explication of the issue:

"It is also sometimes said that parties have selected the procedural law that will govern their arbitration, by providing for arbitration in a particular country. This is too elliptical and, as an English court itself held more recently in Breas of Doune Wind Farm it does not always hold true. What the Pg 42 of 51

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parties have done is to choose a place of arbitration in a particular country. That choice brings with it submission to the laws of that country, including any mandatory provisions of its law on arbitration. To say that the parties have "chosen"

that particular law to govern the arbitration is rather like saying that an English woman who takes her car to France has "chosen" French traffic law, which will oblige her to drive on the right-hand side of the road, to give priority to vehicles approaching from the right, and generally to obey traffic laws to which she may not be accustomed. But it would be an odd use of language to say this notional motorist had opted for "French traffic law". What she has done is to choose to go to France. The applicability of French law then follows automatically. It is not a matter of choice.

Parties may well choose a particular place of arbitration precisely because its lex arbitri is one which they find attractive. Nevertheless, once a place of arbitration has been chosen, it brings with it its own law. If that law contains provisions that are mandatory so far as arbitration are concerned, those provisions must be obeyed. It is not a matter of choice any more than the notional motorist is free to choose which local traffic laws to obey and which to disregard."

35. In this view of the matter, the judgment of the Gujarat High Court holding that Ashapura's objections under Section 34 of the Arbitration Act are tenable before a court in India, that is, the court at Jamkhambhalia, Gujarat is contrary to law. The proceedings under Section 34, which occurs in Part I, are liable to be dismissed as untenable. The civil appeals of Eitzen are liable to succeed and are, therefore, allowed. The judgment of the Bombay High Court dated 3-12-2015 [Eitzen Bulk A/S v. Ashapura Minechem Ltd., 2015 SCC OnLine Bom 5909 : (2016) 1 Bom CR 466] enforcing the foreign award under Part II of the Arbitration Act is correct and liable to be upheld."

42. We must mention that even this Court in Harkirat Singh

has relied upon the very same passage from Redfern and Hunter on

International Arbitration that has been relied upon by the Supreme

Court in the case of EITZEN Bulk.

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43. Mr Dada, faced with all the aforesaid decisions of the

Supreme Court submitted that all these decisions have been referred

to a larger bench in the case of Union of India Vs. Hardy

Exploration and Production (India) Inc. [(2018) 7 SCC 374]. He

therefore submitted that the issue is still at large before the Supreme

Court. Firstly, we must mention that merely because an issue has

been referred to a larger bench will not in any way prevent us from

deciding the present issue. In any event, after this judgement was

reserved on 14th September, 2018, we found that the reference made

to a larger bench in Hardy Exploration has been decided by a three

Judge Bench of the Supreme Court vide its decision dated 25th

September, 2018 [2018 SCC OnLine SC 1640]. In view thereof,

and after we noticed the three Judge Bench of the Supreme

Court in Hardy Exploration, we placed this matter on board on

25th October, 2018 to give an opportunity to the parties to

address us on this decision, though earlier a full hearing was

over and the judgment was reserved. Accordingly, Mr Dada as

well as Mr Chinoy have addressed us on the decision of the

larger bench of the Supreme Court in Hardy Exploration.

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44. The facts of Hardy Exploration would reveal that a

challenge was laid before the Delhi High Court to the award made by

the Arbitrators in Kuala Lumpur under section 34 of the Act. The

challenge to the said award was contested mainly on the ground that

the Courts in India did not have jurisdiction to entertain the

challenge under section 34 of the Act. This contention was accepted

by the learned Single Judge as well as the Division Bench of the Delhi

High Court. This is how the matter first came up before the Supreme

Court and was thereafter referred to the larger bench. The larger

bench, whilst deciding Hardy Exploration, referred to all the

judgments that we have been referred to herein and thereafter in

paragraph 39 (of the SCC OnLine SC Report) inter alia noted that the

terms "place" and "seat" are used interchangeably. When only the

term "place" is stated and mentioned and no other condition is

postulated, it is equivalent to "seat" and that finalizes the facet of

jurisdiction. The Supreme Court further held that however, if a

condition precedent is attached to the term "place", the said

condition has to be satisfied so that the "place" can become

equivalent to "seat". Paragraph 39 of the said judgment reads thus :-

"39. The word 'determination' has to be contextually determined. When a 'place' is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms 'place' and Pg 45 of 51

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'seat' are used interchangeably. When only the term 'place' is stated or mentioned and no other condition is postulated, it is equivalent to 'seat' and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term 'place', the said condition has to be satisfied so that the place can become equivalent to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination. In Ashok Leyland Limited and State of T.N.29, the Court has reproduced the definition of 'determination' from Law Lexicon, 2nd Edition by Aiyar, P. Ramanatha and Black's Law Dictionary, 6th Edition. The relevant paragraphs read thus:--

"Determination or order.--The expression 'determination' signifies an effective expression of opinion which ends a controversy or a dispute by some authority to whom it is submitted under a valid law for disposal. The expression 'order' must have also a similar meaning, except that it need not operate to end the dispute. Determination or order must be judicial or quasi-judicial. Jaswant Sugar Mills Ltd. v. Lakshmi Chand (Constitution of India, Article

136)."

"A 'determination' is a 'final judgment' for purposes of appeal when the trial court has completed its adjudication of the rights of the parties in the action. Thomas Van Dyken Joint Venture v. Van Dyken.""

45. What we find that is in the facts of the case in Hardy

Exploration, the Supreme Court, after considering the arbitration

clause and Article 20 of the UNCITRAL Model Law on International

Commercial Arbitration, came to the conclusion that in the facts of

that case, since only the venue was Kuala Lumpur and it was not the

"seat", the Courts in India had jurisdiction to entertain the challenge

the award under section 34 of the Act. We must mention here that in

the case of Hardy Exploration the arbitration agreement / clause

was completely silent on which law was to govern the arbitration Pg 46 of 51

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agreement. This is clear from paragraph 30 of this decision where

the arbitration clause has been reproduced.

46. On reading paragraph 39 of this decision (and as

reproduced by us above), we think that the controversy before us is

now completely put to rest. In the facts of the present case, clause

15.1 clearly stipulates that the "place" of arbitration shall be New

York or such other "place" as agreed to by the parties. It is not in

dispute that the arbitration was initiated by the Appellant in New

York and arbitration took place in New York. The award was also

passed in New York. There was no condition precedent attached to

the term "place" in clause 15.1. This being the case and as set out by

the Supreme Court in paragraph 39 of its decision in Hardy

Exploration, the term "place" of arbitration would be equivalent to

"seat" of arbitration. We therefore find that even on the strength of

this decision, the "seat" of arbitration in the facts before us was

clearly New York. To put it differently, the "seat" of arbitration was

not in India but was outside India. This being the case, Part - I of the

Act was clearly excluded.

47. As far as the reliance placed by Mr Dada on the decision

of the Supreme Court in the case of Sumitomo is concerned, we find

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that this decision has absolutely no application to the facts and

circumstances of the present case. As rightly submitted by Mr

Chinoy, in the case of Sumitomo, the Supreme Court has held that

upon the conclusion of the arbitration (that is on the passing of the

award) the Arbitral Tribunal becomes functus officio and the

corresponding authority of the courts administering the curial law

ceases. On aspects of enforcement and setting aside, they are

entirely governed by the law governing the arbitration agreement

only. Firstly, we must mention that in the case of Sumitomo the

Supreme Court was interpreting the provisions of the Arbitration

Act, 1940 and not the provisions of the Arbitration and Conciliation

Act, 1996, which in fact, are quite different from the earlier

Arbitration Act. Secondly, the decision in Sumitomo has been

discussed in great detail by the larger bench of the Supreme Court in

the case of Hardy Exploration and the Supreme Court (in paragraph

11 thereof) has clearly held that the principles laid down in

Sumitomo were in no way applicable to the concept of determination

of jurisdiction. This has been again reiterated in paragraph 27

wherein it is held that Sumitomo has no applicability to a

controversy under the 1996 Act. We therefore find that no assistance

can be derived by Mr. Dada from the decision of the Supreme Court in

the case of Sumitomo.

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48. Even otherwise, assuming for the sake of argument that

this judgment would apply, the same certainly does not fit into the

facts and circumstances of the present case. Even assuming that the

Curial Law ceases to apply after passing of the award, the Supreme

Court in the case of Sumitomo has held that the law governing the

arbitration agreement would continue to apply even after the passing

of the award. In the facts of the present case, we have categorically

found that the law governing the arbitration agreement was U.S. Law.

This being the case, even if the ratio laid down in Sumitomo were to

apply, in the facts of present case, we find that this judgment does not

support the case of the appellant. We must point out that the

Supreme Court in the case of EITZEN Bulk (in paragraph 34

thereof) has clearly laid down the law that once the party chooses the

juridical seat of arbitration, the law applicable to said location / seat

is automatically attracted and the law of that particular country

would apply ipso jure. We, therefore, find that the reliance placed by

Mr Dada on the decision of the Supreme Court in the case of

Sumitomo is wholly misplaced.

49. Similarly we find that the reliance placed by Mr Dada on

the decision of the Supreme Court in the case of NTPC Vs. Singer is Pg 49 of 51

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also wholly misplaced. In fact this judgment of NTPC Vs. Singer was

considered by the Supreme Court in Reliance II wherein the Court

pointed out that the case of NTPC Vs. Singer was decided in the

context of Section 9(b) of the Foreign Awards Act, 1961 which

stipulates that the award made in respect of the contract governed by

Indian Law would not be considered a foreign award. The Supreme

Court in Reliance II held that NTPC Vs. Singer was no longer

applicable as it did not give effect to the difference between the

substantive law of the contract and the law that governed the

arbitration. The Supreme Court held that since the contruction of

Section 9(b) of Foreign Awards Act, 1961 led to the doctrine of

concurrent jurisdiction, the 1996 Act, while enacting Section 9(a) of

the repealed Foreign Awards Act, 1961 (in Section 51 of the 1996

Act), was careful enough to omit Section 9(b) of the 1961 Act, which

excluded the Foreign Awards Act, 1961 from applying to any award

made on arbitration agreements governed by the Laws of India. In

these circumstances, we find that the reliance placed by Mr Dada on

NTPC Vs. Singer is also wholly misconceived.

50. To sum it up in a nutshell, in the facts and circumstances

of the present case, once the juridical seat of arbitration is outside

India, and also the law governing the arbitration agreement is Pg 50 of 51

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Foreign Law, then clearly, Part-I of the Arbitration and Conciliation

Act, 1996 is impliedly excluded. This being the case, we find that the

learned Single Judge was absolutely correct in holding that the

award passed by the Arbitral Tribunal, in the facts and

circumstances of the present case, could not be challenged before this

Court, under Section 34 of the Act.

51. In view of the foregoing discussion, we find no merit in

this appeal. It is accordingly dismissed. However, in the facts and

circumstances of the case there shall be no order as to costs.

( B.P.COLABAWALLA J. ) ( S.C.DHARMADHIKARI J. )

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